Amcor plc — Form 10-Q Summary
Business Context and Reporting Period
Amcor plc is a global packaging manufacturer serving food, beverage, pharmaceutical, medical, personal-care and other consumer-product markets through its Flexibles and Rigid Packaging segments. This unaudited Form 10-Q covers the three and six months ended December 31, 2022, the second quarter and first half of fiscal 2023, compared with the corresponding periods of fiscal 2022. The statements are prepared under U.S. GAAP.
Key Financial Metrics
| Metric | Q2 FY2023 | Q2 FY2022 | H1 FY2023 | H1 FY2022 |
|---|---|---|---|---|
| Net sales | $3,642 million | $3,507 million | $7,354 million | $6,927 million |
| Gross profit | $662 million | $645 million | $1,330 million | $1,295 million |
| Gross margin | 18.2% | 18.4% | 18.1% | 18.7% |
| Operating income | $559 million | $322 million | $901 million | $618 million |
| Operating margin | 15.3% | 9.2% | 12.3% | 8.9% |
| Net income attributable to Amcor | $459 million | $225 million | $691 million | $427 million |
| Diluted EPS | $0.307 | $0.148 | $0.461 | $0.279 |
| Adjusted EBIT | $399 million | $388 million | $791 million | $769 million |
| Adjusted net income | $277 million | $277 million | $548 million | $548 million |
Q2 sales increased 4%, while H1 sales increased 6%. Excluding raw-material pass-through, currency effects and acquisitions, divestitures and ceased operations, underlying sales increased approximately 1% in Q2 and 2% in H1, driven by favorable price/mix but offset by lower volumes.
- Flexibles Q2 sales rose 4% to $2,812 million; Adjusted EBIT was broadly unchanged at $353 million, with margin declining to 12.6% from 13.0%.
- Rigid Packaging Q2 sales rose 4% to $830 million; Adjusted EBIT increased 5% to $57 million, with margin stable at 6.9%.
- Interest expense rose 103% in Q2 to $79 million and 75% in H1 to $138 million, primarily because of higher rates on variable-rate debt.
- Effective tax rates declined to 6.7% in Q2 and 11.6% in H1, compared with 21.0% and 22.3%, respectively, primarily because of changes in income mix and discrete items.
Cash Flow, Debt and Liquidity
- H1 operating cash flow was $145 million, down from $323 million, mainly because of higher working-capital outflows.
- H1 investing cash flow was positive $24 million, compared with negative $265 million, reflecting $370 million of divestiture proceeds, partly offset by $250 million of capital expenditures and intangible-asset purchases, a $54 million acquisition and other investments.
- Cash and equivalents were $837 million at December 31, 2022, compared with $775 million at June 30, 2022.
- Total debt was $6,902 million and net debt was $6,065 million at December 31, 2022, compared with $6,490 million and $5,715 million, respectively, at June 30, 2022.
- Available undrawn credit facilities were approximately $0.9 billion. The company reported compliance with applicable debt covenants, including a maximum leverage ratio of 3.9 times.
- H1 financing cash outflows were $90 million and included $365 million of dividends, $221 million of share purchases for employee equity obligations, and $40 million of share buybacks, partly offset by $500 million of commercial-paper borrowings.
Material Changes, Outlook and Unusual Items
- Amcor sold its three-facility Russian business on December 23, 2022, receiving net cash proceeds of $365 million, including approximately $65 million of repatriated cash. The transaction generated a $215 million pretax gain, including reversal of a $90 million impairment recognized in fiscal Q4 2022. The gain materially increased reported operating income and net income.
- Management plans to invest $110 million to $130 million of the Russian-sale proceeds in initiatives intended to partly offset divested earnings, use up to $100 million for additional share repurchases, and apply the remaining proceeds toward net-debt reduction.
- Management continued to report supply shortages, raw-material and energy-price volatility, inflation, transportation constraints and higher labor costs. Pricing actions and cost reductions are intended to mitigate these pressures, but may lag inflation and may not fully offset it.
- Volumes were unfavorable in both segments, while price/mix was favorable. The filing does not provide a formal full-year earnings guidance range.
- On January 16, 2023, Amcor agreed to acquire a Shanghai-based medical-device packaging company with approximately $50 million of annual sales, subject to regulatory approval and expected to close by the end of fiscal Q3 2023.
- On February 7, 2023, the board declared a quarterly dividend of $0.1225 per share, authorized an additional buyback of up to $100 million over twelve months, and approved the planned investment of $110 million to $130 million in growth initiatives.
- Restructuring liabilities totaled $93 million at December 31, 2022, with most expected to be paid within twelve months. The company also recorded environmental accruals of $59 million globally and a $12 million accrual for Brazilian tax-related matters, with reasonably possible Brazilian losses exceeding the accrual by $21 million.
Principal Risks
Key risks include weaker consumer demand and customer volumes, competition and customer concentration, inflation, raw-material and energy availability and pricing, supply-chain disruption, foreign-exchange and interest-rate exposure, elevated leverage, the Russia-Ukraine conflict, COVID-19-related disruption, cybersecurity and information-technology failures, environmental and climate obligations, litigation, labor disputes, tax changes, and potential impairment of goodwill or intangible assets. Management stated that there were no material changes to the risk factors disclosed in the fiscal 2022 Form 10-K.
Investor Verification Items
- Separate the $215 million Russian-business disposal gain from recurring operating performance and assess the earnings impact of the divestiture.
- Monitor underlying volumes, pricing recovery, raw-material pass-through timing and segment margins, particularly in Flexibles.
- Assess the effect of higher interest rates on variable-rate debt, commercial paper and future cash interest expense.
- Reconcile weak operating cash flow with reported earnings and track working-capital normalization.
- Verify the planned allocation of Russian-sale proceeds among strategic investment, share repurchases and debt reduction.
- Evaluate leverage, available liquidity, covenant headroom and refinancing requirements.
- Review environmental, Brazilian tax, restructuring and other contingencies for potential losses above recorded accruals.
- Confirm the timing, approval status and financial contribution of the Shanghai medical-device packaging acquisition.