Q2 2020 Sonoco Products Co Earnings Call
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Ladies and gentlemen, thank you for standing by welcome to the second quarter 2020, Sonoco earnings Conference call. At this time all participants are in listen only mode. After the speakers presentation. There will be a question and answer session to ask a question during the session you'll need to press star one on your telephone as reminders today's program is being recorded.
I'd now like to introduce your host for today's program, Roger Schrum, Vice President Investor Relations aid Corporate Affairs. Please go ahead Sir.
Thank you Jonathan and good morning, and welcome to Sunocos Investor Conference call to discuss our second quarter financial results. Joining me today is Howard Coker, President and Chief operating a Chief Executive Officer, Roger Fuller Executive Vice President and Julie Albrecht, Vice President and Chief Financial Officer.
A news release reporting our financial results was issued before the market open today and is available on the Investor Relations side of our website at Sunoco Dot Com. In addition, we will reference a presentation on our second quarter results, which also was posted on our website. This morning.
Before we go further let me remind you that today's call and presentation contain a number of forward looking statements based on current expectations estimates and projections.
These statements are not guarantees of future performance and are subject to certain risks and uncertainties. Therefore actual results may differ materially.
Furthermore, today's presentation includes the use of non-GAAP financial measures, which management believes provides useful information to investors about the companys financial condition and results of operations.
Further information about the companies use of non-GAAP financial measures, including definitions as well as reconciliations of those measures to the most closely related GAAP measure is available on the Investor Relations section of our website.
Now with that let me turn it over to Julie.
Thanks, Roger I'll begin on slide three we see that earlier. This morning, we reported second quarter earnings per share on a GAAP basis of 55 cents.
And base earnings of 79 cents per share, which is within our guidance range of 73 to 83 cents per share.
Due to the significant negative impact from Covet 19. This 79 cents of base earnings per share is well below the 95 cents a base EPS that we delivered in the second quarter of last year.
At a high level, our second quarter 2020 earnings were impacted by mixed demand for our products with a net negative impact on earnings.
And price cost in our industrial segment, which was a significant drag on profits.
Partially offsetting these headwinds with very strong productivity driven across our business.
Well there to the 24 cents difference between today and GAAP EPS 16 cents is due to restructuring activities.
Five cents relates to non operating pension costs.
And three cents relates to various tax items and M&A expenses.
I'll add that as you can see we did not exclude any cobot 19 related PML items from our base earnings.
Now looking briefly at our base income statement on slide four and starting with the topline.
Sales were $1.245 billion down 104, 14 million from the prior year period.
Maybe more details about our key sales drivers on the sales bridge and just a moment.
Gross profit was $248 million 27 million below the prior year quarter. Despite the reduction in earnings our gross profit as a percent of sales was 19.9% only a modest dropped from 20.2% in the second quarter of 2019.
SDMA expenses of $121 million were favorable year over year by 10 million driven by a significant focus on reducing controllable costs as well as the impact of the pandemic to reduce expenses like travel and employee medical.
All of us, resulting in operating profit of $127 million, which has $18 million below last year.
I will discuss the key drivers on the operating profit bridge in a few minutes.
Net interest expense of $19 million was 3 million higher than last year due to the actions we have taken to significantly strengthened our liquidity position by temporarily holding more cash in lieu of debt repayment.
The primary driver to our higher debt balance. This year is the new $600 million of 10 year bond that we issued in April.
Income tax expense of $29 million was 4 million lower than last year, driven by a combination of lower pre tax profits and a higher effective tax rate.
Our second quarter 2020, effective tax rate of 26.6% was 110 basis points higher than the prior year quarter due primarily to changes in mix of our non us earnings.
So moving down to net income our second quarter 2020 base earnings were $80 million or 79 cents per share.
I'll add that our second quarter 2020 open margins improved by 20 basis points to 15.1% versus last year's 14.9%. Despite the broad economic challenges.
Now looking at the sales bridge on slide five you see that volume was lower by $94 million or almost 7% for the company as a whole.
Since Howard will provide more color on our segment volume trends in his comments.
Ill just provide high level information now.
Consumer packaging segment volume was up $14 million are almost 2.5%.
The most notable growth was in global rigid paper containers, which so volumes grow by approximately 8%.
However, this strong growth was muted by very weak volumes in the industrial end use market within our plastics business.
Display and packaging volume was well below last year down $19 million or almost 14% due to lower demand in domestic displays.
Paper amenities and retail security packaging.
Volume and paper and industrial converted products was down $51 million or just over 10% due to weak paper and tube and core volumes globally as well as much lower demand across our contacts operations, which was driven by very weak global textile market.
And finally sales volume and protective solutions was down by $39 million or almost 30% driven mostly by siris related demand weakness for our molded foam automotive products.
And our consumer fiber packaging for appliances.
Moving over to price you see that selling prices were lower year over year by $12 million.
This impact was split about 60 40 between our industrial and consumer segment due to lower market indices with industrial also being negatively impacted by weaker market pricing in certain areas.
