Q4 2020 Greif Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to the Grace Q for 2020 earnings Conference call. At this time, all participants are in a listen only mode.
And speakers presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone keypad. If you require any further assistance. Please press star zero. Thank you I would now like to hand, the conference over to your speakers today and that I can think please go ahead.
And good morning, everyone welcome and Rice fourth quarter fiscal 2020 earnings conference call.
I'm joined today by Pete Watson, Greifs, President and Chief Executive Officer, and Larry Hilsheimer Gries, Chief Financial Officer, Pete Larry We'll take questions at the end of todays call in accordance with regulation for disclosure. We encourage you to answer question excuse me. We encourage you to ask questions regarding issues and consider material because we are prohibited from discussing significant non public information with you on.
And individual basis. Please.
Limit yourself to one question and one follow up question before returning to the queue.
Please turn to slide two.
As a reminder, during today's call we will make forward looking statements involve and plans expectations and beliefs related to future events and.
Actual results could differ materially from those discussed Additionally, we'll be referencing certain non-GAAP financial measures and reconciliation to the most directly comparable GAAP metrics can be found in the appendix of today's presentation and now I turn the presentation over to Pete on slide three credit. Thank you, Matt and good morning, everyone. We really appreciate you joining us.
On today's call.
First I want to start by recognizing and thanking the global growth team for their unwavering commitment. This past year first to each other and secondly to our customers.
Fiscal 2020 was unlike any year, we've ever experienced and throughout all our colleagues dedication to our business and our customers was extraordinary and I am and.
Current credit really proud of their efforts during the cold and 19 pandemic.
And we made notable progress across all of our strategic priorities and fiscal 2020, starting with customer service growth.
Both our customer satisfaction index scores and our most recent net promoter score survey and per versus the prior year. We achieved all time best scores, we remain laser focused on controlling those areas within our control and that safety customer service excellence and disciplined operational exit.
Houston and this focus builds additional net momentum for our team as we head into fiscal 2021.
There are stars integration remains well on track through fiscal year end 2020, we have captured roughly $63 million and identified synergies since announcing the acquisition and we still expect to achieve synergies of at least $70 million over 36 months from deal close.
The business continues to demonstrate strong strategic fit and robust cash generation in line with the acquisition and strategic rationale.
We're also has embedded growth strong sustainability program deeper into our business during the past year in the spring we published a companywide purpose statement that describes the various essential nature of our business. We're also very pleased to be recognized again for sustainability leadership and we are.
Awarded our third consecutive gold rating for me Ecovadis, placing growth for among the top 3% of all suppliers evaluated by this from.
And finally, we made great progress toward our financial priorities, we delivered exceptional adjusted free cash flow of roughly $346 million, we reduced net debt by approximately $294 million and total debt and we returned more than $104 million and dividends to our share.
Holders.
I'd like to now review, our quarterly results by business segment, and if you could please turn to slide for.
Original industrial packaging and services business, which is led by only Rosgaard delivered solid fourth quarter results capping off a year and what's the business debt demonstrated resilience and a very challenging operating environment globally.
Global steel drum volumes declined by roughly 1% versus the prior year quarter on one less production day.
On a per day basis global steel drum volumes rose by 1% and.
And global IVC production rose by roughly 3% and the quarter and by 6% on a per day basis versus the prior year we.
We continue to see pockets of strength and weaknesses and various parts of the world that seemed to correlate to COVID-19 trends does.
Demand and our fourth quarter was strongest in China, where steel drum volumes rose by roughly 21 per cent, thanks to improving economic activity, while demand and central and Western Europe steel drum volumes rose by 5%, partly due to new business wins tumor.
The Americas region experienced the weakest conditions with U.S. steel drum volumes down almost 12% versus the prior year. This was mainly a result of weak demand for bulk and specialty chemicals and lubricants that are specifically referencing that region.
Our rips fourth quarter sales fell roughly $39 million for us the prior year quarter on a currency neutral basis due to lower volumes and lower average sales prices from contractual pricing adjustment mechanisms related to raw material price declines rips fourth quarter, adjusted EBITDA fell by roughly $4 million.
First the prior year quarter, primarily due to higher SG day expense and please keep in mind that in Q4 2019 results included a one time $7 million Brazilian tax recovery that was recorded as income and SDMA, which distorts the year over year comparison looks.
Looking ahead to fiscal 2021, and rips is really well positioned to benefit as the industrial economy improves and as koby to recovery takes place and as planned plastic capital expansions ramp up.
We're seeing rising steel prices and the U.S. and AMEA due to supply and demand and balance. This has been caused by faster auto production recovery than anticipated and supply stock repo replenishment, which is currently outpacing industry steel supply levels as blast furnaces restart.
While we expect no issues regarding sourcing of steel we are watching this dynamic closely and we'll plan accordingly.
And ask the please turn to slide five.
On a global basis ripped steel drum demand trended positively through the fourth quarter and broadly speaking, we saw positive demand for bulk and commodity chemicals and improving demand for lubricants specialty chemicals, and industrial cases manufacturing levels improved and auto production recovered.
Food demand was lower year over year due to a weaker conical season, and and southern Europe related unfavorable harvesting conditions and migrant worker availability in Europe, but.
I would ask that you please turn to slide six.
