Q3 2021 Sonoco Products Co Earnings Call

October 21, 2021

Thank you for standing by and welcome to the Q3 2021 Sonoco earnings Conference call. At this time, all participants are in a listen only mode.

After the speakers.

Your presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone. Please be advised that today's conference is being recorded should you require any further assistance. Please press star zero.

I'd like to hand, the conference over to your host VP of Investor Relations. Roger Schrum. Please go ahead.

Roger Schrum. Please go ahead.

Thank you Lynn. And good morning, everyone and welcome to the Sunoco, Inc. Third quarter Investor Conference call. Joining me today are Howard Coker, President and Chief Executive Officer, Rodger Fuller Executive Vice President and Julie Albrecht Vice President and Chief financial officer. News release reporting our financial results was issued before the market opened today and is available in the Investor Relations website at Sonoco Dot Com. In addition, we will reference a presentation on our third quarter results, which also was posted on the website this morning.

And good morning, everyone and welcome to the Sunoco, Inc. Third quarter Investor Conference call. Joining me today are Howard Coker, President and Chief Executive Officer, Rodger Fuller Executive Vice President and Julie Albrecht Vice President and Chief financial.

One officer.

News release reporting our financial results was issued before the market opened today and is available in the Investor Relations website at Sonoco Dot Com. In addition, we will reference a presentation on our third quarter results, which also was posted on the website. This morning.

Before we go further let me remind you that. Today's call and presentation contains a number of forward looking statements based on current expectations estimates and projections. These statements are not guarantees of future performance and are subject to certain risks and uncertainties. Therefore actual results may differ materially. Furthermore, today's presentation includes the use of non-GAAP financial measures, which management believes provides useful information to investors about the company's financial condition and results of operations.

Today's call and presentation contains a number of forward looking statements based on current expectations estimates and projections.

These statements are not guarantees of future performance and are subject to certain risks and uncertainties. Therefore actual results may differ materially.

Furthermore, today's presentation.

The use of non-GAAP financial measures, which management believes provides useful information to investors about the company's financial condition and results of operations.

Further information about the company's use of non-GAAP financial measures, including definitions as well as reconciliations of those measures to the most closely related. GAAP measure is also available in the Investor Relations section of our website. Now with that let me turn it over to Julien. Thanks, Roger I'll begin on slide three where you see that earlier this morning, we reported third quarter earnings per share on a GAAP basis of $1 and 12 cents and base earnings of 91 cents per share, which is just above the midpoint of our guidance range of 87 to 93 cents per share and five cents higher than the base EPS, we delivered in the third quarter of last year.

GAAP measure is also available in the Investor Relations section of our website.

Now with that let me turn it over to Julien.

Thanks, Roger I'll begin on slide three where you see that earlier. This morning, we reported third quarter earnings per share on a GAAP basis of $1 12 and <unk>.

<unk> earnings of 91 cents per share, which is just above the midpoint of our guidance range of 87 to 93 cents per share and five cents higher than the base EPS, we delivered in the third quarter of last year.

At a high level, we experienced strong volume. Growth in many of our businesses, but our third quarter operational results continue to be impacted by significant cost inflation. And supply chain challenges. In terms of the twenty one difference between base and GAAP EPS the largest item was the 30 cents per share benefit from the use of additional foreign tax credits on our recently amended 2017 US income tax return. Next we recognized three cents per share and GAAP earnings related to net restructuring and asset impairment expenses. And finally, there was a 6% impact from a variety of adjustments, including approximately $11 million and discrete income tax expense items, partially offset by $5 million of after tax net gain running through operating profit.

Growth in many of our businesses, but our third quarter operational results continue to be impacted by significant cost inflation.

And supply chain challenges.

In terms of the 'twenty, one difference between base and GAAP EPS the largest item was the 30 cents per share.

From the use of additional foreign tax credits on our recently amended 2017 U S income tax return.

Next we recognized three cents per share and GAAP earnings related to net restructuring and asset impairment expenses.

Finally, there was a 6% impact from a variety of adjustments, including approximately $11 million and discrete income tax expense items, partially offset by $5 million of after tax net gain running through operating profit.

Now moving to our base income statement on slide four and starting with the top line you see that sales were $1.415 billion up $103 million or almost 8% from the prior year period. I'll review more details about our key sales drivers on the sales bridge in just a moment. Gross profit was $258 million, a $1 million increase over the prior year's quarter.

I'll review more details about our key.

Sales drivers on the sales bridge in just a moment.

Gross profit was $258 million, a $1 million increase over the prior year's quarter.

This resulted in gross profit as a percent of sales of 18.2% compared to 19.6% last year. SG&A expenses net of other income or $135 million, an increase of $9 million year over year. This increase was expected and key drivers were higher expenses for normalized management incentives, group medical activity as well as strategic IT projects.

<unk> percent last year.

SG&A expenses net of other income or $135 million, an increase of $9 million year over year.

This increase was expected and key drivers were higher expenses for normalized management incentives.

Medical activity as well as strategic projects.

So all of us, resulting in third quarter 2021 operating profit of $122 million. And I will discuss the key drivers on the operating profit bridge in a few minutes. Net interest expense of $14 million was $5 million below last year due to reduced debt balances and a more favorable mix of fixed and floating-rate debt. Income tax expense of $20 million was $7 million or $7 million below last year due to our lower effective tax rate of 18.1% compared to last year's 24.1%.

And I will discuss the key drivers on the operating profit bridge in a few minutes.

Yes.

Net interest expense of $14 million was $5 million below last year due to reduced debt balances and a more favorable mix of fixed and floating rate debt.

Income tax expense of $20 million was $7 million or $7 million.

Glow last year due to our lower effective tax rate of 18, 1% compared to last year's 24, 1%.

Much of this lower tax rate was anticipated, but we did recognize an increased benefit from project work related to R&D tax credits. Moving down to net income, our third quarter 2021 base earnings were $91 million, an increase of almost 5% compared to the $87 million that we generated last year. Now looking at the sales bridge on slide five.

Moving down to net income our third quarter 2021 base earnings were $91 million, an increase of almost 5% compared to the $87 million that we generated last year.

Now looking at the sales bridge on slide five.

You see that volume was higher by $43 million or almost 4% for the company after removing the display and packaging sales divested from 2020. Overall, all segments experienced demand recovery or continued strong pandemic driven volumes although there was a diverse mix of volume trends within our various markets.

Overall, all segments experienced demand recovery or continued strong pandemic driven volumes although.

Such a diverse mix of volume trends within our various markets.

Consumer packaging volume mix was up $6 million or one 1.1% a very strong growth in flexibles was mostly offset by lower demand in both global rigid paper containers and plastics foods. In our industrial paper packaging segment, volume mix was up $25 million or just over 5% with a continued surge in post COVID-19 economic recovery across most of these operations. Our global tubes, cores and cones franchise volume rose by approximately 12% and our global paper business increased by almost 3%.

And plastics foods.

In our industrial paper packaging segment volume mix was up $25 million or just over 5% with a continued surge in post COVID-19 economic recovery across most of these operations.

Our global.

Painter tubes cores and cones franchise volume rose by approximately 12% and our global paper business increased by almost 3%.

Finally, our all other group sell volume mix growth of $12 million or almost 8% when excluding the impact of display and packaging from 2020 sales.

The impact of display and packaging from 2020 sales.

This was primarily driven by a very strong rebound in industrial plastics, and almost 45% and solid demand at thermos safe, which grew by 6%. Moving to price you see that selling prices were higher year over year by $161 million as we continue to increase prices to battle inflation globally.

Moving to price you see that.

Selling prices were higher year over year by $161 million as we continue to increase prices to battle inflation globally.

This was mostly driven by our industrial segment as we worked to recover escalating OCC, freight, labor and energy costs. In both our consumer segment and all other group. We have also been acting on price increases to recover the significant inflation in resins and other operating costs. Moving to acquisitions and divestitures, you see a top line negative impact of $111 million. Which is driven by the divestitures of our display and packaging Europe and US operations, partially offset by the can packaging acquisition completed in August of last year.

In both our consumer segment and all other group. We have also been acting on price increases to recover the significant installation and resins and other operating costs.

