Q1 2024 Amcor PLC Earnings Call
Participants
Michael John Casamento; Executive VP of Finance & CFO; Amcor plc
Ronald Stephen Delia; MD, CEO & Executive Director; Amcor plc
Tracey Whitehead; Head of IR; Amcor plc
Adam Samuelson; Equity Analyst; Goldman Sachs Group, Inc., Research Division
Brook Campbell-Crawford; Head of Cyclical Industrials Research; Barrenjoey Markets Pty Limited, Research Division
Cameron McDonald; MD & Head of Research; Evans & Partners Pty. Ltd., Research Division
Daniel Kang; Research Analyst; CLSA Limited, Research Division
George Leon Staphos; MD and Co-Sector Head in Equity Research; BofA Securities, Research Division
Ghansham Panjabi; Senior Research Analyst; Robert W. Baird & Co. Incorporated, Research Division
John Purtell; Analyst; Macquarie Research
Michael Andrew Roxland; Research Analyst; Truist Securities, Inc., Research Division
Nathan Reilly; Executive Director & Research Analyst of Industrial Materials; UBS Investment Bank, Research Division
Richard Johnson; Equity Analyst; Jefferies LLC, Research Division
Samuel Seow; VP; Citigroup Inc., Research Division
Presentation
Operator
Hello, and welcome to the Amcor First Quarter 2021 Results Conference.
(Operator Instructions) I will now turn the conference over to Tracey Whitehead, Head of Investor Relations. Please go ahead.
Tracey Whitehead
Thank you, operator, and thank you, everyone, for joining Amcor's Fiscal '24 First Quarter Earnings Call. Joining today is Ron Delia, our Chief Executive Officer; and Michael Casamento, our Chief Financial Officer. Before handing over, a few items to note. On our website, amcor.com, under the Investors section, you'll find today's press release and presentation, which we will discuss on this call.
Please be aware that we'll also discuss non-GAAP financial measures and related reconciliations can be found in that press release and presentation. Remarks will also include forward-looking statements that are based on management's current views and assumptions. The second slide in today's presentation lists several factors that could cause future results to be different than current estimates. Reference can also be made to Amcor's SEC filings, including our statements on Form 10-K and 10-Q for further details. (Operator Instructions)
With that, over to you, Ron.
Ronald Stephen Delia
Thanks, Tracey, and thanks, everyone, for joining Michael and myself today to discuss Amcor's first quarter results for fiscal 2024. We'll begin with some prepared remarks before opening for Q&A.
As seen on Slide 3, Amcor continues to be an industry leader in safety with a recordable case frequency rate that has trended significantly downwards over many years. In our first quarter, 65% of our sites around the world were injury-free for the past 12 months, with more than 30% injury free for 3 years or more. Safety is deeply embedded in Amcor's culture, and providing a safe and healthy working environment is the #1 focus for our global teams.
Turning to our key messages on Slide 4. First, we delivered a first quarter result in line with our expectations despite a challenging demand environment characterized by continued weak consumer demand and ongoing customer destocking. Against this backdrop, our teams executed well and remained focused on managing the areas under their immediate control.
Second, the first quarter performance puts us on track to deliver against our full year guidance, which we are reaffirming today. Our expectations for phasing through the 2 halves of the fiscal year have not changed, and we continue to expect adjusted EPS for the second half of fiscal '24 to grow by mid-single digits over last year on a comparable constant currency basis. As a reminder, there are several reasons why we expect a stronger second half, including continued benefits and increased earnings leverage from ongoing price and cost actions, additional benefits from structural cost initiatives building through the year, a reduction in interest expense headwinds and favorable comparisons to the prior year's volume performance.
Our third key message is we're making significant strides in our sustainability efforts within our own operations and in the design of our products. Our commitment to sustainability and the creation of a circular economy for packaging represents one of our most promising avenues for growth as we enable our customers to meet consumer demand for more responsible packaging.
And fourth, we remain confident in our long-term growth and value creation strategy. The strength of our market positions and underlying business, our proven execution capabilities and our consistent capital allocation framework collectively make a compelling case for investment in Amcor.
Moving to Slide 5 for a summary of our financial results. September quarter financial performance was in line with our expectations as we continue to take proactive cost and price actions to align the business with market dynamics, including ongoing inflation and continued weak and volatile volumes. Sales were 6% lower than last year on a comparable constant currency basis, which reflects price/mix benefits of approximately 2%, offset by an 8% decline in volumes, which was within the range we anticipated for the first half of fiscal '24.
As expected, volume weakness persisted and was broad based through the September quarter due to a combination of lower consumer demand and continued customer inventory destocking. Fiscal first quarter adjusted EBIT of $358 million was 5% lower than last year on a comparable constant currency basis. Benefits from ongoing cost actions and price and mix benefits were more than offset by the weaker volumes.
And our teams drove working capital improvements, which resulted in free cash flow being well ahead of the same period last year. We expect to deliver strong cash returns to shareholders this fiscal year with returns of approximately $200 million in the first quarter, up more than 10% over last year through a combination of share repurchases and a growing dividend which the Board increased to $0.125 per share.
