Good morning. Thank you for joining us, and welcome to the conference call for Amcor's quarter results ended September 30, 2026. I will now hand the conference over to Kate Pearlman, Senior Vice President, Investor Relations and Treasury. Kate, please go ahead.
Thank you for joining Amcor's earnings call for the quarter ended September 30, 2026. Here with me today are Peter Konieczny, Chief Executive Officer, and Steve 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, and reference can be made to Amcor's SEC filings, including our statements on Form 10-K and 10-Q for further details. With that, I will turn the call over to PK.
Thank you, Kate, and thanks to everyone for joining us today. I will begin with safety, which remains a core value at Amcor. We are pleased with the progress we have made in improving the safety performance of the combined organization. We remain focused on delivering industry-leading performance as we work to build on our strong track record in safety. Turning to slide four, which highlights our key messages for today. This quarter, we delivered solid operating results as we effectively managed the challenges presented by a volatile inflationary environment, which has now extended beyond resins to include non-raw material costs such as higher energy and distribution costs. First, we were pleased to see broad-based positive 1% organic volume growth in the quarter, led by 3% volume growth in the focus categories.
Adjusted EPS of $0.95 was flat to prior year on a constant currency basis as expected, after adjusting for the impact of divestitures. Second, synergies of $60 million across procurement, SG&A, operations, and commercial growth were in line with our expectations. We remain confident in delivering the $130 million target for the transition period and $650 million over the three-year period. Third, today the board approved a modest increase in the quarterly dividend to $0.66 per share, which reflects ongoing confidence in our business momentum and disciplined approach to capital allocation. Fourth, we are updating our adjusted EPS outlook for the transition period to a range of $1.70-$1.80 per share from our previous expectation of $1.80- $1.90 per share.
Since the onset of the Middle East crisis in March, we have been navigating a dynamic operating environment, which is creating volatility in raw material input costs. We took swift action to ensure continuity of supply for our customers while responsibly managing cost and pricing to counter these inflationary pressures. Notably, we passed through higher resin costs totaling $435 million in this quarter. We have also seen an acceleration in non-raw material input costs such as energy and distribution costs, particularly in September. This is creating a headwind during the transition period related to the timing of the pass-through of these incremental costs. We are actively addressing these higher costs over the coming months with price and cost actions and do not expect this incremental inflation will negatively impact our results in 2027. Moving to slide five.
As I mentioned earlier, we delivered another quarter of positive organic volume growth with volumes up 1%. Notably, this represents the fourth consecutive quarter of sequential improvement. We continue to see particularly good momentum in the areas we have identified as priorities for growth, beginning with broad-based 3% volume growth in the focus categories. These are attractive categories that are indexed to growth and where we have a leadership position. I would like to highlight our performance in two focus categories this quarter. Growth in pet food is driven by innovative, sustainable barrier packaging solutions as we win with some of the largest and fastest-growing brands. In food service, growth is driven by our product leadership in fully recyclable polypropylene cups, lids, and containers, which is translating into new QSR wins. We are also pleased to see positive volumes in beauty and wellness, liquids, and healthcare. Protein was flat.
Across regions, volumes increased in all geographies. Growth in emerging markets was led by China, where we have a broad product portfolio across food, healthcare, and beauty, and strong engagement with our customers. We are adding to our manufacturing capacity, which will help us maintain proximity to demand and drive growth. We are also enhancing our focus on targeted customer relationships, including global accounts, where we delivered solid growth this quarter. These customers especially value our service, quality, and demonstrated track record of ensuring continuity of supply through periods of industry disruption. Our leadership in sustainability and innovation are also driving wins with these accounts as we deliver fully recyclable product solutions that will help our customers minimize fees from new packaging regulations. Within private label, we have recently established a new organization dedicated to expanding our relationships with large retailers and co-packers in North America and Europe.
We are encouraged by the pipeline of opportunities they are building as they work towards multi-year growth targets. We are gaining traction with our growth synergies, leveraging our comprehensive product portfolio, extensive customer relationships, and global reach. These new business awards now total $170 million in annual sales, and we remain confident we will exceed our initial three-year target of $280 million in growth synergies over time. While it is still early, we are encouraged by the progress, that the growth we are seeing is not just in a few areas, but across categories, geographies, and customers. That gives us confidence that our growth strategy is gaining traction and that we are well-positioned to deliver sustainable organic growth over time. Turning to slide six and our financial results for the quarter.
The business generated quarterly revenue of $6.1 billion, which increased 7% over prior year, driven by volume growth of 1% and the pass-through of raw material costs. When excluding the impact of divestitures and currency fluctuations, adjusted EBITDA of $883 million was flat to prior year, while adjusted EBIT increased 3%. Adjusted EPS of $0.95 was at the midpoint of our outlook range, with volume growth and synergy capture offset by the expected rebuild and incentive compensation and increased inflation, specifically energy and distribution costs. Leverage of 3.76 x increased from the fourth quarter in line with seasonal trends. Turning to slide seven. As I mentioned earlier, we delivered synergies of $60 million in the quarter, in line with our expectations. While we continue to capture procurement and SG&A synergies, growth and operational synergy capture is accelerating as expected.
