Amcor plc Form 10-Q Summary
Business Context and Reporting Period
Amcor is a global packaging company with approximately 47,000 employees and 230 principal manufacturing sites in more than 40 countries. It operates through Flexibles and Rigid Packaging segments, serving primarily food, beverage, pharmaceutical, medical, personal care and other defensive end markets. This filing covers the three months ended September 30, 2020, the first quarter of fiscal 2021, compared with the three months ended September 30, 2019.
Key Financial Metrics
| Metric | Q1 FY2021 | Q1 FY2020 |
|---|---|---|
| Net sales | $3,097 million | $3,141 million |
| Gross profit | $654 million | $547 million |
| Gross margin | 21.1% | 17.4% |
| Operating income | $276 million | $141 million |
| Operating margin | 8.9% | 4.5% |
| Net income attributable to Amcor | $198 million | $66 million |
| Diluted EPS | $0.126 | $0.041 |
| Adjusted EBIT | $358 million | $335 million |
| Adjusted net income from continuing operations | $247 million | $218 million |
| Operating cash flow | $(110) million | $(89) million |
| Capital expenditures and other intangible purchases | $114 million | $115 million |
| Cash and cash equivalents | $757 million | $743 million at June 30, 2020 |
| Total debt | $6,599 million | $6,235 million at June 30, 2020 |
| Net debt | $5,842 million | $5,492 million at June 30, 2020 |
Adjusted EBIT is a non-GAAP measure. Reported results include restructuring, acquisition and integration costs, acquired-intangible amortization, hyperinflation effects and disposal gains or losses.
Material Changes Versus the Prior Comparable Period
- Sales declined 1% year over year, but underlying sales increased 2.3% after excluding currency effects, lower raw-material pass-through, and divestiture impacts. Underlying growth reflected 2.0% favorable volume and 0.3% favorable price/mix.
- Flexibles sales declined 1%, while adjusted EBIT increased 11% to $312 million; margin rose to 13.0% from 11.6%.
- Rigid Packaging sales declined 2%, while adjusted EBIT increased 4% to $72 million; margin increased to 10.3% from 9.7%.
- Gross profit increased $107 million, primarily due to volume growth and the absence of the $58 million Bemis acquisition-related inventory fair-value adjustment recorded in the prior period.
- SG&A decreased $42 million to $329 million, reflecting synergy projects and lower integration-related expenses.
- Restructuring and related expenses increased to $23 million from $18 million, primarily due to a Flexibles plant-closure initiative.
- Interest expense decreased $20 million to $40 million due to debt refinancing, lower-rate debt and lower interest rates.
- Net income benefited from a $15 million gain on the sale of the AMVIG equity-method investment and a $6 million loss on the disposal of two non-core businesses. The prior-year period included an $8 million loss from discontinued operations.
- Operating cash flow remained negative and worsened by $21 million, primarily because of working-capital outflows.
- Net debt increased $350 million from June 30, 2020, while cash increased $14 million to $757 million.
Guidance, Outlook, Risks and Unusual Items
Management did not provide a specific quantitative earnings or revenue outlook in the filing. Management stated that Amcor’s defensive end markets, global scale and footprint position it to manage COVID-19, and that operations and supply chains had experienced minimal significant disruption through the reporting date. However, customer order patterns remained volatile, and future facility closures, supply-chain interruptions and demand changes remain possible.
- Management targets approximately $180 million of pre-tax synergies from the Bemis integration by the end of fiscal 2022. Total Bemis Integration Plan costs are expected to be approximately $200 million, with approximately $50 million to $55 million of cash payments expected during the balance of fiscal 2021.
- The 2018 Rigid Packaging Restructuring Plan is expected to be substantially completed during fiscal 2021, with approximately $5 million to $10 million of remaining cash payments expected during the balance of the fiscal year.
- Management believes operating cash flow, available cash, credit facilities and access to commercial paper will provide sufficient liquidity for operations, capital expenditures, debt refinancing, dividends and authorized share repurchases.
- Undrawn credit facilities totaled $1.4 billion as of September 30, 2020. Amcor reported compliance with applicable debt covenants.
- COVID-19, foreign exchange, raw-material and energy prices, customer concentration and demand, global economic conditions, interest rates, credit ratings, LIBOR transition, litigation, environmental obligations, impairment risk and information-technology controls are identified as significant risks.
- The company reported a continuing material weakness in internal control over financial reporting involving segregation-of-duties controls in key IT systems. Remediation was underway, with full remediation expected by the end of fiscal 2021, although COVID-19 could delay the timetable.
- Brazilian tax litigation included a $12 million accrual and an estimated reasonably possible exposure exceeding the accrual by $18 million. Environmental accruals totaled $63 million across disclosed remediation matters.
- After quarter-end, the board declared a $0.1175 quarterly dividend and approved a $150 million share repurchase program expected to be completed by the end of fiscal 2021, subject to market conditions.
Most Important Facts for Investors to Verify
- Whether reported earnings improvement is sustained after excluding the prior-period Bemis inventory step-up, restructuring and integration items, acquired-intangible amortization and disposal gains.
- The conversion of earnings into cash, including the effect of working-capital requirements and the continuation of negative operating cash flow.
- Debt refinancing needs, commercial-paper reliance, covenant compliance and the increase in net debt.
- The duration and severity of COVID-19 effects on customer demand, facility operations and global supply chains.
- Progress toward the $180 million Bemis synergy target and the remaining restructuring and integration cash costs.
- Remediation of the material internal-control weakness and whether it is validated as effective by the end of fiscal 2021.
- The ultimate outcomes of Bemis-related litigation, Brazilian tax matters and environmental obligations.
- The sustainability of the dividend and the planned $150 million share repurchase program given cash flow and leverage.