Amcor PLC Stock

All right. Good afternoon, everyone. We've got Steve Scherger here from Amcor. My name is Ramoun. I'll open it up to Q&A at the end, but I've got a few questions for Steve to kick it off. Steve, we're entering year 2 of the Berry merger. Maybe kick it off with how the pace of that integration is going and touch on the synergy run rate versus your overall targets there. And then we'll jump into.

Yes. No, I'll be glad to. And Ramoun, thanks for taking the time today. Thanks for the audience as well for joining us. So I appreciate that. Yes, thank you. We're now a little over a year into the acquisition of Berry and creating Amcor in the state that it's in today. When we completed the acquisition and established the goal, $650 million of synergies were the 3-year targets that we established for the business. Year 1 target, $260 million.

We're now post year 1, and we captured $285 million of synergies in the first year. Importantly, those drop through to the bottom line for us, which is obviously critical when you take on an acquisition of this scale and help to drive double-digit EPS growth for the year. We're entering into a 6-month transition period here. We're changing our fiscal year to 12/31. We expect to capture another $130 million of synergies during that 6-month period, which is also in line with our expectations. $650 million over 3 years, our expectation we'll make that in that 3-year period of time.

Our internal goals are obviously to get there faster. The mix is as we expected it to be. We've got an important mix of procurement-related synergies. We acquire every year over $13 billion of raw materials. So we established a strong synergy target around procurement, SG&A, of course, $100-plus million taken out of the business. We've got a nice trajectory on revenue synergies, about a $280 million goal for 3 years, about $60 million of EBIT. We've captured $140 million of real business that is new to the company, much of which will start to come in over the coming quarters. So we also -- just including the commentary, we indicated we would spend about $280 million to capture the $650 million of synergies. We've spent about $160 million of that. So we're nicely on our way.

So overall, really in line, slightly ahead of our expectations on synergy capture.

Yes. Maybe on the revenue synergy side, it's a pretty good outcome so early on. What's driving that? Is it cross-sell because there was minimal overlap with Berry in terms of the product set? So just the motivation of customers coming to you...

Yes. It's -- we like what we see. And I say that, and you touched on it there. The combination, there was very little actual product overlap. And so we've seen really no revenue leakage from the combination, meaning we haven't gotten such so large with a customer who says, I've got to kind of redistribute. That's good. And so the revenue synergies are, in fact, additive, and they tend to fall into a couple of categories.

One, it tends to be a little more systems-based, meaning that we can sell you now multiple components of a package. For example, we made the yogurt cup before. Now we can make the lid, creates a little more of a systems-based approach. We can sell multiple components to you as customer, gives you confidence that it's coming from one company, more confidence in the combination. We're doing that in our health care space, making for single-dose applications, making the blister card and then also making the bottle and so we're seeing some real nice movement in that direction. We're also seeing some customer wins that are coming from some of the PPWR and some of the EPR fees.

We've got some new innovation that is associated with, for example, a bottle with the dispenser on the top. We've got some innovation that allows us to make both of those for you as a customer before either company alone was making one. So we hold a pretty high bar, very high bar actually to what we count. It has to be that we couldn't have sold you that business individually as either company. It has to be new to us. And that's been good traction. It actually has exceeded our expectations a bit, which gives us a lot of confidence in that $280 million run rate over the next few years.

Great. And just turning it to the current sort of operating environment, very volatile in the raws. Maybe just touch on what you're seeing on raw material prices and Amcor's sort of strategy of recouping those costs.

Yes. No, and I appreciate you raising it, and it has been. It's been a very volatile time really for the last several years. If you think about the inflation that the day-to-day consumer has absorbed over the last several years, it is very substantial. And we, of course, are a part of that as a packager. And with the Middle East conflict and the movement in resins.

So of that $13 billion a year that we acquire in raw materials, $5 billion of it is resin based. Within that resin base, we acquire resins around the world, only about 4% of it actually comes from the Middle East, which is obviously experiencing the significant unfortunate disruptions that are happening there. Overall, inflation has been very substantial. We passed through $280 million of price inflation to our customers in what was our fourth quarter, so the last quarter, and that was in line with the inflation that we were experiencing.

So we, over the last several years, have developed the muscle, if you will, the capabilities that when we see significant disruption on costs that we work with our customers kind of hand-in-hand to pass that through them on a significantly reduced lag basis. So in other words, do it quickly, do it in line with the inflation that we're experiencing. And we were successful at doing that in the prior quarter, and we'll continue and have expectations we'll do that here for the coming quarters.

Unfortunately, it's not unprecedented because we've seen periods like this. It's not preferred, obviously, but our customers have come to understand that we want to keep you in product. We want to keep you in supply, want to do it well and that this is the best way to do it is to pass it through to you in a way that's consistent, that is not a win-lose. It's in line with what we're actually experiencing. And there's -- we've had good execution on that front and expect to continue to do so. But it remains a volatile environment, as you indicated.

Yes. And you guys have tightened the lags historically that you've had to much shorter.

We have. And it's important because generally, the lags, if you will, lag from an inflationary environment to a price change has tended to be in that 3-month range. It was historically went years back, it would have been longer. It's been tightened down to 3. And actually, in times of significant disruption like we've been experiencing, we'll tighten them up even more down to like a month so that we're in literally a very reduced lag.

Now that tends to be temporary because you don't want it to be a permanent. It doesn't help with forecasting for our customers. It doesn't help them with cost consistency, but it's something that we'll do for periods of time when we have this level of disruption which allows us to keep that relationship in line like we did in the prior quarter and we'll do for the coming quarters. And so it's -- you do what is appropriate and do it in connection with our thousands of customers and overall customer receptivity.

Like I said, no one wants to have that level of volatility, but we've got to keep our customers in product. They want to keep we as consumers in product, and it's one of the best ways to do it.

Got it. Shifting gears maybe to volume. The fourth quarter was encouraging. You had modestly positive volumes across the business. Maybe just touch on that backdrop. What's driving that? And what you're seeing from customers?

Yes, it was important because as we were just talking, the consumer being under very significant pressure, our customers, generally CPGs, private label producers, QSRs, et cetera, have been in a multiyear environment of taking significant price up at the expense of volume. And they too took a little more of a balanced approach balanced this year in 2026 that we saw play itself out in our fourth quarter, where we moved sequentially, we improved volume about 200 basis points.

We were down about 1.5% in what was our Q3, up 0.5% in our Q4. And it was pretty broad-based. And so it showed a little more of a balanced approach by our customers, volume and price, which was good. It was a little more broad-based in categories that we're focusing on higher growth. So categories where the consumer is moving like proteins, food service applications, health care, personal care, us taking care of ourselves, us taking care of our pets. And so the categories that we've been focused on, we saw a little bit better growth.

And then categories which are very important to the company, a little under half of the company, more center of the store, we saw our customers take a little more of a balanced approach. And then finally, in some of our emerging regions. So for us, that's China, India, Brazil, Mexico, we continue to see multiple quarters now of growth. The summary of that is pretty broad-based, which was important. It wasn't -- it didn't appear to us to be kind of a one-off event.

And through now August, it's continued for us. And so the guide that we provided for this 6-month period of being flat to modestly positive, what we've seen to date through August is consistent with that.

Great. You talked through the stub period. We've got to get through that period over the next few months. But calendar year '27, you seem pretty confident of delivering a double-digit growth year. Maybe just talk us through that and size up what's going to drive that double-digit growth into a more normal year.

No, and thank you for that. And what we were really working to do, particularly with this last quarter, because we have a little bit of an unusual period of a 6-month transition period that we guided to, we wanted to provide some context, at least what we call a look into 2027 and we believe that 2027 sets up for us to show the value that we are creating as this day-to-day life global consumer packager. And in doing so, what we expect to see in 2027 is a continuation of several things.

One, that we have kind of the third year or year 1.5 to 2.5, but basically, the last portion of that $650 million of synergy capture. So that will be important to driving improvement. We also should be in a little bit of a cleaner environment, meaning that we'll have worked through some of the realities of the volume headwinds that we were experiencing. And we are expecting to have what I'd characterize as globally a little more of steady and consistent demand at the customer level.

So nothing of substance, but that gives us the opportunity to outperform that with the revenue synergies, with the focus on the categories that we're committed to, us investing behind private label as an example, investing in those couple of emerging regions that gives us confidence that a low single-digit organic growth business is plausible. And that, along with the synergy capture, gives us confidence we can have kind of mid-single-digit EBITDA growth, which can drive that double-digit EPS growth. So it's a look into it.

Obviously, we're operating in unique and volatile times, so it doesn't have perfect line of sight, but those are the fundamental assumptions that are implied in our look into 2027.

Got it. Just the enabler of that longer-term organic growth, I think you've talked through a CapEx up to 5% of sales to support growth initiatives. Maybe just talk us through those a bit more. Is it about modernizing plants or putting greenfield plants on? Or is it more incremental spend as your customers demand it?

Yes. And thanks for asking that. I think one of the things we've been working to do is as part of that algorithm we were just talking about is talk about CapEx is what kind of level of CapEx as a percentage of sales for our business allows for and enables low single-digit organic growth.

And based upon all the work that we've done around CapEx as a percentage of sales to maintain our assets, think about that in the 2% to 3% range of sales. Productivity enablers, so automation, driving cost out, driving productivity and then organic growth. Cumulatively, we believe at around 5% of sales that we can consistently operate in that low single-digit organic growth environment. What's good about it is, and you just touched on it in your question, is it's more small and incremental investments that tend to be customer-specific as opposed to large-scale greenfield style investments where you have to put iron in the ground and then look for ways to populate it, if you will, or fill it.

That's good because it makes it a little more variable. It, of course, ties to the realities of do you have the organic growth opportunities with customers. And so if those don't exist, if we're in an environment where that isn't as available, then, of course, CapEx wouldn't be at that 5% of sales. So it is, of course, variable. The 2 businesses prior Amcor and Berry tended to operate more in the 3s and 4s, but with relatively limited positive organic growth. So we're just trying to put it out there in terms of this is probably what it takes, what we think is plausible and appropriate. The free cash flow generation from that with the kind of margin profile in which we operate drives above cost of capital returns and is a nice enabler for value creation.

I guess just culturally as well, if you could touch on Berry was very much an M&A-focused business. Amcor probably more returns based. How does this new sort of thinking compare to those 2 businesses previously?

Yes. And by the way, both great businesses with excellent capital allocation philosophies, M&A driven, a little more margin enhancing ROIC driven in environments that were conducive to that. Both of those are, of course, important to the long-term value creation of the business. But what we are investing behind is building out the fundamental skills, the capabilities to allow ourselves to leverage our scale, leverage our innovation, which is larger capacity than anyone in our space and leverage the geographic reach of the business to reach into more of our customers' opportunities to win with them in ways that are consistent with kind of what we were just talking about, which is the right to win and being very targeted in it.

We're in the early days. We have more data about our customers and about the realities of where we're operating than anybody, leveraging that data to determine where, in fact, should we be placing our commercial efforts. Use an example. We've got a great business with a customer in Germany. They're a global producer. We now have the data to say, gosh, we've got them in Germany. We don't have them in Brazil. Let's go after that. Let's target that, let's head that direction. Now you would say to yourself, that should be common knowledge. Well, historically, not as simple. Now we can get after that very time effectively and really target our commercial efforts to give us more confidence that the organic growth is, in fact, plausible. Now you got to build a culture around that.

You got to build reward systems around that, and that's what we're doing, and you've got to put dedicated leadership around it. So that's why we have invested in a new private label commercial team. That's why we've invested in efforts around how do we reward our commercial teams for winning and capturing new opportunities for growth. So it is a culture build. We're in early stages, which is good, but we now are seeing evidence of it playing itself out.

Maybe just switching to free cash. Free cash was a bit lower in that period versus your guide because of what was going on in the Mid East. I guess just give us your perspectives around how you get back to that $500 million? And then beyond that, what to expect from free cash for this business?

Yes. No, you're absolutely right. When we started the year, we had free cash flow estimates and guidance in the $1.8 billion to $1.9 billion range as the Middle East conflict was emerging and playing itself out, we lowered it towards $1.5 billion, actually came in around $1.3 billion, so of substance.

And what we have experienced is around a $500 million investment fundamentally in working capital, primarily accounts receivable with our customers and inventory, both in terms of some volume and value that we must and have line of sight to recovering over the next 12 to 18 months as one of the critical cash flow enablers as we delever from roughly 3.5x down towards 3x over the next roughly 18 months. And so it was an important investment. It was a choice. It was a choice to keep our customers in product to have appropriate supply of things like resins in order to make sure that we could service customers.

Now that we're through that period of time, and obviously, you've seen resin prices move up pretty significantly, come down modestly, we can see line of sight to our customers, as example, we're tending to pay within their terms, but they were tending to pay toward the latter, higher end of their terms rather than taking a discount as an example, when we saw and as they were absorbing this pricing. We expect that to more normalize. We now -- the supply chains for inventory have actually been functioning quite well, gives us confidence that we can start to take down the volume component of our -- of the inventories that we're carrying, primarily raw materials on a pathway to recovering that $500 million.

That $500 million, along with kind of the normal free cash flow generation of the business above our dividend gives us line of sight to roughly $1 billion of debt reduction over the next 18 months, if you will, out into the end of 2027, coupled with ongoing kind of mid-single-digit EBITDA growth is the pathway back down to leverage that's in that 3x range, well within our investment-grade status, which is critical for us. We've got full commitment to our investment-grade status and want to maintain that and deleveraging is critical.

So I gave a little longer answer on a few things around leverage and the like, but it's a critical enabler around how to utilize our cash flow.

Yes. I guess we see headlines around the conflict daily and they swing around and oil prices swing around. But you made the point around this reversal being dependent on supply chains that are predictable or stable.

Can you just touch on that a bit more compared to this constant headline around what's going on in the Middle East?

Yes. I think -- and obviously, we have no appetite for the conflicts and the like and want to see things resolved appropriately over time. But I think for us, it's less around the conflict itself and more around the actual impact on the supply chains.

And as I mentioned, we buy about 4% of our resins in the Middle East, probably even lower percentage today. And so we have a very distributed global and regional that's regional in terms of where we acquire most of our raw materials. That distributed nature of that allows us to make sure that we're buying very effectively in regions -- we are a very limited spot buyer. We tend to have more relationship build with our customers or with our suppliers, excuse me. And that's important because we want to be a confident supplier of choice in our case and producer for us that allows us to have the assurances of supply.

So as long as the overall supply chains continue to operate effectively, we have every confidence we'll keep our customers in product very effectively. That being said, of course, there's some risk if you had true escalation or a very significant new shock to the system on oil, we'd have to navigate through that. But to date, the supply chains themselves have and how we operate within them more regionally have been operating effectively.

Just on your point around leverage and getting back to that 3x by the end of calendar year '27. I guess how to think about capital allocation beyond that? Like should we expect buybacks? Or is there M&A potentially on the horizon of segments that Amcor wants to increase its exposure to?

Yes. I think kind of reiterating from a couple of moments ago, our capital allocation priorities here in the medium term, if you will, short to medium are very clear. We've got an important dividend, one that's been steady and consistent and modestly growing. Expect to continue that, expect to continue our full commitment to our investment-grade rating and the deleveraging. So it is clear.

If you look beyond that, of course, then the things open up beyond that. We've got a good history of M&A. That opportunity would reemerge once we get back down into that appropriate zone on leverage. That being said, the bar is pretty high on that right now. And so we obviously monitor and effectively do so. But we'll also keep the cost of capital in mind and the like relative to the value of the corporation and our share repurchase is a better use of free cash flow at that time.

So the lens will open up. It will open up, but we'll be very conscientious of when we open it up, what are the trade-offs we're making between using capital to buy back the organization versus putting it to work to grow the organization, and we'll be very measured as that window starts to open up down the road.

Got it. Maybe just on portfolio and portfolio pruning, I guess. 5 sales done. You still got the beverages business within that profile. Maybe just talk us around the pathway to that pruning.

Yes. Just as a reminder, we identified $2.5 billion of top line sales around our -- within our $23 billion enterprise that we viewed as in better hands with different owners. It didn't fit our strategic profile relative to the organic growth conversation and margin discussion we were just having. $500 million of that, we've executed on successfully and have executed on those 5 transactions that you mentioned. We've got one large component to that. That's mostly a North American bottle business.

So think Gatorade bottles and Powerade bottles, et cetera. The business was underperforming. We had to improve its performance and have done so over the last 12 months. So the team has done a phenomenal job of improving the margin profile and cash flow generation profile of the business. We've been active in a sale process. Obviously, you've got to have willing buyers and of course, we're the seller. And we've been working through that. We've had to be a little bit patient because we've had to improve the business kind of in motion and have had good success there.

And then as a resin-based business, selling that during the Middle East conflict creates some volatility that you have to get potential buyers comfortable with the business, the actual pass-through mechanisms, the cash flow generation. So we maintain our commitment to the sale process, the strategic intent. As you can appreciate, you want to also make sure that you're making good financial decisions as well. Strategic, of course, financial, do they make sense relative to deleveraging, makes sense relative to the impact on dilution from an EPS perspective. So we're keeping all of those in mind as we navigate through the process to exit.

Yes. And anything on timing?

It's hard to predict. I mean we are very actively engaged. And so obviously, every day that passes by, we are intent on navigating towards that announcement. But no, nothing to share relative to timing. As we mentioned on our fourth quarter call or didn't actually talk about it, there wasn't really an update for that, but we're actively engaged.

Okay. One area that you've flagged previously as being potentially a bit underweight is private label and the growth of private label. Maybe if you can touch on that and what Amcor has been doing to, I guess, increase its exposure to that private label segment.

Yes. As the combination was coming together, both businesses and then one business observed that we were underweighted in our private label efforts. Both businesses tended to be overweighted with traditional CPGs, obviously, with QSRs and good, strong and healthy global brands.

But it was actually one of the initial changes organizationally that we made was to actually put dedicated leadership, starting with a leader over our private label commercial efforts over the selling efforts. And we've been grabbing resources around the organization to invest behind that as well as new. And so just by reference, selling to private label producers. So think about this as the Walmarts and the ALDIs and the big brands that are emerging from what would be considered historically private label, which are now of substance brands and important brands that have high-quality products and high-quality packaging.

The sales process is a little different because it tends to be earning the right with the retailer, if you will, to make sure that you're qualified and accepted and viewed as a good, strong advocate that they can support and support and advocate on behalf of -- and then the selling process tends to be across a broader cross-section of contract manufacturers. So the selling process is a little different. It's one of the reasons why some packagers like ourselves and others became a little underweighted.

And yet there's really no difference in the quality needs, the capabilities, the margin profile of selling into that category. So make good progress. We expect to share more examples of that in the quarters ahead because we like the traction that we have. And some of those revenue synergies actually are a good example of ones that will come on the private label side.

Got it. All right. Well, I've almost exhausted all my questions. Any questions from the room for Steve? Anyone? It's pretty quiet out there, Steve.

That's all right.

$20 billion portfolio. I mean, that's your core portfolio. Within that, there's obviously the growth segments of that portfolio. Maybe just touch on the most attractive ones to Amcor and what you're doing to continue to drive, I guess, increased exposure to those segments.

Yes. No, I appreciate that and can use that to conclude because I think you touched on, it's important. Overall, as a $20 billion global consumer packager, we've got really good line of sight into the day-to-day life of the consumer as well as kind of the trends that are occurring both in big regions, North America, Europe, Asia, Latin America, that are actually taking place with the consumer.

And so we spend a lot of time focused on what are the dietary habit changes that are taking place that we should be investing behind to make sure that we're packaging those product categories.

We identified 6 of them pretty early on, where the growth rates should be low to mid-single digits. And these are categories be no surprise to many of you like proteins, a place where certainly caloric intake changes and dietary habit changes, more proteins, a big part of it. Health care, we've got a $2.5 billion health care platform, wonderful opportunity to grow and invest behind that with the medium and long term in mind. Personal care, taking care of ourselves.

As we improve our dietary habits, we tend to improve our commitments to ourselves in terms of our own health and well-being. We all love our pets. We're feeding our pets now as well as we feed ourselves, and we package that and do that distinctively in advantaged ways. Foodservice markets as a resin-based producer, now polypropylene cups, we're the highest quality, lowest-cost producer in North America. And now that the cups are more readily recyclable and viewed as such, the QSRs are making advances that direction. They like seeing the product. They like seeing the brands. And so by focusing in on what happened to be 6 categories, a little over half of that $20 billion, we believe there's opportunities to outperform the broader market. It doesn't mean that we're not incredibly focused on the other 45%. We are.

They're equally important in terms of center of the store, kind of day-to-day consumption. But as we continue to weight the corporation towards those higher value and higher growth-oriented markets, a greater percentage of the enterprise will move that direction. Hence, our belief that there's an opportunity there to outperform the broader market, and it's about the where you point your investment dollars, like private label as well. Those are fall into those market categories and commercial categories. and then a couple of regions that are important to us.

That's great, Steve. Appreciate your time.

Absolutely. And thank you all for taking the time. Have a good rest of the afternoon.

Thank you for joining us, and welcome to Amcor's Fiscal 2026 Fourth Quarter Earnings Call. [Operator Instructions]

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 Fiscal 2026 Fourth Quarter Earnings Call. Here with me today are Peter Konieczny, Chief Executive Officer; and Steve Scherger, Chief Financial Officer. In the Investors section of our website, amcor.com, you'll 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 the current estimates, and reference can be made to Amcor's SEC filings, including our statement 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-up. With that, I'll 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're 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 the transition in our Investor Relations team. After more than 15 years leading Amcor's Investor Relations efforts, including through 2 strategic acquisitions, Tracey Whitehead has chosen to remain in Australia and pursue opportunities there. I have valued her steady leadership and the lasting impact he 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 and 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 1 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 3-year synergy target.

