Q3 2022 Pactiv Evergreen Inc Earnings Call
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I would now like to turn the conference over to Mr. David.
Please go ahead. Thank you operator, and good morning, everyone. Thank you for your interest impact of Evergreen and welcome to our third quarter 2022 earnings call.
With me on the call today, we have Michael King, President and CEO and John Bosch CFO .
Please visit the events section of the company's Investor Relations website at Www Dot pact of Evergreen Dotcom and access the company's supplemental earnings presentation management's remarks today 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 put undue reliance on those statements.
Statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect.
For all of you to our recent SEC filings, including our most recent annual report on Form 10-K, and quarterly reports on Form 10-Q, as well as our upcoming quarterly report on Form 10-Q for a more detailed discussion of those risks.
The forward looking statements we make on this call are 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 <unk>.
Earnings release any of the appendix to today's presentation.
Unless otherwise stated all figures discussed during today's call are for continuing operations only with that let me turn the call over to effective evergreens, President and CEO , Michael King Mike.
Thank you Devin and good morning, everyone and welcome.
Yesterday after the market close packed with evergreen released solid third quarter 2022 results and as a result is raising its 2022 and full year guidance to $760 million to $780 million.
Coming off the Companys best quarter in its history as a public company in Q2, we're continuing to show positive momentum stability on several fronts, including Delevering the balance sheet.
To enjoy improvements in our operational performance. The company reported revenues of $1 6 billion, a 2% decline versus the prior quarter and up 15% versus the prior year quarter. Adjusted EBITDA was 187 million for the quarter.
2 million declined from <unk> 2022 levels, and a 68 million increase from the prior year quarter. Our volume declines are due to a combination of shifting consumer trends the impact of inflation on consumables and our continued focus on value over volume as we have improved durability.
To service our customers during the quarter, we completed a number of actions that continue to improve our balance sheet and our net leverage ratio.
We closed the sale of our Evergreen Asia business and received gross proceeds of $336 million.
We also completed another pension lift, though the transfer of $656 million of gross plan liabilities.
This marked our third successful lift, though and we will continue to explore additional opportunities to reduce the liabilities.
We are now at a net leverage ratio of four five times versus closing 2021 at approximately seven six times, we remain committed to lowering our leverage and reiterate our goal of sub four times net debt to EBITDA.
Since last year, we have discussed the challenges of the tight labor markets and the overall lack of availability of labor impacting the industry.
This has impacted our business and the ability to service our customers. We've also provided steady progress on our actions to improve the labor situation.
Today, we are at target staffing levels in almost every area of the business or operations as indicated by our results are now stable and we are in a proactive state managing our labor needs in unison with our customer demand.
In addition, operationally the company has seen improvements in our overall equipment effectiveness and production throughput. There's been continued improvement reliability production in our paper mills as well as our converting operations.
Finally.
We have restored our inventories to target levels.
And improve our overall service and delivery with our customers to pre 2019 levels.
Our customers understand the value we provide and appreciate the strides we have made to support our mutual businesses together.
By securing labor and improving our production output, we have been able to partner with our customers to get the needed support term pricing to enable us to favorably navigate the ongoing inflationary environment to a mutual benefit.
You will hear during this call. We are excited about our progress and the business momentum under a strong management team. Despite the ongoing macro economic environment.
I am pleased to share we have shifted rapidly from a reactive state to a more proactive state and all segments.
This is enabling us to favorable favorably diagnose and proactively navigate the ongoing challenges across our markets.
I will now turn it over to John to give you a more detailed overview of our results before my discussion on outlook and closing remarks.
John .
Yeah.
Thanks, Mike I'll begin by reinforcing Mike's comments regarding the strength of the quarter and provide a few highlights starting on slide seven.
This year, we've seen inflationary impacts affect many aspects of the business most notably in wages.
Put materials and logistics.
Our hourly wages are beginning to moderate and we're not seeing the steep increases from earlier in the year. However, employee retention remains problematic as we're still seeing elevated turnover with new employees at lower skilled level positions.
