Good afternoon. My name is Christie, and I will be your conference operator today. At this time, I would like to welcome everyone to the Amcor Third Quarter 2023 Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. [Operator instructions] Thank you. I would now like to turn the call over to our host, Ms. Tracey Whitehead, Head of Investor Relations. You may begin your conference.

Thanks, Christie, and thank you, everyone, for joining Amcor's fiscal 2023 third quarter and year-to-date earnings call. Joining today is Ron Delia, Amcor's 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 on this call. Please be aware that we'll also discuss non-GAAP financial measures and related reconciliations can be found in that press release and the presentation. Remarks will also include forward-looking statements that are based on management's current views and assumptions. The second slide in today's presentation lists several factors that could cause future results to be different than current estimates and reference can be made to Amcor's SEC filings, including our statements on Form 10-K and 10-Q for further details. Please note that during the question-and-answer session, we request that you limit yourself to a single question and one follow-up and then rejoin the queue if you have additional questions. With that, over to you, Ron.

Thanks, Tracey, and thanks, everyone, for joining, Michael and myself today to discuss Amcor's March quarter and year-to-date results for fiscal 2023. We'll begin with some prepared remarks, starting as we always do with safety on Slide 3. Safety is our most important value at Amcor, which means our commitment to keeping our coworkers safe is unwavering. We're highly proactive in our approach to continuous safety improvement and our results continue to be rewarded. On a fiscal year-to-date basis, we reduced injuries globally by 23% compared to last fiscal year and 64% of our global sites have been injury-free for 12 months or more. While these are excellent industry-leading results and a reflection of our commitment to mitigating risk and protecting our people, the journey towards zero injuries continues. Turning to our key messages on Slide 4. First, Amcor's portfolio is well positioned and is primarily exposed to consumer staples and health care end markets. We have leadership tons in several strong underlying businesses, a compelling customer value proposition and differentiated execution capabilities, all of which contributed to solid financial performance for the first nine months of fiscal 2023. That said, we're not completely immune to broader market challenges, and we were cautious heading into the third quarter. Market dynamics led to increased volume softness and volatility throughout the quarter, particularly in the month of March, and our updated outlook assumes this continues through the balance of the fiscal 2023 year. Against this backdrop, our teams remain laser-focused on supporting decisive price and cost actions. The recovery of higher input costs remains a top priority, and we're also taking a range of actions to flex and reduce operating costs while advancing structural cost reductions. These actions give us confidence that earnings growth will build as we progress through fiscal '24.…

Thanks, Ron, and hi, everyone. Beginning with the Flexibles segment on Slide 7. Year-to-date reported sales grew 2%, which included a recovery of higher raw material costs of approximately $490 million, representing 6% sales growth. Excluding the raw material impact of negative currency movements, sales grew 3%, driven by favorable price/mix benefits across all Flexibles business units, partly offset by 2% lower volumes. Our strategic focus on higher-value priority categories has continued to drive year-to-date sales growth, particularly strong volume growth in the health care and pet care categories has helped limit the impact of lower volumes in other categories such as protein and premium coffee. The business has continued to show solid operating cost performance and recovery of inflation, resulting in a 5% year-to-date increase in adjusted EBIT on a comparable constant currency basis. Margins remained strong at 12.4% despite the 80 basis point dilution related to increased sales dollars from passing through higher raw material costs. In terms of the third quarter, if we call out worth touching on. Net sales on a comparable constant currency basis were 2% higher, reflecting positive price/mix benefits. Volumes were down 3% in the quarter, as market conditions led to a combination of lower consumer demand and customer destocking to varying degrees across all Flexibles businesses. This compares to a 1% reduction in volumes in the first half of the year, with the greatest sequential declines in Europe and North America, where compared with the same quarter last year, volumes were down mid-single digits and low single digits, respectively. In both regions, the overall trends towards lower volumes and month-to-month variability is consistent with retail scanner data with categories such as premium coffee and protein being incrementally impacted by customer destocking. This also contributed to unfavorable mix in the quarter, along with…

