Magnera (NYSE:MAGN) released third-quarter financial results and hosted an earnings call on Thursday. Read the complete transcript below.
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Summary
Full Transcript
OPERATOR
Thank you for standing by and welcome to Magnera's third fiscal quarter 2026 earnings conference call. Currently all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during your session, you will need to press Star 11 on your telephone to remove yourself from the queue. You may press Star 11 again. I would now like to hand the call over to Robert Wilminster, EVP Investor Relations.
Please go ahead.
Robert Wilminster, EVP Investor Relations
Thank you, Operator, and thank you everyone for joining Magnera's third fiscal quarter 2026 earnings call. Joining me are Magnera's Chief Executive Officer Curt Begle and Chief Financial Officer James Till. Following our prepared remarks, we will have a question-and-answer session. To allow everyone the opportunity to participate, we ask that you limit yourself to one question with a brief follow-up, then fall back into the queue for any additional questions.
A few things to note before handing over the call: on our website at magnera.com, you can find today's press release and earnings call presentation under Investor Relations. You can also go directly to ir.magnera.com to review the investor presentations from our recent customer conference attendance. Our annual report and proxy statements with the SEC can be found on our website under Investor Relations, as referenced on slide 2. During the call we will be discussing certain non-GAAP financial measures.
These measures are reconciled to the most directly comparable GAAP financial measures in our earnings press release and in the appendix of the presentation available on our website. Additionally, a reminder that we will make certain forward-looking statements. These statements are made based upon management's expectations and beliefs concerning future events impacting the company and therefore are subject to risks and uncertainties. Actual results or outcomes may differ materially from those expressed or implied in our forward-looking statements.
Some factors that could cause the results or outcomes to differ are in the company's latest SEC filings and our news releases. These statements speak only as of today and we undertake no obligation to update them. I will now turn the call over to Magnera's CEO, Curt Begle.
Curt Begle, Chief Executive Officer
Thank you, Robert. Good morning and thank you for joining our call. This quarter's strong performance reflects the organizational transformation initiatives we executed following our merger as well as the proactive initiatives taken by our global teams. Magnera leadership set high expectations for action-oriented execution, operational rigor, and performance guided by our purpose, promise, and beliefs, and the team continues to deliver against those expectations despite a volatile macroeconomic backdrop.
I am pleased to report that we produced our strongest earnings quarter as Magnera, driven by focused execution. For the quarter, revenue was $857 million with adjusted EBITDA of $99 million. Earnings grew 9% with a 70 basis point improvement versus the prior year quarter. Continued investment in differentiated products supported strong growth in our global wipes and infrastructure businesses enabled by our commercial excellence discipline. Based on our performance this quarter and our outlook for the full fiscal year, we are reaffirming the free cash flow guide and moving adjusted EBITDA to the lower end of the previous guidance range.
James will cover the details later in the call. Our earnings performance and strategic investments in essential, mission-critical products continue to advance our scale and financial targets. As I reflect on the quarter's results, I'll start with focused execution. Three strategic pillars continue to drive our business: improving our cost position to create a leading global competitive chassis; winning with customers through product leadership and innovation; and strengthening commercial excellence. Our synergy and Project Core transformation programs delivered strong savings globally. I appreciate our team's disciplined, action-oriented approach, including the difficult decisions required to drive this earnings improvement. We are also investing strategically in product lines and higher-growth end markets that require product expertise. Our wipes portfolio grew across all four key end market applications: disinfecting, personal care including baby, moist toilet tissue, and specialty industrial.
A highlight of the quarter was the launch of our new Universa product line, which I will discuss shortly. In infrastructure, we experienced growth in house wrap and accessories as we strategically expanded our national supply partner network in North America. Outside North America, infrastructure grew with continued strength in cable wrap and sustained growth in air and liquid filtration. At Magnera, the strength and resilience of our businesses are grounded in the deliberate balance we have built across our consumer solutions and personal care portfolios.