As we look ahead, we remain committed to achieving our three-year $650 million synergy target through a combination of cost synergies and commercial growth. With that, I will turn the call over to Steve.
Thank you, PK. Moving to slide eight. Net quarterly sales of $5.6 billion in our core portfolio benefited from broad-based volume growth of approximately 1.5%, as well as the pass-through of raw material costs. Excluding the impact of divestitures, EBIT increased 3% on a constant currency basis, and EBIT margins were 11.9%. EBIT margins were 12.8% after excluding the 90 basis points dilution related to increased sales dollars associated with passing through higher raw material costs, in line with the prior year. Turning to slide nine and the Global Flexible Packaging Solutions segment. Sales increased 10% on a constant currency basis, driven by the pass-through of $316 million in higher raw material costs. Volumes were flat to prior year. Excluding volume from the sale of unconverted films in North America, volumes were up approximately 1%.
Volumes were up modestly in North America, Europe, and Asia-Pacific, while down modestly in Latin America. Adjusted EBIT was up 1% on a constant currency basis to $414 million, driven by synergy capture, partly offset by the incentive compensation rebuild and higher inflation. Adjusted EBIT margin of 12.3% was impacted by 130 basis points dilution related to increased sales dollars associated with passing through higher raw material costs. Excluding this impact, adjusted EBIT margin was 13.6%, which was up 20 basis points to prior year on a comparable basis. Moving to slide 10 and the Global Rigid Packaging Solutions segment. Sales increased 2% on a constant currency basis. Volumes were up 2% versus prior year and up 150 basis points sequentially. Pass-through of higher raw material costs drove a favorable impact in net sales of 4%, while divestitures drove an offsetting unfavorable impact of 4%.
Adjusted EBIT declined 3% on a constant currency basis to $303 million. Excluding divestitures, adjusted EBIT was up approximately 3% compared to prior year, driven by higher volumes and synergy capture, partly offset by the incentive compensation rebuild and higher inflation. Adjusted EBIT margin of 10.9% was impacted by 50 basis points dilution related to increased sales dollars associated with passing through higher raw material costs. Excluding this impact, adjusted EBIT margin was 11.4%, which was down 20 basis points to prior year on a comparable basis. Turning to the cash flow and balance sheet on slide 11. After funding $31 million of Berry transaction, restructuring, and integration costs, free cash outflow for the quarter was $820 million. Capital expenditures of $301 million were higher than prior year period, driven by investments in short and long-term growth initiatives.
We continue to see approximately $500 million in increased working capital across inventories and receivables due to the Middle East conflict. We are implementing initiatives to drive structural improvements to working capital and expect to recover the $500 million by the end of 2027. Leverage at quarter end was 3.76 x, which increased from the fourth quarter in line with seasonal trends. We continue to expect leverage to be approximately 3x by the end of calendar year 2027, driven by strong cash flow generation, underpinning our commitment to investment-grade credit ratings. Moving to our transition period outlook on slide 12.
We are lowering our outlook for the transition period to a range of $1.70-$1.80 per share from our previous expectation of $1.80-$1.90 per share due to the timing of the pass-through of higher energy and distribution costs. We now expect our leverage at year-end to be approximately 3.6 x. Starting late in the September quarter, we began experiencing an acceleration in non-raw material input costs, notably energy and distribution costs. In response, we are implementing productivity initiatives across the organization to help offset these cost pressures. We are also taking price actions during the December quarter to offset known inflation. Through these measures, we expect to address the current inflationary trend by the end of this calendar year.
As we reflect on our results this quarter, we are pleased with the underlying momentum in the business. It is clear that our growth strategy is working and that customers are responding to the enhanced value proposition that we bring to market as a leader in global consumer packaging. Thank you for your time today. With that, I'll turn the call back to PK to discuss our perspectives on 2027 performance.
Thank you, Steve. As we look ahead, we are confident that we are making the right investments to drive long-term sustainable volume growth. Building on the momentum that we are seeing across our business, across geographies, customers, and focus categories, we continue to expect positive volume growth next year. Our confidence in our synergy targets is also intact, and we expect to achieve the majority of the $650 million three-year synergy target by the end of 2027. Taking all of this into account, we are expecting to deliver double-digit adjusted EPS growth in 2027, and we are targeting leverage of approximately 3x by year-end, while continuing to modestly increase the dividend. Amcor remains resilient in the face of macro challenges. Our teams are focused on what we can control, executing with discipline, and delivering for our customers. With that, we are now ready for questions.
We will now begin the question-and-answer session. Please limit yourself to one question. If you would like to ask a follow-up question, please rejoin the queue. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, please press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q and A roster. Your first question comes from the line of Ghansham Panjabi with Baird. Ghansham, your line is open. Please go ahead.
