Q3 2020 Sonoco Products Co Earnings Call

October 22, 2020

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Ladies and gentlemen, please standby your third quarter 2020, Sonoco earnings conference call begin momentarily. Thank you for your patience and please standby.

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Ladies and gentlemen, thank you for standing by and welcome to the third quarter 2020, Sonoco earnings Conference call. At this time all participants are in a listen only mode. After the speaker 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 please be advised that todays conference is being recorded.

If you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today, Roger Schrum, Vice President of Investor Relations. Please go ahead Sir.

Thank you, Josh and good morning, everyone and welcome to Sonocos third quarter Investor Conference call.

Joining me today are is Howard Coker, President and Chief Executive Officer, Roger for Executive Vice President and Julie Albrecht, Vice President and Chief Financial Officer, a new.

News release reporting our financial results was issued before the market opened today and is available on the Investor Relations website at Sunoco Dot Com. In addition, we will reference a presentation on our third 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 contains 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.

Further more today's presentation includes the use of non-GAAP financial measures, which management believes provide useful information to investors about the company's financial condition and results of operations.

Further information about the company's use of non-GAAP financial measures, including definitions as well as reconciliations of those measures to the most closely related GAAP measure is also available in the Investor Relations section of our website.

Now with that introduction I will turn it over to Julie Thanks, Rob.

Thanks, Roger I will begin on slide three where you see that earlier. This morning, we reported third quarter earnings per share on a GAAP basis of 82 cents.

And base earnings of 86 cents per share, which is above our guidance range of 73 to 83 cents per share.

Due to the negative impact from 'cause it 1986 cents as day S is well below the 97 cents that we delivered in the third quarter of last year.

At a high level, our third quarter 2020 earnings reflected mixed demand for our diversified products and negative price cost in our industrial segment.

Partially offsetting these headwinds was very strong productivity driven across our business.

Our third quarter base earnings were above our expectations, primarily due to better operating performance in certain businesses.

Most notable or integrated industrial North America, as well as our protective solutions and display and packaging segment.

I will highlight that certain important aspects of our business performed in line with our expectations, including our consumer results and the price cost impact in industrial.

In terms of the four cents difference between base and GAAP EPS 80.

18 cents is due to restructuring activities and six cents relates to non operating pension costs.

These non base expenses were partially offset by a non base income tax gain of 20 cents driven by a deferred tax write down related to the pending sale of our DMP Europe business.

I would like to highlight that up to $24 million a pre tax restructuring expense almost 20 million is noncash and includes nearly $15 million of noncash charges related to actions, we're taking in our perimeter of store business. However, we'll be talking more about this deal.

In his comments today.

I'll add that as you can see we did not exclude any COVID-19 related pain items from our base earnings.

During the third quarter, we incurred approximately three and a half million dollars of costs directly related to corona virus, including purchasing protective gear.

Cleaning our facilities.

And paying employees, who are in quarantine for work related reasons.

Now looking briefly at our base income statement on slide four and starting with the top line you see that sales were $1.312 billion down $42 million from the prior year period our.

Ill review more details about our key sales drivers on that bridge in just a moment.

Gross profit was $257 million 8 million below the prior year period. This.

Despite the reduction in sales we maintained our gross profit as a percent of sales at 19.6%.

SGN a expenses net of other income were $126 million and unchanged year over year.

Lower expenses tied to Cove, it such as travel and group medical were offset by health and safety costs incurred for the pandemic.

Strategic spend on technology applications as well as the addition of acquisition.

Also we had almost $5 million of unique other income items in last year's third quarter that did not repeat this year.

Oh, that's resulting in operating profit of $131 million, which is $8 billion below last year I'll just.

Ill discuss the key drivers on the operating profit bridge in a few minutes.

Net interest expense of $19 million was $4 million higher than last year due to the actions. We've taken this year to strengthen our liquidity position by temporarily holding more cash in lieu of debt repayment.

Income tax expense of $27 million was $1 million lower than last year, driven by a combination of lower pre tax profit offset with a higher effective tax rate are.

Our third quarter 2020 effective tax rate of 24.1% was 180 basis points higher than the prior year period quarter prior year quarter, due primarily to various discrete items.

So moving down to net income our third quarter 2020 base earnings were $87 million or 86 cents per share.

And looking at the sales bridge on slide five you see volume mix was lower by $54 million or 4% for the company as a whole.

I will highlight that while our third quarter volumes remained challenged due to cope at 19 the year over year volume decline was a meaningful improvement from the 6.9% decline in the second quarter. This is.

This improvement reflects quarterly sequential demand increases in each of the protective solutions display and packaging and industrial segments.

Consumer packaging segment quarterly volume was down $1 million from the prior year or 30 basis points we.

We did have nice growth in global rigid paper containers, which sell volumes increased by 2.3%, including 3% higher demand in North America.

Within plastics, the prepared and specialty foods market had very strong volume growth at almost 16%, but this was offset by significant weakness in the industrial end use market.

Our flexibles business saw a continued negative pandemic impact on demand and the confection market due to reduced foot traffic and convenient stores and other venues as well as lower seasonal Halloween volume.

I'll highlight that when we remove the weak volume in our industrial plastics business, our third quarter consumer segment bulk volumes actually grew by 1%.

Display and packaging volume was below last year down $9 million or 6% due to lower demand and domestic displays.

Paper amenities and retail security packaging.

Volume in paper and industrial converted products was down 40 will $41 million or just over 8% due to weak volumes in our global paper mill network as well as across our tubes cores and cone operations.

I'll note that this volume decline however was a solid sequential improvement over the 10.4% decline that we had in the second quarter.

And finally sales volume in protective solutions was down nearly $3 million or almost 2% driven mostly by virus related demand weakness.

Moving over to price you see that selling prices were lower year over year by $6 million. This was primarily in our consumer segment, largely driven by resin price declines in our plastics and flexibles businesses.

Moving to acquisitions, you see an impact on the top line of $30 million from the tech and canned packaging acquisitions and consumer and the Correnso acquisition in our industrial segment.

Ill note that Correnso is included in the acquisitions category for just over one month of the third quarter. Since it was acquired in early August of last year.

And finally foreign exchange and other was negative by $12 million with the largest driver being a 5 million dollar negative impact from foreign exchange translation due to the stronger dollar and in addition, this includes about $4 million of lower sales from our exit of certain small.

Operations in the consumer segment.

Moving to the operating profit bridge on slide six and starting with volume mix, our lower sales volume combined with the impact of mix.

Had a negative impact on operating profit of $17 million driven primarily by the industrial segment.

Shifting over to price cost, we had $27 million of unfavorable price cost with about half of this due to non material inflation.

Most of the remaining unfavorable change occurred in our industrial segment, driven by a combination of higher ODC costs and lower market pricing.

As usual there is a slide in the appendix. This shows recent ODC price trends and you will see that southeast ODC prices averaged $70 per ton in the third quarter, which although down from the second quarter of this year was double to $35 per ton average in last year's third.

Quarter.

Moving to acquisitions, you see that our Correnso tech and canned packaging acquisitions contributed $2 million to our third quarter earnings.

