Amcor plc (AMCR) on Q2 2021 Results - Earnings Call Transcript
Operator: Good day, and thank you for standing by. At this time, I'd like to welcome everyone to the Amcor Half Year 2021 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. Thank you. It is now my pleasure to turn the conference over to Tracey Whitehead, Global Head of Investor Relations. Ma’am, please go ahead. Tracey Whitehead: Thank you, operator, and welcome, everyone, to Amcor's first-half earnings call for fiscal 2021. Joining the call today is Ron Delia, our Chief Executive Officer; and Michael Casamento, our Chief Financial Officer. At this time, I'm directing your attention to our website, amcor.com, under the Investors section, where you'll find our press release and presentation which will be discussed on the call today. We'll also discuss non-GAAP financial measures and related reconciliations can be found in the press release and the presentation. Also a reminder that statements regarding future performance of the Company made during this call are forward-looking and may subject to certain risks and uncertainties. Actual results may differ from historical, expected or predicted results due to a number of factors. Please refer to our SEC filings, including our statements on 10-K and 10-Q forms to review these factors. With that, I'll hand over to Ron. Ronald Delia: Thanks, Tracey, and thanks, everyone, for being with us today to discuss Amcor’s first-half results for the 2021 fiscal year. We appreciate you taking the time and making the effort to join the call. As Tracey mentioned, joining me on the line today is Michael Casamento, Amcor’s CFO, and we’ll start with some brief prepared comments before we take your questions. But the first place we'll start on Slide 3 is with safety, and everything we do at Amcor starts with safety. And this year, of course, we are also focused on keeping all of our coworkers healthy as well. And over the last 12 months, our COVID protocols have enabled us to do just that while also keeping our plants running to supply our food and healthcare customers around the world. And despite the added challenges of operating during the pandemic, our safety performance has continued to be a real highlight. Across the company, we reduced the number of injuries by almost 30% during the first-half, and all of our business groups had fewer injuries compared to the first-half last year. And we are also pleased to report that over half of our sites around the world were injury-free for at least 12 months. So we still have not reached our goal of no injuries, but we need to acknowledge the commitment and focus of all of our coworkers to keeping each other healthy and also safe, especially in the current environment. Our key messages for today are set out on Slide 4. First, Amcor had a strong first-half of fiscal 2021 ahead of our expectations, balanced across all businesses and regions. And that strong first-half translates into higher expectations for the full-year on the back of strong momentum in the base business. And so the second key message today is that we've raised our outlook for EPS growth for full-year fiscal 2021 to 10% to 14% on a constant currency basis. Michael Casamento: Thanks, Ron, and hi, everyone. I'll start with some comments on the Flexible segment on Slide 12. Overall segment volumes were 2% higher than the prior year. As Ron mentioned, demand has been broad-based with growth across all regions in the low-to-mid single-digit range. From an end market perspective, we've seen solid growth in food, pet food and beverage categories. And this was partially offset by lower volumes in certain healthcare end markets driven by reduced elective surgery rates and lower prescription trends. Higher volumes were partially offset by unfavorable price mix, resulting in net sales being 1% higher than the first-half of last year, excluding the unfavorable impacts of currency and the pass-through of lower raw material costs. Adjusted EBIT for the period grew 9% in constant currency terms and margins expanded by 110 basis points driven by the higher volumes, strong operating cost performance and $30 million of cost synergy benefits, which I'll come back to in a moment. Particularly pleasing to see the strong performance of the Flexibles business is continuing to improve as we extract benefits from the Bemis acquisition, deliver innovative new products to support customer growth and operate our plants efficiently. Ronald Delia: Thanks, Michael. Just in closing our opening remarks today and come back to where we started, Amcor had a strong first-half to the 2021 fiscal year with results ahead of our expectations and growth balanced across the businesses and regions, and the strong start and momentum in the business has translated into higher expectations for the full-year and we raised our outlook for fiscal 2021. We've also increased cash returns to shareholders through a higher dividend and an additional $200 million of share repurchases, and we continue to believe that the Amcor investment case has never been stronger with consistent organic growth and momentum building, substantial capacity to invest to grow and also to maintain an attractive dividend. With that, operator, we'll open the line up for Q&A. Operator: Thank you, sir. Your first question comes from Keith Chau from MST Marquee. Your line is now open. Keith Chau: Good morning or good evening, gentlemen. Thanks for taking my question, Ron and Michael. The first one is just on that hot-fill product category. The numbers just seem to be a belief in the second quarter, volumes up 19% in first-half 2021, up 12% in the first quarter. So the implied numbers going into the second quarter with north of 20% or close to the mid-20s. So I'm just wondering if you can give us a sense of, has there been anything in particular that's driven that whether there has been a pull-forward of volumes? How sustainable you think that is