Q4 2022 Sonoco Products Co Earnings Call
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Good day and thank you for standby welcome to the Sonoco fourth quarter 2022 earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
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Please be advised that today's conference is being recorded.
I would now like to hand, the conference over to your Speaker today, Lisa weeks, Vice President of Investor Relations and Communications. Please go ahead.
Thank you operator, and thanks to everyone for joining us today person Arco's fourth quarter 2022, and full year 2022 earnings call. Joining me. This morning are Howard Coker, President and CEO , Rob Dillard, Chief Financial Officer, and Rodger Fuller Chief operating officer.
Last evening, we issued a news release, highlighting our financial performance for the fourth quarter and we prepared a presentation that we will reference during this call. The press release and presentation are available online under the Investor Relations section of our website at Www Dot Sunoco Dot com.
As a reminder, during today's call we will discuss a number of forward looking statements based on current expectations estimates and projections. These statements are not guarantees of future performance and are subject to certain risks and uncertainties. Therefore actual results may differ materially. Please take a moment to review the forward looking statements.
On page two of the presentation.
Additionally, today's presentation includes the use of non-GAAP financial measures, which management believes provides useful information to investors about the company's financial condition and results of operations further information about the company's use of non-GAAP financial measures, including definitions as well as reconciliations to GAAP measures.
Available under the Investor Relations section of our website.
For today's call Howard will begin by tendering a summary of 2022 performance. Rob will then review our detailed financial results for the fourth quarter and the full year and along with Rodger Fuller, who will discuss our guidance update for the first quarter and full year of 2023. Howard will then provide closing comments followed by a Q&A says.
<unk> it.
If you would please turn to slide four in our presentation I will now turn the call over to our CEO Howard Coker.
Thanks to all of you for joining our call. This morning.
We really look forward to sharing our transformational results for the past year and provide our outlook for 2023.
If you look at 2022, a pivotal year for Sonoco before we make significant progress on our strategy to continue growth.
The World Class packaging company with a portfolio of highly engineered and sustainable products to support our customers.
When I took this role three years ago, we started on a journey to fundamentally change the trajectory of long term profits of the company.
And to do that we have to take a pretty complex business and simplify our both our portfolio folio and the way we run the company to drive improved growth and profitability.
These changes were necessary for us to deploy capital more efficiently to our larger core business units to better.
Better integrate acquisition.
In fact, the metal packaging acquisitions with the largest in the company's history and performance and integration are well ahead of schedule.
In parallel we've worked hard on commercial excellence to reposition pricing to less volatile entities, while improving the timing of recovery for higher manufacturing costs.
It's taken several years, but the efforts of these programs are reflected in our 2022 results and we expect them to continue well into the future.
In 2022, we saw strong year over year performance in which revenue grew 30% to seven 3 billion.
EBITDA grew 51% to 1.15 billion.
And based on earnings per share grew 65% to $6.48.
These records, obviously were a record in the 24 year history of this company.
Can be more proud of the team for these results, which were achieved in another year, which was nothing short of chaotic.
All of our staying true to the mentioned.
And further advancing our ESG and sustainability initiatives, which are intently aligned to the values of this company and a part of our everyday lives.
So with that I'm going to turn it over to Rob to take you through the financial results and our forward guidance.
Thanks, Howard I'll begin on slide six with a review of key financial results for the fourth quarter. Please note that all results discussed will be adjusted debate and all growth metrics will be on a year over year basis, unless otherwise stated.
The GAAP to non-GAAP EPS reconciliation can be found in the appendix of this presentation as well as in the press release, the fourth quarter and full year 2022 financial results again represented Sunoco the ability to deliver strong results from our core market positions despite challenging market conditions.
<unk> increased 16, 5% to $1 7 billion in the fourth quarter. The sales growth was driven primarily by the Sunoco metal packaging acquisition, and an 11, 5% increase in price of strategic pricing efforts continue to both offset inflation.
The value we provide our customers volumes in the fourth quarter declined eight 5% due primarily to declining demand in the global ERP and converted paper products markets and also due to soft consumer volumes, particularly in Nevada weeks of the quarter <unk> operating profit increased 34% to 184 million.
And base operating profit margin increased 145 basis points to 11%.
This strong performance was due to strategic pricing that offset inflation and a lack of operating leverage due to lower volumes.
While metal packaging was important to these results excluding metal packaging operating profit would have grown 28% and operating profit margin would have been 12, 2%.
The base EBITDA increased 31% to $241 million and base EBITDA margin increased 160 basis points to 14, 4%. This margin improvement has been strategic and is backed by ongoing portfolio management actions footprint optimization activities value enhancing capital investments and struck.
Actual transformation. These actions have enabled a reduction in SG&A as a percent of sales from nine 8% in 2020 and eight 8% in 2021, 2% in 2022 and importantly, we have reduced this metric while also investing in our commercial operational and supply chain capabilities.
Finally base earnings per share increased 28% to $1 27.
This increase in earnings was attributable to strong operating performance offset by <unk> <unk> of negative FX and enabled by a lower tax rate of 21, 3% in the quarter.
The sales bridge on slide seven provides the primary drivers for growth in the quarter volume mix was negative $123 million or eight 5%.
Consumer segment volumes were down primarily due to consumer inventory management and whether in the fresh food businesses. We view these effects as transitory and not a trend we do not anticipate they'll continue in the first quarter industrial segment volumes are also down in the quarter and continued declines in Europe and Asia.