Next is the impact of productivity, where you see that our total productivity with a strong $40 million year over year, we had solid execution across our productivity levers in materials.

Shop floor execution as well as fixed costs, all due to a combination of deliberate cost controls and restructuring benefit.

And finally, the change in other was unfavorable by $6 million with various moving pieces.

Moving to slide seven you'll find our segment analysis, we see that consumer packaging sales were up 40 basis points driven by the addition of tech and can packaging, partially offset with a slightly weaker demand.

Lower prices tied to resin the exit of certain small operations and negative foreign exchange translation.

Consumer segment operating profit increased by almost 20% primarily driven by strong productivity.

Our consumer segment margin increased to 11.6% versus the 9.8% in the third quarter of last year.

Display and packaging sales were down almost 5%, mostly due to lower demand operating profit. However was up almost 21% and margins improved by 170 basis points to 7.8%.

The negative earnings impact from the lower demand was more than offset by fixed cost productivity.

Our industrial segment sale sales fell by over 7%, primarily due to the weak global volumes.

Industrial's operating profit declined by 42%. This was a direct result of the significant drop in demand as well as the much higher RCC market pricing relative to the third quarter of last year.

These headwinds were somewhat offset by solid improvements in productivity.

The industrial segment's operating profit as a percent of sales was 7.5% and nice sequential improvement over 6.9% in the second quarter, but lower than the very strong 12% in the third quarter of last year.

And finally, although protective solutions sales were flat year over year operating profit increased by 25% due to strong productivity the SEC.

The segment's margins improved to 13.3% from the prior year's quarter of 10.6%.

So for the total company sales were down approximately 3% and operating profit margin declined slightly to 9.9%.

Moving to cash flow on slide eight our year to date third quarter 2020, operating cash flow was $490 million compared with $239 million in the same period of last year, an increase of $251 million.

The largest driver to this increase with a $200 million of voluntary pension contributions, which did reduce last years operating cash flow.

Mid way down the slide you'll see that our current year to date increase in net working capital of $16 million was $26 million lower than the increase in the third quarter of last year over.

Overall, our working capital management has been very solid this year, despite the challenging business environment.

Moving on to free cash flow, which we define as operating cash flow less net capex and dividends.

Our free cash flow through the first nine months of this year was $252 million, an increase of $284 million over the same period of 2019 X.

Excluding the voluntary pension contributions made last year free cash flow improved by $84 million year over year.

Net capex spending was $108 million year to date, a reduction of $36 million compared to the same period of last year and.

And finally, our cash dividends paid year to date were $129 million compared to $127 million in the prior year period.

On slide nine you see that our balance sheet is extremely strong and reflects the cash and debt positioning we did earlier this year in response to the pandemic.

Our third quarter 2020, consolidated cash balance of $783 million includes $578 million held in short term investments that are very liquid and of high credit quality.

Moving on to our debt balances our consolidated debt totaled $2.14 billion at the end of the third quarter, a decrease of $129 million from the second quarter. These.

These changes in our cash and debt balances during the third quarter reflect debt repayment the can packaging acquisition and our very strong third quarter cash flow generation.

Moving to slide 10, you find our base earnings per share guidance, which is 70 to 80 cents per share for the fourth quarter and $3 and 29 to $3.39 per share for the full year.

This range continues to reflect the ongoing uncertainties regarding the challenging macroeconomic conditions stemming from the COVID-19 pandemic.

You'll also see that we're expecting our full year 2020 operating cash flow to be in a range of $643 million to $663 million.

And free cash flow to be between 290 and $310 million.

Specific to free cash flow. This updated full year outlook is a solid 40 million dollar improvement over our original guidance provided in February of this year.

Turning to slide 11, I'll cover some of the key assumptions in circumstances impacting our fourth quarter base, earning guidance.

Related to demand and first related to co that 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 fourth quarter of last year.

In addition, our outlook assumes a typical seasonal year end slowdown in some of our businesses such as protective solutions and display and packaging how.

Howard will provide more comments about our fourth quarter demand outlook in a few minutes.

Also we will continue our focus on controllable cost reductions in areas such as travel and we expect to continue driving strong productivity were productivity results. Although we don't expect our fourth quarter productivity contribution to be as strong as the third quarter.

Moving to our price cost expectations for the fourth quarter, while we forecast that ODC prices will remain stable in the near term. We do expect our industrial segment to have a negative price cost relationship compared to the fourth quarter of last year. We expect this negative earnings impact.

To be similar to what we experienced in this years third quarter.

Specific to certain non operational earnings assumptions.

We've assumed a third quarter tax rate of 24.8%, which is 160 basis points higher than our 23.2% tax rate last year.

Also our interest expense will be higher than in the fourth quarter of 2019 due to our increased debt balances that I mentioned, a few minutes ago.

These two non operational items combined for an expected three to five cent headwind versus the fourth quarter of last year.

And finally related to our M&A activity, our fourth quarter guidance includes tech can packaging and display and packaging Europe. So while we expect the DMP Europe divestiture to close during the fourth quarter. We don't know the exact timing so have kept the results in our guidance.

This business is expected to contribute about a penny of EPS per month during the fourth quarter.

On slide 12, you see the key assumptions underlying our full year cash flow outlook and I'll highlight a few of these.

We do continue to take advantage of government assistance programs around the world with most of the impact being here in the us for.

For full year 2020, we expect these programs to prop provide us with approximately $35 million of positive cash flow and around $25 million has already been recognized through the third quarter I will.

I will note that most of this cash flow impact will reverse in the next couple of years.

Next we have adjusted our 2020, capex spending outlook to $180 million from the $195 million, we mentioned in July this.

This outlook continues to include $15 million to $20 million of capital for project Horizon, and Howard will discuss the strategic project more in his comments.

We also still plan to defer our voluntary U.S. pension contribution estimated at approximately $150 million and related to the termination process into 2021, but we do have a related 37 million dollar cash tax benefit this year.

And finally as you see on slide 13, our current liquidity position is very strong it was approximately $1.3 billion at the end of the third quarter. This was composed of the $783 million of cash and short term investments that I just mentioned a few minutes ago as well as our 500.

Million dollar revolver availability.

Due to our excellent cash generation and stability of the financial markets, we are using $300 million of our excess cash balances to proactively repay certain bank term loans today as we continue our focus on maintaining an investment grade balance sheet.

So this concludes my review of our third quarter financial results and our outlook for the fourth quarter. So I'll turn it over to Howard.

Thanks, Julie and good morning, everyone.

Let me start by plane really help 12, we all or the way our associates continue to respond to the critical needs of our customers. During these unprecedented times.

During the third quarter, no diverse mix of consumer and industrial related businesses reflected the improved global macroeconomic conditions coming off of the pandemic and this recession in the second quarter as we were able to exceed the high end of our bottom line expectations.

Our consumer packaging segment produced solid year over year improvement of home food demand stabilized from the preceding quarters pantry stocking, while our paper and industrial converted products experienced improvement sequentially from the prior quarter lows, reflecting a partial recovery of our global ended.

