The result

Amcor, the world’s largest packaging company, was a slight beat on FY23 estimates.

Given they’d downgraded back in May, that’s not much to cheer for.

The outlook

However, the FY24 outlook gave little to be excited about, at first glance, given that 67-71cps is below the FY23 adjusted eps outcome of 73cps.

The analyst community was also fairly divided in their interpretation of events. Some liked it, some didn’t, reflecting a divisive result.


That FY24 outlook is something of a “tale of two halves”.

Things get worse over the 1HFY24, before getting better in 2H24, which is what point 3 is getting at.

You can see this “tale of two halves” writ large below.

Sizeable EPS downgrades to the rest of the ’23 year, followed by an improvement in the 2H of FY24.

What drives that improvement is the subject of the below, namely lifting prices and taking cost out.

Price and cost

In the below they are saying that measures already undertaken, like plant closures, headcount reductions

and price increases, can drive the the earnings recovery to trend, without being reliant on a sudden uplift in demand associated with the economy.

This point is touched upon again in a follow-up question. They aren’t banking on a strong environment to hit their guidance. That’s quite encouraging (both “banking” and “baking” are used below to make the point).

And so, we come to some of the last observations about the outlook.

The FY24 EPS graph is reconstructed below, with the “down then up, tale of two halves” for earnings, using the low single-digit (LSD) reference for organic growth, and then the negative impacts of rising interest costs, and exiting Russia.

This is why we think the share price movements have been fairly wild, down heavily yesterday, up solidly today. Amcor is pointing to a solid long-run EPS trajectory based on the action they have seemingly already taken, on price, on cost out (e.g. reducing headcount) which they know won’t impact the 1H in time, but will benefit shortly thereafter.

Free cash flow

The free cash flow guidance is also well taken, “significant free cash flow”.

Part of the investment thesis with AMC, similar to ORA, is the level of cash flow generation. AMC will continue to draw down inventories, and as such should see ongoing robust cashflows.

Isn’t AMC defensive?

All of the above begs a broader question, isn’t Amcor meant to be defensive? If so, why are the earnings declining?

The below Q&A snippet gets to this point.

I think a better answer, and one that we got wrong (as a fund manager) is “yes, consumer staples are ordinarily defensive, but COVID was a funny period where they (our end-customer, and us) unduly benefited from FY20-FY22 given everyone could only spend on food and retail, and now they are spending on other stuff (housing, travel, leisure, whatever) and not so much on food staples” and for the past year a lot of that over-ordering at the end-customer level (the Walmarts of the world) has been unwinding, hence the de-stocking.

Perhaps that should have been more obvious to us, however, we took the view that higher interest rates had a good chance of lowering demand for lots of stuff, and that staples might actually prove the better bet, in a relative sense, and hence we kept our exposure, even though we knew that there would be some degree of normalisation. We also thought there might be more COVID.

I think that point about rates will prove ultimately true here in Australia, where sensitivity to rates is more powerful, and more direct, thanks to variable rate mortgages, but of course hasn’t been the case in the US, and Amcor has a very large US exposure.


Overall, there’s enough explanation in the results outlook for us to maintain the position. The yield, the buyback, the operational improvements all seem like reasonable support to the thesis. We also don’t think that AMC is “suddenly not a good defensive”, and it will resume its normal traits of being a low vol, steady growth reasonable quality company in due time.

Till then, we remain happy enough holders.

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