Amcor Q2 2024 Earnings Results & Report

Amcor EPS Results

• Actual EPS: $0.80
• Consensus EPS: $0.75
• Beat/Miss: Beat by +$0.05
• One Year Ago EPS: N/A
• EPS Beat Rate: 4 of last 8 quarters

Amcor Revenue Results

• Actual Revenue: $3.25 billion
• Expected Revenue: $3.29 billion
• Beat/Miss: Missed by -$38.06 million
• YoY Revenue Growth: N/A

Amcor (NYSE:AMCR) is a global packaging company that develops and manufactures packaging for food and beverage, healthcare, personal care, home care and other consumer products. Its offerings include flexible packaging, rigid containers, closures and specialty cartons, as well as packaging materials and services for pharmaceutical and medical applications.

The company serves customers across a broad range of international markets. In 2025, Amcor completed its combination with Berry Global, expanding its packaging portfolio and global reach.

Amcor is headquartered in Zurich, Switzerland. Peter Konieczny serves as the company’s chief executive officer.

Amcor Q2 2024 Earnings Call Transcript

Key Takeaways

• Amkor reported adjusted EPS modestly above expectations for Q2 and H1, with adjusted free cash flow improving by over $100 million year-over-year due to working capital enhancements.
• Organic sales fell 8% in the first half and 10% in Q2 on a constant-currency basis, driven by weaker volumes and customer destocking, resulting in a ~6% decline in adjusted EBIT.
• Decisive cost actions reduced operating expenses by over $200 million in H1 (including $130 million in Q2), helping to offset volume declines and support margins.
• Management reaffirmed full-year guidance for adjusted EPS of $0.67–$0.71 and free cash flow of $850–$950 million, targeting mid-single-digit EPS growth in Q4.
• With January volumes improving and destocking abating outside healthcare and North American beverage, Amkor expects Q2 to mark the low point and anticipates volume declines easing to mid-single digits in Q3 and low-single digits in Q4.

Presentation

[Operator]

Good afternoon. My name is Krista, and I'll be your Conference Operator today. At this time, I would like to welcome everyone to Amcor's first half and second quarter 2024 results conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you would like to ask a question during that time, simply press star followed by the number one on your telephone keypad. And if you would like to withdraw your question, again, press star one. Thank you. I would now like to turn the conference over to Tracey Whitehead, Head of Investor Relations. Tracey, you may begin your conference.

[Tracey Whitehead, Head of Investor Relations at Amcor]

Thank you, Operator, and thank you everyone for joining Amcor's fiscal 2024 first half and second quarter earnings call. Joining today is Ron Delia, our Chief Executive Officer, and Michael Casamento, Chief Financial Officer. Before I hand over, let me note a few items. On our website, amcor.com, under the Investor section, you'll find today's press release and presentation, which we will discuss on this call. Please be aware that we'll also discuss non-GAAP financial measures, and related reconciliations can be found in that press release and the presentation. Remarks will also include forward-looking statements that are based on management's current views and assumptions. The second slide in today's presentation lists several factors that could cause future results to be different than current estimates, and reference can be made to Amcor's SEC filings, including our statements on Form 10-K and 10-Q for further details.

[Tracey Whitehead, Head of Investor Relations at Amcor]

Please note that during the question-and-answer session, we request that you limit yourself to a single question and one follow-up, and then rejoin the queue if you have any additional questions. With that, over to you, Ron.

[Ron Delia, CEO at Amcor]

Thanks, Tracey, and thanks everyone for joining Michael and myself today to discuss Amcor's second quarter and first half results for fiscal 2024. We'll begin with some prepared remarks before opening for Q&A. As seen on slide three, our focus on safety remains unwavering, and our significant commitment to providing a safe and healthy work environment continues to be rewarded. 70% of our sites have been injury-free for the past 12 months or longer, and we've experienced a 17% reduction in injuries when compared to the first half of fiscal 2023. Safety is deeply embedded in Amcor's culture and is the number one priority for our global teams. Turning to our key messages on slide four. First, our reported earnings per share for the second quarter and first half were modestly better than the expectations we set out in October.

[Ron Delia, CEO at Amcor]

An improved working capital performance helped drive a year-over-year increase of more than $100 million in adjusted free cash flow. Second, our financial performance through the half was supported by strong and proactive focus on controlling costs. This helped us offset second quarter volumes that were a couple of percentage points lower than we anticipated. Our teams around the world continued to respond, doing an excellent job proactively taking further cost actions. Third, our first half financial performance puts us on track to deliver against our full-year guidance, which we are again reaffirming today. Relative to the first half, we believe Q2 was the low point for earnings growth, and we continue to expect the trajectory of adjusted EPS growth to improve through the second half of fiscal 2024, including delivering mid-single-digit adjusted earnings growth in the fourth quarter.

[Ron Delia, CEO at Amcor]

Our confidence is supported by our improved earnings leverage, as well as a number of known factors we'll cover in more detail later that will benefit earnings through the second half of the fiscal year. Additionally, our volume trajectory has improved generally through January, and this underpins our confidence that Q2 marked the low point for volumes. Finally, we remain confident in our long-term growth and value creation strategy, and in our ability to deliver a combination of strong earnings growth and a compelling and growing dividend. The strength of our market positions, execution capabilities, and consistent capital allocation framework collectively continue to make a compelling investment case for Amcor. Moving to slide five for a summary of our financial results. Organic sales on a comparable constant currency basis were down 8% for the half and 10% for the quarter.

[Ron Delia, CEO at Amcor]

Price/mix benefits were around 1% for the first half and flat in the second quarter, reflecting moderating inflation, which resulted in reduced pricing actions by our teams. Volumes were down 9% for the first half and down 10% for the December quarter. Second quarter volumes were modestly lower than our October expectations, with the main difference being an acceleration of destocking, especially in the month of December. First half and December quarter adjusted EBIT was $709 million and $352 million, respectively, modestly above our expectations. On a comparable constant currency basis, declines of approximately 6% in both periods reflect lower volumes, partly offset by benefits related to decisive and proactive cost actions taken across our businesses in response to evolving market dynamics.

[Ron Delia, CEO at Amcor]

In total, our actions reduced costs by more than $200 million in the first half compared to last year, with a reduction of more than $130 million achieved in the second quarter. Adjusted EPS was $0.313 and $0.157 per share, respectively, also modestly above our earlier expectations. For both periods, this was down 10% on a comparable basis, reflecting lower adjusted EBIT and the unfavorable impact of higher interest costs. Working capital improvement remains a focus and helped drive free cash flow for the first half, well ahead of the same period last year and in line with our expectations. We returned approximately $390 million of cash to shareholders in the first half through a combination of share repurchases and a growing dividend, which has increased to $0.125 per share.

[Ron Delia, CEO at Amcor]

I'll turn it over now to Michael to provide some further color on the financials and our outlook.