Moving to acquisitions, you see an impact on the top line of $34 million from the Tech acquisition and consumer and the Correnso acquisition in our industrial segment.
And finally foreign exchange and other was negative by $43 million with the largest driver being a $30 million negative impact from foreign exchange translation due to the stronger us dollar.
Moving to the operating profit bridge on slide six and starting with volume mix are lower sales volume combined with the impact of mix had a negative impact on operating profit of $27 million.
This net impact is spread among our segments generally in line with the sales volume results that I just reviewed on the sales bridge.
Shifting over to price cost, we had $22 million of unfavorable price cost with half of this due to the net impact of nonmaterial inflation.
The balance of this impact is mostly in our industrial segment and is driven by a combination of higher RCC costs and lower market pricing.
As usual, there's a slide in the appendix that shows recent RCC price trends and their you'll see that southeast both cc prices averaged $100 per ton in the second quarter of this year compared to a $42 per ton average and last year's second quarter as well as.
A $42 per ton average in the first quarter of this year.
Moving to acquisitions, you see that our Correnso and tech acquisitions added $2 million to our second quarter 2020 operating profit.
Next is the impact of total productivity, we see that our total productivity benefit was a strong $27 million year over year.
The main contributors to the positive impact, we're procurement and SGN a cost productivity.
And finally, the change in other was favorable by $3 million with various moving pieces, but mostly in SG M&A.
Moving to slide seven you see it our segment analysis.
You will find our segment analysis, we see that consumer packaging sales were up 2% with solid volume growth coupled with the addition of tech.
These were reduced by our exit of a forming films operation in Flexibles.
Negative foreign exchange translation impact from the stronger dollar as well as lower pricing due to a much lower resin market.
Consumer segment operating profit increased by almost 37% on the surge in global rigid paper container demand and strong productivity.
Our consumer segment margin increased to 14% versus the second quarter of last year when the margin was 10.4%.
Display and packaging sales were just over we're down just over 20% primarily due to weak demand and the negative FX translation impact.
Operating profit however was up almost 2% in margins improved by 120 basis points to 5.6%.
The earnings impact from lower demand was more than offset by cost reductions and strong earnings performance in our pack center operations versus last second quarter.
Our industrial segment sales fell by nearly 12%, mostly due to volume declined by 10%, but also due to weakening market pricing and negative FX translation.
Ill, partially reduced by the addition of the Correnso acquisition.
Industrial's operating profit fell by 51% the week earnings this quarter were a direct result of the significant significant drop in worldwide demand.
Weakening global market pricing as well as the dramatic ODC price increase during the second quarter of this year.
With some offset from the current though acquisition as well as solid productivity.
The industrial segments operating profit was 6.9% compared to 12.5% in the second quarter of last year.
Protective solutions sales were down nearly 32% due to the significant decrease in demand due to cobot 19 across all three businesses in the segment.
Operating profit declined by almost 69% due to the lower demand and associated deleveraging of these operations.
This segment's margins declined to 5% from the prior years quarter of 10.9%.
For the total company sales were down 8.4% and operating profit declined by over 12%, resulting in a companywide operating margin of 10.2%.
This was a 50 basis point decline from last year's second quarter.
Now moving to cash flow on slide eight our year to date second quarter 2020, operating cash flow was $281 million compared with $40 million in the same period of last year, an increase of $241 million.
The largest driver to this increase is the $175 million after tax pension contribution that reduced last year's operating cash flow.
Mid way down the slide you see that our working capital balances increased during the first half of 2020 by 20 $28 million. However, this was a this was $38 million lower than the increase in the first half of last year.
This was the result of improvements in both accounts receivable and accounts payable partially offset by higher inventory.
Next looking at the change in tax accounts, you see that that this year, we had $17 million of higher cash flow. In this area. This was driven by our utilization of certain government assistance programs in the us.
Moving down to free cash flow, which we defined as operating cash flow less net capex and dividends.
Our free cash flow for the first half of this year with $123 million, an increase of 268 million over the same period of 2019.
Excluding the $175 million pension contribution last year free cash flow improved by $93 million year over year.
Net capex spending was $72 million year to date, a reduction of $29 million compared to the same period last year.
And finally, our cash dividends paid in the first half of this year were $86 million compared to $84 million in the prior year period.
On slide nine even our balance sheet is extremely strong and reflects the cash and debt positioning we did in April of this year.
Our second quarter 2020, consolidated cash balance of $857 million includes approximately $715 million of cash that we consider to be excess excess that has held in short term investments that are very liquid and of course of high credit quality.
Moving onto our debt balances our consolidated debt totaled 2.26 billion at the end of the second quarter. This year, an increase of $625 million from the from the first quarter.
The main driver to this increase was the $600 million a 10 year notes that we issued in April.
Now moving to slide 10, you find our base earnings per share guidance for the third quarter, which is 73 to 83 cents per share.
