Q3 2021 Berry Global Group Inc Earnings Call
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Okay.
Good day, and thank you for sending by welcome to the Berry Global earnings Conference call.
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Now I'd like to hand, the conference over to your Speaker today, Mr. Dustin Stilwell. Please go ahead.
Thank you and good morning, everyone welcome to Berry third fiscal quarter of 2020.
Throughout this call we refer to the third fiscal quarter as of June 2021 quarter.
We'll begin our call Mark had mentioned on on our website, we have provided a slide presentation.
Our discussion this morning.
After today's call a replay will also be available on our website at Berry global Dot com under our Investor Relations section joining.
Joining me from the company on a very Chief Executive Officer, Tom Salmon.
And Chief Financial Officer, Mark miles.
Oh on Thomas <unk>, calling in today.
<unk> and answer session in order to allow everyone. The opportunity to participate we do ask on you limit yourself to 1 question and then fall back into the queue for any additional volume.
As referenced on slide 2 during this call we will be discussing some non-GAAP financial measures.
Most directly comparable GAAP financial measures and a reconciliation of the differences between the GAAP and non-GAAP financial measures are available in our earnings release and Investor presentation on our website.
And finally, a reminder that certain statements made today maybe forward looking statements.
These statements are made based upon management's expectations and beliefs.
Turning to the future events impacting the company and therefore involve a number of uncertainties and risks, including but not limited to those described in our earnings release, our annual report on form 10-K, and other filings with the SEC.
Therefore, the actual results of operations or financial condition of the company could differ materially from those expressed or implied in our forward looking statements and now I would like to turn the call over to Berry's CEO, Tom Salmon. Thank you Dustin and welcome everyone and thank you for being with us today.
Let's begin this morning on slide 4 we've laid out our key takeaways for today.
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Our fiscal third quarter results came in strong right in line with our expectations with continued organic volume growth of 5%, including all 4 segments again, delivering organic volume growth on top of very strong results for 1 year ago.
Our teams have worked diligently to offset inflation and supply chain challenges through much of the year demonstrated an exceptional ability to remain focused on driving long term sustainable growth and delivering these results you see a day.
Berry's resilience as a continued reminder of the diverse and robust global portfolio, we have built.
The second key takeaway is our commitment to improve our strong balance sheet and drive our leverage lower our.
I'm proud to say that as a result of our strong and stable earnings and cash flow, we've been able to reduce our leverage by for tenants into the beginning of the fiscal year ending the period at 3.9 times net debt to adjusted EBITDA.
Getting below 4 times is a key milestone for us as we've previously stated and we anticipate operating our company in a leverage range of 3% to 3.9 times.
We believe here in the near term debt continued execution of our organic volume growth strategy and strengthening our balance sheet will deliver significant shareholder value.
And lastly, as most of you are aware throughout fiscal 2021, we have seen significant cost increases on our primary raw material that being resin. Additionally, we have experienced inflation in other raw material on other costs, such as target and freight.
With the strong volume growth momentum in the businesses along with our efforts to improve the timing lag in the pass through of this inflation of our customer contracts. We have seen solid progress towards this objective and continue to actively pass these costs through.
Although there is a timing lag in passing through some of these inflationary costs, we remain committed to passing through all cost inflation just as we've demonstrated historically.
As we stand today with only 2 months remaining in the fiscal year and despite the persistent inflationary environment. During the year, we are increasing our operating EBIT target to $2.6 billion and reaffirming our organic volume growth assumption of 5% for fiscal 2021.
We began fiscal 2021 with confidence in our ability to grow organically as we've demonstrated over the past several years.
We are well positioned to continue to see long term predictable and sustainable growth with customer linked capital investments that target continued expansion into both faster growing segments and emerging markets.
Next let me turn to our number 1 for value on slide 5 that safety average.
Everything we do at Berry starts with safety in mind as.
As you can see on the slide we have an ongoing commitment to identify managing and eliminating safety risk.
We are proud of our industry leadership in safety by keeping our team members safe as evidenced by our Osha incident rate of 1 at the end of 2020 significantly better than the industry average of just below 4.
During the past year and a half the pandemic presented many challenges across our global footprint.
Our global Berry team stepped up took on the challenge implemented and maintained new protocols, while keeping each other safe.
Our team's emphasis on working safely and servicing our customers has ensured an uninterrupted supply of the essential products we produce.
This has made us stronger and better company, giving us great optimism on the company's future success.
We have a strong commitment to carry not only for the communities, where we have operations, but to ensure that we are providing better opportunities and bringing innovations to provide multiple lives for the natural resources we use.
Earlier, we announced science based targets reinforcing our commitment to a circular economy in alignment with the worldwide goal of a net zero economy by 2050.
In June we announced our investment in renewable energy through a long term virtual solar power repurchase program with our for our Spanish operations. This is 1 example of the many steps were taken to lower the carbon emissions of our operations.
We are continually working toward our goal of 100% of our fast moving consumer packaging to be reusable recyclable or compostable by 2025 and I'm happy to report that we're ahead of plan.
