Q2 2025 Amcor PLC Earnings Call
Kate: Thank you for standing by. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to the AMCR Half-Year Results 2025. All lines have been placed on mute to prevent any background noise.
Kate: The second and third slides in today's presentation lists several factors that could cause future results to be different than current estimates reference.
Kate: Reference can be made to <unk> SEC filings, including our statements on Form 10-K, and 10-Q for further details.
Kate: 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 questions or follow up.
Kate: With that over to U P K.
Speaker Change: Thank you Tracy and thank you to all who have joined us for today's call.
Speaker Change: I'm proud of a very active second quarter, and we're progressing well on three clear priorities one deliver on the base business.
Speaker Change: To complete the work required to close the announced merger with very global and three make sure. We are well prepared for a fast start on integration.
Speaker Change: Well the base business, we start as always with safety on slide four I'm incredibly proud of the commitment our teams demonstrated safety everyday.
Speaker Change: The safety and wellbeing of our people will always be our top priority and we're constantly looking for opportunities to improve.
Speaker Change: In fiscal 'twenty five to date, we have continued to deliver outstanding results, we achieved an industry, leading total recordable incident rate of <unk>.
Speaker Change: <unk> zero and 79% of our sites remained injury free for more than a year.
Speaker Change: Our key messages for today on slide five.
Speaker Change: Q2 results were in line with expectations.
Speaker Change: We set in October as we continued to execute and deliver across key financial metrics.
Speaker Change: We are pleased to report our fourth consecutive quarter of sequential volume improvement.
Speaker Change: And a return to sales growth, albeit marginal.
Speaker Change: Margins also continued to improve helping drive a 5% increase in both adjusted EBITDA and EPS on a comparable basis.
Speaker Change: Solid performance along with our confidence in the second half leaves us on track to deliver against our full year guidance, which we are reaffirming again today and.
Speaker Change: And finally, as we continue to execute well in the underlying business. We're also highly focused on the unique opportunity we have to accelerate growth and enhance margin enhanced earnings and cash generation.
Speaker Change: Through the previously announced combination with Berry.
Speaker Change: Turning to slide six.
Speaker Change: On our Q1 earnings call in October I outlined my strategy for <unk> to deliver consistent sustainable organic growth in the low to mid single digit range through an unwavering focus on our customers on sustainability and on our product.
Speaker Change: Our portfolio mix.
Speaker Change: I also shared my future vision for them to become the global packaging partner of choice.
Speaker Change: The merger with Barry is directly aligned with the strategy and moves us further towards our vision.
Speaker Change: Slide seven highlights the compelling rationale behind this combination.
Speaker Change: One of the most powerful and transformational long term benefits of this merger is the opportunity to drive stronger more consistent and sustainable volume driven organic growth and to further improve margins there.
Speaker Change: There are a number of growth unlocks that will become available with two of the most significant shown on this slide.
Speaker Change: First the combined company will be a better business with a broader primary packaging portfolio at scale across consumer goods and health care end markets in.
Speaker Change: In the context of a stronger larger scale company <unk> will be uniquely positioned to further refine and prune our portfolio mix to focus even more on attractive higher value faster growing end markets.
Speaker Change: This journey is already underway with various recent divestitures of its Hh Nf and tapes businesses, which have significantly enhanced our product mix, while reducing cyclicality.
Speaker Change: As a result of further pruning, we will increase average growth rates margins and cash generation across the remaining portfolio.
Speaker Change: Second this combination creates exceptional capability in material science and innovation.
Speaker Change: We will drive growth through innovation and more sustainable packaging solutions by effectively and efficiently leveraging our combined resources, bringing.
Bringing together more than 1500, R&D professionals and annual R&D investment of $180 million will allow us to optimize and redirect R&D spend providing capacity to focus on solving the most complex functionality and sustainability challenges faced by our customers and consumers.
Speaker Change: Accelerated growth combined with significant synergies means this combination will drive compelling near and long term value for all shareholders.
Speaker Change: Moving to slide eight.
Speaker Change: You've seen this slide before but let me recap a few of the drivers behind the significant and sustainable financial value we're creating.
Speaker Change: We continued to pressure test, our assumptions and our confidence in the $650 million in total cost growth and financial synergies, we've identified and we'll deliver.
Speaker Change: We expect to realize 40% or $260 million of total synergies in the first year and the full run rate in year, three with an additional $280 million of one time cash benefits from working capital improvements, which will fund cash costs to achieve synergies.
Speaker Change: Including synergies. This combination is expected to deliver significant cash EPS accretion of over 35%.
Speaker Change: Annual cash flow in excess of $3 billion.
Speaker Change: This will allow us to maintain a strong investment grade balance sheet and deploy additional cash to invest in organic growth and M&A.
Speaker Change: We expect to increase long term EPS growth and take the outcomes under our value shareholder value creation model to a new and higher level.
Speaker Change: Turning to slide nine and an update on the steps we have taken towards closing.