This wide range reflects ongoing uncertainties regarding the challenging macroeconomic conditions stemming from the cobot 19 pandemic.
Turning to slide 11, I will now provide some additional comments about the key assumptions for our third quarter base earnings guidance.
Related to Cobot 19, we expect to have a mixed impact on demand for our products with the net impact being slightly negative to earnings compared to the third quarter of last year.
Howard will provide more comments about the expected impact on our businesses in a few minutes.
Also we will continue our focus on controllable cost reductions in areas such as travel and we expect certain other costs like employee medical expense to continue at lower levels due to cobot 19.
Our outlook for third quarter SGN, a expense as a percent of sales is similar to our actual results for the second quarter of this year.
Moving to our price cost expectations for the third quarter, while we forecast that ODC prices will stabilize in the near term. We do expect our industrial segment to have a negative price cost relationship compare to the third quarter of last year.
Having said that we expect this negative earnings impact to be about half of what we experienced in the second quarter of this year.
And finally specific to certain non operational earnings assumptions.
We have assumed a third quarter tax rate of 25.5%, which is 320 basis points higher than our 22.3% tax rate last year.
Also our interest expense will be higher than the third quarter of 2019 due to our increased debt balance that I mentioned, a few minutes ago.
These two non operational items plus the anticipated impact from a negative FX translation to combine foreign expected 10 to 12 cents headwind versus the third quarter of 2019.
Now shifting to this year's cash flow, we continue to take important actions to generate solid free cash flow. This year as you see on slide 12, we are taking advantage of government assistance programs around the world with most of the impact being here in the U.S.
So for full year 2020, we expect these program to provide us with approximately $35 million of positive cash flow, but I will note that this cash flow impact will reverse in the next couple of years.
We also still plan to defer our voluntary us pension contribution estimated at approximately $150 million and related to the termination process delay into 2021, but we do have a related 37 million dollar cash tax benefit this year.
Next due to our solid cash flow results in the identification of new growth and productivity projects.
We have increased our 2020 capex spending outlook to be $195 million from the $170 million that we mentioned in April.
This outlook continues to include $15 million to $20 million of capital for project Horizon.
And finally, our current liquidity position is extremely strong at approximately $1.3 billion with a combination of cash short term investments and our $500 million revolver availability.
Ill note that we are proactively repaying $150 million of our bank term loans early next week as we continued our focus on maintaining an investment grade balance sheet.
This concludes my review of our second quarter financial results and our outlook for the third quarter. So Howard I'll turn it over to you.
Thank you Julie and good morning, everyone, Let me store, while providing an update on the impact of the virus to the company then I'm going to talk briefly about demand from spare from second quarter and finally provide you some bolt about what we see entering the third quarter.
First I'd be remiss, if I didn't say, thank you through our entire sonoco thing for the tremendous job accomplished in the second quarter for not only helping us achieve our financial performance, but a meeting the critical needs of our customers through what was clearly the most difficult operating environment, we've experienced since the great recession.
Unfortunately, needless and sonoco more associates for their families have escaped the impact of ours.
Well for LCOS, then designated as an essential provider of consumer medical and industrial packaging around the world. We were forced to close several operations and temporarily during the quarter due to active buyers cases and government mandates the man in some markets was negatively.
Impacted the virus related shutdowns and we had to take steps to rightsize certain operations to better match the environment.
As there is around the world continue to reopen we're beginning to see improved demand for mobile products and services, which I'll speak to just among.
The health and safety of our associates suppliers customers.
And the general public our top priority and we put in place numerous safety measures to better protect our people.
We spent approximately $4 million during the quarter to provide our associates with personal protective equipment and to increase cleaning <unk> sanitizing bar facilities. We expect these additional safety expenses to continue as we're seeing the bar spreading the prop spots developing in several regions of the United States.
And throughout Latin America.
Results from our diverse portfolio of consumer on investor related businesses mirrored the car the boards of macroeconomic environment.
Our consumer packaging segment produced record results due to strong demand for food packaging driven by consumers stay at home eating habits.
I remind you that 80% of revenue produced from our consumer packaging segment is for food products with the will certainly medical and specialty markets, such as adhesives and sealants.
During the second quarter, we produced record results from our registry for containers business with sales volume approximately 8% globally.
If you look more closely at some of the markets. We serve you will see volume growth beyond levels, we have ever experience.
The lessons refrigerated those sales volume was up more than 60% during the quarter in North America and up 33% in Europe as consumers were taking more time.
Juice concentrate and segment, which has been in decline for years was up 40% North America, while most allowing us food products were up 20% and snacks up 8%.
We produced good results in our flexible packaging business, where sales volume was up 1% as demand for whole baked goods and other products grew during the quarter were offset by decline and gum and candy sales as consumer stayed away from impulse buys to travel restrictions.
Our plastic business also reflected the client divergent economy and as demand for prepared and frozen foods will significantly during the quarter.
But the volume gains were offset by declines in industrial products, such as plastic schools, Reals course et cetera.