Additionally, our teams had been hand heading.
Many initiatives with industry and external partners to expedite the sorting and recycling rates to support the supply needs of recycled content.
Now I will turn the call remark, who will review Berry's financial results in more detail Mark. Thank you Tom I would like to refer you to slide 6 now for.
For the third fiscal quarter revenue was up over 26% to a quarterly record of $3.7 billion.
On organic volume growth of 5%, including all 4 segments showing positive organic volume growth on top of 2% volume growth a year ago.
Demand for our products remained strong in certain markets, which previously experienced pandemic headwinds have continued to improve.
The quarter also included higher selling prices from the pass through of cost inflation and increased revenue by 18% along with a 5% increase related to foreign currency translation.
These increases were partially offset by a few divested businesses over the last year.
From an earnings perspective, our operating EBITDA at $565 million was slightly lower than the prior year quarter when adjusted for divested businesses.
The 5% increase in organic volume was offset by the timing lag of passing through inflation.
Adjusted earnings per share increased to $1.53 on the quarter, marking the sixth consecutive quarter of organic volume and the earnings per share growth.
These financial results for the byproduct of our entire global teams focus on organic growth opportunities and driving cost productivity, while managing the increased demand from our customers human resource challenges related to the pandemic and significant cost inflation.
Now looking at our year to date highlights on slide 7 revenue was up over 17% to a company record $10.2 billion.
Quarter 3 quarters ended revenue included organic volume growth of 5%, including all 4 segments, showing positive, 4% or more organic volume growth.
From an earnings perspective, our operating EBITDA increased by 8% when adjusted for divestitures and the additional days this year for $1 billion $694 million.
Adjusted earnings per share increased by an impressive 29% or $4.23 per year to date.
Additionally, we have used our consistent and dependable free cash flow to further strengthen our balance sheet and have reduced net debt nearly $1 billion in the last 4 quarters.
Now looking at the quarterly performance of each of our for operating segment starting on slide 8.
For the quarter, our consumer packaging International Division delivered a 21% improvement in revenue, including a 10% increase related to foreign currency translation, an 8% increase was a result of higher selling prices on the pass through of inflation and a 5% increase in organic volumes.
Regionally, we had 3% volume growth in developed markets, such as Western Europe with stronger growth in emerging markets, such as China and India.
From a market perspective categories, such as foodservice and industrial products, which were negatively impacted at the start of the pandemic over a year ago continued to improve and generated strong year over year growth as countries reopen.
Operating EBITDA in the quarter was essentially flat compared to the prior year quarter as increased volume and foreign currency translation benefits were offset by the timing lag of recovering resin and other cost inflation.
For the year operating EBITDA is up 10%, primarily driven by the organic volume growth foreign currency translation and cost productivity offset by a timing lag in recovering cost inflation.
Next to revenue in our consumer packaging North American Division was up 32% for $847 million primarily.
Primarily as a result of higher selling prices of 25% on the pass through of inflation and a 6% increase in organic volumes.
Organic volume growth on the quarter was primarily attributed to continued strength in our core consumer businesses for markets, such as food and beverage.
This quarter marks the 13th consecutive quarter for over 3 years of positive growth for the division, primarily driven by their strategy of focusing on advantaged products in targeted markets with strong customer linkage.
Operating EBITDA was down 6% for the quarter due to the timing lag in passing through cost inflation and is up 2% for the year with a strong volume growth.
On slide 9 our health hygiene and specialties division delivered revenue of $828 million for 24% increase included higher selling prices of 20% on the pass through of inflation and organic volume growth of 1% on the quarter.
An impressive 8% year to date.
The organic volume in the quarter came off an impressive 14% growth a year ago and was primarily attributed to recovery in the building and construction market, partially offset by the strong comparisons in our hygiene and health care markets in the June 2020 quarter.
Operating EBITDA increased by $15 million or 11%, primarily driven by the organic volume growth favorable product mix and cost productivity.
We continue to see a benefit during the quarter of approximately $25 million on EBITDA from favorable product mix associated with pivoting our assets to produce products related to COVID-19 protection.
And lastly revenue for our engineered materials Division was 39% higher on a comparable basis adjusted for divestitures at $905 million.
Increase was primarily attributed to higher selling prices of 24% from the pass through of inflation, along with organic volume growth of 8%.
Volume growth in the quarter was primarily driven by partial recovery of our industrial businesses in the United States and Europe that were negatively impacted by the pandemic and the prior June quarter.
Operating EBITDA was $105 million on the quarter, which was $13 million below the prior year on a comparable basis as a result on the timing lag in passing through cost inflation.
Next our updated fiscal year, 2021, operating and EBITDA free cash flow guidance as shown on slide 10.
Given our continued strength in stable demand outlook across our business, we are increasing our operating EBITDA guidance to $2.26 billion and reaffirming our organic volume growth assumption for fiscal 2021, 5%, which assumes low single digit volume growth in the September 2021 quarter building on.
