Q1 2021 Pactiv Evergreen Inc Earnings Call

[music].

Thank you for standing by this is the conference operator, welcome to the practice of Evergreen and first quarter 2021 earnings conference call. As a reminder, all participants are in listen only mode and the conference is being recorded after the presentation, there will be and opportunity to ask questions to join the question queue.

You May press Star then one on your telephone keypad should you need assistance during the conference call you may signal, an operator by pressing star and zero.

I would now like to turn the conference over to develop Patel Senior Vice President of IR and strategy. Please go ahead.

Thank you operator, and good morning, everyone. Thank you for your interest and back of Evergreen and welcome to our first quarter of 2021 earnings call.

With me on the call today, we have Michael King Chief Executive Officer, and Mike, Oregon, Chief Operating Officer, and Chief Financial Officer.

And the isolation or as a substitute for results prepared in accordance with gap and reconciliation to comparable GAAP measures are available and our earnings release.

With that let me turn it over to Michael King Mike.

Thank you the of all.

Good morning, everyone and welcome.

Or jumping in and with this being my first earnings calls the CEO effect of evergreen.

I thought it might be helpful to give a bit of insight on my background, leading up to now.

Mm of pedigree of chemical and mechanical engineer my career started and the operations and development space of the automotive industry and it's rapidly progressed and the both private and public sectors with companies like Leer Corporation.

Hi, automotive.

For him and auto light as well as who the marquee packaging and most recently Graham packaging.

My Sweet spot is and driving business transformation through culture manufacturing turnarounds and and the and systems integration.

My approach is hands on and collaborative.

I am very results focused with the Kenai too long term and short term viability of the business.

I have to say that it's been a pleasure to meet so many of our pact of evergreen employees over the past two months as I've taken over as the CEO and.

And my short tenure I visited our mill operations and so several of our converting facilities.

And confident that we have an amazing team of talented individuals across the organization that are well suited to manage the current challenging environment as well as the opportunities of the future.

The first quarter and 2021 presented the number of challenges is our COVID-19 pressured business was also impacted by and unprecedented winter storm youri as well as schedule scheduled cold mill outage.

Despite these challenges.

We managed to deliver solid results across the segments and remained laser focused on improving our paper mills and the eliminating ways through a host of strategic initiatives.

If I could turn your attention to slide three.

During the presentation, and we will discuss key business takeaways.

And first quarter of 2021 highlights.

And will give a will provide and update on.

On the business will go through our first quarter financial performance.

Two of <unk>.

Adjusted EBITDA of $77 million per the quarter was down 47% from Q1 and 2020 due to the impact from winter storm Yuri the cold mill outage as well as COVID-19. These.

These results were partially offset by favorable raw materials.

Free cash flow of defined as adjusted EBITDA less Capex was $17 million and declined versus Q1 2020, driven by the depressed EBITDA.

Finally.

Our strategic investment program is on track and delivered $23 million of benefits and the first quarter.

Like of direct you to slide eight as.

As we have previously discussed pact of Evergreen continues to have many EBIT growth levers that will deliver benefits in 2021 and beyond.

As the overall economy continues to rebound and COVID-19, subsides, we should realize significant volume upside and leverage our leverage operational costs.

And the incremental operating costs during the COVID-19 pandemic will also decline as mass vaccination continues across the country.

The secular shift to more online ordering and delivery and takeout will also help drive our volume growth.

We plan to continue investing and incremental capacity to meet customer demand.

We view of sustainability.

We're all fiber based.

That brings the total number of new items, we've introduced to 94 and the last year and a half.

Valuing our people has always been a top priority of <unk> of evergreen and and the first quarter. We saw overall injury rates come in and below target and three times better than industry averages looking beyond our people, we celebrated national volunteer week by launching of new program that rewards actions for our employees and their families.

To better their communities.

Finally, as a new New Republic company, we are working with our board of directors to develop transparent policies that promote effective governance and.

And we look forward to sharing more in the future.

We'll be providing greater external reporting on the USG topics and the coming quarters and years and we invite you to view more details of the link included in the presentation.

Please know turn to slide 10.

Another key focus for packed of evergreen has been innovation.

We have and continue to invest and capabilities to make products from a number of substrates the integration of evergreen and to pack of only further enhances those capabilities. This allows us to be the right partner to work closely with our customers as they tackle the challenging requirements of the dynamic consumer that is evolving needs and preferences of function.

And <unk> and sustainability.

Of now launched a total of 94, new Earth choice products with twenty-two launched and the first quarter of 2021, as we focus on sustainability oriented products to align with today's customer preferences.

And addition, we are launching new products focused on on food safety.

And tamper evident two.

The address customer needs.

Of not only developed a number of projects to realize $6 million of EBITDA and synergies and 2021 from the component packed of evergreen, but we've also identified and additional $25 million of potential synergy opportunities.

Please know turn to slide 11.

We remain on track to complete our strategic investment program and 2021, and we will have spent a total of 661 million by the end of the year on a number of programs that as of total average a 2% of two and a half year payback.

We are and the maturing stages of both our beverage merchandising operational review and our next generation packed of evergreen waste elimination programs.

Plan to provide more information on the news programs over the coming months and quarters as we start to implement actions across the business.

I will now turn it over to Mike Reagan for a detailed financial review.

Thanks, Mike.

And 4%, mostly offset by favorable pricing net of mix and.

Just the EBITDA was up 4% unfavorable material costs net of lower cost Pops true, mostly offset by high and manufacturing costs.

Ah beverage merchandising segment, so of net revenues down 10% versus the same period last year due to the impact of COVID-19.

Adjusted EBITDA for the segment was down $81 million versus the same period last year and.

<unk> drive has been the effect of winter storm, youri, which cost $34 million, a cold mill outage, which cost $16 million and the quarter.

No operational performance, which cost $16 million and.

And the effects of the COVID-19, 19, pandemic, which impacted the business $14 million.

Moving to slide 15.

And we estimate the queue on impact of COVID-19, and winter storm here throughout business.

The queue on adjusted EBITDA impact of COVID-19 was $38 million.

Mostly driven by volume price and higher manufacturing costs, most notably and our food service and beverage merchandising segments.

And Q1, when the storm Youri had of one time impact of our business of $39 million.

The impact was concentrated on our facilities, and Arkansas, and Texas, where we incurred higher energy costs and needed to shutdown such quickly and caring damage in the process we.

We estimate that will we we will also see a third of $10 million of costs and queue to do the damage incurred during the storm and high on Unrecoverable raw material costs to ensure the of supply to our customers.

Moving to slide 17.

Looking at our outlook for 2021, and the ultimate impact of the COVID-19 pandemic packed of evergreen remains uncertain.

And Ah forecasts, we have made certain assumptions regarding the second half recovery of foodservice and beverage merchandising revenues that of dependent upon increase mobility and may not eventuate.

Of being need the conservative nor aggressive and these assumptions.

At this time, we are updating a full year adjusted EBITDA guidance to $630 million to $645 million from out early of projection approve.

Approximately $50 million of the change throughout guidance is due to the impact of winter storm Uri, whilst $20 million is related to mill operations within the beverage merchandising segment.

Turning around and the mill operations within the beverage merchandising segment remains of priority, we have the resources and place to affect the turnaround and are continuing to invest to ensure that the turnaround takes place.

We expect the strong performance and our food service and food merchandising segments to continue throughout the year.

One quick note on queue too in addition to the residual impact of $10 million from winter storm Uri. The recent raw materials spikes will negatively impact second quarter results.

Ah contractual price pass throughs will and take effect during the second half of 2021 and would expect to see strong margin improvement and the backdrop.

Thank you for your time as an appendix to this document we've included Q1 revenue and adjusted EBITDA bridges versus the same period last year.

Consolidated statements of income slash loss.

A reconciliation of net income slash loss to adjusted EBITDA and free cash flow.

And the summary of progressive and a strategic investment program.

I'll now pass it back to Mike King for clothes and comments.

Thank you Mike.

And closing while the first quarter was challenging we look forward to the continued opportunities ahead of us as business activity returns and drives continued recovery and our food service and food merchandising businesses and.

And also look forward to turning around the performance and our beverage merchandising business and in particular are mill operations with that and will now open it up for questions operator.

Thank you.

And will now be conducting the question and answer session to join the question queue. You May press the start and then one on your telephone keypad University of his current acknowledging the request if you're using a speaker phone. Please pick up your handset the hard pressing any keys to withdraw and your question. Please press Star then too.

No cause for a moment of Congress trying to calm.

The first question is from Anthony Pettinari from City. Please go ahead and.

Good morning, and welcome Mike.

Given the unprecedented resident inflation that you're seeing can you just maybe remind us or put a finer points on the time line.

To get caught up on that inflation in terms of the lags, whether they're one quarter or two quarters.

