The Tale of Defensive Packaging Giant: Amcor

The Tale of Defensive Packaging Giant: Amcor

Amcor (ASX:AMC) is a global leader in the packaging industry and provide packaging for pharmaceutical, medical, food, beverage, home, personal care, and other products. The stock is also listed with NYSE and trades under the code AMCR. The government and authorities around the world recognise Amcor’s business as an essential service due to the remarkable role the Company plays in the supply chain of food and healthcare products. Its services became more so important in the current pandemic time.

On 12 May, the Company released year to date financial report for the period ended 31 March 2020 wherein, it mentioned that it has not experienced much disruption in business due to COVID-19 spread. From the onset of pandemic till now, Amcor has operated its 250 plants around the world. It has not faced any issues in accessing raw material or other business continuity issues. Even the operational costs remain more or less the same.

Pandemic’s impact on overall demand is unclear 

Source: Company’s report

 

AMC further stated that the overall demand witnessed mixed results from different regions and segments during the third quarter. Amcor experienced demand for most food, beverage and healthcare increased globally due to the ongoing pandemic. The markets for these items are relatively strong in the developed countries but weaker in emerging markets like India and China.

Flexibles’ volumes in North America business increased by 4 per cent in comparison to March quarter previous year. In Latin America businesses volumes of Specialty Cartons and Flexibles improved as compared with the first six months of the year. However, its business volumes remain below the prior year on a year to date basis.

The company is expected to remain well-positioned during the current uncertainty.

The multiple factors that look promising for keeping Amcor strong in the market are its significant role in the supply chain for essential items, combined with a strong balance sheet, and a global plant network.

The Company is expected to continue demonstrating resilience and generate value for all shareholders.

Amcor’s three guiding principles during COVID-19

To deal with extraordinary challenges due to the ongoing pandemic, the Company established three guiding principles:

Employees’ health, a top priority: The Company emphasised the importance of health and safety of the employees is one of AMC’s core values. Multiple measures are being implemented across the plant to keep employees healthy and well protected. It includes practicing physical distancing at work and break out spaces, frequent cleaning and disinfection, temperature screening, restricted visitor access, wearing protective masks and flexible remote working.

Business continuity plans: To keep operations running and support business partners, the Company’s all plant and offices now have business continuity plans that address return to work protocols, supply chain risks, infection prevention measures, and incident response. 

Relief efforts in communities: It has launched a global program, as per which it is donating food and healthcare packaging products and funding local initiatives for improved access to education, food, health care and other essential products.

Amcor year to date results and increase in outlook for fiscal year 2020

AMC’s highlights for the nine months ended March 31, 2020 are as following-

  • GAAP net income of AUD 433 million and earnings per share (EPS) of 26.9 cents per share;
  • Adjusted EBIT of AUD 1,059 million, up 6.9 per cent in constant currency terms;
  • Adjusted EPS of 44.7 cents per share, up 13.7 per cent in constant currency terms.
  • Bemis integration progressing well with year to date pre-tax synergy benefits of AUD 55 million;
  • Adjusted free cash flow of AUD 367 million, up by AUD 217 million;
  • Quarterly dividend of 11.5 cents per share declared;
  • 3.2 per cent of outstanding shares repurchased year to date; and
  • Fiscal 2020 outlook for adjusted EPS growth in constant currency terms increased to 11-12 per cent.

 

CEO Mr Ron Delia comments on business during the pandemic crisis

Mr Ron Delia, CEO, AMC said that the unprecedented times made clear the important role of primary packaging in the supply of healthcare products, food and beverages in a safe manner. Consumers are now more focused on hygiene, product safety, convenience, and shelf life.

AMC is fulfilling these demands around the world by providing packaging for consumer staples. He also thanked 50,000 employees for supplying essentials to customers during difficult times.

Source: Company’s report

 

He also said that the company was not immune to the current situation but remains relatively well-positioned and defensive due to broad geographic diversification, global scale and sales are almost entirely weighted to essential consumer staples end markets.

Amcor has increased guidance for the 2020 fiscal year for the second consecutive quarter. Due to drive in the base business and quick synergies from the Company’s acquisition of Bemis last year, earnings growth remained strong.

The Board is committed to a compelling dividend, and AMC continues to deliver consistent cash flow. The Company is confident about the underlying potential and defensiveness of the business. The organic growth is expected from defensive end markets, the EPS benefits from shares repurchased this year, and cost collaboration from the Bemis acquisition.

The balance sheet is strong, and it is expected to generate more than AUD 1 billion of annual free cash flow that will ensure cash returns to shareholders and continued investment in the business.

The global packaging automation market expands amid COVID–19 outbreak

Packaging plays a vital role in product marketing as it is one of the most attractive features for the buyer, and as a result, it impacts the sale of the product. The advent of technologies like robotics and automation have had revolutionalised the packaging industry. The high competition and rising emphasis on decreasing the dispatch time resulted in manufacturers around the globe to turn to automation.

The industries that have embraced the packaging automation technology are food and beverages, healthcare and pharmaceuticals, e-commerce and logistics industry, chemicals automotive, and others.

The producers and consumers both are highly concerned about the safety issues. The strict safety regulations are projected to drive market growth in the coming years.

Automatic packaging requires fewer manual efforts which means less human contact. The technology is useful in the current pandemic situation where less human contact and safety issues are of paramount importance. The higher packaging requirement during the COVID-19 outbreak and the changing consumer needs in terms of quality and safety indicates further growth for packaging automation.

 


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