Q1 2023 Greif Inc Earnings Call
Speaker 2: Good day and thank you for standing by. Welcome to the grade 1st quarter 2023 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.
Speaker 2: To ask a question during this session, you will need a press star 1-1 on your telephone. You will then hear an automated message advising you that your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised for today's conference of being recorded. I would now like to hand the conference over to your speaker today, Matt Leahy. Please go ahead. Thanks. Good morning, everyone. Welcome to GRIF first.
Speaker 3: This is Matt Leah, he drives Vice President of Corporate Development and Invest Relations. And I am joined by Oli Rossgard, drives President and Chief Executive Officer, and Larry Hill Shinerer, drives Chief Financial Officer. We will take questions at the end of today's call. In accordance with regulation, fair disclosure, please ask questions regarding issues you consider important, because we are prohibited from discussing material non-public information with you on and can see what it's called. Following Falcons are subject to Section 1. The
Speaker 3: and reconciliation to the most directly comparable gap metrics can be found in the appendix of today's presentation. And now I'll turn the presentation over to Ole on slide three. Thanks, Matt, and good morning, everyone. During our first quarter of 2023, Greg took several important steps towards advancing our build-to-last strategy.
Speaker 4: We completed the acquisition of Lee Container in mid-December and our rapidly integrating this new growth business in survival. We proudly announced our new 2030 science-aligned sustainability targets, a roadmap for achieving our goals around climate, waste reduction and circularity.
Speaker 4: We divest it, one of our higher cost CRB meals, and today announced that we will be reinvesting that capital into another growth platform with a significant majority ownership in Centurion Container. Our IPC we conditioning joint venture. We are increasing our ownership from approximately 9%
Speaker 4: businesses clearly felt the impact of several events in the first quarter.
Speaker 4: In our fourth quarter call, we cautioned against a week of start to the 2023 year. Specifically highlighting the volume softness we were seeing as well as the steel price cost headwinds in GIP and their impacts to first quarter margins.
Speaker 4: Actually, volume trends in both businesses came in below our low original expectations. And the net impact was a challenging first quarter results relative to fiscal 2022. Though it was the second best first quarter in Christ 145 year history.
Speaker 4: Also, knowing Q1 fiscal 2022, included full quarter EBITDA contribution from the FPS business, which was subsequently solved.
Speaker 4: While the domain environments remains on certain, our teams acted swiftly on cost-out actions.
Speaker 4: working to match production with demand, rationalizing and optimizing our footprint, and tightly managing working capital. We will continue to aggressively manage costs during this period of volume softness.
Speaker 4: and yet will remain agile enough to respond and support our customers when demand improves. I'm proud of our team's ability to adapt to the changing demand environment and our commitment to taking actions to right-size our costs while still focusing on growth.
Speaker 4: and disciplined execution of our build-to-last strategy. Please turn to slide 4. On Tuesday, we signed an acquisition agreement to increase our ownership stake in Centurion Container to 80%, subject to customary closing conditions and regulatory clearances. As I mentioned a few months ago regarding our acquisition strategy, we are not going to be able to make a decision on the acquisition of Centurion Container to 80% of our ownership stake. We are going to be able to make a decision on the acquisition of Centurion Container to 80% of our ownership stake.
Speaker 4: Our most attractive targets are close to our core business of industrial packaging. At diversification benefits in product offerings or in markets and our margin are creative. We also want to grow with businesses that have a strong sustainability component. Centurion Container meets all those criteria. And I'm even more excited about the future of our partnership than I was when Greifemade its initial investments almost three years ago in April of 2020. The Centurion partnership helps accelerate our growth in recent-based products.
Speaker 4: with a sustainable offering of both new and recovisioned IVCs. Since inception in 2020, the joint venture has grown if it are finally eightfold through both organic and inorganic top-line growth and a scalable business models with strong margins and exceptional cash flow of negotiation.
Speaker 4: I'm excited about the continued growth potential of this business. And I look forward to formally welcoming the Centurion colleagues as part of RISE after we conclude the transaction.
Speaker 4: Let's now turn back to our quarterly results on slide five, please. As mentioned earlier, in our fiscal first quarter, our global industrial packaging business experienced dual headwinds in decelerating demands and temporary margin compression from rapid steel price deflation, steel plastic.
Speaker 4: and IBC volumes for each down low double digits year over year on a global basis. The North American market was weakest largely due to lower demand within the chemical and coaching end markets.
Speaker 4: Our at-hand region remains solid, essentially flat against the strong Q1 2022 on continuous strong demand from the ACTION and food markets. EMEA and ATAC volumes were weak through most of the quarter, but we saw some isolated sequential improvements.
Speaker 4: in order patterns in February , that gives us some hope that demand may be on the path to recovery in Q2. In the face of these challenges, I commend our global GIP team for their decisive actions, taken in managing costs and maintaining our price discipline. Our expectation is that the combined impact of our team's actions, along with normalization, is deal prices.
Speaker 4: should result in sequential margin improvements in GIP next quarter. Please turn to slide six. Paper packaging's first quarter sales declined by approximately 50 million in the quarter due to lower milk and converting volumes throughout the quarter, despite a year-on-year price in tailwinds. First quarter volumes in our core choice sheet feeders system and human core system.