I'll turn it over now to Michael to provide some further color on the financials and our outlook.
Michael John Casamento
Thanks, Ron, and hello, everyone. Turning to our Flexibles segment performance on Slide 6. Net sales were down 8% on a reported basis, which includes a favorable impact of 3% related to movements in foreign exchange rates and an unfavorable impact of 2% related to the pass-through of lower raw material costs. On a comparable constant currency basis, net sales were down 6%, reflecting 8% lower volumes, partly offset by price/mix benefits of approximately 2% as the business continues to take pricing actions to recover inflation.
First quarter volume trends remained similar to last quarter, with all regions continuing to be impacted by lower consumer demand and destocking. Volumes across North America and Europe were down high single digits, with Europe a little softer than North America. Volumes in Latin America were also down high single digits. And in Asia, volumes were broadly in line with last year as continued growth in India and a return to positive volume growth in China offset lower overall volumes in Southeast Asia.
The impact of destocking across the Flexibles business was similar to last quarter, accounting for approximately 1/3 of total volume declines. By end market, we continue to see soft demand and destocking impact categories, including protein, coffee, liquid beverage and health care. Pet care and confectionary categories remained strong in key markets with volume growth delivered in the quarter. Adjusted EBIT was down 5% in comparable constant currency terms for the quarter, reflecting favorable operating cost performance and price/mix benefits, offset by the lower volumes.
Turning to Rigid Packaging on Slide 7. Reported sales were 6% lower than last year, including the favorable impact of 1% related to movements in foreign exchange rates and the unfavorable impact of 1% related to the pass-through of lower raw material costs. On a comparable constant currency basis, net sales were 6% lower than last year as price/mix benefits of approximately 1% were offset by a 7% decline in volumes.
In North America, volumes in both the beverage and specialty containers business continued to be impacted by lower consumer demand and similar levels of custom destocking as experienced last quarter. In the beverage business, overall volumes were down 9%, although mix trends were favorable. In specialty containers, volume growth in food was offset by weaker volumes in health care and home and personal care.
In Latin America, while market demand was somewhat softer across the region, our business is benefiting from new business wins and overall volumes were up mid-single digits compared with last year. The businesses in Brazil and Colombia delivered strong volume growth, offsetting lower volumes in Mexico. Adjusted EBIT was 6% lower than last year on a comparable constant currency basis, reflecting lower overall volumes, partly offset by price/mix benefits and favorable cost performance.
In terms of cash flow and the balance sheet, on Slide 8. Our adjusted free cash flow performance was in line with our expectations and meaningfully better than last year, enabling us to reaffirm our full year cash flow guidance, which I'll come back to shortly. The cash flow improvement of more than $170 million compared to the first quarter of fiscal 2023, mainly reflects our focused inventory reduction efforts, which have resulted in a decrease of more than $500 million since the peak in November 2022. We remain highly focused on working capital performance, which is particularly critical in this environment of continued inflation and raising interest rates -- rising interest rates.
We also continued to return cash to shareholders, purchasing approximately 3 million shares during the first quarter for a total cost of $30 million. And consistent with our comments in August, we expect to allocate a total of at least $70 million towards share repurchases in fiscal '24. In terms of the balance sheet, we maintained a strong investment-grade credit rating with leverage of 3.3x, in line with our expectations at this time, taking into account the usual seasonality of cash flows and the short-term impacts of cycling the divestiture of our Russian business earnings and higher working capital levels. We expect leverage will decrease to approximately 3x by the end of the fourth quarter.
Turning to our outlook on Slide 9. Our Q1 performance was in line with our expectations and we are reaffirming our full year guidance for adjusted EPS of $0.67 to $0.71 per share. We continue to expect the underlying business to contribute organic earnings growth in the plus or minus low single-digit range, and share repurchases will result in a benefit of approximately 2%. The U.S. dollar has strengthened slightly since August, and we now anticipate currency translation to result in a benefit of up to 2%. This is expected to be offset by a negative impact of approximately 3% related to the sale of our 3 plants in Russia in December 2022. And we also expect a negative impact of approximately 6% from higher interest and tax expense.
Our expectations for interest and tax expense for the full year remain unchanged with interest in the range of $320 million to $340 million and a tax rate in the range of 18% to 20%. In terms of cash flow, we are trending better than the first quarter last year, and we continue to expect significant adjusted free cash flow in the range of $850 million to $950 million in fiscal '24, representing growth of up to $100 million over last year. Our plan to repurchase at least $70 million of Amcor shares in 2024 is unchanged, and we continue to pursue value-creating M&A opportunities.
Turning to Slide 10. Amcor has a proven track record of strong and consistent long-term earnings growth. As noted on our call in August, it's important to call out that fiscal 2024 phasing of comparable earnings growth is not expected to align with prior years. Consistent with our comments from last quarter, we anticipate challenging market dynamics will persist in the near term, resulting in similar mid- to high single-digit volume declines through the December quarter. Combined with the unfavorable impact of higher interest expense, which is expected to moderate in the second half, our guidance for the first half is unchanged.