Resin prices for polypropylene are coming down while we've seen some increases in other polymers. The resin costs are mostly passed through to our customers, albeit with a lag other.
Other input material costs, such as energy chemicals, and wood have generally continued to rise throughout the year, which has impacted our margins, particularly in the beverage merchandising segment.
We're starting to see transportation costs softening following the run up from earlier in the year.
The inflationary impacts we're seeing are felt across the industry and were generally seeking to recover the increases with our customers. You'll note. We're seeing some declines in volumes and as Mike mentioned pursuing a strategy of value over volume to preserve margins and returns.
Our outside spending to replenish our inventory from last year's depleted levels has wound down with a $35 million inventory build this quarter. This is down from $154 million last quarter.
We are now a target inventory levels and expect smaller quarterly movements going forward.
Our cash position benefited from the sale proceeds Mike mentioned it was impacted by working capital outflows from a decline in accounts payable of $66 million largely driven by the pay down of invoices from our recent inventory build.
Expect a portion of this to reverse next quarter.
Despite these outflows the company generated $20 million of free cash flow in the quarter and has generated $72 million of free cash flow year to date, while we also while also spending approximately $300 million to build inventory.
With LIBOR rising from 0.1% at the beginning of the year to its current rate of 3.86% interest expense has become a headwind to our cash outlays.
The future path of interest rates remains uncertain in either direction, we'll look to mitigate some of that volatility presently every 100 basis point change in LIBOR has a $22 million annualized impact to interest expense.
As a reminder, the fabric Cal acquisition closed on October one 2021 impacting prior year comparisons I'd highlight that during the quarter, we integrated ERP systems and have largely completed the integration of the two companies are.
Our synergy targets are well ahead of schedule with annualized synergies this quarter close to $50 million.
For future comparison purposes, the Asia business sold contributed $23 million of adjusted EBITDA on a trailing 12 month basis from the closing on August 2nd 2022.
Which implies a $14 six times sales multiple.
During the quarter the company committed to divest the remaining closures businesses in Hungary, Spain, Egypt in Bahrain and has moved these assets to held for sale.
The sales proceeds and any future financial impacts are not expected to be material.
A final note before walking through the financials. The planned mill outage, we referenced on our last quarterly call. Originally scheduled for Q4 was pull forward and successfully complete and successfully completed in Q3.
Further accentuating the operational success this quarter.
Now I'll turn to slide nine and review our financial performance in the quarter versus the prior quarter.
Net revenue was 1.6 O $9 billion down 2% versus the prior quarter as price mix was up 2% due to material cost pass throughs and other pricing actions, while volumes are down 3% due to the market softening amid inflationary pressures and seasonal trends in food service and food merchandising.
Adjusted EBITDA was $187 million down $62 million versus the prior quarter due to higher material costs net of pass throughs, lower sales volumes and higher manufacturing costs.
Our free cash flow for the quarter improved to $20 million versus negative free cash flow of $18 million last quarter, primarily due to the completion of our strategic inventory build.
Moving to slide 10, we provide a more detailed bridge of our results from the prior quarter.
The $31 million sequential decline in revenue was primarily driven by $40 million lower than sales volume and $25 million lower due to divestitures, partially offset by $35 million higher price mix.
The $62 million of adjusted EBITDA declined from two <unk> to three Q was primarily due to $72 million from higher material and manufacturing costs, and a $23 million impact from lower volumes, which partially offset a $34 million increase from price mix.
Continuing on slide 11, and our results by segment for Q3 versus the prior quarter.
Our foodservice segment saw net revenues down 4% due to lower sales volume due to the market softening and inflationary pressures as well as seasonal trends.
Adjusted EBITDA for the segment was down $52 million or 32% due primarily to higher material and manufacturing costs and lower sales volume.
Our food merchandising segment saw net revenues up 2% driven by 6% favorable price mix, primarily due to higher material cost pass through to customers and pricing actions, partially offset by 4% lower sales volume, primarily due to the market softening and inflationary pressures and seasonal trends.