Demand for fresh foods, such as Verizon eggs also improved year over year during the quarter. However, we're still working through production inefficiencies and from new store operations on the west coasts.
Reported on April that we expected the second quarter will be very difficult for paper and industrial products business due to the pandemics impact on demand along with a significant negative price cost relationship due to rising as cc prices.
On the all these five of our business, we saw sales volume growth and the lightweight board, which souls tissue and towel markets, which was 14% during the quarter, but this was more than offset by declines in heavyweight board serving on industrial can vote in markets.
We permanently closed our current valley, Ontario Mill, and the number three machine and thoughtful during the second quarter in an effort to rightsize our production capacity.
And push tons into a local smells.
To reduce inventories. We also took commercial downtime during the quarter roughly 19000 tons and we've learned a fair amount will recycle pole, particularly from our corrugated medium machine.
Total pulp production was approximately 29000 tons in the quarter.
As we enter recordable our system is currently running their full but we expect to have to run recycled pulp to supplement machine demand.
The core volume in North America, and Europe was down, 13% and 7% respectively as each of offshore markets experienced contraction due to the slowdown and graphic paper textile and even small markets, which we feel was more wisely tiny versus actual demand.
Price cost was extremely negative during the quarter impacting segment operating profits by $24 million.
As I said prices rose to $125 and May.
And then east in June and July.
We project, though that prices will stabilize during the third quarter ramakanth $70 per ton and the southeast.
Protective solutions experienced a more difficult quarter than we were expecting the automotive an appliance markets were essentially shut down from the end of March through most of mine.
Volume in the pharmacy business was also disappointing during the quarter as drove shipments to medical clinics and doctors offices were impacted by the postponement of non bowers related treatments.
And finally, our display and packaging segments topline declined approximately 20% of domestic display and retail promotion activity declined due to the lockdown of many retail stores.
During the quarter.
However, operating profit and segment actually improved year over year as our team anticipated the slowdown and aggressively took our calls.
Overall, we assume that global economic conditions will gradually improve from second quarter loans, although demand recovery as likely to be tempered by virus hot spots, which could slow the reopening of the additional business activity.
On slide 14 about presentation, we again show what we believe will be the impact of the continuing pandemic recession on our served markets and the full quarter.
You see the grain marks means we expect positive impact yellow neutral and read a negative.
As we are seeing during the first half of the year, we expect our consumer packaging segment to continue to do well in the third quarter sales of food packaging should continue to benefit from consumer stay up.
Although volumes may not be as strong as the second quarter.
We expect our industrial related markets to experience weak demand compared to 29 team.
And our team will remain focused on productivity actions to also.
In addition, our paper and industrial converted product segments should continue facing a negative price cost relationship during the third quarter due to higher year over year fiber cost and lower market pricing.
Architect the solution businesses, serving automotive and appliance markets all seen a gradual reopening of customer factories, and we expect demand to improve during the period.
We remain very bullish on our former says temperature assured packaging business as we expect it will benefit from a strong flu vaccine season, and I'll turn to more normal demand from its drone and food customers during the quarter.
Local also continues to achieve new business growth, including a significant recent win on the new drug package packaging products, which will provide good growth next year.
Finally on display and packaging business is expected to continue face weak retail promotional activity, but should partially offset the weakness through continued cost controls.
In closing history has shown that pass disruptions of the magnitude of the current virus induced recession as painful as they can be have often boosted sonocos resourcefulness productivity in innovation.
So Michael remains a financially strong company with solid cash flow, we believe our diverse business banks will remain resilient. During these unprecedented times and we will come out of this prices as a much stronger company.
Now with that operator would you. Please review the Q and a procedure.
Ladies and gentlemen, if you have a question at this time. Please press Star then one on your touched on telephone. If your question has been answered and you'd like to move yourself from the Q. Please press the pound.
Our first question comes from the line of George Staphos from Bank of America. Your question. Please.
Thanks, very much higher one good morning.
Thanks for all the details.
I guess I had a two part question historically on productivity folks.
You do too.
Very strong job as you pointed out on productivity in the quarter.
Photos to everyone.
How much I mean, just to put it this way how much is left in the tank Howard in terms of your ability to keep putting up.
Good productivity with volume being.
In some markets.
And then.
Question.
Noted how will over time during recessions in periods like this sunoco has always found ability to become more productive to your benefit.
What do you worry about from the other side in terms of your customers, maybe finding ways that they can become more productive and maybe lessening if at all some of the purchases that they've made from you in any product categories. How should we think about that coin.
So George.
The first on the first question, let me pass it over the Jody will come with a comment.
I think we've got a lot of LABA reserve in the time, Inc.
If you look at where the productivity was driven from those this particular quarter.
A lot of it was on the US DNA side in terms of savings as it related to.
Less travel et cetera.
And of course, some of it though came from the man cap side of it where we load up our facilities as we as seen on the consumer side of the business.