Rule for mortgages. In addition, our protective solutions segment achieved record quarterly results as customer demand rebounded and are there.

And our display and packaging segment achieved one of its best quarters more than a decade real.

Really driven by cost reduction activities.

Julie gave you the details for the quarter, so I won't repeat those achievements for the dual to spend the bulk of my comments highlighting actions, we're taking to further improve our businesses.

When I first spoke with you in February I told you we'd be initiated initiating an increased sense of urgency to tackle some of the lingering issues that have been impacting our results.

Our first focus was addressing our corrugated medium machine. Unfortunately as you are.

We're aware sonoco, the small independent producer of medium and it made no sense long term for us to remain in this market as a result, our team engineered which you are familiar with project horizon to convert the medium machine and through other 90000 ton per year uncoated recycle paperboard.

Yeah.

When completed in early 2022, this machine will be one of the largest and most cost effective year over year.

Youre being machines in the world.

While we are well into the design and engineering of this important project. Our team is determined we can drive additional cost savings by modernizing and optimizing our raw material and finished goods home for the entire portfolio mill complex.

As a result, we plan to spend an additional $30 million over the next two years to construct new paper all finishing.

Judging capabilities construct a new 160000 square foot finished goods warehouse to eliminate all slide storage and transportation.

Provided for 150000 square foot storage area to accommodate a 100% of RCC firms for the entire mill complex when can.

When completed in 2022. These projects are expected to drive an incremental.

$5 million in savings so.

Combined with the original $83 million calls for project Horizon, We now expect to invest a total of $113 million over the next two years to drive a combined $29 million in annual savings of course with returns well above the cost of capital.

You probably heard me say them on the strong believer and looking in the mirror rather than looking out the window.

What I mean by this is we believe we can achieve greater success by investing in ourselves. We believe that invests in this extended project for ryzen can create significant long term value.

Next on our list has been to address issues, we faced in our parameter of the store operations on the West Coast.

Based on the experience we have gained over the last few years and the need to adjust to changing market conditions.

We have made the decision to consolidate three of our Thermoforming converting operations into a single focus plant, serving the fresh berry and whole fruit markets across the west coast and into Mexico.

Logistically will be relocating equipment from our facilities in Mexico, and Washington State, primarily into our larger southern California operation.

As Julie mentioned total estimated restructuring costs will be approximately $18 million and as you've heard.

We have recognized most of that in the third quarter. Once completed our expectation run rate savings will be approximately $10 million to $12 million.

We will continue to serve our west coast of Mexico, those customers as well as expand our capabilities to support the growing fresh market.

Redeploying resources, both in California and into our operations in Florida.

For some time, we've discussed the need to optimize our portfolio and we took action in a few weeks ago to progress our increased focus on our core consumer and industrial relates related businesses.

On an agreement to divest our European contract packaging business for $120 million in cash.

Monaco built this business from scratch over the past 20 years to serve global Cpgs with custom packaging and supply chain management services throughout Europe and end of the Middle East Africa and Asia.

This business has grown to nearly $300 million in sales with 2600 employees for the nature of the business for those margins that are lower than most of our consumer and industrial converting operations.

In fact, if you remove the business from our financial results. Our overall EBITDA margin improved by approximately 40 basis points.

I want to thank our dedicated management team and employees and our contract packaging operation in Poland for their contributions to Sunocos wish them, all the best with renewed owners.

We expect the transaction to close during this quarter and we expect to use the proceeds to reduce debt, while providing additional capital to invest in our core businesses.

Also during the third quarter, we completed the acquisition of canned packaging and technology, driven designer and manufacturer of sustainable paper packaging and related manufacturing equipment located in France. This acquisition provides us a new option to our paperboard camp portfolio, including patented.

Due to produce high performance paper packaging that can be made round square rectangular oval oblong or even triangular.

Okay packaging innovation intellectual property for priority and manufacturing capabilities will allow sunoco to leverage our strong material science and engineering capabilities to develop a paper packaging solutions designed to meet the needs of demanding products and supply chains across a variety of mark.

We also using so using cam packagings unique low cost machine technology to expand our consumer products offering into other growth markets.

Now looking ahead for the fourth quarter, we affirmed the global macroeconomic conditions will remain relatively stable and that our customers demand will experience a normal year end slowdown.

On slide 14 of our presentation. We show you how we believe our businesses will respond to current market conditions.

So looking ahead, we expect our consumer packaging segment will continue to benefit for consumers at home eating patterns.

Our industrial related served markets are expected to experience weak year over year demand, but we do expect these markets continue show gradual sequential improvement.

As Joe mentioned, our paper and industrial converted products segment should continue facing a negative price cost headwind during the fourth quarter due to higher year over year recycled fiber calls.

And lower market pricing and we expect those see only see prices to remain relatively stable.

Ill mentioned, we announced this week a $50 on price increase.

For uncoated recycle paperboard in the Us and Canada effective November 16, we are.

We are sick.

Experiencing significantly longer backlogs in our mill system and inventories are lower than normal.

We put off a scheduled outage. This month to continued running to meet demand. In addition, we are seeing inflation of input costs driven by much higher freight and paper, making chemical calls. So this press release is important to keep up with our customers needs.

We were extremely pleased by the fall strong third quarter turnaround in our protective solutions business and we believe improved demand should continue into the fourth quarter, especially in our pharmaceutical and appliance served markets.

While we do not yet know the role we may play in a potential cold chain transportation the future FDIC approve Cove is acting vaccines and therapeutics our end.

Our industry, leading pharma space temperature assured packaging experts stand ready to assist in a much anticipated launch of new lifesaving medicines.

Finally in our display and packaging segment, we expect to experience continued slow demand for retail promotional display activity, but the related impact to the operating profit should be mitigated by continued cost controls.

While we have not fully recovered from the pandemic induced recession, we continue to see gradual improvement I'm extremely pleased with how our teams are executing and delivering strong earnings and cash flow. During this challenging time.

Finally, I'm more confident than ever that sonoco is poised to emerge as a stronger more resilient company physician to general fall solid returns for our shareholders.

Now with that operator would you. Please review the question and answer procedure.

As a reminder to ask a question you'll need to press star one on your telephone to withdraw your question. Please.

Please send volume from policy Kuni roster.

Our first question comes from George Staphos with Bank of America. You May proceed with your question.

Hi, everyone. Good morning, Thank you for all the details I guess.

I guess the first question that I had you.

You mentioned some of the puts and takes within the consumer segment in the <unk>.

In the third quarter.

Powered how did your customers run during the quarter weren't where there any supply chain issues looking up the front end that might have helped or maybe.

Impaired.

Your ability to generate volume in the quarter.

And what's the outlook on that flow through to retail at the present time.

Joined our customer frankly for the quarter around well, we certainly saw some disruptions in the second quarter, but.

Really.

No issues there at all.

That I can think of Roger do you.

Got anything to add to that no. Thanks.

Thanks again.

Again, the shock of Q2.

As a.

Then recovered than folks seem to be managing through it fairly fairly well okay.

Thanks for that Howard.

The next question I had is on PPI CP and then.

In industrial.

