Q1 2022 Berry Global Group Inc Earnings Call

February 3, 2022

Good day, and thank you for standing by welcome to the Berry Global earnings call.

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 one on your telephone.

Please be advised that today's conference is being recorded.

If you require any further assistance please press star zero.

I would now 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's first fiscal quarter of 2022 earnings call.

Throughout this call we will refer to the first fiscal quarter as the December 2021 quarter.

Before we begin our call I would like to mention that on our website. We've provided a slide presentation to help guide our discussion this morning.

After today's call a replay will also be available on our website Berry global Dot com under our Investor Relations section joining.

Joining me from the company I have Barry <unk>, Chief Executive Officer, Tom Salmon, and Chief Financial Officer, Mark miles.

Following Tom and Mark's comments today, we will have a question and answer session in order to allow everyone. The opportunity to participate we do ask.

You can limit yourself to one question with a brief follow up and then fall back into the queue for any additional questions.

As referenced on slide two during this call we will be discussing some non-GAAP financial measures. The 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.

These statements are made based upon management's expectations and beliefs concerning 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 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 Barry CEO Tom Salmon.

Thank you Dustin and welcome everyone and thank you for being with US today, let's begin this morning on slide four where we've laid out our key takeaways for today.

We are reaffirming our full year fiscal 2022 outlook, despite the impact of ongoing unprecedented inflation and supply chain challenges across the world. The convergence of these continuing issues in the new Omnipod Marion negatively impacted earnings in the quarter with the strongest effects felt in the month of December .

Overall demand finished in line with our expectations, but could have been.

<unk> had we seen improvements in supply chain.

We have focused our efforts on meeting customer demand, while actively combating rising costs and investing for future growth in this dynamic macro environment as.

As we manage these disruptions we are continuing to work alongside our customers to provide the innovative and sustainability focused products they require.

I'll highlight a few of these projects in my closing remarks, as they play a pivotal role in maintaining our growth momentum in fiscal 'twenty two and beyond.

We are confident in our demand outlook and even more confident in our long term strategy, our people and strong leadership position in the market.

Next delivering value to our customers to shareholders remains a top priority.

We have been committed to a flexible and disciplined capital allocation strategy that balances returning capital to our shareholders and investing in our business for long term growth through both organic and inorganic opportunities.

Our financial performance and balance sheet has strengthened considerably over the past several years. We are now in a solid position to return capital to shareholders, while still maintaining financial flexibility to execute our strategic plan and further strengthen our balance sheet and invest in future growth as a result.

As we announced earlier today the Companys Board of Directors has approved a $1 billion share repurchase authorization program, which replaces the existing authorization.

We anticipate fully utilizing this new program over the next two to three years and expect to repurchase at least $350 million of shares of outstanding common stock in fiscal 2022, including the $50 million, we repurchased in the first fiscal quarter.

This authorization demonstrates the board and management's confidence in the company's future and its ability to generate consistent and dependable free cash flow.

As we've stated on previous calls we are committed to a balanced capital allocation strategy to maximize shareholder value, which is supported by our strong free cash flow and we'll thoughtfully include continued investment to grow our business organically grow through strategic acquisitions that will enhance our ability.

80 to grow organically.

Turning capital to shareholders and debt reduction we are highly confident in our ability to generate significant shareholder value based on our historic track record and future growth prospects.

Backed by a very strong order backlog and active pipeline of opportunities and a number of planned organic growth initiatives, we are optimistic and committed to our long term organic growth strategy.

Next let me turn to our number one core value on slide five and that is safety keeping all of our teammates healthy and safe.

We have an ongoing commitment to identifying managing and minimizing safety risk during the past few years. The pandemic presented many challenges across our global footprint, our global Berry team stepped up and took on the challenge by implementing to maintain new protocol, all while keeping each other safe and in spite of these added.

Challenges and operate operating during the pandemic our safety performance has continued to show improvement and.

And we're very proud of our industry leadership delivered an osha incident rate below one for fiscal 2021 significantly better than the industry average of three 7%.

Our team's emphasis on working safely and servicing our customers in a challenging environment has made us a stronger and better company, giving us great optimism on the company's future success. Additionally.

Additionally, as you can see on this slide we have a strong commitment to ensure that we are providing better opportunity and bringing innovation to provide multiple lives to natural resources.

Had a many initiatives with industry and external partners to improve circularity and our carbon footprint now.

Now I'll turn the call over to Mark who will review Berry's financial results Mark. Thank you Tom.

Before we move ahead into the details for the quarter. Please note that the prior year December 2020 quarter contained additional shipping days for our U S based businesses. When we discuss volumes, we have made the necessary adjustments to exclude the additional days and it provided normalized data for proper comparison, just as we did last year.

