Q2 2021 Berry Global Group Inc Earnings Call
Okay.
Good day, and thank you for standing by welcome to the Berry Global earnings call.
At this time all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session.
The ask a question during the session you will need of press star one on your telephone.
Please be advised that today's conference is being recorded.
If you require any further assistance please press star zero.
I would now like to hand, the conference over to your Speaker today. Mr. Stilwell. Please go ahead.
Thank you and good morning, everyone welcome to Berry second fiscal quarter of 2021 earnings call.
Without this call we will refer to the second fiscal quarter of the March 2021 quarters.
Before we begin the recall I would like to mention the neuro website. We have provided the slide presentation to help guide our discussion this morning.
After today's call a replay will also be available on our website and Berry global Dot com under our Investor Relations section.
Joining me from the company I have Berry's Chief Executive Officer, Tom Salmon, and Chief Financial Officer, Mark miles.
Following Tom and Mark's comments today, we will have a question and answer session.
To allow everyone the opportunity to participate we do ask that you limit yourself to one question out of time when the brief follow up and then fall back into queue for any additional questions.
As referenced on slide two during this call we will be discussing the non-GAAP financial measures. The most directly comparable GAAP financial measures and a reconciliation of the differences between the GAAP and non-GAAP financial measures are available in our earnings release and Investor presentation on our website.
And finally, a reminder, the certain statements made today may be forward looking statements.
These statements are made based upon management's expectations and beliefs concerning future events impacting the company and therefore involve a number of uncertainties and risks, including but not limited to those described in our earnings release annual report on form 10-K, and other filings with the SEC.
Therefore, the actual results of operations or financial condition of the company could differ materially from those expressed or implied in our forward looking statements.
Now I would like to turn the call over to Berry's CEO Tom Salmon.
Welcome everyone and thank you for being with US today first let me start with our number one core value on slide three net of safety, we believe safety doesn't happen by accident and everything we do a berry starts with safety in mind as you can see on the slide we have an ongoing commitment to identifying managing and eliminate risk.
Proud of our industry leadership in safety by keeping our team members safe as evidenced by our Osha incident rate of one at the end of 2020 significantly better than the industry average of just below four.
Our team's emphasis on working safely and servicing our customers has ensured the uninterrupted supply of the essential products we produce.
This work has resulted in a very strong start for the first half of our fiscal year and the numbers speak for themselves.
For us environmental social and governance of not just words on page one of our leading principles in everything we do.
These principles fuel our commitment to carrying not only for the communities, where we have operations, but to ensuring that we are providing better opportunities in bringing innovation to provide multiple lives of natural resources.
Alignment with this we recently became the first North American headquartered plastics packaging converter to have of one five degrees Celsius target validated by the science based target initiative.
This is possible because we have reduced our market base greenhouse gas emissions by 19% since our base period in 2016.
Which means we are on our target to achieve our impact 2025 goal of 25% reduction in emissions intensity.
Plastics in spaces, where we participate provides an advantage carbon footprint and our teams are working continuously to reduce the materials used to help further our value chain partners to achieve their scope three greenhouse gas reduction targets.
More than 85% of the RASM, we produce or procure for our fast moving consumer goods packaging products are made for recycled or renewable materials or recyclable at the end of their use.
Which is well on our way to our goal of 100% by 2025.
Just recently, we announced another partnership this one with borealis, providing us access to now over 600 million pounds annually of post consumer recycled content.
Moving on to slide four.
With the summary of our quarterly highlights from our second fiscal quarter.
<unk> for revenue EBITDA and earnings per share all came in stronger than we anticipated, including solid demand across each division.
Strong momentum that the team has driven over the past several years delivered record results for any quarter in the company's history for these respective metrics.
The diversity of our portfolio of across various end markets and regions continued to provide the consistency and dependability, we have demonstrated for decades.
Our top strategic priorities remain the same.
<unk> growing organic volumes and improving our balance sheet and the.
First half of fiscal 'twenty, one we are off to an exceptional start in achieving these goals.
Organic volume growth came in at 5% for the quarter and 6% for the first half with all four segments again delivering strong volumes.
The at home food health and wellness, along with the personal protective products.
Continued to see solid growth in the quarter.
From home in certain other markets, while still facing some softness are seeing improvements.
Additionally, our strong results on earnings and stable free cash flow allowed us to reduce our leverage and in the period of four times net debt to adjusted EBITDA.
We are well on our way of meeting our objective of getting leverage below four times.
After we achieve this target we anticipate operating our company, while maintaining our leverage in a range of $3 to three nine times on a go forward basis.
We believe the continued execution of growing organic volumes and strengthen our balance sheet will deliver significant shareholder value.
And lastly, as most of you are aware for the beginning of our fiscal year through February we saw significant cost increases in our primary raw materials that being read.
Additionally, we've experienced inflation and other raw materials and other costs such as corrugated freight.
With the strong volume growth momentum of the businesses along with our efforts to improve the timing lag of pass through of inflation in our customer contracts. We've seen good progress towards this objective and continue to actively pass these costs through.
Our updated guidance reflects this progress relative to our expectations on inflation recovery.
It includes a modest incremental impact from inflation over the next few quarters, which is offset with an increase in mix benefit primarily from our <unk> segment, along with the positive impact from currency.
As a result, we're increasing our organic volume growth assumption from 4% to now, 5% and increasing our fiscal year operating EBITDA guidance to $225 billion, which is a $50 million improvement from the midpoint of our previous range.
We began fiscal 2021 with confidence in our ability to grow organically as we've demonstrated over the past year and I believe we are well positioned to continue to see long term predictable and sustainable growth with customer linked capital investments that target continued expansion into both faster growing segments and <unk>.
<unk> markets now I will turn the call over to Mark who will review Berry's financial results in more detail Mark.
Thank you Tom I would like to refer you to slide five now for.
The second fiscal quarter reported sales were up over 13% to a record $3 4 billion.
