Q4 2021 Greif Inc Earnings Call
Yes.
Good morning, My name is Chris and I'll be your conference operator today at this time I'd like to welcome everyone to the Great Q4, 2021 earnings Conference call.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there'll be a question and answer session.
If you'd like to ask a question. During this time simply press Star then one on your telephone keypad.
And to withdraw your question. Please press star one again.
Matt Eichmann you may begin.
Thanks, Chris and good morning, everyone welcome to <unk> fourth quarter and fiscal 'twenty, One earnings conference call.
Name is Matt Eichmann, I'm joined by Pete Watson, Vice President and Chief Executive Officer, Larry Hill, Shimer price, Chief Financial Officer, and <unk> <unk>, Chief operating officer, we will take questions at the end of today's call in accordance with regulation Fair disclosure. Please ask questions regarding issues you consider important as we're prohibited from discussing material.
Nonpublic information with you on an individual basis. Please.
Please limit yourself to one question and one follow up question before returning to the queue.
Please turn to slide two.
As a reminder, during today's call we will make forward looking statements involving plans expectations and beliefs related to future events actual results could differ materially from those discussed.
Additionally, we'll be referencing certain non-GAAP financial measures and reconciliations to the most directly comparable GAAP metrics can be found in the appendix of today's presentation now.
Now I'll turn the presentation over to Pete on slide three.
Thank you, Matt and good morning, everyone as always we appreciate your interest in Grace.
I want to start by recognizing and thanking the global growth team for outstanding achievement. This past year.
The team delivered excellent results, despite a challenging operating environment that was complicated by the pandemic.
Fly chain disruptions and inflationary pressures beyond our control physical.
Fiscal 2021 was an exceptional year with record financial results, we significantly de lever our balance sheet improved our shareholder returns achieved top decile collagen colleague engagement and we're recognized as a leading workplace in the United States.
Looking ahead. These accomplishments have us positioned for even stronger future as our fiscal 2022 guidance points to performance in line with the commitments we established in 2019.
Finally, this past year, we've made meaningful enhancements to our already strong sustainability performance and an embedded ESG deeper into our business strategies I'd like to ask all the RASK Guard, our chief operating officer to make a few comments regarding ESG that's on slide four.
Thank you Pete and good day, everyone I Hope you and your families are well.
In my mind sustainability, it's not an afterthought or corporate function, rather leadership focus that create business value by reducing risk and cost and bringing new market opportunities to grow.
We achieved several notable ESG accomplishments.
2021.
For example.
We diverted a minimum of 90% of waste from landfills at more than 140 of our global facilities.
Increasing our global dimension late to roughly 85% from about 70% last year.
Even more impressive at 50.
50 of our global facilities had achieved zero waste to landfill status.
We launched our fourth colleague resource group to provide professional development opportunities and further foster a more representative and inclusive culture across price.
And finally, we linked ESG kpis to the Greif business system, improving our performance management capability to further drive this critical work.
The takeaway here is that Brian strong ESG focus is core to our plans for sustainable value creation.
All to sharing additional highlights with you in the future and now back over to Pete to discuss our business results on slide five.
Thank you Ali.
The global industrial packaging business delivered an outstanding fourth quarter results. Our overall global primary product volume was strong and benefited sales by almost 3% versus the prior year.
Fourth quarter global large plastic drums, and intermediate bulk container volumes grew by more than 18% and 10% respectively per day versus the prior year and benefited from the strategic growth investments in the U S and EMEA and ongoing recovery in our industrial end markets.
Global steel drum volumes fell by one 5% per day versus the prior year. The biggest shortfall was in APAC reflective of our decision to implement strategic pricing actions and supply chain disruptions negatively impacted our customers' operations.
Fourth quarter Global steel drum volume was also impacted by performance in EMEA or volumes were steady through most of the quarter. So it did slow in October as customers in this region faced their own set of supply chain disruptions the.
The Americas region recorded strong mid single digit growth during the quarter.
Generally speaking our industrial end markets remain healthy.
Customers report solid order backlog and strong underlying demand.
They do face external supply chain disruptions.