going into the balance of the year, please? Ronald Delia: Yes. No, it’s a good question. It's a real highlight. Look, I think, as we look across the business, that is a standout in terms of volume. I think there's a couple of things going on there. Firstly, retail sales are very strong and our volumes track pretty closely to what we're seeing at retail for some of the main categories that we supply hot-fill containers for. So hot-fill juices, iced teas, isotonics, those categories have been very strong throughout the whole first-half and especially in the second quarter. I think it's a combination of things, Keith. There's some additional sales going through multi-packs and big box retailers, which are certainly helping. There's an introduction of the new products. Our customer mix has been quite favorable and I think all of those things are contributing. I mean, clearly, these are higher growth rates than we would normally see. This is a segment that should grow kind of low-to-mid single digits. So it’s a particularly strong period. Keith Chau: And Ron, do you think that particular stream can carry through into the third and fourth quarters or at least the third quarter? Things are pretty hard to get a handle on under the consumer backdrop at the moment, but is there something that you're seeing persisting into the third quarter already? Ronald Delia: Look, I think some of the things that I mentioned will persist for a while, but not at this level, Keith. I think, as we look around demand patterns, there's a couple of anomalies that stand out for us. On the negative side, we've had soft healthcare volumes across the business. On the positive side, we've had strong beverage volumes. Both of those have to be influenced to some extent by at-home consumption and other COVID-related factors. So it's very difficult to predict that aspect of it. But I think some of the underlying trends around new product launches, multi-pack sales, some of our particular customers gaining share, those things we would expect to continue. But all of that is incorporated into our overall guidance for the full fiscal year. Keith Chau: Okay. Thank you. And then my second question is just on Bemis synergies. They continue to track ahead of expectations or at least up to the top end. And I think momentum in both FY 2020 and the first-half of 1H – sorry, first-half of FY 2021 still remains pretty strong. So it seems like almost a foregone conclusion that the total target could be upgraded at some point in time. I know that hasn't been done at this juncture. But can you give us, I guess, a sense Ron or Michael on where, I guess, our synergies are overachieving relative to expectations? Ronald Delia: Yes. Look, to the first part of your question, I might just address first. I think, we feel increasingly confident about the $180 million that we committed to. So I think we would expect to exit at the end of this fiscal year, we would be exiting at a run rate that would be at that level. Now it's also getting increasingly difficult to pull apart what’s the synergy versus what's the base business driver. I mean, as you can imagine, the businesses are completely integrated now. As far as what's driving the performance, generally speaking, I think we've probably exceeded our expectations across the three big cost synergy buckets. So overheads, which came out faster and probably yielded a bit more benefit than we would've thought that the procurement savings have been higher than we would have expected, and footprint which is building momentum is also positively contributing. And I guess if we're thinking about this year, in particular, we've gotten some more footprint benefits than we thought we might be able to given the COVID backdrop, which makes those projects difficult to execute. Keith Chau: Great. Thanks very much. I leave it there. Operator: Your next question comes from Mark Wilde from Bank of Montreal. Your line is now open. Mark Wilde: Yes. Congratulations, Ron, Mike and Tracey. Very nice start to the year. Mike, I wondered if – sorry, Ron, I wondered if there's any way you could help us think about sort of how much of the strength you think is tied to more food-at-home kind of a COVID-related issue because we are seeing most consumer packaging companies report very good volumes over the last couple of quarters. So when you just think about your portfolio, how do you think about what's kind of being driven by COVID versus just the underlying business? Ronald Delia: Yes. Look, that's the question, Mark. And we - like everyone else, we spend a lot of time trying to unpack that. And the conclusion we've come to is that, we really had no net impact one way or the other. And the way we get there, if you just take the big chunks of drivers, we've had a lot of extra costs in the business and increasingly so as we've continued to operate. And we've had lots of folks out on quarantine. We've had lots of overtime to backfill those people. We have lots of extra shipping going around in the rigids business. So there's a lot of costs to be born in this environment, first of all. And then the offset to that is obviously some stronger volumes in certain segments like the beverage segment that we talked about a minute or two ago. The offset is, commercially is healthcare, which is a really high-margin, attractive profitable segment for us has been really soft. Medical device consumption generally has been very low with less elective procedures, surgeries, and otherwise prescriptions have been way down, and so the sales in that healthcare business have been way off. So higher costs in many parts of the business, some strong sales in some segments like beverage, offsetting some weak sales in medical and pharmaceutical, the net-net of all those puts and takes as we look at the business is really not much. And 3% sales growth is not too far off where we've been historically. We've been at about 2% over the last five