Good morning, thank you for joining Greif's fiscal second quarter 2026 earnings conference call. Today, our CEO, Ole Rosgaard, will provide a strategy and market update, followed by our CFO, Larry Hilsheimer, with a review of our financial results and guidance. Please turn to slide 2. In accordance with Regulation Fair Disclosure, please ask questions regarding topics you consider important because we are prohibited from discussing material public information with you on an individual basis. During today's call, we will make forward-looking statements involving plans, expectations, and beliefs related to future events. Actual results could differ materially from those discussed. Additionally, we will be referencing certain non-GAAP financial measures and the reconciliation to the most directly comparable GAAP metrics that can be found in the appendix of today's presentation. I'll now turn the call over to Ole on slide 3.
Thank you, and good morning, everyone. We continued to execute against our strategy during the second quarter, with a particular focus on productivity and cost optimization, which remains a core driver of our margin improvements. I'm pleased to report that we have achieved $75 million of savings, putting us on track toward our full-year target range of $80 million-$90 million. We remain confident in that range for the full year as we went into the year anticipating the first half performance we delivered. As a reminder, the broader program is a total commitment of $120 million by fiscal year-end 2027. That figure represents only defined actions we have full confidence will be actioned by the end of 2027.
We continue to explore opportunities that haven't yet met that threshold, which could result in upside to the $120 million in the future. Additionally, we ended the quarter with a leverage ratio of 1.1 times, even after completion of our $150 million share repurchase program. Simply put, this is the strongest balance sheet in our nearly 150-year history. We understand that value, which gives us the financial flexibility to achieve our three highest capital deployment priorities: organically growing our business while continuing to grow our dividend and repurchase shares, all while maintaining a leverage ratio below 2 times. Our confidence on driving value through those three priorities is possible because of our improving margin profile and durable free cash flow generation. In the quarter, EBITDA dollars improved 7.5% year-over-year.
Margins improved 110 basis points, and free cash flow improved by $93 million compared to a Q2 2025, which by the way, also included cash flow from the divested containerboard business. Those results demonstrate our ability to drive returns through volatility and disruptive impacts to our business from the conflict in the Middle East. We have one of the most engaged and agile workforces in our industry, as evidenced by our latest Gallup engagement score in the 91st percentile. We know how to deal with situations like these. Our team has proven time and again the ability to navigate challenging, disruptive macroeconomic events. We've been doing it for almost 150 years and have weathered even greater disruption during that time. Our focus, first and foremost, goes to the affected region, ensuring the safety of our colleagues, customers, and suppliers.
We're also monitoring price cost, making sure to stay ahead of cost inflation driven by the supply chain constraints this conflict has caused. The situation is dynamic, we expect it's going to continue to evolve, but we'll manage through it effectively. While we sincerely hope for a resolution soon, we also recognize the risks the conflict presents on broader demand and industrial sentiments. As such, we are adjusting our full-year EBITDA guidance to reflect the disruptive impact experienced in Q2 and continued softness related to the conflict through year-ends. Larry will discuss the EBITDA guidance change in a moment. For now, let's talk about what we experienced in Q2 on slide four, please. Underlying industrial end market demand remained consistent with what we've seen over the past 12 months.
That broad demand picture was overlaid by direct impacts to our business in Q2 related to the Middle East conflicts. We experienced intermittent periods of shutdowns in at least one of our facilities in the region. While the total EBITDA loss was less than $5 million in Q2, potential for continued disruption is factored into our guidance. We have also seen real-time the impacts of rising input costs due to the conflict. We are exhibiting our usual action bias, and our teams are doing a fantastic job keeping ahead of inflation with our own pricing actions. This action bias extends to our supplier relationships too, where we are in constant communication and ensuring continuity of supply for our customers. We also saw a few notable volume bright spots in parts of our business.
First, as expected, small containers were resilient in the quarter due to a solid start in the ag season. Second, Tubes and Cores, while still soft, has been improving in our two largest end markets, the North American paper and film industries. We also announced a $60-$70 URB price increase to offset the inflation we are experiencing, which was recognized at $60 a ton in April by RISI, which will result in an increase to our contract customers through negotiated passthrough provisions. Lastly, closure volumes were also resilient, with total volumes flat year-over-year. While volumes continue to be mixed on an absolute basis, they have consistently been most resilient in the areas of our portfolio in which we are growing. This validates our strategy and progress towards a less cyclical end market mix.
It is clear our growth strategy is sound, and when a meaningful inflection on demand does occur, Greif will unlock significant operating leverage and earnings growth. In the meantime, our focus will continue to be on managing volatility through pricing, cost management, and productivity, which has helped offset the current volume environment and support continued profitability. With that, I'll turn the call over to Larry to walk through the financials on slide 5.
