Amcor plc Q3 FY2026 earnings call

1. Safety: 71% of sites injury-free in Q3, total recordable incident rate 0.49, modest increase but improving for third consecutive quarter post-Berry acquisition. 2. Anniversary of Berry combination: Integration went smoothly, divestitures of noncore businesses making progress. 3. Financial performance: Q3 adjusted EPS $0.96 up 6% YoY, first 9 months adjusted EPS $2.79 up 11% YoY; Q3 revenue $5.9 billion, EBITDA $892 million, EBIT $687 million; declared quarterly dividend of $0.65 per share. 4. Portfolio optimization: 6 noncore businesses divested/agreed for ~$500 million combined annual revenue, cash proceeds used to reduce debt. 5. Synergy delivery: Accelerated, Q3 synergy $77 million, first 9 months $170 million, expects $270 million in fiscal 2026, $650 million cumulatively over 3 years. 6. Core portfolio: Focus categories outperform total company, core portfolio EBIT margins ~12.3%, year-to-date EBIT dollars up ~4% despite modestly lower volumes.

Global Flexible Packaging Solutions segment: Sales increased 29% on constant currency basis driven by Berry acquisition; comparable volumes down ~1.5% with improvement from Q2; developed markets volumes down low single digits, emerging markets up mainly in Asia; adjusted EBIT up 28% on constant currency basis. Global Rigid Packaging Solutions segment: Sales increased significantly on constant currency basis due to Berry acquisition; comparable volumes down ~1.5% in core and noncore businesses, weaker sequentially due to US winter storm; emerging markets had volume growth; adjusted EBIT $276 million up on constant currency basis, offset by winter storm impact on margin.

1. Fiscal 2026 adjusted EPS expected range $3.98 - $4.03 per share, midpoint ~12% growth driven by synergy realization. 2. Fiscal 2026 free cash flow expected range $1.5 billion - $1.6 billion, compared to original guidance $1.8 billion - $1.9 billion due to holding more inventory. 3. Expect year-end leverage ~3.4 - 3.5x, but commitment to deleveraging and investment-grade balance sheet remains. 4. Transition fiscal year-end from June 30 to December 31, 2027, with 6-month reporting period July 1 - December 31, 2026, and guidance for transition period to be provided in August alongside Q4 and full year results.

1. Middle East conflict: No material impact on Q4 earnings expected, but uncertainty in global market conditions and supply chain disruptions. 2. Supply chain disruptions: Impact on inventory and working capital management, affecting free cash flow and financial performance. 3. Inflation: Need for responsible price and cost actions to maintain earnings, and uncertainty in pass-through mechanisms in non-business-as-usual situations.

Q: Just going back to your comments on the Middle East impact on 4Q, which sounds sort of immaterial. Can you just give us a sense as to whether there'll be any sort of residual impact on the back half of '26 from a calendar year standpoint? And the reason I ask is, obviously, resin is up close to 100% in a very short period of time. And legacy Amcor had a pretty good track record of passing it through quickly, but Berry as a public company did have lags in their contract structure, et cetera. So just curious as to what's changed and how you've been able to mitigate the impact?

A: Thanks, Ghansham. This is PK. It's a good question. Let me provide a bit of background here. So first off, I think it's important for us to keep in mind that the collective new Amcor between legacy Berry and Amcor does not really have a lot of exposure to the Middle East. We have no operations in the Middle East nor do we have any employees, and we actually source very little resin from the Middle East. And actually, it's less than 5% of sourced resin from that region. So -- now we are operating in a global market, and therefore, we do have the 2 challenges of: one, keeping ourselves in supply and our customers in supply; and on the other hand, dealing with the inflation. Now you're asking sort of for the impact of inflation post the fourth quarter. The fourth quarter, we've essentially pretty much covered in our introductory comments. Here's the reality. First off, nobody knows what the inflation in the fourth quarter -- in the back half of the year is going to be like. We have a view on the fourth quarter, but there's lots of volatility out there. And I would just be speculating right now to throw an inflation number out there. And that's also important in terms of how to take the information on the fourth quarter. I'd be very, very careful and would suggest that nobody just annualizes that number because of the volatility that we're seeing. So我 don't know what the inflation is. What I do know is the process that we are following in a very structured and disciplined way. And somewhere in our prepared comments, we said we didn't really have any impact of the Middle East on the third quarter. Financially, that is true. We had a significant impact in the third quarter from the Middle East in terms of our managerial activities that kicked into gear as we saw the Middle East crisis sort of develop. And the big efforts were on both sides, securing supply and then also going to customers and making sure that we would be able to offset the inflation. Now on that part, keep in mind that the combined business between Amcor and Berry roughly splits between 70% and 30% of contracted versus noncontracted business. The 30% is something that we handle through general price increases. So we're able to go to the market pretty quickly and recover that. On the 70%, we have a pretty good pass-through clauses, some of which have -- or I would say, generally, they have all become even better after we've gone through significant inflation periods in the past, recall '22, '23. But they're all designed for business-as-usual situations. Now what we're doing here, and that is across the whole portfolio is we're going to customers on the back of a collaborative approach. And this is driven by keeping everybody in supply, which is a significant concern across the whole value chain. We justify the additional cost that we have, and we're able to sit and come to conclusions in terms of relief, which is appropriate and matches the inflation and also appropriate in terms of the timing. That's sort of the way how we go about it, and we do that across the portfolio.

