Q3 2021 Westrock Co Earnings Call

And.

Yeah.

Good day, Thank you for standing by and welcome to West Rock Company third quarter fiscal 2021 and results.

At this time all participants are in a listen only mode. After the speaker presentation. There will be a question and answer session to ask a question. During the session you will need to press star 1 on your telephone.

Be advised that that East conference is being recorded. In addition, if you require any further assistance. Please press star zero and thank you I would now like to hand, the conference over to your speakers today, Mr. James Armstrong Vice President of Investor Relations. Sir. Please go ahead.

Good morning, and thank you for joining our third fiscal quarter 2021 earnings call. We issued our press release. This morning and posted the accompanying slide presentation to the Investor Relations section of our website. They can be accessed at ironed out west rock Dot com or via a link on the application you are using to view this webcast with.

On today's call are West Rock's, Chief Executive Officer, David Sewell, Our Chief Financial Officer Ward Dickson as well as Pat Lindner, President commercial innovation and sustainability. Following our prepared comments, we will open the call up for a question answer session.

During the course of today's call, we will be making forward looking statements and Boeing our plans expectations estimates and beliefs related to future events. These statements may involve a number of risks and uncertainties that could cause actual results to differ materially from those we discussed during the call. We describe these risks and uncertainties in our filings with the SEC, including our <unk>.

<unk> 10-K for the fiscal year ended September 32020, we.

We will also be referencing non-GAAP financial measures during the call. We have provided a reconciliation of these non-GAAP measures to the most directly comparable GAAP measures and the appendix of the slide presentation. As mentioned previously the slide presentation is available on our website with that said I'll now turn it over to you David.

Thank you James and good morning.

EBITDA growth year over year, and adjusted EBITDA margins of 16, 8%.

We continued to generate strong free cash flows that we used to strengthen our balance sheet, while also investing and our business and delivering value to shareholders. Overall net leverage at the end of Q3 is 2.54 times down from 3.13 times at our peak.

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Last quarter I talked about the key strategic priorities for West rock.

Leveraging the power of the enterprise, leading and sustainability accelerating innovation and executing a disciplined capital allocation program.

And I'd like to take a minute to walk through some of our progress and each of these areas and our path ahead.

We have been moving quickly and my first 4 months on the job. During this time Ive continued to visit our facilities and spend time with our customers.

These visits have reinforced my belief and the unique opportunity we have to provide value through our broad portfolio of paper and packaging solutions and.

And help our customers meet their most challenging needs for sustainable packaging solutions.

We have initiated a detailed review across the business looking at how to further enhance our focus on attractive and markets, where our differentiated portfolio is rewarded.

We are still on the early stages of this process, but our recently announced team realignment is a significant step.

Forward and fully leveraging the power of our enterprise.

We are strengthening our focus on commercial excellence innovation and sustainability across the enterprise and combining these functions bring.

Bringing these critical activities together provides focus integration and alignment to the disciplines that will enable us to grow our company and.

And lead and providing sustainable and innovative solutions for our customers.

We are focused on growing our packaging business and maximizing our opportunities across the portfolio.

We have combined the former M P S and our food and beverage packaging business into 1 team unifying these commercial teams and operations to better serve our customers and maximize the productivity of our global operations.

We have also integrated the sales teams across our consumer paperboard and containerboard businesses and combined our consumer and containerboard mills and to 1 system.

During the third quarter, we continued to implement our disciplined capital allocation strategy and further strengthened our balance sheet.

Over the past 3 quarters, we've reduced adjusted net debt by $1 billion raised our dividend by 20% and completed the investments and our strategic capital projects.

So what's ahead for west rock.

The West rock team is relentlessly focused on leveraging the power of the enterprise to improve margins and returns while continuing to deliver excellent free cash flow.

We will invest and are converting systems to support growth and packaging and and our mill system to improve our overall cost structure.

These investments will further enhance our packaging capabilities to serve those markets, where our customers value our differentiation.

This also means working to reduce our exposure to markets, where we don't see this potential such as export containerboard and low margin Sps businesses.

We also remained disciplined and our capital allocation.

We are working to ensure the strength and flexibility of our balance sheet as we invest to grow our business.

We remain committed to maintaining our investment grade credit profile and consistently growing our dividend.

We will invest and our future through capital projects and tuck in M&A opportunities that clearly align with our strategy and provide attractive returns on invested capital.

And we will make opportunistic share repurchases to return value to shareholders. The significant progress we have made and reducing our leverage ratio provides additional optionality as we consider our capital allocation priorities going forward.

We'll be balanced and our approach always seeking to maximize returns, while maintaining the financial strength and flexibility required to execute our strategy.

As we strive to lead and sustainability, we announced our commitment to set a science based target to reduce greenhouse gas emissions.

As we work to partner with our customers to improve their sustainability. We're also focused on improving our own sustainable.

Sustainable fiber based packaging is critical to realizing the full potential of the circular economy, and we are working to accelerate our innovation pipeline to help our customers meet demand for sustainable packaging.

Our new ever grow product is a great example of leveraging the power of the West rock enterprise with capabilities that no other packaging company can bring to the customer.

