Global packaging producer Amcor CDI (ASX: AMC) share price has dipped 3% in morning trade despite announcing a 12% jump in first-half sales.
Amcor creates and manufactures packaging for food, beverages, pharmaceutical, healthcare and personal care applications, which is used by leading brands around the world.
Pricing power shines
Key financial results from the first half of FY22 include:
- Sales of US$6.9 billion, up 12% year-on-year (YoY)
- Adjusted earnings before income and tax (EBIT explained) of US$769 million, up 4% YoY
- Earnings per share (EPS explained) of US$0.358, an 8% improvement YoY
- Free cash flow of US$105 million, down 62% YoY
- Quarterly dividend of 12 cents per share, up from 11.75 cents
Like many industrial companies, Amcor felt the pinch of inflation as raw material costs increased by US$650 million.
US stock markets deliver positive start to February
Fortunately, the business was able to flex its pricing power and pass on these costs to customers.
Sales for the half increased leading to a 12% increase, with 11% of the increase resulting from price increases.
Free cash flow – a measure of a firm’s cash generation – fell materially mainly due to the timing of a $221 million net working capital outflow.
Divisional performance
Its core Flexibles division achieved a 10% increase in net sales, reflecting the aforementioned raw material costs and a focus on higher-value products.
Similarly, Rigid Packaging increased sales. However, supply chain disruptions and shortages of inputs led to a 13% fall in divisional EBIT.
Bigger buyback
In addition to the previously announced US$400 million share buyback, Amcor will repurchase an additional US$200 million of shares.
The additional $200 million is not expected to have an impact on Amcor’s EPS until FY23.
This brings the size of the buyback over 2022 to US$600 million.
Over the first half, Amcor repurchased 1.6% of its shares for US$295 million.
Outlook for FY22
Amcor has reiterated its full-year guidance to investors including:
- Adjusted EPS growth of 7-11%, or approximately EPS of US$0.79 to US$0.81
- Adjusted free cash flow of US$1.1 billion to US$1.2 billion
Given Amcor’s current share price of $16.42 and earnings projections, this values the company on an earnings ratio of 15.
“The Amcor investment case has never been stronger and we are increasing investments in premium segments like healthcare and protein, in emerging markets and in our innovation capabilities to drive growth and margin expansion” – CEO Ron Delia
If you’re looking to learn how to do your own ASX company valuations, take our free share valuation course, which takes you through 6 common share valuation techniques, step by step.
Or try our Beginner Shares Course if you’re just starting out. Both are free.