Moving to acquisitions and divestitures, you see a top line negative impact of 111 million.

Which is driven by the divestitures of our display and packaging Europe and U S operations, partially offset by the can packaging acquisition completed in August of last year.

And finally, the sales impact from foreign exchange and other was positive by $9 million.

The primary driver is approximately $13 million of foreign exchange gain associated with a weaker US dollar year over year.

Moving to the operating profit bridge on slide six and starting with volume mix, our higher sales volume of $43 million combined with the impact of mix had a positive impact on operating profit of $13 million. Shifting to price cost, I will remind you that this category includes the earnings benefit from higher selling prices as well as the impact of total inflation.

<unk> of $43 million combined with the impact of mix had a positive impact on operating profit of $13 million.

Shifting to price cost I will remind you that this category includes the earnings benefit from higher selling prices as well as the impact of.

Of total inflation.

In the third quarter, we had a $13 million unfavorable price cost impact with most of this falling in our consumer packaging segment. In our industrial segment, we faced continuing increases in OCC costs during the third quarter. As usual, there's a slide in the appendix that shows recent OCC price trends and you'll see that southeast OCC official board market pricing was $125 per ton in June and increased to $195 per ton in September.

In our industrial segment, we faced continuing increases in OCC costs during the third quarter.

<unk> as usual, there's a slide in the appendix that shows recent OCC price trends and you'll see that southeast OCC official board market pricing was $125 per ton in June and increased to $195 per ton in September.

Resulting in an average of $175 per ton in the third quarter. This represents a $105 increase relative to the third quarter of last year and a $68 per ton sequential increase just over this year's second quarter.

This represents a $105 increase relative to the third quarter of last year and a $68 per ton sequential increase just over this year's second quarter.

Next is the impact of total productivity, which includes all results from our productivity actions, including manufacturing, procurement and fixed cost.

And fixed cost.

You see that our total productivity contributed $15 million year over year with the favorable impact being predominantly driven in our consumer segment.

Driven in our consumer segment.

Moving to acquisitions and divestitures, the $10 million decrease in operating profit is the net impact from the divestiture of our global display and packaging businesses and our canned packaging acquisition.

And finally, the operating profit change in FX and other was unfavorable by $12 million with various moving pieces, but mostly within SG&A expenses. Moving to the segment analysis on slide seven, you see that consumer packaging sales were up by 9.7% driven by higher selling prices, which were mostly implemented to offset cost inflation.

Moving to the segment analysis on slide seven you see that consumer packaging sales.

<unk> were up by nine 7% driven by higher selling prices, which were mostly implemented to offset cost inflation.

Consumer segment operating profits fell by 5.4% driven by unfavorable price cost, but with a positive impact from their strong productivity results. Our consumer segment margin declined to 10.2% versus the third quarter of last year when the margin was 11.8%. Our industrial segment sales grew by almost 30% due to year over year price increases. As well as recovering demand from pandemic lost last year.

Productivity results.

Our consumer segment margin declined to 10, 2% versus the third quarter of last year. When the margin was 11, 8%.

Our industrial segment sales grew by almost 30% due to year over year price increases.

As well as recovering demand from pandemic was last year.

Our industrial segment's operating profit surged by 30% driven by the global turnaround in demand as well as procurement productivity. Our industrial segment's margin profile was unchanged compared to last year at 8.4%.

Our industrial segment's margin profile was unchanged compared.

At year at eight 4%.

All other sales declined by just over 34% driven by the sale of the display and packaging businesses, but this was partially offset by volume mix growth as well as price increases. Operating profit in all other decreased by almost 68% due to the display and packaging divestiture and price cost headwinds.

Operating profit in all.

Our debt decreased by almost 68% due to the display and packaging divestiture and price cost headwinds.

Margins declined to 4.5% from the prior year's 9.1%. So for the total company sales were up almost 8%. And operating profit declined by 6%, resulting in a company-wide operating margin of 8.6%.

So for the total company sales were up almost 8%.

All other operating profit declined by 6%, resulting in a company wide operating margin of eight 6%.

Moving to cash flow in the middle of slide eight you see that our year to date third-quarter operating cash flow was $220 million. Compared with $490 million last year. But back to the top of this slide. Note that we had a year to date GAAP net loss of $150 million compared to a profit of $219 million in the prior-year period. Most of this decrease relates to the $404 million after-tax and noncash settlement charge related to our pension termination process that was substantially completed in the second quarter.

Compared with $490 million last year.

But back to the top of this slide.

Note that we had a year to date GAAP net loss of $150 million compared to a profit of $219 million in the prior year period.

Most of this decrease.

Relates to the $404 million after tax and noncash settlement charge related to our pension termination process that was substantially completed in the second quarter.

This leaves us with several primary drivers to our lower operating cash flow. One is the $133 million pension contribution related to the pension termination process. Next is the $59 million increased use of cash by working capital driven both by inflation and by a greater increase in business activity year over year.

One is the $133 million pension contribution related to the pension termination process.

Next is the $59 million increased use of cash by working capital driven both by inflation and by a greater increase in business activity.

On a year over year.

And finally, we had a $35 million negative impact related to last year's Covid related FICA deferrals that were partially paid in this year's third quarter. Moving down to our year to date Capex spend our net spend was $146 million this year compared to $108 million for the same period last year. This $38 million increase is mostly due to the spending on project horizon. This takes us to free cash flow of $74 million. Compared with $381 million for the same period last year.

Moving down to our year to date Capex spend our net spend was one.

$146 million this year compared to $108 million for the same period last year.

This $38 million increase is mostly due to the spending on project horizon.

This takes us to free cash flow of $74 million.

Compared with 300.

$81 million for the same period last year.

This $307 million decrease again is mostly driven by the pension termination process, increased working capital and higher Capex spend. I will note that we paid cash dividends of $135 million and $1 million year to date, this year compared to $129 million for the same period of 2020. On slide nine you see that our balance sheet and our liquidity position remains very strong and reflects several strategic actions implemented through the first nine months of this year.

I will note that we paid cash dividends of 130.

<unk> and $1 million year to date, this year compared to $129 million for the same period of 2020.

On slide nine you see that our balance sheet and our liquidity position remains very strong and reflects several strategic actions implemented through.

$35 nine months of this year.

Our third quarter, ending 2021 consolidated cash balance was $160 million of $405 million decrease from year end 2020. This decrease was driven by significant deployments of cash this year. Which have included the accelerated share repurchase of $150 million almost $500 million of long term debt repayments and the already mentioned $133 million of pension contribution. These cash usage uses were somewhat offset by the display and packaging US divestiture gross proceeds of around $80 million, operating cash flow generation as well as commercial paper borrowings.

This decrease was driven by significant deployments of cash this year.

Which have included the accelerated share repurchase of $150 million almost $500 million of long term debt repayments and the already mentioned $133 million of pension contribution.

These cash usage uses were somewhat offset.

By the display and packaging U S divestiture gross proceeds of around $80 million operating cash flow generation as well as commercial paper borrowings.

Our consolidated debt was approximately $1.5 billion at the end of the third quarter a decrease of $231 million from year end, and reflecting the debt portfolio actions that I just mentioned. So finally on slide 10 for your reference we've included our quarterly earnings history for 2020 and for this year. I'll note that the now divested display and packaging businesses contributed 29 cents of EPS and full year 2020, with 21 cents coming in the first nine months of last year. This compares with this year when we earned 3 cents of EPS in the first quarter before the divestiture of these US operations.

$1 million from year end, and reflecting the debt portfolio actions that I just mentioned.

So finally on slide 10 for your reference we've included our quarterly earnings history for 2020 and for this year.

I'll note that the now divested display and pack.

Packaging businesses contributed 29 of EPS and full year 2020, with 'twenty one coming in the first nine months of last year.

This compares with this year when we earned <unk> <unk> of EPS in the first quarter before the divestiture of these U S.

<unk> operations.

But focusing on this year and our fourth-quarter guidance, you see that our range for Q4 base EPS is 84 to 90 cents per share. This guidance includes several key assumptions. Starting with volumes, we expect that demand will remain solid but this is more than offset by six fewer days than in last year's fourth quarter. For price cost our outlook is to have a positive overall result in the fourth quarter as various inflation driven price increases continue to be implemented. Also while the display and packaging divestiture is an eight cents headwind. This is more than offset by lower SG&A expenses, lower interest expense and reduced shares outstanding. I'll add that our expected effective tax rate in this year's fourth quarter, there is approximately 25% slightly higher than last year's 23.5%.

