Q2 2023 Greif Inc. Earnings Call
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Good morning and thank you for standing by. Welcome to the grising second quarter, 2023 earnings call. At this time, all participants are on a list and only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone.
Matt Leahy, Vice President of Corporate Development and Investor Relations. Please go ahead.
Thanks and good morning everyone. Welcome to GRIF's second quarter fiscal 2023 earnings conference call. This is Matt Leahy, GRIF's vice president of corporate development and investor relations and I'm joined by Oli Rosgaard, GRIF's president and chief executive officer and Larry Hilsheimer, 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 the issues you consider important because we are prohibited from discussing material nonpublic information with you on an individual basis.
Please turn to slide two.
As a reminder, during today's call, we will make forward-looking statements involving plans, expectations, and beliefs related to future events. Actual results could differ materially from those discussed. Additionally, we will be referencing certain non-GAAP financial measures and reconciliation to the most directly comparable GAAP metrics can be found in the appendix of today's presentation.
And now I'll turn the presentation over to Ole on slide 3. Thanks Matt and good morning everyone. Greif posted an exceptional second quarter in the face of historic volume headwinds, the likes of which we have not seen since the Great Recession. Our teams are executing extremely well this year.
taking swift action to lower our cost base across our manufacturing networks, maintaining discipline on pricing under our value or volume philosophy and extracting cash from our businesses by driving down working capital.
I could not be proud of our team and the work we're doing to advance our build to last transit.
Our performance in the first half of 2023 and specifically our ability to execute well on the challenging market conditions has been a process years in the making. As we share with you at our investor date last June .
The growing benefits of our continued evolution as a company are becoming more visible now and the hard work our teams have put in over the past several years are bearing fruit today.
Before discussing our financial results, I would like to highlight several achievements made during our second quarter and specifically recognize the contributions of three of our outstanding teams.
on our mission to become legendary in customer service. We have long used the customer satisfaction index or CSI as we call it, as a metric to reflect overall customer satisfaction with growth in terms of product quality, customer service and our ability to deliver value.
We set an aspirational target of 95 out of 100, as our benchmark of success.
And I'm proud to recognize our GIP team who for the second consecutive quarter produced the CSI score above 95.
Our PPS colleagues were not far behind with a score of 93.
To continue to provide this level of service in a period of challenging market conditions is a testament to the global drive team working every day towards our vision to be the best performing customer service company in the world.
Thank you to each of our almost 13,000 colleagues for your unwavering support and dedication to our customers.
Our ability to drive legendary customer service is directly related to the engagement and wellbeing of our colleagues. Our colleagues come first and why our mission, our first mission in Bilter last is creating thriving communities.
During the second quarter, we completed our sixth annual GALAT engagement survey with over 90% of our global colleagues participating.
And I'm proud to share that we continue to improve engagement at GRIF and remain in the top quartile of all manufacturing companies around the world surveyed by Gallowbe with a 5% jump in engagement percentile compared to last year. In addition, in the past months.
It was announced that we ranked amongst or among the top 100 global, most love workplaces in a survey done by Newsweek.
While we are placed as a top 100 company in Newse Week's US-based survey for years, we are elated to be counted now as a top global company in the very first year this new survey was conducted.
It's our firm belief that the financial results, which we are about to share with you, are the direct result of the dedicated engagement of all our colleagues. Our third mission is about protecting our future with a focused on sustainability, lowering our carbon footprint and driving solutions.
to support the circular economy. At growth, sustainability has always been a cornerstone of our business model and remains critical to our ability to serve customers with excellence and promote a profitable and ethically-sounding organization for the long term.
This quarter, we published our 14th annual sustainability report, which includes our recently announced 2030 sustainability targets and share a comprehensive overview of our sustainability strategy.
I highly encourage our investors to review this report and share your thoughts with us on our sustainability strategy.
Finally, the moment of recognition for three of our extraordinary teams at RIFE, who are helping us become a stronger, leaner, and more scalable and modernised organization, advancing our final mission of ensuring financial strength.
We are global organization with operations in over 35 countries, and our performance would simply not be possible without the coordination and support of our global operations group, our digital and information technology team and our global supply chain organization.
Our global operations group of GOG, as we call it, led by Kim Kellerman, was formed in February 2022 with the purpose of improving operations through a globally consistent approach to tools, processes and behaviors.