This product Leverages, our design capability consumer and corrugated packaging and our machinery expertise and creates a sustainable fiber based curbside recyclable alternatives to plastic produce packaging.

It has great shelf appeal and protects the produce and can be recycled into new packaging you can use the QR code on this page for a closer look at this exciting new packaging.

And with that I'll now ask ward to provide detail about our financial performance and the third quarter Ward.

Thanks, David we executed well and the third quarter and our results reflect us as David mentioned, we generated revenue of $4.8 billion adjusted segment EBITDA of $811 million and adjusted EPS of $1 per share.

These results exceeded the high end of our guidance range, we outlined last quarter.

Demand was strong with record net sales that increased 14% compared to the prior year. Our revenue grew across all of our businesses and we continue to focus on improving our business mix the.

And the implementation of published price increases and improved business mix drove $320 million and year over year earnings improvement and exceeding cost inflation by more than $100 million co.

Cost inflation was driven by higher transportation energy and chemical and recycled fiber cost opt.

Operating costs were higher year over year due to the nonrecurring nature of some of the cost actions taken last year as part of the pandemic action plan.

In addition, Q3 was our peak maintenance outage quarter and FY 'twenty 1.

We generated more than $550 million and adjusted free cash flow and the quarter and use the majority of that cash to reduce debt.

Our net leverage is approaching the high end of our 2.25% to 2.5 times leverage target.

Our packaging businesses continue to grow with sales, increasing 15% year over year.

This revenue increase is due to both strong demand and the implementation of published price increases.

As you can see on this slide our packaging sales were 71% of our total sales and the third quarter, while paper sales were 29% of total sales.

Packaging volumes were up year over year with strong demand and food and beverage retail e-commerce and distribution demand in markets, such as cosmetics and spirits also improved as global economies continue to recover.

External paper sales increased 10%.

With price increases more than offsetting lower volumes, we are focused on growing our integrated packaging domestic containerboard and paperboard businesses.

We are also working to reduce our volumes and lower margin specialty SBS and export containerboard markets for.

For reference the combination of the adjusted EBITDA margins and our lower margin specialty SBS and export containerboard markets is below 10% as compared to West Rock's 16, 8% total company average.

As we actively manage our mix, we will improve our profitability going forward, we look forward to updating you on our progress.

We believe it's important to also discuss our results on a sequential basis to highlight current trends, we reported significant improvement and earnings with revenue up 8.5% and adjusted segment EBITDA up 27% quarter over quarter.

Increases in pricing and improved mix enabled us to outpace inflation by approximately $100 million sequentially well.

While we had the sequential benefit from the ransomware and weather impact and the second quarter third quarter was our peak maintenance outage period inventories and both of our business segments remain tight.

Turning to the segment results, our corrugated packaging segment reported revenue of $3.2 billion and adjusted segment EBITDA of $557 million and.

Adjusted EBITDA margins for our North American corrugated business were 19, 3% and our Brazil.

<unk> adjusted EBITDA margins were 23, 2%.

As I mentioned before demand remains strong across a broad set of end markets corrugated box shipments increased 3% sequentially.

Sequential cost inflation was driven by higher recycled fiber costs, which were up $22 per ton versus Q2, along with increased transportation energy and chemical costs.

Corrugated packaging pricing and mixed outpaced inflation by $89 million from Q2 to Q3 inventory.

Levels remained low as we came out of our peak mill outage quarter, we have only 11000 tons of planned maintenance outage downtime and the fourth quarter.

Finally, the Florence Mill continues to increase production and operate well and we expect the mill to be at full production levels at the end of the fourth fiscal quarter.

Demand is very strong and the Brazilian market, and we expect margins to improve and the fourth fiscal quarter as.

As the trace ball hospital continues to ramp up.

Turning to consumer packaging the segment reported revenue of $1.7 billion and adjusted segment EBITDA of $269 million.

Adjusted segment EBITDA margins were 15, 5% and the quarter and were up 210 basis points sequentially.

Our sales mix continues to improve driven by strong demand and higher margin food and beverage packaging and paperboard sales.

Packaging sales increased and North America, Europe, and Asia, and Paperboard sales were up and all substrates sequentially.

Our backlogs remain very strong and are currently at 6 to 7 weeks across our grades our mill system performed exceptionally well with strong production and high operating rates.

On price mix, we saw the benefit of the flow through of published price increases.

Our sales mix improved as we sold less pulp and had higher sales of containerboard and C. N K from the reconfiguration of our EBITDA <unk>, Texas Mill and Q3, we produced 44000 tons of Kraft liner and 18000 tonnes of C and K at this mill.

Cost inflation has increased at a higher than normal levels throughout the year.

Many of our commodity input costs have increased significantly, including OCC, which is up July is up $77 per ton since the end of FY 'twenty.

However, we have been successful and implementing previously published price increases across our system, which have offset this inflation and the fiscal third quarter the spread between price and inflation turned significantly positive.

The April containerboard published price increase should be fully implemented and our system at the end of August.

We are also implementing published price increases and Kraft paper, and realizing higher pricing and export containerboard.

