Q1 2022 Pactiv Evergreen Inc Earnings Call
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Good day and welcome to the past in other Great Inc. First quarter 2022 earnings conference call.
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Thank you operator, and good morning, everyone. Thank you for your interest in fact of Evergreen and welcome to our first quarter of 2022 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.
W. W dot back they've ever Green Dot com and access the company's supplemental earnings presentation management's remarks today it should be heard 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 and actual results 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, including our most recent annual report on Form 10-K, and our upcoming quarterly report on Form 10-Q for a more detailed discussion of these risks.
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 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 in the appendix to today.
His presentation.
Otherwise stated all figures discussed during today's call are for continuing operations only with that let me turn the call over to passive evergreen CEO , Michael King Mike. Thanks Pavel.
Good morning, everyone and welcome yesterday after the market closed pack of Evergreen released its first quarter 2022 result.
Used to report them.
Started the year building off the momentum we saw late last year and realized strong year over year performance in the quarter.
Revenues were up due to strong pricing, while adjusted EBITDA benefited from the strong pricing net of higher cost as well as the benefit from the fabric Hill acquisition and the benefit from Winter Storm Yuri.
Schedule Cold mill outage, which did not reoccur this year.
In general we are seeing more stability in our mill and converting operations and improve profitability in the business, which is helping you to start the year well.
It is also helping us to demonstrate our ability to deleverage the business because our LTM net debt to adjusted EBITDA ratio improved from seven six times at the end of 2021% to $6. Two at the end of the first quarter and remains on track to be in the low fives by year end as we stated in the last quarter.
Let me now turn it over to Mike Regan to walk us through.
Some more detailed financials for our first quarter Mike.
Thanks, Mike moving to slide six and touching on our Q1 2022 highlights we are encouraged by what we see now Q1 results.
Just following a strong Q4 2021.
Net revenue was 1.4 $95 billion up 28% on prior year.
Net income was $43 million with diluted EPS 24 cents.
And adjusted EBITDA was $192 million up 136% on prior year.
Moving to slide eight and a deeper discussion about Q1 2022 performance.
Net revenue was $1.495 billion, that's just $1.164 billion in the same period last year, an increase of 28%.
The increase primarily related to higher material costs passed through to customers and pricing actions plus the acquisition of fabric out.
Volume was down 5%, primarily due to labor challenges in our <unk>.
Exit of the coated groundwood paper business.
Adjusted EBITDA was $192 million.
$77 million in the same period last year, an increase of 176%.
Increase was primarily due to favorable pricing benefit from winter storm, Yuri and schedule coal mill outage cost in Q1, 2021 that did not recur and the impact of the fabric Cal acquisition, partially offset by higher material logistics and manufacturing costs.
Free cash flow defined as net cash flow provided by operating activities less capex was $70 million that she was negative $51 million in the same period last year.
Please note that we have updated how we define and discuss free cash flow.
We now define it as net cash flow provided by operating activities less capex versus previously defining it as adjusted EBITDA less capex.
We believe the new definition is a more accurate proxy for our cash generation activities and it's a destination that more closely aligns without piece.
Moving to slide nine.
This slide helps to bridge Q1 year on year revenue and adjusted EBITDA.
Looking at revenue when compared to Q1 last year, the key drivers of our revenue growth with price mix of $304 million.
And $93 million from the acquisition of Pepper cow net of a disposition.
By lower volume.
Our adjusted EBITDA price mix favorability more than offset higher costs also the benefit of the fabric out acquisition added $22 million.
Moving to slide 10, and our results by segment for Q1.
Our foodservice segment, so net revenues up 54% driven by higher pricing to recover Cogs increases as well as the impact from the acquisition of fabric Hal.
Adjusted EBITDA for the segment was up 90% versus the same period last year, primarily due to favorable pricing and the impact from the acquisition of paprika.
Partially offset by higher material manufacturing and logistics costs.
Our food merchandising segment, so net revenues up 18% driven by favorable pricing, primarily due to higher material costs passed through to customers and pricing actions.
