Q4 2020 Sonoco Products Co Earnings Call

February 11, 2021

[music].

Ladies and gentlemen, thank you for standing by and welcome to the fourth quarter 2000, Twenty's Sonoco earnings Conference call. At this time all participant lines are in a listen only mode.

After the Speakers' presentation there'll be a question and answer session to ask a question, though on the session you will need to press Star then one on your telephone. Please be advised that today's conference is being recorded if you acquired any further assistance. Please press Star then zero I would now like to hand, the conference over to your house the day, Roger Schrum, Vice President Investor.

Relations. Please go ahead.

Thank you Sarah and good morning, everyone welcome to our fourth quarter and full year Investor Conference call.

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

A news release reporting our financial results was issued before the market opened today and is available on the Investor Relations website at Sonoco Dot com.

In addition, we will reference a presentation on our 2020 financial results and our 2021 outlook, 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.

Furthermore, today's presentation includes the use of non-GAAP financial measures, which management believes provides 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 for the most closely related GAAP measure is also available in the Investor Relations section of our website.

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

Thanks Roger.

On slide three we see that earlier. This morning, we reported a fourth quarter loss on a GAAP basis of 12 cents per share.

The earnings of 82 cents per share, which was above the top end of our guidance range of 70 to 80 cents per share.

This quarter's day EPS results were also 7% stronger and the 75 since we delivered in the fourth quarter of last year.

Our fourth quarter results were above our expectations, primarily due to better operating performance across all four segments.

Businesses that improved for most notably compared to our expectations we're flexible.

Mobile rigid paper containers.

Integrated industrial North America, and Thermos safe.

In terms of the 90 for scent difference between base and GAAP EPS 50.

<unk> 56 cents related to asset impairment charges.

Of which related to our perimeter of store thermal forming operations.

17 cents was driven by our display and packaging Europe divestiture.

11% was due to restructuring activities.

<unk> expense split from nonoperating pension costs.

In fact since was primarily from M&A and other expenses.

Now moving to our base income statement on slide four and starting with the top line you see that sales were $1 billion $376 million up $67 million from the prior year period.

I'll review more details about our key sales drivers on the sales bridge in just a moment.

Gross profit was $275 million 28 million above the prior year.

Solid performance lifted our gross profit as a percentage of sales to 20% 110 basis point improvement versus last fourth quarter.

SG&A expenses of $149 million increased by $16 million year over year, mostly driven by the timing of compensation expense increases.

I'll also highlight that we didn't have lower expenses tied to COVID-19, such as travel, but they were offset by the addition of expenses from acquired businesses.

All of that's resulting in operating profit of $126 million, which is 12 million above last year.

I'll discuss the key drivers on the operating profit bridge in a few minutes.

Yeah.

Net interest expense of $19 million was $3 million higher than last year due to the actions. We took in 2020 to strengthen our liquidity position.

Income tax expense of $25 million was slightly above last year due to our higher pretax profit.

Our fourth quarter 2020 effective tax rate of 23, 5% with mostly unchanged from the prior year quarter.

Moving down to net income on our fourth quarter 2020 based earnings were $83 million on 9% increase over last year.

And for your information we have included a full year base income statement in the B M.

The index.

Well its full year bridges for both sales and operating profit.

Yeah.

And looking at the sales bridge on slide five you see volume mix was higher by $52 million or 4% for the company as a whole.

This increase was roughly split between stronger demand as well as two additional days in the quarter versus last year.

Consumer packaging volume was up $33 million or about 6% we.

We had continued nice growth in global rigid paper containers, which sold volume increased by a robust nine 5%.

Our flexible has been the demand grew by a solid 3% due to continued COVID-19 eat at home patterns.

Pronounced and our cookies and crackers and use for it.

Finally, global plastics volume was flat.

I prepared and specialty foods demand growth at almost 12%, but this was offset by continued weakness in the industrial end use markets as well as lower volumes in perimeter of store.

Display and packaging volume was down $8 million or five 5% driven primarily by lower demand specifically driven by the pandemic.

Moving to paper and industrial converted products volume was up $7 million or 1.5% as volumes recovered in our global paper mill network as well as across our tubes cores and cone operations.

And finally sales volume in protective solutions was up $19 million or about 16% driven by strong demand in each business unit within this segment.

So moving across the bridge to price you see that selling prices were higher year over year by $6 million.

This was driven by price increases in the industrial segment, partially offset by decreases in the consumer segment.

Each primarily driven by raw material costs.

Additionally, we do continue to see benefits from the recognition of the value of our products and services provided to our customers.

Moving to acquisitions and divestitures, you see a topline impact of $11 million from the addition of T E. Q It can't packaging in our consumer segment with a partial offset from the sale of displays and packaging Europe at the end of November.

And finally, the sales impact from foreign exchange and other items was negative by $2 million and includes no unusual activity.

Okay.

So moving to the operating profit bridge and starting with volume mix, our higher sales volume of $52 million combined with the impact of mix had a positive impact on operating profit of $22 million.

Moving to price cost on.

I remind you that this category includes the earnings benefit from higher selling prices as well as the impact of total installation.

In the fourth quarter, we had $36 million of unfavorable price cost, which was roughly split between the impact of non material inflation.

And negative price cost dynamics within our industrial segment.

All of which was in line with our expectations.

As usual, there's a slide in the appendix that shows recent OCC trends and you'll see that in the fourth quarter of 2020.

Southeast OCC official board market pricing was stable at $70 per ton until market pressures caused an increase to $80 in December all resulting in an average of $73 per ton in the fourth quarter.

This was more than double $35 per ton average in the fourth quarter of last year.

Next you see the impact of productivity.

And see that our total productivity in the fourth quarter was a very strong $42 million year over year.

We had solid execution across our productivity levers and shop for execution.

Procurement as well as fixed costs due to a combination of deliberate cost controls.

And restructuring benefits.

And finally, the change in other was unfavorable by $16 million with various moving pieces, but primarily related to the timing and amounts of compensation expense.

So moving to slide seven you'll find our segment analysis, where you see that consumer packaging sales were up 10% driven by the addition of P Q and can't packaging as well as higher volume driven by Covid eat at home behaviors.

Consumer segment operating profit profit increased by 47% driven by strong volume mix and excellent productivity results.

Our consumer segment margin jumped by 280 basis points to 11, 1% versus the fourth quarter of last year when the margin was eight 3%.

Display and packaging sales were down by 20%, mostly due to the divestiture of DNP Europe.

As well as lower demand due to COVID-19.

Operating profit was down 11% the margin did improve by 50 basis points to five 3% due to productivity actions and divesting the lower margin European business.

Paper and industrial converted products sales grew by three 6% due to year over year price increases as well as the recovering demand.

Operating profit declined by 28% due to much weaker price cost dynamics compared to the prior year.

These headwinds were somewhat offset by solid improvements in productivity.

The industrial segment's operating profit was seven 1% of sales down by 310 basis points when compared to the fourth quarter of last year.

And finally protective solutions sales grew by 17%.

Operating profit increased by a very strong 42, 5% due to the stronger volume as well as better cost efficiencies.

This segment's margins improved to 11% a solid 200 basis point improvement over the prior years, 9%.

So for the total company sales were up just over 5% and operating profit increased by 10%, resulting in company wide operating margin of nine 2% of sales.

So shifting to cash flow in the middle of this slide you can see that our full year operating cash flow was $706 million compared with $426 million in 2019, an increase of $280 million.

The largest single driver to this increase was the $165 million of after tax voluntary pension contributions that reduced last year's operating cash flow.

Midway down the slide you see that our working capital balances decreased in 2020 by $51 million, which was a $15 million higher source of cash compared to last year.

This was the result of significant improvement in all aspects of our working capital management, despite the very challenging business environment.

Moving down to the other operating activity the $75 million cash generation from this category includes an approximately $30 million benefit from Covid related FICA deferrals.

As well as an approximately $35 million cash tax benefit from our planned pension termination contribution in 2021.

Now moving on to free cash flow, our net capex spending was $184 million are for.

<unk> increase of 2 million compared to last year.

And our dividends paid in 2020 were $173 million compared to $170 million in the prior year.

And finally, our free cash flow for the full year 2020 was $349 million, an increase of 275 million over last year and virtually all of this proved cash flow was driven by the higher operating profit our operating cash flow debt I just reviewed.

On slide nine you can see that our balance sheet and our liquidity position remains extremely strong.

Our year end 2020, consolidated cash balance of $565 million increased by $420 million during the year.

This increase reflects the proceeds from the divestiture of display and packaging Europe, and our very strong cash flow generation.

Somewhat reduced by the acquisition of Cam packaging in the third quarter.

Our consolidated debt totaled $1 $7 billion at the end of 2020, an increase of only $19 million from the prior year and following our $442 million repayment of short term debt during the fourth quarter.

And finally, you'll see at the bottom of this slide that our net debt to total capital decreased from 45, 8% at the end of 2019 for 37% at the end of 2020.

So with that I will hand, it over to Howard.

Julien Good morning, everyone. Let me provide some brief commentary regarding our full year performance and then talk about our strategic direction in 2021.

For appointed back for Julie to provide you details regarding our guidance.

2020.

Comfortable resolve on the company on a testament of the strength of our people.

Hold on.

First of all no I cannot thank them enough for 'twenty.

It's a role for all they have done and continue to do to.

I mean for critical needs of our customers during this time.

And for supporting me in my first year on this rule.

Despite COVID-19 our team quickly refocused operations by accelerating production on food packaging to meet consumers' growing demand.

While making adjustments in our industrial and related and related.

Businesses, such as protective packaging in response to demand for it.

We developed vitally needed temperature assured packaging to begin shipping life, saving vaccines and therapeutic drugs to combat the spread for the borrowers and we further improved our portfolio.

Macquarie on camp hydrogen for European designer and manufacturer of sustainable paper packaging and related equipment.

Testing on a lower margin European contract market.

As shown on the full year segment review on page 10, we have a strong year on consumer packaging with organic sales of about 2%.

Operating profit, reaching a record for.

21, 27% from last year.

Rigid paper containers for a strong year with volume makes up more than 4%.

Flexible also had one of its best years.

Low volume was mixed with gains for food packaging.

Declines in confectionery sales.

Prepared and specialty class of trade from an exceptional year with organic sales up double digits.

But that was also low volume declines in our economics.

For the industrial plastics.

Display and packaging segment sales declined due to slowing retail activity. During this pandemic. However, the team managed the business very well and operating profits increased by 10%.

The pandemic also had a significant impact on our global paper industrial segment last year with operating profit declining nearly 30%.

