Q2 2020 Earnings Call
20 results conference call.
This time all participate in China listen only mode. After the speakers presentation. There will be a question and answer session to ask a question Jane, especially when you want me to press Star one on your telephone.
If you require any further questions. Please press star zero I'd now like to hand, the conference over to your speaker today Mr. James Armstrong VP of Investor Relations. Thank you. Please go ahead.
Thank you operator, good morning, and thank you for joining our fiscal second quarter 2020 earnings call. We issued a press release this morning and posted the accompanying slide presentation. The Investor Relations section of our website. They can be accessed IR dot westrock dot com or via a link on the application your use <unk> you're using to view.
This webcast.
With me on todays call or Westrocks, Chief Executive Officer, Steve Voorhees, Our Chief Financial Officer Ward Dickson, our Chief commercial officer, and President corrugated packaging sure, Jeff Chalovich as well as our Chief Innovation Officer and President.
Consumer packaging Pat Lindner following our prepared comments, we will open up the call for a question and answer session.
During the course of today's call, we will be making forward looking statements involving our plans expectations estimates and beliefs related to future events. These statements may involve a number of risks and uncertainties that could cause actual results to differ materially from those we discussed during the call. We describe these risks and uncertainties in our filings with the FCC, including.
Our 10-K for the fiscal year ended September Thirtyth 2019. In addition, we will be making forward looking statements about the impact of cobot 19 pandemic on our operational and financial performance. The extent of these effects, including the duration scope and severity get the pandemic is highly uncertain and cannot be predicted would call.
And then so at this time.
We will be all we will also be referencing non-GAAP financial measures. During the call. We have provided reconciliation of these non-GAAP measures to the most directly comparable GAAP measures in the appendix of this slide presentation as mentioned previously the slide presentation is available on our website with that said I'll now turn it over to you Steve Okay. Thanks times.
Thanks to those of you have dialed into joined our call. This morning.
Got a lot to cover.
I'll start by thanking the amazing Westrock team for all they're doing to help cannot central products to people around the world.
Westrock team supported by the scale and broad capabilities of our mill and converting not work have responded heroically to help our customers meet the changing market conditions caused by the pandemic.
We generated solid financial results in the quarter.
With adjusted segment EBITDA of $708 million.
This was on the high end the guidance that we provided last quarter.
We're executing our differentiated strategy from a possession of financial strength and substantial liquidity.
The cobot 19 pandemic has impacted global markets caused unprecedented volatility.
I'm clouded the economic outlook.
Against this backdrop and thanks to the performance of the Westrock team. The company has continued to deliver has been a central part of the global supply chain supporting our customers with a portfolio of products and solutions and global reach that they need to get their products to the consumers who need them.
Pandemic has disrupted demand patterns across our business.
And all some markets, notably E commerce have been very strong.
Others, including industrial markets have seen significant negative impacts.
We continue to believe that our long term drivers of growth remain unchanged that westrock remains well positioned what the right strategy to succeed and create value for all of our stakeholders.
Having said that.
The global economic outlook has softened significantly in the near term.
Therefore, implementing an action plan through which were taking prudent.
Corporate stops to prepare for a range of economic and market conditions.
We're focused on meeting the needs of our customers.
Supporting the health safety and well being of our teammates and further building on our foundation a financial strength.
[noise] following are the key components of our pandemic action plan.
We have standardized enhance safety measures across our company, including.
Social definitely thing deep Clinton face coverings temperature checking and other practices to help keep our teammates safe and healthy.
Our team's done incredibly well at this time.
During this quarter will provide onetime recognition awards to our manufacturing and operations teammates.
Well continue to match, our supply with customer demand, including reducing shifts the plants, where necessary and taking downtime at our paper machines that serve markets what that reduced demand.
At the same time, we'll take advantage of opportunities where they present themselves.
According using the scale and capabilities of our existing system to serve growing markets, including E commerce and responding to surges in demand.
We're implementing near term operating cost reductions what by salary and retain or decreases of up to 25% for senior executive team and our board of directors.
As walls reductions of discretionary expenses.
We plan to use our company stock to pay our annual incentives and make our company funded for one kind of contributions in 2020.
This will provide additional cash available for debt reduction while further align nvme centers of the management team and teammates at all levels of the company with our investors.
We're reducing our capital investments by $150 million this year.
And won't vast 600 million to $800 million in fiscal 2021.
At this level, we'll complete the strategic capital projects, we have underway.
Maintain our system and make the capital investments necessary to improve productivity and supply are growing markets.
And finally.
We are resetting our quarterly dividend to 20 cents per share for an annual rate of 80 cents per share.
This is a prudent stop.
You take an uncertain environment.
I will provide meaningful.
Sustainable and competitive dividends for Westrock stockholders, while allocating an additional $275 million per year debt reduction.
This will benefit our stockholders by reducing leverage enhancing liquidity.
Sustaining our access to long term debt capital markets.
As a situation covert 19 as the situation with cobot Nineteena balls, we'll reevaluate our dividend and look to grow our dividend in the future as markets returned to normal.
This combination of actions will enable us to adapt quickly changes in market conditions, and we expect will provide an additional $1 billion and cash available for debt reduction through the end of fiscal 21.