Additionally, we will compare the current period quarter to the pre COVID-19 quarter two years ago.

At December 2019 quarter and will refer to this on a two year basis.

We believe this comparison provides meaningful and useful information to investors about the longer term trends in our businesses and mitigate any impact that the COVID-19 pandemic.

Both both.

Benefited and negatively impacted portions of our markets.

I would like to refer everyone to slide six now.

For the first fiscal 2022 quarter reported sales were $3 $6 billion normalized.

Normalized sales were 18% higher than the prior year and up 30% on a two year basis.

Organic volumes were 3% lower than last year in line with our expectation as we recorded 7% organic volume growth a year ago.

When compared to pre COVID-19 levels on a two year basis organic volumes were up 4%.

From an earnings perspective, we generated operating EBITDA of $457 million.

Which was down from the prior year quarter, primarily as a result of the product mix benefit realized a year ago and unprecedented inflation and supply chain disruptions this year.

Despite these challenges on a two year basis operating EBITDA increased 4% and adjusted earnings per share increased by 33%.

These strong results over the past two years were driven by our focused strategy to invest organically in each of our businesses and strong execution in the face of significant cost increases in our primary raw material resin as well as inflation in other raw materials freight and labor on top of ongoing supply chain challenges are.

Please around the world have shown unwavering dedication to executing against our strategies, which has delivered 2% organic volume growth in fiscal 2024% in fiscal 2021, and we expect another 2% in fiscal 2022.

As we have demonstrated historically and will again throughout fiscal 'twenty. Two we remain committed to passing through cost inflation and believe we are well positioned given our scale to serve customers with our facilities in close proximity to our customers' locations, providing cost and sustainability advantages.

Our ability to efficiently pass through inflation was demonstrated as our selling prices were over $700 million higher than the prior year with a pass through percentage of approximately 95%.

Now I'd like to turn to the quarterly performance by each of our four operating segments starting on slide seven.

For the quarter, our consumer packaging International Division delivered a 7% increase in revenue over the prior year and a 15% improvement on a two year basis, including organic volume growth of 3%.

Regionally, we have seen modest positive volumes in developed markets, along with stronger growth in emerging markets, such as India and Eastern Europe .

From a market perspective categories, such as food and beverage and foodservice have seen solid volume growth, while industrial markets continue to experience some modest headwinds related to supply disruptions experienced by our customers.

Operating EBITDA on a two year basis is up 10% primarily attributed to the organic volume growth.

And cost productivity, partially offset by the timing lag of recovering inflation.

Next our consumer packaging North American Division delivered a 40% improvement in revenue on a two year basis, including organic volume growth of 6%.

Selling prices increased by over 30% versus the prior year from the pass through of inflation.

From a market perspective, we are seeing solid demand for food and beverage and healthcare markets, partially offset from the impact of supply chain challenges.

Operating EBITDA on a two year basis is essentially flat as the organic volume growth has been offset by the timing lag of recovery and significant inflation.

On slide nine our health hygiene and specialties Division delivered a 36% increase in revenue on a two year basis, including an impressive organic volume growth of 11% during the same period, partially offset.

We benefited by strong demand in response to the COVID-19 pandemic.

In the quarter similar to our other divisions, we saw selling prices increased significantly from the pass through of inflation as.

As expected volumes were modestly lower than the prior year quarter as a result of strong year over year comparisons and our hygiene and health care markets.

On a two year basis, the segment benefited from organic capital investment and support of strong market growth in health care hygiene and PPE related products.

Operating EBITDA on a two year basis is up 13% primarily attributed to strong volume growth, partially offset by the timing lag of recovering inflation.

And lastly, our engineered materials division delivered a 36% increase in revenue on a two year basis with a modest volume decline over the same period.

In the quarter, we saw selling prices increased by 32% from the pass through of inflation.

Volumes were down modestly as the recovery in business was negatively impacted by COVID-19, along with the Onboarding of new business were offset by supply chain and labor challenges.

On a two year basis operating EBITDA was down 9% primarily attributed until the timing lag of recovering inflation.

As you can see on slide nine we are reaffirming our fiscal 'twenty two guidance of adjusted earnings per share of $7 27.

So $7 70 zones and organic volume growth of 2% as provided on our November earnings call.

We are also reaffirming our full year free cash flow range of $900 million to $1 billion and as Tom noted, we expect to repurchase at least $350 million of shares in fiscal 2022, including the $50 million, we repurchase in our first fiscal quarter.

We are pleased with the efforts of our teams and the resilience of our business to reaffirm guidance given the persistence of inflation supply chain disruptions and labor constraints.

As referenced on our last call we remain committed to recovering a significant inflation, we witnessed in fiscal 'twenty, one and here in early in fiscal 'twenty two.