[Michael Casamento, CFO at Amcor]

Thanks, Ron, and hello, everyone. Beginning with the Flexibles segment on slide six, year-to-date net sales on a comparable constant currency basis were 8% lower, which largely reflects weaker volumes. Volumes were down 9%, mainly due to lower market and customer demand and accelerated destocking. In North America, first half net sales declined at high single-digit rates, driven by lower volumes in categories including meat, liquid beverage, and healthcare, which more than offset growth in the condiments, snacks, and confectionery categories. In Europe, net sales declined at low double-digit rates, driven by lower volumes, partly offset by price/mix benefits. Volumes were lower in snacks, coffee, healthcare, and in unconverted film and foil. This was partly offset by higher confectionery volumes. Across the Asian region, net sales were modestly higher than the prior year.

[Michael Casamento, CFO at Amcor]

Volume growth in Thailand, India, and China helped offset lower volumes in the Southeast Asian healthcare business. In Latin America, net sales declined at high single-digit rates, driven by lower volumes, mainly in Chile and Mexico, partly offset by growth in Brazil. First half adjusted EBIT was 5% lower than last year on a comparable constant currency basis as a result of lower volumes, partly offset by favorable price/mix benefits and ongoing actions taken to lower costs, increase productivity, and strengthen operating cost performance. EBIT margin of 12.6% was comparable to prior year, despite a 50 basis point unfavorable comparison related to the sale of our Russian business last year. For the December quarter, reported sales were down 9% on a comparable constant currency basis, and price/mix was relatively neutral compared with last year.

[Michael Casamento, CFO at Amcor]

Volumes were down 10% in the quarter, reflecting continued soft market and customer demand. Destocking also continued through the quarter, accelerating in the month of December, and was particularly impactful in healthcare, where volumes were lower than last year by double digits. In response to market dynamics, the business continued to take decisive cost actions, focusing on operating efficiencies, delivering procurement benefits, limiting discretionary spend, and advancing structural cost reduction initiatives. This resulted in another quarter of strong performance, partly offsetting weaker volumes, with adjusted EBIT declining 5% on a comparable constant currency basis. Turning to Rigid Packaging on slide seven, year-to-date net sales on a comparable constant currency basis were 8% lower, with price/mix contributing around 1%. Volumes were down 9% for the first half, with lower volumes in North America, partly offset by growth in Latin America.

[Michael Casamento, CFO at Amcor]

In North America, overall beverage volumes for the first half were 14% lower than last year, including a 13% reduction in hot fill beverage container volumes, due to lower consumer and customer demand and elevated levels of destocking through the first half. In Latin America, volumes grew at mid-single-digit rates, with new business wins in Brazil, Peru, and Colombia, partly offsetting lower volumes in Mexico. Adjusted EBIT was 9% lower than last year on a comparable basis, reflecting lower volumes, partly offset by price/mix benefits and favorable cost performance. For the December quarter, net sales were also down 10% on a comparable constant currency basis. Price/mix contributed around 2%, and volumes were down 12% for the quarter, reflecting lower volumes in North America, partly offset by new business wins, driving mid-single-digit growth in Latin America.

[Michael Casamento, CFO at Amcor]

Overall, North American beverage volumes were 19% lower for the quarter, reflecting a high single-digit decline from destocking, as some of our customers took action to significantly reduce inventories in both hot fill and cold fill categories. Volumes were also impacted in the high single-digit range by incrementally softer consumer and customer demand in Amcor's key end markets. In addition, we had net new business wins in the hot fill category, which partly offset a loss in cold fill, as we elected not to retain volumes that fell short of our profitability threshold. Second quarter adjusted EBIT declined by 12%, reflecting lower volumes, partly offset by benefits from continuing to proactively manage costs, including realizing labor savings by taking more plant shutdown days to better align capacity with the market dynamics, as well as driving procurement benefits.

[Michael Casamento, CFO at Amcor]

Moving to cash and the balance sheet on slide eight. As Ron covered earlier, adjusted free cash flow for the half came in more than $100 million, ahead of last year, with our teams continuing to make progress against our priority to reduce inventories and drive working capital improvements across the board. Our financial profile remains solid, with leverage at three, 3.4x, broadly in line with the first quarter and where we expected it to be as we cycle through temporary increases in working capital and given trailing 12-month EBITDA now fully reflects the divestiture of our Russian business. Looking ahead, we continue to expect leverage will decrease to approximately 3x at the end of our fiscal year, supported by seasonally stronger earnings and cash flow in the second half. This brings me to outlook on slide nine.

[Michael Casamento, CFO at Amcor]

As Ron mentioned earlier, we are reaffirming our full-year guidance for adjusted EPS of $0.67-$0.71 per share. We continue to expect the underlying business to contribute organic earnings growth in the plus-minus low single-digit range, with share repurchases adding a benefit of approximately 2% and favorable currency translation contributing a benefit of up to 2%. This is offset by a negative impact of approximately 3% related to the sale of our Russian business in December 2022, the impact of which was all in the first half. We also expect a negative impact of approximately 6% from higher interest and tax expense, which takes into account our estimate for full-year net interest expense of between $315 million and $330 million, which is modestly lower than where we were forecasting last quarter.

[Michael Casamento, CFO at Amcor]

Our full-year tax rate expectations, expectations are unchanged in the range of 18%-20%. In relation to phasing, we believe the December quarter marks the low point in terms of Amcor's earnings growth and volume declines. January volumes have improved following heavy customer destocking in December, and while we expect market dynamics to remain volatile in the near term, our volume trajectory is expected to continue to improve through the balance of the year. We anticipate Q3 volumes will be down in the mid-single digit range and expect fourth quarter volume declines in the low single-digit range.

[Michael Casamento, CFO at Amcor]

Taking into account offsetting benefits from cost reduction initiatives and a reduced headwind from higher interest costs compared with last year, we expect third quarter adjusted EPS to be down mid-single digits on a comparable constant currency basis, and for the fourth quarter, we expect adjusted EPS to increase by mid-single digits over the prior year. And Ron will talk through the factors that support this return to growth building. Adjusted free cash flow continues to trend better than last year, as we expected, and we are again reaffirming, reaffirming our guidance range of $850 million-$950 million for our fiscal 2024 year, which will be up, which will be up $100 million higher compared with last year.

[Michael Casamento, CFO at Amcor]

Our plan to repurchase at least $70 million of Amcor shares in 2024 is unchanged, and we continue to pursue value-creating M&A opportunities. With that, I'll hand back to Ron.

[Ron Delia, CEO at Amcor]

Thanks, Michael. Prior to opening the call to questions, I want to provide additional insights into our outlook for the balance of the year, as well as a reminder of the key components comprising our longer-term model for driving shareholder value. Looking first at the balance of fiscal 2024, as I referenced earlier, and as highlighted on slide 10, there are a number of key factors already known to us that give us confidence our earnings trajectory will improve through the second half of the fiscal year. First, the earnings headwind related to the sale of our business in Russia is now fully behind us, eliminating an unfavorable comparative that impacted reported earnings throughout calendar 2023.

[Ron Delia, CEO at Amcor]

Second, while second half interest expense is expected to be higher than last year, the magnitude of the headwind from the rapid rate increases over the past 18 months begins to abate as we move through the balance of the year. Third, we have benefits from structural cost savings of $35 million in the second half, with an additional $15 million to benefit fiscal 2025. These savings are primarily related to plant closures as we optimize our global footprint. And fourth, earnings leverage has improved due to our commitment to take proactive actions to align our cost structure with evolving market dynamics. This includes eliminating shifts to take out labor, reducing overtime, driving procurement, and maintaining tight control of discretionary spend.