This will sustain our business under a range of economic and market conditions and ensure that westrock remains well positioned for long term success.
West rocks response to the pandemic today.
And our ability to succeed going forward.
Hinges on the hard work and dedication of the Westrock team.
Which has stepped up to keep our operations running.
Help our customers.
Well continue to support our teammates their families and communities where we operate.
Well the near term outlook is unclear we have to write strategy and the right team in place to navigate this environment into a merchant even stronger company.
In addition to the standardized enhance safety procedures, we've implemented across our company. We're now working quite differently than we were just two months ago.
Well there were working in an operating facility are at home, we're meeting more frequently than ever to identify and address the rapidly changing operational issues as they arise.
The supporting our efforts to adapt quickly to meet the changing needs of our customers.
And we've stepped up for our communities, including partnering with our customers and also the Georgia Center for medical innovation to provide manufacturing support for more than 200000 phase shields.
We're down I didn't corrugated boxes in foodservice containers to food banks.
And also for charitable food distribution and many of our communities.
Let's turn to our performance for the second fiscal quarter.
We generated net sales of 4.4 billion with adjusted segment EBITDA of $708 million.
Adjusted earnings per share was 67 sounds.
Over the past year.
We've advanced our differentiated strategy with strong growth.
By adding 380 additional machine replacements.
Weve added 20 enterprise customers over the past 12 months.
Enterprise customers now make up $7.5 billion and sales compared to $6 billion a year ago at 25% increase.
Overall, we have substantial financial flexibility with more than two and a half billion dollars of long term committed liquidity, including more than $600 million of cash.
We have limited debt maturities until March of 2022 and are you ask qualified pension plan is 102% unfunded.
During the quarter.
Experienced strengthen ecommerce channels and then the protein processed food agriculture health care and beverage market segments.
Other market segments, including luxury goods and industrial products softened as a result of the impact of Cobot 19.
Our second quarter results reflect higher export and domestic containerboard volumes and box shipments.
The price mix variance reflects the flow through previously published price decreases.
And the year over year market declines in export and domestic containerboard, Paul and Kraft paper price.
Corrugated packaging delivered solid results in the quarter.
With adjusted segment EBITDA of $502 million, an adjusted segment EBITDA margins of 18%.
North American adjusted EBITDA margins were 19% and Brazil's adjusted EBITDA margins were 28%.
During the quarter strong operational performance with higher volumes strong productivity deflation were more than offset by the pricing declines.
Strong sales in E commerce processed foods and retail products like cleaning products.
Paper products in diapers were offset in the second half of March by significant reductions in our end use segments of distribution in paper industrial products and foodservice and pizza packaging.
This trend has continued into April.
More than 130 of our customers reporting temporary plant closures.
That's a 130 of our customers reporting temporary plant closures and reduce chefs based on the effects of the Corona buyers.
Even segments like protein and processed foods are suffering downtime due to the effects of the corona virus on their employees.
Box shipments during the quarter increased 1.3% on an absolute basis, where shipments increasing at the end of the quarter. It's consumers began sheltering at home.
Our box shipments were negatively impacted by the closure of five box box plants over the last year as was reduced demand from industrial distribution and pizza market segments.
And lower sales of low margin sheets to third party converters.
The cumulative impact of these factors reduced our box sales by 2.7 per cent compared to last year.
But lets put this in perspective.
Over the past three years, we've been very successful growing or box business in fact.
Our box shipment organic growth over this time as approximately 10%.
Nearly twice the industry growth of 5.5%.
Our commercial approach to our customers continues to work while to meet rapidly changing customer needs.
The strength of our pre print business has enabled us to open a new location in Las Vegas commit our growing demand for grafix and to supply our expanded footprint with the addition of the capstone system.
112000 tons in the quarter compared to last year.
30000 pounds, if they increase came from our higher value White top whiners.
Or strategic projects and integration of Capstone continue.
We ended the quarter with an annual run rate of $125 million and <unk> from capstone.
Our team has made substantial progress reconfiguring, the north Charleston, Mel following the permanent shut down of the number two paper machine.
Familiar, especially grade Max has been redistributed across the remaining operations.
Optimized our manufacturing and provided costs deficiencies.
We anticipate being at our plan production rates in savings by the end of the calendar here.
And some.
Westrocks corrugated packaging team is executing extremely well in this environment.
Supported by our law invested box plan system.
And our middle system without standing geographic coverage and the capabilities to make the widest range of containerboard and graph paper grades and they industry.
Let's turn to our consumer packaging segment.
Where results were roughly flat your every year.
With adjusted segment EBIT die of $222 million in a highly volatile environment.
And the quarter or food food service beverage in health care businesses performed well on higher price mix and benefits from plastic replacement initiatives.
Are differentiated value proposition that lounges design materials science and machinery continues to deliver value for our customers.
This upside was offset by reduce demand and beauty cosmetics and high end spirits.
Lower commercial print demand in March contributed to our taking 13000 tons of economic downtime in the quarter and another 14000 towns in April across R.S.B.S. system.
C.R.B. and C.N.K. backlogs remains solid have three and five weeks respectively.
[noise] consumer packaging participates across a wide range of N. markets.