Okay. Thanks, Michael. While we navigate a challenging environment in the short term, we have a strong foundation, and we remain committed to our strategy of driving long-term growth and profitability. And that strategy consists of investments in both organic growth and strategic M&A. On previous calls, we've highlighted the importance of our priority categories, emerging markets, innovation and helping deliver organic growth and better mix over the longer term. And our financial results over the years have demonstrated the success of that focus. For the longer-term comments today, I want to highlight how M&A complements each of these areas and spend a little time outlining our approach to delivering additional growth through acquisitions. Turning to Slide 12. Disciplined M&A has been part of Amcor's playbook for a long time. Our history of successful deal execution and integration has helped us establish or build industry-leading positions, support earnings growth and drive consistent value creation. Our model starts with strategic fit. We look across a number of factors when prioritizing opportunities, including businesses where Amcor or the Target is a leadership position, where the target can complement our existing footprint or where we gain access to a new customer base or new technologies. Second, in terms of financial strategy, we have been and will continue to be highly disciplined. We target all deals to deliver a double-digit return on the cash investment and well above our cost of capital within three to five years. And third, our investment-grade balance sheet and strong annual cash flow provide ample capacity and access to financing to continue to pursue M&A or share repurchases in addition to investing in the base business and funding the dividend. And we've been quietly active on the acquisition front. Last week, we signed a deal to acquire Motor Systems,…

[Operator Instructions] And your first question comes from the line of Ghansham Panjabi from Baird.

Ron, maybe you could just build up your comments and just touch on which specific categories do you expect incremental volume weakness in the June quarter? I think the March quarter was down 3%, you're getting towards down mid-single digits and then also expand a bit more on the dynamic order patterns that you're calling out from your customers?

Yes, good way to get started here again, volume story has been quite volatile. I mean if you go back even to the end of our second quarter, we had flagged that demand or volumes had softened coming through the back end of calendar '22, and that certainly continued. In the first couple of months of the year, January and February, we were down about 1% or 2%, March, down almost 7% with the heightened volatility, which I'll come back to. As we look forward to the fourth quarter, we just are extrapolating what we've experienced in March and to some extent, already through the month of April to get to that mid-single-digit decline, certain categories. And we've seen destocking continue to see destocking in a number of categories, particularly ones that were affected by some of the supply chain constraints over the last 18 to 24 months where we know there is a lot of over ordering in some cases to buttress against those challenges. So segments like meat certain part of the coffee space, premium coffee, healthcare to some extent which is cycling a stronger comp. That's what we expect for the fourth quarter. As far as the volatility, it's really just week-to-week order changes and schedule alterations and things of that nature, which just make it a little bit harder to take as much cost out as you'd like. It's just a particularly volatile period out there. North American beverage, in particular, for a number of reasons, including the seasonality of that business has continued to be particularly volatile. So, we're expecting that to continue along with the demand weakness in the fiscal fourth quarter here.

And then on that, Ron, for my second question, just given the operating environment that your customers are facing with faced with at this point. Is that starting to impact their new product development cadence? And how does that compare to previous slowdowns, i.e., recessions in the past?

It hasn't necessarily slowed the dialogue with customers on new product development. I would say almost universally, our new product development agenda is with our big customers are oriented around sustainable packaging and delivering a package that's more sustainable than the one that's in the market today. That has not abated at all. That has not slowed. If anything, it's accelerated as we came out of COVID, our brand owners have the same public commitments that we have to make their packaging recyclable or compostable or reusable mostly by 2025 and to use more recycled content. And so we've not seen any slowdown to date in the product development side.

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

Ron, I'm wondering what the full year guidance might assume for kind of where price cost could shake out for fiscal 4Q? And then just maybe directionally what that price cost trajectory could look like early next fiscal year? And maybe if you could just give us any kind of additional color on resin or labor or any other cost buckets that are impacting you?

