Packing slower

1H23 RESULTS

Need To Know

• Result in-line with consensus, sales up 2% to $7,354m, EBIT up 8% to $791m (constant currency)
• Quarterly dividend increased to 12.25cps (from 12.0), additional $100m of buybacks announced
• FY23 guidance maintained ($1.0-$1.1b free cash flow, $0.77-$0.81 eps)

Amcor (AMC) packaged its results in-line with consensus at an EBIT level, with constant currency sales growth of 2% reflecting a price/mix benefit of ~3%, partly offset by ~1% lower volumes. AMC maintained its FY23 guidance, although is likely tracking closer to the lower end given softer volumes, unfavourable FX and higher working capital.

Flexibles. Sales were 3% higher driven by price/mix benefits, partly offset by lower volumes. Healthcare, cheese, pet care and home and personal categories all saw volume growth, offset by lower volumes in condiments, fresh meat, snacks and confectionary. EBIT rose 8% reflecting strong operating cost performance, however the margin was impacted by higher raw materials.

Rigids. Constant currency sales fell -1%, reflecting lower volumes driven by falling demand and customer destocking, partly offset by new business wins. Year to date, speciality container volumes were higher driven by growth in healthcare, dairy and nutrition end markets.

Weaker cash flow. Free cash flow for the half was negative -$61m, predominantly impacted by working capital from higher inventory levels and higher raw material costs. The December quarter saw cash inflow of $338m, in line with the same quarter in the previous year. For AMC to reach the midpoint of its guidance, it would need to generate >10% more FCF in 2H23.

Capital management. AMC raised its dividend to 12.25cps, up from 12.0cps. AMC also increased its buyback program by $100m to a total of $500m. Net debt was $6,065m, with leverage at 2.8x trailing EBITDA, comfortably within its long-term averages.

Russian divestment. The Russian business was divested in December, receiving $365m in addition to approximately $65m of cash on hand which was repatriated upon close. Approximately $120m of the cash is expected to be invested in a range of cost saving initiatives with the remainder expected to fund the buyback and reduce debt. The sale is expected to negatively impact FY23 eps by ~3%.

Investment View

Whilst the result was in line, AMC will need a significant 2H to reach the midpoint of its FY23 guidance on a free cash flow basis. We however expect some of the raw materials price increases to unwind as supply chains ease, improving margins. AMC is more cautious about the demand outlook and is increasingly likely to report the lower end of its guided range. We retain our Hold recommendation.

Figure 1: Higher Russia impact partly offset by lower expected fx impact