Amcor plc

Thank you for standing by. At this time, I would like to welcome everyone to today's AMCOR Fiscal 2026 Second Quarter Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. And if you'd like to withdraw your question, simply press star one again. Thank you. And I would now like to turn the call over to Tracy Whitehead, Head of Investor Relations.

Tracy? Thank you, Operator, and thank you, everyone, for joining AMCOR's Fiscal 2026 Second Quarter Earnings Call. Joining the call today is Peter Konietze, Chief Executive Officer, and Steve Scherger, Chief Financial Officer. Before I hand over, let me note a few items. On our website, amcor.com, under the investor 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 those documents on the website. 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 be made to AMCOR's SEC filings, including our statements on Form 10-K and 10-Q for further details. Please note that during the question and answer session, we request that you limit yourself to a single question and then rejoin the queue if you have any additional questions or follow-ups. With that, over to you, Peter.

Thank you, Tracy, and thank you to everyone joining us. I'm pleased to welcome you today to discuss our fiscal 2026 second quarter results. This is a transformative and exciting time for Amcor. Our acquisition of BERI created a global leader in consumer packaging and dispensing solutions. We're realizing the benefits of this combination and executing well, resulting in strong momentum toward achieving our fiscal 2026 commitments. With a strengthened platform and a clear growth roadmap, UMCOR is well positioned to deliver significant long-term value for shareholders. Before turning to today's key messages, as always, we will start with safety on slide three. The well-being of our colleagues is a core value for UMCOR, and our commitment to safety remains unwavering. For Q2, our industry-leading safety performance continued with UMQR's total recordable incident rate at 0.52. This is a modest increase compared with last year's performance, which is not unusual when we acquire a business. We have moved quickly to drive safety performance across our combined business and are pleased to see this key metric improve compared to the September quarter. Additionally, 79% of all Amcor sites remained injury-free through Q2. Slide 4 highlights the key messages for today aligned with our near-term priorities, which have not changed. Continuing to deliver on the core business, accelerating synergy realization, and further strengthening the business through portfolio optimization actions. Each and all these near-term priorities are contributing to setting Amcor up to deliver solid and sustained volume driven organic earnings growth over the mid to longer term. First, our financial performance in the second quarter was in line with the expectations we set out in October, maintaining momentum toward our full year objectives. Adjusted EPS was up 7% for the quarter and 14% for the first half. As we continue to execute well, against our priorities and our market opportunities. Across our core portfolio, comparable adjusted EBIT was up 7% driven by synergy benefits and in line with the prior year excluding synergies. This reflects the successful effort of our teams to fully offset the impact of lower volumes with cost and productivity benefits. Our continued solid execution demonstrates the resilience of our business and the capability of our people in what continues to be a challenging and dynamic market environment. Second, synergies were at the upper end of our guidance range with benefits accelerating to $55 million in Q2 and totaling $93 million for the first half. The expanding synergy pipeline combined with our proven integration track record reinforces our confidence in delivering at least $260 million of synergies in fiscal 2026. Third, we have reaffirmed our financial guidance for the fiscal year, updating our adjusted EPS expectations to $4 to $4.15 per share to reflect the recent 145 reverse stock split. We remain on track to deliver double-digit EPS growth in fiscal 2026 and to double free cash flow versus fiscal 2025, primarily driven by delivery of identified synergies and productivity gains. And lastly, our identified portfolio optimization actions are advancing well and at pace. In a relatively short period of time, we've made meaningful progress evaluating alternatives for our $2.5 billion of non-core businesses, including the North American beverage business. We believe these focused actions will position us for stronger, more sustainable long-term growth. Turning now to slide five and financial performance for the second quarter and first half. In absolute dollar terms, the business generated strong quarterly revenue of $5.4 billion, EBITDA of $826 million, and EBIT of $603 million. This is significantly higher than the prior year as a result of the Berry acquisition, disciplined cost management, improved productivity, and accelerating synergies. Adjusted EPS has also been updated to reflect the reverse stock split. We delivered 86 cents per share for the quarter, in line with our expectations, including a one-time favorable tax benefit offset by weaker performance in our non-core business portfolio. which we expect will improve in the second half. Free cash flow was $289 million for the quarter, after funding approximately $70 million of acquisition-related