Amcor : Q1 2025 Results Transcript FINAL
AMCR
Amcor Plc
Amcor Q1 2025 Results
5.30pm EST October, 31 / 8.30am AEST November 1, 2024
Amcor Plc
Amcor Q1 2025 Results
CORPORATE SPEAKERS:
Tracey Whitehead
Amcor Plc; Head of Investor Relations
Peter Konieczny
Amcor Plc; Chief Executive Officer
Michael Casamento
Amcor Plc; Chief Financial Officer
PARTICIPANTS:
Ghansham Panjabi
Baird; Analyst
John Purtell
Macquarie; Analyst
George Staphos
Bank of America; Analyst
James Wilson
Jarden Australia; Analyst
Michael Roxland
Truist Securities; Analyst
Daniel Kang
CLSA; Analyst
Sam Seow
Citi; Analyst
Brook Campbell-Crawford
Barrenjoey; Analyst
Cameron McDonald
E&P; Analyst
Nathan Reilly
UBS; Analyst
Amcor Plc
Amcor Q1 2025 Results
PRESENTATION:
Operator Hello. Welcome to the Amcor's first quarter 2025 results conference call. (Operator Instructions) I would now like to turn the conference over to Tracey Whitehead, Head of Investor Relations. You may begin.
Tracey Whitehead Thanks, Operator. Thank you, everyone, for joining Amcor's fiscal '25 first quarter earnings call. Joining today is Peter Konieczny, Chief Executive Officer; and Michael Casamento, Chief Financial Officer. Let me note a few items before I hand over.
On our website, amcor.com, under the Investors section, you'll find today's press release and presentation, which will be discussed on this call.
Please be aware that we'll also discuss non-GAAP financial measures and related reconciliations can be found in that press release and presentation. Remarks will also include forward-looking statements that are based on management's current views and assumptions.
The second slide in today's presentation lists several factors that could cause future results to be different than current estimates. Reference can be made to Amcor's SEC filings including our statement on Form 10-K and 10-Q for further details. Over to you, P.K.
Peter Konieczny Thank you, Tracey. Thank you to all who have joined us for today's call. I'm pleased to report that our business continues to build on the momentum we've delivered since the beginning of the calendar year with another quarter of solid financial performance to kick off fiscal 2025. Our results are aligned with the expectations we set out in August and give us the confidence to reaffirm our guidance today.
We start, as always, with safety on Slide 3. The safety and well-being of our people is a value deeply embedded in Amcor's culture, and I'm incredibly proud of our collective commitment to safety. We continue to achieve industry-leading performance with another 13% reduction in injuries compared to the same quarter last year and 73% of our sites remaining injury-free for more than a year.
Before we turn to the first quarter, I'd like to take a few minutes to talk about the strategic actions we are taking to evolve into an even stronger company. Amcor is an outstanding company with a strong values-based culture, highly talented people and significant growth potential. We have a strategy that remains relevant to our business and does not require a revolutionary change.
I begin my tenure as CEO with a good understanding of where Amcor is today and with a strong and clear vision of where Amcor will be in the future. I just covered what will always be our number one priority, safety. Our commitment here will never change and the health and safety
Amcor Plc
Amcor Q1 2025 Results
of our team members comes before anything else. The unrelenting focus we have to safety has been rewarded with industry-leading metrics and performance, as I just shared, which is an excellent example of what Amcor can achieve when we're focused and aligned on our priorities.
Second only to safety is the customer, as seen on Slide 4. I believe we have an excellent opportunity to become an even stronger company by accelerating our volume-driven organic growth through an unwavering focus on our customers, on sustainability, and on our portfolio. With our customers, we have two clear immediate opportunities. The first touches on our culture, talent and organization. We will instill a stronger growth-oriented and customer-first mindset across Amcor.
One of the first changes I made as CEO was appointing Fred Stephan, previously President of Flexibles North America to the newly created Chief Operating Officer role. One of Fred's most important responsibilities is to ensure we fully leverage our scale and capabilities across the global flexible packaging businesses.
Setting the organization up in this way means we remove regional silos and we ensure best practices are shared and deployed across the organization. We facilitate access to our entire product catalog anywhere in the world, and we drive efficiency across our manufacturing operations and equipment network.
By redirecting operational responsibilities and reporting lines, this new structure also serves to elevate and enhance the role of our global management team to focus on strategic, bigger picture choices including those designed to further accelerate organic growth and shareholder returns. The second opportunity we have to win with our customers and accelerate our growth lies in ensuring all our teams have the growth capabilities, tools and processes to operationalize growth and accelerate volumes while we maintain margin quality.