Partially offset by lower sales volume, primarily due to labor shortages.
Adjusted EBITDA for the segment was up 9%, but it's just the same period last year due primarily to favorable pricing, partially offset by higher material and manufacturing costs lower sales volume and logistics costs.
Our beverage merchandising segment, so net revenues up 13% driven by favorable pricing, primarily due to pricing actions and higher material costs passed through to customers and favorable product mix, partially offset by lower sales volume due to our exit from the try to grandmother.
Adjusted EBITDA for the segment was $24 million, that's it's negative $32 million in 2021.
The key drivers were higher pricing the benefit related to $34 million of winter storm, Yuri costs and $16 million of scheduled cold mill outage costs in Q1, 2021 but did not recur partially.
Partially offset by higher material manufacturing and logistics costs.
I'll pass it back to Mike King for further comments.
Thanks, Mike.
If I could have you. Please turn to slide 12, I'll provide a brief update on our ESG progress before my closing remarks.
When it comes to environmental social and governance initiatives, we continue to make progress on our journey.
The highlight from the first quarter was our participation in the launch of Mcdonald's New circular kirkup sourced from equal parts of post consumer recycled and bio based materials.
What's particularly exciting is that the bio base material is crafted in part from Mcdonald's used cooking oil. These.
These cups currently being Trialed in 28, Mcdonald's stores in Georgia can also be recycled along with other polypropylene items.
In addition, an important highlight dimension is that we undertook an analysis of our climate related risks and opportunities as well as examined scenarios to test our resilience in the face of physical and transitional risks.
We expect this work will form the basis of future climate related reports and other disclosures that we make.
To learn more we invite shareholders to view, our disclosures and other reports found at investors that pact of evergreen Dot com and the ESG section.
Now please turn to slide 13, well we're off to a good start for 2022, we are maintaining our adjusted EBITDA guidance of $705 million at this time.
We are seeing conditions in the labor market start to improve and believe we remain on track to see those challenges moderate in the second half of 2022.
At the height of our Labor challenge, we had in over 10% vacancy rate across our enterprise, but believe we are seeing the light at the end of the tunnel. The next challenge. We are working on is training of all of our new staff and again, we're making good progress and believe we are on track to see the labor no longer be a drag on the business again, all by the second half.
With 2022.
We are also seeing continued progress on our mill operations and reliability in general for our operations across the enterprise, but there also remains broad challenges and uncertainty in the market.
Global energy prices have been significantly volatile due to the conflict in Europe , while we have no direct operational impact from the conflict the volatility in the global energy markets can impact, our raw materials energy and logistics costs the.
The general inflationary pressures also remain elevated so we believe it is more prudent to maintain our guidance at $705 million for the full year.
At this time I'd like to thank all of the package 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.
We remain 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.
We will now begin the question and answer session to ask a question you May press is founded on the telephone keypad.
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The first question is from Ghansham Panjabi with Baird. Please go ahead.
Thank you good morning, everybody I'm Michael.
As you sort of zoom out you know in the foodservice segment the last couple of quarters.
Q4 up 4% and then down a little bit in the <unk>.
In the first quarter.
Was there any impact from a you know pre buys as customers try to sort of adjust to resin variability during the quarter I guess I'm just trying to understand what why that segment declined with relatively easy comps up in the quarter.
Quarter.
Yeah. Good question so I.
I think we were open as we exited Q4 and earlier as well, but our goal is to also reestablish service levels.
And in inventory.
Or yeah, I wouldn't I wouldn't say that we've seen any dip.
Demand changes so to answer your question no.
Our customers are with by just about every unit we made still.
So the decline you see in our foodservice segment, specifically it was really around our strategy to reestablish inventories on our C D and E items.
As well as you know we kind of had a slow start to Q1 with Amazon. So you know our ability to service.
I know that January up until late February .
Was slowed by our own ability to deliver.