Consumer price flow through will continue accelerating into fiscal year 2022.

We generated more than $1.1 billion and adjusted free cash flow and the first 3 quarters of this fiscal year.

Following the Capstone acquisition, our adjusted net debt peaked and the second quarter of fiscal 2019 at $10.5 billion, we've made outstanding progress and reducing this debt quickly and exited the third quarter with $7.9 billion and adjusted net debt. We are quickly approaching the high end.

Our 2 and a quarter to 2.5 times net leverage target.

We continue to reduce debt and strengthen our balance sheet, we recently announced the redemption of $400 million of our senior notes.

And that mature in March of 2022.

The redemption will occur and September using cash on hand, which will reduce our debt even further.

Turning to fiscal fourth quarter guidance, we expect higher prices stronger volumes minimal scheduled maintenance downtime and improve productivity.

This will be partially offset by sequentially higher recycled fiber Virgin fiber and energy costs.

As a result, we expect adjusted segment EBITDA, it would be and the range of $870 to $920 million and adjusted earnings per share and the range of $1.15 to $1.29.

And now I'll turn it back over to David.

We have great opportunities to grow our company and improve margins, while providing value to our customers teammates and shareholders.

We are making rapid progress on our strategic priorities.

First we are leveraging the power of the enterprise this quarter, we made several commercial and operational leadership changes that further align our teams to our strategy.

This new structure will enhance market alignment enable greater agility and deliver efficiencies.

And we are working to determine how we grow faster and high value markets and minimize our exposure and export containerboard and low margin specialty SBS markets.

Second we are striving to lead and sustainability and accelerate innovation.

We remain excited about the growing opportunity to partner with our customers to improve the sustainability of their packaging.

As I mentioned earlier, we have committed to setting a science based target to reduce our greenhouse gas emissions and are making excellent progress on the commercialization of our plastic replacement solutions.

And finally, we will be disciplined and capital allocation as we achieve our leverage target we have more opportunities to utilize our strong cash flows to create shareholder value.

The future is bright at West rock and I want to thank our 50000 team members for their incredible work.

This is a team that is truly committed to solving our customers' most difficult challenges I'm confident and our ability to successfully achieve our goals.

And as we provide differentiated solutions that customers value.

We will continue to deliver excellent performance with our complete and differentiated portfolio, we have multiple levers to create value and grow sales and earnings. We are excited about the opportunities ahead.

With that that concludes my prepared remarks, James we're now ready for Q&A.

Thank you David as a reminder to our audience to give everybody a chance to ask a question. Please limit your question to 1 with a follow up as needed we'll get to as many as time allows operator may we take our first question.

Thank you. Your first question comes from the line of Anthony Pettinari Citi. Your line is open.

Good morning.

David do you have a timeline for when the strategic review might largely be completed and then as you look at the kind of people processes and technology is there anything that stands out to you and your first few months as a particular strength within the restaurant or a particular need within the organization.

Yes, Thanks Anthony.

A couple of things to your question I think we're on the early stages of our strategy review and you'll see.

Announcements throughout the rest of the year and through the activities that we do as we make progress, but we're really looking forward to announcing those but the structure changes where the first step and supporting our strategy and I will tell you there will be a few things to our approach, which which are really <unk>.

Important.

And I think it goes to the second part of your question is what's what's the strength that I've seen and and the 4 months I've been here.

And the biggest strength I see other than the people who have been tremendous is the value of our unique portfolio.

How do we continue to leverage out both from a growth standpoint, and an efficiency standpoint, and we have tremendous opportunity to do that our enterprise customers, who buy both corrugated and consumer are approaching $8 billion annually and they want to partner up with us for solution.

And on innovation and sustainability, which is a huge demand from our customers. So we want to continue to push that.

And we're excited to have Pat lead our innovation and sustainability.

And focusing on market growth, where we can get rewarded as well as continuing to be relentless on our productivity efforts.

So I guess to answer your question I'd say, the timing will be throughout the rest of the year I think the structure was the first piece of that the strength is really our broad portfolio with our people.

And executing that and.

And we just the opportunity that I see is further integration and synergies.

From the acquisitions that we made and I think we have an opportunity to continue to take cost out of our systems. So that's where I see it so far and the first 4 months and I think youll see a lot more here throughout the rest of the year.

Okay, that's very helpful.

And then just in and consumer is it possible to say what you think sustainable underlying demand is and this market are you seeing real evidence that it's moved higher because of the sustainability of plastic substitution and just.

Asking because theres a lot of moving pieces with reopening and foodservice and a comp against Covid just trying to understand.

Yes, what's the underlying growth yet yeah, we're excited about our consumer business as you know we've consolidated our.

Former NPS business with our consumer business, our food and beverage business and that's really exciting just again from the efficiencies on the back end, but also the growth we can bring pulling those together, we're seeing retail come back obviously quite a bit.

And what's also really exciting about the consumer business is our ability to improve margins, which is a big focus for us.

Our tie in with the machinery business allows for really unique solutions.

So we think consumer has tremendous opportunities for further growth we're.

And we're seeing that growth both in and the U S and and Europe.