Across <unk>, we see little indication of customers building inventory, but some are carrying more stock than normal due to supply chain disruptions impacting their ability to ship to their customers.
Cip's generally stronger volumes and higher average selling prices resulted in significantly higher segment sales and gross profit year over year.
<unk> fourth quarter, adjusted EBITDA rose by roughly $47 million due to higher sales, partially offset by higher raw material manufacturing and transportation costs.
<unk> also benefited from a $3 million of FX tailwind.
Looking ahead, we expect GI piece fiscal 2022 profit see lower year over year, while we do anticipate volume growth contribution from new capex projects and beneficial efficiency gains profits will be lower at the unprecedented run up in steel costs provided a roughly $100 million.
Tailwind Gi fiscal.
Fiscal 2021 results that will not recur, we anticipate tip's normal profit cadence through the year two protests to persist.
Please turn to slide six.
Paper packaging fourth quarter sales rose by roughly $120 million versus the prior year due to stronger volumes and higher published containerboard and box board prices adjusted EBITDA rose by roughly $10 million versus the prior year due to higher sales that were substantially offset by higher raw material manufacturing and.
Transportation cost, including a significant 50 million $51 million drag from higher OCC and next cost and an $8 million natural gas costs spike not contemplated in our guidance.
Business benefited from a $4 million legal settlement tailwind were recorded in SG&A that will not recur.
Volume demand across our paper business remains strong and our combined mill backlogs exceed eight weeks fourth quarter volumes in our core choice seat theater system were up two 4% per day versus the prior year demand for durables e-commerce growth and the Oems auto supply chain all remain very solid.
And we see no slowdown on the horizon.
Fourth quarter tube and core volumes were up 7% per day versus the prior year.
<unk> was strong in most key end markets, including so paper cores textiles and protective packaging.
Looking ahead into fiscal 2022, we expect significantly higher profits in paper packaging due to strong demand and continued flow through of published price increases I'd like to now turn it over to Larry Hill Shimer, our CFO on slide seven.
Thank you Pete good morning, everyone and thank you for joining us today.
Big picture, our team delivered excellent fourth quarter results. Despite significant external challenges fourth quarter net sales, excluding the impact of foreign exchange rose, 35% versus the prior year quarter due to stronger volumes and higher selling prices adjusted.
Adjusted EBITDA rose by $57 million, including a $7 million combined tailwind from FX and a onetime legal settlement.
In mind, our adjusted EBITDA result, overcame an OCC index headwind of $51 million.
And roughly $40 million of non volume related transportation and manufacturing inflation, including an $8 million and forecasted natural gas costs Spike.
Interest expense fell by $9 million versus the prior year quarter due to lower debt balances. We also benefited by reaching a lower interest rate tier in our credit facility as a result of our substantial debt repayments.
Our fourth quarter, GAAP and non-GAAP tax rate were both roughly 11%.
Fourth quarter adjusted class a earnings per share more than doubled to $1 93 a share.
For fiscal 'twenty, one we delivered adjusted class a earnings per share of $5.60 a share.
4% improvement versus the prior year and a significant beat relative to our Q3 guidance.
Part of the earnings improvement came from a lower than anticipated non-GAAP tax rate of 18, 1%, which benefited from reserve releases due to audit settlements and statute of limitation expirations.
We estimate the lower tax rate relative to guidance, we shared at 15 two.
To fiscal 'twenty one results.
The lion's share of our year over year earnings improvement came from disciplined operational execution.
Fourth quarter, adjusted free cash flow fell roughly $79 million versus the prior year, while profit improved significantly capex rose in working capital drag on cash flow, primarily due to higher raw material costs than we anticipated in our forecast.
Working capital was also negatively impacted by lower than anticipated October volumes outside the U S where customers customers struggled with external challenges and order fewer drugs.
Our team is controlling what it can with strong results and trailing 12 month average working capital as a percentage of sales improved by a significant 140 basis points to a year year over year to 10, 8%.
Please turn to slide eight.
Our core capital priorities are clear and consistent reinvest in the business as needed to create value and support growth return excess cash to shareholders via an attractive and growing dividend and de lever our balance sheet and maintain a compliance leverage ratio between two to two five turns.
