Q2 2022 Sonoco Products Co Earnings Call

Speaker 3: And thanks to everyone for joining us today for Sanoco's second quarter, 2022 earnings call. Joining me this morning are Howard Coker, President and CEO , Rob Dillard, Chief Financial Officer, and Roger Fuller, Chief Operating Officer.

Speaker 3: Earlier this morning, we issued a news release highlighting our financial performance for the second quarter of 2022, and we prepared a presentation that we will reference during this call. The press release and presentation are available online under the Investor Relations section of our website at www.cenoco.com.

Speaker 3: As a reminder, during today's call, we will discuss a number of forward-looking statements based on current expectations, estimates, and projections. These statements are not guaranteed of future performance and are subject to certain risks and uncertainties. Therefore, actual results may differ materially.

Speaker 3: Please take a moment to review the forward-looking statements on page two of the presentation.

Speaker 3: Additionally, today's presentation includes the use of non- GAAP financial measures, which management believes provides useful information to investors about the company's financial condition and results of operations. Further information about the company's use of non- GAAP financial measures, including definitions as well as reconciliation to GAAP measures , is available under the Investor Relations section of our website.

Speaker 3: For today's call, Howard will begin by covering a summary of second quarter performance. Rob will then review our detailed financial results for the second quarter and discuss our guidance update for the third quarter in the full year of 2022. Howard will then provide a progress report on our strategic priorities followed by a Q&A session joined by Roger Fuller. If you will please turn to slide four in our presentation, I will now turn the call over to our CEO , Howard Coaker.

Speaker 4: Thank you, Lisa. Thanks to everyone for joining our call today.

Speaker 4: Hopefully you've seen our press release and the strong financial results we delivered in the second quarter, which exceeded the high end of our recently raised guidance. Syria's

Speaker 4: We've made tremendous progress on our strategic priorities that enable the quarter's performance and our outstanding first half of 2022.

Speaker 4: Revenue for the quarter was up 38% over last year and the 1.9 billion quarterly sales marked the highest in history of Sonoco.

Speaker 4: A Revenue Performance was driven by the contingent benefits of our ongoing strategic pricing actions.

Speaker 4: Great performance from the Sonoka Metal Packaging Acrohibition.

Speaker 4: Relative stability and volume next.

Speaker 4: and solid operational improvements.

Speaker 4: As you have no doubt heard repeatedly from companies across various industries, the level for plod of challenges and inflationary issues pursue. The level for plod of challenges and inflationary issues pursue.

Speaker 4: Despite this, we expanded our base EBITDA margins over 200 basis points to 16% compared to last year from strong profit performance across the entire portfolio.

Speaker 4: On the bottom line, the Group-based earnings per share to $1.76.

Speaker 4: which was 89% above our result in Q2 of last year.

Speaker 4: based on our first half results and third quarter outlook, where again raising our full year of based on pur rescuer guidance to a range of 6 dollars or 20 cents.

Speaker 4: and $6.30.

Speaker 4: Our operational, commercial excellence and supply chain teams have just done an outstanding job and I want to extend a special thanks to the entire Sonoco organization.

Speaker 4: for delivering these results while continuing to support our customers.

Speaker 4: We've had great institution in the first half of the year and again these results are not changed.

Speaker 4: We have been working very hard on the set of strategic priorities to make our great company.

Speaker 4: on the set of strategic priorities to make our great company even better.

Speaker 4: And later on the call up provides further updates on this progress.

Speaker 4: Now to go over more details on our second quarter performance and our guidance, let me introduce you to our new CFO Rob Diller.

Speaker 4: Rob has been with Sunoco since 2018 handling corporate strategy and M&A activities.

Speaker 4: Rob is a strategic leader of our company and brings extensive experience in corporate finance.

Speaker 4: and accounting, operations, strategy, and corporate development from both Fortune 500 companies and investment banking.

Speaker 4: Rob has a deep understanding of Sunoco's culture.

Speaker 4: and strategic opportunities to partner with our global business leaders to further drive performance improvements and shareholder value.

Speaker 4: Let me say congratulations, Rob, on your new role, and I'll now turn the call over to you.

Speaker 4: Thanks, Howard. On slide 5, we start off financial review with GAAP-EPS and the reconciliation of GAAP-EPS to base EPS.

Speaker 4: Gapy PS was $1.33 for the quarter, a meaningful increase from the same period in 2021. As Howard said, this strong performance was due to continue strategic pricing performance, a relatively stable demand environment, strong performance in metal packaging and improved productivity.

Speaker 4: This improved profitability resulted in base EPS of $1.76 and 89% increase from the same period in 2021.

Speaker 4: The reconciliation from gap EPS to base EPS has 43 cents of adjustments.

Speaker 4: Primaries are related to the amortization expense, the metal packaging acquisition, increase in lifeless reserve, and the exit of our Russian operations, which impacted rescaturing.