And then just your assumptions for the direction of Reds and prices for the remainder of the year, that's embedded and your outlook.

Yeah. So this is my Greg and good morning, Anthony Uhm, So I'll I'll take that one.

What we're gonna see and and cute too is we will see somewhat of of disconnect between now and.

Revenue and now and now costs.

On the Reds and prices spiked early and the year a lot of that is still and inventory for us.

As you know we hedge the lag.

And particularly and food service and food merchandising.

And and we will.

The C.

And that's not 100 per cent.

Perfect in terms of the hedging we will see a lag through Q true, but in queue free out pricing will be back up on on on top of the residence and.

And we will and are.

We will restore out normal margins, we are expecting reds and costs to subside.

Through Q3.

And.

And.

And then just sort of flattened out three cute for.

Okay and that that's very helpful. And then Mike understand that you're still on undertaking your review and it's early days, but is is it possible to identify one or two things that you think the company could improve on either operationally or commercially that really stand out to you.

As as an opportunity given your you know your history and experience.

Yeah, Yeah, a good question.

You know, there's the host of reliability issues.

And we've been Sullivan.

And and parallel on both mills.

Are converting operations I would tell you.

Run fairly well so the focus is is truly the mills.

I would also say commercially reevaluating per.

Price and across the board that's sort.

Stuck the total there's an opportunity for us.

And really just as we continue the strategic review.

Doing the holistic look at the product proliferation.

Give you a sense of the body of work around our of times and how the time too.

The labor challenge and the country right now with our largest competitor of the and the U S government in terms of labor.

And we're managing that and so it's late and ourselves on labor of.

The time efficiency and and commercially within the price all of those are lovers right now.

Okay. That's helpful I'll turn it over.

The next question is from gunshot Punjabi some burnt. Please go ahead.

And thanks, good morning, everybody and and congrats Michael and the other one you on your new roles.

Thank you.

So I guess following up on Anthonys question on and just.

Just kind of looking at the construct of guidance you lowered EBITDA for 2021 and by about 70 million.

And then you call it $50 million from her of from the Winter storm here and and 20 million from the mill issue, but you know costs are obviously much higher just not resin, but afraid labor and you mentioned et cetera.

Are you assuming that you're fully recovered price caused specific to these issues by the end of 2021.

Are there any positive and upsets we should consider relative to your initial guidance.

Yeah.

Hi, Ken and check and this is Mike ready and again.

So we.

Look.

If I just take a step back.

And Ah Foodservice segment 80 per cent of out a revenue is on posture and and food merchandising at the similar number.

And in beverage merchandising on on the cotton.

Side of the business, it's around 80% of as well and.

The the.

The remainder of the business a lot of it is the market.

Market based.

So we are expecting to recover the.

The bulk of of the the input cost increases or get out prices up.

To cover that.

And that's that's contractual and that's the way we of model of things out.

Now of the upsides for that look if Reds and drops if input costs drop sure we might see some upside.

But the way that we of model of that is as as I said to Anthony is that it drops of little and then sort of flattens out in the in the back end of the year.

Okay, and just to clarify of resin stays flat between now and year and would.

Would you recover everything by the end of 2021 or would that spillover into 2022.

We'll recover by the end of 2021.

Okay Perfect and then you know I think you mentioned three per cent volume increase and Marcia of of ear, just kind of give us a context as to what March of 2020 look like and then what have you seen so far and April across the board by the three segments.

True so and.

And I'm gonna.

Hopefully this isn't too much of the.

Too much information, but I like to look at 2019, Robyn and 2020.

Particularly for April.

The book.

And in total of volumes were up.

In March of as as we stated.

And our foodservice volumes and March.

Everyone needs to understand the 25 per cent of our business and food services as institutional so things like school stadiums offices.

Still haven't really opened.

And are all day of open to a certain extent, but they're not and I fully open.

And so when I look at this versus.

The food service.

Verses 2020.

And March for up around 7% and we're about flat with 2019.

In terms of all yours and April we're we're we're up.

Both of US 29, either I don't even want to talk about 2020 cause that's when the world stopped.

But we're up.

At the central too and and and April on on the on 2019 number so.

Positive the.

And.

And state merchandising, we're a little down and March versus 2020.

We're about 3% down and March but versus 2019.

About six per cent up.

And and April.

We're looking for about seven per cent up on the 2020 and.

Around three to four per cent up on the 2019.

And then in beverage.

Beverage merchandising.

Four 2021.

Versus 2020.

We're about 3% up and.

And we're about.

12% up on 2019 and and March.

And and we're seeing 2021 about three per cent up on the 2020 and a little down on 2019 and so.

And obviously amongst the month you can see poles of.

Forward and pushed backs and all of that sort of stuff. So that's why I give you the two of them out so I.

I think what we're saying is and Ah.

We're seeing.

Strong recovery and foodservice with upside to come as.

For the openings occur in the areas that I mentioned around the institutional part of the business, 25% of the foodservice business historically.

Food merchandising we're seeing.

Good solid volumes, we will obviously say a little bit of of pullback and things like protein trays and.

And it's all sorts of things.

We will say.

Both in areas that you know.

Almost dissipated last year of things left by great containers.

On that as people went celebrating graduations and things like that we will see that and a return this year.

And then.

And and beverage merchandising, we think we will see.

As as schools go back, we'll see more school milk, the little size say the pulled free from foodservice on on a cup stock.

The the cups of paper Cups that go into.

A lot of outfits service customers. So we're encouraged we're not declared victory yet, but we think the volumes.

The the currently strong and we think that they are going to continue like that.

As the economy continues to economics.

Thanks, so much.

The next question is from Erin is this one Nathan from RBC. Please go ahead.

Great. Thanks for taking my question and and welcome the Devil and and Mike.

So I guess I I just wanted to ask about the of strategic investment program that Uhm was described during the idea of process, maybe could you update us on your progress there uhm, especially and light of the 20 million of headwinds that you've been experiencing within the beverage merchandising. Thanks.

Sure so.

As an appendix to the presentation on slide twenty-three and provides the summary.

The date, we spent $498 million of of.

The $661 million and the program and we continue to spend.

At right.

During the first quarter, we saw of benefit of $23 million from that which is which is very positive I think last day, where.

For the full year, we were $65 million sort of $23 million and a quarter means that we're accelerating on the savings which is.

Great to see.

True Q1, we spent.

And the mills, we took down.

And the Pine Bluff, no, Mike King outline, the cold and they'll outage and and I mentioned that.

That cost of $16 million and EBITDA.

In and two one however, we invested substantially we rebuild.

Boiler, we did a lot of investment at that time.

Which is great.

And and and we will spend circle of $100 million and and the evergreen beverage merchandising business. This year the.

Bulk of which will be and the two meals.

So we're continuing to invest the.

And and will continue to invest to to to <unk> to see the benefits that were expecting from as as the millstone around.

Uh-huh.

So uhm as of follow up just just given what you said and and given some of the cost pressures. So I imagine you would be caught up on Reds and price inflation by the end of this year you'd get the 50 million back from the storms and next year and then you that and the the increases from the.

S I P and the benefits.

So would you expect the 2022, so to look more of like 19, then and and and and obviously I guess, that's depending on the foodservice recovery too full extent, but uhm does that of fair characterization of of your thinking about the longer term or the next couple of years.

Uhm so Adam.

I I I don't want to overcome and see it but I would expect that 2022 would be better than 2019.

And.

And are.

If I if I just sort of walk you through my thoughts on it.

The second half of this year I mean, you can infer and our.

And the the numbers, but that we're expecting the state and the second half of this year and a lot of that is around recovery from COVID-19 benefits from a strategic investment program.

And.

You know essentially just costs.

And in plants.

Coming down as we we've really increased cost day and.

And so and plus to your point, we we are recovering.

And will recover throw a contract postures the the increased.

Costs, and and Reds and another raw material inputs.

Sort of except run rate should be very strong.

And we will continue to see benefits from the strategic investment program, we will.

Continue to see we're not saying that by the end of the year will be recovered from COVID-19 that will.

Linger into next year and we also have the programs that Mike King outline that we will.

Provide further clarification on and and future calls so.

Yeah, My personal view and.

I think what Mike and I have discussed is next year will exceed 2019.

Okay. Thanks.

The next question is from church South of US from Bank of America. Please go ahead.

Thanks, everyone. Good morning, again, and welcome double and Mike I want to start with my first question really more around volume and then I Wanna get into evergreen and and the mills to the extent that we can talk so.

The micro Mike the little bit of weak and said, we saw and food and merchandising volumes and the quarters that just.

What we would expect a little bit of weakness because of the reopen so you're getting and foodservice of that means we're not shopping the perimeter of the store as much for food at home or is there something else behind that and I [noise] unrelated volume question. How are you marketing Earth choice and the plastic packing and.

