Q2 2021 Greif Inc Earnings Call
Capabilities in line with our stated and vision, but ask you now turn to slide 4.
The global industrial packaging business delivered strong second quarter results.
Global steel drum volumes increased by roughly 3% on a per day basis versus the prior year while global.
And Richard Rbcs, and large plastic drum volumes rose by nearly 8% on a per day basis, and our global <unk> volumes were quarterly record.
Average selling prices were up across all key global substrates year over year due to raw material pass through arrangements and strategic pricing.
<unk>.
Product demand was strongest and APAC, where steel drum and rigid IPC and <unk> volumes rose by 14, and 11% respectively on a per day basis versus the prior year and benefited from improved industrial trends.
Demand conditions were solid.
And just most of Europe for steel drum rigid <unk> and <unk> rose by mid single digits on a per day basis.
And North America, which features our most diverse product portfolio mix.
And then term volumes were down single digits, while Richard Rbc's fiber drums and <unk>.
Despite mid single digit growth on a per day basis versus prior year.
We continue to see improvement across many of our key end markets for example, sales and to petrol products and lubricant and markets improved sequentially and were higher year over year.
Paint and coating sales also rose.
<unk> froze due to better auto and construction demand.
And sales and the bulk and specialty chemical end markets were negatively impacted by ongoing customer force majeure actions and supply chain constraints, but underlying demand still remains solid.
And we see little indication of customers rebuilding inventory.
Inventory and while supply chain conditions remain tight we have not experienced any negative material impact related to sourcing raw materials.
Tip's stronger volumes and higher average selling price, which drove higher segment sales and gross profit year over year.
Second.
<unk> border adjusted EBITDA rose by roughly $7 million due to higher sales, partially offset by higher SG&A expense, mainly attributed to a 13 and a half million dollars of higher incentive accruals for this segment.
The business also benefited from a $7 million FX tailwind.
And for comparison purposes. Please keep in mind that CIP and a very strong Q2 thousand 20, when the segment benefited from panic buying and opportunistic sourcing benefits.
CIP strong second quarter performance carried over and make the start of our fiscal.
Third quarter.
Global steel drum and rigid <unk> volumes, both grew by low to mid double digits on a per day basis versus the prior year due to stronger market demand and an easier prior year comparison and.
And then sequentially versus April were basically flat.
<unk> volumes and our filling business improve.
Improved notably from early in Q2, which is 1 indication that conditions and the U S. Gulf coast are starting to pick back up.
And please ask you to turn to slide 5.
Paper packaging second quarter sales rose by roughly $55 million versus the prior year due to stronger volumes and our quality.
And she and tube and core businesses and higher published containerboard and box board prices for.
For comparison purposes. The prior year included $35 million and sales attributed to the best and CPG business.
Paper packaging second quarter, adjusted EBITDA fell by roughly 11 million.
Corrugator versus the prior year, primarily due to a significant $24 million recovered fiber and transport cost and.
SG&A expenses also increased year over year, primarily due to the $11.5 million of higher incentive accruals and.
In March we announced a new set of price increases.
And for recycled box port grades with immediate effect and in response to strong demand and cost inflation and.
We have fully implemented and increases on all non risky type customer contracts and will benefit from this and the fiscal third quarter.
Similar to quarter, 1 and demand and are converting.
Operations remain robust.
Second quarter volumes and core choice, our corrugated sheet feeder system were up roughly 37% per day versus the prior year quarter as demand for durable e-commerce growth.
And our supply chain and food and beverage remained very strong.
Specialty.
<unk> sales, which includes litho laminate and bulk packaging and coatings were up more than 31% versus the prior year quarter.
Volumes, and our tube and core business accelerated through the second quarter were up nearly 6% versus the prior year.
In addition to continued strong demand and construction and still end.
And market segments demand for textiles picked up this quarter and reflects a double digit increase year over year and this business.
Paper packaging fiscal third quarter is off to a strong start in.
And may our volumes and core choice and our tubes and core business for us both double digits on a per day basis first the pri.
Meyer year and reflect flat to single digit growth sequentially versus April.
Asking now to turn to slide 6.
I'd also like to take a moment to highlight our ongoing ESG efforts that are embedded into our strategy.
And April we published our latest sustainability report outlining the.
DSP achievements, we made in 2020 as well as the outcomes from our second materiality assessment, which helped to shape our future priorities.
We also recently announced a new greenhouse gas reduction target and continue to advance projects and improve our products circularity.
Finally, we are deploying.
And and inclusive leadership program to all global managers throughout the remainder of 2021 to further enhance price already strong engagement engagement culture.