Last year's strong performance, all supported by a robust and growing pipeline increased level of capital expenditures and the positive trends and momentum we are seeing in each of our businesses.
While we remain committed to recovering cost inflation, we have assumed some timing lag of recovery continuing in the September quarter.
Our expected free cash flow for fiscal 2021 is in line with our prior guidance at $875 million and a period of significant cost inflation, which is expected to negatively impact working capital.
The targeted free cash flow includes $1.5 $75 billion of cash flow from operations, partially offset by capital expenditures of $700 million.
We also continue to anticipate further strengthening our balance sheet and expect to be further inside our targeted range at the end of fiscal 2021.
This concludes my financial review and now I'll turn it back to Tom Thank.
Thank you Mark before we close our prepared remarks today and open the call up for questions on our reiterate what we've been focused on on what's driving our strong results on our plan to keep this momentum going forward.
We continue to invest in each of our businesses to build and maintain our world class low cost manufacturing base with an emphasis on key growth markets and regions and continue to see incremental opportunity to invest organically in support of our unwavering commitment to global growth.
Overall, the diversity of our end markets and product offerings as well as the essential nature and demand consistency of our products have been core to the underlying performance of the business.
I am very confident in our team's ability to meet our near and long term expectations and commitments to provide sustainable profitable growth.
We have multiple drivers that we've highlighted in previous calls for organic growth shown on slides 11, and 12, including our focus on both fastest growth market end markets and emerging markets along with sustainability led packaging.
We believe that by increasing our presence and making gradual moves into faster growing markets along with continuing to invest in the emerging markets, we will be well positioned to provide consistent dependable and sustainable long term growth.
We will continue to focus on global Megatrends, as we expect emerging markets to grow faster than advanced economies and.
And we believe there will be a considerable need for our protection products and regions with rapidly increasing populations.
This has allowed us to increase revenue in emerging markets from $100 million in 2013 to now over 1 billion, a $5 billion billion $1.5 billion.
In line with our focus on increasing our presence in health and wellness, We've recently announced over $100 million on capital investments in both rigid and flexible solutions in the United States, India and China as part of this investment we just announced our plans to open another manufacturing facility and global Health Care Center in Bangalore, India.
Additionally, we believe the continued focus on sustainable solutions will be a powerful growth driver for us in the years ahead. For example, we believe our polypropylene drink Cup into most widely recyclable Cup for quick serve restaurants, and convenience stores, having the ability to incorporate recycled content, while not diminishing performance for clarity.
Attributes.
Our demand and growth pipeline for these products, including other beverage and spirits products has been strong and we expect further opportunities to continue to grow these products.
We are committed to remaining at the forefront of innovation necessary to meet customer sustainability goals through investments in our latest equipment technology advantage film development and design for circularity.
As a global leader, we are driven to innovate.
On slide 13, we've highlighted just a couple of the amazing products, we've designed and manufactured with sustainability in mind on the left you can see our partnership with booming.
The bottle made 100% of sugarcane offers a range of environmental benefits, including significant reductions in greenhouse gas emissions and reduced water use when compared to other substrate alternatives.
On the right our CPI segment launched a range of premium jars that enable cosmetic and beauty products to create strong on shelf presence and brand image, while meeting consumer demands for more responsible packaging.
The infinity courts range of products can be selected from a range of materials, including post consumer recycled plastic as well as various finishes and decoration options.
At the same time.
The jars off for the benefit of being refillable reusable we.
We remain steadfast in our commitment to lead and collaborate to drive innovation acceptance of products targeted toward improving recyclability reuse and reduction of Virgin plastics.
All with the goal to promote on more circular economy.
Turning now to slide 14.
We're very excited about the game changing technology of advanced for molecular recycling.
This revolutionary technology can convert all forms of plastics into feedstocks, including many considered to be unreasonable.
You can see the sizable industry investments that are being made in infrastructure to lower the cost of post consumer recycled material increase the capacity worldwide and attract future value add investments.
We believe is already a global leader with scale, we will have unparalleled access to recycled content affording us the opportunity to provide sustainable packaging worldwide to ensure and aid our global CPG customers to meet their commitments around sustainability.
As a company we've made a very we've made very strong progress in introducing specifically the advanced recycling material to our food based customers.
Over 25% of our CPI food based customers working on specific projects already having committed to advanced recycling material as it continues to become more readily available.
Additionally, we think advanced recycling is ultimately a virgin alternatives. This is another reason we're so excited about this technology and believe it has such ability to help address the plastic waste goals and objectives of the industry and our end users.
We believe on a large scale basis, it will be a key solution to increase plastics recycling rates.
Ultimately plastics are the most advanced <unk> material, it's hard to imagine any state of the art solution that will help us achieve net zero without the use of plastics. We believe plastics are a critical part of the transition to a net zero economy by 2050.
Internally, we have both film and rigid mechanical recycling annual capacity of over 300 million pounds worldwide.