Speaker Change: We're moving very quickly from a process perspective to complete the work required to bring the merger to close.
Speaker Change: On January 23, we filed the definitive joint proxy statement prospectus with the SEC and.
Speaker Change: Shareholder meetings are scheduled to take place on February 25.
Speaker Change: Initial materials required to secure regulatory approvals across nearly all required jurisdictions have been submitted and the first approvals have been received the.
Speaker Change: The composition of the board of directors has been finalized and our path to completion of development.
Speaker Change: From an integration preparedness perspective, we're also well positioned we are focused on building our teams filling key roles, ensuring we will make a fast start upon close with clearly defined plans for the first 100 days in line with our proven integration playbook.
Speaker Change: We have a strong track record of successfully executing on large transactions and our teams have significant experience in integrating sizable businesses.
Speaker Change: Moving to slide 10 for a summary of our financial results as noted earlier delivering on the base business is a top priority and we continue to execute well with second quarter results in line with the expectations we outlined in October.
Speaker Change: Our differentiated value proposition resonates with customers supporting a return to overall sales growth in Q2 as net sales of $3 2 billion were slightly ahead of last year.
Speaker Change: Overall volumes grew by two 3% improving on the first quarter and offsetting an unfavorable impact of price mix. This.
Speaker Change: This was the fourth consecutive quarter of sequential improvement in volumes.
Speaker Change: As expected Destocking continued to healthcare and demand remained soft in the north American beverage business impacting mix in unfavorably impacting overall volumes by more than a percent.
Speaker Change: Across the balance of the business overall volume growth was consistent with the first quarter up approximately 4%.
Speaker Change: Improving volume trends and continued proactive cost from productivity actions more than offset unfavorable price mix headwinds leading to another quarter of solid earnings growth.
Adjusted EBIT increased by 5% compared with last year, and adjusted EBIT margin expanded by over <unk> year over year by 40 basis points adjust.
Speaker Change: Adjusted earnings per share of $16. <unk> also grew by 5% on a comparable basis and cash generation was above the prior year positioning us to reaffirm our fiscal year guidance.
Speaker Change: I'll now turn the call over to Michael to cover the results and outlook in more detail.
Michael: Thanks, Craig and Hello, everyone.
Michael: Beginning with the flexible segment on slide 11, and focusing on our fiscal Q2 performance.
Michael: Q2 volumes were up 3% compared with last year, reflecting ongoing solid growth across all key geographies and a number of important end markets.
Michael: Net sales also returned to growth increasing by 1% on a comparable constant currency basis.
Michael: And higher volumes more than offset unfavorable price mix of approximately 2% primarily related to lower health care volumes.
Michael: As expected and discussed in prior earnings calls, we continued to see Destocking in the health care in North America, and Europe Pharmaceuticals, which resulted in a headwind of approximately 1% to overall segment volumes.
Compared to the fiscal first quarter Destocking abated.
Michael: And the related price mix headwind improved.
Michael: And exiting the second quarter, we believe health care Destocking is now largely behind us.
Michael: Across the balance of our flexible portfolio volumes or volumes were up 4%.
Michael: Reflecting solid demand across regions and in many product categories.
Michael: In North America, and Europe second quarter demand remained solid with volumes, increasing mid single digits in both regions.
Michael: Despite the negative impact of health care Destocking.
Michael: Topline growth was strong across the Asian region, reflecting price mix benefits and mid single digit volume growth.
Michael: Supported by strong demand in China and across Southeast Asia.
Michael: In Latin America volumes were broadly in line with last year's second quarter.
Michael: With good growth in Colombia, and Peru, offset by demand in Argentina.
Michael: From a product category standpoint, ready meals in premium coffee such strong growth in dairy made liquids in pet care were up low to mid single digits.
Michael: And health care medical returned to growth. However, pharma volumes continued to be down low double digits compared with last year as a result of de stocking it.
Michael: And as I mentioned earlier is now largely behind us.
Michael: Good earnings leverage continued and adjusted EBIT for the quarter of $322 million grew by 4% on a comparable constant currency basis.
Michael: Higher volumes combined with strong cost performance and the benefits from restructuring led to another quarter of margin expansion with adjusted EBIT margin was up 20 basis points to 12, 8%.
Michael: Turning to Richard packaging on slide 12.
Michael: The rigid business continues to advance its performance and the trajectory of overall segment volumes improved for the fourth consecutive quarter.
Michael: Net sales were approximately 1% lower than last year, reflecting an unfavorable impact from price mix of approximately 2%.
Michael: Totally offset by return to volume growth with overall volumes up approximately 1%.
Michael: As expected customer and consumer demand in the North American beverage business remains soft and variables through the quarter.
Michael: While beverage volumes were down mid single digits. This marks an improvement in the first quarter approximately four percentage points.
Michael: Yeah.
Michael: Latin American volumes were down single digits versus last year.
Michael: Collecting weaker customer demand in Argentina, and Colombia, which was partly offset by growth in other countries, including Brazil.
