Q2 2023 Greif Inc. Earnings Call

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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 Thor 11 on your telephone. You will then hear an automated message advising your hand to trade.

To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Matt Leahy, Vice President of Corporate Development and Investor Relations. Please go ahead. Matt Leahy, Vice President of Corporate Development and Investor Relations.

Thanks, and good morning, everyone. Welcome to the 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 Holy Rosgard, GRIF's President and Chief Executive Officer, and Larry Hill, Shimer, 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 Oli and Flythray. Thanks, Matt, and good morning, everyone. Right post of an exceptional second corner in the space 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 as 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 a 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 bright 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 on wavering 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 Build the Last, is creating thriving communities.

During the second quarter, we completed our sixth annual Gallup engagement survey with over 90% of our global colleagues participating.

And I'm proud to share that we continue to improve engagement at Christ and remain in the top quartile of all manufacturing companies around the world surveyed by Gallup with a 5% jump in engagement percentile compared to last year. And I'm proud to share that we continue to improve engagement at Christ and remain in a top quartile of all manufacturing companies around the world surveyed by Gallup with a 5% jump in engagement percentile compared to last year.

In addition, in the past months, it was announced that we rank amongst our among the top 100 global, most-loved 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 a certain economy.

At grife, 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-sounds 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 team organization. Our global operations group of GOG, as we call it, left by Kim Kellerman.

was formed in February 2022 with a purpose of improving operations through a globally consistent approach to tools, processes and behaviors.

Our one-grind approach to safety, driving a zero-harm culture with significantly improved safety measures, has lowered safety incidents across our manufacturing network by 25% and is improving production level colleagues' wellbeing, retention and productivity.

Our GOG teams are also champions of continuous improvements driving our Drive Business System or GBS 2.0 to accelerate plant modernization and automation as well as our GEMBA value creation and six-sigma 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 DOG team continues to drive structural cost hours 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 for the success of decent issues. Our digital and information technology team is led by Vivian U.S., who joined rise in December of 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 GRIP to better leverage our scale, accelerate our margin expansion, and improve our global operations and service.

Finally, our global supply chain, led by Tina Shaw, Tina Shaw is also undergoing the transformation to invest in advanced sourcing and supply chain management capabilities, taking a one-drive approach to supply chain. The team is focused on leveraging our global logistics network across GIP and PPS.

to improve asset utilization of scale benefits.

There are advancing supply chain automation and digitalization.

revamping our sourcing function to drive better raw material processing and terms. They are helping us optimize working capital and advance applied changes in the ability 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-grif 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 G-O-G, G-O-G, IT, and Global Supply Chain teams on the Kim's Vivians and Teamers leadership.

My sincere thanks to you all.

Now, I'll shift over to financial results on slide four. GRIME posted a strong results in our second quarter with 228.6 million of EBITDA and 185.5 million of free cash flow.

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 testament to the resiliency of our business model.

We remain focused on controlling what we can control and delivering results regardless of market conditions.

This quarter, we also advanced our inorganic role strategy with the majority acquisition of Centurion Container. The business we have worked rapidly grow as the minority partner for the past three years.

The Centurion business is an excellent fit as it enhances Rive's resin-based offering and IBC 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 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 of creative targets in the coming quarters.

Now I'd like to take a deeper dive into the results of detail out primary segments.

Please turn to slide five.

Our GIP business posted solid results in the quarter, despite persistent demand pressures in all substrates 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 of margins, despite lower sales.

This is the drive business systems in action.

On the volume side, all GIP products and geography 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 end markets. That time, which has been 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. Amir and APEC volumes were comparatively stronger, though still down year over year, with some support from automotive and agricultural end markers.

However, we did not see a material volume inflection accident the quarter and insulated 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 environments. And I commend the global GIP team for their excellent work in the second quarter.

Please turn to slide six. Paper packaging, second quarter sales, declines 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 digits per day volume declines in both primary converting operations.

Despite this substantial volume headwind, our margin performance was exemplary.

We're evidout 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.

demand remains soft in most people converting end markets throughout the second quarter and into May.

We remain conservative in our outlook for PPS volumes in the second half, but expect that our year-over-year declines will ease as prior year comps become easier.

Our PPS team remains laser focused on cost rationalization, winning profitable new business, and delivering value to our customers during this challenging time. And I'm proud of the work our colleagues put forth in the quarter.

I'll 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 contributions 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 the result of the collective efforts of all great colleagues.

I will repeat a statement I made at Invested Day. I am more excited about the growth in the future of this company than ever before. And that conviction only grows with each quarter. Thank you to all of our teams.

As Oli mentioned, lower volumes across both businesses compared to the Historic Q2 22 period resulted in a year over year sales decrease of approximately 360 million.

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 business as well and have worked to right size our 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 heart felt appreciation to each of our colleagues for their resilience and dedication to executing well. On CAPEX and CAPRAO allocation, we continue to pursue value of creative opportunities to grow our team as our media Local transition and faithful neighborhood leaders. In ourernenunter team Or. We are ready to have my work?? souls always join together shared values, is never a failure.

forming in line with expectations, and post-close integration is going well with a line of sight to meet or beat our initial synergy expectations.

Lastly, I'd like to focus on free cash flow. The source of $185.5 million in the second quarter is an extraordinary result.

Clearly, we do not expect 80 plus percent free cash flow conversion 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, Gryph 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 only an I joined GRIF 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

guidance.

We are moving away from our first quarter low-end guidance and introducing a new range of 700, 80, 830 million of adjusted EBITDA for fiscal 23, an increase of 55 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-$440 million, an 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.

Slide 7 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 Ole'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 deploying capital in this capacity in the near term.

In May, following second quarter, we also completed our $150 million share reprotest 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 accretive growth in many exciting ways. I look forward to the future and the potential for this business in the months and years ahead.

the way. Our build-to-last strategy will continue to fuel GRIVE's 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 store 11 on your telephone and wait for your name to be announced. To withdraw your question, please press store 11 again.

Please stand by while we compile the Q&A roster.

Thank you.

The first question comes from Michael Hoffman with STIFL. Your line is now open. Good morning and thanks for taking the questions.

Our first question comes from Michael Hoffman with STIFL. 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 do 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. We never said that was like midpoint or anything else.

I'll walk you through the various elements and talk about each business. So between lower transportation cost and manufacturing cost.

As a result of the actions by our leaders, the ones that Oli mentioned as well as our business units, GIP will drive $37 million left from that, and PPS $33 million for a total of $70 million.

From a price-cost mix standpoint, the lift 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.

SG&A is a drag of about 14 million, mostly related to better incentives 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 guidance. $51 million with PPS actually slightly better at $3 million than what we were before.

three to four. And then just a hot spot of other items, about four million, just odds and ends on various items that are below the line kind of thing. So hopefully that helps walk you from the 740 to the 805 midpoint.

Okay, that's terrific. