Q1 2020 Earnings Call
Finally we announced today that we have.
Read the cell or consumer packaging group business too Graphic Packaging 485 million dollars in cash. We continue to experience challenging industrial markets across our portfolio off in the overall demand environment remains, soft conditions and several important regions and rips improved over the last several months, especially versus the prior-year quarter wage. It's premature to tell whether those Trends are sustainable caraustar perform better than internal expectations and our Global intermediate bulk container volumes are growing double-digits in life with our strategy. I'd like to now review our performance by segment. And if you could please turn to slide for the ridge Industrial Packaging and services segments delivered a strong first-quarter benefiting from better demand in key markets. They have real raw material costs and strong cost control our Global Vines grew by twenty three and a half percent versus birth.
earlier quarter partially due to our strategic Investments that include the total acquisition and I be
Siri conditioner in Europe and new projects delivering positive results in Houston, Texas and Russia
Overall Global steel drum volumes declined by 1.7% versus the prior-year quarter steel drum demand annamayya, which is our largest steel drum region grew by nearly 3% off its customers reported a more stable Outlook and we achieve new customer growth steel drum volumes in the Middle East and North Africa also grew by roughly 7% Thanks to solid chemical Lube demand and by roughly 1% in Eastern Europe steel drum volume in the US remains soft, especially in the trade sensitive Gulf Coast South and Southeast. Asia were negatively impacted by competition and buy price margin decisions.
China on a same-store steel drum volumes are up low single-digits versus the prior-year quarter.
Rip's first quarter sales roughly $25 billion dollars lower versus the prior-year quarter on a currency neutral basis do to lower volumes and lower average selling prices tied to contractual adjustment related to raw material price declines partially offset by strategic pricing decisions rips. First quarter adjusted if it arose by roughly fourteen million dollars versus your quarter do the lower cost raw materials and aggressive back office cost reduction activities partially offset by the impact of lower sales. Our q1 2019 adjusted was adversely impacted by one point five million dollar correction adjustment that was previously disclosed related to a divestiture week until I assume that rips steel drum by and would be roughly flat to fiscal 2019 with IBC volume growth in the low double-digits.
well pleased with the
An uptick we saw the mayor we expect economic growth in Europe to remain subdued overall in fairy by country should have please turn to slide five bucks for products and services segment experience. The challenging first quarter was negatively impacted by weak demand in Western Europe and by Adelaide fertilizer season due to weather which is not expected to fully recovered first quarter segments sales roughly 16% lower than the prior-year quarter and 15% lower in a currency neutral basis week finds where the main driver of our sales.
First quarter adjusted it but a Cell by roughly four million dollars versus the prior-year do the lower volumes only partially offset by lower sg&a expense. We are reducing our very own no cost structure in light of weaker volumes executing on sg&a and other cost savings opportunities, and please keep in mind that FPS is a 50/50 joint venture. So the bottom no impact from soft and markets is small before transitioning to paper packaging. I like to say a few words on the impact of the coronavirus we have over 900 colleagues in China working in both are rigid and flexible packaging segments China accounts for roughly 3% of our overall annual and Consolidated Revenue took all of our plants were operational as of February 17th.
to our knowledge today
None of our colleagues have contracted the virus and we have extension extensive precautions in place to safeguard their health and well-being while we've Incorporated. Am I am coronavirus dragon or a guidance of 1.5 million. It is too way too early to assess the ultimate impact the virus may have on global macro-economic conditions and to our Global customers and ask that you turn to slide six. Please paper packs things first quarter sales grew by $256 versus the prior-year quarter do the characters contribution partially offset by lower published prices that are containerboard business volumes were negatively impacted primarily by 21000 off of containerboard economic downtime and by softer demand from integrated customers in our Legacy business.
paper packs things first quarter adjusted evidence Rose by roughly 68% versus the prior Year's caraustar out performed our internal expectations during the quarter life is a seasonal slower. For that
looking at
Had we incorporated January's published $10 ton linerboard and $15 a ton medium declines as well as February's $30 ton box for a price decline into our guys range.