Our balance sheet is in great shape. Thanks.
Thanks to aggressive deleveraging, we have repaid $261 million in total debt since Q4, 'twenty and returned to our targeted compliance leverage ratio faster than originally contemplated.
We anticipate spending between 150 and $170 million in capital expenditures in fiscal 'twenty, two and target growing our dividend in 'twenty two as mentioned in previous calls we are in the midst of our strategic planning process to determine the focus and extensive growth activities going forward to prudently leverage our strong balance sheet for the benefit of our shareholder.
Yeah.
Please turn to slide nine.
We are pleased to introduce fiscal 'twenty two guidance.
Excuse me that delivers on the commitments, we made more than two years ago. Our guidance reflects the considerable improvement we've made in the base business over the last several years, including the successful caraustar integration and synergy capture and demonstrates drives Brazilians in overcoming the unforeseen and considerable external challenges presented by Covid.
And dramatic inflationary headwinds well beyond our control.
At the midpoint, we anticipate generating $6 15.
Adjusted class a earnings per share and 22 overall, we expect lower profits in Gi in fiscal 'twenty, two to be more than offset by higher profitability and EPS highlighting once again the benefit of our diversified portfolio.
Interest expense will be significantly lower in fiscal 'twenty two as a result of our aggressive deleveraging and we expect it to fall further when we moved to refinance our six 5% 27 senior notes sometime in the first half of calendar 'twenty two.
We anticipate 22, adjusted free cash flow between 400 and $460 million.
In addition to increased capital expenditures, we anticipate significantly higher cash tax in fiscal 'twenty, one mainly due to additional pretax income we anticipate working capital will revert to a cash source. It was a $222 million used in 'twenty, one as raw material cost inflation accelerated.
Now a few reflective comments for your consideration from my perspective, the graph of today is a far different company than the grade from six years ago. Our margin profile has stabilized and grown profits have increased significantly and our transparency and communication is improved and been applauded our capital allocation strategy has been steady.
Glenn and predictable we have delivered on what we promised and we continue to drive even greater value for our shareholders. Despite these improvements we continue to trade at a discount to our historical metrics and the broader market. As an example, assuming a historic free cash yield of 11% in the midpoint of our 'twenty two free cash flow guidance would imply a combined market cap.
Roughly $3 9 billion or an increase of roughly 30%.
So while we don't get to vote when it comes to our valuation and our opinion is that we deserve a closer look given the discount present our stock today.
Now I'm going to take a minute and go off script.
As most of them if.
If not all of you are aware today is Pete Watson last earnings call.
Seem inappropriate did not pause and acknowledge the great leadership. He has provided our colleagues with Greg.
<unk> leadership.
It has a personal connection with many of gripes colleagues, we have developed through personal contact.
He's a humble and respected leader, who lean John is athletic coaching background for the skills and building a cohesive team.
As he took leadership of grief many things were broken.
Since taking the helm in November of 2015, the results have been extraordinary.
In safety steady improvement in colleague engagement, we improved dramatically to be a top decile in galebs industrial sector.
Those engaged colleagues have delivered outstanding customer service and driven incredible improvement in doubling our NPS scores over that period.
That focus on brokers service profit chain as led to financial improvement that has been exceptional.
In 2015 to 21, Oh BBSI in EBIT. They have essentially doubled adjusted EBIT EPS has gone from $2 18 to $5 60, with no stock repurchases and adjusted free cash flow, which was $70 million in 2015 as averaged nearly $30 million in the last three years and will exceed $400 million in 'twenty two.
He has worked diligently to ensure this succession plan left driving good leaders pans going forward just curious legacy as an outstanding leader feed on behalf of all of our colleagues. Thank you for your leadership.
Well, Eric. Thank you very much you certainly did go off script.
Much appreciated.
With that if you could turn to slide 10 again, Larry I appreciate your comments and thoughts you're a good man.
As Larry talked about today is my final earnings call as President and Chief Executive Officer of grief.
Great Company, it's been my distinct honor to serve our global growth team and I'm extremely proud of this Larry talked about it what we've all accomplished together over the last six years I.
I am incredibly grateful to all our colleagues for their passion and dedication to excellence and also for their commitment to our team and our customers.