[Ron Delia, CEO at Amcor]

In total, over the last 12 months, we've reduced headcount by more than 2,000 full-time employees, or approximately 5% of our workforce, with more than 1,000 of these reductions taken out in the first half of fiscal 2024. From an earnings perspective, operating costs were lower by more than $200 million in the first half of fiscal 2024 compared with the prior period, and more than $100 million of this cost reduction was delivered in the second quarter, which is almost double the approximately $70 million delivered in the first quarter. The result has been and will continue to be improved earnings leverage, which we've achieved this financial year to date, despite significantly lower volumes.

[Ron Delia, CEO at Amcor]

As Michael mentioned, we're off to a better start in January, and are confident Q2 marks the low point for earnings growth and volume declines, and with our overall trajectory expected to improve as we move through the balance of the year. To sum up, we're confident the positive earnings impact from multiple known factors will drive improved momentum in the second half of fiscal 2024, including delivering mid-single-digit earnings growth in our fiscal fourth quarter. Importantly, we're not assuming an improving consumer demand environment, and we'll continue to be proactive in taking actions to ensure our cost base and pricing strategies reflect market conditions.

[Ron Delia, CEO at Amcor]

Moving to slide 11, as we look beyond the second half of this fiscal year, these known factors will serve as important building blocks, supporting a return to delivering against our shareholder value creation model through a combination of strong earnings growth and a compelling and growing dividend, currently yielding 5%. The starting point in creating value will always be growing the business, and over the last 10 years, we've averaged 8% growth in adjusted earnings per share. As you can see on this slide, we have multiple drivers of margin accretive growth, each with significant upside opportunity over the longer term. We will also continue to enhance our ability to grow in these areas through stepping up CapEx over a multi-year period and executing on strategic M&A.

[Ron Delia, CEO at Amcor]

As volumes normalize and improve, these generally faster-growing and higher value growth areas will represent a larger proportion of sales, becoming increasingly stronger contributors to earnings. When we return to a more normalized volume growth environment, this combination of improved mix and the practice steps we've taken to optimize our cost base, positions Amcor well to again, deliver strong earnings growth in line with our long track record. To close on slide 12, we're executing well to deliver against the earnings and cash flow expectations we set coming into fiscal 2024. Our teams are being proactive as market dynamics evolve and focusing on the controllables to take additional cost out where appropriate.

[Ron Delia, CEO at Amcor]

We have line of sight to mid-single-digit earnings growth in Q4, and our commitment to our longer-term growth and value creation strategy positions us well to deliver on our shareholder value creation model when the volume environment normalizes. Operator, with those opening remarks, we're now ready to turn the line over to questions.

[Operator]

As a reminder, if you would like to ask a question, please press star followed by the number one on your telephone keypad. To withdraw your question, please press star one. We also ask that you limit yourself to one question and one follow-up, and then re-queue. Your first question comes from the line of Ghansham Panjabi from Baird. Please go ahead.

[Ghansham Panjabi, Senior Research Analyst at Baird]

Hey, guys. Good day. I guess first off, on the, you know, volume declines across the portfolio, which looks like it's about six quarters of negative year-over-year volumes at this point. Obviously, you're not the only ones, but, you know, there's been quite a bit of chatter from your customer side all the way down to retailers about, you know, increased promotional spending. Just curious as to whether you're starting to see direct signs of that at this point, and if so, which categories, food, beverage, you know, consumer staples, et cetera?

[Ron Delia, CEO at Amcor]

Yeah, look, Ghansham, thanks for the question. Maybe, I'll just dimension the volume declines at a high level first, and then come back to your question about signs of promotions or, or more, aggressive commercial activity on behalf of the customers. Firstly, you know, I think where there's overlap, we're not really seeing any differences compared to others. So that, that would be the first thing I would say. I think our 10% total decline in the quarter is about 2% worse than we expected going into the quarter. So we weren't actually expecting a much different outcome. Things did, track according to those original expectations in October and November, where we were kind of declining high single-digits.

[Ron Delia, CEO at Amcor]

December, we saw a really accelerated destocking, which accounted for the incremental softness, and which we more than offset to deliver the profits. So that's kind of the starting point. Now, January, as we've alluded to, was much better. We've seen improvement in most of our businesses versus H1. And it really underpins our view that Q2 was the low point, and it really underpins our Q3 and Q4 expectations. And maybe just to continue and round it out a bit in terms of unpacking the decline, roughly by driver, roughly half of our 10% decline, sort of mid-single digits, was related to market impacts. This is a combination of consumer demand, customer and segment mix.

[Ron Delia, CEO at Amcor]

And roughly half or another mid-single-digit contribution was from destocking, and that's pretty much the same in both the Flexibles and Rigid Packaging segments. By geography, emerging markets, broadly flat, Asia, up modestly, Latin America, down modestly. But developed markets is where we've been especially soft, with Europe a little bit weaker versus North America. And another way to think about it, just to sort of close off here, is of the 10% decline in the quarter, more than 50% of that decline comes from our global healthcare business and North American beverage business, both of which have experienced the most significant destocking. So, you know, we've had a concentration of impact from those two parts of the business.

[Ron Delia, CEO at Amcor]

On the other hand, there are categories growing in some regions, confectionery in North America and Europe, condiments and cheese and coffee in North America and Latin America, beverage in Latin America. So there are places where the business is growing. Now, to your point, specifically about signs of promotional activity or changing pricing strategies, there is a lot of talk about that, as you rightly pointed out. We hear that from a lot of customers, both publicly and privately. And we're seeing a little bit of that start to take place in the marketplace. But to be honest, we haven't seen that as any kind of a tailwind yet for our volume performance.

[Ron Delia, CEO at Amcor]

Our outlook doesn't imply or doesn't assume that we're gonna see any benefit from the market in the second half either. So, you know, we'll sort of wait and see on whether or not the pendulum swings a bit between price and volume.

[Ghansham Panjabi, Senior Research Analyst at Baird]

Okay, terrific. And just for my follow-up on that, you know, on the healthcare destocking, is that just, you know, a function of having been destocked? You know, you're just seeing it now versus a little bit later than the other categories, or is this something unique to the timeline associated with the healthcare destocking?

[Ron Delia, CEO at Amcor]

Yeah. Look, I think it is a bit unique. It's really. The markets have been soft, but the healthcare weakness is really a story of destocking, and it's been significant in both medical device packaging and pharmaceutical packaging, and it's been pervasive and consistent around the world. This destocking in healthcare, it's really a multi-year story. It's been a multi-year journey here for healthcare, which is ironic because it's been one of the most consistent businesses we've had for a long period of time, and we would expect that it returns to that level of consistency.

[Ron Delia, CEO at Amcor]

But over the last several years, we going back to even COVID, where we had really constrained demand, then very strong demand on reopening, but severe supply constraints and raw material shortages on things ranging from specialty foils and resins and papers. So coming out of what would have been our fiscal 2022, which led really to customers building stocks to ensure supply during our fiscal 2023. And we had extraordinary volume in fiscal 2023 as a result of customers really buttressing their supply chains and de-risking their supply chains by building up stock. Now, we have customers sitting on substantial inventories of a range of products, from medical gloves to device packaging, pharmaceutical packaging, et cetera. And we started to see destocking, which it actually really started in Q1.