We are continuing our support of circularity through our ability to manufacture recyclable residence for films and incorporate sustainable materials into the solutions, we provide our customers.
We've made several partnership agreements and expansions to enhance our availability to circular residence.
Just recently, we partnered with local materials reclamation facility to implement robotic sortation, which will allow greater recovery of polypropylene containers.
As you May recall, just last quarter, we announced a $70 million investments to support growth opportunities, which will enhance our ability.
And capability for more use of recycled content in PHA resins supporting bio use revenue.
By revenue excuse me Berry, along with many of our customers have dedicated sustainability goals, many of which specify the increased use of recycled or recyclable materials.
And similar investments will further enhance berry's portfolio, a fully recyclable biodegradable compostable film to support our customer needs were.
We are committed to remaining at the forefront of innovation necessary to meet customer needs around sustainability through investments in the latest equipment technology advantage field development and design for circularity.
In summary on slide 15.
We have delivered strong results across all of our operating segments during the quarter, leading to an outstanding set of year to date metrics.
We again delivered on our strategic goals of driving organic growth and improving our balance sheet on top of a prior year quarter that was very strong.
These results are the byproduct of our continued focus on growth improving our strong balance sheet and designing products with sustainability in mind and have led to another operating EBIT guidance raise and achievement of our goal to reduce our leverage below 4 times.
And finally, with our consistent and dependable end markets, our leading cost position along with sustainable capacity substantial capacity to invest in long term steady growth we.
We are confident on our ability to achieve consistent low single digit growth through our customer linked capital investments that target continued expansion into both faster growing end markets and regions. We continue to see incremental opportunities to invest organically in support of our unwavering commitment to global growth.
In addition to growth we will continue to improve our balance sheet, giving us greater long term ability to execute a comprehensive capital allocation strategy Berry.
<unk> resilience as a continued reminder, the diverse and global portfolio, we have built.
Thank you for your continued interest in Berry and at this time, Mark and I would be glad to answer any questions you may have.
As a reminder to ask a question you will need to press star 1 on your telephone to withdraw your question press the pound key.
Please standby, while we compile the Q&A roster.
And our first question comes from Anthony Pettinari with Citi.
Hi, good morning.
Price cost was obviously a headwind in the quarter and I'm just wondering based on current prices and the price increases you've already announced when would you expect to get back to kind of neutral on price cost.
And is it possible to say how much unrecovered cost you might have at the end of fiscal 'twenty, 1 that you could potentially get back in fiscal 'twenty 2.
Yes, sure good morning, Anthony it's Mark.
Really proud of the teams I mean as you probably saw on the prepared comments on the release.
Prices were up dramatically year over year on the quarter over $500 million. So.
Our achievement of.
This to me just validates again, our ability to pass through cost inflation on a recovery was 93% on.
On a year over year basis. So we're fully committed to recovering it just as we've stated in the past there is.
A slight timing lag on resin as well as other costs that are work.
We're experiencing inflation on so we're going to make up some ground this quarter the quarter. We're in in the September quarter, it's still going to be unfavorable and we will continue to progress as a reminder, most years for positive on price cost.
Right now we're just sit on unusual period of more significant inflation, so we'll catch up.
And we're committed to doing that.
Okay.
Okay. That's helpful I'll turn it over.
Your next question comes from Ghansham Panjabi with Baird.
Thank you good morning, everybody.
Given that your Covid disadvantage end markets, such as foodservice and industrial is starting to recover.
Sort of at a point now where the advantaged portion of your portfolio will also start to moderate I'm, asking because youre going to be facing tougher comps for key onwards in several major CPG companies have called out moderation in volume et cetera, and then also you guided towards low single digit volumes for <unk> is that the right sort of run rate to think about at this point for fiscal year 'twenty 2.
Yes, we're not we're not guiding on 2002, but fair enough to say our strategy has been to make capital investments align with customers to deliver a consistent low single digit growth on the assumption candidate for 'twenty 2.
And your earlier part of your question the diversity of our portfolio is such that some of the disadvantage segments are actually now recovering to be more advantaged debt can offset any softness we might see in other areas, but each of the businesses throughout the pandemic. We've continued to invest organically along with our customers and new opportunities to innovate we pivoted more.
Strong links to the emerging markets in certain categories.
That ultimately we will continue to benefit us post post pandemic as you might imagine it's a very dynamic.
Environment right now, but I'm really pleased that the team has remained steadfast in aligning with customers toward organic growth investments geographies that can provide longer term growth for us and again all align with customers that are real excited as we as we come out of this pandemic, so low single digit growth as a strong assumption.
Thanks, Tom.
Your next question comes from Iran, Viswanathan with RBC capital markets.
Great. Thanks for taking my question.
I guess I wanted to first ask about the free cash flow guidance.
Obviously, you've provided some metrics in the past I guess each penny change in resin is maybe $10 million on on working capital on an annualized basis is that.
The main driver of kind of your updated free cash flow outlook.
Hey, everyone. Good morning, it's mark, but thats exactly right.
On that metric is accurate that assumes all grade globally.