Speaker 4: thousand tons taken in container boards. 35,000 tons in URB and the rest in CRB.
Speaker 4: As in our GIP business, our PBS team is responding quickly to the changes and demand, taking actions on costs across the network with shifts in labor cost reductions, temporary furloughs, and advancing our footprint's consolidation plans.
Speaker 4: In both businesses, teams remain later focused on working capital management, and we expect to capitalize on incremental opportunities to improve margins and cash flow in the common quarters. I will now turn it over to our CFO , Mayor Hilsharva on slide 7. I will now turn it over to our CFO , Mayor Hilsharva on slide 7.
Speaker 4: to discuss our Q1 financial review as well as our 2022 guidance. Thank you, Oli. Good morning, everyone. As Oli mentioned, our first quarter fiscal based several challenging headwinds. More than we anticipated when we provided guidance in December .
Speaker 3: I too want to demand our teams for acting swiftly to manage costs as we face a tougher demand environment. First quarter of 2023 was Greg's second best start to the year ever. Bested only by our record Q122, which included the $12 million EBITDA contribution attribute of goal to SPS, which was sold in April of 2022. I am proud of our performance to date given the strong economic edwings. That sales were down 293.3 million in fiscal first quarter.
Speaker 3: driven primarily by volume declines and the impact of 89.4 million of prior year net sales attributable to the FPS business which we divested last April . Gross profit declined by 38.1 million primarily due to lower volumes and the impacts of the previously mentioned steel price cost headwinds in our GIP business which we expect will abate in the second half as price trends have stabilized. Adjusted even up was 164.5 million in the quarter down 32.3 million year over year.
Speaker 3: Though only down to approximately 20 million went factoring in the prior year contribution of FPS, it consolidated even a margins of 12.9%, a 30-base-basis-point improvement versus Q122. CAPEX came in line with our plan at 48 million for the quarter, a slight increase versus our first quarter of 2022. Our organic growth plans remain intact.
Speaker 3: and teams are finding an easier to execute on our capital projects at the wait times on new machinery, and more engineering staff becomes available.
Speaker 3: As Oli mentioned, we improved our free cash flow over prior year, which is especially notable given the pronounced volume weaknesses we've seen in the highlight and highlights the solid execution of our teams on reducing working capital and generating cash. We are still challenging our teams to drive further on working capital reduction initiatives.
Speaker 3: In our Q4 call, we provided a guidance range of 820 to 906 million on EBITDA, and 410 to 460 million in free cash flow. Admittedly a wide range, with a great deal of caution given the uncertainty and demand in the back row environment. We also tried to frame Q1 weaknesses.
Speaker 3: for you based on the volume trends we were seeing through November and into December that we would expect it would level out and improve in January based on discussions with customers. However, that did not happen. Volumes in both businesses finished worse than our expectations through January and that weakness has continued into February in North America.
Speaker 3: while stabilizing in our other regions. As we contemplated guidance for the remainder of the year, we determined we have insufficient data to expect an inflection point in the demand trends, which we have experienced in the past two quarters, beyond normal seasonal drivers in end markets, including agriculture and construction. As a result, we cannot establish a high end of guidance.
Speaker 3: pattern continues further deterioration and pricing in the paper industry could emerge. On an overall basis, we've reflected volume impact in the low end guidance of $42 million in our GIP business and 62 million in our PPS business relative to the midpoint of our prior guidance range.
Speaker 3: Inclusive of one-two results. In addition, we have included a pricing impact in the pay for business of $33 million. We will not be providing the breakdown by pay for grade. While this approach may seem draconian, we compared to our prior guidance and especially our record results in 2022.
Speaker 3: I do want to reframe things with a broader look at history to highlight the improvements we've made in the business model in our earnings power. Looking back at our investor day last year, we presented a recession downside case of $600,700,000,000 of EBITDA and $260,000,000 to $320,000,000 of free cash flow. The volume trends we're seeing in present are significantly worse than those scenarios in our earnings.
Speaker 3: marketplace and by using our balance sheets continue to grow the business. I'll close by saying we are hopeful that current volume pressure is subsiding and we see that the demand recovery in the second half of 2023 in line with our view in December . We have aggressive working capital goals in place as well as some exciting targets in our MNI.
Speaker 3: We find comfort in the strengths of our balance sheet and cash flow generation to continue to provide growth capital to fund our business in the years ahead.
Speaker 3: With that closing thought on guidance, I'd like to share again our capital allocation strategy on slide 9. As mentioned in Oles opening remarks, even with the $300 million acquisition of Lee container and a slower first quarter, we are still towards the low end of our target leverage ratio range. We plan to continue to invest in our long-term strategic objectives and look.
Speaker 3: about the strategic opportunities captured thus far in 2023 and the growing list of attractive businesses in our M&A pipeline. We will maintain our strict discipline around capital allocation and acquisitions and continue to pursue only the highest quality businesses that fit our strategy and culture and elevate the breadth and competitive positioning of the right portfolio.
Speaker 4: executing with discipline regardless of where we are in the business cycle. But it also doesn't happen without thoughtful and continuous capital investments.
Speaker 4: Despite our slow start to 2023, we are confident in the global grift team to execute well in fully at 2023 and post strong financial results to continue fueling our growth and business objectives.