Due to a 4% decline in volume mix and a negative price cost relationship driven by rising OCC prices.

As we mentioned previously industrial volumes declined significantly in the second quarter of the year, but recovered through the rest of the U K continued to improve as we enter this year.

Finally, our protective solutions segment had a strong second half for 2020, which drove a 3% improvement in operating profit.

Now, let me switch gears and talk about our strategic focus as we enter 2021.

As I shared with you last year at this time, we will continue to drive a sense of urgency throughout our company to move more quickly to address longer term issues and support opportunities that can lead to long term performance improvements.

A key part of our strategy is to invest in ourselves to draw for both growth and margin improvement in businesses, we know and know well.

A prime example of the strategy is for 114 million on my investment in project for Us.

Which will convert our hartsville corrugated medium machine to produce uncoated recycled paperboard.

When completed by the fourth quarter of 2022 this for.

Roger will drive approximately $30 million on annualized cost savings.

In addition, the project Horizon, we have developed a strong pipeline of high return internal opportunities.

<unk> to accelerate growth.

For enhanced productivity.

We expect to spend approximately $85 million on project Horizon 2021.

So let me give you a quick update on our progress there for aspects to the projects starting with modernizing our facilities to better transport handle and store recovered paper.

We're well into the demolition and expect this phase of the project typically completed.

Completed on July.

Next is on construction of a new stock prep system, which.

Which will feed on 180000 to them for your new your baby's shape as well, although still women from machines on campus.

The new pulping system will allow us to use more paper the floor on calls the construction. There begins on March four and should be completed by September.

Well frequent this activity with the building on the new finished goods warehouse to modernize the finishing and storage areas with campus.

Good complex should be completed by mid October.

Finally, the conversion of the machine should be completed in March of 2022.

Meaning we will soon be producing medium through the end of this year about three months longer than we previously planned.

Before I turn the callback for Julian I want to mention that we will change our reporting structure in 2021 for better reflects how we're managing our businesses going forward.

There is a picture illustrates the smoothed simplifying structure on page 11 of our presentation.

This change will leave us with two reporting segments consumer and industrial paper packaging.

Our remaining businesses will presented on.

All other groups.

Protective solutions on display and packaging segment will be eliminated.

If there are businesses moved into this new structure.

So let me just for the consumer packaging segment will include moving our T acute health care packaging and industrial plastics business.

To all other.

Industrial bar.

Excuse me industrial paper packaging will be relatively unchanged.

Except that our fiber protective products unit will be added from the for protective solutions segment.

All other will include our health care and protective packaging businesses, including Tech.

Sonoco Thelma side consumer on ultimate automotive molded foam as well on alloyed retail security packaging.

And the U S display and packaging business year.

So Julien with that why don't you talk about our financial guidance for 2021 <unk>.

Absolutely Thanks Howard.

So on slide 14, you'll see our key assumptions for our 2021 guidance.

And just as a starting point our outlook was developed using regional macroeconomic recovery assumptions related to COVID-19 with recovery generally occurring around midyear 2021.

After factoring this overall level of economic activity in with what we're hearing from our customers about our served markets along with activity in our sales funnel, we're targeting to drive a 2% increase in volume for the company as a whole and I will provide more information about volume outlook by segment in a few.

Minutes.

The impact from the recent divestiture of display and packaging Europe and the acquisition of Cam packaging are reflected for a full year in 2021 as these deals close in the second half of last year.

In terms of selling prices and related costs that are tied to market indices. The outlook for old corrugated containers or OCC is to average $90 per ton, while the 2020 average was $71 per ton.

In addition, our outlook assumes that resin prices will increase approximately 10% over last year.

Inflation is a challenge as we start this year. So our outlook includes significant inflation headwinds in areas, including freight and insurance.

Our interest expense is projected to be lower by $12 million in 2021, primarily due to our expected repayments and refinancing of debt that is maturing this year.

In terms of taxes, we've estimated our 2021 effective tax rate to be 25, 4%, which is flat for 2020.

So on the next slide you see our 2021 outlook sales bridge for.

Again for the company as a whole, we expect 2% volume improvement to drive an increase in sales by $105 million.

I'll now provide some color around our volume expectations for each segment using our new segment structure that Howard has described.

For 2021, our consumer segment volume is projected to be relatively flat to 2020 as global rigid paper containers retract by around two 5%. After the very strong 2020 benefit from Covid eat at home patterns.

Conversely, our flexible business forecast growth of around three 5% and global plastic expects global plastics expects to be flat with growth of around 7% and prepared on specialty foods on new business opportunities, but this is mostly offset by low.

For demand and perimeter of store.

We expect our industrial segment volume to increase by about three 5% year over year.

Global tube core and cone volumes rebound by about by about 7%, while Bluebird Global paper is expected to recover with gross growth of approximately two 5%.

And in all other were projecting a four 5% increase in volumes driven by high single digit growth in thermal tanks T EQ and retail security, partially offset with lower growth rates in other parts of this business grouping.

So moving across the sales for S. You'd see a positive impact on prices of $115 million year over year on.

Our industrial segment makes up about two thirds of this increase.

Overall these price increases are driven by contract pricing resets tied to market indices as well as our continued focus on our commercial excellence activities.

Next you see acquisitions, and divestitures, which mostly reflects the impact from the divestiture of display and packaging Europe, which is slightly offset by the addition of canned packaging.

And finally, the sales impact from foreign exchange and other at $17 million, primarily due to foreign exchange translation, assuming a weaker dollar in 2021.

So in total you see that our 2021 projected sales are $5 $2 billion.

So now moving to the base EPS bridge and starting with our 2020 base EPS of $3.41 per share I'll first point out that we expect the net impact of the acquisitions and divestitures made in 2020 to reduce earnings by <unk> 14.

It's primarily due to the divestiture of display and packaging Europe.

So now that we've removed our acquisitions and divestitures from our 2020 actual results. We can focus on how the operational drivers to our earnings compare on a year over year basis.

The 2% overall volume growth that I described earlier with mixed considered is expected to add 23 cents to base earnings.

Next we project to have a positive impact of 40 cents per share from total productivity, which is split between procurement and manufacturing gains.

You didn't see a positive impact of 12 since mostly from lower interest expense and improved foreign exchange translation.

Moving to price cost inclusive of materials energy and freight cost changes were expected to have a net negative price cost impact of 43 cents per share.

This does include favorable increases in selling prices year over year, but these are more than offset by inflation in key areas, such as freight insurance and compensation.

And finally related to IP strategic.

Strategic investments and other items there is a net negative impact of nine <unk> per share.

And 2021, we are increasing our spending to upgrade key elements of enterprise technology, including network infrastructure improvements and our global ERP deployment.

In addition, we do have a headwind from the non recurrence of certain unique other income items last year.

All of these base EPS movements result in our 'twenty 'twenty, one outlook for base EPS of $3 50 per share an.

An improvement of 2.5% over 2020 reported base EPS for an increase of 7% after adjusting for our acquisition and divestiture activity last year.

So before I review, our 2021 free cash flow guidance I'll note that beginning this year, we are changing our definition of free cash flow to be operating cash flow less net capex spending on.

Our cash flows for the dividend will no longer be included in our free cash flow definition or results.

So for 2021, our outlook is to generate $285 million of free cash flow compared to $522 million in 2020.

The key assumptions underlying our 2021 outlook or no change to year end 2020, working capital balances and capex spending increasing to $300 million.

This higher capex.

Spending does reflect our invest in ourself strategy and as Howard noted includes about $85 million related to project horizon.

We also have an approximately $45 million year over year cash flow headwind related to the $30 million of FICA payments deferred from 2020 and required to be made in each of 2021 and 2022.

So before I finish my comments I'll add that we are active with our pension termination process that we've discussed previously.

We currently expect the process to be completed in mid 2021, when it within a new innovation of approximately $1 billion of U S pension liabilities.

We do expect to recognize an approximately $560 million non base noncash settlement charge mid this year related to this pension termination process.

In addition, we expect to make a voluntary pension contribution of around $150 million when we complete the termination and a new innovation process.

For now we've excluded this contribution from our 2021 cash flow guidance to the day due to the inherent uncertainty about the amounts and final timing of the contribution.

And so with that I'll turn it back over to Howard.

On June two.

One on 'twenty, one and we feel good about how our balance mix of consumer and industrial businesses are progressing despite the uncertain economic outlook.

The positive momentum we experienced at the end of 2020 seems to be continuing into the first for our <unk>.

Consumer packaging segment, which is primarily focused on food packaging should continue to benefit from consumers at home eating out.

Demand in our industrial paper packaging market continues to show sequential improvement, although we still face a negative price cultural relationship escalated year over year.

Covered pay for freight and other operating goals.

I mentioned, we are aggressively working to recover this inflation, including the recently announced the second $50 per ton price increase for Europe.

In the U S and Canada effective March for we.

I believe we can achieve this price increase as we continue to experience significantly longer backlogs in our mill system and inventories remain high.

In all other we expect solid demand on our pharmaceutical and industrial markets. We're still in the early days of providing qualified cold chain shipping solutions for FDA approved Covid vaccines and therapeutics for the broader public where we expect demand to expand as last mile distribution system.

They come more from us.

Finally, turning to slide 19, I want to make just a few comments about our balance capital deployment strategy as Julian mentioned capital expenditures will increase to $300 million in 'twenty and 'twenty one.

Driven primarily by project horizon and hold over capital projects that were delayed by the pandemic in 2020.

Returning cash to our shareholders remains a top priority.

And we were pleased that the board authorized a 5% increase to our dividend representing the 96th consecutive year, we provided a cash payout for our shareholders.

I'll also mentioned this is the 38th consecutive year, we have increased dividends.

Our payout.

Roughly 3%.

M&A has historically been an important element of our strategy and we continue to selectively acquire on disaster help optimize our core consumer and industrial portfolio.

<unk> balance sheet and robust cash flow provides us a solid platform to evaluate.

Pursued mostly internal and external opportunities. However, we remain committed to maintaining our investment grade rating.

But on my share repurchases are always an option, but only after one on unable to file on the rise internal or external investment opportunity.

We're proud of how our people have grown comfortable operating uncomfortable times, we remain confident that sonoco is well positioned for when the growth of the pandemic weak as well.

For you to invest to reinforce the long term potential of our core businesses, while remaining committed to returning value to our shareholders.

Now with that operator would you. Please review the Q&A procedure.

Thank you.

Reminder, to ask a question you will need to press Star then one on your telephone to withdraw your question. Please press the pound key.

Our first question comes from the line of Gabe <unk> with Wells Fargo Securities. Your line is now open.

Good morning, Hope you and your families are low.