We anticipate from both an earnings and volume perspective, and a stronger second half of the fiscal year as we continue to recover inflation supply chain improve our new business and capital investments ramp up.

On slide 10, again for free cash flow, we continue to expect to generate $900 million to $1 billion. This includes cash from operations of $1 seven to $1 8 billion less capital.

<unk> expenditures of $800 million as we continue to see a strong pipeline and of growth and cost reduction project with returns well above our cost of capital.

I'm extremely proud of our execution and delivering on our free cash flow guidance every single year. Since we started providing guidance nine years ago. Our capital allocation plan is clear with a flexible return based focus.

We intend to use our strong dependable and consistent free cash flow to fund customer supported investments to drive sustainable long term organic growth.

The other with active portfolio management of enhances our organic growth potential through strategic acquisitions and divestitures.

Our debt leverage range of three point out of the three nine times.

This concludes my financial review and I'll turn it back to Tom Thank.

Thank you Marc as you can see on slide 11, we have consistently driven top tier results in nearly all key financial metrics, including strong compounded annual growth rates for revenue earnings and free cash flow and have grown our adjusted earnings per share every year as a publicly traded company.

Likewise on slide 12, you'll see the significant value created for shareholders since our IPO, which is favorable compared to the S&P 500 returns our business model is extremely resilient and includes the broadest portfolio of packaging solutions with strong dependable and stable free cash flows to allow us the flexibility.

<unk> to drive the greatest returns for our shareholders.

We are very well positioned to continue to deliver significant value for our customers and shareholders.

The strategic choices, we've made guide how we prioritize our investments into the business and we're investing now in several areas that will continue to drive long term organic growth such as the initiatives highlighted on slide 13.

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 end markets, which offer greater potential for differentiation and growth like E Commerce healthcare and pharmaceutical.

I am very confident in our team's ability to meet our near term and long term expectations and execute on our commitments to provide sustainable profitable growth.

Near term, we are a dependable growing business that is supported by a robust pipeline of new earned and secured business, which we believe is enhanced as we increase our presence in these faster growth end markets.

In line with our focus on faster growing end markets, we commercialized our first U S comprehensive commercial scale clean room for our nine layer blown film manufacturing line, which supports business applications in the fast growth markets of healthcare and pharmaceutical.

Next we will continue to invest and expand our emerging market position in support of our unwavering commitment to global growth.

We believe that by increasing our presence in the faster growing end markets, along with continuing to invest into emerging market regions. We will further enhance our ability to provide consistent dependable and sustainable long term growth we.

We will continue to focus our global Mega trends that we will continue to focus on our global Megatrends as we expect emerging markets to grow faster than advanced economies and we believe there will be a considerable demand for our protection products and regions with rapidly increasing population.

And lastly, we remain uniquely positioned to provide a consistent stream of innovative new packaging solutions, we continue to invest in global innovation capabilities and centers of excellence to capitalize on what we believe is one of our strongest opportunities for both growth and differentiation that being the overwhelming demand for sustainable packaging solutions.

For example, we believe our recyclable polypropylene drink Cup is the most widely recyclable Cup for quick serve restaurants, and convenience stores, having the ability to incorporate recycled content, while maintaining the performance and clarity attributes our customers require our.

Our demand and growth pipeline for these products, including other beverage and spirits products is strong and we expect to continue to grow in these areas and capture share from alternative substrates.

In line with the strong customer ban just recently, we announced a $110 million expansion for our clear sustainable foodservice packaging business. These investments are customer lot and the clear design meets an increased demand for a cut that showcases premium brand image and beverage appeal, while improving restaurant.

<unk> efficiencies and offering an effective sustainable packaging solution as compared to the other cup offerings in the market.

We are committed to remaining at the forefront of the industry and innovating to meet and exceed our customer sustainability goals.

In line with these initiatives as you can see on slide 14.

Barry has received a a minus rating for our leadership action on climate change from the carbon disclosure project or CDP, which is a not for profit organization that runs global disclosure systems for investors companies cities states and regions to manage their environmental impact.

Various part of only 12% of companies and the plastic product manufacturing group, who have reached this leadership level.

Additionally, <unk> was honored to be named number 35 out of 2000 public companies on America's most responsible companies presented by Newsweek and global research firm stuff feedstock.

Further demonstrating our commitment to sustainability leadership, we recently announced our partnership and collaboration with hotel energies to make food packaging more circular and divert waste from landfills. This will help reduce waste and allow us to use more recycled plastic in our food and beverage packaging and health care products.

Through our collaboration with suppliers, we aim to provide customers with premier access these in demand sustainable resins like those already serve in the European region.

In conjunction with the multiple recent collaborations we just recently announced our most ambitious sustainable packaging goal to date as you can see on slide 15.