I believe we can be better when it comes to service quality, speed to market as well as building comprehensive pipelines of growth opportunities, which are managed rigorously to drive top line growth. For the last several months, we have allocated additional time and resources to expand on our commercial excellence framework and to make sure we get the basics right 100% of the time.
In addition, we are leveraging our global network of innovation centers to get even closer to our customers and develop the next generation of packaging solutions that meet their needs to preserve protect and promote their products in a way that supports circularity for the industry, which brings me to sustainability.
We have the opportunity to raise our sustainability profile and be an even stronger advocate in support of the best packaging solutions for consumers and customers to eliminate waste, lower carbon footprint and increase recycling rates while preserving functionality. Selling sustainable
Amcor Plc
Amcor Q1 2025 Results
packaging solutions benefits the planet while driving value for shareholders, and I'm confident we can increase the pace of our efforts to support packaging portfolio transition for our customers with good economic stewardship.
In order to demonstrate our commitment to sustainability leadership, I elevated our own focus, appointing Dave Clark to the newly created role of Chief Sustainability Officer. Many of you will know Dave has been instrumental in advancing our sustainability agenda for many years, and we continue to make excellent progress, which is detailed in our 2024 sustainability report launched earlier this month.
I've also tasked our teams to leverage the early wins we are having with paper to drive more growth from our innovative fiber-based offerings.
And finally, portfolio. We will drive accelerated growth by capitalizing on the opportunity to further orient our mix towards faster-growing higher-margin categories. We have been focusing on the priority categories of healthcare, meat, pet care and premium coffee, which we have also supplemented with value-accretive acquisitions.
I believe we can further accelerate organic growth by adding two additional areas, dairy and liquid applications. Both have significant global growth opportunities. My confidence in the ability to generate higher levels of organic volume growth consistently, and stronger returns for our shareholders is underpinned by Amcor's proven ability to focus, execute and deliver as we have demonstrated with safety.
Turning to Slide 5. This focus will move us towards becoming the company Amcor will be known as in the future and my vision for Amcor.
First, Amcor will be known as a sustainability champion. Amcor's purpose is grounded in safely and efficiently bringing essential food and medicine to people around the world through our innovative packaging solutions. We do this with a commitment to the planet, contributing to significantly limiting food waste, decarbonizing our products and developing packaging solutions that ultimately eliminate packaging waste in the environment. This is what inspires and motivates us to continue driving differentiation and value for our customers, employees, and shareholders.
It is this combination of unique capabilities and a clear purpose that sets Amcor up to be the sustainability partner of choice for our customers and drive the next generation of growth through circularity and decarbonization in a way no other company can.
Second is market leadership. Our unmatched scale, global reach and the breadth of our sustainable packaging solutions and service offerings position Amcor to win as a critical supply partner to global, regional, national and local customers. We will continue to build and expand
Amcor Plc
Amcor Q1 2025 Results
on these strengths to help ensure Amcor becomes the go-to packaging solutions provider in our categories of choice for customers across the globe.
Third, my vision is that Amcor will be well known for delivering consistent organic growth. As I've just covered, I see a clear opportunity to deliver higher levels of profitable volume-driven organic growth creating an even stronger company and unlocking value for our stakeholders.
Fourth, as an investment, Amcor will be known globally for its highly compelling financial profile with consistent performance against our model of delivering 10% to 15% of annual value creation for shareholders.
We expect to continue to generate significant free cash flow, maintain our investment-grade balance sheet and execute against our capital allocation strategy, which does not change. I'm excited with my vision for Amcor's future and with the priorities we have set geared toward accelerating growth.
As reflected in our Q1 volume performance, we are already starting to see some initial green shoots as a result of our efforts to date. There are many more opportunities ahead, and we will continue to be agile and evolve into an even stronger company.
Now turning to the quarter on Slide 6. I'm pleased we delivered another quarter of volume growth with a trajectory improving for the third consecutive quarter. This also contributed to earnings growth in line with our expectations, and as mentioned, the solid start to the year has given us confidence to reaffirm our full year guidance today.
We're very optimistic on the demand trends we are seeing in the market, and we expect our volumes will continue to grow through the year. I'll now turn the call over to Michael to cover the results and outlook in more detail - Michael.
Michael Casamento Thank you, P.K., and thanks to everyone joining us today. Starting with Slide 7 and a summary of our Q1 financial results.
Our fiscal 2025 year is off to a very good start with broad-based improving customer demand across many end markets. Our teams continue to position Amcor to win with our customers, which resulted in our third consecutive quarter of sequential improvement in volumes.