Yes, it's Michael here. I can take that three for you. Thanks for the question. Yes, look, I mean, Q4, where we see raw materials right now, we've seen a relatively line environment in Q3. Q1, we saw raw materials come off in Q2, a more modest reduction. And then in Q2, Q3, relatively flat remembering that we have a broad base of raw materials we purchased angiographies across the globe. So as we look forward into Q4, relatively benign environment, we'd expect. So from a price/cost perspective, -- you've seen it actually come down as we progress through the year. So in Q4, it's going to be a very modest price increase or flat thereabouts. From an inflationary standpoint, we continue to see inflation in things like labor. I mean we've reset labor rates as of the 1st of January. So you've seen mid-single-digit increases there continue. Things like energy we continue to see increases and spikes in places like the West Coast of North America and Europe, still seeing significant increases in energy in that space. So, you saw us talk about the recovery of around $250 million in price year-to-date on general inflation and $750 million on raw materials. As we look forward into Q4, I think from a general inflation standpoint, we'd expect to see a similar number as we saw in Q3, which is around that $100 million mark.

Okay. That's very helpful. And then just one quick follow-up on the $50 million structural cost reduction. Is there any view in terms of that being weighted more towards '24 or '25 million it seems like it could be pretty sizable if that fell to the bottom line?

Yes, sure. I mean, just to remind people the structural benefits program, we're investing around $170 million in cash to help offset the disposed Russia earnings. The expectation is that the benefits from that will be around 30% on the cash investment. We've already made some initial inroads into those projects. We closed three plants and a past closure as well. So we'd expect the benefits start to build on that through FY '24, albeit weighted to the second half of FY '24. And so we'd expect 2/3 or a little more of the benefit of that $50 million to come through in '24 and then the balance is '25. But we've made a good start on that, and you'll start to see those benefits build through the year in '24.

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

Just a couple of questions. First one is on destocking versus underlying weakness. Just wondering if you can give us a sense of that 10% decline in March in particular and then the mid-single-digit decline for the fourth quarter. Can you give us a sense of what you believe makes up those numbers, whether it is destocking or underlying demand weakness?

Yes. Sure, Keith. Look, it's hard to parse out too specifically, but a couple of things to think about. One is that the scanner data in Europe and North America that's tracking sell-through at retail has been in that mid-single-digit decline range now for a period -- for a reasonable period of time a couple of months at least. And so we're not anticipating that that's going to improve at all on top of which then you have some destocking in certain segments. Some of them are pronounced destocking we see is in the premium coffee space. We see destocking in protein we've seen destocking to some extent in the medical packaging space, again, places where there may have been some over ordering in light of supply chain constraints. So that's additive then to the demand deterioration on the consumer side of things. And then the offset is that we pick up some share along the way as well. So those are the three components of what we expect to be a mid-single digit decline in Q4.

Okay. And then in terms of the timing of the destock, do you expect that completely finished by the end of 4Q? Is there any anything to suggest that your customers might destock for longer into FY '24?

Given that we're talking about fast-moving consumer goods, any destocking should be relatively short-lived. The caveat to that is as consumer demand comes down, that means more inventory needs to come out of the system. And so my sense is that, that's prolonging the destocking here a little bit because it's been going on now for a couple of quarters. And best estimates that probably will continue for another couple of quarters, particularly in some of the businesses that are more seasonal, where the calendar second quarter and third quarter tend to be stronger, we're likely to see more inventory come out of the system through that time period.

Your next question comes from the line of Daniel Kang with CLSA.

First question, probably to Mike, in terms of cost-out initiatives. Just wondering if the scope of the plans have actually changed from 2Q where you mentioned $170 million spend for a 30% return. Can it be expanded is the next question?

Yes. Well, Ron, I'll start the answer, and Michael can build on it. Look, the scope is global. And we've announced three plants that are going to come out of the system already and another half of the plan, a big department that we're going to reduce and it's a global program. Could it be more? It could be. We're going to wait and see how the demand environment evolves from here, but we're off to a good start and those plants will be coming to them over the next several quarters with the benefits flowing through the second half of -- well, building through fiscal '24, as Michael outlined already.

You also mentioned in the prior question in terms of market share -- incremental market share gains. Can you talk about the categories where you are seeing more success in terms of market share gains?

I think we see some good examples in the beverage business, in particular, in the hot fill space. Our hot-fill volumes were up about 1%, which is ahead of the market. And I think it's, I think, a testament to the different lightweighting products that we've been able to bring to the market. That's one. I think in health care is another one where our growth has been really strong, particularly in the pharmaceutical side of things over the last several quarters, probably going back into last year as well. So, those two come to mind is places where we're likely to have picked up a bit of share.