Speaker 4: We are excited for the year-end and will work to continue to produce results worthy of your investment in our company.
Speaker 2: We thank you for your interesting drive. Michelle, you can open the line to questions. Thank you, as a reminder to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by while we compile the Q&A raster. Our first.
Speaker 4: have clearly China starting to reopen some of the early data points in pretty positive as it relates to economic pickup, etc. Are you starting to see that in specific reasons including Europe or is it just too early at this point? Yeah, probably, a bit too early, Ganshin, but what I can say is that we...
Speaker 4: Do see some improvement, especially in APEC and in North Western Europe . Let them, you know, remain fairly strong, but not the America is really where we don't see any improvements. It's not getting worse, but it's not getting better either.
Speaker 3: Gotcha. And on the be stocking, what do you think we are on that? Yeah, you know, it's been extremely difficult to get any clarity on that, gotcha. I mean, it is clear through discussions with our customer that there has been an impact of these stockings.
Speaker 3: But it's not clear whether we're through it yet. I mean, and given what we've seen in February , relatives of volume trends in December and January , there's certainly no indication to us that anything has shifted yet. Got it. And then just from my second question, on Centurion, can you just give us a sense as to what's so unique about the asset that underlies the EBITDA margin profile of 23% and the asset's growth since the judgment was formed? It's essentially a service business.
Speaker 4: You know, where we collect used containers from our customers, and then either we condition them, or we put a new container into the steel cage, when we condition them or when we use the old plastic to manufacture new products. So it's a circular product, very sustainable. And because it's a service business, it comes with solid margins as well. And it plays into our strategy of high margin, it be dark growth.
Speaker 2: Thank you. And again, if you would like to ask a question, please press star then one, one moment for our next question. Our next question comes from the line of Gabe Hodg with Wells Fargo. Your line is open, please go ahead. Yes, good morning. I wanted to, I think, Larry, in your prepared much, you talked about opportunities. I think it was specific to PPS to take out cost as well as improve working capital. And just you could expand on that a little bit. I'm curious what you're.
Speaker 4: I, you did talk about some super consolidation. I don't know if that's part of what you're talking about, but just hope to start. It's only here. I can talk a little bit about that. We have been planning some groups of consolidation. Consultations primarily on the converting sites and we're speeding them up and executing them. And they're in flight at the moment. We're also looking at our shift structure to maybe.
Speaker 3: take some shifts out, consolidate shifts, so that we can maximize production when we are running. And then we have furloughs to the mills. We don't know for how long, but we have furloughed them on silver furloughed the notes. And part of the other thing that comes with that revamping of our shift structure gave us, in this industry, there's been a lot of structural over time built into the way that they workers.
Speaker 2: work and we've been addressing that to take out some of that structural overtime cost. Yep, understood. Okay. The other one is, or second question, I guess, on the low end of the guide. Maybe just so we frame it up correctly or make sure that we're hearing everything properly.
Speaker 2: You're sort of extrapolating out, you know, down, I guess, low double digits in GIP and call it low teams in PPS and then kind of holding price consent from where we're at today. And then you gave us the DOCC assumption. So I guess A, can you confirm that? And then B, you know, is there a scenario that you look at when you guys kind of did your make computer work?
Speaker 3: your rebudget or recast that could come in lower than that and maybe what could be the drivers there? Yeah, well we believe that, well first of all let me get to some of your specific numbers just to clarify you're right maybe on the GIP side. On the PPS side you're actually light. I mean we've been, you know our mill voice or low 20% down year over year so now that's over some strong.
Speaker 3: performance in particularly in Q2 last year. So it'd be, you know, still pretty significant volume of roll forwards on that that are going to be painful. You know, could it be worse? I guess, yeah, I guess you can always have worse. We think what we've laid out, we don't have any indications to it, that things are going to get worse than where they are. We just don't have any indication that it's going to get better. And so that's where how we've landed, where we are. But I did also want to read.
Speaker 5: Okay.
Speaker 2: And then the last one is, yep. Okay, this is Matt, I just want to clarify your questions, first, were you asking the view on paper volumes for the full year or where they were trending currently? Well, I guess if you offer that up, that would be great. But it was more just to clarify to make sure I understood what's embedded in the 740 number, which it sounds like it's photos.
Speaker 3: down consistent with what you reported in fiscal Q1. Yeah, I think so the comment is for the full year, it's not down as much as it was down in two months. Yeah, because they're seasonal. Because they're the same. And the comps get easier in the back half. So I just want to be clear there that that's more what we're referring to is
Speaker 3: The volumes we saw down in Q1 are off a pretty strong comp and then conscued up here in the back caps. Things have normalized throughout the year so it's not the same. Percentage decline in recorders. My point was we saw a pretty significant drag as we talked about our last call in 3Q beginning and then 4Q was bad. So you had...
Speaker 2: Overall volumes for fiscal 22, you remember down about almost 3%. So now if you then add the rest of this year, you know, even further down. Understood. Okay. And I guess the February trends, it sounds like it's not much has changed, but just confirm that. Yeah, that's correct. Okay. And the last one, it looks like there's, call it, I don't know, 45 million left on the, on the share repo authorization. Is it.