Thank you, and hello, everyone. PK, on your comments on the private label initiative, can you just give us a bit more color on that? In particular, is this a global initiative, or is it more specific to a region such as the U.S.? Private label has been obviously well-penetrated for a very long time, so I am just curious as to why now, and also what your relative exposure is towards that channel versus the market average. Thank you.
Yeah, thanks, Ghansham. This is PK. It is a great question. Private label is one of the two customer groups which we have in focus. The other one is the really large, what we call global accounts. Another way to explain that is sort of the who is who of the CPG brands, which are large and global. But back to private label, we do have a pretty good participation in the private label segment, and we have been with them for a long period of time. But we have seen, given the market environment and the particular situation of the consumer, the private label is one of the places where the market is winning or where customers are winning. So, in terms of the large retailers and the co-packers.
As we have seen that and we've seen the growth in that top segment, if you want, we have said we want to focus more, and that is an initiative that focuses mostly on North America and Europe, where we drive initiatives in the way that we have now a dedicated team. We have stood up that team over the last couple of months, and that team is doing a fine job in establishing better relationship, broadening essentially our exposure to the participants in that field, and they're building a pipeline that we're pretty excited about. It's obviously, that initiative is a little less mature than the things that we're doing on the global account side, but the pipeline of opportunities is real, and we're looking forward to translating that as we go forward. Thank you.
Your next question comes from the line of John Purtell with Macquarie. John, your line is open. Please go ahead.
Good day, PK and Steve. Thanks for your time. Look, just a bit more color on the energy and distribution cost impacts you're seeing, and you've sort of commented that you sort of expect no sort of ongoing impact into calendar 2027. I suppose the sort of timing of that, it seems like pretty quick recovery, and you're essentially not flagging any residual impact into the first half of next year?
Yeah, thanks, John. I'll start, and then maybe Steve wants to add to that a little bit. Just to provide some context here, we have been talking about inflation on the raw material input side extensively, and we did that also on the call in August, where we were able to report that significant inflation hit us, and we were able to offset that essentially without any delay. That continues to be the case, and we have seen more of that inflation on the raw material input side, also in the September quarter, with the same outcome. We've been able to offset that really well, and we continue to do a great job. The inflation that is holding us back now in the December quarter particularly is inflation that hits a different bucket of cost.
This is around the energy and distribution cost and all the other sort of P&L line items that get sort of impacted by higher energy and distribution. That's a different bucket, and we have different recovery mechanisms for that bucket. One recovery mechanism is also pass-through clauses that we have in contracts, more so on the legacy Amcor side of the business. We started to do a pretty good job after COVID on that end. There's also some part of the business which looks a little bit more like the legacy Berry part, where you recover these things through price increases in the market, which is exactly what we have done. We're enacting and we're sort of pushing the price pass-through clauses that we have in the contracts, and we're bringing price increases to the market, which we have done this quarter.
Now, in terms of the pace at which we can recover, we believe that we will catch up with the pricing combined with, obviously, the responsible cost actions that we need to take, because this is inflation that happens all the time, and our customers are expecting us to do our part. So between our cost actions and the pricing that we need to bring to market, we think that we catch up by the end of the December quarter, which then gets us into a position that as of January 1, 2027, we no longer have an impact based on the inflation that we're currently addressing.
Yeah, John, it's Steve. Thanks for the call and the question. The only thing to add to PK's thoughtful response there is that we saw the inflation kind of starting to come in pretty late in the September quarter and then started to immediately take price action. Some of it contractual, as PK said, and then some of it through incremental price actions that we're taking with customers starting in the December quarter that we're in. So we're executing on that now, and that gives us confidence that we'll be in a position to minimize and have no real impact in 2027.
Thank you.
Your next question comes from the line of Ramoun Lazar with Jefferies. Ramoun, your line is open. Please go ahead.
Thank you, and thanks, PK and Steve, for taking questions. Just one on volumes. Your momentum in volumes looks to be accelerating. Just keen to get an idea, have those volumes continued into the December quarter? What are you seeing there from your customers? One thing we're observing is that FMCGs are calling for pricing into calendar year 2027, just given the inflationary pressures. Does that concern you into the calendar year? Just keen to get your overall thoughts, PK, on that.
Yeah, Ramoun, thanks. I'll give you my thoughts. I mean, obviously, you're asking something that relates to our customer space, and you will hear from them also. Here's my take of where we stand, and maybe allow me to take a little bit of a step back. I mean, the overall environment is challenging for the consumer right now, and that's not new, right? The consumer is stretched. We've talked about the affordability crisis, and what we're now talking about is there's more inflation coming through to the marketplace, and nobody needs more inflation at this point in time. That said, I think it's important to consider two things here which are happening on our side. I, in talking to customers, believe that they are still very much focused on getting the balance right between price and volumes.