Review the business through the lines of four key categories first.
The food food service and beverage businesses comprise about 57% of our segments sales.
We win with our customers with our differentiated integrated folding carton offerings and our full range of paperboard substrate sales to independent converters.
<unk> says deliver growth and value through innovation.
French added products machinery in customer service.
Second.
Are specially packaging businesses account for about 28% of our segment sales.
Or value added and specially packaging is weighted toward the converting side of the business.
The healthcare business has been very strong and is supported by our integrated offering of cartons labels and sensors.
Performance of our other specially offering for consumer goods payment cards and media have been mixed some <unk> some declining over time.
The third category, especially S.B.S. paperboard for tobacco commercial print and liquid packaging.
This accounts for about 13% of our segments sales.
This category has been challenged in recent years due to secular volume decline and commercial point and tobacco, which to provide context have declined more than 20% since fiscal 16.
Fourth we use Paul to balance our system.
Recent Paul price declines of lowered earnings by approximately $28 million, a year to date and $12 million in the corridor as compared to last year.
We're saying good opportunities to grow using our material science innovation machinery offerings and commercial approach with our cosmos.
We've invested in our converting assets and we've invested in our mills estimate Mart Covington, demopolis to improve our costs structure and product quality.
Had covington, we're now producing the lowest density S.B.S. in the world for folding carton and other applications.
So while many parts of our consumer packaging business have been improving and our well positioned to continue improving over the long term. These improvements have been offset by the performance of our lower value added and declining and market segments.
We continue to be committed to improving the long term for months of this business.
Westrock as well positioned to whether the current economic environment.
We have the ability to serve a wide array of and market segments, we have flexibility across our supply chain.
Including the ability to use both Virgin and recycled fibre.
Or global scale provides a redundancy and versatility in this rapidly changing market.
And market demand is quickly changing slide 11 provides an overview of current conditions in our market.
As noted earlier demanding E. commerce channels is very strong we believe this will continue to grow.
Processed in retail food markets beverage in liquid packaging, we're strong in March it's customers a sheltered in place and worked from home.
Protein markets have shifted from strongly positive to negative over the last few weeks as protein processing companies have felt the impact from Cove at 19.
Industrial and distribution customers demand has been negatively impacted by closures and other markets such as food service and commercial <unk> continue their pattern of and market declines from the previous quarter.
From where we stand today, it's difficult to predict what's trends are transplant, and which will persist.
Fortunately are diverse portfolio of paper impacting products possessions house, while to adapt and meet our customers changing needs across a broad set cross section of the economy.
While the outlook remains unclear, we have taken and are preparing to take actions to navigate market conditions as they develop.
Oh now handed over to war to talk about our financial position quarterly results <unk>.
Thank you Steve.
In addition to our ability to generate cash from our business active management.
Our debt maturities maintaining significant levels of liquidity, our core elements of Westrocks strong financial Foundation and fiscal 2000 in 19, we extended the maturities more than $3 billion have committed credit facilities and more than $2 billion and bank term loans. In addition last year we re.
<unk> $350 million and bonds that were due in March of 2020.
We have limited bond maturities until March of 2022.
With only $100 million that is due in June of this year.
At the end of March we had more than $2.5 billion, a committed long-term liquidity, including $640 million in cash traditionally we generate stronger cash flows in the second half of our fiscal year as we closed out April we were able to reduce net debt by approximately $145 million.
With this debt reduction in April.
Committed our current committed liquidity and caches approximately $2.7 billion.
We have a bonding cushion on our two debt covenants and this provides us with significant flexibility to run our business.
In addition to actively managing our debt maturities and liquidity our pension plans are in a strong position Steve mentioned R.U.S. qualified pension plan is overfunded.
In our global cash contributions to our qualified plans and fiscal 2020 is only $10 million.
Moving to slide 13, we are withdrawing are full year guidance due to the challenging economic environment associated with covert 19.
Although we are not providing guidance for Q3 recent trends are likely to cause sales and earnings to decline sequentially, Steve highlighted the changing demand trends across many of our end markets, which are negatively impacting volumes and specific segments of our business.
In addition to an uncertain volume outlook two three results will reflect the flow through of the published index reduction for linerboard in January and February reductions for S.B.S. and recycle boxboard grades.
And although some input costs are declining recycling fiber costs are up more than $50 per ton since December.
S condition stabilize and we have greater visibility in the future demand trends, we will reinstitute our guidance.
We are taking several decisive actions that we expect will provide an additional $1 billion of cash available for debt reduction through the end of fiscal 2021.
The recently enacted cares act by Condra Congress differs approximately $120 million a payroll taxes over the next three quarters, which will be paid in December of 2021 in December of 2022.
We plan to make our 2020 incentive payments and four one k. contributions.
During 2020 with western aren't common stock that will increase cash flow by approximately $100 million.
We are reducing our capital investments to approximately $950 million and fiscal 2020, and now estimate a range of 600 million two $800 million and fiscal 2021 down from our previous guidance of $1.1 billion in fiscal 2020 and 900 million.
Dollars to $1 billion in fiscal 2021.
We will complete our strategic.
<unk> at the Florence and trace Baja mills over the next 12 months.
