Magnera Corp: Form 10-Q for the period ended Jun 27, 2026

Executive Summary

Business. The Company’s operations are organized into two operating and reportable segments: Americas and Rest of World. The structure is designed to align us with our customers, provide improved service, enable future growth initiatives and efficiency of decision making to facilitate synergy realization. The Americas segment consists of sites in North America and South America that manufacture a wide range of products and components of personal care and consumer solution products and components of products including medical garments, wipes, dryer sheets, filtration, baby diapers and adult incontinence. The Rest of World segment consists of sites throughout Europe and China that manufacture a broad collection of personal care and consumer solution products and components of products including tea bags, coffee filters, wipes, cable wrap, filtration, baby diapers and adult incontinence.

Raw Material Trends. Our primary raw materials are polymer resin, wood-based fibers, and pulps. In addition, we use other materials in various manufacturing processes. While temporary industry-wide shortages of raw materials have occurred, we have historically been able to manage the supply chain disruption by working closely with our suppliers and customers. Changes in the price of raw materials are generally passed on to customers through contractual price mechanisms over time, during contract renewals, and by other means.

Outlook. The Company is affected by general economic and industrial growth, raw material availability, cost inflation, supply chain disruptions, new and changing tariffs and sanctions, and general industrial production. Our business has both geographic and end market diversity, which reduces the effect of any one of these factors on our overall performance. Our results are affected by our ability to pass through raw material and other cost changes, including tariffs, to our customers, improve manufacturing productivity and adapt to volume changes of our customers. Despite global macro-economic challenges and uncertainties attributed to inflation, changing tariff policies and general market softness, we continue to believe our underlying long-term demand fundamental in all segments will remain strong as we focus on providing advantaged products in targeted markets. For fiscal year 2026 ("fiscal 2026"), we project cash from operations between $150 to $170 million and free cash flow between $90 to $110 million. Projected fiscal 2026 free cash flow assumes $60 million of capital spending.

Acquisition Strategy

As part of our growth strategy, we intend to pursue additional acquisition targets. Our acquisition strategy is focused on identifying attractive assets that will support improving our long-term financial performance, enhancing our market positions, and expanding our existing and complementary product lines. We seek to obtain businesses for attractive post-synergy multiples, creating value for our stockholders from synergy realization, leveraging the acquired products across our customer base, creating new platforms for future growth, and assuming best practices from the businesses we acquire. While the expected benefits to earnings will be estimated at the commencement of each transaction, once the execution of the plan and integration occur, we may be unable to accurately estimate or track what the ultimate effects will be due to system integrations and movements of activities to multiple facilities.

Non-GAAP Measures

We use certain non-GAAP financial measures in our disclosures. Adjusted EBITDA is the primary measure of profit (loss) used by the CODM to evaluate performance and allocate resources among our reportable segments. Adjusted EBITDA is a non-GAAP financial measure and may be calculated differently by other companies, including those in our industry or peer group, which may limit its usefulness for comparative purposes. Adjusted EBITDA should not be considered an alternative to any financial measure determined in accordance with GAAP. See Note 8 to the Condensed Consolidated and Combined Financial Statements for the definition of, and additional information regarding, Adjusted EBITDA.

We also use free cash flow metrics as a supplemental measure of liquidity, as they assist us in assessing our ability to fund growth through cash generation. Free cash flow metrics are non-GAAP financial measures and may be calculated differently by other companies, including those in our industry or peer group, which may limit their usefulness for comparative purposes. Free cash flow metrics should not be considered an alternative to any financial measure determined in accordance with GAAP. See “Liquidity and Capital Resources–Free Cash flow” for the definition and calculation of free cash flow for the quarter ended June 27, 2026.

Results of Operations

Comparison of the Quarterly Period Ended June 27, 2026 (the “Quarter”) and the Quarterly Period Ended June 28, 2025 (the “Prior Quarter”)

Business integration expenses consist of restructuring and impairment charges, acquisition/merger/divestiture related costs, and other business optimization costs. Tables present dollars in millions.

Consolidated Overview

Net sales: The net sales increase included a favorable foreign currency change of $21 million and a 1% organic volume improvement partially offset by an $8 million decrease in selling prices primarily due to negative product mix net of the pass-through of higher raw material costs. The volume increase was primarily attributed to strength in our consumer solutions product categories globally and recovery in North America from winter storm disruptions experienced in the second quarter.

Operating income: The operating income increase included a favorable price cost spread of $11 million, lower depreciation and amortization expenses of $8 million and a favorable impact from volume improvement partially offset by $8 million of increased business integration costs primarily related to the loss from the sale of a facility during the quarter and a $6 million increase in selling, general and administrative expenses.

Other expense, net: The increase in other expense is primarily due to $3 million of non-cash charges associated with pre-merger tax liabilities.