The quarter revenue included organic volume growth of 5%, including all four segments showing positive organic volume growth.
As Tom noted demand for our products remains strong in certain markets, which had previously experienced pandemic headwinds have continued to improve.
The quarter also included higher selling prices from the pass through of cost inflation and increased revenue by 6% along with the 3% increase related to foreign currency translation.
These increases were partially offset by the sale of the U S flexible packaging converting business the closed at the end of November.
From an earnings perspective, our operating EBITDA increased by 9% to a quarterly record of $590 million driven by the 5% volume growth product mix and realized cost synergies.
Adjusted earnings per share increased by 34% for $1 59 tons in the quarter, which included the benefits just reference for related to EBITDA, along with interest expense savings from debt reduction of over $1 billion in the last four quarters.
These strong financial results for the byproduct for our entire global teams focus on organic growth opportunities and driving cost productivity, while managing the increased demand from our customers and the human resource challenges related to the pandemic.
The results are you of another example, as you can see on slide six of our proven performance over many different economic cycles.
As referenced on prior calls we have consistently driven top tier results in key financial metrics, including 20% or more compounded annual growth rates for both free cash flow and adjusted earnings per share.
Now looking at the quarterly performance of each of our four operating segments on slide seven.
For the quarter, our consumer packaging International Division delivered a 9% improvement in revenue, including a 7% increase related to foreign currency and the 4% increase in organic volumes.
Regionally, we had 2% volume growth in developed markets, such as Western Europe with stronger growth in emerging markets, such as China and India.
From a market perspective, our products serving at home food continued to generate strong performance one of our foodservice business will continue to improve as countries reopen.
Industrial and automotive markets, which were negatively impacted at the start of the pandemic continued to improve and generated strong year over year of growth.
The CPI team produced an impressive 12% improvement in EBITDA, primarily driven by the strong volume foreign currency translation and cost productivity.
We are encouraged by the positive volume results and are optimistic given the pipeline build in momentum in the business.
Net sales in our consumer packaging North American Division were up 15%.
The $731 million, primarily as a result of higher selling prices of 9% from the pass through of inflation and the 5% increase in organic volumes.
The organic volume growth in the quarter was primarily attributed to continued strength in our core consumer businesses for products, such as closures bottles and containers.
This quarter marks the 12th consecutive quarter of positive volume growth for.
Of the consumer packaging, North American Division, primarily driven by their long term strategy of focusing on advantaged products in targeted markets with strong customer linkage.
We are very pleased with this achievement and are also encouraged by their continued strong momentum in pipeline.
EBITDA was $133 million the same as the prior year quarter of strong volumes and cost synergies were offset by the timing lag of pass through of inflation.
Our health hygiene and specialties division delivered sales of $781 million, the 21% increase included higher selling prices of 13% from the pass through of inflation and organic volume growth of 8% including growth in all four regions globally.
The organic volume growth in the quarter was primarily attributed to organic growth investments along with continued demand for health care apparel premium hygiene and specialty products, such as disinfecting wipes fabric care water and air filtration as well as the recovery in the building and construction market.
EBITDA increased by $44 million were 39%, primarily driven by the organic volume growth favorable product mix and cost productivity.
We continue the same benefit during the quarter of approximately $25 million in EBITDA from favorable product mix associated with pivoting our assets for <unk>.
Produced products related to COVID-19 protection.
Sales for our engineered materials division were 15% higher on a comparable basis at $798 million. The increase was primarily attributed the higher selling prices of 9% from the pass through of inflation, along with organic volume growth of 3%.
Volume growth was primarily driven by our consumer facing products and some of our industrial businesses, along with a modest recovery of certain markets that were negatively impacted by the pandemic such as our can liner business in terms of away from home waste disposal.
EBITDA was $114 million in the quarter, which was $7 million below the prior year on a comparable basis.
This decrease was primarily result of of lag in passing through cost inflation and the deep freeze in the southern part of the United States of impacted some of our facilities in this division.
Next on slide eight free cash flow for the last four quarters ended March 'twenty one.
<unk> totaled $951 million.
Our free cash flow continues to be utilized to reduce our outstanding debt and we have paid down over $1 $3 billion over the past six quarters, which has lowered our annual interest expense and reduced our debt leverage the now four times.
We remain committed to maintaining a strong balance sheet and we believe our consistently increasing and dependable cash flow will provide us the opportunity to further improve our strong balance sheet as we have demonstrated historically.
We also continue to evaluate opportunities to reduce our financing costs and extend our maturity profile.
During the quarter, we issued additional sets of investment grade rated first priority senior secured notes $800 million for the fixed rate of 95% and an additional $775 million with the fixed rate of 157%.
We also refinanced our term loans lowering their spread by 25 basis points.
We use the proceeds of the issuance and refinancing to replace existing variable rate term loans, which will reduce our interest expense by $15 million annually.
The combination of debt pay down earnings growth interest rate reductions and refinancing activity has improved our interest coverage ratio over the last year and a half from four seven times to now six five times.
Next our updated fiscal 2021, operating EBITDA and free cash flow guidance as shown on slide nine.
Given our continued strength of the first half of the year and stable demand outlook across our business. We are increasing our organic volume growth assumption for fiscal 'twenty one to now 5% include.
Including low single digit growth in the back half of this fiscal year building on last year's strong performance all supported by a robust and growing pipeline Inc.
Increased level of capital expenditures and the positive trends of momentum were seeing in each of our businesses.
Given the continued strength in our pipeline, we are raising our capital expenditure spending expectation by $50 million to support incremental growth projects.
Additionally, we are increasing our operating EBITDA by $50 million from the midpoint of our previous guidance provided in February to $2 billion to $5 billion.
We have included a negative impact from inflation and the associated timing lag and passing through inflationary costs.
We expect the majority of the impact from the recent unprecedented increases in resin prices in the United States to impact our results in the June 2021 quarter. So.
So we expect the slag will be largely offset in the June quarter from continued favorable product mix.
The guidance assumes that both of these factors dissipate in the September quarter.