Obviously.

Pandemics had a pretty big negative effect on you this year.

Kudos to you and the team on the productivity, there and frankly across the whole organization.

What would you need to see if we had a crystal ball that was perfectly accurate what would we need to see in terms of macro or demand.

Or whatever else you choose to put into this for.

Paper and industrial converted products to be.

Up year on year in EBIT in 21 versus 20.

And for that matter comparable with 19, what would have to happen and related point.

Do you have the price increases that you're out.

That you're out with today.

Any benefit at all I would imagine so but any of that built into your guidance for fourth quarter.

Sure. Thanks, George I guess in on what we need to be half and forestall frankly, we're seeing it on a particularly here in north.

Particularly here in North America as it relates to the paper business.

As I noted we are we are.

I experienced backlogs not only on the euro b side of the business, but on the number 10. So it's certainly not a volume question as it relates to the paper side of the business.

And I'm going to jump ahead.

And talk about the price increase that we didn't build anything really into the.

Quarter based on the timing of the yield but.

But that would be the second component to your first question for the paper side of the business.

So we're feeling pretty good as we finish out the year and go into next year on the two the course on you.

You really got to look inside the quarter to see the sequential improvements certainly quarter over quarter, but were seeing month over month.

So frankly.

We will just need to see that continued pace of ramp up and if it was to continue at the type of rates that we saw from the from the second half of last quarter onwards.

We could be fairly close to the areas that you are talking about within the first first.

First quarter of next year, maybe end of the second but.

There's a lot of caveats, obviously built around that side of it.

But roger unless she's got no I think you covered it Howard I think George sequentially, we saw improvement and our tubing core business. The films type segment Textural every month of the quarter and the same for the paper segment every month of the quarter, we saw improved.

Output, we saw higher unmade orders.

And if you look at operating margins for the industrial segment and improved from July to August and August September and we expect that to continue and October.

Last one I'll turn it over thanks.

Phew.

Think about how covert and the vaccine might affect the business I know, it's too early to call I know there'd be a lot of there'll be very very wide guard rails around this but.

But in the scenarios as you've thought about them calculated and painted them what could a vaccine due for sunoco on an annualized basis within protective.

Thank you guys.

Weve run.

First of all.

Yeah.

We have for some time basically from the beginning has been working very closely with our customers.

To make sure that we have the available capacity.

We are preparing we are prepared for that.

And of course have run various scenarios in terms of.

Of what it could mean to us.

And.

I'm not sure at this point in time, we know enough to.

To actually throw a number out there.

Is there such a wide range. It just really depends on is is the solution a an existing customer that were predominant.

We're 100% supply that's a that's a beautiful thing to think about and the high side, but it could be a solution that is not a customer but our expectations are based on the high level of global demand that no matter, who comes up with a solution that though they will have to engage the across.

On the supply side to ensure.

That the demand requirements are met so how much would you increase your capacity Howard.

Roger voltage ethanol now.

George what I'd tell you is obviously, we've got great experience already delivering high volume vaccines, we do over half of the seasonal flu vaccine in the US every year. This year, we're seeing a spike was about 30%.

So we're going through that season now we're about halfway through that season in the third quarter, we'll finish it up in the next let's call. It 30 to 45 days.

The nice part about the Covance vaccines coming as seasonally there will be starting to really drive through our system, we think and and.

And Mitch and mid first quarter, all through second quarter, so seasonally the vaccines the seasonal set that's the slow season for the seasonal vaccines. So we've got existing capacity ready for these six customers.

And we're meeting with many of them today talking about where can we go ahead and upfront add capacity. So it's hard to give you an exact number except to say, we're working closely with all of them and trying to be as prepared as possible for the necessary capacity once they are ready to roll out the vaccine.

Thank you very much guys.

Thank you. Our next question comes from Mark Wilde with Bank of Montreal, You May proceed with your question.

Great. Thanks, Howard Good morning, Mark.

Well hold I wanted just to start off if we could talk about the decision to just hold the dividend flat I think probably the whole time, you've been working it.

Sonic, though the dividends gone up every year or so.

Still volatile slip a little color on how you and the board.

All about that decision.

Well were I guess.

I guess maybe the.

This weather slowed just a bit of extra for caution as we go into the fourth quarter.

And as if you're talking about the year over year, we did.

Well, what we're not doing now we are planning to take a hard look at it in February and if we take action in February we maintain that annual year over year increase so we just felt like at this time.

Well operate with an abundance of caution and revisit this on our February.

For me.

Okay, and then secondly, I wanted them.

Without getting too granular on the call just.

The potential for any kind of further.

Portfolio moves in the wake of the European display sale.

Yeah. Thanks.

Thank you for pointing out non granular, we're certainly looking at a country.

Continue to challenge our portfolio, we see opportunities and that works in progress.

Okay, and then last one I want to ask is just.

Yes.

If you've given any thought to kind of improving the effectiveness of the company in terms of M&A capital just it seems like over the last 30 years, you've spent a lot of money on various forms of consumer packaging, but if we step back and look at the company today.

Basic consumer packaging is probably still the legacy composite can business, where you not only grown the core but you've added things like this deal to get your state in France or that you did.

You did over in Europe about port five years ago.

Yeah, where we're absolutely I think I've mentioned to to most of these shortly.

Individually, maybe even up a previous call, but we've been going through our strategic planning process and part.

Part of that is talking about just what you're suggesting going back in time looking what has been successful for the company, maybe some things that not so well, let's start with the say that one walk away is outside of the cleaning up of some businesses that you you noted earlier.

We're we feel like we've got a fairly solid foundation.

We don't need to add any more capabilities. If you will from an.

From an acquisitive perspective, and the real take away from the early view of our strategic plan a plan.

Plan reviews I spoke to.

During my on my comments and that's looking in the mirror before you look out the window and one of the things. We're seeing is that we have.

We've got.

As our business units come to us and say feed me more capital I've got more returns to do to deliver your our owners our shareholders and we can actually generate isn't the organic growth and businesses. The otherwise maybe previously we fall not so.

That's where we're going to get into that conversation about investing in yourself, we recognize that's where the highest level returns that correlates to.

Our team coming to us from the paper Division same give us 30 million more dollars and we can improve the flow this complex and generate a really nice returns so far from being long winded. It's to say acquisitions are going to be important to us that they are going to be relative to to them to the the markets and the products that we we produced today.

But you're going to hear from us over time that we're going to spend a lot more and more activity and dollars around improving the foundation of this business.

Okay very good thank you I'll turn it over.

Thank you. Our next question comes from Gabe I see with.

Wells Fargo you May proceed with your question.

Good morning, Thanks for taking the question I, just two quick ones.

As it relates to project horizon.

I just want to confirm Howard that you're not in fact, adding any additional capacity or freeing anything out this is more about.

I guess improving efficiencies and then EW.

You and the industry has done a pretty good job or or.

Heavy lifting in terms of.

Keeping supply demand and balance and more recently, we heard of someone adding a little bit of capacity on the ERP side I'm. Just curious if you're still kind of looking across your platform to to further optimize or if a lot of that work has already been done.