or six years, and the profit growth is flowing from that, plus the cost performance and synergies in the business. So I mean, we do a lot of work on this and there's a lot of interest in it, but our conclusion is there's really no net impact. Mark Wilde: Okay. And then for my follow-up, I wondered, Ron, if you could just give us a kind of a quick lay of the land for plastic packaging in your key markets from a political and regulatory environment. It seems like in the short-term, you've benefited because people have kind of moved to kind of more single use products. I mean, we aren't seeing people here in the states go to the grocery store with kind of a returnable bags anymore. But at the same time, it seems like from a medium-term perspective, we are seeing kind of more discussion in Europe and even here in the U.S. to some degree of producers having to fund sort of end-of-life solutions to packaging and that winds up getting embedded in the cost. So maybe if you could just give us a sense of kind of what you're seeing from a political and regulatory standpoint in just your main markets? Ronald Delia: Yes. I mean, I’ll start with that part of your question. You asked about the political environment. I would maybe broaden that to just say the general environment, political, consumer, customer and otherwise. I mean, the short answer I would give you is, you asked how we see that environment evolving. And the short answer I would say is, it's improving and it's improving for a couple of reasons. One that you highlighted already, which is that I think the value of packaging and the role it plays in food and healthcare has become even more evident over the last 12 months. I don't know that we need to spend a lot of time explaining that. But I think the idea of packaged food is clear, I think, the distribution of medicines, and now we see vaccines and how important packaging is and the delivery devices are in that process. So I think the value of packaging has increased in the eyes of pretty much any observer. As it relates to plastic, I think the other thing that's happening, which is quite helpful is an increasing focus on greenhouse gases and climate. And I think as people and stakeholders get more and more educated holistically on the environmental impacts of different types of packaging, I think increasingly, plastic scores pretty well. And that's why we continue to see our customers very focused on finding better alternatives for the end-of-life of their packaging. But increasingly focused on doing what they're doing today with lighter weight and better functionality. I think that the point you made about funding waste collection, extended producer responsibility, things like that, that has a role because clearly, we need the waste management infrastructure in place around the world to address the waste problem that we have, and that needs to be funded. And there are good successful models where funding that's generated through EPRs goes directly to waste infrastructure and can certainly help alleviate the problem. There's nothing wrong with that. We're in favor of well-designed EPRs. And as long as they're focused and we targeted at the right level of infrastructure. So generally speaking, the environment has improved. We expected to continue to improve as people get more educated on the total topic. Mark Wilde: Okay. That's really helpful, Ron. Thanks very much. I will turn it over. Operator: Your next question comes from Ghansham Panjabi from Baird. Your line is now open. Ghansham Panjabi: Yes. Thank you. Good day, everybody. I guess going back to Rigids, Ron, I mean, 10% sales growth, 6% of which was volume, 4% price mix. Why didn't that translate into a higher realization in terms of EBIT growth? I know it's very respectable at 10%, but just curious if something in terms of incremental cost held that number back? Michael Casamento: Hi there. It’s Michael here. I can probably take that one. Look, we're really pleased with the overall performance of Rigids for the half. As you said, the volume growth was 6%. We had some price mix benefit, largely that was recovery of inflation in Latin America. So when you see that then the leverage through the P&L, we grew 10% for the half. So we're pretty pleased with that. Some of the – we had positive mix as well in the hot fill container business. The offset really which Ron has touched on this before, as we did have some higher operating costs during the period just to deal with that, that’s really strong demand both in labor and then shuttling and freight costs around the network just to be able to meet the demand for our customers. So putting that all together, we were really pleased with where the growth ended up for the half in the Rigids business. Ghansham Panjabi: Yes. Thanks for clarifying. And then if we switch to Flexibles, it looks like volumes were relatively even for your first two quarters. And I think you mentioned Europe picked up as the second quarter unfolded. Was the increase in Europe due to the expanded lockdowns as the quarter unfolded? And was it the same case in North America as well? And just more broadly, how do you expect volumes to play out for the segment during the back half of your fiscal year? Thanks. Ronald Delia: Yes. Volumes were very comparable from Q1 to Q2. There was a bit of momentum picking up into Q2, particularly in Europe, where we had more of a sluggish Q1, I would say rather than an extraordinary Q2. We're in the low-single digits across both quarters. And we would expect that to continue into the second-half. Again, I think, when you net it all out to healthcare softness more than offset any extra volumes in some of the food segments, and so the low single-digit performance that we had in the first-half is more or less what we would expect to see in both of those big businesses. Ghansham Panjabi: Got it. Thank you. Operator: Your next question comes from John Purtell from Macquarie. Your