U S. Industrial volumes also declined, particularly due to the exiting of the corrugated medium market.
Price was $166 million positive up 11, 5% in the fourth quarter, our pricing performance continued to reflect strategic pricing efforts associated with our commercial excellence strategy, mainly selling to value and managing contracts to recover inflation acquisitions.
Acquisitions increased $239 million driven by metal packaging in our first month of <unk>. The integration of <unk> is ahead of schedule and we're excited about both adding new team members in Europe , and our expanded capability to serve consumer end markets, but base operating profit bridge illustrates our improving profitability in greater detail.
Volume mix was negative $35 million, primarily due to lower volumes and industrial's price costs with an $87 million benefit for the quarter.
Consumer had strong price cost performance generating $16 million of favorability, primarily from RPC, we achieved $66 million of positive price cost in the industrial segment in the fourth quarter with strong price cost price cost performance was due to contractual pricing mechanisms and historically low OCC cost.
OCC averaged $38 per ton in the quarter versus $123 per ton in the third quarter and $183 per ton in the fourth quarter of 2021 and.
In 2022, we achieved a record $340 million of positive price cost.
These figures exclude metal packaging, which was accounted for in the acquisition.
Acquisitions, and divestitures generated $9 million of base operating profit in the quarter as metal packaging continues to perform as expected.
And this business will lower than previous quarters due to normal seasonality associated with food food can volume and lower volumes in aerosols associated with inventory rebalancing other.
The other impact on the quarter were negative $8 million due to higher depreciation and FX headwinds, which specifically were impacted operating profit $5 million in the quarter.
Slide eight has an overview of our segment performance for the quarter consumer sales grew 49% to $879 million due but metal packaging acquisition and strong performance.
Strong price performance, only partially offset by negative volumes of two 5%.
<unk> would have been generally flat, excluding the impact of weather and plastic foods and mix from exiting ice cream segment in RPC Euro.
Consumer operating profit grew 37% to $85 million in the quarter operating profit margin declined 83 basis points to nine 7%.
When excluding metal packaging for comparison purposes consumer operating profit margins would've been 11, 9% at 139 basis point improvement.
Industrial sales declined eight 9% to $597 million due to a 15% decline in volumes volumes weakened throughout the quarter due to customer.
Inventory management, and lower end market demand and more economic sensitive regions and segments operating profit grew 34% to $79 million as price cost offset low utilization.
Industrial pricing is holding as pricing mechanisms are now oriented to overall inflation recovery and value delivered rather than OCC prices operating profit margin increased 422 basis points to 13, 3% all other sales increased two 5% to $200 million and operating profit increased.
94% to $20 million growth was driven by strategic pricing and overall stable volumes.
Moving to slide nine we have a record full year 2022 financial summary revenue grew by 30% to seven 3 billion driven by acquisitions volume in consumer packaging and strategic pricing base operating profit increased 63% to $920 million driven primarily by positive price costs and acquisitions base EBITDA was 51.
<unk> to 115 billion and base EBITDA margins expanded to 15, 8%.
Our base EPS for 2022 grew by 65% to $6 48.
We also announced the acquisition from West rock of the remaining equity interest in Rts packaging and one paper mill in Chattanooga, Tennessee in light of the current status of the regulatory review process. We now expect the closing of the acquisition to occur in the second half of 2023.
Turning to slide 10, our capital allocation framework is aligned with our business strategy to drive value creation for our shareholders.
Our priority is to allocate capital to high return investments in our core businesses to drive growth and improve efficiencies from a free cash flow perspective, we remain focused on increasing the dividend, which at present is <unk> 49 per share on a quarterly basis for a greater than 3% of average yield over the past 12 months, we paid 187.
And dividends in 2022.
After capital investments and the dividend, we prioritize investments and accretive M&A transactions are aligned with our long term strategy.
Prioritize our access to capital and retaining our investment grade credit rating for the quarter operating cash flow was $87 million in capital investments were $88 million for the year operating cash flow was $509 million in capital investments were $319 million on.
On slide 11, we have our 2023 guidance for the first quarter, our EPS guidance is $1 15 to $1 25.
Our full year 2023, EPS guidance is $5 70 to $5 90.
Our full year 2023 base EBITDA guidance is $1 1 billion to $1. One 5 billion, our full year operating cash flow guidance is $925 million to $975 million, we anticipate net working capital to be a meaningful benefit to cash flow in 2023, now Roger will discuss our outlook on a segment basis.
Thanks, Rob Please turn to slide 13 for our view on segment performance drivers for the first quarter and the full year of 2023, which supports our guidance.
Across the consumer segment for the first quarter of 2023, we expect sequential volume growth in all products, including milk and rigid paper packaging and flexible.
Only exception, we expect this plastic packaging for fresh fruits, and vegetables, which continues to be hampered by weather issues.
On a year over year basis for Q1, we expect to see positive volume driven primarily by the one extra month of metal packaging sales as we closed the acquisition at the end of January in 2022 for.
Our first quarter earnings we have projected headwinds in our guidance from lower steel prices and are managing through other raw material cost and availability issues with energy adhesives and laminates for.
For consumer during the first full year of 2023, we see volume increases year over year across the portfolio, including MIT, including mid single digit volume increases in our metal can business.
We continue to invest for growth and productivity led by the increasing demand for sustainable packaging and our rigid and flexible packaging businesses.
In our industrial segment, we see continued softness in volumes globally and are converting and trade paper sales in the first quarter.