I appreciate it it's difficult to comment in a format such as this but I guess without a few reports out, indicating sonoco or the potential better for certain assets in Europe.

I was hoping you could maybe help us think through the strategic merit of upsell to <unk>.

Transaction, including kind of your your footprint on the region as well as your experience on getting food.

To retailers in the supply chain in both the U S from Europe, and then lastly for.

For your kind of finalize your comments with Howard your investment grade rating is obviously important.

On the expense you would consider using equity as well.

Sure.

Oh, Thanks, Good day frankly.

I actually heard the same rumors listen to the flow.

Ports and frankly.

Not necessarily surprised that they are out there considering not on.

Organic closures business on the correlations there, but frankly to your opening we really arent going to give you.

Any context as it relates to market type speculation so.

That's really about as far as I can go with that.

Oh.

I appreciate that not a problem.

On the temperature assured side, you talked about kind of waiting for the supply chain.

Together.

And really that's where you were.

Where do you want to participate.

To the extent that you can comment and have done work. There can you give us any sense for what that opportunity might look like in <unk>.

A little bit more.

I guess specificity around timing.

We've sort of seen activity.

Really.

For the fourth quarter.

I wouldn't call it terribly material in the fourth quarter, we're seeing a ramp up at this point in time.

It's really really difficult for us to.

Really.

Want to for what this could possibly mean.

There is as we noted earlier there.

A bit of chaos for the market right now, but I'm feeling for us is stable.

Stabilize as we start to see more we call that last mile of pipe deliveries.

Shortly expect to be.

To be well engaged with that but frankly good from.

From where we sit right now and as we look into.

Our forecast for the year as it relates to Oklahoma City for protective.

We're on.

We're not being overly aggressive right now we really got to see how this thing plays well.

We certainly will be for participants.

Roger you guys any co or do you want on that because this.

This is raj on the only thing I would say is a thermostat a fantastic year in 2020, a record topline and bottom line performance.

As we can.

To win new business across the pharma space, we will be involved in delivering on COVID-19 vaccines, we booked some business.

Simply too early to put an estimate on the total we expect normal safe in 2021 gross to be in the high single digits.

With golf Covid vaccines and above.

Of into double digits would go to vaccines.

Second quarter meeting I think we'll be able to give you for AMR numbers and some of the incremental other vaccines that are in process of being approved come out for.

For now it's just too difficult to give you on a specific estimate that we're very excited about it it will be an opportunity for us.

Great. Thank you guys Hello.

Yes.

Thank you. Our next question comes from the line of George Staphos with Bank of America. Your line is now open.

Thanks, very much hi, everyone. Good morning, Thanks for all the details.

I guess the first question I had is gonna be.

Couple of parts on just the portfolio a couple of times during the call today and in the prepared remarks, you referenced that the perimeter of stores still seemingly anyway.

Performing perhaps less well than you would like if you could give us color on what's going on in the business.

Relative to say a quarter or two or three ago.

Now how will you think it fits in the portfolio both in terms of sales mix on your own capabilities and then related.

And in your slides you're.

Pursuing accretive acquisitions and core consumer and industrial market.

Can you give us some guardrails on what would tend to be a more.

[noise] appealing type of acquisition for sonoco versus a less appealing one as we're studying your strategy on what you what you might do down the road and I had a quick follow on to that.

Sure George Let me briefly talk about the acquisitions.

One of the things that we've said consistently for the last year or so is that we're really happy with the foundational businesses that we have on our portfolio. So if you want to think in terms of where we would be interested in.

And growing and building on the on the acquisition base it would be in that.

Hum.

Basically saying within on what we feel like our core competencies as seen in that line now of course, we've got a.

Quite a number of businesses across our portfolio both on the industrial on the consumer side and I can simply just say that any acquisitions that we do.

And I've said this before should not be a surprise.

To anyone that you should say Aha I get it that's exactly from others.

That makes sense for sonoco to make that type of acquisition.

I'll, let Roger give more color on the perimeter of the store.

Question, but just quickly on where it fits.

We're real pleased with our overall on reforming platform.

From the recent acquisition in health care with the <unk> to what we're doing.

On the quick serve market.

For a business.

And then those two cases, where we feel like we've got solid number one positions what youre going to see us talk more about in the future is less about a particular market segment.

Broached, two thermal forming but really throw on reforming in totality as it relates to do all of the.

<unk>.

Those issues for that I just described.

Well, let me say in midyear or so.

Just referencing our food thermal forming business in total.

But yes, a lot of changes have taken place last year, and then force as we start off this year.

On the Rogers talked about some of those are in the plan.

And if you don't want to answer maybe a little more for sure it's real quick for Georgia.

We completed the consolidation of the three operations on the West Coast, One Mega plant in California, So thats complete.

Now on the West coast, where al for raising prices on some certain on certain products as needed.

And frankly, we're putting some volume at risk until we mentioned some of the pros headwinds from a volume standpoint, so combined with that consolidation and some price moves on the west coast, We will see some volume pressure there but.

From a savings standpoint, what was the announcement we came out in the fourth quarter. We said, we would save about $10 million $10 million range on an annual basis from that consolidation.

And we see that playing out as Howard said, if you look at the rest of our thermal forming business, including a perimeter of store business on the east coast.

Growing.

Eggs are growing we've got new products on the marketplace and leafy Greens with a plastic thermo for them.

From Peel Reseal close talk from our flexible business.

So we're still excited about the perimeter of store business in general and the growth prospects.

More of a specific issue on the West coast that we had to deal with low as Howard said going forward, you'll hear us talk about some of our thermal forming food platform, which is very strong very successful.

We are leveraging those strengths across our perimeter of store business as well so.

Thanks for your question Yeah, that's very helpful. Roger Thanks for the color and quickly and I'll turn it over because I know, it's getting late on slide 16, you gave us a very helpful Bridge on your earnings guidance for the year and you know there is a.

Big bracket number on price cost, which we understand.

What assumptions do you have in that figure for.

For your latest pricing is that embedded in that number or could you shrink the negative price cost if in fact for successful with this latest round of pricing and overall what else could you do to take that figure lower you know given its diminishing of all the other good stuff you've got.

Going on between the volume and productivity. Thank you and good luck on the quarter.

George It's Roger.

On the assumptions in there.

Successful implementation of the first price increase that we implemented the first 50 on the tube and core increase.

So hopefully as we continue to implement the second we can see some of that price cost.

Come down we're also working hard on for it the hardest part of inflation on a break in the fourth quarter. So we took some very aggressive actions on the fourth quarter on the first part of this quarter.

Recovering that freight and working on our our freight contracts and finally resins as you know resin is going to be a headwind for us in the first quarter, we're expecting resin in the first quarter to be up in the 15, 16% range for the year and debt.

10% range are also aggressively out moving moving prices on a resin based products as well. So I think that kind of gives you the big three as far as inflation.

And our price cost recovery for 'twenty one.

Thank you very much good luck on the quarter guys.

Thanks.

Thank you. Our next question comes from the line of Adam Josephson with Keybanc. Your line is now open.

Thanks, Good morning, everyone Hope you and your families are well.

Howard one more on on the portfolio for you. Obviously you sold the European contract packaging business you took the impairment in the thermal flooring business.

How do you think about.

For the portfolio structured now do you do you think you need to further simplify it so investors will sometimes say that there's just there are many businesses to follow and it's.

It's somewhat complicated and it makes their lives more difficult and some of them have said more.

For portfolio easier to understand more of a pure play would just be would go down easier.

For some of them how do you think about the issue was how much you like all the businesses you have.

On the potential benefits of having a simple or company to explain to investors.

Thanks, Adam.

Just directly yes, you can expect that there'll be some further movement.

On the relative near to midterm.

But in total as we look at the portfolio.

Particularly as we've re segmented.

And goes out line item on line item, we have got some really solid businesses with some solid leadership.

And so frankly, while we will always be challenging.

The structure of our portfolio, particularly as we move for from a from an acquisitive standpoint.

It will always be under under.

What's the word I'm looking for.

I'm looking at our portfolio I'm not answering your question very well say that they.

So we're happy with the business, we've got there's going to be smoothed that out I would expect the relative near term both from a divestiture and acquisitive standpoint.

And.

As we set these new structures new segments in place I think youll see more logic to us as we go forward.

Terrific. Thanks for that and just one on guidance the 2% volume Max the company often starts for the you're guiding to about 2% on yes.

Sometimes fall short of that target for various reasons I know that's been the case for last couple of years, how much confidence do you have in that 2% volume mix target and just on the inflation you're expecting how would you compare that to the last big that of inflation you saw on too.

18 is it is it worse is it less bad.

Just any thoughts there.

So we feel good about the guidance.

And if you really go through the portfolio on consumer side of the business, where we're holding relatively flat.

You know when you look at that and say Hey, you had strong years related to Covid assortment as we start the year, we're seeing it that way.

But we also picked up new business through the course of the year. So there's room for them.

For some COVID-19 related degradation on the consumer side.

Skipping down into the industrial and we've talked about at the co.

On until the improvements we've seen.

And frankly, we are pretty much getting back to a normal type of run rate.

And as we enter again, the fourth quarter to go wrong globally, where see.

On a fairly strong demand very strong demand.

Not only here, but around the world and we've talked about the protective side.

Continued strength on the white goods space.

Could that be tapering off somewhat towards the towards the mid part of the year probably so.

As Roger pointed out on my former safe business. It continues to perform in the performance trend well independent of any type of Covid tight zone.

On the client situation so.

Actually it should be for some upside there. So when you look at that 2% to Phil for a pretty good about where we're where we're positioned at this point in time.

Thanks, Ed just on the inflation piece any comparison to the last day had a big inflation, how long lasting do you realistically think this is going to I know it depends on the global economy, but any strong views of the inflation situation, you're facing how temporary or longer lasting do you think it's likely to be.

For hard to make that call I think the critical part about that is recover side of it and again as Roger pointed out.

Extremely aggressive and specifically Roger was referencing on the industrial side than on the consumer side equally.

So when will it.

Start to subside.

Almost anyone's guess, but.

Our or our plan and how we're executing as to just recover that and recover it in for.

On a very rapid basis really can't comment on when we would expect to see that time and the outlook for rich.

Thanks, so much Robert.

Yes.

Thank you. Our next question comes from the line of Salvator Tiano with Seaport Global Your line is now open.

Yeah, Hi, Thanks for taking my questions are for.

Firstly, a little bit on on.

The uncoated recycled board.

You're outside you said that 50 dollar increase I think you mentioned before in your response for the question.

What are you assuming a $50 right now and if I remember correctly risk is reflected therapy can you first of all clarify.