line is now open. John Purtell: Good evening, Ron. How are you? Ronald Delia: Hey, John. John Purtell: Just a couple of questions there. Yes, just in terms of raw materials, obviously you've seen some decent uplift in or related costs coming through at least on a spot basis. And then what was the impact on rural mix or from rural mix in the second quarter and how you are expecting that to play out through Q3 and Q4? Ronald Delia: Yes. John it’s a good question. It was definitely a modest headwind in the Flexible segment. We have no impact really in Rigids because the pass-through mechanisms are quite frequent. But in Flexibles, our raw material pass-through is going to affect every three to six months. And so we did have a bit of a lag in the first-half, really in the second quarter, relatively modest. And we would expect some continued headwinds into this quarter, but again, that's factored into our guidance. And then you know from looking at this over time, the pass-through and recovery mechanisms are well-refined in Amcor. Any impacts we have positive or negative are just timing. John Purtell: Thank you. And just a second question coming back to Rigids and the higher transport and labor costs you are seeing, I mean, presumably those will normalize as demand comes back to some level of train. But if demand does stay high and therefore, cost stay high, are you able to recover those because it does appear there was a limited pass-through in this period? Michael Casamento: Yes. Look, John, I think it would depend on what the costs were and what the reason was. I mean, typically, with demand that the level that we had this period there is some shuttling and moving around the network that we have to do to meet the customer demand. And from a labor standpoint, as Ron touched on, part of that was due to higher absentee levels, typically in Q2, due to COVID. So you'd expect perhaps some of that normalizes over time and would have less and less of an impact. But regardless, when you have strong demand like that, you are going to see some cost increase. John Purtell: Okay. Thank you. Operator: And your next question comes from the line of Brook Campbell-Crawford from JPMorgan. Your line is now open. Brook Campbell-Crawford: Yes. Thanks for taking my question. Ron just on sustainability, you continue to talk about sustainability is the greatest growth opportunity for the business. Well, I'm just trying to understand, do you think sustainability will allow you to take share and improve mix and basically grow stronger than – and if it wasn't a focus area or do you think it’s a necessary thing we could do just to hold sharing and keep yourselves where it is, I guess over the next five years when you're looking to reach those target? Thanks. Ronald Delia: Brook, we would think for the foreseeable future, it's a share opportunity and a margin opportunity. And that's because of the differentiation that we're going to bring to the more complicated aspects of the whole equation. So when we look at some of the products we've launched in the last three, four or five months that are more sustainable. If we look at the reportable pouch for pet food, and then the human food version that we launched with Mars for microwavable rice, I mean, that's just a different better mouse trap. And we've got the only product on the market that's got that sustainability profile. So clearly there's an opportunity there to take share. There's also obviously a higher level of value that's delivered to the customer in those two instances. We've got a PVDC-free shrink film called Eco-Tite, which is another example for protein. I mean, again, all of these – the more differentiated they are, the more opportunity for share, and ultimately margin for the foreseeable future. There'll be a point down the road – well down the road where some of those types of products will be expected. But certainly in the short and medium-term, and for as long as we can see, we're going to have a big advantage that should turn into some commercial benefits. Brook Campbell-Crawford: Yes. And I guess just wondering if you think at some point should be able to frame up that opportunity and provide some sort of targets or pull apart in your financials where the benefits going true, or does it all just kind of get washed up and then we can just talk about it qualitatively? Ronald Delia: Well, I think you're going to see it continue to flow through the sales line, and I think you're going to continue to see margin expansion, and that will be a more meaningful part. Sustainability dimension of our products will be a more meaningful part of the topline as well as the margin line. At the same time, we'll be managing the mix and we'll be exiting certain products as well. And so I think it will come out in the wash, but it clearly sets us apart from our competition and that's got to be nothing, but positive from a commercial perspective. Brook Campbell-Crawford: Last one for me, maybe just for Michael, just having a look at corporate costs looks like in the half steps up from the sort of $35 million in prior period to $48 million, and despite some synergy there in the current quarter. So an underlying increase there in corporate. And just wondering if you could and what's driven that increase. Michael Casamento: Yes. Look, it's largely fading, Brook. It was particularly in Q1 where we had some higher cost from a fading standpoint around insurance claims and just timing of management incentives and the like. As we look forward, we'd expect that to more normalize. The full-year level, we're not providing guidance. We'd expect corporate cost to be – they're about perhaps slightly higher than last year on the back of inflation and other things. But generally speaking, we expect a more normalized view of the timing year-end. Brook Campbell-Crawford: Okay. Thank you. Operator: Your next question comes from Kyle White from Deutsche Bank. Your