Amcor Q2 2024 Earnings Call Transcript

AlphaStreet
Provided by AlphaStreet
February 4, 2025
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Operator

Thank you for standing-by. My name is Kate, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Half-Year Results 2025. All lines have been placed on-mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number-one on your telephone keypad. If you would like to addrew your question, press star one again. Thank you. I would now like to turn the call over to Tracy Whitehead, Head of Investor Relations. Please go-ahead.

Tracey Whitehead
Head of Investor Relations at Amcor

Thank you, Kate, and thank you everyone for joining Amcor's fiscal '25 second-quarter earnings call. Joining today is Peter, Chief Executive Officer; and Michael Cassimento, Chief Financial Officer. Before I hand over, let me note a few items. On our website, amcor.com under the Investors section, you'll find today's press release and presentation, which we'll discuss on this call. 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. Remarks will also include forward-looking statements that are based on management's current views and assumptions. The second and third slides in today's presentation list several factors that could cause future results to be different than current estimates. Reference can be made to Amcor's SEC filings, including our statements on Form 10-K and 10-Q for further details. 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-ups. With that, over to you, PK.

Peter Konieczny
Chief Executive Officer and Director at Amcor

Thank you, Tracy, and thank you to all who have joined us for today's call. Had a very active second-quarter and we're progressing well on three clear priorities. One, deliver on the base business; two, complete the work required to close the announced merger with Berry Global; and three, make sure we are well-prepared for a fast-start and integration. With the base business, we start as always with safety on Slide 4. I'm incredibly proud of the commitment our teams demonstrate to safety every day. The safety and well-being of our people will always be our top priority, and we're constantly looking for opportunities to improve. In fiscal '25 to date, we have continued To deliver outstanding results. We achieved an industry-leading total recordable incident rate of 0.30 and 79% of our sites remained injury-free for more than a year. Our key messages for today are on Slide 5. Q2 results were in-line with expectations we set-in October as we continued to execute and deliver across key financial metrics. We are pleased to report our fourth consecutive quarter of sequential volume improvement and a return to sales growth, albeit marginal. Margins also continued to improve, helping drive a 5% increase in both adjusted EBIT and EPS on a comparable basis. The 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 finally, as we continue to execute well on the underlying business, we're also highly focused on the unique opportunity we have to accelerate growth and enhance margin -- enhance earnings and cash generation through the previously-announced combination with Berry. Turning to Slide 6. On our Q1 earnings call-in October, I outlined my strategy for 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 -- on our portfolio mix. I also shared my future vision for to become to become the global packaging partner of choice. The merger with Berry is directly aligned with this strategy and moves us further towards our vision. Slide 7 highlights the compelling rationale behind this combination. 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 are a number of growth unlocks that will become available with two of the most significant shown on this slide. First, the combined company will be a better business with a broader primary packaging portfolio at-scale across consumer goods and healthcare end-markets. In the context of a stronger, larger-scale company, Amker will be uniquely positioned to further refine and prune our portfolio mix to focus even more on attractive higher-value, faster-growing end-markets. This journey is already underway with Berry's recent divestitures of its HHNF and tapes businesses, which have significantly enhanced their product mix while reducing cyclicality. As a result of further pruning, we will increase average growth rates, margins and cash generation across the remaining portfolio. Second, this combination creates exceptional capability in material science and innovation. We will drive growth through innovation and more sustainable packaging solutions by effectively and efficiently leveraging our combined resources. Bringing together more than 1,500 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. Accelerated growth combined with significant synergies means this combination will drive compelling near and long-term value for all shareholders. Moving to Slide 8. 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. We continue to pressure test our assumptions and are confident in the $650 million in total cost growth and financial synergies we've identified and will deliver. 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. Including synergies, this combination is expected to deliver significant cash EPS accretion of over 35% and annual cash-flow in excess of $3 billion. This will allow us to maintain a strong investment-grade balance sheet and deploy additional cash to invest in organic growth and M&A. 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. Turning to Slide nine and an update on the steps we have taken towards closing. We're moving very quickly from a process perspective to complete the work required to bring the merger to close. On January 23, we filed the definitive joint proxy statement prospectus with the SEC and shareholder meetings are scheduled to take place on February 25. Initial materials required to secure regulatory approvals across nearly all required jurisdictions have been submitted and the first approvals have been received. The composition of the Board of Directors has been finalized and our path to completion is well-advanced. 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. We have a strong track-record of successfully executing on large transactions and our teams have significant experience in integrating sizable businesses. 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. 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. Overall volumes grew by 2.3%, improving on the first-quarter and offsetting an unfavorable impact of price-mix. This was the fourth consecutive quarter of sequential improvement in volumes. As expected, destocking continued in healthcare and demand remained soft in the North American beverage business, impacting mix and unfavorably impacting overall volumes by more than 1%. Across the balance of the business, overall volume growth was consistent with the first-quarter up approximately 4%. Improving volume trends and continued proactive cost and 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 year-over-year by-40 basis-points. Adjusted earnings per share of $0.161 also grew by 5% on a comparable basis and cash generation was above the prior year, positioning us to reaffirm our fiscal year guidance. I'll now turn the call over to Michael to cover the results and outlook in more detail. Thanks, PK, and hello, everyone.