[Ron Delia, CEO at Amcor]

We flagged it last quarter, but accelerated significantly in Q2, and we would expect that it's likely to continue certainly through Q3 and possibly into Q4. So it is a bit later stage. I think in some other categories, we've seen signs that destocking has abated, and we're closer to the end than the beginning. I think on healthcare, it's been a later stage story.

[Operator]

Your next question comes from the line of Anthony Longo from JPMorgan. Please go ahead.

[Anthony Longo, Equity Analyst of Transport and Infrastructure at JPMorgan]

Good day, Ron. Good day, Michael. Just a quick one on the cost savings. So in the face of the volume declines that you did see throughout the first half, and particularly that last quarter, and I do take your comments on January and thereafter, but I just wanna get a sense as to what the outlook looks like for cost savings going forward and how you're still gonna manage that declining volume environment with margin growth. I know what you have tabled thus far, but is there anything over and above that that you can achieve?

[Michael Casamento, CFO at Amcor]

Yeah, sure. I'll take that one, Anthony. So, look, on the cost out, there's two things that we're really doing here. So, the first is in response to the soft and underlying volume demand. So on that front, we've clearly taken proactive and aggressive approaches to the cost flexing and really focusing down on productivity gains and discretionary spend. So, for the first half, we took out more than $200 million in costs in relation to that. And it accelerated through the half. In the first quarter, it was about $70 million, in the second quarter, kind of $130 million.

[Michael Casamento, CFO at Amcor]

You know, we're achieving that by taking out, you know, and really flexing the cost base in relation to the volume and demand environment. You know, so we're able to take out entire shifts. We're able to take out labor, reduce overtime. We're driving the procurement benefits, particularly in this low demand environment, and really tightening up on the discretionary spend. So, you know, there's... That will continue as we continue to flex through the volumes. But obviously, as volumes improve, some of that cost, and it's difficult to say, but some of that cost will go back in as we build the shift patterns up. But we wouldn't expect that to be linear.

[Michael Casamento, CFO at Amcor]

I think you'll see us have better leverage there as we work through the second half because of the way we've learned to operate with some of that lower cost and improve the efficiencies there. So that's really on the operating cost side. And then secondly, we are taking costs out structurally. So in parallel, we're advancing the structural cost reduction initiatives that we've talked about, you know, on the back of the divested Russia earnings. That's mainly plant closures, and it's around up to 10 across the globe and in both segments. To date, we've announced seven closures and two restructures. And recently, actually, two to three of those plants have closed.

[Michael Casamento, CFO at Amcor]

We did start to see a little bit of benefit from that program, as we exited the first half. But we're right on track to deliver the $35 million benefit in the second half from that program, and then a further $15 million in FY 2025. So really, that's the approach we've taken to the cost-out agenda, and, you know, part of it's structural and part of it's ongoing.

[Anthony Longo, Equity Analyst of Transport and Infrastructure at JPMorgan]

Good. Thanks, Michael.

[Operator]

Your next question comes from the line of George Staphos from Bank of America. Please go ahead.

[Cashen Keeler, Equity Research Associate at Bank of America]

Yeah, hi, this is actually Cashen Keeler sitting in for George. He had a conflict this evening. So just going off that, are you able to comment at all, you know, how much of that temporary cost saving might ultimately end up being, you know, permanent and, and structural costs that are taken out of the business?

[Michael Casamento, CFO at Amcor]

Look, it's difficult to say, as I just mentioned. What I can tell you is that things like procurement there, they'll be permanent savings. You know, the operating cost out that we've taken out of the fixed base will be permanent. The structural program is obviously permanent, you know, cost savings that come out of the business. On the flexing of the cost base, you know, again, it's really dependent on the volume. We think we're much more efficient today. We've been able to proactively act to take labor out of the business overall. You know, versus prior year, we've taken nearly 2,000 heads out of the business and about 1,000 since June. So in total, that's about 5% of the workforce.

[Michael Casamento, CFO at Amcor]

You know, as the volumes come back online, you know, as I mentioned, we will have to increase some of that, but it's not gonna be linear. And, you know, we will manage that really tightly, and I... You know, we feel we've got good leverage out of that today, and we are more efficient, and so you'll see us continue to get leverage as we move forward, and that. And really, that's gonna contribute to the long-term margin benefits that we've typically gained of 20, 30 basis points a year in our business. So, you know, you should see that continue to contribute to that on the longer term.

[Cashen Keeler, Equity Research Associate at Bank of America]

Okay, got it. And appreciate all the color on that, and on the volumes. But you know, I guess you said volumes kind of came in lower than you were anticipating. So what ultimately gives you, you know, comfort in the guidance for the year? Is it really that, that cost-out component, and some of the other factors you talked to?

[Ron Delia, CEO at Amcor]

Yeah. Look, it's a couple of things. Firstly, on volumes, you know, we're not anticipating any rebound in the consumer and/or or any big improvements in at the market, but we do expect that destocking will abate as we work our way through the half. I mean, certainly a portion of the destocking that we saw in December was certainly year-end, was certainly year-end optimization. That's not gonna repeat, right?

[Ron Delia, CEO at Amcor]

We do believe we're gonna see continued destocking in healthcare and North American beverage, but for the other categories. And we're starting to see some evidence that the destocking is abating. So, you know, that's one thing. January also was much better. So we had a much better January relative to the first half from a volume perspective. And so we feel like, you know, we feel pretty confident in underwriting the growth, the volume assumptions for the rest of the year. And then in terms of the profit, you know, as Michael alluded to, we're gonna continue to—we've got a number of known benefits, which I rattled through in the opening remarks.

[Ron Delia, CEO at Amcor]

But, you know, it starts with better operating leverage because we've gotten a lot of cost out of the business, and as volume comes back, we're not gonna add that cost back one for one. Plus the buildup and the momentum on the structural cost side, which again, will build through the second half with the benefits from plant closures and the like. So, you know, several things that give us confidence in an improving trajectory of earnings through the second half, but none of them have to do with a real dramatic improvement at the consumer level.

[Operator]

Your next question comes from the line of Sam Seow from Citi. Please go ahead.

[Sam Seow, VP at Citi]

Well, morning, guys. Thanks for taking the question. Look, you talked about some of your volumes coming in modestly below expectations, and just thinking about your balance sheet, and not saying it's gonna happen, but, but just trying to get a feel of what kind of fourth quarter volumes would leave you outside of your range at the full year, assuming all other things equal?

[Ron Delia, CEO at Amcor]

Sam, are you still there?

[Sam Seow, VP at Citi]

Yeah. Can you hear me?

[Ron Delia, CEO at Amcor]

Yes, you broke up there for a second. You broke up right at the important part of your question, which is about fourth quarter volumes.

[Sam Seow, VP at Citi]

Yeah, just trying to get a feel of what kind of fourth quarter volumes there would leave you outside of your range at the full year, assuming, you know, all other things equal?

[Michael Casamento, CFO at Amcor]

You mean the guidance range of 67-71. Is that right, Sam?