Finally, we agreed to sell our consumer packaging group business consisting of seven folding carton facilities too Graphic Packaging 485 million dollars. This sale excludes the 3-month required in the caraustar acquisition in which we have multi-year Supply agreements in place. Give it our industrial Focus. We are not the rightful owner of the time consumer packaging of business. This divestiture helps us deal ever our balance sheet optimize our Capital allocation plans and refocuses our business on our core industrial franchise and often growth priorities. We expected a Vestige sure to close by March 31st, and I like to thank our cpg colleagues who are contribution to greif for the past twelve months off their their sincere commitment to safety and the customer service Excellence will serve them well as the future we wish them nothing but the best in the transition ahead.
If you could please turn.
The slide 7. We only care star business now for just over a year and continue to be very pleased the business is enhanced our overall margins and anticipated synergies has been revised by more than 55% higher since the deal closing most importantly. We have a 99% colleague retention rate through a strong cultural fit and Alignment, which is a large driver to the success of our integration. We continue to expect to achieve run-rate synergies that at least seventy million dollars by the end of fiscal 2022 and there is no material impact Source energy estimates from the from the consumer packaging group divestiture. I'd like to now turn over the presentation or Chief Financial Officer Larry hilsheimer. Thank you, Pete. Good morning everyone. Please turn to slide 8 to review our quarterly financial performance before I get into the quarters details. Allow me to add to what Pete stated earlier about the cpg divest wage.
We are.
Very excited about the transaction announced this morning with Graphic Packaging. We view this as a win-win deal. It is consistent with the strategies of each organization and has unique benefits to each side took us when we acquired caraustar we did so on the basis of a run-rate David of 220 million the business we just sold contributed. No ibadah in that $220 run rate North were there any estimated synergies attributable to that operation? I want to wish our cpg colleagues the best of luck and thank them for their work at greif over the last year on to first quarter of specifics overall grab generated very solid results in a challenged industrial economy first-quarter net sales, excluding the impact of Foreign Exchange Rose by nearly 25% versus the prior-year quarter due to Cara Stars contribution and strategic pricing decisions in reps partially offset by Dead Man's softness and lower Pam driven pricing and ribs week Thursday.
Yes volumes Legacy.
CPS also experienced software demand and lower year-over-year published containerboard pricing first quarter adjusted ebitda through by roughly 39% versus the prior-year quarter primarily due to Cara Stars contribution and the Improvement in reps partially offset by lower Even in our Legacy paper business and weak demand in fps below the option profit line interest expense Rose as anticipated by roughly twenty million dollars while other expense was essentially flat to Prior year first quarter Class A adjusted
Earnings per share with roughly flat to the prior-year quarter at $0.64 per share due to higher year-over-year depreciation and interest expense offsetting. The acquisition driven wage to earnings. Our first quarter non-gaap tax rate was 24.3% and benefited from a two-million-dollar resolution of an open item with tax authorities. We expect our non-gaap rate to range between 27% and 31% in fiscal 2020. Finally first quarter adjusted free cash flow improved by $22 million dollars versus the prior Year's order to use to a use of roughly $13 as a result of increased ibadah and improved working Capital Management, despite despite increased Capital expenditures survey, please turn to slide 9 to review our fiscal 2020 guidance and key modeling assumptions.
We now expect to generate between $3.55 and $3.91 and adjusted Class A earnings per share in fiscal 2020. We've kept the guidance range to deliberately wide given a continued macro economic uncertainty in the still unquantifiable impact of the coronavirus on our Global operations to bridge to our new fiscal year twenty-twenty midpoint of $3,000 per share from what we previously provided. Please start with our original $3.88 per share midpoint shared a Q4 from there. We anticipate $0.09 per share headwind from software economic conditions and mixer ocean and PPS for the remainder of the Year partly offset by off X improvements and ribs and several key raw material sourcing wage. We also assume a $0.09 per share headwind from the price cost squeeze and paperboard that includes the $30 reduction in box board prices published last week only prob.
the offset by slightly lower
OCC expectations are setting those headwinds is a $0.02 per share lift from slightly lower fiscal year interest expense as a result of a Farm Credit system rebate and our life that our fiscal year non-gaap tax rate. Would Trend toward the lower end of our twenty-seven to Thirty 1% range. We now forecast our 2020 adjusted free cash flow of between $2,000 and $305 billion dollars as lower anticipated ibadah is more than offset by improved working capital and lower cash taxes. We continue to expect capital capital expenditures of between $160 and $180 excluding integration capex and anticipate working capital to be a cash source of between 0 and twenty million dollars could really do to lower sales and working capital optimization programs turning to Capital priorities on slide ten our Capital allocation priorities include dead.