These products span tea bags, coffee filters, wipes, dryer sheets, filtration, baby diapers, adult incontinence, and medical garments categories, anchored in everyday, non-discretionary consumer demand. This balance is by design. It reflects a broad platform of 44 global manufacturing facilities and technology capabilities that position Magnera as a global leader supplying critical materials for customers' products in key end markets. When one end market faces cyclical pressure, the resilience of the broader portfolio provides ballast, supporting stable earnings, diversified customer exposure, and the flexibility to invest through the cycle.
Our leading polymer and fiber technologies, backed by an extensive patent portfolio, provide a broader range of solutions and greater customer choice, strengthening our reach in both developed and emerging markets. The culmination of this balance will drive stable cash flows, volume growth, and earnings improvement. Universa is a strong example of this balance. We have one of the broadest portfolios of sustainable wipes solutions globally, including several leading products enabled by proprietary technology.
In June we launched Universa to deliver performance across a wide range of customer needs. Our core offerings are designed for daily maintenance, facilities, cleaning, and janitorial applications where fast absorption and operational efficiency are essential. Universal plus, using our proprietary Spinlace technology, delivers a strong, absorbent, cloth-like feel for industrial and general-purpose cleaning tasks. Universa Max provides low linting and superior abrasion resistance for demanding environments that require durability and reliability.
This consolidated range of industrial wipers brings together the trusted performance of our existing Chicopee and Sentara brands. Before I turn the call over to James, I want to briefly recap the progress we have made since Magnera was created less than two years ago. In our first year we set out bold ambitions to better the world with possibilities made real. We built a world-class team, launched our new brand, established a foundation for an integrated organization, and continued to provide mission-critical products to our customers.
We will exit our transition services agreement, including migration off the legacy Amkor ERP systems, before the end of the calendar year 2026. Since inception we have closed a complex merger transaction, integrated swiftly, and focused on the priorities we can control: synergy delivery, footprint improvements through Project Core, sales mix improvement, and strengthening our balance sheet with our strong free cash flow generation. Our demonstrated ability to execute against these priorities reinforces Magnera's positive trajectory as a durable, proven business positioned to create shareholder value.
I will now turn the call over to James for a comprehensive financial update.
James Till, Chief Financial Officer
Thank you, Curt, and good morning, everyone. Turning to our financial results on Slide 11, we delivered a solid third quarter that was generally in line with our expectations. This quarter represents the first period in which we realized the full run-rate benefits of both Project Core and our merger synergies. Those benefits were partially offset by continued inflationary pressures across key raw material inputs. Even with these headwinds, our results demonstrated our disciplined operational execution that has been a hallmark of our organization since the merger.
Over the past two years, our teams have remained focused on integrating the business, simplifying our operating model, and driving sustainable cost efficiencies. Despite a highly dynamic macroeconomic environment, their execution has positioned us well to navigate inflationary pressures while continuing to strengthen our long-term earnings power of the company. For the quarter, net sales were $857 million. Solid performance across our wipes and infrastructure product categories drove organic sales growth of 1%, reflecting stable customer demand and effective commercial execution.
As we discussed in our previous call, raw material inflation accelerated meaningfully during the quarter. Our commercial organization responded quickly by implementing pricing actions across the portfolio. While these actions substantially offset the increase in input costs, there was naturally some timing lag, particularly in our rest of world operations where the price realization slightly trailed the Americas segment. We expect those pricing actions to continue flowing through as we move into the fourth quarter.
Despite these external cost pressures, Adjusted EBITDA increased to $99 million, representing a 9% improvement compared to the prior-year quarter. This performance reflects the benefits of Project Core synergy realization, disciplined cost management, and the resilience of our operating teams around the globe. Turning to cash flows, free cash flow for the quarter was negative as expected, but came in better than our internal forecast. Throughout the quarter, our teams proactively reduced working capital levels by managing inventories, receivables, and purchasing activities to help offset the impact of higher raw material costs.
These actions demonstrated both our agility as an organization and our continued focus on disciplined cash management during periods of elevated volatility. Moving now to our segment performance, beginning with Americas on Slide 12, revenue was essentially flat in the Americas compared to the prior year. Organic volume growth of 1%, led by continued strength in our infrastructure product categories together with higher selling prices implemented to recover raw material inflation, was largely offset by planned portfolio and product mix actions associated with Project Core.