This guidance includes several key assumptions.

Starting with volumes, we expect that <unk>.

Man will remain solid.

Is more than offset by six fewer days than in last year's fourth quarter.

For price cost our outlook is to have a positive overall overall result in the fourth quarter as various inflation driven price increases continue to be.

Implemented.

Also while the display and packaging divestiture is an eight headwind. This is more than offset by lower SG&A expenses lower interest expense and reduced shares outstanding.

Yes.

I'll add that our expected effective tax rate.

Sears fourth quarter, there is approximately 25% slightly higher than last year's 23, 5%.

So based on our year to date actual base earnings plus our updated fourth quarter outlook, we are updating our full year guidance to be $3 and 49 to $3 and 55 cents per share. Related to our cash flow guidance on a full year basis, we are not changing our full year free cash flow guidance of $270 million to $300 million, but we are reducing our outlook for operating cash flow by $50 million to be between $520 million and $550 million. This reduction is driven by our updated expectations for slightly higher year end 2021, net working capital balances due to a combination of inflation as well as increased fourth quarter business activity. In addition to our updated forecast for the timing and amount of certain tax payments. These operating cash flow headwinds are offset by our expectation for lower capital spending which is now approximately $250 million instead of our original £300 million targets.

<unk> to $3 55 per share.

Related to our cash flow guidance on a full year basis, we are not changing our full year free cash flow guidance of $270 million to $300 million, but we are reducing our outlook for operating cash flow by 50 million.

And the shares to be between $520 million and $550 million.

This reduction is driven by our updated expectations for slightly higher year end 2021, net working capital balances due to a combination of inflation as well as increased fourth quarter business activity.

In addition to our updated forecast for the timing and amount of certain tax payments.

These operating cash flow headwinds are offset by our expectation for lower capital spending which is now approximately $250 million instead of our original three.

<unk> targets.

And as a reminder, our cash flow guidance excludes the $133 million of one time pension contributions that we made in the second quarter. This concludes my review of our third quarter results and our outlook for the fourth quarter and full year 2021. Howard I'll turn it over to you. Okay, well, thanks, Julian and good morning, everyone, Let me share thoughts on our third quarter performance. I would also like to provide you a brief update on from important capital projects and what we see as we finish out the year. First we were very pleased with them. And food comp and bottom line results delivered in the quarter clean navigated through supply chain disruptions raw material shortages. Unrelenting and inflation to meet the needs of our customers. Sales reached a record level driven by an almost 4% improvement in volume mix despite the amount of the investor of our packaging business. We experienced solid demand in each of our business segments, while facing numerous supply chain challenges.

This concludes my review of our third quarter results and our outlook for the fourth quarter.

<unk> hundred and full year 2021.

Howard I'll turn it over to you.

Okay, well, thanks, Julian and good morning, everyone, Let me share thoughts on our third quarter performance.

I would also like to provide you a brief update on from important capital projects and what we see as we finish out the year.

First we were very pleased with them.

And food comp and bottom line results delivered in the quarter clean navigated through supply chain disruptions raw material shortages.

Unrelenting and inflation to meet the needs of our customers.

Sales reached a record level driven by an almost 4% improvement in volume mix.

But the.

The butcher.

All your packaging business.

We experienced solid demand in each of our business segments, while facing numerous supply chain challenges.

For example, we had a sizable consumer customer who shut down for more than a week due to logistics problems. Although the customers were impacted by labor and material shortages. Our team did a remarkable job in keeping our plants running despite similar challenges. Based on our earnings per diluted share improved 6% above the midpoint of our guidance, operating profits in our consumer packaging segment declined 5% in the quarter, a strong productivity improvements were more than offset by a negative price cost relationship as we continue to chase inflation of critical raw materials and other inputs. Industrial segment experienced a 30% improvement in operating profit due to strong demand and associated leverage through our operations.

Due to logistics problems although.

<unk> customers were impacted by labor and material shortages.

Our team did a remarkable job in keeping our plants running despite similar challenges.

Based on our earnings per diluted share improved 6% above the midpoint of our guidance operating profits in our consumer packaging segment.

Declined 5% in the quarter, a strong productivity improvements were more than offset by a negative price cost relationship as we continue to enjoy inflation of critical raw materials and other inputs.

Astral segment experienced a 30% improvement in operating profit.

Although because of strong demand and associated leverage through our operations.

Finally, we were disappointed in the results from our all other segment, which consists of our industrial plastics, protective health care and retail security packaging units. While the 68% decline in operating profit primarily reflects the divestiture of display and packaging several other businesses struggle due to price cost. As well as a high degree of Covid related volume impacts such as chip shortages. A key element of our strategy is investing to drive growth and margin improvements. So let me provide you a brief update on some of our large capital projects starting the project horizon. We've made a tremendous amount of progress over the summer we have completed much of the work on a new stock prep system, which will allow us to use a larger percentage of lower cost mixed paper. This should be operational by the end of this year and we expect the machine to be fully converted around the end of the third quarter. We will experience downtime during the conversion, but expect this will have only a minor impact on profitability in 2022, while providing of course significant savings going forward. Also in our industrial businesses we are completing work on a new 100000 square foot plant in Tulsa, Oklahoma, where we will be combining our current tube and core operation with two new fiber [inaudible] line to serve growing appliance and HVAC customers in the southwest.

While the 68% decline in operating profit.

Literally reflects the divestiture of display and packaging several other businesses struggle due to price cost.

As well.

A high degree of Covid related volume impacts such as chip shortages.

A key element of our strategy of investing to drive growth in.

Margin improvement. So let me provide you a brief update on some of our large capital projects starting the project horizon.

We've made a tremendous amount of progress over the summer we have completed much of the work on a new stock prep system, which will allow us to use a larger percentage of lower cost mixed paper.

Promise this should be operational by the end of this year and we expect the machine to be fully converted around the end of the third quarter we.

We will experience downtime during the conversion, but expect this will have only a minor impact on profitability in 2022, while providing of course significant savings going forward.

Also in our industrial businesses.

<unk> work on a new 100000 square foot plant in Tulsa, Oklahoma, where we will be combining our current tube and core operation with two new fiber <unk> line to serve growing appliance and HVAC customers in the southwest.

This fall we are opening a new Sono post operation in Poland and are working on growth opportunities in Turkey, as well as Mexico. Our fiber protective business is attracting a lot of new orders as the market is looking for a more sustainable and durable protective alternatives. In our can business.

Fiber protective business is attracting a lot of new orders as the market is looking for a more sustainable and durable protective alternatives.

In our can business.

We recently approved approximately $15 million of new capital to develop additional capabilities to produce cans with new options, including paper bottoms and paper overcast. As I've mentioned previously we continue to receive increased interest, particularly in Europe to convert products into a more sustainable paper can option. These new capital products projects will go into our existing facilities in Belgium, Poland and the UK.

I've mentioned previously we continue to receive increased interest, particularly in Europe to convert products into.

For a more sustainable paper can option.

No capital products projects will go into our existing facilities in Belgium, Poland and the U K.

In addition, we're making investments in renewable energy projects to help meet our target of reducing greenhouse gas emissions by 25% by year 2030.

We were 2030 years.

Here in Hartsville, we plan to spend $2.5 million to convert waste methane generated from our mellifluence system and to our fuel quality biogas, which will be treated compress and injected in the pipeline to be used in industrial applications.

We're also investing $1.5 million to install solar panels in East Coast can plant and expect to add further solar power projects in the near future. Buying these projects will reduce approximately 5300 metric tons of carbon dioxide annually, while generating returns greater than <unk> of capital. Entering the final three months of 2021 remain upbeat as demand for our products globally remains strong despite the supply chain challenges, we all are facing.

To install solar panels.

And in East Coast can plant and expect to add further solar power projects in the near future.

Buying these projects will reduce approximately 5300 metric tons of carbon dioxide annually, while generating returns greater than.

<unk> capital.