Overall volumes for the fiscal first quarter were up approximately 2% compared with 1% in Q4. As expected and called out in August, volumes remained weak in healthcare in North American beverage, which unfavorably impacted overall company volumes by approximately 2%.
So across the balance of the business, overall volumes increased by 4% over the September quarter. Price/mix had an unfavorable impact on sales of approximately 3% primarily driven by
Amcor Plc
Amcor Q1 2025 Results
continued destocking in higher-margin healthcare categories as expected, and as noted on our August earnings call.
First quarter adjusted earnings per share was in line with our expectations, coming in at 16.2 cents per share, which represents growth of 5% on a comparable constant currency basis. Adjusted EBIT grew by 3% compared with last year, and our teams continue to proactively manage costs helping drive operating leverage across the business. This resulted in another quarter of margin improvement with adjusted EBIT margin increasing by 50 basis points to 10.9%.
Moving to our flexibles segment on Slide 8. Q1 volumes were up 3% compared with last year and improved modestly on a sequential basis, reflecting broad-based growth across most geographies and end markets. Net sales decreased by 1% on a comparable constant currency basis as widespread volume growth across the flexibles business was offset by unfavorable price/mix of approximately 4%, again primarily related to lower healthcare sales.
As anticipated and discussed on last quarter's call destocking in healthcare continued in North America and Europe in pharmaceuticals, and this resulted in a headwind of approximately 2% to overall segment volumes. We expect this destocking to abate by the end of calendar 2024. Across the balance of our flexibles portfolio, volumes were up approximately 5%, reflecting solid customer demand across all regions and in many product categories.
In North America and Europe, first quarter demand continued to improve for the second consecutive quarter. Volumes were up low to mid-single digits in both regions despite the negative impact of healthcare destocking.
In emerging markets, our Asia Pacific and Latin American businesses also continued to deliver good volume growth at low to mid-single-digit rates, supported by solid demand in China, India, Brazil and Peru.
From a product category standpoint, meat, dairy, liquids and ready meals all delivered mid- single-digit growth and single-serve coffee was up. In healthcare, medical returned to modest growth, however pharma volumes were down low-double-digits compared with last year.
Adjusted EBIT for the quarter of $329 million grew by 3% over last year on a comparable constant currency basis. Higher volumes, combined with strong cost performance led to another quarter of margin expansion, with adjusted EBIT margins up 40 basis points to 12.9%.
Turning to rigid packaging on Slide 9. The rigid business continues to advance its performance and the trajectory of overall segment volumes improved for the third consecutive quarter. The business delivered another quarter of earnings growth despite a 4% decline in overall volumes compared with last year.
Amcor Plc
Amcor Q1 2025 Results
As expected, this was primarily driven by continued soft consumer and customer demand in the North American beverage business. Net sales were down 4% on a comparable constant currency basis, with price/mix relatively flat.
In North America, beverage volumes were down high-single-digits, consistent with our volume performance in the previous quarter despite a modest negative impact from the temporary closure of a couple of plants in the Southern Eastern United States toward the end of the quarter to help ensure our people remained safe from the impacts of Hurricane Helene.
As anticipated entering the quarter, consumer demand remained muted in Amcor's key end markets and customer mix remained unfavorable.
Latin American volumes were lower than last year, reflecting weaker customer demand in Argentina and Colombia, which was partly offset by growth in Mexico and the Caribbean. The specialty containers business delivered good growth in the dairy and nutrition categories with volumes down in healthcare due to destocking.
From an earnings perspective, the business delivered another quarter of growth and margin expansion through an ongoing focus on cost reduction and productivity measures. Adjusted EBIT of $62 million in Q1 was up 2% on a comparable constant currency basis, with EBIT margin increasing by 60 basis points to 7.7%.
As announced earlier today we reached an agreement to sell our 50% interest in the Bericap North America closures business to our joint venture partner for $122 million, which we will use to reduce debt. Although we've had a long and respectful relationship with Bericap over the past 27 years, at this juncture, we have chosen to unwind the joint venture due to a differing view on near-term capital requirements and resulting returns.
While Amcor continues to operate in the closure space, and it remains a category of interest, we are committed to maintaining our disciplined approach to capital allocation.
Moving to cash on the balance sheet on Slide 10. Consistent with historical quarterly phasing, Q1 was a quarter of cash usage. Compared with last year, CapEx increased to support a number of important projects that will continue to drive our sustainability, innovation, and growth agendas.