Adjusted EBITDA Americas increased an impressive 16% to $71 million. The improvement reflects several factors including full run-rate realization of Project Core benefits, continued merger synergy capture, improved manufacturing efficiencies, and the recovery from the winter storm disruptions that impacted our second quarter results. Overall, the Americas business continues to execute well with strong operational performance and disciplined commercial management.
Turning to the Rest of World segment on Slide 13, revenue increased modestly compared to the prior year as higher selling prices and continued strength in both our wipes and infrastructure categories was more than offset by demand softness across Europe, where macroeconomic conditions remain challenging. Adjusted EBITDA declined slightly year over year. Continued operational improvements and merger synergies were more than offset by inflationary pressures that moved through the region faster than the pricing actions could fully recover during the quarter.
While Europe remains a dynamic operating environment, our regional leadership teams have continued to respond decisively. They're implementing pricing initiatives, strengthening customer engagement, optimizing manufacturing operations, and maintaining disciplined cost control to preserve profitability while positioning the business for improved performance as market conditions stabilize. Now, turning to our guidance, based on our performance year to date and our current outlook, we are reaffirming our free cash flow guidance of approximately $90 to $110 million for the full year.
Cash generation remains a key priority for the company and we remain confident in our ability to deliver on that commitment. With respect to Adjusted EBITDA, we now expect results to finish toward the lower end of the previously communicated guidance range. While operational execution remains strong and synergy capture continues to track ahead of our expectations, we believe the updated outlook appropriately reflects the persistence of inflation pressures and continued macroeconomic uncertainty.
We ended the quarter with approximately $575 million of available liquidity, providing us with significant financial flexibility to support our strategic priorities. Our balance sheet continues to strengthen and our liquidity position enables us to continue investing in the business while maintaining a disciplined capital allocation framework. Looking ahead, our priorities remain unchanged. We will continue executing on Project Core, drive operational excellence, generate strong free cash flow, and strengthen our balance sheet.
Although the external environment remains uncertain, we believe the actions that we have taken over the last two years have created a stronger, more efficient company that positions us well to deliver sustainable long-term value to our shareholders. With that, I'll turn the call back over to Curt.
Curt Begle, Chief Executive Officer
Thank you, Jim. This quarter's performance was a result of focused execution globally. While the demand environment remains muted, consumers continue to spend, favoring products that combine value with proven performance. Our company has demonstrated resiliency through the unpredictable and challenging times, and we will continue to embrace every opportunity to improve the company's performance. With that, we are happy to answer your questions. Operator, please open the line for questions.
OPERATOR
Yes, sir. As a reminder, to ask a question, you will need to press star 11 on your telephone to remove yourself from the queue. You may press star 11 again. Please limit yourself to one question and one follow-up to allow everyone the opportunity to participate. Please stand by while we compile the Q&A roster. Our first question comes from the line of Gabe Hajde of Wells Fargo. Your line is open, Gabe.
Gabe Hajde, Analyst at Wells Fargo
Thank you, Curt. Jim, Robert, good morning. Had a little bit more of a short-term question, and I'd say congratulations on the quarter, given all the volatility, especially on the raw material side. Just maybe to the extent you're comfortable commenting on sort of order patterns and cadence as the quarter progressed. And I'm just trying to understand delayed purchases or weather disruptions that kind of got pushed into the June quarter, and then from a seasonal perspective what we kind of expect or what you're seeing maybe in July into the final quarter of your fiscal year, if there's any abnormalities or anything that you're observing from, like I said, customer order pattern demand standpoint.
Curt Begle, Chief Executive Officer
Yeah. Hey, Gabe, thanks for the question. Good to hear your voice. Very consistent with what we experienced going into Q3 is what I would say, which is, again, orders are steady. We've been working closely with customers, and particularly those in certain geographies that had challenges receiving product due to the nature of challenges related to the war, particularly in the Middle East. But in terms of what we see from a demand outlook for the quarter, we see it to be very, very consistent.
