AMCR
Amcor Plc
FY24 Results
5.30pm EST August, 15 / 7.30am AEDT August 16, 2024
Amcor Plc
FY24 Results
CORPORATE SPEAKERS:
Tracey Whitehead
Amcor Plc; Head of Investor Relations
Peter Konieczny
Amcor Plc; Interim Chief Executive Officer
Michael Casamento
Amcor Plc; Chief Financial Officer
PARTICIPANTS:
Ghansham Panjabi
Baird; Analyst
Keith Chau
MST Financial Services; Analyst
Adam Samuelson
Goldman Sachs; Analyst
Daniel Kang
CLSA; Analyst
Anthony Pettinari
Citi; Analyst
George Staphos
Bank of America; Analyst
James Wilson
Jarden Australia; Analyst
Brook Campbell-Crawford
Barrenjoey; Analyst
Richard Johnson
Jefferies; Analyst
John Purtell
Macquarie; Analyst
Cameron McDonald
E&P; Analyst
Nathan Reilly
UBS; Analyst
Amcor Plc
FY24 Results
PRESENTATION:
Operator: Hello. Welcome to the Amcor Fiscal Year 2024 Results Conference Call. (Operator Instructions) I would now like to turn the conference over to Tracey Whitehead, Head of Investor Relations.
Tracey Whitehead: Thank you, Operator. Thank you, everyone, for joining Amcor's fiscal 2024 fourth quarter and full year earnings call. Joining today is Peter Konieczny, Interim Chief Executive Officer; and Michael Casamento, Chief Financial Officer.
Before I hand over, let me note a few items. On our website, amcor.com under the Investors section, you'll find today's press release and presentation, which we'll discuss on this call.
Please be aware that we will also discuss non-GAAP financial measures and related reconciliations can be found in that press release and the 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 differ from current estimates. Reference can be made to Amcor's SEC filings including our statement on Form 10-K and 10-Q for further details. With that, over to you, PK.
Peter Konieczny: Thank you, Tracey. Thank you, to all who have joined us for today's call. I want to open the call with a big thank you to our Amcor colleagues around the world, all of whom demonstrated tremendous focus in fiscal 2024.
The hard work and dedication enabled us to improve our financial performance through the year and to finish the year strong, and I want to publicly recognize their efforts. In terms of Q4, we start as always with safety on Slide 3.
Safety is our number one priority, and our efforts to provide a safe and healthy work environment for our teams resulted in another year of improved performance, which reinforces our industry leadership when it comes to safety. 73% of our sites have remained injury-free for 12 months or longer. Overall, Amcor experienced a 12% reduction in injuries compared to fiscal 2023. Our commitment to our people, and to their safety remains our most important value, and we continue to aspire to achieve our ultimate goal of zero injuries.
Turning to Slide 4. Amcor's near-term priorities remain consistent with those I shared on our Q3 earnings call and I'm happy to report we are successfully delivering against these priorities. As I just mentioned, providing a safe and healthy work environment for our global workforce will always be number one.
Amcor Plc
FY24 Results
Second is to stay close to our key stakeholders including employees and customers, which helped us finish the fiscal 2024 year strongly. Our teams continue to execute well in the fourth quarter, maintaining cost discipline as volume trends continue to improve sequentially, with a return to volume growth in Q4. As a result, we delivered another quarter of solid margin expansion and earnings per share growth above the expectations we set out in April.
Third is to build on the progress we have worked hard to deliver across the business and ensure we maintain momentum in fiscal 2025. We expect our earnings and volume performance to continue to improve, and this is reflected in our fiscal 2025 guidance.
And fourth, our senior leaders and I continue to focus on providing stability for the business and helping our teams deliver for all our stakeholders. We are executing well and winning with our customers as we continue to reinforce that Amcor's strategy, agenda and priorities have not changed.
Moving to our key messages for today on Slide 5.
First, Amcor reported strong financial results for the fourth quarter, driven by solid performance in the underlying business and a return to volume growth, resulting in both segments delivering adjusted EBIT growth on a comparable basis. Second, volumes, EPS growth and free cash flow were ahead of expectations we set out in April. Overall volumes increased 1% in the quarter compared to last year, which exceeded the low single-digit decline we were anticipating. Earnings per share also outperformed expectations, up 9%, which was above our guidance for mid-single-digit growth.