Got you and then for my second question you know in terms of your embedded resin assumptions for the rest of the year I mean, obviously, there's a big spike in energy costs natural gas is starting to blood to the upside in the U S as well and that's clearly a raw material for for resin. Both of them are just curious as to what your specific guidance is embedding at this point.
Yeah cause bone and Ghansham, it's Mike Greg in here.
So we ashamed continued increases in N resin is.
As forecast in because and also you know at the moment there are a number of force majeure events.
That we're seeing as well.
And this is one of the reasons why our guidance is.
Is it you know we haven't raised guidance given the uncertainty around the resin market just to give you a feel for.
Yeah through the end of the year, what we're expecting to see in overall Cogs.
Our year on year Cogs increase just pure inflation will be over.
Last few Cogs was.
Brad a full 0.9 $5 billion, you know will be out probably the 10, 12% in aggregate Cogs.
And that's that's changed since we did our plan substantially so.
It's gone up by a couple of hundred million dollars, which is why we're.
We were very cautious about the back end of the year and and you know in that forecast so.
Al Al assumptions out to continue to trail off.
As all of the various forecasts that are out there, but where we're.
Also I'm, a little bit more pessimistic than what the full gospel site.
Okay clear thank you.
Yeah.
The next question is from Chris Parkinson with Mizuho. Please go ahead.
Great. Thank you so much you've made a very conscientious effort to improve.
The operations of various assets throughout your portfolio, including the mills I feel as though that effort is really kind of taken hold it especially over the last six to nine months.
Including some new managers can you just give us a quick update on your let's say near intermediate and perhaps even longer term thoughts over those efforts and how would you assess your current performance. Thank you.
Yeah. So.
We completely agree that let's.
Let's say that the horizon you gave in the last six to nine months, we have started to see a shift in.
And a few things are all of our operations not just our mills.
<unk> seen the benefit of.
Must be able to fill.
More of our hourly workforce.
And so you know I think I had mentioned that.
During the height of it.
Labor challenges, we were seeing near 10%, it's not just a little over 10% vacancy rate.
A new approaches to get those seats. So that's been a big big help I think year on year across our enterprise, our OE or throughput rates have seen double digit improvement.
And that's allowed us to start to reestablish inventories and service levels.
The strong demand to help pull through some of that but at the same time, we've been able to be in a position for the first time in a long time to moderate.
You know, how we want to do it.
Shipping everything we make anymore, we're reestablishing health and.
I expect that to continue we've seen Q1 its been are indicative of the same kind of results both in our mills.
And in our our converting operations.
And that fitness is benefiting our warehouse and distribution networks as well and so that part of the controllable part so to speak of our operations is is on track and that plans are coming together.
Together and in some of some of the results.
You know, we're going to talk a lot about the R.
Where are our price cost.
Dynamics. That's also enabled by just what you mentioned, there and our ability to get after it in our operations. So.
Yeah.
That's very helpful and just as a quick follow up can you just give us a quick update on the fabric hub acquisition, you know, how that's going versus the original plan and just given all the moving parts. Yes. Since the deal has closed you know what the rough EBIT contribution would be for this year versus let's say your initial assessment just any broad color.
I would be greatly appreciated thank you very.
I'll give a couple of comments and then I'll, let Mike give you the numbers.
You know, we're very we continue to be very pleased.
With our ability to get after synergies and.
That integration of that fabric L a business.
I would say, where we're ahead of plan and.
We continue to find new ways to create values in both our historic pact of evergreen businesses as well as.
And the fabric care business so.
I would say generally.
Yeah, we're very pleased.
I'll, let Mike speak to the numbers.
Yeah, Hi, Chris it's Mike So the yeah.
I would just reiterate what Mike said you know what.
A lot of stock we'd expected.
The synergies.
Synergies to sort of.
Brian over three to four years.
And you know, where we're hoping to have most of them done within too.
Yeah in terms of what the contribution that she will be we would expect somewhere between $60 million to $70 million.
Yeah. So.
We are really getting off the yeah. The original synergies and yeah, we're looking to build on top of others as well.
Thank you as always.