Michael Casamento
Executive Vice President of Finance and Chief Financial Officer at Amcor

Beginning with the Flexible segment on Slide 11 and focusing on our fiscal Q2 performance. Q2 volumes were up 3% compared with last year, reflecting ongoing solid growth across all key geographies and a number of important end-markets. Net sales also returned to growth, increasing by 1% on a comparable constant-currency basis and higher volumes more than offset unfavorable price-mix of approximately 2%, primarily related to lower healthcare volumes. As expected and discussed in prior earnings calls, we continued to see destocking in the healthcare 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 and the related price-mix headwind improved. And exiting the second-quarter, we believe healthcare destocking is now largely behind us. Across the balance of our flexibles portfolio, volumes -- volumes were up 4%, reflecting solid demand across regions and in many product categories. In North-America and Europe, second-quarter demand remained solid with volumes increasing mid-single digits in both regions, despite the negative impact of healthcare destocking.

Top-line growth was strong across the Asian region, reflecting price/mix benefits and mid-single-digit volume growth, supported by strong demand in China and across Southeast Asia. In Latin-America, volumes were broadly in-line with last year's second-quarter with good growth in Colombia and Peru, offset by demand in Argentina. From a product category standpoint, ready meals and premium coffee showed strong growth and dairy, meat, liquids and pet care were up low-to mid-single digits. In healthcare, medical returned to growth, however, pharma volumes continued to be down low-double-digits compared with last year as a result of destocking, which as I mentioned earlier, is now largely behind us. Good earnings leverage continued and adjusted EBIT for the quarter of $322 million grew by 4% on a comparable constant-currency basis. Higher volumes combined with strong cost performance and the benefits from restructuring led to another quarter of margin expansion with adjusted EBIT margins up 20 basis-points to 12.8%.

Turning to Rigid Packaging on Slide 12. The business continues to advance its performance and the trajectory of overall segment volumes improved for the fourth consecutive quarter. Net sales were approximately 1% lower than last year, reflecting an unfavorable impact from price-mix of approximately 2%, partly offset by a return to volume growth with overall Volumes up approximately 1%. As expected, customer and consumer demand in the North American beverage business remained soft and variable through the quarter. While beverage volumes were down mid-single digits, this marks an improvement in the first-quarter of approximately four percentage points. Latin-America volumes were down single-digits versus last year, reflecting weaker customer demand in Argentina and Colombia, which was partly offset by growth in other countries, including Brazil. The Specialty Containers business delivered strong growth in spirits, wine and beer with volumes down in healthcare due to destocking and volumes in our -- in the closures business were higher than last year. From an earnings perspective, the business executed well in another quarter of growth and margin expansion reflecting benefits from an ongoing focus on cost and productivity measures. Adjusted EBIT of $53 million was up 10% on a comparable constant-currency basis with EBIT margin increasing by 70 basis-points to 7.3%. Finally, in late December, we completed the sale of our 50% interest in Berry Cap North-America closures business, which we announced back-in October. Proceeds of GBP122 million were used to reduce debt, demonstrating our commitment to disciplined capital allocation. Which takes us to the cash-flow on the balance sheet on Slide 13. 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. Stronger quarterly cash-flow and receipt of proceeds from the Berry Cap sale led to a reduction in net-debt of approximately GBP375 million compared with last quarter. Leverage also improved sequentially coming in at 3.3 times, which is in-line with the expectations we provided on our October call. We expect leverage to further reduce 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. Through the first-six months of fiscal 2025, we returned approximately $365 million in cash to shareholders through our quarterly dividend. This brings me to the outlook on Slide 14. And as PK 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. For fiscal '25, we continue to expect adjusted earnings to be in the range of $0.72 to $0.76 per share on a reported basis, representing comparable constant-currency growth of 3% to 8%. We continue to expect 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 based on our expectations for improved annual financial results. Excluding this incentive normalization, we expect growth from the underlying business in the mid single to low double-digit range. We continue to assume overall volumes will increase in the low-to mid-single-digit range for the year with trading performance through January in-line with this expectation. 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 proceeds being used to reduce debt. And as a reminder, the overall impact of the Barricap sale on EPS for the year is relatively neutral, taking into account the loss of annualized EBIT of approximately $19 million and the benefit of lower interest. Our effective tax-rate range remains unchanged at 19% to 20%. In terms of phasing through fiscal '25, we expect this will be aligned with historical average with the second-half generating 55% to 58% of EPS based on our guidance range and the 4th-quarter being the strongest of the year and typically 30% or more of full-year EPS. And finally, we're affirming our expectations to generate strong adjusted free-cash flow-in the range of $900 billion to $1 billion for the year, supporting our confidence in exiting the year with leverage back at three times or lower, as I noted earlier. We are pleased with our continued execution across the underlying business and we are confident in our outlook for the year and we're excited about the additional opportunities we have to accelerate future growth through our combination with Berry. So with that, I'll hand back to PK.