Third, we continue to make progress on optimizing our portfolio with a total of 5 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 noncore businesses delivered improved year-over-year performance driven by strong execution against broad-based operational initiatives.

And finally, turning to our outlook. As part of our previously announced fiscal year-end transition, we are providing expectations for the 6 months ending December 31, 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 leveraged the Berry acquisition, which created a stronger, more diversified portfolio with expanded product offerings, broader geographic reach and enhanced capabilities and 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 3x by year-end while modestly growing the dividend.

We're 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 6 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 1 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 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 long-standing commitment to annual dividend growth.

Turning to Slide 7. 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 2 years.

Finally, we achieved half of our 3-year growth synergy target this year with new business awards representing nearly $140 million compared to our initial $280 million 3-year goal. As we expected, we're 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 the 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 products as well. In fact, just 1 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 3-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 3 years intact.

With that, I'll turn the call over to Steve.

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've discussed previously, the core portfolio includes 6 strategic focus categories. Within nutrition, we have proteins, liquids, foodservice and pet care as well as health care 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.

During the quarter, we saw strong volume growth in the food service, pet care and protein categories, while liquids and beauty wellness volumes were flat. In health care, while overall volumes were down due to softness in lower-margin health care categories, underlying growth trends across our health care platform remain encouraging and reinforce our confidence in the long-term opportunity in this focus category. In aggregate, volume performance across the focus categories was in line with the core portfolio with trends improving as the year progressed.

As PK mentioned earlier, we are pleased with the improved performance of our noncore businesses with performance up significantly in the fourth quarter.

Turning to Slide 9 and the global Flexible Packaging Solutions segment, where sales increased 16% on a constant currency basis, driven primarily by the Berry acquisition, along with the pass-through of higher raw material costs. On a comparable basis, volumes were up approximately 1% year-over-year. Notably, this represents a sequential improvement of nearly 200 basis points compared with Q3. Across North America and Europe, volumes were up modestly compared with the prior year. Volumes across emerging markets were up low single digits, mainly driven by continued growth in Asia.

Adjusted EBIT was up 20% on a constant currency basis to $533 million, primarily driven by acquired earnings, net of divestitures and synergy benefits. On a comparable basis, adjusted EBIT was up approximately 18% and adjusted EBIT margin of 15.1% reflects synergy benefits in line with our expectations. Excluding synergies, comparable earnings were up mid-single digits compared to the prior year.

Turning to Slide 10 and the Global Rigid Packaging Solutions segment, where sales increased 35% on a constant currency basis, primarily due to the Berry acquisition along with the pass-through of higher raw material costs. On a comparable basis, volumes were up approximately [ 0.5% ] in both the core and noncore businesses. This was sequentially stronger by approximately 200 basis points, driven in part by improvement in both consumer demand and stronger performance in our noncore businesses.

By region, volume growth was driven by developed markets with sequential improvement in both Europe and North America. Adjusted EBIT was $352 million, up 57% over last year, on a constant currency basis, primarily driven by acquired earnings, net of divestitures and synergy benefits. On a comparable basis and excluding noncore businesses, adjusted EBIT was up approximately 24% compared to the prior year, primarily due to synergy benefits as well as volume improvement. Adjusted EBIT margin was 12.3%, a 180 basis points higher than the prior year. Excluding the noncore businesses, adjusted EBIT margin was 13.3%.

Moving to free cash flow and the balance sheet on Slide 11. After funding $290 million of Berry transaction, restructuring and integration-related cash costs, free cash flow for the year was $1.3 billion, which was $200 million below our outlook range. This was primarily driven by working capital impacts across inventories and receivables due to the Middle East conflict that were higher than expected as well as accelerated integration spending to expedite synergy capture.

Importantly we target recovering more than $500 million in cash over the next 12 months, primarily driven by the reversal of working capital impacts related to the Middle East conflict and other initiatives to structurally improve working capital. Despite lower-than-expected cash generation, leverage at quarter end was 3.5x, in line with our expectations, driven partly by proceeds from the divestitures.

As PK mentioned, we are expecting leverage to be approximately 3x by the end of calendar year 2027, driven by robust free cash flow generation which underscores our commitment to an investment-grade credit rating.

Moving to our transition period outlook on Slide 12. We expect to deliver adjusted EPS in the range of $1.80 to $1.90 per share during the transition period. Walking through the building blocks from the $1.83 adjusted EPS we reported in the prior year period, we expect a $0.04 per share unfavorable impact from the divestitures that we have completed to date, which results in baseline prior year adjusted EPS of $1.79. From there, we expect a $0.10 to $0.12 unfavorable impact from higher interest and taxes and a $0.13 to $0.21 positive impact to adjusted EPS and from synergy capture and net operating performance, which represents roughly double-digit growth at the midpoint.

We expect leverage to be in the range of 3.5x to 3.6x on December 31, 2026, in line with seasonally lower earnings and cash flow generation in the September and December quarters. As we reflect on the fourth quarter results, we are pleased with our improved operating performance, which demonstrates the strength of the combined organization as a leading global consumer packaging company. As we move into the transition period and look ahead to calendar year 2027, we are looking forward to consistently delivering for our customers, our employees and our shareholders.

Thank you for your time today. Let me turn the call back over to PK.

When we outlined our expectations for fiscal 2026 more than a year ago, we targeted double-digit adjusted EPS growth, and we delivered on that commitment. We finished the year strong despite a demanding operating environment driven by disciplined execution across the business. I'd like to thank our global team for their hard work, dedication and commitment to serving our customers.

As we move into the transition period, our confidence in our momentum continues to build. With our integration efforts largely behind us, we are now seeing the benefits of this global consumer packaging combination translating into stronger performance. While we have accomplished a great deal over the past year, I believe we are still in the early stages of unlocking the full potential of Amcor.

That concludes our prepared remarks. Operator, please open the line for questions.

[Operator Instructions] Your first question comes from the line of John Purtell with Macquarie.

Just a question on working capital there, Steve. Just the $500 million of Middle East sort of working capital impacts, you expect to get that back, obviously, over the next 12 months, I think is what you said. How much of that do you expect to get back in the next 6 months as distinct from 12? And just you mentioned structurally improving working capital collection, any color there.

Yes, John, it's Steve, and thanks for joining us this evening as well for the call. You described it well. We've cumulatively have about a $500 million impact from the Middle East conflict. The original estimate was around $300 million, moved to $500 million. By the way, that $200 million increase that we described is primarily accounts receivable driven. So our customers, as they were taking on the incremental pricing associated with our products, they're paying on terms, but they were, in many ways, managing their own balance sheets and we saw a little bit of an increase in our days sales larger,slightly larger than expected.

As we mentioned, we expect to get the $500 million back over the next 12 months. The exact timing over the next 6 months, we certainly expect to make progress. So if you put that into the $100 million, $200 million, $300 million range. I think that's a fair assumption for this first 6 months, if you will. Some of that will, of course, depend upon how are the structural realities of continued supply availability and the like, which right now is in a very good place. And so we do expect to methodically get that $500 million back over the next 12 months and would get a portion of it back here during this transition period.

And by the way -- sorry, John, I apologize to you just so I hit your answer. Structurally, it's the kind of things you would expect from us. We've got very specific goals for days of inventory that we're carrying for example, both at the raw material level and the finished goods level, specific targets for our day sales outstanding and then a continued positive march on increases in days payables. It will be across all 3 major components of our working capital.

Your next question comes from the line of Ghansham Panjabi with Baird.

PK and Steve, just curious as to the price cost dynamic during the second quarter, was there any benefit? I mean, obviously, it was a chaotic backdrop with raw materials and then your own pricing initiatives. So I'm just curious as to how that should cut specific to 2Q. And then if there was any benefit or negative, I guess, -- how should we think about price costs evolving into the back half of the year? What do you have invited in guidance?

Ghansham, it's Steve. I'll take that on. In our fourth quarter, the quarter that we just completed here with our fiscal year, we had about $280 million of price realization, which was the pass-through of the vast majority of our inflation. So as we anticipated, the price pass-through was in line with the overall inflation that we experienced and we would expect that to continue to be the case as we manage through the transition period. And so overall, the stability of that price cost relationship was very good in our fourth quarter, and we would expect to maintain that relative relationship here over the coming quarters through the transition period.

Ghansham, I may want to make an additional comment here, which -- it's not so much a modeling question, but just taking a step back. We've been very pleased with the way how the organization failed through, particularly the fourth quarter in light of the inflation that came at us very quickly, obviously, on the back of the Middle East conflict. I think about it this way. I mean, we were still handling the integration. Most of that now is behind us, but halfway through fiscal '26, we were still in the middle of it, and the organization and the team were tested, and they performed excellently against that. And I've been very pleased with the performance of the organization to essentially recover what we're seeing on the input side.

Your next question comes from the line of Nathan Reilly with UBS.

The question is just in relation to the, I guess, the comment that you provided there in terms of the FY '27 double-digit EPS growth outlook. You've highlighted you're expecting a return to organic growth. Just kind of keen to get a bit of an understanding in terms of what you're assuming there in terms of broader market volume lead growth? And also just in the context of, I guess, the outcome of bringing the businesses together, I think at the time you highlighted that the combination should be able to deliver kind of growth, about 1% or so above market. So just trying to get an understanding of how those 2 points are playing into that view around your organic growth outlook returning in '27?

Nathan, it's a great question. I'll take that, this is PK. Let me take a step back here. It may feel like a lengthy answer, but I want to forget the questions that you've actually asked. Let me tell you first, we're pretty excited about calendar '27. And the excitement comes from the fact that you got to look at this as this being the first pretty much clean year in quotes after the combination of Amcor and Berry.

In fiscal '26, we had essentially 2 targets. There was integration and enabling growth. And we were very busy with the integration. I just made a comment and I think we are in a good spot now that we exit fiscal '26. And you'll have that team in the organization that actually performed really well through the challenging operating environment, you have that same team sort of enter into calendar year 2027. And in terms of the growth side, there were a number of things that we have done. And I want to remind everybody, we're very clear in terms of our portfolio and where we want to play. Think about the whole conversation around the core versus noncore. We'll expect to make more progress on the noncore side of the business.

But then when you look at the core, we're also very clear in terms of how this company is positioned. We're playing in nutrition, we're playing in health, beauty and wellness and we're playing in specialties. And when you double-click on that, you find 6 focus categories. Steve has just laid them out in our prepared comments. And they already make up more than 50% of the top line of the company. And as they will grow, obviously, that will further increase. So very clear on where we want to play, and that focus will yield success.

The other thing is, and this maybe comes back a little more to your question is how do we win in those categories. And on that end, there's 2 things. We have the combination of the 2 companies, Amcor and Berry, which will translate more into performance going forward. And you've heard us talk about a more global or broader -- first of all, broader product range. The company's are together more global than they were before each on their own. And we talked about capabilities like an innovation and sustainability that we can bring to the market. And those things are really driving the growth synergies where we are making really good progress. And I expect that really just to be at the beginning. I think we're scratching the surface here. There's going to be a lot more opportunity. So we'll translate that.

And then the other piece that gives us confidence for growth in calendar '27 is the fact that we have, as I said before, enabled growth between the 2 companies. So it would have been easy for us just really to focus on taking cost out in the combination and the integration. But we did something else. We focused the companies more on service on quality and customer delight. And we're bringing more tools to our frontline teams in order to drive better growth. And that combination, leveraging the benefits of Amcor and Berry combined, plus the growth enablers that I just spoke to they give us good reason to believe that we will see outperformance versus market.

I think at this point in time, you'll probably see us more move with the market, and the market is more positive than what we've seen in the last couple of quarters taking advantage of that. We're seeing green shoots. There's no question. When I just think about protein and pet care. We're doing really well. That's collectively somewhere between 15% and 20% of the company. But going forward, we'll see more outperformance I hope that answers the questions.

Your next question comes from the line of Ramoun Lazar with Jefferies.

PK and Steve, maybe if I could just follow up on that volume on those volume comments. Just anything in that quarter that stood out in terms of potentially one-off benefits to your business or whether the volume performance is a more broad-based improvement over the quarter. And I guess just focusing a bit further on some of the end markets, what are you seeing? You mentioned green shoots. I guess if you could just elaborate a bit more on what you're seeing on the volume side that would be great.

Sure, Ramoun, happy to do that. Look, you started off the question with Q4. Are there any one-offs or developments of one-off characters driving the volume performance. It's a fair question. We actually spent some time on trying to figure out if that's the case. We believe that there would have potentially been 2 factors that could be a bit more of a one-off character. One is just simply in an accelerating inflationary environment at the request of our customers to buy ahead that could have been one, and the other 1 could have been pretty much around the World Cup. Those were the 2 things that I would carve out that could have some one-off character.

So we did some digging around that. And I can tell you that we wouldn't have had like a couple of customers that did buy ahead or in terms of the World Cup, we did see some strengthening of our beverage business, also in the food service category. But when we add it all up, we don't think that this adds up to anything that would be material to the volume performance in the fourth quarter. So that's your first question.

In fact, when I talk to the volume performance, it's been pretty broad. And across the business abroad across core versus noncore, it's been broad between the 2 segments. It's also been broad when you look at the focus categories or also the regional performance, actually. So it's been a pretty strong broad-based volume performance in the quarter, which we like.

In terms of some highlights, I don't want to make this too long-winded here, but emerging markets, we've seen really good growth throughout the whole year continuing into the fourth quarter. Developed markets improved sequentially. We're talking about North America, which is back to growth. Remember in the third quarter, we had the winter forms. Europe improved sequentially. And focus categories, as I said before, were pretty much in line with the overall business.

And then we -- I talked about some green shoots, foodservice, very strong performance petcare continues to perform really well on the back of our material science and the solutions that we can bring to market. Protein continues to excel. Remember, on the back of the motor acquisition, we got ourselves into the equipment business. We're now having a significant share of new equipment installations in the market, which will going forward and which are starting to pull consumables. So those are the type of green shoots that we're seeing.

Ramoun, it's Steve. Just to add to PK's comments, one of the -- we do have, of course, the view into July. And on a positive front, July continued consistent with Q4. And so in terms of kind of net pull forward and the like, we just didn't observe anything, and July is a good indicator that some of the positive momentum that we've seen from a volume perspective has continued here into the first quarter with our July results now in hand.

Your next question comes from the line of George Staphos with Bank of America Securities.

Thanks for all the color and the commentary. My question is going to be around some margin factors relatedly. So in reading the press release and reading the material guys, price mix was related as negative, even though you're obviously passing through inflation. And I was wondering what was driving that price mix negative, if I read it correctly in the quarter? And what are the implications into the transition period and kind of a related bonus piece, I think you gave us the EBIT performance in flexibles ex synergy, did you give us that for rigid? And if not, could you provide that?

Yes. Thanks, George. Let me touch on those. I think -- in terms of looking at the top line, you touched on it, what we've seen on price/mix, which excludes all of the raw material pass-through that minus 1% has kind of been consistent with what we've observed over the last year. There's always bits of movement kind of in the competitive dynamic, the reearning of business, et cetera. So that minus 1 is very consistent, and doesn't really have that negative impact on our economics.

Repeating what I mentioned earlier, $280 million of top line was pass-through consistent with our inflation, no impact on our economics in total. It does, to your point, at $280 million in the quarter, that's roughly 4%, 5% top line growth. It has some minor implications on margins, but overall margin performance was quite good. And I think in terms of your EBIT question, we really, if you look at on a -- I think the key thing, George, on a comparable basis which is the lower left portion of our segment slides, that's really where you can see that we earned on the improvements sequentially on the volume growth, that 200 basis points of volume improvement quarter-to-quarter was successfully earned on. And you can see that in the margin growth.

And so I think as you're looking at the segment reporting, that lower left corner is kind of the best place to focus because it's comparable on a like-for-like basis and gives you a sense for the margins.

Your next question comes from the line of Mark Wilson with RBC.

PK and Steve, it's probably a question for you just in relation to the asset sales, and thanks for outlining the impact going forward. Just wondering if there was a gain on the sale of the assets in the period? And if so, where was that booked ?

There was a modest gain on one of the sales of the assets. It is not included in our adjusted EPS figures. So it's below the line. It's down in our the figures that we have for the adjustments around transaction-related costs, et cetera. So it's not -- there are no gains or losses inside of the $4.02 EPS that we shared with you, if that's the question, just to make sure I'm answering it for you.

Your next question comes from the line of Gabe Hajde with Wells Fargo.

Two quick ones. If we're doing our math correct in the first half, implied EBITDA is somewhere around $1.8 billion. And I appreciate that you're not giving us kind of calendar '27 guide other than talking about it, I guess, contracts with double-digit EPS growth and synergy realization. But if I tack on the remaining kind of synergies and then make our own assumptions about growth. It's something in that [indiscernible] to $4 billion range. Anything in that -- those bridge items that you would kind of steer me towards.

And then the second one, it looks like CapEx is starting to accelerate here in the first half. I don't know if that's -- I should say first half, but sorry, transition period. I don't know if that's timing related or if we should read anything into that?

No, thanks, Dave. I'll start, and PK can add any color relative to the strategic implications. But fundamentally, You're correct in how you're observing what is implied both in terms of the transition period and into 2027, which is fundamentally mid-single-digit EBITDA growth. That's really kind of at the core of the assumptions that we will continue to have our synergy benefits as well as some modest volume growth. And there's always moving parts, by the way, of other things that are moving in and out. But from an EBITDA perspective, 6 months next 12 months, so over the '18 kind of that mid-single-digit EBITDA growth is implied and it is then inside of the range that you just provided.

And so I think you're overall in line there. What you've seen on CapEx is roughly 5% of sales. We've used that quite a bit to talk about what we think is steady and consistent CapEx to support our growth initiatives. And so you're seeing us invest at that level, not materially above historic levels, but we believe that, that 5% is a good harbinger for our ability to grow organically and invest back in the business.

Your next question comes from the line of Keith Chau with MST Marquee.

Steve, I just want to ask you a question on free cash flow for the next 12 months? I mean I appreciate the comments you made here about getting the $500 million of working capital impossback. But I just want to confirm something with you. So last year, I think free cash flow started -- or the target started at $1.8 billion to $1.9 billion. Out of that, this -- for the next 12 months, you should be getting the $500 million back in the working capital imposed from the Middle East conflict. Hopefully, everything kind of settles from that. And then plus, you get incremental synergies as well.

So we should be staring down the barrel of $2.5 billion or so of free cash flow for the next 12 months. So the stub period plus the first half of your next calendar year or new fiscal year. Would you agree that $2.5 billion is a reasonable number to target for the next 12 months?

Yes. Thanks for that, Keith. I think maybe playing that back to you in similar words. If you look at kind of the next 12 to 18 months, which is the pathway to 3x levered, it's really 3 things, and you had them embedded in your question. One is to Gabe's question, continuation of mid-single-digit EBITDA growth. So the EBITDA continuing to grow, that's part of the pathway. And then as you just said, roughly $2.5 billion of free cash flow would be a combination of the natural cash flow capabilities of the business, EBITDA minus CapEx, minus the interest and taxes plus the $500 million of return from the Middle East. And so you're in line with the kind of assumptions or the pathway, if you will, towards the end of 2027, 3x levered because all of that kind of correlates together, I think, if that's inherent in your question.

Your next question comes from the line of Matt Roberts with Raymond James.

4Q EPS is a 23% I think you had very 2 months of that in the prior year. So now that Berry is fully in the September quarter is still down at the midpoint. Steve, you items, I believe, drags from interest and taxes. But should EBIT be up hitting earlier and July volumes appear to be similar and then slightly up to June Q? Or any other puts and takes there on the EBIT line looking at the September quarter and second half?

Yes, Matt, let me touch on that. You're really referencing Page 12 on the outlook, and you summarized it well. That $0.13 to $0.21 bridge there that you see think of that at the midpoint, there's roughly $80 million of after-tax earnings or roughly $100 million of EBIT, and so we do expect to see some EBIT improvement year-over-year. As I mentioned earlier, a lot of that is, of course, the capture of the $110 million of EBIT synergies that's implied in our in our outlook, we'll get a little bit of favorability year-over-year, some reduced depreciation that impacts EBIT.

That's as we've dialed in the depreciation for the Berry assets that we've acquired. And there's always, of course, some other puts and takes. But EBIT and EBITDA improvement is, of course, critical as we continue to drive the business forward. It's offset, as you referenced by some of the increased tax an assumption of 16% in the first half, returning towards a more normalized but low 19%. And then the realities of some of the refinancings that were completed in the prior year, which is a modest increase in our interest expense. But that bridging on EBIT is kind of, I think, critical to your question.

Your next question comes from the line of Brook Campbell-Crawford with Barrenjoey.

Just one on incentive compensation. I think there might have been and some sort of benefit in the June quarter, perhaps, given sort of accruals and things for incentive comp and perhaps that might have wind in the first half. Do you mind maybe just stepping through that dynamic in [indiscernible] something we need to be across this. .

Yes. Thanks, Brook, it's Steve again. As we mentioned in the footnote, we have some modest year-over-year increases in incentive compensation that is kind of a traditional pathway of an assumption that we'll be accruing at target compensation, growth and cash flow expectations, which, as you're aware, in the prior year were not at the levels that we had originally anticipated. So that's a little bit of the waterfall bridge, if you will, as to the compensation component during this transition period.