Speaker 4: Slide 6 has our base P&L summary for the period.

Speaker 4: These exceptional results illustrate the power of our positions in stable and defensive end markets, where we differentiate ourselves as a supplier of tourists. Where we differentiate ourselves as a supplier of tourists.

Speaker 4: We achieve value for this differentiation through strategic pricing performance that greatly contribute to our net sales growth of 38% to 1.9 billion in the quarter. Furthermore, this price is translating into strong operating leverage.

Speaker 4: This is best exhibited by our 62% increase in base EBITDA and our 78% increase in base operating profit in the quarter. Base EBITDA was 306 million and base operating profit was 250 million in the quarter. We increase base EBITDA margin 230 basis points to 16%. And base operating profit margin 290 basis points at 13.1% in the quarter.

Speaker 4: This focus on margin improvement is strategic and is backed by portfolio management actions, footprint optimization activities, value enhancing capital investments, and ongoing strategic self-help programs.

Speaker 4: Turning to page 7.

Speaker 4: Net sales grew 531 million versus the same period in 2021. This strong performance was driven by several key factors.

Speaker 4: First, volume mix with negative 1% in the quarter was largely an indicator of relatively stable demand conditions in our increasingly defensive consumer-oriented market profile, best exhibited by our market-leading global rigid paper cans business, which achieved 1% volume mix growth. This growth and growth in our other core U.S. businesses was offset by strategic actions that led to volume declines, as well as market weakness in consumer durable markets and international industrial markets.

Speaker 4: Pricing performance in the quarter was particularly strong, with net price of $297 million contributing 21% to growth in the period.

Speaker 4: This figure excludes the price and performance of metal packaging, which was also strong.

Speaker 4: This exceptional pricing performance was both contractual and strategic in nature and as the product of our commercial act one strategy.

Speaker 4: Acquisitions and divestitures generated $290 million of sales in the quarter as metal packaging continues its strong performance.

Speaker 4: Excluding the impact of acquisitions, net sales growth was still 17% in the quarter.

Speaker 4: Finally, FX and others was negative 44 million in the quarter. It's important to note that approximately 72% of our net failure generated in the U.S.

Speaker 4: As shown on Friday, base operating profit increased 109 million to, or 78% from the same period in 2021. As previously stated, the primary drivers for this growth were strong price cost performance, acquisition to best teachers, and approved productivity. Metal packaging was largely responsible for the acquisition growth. This business achieved 21% operating profit margin in the quarter due to strong price cost performance and the benefits of integration.

Speaker 4: So I9 has our segment analysis and base figures. This analysis illustrates the strong performance across the breadth of our diverse and improving portfolio of businesses. And improving portfolio of businesses.

Speaker 4: Consumer net sales grew 66% to $990 million in the quarter. Consumer volume mix was essentially flat during the second quarter as strong international rigid paper can volume mix and 4% flexible volume growth was offset by mix and flexible and strategic volume reductions in our perimeter store business.

Speaker 4: Consumer operating profit grew 114% to 139 million at 320 basis point increase in operating profit margin to 14.1% due to strong price cost and productivity. Consumer operating profit grew 114% to 139 million at 320 basis point increase in operating profit margin to 14.1% due to strong price cost and productivity.

Speaker 4: Industrial paper net sales increased 20% to 727 million the eighth consecutive quarter of record net sales. Industrial paper volume lifts the kind approximately 2% in the quarter to disrupt a demand in international markets and the impact of a tight URB market in the US. tomatoes get wet now.

Speaker 4: This URV market conditions are moderating in Europe . As our U.K. paper mill is again operational after a capital project.

Speaker 4: We anticipate that the US-URB market will be in balance once the project horizon is completed. Industrial paper-operating profit grew 57% to 94 million. At 310 basis point increase in operating profit margin to 13% due primarily to price cost.

Speaker 4: Turning the slides in.

Speaker 4: Year-to-date operating cashflow was 184 million. This strong performance was despite a 258 million increase in networking capital on the first step of 2022.

Speaker 4: This increase in networking capital was primarily associated with the effects of inflation, and metal packaging please anality.

Speaker 4: the elevated levels of inventories associated with buffering disrupted supply chains and to better serve our customers.

Speaker 4: Capital expenditures were $144 million in the first half of 2022. We're maintaining our guidance of $325 million in capital expenditures for 2022.

Speaker 4: Finally, pay 92 million in the period and support of our mission to provide an ongoing return to shareholders and support a market-leading yield.

Speaker 4: Slide 11 has our balance sheet as of July 3, 2022. Our balance sheet is largely reflective of our strong performance and conservative capital structure.

Speaker 4: At the completion of 2022, we anticipate our net depth as a multiple of Bay-C-Bita will be well below three times. We intend to manage our capital structure appropriately to maintain our strong.

