Q4 2021 Pactiv Evergreen Inc Earnings Call
Greetings and welcome to Pact of Evergreens Conference call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad as a room.
Mind you. This conference is being recorded it is now my pleasure to introduce your host developed Patel Senior Vice President of Investor Relations and strategy. Thank you. Mr. <unk> you may begin.
Thank you operator, and good morning, everyone. Thank you for your interest in fact, evergreen and welcome to our fourth quarter 2021 earnings call with me on the call today, we have Michael King Chief Executive Officer, and Michael Ragan, Chief Financial Officer before we begin please visit the events section of the company's Investor Relations website at Www Dot pack of evergreen Dot com and access the.
The company's supplemental earnings presentation management's remarks today should be herd in tandem with reviewing this presentation.
Before we begin our formal remarks, I would like to remind everyone that our discussions today will include forward looking statements, including statements regarding our guidance for 2022.
These forward looking statements are not guarantees of future performance actual performance could.
Could differ materially from those contemplated by our forward looking statements.
Therefore, you should not place undue reliance on those statements. These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect we refer all of you to our recent SEC filings and our upcoming annual report on Form 10-K for a more detailed discussion on those with.
The forward looking statements we make on this call are based on information available to US as of today's date and we disclaim any obligation to update any forward looking statements except as required by law Lastly, during today's call, we will discuss certain GAAP and non-GAAP financial measures, which we believe can be useful in evaluating our performance our non-GAAP measures should not.
Not be considered in isolation or as a substitute for results prepared in accordance with GAAP and a reconciliation to the most directly comparable GAAP measures is available in our earnings release and the appendix to today's presentation unless otherwise stated all figures discussed today are done.
During today's call are for continuing operations only.
With that let me turn the call over to pack of Evergreen CEO , Michael Kim Mike.
Thank you Devin and good morning, everyone and welcome yesterday after market close pact of Evergreen released its fourth quarter 2021 results. We finished 2021 with momentum across all of our business segments, achieving 30% year over year revenue growth in the Q.
This included a 23% improvement in price mix due to contractual cost pass through and pricing actions that partially offset inflationary pressure in materials conversion and transportation costs.
We were able to deliver a quarterly adjusted EBITDA of $205 million. This is our highest level as a public company.
That said due to the continued labor constraints impacting our industry that worsened in the fourth quarter due to omni crown related absenteeism, our fourth quarter and full year 2021 results remained below the revised full year fiscal 2021, adjusted EBIT target we provided in September .
These industry challenges will likely continue for several quarters. The company remains committed to strengthening our innovation pipeline, increasing productivity and exceeding our valued customers expectations.
Proud of our employees there.
Their perseverance and the sequential progress we've delivered over the past few quarters, we have taken a number of steps to stabilize and strengthen and better position the company for long term, but our work is not done.
I will go through this later in more detail, but first I wanted to turn it over to Mike Reagan to walk us through the financials for the fourth quarter.
Thanks, Mike.
Moving to slide six and touching on our Q4 2021 highlights we were encouraged by what we've seen in our Q4 results net revenue was $1.5 billion to $7 billion up.
30% on prior year.
Net income was $34 million up 89% on prior year.
And adjusted EBITDA was $205 million up 21% on prior year and 72% on Q3 2021.
Moving to slide seven.
For full year 2021, net revenue was $5 $437 billion up 16% on prior year.
Net income was $33 million and adjusted EBITDA was $531 million down 14% on prior year.
Moving to slide nine and a deeper discussion of our Q4 2021 performance.
Net revenue was $1 $5 billion to $7 billion. This is 117 $5 billion in the same period last year, an increase of 30%.
The increase was primarily due to favorable pricing, primarily due to higher material cost pass through to customers across all segments as well as the benefit from the foodservice segment's acquisition of fabric out on October one 2021.
Partially offset by slight declines due to lower volumes as well as the impact of a disposition in the first quarter of 2021.
Adjusted EBITDA was $205 million.
$170 million in the same period last year.
An increase of 21%.
The increase was primarily due to favorable pricing, partially offset by higher material logistics and manufacturing costs.
Free cash flow defined as adjusted EBITDA, less capex was $122 million versus $95 million in the same period last year driven by higher adjusted EBITDA.
Moving to slide 10.
Looking at our full year 2021 financial performance net revenue was $5 437 billion.
This is 468 9 billion in 2020, an increase of 16%.