The flexible products and services segments fourth quarter sales were roughly flat to the prior year quarter, and a currency neutral basis due to strategic pricing decisions and partially offset by lower volumes, our fourth quarter adjusted EBITDA rose by three and $3 million versus the prior year due to higher gross price.
And that we did have significant devaluation and the Turkish lira, which provided roughly a $4.7 million tailwind the flexibles results for the prior year quarter.
I'd ask that you turn to please turn to slide seven paper.
Paper packaging fourth quarter sales fell by roughly $33 million first the prior year quarter due to lower published containerboard and box board prices and the divestiture of our consumer packaging group, which was partially offset by higher mill and corrugated sheet volumes.
Paper Packagings fourth quarter, adjusted EBITDA fell by roughly $31 million versus the prior year largely a result for the significant $33 million price cost squeeze first the prior year.
We are currently executing on price increases for containerboard uncoated and uncoated recycle boxboard grades.
Please turn to slide eight.
So volumes and core choice, which is our corrugated sheet feeder system were up nearly 30 per cent per day versus the prior year quarter from improved durables demand auto supply chain recovery and ecommerce growth looking ahead. The business sees continued strong demand and all of our special product portfolio has record.
Backlogs, we assume most cc will average $69 per ton and fiscal quarter one.
And our tube and core business fourth quarter volumes were roughly flat to the prior year quarter and a per day basis, but we did show some sequential improvement over the last three months, we continue to see strong demand and film and construction end markets and weaknesses and textiles I.
I'd like to now transition and the presentation over to our Chief Financial Officer, Larry Hilsheimer and slide nine. Thank you Pete and good morning, everyone I'll start by echoing Pete's comments and offer my thanks to our global growth colleagues for their unwavering commitment. This past year. The team delivered strong results and exception.
Total free cash flow despite operating in a choppy industrial economy with considerable COVID-19 uncertainty fourth.
Fourth quarter net sales, excluding the impact of foreign exchange fell by roughly 6% versus the prior year due to demand softness and reps the divestiture of the consumer packaging group and lower year over year published containerboard and Boxboard pricing, partially offset by improved volumes and our pay per segment.
Fourth quarter, adjusted EBITDA fell roughly 17% versus the prior year quarter, primarily due to lower sales and a significant price cost squeeze in our paper business.
As for DNA expense was roughly $9 million higher but the prior year period included.
The one time tax recovery of $7 million that Pete mentioned cash.
Quarter for asking a expense exceeded the prior year's figure after backing out the tax recovery, partially due to a discretionary short term incentive awarded by the board late this year that otherwise would have been ratably accrued for throughout the year.
The controllables and this years quarter, including travel professional fees salaries and benefits were all lower versus the prior year.
Finally, FX was roughly 3 million dollar tailwind on a consolidated quarterly results and there were no material opportunistic sourcing benefits captured in the fourth quarter.
Our fourth quarter adjusted class a earnings per share fell to 78 cents per share from $1.24 per share in the prior year quarter.
For fiscal year 2020, we delivered adjusted class a earnings per share of $3.22 slightly above the guidance range provided at quarter three.
Our fiscal 2020, non-GAAP tax rate was 27%.
Weve emphasized our focus on generating free cash flow and paying down debt in previous calls and Thats exactly what we did this quarter fourth quarter adjusted free cash flow was outstanding and rose by roughly $24 million versus the prior year.
Fiscal 2020, adjusted free cash flow rose by roughly $78 million versus the prior fiscal year.
And benefited from strong working capital performance in the fourth quarter throughout the year and lower capital expenditures in line with the range, we communicated at quarter three.
Please turn to slide 10.
Given the continued covert general uncertainty, we are providing quarterly guidance, we will revert back to fiscal year guidance when it's practical to do so.
In fiscal quarter 121, we expect to generate between 48, and 58 cents and adjusted class eight earnings per share.
On a sequential basis, we anticipate the paper business sales will be lower and manufacturing expense will be higher due to planned mill maintenance downtime.
We anticipate sales and profits in our Rigids business will be lower due to seasonality consistent with prior years.
Compared to fiscal 2000 and quarter 120, our paper business will experience a significant price cost squeeze.
Our rips business faced cobot Ria late and uncertainty this year that was not present, Inc. Q1 of 2019.
Finally, we expect first quarter working capital and free cash flow to be cash uses in line with our normal business seasonality.
This year's loose will likely be greater than that of the prior year quarter, primarily due to announce paper price increases and their impact on our accounts receivable balances only partially offset by increased accounts payable and well managed but higher cost inventories.
We think it will be helpful to share several other points to be mindful of when modeling fiscal 21.
First we expect higher year over year freight cost and insurance premiums, which will flow through cost of goods sold and EPS DNA.
Second we anticipate higher year over year SGN, a expenses due to higher planned incentive payouts in fiscal 2001, and an increase in professional fees and travel that was delayed or postponed during cove and this year three.
Third we do not budget for or anticipate any opportunistic sourcing benefit in fiscal 2001, but we of course will aim to take advantage of market dislocations as they occur we achieved roughly $18 million and opportunistic sourcing benefits in fiscal 2000 and.
Fourth, we expect and roughly $8 million drag and our paper business as a result of the profit eliminations due to higher anticipated and margins year over year.
Fifth we expect realization of at least $7 million more of synergies related to our care Star acquisition and finally, we expect lower year over year interest expense as a result of lower overall debt levels and the favorable rates, we locked on our recently announced term loan Athree, we plan to draw and the term loan in July of 2000.