Yeah.
The next question is from Iran. Viswanathan RBC capital markets. Please go ahead.
Oh, great. Thanks for taking my question, Yeah, I guess I just wanted to revisit the guidance. So you know it was very nice to be in foodservice. So congrats on that.
And it looks like the pricing is really taking hold there.
I understand that Bev merch, maybe you know still kind of a work in progress but.
Is it possible that your you know your guidance is conservative I mean, I understand that the resin prices are still somewhat uncertain. We do we do see some increases for Q2, but.
You know does it also assume that you kind of give backs and pricing is as you move through the year or.
I guess are you building in some conservatism when you think about the full year outlook and could it actually be better than what you're thinking.
You know I would say.
We certainly are optimistic that it could be a little better I would tell you that when we are when we look at the uncertainty around the oil and resin.
And if history is our teacher.
Mike had mentioned the other several force matures already.
Created some choppiness if you will in the supply chains of our major.
Raw materials.
Yeah, that's that's I would say, it's us being realistic and not conservative.
Secondly, you know the.
The global supply chain currently is very choppy.
It's a capital projects or machine purchases or imports on materials.
Both from an inflationary.
And.
Cost and timing perspective.
It's a.
It's certainly something that we've got to keep our eye on it.
And more I would say more of it.
Back half related for US is just Q2 I would say you know.
We feel.
Pretty good visibility.
I would say a very optimistic similar to this Q.
It's the back half of this year, where.
The things I, just mentioned are or what we're we're maintaining our guidance.
We've settled at Adler.
On Bev marriage, I mean is there a possibility that that market gets it.
$30 million plus range I guess, if you want to.
Weren't you.
Leave it in the mills.
And some recovery on reopening.
Yeah, well I missed the front end of your question I'm sorry.
I was just saying is do you think that bad merge could could get into that $30 million plus range on EBITDA per quarter, given a lot of the work that you've completed and you know some of the progress within the mills.
Yeah, I don't think that I mean, I'll, let Mike Reagan speak to the quarterly run rate by $30 million in Q.
I think is within.
Within reach for sure.
Yeah, I you know Aaron.
I think that 30 million a quarter absolutely is within reach for beverage merchandising.
And.
We.
Obviously.
They can be large costs with mill outages that that swing that around quarter on quarter, but on average 30 million as you know we we we would in.
In the future be hoping for a lot more than that but you know this year is that that's a reasonable run rate.
I think you know just talking to you.
And following on to what Mike said.
I said to them.
The only question from Ghansham that you know between when we did our budget or plan for this year.
So al our Cogs of increased a couple of hundred million dollars in terms of the full year forecast so.
You know you talk about pricing coming down we don't.
You know, we don't expect that obviously.
The market will do what it's going to do but we've got to go and get another couple of hundred million dollars of pricing to cover that so we so to say it the other way that that with costs going up we've got it we got to go and get after pricing.
Price, even more so than what we had we saw the good results in the quarter.
And you know what.
We are doing that but you know we as as inflation keeps ticking up we you know we have to keep chasing it so yes that is.
Where a lot of the rescues over and above that.
I mean, you know interest rates going up and all of these are the different things going on in the end markets.
Demand my cell phone. So we're just we're just looking at the full year in a pragmatic way.
We don't want to get ahead of ourselves, even though we had a good Q1.
Thanks.
The next question is from George Staphos with Bank of America. Please go ahead.
Hi, guys. Thanks for taking my question and congratulation on the quarter and a couple of things to one too busy or anything really appreciate you keeping their remarks short putting a release out last night helps the analyst and congratulation on changing the format.
Format, as well being while everybody else my questions guys. One can you give us a bit more on the Mcdonald's Scott number one number two as you are restricting to some degree your shipments to rebuild inventories, which is what you said last quarter. So that's not a change is that helping you at all in terms of being able to get more pricing, which you need.
Obviously, given the inflation and then lastly, as we look at the <unk> you know I'm not trying to go too much quarter by quarter, but I guess I am to some degree you're up against some tougher comps in foodservice versus last year as you recall, what's the outlook for volume growth.