Additionally, we increased raw material inventories to ensure we are ready to service improving volume trends. Leverage was a little higher than we were anticipating, given the impact of higher inventories and secondly, due to stronger euro spot rates toward the end of the quarter, which negatively impacted debt and subsequent leverage by 0.1x, which has since unwound.
Amcor Plc
Amcor Q1 2025 Results
We expect leverage to reduce through the fiscal year and anticipate an improvement in the second quarter with an end point below prior year December, and we remain confident in meeting our expectation to exit fiscal 2025 with leverage at 3x or lower.
During the quarter, we returned approximately $180 million in cash to shareholders through our quarterly dividend, and our Board has also increased the quarterly dividend per share by 2% to 12.75 cents per share.
That brings me to the outlook on Slide 11.
As P.K. mentioned, based on our good start to fiscal 2025, we are reaffirming our guidance for the fiscal year. For fiscal 2025, we continue to expect adjusted earnings to be in the range of $0.72 to $0.76 per share on a reported basis, representing comparable constant currency growth of 3% to 8%.
Our performance through the first quarter further supports our expectations for strong growth in the underlying business for the year as we continue to build on our volume and earnings momentum.
As we pointed out on our August call it's important to remember that this guidance includes an EPS headwind of approximately 4% related to more normalized levels of incentive compensation based on our expectations for improved annual financial results. Excluding this incentive normalization, we expect growth from the underlying business in the high-single to low-double-digit range.
We continue to assume overall volumes will increase in the low to mid-single-digit range for the year with trading performance through October aligned with these expectations.
Interest expense guidance remains between $290 million and $305 million, with an effective tax rate in the range of 19% to 20%. Looking at our fiscal second quarter, we expect adjusted EPS to be relatively in line with our first quarter performance.
This means fiscal 2025 earnings phasing as outlined on our August earnings call will be broadly aligned with the historical average of approximately 45% of earnings being delivered in the first half of the year and 55% in the second half, with the fourth quarter typically the strongest of the year.
Finally, we're affirming our expectations to generate strong adjusted free cash flow in the range of $900 million to $1 billion for the year, supporting our confidence in exiting the year with the leverage back at 3x or lower, as I noted earlier. We're happy with our start to fiscal 2025 and look forward to the opportunities we have to accelerate our future growth. With that, I'll hand back to P.K.
Amcor Plc
Amcor Q1 2025 Results
Peter Konieczny Thank you, Michael. Turning to Slide 12 for a few closing remarks prior to opening the call to questions. I'm pleased with the overall performance trajectory of the business, and I'm excited about the significant opportunities we have ahead of us to enhance our profitable growth profile.
As I noted earlier, we have already taken a number of concrete actions designed to accelerate volume growth, each of which further strengthens our ability to generate attractive, sustainable shareholder returns. Customer demand is improving broadly, and Q1 was another quarter of volume growth with earnings in line with our expectations. We continue to build financial momentum and evolve our strategic focus to unlock value, supporting the reaffirmation of our financial guidance for fiscal 2025. Operator, we're ready to take questions.
Operator (Operator Instructions) Your first question comes from the line of Ghansham Panjabi with Baird.
Ghansham Panjabi P.K., first off, congrats on the new role, best wishes in the future.
So I guess in your vision slide specific to the organic growth component. I know it's early in your tenure; you've been in the company for a while, though. Can you share specifics on how exactly you intend to do that in the low growth end markets that both your segments are sort of exposed towards? Do you anticipate any portfolio repositioning that's needed to accomplish that including any divestitures?
Peter Konieczny That's a great question, Ghansham. You're right, I believe that driving a better organic volume growth profile is probably the biggest opportunity the company has. I'll give you a couple of soundbites where I think we need to work to facilitate that.
The first one is really basic, because you want to get the basics right, service quality, you want to be easy to do business with for the customers, which is one thing that we just need to continue to have an eye on. I said in my prepared remarks, we can probably do better on that side, or do even better.
The second one is related to capabilities, we are essentially looking at Amcor's commercial excellence program, which we brand value plus, which has really been focused on driving mix and margins. That was an excellent program for a challenge that we had many years ago, and that was highly successful in delivering returns for us. I think we have an opportunity to expand, but not reinvent the program, to expand the program to also include elements of organic volume growth and initiatives that go in that direction. We have already started doing that.
The other capability side that I would see is just leveraging better, and more, our incredible innovation capabilities. Very simply said, to a certain extent that comes down to just leveraging
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Amcor plc published this content on November 07, 2024, and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on November 07, 2024 at 05:38:03.994.