Amcor Plc (Amcor, the Group, ASX: AMC) commenced paper milling in Melbourne in the 1860s and its operations had consolidated as the Australian Paper Mills Company by 1896. Today the Group employs 41,000 people at 218 factories in 41 countries, making it one of the world’s largest consumer packaging businesses.
Positive signs are emerging that Amcor’s FY25 earnings outlook is trending positive. In discussing the June quarter financial performance, management referred to a sequential underlying improvement in volume and net earnings growth. This means that while net income for the 2024 financial year was down 30 percent compared to the prior financial year, net income for the June quarter was 72 percent up on the March quarter. Similarly, volumes returned to growth in the June quarter, up 1 percent compared to the June 2023 quarter but were 5 percent higher than the March 2024 quarter. While individual numbers are always important, it is the trend that often tells the underlying story and the trend of higher sales and rising volumes during the June quarter point to this recent earnings growth continuing into FY25.
Amcor’s net interest expense in FY24 was $51 million higher than in FY23, reflecting higher interest rates. A decline in the level of interest rates in FY25 should boost earnings higher than in FY24. Amcor has forecast net interest expense in FY25 to be within the range of $290 to $305 million, down from $310 million in FY24.
Net debt on 30 June 2024 was $6,111 million and when divided by adjusted 12-month trailing EBITDA, represents leverage of 3.1 times. This is at the top end of management’s target of 2.5 to 3 times. With an Adjusted Free Cash Flow of $900 million to $1,000 million forecast in FY25, Amcor’s debt level should decline this financial year.
Amcor is part of our daily lives. Consumers around the world use an Amcor packaged product every day, whether it be packaging for food and beverages, or for pharmaceutical and medical, homecare, personal care, or pet care products. This means that Amcor’s profit results broadly reflect the strength of the global economy and the level of consumer demand for everyday household products.
On the other hand, geopolitical events that create restrictions on global trade could adversely impact Amcor’s business operations and financial results. At present the conflict between Russia and Ukraine the Middle East conflict and tensions between China and Taiwan have all put pressure on Amcor’s business. However, if it’s in the news then it’s in the price and so unless there is a significant escalation in these situations, the existing geopolitical circumstances are unlikely to impact the Amcor share price for now.
The period ahead may continue to be impacted by softness in the global economy, however, people continue to eat, drink, use healthcare products and feed their pets. This explains Amcor’s earnings resilience and its consistent dividend history.
Amcor should be an early beneficiary from the first sign of higher global economic activity because consumer businesses will need to re-stock early in the recovery phase to ensure that sufficient inventory is packaged and available for distribution to meet higher demand.
Management has guided the market to what appears to be a conservative 5 percent increase in earnings per share in FY25. Guidance is in the range of US72 to US76 cents, up from an adjusted US70.2 cents in FY24. Adjusted earnings per share in the June quarter were 21 cents, which reinforces the positive earnings trend going into FY25.
Amcor is a defensive business with global leading market positions in a competitive industry. The Group’s differentiated and innovative packaging solutions and materials encompass paper, aluminium, polymer resins, recycled, and bio-based materials. This product competitiveness, continuing strong free cash flow, and forecast volume and earnings growth in FY25 imply higher shareholder returns over the medium term.
Michael Kodari is a globally recognised investor, philanthropist, and leading financial markets expert, renowned for his exceptional performance. With a strong foundation in financial markets, Michael has advised leading financial institutions and governments.
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