While we've had to navigate the impact of sheltering place restrictions and the availability of contracting technical resources. As a result of coven 19, we expect to start up to new Florence paper machine and the second half of the calendar year 2020, <unk> upgrade project should be complete in q. to a fiscal.
21.
At these capital investment levels, we are confident that we will continue to invest in the appropriate safety environmental and maintenance projects and complete our strategic Mel projects, while also making investments to support productivity and growth in our business.
Reductions will provide 300 million to $500 million of additional cash available for debt reduction through the end of fiscal 2021.
The reset of our annual dividend from $1.86 cents per share to 80 cents per share will generate a 400 million dollar increase to cash flow over the next year and a half.
As we adjust our operations and investments two levels of customer demand, we will continue to generate strong free cash flow protect our balance sheet and have the financial flexibility to execute or strategy.
And now turn it back over to Steve for closing remarks, Thanks word.
Kansas backdrop of the pandemic.
To the outstanding performance of the restaurant came.
Supported our customers with a unique portfolio of products and solutions and global rage that they need to get their products to the consumers that need them.
We're executing on our differentiated strategy are doing it from position of financial strength and substantial liquidity.
We're facing unprecedented times and the outlook in the near term remains unclear.
Or adapting and executing our strategy in response.
My strikes pandemic action plan will enable us to respond quickly to changes and market conditions as we match our supply to market demand.
We're expect that these and other actions will further strengthen our financial position I, providing $1 billion in cash flow available for debt reduction through the end of fiscal 21.
All of us at West rock are confident and our value proposition that we have the right differentiated strategy the right team in place to navigate this environment into emerging even stronger company.
That ends are prepared remarks, James we're not ready for Q. on on.
Thank you Steve as a reminder to our audience to give everybody a chance to ask a question. Please limit your question to one with a follow up as needed we'll get to as many as time allows operator can we take our first question.
Thank you.
Reminded you ask a question you will need to pass the star one on your telephone to waste try your question press, the pound or Husky and again as the remainder. Please just ask one question like when follow up question and we entered a cue for anything further please stand by really compare the CUNY roster.
[noise] your face question, if <unk> Bank of America <unk>.
Thank you hire one in the morning, Thanks for all the details and for all that you're doing on on top of it I guess the first question I had a relates to how you will continue to manage the portfolio of businesses on a going forward basis.
Even award it sounded like.
You mentioned it.
You know there significant variability in what you're seeing in terms of demand trends. It's hard to say what is secular what is one off would it be fair to say that once you determine that that there'll be additional actions to optimize operations the business portfolio and.
Maybe.
We just heard what we wanted to hear but it sounds like consumer maybe has a bit more work to be done once you evaluate this because of the issues in pre printed tobacco. So if you could talk to that and how to follow on.
That George census, Dave I think you more or less answered. The question because I think we are going to monitor what's going on in the market and we're expecting there to be chefs over time I can't predict what the chefs are gonna Bay.
I can't protect we're going to look at our system and operate our system on our portfolio in a way to optimize it.
Overall.
Agree with that we have so what you said about consumer I think where more work to do on consumer I'd agree with that.
For for that reason that's worth.
Alright, Thank you for that and then as gets to that David and obviously you know an important decision.
Given the leverage being at a little over three times, given the covenant headroom that you set a significant and all the other work that you've done to improve liquidity was or something in particular that gave you pause and therefore catalyze the dividend cut because it looked like you had.
Room to continue paying that they have and what is giving you. The most concerned right now in terms of maintaining it at the level that had been previously yet.
We obviously respect decision and a appreciate the color. Thank you.
Okay. George Thanks for asking the question because this is not a liquidity issue.
At all and I. Thank you identify the one <unk> one thing that was affecting all of US no matter, where we are it's the unpredictable what's gonna happen with respect to a market conditions and we're just blankets on bass for us to be try and get out ahead of that and make sure. We are is.
Well prepared to deal with the uncertainty that we're having that can in the economy and market conditions gone pooled and these actions and I look out of not as the dividends just one of a series of things. We do I'd look at the whole package of of actions that we're taking to allow us to navigate the uncertainty, but all of us.
Her face one.
So part of it could be the capital that you might be required as you further up must portfolio or time would that be here.
I I'm, sorry, I didn't understand that George.
Well, so you're also keeping some powder obviously given for them was that you might need to make within the portfolio to optimize operations. That's one of the reasons that it would be good to have additional cash is out here.
Yeah, I I just look overall, it's a very unpredictable situation and I think all the actions that we're taking are very appropriate for us to get out ahead of really a period of of uncertainties that we're all going through.
Thank you very much.
Yeah. The next question is from the line as <unk> rubber. Please go ahead get rain is up and.
Thanks.
I just want to follow up on that the the <unk>. The only question just cause I I think it's sort of important for investors to to really fully understand me. Your your point is that it there's no liquidity issues that you see right now, but but presumably you're doing this as a.
Just in case, you're really not expecting it but it's it's just a very conservative action to take as you say get out in front of it is that really the the way to understand that.
Setting a lotta people are going to read it superficially and say wow, they must be concerned about that their their cash generation. They they just cut their dividend and that that surprised a lot of people.