And as a result, we expect operating EBITDA in the back half of the year to be split relatively evenly between the June and September quarters, and will be similar with the second half prior year results when adjusted for our recent divestitures and the COVID-19 related mixed benefits.
We are proud of the continued strong execution by our team as the unprecedented the resin inflation, we have experienced has been more than offset by volume growth and productivity.
Our fiscal 2021 free cash flow guidance remains in the range of $875 million to $975 million.
The range of free cash flow includes one $5 75 to $1 $67 billion to $5 billion of cash from operations, partially offset by capital expenditures of $700 million.
We also continue to anticipate further strengthening our balance sheet and expect to be in our targeted range by the end of fiscal 2021.
This concludes my financial review and I'll turn it back to the pumps. Thank.
Thank you Mark before we close our prepared remarks, a day I want to touch on what we've been focused on and what's driving our strong results.
Can you invest the each of our businesses to build and maintain our world class low cost manufacturing base with an emphasis on key growth markets and regions.
Overall, the diversity of our end markets and product offerings as well as the essential nature of demand consistency of our products have been core to the underlying performance of the business.
I am very confident in our team's ability to meet our near and long term expectations and commitments to provide sustainable profitable growth.
We have multiple drivers of organic volume growth shown on slide 11, and 12, our focus on both faster growth end markets and emerging markets along with sustainability led packaging.
As we highlighted on our last earnings call regarding our global inhalation healthcare solutions.
Going forward, we will regularly showcased targeted products or markets we're focused on.
We expect emerging markets to grow faster than advanced economies with increasing populations of the need for our protection products.
And we will focus on Mega trends previously discussed this has allowed us to increase revenue in emerging markets for $100 million of 2013 to now over one 5 billion.
Furthermore, as you can see on slide 12, we are continuing our support of circularity through our ability to manufacture recyclable films and incorporate the sustainable materials.
Recently announced of $70 million investment to support our growth opportunities, which will enhance our manufacturing capability for more use of recycled content in PHA resins supporting <unk> use.
Berry along with many of our customers have dedicated sustainability goals, many of which specify the increased use of recycled recyclable materials. This investment will further enhance berry's portfolio of fully recyclable biodegradable compostable film to support its customer needs.
Various committed to remaining at the forefront of the innovation necessary to meet customer sustainable the goals through these investments and the latest equipment technologies advantage build development and design for circularity.
As the global year, we are driven to innovate and as you can see on slide 13.
Highlighting just a few of the amazing products, we designed and manufactured the sustainability of mine on the.
The top right you can see are tethered closure offerings are CPI group unveiled a range of closure designs that meet the European Union legislation requirements. These closures remain attached to the container throughout its use for ease of recycling.
On the top left of the slide we manufacture of the J class plus white, the first and only contact clearance externally certified biodegradable and compostable wipe.
His wife is produced with 100% biodegradable fibers and can be disposed of at any green recycling bin after use.
We remain steadfast in our commitment to lead and collaborate to drive innovation and acceptance of products targeted towards improving recyclability reuse and reduction of Virgin plastics, all with the goal to promote a more circular economy.
In summary on slide 14 building.
Building on our strong first quarter, we delivered outstanding results across all of our operating segments. We again delivered on our strategic goals of driving organic growth and improving our balance sheet, all while setting financial records for any quarterly period for EBITDA revenue and earnings per share.
For the fifth FERC for the fiscal year to day adjusted earnings per share as impressively increased 55% compared to the prior year to date, while operating EBITDA and revenue were both up 14% and 12% respectfully.
And finally.
With consistent dependable and markets of leading cost position, along with sustainable capacity to invest in long term steady growth.
We are confident in our ability to consistently grow low single digits through our customer link capital investments of target continued expansion into both faster growing end markets and regions of thank you for your continued interest in Berry and at this time market out of the glad to answer any questions you may have.
And as a reminder to ask a question you will need to press star one on your telephone.
For your question for Steve.
Please standby, while we compile the Q&A roster.
And your first question comes from Ghansham Panjabi with Baird.
Yeah, Hey, guys. Good morning, Congrats on the progress.
Yeah.
So at the onset of COVID-19, you pointed towards a sort of of 65 35 split of the portfolio advantaged versus the disadvantage.
Specific to COVID-19, what where are we in the recovery curve specific to the 35% relative to the pre COVID-19 baseline and are you starting to see any signs of the 65% moderating in context of many CPG companies pointing towards slowing demand and I guess I'm, referring to what youre, specifically seeing for that 65% of <unk> as well.
Thanks Ghansham.
In our guidance, we're basically assuming that the the.
The benefits of <unk>.
<unk> basically over asset as of the June quarter.
And I think if you look at this quarter you can see the benefits of the diversity of our of our portfolio all four businesses delivering positive growth strong pipelines, enabling that growth coupled with the capital investments that we've been making around the the megatrends that we believe will sustain us well.
The end of the pandemic that being the health and wellness food safety E Commerce and sustainability trends so all of the.
The investment we've been making the pipeline all tie around those strategic initiatives and I would I would say in spite of what's going to be a difficult comp in the back half of the fiscal 'twenty one.
For for some of our businesses that had benefits relative to COVID-19, we still anticipate low single digit growth driven by the the overall diversification of the portfolio that we have.
With the strong expectations around the engineered materials in the CPI. So.
We feel real good about the outlook, we feel we've invested accordingly to build this business around low single digit growth over the long long haul and they're very very good about the out of the outlook going forward.
Great and for my follow up question on <unk>.
And then your embedded outlook for the December or I guess for you for Q.
Can you just take us through what you're assuming from of resin trend line perspective are you assuming that resin plateaus and then you catch up on price cost by the fourth quarter of you're actually assuming that resin moderates from current levels and if so can you baseline that against which sort of month, we should think about maybe february levels or march or whatever else you're thinking at this point. Thanks, so much.