Peter Konieczny
Chief Executive Officer and Director at Amcor

Thanks, Michael. A few closing remarks to summarize ahead of taking questions. We're executing well on the underlying business and are confident our merger with Berry is a winning combination for all stakeholders. The path to completion is clear with meaningful milestones already behind us. We remain highly focused on next steps to ensure we are setting the organization up 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.

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Operator

At this time, I would like to remind everyone in order to ask a question, press 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 with Citi. Please go-ahead.

Anthony Pettinari
Analyst at Smith Barney Citigroup

Good morning. I'm wondering you 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 synergy targets or timeline? And then as the divestiture opportunity, do you think it's larger than maybe you had expected late last year when you announced the deal or if there's any kind of color you can give us in terms of whether these are more likely Berry assets, AMCOR assets or just any additional color you can give?

Peter Konieczny
Chief Executive Officer and Director at Amcor

Yeah. Thanks, Anthony. Look, I think you're talking about the portfolio pruning activities that I mentioned on a couple of calls earlier and also in the context of the -- of the Berry combination. And 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 and a business that is more attractive in terms of a higher and better margin quality. Yeah. Now with the combination with Berry, we have sort of embarked 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 and we're pretty much looking at everything. And as I've said before, the criteria are -- there are multiple criteria that would be -- that we would apply to this analysis, but the two of them are stronger intrinsic organic growth and then margin quality would be the two outstandings. It's a little early for us to say 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. And but you know that is -- that is the key consideration here and I'm not sure it will have -- will have an impact on accelerating synergies and that's where you were coming from. I think it's really just about organic growth and making the business more attractive in terms of margin quality.

Operator

Your next question comes from the line of Keith Chao with MST Marquee. Please go-ahead.

Keith Chau
Analyst at MST Financial Services

Hi, A.K. 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, there's not much discussion or even over the last year about volume growth returning as destocking ends. So it certainly seems as though that has happened. But in the last quarter, you talked about underlying consumer demand still being fairly tempered and seemingly in the second-quarter, that hasn't changed too much. So I'm just wondering if you can update our views in that respect, whether there has been any restocking in the period? And to what extent do you believe price-mix will improve in the Flexibles division in the 3rd-quarter and 4th-quarter? Is that going to be a positive outcome as that destocking in healthcare has ended? Thank you.