Speaker 3: I guess tough question to ask not exactly exact timing, but just maybe that would be on pause until we get a little more clarity on the macro. Yeah, now we're very comfortable with our balance position, we're moving forward on our stock free purchase.
Speaker 3: tough question to ask not exactly, asking exact timing, but just maybe that would be on pause until we get a little more clarity on the macro. No, no, we're very comfortable with our balance-y position. We're moving forward on our stock free purchase. Okay.
Speaker 3: that's can exact timing, but just maybe that would be on pause until we get a little more clarity on the macro. No, no, we're very comfortable with our balance position. We're moving forward on our stock free purchase. Okay, thank you.
Thank you, and one moment for our next question. Our next question comes in the line of audit stress that was stifled. Your line is open. Please go ahead. All right. Thank you for taking the questions. So my first question is just about Centurion. So when do you actually expect that to close and sort of what is the annual even the proof? I know you gave 20 to 40 million, but sort of the timeline we're pretty uncertain about. And the margins kind of are they expected to be in line with you know, rights, IBC business already. So, you know, we've got just the stat the standard timeline to get close to regulatory process. We we expected to close near term and just clarify that 20 to 40 million was not Centurion alone. That 20 to 40. Was Centurion and some other.
near-term opportunities in our MNI-A pipeline, if they materialize. So it's looking at all of that together. And as this insurion, you know, the slide in our deck does a good job of laying out what it is on annual basis in the margin profile of it. Thank you. I'll take a look at that. And the divestment of the CRB mill, so how much sort of volume sales, even the free cash, and we get sort of color on how much is actually being lost. Let that divest link.
Yeah, the so you know we that is a high cost no for us. Yeah, the purchaser. It was more valuable to them than it was us. You know, we had built in for this year, you know, a, a, but a realization for the four year that would make that a very, very attractive multiple that we sold that at given. Given current volume trends that we've seen, I don't really want to go into exact numbers on the even on that mill, but it was a very nice multiple. It was in our prior guidance to, by the way, yeah, that not being in the number. Okay, thank you.
Thank you and again to ask a question at this time. Please press star 11 on your telephone. Our next question comes from the line of Justin Berkner with Gabelli. Your line is open. Please go ahead. Good morning, all. Good morning, Lawrence. Larry, sorry. Thank you. Just a minute.
Thank you and again to ask a question at this time. Please press star one one on your telephone. Our next question comes from the line of Justin Bergner with Gabelli. Your line is open. Please go ahead. Good morning, all day. Good morning, Lawrence. Larry, sorry.
First question is in regards to the 600 to 700 million of downside e-to-dodd, the investor day and the 740 being sort of a new low end guy tracking above that. Can you sort of help handicap, I mean the investor day wasn't that long ago, can you help handicap what is allowing the business to perform better than that 600 to 700 million scenario despite you experiencing you know recessionary volume conditions at least for your business this year? Yeah, you know, it's just in it's a whole combination of things that we mentioned but it's...
It's operating efficiency. We've improved things in supply chain. We have done some, we're doing these footprint consolidation activities that Oli mentioned. And it's managing our shift structures. It's just a whole combination of things. But probably the biggest one is even stronger and better execution on our value over volume strategy and really good strength on pricing discipline among our team. Great, that's helpful. Second question relates to, I think, the bridge from the midpoint of the prior EBITDA guide range to the 740. I think you said 42 million in GIP volume 62 million in paper packaging volumes of 33 million pricing impact. That would lead me, you know, a positive 10 million delta to get to the 740.
We ended up paying on.
Okay, so sort of like a put call provision from when the JV was entered into the... More of a put, but yeah. Okay. Yeah, it's not a...
Okay, gotcha. Thank you, Mr. Luck. Thank you in one moment for our next question. Our next question is a follow-up question from Gabe. Haiti with Wells Fargo. Your line is open. Please go ahead. Thank you, guys. I wanted to ask one on Centurion just because you did kind of give us a little detail here on slide four. I guess just to calibrate properly, we make our own assumption in terms of when things might close. Let's just say.
I don't know if my modeling purposes may or something like that. Is it, I don't want to throw water on here, but is it safe to say that this business is likely kind of experiencing similar trends that you are all seeing in your base business. So we made it need to adjust that. And then secondly, is part of the magic for how this thing has been able to kind of aid actually, but the sense of like April 2020. I mean, it has made your initial investment. Then just the network overlap and sort of synergy with with Christ.
Or is that what you expect sort of from a conventional refurbished business if that makes sense? So the meaning that the synergy number is sort of already baked in there. On that 24 million or 23% of the down margin. Well, in terms of the network, obviously, we are leveraging our footprints and our customer base in the business. So that has helped and we will continue to do that. So that's it.
I can't really comment on what's the same shoe that is in a line with the rest of the macro.
I can't really comment on it. We can't comment on their volume, but it's safe to assume that it's in a line with the rest of the macro.
I would now like to turn the conference back to Matt Leigh for any closing remarks.
Very good. Thank you everyone for joining today and have a nice day. This concludes today's conference call. Thank you for participating. You may now disconnect. The conference will begin shortly. Thank you.
To raise and lower your hand during Q&A, you can dial star 1-1. to raise and lower your hand during Q&A.