Hi, Scott.

Yes project, the second phase of project Horizon.

Basically to two different projects, we we've got 100 year old mill complex and I'm not going to do.

Im not going to try to explain to you the.

The inefficiencies that we have in terms of how we're handling raw materials on.

And the finished goods that it's all about what you said, it's a step up change in terms of efficiencies not just related to the number 10, but machine, but to all of the complex.

Yes aware of that new capacity is going in the market.

Well, we are going to continue to challenge.

Our output and our footprint on the RV side.

But it's more related to what we've done over the last call. It four plus years, where we have many of you will remember on Aaos project, where we where we've increased capacity in our best machines.

And took out capacity, while keeping the market relatively stable course, the same conversation around project horizon the capacity coming into the market look we're that's the whole point, we're positioning ourselves with low cost producer.

We're going to be the strongest player in this market and if others want to come into the market. So be it but we're very confident that we're going to be able to do.

The highly highly competitive going forward and yes, we are going to continue to challenge.

How do we become that much more efficient in everything we do.

Thank you for that and Julie maybe on the recent divestiture announcement mounted ill appreciate that there is some timing associated with it but I'm, assuming you kind of redirected capital I think you said to kind of pay down debt.

Can you give us a a directional ballpark I think you said a penny per month, but just what the net impact might look like for next year.

On a bottom line basis or something.

Yes sure good yes that the full year kind of estimated EPS impact of visa Europe is around 15 cents. So that's what we would expect.

Full year 20 to full year 21, roughly.

Okay. Thank you.

Thank you. Our next question comes from Steve Chercover with D.A. Davidson you May proceed with your question.

Thanks, a couple of mine have already been answered but.

Theres a new.

The company is making a bit of a splash in biodegradable plastic packaging and I'm just wondering.

How hotly you're pursuing.

Biodegradable plastics for some of your perimeter of the store applications.

Well no.

Not necessarily there's so much news about so many emerging technologies here.

Not completely aware of the company referencing but from our perspective.

In our real focus.

From a stores is PC. It's a you know they are for that.

They are but content going into to the package and what we're spending a lot of our time and effort is ensuring that the first and foremost that folks understand that that.

I had a very tray is recyclable as a water bottle in fact, its components and then built off of recycled water bottles.

And so we are spending more time in terms of.

Of all.

Educating.

And participating with the industry to ensure that that folks recognize that and I'll add.

Now did you bring the topic from really pleased we have announced a really last week that we now have for the first time ever staff Vice President head of global sustainability reporting into me to really help or.

Organize all our efforts.

Around all our formats within.

Within our company.

Just to put a plug in our name to lows of the through and done with this company for 15 years and the superstar I'm really looking forward to her on her car.

Her contributions and further position ourselves as a sustainable company.

Well not to be argumentative, but I think the the knock on plastic is that we know its recycle board, we know that the overwhelming majority isn't being recycled and that's why people are excited about the biodegradable element so yeah.

Yes fair enough and.

It's.

That's what the industry is working on right now is to get that message out and make sure that the collection programs are in place to increase the amount of material that is.

He is coming back into the system versus into the landfill, but don't disagree that there is a wholly owned grill them in terms of a fully biodegradable.

So that's something to be below that.

Okay, and one quick clarification from Julie please so if the European packaging.

Contract packaging is a penny per month than how was the impact in 2021 15 cents I thought it would be less than 12 cents, assuming you pay down some debt.

Yes, well and you have it's really focused more on the kind of.

Operating profit after tax impact of that business. There's some seasonality I think as you know and the displays business and so the fourth quarter is generally is slightly lower than other particular quarters during the year for that business.

Okay. Thanks, guys.

Thank you. Our next question comes from Salvatore Seattle with Seaport Global you May proceed with your question.

Yes, hi, thanks for taking my questions.

So first it will be from the.

On your capital structure and capital allocation.

Obviously, you raised some debt does many other steeped in Q2 due to call with them start to think about you seem to be paying these quite slow lead even though on a net debt basis I see quarter to quarter you keep on Delevering.

So what is the rationale for maintaining most of these that even after the 300 million you just mentioned on your balance sheet at this point.

You see for example, any near term M&A opportunities that could present themselves. So you shouldn't be ready to our trial.

Hey, Sal its Julie.

Yeah, I mean, I guess, yes, we did repay in the second quarter I'm sorry early in the third quarter July $150 million term loan and I mentioned in my comments, we're actually we're paying another 300 million of bank term loans today.

I'm, just drawing down excess cash and I wouldn't be surprised.

You know depending on I guess based on what I know today, if we are not.

If we were repaid all of our short term pre payable debt by the end of this year. So.

We are yeah, we wanted to see how the third quarter, which came through we're extremely pleased with the results of the business and especially the cash flow generation, which again is driving this 300 million today and again I expect more debt repayment in the fourth quarter, you know at that point I mean again, we've we've repaid our.

Short term debt and we've mentioned for next year, we do have spend for project horizon, we have our pension.

Termination related contribution and so you know in addition to potential acquisitions. We do have some you know kind of call. It invest in ourselves higher spend next year that we're also planning for so all of that comes into play when we look at our cash and debt.

Okay perfect. Thank you very much and my.

My second question is a little bit on the $50 price increase if you can remind us all for.

How you came out social the tube and core price increase and the east kind of my best within your one medium Tom North America system.

How many thompson of open market your be sales and convert the tube and core sales have been affected by what you announced and what other pricing mechanisms you have in place.

Yes, Alice Roger.

Okay and in round numbers in both our paper and our chief in core business, but.

About 50% or so of our pricing mechanisms moves up move also receive 10 bidding chip index.

Probably about 25% or so move off of Cc and another 25% or open market. So as you look at price increases for both paper and tubes and core what you need to think about what can we do in the open market. So that's about 25% of the volume.

And then when does receive moves the Tam bending chip index, which is totally up to to that organization as we go forward.

So that's why we built in a minor amount of price.

Impact into the fourth quarter, but more the impact will come in the starting in the first quarter of next year.

Okay.

Thank you. Our next question comes from Adam Josephson with Keybanc. You May proceed with your question.

Thanks, Good morning, everyone.

Morning.

Howard It seems like the confection market as a native some helps I hope you and everyone else. There is planning to do your part this Halloween season.

My husband, Yeah, Thanks, again, I'll get that message out [laughter] [noise].

One more on the portfolio Howard So I know you're selling the European display business, but just more broadly.

Tell me if you disagree, but I think sunocos viewed as somewhat of a hybrid and that you have many defensive characteristics the balance sheet the dividend on a consumer business, but you have some cyclical aspects as well, notably the.

Paper and industrial business. So you don't fit in a neat bucket either by by Sunoco, an armageddon scenario or by Sunoco in some reflationary no economic recovery scenario and I'm just wondering if how if at all you think that affects the multiple at which you trade.

Versus your competitor is if you think there are misperceptions in terms of.

Where you fit in the portfolio et cetera, and just if you're satisfied with the stock's performance given what your earnings performance has been in recent quarters and years for that matter.

If I saw them a of course no.