And so they are not obviously all moving at the same level not only between grades but also between regions.
So there are some puts and takes amongst that but thats exactly whats driving the working capital.
It's just increased inflation, so we're passing it through but obviously that results in higher working capital needs, which are obviously temporary and onetime in nature.
Great and then.
Maybe you can just give us an update I know that you've reiterated your volume guidance, but as you look into next year. You know the last 10 years have been kind of choppy with.
2 thirds on the portfolio doing really well last year and then now you're 1 third kind of recovering this year.
When you step back you also have some new new initiatives and inhalation and some other areas.
How are you thinking about growth now going forward I know, you've kind of indicated low single digits, but.
Are you still feeling confident in that and what are some things that youre looking for as far as still areas that still are yet to recover.
Listen we believe the long term fundamentals that we've invested around mega trends like health and wellness E Commerce food safety, all combined with sustainability leadership are the right investments coupled with greater penetrations that we've made to the emerging markets now being over $1 billion $5 off of our.
Our revenue base so.
On the each of the businesses as I said earlier, we've continue to invest organically alongside our customers.
And we're very confident that going forward and we are building the business around long term consistent low single digit growth.
<unk> with customer opportunities as you said the business most negatively impacted.
For the recovery or the pandemic I should say was engineered materials.
And we expect that as the economy continues to further opening to recover you'll see improvements in businesses like engineered materials in CPI that we're probably most disadvantaged during the pandemic, but the breadth of products that we make are essential as we've seen throughout the pandemic and I think the track record of Berry growth.
Before the pandemic during the pandemic and ask the pandemic, we will continue to sustain itself over the long haul.
Thanks.
Your next question comes from Jeff Zekauskas with J P. Morgan.
Thanks very much.
I wanted to understand your price cost dynamic a little bit better.
So you were negative $42 million in the quarter roughly.
All things being equal do you capture all of that back in the September quarter.
But then you have a negative price cost spread in the September quarter that you think will be less than the negative price cost spread.
June quarter.
That way it improves and then secondly.
On what's growing faster for your polyethylene or polypropylene.
Meaningfully different Hawaii.
Hey, Geoff it's mark Thanks for the other questions. There I mean with respect for the pass throughs resin is our largest cost category.
Very strong pass throughs, there was a slight timing lag so the majority of the sales.
The majority of the $42 million is related to that there is contractual pass through but there's a lag and on the other costs some of which are index with customers, but many of which we have to go out with price increase to recover and we're continuing to do that but I would characterize it the same as RASM theres a lag we recover it.
And we're continuing to do that so it's an ongoing effort across all 4 segments.
We do expect to build some unfavorable <unk> in the September quarter.
But again it will be less so than the June quarter, as we continue to make progress in recovering both elements of that on with respect.
Different types of resins, and which grades are doing.
Better than others, I would say all are doing well and there is no I'm.
I am not aware of any significant move between.
Material types relative to the polyethylene and polypropylene.
Great. Thank you for some.
Our mix dramatically changing.
And those grades.
Okay, great. Thank you.
Your next question comes from Kyle White with Deutsche Bank.
Yes.
Hey, good morning, Thanks for taking my question on <unk>.
As you said the $25 million favorable mix still occurred this quarter.
Just wondering what kind of visibility do you have on this favorable mix continuing into the next quarter it moving into fiscal 2022.
Yeah, so for the September quarter.
We expect we expect it to moderate somewhat.
In the current quarter.
And 'twenty 2 it's still too early obviously the pandemic is.
Very dynamic and changing so we'll continue to update provide updates on our calls but at this point, we have for modest moderation assumed in our guidance for the for the September quarter.
Got it thank you.
Your next question comes from Mike <unk> with Barclays.
Great. Thanks, Good morning, guys.
I wanted to circle back on the free cash flow conversation I. Appreciate you aren't giving a formal 'twenty 2 look yet, but just as we start looking at cash generation next year are there any meaningful changes in the cash flow bridge for next year versus this year and I guess, what I'm getting at is do you think greater than 1 billion free cash flow still feels like a reasonable target for net.
Your I assume resin prices prices, hopefully don't take another steep pick up from here.
Trying to understand on the moving pieces there. Thanks.
Yes, no. Good question I mean, the inflation impact on working capital is the big 1 this year hopefully next year, we don't have.
On the same level of inflation that that certainly wouldnt be I think what people are expecting.
So that's really the big 1 we've got over $100 million negative impact.
'twenty, 1 related to working capital debt.
This is unusual and we would not expect on a normal environment for that to repeat next year.
That's definitely the big 1.
Got it thank you.
Your next question comes from Josh Spector with UBS.
Yeah, Hey, guys. Thanks for taking my question I guess on the <unk>.
Can you just talk side of the equation.
Continue to highlight your access to 600 million pounds plus material by 2025, I guess I'm curious if we should assume that number increases over the next couple of years as you add new agreements.
And related with that should we think about any cash being used to other secure the supplies or co invest with producers to make sure you have more access to those materials as customers demand it.