And that just absolutely leveraging fixed cost and delivers good productivity, but let me pass that portion of the question that for more detail the Julie.
Yes, sure Thanks, Howard and Hydro George Yes, I guess, we've had two extremely strong productivity quarters. This year about $27 million in each quarter.
The big drivers in each quarter have been split between procurement.
And as Howard mentioned fixed costs are within SGN, a really from a procurement perspective.
What we're seeing this year in that area is really in line with what we typically generate through our supply management activities and so I think we would continue.
Kind of ongoing to expect that type of procurement productivity running through the business I mean thats in that.
$10 million to $15 million per quarter is what we target specific to procurement and that's typically what that team and our businesses deliver.
So then moving into SGN, a again I think we would continue to expect solid productivity in this area.
Going forward, having said that you know as Howard mentioned Vestings.
We're trying to hopefully the normal in the world and the business environment, but some of that.
Benefit we're seeing now where we're I'm sure some of that's going to kind of not being up maybe not as strong as it has been in Q1 and even more so in Q2.
And then I guess, you know thats, our category going here manufacturing productivity.
Again mix mix result across the business.
Better as Howard mentioned in places, where we have strong volumes not as good at places, where we've been de Levered, but still a very strong focus for us and again as business volumes broadly pick up over time, we would expect improvement overall in our total manufacturing productivity. So yes. These have been very.
Very strong quarters this year.
But nevertheless, we're still pretty bullish maybe not quite the these amounts that pretty bullish on productivity going forward.
George on the second Paul accretive on Stena correctly, it's really hard for us to really say, how this is impacting the productivity of our customers and subsequently.
How would that impact so I really can't answer that question at this point.
Howard that's fair.
Appreciate your candor I guess my follow on question I'll turn it over.
Can you remind us or point to what's some of the marginal trends have been entering Q.
I have been for your business from a volume standpoint.
And really back earlier point, how much of this.
Tempur yesterday, saying.
Thanks, Mike reverse wave a wand.
Next year, we're back to normal how much of that reverses out on yesterday had again thanks guys.
George were somewhat weak I think what you said was what were the volume trends in the quarter Q2.
Three three you Howard sorry about that and then yes sure no problem.
The consumer side of the businesses.
As we enter the quarter still is relatively strong.
If you go into a display and packaging is basically is where it is.
The industrial side of the business.
We're seeing some markets start to show.
Positive signs others not so.
We're seeing different activity levels around the world and what I mean by that is while we may see a bit of an uptick in self select markets here.
Europe were actually saw with slow down later in the second quarter and of course, we're going into the overseas season with that business, probably most meaningful though in terms of positive. This what we're seeing on the protective side of the business, where we will of central.
We shut down.
Most of April and May from the automotive.
The business.
From the the appliance side of it.
Even impacted thermosafe to some extent as it related to.
Elective.
Type.
Procedures, if you will.
So the biggest pick up we're saying right now as on that on the heavy side of the business.
And.
Thats basically laser though.
And George to your SGN a question, yes, as I mentioned in the comments really most of that $10 million lower SDMA is very pandemic driven at a high level.
Lower travel lower employee medical expense as Howard mentioned, we did spend about $4 million.
Increased expense in the quarter on protective gear and additional cleaning and that type of things around our global facilities. They get all that kind of net to this kind of $10 million improvement you I guess, what I'd say about going forward I mean, clearly those types of costs will moderate and return to more normal levels.
We get out of this but just as a reminder were really investing today through SDMA dollars in our IP operations and systems, our HR operations and systems and that we're already seeing some pay off in that and we will continue to see path in that and said.
As we come out of this again, we won't have the same.
Pandemic, driven lower expenses that we still target overtime SGN a at closer to 9.5% of sales versus if you look at last year around 10% of sales and so thats not going to be an immediate get there but.
I think when we look over 21 and into 22, we'd want to be trending on a normal basis.
Down closer to 9.5% of sales.
Thank you very much.
Thank you. Our next question comes from the line Mark Wilde from Bank of Montreal. Your question. Please.
Thank you good morning, Howard morning, Julie Good morning.
I wondered if you could just walk us across what you're seeing.
In your different consumer packaging markets right now in terms of activity, whether there's been any easing of supply chains return to normal.
Then over in display and packaging I wondered.
If we could just get your thoughts on kind of more or less promotional activity as we had.
Kind of back to school season, and holiday season this year.
Sure Mark buying saw on the on the consumer side.
Yes, well right now as we enter into.
The.
Beginning of the third quarter than front lines are still fairly strong so.
Roger you've got some more detail.
On the consumer sorry, yes, we're seeing this on your Onyx specifically in Flexibles, Mark will I think we'll see a sequential quarter to quarter three pickup.
Confection as Howard mentioned as early comments was down significantly and in Q2 and it will be down versus Q3 last year as it real on the Q3, but we'll see some sequential improvement also in Flexibles, we're seeing sequential improvement and the foodservice area as well.