30% circular content use across our fast moving consumer goods packaging by 2030. This is an increase from our original target of 10% and includes both recycled and renewable materials, our new $35 30 goal aims to give natural resources multiple lives and introduce alternative renewable resources.

As the industry continues to pivot towards recycled and renewable resources.

We look forward to continuing to lead the way in driving innovation and sustainability base growth in announcing many more opportunities over the next several years.

In summary, Barry delivered solid first quarter results in the face of supply chain challenges and persistent inflation. This leaves us with much work to do towards delivering on the expectations. As we have provided for the balance of the year and our teams are ready for the challenge as Mark stated earlier, we are confident in our fiscal 'twenty two plan for both volumes and Ernie.

As we continue to recover inflation experienced supply chain improvements and see new business and capital investments ramp up in the back half of this year.

Very proud of our accomplishments in achieving our stated goals set forth in may of 2019, including growing organically integrate our most recent acquisition and delivered deleveraging the balance sheet.

These results along with our expectations going forward, including generating $1 $7 billion or more of cash flow from operations to continue to allow us to drive sustainable and consistent organic growth are the result of a resilient business model and the hard work and perseverance of our entire team globally.

We will continue to focus on driving organic growth supplemented by inorganic opportunities, while providing more consistent return of capital to create maximum value for all stakeholders.

Thank you for your continued interest in Berry and at this time, Mark and I'll be glad to answer any of your questions.

As a reminder to ask a question you will need to press star one on your telephone.

We draw your question first.

Sure.

Our first question comes from the line of Ghansham Panjabi with Baird. Your line is now open.

Hey, guys good morning.

As it relates to the.

2% volume growth.

Assumption for the fiscal year 'twenty two.

First quarter down three you have top line comparisons for <unk> and <unk>.

So I guess, what what are you seeing in the pipeline and end markets that is giving you confidence that you'll be able to hit those numbers it.

It seems like the world is more likely to normalize as the year unfolds omicron and I'm just curious what would that be a headwind for you in terms of volumes.

We have invested ghansham in each of our businesses to enable low single digit growth and frankly, we'll see that sequential improvement play out in quarter, two and beyond the only segment that.

We will build based on the difficult comp from a prior year that we will face further headwinds would be our HHS business, but yet very pleased with this performance here in the first part of the year given the exceptional quarter, one that had had but its really tied to the capital investments that we've made we anticipate onboarding at least $400 million of new revenue.

Capital investments going forward lastly, I would say the pipeline and backlog that.

That we have as a business right now gives us good confidence going forward to achieve the 2%.

Okay and then for my second question, obviously price cost was negative $41 million for the December quarter resident did decline in the quarter, but towards the back end, so will that benefit sort of flow through in the March quarter, and if so what is that price cost line look like.

Relative to that $41 million.

We would anticipate being neutral place price cost no later than quarter three.

Thanks, so much.

Our next question comes from the line of Anthony Pettinari with Citi. Your line is now open.

Hi, This is actually Brian birchmeier sitting in for Anthony.

In the last quarter, you called out a $90 million headwind from the pandemic mix benefit largely fading away where does that stand now given all of the crop in the U S government's plan for pre bass distribution.

Yeah. We have we have assumed this is mark good morning, we have assumed that that benefit it doesn't.

It doesn't happen in fiscal 'twenty two.

Q1 here inventories were higher until there was some inventory depletion that occurred in Q1 and I think we all certainly hope this virus is behind us, but to the extent inventories get back in line and there is more variance or whatever that would be a tailwind for that business, but I would say our Q1 impact.

It was very modest and we do not have any impact built into our guidance for the balance of the year.

Got it thanks for that.

On your goal to be 30% circular materials by 2030 can you talk about the supply and availability of those materials right now.

Barry as industry leader can help drive further availability of those materials in the coming years, and then any incremental capex or impact P&L that we should be mindful of Asbury ramps up.

Their use those materials.

Barry has I think been a very strong advocate for the for the use of circular materials the announcements relative to total.

With an additional source of advanced recycling material.

Just adding to that position, we are hoping to secure close to 1 billion pounds of advanced recycling material.

Satisfy our customers' needs.

So that that pipeline continues to grow similarly.

But from a post consumer recycle perspective, we've invested in our <unk> facility in Europe that will contribute to our pipeline as well as we just recently joined.

The WWF Bioplastic feedstock alliance and this.

This is I think testimony to the fact that we don't believe one solution.

We will solve the problem its going to take a variety of solutions and the advent of a bio based component.

We'll continue to further our efforts to reduce our dependence on fossil fuels. So it continues to grow.

And it's all supported by what is unprecedented.

And customer demand, which continues to be very robust.

I don't anticipate.

Beyond the norm.

Capital investment.

That would be incremental beyond what we would normally do.