Peter Konieczny
Chief Executive Officer and Director at Amcor

Yeah, Keith, there's a couple of questions there. Let me try to sort them. So first of all, when we look at our volume expectations and the second-quarter of this fiscal year wasn't an exemption, we did not really expect consumer demand to strengthen a lot. We always talk about the consumer demand sort of in the range of being flat to slightly down. And that is essentially what we've seen. Now when we look at scanner data and we look at other you know, reporting from customers, we triangulate all that, I think we get to the conclusion of the consumer having modestly softened in the second-quarter versus the first one. And that's just the way it is and we've seen that too. And on the other hand, you know when I take a step-back and look at our volume performance, I think it's Important to calibrate against that environment and we're actually pretty, pretty happy with the volume performance in the second-quarter. Let me just highlight a few things here. And we are up in the second-quarter versus the first-quarter and sequentially, we've almost seen a point of growth between Q1 and Q2. And flexibles is up 3%, rigids is 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 or particularly mix, and we are sitting in a spot where we believe that the healthcare destocking is pretty much behind us at this point. We've seen some abating destocking in the 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, and I believe that we can talk about calendar '25 as a year, which is going to be cleaner from a destocking perspective. And then the final point that I want to make is the -- or let me just say something else here on the point, the mix, as healthcare is improving, I just want to make that point really clearly, as healthcare is improving, we are going to see -- we are going to see an improved mix exposure in the back-half. We're also pretty confident that healthcare will overall return back to growth. So that's on your mixed question. And then and then coming back to the final point that I was going to make on the point of restocking. And 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 the supply chains sort of stabilized, there was an overall trend to fixing the inventory levels maybe even further because of the higher interest cost and the carrying value of inventory, it's driven it down to a new normal. What we see from here on are just seasonal inventory impacts, but nothing that sort of relates back to a structured destocking initiative.

Operator

Your next question comes from the line of George Staphos with Bank of America. Please go-ahead.

George Staphos
Analyst at BofA Securities

Thanks so much. Hi, everyone. Good morning and good afternoon. A question on the momentum within Flexible Packaging. Can you talk to the degree to which incentives and/or FX might have impacted what otherwise would have been the EBIT conversion in flexibles relative to the volume growth and whether EBIT itself in flexibles was in-line with your forecast? And as you're taking 2Q into 3Q, what kind of exit-rate are you seeing on volume and conversion within flexibles and the categories you serve? Thank you.

Peter Konieczny
Chief Executive Officer and Director at Amcor

Well, I can speak to the latter part of that question with regards to volumes and then maybe Michael sort of addresses some of the financial components. And from a volume perspective, we're looking -- and that's across the business. We're looking at a first-half that pretty much left us within our guidance range on volumes from low-to mid-single digits. And that's therefore, overall, that's pretty much exactly where we expect it to be. And as we exit the second-quarter into the back-half, and 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 that's across the categories that we see so flexibles and rigid.

Michael Casamento
Executive Vice President of Finance and Chief Financial Officer at Amcor

Yeah. And I think if we just talk about the profit performance of the business, I mean, we were pleased with where it ended in the quarter was in-line with expectations. We continue to see good leverage through the P&L from that volume improvement to the EBIT improvement. And the -- as we said earlier, we're still trailing a bit of negative mix, particularly on the healthcare side of things. So that will certainly improve. And I think from a cost standpoint as well, the business has continued to focus on that margin quality, but also the cost-out. I guess one factor though is that clearly in the prior quarter -- in the prior year, we had a really strong cost-out focus. Particularly as the -- we could see 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. I mean, this year clearly, we continue to focus on cost, but we are lapping a much more difficult comp. And that means we have put a little bit of labor back into the business. I'm still getting that cost-out, but have put labor back-in just to ensure we don't miss any -- any demand at all. So we are pleased with where the business ended-up. You know from an FX or incentive point, there's not really anything to speak to there. It wasn't -- it wasn't a material impact

Operator

Your next question comes from the line of Daniel Kang with CLSA. Please go-ahead.

Daniel Kang
Analyst at CLSA

Good morning, everyone. So I understand that an integration planning event was recently held where both Amcor and Berry's staff joined Form Global Work Streams. Can you just shed some color on the event? I'm interested in whether the leadership team managed to walk away with greater confidence and perhaps greater granularity on the target synergies. Any comments that you can share, particularly on the key line items of procurement, G&A and operational would be helpful. Thanks, PK.