Entering the final three months of 2021 remain upbeat as demand for our products globally remains strong despite.

To supply the supply chain challenges, we all face.

That said inflation continues to be a concern we expect certain raw materials, energy, freight packaging and other pressures will continue well into 2022. We now protect inflation, excluding SEC and labor. The rise in additional 1.2% over our previous estimate from last quarter. This means our costs globally this year, we'll have an increase by more than $250 million or about 9%. As a result, we will continue executing price actions and we will remain focused on controlling costs as we work through sphere successfully through this continued difficult operating environment. As for volume, we expect our consumer packaging segment to continue to benefit from elevated at home eating trends driven by remote working and consumers, particularly younger consumers adopting new cooking habits.

Then a pulse energy freight packaging and other pressures will continue well into 2022.

Now protect inflation, excluding SBC and labor.

The rise in additional one 2% over our previous estimate from last quarter. This means our costs globally. This year, we'll have an increase.

<unk>.

By more than $250 million or about 9%.

As a result, we will continue executing price actions and we will remain focused on controlling costs as we work through sphere successfully.

This continued difficult operating environment.

As for volume, we expect our consumer.

Packaging segment to continue to benefit from elevated at home eating trends driven by remote working and consumers, particularly younger consumers adopting new cooking habits.

In most markets demand for our global industrial products has recovered to pre pandemic levels in several of our businesses in the all other segment which have been negatively impacted by supply chain interruptions are starting to see external conditions improve and we've taken actions to improve the overall performance of several of these businesses. Finally were pleased that our farmers safe coal chain packaging business has picked up significantly new orders to provide temperature assured shippers for transporting COVID-19 vaccine. Sonoco is coming out of the pandemic well positioned, we have a strong balance sheet. We have strong businesses and we have a solid cash flow. We will continue to invest in the long term potential of our consumer and industrial businesses, while remaining committed to returning value to our shareholders through dividends and share repurchases and as always acquisitions that fit our portfolio and expand our capabilities.

<unk>, which have been negatively impacted by supply chain interruptions are starting to see external conditions improve and we've taken actions to improve the performance of the overall performance of several of these businesses.

Finally were pleased that our farmers safe coal chain packaging business has picked up significantly.

New orders to provide temperature assured shippers for transporting COVID-19 vaccine.

Sonoco is coming out of the pandemic well positioned we have a strong balance sheet.

We have strong businesses and we have a solid cash flow will continue to invest in the long term potential.

For consumer and industrial businesses, while remaining committed to returning value to our shareholders through dividends and share repurchases and as always acquisitions that fit our portfolio and expand our capabilities.

Let me close by inviting you to participate in our live virtual Investor Conference beginning at eight AM Eastern. On Friday December of the 10th. While we will miss meeting with you face to face, we will do our best to facilitate an open discussion and this virtual manner. You can expect us to talk in more detail about our value creation strategy and will provide you a first look at our earnings expectations for 2022.

All of our.

On Friday December of the town.

While we will Miss meeting with you face to face we will do our best to facilitate an open discussion and this virtual manner.

You can expect us to talk in more detail about our value creation strategy and will provide you a first look at our earnings expectations.

Please turn to 2020 to Raj.

A we will be sending you electronic invitations. After this call. So please consider joining us again on December 10. Now with that operator would you please review the question and answer procedures? As a reminder to ask a question you will need to press star one on your telephone. To withdraw your question press the pound key again. That's star one on your Touchtone telephone to ask a question. Please standby, while we compile the Q&A roster. Our first question comes from the line of Adam Josephson of Keybanc. Your line is open. Thanks. Good morning, everyone. Howard just morning, Howard. On the price cost situation can you just help us with we know about all the price increases that you've been implementing in your industrial business, specifically, your RP in tubes and cores.

Now with that operator would you. Please review the question and answer procedures.

Sure.

As a reminder to ask a question you will need to press star one on your <unk>.

Telephone to withdraw your question press the pound key again Thats star one on your Touchtone telephone to ask a question. Please standby, while we compile the Q&A roster.

Our first question comes from the line of Adam Josephson.

<unk> of Keybanc Your line is open.

Thanks, Good morning, everyone.

Howard just morning, Howard App on the price cost situation can you just help us with we know about all the price increases that you've been implementing in your industrial business, specifically, you RP in tubes and cores.

Could you talk about what you're doing in consumer and elsewhere and more broadly try to help us frame the price cost. Drag that you are expecting this year or the EBIT margin. Hit that you're expecting this year, and then give us some sense of what kind of recovery might be reasonable to expect next year based on all of these price initiatives you have in. If you were to flatline current costs or however, you would want to frame it for us. It tends to be the topic of the day on the industrial side as it relates to OC. And we've spent a lot of time talking about resin. Just separately stated in terms of actions we're taking. Certainly we have been pretty public in the open market in terms of our noncontract accounts, but. We have a pretty solid cadence of recovery across all of our businesses. I will say on the consumer side.

Drag that you are expecting this year or the EBIT margin.

Hit that Youre expecting this year, and then give us some sense of what kind of recovery.

It might be reasonable to expect next year based on all of these price initiatives you have in.

If you were to flatline current costs or however, you would.

Want to frame it for us.

Yes.

It tends to be the topic of the day on the industrial side as it relates to <unk>.

And we've spent a lot of time talking about resin.

Just separately stated in terms of actions we're taking.

Certainly we have been pretty public in the open market in terms of our noncontract accounts, but.

We have a pretty solid cadence of recovery across all of our businesses.

I will say on the consumer side.

Particularly on the can business, we've got some increases that are coming January 1 that I had the opportunity contractually to pass through. Just say the second half of this year so not. Not to give you specific numbers were feeling extremely bullish.

Increases that are coming.

January one that I had.

<unk> not had the.

The opportunity contractually to pass through.

Just say the second half.

This year so not.

Not to give you specific numbers were feeling extremely bullish.

Think you all know and see what's happening with the SEC side of things we've seen moderation if you will on the rosin side.

And of course, we do expect that we're going to be seen increased inflation going into 2022. Particularly as it relates to metals, well publicized as it relates to energy freight, labor, but frankly, I'm very comfortable that we're going to be on top if not ahead of that. As we move through next year.

Going into 2022.

Particularly as it relates to metals, well publicized as it relates to energy right.

Labor, but frankly, I'm very comfortable that we're going to be.

Half if not ahead of that.

As we move through next year.

So I hope that gives you some clarity.

It does thanks Howard.

Specifically on resin and OCC just given how large they are for you can you just talk about what you're seeing the magnitude of declines you are expecting in polyethylene, PET, OCC in 4Q and even beyond for that matter, if you're willing to go out that far? I'm going to turn on raws or to get into. For more detail on certainly able to that. You see what's happening OCC, our indications are that are in our feelings are modeling right now if we look into the fourth quarter as it were going to fall more into that seasonal type pattern. And that we do see some pullback and are reflecting that in our guidance for the fourth quarter, but Roger can certainly give you even more more color on. Do you see Adam. We're thinking mid 180s for the fourth quarter and then we will talk more about next year in OCC in our December meeting, but that gives you guidance.

How large they are for you can you just talk about what youre seeing the magnitude of declines you are expecting in polyethylene P. T.

C et cetera in <unk> and even beyond for that matter, if youre willing to go out that far.

Yeah, I'm going to turn on raws or to get into.

For more detail on certainly able to that.

Hey, what's happening OCC, our indications are that are in our feelings are modeling right now if we look into the fourth.

Oc as it were going to fall more into that seasonal type pattern.

And that we do see some pullback and are reflecting that in our guidance for the fourth quarter, but Roger can certainly give you.

Even more more color on banks.

Do you see Adam.

We're thinking mid <unk> for the fourth quarter.

Quarter now we will talk more about next year in OCC in our December meeting, but that gives you guidance.

For the fourth quarter. In resin, we are finally seeing some signs that the market is turning to be more balanced. You look at the basic raw materials like polyethylene and polypropylene, we've seen those we've seen those top out. Now, they're not announcing price increases, but they're not going through they're being pushed out. So I think that's a very good sign, we're seeing some material now in the secondary in spot markets. On the other hand, if you'll get bonding resins like polystyrene, polyurethane. We are seeing that's continuing to escalate in the fourth quarter and into the first quarter next year EPS. This is as much demand as there's consolidation of suppliers in the market place.