finding Organic Cafe FAQs
You Levering our balance sheet maintaining steady dividends and pursuing our strategic growth priorities and reconditioning and containerboard integration at quarter-end are completely leverage ratio stood at roughly 3.7. We remain well within our state and Covenants and expect to be back within our targeted leverage ratio raised by 2023 our industry-leading Dix Hills more than 4% today and offers investors a steady source of income to augment market returns with that. I'll turn the call back to Pete for his closing comments before our Q&A. Hey, thank you, and please turn to slide 11 the grave team deliver a solid first-quarter despite a challenging macroeconomic environment as we progress through fiscal 2020. We remain well-positioned to serve a variety of end markets through our industry-leading product portfolio and our commitment to customer service Excellence. We're advancing lower-risk growth opportunities close to our core birth.
caraustar integration continues
To track the plan. We appreciate your participation this morning and operator. Please open the lines for questions as a reminder to ask a question, please press star then the phone number one on your telephone keypad to withdraw your question, press the pound key. Please limit yourself to one question and one follow-up and rejoin the queue for any additional questions. Your first question comes from home Panjabi with buried your line is open.
Hi, good morning. This is actually Matt Krieger sitting in for ghansham. How are you doing Matt? How are you? Good good. So I was just hoping that we could get your updated thoughts on your your volt Expectations by segment for 2020 along with any details underlying the regional economic assumptions that that coincide with that volume Outlook including any impact on with the various regions from from the coronavirus. Yes. Let me first I'll talk about the coronavirus and the impact so as we mentioned none of our colleagues are infected that we know at this time and anything we comment on regarding the coronavirus is what we know today. We're really can't speculate on the future impact long we expect as we said a million five impact from the coronavirus do too mainly extended shutdowns in our Chinese operations.
We're about 70% operating.
Capacity today and Beyond shine or Italian operations have not been impacted by the coronavirus. We're operating office ilities at full capacity from a broader supply chain. We have not had any adverse impact in greif in our supply chain and our ability to meet our customer needs. We're not restrained off materials or Parts Supply across our entire Global Supply Chain, but there's no question of Irish will clearly have an impact on certain of business segments an interconnectivity to the global supply chain that we've already read and you've read about negative impacts the parts economy in regards to our Global customers. We are seeing a shift in production from China to other regions in our Global footprint. But again, it's it's premature to make any concrete determinations on what that longer-term
Packed maybe I would tell you.
Today we're really well positioned to serve our Global customers that they do that because we have a very wide and diverse manufacturing capabilities across the globe regard to volumes as we see it in for for the balance of the year are going to start with reps on a global basis. We expect our children binds to be roughly flat to fiscal 2019. We see the mayor region continues to be an improving store. It's off stabilized and Brazil in the Middle East also are doing well. I think the offset of that is a slow industrial economic conditions in the US and then we may have uncertainty around what the long-term effects going to be in the coronavirus in Asia. We expect our large plastic drum business to grow low single-digits, which is consistent with what we've achieved.
in the past year
And we've had several strategic investments in the Ice Age that and again we're we're very happy with the growth in our reconditioning Vines and we expect a walk-in you to grow low double-digits in that Global platform as it's a big strategic priority for us again, those twenty-twenty assumptions. Do not include any broader impact the future coronavirus impact when you look at paper packaging we still see continued softer demand conditions page and we don't see any any changes from what our current environment is for the balance of 2020.
That's that's definitely helpful. I guess that leads me into my next question. I was hoping that you could outline the the net impact from the 21,000 tonnes in containerboard economic down time off your business during the first quarter and then maybe provide some detail on on what's baked into guidance for the remainder of the year in terms of of down time for that business.
Yeah, they
Twenty one thousand tons down time is roughly, you know, eight eight and a half million dollars of impact, you know, in in remainder of the years guidance we build in a Range are you as you've noticed our our range is fairly wide to consider, you know, potential impacts that the continued macroeconomic factors just packing all of our businesses right now, including our paper Legacy paper business.
Okay, that's helpful. That's it for me. Thanks. Your next question comes from Mark will be with Bank of America your line is open.