They have a few things at their hands and in their toolkit that they're driving. You can see promotional activities are still up when you look at scanner data in the U.S. Innovation is obviously always something they innovate themselves through this period. Pack size architecture is another one where they try to go ahead and meet the consumer at the price point which works for the consumer. So that's on the one side, something that is going to continue in the way that I read our customer base. On the other hand, we have a very clear strategy in terms of, or in order to facilitate growth, organic growth in our business, and that comes back to the focus categories, to the emerging markets, to the customer groups that we just discussed, where we're focusing on.
When I look at our performance there, I will say, I see more and more areas where I can say with confidence that we're outperforming the market, so we're actually able to gain share. That gives me the confidence to say that as we go forward into this quarter, I'll come back to that in a second, but also into 2027, that we're expecting organic growth. Now, one part of your question was, what are we seeing going into the December quarter that would relate to October? The October volume performance is pretty much in line with what we've seen in the September quarter. So all good. Thank you.
Your next question comes from the line of George Staphos with Bank of America. George, your line is open. Please go ahead.
Hi, everyone. Good evening, good morning. Hope you're doing well. Hi, PK. Hi, Steve. My question is really on the cost hit. If we can come back to it, is there a way to size the gross amount of impact from energy, from distribution, that is hitting you right now? The proportion you're trying to offset that amount by your normal pass-throughs that might relate to those buckets, if there are any specific individual price actions that you're going out with right now, the cost outs, how do those three things offset that cost hit? If you could size that cost hit, that would be great. One related point, given the growth that you had in your focus categories, I would have expected your mix to be better. So, how is mix helping you offset that, if it is at all? Thank you.
Hey, George. It's Steve. Let me try to touch—
Hey, Steve.
— on those. In terms of kind of the overall inflationary bucket that we chatted about that are distribution cost-related, energy cost-related, for the quarter, or excuse me, for kind of what we're seeing in this quarter, put it into the $100 million-plus range gross, with us roughly offsetting nearly half of that, if you will, in terms of the offset. And then inside of that, a little over half is naturally contractual in terms of how it's covered, just in the normal contractual algorithms that cover these types of costs. And then the other half is us taking price actions, which we took in and have taken into the marketplace here in the quarter.
The body of work, contractual price increases, as well as those that we're executing on where the contracts may not have those costs included, represents the actions that we're taking to offset that by the end of the calendar.
You talk about mix? Mix focus category?
Yeah. If you talk about the mix, you are right. We are actually very pleased with the growth in the focus categories at 3%. Those do tend to be modestly mix-enhancing. If you look at our price mix, we saw some modest improvement from last quarter, in terms of the overall price mix. Some of that did get a little offset by, as we mentioned, some volume declines that we saw in our films business, which has also some different mix implications. But overall, George, I think we like the momentum that we are seeing on net price mix sequentially quarter to quarter, and would expect that to incur positive benefits as we look out into 2027, based upon the commentary PK just provided in terms of where we are seeing growth, focus categories, emerging markets, some key customer categories. I hope that addressed it for you. Thanks, George.
Thank you.
Your next question comes from the line of Matt Roberts with Raymond James. Matt, your line is open. Please go ahead.
All right, PK, Steve, hello. Appreciate all the color. Slide eight, if I look at the non-core performance, I think that implies it was down mid-single digits. What are some of the trends you are seeing in non-core, particularly in North America beverage? Given the ongoing cost volatility, how has the pace or tone of the conversations around the strategic review changed? Thanks for taking the question.
Yeah. Thanks, Matt. This is PK. I will start and try to hit your question. On the non-core side, we have had a bit of an impact on the business that Steve has just mentioned, which is the unconverted film business in North America due to a bit of a weaker volume situation in the September quarter. Without going further into the details, in August, we said we did not have any material pull-forwards into the June quarter. I think that is still true, but if I think now back and I look at the performance of the business, I think this is the business where we had some. It did not impact the enterprise materially overall. I mean, our volume performance is pretty much exactly where we guided towards in the September quarter.
The other question on the non-core side, particularly on the non-core side, sorry, the C&D business obviously is not non-core, so I just want to make that clear. On the non-core side and touching maybe on the beverage business, we have a situation where the team has actually done a fine job to stabilize the business. We like what they have done, which is really important also for the sales activities that we have. I think you implied a bit of a question around how is that going and where do we stand? What I can share with everybody is that these conversations are still ongoing. If I sit here today, I would say it probably is taking a little longer than what we anticipated, but when I look at the overall market volatility and geopolitical volatility, I can get my head around that. Therefore, we remain committed.
We continue to have these conversations. Have nothing more to share at this point in time, but once we have something, obviously, we will update you immediately.
Matt, just to add to that, on kind of part of the question, volumes for the quarter in the non-core business were down kind of low to mid-single digits, so kind of consistent with some of the history that we have seen there. Overall performance was in line with our expectations, margins in line with the improvements that we have seen. As such, the business is performing consistent with our expectations, and the business also has pass-through mechanisms in place that are offsetting the movements in the raw material, non-raw material costs. So it is similar to the rest of the company in that regard. So performance in line with our expectations, and that, of course, supports the process that we are still heavily embarked on. But those are just the financials that underpin, I think, the nature of your question.
