The operator introduces the Amcor Third Quarter 2024 Results Call and welcomes the participants. Tracey Whitehead, Head of Investor Relations, and two other speakers, Peter Konieczny and Michael Casamento, will be discussing the company's third quarter performance. The presentation and press release can be found on the company's website. Non-GAAP financial measures will be discussed and there will be forward-looking statements. The operator also mentions the factors that could affect future results and encourages participants to refer to the company's SEC filings for more details. Peter Konieczny takes a moment to recognize the accomplishments of his predecessor, Ron Delia, including the successful acquisition and integration of Bemis and navigating through the pandemic.

The speaker expresses gratitude for Ron's leadership and announces that he will be taking over as interim CEO. He highlights Amcor's strong position in the industry and the proactive steps taken to align with market conditions. The speaker's near-term priorities include maintaining a safe work environment, staying connected with stakeholders, and finishing the fiscal year strongly. The company's improved third quarter performance has led to an increase in full year guidance.

In the third quarter, Amcor's focus on safety and momentum has led to outperformance in the business, with adjusted earnings per share exceeding expectations. The company's Flexibles and Rigid Packaging segments both saw growth, and improved working capital performance resulted in increased adjusted free cash flow. The company's volume trajectory has also improved, with higher customer demand and a return to earnings growth. The team remains focused on controlling costs to maintain this positive trend.

The company's third quarter financial performance has given them the confidence to increase their full year adjusted EPS guidance range and reaffirm their guidance for adjusted free cash flow. They believe they have turned the corner after a challenging year and expect continued growth in the fourth quarter. The company remains confident in their capital allocation framework and strategy for long-term growth. The first 9 months of the fiscal year showed significant benefits from cost actions, leading to a decline in adjusted EBIT of 3%. However, the company has reached an inflection point and saw a return to profit growth in the third quarter, with improved volume trends and better-than-expected demand.

In the third quarter, the company continued to focus on cost reduction and productivity initiatives, resulting in $130 million in cost savings. Despite a 6% decrease in net sales due to lower volumes in healthcare and North American beverage categories, the remaining 70% of the business saw flat volumes. The company expects destocking to be largely behind them and has returned significant cash to shareholders through dividends and share repurchases. The Flexibles segment saw improved earnings leverage in the quarter.

In the third quarter, net sales for the company were down 6%, with a 4% decrease in pricing and a 2% decline in overall volumes. This was largely due to weak healthcare product sales and destocking in North America and Europe. However, the rest of the flexibles portfolio saw a 1% increase in volumes, with growth in various end markets and emerging markets. In North America and Europe, excluding healthcare, there was growth in cheese, and a sequential improvement in meat and pet care volumes. In Asia, net sales were slightly higher, with growth in China, Thailand, India, and the Philippines offsetting lower volumes in the Southeast Asian healthcare business. In Latin America, there was good volume growth in Brazil, Mexico, and Peru. Adjusted EBIT for the quarter was $358 million, a 5% increase from last year, due to strong cost performance and improving demand trends, leading to a 170 basis point increase in EBIT margins.

In the third quarter, Amcor's net sales for rigid packaging were 8% lower due to lower volumes, but this was an improvement from the previous quarter. North America's beverage volumes were down 11%, while Latin America's were in line with last year. The Rigid Packaging business saw earnings growth due to cost reduction and restructuring initiatives, leading to an increase in EBIT margins. Adjusted free cash flow for the first 9 months was $100 million higher than last year, and leverage remains at 3.4x. Amcor expects leverage to decrease to 3x by the end of the fiscal year.

The company is raising its full year guidance for adjusted EPS due to strong performance in the third quarter and expected improvements in volume. They will also focus on controlling costs and expect organic earnings growth in the low single-digit range for fiscal 2024. However, there will be negative impacts from the sale of their Russian business, higher interest and tax expense. The company is confident in their fourth quarter performance and expects volume improvement to continue. They have also reaffirmed their guidance for adjusted free cash flow.

The speaker concludes by expressing confidence in Amcor's strong position in the industry, thanks to their global leadership, innovation capabilities, and talented employees. They are focused on investing in growth, reducing costs, and improving productivity, while also prioritizing the safety of their employees. The speaker's main goal is to maintain momentum and accelerate earnings growth, and they have already raised their full year EPS guidance. The company's Q3 financial results and performance in April support their expectation of mid-single-digit earnings growth in Q4.

In the third quarter, the company saw an improvement in volume and had strong cost performance. This momentum is expected to continue into the fourth quarter. The 4% decline in volume was mainly due to market impacts and destocking in healthcare and North American beverage, while the rest of the portfolio remained flat.

The company is pleased with their third quarter results, as healthcare and North American beverage make up 30% of their business and the rest of the portfolio remained flat. The volume performance in January and February benefited from an unwind of a strong destocking in December. Customers are responding to a better balance between volumes and margins, and the expected destocking has abated in all areas except healthcare and North American beverage. In the Flexibles segment, there was a 2% decrease in the third quarter due to improved customer performance and a decrease in destocking.

The Flexibles segment saw a decline due to the impact of healthcare, but the rest of the portfolio was flat or slightly up. The Rigid segment also improved from the previous quarter, but the market is still soft. The company expects this improvement to be sustainable due to decreased destocking and good customer performance. In regards to healthcare, there was a slight improvement in the third quarter, but the main issue is still destocking. The company expects further improvement in the fourth quarter as destocking decreases.