No.

We see this continuing as we go through the rest of the year and and into 2020.2.

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

Thanks, Ed.

And your next question comes from the line of Phil <unk> of Jefferies. Your line is open.

Hey, David the changes Youre looking at accomplish.

Further integrate the business and extract more synergies and certainly very exciting.

Hello, and acquire a narrow so noticeable and out of capital to step up from here and do you think you have the right people to kind of execute on.

On the debt goals that you tried to F on that going forward.

Phil Thanks for the question that people have been tremendous we have the right leaders, leading our businesses now so I'm really excited about our path forward.

On the piece on the capital.

We're really focused on our productivity efforts and bringing as evidenced by bringing the mill systems together.

And there will be additional capital spent to extract further cost out opportunities, we've committed to $900 million to $1 billion and fiscal year 'twenty, 2 and Capex. So we're comfortable with that number and along with those investments and our productivity efforts, we're really confident.

We're going to start seeing results and extracting value out of our operations.

Got it and and maybe a question for ward certainly, it's a very inflationary backdrop.

I think implicit in your fourth quarter guidance price cost is still kind of the headwind when we look at the Q1 and assuming the August increase as reflected by the index is for containerboard do you think you are still going on behind the price cost curve and in fiscal <unk> and and do you have enough productivity to pay at least drive margin expansion year over year.

Thanks, Thanks, Phil so.

I'm going to challenge and a little bit I think our if you look at our price inflation trends, both sequentially and year over year, we're actually driving more price realization and then we are.

And.

It's a positive relationship between price and inflation moving into the fourth quarter clearly the largest inflationary item that we have is we've got the increase and OCC and it's really 45 to 50 Bucks a tonne embedded and our guidance, but we also have the continued flow through and the full quarter flow through of the <unk>.

And published price increases and in containerboard from April and.

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Accelerating momentum that we have and the realization of all of the price increases across the published price increases across the consumer business as we head into Q1.

Well.

I think if P. P. W. Does in fact publish we will start to generate the benefits really in Q1.

Pretty quickly we won't get much in Q4, it'll be it will ramp up in Q1, and then move into Q2 so.

Our guidance is actually we're growing earnings sequentially from Q3 to Q4.

And part of it is volume part of it's the fact that we are.

We exited our peak maintenance outage, but it's also the price cost relationship as well. So we think we have earnings momentum as we move into the next year, albeit in an environment, where we have elevated transportation costs recycled and Virgin fiber cost.

Got it Okay. That's helpful I really appreciate it.

And once again, if you would like to ask a question simply press Star then and then and relying on your telephone keypad again, if you would like to ask a question simply press Star then going on their line on your telephone keypad.

Your next question comes from the line of Adam Josephson of Keybanc. Your line is open.

David and ward and good morning, Thanks very much.

Or just 1 more question about the assumptions embedded in <unk> guidance for.

And for OCC. It was up 20 and July so I assume that youre thinking it'll be up another call. It 25 to 30 and August just please confirm or refute that and then what about the insurance for any insurance proceeds you're expecting in fiscal <unk> compared to what was in your.

Our previous full year guidance, and then any impact from that and the potential third price increase and that guidance.

So.

Let me take the quarter first and then I'll give I'll spend a minute on the second half relative to the guidance that we gave you back back in April So our average OCC costs for Q3 was about 105 Bucks a tonne.

And what's embedded in our guidance is about 145 to 150 Bucks a ton for Q4.

So that implies some sequential increases from August and.

And to September as well, but you can I've always tried to be very transparent about our OCC assumptions and I think I've done that here as well.

What we have with price the price realization has been very very consistent from what we had and the April guidance.

For the for both Q3 and for the full year really the driver of.

The midpoint being lower than the 3 point O 5 full year guidance that we gave at the end of it.

On the April call has simply been the elevated inflation environment. So our assumptions back then and I think you can probably go to the transcript as we we thought we would exit Q4 with OCC at around 105 Bucks a ton. So it is going to be 45 to 50 Bucks higher than what we assumed back in April and then we've had.

Higher natural gas costs that we thought would start to moderate and they've remained elevated and then Virgin fiber is also a little bit higher, but we've been able to steer our way through this.

And still feel really good about the momentum that we have and FY 'twenty 2 the cash flow generation that we have and.

Adam I have not we have filed our claim with our insurance carriers or <unk>.

For the ransomware recovery, because I have not embedded any recovery and the current quarter guidance related to the business interruption portion of the claim.

I just don't I'm very confident that we're going to recover our client and I just don't have clarity around the timing and as we get more clarity I will communicate it.

And I appreciate that we're in and and David 1 for you just on the containerboard export commentary.

How do you plan to sustainably reduce your exposure to that market as it through acquisitions of independents as it through some other means because obviously and the good times and domestic demand is booming as it is now it's it's pretty easy to do but you know what when when.

And when things go on the opposite opposite direction, it's it's that much more difficult too.

To not be involved and export markets and some capacity. So I'm just wondering how youre thinking about that yeah.

Yeah appreciate the question on that and.

Couple of things there is some very attractive day.