Adjusted EBITDA for the segment was down 10% due primarily to lower sales volume and higher manufacturing costs.
We offset by favorable pricing net of material cost pass through.
Our beverage merchandising segment saw flattened net revenues with price mix up 1% and volumes up 5%, primarily due to higher liquid packaging board volumes from sales to the former Asia operations, which replaced a 6% decline due to lower beverage cartons sales arising from the disposition of the business.
Adjusted EBITDA for the segment was down 10% to $26 million due largely to higher material costs net of material cost pass through partially offset by lower manufacturing costs.
Next I'll review, our financial performance in the quarter versus the prior year period, starting on slide 12.
Net revenue was up 15% compared to prior year as price mix was up 17% due to material cost pass through and pricing actions, while volumes were down 8%.
Volumes were impacted by a tough comparison to strong sales volume last year as businesses and restaurants reopened post COVID-19, lockdowns in foodservice as well as the market softening amid inflationary pressures in food merchandising and the exit of the coated groundwood business in beverage Merck merchandising.
Adjusted EBITDA improved by $68 million to $187 million due primarily to favorable pricing net of material cost pass through and the benefit of the fabric Cal acquisition, offsetting higher manufacturing and employee related costs as well as lower volumes.
Our free cash flow for the quarter improved by $20 million due to strong stronger cash earnings combined with lower Capex, which was partially offset by net working capital outflows.
Moving to slide 13, we provide a more detailed bridge of our results from third quarter 2021 to third quarter of 2022.
The year over year revenue improvement was driven primarily by $242 million from price mix and net benefit of $88 million due to fabric Cal acquisition net of the divestiture of our Asia business.
These positive factors were partially offset by negative impact of $109 million due to lower volume.
The $68 million of year over year, adjusted EBITDA improvement was due to a $236 million benefit from price mix and $23 million due to fabric Cal acquisition net of the divestiture of our Asia business, partially offset by negative impact of $126 million from material costs and $42 million due to higher SG&A and other costs.
Driven primarily by employee related costs and $23 million from lower volumes.
Continuing on slide 14, and our results by segment for Q3 versus the prior year.
Our foodservice segment saw.
Net revenues up 27% driven by higher pricing to recover material and other cost increases as well as the impact from the acquisition of fabric, Hal which more than offset the impact of volume declining by 8% due to the dynamics around businesses reopening that we previously noted.
Adjusted EBITDA for the segment was up $49 million or 77% versus the same period last year, primarily due to favorable pricing net of material cost pass through and the impact from the acquisition of fabric, Hal partially offset by higher manufacturing costs, lower sales volume and higher employee related costs.
Our food merchandising segment saw net revenues up 16% driven by favorable pricing, primarily due to pricing actions and higher material costs passed through to customers, partially offset by lower sales volume, primarily due to the market softening and inflationary pressures.
Adjusted EBITDA for the segment was up 43% versus the same period last year due primarily to favorable pricing net of material cost pass through partially offset by higher manufacturing and employee related costs and lower sales volume.
Our beverage merchandising segment saw <unk>.
Net revenues up 5% driven by 16% favorable pricing, primarily due to pricing actions and higher material costs passed through to customers, partially offset by 6% decline due to the impact from the sale of the Asia business and 5% lower sales volume, primarily due to our exit from our coated groundwood business.
Adjusted EBITDA for the segment was $26 million versus $16 million in 2020, 163% increase the key drivers were higher pricing net of material cost pass through and the prior year costs of $7 million from tropical storm, Fred partially offset by higher manufacturing costs, which included $8 million.
Related to a scheduled cold mill outage during the quarter, which we originally expected to be a fourth quarter event.
Next on slide 15, I'll highlight our significant deleveraging over the course of the past year due to a focus on adjusted EBITDA improvement of net debt reduction.