Michael: The specialty containers business delivered strong growth in spirits wine and beer with volumes down in healthcare due to Destocking and volumes now in the closures business were higher than last year.
Michael: From an earnings perspective, the business executed well in another quarter of growth.
Michael: That margin expansion, reflecting benefits from an ongoing focus on cost and productivity measures.
Michael: Adjusted EBIT of $53 million was up 10% on a comparable constant currency basis with EBIT margin, increasing by 770 basis points to seven 3%.
Michael: Finally in late December we completed the sale of our 50% interest in very cap North America closures business, which we announced back in October.
Michael: Proceeds of $122 million, we used to reduce debt demonstrating our commitment to disciplined capital allocation.
Michael: Which takes us to the cash flow and the balance sheet on slide 13 on.
On a year to date basis, the business generated a net cash outflow of $38 million, which includes an inflow of more than $350 million in cash flow in the second quarter, approximately 80 million better than last year's second quarter.
Largely on the back of improvements in working capital.
Michael: Stronger quarterly cash flow and receipt of proceeds from the Barry cap style led to a reduction in net debt of approximately $375 million compared with last quarter.
Michael: Leverage also improved sequentially coming in at three three times, which is in line with the expectations. We provided on our type of coal.
Michael: We expect leverage to further reduced through the second half of the fiscal year and we remain confident in meeting our expectation to exit fiscal 2025 with leverage at three times or lower.
Michael: Through the first six months of fiscal 2025, we returned approximately $365 million in cash to shareholders through our quarterly dividend.
Michael: This brings me to the outlook on slide 14.
Michael: And as I mentioned earlier based on our solid first half performance and our confidence in the second half we remain on track to deliver for the full year and we are again reaffirming our guidance.
Michael: For fiscal 'twenty five we continue to expect adjusted earnings to be in the range of 72 to <unk> 76 per share on a reported basis.
Michael: Representing comparable constant currency growth of 3% to 8%.
Michael: We continue to expect.
Michael: To deliver strong growth in the underlying business for the year as earnings momentum continues to build and as we've pointed out previously it's important to remember that the guidance assumes an EPS headwind of up to 4% related to more normalized levels of incentive compensation.
Michael: Based on our expectations for improved annual financial results.
Michael: Excluding this incentive normalization, we expect growth from the underlying business in the mid single to low double digit range.
Michael: We continue to assume overall volumes will increase in the low to mid single digit range for the year.
Michael: With trading performance through January align with this expectation.
Michael: We have updated our interest guidance to between $290 million and 300 million, bringing the midpoint modestly lower to reflect the benefit in the second half related to the very kept proceeds being used to reduce debt.
Michael: And as a reminder, the overall impact of the very kept style on EPS for the year is relatively neutral.
Taking into account the loss of annualized EBITDA of approximately $19 million and the benefit of lower interest.
Michael: Our effective tax rate range remains unchanged at 19% to 20%.
Michael: In terms of phasing through fiscal 'twenty five we expect this will be aligned with historical average with the second half generating 55% to 58% of EPS based on our guidance range in the fourth quarter being the strongest of the year and typically 30% or more of full year EPS.
Michael: And finally, we are affirming our expectations to generate strong adjusted free cash flow in the range of $900 billion to $1 billion for the year.
Michael: Putting our confidence and exiting the year with leverage back at three times a level as I noted earlier.
Michael: We are pleased with our continued execution across the underlying business and we are confident in our outlook for the year.
Michael: And we're excited about the additional opportunities we have to accelerate future growth through our combination with Berry.
Speaker Change: So with that I'll hand back to PK.
PK: Thanks, Michael.
Speaker Change: Closing remarks to summarize ahead of taking questions.
Speaker Change: We're executing well and the underlying business and are confident our merger with Berry is a winning combination for all stakeholders.
Speaker Change: Path to completion is clear with meaningful milestones already behind us.
Speaker Change: We remain highly focused on next steps to ensure we're setting the organizational for success and we remain on track and confident the transaction will close around the middle of calendar year 2025.
Kate we're ready to take questions.
Speaker Change: At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad in the interest of time, we would like to remind participants to limit their questions to one and to rejoin the queue for any follow ups, we will pause for just a moment to compile the Q&A roster.
Your first question comes from the line of Anthony Pettinari with Citi. Please go ahead.
Speaker Change: Good morning.
Anthony Pettinari: One he has talked about hey, you talked about potential divestitures to strengthen the business and I'm. Just wondering do you expect that those could be impactful at all to <unk>.
Anthony Pettinari: Synergy targets or timeline and then.
Anthony Pettinari: Is the divestiture opportunity do you think it's larger than maybe you had expected late last year, when you announced the deal or if theres any kind of color you can give us in terms of whether these are more likely dairy assets EMCORE assets or just any additional color you can guess.
Speaker Change: Yes, Thanks Anthony.
Speaker Change: Look I think youre talking about the port folio pruning activities that I mentioned.