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participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during this session, you will need to press star one one on your telephone. You will then hear an automated message advising you that your hand is raised. To withdraw your question, please press star one one again. Please be advised for today's conference that's being recorded. I would now like to hand the conference over to your speaker today, Matt Leahy. Please go ahead. Thank you.
Thanks. Good morning, everyone. Welcome to GRIF's first fiscal quarter, 2023, earnings conference call. This is Matt Leahy, GRIF's vice president of corporate development and best relations. And I am joined by Oli Rossgard, GRIF's president and chief executive officer, and Larry Hill Schreiber, GRIF's chief financial officer. We will take questions at the end of today's call. In accordance with regulation, fair disclosure, please ask questions regarding issues you consider important. Because we are prohibited from discussing material non-public information with you on an individual basis.
Please limit yourself to one question and one follow-up before returning to the queue. Please turn to slide two. As a reminder during today's call, we'll make forward-looking statements involving plans, expectations and beliefs related to future events. Actual results could differ materially from those discussed.
Additionally, we'll be referencing certain non-GAF financial measures and reconciliation to the most directly comparable gap metrics can be found in the appendix of today's presentation. And now I'll turn the presentation over to Oli on slide three. Thanks, Maths and good morning, everyone.
During our first quarter, 2023, GRIF took several important steps towards advancing our built-to-last strategy. We completed the acquisition of Lee Container in mid-December, and our rapidly integrating this new growth business into GRIF.
We proudly announced our new 2030 Science-Aligned Sustainability targets, a roadmap for achieving our goals around climate, waste reduction and circularity.
With I-Vestage, one of our higher cost CRB mills, and today announced that we will be reinvesting that capital into another growth platform with a significant majority ownership in Centurion Container. Our IBCB conditioning joined venture.
We are increasing our ownership from approximately 9% to 80% with a path to full ownership in the next few years. I am proud of the progress made so far in 2023 and I look forward to building on this new foundation in the year to come. Now onto our first quarter results. Our global businesses clearly felt the impact of several headwinds in the first quarter.
We leaned below our low original expectations, and that impact was a challenging first quarter result relative to fiscal 2022. Though it was the second best.
First quarter in Christ 145 year history. Also noting Q1 fiscal 2022 include is full quarter EBITDA contribution from the FPS business which was subsequently sold.
While the domain environments remains on certain, our teams acted swiftly on cost-out actions.
working to match production with demands, rationalizing and optimizing our footprints, and tightly managing working capital.
We will continue to aggressively manage costs during this period of volume softness, and yet will remain agile enough to respond and support our customers when demand improves. I'm proud of our team's ability to adapt to the changing demand environments and our commitment to taking actions to right size our costs.
while still focusing on growth and discipline execution of our build to last-privileged. Please turn to slide 4. On Tuesday, we sign an acquisition agreement to increase our ownership stake in Centurion Container to 80%.
subject to cost of very close in conditions and regulatory clearances. As I mentioned a few months ago regarding our acquisition strategy, our most attractive targets are close to our core business of industrial packaging and diversification benefits in product offerings.
or end markets and our margin are creative. We also want to grow with businesses that have a strong sustainability components. Centurion Container meets all those criteria. And I'm even more excited about the future of our partnership that I was when Grythe made its initial investments almost three years ago in April of 2020.
The Centurion Partnership helps accelerate our growth in resident-based products with a sustainable offering of both new and american tiro 1990s et cetera.
Since inception in 2020, the joint venture has grown if it are finally eightfold through both organic and inorganic top line growth and a scalable business model with strong margins and exceptional cash flow conversion. I'm excited.
about the continued growth potential of this business. And I look forward to formally welcoming the Centurion colleagues as part of RISE after we conclude the transaction.
Let's now turn back to our quarterly results on slide 5, please.
As mentioned earlier, in our fiscal first quarter, our global industrial packaging business experienced dual headwinds in decelerating demands and temporary margin compression from record steel price deflation. Steel plastic.
and IBC volumes for eight-stown low double digits year over year on a global basis. The North American market was weakest largely due to lower demand within the chemical and coating end markets. Our Latin regions, regions remain solids.
Essentially flats against the strong Q1 2022 on continuous strong demand from the act of?? ship and food markets.
Emea and ATAC volumes were weak through most of the quarter, but we saw some isolated sequential improvements in order patterns in February that give us some hope that demand may be on the path to recovery in Q2.
In the face of these challenges, I commend our global GIP team for their decisive actions taken in managing costs and maintaining our price discipline.
Our expectation is that the combined impact of our team's actions along with normalization and steel prices should result in sequential margin improvements in GIP next quarter.
Please turn to slide six. Paper packaging's first quarter sales declined by approximately 50 million in the quarter due to lower mill and converting volumes throughout the quarter despite a year-to-year price in tailwinds.
First quarter volumes in our core choice sheet feeder system and Cuban core system were down low double digits per day compared to the very strong Q1 2022. Cuban core volumes suffered from particularly slow demand in the paper.
film, call and protective call in markets. In the quarter, Gryph took approximately 94,000 tons of economic downtime across our mill system with approximately 40,000 tons taken in container boards, 35,000 tons in URB and the rest in CRB.
As in our GIP business, our PPS team is responding quickly to the changes and demand, taking actions on costs across the network with shifts in labor cost reductions, temporary furloughs, and advancing our footprint consolidation plans. In both businesses.