That difference in what Youre seeing with your customers, what risi is reflecting and secondly, with the second price increase if it does go through in March what could be the potential impact on.

On the earnings both from 'twenty to 'twenty, one and on the non normalized basis.

Yes. This is Roger I'll start with the first question, Yeah, We announced 50 50 and as you said Rishi. It's a risky index has recognized 30, you know, we really cant comment or explain Grizzlies movement.

Movements, but we are we have achieved for 50, and our customer base as well as our 6%, 7% achieving core that was the first one.

And so far a really good performance on index $50 on increase effective March burst.

And then Rusty will do what Ritchie does but we're very confident in pushing those through.

We're doing the same in Europe, we're really doing the same in every region of the world. So at this point we're confident.

We'll see the majority of the second increase go through to our customer base.

And then we will follow the index as it changes.

Yeah.

Yes.

And with regard to that yesterday to the potential earnings from the March price increase goes through.

I would say accretive.

[laughter] yeah.

Okay Perfect day, let me ask one more question about the I guess your organic investments clearly vs snap up here with project horizon, but how do you see capex from 'twenty to 'twenty, two and beyond does the main project is done and essentially what opportunities do you see.

To increase due increased capex on a more sustainable basis.

Do you see on lot of projects I think you mentioned, a robust pipeline, but kind of give some examples.

Yeah.

A lot of examples so but let me go back to your first question we're going on.

We've inquiries for horizon, we're going to play this out this year, we will let you guys know what that looks like going for 'twenty, two and beyond the one on.

I will say as we talked about earlier in the year.

Go on through a strategic planning process with all our business units to say, what if you had more what did you do and they have come out with.

To your question can I give an example, I mean for us.

It's spread across a number on.

A number of the business units and we've been we walked away very impressed with how much depends on the man there is.

To deploy more capital dollars into our existing business shoes to mine, both for organic growth as well as productivity going forward.

I wouldn't do a lot of a lot of service Theres not a project horizon type project. It is really across the board on.

On across the portfolio, so no real big major.

From the lines at this point in time.

Perfect. Thank you very much.

Okay.

Uh huh.

Thank you. Our next question comes from the line of Jan Sham Tangibly with Baird. Your line is now open.

Hey, guys. Good morning, I guess going back to consumer in the 6% volume growth for the quarter for for Q.

Let's say, 2% from extra days and stuff like that.

But it really was well above the trend line from the previous three quarters.

Relative to your peer group and you know what.

On the package food environment was doing just more broadly.

So I guess first what changed there in terms of the volumes was there some sort of delay that impacted <unk> that flowed into <unk> or was it just a celebration at the end market level.

Yeah, I think <unk> gone from us.

To your latter point acceleration so normally as we play on the fourth quarter, we see a pretty busy.

While they are.

Our busiest months of the year is October for drilling in the November and we expect to see that taper down into December that didn't have.

And frankly somewhat across the board.

Theodore can business flexible.

On her former for new business as well for and frankly as we enter the first part of this year still remains.

Very robust.

Why is behind all of that can always just stay on of what we all know in terms of paying for stocking.

Consumption at home.

Frankly.

Could it be as well, but well the seasonality on the touches on that day, we normally would flow down breaks breaks on mid December.

Yes.

Got it and then just looking back over time I mean, it's rare for sonoco to have two consecutive years of you know.

Negative price cost is significant which is basically what you're guiding to for <unk>.

<unk> 21 based on the EPS bridges.

What makes this going back to an earlier question that what makes this particular inflation cycle different. It's just the rate of change for freight in and maybe insurance and maybe Joel if you could quantify the impact from higher insurance costs as well.

Yeah.

Yes gotcha.

We're seeing it across almost every category ever spend category.

And it's unfortunate from year over year, we're seeing the same type of but it seems to be a more broadly.

Going into this year than we have in previous year, where we may have had a commodity or a series of commodities. This is Roger had mentioned earlier.

And you mentioned insurance across the board so to your point, though directly on insurance debt that is meaningful.

Yeah.

It's about $6 million of year over year increase is what we're expecting and really a lot of that is on our property insurance, which is really.

Very market driven but.

Roughly $6 million is what we've got in our outlook.

Okay.

Thanks, so much.

Uh huh.

Thank you. Our next question comes from the line of Mark Wilde with Bank of Montreal. Your line is now open.

Good morning, Robert.

Julie.

Julia I wanted to just come back to an earlier question that Gabe asked and that is just about <unk>.

Leverage, particularly you know how you think about sort of the upper limit of leverage for you.

From potential acquisitions suite.

Heard you very clearly on wanting to remain investment grade, but what does that actually mean in terms of net debt to EBITDA or however, you want to measure it.

Yeah, absolutely. So yeah, absolutely board management extremely committed to the investment grade rating as Howard has already mentioned.

Our our GAAP.

Net debt to EBITDA as we wrap or as we wrap up the year and look into 'twenty and 'twenty. One is around two times. We do look closely at model really very regularly normal course of business our rating agency metrics right to keep an eye on our planning.

In the normal course, as well as you know obviously your opportunities and how we might address them from a balance sheet perspective, So you know.

We're pretty comfortable with our internal modeling around you know for type of business. The size, let's say that we can acquire and and remain investment grade. Although we obviously you know we.

We'd always keep in touch very closely we do keep in touch closely with the rating agencies, but.

Yeah, we again when we look at let's say just to pick one you know Moody's adjusted leverage ratio and that kind of like three times is something that we that we over a long term I'd say target, but we monitor very closely with our actual results and again as we model out.

Our future AR.

Profits cash flow scenarios that type of thing so.

I don't know Mark does that answer your question.

Yes, so we just thought about it like Simplistically in terms of net net.

On to EBITDA, what would that mean going to would you like.

What would the upper bound to be.

On a on a GAAP basis.

Yes.

Maybe like two and a half times or something.

Yeah.

From from Yeah, but of course really what we monitor.

Yeah really side by side is really our leverage on a on a rating agency adjusted basis right that that's obviously pretty important but they tend to move the GAAP and the adjusted ratios tend to move in tandem with each other but are we closely monitor.

Both sets of metrics.

How much room would you have right now.

Yeah.

Yeah, well you know, we we I mean.

Clearly have a very strong balance sheet right and they have.

Ample liquidity for our for the business. However, you choose to grow it so mark I mean.

Exactly we do have a very strong balance sheet.

That's gonna give us some opportunities as I've already talked about a bunch of sales where we have a question in terms of where we're going in terms of.

On the investing in ourselves expense spending more in terms of capital.

And certainly yes, we're going to continue.

Looking at the acquisitions that fit within our.

Core net are complementary.

But we are firmly committed to staying in as Julie pointed out.

That's been afraid.

Rating categories.

<unk> got a nice balance sheet you know all the uses of cash are we talked about in the opening comments.

If if if they'd be share of IMAX, if we don't have better use for cash, but we think at this point in time, we've got some pretty good opportunities both internal and external.

But.

Focused on our core.

The strength of our balance sheet.

Okay and Howard for follow on I just.

I don't want to like flogging, a dead horse here, but.

I'm just curious you, but you seem to be exiting kind of display and fulfillment business that was actually a pretty big acquisition for you and then a pretty big target for incremental capital.

You've taken some write downs on that west coast thermal forming business.

You look at what happened in those cases, what are the lessons that you take going forward in terms of future M&A.

That's a that's a big question.

Your point about the display and packaging that's a business that's been around for a long time that was built around the strategy that we were running during that period of time I think most of you.

Shortly we.

Realized that it played its course in terms of being a strategic asset.

<unk> has noted that has performed well.

This has not been.

Hey Division that we feel strategically that was important to us we can talk about froze Roger went through some of the changes except for that.

Debt, we've we've put in place to improve that business, but I think more to your point.

Select acquisitions that we.

I think what Youre trying to say that maybe we've learned from losses in terms of what may or may not have gone to our initial strategy. We've got plenty of them debt have and I guess the point I'd like to leave you guys with kind of takes us back to about a year ago, where we said as a company as a leadership team.

And so we've got some things in our portfolio that we need to clear all display and packaging was really no secret.

We've acted on that and dealt with that we have been very open.

For really for the last couple of years that we've had issues on the west coast portion of our thermal forming business and we've dealt with that as well so I'm, hoping you'll your takeaway from this is that.

We're actually doing what we said we're going to do we're going to wanted to address the issues that we've got in our portfolio and we're going to move this company for.

Okay, I'll turn it over good luck.

Thank you for.

Thank you. Our next question comes from the line of Josh Spector with UBS. Your line is now open.

Yeah, Hey, thanks, Thanks for squeezing me in here.

A question on the tubes, and core business and the performance over the last couple of quarters with North America is still down and rest of world up I was just wondering if he provides for a context about what would drive that is it product mix regional dynamics and what's kind of your outlook for those two different parts of the business over the next couple of quarters. Thanks.

Yes. This is Roger it's primarily product mix, even though it has declined over the years, a graphic papers on newsprint and printing and writing papers, there's probably still 'twenty five 'twenty six 'twenty, 7% of darts, even for business represents that much of our tube and core business on the U S.

It's less than that outside of the U S. In fact, we've seen very strong recovery in textbook from the bottom.

On the markets, you know down 40% to 40% of previous year in the second quarter back to 90% in the fourth.

On <unk>.

Seth.

As we start off for new year's assignments film.

So that's really the dynamic you're seeing as well as you know we've got some really good.

And in Europe, and in Russia, and Turkey, some of the emerging markets around textbooks.

So that's the dynamic you see and we would expect and are projecting on to the core business in the first quarter.

Turned positive and kind of followed the trend of the rest of the regions on the world.

Thanks, that's helpful and just quickly on your OCC outlook Youre forecasting a modest increase from today's price for not holding through the year. What gives you conviction on that taking place on a how much conviction do you have in that view.

[laughter] appointed on each other.

Yeah right right.

Forecast for buying all the time on we feel pretty comfortable with that range can it move up plus.

Plus or minus 10.

$10 range, we don't see any real.

Really.

Where if we could see it increase on that.

On rapid debt base or frankly day.

For us to.

At this point in time, we feel pretty comfortable with the range. We're in on understanding that there will be some.

Some volatility on that.

Okay. Thank you.

Yeah.

Thank you.

Next question comes from the line of Carl <unk> with Deutsche Bank. Your line is now open.

Hey, good morning, Thanks for taking question I just wanted to follow up on Salvatore question regarding your being pricing. Just curious if you can give us how much of your business there and the contracts are tied to the actual risi index relative to maybe some of the cost base mechanisms that you have.

Yeah. So if you look at.

