Amcor plc Ordinary Shares 2026 Q4 Earnings Call

Kate, please go ahead. Thank you for joining Amcor's fiscal 2026 fourth quarter earnings call.

Here with me today are Peter Konieczny, Chief Executive Officer, and Stephen Scherger, Chief Financial Officer. In the investor section of our website, amcor.com, you will find today's press release and presentation, which we will discuss on today's call. Please be aware that we will also discuss certain non-GAAP financial measures, and related reconciliations can be found in the press release and the presentation. 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 Form 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, I will turn the call over to PK.

Thank you, Kate, and thanks to everyone for joining us today. As always, we will start with our industry-leading safety performance on slide 3, which remains our highest priority. The total recordable incident rate improved this quarter to 0.47, marking the fourth consecutive quarter of improvement as we leverage our world-class safety program across the combined organization. We are encouraged by the early results from our harmonized safety efforts and remain focused on driving continuous improvement. Before turning to our quarterly results, I want to take a moment to discuss a transition on our investor relations team. After more than 15 years leading Amcor's investor relations efforts, including through two strategic acquisitions, Tracey Whitehead has chosen to remain in Australia and pursue opportunities there. I have valued her steady leadership and the lasting impact she made on the company.

Tracey will remain with Amcor in an advisory capacity through December to ensure a smooth transition. I also want to extend a warm welcome to Kate Pearlman. Kate has developed a strong reputation leading both investor relations and treasury teams in consumer-facing industries. We look forward to leveraging her expertise and perspectives. Turning to slide 4. We were pleased to deliver strong operating performance in the fourth quarter despite a challenging macroeconomic backdrop. Q4 adjusted EPS of $1.23 per share increased 23% year-over-year, resulting in full year fiscal 2026 adjusted EPS of $4.02 per share, up 13% compared to the prior year. First, these results reflect the resilience of our business model and the benefits of our diversified global portfolio, strengthened by the transformative acquisition of Berry last year. We were pleased to see an inflection to modestly positive volume growth in the quarter.

Sequentially, volume increased approximately 200 basis points with growth across several market categories. Importantly, we continue to deliver for our customers through a period of unprecedented input cost inflation. Highly coordinated efforts by our teams across the globe enabled us to secure the necessary supply, while also executing on productivity initiatives and taking responsible pricing actions to fully mitigate these inflationary pressures. Second, synergy capture exceeded our expectations during the quarter as we realized $115 million of synergy, bringing total fiscal 2026 synergies to $285 million. This is approximately 10% ahead of our initial year one expectations. The successful integration of the legacy businesses, combined with our proven track record of execution, continues to create meaningful value. We have built a strong pipeline of opportunities across procurement, SG&A, operations, and commercial growth, and remain confident in achieving a $650 million three-year synergy target.

Third, we continue to make progress on optimizing our portfolio with a total of five divestitures closed in the second half of fiscal 2026. By sharpening our focus on higher return, higher growth opportunities across our core business, we expect to drive more sustainable growth in attractive categories and markets. At the same time, our non-core businesses delivered improved year-over-year performance, driven by strong execution against broad-based operational initiatives. Finally, turning to our outlook. As part of our previously announced fiscal year-end transition, we are providing expectations for the six months ending December 31st, 2026. We expect adjusted EPS to be in the range of $1.80 to $1.90 per share, which reflects continued improvement in our operating performance, partially offset by higher interest and tax expense. Later in the call, Steve will walk through the building blocks for our EPS outlook. Turning now to slide 5.

We also wanted to provide investors with a view of where we see the business heading in 2027 as the benefits of our transformation become more fully realized. We expect that our portfolio actions will drive increased penetration in our higher growth, higher margin focus categories. By year-end 2027, we expect to complete the actions required to deliver the synergies and to achieve the majority of the $650 million target. We also anticipate organic volume growth as we leverage the Berry acquisition, which created a stronger, more diversified portfolio with expanded product offerings, broader geographic reach, and enhanced capabilities in innovation and sustainability. Against this backdrop, we have line of sight to delivering double-digit adjusted EPS growth in calendar year 2027. We are expecting leverage to be approximately three times by year-end, while modestly growing the dividend. We are entering this next chapter from a position of strength.

The underlying business is performing well, integration is on track, and we see a compelling path to accelerating earnings growth and cash flow generation over the next several years. Moving to slide six and our financial performance for the fourth quarter and full year. The business generated quarterly revenue of $6.4 billion, adjusted EBITDA of $1.045 billion, and adjusted EBIT of $836 million. Each of these metrics increased versus the prior year period, driven by synergy realization, disciplined cost management, and one additional month of acquired Berry earnings, which supported further margin expansion during the quarter. Adjusted EPS increased 23% to $1.23 per share for the quarter, at the high end of our outlook range. This includes benefits from organic volume growth, strong synergy capture, and responsible price and cost management during a period of rapid inflation.

For the fiscal year, free cash flow was $1.3 billion, which was impacted by the Middle East conflict. Steve Scherger will discuss these dynamics in further detail later on the call. Today, the board also declared a quarterly dividend of $0.65 per share, which represents a modest increase over the prior year and reflects our longstanding commitment to annual dividend growth. Turning to slide seven. As I mentioned earlier, synergies are tracking ahead of expectations, primarily driven by accelerated execution of our G&A and procurement initiatives. We have also made progress on operational and network synergies, which we expect to benefit earnings growth and productivity over the next two years. Finally, we achieved half of our three-year growth synergy target this year, with new business awards representing nearly $140 million compared to our initial $280 million three-year goal.

As we expected, we are winning new business by bringing together highly complementary product portfolios with participation in attractive categories. This allows us to unlock new opportunities that neither legacy company could have accessed on its own. Let me give you just one example. In Mexico, we recently extended our relationship with a legacy Amcor customer that specializes in beauty and wellness, so that we are now leveraging expertise and closures from the legacy Berry team to produce caps for their product as well. In fact, just one year into the integration, our pipeline of growth synergies continues to build, which reinforces our long-term expectation that there is greater potential for revenue synergies beyond the initial $280 million three-year target. Keep in mind that fiscal year earnings benefited by a few million dollars as a result of these wins, which are expected to ramp up further in the coming months.

Taking all these synergies together, we achieved $115 million in the fourth quarter, resulting in full year synergies of $285 million, which were 10% ahead of our initial target. Looking ahead, the organization remains focused on driving out the cost synergies while taking advantage of our enhanced capabilities to deliver growth. With our commitment to deliver the total target of $650 million over three years intact. With that, I will turn the call over to Steve Scherger.

Thank you, PK. Moving to slide 8 and beginning with our core portfolio. Net sales of approximately $5.7 billion in the quarter inflected to modestly positive volume growth and was in line with the overall company. For the full year, the core portfolio generated $21 billion in sales, with EBIT margins of approximately 12.7% and EBIT dollar growth of 8% ahead of the total company. As we have discussed previously, the core portfolio includes six strategic focus categories. Within nutrition, we have proteins, liquids, food service, and pet care, as well as healthcare and beauty and wellness, which represent more than 50% of core portfolio sales. These are attractive end markets where we expect that our innovation, customer partnerships, and differentiated capabilities will drive sustainable growth and support greater resilience across economic cycles.