Amcor Plc Q1 FY2025 earnings call

Management Statement and Operational Highlights

• Safety: 13% reduction in injuries y-o-y, 73% of sites injury-free over a year.
• Strategic Actions: Appointed Fred Stephan as COO to leverage scale/capabilities across flexible packaging; expanded commercial excellence program (Value Plus) to include organic volume growth; appointed David Clark as Chief Sustainability Officer; focus on priority categories (adding dairy, liquid applications); leveraging AmFiber for fiber-based offerings.
• Financial Performance: Fiscal 2025 Q1 volumes up 2% y-o-y, adjusted EPS $0.162 (5% comp constant currency growth), adjusted EBIT up 3%, margin up 50bps to 10.9%.

Segment Performance

• Flexible Segment: Q1 volumes up 3% y-o-y. Net sales down 1% due to unfavorable price/mix (~4%), primarily from lower healthcare sales. Destocking in healthcare continued but expected to abate by end-2024. Across balance of portfolio, volumes up ~5%. Adjusted EBIT $329M, up 3% y-o-y, margin up 40bps to 12.9%. North America and Europe had low to mid-single digit volume growth; emerging markets (APAC, Latin America) up low to mid-single digits. Product categories: meat, dairy, liquids, ready meals mid-single digit growth; single-serve coffee up; medical return to growth, pharma down low-double digits.
• Rigid Packaging Segment: Overall volumes down 4% y-o-y due to soft consumer/customer demand in NA beverage. Net sales down 4% with price/mix flat. Latin American volumes lower in Argentina, Colombia; offset by growth in Mexico, Caribbean. Specialty Containers: good growth in dairy, nutrition; volumes down in healthcare due to destocking. Adjusted EBIT $62M, up 2% y-o-y, margin up 60bps to 7.7%. Sold 50% stake in Bericap North America closures for $122M to reduce debt.

Guidance

• Reaffirmed fiscal 2025 adjusted earnings range $0.72-$0.76 per share (3%-8% comp constant currency growth).
• Expect overall volumes to increase low to mid-single digits for the year. Interest expense guidance $290M-$305M, effective tax rate 19%-20%.
• Fiscal Q2 adjusted EPS expected to be relatively in line with Q1. Expect strong adjusted free cash flow $900M-$1B for the year, aiming to exit fiscal 2025 with leverage 3x or lower.

Risks

• Higher inventories and unfavorable euro spot rates impacted leverage in Q1.
• Regulatory trends (packaging waste regulations) could impact operations/product development.
• Differences with joint venture partners led to divestment of Bericap stake, affecting capital allocation.

Question and Answer

• Q: Ghansham Panjabi on organic growth specifics A: Focus on service quality, expanding commercial excellence program to include organic volume growth, leveraging innovation capabilities/product portfolio, and focus on priority categories like dairy/fiber-based offerings.
• Q: John Purtell on Q1 volume growth A: Overall company volume up 2%, Flexibles up 3% y-o-y with rest of portfolio up 5% despite healthcare destocking; expecting sequential volume improvement in Q2.
• Q: George Staphos on new products (AmLite, AmPrima, AmFiber) A: AmFiber is recyclable fiber-based substrate; AmPrima is recyclable plastic-based product; both growing, with fiber off smaller base but growing; supportive of packaging waste regulations driving circularity.
• Q: James Wilson on Bericap joint venture unwind A: Strategic rationale was differences with joint venture partner on capital allocation; divestment allows reallocation of capital to better opportunities; impact on Rigid earnings: ~$19M annual EBIT impact, half for FY2025.
• Q: Michael Roxland on margin improvement algorithm A: Margin improvement algorithm remains consistent, but can vary with cycle; efficiency driven by mix management/portfolio/new product innovation; teams can flex cost base with volume demand.
• Q: Daniel Kang on dairy and liquids focus categories A: Strong position in North America; leverage products successful in NA across global Flexibles; annual revenues $800M-$1B in each category; product leverage key for growth.
• Q: Samuel Seow on net debt A: Higher net debt in Q1 due to inventory build/unfavorable euro spot rates; expect leverage to reduce through FY2025 with $900M-$1B free cash flow and Bericap proceeds reducing debt.
• Q: Brook Campbell-Crawford on organic growth targets A: Aim to do better than pre-COVID volumes; focus on product leverage, innovation, and gaining market share; momentum increasing but need more quarters to confirm.
• Q: Cameron McDonald on restructuring costs A: Restructuring program to offset disposed earnings from Russia; ~$170M cash spend, ~$50M annualized benefit, mostly completed by end of 2024.
• Q: Nathan Reilly on consumer market state A: Consumer flat or down; customers performing better with better balance of price/volumes; destocking over except healthcare/North American beverage; momentum increasing in market share gain.
• Q: George Staphos on innovation speed to market and Rigid inflection A: Innovation focus on product leverage/returns from innovation investments; Rigid expected to inflect higher in profit/volume as consumer demand improves/efficiency continues.