Amcor plc Form 10-Q Summary
Reporting period: The filing covers the three and nine months ended March 31, 2022, Amcor’s fiscal 2022 third quarter. The request metadata identifies “2021 Q3,” but the filing itself clearly reports fiscal 2022 Q3. Amcor is a global packaging company serving food, beverage, pharmaceutical, medical, personal-care, and other markets through flexible and rigid packaging products.
Financial Results and Key Metrics
| ($ in millions, except per-share data) | Three months ended March 31, 2022 | Three months ended March 31, 2021 | Nine months ended March 31, 2022 | Nine months ended March 31, 2021 |
|---|---|---|---|---|
| Net sales | $3,708 | $3,207 | $10,635 | $9,407 |
| Gross profit | $731 | $682 | $2,026 | $1,987 |
| Gross margin | 19.7% | 21.3% | 19.1% | 21.1% |
| Operating income | $369 | $373 | $987 | $956 |
| Operating margin | 10.0% | 11.6% | 9.3% | 10.2% |
| Net income attributable to Amcor | $269 | $267 | $696 | $684 |
| Diluted EPS | $0.178 | $0.173 | $0.456 | $0.438 |
| Adjusted EBIT | $427 | $402 | $1,196 | $1,144 |
- Revenue: Third-quarter sales increased 15.6%, including $458 million of raw-material cost pass-through. Underlying growth, excluding pass-through, currency, and disposed or ceased operations, was 4.8%, driven by favorable price/mix and modest volume growth.
- Profitability: Net income attributable to Amcor rose 0.7% in the quarter and 1.8% for the nine-month period. Margins declined because higher raw-material costs increased the sales denominator faster than reported profit.
- Segments: Third-quarter Flexibles sales increased 13.5% and Adjusted EBIT increased 7.4% to $378 million. Rigid Packaging sales increased 23.2%, while Adjusted EBIT increased only 3.5% to $77 million. For nine months, Flexibles Adjusted EBIT rose 6.4% to $1,069 million, while Rigid Packaging Adjusted EBIT declined 7.2% to $194 million.
- Cash flow: Nine-month operating cash flow was $589 million, down from $617 million, primarily due to higher working-capital outflows. Capital expenditures and intangible-asset purchases were $373 million, compared with $335 million in the prior period. Free cash flow is not explicitly reported in the filing.
- Liquidity and debt: Cash was $1.077 billion at March 31, 2022. Total debt was $7.249 billion and net debt was $6.172 billion, compared with $5.439 billion at June 30, 2021. The company reported $0.2 billion of undrawn credit facilities at quarter-end and compliance with applicable debt covenants.
- Capital returns: Amcor paid $550 million of dividends and repurchased $423 million of ordinary shares and CDIs during the first nine months. The board authorized aggregate buybacks of up to $600 million during the applicable authorization periods.
Material Changes Versus the Prior Comparable Period
- Sales growth was primarily price-driven, reflecting the pass-through of significantly higher raw-material costs; reported gross margin fell from 21.3% to 19.7% in the quarter and from 21.1% to 19.1% for nine months.
- Operating income declined modestly in the quarter despite higher sales, while nine-month operating income increased 3.2%.
- Rigid Packaging experienced lower nine-month Adjusted EBIT because of labor shortages, overtime, supply-chain disruptions, and manufacturing inefficiencies.
- Restructuring and related expense was $9 million in the quarter and $27 million for nine months, compared with a prior-period gain of $24 million in the quarter and expense of $22 million for nine months. The prior period benefited from a $52 million gain on disposal of a non-core European hospital supplies business.
- Nine-month results included $45 million of expenses associated primarily with the destruction of the Durban, South Africa, facility, partly offset by $26 million of insurance settlements received to date.
- Interest expense was broadly stable in the quarter but increased to $115 million for nine months from $113 million. The company redeemed $400 million of notes in July 2021 and $275 million of notes in December 2021, while commercial-paper borrowings increased.
- The company sold its AMVIG equity investment in the prior fiscal year; consequently, equity income from affiliated companies declined from $19 million to zero for the nine-month period.
Outlook, Commentary, Risks, and Unusual Items
- Management expects to exceed the original $180 million Bemis integration synergy target by at least 10% by the end of fiscal 2022. Total pre-tax integration costs are expected to be approximately $250 million, with approximately $30 million of additional restructuring-related cash payments expected during the remainder of fiscal 2022.
- Management believes operating cash flow, available credit facilities, commercial paper access, and bank debt facilities will provide sufficient liquidity for operations, capital expenditures, dividends, and share repurchases into the foreseeable future.
- Commercial-paper access was temporarily restricted in March 2022 because of the Russia-Ukraine conflict and financial-market tightening. Amcor drew $562 million under revolving facilities as a precaution and repaid that amount in early April 2022.
- On April 26, 2022, Amcor replaced its existing $3.8 billion syndicated facilities with new three- and five-year revolving facilities totaling $3.8 billion, maturing in 2025 and 2027, respectively.
- Amcor suspended operations at its Ukrainian site and is scaling down Russian activities, focusing on existing multinational customers, suspending new projects and investments, and discontinuing exports as practical. The filing states that the conflict had not materially affected results or financial condition through the filing date, but the affected sites represent approximately 2% to 3% of consolidated sales, 4% to 5% of annual Adjusted EBIT, and approximately $200 million to $300 million of balance-sheet exposure.
- Key operating risks include raw-material, energy, labor, and transportation shortages; inflation; COVID-19 disruptions; foreign exchange and interest-rate volatility; geopolitical and sanctions exposure; customer concentration and demand changes; environmental and legal liabilities; and potential impairment of goodwill or other intangible assets.
- The Durban facility was destroyed by fire during civil unrest in July 2021. Additional insurance recoveries are expected, but their timing and amount are uncertain.
- Brazilian tax and other litigation matters had $13 million of accrued liabilities and estimated reasonably possible exposure above accruals of $22 million at March 31, 2022. Environmental remediation accruals totaled $64 million across described matters. Management does not expect these matters to have a material adverse effect, although outcomes remain uncertain.
- The company evaluated goodwill for a potential Russia-Ukraine-related triggering event and concluded that an interim impairment test was not required as of March 31, 2022.
Important Facts for Investors to Verify
- Confirm that the intended comparison is fiscal 2022 Q3, because the filing period is March 31, 2022 rather than 2021 Q3.
- Assess whether raw-material and energy cost inflation can continue to be passed through without further pressure on gross and operating margins.
- Monitor working-capital requirements, cash conversion, commercial-paper availability, and the increase in net debt.
- Evaluate the financial effect of the Russia-Ukraine conflict, including the disclosed $200 million to $300 million of regional balance-sheet exposure and potential sanctions or impairment impacts.
- Track insurance recoveries and final losses related to the Durban facility destruction.
- Review the completion and cash cost of the Bemis integration plan and the sustainability of reported synergies.
- Reconcile Adjusted EBIT and Adjusted net income to U.S. GAAP results, particularly the effects of restructuring, acquired-intangible amortization, hyperinflation, disposals, and property losses.
- Review the new syndicated credit facilities, debt maturities, covenant headroom, interest-rate exposure, and refinancing needs.