Increase was attributable to favorable pricing principally due to higher material costs passed through to customers within the food service and food merchandising segments as well as higher sales volume within the foodservice and beverage merchandising segments, largely due to high demand as markets continue to recover from the COVID-19 pandemic.
In addition, the pizza.
This segment's acquisition of fiber Cal on October five 2021 contributed $106 million of higher sales for the year ended December 31, 2021 as compared to prior year.
Adjusted EBITDA was $531 million versus $615 million in the same period last year.
The decrease was primarily due to higher manufacturing logistics and material costs net of higher cost pass through to customers. These decreases were partially offset by higher sales volume.
Adjusted EBITDA for the year ended December 31, 2021 included $50 million of additional costs incurred related to the impact of winter storm year.
Free cash flow defined as adjusted EBITDA less Capex was unfavorable to 2020, primarily due to lower adjusted EBITDA.
Moving to slide 11, this slide helps to bridge Q4 year on year revenue and adjusted EBITDA.
Looking at revenue when comparing to Q4 last year. The key drivers of our revenue growth with price mix of $265 million and $96 million from the acquisition of <unk> net of a disposition.
For adjusted EBITDA price mix favorability more than offset higher costs, whilst the benefit of the fiber tower acquisition added $9 million.
Moving to slide 12, and our results by segment for Q4.
Service segment saw net revenues up 57% driven by higher pricing to recover Cogs increases as well as the impact from the acquisition of <unk> and higher sales volume.
Food service volumes for the quarter were up 19%, including the <unk> acquisition and up 4% organically on 2020 and up 3% from 2019, including the <unk> acquisition or down 11% on an organic basis.
Adjusted EBITDA for the segment was up 46% versus same period last year, primarily due to favorable pricing and the impact from the acquisition of <unk>, partially offset by higher material and manufacturing costs.
Our food merchandising segment, so net revenues up 17% driven by favorable pricing, primarily due to higher material costs passed through to customers, partially offset by lower sales volume primarily due to labor shortages.
Food merchandising volumes for the quarter were down 7% on 2020 and down 2% on 2019 volumes.
Adjusted EBITDA for the segment was up 5% versus same period last year, due primarily to favorable pricing, partially offset by higher material and manufacturing costs as well as lower sales volume.
Our beverage merchandising segment, so net revenues up 13% driven by favorable pricing, primarily due to higher material costs passed through to customers.
Higher sales volumes due to the market recovery from the COVID-19, pandemic and favorable product mix.
Beverage merchandising volumes for the quarter were up three.
3% on 2020, but down 7% on 2019.
Adjusted EBITDA for the segment was up 25% versus the same period last year, primarily driven by favorable pricing lower manufacturing costs and higher sales volume, partially offset by higher material and logistics costs.
I'll pass it back to Mike King for further comments.
Thanks, Mike.
Now if youll turn to page 14.
While we have faced a number of challenges and market volatility. During this time, we do believe we have made steady progress over the past 12 months, we've taken additional pricing actions to help offset inflationary pressures. We have started to stabilize the performance of our paper mills.
We've made progress on our strategic review of our beverage merchandising segment, including the completion of our exit from the coated groundwood business.
We also announced the sale of our 50% interest in nature pack beverage packaging as well as our carton packaging and filling machines business in China, Korea, and Taiwan as we focus on growth in North America.
Proceeds from the sales will also lower our net debt and leverage ratios.
We acquired fabric Hill and are making steady progress on integrating the business and unlocking growth synergies, we announced the second pension lift out there.
Significantly reduces our pension obligations.
Please turn to slide 15.
We also continue to make progress on our ESG goals as a paper manufacturer and converter. We believe that supporting sustainable forestry is critical to our long term success. One way. We do this is by procuring fiber from third party certified sources in 2021, 30%, 32% of our fiber was purchased from these certified.
Sources up from 30% in 2020.
All pact of evergreen facilities, followed the sustainability metrics benchmarking the company introduced last year, including the recently acquired fabrication facilities. In addition to providing sustainable products. We believe that we must also support organizations that educate consumers about recycling and composting and provide opportunities.
Please for consumers to recycle or compost our products, we are proud to collaborate with our industry partners on these important initiatives and celebrate each milestone.
For example, as a result of these initiatives paper Cups are now accepted for recycling in Atlanta, Georgia, Detroit, Michigan, and Madison, Wisconsin.
Further as we make progress on our ESG journey, we actively report on our activities through a variety of value disclosures.
