Full year 2024 Amcor PLC Earnings Call
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Speaker Change: Hello and welcome to the AMCOR Fiscal Year 24 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, and if you would like to ask a question during this time, please press star 1 on your telephone keypad.
Speaker Change: I would now like to turn the conference over to Tracey Whitehead, Head of Investor Relations. Please go ahead.
Tracey Whitehead: Thank you, Operator, and thank you, everyone, for joining AMCOR's Fiscal 2024 Fourth Quarter and Full Year Earnings Call. Joining today is Peter Knychny, Interim Chief Executive Officer, and Michael Casamento, Chief Financial Officer.
Speaker Change: 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'll discuss on this call.
Speaker Change: Please be aware that we will also discuss non-GAAP financial measures and related reconciliations can be found in that press release and the presentation.
Speaker Change: 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 differ from current estimates.
Speaker Change: Reference can be made to AMCOR's SEC filings, including our statements on Forms 10-K and 10-Q, for further details.
PK: Please note that during the question and answer session we request that you limit yourself to a single question and then rejoin the queue if you have any additional follow-up. With that, over to you PK.
PK: Thank you, Tracey, and thank you to all who have joined us for today's call.
PK: I want to open the call with a big thank you to our AMCOR colleagues around the world, all of whom demonstrated tremendous focus in Fiscal 24.
PK: Their hard work and dedication enabled us to improve our financial performance through the year and to finish the year strong, and I want to publicly recognize their efforts.
PK: In terms of Q4, we start, as always, with safety on slide 3.
PK: Safety is our number one priority and our efforts to provide a safe and healthy work environment for our teams resulted in another year of improved performance, which reinforces our industry leadership when it comes to safety.
PK: 73% of our sites have remained injury-free for 12 months or longer and overall, UMCOR experienced a 12% reduction in injuries compared to Fiscal 23.
PK: Our commitment to our people and to their safety remains our most important value and we continue to aspire to achieve our ultimate goal of zero injuries.
PK: Turning to slide four.
Speaker Change: AMGUR's near-term priorities remain consistent with those I shared on our Q3 earnings call, and I'm happy to report we're successfully delivering against these priorities.
Speaker Change: As I just mentioned, providing a safe and healthy work environment for our global workforce will always be number one.
Speaker Change: Second, is to stay close to our key stakeholders, including employees and customers, which helped us finish the fiscal 24 years strongly.
Speaker Change: Our teams continue to execute well in the fourth quarter, maintaining cost discipline as volume trends continue to improve sequentially, with a return to volume growth in Q4.
Speaker Change: As a result, we delivered another quarter of solid margin expansion and earnings per share growth above the expectations we set out in April.
Speaker Change: Third is to build on the progress we have worked hard to deliver across the business and ensure we maintain momentum in fiscal 25.
Speaker Change: We expect our earnings and volume performance to continue to improve, and this is reflected in our Fiscal 25 guidance.
Speaker Change: And fourth, I and our senior leaders continue to focus on providing stability for the business and helping our teams deliver for all our stakeholders. We're executing well and winning with our customers as we continue to reinforce that UMCRA strategy, agenda, and priorities have not changed.
Speaker Change: Moving to our key messages for today on slide 5.
Speaker Change: First.
Speaker Change: Amco reported strong financial results for the fourth quarter driven by solid performance in the underlying business and a return to volume growth resulting in both segments delivering adjusted EBIT growth on a comparable basis.
Speaker Change: Second, volumes, EPS growth, and free cash flow were ahead of expectations we set out in April.
Speaker Change: Overall volumes increased 1% in the quarter compared to last year, which exceeded the low single-digit decline we were anticipating. Earnings per share also outperformed expectations up 9%, which was above our guidance for mid-single-digit growth.
Speaker Change: Third, we expect to build further momentum and deliver annual EPS growth through continued strong performance from the underlying business.
Speaker Change: At the midpoint of our fiscal 25 EPS guidance range of growth of 3 to 8 percent, we expect total annual value generated to once again be consistent with the 10 to 15 percent outlined in our shareholder value creation model, assuming a dividend yield aligned with historical average.
Speaker Change: It is important to point out that we expect the underlying business to continue to deliver strong growth in line with the high single-digit earnings growth experienced in Q4, considering our guidance includes an EPS headwind of approximately four percentage points related to normalization of incentives.
Speaker Change: Michael will step through the components embedded in our guidance range in more detail shortly.
Michael: Our final key message is that our capital allocation priorities and strategies for long-term growth have not changed. We continue to invest in organic growth across the business, including in higher value priority categories in emerging markets.
Michael: Strategic M&A also remains an important source of incremental growth and value creation.
Michael: We believe the strength of our market positions.
Michael: Our opportunities to invest for growth, our execution capabilities, and our commitment to a compelling and growing dividend and to maintaining an investment-grade credit rating sums up to a convincing investment case for Amcord.
Michael: Moving to slide six for a summary of our financial results.
Michael: We finished fiscal 24 on a strong note, as customer demand continued to improve off-second quarter lows, and our teams did an excellent job leveraging our differentiated value proposition to support our customers and drive volumes higher.