Encourage all of you to visit our website to review our sustainability progress to become more familiar with our strategy.
Like to now turn it over.
And our Chief Financial Officer, Larry <unk>.
Thank you Peter Good morning, everyone. Please turn to slide 7 to review our quarterly financial performance.
Second quarter net sales, excluding the impact of foreign exchange rose by 13% versus prior year due to stronger volumes and higher sell.
Our prices and our 2 primary business segments.
Second quarter, adjusted EBITDA fell by roughly 3% versus the prior year quarter.
While sales were higher costs, and deflation, especially in transportation and OCC drag on profit and GIC.
And implementing price increases and response is.
Strong product demand and to stay ahead of inflation and order to maintain appropriate profitability. We are working diligently on implementing price increases and paper packaging as we respond to robust demand and seek a return to appropriate segment profitability.
SG&A expense rose by roughly 26 million.
Selling because the prior year quarter.
Due to roughly $25 million of higher incentive accruals across the company.
This year over year change and due to an accrual decrease last year as we forecasted a poor Q3 and second half, which this year has swung to an accrual increase due to our anticipated.
Weighted strong second half results being substantially over budget.
Our second quarter non-GAAP tax rate was 20%, reflecting a onetime benefit of roughly $4 million from return to provision adjustments and reserve releases due to audit settlements and statute expirations.
Second quarter adjusted class.
<unk> earnings per share rose by roughly 19% to $1.13 per share.
Finally, adjusted free cash flow rose by 60% to nearly a $127 million versus the prior year, primarily due to improved profitability and working capital management, partially offset by slightly higher cash capital expenditures.
<unk> trailing 12 month average working capital as a percentage of sales improved by 180 basis points year over year to just over 11%.
Please turn to slide 8 to review our outlook and key modeling assumptions.
We have reintroduced annual guidance, given better visibility into the remainder of our fiscal year.
Year, and continued confidence and our businesses improving fundamentals.
The transformation that we commenced earnestly and late 2015 and produce tangible and meaningful change.
With our anticipated fiscal 'twenty 1 results, we will have more than doubled earnings per share since 2015. Despite.
<unk> with <unk>.
And 19 negative impact and the closure <unk> divestiture of more than 70, noncore were suboptimal clients and without any share repurchase benefit.
And in fact, we currently have 600000 more shares outstanding now versus the end of 2015.
We forecast our.
'twenty, 1 adjusted free cash flow to range between 285 and $325 million inclusive of between 130 to 150 million spent on Capex and we expect working capital to be a substantial cash use this year commensurate with our announced price increases to offset cost inflation.
Finally, we assume that OCC will average $101 per ton for this fiscal year and $122 a ton during our second half we expect fiscal 2021 interest expense the range $97 million to $101 million and our full year non-GAAP tax rate to be between 22% and 26%.
<unk>.
Please turn to slide 9.
We have a consistent 3 pronged capital deployment strategy focused on reinvesting in the business returning cash to shareholders and delevering the balance sheet during.
During the quarter, we paid roughly $26 million and dividends and repaid $235 million and net are compliant.
Clients leverage ratio was 3.2 times as of April 32021, and we continue to drive toward our targeted range of 2 to 2.5 times as a reminder, we will not engage in any material M&A until we're back within that range. Finally, as we continue to generate cash pay down debt.
Debt and reduce leverage we will shift enterprise value to the benefit of our equity holders and eventually moved to a steadily increasing dividend policy with that I'll turn the call back to Pete for his closing comments before Q&A Hey, Thank you, Larry and I would ask everybody and please turn to slide 10.
And to wrap it up growth delivered really solid second.
And I'm pleased with our business performance for making strong progress across all of our strategic priorities and our focus on the operating levers within our control.
And our extensive global portfolio of differentiated service capabilities, and our sharp focus on operational execution positions us to uniquely serve.
And the needs of our customers and.
And generating significant value creation and the benefit of our shareholders and I really appreciate your interest and great. Amy Please feel free to open the line for questions.
Thank you at this time will be conducting a question and answer session to allow for any questions.
And as possible, yes, if you. Please limit your questions to 1 question with 1 related follow up you may that we entered the queue for any additional questions. Your first question comes from the line of George Staphos with Bank of America Securities. George Your line is open.
Okay. Thank you hey, good morning, everybody thanks for the detail.
Good morning.
Good.
And your voices hope you're all well.
So my 2 questions.
And they're related so we look at the implied guidance for the second half and.
Hugh.
And this is my phrase and youre going to be looking at some boomer.
And third and fourth quarter earnings yes.
Certainly and inflation has been.
Good to hear.