Your next question comes from the line of Adam Samuelson with Goldman Sachs.

Yes. I guess the first question, Ron, you talked in the prepared remarks about earnings growth building through fiscal '24. And I know you're not giving earnings guidance at this point. But as you would sit here today and you would look at kind of where the exit rate is after the June quarter and some of the headwinds you still have from Russia in September and the December quarters. Would you expect to grow EBITDA and EPS in fiscal '24 or help us think about some of the key variables to actually growing in fiscal '24 as you look today?

Yes. Look, I think we're going to have a couple of non-operating headwinds dissipate as we get into fiscal '24. So certainly, we won't be cycling the absence of the Russian earnings in the second half. We sold that business right at the end of our fiscal first half this past year. So by the end of this calendar year or the end of our fiscal second quarter, that headwind will go away. Interest rates really started to rise around this time last year. And so that's going to be -- interest will be more of a in the first half. But certainly, based on the forward curve and the expectations we have for rates going into calendar '24, we would expect that headwind abates. And then the third building block is the structural cost reductions that we've talked about a bit. And as Michael said, it's roughly $50 million of benefits that we see at this point in time. Roughly 2/3 of those benefits, we would expect in fiscal '24, with the momentum building through the second half of fiscal '24. So those are some of the big components. And the other piece, obviously, is just what happens to underlying demand and how does that evolve through the rest of the year. And we're certainly not in a position today to forecast that. I think we'll wait until we come to market as we do each year in August and provide guidance for the coming fiscal; year.

Okay. That's helpful. And then as you think about some of the mix tailwinds that you've had in the business, I mean, we're still quite strong in the in the March quarter, specifically in Flexibles. How does mix kind of progress from here, especially raw material kind of constraints and supply chain, I think have magnified some of those or those are easing some of the comps get a little bit harder on the mix side? And how do we think about that being a contributor prospectively from the book of business that you have today?

Yes, it's a good question. I think about mix, and I think about a much longer time period and a much longer time horizon. Mix has been part of our algorithm and an important part for almost. And we know that these markets, particularly the consumer staples and the health care markets that we're exposed to are going to grow collectively in the low single-digit range when things normalize. And when I say when things normalize, it means when the consumer adjusts to inflation and when the inventory destocking is completed through the value chain. We're going to have a base amount of growth in the business that's at low single digits. Then we have certain priority segments and categories that we've been doubling down on and investing disproportionately. And so health care, both medical and pharmaceutical packaging, protein, coffee, pet care. These segments and the packaging intensity in these segments has been growing at higher than general market rates, those are all mix accretive to us. And so if you take a longer-term view, mix has been an important driver of earnings growth for this company for over a decade. We would expect that, that will continue going forward as soon as we get through this short-term set of short-term market dynamics that we're facing right now.

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

Just as a follow-up to that, in terms of the price/mix was actually sort of similar that 4% for the nine months versus the first half. So within this price was up, but mix was down, is that the sort of correct read? And is there any sort of trading down effect in that mix as well? Just to understand that. I know that -- we've talked to this before, I mean, effectively, you pick up if there is some trading down, you pick up some of that volume, but maybe it has a mix effect as well.

Yes. So John, I'll start there. And absolutely, we had price benefit in the period, which I touched on earlier. We recovered over $100 million in inflation during the period. I mean the mix -- what we have seen is some unfavorable mix around areas like the protein and premium coffee where we've seen some softness in demand, both from a consumer but also some destocking. So that's impacted mix negatively. On the offset to that, you still had in Q3, reasonable health care performance, albeit lapping a stronger comp. But some mix benefit coming through there. Pet food is another one in the in our focus categories where we've seen good growth there, which is driving mix. But as we look forward, I think that was really what we saw in the quarter, a bit of a tale of two stories. And then Ron touched on how we will think about things moving forward.

And just a second one on the cost saves you made. I think you've called out $140 million there. Has that flowed through fully to P&L, so it's in the numbers that we see? Or is there a lagged impact from that?