Our tube and core business about 60% is tied to the index.

25% for what we call the open market and about 15% OCC paper really is more tied to I used to see about 50%, whereas gradually increasing our external they pay for sales to risky, but its about 25% on our balance for open market.

So a little bit of a mix between U U R. B.

Paper.

But that's where we are today.

Right.

Got it and then I'm just curious there was a larger kind of change of hands on the consumer space regarding the nuts. I was just wondering if there's anything there in terms of change of control provisions regarding that customer or business or anything with the existing contract that could potentially be at risk as a result.

Talking about the planters business soon.

Yes.

Yeah.

We should be fine we supply.

Paperboard cans for planters nuts for many many years of dedicated facility for that for that volume. So we see no issue with that going to Hormel look forward to building a bigger long lasting relationship with hormel. So we view that as an opportunity.

Sounds good I'll turn it over.

Thank you.

We do have a follow up question from the line of Salvator Tiano with Seaport Global Your line is now open.

Hey, guys. Thanks for taking the follow up so late actually but very quickly I guess on the volumes in.

In industrial paper, I think people are down 8% to 10% over the past three years.

Youre seeing on recovered to 23%, what's kind of preventing you from.

From growing a little bit more and has there been any meaningful cash from reducing your become basket with some closures in the past year or so.

On your bonds.

Yes, if you'll recall we've taken too.

Machines out of the U R R.

ERP system in North America.

And our commitment has been as we invest in our low cost machines and add capacity that will be at the same time take out any high cost capacity, that's what we've done over the past few years.

So I think it was 120000 tons or so although we removed.

As we continue to invest.

Lowest cost machines, and that's our commitment going forward.

Okay.

Oh, Thank you there.

There are no further questions I would now like to turn the call back to Roger Schrum for closing remarks.

Yeah, Thanks for everyone's patience for giving us your time today and again, if you have any.

Any further questions. Please don't hesitate to give us a call. Thank you again for your participation.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

[music].

Ladies and gentlemen, thank you for standing by and welcome to the fourth quarter Twenty-twenty Sonoco earnings Conference call. At this time all participant lines are on a listen only mode. After the speaker's presentation there'll be a question and answer session for asking the question, though on the session you will need to press Star then one on your tele.

Please be advised that today's conference is being recorded if you acquire any further assistance. Please press Star then zero I would now like to hand, the conference over to your house the day, Roger Schrum, Vice President Investor Relations. Please go ahead.

Thank you Sarah and good morning, everyone welcome to our fourth quarter and full year Investor Conference call. Joining me today are Howard Coker, President and Chief Executive Officer, Roger for Executive Vice President and Julie Albrecht, Vice President and Chief Financial Officer.

A news release reporting our financial results was issued before the market opened today and is available on the Investor Relations website at Sonoco Dot com.

In addition, we will reference a presentation on our 2020 financial results and our 2021 outlook, 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.

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

Thanks, Roger I'll begin on slide three we see that earlier. This morning, we reported a fourth quarter loss on a GAAP basis of 12 <unk> per share and base earnings of 82 per share, which was above the top end of our guidance range of 70 to 80 cents per share.

This quarter's base EPS results were also 7% stronger than the 75 cents, we delivered in the fourth quarter of last year.

Our fourth quarter results were above our expectations, primarily due to better operating performance across all four segments.

Businesses that improved most notably compared to our expectations we're flexible.

Global rigid paper containers.

Integrated industrial North America, and Thermos safe.

In terms of the 94 net difference between base and GAAP EPS 56 cents related to asset impairment charges, most of which related to our perimeter of store thermal forming operations.

17% was driven by our display and packaging Europe divestiture.

11% was due to restructuring activities.

<unk> expense was from non operating pension costs.

<unk> expense was primarily from M&A and other expenses.

Now moving to our base income statement on slide four and starting with the top line you see net sales were $1 billion $376 million up $67 million from the prior year period.

I'll review more details about our key sales drivers on the sales bridge in just a moment.

Gross profit was $275 million.

8 million above the prior year.

<unk> solid performance lifted our gross profit as a percentage of sales to 20% or 110 basis point improvement versus last fourth quarter.

SG&A expense of $149 million increase.

<unk> increased by $16 million year over year, mostly driven by the timing of compensation expense increases.

I'll also highlight that we did have lower expenses tied to COVID-19, such as travel, but they were offset by the addition of expenses from acquired businesses.

All of this resulting in operating profit of $126 million, which is $12 million above last year.

I'll discuss the key drivers on the operating profit bridge in a few minutes.

Net interest expense of $19 million was $3 million higher than last year due to the actions. We took in 2020 to strengthen our liquidity position.

Income tax expense of $25 million was.

Was slightly above last year due to our higher pre tax profits.

Our fourth quarter 2020 effective tax rate of 23, 5% was mostly unchanged from the prior year quarter.

Moving down to net income our fourth quarter 2020 base earnings were $83 million on 9% increase over last year.

And for your information we have included a full year base income statement and the ending of the index as well as full year bridges for both sales and operating profit.

And looking at the sales bridge on slide five you see volume mix was higher by $52 million or 4% for the company as a whole.

This increase was roughly split between stronger demand as well as two additional days in the quarter versus last year.

Consumer packaging volume was up $33 million or about 6%.

We had continued nice growth in global rigid paper containers, which saw volumes increased by a robust nine 5%.

Our flexible business demand grew by a solid 3% due to continued COVID-19 eat at home patterns, most pronounced in our cookies and crackers and used for debt.

Finally, global plastics volume was flat driven by prepared and specialty foods demand growth at almost 12%, but this was offset by continued weakness in the industrial end use markets as well as lower volumes and perimeter of store.

Display and packaging volume was down $8 million or five 5% driven primarily by lower demand specifically driven by the pandemic.

Moving to paper and industrial converted products volume was up $7 million.

Or one 5% as volumes recovered in our global paper mill network as well as across our tubes cores and cone operations.

And finally sales volume in protective solutions was up $19 million or about 16% driven by strong demand in each business unit within this segment.

So moving across the bridge to price you see that selling prices were higher year over year by $6 million.

This was driven by price increases in the industrial segment, partially offset by decreases in the consumer segment, each primarily driven by raw material costs.

Additionally, we do continue to see benefits from the recognition of the value of our products and services provided to our customers.

Moving to acquisitions and divestitures, you see a topline impact of $11 million from the addition of <unk> and can packaging in our consumer segment with a partial offset from the sale of displays and packaging Europe at the end of November.

And finally, the sales impact from foreign exchange and other items was negative by $2 million and includes no unusual activity.

So moving to the operating profit bridge and starting with volume mix, our higher sales volume of $52 million combined with the impact of mix had a positive impact on operating profit of $22 million.

Moving to price cost I'll remind you that this category includes the earnings benefit from higher selling prices as well as the impact of total inflation.

In the fourth quarter, we have $36 million of unfavorable price cost, which was roughly split between the impact of non material inflation and negative price cost dynamics within our industrial segment, all of which was in line with our expectations.

As usual there is a slide in the appendix that shows recent OCC trends and you'll see that in the fourth quarter of 2020 Southeast OCC official board market pricing was stable at $70 per ton until market pressures caused an increase to $80.

On December all resulting in an average of $73 per ton in the fourth quarter.

This was more than double $35 per ton average in the fourth quarter of last year.

Next you see the impact of productivity.

See that our total productivity in the fourth quarter was a very strong $42 million year over year.

We had solid execution across our productivity levers and shop floor execution for.

<unk> as well as fixed costs due to a combination of deliberate cost controls and restructuring benefits.

And finally, the change in other was unfavorable by $16 million with various moving pieces, but primarily related to the timing and amounts of compensation expense.

So moving to slide seven you'll find our segment analysis, where you see that consumer packaging sales were up 10% driven by the addition of <unk> and can't packaging as well as higher volume driven by Covid EBIT home behaviors.

Consumer segment operating profit profit increased by 47% driven by strong volume mix and excellent productivity results.

Our consumer segment margin jumped by 280 basis points to 11, 1% versus the fourth quarter of last year when the margin was eight 3%.

Display and packaging sales were down by 20%, mostly due to the divestiture of DNP Europe as well as lower demand due to COVID-19.

Operating profit was down 11% the margin did improve by 50 basis points to five 3% due to productivity actions and divesting the lower margin European business.

Paper and industrial converted products sales grew by three 6% due to year over year price increases as well as the recovering demand.

Operating profit declined by 28% due to much weaker price cost dynamics compared to the prior year.

These headwinds were somewhat offset by solid improvements in productivity.

The industrial segment's operating profit was seven 1% of sales down by 310 basis points when compared to the fourth quarter of last year.

And finally protective solutions sales grew by 17%.

Operating profit increased by a very strong 42, 5% due to the stronger volume as well as better cost efficiencies.

This segment's margins improved to 11% a solid 200 basis point improvement over the prior years, 9%.

So for the total company sales were up just over 5% and operating profit increased by 10, 5%, resulting in company wide operating margin of nine 2% of sales.

Yes.

So shifting to cash flow in the middle of this slide you see that our full year operating cash flow was $706 million.

Compared with $426 million in 2019, an increase of $280 million.

The largest single driver to this increase was the $165 million of after tax voluntary pension contributions that reduced last year's operating cash flow.

Midway down the slide you'll see that our working capital balances decreased in 2020 by $51 million, which was a $15 million higher source of cash compared to last year.

This was a result of significant improvement in all aspects of our working capital management, despite the very challenging business environment.

Moving down to other operating activity for $75 million cash generation from this category includes an approximately $30 million benefit from Covid related FICA deferrals.

As well as an approximately $35 million cash tax benefit from our planned pension termination contribution in 2021.

Now moving on to free cash flow, our net capex spending was $184 million, a slight increase of $2 million compared to last year.

And our dividends paid in 2020 were $173 million compared to 170 billion in the prior year.

And finally, our free cash flow for the full year 2020 was $349 million, an increase of $275 million over last year and virtually all of this proved cash flow was driven by the higher operating profit our operating cash flow debt I just reviewed.

Okay.

On slide nine you can see that our balance sheet and our liquidity position remains extremely strong.

Our year end 2020, consolidated cash balance of $565 million increased by $420 million during the year.

This increase reflects the proceeds from the divestiture of display and packaging Europe, and our very strong cash flow generation.

On what reduced by the acquisition of Cam packaging in the third quarter.

Our consolidated debt totaled $1 $7 billion at the end of 2020.

An increase of only $19 million from the prior year and following our $442 million repayment of short term debt during the fourth quarter.

And finally, you'll see at the bottom of this slide that are net debt to total capital decreased from 45, 8% at the end of 2019 for 37% at the end of 2020.

