March 4

Amcor (AMC) – Package deal

Amcor provides packaging for food, beverage, pharmaceutical, medical, home and personal-care, and other products. Amcor works with leading companies around the world through a range of flexible and rigid packaging, specialty cartons, closures, and services. Some 44,000 Amcor staff generate sales from operations that span 220 locations in 43 countries. We modestly raise our fair value estimate for Amcor by 2% to $17.80. First-half FY24 earnings were down 6% on a year ago, with the key drag being a 9% decline in volumes. About half of this was due to customer destocking of excess inventory. The remainder was due to weaker end-customer demand as household budgets became stretched by high-interest rates. As a result, households are spending less on discretionary goods and switching to lower-cost or bulk items, which generally have less packaging. Despite this, we expect a stronger second half as destocking abates.

Our FY24 forecast assumes volumes decline mid-single digits, with our earnings forecasts unchanged. Our unchanged FY24 EPS estimate of US$0.67 remains at the lower end of management’s guidance. Our stronger second-half earnings outlook is underpinned by a mid-single-digit decline in volumes, a low-single-digit increase in pricing, no further costs from the Russian business exit in FY23, and cost savings from plant closures and other restructuring. The firm has also reduced variable costs in response to lower production, although we expect this to return as demand normalises. Volumes were 9% lower across each of the flexibles and rigids segments. In the flexibles segment, which accounts for about 75% of group revenue, the volume decline was driven by the healthcare category in the North American, European, and Asian geographies.


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