No. Look, that's flowing through already. That's the year-to-date cost savings that have come out of the business. If you think about the year, we've had pricing to compensate for inflation, and then we've taken cost out to compensate for volume and mix going the other way. And the business through nine months has grown its EBITDA by 4%, roughly $50 million in EBIT growth. And the building blocks are as I just outlined.

Your next question comes from the line of Richard Johnson with Jefferies.

Ron, I just wanted to ask you -- I'll go back to the subject of price. I mean if you look at the last five quarters, by far, the biggest contributor to operating profit growth, has been net price realization. I mean given the nature of the industry prices by definition, really cyclical. So, I was just wondering how we should think about price over the next few quarters, particularly in a very weak demand environment.

Yes. Look, price in the industry, I think you have to break down into the two components that the two main components. So, the raw material pricing in the industry is certainly cyclical. It ebbs and flows with the commodity cycle. We've come off a period while we believe that we're coming off a period of prolonged raw material increases as those abate, then the pricing that we need to put into the marketplace to compensate will start to come down. The other part is pricing just around general inflation. And that's something that the industry hasn't seen in 40 years. We have not seen inflation above the rate of normal productivity growth. And I think our view would be we're pretty pleased with the amount of pricing that we've been able to realize to cover the general inflation, the non-raw material price or cost increases that we've had to wear. It's demonstrated to us that there is pricing power in our value proposition, and we've been able to fully compensate. So I think it remains to be seen where inflation goes from here. Hopefully, there are some positive signs that maybe the rates of increases are slowing. And if that's the case, then our rate of pricing will slow as well.

That's helpful. And then you mentioned premium coffee a few times and certainly commentary from your customers would sort of echo what you're saying. But really, what I wanted to ask about is the market leader at that end of the coffee market seems pretty determined to put in place a more sustainable substrate for their pods. And there is a competitor out there with the product already. I just wanted to try and catch up with where you are with that -- in that regard.

Yes. Look, we believe and we think that the customer would agree that aluminum capsule is as sustainable as any other alternative out there. It's fully recyclable, and we're making it with recycled aluminum content. And they've -- that customer has invested a lot in the infrastructure to actually make that a fully circular system. So, we're pretty comfortable with the sustainability credentials of that particular format. But nevertheless, we're active on the fiber side as you would know, with the fiber line, and we're making good traction on that side of the business as well. If that's the direction customers want to go, I think we're going to be well equipped to meet them where they are.

Your next question comes from the line of Kyle White with Deutsche Bank.

I wanted to follow up on that comment earlier regarding the rate of inflation kind of moderating obviously, been a lot of news regarding food and beverage inflation on the consumer. It seems like consumers are starting to push back with respect to that elasticity? Are you seeing or expecting any shift from your customers regarding promotional activity or pricing that could start to drive some sequential volume improvement?

I think a couple of things, Kyle. One is we're still out there pricing for inflation. So it's still out there. It's real. Maybe the rates of increase have slowed, but prices or costs are well elevated well above where they were a year or two years ago for sure. So we're still out there recovering. There is a lag. There's always a lag. It's no different to any other cycle around pricing. And there's always a little bit of a time lag as we work through contracts and contracts mature, et cetera, we're resetting at higher prices, but we are recovering. I think as far as the residual impact or the impact on demand. There are some examples of shifts. So what we see in the beverage business, in particular, in North America is a shift more towards value packs. We see a lot of smaller containers that go into 12 packs or 24 packs. We see volumes in that side of the business growing much more rapidly than larger sizes. We see channel shifts as well. So, we see less sales going through the C-store channel. Gas station sales are way down compared to club stores, et cetera. So you do see some more of a shift -- you do see a bit more of a shift towards value by the consumer.

Got it. That's helpful. And then I was just curious, did you experience any headwind or impact from the lag of the pass-through of resin in the quarter on your P&L? And then are you anticipating any impact from this in the fiscal 4Q quarter?

