Amcor plc (AMCR) Earnings

Management highlights

• Safety Performance - Safety remains the company's highest priority, with the total recordable incident rate improving to 0.47 in Q4, marking four consecutive quarters of improvement following the combination of the two legacy businesses. The company continues to drive continuous improvement in its harmonized safety program. • Integration and Synergies - Full year fiscal 2026 synergies reached $285 million, 10% ahead of initial year-one expectations, with $115 million of synergies realized in Q4. Half of the three-year $280 million growth synergy target was achieved in year one, with $140 million in new business awards secured to date. The company is on track to meet the total three-year $650 million synergy target, with the bulk of synergies expected to be completed by the end of 2027. Growth synergy opportunity is currently tracking ahead of initial expectations, driven by cross-selling and combined product offerings that neither legacy company could access independently. • Portfolio Optimization - Five non-core divestitures were closed in the second half of fiscal 2026, sharpening focus on higher-return, higher-growth core categories. Non-core businesses delivered improved year-over-year Q4 performance driven by strong operational execution, and the company will continue portfolio optimization efforts in coming periods. • Overall Quarterly and Full Year Results - Q4 adjusted EPS was $1.23 per share, up 23% year over year and at the high end of the prior outlook range. Full year fiscal 2026 adjusted EPS was $4.02 per share, up 13% year over year, meeting the company's prior commitment of double-digit adjusted EPS growth. Q4 total revenue was $6.4 billion, adjusted EBITDA was $1.045 billion, and adjusted EBIT was $836 million, all higher than the prior year. Full year free cash flow was $1.3 billion, impacted by working capital impacts from the Middle East conflict. The board declared a $0.65 per share quarterly dividend, a modest year-over-year increase, consistent with the company's commitment to annual dividend growth. Volume inflected to modestly positive growth in Q4, a 200 basis point sequential improvement, with broad-based growth across regions, segments, and core categories.

Guidance

- For the six-month transition period ending December 31, 2026, the company expects adjusted EPS in the range of $1.80 to $1.90 per share. This range includes a $0.04 per share headwind from completed divestitures, a $0.10 to $0.12 headwind from higher interest and tax expenses, and a $0.13 to $0.21 tailwind from synergies and core operating performance, representing double-digit growth at the midpoint. Leverage is expected to be 3.5x to 3.6x at the end of the transition period, in line with seasonal cash flow patterns. - The company expects to recover more than $500 million of working capital tied up by Middle East conflict impacts over the next 12 months, with $100 million to $300 million of this recovery expected in the first six months (the transition period). - For calendar year 2027, the company expects to complete the majority of synergy capture toward the $650 million three-year target, deliver double-digit adjusted EPS growth, and reach a leverage ratio of approximately 3x, aligned with the company's commitment to maintaining an investment grade credit rating. Modest organic volume growth is expected as the benefits of the Berry acquisition are fully realized, with the company positioned to outperform broader market growth. - Capital expenditures are expected to remain at ~5% of sales, consistent with historical levels, to support organic growth initiatives. - The long-term value creation model outlined at the time of the Berry acquisition (including $3+ billion annual cash flow, $1+ billion annual reinvestment, and $1+ billion annual balance sheet utilization for growth and capital return) remains intact, and the company is well on track to achieve this model by the end of 2027.