We already started to see improvements in our ESG ratings, notably from CDP and sustained <unk> in the fourth quarter and we invite shareholders February disclosures and other reports phoned in.
Our investors.
Pact of Evergreen Dot com site and the ESG section most.
Most importantly, as Youll see on the slide.
In 2021, our safety record improved purgative evergreens overall injury rates more than two five times better than industry averages.
More specifically total case rates were down 19% compared to 2020 and lost time restricted time case rates.
We're down 24% during the same period in.
In addition to our employees' physical safety act of evergreen values our employees.
Overall, well being in the fourth quarter.
Company introduced an enhanced paid time off benefit for our U S. Based salaried employees. We believe this improved benefit will drive our people centric culture by providing our employees increased flexibility and by empowering employees to prioritize mental and personal well being.
So if you could turn to slide 16.
We're providing our fiscal year 2022, adjusted EBITDA guidance of $705 million.
This guidance assumes continued pricing actions as needed to offset continued inflationary pressures. The guidance also takes into account the continued labor challenges, which we expect to persist in the first half of 2022 before improving in the second half.
We expect a volume recovery to be more muted as our business segments faced tougher comps and we focus on rebuilding inventories to improve service and reliability.
Our forecast includes a full year contribution from the fabric Hill acquisition and accounts for scheduled mill outages in the second half of this year at this time I would like to thank all the pact of evergreen workforce for their commitment and continued hard work to serve our customers and enhance the value of the company for all of our stakeholders where.
Main focused on continuing to improve our production capabilities and service our customers to the best of our ability with that let's take your questions operator.
Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star.
Archie.
Just of time, we ask that you each keep to one question and one follow up thank you.
Our first question comes from the line of Chris Parkinson with Mizuho. Please proceed with your question.
Great. Thank you so much for taking my question, Mike I'd say the first wanted to just taking a step back from everything that's going on.
Given the management changes that.
Strategy evolution over the past few quarters as well.
General op initiatives, especially the mills.
How would you just broadly grade your efforts, thus far and how you'd expect your investors expect us to further evolve over 'twenty two in terms of potential benefits. Thank you.
Yes, so a lot of other things Chris.
So.
Given given the circumstances and the things that we all face in this industry I think we grade ourselves really fairly well.
Yes.
Setting some of those circumstances, aside and getting to the controllable elements of our business.
I'm very pleased with the team that I'm building in.
The velocity that we're getting especially as we exit Q4 and early days here in Q1 of 2022 so.
Our strategy.
Both micro and macro within the business is working.
And I think if you if you just look at the Q4 results.
And the challenges and the prior Qs, we're starting to see our plans take traction.
And that's broadly across all three of our segments.
Great. Thank you and just a quick follow up just you know just given all the inflationary pressures in the business.
<unk>.
Terms of the raw material basket and even.
Labor.
Can you just highlight just your expectations for the cadence throughout the year you had a few comments on slide 16.
If you could further dig down and I'll just offer some additional color as well as how we should think about non pass through pricing efforts. Thank you.
Yes, just generally speaking pass through or non pass through we've taken a pretty aggressive stance in terms of making sure were staying on the right side of the rising inflationary pressures were getting.
The cadence.
We'll be as it has to be and so.
We continue to take them.
Aggressive steps.
And.
On both both the raws.
No just broadly.
Kind of this inflationary environment.
The open dialogues both ways I will just say, we've gotten a lot of support the customer base is very.
Where and living the same challenges we are so I think all the way to the store shelves, we're going to continue to see that and I think you can expect us to stay aligned if not somewhat ahead of that pace through 2022 and beyond.
Thank you so much.
Thank you. Our next question comes from the line of Ghansham Panjabi with Baird. Please proceed with your question.
Hey, guys good morning.
Thanks for taking my questions. So I guess first off in terms of the bridge between 'twenty, one and 'twenty two in terms of EBITDA.
Can you just give us some high level parameters what are you baking in in terms of volumes by segment.
You had $130 million unfavorable price cost in 2021, what does that look like for 'twenty, two and then the impact from the mill outages.
Can you just sort of disaggregate that relative to the.
The variance of the just from your impact of $50 million from 'twenty one.
Yes. Good morning, gentlemen, this is Mike <unk>.
So in terms of.
Volumes for next year.
This year actually.
What we would expect to see is some grief, obviously foodservice will have the benefit of the fabric cow acquisition.
