Amcor plc — Q1 Fiscal 2024 Form 10-Q Summary
Business context and reporting period
Amcor is a global packaging manufacturer serving food, beverage, pharmaceutical, medical, personal-care and other consumer markets through its Flexibles and Rigid Packaging segments. This unaudited Form 10-Q covers the three months ended September 30, 2023, the first quarter of fiscal 2024, compared with the three months ended September 30, 2022.
Key financial metrics
| Metric | Q1 FY2024 | Q1 FY2023 | Change |
|---|---|---|---|
| Net sales | $3,443 million | $3,712 million | Down 7% |
| Gross profit | $645 million | $668 million | Down 3% |
| Gross margin | 18.7% | 18.0% | Up 70 basis points |
| Operating income | $270 million | $342 million | Down 21% |
| Operating margin | 7.8% | 9.2% | Down 140 basis points |
| Net income attributable to Amcor | $152 million | $232 million | Down 34% |
| Diluted EPS | $0.105 | $0.155 | Down 32% |
| Adjusted EBIT | $358 million | $392 million | Down 9% |
| Adjusted net income | $226 million | $271 million | Down 17% |
| Net cash used in operating activities | $135 million | $260 million | Use decreased by $125 million |
| Capital expenditures and other intangible purchases | $124 million | $152 million | Down $28 million |
| Cash and cash equivalents | $524 million | $689 million at June 30, 2023 | Down $165 million |
| Total debt | $7,097 million | $6,746 million at June 30, 2023 | Up $351 million |
| Net debt | $6,573 million | $6,057 million at June 30, 2023 | Up $516 million |
Cash flow from financing activities was $141 million, including $388 million of net commercial paper borrowings, $176 million of dividends paid and $30 million of share buybacks. The company had $1.0 billion of undrawn credit facilities and reported compliance with its debt covenants, including a maximum leverage ratio of 3.9 times.
Material changes versus the prior comparable period
- Sales declined $269 million, reflecting an 8% unfavorable volume impact, partly offset by 2% favorable price/mix, $81 million of positive currency effects, $55 million from lower raw-material pass-through, and a $71 million reduction associated with the divested Russian business.
- Flexibles sales fell 8% to $2,568 million and adjusted EBIT fell 9% to $322 million. Flexibles adjusted EBIT margin decreased to 12.5% from 12.7%.
- Rigid Packaging sales fell 6% to $875 million and adjusted EBIT fell 5% to $62 million. Its adjusted EBIT margin remained 7.1%.
- Gross margin improved despite lower gross profit, primarily due to favorable price/mix and operating-cost performance.
- Restructuring and related expenses increased to $28 million from $1 million, primarily under the 2023 Restructuring Plan.
- Interest expense increased 44% to $85 million, driven by higher interest rates on variable-rate debt.
- Net operating cash outflow improved because of lower working-capital outflows, although operating cash flow remained negative.
- The company repurchased approximately $30 million of shares under its authorized buyback program and canceled approximately 3 million shares during the quarter.
Guidance, outlook, commentary, risks and unusual items
Management described market conditions as challenging, citing continued customer destocking, soft consumer demand, inflation, geopolitical tensions and higher energy and labor costs. Management expects price and cost actions, working-capital management and restructuring initiatives to improve performance, particularly in the second half of fiscal 2024, but provided no clear quantitative earnings or sales guidance in the filing.
The 2023 Restructuring Plan is expected to have total cash and non-cash net expenses of approximately $200 million to $220 million. Projects initiated through September 30, 2023 had expected net costs of approximately $170 million, including approximately $100 million of expected net cash expenditures. Cumulative cash outflows were approximately $37 million, with an additional $65 million to $75 million of cash payments expected during the remainder of fiscal 2024. Management expects the plan to be largely completed by the end of fiscal 2024 and expects approximately $50 million of annualized pretax savings from Russia-related restructuring by the end of fiscal 2025.
The Russian business was sold on December 23, 2022 for net cash proceeds of $365 million, including approximately $65 million of repatriated cash. Amcor recorded a pretax net gain of $215 million on the sale. The company continues to recognize effects from the Russia-Ukraine conflict and from highly inflationary accounting for Argentina; the latter reduced first-quarter results by $17 million, compared with $8 million in the prior-year quarter.
Other significant risks include raw-material and energy price volatility, customer demand and concentration, competition, foreign exchange movements, higher interest rates, leverage and refinancing risk, cybersecurity and information-technology disruptions, labor and supply-chain issues, environmental obligations, litigation, climate-related requirements, tax changes and potential goodwill or intangible-asset impairments. The filing states that there were no material changes to previously disclosed risk factors.
Brazilian tax and excise matters had $13 million of recorded accruals and estimated reasonably possible exposure above the accrual of $25 million. Environmental accruals totaled $62 million across U.S. and worldwide remediation matters. Management stated that these matters are not expected to materially affect liquidity, results of operations or financial condition, although ultimate outcomes may differ from estimates.
Important facts for investors to verify
- Whether customer destocking and volume weakness improve during the second half of fiscal 2024.
- Progress, cash spending and realized savings from the 2023 Restructuring Plan.
- Net debt, commercial paper usage, interest-rate exposure and compliance with the 3.9-times leverage covenant.
- Whether price and cost actions can sustain the improved gross margin despite lower volumes and inflation.
- The effect of higher interest rates, foreign exchange movements and Argentine hyperinflation on future earnings and cash flow.
- Potential changes in Brazil tax litigation, environmental remediation obligations and other contingencies.
- The sustainability of dividends and share repurchases while operating cash flow remains negative and net debt has increased.
- The filing’s non-GAAP reconciliations, particularly the adjustments for amortization, restructuring, hyperinflation and Russia-related impacts when assessing underlying performance.