Thank you, Ole. Sales were approximately in line with prior year, and adjusted EBITDA improved by 7.5%, which reflects our decisive cost actions overcoming the weak volume environment. Adjusted EBITDA margins were up 110 basis points year-over-year and up 230 basis points sequentially from Q1 of 2026. Both were a result of value-based pricing as well as the continued benefits of our cost optimization program. Our EBITDA improvement, as well as significantly lower interest cost due to our historically strong balance sheet and favorable year-over-year quarterly taxes, resulted in adjusted EPS improvement of over 60% year-over-year. Adjusted free cash flow improved 107% or $90 million compared to Q2 2025, a quarter which also included approximately $30 million of cash flow from our divested containerboard business.
Excluding that contribution, free cash flow improved over 200%. These are all notably strong performance measures for a company which continues to operate in an industrial recessionary environment, which additionally experienced disruption from the conflict in the Middle East. Ole and I are incredibly proud of our team for proving the quality of our business model once again. Please turn to slide 6. Turning to segment performance, profitability remained resilient across the portfolio. In Polymer Solutions, while volumes improved, gross profit was slightly down year-over-year due primarily to product and geographic sales mix. Within Metal Solutions, gross profit dollar and % both improved year-over-year due to continued cost optimization and variable cost management. In Fiber Solutions, net sales was lower year-over-year due to volumes and our mill closures in 2025.
Despite lower volumes, positive year-over-year pricing and cost management helped gross profit margins improve by 50 basis points. Within Closures, third-party volumes declined low single digits while total volumes were flat year-over-year. Gross profit dollars and margin both increased on an absolute basis, reflecting strong price mix and continued operational improvements. Please turn to slide 7 to discuss guidance. When we issue low-end guidance, we factor in all reasonably possible factors that may influence our business in the year ahead to prevent a view of performance in a low operating environment. When we issued guidance in early November 2025, we did not consider the potential for a conflict in the Middle East. As such, we are revising our low-end guidance to $610 million of adjusted EBITDA while maintaining our low-end adjusted free cash flow guidance of $315 million.
To be clear, if not for the already incurred and potential direct impacts of the conflict, we would not have changed our low-end guidance. Thus, our updated EBITDA guidance reflects the estimated direct disruptive impact we experienced in Q2 related to the Middle East conflict, in addition to a revised volume assumption, which considers a scenario where the Middle East conflict drives further volume softness. Our prior guidance assumed metals and fiber volumes flattened down low singles and polymer and closure volumes up low singles. Our revised volume assumptions is metal fiber closures down mid-singles and polymers flat. Guidance also reflects a net tailwind of $5 million for the impact of a $60 URB increase, which we expect will benefit the P&L starting in July.
But will be partially offset by the $5 a ton increase in OCC, which is already impacting the P&L. Our impressive free cash flow results this quarter demonstrate the resilience of our business model and ability to drive cash regardless of volatility. We are confident in maintaining our low-end free cash flow guidance of $315 million. While EBITDA is expected to be possibly $20 million lower, we are also assuming a $20 million lower working capital source due to higher raw material indexes and actions taken to ensure continuity of supply for our customers. These impacts are offset by a lower expectation on cash taxes. With our current visibility today, we have full confidence in this revised guidance. We sincerely hope for a resolution to the Middle East conflict soon.
Our commitment to you is regardless of the volume environment in the remainder of the year, we will continue to control the controllables while maintaining our strong balance sheet. Please turn to slide 8 to discuss capital allocation. Our capital allocation priorities remain unchanged. We will continue to invest in our future through high return on invested capital, organic growth opportunities while maintaining a strong balance sheet. The only M&A we are considering is organic growth-enabling bolt-ons, and we fully expect leverage to remain below 2 times. 2 additional capital allocation updates from this past quarter. First, as Ole mentioned earlier, shortly following Q2, we completed our $150 million share repurchase program. We retain an additional authorization of $300 million, which we are not currently utilizing, but plan to do so in a disciplined and value-accretive manner.
Second, this past quarter, we also refinanced our debt facilities, extending our term loans to 2031 and resulting in a current weighted average interest rate of 3.14%. Access to the Farm Credit System provides us a competitive advantage on lending, lowering the overall interest impact on earnings for any debt that we do take on while we remain committed to below 2 times ratio. With that, I'll turn the call back to Ole on slide 9.
Thanks, Larry. Before wrapping up, I'd like to highlight that last week we issued our seventeenth annual sustainability report, which is available at greif.com/sustainability. We encourage our investor community to read this report as the sustainable, durable nature of all our products is a distinct competitive advantage, which also drives value creation at Greif. To summarize the quarter, while near-term demand conditions remain mixed, we continue to make strong progress on the controllable factors that drive long-term value creation. We are a packaging leader to essential industries with durable competitive advantages that enables us to accelerate profitable growth even in a soft demand environment through cost optimization, variable price cost discipline, and a portfolio mix shifting towards less cyclical end markets.
This is all driven by a disciplined capital allocation strategy, which ensures durable total shareholder return via a healthy balance sheet, smart organic investments in growth, end markets, an attractive dividend, and consistent share repurchases. Taken together, Greif is a compelling value thesis with strong underlying earnings power and a management team laser-focused on driving shareholder return in all environments. Thank you for joining us today, and we will now open the call for questions.