We ended Q3 with $559 million in cash and $4 $2 billion and total outstanding debt, our cash position benefited in the quarter from the proceeds of the sale of the Asia business.
Our net debt at the end of the third quarter it was around $3 $7 billion.
We ended Q3 with a net debt to LTM adjusted EBITDA ratio of four five times declining for the third consecutive quarter. Additionally.
We continue to evaluate alternatives to reduce our debt levels.
I'll now pass it back to Mike for further comments.
Thank you, Jeff if I could.
Turning your attention to slide 17, as we move on into our ESG update.
I wanted to take a minute to talk about our social responsibility key initiative, which covers much of our work under the environment, social and governance umbrella.
As we continue building a values driven business, we are reminded that aligning purpose and performance creates value for companies their employees and their communities.
What better way to illustrate our purpose of packaging a better future tend to give a big tip of the hat to hundreds of employees, who participated in our first package of evergreen month of action.
Across North America, our teams organized over 170 volunteers events and food drives for nonprofits and food banks in their communities.
And Kevin with Zoom for example, our employees gathered well over 5000 pounds of donations to help relieve food and security.
And near our headquarters in Lake Forest over 20 teams participated in packing events with a northern Illinois Foodbank Wa.
We're still telling the donations, but I couldnt be prouder of our people coming together ahead of the holidays to package a better future for many of our neighboring communities and families.
In the last quarter, we also committed to set near and long term greenhouse gas emission reduction targets.
And to establish these targets in line with science based target initiative.
And by doing so we are doing our part in addressing the global challenge that as climate change.
As it relates to our products, we continue to innovate to meet our customers' needs. We've been working to develop an effective replacement for PFS at chemical used in some of our molded fiber products that provides oil and grease repellents C. We expect the new line of BPI certified Compostable P pass free molded fiber containers and tableware to be released later this.
Year.
In time for our customers to comply with the growing number of state regulations banning PFS and food packaging.
As of today, what is the 1% of our SKU offerings could think PFS chemicals with an ultimate goal to eliminate pizza is from our offerings altogether.
Finally, we're pleased with the steps were taken to build a more ethical resilient sustainable and profitable company.
This quarter, we started to look beyond our own operations and expanded audit program for our strategic suppliers and collaboration will say, that's one of the world's leading ethical trade membership organizations. These audits should help to give confidence with our customers and inform sustainable procurement strategy for the future.
Earn more we invite shareholders to view, our latest disclosures, including our 2020 to CDP disclosures released in July and investors that pegged it impacted the evergreen dotcom.
On the ESG section.
Please turn to slide 18, as we have.
Stated, we are updating our full year guidance range to $760 million to $780 million from the previously communicated range of $750 million to $770 million.
This modest increase reflects our confidence and stabilized operations across the organization along with a cautious view of the current macroeconomic environment.
Theres currently less.
Visibility into end market demand due to varying factors, including inflationary pressures along with actions by the fed to reduce inflation and the impact. These actions will have on the broader economy.
And to stay vigilant and continue to focus on executing our strategy and servicing our customers, while generating attractive returns for our stakeholders.
In closing I would like to thank all of the pack that evergreen workforce for their continued commitment and hard work I would also like to thank our valued customers and vendor partners for their continued commitments to our mutual success with that let us open it up for questions.
Operator.
Thank you very much.
We will now begin the question and answer session.
To ask a question you May press Star then one on your telephone keypad.
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At this time, we will pause momentarily to assemble our roster.
Thank you.
Yeah.
The first question comes from Ghansham Panjabi from Baird. Please go ahead.
Hi, Thanks.
This is actually Tom dig them sitting on for Ghansham. If so could you provide more detail on segment volumes in terms of what categories outperformed and underperformed and then any color on early <unk> trends would also be helpful.
Sure.
So I would comment that by each one of our businesses.
The first thing I would say from a volume trend perspective, yes. There is no there is no real systemic decline.
So theres really just some.
Some things that need to be understood in terms of just.
Kind of three points and our foodservice business.
We talk about volume for value and as we've we've improved service levels.