Domestic containerboard.

Markets that we enjoy and and are good margins.

We successfully improved our integration.

Over the last several years from the mid 60% to about 80%.

And we've said we want to be at about 90%.

From a vertical integration standpoint and.

What what we'll do to continue to do that is exactly what you said well, we'll continue to look at bolt on acquisitions.

Independents that'll that'll continue to happen as we move forward.

And we also have a multi year investment plan and on.

And our.

Operating systems, So, we'll continue and invest there to optimize.

What the right.

Manufacturing footprint is to support the markets that we want to be on and grow and that's part of our strategy work. That's going on right. Now is is our desire to accelerate that and get that moving faster.

And I think you'll see as a result continued margin.

Expansion and.

Yes.

And this segment and we think we have a great path to get there.

Thanks, so much David.

And once again, if you'd like to ask a question. Thank you press. The Star then the number 1 on your telephone keypad.

Your next question comes from the line of Cleve Rueckert of UBS. Your line is open.

Has timing that is something that we are looking at right now and and we will certainly share that with you as soon as we really dial that and but you will see continued progress and focus on that and again, it's gonna go exactly as you said, it's going to go as part of our investments.

And our system, it's going to be you know shifting into strategic markets that we wanna be and which is with our mill system, providing flexibility to where we want to play and and also deemphasizing, where we don't want to play and then there'll be strategic bolt on emanate.

And help support that as well so it's gonna be a multifaceted approach to that we want to accelerate this because this is an important Pete part of where we want to go as a company I'm not ready yet to give you exact timing, but we will share that with you as soon as as soon as we start dialing and the the the the.

A plan to do so and what I'll turn it over to you and just for any other further commentary and cleave what I would note is that we've invested and our box plant system. If you look over the last 5 years, we've invested on almost all over $750 million to upgrade our system and we've installed over forty-three evolves.

We we've had a path that we've been on and will continue to do that and then we'll supplement it with the potential of tuck in.

Acquisitions as well for more vertical integration.

Yeah. So I mean, I guess I don't know it sounds almost like more of a sales focus at this point and investment focus, but I guess, Paul stated and see I'm, Yeah, I would actually say it's both.

Yeah.

I would say it's okay.

I mean, it's it's also part of just how do we optimize what we have and and there will be investments on our infrastructure towards point on what we've done and our facilities and there'll be the M and a piece and there'll be the strategic focus please [noise].

Right right, Yeah that makes sense. Thanks, thanks for that detail thing I just wanted to know what what and follow up on on O. C. C and you know OCC availability and I guess or does it 1 of the traumatic.

And just some things that we heard throughout the first half was that recycling rates were were quite a bit lower and O C. C last year with and instead of the shift at home consumption and I'm. Just wondering if you're seeing any increase and O C C availability and within your system as you know sort of that Rio.

Putting his is played out through the middle part of the year.

Yeah. That's that's a really good question because you know we operate our own we operate <unk> 18 plants of our on our own recycling facilities will and.

Many single screams facilities.

And it's interesting our generation over the last year is that it's actually up 3 per cent and what we've done inside of our system is we've.

We've actually made some investments and a single stream capabilities to ensure that we can capture some of the smaller sort.

Packaging that we see from the E Commerce stream, so generation and our facilities has been up and but we've made investments to make sure that we can capture the the shift.

And remember we also from a fiber security point of view, we manage more tons and we actually consume so we have a brokerage and relationships with other generators of OCC to ensure that we've got fiber security into our system.

Got it and it's kind of good luck as Carter.

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And your next question comes from the lineup George staffers it back on the lack of your line is open.

Hi, everyone hope you're doing well, thanks for taking the questions I want and George and and and Prime and details Hey, David and so David I want to ask you. A question you know, giving your past experience, though so you haven't been running westrock for very long, but you know what experience do you have and Ah.

Justin and consolidating operations and sales force scissors frequently.

Sensitivities around doing that now what do you think is key about enabling that effectively and kind.

Kind of the related point I did not see the detail, perhaps it's and the deck and I'd missed it on the number of accounts and combined revenue.

To customers were buying you know over a million dollars of both consumer and and Kirk corrugated for you. If you could sort of update us on that and and your answer and then I had a quick question on the quarter itself coming up.

Sure. Thanks, Thanks, George for the question from an experienced standpoint, I'm going back to my my previous life It sure Williams and.

You know and being part of Ah and 11 billion dollar acquisition of Valspar and.

That's exactly what we did we we fully integrated that business, we segmented where appropriate we brought teams together, where we brought more value from a customer standpoint to bring solutions and then on the on the infrastructure side, we brought operations and and do under.

And 1 leader to really drive those efficiencies and I'm I'm really proud of the work I was a part of with that team to really drive a lot of value. So there's there's a you know a play book that I that I use when when bringing on acquisitions and.

Uhm to ensure that you just don't do a bolt on you you do it for how do you drive more growth bring more value to customers, where they get excited about it and then also drive the synergies on the infrastructure and I think that's really important and it's it's been a lot of what I've done throughout my career.

And I'm excited about the opportunities here there there's just.