The one to finance, our existing seven and three ace Euro $200 million senior notes, which mature that month.
Please turn to slide 11.
As discussed at our third quarter call, we are providing an update to our fiscal 22 commitments today underlying these commitments is our assumption that the global economy in fiscal 22 looks more or less similar to that of fiscal 18.
That is there is no lingering material impact from Govan 19, and that we returned to positive industrial production growth and major markets around the world.
Our adjusted EBITDA range of $785 million to $865 million or $35 million lower at the midpoint than what we shared and June of 2019 across.
Across our global business, we are assuming higher insurance and freight rates, which drags on profitability, while our rigids commitment was revised slightly higher primarily due to improved product mix and additional efficiencies our paper business commitment was reduced for several reasons from.
First we assume higher manufacturing expenses and than previously contemplated.
Due to upgrade repair maintenance and safety standards and to improve throughout the through put resilience in our network. We previously assumed the benefit of those enhancements in fiscal 2002, but the impact of COVID-19 is delayed some of that work.
Second we optimized our U.R. B mill network following the quote with the closure of the mobile mill, while volumes are now lower than what was assumed and 2019, we anticipate that our profits will be higher longer term as we realized price increases and remove less profitable tons from our system.
Third and to a lesser extent, our original $220 million run rate for care Star included a small EBITDA can contribution from CPG and that was divested this year.
Bigger picture, despite the lower adjusted EBITDA, our adjusted free cash flow range remains intact at $410 million to $450 million due primarily to improvements in cash taxes lower capital expenditures due to our footprint optimization and lower cash interest payments from lower debt balances and lower interest rates.
Please turn to slide 12.
Our capital allocation priorities are unchanged and include reinvesting in our business paying down debt and returning cash to our shareholders at year end, our balance sheet is in great shape with roughly $538 million of available borrowing capacity on our revolver other than the euro $200 million senior notes due in July we have no.
Other sizable maturities due and until fiscal 2000 for.
We anticipate that our first quarter capital investments to be in the range of $30 million to $40 million as we continue to generate cash pay down debt and reduced leverage towards our target range of two to two and a half times over time, we will shift enterprise value to the benefit of our equity holders.
With that I will turn the call back to Peter for his closing comments before our per unit Hey, Thank you Larry fiscal 2020 presented new challenges for our company and I'm incredibly proud of how our growth team adopted and responded to these difficult times through.
For a sharp focus on operational discipline and execution levers for the Greif business system, we are generating free cash flow and paying down debt in line with our financial priorities and looking ahead. The demand environment is improving and we are positioned well as businesses improve in the world emerges from the cold.
19 pandemic.
We thank you for your interest and Grace and Jacqueline if you could please open the lines for questions.
Certainly.
As a reminder to ask a question you will need to press star one and you touched on keypad. Please limit yourself to one question and one follow up question and Keith can withdraw your question press the pound and hash key. Your first question comes from George Staphos from Bank of America Securities. Your line is open.
Hi, Thank you hi, guys. Good morning. Thanks.
Thanks for the details congratulations on closing the year.
Two questions.
First Larry can you talk to that year and incentive accrual or Peter if you could I just wanted to get a little bit more detail on that and what the effect was if you had mentioned and I missed it.
And then on paper you had mentioned there was an 8 million dollar drag that you're expecting I believe and upcoming quarter.
Terrific and give it a little bit more detail on that if I heard correctly and.
And related Lee, assuming normal progressions, and Paypal when should we expect to see most of the.
Benefit from the price actions are in the market right now to assume it's more like a fiscal twoq event, but any thoughts there would be great. Thank you Ed Jordan, Jordan created and I hear from in and then thanks.
For your questions I'll, let Pete debt deal with and timing on the price adjustments. After I address your first two and the year end incentive.
Adjustment.
The board determined, particularly given the really great cash performance and more importantly, just managing the health and safety of our workers worldwide that they moved us to our threshold level of incentive on our operating profit level and part and it was.
Basically net net.
And $8 million.
Item that came in and the fourth quarter that otherwise would have been and crude ratably through the year. So it it.
As an outsized impact on the fourth quarter, obviously, we adjust that out it shows that we really performed way better and the fourth quarter than what we had talked about and the third quarter call and obviously some of that related to demand in our paper business, but also increased performance around the world as we mentioned.
Second item the 8 million drag is actually a year over year thing and this is the item that I mentioned and our last call about intercompany profit. So we sell from our mill systems into our converting facilities. There is a profit that happens net flows in our mill systems, but we can't recognize that Rick.
Adding purposes that we sell for the external customer.
That will not build back up because we're going to manage our inventory our working capital be consistent or down year over year. So it's a basically for a onetime permanent.
And result, because of our dramatically improved management of working capital and that business. Pete you want to cover the timing and pricing for George So all three price increases containerboard, you RP and CRB will be implemented through the first quarter, but will have no material benefit in Q.
And we'll see starting in February which is the beginning of our Q2 full realization of all three of those price increases.
Thank you Peter Yes, Thank you George.
Your next question comes from Adam Josephson from Keybanc capital markets. Your line is open.
Pete Larry that good morning, hope, you're well and thanks as always for taking my questions.
And.
Larry regarding the fiscal 22 guide and just a couple of questions. There. So you initially gave the guidance and midnight team and you're having to reduce it by 4% now and you're saying that it embeds and assumption that the goal economy, while a fully recovered from co bid I guess why why make that.