A major headwind for you.
What gives you what 2 or 3 things that give you confidence that the guidance you've given is manageable with variable even with that pretty large headwind right now and inflation.
And the related question can you talk to what.
Net pricing assumptions.
Have built into that guidance.
And if and existing customer quoting and order today with you.
And specifically here on your day, what is the price that they are paying.
Versus the May published price.
Thank you.
Yes.
I'll comment on service and speed and probably add to it as well.
We have a very high degree of confidence on our.
Pattern and working to stay ahead of inflation.
Particularly in our global industrial products business.
Where we have.
State and more direct control on pricing.
With our price adjustment mechanism contracts, but also our openers for other items and the team has been very diligent.
We've been talking about inflation for a couple of years now and so as we see things.
Playing out Todd.
And our third quarter.
And have.
Pretty good visibility to the fact that our margins are going to.
Maintain and slightly grow.
And profit gross profit dollars and we're top of the data maintained into the fourth quarter.
And.
Our volumes in the first month of our third quarter grew and exceptional levels and so.
But we're not seeing anything slowing that down we're bullish on the economy and more.
Bullish and stay ahead of the inflation in fact and the inflationary.
And time through the Tam adjustment mechanisms has actually helped our value add significantly and because of just the timing and inventory deliveries against the price increases.
With respect to the.
Thank you for your business.
As Pete commented in his remarks.
We have executed every dollar of the price increases that we've announced and are non index type of business and our <unk> business, 60% of our business is not tightened risky index. So.
We have a.
You announced a $150.
And last October and we're getting every dollar of it and the market.
If you had any other kind of similar.
And George from a volume standpoint, again and as Larry said.
<unk>.
Strong and.
The strong second half volume is really consistent with what we've seen in Q2 and.
Terms.
Since pricing to Larry's point, just a new RFP to give you a perspective, so our backlogs are 9 weeks plus.
And this grade our customers are on allocation, we have no capacity and take on any new customers at any price.
I'll challenge it is and as.
As we both indicated all our non contract customers were up the $450 ton price.
And.
That's a really a very robust market our price guidance into into our full year guidance as what we've realized and the indexes today. So it doesn't doesn't.
In terms of cost any future potential price changes, which were not going to comment on anyway.
Okay.
Great detail I'll turn it over and be back. Thank you.
Thank you George.
Your next question comes from the line of Gabe Haiti with Wells Fargo. Your line is open.
Pete Larry and good morning.
Good morning.
Thanks for all the detail and I was.
Yes more of a high level question.
Looking at kind of housing starts and.
Just looking at some different research out there talking about.
And maybe potential for beer organization and.
And like I said, if I look at the 5 year average for housing starts is around $1.5 million and projections for that to be $1.5 million plus.
And are hoping if you could remind us sort of and your 2 different businesses, where you are.
Highest exposure to construction and or tangentially.
Whether it's carpet tubes and cores and stuff.
Something like that.
And what that business has it looks like maybe over the past couple of years and then what benefits. It can provide I know, it's difficult maybe 1 and the Gi business.
Don't have great line of sight as to where some of these paints and coatings et cetera may ultimately end up but just directionally, if thats been a drag and could.
Potentially you said.
Medium somebody support you.
Thanks for the question game show and our paper packaging business and he said that our tube and core.
Some of the key key.
And market share carpet and.
So products that will go into a house and as you know 2019.
And we had weak tube and core volumes that was part of and markets that were weaker those are starting to recover.
And with what does the growth and.
Home building and home goods et cetera. So that's part of why we're our teach and Coors were up almost 6% year over year and the quarter.
Our.
The rest of our paper packaging business core choice and our mills as you notice our raw material suppliers, so it's more difficult to align.
The end markets and that business, but it does help indirectly for our mills and for our core choice.
Operations that.
Provide products that go and the new homes and buildings on our GI side. When you look at the chemicals that we produce many of those chemicals are flexible.
Or rigid foam and those are all components and either go into furnishings.
Furniture laminates.
And it's.
Materials that go into homes. So it certainly has been 1 part of the end market segments that has improved and will continue to help our business.
I will supplement with Pes and the game.
Little bit of where youre going not only and construction but.
We all know.
And what's going on in the auto segment that were robust.
And robust, but shy and where they could be a standard of semiconductors.
Interesting for us and bladder.
We've talked about before Pete and I are.
And does that long viewed and we talked about even last year and this same call, but we talked the economy would recover well.
Well right now and that we thought that by 'twenty, 2 we may be back to and 18 economy and that's still our belief and what's interesting is that the volumes and are the remainder of our year are still.
Projected to be significantly below.
