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Michael John Casamento; Executive Vice President of Finance and Chief Financial Officer; Amcor PLC
Ronald Stephen Delia; MD, CEO & Executive Director; Amcor plc
Tracey Whitehead; Head of International Relations; Amcor PLC
Adam Samuelson; Equity Analyst; Goldman Sachs Group, Inc. , Research Division
Antonio Longo; Analyst; JPMorgan Chase
Brook Campbell-Crawford; Head of Cyclical Industries Research; Barrenjoey Markets Pty Limited, Research Division
Cameron McDonald; MD and Head of Research; my
Daniel Kang; Research Analyst; CLSA Limited, Research Division
Ghansham Panjabi; Senior Research Analyst; Robert W. Baird
Jakob Çakarnis; Vice President, Equity Research; Jarden Australia Pty Limited, Research Division
John Purtell; Analyst; Macquarie Research
Keith Chau; Basic Industrial Analyst; MST Financial Services Pty Limited, Research Division
Michael Andrew Roxland; Research Analyst; Truist Securities, Inc., Research Division
Richard Johnson; Equity Analyst; Jefferies LLC, Research Division
Samuel Seow; Vice-president; Citigroup Inc. , Research Division
Unidentified Analyst
Operator
Good afternoon. My call is Krista and today I will be your convention operator. At this time, I’d like to welcome everyone to Amcor’s earnings convention for the first half and second quarter of 2024. (Operator Instructions) Merci. Je now I’d like to convert it Talk to Tracey Whitehead, Head of Investor Relations. Tracey, you can start your lecture.
Tracey Whitehead
Thank you, operator, and thank you all for participating in Amcor’s first half and second quarter fiscal 2024 earnings call. Today we have Ron Delia, our president and CEO; and Michael Casamento, Chief Financial Officer. Before I go any further, let me point out a few things. On our website, amcor. com, in the Investors section, you will find today’s press release and presentation, which we will discuss on this call. Please note that we will also discuss non-GAAP monetary measures and similar reconciliations to be made in the press release and filing. Comments will also come with forward-looking statements based on management’s existing ideals and assumptions. The timing slide of today’s presentation lists several points that may cause the long-term effects to differ from existing estimates. And it’s conceivable to consult Amcor’s filings with the SEC, adding our filings on Forms 10-K and 10-Q for more details. Operator’s Instructions) On that note, Ron.
Ronald Esteban Delia
Thank you, Tracey, and thank you all for joining Michael and I today to discuss Amcor’s Q2 and FY24 results. We’ll start with some ready comments before moving on to the questions and answers. As Slide 3 shows, our focus on protection remains unwavering and our significant commitment to providing a safe and healthy work environment continues to be rewarded. 70% of our sites have had no injuries in the last 12 months or more, and we have seen a 17% relief in injuries compared to the first part of fiscal 2023. Safety is deeply ingrained in Amcor’s culture and is the number 1 priority for our global groups. Let’s move on to our key messages on Slide 4. First, our reported earnings on a constant basis for the second quarter and the first quarter were slightly better than the expectations we made in October. And improved running capital functionality helped drive a year-over-year build of more than $100 million in adjusted loose cash flow. Secondly, our financial functionality during the phase was supported by a strong and proactive approach to rate control. This helped us offset second quarter volumes that were consistent with lower-than-expected percentage issues. Our groups around the world continue to respond proactively by doing wonderful jobs by adopting new freight movements. Third, our first-half monetary functionality puts us on track to achieve our full-year guidance, which we reaffirmed today. Compared to the first part, we believe that the second quarter was the lowest point for earnings expansion and we continue to expect the adjusted EPS expansion trajectory to improve in the second part of the fiscal year. 24, particularly with a mid-digit adjusted lead expansion during the second half. fourth trimester. Our confidence is supported by our improved earnings leverage, as well as a number of known factors, which we will discuss in more detail later, that will provide earnings advantages throughout the second half of the year. exercise. Additionally, our volume trajectory sometimes improved throughout January, reinforcing our confidence that the second quarter marked the low point for volumes. Finally, we remain confident in our long-term price creation and expansion strategy and our ability to generate a strong earnings mix. expansion and a hot and developing dividend. The strength of our market positions, execution capabilities and consistent capital allocation frameworks continue to provide a compelling investment case for Amcor. Let’s move on to slide five for a summary of our monetary results. Organic sales at consistent exchange rates fell 8% during the quarter and 10% during the quarter. Price/mix advantages were around 1% in the first half and were strong in the second quarter, reflecting the moderation in inflation, which translated into relief in price movements for our groups. Volumes fell 9% in the first half and 10% in the December quarter. Second quarter volumes were slightly lower than our expectations for October, with the main difference being an acceleration in inventory reduction, specifically in December. Adjusted EBIT for the first half and December quarter was $709 million and $352 million, respectively, slightly above our expectations. On a comparable and consistent monetary basis, declines of approximately 6% in consistent periods reflect lower volumes, partly offset by the benefits of decisive and proactive cost movements taken across our businesses in reaction to the dynamics of market conversion. In total, our moves reduced prices by more than $200 million in the first half compared to last year, with relief of more than $130 million achieved in the second quarter. Adjusted EPS were $0. 313 and $0. 157, consistent with the percentage, respectively, and also slightly above our previous expectations. For either period, this would constitute 10% on a comparable basis, reflecting the decline in adjusted EBIT and the unfavorable upside effect in line with interest expense. Improving running capital remains a priority and helped generate flexible cash flow during the first part, long before the same constant period. last year and in line with our expectations. And we returned approximately $390 million of cash to shareholders in the first tranche through a combination of percentage buybacks and a growing dividend, which increased to $0. 12 five percent. Now I’ll turn it over to Michael to add a little more color to the monetary data. and our perspectives.