Assumption when you you just had to reduce the guidance you gave initially, particularly given that you're not.
You are not inclined to give fiscal 21 guidance because there's so much uncertainty so presumably there'd be just as much if not more uncertainty about fiscal 2002, So I guess why why.
Why continue to provide even a fiscal 22 target for that matter.
Yes that is fair question, Adam I mean, our view of it is debt our investors would like to have some idea of what this company look like once you're beyond.
This whole Cove, and travesty and you know our general we as you and everybody else does we monitor and watch everything we can get around co bid and the path and they predicted success of vaccinations, we watched and listened to all the economic analysis, we use and private groups that we do.
Work with around their forecast of the economy and those kind of things we put all those together the general view of most is that debt. The economy is going to improve and going to come back robustly at some point in either late 21 or at the latest early 22, I mean, you got Goldman and Morgan Stanley.
Only on the close and of the optimism and you got some others on the far and and so we thought it was a reasonable assumption to say that we think the economy is back and we needed to have some assumption to be able to work to give our investors. Some idea of what will this company be doing at that point, if the economy is to return to that level.
I appreciate that and just one follow up if you're assuming the economy gets back to pre coded and why cut your capex guidance for fiscal 2000 and to give I would think you wouldn't need to do that if the economies and the economy is going to be functioning perfectly normally and I ask just.
You cut your Capex guidance last year, you are cutting it for fiscal 2002. So can you just give us some sense of how much lower you're expecting your cumulative capex to be over that period, and why and yes, we really havent got it Adam It really goes to all the facilities, we've closed and when we disposed of day CPG business we.
Indicated that there was going to be a reduction on an ongoing basis. There. So you know we were previously.
A little bit higher, but it had to do with our footprint. When we closed more facilities. The capex needed on a recurring basis goes down as well we've long talked about the fact that when we get done with SPP, we're going to have a drop off and some of our t. capex. So it's really not reduced and it's exactly the same as.
Secondly, if you adjust for those.
And your midpoint right about $160 million range.
Great. Thanks, so much higher.
Your next question comes from Mark Wilde from Bank of America Montreal. Your line is open.
Thanks, Good morning.
More and more aid Hey, Mark Wilde.
[laughter].
I wanted to dig into a couple of the segment if I could for.
Over and Rep.
Volume was down about 8% and North America, and I'm, just curious about what's going on here it doesn't seem like the comps for that.
And most other packagers directly reported North America is one of their better global market for you guys. It's the weak global market. So can you give us some additional color behind that I think you talked about kind of lubricant for petroleum product being weak, but I'm just a bit puzzled about why this would be the weakness.
Regional market.
Yes, so in North America, Mark, obviously, our paper businesses and very dynamic, but in our rigid business. The end use segments that we serve.
And in particular relates to steel drums is down if you look around the globe. We saw similar drops during coded but the recovery points.
The move from east to Europe to starting to see it North America.
But I think it has to do the substrates and the products that we serve it and US also has been hurt in the last year and a half through some of the trade tariffs for our largest concentration of steel drum production is in the Gulf coast that is predominately and export heavy.
The market for us where our drums are used for export shipments. So it's a combination of and use impact to coded and also the tariffs impact and I would tell you is that our plastic drum volume in North America.
Is recovered well were mid single digits, and plastic drums, and and low single digits and Ibcs. So I think it's related to the substrate and those end markets, but they are recovering.
From through November and we expect to see better improvement in Q1, and Mark you're seeing some of that trade up and trade flows.
Tariff thing that Pete mentioned, which impacted net.
Beginning in the Trump administration, and then that following year, we've seen pickups and other areas of the world like and.
Shipments out of our star facility, and and Saudi Arabia, and those kind of things. So it does it does just shifted.
Okay, and then I wondered if we could just go over to the pay per business you were down year over year about 31 million, you're pointing to $33 million of negative price cost, but at the same time, you're also pointing to $40 million for the full year and care of Star synergies and then 8% book.
All you growth so just putting all of those things together.
I would have expected a smaller year over year decline in the paper book.
Yes, so debt and good observation Mark and let me just walk you through it.
We've got $12.5 million impact from pricing and by 21.8 on ODC and a few chemical costs that net increased core choice volumes pick us up about $5.8 million the synergies year over year pickup in PPS itself was about 2.7 million another 1.8 or in corporate.
And if you think about it we started recognizing synergies in fiscal 19 more in the third and fourth quarters with the most in fourth quarter. We then started this $40 million annually increase there was more in the first quarter of 20 more in and second quarter went down from about 30. So we're it's it's Joe.
Yes, the phenomena of you're looking at the fourth quarter on on that year over year, where we had picked up some and 19 and it's just that year over year comparison. The other remaining piece is then and stuff.
Stuff that has to do with the incentive for the element that I mentioned that flows into PPS corporate allocations went up to <unk>.
EPS this year because their revenue is a higher proportion and we've talked about that prior quarters and then we have just some manufacturing cost increases that some of which are and inefficiencies driven out of just operating and a covert environment debt or debt don't meet the necessary criteria to exclude it.
Cleanly and FCC, because you don't know whether its going to GAAP permanently. So hopefully that's helpful. I mean, the primary thing is the cost price squeeze which is about 41 cents a share in and of itself.
Okay sounds good I'll turn it over.