PK, Steve, thank you again.
Thanks, Matt.
Your next question comes from the line of Niraj Shah with Goldman Sachs. Niraj, your line is open. Please go ahead.
Thanks for taking my question, guys. I'm just putting a few of the questions together. I'm sort of just trying to get a handle on kind of the ex-synergy operating leverage you see in the business, given we saw very different outcomes in kind of the June quarter versus the September quarter, despite obviously a better volume momentum in the September quarter and impacted by those unrecovered costs. But how should we be thinking about kind of ex-synergy leverage going into calendar 2027, assuming modest volume growth?
Yeah, Niraj, it's Steve. I think if you kind of It's a very good question, by the way. If you look through the business, and it's what you were doing, and you kind of look past the positive synergies that we've captured, some of the offsets that we've talked about, the incentive comp rebuild, the inflation that we're absorbing and then will recover, the baseline businesses performed in a consistent fashion, so steady this quarter. While we did see some net favorable volume growth that we earned on, it was a bit offset by some of the inflation that we saw.
In terms of our confidence in the leverage of the business to have synergy capture drop to the bottom line as we normalize into 2027, as well as volume growth to normalize, no change in what we see as the opportunity for EBITDA leverage based on low single-digit volume growth and synergy capture to drive kind of mid-single-digit EBITDA growth as we pivot into 2027.
Thank you.
Your next question comes from the line of Anthony Pettinari with Citi. Anthony, your line is open. Please go ahead.
Good evening, PK, Steve. I was wondering on free cash flow if there is any kind of finer point or way that we should think about the timing of this recovery of the $500 million-plus working capital headwind. You had that kind of comment in last quarter's presentation. I am just wondering if that headwind is kind of continuing to grow as you move through the quarter. Would you anticipate the recovery being maybe back-end weighted in calendar 2027, or just any way to kind of think about that recovery in obviously kind of a dynamic situation?
Yeah, Anthony, it is Steve. Thanks for that. You are correct in that the $500 million working capital impact remains. We did not expect to see much progress in the September quarter, and we are not really looking for much progress in December given that we are really still in a reasonably volatile environment. So from an outlook perspective, we are going to keep that relatively modest, and I will talk about cash flow maybe separately here in a moment. Yes, we do see recovery being primarily a 2027 positive for us from a cash impact for us. As we mentioned in the commentary, kind of through 2027 and in place for full recovery by the end of 2027.
Looking at the current cash flow, kind of the quarter that just completed and our six-month transition period, when we stood back and looked at the volatility in resin pricing that played out during the quarter, up material April, May, down a bit in the July, August, September, the free cash flow implications in the September quarter played out about as we expected.
As we look to the December quarter, we do expect to have positive free cash flow in the neighborhood of the $800 million that we had negative outflows in the first quarter, which will drive full-year, excuse me, the transition period free cash flow to more of a neutral state, so in line with our expectations, because we are going to have positive working capital cash flow really across the categories as we get the natural positive cash inflection on our accounts receivable, just given how the natural seasonal top line plays out that generates cash for us in the December quarter. We are going to see some positive inventory cash flow from the realities of how resin has moved down, partially down from the significant up, and then we continue to structurally improve our accounts payable terms.
That's just also to give you a little line of sight to the free cash flow for the transition period, which is for the full transition period, we expect to be neutral, which drives the 3.6x leverage by the end of this transition period, end of the December quarter.
Your next question comes from the line of Jakob Cakarnis with Jarden Australia. Jakob, your line is open. Please go ahead.
Hi, PK. Hi, Steve. Just to build on Anthony's question there, what's the confidence to get the financial leverage back to 3x over the next 12 months? Is it just as simple as the working capital normalizing, or are there other things that we need to think about there? Because it's been a goal that's been reiterated a few times. Obviously, you can't foresee the working capital buildup that's happened, but yeah, interested to see this morning or this evening that you've reiterated that. I just want to get your confidence of that glide path, please.
Yeah, Jakob, it's Steve. It's an important set of goals for us, and so we remain very committed to it. As we look out and as we shared on the last call back in August, there's really three things that drive that movement to the 3x leverage by the end of 2027. One is that our EBITDA, adjusted EBITDA, would grow at mid-single digits in 2027, driven by modest volume growth and synergy capture. So that's an important attribute for getting to 3x, which is kind of mid-single digit EBITDA growth. We'll generate our normalized cash flow from that EBITDA growth, and so think about that and kind of normalize cash flow in the $1.8 billion range. That's about $500 million-$600 million above our dividend, so that drives debt reduction.
And then recovery of the $500 million of working capital associated with the Middle East conflict. So those overall are the critical enablers for the walk to the 3x. Obviously, there's some sensitivities that we're actively managing and looking to address because those are the commitments that we're making around driving it to 3x. Obviously, we're in a pretty volatile environment, so we're active in our assessment of what levers do we make sure that we pull beyond what I just articulated to you relative to getting to that 3x, which remains a critical goal for us. I appreciate that, Jakob.