Speaker 4: investment grade credit rating.

Speaker 4: Next, slide 12 has our guidance update.

Speaker 4: Our strategy is gaining traction and this enables us to raise our third quarter and full year guidance. We are raising our third quarter base EPS guidance to $1.35 to $1.45. Additionally, we are raising our full year base EPS guidance to $6.20 to $6.30.

Speaker 4: We're also increasing our whole year base EPS guidance, even though it's our guidance to 1.125 billion to 1.15 billion.

Speaker 4: We're not raising our cash load guidance despite our expected strong operating performance due to uncertainty and supply chain and the impact of inflation on networking capital. I've no updated guidance reflects the shutdown of our number 10 paper machines or project horizon.

Speaker 4: We anticipate that this will have a 10 to 15 million impact on base operating profit in the third quarter and the full year. Production will resume in the fourth quarter and we expect a full benefit of the project in 2024. Now Howard will conclude our repair tomorrow.

Speaker 4: Thanks, Rob. And if you'll turn to slide 13 in the presentation, I'm going to provide an update on the progress of our strategic priorities.

Speaker 4: Let me remind you that Sunoco is on journal.

Speaker 4: I took the role of the one model before the COVID outbreak in 2020. At that time, I challenged the team to really start thinking about a better operating model to optimize our portfolio and footprint and ask them to imagine what the organization would look like to support Earth.

Speaker 4: I'll remind you that these planning sessions were going

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Speaker 4: We're getting some feedback in our room. I'm hoping this is carrying through and I will continue with my comments.

Speaker 4: repeat. I'll remind you that these planning sessions were going on amidst a global pandemic compounded by worsening supply chain conditions.

Speaker 6: Fundamentally, our aim was to be a much stronger company and to build a playbook.

Speaker 6: that would result in long-term step change in profitability and value creation.

Speaker 6: for our shareholders.

Speaker 6: To do that, we had to first look at our portfolio.

Speaker 6: We are intentionally aligning to fewer bigger businesses.

Speaker 6: Professor Markis, where we believe we have a right to win.

Speaker 6: and gain leadership delusions.

Speaker 6: Today, our consumer packaging segment represents over 50% of our business.

Speaker 6: an industrial paper packaging as retracted to around 38%.

Speaker 6: We're using a rigorous portfolio management blend to determine where and how we invest, organically and otherwise.

Speaker 6: In parallel, we're focusing on optimizing our manufacturing footprint.

Speaker 6: The outcome of these efforts have been to exit some unprofitable operations in Europe .

Speaker 6: and North America as well, and to scale growth opportunities.

Speaker 6: particularly in Asia, South America, Europe , and yes, here in the United States.

Speaker 6: our coupled focus portfolio and operational strategy.

Speaker 6: centered on serving our customers and the right locations with maximum efficiency to drive superior service and of course improve margins

Speaker 6: Secondly, we're aligning our organizational structure and talent to support these larger scale businesses with a simpler infrastructure.

Speaker 6: leveraging centers of excellence and shared services.

Speaker 6: We're doing this with a greater focus on process standardization to lower operating expenses.

Speaker 6: And this is more streamlined model. We're building a diverse and inclusive workplace. We're building a diverse and inclusive workplace.

Speaker 6: to set a focus actions to promote and hire the best talent in a highly contagious labor market.

Speaker 6: We have a great leadership team at all levels to execute on these positive long-term changes for the company.

Speaker 6: Thirdly, we're investing to grow our consumer in industrial business.

Speaker 6: with high return capital projects for organic growth and productivity and employment.

Speaker 6: In 2022, we evaluated a record $325 million for the capital projects.

Speaker 6: of course led by Project Horizon.

Speaker 6: which Rob spoke to earlier.

Speaker 6: We're also investing more than $60 million to expand our global paper can production.

Speaker 6: $60 million to grow our flexible packaging business and recently $25 million into our domestic metal can

Speaker 6: Division to name a few of our other.

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Speaker 6: As was shared in our December analyst meeting, we are further investing in self-help actions

Speaker 6: of operational, commercial and supply chain excellence programs for EBIT to upgrade and margin improvement over the next several years. This includes B thành underneathing the collegial outcomes of kinds of conteton enquantoings of operating approach and funding the construction cardab?ec have renewed in billion years to begin with the next two May 2020. The C.F.A. government drafts nonlove economic growth and margin improvement over the next several years.

Speaker 6: In addition to organic investments,

Speaker 6: we will evaluate targeted opportunities to inorganically augment these core businesses.

Speaker 6: Lastly, executing on sustainability initiatives is central to our mission. We're increasing our focus on sustainability to reduce the environmental footprint of our operation and commercially to the products we design.

Speaker 6: These were cannon gloves with our customers.