In North America protective packaging for appliances and household goods remains weak and we expect a little near term recovery for products that support residential homebuilding and construction markets.
We're monitoring the Europe and Asia demand recovery carefully as this will be critical to the overall volume outlook in industrial for the full year, which at present, we believe we'll be down low single digits versus 2022 levels.
Like Allen mentioned with transitioning our contracts to more stable indices, putting in better cost recovery mechanisms and current lower input costs on OCC pricing in industrial remains stable.
Even with the most recent modest decline of $20 a ton for you or be on the risky index and some expectations of modestly higher OCC costs. In 2023, we expect positive price cost benefits this year and industrial.
With planned downtime in our global paper operations, we continue to maintain reasonable backlog levels and are ramping up all paper grades on our number 10 machine in hartsville.
And in all other all other businesses. We continue to have net stable volume demand across this collection of businesses with improved productivity and favorable pricing actions, we expect slight increases in profitability for the all other segment this year.
As we look to 2023, we have a keen focus on all forms of productivity as we see the benefits of fewer supply chain and labor disruptions over.
Over the past several years, we've taken decisive actions to help offset inflation and build resiliency in our operating model at the same time, we have invested capital in our core consumer and industrial businesses to position us for long term growth and profitability.
With that I will turn it back to Howard Okay. Thanks, Roger If you would turn to slide 15.
The base earnings per share grew visually demonstrated here clearly shows the step change in profit improvements for Sunoco.
Our full year results include the benefit of metal pricing overlap of the company, which was approximately 53 cents without this benefit you would still see a very strong roughly $6 per share earnings for the for the period.
Since 2022 that the high return on investment.
We've made while are reshaping the portfolio and improving the operating model have also resulted in an expected 15% CAGR in earnings per share through 2023.
So on the midpoint of our 2023 annual guidance.
While 2022 was a year of progress we are only just beginning we intend to grow profits through organic and M&A investments as well as a better efficiency in how we run the business day in and day out.
In closing if you turn to slide 16, we carry sustained momentum from our strategy and operating model and of the new year, which we believe positions us well to navigate near term volatility.
We expect stable operating performance in the coming year, where the mid point of our base EBITDA guidance is essentially the same as last year.
Let me be clear the operating environment does remain very tough right now, but our expected performance reflects our better portfolio.
And business mix that is expected to be less volatile.
<unk> cycles.
We expect the first quarter to be the low watermark for the year based on our customer forecasts with improvements in the second and third quarter, and then concluding the year with a more seasonal Q4.
With improvements in working capital, we expect free cash flow for the year to be at the mid point around $600 million.
We also remain focused on $180 million of incremental base EBITDA improvements through 2026 based on additional access actions planned to further improve our core businesses and refine of.
Operating model.
As always for Sunoco capital allocation remains a cornerstone of our strategy and we intend to continue increasing dividends, while maintaining an investment grade balance sheet.
In 2023 and beyond we're focused on improving returns on invested capital through organic investments and core accretive acquisitions.
And through further portfolio rationalization.
I have never been more positive about the long term outlook for Sunoco.
So at this time, we would be pleased to take any questions that you may have.
Thank you.
As a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced.
Withdraw your question. Please press star one again please.
Please standby, while we compile the Q&A roster.
Our first question comes from the line of Kyle White with Deutsche Bank. Your line is now open.
Hey, good morning, Thanks for taking the question.
Correct me, if I'm wrong, but I think in the food can business. I think you said you expect mid single digit volume increases for this year.
What gives you this confidence curious what is driving that just as we look at some of the industry data that shipments have been frankly, a little bit weaker than that.
Okay.
Thanks Howard.
We're talking from a sequential perspective, then we just have visibility of that through conversations with our customers our expectations.
A bit of share left but.
That's exactly what our customers are reflecting to us and Thats what were building into our model.
Got it so sorry. It was that you are saying is the sequential uplift mid single digits not a year over year.
Yes, well year over year, yes, okay. Okay.
And then within that business just a follow up can you remind us what the impact was from the sell through of lower priced steel inventory last year and then maybe what you are projecting as a headwind in.
<unk> and possibly <unk> from that impact.
Yes.
For the full year last year it was 54.
Of a detriment.
Because.
Tin plate is declining this year.
10% or so there is actually going to be detriment as well this year for metal price overlap from the inventory we've carried over.
It'll be an incremental.
20 to 30 times.
Got it thank you I'll turn it over.
Thank you.
Question comes from the line of George Staphos with Bank of America. Your line is now open.
Hi, everyone. Good morning, Thanks for the details congratulations on the progress in 'twenty two.
I wanted to hit on consumer trends that Youre seeing.
You talked about some inventory management by your customers at the end of the quarter can you talk about what they're saying and what youre seeing as youre entering <unk> across some of your key either end markets and product lines and if you would try to differentiate.
In the center of store.
For versus plastic we get that plastic for fresh is having its issues, but center store. What are you seeing in terms of your paperboard consumer packaging versus your plastic based packaging.
George let.
Let me try to hit on that and Roger if you've got any follow up.
It wasn't just on the consumer side it was across the entire portfolio that we just saw a tremendous.
Sure.
Brakes hit towards the latter part of last quarter.
That's across all industry actually.
Yes.
On the consumer side, we were we were being told that that really is.
A reflection of inventory drawdowns et cetera, as we entered the quarter we have not.
Finished alison.
Those that are January but looking at the topline.