Our 18.
<unk> levels.
So we believe 20 to have even more positive in front of us and now a lot of that by constructed and depends on can they get labor and they get.
And can they get their work done.
Alright, okay.
And thanks for that guys and then I guess dialing in on VIP.
And the second quarter I, just want to make sure that I heard everything correctly.
Directionally up $14 million swing I think in.
Alright, and incentive comp and then $6 million benefit from raw materials last year that did not recur this year.
And then even if I adjust for the $7 million swing.
And FX it looks like there is there is effectively 100% drop through.
Volume and I don't know if thats not the case. So I'm just curious if you can parse out for us if there was any sort of benefit from better utilization or what the improvement was year over year. I know you guys have taken a lot of cost out. So I guess really what we're trying to understand and I'm trying to understand.
And as what the benefit is kind of go forward.
And what the normal drop through should be from volume versus <unk>.
Structural cost improvements that you guys have made.
Yes, and gave us the.
1 of the big drivers.
The improvement and Gi P is really about.
Margin expansion that you've been seeing us drive us over the past few years, and we've talked about and prior quarters. The dramatic improvement that we've made and the mechanics of our pass through mechanisms and tightening up what used to be and unacceptable wag and that really drives improvement and a period of time when you are having rapidly.
<unk>, increasing raw material costs.
So a good bit of this margin expansion, while we have done a good job of improving our cost management is really the margin expansion relative to pricing.
Processes and some of that is the annual.
The openers for non raws and some of it is making sure that and contract renewals, we have been very aggressive on pricing because we knew we are a great facing into an inflationary period and then the last component is the.
And the element of the mechanics and the pants.
The manufacturing cost improvement has actually been a relatively minor part of this so it's really volume and margin expansion and are the 2 components.
1 of the part of our volume and we've certainly had healthy market demand and our end markets, but we're also seeing really good dividends smart strategic.
Net capital investments, particularly on RBC volumes and.
And the <unk> reconditioning and our vessels and.
Plastic drum. So we've also got 3 additional blow motors that are going into Houston, and Shanghai into Central Europe. So.
This strategic growth initiative, and our resin based products.
We will continue to benefit that business as well.
Okay. So it's a little bit of a mixed benefit. Thank you guys.
Your next question comes from the line of Mark <unk> with BMO capital markets Mark Your line is open.
Thank you good morning, Pete good morning.
Good morning, Matt.
I wondered just to start.
Larry can you talk with us a little bit about what we should expect from kind of SG&A.
And the and the back half of the year.
Big jump here and the second quarter and it really.
Offset a lot of the improvement and growth gross profit.
So and above 11% level. So I'm just trying to figure out whether that type of level is something we should expect kind of through the back half of the year.
And just your question Mark.
We continue to focus on how do we drive SG&A cost out of the business.
And.
So that has to do with the fact that the SG&A that we took over when we acquired Caraustar was higher than than ours, and we continue to work on that some of thats been delayed because of the COVID-19 impact on implementing our ERP system. Unfortunately has pushed us back about 6 to 9.
Summit's on various implementations and that's <unk>.
And some impact on our and our SG&A costs and <unk>.
<unk> adjustment that we mentioned.
It's just a play and just on performance year over year and.
That'll play out over time to get back to the.
Our target levels and muscular.
And modern exceeding our targets.
And as the case this year.
So specifically, though if I look to the back end.
And this year and we do anticipate that.
SG&A expense for the remainder of the year.
<unk>.
Sure.
About 21 cents per share.
And drag relative to what it was and the first half of the year and.
And that is because we will start to see more travel and entertainment, particularly relative to last year, but even relative to the first part of this year and now we're not going to go crazy on any.
We're going to manage that to be significantly lower than it was pre pandemic, but it is going to be higher in the second half of the year.
And if I look at operations as a whole if I just walk you. So the first half of the year was about 74.
Yes.
Operations, excluding the OCC impact is going to be a lift.
And Thats about $2.22, a share.
Net offset in there is 21, a share of higher SG&A expenses in the second half of the year versus the first half.
And part about 13 cents of that as additional incentive increases.
4 in the second half of the year as it is earned out over the remainder.
Leftover.
And then you've got OCC offsetting things about a <unk> <unk> impact higher OCC and the second half of the year than the first half.
I might as well just finishes walk 7 benefit lower interest expense 71 cents a share higher tax expense because of <unk>.
Higher earnings.
And then there is a 4%.
And.
And the NCI and other miscellaneous stuff gets you to $2.96 for the second half of the year versus the first half 174.
And thats respond to us.