In that any capital investment would be to support organic growth initiatives as the priority.

Got it thanks a lot.

Our next question comes from the line of Jeff Zekauskas with JP Morgan. Your line is now open.

Thanks very much.

And you guys you say that your shares outstanding and 22 will be $1 39, which is flat with what they are in 'twenty one.

And.

You said that you would also buyback $350 million worth of stock, which at $65 is about five 4 million shares so yes.

There are five 4 million shares of issuance.

Shares in options in 'twenty two.

And are there similar numbers for 'twenty three 'twenty four or is it two and a half can you talk about your share issuance.

Yes, I mean, certainly the timing matters that number is an average over the course of the year and so your assessment is correct and that basically the shares purchased are offsetting.

Incentive compensation shares, but the numbers are significantly lower than what you were coming up with so maybe offline we can work through the math, but.

That number is closer to $2 million and the 5 million, but I suspect part of it is again the way you're averaging in over the course of the year.

$5 million would depend on the timing of when you purchase it and again it would be averaged over the course of the year.

Well, we can offline go through the go through the math.

Secondly in.

And purchasing circular material is.

It mostly polypropylene is that where there is an easier avenue to get circular material or is it also significant in polyethylene.

Polypropylene is the primary area of focus with Youll see it across all polyolefin at some point, but polypropylene is the predominant.

Polyolefin right now.

Where were the advanced materials are coming from.

Okay, great. Thank you so much.

Yes.

And our next question comes from the line of Adam Samuelson with Goldman Sachs. Your line is now open.

Yes, Thank you and good morning, everyone.

Maybe first I was hoping to just clarify that.

Price cost commentary I thought I heard your response to another question.

Neutral price cost.

By the third quarter.

Which would be similar to what you had said last quarter.

So I think last quarter you talked about.

Rather than being flat and resin has has come off so I'm just trying to make sure I'm understanding kind of if something is actually a change there and if so what is it is it more freight.

Labor availability and just help me think about that price cost bound quota.

Yes sure sure two things one is there has been some decreases in resin and the U S.

That same dynamic has not occurred in Europe or were you also obviously have a very big presence.

But effectively there is a benefit we're expecting to come through from that drop in resin from the guidance, we provided a year ago and that's being offset by.

Higher inflation in other categories.

Such as freight other raw materials energy specifically in Europe .

You've probably seen in the news has continued to escalate again, we're committed to passing those costs through but there is a timing lag in passing through those incremental costs. So those those two dynamics are effectively offsetting each other.

Got it and on those non resin related cost so those maybe less.

Less constrained contractual or the lag on how those can work with through on pricing.

That just take longer Im just trying make sure I'm understanding about how.

Accounts that would be correct, yes, that's a fair assessment.

Okay, and then maybe just quickly otherwise.

And I think about the operating environment. The supply chain challenges did you have any volume issues or lost volume related to labor availability in your own in your own operations or where customers now.

We're able to take volumes that you had.

Otherwise anticipated based on labor and supply chain challenges in their operations.

I think it's a little bit of both and I think you've heard other companies report other major Cpg's report.

Disconnects in their supply chain and it ultimately creates the cascade down to us where orders that are placed may not be ultimately ship or because of a given raw material. They may not be able to may be made to meet that specific demand.

So it's a little combination of both.

Clearly on the prime resins today, we're seeing improvement.

And those materials in terms of supply and availability.

We are to some improvement as well on the specialty.

<unk> side as well.

But we do anticipate that in.

In the coming quarters, we will see continued improvement in those supply chains created a more steady state of operation, reducing the amount of disruption to operations.

Alright, Thats all very helpful. I'll pass it on thank you.

Our next question is from Angel Castillo with Morgan Stanley . Your line is now open.

Hi, good morning, Thanks for taking my question.

Just wanted to follow along the lines of the.

Raw material question I guess.

As we think about.

Obviously, what we've seen with energy and oil prices moving higher I think you've talked about keeping everything flat in terms of your assumptions.

For the guidance, but.

Are you assuming also maybe some inflation, whether it's on energy or particularly in Europe or other areas as we think about the March quarter.

And perhaps a little bit beyond that.

Yes, no that's fair I mean, I think the RASM assumption, we've assumed flat, but on the other cost as mentioned.

A couple of questions ago to the response to that we do have incremental inflation assumed for.

For those other costs such as energy.

Got it that's helpful. And then just a quick clarifying one.

I didn't see I guess an EBIT.

Table in the slides just curious if the range is still two five to $2 35 that youre thinking about or.

Kind of pieces within guidance kind of moved around a bit.

Yes, I think look we're committed to driving EBITDA growth here in fiscal 2022, obviously our guidance we.

We provide with us with respect to full year, EPS and cash flow and we're committed to achieving both of those as well as again growing our EBITDA organically in fiscal 2022.