Your next question comes from John I think Barrington. Your line is open.
Hey, guys good morning.
And happy holidays.
Thanks.
Yes, so I guess for stuff.
It looks like it's about a 180 million EBITDA differential between what you realized in fiscal year, 2000, and what you're sort of guiding for fiscal year 22 at the midpoint I was just curious as to how we should think about each of the segments from a contribution standpoint towards that 180 million or so improvement and there's just so much going on with your numbers with covance for fiscal year, 2000, and price cost and paper so.
So any incremental color would be helpful. Yes, sure does have and I think you know.
Hopefully this will be helpful but.
Well, we tried to do is walk from where we were before on these.
And the commitments and you think back what we took was our 18 results across the businesses. We added in that $220 million of run rate from Kara Star. We added and then was $60 million of synergies we had some for our so Lou acquisition and we had.
Just some other organic growth related to Capex. Our Pallmeyer addition, and all those and net that got us to the fundamental pieces of each of the businesses. So let me take you and walk you from where we were on the midpoint in each of them previously to where we are now with the with the big elements and PPS at that.
Time had at midpoint target for about 510 million, we've got it a $10 million drop that is really related to a long term decision we made that really.
We believe will and drive profitability over the long term and that was the closure of our mobile mill facility very inefficient mill system low profit one that we know.
Over time, the closure thats going to drive more profitability, but it in net shorter period through 22 actually is a detriment to where we were before of about $10 million, but then will drive profitability after debt.
The other related item is we have seen I.
Need to increase our manufacturing cost short term in some of our.
The acquired facilities and even some of our legacy around improve.
Improved safety protocols, all those kind of things that will continue it disinfecting is it products and all those kind of things, but also just some inefficiencies and how we've been operating that we believe will we will turn around over time, but through 22, we won't have turned those around yet insurance and freight are.
We're in a really hard market in property and casualty insurance and we through discussions with our brokers and consultants, we don't see that turning around and freight costs are up which I think is relatively well known as had been a decrease in the number of drivers and.
As part of the whole impacts and things.
So thats about 15 million I think I mentioned manufacturing cost was about 20 and then the other was in that to 20 in the original we add.
So there was a.
See they had been running at about $5 million of profitability and the CPG business, but any began to deteriorate and.
We had a path to turn it around but it was going to require a lot of capex to get us back to it and acceptable level, which led us to then sell the business.
And you'll get rid of that.
Yeah, what we've what was not a productive asset for us and avoid the Capex and we get so also with a long term supply contract, where we agreed and those contracts at prices that were slightly less than what we have on our internal contracts selling to ourselves. So that was about 8 million. So you take those items, you got $10 million automobile and you've got CPG is about.
Good day and manufacturing cost item is 20 insurance and freights 15, and you got to $1 million of other minor stuff. So it takes it from five to 10 to for 56 at the midpoint on PPS.
On on reps, it's essentially look.
Looking at this and and just improvements in operating profit from some things that we see happening in that business where.
We believe debt are will increase our profit by $11 million and then we've got another net.
Net $5 million or so of EPS DNA benefits that we have plans to achieve.
Incremental to where we were at the time of the last commitments. So.
And then just some other.
Decreases in expenses from some other things that we've done around cash flow hedging lower pension cost and those kind of things. So that's nine so you go from Threeo two to three hours seven.
And those two bps is obviously the major major item.
Got it and then just for.
Finally, I guess I mean, obviously you guys have recovered from.
The first locked down and we are looking for the second one in Europe, especially on the parts of the U.S. et cetera, just what are you embedding for volumes specific to for Q sorry.
Your fiscal year, one Q by segment.
And on.
Our customers kind of thinking about managing inventories and you talked about working capital maximization and I assume your customers and good the exact same thing as they focus on finishing out the year from a cash flow standpoint. So what are you seeing real time and then what are you embedding for for your fiscal year. One that you had done it and this is Peter you're exactly right all of our customers across our and Tyler tire portfolio.
Managing your inventories very tightly some volume because conditions are tight put others are really managing their working capital as we have which mean shorter orders less more frequent to debt.
Deliveries and lower order quantities.
So our Q for Q1 forecast our volumes embedded in that and our rips business steel, we're forecasting to 1% to 2% growth on a global basis.
Ibcs were pointing to high single digit growth through Q1, large plastic drum, which is predominantly a us product is mig mid single digit growth.
And our Fi Bdcs and Fps, we're guiding to flat growth.
And paper.
Again, it's an extremely strong market our mills.
Our for forecasted to be like day or are currently we have very high backlogs and very high operating capacities are core choice sheet feeders, we're embedding and the forecast 20 to 5% to 30% growth, which is very similar to what we had in Q4 and our tube and core.
For growth and we've seen.
Improvement, we're embedding and the guidance, 1% to 2% volume growth so.
Well again, we're seeing improvement it's still uncertain beyond Q1.
Perfect. Thanks, so much yes. Thank you.
Your next question concerns team and cover from D.A. Davidson Your line is open.
Thanks, Good morning, everyone.
And so these.
Moving so a couple of questions on paper packaging and one is just to want to move.
Emphatic clarification, so the decline and the profit EBITDA and paper that's due to the price declines earlier in 2020, but it's got nothing to do with divestitures. The consumer packaging is that correct that's correct.
Okay great.