Michael John Casamento
Thanks Ron and hello everyone. Starting with the Flexibles segment on Slide 6. Year-to-date, comparable net sales in constant currency decreased 8%, largely reflecting a decline in volumes. Volume expansion in the condiments, snacks and confectionery categories was more than offset. In Europe, net sales declined at double-digit rates, driven by lower volumes, partially offset by price/mix advantages. Volumes declined in the snacks, coffee, healthcare, and raw film and sheet sectors. This was partly offset by a consistent increase with confectionery volumes. In the Asian region, net sales increased slightly from last year. Volume expansion in Thailand, India and China helped offset declining volumes in Southeast Asia’s healthcare sector. In Latin America, net sales decreased at a single-digit rate, driven by lower volumes primarily in Chile and Mexico, partially offset by expansion in Brazil. First-half adjusted EBIT was 5% lower than last year at comparable and consistent exchange rates. of lower volumes, partly offset through favorable price/mix benefits and continued measures taken to reduce prices, increase productivity and strengthen compliance with consistent charges. The EBIT margin of 12. 6% was comparable to the previous year despite an unfavorable comparison of 50 similar foundation issues to the sale of our Russian operations last year. For the December quarter, reported sales decreased 9% on a consistent comparable currency basis, and price/mix is relatively even compared to last year. Volumes decreased 10% during the quarter, reflecting continued market weakness and visitor demand. Stock drawdowns also continued throughout the quarter, accelerating in December and having a particularly significant effect on the healthcare sector, where volumes were down by double digits compared to last year. charging actions, focusing on consistent national efficiencies and delivering sourcing merits, restricting discretionary spending and advancing structural charging relief projects. This resulted in another quarter of strong and consistent performance, partially offsetting the decline in volumes with adjusted EBIT declining 5% in comparable currency terms. Moving on to inflexible packaging on slide 7. Year-to-date net sales in comparable currency terms fell 8%, with a price/mix contribution of around 1%. Volumes fell 9% in the first half, with the decline in volumes in North America being partially offset by expansion in Latin America. In North America, total beverage volumes during the first half were down 14% from last year, adding 13% relief to hot-filled beverage container volumes due to a decline in customer and visitor requests. and to the maximum levels of stock reduction during the first part. of the year. In Latin America, volumes grew in the mid-single digits driven by new contracts in Brazil, Peru and Colombia, partially offsetting decreased volumes in Mexico. Adjusted EBIT was 9% lower than last year on a comparable basis, reflecting a decline in volumes, partly offset through price/mix benefits and favorable charges consistent with compliance. For the December quarter, net sales also decreased 10% on a comparable and consistent currency basis. Price/mix contribution was approximately 2% and volumes decreased 12% in the quarter, reflecting lower volumes in North America, partly offset through new contracts, generating mid-single-digit expansion in Latin America . Overall, beverage volumes in North America decreased 19% during the quarter, reflecting a high single-digit decline due to reduced inventories, as some of our customers took steps to reduce inventories in the hot filling and bloodless categories. Volumes were also hit in the early digits due to weakening customer and visitor demand in Amcor’s key end markets. Additionally, we recorded net new business in the hot fill category, which partially offset a loss in bloodless fill when we elected not to retain volumes below our breakeven point. Second quarter adjusted EBIT decreased 12%, reflecting a decline in volumes, partially offset by the benefits of ongoing proactive charge management, adding savings on hard work by taking on more days of company downtime. factory to better align capacity with market dynamics and generate origin merits. money and balance sheet on slide 8. As Ron mentioned earlier, the adjusted loose cash flow for the share was over $100 million ahead of last year. Our groups continue to advance our priority of reducing inventories and generating capital accumulations at all levels. Our monetary profile remains solid with leverage of 3. 4x, broadly in line with the first quarter and where we expect it to remain throughout our cycle. Temporary current capital accumulation and trailing 12-month EBITDA now fully reflect the divestment of our consistent operations with Russia. Looking ahead, we continue to expect leverage to decline approximately 3x by the end of our monetary year, supported by a seasonal rally consistent with earnings and money flow in the second half. This brings me to our outlook on Slide 9. As Ron mentioned earlier, we reaffirmed our full-year guidance for adjusted EPS of $0. 67 to $0. 71 on a constant basis. We continue to expect the underlying businesses to contribute to biological earnings expansion in the mid-single digits, with percentage buybacks adding ~2% upside and favorable currency conversion contributing up to 2% profit. . This is offset by a negative impact of approximately 3% similar to the sale of our Russian business in December 2022, the impact of which was concentrated only in the first part. We also expect a negative effect of around 6% due to interest and emerging taxes. expenses, which takes into account our full-year net interest expense estimate of between $315 million and $330 million, which is slightly lower than what we forecast last quarter. Our full-year tax rate remains unchanged at 18% to 20%. Phase-wise, we believe the December quarter marks the lowest point in terms of profit expansion and volume declines for Amcor. January volumes improved following a significant reduction in visitor stock in December. And while we expect market dynamics to remain volatile in the near term, our volume trajectory deserves to continue improving throughout the year. We expect third quarter volumes to decline in the mid-single digits and fourth quarter volumes to decline in the low single digits. Taking into account offsetting benefits from fee relief projects and lower headwinds from emerging interest pricing compared to last year, we expect third-quarter adjusted EPS to decline by around 5% on a like-for-like basis. base. And for the fourth quarter, we expect adjusted EPS to rise to mid-single digits from a year ago. And Ron will talk in a bit about the points that support this return to expansion. Adjusted free cash flow continues to be higher than last year as we expect and once again reaffirm our diverse guidance of $850 million to $950 million for our full FY24. Matrix that will be up to $100 million more than last year. Our plan to repurchase at least $70 million of Amcor shares in 2024 remains unchanged and we continue to pursue value-creating M&A opportunities. With that, I return to Ron.