Speaker 6: and supplier partnerships to drive circular economy solutions that support both our commitments to improve recycling and our recyclability of our products, while meeting our aggressive targets to reduce greenhouse gas emissions by 25% by 2030.

Speaker 6: You can get more information on our sustainability progress when we publish our updated corporate responsibility report later this quarter.

Speaker 6: As we continue to navigate these initiatives, we will keep capital allocation aligned to our strategic priorities. We're committed to returning cash to shareholders as evidence by our 40 consecutive years of increasing dividend and maintaining the strong balance sheet.

Speaker 6: In closing, I've been with Sonata for over 35 years and I've been never been more excited to be a part of this organization. We are making step change improvements and how we...

Speaker 6: more efficiently operate the company that is yielding the strongest financial performance in our history.

Speaker 6: I am optimistic about the actions we're taking to make Sonoku a better company and the value we will create for shareholders not only this year but on the next episode.

Speaker 6: So thank you for your support, thank you for your interest in Sonoco, and we certainly

Speaker 6: I welcome any questions you may have.

Speaker 7: A reminder, to ask a question, you will need to press star 1 on your telephone.

Speaker 7: Please stand by while we compile the Q&A roster.

Speaker 7: Our first question comes from the line of Cleve Ruchert from UBS.

Speaker 8: Morning, ladies. Congratulations on a set of results. Just two high level questions for me on the guidance. Firstly, I'm just curious, and I appreciate the cash flow is sort of second half weighted, but I'd like to understand what it would take to unlock the working capital that you called out and perhaps outperformed the cash flow guidance.

Speaker 8: And then just secondly, I think in the release, you talked about returning to a more normalized margin in the future. And I just like to know if you can give us a sense of what that margin run rate is and whether it's contemplated in your implied Q4 guidance. If you could..

Speaker 4: Thanks. Yeah, sure. I'll, Cleve, thanks for that question. I'll take the cashflow question and then we can let Howard and Roger discuss margins as well. So I would say on working capital, we were conservative. The inflation trends that we've seen have still persisted in some areas. We're seeing nice trends there, but that definitely has impacted networking capital in the first half.

Speaker 4: And so has kind of continued to supply chain disruptions, which has led to kind of elevated inventory levels, as we've been, you know, persisted and kind of being, you know, a stable supplier for our customers. And we're starting to release some of these excess levels. We also have, you know, of note, you know, relatively meaningful seasonality and metal packaging. And that packaging, as you can imagine, releases in the fourth quarter after the past season.

Speaker 4: I'd say the other thing kind of of note to your question on how we unlock this value, that's exactly what we're focused on now and we want to guide to what we can control and where we've got new and accelerated initiatives really to manage working capital in the future. We think there's a meaningful opportunity to improve asset efficiency and it's really just the timing to achieve this. That's the key variable whether or not it will be this year or next. Pleaselight strategicMoney

Speaker 6: we're opportunistic about what's ahead there. Yeah, Clay, let me talk about the commentary on normalized margins. That's really talking into the third and fourth quarter. We've got the inflation that...

Speaker 6: discrete inflation that Rob alluded to. We also have the impact noted between 10 and 15 million dollars on the industrial side with our number 10 shut down and restored.

Speaker 6: So we've got some exposures, supply chain, et cetera, that will publicize in requirements of as we finish out the year. If you go beyond this year, we are extremely bullish about, not only the performance this year, but continuing that from all men's to the next year beyond and just to kind of give you some...

Speaker 6: I'm color to really macro things that are going on right now. If you think about number 10, the cost that we're going to incur their share and the benefit next year. Back in December , we talked about our walk to $180 million of self-help work. We've been working that, frankly, for the last year, year and a half with some, but little benefit. I think the most benefit we've seen is...

Speaker 6: We're having a remarkable this year and we do not expect to step back from that going into next year in the future and the expectation is to improve on that year on and year out.

Speaker 8: That's very clear. Thank you very much.

Speaker 7: Thank you. Our next question comes from the line of George Stakos from Bank of America, Merrill Lynch.

Speaker 9: Thanks for the details and congratulations on the quarter. Rob, we look forward to working with you. Congratulations. I wanted to pick up on that question. How could you give us a sense for on the shared services and that area of self-help, what we could be looking at into 2023? It sounds like there's not been as much for understandable reasons. Pick up on that this year. But next year, if you could help us understand what that could be perhaps.

Speaker 6: are our canned businesses or flexible businesses and our global integrated paper business. And we're structuring our centralized functions and support of those critical.

Speaker 6: longstanding.

Speaker 6: businesses within the company. On the other side, we have a group of disparate businesses known in the all other category that we're going to manage differently. We are no longer going to support from Center. We're going to allow them to, they're not integrated. There's not a lot of relationship between many of these. So we're going to set them up to stand alone. And we'll be supported by or from Center.