For the foodservice segment and ticket thanks, guys and good luck in the quarter.
Yeah.
Oh I'll jump on the Mcdonald's Cup here.
It's one of many streams, we've got going from an innovation standpoint, we're partnering with our customers.
Certainly as we look for for new ways to to be sustainable to do too.
To be a leader in the space of a social responsibility. It's just one of the many things we've got going specific to that was a collaboration really between Mcdonald's.
And our technical teams to bring something forward that.
No one has done really before using circular circular approach. So we're excited to do it we are optimistic that the 28.
28 locations that are currently selling.
Selling those cups expands to something bigger and.
I think it's indicative of what you should expect from us in the future in terms of bringing interesting new and innovative.
Sustainable approaches to the market.
Okay and with regard to your other two questions there George.
In terms of restricting shipments and are helping price that's certainly not our intent at all.
For us it's all around.
Getting service back to the levels that historical levels that you know a key customers expect of us.
And.
Continuing to maintain loans and and you know we are seeing good progress in that regard.
In terms of the the tougher comps.
For Q2, two in terms of food service, we would say that we will be up.
Year on year in Q2, when backing out the effect of fabric out one O 2% you know essentially.
We we have Russell restored the inventory levels to where we want them to buy eat for foodservice and so we would expect a normal flow.
Inventory out.
In food service.
We don't we don't see any.
Any issues with Q2 year on year comps are.
In terms of.
We expect the growth.
Thanks, Mike I'll turn it over.
Okay.
The next question is from Adam Sandler.
Please go ahead.
Yes, Thank you and good morning, everyone.
Yeah.
I guess the first question.
It is around the food merchandising outlook and just trying to get a sense.
Of volumes in the period and the outlook going forward and maybe disaggregated.
The impact you've had around lower inventories and some of the conscious decisions you've made around rebuilding your rebuilding your own stocks versus.
Lower end market demand.
And then how do we think about those those volume trends.
Moving forward.
Any specific categories or.
Or parts of the store that you would you would call out as being particularly maybe stronger or weaker it would be helpful. Thank you.
Yeah. So.
Food merchandising businesses.
From a segmentation standpoint, you know it includes our our AG business, our egg business for protein business.
But as well as some of our consumer business. So at several channels and it's a you know there's not a one size fits all answer but what I can tell you is.
Similar to what you we've commented on foodservice our approach is the same in terms of inventories.
What we've noticed is between seasonality and.
Some are some events like the the.
Avian influenza that we've seen with the with the poultry.
It does have an impact.
Product availability, which doesn't impact demand. So we have seen some softening, but we do believe it's seasonal in products like <unk>.
Conversely, we see demand a rapidly increasing given seasonality in demand.
Areas like our agriculture or our produce business.
So it's.
It's a moving target and some of the channels. So we're adapting.
The goal to reestablish inventories and allowed us to improve service levels is where we continue to see ourselves to be strong in and that's what our plan is to win despite those one off challenges in each of our segments.
We're watching our consumer channels close for demand right now through Q2 things seem to be fairly stable, but you know again the things we talked about in terms of the back half are something that are specific to our food merchant business, we're watching closely.
Okay Alright, that's that's helpful. And then maybe following I think it was chris's question earlier on fabric, how one because it seemed like the EBITA framing for the for that business for this year, where it was maybe higher than.
You would have said at the time of the acquisition what is that business growing.
Organic volumes and is that outlook improved because that's gonna start rolling into your base later in the year. So I'm just trying to think about how that starts to layer in.
Mike you want to take that one.
Yeah sure.
The business itself.
Growing in line with food service volumes.
In particularly around the E.
S G type products.
We like the cups that Pat.
Broke out cells.
Very much.
Yeah, they're recycled P T.
ESG considered products. So we're seeing good growth there.
In terms of those volumes in terms of the outlook in the in the in the latter part of the year, Yeah, We do expect.