Ronald Esteban Delia
Thanks Michael. Before opening the call for questions, I need to provide more insight into our outlook for the remainder of the year, as well as a reminder of the key elements that make up our long-term style for generating shareholder price. ’24. As I mentioned earlier and as highlighted on Slide 10, we are all aware of a number of key points that give us confidence that our earnings trajectory will improve in the second part of the fiscal year. First, situations requiring profits similar to the sale of our business in Russia are now completely behind us, eliminating an unfavorable basis of comparison that affected reported profits for the entire calendar year 2023. Second, although prices Of interest at the moment are As expected to be consistent with last year, the magnitude of the headwinds posed by the immediate rate increases over the past 18 months is beginning to diminish as we move into the rest of the year. Third, we are enjoying the benefits of structural load savings of $35 million right now, with another $15 million more to benefit in FY25. These savings are primarily similar to plant closures at as we optimize our global footprint. And fourth, earnings leverage has improved thanks to our commitment to taking proactive steps to align our charge design with conversion market dynamics. This includes getting rid of shifts meant to trim the workforce over time, managing purchasing, and keeping tight control on discretionary spending. In total, over the past 12 months we have reduced our workforce by more than 2,000 full-time employees, or approximately 5% of our workforce, and more than 1,000 of those discounts were eliminated during the first part of the year. From a beneficial point of view, current prices decreased by more than $200 million in the first part of FY24 compared to the previous period. And more than $100 million of that fee relief was delivered in the second quarter, nearly double the roughly $70 million delivered in the first quarter. The result has been and will continue to be the increased profit leverage we have achieved since the start of this financial year despite particularly low volumes. As Michael commented, we had a better start in January and we are confident that the second quarter marks the lowest point. for profit expansion and volume decline and with our overall trajectory, it is expected to improve as we move into the rest of the year. In summary, we are confident that positive earnings effects at various known points will lead to further momentum in the second part of the fiscal year. ’24, adding mid-single-digit earnings expansion in our fiscal fourth quarter. Importantly, we do not expect the customer to request that the environment improve and we will continue to be proactive in taking steps to ensure that our charge base and pricing methods reflect market situations. In this way, throughout the fiscal year, those known points will serve as vital building blocks to help restore the functionality of our business style. generating value for shareholders, through a combination of strong earnings expansion and an attractive, growing dividend, which recently returned 5%. The starting point for price creation will be business expansion. And over the past 10 years, we have averaged an 8% expansion in adjusted earnings in line with participation. As you can see on this slide, we have several factors driving margin growth expansion, and each of them provides significant long-term bullish opportunities. We will also continue to strengthen our ability to grow in those spaces by expanding capital expenditures over a consistent multi-year period and completing strategic mergers and acquisitions. As volumes normalize and improve, those spaces that sometimes develop faster and are more consistent with pricing will account for a greater proportion of sales. that contribute increasingly to profits. And as we return to a more normalized volume expansion environment, this combination of an improved mix and the proactive steps we have taken to optimize our charge base positions Amcor to once again generate strong earnings expansion, consistent with our long history. Slide 12, we are performing well in meeting the earnings and cash flow expectations we set for FY24. Our teams are being proactive as market dynamics evolve and focusing on controllables to remove prices additional, if any. We are targeting single-digit earnings expansion in the fourth quarter and our commitment to our long-term expansion and pricing strategy positions us well to execute our style of pricing for our shareholders when the volume environment normalizes. . Consistent with the initial remarks, we are now in a position to move on to the questions.
Operator
(Operator Instructions) The first comes from Baird’s Punjabi Ghansham lineage.
Ghansham Panjabi
I guess, first off on the volume declines across the portfolio, which looks like it’s about 6 quarters of negative year-over-year volumes at this point. Obviously, you’re not the only ones, but there’s been quite a bit of chatter and your customer said all the way down to retailers about increased promotional spending. I’m just curious as to whether you’re starting to see direct science of that at the point. And if so, which categories, food, beverage, consumer staples, et cetera?
Ronald Esteban Delia
Yes. Look, Ghansham, thanks for the question. Maybe I’ll just mention the volume declines at a high level first and then come back to your question about signs of promotions or more aggressive commercial activity on the behalf of the customers.Firstly, I think where there’s overlap, we’re not really seeing any differences compared to others. So that would be the first thing I would say. I think our 10% total decline in the quarter is about 2% worse than we expected going into the quarter. So we weren’t actually expecting a much different outcome. Things did track according to those original expectations in October and November, where we were kind of declining high single digits. December, we saw a really accelerated destocking, which accounted for the incremental softness in which we more than offset to deliver the profit. So that’s kind of the starting point.Now January, as we’ve alluded to, was much better. We’ve seen improvement in most of our businesses versus H1. And it really underpins our view that Q2 was the low point, and it really underpins our Q3 and Q4 expectations. And maybe just to continue and round it out a bit in terms of unpacking the decline roughly by driver, roughly half of our 10% decline, sort of mid-single digits was related to market impacts. This is a combination of consumer demand, customer and segment mix. And roughly half or another mid-single-digit contribution was from destocking. And that’s pretty much the same in both the Flexibles and Rigid Packaging segments.By geography, emerging markets broadly flat. Asia up modestly, Latin America down modestly. But the developed markets is where we’ve been especially soft with Europe a little bit weaker versus North America.And another way to think about it, just to sort of close off here is of the 10% decline in the quarter, more than 50% of that decline comes from our global health care business and our North American beverage business, both of which have experienced the most significant destocking. So we’ve had a concentration of impact from those 2 parts of the business. On the other hand, there are categories growing in some regions, confectionery in North America and Europe, condiments and cheese and coffee in North America and Latin America, beverage in Latin America. So there are places where the business is growing.Now to your point, specifically about signs of promotional activity or changing pricing strategies, there is a lot of talk about that. As you rightly pointed out, we hear that from a lot of customers, both publicly and privately. And we’re seeing a little bit of that start to take place in the marketplace. But to be honest, we haven’t seen that as any kind of a tailwind yet for our volume performance. And our outlook doesn’t infer, it doesn’t imply or it doesn’t assume that we’re going to see any benefit from the market in the second half either. And so we’ll sort of wait and see on whether or not the pendulum swings a bit between price and volume.
