Amcor's Head of Investor Relations, Tracey Whitehead, welcomed everyone to the company's fiscal 2023 results call and introduced Ron Delia, the Chief Executive Officer, and Michael Casamento, the Chief Financial Officer. She noted that the press release and presentation for the call could be found on the website, and that the remarks would include forward-looking statements. Ron Delia then began the call by discussing the company's safety progress, which included 69% of sites remaining injury-free for at least 12 months and a 31% reduction in injuries globally.

Amcor delivered solid operating performance for the 2023 fiscal year, despite challenging market dynamics and softening consumer demand. The company successfully managed the areas they had control of, such as pricing and cost reduction efforts, to grow their adjusted EBIT. They are now well-positioned to return to mid-single-digit earnings growth in the second half of fiscal ‘24, and to grow at high-single-digit rates thereafter. Additionally, the company is focused on safety, and the recent tragic incident at their Pondicherry site in India is a reminder of the importance of their efforts to eliminate similar risks.

Amcor expects market conditions to remain the same in the near-term, but is confident that cost reduction and productivity initiatives will have a positive impact on earnings. Additionally, the company is cycling weaker volume comparatives in the second half and the headwinds from the sale of the Russian plants and higher interest expense are limited to the first half of the fiscal year. Amcor is also investing in innovation and sustainability initiatives in faster growing higher value markets, and is actively pursuing value-creating M&A. The company is committed to returning cash to shareholders and reported net sales for the year were up 1%, despite an unfavorable currency impact of 3% and pricing to recover higher raw material costs.

Amcor's organic sales were flat on a comparable constant currency basis due to a 3% drop in volumes, offset by a 3% price/mix benefit. Adjusted EBIT was up 1% on a comparable constant currency basis and adjusted EPS was down 2%. In the June quarter, sales were down 5%, with positive price and mix of 2% and volumes down 7%. Earnings were in line with guidance but due to weaker volumes, adjusted EBIT was 7% lower than the prior year. Amcor returned $1.2 billion of cash to shareholders through dividends and share repurchases. They have repurchased 11% of their outstanding shares and their dividend yields 5%. Return on average funds employed is 15.4%. Amcor is taking proactive measures to manage areas under their control.

The Flexibles segment reported sales in line with last year, which included a 5% growth due to higher raw material costs and currency movements. Price/mix benefits of 4% were offset by 3% lower volumes, although the pharmaceutical and pet care categories saw solid growth. Operating costs were aligned with the challenging market conditions, and pricing was used to recover inflation, resulting in a 1% adjusted EBIT on a comparable constant currency basis.

Net sales for the fourth quarter were down 5% on a comparable constant currency basis, with lower volumes and unfavorable mix outweighing positive price/mix. Adjusted EBIT for the quarter was 7% lower than the prior year, reflecting the impact of lower volumes, unfavorable mix, and inflation. In terms of Rigid Packaging, net sales were 4% higher than the prior year, including $260 million related to the pass-through of raw material costs. Organic sales declined 3%, with lower volumes in North America and Latin America offset by growth in the healthcare, dairy, and nutrition categories.

Fiscal '23 adjusted EBIT was down 7%, as strong earnings growth in the first half was offset by challenging market conditions in the second half. The June quarter saw a 4% decline in comparable constant currency net sales due to lower consumer demand and customer destocking, resulting in an $22 million drop in adjusted EBIT. Going forward, the September quarter is not expected to improve, which will have an unfavorable impact on earnings compared to the same quarter last year. The company's financial profile and balance sheet remain strong, with leverage of 3 times on a trailing 12-month EBITDA basis.

Amcor reported adjusted free cash flow of $848 million in line with their updated outlook, though below last year. This reduction was due to lower purchasing activities and inventory balances. The outlook for fiscal 2024 includes expectations for organic growth in the low-single-digit range, share repurchases, currency translation, and the sale of three plants in Russia. Interest and tax expense are expected to be higher, and adjusted free cash flow is expected to be in the range of $850-$950 million with at least $70 million in share repurchases. M&A opportunities will also be pursued.