Speaker Change: A couple of calls earlier and also in the context of the Berry combination.
Speaker Change: For me for US. This is one of the additional levers that we can pull in order to Orient the business towards a stronger faster growing business organically.
Speaker Change: And a business that is more attractive in terms of the higher and better margin quality.
Speaker Change: No.
Speaker Change: With the with the.
Speaker Change: A combination with Berry.
Speaker Change: We have sort of embarked on on a work stream that essentially puts the whole portfolio on the table and we have we have started the conversations around that so we're on it.
Speaker Change: And we are pretty much looking at everything and as I've said before the criteria are.
Speaker Change: Are there multiple criteria that would that we would apply to this analysis, but two of them are stronger intrinsic organic growth.
Speaker Change: And then and then margin quality would be the two outstandings, it's a little early for us to say where.
Speaker Change: Where we land and what we're going to do I think we need a little more time in order to come to a conclusion on it.
Speaker Change: But.
Speaker Change: About that is that is the key consideration here.
Speaker Change: I'm not sure. It will have we will have an impact on accelerating synergies.
Speaker Change: And Thats, where you were coming from I think it's really just about organic growth and making business more attractive in terms of margin quality.
Speaker Change: Your next question comes from the line of Keith Chau with MST Marquee. Please go ahead.
Keith Chau: Okay and Michael Thanks for taking my question. So I just want to go back to a point around underlying demand I think in the last quarter. It is.
Keith Chau: Much discussion or even over the last year about unit volume growth recording as Destocking ends.
Keith Chau: Certainly savings.
Keith Chau: So that has happened but in the last quarter, you talked about underlying consumer demand still being fairly tepid and seemingly in the second quarter that hasnt changed too much. So I'm just wondering if you can update our views.
Keith Chau: In that respect.
Whether there has been any restocking in the period.
Keith Chau: And to what extent do you believe price mix will improve in the flex Foods division in the third quarter and fourth quarter is that going to be a positive outcome as that destocking in healthcare's ended thank you.
Keith Chau: Yes, Keith.
Keith Chau: It was a couple of questions. There let me, let me try to sort them. So first of all when we look at our volume expectations in the second quarter of this fiscal year wasn't an exemption.
Keith Chau: <unk> did not really expect consumer demand to strengthen allots, we always talk about the consumer demand sort of in the range of being flat to slightly down.
Keith Chau: And that is.
Keith Chau: Is essentially what we've seen now when we look at the scanner data and we look at other other.
Keith Chau: Reporting from customers and we triangulate all of that I think we get to the conclusion of the consumer having having modestly softened in the second quarter versus the first one.
Keith Chau: And Thats just the way it is and we've seen that too.
Keith Chau: On the other hand.
Keith Chau: When I take a step back and look at our volume performance I think it's important to calibrate against that environment.
Keith Chau: And we're actually pretty pretty happy with the volume performance in the second quarter. Let me just highlight a few things here.
We are up in the second quarter versus the first quarter and sequentially. We are almost seeing a point of growth between Q1 and Q2.
Keith Chau: Flexible is up 3% Richardson's up overall, 1% when you look at the overall business. It was the fourth consecutive quarter of volume improvements or the third consecutive quarter of volume growth that we've seen and then also to your question on price mix are particularly mix.
Keith Chau: We are sitting in a spot where we believe that the health care Destocking is pretty much behind us at this point, we've seen some some abating destocking into pharma subcategory in the last quarter in Q2, maybe there is a bit of lingering destocking that sort of carries forward into Q3, but for all intents and purposes.
Keith Chau: I believe that we can talk about calendar 'twenty five as a year, which is going to be cleaner from a destocking perspective.
Keith Chau: And then the final point that I want to make us.
Keith Chau: Uh huh.
Keith Chau: The.
Speaker Change: Or let me just say something else here on the point the mix as health care is improving I just want to make that point really clearly is health care is improving we are going to Steve we're going to see an improved mix exposure in the back half. We're also pretty confident that healthcare will overall returned back to growth. So so that's when you mix.
Speaker Change: Question, and then and then coming back to the final point that I was going to make on the on the point of restocking.
Speaker Change: We never really felt that restocking would be a trend in the industry. What we have seen in the past was our customers across the different categories have built inventory in response to the supply chain shocks that we've seen in the past.
And after that the supply chains sort of stabilized there was an overall trend to fixing the inventory levels, maybe even further.
Speaker Change: Because of the higher interest cost and the carrying value of inventory.
Speaker Change: That's driven it down to a new to a new normal what we see from hereon as are just seasonal inventory impacts, but nothing that sort of relates back to a structured destocking initiatives.
Speaker Change: Your next question comes from the line of George Staphos with Bank of America. Please go ahead.
George Staphos: Thanks, So much hi, everyone. Good morning.
Speaker Change: Good afternoon.
Speaker Change: <unk>.
Speaker Change: Question on the momentum within flexible packaging.