That's I I appreciate your asking that this is not illiquidity issue I think it it's exactly trying to get out in front of.
Of you know and unpredictable set of events and on I do think about it very seriously from the stockholders standpoint, and we generate a cash. So we'll go to pay down that and I think that will crew to the benefit of the stockholders.
So if if I may stockholder I think I appreciate the us because.
It kind of allows us cast to pay down about which is going to be available to which is going to accrue to the benefit of the shareholders and it's going to enhance liquidity and providers longterm access to that that capital markets, all which I think are very important and the the <unk> still meaningful.
Substantial and it's a competitive too many other.
Investment alternatives.
Okay. Thank you and then just quickly on the recognizing it's a very fluid situation <unk> are there any specifics you can share with us in terms of how demand is is.
Looking currently.
Versus where it had been.
What your your best expectation for May for <unk>, perhaps where things like yeah, Mark I I'm, a lifetime, Jeff respond to that for corrugated non Pat after that respond to that for consumer.
<unk>.
I see good morning, Mark.
So it's too early to tell on May I would say that are backlogs and the first week or stable.
And I'll provide as much clarity as I can only be April loans.
Understanding that you're looking for detail in those specific and markets I just don't have that Grand your little you as of yet and then as you mentioned based on the amount of our <unk> customers closing plants temporarily the volatility in with the man profile. It may not be addicted over what the quarter will.
It won't be so we finished april down about 4% well we started off the month strong with backlogs and then every week progressively Ah got worse. So we have one Steve mentioned over 130 customers that either close to reduce shifts.
Across the business for of our pumped 10 customers had multiple plant style into late March into early April. So we saw that and strong segments in our process food in our protein business, that's U.S. in Canada and on businesses that we that's sort of food service Pakistan.
Food service businesses also well one dome and then we saw this and then use segments that well, we all lights on industrial products on our distribution and paper business, which is a large parts.
The business that we executed on the boss plants that we closed will remain ahead window and then we actually did some old value sheet business and that distribution and paper so that will be a bit of the drug for the next fiscal year as we we exit but again, if you look it up but comps we were up 1.7%.
We're last year.
<unk> was Don about 1.4%, we were up 2.7 in the quarter last year.
Market was flat so the cancer <unk>, but having said that our business operated as well we map saw supply with our customers demand the plants when well they had a very challenging conditions with business as it were up businesses went down we move business around the playoffs literally flawlessly.
<unk>, our workforce reacted heroically and so we're on the long term Compton, we can continue to integrate this business and are differentiated strategy or machine sales preprint grabbing sales well continue to remain song we're confident in the long term ability to bus to grow this business.
<unk>.
[noise] great. Thanks, Steve Thanks death, and so yeah, I really can't like job I really can't comment too much I may I'll try to give some details for April in particular or how it matches with the the comment Steve described around the court or essentially that what we saw at the end of the quarter.
Through the month and marched really continued inter April we saw salad, the man and and stability in food most of the suit food service grades in applications beverage in health care.
Backlogs in April on seeing pay remain strong at five meats, and C.R.B. and set about about three weeks and so we feel good about an optimistic about food food service beverage in healthcare, we did run into some pretty significant challenges on on commercial pray in particular, and so maybe I'll.
At the moment, that's described that we were off somewhere in the neighborhood in April about 50 per cent. That's about half of the daily cells rate on April as we would typically have and as in about half of what we had in February a lot of Adam's just really driven by reductions them direct mailing.
Advertising and in some of the gain run <unk> projects that normally would be strong. This time of year, we're really just cancelled and so that continued in April courses would discuss it's hard though how what that's going to be going forward.
And also we had some softness in March in particular and that continued in April and our high end spurious spirits, probably impacted somewhat by the decree a and also in cosmetics and do you need care and these are more probably discretionary high value products and some of those products were viewed as non essential and.
In our customers were not running or facility. So April I would say really continued the trends that we saw in March that that you had described.
And and and in fact, they said if you put that altogether in April.
Order of magnitude, what what might have and looked like.
Pat in terms of consumers specifically, so overall I would say it really has to break down by each individual great, but I wouldn't say April winds down year over year, given exact number right now because it's too early is with the with two really where the details but down modestly you over near as well.
There's versus marks and you would see Steve mentioned in his comments, especially round as yes, mainly because impacted by commercial plant that we took about 14000 tons and downtime <unk> economic Valentine in in the month and they were reflecting that softness that we had.
Okay.
Thank you so <unk> and Mark This award I would just add I'd I'd point back to my prepare comments when we said that revenues in earnings would be down sequentially.
And normally we're heading into a seasonal period and the second half of the year were revenues would actually increased so.
I think the comments that both Jeff and and.
Pat gave you on the month are consistent with our view of the sequential decline for the core.
On the show depreciated. Thank you.
Yeah. The next question is from Mark wildly, Spain, because men shall. Please go ahead you line is open.
Good morning.
For my Marcus I I wondered if you can just talk a little bit about the order of magnitude of kind of your fiber increases your recycle fiber increases since the bottom, which I think was probably in the first fiscal quarter in in your ability to offset those increases.
I have draft.
Hi, Mark Yeah, So we've oh significant good morning.