Ghansham Panjabi
It is ok. And to keep up with this, about physical care stock reduction, is it simply due to stock reduction?Do you see it now a little later than the other categories?Or is there something unique about the timeline related to the fitnesscare stock reduction?
Ronald Esteban Delia
Yeah. Look, I think it’s a little unique. In reality, the markets have been weak, but the weakness in fitness care is actually a story of destocking, and it has been significant in both medical device packaging and pharmaceutical packaging. And this reduction in physical care stocks has been widespread and constant throughout the world. In fact, it is a story that spans several years. This has been a multi-year adventure for fitnesscare, which is ironic because this is one of the most consistent businesses we’ve had in a long time, and we would be expecting returns at this point of consistency. But over the last few years, even going back to COVID, where we had really limited demand and then very strong demand upon reopening, but we had serious supply constraints and raw curtain shortages in products ranging from specialty sheets to resins and papers. So we’re coming off what would have been our FY22, which actually led to consumers stockpiling to secure a supply in our FY23. And we saw normal volume in FY23 when consumers really strengthened their source chains and de-risked their source chains through construction stock. We now have consumers with huge inventories and a diversity of products, from medical gloves to device packaging and pharmaceuticals. packaging, etc. And we started to see a destocking, which actually started in the first quarter. We reported this last quarter, but we accelerated especially in the second quarter. And we expect this to continue into the third quarter and possibly into the fourth quarter. So it’s a slightly later step. I think in other categories we have seen signs that the destocking has possibly eased and we are getting closer to the end of the beginning. I think in the realm of fitness this happened at a later stage.
Operator
The next one comes from JPMorgan’s Anthony Longo.
Antonio Longo
Just a quick inquiry about load savings. So, in the first part of the year, the volume is going down as you saw in the first part of the year and specifically in the last quarter, but I’d like to hear your feedback in January and beyond. But I just need to get an idea of what the long-term charge savings outlook will look like and how this environment of declining volumes with margin growth will continue to be managed. So far, is there anything else you can accomplish?
Michael John Casamento
Yes of course. I’ll take this one, Anthony. Look, when it comes to pricing, we’re actually doing two things here. The first is therefore a reaction to the slowdown in underlying volume demand. On this front, we have evidently adopted proactive and competitive techniques to gain flexibility and, in fact, have focused on productivity increases and discretionary finishing. So for the first component, we finalized the pricing by over $200 million, and that accelerated through the component. In the first quarter it was about 70 million dollars, in the second quarter it was about 130 million dollars. And we will achieve this by removing true flexibility from the charge base relative to volume and environmental needs. Therefore, we can eliminate entire teams. We can remove the box, fade it over time. We are optimizing sourcing to gain advantage, especially in this low demand environment, and actually restricting discretionary finishing. So that will continue as we continue to scale volumes. But obviously as volumes increase, some of those prices, and it’s hard to say, some of those prices will go up again as we expand the paint patterns. But we don’t expect it to be linear. I think we’re going to have more leverage as we move through the momentum component, because of how we’ve learned to work with some of the ones that drive down prices and improve efficiency. So it really comes down to the operating costs side. And then, momentarily, we lowered prices structurally. So, at the same time, we are advancing the structural burden relief projects that we talked about thanks to the advantages given up in Russia. They basically involve factory closures, and this can be successful in about ten around the world and in any of the segments. To date we have announced 7 closures and 2 restructurings. And recently, in fact, 2 or 3 of those factories have closed their doors. So we start to see some advantages of this program at the end of the first component. But we’re on track to generate a $35 million upside in the second part of the year from this program, and then another $15 million in FY25. That’s actually the technique we’ve adopted. Next in terms of load relief: the component is structural and the component is continuous.
Operator
The following is from George Staphos of Bank of America.
Unidentified Analyst
This is actually (inaudible) sitting in for George. He had a conflict this evening. So just going off that, are you able to comment at all how much of that temporary cost saving might ultimately end up being permanent and structural costs that are taken out of the business?
Michael John Casamento
Look, it’s hard to say, as I just mentioned. What I can tell you is that things like purchases there will generate consistent and permanent savings. The constant prices we got rid of on the constant basis will be consistent with the constant ones. And the structural program is evidently made up of consistent and permanent savings that stand out from the activity. As for the flexibility of the charging base, again, it really depends on the volume. We believe that today we are much more effective. We have been able to act proactively to reduce the company’s overall workforce compared to last year. We have gotten rid of almost 2,000 heads from the company and about 1,000 since June. In total, this represents around 5% of the workforce. As volumes come back online, as I mentioned, we’ll have to develop some of that, but it won’t be linear. And we will manage this very closely. And we believe that today we have intelligent leverage and that we are more efficient. And so let’s see that we will continue to have influence as we move forward in this area. And in fact, that will contribute to the long-term margin gains that we typically get from 20 to 30 core issues per year in our business. So it deserves to see that process to contribute to it in the long term.
Unidentified Analyst
It is ok. They gave it to me. And I appreciate all the color in that and in the volumes. But I guess you said the volumes were a bit lower than you had anticipated. So what is it that in the end reassures you about the direction of the year?Is that charging component and some of the other points you talked about?
Ronald Esteban Delia
Yes. Look, it’s a couple of things. Firstly, on volumes, we’re not anticipating any rebound in the consumer or any big improvements in the market. But we do expect that destocking will abate as we work our way through the half. I mean, certainly, a portion of the destocking that we saw in December was certainly year-end optimization, that’s not going to repeat, right? We do believe we’re going to see continued destocking in health care and North American beverage. But for the other categories, we’re starting to see some evidence that the destocking is abating. So that’s one thing. January also was much better. So we had much better January relative to the first half from a volume perspective. And so we feel like — we feel pretty confident in underwriting the growth — the volume assumptions for the rest of the year.And then in terms of the profit, as Michael alluded to, we’re going to continue to — we’ve got a number of known benefits, which I rattled through in the opening remarks, but it starts with better operating leverage because we’ve gotten a lot of costs out of the business and as volumes come back, we’re not going to add that cost back one for one, plus the buildup and the momentum on the structural cost side. Which, again, will build through the second half with the benefits from plant closures and the like. So several things that give us confidence in the improving trajectory of earnings through the second half, but none of them have to do with the real dramatic improvement at the consumer level.