And with respect to your guidance I presume and incorporates to containerboard CRB and you RV price hikes that and printed in pulp and paper week, but not the pending CRB hike for January.
Let's talk about the timing and when those things flow through because I think thats probably the biggest.
Thing, obviously as we saw people and write ups last night about the disconnect between our earnings guidance and I think what people are thinking on timing of these things Peter will walk you through and Steve. So we're obviously only guiding the first quarter and while we are executing on the price increases there is no material impact to our benefit until Q2.
So at the end of January and started in February we'll have full impact to all three price increases through the integrated system.
Okay, but just to I guess drill down a little bit, let's not talk about guidance, but just as you contemplate things.
It's it's not printed and pulp and paper week than it hasn't happened so it would not be incorporated and any.
Forward thinking that that's correct, Steve, Yes, Thats yen, Steve and really there is a very little benefit and like I'll repeat what he just said very little benefit of those price increases in our first Q, we'll get some of the containerboard because it will be effective in January but.
Most of the and the other price increase will be beneficial in Q2.
And we still have the big year over year impact of both Cc cost.
Impacting us negatively and Q1, which is really about.
$12.3 million of debt.
Drag year over year.
Okay, and one final one if I could and were you surprised to see LCC Prince up 10 Bucks I mean, there's so much containerboard being consumed for.
For the full year what is your outlook do you think that we're still going to be.
Pretty a launch in RCC, yes. It did it was a surprise to us because it's not what our team has been seeing on the street.
Steve.
Clearly the residential collection.
Process is different than the commercial.
Process, but you're right there is a lot being made and so over.
Over time, we do believe that debt.
I will result in the and supply and demand getting maybe back more and bounce but.
Right now, it's a little higher than where we had expected it to be and so on.
Obviously, we're not building up for for your guidance, but we.
We think it would stay and add or mitigate down a little bit it might pop up a little bit the debt and come back down.
And Steve This is Peter I'd also tell you from the strength.
Ccs readily available there's no tightness.
Thats, what really surprised us so we've guided the Q1 and then resi has a forecast and really the tire.
But it's too early to determine what that might look like.
Okay, Thanks, and happy holidays, Thank you Steve.
Your next question comes from and Keith Hi, Keith from Wells Fargo. Your line is open.
Pete Larry Matt Good morning.
And when it did.
I appreciate the red.
Relative to give a full year outlook, but if you can help us with maybe a couple of other moving pieces on on the free cash flow bridge.
Larry and can you give us some some pointers on EBITDA, but obviously working capital.
And.
Roughly round numbers 40 million dollar benefit this year I'm, assuming it's going to be a drag as kind of what you indicated and.
I think fiscal 18, we had similar magnitude price increases flowing through.
You would expect and working capital be I want to say $30 million to $40 million.
Headwind so.
Justin and that in of itself could be a $70 million swing year to year.
Anything else you point us to.
Or if you can comment there and then anything on.
Cash taxes would be helpful share.
From so yes, you gave I think that the.
Your analysis is appropriate.
Obviously that that challenges that are causing us to not give guidance for the year go.
Directly to being able to predict where we think sales will go are there going to be broad shutdowns, all those kind of things and clearly as sales go that's a big driver of working capital and then the other is.
And cost of raw materials, and as Pete mentioned you. They this steel business and are steel cost in particular are driving up because the steel.
Manufactures and shutdown blast furnaces and they take a long time to come up and the auto production has grown more rapidly than they were anticipating so sales and a shortage prices are going up that drives up obviously, we're seeing LCC go up all those things are drag caused drag on working capital what I will share is we really the magnitude.
Attitude of improvement that our teams made and this year was incredible we measured things on a trailing 12 month percentage of sales basis. That's what are part of our incentives are based on moving a 12 month average is really really difficult big and so did and so we moved it pretty dramatically I mean.
Half percent and slightly more actually but on a monthly basis that day, we started the year at 14% and dropped and 9.9. So we are at a very very low level at the beginning of year now despite that our objective and our incentives next year is to drop it even further so.
Even so the measure that we hold ourselves to is dropping our working capital, but if the presumption is that you laid out about okayed recovery and some sales go up and.
And we have these cost of inventories it would still be a use of capital in some fashion. So yes.
And you know we had dramatic improvement in fiscal 20, but it wasnt year end heroics. It was doing well all year and we expect that performance to continue on a on a go forward basis, but we obviously won't have that opportunity to drive significant one year gains on it.
Going forward.
Okay and anything.
I guess, you need and pension.
Nothing really now okay.
Okay, and and then Peter I think in your prepared remarks, you mentioned some investments and rips.
Some of which I think were delayed kogut related cash.
You expand and I suspect some of those are most of those are around the IVC business, but the magnitude of spend and timing of expected return yes.
Yes, so those the reference was about plastics, both ibcs and flow mowers for large plastic drums were coming into the second year of those investments scape we.
We did we disclose those a year ago. So.
We just expect a ramp up per ticket and large plastic drums and ibcs.
That are in line with our growth projections for Q1.
You are probably talking about $15 million to $20 million and capital investments over the past year and again, we've had good execution to that and we expect better execution.
This upcoming second year of those those capital jobs.
All right. Thank you and and one last one in the paper business, Larry again, and prepared remarks, you mentioned, a little bit higher mill maintenance and this first fiscal quarter I'm curious just if you can lay out for us.
Relative to fiscal 2020, obviously it was an abnormal year.