Not satisfied with our stock performance and.

To your 0.1st off you know when we talk about the clean up the portfolio. There are some outliers that that I think most of you as even recognize that we're working on.

But if you talk on the broad perspective, it has been a long standing.

A strategy of the company that we participate.

On the consumer side of the market and and on the industrial side of the market and what that has done and then you can go back in time.

Period after period in terms of situations just like what we went through and are going through right now where you see a good balance in terms of of strength.

On the consumer side.

That is able to overcome weaknesses. So in effect, it's kind of built into our entire thesis is that we're a company you can invest in and we can pretty much guarantee you consistency.

Through out the good times and the bad times got a balance sheet that reflects that and as mark pointed out.

A record and paying dividends.

We feel like these are all things that are extremely important to to the the owners of the company our investors and.

And so we're absolutely.

Going to continue to maintain.

Maintaining that balance, but I do want to the point out again that on the industrial side of the business. If you go back to the last recession.

Well, our EBIT margins were a vastly different than they are today and if you think about the amount of self help that we put in terms of improving operations. We feel like we've created a new floors were walking around the 7% type range and that we should get that business back in normal times to that double digit low double digits.

But tied space.

Strategies, the strategy and we're going to we're going to clean it up but we're going to continue to invest so that we can can improve the returns on these foundational businesses.

I appreciate that Howard and Roger follow just one for you back to that the paper backlog in North America et cetera. So it I think what you said was that there was gradual improvement demand improvement throughout the quarter.

But you found yourself in a position in which you have very low inventories such that I believe you said, you're actually having to postpone maintenance outage. So I just I guess I don't quite understand if it was gradual improvement why you wouldn't take on yourselves short.

Inventory and so can you just talk about again, the pace at which demand got better was there a sharp recovery say in September or was it really in fact gradual what you think is driving this improvement and particularly just given the resurgence of coal the cases throughout the country are you at all surprised by the demand recovery.

We're saying thank you.

Yeah, Adam Thanks.

Yes.

I don't know if I say gradual certainly the gradual in the treatment course of our business and again I think that even core volumes for the fourth quarter look a lot like the third quarter. What we've seen is pretty pretty fast improvement substantial improvement and unnamed orders starting really in the first in July.

And expanded each month throughout the quarter resi reported the unmade orders for September they were the highest since January October you're going to see a higher number I'm sure, which would be hot the highest since sometime last year were turning away orders a lot of it is you're seeing a pickup in economic activity. So our specialty category.

Sure for clear Aligners external tube and core volumes very strong so were we surprised a little surprised about how fast it came on.

But I think.

I think the fact is it looks like it's going to stick and it seems that expand every day and every week. So that's that's kind of where we are today. So yes. The the pickup as quick as it happened surprise surprise us, but as far as we're concerned because like it looks like it will last through a through the cycle again.

Thanks Roger.

Thank you our next question comes from.

John Panjabi with Baird. You May proceed with your question.

Hey, guys. Thanks for fitting me in I guess, just as a follow up to to Adam's question on on a paper industrial to you.

So your volumes were down 2% to 10% in Twoq, just kind of rounding a little bit.

And 8% in Threeq you how should we expect that progression you know over the next I don't know three quarters and the reason I ask is because you know obviously twoq. It was impacted by the shutdown et cetera and lot of other companies that have industrial exposure had no comment.

Commented on a more significant recovery sequentially and what you showed.

Yes.

Again sequentially, if I mean, if you even look at some of our industrial businesses I mean think about our auto consumer businesses and a sharp turnaround there. So in some of what you might classify as other markets outside of industrial we're seeing that but yeah. We're seeing six going sequentially for four paper, we're only giving guidance of four.

For the fourth quarter. So we're seeing that strength really pickup tubing core on again, I think you'll see flat in the fourth quarter.

So as you know at this point I think as far as we can see.

Those paper volumes remain extremely strong you guys.

You guys.

Yeah, I mean, I can get pretty direct and just say as we modeled out Q4 has gone from that.

Got some that you noted at the 10, 8% last were I'll just tell you we're modeling about a 5% for Q4. So that's inclusive of exactly what Roger talked about with improvement in paper and.

Onto the core as well.

Okay terrific and then on consumer can you just remind us how big industrial plastics is as a percentage of that segment. How much was it down in Threeq you and then the same for Flexibles as well how much how much was flexibles down in the quarter and I'm sorry, if I missed that you already said it.

Yeah. This is Julie the industrial.

Business is Wow [laughter] of the it.

$130 million in Adams sales, yeah for the quarter, if it impacts us on a volume basis around $7 million. So again, it was fairly substantial impact to that the plastic space and as Julie mentioned, if you look at our overall consumer volumes actually added about 4% in terms of our volumes.

Well again that that kind of.

That kind of shows the impact of that one particular component again kind of offset really strong performance and in some of our pure consumer related plastic businesses.

Maybe switching to flexible we were a little bit lower you know for the year and again as Roger mentioned that was print principally driven by confectionary being down what was the other the other businesses that fairly well, but again when you're having people not buying you know those sweet.

That they normally like to get when they're in and out of convenience stores are traveling.

As well as the you know the the slower build that we see for Halloween This year.

I've had the negative impact.

Okay, and then just one final one maybe for Julie is can you can you quantify the temporary savings that you experienced in Threeq you that may not repeat going forward what was the dollar amount of that.

You know our travel just as an example was down about $6 million a year over year I you know I think what's interesting is.

You know there are costs that are down specific to the pandemic and you know.

And our group medical as another kind of million or $2. So you know then you've got the reality that you know unfortunately incentives are down as well and so there are various cost that are lower so I'd call. It in that.

You know kind of maybe 10 $10 million or so.

And again.

Okay them off stepped onto them as as we've talked about there are increased cost because we're having to make sure that our employees are in a safe environment and that so we're having to increase additional costs as well, which we don't remove from our discussion.

Okay. That's a good point thanks, so much.

Thank you. Our next question comes from Josh Spector with you. Yes, you May proceed with your question.

Yeah, Hey, everyone. Thanks for squeezing me in here, maybe a build from that prior question is just if you look at the productivity that you guys have done year to date and your comments about your expectations around fourth quarter, you're probably looking at maybe 100 million 110 million or selling productivity. This year differently above what you guys have done in the prior year.

As I guess, if you were to bridge into next year and assume a modest volume recovery.

How much productivity should we expect it to next year or how much gets back from this year, what do you expect.

Yes, pretty hard say for donlin handed over Jones specific but I. Appreciate you, bringing that up with productivity has been really critical to our performance this year and it's across the board and I just have to.

I just have to give recognition to them, but those are.

How much energy we've put in over the last three four or five years, it relates procurement organizations or Sps operation.

Operational indirect investments.

Oh, no it's amazing really as we watch these volume stores.

Slide back in that we're starting to see will really are able to do a lot more with less.

But joel it as it relates to next year.

Yes, sure I'm just looking at a 2019, we delivered close to $50 million of productivity and you're right. This year, <unk>, which I think will easily be above $100 million. So yeah. I think for next year in between those two when you look across you know supply chain fixed costs.