Compared with last year, we expect that adjusted EPS for the 6 months of fiscal 2024 will be down in the high single-digit to low double-digit range on a comparable constant currency basis. For the second quarter, this implies adjusted EPS and EBIT in absolute terms will be broadly in line with or marginally lower than the September quarter just finished.
As Ron mentioned earlier, our confidence in delivering mid-single-digit comparable constant currency earnings growth in the second half of fiscal '24 and resuming our long-term trend of high single-digit earnings growth shortly thereafter is supported by visibility to several known second half factors.
First, we have the benefit of approximately $35 million from structural cost-saving initiatives that builds through the year; second, we have increased earnings leverage resulting from ongoing benefits of price and cost actions taken; third, as I noted earlier, a reduced interest headwind; and fourth, we expect that customer inventories will have largely normalized as we progress through the second half, and we will benefit from favorable prior year volume comparatives.
Finally, and also consistent with our comments in August, we do not need to see a significant change in the demand environment to return to solid earnings growth in the second half and beyond. So with that, I'll turn the call back to Ron to provide some longer-term comments.
Ronald Stephen Delia
Thanks, Michael. Before we open the call to questions, I want to provide a few words on the building blocks that inform how we think about growth over the longer term and then finish with a brief preview of our 2023 sustainability report which will be released in the coming days.
Looking at Slide 11, we have multiple drivers that have enabled us to deliver solid and sustainable earnings growth over the longer term, including opportunities in priority categories, emerging markets and through innovation. These have not changed and collectively give us confidence in our ability to deliver future growth in line with our historic trend rates.
Turning to Slide 12 and some highlights from our forthcoming sustainability report, which covers the significant strides we've made in product development and operational sustainability. Sustainability provides meaningful opportunities to differentiate and drive growth and value. This is particularly important in today's landscape as consumers focus on the critical need for more sustainable, high-performance packaging solutions and as customers increasingly look to work closely with responsible sustainability-focused partners.
Starting with our own operations. Since launching Amcor's EnviroAction program 15 years ago, we've diligently worked towards reducing our greenhouse gas emission intensity and have achieved a cumulative reduction of more than 40% against our 2006 baseline. Along the way, we've also increased our ambition and committed to net 0 emissions by 2050, in line with the science-based target initiatives.
In fiscal 2023, we delivered an annual reduction in absolute emissions of 10% through a range of measures, including an increasing focus on the use of renewable electricity. In addition to carbon-related objectives, we maintain robust targets for reducing water and waste. 100% of our sites have a water management plan in place and 143 of our sites have achieved 0 waste to disposal certification, which is an increase of around 20% in the last 12 months.
Transitioning to Slide 13. We also continue to make significant progress in supporting the development of circular systems and what we believe are the 3 requirements for responsible packaging. Package design, waste management infrastructure and consumer participation. Amcor's industry-leading innovation capabilities position us well to develop the more sustainable and high-performing packaging consumers are looking for, and we believe this is one of our greatest opportunities for growth and differentiation.
Today, almost all of our Rigid Packaging and Specialty Carton portfolios are fully recyclable. Looking at our Flexibles portfolio, 61% of fiscal 2023 sales were recycle-ready according to the Ellen MacArthur Foundation definition, meaning these solutions are designed to be recycled using current technologies where infrastructure is available. Additionally, another 28% of sales had recycle-ready alternatives available, providing a meaningful growth opportunity when our customers are ready to transition more of their portfolios to sustainable solutions.
In total, 89% of our Flexible Packaging portfolio is designed to be recycled or has a recycle-ready alternative, a 6 percentage point increase over fiscal '22. Our use of recycled content also continues to grow, increasing by 29% over fiscal '22, reflecting our commitment to work closely with customers to reduce the use of virgin materials. Over the past 4 years, we've more than tripled our use of recycled material, and we're confident we'll achieve 30% recycled content across our portfolio by 2030.
We also continue to leverage our position as an industry leader and trusted resource to help our customers navigate their sustainability journeys. As an example, in fiscal '23, we hosted several Amcor webinars, which were attended by hundreds of customers; and covered topics such as the use of recycled content in food contact and health care packaging and the impact of evolving regional regulations on packaging options. Through these efforts, we're reinforcing our value proposition and helping customers accelerate conversion of their packaging portfolios to comply with emerging regulations and to meet their own sustainability goals.
We take pride in the strides we've made across all aspects of our sustainability journey. We eagerly anticipate the opportunities ahead, which will continue to differentiate Amcor and also advance our growth objectives, all while contributing to the creation of a circular economy for the packaging industry.
In summary, on Slide 14, fiscal '24 has started in line with our expectations. We have reaffirmed our earnings and cash flow guidance today as we continue to have confidence and visibility to solid earnings growth in the second half. We're making good progress on our sustainability agenda and we remain focused on our strategy to deliver long-term growth and value creation.