As the synergies start to kick in that that.
That we will see a lift from from fabric out through the back half of the year.
Okay. If I could just take a quick modeling question at the end the.
Corporate unallocated in the period, when it was up pretty notably year on year in them.
They're a cadence or anything noisy in there and what what should we think about for corporate unallocated for all of 'twenty two.
I am expecting that it will be.
Reasonably consistent with the.
The.
The in quarter results. So it will be up a little bit we have you know.
<unk> added head count we've got higher personnel.
Personnel costs, and then over and above that we're spending a lot more money on.
Things like cyber security and and those sorts of things so.
Yeah, we do expect it to be up and to continue to trend up.
Okay I appreciate all that color I'll pass it on thank you.
Hey.
The next question is from Anthony Pettinari with TD. Please go ahead.
Hi, This is actually Brian birchmeier sitting in for Anthony.
I understand <unk> doesn't provide free cash flow guidance, but is it possible to provide some context around free cash flow conversion for the year, our raw material costs rising some other producer just shutting a working capital headwind. Despite improved earnings. So I'm, just trying to gauge that impact to Pat.
Dave and if that could potentially impact deleveraging.
Yeah.
So you know we win when we when we talked last quarter I said that one of the.
Headwinds in terms of free cash flow would be that we'd be building working capital.
During the year and sorry.
The estimated a circa 100 million dollar.
Headwind on on cash flow conversion, because we're building inventories.
The good news is that we.
We we have been able to offset some of that in terms of improving.
Improving our receivables and payables.
And so what I'd expect to see is that rather than that being $100 million. It would be probably on an annual basis December to December probably more like <unk>.
$50 million increase so and.
What I mean by that is inventory will continue to kind of like it to go up but based off.
Strong cash collections and other.
If it's around payables.
Offset some of it is that that that headwind on inventory.
Got it thanks for the color there.
And on your full year EBIT guidance, you know foodservice was obviously really strong in <unk>. So I'm just trying to think about the different segments.
Level of year over year growth for the different segments.
For the full year, you know do you expect foodservice too.
You see the largest portion of that growth, obviously beverage merchandising was up quite a bit as well I'm just trying to think about the year over year EBITDA growth and how that could.
Get a layer into each segment.
Yeah sure.
It's no doubt foodservice will we'll see a lot of grief year on year.
That's driven by the Ah yeah.
<unk> acquisition, and then natural grocers, we'd come back from from Covid.
And so you know.
I guess in terms of where we're sort of saying we'd expect at foodservice.
Two to grow from.
Last year slightly below sort of $300 million to more like <unk>.
400 ish.
And then you know.
Beverage merchandising when I when I think about that segment you know last year it had.
Some some big hits and intend to winter storm, Yuri and applaud that and canton.
And so you know those are natural tailwind for that segment.
Call it $50 million round numbers.
And then you know over and above that we'll see improvement because of the closure of the coated groundwood.
Complex at Pine Bluff, and then some other improvement there so you know.
Roughly speaking you know we'd be going from the 40 odd million dollar.
So the number last year too.
In the in the somewhere between.
At 115, and 130, so and then the remainder would be in food merchandising potentially.
Got it thanks, Mike Good luck in the quarter.
Thank you.
The next question is from Anoia Shah with BMO capital markets. Please go ahead.
Hi, good morning, everyone.
I'm just thinking about the fact that consumers have been eating and cooking at home a lot more over the past few years do you think some of that behavior is sticky and then.
Medium term demand do you think demand for foodservice might shake out lower than it was pre pandemic.
Hum.
Pink.
I I you know I.
It would be more of a personal view than anything but you know in terms of people wanting to stay home and Cook I think there's some people would've.
I think what we're saying is that it.
People have sort of started doing that but you know people really want to get out and spend.
Money and get out and go to restaurants.
Having said that in this economic environment.
You know a little difficult to tell.
That was certainly what we had been saying.
But what will happen in the future I'm just not sure.
The thing I would add to that Mike because what we've seen with the home delivery, So where people are home that's correct.