Amcor expects that their adjusted EPS in the first half of fiscal '24 will be down in the high-single-digit to low-double-digit range on a comparable constant currency basis when compared to the prior year due to challenging market dynamics and higher interest expense. They anticipate customer inventories normalizing by the time they enter the second half of the fiscal year, and have a number of tailwinds in the second half, including structural cost savings, price and cost actions, reduced interest headwinds, and favorable prior year volume comparatives. This gives them confidence in returning to high-single-digit earnings growth in the second half and beyond without needing a significant change in the demand environment.

Amcor has identified protein packaging as an area of strategic investment due to its large addressable market and potential to add value for customers. Amcor's specialized and sustainable solutions have enabled them to successfully grow their revenue from the sale of processed and fresh meat packaging to over $1 billion. The company is focused on mitigating the impacts of challenging conditions while continuing to execute their long-term shareholder value-creation strategy.

Amcor is well-positioned to drive mid-single-digit CAGR growth over the medium term due to their comprehensive product portfolio, strong presence in North America, and their go-to-market model. They have recently made investments to enhance their offering and strategy, and are focused on sustainability through package design, waste management infrastructure, and consumer participation.

Amcor has made advancements in innovation and design in terms of more sustainable packaging solutions and increased use of recycled materials. They are collaborating with other industry leaders in various ways across the value chain to help support the development of the infrastructure for a circular economy. They are partnering with Licella and Mondelēz to promote a circular economy and bring on stream one of Australia's first chemical recycling facilities. In the first half of fiscal year '24, volumes are expected to be down mid- to high-single digits compared to the previous year.

Ron Delia explains that they are expecting the market conditions to continue during the first half of the fiscal year, leading to a mid to high single digit decline in volumes. However, they are expecting more normal rates of volumes for the second half of the year, resulting in a flat to low single digit decline in volumes for the full year. He also mentions that they have been seeing destocking in the meat, premium coffee, and medical packaging spaces.

Michael Casamento explains that interest rates have continued to rise throughout the year, resulting in higher interest expenses for the company. The fourth quarter is not the best quarter to use as a proxy for interest expenses, as it is typically the company's highest cash flow quarter, resulting in lower interest expenses.

Michael has explained that Amcor's interest rate has increased and they are expecting the range to be between $320 and $340 million. Ron Delia then explains that Amcor's portfolio is mainly defensive and made up of consumer staples, although there are some more discretionary items. He then goes on to say that the current economic situation is causing a dislocation they haven't seen in 40 years and that this is causing mid-single-digit declines in the food business in Europe and North America.

Michael Casamento explains that the company has bought back over $1 billion of shares and done three deals this year and in '23, with another deal recently announced. The company plans to complete the $70 million buyback this year, investing in organic growth through CapEx and paying a dividend. The remaining $300-400 million is ideally put towards M&A or buyback.

Ron Delia confirms that the company has a broad offering of fiber-based options for different categories and is not concerned about the long-term viability of aluminum capsules. He also notes that there is down trading from premium products to home brand products, which is having an impact on the packaging demand profile as well as the price and margin generated from premium products.

Ron Delia discusses AmFiber, a fiber-based packaging platform, which has potential applications in the confectionery, culinary, and beverage spaces. He notes that AmFiber is a big platform for the company, and they are optimistic about the growth outlook for it.

Ron Delia explains that the Flexibles segment's mix was still a positive contributor in the quarter, but categories like pet care and medical that usually contribute to mix were softer. He also notes that the company has been actively pricing to recover inflation and has priced up $1.1 billion between raw materials and general inflation. Delia then goes on to explain that while there are large incumbents in the protein market, the company needs to scale and grow more significantly in order to compete.

The company acquired Moda to offer full system packaging equipment, technical services, and parts, which can be used with their industry-leading film technology. This will allow them to compete in the protein space, which requires functional barriers to preserve shelf life and functional resistance to run packages through lines at high speed. The company is optimistic that they will be able to compete and earn business, and if volume growth starts to come back in the second half of 2024, they expect upside to mid-single to high single digits.