I'm really looking at.
We're best to serve customers.
You know are supporting us through price.
Helping us through the inflationary timeframe that we're in.
We've been able to.
Moving on to enjoy.
As you've seen the margins.
That support and we've exited low margin business throughout not just this cube prior Qs.
So that overarching not just our foodservice business, but all three of our segments.
And then.
Q2 versus Q3 from a comparable I would say the thing to note. There is that there is a bit of seasonality in all three of our businesses.
And Thats really the large the large difference with the summer built.
And then from a year over year, obviously Q3 was the start of a large reopening in the U S and so difficult comps year over year for us in terms of just.
Inventory replenishment.
The reopening that started largely in Q3 last year.
Food merged as very stable.
I would tell you that as I had noted in Q2, our beverage merchant business is still largely oversold.
While product.
Hopefully that helps.
Yeah.
Yeah. That's helpful. And then just for my next one how should we think about the different cash flow variances for 2023, just in terms of Capex cash interest and working capital.
Yes. Good morning for 2023, we're not guiding to anything from a cash flow basis for next year. So stay tuned for our next call. We'll give you some more guidance into next year.
Sounds good thanks, I'll turn it over.
Thank you.
The next question comes from I don't think they cannot them from RBC capital markets. Please go ahead.
Great. Thanks for taking my question.
Yeah. Congrats on all the progress is a let's say a nice quarter there so.
Maybe you can just help us.
And do.
Do you expect kind of elasticity impacts across most of your businesses. It seems like you're holding up pretty well.
And some standpoint.
We had heard about some weakness in foodservice.
You now and then.
Along those lines.
Is your portfolio well positioned in case, there is a little bit of a trade down.
With the consumer.
Yeah. So.
Yes, I just want to be careful that.
For us as I stated in the last question, we do view, our foodservice underlying demand is stable and so while there is some softness out there in other channels.
Channels, I would say our business largely as stable.
Side of decisions we've made.
And I would say that yes, we are positioned very well.
What we're calling the trade down.
People are dining out and enjoying that takeout experience certainly is peoples.
Peoples' wallets get tighter there is a trade down and we are well positioned to enjoy that were there.
Our positioning and the change in <unk>.
Okay. Thanks, and then if I just ask one more on the restructuring actions that you've taken.
Could you just provide an update I guess on some of those are going maybe if you've had any new learnings within beverage packaging.
I know that you you consummated the sale of the asset there but.
Any other further actions that you would expect along those lines.
Yes so.
We've taken a number of actions dating back to the closure of the coated groundwood, we've had the divestitures as you've noted.
We continue to look for opportunities certainly nothing nothing to share in terms of further decisions in that regard I would tell you that the challenge is two pronged obviously as the controllable internal work that we need to do and have continued to do to improve our operations and our mill performance.
But also commercially.
As we get fitness in terms of customer contracts and pricing.
We've seen that improvement come along as well so.
We've seen some great progress in the throughput.
Efficiencies in our mills.
We certainly have invested there.
Secret.
Both in talent and in Capex.
As well as.
Really.
Put a focus on what's core and you're seeing us really look at tightening that business up and staying tried to tighten our focus to our core assets.
I'd say thats our strategy.
Overarching strategy and that Hasnt changed.
In terms of further divestitures or anything around the strategic review.
Again as I've stated before it's an iterative process.
As decisions are made and we do decide to move forward on things.
We will be open about those we just have nothing further to share at this time on that.
Thanks.
Thank you.
The next question comes from Kieran de Brun from Mizuho. Please go ahead.
Hi, good morning.
Just I was wondering if you could talk in terms of pricing initiatives and what youre seeing in terms of the input cost and on the raw material front, how some of those raw materials have maybe changed.
Three key versus <unk>, and then what your kind of pricing pipeline looks like through the rest of next year and your ability to maintain some of that price. If we do get into a softer volume environment with your with your customers. Thank you.
Yes.
Just to level set so we.
