Amcor plc Form 10-K Summary
Reporting period: Fiscal year ended June 30, 2023. The requested “2022 Q4” period is not a standalone quarterly filing; the supplied document is Amcor’s FY2023 annual Form 10-K, filed August 17, 2023. Results are presented under U.S. GAAP and were audited by PricewaterhouseCoopers AG, which also found internal control over financial reporting effective.
Business context
Amcor is a global packaging manufacturer serving food, beverage, pharmaceutical, medical, personal-care, and other consumer markets. Its two reportable segments are Flexibles and Rigid Packaging. Flexibles represented approximately 76% of FY2023 sales and Rigid Packaging approximately 24%. Operations spanned 218 locations in more than 40 countries, with approximately 41,000 employees.
Key financial metrics
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Net sales | $14.694 billion | $14.544 billion | +1% |
| Gross profit | $2.725 billion | $2.820 billion | -3% |
| Gross margin | 18.5% | 19.4% | -90 bps |
| Operating income | $1.508 billion | $1.239 billion | +22% |
| Operating margin | 10.3% | 8.5% | +180 bps |
| Net income attributable to Amcor | $1.048 billion | $805 million | +30% |
| Diluted EPS | $0.705 | $0.529 | +33% |
| Net cash from operating activities | $1.261 billion | $1.526 billion | -17% |
| Capital expenditures | $526 million | $527 million | Approximately flat |
| Net debt | $6.057 billion | $5.715 billion | +$342 million |
Segment performance: Flexibles sales were $11.154 billion, essentially flat, while Adjusted EBIT declined 6% to $1.429 billion and margin declined to 12.8% from 13.6%. Rigid Packaging sales rose 4% to $3.540 billion, while Adjusted EBIT declined 8% to $265 million and margin declined to 7.5% from 8.5%.
Liquidity and capital allocation: Cash and cash equivalents were $689 million at June 30, 2023. Amcor had $1.3 billion of undrawn capacity under $3.8 billion of revolving facilities, was in compliance with its 3.9-times leverage covenant, paid $723 million of dividends, and repurchased approximately $431 million of shares, or 41 million shares. The company states that operating cash flow, committed facilities, and commercial paper access should provide sufficient liquidity for operations, capital expenditures, dividends, buybacks, and other commitments.
Material changes versus FY2022
- Sales increased only modestly because favorable price and mix effects were largely offset by 3% lower volumes, currency impacts, customer destocking, and disposed operations.
- Gross profit and segment Adjusted EBIT declined as inflation, energy and labor costs, plant costs, and lower volumes pressured margins.
- Operating income benefited from a $215 million pretax net gain on the sale of the Russian business and the absence of $138 million of Russia-Ukraine-related impairment charges recorded in FY2022.
- Net interest expense increased materially: interest expense rose to $290 million from $159 million, primarily because of higher rates on U.S. dollar- and euro-denominated variable-rate debt.
- The effective tax rate declined to 15.4% from 26.9%, primarily because of the largely non-taxable Russian disposal gain and releases of uncertain tax provisions.
- Operating cash flow declined by $265 million, reflecting lower trade payables, inventory-reduction activity, higher interest payments, and lower sales volumes.
- Net debt increased to $6.057 billion from $5.715 billion despite proceeds from the Russian disposal. In May 2023, Amcor issued $500 million of 5.625% notes due 2033; it also redeemed €300 million of 2.75% notes at maturity.
Outlook, unusual items, and risks
- Management expects customer destocking to abate in the short term and consumer demand to improve incrementally during FY2024, but provides no assurance that demand will fully rebound.
- The 2023 Restructuring Plan is expected to require total cash and non-cash net expenses of $200 million to $220 million. Approximately $94 million was incurred in FY2023, and projects initiated by year-end were expected to cost approximately $150 million, including approximately $80 million of net cash expenditures. The plan is expected to be largely completed by the end of FY2024.
- Management expects annualized pretax benefits of approximately $50 million from Russia-related structural cost reductions by the end of FY2025.
- Amcor completed the sale of its Russian business on December 23, 2022, for $365 million of net cash proceeds and repatriated approximately $65 million of Russian cash. The company is investing $110 million to $130 million of proceeds in cost-saving initiatives.
- Principal risks include weak consumer demand and customer destocking, pricing and volume pressure, raw-material and energy volatility, inflation, supply-chain disruption, foreign exchange, rising interest rates, leverage and refinancing risk, geopolitical conflict, cybersecurity, environmental regulation, climate change, labor disputes, litigation, tax uncertainty, and potential goodwill impairment.
- Approximately 30% of indebtedness was subject to variable interest rates at June 30, 2023. A 1% increase in relevant U.S. dollar and euro floating rates was estimated to reduce pretax income by approximately $20 million. A 1% increase in specified raw-material prices not passed through to customers would have reduced pretax income by approximately $67 million.
- Goodwill was $5.366 billion and other intangible assets were $1.524 billion. FY2023 quantitative impairment tests found no goodwill impairment, but the Flexibles Latin America reporting unit was identified as a critical audit matter because of the judgment involved in valuation assumptions.
- The company has committed capital expenditures of $249 million for FY2024 and estimated other purchase obligations of approximately $1.1 billion in FY2024.
- Environmental accruals totaled $63 million, including $9 million for U.S. remediation sites and $54 million for worldwide remediation obligations. Brazilian tax and litigation matters had $14 million of recorded accruals and an estimated reasonably possible exposure exceeding the accrual by $26 million.
- Amcor committed to science-based emissions targets and net-zero greenhouse-gas emissions by 2050; its proposed targets were submitted to the Science Based Targets initiative for review in June 2023.
Investor verification points
- Confirm that FY2023 reported earnings and EPS are not representative of recurring earnings without considering the $215 million Russian disposal gain, restructuring costs, higher interest expense, and tax benefits.
- Reconcile reported net income with Adjusted EBIT and Adjusted Net Income, and assess whether the company’s non-GAAP exclusions are appropriate.
- Evaluate volume trends, customer destocking, price pass-through timing, and segment margin recovery in subsequent quarterly filings.
- Monitor net debt, commercial paper reliance, interest-rate exposure, covenant headroom, and refinancing requirements through 2025-2027.
- Track execution, cash requirements, and realized savings under the 2023 Restructuring Plan.
- Review goodwill sensitivity, particularly for the Flexibles Latin America reporting unit, given the size of goodwill and exposure to higher discount rates and weaker operating forecasts.
- Verify the ultimate outcomes of Brazilian tax matters, environmental remediation obligations, uncertain tax positions, and other contingencies.
- Confirm the sustainability-target timetable and any resulting capital, operating, compliance, or product costs.