We've seen them.
A significant shift in the consumers' behavior too.
The likes of a door dish or home delivery model, which is.
Yeah from a take out.
Foodservice container standpoint additive to growth.
So.
Yes, their home, but they're they're buying in their food.
Sorry.
Makes sense.
Okay and then just one follow up question, we've been hearing quite a bit recently about P fast chemicals, particularly in food.
Food packaging like particularly in the <unk> channel.
Do you have any comments or views on that.
Okay.
Okay.
Not particularly I.
I mean pizza, you know forever chemicals or something that's a challenge, we're all faced with and certainly.
Yeah.
Yeah.
Yeah, we're partnering with our customers to.
To address the challenges we all face so.
Is there a specific to that I mean, it's something we're certainly aware of them taken serious.
If.
If you're seeing any impacts like significant impact there.
I wouldn't say significant impacts at this time.
Great. Thank you very much.
Okay.
Okay.
Your next question is from a kind of wide with Deutsche Bank. Please go ahead.
Hey, good morning, Thanks for taking the question I was just wondering if you could update us on your labor levels, and where you're at relative to where you'd like to be you know.
What's the current vacancy rate and then also on this do you have a sense of kind of the headwind you're carrying from the.
The increased training that's going on as well thank you.
Yeah.
I'll I'll take this from here. So you know we in terms of where we are versus.
Now, where we expect it to be you know.
Just as a bit of color we came into the year.
Behind in terms of our labor levels as to what we'd planned, but now where we are on track and actually slightly ahead.
In terms of the.
The vacancy right you know, Mike King had spoken before about being.
In the past, we'd been over 10% Patency and then when you add over and above that.
Covid related absences.
You know, we we could see up to 15% vacancies at any point in time between the sickness absence and the actual shortage of labor.
Our employees, so now with wind down of the circa 5% levels and you know where we're continuing to trend favorably in terms of the headwind around around training.
Yeah.
We are spending.
Whatever it takes to get people into our plants and trained up safely.
And two two.
Get them through our system to retain them, we are seeing a lot of turnover still.
In terms of aggregate costs around that.
Our labor inflation in total is up over the 10% levels and.
And but but mostly driven by you know all our plants.
In terms of the training itself.
The costs associated with that are probably in.
In the.
Some way.
Around $30 million per annum.
It's it's a difficult one to actually quantify because you know a lot of it's internal training. It's it's you know just.
Stop it al Al a plant leadership does on a day to day basis every single day, they're out there teaching people, but the direct cost would be around $20 million to $30 million.
Increase.
Year on year.
Yeah.
Got it. Thank you and then you made a number of strategic decisions and divestments over the past year, you pruned the portfolio a little bit you have the strategic review and the best beverage merchandising segment Oh are.
Are you happy and content with the current portfolio now are you happy with the path forward that you'd see for for that segment with the improved mill performance that you've talked about or if there's anything in terms of the return threshold of that those mills.
Make you more.
The owners of that business or is it something to where maybe youre not logical strategic owner of those two mills.
Yeah. So what I'll say is our strategic review as I've mentioned in prior Qs.
Going iterative process so.
Yeah, both you know all of our businesses.
It was a part of our internal process, we continue to look at the portfolio.
And what makes sense and what might not in terms of beverage merch Ah I would say if you know for where we are we are pleased with our ability to improve our mill performance.
And certainly our converting operations continued to deliver and do well.
I would say that you know it would be irresponsible of us not to continue to.
Move forward in our strategic review process, we are I'm looking at.
We used to further improve and enhance our portfolio.
So it's still too early to say you know to answer the latter part of your question. Your line of questions here, but I would just say that our process continues and as we make decisions we will be very forthcoming with those decisions.
Got it thank you and congrats on a strong quarter. Thank.
Thank you.
The next question is from Embraco Buckley. Please go ahead.
Hi, Thanks for taking the question and congrats on the strong quarter again.