Operator, we are now ready to open the call for questions.
Question and Answer Session
Operator
(Operator Instructions)
Your first question comes from the line of Ghansham Panjabi with Baird.
Ghansham Panjabi
Ron, could you give us a bit of a sense as to what your base case is for volumes for fiscal year '24? And I'm just trying to get a sense as to the sequencing beyond the first quarter, which was down 8%. Would it be sort of 4Q before you hit that inflection point on a year-over-year basis?
Ronald Stephen Delia
Thanks for the question, Ghansham. Look, firstly, as we entered the year, we flagged that we expected volumes to be down mid- to high single digits for the first half. And that's exactly what we saw in the first quarter, and we expect a similar trajectory for the second quarter as well.
As we look forward to the second half, we do expect the trajectory to improve. So we would expect that the destocking will abate as we get past year-end and as we start to cycle several quarters of inventory reductions, we would expect that impact to start to moderate. And we would expect, for the second half volumes, more reasonably flattish, flat to up -- to plus or minus low single digits.
I think it's more reasonable to expect that the trajectory will improve now. Exactly the rate at which that trajectory improves in the second half is difficult to predict. But certainly, as we get into the fourth quarter, the comps get a lot easier, and we would expect things to be improving as we exit the year.
Ghansham Panjabi
And I'm just trying to understand the divergence also between volumes, which are quite a bit lower against improved price/mix as you've established over the last couple of quarters and the sustainability of that dynamic and typically, during periods of weaker volumes, there tends to be some sort of a trade down and you actually are showcasing the opposite, so more color on that, please.
Ronald Stephen Delia
Well, look, mix over a longer period of time over multiple years is a major source of earnings leverage for us and has been over a long period of time. As we emphasize higher-value segments, both product segments and end market categories, mix is a very important part of our playbook. For this year, on a full year basis, we expect mix to be more or less neutral.
We've had a reasonably good start in the first quarter with positive mix in both segments. We would expect that probably will continue in the second quarter. But for the full year, we would expect that might normalize a little bit. The reason for that is some of the segments that are higher value have declined at a lower rate than some of the value categories.
But as we look forward into the second half, we think that the health care destocking will continue, and ultimately, that will balance out the positive first quarter. So all up, relatively neutral for fiscal '24. But on a multiyear basis, mix is absolutely part of the earnings algorithm going forward.
Operator
Your next question comes from the line of Daniel Kang with CLSA.
Daniel Kang
I guess first question for me is on destocking cycle, please. Consistent in the quarter, are you seeing any evidence or signs of destocking easing as we walk into the second quarter? Perhaps you can comment on what you're seeing on customer stock levels as well?
Ronald Stephen Delia
Yes. Look, I think it's -- we're using the term destocking. I think what we're seeing is -- more broadly is just inventory reductions. Destocking might imply that inventories started at a higher level. And I think that's certainly true in some categories that were subject to more of the supply chain constraints and raw material shortages over the last 12 to 18 months. There certainly were some inventory accumulation. But I think we've got a few different dynamics that are driving the inventory reduction trend. The first is, for those categories that started at a high level, obviously, they're working down the excess at a time when consumer demand has softened.
And also carrying cost of inventory is now much higher than it's been in a long period of time. So I think that we're seeing a number of companies, including Amcor, try to drive inventories down to lower levels than they've been in quite some time. I know that we are certainly on that path. So I don't expect that trend to beyond -- to be past us in the second quarter, particularly as we're heading towards the year-end, and cash flow at year-end becomes an important metric that companies are driving towards. So we would expect that the destocking will abate in the second half, but not in the second quarter.
Daniel Kang
Got it. Secondly, I'm just interested in the progress of the new packaging products, AmLite and fiber, et cetera. I realize it's early days, but can you comment on the volume growth and customer adoption that you're seeing, the pricing premium that you're achieving?
Ronald Stephen Delia
Yes. Look, we're really excited about some of those platform products that you mentioned, AmLite, which is a retortable -- a recycle-ready retortable structure. AmFiber, which is a paper-based solution; AmSky, which eliminates PVC and PVDC from blister packaging. We think that we've got some really special products there with a really compelling value proposition for customers that are trying to drive their own sustainability agenda.
It is early days. Several of those products, though, are generating real sales. So AmPrima, which is also a recycle-ready alternatives, AmSky, AmFiber, they're all each generating sales in the tens of millions of dollars, low tens of millions of dollars, but real meaningful sales. AmSky, it's early days, and it's primarily oriented to the pharma industry, so the qualification period is a bit longer. And -- but we are in active trials with a whole range of customers on that one as well. So we're -- we continue to be really excited about those platforms that you've asked about.
Operator
Your next question comes from the line of Adam Samuelson with Goldman Sachs.
Adam Samuelson
Yes. I was hoping, maybe first talk about just the performance in the quarter from the difference between volume and comparable constant currency operating profit growth and just very little volume deleverage in the period and -- to contrast the fiscal '23 experience. Maybe just wanted a little bit more color on kind of how you're able to narrow the gap with volumes down mid- to high single digits kind of keeping the profit declines that narrow?