We are seeing some moderation in plastics and frozen food trays as you would expect on the other hand, we're seeing a fairly significant pickup in portion control plastic cups.
So we'll see that somewhat sequentially. So as Julie said early and consumer we're going to be strong again in the third quarter, just not quite as strong as we saw in the second display and packaging were expecting as we said continue weak volumes into the into the third quarter. The back to school season is obviously going to be impacted by coded.
So we expect lower year over year sales there promotions are still down the one area and the MPT has been strong Mark is there a pack centers, all care and health and beauty have been strong we expect that it can continue third quarter in us just.
As a result with people staying home more and using those products more is what our customers are telling us so.
Down again quarter over quarter, but some some sequential improvement into the third quarter versus the second.
Okay, and Howard if I could just can you just remind us on the dividend what's the normal timeline for the Board review.
The dividend and you've got a very long history of kind of annual increases. So just any thoughts around that just in the context the current environment.
Actually the normal time period would be.
Would be in our February timeframe, but.
Considering the circumstances, we are having discussions every.
Every board meeting.
As it stands right now while the cash situation looks good we remain cautious right now and that's what we held at where we where it is at this point in time, but I'm sure. The board will take another look at it.
And the October timeframe, and see where we stand at that point.
Alright, very good I'll turn it over.
Thank you. Our next question comes from the line, Okay hedge from Wells Fargo. Your question. Please.
Yes.
Thanks for taking the question guys I was curious if you could expand upon any kind of the new investments that you guys have found pumping capex by $25 million appreciate if not.
Huge numbers, but in an environment, where a lot of folks are dialing back.
He has been able to find opportunities.
Thanks, Dave.
You know.
Likely we pulled back on our capital as a lot of folks did.
And.
Frankly to be conservative not normal we're going into as Weve.
As we've gone through this quarter and frankly as we look forward, we feel that we're going to we're going to be okay to pick back up and for the most for what we're saying as were and best is bringing back the capital levels, where we've got some good projects good productivity opportunities.
Across the company.
That would have been deferred in the next year, we're in a position to take advantage of those now so that was the point I will add though there is one project.
Related to our.
Correnso mill.
Thats going to consume somewhere around $5 million a capital to rectify six situation. We have there the remaining 15 million is really targeted.
Because we have the opportunity because we have the cash.
Put ourselves in a better position going forward from my overall productivity.
Position.
Okay and the second follow up I guess, Julie did I hear you correctly, you said price costs was for the order in its goal of 24 million hit and then if I look at the bridge for the overall company was 22 millions on inferring from and I think 2 million positive elsewhere I'm, assuming most of that was in consumer we had falling.
Resins.
We've got the force and increase in for June and seems like they're pushing for more in July.
Is there risk that we see a price cost we use in the second half and consumer.
So my way it gave before I'll turn over to Roger to get a little more color on our thoughts on resin transit consider that you're exactly right consumer was slightly positive price cost in the second quarter. So you get accurately pick up on my comments, but I'll turn it over Roger for a little more color on price.
Awesome consumer going forward, Hey, guys you covered it we have seen some slight increases starting across most resin categories.
We've covered that in our guidance we have as you know we've got quarterly price changes mechanisms.
So whatever we don't pickup and and the third quarter, we would pick up in the floor. So I'll say anything there that significant that would not covered in the guidance that we are as you said starting to see all resin come off the bottom and start to accelerate into the second half of the year.
Thank you.
Thank you. Our next question comes from the line of Adam Josephson from Keybanc. Your question. Please.
Thanks, Good morning, everyone Hope you in your families are well.
Okay.
Howard.
Would you mind, just going through the cadence.
Volume trends in the quarter.
I assume that April was good just you have the remnants of the panic buying that really started in March.
Just talk us through how.
Trends varied across the company through the quarter and then how July compared to what you saw in Twoq you on average I know volume mix was down seven.
In Q2 I'm just wondering at July was comparable much better than that and then within your Threeq guidance, what kind of decline you're assuming in volume mix compared to the down Sevenish in twoq.
Sure.
And Adam I'm, assuming you have you mentioned is along some of you may June but.
Yes.
The cooler.
Kind of played out as exactly as we expected consumer side of the business.
Really did.
Ramp up sequentially April May June.
I guess the surprise in the quarter was April was relatively strong and industrial.
And then we just saw a completely fall off in may and slight uptick, but basically it's leveled off.
If we entered into June.
The display and packaging side similarly.
Basically may look about football it all down may across the board is where we soul.
The heavy draw with some improvement ended June.
Absolutely not to the levels.
We would like to saying.
But as we as we look into going into Q3.
Basically what we've modeled out as we think that things open up.
That our consumer side of the business will be less consumption at home and our consumer side of the business will be will be down.
From our Q3, but certainly up from on the excuse me Q2, but up from.
Well up from say prior year display and packaging, we see it somewhat more the same.
Q2, the Q3 industrial similar lately.
Well basically.