Understood. Thank you.

Our next question is from Mike May have had with Barclays. Your line is now open.

Hey, great. Thanks, Good morning, guys, I guess, just to kind of piggyback off of that real fast.

I guess you did provided an operating range last quarter and I don't see it this quarter. So is it fair to assume it's lower now since you have reaffirmed it.

No that's not the intention.

We just again, we have a slide in there we just didn't update it this quarter.

Okay Fair enough and then Tom on the Upsized buyback I think in the release the company highlighted.

Fully the strong and dependable cash flow and desire to returning cash to shareholders. So I guess can you maybe just give a bit more color on how the board ultimately decided to go this route versus maybe starting a modest dividend or I guess, even doing both with the steady cash flow you highlighted.

Yes.

As a balanced approach we highlighted three primary objectives for the company.

First and foremost being invested in our organic growth secondly, finding ways inorganically.

To complement that.

And thirdly returning.

Cash to shareholders in the form of a share repurchase I think I'd say, a very strong statement relative to the confidence that both management and the board have and the growth growth prospects for our company and I think no demonstrated by the commitment to repurchase.

At a minimum $350 million worth of stock in fiscal 2022, including the $50 million ASR, we've already completed and this this allows us to do.

All three of those things and again further support our organic growth goals and objectives.

Okay.

And our next question is from Josh Spector with.

With UBS your line is now open.

Yeah, Hey, guys. Thanks for taking my question.

Just curious if you would comment on if you were at a stable resin environment and you recovered inflation as you would expect to do over the course of this year, where could EBITDA had been in this quarter versus two years ago, I guess I look at that in the context that organic volumes were 4% higher we should have more synergies from RPC in that base.

But EBITDA was essentially flat.

Help us think about what the right base would or could have been.

Yes, I'm just trying to think of the there's so many moving pieces.

Over that stretch a period I mean, I think certainly there were a lot of challenges over the holidays as you might suspect.

A lot of suppliers customers.

Extended shutdowns.

Over the holiday breaks last year, we had an extra week in there as well and ran.

Over that time period, so look I would say, it's probably in the $10 million to $20 million range.

Incremental EBITDA they could've been.

And maybe even a little more when you think about cost inflation recovery.

But probably somewhere in that order of magnitude.

Okay.

That's helpful and just within engineered materials your comments on the year over year decline were supply chain issues was that more you getting supplies or was that more customers' ability to take supply of shifting or and how does that evolve now into the next quarter versus what you saw in December .

Yes.

The business ultimately in terms of from a demand perspective was predominantly consumer films supporting the snacking and cereal category.

And you probably read some transcripts of of <unk>.

Well known brands that that had similar issues that we in turn were impacted by I would say also though that the businesses that were negatively.

Impacted by Covid made made strong improvements in line with our expectations and in this business. We continue to have about $70 million of new investment to support some of the higher growth markets like E Commerce that will play out over the coming quarters.

So that's a little bit.

The space inside engineered materials.

Okay. Thank you.

And our next question is from George Staphos with Bank of America. Your line is now open.

Hi, everyone. Good morning.

Taking my question and thanks for all the detail I.

I guess I wanted to come back to the overall outlook for the year, if you could give us a bit more in terms of your assumptions that are embedded.

In growth or the volume outlook for <unk>.

<unk> and also the cadence and seasonality of EBITDA.

Good performance in one queue come in as a company.

Below expectations and in turn how are you, making that up and how does that have occurred over the quarters such that you are maintaining your guidance.

George Thanks for the question the each of our businesses ultimately had been invested in to deliver low single digit growth.

From a seasonality perspective, Q1 is traditionally our softest quarter and then we see ramp improvement in Q2, three and four subsequently.

In time, CPA CPI engineered materials, we continue to expect low single digit growth.

And we will continue to see some some headwinds in HHS, which we anticipated again, given the incredibly strong comp that we had in the prior year.

The backlog of opportunity the pipeline of new growth is such that it gives us confidence that.

With an improving dynamic going into Q2, three and four we can offset and mitigate some of those gaps in addition to fully offsetting the resin inflation.

And other raw material inflation that we've experienced no later than Q3, yes, George on the seasonality I mean.

Traditionally our strongest quarter as you know is June followed closely by September than March and as Tom said the December quarter is almost always our seasonally weakest quarter, it's typically around 21% of the.

Full year from an EBITDA perspective, this year may be a point different than that for the factors that we've discussed here. This morning.

But generally pretty close to the kind of the normal seasonality trends that.

We see every year last year I would say it was.

Kind of abnormal year, if you will and part of that was just due to the fact that we have that extra extra week wherever six or seven years, we have a 50 <unk> week to our fiscal year.

Understood alright, thanks for that.