Our inventory levels are in a very good position, especially from a production standpoint. So we expect to see kind of more of the same this quarter that we saw in Q3.
Gabe Hajde, Analyst at Wells Fargo
Okay. And then maybe one medium-longer term question. In the press release, you kind of give us this pro forma $405 million of Adjusted EBITDA, which layers in the final layer, I guess, final synergies and Project Core contribution. I think at the onset that number had been closer to 445. I'm just—and again, I appreciate a lot's changed in the backdrop—but just maybe how you're thinking about the medium-term prospects for the business and maybe a time frame to get to that 405.
I appreciate you're not giving us 27 guidance, but just how to think about maybe under-recovered price/cost in fiscal 26 and then residual Project Core and/or synergies. I mean you said this was the first quarter that we kind of hit full run rate. So maybe we've got that 405 in our sights over the next 18 to 24 months, assuming we don't get any sort of exogenous shocks to the system.
James Till, Chief Financial Officer
Yeah, Gabe, thanks for the question. What I would say is the teams did an excellent job in terms of going out with pricing and mirroring our flow-through. Our flow-through is pretty quick, particularly in the Americas. I would say that that was a net neutral for us. Now, there is a couple million, as we highlighted in the commentary, in rest of world that will flow into the fourth quarter in terms of the lag catch-up—was part of your question. And then, as we're looking, you know, we're not going to give 2027 guidance, but what I would say is, you know, I think we've told folks we're anticipating kind of $20 million floating over from those run-rate synergies in Core into 2027. And that remains our—we still believe that that's the case.
Gabe Hajde, Analyst at Wells Fargo
Okay, thank you. I'll fall back in the queue.
OPERATOR
Thank you. Our next question comes from the line of Kevin McCarthy of Vertical Research Partners. Please go ahead, Kevin.
Kevin McCarthy, Analyst at Vertical Research Partners
Yes, thank you, and good morning. Just wondering if you could compare and contrast your price experience in the Americas versus the rest of the world. I think you made a comment in the prepared remarks that maybe there are some lag effects on the rest-of-world side. And so just wondering if you would expect to catch up fully, or perhaps more than that, in the fourth quarter.
James Till, Chief Financial Officer
Yeah, Kevin, thanks for the question. Good to hear from you. Yeah. So what I would say is, it was a very collaborative exercise with sort of all customers globally. In Asia and in the Americas, we were able to push those through, so it was sort of net neutral in terms of cost versus price, which was, you know, what our intent was and was our goal. In the rest of world, in Europe, as you had highlighted, there is a couple million dollars that will float into the fourth quarter, as there was a bit of a lag in terms of getting those prices adjusted to reflect those increased costs.
Kevin McCarthy, Analyst at Vertical Research Partners
Great. And then secondly for Jim, perhaps, I think you affirmed your free cash flow target range, which, if my memory is correct, was $90 to $110 million. And so with one quarter left, would appreciate your updated thoughts on how to get there from here—kind of what you're thinking about in terms of working capital, other moving parts to achieve that range.
James Till, Chief Financial Officer
Yep. Thank you for the additional question. It's a good question. So, you know, we obviously moved to the lower end of the range on EBITDA. The easiest offset to that will be CapEx. So we originally guided roughly 80 million. We're rolling in around 15 million a quarter, so our natural run will be around 60. We are, there was a working capital use this quarter as anticipated because of the inflation. The teams did a nice job of offsetting a good portion of that. It wasn't quite as much as we anticipated because of the efforts the teams did on inventories.
But what I would say is there's still work to go there in the fourth quarter. And we knew we moved very quickly on the impacts to EBITDA and we knew that the working capital pieces, it was going to take us the entire back half to sort of offset those increases. And so I would say it's still work to go on the working capital, but we feel comfortable with initiatives that we have in place that we'll be able to get that back in order here in the fourth quarter.
Kevin McCarthy, Analyst at Vertical Research Partners
Great. Thank you so much.
James Till, Chief Financial Officer
Thanks, Kevin.
OPERATOR
Again, to ask a question, please press star 11 on your telephone to ask a question. Our next question comes from the line of Edward Brucker of Barclays, your line is open. Edward.