Your next question comes from the line of Jakob Cakarnis with Jarden Australia.

Steve, I just want to go back to Slide 19, if I could, please, PK. It sounds like calendar '27 is shaping up [indiscernible] to look at just wondering half of enhancement to think you are from the current model that you displayed there where you've got $3 billion of annual cash flow that reinvestment target back in the business of $1 billion plus in the balance sheet utilization of $1 billion plus, please?

Jakob, you weren't really coming through that clearly here. Let me just check in with the team if they understood what the question really was?

Yes. So Jakob, I think you're asking about the kind of the value creation model that was a part of the original that was developed with the acquisition. I think are you asking is it still in line with those expectations? Was that the nature of the question?

That's right, please, Steve. Just to pitch it again. Hopefully, it's clearer. In that value creation model, you're talking about annual cash flow of over $3 billion reinvestment back into the business of over $1 billion, and then also the balance sheet utilization of over $1 billion. The question was pitched at PK. Just with calendar '27 shaping up as a better, stronger year for the business, more representative of the go forward. How far do you think we are away from that value proposition model, please?

Yes. Look, I think we're in a -- so much better now in terms of the line, Jakob. I think we're well on our way to getting there. What we're seeing here on Slide 19, broken out to the right is sort of the swing in model after we have taken advantage of all the opportunities and the potential from the combination of the 2 companies. I think it still holds. And I think we're making good headways. Let's not forget that '27 is going to be the year for example, on synergies where we are going to pretty much see the bulk of it. And in terms of our activities that we will implement, we will pretty much be done by the end of '27. So that will impact our earnings capacity and also the cash flow generation.

But generally speaking, we are well underway. And in terms of the capital allocation model, we will support the business, and this is the way how we think about it. We are committed to the dividend. And of course, this will all go along with a commitment to investment-grade balance sheet, which is all in line with what Steve has laid out here in terms of the use of cash in order to reduce our leverage.

Your next question comes from the line of Mike Roxland with Truist Securities.

Steve, I just wanted to follow up quickly with you. You mentioned that in terms of the [indiscernible] or the transition period, outlook, some modest volume growth. Any way to quantify that is 25 bps, 50 bps, what type of volume weather you're embedding within that -- the transition period outlook? And then secondly, PK, you mentioned softness in health care. It seems like every quarter, there seems to be some issues around health care and volume growth accelerating in that key category for you. So what's driving the continued softness in health care? And what gives you confidence that volumes will ultimately inflect?

Mike, it's Steve. I'll attack the first and PK, the second part of your question. The assumption embedded in the $1.80 to $1.90 for the first -- for the transition period, volume assumption is flat to very modestly up. So you think about that, it's a pretty narrow range as you can appreciate.

And then on health care, and Mike, thanks for the question because it's a bit of an obvious 1 when you listen to our commentary. We're laser-focused on volumes and driving volumes forward because we believe that is the ultimate metric to follow when you want to decide if you're successfully competing in the marketplace. But volume is not always the best metric to decide on the progress that we're making in our focus categories. And in health care, that would be an example.

So I would start my reflection here by saying, don't read too much into the volume performance on the health care side. What we're really seeing is a mix shift, and we're not unhappy with the mix shift. We have seen some volumes reducing in lower-margin subcategory in medical. And that is offset by really good progress on the pharma side, where we have higher-margin products think about nasal, opthalmic or inhalation devices that we bring to market. And the combination of the 2 actually leads to a profit expansion in the health care business. So we're happy with the overall performance. But as we are very focused on volumes, we break out the volume performance of health care and that mix shift is driving the volumes down right now.

Now we will -- as I reflect on my answer here, we're excited about the business and also the outlook. And you talked a little bit about that or you were inquiring around that. A couple of things just to remind you of here. We talked about our participation on GLP-1 with a win. It actually was a synergy win for a customer bringing oral solid dose to the market, multiple regions, multiple format when we're up and producing. We've made some really good progress with generics in the fourth quarter, also in India. And we've also talked about the ramp-up of our air knife coating technology in Asia, which is the first of its kind, which will also support the medical business in good margin categories.

Your next question comes from the line of Anthony Pettinari with Citi.

PK and Steve, on the second half outlook for the stub period, could you talk about your assumptions around cost and just trajectory of resin, fuel, freight, and cost items that you'd call out? And then can you just talk generally about the level of conservatism in the second half guide and what could get you to sort of the higher or lower end given you've had a lot of success [indiscernible]?

Anthony, it's Steve. In terms of our kind of guiding principles here, we obviously don't outlook specifically resin, logistics, et cetera, but our assumption remains that our pricing will offset that inflation. So that relationship of our pricing offsetting that kind of is the fundamental assumption. I think the banding on our transition period outcome, as PK just mentioned, is probably just bands around volume, are we flat? Are we modestly up? Because what we are showing is good earning power on modest movements in volume. And I think that will be the primary movement, which is a pretty tight band around our EPS guide for the 6-month transition period.

And let me, just -- Steve and I were looking at each other and wondering who should answer the question. I really don't have much to add to what Steve said, we can complete each other's sentences. But I think what's important to understand this context here is we don't really know how the Middle East conflict plays out. What's more important for us is really how the supply chains normalize. That will have an impact on resin costing for us as an input.

And what Steve said is 100% correct. We feel like we can do the right thing here for the business and for our customers. which means should the inflation to go up or go even further up or go up again. We have an opportunity to deal with that. If it comes down, we'll do the right thing for our customers and we'll adjust our pricing. So that is sort of the base assumption as we look forward.

Your next question comes from the line of Ketan Mamtora with BMO Capital Markets.

Maybe just 1 more on the 6-month transition EPS bridge. The $100 million EBIT that you talked about, Steve, any way to sort of just understand the puts and takes there? Because I would imagine the synergies alone would get you above that level. What are the other factors that we should keep in mind as we think about just that component of the bridge?

Ketan, it's Steve. Yes, you touched on it well. The primary positive there is net synergies. And as we mentioned, we've got a couple of moving parts. There will be some modest decrease in our depreciation expense and then a modest increase on the incentive compensation expense that we just chatted about in the earlier question. Those are the 2 kind of moving parts, if you will, that has some impact on the EBITDA, just given that the depreciation is down, I think of it -- and you'll see it in the guide. You can kind of get to a $30 million reduction in depreciation expense during the 6-month period.

If you kind of look at actuals versus the guide that's in the supplemental section of the materials, those are 2 moving parts beyond the synergies.

Your next question comes from the line of Hillary Cacanando with Deutsche Bank.

So you've now secured about $140 million of annualized revenue wins or roughly half of your 3-year gross synergy target. Can you provide a little more detail on where those wins are coming from? Whether they are primarily cross-selling within the existing customer or new customer wins? And how should we think about the timing of those awards converting into revenue and earnings over the next 12 to 24 months?

Yes. Thanks, Hillary. This is PK. It's pretty much all of the above that you mentioned. We talked about the synergy wins before and they go back to the potential really that the combination has brought along. So think about it this way. One lever is a combination of products between Amcor and Berry that creates an additional value opportunity for our customers. .

One of the things that we've said, 1 of the 2 companies makes the bottle, the other 1 makes the closure or the pump that goes on top of it and that creates a solution. That's 1 opportunity.

Second one is you leverage the more global reach of Amcor for the Berry products. These things are happening. The third 1 is, and this was 1 of the examples I spoke to cross-referencing of customers from one side to the other. These are the type of things that create the synergies, and there's lots of opportunities there I think we're really just scratching the surface. And we have trouble to really estimate that and against our estimates, we're making really good progress.

Now the second part of your question was how quickly does that translate. At this point, we would mark about $140 million of annualized wins. They will play out, obviously, over a period of sort of 12 months once you get them, right? You need to ramp up first, so say it takes you about 12 to 15 months to see a full cycle of full revenues and that will then translate to the bottom line. So that's why we're saying at this point in time, we've really just had the smaller part of contribution falling to the bottom line from those wins, but as we move forward through the transition period and into calendar '27, that will become a lot here.

Your last question comes from the line of Jeff Zekauskas with JPMorgan.

[indiscernible] restructuring costs were $290 million this year. I expect that they would go down next year? How much would they go down. And is that benefit included in your $500 million working capital benefit. And does that $500 million working capital benefit assume flat raw material costs? And is your challenge in the coming quarter, how you modulate your declining raw material costs because polyethylene came down $0.15 a pound in June and propylene came down, and you did a great job during this period of inflation might you be able to hold on to some of the raw material benefit? Or does it go back perfectly?

Yes. Thanks for that, Jeff. It's Steve. Just very briefly, you touched on it well. $290 million of total Berry transaction restructuring costs $160 million of that was more integration-oriented. $130 million was transaction oriented. You're correct that during the transition period, that number will come down quite materially. The transaction is behind us. We would expect more in the $50 million range for the integration-related costs. So it's a good tailwind.

It is not in the working capital improvement assumption. It is more in the cash flow assumption relative to the 3.5x to 3.6x leverage targeted for end of December '26. And you're into the good complexities of the business, PPP movements up and down. Overall, our assumptions have reasonable stability in those cost assumptions in terms of the ability to get the $500 million back, in other words, not major movements up or down, which could have some implications, obviously, on timing. It's a good thoughtful question. And you're right, there could be some implications.

Overall, our confidence in the recovery of the Middle East conflict cash flow is as high as you've heard us articulate. So thank you.

We have reached the end of the time we have for the Q&A session. I will now turn the call back to PK for closing remarks.

Yes. Thank you, operator, and thank you, everybody, again, for joining us. We certainly look forward to the opportunity to sit down with many of you over the course of the quarter and clarify further expectations and the quality of the business. Thank you.

This concludes today's call. Thank you for attending. You may now disconnect.

Hello, everyone. Thank you for joining us, and welcome to the Amcor Third Quarter Results 2026. [Operator Instructions]. I will now hand the conference over to Tracey Whitehead, Head of Investor Relations. Tracey, please go ahead.

Thank you, operator, and thank you, everyone, for joining Amcor's Fiscal 2026 third quarter earnings call. Joining today is Peter Konieczny, 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 Investors 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 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 statement 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, PK.

Thank you, Tracey, and thanks to everyone for joining us as we review Amcor's fiscal 2026 third quarter results. As always, on Slide 3, we will start with safety, our #1 priority. The health and well-being of our colleagues remain a core value at Amcor, and that commitment will not change. In Q3, we continued to deliver industry-leading safety performance. 71% of our sites remained injury-free through the quarter. Our total recordable incident rate at 0.49 is a modest increase compared with last year's performance. This is not unusual after we acquire businesses, and we are pleased to see this key metric improve for the third consecutive quarter, following the Berry acquisition.

Slide 4 highlights the key messages for today. First, I want to take a moment to highlight an important milestone. We've just reached the first anniversary of the combination between legacy Amcor and Berry. Reflecting on the past year, I'm genuinely pleased with the progress we've made on the initiatives we set out to achieve. The integration process itself went very smoothly. We kept our colleagues safe, maintained a strong focus on our customers and structured the organization around a robust leadership team, allowing us to quickly deliver on the synergy commitments we made. In addition, we were swift in identifying noncore businesses, and I'm happy to report that we're making substantial progress on those divestitures.

We're navigating through a challenging and ever-changing environment, but it is clear that our uniquely positioned diversified global portfolio and the strength of our customer and supplier relationships have positioned us well. Our ability to stay focused on what we can control and execute effectively continues to drive resilient financial results.

In the face of the Middle East conflict, securing supply and responsibly managing cost and pricing to counter inflation are key priorities for us, just as we've done successfully in the past. We have again taken swift action, and as such, we're not expecting the Middle East conflict to have any material impact on our Q4 earnings. We're confident in the underlying strength of our business, and that assurance comes from always putting our customers at the center of our decisions. Additionally, we're excited about the significant opportunities ahead as we work to realize the additional synergy benefits identified from the integration of legacy Amcor and Berry.

Second, our financial performance in the third quarter was in line with expectations. Adjusted EPS of $0.96 per share was up 6% year-over-year. For the first 9 months, adjusted EPS increased 11% to $2.79 per share. Our ability to continue growing earnings through turbulent economic times reflects our focus on execution, synergies, cost and productivity improvements and responsible pricing actions while responding quickly and in a coordinated way as global market conditions abruptly change.

I am proud of the way our teams around the world have come together again to face challenges with energy, agility and maturity. We are leveraging the unique position of Amcor's strengthened global portfolio to meet evolving customer needs. Our core portfolio continues to perform with another quarter of strong synergy capture and earnings stability in a modestly challenging volume environment. We are pleased to see a step-up in financial performance across our noncore businesses, which we anticipated and discussed last quarter.

Third, we made important progress on our portfolio optimization actions with 4 additional sale agreements reached over the last 3 months, adding to the 2 agreements previously announced in Q1. The combined transaction value from these 6 divestitures is approximately $500 million. All cash proceeds will be used to reduce debt, consistent with the capital allocation priorities we have highlighted over the last several quarters. These actions sharpen our focus on higher return and higher growth opportunities across the $20 billion core portfolio as we continue to improve the overall quality, resilience and earnings profile of the business.

Fourth, synergy delivery continues to accelerate, reaching $77 million in the quarter and $170 million for the first 9 months. Our proven integration capabilities, a strong synergy pipeline and consistent delivery at the upper end of expectations leaves us confident we will deliver $270 million of synergies in fiscal 2026, ahead of our initial $260 million year 1 target.

And finally, we expect adjusted EPS to be in the range of $3.98 to $4.03 per share for fiscal year 2026, representing strong growth of roughly 12% at the midpoint, driven primarily by synergy realization. We have experience in successfully navigating supply disruptions and resulting inflation, and we do not expect the current conflict in the Middle East to have a material impact on Q4 earnings. The midpoint of our Q4 adjusted EPS implies more than 20% year-over-year growth and reflects the near full lap of the Berry acquisition on May 1.

With input cost inflation significantly exceeding historical norms, our teams have acted fast, implementing responsible price and cost actions to maintain expected dollar earnings as we have in the past. In this environment, continuity of supply is a critical priority for our customers. And to meet that need, we have made choices about working capital management, primarily inventory through the fourth quarter. This will impact the timing of our previously assumed fiscal 2026 working capital improvements. And as a result, we now expect free cash flow to be in the range of $1.5 billion to $1.6 billion. Steve will talk more about the actions we have taken and the temporary impact on free cash flow in more detail shortly.

Turning now to Slide 5 and financial performance for the third quarter and year-to-date. The business generated quarterly revenue of $5.9 billion, EBITDA of $892 million and EBIT of $687 million. This is significantly higher than the prior year as a result of the Berry acquisition, disciplined cost management, improved productivity and accelerating synergy benefits.

Adjusted EPS increased 6% to $0.96 per share for the quarter, in line with our expectations. This includes benefits from tax-related synergies that lowered our effective tax rate, partially offset by a $25 million unfavorable impact related to the January and February winter storms in the U.S. And after funding $78 million of Berry transaction, restructuring and integration-related cash costs, free cash outflow was $39 million for the quarter. Today, the Board also declared a quarterly dividend of $0.65 per share, which is modestly up over the prior year and aligned with our capital allocation framework and long-term commitment to annualized dividend growth.

Moving to Slide 6. Taking advantage of a unique opportunity to optimize the portfolio was one of the key commitments we highlighted after announcing the Berry acquisition. As mentioned earlier, we're making important progress and have now closed or reached agreements for the divestiture of 6 noncore businesses, representing approximately $500 million of combined annual revenue. A combined transaction value of approximately $500 million implies an average multiple of around 6x. In line with our previous commitments, all cash proceeds will be used to reduce debt and the net impact on EPS is not expected to be material.

We're making good progress exploring alternatives for the remaining noncore businesses, including further encouraging discussions related to the North American beverage business. As mentioned, financial performance across the noncore businesses improved in the third quarter as expected, supporting our confidence that the remaining noncore businesses will be divested in line with our commitments. With that, I turn the call over to Steve.

Thank you, PK. Let me start on Slide 7 with an update on our synergy progress. Synergy delivery continued to accelerate in the third quarter, and we continue to expect to exceed our initial year 1 target of $260 million. In Q3, we delivered approximately $77 million of synergies. And for the first 9 months, synergies totaled approximately $170 million. We are confident that we will deliver $270 million in fiscal 2026 and $650 million cumulatively over 3 years.

G&A and procurement synergies continue to ramp up as planned, and we have clear line of sight to achieving our targets of approximately $160 million in year 1 and approximately $325 million by fiscal 2028. We have started to see a modest contribution from operational synergies and the majority of these benefits are expected to contribute to earnings growth in years 2 and 3. Financial synergies were approximately $20 million for the quarter and $30 million for the first 9 months, reflecting ongoing optimization of our debt and tax structures.

Finally, growth synergies continue to track well against our $280 million 3-year annualized revenue target with annualized revenue now exceeding $110 million. Third quarter earnings benefited by a few million dollars as a result of these wins, which are expected to ramp up further in the second half of calendar 2026.

Moving to Slide 8, which highlights the performance of our $20 billion core portfolio. As a reminder, the core portfolio includes 6 focus categories: healthcare, beauty and wellness, proteins, liquids, foodservice and pet care. These represent approximately 50% of core portfolio sales. Focus category volume performance continues to exceed the portfolio average. These represent the most attractive, defensible and innovation-led markets where we hold leadership positions, where advanced solutions drive differentiation and where long-term consumer demand is most durable.

From a performance standpoint, the core portfolio continues to outperform the total company. While overall volumes were similar, down approximately 1.5% in the quarter, the core portfolio maintained stronger EBIT margins of approximately 12.3%, reflecting favorable mix, a higher concentration of advanced solutions and the benefit of year 1 synergies. Volume and financial performance in the noncore business improved, as PK mentioned, with margins expanding meaningfully on a sequential basis. Year-to-date across the core portfolio, EBIT dollars were up approximately 4% relative to last year despite modestly lower volumes. As we simplify and focus the business, exit noncore businesses and invest in our focus categories, the overall growth profile, quality and resilience of Amcor will continue to improve.

Turning to Slide 9 and the Global Flexible Packaging Solutions segment. Sales for the segment increased 29% on a constant currency basis, driven primarily by the Berry acquisition. On a comparable basis, volumes were down approximately 1.5%, an improvement of 100 basis points compared with Q2. In the developed markets of North America and Europe, volumes were down low single digits compared with the prior year and similar overall to the second quarter. Volumes across emerging markets were up, mainly reflecting mid-single-digit growth in Asia.

By market category, volumes were higher in pet food and proteins, offset by lower volumes in healthcare and other nutrition. Adjusted EBIT was up 28% on a constant currency basis to $452 million, driven by $78 million of acquired earnings, net of divestitures. On a comparable basis, adjusted EBIT was up approximately 3% and adjusted EBIT margin of 13.9% reflects synergy benefits in line with our expectations. Excluding synergies, comparable earnings were broadly in line with the prior year.

Turning to Slide 10 and the Global Rigid Packaging Solutions segment. Sales for this segment increased significantly on a constant currency basis, mainly as a result of the Berry acquisition. On a comparable basis, volumes were down approximately 1.5% in both the core and noncore businesses. This was modestly weaker sequentially due largely to the winter storm impact in the U.S. The business continued to deliver volume growth across emerging markets, mainly reflecting mid-single-digit growth in Latin America.

By market category, volumes were higher in liquids, foodservice and beauty and wellness, offset by declines in healthcare and other nutrition. Adjusted EBIT was $276 million, up over last year on a constant currency basis, driven by approximately $175 million of acquired earnings net of divestitures. On a comparable basis and excluding noncore businesses, adjusted EBIT was broadly in line with the prior year. Synergy benefits were offset by an unfavorable $25 million impact from the winter storms in January and February. A concentration of plants in the most weather-impacted areas across the Midwest and Northeast resulted in a large number of lost production days. Adjusted EBIT margin, excluding winter storm impact, was approximately 13%, 100 basis points higher than the second quarter.

Moving to free cash flow and the balance sheet on Slide 11. After funding $78 million of Berry transaction, restructuring and integration-related cash costs, free cash outflow for the quarter was $39 million, broadly in line with our range of expectations for the quarter and resulting in a first 9-month outflow of $93 million. Capital spending of $687 million is up compared with the prior year, and we continue to expect fiscal 2026 capital spending to be in the range of $850 million to $900 million.

Adjusted leverage at the end of the quarter was 3.8x. This is aligned with our expectations and consistent with prior year sequential movements between the second and third quarters. Stronger fourth quarter free cash flow is expected to drive this metric down at fiscal year-end. Our commitment to an investment-grade credit rating, a strong balance sheet and a modestly growing dividend annually remains unchanged. Substantial annual free cash flow generation fully supports our capital allocation priorities.

Turning to Slide 12. As PK stated, we are uniquely positioned and proactively mitigating the impact of the Middle East conflict. We are well positioned to support our customers through reliable supply and service. We have no operations in and minimal polymer sourcing from the region. Our broad global network and supplier base gives us important flexibility to source materials from different regions and suppliers and flex production locations. We also have the capabilities to quickly reformulate and qualify alternative structures. These factors, together with making a choice to hold more inventory than we previously assumed, help us ensure supply continuity for our customers.

We have well-established pass-through mechanism in place, which function effectively in a business-as-usual environment. When conditions move outside normal operating ranges, additional actions can and should be implemented to fairly reflect higher cost in our pricing. Our teams have acted quickly to mitigate cost inflation with balanced and fair price actions. In prior cycles, this approach enabled us to successfully mitigate the impact of substantial inflation with very minimal earnings implications.

