Amcor plc — 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-goods markets through its Flexibles and Rigid Packaging segments. The filing covers the three and nine months ended March 31, 2023, Amcor’s fiscal third quarter. The requested metadata identifies “2022 Q3,” but the filing itself reports fiscal 2023 results.
Key financial metrics
| Metric | Three months ended March 31 | Year-over-year change | Nine months ended March 31 | Year-over-year change |
|---|---|---|---|---|
| Net sales | $3,667 million | Down 1% | $11,021 million | Up 4% |
| Gross profit | $673 million; 18.4% margin | Down from $731 million; 19.7% | $2,003 million; 18.2% margin | Down from $2,026 million; 19.1% |
| Operating income | $282 million; 7.7% margin | Down from $369 million; 10.0% | $1,183 million; 10.7% margin | Up from $987 million; 9.3% |
| Net income attributable to Amcor | $177 million | Down 34% | $868 million | Up 25% |
| Diluted EPS | $0.119 | Down from $0.178 | $0.581 | Up from $0.456 |
| Adjusted EBIT | $382 million | Down from $427 million | $1,173 million | Down from $1,196 million |
| Adjusted net income | $260 million | Down from $309 million | $808 million | Down from $857 million |
For the nine-month period, operating cash flow was $329 million versus $589 million in the prior-year period. Investing cash flow was negative $149 million, including $382 million of capital expenditures and $88 million of acquisitions, partly offset by $365 million of Russian-business disposal proceeds. Financing cash flow was negative $372 million, including $545 million of dividends, $200 million of share repurchases and $334 million of long-term debt repayments.
At March 31, 2023, cash and cash equivalents were $564 million, total debt was $7.013 billion and net debt was $6.449 billion, compared with $5.715 billion at June 30, 2022. Undrawn credit facilities totaled approximately $0.7 billion. The company reported compliance with applicable debt covenants, including a maximum 3.9-times leverage ratio.
Material changes versus the prior comparable period
- Third-quarter sales declined 1%, reflecting unfavorable volumes, currency effects and the disposal or cessation of operations, partly offset by favorable price/mix. Nine-month sales increased 4%, primarily from price/mix and raw-material pass-through.
- Third-quarter profitability weakened as gross profit fell $58 million, restructuring costs increased by $41 million and net interest expense increased by approximately $40 million. Higher interest expense reflected increased rates on variable-rate debt.
- Nine-month earnings benefited from a $215 million pre-tax gain on the December 2022 sale of the Russian business and lower tax expense. The gain was not representative of recurring operating performance.
- The effective tax rate declined to 16.0% for the quarter from 21.0%, and to 12.5% for the nine months from 21.8%, primarily due to income mix, discrete items and the non-taxable Russian disposal gain.
- Flexibles third-quarter sales declined 2% and Adjusted EBIT declined 11%; Rigid Packaging sales increased 1% but Adjusted EBIT declined 10%. Both segments cited unfavorable volumes and inflationary plant and operating costs.
- Net debt increased approximately $734 million from June 30, 2022, while operating cash flow declined $260 million year over year, mainly because of higher working-capital outflows.
Guidance, outlook, commentary and risks
Management expects to invest approximately $110 million to $130 million of Russian disposal proceeds in the 2023 Restructuring Plan to offset divested earnings. Projects initiated through March 31, 2023 had expected costs of approximately $95 million, including approximately $50 million of expected net cash expenditures; $42 million of restructuring and related costs had been recognized in the quarter. The plan is expected to be substantially completed by the end of fiscal 2024, with management targeting an annualized pre-tax benefit of approximately 30% on net cash employed by the end of fiscal 2025. Management had not finalized total program cost.
Amcor intends to use remaining Russian-sale proceeds for up to $100 million of additional share repurchases and debt reduction. The board declared a $0.1225-per-share dividend payable June 20, 2023. On April 28, 2023, the company signed an agreement to acquire a New Zealand manufacturer of modular vacuum packaging equipment; financial terms were not provided in the filing.
Key risks include inflation and volatility in resin, raw materials, energy and labor costs; supply-chain disruption; weaker consumer demand and volumes; foreign-exchange movements; higher interest rates and variable-rate debt exposure; leverage and refinancing risk; geopolitical effects from the Russia-Ukraine conflict; COVID-19-related disruption, particularly in China; cybersecurity and information-technology failures; environmental obligations; litigation; climate-related risks; and potential goodwill or intangible-asset impairment.
Most important facts for investors to verify
- Whether restructuring investments produce the stated cost savings and offset the earnings lost with the Russian disposal.
- The sustainability of reported nine-month earnings after excluding the $215 million Russian disposal gain and related tax benefit.
- Progress in reducing net debt and working-capital outflows, given lower operating cash generation.
- Exposure to higher interest rates, commercial-paper funding and variable-rate debt.
- Volume trends and margin recovery in Flexibles and Rigid Packaging amid inflation and weaker demand.
- Final costs and cash requirements of the 2023 Restructuring Plan, including the $128 million restructuring liability at March 31, 2023.
- Potential losses from Brazilian tax litigation and environmental matters; disclosed accruals included $13 million for Brazilian contingencies, $17 million for certain U.S. remediation sites and $42 million for other worldwide remediation obligations.