Third, we expect to build further momentum and deliver annual EPS growth through continued strong performance from the underlying business. At the midpoint of our fiscal 2025 EPS guidance range for growth of 3% to 8%, we expect total annual value generated to once again be consistent with the 10% to 15% outlined in our shareholder value creation model, assuming a dividend yield aligned with historical average.
It is important to point out that we expect the underlying business to continue to deliver strong growth in line with the high single-digit earnings growth experienced in Q4, considering our guidance includes an EPS headwind of approximately 4 percentage points related to normalization of incentives. Michael will step through the components embedded in our guidance range in more detail shortly.
Our final key message is that our capital allocation priorities and strategies for long-term growth have not changed. We continue to invest in organic growth across the business including in higher-value priority categories in emerging markets. Strategic M&A also remains an important source of incremental growth and value creation. We believe the strength of our market positions, our opportunities to invest for growth, our execution capabilities and our commitment
Amcor Plc
FY24 Results
to a compelling and growing dividend and to maintaining an investment-grade credit rating sums up to a convincing investment case for Amcor.
Moving to Slide six for a summary of our financial results. We finished fiscal 2024 on a strong note as customer demand continued to improve off second quarter lows, and our teams did an excellent job leveraging our differentiated value proposition to support our customers and drive volumes higher.
At the same time, our unwavering focus on proactive cost management through the year resulted in four consecutive quarters of strong margin expansion. Overall volumes returned to growth earlier than we anticipated and were up 1% in Q4, our second consecutive quarter of strong sequential volume improvement.
As expected, Volumes across healthcare categories and in the North American beverage business remained soft through the fourth quarter. Combined, these two businesses, which represent approximately 25% of sales in Q4, unfavorably impacted overall volumes by approximately 2%.
Across the balance of the business, overall volumes were approximately 3% higher than the June quarter last year. This reflects broad-based improvements in customer demand across many end markets and what we believe is the end of destocking in all categories other than healthcare. Price/mix had an unfavorable impact on sales of approximately 3% primarily driven by continued destocking in high-margin healthcare categories.
Cost reduction and productivity initiatives remained a focus, and we delivered another quarter of significant cost savings totaling more than $110 million including an additional $20 million of benefits from structural cost initiatives in Q4. This builds on the outstanding efforts by all our teams across the businesses through the first three quarters, bringing the total cost savings for the year to more than $440 million including structural savings of $35 million. The result of improving volume trends and our focus on cost and productivity actions was another quarter of strong earnings leverage as momentum in Amcor's underlying business continue.
Fourth quarter adjusted earnings per share of 21.1 cents grew by 9% on a comparable constant currency basis, above our April guidance for mid-single-digit growth. Adjusted EBIT was up 4% compared with last year.
Overall, for fiscal 2024, we delivered adjusted EPS toward the top end of our guidance range we provided last August and our ongoing focus on cash conversion was rewarded with adjusted free cash flow of $952 million, up more than $100 million on last year and just above the top end of our guidance range.
Amcor Plc
FY24 Results
We also continued to return significant cash to shareholders through a compelling and growing dividend in addition to share repurchases, which combined totaled approximately $750 million for fiscal 2024. I'll turn it over to Michael now to provide some further color on the financials and our outlook.
Michael Casamento: Thanks, PK, and hello, everyone. Beginning with the flexible segment on Slide 7 and focusing on our fiscal Q4 performance. Q4 volumes increased by 3%, which represented a significant sequential improvement of 5 percentage points compared with the March quarter. Net sales however were down 1% on a comparable constant currency basis as broad-based volume growth was offset by unfavorable price/mix of approximately 4%, primarily related to lower healthcare sales, which we anticipated.
Destocking in healthcare categories continued in North America and Europe, and this resulted in a headwind of approximately 2% on overall segment volumes. Across the balance of our flexibles portfolio, Amcor experienced very solid growth with volumes increasing by approximately 5% in the quarter. The improved customer demand we saw in the third quarter continued as customers increased their focus on growing volumes and returned to more normalized order patterns now that destocking has ended. This led to broad-based growth across most geographies, with volumes increasing in several categories including meat, cheese, home and personal care and unconverted film and foil.
Across North America and Europe, fourth quarter demand improved across many end markets, resulting in a return to overall volume growth in the low to mid-single-digit range in both regions despite continued softness in healthcare. In North America, volumes were higher in meat, cheese and snacks categories.