Increases in our fiber were off probably $50 or so a ton so far.
And with the demands remaining constant for recycled Barbara, but the generation has been challenged so starting in March.
You saw the downturn in generation, mostly calls from a lot of the businesses retails. So the grocery stores remains strong well rested will retail commercial businesses really softened up and then you had a shift to online binding so a lot of the O.C.C. into recycling center.
<unk> has a much less well recovery rate then you have that.
The retail stores in grocery stores, so that's close closer to the upside well, what we're doing to offset in the business as we were on the most verging fiber or recycle fiber depending on the costs at the mills up to their capability to do that based on balancing the energy based on their capacity Poping.
So we manage that as closely as possible to help offset the costs no. We reduce we look at old bar.
Lead six widmer projects. So you know we try to offset inflation by productivity every year and then depending how far the you'll see she goes Oh, we'll continue to try to offset old and costs we can.
I think that a certain point if you look back three years ago. It was a 300 million dollar head when that was a bit talk about run, but right now, we're well holding our own with off Southernsun costumed mixing our the fiber makes optimizing the five remotes based on the costs into the system and then as we get through the year, we'll see if this up so of course.
<unk> I think it persists in the May and then we'll look at what happens, but as we sit around and she's too hard to predict anything.
Anything right now in the market based on the code situation.
Okay. That's helpful jump. The final one I had was just a round Gandhi and I am curious about the start up of a new machine what effect that may have on your exports into Mexico, but I'm also curious whether there's anything in the partnership agreement, which would have you having to increase.
You're ownership and Gandhi safe between now and the the end of fiscal 21.
Mark I'll take a second question.
Mark I'll take the second person and Jeff you answer the first question.
Is there's nothing in the partnership agreement that would cause us to need to increase our on our show.
So we're we're still have the ability to put more the steak to you over the next 18 months.
I'm looking at.
Yeah that they may have but let me, let Jeff answer the question I'll get back there.
Okay sounds good.
Mexico's facing the same type of market dynamics that we on mark So the O.C.C. generational low upward pressure, they're seeing the same effect. So some delay in the middle project.
Based on the Tobin situation, so that's being stretched a bit and then I would say their own use mortgage really having the same effect those hours here right now when the U.S.. So very similar conditions in Mexico to what we're sitting here in the U.S.
Okay.
Yeah.
Okay, we'll put something hard time to travel specify the answer to the question on <unk>.
Okay. That's fair thanks.
The balance of the year.
You're in next question is kind of Anthony pardon me with C.D.P. is going to how do I know Cup and.
I've been morning.
You know just following up on the earlier question to Jeff You know is is it possible to quantify how long the volume headwind from the close box plants. Alas soon is it possible to size. It and then Jeff I think you indicated April volumes were done 4% with large customers you know seeing some planned shut downs is is it <unk>.
Well it all to kind of quantify the impact of the shutdowns whether it was a small portion of the decline or half for most of the decline just trying to understand what kind of normal organic growth would be.
Sure. So the the first born Anthony.
<unk> closure sorted in may of last year, and they run up through January so far so there's a and it's it's it's between.
0.6% to a point total for the closures. So as we go through the years sort of those will will drop off as we as we move through the year and then in April I think the the closures worse admit students.
I don't have the.
Site level of detail yet of each.
Each and market, but the and markets that were challenged in March or remain challenge in April so distribution.
While sheets of paper industrial retailers scheme service and then we had an effect of even agriculture that was off the porch they'd go to food service, which is probably not half of our business, but it's still a substantial peace we're down significantly.
If you look at our talk 10 customers that you have some major protein customers you have some major consumer products goods companies processed foods.
That's a significant piece of some of the head ones that we say so we had as I said some of those businesses had over five plants. Both in a brand new consumer no private label and then the protein and that's Canada in U.S. for us. So those those were significant pieces.
Oh, the downturn and then if you look usually chart in our deck on the large segments. When you look a distribution.
Paper and I can give you exactly in the morning quarter was down 16, 6% per day and so that's all that remained coming into this business and they think about the roots Ross part of their businesses auto.
This auto parts, that's down completely and then the movie business moving storage is significant we also not one of the largest so she was department of defense. They suspended all moves for the services through June 1st. So that's another part of the head ones on those large areas those Lord segments, we're down and even our.
Pizza segments that has been a real Boston growing is all coming in there for them I don't have that specifically yet for April but the the the flavor of the segments is basically the same coming into it.
<unk>.
Okay that that's that's extremely helpful detail and then just a question for I guess for both corrugated in consumer you know we've seen some state start to lift shelter in place orders and understanding it's really early days I'm. Just wondering as you talk to your customers you know, whether it's a food service or retail or other parts of the business is is something that you're kind of seeing as.
Meaningful catalyst for orders picking up or just kind of any color you can give their.
Sure I'll I'll start and then turn it to pad is a continuation it's too early to tell and as I said the segments that are even strong are having downtime headwinds because of the effect of code. It on their employee base. So hopefully as we start back up from start to see some trends of demands.
Taking up but it's too early to tell them. This first week of man.