[Sam Seow, VP at Citi]

No, no, the 3x leverage.

[Ron Delia, CEO at Amcor]

Ah, okay. So look, we're confident in the cash flow trajectory of the business in the second half. So we're gonna be, you know, delevering from here, we'll be at approximately 3x at the end of, at the end of June. You know, we're pretty comfortable that that's, that's the, that's the path we're on here. In terms of volumes, the expectation for volumes that underwrites the, the EBIT growth in the second half or the EBITDA delivery in the second half is, is for a mid-single digit decline in the third quarter and a low single-digit decline in the fourth quarter. There's a bit of... There's a, there's a range around that, and, and, the impact on EBITDA and then therefore on leverage, you know, is pretty, is pretty broad.

[Ron Delia, CEO at Amcor]

So we don't anticipate volumes being a major driver of us, you know, approximately three turns at the end of June.

[Sam Seow, VP at Citi]

Okay, thanks for that. I guess just following on, I mean, looking forward, generally, you have, you know, lower cash flow in the first half due to seasonality. I think if you do finish at that three turns, like your guidance, would you expect to be outside of your range again in first half 2025? Is that the new norm now going forward?

[Michael Casamento, CFO at Amcor]

Look, I think, just to answer your question on that front, if you take where we are right now at this particular point in time, it's a pretty unique point in time because there are two factors that are really impacting the leverage right now. You know, we're at 3.4x, which is right where we expected to be, at this time of the year in this situation. And it's really driven by the divestment of the Russia business. So we're now fully lapping 12 months earnings out of the business from that. So from here, we don't lap that anymore. We head more into more normal earnings trajectory and growth. And that's about 2.2 turns off the leverage.

[Michael Casamento, CFO at Amcor]

And then the second point is really around elevated working capital levels. So, you know, we have been carrying elevated working capital levels over the last kind of 12-18 months. We've started to work our way through that. And, you know, the teams have done a good job in the last 12 months in inventory, where we've taken inventory out of the system, about $500 million. And that's certainly contributed to the cash flow improvement in the first half of this year, where we're $100 million ahead of prior year already. We are still being impacted. We're not getting the full benefit of that inventory reduction because our payables are much lower.

[Michael Casamento, CFO at Amcor]

So in this environment, where, you know, we've seen demand softness and destocking, you know, clearly our purchases are well down, in turn, our payables are down. So, you know, we've still got another sort of $200 million to work through from a cash flow improvement on the back of working capital. And we're really targeting a working capital to sales range of in between that 8%-9% working capital to sales. And right now, we're at 9.8% on a trailing 12-month basis. So, you know, when you put those two items together, you know, leverage at this time of year would normally be in the more the 3x range.

[Michael Casamento, CFO at Amcor]

Typically in the second half, the seasonality would take kind of a quarter turn off the leverage, so it would get us back into that 2.5x-3x range. So, you know, as we look forward, that's where we would expect to be in a more normal base. But as I said, we're in a little bit of a unique period of time, and from here, we do expect improvement.

[Operator]

Your next question comes from the line of Adam Samuelson from Goldman Sachs. Please go ahead.

[Adam Samuelson, VP and Equity Research Analyst of Agribusiness and Packaging at Goldman Sachs]

Yes, thank you. Good morning, everyone, or evening, I should say.

[Michael Casamento, CFO at Amcor]

Hey, Adam.

[Adam Samuelson, VP and Equity Research Analyst of Agribusiness and Packaging at Goldman Sachs]

Hi. So I guess the first question, just going on the volume side and just thinking about some of the end markets, and Ron, you gave some good color in the prepared remarks. One of the areas where Amcor has been investing more aggressively has been in the protein space. Can you talk about kind of incremental business wins that you're actually achieving there, relative to maybe some end markets that are still pretty challenged on the red meat side, certainly in North America, and how much you can kind of grow in spite of that and take market share in that opportunity?

[Ron Delia, CEO at Amcor]

Well, yeah, yeah, it's a good question, and you're, I mean, you're right, the market's been challenged. And so if we think about meat across the Flexibles businesses, you know, it's been a mixed story. We've had, you know, meat declining in North America through the half. There's, you know, soft market, there's destocking in the meat space as well. But we've seen that stabilize more recently. So that would be one of those categories where we're not calling an end to the destocking cycle, but we certainly see signs that it's stabilizing a bit. Similarly, in Europe, we've seen a bit of a stabilization in meat volumes in the last couple of months. And in Latin America, we've started to see some growth as well.

[Ron Delia, CEO at Amcor]

So I think meat is, as a general category, globally, meat is one that feels like, is coming out the other end of, the packaging cycle, at least for us, or at least there's some green shoots that give us some reasons for optimism, would be the first point. Certainly, as we exited, January as well, that would be the case. I think the second part of your question is a bigger picture question, and I think it's gonna be a little bit longer dated, which is around our aspirations to win share in this space. You're aware that we made an equipment, a purchase of a, a machinery company, less than 12 months ago, which would be a part of that total system solution that we're gonna go to market with.

[Ron Delia, CEO at Amcor]

And we're optimistic that we've got the right consumables, the right film structures, and the right technical service staff to support the equipment offering. And we think over time, that's gonna be a winning combination, and we'll take share, not just in North America, but around the world. There's not any evidence I can point to yet of that, Adam, because the near-term dynamics are, you know, well and truly overcompensating for any modest share pickup that we might be enjoying.

[Adam Samuelson, VP and Equity Research Analyst of Agribusiness and Packaging at Goldman Sachs]

Okay. I appreciate that color. And if I could ask just a quick follow-up. You do have a business and a presence in, in Argentina, both for Flexibles and, and Rigid on the beverage side. I know, I think you strip out all the inflation accounting for the deval, but can you talk about the, the volume environment in Argentina and how you're thinking about that over the next couple quarters, given what I would imagine is a pretty challenged consumer environment?

[Ron Delia, CEO at Amcor]

Yeah. Look, Michael can talk about maybe the accounting that you referenced, but from a just a business perspective, you know, first thing I would say is we, we've been in Argentina for since the mid-1990s, so over 30 years. It's a business that's about 2% of sales and about 2% of EBIT. And we have five plants there, actually, across the two segments, as you alluded to. And having been there for 30-odd years, we've been there through multiple economic cycles and crises, I guess. And the business is relatively local, and we, you know, we have maintained total control over the business. So it's, you know, still a business that's functioning, you know, more or less normally. But in terms of how we manage it, we continue to drive localization. It's essentially a local business already.

[Ron Delia, CEO at Amcor]

There's no exports, but to the extent there's anything imported, by way of raw materials, we're continuing to drive more localization of the key inputs. Most importantly, probably, we continue to price ahead of inflation. It's always been a hallmark of that business in that country and continues to be. And then we continue to focus on cost because our expectations are that demand will continue to slow as consumers adjust to the new macroeconomic realities in that country. So that's a little bit about the business and how we manage it. Michael, do you want to talk a bit about the accounting that Adam alluded to?