And that business and sustainable what's your your what what are you finding as most resonating with the customer of theirs at the Recyclability.

Or or something else that is allowing you to present that as a as a sustainable choice.

Okay. So no one <unk> one of the <unk>.

And take the Earth choice.

The place you go.

Yeah. So I'll answer your second question George on the Earth.

<unk> both of US it's recyclability for sure, but it's also recycled content.

Of course, we look of.

You know those levers.

It's not the same across the board. The certainly those are the two of the three pillars of the two that we're leveraging them of college side of.

Choice.

Okay, and how much recycled content are you using right now with and Earth Joyce.

Or cross the whole planet of I'll think.

To get back to you on the do you know Mike Reagan.

I'm sorry, the question was how much recycled content.

I don't know the.

10, or 20% on that we can get that exact number I don't we don't have it off the top of Brown.

It depends it depends on the on the product itself. We can we can do for example, recycle P. T. We can do of 100 per cent.

And once journey I would tell you if you break the mill into it seven or eight.

Facilities.

There isn't one of those sub facilities that.

Isn't needed.

Special attention to get to the the best place we can on our cost per.

I would tell you pine Bluff, just generally you should think about pine Bluff.

As a bit further and their journey.

On our operational metrics are all heading the right direction and we're just coming out of the cold mill outage, where we have been able to invest.

Italy, and all eight of those sub facilities, if you will whether it's chip production.

The pulping bleach.

Bleaching.

Every one of those.

The facilities is getting a lot of attention and we're seeing that improve.

I would say to your your granular question.

Our paper production side, our and our board production side of our paper machines run well, so its not head box issues and Pine Bluff, it's not.

We're not having overhaul related or major.

Issues, it's really a story of reliability on all of the upstream.

And making sure that those things.

Which.

Frankly, otherwise been.

Of hampering uptime don't hurt our ability to be.

And be efficient on the paper and board side.

And similar story and Kent and frankly.

There has been.

There's been a lot of investment and canton.

And we did not have the cold mill outage. So we're doing a lot of things, we're flying the plane and fixing.

The major items.

The as we look at the medium and long term viability of that operation.

And without having a cold mill outage, we're doing everything we can to.

And again not see the.

The downtime manifest itself into our paper and board production So similar story.

All in the upstream and.

And getting consistent labor and consistent.

We've taken advantage of the downtime we have to keep the machines up as is the focus and so it's not like there is.

One big rooming item, it's more systemic and Thats why.

We're somewhat reluctant to go on to a lot of detail on the strategic review until we get through what might be some step function changes we can make there.

Hope that answers your question George.

No Michael it's very helpful more work to be done, but we appreciate it I'm going to turn it over here thanks very much.

Yes.

The next question is from Kyle White from Deutsche Bank. Please go ahead.

Yeah.

Okay, sorry about that good morning, Thanks for taking the question Mike Lovell Congrats on the new role Mike.

Mike and I know, it's relatively early days here and your role, but when you take a look at the business portfolio and specifically looking at beverage merchandize and just trying to on.

Understand your thoughts.

Terms of what you how you view that.

Segment and regards to the overall portfolio of attractive evergreen.

Yeah. So.

I kind of I kind of think of it is.

Liquids liquid board and.

Cup stock and things that we vertically integrate and then I think of everything else so of coated groundwood or.

Uncoated free sheet businesses, I kind of look at it that way.

And.

I don't have any.

Can tell you the it's exciting to see what the.

The synergies and really the benefits the are converting facilities across the board will realize.

As we continue to straight and the mills out on the liquid packaging side of liquid pay per site.

But I.

And it's too early for me and I'll be I'll comment on.

Coated groundwood or uncoated free sheet spaces.

All of which we.

We have pretty good saturation and those spaces on on our Skus and.

But I can tell you that.

We're rolling all of all areas of each segment over and looking at it from.

Whether it's commercial levers and pricing too.

The profitable SKU mix too.

And where we want to.

Lean in on <unk>.

Products like our of choice.

And so it's a full into and look.

Ill take that.

Let me take the front end and I'll, let you talk about the recovery potential.

Okay.

The [laughter].

To say it was and.

And the clips of events. It was somewhat unfortunate we plan to cold mill outage.

For the week after when the storm hit.

What's the what's the what's the storm did was force us to pull the cold mill take the milk hold sooner than we wanted.

So.

There was no pun intended of the perfect storm hit US right the worst time, it could sort of.

<unk> taken the mill coal during the cold snap and the south.

Freezing pipes.

Exposing already weak linkages.

There wasn't one so if you think of the mill is kind of eight or nine sub facilities. There wasn't one of those sub facilities it wasn't greatly impacted.

And so you couple that with the costs of the rising cost of energy.

For us, particularly natural gas.

And having to commit to purchase natural gas to keep things heated.

Coupled with the Breakages and.

Really a cold storm and the mill.

That far south.

Really exposes anything tweak things that would normally be maintained and.

So it was the.

Exacerbated our ability to.

Focus on.

And the things that we had already planned and the cold mill, but and also a lot of things that we had and plan to work on easy to get fixed quickly. So we were down longer than we wanted to be.

And certainly paid more for the energy during the period of time and.

And the body of work and the scope of work that we had planned on net outage, whether it be recovery boilers, whether it would be.

A lot of what failed was pumps.

We had we had several pump failures.

Turbines energy backup turbine generators.

There is a host of things.

And expose themselves during that day.

Storm for us and the Pine Bluff mill.

And then Mike I'll, let you talk to the the energy side of that and the potential for recovery of et cetera.

Yes.

In terms of Recoverability, where we're reviewing all of our options.

As you would expect.

We're not.

Sure that will get.

Sure.

Anything back.

But.

And I were pushing for it so.

The.

We're hopeful we haven't factored anything into our forecast.

And the energy piece.

Is.

As you would expect energy prices spiked.

And.

Before we shut down, particularly and in Arkansas The mill.

We saw natural gas prices through the roof.

And.

Obviously cost us a lot of money as well.

Good day.

Okay, great. Thank you that's helpful. And then just just with regard to the rising raw material and other costs, how should we think about the impact of the working capital line in terms of cash flow since the roll through 2021.

Yes, so we have seen in.

And Q1, we saw a 50 million dollar increase and our inventories due to.

Due to the increased raw material costs. So.

And we're managing our inventories right now and and trying to.

Somewhat offset that but.

But we did in Q1, we sort of $50 million.

Increase the working capital and through the end of the year.

That will that will be.

Somewhat higher due to right, but we are we are.

We've been doing a lot of work on out.

What we talked about during the IPO process, how integrated supply chain program.

And one of the benefits of that program is too.

The allow us to bring our inventories down.

And so we will stay and offset to that the who.

Higher right number.

But and.

And that's sort of physical inventories will come down.

We're expecting the say total inventory to be up.

Yes.

Bye.

Yes.

And 30% $40 million at the end of the year because of of higher raw material costs.

Okay.

Got it thank you very much and I'll pass it on.

The next question is from Mark Wilde from BMO. Please go ahead.

Yeah.

Thanks, Good morning, Mike and Mike.

Mike and Mike.

Greg and I wondered if you are able to quantify the second quarter impact from the resin mismatch.

Well I.

And I can and has personally but.

In terms of you know.

What I'm expecting to see in terms of our guidance for Q2.

We're expecting to see.

As we've said already strong volumes.

Uh huh.

However, a lot of that volume impact will be offset by the higher raw material costs and the quarter.

So I would not expect to stay and materially higher quarter than last year.

However, they and we recover and we will see higher.

The margins for Q3 and Q4.

Does that help.

Yes, I just what I was hoping for is that maybe you could give us sort of a.

Range in terms of millions of dollars of impact from just the resin mismatch in the second quarter.

Okay. So it's around <unk>.

$50 million to $60 million.

Okay.

Alright, and then another question I had was just.

What type of volume expectations on a year over year basis do you have built into the second half at this point is it possible and give us some guidance about what you're embedding in the numbers right now on a segment by segment basis.

Sure I'll give you some guidance.

So what we're expecting to see.

And is.

And foodservice.

What we've embedded in the numbers is to be.

Is to be and.

And it's easier for me to talk versus 2019.

Yeah.

I don't know where the bottom line.

And that's fine that's on 'twenty.

And it's a little low life of the place debt so.

We've sort of said.

And our foodservice numbers to be 4% to 5% down versus 2019.

Now as I said earlier that Hasnt manifested itself in March and April.

And beverage and food merchandising.

Whereas we would expect to be.

Around flat.

The 2019.

And then and and beverage merchandising.

Would expect to pay.

A little down and the early months, and then pick back up and the back and to be flat to 2019.