Q: You talked about your inventories rising and your free cash flow moving down by about $300 million. And that's really a 1 quarter effect. I would imagine that your inventories have to be relatively higher over the next several quarters. So as a base case, should we also expect some kind of free cash flow penalty in your -- in the 4 quarters that follow the June quarter of 2026?

A: Jeff, it's Steve. I'll be glad to take a cut at that. I think relative to our prior guidance, which assumed an inventory reduction, which was what we were planning to do, you're absolutely right. We are maintaining inventory levels kind of volumetrically, if you will, and the cash flow implications are driven by the inflation on the inventory. And so that is the Q4 impact that we're sharing with you. Moving beyond Q4, I think it will depend, obviously, if the markets stabilize relative to supply chains and value, the cash flow implications could be modest on a move-forward basis. So我 think it's probably a little unpredictable to determine whether that cash flow impact is -- continues to rise or kind of stabilizes as the supply chains stabilize. So我 think I wouldn't necessarily assume that there's an ongoing cash flow headwind. I think it will depend upon supply chain normalization in the environment.

Q: Maybe if you can shed some light on how you're seeing the consumer through your customers, particularly given some of those recent cost impacts on the consumer. I guess maybe if you can talk us through how the quarter panned out, that would be useful?

A: I'll take that, Ramoun. I'll talk to the quarter first and then make a couple of comments on the consumers, if that's okay. So the quarter that we're referring to is the third quarter, obviously, which is the one that we're reporting on. And we made a couple of comments already, but I'll try to give it my spin here and summarize it. So the company was down 1.5% in the third quarter, and that is 100 basis points improvement sequentially versus the prior quarter. The 1.5% is equally split between the core and the noncore business. So the core was 1.5% down and pretty much on the same level as in the prior quarter. So the improvement we saw -- we've seen a substantial improvement in the noncore business in terms of volumes. They were high single digits down in the prior quarter, second quarter and now 1.5% down in the third quarter. So very pleased with that. And that actually has driven also a significant improvement in the financial results of the noncore business, which was expected by us and is important also in the context of the progress that we're seeing in terms of selling it. Now back to the volumes. If I double-click on that by volumes -- sorry, by geography, North America and everything that I'm now saying is just focused on the core business. So North America is a little weaker than it has been in the second quarter, and that is due to the winter storm situation that we've seen in January and then to a lesser effect in February and hit particularly the Rigids business. Europe is better than in the prior quarter sequentially, very low single digits down. And we've seen our emerging markets actually kick back in and come back to growth with mid-single-digit growth across both regions, LatAm和 Asia Pacific. And final comment is that the focus categories in the core business outperformed the company overall by about 150 basis points. So they're collectively flat. So that's the commentary on the quarter. When I think about the consumer, look, we think the quarter -- third quarter was probably not that much impacted by the Middle East crisis and that the inflation has found its way through to the consumer.我 think it will be prudent to assume that it will happen over time. The consumer, we've talked about it many times in prior quarters, is stretched as a result of that value seeking. The last thing that the consumer is looking for is additional inflation at this point in time. What I will say, though, is that our customers have performed actually quite well in the third quarter. When you take a look at their performance, it's encouraging. And there is also a continued commitment to supporting volumes across the customer base, which I find encouraging, and we'll have to see how that plays out. Obviously, again, that goes against a consumer that's already stretched, and we'll have to see that it plays out. Our best guess at this point in time is and that applies to the fourth quarter, at very high level, I would also say that about the second half of the calendar year would be that the market, the consumer will be down low single digits. That's sort of our high-level base assumption.

Q: PK, you mentioned continuity of supply critical for your customers. So obviously, it's one of the reason you're keeping the inventory elevated. We've heard that from other companies during reporting season thus far. Coming at it from a different angle, have you been able to gain any share given your global presence and product availability?

A: Thanks, Mike. It's a great question. First off,我 believe that we're pretty well positioned in terms of supplies. And the reason for that is that we have a broad supply network across the globe. I was making a comment earlier that we buy very little from the Middle East region, less than 5%. Another reference point is that we buy about 65% of our resin from North America or in North America, where the supply chain obviously is more stable. We do have a global procurement team, obviously. We have the opportunities to swing volumes between suppliers because we're, in many cases, qualified across different formulations. And even when that's not the case, we have an excellent technical capability in order to get to qualifications quickly. So that is one of -- that is probably the core -- those are the core reasons why we feel good about our supplies right now. While I will not hide from you that it's -- we're laser-focused on it because we want to keep our customers, obviously, in supply. Now to the question of share gain, it's probably a bit early still. The only thing I can tell you is that in some cases, we have heard -- we've had conversations with customers that came to us and said,