Alright, and then just as a follow on I'd like to kind of double back on George's question around pricing.
You talked about sort of the.
The fact that these open market and.
<unk> prices.
And had been fully path I'm just curious if we think about the paper segment overall.
What would be approximate number and kind of just quarter to quarter improvement as we go into the third.
Third quarter, if I look at it it seems like you must have had limited benefit.
And the second quarter from that second containerboard price side.
And I would also like to get and so if you could confirm that and then I'd also like to get some sense.
And where pricing is actually moving and the uncoated business on the converted.
<unk>, so you've you've raised kind of open market <unk> prices, but whats happened the tube and core prices and whats sort of a cadence thing for kind of roll through and.
Converted product.
Yes, So let me talk first about containerboard Mark.
As you know.
That flow through the benefit.
2 our mill system.
And at the knee.
And the last month of our second quarter. So we will have full capture and Q3 on that $60 a ton increase so we've got full capture on that downstream and corrugated that's been a very strong March.
And we've actually got benefit of that.
Very quickly after the.
Containerboard increase and so Q3, and our corrugated and containerboard system low full implementation that has been offset by.
Higher OCC and higher chemical costs adhesions et cetera.
Market from a pricing standpoint, we would capture that fully plus some on our converting and uncoated. So we've announced $150 a ton. The index is only recognized 80 and as we both said we have.
Raised all our non contract price is the full $150.
Ton price and immediate effect.
Downstream and tube and core it's very similar to our corrugated implementation has been very strong.
We've been very aggressive with it and we do.
Fully capturing that.
And that business.
Pricing on the tube and core business and it really and look at PPS.
<unk> performance overall, our converting businesses core choice and tube and core performed at very high levels.
Big Challenge, we have and it's in their mill system already has the price cost squeeze.
And with OCC and chemicals and catching up on the price so youll start seeing and Q3 and Q4.
And that realization is price.
And coated CRB, we don't cut downstream capability.
Most recently announced $50 on that effective July 5th.
So the index is only recognized 70 and again.
The non.
And the contractual customers that are related index are all up.
The 140, and the $50 will be implemented in July.
And I hope that covers what you're looking for.
Yeah. That's helpful. Thanks, Pete Thanks, Larry.
Thank you.
Your next question comes from the line of Adam Josephson with Keybanc. Your line is open.
Thanks, Good morning, everyone hope you're well.
Good morning.
Good morning, Pete and Larry Matt.
Larry 1 tax so if I go back to your Investor day.
And mid 2009, you were talking about a significant improvement.
And your tax strategy and you mentioned your long term targeted adjusted tax rate range was 26% to 30 if.
If you hit the low end of your guidance this year youre going to be down to 22. So it strikes me as a and.
And as an.
<unk> low adjusted tax rate, even compared to what you were thinking 2 years ago. When you had mentioned all the improvements you are making and your tax planning. So can you just help and over the past 4 years and I think you've consistently outperformed your tax rate guidance from the start of each year. So what is your long.
Day.
<unk> rate expectation this year anomalous and any way and just help us understand what's going on there because <unk> been meaningfully under shooting the mark on tax.
Yes, I think actually if you look at on an annual basis. Most of the time, we've been within the range, but on the lower end of our range but.
<unk>.
You're right when we do.
Good day conference back in 17.
And was what we'd laid out but that was also pre tax reform, which lowered the U S tax rate pretty significantly and net.
And obviously was a benefit of a few points.
On the range that we provided then to where it is now.
The other element.
And that's impacting our tax rate as I also had alluded at that point.
We had a lot of reserves set up for some planning things that were.
Which were up and nature that required us to have as reserves established.
Worked through a lot of the statute.
<unk> limitations and a lot of exams and the U S and and other countries around the world and assets.
We've gotten through those we've gotten and favorable settlements on a lot of things net net results in those reserves being released.
Because there is no longer contingent tax liability related to those and those those things are wet cough.
Some of that.
Bumping assume the tax rate on an overall basis.
I think the go forward becomes more difficult to project at this point, just because of what's going on and the.
Within the new administration and their view on U S taxes on corporations, but also.
And so the work that they are trying to do globally to get into setting up.
And minimum taxes on certain.
Areas.
And so it's difficult for me to tell you right now what I anticipate our expected tax rate to be I would say that if there was no changes.
And the.
And the.
Current tax structure that over the next 2 to 3 years I would expect that our range would come down another point or so.
Because of some other things that we've got going on relative to tax planning.
And so I think I think our tax.
<unk> team has done a very very good job of executing on the strategies that we were referencing back and that 2017 call. We've got and another 1 or 2 arrows and a glimmer that we're going to do and is.