Speaker 6: when that makes sense to the core from a cost perspective. But the end result is going to be much greater focus.

Speaker 6: on those, again, core businesses. It's gonna be more focused as it relates to, you know, how do we support and manage those core businesses, and it will provide significant SG&A savings as we fully implement that. So it is a totally different view of how we're gonna be managing the company into the future. Roger's heading that up, and he may have a couple of comments that he would like to make as well.

Speaker 6: Yeah, I think you covered a well-houred, but George I'd add, we've talked a lot about automation, and we've got a tremendous amount of really strong capital automation projects going through. It'll be hitting next year, a lot of focus on operational technology and how do we give our operators, our maintenance teams, better online data to improve further-tipping. As you know, productivity has been very tough this year. I think the team's done a fantastic job under very difficult situation with supply chain challenges and labor challenges. So I'm locking that productivity in 23.

Speaker 6: It's gonna be critical and I'm feeling very, very bullish about that as well. So we'll start to see those projects pay off as we head into early 23.

Speaker 9: Thanks for that Roger and Howard. Would it be fair to say that 23, clearly the incremental pickup will be more than what you saw in 22 and that in turn it would be more than what you see incrementally 24 versus 23?

Speaker 9: That's correct. Okay. Thanks for that. Two others for me and I'll turn it over. One, can you talk about the trajectory that you're seeing in industrial as the quarter progressed May into June and then I realize we're not that deep into the third quarter, but any views that you could share with us in terms of what you're seeing in industrial early third quarter? And similar question looking at consumer.

Speaker 9: You know, there's some puts and takes. Your important businesses did well, is my take, obviously, in cans and flexibles. Any change in the trajectory of the businesses as the quarter progressed and then early into 3Q? Thank you guys, I'll turn it over.

Speaker 6: Hey, George Roger. On industrial, as we look at the third quarter, surprisingly, the US is maintaining a really good strength. If you look at the TutankORE business in the US and the second quarter came in 1.6% positive, strong film results, strong text, little tape and specialty, a little bit of downside on paper mill cores, but strong, and we've seen that continue in to the first part of July . We expect very similar trends in North America and the US in North America, and we had in the second quarter, so it was really not.

Speaker 6: And that text will soften. This is really generated by the war in Ukraine and the supply chains or disruptions we're seeing there. Asia overall was weakened that's driven by China. As an example of China, our comb business, which is textile focus.

Speaker 6: was down 37% year over year, so China was soft. So for me, other than the incremental energy challenges that we may see in Europe in the second quarter, we're seeing very similar trends as we move into the second quarter. So the most optimistic piece is really that U.S. Canada piece, which is holding up well. No significant changes as we rolled into the third quarter. In our canned business, we are seeing a rebound in our powder dental formula business.

Speaker 6: There's a well-pubbled size challenge with one of our large customers in the powdering at the formula business that seems to be behind us now. So our North American paper can business should be stronger. Rob's already mentioned seasonally, the second half in metal can is softer than the first. That's in the guidance. And really, I wanna call it our plastic food business. Yeah, the volume was down, but it was down by our choice. We've been talking now for three or four quarters about the plant consolidations we're doing in that business.

Speaker 6: The pricing strategy we have in that business, and we walked away from some unprofitable business, so the volume was down in plastic goods, but they had a record profit performance. So I'll take that trade off at any time. So the really the only significant change we're seeing is really energy focus in the third quarter, and that's to watch out, not only price of energy, but availability of energy, specifically Germany, as we get into the world.

Speaker 9: Makes sense. Thanks very much, guys.

Speaker 7: Thank you. Our next question comes from the line of Mark Wintrob from Seaport Research Partners.

Speaker 8: Another really good quarter. And also thank you for laying out some of the controllables that you're going to be the leverage you're going to be pulling to drive profits going forward. One thing you helped us out with in the first quarter is you had noted that there had been about 30 to 35 cents.

Speaker 10: from quasi one-time price cost.

Speaker 10: Was there much, if any, in the second quarter as we start thinking about what's the right platform to think 2023 where kind of the starting number should be? Is there a number for the second quarter that would be equivalent to that 30 to 35 cents you talked about in the first quarter? Is there a number for the third quarter that would be equivalent to that 30 to 35 cents? Is there a number for the third quarter that would be equivalent to that 35 cents?

Speaker 6: You know, Mark, for the second quarter, you know, really across several divisions, we probably saw in that eight-to-tenth-type benefit. And so you can back that out and say the rest was pretty much pure. Your question really is around how do we cop that to next year.

Speaker 6: You know, there you go. You know, I'm not gonna repeat all the things that we have from a tail-in perspective, that, you know, number 10's a great headline, but as George asks, we haven't seen a lot because we're in the planning cycles right now in terms of structural transformation. We expect that the truly kick-in next year. And again, I'm not gonna repeat all the things, but, well, I will say, if you look at number 10, it's been like the poster child.

