AMCOR passes on nearly $1 billion in price hikes, lifts buyback – three brokers give their take

This morning Amcor (ASX: AMC) delivered its latest results. The packaging behemoth delivered 6% growth in sales, to US$7.35 billion, but margins slipped to 10.8% from 11.1%, largely because of the higher raw materials costs for resin, plastics and aluminium.

The main story from the results, however, was the scale of the cost increases the company has pushed through in the last six months because of inflationary pressures – the total amount was an eye-watering US$1 billion. 

The number prompted CEO Ron Delia to highlight that there are signs of prices for inputs such as resin and aluminium are both flattening and, in some cases, declining. 

Amcor is a company that has pricing power. They can pass on price increases to their clients, who largely have little choice but to accept the price increases. That said, aggressive price hikes are not a bottomless that Amcor would want to keep going back to. 

With the results in the book, here’s a round-up of the hot take from Morgan Stanley, Macquarie, and UBS 

Morgan Stanley – Equal-weight - $17 target price

Headline: In-line results demonstrating resilience despite some volume deterioration

MS’ view: A solid result albeit with modest deterioration in the volume trajectory and increased caution in the outlook. We expect that AMC will continue to weather difficult markets well but that upside is limited, particularly if markets shift to a risk-on/growth focus.

Notes:

• Management has increased caution on FY23 adj EPS guidance highlighting increased volatility in the demand environment with the potential for 2H volumes to soften.

• Share repurchase increased to US$500m (prev US$400m) from the proceeds of the sale of the Russian business. To date US$40m has been completed. 

Macquarie – Neutral - $17.94 target price

Headline: Earnings beat driven by lower tax/corp costs; vols lower & more cautious outlook

Mac’s view: FY EPS guidance maintained but with a soft tone with vol weakness likely to continue. AMC’s premium to global peers has retreated and AMC trades on 14.2x forward PE vs global peers on 13.3x. That’s a +9% PE premium vs LTA prem of 6% noting AMC’s greater consumer exposure (>95% rev) vs a mix of consumer/industrial for global peers.

Notes: 

• 1H sales of US$7.35b -1% below our US$7.44b forecast and +6% on pcp or +2% in cc terms and ex raw mats.

• AMC affirmed FY EPS guidance at between 77-81cps (VA consensus 78.6cps and vs our 79.7cps)

• AMC is more cautious in relation to the demand environment, which suggests slower EPS growth in 2H.

UBS – Neutral - $18.65 target price

Headline: 1H23 EBIT in line with UBSe/VA cons. Cost management offsetting volume pressures

USB’ view: Solid result with 1H23 EPS broadly in line with UBSe and cons, with price/mix/cost management benefits largely offsetting lower volumes on destocking activity. We see FY23 EPS tracking to the low end of the guidance range

Notes:

• 1H23 EBIT in line with UBSe/VA consensus, and EPS 2% ahead on lower tax.

• FY23 guidance reiterated for reported EPS growth of -1% to +4% (UBSe -3%, VA cons -2%); however, destocking related volume pressures sees Amcor express a more cautious tone on the outlook. 

• 1H volumes -1% (vs UBSe -1%) with mix (healthcare vol's up) and cost management offsetting pressure on EPS. 

• Share buyback lifts to US$500mn (from US$400mn), with US$40mn repurchased YTD.

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