Pretty impressed with the comeback that we're seeing across the board.
Sure.
The plastic side the real issue there is the weather events, both in Florida with the freeze in California, with the floods and the impact on the fresh photos.
No we're seeing.
Really really solid signs and reflecting I think this year somewhere in the neighborhood of a 4% to 5%.
Lift year over year on the consumer side, but coming out of the gates.
Pretty impressed with what we're seeing right now.
Got it.
No you hit it Howard I think the.
Modest declines in the rigid paper cans in the fourth quarter.
George as Howard said seeing nice recovery in January really nice another nice quarter by flexible 4% growth in the fourth quarter budgeting something 5% for the year and expect more of the same as we head into next year. So the pressure really was from our plastics business.
Understood that's very very helpful guys.
Secondly.
Can you talk to what benefit.
Realizing it's a moving target it's going to be based on the evolution of the market evolution.
Your inputs, but what benefit we should expect free for Sunoco from commercial excellence this year.
And other self help measures and where we stand in terms of ultimately realizing the targets you would have on both of those.
During the transformation.
Yes, Joe its Rodger again commercial excellence I mean, you saw do you see the results from last year on price cost and frankly thats from a couple of years of really hard work around commercial excellence and we talked about what we see in the guidance for the next year from a price cost standpoint, so those.
Efforts continue and continue to pay off and you can see it in our operating margins.
On the self help side really it's all about productivity.
As you look at 2023.
We expect our productivity results to return to more.
Historical levels, and then probably plus some with the easing of supply chain and labor issues.
George you know our historical levels of productivity as well as anyone we expect to get back to those levels and beyond the self help the structural transformation. We did this year is paying off from the operating margin standpoint, So I think across the board we're still confident.
$180 million over the next over the next several years.
And George let me just add on to that and not just talk year to year and really the journey that we've been on and I know there is a lot of folks on the call.
That are that are pent up to either ask or thinking about okay. We're slowing down you are in our paper business Youre going you guys performed extremely well in all historically.
And recessionary type environment. So I just wanted to touch on.
You can call it self help whatever you want to call it but the amount of focus and energy that we've put over the last four or so years and terms.
Proving our performance in our industrial sector and I think you can see that sequentially in terms of the terms that we've demonstrated.
Australia over the periods. So if you look at the profile of the company now and you take.
10 machine is one thats, an interesting conversation with core suites to kind of a lot of time talking about it but creating the lowest cost.
<unk> mill in North America, certainly within our network on a global basis and the productivity that's going to drive and how that is going to be attracting volume from our higher cost Mills and then we're seeing that happening now so the benefit from that but the unseen benefit that we have.
<unk> spent a lot of time talking about is controlling what we can control to reduce the amount of variability within this business and getting out of corrugated medium I cannot tell you how volatile being in that market with such a small machine non vertically integrated that has been for us over the course of the last.
Call it eight to nine years.
Within the company and you add to it the amount of effort on a global basis in terms of consolidations.
Against focusing only solely owned industrial right now.
Really right sizing our locations the investments we've made in automation.
And I've said it before.
And I'll repeat it and it sounds like what it feels like we are in a recession from our perspective on industrial that we're in a much better position today than we have ever been and we do not expect to see the type of variability that.
That we saw pre engaging in the activities of this global team is.
Put forth so sorry for the dissertation, but another questions about that but we just.
Kind of gets frustrating when you just look at quarter to quarter, and what you did yesterday versus tomorrow and not look at the long runway of efforts that this global team has put in place to create.
The appropriate level of margins that we deserve for the value we generate for the market and our customers.
However, we appreciate that my last quickie is a great segue to that so.
Within industrial within Paperboard, and you talked about the change in the contracts commercial excellence productivity.
Can you give us some guardrails I E. If prices drop and the published indices by X or OCC goes up by why what that might mean to the business on a going forward basis. So that we also are managing our forecasts.
With less volatility where more accuracy, thanks, and I'll turn it over.
Yes, Thanks, George what I'll say is we have assumed that price is going to moderate.
And cost is going to go up by law and that's built into what we feel like is going to happen next year.
<unk>.
That's helpful.
Alright.
So that's a good question I get it that we have and I won't.
Stan.
We feel like there's going to be some moderate pressure on price and theres going to be FCC cannot stay at 45, So we built an upward lift.
And tied to that in our go forward model, Alright, I will turn it over to the other folks. Thanks.
Thank you our.
Our next question comes from the line of Cleve Rueckert with UBS. Your line is now open.
Hey, good morning, Thanks for taking our questions.
I wanted to follow up on the industrial business.
What we're talking about it and I'm just curious how much visibility you have into the industrial backlog.
And just sort of given what you know about it right now whether there's the potential for any volume growth in 2023.
Or if you had sort of visibility on a longer term basis.
And then Howard you, maybe you can just sort of mentioned.
What are the what are the puts and takes I know there is some transition going on in that business, but if you could give us some help on what you've seen for volume growth overall and the plan there would be helpful.
Yes.
On the backlog question this is rodger and industrial.
Look at the fourth quarter capacity utilization across our paper business was in line with the published numbers of the industry and as I said in my opening comments, we did take some lack of business downtime in our global paper system more in Asia, and Europe and the U S.
And some some maintenance downtime to match market demand and we're seeing that continue about the same levels in January .
As far as we can see as we think we've reached the bottom there and we're starting to see some slight.
Change to that in the right direction, but again in our guidance, we're projecting year over year.
