Q2 2022 Berry Global Group Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the Berry Global earnings call. At this time all participants are in a listen only mode. Please be advised that today's conference is being recorded.
After the speaker's presentation, there will be a question and answer session.
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Yeah.
I would now like to hand, the conference over to your first speaker for today Dustin Stilwell. Thank you. Please go ahead.
Thank you and good morning, everyone.
It's been a very second fiscal quarter of 2022 earnings call throughout this call.
Second fiscal quarter as the March 2022 quarter.
Before we begin our call I'd like to mention that on our website. We have provided a slide presentation to help guide our discussion this morning.
After today's call a replay will also be available on our website at very global Dot com under our Investor Relations section.
Joining me from the company I have Berry's Chief Executive Officer, Tom Salmon, and Chief Financial Officer, Mark miles.
Tom and Mark's comments today, we will have a question and answer session.
In order to allow everyone the opportunity to participate we do ask that you limit yourself to one question at a time and then fall back into the queue for any additional questions.
As referenced on slide two during this call we will be discussing some non-GAAP financial measures most directly comparable GAAP financial measures and a reconciliation of the differences between the GAAP and non-GAAP financial measures are available on our earnings release and Investor Investor presentation on our website.
And finally, a reminder that certain statements made today may be forward looking statements.
These statements are made based upon management's expectations and beliefs concerning future events impacting the company and.
And therefore involve a number of uncertainties and risks, including but not limited to those described in our earnings release annual report on Form 10-K.
And other filings with the SEC. Therefore, the actual results of operations or financial condition of the company could differ materially from those expressed or implied in our forward looking statements now I'd like to turn the call over to Berry's CEO , Tom Salmon. Thank you Dustin and welcome everyone and thank you for being with us today.
Like to refer everyone to slide four to the poorly presentation materials.
I am pleased to report that we exceeded our adjusted earnings per share expectations for the quarter and delivered record net sales of $3 8 billion with organic volumes EBITDA and free cash flow, finishing in line with our expectations. Despite additional inflationary pressure and macroeconomic challenges we are reaffirming both our.
<unk> earnings per share and free cash flow ranges for the full fiscal year.
We increased our cash return to shareholders as we repurchased $300 million of shares or 4% of our outstanding total shares in the quarter.
As we stated on our last call. We are committed to repurchasing at least $350 million in fiscal 'twenty, two and we've already achieved that threshold during the first two quarters.
Given our top priority of driving shareholder value, we were fortunate to be able to repurchase our shares and take advantage of the attractive return opportunity at prevailing prices.
Current valuations persists, we would expect to continue to repurchase shares at a similar pace in the back half of the fiscal year.
We have approximately $700 million remaining on our recent authorized $1 billion share repurchase program with the majority of our cash flow generated in our fiscal second half.
Yes, we've seen continued inflation since our last earnings call. We are taking aggressive price actions to offset these costs across our businesses.
While we continue to navigate this dynamic operating environment. Our teams are executing exceptionally well, we continue to prioritize our customers and our scale and operational agility have enabled us to service our customer demand and continue to focus on growth. While also recovering higher input cost at the same time.
And finally, our portfolio offering is unlike any other in our industry our ability to provide a one stop shop for our customers on a global basis is unique and differentiated.
We are investing for the long term growth.
With our focus on faster growing product categories growth oriented geographies and innovations that drive growth along with sustainability, let opportunities for additional growth and value creation.
We've made great strides towards our sustainability goals and we will continue to be ambitious with our commitments, which are being driven and led by the needs and demands of our extensive global customer base.
Next let me turn to our number one core value on slide five net is safety keeping all of our 47000 teammates healthy and safe as our highest priority.
<unk> ongoing commitment to identifying managing and minimizing safety risks.
Our teams have continued to make great progress on safety, despite a challenging environment.
Our safety performance speaks for itself and as you can see has continued to improve.
We are very proud of our industry leadership delivered an osha incident rate below one for fiscal 2021, which is significantly better than the industry average of three seven.
Our entire global team emphasis on working safely and servicing our customers in a challenging environment has made us a stronger and better company today, giving us great optimism on the company's future success.
As you can see on the slide we have a strong commitment to ensuring that we are providing better opportunities in bringing innovation to provide multiple lives and natural resources, while having many initiatives with industry and external partners to improve circularity and our carbon footprint.
And lastly, I'd be remiss not to mention how extremely proud I am of our company and employees, who continue to generously assist refugees from Ukraine. During this extremely volatile and challenging period, providing both shelter and financial support.