Okay, Alright, that's very helpful. And then Mike if I could you know last summer when.

And the the management provided many of US on the call with projections for 2021 of those numbers were almost $200 million higher than the current guidance now.

We leave aside some of the issues from the first quarter. There is still a big gap. There could you just talk about what the two or three drivers have been the kind of reduced guidance over the last eight or nine months and then also what you're doing going forward to kind of improve that guidance.

Yeah Okay.

So.

I think.

And as you know.

I think the big variances in.

Beverage merchandising and Thats, what George alluded to before so but.

Let me give you the easiest one first.

Service.

Outlook versus what we had when we discuss this with you.

And so off about $20 million and.

We made certain assumptions.

Back in the area.

2020 around how quickly we recover from COVID-19, Patrick the children and would you go back to school et cetera, et cetera, and some of those didn't play themselves out.

And so that represents about $20 million of the outlook.

Now as I said earlier, we are seeing strong of Oems.

And then than what we had and the outlook, so who knows where that where that will manifest itself.

The big down is and beverage merchandising and.

Between.

The the last.

Coal well sorry.

The.

The guidance that we gave you guys and then.

We went to last call.

We came off of about $80 million.

And I split that into two different things price and volume.

And the and essentially the recovery of the mills.

And the timing around that.

So in terms of the price and volume we've seen.

And lower pricing, particularly in the paper segment.

Also.

Some some sort of pricing.

On on board volumes because.

And we want to keep the keep the mills full.

And we've had the chase volume there.

To make sure that we are taking.

Taking any any downtime so.

And so we've had to so.

Volumes at <unk>.

Lower pricing, then and won't be dish and.

Again around recovery, secondly, and that area yes.

And schools again, I mentioned that in foodservice.

Same and beverage merchandising at the big part of our business School milk.

And that manifests itself and the board as well because we also sell to.

Competitors.

Who convert into school milk so.

They are the big pieces on price and volume and that's about half of the $80 million the.

The other half is metal recovery timing.

$40 million okay. So.

And the speed at which the mills of turning around its not as fast.

And then what.

And we just outlined this morning was.

And they are not recovering as quickly then what we've assumed in our prior guidance and that's bought it down another 20.

Okay.

And then the last piece of this obvious relate the stone and $50 million. So that should walk you backwards from.

And from where we were two to where we are today.

Okay, very helpful and kind of going forward Mike.

So going forward.

You mean about like how we showed it.

Turning to sharpening the guidance yet because this is the you know it's a huge.

Drop over the last 309 months.

Sure. So you know.

And I sort of look at this year is a bit of of title of two halves.

This year.

You know Q1, you've seen the results Q2, we're gonna be.

Yes, it will be weighed down somewhat by.

The the.

The raw material increases and us catching price back up.

However, I think what you what I hope to see and what we're starting to see stronger volumes and so you'll be able to see that and that should give you. Some.

Debt.

It should give you some confidence and what we're saying of that.

Q3, and Q4, obviously purchase and the pudding.

Then in Q3 Q4, we should see stronger volumes, we will of caught up on price.

And we would expect that some of the positive trends that are starting to see and and the mills continue on and continue to improve.

Such that we're exiting 2020 wanted of at a nice exit run rate.

And in terms of.

What what next year looks like and I'm not going to commit to any numbers, but the way that I look at it is.

We'll see.

Continued recovery from COVID-19, we will see.

The continued benefits from our strategic investment program, which will play themselves out.

Over the next year or two.

And some of these other programs, which will outline.

And upcoming calls we should see some benefits from that so.

The you know the volume tailwind and set with.

And that we have in front of us combined with reducing costs and our plants around COVID-19.

Plus.

You know getting on top of the mills.

And we haven't demonstrated that but.

We've got the right structures around that I think will lead to improved.

Results.

And the back half of this year and then.

Going into 2022.

Okay. That's very helpful. I'll turn it over thank you Mike.

No problem.

And next just a follow up question from George Staphos from Bank of America. Please go ahead. Thanks.

Thanks, Hi, guys I'll try to make a quick lightning round here.

So micro Mike when would you expect to have a new leadership.

For the mill system and <unk>.

Ever Green number one number two can you remind us what was the capital spending outlook and might some of the required remediation.

Lead to more spending.

And then lastly, with Ken do you need to take the cold outage. This year, so that you're not trying to you know as you put it fix the plane, while flying and at the same time, thanks, guys and good luck in the quarter.

So thanks.

Thanks George.

I'll piggyback on the answer to the question I could tell you on the recycled content as well with new leadership.

Our hope is before we ever and next earnings call, we of any leader in place or sooner.

Capital outlook I.

And I think our number for the year 305, we don't anticipate.

And going over 305.

Kevin No we will not be taken of cold mill outage, we're not anticipating the and 2021.

And the answer to your prior question on recycled content is the minimum is 25% and our Pollo your choice and.

And it can go as high as the 100%, but the minimum of 25.

Okay. Thanks, very much Michael good luck.

Yes. Thank you.

The next question is from Scott Schwartz from Hps Partners. Please go ahead.

Hi, do you of any thoughts surrounding your 2023 maturities and the ones that are remaining on it.

We are reviewing that at the moment.

No definitive thoughts but.

And obviously, we would you know.

Look too.

Do something with that and the next and the next year.

Okay. Thank you.

Okay.

This concludes the question and answer session I would like to turn the call back over to management for any closing remarks.

Yes, thank you very much.

I wanted to thank everybody for joining us today.

And we look forward to brighter quarters and talking about the progress of the businesses, making as we continue the year.

Thank you.

This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.

Okay.

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Thank you for standing by this is the conference operator, welcome to the practice of Evergreen and first quarter 2021 earnings conference call. As a reminder, all participants are in listen only mode on the conference is being recorded.

After the presentation, there will be and opportunity to ask questions to join the question queue. You May press. The Star then one on your telephone keypad should you need assistance during the conference call you may signal, an operator of by pressing star and zero.

I'd now like to turn the conference over to devote Patel Senior Vice President of the IR and strategy. Please go ahead.

Thank you operator, and good morning, everyone. Thank you for your interest and packing of Evergreen and welcome to our first quarter 2021 earnings call.

With me on the call today, we have Michael King Chief Executive Officer, and Michael Ragan, Chief operating Officer, and Chief Financial Officer.

You can please visit the events section of the company's Investor Relations website at Www Dot pack of evergreen Dot com and access of the company's supplemental earnings presentation.

Management's remarks today should be heard in tandem with the viewing this presentation.

Before we begin our formal remarks, I would like to remind everyone that our discussions today may include forward looking statements.

These forward looking statements are not guarantees of future performance and therefore, you should not put undue reliance on the.

These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect.

We refer all of you to our recent SEC filings for a more detailed discussion of the risks that could impact on future operating results and financial condition.

Lastly, during today's call, we will discuss non-GAAP financial measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered and isolation or as a substitute for results prepared in accordance with GAAP.

And reconciliation to comparable GAAP measures are available in our earnings release.

Let me turn it over to Michael King Mike.

Thank you first of all.

Good morning, everyone and welcome.

Jumping in and with US being my first earnings call as the CEO of effect of evergreen.

I thought it might be helpful to give a bit of insight on my background, leading up to now.

I'm, a pedigree of chemical and mechanical engineer the career started and the operations and development space of the <unk>.

Automotive industry and it's rapidly progressed in the Bulls private and public sectors with companies like Lear Corporation.

The automotive.

For him and auto line as well as who the marquee packaging and most recently Graham packaging.

My Sweet spot is and driving business transformation through culture manufacturing turnaround and engine and the and systems integration.

<unk> hands on and collaborative.

And I'm very results focused with a keen eye to the long term and short term viability of the business.

I have to say that it's been a pleasure to meet so many of our package of evergreen employees over the past two months as I've taken over as the CEO.

And my short tenure I visited our mill operations and sell several of our converting facilities and.

I'm confident that we have an amazing team of talented individuals across the organization that are well suited to manage the current challenging environment as well as the opportunities of the future.

The first quarter and 2021 presented the number of challenges is our COVID-19 pressured business was also impacted by and unprecedented winter storm Uri as well as schedule a schedule of cold mill outage.

Despite these challenges we.

We managed to deliver solid results across the segments and remain laser focused on improving our paper mills and eliminating ways through a host of strategic initiatives.

If I could turn your attention to slide three.

During this presentation, we will discuss key business takeaways and.

And first quarter 2021 highlights.

And we'll give the will provide an update on.

And on the business will go through our first quarter financial performance.

I'll provide an update on our full year 2021 outlook.

And we'll conclude this with questions and answers today.

Well, if I could direct your attention to slide five.