We will I do anticipate debt will increase our access through agreements that we form with resin suppliers as they increase their capacity on the advance recycling substrate berries.
Berry's primary role is making certain that we can educate our customers and give them access to these unique materials that we think are especially advantage to help solve the worlds.
Problem relative to plastic waste and as such we're going to do everything we can do to make sure that we've got a balance between both mechanical as well as for the advanced recycling substrate. We've recently made a capital investment to support an increase.
Our capacity of.
Mechanically recycled material in Europe.
Nothing further to announce beyond that at this stage Nonetheless, we want to create the opportunity for our customers to meet their sustainability goals had berry would be the primary source.
To do that and whether thats mechanically recycled advance recycled.
Io based materials on our lives demand isn't growing and its increasing and we are pleased that we took a leadership position relative to the technology and the material to be in a position to offer our customers and commercialize new application.
Yes, I would just adjust with respect to cross our equipment.
Our converting assets do not require capital to make to use different types of materials, so whether or not as virgin mechanically recycled or advanced recycled material our converting assets are.
Capable of doing that conversion without capital investment necessary.
Thanks, and if I could just quickly follow up on that just on the chemical recycling side. The 300 million pounds is there any dollar amount that you could share in terms of what you've had to put towards securing debt agreements that might be a helpful benchmark for us.
No there's not a there's not a dollar amount it's more of our letters of intent to consume that material over a given period of time, that's about all I'll say to us.
Okay. Thank you.
Your next question comes from Adam Samuelson.
With Goldman Sachs.
Yes, thanks, good morning, everyone.
So 2 quick ones, if I may just trying to think about.
<unk> fourth quarter, and then into 'twenty, 2 given kind of some of the.
Different demand dynamics happening in different parts of the business the net impact of mix as we look forward for the next couple of quarters.
If theres any kind of material benefit that you see this in terms of certain parts of the business continuing to perform stronger.
Than others, and then secondly, just with the balance sheet now inside the leverage target range can you help us.
Prioritize uses of cash in terms of.
Further deleveraging to the low end.
Thoughts around the common dividend share repurchases.
22, thank you.
Yes.
Terms of performance, we expect similar performance going into our fiscal fourth quarter as we saw in Q3.
So I would there's no.
Significant differentiation.
On that we would call callout per quarter for.
In terms of capital allocation, we continue to see.
Incremental opportunity for us to invest organically.
In the growth commitments that we've made globally.
But in addition to growth we are going to continue to improve.
Our balance sheet and that in turn gives us.
Greater flexibility going forward, we were pleased to get to the high end of our range that we've communicated of operating the company between 3 and 3.9 times for right now we believe that.
Further investing in the resiliency of this portfolio globally aligned with customers, while paying down debt.
<unk> is a great opportunity to create shareholder value and Thats, what we plan on doing near term.
Okay, great. Thank you.
Your next question comes from George Staphos with Bank of America.
Hi, everyone. Good morning. Thanks.
Thanks for the details I wanted to ask.
Broad question, if you will on <unk>.
Growth.
On the investments that you've been making Tom is there a way that you could quantify for us the amount of investment that you made on H H N S.
What that should mean for revenue growth for this segment holding pricing constant.
Over the next couple of years Relatedly, you mentioned that you have broad confidence Inc.
2022, EBITDA growth I recognize you're not going to guide there, but could you give us some.
Qualitative beyond broad confidence in terms of what we should take away from that and what we should assume in terms of margin and return on capital based on the investments that you've made so quantify HHS. If you can give us a bit more quality quantification on on the broad confidence for next year for all.
And margin and return on capital if you can thanks, guys and good luck in the quarter.
Thanks, George listen we've had a.
Really it's been a multi year.
Strategy and HHS, we've continued to pivot more of that portfolio.
2 areas with faster growth in geographies that are faster growing so hygiene and healthcare continued to be areas of importance inside HHS.
We've increased our presence around adult incontinence premium hygiene Fem care.
We've made.
We've announced an additional investment to support the health care space.
In China that will be operational at the end of.
Next year.
We've invested in areas like Biopharma flexible packaging and our health care space, We just announced a new 9 later line.
<unk> room facility to support higher and flexible packaging requirements. So.
The level and pace of investment in that business has been brisk Mark do you want to comment on the size of the environment, Yes, I think.
I mean, George I guess I would aggregated for the company.
On the metrics, we provided in the past, although they can swing around with RASM on a little debt right in terms of the topline numbers, but.
On the dollar per dollar I think is still a good general rule of thumb.
Our revenue for every dollar of Capex on growth.
And those are 20% ish.
<unk>, our EBITDA margin, which would be the same in this case given the dollar per dollar but.
That that holds true for our portfolio I don't think we want to comment on individual investments, but I think in the aggregate that's for.
<unk> holds true and would also hold true for the HHS category and Tom mentioned, a couple of big ones, We got $70 million investment in in China.
We're in the process, we've got several film related investments.