And we expect to see growth in both foodservice and food merchandising.
And so the impact from volume there should be.
Quite substantial.
In both of those segments in terms of beverage merchandising because we closed the coated groundwood complex and we're just going to.
And also we're just rebuilding our inventories there.
There won't be much.
Volume effect.
Or on year I, just wanted to note, though that one of the things that we are doing in terms of volume is we've got to rebuild our inventory. So that we can continue to service our customers. So.
With.
What you would expect to see may not be exactly the way that okay.
It kind of serving our financial so we want to build inventory so that we service our key customers and so.
The volume recovery might not be as high.
Both of the food segments is as you would expect.
It will be reasonably substantial.
And but.
A lot of the additional production that we're going to be pumped.
Pumping out is going to.
Into inventories.
So.
In terms of pure dollars of pure numbers, I think foodservice will be up.
Because of fabric out.
Probably around 10% food merchandising up a couple of percent.
Okay great.
Then on the food merchandising segment I mean this is.
You've called out labor issues specific to that segment over the last at least over the last quarter as well.
Is there something unique about the construct of that business, that's more labor intensive than the other two segments.
Any insight there and then also as it relates to maybe out of stocks for that segment.
Has it already peaked and are we on the flip side of that or how should we think about the recovery curve specific to that segment.
Yeah, it's it's not unique in terms of the.
The labor issues.
However.
It's been a couple of things Dave there was.
It was mostly driven by labor issues in some of the dedicated.
Plants for food merchandising.
Okay.
Plants.
We were spread very much across across the U S, but some of our plants.
On the East coast have been hit a lot harder than others and so it just that's just sort of the way the cards fell.
And so in terms of getting labor into those plants.
The labor the labor thing was really around getting.
Full time workers, but also.
The various regions that the food.
Merchandising plans for and we just hit harder by them across all of what's said there was a lot of absenteeism.
And that was problematic for us and so it just it was.
As I said it was just kind of the way the cards fell there with those plants. The other thing I would say is yes.
We are seeing the same progress we've seen in the other segments.
We're seeing the same improvements so it is not.
No more exposed just to mikes point was really around.
On the ground really was dense that period.
Very helpful. Thank you.
Thank you. Our next question comes from the line of George Staphos with Bank of America. Please proceed with your question.
Hi, guys good morning.
For all the details.
Piggybacking on <unk> question, Mike If you mentioned it I apologize I missed it but can you parse out some of the bigger bridge items to the EBITA of 705 from the $5 31. This year fabric cow, what do you expect that to add $40 million plus or minus.
Do you recover the price cost negative in this past year, which is $1 30.
And if you mentioned what the outage cost was I had missed again, what do those items look like going from $5 31 to 705, that's question number one.
Question number two.
What is your goal for net leverage by the end of 'twenty two.
In that.
Cash flow.
True free cash flow do you generate that you can apply to deleveraging after dividends after taxes after interest. Thank you.
Yes, sure no worries George and good morning.
So in terms of the benefit from <unk> thats about $50 million impact in that bridge.
In terms of the price cost dynamic.
We're expecting to see costs continue to go up.
And we have.
But we do think that we do get on top of the pricing.
And we have already as you as you saw in Q4, so there's probably a $50 million benefit from that price cost dynamic now, obviously theres a lot going on in the world at the moment sure.
So some things there.
What I would tell you also with regards to their awesome.
Increases in.
Our flex SG&A and other.
That probably werent factored into anyone's bridges.
Just some things like.
Transition services arrangement income and things like that.
Some foreign us resetting the bar on us.
And.
The long term incentives.
Do drag on.
Dave.
The forecasted earnings day.
And so and then the remainder being higher volume.
Yes.
In the business so and.
And like I said George.
We're not going to sell through all of the additional volume that were manufacturing this year, because we want to get.
Back to normalized service levels.
To continue to be the best partner, we can too.
Our key customers, okay, so that drag what would it be and again the outages what would it cost. If you had mentioned before I apologize, but I didn't hear it in your response here Mike.
The drag probably around $40 million for zero.
Okay and the outages.
The outages.
Net outages will probably increase costs this year of about 10, okay.
Okay. Thank you and on the leverage and cash flow.
So the leverage.
We're expecting to be somewhere between five and five five times by the end of the by the end of the year.
And then and then in terms of cash flow.
It really all depends on what happens happens with working capital we are looking to.
We have.
In terms of pure numbers, the EBITDA, we've talked about capex.