Down a couple of percentage points for industrial based on what we saw and if you remember our first two quarters of 2022.
Around 3% year over year, so the deceleration happened in the second half of the year, we expect that to turn the other way our toughest volume quarter should be the first quarter, then we expect some recovery.
Thanks.
What we're seeing around the world it looks like like we're bouncing around at model at least first part of January so expecting to see sort of a term.
Craig can you explain deeper of what's your name transition beyond what I shared earlier I don't want to repeat.
What I shared on the July I'm, just wondering how much how much headwind you have coming at it at a containerboard and whether there are some other businesses that are growing.
Entering with that balances, but if you can't share anymore that's fine.
That's a good question. So we definitely look at all the various end markets and when we do sell into a number of end markets and a number of kind of final end markets onward, we've done a really deep analysis on where the <unk> product.
<unk> facilitated by that you RV product ends up going and it's a lot more.
<unk>.
I'd say that those are much more.
Consumer and disk.
Stable end markets, then you would anticipate.
With things like containerboard or tissue and towel and theyre in in a meaningful way and Thats been a part of our strategy is to manage the mix and one reason why we bought Rts are in the process of buying RTI and one reason why we like stern is because it gives us access to really Utah.
Is the utility and the sustainability profile of U R B and new markets that we think have some final growth and long term opportunity to claim.
One of the things that the team is working on now we keep talking industrial and it gets the connotations thats pure industrial and when you really get into it there is a huge consumer connection and roughly 30% I think I'm, saying this quarter, 30% of our <unk> ends up in.
<unk> tissue and towel sector, not you didn't define that as industrial so we owe it to you guys and Lisa and the team working on health.
Helping you guys that understand the true true nature of cyclicality that would tie to an industrial type slowdown.
That makes a lot of sense, that's very helpful. So it sounds like maybe more stable.
Moving towards stable less volatile run rates as we move discuss the strategic direction that we are.
Our continuing to focus on here.
And then I'm, sorry, if I missed it earlier, but I.
Just sort of recapping.
At a higher level on the guidance.
You talked about sort of I guess in two of the three segments, you get up to flat to up volumes.
Like price cost is expected to be positive pretty pretty broadly.
But ultimately margins and earnings are falling a little bit year over year. So I was just wondering if you could lay out.
The high level, what the what the negatives or what the headwinds are I don't want to belabor the negative aspects of the guidance, but just so we know what the what the puts and takes are.
Yes, I can give you that.
Color Cliff so.
Similar volumes.
Really excited about the volumes this year mid single digit positive across the board across the various businesses.
All of those businesses have great.
<unk> oriented strategy.
Price cost and consumer is actually going to be meaningfully negative.
Because of this metal price overlap that we talked about the 54% from last year and then and then another carryover. This year from deflation that we are having in turnpike. So that will we will be actually a pretty meaningful negative price cost and then we're also anticipating that resin prices will kind of <unk>.
Turnover in the year and that will provide some.
Some price cost headwind as well so a consumer will actually see relatively meaningful negative price cost, which was a big driver for the bridge.
Between two.
2022 to 2023.
Australia volumes, yes, we think they're going to be download single digits on price.
We've talked about.
Down kind of low single digits, but not in such a meaningful way that price cost will be a meaningful headwind for the year.
The other business.
Not so much diversity in what we really the way to really characterize that are normalizing and market trends and taking cost out of those businesses should result in some pretty meaningful operating profit improvement.
And then there's just normal way have won from nonoperating items like depreciation and amortization growing up $32 million interest going up in kind of normalizing to the statutory levels that we project.
Got it thank you very much.
That's it.
Thank you.
Our next question comes from the line of Mark Weintraub with Seaport Research Partners. Your line is now open.
Okay.
Thank you so just to clarify.
I think you've stated it but.
If the metal pack over lay benefit with 54 cents last year and you're looking at 20% to 30.
So is that are you expecting like a negative 74 to 84.
Comparison from.
Metal pack overlay.
<unk> 23 versus <unk> 22 is that the way to understand it or are we just giving up 20 to 30 of the 54.
Yes, it's not just metal pack because there was we did have a pretty meaningful tin plate business in RPC and then for that but that is discretely the impact of a positive going away and the negative coming in got it.
So.
So that $6 48, we could actually backed off.
As we're bridging to the guidance, we can come back off.
674 to 84.
As you say, that's a very big part of the seeming bridge.
I'm getting that right.
When we normalize.
I don't think that that.
I think that there's opportunity there from normal operating conditions versus just kind of taken away and saying that it was all one time.
Presumably would we just add back the 20 to 30 to get to normal or is there something above sand or different from that.
I don't think we've modeled it that finely but we definitely have a lot of productivity in that business.
Okay, and then I guess, the other elements of that and thanks for the bridge and the last question and I guess M&A with Rts. So maybe that's not so big but.
How impactful M&A and self help as we're thinking about the bridge.
Is that in.
A calculation of what you think 'twenty three will be versus 'twenty two.
Yeah Rcs is not in our forward looking numbers at this point in time.
Thanks, Roger said, maybe Rob earlier that we hope to have that closed by mid year second the second half of the year, but we haven't built that in only on <unk> and of course closed late last year and it's nominal.
Okay Super that Matt is helpful and I guess, one last try and understand that the.
Sensitivity, but.
On the.
On the U R B.
Okay can you share with or are the contracts still tied directly or indirectly to.