The speaker discusses the company's projected decrease in volume in the fourth quarter, primarily driven by the healthcare sector, and the uncertainty around when this trend will end. They also mention that they expect to exit the fourth quarter with flat volume. The next question asks about the company's operating leverage and the speaker explains that they were able to reduce fixed costs and improve productivity in the third quarter, but there may be some leakage of costs if volumes start to increase.

In the quarter, the company saw benefits from both their cost flexing and structural program. They have been proactive and aggressive in reducing labor costs, driving procurement savings, and controlling discretionary spending. They have also announced plant closures and restructures, with some already completed. This program is expected to deliver a $50 million EBIT benefit, with $35 million in the second half of FY ‘24 and $15 million in FY ‘25. The company is pleased to see these benefits coming through.

In the third quarter, the company saw a $15 million contribution, with most of it coming from the Flexibles segment and some from Rigid. The company has been controlling costs well and has taken a significant number of employees out of the business. This has resulted in permanent cost savings and increased productivity, leading to margin improvement. The company expects to continue adding 20-30 basis points in margin per year and will see further cost benefits in the fourth quarter. The Rigid segment has shown good leverage in a soft market.

In this paragraph, a question is posed by John Purtell of Macquarie about the sequential volume pickup in Flexibles. Peter Konieczny, the operator, responds by saying that there was low single-digit growth in emerging markets and a bigger sequential improvement in developed markets. He also explains that the bigger markets were more heavily hit with inventory builds and destocking, particularly in the healthcare sector. The next question is from Richard Johnson of Jefferies, who asks about the strategic positioning of the group, particularly in Rigid Plastics, with other substrates recovering quicker in the beverage market. Peter Konieczny responds by acknowledging the tough quarters with volume weakness in the business.

The speaker discusses the company's efforts to position themselves for improving volumes and confirms that the second quarter was below expectations. They believe that the third quarter will see a better volume performance and they want to focus on the earnings capacity of their businesses without making strategic changes. They mention their belief that Rigid Plastics is a good business strategically, with a diverse portfolio, strong industry positions, and good customer relationships. They also note the company's strong sustainability profile.

The company has made significant improvements and restructuring efforts, resulting in a return to profit growth. They are now focused on increasing volume and delivering more. The speaker clarifies that the business is referred to as the Rigid Packaging business. In terms of net interest, the guidance has been slightly reduced due to improved timing of cash flows and working capital. There have been no major changes in the rate profile or debt mix.

Peter Konieczny, the speaker, is discussing the trends in the Flexibles market, specifically in cheese and protein. He mentions that there has been a significant improvement in volumes from Q2 to Q3, with the main drivers being market impact and destocking. He also talks about the five priority categories that the business focuses on, including healthcare, protein, hot-fill beverage, pet food, and premium coffee. He notes that there has been growth in pet care, meat, and cheese, but it is still in the low single digits. He emphasizes the need to stay cautious, but overall, they are pleased with the growth they have seen in these categories.

The speaker discusses the impact of sustainability targets being pushed out and the progress of the industry in achieving circularity in plastic waste management. They mention that some companies have had to reset their targets, but Amcor has not and is making good progress towards their goal of 100% recyclable, reusable, or compostable packaging by 2025. The speaker emphasizes the need for collaboration in achieving these goals and acknowledges that it may take longer than initially expected.

The company is committed to its sustainability targets and will continue to drive them with full force. The third quarter results were better than expected, leading to an increase in full year guidance. The improved performance in Q3 was due to better volumes and an unwind from December. The company is confident in its mid-single digit EPS growth for the fourth quarter.

The company is expecting sequential improvement in Q4 in terms of volume and profit, but the continued destocking in healthcare is holding back the volumes. There will also be an unfavorable mix in Q4, but it is expected to improve in the future. The company is confident in delivering within the given range and is open to the possibility of higher volumes leading to a better outcome for the full year. The company feels good about their performance in Q3 and is optimistic about Q4.

Peter Konieczny discusses the PPWR regulation that was recently voted into the European Parliament and its impact on Amcor's flexibles business. He states that the company is supportive of regulations that promote a circular economy for plastic and is making progress towards their sustainability targets. He also mentions that creating a regulatory environment provides certainty and helps plastic packaging find its place in sustainability efforts.

The speaker is answering a question about the company's hedging profile and exposure to changing interest rates. They state that currently, 70% of the debt is fixed and 30% is floating, with no maturities until 2025. They also mention that they have given guidance for FY '24 but not for '25, and do not expect a significant impact on interest expense in the next 12 months. They have flexibility to manage the debt book and currency exposure.

The company will provide further guidance on restocking in August when they give full year guidance for FY '25. They are seeing a correction in the industry as companies reduce their inventory levels to a more normal level after building up excess inventory due to supply chain shocks and other reasons. The healthcare industry is a bit delayed in this process, but they are also starting to reduce their inventory levels. The new normal for inventory levels may be different due to lower interest rates and increased efficiency in inventory management.

The company expects changes in inventory to be tactical or seasonal, rather than a trend towards restocking. They anticipate top line growth once the impact of current events lessens and consumer demand increases. The $40 million in below-the-line items are mostly related to a restructuring program that is two-thirds complete and expected to be mostly finished by the end of the year.

The speaker is pleased with the company's $15 million in benefits in the quarter and expects to continue building on that in the fourth quarter and into 2025. They are also happy with the broad-based volume improvement and good cost performance in the third quarter, which has impacted their margin performance. They believe they have underlying momentum that will carry into the fourth quarter and are planning to take advantage of it. The call concludes with the speaker thanking everyone for their interest and looking forward to the end of the fiscal year.

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