Moving to our fiscal 2026 guidance on Slide 13. As PK highlighted earlier, we expect full year adjusted EPS to be in the range of $3.98 to $4.03 per share. This implies fourth quarter adjusted EPS growth of approximately 20% and will result in EPS growth of approximately 12% for fiscal 2026. Earnings growth will be driven primarily by synergy capture and strong execution. We expect fiscal 2026 free cash flow of $1.5 billion to $1.6 billion, including the impact of our decision to hold more inventory at higher costs. This compares with original guidance of $1.8 billion to $1.9 billion, which assumed a meaningful reduction in working capital in Q4.

As supply conditions normalize, we expect to deliver the inventory and working capital improvements we previously anticipated, reversing the temporary timing impact we have now factored into our range. Taking into account updated earnings and free cash flow expectations, we now expect year-end leverage to be approximately 3.4 to 3.5x. Importantly, our commitment to deleveraging and to an investment-grade balance sheet has not changed. We remain confident in our ability to deliver significant and growing annual free cash flow, and we continue to see a clear pathway to operating within a 2.5 to 3x leverage range.

Before handing the call back to PK, I would like to briefly highlight an announcement we made earlier today. Effective in 2027, we will transition our fiscal year-end from June 30 to December 31. We believe this change will enhance comparability with peers and simplify modeling for investors and analysts. Our first full calendar fiscal year will begin on January 1, 2027, and end on December 31, 2027. As part of this transition, we will have a 6-month reporting period from July 1, 2026, through December 31, 2026, and we plan to provide guidance for this transition period alongside our June 2026 Q4 and full year results in August.

In addition, beginning in 2027, we will initiate the migration and consolidation of select corporate functions to a new U.S. headquarters in Miami, Florida, aligning resources more closely with our operating footprint. Switzerland and Australia will remain important parts of our corporate footprint as key hubs for our business.

With that, I'll hand the call back to PK.

Thanks, Steve. To close, in spite of challenging market dynamics, Amcor is a uniquely positioned global packaging leader, and we are proactively mitigating impacts of the Middle East conflict. Execution remains disciplined and Q3 results were resilient and in line with expectations. Portfolio optimization continues to progress, sharpening our focus on higher value, more resilient end markets and improving the overall earnings profile of the business. Synergies are tracking well, and we expect to exceed our initial year 1 commitment. And with clear visibility to additional synergy benefits and a proven ability to navigate through volatility, we're confident in our outlook and the continued strength of our business. That concludes our prepared remarks. Operator, please open the line for questions.

[Operator Instructions]

Your first question comes from the line of Ghansham Panjabi with Baird.

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?

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 I 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.

And Ghansham, it's Steve. Just to kind of follow on with PK. In terms of beyond Q4, our planning assumption is that our pass-through mechanisms and the relationships we have with our customers will continue to offset the cost environment. So on a Q4 basis, as we talked, no material impact, and that would be the same assumption as we look beyond Q4, given the mechanisms that are in place to offset either in an inflationary environment or if it were to revert to the other direction. So as you look beyond Q4, that's the assumption for a continuation of an offset.

Your next question comes from the line of Jeff Zekauskas with JPMorgan.

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?

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 I 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 I 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.

Your next question comes from the line of Ramoun Lazar with Jefferies.

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?

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 and 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. I 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.

Your next question comes from the line of Mike Roxland with Truist Securities.

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?

Thanks, Mike. It's a great question. First off, I 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, "Hey, can you help out because we are seeing some issues with incumbent suppliers in some cases?" And we obviously try to help where we can, and that gives you an indication. But I will say, overall, it's still early.

Your next question comes from the line of John Purtell with Macquarie.

Steve, thanks for the earlier comments, and PK, as well. Just had a question on sort of the gearing, Steve, and just how you see it profiling over the next sort of 12 months. In particular, sort of what are the key drivers that you see to drive that gearing back to target?

Yes. Thanks for that, John. I appreciate you raising that. As we shared, a modest uptick in our year-end leverage from our original guidance, a range now 3.4 to 3.5 pretty well chronicled in terms of the modest movements up there relative to the original guidance. It's a combination of modestly less EBITDA from the original guidance, given our volumes have been down 2% versus an original guidance, assuming more flattish and then the impact of the inventory, the $300 million. So that's a bit of the march towards the end of the year.

I think very importantly, our commitment to our investment-grade rating, our commitment to deleveraging back to 3x or below is absolute. And given the actions that we're taking, both in the form of the divestitures that we've completed, those which we expect to complete as well as continued synergy capture as we look out over the next 12 to 18 months, we can see line of sight back towards that 3x leverage range as we look out towards really fiscal -- the new fiscal and calendar 2027.

So while there's some short-term temporary impacts, it really hasn't altered our conviction and line of sight to deleveraging using our cash flows as well as our divestiture cash inbound to move ourselves towards that 3x and below. And I think the new fiscal calendar 2027 will be an important year for that inflection.

Your next question comes from the line of Matt Roberts with Raymond James.

We might have a new fellow Floridian soon. So welcome. PK, the color you gave on volumes previously to a question just a minute ago, could you maybe [Technical Difficulty] the March exit rate looked versus what you saw in April? Was there any evidence of prebuying in certain markets given those cost increases that you discussed? And then additionally, maybe on nutrition and foodservice, are you seeing any changes in the promotional environment that could help drive sequential improvement? Or just what's driving [Technical Difficulty]?

Yes. Thanks, Matt. The line was a bit choppy there, but I think I got it all. So first off, you asked for the exit volumes in March and what we're seeing in April. Look, I think I'm on record. I don't really like to comment too much on short-term volume performances of the business or anything that goes back to a month, I think, is very risky to read too much into it.

What I will tell you is on the back of what I mentioned earlier, too, we're expecting the fourth quarter to play out pretty much in terms of volumes just like what we've seen in the third quarter. So that's our assumption. I will tell you that as we sit here today and we look back to April, April looked better than that. And that doesn't change our expectations at this point in time, but it's just a fact.

And when you ask me where that comes from, I'm not across it enough at this point in time to really give an indication here in terms of whether our customers are trying to increase stock a bit on the back of the overall situation. It could be the case, but I don't think it's a lot. I will also remind everybody that the supply chain is tight. So whenever they're asking these questions, you have to make sure that you're actually in the position to respond to that and to satisfy that request. So that's the situation on March and April.

I think at the end, you also spoke about promotional activities and in general. I made a comment earlier, and I said we're very encouraged with what we're hearing from our large customers in their own results, earnings results. We hear what you hear and the commitment to supporting their volumes continues to be very solid. And that, I guess, will also -- that will translate in different initiatives, one of them being the promotional activities. So we were carefully listening to that and wondering how they deal with it in terms of making choices between protecting margins and driving volumes. But I think we are in a position where we see more consistency on that.

Your next question comes from the line of George Staphos with Bank of America Securities.

Appreciate the details. A lot of my questions have already been answered. My question, I want to go back to how you and your customers are mitigating the resin effect. On the additional pricing, PK and Steve, that you're contemplating with customers. Are these really an aggregation of one-off discussions? Or are you triggering any extraordinary clauses in your contracts, so it's a little bit more mechanical than negotiation?

And how much does the extra inventory that you've built in not only allow for supply continuity, but maybe act as a buffer against the higher resin pricing and allowing you to, thus far from what we're hearing, Steve, manage second half -- or excuse me, the stub year relatively consistently with what you're seeing in the fourth quarter, which is not that big of an effect?

Thanks, George. I'll take the first part of your question, and then maybe Steve handles the inventory part, if that's okay. You were going back to the dynamics that we're seeing currently in dealing with our customers in order to get offset for the inflation.

Look, as I said before, 30% is not contracted. So that's not the issue. 70% is contracted. In that 70%, we have a few contracts where we have opening clauses, which we can refer to given the situation that we're currently seeing. And this is all with a common understanding that this is not business as usual, what is happening. But it is an exception rather than rule.

The other conversations, I go back to what I said earlier, they are conversations on a very collaborative approach with the customers where everybody understands we're seeing significant inflation hitting the business really hard in a very short period of time. We believe ourselves, we have made it very clear and everybody understands that in our business, we need to have an alignment on the commercial side between the buy and the sell side. And therefore, that requires support and help from our customers in order to keep us in business and make sure that we can supply them going forward. That's really the common interest driver that gets us to the table.

And this is not a one-off conversation. It is a -- you can call it a one-off and it's not a one-off because as the situation changes with regards to inflation, we will have a continued dialogue with the customers in order to adjust ourselves to the market side of our inputs. So everybody understands it's not a one-off. It's not a destination here. It's a journey. So with that said, Steve, if you want to comment on the inventory side?

Yes. Thanks, PK. I think, George, it's a good question just relative to our inventory. As I mentioned earlier, we're not building necessarily volume of inventory. We're more maintaining what we had as opposed to the guidance of it declining. And obviously, we're carrying it at a higher cost.

But to your point, what it does allow us to do because we had ample inventory at a volume level is to mitigate some of the timing of some of the cost increases. And those get factored into the collaborative conversations that PK was referencing with customers. We're working to be just very fair and very reliable and very consistent on servicing our customers and having the pricing that we execute with them, be in line with the actual realities of how pricing is coming through the business. As you indicate, some of the inventory that you have helps to mitigate. It also helps to mitigate some of the pace of the pricing and our intent for that to continue to be offset as we see movements.

So it does actually help with those negotiations, those discussions with customers because we're able to mitigate some of the abruptness of what we're seeing on the cost side, and it's all part of that good collaborative dialogue with customers to help keep them in supply.

Your next question comes from the line of Nathan Reilly with UBS.

Just a question about the synergy target as we roll into '27. Obviously, you've got the challenges in relation to tight procurement and supply chains. And of course, I guess, a more uncertain consumer environment just given the volatility and the potential for inflation. Can you just talk to me about how that impacts your ability to deliver on the procurement and also the growth synergy targets into FY '27?

Nathan, it's PK. I'll kick off here, and then I'll see if Steve wants to build. So first off, taking a step back, we reconfirmed our target of $650 million synergies over a period of 3 years, and we're guiding to a year 1 result in synergies, which exceeds our expectations of $270 million. That number in year 1 has a significant contribution of procurement in there. Otherwise, we would have not gotten there. And that was delivered in a situation where we are facing where we were facing the supply side. And we have many conversations on these calls before that with facing a pretty low margin situation on the supply side.

As we go forward, particularly with regards to procurement, we're going to see a different situation. A lot of inflation is happening. I would assume that the margin situation on the supply side is going to somewhat improve. And we just believe that we will continue to be able to extract value. And that is on the back of certain characteristics that Amcor now has that we had in the past and that we will have going forward. That is we are a big buyer. We're a global buyer, and we're important to our suppliers. Therefore, the confidence in extracting synergies from the resin side has not changed.

I will also say, and this is important for calibration, we've said this many times, resin is a portion of our procurement spend, right? We have overall $13 billion procurement spend, $3 billion of that is indirect. And from the remaining $10 billion, about half of that would be resin. So you have the other half is non-resin direct spend from procurement. Overall, we are pretty confident that we can deliver those numbers.

Yes. Nathan, just to add to PK's comments briefly. I think we certainly remain committed to the year 2 synergies, which are $260 million in year 2 coming off of the $270 million that we're committed to here in year 1. And so our line of sight to that remains positive and consistent. And then if you just kind of take it to what will be the stub year as was referenced earlier, we don't see anything that would change having half of that kind of roll through -- roughly half of that roll through during that 6-month upcoming period of time. So no change to our commitments and no change to the relative timing overall.

Your next question comes from the line of Anthony Pettinari with Citi.

I just had a quick question on the noncore portfolio. During the fiscal year, did the number or the composition of businesses that you consider noncore change? Did you sort of add or remove any businesses from that group? And then did the Middle East conflict, has it impacted time line or discussions for the divestitures?

Yes. Thanks, Anthony. It's a great question. The answer to your first question is, has the portfolio of the noncore businesses changed? The answer is no. And we never intended to do that. Just a few words on this. Look, we did a strategic assessment of our whole portfolio after we combined Amcor with Berry, and we had a number of parameters that we had on the table. We looked at growth, margin profiles, cyclicality of the businesses, industry structure, just to mention a few, and there were a couple of others. But those were strategic reviews that we had. And therefore, we singled those businesses out and we said, look, we do not -- we believe that there's better owners for that business, and we want to focus elsewhere.

So that gives the whole process a certain solidity, which doesn't make it sort of erratic or opportunistic when you see a market dislocation like as what we're seeing currently with the Middle East crisis, right? So the perimeter has always been the same. We're very encouraged with the progress that we're making. We announced a number of other agreements over the last 3 months, which is great. And we're also encouraged with the conversations that we have around the North American beverage business, which is where we do not have an agreement yet and some adjacencies to that business in the specialty containers sort of space.

It's encouraging conversations, particularly because these businesses are on a very nicely improving trend. We said that we saw improved performance in the third quarter, which was certainly driven by some relative volume performance sequentially, but even more so by us getting those businesses back on a very productive footing. And I have a lot of time for the teams that have done an excellent job in getting that done.

Remember that we had a number of customer interactions that also addressed some challenging margin situations, and we have made good progress with that, and that's what you're seeing right now. So that has helped the business in the third quarter to perform better. We expect even more so sequentially of profitability in the fourth quarter. So in terms of timing, I cannot be specific around that as you would expect me to, but we're pretty encouraged that we will be able to get that done.

Yes, to your question, Anthony, and to PK's point, our actual performance in the North American beverage perimeter, that is the component of that. We're still working on a sale process. The actual performance financially was in line with prior year and margins were in line with our expectations. That was a good outcome and it's probably the most relevant component of the sale process, nothing that really is impactful relative to the Middle East conflict. It's more around the improvement in the performance year-over-year EBIT in line with prior year.

Your next question comes from the line of Hillary Cacanando with Deutsche Bank.

So you're making great progress on your synergy targets. Could you go over maybe some example of growth synergies where you were able to win a new contract because of a combined product using both Amcor and Berry's products? I would love to hear that.

Yes. Thank you, Hillary. Look, we have made really good progress on the growth synergies. Let me just recalibrate as we are on a year-to-date basis. So since we've had the acquisition, we have been able to close deals now up to $100 million annualized. Those businesses are ramping up, and they have started to impact the bottom line in the third quarter with a couple of million. That's perfectly as we expected.

We got out of the chute pretty quickly here because we were expecting $280 million of growth synergies over 3 years, and we're essentially now at $110 million. So we made really good progress. The growth synergies, again, they're driven by the fact that we are able across the product portfolio, which is very complete now between Amcor and Berry to sell systems rather than components. We have very complementary technology footprint. We have additional capacity on the table. So these are just some examples.

Now in terms of in terms of examples, there's various ones here. I wasn't quite expecting the question, but I want to go back to one that I've highlighted on an earlier call, global pharma customer actually in line with the oral dose GLP-1 drug was looking for different packaging formats for Europe and North America. In Europe, it was a blister format. In North America, it was a container format -- a rigid container format. So almost an opportunity that was made for the combined Amcor-Berry. We had the opportunities. We had the product. We were multiregional, and that has led to the closing of a good contract. This is just one example. There's many others out there, happy to follow up offline, but that gives you a feel.

Your next question comes from the line of Gabrial Hajde with Wells Fargo Securities.

Lots of questions. But I'm curious on the healthcare and nutrition, which I think are focus areas for you all. Both, I think, were called out as being areas of weakness. And I think health care specifically was intended to improve kind of beginning in the middle of 2026. Can you comment on that?

Yes. Gabe, I'll give you some more color here. So I think what Steve was saying was, look, within the core business, we have our 6 focus categories. They actually outperformed the overall core business, right? And they were flat while the overall company was 1.5% down. So -- and the focus categories, which make up about 50% of the business, they include certain categories in nutrition, and then they also include healthcare.

I'm not sure if we mentioned it on the call yet, but 5 out of the 6 focus categories were actually either flat. There was one that was flat. The others were low to mid-single digits up. And we had a bit of a weaker situation in healthcare. And just maybe commenting on healthcare because you specifically asked. I continue to believe that healthcare is a great end market category for us and a great business. We've had a number of positives also in the third quarter. We actually had wins with several pharma customers. We have a great partnership entered with a generics player around sustainability. We opened a coating facility in Malaysia in April with the first air-knife coating technology, which we've made a separate announcement on.

So all of that is good. The volumes in healthcare were slightly down, but we have good positive mix. And when you go to the volumes, the U.S. winter storm impacted a few sites in terms of both our production, but also the customer pull-through. And when you look to our customers, you will see that we also had a bit of a weaker cold and flu season.

And then in terms of outside of the focus categories, when you look at what's driven the rest is the other nutrition category, where you see more discretionary categories down. We've spoken about some [ natural ] confectioneries in the past. That's a market and also a customer sort of driven issue and then some weakness on the fresh and frozen food. And we also see some, I would say, generally trends to value-oriented essentials in that category. So that should give you a feel. But it's not that overall Nutrition is down. It was a particular segment of Nutrition outside of the focus category. So I hope that makes sense.

Your next question comes from the line of Keith Chau with MST.

I can go back to the leverage point and maybe one for Steve. At the end of the year, the guidance is for a leverage ratio of 3.4 to 3.5x. Typically, heading into the September quarter, your leverage goes up by, call it, anywhere between 0.3 and 0.4x. Given you'll finish the year at an elevated level already, are you expecting to see that step up? And given the higher working capital at the moment and the investment in working capital, should we see an over recovery of cash in calendar year '27?

Yes. Thanks for that. I think the recovery of the cash will definitely occur once we see supply chains normalize and kind of see some of the consistency rather than a little bit of the volatility. The timing of that, of course, will be dependent upon when we actually see that occur. But the probabilities of it happening, certainly -- as you look out of calendar '26 into calendar '27, we would certainly see that as the likely case. But there's, of course, some unpredictability to that if the supply chains generally have volatility in it.

But I think your planning assumption, our planning assumption, that would be relatively consistent with that. Relative to this fiscal year-end leverage being modestly up, we'll see some inflection, as you indicated, kind of in a normal, I'll call it, Q1 of the stub period, but we wouldn't expect to end the now stub period with leverage necessarily above where we're finishing.

And then as we mentioned earlier, we would expect real improvement on the leverage as we look into the fiscal and calendar 2027, particularly given the things that will be very focused on for us, synergy capture being at the levels that we've expected and would see improvement both at the EBITDA and EPS level from synergy capture during that period of time. Obviously, our price and cost relationships will maintain themselves as neutral for today's conversations. And so no, I think you'll see really some very positive deleveraging as we look out of calendar '26 and into now calendar and fiscal '27. It's important to us and our commitment to deleveraging as we've previously discussed and highly committed.

We have reached the end of the time we have for the Q&A session. I will now turn the call back to Peter Konieczny for closing remarks.

Yes. Thank you, operator. Thank you again for joining us, everyone. I'm sorry, we could not get to everyone today. But I -- and we certainly appreciate the interest, and we hope to see you soon. Thank you very much.

This concludes today's call. Thank you for attending. You may now disconnect.

I'm George Staphos from BofA on Packaging Paper. On behalf of my Epic team, Brad Barton and Kyle Benvenuto, we want to welcome you here. We're kicking off with Amcor. Couldn't be happier. We know everyone traveled through snow, sleep, rain, just like the postal service to be here, but you're here.

And we are grateful to be hosting you again for our annual conference. Welcoming today P.K. Konieczny, CEO of Amcor. P.K. thanks for being here. And our old friend, Steve Scherger, CFO of Amcor now. PK has been with Amcor since 2010 and Chief Executive since 2024.

Although it feels like what, decades PK. And Steve, as we know, for many years as Chief Financial Officer of Graphic Packaging, having joined Amcor this fall. Welcome, gentlemen. We're very, very happy that you're here. So right into it, Amcor is guiding to $0.90 to $1. For the fiscal third quarter, $4 to $4.15 for the year. As we recall, that requires some incremental synergies, kind of $100 million sequentially, 1/2 to 2 half, also a pickup in the business itself.

Can you confirm these points as our guardrails and to the extent possible with Dustin in the audience, Dustin, still well, crack IR for Amcor and prior Berry in the audience. How are you doing? What's new fiscal third?

George. Good to see you, and thanks for the kind words and welcome, and I can take that question just relative to our -- to the guidance. You said it well, $0.90 to $1, $4 to $4.15, no change to that, obviously, in our conversations today since we brought that to life 3 weeks ago. And you touched on it well, the first half, second half improvement from an EBIT perspective.

3 primary components. One you touched on $100 million of synergy improvement first half to second half. We've got a $260 million target for synergy capture this year that we have high confidence in. We've achieved about $93 million of that through the first half. So there's a nice sequential $100 million positive in the second half that we expect to execute on.

Seasonality is $100 million first half, second half. We tend to be busier. Our fiscal year is at June 30 and the second half for us because we're in Q3 and Q4 is busier for us. So sequentially, and that's common now with the combination, sequentially $100 million of improvement there.

And then as we talked on the call, our noncore businesses, the $2.5 billion that we're actively looking to exit from, had a pretty tough Q2. EBIT margins were down to 3%, tend to be more in the 7s and 8s. We expect to see and we will see improvement in that business back to more normalized levels.