Indexes.
Or is that not even how your product is getting priced anymore.
Yes, Roger Yes, if you look at in general are totaled RMB tons about 60% or so is thought to the risky tan bending into index, 20% or so still tied to OCC moves and the final 20% is open market.
That's very helpful. Thanks, so much.
Thank you.
Our next question comes from the line of Adam Josephson with Keybanc capital markets. Your line is now open.
Thanks, Good morning, everyone I hope you're well.
Rob just a couple of clarification questions to start off if you don't mind, the mid single digit consumer volume growth that you're expecting is that organic.
It just seems like I don't remember the last time consumer volumes were up mid single digits any year I would think that would be.
A multiyear high growth rate amid these pretty weak conditions. So I'm, just trying to understand that volume expectation, a little bit better and consumer.
Hey, Adam.
Let me handle at least the macro view of that and let Rob take over from there but.
We've talked over the last several years and you can see it in our capital spend pool of how much new growth capital, we've put towards our overall businesses that it's been disproportionately weighted.
Against the consumer side. So we've just got none I mean, we've got we've got a launch that's going national right now in a new line in Chicago.
It was actually I was watching squawk box. This morning, and CFO of the company was touting the new products. So we've got a lot of things going on.
Within our legacy businesses.
That gives us.
Can you give us great confidence in terms of what we're what we're forecasting and then you take the big hit we took in the end of the fourth quarter and that four to four and a half tangibly in terms of new growth opportunities organic.
That we've talked about in terms of how much capital we're deploying around the world.
As well as.
As a bit of softness towards the end of the fourth quarter that give us great confidence in.
Rob.
Yes, Adam it's obviously.
An incredible focus of the business to develop the right strategies and really invest behind them and you saw that with the flexible business, which had mid single digit growth throughout last year, even in December with.
The difficult market conditions that everybody saw but we've done this we've got.
New leadership in the global Cam business on a really unified strategy I'd say most of the regions in the world are growing high single digits and Asia is growing double digits.
Per cans, and we're really excited about bringing innovation to that segment.
Enabling our customers to launch new products there.
Plastics is another area that.
Really.
Invested behind and they started to really grow so each one of those businesses.
Mid single digit growth prospects.
Anticipating that that will come through this year.
Wow, Okay, and just to be clear.
Total company, Rob what is roughly what is your volume expectation for the year I assume you're assuming up something even with.
Industrial being down.
Yes up 1% to 2%.
I wanted to okay, and one other clarification, Rob on the working capital you said that youre expecting a meaningful benefit can you be any more specific than that.
Okay.
Well.
I think that we're targeting at least $100 million of improvement.
And mainly through inventory management.
Got it lower inventories okay.
Howard just you expressed I think some frustration about just.
Some of the questions, you're getting in and I guess from our seat.
Most.
Really all paper based packaging had historic price cost benefits last year for reasons.
You are well aware of and many experienced historic margin expansion.
As did you and so it's hard for US just on the outside.
Parse out the it's a rising tide lifting all boats versus these company specific.
Operational initiatives that you have so is there any help more help you can give us in terms of parsing those two out.
Understanding how that how you're thinking that will shake out this year and thereafter for that matter.
First.
Sure.
Basically I apologize if you felt like I was frustrated.
I look forward to these calls like you have no idea each quarter.
Subsequent meetings within the quarter.
But it does become frustrating when.
I'm, sorry, again, yes, the dissertation as you may say that.
Again going back not too many years ago, 50% of this company was a paper industrial company is now in the 30% 35% range.
That is a tell in and of itself I can't answer your question, specifically, although to say is that.
If there is a frustration in the peanut butter spread of your paper company as a paper company pay for a company. That's trying to give you guys a little bit more color in terms of how we're looking at our segment within the paper industry and how we're doing the things.
Two to take away as much of the volatility that we historically have had through those self help actions that I'll describe so.
All all in inclusive C&I as I've said, we're expecting to see price moderation, where St is expected to see cost inflation FCC cannot stay where it is forever.
But we're taking we've taken actions over many years to reduce our exposure be it from ultimate price too.
Our controlling productivity et cetera.
So.
I'm backing down a bit Adam so.
No no.
It is helpful to hear you because again it really is hard for us to know how much of a horizon rising tide lifting all boats situation. This is because we just we obviously you don't have the visibility that you do you just the last thing Rob just back to the volume for one moment, if you don't mind.
Compared to the one to two up for the year what are your expectations for the first quarter, just I'm trying to understand how back half weighted that expected volume growth is.
Yes, that's a good question so.
For the quarter.
I would say.
Consumer volume growth is.
Coming through now on a year over year basis and sequentially.
For industrial we are off we're kind of we're probably going to be flat sequentially.
With some with some backend improvement and we've modeled in our <unk>.
Core our base scenario for that business.
We're going to see kind of a flat recession or a soft landing and then some recovery in the second half of the year, which we think of the consensus from.
From those sources.
And then the other businesses are expected to.
We're seeing kind of.
A good start to the year that will that will flow through.
Through the full year.
Thanks very much.
Thanks, Adam.
Thank you. Our next question comes from the line of Ghansham Panjabi with Baird. Your line is now open.
Hi, Good morning, everyone. This is Matt Krieger sitting in for Ghansham. Thanks for taking my questions. So.
You highlighted customer inventory destocking on the consumer side of the business late into the fourth quarter.
But it doesn't sound like there's any expectation for lingering impact your carryover in the first quarter.