<unk> to predict it out of by month basis, but we certainly believe we'll begin to see moderation, we're still going to have a headwind for the full year from a lag perspective, but I'd remind you. This was probably one of the most significant.
The impacts to the resin facilities in the Gulf coast that that we've seen in 35 plus years.
The ability of the diversity of the portfolio of to ultimately prevail.
Given the strong growth that we had.
And the good work of our commercial organizations have done in terms of improving the lag pass through mechanisms.
Our strong advantages for the company going forward, but we do expect moderation.
And the.
I would say that it's the speculation here for the resin companies will probably need through May June timeframe before we start seeing more normality going into the back half of the calendar year.
Okay awesome. Thanks, so much of the bar in terms of our guidance Ghansham smart good morning.
We haven't assumed that relative to our guidance, while Tom said that's.
Probably our best estimate at this point based on the information we have today.
We've assumed the RASM being flat at current pricing for the balance of the year with respect to our guidance.
Okay very clear thank you.
Your next question comes from Anthony Pettinari with Citi.
Good morning.
Hey regarding the increases you're seeing in non resin costs I'm wondering if you could talk about any pricing actions taken in the quarter to recover those and to the extent that you're able to.
It's possible to give a sense of how much progress you've made in shortening the lags for non resin based raws and other costs, maybe how long has historically took to pass those through and how much you've been able to shave off of that time.
Yes, I'd say, it's ongoing Anthony so we continue to work with customers to pass.
Pass through of inflationary cost of all kinds, including.
Certainly our primary raw materials routes of uninsured, meaning that lag.
Difficult to quantify per se, but it's an ongoing effort.
Our commercial teams are working with customers.
Shorten the timing lag on pass through of resin as well as put in other.
Index clauses, whether or not it's corrugate or frame, it's going to vary depending on the product and how significant of a cost component that is for that.
Factor product, but I would characterize it as an ongoing effort as we stated in our prepared comments our team has done a great job of.
Continuing to work with customers to make sure they have product.
And pass on the inflation as appropriate I think mark highlighting the most important part we really made sure that we prioritized.
Service and supply.
Above all things out and in areas that certain components of where we've seen inflation werent tied to <unk>, we began very early and showcase the nose.
The incremental costs and looking to have offset so the team really has done.
Very good job I'm pleased with the <unk>.
Sense of urgency that we've shown in terms of passing that true.
Okay. That's helpful and just following up on that I mean, you indicated the timing lag is baked into the guidance is there an amount of cost that you won't get back in fiscal 'twenty. One that you would expect to recover in fiscal 'twenty two or at the beginning of fiscal 'twenty two that day.
Could quantify.
Yeah again, it's ongoing right versus the dynamic.
The process. They are certainly in the year, we're going to have a significant amount of.
I'll call it under recovered inflation, both on resin and other raw materials.
Have a variety of we're very diversified from a customer perspective.
And so as I said, an ongoing initiative and there will certainly be a.
Ongoing effort to recover that inflation, but I apologize for being redundant again, our top priority is making sure customers are getting product.
And we're taking all of the necessary actions, including incremental cost.
Again product for customers on time.
Got it that's helpful I'll turn it over.
Your next question comes from Mark Wilde with bank of Montreal.
Thanks, Good morning, and congratulations on a good quarter.
Thanks Mark.
So I wonder when we think about the volume growth this year the 5%.
A portion of these I think is kind of.
COVID-19 benefit related and then just kind of other organic growth.
Yes.
It's important to start with we began this journey around investing around large mega trends early in 2018.
We had a targeted capital investment.
And looking for customer linkage along the way.
That has proven beneficial and in each of our businesses.
And as we stated at the beginning of the pandemic each of the business had different nuances relative to the portions of the portfolio may be positively or negatively impacted in aggregate for the company as a whole.
It was it was neutral to slightly positive.
For the company with the HHS.
A portion of the business on the healthcare side being being the most advantage so.
That's why we feel so good about the longer term prospects for us to continue to deliver that low single digit growth. Because this is the journey that we began all the way back in 2018, we showcase that we would begin the growth in 2020, which we did early.
And then ultimately the pandemic hit so it ultimately just benefited some of those strategic investments that we made then and we've continued to make throughout throughout the the pandemic I think that.
That's helping set berry side long term.
We've been able to continue to maintain that capital investment tied to specific customers.
To increase our position geographically as well as around the bigger these growth trends.
Yes, it's kind of quite a remarkable turnaround time, where if there were.
Two or three key things that you would point to as kind of the drivers to the the.
Better organic growth what would they be.
Targeted focus around specific organic growth, where we have advantages and tie that growth and that investment to specific customers.
The increase your geographic presence and geographies. It ultimately are delivering higher growth rates, which we've done in a very good job increasing that that exposure to over 1 billion of $5 and.
And ultimately we were able to capitalize on a transformative acquisition that gave us truly global value delivery capability that is fully integrated and delivering exceptional promise for us to serve large global brands around the world with local value of delivery.
Okay. That's good I'll turn it over thanks, Tom.
Your next question comes from Joshua Spector with UBS.
Yes.
Hi, guys. This is Lucas Beaumont on for Josh I, just wanted to touch on your free.
Free cash flow of Berry Geoffrey could.
Could you please walk us through your updated assumptions for working capital interest and the other Wally the items.
EBITDA for free cash flow.
So I just I was a little bit surprised that there wasn't more of the headwinds from the high Roes.
On working capital for the outlook, because I would just talk about the.
The factors impacting your expectations day versus three months ago, as well that'd be great. Thanks.
Sure. Yeah. This is mark good morning.
Relative to free cash as we I think had in the release, our EBITDA outlook for the year is two and a quarter billion.
Opex of $700 million.
Our interest.
The number of its going to be in the $3 10 to $3 one of your range.
Depending on how the back half shakes out from the rate perspective.
And then as you pointed out we've got a use of working capital of <unk>.
100 million in the.
The outlook in the taxes our outlook there remains the same at about 25%.
Gets you down to that $875 million to $975 million of.