You look at the basic raw materials like polyethylene and polypropylene, we've seen those we've seen those top.

And then.

Now, they're not announcing price increases, but they're not going through they're being pushed out. So I think thats a very good side, we're seeing some material now in the secondary in spot markets.

On the other hand, if youll get bonding resins lag.

And in polystyrene.

Polyurethane.

Seeing that continue.

[noise] out escalate in the fourth quarter and into the into the first quarter next year EPS. This as much demand as there's consolidation of suppliers in the market place.

And finally, the most impactful this and that goes the PDT market is about half of the basket of resins that we purchased, we're seeing escalation continue in the fourth quarter.

Fourth quarter for both Virgin and recycled grades and we expect that to continue into early next year as well. So on average the fourth quarter is slightly up versus the versus Q3, but just being slightly up is so much better than we've seen in the first three quarters of the year from an from a quarter to quarter standpoint.

And as Howard said, we had seven resin based businesses with some mix of price change mechanisms, but for those seven will turn price cost positive in the fourth quarter, two will be closer to flat and one we will still be negative in catching up more to do with supply and demand versus price cost and price increases in the marketplace.

Cost and price increases in the marketplace.

So hopefully that gives you a little feel for whether or not. As Howard said much more positive going forward on recovery and what we're seeing in the resin market.

As Howard said much more positive going forward.

Recovery and what we're seeing in the resin market.

Thanks, Roger and just one last one perhaps for Julien on the Capex guidance can you just talk about is that project Horizon related to something else?

And should we expect that to just come back next year, such that Capex would be elevated or just any details Julien or anyone else would be helpful. Thank you very much.

Adam Howard. Yes. This is as you know bpart of it is Horizon, but you can as you can only imagine that with all of the supply chain freight a personnel availability to execute on their level of capital we had expected to have in place this year.

Yes. This is this as you know.

Big part of it is horizon, but you can as you can only imagine that.

With all of the.

Fly chain freight a personnel availability to execute on their level of capital we had expected to have in place this year.

We just don't think we're going to be able to get everything accomplished that we had expected so to your point, yes, we do expect to see an increase in carryover into next year.

The increase in carryover into next year.

As Roger just noted is we're together in New York, will give you much more clarity in terms of what our expectations on next year for capital spend.

Thanks, a lot Eric.

Thank you. Our next question comes from Mark Wilde. Of Bank of Montreal, your line is open.

Mark Wilde.

Of Montreal Your line is open.

Thank you good morning.

Howard.

My first question I'm, just curious are you seeing any sign of the supply chain issues starting to ease at all?

Yeah. Not not. But I would say that we're not seeing all that material. Issues in terms of. Of. Impacts to us and to our customers we're seeing pockets. So. I would say it's not us.

Not not.

But I would say that we're not seeing all that material.

Issues in terms of.

Of.

Impacts to us and to our customers we're seeing pockets.

So.

I would say it's not us.

Systemic type.

Issue for us today, and I've cited a case in the third quarter, where we had our customer that couldn't get packaging materials that shut them down for a week.

The ones that really are stick really sticky right now for us has to do with the chips.

Most are impacting us on the automotive and the protective white good space.

We've got an example, again showing that it's not systemic but we've got an example going into the fourth quarter, where we've got about a $40 million.

And that headwind having to fly critical components from Europe.

To keep operations going so.

To answer your question from a holistic perspective.

It seems to be much broader.

Across the economy in general, but not as material.

<unk> to us is as advertised.

Okay.

The other question I had is just to unpack sort of what went on in consumer packaging in.

In the quarter and.

On the upside I'm, just I'm curious about the benefit you got from at a more normal hollow.

This year is there any way to quantify that impact.

Sure.

Obviously, it was an impact in our flexible business.

As we noted before flexible.

With all of eating at home was actually not benefited.

Through.

Last year in the.

Yeah.

Heart of the Covid crisis.

Saw a nice pickup I would say somewhere around 13% to 15% improvement in volume and flexible as along.

If you look at our can business globally.

Globally, we were just 1% to 2%.

One 5% down.

And then you dig deeper and of that the biggest impact there was on <unk>.

North America.

And what I'd say there is that was the case. The example, I gave in the commentary.

We are also a major customer for a week.

<unk>.

Two I guess.

Adam's question or your earlier question about supply chain.

The.

We don't talk about a lot, but in our can business. We are a very large supplier in adhesives and sealants.

Industry, probably 10% to 15% of our North American volume.

So that is a case, where we saw.

Lack of material availability too.

To our key customers in that segment.

So and the carryforward on cans Europe that continues to shine up about 4% Asia.

<unk> was about flat but.

That is truly COVID-19 and that our largest operations are in Malaysia, and they went through a series of shutdown last shutdowns last quarter and this quarter.

Tons of pent up.

Demand. So we expect as we are opening back up.

They're going to get right back on track with double digit type.

Type growth rates.

Hope that helps you kind of get an understanding of what's going on.

That does the one other question I had around consumer packaging you just you called out the weakness in fresh food and I Wonder if you could unpack that for us a bit you know how much of that would be.

They're.

Just.

Soft markets and how much of that might be in some of these.

Rigid plastic areas like for produce where you may be facing more competition from like fiber based alternatives for.

Proteus packaging or the decision by kind of supermarket change to just.

Due to the amount of plastics that they're using.

I'll hand, it over to Roger for more detail, but just from a macro perspective I don't we're not no we're not seeing any kind of shifts from format.

Laura why don't you talk to what really happens yeah, Mark got really two key drivers in the quarter number one.

Pandemic, our AG business.

<unk> was very very strong and it's still five still good is back probably closer slightly up on 19 levels, but that was part of it the biggest impact on that business is what we've been talking about for several quarters now about a restructuring of that business itself.

Very aggressive in the marketplace to get pricing, where we think it needs to be.

<unk> return on that business.

We saw that.

We announced a set of our Wilson North Carolina plant ended up selling that plant, but that's the final piece of our restructuring.

What we call our perimeter of the store business. So it's not so much fiber is not really fiber competition, it's more us us being much more aggressive with pricing.

B to get them in the marketplace and walking away from business, where we think is necessary.

So now we have ended where we wanted to in which is one major plant in Florida when major plant in California to service the market and again that business restructured, but you will see that impact on volume you saw in the fourth quarter and some of that will continue on into early.

Early next year, but all around getting the price in the marketplace, where we thought it needed to be.

Okay. That's really helpful. Roger Thanks, I'll turn it over.

Yes.

Thank you. Our next question comes from George Staphos Bank of America. Your question. Please.

Thanks, Hi, everyone. Good morning.

Thanks for the details.

Wanted to dig a little bit more into price cost.

Howard and Julie and Roger can you talk a little bit about within the industrial businesses, what price cost was in the third quarter I don't I don't think you've called it out obviously, you had a lot of pressure, but perhaps the pricing actions.

Trying to catch up there and then within your guidance for the fourth quarter are you expecting price cost for the industrial businesses to be broadly positive flat or negative and if you could quantify that'd be great.

Hi, George Roger Yes price cost was actually slightly positive.

Australia.

Our third quarter.

Quite frankly, some of that driven by really good work across the board, but also are protected.

Business as well as our wooden reels business, we are expecting it to be more positive in the fourth quarter to your point as the price increases there into the marketplace.

Through the system.

We.

And respect that.

About a little over 4 million positive in the third quarter, we expect it to be more positive in the fourth quarter and headed in the right direction.

Yes.

And that's what we see for the fourth quarter coming up.

Okay and then.

I assume youre not seeing any signs of this now because.

Demand is good.

And that would be both.

For your products and what are your customers, saying in terms of consumer behavior going forward, but.

Why are you not worried or are there any worries that you would have that at some point the pricing actions that your customers have had to make in the market and.

Because that you've had to take because of all the inflation will at some point start to feed back negatively on demand.

Hard to replace a tube and core I get it but.

Why are you not worried about that in any of your product lines and for your key customers' product lines as well.

Yeah, George I would say because it's going to be across.

The entire retail.

Shane.

The bigger question is what happens.