Ronald Stephen Delia
Yes. Look, it's just been really aggressive -- pulling the cost lever really aggressively. And we continue to do that through the back end of fiscal '23 and into the start here in the first quarter of fiscal '24, so. You might recall in August, we talked about the cost actions that we took in fiscal '23, where we reduced costs by over $200 million. We reduced head count by over 1,200 people. We had pulled the procurement lever really hard. We cut overheads. All of that continued in the first quarter and actually accelerated.
So in the first quarter, coming off a year where we took $200 million of cost out, in the first quarter, we took another $70 million of cost out versus the first quarter of the previous year. And so that's really resulted in improved earnings leverage and much -- I'd say, a much more dynamic ability to flex costs in the face of weaker volumes.
Operator
Your next question comes from the line of George Staphos with Bank of America.
George Leon Staphos
I just want to make sure it's 2 questions per? Or 1 question per? I don't want to overdo the quota here.
Ronald Stephen Delia
George, for you, it's 2.
George Leon Staphos
Okay. Okay. I'll try to keep them good then. So I guess the first thing I wanted to ask is, in an environment where we're still, to some degree, waiting for customers, your customers to begin promoting more aggressively to drive volume, if you agree with that premise, are you starting to see that?
And how does that reconcile with your wanting-ness to push more innovative new products, new product sustainability, which are typically going to have a higher price point? Who's winning that tug of war right now as you think about it? And are we seeing more promotional activity?
Ronald Stephen Delia
Look, it's anecdotal at best, George. I mean, there's, I think, a general recognition across the customer base that the price lever has been pulled really hard, and you see that from the results of a range of consumer companies that price has been a real driver of revenue growth, more so than volumes. And maybe that -- maybe those 2 variables can be brought back into better balance over time.
And you do hear, anecdotally, more customers talking about reprioritizing volume or balancing their mix a little bit more towards volume. We need to see it and we haven't seen it yet. And so we're not setting the business up on the expectation that, that happens. In fact, our second half earnings uplift that we're expecting is not at all levered to an improved demand environment and is not at all predicated or dependent on consumers taking a more active approach to promos.
George Leon Staphos
And the second question, broadly, can you talk a little bit about the momentum you apparently are seeing in protein packaging? You have a new high barrier win that you highlighted on 1 of the slides. You have your recycle-ready ecotype package. Is there a way to put a quantum size, what kind of momentum you're seeing, what kind of incremental revenue you're getting? And broadly, why you are gaining this momentum in the market given that you're the smaller player in the market? And I'll be back if there's time later on.
Ronald Stephen Delia
Look, I think it's early innings of our journey on protein. In particular, our journey as a full-service solutions provider in meat and protein packaging, which includes the ability to offer equipment now as a result of the acquisition that we made earlier this year in Moda. It's early innings. I think that we are picking up some modest pieces of business along the way. But I would also point out that meat sales have been weak. We're in a down part -- a down cycle or a trough, let's say, a low point of the cycle in beef in particular. And so meat sales have actually been weak across the company in the first quarter.
It's a long game, and we're in the early innings. And so I would say that we're really confident in the value proposition that we have and that we're building. We think we've got some really special films, and we think we've got a really special comprehensive offering that includes now equipment and service, but it's very new, very recent. The Moda acquisition is only a few months old.
Operator
Your next question comes from the line of Sam Seow with Citi.
Samuel Seow
Just a simple one on the balance sheet. Just wondering if we don't get that second half volume stabilization, would that result in net debt outside your range? Or would there be enough in the seasonality and the unwinding of working capital to bring that down, irrespective -- albeit following, continue to decline?
Michael John Casamento
Yes. Thanks for the question, Sam. I can take that one. Yes. Look, I mean, we finished the quarter with net debt of $6.5 billion, $6.6 billion and leverage at 3.3x, which was right in line with where we expected it to be. And that takes into account the relatively normal seasonality of the cash flows from fourth quarter to Q1. We typically see a tick up in leverage versus we were at 3x in June.
The other factors impacting leverage are really on the -- there are 2 temporary impacts. Firstly, we're lapping now 3/4 of divested Russia earnings, and that's being reflected in the last 12 months EBITDA, and that's ahead of us getting the benefit of the restructuring, which is going to start to come through in H2. So you'll start to see that improvement, absolutely.
And then the other one is really the higher-than-normal working capital levels. We've been driving inventory down. But at the same time, payables have come down at a faster rate, really just on the back of the lower demand environment. So again, we'd expect that to start to normalize as we get into the second half, and we'll get the leverage back to 3x by the end of June. So that's kind of the way we see it.
And as we look forward from there, there'll be further opportunity for improvement, particularly in the working capital as it continues to normalize and as we cycle through the full 12 months of the Russia and the benefits from the restructuring that we're going to get into the P&L. So we're on track there.