Twofold, obviously, we have our contractual pass throughs, which we continue to recover 100%.
And as far as our ability to continue to.
State of elastic in terms of inflationary recovery, we've made great strides in all three of our businesses too.
We need to stay whole in that regard.
As it relates to our input cost Q3, I think we continue to see largely in our food businesses.
So, particularly with resin stabilizing to falling off in some regards.
Terms of costs.
And then I think we continue to expect the same throughout the end of the year.
As it relates to beverage merchandising a bit different with PUC.
A delta between our costs continue to go up in that business in terms of our input costs and so it's a little bit different than what you'd see in our food businesses. So all the other <unk>.
Fiber energy.
Input costs that do impact natural gas the impact that business continued.
They go up and are headed in a different direction and so we still have a.
Our delta on that recovery.
Albeit indexed and fully recoverable.
Great.
And then just a quick follow up on the current debt profile.
You've done a really great job of getting that down to four five times I mean, it seems to be trending towards that kind of four below level within the within next year potentially so how do we think about your capital deployment priorities post kind.
Kind of hitting that lowered I guess below four times target on a go forward basis. Thank you.
So.
I would say our deployment targets are largely not different than today.
I would say that our focus continues to be on returning EBITDA returning projects and so the geography of our capital.
This is largely around.
Areas of automation for instance.
Certainly.
Looking at growth capital, where we're able to.
Yes.
Well volume and partner with our current customer portfolio new customers as.
As well as really look at.
Yeah.
Similar to what we've done recently with fabric, how you know if the right opportunity presented itself.
We certainly want to be at the ready and have a continue to have an ear to the wall.
What other assets might become available for us to grow inorganically as well.
Hum.
And John I'm sitting here looking at John Who's certainly I'd be remiss, if I didn't say that's all.
Overall that would be we do wish to continue to delever. So in terms of usage.
Our priority is to get to below four times.
And just to.
And I'll, just expand a bit on the deleveraging front.
Yes, theres two components of the leverage point.
It's obviously growing EBITDA is one way to achieve that so as we as we look at those capital projects that Mike just mentioned.
We are looking to grow that EBITDA increase our margins and our returns in that process. So that's one one aspect to the equation, but the other is just the absolute debt levels. We do have some cash on the balance sheet Thats certainly in excess of what it takes to run the operations and so we are looking at alternatives that we can.
Some of the excess cash to continue to bring me the absolute debt levels down as well.
Thank you very much.
Thank you.
The next question comes from Adam Samuelson.
With Goldman Sachs. Please go ahead.
Yes. Thank you good morning, everyone.
Good morning, good morning.
So I guess the first question is just thinking about the updated guidance.
Which for the fourth quarter implies.
A sequential decline of $25 million to $45 million or so of EBITDA.
And I just was hoping to get some clarity on kind of the.
The key moving pieces within that relative to the third quarter performance.
Presume theres some seasonality, although it's been hard to.
Parse that from your historical results in the last couple of years given all the other external factors going on but help us think about kind of expectations on volume price cost other discrete factors that would be that that would be driving that kind of sequential decline in that in the fourth quarter, yes.
I'll give the.
Yeah. So.
If you go back to kind of Q3 Q4 of 2021.
Yes, certainly.
Coming out of the pandemic.
And you talked about external factors certainly that's that masks any seasonality that our business would normally have so typically our Q4 is our softest quarter.
Any any calendar year.
<unk>.
And the recent Qs, yes, we've seen some choppiness.
What normal looks like really driven by the consumer and that Grand reopening that happened last year with a lot of the mandates coming off and mobility increasing.
Drove a.
Spike in two things.
Spike in our customers pull through because they were trying to right size inventories.
And also a spike.
Certainly usage and so the consumer was very active.
And that's largely.
The reason for the Q over Q change.
This year I would say.
The guidance increases largely.
Not volume driven, but it's really more around our move to put the we.
We pulled in outage ahead.
In our beverage business and so having a reliance on our improvements in the operations. We certainly wanted to make sure we shifted that and some modest increase.