Really good opportunities for us to continue to further integrate this business and bring value.

As far as the enterprise peace, we have we will approach on a yearly basis and.

About $8 billion and sales of customers up by over a million dollars and consumer and over a million dollars and corrugated.

So there was obviously with that data tells us there is value and customers wanting to come to us with solutions for all of our products and I thought I'd ever grow which we highlighted is a great example of that when you tie and our machinery business and even and you look at our our victory packaging distribution business.

And with E. Commerce. So we're we're focused is we know our customers want innovation and sustainability, they're looking for us to help them achieve their sustainability goals. Those enterprise customers are the ones pushing us the hardest and we can combine our complete solutions.

We're seeing a lot of value and that and we're getting rewarded for that and Pat maybe I'll turn it over to you. It is to to extract a little bit and what what we're doing on enterprise and the excitement and we have their share of <unk>. Thanks for that David and and good morning. So as David mentioned, we are making good progress and eat increasing our sales across the enterprise and up and.

And almost a billion from about 5 billion at the time and the merger. So that's a really good progress I think as we go forward and we're gonna put even more focused on those top strategic accounts I was with a very important customer earlier this week and they were commenting on the importance of westrock, providing unique solutions, particularly to optimize price.

Mary secondary and tertiary packaging and we're the only ones that can do that and we have a unique capability to pull all of those together mix. It in with machinery drive the automation our digital capability, we don't often talk about the displays business, but that's a really important part of it too because every time you have a display and retail which is gaining some strength now.

You have a carton of folding cart and and that so there's opportunities for us all the way throughout the value chain to optimize primary secondary and tertiary packaging and and from a commercial standpoint sustainability innovation, we're gonna put out a lot more focus on those top accounts and and we certainly look forward to sharing many of those examples where do you where.

We've been successful as we've done in the past, but share even more examples and the future.

Okay. Thanks for that I, just you know.

Prices are going up so 8 billion is great relative to the 7 and a half on your at and the prior quarter I. Just can you talk on that and number of accounts here at 169 last quarter have you added accounts here and then my follow up just on the quarter can you talk about how long interest are shaping up so far early and physical for Q and what the maintenance stepped on the S. T. A R. A.

<unk>. Thank you good luck and a quarter.

Yeah. So just on the from the 169 were up to 178. So we continued to add customers. So it's a number of customers as well as the revenue that continues to to to climb and and and and you know that's that's that's really important to us not on my on cross selling book leveraging the overall power of the enterprise I think if I understand your second question it was really and.

Route and how the how the quarter and the current quarter is starting off and I'll just you on that and rough award yet, Okay, and where do you want to handle that 1 day. So.

Remember and the earnings the sequential earnings and I think we have 1 more shipping day sequentially. So that's a part of the driver of volumes. There is volume contribution to earnings sequentially. The comparisons the year over year comparisons obviously get harder as we go into the end of the calendar year, when everything started to reopen and.

And demand and started to strengthen across both of our businesses. Your maintenance downtime question it's down.

Almost 110000 tonnes sequentially, George I'd say, that's $15 million to $20 million of earnings contributions sequentially.

Thank you very much <unk>. Thank you guys.

And extra <unk>.

Yeah and next question comes from the lineup Mark Weintraub, That's T part can reset your partner to your line is open.

Thank you <unk> first 1 big picture question as you're looking at the the 2 businesses containerboard and and consumer packaging and for a long time, you've you've been getting pretty substantially higher margins in the car and get a business then that the consumer visit and things like 400 basis points right now and.

When you think about these businesses and their capital intensive and other various ingredients is there a reason for there to be on an average basis that sustained spread in in the margins and those businesses or is that something that you think will equalize more overtime.

<unk>. Thanks for that question I want to make sure I understand it are you talking about the consumer business margins matching our corrugated business margins.

Yeah, comparing those too yeah, EBITDA margins, yet so our our goal is to continue to drive our packaging margins and.

Uhm to a much much more attractive level to where we're at we have further to go and consumer as as you well know, but I'm really pleased with the progress we're making and.

I'm not sure we'll we'll get all the way to where we think are corrugated margins can get too, but we want to get very close to that I think our our EBITDA margins and a quarter [noise].

Have have improved sequentially over 200 basis points on on consumer and we expect that to continue the other thing about that is we are reporting our our papers paperboard sales and there. So if you extract the lower margin external S. B S. Our margins are even more.

Active so that's why that focus of reducing our exposure to the external market and that's B S.

Combining our former M. P S business with the consumer business, you know with that opportunity plus the plastics replacement opportunity. We really believe that is going to enhance continued acceleration of our margin expansion.

Great. That's helpful and then and I apologize if there's some technical difficulties earlier, but I I I've picked up some indications you know there's gonna be a little bit more capital to achieve the very skulls can you give us a kind of a general view as to what average capex might be in the next couple of years.

Well, we've come out uhm with Ah Ah Capex of 900 million to $1 billion for fiscal year 2022.

I would expect us to maintain that range moving forward. We you know we will look at opportunities with our capital allocation, though so with the strong cash generation. We're gonna look at with the excess cash we have where do we provide the best return so if there's.