Thanks. I wonder if it's possible to talk a little bit more about sort of the the volumes in reps particularly. If we kind of exclude the the Dead Sea business and then within the IBC business how much of that twenty three and a half percent is the result of the acquisition.
So the IBC question first Mark the twenty three and a half percent Improvement 10% of that roughly is as a result of the totem pole position in Europe through reconditioning. We're really pleased with that and I think it's a door platform as we grow that reconditioning business when you take steel drum, if you just look up a region standpoint Maiya continues to really have positive growth we grew by 3% in the quarter in North America demand was continued to be in the first quarter. We did see signs of improvement in January and February. But again, I think it's too premature to say whether that's a continuing Trend and just to give you a perspective because there's really no public comparison in the rigid business like we have in paper but in North America and 2019 and Industry Association dead
produces annual
Drum steel drum results and the the industry in North America was down 15% in 2019 and we're down significantly less than that. So it's it's a challenged substrate mainly due to the trade conflicts and a large percentage of that buying resides in that Gulf Coast off. If you look at Latin America, we had really good steel drum growth of about 7% And that's really a result of improvements in our operations and Manufacturing and Brazil our new leader there has done an excellent job of improving our operations so we can better serve our growing customer base there in a pack as we've talked about our Chinese steel drum volumes, if you look at a same-store basis, and if you remember we closed a plant and then Ningbo a year ago. We're up 5% That's pre coronavirus. That is will change.
obviously because we had
And 18 days of extended downtime do that to the shutdown and the only other comment I'll make in Asia in Southeast Asian predominately Singapore. We're experiencing weaker demand because of weaker export markets, but there's been a really intensive competitive environment in Singapore. There's been some added capacity from new steel drum manufacturers off the market. So that's an overall view the steel drum by and Reps Mark. Okay, that's really helpful Pete. I guess for my follow-on. I'm just curious about the the coded recycled Mills which which weren't part of the asset sales. I think Larry mentioned that you have some multi-year contracts. Can you just give us a little perspective on the contract and sort of like how much of the volume from those three meals the contracts would cover and whether you know, you would be precluded at this point from you know, pursuing a sale of those meals with somebody else.
Or maybe even you know.
rationalizing capacity at some point
Yeah, so we as we talked about we have long-term agreements in place for those three meals and our integration when we own the consumer packaging business is about 40% So that's 40% is covered under long-term Supply agreements, but we also feel really really positive because it's sell these assets allow us to be an on-off conflict Channel partner to the folding carton industry both too independent integrated partners. And so we feel comfortable with that and in regard to what we may do in the future that we have no concrete plans. So we're intend to run those Mills. We feel very comfortable with the long-term agreements in place and I think again to to comment we were not the faithful owner of those assets in the folding carton industry and graphic certainly is and allows us to focus our capital allocations on our industrial franchise and we grow dead.
our integration vert
In our paper packaging business as well as grow our reconditioning business and Mark. I just a follow one. Although we don't have any plans you asked whether we have any restrictions on selling his nails in the answers know. Okay. Thanks Larry. Your next question comes from Adam Joseph.
Pete Larry, Matt, good morning. Hey Adam, how are you? I'm fine. How are you? Pete? Good. Thanks for asking. Larry. Just one of the cash flow guidance. You mentioned working life is better is that because of lower volume expectations or lower raw material cost expectations? And then with respect to the lower cash taxes, is that is that just simply a function of your profit forecasts going down or is there something else going on there a good questions Adam? Let me give you a high level just a walk first and then I'll answer your questions specifically as so we had a mid-life guiding the 265 we would drop it by about thirteen million relative operations increase three million because of capex that related to those cpg plans. We just disposed of pick up about nineteen or so roughly on working capital taxes is about 11 and 1/2 and interest expense and other things about, you know, roughly just short of a million so that
Walks you from 265 to 2.
85 on the OWC. It is a combination of yeah, when you're projecting lower sales, you need to carry lower working capital obviously disposing the cpg plants eliminates the need for carrying working capital but it also is a Kudos goes to our teams. We have had a focused effort as we've talked about four years of really being better on managing our working capital and we continue to see improvements in that range forecast more improvements to remainder of the year. So you have really good efforts going on across the board in in that space in the taxes. Again, it's a situation of our tax group doing an outstanding job of some effective tax planning that is going to allow us to reduce our out of pocket cash tax payments this year. It's it's as simple as Thursday. And it does there is also obviously component that the to the extent operations are operating income drops your taxes drop as well. But it's also some effective tax planning wage.