Now I'll turn the call over to Mark will review Berry's financial results Mark. Thank.
Thank you Tom before we move ahead into the details for the quarter. Please note that consistent with last quarter, we will compare the current quarter to that of two years ago.
The March 2020 quarter as permitted yet to meaningfully impact our businesses and we will refer to this on a two year basis.
We believe this comparison provides meaningful and useful information to investors about the longer term trends in our businesses and mitigates the impact of Covid, which has both benefited and negatively impacted portions of our business.
I would like to refer everyone to slide six now for the quarter, we delivered record net sales of $3 $8 billion, which.
Which is 12% higher than the prior year and up 31% on a two year basis.
Organic volumes were 2% lower than last year in line with our expectations as we reported 5% organic volume growth a year ago.
When compared to the pre COVID-19 levels on a two year basis organic volumes were up 3%.
From an earnings perspective, operating EBITDA was down 6% from the prior year quarter as expected, what's the estimated $25 million product mix benefit realized a year ago.
On a two year basis operating EBITDA increased 4% and adjusted earnings per share increased by 21%. These strong results over the past two years are driven by our focused strategy to invest organically in each of our businesses and strong execution in the face of significant cost increases in our primary raw.
RASM as well as inflation in other raw materials freight energy and labor.
As we have demonstrated historically and will again throughout fiscal 2022, we remain committed to passing through these costs increases and believe we are well positioned given our scale along with our ability to service customers from our facilities in close proximity to their locations, which provides both cost and sustainability advantages.
Our ability to efficiently pass through inflation was demonstrated again as our selling prices were nearly $600 million higher than the prior year quarter and up a substantial $2 $5 billion over the last four quarters.
Now I'd like to turn to the quarterly performance by each of our four segments starting on slide seven.
For the quarter, our consumer packaging International Division delivered a 7% increase in revenue over the prior year and a 17% improvement on a two year basis, including organic volume growth of 4%.
Our food beverage and health care markets recorded solid volume growth, while some industrial markets continued to experience modest headwinds.
Operating EBITDA on a two year basis was up 8% driven by the organic volume growth and cost productivity, partially offset by the timing lag of recovery and higher costs.
Next our consumer packaging North American Division delivered a 20% increase in revenue over the prior year and a 39% improvement on a two year basis, including organic volume growth of 5%.
Selling prices increased by over 21% versus the prior year from the pass through of higher costs.
Flat volume in the quarter exceeded our expectations coming off a strong 5% organic volume growth delivered in the prior year.
From a market perspective, we continue to see strong demand from food and beverage markets, including strong demand for our clear polypropylene fully recyclable drink cups used by quick service restaurants and convenience stores.
Operating EBITDA on a year over year and two year basis was up 7% driven by the strong organic volume growth.
On slide eight our health hygiene and specialties Division delivered a 30% increase in revenue on a two year basis, including organic volume growth of 5% over the same period.
In the quarter similar to our other divisions, we saw selling prices increased significantly from the pass through of higher costs as expected volumes were lower than the prior year quarter. As a result of strong year over year comparisons and our hygiene and health care markets from the pandemic.
On a two year basis, the segment benefited from organic customer committed capital investments supporting our customers in health care hygiene and specialty products.
Operating EBITDA on a two year basis was primarily attributed to strong organic volume growth, partially offset by the timing lag of recovering higher costs.
And lastly, our engineered materials division delivered a 17% increase in revenue over the prior year and a 36% increase on a two year basis with a modest volume decline over the same period.
In the quarter, we saw selling prices increased by 24% from the pass through of higher costs.
Volume, where volumes were down modestly as the recovery in business was negatively impacted by Covid, along with the on boarding our new business more than offset by supply chain challenges.
Operating EBITDA was up 4% compared to the prior year from cost reduction projects and capital investments supporting productivity, but modestly down on a two year basis related to the volume weakness from supply chain challenges.
Next as you can see on slide nine we are reaffirming our adjusted earnings per share of $7 24.
$7 70.
The range assumes lower EBITDA, primarily from divested businesses.
Oren currency headwind from the strengthening U S dollar and the timing lag in recovering higher costs offset by a lower tax rate and the benefit from share repurchases.
As referenced on our last call we remain committed to recovering the significant inflation, we have incurred starting in fiscal 'twenty one.
We continue to anticipate from both an earnings and volume perspective, and improved second half of the year as we continue to recover inflation, along with the startup of new business and capital investments.