The company is expecting volumes to continue to be down mid-single digits in the first half of the year and to be flat to up low single digits in the second half. They do not anticipate a dramatic improvement in the overall demand environment, and expect the volume trajectory to be roughly comparable between the Rigid and Flexibles segments. The volume picture could improve and be a driver of reaching the higher end of the guidance range, but the company is taking cost actions and remaining prudent before expecting demand to come back.

Mike Casamento discussed the company's expectations for raw material costs, price/mix, and input cost tailwinds for FY24. He expects a modest tailwind in the first quarter, with flat or slightly down raw materials. They will continue to price for inflation and expect some negative mix in the beginning of the year due to stronger parities in certain industries.

Ron Delia explains that SKU rationalization programs are generally beneficial for the company as it simplifies the business and takes out unnecessary complexity. He also states that the proliferation of SKUs has been explosive in the U.S. and that sustainable formats are being introduced to help the process. In regards to emerging markets, there has been some down-trading away from multinationals to local brands, which could be unhelpful for large packaging companies.

Ron Delia explains that the underperformance of the DMs relative to the EMs is not easy to understand, as there were volume declines in Europe and North America in the fourth quarter, but the EM business held up. He believes that their value proposition as an innovation and sustainability leader, as well as their balanced customer mix, may explain their better performance in EMs. Michael Casamento then adds that in terms of interest expense, they have been in a 50-50 fixed-floating mix, but more recently, they have shifted to a 70-30 mix to reduce volatility.

Ron Delia states that there are more opportunities to acquire businesses due to market dislocation and sellers being more likely to bring things to market. He also mentions that they have done four small deals in the last 12 months and are on the lookout for medium and larger sized deals. He also notes that due to the law of numbers, most of the deals will be smaller. Finally, he addresses the question of flexibility around the cost out program and states that they have the ability to go harder on the cost base if the destocking trend continues longer than expected.

Ron Delia gives an update on how the business has been optimized in recent years and how there is still more opportunity for cost savings. He states that the ultimate goal is to grow and that the current demand challenges are likely part of a cycle. He also adds that cost inflation is starting to moderate.

Michael Casamento explains that prices have not necessarily decreased, but the rate of increase has declined across most cost buckets. Labor is increasing in mid-single digits and energy costs are higher than a couple of years ago. Freight has seen some declines off of its peak. The company has been successful in pricing to recover inflation and reset prices with new contracts. Inventory and working capital management is progressing heading into '24, as the company built inventory due to supply constraints and put $3 billion through the top line in terms of price to recover raw material and inflation.

In November, the company reduced its inventory levels by $400 million and its payables by $500 million, resulting in a cash outflow of $230 million for the year. This caused the working capital sales to be 9.5%, higher than its typical 8-9%. The company expects to normalize the payables and reach a neutral position by the end of the year, and its free cash flow guidance for the next year is $850 million to $950 million.

Ron Delia discusses customers' price expectations around responsible and sustainable packaging, noting that there is value associated with having a positive environmental profile. He explains that new products tend to start at a higher price point, but that this will evolve over time as the product gains scale benefits. He also mentions the Licella plant in Australia.

Ron Delia explains that Mondelez and Licella have invested several million dollars in a plant located in the western suburbs of Melbourne and Altona. The plant will bring recycled content to the Australian market and provide an outlet for the soft plastics that are collected through the REDcycle program. The plant could be operational by the end of calendar 2024, but it is estimated to be an 18-24 month project.

Ron Delia, CEO of Amcor, has responded to a question from George Staphos of Bank of America about whether customers are looking for cost reductions from packaging suppliers. He states that while there are pockets of promotions, nothing is pervasive enough to have a material impact on their volume outlook. He also mentions that they are continuing to recover inflation through their cost base. He closes the call by thanking everyone for their interest in Amcor.

This summary was generated with AI and may contain some inaccuracies.