For our healthcare film business.
We've got some specialty investments that are also being invest for them globally.
Across Europe Asia.
And the U S. So there's multiple assets that are being invested in total about half of our.
$700 million of capital is related to growth so call. It 350 ish or so of Capex. This year that we would expect to drive both topline and bottom line as we go into 'twenty 2 and beyond I think also it's important to note is that every capital investment that we make we tie it to an anchor customer to ultimately help pull.
Through the success of those investments and I know theres a lot of confidence in the strategy that we've deployed over the last several years now and continuing net forward in each of our core businesses all with its own unique value proposition, creating the kind of diversity in our portfolio that gives us the resiliency regardless of the economic environment.
Contracts for the reason you feel you can grow off tough comps correct.
In all cases, yes, and in general we're going to continue to invest in our company for the long term that we can consistently deliver that low single digit growth.
Excited about those prospects and in HHS, It's a global business.
Market category that we're very excited about and a business that has performed incredibly well over the last couple of years for sure.
You very much guys. Good luck on the quarter.
Thanks for your.
Your next question comes from Phil Inc, with Jefferies.
Hey, guys.
The investments you guys are making obviously very exciting youre seeing good growth.
Perhaps a question for Mark do you think you can sustain that with 700 million for Capex and when we think about that branch for free cash flow for 2022 outside of working capital should we see some tailwind from restructuring costs reversing now that RPC is behind you just trying to get a better sense. Some puts and takes on the cash flow side next year.
Yes, sure Phil on Capex I mean, we're really fortunate I think we had on our prepared comments some comments about the pipeline. It continues to be very strong across all 4 segments.
Got nice growth opportunities that are in.
Moving to come into the pipe so were excited for.
Those home and spend money to drive more growth in the business with pumps on them.
Outside of safety Thats, our top priority is organic growth.
And with respect to restructuring cost for second part and we really didn't have much this year credit for the teams and getting that integration done we came in right on top of our cost synergy estimate.
I'm going to come in below the cost to achieve those so I wouldn't expect much restructuring next year.
And we didn't have much this year really wound up coming in a pretty pretty low numbers. So I wouldn't call that a huge variance just because we did such a great job on.
Here in 'twenty, 1 not having.
Significant cost.
Those markets.
For high quality problem for us to have to have more customers to align with and support our organic growth objectives, and frankly, the pandemic only reinforced and I think made more pronounced the strength of our relationships and the value of doing business with Berry, whether it's innovation agility.
Supply chain resiliency capital investment for the fact that we've got local value delivery capability materials science what have you.
It's become more pronounced and that pipeline is what gives us that long term confidence that we can deliver for the company low single digit growth.
Okay Super Thank you guys.
Your next question comes from Mark <unk> with bank of Montreal.
Yes.
Thanks, Good morning, good morning, Mark.
Okay.
Just a couple of real quick ones just following on that question. Kyle asked earlier about mix for version 8 <unk> Mark you suggest that you didn't see any in the third quarter based on that $25 million benefit you're pointing to do a little bit more in the in the fourth quarter has your view of that.
Trajectory that mixed for version has that changed at all over the last say 3 to 6 months, where you're a little more confident perhaps in holding on to some of that benefit for longer.
I mean, I would say, it's very dynamic credit I mean, obviously things continue to change.
With respect to the pandemic, so I think proud of the team and what they've what they've done continuing to keep.
Products in customers hands, but I think this is 1 of those things for just because it's going to be fluid and we're going to continue to update the market as we can but.
So again in our Q4 guide we've got some modest moderation how that ultimately winds up unwinding, if and when I think is still all to be determined at this stage.
Okay, and if I could just 1 other 1 March can you remind us about how you're measuring organic volume growth.
Brush.
Yes, each business.
Tried to use the primary metric thats the most accurate some of our businesses. So some of them. So.
On tonnage weight some of them sell on surface area. So square meters. For example, so on each business, we use the best metric for that business based on how we sell the product.
While they're not again its widgets.
<unk> for.
Surface area for you.
<unk> is going to be a little different like most of our consumer businesses for example, or Japan.
Yes, you are clearly you're driving some of this with with capital dollars in new projects.
No change kind of incentive comp structure.
Structures.
At Berry.
No.
Push your sales force to sell more incremental volume or more new product volume.
Well, it's a we're on.
You're always tweaking your incentive comp plan to drive.
For the behavior, you want but it's more I think.
<unk> that we've made in terms of the focus of our management team. It becomes the primary objective of what we review.
Every month.
It's what we talk about inside the businesses relative to the commitments, we ask them to ultimately meet relative to growth.
We have modified our views in terms of increasing the probability of success by making certain capital investments are aligned with customers.
And I would say Mark if you came into our company right now and you ask people other than safety with a number 1 priority as they would tell you profitable organic growth.
Cross the entire global organization.
And that's powerful and that's what's driving the kind of.
Passion that we have and belief that we have as we've demonstrated as I said before the pandemic during and now after that we will deliver predictable growth and we're very confident on that.