And thanks, Jap and just adding on the consumer side I would agree with that I I think the probably the most dynamic spaces right now that we see are really around food service and cut them quite stock for S.B.S., where where an open market. That's B.S. born supplier there so but it's too early to tell really what might happen there, but it's been a lot of change.
And and then the other is still in commercial print, which I mentioned before has seen some pretty significant declines and so we're watching that carefully with all the uncertainty that's out there right. Now is just a really to really tell whether this state opening up or somebody activity around social distancing is going to have a meaningful impact and then there too.
Okay. That's helpful I'll turn it over.
You're in X. question is found that Brian <unk> going to have your line is open.
Thank you my everyone up your all doing well.
Steve just a question more maybe philosophically or longer term just on how your view and acquisitions you know some of the deals ever done. This most recent cycle. They don't seem like they're performing too well and the downturn some yeah and at the S. as some of the I.N. spirits and tobacco and.
Capstone you mentioned some of the challenges in victory, obviously that leverage got to be a little bit too high and we've now had to cut the dividend. So you know just longer term obviously, that's been evaluate creation lever for for West Rock was was acquisitions, but do you think that you know going forward. It may be will be a little bit more circumspect.
The the you know the leverage won't be as high as it's been in the past any the acquisitions will take more of a back seat to reducing leverage for the foreseeable future.
Thanks for asking the question, Brian I think with respect to capital allocation from where we are I think that reduction is prioritized over acquisitions, but I expect over the long term will be able to make acquisitions to add value to our company.
Okay, and then just sort of related to that you know you're.
Getting a lot of steps to generate cash and improve liquidity. Just you know within the portfolio are there any assets you might look to sell or divest to try and accelerate that process and are there any other sources of cash you might be able to pull like saving working capital I think initially that was going to be a pretty big headwind for the year, but.
You know things have changed so just wondering if there's any other avenues to generate some cash in the near term.
Yeah, <unk>, we look at our businesses our jobs to generate cash, we'll we'll look at all.
Alternatives, we don't have anything specifically our portfolio stands out.
Thank God I'm looking at Concord, Dixon and John static on they look at working capital each and every time so.
We're looking at the various lovers too that we came to generate cash.
Alright, I'll turn over it.
Your next question and Sunshine right here with Stephen thing. Please go ahead you line ends up then.
Hey, Good morning. This is John on from Mark just first off can to you just talk through the police sport business and how talk about how far we are from burning costs of capital and then what the overall bleach board operating rate was during Q1.
Yeah. So this is Pat so around brings forward and ask we ask specifically so as a ski commented.
Tobacco and commercial <unk> heard bending the secular decline and we're seeing some near term challenges are that relates to commercial print also a little bit on food service. So we did take some a a news will economic Valentine in March and April indicating that are operating range for not are tired. They have been a trip prior to that now coming in.
Into that period, I would say that we were pretty strong and it was as you would expect the way that's B.S. would operating rates went up and backlogs around four weeks as as typical but clearly what we've seen encumbered some of the segments that we participate in that use S.B.S. or police board in general we've seen those adjustments in those.
Those those downturns over the last couple of months at a certainly impact the outbreak rates.
Okay. That's helpful. And then turning just to M.P.S. more specifically, you've called out European weakness, but what parts of M.P.S. business or weaker is there anything in addition to to high and spirits.
Hi, I'm, just save I find fair footprint and Europe is a weighted toward Britain.
So they've had some and so I think brucks. It has been a challenge form so we're moving that production as far east as we can in Europe. So we've moved business to Poland. I think the segments are really not that much different than we see overall health care business.
Has done very well on the consumer branded business has been more.
Challenge because of what Pat said about the duty free stores I'm, just thinking I caught the covered related.
<unk>.
Okay. Thank you.
You're in X. question is fun <unk> Securities. Please go ahead.
The more in general and hope you in a families are doing okay.
Yes. Thank you. Thank you.
Curious if you could comment and all about trends specifically in their corrugated business in Brazil. Appreciate it's going into it seasonally slower period, but what we'd read plus for even for April hadn't seen any kids some pretty strong demand on there.
I gave each Jeff I'll take that so Brazil, I think wouldn't read as consistent they have positive concern aboard sales up year over year, almost 11% or higher exports in the South America reason into Africa, all sort of volumes are up 7%.
Four or Brazil business. They all performed on the market, but that grew to help you six plus two cents oh, the poor to police ramp up continuously go extremely well they continue to grow the business.
They're setting records on their own coordinators in the balls and that's a ramp up in two years ago extremely well.
Let's see some.
Headwinds from a cobin bars, but it's not to the extent to date as we've seen here also the <unk> on track.
Schedule. The startup was ward said earlier, the first half of the calendar 2021.
We took a shorter delay a 10 day building based on some government options on how the mobile laws, but it's backed up and running on track. So that business overall continues to perform very well and the markets will continue to say no strong right now.
Thank you for that and and the next question I guess on on pulp <unk>.
That you mentioned it being 20 million dollar headwind I guess you the first half year, there's been a series of of.
Price announcements that we've seen just curious from timing standpoint, how we could see that phase in that's more of a pistol 2021 benefit or maybe more immediate because you sell into the stock market.