Michael: At the same time, our unwavering focus on proactive cost management through the year resulted in four consecutive quarters of strong margin expansion.
Michael: Overall volumes returned to growth earlier than we anticipated and we're up 1% in Q4, our second consecutive quarter of strong sequential volume improvement.
Speaker Change: As expected, volumes across healthcare categories and in the North America beverage business remain soft through the fourth quarter.
Speaker Change: Combine these two businesses, which represent approximately 25% of sales in Q4, unfavorably impacted overall volumes by approximately 2%.
Speaker Change: Across the balance of the business, overall volumes were approximately 3% higher than the June quarter last year.
Speaker Change: This reflects broad-based improvements in customer demand across many end markets and what we believe is the end of de-stocking in all categories other than healthcare.
Speaker Change: Price mix had an unfavorable impact on sales of approximately three percent, primarily driven by continued destocking in high margin healthcare categories.
Speaker Change: Cost reduction and productivity initiatives remained a focus, and we delivered another quarter of significant cost savings totaling more than $110 million, including an additional $20 million of benefits from structural cost initiatives in Q4.
Speaker Change: This builds on the outstanding efforts by all our teams across the businesses through the first three quarters, bringing the total cost savings for the year to more than $40 million, including structural savings of $35 million.
Speaker Change: The result of improving volume trends and our focus on cost and productivity actions was another quarter of strong urging leverage as momentum in Umpra's underlying business continued.
Speaker Change: Fourth quarter adjusted earnings per share of 21.1 cents grew by 9% on a comparable constant currency basis above our April guidance for mid single-digit growth and adjusted EBIT was up 4% compared with last year.
Speaker Change: Overall for fiscal 24 we delivered adjusted EPS toward the top end of our guidance range we provided last August.
Speaker Change: And our ongoing focus on cash conversion was rewarded with adjusted free cash flow of $952 million, up more than $100 million on last year, and just above the top end of our guidance range.
Speaker Change: We also continue to return significant cash to shareholders through a compelling and growing dividend in addition to share repurchase, which combined totaled approximately $750 million for fiscal 24.
Michael: Turn it over to Michael now to provide some further color on the financials and our outlook. Michael. Thanks P.K. and hello everyone. Beginning with the flexible segment on slide seven and focusing on our fiscal Q4 performance.
Michael: Q4 volumes increased by 3% which represented a significant sequential improvement of 5 percentage points compared with the March quarter.
Michael: Net sales, however, were down 1% on a comparable constant currency basis as broad-based volume growth was offset by unfavorable price mix of approximately 4%.
Michael: primarily related to lower healthcare sales, which we anticipated.
Michael: De-stocking in healthcare categories continued in North America and Europe and this resulted in a headwind of approximately 2% on overall segment volumes.
Michael: Across the balance of our flexibles portfolio, ANCOR experienced very solid growth with volumes increasing by approximately 5% in the quarter.
Michael: The improved customer demand we saw in the third quarter continued as customers increased their focus on growing volumes and returned to more normalised order patterns now that destocking has ended.
Michael: This led to broad-based growth across most geographies, with volumes increasing in several categories including meat, cheese, home and personal care, and unconverted film and foil.
Michael: Across North America and Europe, fourth quarter demand improved across many end markets, resulting in a return to overall volume growth in the low to mid single digit range in both regions, despite continued softness in healthcare.
Michael: In North America, volumes were higher in meat, cheese, and snacks categories.
Michael: And in Europe, the business delivered particularly strong volume growth in meat, home and personal care and unconverted film and foil.
Michael: Emerging market volumes were up mid-single digits in Q4. Most countries experienced solid growth with volumes in China increasing for the fourth consecutive quarter and strength continuing in India, Thailand, Brazil and Mexico to name a few.
Michael: Adjusted EBIT for the quarter of $403 million, was 5% higher than last year on a comparable constant currency basis.
Michael: Higher volumes combined with strong cost performance through the quarter, including from restructuring initiatives, led to another quarter of margin expansion with EBIT margins up 110 basis points to 15%.
Michael: Turning to RIDGID packaging on slide 8, volumes and earnings trajectory for RIDGIDs continue to improve in the fourth quarter with the business delivering consecutive quarters of earnings growth in the second half.
Michael: As anticipated, overall volume performance for the business improved sequentially as the 5% volume decline in Q4 was 3 percentage points better than the March quarter.
Michael: As expected, the Q4 decline was driven by lower volumes in the North America beverage business. Across the balance of the rigid packaging portfolio, volumes were in line with the fourth quarter last year, and favourable price mixed benefits of approximately 3%.
Michael: resulted in a 2% decline in net sales on a comparable constant currency basis.
Michael: In North America, beverage volumes were down 8%, reflecting lower consumer demand in ANCOR's key end markets and unfavourable customer mix.
Michael: Volumes improved by three percentage points on a sequential basis as de-stocking ended and warmer weather resulted in modest improvement in consumer consumption versus the March quarter.