Changes in Comprehensive Income (Loss)

The $58 million decrease in comprehensive loss from the Prior Quarter is primarily attributed to a $56 million unfavorable change in currency translation. Currency translation changes are primarily related to non-U.S. subsidiaries with a functional currency other than the U.S. dollar, whereby assets and liabilities are translated from the respective functional currency into U.S. dollars using period-end exchange rates. The change in currency translation in the Quarter was primarily attributed to locations utilizing the Euro and Brazilian real as their functional currency. As part of its overall risk management, the Company uses derivative instruments to reduce foreign currency exposure to translation of certain foreign operations. The Company records changes to the fair value of these instruments in Accumulated other comprehensive loss. The change in fair value of these instruments in the Quarter is primarily attributed to the change in the forward foreign exchange curves between measurement dates.

Segment Overview

Americas

Net sales: The net sales increase included a favorable foreign currency change of $10 million and a 1% organic volume improvement partially offset by a $13 million decrease in selling prices primarily due to negative product mix net of the pass-through of higher raw material costs.

Adjusted EBITDA: The adjusted EBITDA increase was primarily a result of favorable price cost spread of $11 million partially offset by higher selling, general and administrative expenses.

Rest of World

Net sales: The net sales increase included a favorable foreign currency change of $11 million and a $5 million increase in selling prices primarily due to the pass-through of higher raw material costs.

Adjusted EBITDA: The adjusted EBITDA decrease was primarily a result of higher selling, general and administrative expenses.

Comparison of the Three Quarterly Periods Ended June 27, 2026 (the “YTD”) and the Three Quarterly Periods Ended June 28, 2025 (the “Prior YTD”)

Business integration expenses consist of restructuring and impairment charges, acquisition/merger/divestiture related costs, and other business optimization costs. Tables present dollars in millions.

Consolidated Overview

Net sales: The net sales increase included revenue from the prior year merger of $112 million and favorable foreign currency changes of $105 million that were partially offset by a 1% organic volume decline and a $117 million decrease in selling prices primarily due to the pass-through of lower raw material costs and negative product mix.

Operating income (loss): The operating income increase included a favorable price cost spread of $13 million, a $9 million favorable impact from decreased business integration costs, a $12 million non-recurring inventory fair value step-up charge in the prior year, lower depreciation and amortization expenses of $19 million and operating income from the prior year merger.

Other expense, net: The decrease in other expense is primarily due to a $15 million prepayment penalty charge for retiring debt in the prior year in connection with the prior year merger and an $8 million favorable impact from foreign currency related to intercompany loans.

Interest expense, net: The interest expense, net increase is primarily attributed to incurred debt connected with the prior year merger that closed on November 4, 2024 partially offset by changes in interest rates and the repayment of long-term borrowings.

Changes in Comprehensive Income (Loss)

The $55 million decrease in comprehensive loss from the Prior YTD is attributed to an $8 million favorable change in currency translation and a $47 million reduction in net loss. Currency translation changes are primarily related to non-U.S. subsidiaries with a functional currency other than the U.S. dollar, whereby assets and liabilities are translated from the respective functional currency into U.S. dollars using period-end exchange rates. The change in currency translation in the YTD was primarily attributed to locations utilizing the Euro and Brazilian real as their functional currency. As part of its overall risk management, the Company uses derivative instruments to reduce foreign currency exposure to translation of certain foreign operations. The Company records changes to the fair value of these instruments in Accumulated other comprehensive loss. The change in fair value of these instruments in current fiscal 2026 versus fiscal 2025 is primarily attributed to the change in the forward foreign exchange curves between measurement dates.

Segment Overview

Americas

Net sales: The net sales decline included a $92 million decrease in selling prices primarily due to the pass-through of lower raw material costs and negative product mix that were offset by revenue from the prior year merger of $42 million and favorable foreign currency changes of $29 million and a 1% organic volume improvement.

Adjusted EBITDA: The adjusted EBITDA increase was primarily a result of contributions from the prior year merger of $5 million.

Rest of World

Net sales: The net sales increase included revenue from the prior year merger of $70 million and a $76 million favorable impact from foreign currency changes partially offset by a 3% organic volume decline, which was primarily attributed to general market softness in Europe and a $25 million decrease in selling prices primarily due to the pass-through of lower raw material costs.

Adjusted EBITDA: The adjusted EBITDA increase included a contribution from the prior year merger of $3 million, favorable impacts from price cost spread of $11 million as the result of synergy realization and mix improvement and a $3 million favorable benefit from foreign currency changes partially offset by a $4 million negative impact from softer volumes.

Liquidity and Capital Resources

Senior Secured Credit Facility

We manage our global cash requirements considering (i) available funds among the many subsidiaries through which we conduct business, (ii) the geographic location of our liquidity needs, and (iii) the cost to access international cash balances. At the end of the Quarter, the Company had no outstanding balance on its asset-based revolving line of credit that matures in November 2029. The Company was in compliance with all long-term debt covenants at the end of the Quarter.