Our one-grime approach to safety, driving a silo harm culture with significantly improved safety measures, has lower safety incidents across our manufacturing network by 25% and is improving production level colleagues' well-being, retention and productivity.
Our GOG teams are also chanternance of continuous improvements, driving our drive business system, or GPS 2.0, to accelerate plant modernization and automation, as well as our GEMBA value creation, and six SIGMEN Green Build Certification Programs.
all designed to elevate standards of baby performance and execution across the enterprise.
These collective efforts yield real cost savings, as the GOG team continues to drive structural cost outs and productivity gains that not only help optimize our current business, but also provides the foundation to accelerate integration and synergy capture as we grow through acquisitions.
We are already starting to see the impact of those savings in our financials, and this quarter is a prime example of the success of these initiatives.
Our digital and information technology team is led by Vivien Uets, who joined RISE in December 2022 and is launching a comprehensive modernization effort of our technology ecosystem with a digital-first approach.
This transformative strategy aims to capitalise on market opportunities and deliver frictionless order management and delivery experiences to our customers at speed and scale.
On the VIVIA leadership, we are exploring systems to further accelerate our production automation, leveraging AI for efficiency gains and real-time market intelligence, and building technology infrastructure to drive legendary customer service.
This multi-year digital modernization strategy will enable GRIVE to better leverage our scale, accelerate our margin expansion and improve our global operations and service.
Finally, our global supply chain, led by Tina Shawman, Tina Shawman, is also undergoing the transformation to invest in advanced sourcing and supply chain management capabilities, taking a one-grife approach to supply chain. The team is focused on leveraging.
Our global logistics network across GIP and PPS to improve asset utilization at scale benefits.
There are advancing supply chain automation and digitalization.
revamping our sourcing function to drive better raw material producing and terms. They are helping us optimize working capital and advance supply changes to sustainability and our circularity model.
We expect that this multi-year journey will continue to provide tangible savings, as well as improve our purchasing agility to flex quicker with changing demand cycles.
We believe this one-grime approach is the key element of our success, enabling better decision-making, cooperative teamwork, group identity, and the ability to serve our customers with excellence.
The three teams, profiles, exemplify our commitment to being a global, best-in-class partner for our customers across the world.
I'm proud of the work of our GOG, GOG, IT and global supply chain teams on the Kim's Vivians and Genius Leadership.
My sincere thanks to you all. Now, I'll shift over to financial results on slide four.
Gryde posted a strong result in our second quarter with 228.6 million of EBITDA and 185.5 million of mighty.
Our EBITDA was the second highest Q2 in company history, exceeded only by last year. And our cash conversion ratio was over 80%, well above the long-term target of greater than 50% outlined at our 2022 investor day.
These results are exceptional considering historic volume headwinds.
and are testaments to the resiliency of our business model.
We remain focused on controlling what we can control and delivering results regardless of market conditions.
This corner, we also advanced our inorganic growth strategy with the majority acquisition of Centurion Container. The business we have worked rapidly grow as a minority partner for the past three years.
The Centurion business is an excellent fit as it enhances GRIVE's resin-based offering and IPC business in North America, supports our circular economy goals and offers a much-integrative organic growth story to the GIP portfolio.
We could not be more delighted to take this next step in growing the Centurion partnership. Between Lee Container and Centurion, we have spent nearly 500 million on acquisitions in the past six months and yet, we have spent nearly $500 million on acquisitions in the past six months.
We still close this quarter at the midpoint of our target leverage ratio range.
Our M&A pipeline remains robust and we intend to continue to deploy capital towards value or creative targets in the coming quarters.
Now I'd like to take a deeper dive into the results of ETAW primary segments. Please turn to slide 5.
Our GIP business posted solid results in the quarter, despite persistent demand pressures in all soft streets and regions. Quick and decisive cost actions by our teams, as well as strict adherence to our value over volume philosophy, produced yet another strong quarter for margins.
despite lower sales. This is the drive business systems in action. On the volume side, all GIP products and geographies show softness compared to the prior year, with global steel and resin-based products both down low double digits on a per day basis.
The North American markets remain our weakest last with you to lower demand within the chemical and coating in markets.
Last time, which had fared better from a volume perspective in the past few quarters, has now started to feel the same macroeconomic effects as other regions and was down low double digits. EMEA and APEC volumes were comparatively stronger.