Segment performance

1. Global Flexible Packaging Solutions: Constant currency sales increased 16% year over year, driven primarily by the Berry acquisition and raw material cost pass-through. Comparable volumes were up 1% year over year, a 200 basis point sequential improvement over Q3. Adjusted EBIT increased 20% year over year on a constant currency basis to $533 million, with a comparable adjusted EBIT increase of ~18% and an adjusted EBIT margin of 15.1%. This segment contributed 50.8% of total Q4 adjusted EBIT. 2. Global Rigid Packaging Solutions: Constant currency sales increased 35% year over year, primarily due to the Berry acquisition and raw material cost pass-through. Comparable volumes were up 0.5% year over year, a 200 basis point sequential improvement. Adjusted EBIT increased 57% year over year on a constant currency basis to $352 million, with a comparable adjusted EBIT increase of ~24% excluding non-core businesses. Adjusted EBIT margin for the segment was 12.3% (13.3% excluding non-core businesses), 180 basis points higher than the prior year. This segment contributed 33.6% of total Q4 adjusted EBIT. 3. Core Portfolio: Core portfolio net sales were ~$5.7 billion in Q4, in line with overall company performance, and reached $21 billion for full fiscal 2026. Full year EBIT margins were 12.7%, with EBIT dollar growth of 8% (ahead of the total company). Six strategic focus categories (proteins, liquids, food service, pet care, healthcare, beauty & wellness) represent over 50% of core portfolio sales. Q4 saw strong volume growth in food service, pet care, and proteins; liquids and beauty & wellness were flat; overall volumes were down slightly in healthcare due to weakness in lower-margin subcategories, with core focus categories matching overall core portfolio volume performance as the year progressed.

Risks & headwinds

- Uncertainty around the duration and ongoing impact of the Middle East conflict, which created larger-than-expected working capital headwinds (specifically increased accounts receivable days and inventory) in fiscal 2026 that reduced full year free cash flow by $200 million relative to the prior outlook range. The timing of full working capital recovery depends on the normalization of supply chains and customer balance sheet conditions. - Ongoing input cost volatility tied to global supply chain disruptions stemming from the Middle East conflict, which creates uncertainty around future raw material pricing for resin and other inputs. - Competitive market dynamics that create modest consistent pressure on price-mix, which has held steady at a ~1% headwind over the past year and does not materially impact overall profitability. - Macroeconomic weakness that could impact consumer demand and volume growth across end markets.

Analyst Q&A

• Q: An analyst asked how much of the $500 million in working capital tied up by the Middle East conflict the company expects to recover in the next six months (the transition period), and what structural changes are being made to improve working capital. /

  A: The $500 million impact is driven primarily by higher than expected accounts receivable balances, as customers adjusted their own balance sheets amid inflation. Management expects to recover between $100 million and $300 million of the $500 million over the next six months, with full recovery over 12 months, dependent on ongoing supply chain stability. Structurally, the company is implementing specific targets for days of inventory, days sales outstanding, and days payables across all three core working capital components. (297 characters)

• Q: An analyst asked what volume growth assumption is embedded in the transition period guidance, and what is driving ongoing healthcare volume softness and when it will inflect. /

  A: The transition period guidance assumes volume will be flat to very modestly positive. Regarding healthcare, the reported volume softness is driven by intentional reduction in lower-margin medical subcategory volumes, which is being more than offset by strong growth in higher-margin pharma subcategories (including nasal, ophthalmic, and inhalation devices), leading to overall profit expansion for the segment. Management highlighted several recent key wins that support long-term growth in healthcare. (342 characters)

• Q: An analyst asked what drives the negative price-mix reported in the quarter, and requested comparable EBIT data for the rigid packaging segment excluding synergies. /

  A: The 1% negative price-mix (excluding raw material pass-through) is consistent with the trend over the past year, driven by normal competitive dynamics and re-earning of contracted business, and has no material impact on overall profitability. Full raw material inflation was passed through to customers in Q4 ($280 million of price realization), with no net impact on overall margins, and this balance is expected to hold going forward. Comparable sequential volume and margin improvements for rigid packaging are outlined in the segment slide deck. (341 characters)

• Q: An analyst asked where the $140 million in already secured growth synergies are coming from, and when these awards will convert to revenue and earnings. /

  A: Growth synergies come from multiple sources: combined complementary product offerings that create full solutions for customers, expanded global geographic reach for both legacy companies' product lines, and cross-selling to existing customers of both firms. The company is still early in the process and is seeing more opportunity than initially expected, with growth synergy tracking ahead of plan. It takes roughly 12 to 15 months for new awards to fully ramp to full annualized revenue, so only a small portion of the $140 million in wins has contributed to earnings to date, with larger contributions expected in 2027. (396 characters)