Speaker Change: Can you talk to the degree to which incentives <unk> FX might have impacted what otherwise would have been the EBIT conversion and flexible as relative to the volume growth.
Speaker Change: And whether EBIT itself in flexible was in line with your forecast.
Speaker Change: And as you're taking <unk> into <unk>, what kind of exit rates are you seeing on volume and conversion.
Speaker Change: And flexible in the categories you serve thank you.
Speaker Change: Well I think I can speak to the latter part of that question with regards to volumes and then maybe Michael.
Speaker Change: Michael sort of address some of the financial components.
Speaker Change: <unk>.
Speaker Change: From a volume perspective.
Speaker Change: Were looking and thats across the business, we're looking at a first half.
Speaker Change: Pretty much left us within our guidance range on volumes from low to mid single digits.
Speaker Change: And therefore overall, that's pretty much exactly where we expect it to be and as we exit the second quarter into the back half.
Speaker Change: I have no reasons to expect anything else for the back half. So we're sitting here today, and we're saying we're confirming the volume guidance of low to mid single digits for the full year and thats across across the categories.
Speaker Change: That we see so flexible and rigid.
Speaker Change: Yeah, and I think if we if we just talk about the profit performance of the business. I mean, we were pleased with where it ended in the quarter.
Speaker Change: Was inline with expectations.
Speaker Change: We continue to see good leverage through the P&L from that volume improvement.
Speaker Change: To the EBIT improvement.
Speaker Change: And.
Speaker Change: As we said earlier, we're still we're still trailing a bit of negative mix, particularly on the healthcare side of things. So.
Speaker Change: Certainly improve I.
Speaker Change: So I think from a cost standpoint, as well the businesses has continued to focus on.
Speaker Change: That margin quality, but also the cost out.
Speaker Change: I guess, one one factor, though is that clearly in the prior quarter in the prior year, we had a really strong cost out focus.
Speaker Change: Particularly as we could see that the impact of Destocking pretty significantly earlier on in the quarter and we took a lot of effort to really manage that cost and limit the impact of that volume.
Speaker Change: This year clearly.
Speaker Change: We continue to focus on cost, but we are lapping a much much more to come.
Speaker Change: And.
Speaker Change: Yes.
Speaker Change: That means we have put a little bit of labor back into the business still getting that cost out but have put lives of that gain just to ensure we don't miss any any demand at all so we are pleased with where the business ended up.
Speaker Change: From an FX or incentive pointing.
Speaker Change: <unk> point, there is not really anything to speak to the aggregate wasn't.
Speaker Change: It wasn't a material impact.
Speaker Change: Your next question comes from the from the line of Danielle <unk> with CLSA. Please go ahead.
Danielle: Good morning, everyone.
Speaker Change: Understand that.
Danielle: Integration planning is <unk> recently held.
Danielle: It's the amcor and very soft drawn to form clinical work streams.
Can you just share some key.
Speaker Change: Carlyle R&D, then I'm interested in whether the leadership team.
Danielle: Managed to walk away with greater confidence and perhaps greater.
Speaker Change: Granularity on the target synergies.
Speaker Change: Any comments that you can share, particularly on the key line items of note.
Speaker Change: And then G&A and operational be helpful. Thanks T K.
Speaker Change: Thanks Daniel.
Speaker Change: Look at it.
Speaker Change: First of all it's all accurate what you said we are at.
Speaker Change: According to the three priorities.
Speaker Change: We are also focusing on preparing the integration.
Speaker Change: We're expanding sort of our initiatives across a broader base of of colleagues of two businesses in order to.
Speaker Change: To get ourselves ready to get out of the blocks fast once once the acquisition closes.
Speaker Change: Now what we're currently doing is we're essentially organizing ourselves.
Speaker Change: We're still it's still business as usual, we're still two different businesses. So we can we can't address the integration. We can start doing that we can just planet, but one of the things that we do according to our playbook that we have with the noncore and very likewise has a lot of experience in and integrating businesses.
Speaker Change: As we're setting ourselves up with an with an integration management office and underneath that.
We're organizing ourselves with teams that will address the different work streams.
Speaker Change: That will bring the two cultures together, but then also are focused on generating the synergies.
Speaker Change: So that we're able to deliver an outperform against that.
Speaker Change: As two companies come together now.
Speaker Change: Now to the extent, we have an opportunity to to look further into the.
Speaker Change: The estimates that we've made at the time.
Speaker Change: We do actually gained confidence in the synergy.
Speaker Change: Buckets.
That we put into the market of the $650 million most of which was cost related.
Speaker Change: And that breaks down on the cost side.
Speaker Change: Put the financial synergy opportunities aside.
Speaker Change: Procurement SG&A and operations.
Speaker Change: So overall comment as were gaining more confidence in the numbers that we've put out there and that also applies for procurement, which is the biggest single item was $325 million.
Speaker Change: I just want to say just to Dimensionalize, the number which sounds comes across as a big number we have to spend between the two combined companies of about $13 billion if.