In Europe, the business delivered particularly strong volume growth in meat, home and personal care and unconverted film and foil. Emerging market volumes were up mid-single digits in Q4. Most countries experienced solid growth, with volumes in China increasing for the fourth consecutive quarter, and strength continuing in India, Thailand, Brazil and Mexico, to name a few.
Adjusted EBIT for the quarter of $403 million was 5% higher than last year on a comparable constant currency basis. Higher volumes, combined with strong cost performance through the quarter including from restructuring initiatives, led to another quarter of margin expansion with EBIT margins up 110 basis points to 15%.
Turning to Rigid Packaging on Slide 8. Volumes and earnings trajectory for Rigids continued to improve in the fourth quarter, with the business delivering consecutive quarters of earnings growth in the second half.
Amcor Plc
FY24 Results
As anticipated, overall volume performance for the business improved sequentially as the 5% volume decline in Q4 was 3 percentage points better than the March quarter.
As expected, the Q4 decline was driven by lower volumes in the North American beverage business. Across the balance of the Rigid Packaging portfolio, volumes were in line with the fourth quarter last year and favorable price/mix benefits of approximately 3%, resulted in a 2% decline in net sales on a comparable constant currency basis.
In North America, beverage volumes were down 8% reflecting lower consumer demand in Amcor's key end markets and unfavorable customer mix. Volumes improved by 3 percentage points on a sequential basis as destocking ended and warmer weather resulted in modest improvement in consumer consumption versus the March quarter.
In Latin America, volumes increased in the low single-digit range compared with last year, driven by continued growth in Brazil and Colombia.
From an earnings perspective, the business delivered another quarter of earnings growth and margin expansion through an ongoing focus on cost reduction and productivity measures and the realization of benefits from restructuring initiatives. Adjusted EBIT increased by 2% in Q4 with EBIT margin increasing by 70 basis points to 8.8%.
Moving to cash on the balance sheet on Slide 9. Adjusted free cash flow for fiscal 2024 was just above the top end of our guidance range at $952 million, up more than $100 million or 12% compared with last year. Cash generation was strong through the fourth quarter, and we delivered good cash conversion by remaining laser-focused on improving working capital performance with inventories reducing for the sixth consecutive quarter.
The timing of spend on CapEx projects was also a modest tailwind in the year, which we expect to unwind in fiscal 2025. Leverage at 3.1x was down 0.3 of a turn from the March quarter and was in line with our expectations for year-end. This brings me to the outlook on Slide 10.
For fiscal 2025, we expect to continue building on the volume and earnings momentum we achieved through the second half of fiscal 2024. Adjusted earnings are expected 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%. As PK noted earlier, we expect the growth in the underlying business will remain strong in fiscal 2025.
However, it's important to note that our 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, our guidance range implies expected growth from the underlying business in the high single to low double-digit range.
Amcor Plc
FY24 Results
Our guidance range assumes an expected volume increase in the low to mid-single-digit range for the year, with trading performance in July aligned with this expectation.
Interest expense is expected to be between $290 million and $305 million, and the effective tax rate is estimated to be in the range of 19% to 20%. When combining interest and tax in absolute terms, the expectation is for a modest headwind to earnings when compared with fiscal 2024.
In terms of phasing, we anticipate this will be broadly aligned with 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. And finally, we expect to continue to generate strong adjusted free cash flow in the range of $900 million to $1 billion, even as we fund an increase in capital expenditure of approximately $40 million to $60 million from a lower base in 2024, which I mentioned earlier.
We expect to exit the year with leverage back within our 2.5 to 3x management range. We are pleased with the finish to fiscal '24 and look forward to delivering strong financial results in '25 and beyond, with that, I'll hand it back to you PK.
Peter Konieczny: Thank you, Michael. In closing, on Slide 11, we finished fiscal 2024 on a strong note, and we are encouraged by the broad-based improvement in volumes we are seeing across most geographies and end markets. Earnings growth in both segments in the second half of fiscal 2024, combined with a return to volume growth in the fourth quarter and the trends experienced in the first several weeks of fiscal 2025 give us confidence that momentum will continue to build in the underlying business.
We expect overall volumes to continue to grow in fiscal 2025 and we will maintain a sharp focus on cost control and productivity initiatives to drive solid earnings growth.
Importantly, assuming a dividend yield aligned with historical average at the midpoint of our EPS guidance range, we are well positioned to deliver annual value generated in fiscal 2025 to be in line with the 10% to 15% outlined in our shareholder value creation model.
