Amcor plc — Fiscal 2022 First-Quarter Form 10-Q Summary
Business Context and Reporting Period
Amcor is a global packaging company serving food, beverage, pharmaceutical, medical, personal-care and other markets through flexible and rigid packaging operations. The filing covers the three months ended September 30, 2021, compared with the three months ended September 30, 2020. The company operates approximately 225 significant facilities in more than 40 countries and employs approximately 46,000 people.
Key Financial Metrics
| Metric | Q1 FY2022 | Q1 FY2021 |
|---|---|---|
| Net sales | $3,420 million | $3,097 million |
| Gross profit / margin | $650 million / 19.0% | $654 million / 21.1% |
| Operating income / margin | $296 million / 8.7% | $276 million / 8.9% |
| Net income attributable to Amcor | $202 million | $198 million |
| Diluted EPS | $0.131 | $0.126 |
| Adjusted EBIT | $381 million | $358 million |
| Adjusted net income | $271 million | $247 million |
| Net cash used in operating activities | $112 million | $110 million |
| Capital expenditures and intangible asset purchases | $145 million | $114 million |
Sales increased 10%, primarily from $285 million of raw-material cost pass-through, $32 million of favorable currency effects and $28 million of underlying growth. Excluding disposals, currency and raw-material pass-through, underlying sales growth was 0.9%, reflecting favorable price/mix of 1.4% and unfavorable volume of 0.5%.
Cash and cash equivalents were $633 million at September 30, 2021, compared with $850 million at June 30, 2021. Total debt was $6.592 billion and net debt was $5.959 billion, versus $6.289 billion and $5.439 billion, respectively, at June 30, 2021. The company reported $1.2 billion of undrawn credit facilities and compliance with applicable debt covenants.
Material Changes Versus the Prior Comparable Period
- Flexibles sales increased 9.7% to $2.634 billion and Adjusted EBIT increased 8.5% to $339 million; its Adjusted EBIT margin declined modestly to 12.9% from 13.0%.
- Rigid Packaging sales increased 12.6% to $786 million, but Adjusted EBIT declined 14.2% to $62 million and margin fell to 7.9% from 10.3%, primarily due to unfavorable plant-cost and volume impacts.
- Gross profit declined $4 million despite higher sales, as raw-material cost pass-through timing pressured the gross margin.
- SG&A expense declined $16 million, and restructuring and related expenses declined $15 million to $8 million.
- Net income benefited from lower restructuring and SG&A costs but was reduced by $28 million of property and related losses, primarily from the Durban facility destruction.
- Equity income declined $19 million because the AMVIG investment was sold on September 30, 2020; the prior period included a $15 million gain on that disposal and a $6 million loss on other non-core disposals.
- Operating cash flow remained negative, while investing cash flow shifted from a $27 million inflow to a $145 million outflow because the prior period included divestiture proceeds and current-period capital spending increased.
Guidance, Outlook, Risks and Unusual Items
The filing does not provide a clear quantitative earnings or sales outlook. Management continues to target at least $180 million of pre-tax synergies from the Bemis integration by the end of fiscal 2022. Total Bemis integration costs are estimated at $230 million to $240 million, with approximately $65 million to $70 million of restructuring-related cash payments expected during the balance of fiscal 2022.
Management reported continuing shortages and price volatility for certain resins and other raw materials, labor shortages, transportation constraints, energy shortages and weather-related disruptions. The company was unable to fulfill its complete order book in the quarter and expects some raw-material supplies to remain tight through the first half of fiscal 2022, with gradual improvement thereafter absent further disruptions.
A July 2021 fire associated with civil unrest destroyed the Durban, South Africa manufacturing facility. Amcor recorded $43 million of inventory, property and equipment losses and related expenses, partially offset by a $20 million insurance receivable. Additional insurance recovery is expected, but its timing and amount are uncertain.
COVID-19 has not materially affected liquidity or operations to date, but management cautions that future disruptions, supply-chain effects and macroeconomic conditions remain uncertain. Other material risks include customer demand, competition, raw-material and energy prices, foreign exchange, interest rates, debt and credit ratings, cyber and technology disruptions, environmental liabilities, litigation, tax changes and the ability to integrate acquisitions.
On October 12, 2021, Amcor agreed to purchase a group annuity contract involving approximately $190 million of pension assets and related obligations. The transaction is expected to produce an approximately $2 million non-cash pension settlement loss in the second quarter of fiscal 2022. The board also declared a $0.12 per-share quarterly dividend payable in December 2021.
Most Important Facts for Investors to Verify
- Whether raw-material shortages, freight constraints and inflation are fully recovered through customer pricing without further margin deterioration.
- The sustainability of Rigid Packaging profitability after the significant decline in Adjusted EBIT and margin.
- The timing and amount of insurance proceeds related to the Durban facility fire and whether additional losses arise.
- Progress toward the $180 million Bemis synergy target, remaining integration costs and expected restructuring cash payments.
- Net debt reduction, commercial paper usage, available credit capacity and compliance with debt covenants.
- Operating cash-flow conversion, working-capital requirements and capital expenditure levels.
- The effect of the discontinued AMVIG investment income and other non-recurring items on future comparisons.
- Potential impacts from COVID-19, foreign exchange, interest rates, environmental matters and disclosed Brazilian tax litigation.