Samuel Seow
Got it. And just maybe a follow-up. You talked at length about your volume expectations for the year. Maybe thoughts on pricing kind of ex pass-throughs, given end market weakness and ongoing destocking.
Ronald Stephen Delia
Well, look, our pricing strategy has been, first and foremost, to compensate for inflation. And that's our approach. It's simple as that. We've had inflationary pressure on the cost base for 12 to 18 months now. And as a result, we've taken price as a high priority from an industry leadership perspective and certainly prioritized price and inflation recovery over volume.
Rates of inflation are starting to ease. We haven't seen large parts of the cost base go through -- experience decreases yet, but the rate of inflation has eased. And so our pricing -- the pace of our pricing will ease as a result. And beyond that, our pricing approach is really just a price for value. If we have a differentiated revalue proposition, there's an opportunity to generate a positive price. But that's something that needs to be earned every day in the marketplace.
Operator
Your next question comes from the line of Mike Roxland with Truist Securities.
Michael Andrew Roxland
I just have 1 question really. The company has made solid progress streamlining the portfolio, another $70 million of savings this quarter, closing plants, realigning production, head count reduction. If/when volumes begin to improve, should we expect to see a reversal of this and you're putting more capital to work in new plants, increasing head count? Or really does your existing footprint, as it stands today, have enough excess capacity to absorb incremental volumes without any additional investment?
Ronald Stephen Delia
Yes, it's a great question. I think the short answer is we're going to be well set up when volumes come back, and I think we're going to get even stronger earnings leverage as volumes return. And we're taking, really, 2 sets of actions on the cost side. So the first -- the $70 million that I referred to earlier that you just referenced is really ongoing productivity-oriented benefits, where we're taking shifts out reducing head count, driving procurement, optimizing the overhead and SG&A part of the business.
Kind of steady state, but aggressive belt tightening, I would say. That's one form of cost reduction. And I don't think a lot of that -- some of it will come back, obviously, as volumes come back, you need to add -- you might need to add shifts. But we will be in a much better position from a leverage perspective as volumes return. So that's on that side.
The second stream of cost takeout relates to more structural initiatives, which are more than restructuring -- more of the restructuring type, which are plant closures and more permanent and more deep-cutting overhead reductions. We really haven't seen the benefits yet from those initiatives. Those will start to build in the second half, as Michael referred to earlier.
We expect to get about $35 million of benefits from more structural initiatives in the second half. And those also will be long lasting and sustainable, because we're going to be taking out several plants in the network that we can compensate for with the remaining footprint. And in many cases, when we close a facility, we relocate the productive assets into a another facility, and we don't really take capacity out necessarily. So I think we're going to be well positioned when and if volumes return.
Operator
Your next question comes from the line of Richard Johnson with Jefferies.
Richard Johnson
Ron, can I just return to the subject of price, and in particular, the U.S. protein market? I mean, I'm interested in the comments you make. And I'm just trying to reconcile that with what others in the market are saying and they're referring to significant overcapacity in that market, which makes sense given how weak the end market is, which is leading to acute price pressure because of that unused capacity. So I'm just interested to get your thoughts on that?
Ronald Stephen Delia
I don't know that the pricing pressure or the intensity of the competition is any more so at the moment in that segment than it has been in the past or that it will be in the future. You have to remember as well that the assets that are deployed against that segment are fungible across a range of categories. So we have film assets that produce into the protein market also produce specifications for dairy and a number of other segments as well. So it's certainly not a market that we look at as being overly capitalized or having much excess capacity.
Richard Johnson
And then as you sort of spread that through the U.S. around the different categories, I mean, can I extrapolate from your comments around how -- that you're seeing positive price/mix trend that's really across categories? Or are there any areas where price is starting to -- or you're starting to give back price, which inevitably you would expect given how far price has gone at some point, that'll normalize, correct?
Ronald Stephen Delia
Look, I think it's going to be a function of inflation. The rate at which pricing changes in this industry, I think, from this point forward, will be primarily a function of the rate and the direction of travel of inflation. It's not been an industry over the years that had positive price with the -- in the absence of value. It's been an industry that is compensated for inflationary cost pressures. And I think that's kind of where we're at right now.
Operator
Your next question comes from the line of Cameron McDonald with E&P.
Cameron McDonald
Ron, Michael, can I just ask a question on Slide 10. So you've got the average of high single digit of 8% from '14 to '23. But if we think about the environment, we had interest rates collapsed to 0 during that period. You've had significant transformational acquisition with Bemis. You've had the buybacks, et cetera.
When you then talk about the high single digits expected long term, how do we marry that up? Or do you still think that there are significant M&A opportunities in the synergies that, that will create? And then -- but I suppose I come back to that interest rate environment, you've got a significantly higher interest rate that's going to be impacting that EPS.
Ronald Stephen Delia
Yes. Look, it's a good question because it's really a segue into why we're confident that we're going to get back to kind of high single digit growth rates going forward. And we just believe in conviction of our formula that served us well over many years. And that is that volumes, in a normal environment, will grow sort of low single digits.