We've got some new contracts and negotiations that are in place, volume commitments. And so really, those 3 things, $100 million, $100 million and $50 million are the primary first half, second half. And then the only other point to add there is that in our guidance, as we indicated, kind of the bottom half of our guidance was today's volume environment, kind of what we experienced in the first half, modestly down.

I'm sure we'll talk more about that. And then any improvements towards the higher half of the range would be a more buoyant volume environment. So thanks for asking that.

No, we appreciate the opening answer there, Steve. So again, to the extent that it's only 3 weeks ago, you doesn't sound like you're updating anything here. From the macro data points that you're seeing from any of the data points that are available in the public domain, what is -- pardon the phrase, what's the setup relative to what your volume guardrails were? Is there -- is it looking relatively consistent with what your expectations were earlier in the month whenever you guided for the fiscal third?

I think it's very consistent. I think it's very consistent with what we've seen. I mean if you take a hard look, you have reasons to believe that things are going to turn. The question is when. When I think about some of the public announcements from our big customers, and these have been all public, and you will have seen the same thing that I see.

When you think about Kraft Heinz, when you think about Mondelez, when you think about Nestle, they all came out and they said, look, we're going to put more focus on volumes and volume growth going forward. And when that comes, we should be participating in that. The question is when it really translates. At this point in time, we are approaching the second half of our fiscal year, very much consistent with sort of the volume exposure that we've seen in the first half.

Okay. And one of the questions that we had relayed prior, we talked about what your guidance assumes in terms of volumes, including the various ways that you slice the business. Over time, do you think that maybe you'll be sort of saying, hey, on a regular basis, core is doing this, focus is doing that.

I mean you articulated, so you already are to some degree. And how are those different slices doing to the extent that you have any sort of vantage point on that right now in terms of the core of the focus markets early in the second half?

Yes. Look, I mean, we're going to talk about the business the way how we look at the business, and that's obviously evolving. So you're going to see what we're seeing. We made a pretty big acquisition a couple of months ago. We went into that. And as a result of that, we actually looked at the business a little different. We carved out $2.5 billion of business that, as Steve said earlier, we now call noncore, and we're finding ways to exit. And then there is the core business. So we'll hopefully make some progress on the noncore divestments soon. So then we're going to talk about the core. And the core business itself, we've always been very explicit around trying to position the company where you see growth momentum in the markets.

And that is the whole concept of the focus categories. So we're going through the market. We're trying to find out what's growing well and what categories that's what we college do we like because they have good industry structure, but we're well positioned to win in those categories.

We have identified 6 of those, and they make up collectively a little bit more than 50% of the business. And that's where we want to disproportionately invest in terms of capacity of people, management, but also capital in order to drive more growth going forward.

We'll leave it there. I had a question, I'll come back to it in a bit. Very, very complete answer. Thank you. Any questions from the audience? who want to make this as engaging and 2-way as possible. If we can get a microphone to the front for Ham, who's in the front row. And how is your trip in?

Yes. Where did you come from?

Right there, Ms, the gentleman who's speaking. Thank you.

Maybe just spend a second on R&D as a percentage of sales. As you try to create products that are slightly more proprietary, what's the right level of R&D so that the basket of goods you're selling aren't as commoditized? And maybe speak to what you think is commoditized today.

Yes. I think generally speaking, we have a mix of products in different categories of the market. You wouldn't be surprised that given the breadth of the participation, we have some products which are higher value than others. I would say that everything that relates to the focus categories typically is product that has higher value.

And the focus categories collectively make up more than 50%. We have good value products in the balance of the portfolio also. And all my commentary goes around the core business right now. So that's about the $20 billion business that we consider to be core.

So broad exposure, but a lot of initiative to drive the company to index the company towards value products. We've always done that. And focus categories examples, just in order to put some more life to it, is protein, it's health care and the likes of that. So that's the exposure to higher-value products.

Now your question goes to R&D. We believe that particularly after the combination of the 2 companies, we have a real strong R&D platform. We speak about the investments on an annual basis, which is about $180 million. We have more than 1,500 people in R&D. These are significant scale numbers in the packaging industry, and they obviously are facilitated and enabled by just simply the size of the company.

We've always said that this is a potential differentiator for us. And we are being more efficient now between the 2 companies to address really tough R&D problems. Sustainability continues to be on the table as a big focus area for us, and we'll continue to drive sustainability.

And then there is a whole lot of customer back or category back innovation work that we're doing. So all of that, I think, comes together nicely in driving the company towards higher-value products with a more explicit edge in differentiating ourselves.

And Ham, just to add to that, I've visited 2 of our major facilities here in the U.S. over the last, I guess, 3 months. and the capabilities are impressive, material science, very high end, focus on the bears, focus on sustainable, innovative packages.

[ Ham ] if you can wait for the microphone. And this, what's your name, by the way? Laura, thank you, Laura. Ham, if you can wait for Laura.

It's roughly 1% of sales, right? So when I think about R&D at other companies, usually higher than that. Is that the right number, 1% of sales?

I think it's a good number. I think it's a good number for us. And look, the question is we need to get away from -- this is sort of the way how I think about it. We need to get away from describing inputs into R&D as the key differentiator. What we need to get to is we need to describe the outputs. When you say, what are we getting in return for like roughly $200 million of investment on an annual basis out of R&D.

And that is where we're spending quite a bit of time right now as we have put the 2 companies together. And that will eventually drive the question, what's the right amount of money that we need to put in R&D. I think there is a whole lot more that we can get with the structure that we have on the table right now.

We have a unique setup. I mean, from an R&D -- innovation and R&D, I don't want to get off the charts here, but innovation and R&D are 2 different things. R&D is your capability to do research like material science. We can attract the best people. I think we actually have probably some of the best people in the space of packaging where we work.

Innovation is the capability to actually drive that into real outcomes that differentiate you. So -- and we're on that journey. At this point in time, I think we're well set up with our investments.

Thanks, [ Ham]. Interesting point of discussion. And we keep as investors, as analysts, coming back to growth for all of the companies, Amcor is not alone here because it's such an important driver of value when you look at dividend discount, whatever in terms of free cash flow. With that base, with that strength, with the Bemis acquisition a number of years ago, with the innovation.

Again, I'm just an analyst. I run a spreadsheet, okay? You run a company. Why don't we see more growth? And does it argue perhaps that, yes, you've got your focus categories and they're over 50% of the portfolio. Might there over time, PK be more opportunity to hive off that, which is not growing? Or do you think the portfolio as it's constructed now actually can in the next year, show sustainable, repeatable same thing, growth. How would you think about that?

Well, first off, George, it took you about 7 minutes to get to that question. It's a bit disappointing because we get this so many times. And obviously, it's one of the biggest things that we think about how can we facilitate?

You have some coffee, you have some breakfast.

Yes. I know it's early in the morning. But look, let me talk to this. First off, I'll say we're operating for an extended period of time now in a market environment that's pretty tough, right? And everybody has seen that. So we need to give the whole industry. That said, the aspiration that we have is to outperform the market, and we want to do better.

I'm not sure that we've been able to do that. There's areas in the portfolio where we've been able to demonstrate that. Pet food is one on the focus side, we're driving really good growth there. And I would even go as fast as far as saying we're probably gaining share in pet food. Protein, we've done a lot of work on, and we're seeing our efforts really translate going from a supplier of film material, which is actually the core of the protein packaging with high barrier requirements to being a total solutions provider.

We've made an acquisition of a company in New Zealand that has brought capabilities of packaging machines to us.

[ Moody ] you're referring to?

Sorry.

[ Moody ] you're talking about.

Moda. So we've done all that, and I think we're going to do more of this. We're having specific strategies across the focus categories. But the market is obviously holding us back a bit. We are believing that going forward, we're going to see more growth. And we -- when I talk to it at this point in time, given the new platform of the combined companies, the first thing that I will say is, look, active portfolio management is a key driver.

And what you're seeing right now is that we've, again, carved out that noncore portfolio of businesses. We're going to take that away, and Steve is going to keep me honest here. But by doing that, we're going to add about 100 basis points of organic growth to the company, just by selecting a portfolio that is focused on those areas that are intrinsically growing faster, right? So that's the first one.

The second one, and that's unique to the combination of the 2 companies, we're driving what we call growth synergies. Typically, we've been very, very comfortable in announcing cost synergies on the back of putting 2 companies together. And those are coming through very well. Steve reported on those in the first half, $93 million, upper end of our expectations and with a really good pipeline that give us reasons to believe we're going to get $260 million at least in this year.

But the growth synergies, it took us a while for us to commit to those. And what are they? They are essentially sale opportunities, opportunities to sell on the back of the combined capabilities of the 2 companies. So think about product pairings. That's one key driver.

I didn't hear that PK what?

Product pairings, I'm going to give you an example. Product pairings, give you an example. Berry makes the yogurt cup, Amcor makes the lid. You put the 2 together, you're essentially selling a solution to a customer. And there is many other examples out there that are more sophisticated, but this is the one that sort of resonates because everybody gets it.

We have capacities that now combined has helped us to gain different additional business. We have a regional footprint. That as you leverage that for the combined product portfolio allows us to make sales, like Amcor has been like in simple terms, more global than Berry has, and we now have a platform to commercialize Berry products or legacy Berry products across the Amcor footprint.

One of the examples, if I may, if I just can give one example is it's always my favorite, which makes the point really well. We get very much questions on GLP-1, right, and the impact on our business. Maybe we're going to get to it later. But the first thing that I will say is we're actually participating in GLP-1. Because we have a scale health care business. Between the 2 companies, $2.5 billion of our top line is actually in the health care packaging space. So we're participating in the whole GLP-1 sort of drive. And we had a customer, a global pharma customer that is introducing solid oral dose GLP-1 products.

And they were attracted to us and we actually made a good deal on the back of being able to supply them in Europe and in the U.S. So multiregional with our -- that speaks to the global footprint. And even more so because due to consumer preference, they wanted to have a blister solution in Europe, and they wanted to have a rigid solution in the U.S. And that was us. That was us.

After the combination of Amcor, think Flexibles and Berry, think rigids and then multiregional, we were able to give them what they wanted. And those are the type of synergy opportunities that we're driving. So first one, portfolio, secondly, synergies and the third one we already talked about is the focus on track. Steve, go ahead.

And then George, I think just to add to that, I think if you step back as well, what we're observing is that the global day-to-day consumer has absorbed an unbelievable amount of inflation over the last 3 years. And that consumer affordability issue, whether it's here in the U.S., throughout Europe, anywhere around the planet, quite frankly, has been the real challenge for the consumer who is spending more dollars, euros, pounds to get through there and manage their day-to-day life.

They're just buying fewer items. And we've been working through that now longer than normal, quite honestly, if you kind of stand back from it and look at the world of daily food, beverage, health care consumption patterns. And what we certainly are observing and seeing now is that inflation has been more absorbed by that consumer, wage inflation catching up with the realities of that significant onslaught of inflation that the daily consumer has absorbed.

And we're also now seeing more evidence as we talked at the beginning, that our customers as well, the world's biggest CPGs, small, medium and large, QSRs, et cetera, are seeing more intent around driving more volumetric growth with the consumer, with their customers because this consumer affordability issue is a global phenomenon. It's real, and it played itself out over the last 3 years. And it's what gives you some visibility into the potential for that to turn more towards a positive environment.

Steve, PK, let me -- this is a great discussion. We think if the customer -- I realize there's not going to be one answer to this question. But if there was a common denominator response, if we had your 20 largest customers here in the audience right now, and we ask them, what could Amcor do other than cut price to make you buy more of their product?

What would be the one thing that they would say? And in response, what would you tell your customers, hey, guys, if you would do this one thing based on our own work as we're Amcor, we're in the markets. We've been doing this forever. There's no one better packaging, maybe tied to first, but no one better packaging than us. If you did this, you'd sell more. What would those 2 responses be?

I think it's hard for me to speak on behalf of the customer. So this is all hypothetical what I'm saying now. My best understanding would be right now to your first question, what would they want us to do is they would want us to help them innovate through the current challenges in their marketplace.

And what I mean by that is they're trying to address a consumer that is stretched and is seeking for value. That's one of them. And they want to stand out and they want to facilitate their volume performance. They're coming back from applying a formula of success, which was very much driving price on the back of high inflation and sacrificing -- being prepared to sacrifice volumes for it on the other side. That formula no longer works because inflation has tapered off. And now they're all coming back to focus more on volumes. And the question is how do you do that? And it's going to be too simplistic to think that just by cutting price on the product is going to do the trick. And it has an impact, obviously, also on the profitability.

So they will want to innovate through that, stand out, differentiate the packaging, smaller pack sizes would be another trend that addresses 2 things actually. It's the stretched consumer and bring it to a price point that they can afford. And on the other hand, potentially GLP-1 because people consume less categories. So that's another thing. So it is that innovation support. And I believe our response to that is we're right here for you. We spoke about innovation.

And to [ Ham's ] point, you have -- you feel you've got the R&D, you've got the innovation. You've got it ready for them, whatever they want and you can provide to them.

I'm going to invite everybody here to make the effort and come and join us in one of our innovation centers. We have one in Neenah, Wisconsin. We have another one in Ghent in Belgium, and we'll be able to show you what we can do on the innovation side.

I've been with customers there, and I'm not going to brag about anything here, but we're able to really have good conversations with customers and help them out. I mean there's been nothing but very positive reactions to what we can do. But we need to bring all this to bear.

Very good. Maybe one last question on Flexibles and on the noncore, and then I want to pivot. So near term, from our vantage point, the operating leverage in Flexibles in the last quarter was a little off from what we would have expected.

Were you happy overall with the performance out of the business? You had a lot in synergies, but we only saw about 1% EBIT growth in the quarter. So tell us, again, and I know minimize, again, I just run a spreadsheet. Why you guys were comfortable with that. And then you mentioned in terms of the portfolio review, that could add 1 point when we've done the math, when you've done the math to revenue. What could it add to return? When we've done some of the math, it's sort of 0.5 point, 0.5 point to return on capital, agree, disagree comment, that would be helpful.

Yes. No, let me touch on the segments and Flexibles specifically. Actually, we were very pleased and we kind of conveyed it in the materials for the quarter with the performance of the core businesses. So think about the Flexibles and Rigids segments. And when you look through both of those and you actually strip out the synergies, so the synergy capture, as we talked, met our expectations.

But if you strip those out of both segments, Flexibles volumetrically was down about 2% and actually held its own on a year-over-year EBIT basis and then the synergies dropped through to the bottom line. It's a smaller percentage of the synergies because synergies are weighted a little bit more towards the Rigids side for obvious reasons on being more very centric.

And actually, with the Rigids side, volumes were flat. That was a good positive indicator for us. And there, too, EBIT, excluding the synergy capture was relatively neutral. And so that was actually good on -- in both cases that in a slight net headwind environment, EBIT was holding its own. synergies dropped through to the bottom line, which is critical.

So it showed that the synergies weren't eaten up, if you will, by the slight headwind environment that we're managing through. So that actually was -- we viewed as a very good outcome, work to convey that as we were talking about the quarter. What you summarized there is actually quite well said on the noncore businesses, the $2.5 billion that we're exiting from the North American beverage business being a large percentage of that. You touched on it from a growth perspective, at 100 basis points or so to the growth. We also shared in the materials, it's margin value creating as well. And so if you kind of remove those businesses today, you've got EBITDA margins in the mid-15s, CapEx on an ongoing basis for our business being in the 4% to 5% of sales.

That gives us the ability, George, to generate the kind of cash flows that also in our positive returns on invested capital. And that's really the model that we're embarking on. Obviously, there's more capture coming on the synergy side. But the actual net performance in this environment is good.

I have high confidence that when we're in a low volume growing environment that the flywheel will spin quite nicely, low volume growth and earning mid-single-digit EBIT growth. So that financial algorithm holds up nicely here. I haven't seen anything that would imply that, that changes. So -- and do you want me to touch on the noncore sale process? Or do you want to.

So returns actually could go up if the margins are going up to mid-teens, returns could go up 1 point, 2 points?

Yes, I think on a return on invested capital basis, Yes, I think that's -- those are good structural conversations to have in terms of what the financial algorithm should look like.

And sale process?

Yes. No, as we talked, obviously, I think importantly into PK's portfolio point, we did identify and PK and the team identified before I joined $2.5 billion of what is noncore business. And those are businesses that are good businesses. They're just structurally in slightly different places relative to natural headwinds on a volumetric basis and slightly lower overall margins. We could elect to fix those businesses, make them better, drive consolidation. It's just not ours to do. And so we've got very good processes underway for the totality of that $2.5 billion, the majority of it being the North American beverage platform, along with some bottle and closure businesses that we have.

And we've got good process. And these are salable businesses because they're actually good scale fundamental businesses, modest headwinds, but they're in industries that are in need of consolidation. And so the actual interest in the business is good and acceptable, good processes underway.

Things aren't sold until they're sold, but what our confidence that we will find good solutions there, as we said on the call, good optimism and encouraged by what we're seeing there. So we're actually looking forward to kind of bringing those to the conclusion at the right time.

We're maintaining good, thoughtful transaction optionality. What we mean by that is could be straight sales, could be potential deconsolidate partnerships where you participate in some of the upside because there's a consolidation play here that another owner will likely drive.

Thank you, Steve. Any questions from the audience? I want to pivot a little bit here. It sounds like you're very happy with how the acquisition is playing out. Steve, you spent many years in a different substrate. What's been your sort of 1, 2 most illuminating finding about the plastic and Flexible sector relative to where you had been? And what was attractive about the opportunity to you to the extent that you can comment?

Yes. No, I think to the first part of your question, I think one thing that is very clear having been around consumer packaging for the last 30 years is packaging is always fit for purpose. It's the best solution for the package. And we are a primary consumer packaging company.

We are in the food, beverage and health care markets, and we're providing packaging that is very fit for purpose, safety, the health of the products that are there, the ability to enjoy them effectively. And that's what really gave me the confidence that this is really the global capabilities here are also quite spectacular.

But to your question on kind of alternatives and the like, things truly are fit for purpose and primary fiber-based packaging tends to be more secondary packaging, as you know, as opposed to the primary, some instances of primary and the actual net movement among the substrates has been modest.

The attractiveness here, this is an amazing business. It's an incredible combination with phenomenal history with both businesses, the opportunity for us to allocate capital effectively, invest for innovation and volume growth put the money to work to drive above cost of capital returns, continue to look at the portfolio in active ways, apply good experiences there, partner up with PK and what is a phenomenal global set of capabilities. The uniqueness here that's probably, in some ways, not as clearly understood is just how global Amcor is. I mean, literally 400 facilities around the world, large presence in large, mature and good markets as well as in emerging markets. And all of that was really just a compelling opportunity to join the team.

Thank you, Steve. PK, Amcor has a well-earned reputation over the years for integrating businesses, Alcan, Bemis. What is most challenging, what is most invigorating about the opportunity that you have with Berry.

And one of the things that Amcor has, from my vantage point over the years, done well is value-based pricing. How are you implementing that? And if you can talk a little bit about what that means, you're the expert, not me, within Berry in that regard. So those 2 questions.

Yes. So in terms of making scale acquisitions, you mentioned the 3 that I've been a part of with Alcan in 2010, Bemis 2019 and then Berry last year. We've -- I think we've done well in terms of integrating the businesses in the first 2 certainly and the jury is a bit out on Berry. But we're -- on the other hand, we're like 8 months into it or maybe even more than that now. I think it's 10.

Come on PK it's 8 months, no just kidding.

No, exactly. No. But the point is it's interesting because I've had a conversation with someone else who said, if this would not be going well, you would see it at this point in time, right? So you're only 6, 7, 8, 9, 10 months into it in an acquisition like this. And you know if it's going sort of well or not, you see it at this point.

And I think we can say, look, we're on a pretty good trajectory. That speaks to the playbook that Amcor sort of applies to this. There's 4 very key priorities. The first one is to keep everybody safe. And that's the most important thing within Amcor. That's not a priority. That's a value of Amcor. Priorities change over time, values don't. So safety is the most important one. You take care of the customers. Before you worry about cost synergies, you got to take care of the customers because we're always on our toes when it comes to potentially losing business on the back of making a scale acquisition, right?

Because customers may sit there and say, too large of a share of wallet exposure to the combined company. We don't like that, have not really lost any business, not really in any of those acquisitions, not without challenges here and there in conversations, obviously, but we haven't.

The third one is you got to get the organization right. So even before you think about cost synergies, everybody thinks about you got to get the synergies, you got to get the synergies. No, the third one is you got to get the org right. And you got to think about what's the structure, where do you put the people.

And the fourth one is actually then get the synergies and support the base. So the playbook is good, and that was the same one. The uniqueness here with Berry, I think, was part of your question. I think it lends itself to the challenges that the businesses have. When we go back a number of years, Amcor had a challenge on margins.

And we were very focused on margin expansion in the Flexibles, as Amcor Flexibles business. So we're very focused on margin expansion, and we put a good playbook in place, which comes back to the next question that you asked.

Now it's more about growth. And we are more focused on protecting the margin, expanding it where we can, but particularly put an effort on growth. So that's a bit of the difference. But other than that, a lot more similarities between those acquisitions than differences, I'd say.

Now to your point on the value-based pricing, let me take that a level up. I mean, we believe in certain things that are very critical for success in our business at Amcor in packaging.

One of that is you need to have a solid commercial excellence program. And we continue to believe that, and we will continue to build that out as we go forward. We're overhauling it now because with every acquisition, we get to see other things that other companies have done really well, and we take the best of both, we combine it and then we roll it out.