Of cash and with respect to the second part of your question.
The.
The team has done a great job on working capital quite honestly part of it is just strong demand has driven our inventory down.
We continue to.
To find new ways to service customers with lower inventory levels. So while none of US one of the see the.
Of the unfortunate weather events in the southern part of the United States the.
The reality is post post that event, we're going to be a better company with respect of working capital management and service to our customers. So.
We haven't as a result of that.
We haven't seen that negative impact because of inventory levels are at lower levels.
Alright. Thanks.
I just wanted to touch on bio plastics for one of the Ken.
Our recent conversations with the Bioplastics producers of indicated that.
<unk> really unlike made minimal changes at the packaging level to use the products. So I was just wondering could you help explain to us is that Ross.
And so I guess, what part of your operations would need to change if changes are needed and what kind of an investment do.
Can you say as needed the to be out of applaud those products.
And we've been fortunate to close new applications in Biobased materials, we're trying to educate our end customers on literally the range of possibilities, whether it's mechanically recycled whether it's bio based whether it's molecular recycled materials.
Each material, whether it's virgin or otherwise they all have different.
The Scots season, such requiring various degrees of tweaking, but two of large extent theres not a significant amount.
Change required to run those materials.
And it's really all about presenting of the feature benefit to our end customers. So they can make an informed decision for their end customer.
Some investments that we may choose to make in the future allows us to use a wider spectrum of materials.
To give us an opportunity to have a broader selection of materials at different cost and price points to.
To create optimum blends of mix itself, but all in all yes, it's correct that the it doesn't require a significant amount of modification.
Alright, thank you.
Your next question comes from Neel Kumar with Morgan Stanley.
Great. Thank you.
For packaging the international can you just break down the 4% volume improvement the end market how did the trends look in the industrial business, especially as the growth story and more consumer oriented markets.
Can you just also of attentive had that geographically.
I'd say, the following and CPI saw similar.
The growth the growth positive in terms of food household healthcare being the primary drivers of CPI emerging market growth is very strong for us.
As well that there are further along in the recovery no doubt about it.
Much of Europe remains in the throes of of the pandemic.
And we've continued to see the strong in house and in home consumption.
Coupled with improving trends on the industrial side so.
It's an improving position of that that team has done really a really solid job in.
Continuing to innovate continuing to close new business dispensing systems.
Trigger pumps airless pumps and the likes have all been strong areas of opportunity for us coupled with the success that we've had.
Around our sustainability leadership that continues to be an area that with the investments that we've made for mechanically recycled materials as well as.
The molecular recycling of access that we have.
We've made really strong progress in introducing specifically the advanced recite the material to our food based customers, we have over 27% to 7% of our overall food based customers.
Working on a specific project are already having committed to advance recycling material.
As it continues to become more readily available. So we're really pleased with that progress inside that space, but.
But as we fully expect as we continue to see improvements.
The opening Youll see further industrial strength, but the trends that we've seen out of home consumption. We believe are going to be sustainable for us.
Very pleased with how that teams operating in a difficult environment.
And again, the linkage to our global key accounts that that business has enabled us.
Will provide growth opportunities for years to come.
Great. That's helpful. And then in terms of just volume could you just give us the sense of how core the date trends are looking across the segments and then you talked about longer term volume expectations of low single digit growth.
And that's in particular I was just wondering if you can just touching your degree of confidence in volume growth can still be positive in 2022. Despite lapping a couple of years of very strong growth and just potentially shifting to a more normalized environment.
We.
Best in each of our businesses.
To deliver low single digit growth we remain.
Actually committed and our ability to deliver that growth for the for the franchise.
As you'll recall in our Hh business, we made a targeted pivot.
To increase our position around hard surface disinfectant wipes.
Pivoted more premium hygiene premium fem care and adult incontinence to give more balance that portfolio of coupled with better geographic presence in terms of developing regions of the world and we delivered on all of those.
We're not going to we really can't comment on our current intra quarter tight performance, but suffice to say we took that into consideration. When we gave our guidance increase for the full year outlook to 5%.
Okay.
Your next question comes from Iran, Viswanathan with RBC capital.
Great. Thanks for taking my question.
I'm just curious.
You've brought leverage down to a pretty.
The favorable level here and then it sounds like you're continuing to focus on that and when we get into the three to three nine range over the next year or so.
Maybe you can just kind of reiterate your priorities for cash use at this point.
Would you consider or is the board considering a dividend and then maybe you could also comment on potential for share buybacks.
Yes.
<unk> strategic objectives for the business continue to be around investing and generating profit for organic growth.
And the improvement of our of our balance sheet as of as we said, we intend to stay within that targeted leverage range between three and three nine times, while operating the company and we will continue to use this cash flow that we're able to consistently generate further debt reduction.
We'll consider accretive bolt on acquisitions that allow us to stay inside that range as well as returning cash to shareholders of the form of share repurchases and dividends. So we're in a very strong position really driven by that debt that cash flow generation debt is.
That's been really become a cornerstone for the company.
And where are you finding.
The most organic opportunities I know you've made some investments in H H N S and in China as well.
Just dispensing systems, but I guess going forward.
Where are you finding the most opportunities.
And the.
By segment, maybe you can check it out yourself.
I would say really across the across the business health and wellness continues to be a key category for us and in each of our businesses.
And globally.
The ability of ultimately support the growing e-commerce trends.
With noted of investments, we recently made inside of engineered materials business.
Food safety barrier properties that.
Of that we can ultimately support the new inside of our food category.
Continue to be areas of.
Of opportunity both domestically and internationally.
And the sustainability, we clearly believe sustainability is a growth platform for us.
And the level of investment that we've made both in terms of mechanical recycling as well as the access that we've enabled.
For the molecular recycled materials.
Is something we're really excited about and it is.
Soon becoming a really significant growth driver, we believe for the company's organic growth goals.
Your next question comes from Kyle White with the Deutsche Bank.