And while fiscal 2021 was a record year for our company I'm, even more excited for what lies ahead, we are well positioned to benefit from ongoing strength in improving trends in our key end markets that our extensive global portfolio, our differentiated service capability and our sharp focus on operational execution allows us best.
Serve our customers' needs and generate significant shareholder value.
Along with the rest of the board are confident in <unk> ability to lead growth going forward is operational background strategic mindset and passion for team building and serving customers, who we haven't pages to <unk> future.
Look forward to the company thriving under his leadership.
It has certainly been a pleasure working with all of you and we certainly appreciate your interest in growth Chris If you could please open the line for questions.
Certainly and just as a reminder, if you'd like to ask a question. Please press star one on your telephone keypad.
First question is with George Staphos with Bank of America. Your line is open.
Thanks, very much I'm sure everyone's going to say this as well, but you and your team have done a remarkable job a buy sell or hold in terms of turning around right. So you have much to be proud of and we wish you and only best.
With the next chapters.
I guess.
That I would say could you talk a little bit about what was embedded in that comment that you see little signs of inventory building by customers, but that stocks were higher and industrial what was what are you seeing that we should be mindful of and if you could talk about it relative geography and.
My second question.
Not that it would be surprising we've obviously been reading a lot about what's been happening in Asia, but you know it seems like last time, we saw a bit of price competition in Asia Pac that was a bellwether now again, there's some obvious.
Synchronic things going on in Asia, right, now, which maybe makes us a one off but tell us why we shouldn't worry about what this means looking out the next year or so.
Sure well thanks for your comments George very much appreciated.
They can make a few comments first of all I'll talk about APAC, then I'll ask <unk> to comment on.
The comment on customers and inventories.
<unk> couple of components.
We have been strategically fixing some price margin.
Poland into that business. So we have.
We have from pricing decisions in margin as decisions made some stands and lost some volume there. There's also been some pretty significant supply chain disruptions as you referenced.
One of those being some of the national power.
Challenge they've had and we've had the operated off peak hours, but it is also interrupted some of our customers' operations and demand.
And there is also it's not as vibrant as it has been but at this point, we don't see that as any trend that makes us fearful that it's a reverse of what we saw in the last year.
So only if you could comment on Georges.
Question on the inventory hydrops.
On the stock.
Primarily in Europe.
I speak to our customers said, we have not seen any customers doing stock building.
As you know our customers are telling us that's there.
Their order books are solid, but due to the supply chain issues, they simply can't fulfill their order.
Order books, which has the knock on effects.
What theyre doing with their stocks as Dave just a stop adjusting their stock levels. Accordingly, So that's no stockpiling ore destocking really taking place.
Yeah.
Okay.
Okay, So what youre, saying is.
Their inventory velocity is appropriate given what they're seeing in terms of ply chain, but youre not seeing a degradation build up beyond that is that fair.
Correct. That's correct. Thank you Ali.
Yeah.
Our next question is from Ghansham Panjabi with Baird. Your line is open.
Hi, Good morning, this is actually Matt Krieger sitting in for Ghansham.
And just want to extend my congratulations to Pete as well, it's obviously been terrific working with you.
We'll look forward to continuing that sentiment with the with only.
Thank you I appreciate it very much.
Absolutely.
I was hoping that we could we could talk a bit about some of the embedded assumptions for next year on a segment basis. So can you maybe talk about what your embedded volume growth assumptions are for each of the segments in just a little more detail.
And then maybe provide some detail on what sort of underlying macroeconomic outlook youre projecting for each of your major geographies heading into next year.
Yes, so from a volume assumptions for the two main segments in <unk>, we're talking about.
Global steel drum volume low single digits.
On a global basis, and then the Ibs C busy.
Business, we're projecting high to mid teens, and that's really reflective of the continued strategic investments we've been making in this.
This business on the PPS side.
Our corrugated sheets were embedding in our guidance is low single digits and we've been growing significantly more than that this year, but that's because of the comps become tougher the new.
Plant in Pennsylvania is up and running and so that's more reflective of what we will see market growth.