Though still down year over year, with some support from Automotive and Agricultural in Marcus.
However, we did not see a material volume inflection exit the quarter and into May and are not anticipating one to occur in the back half of 2023. We will continue to focus on our value levels regardless of the demand environment.
And I commend the global GIP team for their excellent work in the second quarter.
I commend the Global GIP team for their excellent work in the second quarter. Please turn to slide six.
Paper packaging, second quarter sales declined 135 million year over year, primarily due to a soft demand environment.
We took approximately 97,000 tons of total downtime across our mill system in the second quarter, as we faced double digit per day volume declines in both primary converting operations.
Despite this substantial volume hitwind, our margin performance was exemplary.
where EBITDA only down by 13 million year over year all into our PPS teams, Swift and effective cost management actions, which added to the ongoing benefits from lower raw material costs.
The man remains soft in most people converting and markets throughout the second quarter and into May. We remain conservative in our outlook for PBS volumes in the second half, but expect that our year over year the clients will ease as prior year comps become easier.
Our PPS team remains laser focused on cost-resilization, winning profitable new business, and delivering value to our customers during this challenging time, and our proud of the work our colleagues put forth in the quarter.
I will now turn it over to Larry on slide 7 to discuss our Q2 financial review as well as revised 2023 guidance.
Thank you, Ole, and good morning, everyone. First, I want to take a moment to echo Ole's opening comments regarding the contribution of our teams across Cripe and our commitment to serving our customers with excellence.
The results in the second quarter are truly exceptional considering the macro environment and is a result of the collective efforts of all great colleagues. I will repeat a statement I made at InvestiDay. I am more excited about the growth and future of this company than ever before and that conviction only grows.
Despite this, actions by our global teams drove EBITDA margin expansion of over 240 basis points, and EBITDA dollars were down only about $22 million compared to Q2-22.
In tougher demand environments, it takes commitment and perseverance to adhere to our operating philosophies and to deliver legendary customer service. Our teams did both in the quarter. Our customers remain committed to GRIPE because they know that our quality and service are unfaltering in every environment. We are reliable and deliver customer value every day.
At the same time, our teams know how to manage their businesses well and have worked the right size or cost structure in the face of extended, slower demand, while remaining agile enough to quickly respond to changing customer needs. This is not an easy task, and I want to extend my heartfelt appreciation to each of our colleagues for their resilience and dedication to executing well.
On CapEx and capital allocation, we continue to pursue value accretive opportunities to grow the business regardless of short term economic cycles.
To that end, we are encouraged that our teams are executing well on our organic CapEx spend, launching several larger projects which will ramp up in the second half of our fiscal year. On the M&A front, I am pleased to report that both the recently acquired Leigh Container and Centurion container businesses are performing in line with expectations and post-close integrations.
every quarter, but I am encouraged by our team's ability to act and drive cash out of the business during a lower volume period. As we have mentioned several times in the past, Grife is a cash flow machine and our transformation efforts over the past seven years are yielding great value to our shareholders.
Our results speak for themselves and we are running a dramatically different business than when Ole and I joined GRIPE in 2015 and 2014 respectively. I believe our cash flow performance in 2023 is evidence of a stronger, leaner, and less economically sensitive model that has earned fresh consideration regarding the long-standing news of community development, especially those that aren't always signing in and their 13thprotected group. Last month, 90% of Americans Still wise to clean
2023 guidance. We are moving away from our first quarter low-end guidance and introducing a new range of 780 to 830 million of adjusted EBITDA for fiscal 23, an increase of 65 million at the midpoint over the prior low-end guidance, reflective of our team's ability to continue to deliver results in the back half of the year.
We are also raising our adjusted free cash flow guidance for fiscal 23 with a new range of 390 to 440 million and increase of 45 million.
This reflects our higher expectations on adjusted EBITDA, partially offset by higher cash taxes and higher CapEx, as we expect to pull forward high-priority, organic growth projects given our strong cash generation.
So I seven further outlines key modeling assumptions embedded in our guidance ranges.
I'd like to close on slide 9 by providing an update on our recent capital allocation. As mentioned in Olli's opening remarks, as we close the quarter at the midpoint of our target leverage ratio range at 2.25 times,
A reminder that this ratio includes the nearly 500 million of acquisitions completed in the past six months.