As I said earlier, the raw material environment in Q3 was relatively benign after some drop in Q1 or modest drop in Q2. So in Q3, we still have a modest benefit in the P&L on the base cost lag. As we look forward into Q4, as I said earlier, that right now the environment looks relatively benign across what we see across the globe. So, I think the benefit in Q4, if anything, will just be a modest price, price cost lag benefit similar to Q3. So as you think about the full year, it's really just been overall, it would be a relatively modest benefit from the raw material price position. As we look into '24, it's too early to tell, we'll wait and see where it's going from here.

Your next question comes from the line of Jacob Cakarnis for Jordan.

Just one for Michael. Just on the free cash flow outlook for fiscal '23. Please. Can you just talk through some of the expectations for fourth quarter inventory unwind maybe the go forward as you carry into fiscal '24 and what needs to happen, perhaps to get that unit balance equal out to get back to the free cash flow levels that we're used to with you guys, please?

Yes, sure. I can touch on the cash flow. So, I mean, what we've seen this year is the cash flow is behind prior year. And it's largely on the back of working capital outflows. And particularly in the first half, we were building inventory on the back of supply constraints in the system. We kind of peaked inventory in November have started to see that come out of the system. And if you think about the quarter we've just gone, we took about $100 million out of inventory. But we didn't get the benefit of that coming through the cash flow in the way that we'd expect it because what we're seeing on the back of the lower demand environment and also trying to take inventory out of the system is our payables are much lower where they were as well. So, the payables and the temporary position we see, the payables are lower than we would normally expect. As we continue to take inventory out of the system and also work our way through a softer demand environment. As we look into Q4 and what we've included in the guidance is Q4 is typically our strongest quarter of cash flow seasonally. I mean we do have a seasonal cash flow really on the back of the fact that Q4 is our strongest earnings. We also typically build inventory during the year and then that releases in Q4 as we get into the busy period, particularly in the beverage business. And we also have some favorable commercial terms with our customers and suppliers, which help drive the cash flow. So what we're anticipating for Q4 is that we will continue to see some reduction in inventory -- we've probably got another $100 million, $150 million to go to get back to a more normal level. So, we're expecting to see that start -- continue to come through in Q4 and realistically, based on the guidance, deliver the same cash that we delivered last year in Q4, and that was in a period last year where inventories were still increasing. So, we feel pretty confident in the guidance range that we've given in that $800 million to $900 million for the full year.

Your next question comes from the line of Brook Campbell-Crawford with Bar & Joy.

Can you just talk about the potential EBIT benefit in FY '24 from the investments and acquisitions over, I guess, the financial year-to-date, it's probably close to spend. So, I would have thought that will be a benefit to EBIT, but you didn't call it out earlier on as something they consider in that sort of EBIT bridge into next year?

Yes. Look, Brook, we've done really great so far, and these are all very small deals. The Mota deal that we announced today is a small one. It's really one with an eye towards the long term. It's a small business with less than 30 people sales around 20 million. It's not a business that's going to materially change the EBIT trajectory of the business going forward. And similarly, MDK in China is a business that's around $50 million in sales. The plant in Eastern Europe is just that. It's a plant. It's very -- running at a very low utilization. And what we're going to do is fill it by moving business from Western Europe into the low-cost hub that we've acquired in Eastern Europe. So all of these are relatively small, they all help incrementally move the ball forward, but none of them are going to have a meaningful impact on FY '24 earnings, which is why I didn't call them out.

Okay. And can you talk about your European business, volumes staying sort of mid-single digit in the March quarter. Your key competitor and number two player there can start here, talked about pretty solid growth actually volumes in the fourth quarter -- or sorry, the March quarter rather? And is there anything you can call out there to expand the gap performance between yourselves and the number two player there?

Well, I'm not going to comment on anybody else's performance. I can tell you, from our side, when we look at the market, we assess it through the lens of the scanner data at retail and what our customers are reporting. And we would say that certainly coming through this earnings season, that all stacks up with our performance is kind of like right on line with the average of what customers have reported and probably a little bit ahead of the retail scan data, which might suggest that some of the larger customers are taking some share.