[Michael Casamento, CFO at Amcor]

Yeah, yeah. Just on the accounting there, Adam, you referred to, obviously, Argentina's been designated a hyperinflation economy since 2018. So, you know, consistently since that time, we've been, if there's been a devaluation, then we see that impacts the monetary assets, on hand, and, you know, that's being treated as an SI. We, this quarter, you know, there was a change of government, clearly, and in December, we saw a 55% devaluation. And, you know, we you see the charge of $34 million to the P&L in the quarter in the SI bucket, and that's really the outcome of that on our monetary assets only. You know, and that followed, Q1, where there was a 20, 20% devaluation. So, really, that's the treatment of the accounting.

[Michael Casamento, CFO at Amcor]

It's been consistent all the way through since the 2018 approach.

[Operator]

Your next question comes from the line of Richard Johnson from Jefferies. Please go ahead.

[Richard Johnson, Managing Director, Director of Research, and Paper and Packaging Analyst at Jefferies]

Thanks, very much. Ron, I just wanted to ask a question about Rigid Packaging and how you're thinking about the business now strategically. I was just trying to remember whether I've seen volume declines in the December quarter in the past, anything like we saw in the December quarter, particularly in hot fill, and that's even if you adjust out destocking. So just, you know, interested to get your view on how you think the business is placed at the moment.

[Ron Delia, CEO at Amcor]

Well, yeah. Look, listen, Richard, you don't remember seeing volume declines at that level because you haven't seen them at that level. I mean, that's just the reality of it. It's a business that's, you know, it's been a good business, for a long period of time. It suffered really from a volume perspective, from the same drivers as the rest of the company, right? So, you know, high, although with higher impacts. So we've had market impacts that we would say attributed to a high single-digit decline in volumes. That's inclusive of consumer demand down, kind of low to mid-single digits in some segments that are important to us, maybe down some more, some customers lagging the market.

[Ron Delia, CEO at Amcor]

And that all wraps up to kind of a high single-digit impact on volumes for both North American beverage at large and hot fill, specifically, that we would attribute to market impacts. Then, the bigger impact, actually, for us in the quarter was the destocking. And the destocking is really being driven by a couple of things here, which are working in opposite directions. First is that traditionally, in this business, you'd have some inventory pre-build in what is our fiscal second and fiscal third quarters, in advance of the high season, the beverage season in North America. There's historically a bit of inventory buildup. That's not happening this year, so there's no pre-build this year. And at the same time, we have some customers, some big customers with very, very aggressive inventory reduction targets.

[Ron Delia, CEO at Amcor]

So rather than building, we're reducing. There was a significant acceleration in that activity to reduce inventories in the month of December, which ultimately led to a high single-digit impact in North American beverage at large, but a high-teens impact in hot fill. While we saw some modest improvement in January, we do believe that we're gonna continue to see a destocking impact in the third quarter. So that's really what's going on there. That's unprecedented. You know, we still believe in the business. The business is well positioned, you know, in terms of its market stature. It operates in a reasonably well-structured market. It has world-leading technology. Its footprint is reasonably optimized.

[Ron Delia, CEO at Amcor]

We are taking a couple of small plants out as part of the restructuring program, but it's reasonably well optimized, and it needs to just weather the storm. And that's on the beverage side. And then, you know, let's not forget that outside of beverage, we have a reasonably sized specialty container business, which looks and feels, almost like a Flexibles business because of its end market exposure. And that business has room to grow. And Latin America also is, you know, continues to be a very good business, including in the first half and in the second quarter, where we saw volume growth on new business wins, in Latin America, too. So it's a portfolio of businesses. At its core, it's a beverage business in North America.

[Ron Delia, CEO at Amcor]

That gets a lot of attention, but we shouldn't forget about the other parts, as well.

[Operator]

Your next question comes from the line of Brook Campbell from Barrenjoey. Please go ahead.

[Brook Campbell, Head of Cyclical Industrials Research at Barrenjoey]

Yeah, good evening. Thanks for taking my question. Can you just confirm what the level of volume growth or decline was in January? And then as a follow-up to that, is there not a risk here that you sort of extrapolate January volumes for the rest of the quarter, when perhaps there was a benefit in January because customers effectively delayed orders in December and pushed it into January, therefore, January might not be a good indicator for the rest of the quarter? That's the question. Thanks.

[Ron Delia, CEO at Amcor]

Yeah, look, we won't give a number on January other than to say it was an improvement over December. And an improvement, not everywhere, but in most parts of our business. We did have some parts of the business even that grew modestly. So, that's probably as much as I would say in terms of trying to dimension January. I understand the nature of your question, particularly the second part, as to whether or not we're being overly optimistic on the back of one month. It is one month, and, you know, we're well aware that it's one month. We are flagging that we will see continued destocking impacts in healthcare globally and in North America beverage.

[Ron Delia, CEO at Amcor]

That, you know, no matter what happened in January, we know will be the case, certainly in Q3 and potentially into Q4. And we're also not banking on any improvement in the consumer. So, you know, I think that we're, we're being relatively conservative, and not reading too much into one month, but it is, it is a month, and, you know, it does suggest, as we sort of expected, that the low point for us from a volume, point of view and, and earnings growth as well, was the second quarter.

[Operator]

Your next question comes from the line of Jakob Cakarnis from Jarden Australia. Please go ahead.

[Jakob Cakarnis, Director at Jarden Australia]

Hi, Ron. Hi, Michael. Just want to build on Brook's question there, though. Obviously, December was significantly weak, so January improvement might not necessarily move you guys back to increase. I just want to square some of the commentary still, where you're saying that you'll see a mid-single-digit volume decline in the third quarter and then low single-digits in the fourth quarter. Can you just help us? The commentary around the January improvement, is that relative to the negative, or the decline that you saw through the months of December, specifically?

[Ron Delia, CEO at Amcor]

Yeah. It's relative to the performance in the whole first half and in the second quarter and in December. So when we talk, we're talking about improvements in January, in most parts of the business, where that, that's relative to the first half. That's the first part. I think the other thing to keep in mind is, as we work our way through the balance of the fiscal year, a couple of things will also underpin those growth assumptions that we've outlined. One is that we do expect, outside of healthcare and North American beverage, we do expect the year-end destocking that we saw in December to not repeat, and some, you know, continued abatement or continued destocking, runoff or reduction in much of the rest of the business. That's the first thing.

[Ron Delia, CEO at Amcor]

The second thing is, particularly as we get to the fourth quarter, the prior period comp gets a little bit easier. You know, our volume challenges really started in Q4 of last fiscal year. And so as we get to Q4 this year, we've got you know, the benefit of a comparative period, which wasn't so strong.

[Jakob Cakarnis, Director at Jarden Australia]

Just one more for Michael, if I can. Just on the net interest guidance, obviously a little bit lower than where you were guiding to initially. How much of that's the movements in forward curves and expectations for rate or interest rate declines or cash rate declines in the U.S. through the balance of the year, please?

[Michael Casamento, CFO at Amcor]

Yeah, sure. So you saw that we brought our guidance just slightly down from kind of a range of $320 for interest, $320-$340 down to kind of $315-$330. That's really all on the back of the forward curves. And you know, the interest rate hike would appear to have been reached its peak now, and potentially, you know, you might see one rate reduction late in our fiscal year. But really, that's the slight improvement is really on the back of that forward curve. And you know, after tax, it's a pretty minimal impact on the full-year guidance.