Our first quarter results continue to see steady improvement and underlying business activity were negatively impacted by continued depressed volumes due to COVID-19, along with winter storm Uri and the planned cold mill outage.

And foodservice and food merchandising, we actually saw year over year, adjusted EBITDA improvement of 9% and 4% respectively for the quarter. Despite the negative impact of COVID-19, and the storm.

The total company volume was 3% up from the month of March.

We expect the stronger year over year.

Volume growth to continue for the remainder of 2021.

We're still relatively early and the process of our operational review of the beverage merchandising segment and our next generation pact of evergreen waste elimination program.

We do not have an update for you at this time, but we plan to provide you.

Further details in the coming months.

The company has continued to focus on paying down debt and is repaid $59 million of notes and the quarter.

Please now turn to slide six.

Now, let's move to quarter 122021 highlights.

Net revenue of 1.1, and six 4 billion was down 4% from Q1, and 2020 sort of the continued impact of COVID-19, as well as lower raw material costs passing through the system.

We would note net sales of recovery and were up 7% year over year for the month of March.

Net loss from continuing and continuing operations was $15 million and earnings per share from continuing operations was a loss of seven cents.

Adjusted EBITDA of $77 million per the quarter was down 47% from Q1 and 2020 due to the impact from winter storm Yuri the cold mill outage as well as COVID-19.

These results were partially offset by favorable raw materials.

Free cash flow of defined as adjusted EBITDA less Capex was $17 million and declined versus Q1 2020, driven by the depressed EBITDA.

Finally.

Our strategic investment program is on track and delivered $23 million of benefits and the first quarter.

Like of direct you to slide eight as we.

As previously discussed pact of Evergreen and continues to have many EBITDA growth levers that will deliver benefits in 2021 and beyond.

The overall economy continues to rebound and COVID-19, subsides, we should realize significant volume upside and leverage our leverage operational costs.

And the incremental operating costs during the COVID-19 pandemic will also decline as mass vaccination and continues across the country.

The secular shift to more online ordering and delivery and takeout will also help drive our volume growth.

We plan to continue investing and incremental capacity to meet customer demand.

We view of sustainability.

And as another pillar of our growth story and also a differentiator for the business. We are able to provide a broad portfolio of sustainable products to our customers as well as work with customers to develop new sustainable products as they shift their product offerings to meet customers' preferences.

Finally <unk>.

Cost reduction initiatives and optimization will also continue to contribute to EBITDA growth.

Please now turn to slide nine.

As one of the largest companies and the food and beverage packaging industry. We recognize the responsibility we have to lead and inspire when it comes to ESG issues.

Ladies and sustainability report, we outlined where we are headed and we are committed to updating all of our stakeholders on our progress towards excellence.

When it comes to protecting our planet's resources. We are currently finalizing our 2020 and greenhouse gas emissions data and examining options to accelerate our reductions to date and help mitigate climate change.

One data point that we can share today shows our commitment to another focus area and that of sustainable Forestry and 2000 2030 per cent of the fiber. We procured came from third party certified sources up from 23 of 23% and 2019.

Related to our products pillar, we're building of the broadest offering of sustainable packaging and the industry.

Which helps us reach our goal by 2000, 2030 or 100 per cent of our products will be made with recycled recyclable or renewable materials. During the first quarter, we launched 10, new products, which were all fiber based debt.

That brings the total number of new items, we've introduced the 94 and the last year and a half.

Valuing of our people has always been a top priority of pact of evergreen and and the first quarter. We saw overall injury rates come in below target and three times better than industry averages looking beyond our people, we celebrated national volunteer week by launching of new program that rewards the actions for our employees and their families.

To better their communities.

Finally, as a new newly public company and we're working with our board of directors to develop transparent policies that promote effective governance and.

And we look forward to sharing more on the future.

We'll be providing greater external reporting on the ESG topics and the coming quarters and years and we invite you to view more details of the link included in this presentation.

Please now turn to slide 10.

Another key focus for pact of evergreen and has been and innovation.

We have and continue to invest and capabilities to make products from a number of substrates and the integration of evergreen and so pack of only further enhances those capabilities.

The allows us to be the right partner to work closely with our customers as they tackle the challenging requirements of the dynamic consumer that is evolving needs and preferences of functionality and sustainability.

We have now launched a total of 94, new Earth choice products with 22 launched and the first quarter of 2021, as we focus on sustainability oriented products to align with today's customer preferences.

In addition, we are launching new products focused on food safety and.

And tamper evident.

To address customer needs.

We have not only developed a number of projects sort of realized $6 million of EBITDA and synergies and 2021 from the combined impact of evergreen.

We've also identified an additional $25 million of potential synergy opportunities.

Please now turn to slide 11.

We remain on track to complete our strategic investment program and 2021, we will have spent a total of $661 million by the end of the year on a number of programs that is of total average a two to two and a half year of payback.

We are on the maturing stages of both of our beverage merchandising and operational review and our next generation pact of evergreen and waste elimination programs.

Plan to provide more information on these programs over the coming months and quarters as we start to implement actions across the business.

I will now turn it over to Mike Reagan for a detailed financial review.

Thanks, Mike.

Moving to slide 13, looking at our first quarter 2021 financial performance net revenue was one one and six 4 billion list and it's 121 2 billion and the same period last year of decline of 4%.

The decline was primarily due to the impact of the COVID-19 pandemic.

And it's important to note that we saw strong year on year improvement and March 2021 with revenue up 7%.

On March 2020 numbers, we're not yet affected by the COVID-19 pandemic and so this is a strong list of a prior year baseline.

Adjusted EBITDA was $77 million, that's the $145 million and the same period last year a decline of 47%.

Our foodservice and true merchandising segments were up 9% and 4% respectively. Despite the effects of COVID-19, and winter storm here and.

And in the quarter of beverage merchandising segment was affected by a number of factors, we will discuss them and detailed light during the presentation.

Free cash flow defined as adjusted EBITDA less capex was unfavorable to the same period last year due to lower adjusted EBITDA.

Moving to slide 14, and our results by segment for Q1.

Our foodservice segment, so of net revenues down 4% versus same period last year due to the impact of COVID-19 on volumes, particularly in January and February.

We are seeing a strong recovery and our foodservice volumes in March which is continuing.

Adjusted EBITDA for the segment was up 9% versus same period last year due to the favorable raw material costs net of lower cost pass through partially offset by higher manufacturing costs and lower sales volume.

Our food merchandising segment saw a net revenues down slightly the volume down 4%, mostly offset by favorable pricing net of mix adjusted.

Adjusted EBITDA was up 4% on favorable material costs net of lower cost pass through mostly offset by higher manufacturing costs.

Our beverage merchandising segment saw net revenues down 10% versus same period last year due to the impact of COVID-19.

Adjusted EBITDA for the segment was down $81 million versus same period last year the.

The key drivers being the effect of winter storm here, which cost $34 million of cold mill outage, which costs of $16 million and the quarter.

No operational performance, which costs $16 million and.

And the effects of the COVID-19, 19, pandemic, which impacted the business $14 million.

Moving to slide 15.

We estimate the Q1 impact of COVID-19, and winter storm year, two of our business the <unk>.

Q1, adjusted EBITDA impact of COVID-19, 19 was $38 million, mostly driven by volume price and higher manufacturing costs, most notably and our foodservice and beverage merchandising segments.

And Q1, when the storm year, you had a one time impact to our business of $39 million the.

The impact was concentrated on our facilities, and Arkansas, and Texas, where we incurred higher energy costs and needed to shut down sites quickly and carrying damaging the process we.

We estimate that we will also see a further $10 million of cost and Q2 due to damage incurred during the storm and higher non recoverable raw material costs to ensure the of supply to our customers.

Moving to slide 17.

Looking at our outlook for 2021, the ultimate impact of the COVID-19 pandemic to pact of evergreen remains uncertain.

Our forecast we have made certain assumptions regarding the second half recovery of foodservice and beverage merchandising revenues that are dependent upon increased mobility and may not eventuate.

The Navy conservative nor aggressive given these assumptions.

At this time, we are updating our full year adjusted EBITDA guidance to $630 million to $645 million from out of Italy, a projection.

Approximately $50 million of the change to our guidance is due to the impact of winter storm here, whilst $20 million is related to mill operations within the beverage merchandising segment.

Turning around the mill operations within the beverage merchandising segment remains a priority we have the resources in place to affect the turnaround and are continuing to invest to ensure that the turnaround takes place.

We expect the strong performance and our foodservice and food merchandising segments to continue throughout the year.

One quick note on Q2, and addition to the residual impact of $10 million from Winter storm Yuri the recent raw materials spikes will negatively impact second quarter results.

Our contractual price pass throughs will then take effect during the second half of 2021, and we expect to see strong margin improvement in the back half.