And again net is just subject to what happens on tax reform.
And I appreciate that Larry.
Cash flow can you help us with you mentioned you expect a substantial working capital drag. This year can you quantify that the reason I ask because your capex is going to be below normal. This year, you'll have a significant working capital drag and I'm just trying to project to next year, because obviously the midpoint of your guidance this year.
Year is about 300 next year your commitment is around 430, so it implies about 100 <unk>.
$30 million of improvement part of that would be working capital, presumably no longer being a drag and maybe who knows what will happen with EBITDA and next year, but I'm just trying to understand the working capital and Capex Capex components specifically.
Typically this year versus potentially next year.
Yes, and I mentioned and my comments the phenomenal job that our teams have been doing on managing working capital as a percentage of sales, which is the primary measure we look at it because the cost of inventory is something that's much more difficult.
Control, whether you're talking about OCC or steel or resin when you look and feel a resin NEVA effectively doubled and cost over the last.
8 months, and Thats and translation and obviously higher sales prices higher receivable balances and higher inventory and Thats what creates the.
The working capital drag, it's all driven by cost it's not driven at all by poor management. It's a matter of fact, our management and working capital has been incredibly strong.
So thats whats, causing drag and what it meant roughly 80.
If you look at <unk> level.
General and drag is call it 35 million Bucks ex pre care star, So it's going to probably double that.
Larry.
And I'm proud of what and on Capex I mean, the <unk>.
Frustrating thing for us on Capex, as we're ready able and willing to spend.
And reality of what's impacted.
Our.
Capex spend is things out of our control.
You can't get the deliveries I mean people are.
Running behind on producing equipment and.
And I'm sorry.
I'm sorry.
Oh, yes, the ICP.
And what I was going to go on to we have not been able to execute and as I mentioned.
Bonds to Mark's question, and a lot of the ERP implementation because of Covid and travel restrictions and so that has deferred spending on the it side as well. So we go and we went into the year with a plan to <unk>.
Spend and net $150.170 million range and now obviously, we're looking.
Looking at $20 million less.
Again, our plan into the future and.
And we haven't budgeted for next year, yet, but it would be that it would be up higher because we have lots of things we would like to get done, but we're more captive to what we can get delivered.
Terrific. Thanks, Laura.
Your next question comes from the line of box and Punjabi with Baird Ghansham. Your line is open.
Hi, Good morning, everyone, that's actually Matt Krueger sitting and can gouge and how are you doing today.
And how are you.
I'm doing well and doing well so.
Given all the moving pieces on a year.
Year over year basis for the back half of the year I was just hoping that you could provide some added detail on the expected weighting of EPS between the 2 remaining quarters for the back half of the year I mean, just given the meaningful acceleration implied some of the comparison issues and then obviously all the pricing that's being layered in any any help there would be.
<unk> would be great.
Sure.
I would say this we get into this every year about what's going to be better and Q3, and Q4 and a lot of it just goes to when does the AG season harvest I would tell you that going in our assumption is that it's going to be sort of a normal pattern and and at our Q3 would be stronger than Q4, but they.
Substantially different and you can basically take the differential on our EPS from that $2.96.
And by 2 and you skew it a little bit to 3 and a little last before and that's essentially yet.
Net.
There.
Not a day.
Huge difference between the 2 quarters.
Great.
It's really helpful. And then I was just hoping that we could.
Get some more detail on what the estimated impact from winter Storm Youri was the global industrial packaging business and.
And you can.
Anything you can provide from a volume perspective, and then also any margin impact as well would be great, yes, we and.
Looking at that we had about 41 production days across.
A number of plants and thats not so.
And so it takes about 5 days from our 6 days on a few of them.
Production.
Shutdown and.
And it impacted sales so from a volume perspective, it was about a $1.5 million.
Impact we had substantially increased utility costs. After a storm that was another $1 billion or so and then we had some broken pipes and those kind of things.
Freezing because we have installation now and there was another 100.100 200000 and.
So you've got about $2.7 million.
And the actual cost now theres lots of indirect stuff. There that you ended up with force majeure actions going down and dive into some of the.
Businesses of our customers.
And was impacted by things they couldnt get orders and that impacted things, we did not try to figure out all of that we do know that our Gulf coast regions.
And <unk>.
Volume levels are significantly less than.
The other areas of the world.
And that gives us.
And your optimism going forward and into 'twenty, 2 because as Pete mentioned, we're really.
Just now starting to see volumes and our filling business start to pick up and Thats a very good sign for us. So we're pretty bullish going forward, but it was about $2.7 million.
Okay, Great that's helpful.