Then in our tube and core business, we're seeing low single digit growth as well and thats embedded in our in our guidance going forward and I'll ask Larry to make some comments on our budget and guidance as it reflects the broader market and only can comment as well, yes, Matt from a broad.
We obviously watch the various economic forecasters and as you've probably noticed a lot of them are trending down Goldman Sachs is called down.
Therefore to Q and then there are 22 and similar things going on and others. However, they remain positive and our commitments our guidance for next year lines to those strongest U S for sure.
On EMEA.
Good, but not as strong as the U S.
APAC recovering I mean, even even has deflated as it as it continues to be one of the more strongly growing economies in the world.
In China, Southeast Asia, a little bit weaker Latin America sort of.
More like EMEA. So those are the broad.
Responses, if you have any more follow up I'm happy to address.
No no. That's that's that's great on the volume side that'd be stretching it otherwise.
I'll hop back in the queue.
Thanks, Matt.
Again, as a reminder, star one to ask a question. Our next question is from Gabe <unk> with Wells Fargo. Your line is open.
First off guys.
Relations.
We think that you are serving leadership is very clear across the organization culturally. So congrats on only welcome I'll look forward to working with you and I also apologize if there's some background noise here.
First question I wanted to go at was.
Paper volumes were a little bit weaker in Q4, but I think you mentioned.
Tube and core up 7% and converted cheat up to four.
So I'm just curious that maybe outside sales of paper, we're a little bit lower if there was a source of that weakness or if I'm not interpreting kind of what we heard correctly.
Okay. Thanks again for the comments and we appreciate working with you.
We view the paper business is having strong demand and volume and when you look at the corrugated.
The industry stats, we're significantly ahead of that.
Good shipments of two 4%, we had our inventories actually went down in that business.
And you've got to remember there is that the underlying demand is still really healthy theres been a lot of supply chain disruptions that's prevented our customers from from.
Growing so.
I think that side is really healthy right now in our tube and core business has continued to grow mid to high single digits for the last year.
Again grew by 7%.
I think the other issue is we're really implementing price increases and starting to gain traction. There. So we actually saw it as a really positive quarter in an improving in their step change on what we've targeted for their profits for next year. So other than some of the supply.
Supply chain disruptions and it's constrained some of the customer demand I think they had a really strong quarter, yes, Gabe I'll supplement just to add some color.
Our teams our finance team is working with our commercial teams calculated that the negative impact to us in PPS of supply chain limits caused by our customers not being able to ship to their customers was $3 million in PPS and $5 million in VIP for the quarter.
Yeah.
Thank you gentlemen.
The last one and I appreciate obviously that the.
I'll call it the steel.
Favorable fuel in fact.
A pretty big number year on year, but can you talk about pricing or some non material items in a more specifically thinking about EMEA and the VIP business.
How frequent open or as you guys have I mean, you guys have done a phenomenal job this year.
Out there recovering inflation, but just again, we're seeing energy inflation, we're seeing labor inflation et cetera.
How that how you kind of expect that business to evolve over the next 12 months yes.
Yeah, and I'll actually ask <unk> to comment about that because he's front.
Front and center with our teams on it but you're right. Our teams have done an incredible job of staying ahead of inflation, we can beating that drum and.
Transportation and energy are huge along with labor right now so all you want to comment on the frequency that yes, so most of our steel.
Pam.
Just to have it three months Gabe.
If you go way back in the past we didn't have annual open us.
<unk> contracts and Thats something we have introduced.
We tend to do one a year, but because of the volatility of the markets. We have been doing several here lately.
We will continue to do that as we are faced with.
With increased labor costs.
Although raw material costs.
Yeah.
Got it. Thank you guys. Good luck.
Thanks, Ken.
Our next question is from Adam Josephson with Keybanc. Your line is open.
Good morning, Pete Congratulations on and all the best to you in your retirement and only all the best to you in your new role.
Thank you I appreciate it very much thank you.
Peter Larry.
The steel benefit that you mentioned earlier the $100 million can you just help me I have a couple of guidance questions. Obviously.
Are you expecting in 'twenty, two that that $100 million well just go away or that they'll actually be a drag such that the year over year Delta will be in access of one could you just help me with what is embedded in your 'twenty two guidance with respect to the steel issue and.