Hey, good morning, Thanks for taking the question I apologize if I missed this but.
What was the impact of the lagging the pass through of resident during the quarter and what does your guidance assume from this impact for the June quarter as well.
Yes, we do continue to have a negative lag.
That we've experienced year to date.
I expect that for the full year, just due to the increases in resin prices.
Our average remains about the same way of about a net one month lag.
Across the business each customer is different.
General average.
For our business about net one month lag on pass through.
Yes are you putting the finer point in terms of the the dollar amount of impact that you had in the quarter and then what you're expecting for fiscal <unk>.
Sure.
I mean, all of those assumptions are embedded in our guidance, but we're not specifically calling out how much of that relates to the timing lag on RASM.
That's fair enough I wanted to go back to the the Biobased. Rather in question are you truly agnostic to alternative resins in terms of being able to convert them or are there some limitations by grade and do you have any competitive advantage when it comes to using alternative residence beyond your scale relative to some of the other packaging converters or is it.
The metal matter of being able to quantify that raw materials.
Berry has we've made strategic investments to make certain that we are well positioned to have our own internal capability on post consumer materials.
Coupled with the access that we have to the molecular recycled materials is unique to berry.
I think clearly we have made it a point.
To set ourselves apart with our end customers to give them both access to educate them on design.
These materials of mine, coupled with the trade offs that they can consider again so they can make an informed decision. We believe one of our primary roles is to be demand creators.
And with the fact that we've we've now secured 27% of our food customers in Europe.
Adopting some advanced recycled or molecular recycled solutions.
Really good progress given the infancy of that technology. So.
We'll we'll let the markets play out as they will have a lot of confidence in our global sourcing organization, our materials science know, how and I believe it's unique and.
And we believe it will be.
Shown out again in support of our long term.
Low single digit growth commitments that we've made.
In the future.
Thank you I'll turn it over growth in the quarter.
Okay.
Your next question comes from Adam Josephson with Keybanc.
Tom and Mark Good morning, and congrats on a really good quarter again.
Yep.
Forgive me if I missed this but in terms of your second half volume expectation can you give us a sense of what you're expecting out of the four of Sacramento, I'm, asking particularly about Hh of now it's just Kevin.
How exceptionally difficult the comparisons are obviously for the last four quarters of the growth has been tremendous.
Yes, yes no.
No worries Adam So we didn't give it by segment, but I would say.
Overall, we're expecting positive volumes certainly.
And as we sort of a year ago. When we reported earnings we had some businesses that.
I think Ghansham mentioned it earlier in the call, but we had some businesses that were disadvantage related to the pandemic when it started and some were neutral to advantaged and.
And as we start lapping those comps those things are going to reverse so specifically our engineered materials business had some headwinds early on in the pandemic. So we would expect them to be more favorable than the average.
Over the back half same thing with CPI.
With China and Europe.
Some of our businesses theyre being really negatively impacted as they shut down for almost a year ago now today.
And the opposite is true with HHH, specifically, having a strong <unk>.
From period during the pandemic so.
In total of those things are going to net out just like they netted out a year ago. The opposite just going on we're going to have some reversals, but we don't give specific numbers by segment, but.
In general Thats, the way, we see of playing out over the rest of this year.
Adam if you had to be also considered during this time.
The pace and consistency of the investments that we've continued to make in these businesses to support these long term growth objectives have been very very.
Very clear.
No I appreciate that Thomas just back to the slide on the sustainable.
Our solutions in terms of PCR and composed of bar Biobased. Thomas can you just give us a sense of the.
What percentage of your portfolio those represent and what your goal is I just I asked just given the supply supply chain constraints and the price constraints really of PCR.
And then just some of the disadvantages of composed of ball and bio base versus just Virgin resin. So just wondering how far you see the company going in those directions, just given whatever constraints star of etc.
I think as you brought up some interesting point there is a lot of solutions out there that our end customers can choose from and around.
Our goal and our objective is to educate them on the range of possibilities both in terms of performance.
Well its feature benefits that can be meet their needs.
That's why we've been very holistic in our view.
Clearly, making large investments both on the advanced recycling as well as the mechanics of recycled materials, but.
It's about 5% of our overall portfolio right now.
And we think that advanced recycling recycling is ultimately of Virgin alternative and that's why we're so excited about and believe it has such.
Hope to help address the plastic waste goals and objective of the industry and all of our end users the ability to take those materials.
We're less easy to recycle break them down into the original composition re prelim arise them and have Virgin quality like material is.
It's why we've made such a huge foray into those materials, we believe on of large scale basis.
It is one of those.
Solutions to address this worldwide problem and Theres not a RASM company, we do business with that in some form of the other is not making an investment or R&D.
Around this technology and know how we're really excited about it and thats. It provide that alternative debt doesn't require a significant trade off if you will and that's why.
We've made the proactive steps to give ourselves the access to qualify the percentage of end customers that we have in Europe, and educating the U S and rest of world on that Knowhow as well with some broad broadly known commercialization successes that we've noted in previous calls.
Okay. Thanks, a lot of time.
Your next question comes from Gabe <unk> with Wells Fargo Securities.
Good morning, Tom Mark.
I was curious.
Thinking about I guess looking at 2020 twos and I appreciate that we're not done the 2021 yet, but just to make sure I guess directionally. If you can make any qualitative comments.
You have an $80 million headwind kind of called out in your in your guide from inflation and other.
And I think you've talked about directionally of $20 million to $25 million.
Mixed benefit primarily in HHS kind of per quarter.
So really kind of offsetting one another if I were to roll forward to 2022.
Is there anything else that you would point us to whether it's under or over absorbed absorbed fixed overhead.
I appreciate we've got to make an assumption of about volumes, but just anything out there that's kind of onetime in nature of that.
Would make this year look different than kind of going forward.
So I think that its mark good morning that was what I think we're obviously continuing to focus on driving organic volume growth and earnings growth across all our businesses.
There is a number of of things.
We're working on driving that by the in terms of just really large numbers I think those of the two.