Michael: In Latin America volumes increased in the low single-digit range compared with last year driven by continued growth in Brazil in Colombia
Michael: And from an earnings perspective the business delivered another quarter of earnings growth and margin expansion through an ongoing focus on cost reduction and productivity measures and the realization of benefits from restructuring initiatives.
Michael: Adjusted EBIT increased by 2% in Q4, with the EBIT margin increasing by 70 basis points to 8.8%.
Michael: Moving to cash and the balance sheet on slide nine. Adjusted free cash flow for fiscal 24 was just above the top end of our guidance range at 952 million, up more than 100 million or 12% compared with last year.
Michael: Cash generation was strong through the fourth quarter and we delivered good cash conversion by remaining laser focused on improving working capital performance with inventories reducing for the sixth consecutive quarter.
Michael: The timing of spend on CapEx projects was also a modest tailwind in the year, which we expect to unwind in fiscal 25.
Michael: Leverage at 3.1 times was down 0.3 of a turn from the March quarter and was in line with our expectations for year end.
Michael: This brings me to the outlook on slide 10.
Michael: For Fiscal 25, we expect to continue building on the volume and earnings momentum we achieved through the second half of Fiscal 24.
Michael: Adjusted earnings are expected to be in the range of $0.72 to $0.76 per share on a reported basis.
Michael: representing comparable constant currency growth of 3 to 8 percent.
Michael: As PK noted earlier, we expect that growth in the underlying business will remain strong in FY25.
PK: However, it's important to note that our guidance includes an EPS headwind of approximately 4% related to more normalised levels of incentive compensation based on our expectations for improved annual financial results.
Speaker Change: Excluding this incentive normalization, our guidance range implies expected growth from the underlying business in the high single to low double-digit range.
Speaker Change: Our guidance range assumes an expected volume increase in the low to mid single digit range for the year, with trading performance in July aligned with this expectation.
Speaker Change: Interest expense is expected to be between $290 and $305 million and the effective tax rate is estimated to be in the range of 19 to 20 percent.
Speaker Change: When combining interest and tax in absolute terms the expectation is for a modest headwind to earnings when compared with fiscal 24.
Speaker Change: In terms of phasing, we anticipate this will be broadly aligned with historical average of approximately 45% of earnings being delivered in the first half of the year and 55% in the second half, with the fourth quarter typically the strongest of the year.
Speaker Change: And finally, we expect to continue to generate strong adjusted free cash flow in the range of $900 million to $1 billion, even as we fund an increase in capital expenditure of approximately $40 to $60 million from a lower base in 2024, which I mentioned earlier.
Speaker Change: and we expect to exit the year with leverage back within our two and a half to three times management range.
Speaker Change: We're pleased with the finish to fiscal 24 and look forward to delivering strong financial results in 25 and beyond.
Pika: So with that, I'll hand it back to you, Pika.
Pika: Thank you Michael. In closing on slide 11, we finished 24 on a strong note and we're encouraged by the broad-based improvement and volumes we're seeing across most geographies and end markets.
Pika: Earnings growth in both segments in the second half of fiscal 24 combined with a return to volume growth in the fourth quarter. And the trends experienced in the first several weeks of fiscal 25 give us confidence that momentum will continue to build in the underlying business.
Pika: We expect overall volumes to continue to grow in fiscal 25, and we will maintain a sharp focus on cost control and productivity initiatives to drive solid earnings growth.
Pika: And importantly, assuming a dividend yield aligned with historical average at the midpoint of our EPS guidance range, we are well positioned to deliver annual value generated in fiscal 25 to be in line with the 10 to 15 percent outlined in our shareholder value creation model.
Pika: We will continue to capitalize on opportunities to grow the business by staying close to our customers.
Pika: providing the support and the differentiated more sustainable packaging solutions they need to protect, preserve, and promote their products as they drive their own volume growth.
Pika: We continue to invest in organic growth, including in higher value priority categories and emerging markets.
Pika: Strategic M&A is an important source for incremental growth and value creation, and we're committed to a compelling dividend which grows annually.
Pika: We're confident in our execution capabilities and in the opportunities we have to continue delivering profitable growth from the underlying business and to create strong free cash flow in FISPA 25 and beyond.
Speaker Change: Operator, we're now ready to turn the line over to questions.
Speaker Change: Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. If you would like to withdraw your question, simply press star 1 again.
Speaker Change: please ensure that your phone is not on mute when called upon. In the interest of time, we would like to remind participants to limit their question to one and to rejoin the queue for any follow-ups.
Speaker Change: Your first question comes from the line of Gansham Panjabi with Baird. Your line is open.
Gansham Panjabi: Thank you. Hello, everybody.
Gansham Panjabi: You know, can you just give us a sense as to what you're seeing as it relates to true market conditions? I mean, obviously you're cycling over easier comparisons from a year ago, you know, just given entry destocking etc. But
Speaker Change: What is your characterization of the actual end market in context of what we read about with consumer affordability issues and so on? And I guess I'm asking because you know last year your volumes were down 5% in fiscal year 24 And your guidance is I think it was low to mid single-digit volumes So just trying to get a sense as to what you're actually seeing in the market
Gantrum: Yeah, thanks, Gantrum.