And we're also cautiously optimistic about volumes in Q4 as well so while we'll see some.
Some normal seasonality, we still have as I've mentioned previously stable segment volumes stable demand in every one of our segments.
Okay.
And then this is a follow up given the actions that you've taken this year.
Kind of getting your own inventory back in a better position than what I think you framed as value value over volume.
Can you just quantify kind of the.
The level of or the amount of foregone sale.
Sales this year from those actions as we think about kind of lapping that.
Internal rebuilds.
In 'twenty three.
Yes, Adam.
We really cut the business that way in terms of foregone sales.
The broader piece that I would tell you is that it is a strategic decision as we were as were looking at targeting as Mike said targeting the right customers those that will.
Help us with the managing through the inflationary environment, we're in and really doing that value over volume <unk>.
Selection, but in terms of those those customers that are or the piece that is falling away.
It is a lower margin business and so it's not not overly impactful from an EBITDA standpoint as it is just a volume perspective would just be my my broader answer to that.
Yeah.
Okay Alright.
Helpful I'll pass it on thanks.
Thank you.
The next question comes from Macquarie.
Bank of Montreal. Please go ahead.
Thanks, Good morning, Michael Good morning, John Good.
Good morning, good morning.
John just curious.
For my first question is.
As you think about that increased guidance for the full year is there anything in there incremental it came from just your view of potential.
Potential.
Cost benefits here in the fourth quarter, particularly with resin coming down.
No from a year standpoint, not particularly from from that beat I think the beat.
We've talked on is probably more of an operational basis and that we've been able to continue to improve on that front a lot of the the resin pricing declines its something that will we will see probably more pickup into going into next year than seeing it in Q4.
Okay, and then I'm just curious over in beverage merchandising and we've just had a dizzying number.
Rice increases announced on kind of bleach paperboard and paper and so I'm, a little surprised that youre not seeing kind of better margins in that business with those increases.
And then just.
Curious how much of a lag is there in terms of raising price.
Im kind of both internal and open market sales in that business.
And is that a factor in kind of margins still being down here in the mid single digits.
Yes, we haven't disclosed.
The lag effect in that business, but we are not on the right side of price cost just because we haven't caught up in terms of that recovery I can say that.
As I've said in other calls I'm just for transparency.
Yes, we certainly do have more work to do on the commercial front.
With contracts falling off.
Some of the legacy <unk>.
Commercial deals that were done in that business that will allow us to to get back to what you have identified as a margin gap.
Yeah, Okay, Alright, and then finally, Michael just any color on this closures business I have to say.
I was a little surprised I didn't realize the off.
Sure extend of that closures business.
Yes.
What color you are looking for but I can just tell you that non core business for us certainly.
Yes.
Our legacy set of.
Orphan facilities that.
Clearly we are managing.
Very insignificant in terms of our earnings.
Earnings in and really was about getting in the right hands in that.
Not really about us continuing to be distracted with it.
Okay, Alright, that's helpful. Thanks very much.
Thank you.
The next question comes from Kyle White from Deutsche Bank. Please go ahead.
Hey, good morning, Thanks for taking the question a question for you John now that you have almost half year on year belt here, where do you see the most opportunity to create value for the company, where do you see the most room for improvement and what might be your focus going forward.
Okay.
Sure. Good morning, Carl I think that's a great question.
There is a couple of different aspects, one and I'll build on a comment Mike Mike made earlier around capital deployment really having a really focused approach to capital deployment returns based.
Methodology too.
To really prioritize those projects and focus on things that are going to continue going to continue to grow the business, but at a at a better return and a better margin I think that's one area.
In terms of just operational improvements in terms of the core businesses.
Continue to evaluate those but there are areas, where we can certainly run the business more efficiently.
And we continue to build margins and and frankly to streamline some of our operations so operational enhancements.
Enhancements I would say in that area and then I think lastly, just around in.
Some of the things we're talking about in terms of deleveraging the business I think.