We're probably expecting to be somewhere in between.
Similar to this year might be a little higher between two and 310.
And then.
<unk>.
In terms of <unk>.
Working capital if we if we continue to increase our working capital that could be a cash.
Outflow.
<unk>.
Up to $100 million now, we can sell that inventory inventory through.
Scott.
I just wanted to call that out that we are looking to build inventories again to get back to service levels.
So we do think.
Over and above that we do have the asset divestitures debt.
The beverage merchandising Asia.
And middle East.
Divestitures that we've announced switch.
Should bring in substantial cash flow.
Yes.
Thank you Michael.
Okay.
Thank you. Our next question comes from the line of Mark Wilde with Bank of Montreal. Please proceed with your question.
Good morning, Michael and Michael.
I wondered just to start off could you give us some sense, Mike regen, what the year over year benefit will be from all of these increases that are out there in bleach board in uncoated paper pricing.
Despite approximately.
Yes look I think.
In terms of the beverage merchandising segment.
We were expecting just pure pricing to go up over $100 million in that segment.
E R M.
Alright.
How would you expect that to roll in through the year do you have any sense of that.
It will be reasonably consistent through the year a lot of them a lot of the announcements have already been put through maybe a little lighter in Q1 than the other than the other three quarters.
Okay, and then over on the labor issues I'm just curious.
Mike King.
Weather.
Whether you expect these to persist for some time and also whether it's just changing how youre thinking about work processes investment in automation in those businesses.
Yes.
We're absolutely focused on.
During two things so yes.
World's changed a lot in the last couple of years.
The virtual work.
Opportunity people have today versus manufacturing jobs is something where.
We are addressing.
We bring people to work and we retain them.
We're seeing.
That shift in we'll call it the manufacturing culture take.
Take hold and we're retaining people and doing things that I think are table Stakes now versus maybe historic manufacturing.
Employment environment.
Outside of that absolutely you hit it on the head automation has been a core focus of ours through our strategic investment program.
Historically kind of pre me, but I would tell you that we are.
We are looking at every way that we can insulate the business from.
Absenteeism dynamic that we continue to face.
Okay and just finally on this labor in all three segments as well that's not okay.
And Mike I'm, just curious with the labor issues.
It seems like all companies are seeing more turnover and could you just talk about how that's affected productivity.
Do you have a lot of people cycling through you've got people, who are new to job slip any idea.
Deal what that's done to just productivity for you.
Yes, I would tell you the biggest the biggest challenge we have is adapting to change, which is coming fast and furious whether it be weather events, whether it be new ways of variants.
The pandemic.
All of those things.
What are contributing to.
We'll call it slower than desired momentum on our major initiatives.
<unk>.
Think we had an estimate of last year's impact of well over $150 million in terms of our ability to get after productivity.
And really get out in front of the mills.
Specifically in the business.
This year in really in through Q1, we did get caught up on labor.
We think the retention element is a dynamic battle that we will continue to have to address through retention programs and sign ons and things like that.
But.
So to pin down a number it's really it's squishy in.
It's definitely real but I'd say that we're most hampered in our ability to manage and adapt to change quickly versus execute the projects.
We should have taken a quarter last year. It took us three quarters for instance.
Okay very good I'll turn it over.
Yeah.
Thank you. Our next question comes from the line of Arun Viswanathan with RBC capital markets. Please proceed with your question.
Great. Thanks for taking my question.
And I guess just following up on this line of questioning you guys have definitely gone through a lot of.
Difficulties in.
Changing dynamics over the last couple of years.
I recall back around the time of the IPO, we were modeling kind of an $8 50, $838 50 number on EBITDA for 'twenty two.
If you were to think about now the guidance being in the 700 or so slightly above that range. That's maybe a 130 150 delta so.
Is that is that the right thinking and if you and if it is maybe could you help us kind of understand maybe some major buckets of that say 100 million plus is it maybe rather than say $50 million or so.
And then the impacts from.
Some of the labor and other issues that you've called out and then maybe the beverage merchandising also another 50, so equally split between those or how did you kind of think about the Delta where you are now versus where you thought you'd be say a couple of years ago.
Yes, I think the biggest.
Start with the biggest and.
Work my way backwards.
The largest <unk>.
<unk> really is around the beverage merchandising segment.
And and.
Essentially.
The mill performance.
We would've expected to be 770 $870 million to $80 million better than where it is today.
So that was where we where we would've expected to be.