Your next question comes from the line of Michael Roxland with Truist Securities. Michael, your line is open. Please go ahead.
Hi. Thanks, PK, Steve, Kate, Dustin, for taking my question. Steve, back in 2024 when the Berry acquisition was announced, the company was targeting pro forma cash flow of around, I think, $3 billion- plus, including pro forma synergies, and then ultimately free cash flow of $2 billion after $1 billion in CapEx. Last year generated about $1.3 billion in free cash flow. Obviously, we had a lot of discussions on the working capital, understand that issue. But can you help us bridge back to that $2 billion of free cash flow? Obviously, you're calling for, let's say, EBITDA growth due to modest volume growth, you have synergies, you have cost takeout, but you also have higher CapEx now, 5% of sales, so call it $1.2 billion per year.
Your interest expense should also be a little bit higher, just given the fact that you have to refi some of your long-term debt, I think 44%, 45% maturing between 2026 and 2028. So if you help us just bridge the $2 billion of free cash flow and what you need to do to get there. Thank you.
Yeah, no, thanks, Michael. Good to hear from you. I think I'll kind of start with the kind of the leap-off point. If you look at kind of the natural cash flow generation capabilities of the business today, sitting today, it's probably in the $1.7 billion- plus or minus range when you think about overall EBITDA in the low $3.7 billion, and then the roughly $2 billion in interest taxes and CapEx to kind of drive towards those $1.7 billion. As I just mentioned, if you look out, EBITDA growing at mid-single digits for the next couple of years will drive pretty substantial overall EBITDA improvement. So think about that measured in several hundred millions of dollars, which is an enabler, of course, for cash flow generation that starts to move you toward and move us toward that $2 billion.
I think relative to your question on implied there on interest expense, really when we look out at interest expense here into 2027 as an example, we only have about $1.4 billion of debt that's coming mature. We're at 70% of our overall debt structure is fixed. As we drive debt balances down and leverage down, actual interest expense on a true year-over-year basis should not grow materially. I think if you looked at 2027, it really should be up relatively modestly from kind of the calendar assumption around $610 million or so. That, of course, will be driven by our debt reduction initiatives and a modest amount of interest debt that needs to be refinanced, which we have line of sight on doing that here over the coming months. I think it's the right questions to be asking. Obviously, we're very thoughtful about CapEx.
We've also been pretty clear, the 5% is what we want to invest in the business to drive that growth in terms of organic volume growth. That's a lever, obviously, that from a free cash flow generation perspective is one that we're thoughtful about. It's not just a blind 5%. We'll make sure that we're very thoughtful on what CapEx we put to work to support our growth in the interest of debt reduction, leverage down to 3x , all the goals that we've shared. So I appreciate the question, Michael.
Thank you.
Your next question comes from the line of Hillary Cacanando with Deutsche Bank . Hillary, your line is open. Please go ahead.
Hey. Thank you. Your emerging market volumes grew about 2% this quarter. Given the additional capacity that you've been putting into markets like China, what level of growth do you think that portfolio can sustainably deliver, and when should we expect to see the benefit from those investments? Thank you.
Yeah, Hillary, it's PK. It's a great question. Overall, our portfolio is about 20% engaging in the emerging markets. The four really big markets that we're focusing on as part of our strategy is China, India, Brazil, and Mexico. When we look across those four markets, particularly in the last quarter and also in the more recent past, we've seen over time some pretty good growth performance. We would want the emerging markets to outperform the developed markets, obviously. What we're seeing is growth rates, if I just focus on China now because it's our biggest business that we have in the emerging markets, we're running a bit more than a $1 billion business in China. We're seeing high single-digit growth rates in a market which is definitely not growing that quickly.
This is one other example where I can say with confidence we are able to gain share to drive growth, which is encouraging. To your point, how much are we expecting? I can say definitely more than in the developed markets. I would love those markets to get to something in the mid-single-digit range in terms of growth. In some cases, we are there. In a few cases, we're not yet, but that's sort of what I'm expecting.
Great. Thank you.
Thank you.
Your next question comes from the line of Nikolai Dale with Barrenjoey. Nikolai, your line is open. Please go ahead.
Yeah. Thanks, PK, Steve. Maybe just on SG&A. It stepped up to $468 million in the quarter from $435 million in the PCP. It is 8% growth year-over-year. I would have thought that this is maybe a lever you might pull in a tougher earnings environment. I hope you can help us understand what is driving that year-over-year growth, and then maybe how we should be thinking about your approach to SG&A spend going into 2027. Thanks.
Yeah. Thanks, Nikolai. It's Steve, I think part of that is the incentive rebuild, so that's an important part there. So I think if you adjust for that, roughly $20 million in the quarter, it would speak to a more modest growth profile there. As we talked earlier, obviously SG&A and control of our cost structure to match it with the realities of these markets is a conversation we're having all the time, as we should, which is to make sure that our cost structure is competitive, that it is balanced relative to our innovation efforts and the efforts we have to support our commercial activities around the world, but also that we're appropriately lean to support that. So I think we're certainly attentive to SG&A as an overall investment, because that's what it is.