The consumer spending power I don't think it's.

Question of someone ability to or willingness.

To not massive inflation on.

And.

Look.

All commodities have to inquiries and Youre seeing that line now youre hearing from the major CPG.

And so we feel like we're going to be on a level playing field. So it really turns into a more of a macroeconomic question and the ability for consumers to afford the products.

Yeah.

If that makes any sense.

What I would say is extremely broad.

We look at fourth quarter.

It's typically.

<unk> start and a glide path through the holidays.

Last year played out.

Not that.

That way this year looks to be exactly the same inventories are extremely low.

And we expect to drive.

Fully all the way through the three months and frankly, not only consumer but industrial.

And in the all other that this trend is.

We continue.

Well into next year, so as we sit here and we look into the <unk>.

For the forward periods extremely bullish that this top line.

Demand profile that we're seeing the price cost catch up that we've been working on.

And as Laura just spoke to.

Getting there if that.

We're just highly.

Highly encouraged about.

How things are going to play out.

End of this quarter and on into into the better part of next year inventories are just extremely extremely low so demand is going to be there.

Howard.

That's a great rundown and segue to kind of my last question so as.

As we think about fourth quarter.

I think you mentioned that volume would be solid I know, it's kind of hard to tell.

Gave you a quarter off a few weeks of volume and you have the six day negative comparison on volume as well, but what do you think.

Adjusting out the six days, what do you think underlying volume is growing right now within industrial within consumer and then.

Thinking about the things that are going to come back to you next year.

The price cost the initial productivity from horizon and all the other things.

Doing well.

Working capital improvement, if we think out two years from now.

Stack rank or quantify.

What do you think are going to be the biggest drivers of return on capital for Sonoco Youre down a little bit this year, but for obvious reasons. What do you think the biggest drivers are and if you could quantify them looking out two years.

That you would be given the volume productivity and so on yes.

Yes sure.

Georgia, we're thinking somewhere.

Allows basis of about a 3% improvement across the portfolio.

For the fourth quarter.

Hum.

Again coming off of a very strong.

Fourth quarter of last year from a volume perspective, so I'm not sure if that gives you not micro to macro.

Sure.

As we all go out the two year from now I'm getting a little ahead of mosquito, but.

I can just say that every every capital investment that we have on the value generating basis.

What would that we've approved.

Clearly project Horizon and that one of course, we've been very public in terms of what the economics are on it.

Be well well above our cost to capital.

And again I wish I wish I had that type of.

Clarity of what two years, we're going to look like.

But where we think next year is going to be a rock solid year and and.

With the benefit of the capital and I. Appreciate the question because the dollar you spend a day, sometimes it takes 18 months two years to see the yield and we expect that's going to be material going into 2023.

Productivity.

Is that greater than price cost I, just wanted to if you could stack rank it and thanks I'll turn it over.

Yes, I would say price cost.

No.

From where we sit in the lens, we're looking through.

Very bullish for next year.

But.

That lens.

Can get clouded.

Hurry, then and then again I keep using the word macro but what happened in the <unk>.

Role today.

Or two quarters from now I don't know that.

What we have visibility of the day, we're very positive about price cost.

That being a major driver to performance certainly through the first half of next year and you'll start to see.

Productivity the return from capital starting to show up later in the year.

Solidly into 2023.

Thanks, Howard and good luck in the quarter.

Yes.

Thanks.

Thank you. Our next question comes from Ghansham.

Panjabi Baird Your line is open.

Good morning, everybody and I'm, sorry to go back to price cost, but just to clarify and I'm sorry, if I missed this but the year to date price cost has been negative 65 million in <unk>. It looks like you came in at negative 14 did you give us a formal outlook for <unk> I know you talked.

What about industrial being positive, but on a consolidated basis, what does that number look like.

And based on all your recognized pricing and just assuming all.

All else being equal in the raw material trajectory side, including resin would you recover the entirety of what you lost in 2021 and 'twenty two.

Hey, Ghansham, it's Julie.

I'll start with your fourth quarter comment.

As we've mentioned, we do expect the fourth quarter kind of on a consolidated basis to shift to be positive.

From a price cost perspective, I think Roger mentioned, specifically some of that really a lot of that in industrial but I'd put that in that kind of.

Low to mid single digit to $10 million type of range as what we're expecting at this point so.

It's trending positive, but not a you know call it dramatic turnaround there, but that obviously extremely.

I'd say, we're optimistic that we're going to shift into the positive territory versus what we've experienced.

So far this year, yes.

So we're looking at 2022.

The expectation is we'd be fairly well called off but.

We just have to see what happens.

We started with.

Sort of third quarter.

This quarter.

It really was a super strong.

From July and then here, we go again and inflation cause because we called out that insulation award by we don't expect that to happen.

Got it all to happen.

But.

To be fair it could.

But what youre seeing.

You should be seen that we continue to increase price non material related price I should add as well for instance.

We all know what's going on in energy, particularly in Europe.

We're getting way ahead of that and we've put out the 100 euro a ton.

The 100 Euro a ton on the paper side of our business.

Well, it's happening now, but it also built and preemptively with what we see coming into the first quarter. So.

We are very mindful of.

Very active.

To make the moves today that will prevent.

US from being in two and two adjacent type environment going into next year.

Okay. That's very clear. Thank you and then in terms of the normalization you are seeing on the consumer side.

I think you mentioned composite cans being little bit weaker comparisons being difficult.

That also is the ddos.

Tom you're seeing in sales is that also a function of just inventory adjustments at the customer level or is that not the case, it's just comps.

Oh, I'm, sorry grants, you've kind of broke up at the end.

Yeah, just just in terms of what youre seeing with composite cans.

Volumes are you seeing inventory adjustment at the customer level.

Inventory.

Inventory on that they have no inventory. So yeah. There are some some are continuing catch up.

But from a.

Just a general market perspective.

We're pretty comfortable with our position.

We expect to see anything other than continued strong demand.

Well into next year or two.

Not only because it should be.

The retail outlets.

Back in full but also to get the inventories at the right level.

Okay, and then just one final one on the 50 million Delta in working capital for.

Or would that be an equal tailwind into 2022 based on what you see at this point.

Hey, Ghansham.

$50 million that we.

Reduced operating cash flow by isn't all working capital, but you can say maybe about half of that is where I'll also anticipating some higher tax payments.

For the fourth quarter than original and so.

It was kind of in that I guess working capital year over year, you might say.

$15 million to $25 million higher driven by the factors I've mentioned.

We see it is possible that that could continue into next year as well, but again right now.

We're kind of starting to fine tune sharpen our pencil on the outlook for 'twenty, two but you know again, depending on inflation, how that trends next year and again, we will be expecting higher demand as Howard has been talking about.

While we're really feel very good about our inventory management and all of that inflation.

<unk> increased activity.

Obviously, it does put some upward pressure on working capital.

Okay. Thanks, so much.

Thank you. Our next question comes from Kyle White of Deutsche Bank. Please go ahead.

Hey, good morning, Thanks for taking the question.

And then I wanted to go through the all other segment you mentioned it was a bit below what you're expecting I know you had experienced resin headwinds and you mentioned the chip shortage, but this is something that has been occurring throughout the year. I guess was there any other notable headwinds to impact our results are something that wasn't necessarily necessarily expected any other details you can provide on that segment for <unk>.

Yes, I think the most significant was probably in our medical thermal forming business.

I think Howard mentioned in his opening comments that business relies heavily on elective surgeries with packaging for the operating room, we had expected that to recover in the third quarter and it did slightly but we're not.

Nowhere near back.

Back to we were.

Pre pandemic levels. So we're starting to see that come back, but that'll be a headwind to some degree again in the fourth quarter and then the other major impact was if you think about the pandemic and the automakers about half of what we call our protective business services the automotive industry during the pandemic.

They shut down for weeks at a time and so we were able to shut down and take labor out of our plants.

This past quarter.

They've had rolling downtime.

You made it very very difficult for us to strip out costs and strip out labor.

From a quarter over quarter year over year standpoint that business really suffered around supplying them.

Industry, so that was.

Unusual for the quarter and as I said earlier with price actions with some self help self help actions around taking cost out.