Speaker Change: If you look at the raw materials side, that's about 10, and if you if you sort of look at the procurement.
Speaker Change: Opportunities against that spend we're sort of sitting around 3% of synergy capture which we think is well aligned so very confident in the synergies at this point in time.
Speaker Change: Your next question comes from the line of Ghansham Panjabi with Baird. Please go ahead.
Matt Krieger: Hi, good morning, and afternoon, everyone. Thanks for taking my question. This is actually Matt Krieger sitting in for Don.
Matt Krieger: Just wanted to follow up on the on the raw materials front can you provide some added details and an update around what youre seeing in the raw material.
Matt Krieger: Other input cost basket across your business, maybe give us an updated outlook for the year and.
Speaker Change: Any thoughts on for.
Speaker Change: For how this latest round of tariffs impacts your cost base or maybe that how youre going to conduct your business.
Speaker Change: Any details there would be great. Thanks.
Michael: Yes, sure I can I can help with that Michael Hey, It look from a raw materials standpoint, the first half was really pretty benign.
Michael: If you look at our if you look at our numbers in the top line in the revenue line actually the raw material number for the first half was flat so that.
Michael: That tells you that.
Michael: The input costs overall were pretty flat for the first half Q2.
Michael: Again was a similar trend to.
Michael: Two Q.
Michael: Q1, it was a little bit of pause.
Michael: During Q2, but less than 1% in the top line and now impacting.
Michael: And in the earnings and.
Michael: And remember we've got a broad base of goods across cross geography, so they can move up and down at different rates, but generally.
Michael: While we saw overall was the basket was pretty flat, perhaps down slightly.
Michael: And that included resins, and liquids that went down and perhaps the low single digit range and then there were some offsets with things like aluminum which were up.
Michael: Which were up up in the mid single digit range as we then satisfy a pretty benign if we look forward.
Michael: Into Q3, it's about as far as we look out.
Michael: With any confidence.
Michael: We'd say that it's probably a pretty similar.
Michael: View.
Michael: Asia or Europe, looking flat, perhaps in North America, some slight increases, but overall, we would expect the environment to be relatively benign in Q3 and after that we'll see what happens.
Michael: From a tariff standpoint.
I think our businesses is very regional.
Michael: And in North America, particularly.
Michael: The level of imported goods is really very low and typically in.
Michael: In our specialty products that we can't get in this region. So from a tariff standpoint.
Michael: Is that would that would be factored into the cost and then pass through so we don't really see a lot of impact on our business just because of the regional local nature.
Michael: From any any tariffs impacting the cost base and I may add to that on the tariff side.
Michael: First of all everything that Microsoft is very true, we're very regional business and if anything we've become more regional given the experience from the past for long supply chains.
Michael: Essentially sort of created risk on the service levels to your customers. So we have even tried to shorten supply chains.
Michael: Over the past.
Michael: And in terms of the ability to pass through tariffs.
Michael: When you think about it.
Michael: In some cases, we even have agreements with customers.
Michael: It would be based on indices.
Michael: That would allow us to.
Michael: To pass on these additional.
Michael: <unk> costs so.
Michael: I think.
Michael: I think.
Michael: We're in a spot where because of our regional because we have some possible opportunities we feel.
Michael: We are not immune but somewhat robust against against the tariffs.
Jacob Cordis: Your next question comes from the line of Jacob Cordis with Chardan. Please go ahead.
I'll pay a hallmark, who I just wanted to ask just about the trajectory in the health business side, obviously, some improvement there it sounds like its pharma that stool.
Jacob Cordis: Dragging on volumes just wondering as we move through the balance of the Union should that.
Jacob Cordis: But very magic in place.
Jacob Cordis: The exposure lock to health care overall.
Speaker Change: <unk> merger and do you think that the momentum that you're seeing do you see further confidence that you can drive that organic sales growth in the combined entity as you planned to place.
Speaker Change: Yeah, well thanks for your question because I'm, a big health care plan. So for so I can I can take a step back and maybe help you sort of how we look at that first of all I believe that health care is a category that is a real gem in our portfolio.
Speaker Change: <unk> always said that from an anchor perspective, we're excited about the combination with very also because we can always strengthened we can strengthen that business overall when we combine the business. We're looking at about a $3 billion.
Speaker Change: Combined business in healthcare with with really.
Speaker Change: Attractive exposures.
Speaker Change: Which is also very complementary.
Speaker Change: The Berry side.
Speaker Change: Think about it like multicomponent delivery devices for example, inhalers.
Speaker Change: Thats are being brought to market and that is something thats on the anchor side.
Speaker Change: We have we do not have in our portfolio.
Speaker Change: First of all.
Speaker Change: We believe that health care is a gem while it has been.
Speaker Change: Sort of challenged over the last couple of quarters.
Speaker Change: Because a pretty much a significant destocking.
Speaker Change: You asked about the Destocking.
Speaker Change: We were essentially.
Speaker Change: Convinced that all of our categories.
