AMCOR chief executive Ken MacKenzie has managed to defy the odds and produce a record underlying profit. He has also delivered a 5.7 per cent lift in dividends despite a strong Australian dollar, a blowout in raw material costs, a big exposure to ailing Europe and the US, and a business that is classified as manufacturing.
MacKenzie expects profits in the global packaging giant to continue to swell in 2013 as the group moves into a new phase of its transformation, one that will be bankrolled by strong free cash flow.
Still, investors wanted more. The company's stock shed 6? to close at $7.66 as some switched out of defensive stocks while others were disappointed the company did not offer clearer guidance for 2013.
Part of investor concern is that the past three years of big profit expansion might be over as Amcor has already completed most of its cost-cutting plans and synergies from acquisitions.
In the past seven years Amcor has been repositioned into a lean, mean global packaging giant that has focused on lifting profit margins and achieving a stretch target of 15 per cent return on funds employed. The market notwithstanding yesterday's retreat and MacKenzie are quietly confident that free cash flow will more than double to $400 million or $500 million in the next two years. Geared up, these inflows will give the company more than $800 million to $1 billion a year to spend on increased dividends, acquisitions or share buybacks without affecting the group's investment-grade credit rating.
In the past year, Amcor has spent $350 million on five acquisitions aimed at expanding its global footprint and beefing up its packaging segments. These purchases, coupled with a decision to buy Alcan Packaging at the height of the global financial crisis when other companies where bunkered down, have helped the company achieve a record underlying profit for 2012.
Those results owe much to the synergy benefits flowing from the Alcan acquisition. The fact that most of the segments Amcor operates in are largely defensive, including healthcare, food and beverages, also played a role in the steady growth.
The successful merger of the $2.3 billion Alcan acquisition and the $US280 million Ball Plastics acquisition, which is largely completed and ahead of schedule by one year, have restored investor faith after a poor record of acquisitions during the 1990s and early 2000s, before the start of MacKenzie's reign in July 2005.
Expect emerging markets to continue to propel earnings growth, while the cashed-up cardboard king will also be in the hunt for more acquisitions to boost the bottom line.