Thanks, Larry and it just one on your OCC updated.
Does he see forecast so when you gave it in in December, I believe it was OCC was was pretty much at rock-bottom levels and it's inched up since then and it's report back up a fair bit in February yet. You guys fairly significantly reduced your OCC forecast for the year. And if memory serves your previously were thinking it would be flattish in the fridge quarters, and then there would be a spike in the second half and so we've been going up a bit in the first half. So I'm a bit confused as to why you would sharply cut your your full year o c c ROM for a cash now in light of the fact that is actually going up right now. So I'm hoping you just kind of help me understand that sure, you know as we've gotten further in the market and work with a good cross role in his team in our rfg group. You know, we believe we have a a much higher confidence level relative to the remainder of the year and month.
Yeah, we we had it trending up.
Pretty dramatically at the at the beginning here. But you know, we had a range of Alternatives in our very wide range of guidance earlier in the year Adam. There were eight of us who felt more confident that the cost would not be going up toward the end of the year. It was influenced by some external forecast as well. So, you know, we we took it going up to $72 in the third quarter. We do not feel that's in the cards. And so what we've got is 42 bucks or so in this in queue 2:30 to 2:47 in our range in Q3 may add in Q4, so it brings it to an average for the year of $39 per ton. And in in the mid point. It's like we didn't thank you off again to ask a question, please. Press star one on your telephone keypad. Your next question comes from Steve to recover with Davidson. Your line is open. Thanks. Good morning, everyone.
It's Daisy.
So hopefully I haven't missed this somehow but with respect to the guidance in the caraustar consumer packaging first of all, the free cash flow has got nothing to do with the 85 million that's carved out, right? That's correct. Good answer. That's what I thought and then you said that there's no ebitda contribution from the seven folding carton facilities. So the I guess it was the three meals that were generating the 37 million that you discussed on the investor day might not still be that but you know, is that still a decent wage number? You know, we've obviously captured synergies Steve. So it's north of that. We're very pleased with the operations of those Mills at this point. So yeah. Yeah you you heard me correct. It was at the time of that acquisition. There was no even in that in those businesses in as part of that 220 million, that's terrific and can you just remind us wage?
The three facilities is there any u r b that's commingled like are there multiple machines or those?
three facilities solely dedicated to the RB
Yeah Steve, this is Pete. So what we have one male that runs crb and you are being some Jepsen and that has the flexibility to change the product mix wage based on market conditions and what we may do strategically across our entire meal system.
Okay. Well, I guess that was two questions. Thank you. Your next question comes from Haiti with Wells Fargo Securities. Your line is open.
morning, gentlemen
I was hoping you can maybe help us maybe he'll talk with us, but we'll see phasing of the the price flow through from the February price adjustment. If memory serves I think businesses mostly kind of tied to that Benchmark price and some way shape or form but just curious if there's sort of any kind of lag that we should expect and then really kind of try to help think about twenty Twenty-One as well. Yeah, but we start I'm sorry. Go ahead dude. I'm sorry and then could you also comment just so you sent your able to commercially I think the u r v pricing wage they caught me by surprise a little bit. Just curious what you're seeing out there in the marketplace if you can come in broadly. Yeah, I would tell you Gabe both u r b and c a m p price decreases caught us by huge surprise. It's not even remotely close to what we've been experiencing in the market really really disturbing when things are
for that far off
Uh, and so, you know, it will work on that going forward as best we can but in terms of your question, I'm phasing, you know, some of those same price contract mechanisms in the CRV space will stretch out in the July before they're fully in place, you know, it's customer by customer and you know in some we they're not even tied to the index and so it won't have an impact in our in our CRV space.