In that context, you can see how our cash machine is capable of funding organic CAPEX as well as sustaining an extended cycle of M&A.
Our acquisition pipeline is robust, full of actionable margin-accretive targets that fit our strategy, and we expect to continue to plan capital in this capacity in the near term. In May, following second quarter, we also completed our $150 million share repurchase program.
We continue to believe that our own stock offers one of the most attractive capital deployment opportunities available given the significant valuation gap.
Due to the highly attractive and actionable nature of some of our M&A opportunities, we do not plan to implement another repurchase plan in the near term, but the case for further buybacks is very much still on the table.
Lastly, as we've discussed before, but it bears a reminder, our dividend yield remains compelling, and we intend to continue expanding our dividend to further return cash directly back to our shareholders.
In closing, I've never been more excited for the opportunities in front of us than I am today. Our teams are operating on all cylinders, driving a resilient, dependable, cash generating business that will fund our value of creative growth in many, exciting ways. I look forward to the future and the potential for this business in the months and years ahead. With that, I'll turn things back to Oli Unslide 10th.
I think Larry some things up nicely. We are extremely proud of our performance this quarter, although we're not surprised, because we see day in and day out the commitment of our teams and the transformative changes on the way. Our built to last strategy will continue to fuel gripes journey and evolution.
to a higher growth and margin business by taking care of our people and serving our customers with excellence.
We are excited for the road ahead and will work to continue to produce results worthy of your investments in our company.
We thank you for your interesting drive. Operator, please open the line to questions. As a reminder to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again.
Please stand by while we compile the Q&A roster.
The first question comes from Michael Hoffman with Steeple. Your line is now open.
Good morning and thanks for taking the questions.
Given the revised guidance, can you give us a little bit of proportioning across the two segments, how you want to think about where we're adding and subtracting relative to the two segments in the guidance revision?
Certainly Michael, thanks for the question. I'll sort of do a walk. You know, we had low end guidance at 740 million. And again, that was low end and we never said that was like midpoint or anything else. I walk you through the various elements and talk about each business. So between.
$37 million left from that and PPS 33 million for a total of 70 million.
From a price-cost mixed standpoint, the list is about $51 million in GIP and about $5 million in PPS.
Centurion adds about 12 million over the remainder of the year. There's some FX drag of about 7 million relative to where we were. SGNA is a drag of about 14 million, mostly related to veteran senives and that kind of thing.
Volume is a big drag. You know, you've got about.
$48 million between the businesses, predominantly in GIP, being worse than what we had given in the first quarter of guidance, it's 51 of that, with PPS actually slightly better at $3 million than what we've worked before, three or four. And then just a hot spot of other items, about $4 million, just odds and ends.
in the industrial world is saying that there is still low level growth in the industrial economy.
and yet your volume outlook and GIP in particular would suggest that's not the case. So is this a...
How do you think about what's happening under the structural demand versus there's excess product in the channel that needs to clear, but there's in fact actually a stable growth story behind it or do you not see that? I'm curious your view.
So just one clarifying thing, Michael, when we went to the 740 last quarter, that was in the face of significant declines in unit sales.
And now we're taking volumes even further down in GIP. So the end markets are significantly impacted relative to prior year and even our original guidance at the beginning of the year. But I'll let Ole comment more specifically on some of the end market impacts. Yeah, so Michael.
The three biggest end markets we have where we see declines is in chemicals. And bulk chemicals, in particular, are chemicals like TDI and MDI. They're used to produce the insulation in your fridge, the foam in your seats, and that sort of thing. Dashboards and cars.
So with the fact that people move less around the world, the Pile less houses and so on, you know, that means they are buying less fritches and that's all the thing. The other one is painting coatings and the reasons they are the same and then the last one is the loop business. So those three are those are the three biggest segments and they're down.
a lot of smaller but more frequent ordering. We see sort of urgent orders, you know, panic orders and that sort of thing. And then our customers are paying us to respond to that accordingly, which is what we're doing.
Okay, and then on the PPS business, you know, we're seeing in again in another part of our coverage of a beginning, a very gradual beginning recovery and recycled fiber.
And how have you reflected that in this revised guidance? Yeah, we you are aware Michael that you know, Rissy increased OCC pricing in in a week ago or earlier this week. We we believe it will trend up.
slightly more through the rest of the year, maybe another $10 or so. That is primarily generation related. With all of the economic downtime being taken across the industry, there's just less paper being produced. And so the supply side of that
is down, although we also imagine that some of the trash haulers and stuff may predominantly, I would say, more of the one-off kind of things in various communities. The pricing is still not at a level that allows profitability, so our belief is some are still getting landfill.