Operator
Your next question comes from the line of Sam Seow from Citi.
Samuel Seow
But he has talked about some of his volumes being lower than expected. I’m just thinking about your balance sheet, I’m not saying that’s going to happen, but I’m just looking to get a sense of what kind of fourth-quarter volumes would leave it out of its diversity for the total year, assuming all the other things are taken into account. They are the same.
Ronald Esteban Delia
Sam, are you still there?
Samuel Seow
Yes. Can you hear me?
Ronald Esteban Delia
Yes. You broke up there for a second. You broke up right at an important part of your question, which is about fourth quarter volumes.
Samuel Seow
Just take a look around to get an idea of what kind of fourth-quarter volumes would leave you out of your diversity for the entire year, assuming all else being equal.
Michael John Casamento
You mean the $0. 67 to $0. 71 callsign, right, Sam?
Samuel Seow
No, no, that 3x leverage.
Ronald Esteban Delia
It is ok. Listen, we’re confident in the company’s cash flow trajectory in the second half of the year. Therefore, we are going to reduce our debt to about 3 times by the end of June. We are quite convinced that this is the way we are following here. In terms of volumes, expectations for volumes supporting EBIT expansion in the current part and EBITDA delivery in the current part are a half-digit decline in the third quarter and a small single-digit decline in the fourth quarter. There’s a little bit of total diversity around that. And the effect on EBITDA and therefore on debt is quite broad. Therefore, we do not expect volumes to be a major factor preventing us from achieving around 3 rounds until the end of June.
Samuel Seow
It is ok. And I guess continuing, I mean, looking into the future, in general, you have less money in the early part of the year because of seasonality. I think if you end up in those 3 corners as your tips, would you expect to be of your success in the first part of 25?Is this the new general in the future?
Michael John Casamento
Look, I think just to answer your question on that front. If you take where we are right now at this particular point in time, it’s a pretty unique point in time because there’s two factors that are really impacting the leverage right now. We’re at 3.4x, which is right where we expected to be at this time of the year in this situation. And it’s really driven by the divestment of the Russia business. So we’re now fully lapping 12 months earnings out of the business from that. So from here, we don’t lap that anymore. We head more into more normal earnings trajectory and growth. And that’s about 0.2 turns of the leverage.And then the second point is really around elevated working capital levels. So we have been carrying elevated working capital levels over the last kind of 12 to 18 months. We’ve started to work our way through that. And the teams have done a good job in the last 12 months of inventory where we’ve taken inventory out of the system about $500 million. And that certainly contributed to the cash flow improvement in the first half of this year where we’re $100 million ahead of prior year already. But we are still being impacted. We’re not getting the full benefit of that inventory reduction because our payables are much lower.So in this environment, where we’ve seen demand softness and destocking, clearly our purchases are well down and in turn, our payables are down. So we — probably, we’ve still got another sort of $200 million to work through from a cash flow improvement on the back of working capital. And we’re really targeting a working capital to sales in the range of in between that 8% to 9%, working capital to sales. And right now, we’re at 9.8% on a trailing 12-month basis.So when you put those two items together, leverage at this time of the year would normally be in the more of the 3x range. And typically, in the second half, the seasonality would take kind of a quarter turn of the leverage. So will get us back into that 2.5 to 3x range. So as we look forward, that’s where we would expect to be in a more normal base. But as I said, we’re in a little bit of a unique period of time. And from here, we do expect improvement.
Operator
The next one comes from the lineage of Adam Samuelson of Goldman Sachs.
Adam Samuelson
So I guess the first question just going on the volume side and just thinking about some of the end markets. And Ron, you gave some good color in the prepared remarks. One of the areas where Amcor has been investing more aggressively has been in the protein space. Can you talk about kind of incremental business wins that you’re actually achieving there relative to maybe some end markets that are still pretty challenged on the red meat side, certainly in North America? And how much you can kind of grow in spite of that and take market share in that opportunity?
Ronald Esteban Delia
Well, yes, that’s a smart query. And he is right: the market has been questioned. And if we think about the meat in Flexible Activities, the story is mixed. We saw a decrease in meat in North America during the half year. The market is weak and there is also a reduction in stocks in the meat sector. But we have noticed this scenario stabilizing more recently. So this would be one of the categories where we don’t expect the destocking cycle to end, but we do see signs of it stabilizing a bit. Likewise, in Europe we have noticed a slight stabilization of meat volumes in the last two months. And in Latin America we have also begun to see some growth. So I think meat is, as a general category globally, one that turns out to be coming out of the other end of the packaging cycle, at least for us, or at least there are some green shoots that give us reason to be optimistic. . First point. This would undoubtedly be the case at the end of January as well. The current part of your consultation is a broader consultation, and I think it is becoming a little longer, and takes into account our aspirations to gain share in this sector. space. You know that we made a device, an acquisition of a machinery company less than 12 months ago, that deserves to be part of the overall formula solution with which we will go to market. And we are confident that we have the right consumables, film structures and technical service personnel to support the appliance offering. And we believe that over time this will be a winning combination and we will gain percentages not only in North America but also around the world. I can’t cite any evidence for this yet, Adam, because the near-term momentum is, in fact, overcompensating for any modest rally in stocks that we can take advantage of.
Adam Samuelson
Okay. I appreciate that color. And if I can ask just a quick follow-up. You do have a business and presence in Argentina, both for Flexibles and Rigid on the beverage side. I think you strip out all the inflation accounting for the de-val, but you talked about the volume environment in Argentina and how you’re thinking about that over the next couple of quarters given what I would imagine it’s a pretty challenged consumer environment.