Further as we communicated at the beginning of the year, we expect organic volume growth to sequentially improve as the year progresses, and anticipate low single digit growth in the second half of the year.
For the full year, we expect volumes to be flat to up 1% coming off 4% organic volume growth in fiscal 'twenty one.
This was modestly lower than our prior guidance because of the timing of new business startups and continued supply chain challenges.
On slide 10, we are reaffirming our free cash flow guidance of $900 to $1 billion.
This includes cash from operations of $1 65 to $1 $75 billion less.
Less capital expenditures of $750 million as we continue to see a strong pipeline of growth and cost reduction projects with returns well above our cost of capital.
I am extremely proud of our ability to deliver on our cash flow guidance every single year. Since we started providing guidance nine years ago.
We have a clear and flexible capital allocation strategy, which includes funding organic growth projects opportunistic share repurchases debt pay down and strategic portfolio management.
We intend to use a portion of our strong dependable consistent free cash flow to fund customer supported investments to drive sustainable long term organic growth.
We have also historically generated significant value through active portfolio management, including both strategic acquisitions and divestitures.
As we continue executing our portfolio management strategy. We believe we are well positioned for continued value creation. This year, having already executed three divestitures expected to deliver proceeds of around $150 million.
And as Tom noted if the market continues to present us the opportunity to drive attractive shareholder returns through share buybacks. We will continue to use a portion of our cash flow to buy back shares at prevailing market prices.
Concludes my financial review and I'll turn it back to Tom. Thank you Marc as you can see on slide 11, we have consistently driven top tier results in nearly all key financial metrics generated strong compound annual growth rate for revenue earn.
Earnings and free cash flow and have grown our adjusted earnings per share every year as a publicly traded company.
Our business model is extremely resilient through any economic cycle and includes the broadest portfolio of packaging solutions with strong dependable stable free cash flows to allow us the flexibility to drive the greatest returns.
We're well positioned to continue to deliver significant value for our customers and shareholders. The strategic choices. We've made guide how we prioritize our investments in our business, which is why we're investing in several areas that we expect to drive long term organic growth, including the initiatives highlighted on slide 12.
We continue to invest in each of our businesses to build and maintain our world class low cost manufacturing base with an emphasis on key end markets, which offer greater potential and differentiation and growth like e-commerce healthcare and pharmaceutical.
I'm very confident in our team's ability to meet our near term and long term expectations and execute on our commitment to provide sustainable profitable growth.
Additionally, we will continue to invest and expand our emerging market position in support of our commitment to global growth.
We believe that by increasing our presence in faster growing end markets, along with continuing to invest in new emerging market regions. We will further enhance our ability to provide consistent dependable and sustainable long term growth.
We will continue to focus on global Megatrends, and we believe there will be a considerable demand for our protection products and regions with rapidly increasing populations.
And lastly, innovation and sustainability are increasingly embedded in everything we do and we continue to believe this represents a great opportunity for growth and differentiation we.
We remain uniquely positioned to provide a consistent pipeline of innovative new packaging solutions.
We also continue to believe responsible packaging is the answer to addressing consumer concerns around packaging waste and by responsible packaging. We mean, the combination of packaging design recycling infrastructure and consumer participation.
We continue to invest in global innovation capabilities and centers of excellence to capitalize on what we believe is one of our strongest opportunity that being the overwhelming demand for sustainable packaging solutions. For example, as you can see on slide 13, we recently introduced an environmentally friendly dispensing solution for retail and E.
Commerce applications, we've become one of the first packaging manufacturers to develop a fully recyclable dispenser.
<unk> two cc part of our beef circular product range.
Our plan is to invest over $100 million globally over the next several years in our new wave product line with the goal of reinforcing our presence across the dispensing market by focusing on solutions that deliver a strong sustainable benefit to our customers.
Enabled by our internal post consumer recycling capabilities in the U K. The wave product line is the FDA approved made up 100% plastic and can utilize 70% Pcr content.
Additionally, as you can see on the right hand side of the slide in order to help some of our non food customers increase the sustainability of their packaging. We are now able to offer 50% post consumer recycled material and a standard in several of our existing and most popular industrial packaging products.
Accordingly. These containers also offer a mono materials solution as they are made solely of polypropylene.
These solutions are space savings user friendly packaging solutions for non food products for business to business use as well as for consumer applications.
In line with these initiatives as you can see on slide 14, we have committed to minimizing product impacts by enabling 100% of our fast moving consumer packaging products to be reusable recyclable or compostable by 2025.