Thank you to Q3, but different moving pieces I mentioned earlier that we see of saw an improvement.
Say in North America, and slower type recovery in Europe, particularly with the with all this coming into play the big jobs that we see going into this quarter is on the protective side of the business for the automotive the appliance sector even.
Even on the farmer safe side of the business with with the virus shipments et cetera, that's where we see the strongest pickup going into Q3.
I really appreciate that are just two more for me why don't know Ccs, obviously prices went down.
Quite a bit in June and July July after having spike earlier in the year.
A bunch of mills were taking downtime.
In May and June we just got the box data for June it was up quite substantially so I guess the mills that had stopped buying in may and June our or buying again now to too.
Now that Dave.
Sold out as much of their inventory are you expecting ULCC to firm up here as the mill start buying as you see again and what do you think will happen as the rest of the year progresses, along those lines.
Thanks to our.
Operable Award us from all that is what we expect for sitting at about 70, right now and that's what we're modeling out at this point in time.
So thats about as good as I can get to.
We think the balances is there.
Maybe we can see another $10.
But but right now our models are holding it at that $70.
Yes.
Understood and just last one Howard I know, you're not giving full year guidance, but just you could give me any kind of direction here. So you're assuming flattish earnings sequentially. In Threeq you normally there is a pretty big drop off Threeq to Fourq you just for seasonality reasons I know this year as an exceptionally unusual one.
Could you help us think about just the seasonality of earnings.
Differently this year than in most previous years, just given how bad to two in Threeq you will have been this year compared to previous years.
Adam I would only be the speculating.
Theres got to be we'd have to really see how Q3 plays out.
Maybe there's a much stronger recovery than we're anticipating if not does that leave a situation where there's.
Very large pent up demand going into Q4.
And we see an very unusual.
Very good Q4.
Just don't know how to how to play that out really its.
But that could be could be a scenario.
Yes, thanks, so much Howard.
Thank you aren't next question comes from the line of Ghansham Punjabi from Baird. Your question. Please.
Thank you and good morning, everybody.
Morning.
For your consumer segment and specific to Twoq can you just help US bridge the operating profit increase out of your view basis, I mean sales up 2% EBITDA just under 40% as part of that is just higher fixed cost absorption and you mentioned productivity et cetera, but just give us more color on that.
Yes, first off on consumer segment and in total.
Do you remember that the than our plastics. So those were the carry our industrial portion of our industrial Classics does show up and report on consumer. So in total I think if you will reconcile that would probably rather than the two percentage Todd.
Growth rate, it's more like 4%, if you pull that industrial piece out of there, but fair enough question.
Good mix good productivity.
And Joe is pulling them into good looks like she's got some even more details.
Really would you please.
The happy to yes, I just wanted to provide a little more color.
Two again, what Howard said and what I've mentioned already but.
Definitely strong productivity was the biggest single contributor to the consumer segment that was really mostly like the total company split between.
Purchasing and fix cost, but again to some of the points about strong volumes and global rented containers their manufacturing productivity was good as well because that throughput is.
It's very.
Effective very productive when it comes to profitability. So just really nice all around productivity for consumer.
We mentioned higher volumes that had a pretty normal drop through to operating profit a little bit of price cost positive impact and thats really that those are the three main drivers there to have the operating profit margins and consumer.
And then in terms of your comments on Threeq, you and obviously the modest moderation.
I can remember the exact words to use but a lot of the food companies that reported thus far is still talking about outsize point of sales growth at the at the retail level.
And very low inventories in the channel. So do you expect.
Do you expect a continuation of that I mean is it fair to assume that it'll be a multi quarter sort of continuation in terms of the blind dynamic there.
Hi, guys lastly, we we have.
Temper down the consumer side going into Q3 based on our customers and what they're telling us.
That.
It'll still be very strong it just won't be.
Going back to my earlier comments, where those segments, such as though except for just absolutely through the roof they'll still be strong.
We don't feel like they're going to be a strong.
As we saw in Q2 unless.
We we see a reversal in this opening up of.
The country and it looks like we may be heading in that direction and if that's the case, we certainly would expect that our consumer results would then start looking more like Q2.
And on the flip side of that we could expect that maybe the automotive and other sectors would be down.
I guess the point here is that whichever way. We go we feel like the balance of the portfolio. If we're right and how we've modeled it it will be what it is if we're wrong and as more of a shutdown enclosures within the economy.
We will be right again, but for different reasons.
Sure and just one final one Howard.
For the protective segments, specifically for Threeq you.
Just given that autos are ramping back up in your comments on Thermosafe.
Is it.
Is it likely in your view that margins could actually be comparable to last year on the third quarter.
Yes, I would thanks.
Sounds like automotive is well that ended last month for up to about 80% in terms of.
That's right capacities. So yes, you asked me if you look at the mix of that are that segment for for our guidance is the answer is yes, it could be.
Thanks, So much you guys.
Thank you. Our next question comes in the line, though Brian Maguire from Goldman Sachs. Your question. Please.