Cost with it for me thank you.
Yeah.
Your next question comes from the line of Justin Bergner with Gabelli Justin Your line is open.
Good morning, Pete Good morning, Larry and Joseph.
Hey, Justin.
1 Big picture question, and then just a couple of specific cleanup.
Big picture.
And that kind of EUR b are there other parts of your business and industrial packaging, our paper packaging, where you're sort of unable to meet incremental demand.
And as supply chains are tight our demand is really robust.
We are meeting demand for our customers my comment to us was really about anybody.
Outside it's new that we don't do business with that we'd like to do business with and that substrate, we just can't because.
And our backlogs and our demand is so great, but we have actually grow other parts of our business because of our reliability now that has forced a lot of overtime and a lot.
<unk> 6 and 7 day work weeks.
<unk> is a little more severe.
We are doing a really good job, serving our customers and ensuring that we're meeting their needs and actually and our G&P business and our converting business and and paper.
We're actually making.
And he then roads because of that reliability and it's all related to our customer service scores continue to improve and despite of a tough.
And environment.
Okay.
Okay.
And moving to specific questions just to clarify the $25 million.
Incentive accrual headwind that was all in Q2, and then there'll be a smaller incremental effect and the second half.
Is that incremental to the first half for Incrementals.
So yes.
25.
Comminate, where 24 projects with a combination of last so that was a year over year Q2, and last year, we had and we decreased the accruals for incentives and this year, we increased the accrual for incentives relative to what we.
And budgeted settlements.
That 25, and the first and second half and about the same again.
And the remainder of the entire year is about $52.6 million at about $52.6 million is what we're currently planning on a year over year higher incentives.
Okay and then.
And lastly, just on the tax rate.
You mentioned that the tax rate might come down a 100 basis points, but thats not from the 26% to 30, that's from the 26% to 30, which initially had come down a few hundred basis points because of the tax reform correct. So.
It might be it's.
And with more than 100 basis points down from the 2000.
Pat.
Oh, Yes, no no yes.
Talking about from where we're at now.
We're guiding.
Guiding to where we think we will be going forward.
Okay. Thank you.
And just makes sense.
And as a reminder, if you would like to ask a question. Please press.
And then number 1 on your telephone keypad. Your next question comes from the line of Mark <unk> with BMO capital markets Mark Your line is open.
Yes, just a few follow ups here real quickly 1 on the land sales.
The gross price and that of course is just absolutely exceptional and can.
Can you talk with us.
And third sort of how the tax leakage looks and.
How youre thinking about the balance of the portfolio and the land business day.
Ever get down low point, we're just scale and that business is an issue.
Yes sure Mark.
First of all I'll, just say I'll answer your second question first we don't have.
So your intention to liquidate any more of our land portfolio.
We talked about that and for strategic Optionality, we view it that way and it obviously helps us on our interest rate and we like we like the business and.
We had some unique circumstances and we always talked about rainy day in and I think was rain and pretty hard.
Have any ear, so we decided to execute on it.
And that goes also to the other factor that drove that because of some other tax planning that we had been doing relative to timber gains that had been deferred from transactions a decade ago.
We recognize.
Recognize that we.
Last year.
Some capital losses that were available for us to utilize.
To offset gains on timber transactions and so that played into what we executed on again ended up being more than we thought because as you said.
And he got values per acre that were outside anything to bankers told us they thought they could get which is obviously good news, but it's a tax leakage it was minimal.
We were basically able to.
Utilize other tax loss carryforwards that we had available to us.
To eliminate any federal tax we had some small state and local taxes and that was it.
Okay and another.
Of course.
And I'll, let Paul and I had was probably perhaps more repeat and that is just can you give us a sense of sort.
Supplies and applaud.
And with the market share and the IPC business.
And when you.
And what Poustie about.
11 years ago. It was kind of the number 3 player and the market share at this time of the dominant and miles there and so I think your strategy was to kind of expand their geographic footprint and product.
Pick up share so I wondered if you could just give us a sense.
So big that business is right now and sort of where you would see yourselves vis vis the competition and finally, how rapidly is that market growing overall right now yes.
Yes, Mark So we've got about 30% global market share and <unk>, and IPC, reconditioning, and where third behind that too.
Privately.
And with held companies shifts and mouser.
<unk> stated that that is a high growth area, we've made capital strategic capital investments, we now have 20 RBC low.
Holders around the world, we are in the process of that and tree.
That is a business.
And our product line and that's growing.
Mid to high single digits. So it's the fastest growing.
<unk> line, and a global basis, and our portfolio and.
And I think what's really important to us and the last 2 years we've either.