Speaker Change: Let me let me take that question here and then...
Speaker Change: see if Michael wants to build if needed or required.
Speaker Change: Look, first of all, we've been very pleased with the performance of the volumes with the sequential improvement from Q3 to Q4.
Speaker Change: which was even better than what we expected and we went back to volume growth which was again better than the low single digit decline that we had indicated in after Q3.
Speaker Change: And we've been pleased with that being pretty much broadband across the different regions and categories.
Speaker Change: So it was a broad momentum that was building here, and we're very pleased to see that too.
Speaker Change: Then, if I double-click on where the 1% comes from, I try to depict that into the different drivers. The first thing that I would say is it's not necessarily consumer demand.
Speaker Change: Consumer demand continues to be muted. We would consider that to be low single-digit down still. And also when we go into 25 with our expectations, we wouldn't assume that that necessarily improves.
Speaker Change: What we're seeing is that our customers are starting to do better. When we talked about this also in the last earnings call, where we pointed out that our customers are looking for a better balance between volumes and price,
Speaker Change: And you also see that when you go through some of the announcements that have come out lately.
Speaker Change: So, that's better and we're...
Speaker Change: demonstrating an ability to win with those customers. And that is through what we have to offer. And I would just call that on a headline, the value proposition that we can bring to the customer. So that's encouraging. And that's really the driver of the improvement to a large extent.
Speaker Change: Of course, we are seeing some benefits from cycling out of the stocking that we had last year. In the fourth quarter, to give you a feel, that would have been not really much, maybe a couple of percentage points.
Speaker Change: But also remember that we're still seeing destocking the healthcare business. That pretty much goes against us.
Speaker Change: and those would be the major drivers and and they're very consistent with sort of what we're seeing when we when we look to to 25. I hope that that sort of answers the question.
Speaker Change: Your next question comes from the line of Keith Chow of MST Financial Services. Your line is open.
Keith Chow: Hi there, Peter and Michael.
Keith Chow: Just want to maybe actually reflect back on that question. So you know what you're saying is that the consumer is still weak at the moment so the growth is not consumer demand, still low single-digit down.
Speaker Change: your volumes and FY25 it feels like part of that is
Speaker Change: The unwind is de-stocking, which is a couple of percent that you're expecting on a load of mid-single digits, so
Speaker Change: you know, there is maybe some slight improvement in your underlying volume. So I'm just trying to work out what the difference is between those two factors, like who do you think is losing and taking share? I'm just trying to square up the numbers from the first question. Thank you.
Speaker Change: Yeah, Keith, so first of all, I would say
Speaker Change: It's not really a share story here. It comes down to, again, the things that I've mentioned before, the consumer demand we would hope to improve going forward, but we're careful in terms of our expectations for the next year.
Speaker Change: We're not banking much on that to happen. If it comes, that would be great. And that would be providing further tailwinds for us.
Speaker Change: And again, what you're seeing is on a comparative basis to prior periods, you would see, you know, the the stocking sort of cycling off that that gets us a better volume performance in terms of what we report.
Speaker Change: And a little more color on that.
Speaker Change: In the first half of 2025, we would be comping a pretty broad range destocking versus prior period.
Speaker Change: However, we said that pretty much came to an end after the first half last year, so that won't be there in the second half anymore.
Speaker Change: And in the first half, we will still continue to see de-stocking in the healthcare, in the healthcare category, which is pretty much a quarter longer than what we guided towards in Q3, in the earnings call after Q3.
Speaker Change: But that will abate in the back half of the year.
Speaker Change: And then we continue to believe that our customers, and to a large extent, you know, we have good exposure to big global customers.
Speaker Change: that they will continue to to drive their volume performance which is very consistent with what you're hearing and and we have have we're partnering up with them.
Speaker Change: like we have, you know, built a good relationship with them over the past. We always have been very close to the big customers and as their volumes are coming back, we take advantage of that.
Speaker Change: So you pull all that together, that sort of results into the volume guidance of low single digit to mid single digit next year.
Speaker Change: Your next question comes from the line of Adam Samuelson with Goldman Sachs. Your line is open.
Adam Samuelson: Thank you. Good evening, everyone.
Adam Samuelson: I guess maybe continuing along that line of discussion, maybe I'd like to dig in a little more on the healthcare and market, which is still your most challenged. If I was doing the algebra right, it seems like you're implying that I was down.
Speaker Change: near high single-digit volumes in the fiscal fourth quarter. Sounds like the stocking continuing for at least...
Speaker Change: One more quarter. You talked about the confidence that you have of that ending by the end of this calendar year, and maybe a little bit more clarity on what the assumptions are for the healthcare business for volumes in fiscal 25, because obviously that has important implications on MICS as we move through the year.
Speaker Change: Yeah, good question, Adam. I mean, first of all, I'd say that healthcare is
Speaker Change: As far as I'm concerned, a real gem in our portfolio. Let's start right there. And if we're challenged with the healthcare category, it would really just be on the back of the normalization that the category is seeing after a major dislocation that the category has gone through in the more recent past.