Ronald Stephen Delia
Yes. Look, maybe Michael can tell us about the accounting you referenced. But from a business point of view, the first thing I would say is that we have been working in Argentina since the mid-90s, that is, for more than 30 years. This is a business that provides around 2% of profit and around 2% of EBIT. And we have five factories there spread across the 2 segments, as you mentioned. And since we’ve been here for about 30 years, I guess we’ve been through a lot of economic cycles and crises. And the business is relatively local. And we maintained complete control over the business. Therefore, it remains an activity that has a more or less normal objective. But in terms of management, we continue to privilege location. It is necessarily a local business. There are no longer exports, but to the extent that something is imported in the form of raw materials, we continue to favor the localization of the main inputs. Perhaps most importantly, we continue to set prices ahead of inflation. This has been a characteristic of this sector in this country and continues to be so. Next, we will continue to focus on costs as we expect demand to continue to decline as consumers adapt to the new macroeconomic realities in this country. That’s a little bit about the business and how we run it. Michael, do you need to talk to us a little bit about the accounting that Adam alluded to?
Michael John Casamento
Yes. Yes. Regarding accounting, Adam, you clearly referred to the fact that Argentina has been designated as a hyperinflationary economy since 2018. So, since then, systematically, we’ve been. . . if there’s been a devaluation and we see that it’s the United States: this quarter, there’s clearly a government replacement. And in December, we saw a 55% devaluation. And they see the $34 million P chart.
Operator
The next one comes from the lineage of Richard Johnson of Jefferies.
Richard Johnson
Thanks a lot. Ron, I just wanted to ask you a question about Rigid Packaging and your current strategic vision for the company. I just wanted to see if I had noticed any drops in volume in the December quarter and, in the past, something similar to the December quarter. , especially in hot filling, even if it adjusts to stock reduction. So, I’m just interested in your attitude on how you think the company is currently doing.
Ronald Esteban Delia
Well, yeah, look, Richard, don’t forget to look at the volume drops at that time because you didn’t see them at that time. I mean, that’s just reality. This is a company that has been a smart business for a long time. It literally suffered from a volume perspective, at the same points as the rest of the business, right? So although with the top they have an effect. So, we’ve had some effects in the market that we would say are attributable to a high single-digit volume decline. This includes a 5-5% drop in customer demands in some segments that are important to us, perhaps an even larger drop as some customers lag the market. And all of this boils down to an upper single-digit impact on North American beverage volumes in general and hot fill, in particular, which we would attribute to the market impact. Then the biggest impact for us during the quarter was inventory reduction. And stock reduction is actually driven through several points, which act in opposite directions. First of all, historically in this industry, there are pre-stocks during our fiscal second and third quarters, before peak season, beverage season in North America. Historically there has been a slight buildup of stocks, but it is not going to go down this year. Therefore, this year there is no prior construction. And at the same time, we have clients, large clients, with very, very competitive equity relief targets. So instead of building, we reduce. And there was a significant acceleration in this stock relief activity in the month of December, which ultimately led to a single-digit peak impact on North American beverages overall, but a peak impact on hot beverage filling. And although we saw something modest in January, we believe we will continue to see a destocking effect in the third quarter. So that’s literally what’s going on there. This is unprecedented. We continue to believe in business. The company is well placed in terms of market stature. It operates in a fairly well structured market. It has cutting-edge technology. Its footprint is quite optimized. As part of the restructuring program, we got rid of some small factories, although it is quite well optimized. You just want to weather the storm. And that’s on the drinks side. And then let’s not say that outside of beverages we have a fairly large specialty packaging business that is almost like a hose business because of its exposure to the end market and that business has room to grow. And Latin America also continues to be a very smart market. business, adding in the first component and second quarter, where we also saw volume expansion and new businesses in Latin America. So it’s a portfolio of companies. In essence, this is a beverage sector in North America that gets a lot of attention, but we shouldn’t do it with other sectors either.
Operator
The next one comes from the lineage of Brook Campbell of Barrenjoey.
Brook Campbell-Crawford
Can you just check what the point of volume expansion or decline was in January?And then, as a follow-up, there’s rarely a threat here to extrapolate volumes from January and for the rest of the quarter when there is a chance to get a head start in January because [Costco] fell behind on scheduled orders in December and it dragged on into January. So could it be that January is rarely a very smart indicator for the rest of the quarter?That’s the question.
Ronald Esteban Delia
Yes. We probably wouldn’t give a figure for January unless we say it’s an improvement over December and an improvement, not everywhere, but at the peak of our business. Some parts of the business have even seen modest expansion. That’s probably all I would say in terms of lengthening January. I understand the nature of your question and specifically the momentary component of whether we are too positive after a month. It’s been 1 month and we know it’s 1 month. We note that we will see continued effects of destocking in healthcare globally and in the beverage sector in North America. No matter what happened in January, we know it will definitely be the case in the third quarter and potentially the fourth quarter. And we are not betting on an improvement in the client’s scenario either. So I think we are being conservative and not reading too much in 1 month, but it’s already been a month, and that suggests, as we expected, that For us, the lowest point from the point of view of volumes and the expansion of the benefits It was also the second quarter.
Operator
The next one comes from the lineage of Jakob Cakarnis from Jarden, Australia.
Jakob Çakarnis
I just want to build on Brooks’ question there, though. Obviously, December was significantly weak. So January improvement might not necessarily move you guys back to increase. So I just want to square some of the commentary still where you’re saying that you’ll see a mid-single-digit volume decline in the third quarter and then low single digit in the fourth quarter. Can you just help us the commentary around the January improvement, is that relative to the negative or the decline that you saw through the month of December specifically?