We see at least a 150 basis point improvement in operating margins as we go into the fourth quarter and then we'll push it on from there.

And Karl let me add as well that.

I'm talking about the.

The negative impacts to the sector.

I don't want don't want to.

And that's the opportunity to talk about the pharmacy business and the law.

Level of Covid activity, we talked from the very beginning of.

The vaccine rollout that.

Yeah.

All of the vaccines were being bolt shipped into central.

<unk> points today, they are starting to be in smaller packs going direct to specific.

Retail.

Hospital Doctor outlets, and that's where our that's our sweet spot.

We've received some.

Significant orders, starting this quarter and very.

Very very bullish about how that may continue through the course of next year.

Got it that's helpful. If I could actually follow up on that on the vaccines is it possible to either quantify the benefit you are.

Stephen the thermostat business related to Covid vaccines, and do you expect with booster shots next year as well as other regions still in the process of widespread distribution do you anticipate next years results could be even higher or similar similar or comparable to this year just any thoughts there.

It's.

Yes, a big part of the order that Howard talking about for the fourth quarter is around booster shots and its around shots for children from thoughts at 11, So thats happening that will start delivering in November and will carry into the first quarter. We have been saying, we felt like Kobe vaccines could reach the similar level for.

Rogers vaccines, which is $20 million a year, obviously now we feel like we can do much better than that.

So getting our arms around that with the major pharma.

Companies.

I'll just say, we're going to have a very strong fourth quarter for COVID-19 vaccines and as we get together in December we'll be able to do.

<unk> is updating the impact for next year.

Okay. That's helpful. From a next question can you just remind us of your thoughts on capital allocation as we sit here today I know you completed the ASR program last quarter, but how did how attractive does the M&A pipeline look and absent M&A should investors expect you to kind of.

Better just shares on the open market going forward.

Yes.

We're certainly active in this space.

We are all being.

Very deliberate in terms of of assets that are that we feel that a REIT and a good fit for sonoco.

Right.

It was very very much active.

So M&A is a critical part of our go for the capital allocation strategy.

No obviously dividend.

We talk extensively about internal capital deployment.

We did the share buyback.

And we will certainly keep that as part of our.

Capital use model, depending on what's going on particularly on as you point out on the M&A side of things.

Got it appreciate all the details.

Thanks.

Thank you our next question.

But it was from Salvator Tiano of Seaport Research your line is open.

Yes.

Yeah.

Hi, Howard you and Roger Thanks for taking my questions. So firstly I wanted to come back it will be done on.

The capex change them.

I do want to clarify that.

Have there been any cancer any outright cancellations of major adjustments or any of your projects or is it solely from delays that are pushing these 50 medium.

No.

So there is no cancellation this as directly as you can imagine.

They.

Can we get.

Get get orders fulfilled on the projects getting.

The engineering all the work done that needs it's.

Back to the earlier question around supply chain.

If you think in terms of project horizon.

The paper industry.

Those critical.

<unk> technologies are coming out of Europe, and so we're just saying that it's got type of delays that.

No no pullbacks, because we've had a lack of customer interest in our project.

Any any any of them.

Items of that nature.

Okay and just following up on.

Capex, what's inflation are you seeing these projects, whether it's labor or raw materials. When you started the year with a 300 million guidance.

If you have EBIT wasn't any timing changes.

Where do you see the costs would have been just due to inflation now.

Okay.

So right now I don't know if I could quantify that you know.

We have an example in projects rise and we saw some inflation, but then still still within scope.

It hasn't been that material as we look at it.

Go.

Go forward projects that were some of which I'll talk to during my script.

Right now the.

The costs that are built and are reflective of.

Of course that our vendors are seeing today.

We'll have to see how it plays out over the long term.

But right now.

Comfortable.

Okay perfect.

Just also want to touch base on energy and what we're seeing natural gas. If you can just put a finer point start seeing them.

Natural gas consumption of energy consumption by region, but mainly Europe, and North America and also.

What procurement model see happen.

And what levers do you have besides your be discretionary price increases to offset this inflation.

Sure.

For Nat gas.

Our main.

You said you were on a mill complex as both here and.

In Europe.

It's not material necessarily.

In China, where I think we're actually on coal.

It is due to talk about the U S. We've had longstanding protocols in terms of.

Balancing.

B a hedging.

That.

As we as this inflation started coming in we had a pretty significant call it almost half of our.

Our usage hedged going into next year.

As you talk about inflation recovery that will be part of the conversation obviously.

Today.

We've put in non non OCC related inflation, we announced just recently here in the U S. Similarly in Europe.

I would say more exposure, but so is the entire market. So we came out with 100 Euro ton increase just several weeks ago, we will continue.

To follow whether that's.

I'm going to cover or not but.

We're also seeing that the entire competitive landscape.

Falling in.

We all have to get recovery on this.

We don't see this as a major headwind for us because of the things I just said that we've got.

Good sufficient here in North America.

And.

We are we are putting price and thats fully supported by all industry.

It uses Nat gas in Europe.

Okay perfect.

So to clarify just in Europe on the procurement side you don't have.

These hedges you would just rely on prices there.

Yes.

Not hedged in Europe correct.

Okay, perfect and just a little bit there.

My last question on.

On.

The volumes seem industrial paper packaging the wraparound.

So I know you mentioned in most markets now you've kind of have recovered from COVID-19.

Just wondering now that we've reached a pre COVID-19 level, how much volume leeway do you see going forward as we.

As the markets grow and other basic money has been kind of a vague.

Returns have been made.

Sure.

Yeah.

Just real.

It's hard to answer what we let me just put it to you. That's what we're seeing right now is really back to pre pandemic.

Pandemic levels.

Stated in my commentary I mean, this is an and pockets that are just extremely strong right now.

On top of that so so greater than so if you look at our <unk> network here in North America.

Still remain at very low inventories.

The.

<unk>.

Yeah.

Yes, yes, backlogs as well as the.

Well listen my thought process here backlogs.

Allocations that were having to put customers on it continues to be an interesting dynamic where is it going to settle out.

I think we're going to be in a pretty good place.

Roger I don't know if you've got the only thing I'd add Sal as we've seen in our tube and core business seen a really nice pickup in the paper side of that business.

Internet sales around containerboard, our containerboard customers globally are very very strong we've seen newsprint.

Really bottom out and actually show a little a few gains from here and there. So as you would expect film is strong with the economy being strong.

The only weak weakness as we've seen as textiles.

We feel like Thats, probably more related to the chip shortage around automotive and some of the other supply chain concerns.

Constraints, so textiles picks back up to Howard's point, if you look about just all of the segments. We serve from an industrial standpoint with pretty strong going into 2022.

Okay perfect. Thank you very much.

Thank you. Our next question comes from Josh Spector.

<unk> of UBS Your line is open.

Yes.

Yeah, Hi, guys. Thanks for squeezing my question in here so.

So just to follow up on consumer and the low inventory at the customer level and its supply chain. Just curious if you could quantify that if there was no end market demand published with restock B in terms.

The benefit from a volume perspective into next year.

You know I really oh.

I don't think we could give you.

Eric.

Answer to that what I'd say is.

We are full theyre going.

Before and until they reach that point.

Okay.

Full.

Full inventory back to normalization all I can say is our expectation is it's going to take a considerable period of time to get to that point well into next year.

Okay fair enough and maybe just another.

Medium term one here is just you know looking at you are be prices, where they're at relatively high levels versus a few years ago and I expect you want to continue pushing them higher to recover costs, that's assuming OCC prices eventually decline what what's your view on the reaction of your beef pricing and kind of anticipating youre going to say it.

At a higher.

What structurally would be you're you're supporting points to kind of get you there.

You know I'd say no.

There's no sign that our price has nothing to do with cost.

If you look at market dynamics right now as Europe is falling.

The demand is is not as I noted earlier, we're seeing.

Allocation type scenarios in the marketplace, but we're certainly having to put out.

Again, not able to quantify but we feel very good that again.

Again, if we as we go into next.

Each year that.

That demand profile is going to continue.

We'll see what else, we see Texas, but.

With any given a lot better cost profiles go down but.

Demand is still strong and price remains strong.

Okay. Thank you.