Speaker Change: And that dislocation is now coming to an end with the category essentially rightsizing their inventories. That's what we're seeing.
Speaker Change: You know, we don't have any concerns overall in the stability and the attractiveness of this category to start right there. But what we're going through until the end of the calendar on the back of what we know right now is really just continue to stocking.
Speaker Change: I can confirm that the high level estimates that you're doing on volumes is correct in terms of high single digits being down in the more recent past.
Speaker Change: I think that the destocking that we've seen in Q4 is probably slightly better than what we've seen in Q3. And again, on the back of everything that we know, the destocking will come to an end by the end of the calendar.
Speaker Change: And that would be based on various conversations that we have with our customers and what they're confirming currently is happening in their business.
Speaker Change: Now, in the back half then, when the stocking has come to an end, we're expecting a better volume performance with the business, as you would imagine.
Speaker Change: And we would definitely have no concerns to believe that health care can return to growth rates that, you know, are in line with the historical averages of sort of mid-single digits growth.
Speaker Change: The final point that I'd like to make, maybe on healthcare, is as I'm thinking through it, how to best answer your question. You know, the stocking that we're seeing in healthcare
Speaker Change: is actually, when you look at the numbers, quite similar to some other categories that we've seen beforehand. It's just that health care started later.
Speaker Change: pretty much in Q2 last year and you know has started mostly with medical on the medical side which which we've cycled through right now.
Speaker Change: and and then with with the phase delay we've seen some some some impacts on the pharma side which we're now crunching through and that will come to an end by the end of the calendar as I said before.
Speaker Change: Maybe Adam, just to pick up on the mix point. Yes, you're quite right. Obviously the mix was unfavourable in Q4 and with the de-stocking continuing, you know, if we think about our guidance assumptions for the FY25, we would expect
Adam Samuelson: you know that negative mix to continue in the first half but then as we head into the second half it will obviously improve as we're through the de-stocking so you know on a full year basis we probably expect the mix to be more neutral.
Speaker Change: Your next question comes from the line of Daniel Kang with CLSA. Your line is open.
Daniel Kang: Good morning everyone. A quick question on capital management. I noticed that the board has chosen to refrain from share buyback at this point. Can you talk us through the decision there? Is it a reflection of wanting to see leverage ratios lower or is it a reflection of more confidence in the M&A pipeline?
Speaker Change: We've still got a little bit more to go of a buyback that was approved earlier on, so we didn't do that in Q4.
Speaker Change: You know, that's really a function of, you know, we have a good M&A pipeline and and there's opportunities there as always. So, you know, we elected to not do the buyback.
Speaker Change: from a capital allocation standpoint, I mean, the buyback is just one element of that. Clearly, the strong cash flow, we direct CapEx first to grow the business organically.
Speaker Change: You know, we continue to pay a dividend and you saw us increase the dividend again, and then with the free cash flow left over, you know, clearly we'd like to invest that.
Speaker Change: first and foremost in M&A, because that's where we get the greatest return. And if that's not available, then the buyback is really the next alternative. So the buyback is, and obviously it's a function of the cashflow performance as well.
Speaker Change: So, for now, you know, we haven't called out a buyback for 25, we've still got to finish a little bit left over there to do.
Speaker Change: but you know we've got a good pipeline of M&A activity you know we're expecting the cash flow in the business to be to be solid through the year as we've got it to 900 to a billion you know so we'll see how things play out as we work our way through the year and you know if there's capacity to do the buyback we'll do it.
Speaker Change: Your next question comes from the line of Anthony Pettinari with Citi. Your line is open.
Anthony Pettinari: Good evening.
Speaker Change: You know, we've come off two, three years of pretty sharp cost inflation that you had to absorb and pass on to your customers. Just wondering, as you look at the 25 guidance, what kind of cost inflation, raw material inflation, you know, resin,
Speaker Change: assumptions are baked in to the full year guidance and you know how might it be different or not different than what you've kind of experienced over the last couple years.
Speaker Change: Yeah, you're quite right. I mean, we've been in a highly inflationary environment. You know, clearly inflation is abating, though it's still at elevated levels, but clearly abating. I think from where we sit today, the main area of inflation now is really in the labour, in the labour side of things.
Speaker Change: You know and that that's probably in that kind of mid single digit range and we'd expect that again in FY25
Speaker Change: Our cost inflation in the quarter four was about $35 million or $190 million for the year versus $340 million in the prior year. So you can see that it is abating and I think the main area really now is just on the labour side as we look forward. From a raw materials standpoint,
Speaker Change: Look it's a pretty benign environment at the moment I think in Q4 probably overall and you know we buy a broad basket of raw materials and across you know
Speaker Change: multiple geographies across the globe. You know if I think about Q4 probably in general it was up kind of low single digit well I would say and and but it was a bit mixed by
Speaker Change: by raw material type, so resins up a little, aluminium up probably more mid to high, but then you know films and liquids were down so you know on balance
Speaker Change: Not a material impact to the business, and from an EBIT standpoint, really for the year, we're pretty neutral on the raw material side.