Are you seeing real time improvement here already.
And it seems like a quick inventory destock cycle can you just talk through some of the some of the dynamics that you've seen in that business and why the confidence on.
Such a quick improvement in the first quarter here.
Yes. This is rob.
Without even describe the real quick improvement but.
I think Rob has already said if you look at our rigid paper can business.
Normally we're seeing we're seeing strength as we head into January a lot of it is coming from the investments that we've made in capacity expansions and some new products there.
<unk> that are being introduced the paper can business looks.
For the first quarter and what we see at the one month.
Meeting expectations.
Flexible. It's also just like the fourth quarter continues the strong growth.
<unk> another strong year from flexible their volumes coming in they are winning new process of putting the products into the marketplace and we're seeing that it's additive in the first quarter.
Metal cans.
We didn't own the metal can business at first quarter last in January of last year, but we have seen recovery our food counter metal food can business is strong. So in that case, we assume that was just the inventory reductions in the last year. If you look at Arizona last year, where we were.
We're somewhat heavily weighted to a couple of segments.
Like disinfectants.
Great. Thanks.
<unk> built up inventory through Covid and they worked that off last year. So we're seeing some recovery there as well. So again the only exception is our perimeter of store plastics business with fresh fruits and vegetables continues to be very soft.
Other than that we've seen a nice start and consumer to the year from a volume standpoint.
Okay, Great. That's helpful and then switching over to the cost side of things.
What do you expect from cost inflation overall for 2023.
What do you expect from cost inflation for the raw material basket, specifically and then can you talk through.
Some of the some of the key constituents and the dynamics there for for the upcoming year.
Thanks.
Yes.
Our base case assumptions for what we think is going to happen for costs I can tell you kind of discreetly with a couple segments rather than we were anticipating that down with the front end orientation really kind of driven by a broad basket that we buy.
Meaningfully broad basket.
But we buy we anticipate that's going to be down high single digits to double digits.
OCC, obviously less important than it has historically been because it's not really driving price, but at a cost factor.
We talked about kind of a meaningful deflation that we saw at the end of last year, we think that that will somewhat recover just to a normal level because the handling cost around OCC is probably 60 to $80 a ton and so we think that I'd have to go up to that kind of level in order to just Hudson's Bay for.
Otherwise things that you should know is just.
Employee variable labor has definitely gone up and we're anticipating it to go up and that will be.
<unk> headwind through the year.
Other other kind of costs like fixed and depreciation will also be going up.
Got it so what is that net to for the overall inflation budget for Sunoco.
We don't I mean, we look at kind of a business by business.
We also measure it against the kind of where where the where the price and the ability to get recovery on productivity goes.
So we don't have a discrete number that I have off the top of my head, but we can definitely follow up with you.
Okay.
Great. That's it for me I'll turn it over thank you.
Thank you as a reminder to ask a question at this time. Please press star one on your Touchtone telephone. Our next question comes from the line of Anthony Pettinari with Citi. Your line is now open.
Hi, Good morning, just a couple follow ups.
On the industrial segment.
And the volume guidance for industrial volumes down low single digits for the full year I apologies if I missed this but is there.
A specific view on volumes for <unk> on a year over year basis.
Okay.
It's going to be flat sequentially, which is kind of about the same magnitude down as it was in the fourth quarter.
Okay, Okay and.
Rts there was some discussion of synergies and I'm just wondering.
<unk> been kind of minority owner of that for a number of years. If you could talk to maybe sources of synergies or maybe just more broadly how you can run that business.
Differently now that you are the sole owner.
Well, so where we are.
We're not a full owner yet we're anticipating closing it in the <unk>.
Half of the year.
We're excited about that.
Project as much as we ever have and anticipate the synergies will be.
Justified the transaction.
Sure.
Okay. That's helpful I'll turn it over thanks.
Thank you. Our next question comes from the line of Gabe <unk> with Wells Fargo. Your line is now open.
Howard Rodger good morning.
Alright.
I'll leave the Plano references out I guess, but just from a philosophical standpoint, you guys did a really good job in 2022, youre able to kind of beat and raise over the course of the year.
Given kind of the economic backdrop of uncertainty.
Some of the headwinds that youre facing in tin plate I guess, what some of US are trying to struggle with is.
Why be aggressive sort of seemingly out of the gate again when Q1.
And a little bit below.
And <unk> what gives you the confidence.
You mentioned conversations with customers, but.
Just from our vantage point, there's a lot of uncertainty maybe.
And then from a geographic perspective in industrial.
Maybe there is a knock on effect from China reopened and Thats why youre feeling better about the second half just anything from a geographic standpoint.
You can talk about.
Sure Dave This is Howard.
But.
Rob answered the bulk of the question just to say just so you understand I mean, as we build our bottom up budgets, we do a very very thorough.
Go through a very very thorough process with all of our business units and understanding the puts and takes that they see in their individual businesses in their markets.
We stress test that.
So that when we have these conversations and these forecasts.
Based on what we know today.
These all feel like they are realistic.
Targets for the coming year, so while it may be able to get a little deeper into that but.
This is not like your thumb and see which way the wind's blowing I mean, we put a lot of effort over the fourth quarter too.
And manage it almost up until the day of the announcement of what we think from our team's perspective, what we're seeing from a macro perspective and.
And what our customers are telling us Rob I'll have.