[Operator]

Your next question comes from the line of Cameron McDonald from E&P. Please go ahead.

[Cameron McDonald, Managing Director and Head of Research at E&P]

Yeah, good morning, guys. Question for Mike, just in terms of, you know, the tax rate and then the capital structure. So, the tax rate, you know, is sitting sort of around under 19%. And where, what jurisdictions are you getting a tax benefit from, given the corporate tax rate in most of your jurisdictions is in excess of certainly of that number, but in excess of sort of 20?

[Michael Casamento, CFO at Amcor]

Yeah, look, I think, you know, we operate across a broad range of countries globally. And in addition to that, you know, the mix of earnings can be different in every geography and location. And then, you know, the overall underlying performance of the business can change. So, you know, when you wrap that all up for our business, you know, we're guiding to 18%-20% tax rate. You know, we've typically been around that 20% range for a long period of time. So it's really just the combination of the earnings, the country mix, and the underlying performance of the business.

[Ron Delia, CEO at Amcor]

The differences in deductibility of different expenses by jurisdiction, right?

[Michael Casamento, CFO at Amcor]

Right.

[Ron Delia, CEO at Amcor]

Which then obviously, you have to factor in, in addition to the headline tax rates in those jurisdictions.

[Cameron McDonald, Managing Director and Head of Research at E&P]

Okay. Thank you. And then just in terms of the capital structure and, you know, the, your comments earlier about the balance sheet and the leverage, you know, part of your investment thesis has been, you know, EPS growth. A big chunk of that has been, you know, undertaken through share buybacks. What’s the sort of leverage ratio that we should be expecting, you know, before we would start to see a discussion around the buyback being reimplemented? Is it... Do we have to get back down to sort of, you know, the mid-2s? I think the last time you had a buyback active was sort of 2.7x leverage.

[Ron Delia, CEO at Amcor]

Well, listen, we've bought back. Remember, it's buybacks and M&A, is the way we think about the discretionary cash flow for the business. And we've bought back, we will have bought back over three fiscal years and acquired to the tune of about $1.2 billion. So we will have done over $1 billion in buybacks, and we will have invested somewhere close to $200 million in investments and acquisitions. So that's essentially three years of discretionary cash that's been invested in the business. You know, it's a little, little bit lumpy. It's not exactly even over the three-year period, but that's been what we've done. You know, I think from a leverage range perspective, more often than not, we're gonna be between 2.5x and 3x.

[Ron Delia, CEO at Amcor]

Obviously, you know, we're comfortable being above that, particularly when there's good reasons for it, as there is at the moment. And, you know, we'll be continuing to evaluate capital management or buyback opportunities in conjunction with M&A opportunities on a go-forward basis, and that includes now.

[Operator]

Your next question comes from the line of Mike Roxland from Truist Securities. Please go ahead.

[Mike Roxland, Managing Director of Equity Research at Truist Securities]

Thank you, Ron, Michael, Tracey for taking my questions. Actually, just one question, because a lot of material already was covered here. Quickly on just protein packaging, Ron, I know it was discussed earlier in response to a question, and you discussed it at length, I think, last quarter. Can you just describe whether there are any nuances in your business, maybe around equipment, for instance, that would make you unable to compete with some of the- with the larger player in the industry or some of the- or some of your larger peers? And are you intentionally participating in different parts of the market to avoid going head-on with some of the larger players?

[Mike Roxland, Managing Director of Equity Research at Truist Securities]

Just lastly, though, where do you think this, where would you like this business to be on a revenue basis, let's say, in five years or, or 10 years?

[Ron Delia, CEO at Amcor]

... Yeah, it's—look, it's a great question. The biggest, the biggest challenge we have at the moment is just the lack of installed base. So there's a massive installed base that's got, you know, a lot of legacy behind it in, in the industry as of, given the way the industry's evolved over, you know, several decades. And from an equipment perspective, you know, we're, well, firstly, I would say we're more open source. We've bought Moda, obviously, so we're, we've—we're prioritizing Moda equipment, but we're, we, we're more, you know, agnostic to the actual equipment installation. And we think we've got great films.

[Ron Delia, CEO at Amcor]

You know, the primary basis of competition here, we think, ultimately, will be on, on the film, and that's what we're—that's what we're aspiring to do, is to grow the, the film business, enabled and facilitated with a full service offering, which includes not only the machinery but the, the technical service that is so important to, in this industry, to the, to the customers to help them optimize their operations. So it's really a total system solution that we're gonna go to market with now, and we're starting to go to market with, really for the first time. And as far as how big can the business get and what are our aspirations for it? I mean, look, I'm not gonna dimension it here. It's a big important business for us already.

[Ron Delia, CEO at Amcor]

You know, it's a tough time to be asking for a lot out of the business as it weathers some of the destocking and some of the sort of softness in the general beef cycle, in particular, or meat cycle, I should say. But it's a business that we have aspirations to grow at sort of mid to high-single digits and at good margins for the foreseeable future.

[Operator]

Your next question comes from the line of John Purtell from Macquarie. Please go ahead.

[John Purtell, Divisional Director and Senior Analyst of Engineering Construction, Packaging, Chemicals, and Agriculture at Macquarie]

Good day, Ron and Michael, hope you're well. Just a couple of questions, please. In terms of your second half EPS guide, previously it was up, for the second half, up mid-single digit and constant currency. I think you mentioned, Q3 EPS down mid-single digit, regarding your expectation in Q4 up in single digits. So it looks like the Q3 guide is weaker. Is that, is that reflecting, you know, a lower volume starting point?

[Michael Casamento, CFO at Amcor]

Look, overall, John, I guess we'd say we've actually held our guidance. So, you know, you're quite right, we've guided to volumes mid-single digit down in Q3 and EPS down mid-single digit, and then Q4, you know, we're expecting trajectory to improve through the half on the volumes, volumes down low single-digits. And, you know, just on the back of some of the things that Ron touched on earlier, and also, you know, the earnings trajectory of our business, typically in the seasonality in Q4 is our biggest quarter, you know, that's why we're expecting mid-single-digit EPS growth in Q4. So really not a lot of change.

[Michael Casamento, CFO at Amcor]

I guess what we have seen is that the volume trajectory is perhaps a little softer than we'd previously anticipated, and that was really on the back of that destocking, particularly in healthcare and North America beverage, where we're expecting that to continue through Q3 and perhaps into Q4. We are offsetting that with continued cost out, and we have confidence in the underlying performance of the business with the structural initiatives that we've put in place and touched on already, getting $35 million in the second half, the ongoing cost agenda, and discretionary spend management. So, you know, not a lot of change really to our guidance overall.

[Michael Casamento, CFO at Amcor]

I think we, perhaps we did a little better in, in H1, but generally speaking, we're holding the range, and we feel pretty good about the, the drivers behind it to deliver that, you know, the $0.67-$0.71 range.

[John Purtell, Divisional Director and Senior Analyst of Engineering Construction, Packaging, Chemicals, and Agriculture at Macquarie]

Thank you. And just the second one, just be interested in what you're seeing from the consumer. Obviously, you know, elasticity of demand has been an ongoing factor, and, you know, it looks like the FMCG companies are still pushing price.