Ronald Esteban Delia
Yes. This is relative to the functionality of the entire first semester, second quarter and December. So, when we communicated about innovations in January in the maximum spaces of the business, compared to the first half. This is the first part. I think the other thing to keep in mind is that as we move into the rest of the fiscal year, there are several things that will also support the expansion assumptions that we’ve outlined. First, we hope that, outside of the healthcare and beverage sector in North America, the year-end stock drawdown we saw in December will not be repeated. And continued relief or continued stock reduction of runoff or relief in much of the rest of the activity. That is first. And the timing is that as we get into the fourth quarter, accounting from the previous era becomes a little bit easier. Our demanding volume situations began in the fourth quarter of last fiscal year. And so, as we approach the fourth quarter of this year, we are reaping the benefits of a comparative era, which has not been so good.
Jakob Cakarnis
Just one more for Michael, if I may. In terms of the net interest forecast, obviously, which is a little bit lower than what you indicated, to what extent does that constitute forward curve movements and expectations of lower interest rates or lower interest rates or lower cash rates in the U. S. ?Is there a U. S. economy? For the rest of the year?
Michael John Casamento
Yes, sure. So we — you saw that we brought our guidance just slightly down from kind of a range of 320 — for interest $320 million to $340 million down to kind of $315 million to $330 million. That’s really all on the back of the forward curves and the interest rate hike would appear to have been reached its peak now, and potentially, you might see one rate reduction late in our fiscal year. But really, that’s the slight improvement is really on the back of that forward curve. And after tax, it’s a pretty minimal impact on the full year guidance.
Operator
Your next question comes from the line of Cameron McDonald from E&P.
Cameron McDonald
Question for Mike, just in terms of. . . Well, the tax rate and then the capital structure. The tax rate is about less than 19%. And where. . . In which jurisdictions does it have tax merit given that the corporate tax rate is maximum?of their jurisdictions is really above that figure, but above a sort of 20%?
Michael John Casamento
Yes. Look, I think we operate in a wide variety of countries around the world. And the most sensible thing is that the distribution of the income source may be different depending on the geography and location. The overall underlying functionality of the business may then change. So when you boil it all down for our business, our goal is a tax rate of 18-20%. We’ve been hovering around that 20% diversity mark for a long time. So it’s just the combination of profits, geographic distribution and the underlying business functionality.
Ronald Esteban Delia
And the differences in deductibility of different expenses by jurisdiction, right? Which then, obviously, you have to factor in, in addition to the headline tax rates in those jurisdictions.
Cameron McDonald
Okay. And then just in terms of the capital structure and your comments earlier about the balance sheet and the leverage. Part of the investment thesis has been EPS growth. A big chunk of that has been undertaken through share buybacks. What — how — what’s the sort of leverage ratio that we should be expecting before we would start to see a discussion around the buyback being reimplemented? Is it — do we have to get back down to sort of the mid-2s? I think the last time you had a buyback active was sort of 2.7x leverage.
Ronald Esteban Delia
Well, look, we’ve been buying back; Remember, those are buybacks and M&A is how we look at the discretionary cash flow of the business. And we repurchased during the last monetary year – we will have repurchased over 3 monetary years and acquired approximately $1. 2 billion. Therefore, we will have made more than a billion dollars in buybacks and we will have invested almost two hundred million dollars in investments and acquisitions. So it’s essentially 3 years of discretionary money being invested in the business. It’s a little lumpy. It’s not exactly the same over the three-year period, but that’s what we did. I think from a leverage diversity perspective, we will most likely be between 2. 5 and 3 times. Obviously, we are comfortable with being above this figure, especially when there are intelligent reasons for it, as there has been lately. And we will continue to compare capital control or buyout opportunities along with M&A opportunities in the future, and that includes now.
Operator
Your next question comes from the line of Mike Roxland from Truist Securities.
Michael Andrew Roxland
Actually, just a question because many topics have already been covered here. Quick, about protein packaging, Ron. I know this was discussed earlier in reaction to a query, I think you discussed this, I think, last quarter. Can you just describe if there are any nuances to your business, perhaps in terms of equipment, for example, that would prevent you from competing with some of the. . . with a major player in the industry or with some of. . . some of your Bigger companions? Are you deliberately participating in other parts of the market to avoid going head-to-head with some of the bigger players? And finally, where do you think? Where would you like this business to be in terms of revenue? Let’s say, in five or ten years?
Ronald Esteban Delia
Yes. Look, it’s a great question. The biggest challenge we have at the moment is the lack of installed base. So there’s a massive installed base that got a lot of legacy behind it in the industry as — given the way the industry has evolved over several decades. And from an equipment perspective, we’re — well, firstly, I would say we’re more open source. We bought Moda, obviously. So we’re prioritizing Moda equipment, but we’re more agnostic to the actual equipment installation. And we think we’ve got great films and the primary basis of competition here, we think, ultimately, will be on the film. And that’s what we’re aspiring to do is to grow the film business, enabled and facilitated with a full-service offering, which includes not only the machinery but the technical service that is so important in this industry to the customers to help them optimize their operations.So it’s really a total system solution that we’re going to go to market with now and we’re starting to go to market with really for the first time. And as far as how big can the business get and what are our aspirations for it? I mean, look, I’m not going to dimension it here, it’s a big, important business for us, already. It’s a tough time to be asking for a lot out of the business as it weathers some of the destocking and some of the softness in the general beef cycle, in particular or meat cycle, I should say. But it’s a business that we have aspirations to grow at sort of mid- to high single digits and good margins for the foreseeable future.
Operator
The next comes from the lineage of John Purtell of Macquarie.
John Purtel
Just a few questions, please. In terms of your rep for second-half EPS, previously, for the second part of the year, in the mid-single digits, I think you talked about a single-digit decline in third-quarter EPS, with your expectations for the fourth quarter. up in single digits. So it turns out that the third-quarter representative is weaker. Does this reflect a starting point with a lower volume?