Peter Konieczny
Chief Executive Officer and Director at Amcor

Thanks, Daniel. Look, first of all, it's all accurate what you said. We are according to the three priorities we are also focusing on preparing the integration and we're expanding sort of our initiatives across a broader base of -- of colleagues of two businesses in order to get ourselves ready to get-out of the blocks fast once the acquisition closes. And now what we're currently doing is we're essentially organizing ourselves. The -- we're still -- it's still business-as-usual. We're still two different businesses. So we can't -- we can't address the integration. We can start doing that, we can just plan it. But one of the things that we do according to our playbook that we have within Umcor and Barry likewise has a lot of experience in integrating businesses is we're setting ourselves up with an integration management office and underneath that, we're organizing ourselves with teams that will address the different work streams that will bring the two cultures together, but then also are focused on generating the synergies and so that we're able to deliver and outperform against that as the two companies come together. Now to the extent we have an opportunity to look further into the estimates that we've made at the time, we do actually gain confidence in the synergy bucket that we put into the market of the EUR650 million, most of which is cost-related and breaks down on the cost side. If I put the financial synergy opportunities aside between procurement SG&A and then operations. And so overall comment is we're gaining more confidence in the numbers that we've put out there and that also applies for procurement, which is the biggest single item with $325 million. And I just want to say, just to dimensionalize the number, which sounds comes across as a big number, we have a spend between the two combined companies of about $13 billion. And if you look at the raw-material side, that's about 10 billion. And if you sort of look at the procurement and 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.

Operator

Your next question comes from the line of Ghansham Banjabi with Baird. Please go-ahead.

Matthew Krueger
Analyst at Robert W. Baird

Hi, good morning and afternoon, everyone. Thanks for taking my question. This is actually Matt sitting in for. Just wanted to follow-up on the raw materials front. Can you provide some added details and an update around what you're seeing in the raw-material and other input cost basket across your business? Maybe give us an updated outlook for the year? And any thoughts on if or how this latest round of tariffs impacts your cost base or maybe even how you're going to conduct your business? Any details there would be great. Thanks.

Michael Casamento
Executive Vice President of Finance and Chief Financial Officer at Amcor

Yeah, sure. I can help with that, Michael. Look, from a raw-material standpoint, the first-half was really pretty benign. And 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 tells you that the input costs overall were pretty flat for the first-half. Q2 and again was a similar trend to-Q1. There was a little bit of pass-through in Q2, but less than 1% in the top-line and no impact in the -- in the in the earnings. And remember, we've got a broad-base of goods across geographies, so they can move-up and down at different rates. But generally, what we saw overall was the basket was pretty flat, perhaps down slightly. And that included resins and liquids that were down in perhaps the low single-digit range and then there were some offsets with things like aluminum, which were up what -- which were up in the mid-single-digit range. As we then -- so pretty benign. If we look-forward into Q3, it's about as far as we look out with any confidence. I would say that it's probably a pretty similar I view Asia, Europe looking flat, perhaps in North-America, some slight increases, but overall, we'd expect the environment to be relatively benign in Q3. And after that, we'll see what happens. And from a tariff standpoint, know, I think our business is very regional and in North-America, particularly the level of imported goods is really very low and typically in specialty products that we can't get-in this region. So from a tariff standpoint, you know 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 or local nature of -- from any tariffs impacting the cost base. And I may add to that.

Peter Konieczny
Chief Executive Officer and Director at Amcor

On the tariff side, the -- first of all, everything that Michael said is very true. We're a very regional business. And if anything, we've become more regional given the experience from the past, prolonged supply chains have essentially sort of created risk-on the service levels to your customers. So we have even tried to shorten supply chains and over the past, past. And in terms of the ability to pass-through tariffs, and when you think about it, in some cases, we even have agreements with customers that would be based on indices that would allow us to pass-on these additional costs. So -- and I think -- I think we're -- we're in a spot where because we're regional, because we have some pass-through opportunities, we feel and we are not immune, but somewhat robust against the tariffs.

Operator

Your next question comes from the line of Jacob with Jardens. Please go-ahead.

Jakob Cakarnis
Analyst at Jarden

Hi, Marco. I just wanted to ask just about the trajectory in the health business. So obviously, some improvement there. It sounds like it's pharma that's still dragging on volumes. Just wondering as we move through the balance of the year, should the very merger complete, what's the exposure like to healthcare overall post-merger? And do you think that the momentum that you're seeing gives you further confidence that you can drive that organic sales growth in the combined entity as you plan to, please?.