Great return with further cat back and to drive out costs will look at that we'll continue to look at other opportunities for bolt on M&a's and we'll look at opportunities and share repurchases. So from a capital allocation standpoint, you know, we want to be very disciplined and and where we go with our capex.

Ex with their sustainable and growing dividend and then with the excess cash and where we are with our debt levels. We're we're excited about the opportunities that brings for flexibility.

And I appreciate it I'll hand, it over thank you thanks Mark.

And once again, if you would like to ask the questions and get that alright, and and number 1 on your telephone and keep at.

Again, if you would like to ask a question and your best to start and number line.

<unk>.

Your next question comes from the line of my <unk> like your line is open.

Ordering David different firm at.

Idea uhm when you talk about these investments and the mill and converting businesses is it is it possible to give us. Some examples of of what you're thinking about and bolted cases, I mean, there there has been a fair amount of money as Lord mentioned, that's gone into the converting business over the last 5 years and and really you know please.

Go back over the last 8 or 10 years and there were a number of milk projects that and you said.

And hope well and then most recently a floor and so I'm trying to get a sense of you know what those projects might look going like going forward and how they might be different.

Yeah. Thanks, Mark I appreciate the question I'll start and and then I'll turn it over to ward with any any additional commentary is is Pat alluded to earlier, we continue to invest and evolved that our conversion plants. We we think there they really bring a great return for us and.

We look to do things like Florence, We obviously had the the investment and Brazil as well trace My House was I believe a $345 million investment Uhm Florence was 400 million dollar investment. So we've made some really large investments and our mill systems and.

We continue to make investments and our and our conversion plants.

1 of the things that we really are looking at 2 is flexibility and our mill systems. So if if you recall it even nail we converted S. P. S..2 C N K that that provided us and ability to get into higher margin businesses and again get into the.

<unk> strategy of of exiting lower margin S. B S business.

So with that there was no capital needed to do that but as we look at our footprint now that we have 1 mill system. We're gonna continue to look at those flexibility options. Some of them may require capex, but if we can invest and flexibility and what we want to produce depending on demand, which provides the best return for us and those who.

Margin growth segments will continue to do that word I'll certainly turn it over to you as well I mean, mark again, I'll I'll kind of reiterate some of the key themes of the investments that we've made and and the container system. The evil deployment the corrugator upgrades.

We actually did build 1 greenfield box plan, a couple of years ago, and so it and.

And to land and then on the mill side, there's continued offer opportunities for woodyard upgrades other debottlenecking projects and numerous projects that are focused on reducing class.

Okay. That's helpful. David and for my follow up I, just wondered you know you've been in the sales for 4 or 5 months now just any thoughts on potential changes in terms of how you would like to set up an incentive comp structures and <unk>.

Westrock.

And like that's a really good question because for me, it's really important to reward our sales team with where we want to grow so part of that is revamping and reinvigorating our our sales incentive plans to read.

Ward the behaviors that we want to do so as we go into fiscal year 22, that's a high priority for us and it's something we're working with the teams on right now.

Okay very good I'll turn it over thanks, and thanks My.

Your next question comes from the lineup like Cuddly.

He thinks your line is open.

And have to get and to do today.

And now that the teams or and please can you give us a little more insight into the benefit you're expecting to get from combining containerboard and and paperboard mill operations.

And containerboard and spend more common to tightly and line the meals with the box plants and that was the strategist and the companies that Westrock required does this new approach put more separation between your board manufacturing and you're converting operations.

Actually what we hope is to allow and and we will allow our mill systems to be 100 per cent focused on.

On being as efficient as possible and supporting are converting systems. The most effective way possible, so with allowing this structure and again and talking about some of the flexibility optimizing our supply chain understanding the with a strong demand we have you know.

How do we and sure we have the most efficient supply chain as well. This structure allows us to do that I, just really believe and focus and segmentation and you know at the mill systems Wake up every day, they're going to be thinking about safety quality.

Cost and service and.

And that's gonna benefit both our customers and our shareholders.

Okay. Now second question following up on <unk> question, you have a lot more recycled and your containerboard system and then some of your competitors do does that significantly reduce your ongoing capex requirements of those meals and and is it and go to to introduce more recycle.

5 a as you reinvest and that's just me and I'm really wondering about the system's capital intensity relative to your peers.

Yeah. So Mark This award you know our our fiber mixes approximately 65 per cent Virgin and 35 per cent recycled and you're right. The the Virgin I mean, the Capex llodra for a recycled fiber mill is is lower than it is for the Virginia Mills, we've all.

Always liked the balance that we have and the system because ultimately we have a very broad offering to our customers in terms of a lightweight heavyweight, Virginia and recycle miners are mediums and we think that ultimately positions us to support.

A wide range of customers and so I.

David I'll I'll ask you to see comment about whether you think that the that mixes appropriate but I. It. It gives out we have balance and the system and we've always felt comfortable with the balance and again Mark I think another thing to remember is we've got some fiber flexibility across our mills to to be able to.

Take advantage of introducing more recycled fiber mix into our Virgin system, and vice versa as market conditions for those critical and co input costs change Yeah, Where'd I think you you.