Efficiencies in the factories again, we yeah, we've been really doing a lot of restructuring as you've probably noticed this year, taking out unnecessary costs that we'll be able to leverage more as as long as the businesses as volumes increase so I think it's reasonable to assume next year lands basically between 2019 and 2020.

Okay. So you would expect incrementally productivity to be additive to growth next year, and there's not really a headwind we should consider for some of the temporary items is that fair yeah, absolutely absolutely I mean, we when you look back at our history I mean, we.

Generate productivity every year across the different kind of.

Levers that we focus on and so absolutely we would expect a continued contributions from productivity next year.

Okay. Thanks, that's clear and.

One other one around the camp packaging acquisition I thought it was interesting you talked about that expanding into maybe other higher growth markets outside of consumer markets. I was just curious what markets would that acquisition allow you to target and why is it now that you can target those markets without acquisitions versus what you had price.

<unk>.

Yeah, Let me let me this is Howard to clarify when a definition of markets and and ER and my comments were really around geographic.

One of the things that this brings with US is machine unique machine Kate Capex building capabilities that are small footprint.

Local relatively lower volume.

It's a different model than non smokers has traditionally had so it's now give affording us the opportunity to go in the two to expand we're already in Brazil, but to go into Brazil go into China deeper Southeast Asia.

And bring a lower cost, but a differentiated product to to those types of markets and we're seeing a lot of pent up demand for just that so when I said markets are really in a geography.

Okay. Thank you.

Thank you. Our next question comes from Brian Maguire with Goldman Sachs. You May proceed with your question.

Yes, Thanks, I know era forgotten late so I'll I'll try and keep it quick just wondered on.

General inflation, what you trade trends, you're seeing I think there's been some concern around freight moving higher and then with regards to resin any impact in Threeq you from resin lag than any expectations or we may see in Fourq you there.

Yeah, Roger Roger I think as we look at the Q4 on resin were expecting about a 3% or so increase.

As you know just a reminder, we moved a typically quarterly so small headwind in the third quarter and we'll see how that plays out. It next year there are projections for up to 5% to 7% next year, but we'll have to see that the bigger area. We're watching is spreads we are seeing our freight cost increase month over month.

Oh, not so much fourth quarter, but as we look at next year as we renegotiate contracts. That's an area. We've really got a strong island and an area that we're seeing across the board and I'm sure. Other companies are seeing that rate increase coming for 2021.

Okay, and just lastly, real quick.

I think you mentioned the number 10 machine backlog has improved a lot I'm guessing you probably swung everything back over to since quarter end.

Corrugated medium from recycled pulp into can just kind of confirm that given how tight that market isn't just any thoughts on maybe and just.

Adjusting the timing of the conversion of that machine to kind of take advantage of that.

More improved economics and outlook for for corrugated in the near term.

Yeah, Brian This is Roger just a very small amount of pull up on that machine for the fourth quarter. Some commitments Weve made otherwise we would have stripped it out we stripped all the pulp whatever you are these system and really no no changes to timing on project horizon. That's that timing is determined by equipment calls contractor costs. So we really can't be.

All that up but.

At this point very little pulp sales at all coming out in the fourth quarter, Yeah, what Enron and horizon or the number 10 conversion and I guess the first.

HM.

The first phase is putting in the new pulping process, which we expect a that in and feeding the whole network and as a reminder, that as a modern day.

Modern day animals can handle.

Can handle a mixed extremely well that's going to go win probably late next summer and then we're going to the plan today is to take the machine down itself a in December.

I'll have it up and running in early January of 2022, you will see a ramp up period during the first quarter of 2022.

Okay. Thanks, very clear all right appreciate it take care.

Thanks.

Thank you and as a reminder to ask your question you'll need to press Star one on your telephone. Our next question comes from George Staphos with Bank of America. You May proceed with your question.

Hi, guys. Thanks for taking the follow on real quickly to conclude for me you know we talked about portfolio. We talked about productivity you talk powered about looking in the mirror as opposed to looking out the window when we look out to 21 and.

And then you know choose whatever year 22, 23 do you have a return on capital goal an increase in return on capital 200 basis points 300 basis points whatever it might be.

The context in the past you said margin targets out a strategy what about trying to grow return on capital given you know the history of the company where returns have been generally trending over the last 10 years. Thanks, guys. Good luck in the quarter.

Thanks, George I I'd say, what do we have a specific goals set at this point no you know we're evaluating each opportunity each project project on its own merits so to be perfectly fair. We're building the process right now and well, let you know you guys know exactly what will.

We'll be looking at on an annualized basis.

As we start rack and stack in all of the opportunities. We've we've got in front of us, but we certainly expect to be flat to accretive.

Okay Thats helpful. Thank you Howard.

Thank you. Our next question comes from Salvatore Tiano with Seaport Global you May proceed with your question.

Yeah, sorry, Thank you very much for taking my follow up with you being seen by some of the producers of food comes both in you are but ultimately the U.S. They become I think that their customers are commissioning higher plantings because they're trying to have more food comes to their portfolio. This approach essentially cannibalize some of.

Your treat them vegetable sales mix summer.

[noise], Yeah, it's really hard to say at this point in time, you know wouldn't expect that frankly, if you do you know the categories that were participating in particularly Cam strawberries I don't know if that's going to really be a big.

The a big Big winner in the market as opposed to fresh and that's what that's the categories that we're in we're talking about salads berries.

I can certainly see if you're talking about can corns and other products that statement would hold true, but I really don't think its going to play any bearing on the on the size of the market that we participate in.

Certainly yeah, I mean shifting from strawberries or whatever other plantings that'll benefit you two other fruits and vegetables being planted that traditionally would go to food cans that was the right.

Right I guess I am concerned yeah, yeah, sorry, we really thought we don't anticipate any many issues there.

Okay. Thank you very much thanks.

Thank you. Our next question comes from Adam Josephson with Keybanc. You May proceed with your question.

Thanks, everyone for taking my follow up that for Howard or Roger just on owes Cc I don't think anyone to asked about it I think you said that you don't expect prices to go anywhere any.

Anytime soon just appreciating there already below average what do you think happens now now that.

The Chinas Spanish about to go into effect.

How do you expect China to supply itself with fiber what does that mean for their imports of containerboard either from the U.S. or Europe or elsewhere, and how do you expect that situation to play out over the next several months and years for that matter and what what impact if any do you think it could have for you guys.

You know Adam.

We've talked about in the short term you know, yes, China, China, though the market, they're not going to have the permits next year.

All the puts and takes I feel we feel like Oh, this is going to stay relatively flat or.

You know for the foreseeable future.

As it relates how it plays out in the long term you are certainly oh.

Or where in a saying all the investments the Chinese companies have made not only here in North America, but globally and so I think what we're going to start seeing more and more is is ER diversions of a of a FCC European Assisi into.

Pulping type operations to keep these mills filled and we'll have to play that out in terms of how that tightens the market up and the and the cost implications of that.

On the other side of it is is Ah. The noted several times during the call that we and others have participated in producing Paul when it made sense to the keeper mills running that's it's going to be interesting to see that don't have the answer is that as we've become in the market becomes tighter you know.