So with that I will hand, it over to Howard.

Julien Good morning, everyone. Let me provide some brief commentary regarding our full year for <unk> and then talk about our strategic direction in 2021.

Before I turn it back to Julie to provide you details regarding our guidance.

2020, with both the tests of our resolve as a company I'll touch on the strength of our people on a.

First of all no I cannot thank enough for 20000 associates around the world for all they have done and continue to do to.

To meet the critical needs of our customers during this pandemic.

And for supporting me in my first year in this role.

Despite COVID-19 our team quickly refocus operations for accelerated production on food packaging to meet consumers' growing demand.

While making adjustments in our industrial and relays and related.

Businesses, such as protective packaging in response to demand for us.

We develop vitally needed temperature assured packaging to begin shipping life, saving vaccines and therapeutic drugs to combat the spread for the borrowers and we further improved our portfolio.

Our core on cap hydrogen for European designer and manufacturer of sustainable paper packaging and related equipment.

In our lower margin European contract packaging businesses.

As shown on the full year segment review on page 10, we had a strong year on consumer packaging with organic sales of about 2% and operating profit reaching a record.

21, 27% from last year.

Rigid paper containers with a strong year with volume mix up more than 4%.

Flexible also had one of its best years, although volume was mixed with gains in food products also.

Declines in confectionery sales.

Prepared on specialty plastic trays from an exceptional year with organic sales up double digits, but that was also low volume declines on our economic sensitive industrial plastics business.

Display and packaging net sales declined at a flow and refill activity. During this pandemic. However, the team managed the business very well and operating profits increased by 10%.

The pandemic also had a significant impact on our global pay for industrial segment.

Last year with operating profit declining nearly 30% due to a 4% decline in volume mix and a negative price cost relationship driven by rising OCC prices.

As we mentioned previously industrial volumes declined significantly on the second quarter of the year, but recovered through the rest of the U S continued to improve as we enter this year.

Finally, our protective solutions segment on a strong second half of 2020, which drove a 3% improvement in operating profit.

Now, let me switch gears and talk about our strategic focus as we enter 2021.

The key part of our strategy is to invest in ourselves to draw on.

With growth and margin improvement in businesses, we know and know well.

A prime example of this strategy is our 114 million on investment and project horizon.

Which will convert our hartsville corrugated medium machine to produce uncoated recycle paperboard.

When completed by the fourth quarter.

<unk> 2022.

This project will drive approximately $30 million on annualized cost savings.

In addition, the project Horizon, we have developed a strong pipeline of high return internal opportunities.

Relative to accelerate growth.

For enhanced productivity.

We expect to spend approximately $85 million on project Horizon 2021.

So let me give you a quick update on our progress therefore aspects of the project starting with modernizing our facilities to better transport handle and store recovered paper.

For well length of the demolition and expect this phase of the project to be completed by July.

Next is on the construction of a new stock prep system.

Which will feed our 180000 ton per year, new your baby's shape as well as other Sullivan from machines on campus.

The new pumping system will allow us to use more mixed paper on the floor on calls and construction. There begins on March four and should be completed by September.

Well Frank once this activity with the building on the new finished goods warehouse to modernize the finishing and storage areas Wolfcamp a.

With good complex should be completed by mid October.

Finally, the conversion of the machine should be completed in March of 2022, meaning we will soon be producing maybe on through the end of this year about three months longer than we previously planned.

Before I turn the call back to Julian I want to mention that we will change our reporting structure in 2021 to better reflect how we are managing our businesses going forward.

There is a picture illustrates the smoothed simplified structure on page 11 of our presentation.

This change will leave us with two reporting segments consumer and industrial paper packaging on our remaining businesses will presented in the all other group.

Effective solutions on display and packaging segments will be eliminated.

And their business was moved into this new structure.

Changes for the consumer packaging segment will include moving our <unk> healthcare packaging and industrial plastics business.

To all other <unk>.

Industrial for us.

Excuse me industrial paper packaging will be relatively unchanged.

Except for our fiber protective products unit will be added from the former <unk> solutions segment.

All other will include our healthcare and protective packaging businesses, including Tech Sanofi.

Sonoco Derma side.

Number on ultimate automotive molded foam as well as alloyed retail security packaging.

And the U S display and packaging those issues.

So julien with that.

Wanted to talk about our financial guidance for 2021.

Absolutely Thanks, Howard so on.

On slide 14, you'll see our key assumptions for our 2021 on guidance.

As a starting point our outlook was developed using regional macroeconomic recovery assumptions related to COVID-19 with recovery generally occurring around midyear 2021.

After factoring this overall level of economic activity and with what we're hearing from our customers about our served markets along with activity in our sales funnel, we're targeting to drive a 2% increase in volume for the company as a whole and I will provide more information about volume outlooks by segment in a few minutes.

The impact from the recent divestiture of display and packaging Europe and the acquisition of can packaging are reflected for a full year in 2021 as these deals close in the second half of last year.

In terms of selling prices and related costs that are tied to market indices. The outlook for old corrugated containers or OCC is to average $90 per ton, while the 2020 average was $71 per ton.

In addition, our outlook assumes that resin prices will increase approximately 10% over last year.

Inflation is a challenge as we start this year. So our outlook includes significant inflation headwinds in areas, including freight and insurance.

Our interest expense is projected to be lower by $12 million in 2021, primarily due to our expected repayments and refinancing of debt that is maturing this year.

In terms of taxes, we've estimated our 2021 effective tax rate to be 25, 4%, which is flat to 2020.

So on the next slide you see our 2021 outlook sales bridge for again for the company as a whole we expect 2% volume improvement to drive an increase in sales by $105 million.

I'll now provide some color around our volume expectations for each segment using our new segment structure that Howard has described.

Our demand and perimeter of store.

We expect our industrial segment volume to increase by about three 5% year over year global tube core and cone volumes rebound by about by about 7%, while global global paper is expected to recover with gross growth of approximately two 5%.

And in all other were projecting a four 5% increase in volumes driven by high single digit growth and thermos safe THQ and retail security, partially offset with lower growth rates in other parts of this business grouping.

So moving across the sales bridge, you see a positive impact of prices of $115 million year over year on.

Our industrial segment makes up about two thirds of this increase.

Overall these price increases are driven by contract pricing resets tied to market indices as well as our continued focus on our commercial excellence activities.

Next you see acquisitions, and divestitures, which mostly reflects the impact from the divestiture of display and packaging Europe, which is slightly offset by the addition of canned packaging.

And finally, the sales impact from foreign exchange and other is $17 million, primarily due to foreign exchange translation, assuming a weaker dollar in 2021.

So in total you see that our 2021 protective sales or $5 2 billion.

So now moving to the base EPS bridge and starting with our 2020 base EPS of $3 41 per share I'll first point out that we expect the net impact of the acquisitions and divestitures made in 2020 to reduce earnings by <unk> 14.

Primarily due to the divestiture of display and packaging Europe.

So now that we've removed our acquisitions and divestitures from our 2020 actual results. We can focus on how the operational drivers to our earnings compare on a year over year basis.

The 2% overall volume growth that I described earlier with mixed considered is expected to add 23 to base earnings.

Next we project to have a positive impact of <unk> 40 per share for total productivity, which is split between procurement and manufacturing gains.

You then see a positive impact of <unk> 12 cents, mostly from lower interest expense and improved foreign exchange translation.

Moving to price cost inclusive of material energy and freight cost changes were expected to have a net negative price cost impact of <unk> 43 per share.

This does include favorable increases in selling prices year over year, but these are more than offset by inflation in key areas, such as freight insurance and compensation.

And finally related to.

Strategic investments and other items there is a net negative impact of nine <unk> per share.

In 2021, we are increasing our spending to upgrade key elements of enterprise technology, including network infrastructure improvements and our global ERP deployment.

In addition, we do have a headwind from the non recurrence of certain unique other income items last year.

All of these base EPS movements result in our 2021 outlook for base EPS of $3 50 per share an improvement of two 5% over 2020 reported base EPS for an increase of 7% after adjusting for our.

Acquisition and divestiture activity last year.

Okay.

So before I review, our 2021 free cash flow guidance I'll note that beginning this year, we are changing our definition of free cash flow to be operating cash flow less net capex spending.

Our cash flows for the dividend, we will no longer be included in our free cash flow definition or results.

So for 2021, our outlook is to generate $285 million of free cash flow compared to $522 million in 2020.

The key assumptions underlying our 2021 outlook or no change to year end 2020, working capital balances and capex spending increasing to $300 million.

This higher Capex spending does reflect our invest in ourself strategy and as Howard noted includes about $85 million related to project horizon.

We also have an approximately $45 million year over year cash flow headwind related to the $30 million of FICA payments deferred from 2020 and required to be made in each of 2021 and 2022.

So before I finish my comments I'll add that we are active with our pension termination process that we've discussed previously.

We currently expect the process to be completed in mid 2021, when it within a new authorization of approximately $1 billion of U S pension liabilities.

We do expect to recognize on approximately $560 million non base noncash settlement charge mid this year related to this pension termination process.

In addition, we expect to make a voluntary pension contribution of around $150 million when we complete the termination and a new innovation process.

For now we've excluded this contribution from our 2021 cash flow guidance due to the due to the inherent uncertainty about the amounts and final timing of the contribution.

And so with that I'll turn it back over to Howard.

Thanks Julien.

'twenty one we feel good about how our balance mix of consumer and industrial businesses are progressing despite the uncertain economic outlook.

The positive momentum we experienced at the end of 2020 seems to be continuing into the first for our consumer packaging segment, which is primarily focused on food packaging should continue to benefit from consumers eating out.

Demand in our industrial paper packaging market continues to show sequential improvement, although we still face a negative price cultural relationship escalated year over year.

Recovered paper price and other operating costs.

Ill mentioned, we are aggressively working to recover this inflation.

<unk> recently announcing a second $50 per ton on price increase for Europe.

In the U S on Canada effective March one.

We believe we can achieve this price increase as we continue to experience significantly longer backlogs in our mill system and inventories remain high.

On all other.

<unk> pharma demand on our pharmaceutical and industrial markets. We're still in the early days of providing qualified cold chain shipping solutions for FDA approved Covid vaccines and therapeutics for the broader public who we expect demand to expand last mile distribution systems become more on us.

<unk>.

Finally, turning to slide 19, I want to make just a few comments about our balance capital deployment strategy as Julian mentioned capital expenditures will increase to $300 million in 2021.

Driven primarily by project horizon on hold over capital projects that were delayed by the pandemic in 2020.

Returning cash to our shareholders remains a top priority.