Teams remain laser focused on working capital management, and we expect to capitalize on incremental opportunities to improve margins and cash flow in the common quarters. I will now turn it over to our CFO , Mayor Hilsharma on slide seven, to discuss our Q1 financial review, as well as our 2022 guidance. Very?
Thank you, Oli. Good morning, everyone. As Oli mentioned, our first quarter fiscal.
Based several challenging headwinds, more than we anticipated when we provided guidance in December .
I too want to demand our teams for acting swiftly to manage costs as we face a tougher demand environment. First quarter of 2023 was Grif's second best start to the year ever. Vested only by our record Q122, which included the $12 million EBITDA contribution attribute available to skins on the dev roster.
49.4 million of prior year net sales attributable to the SPS business, which we divest in last April .
Gross profit declined by 38.1 million, primarily due to lower volumes and the impacts of the previously mentioned steel price cost headwinds in our GIP business, which we expect will obey in the second half as price trends have stabilized. The just the diva was 164.5 million in the quarter.
down 32.3 million year over year, though only down approximately 20 million when factoring in the prior year contribution of FPS, was consolidated even a margins of 12.9%, a 30 basis point improvement versus Q1-22. CAPEX came in line with our plan at 48 million for the quarter.
A slight increase versus our first quarter of 2022. Our organic growth plans remain intact and teams are finding an easier to execute on our capital projects as the wait times on new machinery can spread and more engineering staff becomes available.
As Oli mentioned, we improved our free cash flow over prior year, which is especially notable given the pronounced volume weaknesses we've seen in the highlights and highlights the solid execution of our teams on reducing working capital and generating cash. We are still challenging our teams to drive further on working capital reduction initiatives even if demand improves. We believe we can capture additional efficiencies throughout our supply chain.
Now, let's turn to sliding to discuss guidance. Setting guidance in 2023 has posed a particularly difficult challenge. In our Q4 call, we provided a guidance range of 820 to 906 million in EBITDA and 410 to 460 million in free cash flow. Admittedly, a wide range with a great deal of caution given the uncertainty and demand in the back row environment.
We also tried to frame Q1 weaknesses for you based on the volume trends we are seeing through November and in December that we expected would level out and improve in January based on discussions with customers.
However, that did not happen. Volumes in both businesses finished worse than our expectations through January , and that weakness has continued into February in North America while stabilizing in our other regions.
As we contemplated guidance for the remainder of the year, we determined we have insufficient data to expect an inflection point in the demand trends which we have experienced in the fast-to-quarters beyond normal seasonal drivers in end markets, including agriculture and construction.
As a result, we cannot establish a high end of guidance and consequently determine that we could choose to either provide no guidance or provide guidance assuming the trends we have been experiencing with adjustments for the seasonal drivers.
We chose to provide low-end only guidance based on that determination, including that some guidance is better than not. We also believe that if the demand's pattern continues further deterioration in pricing in the paper industry could emerge. On an overall basis, we've reflected volume intact.
in the low end guidance of $42 million in our GIP business and 62 million in our PPS business relative to the midpoint of our prior guidance range inclusive of one to results.
In addition, we have included a pricing impact in the paper business of $33 million. We will not be providing the breakdown by paper grade.
While this approach may seem draconian when compared to our prior guidance and especially our record results in 2022, I do want to reframe things with a broader look at history to highlight the improvements we've made in the business model in our earnings power. Looking back at our investor day last year, we presented a recession downside case of 600 700 million of EBITDA.
and 260 to 320 million of free cash flow. The volume trends we're seeing at present are significantly worse than those scenarios and our earnings and cash flow outlook is better. This low end guide is above our fiscal 2021 results excluding FPS.
And yet again, our volumes are currently trending materially worse than during that year. We have simply raised the bar and performance at gripe by taking action to write size and a cost by maintaining our strict pricing discipline in the marketplace and by using our balance to continue to grow the business.
I'll close by saying we are hopeful that current volume pressure is subside and we see that demand recovery in the second half of 2023 in line with our view in December . We have aggressive working capital goals in place as well as some exciting targets in our MNI A pipeline, including Centurion that if closed and depending on timing.
could add an additional 20 to 40 million dollars of EBITDA in 2023.
And even if our low end guidance is realized due to negative and economic environment, we find comfort in the strengths of our balance sheet and cash flow generation to continue to provide growth capital to fund our business in the years ahead. With that closing thought on guidance, I'd like to share again our capital allocation strategy on slide 9. As mentioned in always opening remarks, even with the $300 million acquisition of Lee Container and a slower personal.
executing on our strategic growth plan. I am excited about this strategic opportunity captured thus far in 2023 and the growing list of attractive businesses in our M&A pipeline. We will maintain our strict discipline around capital allocation and acquisitions and continue to pursue only the highest quality businesses.
The fitter strategy and culture and elevate the breadth and competitive positioning on the gripe portfolio. With that, I'll turn things back to Oli on slide 10. Thanks, Larry. To build off Larry's comments, our final comments, built to last is about long term growth and a strategic vision to be the best customer service company in the world.