I just wanted to get your eyes or see if you're able to share the use of proceeds for the carton packaging machinery business in Asia I think it was 335 million I just wanted to see what your plenty to do with that.
Yeah good morning.
At this stage, where we'd be planning to pay down debt.
Got it and then you know.
From a capital allocation perspective in and given that commentary or commentary excuse me.
You're looking to pay down debt are you looking to deleverage but.
Just wanted to get your kind of you know priority list I guess for you know how you how you view shareholder returns, how you view debt reduction and how you view.
Potential M&A in the future as well.
Yeah, I don't think anything's changed there are for us.
We do want to deleverage that cause some coal mines.
Well you know what we want to do in terms of paying.
Paying the dividend, we do want to continue to do that we think it's a good practice for us.
In terms of capital investment.
We still think where where you know we're pushing ahead with our capital programs them right now.
Investing into our business, we've talked in the past as being somewhere around 290 during the $95 million this year.
And in those investments.
In terms of acquisitions similar.
Similar to fabric out we're out hunting, we aren't doing anything like that but if the right thing comes along we'd consider it.
But you know that's that.
Nothing new there so I think our priorities remain the same.
Yep.
The last question from Alicia.
Our next question pardon me.
Uh huh.
Hi, good morning, Thanks for taking my questions.
Regarding your comments on inflation.
As is the hesitancy.
Any concern about the ability to ultimately pass it through.
And customer pushback or is it purely a timing issue.
Sure.
I would say, yes for sure.
So it's a timing issue.
Okay and then your.
Your comments one on force matures can you expand a little bit upon that in terms of how.
You know this.
Size of them how often.
The circumstances surrounding them.
Yeah. So.
But the last 24 months it seems to be a bit of a new normal when it comes to force measure and so whether it's chemical facilities constituent factories or even some of our the cracker facilities for for these large resin companies.
Yeah, there's just event so there continue to.
Dispose a weakness all all throughout the tiered supply chain.
You know, whether it's aluminum or it's a you know styrene monomer.
Like it seems to be a new weather event or you.
You know a breakdown.
You know equipment reliability concerns further in the supply chain or even what's happening across the world have all led to.
You know.
Choppiness I would call it more than you know significant.
And it's put a put pressure and allocations on several of the.
The constituent parts of our supply chain.
That's something we've been faced with for the better part of the last 36 months.
And it hasn't really.
Really slowed down.
Are you seeing are you seeing the timing to work through those issues decline.
Sure.
I would say we're seeing.
And as soon as I say this I'll regret it but.
You know, it's the severity of some of these things has gotten better the ability of our supply chain frankly to address them, yes is improving.
Albeit ah yeah, Theres, new and interesting ways that continue to pop up so to have a force majeure.
Thank you.
Yeah, one more question from James Finnerty with teaching. Please go ahead.
Hi, Thanks for taking my question hopped on late I apologize. If this has been answered already.
And the leverage side what.
What is the leverage goals over the longer term and.
What that should we expect you to be paying down as you'd look to delever the balance sheet.
Ah I think.
No.
Nothing's really changed in terms of.
Yeah, where we want to be.
Around three.
Three to four times would be a good target and then in terms of what that you know we have a 2025 maturity. We have we have term loans.
Whatever makes sense at the time its Israeli the answer I gave on in terms of what we'll pay down.
Great. Thank you and then on the D. Reiterating EBITDA guidance for the full year, just given a post first quarter would you say you're more confident in that number today than you were as we reported fourth quarter results.
I think we.
Yeah.
I think where we we were confident in the number before.
And it now when we talked last quarter, we discussed that we want to absolutely put a number out there that we can hit.
And and and that's what we're aiming to do so.
Competent and we were confident then and are confident about.
Great. Thank you very much.
This concludes our Q&A session I would like to turn the conference back over to Mike Keenan for any closing remarks.
Thank you Yeah, I would just like to say thank you for joining US here at the end of Q1, we look forward to another successful quarter and get back to you guys.
But the next earnings thank you.
This conference are now concluded.
Alright.
Susan.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
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