Furthermore, Berry has received a a minus rating for our leadership action on climate change from the carbon disclosure project, which is a not for profit organization that runs global disclosure systems for investors companies City states and regions to manage our environmental impacts.
Bayer is among over 12% of companies and the plastic product manufacturing group, who have reached this leadership position.
We're continuously innovating and investing to work towards the global goal.
A net zero economy.
Through our impact 2025 strategy, we are dedicated to delivering sustainable innovations for our customers and within our own operations.
In conjunction with a multitude of sustainability initiatives earlier in the year, we announced our most ambitious sustainability packaging Golden data as you can see on slide 15.
30% circular content used across our fast moving consumer goods packaging by 2030.
Our new 35, 30 goal aims to give natural resources multiple lives and introduce alternative renewable options as the industry continues to pivot towards recycle and renewable resources, we look forward to continuing to lead the way in driving innovation and sustainability based growth and announcing many more opportunities over the next several years.
Years.
In summary, we are very pleased with the hard work of our 47000 employees delivering solid quarterly results in the face of persistently higher costs and tough year over year comparisons as.
As Mark stated earlier, we are confident we will continue to recover inflation continue to see supply chain improvements and see new business and capital investments ramp up in the back half of this year.
Additionally, if current valuations persist we expect to continue to opportunistically repurchase shares in the back half of the year just as we did in the first half.
And Furthermore, we will continue to focus on driving organic growth supplemented by inorganic opportunities if available while providing more consistent return of capital to create maximum value for shareholders.
Thank you for your continued interest in Berry and at this time, Mark and I will be glad to take any of your questions operator.
Thank you again as a reminder to ask a question you will need to press Star then the number one on your telephone to withdraw.
While your question press the pound key.
And while we compile the Q&A roster.
Our first question comes from the line of Ghansham Panjabi from R. W. Baird. Your line is open.
Thank you and good morning, everybody.
I know you've called out supply chain challenges for the M segment, but as you think about the rest of the portfolio are there any major constraints that are impacting service levels for your customers and any significance I guess I'm, referring to resin constrained labor freight and if you could also touch on current operating conditions in Europe , just given the sequence of events there. Thank you.
Good morning, Ghansham clearly I think in general we are seeing some improvement in supply chains specific to EM.
It was really tied around certain specialty chemicals and resin formats that help support extended shelf life as a result during the quarter, we had to prioritize the allocation of that.
To our some of our higher margin business in the space.
Freight in general continues to get better and I think we'll continue to see that improvement into the back half.
The fiscal year no doubt in Europe The war in Ukraine has created.
Energy instability, causing the cost of those inputs to rise dramatically.
They are actively being passed through from an inflationary perspective and in general I would say the industrial complex in Europe has recovered at a slower rate than what we've seen in the United States. So we expect that to continue to improve in the back half of 'twenty, two and into calendar 'twenty three.
As well.
Thank you.
Thank you. Our next question comes from the line of Michael <unk> from Barclays. Your line is now open.
Great. Thanks, Good morning, guys.
One of my end on the capital deployment side of things I think as of quarter end or maybe a little bit above four times levered. So I guess, a where would you expect net leverage to be by year end.
That kind of impact your way at all on your pace of buybacks. Obviously, you picked it up a bit near term, but just how should we think about that balance between net leverage and buybacks. This year.
We continue to believe after the full year, we'll be able to operate the company within our within our targeted range.
And it's reinforced by the fact that the majority of our cash flow generation typically occurs.
In the fourth quarter.
Third and fourth quarter Okay.
Thank you.
Thank you. Our next question comes from the line of Arun Viswanathan from RBC capital markets. Your line is now open.
Great Alright.
Sorry about that.
Yes, I just wanted to go back to the volume question. So.
It does appear that.
Obviously, you have the tough comps, but when you look kind of structurally.
You have some new product initiatives across the portfolio.
Maybe if you could just help us understand how we get back to kind of low single digit growth in each of the segments.
Seek DNA.
Requirement that we have some some new product wins.
Am I guess that would probably be an industrial recovery and I guess, what would you cite in an 8-K CNS and some key international.
If anything.
Sure I'll kind of take them in order, we actually believe that given the success.
<unk>.
The Wendy's program and the strong interest on our all clear fully recyclable drink Cup program.
That will provide.
A lift for us in the back half of the fiscal year for <unk>.
I'll also remind you that this will be the fifth consecutive year of organic volume growth in that business and I clearly believe that the following year will be the sixth year of growth. So that business continues to be strong. We continue to provide innovative sustainable solutions that are winning and the portfolio is comprised as well are products that people consume every day.