George Staphos with Bank of America. Your line is open. Thanks so much. Hi everyone. Good morning. Thanks for the details and congratulations on a really good quarter relative certainly to our forecast. Hey Larry, one thing I wanted to come back to relative to your answer to Michael's question. On price cost mix you said it was a $51 million dollar...
benefit in the bridge, but I did not catch the breakdown between GIP and PPS, if you can go back to that. And also in terms of just clarification, during the discussion, Ola, you were talking about your end market. You said North America was weak, but some other markets had also weakened. I just wanted to make sure I had that for posterity in terms of what had we...
obviously year over year, Q2 to Q2, which I can address separately if you'd like, but I'll turn it back to Oli.
Hi, George. So, you mentioned North America. If we look at the North American market, it was clearly the weakest in our portfolio. And aside from non-residential construction, all auto markets were sequentially worse than in Q1.
For LATAM, LATAM has been fairly stable but volumes came under real pressure in Q2, after strong Q1. And the weaknesses that are coming primarily from the air-cam and the loop markets. And then in AMEA and APAC, volumes were still down year over year.
But those markets are actually showing greater resiliency than other regions. And that's primarily coming from Ag again and then the all-to-end markets.
That's very helpful, thanks for that. I want to come back to the specific actions that you you talked through in terms of cost reductions, and I think you said lower transportation manufacturing costs were I think a combined $9.70 if I wrote it down right, GIP 37 PPS 33.
play said differently, when did you start working on this relative to, you know, it ultimately materializing in 2Q? And then, is there a way that you can provide some clarity to us, some quantification in terms of what the steel price cost negative was from 1Q and how it might have flipped into 2Q? Welcome to the bedroom floor.
or do it on a year-on-year basis, what was the benefit, 2Q versus 2Q. Thank you, and I'll turn it over. So let me address the transportation manufacturing costs first. Our GIP business really jumped on this aggressively as we started to see volumes decline from the beginning of July last summer.
and really executed with excellence on shift management, you know, eliminating shifts, really being hawks on overtime, and also looking at improving maintenance costs and then leveraging, I mean, the reason Ollie spent the time he did in his opening comments on,
you know, our great business system, our GOG group, and the supply chain, is those teams are delivering great value to us. Playing in spot markets on the supply chain, you know, working with vendors on negotiating better rebates and those kind of things, and also managing overtime specifically well, and driving costs out of our maintenance program. So,
they really did well. On transportation, a lot of it, that cost change is also volume related, but also we're starting to see improvements in some pricing on that as diesel and fuel costs are migrating a little better.
PPS, you might remember George, our customer base was telling us they expected volume to pick up in January .
So even though we were seeing weakness in the fall, the teams were hesitant to pull back dramatically when they were hearing information from our customers that everybody expected things to pull up. When that didn't materialize, they actioned very rapidly and really attacked structural overtime.
In the paper industry, over time, it's structurally built in. They work very diligently to make sure that they take restructured shift lines and those kind of things and took out the cost. Those were the key elements. That's about the timing. A lot of that really came to mind.
And our steel business was about down about $63 million year over year in our steel business. And cost though was an $88 million tailwind year over year flowing through that business.
Thank you, Larry. Thank you. I'll turn it over. As a reminder, to ask a question and any follow-up questions, please press star 1-1 on your telephone. Please stand by for the next question.
The next question comes from Gabe Hady with Wells Fargo. Your line is open. Holy Larry, good morning and nice work on the quarter and what you guys are doing thus far. Thanks, Gabe. I wanted to ask, and I appreciate that we're not doing an updated.
investor day here but the the 650 million dollars of sort of
worst case scenario EBITDA that I think you guys have laid out. You know part of the world is or at least North America is actually on fire right now. So pretty bad situations when we're talking about born using down mid to high teens which I think would fit the characterization of pretty nasty backdrop.
If we add in maybe the 50 million from lead container as well as the 22 or so from Centurion and and think about our structurally okay the baseline now or the worst-case scenario is 700 million VBA for Bryce
How much of the 70 million that you're kind of talking about would you view as being permanent in the business and maybe how much of it is in response to what you're seeing in the economic backdrop? And then anything else that you would have us think about to understand sort of the...