Speaker Change: As we look into 2025, really as we look into the first quarter again, we're seeing a pretty benign environment.
Speaker Change: If I think about North America and Europe, raw materials typically look pretty flat in the first quarter.
Speaker Change: Perhaps Asia is the one area where we might see some slight increases in raw materials, but again, generally, I'd say the basket of goods is pretty benign across the globe. So, you know, that's what we've factored into our guidance assumptions. And of course, we've given you a range of growth in the guidance assumptions.
Speaker Change: kind of three to eight percent obviously raw materials is a factor within that I mean we we pass through raw materials contractually but there can be a lag so you know that's just one element that could could you know get us to the bottom or upper end of that range
Speaker Change: Your next question comes from the line of George Stafos with Bank of America. Your line is open.
George Stafos: Hi, everyone. Thanks for taking my question. Hope you can hear me. Can you comment on the outlook for beverage in North America and when you expect the volumes to turn more positive? Thank you so much.
PK: George is PK here, I'll take that question. Look, Beverage North America
PK: is a little more discretionary than many of the other categories that we serve. Think about the Isotonics category as such.
Speaker Change: We're seeing the current environment, if you just look at scanner data, sort of low single digit to mid single digit decline in that category. And that's what we're facing in the market right now.
Speaker Change: And on top of that, I would say that our performance is also somewhat impacted by our exposure to customers that are, you know, in their totality underperforming the market.
Speaker Change: um sort of some low single digit if you want and that and that sort of uh rolls up to our own volume performance.
Speaker Change: On your question, how do we expect that to continue, I think, as we're looking at 25.
Speaker Change: It will, to a large extent, come down to the question of how consumer demand is developing in that category going forward. I think we've got to be realistic here. We've got to say that
Speaker Change: You know, we're not overly ambitious in terms of expecting the volumes to
Speaker Change: turn around in the near future. We would hope that that's the case, but as we're looking into the next year, I think we're being realistic about that, and it has mostly to do with the discretionary sort of nature of the category that we're exposed to.
Speaker Change: So that's how I would answer the question. I hope that helps.
Speaker Change: Your next question comes from the line of James Wilson with Jarden Australia. Your line is open.
James Wilson: Morning guys, just heading into FY25, can you give us a bit of a sense of the quantum of the 400 million dollars of cost out that you've managed to do over FY24 that will have to come back into the business?
Speaker Change: as volume speaker.
Michael: Sure, James, it's Michael here. I can take that one. As you said, we've been pretty focused on cost in 2024 and I'm pleased with where we ended up. We've generated savings in...
Michael: in excess of $440 million, which includes
Michael: $35 million of benefits from the structural program that we put in place as well.
Michael: And if you think about where that's coming from, there's two elements to it, obviously. The operating performance of the business, we've been laser focused on.
Michael: Managing our shift patterns, taking whole shifts out where we can and flexing the operational cost of the business to the lower volumes.
Michael: Procurement has been a big driver in this environment obviously you know we've we've been working hard through to our global reach and scale on that front and and discretionary spend has been managed quite tightly.
Michael: Obviously, we've had a strong year in 24 and we'll be lapping some of that. But as we look into 25, the structural benefits of $35 million, there'll be a further $15 million in 25, so that completes that program where we...
Michael: We were going to invest $170 million in cash and get the $50 million out, so we're well down the path of that and confident in that space.
Michael: And then on the balance, I mean, we continue to get procurement benefits.
Michael: You know, we'll continue to manage the operations, but clearly as the volumes increase, which is what we saw in Q4, you know, we'll have to flex the labor back up to manage those higher volumes that we're anticipating. That said, it won't be linear.
Michael: So, you know, we'll be able, we're more efficient today, we'll continue to see benefits from the cost takeout that we've had just in the efficiency as we deal with those increasing volumes working through the next year. So, you know, hopefully that helps.
Speaker Change: Your next question comes from the line of Brooke Campbell Crawford with Baron Joey. Your line is open.
Speaker Change: Yeah, good evening. Thanks for taking my question. Just a quick one for you, Michael. Please, just around the...
Speaker Change: had DNA charge in the fourth quarter was...
Speaker Change: quite a bit lower than we were thinking, and it was down about 8% year over year, 6% quarter on quarter. Do you mind just commenting on what sort of drove that reduction?
Speaker Change: D.N.A. in a quarter, and should we really just be annualizing that fourth quarter D.N.A. charge when thinking about FY25, or is there other adjustments we need to make?
Speaker Change: to take it back, thanks.
Speaker Change: Thanks Brooke, I can help you there. Look, in the quarter, well for the year, as you said, DNA was down kind of 7 million or thereabouts, not material.
Speaker Change: I mean, it's really a factor of a couple of things. Obviously, we reduced CAPEX spend, so you've got a little less there. And also, with the restructuring we've been doing with close seven plants.
Speaker Change: for The Deli Greats. Thank you.