But I think in terms of the actual math you're doing, there's probably an incentive rebuild adjustment I would make relative to those numbers. I don't know, PK, anything to add to that?
No, I think, Nikolai, you're asking a really good question. I mean, given the current environment, as I said beforehand, we need to stay focused on cost, and we're making some good progress here in terms of the combinational synergy opportunities, particularly on G&A, which are coming together well. But that will continue to be an area of focus as we move forward, given the operating environment. Thank you.
Your next question comes from the line of Nathan Reilly with UBS. Nathan, your line is open. Please go ahead.
Thank you. I just had a question just around, I guess, latest thinking on portfolio management. I know you have gone through a process of identified asset divestments. I am just curious to see whether there has been any further evolution just around strategy around other divestments or other ways that you could potentially support that deleveraging target of sub- 3x .
Nathan, it's PK. I will start. You are right. We have taken a look at the portfolio after the combination of the two companies. We have identified at the time a portfolio of companies that we said we could probably find better owners to. We have executed against those, entered into six transactions. Five of them have closed. The last one is imminent. The one that is outstanding, I made a few comments a moment ago here, is essentially the North American beverage business, and that is live. at this point in time, I think we have got to pace ourselves. We want to make sure that we complete that set of targeted initiatives, and that is the priority.
Going forward, I think we have a core business, if I can call it that, which is actually very nicely organized with scale businesses in very attractive end market segments that sets us up for a good opportunity of bolt-on acquisitions. These are sizable acquisitions, but I would call them bolt-on given the scale and size of the company that we have now generated through the combination of legacy Amcor and Berry. There are multiple ones out there. Whether you look upstream on the film side, if you look into protein as a business, if you look into healthcare, which is interesting, you can sort of go through that list and you can find targets. I will tell you that we are very, very committed to the investment-grade balance sheet. From a capital allocation perspective, the focus remains on getting our leverage down into that 3x range.
Thanks for the question.
Your next question comes from the line of Jeff Zekauskas with JPMorgan. Jeff, your line is open. Please go ahead.
Thanks very much. In the quarter, you took a $62 million restructuring charge. Will that eventually be a cash outlay? How much restructuring still needs to be done in order to reach your $650 million target? Is there more to go? Then finally, if you divested all of your non-strategic EBITDA, would that be a divestment of about $100 million?
Hey, Jeff. It's Steve, let me try to touch on—
Thanks.
—those. In terms of the $60 million that you're referencing, roughly $30 million of that was associated with the Berry integration activities. With that $30 million, we're now at $190 million of spend that we initially identified as being $280 million in total to capture the $650 million. So we've now spent $190 million. We would expect to spend another $20 million-$ 30 million here in the coming quarter, so the December quarter. So we're going to exit calendar 2026, kind of think about it in the $210 million-$220 million range, which will leave roughly $60 million of spend to support that. So the number has stepped down quite materially on a year-over-year basis and will continue to do so.
The remaining $30 million were associated with some other initiatives actually associated with, as PK was just talking about, the divestiture activities that we are pursuing and some costs associated with that, and some other one-time costs associated with the change to our fiscal year, as an example. Overall, we have every expectation that those items, some of which were cash, some weren't in the quarter, but overall, that the cash outlay for those items will continue to step down as we look forward.
Your next question—
Appreciate you asking that, Jeff.
Your next question comes from the line of Mark Wilson with RBC. Mark, your line is open. Please go ahead.
Yeah. Thanks very much, PK and Steve. Just wondering, in this challenging environment, whether your scale does put you at a competitive advantage relative to some of your smaller competitors, and what you're seeing on that front.
Yeah, Mark, it's PK. I do believe that scale is an advantage right now. Let me try to lay that out for you a bit. Some of our customers in an environment like this, and we've seen this several times, they turn back to more secure supply chains, and that requires scale. So that is when we have a natural attraction, and we see that. We see that customers prefer very solid suppliers that have delivered the service and the quality of product to them in the past, and they stand for being able to doing that also through those very volatile times. Obviously, scale also is a driver of efficiency throughout the system, which is something that also translates into advantages right now as we secure supply and as we fight inflation on the input side. Thanks for the question.
Thanks very much, PK.
Your next question comes from the line of Steven Anastasio with E&P. Steven, your line is open. Please go ahead.
Thanks, guys. Just one on the leverage target, the 3x target by the end of next year. I've noted that some resin suppliers have been talking about further price increases in October and November. Are you guys expecting additional working capital impacts in the March quarter and for that working capital benefit to be much more second-half weighted? How do you currently see it?