And very similar to what we have in our CPI business as well.
So things like foodservice beverage the success.
We've had an investor in those areas will carry the day for those two specific businesses and HHS.
No doubt about it in the back half of the year the fourth fiscal quarter.
The comparable in the prior year mathematically creates a nice windfall of opportunity inside HHS now I'll also remind you that even though that business has components of the portfolio that were benefited from the pandemic.
They continue even though they might be negative on a year over year basis. They continue to trade at a at an elevated level versus 2019, which is.
As encouraging for us and that business continues to see strong fem care and baby business.
For that for that portfolio and then lastly inside of engineered materials no doubt that business was impacted by really three things in the quarter that we believe will moderate one.
Was tied to the fact that we had some softening of demand given by Destocking that was done given that the primary channel to market for engineered materials is distribution. So it's very typical to.
To increase and decrease stock based on anticipated inflation secondly.
Many of the converted customers that we were working on new business.
They too had supply chain issues that we believe will moderate supporting the closure of new business in the back half of the year and thirdly in that business really there were some supply chain challenges specifically around.
<unk> as a product.
That caused us to have to prioritize that that precious commodity.
Prior quarters that we're working with our suppliers to <unk>.
Increase that supply demand. So that's what gives us confidence in the back half of the year.
Great. Thanks, Thanks for that comprehensive answer Tom.
And then I guess just also wanted to ask about capital allocation, so you've indicated that potentially and increase our share repurchase activity.
And I guess, how you're thinking about that longer term.
I know, maybe if you could just kind of reiterate if you'd like to keep leverage below the low threes today and what youre seeing in the M&A market is there anything, peaking your interest that would potentially cause you to rise above those levels.
The plan is to continue to operate the company in our targeted range between three and three nine times give.
Given the current dislocation we saw in the share price. It was unique opportunity and I think as you mentioned M&A we are.
We have a long history.
Trading shareholder value through.
Mergers and acquisitions and as such when we look at the value of repurchasing our shares in the period. It was an extraordinary value for us. So we were happy to take advantage of that dislocation as we committed should we continue to see that going forward. We will continue to act. Similarly, as we did in the front half of the year in the back half.
Half of the year time will tell on that though.
Thanks.
Thank you. Our next question comes from the line of <unk> Shah from BMO capital markets. Your line is now open.
Hi, everyone. Good morning.
You talked about your plans to expand in emerging markets, which you've been talking about for many quarters now, but I just wanted to know how you balance that with.
Well it seems like a bigger more geopolitical issues in many parts of the world and the strengthening of the U S dollar and upheaval in international supply chain, just how do you balance both of those.
Yes, the majority of our business today continues to be in the developing geographies of the world specifically United States.
In Europe , our ability to complement that and faster growing geographies, where we have.
Stable customer basis stable management teams.
Where we would prioritize our time.
We've been thrilled with the most recent announcement that we've had with our healthcare market expansion in Bangalore, which in spite of the pandemic in spite of the.
The disruption in the global economy continues to be on track and we're partnering with global brands, serving that local market. So that in and of itself helps derisk. It because we're serving local markets. We're not exporting those goods in most instances outside similarly.
Similarly, the investments that we make alongside our customers.
Like the wave dispensing.
<unk> in our CPI business can have global application. So again any any investment opportunity that done alongside in conjunction with our end customers de risks some of that volatility that you noted and we continue to believe it's a tremendous opportunity to complement the significant base of business.
We have in the two most developed regions of the world.
Great. Thank you.
Thank you. Our next question comes from the line of George Staphos from <unk> a M L.
Your line is open.
Thanks, very much hi, everybody. Good morning, Thanks for all the details Tom Mark I was hoping you could give us a bit more color in terms of how the volume and EBITDA projections changed across the segment.
So if you could talk about where you saw the decrement to volume across the businesses and how the new low single digit growth.
Fly is across the four segments and similarly, how.
That allocated if you will the decrement across the segments from an EBITDA standpoint, especially I'd be interested in HHS since you've been putting so much investment there. Thanks guys.
Yes sure George.
Yes, I would say in terms of your the volume portion of your question relative to our update on.
From last quarter, I would say mostly Europe .
<unk>.
So we've taken a more conservative view with respect to volumes in those regions.
With respect to earnings I think the timing lag in recovering inflation.
Sure.
As mostly occurring in our HHS business. So our volume outlook continues to be.