That means executing with discipline regardless of where we are in the business cycle. But it also doesn't happen without thoughtful and continuous capital investments. Despite our slow start to 2023, we are confident in the global grife team to execute well in fully year 2023 and post strong financial results.
to continue fueling our growth and business objectives. We are excited for the year F and will work to continue to produce results worthy of your investment in our company. We thank you for your interesting drive. Michelle, you can open the line to questions. Thank you, as a reminder to ask a question, please press star 1-1 on your telephone and wait for your name to be announced.
To withdraw your question, please press star 1, 1 again. Please stand by while we compile the Q&A raster. Our first question comes from the line of Gonsham Panjavi with Robert W. Bergerlein as open. Please go ahead.
We open some of the early data points in pretty positive as it relates to economic pick up, etc. Are you starting to see that in specific reasons, including Europe or is it just early at this point? Probably, it's too early, but what I can say is that we do see...
some improvement especially in APEC and in North Western Europe . Latin, you know, remains what fairly strong but not the America is really where we don't see any improvements. It's not getting worse but it's not getting better either.
Gotcha. Now on the be stocking, what do you think we are on that? Yeah, you know, it's been extremely difficult to get any clarity on that. I mean, it is clear through discussions with our customer that there has been an impact of the stocking.
but it's not clear whether we're through it yet. I mean, and given what we've seen in February , relatives of volume trends in December and January , there's certainly no indication to us that anything has shifted yet.
And then just for my second question on Centurion, can you just give us a sense as to what's so unique about the asset that underlies the EBITDA margin profile of 23% and the outside growth since the geometrical was formed?
It's essentially it's a service business. You know, where we collect used containers from our customers, and then either we condition them, or we put a new container into the steel cage. When we condition them or when we use the old plastic to manufacture new products. So it's a...
the circle of products very sustainable. And because it's a service business, it comes with solid margins as well. And it plays into our strategy of high margin it be dark growth.
very sustainable and because it's a service business it comes with you know solid margins as well and it plays into our you know our strategy of you know high margin it be dark growth. Thank you. Thank you so much.
Thank you and again if you would like to ask a question, please press star then one, one moment for our next question. Our next question comes from a line of Gabe Hodg with Wells Fargo. Your line is open, please go ahead. Yes, good morning. I wanted to, I think, Larry and you're prepared very much. You talked about...
It's only here, I can talk a little bit about that. We have been planning some groups of consolidation, consultations primarily on the converting sites, and we're speeding them up and executing them. And they're in flight at the moments. And we're also looking at our shift structure.
to make some shifts ourselves consolidating shifts, so that we can maximize production when we are running. And then we have furloughs, two mils. We don't know when, you know, for how long, but we have furloughed them on silver furloughed notes. And part of the other thing that comes with that.
revamping of our shift structure gave us in this industry there's been a lot of structural over time build into the way that they workers Work and we've been addressing that to take out some of that structural over time cost
Yeah, understood. Okay. The other one is, or second question, I guess, on the low end of guide. Maybe just so we frame it up correctly or make sure that we're hearing everything properly. You're sort of extrapolating out.
you know, down, I guess low double digits in GIP and call it low teams in PPS and then kind of holding price constant somewhere we're at today and then you gave us the DOCC assumption so I guess A can confirm that and then B, you know, is there a scenario that you look at when you guys
your rebudget or recast that could come in lower than that and maybe what could be the drivers there? Yeah, what we believe that, well first of all, let me get to some of your specific numbers just to clarify you, you're right, maybe on the GIP side. On the PBS side, you're actually light. I mean, we've been, you know, our middle boys are, yes.
low 20% down year over year. So now that's over some strong performance in particularly in Q2 last year. So it be, you know, still pretty significant volume.
that are going to be painful. Could it be worse? I guess you can always have worse. We think what we've laid out, we don't have any indications to us that things are going to get worse than where they are. We just don't have any indication that it's going to get better. And so that's how we've landed where we are. But I did also want to restate something I said in.
further price erosion from where we were in our assumptions in our guidance midpoint.
erosion from where we were in our assumptions in our guidance midpoint.
And then the last one is, yep. Okay, this is Matt, I just want to clarify your question, Terce. Were you asking the view on paper volumes for the full year or where they were trending currently? Well, I guess if you offer that up, that would be great. But it was more just to clarify to make sure I understood what's embedded in the 740 number, which it sounds like it's sort of down consistent with what you reported in fiscal Q1. The best beginning at 740 is what is rising. It's apparently news. It's a Jon Carter to share this with you. The best beginning at 740 is what is rising.
Yeah, I think that so the comment is for the full year, it's it's it's not down as much as it was down and Yeah, I want because there's season on because there's this and the comps get easier in the back half. So I just want to be clear there that that's more what we're referring to is that you know, the volumes we saw down in q1 are off a pretty strong comp.
And then constative here in the back caps. So things kind of normalize throughout the year. So it's not the same percentage decline in recorders. Yeah, my point was, you know, we saw a pretty significant drag. And as we talked about our last call in 3Q beginning, and then 4Q was bad. So you had overall volumes for fiscal 22, you remember down about almost 3%.
So now if you then add the rest of this year, you know, even further down. Understood. Okay. And I guess the February trends, it sounds like it's not much has changed, but just confirm that. That's correct. Okay. And the last one, it looks like there's, call it 45 million left on the on the share repo authorization. Is it, I guess, tough question, that's not exact.