Cash Flows

Net cash from operating activities increased $69 million from the Prior YTD, primarily related to improved working capital.

Net cash from investing activities decreased $44 million from the Prior YTD, primarily attributed to cash acquired in connection with the merger and settlement of net investment hedges in the Prior YTD and proceeds from the divestiture of a facility, partially offset by lower additions to property, plant and equipment.

Net cash from financing activities decreased $93 million from the Prior YTD, primarily attributed to a $63 million prepayment of debt in the YTD paired with proceeds from borrowings netted with transfers to parent in the Prior YTD.

Free Cash Flow

Our consolidated free cash flow for the YTD is summarized as follows:

Liquidity Outlook

At June 27, 2026, our cash balance was $280 million, of which approximately 58% is located outside the U.S. We believe our existing U.S. based cash and cash flow from U.S. operations, together with available borrowings under our senior secured credit facilities, will be adequate to meet our short-term and long-term liquidity needs with the exception of funds needed to cover all long-term debt obligations, which we intend to refinance prior to maturity. The Company has the ability to repatriate the cash located outside the U.S. to the extent not needed to meet operational and capital needs without significant restrictions.

Interest Rate Risk

We are exposed to market risk from changes in interest rates primarily through our senior secured credit facilities and accounts receivable supply chain financing programs. Our senior secured credit facilities are comprised of (i) a $706 million term loan and (ii) a $350 million revolving credit facility with no borrowings outstanding. Borrowings under our senior secured credit facilities bear interest at a rate equal to an applicable margin plus SOFR. The applicable margin for SOFR rate borrowings under the revolving credit facility ranges from 1.50% to 2.00%, and the margin for the term loan is 4.25% per annum. As of Quarter end, the SOFR rate of approximately 3.62% was applicable to the term loan. A change of 0.25% on these floating interest rate exposures would increase our annual interest expense by approximately $2 million.

Foreign Currency Risk

As a global company, we face foreign currency risk exposure from fluctuating currency exchange rates, primarily the U.S. dollar against the Euro, British pound sterling, Argentine peso, and Brazilian real. Significant fluctuations in currency rates can have a substantial impact, either positive or negative, on our revenue, cost of sales, and operating expenses. Currency translation gains and losses are primarily related to non-U.S. subsidiaries with a functional currency other than U.S. dollars whereby assets and liabilities are translated from the respective functional currency into U.S. dollars using Quarter-end exchange rates and impact our comprehensive income. A 10% decline in foreign currency exchange rates would have had a $1 million unfavorable impact on our Net income for the Quarter. See Note 6. Financial Instruments and Fair Value Measurements.

(a) Evaluation of Disclosure Controls and Procedures.

Under applicable SEC regulations, management of a reporting company, with the participation of the principal executive officer and principal financial officer, must periodically evaluate the Company’s “disclosure controls and procedures,” which are defined generally as controls and other procedures of a reporting company designed to ensure that information required to be disclosed by the reporting company in its periodic reports filed with the SEC (such as this Form 10-Q) is recorded, processed, summarized, and reported on a timely basis.

As reported in our 2025 Annual Report on Form 10-K, Magnera's management concluded that its internal control over financial reporting and its disclosure controls and procedures were not effective as of September 27, 2025. This conclusion was specifically impacted by deficiencies in the design and operating effectiveness as well as the level of observable control documentation of our internal controls related to the merger that closed on November 4, 2024, as well as information technology general controls related to legacy U.S. IT systems that are under a transition services agreement. As there were no material errors in the accounting or adjustments to the Condensed Consolidated and Combined Financial Statements as a result of these identified deficiencies, management concluded that there was no impact on Magnera's prior or current period Condensed Consolidated and Combined Financial Statements and that Magnera's financial statements were presented fairly in all material respects. Since September 27, 2025, Magnera's management has taken remedial actions, and in that regard, has allocated resources internally that we believe will allow us to accelerate remediation.

The Company's management, with the participation of the Chief Executive Officer and the Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of the disclosure controls and procedures as of June 27, 2026. Because many of the controls related to IT systems are connected with conversions that will occur throughout the fiscal year, management has concluded that our disclosure controls and procedures were not effective as of the last day of the period covered by this report.

(b) Changes in internal control over financial reporting.

Except as set forth above, there were no material changes in our internal control over financial reporting that occurred during the Quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Before investing in our securities, we recommend that investors carefully consider the risks described in our annual reports on Form 10-K and any subsequent periodic reports filed with the SEC. Realization of any of these risks could have a material adverse effect on our business, financial condition, cash flows and results of operations.

We caution readers that the list of risk factors discussed in our SEC filings may not contain all of the material factors that are important to you. In addition, in light of these risks and uncertainties, the matters referred to in the forward-looking statements contained in this report may not in fact occur. Accordingly, readers should not place undue reliance on those statements.