Edward Brucker, Analyst at Barclays
Hey, thanks for taking the question this morning. My first one just on these pricing actions that you've taken that seems like you've reduced the lag on these raw material pass throughs. Is that something that you worked with your customers to do that's permanent? So we should expect that. Are these shorter term lags going forward or would you say that they would revert back over time?
Curt Begle, Chief Executive Officer
Thanks, Edward. As we talked about in the last call, traditionally, historically index moves were set up for, you know, a little bit in times of just kind of steady, normal shades of business. And in cases like what we experienced coming into Q3 with the rapid inflation that we were experiencing, going to customers and working with them on short term moves to the monthly pass through was really critical in order for us to ensure that we were neutralizing that negative impact.
And so there will be some cases with customers that we would keep that in a consistent basis. But you know, we would expect in the coming, coming months, quarters, years that if in a more normalized environment you would revert back to, you know, quarterly kind of index moves or bi monthly. But I would say at the very least we've shortened overall those, those ranges. But we're very efficient in our pass throughs in general. It's just the amount of the increases were so significant that customers working with customers understood that and we would look to, you know, if there's big drops down that we work with customers on, providing that, you know, that ride back with them. So again, I would say you know, overall, as we renegotiate new contracts, our intent would be to shorten the lag up even more. But in general, I would say for us we're extremely efficient. It's just this was unprecedented times in terms of the spike in raw materials.
Edward Brucker, Analyst at Barclays
Got it, thanks. And from a CapEx perspective, should we expect that kind of $60 million number going forward or would you say that there's going to be some deferred CapEx that would need some catch up in the next couple years?
James Till, Chief Financial Officer
I wouldn't say we're deferring anything this year. You know, for us it's a matter of making sure that we have the right amount of ROI in terms of the investments that we're making. We've obviously been heavily focused on the integration and ensuring the right investments from a maintenance standpoint, safety, CapEx inside of the sites. In terms of the larger growth investments, we've been very efficient in identifying opportunities to improve existing, existing platforms and lines.
But as we go into future years, we would adjust that CapEx appropriately as it relates to any major growth programs or growth initiatives inside of the business. But we're very comfortable with where we sit today in terms of our capital dollar spend.
OPERATOR
Thank you. Our next question comes from the line of Gabe Hajde of Wells Fargo, your line is open. Gabe.
Gabe Hajde, Analyst at Wells Fargo
Hey Jim, I had a follow up and I apologize, maybe too deep in the weeds here, but the revenue bridge in Americas, I think you guys kind of called out in the press release that price was negative 13 million. On the flip side, we're obviously talking about shortening lag times on a pretty big spike in raw material pass through. So can you just help us maybe with the bridge between, I'm assuming you call it out, negative mix. So maybe business that you kind of walked away from and maybe when that starts to annualize through the revenue line.
James Till, Chief Financial Officer
Sure, sure. So if you remember in Q1 and Q2 we were running around 40 million negative in that line for exactly what you said. So it was higher priced, I guess, higher sales dollars, price per unit, but lower profitability items that we walked away from is Project Core. So you saw that hitting us in Q2, sorry, Q1, Q2, they hit us again in Q3, but it was offset with inflationary items. So we'll continue to lap that through the remainder of the year and then it should sort of lap in Q1 of 2027.
Gabe Hajde, Analyst at Wells Fargo
Okay. And then Kurt, can you remind us, you talked about some of the innovation items, new products that you guys have put out there. And I can't remember if I've asked you guys in this the past where you talk about like a Vitality Index or a new product index or something like that. Is that something that you plan to talk about or that you actively track and are wanting to kind of communicate to the external world? And then rough investment, maybe less about CapEx and more about R and D that's flowing through the income statement for us.
Curt Begle, Chief Executive Officer
Yeah, I don't have the total in terms of expenses as it relates to R and D. Obviously we do continue to heavily invest in new product development, new features and benefits within certain product lines. We're excited about the universal launch and that'll be part of our forward run rate whenever we provide our 27 guide in Q4 and beyond. But in terms of the Vitality Index, we track that every quarter. And so historically it's been about the 15 to 20% range in terms of new innovation and the impact to the portfolio that's getting close to north of 25.