Speaker Change: It has come to an end with destocking by the beginning of calendar 'twenty four.
Speaker Change: The one that was left over really was healthcare because the destocking trend has started later and therefore lasted longer as we then look at the first and the second quarter this fiscal year.
Speaker Change: We've seen.
Speaker Change: There's some destocking in the first quarter, where the subcategory of medical had already returned to some growth.
Speaker Change: Albeit small but in pharma, we were pretty much challenged still with the Destocking, we have seen in the second quarter.
Speaker Change: Medical further improve and strengthen on the pharma side, we've seen destocking abate.
Speaker Change: And again, we would now be in a spot where we'd say to keep things simple that destocking in health care is also over now realistically there is probably going to be some lingering destocking that carries over into third quarter. I think I said that earlier today on our call on this call but for.
Speaker Change: In the Grand scheme of things again, I think destocking is completely over with that said health care will return back to growth.
Speaker Change: And we will get back to the historical growth rates three 4% of healthcare over time.
Speaker Change: That will also take away the mix impact that we have on the translation to the bottom line.
Speaker Change: And an overall pretty excited with that going forward.
Speaker Change: Your next question comes from the line of Mike <unk> with <unk> Securities. Please go ahead.
Michael Tracy: Thank you PK, Michael Tracy David for taking my questions.
Speaker Change: <unk>.
Speaker Change: As you proceeding through the due diligence process with Barry is there anything that stands out that you werent expecting upside downside my sense is that you. Obviously some of the synergies do have some upside given your comments PK earlier, and then secondly, just given that growth.
Speaker Change: Oil volumes with a slowly improving.
Speaker Change: In the base <unk> business is there anything you're doing maybe from a cost vantage point to help drive better profitability.
Mike: Yes, Mike.
Speaker Change: So.
Speaker Change: Just got to think about the first question. There were two questions. Here can you just help me with the first one.
Speaker Change: Anything that stands out in the <unk>. Thank you.
Speaker Change: So due diligence.
Look I would say.
Speaker Change: There are no surprises on our side.
Speaker Change: As we as we moved from announcing the deal a couple of months.
Speaker Change: Ago, two to where we're at today.
Speaker Change: But you got to remember it's business as usual at this point in time right. So.
Speaker Change: Sure.
Speaker Change: The.
Speaker Change: The data that we have available to look at is pretty much for large extent really just the data that we have and that will that will significantly change only.
Speaker Change: As we come to closing, which we expect to be in the middle of this calendar year, which has not changed versus versus what we've done before.
Speaker Change: So.
Speaker Change: That's the answer to the first part of your question is there anything positive or negative we're pretty much in the spot where everything is as expected.
Speaker Change: And from a synergy perspective, you also mentioned that and I think yes, we are.
Becoming more confident in the synergies.
Speaker Change: So that is that is all positive.
Speaker Change: Now the second part of the question Augusta I Should've, Michael you want to take that everyone pay guys sure. Thanks. Thanks for that part of the question Mike Yes look on the cost side, we continue to focus on.
Speaker Change: Driving efficiency in our operations and our plants managing the labor pool.
Speaker Change: <unk> that to the volume is as needed we continue to look at.
Speaker Change: The shift patterns and managing over time, and we are also still got some residual benefits to come through from the restructuring programs that we had in places.
So we called out a couple of years ago in relation to offsetting some of those disposed earnings from Russia and the fed.
Speaker Change: First half.
Speaker Change: They picked up about 7 million benefit down we've probably got another $7 million of side would come in the second half so.
It's a really strong cost focus and both operationally and still some benefits to come from the restructuring so.
Speaker Change: That's all that's all factored into our guidance that we reaffirmed for the full year.
Speaker Change: Your next question comes from the line of John Purtell with Macquarie. Please go ahead.
Speaker Change: Pedro Michael HIFU will look just coming back to Barry obviously.
Speaker Change: Thanks for the comments there on health care.
Speaker Change: Pain of it obviously.
Barry: Barry Globalize as your rigid business.
Speaker Change: What do you say is the key benefits of that and if you can also please touch on the.
Speaker Change: The growth outlook for closures and dispensing systems and what that potentially gives you. Thank you.
Sean: Thanks, Sean.
Sean: So.
Sean: On the original business set a global license our Richards business, let me be a little more specific about that and pull that apart.
Sean: Because I think it's really important.
Sean: Yeah.
Sean: First of all in terms of quantum our rigid business, we summarize under the roof of of rigid packaging, which is about a $3 billion business and the Berry business.
Sean: A containers and closures business, which was about a $7 billion business, hence the combination will get us to really scale player.
Sean: Multi regions.
Sean: And that's different from what we have today now the key difference, though is that we play only partly in.
Sean: Deep in comparable call it sub segments.
Sean: Dissect our rigid packaging business.
Sean: I would split it.
Sean: Generally between the North American beverage business, which we've discussed quite often because it's a scale business. It's in the beverage beverage side. It sits in North America and it serves.