Robust I would say in the other businesses.
Outside the CPI and perhaps a little bit of what the supply chain challenges that Tom mentioned lingering here in the back half of the year as you recall last quarter, when we gave our outlook.
Expected improvement in that area and while we have seen improvement continues to be choppy.
Yes, Mark I, just if I could ask just more clarity. So what are you looking for if it's low single digit for the whole portfolio, how does that sort of stack rank or in terms of rough percentages breakout by the segments. Thanks again.
Yes, I mean, we typically don't provide George as you know guidance by segment I would say in terms of what we are which businesses. We expect to overdrive. The low single digit growth I think HHS continues to have strong demand in spite of again some of the COVID-19 benefit waning.
So I would say HHS stronger <unk> stronger and again back to my last answer <unk>.
Maybe lagging a little bit in terms of the company average for the back half.
Thank you very much.
Thank you. Our next question comes from the line of Mike <unk> from <unk> Securities. Your line is open.
Thanks, very much hi, Tom Mark test and congrats on the quarter.
Just wanted to follow along with the question on capital return can you just help me understand the approach during the quarter you mentioned.
The current dislocation provided you with a unique opportunity you only repurchased 300 million shares during the quarter and the stock was down about 20% year to date why not be more aggressive you've already.
Relatively within your targeted range or maybe a slightly higher this quarter you still expect to generate.
Free cash flow, despite EBITDA being a little more challenged than you originally expected so why not be more aggressive buying more shares this quarter and maybe tone it down a little bit in the back half.
A lot of it has to do with just the the cash generation will account for the majority of our cash is generated in the back half of the year.
We realize this is a dynamic marketplace right now with all the variables that.
Play into these.
These valuations and we want to expose ourselves to as much opportunity throughout the course of the year should the circumstances present itself to take advantage of the repurchase frankly $300 million purchase.
Met the full year commitment that we made at the beginning of the year and as we've committed shall we continue to see that dislocation the back half will act. Similarly in the back half of the year as well and the Companys cash flow performance allows us to do that.
And we believe it G unique opportunity for us and one of the best investments that we can make in our company right now.
Thank you.
Thank you. Our next question comes from the line of Christopher Parkinson from Mizuho. Your line is open.
Good morning, this is kieran on for Chris.
I was just wondering within health hygiene and specialties can you talk a little bit about what youre seeing in terms of price mix. It seems.
Like you're ahead of the curve in the other segments, but there you're still seeing a little bit of an impact. If you can just parse out how you think about the price cost spread trending in the back half of the year and then any opportunities you see in terms of.
I guess, improving the product mix over time with some of these new introductions I appreciate it.
Yes, we've got a host of investments that have been outlined in HHS.
Supporting health care supporting the expansion of.
Composts Bill White substrates in Europe , an untapped market for us.
And along with investments that bolster our existing base of.
Hygiene adult incontinence products in film based substrates.
And there have been price actions that are and have been put in place.
And frankly, there is just a longer lag associated with our HHS business that youll continue to see improvement.
Over the next several quarters as an offset and clearly the rate of inflation and that business was much more significant than we had budgeted for and the appropriate actions are being taken with our end users.
What the current environment has outlined clearly is that there's a lot of different inputs that go into.
The cost of our products and to provide those products and we will continue to be working in conjunction with our end customers to have his comprehensive pass through mechanisms shortening those lagged as much as possible just as we've done in our other businesses. We've made tremendous progress over the years and shortening that lag as you saw with the.
Yes, we had in <unk> and engineered materials and CPI.
Very helpful. Thank you.
Okay.
Thank you next question comes from the line of sailing from Jefferies. Your line is open.
Hey, guys, Tom I guess, you addressed some of this already but your full year guidance Youre, assuming EBITDA come down part of that is a lag on cost pass through I'm, just curious what kind of progress youre, making on passing through non resin inflation and just given the amount of energy prices, you're seeing move up particularly in places like Europe .
Have you been able to kind of pass that through to blow more real time and are you looking to implement freight surcharges, if you haven't yet.
All of the above we've got different mechanisms I won't speak on a general basis for competitive reasons, what we're doing but we're addressing every aspect.
That you'd noted there whether its energy.
Whether it's freight.
Whether it's labor there is a variety of inputs.
And dynamics globally now that have changed that are simply too significant to ignore so the teams are taking aggressive steps in collaboration with our customers.
To do it in a thoughtful way that ultimately allows us.
Over the long term.
To do it responsibly for both parties.