And we were pleased that the board authorized a 5% increase to our dividend representing the 96th consecutive year, we provided a cash payout for our shareholders.

I'll also mentioned this is the 38th consecutive year that we have increased dividends.

Our payout.

Roughly 3%.

M&A has historically been an important element of our strategy and we continue to selectively acquire on the vas to help optimize our core consumer and industrial portfolio.

<unk> balance sheet and robust cash flow provides us a solid platform to evaluate and pursue most of the internal and external opportunities. However, we remain committed to maintaining our investment grade rating.

Following on share repurchases are always an option, but only if for one on unable to file on the rise internal or external investment opportunities.

We're proud of how our people have grown comfortable operating on comparable times, we remain confident that sonoco is well positioned for when the growth of the pandemic weakens. We will continue to invest to reinforce the long term potential of our core businesses, while remaining committed to returning.

Value to our shareholders.

Now with that operator would you. Please review the Q&A for CCAR.

Thank you.

Reminder, to ask a question you will need to press Star then one on your telephone to withdraw your question. Please press the pound key.

Our first question comes from the line of Gabe <unk> with Wells Fargo Securities. Your line is now open.

Good morning, Hope you and your families are low.

I appreciate it it's difficult to comment in a format such as this but I guess without a few reports out indicating sonoco as a potential better for certain assets in Europe.

I was hoping you could maybe help us think through the strategic merit.

Transaction, including kind of your you for.

Footprint on the region as well as your experience on getting food.

To retailers in the supply chain in both for use in Europe, and then lastly, Steve.

Thank you.

Finalize your comments with Howard your investment grade rating is obviously important so to the extent.

You would consider using equity as well.

As a form of payment there.

Thanks, Good frankly.

I've actually heard.

Rumors.

One of the reports and frankly.

Not necessarily surprised that they are out there considering.

Our plan on closures business on the correlations there, but frankly to your opening.

We really arent going to.

Good day.

You have any context as it relates to market type of speculation.

That's really about as far as I can go with them.

Oh.

I appreciate that no problem.

On the temperature assured side you talked about.

On a waiting for the supply chain to.

To get together.

And really that's where you where you want to participate.

To the extent that you can comment.

I have done work there can you give us any sense for what that opportunity might look like.

More.

I guess specificity around timing.

We've started seeing activity really for the.

Fourth quarter.

Wouldn't call it terribly material in the fourth quarter, we're seeing on ramp up at this point in time.

Yeah, it's really really difficult for us to.

To really.

Quantify what this could possibly mean.

As we noted earlier there.

A bit of chaos for the market right now, but our feelings are as things stabilize as we start to see more we call that last mile pipe deliveries, we certainly expect to be.

On.

Be well engaged with that.

But frankly good from.

From where we sit right now and as we look into.

Our forecast for the year as it relates to reformers say for protective.

We're on we're not being overly aggressive right now we really got to see how this thing plays well.

We certainly will be for participants.

Roger you got any co or do you want to add.

Hi, This is Raj and the only thing I would say.

Okay.

<unk> pharmacy is a fantastic year in 2020, a record topline and bottom line performance as.

Yes.

Continue to win new business across the pharma space, we will be involved in delivering on COVID-19 vaccines, we booked some business.

Simply too early to put an estimate on the total we expect normal safe in 2021 gross to be in the high single digits.

I'll cover debt vaccines and above into double digits with go to vaccines.

On a second quarter meeting I think we'll be able to give you for AMR numbers. Some of the incremental other vaccines that are in process of being approved come out but.

But for now it's just too difficult to give you a specific estimate.

We're excited about it it will be an opportunity for us.

Great. Thank you guys. Good luck.

Yeah.

Thank you. Our next question comes from the line of George Staphos with Bank of America. Your line is now open.

Thanks, very much hi, everyone. Good morning, Thanks for all the details.

Yes. The first question I had is gonna be co.

On a couple of parts on just the portfolio.

A couple of times during the call today and in the prepared remarks, you referenced that the perimeter of stores still seemingly anyway.

Forming perhaps less well than you would like if you could give a bit on the call.

Sure on what's going on in the business relative.

Relative to say a quarter or two or three ago.

Now how.

How will you think it fits in the portfolio both in terms of sales mix on your own capabilities and then related to that you mentioned in your slides you're.

Pursuing accretive acquisitions and core consumer and industrial markets.

Can you give us some guardrails on what would tend to be more.

[noise] appealing type of acquisition for sonoco versus a less appealing one as were.

Studying your strategy on what you what you might do down the road and I had a quick follow on to that.

Sure George Let me briefly talk about the acquisitions.

One of the things that we've said consistently for the last year. So.

We're really happy with the foundational businesses that we have on our portfolio.

If you want to think in terms of where we would be interested in.

And growing and building on the acquisition base EBITDA.

And.

Basically saying within on what we feel like our core competencies and staying in that line now of course, we've got.

Quite a number of businesses across our portfolio both on the industrial on the consumers on and I can simply just say that any acquisitions that we do.

And I've said this before should not be a surprise to me.

Anyone that you should say Aha I get it thats exactly what they've done.

That makes sense for sonoco to make that type of acquisition.

I'm going to let Roger give more color on the perimeter of the store.

Question, but just quickly on where it fits.

So we're real pleased with our overall on reforming platform from the recent acquisitions on health care with the <unk> to what we're doing.

On the quick serve market.

On <unk> business.

And in those two cases, where we feel like we've got solid number one positions what youre going to see us talk more about in the future is less about a particular market segment.

Approach to thermal forming but really throw on reforming in totality as it relates to do all of the.

On the.

Those issues for that I, just described so youll, probably be saying midyear or so.

Referencing our food thermal forming business in total.

Yes, so a lot of changes have taken place last year, and then force as we start off this year.

And the Roger talked about some of those.

And if you don't want to answer maybe a little more for sure. It's real quick for Georgia as an update we have completed the consolidation of the three operations on the West coast on Mega plant in California, So thats complete.

Now on the West coast, where al for raising prices on some certain on certain products as needed.

And frankly, we're putting some volume at risk unduly mentioned some of the headwinds from a volume standpoint, so combined with that consolidation and some price moves on the west coast, We will see some volume pressure there but.

From a savings standpoint, what was the announcement we came out in the fourth quarter. We said, we would save about $10 million on a $10 million range on an annual basis from that consolidation.

And we see that playing out as Howard said, if you look at the rest of our thermal forming business, including a perimeter of store business on the east coast.

Growing.

Eggs are growing we've got new products on the marketplace and leafy Greens with a plastic thermo for them.

Bottoms with a Peel reseal close talk from our flexible business.

So we're still excited about the perimeter of store business in general and the growth prospects.

More of a specific issue on the West coast debt, we had to deal with so as Howard said going forward, you'll hear us talk about some of our thermal forming food platform, which is very strong very successful and we will be leveraging those.

Those strengths across our perimeter of store business as well.

That answer your question, Yes, that's very helpful. Roger Thanks for the color and quickly and I'll turn it over because I know, it's getting late on.

On Slide 16, you gave us a very helpful Bridge on your earnings guidance for the year end.

A big bracket number on price cost, which we understand.

What assumptions do you have in that figure for your latest pricing is that embedded in that number or could you shrink the negative price cost. If in fact, you're successful with this latest round of pricing and overall what else could you do to take that figure lower.

Given its diminishing of all the other good stuff you've got going on between the volume and productivity. Thank you and good luck in the quarter.

George It's Roger.

The assumptions in there are the.

The successful implementation of the first price increase that we implemented the first 50 on achieving core increase.

So hopefully as we continue to implement the second we can see some of that price cost.

Come down we're also working hard on freight the hardest part of inflation on on break it in the fourth quarter. So we took some very aggressive actions on the fourth quarter and the first part of this quarter.

And recovering that freight and working on our our freight contracts and finally resins. As you know resin is going to be a headwind for us in the first quarter, we're expecting resin in the first quarter to be up in the fifth day, 6% to 8% range for the year and the 10% range for we're also aggressively out moving.

Moving prices on a resin based products as well.

That kind of gives you the big three as far as inflation.

On our price cost recovery for 'twenty one.

Thank you very much good luck in the quarter guys.

Alright.

Thank you. Our next question comes from the line of Adam Josephson with Keybanc. Your line is now open.

Thanks, Good morning, everyone Hope you and your families for well.

Yeah, Howard one more on on the portfolio for you. Obviously you sold the European contract packaging business you took the impairment in the thermal flooring business, how how do you think about.

On the portfolio is structured now.

Do you think you need to further simplify it so investors will sometimes say that there's just there are many businesses to follow on it.

It's somewhat complicated and it makes their lives more difficult and some of them have said more.

Simple portfolio easier to understand more of a pure play would just be would go down easier.

For some of them how do you think about the issue of how much you like all the businesses you have.

Against the potential benefits of having a simple our company to explain to investors.

Thanks, Adam.

Directly yes, you can expect that.

There'll be some further movement.

In the relative near to mid term.

But in total as we look at the portfolio, particularly as we have re segmented and goes on line item on a line item. We have got some really solid businesses with some.

All of the leadership.

<unk>.

And so to frankly volume will always be challenging.

The structure of our portfolio.

As we move forward from from an acquisitive standpoint.

It will always be under.

Under.

Hum.

I'm looking for.

For the Bronco.

Looking at our portfolio I'm not answering your question very well on say that.

So we're happy with the business, we've got there's going to be some movement I would expect in the relative near term both from.

Divesture and acquisitive standpoint.

And.

As we set these new structures and so on this new segments in place I think youll see more logic to it as we go forward.

Terrific. Thanks for that and just one on guidance the 2% volume Max the company often starts the year guiding to about 2% on this.

Sometimes fall short of that target for various reasons I know that's been the case for last couple of years, how much confidence do you have in that 2% volume mix target and just on the inflation, you're expecting how would you compare that to the last big that of inflation you saw.

18 is it is it worse is it less bad.

Just any thoughts there.

We feel we feel good about the guidance.

And if you really go through the portfolio and consumer side of the business, we're holding relatively flat.

When you look at that and say Hey, you had strong years related to Covid and assortment as we start the year, we're seeing it that way.

But we also picked up new business through the course of the year. So there is room.

For some COVID-19 related degradation on the consumers.

Skipping down into the industrial and we've talked about at the <unk>.

On until improvements we've seen.

And frankly, we are pretty much getting back to a normal type of run rate.

And as we enter again, the first quarter to go around globally where C.

On fairly strong demand very strong demand.

Not only here, but around the world.

We've talked about the protective side.

Continued strength on the white goods space, we could that be tapering off somewhat towards towards the mid part of the year probably so.