Peter Konieczny
Chief Executive Officer and Director at Amcor

Well, thanks for that question because I'm a big healthcare fan. So I can take a step-back and maybe help you sort of how we look at that. First of all, I believe that healthcare is a category that's a real gem in our portfolio. And we've always said that from an perspective, and we're excited about the combination with Barry also because we can only strengthen -- we can strengthen that business. Overall, when we combine the business, we're looking at about a $3 billion combined business in healthcare with really attractive exposures, which is also very complementary. And on the berry side, think about like multi-component delivery devices, for example, inhalers that are being brought to-market and that is something that on the AMCO side, and we have -- we do not have in our portfolio. So first of all, we believe that healthcare is a gem while it has been sort of challenged over the last couple of quarters and because of pretty much significant destocking. And you asked about the destocking. We were essentially convinced that all of our categories have come to an end with the destocking by the beginning of calendar '24. And 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 of this fiscal year, we've seen definitely some destocking in the first-quarter where the subcategory of medical had already returned to some growth, albeit small, but in pharma, we were pretty much challenged still with the destocking. We have seen in the second-quarter, the medical further improve and strengthen. On the pharma side, we've seen destocking abate and again, we would now be in a spot where we'd say to keep things simple that destocking in healthcare is also over. Now realistically, there's probably going to be some lingering destocking that carries over in the 3rd-quarter. I think I said that earlier today on a call on this call, but for the -- in the grand scheme of things, again, I think destocking is completely over. With that said, healthcare will return back to growth and we will get back to the historical growth rates, 3%, 4% of healthcare over-time and that will also take-away the mix impact that we have in the translation to the bottom-line and overall, pretty excited with that going-forward.

Operator

Your next question comes from the line of Mike Roxland with Truist Securities. Please go-ahead.

Michael Roxland
Analyst at Truist Securities

Thank you, PK, Michael, Tracy, Damon for taking my questions. As you're proceeding through the due-diligence process with Barry, is there anything that stands out that you weren't expecting upside, downside, my sense is obviously some of the synergies do have some upside given your comments PK earlier. And then secondly, just given that growth -- overall volume growth is slowly improving in the base business, is there anything you're doing maybe from a cost vantage point to help drive better profitability? Thanks.

Peter Konieczny
Chief Executive Officer and Director at Amcor

Yeah, Mike. So I just got to think about the first question. There were two questions here. Can you guys help me with the first one? Anything that stands out in the due. Thank you. So due-diligence. Look, I would say, there are no surprises on our side as we as we moved from announcing the deal a couple of months ago to where we're at today. But you got to remember, it's business-as-usual at this point in time, right? So you know the data that we have available to look at is pretty much to a large extent really just the data that we had and that will -- that will significantly change only as we come to closing, which we expect to be in the middle of this calendar year, which has not changed versus what we've done before. So that's the answer to the first part of your question, is there anything positive or negative? We're pretty much in a spot where everything is as expected. And from a synergy perspective, you also mentioned that. And I think, yes, we are becoming more confident in the synergies. And so that is that is all positive. Now the second part of the question. I should have -- yeah, Michael, do you want to take that?

Michael Casamento
Executive Vice President of Finance and Chief Financial Officer at Amcor

Yeah, I can take that one sure. No, thanks for that part of the question, Mike. Yeah, look, on the cost side, we continue to focus on driving efficiency in our operations and our plants, managing the labor pool and flexing that to the volume as-needed. We continue to look at the shift patterns and managing over-time. And we've also still got some residual benefits to come through from the restructuring programs that we had in-place as a -- that we called out a couple of years ago in relation to offsetting some of those disposed earnings from Russia. So in the first-half, we probably picked-up about $7 million benefit there and we've probably got another $7 million or so to come in the second-half. So overall, it's a really strong cost focus and both operationally and still some benefits to come from the restructuring. So that's all -- and that's all factored into our guidance that we reaffirmed for the full-year.

Operator

Your next question comes from the line of John Perto with Macquarie. Please go-ahead

John Purtell
Analyst at Macquarie Research

Hi, good day, Peter and Michael. Hope you're well. Look, just coming back to Berry, obviously -- and thanks for the comments there on healthcare, Peter. But obviously Berry globalizes your rigids business. I mean, what do you see as the sort of key benefits of that? And if you can also please touch on the growth outlook for closures and dispensing systems and what that potentially gives you? Thank you.