So it's not really a change of strategy on the commercial excellence. It's really just more rigor in terms of execution. Now value-based pricing is just one of the elements that we have focused on in Amcor in the past and that we are applying across the combined portfolio, things like disciplined contract execution may be one example.

Another one is how do you actually monetize value in the context of sustainability. That's another one. You have a more sustainable package, which is a more higher value package. And therefore, it should generate better margins for you because in order to develop it, you have to have to invest into it. There's good examples there, but I don't want to go too deep.

No, that's very, very, very helpful. And speaking personally, I frequently forget about the fact you got to get the organization right because at the end of the day, organization and leadership drive everything else, you have that?

Right.

Have you need to change incentives significantly? And I know you're not going to go sort of salesperson by salesperson here, but is there an overriding change in what you might be doing within Berry to help drive that?

I'd say, again, this one is driven by just the priorities of the company in the short term, right? I mean a big priority for us is to get the integration right, to get the synergies and to facilitate growth. And you won't be surprised to see that our incentive structures are pivoted to those priority areas. And as we get into a more stable state with the company, we will find other priorities that we incentivize against.

But we've always done that. And right now, people -- yes, they make money if the company makes money on the back of generating synergies as an example.

No, that's fantastic. I appreciate the review, P.K. Any questions from the audience as we're wrapping up? Going once, going twice. [ Laura ] is doing her best. Anyway, without further ado, Steve, PK., thank you. Everyone, please join me in thanking Amcor for a great presentation.

Thank you for standing by. At this time, I would like to welcome everyone to today's Amcor Fiscal 2026 Second Quarter Earnings Call. [Operator Instructions] Thank you. And I would now like to turn the call over to Tracey Whitehead, Head of Investor Relations. Tracey?

Thank you, operator, and thank you, everyone, for joining Amcor's Fiscal 2026 Second Quarter Earnings Call. Joining the call today is Peter Konieczny, 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 Investors 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, PK.

Thank you, Tracey, 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 Berry created a global leader in consumer packaging and dispensing solutions. We are realizing the benefits of this combination and executing well, resulting in strong momentum towards achieving our fiscal 2026 commitments. With a strengthened platform and a clear growth road map, Amcor 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 3. The well-being of our colleagues is a core value for Amcor, and our commitment to safety remains unwavering. For Q2, our industry-leading safety performance continued with Amcor'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 1 for 5 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 noncore 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 5 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 $0.86 per share for the quarter, in line with our expectations, including a onetime favorable tax benefit offset by weaker performance in our noncore 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 $0.65 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 8 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 6, our $20 billion core portfolio represents the strongest part of the combined business. The core portfolio includes our 6 focus categories, namely health, beauty and wellness, protein, liquids, foodservice 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 the 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 are making strong progress exploring alternatives for the remaining $2.5 billion of noncore 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 road map.

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, 4 restructures approved or announced. These synergies, as expected, will primarily materialize in years 2 and 3 of our synergy realization time line.

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 3-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 strengthened supply chain and multi-format capabilities have enabled us to support a major global pharmaceutical customer as they launch a 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 Scherger, who joined us as Amcor's CFO nearly 3 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 onboard. 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.

Steve, over to you.

Thank you, PK, for those kind words. It is an honor to be here with you and our 70,000 colleagues. In my first few months at Amcor, I've had the opportunity to meet teams from across the organization and around the world, gaining a deeper understanding of the operational and strategic priorities that will drive and shape significant value creation for years to come. What has stood out most is Amcor's clear market leadership, disciplined approach to creating value and the exceptional quality and capabilities of the people who drive performance globally every day.

This quarter, as you can see, we are sharing some additional materials and analytics with you to help provide a clearer view of our underlying market trends and the exceptional global consumer packaging platform we are building. I look forward to continuing to share our strategic priorities with current and potential investors in ways that will simplify and quantify our compelling value creation model. I look forward to partnering with our global leadership team as we build momentum and deliver strong results for our customers and shareholders.

Let me start with the Global Flexible Packaging Solutions segment on Slide 8. Sales for the segment increased 23% on a constant currency basis, driven primarily by the Berry acquisition. On a comparable basis, volumes were down approximately 2% and were similar to what we experienced in Q1 in all regions. In the developed regions of North America and Europe, volume trends were consistent with the first quarter, down low to mid-single digits, with Europe remaining modestly more challenged than North America. Volumes across emerging markets were as expected with low single-digit growth in Asia Pacific, offset by modestly lower volumes in Latin America.

By market category, volumes were higher in pet food and meat proteins. This was offset by lower volumes in other nutrition, liquids and unconverted film and foil. Overall, our focus categories performed modestly better than the rest of the portfolio.

Adjusted EBIT rose 22% on a constant currency basis to $402 million, driven by approximately $65 million of acquired earnings net of divestments. On a comparable constant currency basis, adjusted EBIT was up approximately 1%, and adjusted EBIT margin of 12.6% reflects accelerating synergy benefits in line with our expectations. Excluding synergies, comparable earnings were broadly in line with the prior year. Our teams remained resolute in their focus on disciplined cost performance and driving productivity improvements to offset the unfavorable impact of lower volumes.

Turning to Slide 9 and the Global Rigid Packaging Solutions segment. Sales for the segment increased significantly on a constant currency basis, mainly as a result of the Berry acquisition. On a comparable basis, volumes were flat with the prior year, excluding noncore businesses. This represents a sequential improvement of approximately 1% or 100 basis points, driven by improved growth in emerging markets, where volumes were up low single digits, primarily in Latin America. In developed market regions, excluding noncore businesses, North America volumes were flat compared with the prior year. As expected, volumes in Europe remained somewhat challenged and were down low single digits.

Similar to the flexibles segment, focused categories performed better than the rest of the broader portfolio with growth in the pet food, protein, and beauty and wellness markets. This growth offset softer volumes in the foodservice and health care markets. Adjusted EBIT was $228 million, up over last year on a constant currency basis, driven by approximately $165 million of acquired earnings net of divestments.

On a constant currency comparable basis and excluding noncore businesses, adjusted EBIT was up 15% as a result of accelerating synergy benefits. Excluding synergies, adjusted EBIT was in line with the prior year with disciplined cost performance offsetting modestly unfavorable mix. Adjusted EBIT margin, excluding noncore businesses, improved approximately 200 basis points and was 12%, similar to the flexibles segment, underscoring the strength of the business we are creating with this transformational acquisition.

Moving to Slide 10. Free cash flow for the quarter was $289 million, resulting in a first half cash outflow of $53 million, in line with expectations. First half capital spending was $459 million, up compared with the prior year as anticipated. We continue to expect fiscal 2026 capital spending to be in a range of $850 million to $900 million. Adjusted leverage exiting the quarter was 3.6x, consistent with the seasonal cash flow patterns. We expect stronger cash flow in Q3 and continue to expect adjusted fiscal year-end leverage to be in the 3.1 to 3.2x range.

Our commitment to an investment-grade credit rating, a strong balance sheet and a modestly growing dividend annually remains unchanged. Strong annual cash flow generation fully supports our capital allocation priorities.

Turning to Slide 11 and our financial guidance. Another quarter of results in line with expectations reinforce our confidence in delivering a year of strong adjusted EPS and cash flow growth. As PK noted earlier, we are reaffirming our full year guidance ranges today.

Adjusted EPS expectations remain unchanged, while noting the range has been updated to a range of $4 to $4.15 per share, reflecting our recent 1 for 5 reverse stock split. Our expected year-over-year adjusted EPS growth of 12% to 17% is primarily driven by synergy capture, in line with our commitments and continued strong cost control as we execute in a challenging market environment. These actions, combined with the portfolio optimization steps PK covered earlier, will position us well to deliver sustained volume-driven organic growth over the mid to longer term.

We are also reaffirming free cash flow guidance of $1.8 billion to $1.9 billion. Relative to the first half of the year, our guidance implies a step-up in earnings in the second half, in line with our expectations, driven by 3 key components. First, synergy benefits will continue to build. Second, seasonality is typically stronger in the second half of the year; and third, performance across our noncore businesses is expected to improve, supported by recently renegotiated customer contracts and improved operating performance compared to the prior year.

Looking to the third quarter, we expect adjusted EPS to be in the range of $0.90 to $1 per share, including realization of approximately $70 million to $80 million of synergy benefits. Please also draw your attention to supplemental third quarter and updated full year guidance metrics in the appendix section on Slide 14, which should be helpful when updating financial models.

In summary, we are executing well and delivering against our commitments as we continue to take steps to further strengthen the business and our performance. With that, I'll hand the call back to PK to close out. PK?

Thanks, Steve. In closing, we are making tangible progress across all 3 of our strategic initiatives. These actions support our long-term organic growth objectives, translating into sustainable, volume-driven earnings growth over the mid to longer term. As we close out the first half of fiscal 2026 and look ahead, we are pleased with our progress. We're executing well. Our financial performance is in line with expectations, and we are delivering against our commitments, demonstrating the resilience of our business in a challenging market environment.

We are on track to deliver at least $260 million of synergies this fiscal year and $650 million over 3 years. We have reaffirmed our fiscal 2026 adjusted EPS and free cash flow guidance, and portfolio actions are progressing with pace.

That concludes our prepared remarks. And with that, operator, please open the line for questions.

[Operator Instructions] And it looks like our first question today comes from the line of Ghansham Panjabi with Baird.

First off, Steve, congrats to you and welcome back. Best wishes in your new role. I guess, PK, in terms of the volumes -- or Steve, for that matter, in terms of your expectation for volume for the next 2 quarters, which are your fiscal year '26, are you embedding -- just share with us in terms of what you're embedding in terms of volumes between the 2 segments. Have you seen any improvement in your production backlogs or any other forward indicators that you track?

I'm just asking because some of the CPGs have reported thus far, have said some, generally speaking, very favorable things as it relates to volumes and pivoting towards volume velocity in fiscal year '26. I'm just curious if you've seen any impact of that whatsoever at this point.

Yes. Thanks, Ghansham. I'm happy to give you some color and then maybe Steve wants to follow up and then provide some context with regards to our financial expectations. Look, generally speaking, I'd say, we're approaching the back half not much different from what we saw in the first half, and therefore, the commentary is even very much aligned with what we said in November.

I'll start with the positives. I think we're making good progress on the revenue synergies as we pointed out in our prepared comments, and we are very much focused on the growth initiatives that we're driving across the business. So those could potentially provide some upside, but the reality is we're operating in a market that is low single digits down, and while everybody is hoping that the environment won't turn in the short term in the second half, we're approaching it very much consistent with what we've seen in the first half.

What that means is we will continue to apply the same recipe in terms of focusing on cost, flexing the organization according with the volume demand that we're seeing. So we do see some opportunity for improvement in the back half, but we're hoping for the best and planning for something that's very much consistent with the first half. Steve?

Yes. And thanks, PK. And just to add a little bit to that, Ghansham, our guidance assumes -- really at the bottom half of the guidance, if you will, assumes a market environment similar to what we've been experiencing, so similar to the 1.5% that we were down in the quarter. So really the bottom half assumes consistent volume environments. And as PK said well, the upper half would be more aligned with the possibility of more positive activity with our customers as well as the capture of revenue synergies and the work we're doing to gain position.

And our next question comes from the line of Jakob Cakarnis with Jarden Australia.

I just wanted to focus, now that we've got the guidance for the third quarter, more on the fourth quarter and exit rates if we could. Seasonally, it looks like your EPS historically has been about 30% of the full year in that fourth quarter. It looks like the guidance is largely congruent with that sort of shape for the result. Can you just give us, outside of volumes and market performance, some of the initiatives you're enacting through the fourth quarter that give you confidence around that guidance, please?

Yes. Jakob, this is Steve. Maybe just trying to take you through the first half, second half and then a little bit third quarter, fourth quarter. As we look first half, second half, I'll focus on EBIT improvement. Really, there's 3 things that will drive first half, second half EBIT improvement. One is just seasonality, a little bit of what you were just talking about. We should see about $100 million of EBIT improvement first half to second half just seasonally, which would be consistent with historical expectations.

Synergy growth is very important first half, second half. The at least $260 million of synergy for the year is another $100 million of improvement first half, second half, and then I'm sure we'll talk a little bit more about our noncore businesses, the $2.5 billion of noncore. We'll see improvement first half, second half there as well, particularly given the challenging second quarter that we saw with our noncore businesses, primarily the North American beverage business.

Q3 to Q4 improvement, to your question, that, too, synergy capture will continue to accelerate Q3 to Q4. Our noncore businesses, we should see improvement Q3 to Q4. And then one of the things that we'll see in Q4 specifically on a year-over-year basis is a year ago in Q4, we had some challenges with our North American beverage business, and we have more confidence that Q4 year-over-year, we'll see improvement on that front. So just a little bit of first half, second half and third quarter, fourth quarter for you. I hope that helps with the context.

And our next question comes from the line of Anthony Pettinari with Citi.

Just following up on Ghansham's question in terms of the volume performance in the first half and maybe the embedded assumptions for the second half. I mean, do you think in your major categories, are you -- is your volume performance basically in line with the broader industry? Do you think that you're gaining a little bit of share? Or conversely, are you letting go of some business that's maybe become less profitable?

Yes. Thanks, Anthony. I think I'll have to go at this one. Let me just run you through the numbers again to calibrate and at the same time, give you a bit of color. So the overall company in the second quarter was down 2.5% on volumes, and that would have been a performance that's very similar to the first quarter. And when you take a really hard look, you probably see a performance that is marginally better than the first quarter. But I'd be cautious to read too much into that just because I would like to see a bit more of a trend here, and also the numbers are not that much different, so very much in line, I would say, volume performance-wise with the first quarter.

Now let me dive into that a little bit more, and by doing that, I'll focus on the core portfolio. So now I'm talking about the $20 billion out of the $23 billion of the company. And the core portfolio really is 1.5% down. That's about 100 basis points better than the overall business, and the delta, obviously, is made up by the noncore part of the business. But the core is 1.5% down.

If I go into the segments between rigids and flexibles, again, both have been very similar to Q1, flexibles down low single digits, rigids flat. Happy with that. Happy with the flat performance of rigids. I guess what we're seeing there is that North America is holding up. We're seeing some growth in Lat Am. And I would like to believe that that's a combination of market improvement maybe but also the efforts that we're investing in the business in order to improve the volume performance overall. So we're happy with the rigids performance.

If I go by region, North America encouraging, as I said, low single digits down, a little better than Q1. Europe is a bit weaker than North America across both segments. And we're seeing growth again in the emerging markets, low single digits after we've been flat in Q1.

And then I'll make one more comment, which is important because we keep referencing the focus segments of the business, which are more than 50% of the core business. And collectively, those focus segments have outperformed the core business overall, and we're happy with that. Pet care was certainly a standout example. We've seen high single digits growth over a couple of periods now, and there, I would say, we probably are gaining some share. And meat proteins has likewise been a category we're happy with, with low single digits growth, and that would be consistent with the efforts that we've put into the category in the past. So I think that gives you some color.

And our next question comes from the line of Brook Crawford with Barrenjoey.

It was just on the second half implied earnings improvement, which you've already kind of talked through there. But just with respect to the noncore portfolio, can you provide some EBIT numbers in terms of what we should expect the improvement in the noncore EBIT contribution in the second half versus the first half? Will be super helpful.

Yes, Brook, again, this is PK. Let me provide some color, and then Steve can help you out on the numbers. The noncore business, we believe, had a tough quarter in Q2, and that was mostly driven by volumes. Sequentially, Q2 was a little weaker than Q1, particularly in the North American beverage business. I would say we've been looking for explanations and signs. We've been looking at destocking activities. But in the core portfolio of our business, I wouldn't say I could see any destocking impact. In the noncore business, there may have been some targeted destocking, so that may have been one of the reasons that drove the volume performance down.

The other 2 things that I want to tell you is, operationally, we operated well in the noncore portfolio. And that relates back to some challenges that we had in prior periods, but we exited the first quarter already saying that we were okay with that and I can confirm that in the second quarter, making these comments also in terms of the outlook into the second half. The thing that's changing going forward for the noncore business that we've -- is that we've also sat down with a number of our customers, and we have looked at the commercial terms of our contract and really in a real partnership basis, we have been able to adjust some of those terms on a very fair basis, which will improve the business going forward.

So that gives me confidence. We're operating well in the back half. That's our assumption. Commercial terms have improved. That will give us a lift. Then, we'll have to see what the volume situation is like. But certainly, Q2 versus Q3, I would expect a bit of a lift if I'm correct with my assumption that we did have some destocking.

Yes. Brook, this is Steve, just to kind of add some of the facts there to what PK was describing. As PK mentioned, Q2 was a difficult quarter for our noncore businesses, EBIT margins in the 3% range. And that was really where we saw some of the headwinds, the $30 million of year-over-year headwind that was in the context of our overall still growing EBIT at the company level.

First half EBIT margins for our noncore business, roughly the $1.2 billion of top line in the 5% range. So that just kind of speaks to the first half. As we look to the second half, as PK mentioned, new contractual terms, better pricing, good operating environment. We should operate EBIT back into more traditional levels, which is more in the 7% to 8% range, which year -- first half to second half would be about a $50 million improvement in that business, which is really kind of the third component we were talking earlier of first half to second half improvement relative to the North American beverage business in the context of the total noncore businesses.

And our next question comes from the line of George Staphos with Bank of America.

Steve, good to hear you. Welcome back. PK, thanks for the details as well. I guess my question is the following. Can you talk about, especially in your focus categories in flexible, what the exit rate on volume was from fiscal 2Q into fiscal 3Q? Where are you seeing perhaps some acceleration or decline? The sort of related question behind the question, when I look at the segment results for flexible on Slide 8, I know you're pleased with the synergies and certainly that's going well, but there was really not a lot of operating leverage, a lot of earnings growth ex the acquisition. And I'm assuming it's the core businesses being down in volume. So if you could talk about the exit rates on your focus categories in flexible, what's doing well? What's not and what kind of the mix effect of declining volume was in 2Q for flexibles?

Yes. Thanks, George. Let me give this a try and then Steve can follow up if he can add some additional value. So exit rates of the focus categories, I'm not a big believer of dissecting a quarter into beginning, middle and end and sort of talking about the volume performance in a very short period of time and read too much into it. But what I can tell you is, and I made this comment, the focus categories collectively outperformed the core business in the second quarter. And I can -- and the core business was 1.5% down. The focus categories were anywhere between 50 and 100 basis points better than that. So that gives you a bit of a flavor of how the focus categories performed.

Now as to the performance between the 6, I made a couple of comments already. I guess on the positive side, pet care really strong, and this is -- I went as far as saying in an earlier question that I think we are gaining share in pet care. Meat protein was up low single digits, so we like that. Dairy was a little softer, and meat and dairy together make up protein.

And then if I go to health, beauty and wellness, health care was down just a tad. You would wonder why that is, but if you look at the quarter, again, short period of time, the U.S. flu season was a little weaker. That sort of is a bit of a driver. And beauty and wellness was in line with growth in Europe, a little weaker in Asia.

The rest of the focus categories are sort of in the range of low single digits down, maybe foodservice a little more, which is a reflection of the value-conscious behavior of the consumer. And that sort of speaks to the mix between the different categories.

Steve, is there anything you want to add?

No, the only thing to add there, George, to your segment component of the question, I think if you look at the flexibles segment, the Page 8, kind of the lower left, overall, volumes were down 2%, as we mentioned, in the flexibles segment, while EBIT was up 1%. Synergy capture in the flexibles business this quarter was in about the $10 million range, so only $10 million of our $50 million of EBIT synergies. So actually, the EBIT on a comparable basis, up roughly $5 million synergies plus $10 million, the core business actually operated pretty close to flat, just down very modestly.

So I think the core, we're actually very pleased with how the core business performed in a modestly down volume environment, where we really saw the positive benefits on the rigids segment in the kind of the lower left excluding the noncore businesses, which we mentioned were down $30 million on a year-over-year basis, was actually up 15%. And so to put that into context, it's about $35 million, and $30 million of our $50 million of EBIT synergy capture was in the rigids segment because given that's where the Berry business primarily is, we saw a lot of our G&A and a lot of our procurement synergies captured there. And there, too, excluding that, the core business performed quite nicely, flattish on a -- in a flat volume environment. So that's just to give you a little bit of the details on the segment side.

And our next question comes from the line of Niraj Shah with Goldman Sachs.

Just double-clicking on synergies. Can you give us some color on the split between G&A and procurement in the second quarter? I think it's skewed to G&A in the first quarter, but also how you expect that to look in the second half and how the conversations with the suppliers are progressing as well, please.

Yes, I can touch on that, and PK can add some color there. Of the $50 million of synergy capture, EBIT synergy capture for the quarter, it's split actually quite evenly between procurement synergies and G&A. So it was those 2 categories. The $55 million that we mentioned, the incremental $5 million are the financial synergies kind of more on the interest and tax side, so pretty evenly split between procurement and G&A.

As we look forward, we'll continue to be on path relative to procurement and G&A synergies. We're not expecting much in the form of revenue synergies in the second half of the year. That will be mostly positive that we're going to start to see in fiscal -- out in 2027, so post June of this year. We'll also start to see some of the operational synergies. That's really where we've been investing for facility improvement and consolidation. Those synergies will start to ramp up as we look past this year's fiscal year-end. So hopefully, that gives you a little bit of the detail there.