The two largest numbers.
The recovery on inflation and then how much of this mix benefit.
Dissipates and how long will it take.
If it ever dissipates.
Okay, and then I guess in the spirit of of sustainability of the.
Reduce reuse recycle.
Didn't really used to have kind of larger format packaging and I'm thinking about the.
The bigger containers that you acquired as part of RPC.
Can you guys kind of explored increased usage of the these larger format reusable containers.
To the extent there is either a closed loop.
Nature to your manufacturing process <unk>.
Dialogue with customers to implement more like I said some of the larger format packages.
It's a good question David.
Announced previously some successes and some close of the programs specifically with Georgia Pacific, We're taking the best practices for those initiatives and applying them to a broader part of our of our business and.
It is it's growing in interest for sure.
And the ability of ultimately that it helps provide an identifiable recognizable source of those materials, even in instances, where they may be reprocessed or <unk> is a <unk>.
Real advantage for us so it is a growing component of the overall.
Sustainability strategy for our end users.
Thank you and good luck.
Okay.
Your next question comes from George Staphos with Bank of America Securities.
Hi, everyone. This is kind of some killer sitting on behalf of George Staphos. Congrats on the quarter just returning to the segments. What is the biggest source of volume and EBITDA increase in <unk>.
<unk> for the second level.
I would say broadly it's Ben.
It's been a recovery of the.
We flagged at the industrial related businesses. So.
The things that had headwinds at the start of the pandemic the recovery in those businesses has been.
The stronger than we anticipated as the year started.
Got it that's helpful. And then I guess, just turning to HHS whats your utilization there and then for what period of time would you be able to grow without having to spend more capital in that business.
Yes, we've kind of as you can imagine we have a lot of different products and assets and so utilization broadly it's going to vary depending on the.
Depending on the region and the asset I would say, we're generally pretty full.
In that business and HHS and we're adding capacity every every quarter incremental machines, we're going in and we've got several new melt blown lines going in across the world now we've got.
Some other film assets that are also being added as well as non woven.
Non melt blown.
I mentioned those earlier being out of it across the world each quarter and what I would take some of it we're fortunate we're in a growing substrate.
The growing demand dynamics, and we're supporting that as the leader not only domestically, but around the world. So.
We're pleased that throughout the pandemic again, we were able to continue to maintain that level of investment to support our larger customers.
Of these customer link solutions.
While we feel very good strategically about our ability to deliver over the long term that low single digit growth consistently and profitably.
Thanks, Good luck in the quarter.
Thank you.
Your next question comes from Arthur Almeida with Goldman Sachs.
Hi, Good morning, Tom Good morning, Mark.
Alright.
I was hoping you could talk to us a little bit about how you achieved a positive price cost spread this quarter.
<unk> outside of the faster pass throughs on pricing and the mix component that you mentioned during your prepared remarks, you likely had some benefits from maybe lower cost inventory is flowing through the P&L.
But looking ahead do you expect that to continue it sounded like Mark in your prepared remarks, you would expect the favorable product mix to offset the majority of the impact.
From higher resin costs, and what would that look like from a price cost perspective for the balance of the year.
Yes.
Your comments are spot on we do have a negative lag until the negative price cost.
Two of our businesses <unk> and <unk> year over year CPI was relatively neutral as the inflation has not quite been a significant outside of the U S. As well as we benefited from some of the year over year cost synergies there.
And really the favorability has been driven in our <unk> business, we have pretty efficient pass throughs, there and then the mix.
As you pointed out and we have in our prepared comments.
Unused to benefit of that segment and as we roll of the year forward, we continue to see that lag and pass through of inflation.
And as we mentioned we've got that mixed benefit for the June quarter.
Both of those things kind of flip in the September quarter.
We would expect that inflation recovery to improve in the September quarter as pass through start to kick in.
On our contracts and our assumption relative to our guidance of those mix benefits.
Start to back off in the September quarter, obviously, we don't have a lot of great transparency of that as we sit here today.
Conservative outlook relative to our guidance.
Right and as you said that would assume resin prices stayed flat so if they come down like a few.
The forecasters are predicting that would just be an add of tailwind to earnings.
And then I guess a final question is if you could add a little bit more color into whats driving the $25 million mixed benefit.
Cooperated in this guide but wasn't included in the previous guide is that purely HHS is there a structural change there between now and when we last spoke in February.
Yes, just stronger stronger health care of personal protection equipment products.
Those lines, but make those assets were making where were selling price items like furniture backing.
And the other more industrial applications that.
Generating lower profitability in our assumption prior had assumed that those mixed benefits go away at the end of the March quarter, obviously as we sit here today, we've got better transparency to the current quarter and so we view that mix benefit continuing.
In the current quarter we.
We'll continue to revisit that as I said earlier don't know how long that will last and how it will.
If at all it will.
Go away in the future.
Perfect. Thank you.
Yeah.
Your next question comes from Phil Inc, with Jefferies.
Hey, guys congrats on the strong quarter and thanks for squeezing me in so.
So cost of side on the non Virgin alternatives as the technology, where it needs to be scale up and from a performance standpoint, Tom what are some of the limitations and if we kind of look out the next call. It three years, that's 5% of your portfolio, where you're using non resin.
Product, where do you see that going and then how does that kind of impact your profitability as well.
There is there is not significant trade offs in the <unk>.
Molecular recycled materials and they are most of the resin companies arent of scale up version right now.
Looking to prove out the technology, we're partnering with them ultimately to <unk>.
Obviously supply feedback as well as.
The educate our end customers about it but I would expect to see of much larger percentage of our portfolio made up.
Of this substrate as you said, it's probably in that next two to three year type timeframe before that happens, but the prospects for large scale use.
To be a cornerstone of our supply chain is very high in my view at this stage I have no reason to believe otherwise.
And we're going to continue to push the demand and the education, which again, we believe it is one of our primary roles.
And Tom you don't see that having a negative impact on your margins. Maybe you would actually of positive is that we should think of it.