We'll continue to capitalize on opportunities to grow the business by staying close to our customers, providing the support and the differentiated more sustainable packaging solutions they need to protect, preserve and promote their products as they drive their own volume growth. We continue to invest in organic growth including in higher-value priority categories and emerging markets.
Strategic M&A is an important source for incremental growth and value creation, and we're committed to a compelling dividend, which grows annually. We are confident in our execution capabilities and in the opportunities we have to continue delivering profitable growth from the
Amcor Plc
FY24 Results
underlying business and to create strong free cash flow in fiscal 2025 and beyond.
Operator, we are now ready to turn the line over to questions.
Operator: (Operator Instructions) Your first question comes from the line of Ghansham Panjabi with Baird.
Ghansham Panjabi: Can you just give us a sense as to what you're seeing as it relates to true market conditions?
I mean obviously you're cycling over easier comparisons from a year ago, just given inventory destocking, et cetera. But what is your characterization of the actual end market in context of what we read about with consumer affordability issues and so on?
And I guess I'm asking because last year, your volumes were down 5% in fiscal year 2024, and your guidance is, I think it was low to mid-single-digit volumes. So just trying to get a sense as to what you're actually seeing in the market.
Peter Konieczny: Yes. Thanks, let me take that question here and then see if Michael wants to build if needed or required. First of all, we have been very pleased with the performance of the volumes with a sequential improvement from Q3 to Q4, which was even better than what we expected.
We went back to volume growth, which was again better than the low single-digit decline that we had indicated after Q3, and we have been pleased with that being pretty much broad-based across the different regions and categories.
So it was a broad momentum that was building here, and we are very pleased to see that, too. Then if I double-click on where the 1% comes from, I try to depict that into the different drivers. The first thing that I would say is it's not necessarily consumer demand. Consumer demand continues to be muted.
We would consider that to be low single digit down still. Also when we go into 2025 with our expectations, we wouldn't assume that necessarily improves.
What we are seeing is that our customers are starting to do better, when we talked about this also in the last earnings call we pointed out that our customers are looking for a better balance between volumes and price. You also see that when you go through some of the announcements that have come out lately, so that's better, and we are demonstrating an ability to win with those customers. That is through what we have to offer, and I would call that on a headline, the value proposition that we can bring to the customer.
Amcor Plc
FY24 Results
So that's encouraging, and that's really the driver of the improvement to a large extent. Of course we are seeing some benefits from cycling out of the destocking that we had last year.
In the fourth quarter to give you a feel that would have been not really much, maybe a couple of percentage points, but also remember that we are still seeing destocking in the healthcare business. That pretty much goes against us. Those would be the major drivers. They're very consistent with what we are seeing when we look to 2025. I hope that answers the question.
Operator: Your next question comes from the line of Keith Chau of MST Financial Services.
Keith Chau: Just want to maybe actually reflect back on that question. So what you're saying is that the consumer is still weak at the moment. So the growth was not consumer demand, still low single digit down. Your volumes in FY 2025 feels like part of that is the unwind of destocking, which is a couple of percent that you're expecting on low to mid-single digits. So there is maybe some slight improvement in your underlying volume. So I'm just trying to work out what the difference is between those two factors. Like who do you think is losing? Are you taking share?
I'm just trying to square up the numbers from the first question.
Peter Konieczny: So first of all, I would say it's not really a share story here. It comes down to, the things that I've mentioned before, the consumer demand, we would hope to improve going forward, but we are careful in terms of our expectations for the next year. We are not banking much on that to happen. If it comes, that would be great, and that would be providing further tailwinds for us. And again what you are seeing is on a comparative basis to prior periods, you would see destocking cycling off.
That gets us a better volume performance in terms of what we report. And a little more color on that, in the first half of 2025, we would be comping a pretty broad range to destocking versus prior period. However, we said that pretty much came to an end after the first half last year. So that won't be there in the second half anymore.
In the first half, we will still continue to see destocking in the healthcare category, which is pretty much a quarter longer than what we guided towards after Q3, but that will abate in the back half of the year.
Then we continue to believe that our customers and to a large extent, we have good exposure to big global customers that they will continue to drive their volume performance, which is very consistent with what you are hearing. We are partnering up with them, we have built a good relationship with them over the past. We always have been very close to the big customers. And as their volumes are coming back, we take advantage of that. So you pull all that together, that results in the volume guidance of low single digit to mid-single digit next year.
Disclaimer
Amcor plc published this content on 22 August 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on August 22, 2024 at 06:28:05 UTC.