Hit it right on and I think there's a theme here of you know I think we're and a great position from a flexibility standpoint.

And that's the benefit of our broad portfolio is we can pivot and shift to provide the best returns and service to our customers as needed throughout our system. So I think ward you're covered that well.

Very helpful. Thank you.

Your next question comes from the lineup Gabe H at last I saw your line is open.

David Ward good morning.

And it just have you guys put any thought into revisiting your leverage target I mean, I spent some time kind of be on the upper bound for awhile. Obviously, you guys were doing some acquisition activity, but it just and and I. Appreciate it. It seems like you guys are committed to and investment grade rating, but to afford you.

And the flexibility to do things you'd like to do it seems like a pretty tight window and I'm. Just curious if you guys and thought about that [noise].

We talked about a lot [laughter] and we talk about it with the board and you know and investors have I've.

I've had some investors ask us to consider expanding the range and others to talk about tightening that tightening the range and lowering it frankly I I E. You helped the answer and part of the question. We liked the flexibility that this target provides us.

And it we do like the investment grade credit profile and the discipline and that that brings into our organization and capital allocation and I think we've we've talked about and the past and we've had a track record of saying if the right opportunity exists for us to to lever up for a short period of time above the target.

To generate synergies and then pay down debt to get back within the target the where we're not.

Prohibited from doing that so I I've always felt that.

Uhm. This gives us a strong balance sheet that we need to be able to execute our strategy and also to have the flexibility and a business that has some variability and input costs and supply demand conditions from period to period.

David and you want to add anything to that well I would just say is we talked about our capital allocation approach you know, where we want to put our cash is where we can get the best return so.

Part of that <unk>. The the the the must haves are you know growing and sustainable dividend reinvesting and our business investment grade profile and with the again and the available cash will look at.

You know shall we shall we how should we look at that how should we look at share repurchases or even invest additional investments. So I think that flexibility is really important and is ward mentioned earlier, calling the bond and 2022 to pay it and fourth quarter and.

With our available cash was a good use of our cash, but we still have additional opportunities to look at other areas of investment. So we'll continue to do that.

Okay. Thank you and 1 last 1 I I appreciate it it's challenging sometimes on and open format like this but in terms of the the strategy.

Is there anything that's off the table or can you give us a couple of ideas of things you might look at I mean put it include things up too divesting certain nails are a product lines or something like that or is it everything and you feel like you have you you're gonna keep and and it's more about investing.

And and figuring out the way to maximize returns and yeah. I appreciate that that follow up question and.

My approach I'll always when you go into strategy is everything's on the table and you have to evaluate everything we have to evaluate our businesses our footprint the markets that we're we're going after our structure that supports the strategy. So to answer your question on you, but I I would tell you were looking at everything and fairness and.

And we will continue to communicate with you throughout the year on you know what that means but the ultimate goal results of our strategy will be organic profitable growth margin expansion and improve return on invested capital.

Understood. Thank you thank.

Thank you.

Yeah and next question comes from the lineup, Mike Weintraub, let's see if I can research like Nourish Your line is open.

Thank you just a quick call if I could as you have on that page 13, you you've got a lot of published price increases recognized and the consumer packaging grades and I think most of us have a pretty good understanding of how the containerboard flow through et cetera could you just remind us how the consumer park.

Pitching price increases tend to flow through and and you know the degree to which there might be costs tied elements that also flow through into pricing.

Yeah, great. Thanks, very much. This is Pat so let me try to handle that from a commercial standpoint. So as you mentioned containerboard is a pretty good understanding of that and majority of the car and get a box and containerboard is is linked to P. P. W and passes through and 3 to 4 months Uhm and as we've indicated and the past consumer is a bit more complicated because.

A the number of substrates and the different routes to market are different integration levels across the cross those different substrates and so we use and number of different value capture and pricing mechanisms and that <unk> and the consumer segment and and I agree that aggregate and I can say and about half of that is tied to P. P. W and.

And those flow through and different time periods. The other <unk>. The other models pricing models are based on cost and also a fair amount of open market, which gives us quite a bit of flexibility and so the way we think about pricing overall is day. That's just you know the price and the lag and that type of model.

All that we have and just part of the overall value capture and negotiation and discussion with a customer as far as timing is concerned if we start flowing through and you can see see somebody just starting and the third quarter and and and and more on the fourth quarter and is ward indicated accelerating into fiscal year 22, we start to see that right.

[noise] away it'll ramp up and it's really based on a previously public price. It previously public published price increase it's usually about 6 to 9 months and for that all the flow through but again it doesn't wait for the 6 to 9 months, it's flowing through and it will continue and our case with the published price increases to date and will continue to flow through.

And the fiscal year 22.

Thank you and that's that's helpful.

And there are no further questions at this time I would like to try and turn it back to you Mr. James Armstrong Buddy clicking on.

And like.

Thank you operator, and thank you for joining a call today. If you have any further questions. Please don't hesitate to reach out and have a great day.

Thank you city Scott Scott, Thank you for authenticating and and disconnect.

[noise].