And Jeff.
Sure so the yes.
You know the $100 million just evolved over that.
Cost acceleration and the lag from deliveries are forecast for.
And guidance for 'twenty two embeds a.
Pretty stable steel cost environment.
We've built into our budget slight decreases in steel cost in <unk>.
And in North America, but nothing dramatic so the risk factor would be.
If steel costs would deflate aggressively.
We don't see that it's not aligned to.
The economic forecast of most economists.
We've had strong steel demand despite low production in cars if trend if the chip shortage even starts to come back that's going to shift and while we don't expect.
Dramatic impacts from an infrastructure bill in the U S necessarily in 'twenty two we do expect some.
So our assumption is that steel, which is the big driver of this.
Is that it will stay relatively stable some decrease but nothing rapid that we can't manage through our normal processes.
In other words, thank you for it in other words youre not expecting a steel related drag on EBITDA next year is that a fair assumption, yes, nothing nothing significant I mean, theres, a slight drag with the decrease.
Just because you have higher cost inventory that you've got if it drops the index a little bit, but we built that in it's already embedded so it's a slight drag but not not significant.
Okay I appreciate it two other ones if you don't mind, one on FX what it what are you assuming in terms of FX translations I think you had a 23 or so million dollar benefit in gip in 'twenty, one from that the Turkish lira.
Only in 22, Yes go ahead.
Any assumed benefit in because we build our budget around the forward market on currency so to the extent that its shifting.
Hedge a good bit from a cash flow perspective so.
Yes.
So we're.
We're not building in any benefit from currency so to speak.
In other words, if you hold current rates constant through the balance of 'twenty two would that imply.
Benefit or a drag in terms of we don't play we don't budgeted we don't budget it that way right, we basically try to futures.
I mean, and I don't know the answer to your question about what the year over year currency changes I don't know, Matt if we have that any place or not.
Yeah.
Yeah, Okay, Okay, and just on the guidance that you provided obviously you've been giving you provided an EBITDA commitment two and a half years ago and <unk> been talking about that EBITDA commitment ever since and now you're providing new the newly the new EBITDA range, Adam is $785 35.
It's down from where we were just because of all the inflationary costs in transportation energy and when you look at OCC. The assumption that we had in the original range to think about was 55 now.
Now we're at $160, that's 190 $885 million headwind that our teams have stayed ahead of it.
Right, So basically you're thinking EBITDA will be up about.
$45 million year on year with PPS, obviously at much more than that and then obviously Jeff.
Chip down.
I would assume a considerable amount just given the steel issue.
Yes, it won't be down $100 million because the teams continue to do.
Yes.
Well on all of their factors, but yes it'll.
It will be down significantly.
And PBS will be up significantly.
Yeah No I appreciate it just one last one Larry in terms of the range. Its a wide range. Obviously, the EPS guidance range can you just talk about.
What what factors get you into the high and low end and why such a wide range.
Yes.
A broad range just because of all the uncertainties in the market right now it's about it's about 10 wider than we would have had and what we did have in 19 and its just recognizing that there is possibility that you could have got inflation deflation and OCC is such a wildcard.
Debt that we just don't have a range around it I mean, I I can venture to say that nobody on this call, including all use smart guys out there had any idea where OCC was gone this year.
That is absolutely true.
While all the best Thanks, Larry.
Yeah.
Yes.
Our next question is from Justin Bergner with Gabelli funds. Your line is open.
Good morning, Pete.
Good morning, Larry Good morning, welcome on Board and thank you Pete for.
<unk>.
Great number of years of service and all the best on your next.
Steps.
Thank you Justin appreciate it very much.
So in terms of questions just to clarify one question from earlier I mean, the steel prices go down quicker than you're forecasting in your model. The drag is a temporary one I mean that would.
Subside once the steel prices sort of steady at a new level correct, there's nothing ongoing.
Yes, yes to that degree.
Justin the real the real issue is velocity of change in timing.
Because of the price adjustment mechanisms in the contract. If you if you have a slow slope up or down it really has minimal impact and you work through that.