Yes. Maybe in terms of the color on the procurement side, what I can tell you is that, generally, we feel really good about the synergy ramp-up and also the pipeline that supports our expectations for the back half of the year. Steve already said, what hits first is G&A. What then comes second is procurement as you wash through the inventory. Anything on the network takes a little more time because it typically has to do with plant restructurings or closures and the commercial side, while awarded, takes a moment for it to also come through. That's sort of the background to Steve's commentary, which I fully support.

On the procurement side, look, we have a number of conversations with our suppliers obviously. About half of the total synergies that we're expecting of the $650 million are procurement related. And the compensations have gone well and to an extent that, again, we feel very confident about our ability to deliver the synergies. If procurement wouldn't perform, we couldn't get there just because of the weight in the portfolio. So we feel very good about that.

And our next question comes from the line of Jeff Zekauskas from JPMorgan.

Sort of a two-part question. Is the conclusion that we should draw from Slide 6, is it that the noncore businesses have very minimal EBIT? And secondly, on your raw material synergies, are the raw material synergies independent of the general level of raw material values? So in other words, in a world in which oil falls in value and we've seen polypropylene prices fall and polyethylene prices fall, is the amount of synergy capture simply smaller? And in a world in which raw material prices really rise, would it be higher? Or is it independent of commodity changes in value?

Yes, Jeff, maybe I'll start on the noncore, and I'll just go back to what we mentioned a little bit earlier just on the margin profiles. You touched on it. Our noncore businesses, the $2.5 billion operated through the first half at about 5% EBIT margin, so think EBITDA in the just sub-10% range. And that was below traditional levels mostly because of a very difficult Q2, as we mentioned, down at 3%, some of the significant volume decline that we saw there, high single digits during the quarter.

We do expect that EBIT margins will return to more normalized levels for our noncore businesses in the second half. We're getting, as PK mentioned earlier, better contractual terms, better pricing, more volume commitments, and they would be in EBIT margins more in that 7% to 9% range.

As we've talked before, they are below the averages for the company and obviously, have a different growth trajectory, which is one of the critical reasons why strategically we're committed to exiting from them. So that's just a little bit of the fact base on that front. And I'll let PK add on the raw material side. I'd say those savings tend to be more volume-driven generally. But PK?

Yes. I just want to provide some context here for the scale, Jeff, and break that down a bit. We got to remember that our procurement spend is about $13 billion, of which $10 billion is raw materials and $3 billion is indirect. Out of that $10 billion of the raw materials, $5 billion, 50%, is resin-based, and the balance is inks, solvents, adhesives and a number of other things.

So the first thing I'd say is we tend to believe our synergies are resin-based synergies. It's a lot broader than that, and we need to remind ourselves of this, also in terms of the scale of our procurement spend to start. Now in a world where raw material input pricing comes down, and we had this conversation several times on earlier calls, the question is how big of an influence does scale of our operations have, just the mere volume that we're able to offer to suppliers.

And it's had an impact. In a situation where you're struggling for volumes, big buyers that can offer volumes do -- can make a difference, and we're seeing that. But if we take that plus everything else that we're doing on the procurement side, we get to the synergy expectations that we're confirming today and that we feel very comfortable with.

And our next question comes from the line of Ramoun Lazar, by the way, with Jefferies.

Just another one just on the volumes, PK, if you could maybe comment on how you see your customers performing in the context of the overall market. I know previously you've called out market share losses by some of your customers. Do you think those customers have stabilized their share in the end markets? And just keen to see how you're seeing that progress through the year.

Yes, Ramoun, I mean, it's not for me to comment on our customer performance, and that's not your question. I know that. So I'll kind of best answer that. The first thing that I would say is we are -- we have always been -- we are particularly now, after we've done the acquisition, very broad, and we have a very broad exposure to a number of different customers and customer groups. So broad participation, therefore, our performance should roughly be what the market actually offers, right, unless we can outperform, and we're trying to outperform. And we have good reasons why we believe we can outperform. So that's one.

The second thing, to the extent large customers, CPG-type customers have been taking price in the past on the back of a very inflationary environment and prioritize price over volumes, what I can tell you there is that certainly the conversations have moved to finding a more -- a better balance between price and volumes, which also relates to promotional activities that have been spoken about by customers, and you see that when they go to market and they talk about how they want to improve their volume performance going forward.

And I think we're well positioned to support on that end, while we haven't really made any specific assumptions in terms of improvements in the back half, as we've laid out beforehand. So we're -- again, we're seeing all that happening. We're listening very carefully. We're positioning ourselves to participate as much as we can and to help customers on their journeys, but we're sort of planning and approaching the back half at least very consistently with the first half.

And our next question comes from the line of Matt Roberts with Raymond James.

Steve, good to hear you again. PK, earlier, you noted health care in flexibles is a bit weak. I believe you said low cold and flu season, although not in my household. But I believe you're comping a destocking impact in the prior year quarter. So what was behind that weakness? Was it confined to a certain region? Or maybe parse out your expectations for the second half of the year between pharma and health care more broadly and any mix impact we should expect from that category.

Well, listen, it's a good question. I made a couple of comments earlier. I mean we saw health care volumes being a little weaker in the second quarter. That's correct. I do not want to read too much into that. The health care category itself is a gem, I think, in our portfolio, and I continue to say that. So we need to look at the volume performance over longer periods of time.

We did have a bit of an overall weaker flu season. I'm sorry to hear that it didn't apply to your household. But overall in the market, apparently in the U.S., that is the case. And there could also be, in this quarter, a bit of phasing of volumes between quarters, so again, not to read too much into it. And then don't forget we have a pretty broad exposure also in -- between pharma and medical in the health care piece, which you also need to take into account.

Look, I could think about other things that are positive for the health care business. I mentioned in my prepared comments that we're pretty well positioned to participate there. GLP-1 was an example where we've made a great win, which also speaks to the ability of the combined company to win in the space, and we will continue to double down on that.

And our next question comes from the line of Cameron McDonald with E&P.

PK, can I just delve into that comment around the GLP-1? And it's good to see you're participating in that, which has got a long-term growth profile. How are you guys thinking about the impact on the other side of your business, particularly around ultra-high processed foods and snacks, confectionery, et cetera, high calorific food consumption in an era where we have this explosion in GLP-1 use? And how much of that is going to be a structural headwind for that 60% of the business that's exposed to nutrition?

Yes. It's an excellent question, Cameron. I'm actually quite glad that you brought that up because it comes back over and over again, GLP-1, and we're spending a bit of time on that, too. Look, let me structure my comments by, first of all, saying everything that makes people more healthy is a good thing. So we're supportive of that, and we see that trend very clearly. We are supportive of that, and we're thinking about what it means for our company, how we can best respond to it. But it's a good thing.

Now we do have an exposure to the health care industry, as we just discussed, and therefore, we can participate in it, right? So that's very clearly said and clearly understood. Now your question is a little different. And you say, well, turn back to all the other categories that you're supporting in food and beverage and help me understand what the impact is there. And look, I will go back to some standard conclusions here where we have more unhealthy categories, where we supply packaging. Those will be impacted, but on the other hand, we also have other categories that are considered to be healthy, and they will increase.

If you think about snacking, generally, I don't think that the trend of snacking is going to go backwards. It will shift from unhealthy to more healthy categories. And there's examples in the market where that happens. Now the good news is that Amcor is a broad -- a very broad-based company with a broad participation across many categories, and therefore, what you see -- what we are expecting to see is that that's a shift in volumes between -- from unhealthy to more healthy categories. And therefore, we're somewhat robust to that trend, and we think that we can participate well in it.

Now customers, that's the last comment that I may want to make there, of course, thinking about that very carefully. And we've seen these trends before or similar trends before, and it has led to an innovation where customers are leading through these impacts and innovating through those impacts to support their business and to reinvent their businesses. And this is where, again, noncore is pretty well positioned to help our customers do that through our innovation capabilities and again, the broad exposure that we have to different categories.

So overall, I think we're pretty robust. I don't think that, that creates a structural headwind for us, but we're very much aligning ourselves with the impact. At this point in time, it has been very moderate from a GLP-1 perspective.

And our next question comes from the line of Michael Roxland with Truist.

Steve, I look forward to working with you again. I just wanted to follow up on George's question. Given that synergies seem to be more weighted to rigid, should we expect operating leverage to be relatively muted, EBITDA margins to be relatively flat year-on-year in Flexibles barring recovery in volumes?

Michael, it's Steve. I think that if you're just purely looking at maybe the second half of this fiscal year, probably not a lot of natural movement in margins, but if you take a multiyear view, which we certainly are relative to the synergy capture, given the revenue synergy commitments, given the operational improvement commitments, actually margin improvement on a multiyear basis should be spread across both segments quite nicely. It's more of a short-term phenomenon, I think, Michael, relative to where the synergy capture is here in fiscal '26.

And our next question comes from the line of Keith Chau with MST Marquee.

PK, I just want to go back to the comment around recently renegotiated customer contracts. And I think, Steve, you mentioned better contractual terms, better pricing and more volume commitment. So it sounds like, clearly, all 3 factors are positive. I'm just wondering what's happened in the past that has meant that you've been able to get these improvement. Has it been a bit of slippage and customer commitments that you're clawing back? Ultimately, I'm keen to understand how you've been able to do this and whether there is any cost associated with these renegotiated customer contracts.

Yes, Keith, I'll be able to take that. I don't think there's any cost associated to renegotiating the contracts. Just to give you a little more color, there's -- there were 2 angles to it. One was we were operating, particularly in the beverage side in an environment with very low volumes. And the renegotiated outcomes have given us a bit more line of sight of the volumes going forward and have stabilized and supported the volume outlook going forward. So that's one.

The other element was just simply in some of those contracts going back and covering the basis of inflation recovery, which, in some cases, we had a reason to do, and that has also been successful. So between those 2 things, we get some more inflation support and offset, if you want, and then we get a better line of sight, and we're a little more confident about the volume outlooks going forward.

And our next question comes from the line of Nathan Reilly with UBS.

Just a very quick question about your capital or CapEx budget. I think you spoke to $850 million to $900 million for the year. Can you just give us an update in terms of where you're focusing that investment, particularly with respect to some of your growth investments? Just keen to understand how that might impact volumes on a medium-term basis going forward.

Yes, Nathan, it's Steve. I can touch on that. We do see line of sight into the $850 million-$900 million range for the year. And as you would expect, a lot of that, beyond just traditional maintenance CapEx, will be in our focus market categories. And so we'll invest for growth there, as PK was mentioning earlier, so into those markets where there's opportunity for differentiation. So I'd say we weight our CapEx on our focused market categories just broadly.

And our next question comes from the line of John Purtell with Macquarie.

Congrats on the new role, Steve. Steve, you've obviously got a lot of experience in the packaging space and also with acquisitions. I know it's early days, but I'd be interested in your perspectives on the synergy opportunity with Berry and also how you see plastics versus other substrates and some of the dynamics there.

Yes. Thanks for that, John. And I will tell you, it has been an honor to be here for the last 3 months. And this is an incredibly capable global consumer packaging company, which has been so positive in terms of just raw capabilities, the global acumen and the very distributed nature of the product categories that we participate in, the market categories we participate in.

The synergy capture momentum here is quite exceptional and it's incredibly well done. The teams that are in place are dedicated. The tracking is outstanding. The commitment to putting money to work thoughtfully that drives synergy capture is very noteworthy, and it shows in the results. It shows in the confidence in the $260 million. It shows the confidence to the multiyear.

Certainly, relative to substrates and the like, I spent a lot of time in fiber-based packaging, as you know, and it's a fit-for-purpose business. It has a fit. It has a purpose that suits those markets well where it has specific opportunities to be utilized effectively. As you know, rigid and flexible packaging, particularly on a global scale, has a right to win and a fit for purpose that is very broad and very much aligned with the day-to-day life of the consumer. I think we're just truly uniquely positioned as a company that globally literally is in the day-to-day life of the consumer, and it's great to be here. So thank you for asking that, John.

And ladies and gentlemen, John is our final caller today as we are well over our 1-hour meeting duration. So at this point, I will now turn the call back over to management for closing remarks.

Yes. Thanks, operator. And look, everybody, thank you for joining us, and we're certainly looking forward to the opportunity to sit down with you over...

Great. Thank you so much. And ladies and gentlemen, that does conclude today's conference call. Again, thanks for joining, and you may now disconnect.

Thank you for standing by. At this time, we welcome everyone to the Amcor First Quarter 2026 Results Conference Call. [Operator Instructions]

I would now like to turn the call over to Tracey Whitehead, Head of Investor Relations. You may begin.

Thank you, operator, and thank you, everyone, for joining Amcor's Fiscal 2026 First Quarter Earnings Call. Joining today is Peter Konieczny, Chief Executive Officer; and Michael Casamento, Chief Financial Officer.

Before I hand over a few items to note. On our website, amcor.com, under the Investors Section, you'll find today's press release and presentation, which we will discuss. Please be aware that we will also discuss non-GAAP financial measures and related reconciliations can be found in that press release and 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 earnings to be different than current estimates. And reference can be made to Amcor's SEC filings, including our statement 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, PK.

Thank you, Tracey, and thank you to everyone joining us. I'm excited to welcome you today to discuss our first full quarter operating as a combined company. We're 180 days in, and I'm pleased with how well our teams have come together to integrate and execute against our priorities. We are also seeing strong and consistent validation by our customers who are very receptive to our expanded offerings and innovation capabilities. We're experiencing the quality of the combined business. As the global leader in consumer packaging and dispensing solutions for nutrition, health care and beauty and wellness. We're gaining traction with synergy realization, including commercial synergies and have solid pipelines, which continue to grow.

Margins increased in both operating segments, and we are addressing identified Amcor assets to enhance focus on our core business. Adjusted EPS of [indiscernible] and per share was above the midpoint of our guidance range, increasing 18% compared with last year. This includes the addition of the Berry business and was supported by disciplined cost out performance, improved productivity and synergy delivery towards the upper end of expected range. Our synergy run rate continues to build, and we have clear line of sight to opportunities that will drive at least $260 million in synergy benefits in fiscal '26. We're confident in delivering a year of strong earnings and free cash flow growth. This is an exciting time for Amcor, and I look forward to continuing to execute on our commitment to create an even stronger business that deliver significant long-term value for our shareholders is the global packaging partner of choice for our customers.

Now moving to Slide 3 and safety, which has always been a core value for legacy Amcor and Berry. As a combined company, our focus on safety remains absolute, and fiscal '26 has started well with strong performance. For Q2, our industry-leading safety metrics continue with Amcor's total recordable incident rate at 0.55. This is a slight increase compared with last year's performance, which is typically the case when we acquire a business. We have already identified opportunities for improvement across our now much broader footprint and global workforce, and we are proud that 89% of our combined sites remained injury-free in Q1.

Slide 4 highlights our key messages for today, which align with our near-term priorities: delivering on the core business; integrating Berry; realizing synergies; and optimize our portfolio.

First, core business execution. As mentioned, we executed well in the first quarter with EPS above midpoint of guidance. This positions us well to achieve our full year financial objectives, including earnings per share growth of 12% to 17%, and doubling free cash flow over fiscal '25. Second, integration momentum remains strong. We delivered $38 million in synergies during the quarter, which was towards the upper end of our guidance range. In addition to strong [indiscernible] financial synergies, we have already secured revenue synergies totaling more than $70 million in annualized sales, and our strong pipeline continues to build. This performance combined with our track record of executing synergy targets from prior large integrations, reinforces our confidence in delivering a total of $650 million in synergies through fiscal '28, including at least $260 million in fiscal '26.

Third, we're addressing previously identified noncore assets and have entered into agreements to sell 2 businesses for combined proceeds of approximately $100 million. While these businesses are small, this swift progress underscores our fitment to disciplined portfolio management. We continue to review options to accelerate actions on noncore assets, and we anticipate additional actions this fiscal year.

Fourth, we are reaffirming our fiscal '26 guidance. Importantly, Amcor's is well positioned with significant earnings and cash flow growth expected through delivery of $260 million in synergies, largely under our control and not impacted by divestments of noncore assets. This means achieving our guidance for 12% to 17% EPS growth this year is not dependent on improvements in the macroeconomic environment or in customer or consumer demand.

And fifth, the Board has approved an increase in Amcor's quarterly dividend to $0.13 per share.

Turning now to Slide 5 and our first quarter financial results. As Michael will cover in more detail ahead of our segment commentary, we've moved quickly to operate as a unified organization. As a result, our commentary is focused on the year-over-year performance of the combined business. Fiscal year '26 is off to a good start as our businesses benefited from disciplined cost performance, improved productivity and delivery of cost and financial synergies, while also building a pipeline of revenue synergies. First quarter EPS of [ $0.193 ] per share was above the midpoint of our guidance range, growing 18% on a constant currency basis. Excluding noncore North America beverage, overall volumes were broadly similar to Q4, down approximately 2% in the quarter and in line with our expectations. Emerging markets performed better than developed markets, led by solid growth in Asia. And EBIT of $687 million was up approximately 4% on a comparable basis as our teams continue to proactively manage and flex costs. These actions, along with the enhanced quality of the combined business, resulted in another quarter of strong margin expansion with reported EBIT margin of 12%, 110 basis points higher than Amcor's reported margin last year and 50 basis points higher than combined companies comparable margin last year.

Moving to Slide 6, which those are on track relative to our 1- and 3-year synergy commitments. Our teams delivered $38 million in synergies during the quarter, which was towards the high end of our guidance range. Approximately $33 million of those synergies benefited EBIT and came from G&A and procurement savings, with the remaining $5 million preliminary -- primarily, excuse me, related to interest. Headcount reductions now exceed 450 and discussions with our vendors and suppliers are progressing well. Our procurement savings on opportunity pipeline continue to build. We are also off to a fast start on revenue synergies, which I will return to shortly. Our teams are executing well against our proven integration playbook, positioning the business to deliver strong earnings growth in fiscal '26. We're confident in delivering at least $260 million in synergies this year and $650 million in total through fiscal '28. Today, we have reaffirmed both targets.

Before turning the call over to Michael, I want to take a moment to acknowledge that this will be his final earnings call as Amcor's CFO, as he has decided to return to Australia to spend more time with his family. Michael has been an exceptional partner to me and to the business. And we thank him for his many contributions over the past decade. He will continue with Amcor in an advisory capacity through June, working closely with our teams to support smooth transition. We look forward to welcoming Steve [indiscernible], who will join Umber as CFO next week. Steve brings deep industry expertise and a strong understanding of both the U.S. and mobile packaging markets. 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 customers and shareholders. Michael, over to you.

Hello, everyone, and thank you, PK for those kind words. It's been a privilege to work with our talented teams over the years, and I look forward to continuing to support Amcor's strategic objectives. Over the next several months while helping Steve transition into the role and ensure that he is well equipped to continue delivery of the significant opportunities ahead and value capture from the transformational Berry acquisition.

Now before we get into further detail, I note that comparative data throughout our earnings materials will continue to represent the legacy Amcor business only for most of the fiscal year. However, we also understand that insights on the performance of the business on a like-for-like basis is important to understand. And several of our comments today related to volumes and adjusted EBIT will be focused on first quarter performance compared with estimated prior period results for the combined legacy Amcor and Berry businesses.

So starting with the global Flexible Package Solutions segment on Slide 7. Net sales increased 25% on a constant current, primarily driven by the Berry acquisition. On a comparable basis, net sales were down 2% and with favorable price/mix dynamics offset by a 2.8% decline in volumes. By region, demand across the developed markets of North America and Europe was down low single digits, with volumes across emerging markets in line with last year, reflecting growth in Asia offset by lower demand in Latin America. From an end market perspective, volumes in our focus categories reflected relative strength and were broadly in line with the prior year. We saw good growth in pet care and dairy categories and volumes comparable to last year in healthcare, offsetting softer demand in fresh meat and liquids. [indiscernible] nutrition was weaker, including in categories such as snacks and confectionery coffee and content, partly offset by growth in other categories, including fresh produce and prepared meals.

Adjusted EBIT rose 28% on a constant currency basis to $426 million, driven primarily by approximately $75 million in acquired earnings net of divestments. And on a comparable basis, EBIT was up approximately 2%, reflecting synergy benefits and improved cost performance and productivity, partly offset by the unfavorable impact of lower volumes. The quality of the business continues to improve, with EBIT margin of 13.1%, up 20 basis points over last year.

Turning to Slide 8 and the Global Rigid Packaging Solutions segment. Net sales increased 205% on a constant currency basis, mainly driven by the Berry acquisition. On a comparable basis, net sales were lower than the prior year, reflecting a 1% volume decline excluding noncore North American beverage as well as unfavorable price/mix. By region, demand in North America was in line with the prior year, excluding North America beverage. And outside of the U.S., volumes in Europe were marginally down and Latin American volumes were down low single digits. From an end market perspective, our strategic focus categories were broadly in line with last year, with strong performance in pet care and continued growth in Europe in health care, helping offset softer demand in food, service and premium beauty and wellness.

Adjusted EBIT of $295 million increased 365% on a constant currency basis, driven primarily by approximately $240 million in acquired earnings, net of divestments. On a comparable basis, including noncore North American beverage, adjusted EBIT was up approximately 3%, reflecting synergy benefits and disciplined cost performance, partly offset by the unfavorable impact on volumes. The strength in value creation from the combination with Berry Global is clear in this segment with EBIT margin increasing to 11.9%, which is 420 basis points higher than last year.

Moving to Slide 9. Covering cash flow and the balance sheet. Free cash outflow for the first quarter was $343 million and in line with expectations. It represented a year-over-year improvement of more than $160 million prior to funding acquisition-related costs. CapEx was $238 million, up from last year as anticipated, primarily due to the acquisition of Berry. And we continue to expect capital spending in the range of $850 million to $900 million for fiscal 2026 with depreciation expected to slightly exceed CapEx.

