SON

• Overall Q2 2026 Financial Performance

  • Total adjusted net sales was $1.9 billion, down 1% year-over-year; adjusted EPS was $1.51, up from $1.37 year-over-year (17% growth after excluding the divested ThermoSafe business)
  • Adjusted EBITDA was $324 million, down 1% year-over-year, with an adjusted EBITDA margin of 17.2%, unchanged year-over-year
  • Operating cash flow was $301 million, up 56% year-over-year; free cash flow was $237 million, up 139% year-over-year, with gross capital investment of $64 million consistent with Q1 2026 levels
  • The company's 3-year profitability performance plan delivered $0.07 per share in EPS benefits in Q2, marking the second consecutive quarter of realized gains and showing the program is gaining traction

• Industrial Segment Operational Highlights

  • New product development: Saturated URB (recycled paper grade for laminate products like countertops and flooring) will reach 10,000 tons of annual production by end-2026, ramping to 20,000 tons by end-2027 to meet growing unmet demand
  • A $20 million expansion at the Hartselle, Alabama wire and cable reels production center was completed in Q2; new robotic equipment will increase nailed wood reels production by ~15% to meet strong demand from AI data center infrastructure build-out, power grid expansion, and communications markets
  • North American URB demand remains very strong, with backlogs extending through Q3 2026; the company is importing URB from European and Latin American mills to meet demand, which also enables longer, more efficient production runs at North American mills

• Consumer Segment Operational Highlights

  • The new paper can plant in Thailand (online March 2026) has ramped up production and activated its second line, reaching 2 million units of annual production with room for further expansion
  • New capacity investments are underway: two new can lines in Italy to meet tomato and tuna demand, a new metal can and end production line in France for growing European pet food demand, with additional paper can lines planned for South America and the U.S. in 2027 to serve growing snack customer demand
  • New sustainable and consumer-focused product innovations include orbit easy open closures, EcoFill low-material metal can features, microwavable recyclable metal bowls, and proprietary green cans with up to 98% paper content for dry foods

• Inflation Cost Recovery

  • Global inflation driven by Middle East-related energy costs reduced Q2 operating profit by ~$10 million, with freight and OCC (old corrugated cardboard) representing the largest cost headwinds; OCC costs are up $40 per ton year-to-date to $100 per ton
  • Full inflation recovery mechanisms are now in place: URB and converted product price increases from April take full effect in Q3, a $60 per ton URB price increase went into effect July 8, contracted global paper can price increases have been implemented, and diesel fuel surcharges have been added to offset higher freight costs

• Management maintained full-year 2026 guidance, with no upward or downward revisions to prior ranges:
  • Net sales: $7.25 billion to $7.75 billion
  • Adjusted EBITDA: $1.25 billion to $1.35 billion
  • Adjusted EPS: $5.80 to $6.20
  • Operating cash flow: $700 million to $800 million
• Management expects full inflation cost recovery from Q2's inflation headwinds to take full effect in the second half of 2026, supported by recently implemented price increases and surcharges
• Early indicators point to a strong Q3 pack season (which generates ~40% of the company's annual profit), supporting a path to achieving the mid-to-upper end of the full-year guidance range
• Management expects the profitability performance plan to accelerate in the second half of 2026, with further gains in 2027 and 2028 as operational and structural footprint improvements are implemented
• Capital expenditure in 2027 is expected to remain at approximately 4% of annual net sales, with no material step-up in spending despite ongoing capacity expansion projects

Consumer Segment: Net sales increased 1% year-over-year to $1.24 billion, accounting for approximately 65.8% of total company net sales. Operating profit grew 5% year-over-year and 22% sequentially from Q1 2026, with pricing discipline contributing 2 percentage points of growth and favorable foreign exchange adding an additional 1 percentage point. Overall segment volume mix was down 1.8% year-over-year, driven by lower demand for U.S. metal aerosol cans and adhesives & sealants, partially offset by strong double-digit pet food can growth in EMEA and 9% paper can volume growth in EMEA/APAC (29% growth in Asia specifically).

Industrial Segment: Net sales increased 4% year-over-year to $643 million, accounting for approximately 34.2% of total company net sales. Pricing contributed 3 percentage points of growth, with favorable foreign exchange adding an additional 1 percentage point. Segment adjusted EBITDA increased 3% year-over-year to $122 million. Global volume was flat year-over-year, as strong 6.4% trade ton growth at North American URB mills (driving mill utilization to 95%, the highest level in years) and 10% reels volume growth were offset by lower demand in Latin America and some converting operations.

• External macroeconomic weakness has negatively impacted demand for housing-related consumer products, particularly adhesives & sealants (caulking cartridges) and aerosols in North America, which weighed on Q2 2026 consumer segment results
• Re-escalation of geopolitical tensions in the Middle East could put further upward pressure on energy and freight costs, creating new inflation headwinds
• Potential tariffs on Canadian imports could create minor industry capacity shifts, but management notes this would likely only impact commodity-grade product segments that Sunoco does not participate in
• There is some uncertainty around full pass-through of the July 2026 $60 per ton URB price increase; if the increase is not fully realized, it could reduce annualized industrial segment profit by ~$15 million
• Q3 results are highly dependent on pack season performance, which is partially tied to unpredictable weather conditions
• Weak consumer discretionary spending could continue to pressure aerosol demand in the second half of 2026

Q: Trade publications report the URB market is loosening, and consumer segment results were below trajectory entering Q2. What is your observation of URB demand, and what drove the consumer weakness? / A: Sunoco serves the high-end URB market and has not seen any weakness, with backlogs extending through all of Q3 and North American mills running at 95% utilization. Importing URB from overseas is done to support demand and enable more efficient long production runs, not due to weak domestic demand. Consumer weakness in North America was concentrated in housing-related adhesives & sealants and aerosols, with a tough year-over-year comp from 2025's strong volumes offset by strong international growth in paper cans and food cans that balanced overall segment results.

Q: What downside risk would there be to guidance if the $60 per ton URB price increase is not fully realized, and what is the expected acceleration of the profitability performance plan? / A: A $10 per ton change in URB pricing impacts annualized profit by ~$10 million, so a full failure to implement the $60 per ton increase would impact annual profit by ~$15 million, mostly concentrated in Q4. The profitability performance plan saw steady early traction from back office cost improvements, with larger operational and structural changes (including line relocations and footprint optimization) still ramping up. Acceleration of benefits is expected in Q3, Q4, 2027, and 2028 as these longer-term changes are completed.

Q: With strong growth in multiple consumer end markets offset by soft overall volume, what cyclical or secular pressures are offsetting these growth opportunities? / A: The main offset is softness in housing-related adhesives & sealants and aerosols in North America, which is tied to current macroeconomic conditions and tough 2025 comparables after capacity shifted to Sunoco from an exiting competitor in 2024. Significant growth in international paper cans for snacks, European pet food, and global canned seafood is more than offsetting this softness, and management does not see long-term secular concerns offsetting these growth opportunities.

Q: Why has guidance not been narrowed to a tighter range amid ongoing market volatility? What is the outlook for CapEx and share repurchases in 2027? / A: Roughly 40% of annual profit is generated in Q3 during the key pack season, so management retains a broader guidance range to retain optionality while early indicators for pack season are already strong. The range will be tightened after Q3 results are finalized. 2027 CapEx will remain at ~4% of sales with no material step-up despite new capacity projects. Once the targeted leverage ratio is achieved for credit rating agencies, management will evaluate increased share repurchases, as the current dividend yield exceeds the company's cost of debt, creating a favorable math for buybacks.