More to add than that yeah, we feel really good about the budget and the guide we think that it's very balanced we think that there is obviously opportunities that we'd go after every day, but there's certainly risk that we've seen in the last two to three years like we've never seen before.
I would say.
With regards to Q1, and then thinking about the full year.
A big part of that really is this metal impact.
That business has seen.
Absolutely unusual inflation and now deflation, which is has really meaningful bottom line impact and so as I said Q1 total impact just from metal is going to be 50 to 60.
And if you took that away.
We would almost be at the 185 that we were at last year.
So I think that.
Industrial certainly has some impact there, but we're anticipating kind of a good year from productivity and a good year from performance. So rolling kind of those taking that metal price impact off and then rolling forward, because we think that that metal price impact is most acute in Q1, though.
Some lingering impact from Q2, but then completely gone in Q3 and Q4 you can you can think about our year in that regard and get to the number that.
Pretty pretty straight line.
Finally gave.
Slide 14, I spoke to at the end of my prepared remarks. That's the point here is that we are on the appropriate trajectory without one time benefits.
Unbelievable trajectory with.
The one time benefits.
So look I won't belabor, the point, where we're really bullish.
About the long term with the company and the action of the global teams.
Taking over the years that are getting us to this point.
Understood Alright, and one last one I don't think we mentioned it has I mentioned.
Opex being $3 25 to $3 75.
What we were.
Sort of thinking about it.
I'll step down post project Horizon. So maybe you guys found some other discrete projects in there that youre spending on.
Oh.
Yes.
A big part of our strategy, we've been really focused on trying to identify as many good projects as we could and we've got.
We were in a really good position right now where we've got so many good projects that we're really managing it and really identifying the best projects in the ones that fit our strategy.
So I would say that to reflect that number is a reflection of that it's also a reflection of just being a bigger company than we've ever been before and so as a percent of sales. It's still kind of in line with what we would what we've been targeting and it's also as a percent of sales a way for us to kind of continually ratchet.
It up what we call value enhancing projects as a component of that spend so that we're getting better and better ROI.
Okay. Thank you.
Thank you.
Our next question is a follow up from Adam Josephson with Keybanc capital markets. Your line is now open.
Howard just one follow up thanks for taking it by the way George asked a question about what Youre seeing in center of the store in terms of plastic versus paperboard any shifts you are seeing from one substrate to the other.
Given that you are uniquely positioned to answer that question can you forgive me if you answered and I just I didn't hear it but can you address that question.
Sure.
It's really resonates paper versus plastic in the beachhead right now is really in Europe .
And we are seeing a lot of opportunities.
We're commercializing.
Once.
It goes on the plastic container is now come into one of our all paper containers.
No.
It's.
We're just now rolling out the all paper.
Solutions that we've developed internally as well as through our acquisitions can packaging several years ago, just because it hit and.
So we've got some assets coming into North America, but we just don't have the same level of pull here in the U S. Certainly there is focus and attention on the CPG that Europe , it's almost a mandate and how quickly can you get us out of substrates, such as plastic or flexible into and I'll pay for most of their diapers.
Alex So our expectation is that we'll continue to build on.
On a more.
And have space here in the United States.
We're seeing it in Asia, and South America, almost the equivalent of.
The situation in Europe .
I appreciate it just one.
Because I read I think that the EC was was classifying any.
Paperboard packaging with poly coding as technically a single use plastic and that was limiting the appeal at least to some CPG is in Europe any thoughts on that issue in Europe , and the states for that matter.
Yes.
Yes.
Have a good answer for that because it's a moving target and it's by member.
Our country.
The AC.
But.
The areas, where required and we've been really focused on paper content percentages and so we've got solutions out there in the market today that are 95% paper that are able to be recycled in the paper strain so different different countries in the EU.
It'll be different states that take on different positions here, but the reality is.
You do need some types of barrier.
And our focus again to <unk>.
<unk> solutions that have.
Easily.
Easily manage through the recycling systems and programs.
So we are actually seeing a positive reaction.
In countries like the UK, France successful with the products that we're putting out in the market today.
Thanks, very much best of luck.
Thank you our next follow up comes from George Staphos with Bank of America. Your line is now open.
Hi, guys, just given that Adam.
Segue that for US just one quickie then why are you comfortable or argue.
That North America won't see kind of a similar impact as youre seeing in Europe in terms of your customers trying to get out of plastic to paper is it from their research or yours. The consumer here cares less or is there more confidence about the sustainability.
Merit of the plastic packages, you and others are bringing to the market and maybe something else. Thanks, and good luck in the quarter. Thanks for taking the last one quick.
Yes, George I would say.
Kind of wait and see here, what if the U S.
In totality follows the trends in Europe .
There's just different totally different environment right now.
I don't know how to answer that.
We're not seeing a lot of pressure right now.
These are a fit for purpose.
Solutions.
We've got a lot more space.
And opportunities too.
To either recycle and or other options for them.
<unk> strengths.
I would just say just watch the space over time typically we do end up following what's going on in Europe .
Yes, hopefully <unk> have a good benefit to alright, guys I'll turn it over thank you so much.
Thank you and I'm showing no further questions at this time I would like to hand, the call back over to Lisa weeks for closing remarks.
Thank you all for joining our call today and if you have any follow up questions regarding our results. Please let us know we look forward to giving you an update on our Q1 results in May and thank you all again and have a wonderful day.
This concludes today's conference call. Thank you for participating you may now disconnect.
The conference will begin shortly.
Lower Johan during Q&A, you can dial one one.
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