But if you have dramatic declines and they happen to time less for example, let's say that the last week of December steel dropped unexpectedly by $200.
Ton that would not be a good thing because a lot of index contracts change.
Based on on the end of quarter number and a change as of the first of the month many of them.
And you'd be stuck with higher cost inventory, we don't see that environment, but so it's all velocity and timing.
Got it.
One more clarifying question.
As well the 8 million natural gas headwind.
Trying to suggest it was more of a one time.
Headwind or is that sort of an ongoing.
I guess it was headwind that it was higher level natural gas prices.
It was a headwind relative to the fact that natural gas spiked up dramatically from the time, we did our forecast in July two what it ended up being in September.
At quarter. So it was it was that headwind.
We're at a natural gas markets go I mean, you know theres a lot of speculation on that and across the globe and a lot of its dependent on the winter.
So.
To answer to say, it's a onetime thing I think it would be inappropriate I think it's more of a.
An item that is going to be dependent just on supply and demand and weather.
Okay understood and then lastly on capital allocation.
I realize there's a CEO transition, but at least for the 2022 fiscal year is the priority sort of remaining in the deleveraging camp and then on a related note sort of is the 150 to 170 million of Capex that you are guiding for this year does that represented.
Semi normal level of Capex as you see your business looking for it out of them.
Yes, just to add two things one to the answer to your first question. Our priorities will remain the same we will be very disciplined to make sure we're spending the appropriate amount on maintenance capital and safety.
Leveraging and are aligned to our priorities are focused on expanding our presence in plastics, particularly <unk> and on integration in our in our paper business nothing has changed there and.
We like I said will be in our strategic planning process.
In terms of what do we focus next on from a broader growth perspective, but respect of 150 to 175 or $170 million being normal.
Look that's what we believe we wanted to be normal for the last four or five years. Unfortunately supply chain issues that really impacted the ability to spend at that level. It's not been a capital issue for us nor a human capital issue is getting it getting the machines that are ordered delivered.
So are we.
We believe we have line of sight to spending that this year and 'twenty two.
And we would do so if we're able to get that.
That delivered and we believe we will that's the.
Ben that I would say it would be our normalized level currently.
If we can get the get.
The equipment delivered.
Got it okay. Thank you.
Again, Please press star one to ask a question. The next question is from George Staphos with Bank of America. Your line is open.
Thanks, very much hi, guys.
Wanted to come back on one thing. So you know tax aside your your earnings and VIP in particular.
Implicitly we were better than expected and so when you look back at fiscal fourth quarter. What was the key factor in terms of the surprise on the guidance, which was very very significant route to where you were back in July even with some of the headwinds.
You talked about here.
<unk> and Nat gas and then my second question.
Just you gave us thank you.
Outlook from a volume standpoint, and youre expecting across the businesses can you talk about what exit rate you're seeing right now on volume early in fiscal <unk> across the regions <unk>.
The product lines. Thank you.
Yeah, George I'll answer the second first which is.
November was very strong we're very pleased with the start of the year.
Early December looks good but it's early.
And it's pretty consistent with what we spoke to in volumes in the third quarter.
Margins are good still and so really great start to the year. It gives us encouragement about where we're headed in achieving our commitments.
As to the fourth quarter, the big driver was exactly the factor that caused our working capital will be higher.
The maintenance of the high levels of inventory cost that allows the indexes did not change in the <unk> not to go down and our margin spread to maintain and so that drove with a little bit better.
<unk>.
Volumes in particularly in August and September and strong in North America in particular.
Is what drove the operational improvement.
And I'll add a little bit of just.
Higher pick up sooner on pricing in paper than we had built into the forecast.
Thanks, Larry I'll turn it over.
We have no further questions at this time I'll turn the call over to Mr. Eichmann for any closing remarks.
I think Chris.
George just pop back in at Bank of America.
It can range there.
I know that's not an issue currently.
Okay terrific well, thank you very much everyone for participating.
Call today, we appreciate the time that you spent with US and look forward to talking again soon I'm pleased to have a very happy and safe holiday season ahead.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
Please wait the conference will begin shortly.
Okay.
Sure.
Sure.
[music].
Okay.
Yes.
Yes.