line is now open. Kyle White: Hey, hope everyone is doing well. Thanks for taking the questions. Just to focus on the EPS guidance raised. Two consecutive quarters where you’ve raised the guidance here. Yes, your free cash flow has remained unchanged both times. Just curious what the offset is. Is it working capital with kind of the increases we have in resin or is it something else there? Michael Casamento: Yes, I can take that one. To your question, I think, look, we've given a relatively wide range on the cash flow of $1 billion to $1.1 billion. With these guidance upgrades, what we're seeing is that we would expect now probably more to be at the upper end of that $1 billion to $1.1 billion range. So we haven't raised the guidance at this stage, we'd say we're going to be at the upper end of that range. If that changes, we'll come back to you. Kyle White: Sounds good. And I want to focus on the recycled resin. I think you're pushing towards 10% of your resin purchase or consumable being a post-consumer recycled resin by 2025. Are there any limitations on how high this could be as a proportion of your overall resin by in terms of maintaining the integrity and characteristics of certain packages, it's probably the most applicable to your Rigids here. And then I hear from recyclers is that really just isn't the end market demand for PCR necessarily, but on the other hand, it seems consumers want more sustainable products. So I'm just kind of curious what's the disconnect here? Ronald Delia: That would be a good question. I think there's incredible demand for PCR. In fact, you asked about limitations and you went to the technical thresholds. And the answer to that one is really, there are no technical thresholds, Kyle. We're making containers pretty much for every segment now and a 100% PCR in the Rigids business. The consumption of recycled resin in the Rigids business has dramatically increased in the last 18 months, even despite the COVID backdrop. So we’ve gone from about 4% or 5% of the resin that we processed to exiting December at about 10% of the total resin that we processed in that business. And that number will go up again by June. So there really is no limit. There is no technical limit to the amount of recycled content we can use in a container. We're making plenty with all PCR. The constraint maybe at a point in time, not too far into the future limitation on supply. And so we along with our customers and consumers is back obviously are sending every demand signal possible that there is going to be an appetite to source PCR. So I'm not sure where the disconnect is. Kyle White: Got it. Is there maybe – from a cost standpoint, what's the differential from using virgin over PCR? Ronald Delia: Well, it is a premium at the moment and there typically has been, but there's also a value premium as well. And so I think there’s the cost plus aspect to the pricing mechanism, but more importantly, this is going to be an expected input to the end product that we're making and that our customers are packaging their products. And so I think it's – I wouldn't want to say it doesn't matter what the cost is, clearly it will. But there is a premium, I think there's a demonstration in practice that there's a willingness to pay that premium. Kyle White: Yes. I’ll turn it over. Good luck to the next and the balance of the year. Ronald Delia: Thank you. Operator: Your next question comes from George Staphos from Bank of America. Your line is now open. George Staphos: Thanks. Hi, everyone. Thanks for the details. Congratulations on the progress so far. Ron, I wanted to hit a little bit on the new products to the extent that you can, recognizing that they are by definition smaller and perhaps the growth that you're seeing in them is not meaningful. Can you talk maybe qualitatively or as much as you want to quantitatively about, what you're seeing in terms of AmLite and some of the other products, the growth that you're seeing? And I was particularly interested in what you're seeing out of the Eco-Tite product and whether you're getting any measurable market share in the protein market with that film? Ronald Delia: Yes. Those are really good examples of having a differentiated product and a differentiated offering that even the customers now are trying to reconcile and get their heads around in terms of what they can and can't do. The AmLite structure and the basic chemistry behind it, is got wide application. So we've launched the product for pet food first. And then we've also more recently announced the rice package that essentially uses similar technology. The demand has been really far exceeded our expectations. And now we're going to have to scale up the capacity which is a good thing to deliver against that demand. But it's a good example of solving the problem that didn't seem to have a really easy answer maybe 12 months ago for these big brand owners and also their smaller competitors. So I’d say watch this space on AmLite. There's incredible appetite not only from the European customer base where the product was first launched, but also around the world. India, Brazil, obviously North America, China, there are kind of advanced orders or a book build if you were taking place globally for that structure. On Eco-Tite, this is a recycle-ready structure, but maybe even more importantly, right now it's a PVDC structure or PVDC-free structure, sorry, for protein, which is also a major concern for many brand owners to get PVDC and chlorides out of their packaging. And so this one has been targeted at the European protein market. In the first instance, there's a lot of take up there where that material is of particularly high concern. It's pretty early days, but I would expect that demand to start to also come from the other regions of the world as well. So I mean you alluded to it neither of these products are going to change the overall revenue profile of the company in a given