Amcor plc (AMCR) Earnings Call Transcript & Summary

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.