Working on ways to reduce our cost of capital, which is a bit challenging with some of the external macro headwinds in the market in terms of rising interest rates, but.
Trying to reduce that cost of capital reduced the volatility in the business and I think nothing to announce right now, but there are some things that we're looking at in terms of ways that we can reduce that variability in the business and I think I've talked about it with you and others.
As I've entered the company this business does have a very rich.
Recession resilient reliable cash flow stream, but the volatility in the cash flow from quarter to quarter.
It doesn't necessarily represent the underlying stability and strength in the business and so very much focused on continuing to drive ways that we can reduce that volatility in the cash flows from a quarter to quarter basis to.
To help reduce the volatility and then lower our cost of capital.
Got it that sounds good and then just a point of clarity on the maintenance I'm just trying to understand was the cold mill outage. Originally planned for the fourth quarter and then was that total impact of $8 million related to this or is there more of that drags into the fourth quarter.
I think you've got it right. It was completed in Q3 it was.
Scheduled for October and we did it in August .
Perfect. Thank you I'll turn it over.
Thank you.
Our next question comes from Anthony Petrone with Citi. Please go ahead.
Hi, This is actually Brian Birchmeier sitting at brand Tonight.
On the last call I think you mentioned 200 million free cash flow guide for 2022, I'm just wondering if that's still a good number to use.
Thinking about your inventory levels into year end, which seemed normalized now and then I'm not sure. If we will see a cash benefit from lower resin prices.
Yes, good morning, Brian Let me, let me just clarify something from the last call. So I don't believe we guided to $200 million of free cash flow for the year. We did make some comments and provided just the general area of mid one hundreds as is probably an area, where we would see free cash flow.
As we stand today again reiterate a couple of components. One we did spend 300 million on on building inventory, but and were $72 million free cash flow positive year to date to three quarters in.
As we stand today, we are.
We're still targeting being north of $100 million in free cash flow I'm not sure if I would guide us to the mid $100 million, but we're somewhere north of 100, and I think the real the real piece there that's probably a delta quarter over quarter is just the working capital components and seeing how that ends up the year given the build in in inventory that we.
Last quarter, you might have seen this quarter.
I mentioned this in the prepared remarks.
There is a bit of a payables piece that.
It is a bit of a catch up that that hit us this quarter and so I am looking for that to unwind this quarter into more normalized non inventory working capital levels, and so that that pieces, where we should see some more free cash flow generation in the back in this last quarter.
Got it thanks for the color there, yes, I made a mistake on the $200 million. So thanks for clearing that up and then.
Just for a follow up.
Foodservice volumes are down mid single digits year to date and I'm just wondering if it's possible to parse out maybe how much of that is just from <unk> internal inventory decisions versus how much of that is due to <unk>.
<unk> seen at your.
Customers demand levels.
Yes, we've not disclosed that.
I would say generally.
The <unk>.
The volumes that are customer levels are pretty stable. So you could say the lion's share of those declines are really self inflicted or.
Choices we've made.
Generally.
Got it thanks, that's it for me I'll turn it over.
Operator.
A reminder to the participants if you have a question you May Press Star then one.
As there are no further questions. This concludes our question and answer session.
I would like to turn the conference back to Mr. Michael King for any closing comments.
Yes, Thank you Steven.
So I would just like to personally thank everyone for joining today's call.
We certainly are excited about the progress we've made thus far and recognize that we still have much to do.
On several fronts.
We certainly recognize that there is.
A significant amount of value that we continue to unlock and Ken and lock in.
And that is that is creating the kind of momentum and the culture in this business.
We are winning today versus where we were just a short 12 months ago.
This management team is very committed to our strategies our strategies are paying off.
And as I've noted on today's call, it's great to be in a proactive state versus just a short 12 months 18 months ago.
With that again, we thank you for your support.
We thank you for following and being a part of the journey.
And as always thank you for supporting pacts of evergreen.
That will conclude today's call.
Yes.
Thank you.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.