We will get leverage in terms of higher rates of profit growth than that, because the mix will improve over time and as we generate more productivity in our operations. So low single digit volume growth will translate into higher rates of profit growth. And then the business generates substantial amount of cash, and really excess cash, excess to the needs of the business from a CapEx perspective and to fund the dividend.
And with that extra cash, our first priority will be to do acquisitions, as we've done over a long period of time. And short acquisition opportunities, we'll buy back shares. And so you go from low single digit volume growth to something higher than that, mid-single digit type profit growth organically. And then the cash flow and balance sheet optionality to generate further EPS growth through either acquisitions or share repurchases. So that's the formula. That's the formula that's delivered the 8% over almost a decade. And that's the formula that we'll expect to deliver the same types of earnings growth rates going forward.
Cameron McDonald
As a follow-up to that, just on the M&A. Can -- when you think about the industry at the moment, you've spoken about the industry doesn't really have real price power without value. You've got a changing expectation around sustainability. We're seeing -- we've obviously seen WestRock and Smurfit get together, do you think the industry needs to more significantly and aggressively consolidate to change some of those industry dynamics?
Ronald Stephen Delia
Well, look, we've been big beneficiaries and big -- we've driven a lot of consolidation over the years. I think that what's important is industry structure and industry dynamics at a segment level. The fact is that there are a lot of players that are very small in the industry. So when we think about our M&A agenda, it's largely going to be bolt-ons.
We've been quite active. Even in the last 12, 15 months or so, we've done 4 small deals. And you can continue to see -- you can expect to continue to see us do that. Look, a lot of the value that comes out of those deals is cost synergies. I think that's where most of the value is going to come from in this -- particularly in this type of environment, and we're going to be active participants in the M&A space.
Operator
Your next question comes from the line of Nathan Reilly of UBS.
Nathan Reilly
Just a follow-up in terms of free cash flow allocation point. Can you talk about where deleveraging sits in the context of the allocation of excess free cash flows?
Michael John Casamento
Yes. I mean, obviously, we're committed to an investment-grade balance sheet. And so for us, that kind of -- we've had been in the range of 2.5 to 3x leverage for a long time, and that's where you should expect us to sit as we move forward. So to Ron's point, as the earnings grow, the cash flow grows and we can reinvest that in the base business.
So you should expect CapEx over a period of time to increase as well. So we've been increasing our level of CapEx to grow organically. That's in that -- being in that 3% to 4% range. It's now -- as we look longer term, that's probably going to be more in that 4% to 5% range. That's going to drive the organic growth, and we still have cash left over to invest in the M&A agenda as a priority, and again, grow earnings through that, create value and then do buybacks. And so as you look at all that, we would continue to maintain that leverage in that 2.5 to 3x range. So that's how you should think about it. The excess cash will be deployed in that way.
Operator
The next question is from the line of John Purtell with Macquarie.
John Purtell
Just a couple of questions, if I could. The first is on your GLP-1. Obviously, there's been concerns across the sector, and it's obviously -- or still sort of long term in terms of potential impacts on food consumption and packaging demand, but -- so still very early days, but do you have any general observations to make?
Ronald Stephen Delia
Yes, I do, John. I think firstly, I would just -- yes, I just want to reinforce that we have seen no impact whatsoever on demand in our segments from reduced consumption resulting from these drugs. So the first point I want to make is that we've seen no impact as of yet.
I think in terms of trying to estimate the future impact I think there are some things that we -- there's plenty of things we don't know. And there are some things that we do know based on history. I think what we don't know is the rate of adoption of these drugs. We don't know what the impact on total consumption will be. We don't know what will happen when people go off the drugs in large numbers. So there's a number of unknowns that I think only time will tell.
What we do know is the food and beverage industry, over many, many years, over decades, has been fantastic at innovating to address consumer needs as they change and evolve over time. Think about the evolution towards lower fat, low sugar, less salt, organic. The food and beverage industry has navigated those trends really successfully through innovation and through adapting product portfolios to suit whatever consumers are prioritizing at that point in time. So we know that, that's been the history and that's been the track record. And I expect that, that would be the same going forward.
And the other thing that we know is to the extent there's reduction in portion sizes or serving sizes, it tends to and has historically been very good for packaging intensity. And units of packaging have tended to go up as portions have gone down and as serving sizes have been reduced. So I think it's early days, as you said. I would lean more on the things that we know to have been true historically and probably put more emphasis or more weight on those factors than the things that we don't know at this stage.
John Purtell
Got it. And just second question for Michael, if I could. Page 11 of the news release, obviously, shows that reconciliation between reported and adjusted earnings. We can see that the hyperinflation impacts were higher than last year. And Russia-Ukraine costs were higher as well. So what were the key drivers of that? And should we expect to see those Russia-Ukraine costs reduce going forward?
