Destocked

3Q23 RESULT

Need To Know

• 3Q23 EPS of US17.5cps 6% below consensus expectations and FY23 EPS guidance downgraded 7.6% at the midpoint to US72-74cps 
• Volumes deteriorating quicker than expected, although AMC maintained market share
• Exit run-rate materially weakened driven by continued customer destocking and unfavourable product mix, which is expected to continue

AMC’s 3Q23 result disappointed markets, largely driven by underlying demand weakness and customer destocking. Flexibles and Rigids volumes declined 3% and 4% respectively on the pcp. 4Q23 volumes are expected to decline mid-single digits, indicating a weaker performance than Q3. 

The mix was also unfavourable and is expected to continue to be for the remainder of the year. With deteriorating demand conditions, the EPS impact is amplified. The exit run-rate is expected to continue to be weak, with volumes down 7% in March, and management calling out that destocking could “…continue for another couple of quarters”. AMC however have maintained market share and noted it has picked up share in certain categories (such as hot-fill, protein and healthcare) which is partly offsetting some of the underlying demand weakness.

FY23 EPS guidance has been downgraded to a range of US72-74¢ps from US$77-81¢ps. At the mid-point, this represents a 7.6% downgrade. Consensus was at the bottom-end of the previous range, with the actual downgrade closer to ~5%. The lower earnings and working capital adjustments have also seen free cash flow guidance downgraded to US$800-900m, down from US$1.0-1.1bn. In order to reach the midpoint of guidance, AMC needs to deliver 4% higher free cash flow in 4Q23 vs the pcp. We expect AMC’s inventory reduction back to more normalised levels should assist in achieving the new free cash flow guidance.

Investment View

The result was clearly disappointing and surprised the market where we would expect AMC to be more resilient. Underlying demand deteriorated faster than the market anticipated, and destocking is likely to continue to be an issue, particularly in some of the more seasonal businesses. Pleasingly management confirmed that AMC is winning share in certain categories.

Raw materials prices continue to unwind, and we expect this to partly offset top-line pressure. We note the product mix is also likely to remain unfavourable in the short-term, impacting margins. The new guidance for FY23 however looks achievable. FY24 consensus earnings growth currently stands at ~1.5%. We retain our Hold recommendation.