And.
It's just taking us a whole lot longer.
The unexpected to recover that operational performance.
And then over and above that.
<unk>.
<unk>.
Okay.
Inflation the.
Operational performance of the business.
These labor challenges.
Over.
And also we would have expected that.
We would have seen a greater recovery from Covid.
That that makes up the remaining today.
When we were modeling.
Back at the IPO times, we would've expected COVID-19 to be done and dusted in early 2021, well, we all know that the lag.
On that.
Up and down and.
And the effect has been five right.
Initially the effect for us was really around food service volumes.
And in some school mill issues and things like that but the effect is really being much.
Much larger in terms of the workforce in terms of absenteeism.
At a time that that has gone on.
Between.
What we would have expected and what has actually happened around COVID-19 .
That's very helpful. Thank you and I guess this is a follow up then do you see a path to getting back to those levels.
Where would you say that we are on say Bev merch and then.
The other areas. It does seem that some of those could be potentially addressed in your pricing and August and then maybe some moderation in inflation would help too but is that is there a path back to those levels over the next few years.
<unk>.
No.
Certainly those levels the changes in our business have to come into account.
As I look at this but we've got the divestitures, we've got some we've got.
Executed the closure of coated groundwood so.
World's changed a little bit we've acquired fabric Hill.
So you've got to take those things into account, but absolutely in terms of.
All the things you just rattled off and more inclusive of our.
Our own internal initiatives.
It's not unreasonable to expect us to be back at those levels.
Okay. Thanks.
Thank you. Our next question comes from the line of Adam Samuelson with Goldman Sachs. Please proceed with your question.
Thank you and good morning, everyone.
Good morning.
So I guess a bunch of questions.
Following up on some of the earlier discussions on the 2022.
Guidance bridge.
Maybe first as we think about.
Volumes across food merchandising.
In foodservice.
Labor kind of my understanding was caused some volume loss, especially in the second half of 'twenty one.
You couldn't have the people to actually run your plants full and then sell what you wanted to sell it.
Do we take that how do we think about that from a comp perspective and in 22 is that the point, yes, we might be building inventory as opposed to actually sell.
As opposed to actually increasing our sales volume just feeling that there is a pretty easy volume comp, especially in the food merchandising business in the second half that doesn't seem to be reflected in the guidance.
Yes.
In terms of the guidance.
Start with food merchandising.
We are expecting to see growth in food merchandising.
And a number of areas.
In 2021.
Obviously, there was some labor challenges and we expect to be on top of those.
Dave.
Growth expected in certain pieces of that business.
Eggs in 2021 were an area that.
Debt.
Lower than historically.
And even lower than.
Pre COVID-19 , so we'd expect to see that come back and we also are expecting to see conversions away from foam polystyrene.
Patents that we don't produce into molded fiber and clear PT accounts that we do produce.
And so and then in that segment as well our Mexican business continued to grow strongly as does our protein trading business. So we do expect to see good volume growth in.
In food merchandising.
In foodservice.
The key for US there obviously, we've got the year on year benefit from fabric out, but the key for us in foodservice is to ensure that we can serve SaaS large.
Foodservice distribution customers, so that they can win in the market and Thats, where we want to build out our inventory somewhat and then.
We will.
Selling.
Selling through all of that volume as we get later in the year. So.
There is a little bit of a take a step back to move forward.
Best for the long term of the business, but.
But within 2022, you won't see the benefit of that large growth thing.
<unk>.
And volume and we have.
Actually strategically.
Exited a couple of customers just to just to make sure that we.
Servicing our key customers as best as we possibly can.
Okay, and then just a couple of clarifying questions first.
Volume pressure is really the labor challenges related to <unk> in the in the fourth quarter is it reasonable to assume that those would have persisted in January and might be coloring. Some of your more guarded comments on labor for the for the first half and then does the guidance assume that you divested.
Asian beverage packaging and selling business.
So assume a full year contribution from that.
And the 705.
So.
<unk>.
The 705 does assume that we have divested boats that those beverage merchandising businesses throughout the year.
And in terms of the labor impacts through through Q1.
As with.
Any any sort of data you can see the number of cases.
In terms of <unk>.
They've come down.
And we've seen.
Early on in January there was a massive spike and there was absenteeism.
But we're getting back to sort of normalized levels now.
Okay. Thank you for that I'll pass it on.
Thank you. Our next question comes from the line of Kyle White with Deutsche Bank. Please proceed with your question.