Again, in a recessed scenario, what the worst case might look like for EBITDA or is...
780 now that the new base and that backdrop. Yeah, yeah, it's a fair question. I mean obviously we've laid that out in investor day and we're at that point maybe not as you know optimistic at how our teams would do on executing on every element of the strategy.
did not include Centurion. I don't see any scenario where we end up in the future below 740 plus a full impact of Lee plus Centurion. And we have more acquisitions in front of us. So I think those old baselines are gone. So yeah, I think the ballpark.
We've done six, most of them are in progress.
The benefits from them don't come immediately. A lot of them are coming, you know, trickling through towards the year and you will see the full brand of those exiting the year as well. Yeah, and those are primarily in our IPG business in the URB side.
Okay, and then maybe thinking about, I guess the outlook for this year, maybe going to the midpoint, I guess, to the previous, but it sounds like you're embedding, again, just maybe consistent level of underlying demands.
relative to what we're seeing, but on a year-over-year basis, that improves just because of easier comps.
And, you know, if that is in fact the case, if there is some sort of restock event, or I guess the economy kind of re-accelerates, maybe in...
October or something like that, which I know is going one month for you guys. But would that be kind of upside or how are you thinking about maybe the midpoint and what would get you to low end high end? Yeah, I think you said it correctly, Gabe. You know, when we went to low end guidance, the first quarter, we talked about the reason being just total uncertainty we're ratting.
We're not as uncertain now by any stretch and that's why we came back to the range. We have confidence of where we're at. Really high confidence actually.
you know, we did built in if something does come in get a little tick up, the up on the upside element are, we are not forecasti in demand over the second
If, hey, look, if things turn around and pick up, great, all the better for us. But we're just not building that in, except for a slight amount on the upside for events like you mentioned. Okay.
And then I hate to hone in on this, but the 25 million that you kind of call out between price and cost on the steel side in GIP.
I know, I appreciate that that was mostly timing related. Does that unwind over the remainder of the year? Is there more to come in fiscal Q3 and then sort of as we're looking out next year, all else equal, should we assume that that GIP earns $25 million less?
next year because of this timing difference. If that's the case. Better not. They better not. And no, Gabe actually, we're predicting relatively flat on still costs right over the remainder of this year. But a lot of this is timing. We've talked about it.
in 21. It really bid us in the first quarter of this year as that turned around. We had some of that in the very beginning of the second quarter but then it mitigated nicely and you know steel costs if they start to trend up again if demand picks up.
it continues to pick up in the auto industry, if it continues to pick up construction, and we see steel costs going up, actually benefit for us. So, you know, we, we, unless we had some rapid decrease in steel costs toward the end of a quarter where we got stuck with some high-cost inventory, we shouldn't have anything that will...
be turning around on us. Okay, I'll turn it over. Thank you. What's one caveat on that? You know, this is an environment where you know, lots of customers are going out to bid pricing and stuff like that. So, you know, you have to play through the competitive environment to see how that is. But...
We're confident in the service and value we deliver that our customers see that value, but that could have some margin in fact. Please stand by for our next question.
The next question comes from George, Saffos with Bank of America Securities. Your line is open.
Hey, thank you very much. Hey guys, just one sort of knit type question, not a big deal and recognize it, not directly comparable. If I look at your revised guidance, you know, Q1 low to the midpoint now from QQ, EBITDA goes up $65 million.
the cash tax expense goes up twenty six million dollars and again you know i would be applying a tax rate necessarily to ebit dot but just it it's actually go up a little bit more than i would expect uh... given that ebit dot was just applying you know twenty five percent so uh... anything else going on in terms of the
You know, we need to remember, either for comparative reasons, the rest of this year, or as we get into 2024. Thank you.
So on the cash taxes, it's really just the mix of income, where it is, some of it's in slightly higher tax jurisdictions than where it had previously been predicted. And that's all it is. It's just tax rate on income generated.
We we we build into our bridges, obviously continued improvement on a year over year basis on on working capital and a source, but only a slight improvement over what we had guided to before, because we were doing well, but.