Yeah, So maybe I'll take that because it's in the consumer are <unk> and so the majority of the pulp we make is anti R.S.B.S. system as we balance there are balance that system with some olden times the Ah Argh Argh Pol pot volumes that increase recently as you can see.
Some of the appendix material that we published and there's no price as the have declined published price decline in color. So that's how that's significant impact on us across the segment as far as what can happen in 2021 or beyond it's very difficult for us to <unk> with all the on certain every time, we we would not be able to do that but with.
Certainly March and April and going back really for this you're the date fiscal year <unk> certainly had a pretty soon every impact does does really driven by the pricing dynamics in that market has published.
And came across it so small party businesses, you know, but sequentially, we have seen some upward moving on our pricing it's down school year over year, but you will last quarter to this quarter, we have seen increases.
Thank you.
You're in next question isn't the line as Steve share cover from D.A. Davidson piece go ahead.
Thanks, Good morning, everyone.
So just quickly back on capital allocation, we understand what you've done with the dividend and why can you remind us if you have a specific <unk> ratio.
Related question you didn't mention anything.
Specifically on the repo we know we're going to you if you're going to use the stock to fund.
Incentives, but your mind is how much available to you might have on the repo.
Yeah, I mean, we we haven't been we have.
How much.
We haven't got 20 million <unk>, we have about 20 million shares and we haven't repurchased shares in quite a while because we.
Been very.
Clear that our capital allocation priority has been debt reduction.
Right.
<unk> is there a specific ratio in the dividend no yeah, yeah, no heres the the differed on I'll tell you what kind of spend a lot of time thinking about what the right. We'll have a laws and it's it's hard to specify a specific pay outrageous now I work at 80 Sciences, it's $200 million, we can generate 200.
$9 and should be returning $200 million to our shareholders.
And come I'm, just under any scenario that that we can imagine them as which had in the prepared comments, we're going to look at increasing matters things got more visible.
And so it's really hard to talk about in specific payout ratio in this environment.
Got it and then my second question what are the secret sauces for Westrock in at least in my opinion is the machinery installations that you have new clients facilities. So is it getting tougher to serve those machines or wants that are installed is it up to the compliance to maintain the machines.
Hi. This is just so the Kobe good experiences made it a bit supper.
To do that but no we are sending out checks with P.D. to <unk> gloves, we talk to our customers on their requirements in a plant and then our requirements. So we do have more and more service contracts that were fulfilling and then also any emergencies, where the customer.
I was we'll need also that part of the business. We continue to to move people through unsafe isn't that great success doing that and our sales and that and I'm machine businesses continued to grow see recorded early were up well over 300 in the last 12 months. So excitingly that continues to grow.
And we continue to grow the business and that that marketing serve those markets.
Terrific. Thank you.
<unk>.
No sign our question comes from I didn't <unk>, what if Keybank. Please go ahead.
Thanks, Good morning, everyone. Thanks for taking my question to Jeff just going back to your your April kinda tear for a moment I. Just wanted that has a couple of things I think you said shipments were down for.
And the backlog had declined over the over the course of the month for for precisely that reason can you just give us some sense of of what you're containerboard mail backlog is now compared to what was at the beginning of April just that to pick a date and then on the E. Commerce piece <unk> given that E. commerce is really strong, but then food services.
Suffering do you have any sense of what the net.
Impact of the E. commerce growth is it to the extent that it's basically.
Replacing the last food service business.
Well, so I'll start with the the last part the <unk> come on business.
Up strong double digits, and that's remaining and you have the the large growth in online and also by online and pick up the <unk>, which was the fastest growing a segment in the E. com space from March into April as far as the food service and offset it's hard to say as a <unk>.
Percentage, because there's so many different businesses that supply into food service dairy sake read Oh, agriculture, So it's hard to say well, what an offset would be yeah.
As an exact amount as far as the backlogs.
We we looked at the backlogs in the box system and so we're it's a five to 10 day backlog and as I said company. The May there was stabilization from April and a bit of a pick up from what we saw in the second and third week in April but it's too early to tell if that's a trend or not right now because of the.
Volatility in our on our markets.
And I appreciate each I mean, just one other one on on E. Commerce switches you know the last three years, it's been a strong grower double digit growth.
During which time box demand went from growing by three per cent back and 17 to basically flatlining last year. So I'm just wondering what.
Impact you think E. commerce growth is having on the overall market when it seems as if he commerce remain super strong, but box the man has.
Outlined over the past few years.
I think it's just it's based on the percentage that E. Commerce is right and all of the overall box market. So if you if you look at though the total fits 10% to 12%.
That's a problem to just have those functional the total in you call and then you have substitution and you have smaller packaging you'd have <unk> lot of other things that that go into that but I think still if you look back at durable growth <unk> some of the Nondurables.
Challenging in this environment, it's even more challenge goes industrial, but our ability to grow across segments over the last three years has been very good and for our business. Some positive that we can continue to grow in the markets given the shore.
<unk> hopefully over the long term will continue to grow no.
In in our market goes.
Thanks, so much that best of luck.
Right.
Hey, my late to channel called <unk>.
Thank you operator, and thank you to our audience for joining today's call as always reach out to US. It you have any questions for always happy to help thanks and have a great day.
<unk> Studies Conference call you me now disconnect.
[noise].