But I can walk you through just you sort of impact wise if we look at, you know, just maybe this'll help from our 388 and then point I did this on a call but no you have the non pricing just operational softness stuff about 9 cents a share and then you know, the night Sense on price cost impact has you know elements primarily. It's the u r b and c office go in our in our containerboard space. We'd already really built that into our original guidance anticipating some some softness there. And so, you know, you talk about a nickel or so on CRV and about a nickel and u r v
Set by about 2 depending on.
to be benefit
All right, and then Pete Thomas about kind of still expecting sluggish or a week volume environment and Legacy containerboard operations. I was Curious George. Um, I mean, I think volumes have kind of been down in that high single-digit range. Now that we're lapping that should we expect it to to maybe be down more consistent with the industry or is was that commented two guys still down maybe mid single-digits. Just trying to get a sense for what that's looking like I would I would tell you it's will be consistent to what our experience has been in the first quarter of all the let me make two caveats in February. We have seen some improvements compared to our first quarter. But again, it's premature to say that's a trend for us and certainly as we ramp up our new corrugated sheet feeder in Palmyra, Pennsylvania. We will see continued Improvement there. I would also tell you that we do a lot of business with
Credit Systems
When you have an environment, like we're in now a lot of those customers tend to internalized their business within their system. So we tend to underperform volume-wise and markets life this and over perform in normal or up markets. So it's well we might not like it. It's it's not surprising where we are today.
Understood thank you. Yes, thank you gave as a reminder. Please limit yourself to one question and one follow-up. Your next question comes from Mark will be with Bank of Montreal. Your line is open Monday. Yeah, just kind of continuing on Gabe's I wondered if it's possible for you to just kind of talk broadly with a strategy of dealing with this overall slower demand growth in the container Boston Market in North America and and the fact that we've got some significant Supply coming in yet for the next probably 18 months.
No, you're you're right. So I won't debate that obviously, but what our strategy is is to expand our vertical integration in our containerboard business. We've done that with our significant Capital investors made around the new sheet feeder in Pennsylvania enhancing our triple operation and Louisville adding Assa trades and we're continues to pursue opportunities in that space and that's what we can control we can't necessarily control what's being added and what people are doing but our goal is to go from a low 80% integration or we are now off on a million tons system up toward 100% vertical integration. That's what our focus is and to make sure that we serve our customers in those targeted ways through Thursday to our service value propositions.
Yeah, and Peter is it?
In that business to get a a sense for how large exports are is just a proportion of that million tonnes a year of of milk production then you know, whether that's really where you're kind of throttling back this point cuz it seems like kind of all short prices are down quite a bit more than domestic prizes. Yes. They are. We're we've always been a really small player in the off-market. We do some in Latin America was targeted accounts, but it's it's really not material to our overall strategy. We tend to have higher volume up early in the year, but phase out through the balance of the year. But again, we're very very small in regard to export markets.
Okay. All right. That's helpful. Good. Look at the balance of the year. Yeah. Thank you Mark. Your next question comes from Adam Joseph in with bank. Capital Market is open.
Thanks everyone for taking my follow-ups. I appreciate it and Larry P. Just one more on related to Marks and and Gabe's questions for that matter. Just within your full year guidance. What do you thinking in terms of us box demand for you guys as well. As you are be demand. I I asked just because box man was flat last year you are be production. I think it was down about 2% off calendar year that is obviously different than your fiscal year. But are you expecting those Trends either in terms of us box demand or or u s u r b demand to to deviate much from what they were last name under a year?
We're we're expecting for the for the rest of your virtually be unchanged what we're experiencing now.
In in both containerboard and but your container volumes will be better. But you're saying for the industry you would expect flattish to remain the norm. Yeah, the only unknown you have is the broader impact of what the coronavirus may do, you know, right? We don't know that right sure just in terms of the leverage, you know, you pushed out the the reduction Target from 20 to 23 your cash has been I think in line with what you were expecting. So that would leave profit as having been lower than what you were initially expecting. Is that more coming. I know down the volume weakness broad-based but is it more is the shortfall relative to your initial expectations in rigid or in paper packaging just so I understand we're kind of where prophets hath have trended versus your expectations when you announced caraustar.
It's it's across both Adam. I mean you clear.
Play the industrial recession that we have experienced was not something that we were aware of when we announced the deal in December of eighteen. But you know, we started talking about seeing some weakness in the our first quarter call last year. We attributed that to the government shutdown and a few other things, but then as we got into Q2 started to talk about seeing more weakness for logically globally in Europe and elsewhere that was deeper than what we had been experiencing that an investor day. We you know you by recall us saying, hey, we believe we're in industrial recession and may go although the data statistics have proven that since and you know, so we started taking actions to try to deal with that but the you know, the operating profits of them were obviously less than what we thought at the time we announced deal and then you had the price decreases in paper that you know, you know, we had put a range around things. But yeah, yep.