What is the price implications as China continues to work of that pole as China continues to work out a they're a they're long term supply plans.

Really don't have a straight answer for you is frankly never had when it relates to see and I think a one dollar bet with a with [laughter]. If you would ask about RCC. So [laughter]. Thanks for Brian. Thanks, a lot [laughter]. Thanks, a lot Howard best of luck in the quarter.

Thank you and I'm not showing any further questions at this time I would like to turn the call back over to Roger Schrum for any further remarks.

Well again, thank you all for staying with us and we.

And we appreciate your questions.

We certainly are awful like your interest in the company. So as always if you have any further questions. Please don't hesitate to give us a call. Thank you.

Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.

[music].

Ladies and gentlemen, thank you for standing by and welcome to the third quarter 2020, Sonoco earnings Conference call. At this time all participants are in listen only mode. After the speaker presentations will be a question answer session.

Good question during the session you will need to press star one on your telephone. Please be advised that todays conference is being recorded you require any further assistance. Please press star Zero I would now like turn the conference over to your Speaker today, Roger Schrum, Vice President of Investor Relations. Please go ahead Sir.

Thank you, Josh and good morning, everyone and welcome to Sonocos third quarter Investor Conference call joining.

Joining me today are is Howard Coker, President and Chief Executive Officer, Roger for Executive Vice President and Julie Albrecht, Vice President and Chief Financial Officer.

Before we go further let me remind you that today's call and presentation contains 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.

Now with that introduction I'll turn it over to Julie.

Thanks, Roger I'll begin on slide three where you see that earlier. This morning, we reported third quarter earnings per share on a GAAP basis of 82 cents.

And base earnings of 86 cents per share, which is above our guidance range of 73 to 83 cents per share.

Due to the negative impact from Carbonite team. This 86 cents a base bps is well below the 97 cents that we delivered in the third quarter of last year.

At a high level, our third quarter 2020 earnings reflected mixed demand for our diversified products and negative price cost in our industrial segment.

Partially offsetting these headwinds with very strong productivity driven across our business.

Our third quarter base earnings were above our expectations, primarily due to better operating performance in certain businesses.

Most notable or integrated industrial North America, as well as our protective solutions and display and packaging segment.

I'll highlight that certain important aspects of our business performed in line with our expectations, including our consumer result, and the price cost impact in industrial.

In terms of the four cents difference between base and GAAP EPS 80.

18 cents is due to restructuring activities and six cents relates to non operating pension costs.

These non base expenses were partially offset by a non base income tax gain of 20 cents driven by a deferred tax write down related to the pending sale of our DMP Europe business.

I would like to highlight that up to $24 million a pre tax restructuring expenses almost 20 million is non cash and include nearly $15 million of noncash charges related to actions, we're taking in our perimeter of store business how.

Howard we'll be talking more about this during his comments today.

I'll add that as you can see we did not exclude any COVID-19 related panel items from our base earnings.

During the third quarter, we incurred approximately three and a half million dollars of costs directly related to current a virus, including purchasing protective gear clean.

Cleaning our facilities.

And paying employees, who are in core and team for work related reason.

Now looking briefly at our base income statement on slide four and starting with the top line you see that sales were $1.312 billion down $42 million from the prior year period.

Ill review more details about our key sales drivers on that bridge in just a moment.

Gross profit was $257 million 8 million below the prior year period. This.

Despite the reduction in sales we maintained our gross profit as a percent of sales at 19.6%.

As DNA expenses net of other income were $126 million, an unchanged year over year.

Lower expenses tied to Cove, Ed such as travel and grit medical were offset by health and safety cost incurred for the pandemic.

Strategic spend on technology applications as well as the addition of acquisition.

Also we had almost $5 million of unique other income items in last year's third quarter that did not repeat this year.

Oh, that's resulting in operating profit of $131 million, which is $8 billion below last year I'll just.

Ill discuss the key drivers on the operating profit bridge in a few minutes.

Income tax expense of $27 million was $1 million lower than last year, driven by a combination of lower pre tax profit.

Upset with a higher effective tax rate are.

Our third quarter 2020 effective tax rate of 24.1% was 180 basis points higher than the prior year period quarter prior year quarter, due primarily to various discrete items.

So moving down to net income our third quarter 2020 base earnings were $87 million or 86 cents per share.

And looking at the sales bridge on slide five you see volume mix was lower by $54 million or 4% for the company as a whole.

This improvement reflects quarterly sequential demand increases in each of the protective solutions display and packaging and industrial segments.

Consumer packaging segment quarterly volume was down $1 million from the prior year was 30 basis points.

We did have nice growth in global rigid paper containers, which saw volumes increase by 2.3%, including 3% higher demand in North America.

Within plastics, the prepared and specialty foods market had very strong volume growth at almost 16%, but this was offset by significant weakness in the industrial end use market.

Our flexibles business saw a continued negative pandemic impact on demand in the construction market due to reduced the traffic and convenient stores and other venues as well as lower seasonal Halloween volume.

I will highlight that when we remove the weak volume in our industrial plastics business, our third quarter consumer segment Ball's volumes actually grew by 1%.

Display and packaging volume was below last year down $9 million or 6% due to lower demand in domestic displays paper.

Paper amenities and retail security packaging.

Volume in paper and industrial converted products was down 40 will $41 million or just over 8% due to weak volumes and our global paper mill network as well as across our two cores and cone operations.

I'll note that this volume decline however was a solid sequential improvement over the 10.4% decline that we had in the second quarter.

And finally sales volume in protective solutions was down nearly $3 million or almost 2% driven mostly by virus related demand weakness.

Moving to acquisitions, you see an impact on the top line of $30 million from the tech and canned packaging acquisitions and consumer and the Correnso acquisition in our industrial segment.

Ill, let that Correnso is included in the acquisitions category for just over one month of the third quarter. Since it was acquired in early August of last year.

Operations in the consumer segment.

Moving to the operating profit bridge on slide six and starting with volume mix.

Our lower sales volume combined with the impact of mix had a negative impact on operating profit up $17 million driven primarily by the industrial segment.

Shifting over to price cost, we had $27 million of unfavorable price cost with about half of this due to non material inflation.

Most of the remaining unfavorable change occurred in our industrial segment, driven by a combination of higher ODC costs and lower market pricing.

As usual, there's a slide in the appendix. This shows recent ODC price trends and you will see that southeast ODC prices averaged $70 per ton in the third quarter, which although down from the second quarter of this year was double the $35 per ton average in last year's third.

Third quarter.

Moving to acquisitions, you see that our Correnso tech and canned packaging acquisitions contributed $2 million to our third quarter earnings.

Next is the impact of productivity, where do you see that our total productivity was a strong $40 million year over year, we had.

We had solid execution across our productivity levers in materials show.

Shop floor execution as well as fixed costs, all due to a combination of deliberate cost controls and restructuring benefit.

And finally, the change in the other was unfavorable by $6 million with various moving pieces.

Lower prices tied to resin the exit of service small operations and negative foreign exchange translation.