Hey, good morning, Thanks for fitting me in.
Wanted to ask on how check the SEC acquisitions been performing.
Now that you've owned it for a couple of months and.
And then sort of a related question just.
On your outlook for M&A.
How's the pipeline looking are you able to kind of get out there and do due diligence on deals given travel restrictions or.
It is kind of take a moratorium on thinking about acquisitions for the time being.
Thanks, Brian.
Yes first off we're very pleased with how tech is onboard and how they performed well I will say they are they have been impacted by by the code that situation.
A portion of the businesses, obviously related to maybe not obviously, but is related to elective surgeries and so were negatively impacted as.
We all are aware that the demand in that area certainly as phone.
The performance in general we're very pleased.
Again with the integration.
The.
Just finished our Roger I think about the finished installation of the air protective coverings for.
The monitors.
I think we're producing somewhere about 1.5 billion units right now, we're adding a billion units of incremental capacity, so well things open back up as these investments come into play.
And as the team has culturally.
Onboarded very well, we're very bullish about the go forward with tech on M&A, we're still working at.
Your point, yes, I mean.
There are some some issues not so much around the due diligence side of things but.
We've got several call at bolt ons that hopefully we'll be talking about in the relatively near future and I'd say the same thing relates.
To our divestiture activities that we've been talking about for sometime.
So we're still moving.
Okay.
Thats, Great and then one more for me just.
You talked a lot about inter quarter trends and trends in early July just wondering if you could.
Give your estimate on where inventories it.
For yourself and at the customer level are we.
Yes, It did people run things down hard during the downturn and you might see a snap back here or do you think inventories are kind of at normal levels.
In I'd say, we're fairly we drove some inventory down as I noted in the opening commentary with downtime on paper side of the business, but but we don't really see any.
And it will issues will end or opportunities as it relates in that regard.
Okay. Thanks very much.
Thanks, Ron.
Thank you. Our next question is a follow up from the line of George Staphos from Bank of America. Your question. Please.
Thanks, very much thanks for taking the follow on guys.
However, if you if you.
Good update us a bit on.
The operational issues and the progress you're saying.
With the Premier store business.
You mentioned again.
On the West Coast.
What's going right going maybe less well then you'd like what needs to be fixed from here.
With that business to be what you had expected when it was acquired.
And related Lee.
How integral.
To the overall consumer strategy.
Sunoco products.
And then my second question.
Back a little bit on Brian's question, you had mentioned that.
We're obviously seeing a pickup.
Materials for things like thermometers, the mom or covers are there any other truly direct benefits you're getting from coal.
On your healthcare packaging business, if you had mentioned them earlier I apologize.
Remind us what you're saying, thanks, and good luck in the quarter.
Thanks George.
Let me answer your second question, then I'll allow longer to talk.
About the operational issues, but on the pickups.
You know outside of the consumer side, I think with somewhat pent up right now on the pharmacy business.
We're expecting what we're hearing is anywhere from 20% to 30% increase in terms of the amount of vaccines normal vaccines that will be shipped this season.
That has been delayed we were hoping to see that happen.
Towards the end of the second quarter, it's been delayed as.
I guess the government has said were award first and foremost that we flood the market people get the vaccine too soon and not affected later in the flu season.
But also in terms of.
What size shippers et cetera. So there's a lot of war. So we expect to see a pretty good surge going forward.
Not so much.
And this and this past quarter.
I'll, let Roger talked through the operational side of things on.
On the polymer the store if you don't line.
George I think I mentioned last quarter or maybe four before that.
We have made some fairly significant capital investments in our per month store operations on the west coast in both equipment and tooling, we're seeing that pay off. So if you look at year over year. Our output are uptime have have improved.
So I'd say, that's that's the positive.
Frankly, we struggled in arm, our Mexico operation in Guadalajara, It's a number of issues primarily around leadership and that we're dealing with that and some other market issues.
And frankly, the west coast.
As I mentioned before is very competitive.
East Coast operations.
Performing extremely well update expectations in the marketplace, the west coast as much more competitive.
Including some imports from from Asia. So, it's really a combination of all the as far as integral it is through our consumer businesses, there's a monitor connections or a flexible business. We're working on some to membrane closures for.
For pro use we're making good progress there.
So that there is a connection there to there are other businesses were seeing good growth in the AG business.
Beyond that is a gross.
Target for us, but beyond that other than some resin purchasing synergies there's not a.
More connection, but thats the connection that we saw when we've acquired those businesses.
Thank you Roger I appreciate it.
Thank you. This does conclude the question and answer session of today's program I'd like to handle program back to Roger Schrum for any further remarks.
Well again, thank you very much Jonathan thank everyone for their time today and as always.
Appreciate your interest in the company. If you have any further comments. Please don't hesitate to give us call. Thank you for your interest.
Thank you ladies and gentlemen few participation in today's conference. This does conclude the program you may now disconnect good day.
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