quarter, but over time, the cumulative momentum of products like these is going to help generate a good topline growth and good margin. George Staphos: Thanks, Ron. My second question, if I look at the performance over the first six months, again, as you mentioned, it's inline or were ahead of your expectations. And you are performing well on any number of KPIs that you point to. When I look though at Flexibles, there was a little bit of deceleration in EBIT from the three month to the six month period, there was also a little bit of deceleration, even though I know you're raising your target for synergies. In the synergy momentum, it was $20 million in 1Q, it was $35 million through the six months. So if you can give us maybe a look underneath the hood with all the things that are going well for you in Flexibles, what's causing the minor deceleration that we've seen from three months to the six-month period? Thank you very much. Ronald Delia: Yes. Look George, the organic performance of the business is pretty similar from period-to-period. In fact, we had a modest pickup in the base business, organic growth let's say from Q1 into Q2. Q2 was modestly higher than Q1 from an organic growth perspective. I think what you're seeing is just the comp, just a year-on-year impact of the synergy capture, which in the prior year was three to six to nine months into the acquisition. And a lot of low hanging fruit drove higher synergy benefits in those first couple of periods. So we're just cycling higher levels of synergy in the prior year. And over time, that's going to continue to dissipate as a comp. But the organic performance of the business actually picked up a bit and we expect it to sort of stay at that level and build momentum through the second-half as well. George Staphos: Thanks, Ron. I’ll turn it over. Operator: And your next question comes from Lawrence Gandler from Credit Suisse. Your line is now open. Larry Gandler: Thanks guys. Yes, lot of progress in the business. And Ron, you made such good progress with Bemis. I'm wondering why you guys are buying back shares. It seems for anybody born in the last century, the world's expensive except for the packaging sector, so I'm just wondering how you're feeling about valuations in the packaging sector. And it seems in congress that you're buying back shares when it seems like it's relatively inexpensive. Ronald Delia: Yes. It's a great observation, Larry. First of all, you've watched this for a long time. We're active acquirers and we would expect to continue to acquire. So that's the first priority is to reinvest in the business, grow the business, continue to consolidate and acquire. And we're certainly going to get increasingly active as the Bemis integration and synergy capture comes to a close. And we'd be actively looking at it now as you'd imagine. And the benefit of doing a non-market buyback is flexibility. So if we were to come across an opportunity that required more capital, we could always suspend the share repurchases. Although, as you also know, most of the deals in our space are pretty small. So in all likelihood, we could fund acquisitions and continue the share repurchases. I think the last point I would make comes to the way you asked the question, which is around value. And I think, we would say as we look across the industry, yes, asset values are relatively high. But the best value in the industry right now is Amcor. And so what better time to buy shares in the company than right now, where we have clear line of sight into where the business is traveling and the momentum that the business had. So we would never try to be stock pickers here, but from a value perspective, we think Amcor is probably the best value in the sector at the moment. Larry Gandler: Okay. And just a clarification on this first question because I want to answer the second one. Public company or private company, are you seeing any disparity evaluations there? To me, it seems like actually public company valuations might be more attractive than private company at the moment. Ronald Delia: Look, there's not a whole lot of deals getting done, right? So the mark-to-markets, if you own the private assets, only happen when there's a transaction. There's been a lot of cross, I would say on the deals that have been done. So there are certainly asset prices that have been pretty high and the market will pay what the market will pay for a public equity. And I think it becomes more of a relative game in the public markets, relative attractiveness of the sector and the players in it to all the other alternatives in the public markets. And there's just a lot of excitement around certain growth segments that maybe seen more appealing to people at this point in time. Larry Gandler: Okay. Thanks, Ron. Just my second question relates to some research I did back a couple months ago regarding small customers in U.S. And it seems to me that that's like a $5 billion market. To frame the question, you guys had as you disclosed in your Investor Presentation, some 6,000 small customers in Europe, but only 850 small customers in North America. So it seems like a big opportunity, any progress there in terms of addressing the small customer market more broadly and deeply in the U.S.? Ronald Delia: Really good progress, and it is a great opportunity. I mean, you've flagged it. And we've also flagged it in different forums. We've been after it in Rigids for a long time in the regional beverage space. We continue to see double-digit growth from those customers. Flexibles, the legacy Bemis business had identified this as a market segment, if you will, that offers some really attractive characteristics, but they also continue to – that business also continues to generate higher than average growth, higher than the rest of the portfolio. I think as far as the impact on the overall result, you have – maybe there's the challenge of small numbers, but very high growth