Thank you for your time as an appendix to the document we have included Q1 revenue and adjusted EBITDA bridges versus same period last year.

Consolidated statements of income slash loss.

A reconciliation of net income slash loss to adjusted EBITDA and free cash flow.

And the summary of progress and our strategic investment program.

I'll now pass it back to Mike King for closing comments.

Thank you Mike.

In closing while the first quarter was challenging we look forward to the continued opportunities ahead of us as business activity of returns and drives continued recovery and our foodservice and food merchandising businesses.

And also look forward of turning around the performance of our beverage merchandising business and in particular on mill operations with that and we'll now open it up for questions operator.

Thank you.

We will now be conducting the question and answer session to join the question queue. You May Press Star then one on your telephone keypad and you will share with Cowen and acknowledging your request if youre.

And using a speakerphone please pick up your handset before pressing any keys to withdraw your question. Please press Star then channel.

And we will pause for a moment as Congress join the queue.

The first question is from Anthony Pettinari from Citi. Please go ahead.

Good morning, and welcome Mike.

Given the unprecedented resin inflation that youre seeing can you just maybe remind us or put a finer point on the time line.

To get caught up on that inflation in terms of the lags, whether there of one quarter two quarters.

And then just your assumptions for the direction of resin prices for the remainder of the year that's embedded in your outlook.

Yes. So this is Mike Gregg and good morning Anthony.

So I'll take that one.

What we're going to see in and Q2 is we will see somewhat of a disconnect between now and.

Our revenue and now and our costs.

On the resin prices spiked early in the year of lot of that is still and inventory for us.

As you know we hedge the lag.

And particularly in food service and two of merchandising.

And and we will.

Well see.

But that's not 100%.

Perfect in terms of the hedging we will see a lag through Q2, but in Q3, our pricing will be back up on.

On top of the resin.

And we will.

Well, we're still around normal margins, we are expecting resin costs to subside.

And through Q3.

And and then you sort of flattened out through Q4.

Okay and Thats very helpful.

And then Mike you know understand that you're still on undertaking your review and it's early days, but is it possible to identify one or two things that you think the company could improve on.

And there operationally or commercially that really stand out to you as the as an opportunity given your you know your history and experience.

Yeah, Yeah. Good question.

And.

Yes.

On the host of reliability issues that we.

And Sullivan.

And in parallel on both mills.

Our converting operations I would tell you.

Run fairly well so the focus is and it's truly the mills.

I would also say commercially we're evaluating <unk>.

Pricing across the board.

Certainly.

It's not all of it as an opportunity for us.

And really just as we continue the strategic review.

Doing the holistic look at.

Product proliferation.

Give you a sense of the body of work around our up times.

And how that's tying to the.

And the labor challenge of the country right now with our largest competitor would be in the U S government in terms of labor.

We're managing that and so it's wait and ourselves on labor.

Time efficiency, and then commercially and looking at price all of those are levers right now.

Okay. That's helpful I'll turn it over.

The next question is from Ghansham Panjabi from Baird. Please go ahead.

Hey, Thanks, Good morning, everybody and congrats Michael and David on your on your new roles.

Thank you.

The I guess following up on Anthony's question on.

Just kind of looking at the construct of guidance you lowered EBITDA for 2021 by about $70 million.

And I think you called out $50 million from her from the Winter Storm urea and then 20 million from the mill issue.

But costs are obviously much higher just not resin, but freight labor as you mentioned et cetera.

Are you assuming that you fully recover price cost specific to these issues by the end of 2021.

Are there any positive and upsets we should consider relative to your initial guidance.

Yeah.

Again, Hi, Ken Chip and this is Mike <unk> again.

So we are.

Look if I just take a step back.

And our foodservice segment, 80% of out.

Our revenue is on posture and and food merchandising at the similar number.

And in beverage merchandising on on the cotton.

Side of the business, it's around 80% as well and.

The the.

And the remainder of the business of lot of it is market.

The market based.

So we are expecting to recover the the.

The bulk of the the input cost increases or get out prices up.

To cover that.

And that's that's contractual and that's the way we model things out.

Now on the upsides to that.

And if resin drops if input costs drop sure we might see some upside.

Uh huh.

But the way that we've modeled that is as I said to Anthony is that it drops a little and then sort of flattens out and the back end of the year.

Okay, and just to clarify of resin stays flat between now and year end.

Would you recover everything by the end of 2021 or will that spill over into 2022.

We'll recover by the end of 2020 of oil.

Got it perfect and then I think you mentioned, 3% volume increase and March year over year, just kind of give us context as to what March 2020 look like and then what are you seeing so far and April across the board by the three segments.

So and I'm going to.

Hopefully this isn't too much of the.

And so much information, but I like to look at 2019, rather in 2020.

And particularly for April.

The book.

And in total of <unk>.

And so we're up.

In March.

And we stated.

And our foodservice volumes in March.

Everyone needs to understand the 25% of our business and food services is institutional so things like school stadiums offices.

They still haven't really opened.

All of the open to a certain extent, but did not and I fully opened.

And so when I look at this versus.

Food service.

Both of those 2020.

And March were up around 7% and were about flat with 2019.

In terms of volumes and April where where we're up.

Doses 29, and I didn't even want to talk about 2020, because that's when the world stops.

But we're up.

Our per se.

And all too and.

And in April on.

And on 2019 numbers so.

The positive there.

And the state merchandising we were of.

Little down in March versus 2020.

We're about 3% down and in March versus 2019.

About 6% up.

And in April.

We're looking we're about 7% up on 2020 and.

And I around 3% to 4% up on 2019.

And then in.

Beverage merchandising.

For 2021.

The since 2020.

And we're about 3% up.

And we're about <unk>.

12% up on 2019 and March.

And and we're seeing 2021 of about 3% up on 2020, and a little down on 2019. So.

And obviously month to month, you can see polls.

Forward push backs and all of that sort of stuff. So that's why I gave you the two of them out so.

I think what we're saying is.

<unk>.

The strong recovery and foodservice with upside to come as further openings occur in the areas that I mentioned around the institutional part of the business 25% of the <unk>.

This business historically.

True.

Food merchandising way of saying you know.

Good solid volumes, we will obviously say a little bit of a pull back and things like on protein trace and cotton and soy sorts of things but.

We will see.

Growth in areas that.

Almost disappeared last year things like bakery containers.

Debt.

As people weren't celebrating graduations and things like that we will see that and a return this year.

And then and.

And and beverage merchandising, we think we'll see.

And as schools go back, we'll see more school milk, the loyalty say the pull free from foodservice on.

On on Cup stock.

Yes.

The Cups paper Cups that go into.

A lot of our food service customers. So.

We're encouraged we're not declaring victory, yet, but we think that volumes.

The.

Currently strong and we think that they're going to continue like that.

As the economy continues to open up.

Thanks, so much.

The next question is from Erinn this flow Nathan from RBC. Please go ahead.

Great. Thanks for taking my question and welcome the die.

And Mike.

So I guess I just wanted to ask about the strategic investment program that was described during the IPO process.

Could you update us on your progress there.

Especially in light of the 20 million of headwinds that you've been experiencing within beverage merchandising.

Sure so.

As an appendix to the presentation on slide 23 and provides the summary.

To date, we have spent $498 million of of the $661 million and the program and we continue to spend.

At right.

During the first quarter, we saw a benefit of $23 million from that which is which is very positive I think last year.

For the full year were $65 million, so $23 million in the quarter means that we're accelerating on nice savings, which is great to see.

Through Q1, we spent.

And in the Mills, we took down.

And the Pine Bluff mill.

Mike King outline the cold mill outage, and and I mention debt.

Cost of $16 million and EBITDA.

And in Q1, however, we invested substantially we rebuilt.

Oil and we did a lot of investment at that time.

Which is great.

And and and we will spend circa of $100 million in and the evergreen beverage merchandising business this year the.

Bulk of which will be in the two mills. So we're continuing to invest there.

And and we will continue to invest to two.

To see the benefits that we're expecting from us.

As the millstone around.

Okay.

So as a follow up just just given what you said and given some of the cost pressures. So I imagine you would be caught up on resin price inflation by the end of this year and.

And you'd get the $50 million back from the storms and next year, and then you'd add and the the increases from the CIP and the benefits.

So would.

Would you expect 2022 to look more like 19, then and and obviously I guess that's dependent on the foodservice recovery to the full extent, but.

Is that a fair characterization of of.

How youre thinking about the longer term or the next couple of years.

So Adam.

I don't want to Overcommit here, but I would expect that 2022 would be better than 2019.

And.

And our.

If I just sort of walk you through my thoughts on it.

Yes, the second half of this year.

And if the and.

The debt.

On this but that we're expecting to say and the second half of this year and a lot of that is around recovery from COVID-19 benefits from our strategic investment program.