Roger pointed out on <unk>. It continues to perform and perform extremely well independent of any type of Covid tied.

Type situations.

Actually it should be for some upside there. So when you look at that 2%, Phil Frohlich pretty good about where we're where we're positioned at this point in time.

Thanks, Ed just on the inflation piece any comparison to the last day had a big inflation, how long lasting do you realistically think this is good I know it depends on the global economy, but any strong views of the inflation situation, you're facing how temporary or longer lasting do you think it's likely to be.

For hard to make that call.

Critical part about that is recover side of it.

Again as Roger pointed out.

Extremely aggressive and specifically Roger was referencing on the industrial side than on the consumer side equally the same.

So when will it.

Start to subside.

Almost anyone's guess, but.

Our plan and how we're executing as suggest recover that and recover it in full.

On a very rapid basis really can't comment on when we would expect to see that Tony and the outlook for rates.

Thanks, so much for park.

Okay.

Thank you. Our next question comes from the line of Salvator Tiano with Seaport Global Your line is now open.

Yes, hi, Thanks for taking my question for.

Firstly, a little bit on.

On the uncoated recycled board.

So as you said that 50 dollar increase I think you mentioned before to respond for the question.

What are you assuming a $50 right now and if I remember correctly risk is reflected therapy, how do you first of all clarify.

That difference and what Youre seeing with your customers versus what <unk> seen and secondly, with the second price increase if it does go through in March what could be the potential impact on.

On the earnings both from 'twenty to 'twenty, one and on the non normalized basis.

Yes. This is Roger I'll start with the first question.

Yeah, We announced 50 50 and as you said really the risky index has recognized 30, we really cant comment or explain christy's moving.

Movements, but we have achieved for 50, and our customer base as well as our 6% to 7% Jamie core that was the first one.

And so far really good performance on index $50 on increase effective March one.

And then Richie will do what Ritchie does but we're very confident at pushing those through.

We're doing the same in Europe, we're really doing the same in every region of the world. So at this point we're confident.

We'll see the majority of the second increase goes through to our customer base.

And then we will follow the index as it changes.

And with regard to that yesterday to the potential earnings impact.

March question, Chris goes through.

I would say accretive.

Yeah.

Okay. Perfect then let me ask on one more question about I guess your organic investments clearly vs step up here with project horizon, but how do you see capex from 2022 and beyond does the main project as Tom and essentially what opportunities do you see two.

To increase to increase capex on a more sustainable basis.

Do you see a lot of projects I think you mentioned, a robust pipeline, but kind of give some examples.

Yes.

A lot of examples.

Let me go back to your first question, we're going on.

We have inquiries from horizon, we're going to play this out this year, we'll let you guys know what it looks like going forward for 'twenty, two and beyond but what I will say as we've talked about earlier in the year.

Going through our strategic planning process with all our business units to say, what if you had more what did you do and they have come out with.

To your question can I give an example.

It's spread across.

Number of the business units.

Then we walk away very impressed by how much pent up demand there is.

To deploy more capital dollars into our existing businesses to mine, both organic growth as well as productivity going forward.

I wouldn't do a lot of a lot of service Theres not a project horizon type project. It is really across the board.

Across the portfolio, so no real big major.

From the line at this point in time.

Perfect. Thank you very much.

Okay.

Uh huh.

Thank you. Our next question comes from the line of Janssen on <unk> with Baird. Your line is now open.

Hey, guys good morning.

I guess going back to consumer on the 6% volume growth for the quarter for for Q, Let's say, 2% from extra days and stuff like that.

But it really was well above the trend line from the previous three quarters.

Relative to your peer group.

The packaged food environment was doing just more broadly.

So I guess first of all what changed there in terms of the volume was there some sort of delay that impacted <unk> that flowed into <unk> or was it just the acceleration at the end market level.

Yes, I think gone from us to your latter point accelerations normally as we plan to for quarter.

We see a pretty busy.

Oh they are.

On our busiest months of the year is October for drilling in the November and we expect to see that taper down into December that didn't have.

And frankly somewhat across the board.

Our can business flexible.

Our from reforming business as well.

And frankly as we enter the first quarter of this year still remains.

Very robust.

The whys behind all of that can always just stay on of what we all know in terms of the pantry stocking.

Consumption at home.

Frankly.

Could it be as well, but we're on the seasonality kind of touches on that that we normally would slowdown breaks breaks on mid December.

Yes.

Got it and then just looking back over time I mean, it's rare for sonoco to have two consecutive years of.

On a negative price cost of significance, which is basically what you're guiding to for 2021 based on the EPS bridges.

What makes this going back to an earlier question that what makes this particular inflation cycle different. It's just the rate of change for freight in and maybe insurance and maybe Julie if you could quantify the impact from higher insurance costs as well.

Yes.

Yes gotcha.

We're seeing it across almost every category every spend category.

And that's unfortunate from year over year, we were seeing the same type of.

It seems to be more broadly.

Painted going into this year than we have in previous year, where we may have had a commodity or a series of commodities. This is Roger had mentioned earlier.

And you mentioned insurance across the board so to your point, though directly on insurance that is meaningful.

It's about $6 million of year over year increase is what we're expecting and really a lot of that is in our property insurance, which is really a.

Very market driven but roughly.

Roughly $6 million is what we've got in our outlook.

Okay perfect.

Thanks, so much.

Uh huh.

Thank you. Our next question comes from the line of Mark Wilde with Bank of Montreal. Your line is now open.

Good morning, Robert.

Julie.

I wanted to just come back to an earlier question that Gabe asked and that is just about.

Leverage, particularly how you think about sort of the upper limit of leverage for you.

From potential acquisitions, we heard you very clearly on wanting to remain investment grade, but what does that actually mean in terms of net debt to EBITDA or however, you want to measure it.

Yeah, absolutely. So yeah, absolutely board management extremely committed to the investment grade rating as Howard has already mentioned.

Our our.

Our GAAP.

Debt to EBITDA as we rack store as we wrap up the year and look into 2021 is around two times.

We do look closely at model really very regularly normal course of business our rating agency metrics right to keep an eye on our planning.

In the normal course, as well as you know obviously your opportunities and how we might address them from a balance sheet perspective. So.

We're pretty comfortable with our internal modeling around you know the type of business. The size, let's say that we could acquire and and remain investment grade. Although we obviously you know what.

Always keep in touch very closely we do keep in touch closely with the rating agencies, but.

Yeah, we again when we look at let's say just to pick one you know Moody's adjusted leverage ratio and that kind of like three times.

Is something that we've that we over a long term target, but we monitor very closely with our actual results and again as we model out future.

Profits cash flow scenarios that type of thing so.

I don't know Mark does that answer your question.

Yes, so we just thought about it like Simplistically in terms of net debt to EBITDA, what would that mean go into July.

What would the upper bound.

On a on a GAAP basis.

Yes.

Maybe like two five times or something.

Okay.

From from Yeah, but of course really what we monitor.

Really side by side is really our leverage on a on a rating agency adjusted basis right that that's obviously pretty important but they tend to move the GAAP and the adjusted ratios tend to move in tandem with each other but we closely monitor.

Both sets of metrics.

How much room would you have right now.

Yeah, well you know, we I mean.

Clearly have a very strong balance sheet right and they have.

Ample liquidity for our.

For the business. However, you choose to grow it so mark I mean.

Exactly we do have a very strong balance sheet.

That's going to give us some opportunities for us.

We talked about this on.

Where we have a question in terms of where we're going in terms of.

On the investing on ourselves.

Any more in terms of capital.

On certainly, yes, we're going to continue.

Looking at the acquisitions that fit within our.

Core net are complementary.

But we are firmly committed to staying on as Julie pointed out.

That's been great.

Rating categories.

We have a nice balance sheet all the uses of cash we talked about in the opening comments.

If they would be share buybacks, if we don't have better use for cash, but we think at this point in time, we've got some pretty good opportunities for us.

Internal and external.

Alright.

Focused on our on our.

The strength of our balance sheet.

Okay and Howard for follow on I just.

I don't want on like flogging, a dead horse here, but.

I'm just curious you've you seem to be exiting kind of display and fulfillment business that was actually a pretty big acquisition for you and then a pretty big target for incremental capital you.

You've taken some write downs on that West coast thermal forming business. When you look at what happened in those cases, what are the lessons that you take going forward in terms of future M&A.

That's a that's a big question.

To your point about display and packaging.

The business has been around for a long time. It was built around the strategy that we're running during that period of time I think most the view on.

Totally.

Realize that debt and play this course in terms of being a strategic asset.

For Sonoco has noted it has performed well.

This has not been.

On a division that we feel strategically that was important to us we can talk about froze Roger went through some of the changes except for that.

That we've we've put in place to improve that business, but I think more to your point.

On select acquisitions that we have.

Thank you for what Youre trying to say that maybe we've learned some lessons in terms of what may or may not have gone to our initial strategy, we've got plenty of them debt half.

And I guess the point I'd like to leave you guys with kind of takes us back to about a year ago, where we said it.

As a company as a leadership team that we've got some things in our portfolio that we need to clear on display and packaging was really no secret.

We've acted on that and dealt with that we have been very open.

For really for the last couple of years that we've had issues on the west coast portion of our thermal forming business.

We've dealt with debt as well so I'm, hoping you'll your takeaway from this is that.

Doing what we said we're going to do we're going to want to address issues that we've got in our portfolio and we're going to move this company for.

Okay I'll turn it over good luck. Thank you.

Thank you for.

Thank you. Our next question comes from the line of Josh Spector with UBS. Your line is now open.

Yes, hey, thanks, Thanks for squeezing me in here.

Just a question on the tubes and core business and the performance over the last couple of quarters with North America is still down and rest of world up I was just wondering if you can provide some context about what drives that is it product mix regional dynamics and what's kind of your outlook for those two different parts of the business over the next couple of quarters. Thanks.

Yes. This is Roger it's primarily product mix, even though it has declined over the years graphic papers on newsprint and printing and writing papers.

Still 25, 26, 27% of our tube and core business represents that much of our tube and core business on the U S is less of that outside of the U S. In fact, we've seen very strong recovery in textbook from the bottom.

From the markets, you know down 40% to 40% of previous year in the second quarter back to 90% in the fourth.

Two on <unk>.

Net.

As we start off for new year's assignment film.

So that's really the dynamic you're seeing as well as you know we've got some really good.

And in Europe, and Russia, and Turkey, some of the emerging markets around textbooks.

So that's the dynamic you see and we expect and are projecting on to the core business on their first quarter.

Turned positive and kind of followed the trend of the rest of the regions on the world.

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