Speaker 6: because it's such a large, our largest ever capital investment.

Speaker 11: But we've got.

Speaker 12: Just, I don't know.

Speaker 6: 10, 20, 30, 40, 50, number 10 like projects that are in the one man, five man and 10 man, type range that drive us up to that 325 and capital spending and the free scaffold spending last year and the returns coming from those are really going to start picking in next year. And then finally, you know, the energies have started. And then finally, you know, the energies have started.

Speaker 6: with the acquisition that we expect to see meaningful improvement and tailwinds from that as well. So we talked about the 30 cents a 10 cents and while you guys, what have we gone from 393 to 620 something and one year we expect to be able to maintain that going forward because of all the work that this great team has undertaken over the last two years.

Speaker 10: You're pretty thank you. And you also, I guess one question folks who have been asking, the volumes were flat down a little bit. You called out the plastic food. If it's possible to sort of put to the side where you may decisions to essentially sell less.

Speaker 10: Can you give us a sense as to what kind of the remaining business volumes would have looked like?

Speaker 6: I don't think we can hit a number for you, but it is something that we are going to start pointing out going forward. When you say you're 1% down and whatever, we do make strategic decisions that I fully can impact. We do make strategic decisions that I fully can impact.

Speaker 6: that 1% and that was a great example that Roger pointed out where our upper-memory store business with 9% down which is in our consumer sector.

Speaker 6: 9% down and we had profits that we haven't ever had in that business. Making smart moves, sacrificing volume in exchange for much, much higher profits. So Mark, sorry, I can't just sit here and say, here's the number. But we are recognizing that we're not giving you guys a total picture of what is actually a market driven versus.

Speaker 4: our own self-actions that are that are causing our volumes to be down. That will become an in the future.

Speaker 10: Super, and thank you for the color.

Speaker 7: Thank you.

Speaker 7: As a reminder to ask a question, you will need to press star one on your telephone. You will need to press star one on your telephone.

Speaker 7: Our next question comes from the line of Gregory Andropoulos from Citigroup.

Speaker 10: Hey, Gregg, I've gone for Anthony. I just had a quick question about the full year guide. Kind of circling back to that. So the race to 6.20 to 6.30, to my mind, that's above what the two queue pre-announced would have implied. So my thought process is your expectations for the second half are above what they were back in in April when you updated those slides. So I guess my two kind of related questions. The first question is, how has the second half outlook changed?

Speaker 4: kind of drivers there and how we're thinking about it sequentially from the first quarter, second quarter, and then third, as you mentioned, kind of the increasing guide for the year. As we are, as Roger said, really, really monitoring and participating really actively in our markets and understanding that demand drivers. And I would say that, you know, in our really defensive consumer markets, like rigid paper and metal foods and flexible and thermo-forming food.

Speaker 4: We're able, we feel really good about stability there and defensibility there. That should just continue to provide performance opportunities on the price side. On industrial, it is cyclical and we're monitoring it as Roger and Howard both said. There's various kind of puts and takes there, but we aren't predicting kind of a meaningful downturn in our core U.S.

Speaker 4: and paper markets, those markets continue to be relatively strong. I think that one component on the guide that is unique was that metal packaging does have material seasonality through the year and that the first half has pretty meaningful profitability this year. We're expecting that profitability will be normalized for the remainder of the year.

Speaker 4: and that margins will normalize from their current 21% range that we saw in the second quarter. So I think that all this, you know, the big driver here remains price-cost.

Speaker 4: And I think we really want to make the point that we're not kind of oscillating around kind of a neutral price cost where margins would continually kind of refer to some mean that we've been really focused on margin expansion and pricing to value. And that as a result, we think price costs for the full year of what we've gotten, you know, 164 this year, million this year should be in the range of 250 to 300 million for the full year.

Speaker 4: And that's really the driver for a lot of the...

Speaker 6: the earnings for the rest of the year. Yeah, this is Ronald going to inflation side. You know, we feel like inflation peaked in the second quarter. Now, having said that, they'll continue to be supply chain challenges and inflation challenges, so we do feel like it's paid.

Speaker 6: We're seeing some easing up and freight finally, truck availability, driver availability, automorphs that obviously in diesel cars. The automorphs that obviously in diesel cars.

Speaker 6: Some drop in things like aluminum ingot, you know, they're really, and keep in mind what resin Sanoko purchases, but we are calling our resin inflation going up for the year. We're about 18% in the last quarter, now it's up to about 26. The 50% of the resin we buy, we buy 500 million pounds a year. 50% of what we buy is PET. And it looks like PET is going to escalate from 30 to 40 to 45% this year. So you've got to keep that in mind.