And.

Essentially just cost.

And in our plants.

And I are coming down is.

Really increased costs day.

And so and plus to your point we.

We are recovering.

And we will recover through our contract pass throughs the.

And the increased.

Costs and <unk>.

Resin and other raw material inputs.

Our exit run rate should be very strong.

And we will continue to see benefits from the strategic investment program, we will.

Continue to see we're not saying that by the end of the year will be recovered from COVID-19 that will.

Linger into next year, and we also have other programs that and Mike King outlined debt, we will provide.

Provide further clarification on and future coal so.

You know my personal view and I think what Mike and I have discussed is next year will exceed 2019.

Okay. Thanks.

The next question is from George Staphos from Bank of America. Please go ahead.

Thanks, everyone. Good morning, again, welcome David and Mike.

And I want to start with my first question really more around volume and then I want to get into evergreen and the mills to the extent that we can talk so.

The micro Mike the little bit of weakness that we saw and food and merchandising volumes and the quarters that just.

What we would expect a little bit of weakness because of the reopened so youre getting in and foodservice of that means were not shopping the perimeter of the store as much for food at home or is there something else behind that and I unrelated volume question. How are you marketing Earth choice and the plastic packaging.

And that business and sustainable what's your what are you finding as most resonating with the customer there is of the Recyclability.

Or or something else that is allowing you to present that as a as a sustainable choice.

Okay.

On human let me take the first choice.

The place you go by.

Yes, So I'll answer your second question George.

And there are choices.

And this recyclability for sure, but it's also of recycled content.

Okay, and we look at it.

Those levers.

It's not the same across the board and certainly those of the two out of the three pillars of the two that we're leveraging on the quality side.

Of our choice.

Okay, and how much recycled content are using right now with the north choice.

Cross the whole plant and they have to get back to you on the do you know Mike Reagan.

I'm sorry, the question was how much recycled content.

Yes.

It doesn't mean of 20% and that we can get that exact number I don't we don't have it off the top of our head.

It depends it depends on the on the product itself. We can we can do and I for example, recycled P. T. We can do 100 per se.

But it just depends on the the clarity required and and.

And.

And so and the cost and things like that so but.

But we will balance that out.

And so it's not one and soft across the board.

We can pivot later I was just asking and total where you are right now where versus 'twenty. How much content did you use but we can sort of dig into that offline and on the the food merchandising.

Volume trends and what's driving that.

So what we're seeing we have.

We sell into the consumer channels, we've seen some lower volume there.

And so we've seen a small pullback and and protein trace.

And Ed Cottons, which.

We we would expect.

Okay.

Okay.

Turning to evergreen and the mill.

I guess the.

Overarching question is if we look back.

The guidance for the business and for the whole company, which.

Which is largely the reduction has been largely driven by beverage merchandising.

It's been well over $100 million as you've been able to look at it what has been the biggest driver of the variance if you agree with that number.

Within evergreen.

It sounds like it's mostly reliability.

And what are you finding is causing most of the problems right now in terms of reliability at the two mills is the head boxes of something else.

And what gives you the confidence given what you know right now.

That youll be able to resolve those issues because.

Yeah.

Old mills, sometimes.

A lot more investment to get up the curve than initial expectations based on past experience of what what's giving you the confidence there thanks, guys and I'll turn it over.

Yeah I'll take this on.

So not a simple answer and it's certainly different we have two mills as you know and both are of different different.

The stations and their excellence journey.

I would tell you if you break the mill into a seven or eight so facilities.

There isn't one of those sub facilities that hasn't needed.

The special attention to get to the the best place we can on our cost per.

I would tell you of Pine Bluff, just generally you should think about pine Bluff.

As a bit further and their journey.

Our operational metrics of all heading the right direction and we're just coming out of the cold mill outage, where we have been able to invest heavily and all eight of those sub facilities. If you will whether it's chip production.

The pulping blue.

Bleaching.

Every one of those.

The facilities is getting a lot of attention and we're seeing the improve.

I would say to your granular question.

Our paper production side or and our board production sites of our paper machines run well, so its not head box issues and Pine Bluff, it's not.

We're not having overhaul related or major.

Issues, it's really the story of reliability and on all of the upstream.

And making sure that those things.

And frankly otherwise been.

Hampering uptime don't hurt our ability to be.

And the efficient on the paper and board side.

And similar story and Kent and frankly.

There has been.

And theres been a lot of investment and canton and.

And we did not have of cold mill outage. So we're doing a lot of things, we're flying the plane and fixing.

The major items.

The as we look at the medium and long term viability of that operation.

And without having a cold mill outage, we're doing everything we can too.

Again not see the.

The downtime manifest itself into our paper and board production So similar story.

On the upstream.

And getting consistent labor and consistent.

Taking advantage of the downtime we have to keep the machines up as is the focus and so it's not like there is.

One big rooming item, it's more systemic and and that's why.

We're somewhat reluctant to go on to a lot of detail on the strategic review until we get through what <unk>.

Might be some step function changes, we can make there.

Hope that answers your question George No Michael it's very helpful. More work to be done, but we appreciate it I'm going to turn it over here thanks very much.

The next question is from Kyle White from Deutsche Bank. Please go ahead.

And sorry about that good morning, thanks for taking the question.

David Congrats on the new role.

And I know, it's relatively early days here and your new role, but when you take a look at the business portfolio and specifically looking at beverage merchandize and just trying to understand your thoughts are in terms of what you. How you view that segment and regards to the overall portfolio of attractive evergreen.

Yeah. So.

I kind of I kind of think of it as well.

Liquids liquid boards and.

Cup stock and things of that we vertically integrate and then I think of everything else.

All of our coated groundwood or.

Uncoated free sheet businesses.

Kind of look at it that way.

And.

I don't have any.

And I can tell you the it's exciting to see what the.

On the synergies and really the benefits the are converting facilities across the board will realize as we can do straight and the mills, though on the liquid packaging side of liquid pay per se.

But I.

It's too early for me it'll be able to comment on.

Coated groundwood or uncoated free sheet spaces.

And all of which.

We have pretty good saturation and those spaces on on our Skus and.

But I can tell you the.

We're rolling all of all areas of each segment over and looking at it from.

And whether it's commercial levers and pricing too.

The profitable SKU mix too.

Where we want to.

Lean in on.

Products like our choice.

And so it's a full into and look.

Oh, no I didn't I didn't give you probably what youre looking for it because we're just not there yet on all of the segments, but that's kind of how I think about it as three big buckets, one of which is really exciting I can tell you. The the other two of reviewing and <unk>.

Detail.

Yeah.

Yeah. That's helpful. Thank you on the.

And the $25 million of additional synergy projects that you've identified and you have a timeline on when you expect to realize these and what's kind of driving the synergies.

Yes, it's premature to be able to give you an exact or even the indicative.

I'd like to get through the strategic review before we go live on that.

Alright sounds good and I'll turn it over and good luck in the quarter.

Thank you.

The next question is from Sam Mcgovern from Credit Suisse. Please go ahead.

Hey, guys. Thanks for taking my questions. So with regard to the the impact from on the Texas storms can you talk a little bit more specifically about how it impacted you and whether theres any recoveries that you guys would anticipate from any business interruption insurance.

Mike do you want me to take that.

Let me take the front end and the way you talked about the recovery potential.

Okay.

The [laughter] to.

To say it was.

And the clips of the events that was somewhat unfortunate we plan to cold mill outage.

For the week after when the storm hit.

What's the what's the storm good was force us to pull the cold mill take the milk hold sooner and then we wanted.

So.

There was no pun intended the perfect storm hit US right the worst stomach hood, so taken of no coal during the cold snap and then.

So.

The freezing pipes.

Disposing already weak linkages.

There wasn't one so if you think of the mill is kind of the eight or nine and sub facilities. There wasn't one of those sub facilities and it wasn't greatly impacted and.

And so you couple that with the costs of the rising cost of energy.

For us, particularly natural gas.

Having to commit to purchase natural gas to keep things heated.

Coupled with the Breakages and.

Really a cold storm and the mill.

And that for ourselves.

Really exposes anything tweak things that would normally be maintained and.

So it was.

And exacerbated our ability to.

Focus on the.

And the things that we had already planned and the cold mill, but it also a lot of things that we have and plan to work on needing to get fixed quickly. So we were down longer than we wanted to be.

And certainly paid more for the energy during the period of time and.

The body of work and the scope of work that we had planned and that outage, whether it be recovery boilers, whether it would be.

A lot of what failed was pumps.

We had several pump failures.

Turbines energy back of turbine generators.

There is a host of things.

The expose themselves during the.

Storm for us and the Pine Bluff mill.

And then Mike I'll, let you talk to the the energy side of the and potential for recovery of et cetera.