The only thing I'd add Phil and Mark is if you look back at the history of the company.
We've made tremendous progress in passing through inflation.
On a more timely manner, so while we still have a lag and some of our businesses.
We've made dramatic improvements on accelerating that and I think you can see that in the numbers right with the order of magnitude of.
Inflation, we've seen in the last few quarters.
Resilience of the Companys profits through that.
So.
Kind of unprecedented inflationary cycle, we've been in now for several several quarters, so really proud of the team's ability to.
Execute more timely price increases and we're going to continue.
To work on that going forward, it's an ongoing effort of the company.
Short and that lag.
And Mark I guess within your guidance, if I understand it correctly, you're assuming resin prices to move from here. How confident are you in hitting your I think $50 million headwind price cost certainly the non resin piece curious what kind of inflation assumptions are you baking in.
It's a pretty dynamic environment shortly.
Yes, no that's well said I think.
We've obviously only got a couple of quarters left and were part of the OEM to the third quarter. So those variables become less meaningful I guess with respect to the outlook for this year given the flow through of inventory as well so youre right. Phil I mean, we did assume polymer prices.
Current polymer prices.
To the extent those change it would have an impact.
In Q4.
Again could go either direction, obviously, but you are right that would be both.
The risk and opportunity depending on the direction they go but.
Again, I would highlight that I think we've done a nice job.
Reducing that lag, but we would still have some impact to the extent they move between now and the end of the fiscal year I'll just piggyback on Mark's comment there because one thing that we should note is that.
Over the last several years, we've continued to invest heavily in.
In automation.
And other investments to improve our efficiency and that coupled with the fact that we are fully committed to offsetting the.
The inflation creates some tailwind opportunities for us.
As we see that benefit of the price recovery.
And from a margin perspective.
Okay. Thank you I appreciate the color guys.
Thank you. Your next question comes from the line of Josh Spector from UBS. Your line is open.
Good morning, this is Lucas spotlight on for Josh.
It has simplified I just wanted to go back to the volume weakness in Europe and China.
So you kind of discuss sort of the factors of what's going on there I mean, it's obviously very volatile as well.
I mean, what do you guys have shared it in your in your guide is that sense of your share base.
It will get better from here or there.
Stay the same or are you assuming any deterioration.
We have some modest deterioration I mean, that's about call. It a third of our businesses.
Western Europe .
Sure.
We discussed earlier.
Dragging on the plus low single digit outlook for the back half of the year. So we do have decent some deceleration we're fortunate in that the majority of our products or.
Our everyday consumer products, but we do have.
Some exposure in Europe to industrial categories like chemicals pains.
Automotive et cetera, some more.
Industrial type businesses, and we do have some.
Deceleration built in for the back half of the year.
In those categories.
Alright, and then in terms of.
Hi, Chad should answer the sort of demand declines there I was just wondering if you could talk about wipes materials, specifically is that seeing a headwind year on year.
And just given that's an area where you added some capacity over the past two years, just wondering how capacity utilizations going there on those assets with a set of above or below sort of where they were a year ago.
Thanks.
Yeah sure our wipes business, mostly focused in disinfecting categories.
They are not its consumer or foodservice as an example, so we have.
Both our retail presence with our customers as well as a more again industrial type applications I would say that business. We expect to continue to grow in the long term in the mid single digit category I think thats pretty much what all industry outlooks would suggest and what our customers anticipate.
Growth in that category to be long term in the very near term like last quarter. As an example, we did have some destocking in that category. As you can imagine demand was way outpacing supply for a period of time through the pandemic and so there was some inventory buildup in the chain, where we did see some destocking last.
But we do expect that to reverse over the next several quarters.
It's notable that for.
And that product line. When you contrast that versus two not 2019 levels and continued to be a growth category for us.
And given the.
What was exceptional performance from that business.
In totality.
To be up 5% on a two year basis.
Much of which driven by strength in Fem care and baby adult and continent. Those are areas that we strategically.
<unk> pivot to an toward we're partnered with the right end users that are winning in the marketplace and it gives us great confidence in that <unk>.
The vision for the long term.
Great. Thank you.
Thank you. Your next question comes from the line of Kyle White.
From Deutsche Bank. Your line is open.
Hey, good morning, Thanks, taking the question.
Good to see some of the divestitures that you've made more recently I guess I'm just curious how much more opportunity do you believe there is from our pruning of noncore assets as we expect any incremental proceeds to be used towards share repurchases.