Leverage exiting the quarter was 3.6x, in line with our expectations given seasonality of cash flows, and we expect solid cash flows in Q2 and remain on track to reach the 3.1x to 3.2x by fiscal year-end. This outlook includes $100 million of proceeds from the small asset sales announced today but excludes proceeds from any additional asset sales through the balance of the year, which would support further deleveraging. Our commitment to maintaining an investment-grade balance sheet and as a dividend aristocrat to growing our dividend annually as we did again this quarter is unwavering. We are confident that our strong annual cash flow generation fully supports these priorities.

Turning to Slide 10 and our financial outlook. Q1 EPS came in above the midpoint of our August guidance, reinforcing our confidence in delivering a year of strong EPS and cash flow growth. As PK noted, we are reaffirming our guidance for adjusted EPS of $0.80 to $0.83 per share on a reported basis, representing strong year-over-year growth of 12% to 17%. Our confidence in delivering at least 12% earnings growth is fully supported by continued execution against our identified synergy opportunities and does not rely on any improvement in the macro environment or increases in customer consumer demand.

In terms of the December quarter, which historically has been a seasonally weaker quarter, particularly for the legacy Berry business. We expect EPS of $0.16 to $0.18 per share including approximately $50 million to $55 million of synergy benefits. At the midpoint, this represents around 12% comparable growth against prior year estimated combined EPS of approximately $0.15 per share.

Interest expense and effective tax rate are both expected to be similar to the September quarter. This also means that earnings phasing is expected to be consistent with Amcor's historical performance with approximately [ $0.55 ] of EPS being delivered in H2. Growth is also expected to accelerate in the second half and particularly in the fourth quarter as synergies build throughout the year. We're also reaffirming our free cash flow guide of $1.8 billion to $1.9 billion in FY '26, which is double fiscal 2025 cash flow and is after funding approximately $220 million of cash integration and transaction costs, of which $115 million was funded in the first quarter.

Our full year net interest expense range of $570 million to $600 million remains unchanged, and we are currently tracking toward the lower end of our effective tax guidance range of 19% to 21%. So in summary, we had a solid start to the year, executing well against the outlook we provided in August.

And with that, I'll hand back to you, PK.

Thank you, Michael. Before we move to Q&A, I'd like to take a few minutes to discuss the mid- to longer-term growth opportunities for Amcor. As we look ahead, we're well positioned with significant synergies from the Berry acquisition, which over the 3-year period ending fiscal '28 and is expected to drive more than 30% EPS growth. At the same time, we are taking deliberate steps to position Amcor for sustained volume growth in our base business through 3 strategic initiatives shown on Slide 11. First, we have clearly defined our core portfolio, establishing Amcor as the global leader in consumer packaging and dispensing solutions for nutrition, health care and beauty and wellness. These are large, stable end markets with attractive margin profiles, where we hold leadership positions and see meaningful opportunities to work. As part of our portfolio optimization efforts, we are exploring strategic punitive for several businesses that are less aligned with the core portfolio. As mentioned earlier, we've already entered into agreements to sell 2 smaller businesses. We continue to review strategic options to accelerate actions on noncore assets, and we anticipate additional actions this fiscal year. Second, we have meaningful opportunities to supply customers with solutions that neither legacy company would have provided -- could have provided on its own. Our now combined teams are largely -- are already actioning more than 10 growth synergy initiatives, which includes safe forward geographic expansion or cross-selling opportunities, such as taking Berry solutions into Amcor's Latin America or Asia Pacific footprint. They also include more complex combined solution offerings that meet customers' complete packaging needs, including combining legacy Berry containers plus [indiscernible] or seals or legacy Amcor bottles and containers with Berry closures.

In just a few months, we have already been awarded new business wins, totaling more than $70 million in annualized sales revenue, and our pipeline is building rapidly. As an example, we expanded our business with a large food service customer. Amcor had a strong relationship with the customer and technical know-how and legacy Berry brought core manufacturing capabilities that were not then available to Amcor. Bringing our business together allows us to accelerate execution for the customer and deliver a disruptive and sustainable solution faster to the market. We also recently won business in Latin America with a large beauty and wellness customer across product categories. This is a great example of Amcor's ability to mitigate supply chain risk with production flexibility across a stronger multisite footprint within a single country. This also included a complete solution when combining Amcor's rigid container with a legacy Berry closure system.

And finally, about 50% of our core portfolio or $10 billion in annual sales comes from 6 key focus categories where volumes have historically grown at mid- to high single-digit rates with above-average margins, supported by demand for Complex Packaging Solutions. We're already winning in these attractive categories and with enhanced scale and capabilities post Berry acquisition, we are even better positioned for continued success. We're making tangible progress across all 3 strategic initiatives, and we are confident our focus will result in more consistent volume growth in the low single-digit range, translating to meaningful long-term earnings growth and shareholder value creation.

In closing, this is our first full quarter combined with Berry. The quality of our combined business is showing as we executed well against our financial commitments. Integration is progressing well, and we're building significant synergy momentum, including for revenue synergies. We moved swiftly on portfolio actions, reaching agreements to sell 2 smaller noncore businesses, and we increased our quarterly dividend which now stands at $0.13 per share. We have also reaffirmed our fiscal '26 EPS and free cash flow guidance, which is contingent on any improvement in the macroeconomic environment or increase in current customer or consumer demand.

As we look ahead, we're uniquely positioned for $650 million in identified synergies. And over the 3-year period ending till '28, synergies alone are expected to drive more than 30% EPS growth. At the same time, we're taking deliberate steps for strategic growth initiatives to create an even stronger business that delivers consistent organic growth and value for our shareholders and is the global packaging partner of choice for our customers.

Operator, we're ready for questions.

[Operator Instructions] Your first question comes from the line of Ghansham Panjabi with Baird.

Michael, first off, congratulations on the announcement and wish you the very best for the future. So PK, just going back to the Flexibles business, it looks like after an increase in the first 3 quarters of fiscal year '25, the volume cadence is basically reversing both from the year ago period, and I think you saw that last quarter as well. What do you think is driving this most recent decline? Is it the same issue with consumer affordability challenges? You called out confectionery and obviously, cocoa prices have gone up significantly. So are you seeing some sort of order pattern distortions because of that? Or do you see another sort of leg down in terms of volumes for -- at the consumer level?

Yes. Thanks, Ghansham. I think it's important for us to take a step back and just remind ourselves again, we expected the volumes to be very similar to Q4, and that's exactly where they were down about 2% if you exclude the noncore North American beverage. And now you're asking specifically about Flexibles, which was a little weaker and particularly was weaker in Europe. So the Flexibles weakness really that we've seen is in Europe. And if you double-click on that one, you get to a subcategory that we call unconverted film. And the unconverted film category was weak essentially following really general market softness. This is a film that we make, we don't further process it. We don't print it. We don't cut it. We don't split it. We don't make any [ pouches ]. We just sell that film into different end markets and that's particular -- those particular segments that have been particularly weak, but that is really what's driven the Flexibles demand in the last quarter.

Your next question comes from the line of Ramoun Lazar with Jefferies.

And Michael, congratulations on your announcement from us as well. Just a quick 1 on just the North American beverage business, if you can give us any kind of update there? It looks like volumes for the quarter fell high single digits there. Just any progress you're making on turning that business around, given the issues that you identified last quarter? And any update on divestments of that business potentially?

I'll help you just take that, Raymond. Look, first off, I'll say we made really good progress on the operational side with that business. We were reporting a couple of challenges in the last quarter. I was not proud of those, but I have to say kudos to the team that sort of jumps on it. And as I was expecting, that was very quickly turned around, and we've exited the first quarter with those issues completely under control again. So that is important. You're right that volumes softened sequentially from the fourth quarter last year to the first quarter this year. But on the back of the operational activities and the strengthening of the business, we actually increased the profitability of the business sequentially, which puts us so much better spot. And finally, as this is a noncore business, you're absolutely right. We are pushing ahead ambitiously to find strategic alternatives for that business. we're exploring a broad range of options. We said about 90 days ago, and I'll just repeat that today, that we're very open to all kinds of solutions here, including joint ventures or also partnerships. That is progressing and we'll see how that plays out. But it's really hard to be more definitive on timing.

Your next question comes from the line of Anthony Pettinari with Citi.

With the high-growth category, as you called out in Slide 11, I'm just -- if company volumes were down 2% on for the quarter. Is it possible to generalize kind of the volume performance of these focus categories? I know there are 6 of them. So -- but I'm just -- are these categories posting positive growth and maybe the sort of more base business is seeing much sharper declines? Or are you seeing the same kind of challenges currently in health care, beauty and wellness that you're seeing maybe the more conventional CPG kind of food service categories?

Yes, Anthony, I think it's a great question. Look, I think generally, what I would say is that the focus categories, and that's what we were referring to on that slide, they performed better. They generally performed better than the overall business. They also did collectively in the first quarter of '26. If I give you a bit of a detail around that. And I'll start with health, beauty and wellness. In that area, health care would have been aligned with the prior year. Beauty and wellness was down low single digits, that was certainly reflecting the consumer being more value-oriented. And then moving to the nutrition space. The 1 that I would call out, petcare, really a strong category continues to grow strongly, very resilient, very happy with the performance there. Dairy as being a subcategory to [ protein ]. We've seen some low single-digit growth with really good performance in Europe on yogurt, in North America with cheese. And in Lat Am, we saw some good performance in margarine. So happy with Dairy overall. Meat, the other subcategory and protein on the other cycle was a little weaker. I think it's fair to say that we're having a bit of a tough time of the protein cycle in the meat cycle right now, and that also reflects the value-conscious behavior of the consumers. And then foodservice and liquids, they were also down low single to mid-single digits. So it's a bit of a mixed bag. But when you pull it all together, the focus categories, overall, they did perform better than the rest of the business.

Your next question comes from the line of John Purtell with Macquarie.

Peter and Michael, thanks for all your help over the years and all the best going forward. Just in terms of the comparable EBITDA, up 4% on a 2.8% volume decline. Obviously, there's some synergies in there. But can you just talk to the sort of, I suppose, the underlying sort of cost and productivity piece because it does imply that there's been some pretty good costs and productivity management there.

John. I can take that one. Yes, you're right. We're really pleased where the quarter ended up. The team is really focused on the cost side of things, knowing that we were anticipating volumes to be similar to what we saw in Q4. So we knew there was going to be some softer demand. And we worked really hard to flex the cost base accordingly. So manage the shift patterns, manage the line performance, drive cost out where we can and particularly on the discretionary spend as well. So we're really pleased with the performance on that front. And then, of course, you had the synergy delivery as well, which is really unique to us, and I think that's something we were really pleased with where the synergies ended up toward the upper end of the range that we guided to with $38 million in the quarter. A good mix of G&A and procurement coming in there as well, some financial synergies we feel really confident in the ability to deliver the full year of that $260 million. So we're really pleased with where that came out and the pipelines that are coming through, which also include as PK touched in his remarks, revenue synergies as well in that pipeline. So we feel pretty good about the synergy delivery overall and where the business is performing from a cost standpoint because we are able to flex when we can see that the volume is a little softer than we would typically [indiscernible].

Your next question comes from the line of George Staphos with Bank of America.

Michael, thanks for everything and best of luck in the next chapter. I really appreciate your support of our research. My question is on synergy broadly. PK And Michael, can you talk a little bit more about how the sort of marriage, if you will, of Lat Am and specialty containers is going with legacy Berry? I think you touched on a couple of synergy benefits. Can you talk a bit more -- provide a bit more color maybe what kind of growth you're getting there? And then somewhat relatedly, can you give us a bit more color on this food service award you got, putting the 2 businesses together and getting a revenue synergy out of that?

Yes. Thanks, George. I'll start out here and try to take the 3 tiers of your question. Let me start off with the synergies. And before I get specifically into the benefits that we would be expecting from the combination of Rigid and Flexibles on Lat Am, let me just make some high-level comments here. Let's, first of all, calibrate ourselves against the fact that, we're really just 180 days into the combination of the 2 companies. It's really important to calibrate that because it feels like we've been together forever. The teams are really executing well. I'm very pleased with all of that. And in the first quarter, we've seen synergies coming through and really falling to the bottom line, which we're at the upper end of our guidance range. But what you're not seeing here because of how to translate it yet is really the momentum that we're building with the pipelines. Some of that you can take from the guidance in Q2, obviously, the synergies are stepping up. And that gets us -- when we think about the exit rates of Q2, gets through a really clear line of sight of at least $260 million. And you will notice that we positioned that a little different to what we said beforehand. We said, now we're saying it's at least $260 million. So we really strong confidence in the synergy delivery for this year. Now you've been asking about Lat Am. Now Lat Am, and I think you're connecting that to the decision to combine the 2 businesses. We are doing this because we believe that we have an opportunity to more efficiently and effectively address the region of Lat Am by representing a larger product, which we know is very complementary between the 2 businesses. That's why we're doing it. And when I talk about the synergies that result from that, you referenced the -- I think the beauty and wellness customer that actually was in Latin America, was not the food service customer. That 1 is North America. But in Latin America, it was a beauty and wellness customer. And we achieved an agreement for 2 products, across 2 products. And 2 things helped us actually land that win. One is we have a combined footprint between Berry and Amcor that actually provided a contingency solution in-house for the customer, which was really high in the customer's list. But more importantly, we're combining an Amcor Rigid container with a Berry closure. So it falls into the bucket of the systems solution sell. That's the Latin American piece. I hope I captured sort of your question.

Your next question comes from the line of Jeff [indiscernible] with JPMorgan.

In your raw material cost savings, were they largely in the United States or in Europe. And in your description of global Rigid Packaging, you said your volumes were down 1% against combined prior year ex noncore North American beverage. Were they down inclusive of the noncore North American beverage?

So I can take you on the synergy side. Look, if I break down the synergies for the quarter, that's probably a better way to think about it. On the synergies in the quarter, we delivered $38 billion, which was at the upper end of our guidance range. Of that $33 million was in the EBIT base, and then we had $5 million financial synergies, which related to some interest benefits as we've got more flexibility now with fixed and floating and commercial paper, et cetera. On the EBIT side of things, of the $33 million, about 2/3 of that was G&A. And that comes from the fact we've already taken out 450 roles across the business. So we are starting to see the benefits there. And look, on the procurement side, again, it was 1/3. So it wasn't, it wasn't a significant amount, and it was pretty general across the board. So that's where we ended up for the quarter. And as we said, that will build through the second and third quarter into the full year, we feel really confident around that number. .

And then, Jeff, I think you asked the question in terms of volume performance. We said Rigid overall, excluding North American beverage, was a point down. If you rolled North American beverage in there, it's 2.5% that.

Your next question comes from the line of Brook Campbell-Crawford with Barrenjoey.

I know you're talking about not expecting markets to improve in FY '26. But does range you've given for FY '26 cover a scenario where volumes continue to decline at that sort of 2.5% year-over-year trend that you saw in the first quarter? .

Thanks, Brook. Let me start this and maybe Michael wants to build on that. So I think we've discussed the volume expectations for the first half, right? The first quarter is done, the second quarter we've discussed and you're specifically asking about the back half of fiscal '26. And I'd say, if I take a step back, I believe that there is actually even an opportunity for the volumes to be positive in the back half of the fiscal year. And the reason for that is, 1 is technically were cycling softer comps in the back half, but we're also seeing wins coming through now that will translate. I told you that we are very much driving very discrete and select growth initiatives in the second half. We will have a little more time for them to actually gain traction. So you could even expect the volumes to be positive. Now what adds to that though, is the underlying market environment. And I don't know how that's going to look like. I think nobody really knows what the underlying consumer and demand environment is going to look like. And that creates a bit of the challenge here. So what we're going to do in the back half is we're going to do exactly the same thing that we did in the first quarter, which we did well and what we're set sail to do in the second quarter, we will manage our costs, and we will adjust our capacities to the actual volume situation. And we'll focus on the delivery of synergies. And that's what we've done very well. I was a good recipe in the first quarter. We want to do the same thing in the back half. And while our guidance range obviously includes a number of ranges on volumes outcomes and volume is not the only driver for our guidance range, as you know. But even if the overall macro environment, we're not -- would not improve, that would be covered within our guidance range. That's the way we think about it. .

Your next question comes from the line of Matt Roberts with Raymond James.

PK and Michael. Michael [indiscernible] others, all the best for you [indiscernible] should all be so lucky. Quickly on the divestitures you mentioned, could you give us sales and EBITDA contribution? Or I apologize if I missed that. There's still about $900 million to go there in the noncore non-beverage assets. So based on those initial, albeit smaller contribution of sales there, where the public markets are trading, how did multiples compare to your prior expectations on that? And how is line of sight to the remaining $900 million that you have remaining? Anything you could -- I don't know if you will frame it, but anything you've given potential impact to leverage or timing that would be appreciated.

Yes, sure. Look, I think in terms of the 2 divestments that we announced today, One of those is just a small plant in Europe, sales less than $20 million, so not a significant impact on earnings or sales. The other 1 is actually a joint venture. So we were not consolidating that one. We were equity accounting that. And so that also contributes to the $100 million in earnings. So we were pretty pleased with the outcome of that. We'll use that cash to pay down debt, when it comes in. And we continue to focus on the other items, I think, PK already touched on the Rigid -- the North American beverage business, and we're working hard on the other the other businesses as well. So we'll keep you updated as that progresses.

Your next question comes from the line of Cameron McDonald with [ E&P ].

Just in terms of the volume performance. Do you -- and I appreciate that you've said that it's hard to see what underlying environment is going to be going forward. But do you -- when you think about either the core business or the North American business, in beverages. Are you thinking that, that is all organic volume reduction? Or have you experienced some market share loss to other substrates, particularly in that North American beverage vector?

Cameron. Look, generally, I'd say, in the way that we look at our whole portfolio and there is always puts and takes, as you will appreciate. But this is not a story of share loss. So generally, I would say that. When you dive deeper into the beverage business per se and you talk about shifts between substrates, we have referenced in the past, and I think that is still something, and that's the only trend that I would be able to point to that you have in multipack sales that go through big box stores. You have a more attractive price point for consumers when you choose an aluminum bottle versus other substrates. And that is the space where because of the -- where the consumer goes as the consumer is seeking value. And that's where you can see -- in that specific case, you could see that there is some shift. But other than that, we don't see anything significant.

Your next question comes from the line of Keith Chau with Macquarie.

Well, I think in me [indiscernible] and then this question is that if the [indiscernible].

Keith, it's PK. You really broke up a lot here, and I had a really hard time to follow the question. It's not getting any better. It's not getting any better. I'm sorry. But I think I think we probably need to move on and maybe you can just dial in back in again, and we'll try to take your question when you come back in with a better line.

Your next question comes from the line of Nathan Reilly with UBS.

Just a question on private label. Can you give us an update on your exposure to private label products? And maybe just talk to some bond trends that you're seeing in that category at the moment.

Yes, Nathan, I think it's also a great question. I mean in private label, you would assume that, generally, the consumer seeking value would turn to private label more, and that's something that we would expect that in certain cases, we do see and that we want to participate in. Obviously, we have some pretty good exposure to private label across the regions, both in North America and Europe, if I just focus on those 2 big markets where private label really plays a role. But I would also say that we are probably somewhat underrepresented in the market when you look at the share of private label and our share -- our sort of share of business with private label, you will see that we have an opportunity there. So that will be a focus area for us to drive additional growth going forward, and that will make us participate in the trend.

Your next question comes from the line of Gabe Hajde with Wells Fargo.

I just had a question about health care. I think the expectation was that it was going to return to growth kind of in the back half of 2025. And I think you made some general comments around the business. But just if anything has changed with that trajectory. And then maybe I don't know if you want to talk about it in calendar year terms, but just prospects for that business in 2026.

Yes, Gabe, I'd say, first off, I'd say we believe that health care is a [indiscernible] portfolio. I've said this many times and I continue to say that. The performance of health care has some differences between the regions, what we're seeing right now that we're having a really strong performance in North America. So very happy there in North America. We tend to be more focused on the medical side of the business. And our performance is improving, but on a comparable basis, a little weaker on the European side, where we have more of a pharma exposure. And that has averaged out to overall a flat health care business, which I would still say, if I compare it to the prior quarters, is a solid outcome given the fact that medical had improved faster than pharma and over time. So my expectations for health overall is that we will see continued improvement in that business into calendar '26 and also into the back half of our fiscal year '26.

Ladies and gentlemen, this concludes our question-and-answer session. I will now turn the call back to management for closing remarks.

Well, thank you, operator. [indiscernible] I'll keep this very short here. But we feel like we've executed a pretty solid quarter in line with our expectations, maybe even a little better than what we expected. We're very confident in the synergies with a delivery of at least $260 million and the revenue synergies, they're also coming through. We talked about those, and the pipeline is really building strongly. We talked about reaffirming our guidance where the low end of our guidance, the 12% EPS growth is really just driven by the synergies that we have good line of sight of. And then in the long term, and this is important for me also to make that point, we continue to really drive the growth strategy on the back of 3 pillars. One is the portfolio optimization, the other one is, again, capturing the revenue synergies and the third one would be the [indiscernible] categories and our drive towards those. So thank you again for joining us, and we look forward to the opportunity to sitting down with many of you over the course of the quarter. Thank you.

That concludes today's call. Thank you all for joining. You may now disconnect.