Michael John Casamento
Yes. Sure, John. I can take that one. The Russia-Ukraine costs are really the -- that's the cost of the restructuring. So we've moved into the program, and Ron touched on the program earlier, the structural program, where we've committed to spend about $170 million in cash from the Russia proceeds across some plant closures. So there'll be 7 to 10 plant closures, some SG&A rightsizing. And we've -- so they are the restructuring costs there, and they're going to continue through the year. You'll see those continue on.
It's -- and obviously, from that restructuring, we're going to generate the $50 million in EBIT benefits, $35 million of which will come in H2 and then a further $15 million into FY '25. So you should expect to see a continuation of some costs in that line. In relation to Argentina, there was -- Argentina is a hyperinflation economy and we have to account for Argentina in certain ways. And really, that's just -- there was a devaluation in August, and that's the devaluation impact on the monetary assets, which was higher than it was in the prior year. But again, that seems to have eased at the moment, but we'll see where that goes as we work through the year.
Operator
Your next question comes from the line of Brook Campbell-Crawford with Barrenjoey.
Brook Campbell-Crawford
Ron, just earlier on, you mentioned about the destocking in the health care segment likely to continue in the second half. Correct me if I'm wrong, I think you mentioned that. Just what -- can you provide some color there on why you think that's going to play out and why you might have more visibility on destocking in that part of the market versus other categories that you serve?
Ronald Stephen Delia
Yes, good question. You've got that right. I did refer to destocking accelerating really through the first quarter in health care, especially in the medical device side of that business. And it really comes down to the fact that there were some real supply constraints over the last 12 to 18 months in that segment or in these products that we supply into medical, predominantly, but also pharma in some product categories where we and the rest of the industry live through real raw material shortages, which, I think, led to some stock buildup in some segments.
And so we're now on the other end of that. And the raw materials are now more available. There's no longer a shortage and we can supply in real-time. And so customers are sitting on a reasonable amount of inventory that needs to be worked down. And I think we started to see that in the first quarter. I think we'll see that continue into the second half of this fiscal year.
Brook Campbell-Crawford
Okay. And just 1 quick follow-up. On Slide 13 here, you just talked to some progress you're making on design in packaging to be recycled, great progress there over the years. But in Flexible Packaging, there's still 11% of the portfolio that isn't designed to be recycled and there's no trials underway at the moment by the looks of that graph. So can you just talk to that part of the portfolio? What's the plan? And do you have a commitment still to have 100% of that portfolio designed to be recycled by 2025?
Ronald Stephen Delia
Yes. Look, we're going to continue to shrink that part of the graph. So the 11% you're referring to is 6% lower than it was a year ago, and we've been making really good progress. It's substantially improved over even 3, 4 years ago, and we're going to continue to close that gap. Look, are we going to get all the way to 100%? I'm not sure. I think we're going to get really close.
Some of the more sophisticated structures where the material is providing multiple types of functionality, whether it's barrier or sealant strength or physical strength, there are a number of different components that go into some of the more sophisticated materials that we make. Those will take the longest. But we're still at it. We're hard at it, and we haven't wavered in our ambition to get to 100%. And so we've got our sights on closing that gap.
Operator
Your next question comes from the line of George Staphos with Bank of America.
George Leon Staphos
I'll make it quick. So Ron, if we think about the $200 million last year of temporary savings, if that's where you framed it; and the $70 million so far this year. At the end of the day, how much of that truly will be temporary? And how much do you think will be structural?
I know it's hard to say we won't hold it to the basis point, but if you're in our seat trying to model Amcor, what would you try to bake in? And then just a minor question. I thought I heard you say or Mike, maybe it was you, that 2Q in terms of earnings and EBITDA might be flat to slightly down versus 1Q. I just wanted to make sure I heard that correctly.
Michael John Casamento
Yes. So I can take the second point there, George. Yes, you heard that correctly. I mean, Q2 -- Q1 and Q2 typically are pretty similar. If you look over the history of Amcor, pretty similar. We're not expecting anything to be different in this dynamic. I mean, Q2 is going to be broadly in line with Q1, perhaps marginally less, but H1 as per our expectations that we've outlined, so no change there whatsoever.
Ronald Stephen Delia
Yes. Look, on the cost side, George, I'm not going to parse it down and give you a number. What I would say is most of the cost that's come out has come out of the operational side. The overhead portion of the cost reduction is certainly going to stay out. On the plant side, to the extent we've driven procurement benefits, those will be sustained. And then to the extent that we've taken costs out by removing shifts, then obviously, we'll put those shifts back on as volumes return. So I would just describe it more in terms of the buckets of costs that have come out. We don't think about that whole quantum of cost as being temporary necessarily. We do think there are some that stays out of the business even as volumes return.
Operator
Ladies and gentlemen, this concludes our question-and-answer session. I will now turn the call back to Ron for closing remarks.
Ronald Stephen Delia
Okay. Thanks again to everyone who's joined the call today. Thank you for your questions, and thanks for your interest in Amcor. And operator, with that, we'll close the call.
Operator
Thank you. This concludes today's conference call. Thank you for joining. You may now disconnect your lines.