Yeah, Steven, it's Steve. I think in terms of the pathway to the 3x leverage target by the end of 2027, as we talked about, kind of three dimensions there, EBITDA, Middle East working capital recovery, and then obviously the core cash flow generation. It assumes an environment relatively similar to that which we're in today. It's hard for us to speculate kind of up or down. So obviously, as you know, if you see inflation, there's some impact on the timing of recovery. If you see deflation, it accelerates it. So, if there was movement, which is like you're saying, I think is hard to predict at this point, and it's hard for us to predict as well, so we don't, it would have some potential timing implications, but no changes to the intended outcome either direction, either if it inflated or deflated.
Hope that helps with the question. So thank you.
Your next question comes from the line of Justin Barratt with CLSA. Justin, your line is open. Please go ahead.
Hi, guys. Thanks very much for the opportunity. I guess one of the key takeaways post the Berry merger was around you guys potentially being able to achieve a 1 percentage point above market growth in your core portfolio. I just wanted to understand where are you at or where were you at, do you feel, in that most recent quarter? If you are getting that 1% or if you're not just yet, when do you think it can be achieved and how important is, I guess, a moderation in, I guess, the broader macroeconomic pressures important to achieving that target? Thanks.
Yeah t hanks, Justin, it's PK. You're right. The target was something about 1% above market. If you'd ask me, or before I tell you where we think we are today, let me tell you this. We also said, when we did the acquisition, that we're going to take some time in order to get there. The financial model was such that we said the synergies will drive double-digit EPS growth. In that period of synergy realization, which was up to three years, we would have an opportunity to strengthen the volume profile, which then takes over once the synergies, they sort of ebb off. That was the idea.
Now we're about 18 months into the acquisition, and I think where we are today, very honestly and trying to see it like it is and tell it like it is, I think we can confidently say that we are definitely moving with market, which has improved a bit over the last couple of quarters. What's important is that we're seeing more and more of those areas where we're actually operating ahead of market. I made those examples of food service and pet care and the prepared meals. In the Q and A session, I talked about China, and we're seeing more and more of those areas. I believe, when will we get to the full realization of the potential on the top line relative to market? I think 2027 is a pretty interesting landmark for us as we walk through 2027.
I said before, 2027 is sort of the first cleaner year after the acquisition of Berry. I would like to see us make some more progress and develop some consistent volume performance as we go forward, obviously. 2027 is going to be important. Thank you.
Your last question comes from the line of George Staphos with Bank of America. George, your line is open. Please go ahead.
Hi, everyone. Thanks for taking my follow-on question. PK and Steve, related to the process with the non-core assets and the large one, obviously, that you've been working on, recognizing that it's in motion, does there come a time where it would possibly become back to being a core asset? In other words, either the time period and/or the valuation suggests that it stays in the portfolio. Is there a mile marker out there where you would consider that or have us sort of think about that? Then back to my earlier question, can you talk about some of the temporary or immediate cost actions you're taking to offset the pressure in distribution and energy? Thanks, and good luck in the quarter.
Yeah. Thanks, George. I'll give you a high level on the non-core, and this time I'm not going to confuse it with our specialty business, which I did on the earlier question. I apologize for that. Then maybe Steve wants to add to the latter part of your question. It's hard once you've done a strategic assessment of the business to swing from a non-core assessment to a core assessment. That's hard. You make the assessment, you call a business non-core for good strategic reasons, which we laid out at the time. That continues to be the case. To the point of executing against our plan, as I said beforehand, the discussions are live, so I think we're not going to get into that situation. I don't want to speculate in any other way right now.
Our target remains, we want to sell that business, find a better owner to it, and then move on. So that's on the first part of your question. With that, I'll hand it off to Steve.
Yeah. George, in terms of cost actions, they would be the things you would expect to hear from us. I mean, every time we see inflation on an item, as always, in terms of our productivity, but in particular when you see something around distribution or all distribution-related, it gives you an opportunity to take a very hard look instantly around your procurement initiatives, the supplier initiatives, or in terms of the mix of who you're doing work with, et cetera. You kind of double down on those efforts, and then you, as always, you take a really hard look, particularly in the world of distribution, around are you at full truckload? Are you utilizing the most effective rates, if you will, in terms of how you're moving things around? So much of this is diesel movement-oriented. It's not really inventory, it's real cost.
Our procurement teams and our operating teams just do a great job of really raising the bar on, okay, something really started to move against us. Let's make sure that we're doing our part to offset those, and then obviously pass appropriately along to our customers. But it's on us to make sure that we are confident that we're at the lowest cost available for those items, such particularly around freight-oriented, diesel-oriented, distribution-oriented, which have moved, as you know, up quite materially. So thanks for following up on that, George.
We have reached the end of the time we have for the Q and A session. I will now turn the call back to PK for closing remarks.
Yeah, thanks, Matt, and thanks everybody for joining the call today. Look, I keep it very short. I just want to say it's a very volatile environment out there. We delivered solid operating results this quarter, and we shouldn't be forgetting what's really important here. The volume growth of 1% was encouraging. Synergy realization was in line with our expectations. On the back of that, we're here and we remain confident that we can deliver on the medium and long-term commitments. Thank you very much. Look forward to engaging with you soon.
This concludes today's call. Thank you for attending. You may now disconnect.