Hey, good morning, Thanks for taking the question you made a number of divestments and exited the coated groundwood recently business. There do you still have more to go in terms of assets that you view as non core or do you think you have the portfolio, where you want it now and then kind of Relatedly is that strategic review is still ongoing.
So.
Just in line with what I've shared historically on this as well.
We are we continue to evaluate.
The beverage merch and truthfully.
We've tried to be as transparent and as I mentioned before it's going to be an iterative process. So as we've as we've kind of arrived at.
Intersections, where we can make the decisions and be very open and we continue to plan to do that I would tell you.
We're still very heavily engaged in the review process.
It's going to be ongoing.
By no means do we have any other decisions to share at this point.
But yes, I would just say largely similar to 2021.
Activities.
Yes.
And we'll be open about decisions as they come forward.
Okay.
And then on the inventories I understand the rationale to try to build up inventories. So you can better service some of your key customers.
Longer term, but are you able to give us a sense of one when do you expect to reach your target levels and are you trying to get back to pre pandemic levels or do you expect to still run a little bit leaner relative to pre pandemic.
So we're targeting kind of getting healthy on inventories across all the segments in Q3.
Late Q3 ish.
And.
And yes so.
No I don't believe we will target.
Pre pandemic inventory levels in all cases.
Certainly.
As you look at volumes in consumer buying trends, we need to move with some of those and so in some cases, we will we will.
Look to raise inventories and in other cases, we'll look to optimize and reduce.
The other thing I just wanted to say because it continues to come up as service levels are a huge piece of the need to rebuild inventories.
But the other side of that is we have to take cost out of the system.
And so if you can imagine.
The efficiency of our trucking and transportation costs.
Not having the right level of inventory.
To fully cube trucks is a big deal.
And so.
Improving our efficiency on transportation, which is when you look at one of the biggest inflationary levers impacting the business.
No secret there so.
Servicing customers, but taken cost out of the system for everybody as a part of that strategy as well and so.
It's not just.
The right thing for our customers, it's the right thing for the overall business as well.
Got it appreciate the details I'll hand it over.
Thank you. Our next question comes from the line of Anthony Pettinari with Citigroup. Please proceed with your question.
Hi, This is actually Brian birchmeier sitting in for Anthony.
Is it possible to say what level of contribution you expect from the strategic investment program in 2022, I think around the time of the IPO you were looking for maybe a 50 million dollar contribution in 'twenty. Two is that still reasonable and is that included in the price cost guidance that you gave earlier.
I think what we'll see is.
Yes.
What we spend we'll see the remaining piece just play itself out.
In terms of.
With sort of moving away from being focused on that because we've with.
Spin most of those categories, we're moving into other Spanish with doubling down on automation and those sorts of things.
But in terms of.
The plant itself I think.
We would expect to see some residual benefits probably in the $30 $40 million of amounts.
That flow in through 2022.
Frankly, though Brian .
We've sort of been looking at all of our Capex.
Not just specific to the strategic investment program, because we have new investments in 2022 that we'll see benefit there and so.
The benefits from Capex or sort of all lumped together.
I haven't gone through them.
This one was part of this program and this is part of another one.
So largely we're shifting shifting and we kind of rounded out the strategic investment program as discussed previously in 2021.
And so as we talked about automation, we've talked about digital enablement, we talked about reactive capacities.
Those are the things in the areas that we have to focus on to insulate our business from not just the labor challenges but.
Improve our ability to manage change and so that's the shift youll see youll see much more benefit on a run rate basis from the prior Sip.
The last phase of the Sip if you recall was a much.
It was.
Longer term run rate payback, so automation programs with longer tails.
And we're kind of rounding that out now.
Got it thanks for that and.
Just on the Capex number I think around kind of the IPO you were looking at like $250 million for 'twenty. Two obviously, you've done fabric counts. So it is going to go up a little bit youre looking for north of $300 million. This year is it still reasonable to think you know maybe 50% of that goes towards growth and productivity.
Projects and 50% towards maintenance.
Detailed you can provide there would be great.
Yes, I think as the rough split.
A reasonable.
Number like 50 50 50.
The other thing I would say that normalized $2 50 level I think also.
Reasonable as well.
Our spend is elevated currently is if you look at the work we're doing in our mills on the maintenance side and reliability side.
I don't think thats indicative of normal.
To reiterate that.
Yes makes sense I'll turn it over thanks a lot.