And just a follow on regarding sustainability.

We're obviously partnering with lots of folks you mentioned hotel today, I think that's something going on with pure cycle can you talk at all about which technologies that youre looking at right now seem to be the most promising in terms of your sustainability goals and the 30% that you articulate.

What does that actually measuring you say 1 billion pounds.

It would seem to recall that 30% of your total resin buy would be higher than 1 billion. So help me understand the disconnect what am I missing there. Thanks, guys and good luck in the quarter sure, it's 30% circular plastics across our fast moving consumer goods packaging business by 2000 and that includes post consumer.

<unk> and bio base relative to technology, I think you've seen that we're spreading ourselves across.

And to give us maximum optionality both in terms of investments for post consumer advanced recycled materials as well as the new alliance that we're in around Bioplastics feedstocks as well, it's going to take them all to help our end customers meet their goals and sustainability that said.

The technology that in my view personally.

I believe has the ability to handle the largest amount of waste would be the advanced recycled technologies that are out there right now and.

It's very exciting we continue to work to secure additional feedstocks and early on George We always said that our number one role in this is demand creation and I think as a company we continue to be able to deliver more and more examples out of incorporate these materials successfully in conjunction with our end users to meet.

Their sustainability goals and objectives.

Thank you I appreciate it good luck on the quarter.

And our next question comes from the line of Salvator Tiano with Seaport Research. Your line is now open.

Yes, good morning, Pat.

So my first question is a little bit about your.

Some of that back.

Months.

You've been discussing.

Over the past year, including disposable wipes and.

Fields for E Commerce plastic mailers.

I just wanted to see if you see any risk to demand there do you get that.

When it comes to disposable wipes WCS, we so.

You all before we May go through an academic stage and when it comes to plastic mailers.

Certainly it comes to our attention that companies like Amazon have been using in local new Kraft paper and then Lopes.

Instead of the traditional plastic neighbors so.

What are you seeing there and is there any risk that the demand may be a strong.

Great question, we continue to believe that the E. Commerce space is going to continue to create incremental growth opportunities for us for a variety of technologies and given the current penetration that we have in that market, we expect that to be a growth vehicle for our company going forward.

And then relative to hard surface disinfectant wipes. This is a global market.

The penetration since the pandemic when you contrast, the demand levels.

Versus the pre <unk> pre pandemic period.

Have grown exponentially. So we feel really good about our leadership position in that space. In addition to translating that technology to geographies like Europe , where they were previously underpenetrated.

So we're looking forward to that.

Great and so for my second question.

I Wonder as you think about.

Both organic investments and MMA does it make sense to go a little bit beyond plastics to other substrates, we are seeing.

A number of other large packaging companies willing to diversified more recently.

Would that be something very good consumer.

We continue to believe that plastics provides an amazing opportunity to deliver the feature benefits that our end customers demand.

And our ability to ultimately incorporate unique design to minimize await composition as well as provide them the opportunity to have sustainable solutions to meet those performance criteria. We believe we're uniquely positioned and if you consider the growth outlook for plastic substrates.

Certainly beyond the developed regions of the world.

In terms of per capita consumption.

There is exponential benefit that.

That leads us to believe.

We're in we're in the right substrate that said if there is opportunities for us ultimately to create value.

Other materials, we will certainly give that thought and consideration.

In the future, but at this point, we believe that clearly.

We're in a really good spot and the commitment we have made towards sustainable solutions is the best place to be because our end customers need it and they similarly value and benefit from the attributes of plastics and they want to see that continue well into the future.

Okay, great. Thank you very much.

Our next question is from Mike <unk> Securities. Your line is now open.

Thanks for taking my questions.

First one just how much of the inflation.

In the quarter relates to let's say raw materials versus labor.

Obviously labor and some other costs, maybe a little more stickier, so it's harder to recruit.

And raw materials I, just wanted to get a sense of the breakdown between the percentage that it was raw material inflation in the quarter versus labor and other costs, maybe a little stickier.

Yes.

A largest costs for us are certainly RASM, it's about half of our total cost structure.

Labor is the second.

<unk> cost category, followed by <unk>.

Energy and freight.

On a percentage basis, certainly resin moves the moves the needle most significantly given its half of the total cost, but if youre looking at it just.

Inflation percentage by category I would say some of the other categories have had very substantial inflation in excess of 20% and many of those categories that fall below the top four.

But resin is really going to be the one that that moves the needle for the company.

Got it thanks, Mark and just.

Wanted to get your thoughts just around the broader portfolio of businesses.

When we analyze the portfolio are there any businesses that you think.

As well as strategic fit within the broader organization.

Let's say, maybe like the <unk> business in engineered materials, obviously as you mentioned just recently the $70 million of new investments to support e-commerce within engineered materials, so constantly evaluate the portfolio.