Sean: Categories like isotonic, <unk> ready to drink tea.
Sean: Where we have some underlying challenges right now because it's a more discretionary category as we've discussed many times, that's a scale volume driven business, where we're very well positioned to North America on the <unk> side. The other part of that business is around specialty containers and that's a.
Sean: A different business.
Sean: It's also a scale business, but not as big as the North American beverage business, which serves a number of different categories that makes containers for those categories.
Sean: Across the board now.
Sean: B Berry side of the containers business is much more comparable to the specialty containers business of Amcor, that's where the complementary becomes in fact very doesn't do anything on the north American beverage business. They don't have exposure to that type of segment. So so we believe that is.
Sean: That is some of that is very positive for us because we were.
Sean: Very interested in scaling up.
Sean: The specialty containers business as we call it which is very much aligned with the Berry business and again.
Sean: Barry side, we have really good.
Sean: High value products.
Sean: When you think about it is the container business of Barry that actually brings along the health care exposure and I talked about that earlier here, we see the multi component more complex delivery systems on the healthcare side and there is there is other.
Sean: Parts of the business that we that we likewise are attracted to when you then go to the closure side of Berry, which is in addition to our business, particularly after we've divested our joint venture.
Sean: Stake in them in.
Sean: <unk>.
Sean: Barry.
Sean: Joint venture.
Sean: Then you will find.
Sean: A nice exposure to dispensing systems and pumps.
Sean: We likewise are very attracted to so.
Sean: It is very complementary and it's not in the North American beverage space.
Sean: And therefore, we are we're pretty excited about the combination.
Sean: Now you also asked us for our growth assumptions.
In the case of closures and dispensing systems.
Sean: I think.
Sean: I think it's a little too early for me to give you like a.
Sean: A concrete answer to that that you can hold me too as we go forward. So I'll ask for a little more time for.
Sean: For me to go back to that.
Sean: And confirm that on a later call.
Operator: Your next question comes from the line of Keith Chau with MST Marquee. Please go ahead.
Keith Chau: Thanks, So much for taking my follow up question, Michael I, just want to view the Las resolve the thing you got to stop.
Speaker Change: It's taken a split of $45 55, which I think based on what's been achieved in the first half that split implies the bottom of the guidance range. So I'm sorry.
Speaker Change: Mathematical question, but the top line doesn't imply sorry, the midpoint does imply a slightly greater skus in the second half so given.
Speaker Change: Given the top half now represent something more like 40 to 50, yet how are you thinking about that split going into the full year given what's happened in the first half or what's been achieved in the first half. Thank you.
Speaker Change: Okay look I think as I said in my in my comments I mean, we are basing the phasing on the historical average is what we're expecting.
Speaker Change: That's a range right I think when I talk Q1 last time around it was approximately.
Speaker Change: Yes, 25% to 55, but it can vary on the margin I think as we think.
Speaker Change: Exited the first half.
Right in line with our expectations.
Speaker Change: Volumes in that.
Speaker Change: The single digit range the margins.
Speaker Change: <unk> continued to expand and we still have the EPS growing at 5%.
Speaker Change: As we've kind of exited that will come to January and then looked at the outlook, we feel really confident in the second half, which is why we've reaffirmed our guidance today and.
Speaker Change: That is peak I said that.
Speaker Change: Implies.
The second half low single digit to mid single digit volume growth.
Speaker Change: That's going to be a key driver obviously of the of the outcome.
Speaker Change: The year and I think in terms of the range, we've given you.
Speaker Change: The importance of the range the volume, particularly as we get into the highest seasonal season.
Speaker Change: Seasonality of the business, particularly in Q4.
Speaker Change: We don't need a lot of volume improvement to really see strong leverage through the P&L, particularly in Q4 <unk> the cost base as well comment off thats the biggest quarter of the year typically above 30% of earnings.
Speaker Change: The other thing to take into account as well as clearly we are expecting the mix improvement in the second half as a result of the healthcare business returning to growth and lapping that peak period of Destocking last year. So.
Speaker Change: From here, we sit we've reaffirm guidance, we feel pretty confident in that and.
Speaker Change: I will update you in mind as we work our way through the year.
Speaker Change: Ladies and gentlemen, this concludes our question and answer session I will now turn the call back to Peter for closing remarks.
Speaker Change: Yes, Thank you Kate.
Speaker Change: Look.
Speaker Change: Given the overall environment, we feel pretty.
Speaker Change: Pretty confident.
Speaker Change: But we feel pretty good about the quarter that we've delivered and I hope that came across.
Speaker Change: So again, we believe it's been a good quarter volume growth improved.
Speaker Change: Pretty confident in the second half.
Speaker Change: We reaffirmed guidance on the back of that.
Speaker Change: Thank you very much for your questions and your time and I look forward and we look forward to.
Speaker Change: So having the opportunity to meet some of you at the upcoming conferences. Thank you very much.
Speaker Change: Ladies and gentlemen that concludes today's call. Thank you and have a great day.
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