Okay sounds good thanks, Tom Good luck in the last quarter of the year.
<unk>.
Yes.
Okay.
Okay.
Operator next question comes from Neel Kumar.
Thanks for taking my question.
In <unk> net can you just breakdown for us had a 1% volume growth both across the portfolio for wipes masks and gowns versus day to day.
AI.
And you mentioned earlier activity in your portfolio and ATT net.
Can you just put any numbers on the percent exposure to each of these categories now versus pre.
Pre COVID-19.
Yeah.
Not something so I think the question was what is the percentage breakout of the portfolio what was the pre COVID-19 and what will it be post COVID-19.
Inside HHS is that correct.
Yes that and also just any color on the 1% volume growth during the quarter across the portfolio.
Yes.
In terms of the last part of that question or the breakdown I mean, as we said in our prepared comments we had a.
Stronger growth in items that were negatively impacted by the pandemic, we're lapping kind of the.
The biggest impact from the pandemic now right the June 2020 quarter.
You saw obviously the largest impact from the pandemic. So some of our businesses. As we said back then were very negatively impacted by the pandemic and vice versa. We had some businesses that benefit and so on this quarter kind of just had the flip of that so building and construction and again being 1 and HHS that was hit really hard at the beginning of the.
Pandemic that has recovered somewhat and so it was obviously up year over year, and vice versa and some of the other categories like hygiene for example on with respect to the splits.
As Tom said, we've pivoted the business, we've continued to pivot the business towards healthcare premium hygiene adult incontinence. So those areas as a percentage while I don't have the exact numbers right in front of me I would expect we're going to make up a larger percentage of the total portfolio.
On a post pandemic basis than they were pre pandemic.
Not only because of the impact for the pandemic.
Around safety, but also just that was what we were driving towards what we're driving towards that even before the pandemic. So I think the combination of the 2 I will certainly make those categories larger as a percentage of the total pie, but again I don't have the exact numbers right for them at an aggregate youre going to see continued growth and expansion around the health care space.
1 dynamic that we've seen is that.
On the pivot that we had forecasted many years ago from reusable surgical drapes and gowns to disposable continues to build.
And as people choose to have more elective surgeries and thats going to continue to be a dynamic.
That will benefit that.
That business, but suffice to say.
For those areas that we've continued to make capital investments will begin to make up larger percentage of the portfolio. In addition to our footprint in the emerging markets around the world, specifically, China Southeast Asia.
And the latest investment at <unk>.
Mark noted.
$70 million health care line that will be commissioned around.
Towards the end of next year.
Great. Thank you.
Yeah.
Yeah.
Your next question comes from the line of Gabe.
From Wells Fargo, you May now ask your question.
Mark Good morning, congrats on the quarter.
Yes.
I had a question I'm, just thinking about I guess risk mitigation or things that could potentially go wrong as we sit in hurricane season.
I suspect you guys haven't had on ability to build up any kind of safety stock or anything like that given elevated resin price of sandler availability.
So I'm just curious other than that.
Unless you want expand on that are there other areas within the supply chain.
There's risk right now or just where do you feel like you are.
Pressure points I guess.
That we should be mindful of.
Yes, I mean, I think as I said in an earlier comment. This is 1 of the areas on probably most pleased with our teams and that is.
How they've actually demonstrated in this environment strong supply chain resiliency and on a global basis and take advantage of what now is a global platform for us to draw from to risk mitigate where we can.
Clearly, we can't predict or anticipate what might happen.
Relative to a hurricane season, but.
But we take the necessary steps as we always do.
And in preparation for things like that.
And it's the cadence that we follow up literally for the last 50 years inside the company.
The benefit we have today is we now have more of a global footprint to take advantage of let's hope that's not needed but.
But I will tell you the teams sourcing organization on supply chain group has performed very well on a difficult environment as as you've heard others comment on on around them.
Thanks for that Tom and I guess the other question.
It's been covered but private market valuations have come in a little bit.
And again I know you've highlighted I think number 2 priority is.
Continuing to Delever, but just curious anything on the add or delete side of the equation I know you're not announcing anything today, but just.
When you look across the portfolio portfolio.
Businesses that may not fit.
Or areas, where again you might want to build out.
Yes, nothing nothing we comment on now, but suffice to say youre going to continue to see us invest organically around those mega trends we've noted before.
The wellness.
Food safety.
As well as e-commerce, and what we're starting to see now is an intersection where a lot of our capital investments that are supporting growth are also.
Sustainability related investments that allow our end customers to meet their goals and objectives relative to sustainability of circularity yourself.
So youll see more investments along those lines.
Coupled with our continued focus on accessing faster growing regions of the world.
Thank you Tom.
And at this time you have no further questions I will turn the call back over to the company for any closing remarks.
We thank you all for your interest in Berry Global look forward to reporting our next quarter and having further discussion thanks, everybody have to Safeway.
Ladies and gentlemen, thank you again for joining US today. This concludes today's call today's call you may now disconnect.