[Ron Delia, CEO at Amcor]

Yeah, look, I mean, the best proxy is probably the scanner data that, you know, we look at, and I'm sure you look at as well. I mean, we still see a generally soft consumer environment, and, you know, that's true across the staples that we're supplying packaging for. You still see in the U.S., you know, general scan data, which, you know, obviously there's a lot of nuance that you need to unpack. But generally speaking, you know, kind of low single-digit declines in the calendar fourth quarter that's just passed. Europe may be a little modestly better overall, but at a sub-segment level, you still see lots of softness and lots of modest declines. You see some evidence of downtrading in some parts of the business.

[Ron Delia, CEO at Amcor]

You see, on the margin, maybe some modest shifts, and I wouldn't make too much into this, but you see some modest shifts in some categories like pet food and maybe even in coffee, where you might see different formats doing better. We certainly see it. We believe we see it in the beverage business, you know, in the case of carbonated soft drinks, where we know that the value pack, you know, has historically been the can. If you're gonna buy 12 or 24 cans or units of a soft drink, you're likely to buy it in a can, and that is continued. So I think generally, John, the consumer environment is pretty soft.

[Ron Delia, CEO at Amcor]

You know, there's some reasons, you know, for potential optimism if the brand owners toggle the dial a little bit between price, recovery, and maximizing volume, but we are absolutely not baking that into our assumptions on volumes going forward. But that we'll take as a nice to have if it happens.

[Operator]

Your next question comes from the line of Daniel Kang from CLSA. Please go ahead.

[Daniel Kang, Head of Basic Industrials and Australian Equities Research at CLSA]

... morning, everyone. So you spoke about protein turning a corner in January. Can you just elaborate on how you're seeing stock levels and the potential for an end in destocking in other protein product categories?

[Ron Delia, CEO at Amcor]

Yeah, look, I think as it relates to the trend on destocking from here, I'd sort of break it down in a couple of buckets. You know, firstly, we'd say the really pronounced end-of-year destocking that we saw in December, you know, we don't expect will repeat, with the exception or that we don't expect will continue, with the exception of globally in healthcare, and in North American beverage. We know that in those two segments, for different reasons, we've mostly covered, we're gonna see continued destocking, certainly through Q3 and likely into Q4. So we're not expecting a big bounce back there. Other than those two segments, you know, other places where there was really accelerated destocking in December, we're not expecting to see a repeat of.

[Ron Delia, CEO at Amcor]

And so therefore, you know, on a general basis, we would, we would expect that we're gonna start to come out the other end of this inventory cycle that we've been, you know, weathering for the last several quarters. We see some, some signs of that, already. I mentioned, I mentioned meat as one place that seems to have stabilized, you know, premium coffee in Europe is another. So there are some, there are some reasons for optimism, but again, we're not, we're not getting ahead of ourselves here. And, and, we recognize we have two important parts of the business, you know, in healthcare and, and, beverage, which are gonna continue to, to go through some more destocking from here.

[Operator]

Your next question comes from the line of Keith Chau from MST Marquee. Please go ahead.

[Keith Chau, Partner and Head of Basic Industrials Research at MST Marquee]

Oh, hi there, gents. Just an extension of Daniel's question on destocking. And, you know, part of my ignorance, but how can you actually tell what is destocking? What is underlying volume trend? Can you specifically quantify that with data that you're seeing internally? Or is it based on discussions you're having with customers, a bit of an approximation internally? Can you just give me a sense of how you work out what is underlying consumer weakness? What is destocking? What is cyclical-

[Ron Delia, CEO at Amcor]

Yep.

[Keith Chau, Partner and Head of Basic Industrials Research at MST Marquee]

What is structural?

[Ron Delia, CEO at Amcor]

Yeah. Look, it's-

[Keith Chau, Partner and Head of Basic Industrials Research at MST Marquee]

Thank you.

[Ron Delia, CEO at Amcor]

part art and part science. So firstly, there's a lot of discussions with customers, and remember, in some parts of the business, we're even co-located with customers, so there's a high degree of customer intimacy across the business. And the starting point is the discussions and the joint planning dialogue that we have with our customers around the world. So that's arguably the most important input. But then we also try to triangulate with data. And, you know, what do we look at? We look at things like in categories where there is scanner data, which is not the case across our portfolio, certainly not in healthcare, but in food and home and personal care and places where there's good retail scanner data, we take a close look at that.

[Ron Delia, CEO at Amcor]

We also look at the scanner results for individual customers, individual companies, and try to determine if there's any difference between the overall market performance and the performance of our specific customers. And then we look at our volumes and try to triangulate between those three data points to see, you know, what's the difference. You know, if there's sell-through or not, and whether or not we're seeing, you know, an inventory drawdown or build up. So it's, like, it's an approximation, but it's a reasonably informed approximation, both with input from the customer directly as well as data and quantitative inputs.

[Keith Chau, Partner and Head of Basic Industrials Research at MST Marquee]

Okay. Thanks, Ron. That's great. And then just a quick follow-up on the point in January, and I appreciate it's only a month, but when you talked about an improvement, are you talking about a positive growth comp in January or less bad January versus the last six months? Thank you.

[Ron Delia, CEO at Amcor]

Yeah, look, we're talking about it relative to the first half, so it's a little bit of both. But generally speaking, we're talking about the comparison to the first half. And, so we're not talking about- we've had, we had some parts of the business that grew, but we're not talking about general growth across the board. What we're talking about is, you know, a general improvement relative to, the first half and, and certainly the second quarter.

[Operator]

Ladies and gentlemen, this concludes our question-and-answer session. I will now turn the call back to Ron Delia for closing remarks.

[Ron Delia, CEO at Amcor]

Thanks, Operator, and thanks everyone for joining the call today. We're, as you can hopefully pick up, pretty optimistic about our second half. We believe that the second quarter was the low point for us in terms of volumes and earnings growth, and the business will build momentum from here. So thank you for your interest in Amcor, and we'll speak to you next quarter.

[Operator]

This concludes today's conference call. Thank you for your participation, and you may now disconnect.

Participants

Executives

• Michael Casamento, CFO
• Ron Delia, CEO
• Tracey Whitehead, Head of Investor Relations

Analysts

• Adam Samuelson, VP and Equity Research Analyst of Agribusiness and Packaging at Goldman Sachs
• Anthony Longo, Equity Analyst of Transport and Infrastructure at JPMorgan
• Brook Campbell, Head of Cyclical Industrials Research at Barrenjoey
• Cameron McDonald, Managing Director and Head of Research at E&P
• Cashen Keeler, Equity Research Associate at Bank of America
• Daniel Kang, Head of Basic Industrials and Australian Equities Research at CLSA
• Ghansham Panjabi, Senior Research Analyst at Baird
• Jakob Cakarnis, Director at Jarden Australia
• John Purtell, Divisional Director and Senior Analyst of Engineering Construction, Packaging, Chemicals, and Agriculture at Macquarie
• Keith Chau, Partner and Head of Basic Industrials Research at MST Marquee
• Mike Roxland, Managing Director of Equity Research at Truist Securities
• Richard Johnson, Managing Director, Director of Research, and Paper and Packaging Analyst at Jefferies
• Sam Seow, VP at Citi