Speaker Change: restructures as well. So clearly some assets have come out of the business from that front.
Speaker Change: and you know there's been some some other minor adjustments here and there so as I look forward you know I'd still expect depreciation to be in that kind of 400 to 420 million range on an annual basis which is which is
Speaker Change: Again, as we build CapEx spend in 25, as I mentioned in my speaking notes, we are expecting to increase CapEx again in 25 as we work our way through higher volumes. So, that will normalize some of that depreciation.
Speaker Change: Your next question comes from the line of Richard Johnson with Jeffries. Your line is open.
Richard Johnson: Thanks very much P.K. I've been thinking a little bit about the business kind of beyond the volume normalization process and in the nearer term the benefits your profitability is getting from the structural
Richard Johnson: The restructuring program that you've put in place and I Is it possible to get a sense from you when you look across your portfolio, which of course is very broad
Speaker Change: from both a category but a geographic perspective, are there areas that you think that could do with a bit of refreshing on the one hand, or on the other hand, maybe structurally challenged and long-term might actually be a drag on the growth that you think the business could ultimately produce?
Speaker Change: Thanks.
Richard Johnson: Yeah, hi, Richard.
Speaker Change: I wonder how I can best...
Speaker Change: sort of answer that question. You're asking about refreshing certain areas of the portfolio and seeing potential drags on the performance of the business going forward.
Speaker Change: I got a
Speaker Change: First of all, I got to remind everyone here the position that I'm in.
Speaker Change: And it's hard for me right now as an interim to sort of formulate views on the long-term strategy of the company, which that sort of touches on when you go to the portfolio.
Speaker Change: But in essence, having said that, you know, I believe that the business should continue to focus on categories that are more attractive than others.
Speaker Change: And that would be a starting point, you know, that we feel strongly about focusing the business on certain areas that are, you know, potentially value driven, therefore higher margins and offering better growth than others.
Speaker Change: In flexibles, the problem is always, or the challenge is, you can be everything to everybody and that has never really played out. I'm a big,
Speaker Change: big fan of focusing the business of those areas that are more attractive to us. Now, the ones that I would call out here as just as examples is the protein category that we've talked about in the in the past.
Speaker Change: which breaks out into meat and into dairy.
Speaker Change: or cheese, to be a little more specific.
Speaker Change: We do like coffee, or particularly premium coffee. We do like healthcare. While I did say that we're going through the short-term normalization of the business.
Speaker Change: We like pet food, and so on and so forth.
Speaker Change: So that's a good starting point. When you sort of go through the portfolio, you may find other categories that are less attractive.
Speaker Change: and that is something that we sort of need to strategically think through. In terms of geographies, I like the exposure of the business, you know, between developed and emerging markets.
Speaker Change: and there we.
Speaker Change: would want to continue the journey that we've been on, you've seen us make.
Speaker Change: Acquisitions also in the past, you know, if I just look at the healthcare business that we acquired in China, the flexibles business in India, you know, we made an acquisition in Eastern Europe.
Speaker Change: which is positive, just to mention a few examples. So I think that's what we're doing. This is the way how we're thinking about it and we need to continue to think about it. And I hope that provides a bit of color to the questions.
Speaker Change: Your next question comes from the line of John Purtell with Macquarie. Your line is open.
John Purtell: G'day Peter and Michael, hope you're both well. Look just a question regarding the flow of volumes through the quarter. Where did the exit rate end at and if you're able to make any comment on developed markets and emerging markets within that?
Speaker Change: on monthly volume performances, you know, because you have big swings in there and you know, you can't really read too much into it.
Speaker Change: And I think that a quarter is better of an indicator for actual performance.
Speaker Change: and I would like to stay on that level. So, you know, 1% overall growth in the fourth quarter is a good indication for the momentum that we carry forward into fiscal 25.
Speaker Change: Now, to the second part of the question, you know, developed markets versus emerging markets, we have in the past quarter seen growth in the emerging markets, like you would expect the developed markets were a little more muted.
Speaker Change: And what's been encouraging in the fourth quarter is that the developed markets also return back to growth and you know, I say that
Speaker Change: particularly encouraged by the fact that they also have the large exposure to healthcare where we have seen continued destocking.
Speaker Change: So that's quite encouraging for us. So again, developed markets performing better despite the healthcare destocking, emerging markets continue to grow, and that's the momentum that we carry forward.
Speaker Change: I hope that helps.
Speaker Change: Your next question comes from the line of Cameron McDonald with E&P. Your line is open.
Cameron Mcdonald: Good morning guys. Just going back to sort of the structural questions that were asked before. We're seeing some changes in preference shift around substrate towards aluminium cans particularly. Is that providing any sort of headwind?
Cameron Mcdonald: to the beverages segment that you've got and or any of the regulatory changes in the European market that could also be providing a bit of a challenge going forward, if you can comment on those please.
Speaker Change: Yeah, happy to do that. I mean, these are two big questions, or one big question, maybe another one that I can take first that's a little easier to answer. Let me go to the beverage question first.
Speaker Change: You know...