Unfortunate I'd love to be able to give you specific details, but it continues to be something we review on a regular basis.
We review it both internally as a management team as well as with our board of directors. It will continue to be an area of opportunity for us to take advantage of.
And as soon as we have information that we can share.
We will do so we're going to make certain that whatever we consider we do it thoughtfully.
Where it makes sense for us makes sense for the portfolio and it certainly gives us more flexibility.
And the capital allocation program that we've outlined in the presentation.
Sounds good I'll leave it to one question. Thank you.
Sure.
Thank you. Your next question comes from the line of Anthony Pettinari from Citi. Your line is open.
Hi, This is actually Brian birchmeier sitting in for Anthony.
Can you just discuss the impact from China that you mentioned in the press release in the past we've seen a step up in demand around the COVID-19 outbreak, especially in health and hygiene markets. So why is it different this time and have you seen an impact to your manufacturing capacity due to absenteeism.
In China like antibody producing over there that is a <unk> for China.
Market for us today, and yes, certain geographies had in plant <unk>.
Confinements upwards of 370 individuals at our Shanghai site as an example.
Amazingly proud of how the team navigated.
Through that that scenario.
And continues to navigate through it we continue to be bullish on our opportunities are targeting.
Local demand both inside of China, as well as southeast Asia.
I can't speak to the nuanced difference in terms of.
The heart of the pandemic versus now suffice to say the projects continue to be.
Being developed on time, which I'm really pleased with because of the.
Availability of labor and such very impressed the team's ability to execute in that regard and we're bullish that.
Both from a premium hygiene.
Hygiene perspective, as well as our newest investment which will be to serve healthcare for China and southeast Asia that it will be a growth vehicle for the company going forward.
Great. Thanks, I'll turn it over.
Thank you next question is from Angel Garcia from Morgan Stanley . Your line is open.
Hi, this is actually Sebastian or embarrass speak.
And you'll hear a lot of.
Ground covered just wanted to quickly circle back on price cost assumptions make sure I'm thinking about this correctly, so holding polymer prices constant in April currently are expecting a $50 million headwind for the year is that the right way to think about it.
Yeah.
The second sorry in the second half.
The $50 million positive overall price cost.
Which would include the polymer portion.
Sure.
Understood. Okay. That's helpful.
And apologies if this was covered already but just talking about.
Reduction in Capex on the guide is that kind of just more kind of a near term being more prudent situation within the backdrop or is that kind of an appropriate.
Benchmark too.
To model off of long term.
Yes, I would characterize that as just timing timing of payments and project as you can imagine.
The challenge as you have heard in the macro environment have affected our suppliers not only on raw materials, but also capital expenditures.
So that has resulted in some delays and so yes.
I would characterize it as just timing at this point.
Thank you Wilton Road.
Thank you next.
Question comes from the line of George Staphos from beat AML. Your line is open.
Hi, guys. Thanks for taking the follow on.
And that last question sort of piggyback segway well into this one so what opportunity do you have to maybe further reduce capex.
Without damaging your intermediate term volume and longer term volume projections and growth plans again, given the opportunity you have in both for buyback and Relatedly. How do you think if at all.
And mark on dividend relative to buyback.
Seem like given where valuations are buyback seems to be more of a priority. So capex and your ability to trim it back to buyback more stock without damaging growth in dividends. Thanks, guys.
On any capital expenditures.
Focused on being as prudent making certain we're finding the lowest cost.
Our assets for the opportunities that we have in front of us that not only can serve a short term, but long term that will be an ongoing process continues to be an opportunity. Obviously working like we do on terms and conditions of any purchases will continue to be an opportunity in terms of capex, but I have to tell you.
I am actually thrilled that we have the pipeline of opportunity, especially in areas like sustainability in areas like.
Health care and pharmaceutical.
And today, we just put out a press release with our collaboration with.
Yum brands and Taco Bell with their 30, Onstream comp, which I think just reinforces that Barry has been not just we're not talking about sustainability, we are demonstrating how sustainability as a competitive advantage for our company as a growth vehicle for our company will continue to invest in those kind of opportunities.
Relative to capital allocation clearly.
And George you know, we have a long storied history of identifying acquisitions and opportunities and seeking great valuations and right now there is no better valuation than Berry global so it's a great opportunity for us as we took advantage of in the first half if we continue to see the dislocation the back half will do the same.
Thanks, Good thoughts Tom good luck in the quarter.
Listen I want to thank everybody for your time today and continue to say say, we'll talk to you next quarter. Thanks, everybody.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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