Thank you. Our next question comes from Gabe <unk> of Wells Fargo Securities. Your question. Please.

Hey, guys. Thanks for taking the question.

I was going to ask something more on the operational side and thinking about these energy issues over in Europe, and I guess, maybe to the extent we're hanging on.

Clinton and things become more pronounced in and potentially industrial users get put on allocation or something like that so two part question.

One is do you have kind of secondary energy sources to run paper mills over there or I guess contingency plans if you will.

The winter months or can these mills I guess it at <unk>.

Reduced energy supply and reduced energy supply situation.

And then what kind of a corollary to that has there been discussions about how the steepening I guess cost curve globally speaking for paper production.

Thinking about containerboard.

Hum.

May increase the attractiveness of of U S born product.

And your customers kind of preparing for that on the tube and core side.

So Dave I'll take the first part and then from our team as it and discussions that we're having internally.

We're here, including members of our board actually.

That are based in Europe, it's not a supply issue, we should not where we're not anticipating any any issue.

Being able to run our operations the.

The question is.

Is the issue really is around the in place inside of.

Not even contemplating that.

To.

To say if if if we're wrong, we're not necessarily set up that's not a navy change to go from.

One substrate to another two to run their facilities, but we do not anticipate that to be an issue.

So on the on the cost curve in container board.

I'm not sure if I truly understood your.

Correlation there and influence on Europe would you like the.

Good.

But again.

No no no just I mean to the extent that that energy is a big input component to the cost curve or cost of goods.

Woods sold for.

<unk> produced in Europe.

And even for your own your B I don't think you have any excess capacity the exports to Europe, but just.

If in fact, it persists then product produced here in the U S would require more tube and core suggest if.

Those discussions are being had.

Yeah, I really don't know how to answer that one.

That costs are going to be.

We.

I think George asked the question about.

Relative to inflation and I think thats important thing relative inflation not not specific inflation too just so.

Is inflation.

Through energy goes through the paper systems and in Europe.

All ships rise and and that'll be the case there. If the question is related to maybe a lower cost position somewhere else in the world of moving paper around to take advantage of that.

I don't see that happening at all particularly in today's environment. We are shipping into Mexico, we are helping our own.

Supply needs down in.

In Brazil.

The cost of a container today, it just will never make sense until that normalized.

Contemplate.

Cross border.

Cross Ocean.

Supply chain.

This type of commodity.

Okay I'm just trying to think of maybe second third derivative impacts from from higher energy costs in Europe.

I guess, maybe more a more hopefully simple and Julie you mentioned.

David I am sorry, if I missed it a five cent kind of.

One time.

Benefit and I wasn't sure. If that was you said that hit operating profit, but maybe as a Brazilian tax credit or something like that during Q3.

Well, we did have.

Yeah.

Something that we anticipated in the third quarter.

<unk> was a five.

You need tax item that we booked in the third quarter and then in addition to that we did have the lower tax rate from against expected 21, 5%, So down about 18% and that was just due to additional project work related.

Mostly to R&D tax credits.

Okay do you think that answers the question.

Yeah, So I guess to be clear, the five sensors or $7 million or so that hit operating profit.

It was part of your guidance.

Yes, I think youre talking about maybe in our GAAP versus non base items, yes, we did have there.

And that 6% add back that had about that was net of about $11 million of a couple of one time again GAAP non day tax expenses that were partially offset by again some GAAP net gains that ran through operating profit and that was just a variety.

There was an item so.

Net net items that impacted GAAP not base, but.

There were there were some income tax items, yes, partially offset by some net gains.

Okay, but that was not included as part of base. Thank you, Okay, that's where gas yes.

D a.

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

Thanks for taking my follow ups I appreciate it Howard.

<unk> recently talking about renewed panic buying.

In the U S have you seen any signs of that and then just relatedly sometimes.

At fiscal year end some of your customers might reduce inventories too.

To show a better cash flow I assume theyre not going to be able to do anything like that given how low ever.

Everyone's inventories are but can you just talk about kind of what's embedded.

And your consumer volume forecast for the fourth quarter and talk about what your what.

Now with respect to again any signs of panic buying or otherwise.

Adam.

Here, we go again.

And it is on the consumer side, but coming out of our <unk> network.

As a reminder, we.

<unk>, 75% to 80% of all paper that goes into the tissue and towel sector.

And.

That volume is.

Is ramping up rapidly.

And it's all back to that avoiding.

Environment.

We saw in a hold of.

The last year.

That's the one that is clear.

Clearly.

As in place right now.

The other in terms of.

This is my opinion, but I think as we all get ready to do.

Seasonal holiday shopping youre going to see a lot of stock out of consumer type products food food related products.

For all.

I think that we've talked about.

This call for US all that means is what we've already talked about is that.

Normally we would see October is the prop month.

To fill the warehouses get ready for <unk>.

The holiday season.

And we just see this.

All right.

Full out all the way through the year through the holiday as you will see stock analysts I can possibly predict which exact products they would be.

And that's why again as we look into 2022.

Is that.

We would expect an extremely bullish.

This is going to end on the consumer side.

And I won't repeat again, our thought processes as it relates to the same situation going on on the industrial and all other segments.

Sorry, if I can't tell you exactly what we need to buy today in anticipation of.

There'll be a Thanksgiving perhaps.

But I would highly encourage you may want to go ahead and start thinking about that.

But I'll spell.

We can set a very very good news as we finish out this year and going into next year.

Sleep very comfortably that that we're going to have a lot of lot of continued strong demand going forward.

And I appreciate there and just two others one on guidance I mean, you give guidance earlier than most just at the Investor day, and when Youre dealing with unprecedented inflation our supply chain mass I mean, there is so much going on there.

<unk> situation.

Many factors beyond your I mean, that's always the case, but particularly I mean this isn't.

Precedent on operating environment are you thinking any differently about annual guidance than you have historically just given these.

Myriad unknowns.

No.

We hope to give you guys some fairly well obviously be smarter in December than we are today.

We're going to give you what we think.

We see coming in the quarter for the year next year. So we're not sure. If the question is what were thinking about.

Yeah.

Pulling out maybe not given the.

Normal.

Go forward look.

An expectation right now will be again smaller by the December is to provide you what we think.

2022, and how it will unfold.

I appreciate that and just one last one on sustainability in light of the shortages are seemingly everything.

Are your customers any less concerned about.

Getting recycled resin or otherwise then.

Where perhaps before all these shortages existed in all these prices spiked.

Let me talk about it.

Programmatic kind of direct to the relevant side of things but.

Our customers are still very very engage.

Uh huh.

In terms of.

Sustainability.

In terms of the actions that we're taking some of which I've talked about on the supplier and our actions in terms of our carbon emissions from a format perspective also spoke to.

I have several times.

<unk>.

In recent quarters.

About what's going on in Europe in our can business the capital that we're putting in place now and as customers are coming to us with I'm not going to name formats, but other other substrates today are.

Anxious to move into a paper forms so all of that is.

Continuing.

It's more direct to your question around resin.

They have clear visibility of our pet versus.

If you look at ARPA recycled <unk> Adam.

More expensive than Virgin now so what's happening is many of our customers.

Try to implement.

Minimum amounts of recycled resin into their product into the manufactured product and they simply can't get enough.

And then at this point is scouting, that's driving that price up.

There's just not enough recycled bottles coming back through the system at this point. So today recycled resins that PT is more expensive.

<unk> been version and Thats really put a damper on some of the some of those activities are not you know I don't see that changing anytime in the near future hopefully as we get into next year and.

And we see some recovery in PT bottle recycling that will change, but that's the situation today.

Thanks, So much Roger best of luck.

Sal.

Thank you at this time I would like to turn the call over to Roger Schrum for closing remarks, Sir.

Thank you again and again, thanks to everyone for joining us today as Howard mentioned, we'll be sending out electronic invitations for our December 10th virtual Investor Day next week.

If you'd like to RSVP for the event in advance.

You can contact Robyn Hyder.

In our Investor Relations office at 843.

383, $34 50, and again, we appreciate your interest in the company and as always.

If you have any further questions don't hesitate to reach out to us. Thanks again for joining us.

This.

This concludes today's conference call. Thank you for participating you may now disconnect.

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Yes.

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Morning.

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