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 markets through its Flexibles and Rigid Packaging segments. This unaudited Form 10-Q covers the first quarter of fiscal 2023, ended September 30, 2022, with comparison to the quarter ended September 30, 2021. The filing was signed November 2, 2022.
Key financial metrics
| Metric | Q1 FY2023 | Q1 FY2022 | Change |
|---|---|---|---|
| Net sales | $3,712 million | $3,420 million | +9% |
| Gross profit / margin | $668 million / 18.0% | $650 million / 19.0% | Profit +3%; margin down 1.0 point |
| Operating income / margin | $342 million / 9.2% | $296 million / 8.7% | Profit +16%; margin up 0.5 point |
| Net income attributable to Amcor | $232 million | $202 million | +15% |
| Diluted EPS | $0.155 | $0.131 | +18% |
| Adjusted EBIT | $392 million | $381 million | +3% |
| Adjusted net income | $271 million | $271 million | Flat |
| Net cash used in operating activities | $(260) million | $(112) million | Outflow increased $148 million |
| Capital expenditures and other intangible purchases | $152 million | $145 million | +5% |
| Cash and cash equivalents | $562 million | $633 million | Down from $775 million at June 30, 2022 |
| Total debt | $6,955 million | $6,490 million at June 30, 2022 | +7% sequentially |
| Net debt | $6,393 million | $5,715 million at June 30, 2022 | +12% sequentially |
Reported net income benefited from lower SG&A and other expenses, the absence of prior-year property losses, and a lower effective tax rate of 19.9% versus 23.7%. These benefits were partly offset by $59 million of interest expense versus $40 million, primarily due to higher rates on variable-rate debt.
Material changes versus the prior comparable period
- Sales increased $292 million. Excluding $398 million of raw-material pass-through, $207 million of unfavorable currency effects and a $10 million unfavorable impact from acquisitions, disposals and ceased operations, underlying sales growth was approximately 3%, driven by 4% favorable price/mix and 1% unfavorable volume.
- Flexibles sales increased 6% to $2,779 million and adjusted EBIT increased 4% to $353 million. Flexibles adjusted EBIT margin declined to 12.7% from 12.9%.
- Rigid Packaging sales increased 19% to $933 million and adjusted EBIT increased 6% to $66 million. The segment margin declined to 7.1% from 7.9%, reflecting inflation in energy and labor costs.
- Operating cash flow deteriorated primarily because of higher inventory levels maintained to mitigate raw-material supply variability and the timing of higher raw-material costs in working capital.
- Investing cash outflows increased to $240 million, including the $54 million cash component of the acquisition of DGPack s.r.o. and $42 million of investments in affiliated companies.
- Financing provided $326 million, primarily from $703 million of net commercial-paper borrowings, partly offset by $202 million of treasury-share purchases and $181 million of dividends paid.
- Foreign currency translation losses increased to $161 million from $95 million, contributing to accumulated other comprehensive loss of $1,048 million at September 30, 2022.
Guidance, outlook, commentary and unusual items
- Management did not provide a clear quantitative earnings or sales guidance figure in the filing.
- Management expects continued volatility in resins and other raw materials, energy, fuel and labor costs, along with supply shortages and supply-chain disruption. Amcor is pursuing cost reductions and price recovery, but notes that timing differences may prevent full mitigation of inflation.
- Amcor expects approximately $30 million of additional restructuring and other costs in fiscal 2023 related to exiting Russia and reallocating or consolidating European production.
- The Russian operations remain classified as held for sale. The Company expects completion of the sale during fiscal 2023; updated indicative bids did not change the previously recorded $90 million impairment.
- The Company acquired DGPack, a Czech flexible-packaging manufacturer, on August 1, 2022, for initial consideration of $60 million, including $6 million payable in the second fiscal quarter. The purchase-price allocation remains preliminary.
- Hyperinflationary accounting for Argentina produced an $8 million adverse impact in the quarter versus $2 million in the prior-year quarter.
- At the end of October 2022, Amcor entered into interest-rate swaps with $1.25 billion notional, paying a weighted-average fixed rate of 4.53% through June 2023 to hedge the SOFR component of commercial-paper borrowings.
- Liquidity was described as sufficient for operations, capital expenditures, debt refinancing, dividends and authorized share purchases. Undrawn credit facilities totaled $0.8 billion, and the Company was in compliance with applicable debt covenants, including a maximum leverage ratio of 3.9 times.
- Key risks include inflation, raw-material and energy availability, supply-chain disruption, higher interest rates, foreign-exchange movements, COVID-19 restrictions, the Russia-Ukraine conflict, customer demand and concentration, cybersecurity, environmental obligations, litigation, climate-related matters and potential impairment of goodwill or intangible assets.
Investor verification checklist
- Verify whether price increases and raw-material pass-through continue to offset inflation and whether volume weakness persists.
- Monitor operating cash conversion, inventory levels and working-capital requirements after the $260 million quarterly operating cash outflow.
- Assess leverage, commercial-paper dependence, interest-rate exposure and the effect of the new $1.25 billion swap program on future interest expense.
- Track the timing and proceeds of the Russian business sale and the expected $30 million of additional fiscal 2023 exit-related costs.
- Review Flexibles and Rigid Packaging margins for evidence that pricing actions are covering energy, labor, plant and other inflationary costs.
- Confirm the final purchase-price allocation and integration performance of DGPack.
- Evaluate contingencies, including $12 million accrued for Brazilian matters with an estimated $20 million reasonably possible exposure above the accrual, $17 million of environmental remediation accruals and $40 million of other worldwide remediation accruals.
- Reconcile non-GAAP adjusted results to U.S. GAAP results, particularly the effects of acquired-intangible amortization, hyperinflation, restructuring and Russia-Ukraine conflict costs.