And joint venture partnerships or strategic partnerships with reconditioned.
<unk> to create a really compelling end of life product service.
And that creates a really circ hilarity play for IDC. So it's really important part and right now our biggest our biggest footprint is in Europe.
Growing our North America.
American footprint and as I said, we're adding a second line into and.
The Asia now in China, and also from and you look at our product portfolio and <unk>.
Prior to this strategy were over 60% of our product mix was and steel drums.
Moving to 50.
And in our resin based products now are well over 20%. So youll continue to see that transfer and switch in terms of portfolio mix, a little bit more into resin based products <unk> plastic drums, and less and less on steel drums.
Okay and.
And if I can slip 1 more Pete I just wanted to talk briefly about the box board business.
1 thing is I'm, assuming that some of it.
Experiencing EUR b is the outcome of having shut down mobile.
But I'm just curious you've got the COVID-19.
Mills, and I and I wonder, whether you might convert to you or be it 1 of those mills and whether in the CRB business. The 2 remaining mills, whether they risk being kind of behind the technological curve. It just seems like with what graphic is doing at Kalamazoo, we're seeing more and more.
Of the.
Of the CRB business move to Ford Rainier machines that can do kind of <unk>.
Multiplies and maybe offer customers.
Improvements and performance and basis weights.
So just to get your thoughts around potential conversion and then.
And where you stand from a technological standpoint there.
And the <unk> side, we closed the mill 2 machines mills and low deals 140000 tons.
And that was a combination of zone.
Really high cost Q4 mill that we ever had economic downtime back.
<unk> and 18 and 19, it was always and that mill.
And it needed a pretty significant amount of capital. So we decided to close the benefit obviously with.
It created more volume and the rest of our system we.
We do have the capability and 1 of our CRP plants to run both Europe.
European CRP and we do that now so there is a possibility that that machine could run.
And more <unk> products and the future I'm not going to set up so we're going to do so early days 2 pure play CRP machines.
Midwest and 1 and the West coast.
And.
And they're not there they're operating.
Fairly consistently now.
We have nice niches and those markets. So I wouldn't say we compete.
Specifically with with some of those newer machines. So we find our niches really high service.
Very responsive.
And I think those 2 machines will stay CRB.
What we do and the future regarding our box board system.
And we're evaluating some of that but we really don't have anything material to comment on that right now, but we are evaluating that.
Okay. That's really helpful. Good luck and the second half of the year.
Thank you Mark.
Your next question comes from the line of George Staphos with Bank of America Securities. Your line is open.
Thanks, Hi, guys My line disconnected and 2 quick cleanups for me 1.
Pete I think you'd mentioned that you're be lead times or 9 weeks if he could.
Affirm that or correct and if I got it.
And correctly and really more relatedly, what are you seeing right now and towards your lead times.
And backlog and as you can measure net.
The containerboard side and then on Capex recognizing it wasn't your choice.
Youre going to be $20 million lower this year.
Where are you finding you can't spend you mentioned ERP systems, and I think and answering Mark's question earlier are there any places where that.
Lack of being able to install what you wanted is creating stress and your business and therefore is there any sort of important things and we need to focus on for 2002.
And in terms.
And <unk> to get bolted in so that the year progresses like you'd like and <unk>.
Should we just similarly expect if you're at 130 to 150 this year.
Maybe next year is pushing closer to 200 as we do normal plus add on another 20. Thank you and good luck in the quarter.
And George just comment backlogs and new RBR at 9 weeks.
And what your containerboard is 8 to 9 weeks, depending on machine, so really robust markets.
And those backlogs reflect that.
And Capex, Georgia.
The delay and the ERP system is not.
Anything thats been a material materially impact our.
And your operations and any negative way at all.
And as delay some opportunities for efficiency gains and back office operations and that kind of thing, but it is not.
Not significantly material.
The other element on the Capex is growth plans, where.
Or do you have things, where we're going to put in new.
New lines or new other equipment or things like that and we just can't and get the deliveries were still able to operate and it's not.
Not impacting that is just not again, allowing us to get to the improvements that we've been working to build.
As to whether it will end up.
Resulting and extra spend next year, probably not because you get into just a.
Human capital capacity, and what you can get done and <unk>.
And the year, so I would expect but we haven't finished our process for budget for next year that will be back and 100.
170, but that could change and we'll talk about that as we go into guidance and our.
Our December call.
Alright, thanks, very much Larry Thanks, Pete and good luck in the quarter.
And.
Your final question comes from the line of Adam Josephson with Keybanc, Adam Your line is open.
Thanks, very much for taking my follow up just 2.