That's the exact timing, but just maybe that would be on pause until we get a little more clarity on the macro. Now we're very comfortable with our balance position. We're moving forward on our stock free purchase.
Okay. Thank you. Thank you in one moment for our next question. Our next question comes in the line of audit stress that was stifled. Your line is open. Please go ahead. All right. Thank you for taking the questions.
So my first question is just about Centurion. So when do you actually expect that to close and sort of what is the annual aid that provided you gave 20 to 40 million but sort of the timeline we're pretty uncertain about. And the margins kind of are they expected to be in line with you know, Greiss?
IBC business already. So, you know, we've got just the standard timeline to get close to through the regulatory process. We expected to close near term and just clarify that 20 to 40 million was not centurion alone. That 20 to 40.
was Centurion and some other near-term opportunities in our MNI-A pipeline if they materialize. So it's looking at all of that together. And as this Centurion, you know, the slide in our deck does a good job of laying out what it is on an annual basis in the margin profile of it.
Thank you. I'll take a look at that. And the divestment of the CRB mill, so how much sort of volume sales even the free cash can we get sort of color on how much is actually being lost. And that that's like. Yeah, so you know, we that is a high cost no for us. You know, the purchaser, it was more valuable to them than it was us. You know, we had built in.
For this year, you know, a EBITA realization for the full year that would make that a very, very attractive multiple that we sold that at given current volume trends that we've seen. I don't really want to go into exact numbers on the EBITA on that mill, but it was a very nice multiple. It was in our prior guidance too, by the way. Yeah, that not being in the number.
Okay, thank you. Thank you and again to ask a question at this time, please press star 11 on your telephone. Our next question comes from the line of Justin Bergner with Gabelli. Your line is open, please go ahead.
Okay, thank you. Thank you and again to ask a question at this time. Please press star 11 on your telephone. Our next question comes from the line of Justin Bergner with Gabelli. Your line is open. Please go ahead. Good morning, all. Good morning.
Lawrence, Larry, sorry. Just a minute. First question just is in regards to the $600 to $700 million.
of downside to the investor day and the 740 being sort of a new low end guide tracking above that. Can you sort of help handicap, I mean the investor day wasn't that long ago, can you help handicap what is allowing the business to perform better than that 600 to 700 million scenario despite you experiencing recessionary volume conditions at least for your business this year.
Yeah, you know, it's just in it's a whole combination of things that we've mentioned, but it's operating efficiency. We've improved things in supply chain.
We have done some, we're doing these foot print consolidation activities that only mentioned and it's managing our ship structures. It's just a whole combination of things, but probably the biggest one is even stronger and better execution on our value over volume strategy and really
good strength on pricing discipline among our team. Great, that's helpful. The second question relates to, I think, the bridge from the midpoint of the prior EBITDA guide range to the 740. I think you set 42 million in GIP volume 62 million in paper packaging volumes of 33 million pricing impact. That would lead me, you know, a positive 10 million delta to get to the 740.
God it, thanks for filling that picture. And then lastly, the Centaurion transaction, I mean given that it was a JV structure, did you actually have to bid against other parties, or did you sort of have the right of first refusal? It was a, when we entered into the deal to acquire the initial piece, we had a buy-out mechanism set for the net that provided the multiple on trailing EBITDA, which is based on what we ended up paying on.
Okay, so it was sort of like a put call provision from when the JV was entered into the JV. More of a put, but yeah. Okay. Yeah, it's not a put call. Thank you. Okay, gotcha. Thank you. That's the luck.
Thank you. You in one moment for our next question. Our next question is a follow-up question from Gabe. Hedy with Wells Fargo. Your line of open, please go ahead. Thank you, guys. I wanted to ask one on Centurion just because you did kind of give us a little detail here on slide four. Um.
I guess just to calibrate properly, we make our own assumption in terms of when things might close, let's just say, I don't know, for modeling purposes may or something like that. I don't want to throw water on here, but is it safe to say that this business is likely kind of experiencing similar trends that you are?
all seeing in your base business. So we made it need to adjust that. And then secondly, is part of the magic for how this thing has been able to kind of aid actually, but thus, since it's probably April 2020, because it made your initial investment, been just the network overlap and sort of synergy with GRIFE.
Or is that what you expect sort of from a conventional, refurbished business if that makes sense? So the, meaning that the synergy number is sort of already baked in there. I'm at 24 million or 23% of the down margin. Well, on terms of the net wave, obviously, we are, we are leveraging our footprints.
and our customer base in business. So that has helped, and we will continue to do that. I can't really comment on it. We can't comment on their volume, but it's safe to assume that it's in a line with the rest of the macro.
the observations that we see in the markets. Thank you, Lee. I had to one thing I would add to that is there, you know, with us now having, you know, 80% ownership, assuming this closes, which we assume it will. Thank you.
We will then be supplying all of the bottles for their needs, which is not in the case to date, so there is some synergy pickup for us there. And we'll be able to provide a full service to all our customers directly, rather than then receiving that service separately. Thank you.
I would now like to turn the conference back to Matt Leigh for any closing remarks. Very good. Thank you everyone for joining today and have a nice day. This concludes today's conference call. Thank you for participating. You may now disconnect.