If you're expecting higher on an annual basis year over year maintenance and then any.
Timing related items that we should be talking.
Yes, yes, we we actually made the decision in the fourth quarter did delay a lot of our scheduled capital maintenance because demand had increased so dramatically and.
And so we push some of that into.
This year and so there will be a year over year increase cost.
Exactly what that will be right now and don't have.
Lock down because they are still working on exactly what they're going to do but it's somewhere $9 million to $10 million kind of.
Increase for us.
For the for full year adjusted that year, and then throughout the year.
Thank you guys good luck for.
Thank you Dave.
Your next question from some chess and Burtness from GE Research. Your line is open.
Good morning peak and morning, Larry and just net adjusted.
Just a couple of cleanup questions.
The intercompany profit elimination that onetime headwind I think he mentioned was 8 million is that all going to be experienced in the first quarter is that going to be spread throughout the fiscal year. It's just a year debt thing.
It sort of if you go back to our third quarter call, you'll see that we talked about it then and.
Realized it as as thing our inventory levels went down at the end of that.
Third quarter, but then they went down even further and the fourth and we expect our teams to manage the inventories and that business well and so if you have won't build back up and won't have an opportunity for recovery again and the future. If we stay at those levels.
Okay, and maybe I.
Part of what you said was.
Little hard to follow it is.
So the 8 million is mostly in the first quarter or spread out throughout fiscal year 21, we recognized it mostly in the third quarter of this year.
And is when it mostly came in and so Thats, where you will see it on a year over year basis, but it's an annual thing not it.
Not necessarily a quarter.
It won't be one quarter first quarter over first quarter that kind of thing.
It shifts around every quarter generally.
It's just an accounting phenomena when you're selling out of your mill systems imagine if we were and if there were two separate businesses two separate companies and one was our mill system selling into converting facilities when our mill system sold it you'd recognize the profit then.
However, since its and intercompany thing we can't recognize it for GAAP purposes until it's sold outside of right and.
And so it gets deferred and then as those inventory levels come down and you pull it into profit.
Okay got it all right so think about as spread over fiscal year 21.
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And then the transportation and insurance headwind you mentioned it was a $15 million reduction to how you're looking at the fiscal year 22, EBITDA should I think of that 15 million number is also being representative of what you might experience and fiscal year 21 day, it's more like 12 from from 20.
And at 21.
Okay and.
And.
The fiscal year 22, EBITDA guide just to clarify is that sort of run rate at the end of fiscal year 22 or is that what you expect to deliver for the entirety of the fiscal year 22 is what we expect to deliver for 22, obviously subject our assumption our broad assumption on EBITDA.
And.
Okay, and then lastly, your presentation mentioned as channel accrual headwinds.
Is that something that you're trying to suggest might be a little bit larger than folks on our side of the table are modeling or is that just normal.
Accrual headwinds because the businesses.
Resuming strength and where there is more a payout across the organization and look at it this way when you have a dislocating.
Event like this pandemic and the impact on a broad economy. It dramatically impacted our business you have an automatic governor so to speak on our profitability tied to incentives and.
As as performance goes down incentives go down and and so if we look even with the day.
Discretion that our board decided to do when you look at what normal incentives would be next year.
Based on just the target comp of our our entire.
Management team way down deep into the organization. So we're not talking just me and Pete and a few people up here, we're talking about all the way through our management teams down to plant managers and everything the impact on costs year over year. If we would hit 1.0 target the target next year would be 20.
$7 million increased and expense.
Hit that but we deal with this all the time it goes up and down and we factor that into the guidance.
Guidance and things we give.
Okay.
Thank you for taking on my questions absolutely.
So you are index.
And you would like to ask a question. Please press star one on your telephone keypad.
Next question comes from George Staphos from Bank of America. Your line is open.
Hi, Thanks for taking the fall and Pete.
Pete Larry could you give us a bit more on all parameters guard rails and want to call and in terms of what we should take away on your comment related to steel are you concerned that pricing might pick up a little bit more quickly than youre.
Able to recover through your contracts and normal mechanisms.
This and suggest that you may try to be proactive if you can.
And building inventory, even if you don't get a benefit like you did last year from proactive.
Working capital management.
From and what do you want to take away on that on that comment on deal should.
Rebuilding that and as a headwind that's kind of broad question number one question number two as you think about terrorist star and the drop in your fiscal 2002 guidance and and look we always look at your long term guidance is more aspirational than than and fine point because for any business. There's so many different moving parts. Nonetheless should we take away.
Good day from your commentary that power Star, maybe and some elements of manufacturing wasn't quite at the levels that you had thought and might not be able to flex profitability as much as you'd want it as other does turn up both from a demand and pricing standpoint or would that be a wrong assumption.
So everything you thought it would be and then and and if so.
Thanks, guys, good luck and a quarter and happy holidays and George So on steel we've got into May and the you asked for short term.
Supply and demand imbalance as as we've talked about Larry commented, you've got a really fast recovering auto industry, yes.
Got to the steel industries restarting blast furnaces. So you add those three month period, where there is challenges so that will not impact our inventories and factory and tours are quite low right now and expect to be through Q1.
We do expect that steel supply and demand balance to.
Become balanced and more normalized.
So after January.
So again, it's a short term dislocation, we don't see any major significant impact at this point, but we are monitoring for it we are to have our attention up our sourcing teams doing a really good job ensuring that the only potential downside could be.