Look the target areas, where there are growth and would you consider getting out of areas, where maybe there are strategic fits.

Yes, we noted that in our in our.

Our earnings conference call supplemental materials relative to our capital allocation debt as part of that capital allocation organic growth being number one and number two being inorganic growth as well as the prospect for potential divestitures. If there's pieces of the portfolio. We think ultimately could have greater value for.

For someone else and that is a an active part.

All of the reviews that we do with our board and management on a regular basis, that's probably all I can say on that at this point.

Thank you.

And our next question is from Mark Wilde with Bank of Montreal. Your line is now open.

Thanks, Good morning, Tom Good morning, Mark.

Mark Mark.

Can you Mark first of all can you just tell us real quickly how much of a omicron, Greg would you anticipate in the second quarter any way to quantify.

I don't think I was thinking to belabor I guess.

Yes, no Thats fair point, I mean look our teams are doing a great job everyone is fighting absenteeism as a result of Covid.

Certainly not immune from that.

We're certainly still going to have some headwinds in that regard in the current quarter.

Last quarter again, I think it was probably somewhere in the $10 million range.

Again, thats a combination of that not just our own internal absenteeism. So I think that's it.

Going to still be in that range would be my guess here in Q2.

Okay.

For my second question I Wonder Tom can you just update us.

On a couple of issues around resin over in Europe , one this.

Proposals for kind of resin taxes.

What kind of impact have you seen if any.

On demand for any types of plastic packaging in Europe over the last two or three years.

Europeans seem to have moved fast around this issue and we have in North America.

They have moved faster and those that have embraced sustainability upfront.

Our winning and that's clearly the stance that we took that we were going to embrace sustainability as a growth vehicle.

And lead in that market and.

And we're doing just that whether it's.

With what we announced today with hotel on advanced recycled materials or whether it's the internal investment we've made in post consumer materials.

That's providing a huge benefit for us that has also been matched by the continued investments that we make around designing for sustainability as well.

Things like on our dispensing solutions, having an all plastic solution that it makes it easier to recycle from a macro perspective on tax in areas that we would be impacted by a tax that is getting pass along the consumer and it has not yet impacted demand because we have ultimately been able to show.

Okay opportunities for continued productivity and weight reduction and some of those those applications but.

Something that recently just came out in Spain that was really notable was that from.

From a.

A material that being advanced recycling was removed from the taxation list.

In Spain, which I think is a great sign of the opportunity out there in terms of incorporating these sustainable solutions and materials to meet the Cpg's global requirements and do it responsibly and sustainably so.

It's a growth vehicle for our company.

Okay very good I'll turn it over.

Yes.

Our next question comes from the line of Joanne with Jefferies. Your line is now open.

Good morning, Tom Good morning, Mark This is actually John sitting in for Phil I appreciate all the detail and thanks for taking my question like the call here.

I just wanted to touch on a couple of things.

I think you said that you expect in the guide resins to be flat I assume that's flat to January levels, but could you also break out some of the other assumptions that are built into your price cost guide of getting back to neutral in fiscal <unk>.

Sure Yes.

Assumption is correct that it's January .

Polymer costs and relative to other assumptions, we've got price increases.

Started taking effect in January one continuing again on February one.

Just a couple of days ago and ongoing right. So we're continuing to combat increased inflation.

With additional price increases to customers as we talked about earlier, we're very we are very efficient pass throughs on RASM. The other costs are a little less efficient, but we're committed to passing them through so I would say broadly our assumption is flat resin increasing costs in other categories.

Being pass through with incremental price as the year progresses.

And are there any buckets that you I guess assume will improve.

<unk> thinking like freight labor is obviously going to be up next quarter, but.

Great energy any of that coming down baked into the guidance or that's all continuing to kind of stay flat to where it is.

Yes, it's good question some of the other <unk>.

Or just items that tend to follow polymer you can.

Think about ink some colorants.

Some of those have started to moderate as a result of the recent and I'm, referring to the United States. Following some of the recent.

Reductions in resin cost so some of those have some moderation built in and those are that's actually happening thats not.

<unk> forecast that's actually happening.

Got it appreciate the color and then and then just jumping back over to the <unk>.

Increase in your in your sourcing the search algorithm again, it's still very early in the process.

Sourcing these going out to 2030, but.

You noted that the.

The premise for increasing your sourcing is really helping with some demand creation youre customers are obviously looking to get more sustainable but is there any.

Is there any direction on this early stage of where youre seeing cost comparisons for these circular residence compared to your traditional pilot things are are they at least as of right now.

Pretty pretty in line.

Or do you actually see potential for margin creation as youre able to.

Increase your sourcing of Serco resins and they become.

Q1 2022 Berry Global Group Inc Earnings Call

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