Speaker 6: But I think the point on the second half, in the first quarter, we didn't know what we didn't know about supply chain challenges in inflation. We've got a better B-4 and now we've been more precise. And to Rob's point on strategic pricing, you build that in with a little bit of easing and inflation in the second half. And that helps you understand the guidance changes for the second half.

Speaker 10: Great, great, that's very helpful. Thank you, I'll turn it over.

Speaker 7: Thank you. Our next question comes in the line of Kyle White from Deutsche Bank.

Speaker 8: Just taking the question, congrats Rob on the new role and looking forward to working more closely with you going forward. I guess just to start curious overall across the business, if you guys starting to see any kind of trade down impacts, maybe consumers moving more to food cans or do paper containers versus fresh foods, anything that you would call out.

Speaker 6: I don't think we're seeing the only areas within the portfolio that are notable would be actually on the more high value of our business, and that's the supply end of the white Gibbs industry, refrigerators, washer dryers. Some of that is related to their own supply chain issues, but our customers were telling us they're seeing some pullbacks.

Speaker 6: We're not seeing at this point what we normally would be in a recessionary period and that is a fairly substantial tick-up in the stable food side of our business. So you know, it's kind of businesses normal at this point in time.

Speaker 13: And then Rob, since you're not new to this NOCO and you already have an understanding of the business, just kind of curious what strategic actions you might be looking to implement here from day one. Anything you're thinking about in changing in regards to the CAP allocation or what's your view on leverage and share buybacks?

Speaker 4: Yeah, we're still evaluating that. I mean, it's early days. I think the, you know, the CLs that I can still insert without the clicker guides that I noticed earlier on.

Speaker 4: Legacy practices have certainly served as well. We definitely have a dedication to being investment grade and are thinking really thoughtfully about what that means for the capital structure and what strategic alternatives are. We've thought back shares in the past and we consider doing that, but we really like returning capital to the shareholders through the dividend and think about that every quarter with the board. And think about that every quarter with the board.

Speaker 13: Sounds good, I'll hand it over.

Speaker 7: Thank you. Our next question comes from the line of Adam Josephson from Keybank Capital Market.

Speaker 8: Rob, congratulations. I look forward to working with you, as others have said. One on the price cost, Rob, that you gave, your updated expectation of 250 to 300 million benefits for the year, if memory serves, the company's expectation coming into the year was 125 plus. So it's gone up. It's more than doubled since the beginning of the year. Can you help me with?

Speaker 8: which segments that's in and just frame for us the magnitude of that full-year price-cost benefit compared to what the company has experienced historically. Yeah, and that's a good question and it's something we're really focused on. I mean, if you think about it in a historical context, you know, over the last two years we've experienced negative price-cost of 153.

Speaker 4: million. And then the first half of this year we've worked back to positive 164. So really offsetting really just was two years of a negative trend. I would say that you know we've that whole two years and this year we've been really working on getting price in a really strategic way and thinking about how to deliver value in the right way to our customers and receive the right value for what we're delivering. And so that's changed a lot of how we think about price.

Speaker 4: and how we think about margin. That's really the driver for how we think that, you know, this price-cost curve over the three-year period that you're thinking about, if you include the last two years, will actually just show, if you get to the 250 to 300, just the good work that we've done over the last couple of years. So we feel really confident about that. It's a capability we've been building for a number of years and one that we've increasingly gotten focused on.

Speaker 4: And Roger can talk a little bit more about some of the puts and takes. There's definitely businesses that are experiencing better pricing. But I would say it's a core capability that we're pushing from center. And that it's across the board. We're seeing price. There is no just one pocket of price here or there. Every business is really seeing price.

Speaker 6: Yeah, as well as that, Rob. I think the only thing I would add out of this, and we talked about it now for 18 months or more, the other initiatives is really going through all contracts with all customers across primarily the consumer and industrial art to platform businesses and really understanding price change mechanisms and timing on those price change mechanisms, using the correct price change mechanism, but most importantly, in the environment of the last 18 months,

Speaker 6: making sure we can recover as we should be able to, labor increases and all other increases, all the materials besides things like OCC and resin and metals. So I think, as Rob said, the team's done a fantastic job. I think that's the driver of most of the incremental that you're calling out, and we continue to push that going forward, and we see that continuing in the second half of the year. And I would add, through the COVID,

Speaker 6: making sure we can recover as we should be able to labor increases and all other increases, all the materials besides things like OCC and resin and metals. So as Rob said, the team's done a fantastic job. I think that's a driver of most of the incremental that you're calling out. And we continue to push that going forward. And we see that continuing then so half of the year. And I would ask you know to the COVID period.

Speaker 6: It's really rare. I can't think of one to mine, where we actually literally call a sound time for a customer during these difficult supply chain situations. And I think it just really helped pull forward. Pull forward.