rates. So I would say watch this space over time, it continues to be a part of the market that we're excited about. Larry Gandler: Okay. Thanks, Ron. Operator: And your next question comes from Richard Johnson from Jefferies. Your line is now open. Richard Johnson: Thank you very much. Ron, my first question is just on R&D and I know you're spending, I think you stated, it’s roughly $100 million a year. I was wondering if you could sort of talk around where that's going? And what I mean by that is, if you would sort of put it into various categories, what percentage of that goes to film development or material science or product development and design and that sort of thing? Ronald Delia: Yes. It’s a good question. If you break it down, I mean, I wouldn't give you a number, but what I would say is dramatically, a lot of the design work that we do is with customers. In many cases, we actually get reimbursed for that work. And there's a lot of activity in both Manchester, Michigan in the Rigids business, and in Wisconsin, in the Flexibles business in North America doing design work that has also at times been done by advertising agencies. So that's an increasing part of the activity, but also one that quite often we get compensated for. We also on the other end of the spectrum do advanced technology development on material science, films, barriers, and things that will benefit the business in the medium-term. And in the middle is where most of the spend is, which is application development and product development and product commercialization. If I was to use the 80/20 rule, I would say probably 70% or 80% of it is in that middle area. Richard Johnson: Got it. That's super helpful. Thanks. And then, I just wanted to ask around – or try and get a sense of what your view is on the broader competitive environment. And the reason I ask that, and that's in Flexibles – the reason I ask that is as you made reference to your recyclable retort pouch that you're doing for Mars. But my understanding is they're all competing products that have been launched as well. So I'm just trying to get an understanding of, one, where you feel you are competitively and whether there's been any significant changes, and has anything changed in the industry, which has always been a case that technology hasn't always been a barrier of entry? Ronald Delia: Well, I think it's becoming more of an increasing barriers to entry. There's a lot of announcements, particularly around sustainability and product attributes. There's announcements every week. And you could imagine that would be across all of those and also across what we believe to be that the makeup of some of those products. And we maintain that on the products that we've highlighted here today, that we have the only solutions in the marketplace that have the attributes that we described. So in terms of the broader competitive environment, nothing has changed of any substance. I think, it's never been a place where you see really rapid changes in the competitive set, and we're not necessarily seeing that today. Richard Johnson: Got it. Just a really quick one in, just on the shareholder value creation model, which has obviously been in place for quite a number of years now. In the first few years of its existence, there was quite a good correlation between the TSR and the total shareholder return and the shareholder value accretion, that hasn't really been the case in the last few years. And I was just wondering from your perspective, what you think is missing. Ronald Delia: I think that's the kind of thing that plays itself out over time. I mean, if you take up a 10-year view, it winds up actually pretty well. And we would expect over the following 10 years, it will line up pretty well again. From time-to-time, again, there's relative valuations in a public market that makes certain sectors and certain industries more or less attractive. I think there's a bit of that over the last few years as well as segments sectors like tech and others have really had incredible returns. So I would expect over time that to converge as they have historically. Richard Johnson: Fantastic. Thanks, and well done on the results. Ronald Delia: Thanks. Operator: Your next question comes from Nathan Reilly from UBS. Your line is now open. Nathan Reilly: Hi, Ron. Just a question just around manufacturing, actually, just in the context of some of the comments you made around the momentum that you're seeing in the business and picking up some of the volume growth, which we've seen this quarter as well. Do you just give a quick update just on where you're at from a manufacturing capacity and utilization point of view around the network at the moment, and just what you're thinking about sort of reinvesting in that network for growth in the near-term? Ronald Delia: Well let me start with the first part, and then Michael can talk about the second part, which is around the reinvestment profile of that business going forward. I mean, look at the moment, we're at a comfortable utilization level and an efficient utilization level, probably with the exception of Rigids more recently as Michael alluded to. So when we talk about extraordinary costs to service, extraordinary demand, that is one of the outcomes of running a very, very high capacity utilization, probably too high over time. Now we don't expect that to continue as we've talked about. But other than that segment, and then the inverse would be true at healthcare where the demand has been soft. Generally speaking, we're running at a more normal level of utilization. And then as far as what does that mean for capital going forward, maybe Michael can talk to that point. Michael Casamento: Yes. Sure, Ron. Yes, so look, I mean, capital expenditure, I think last year we spent around $400 million, probably that was a year after the acquisition, which probably was a little lighter than we normally have. Typically we invest