Speaker Change: Substrates in the beverage side of the business, they do coexist particularly between aluminum and PET and they both have their place.
Speaker Change: P.E.T. typically is, you see that, you know, on-the-go consumption, resealable, and that's where P.E.T. sort of finds its home.
Speaker Change: So, in the different categories on beverage, you find PET or cans coexist.
Speaker Change: or aluminum coexist, there's one category where they both sort of compete with each other, and that would be in the subsegment of CSD on the beverage side. Now, over long periods of time, we have seen pretty much
Speaker Change: constant share between the two subscripts in that category. In the more recent past, given the more discretionary environment that we're looking at,
Speaker Change: consumers are shifting to the better value option.
Speaker Change: and and those tend to be aluminum cans which are sold in multi-packs through the big-box stores.
Speaker Change: and the channel and because when you when you take a look at the price points they seem to be more attractive.
Speaker Change: So in the more recent times, we've seen a bit of a share shift to cancel on that end, and we'll have to see how that plays out as the environment normalizes.
Speaker Change: But it's not been a big trend for us that significantly impacts the volumes because it's really just this one subcategory.
Speaker Change: So, that said,
Speaker Change: to the second part of the question. Regulatory developments, which is a different animal but but likewise really important for our business.
Speaker Change: What we we've seen in Europe particularly the packaging and packaging waste regulations come through and We are obviously taking a close look at that
Speaker Change: This is a regulatory development that we
Speaker Change: To be honest with you, welcome.
Speaker Change: because at the end of the day.
Speaker Change: You know, all these initiatives try to do one thing and try to accomplish one thing, which is trying to keep plastic waste out of the environment. And that's very much aligned with our targets here as a company and comes back to our efforts in terms of the sustainability or on the sustainability side.
Speaker Change: The developments there, they help us essentially move the industry faster to an end point that we're more than happy to support and that we feel we're very well placed to support.
Speaker Change: We have made great progress on developing more sustainable products which are designed to be recyclable.
Speaker Change: and the regulation that we've seen essentially moves the whole industry to the concept of circularity that we want to support and that we want to get in place. So we're supportive of the regulatory developments there in Europe but also elsewhere and we welcome it.
Speaker Change: Your next question comes from the line of Keith Chow with MST Financial Services. Your line is open.
Keith Chow: Hi there, thanks for taking my follow-up. One for Michael, just the restructuring costs seem to have subsided a touch in the fourth quarter. I think there are some restructuring costs to go in FY25 below the line. Just wondering if you can give us a sense, Michael, on what the drag on that will be on cash flows? Thank you.
Michael: The program was going to be around $170 million in cash out. We've spent net today around $110 million. So we've got FY25, we'll pretty much finish the program. So it's another $60 odd million to go, which you'd expect to see in the adjusted out of the cash fund.
Michael: Okay, thank you.
Michael: Your next question comes from the line of Nathan Riley with UBS. Your line is open.
Nathan Riley: Pete, I'm just curious, how much spare capacity do you have in the existing manufacturing footprint to respond to demand growth, you know, really just in terms of managing your shift flexibility?
Pete: That's a great question, Nathan.
Speaker Change: You know you got to you got to distinguish between sort of manned capacity and sort of machine capacity that we have in place. That's the way how sort of we think about it.
Speaker Change: On the manned capacity side, we're challenging ourselves and the business really hard to sort of balance that with the actual demand profile, as you would expect, right? So from a manned capacity side...
Speaker Change: that we were pretty much balanced and and that's where we flex. When we say we flex, that's what we're flexing.
Speaker Change: Now, when you look at the volume development over the more recent past, and you know that we've gone through a pretty tough patch here.
Speaker Change: Obviously volumes overall have come down and therefore the machine capacity offers up some some headroom.
Speaker Change: for additional volumes, which is encouraging for the future when the volumes come back. Where we do have a challenge as a business, then, is to flex up again.
Speaker Change: and operationalize essentially the additional machine capacity that we require. Now, there's always, and that's going to be my last comment on that question, there's always a challenge because
Speaker Change: No reality is you never have the capacity where you need it. So that never plays out in a perfect world. And, you know, particularly where we're well positioned.
Speaker Change: with a compelling value proposition. You know, we are full in terms of our capacity, very oftentimes also from a machine capacity standpoint, but that's something that we need to manage on a tactical day-to-day business.
Speaker Change: Ladies and gentlemen, that's all the time we have for the question and answer session. I will now turn the call back to management for closing remarks.
Speaker Change: [inaudible]
Speaker Change: Thanks everybody for the interest in the company and for joining the call. I think the most important thing for me is to really just go back and to
Speaker Change: go back to the key messages for the call. We really had a strong quarter and we've had good questions but overall the company is I think in a good spot with the momentum that we have developed in the fourth quarter to go into 25. We're pretty good about where we stand and where we sit and pretty good about the guidance that we have out there and we're looking at a good year to come.
Speaker Change: So thanks very much for the interest in the call and talk to you soon.
Speaker Change: This concludes today's conference call. We thank you for joining. You may now disconnect.