Nothing there to conserve. We actually think that we continue to have opportunity to drive improvement in working capital. The teams are doing a great job, but sort of nothing to call out to say, yeah, this will reverse. The only thing is, you know, if we have a rapid increase in the economy and you have growing sales again, you'll obviously build working capital.
which should then be offset by growing profitability. No, that's fine, but there is an allot you out. Hey, listen next year, whatever the environment, there's something that we need to either build headwind in for or further tailwind in for from what I'm hearing from you. No. One last one while I have you guys an I'll turn it over. So.
you want to be from a total product suite. Or should we expect that scenario where you still look to grow in organically? Both in terms of IBC and also Re-conditioning. Thank you and good luck in the quarter.
Without getting into what we have in our pipeline, George, yes is the answer. We are looking at some adjacencies, but they are very, very close to what we are doing. Primarily everything within resin-based containers, reconditioning, lifecycle services that support our strategy. That's what we are looking at.
And we're not going to go outside our, you know, core business or that. Okay, I appreciate the comments here. I'll turn it over. Thank you guys. Please stand by for the next question.
The next question comes from Gabe, Haydie with Wells Fargo. Your line is open.
Thank you guys. Larry, I wanted to dig in. I actually had it on my list and brought it up in terms of the competitive backdrop. So intuitively for me, I would have expected sort of a rising and history environment, maybe higher credit to translate into a more disciplined operating environment. And I'm not asking you to speak for anyone specifically in terms of...
Would you say that, you know, kind of the anecdotal feedback from your commercial folks, is that no of the competitive response has been pretty disciplined up to now? I'm not a GIP subject.
Yeah, and on the GFB side, I mean, you know, we have always talked about you get sort of rogue individual markets around the world from time to time, that's pretty much a constant. But you're right, we are in an extremely good position from a balance sheet perspective, you know, closing half a billion dollars of acquisitions and having our debt.
I mean, you know, we have always talked about you get sort of road individual markets around the world from time to time. That's pretty much a constant. But you're right, we are in extremely good position from a balance sheet perspective. You know, you know, closing half a billion dollars of acquisitions and having our debt. All right? And the two ???????? sessions is justiez, and being able to corner some in the
Target still be right in the middle on our leverage ratio. And we just completed a financing and farm credit system, which I mentioned, which by the way, frees up our entire facility, giving us $800 million of totally available capacity. You know, at 6.6.5% rates. And yeah, from a competitive standpoint, we know at least one of our very, very good competitors is not quite in that situation.
Our fees for business will be tough as they always are and you'll work through the negotiations. But our teams have a good story to tell about the value that we deliver particularly how well we served our customers through the pandemic when sometimes that wasn't true across the board.
And just in addition to that, we've seen quite a few boomerang customers as well, let's we call them, where they've gone away from us and this is more on a regional or local basis. They've gone away from us for whatever reason and six months later they're back knocking on the door and we have several examples of that and I would say that's due to the exceptional service we provide our customers.
Thank you for that Ollie. One last one on the price cost bridge that you talked about, plus 51, I think GIP was plus 56, paper was minus five. I'm trying to compare and contrast that to if I just take the incremental $20 a ton cut in container board and assume that's applicable for call it half of the year.
or something like that. That's maybe 10 million, and then the increase in the OCC assumption would maybe translate to another 10. So I'm curious if there's something I'm missing or if it's more timing related, and we have to carry that through in the fiscal 24. Thank you.
Yeah, I'm just clarify, Gabe. The 56th on a total company basis was 51 positive for GIP and five positive for PBS. Relative to the guidance we originally gave. And obviously within that guidance, we had different assumptions on pricing in OCC.
But maybe a better way to get at it for you relative to PBS is talking about Q2 over Q2, year over year. So we are on an overall basis down 10 million on pricing and up 48 million on cost throughout the two businesses. Some of that in the cost side.
is actually related to working capital management because when we sell from our mill system into core toys, if that gain in the mill system hasn't been, it doesn't get recognized until that core toys inventory gets sold.
So when the team does a really good job of driving down inventory is a core choice in a quarter that it frees up that inner company profit. So you have the element of about $39 million of OCC benefit and about a nine million of that free up profit elimination by driving down your inventory.
Offset by container board price impact at 12 million down and CRB Actually opposite way of two million up. Hopefully that's helpful Thank you
I show no further questions at this time. I would now like to turn the call back to Matt for closing remarks. Very good. Thank you everybody for joining today and hope you have a nice day.
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