Yeah. So.

In terms of Recoverability with.

And we're reviewing all of our options.

As as you'd expect.

We're not.

Sure that will get them.

Anything back.

But.

We're pushing for it so.

The.

We are hopeful we haven't factored anything into our forecast site.

The energy piece.

Is as you would expect energy prices spiked.

And.

Before we shut down, particularly in and Arkansas The mill.

We saw natural gas prices through the roof.

And.

Obviously cost us a lot of money as well.

Yes.

Okay, great. Thank you. The that's helpful. And then just with regard to the rising raw material and other costs, how should we think about the impact of the working capital line in terms of cash flow since the roll through 2021.

Yes, so we have seen in.

And Q1, we saw a 50 million dollar increase and our inventories due to.

Due to the increased raw material costs. So.

We were managing our inventories right now and and trying to.

Somewhat offset that but.

But we did in Q1, we sort of $50 million.

Increased the working capital and through the end of the year.

That will that will be.

Somewhat higher due to right, but we are we are.

We've been doing a lot of work on out.

What we talked about through the IPO process, and how integrated supply chain program.

And one of the benefits of that program is too.

The allow us to bring our inventories down.

And so we will stay and offset to that the <unk>.

Higher right number.

But and Thats.

So the physical inventories will come down.

We're expecting the say total inventory to be up.

Yes.

Bye.

Yes.

And 30% $40 million at the end of the year because of of higher raw material costs.

Okay.

Got it thank you very much I'll pass it on.

The next question is from Mark Wilde from BMO. Please go ahead.

Yeah.

Thanks, Good morning, Mike and Mike.

Mike Mike.

Greg and I wondered if you are able to quantify the.

Second quarter impact from the resin mismatch.

Well I.

I can and has personally but.

In terms of.

What I'm expecting to see in terms of our guidance for Q2.

We're expecting to see.

As we said already strong volumes.

However, a lot of that volume impact will be offset by the higher raw material costs in the quarter.

So I would not expect to see and materially higher quarter than last year.

However, then we recover and we will see higher.

The margins for Q3 and Q4.

Does that help.

Yes, I guess, what I was hoping for is that maybe you could give us sort of a <unk>.

Range in terms of millions of dollars of impact from just the resin mismatch in the second quarter.

Okay. So it's around <unk>.

$50 million to $60 million.

Okay.

Alright, and then another question I had was just.

What type of volume expectations on a year over year basis do you have built into the second half at this point is it possible and give us some guidance about what you're embedding in the numbers right now on the.

By segment basis.

Sure I'll give you some guidance.

So what we're expecting to see is.

And foodservice.

And what we've embedded in the numbers is to be.

As to the.

And it's easier for me to talk versus 2019.

Because.

I don't know with it.

And that's fine.

And it's a little low light of the place, but so.

We've sort of said.

And after the service numbers to be 4% to 5% down versus 2019.

Now as I said earlier that Hasnt manifested itself in March and April.

And beverage and food merchandising.

Where we would expect to be around flat.

2019.

And and and in beverage merchandising, we would expect to be.

A little down and the early months, and then pick back up and the back and to be flat to 2019.

Okay, Alright, that's very helpful and then Mike if I could last summer when the.

The the management provided many of us on the call with projections for 2020 one of those numbers were almost $200 million higher than the current guidance now if we leave aside some of the issues from the first quarter. There is still a big gap. There can you just talk about what the two or three drivers have been the kind of reduced guidance over the last night or on.

Nine months, and then also what you're doing going forward to kind of improve that guidance.

Yeah Okay.

Mike I think.

And as you know I think the big variances in.

Beverage merchandising and that.

And what George alluded to before so but.

Let me give you the easiest one first foodservice.

Outlook versus what we had when we discuss this with you and so.

Also of about $20 million and.

We made certain assumptions.

Back in the air.

2020.

Around how quickly we recover from COVID-19 and how quickly children and when you go back to school.

Such et cetera, and some of those didn't play themselves out.

And so that represents about $20 million of the outlook.

Now as I said earlier, we are seeing strong of Oems.

And then than what we had and the outlook, so who knows where that where that will manifest itself.

The big down is and beverage merchandising and.

Yes.

And between.

The the last.

Coal well sorry.

The.

The guidance that we gave you guys and then.

And where we went to last call.

We came off of about $80 million.

And I split that into two different things price and volume.

And the and essentially the recovery of the mills.

And the timing around that.

So in terms of the price and volume we've seen.

The lower pricing, particularly in the paper segments.

Also.

Some some sort of pricing on.

On on board volumes because.

And we want to keep the keep the mills full and we've had the chase volume there.

To make sure that we are taking we are not taking any any downtime.

And so we've had to so.

And what volumes at.

Lower pricing than and won't be dish and <unk>.

Again around recovery, secondly, and that area.

And at schools again, I mentioned that in foodservice, saying.

The same and beverage merchandising at the big part of our business School milk.

And that manifests itself and the board as well because we also sell to.

Competitors.

Who convert into school milk so.

They are the big pieces on price and volume and that's about half of the $80 million the.

The other half is metal recovery timing.

$40 million okay. So.

And the speed at which the mills of turning around its not as fast.

And then what.

And we just outlined this morning was.

And they are not recovering as quickly then what we'd assumed in our prior guidance and that's bought it down another 20.

Okay.

And then the last piece of this obvious relate to stores and $50 million. So that should walk you backwards from.

And from where we were two to where we are today.

Okay, very helpful and kind of going forward Mike.

So going forward.

You mean about like how we sold it.

Turning to sharpening the guidance yet because this is a it's a huge.

Huge.

Drop over the last eight or nine months.

Sure. So you know.

And I sort of look at this year, it's a bit of a tale of two halves.

This year.

You know Q1, you've seen the results Q2, we're going to be.

Yes, it will be weighed down somewhat by the.

The raw material increases and us catching price back up.

However, I think what you what I hope to see and what we are starting to say a stronger volumes.

So you'll be able to see that and that should give you some.

That should give you some confidence and what we're saying of that.

Q3, and Q4, obviously.

And the pudding.

And then in Q3 Q4, we should see stronger volumes, we will of caught up on price.

And we would expect that some of the positive trends that the starting to see and and the mills continue on and continue to improve.

Such that we are exiting 2020 wanted of at a nice exit run rate.

And in terms of you know.

What what next year looks like and I'm not going to commit to any numbers, but the way that I look at it is.

We will see.

Continued recovery from COVID-19, we will see.

Hey, <unk>.

<unk> benefits from our strategic investment program, which will play themselves out.

Over the next year or two.

And.

And some of these other programs, which will outline.

And upcoming calls we should see some benefits from that so.

The you know the volume tailwind and set with.

And that we have in front of us combined with reducing costs and our plants around COVID-19.

Plus.

We are getting on top of the mills.

And we haven't demonstrated that but.

We've got the right structures around that I think will lead to improved.

Results.

And the back half of this year and then.

Going into 2022.

Okay. That's very helpful. I'll turn it over thank you Mike.

No problem.

Next just a follow up question from George Staphos from Bank of America. Please go ahead.

Thanks, Hi, guys I'll try to make a quick lightning round here.

So Mike or Mike.

When would you expect to have.

New leadership.

For the mill system and.

Evergreen and number one number two can you remind us what was the capital spending outlook and might some of the required remediation.

Lead to more spending and the.

Then lastly, with Ken do you need to take of Cold outage. This year, so that youre not trying to as you put a fix of plane, while flying and at the same time, thanks, guys and good luck on the quarter.

So.

Thanks, George and so ill.

Piggyback slate of the answer to the question I could tell you on the recycled content as well, but new leadership. Our hope is before we ever and next earnings call. We are the new leader in place or sooner.

Capital outlook.

Our number for the year is 305, we don't anticipate.

Going over 305.

Kevin No we will not be taken of cold mill outage, we're not anticipating the and 2021.

And the answer to your prior question on recycled content is the minimum is 25% and our power your choice and.

And it can go as high as the 100%, but the minimum of 25.

Okay. Thanks, very much Michael good luck.

Yes. Thank you.

The next question is from Scott Schwartz from Hps Partners. Please go ahead.

Hi, do you of any thoughts surrounding your 2023 maturities and the ones that are remaining on it.

We are reviewing that at the moment.

No definitive thoughts but.

Obviously, we would.

Look too.

Do something with that and the next and the next year.

Okay. Thank you.

Okay.

This concludes the question and answer session and I'd like to turn the call back over to management for any closing remarks.

Yes, thank you very much.

I wanted to thank everybody for joining us today.

And we look forward to brighter quarters and talking about the progress of the businesses make and as we we continue the year.

Thank you.

This concludes today's conference call you may disconnect. Your line. Thank you for participating and have a pleasant day.