Amcor: A disruptive quarter

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Alex Lu
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Date posted:
04 November 2021, 8:00 AM
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  • AMC’s 1Q22 result was slightly below our expectations at the EBIT line but above our forecast at the underlying EPS line. On a constant FX basis, EBIT rose 7% (- 1% vs MorgansF) while underlying EPS increased 12% (+2% vs MorgansF).
  • Both Flexibles and Rigid Packaging were impacted by supply chain issues, with Rigid Packaging in North America hit particularly hard by raw materials shortages, higher costs and operating inefficiencies.
  • Despite the supply chain challenges, management has reiterated FY22 guidance for constant FX underlying EPS growth of 7-11%.
  • We make minor adjustments to earnings forecasts with FY22-24F EBIT decreasing by 1% while underlying EPS remains virtually unchanged due to lower net interest expense. Our forecasts imply FY22 (constant FX) underlying EPS growth of 9%.
  • Our target price moves to (login to view) and we maintain our Add rating.

Flexibles had a good result

Flexibles revenue (constant FX) rose 1% and EBIT increased 8%. The result reflected favourable price/mix and good cost out despite slightly lower volumes as raw materials shortages constrained growth in some categories.

Volumes in North America were up low single-digits (growth in medical, condiments, liquid beverage, and confectionery was partly offset by lower cheese, coffee and home and personal care demand) but were lower in Europe (pet food, medical, premium coffee and confectionery grew but was more than offset by weaker film and foil rollstock, snack food and pharmaceutical demand).

Volumes in the Asian emerging markets were up mid single-digits while Latin America was lower.

Rigid Packaging was hit harder by supply chain disruptions

Rigid Packaging was significantly impacted by supply chain challenges in North America. While revenue (constant currency) increased 1% on slightly higher volumes, EBIT was down 15% reflecting raw materials shortages, higher costs, operating inefficiencies and constrained sales.

This is despite underlying demand levels remaining elevated and higher earnings in Latin America. 

Encouragingly, management anticipates the supply chain disruptions in North America to improve through 2H22 as more capacity comes online and supplier specific issues (e.g. plant fires) are resolved.

Outlook guidance unchanged

Management has reiterated FY22 outlook guidance for: Constant FX underlying EPS growth of 7-11% (or reported EPS of US79.0-81.0cps assuming current FX rates prevail for the remainder of FY22); Underlying FCF of US$1.1-1.2bn; and ~US$400m worth of share buybacks (US$64m was purchased in 1Q22).

Changes to earnings forecasts

We make minor adjustments to earnings forecasts with FY22-24F EBIT decreasing by 1% while underlying EPS remains virtually unchanged due to lower net interest expense.

Our forecasts imply FY22 (constant FX) underlying EPS growth of 9% (or reported EPS of US80.4cps) and underlying FCF of US$1.17bn.

Investment view

Overall, we think it was a reasonable 1Q22 result given the major supply chain disruptions experienced during the period. We take comfort in underlying demand remaining strong, the challenges being largely expected and planned for by management, and the reiteration of FY22 guidance.

AMC is currently trading on 15.8x FY22F PE and 3.8% yield. We continue to see the valuation as attractive for a highly defensive business with strong global market positions and a well-regarded management team. We therefore maintain our Add rating with our PE-based target price moving to (login to view).


Key downside risks include a rise in the AUD/USD, fall in the EUR/USD, higher-than-expected costs and a downturn in the European, North American and Emerging Market economies.

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Disclaimer: The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents (“Morgans”) do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

Solid top-line outcome: BAP’s 1Q22 revenue was flat on the pcp, an extremely resilient result given the extent of lockdowns in the period (~70% of stores impacted) and the strength of the pcp (cycling 27% growth). Composition comprised: Trade +2%; NZ -10%; Retail -12%; and Specialist Wholesale +7%. Overall, BAP stated that non-lockdown areas are outperforming expectations. ▪ 1Q22 trade & retail: Trade/Burson revenue was up +2% on the pcp (LFL sales - 1%; cycling 8% pcp); NZ/BNT revenue was down -10% (LFL sales -15%; cycling +4%); and Retail/Autobarn revenue was down -12% (LFL sales -16%; cycling +36%). Within the Retail segment, online sales were +80% on the pcp. Stores percentages impacted by lockdown were: Trade 70%; NZ 100%; and Retail 50%. ▪ Specialist segment results: Specialist wholesale revenue is up 7% on pcp, with Auto electrical/Truckline divisions ‘performing strongly’; and WANO underperforming. ▪ GM pressure expected to be temporary: BAP stated GM was stable across Wholesale and NZ (45% of FY21 revenue); and down ~50bps Trade and Retail (~55% of FY21 revenue), driven by promotional and online pricing in lockdown areas (we assume no margin pressure witnessed in non-lockdown areas). BAP expect margins to revert once lockdowns ease. ▪ The cost base has increased vs pcp, a function of duplicated DC costs (commencement of new VIC DC), and higher group and team member support (covid related) costs. BAP noted FY22 store rollouts and refurbs are on track.

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