And many of it is just many of those products in some cases are to might be for a similar application than what we're doing today. But it provides more value to our customers which in turn improves our overall mix, which is what we've been focused on as we looked at our portfolio and continue to evaluate the portfolio of where we have the long term right to win, where we have true differentiation, how we can backstop that with patents or IP and the customer collaboration.
And so we'll continue to track that. We can provide some of that information as we get into maybe the next call. As I look at Robert here, just to give a better understanding. But as we talked about, it's finding opportunities for us to shrink the more commodity sized portion of our portfolio to true value added products and mixing up which will be reflected in the overall earnings percentage of the business and earnings in general. So that's really the big focus and Jim touched on it earlier.
When you think about the top line, we've made conscious choices as it relates to certain parts of our portfolio that may have driven a higher top line number due to the nature that it has many different touches inside of our system. So could be things like just secondary processes and if we're not getting the value for the products that we're providing to the market and it's not worthy of the capital that we would expect to grow in those spaces basis, those are the choices that we've made throughout the process, you know, throughout this first year and a half, going on two years of ensuring that we have again the right platforms, the right customers, the right markets and the right to win. And then it hits our expectation and margin thresholds that we would expect for the business.
Gabe Hajde, Analyst at Wells Fargo
Great, thank you.
Curt Begle, Chief Executive Officer
Sure. Thanks, Gabe.
OPERATOR
Thank you. Our next question comes from the line of Kevin McCarthy of Vertical Research Partners. The line is open. Kevin?
Kevin McCarthy, Analyst at Vertical Research Partners
Yes, thank you very much. Just maybe a housekeeping question as you exit the TSAs. Is that a financially meaningful event for you? Is there any sort of step function or is that exit smooth, so to speak, from a modeling perspective?
James Till, Chief Financial Officer
Yeah. What you'll see is, you know, we're still spending money on the TSA, so you have one time cost associated with, Kevin. So is when we talk about the integration costs, those will begin to ramp down, you know, as we exit the TSA and finish the integration through kind of, you know, the next few quarters. So financially I would say from a cash standpoint, it will be a cash back benefit.
Kevin McCarthy, Analyst at Vertical Research Partners
Okay, very good. And then I wanted to clarify in my own mind. Anyway, the status of Project Core, I think you made a comment to the effect that you're at a full run rate now for synergies and Project Core. So maybe just some updated thoughts there. Is it largely complete in terms of any asset rationalization actions that you were considering?
Curt Begle, Chief Executive Officer
Yeah, I would say that again. We're as Jim talked about in our commentary, we're very proud of what the team was able to accomplish when we. I think it was this call last year when we announced Project Core and what we were doing from fortunately the challenging decisions of shutting up facilities, idling certain assets and moving some of our products around as we cross qualified in other sites, still integrating some of that work. But in general real ahead of schedule in terms of what we kind of expected. And we continue to evaluate, Kevin, opportunities for productivity improvements and as I mentioned before, really focused on the portfolio and how we can continue to enhance that from a Vitality Index standpoint. But higher margin products on the right platforms, in the right regions with the right customers.
James Till, Chief Financial Officer
Yeah, and the only thing I would add is like the wave one. So as we had highlighted, Project Core is sort of a pipeline of initiatives. And so the first wave was the most easy one to one. But we'll continue to evaluate those additional. Those additional initiatives, that additional pipeline as we get into 2027 and forward.
Kevin McCarthy, Analyst at Vertical Research Partners
I see. Very helpful. Thank you guys.
Curt Begle, Chief Executive Officer
Thanks Kevin.
OPERATOR
Thank you. As there are no further questions, I would like to turn the call back to Curt Begle for closing remarks.
Curt Begle, Chief Executive Officer
We appreciate your interest in Magnera. Thanks for joining today and we look forward to catching up with some of you at the investor conferences and updating you on our progress on the next call. Have a great day.
OPERATOR
This concludes today's conference call. Thank you for participating. You may now disconnect.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.
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