around depreciation a little bit more depending on what the requirements were in any given period. But this year, look, we're expecting that probably around 10% above where we were last year. So around that $450 million range, and that's really taking into account some of those additional needs for growth CapEx across the network and new technologies as well. So I think as we look forward, that's kind of where we see the CapEx – in that $400 million to $500 million range, which we think is sufficient – more than sufficient to cover the expanding growth requirements and the technological advancement. Nathan Reilly: Okay. Thanks for that. Ronald Delia: Thanks, Nathan. Operator: Ladies and gentlemen, that concludes our call for today. I'll hand it back to Ron Delia for closing remarks. Ronald Delia: Thanks, operator, and thanks to the participants on the line for all the questions. Just to close off where we started, we had a strong first-half to fiscal 2021. Results are ahead of our expectations and performance balanced across the businesses. That start is translated into higher expectations for the full-year and so we've raised our outlook for fiscal 2021. We've also increased cash returns to shareholders through a higher dividend and $200 million of additional repurchases. And then we conclude with probably the most important point, which is that we continue to believe that the Amcor investment case has never been stronger. Thanks very much, operator. And with that, we'll close the call. Operator: This concludes today's conference call. Thank you, everyone for your participation. You may now disconnect.AMCR Ratings Summary
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Amcor plc (AMCR:NYSE) Quarterly Earnings Report Preview - April 30, 2024
Amcor plc (AMCR:NYSE) Gears Up for Quarterly Earnings Report
Amcor plc (AMCR:NYSE), a global leader in responsible packaging solutions, is gearing up for its quarterly earnings report on Tuesday, April 30, 2024, after the market closes. Analysts on Wall Street have set their sights on an earnings per share (EPS) estimate of $0.17 for the quarter, with revenue projections hovering around the $3.5 billion mark. This anticipation sets the stage for investors and market watchers to gauge the company's financial health and operational efficiency during the period.
Leading up to the earnings release, Amcor has seen a positive trend in earnings estimate revisions, as reported by Zacks Investment Research on April 29, 2024. This positive momentum is underscored by a favorable Zacks Earnings ESP (Earnings Surprise Prediction), hinting at the possibility that Amcor might outperform expectations in its upcoming earnings announcement. Such optimistic forecasts are crucial for investors, as they provide a glimpse into the company's potential to exceed market predictions, thereby influencing investor sentiment and stock performance.
However, it's important to note that Amcor's fiscal third-quarter results for 2024 are expected to be impacted by several challenges, including reduced consumer spending and destocking efforts, which could affect the company's volumes. Additionally, the company is navigating through an environment of high costs, which could potentially squeeze earnings for the quarter. These factors are critical for investors to consider, as they could temper expectations and influence the company's ability to meet or exceed analyst projections.
Financially, Amcor is positioned with a price-to-earnings (P/E) ratio of approximately 20.26, reflecting the premium investors are willing to pay for its earnings. The price-to-sales (P/S) ratio stands at about 0.93, indicating the value placed on each dollar of Amcor's sales, while the enterprise value to sales (EV/Sales) ratio of roughly 1.44 offers insight into the company's overall valuation in relation to its sales. Furthermore, the enterprise value to operating cash flow (EV/OCF) ratio of approximately 15.04, alongside an earnings yield of around 4.94%, provides a perspective on the return on investment for shareholders. The debt-to-equity (D/E) ratio of about 1.91 highlights the company's leverage in terms of debt financing versus equity, and the current ratio of approximately 1.25 signals the company's capability to cover its short-term liabilities with its short-term assets.
As Amcor prepares to unveil its financial results for the nine months ending March 31, 2024, investors and analysts alike will be keenly watching how these various financial metrics and external challenges play out in the company's earnings report and future outlook. The scheduled conference call and webcast following the earnings release will further provide valuable insights into Amcor's strategies, performance, and expectations moving forward.
Amcor Shares Down 4% Since Q4 Results Announcement
Amcor plc (NYSE:AMCR) shares fell around 4% since the company’s reported Q4 results last week. Quarterly EPS came in at $0.07, worse than the Street estimate of $0.24. Revenue was $3.91 billion, compared to the Street estimate of $3.78 billion.
For the full 2023-year, the company expects adjusted EPS to be in the range of $0.80-$0.84.
This implies just 2% growth year over year at the midpoint given currency and interest headwinds. The guidance also includes the sale of the Russia business by H2/23, which is roughly a 2% headwind to EPS.
Amcor Shares Down 4% Since Q4 Results Announcement
Amcor plc (NYSE:AMCR) shares fell around 4% since the company’s reported Q4 results last week. Quarterly EPS came in at $0.07, worse than the Street estimate of $0.24. Revenue was $3.91 billion, compared to the Street estimate of $3.78 billion.
For the full 2023-year, the company expects adjusted EPS to be in the range of $0.80-$0.84.
This implies just 2% growth year over year at the midpoint given currency and interest headwinds. The guidance also includes the sale of the Russia business by H2/23, which is roughly a 2% headwind to EPS.