Thank you. Our next question comes from the line of Andy Schenker with Onyx Credit Partners. Please proceed with your question.
Hi, good morning, Thanks for taking my questions.
Can you inform us.
What youre seeing on the labor front that informs your.
Your your expectations that that labor will improve in the second half of the year.
Yes.
We've got several Kpis, we look at.
It's a knife fight site to site. So it's a very integrated.
<unk> of the world for Us and it's different region to region.
But the key the key things, we look at our vacancy rates retention rates.
And the curves.
Both proactive and reactive metrics that tell us that we're getting on the right side of it.
We've been making progress since kind of late summer.
With some ebbs and flows linked to known spikes weather events you name it.
And the data shows that we're winning we're not we're not shedding humans, we're gaining humans in their facilities and were retaining them.
Both of those metrics are.
What gives us confidence.
Okay, and then when the asset sales would remind us what the what the expected net after tax.
Proceeds will be if the sales growth both go through.
Yes.
Around $330 million.
Okay.
And then just on the on the mill outages can you remind us what which ones and what the timing is.
In which particular quarters.
And is it a rough rollout 50 50 split.
Both mill outages for being Q4 this year.
Okay.
Thank you.
Thank you, ladies and gentlemen, our final question this morning.
On the line of George Staphos with Bank of America. Please proceed with your question.
Hi, guys I'll try to make a quick following on Bryan's question.
If we think about productivity for pact of on an ongoing basis, how much can you get at.
Annual basis without applying much capital just best practices and the like and how much would require further capital investment is there a way to quantify that is question number one.
Number two as we think about <unk> and trying to have some loose.
<unk> grilles around it.
What would you offer to US should we just simply take last year and add back storm Yuri how would you have us sort of begin to model that and then for Mike King Mike.
You're the relative newcomer so to speak how do you think about the dividend overall in terms of <unk>.
Value returning capital allocation why do you see an important is an important obviously the company has got a lot of other things that can generate more return how do you view the dividend. Thank you guys. Good luck in the quarter.
Okay, George So I think.
First this is Mike I'm going to answer yes.
And in terms of the dividend right now.
When I look at this.
Yes.
With our current share price, we're running at circa 4%.
Dividend yield.
And to me.
That's pretty damn good.
And so it may well be that.
The dividend is the share price issue.
Anyway, I quite like to look at that particular, thank you.
What we sped off in Q4 for adjusted.
Adjusted EBITDA.
The way that we've restructured our balance sheet gearing.
In terms of.
As we sort of fluid flow forward, the EBITDA and then over and above that.
Maturity profile on al.
Well, let's kind of good.
In terms of.
The benefit of the uplift in terms of output.
We can get at without investing capital, yes, we have multiple manufacturing platforms.
Yes.
Not one size fits all.
If we if we can get an extra 5% out of.
Al.
Our assets sweat the assets somewhat.
I would say.
Go get for Us and I think it's something that we can do.
And can we get more.
Yeah I think.
I'll hand that over to Mike, Mike King, but heat.
Coming in and from what I'm hearing from him and he thinks we can get both but yes, yes, yes. So you are hearing this paper paper optimism here, but yes. So.
Yeah.
There is certainly value unlock without having to spend.
A bunch of capital reality is there is enough choppiness in the network right now.
Yes, we talked about earlier, it's all about momentum being able to focus on waste elimination.
And keep an eye on profitable growth as well as manage inventory growth.
Are the priorities finite resources. We've got is there are $100 million.
Worth of opportunity in the system, we think there is.
It's all about philosophy, which we believe we can get on top of rebuilding inventories keeping people coming through the door.
And that's really so with stability absolutely are confident in that number.
Pace at which we can get after that and manage through the change is Brazil dynamic for management group.
And any thoughts on one queue. Thanks, guys.
Both.
George in terms of Q1.
I think Q1 for us is generally a lower quarter.
Demand.
To me.
In Q1, we should be.
Afterwards.
Over $150 million.
Can look at the impact of winter pulmonary.
I think this time last year demand wasn't as strong as well but.
I think.
Let's say 140 to 160.
Ill give you that Q1.
That's fantastic guys. Thank you good luck in the quarter I appreciate all the time.
Thank you.
Thank you, ladies and gentlemen that concludes our question and answer session I will turn the floor back to Mr. King for final comments.
I just wanted to say thank you everyone for joining and we look forward to talking to you at the end of Q2.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.