Speaker 6: Our customers recognition of the value of doing business with the global company like Sonoka that when we have a discrete raw material shortage that We have literally a global reach and a willing to do whatever it takes to make sure our customers stay in the market and And deliver that value that that we have for so long and I think they too are understanding that and And we'll be in a water for that in terms of

Speaker 8: of margin improvement. Now I appreciate that Howard. Just one clarification on that. So you recouped all of what you lost over the past two years just in the first half and then you're expecting a lot more in the second half. But then I think in response to Cleve's question you were saying Howard that you don't think you'll be.

Speaker 8: In effect, over earning this year, despite what appears to be a historically large.

Speaker 8: price cost benefit. Is that because you were thinking perhaps you were in effect under pricing in recent years plus you had that drag over the past two years that you recouped in the first half? Yes, that's the effect. That's the effect. That's the effect. That's the effect. That's the effect.

Speaker 8: How you would have us think about that issue?

Speaker 6: That is how we think about it. It's, uh, look, I mean, in a perfect world, a price has nothing to do with cost, right?

Speaker 6: And our customers are understanding that doing business with Sonoco is the right partner to be doing business with them, that we can keep them. And so our value recognition is higher today than they've ever had with them. And as Roger told, we've been working at this for a year and a half, two years really on terms of our commercial excellence and making sure we're getting that message out. It's just COVID just absolutely reinforced.

Speaker 6: to our customers that we are the right folks to be doing business with. Look, we have a major recession. We have a hurricane coming. It's not coming. I don't have insights of that, but it can happen literally in a matter of weeks that we have a global supply chain issues. Our customers know that we will keep them in supply.

Speaker 10: at whatever cost and it may be a short turn up back to RP&Ls but we are going to be there in the store.

Speaker 8: I appreciate that. And just one other one on the URB business, which is obviously an O8-09. And just one other one on the URB business, which is the O8-09. The O8-09. The O8-09. The O8-09. The O8-09. The O8-09.

Speaker 8: That business took a very big hit both in terms of volume and profitability.

Speaker 8: And I know you think about the business a lot differently and the industry for that matter much differently than it was back then. Can you just remind us of that? And then more near term, I think Rob, you expressed confidence that the North American to some cores demand what hold up. And then more near term, I think that the North American will be able to make a better future. And I think that the North American will be able to make a better future. And I think that the North American will be able to make a better future.

Speaker 8: What gives you that confidence given the economic sensitivity of those end markets, particularly given what that this is saw in 0809 volume was? Thank you.

Speaker 14: We're all looking around. Who's gonna answer that? Okay, so I'll start. Okay, so I'll start.

Speaker 15: You know, look, you know the...

Speaker 14: The ballots in terms of the witness booth in short, you already, we've talked about that quarter of our applications.

Speaker 14: you know with number 10 coming on we hope to get our inventory back up. And let me add to that, I mean the productivity, negative productivity that we've seen through this period of shortness where we've been changing over living volume from mill to mill just to keep ourselves and our trade customers.

Speaker 14: and supply. Look, it's still a very tight market. Number 10's going to come on. We'll see the lease. We'll see inventory hopefully get up to the appropriate level. Our productivity will improve substantially.

Speaker 14: And, you know, we just...

Speaker 6: think that overall, these market conditions are set to sustain the type of the type of margins that we've enjoyed. And Adam Seralger, I think, and you have to go back before Project Horizon. If you remember, we put tens of millions of dollars of capital investments into our paper mill system, focusing on expanding the capacity of our lowest cost machines and aggressively taking out our high cost capacity.

Speaker 6: And that continued after the recession for several years, leading up to Project Horizon. And Project Horizon is just going to build on that. And then we'll continue with that. So Project Horizon is not the last investment we'll make in URB. So our system, our URB system, is much lower cost.

Speaker 6: We committed to keeping capacity basically flat and that's what we've been doing and that's our commitment going forward. So it's really a different market today than it was back in away from the known time in my opinion.

Speaker 6: committed to keeping capacity basically flat, and that's what we've been doing, and that's our commitment going forward. So it's really a different market today than it was back in 2008 and 2009, in my opinion. Thanks very much, Roger.

Speaker 7: Thank you. As a reminder, to ask a question, you will need to press star 1 on your telephone. Again, if you wish to ask a question, you will need to press star 1 on your telephone.

Speaker 7: I would now like to turn the conference back over to Lisa Weeks for closing remarks.

Speaker 3: Thank you again for joining our call today and thank you for your interest in Sunoco. If you have any follow-up questions, don't hesitate to give us a call. Please enjoy the rest of your day.

Speaker 7: This concludes today's conference calls. Thank you for participating. You may now disconnect.

Speaker 2: The conference will begin shortly. To raise your hand during Q&A, you can dial star 1.