Peter Konieczny
Chief Executive Officer and Director at Amcor

Thanks, John. And so On the -- on the rigids business, you said it globalizes our rigids business. Let me be a little more specific about that and pull that apart, because I think it's really important. And first of all, in terms of Quantum, our rigids business, we summarize under the roof of rigid packaging, which is about a $3 billion business. And the berry business has a containers and closures business, which is about a $7 billion business. Hence, the combination will get us to a really scaled player and multi-regions and that's different from what we have today. Now the key difference though is that we play only partly in the incomparable, Call-IT sub-segments. When I dissect our rigid packaging business, it -- I would split it generally between the North American beverage business, which we discuss quite often because it's a scale business, it's in the beverage, it's a beverage side. It sits in North-America and it serves the categories like isotonics ready-to-drink tea and 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 in North-America on the side. The other part of that business is around specialty containers. And that's a different business. It's also a scale business, but not as big as the North American beverage business, which serves a number of different categories and makes containers for those categories across-the-board. Now the berry side of the containers business is much more comparable to the specialty containers business of Amkor. That's where the complementarity comes in. In fact, Berry doesn't do anything on the North American beverage business. They don't have exposure to that type of a segment. So we believe that is -- that is -- that is very positive for us because we were very interested in scaling up and the specialty containers business as we Call-IT, which is very much aligned with the berry business. And again, on the berry side, we have really good high-value products. And when you think about it, it is the containers business of berry that actually brings along the healthcare exposure. And I talked about that earlier. Here we see the multi-component more complex delivery systems on the healthcare side and there's other parts of the business 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 stake in the Berry Cap joint-venture. And then you will find a nice exposure to dispensing systems and pumps that we likewise are very attracted to. So you know it is very complementary and it's not in the North American beverage space. And therefore, we are pretty excited about the combination. And now you also asked us for our growth assumptions in the case of closures and dispensing systems. I think -- I think it's a little too early for me to give you like a concrete answer to that you can hold me to as we go-forward. So I'll ask for a little more time for me to go back to that and confirm that on a later call.

Operator

Your next question comes from the line of Keith Chao with MST Marquee. Please go-ahead.

Keith Chau
Analyst at MST Financial Services

Thanks so much for taking my follow-up question. Michael, just one for you. The last result, I think you guided to first-half, second-half split of, 45, 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 to answer your mathematical question, but the top-end does imply -- sorry, the midpoint does imply a slightly greater skew to the second-half. So given the top half now represents something more like 42 58, 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.

Michael Casamento
Executive Vice President of Finance and Chief Financial Officer at Amcor

Yeah, okay. Look, I think as I said in my comments, I mean we are basing the phasing on the historical average is what we're expecting. And that's a range, right? I think when I talked Q1 last-time around, I was approximately 45% to 55%, but it can vary on the margin. I think as we've exited the first-half, it was right in-line with our expectations and volumes in that low single-digit range, the margins were continued to expand and we saw the EPS growing at 5%. As we've kind of exited that, we look into 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 you know that as PK said, that implies that the second-half low-single digit to mid-single-digit volume growth, that's going to be a key driver obviously of the outcome of the year. And I think in terms of the range we've given you know the importance of the range, the volume, particularly as we get into the higher seasonal seasonality of the business, particularly in Q4, I mean, we don't need a lot of volume improvement to really see strong leverage through the P&L, particularly in Q4 where the cost base is well-covered off. That's the biggest quarter of the year, typically above 30% of earnings. And the other thing to take into account as well is clearly, we're 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 from here we sit -- we've reaffirmed guidance. We feel pretty confident in that and I will update you in May as we work our way through the year.

Operator

Ladies and gentlemen, this concludes our question-and-answer session. I will now turn the call-back to Peter for closing remarks.

Peter Konieczny
Chief Executive Officer and Director at Amcor

Yeah. Thank you, Kate. And look, given the overall environment, we feel pretty confident and we feel pretty good about the quarter that we've delivered. And I hope that came across. And so again, we believe it's been a good quarter. The volume growth improved. We're pretty confident in the second-half and we've reaffirmed guidance on the back of that. And thank you very much for your questions and your time and I look-forward or we look-forward to having the opportunity to meet some of you at the upcoming conferences. Thank you very much.

Operator

Ladies and gentlemen, that concludes today's call. Thank you and have a great day.

Corporate Executives
  • Tracey Whitehead
    Head of Investor Relations
  • Peter Konieczny
    Chief Executive Officer and Director
  • Michael Casamento
    Executive Vice President of Finance and Chief Financial Officer
Analysts

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