If we need steel if we have to buy and on the spot price and the short term you could pay higher prices.
That's to be determined but that that is a potential risk in regard to care star.
I'll make one comment and then Larry talked but when we bought care star. We knew that we would have to spend some money and we knew that operationally and their mills. There are some opportunities to improve and that doesnt change, we still feel that way.
Got a good team in place and we're working diligently to do that but there is opportunities and the mill manufacturing capabilities. We're we're aware of it we're working on it and that's a.
No no surprises at all and George I would just supplement what Pete said, if you go back to our deal assumptions, we've talked about a $220 million run rate and $45 million of synergy so to 65.
If you look at where we're at now if you and your that included having CPG and they're like five well, we got $80 million for selling off the CGP BG plants and we.
Obviously avoided capex going forward. So we feel really good about net five coming out of there. So if I start with 215, and I say 45 and via 260 was our deals assumptions.
Right now we're we're at that is if I take the 215 and I add in 60 minute millions of synergies I'm at 275, if I back off even the manufacturing costs that we don't think we'll have turned around by by then.
Still in really good order of the deal.
Metrics that drove us to do that so we're real happy about it and and we believe that we made a very good decision on closing mobileye and that will even become more profitable for us and assist them over time, it's just that not by 22, and we'll also we'll get the manufacturing cost item turned around but we're not going to compromise.
Guys on our safety of our people.
And thats driving some of this.
Alright, Thank you very much.
Todays last question comes from Adam Josephson Some Keybanc your line is open.
Thanks, So much Pete Larry App.
Just one on the North American situation, so obviously and the corner reps was weak and paper was phenomenally strong can you just give us some context as to how precisely how unusual. This state of affairs is for you and obviously, it's all pandemic related but what do you think a return to more normal conditions.
And this might look like both and so reps and a business as well as the containerboard and you are be businesses in North America, Yes, I'll comment on rips again confirm some of the comments and made the mark.
You know the other substrates, we have and North America are heavily weighted to steal we also plastics are growing plastics, not DC business, but again the end markets that we serve and rips and North America have recovered at a slower pace sequentially than Asia and.
And and May and that is normal for the course, all we've seen.
From other companies and inside our company.
We are starting to see improvement in North America sequentially, we saw that through Q4, and we and our assumptions into Q1 for cash we continue to see that again, the big challenge and our steel drum business in North America for the tariffs that dramatically impacted our Gulf coast.
Most operations EPS, 40% of our volume production in North America, So that weighs heavily on it I will tell you there's industry data in North America that instilled from industry and our numbers are actually higher than what the industry volumes are so low.
While we don't like for volumes and rips North America. We do know is that we're not losing market share and that's more of a market related issue.
But we do expect that to to gradually improve in regard to pay per as you know we've got incredible volume improvements our mills have incredibly high backlogs.
Our core choice business is up 30% when you take out the new Tom IRA business organic demand growth, 17% up year over year heavy.
Heavy emphasis from E commerce durable goods improved, particularly the auto supply chain and were involved and serving raw materials to box plants that are really strong and home consumables, which for all strong.
Will that continue that strength I think the E commerce markets.
Absolutely, we'll be a permanent shift because the consumer buyer behavior has done that so that is more of a long term trend and I think we're really well positioned to take care of that and core choice. We run short runs customize sizes. We have very short delivery cycles, we have the capability to run really lightweight for.
Fiberboard grades and those are all capabilities that are attractive and support ecommerce demands and the sales see packaging protocols for Amazon. So.
I'm not going to say, it's going to be 25, or 30% growth for right now, it's really strong and we don't see in our forecast for Q1 any change and then it.
But it's pretty amazing, it's the strongest pay per market I've seen in the 34 years I've been and business Adam Yes, no. It seems like a comment Tom and Pete and Larry just one last one for you on the on interest for the onetime to 115, if I just annualize the for Q number I guess I want to go for and then you Refile The July 20.
One notes at a much lower rate, so I would think of that.
You'd be lower than the box and about 15 for the year. Just can you just tell me what I'm missing and then again health and happy holiday solve your thank you, yes, I admit that it's a good observation.
The remember, though recall that we generally will increase our debt loads with our first quarter tends to be our weakest quarter of the year and you were building up so we end up going more into our lines and.
So thats a big factor you, we won't really start to see that.
And.
Turn back around until third quarter fourth quarter, Thats, just our normal seasonality pattern, where the debt is higher and the first part of the year runs up comes back down the other thing that debt to have is an impact of capitalized interest. So some of the interest expense, we get paid that we pay on debt ends up get capitalized into projects and even.
And even saw some of that and our fourth quarter, where there are some of the interest.
Dollars, we spend and end up not hitting interest expense those capital projects. It just depends on when they play out and year at least where weve modeled so far more of those going to hit later near the other thing on the.
On the refinancing there are some ticking fees that relative to having net loan structure in place.
There'll be some cost offset and this year, but.
That will mitigate over time as well so it's more that it's more front end loaded in the first year as we build up things and then per.
And on the debt as the year goes through.
Thanks, so much Larry and happy holidays.
Cash complaint case, Q and a session I will now turn the call back over to Matt Pacman.
Alright, Thanks, a lot jaclyn. Thanks, a lot everybody for taking partner calls. This morning Hope you have a safe holiday season ahead.
Yes.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.
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