The as.
That's part of the any kind of emerging technology as the demand increases the.
Levels of cost competitiveness will continue to improve so that's why we are so we're trying to get out in front of this early.
Why we secured the a.
A significant portion of the material that is that will become available between now and 2025. So that we can get it introduced the market as quickly as possible and we've had as you see as you saw it just really good success with our food customers in Europe to this point so.
We will continue to focus on that as an area of concentration.
That's super exciting and just one on the <unk>.
<unk> segment.
Don't know if you guys call. This out how much of a hit was the winter storms and what's that headwind reversing and do you see EBITDA actually growing in the.
Fiscal <unk> and full year on a year of your basis. Thanks, a lot guys.
Yes.
Probably maybe less of the dozen plants I guess that were impacted by the polar vortex, but nonetheless, it has some impact on.
On those plants and equipment, we were fortunate with the diversification of the facilities that we have we can move that business from one site to the next but they are back up and running.
Delivering the goods as we expect them to.
We do anticipate again continued consistent growth inside of our engineered materials business as Mark outlined earlier as you see an improvement of the kind of in the economy. It had a it was one of the most negatively impacted.
Given us the industrial mix that we'll have that will have some positive trends.
For the coming quarters.
Your next question comes from Salvator, Tiano with Seaport Global.
Yes, hi, guys. Thanks for taking my questions.
The first one actually I want to understand that'll be the pricing, especially since as you mentioned matrix M as was.
Actually the Levered, both the spreads during the quarter, which was very exceptional.
To what do you see the grid do you think some of these price maybe coming I guess from strong demand and you can potentially the hold to eat them actually you see some margin expansion in HMA sort of potentially in the engineered materials some elsewhere versus what's the purely pass through of higher costs.
I mean, the the team continues to do a good job again trying to optimize the assets that we have in cell.
Our products, where they provide the most value to the market again the pandemic obviously this.
Put increased focus on safety.
<unk>.
People within the site certainly in the healthcare industry with both health care workers as well as patients and visitors.
How long that trend towards.
Non woven based products versus reusable I think is still it's still TBD, but.
Historically people have not reverted back.
Once they make that transition to the safer.
The product.
They generally stay in it.
But obviously, we're in an unusual time of the pandemic and we recognize that.
Yes, Okay makes sense.
The thing that I wanted to get the math basically it's just some of the HMS.
You can provide the breakdown of <unk>.
The news by the key end markets. How does it look now when we look of diapers wipes masks and gowns versus how it looked pre COVID-19 and for the key markets, especially the diapers. What are you seeing in terms of demand the now and what's the outlook.
Yes, I don't have the exact percentages in front of me. So I will turn but certainly the business has pivoted Tom called out I think a couple of years ago debt.
The continued to invest in the faster growing areas for nonwovens don't continents.
<unk> care as we've mentioned hygiene is still a very important category for us baby care.
We continue to try it.
We don't compete in the most value added products in that space. The premium care product category, we continue to bring innovation to our customers.
And that category across the world.
Uh huh.
And so we're going to kind of continue to be an important category for us going forward I think the it's.
It's a much different business than it was.
When we first took it on the team's made I think really great for <unk>.
Into the.
The growth component of niches, specifically premium hygiene premium fem care Adele.
Adult incontinence, and then giving ourselves that same access in the fastest growing region of world that being China.
And we are now complementing that with a further healthcare investment.
And the support healthcare.
In that geography as well so.
Not to mention the good work the teams have done with hard surface disinfectant wipes.
<unk> of our leadership position in North America and entering now.
Europe with this innovative technology, and it's really a new emerging markets market for us.
And of that we're excited about all of these again are supported with.
Customer linkage. So we feel really good debt the pivot of the portfolio is working as we desired and as Mark said.
The.
The pandemic has I think given us good exposure to the benefits of the disposable drapes and gowns and.
With the with the change in in terms of elective surgeries coming post pandemic that'd be that'd be good news for for HHS, but strategically that business is well positioned to deliver those single digit growth.
Okay. That's perfect. Thank you very much.
Your next question is a follow up question from George Staphos with Bank of America.
Hi, everyone. Good morning, joining the Lake just very quickly I know we're late in the call. Tom have you talked at all about dispensing.
What the growth rate was in the quarter of what the annualized revenue is at the present time within the business and then more broadly if we think about how berry looks post reopening post COVID-19, obviously, you've gotten some very strong trends within HHS to your credit to your investor.
The strategy over the last.
For the six quarters is there any segment in your business right now where you would expect volume trends to be negative once we're past COVID-19 and we're back into the reopening of why or why not thank you and good luck in the quarter.
Closures dispensing solutions continues to be a targeted area for growth globally, it's close to a $2 billion business.
For us across the entire franchise, we continue to innovate in that category and continue to believe that we're going to be in an advantageous position given our global footprint and our ability to serve our customers.
Locally and George as you've noted we have made targeted investments we've been making us consistently over the last several years all around the mega trends that we think will deliver.
Consistent predictable low single digit growth over the long term of all of our businesses. They are all wired for growth in that regard, whether it's <unk> of our HHS and.
I'm really proud of the team how they've executed how they've maintained their focus how they've been able to ultimately deploy these capital investments and execute.
Innovation of new product closes.
During the difficult time, when you didn't have the traditional means to close those types of businesses. So we feel really bullish about the outlook to deliver growth Delever the company.
To use sustainability is the growth platform.
For our company and to take advantage of this global footprint, that's been able by the.
The most recent largest strategic acquisition that we've done in our history to really provide that local value delivery capabilities of the major brands around the world.
Tom did you mentioned how quickly dispensing grew in the quarter.
Mid mid single digits. Okay. Thank you very much good luck on the quarter guys.
Listen we appreciate very much everyone's interest in our results for the quarter and look forward of our next call. Thanks, everybody.
Thank you again for joining US today. This concludes today's conference call you may now disconnect.
[music].