Less than what we had expected or hoped. So it's a broad broad impact that has driven down the operating earnings that would have provided that but I also go back to when we announced the deal. We we talked about the fact that we did a recessionary analysis mentioned that our board was very sensitive to that and asked us to look at it. We had already done it so it was easy to show to them but what that in that recessionary analysis we said all it would do is push us out about 12 months and we're staying exactly to that.
Sure, not understand.
I Just One Last Time on the tax rate. I know last year the tax rate came in a fair bit below. I think your initial guidance and this year seems like it's it's more of the same as there's something overarching going on a tabling you to go to achieve a appreciably lower tax rate than what you're expecting or is it really a bunch of one-time items that you think, you know post fiscal twenty. You'll revert back to what you thought your tax rate was going to be over the past couple of years. If you look back in the comments I made in my opening remarks, you'll find it. We actually said that we're still going to be within the range that we gave it to the beginning of the year just at the lower end of it first quarter fluctuate around because we had a settlement of a two million dollar item that you know on the lower income in the first quarter is relatively impact, you know, I've I've made this comment last year as well. You don't ever know exactly when you're going to end up settling disputes with taxing authorities. Those things can come and go and log
Impact you positively or negatively overtime. And so you're going to have those kind of fluctuations, but no, I I don't think our
Tax rates going to revert up. We we believe over time will end up being lower than the guide strange. We're at right now. We've said that looking back in our historical comments as well. We've got a great Tax Group. They continue to generate new thoughts and staying on top of the things that are moving on around the world. Now all that said, you know, we've got a lot of things that could change tax rates legislatively. Obviously, we've got a group of candidates on one side of The Ledger that would have plans to raise rates if that happens then things change. So right now though if things don't change we would expect over time that our ranges will move down a couple of points.
Thanks so much, Larry.
Your next question comes from Gabe Haiti with Wells Fargo Securities your line is open.
Thank you guys again, perhaps I'm overthinking this but I'm looking at the the FPS business. I appreciate it's relatively small the overall impact but you called out the poor start to a fertilized season and after coming, I guess off two years of pretty poor crop yields. I'm curious if this is like an inventory hangover issue or or if there's something else going on in the market that you can make us aware of that. You see David's good gave it's it's really around the one Loop business, which is a relatively small part of the FPS business and phenomenally in in in Western Europe and it's just a lot of rain and it's delayed it and our customers don't see a big bounce back from it. So yeah the big the bigger impact my bottom line standpoint debut other fertilizer business is impacting the first quarter the drag on the for Loop business, which is the higher-end one-sided the down economy in Europe and you might remember
We said last quarter.
That business lagged into the weakness and it'll probably light coming out of the you know, you're turning around out of it. So we're starting to see some better things in in our in May of business off. The majority of that is really in the Middle East and Eastern Europe, which is not a big market for our flexible business. So it's being impacted by the industrial economy drug business.
Okay. So what I'm hearing you don't extend some this to maybe weakness again in the comical business or anything like that that you serve the ribs. Okay, very different different in a different sector totally.
Thank you. Thank you. Your last question comes from Mark will be with Bank of Montreal your line is open. Yeah, just one other one on volumes. Is it possible to get a sense of how Kara SARS toobin core volumes did on kind of a a like-for-like basis?
So the we don't report out those Vines but it's very consistent with what the industry has reported and we actually are starting to see some improvement in a business in February again too premature to say that it's a lasting Trend but we we've got a really good go to market value proposition and we like the business office and we very optimistic about the go forward approach and that that segment how much of that business approximately would you figure goes into that kind of thing related things, you know, whether it's carpeting or vinyl flooring things like that. Yeah. I don't I don't have the exact percentage but that is along with paper mills and some projects Goods or part of that. We have a chart bubble chart that shows a percentage but it's yeah the construction part of it broadly Mark is about 8% off.
Okay, smaller percentage that I might have thought. Yeah. Okay. All right. Thanks a lot. There are no further questions get up at this time. Trying to call back over to Matt. Redman. Thanks a lot. Nice. We appreciate your interest in grave and we hope you have a great remainder to your week. Thank you. This concludes today's conference call you may now disconnect.