cash costs. And today, the Board declared a quarterly dividend of 65 cents per share, which is up over the prior year and continues our long-term commitment to annualized dividend growth. Overall, these results are aligned with our expectations eight months after a transformational acquisition and demonstrate our ability to execute against our commitments. Taking advantage of a unique opportunity to optimize the portfolio was one of the key commitments we highlighted when announcing the acquisition. As shown on slide six, our $20 billion core portfolio represents the strongest part of the combined business. The core portfolio includes our six focus categories, namely health, beauty and wellness, protein, liquids, food service, and pet care. This is where we hold leadership positions, where innovation drives differentiation and value, and where long-term consumer demand is most durable. These categories reflect the markets where Amcor has a distinct competitive advantage. When viewed on its own, the core portfolio has a stronger financial profile and outperforms the total company across all key financial metrics, including volumes. In the second quarter, our estimated core portfolio volume performance was approximately 100 basis points better than the total combined portfolio. Volumes for the core business were approximately 1.5% lower than the prior year, similar to the first quarter, with market dynamics remaining largely unchanged. Growth across our focus categories modestly outperformed the broader portfolio in both segments. Adjusted EBIT margins of approximately 12% also reflect a higher concentration of advanced solutions, improved mix within our core portfolio, and synergy benefits. Adjusted EBIT dollars were up approximately 7%, largely reflecting synergy benefits. Excluding synergies, we held earnings flat with a prior year in a market with modestly declining volumes. This is a solid result achieved through a focus on the cost and productivity levers within our control. Likewise, as mentioned earlier, our portfolio optimization actions are advancing with pace. We're making strong progress exploring alternatives for the remaining $2.5 billion of non-core businesses, including encouraging discussion related to the North American beverage business. We believe these actions will ultimately ensure resources are allocated to the highest value opportunities within our core portfolio. Slide 7 shows Q2 synergies continue to accelerate as expected, resulting in $55 million of benefits in the quarter, at the upper end of our expected range, and $93 million in the first half. G&A synergies reflect organizational redesign, system consolidation, and simplification efforts across corporate support functions. We remain on track and have reduced headcount by over 600, consistent with our integration roadmap. As expected, procurement synergies continue to ramp up as we consolidate spend, harmonize specifications, and align pricing across the combined supplier base. Negotiations and agreements with our major vendors are on track, underpinning our confidence in delivering $325 million in procurement synergies by the end of fiscal 2028. Fiscal benefits are also flowing through as expected, reaching approximately $10 million through the first half as we continue to execute and optimize our debt and tax structures. Additionally, we are gaining traction on operational synergies with approximately 20 site closures or restructures approved or announced. These synergies, as expected, will primarily materialize in years two and three of our synergy realization timeline. Growth synergies have also been strong. We're gaining momentum as customers validate the value we bring through our expanded footprint and integrated product offerings to meet complete and complex packaging needs. Annualized sales revenue from business wins directly linked to our combination with Berry now exceeds $100 million, a strong start to our original three-year target of $280 million. We expect delivery against these wins will commence in the second half of fiscal 2026. Adding another example of those we discussed last quarter, our strength and supply chain and multi-format capabilities have enabled us to support a major global pharmaceutical customer as they launch the solid oral dose GLP-1 therapy drug. This is an exciting win that will benefit both segments through supply of blister packaging in Europe and rigid containers in the U.S. Overall, our teams are executing well against our proven integration playbook. We also remain confident in our ability to deliver at least $260 million of synergies in fiscal 2026, and a total of $650 million of synergies through fiscal 2028. Before turning the call over, I'd like to take a moment to formally welcome Steve Schroeder, who joined us as Amcor's CFO nearly three months ago. Steve has spent his early days deeply engaged, meeting with our executive team, immersing himself in our business, and getting a clear line of sight into our priorities and opportunities. He brings deep industry experience and a strong understanding of both the U.S. and global packaging markets, and we are excited to have him on board. We're fortunate to have an executive of his caliber and reputation join our leadership team, and we're confident that his insights and experience will further strengthen our ability to deliver value for our customers and shareholders in the years ahead.