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

Ron, just a question on general cost inflation recovery, insist on core has been very good at recovering general cost inflation with customer price action over the last year or so. But just given the volume situation you're facing in terms of those declines and customer destocking, I just imagine those conversations with customers on price recovery are getting a little harder. So can I just confirm a successful in fully recovering general cost inflation in the third quarter and what you've baked into the fourth quarter guidance?

Yes. No. As I think I alluded to in response to one of the other questions, if we think about it from a year-to-date perspective or the third quarter, however you want to look at it, we've been fully recovering, general cost inflation. And that's about $250 million of price that we put into the market this year on a roughly equal amount of inflation. I wouldn't say it's harder. I would say that there is always a bit of a lag. If you think about our business, about 70% of it is contracted, 30% not contracted, right? So, we're certainly fully caught up with very little lag on the un-contracted portion of the business. On the contracted portion, as we roll contracts as they mature and we renew them, we reset pricing and we also expand the inflation coverage and shorten the time between price adjustments. That's just a function of the book of business and the customer or the contract book contract portfolio that we have. So, there's always contracts that need to be reset, and we'll have several that reset over the next 6 to 12 months.

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

I hope you guys are doing well. Thanks for the details, Ron and Michael. I guess the one question I had relates to the Rigid business, relative both between cold fill and hot fill and then in turn versus other substrates. Ron, what are you seeing weaker performance in cold fill and in pre-forms relative to hot fill, when the hot fill product would be typically for a higher-end product and one that if the consumer is hunkering down, might be less predisposed to be buying versus traditional soft drinks or water? And then relatedly, your customers are seeing volatile order patterns, we empathize what you're seeing. Nonetheless, your volumes are weaker, certainly so far in beverage packaging than what we've seen from some of the other substrates, particularly cans. Do you think there's any sort of share shift occurring there? And if not, why not?

I think the starting point is where is the consumer right now at this point in time. And I think there's always been really strong alignment between the package format and the channel and the usage occasion. And if we go back over a long period of time, the pet bottle generally, whether it's cold fill or hot fill, has been predominantly through the cold channel. It's been predominantly single-serve whether it's hot fill or cold fill, soft drinks or sports drinks and the can has tended to be the value pack. And whenever times are tougher for the consumer and when they're gravitating more towards value and buying things in units of 12 or 24, that tends to be through the warm distribution channel and tends to be through retail, big box retail, and conventional retail and not through the convenience channel where most of our products go through. So, I do think that -- I wouldn't call it a substrate shift as much as I would just say, it's a consumer thinking with their pocketbook at this point in time and buying things at the lower price point per unit.

We have time for one last question. And the last question comes from Cameron McDonald with E&P.

Just wanted to go back to the comments you made about the scanning data. And I was wondering if you could put that in context given your history of volumes? And what do you think that -- where does that fit relative to how bad it could actually be during your recession? And then a separate question for me just around when we talk about seeing channel shifts and more value oriented, can you talk about what's happening perhaps in some of the confectionery market exposure that you've got as well close?

Look, Cameron, I would say that generally, we're going to be reasonably well positioned in a recession because the end market exposure of the business now is as defensive as it's ever been. Basically, all of our sales are going into consumer staples fast-moving consumer goods or health care. And those through past economic cycles have held up reasonably well. I think we've got a softer consumer environment at the moment. At the same time, that were coming off a number of different dynamics that have led to lots of inventory in the system. And I'm talking about COVID and then the supply chain complexities and constraints that followed. That work itself through. I think to the extent there are recessionary conditions in some of our larger markets. I think that we would expect to continue to be well positioned if I think back to the global financial crisis, which is some time ago now. Our volumes were down low single digits through that period, and we were able to hold our earnings. So, I feel pretty good about where we're positioned, but we're not sitting around waiting or hoping. I mean that's point of the cost outs, the cost-out initiatives that we've described today and the pricing actions that we've taken to really make sure that we're that we're not expecting the consumer to return and volume to start to grow more robustly than it has been.

There are no further questions at this time. I'd like to turn the call back over to Ron for closing remarks.

Okay. Thanks, operator, and thanks, everyone, for joining the call today and for your interest in Amcor. And with that, we'll close the call. Thanks.

This concludes today's Amcor Third Quarter 2023 Results Conference Call. You may now disconnect.