Michael John Casamento
Look, overall, John, I guess we’d say we really stuck to our advice. So, and we, you’re right, we were headed toward volumes that were down to mid-single digits in the third quarter and EPS that was down to mid-single digits. And in the fourth quarter, we expect volumes to improve in the half, with a single-digit decline. And just as a result of some of the things that Ron mentioned earlier and the earnings trajectory of our company, sometimes in the seasonality of the fourth quarter, it is our most vital quarter, so we expect an expansion in the average. Single-digit EPS in the fourth quarter. There literally isn’t much replenishment. I guess what we’ve noticed is that the volume trajectory is perhaps a little bit smoother than expected. And that’s really due to this destocking, specifically in the healthcare and beverage sectors in North America, where we expect this to continue into the third quarter and perhaps the fourth quarter. We are offsetting this with continued relief from charges and are confident in the underlying functionality of the business through the structural projects we have underway and are already achieving $35 million in the second half, the ongoing pricing program and control of the discretionary spending. expenses. Array So there is literally no primary reset in our general guidelines. I think we maybe did a little better in the first half. But sometimes, we have the diversity and we are quite satisfied with the points that allowed us to succeed in this diversity from $0. 67 to $0. 71.
John Purtel
And just for the moment, just take an interest in what you see from the consumer. Obviously, the elasticity of demand is a constant thing, and it turns out that consumer goods corporations continue to put pressure on prices.
Ronald Esteban Delia
Yes. Look, I mean, the best proxy is probably the scanner data that we look at, and I’m sure you look at it as well. I mean, we still see a generally a soft consumer environment. And that’s true across the staples that we’re supplying packaging for. You still see in the U.S. general scan data, which, obviously, there’s a lot of nuance that you need to unpack. But generally speaking, kind of low single-digit declines in the calendar fourth quarter that’s just passed. Europe may be modestly better overall, but at a sub level, you still see lots of softness and lots of modest declines.You see some evidence of down-trading in some parts of the business. You see on the margin, maybe some modest shift, and I wouldn’t make too much into this, but you see some modest shifts in some categories like pet food and maybe even in coffee where you might see different formats doing better. We certainly see it — we believe we see it in the beverage business. In the case of carbonated soft drinks, where we know that the value pack has historically been the can, if you’re going to buy 12 or 24 cans or units of a soft drink, you’re likely to buy it in a can and that has continued.So I think generally, John, the consumer environment is pretty soft. There are some reasons for potential optimism if the brand owners toggle the dial a little bit between price recovery and maximizing volume, but we are absolutely not baking that into our assumptions on volumes going forward. But that will take as nice to have if it happens.
Operator
Your next question comes from the line of Daniel Kang from CLSA.
Daniel Kang
So you spoke about protein turning a quarter in January. Can you just elaborate on how you’re seeing stock levels and the potential for an end in destocking in other product categories?
Ronald Esteban Delia
Yes. Look, I think when it comes to final settlement, break it down into a few categories. Firstly, we would say that the very sharp year-end stock draw we saw in December is unlikely to be repeated, with a few exceptions, or that we do not expect it to continue, unless globally in the manufacturing sector. health and fitness repeat. sector. North American drink. We know that in those 2 segments, for other reasons that we’ve basically discussed, we will see continued destocking through the third quarter and probably into the fourth quarter. Therefore, we do not expect a significant rebound in this sector. Outside of those two segments, other places where stock drawdowns accelerated in December, we don’t expect this situation to repeat itself. So, generally speaking, we expect that we will begin to emerge from the other end of this stock market cycle that we have been going through for several quarters. We see some symptoms of this. I have already mentioned that meat is one position that turns out to have stabilized, and high-quality coffee in Europe is another. So there are some reasons to be optimistic. But again, we don’t go too far and discover that we have two vital parts of the business, fitnesscare and beverages, that we will continue to clear more stock of from now on.
Operator
The next one comes from the lineage of Keith Chau of MST Marquee.
Keith Chau
Just an extension of Daniel’s question about stock reduction and part of my ignorance, but how do we know what stock reduction is?What is the underlying trend in volumes?Can you quantify this in particular with the knowledge you see internally?Or is it based on conversations you have with customers that are a little difficult internally?Can you just give me a concept of how you figure out what underlies the client’s weaknesses?What is out-of-stock? What is cyclical?What is structural?
Ronald Esteban Delia
Yes. Look, it’s art or science. First of all, there are many discussions with consumers. And don’t forget that in some parts of the business we were even co-located with consumers. Therefore, there is a high degree of intimacy with the company’s visitors. And the starting point is the discussions and debates about joint plans that we have with our consumers around the world. So this is possibly the most important control. But we also try to triangulate knowledge. And what are we hunting? We’re looking at things in categories where there is scanner awareness, which is not the case across our entire portfolio and, in fact, not in healthcare. But in food, home, private care and places where there is smart retail scanner data, we are watching very closely. We also take a look at the effects of the scanner for individual consumers and individual corporations and check if there is a difference between the overall functionality of the marketplace and the functionality of our express consumers. Then we take a look at our volumes and try to triangulate between those three knowledge points. to see what the difference is. Are there direct sales or not and are we seeing a relief or increase in stocks? That’s right, as if it were an approximation, but it is a fairly informed approach, either with direct contributions from visitors or with quantitative knowledge and contributions.
Keith Chau
That’s great color. And then just a quick follow-up on the point in January, and I appreciate it’s only a month. But when you talked about an improvement, are you talking about a positive growth comp in January or less bad January versus the last 6 months?
Ronald Stephen Delia
Listen, we’re talking about this in relation to the first part of the year. So it’s a little bit of both. But speaking of which, we’re talking about the comparison with the first part of the year. So we’re not talking about expansion in certain portions of the business, but we’re not talking about general expansion across the board. We are talking about an overall expansion, improvement compared to the first part of the year and probably the second quarter.
Operator
Ladies and gentlemen, this concludes our answering session. I will now call back to Ron Delia for his closing remarks.
Ronald Esteban Delia
Thank you, operator, and thank you all for joining today’s call. As you might expect, we are positive about our second part of the year. We believe the second quarter was the lowest point for us in terms of volume and earnings growth. , and the business will improve from there. So thank you for your interest in Amcor and we’ll get back to you next quarter.
Operator
This concludes the convening of today’s convention. Thank you for your participation, you can now log out.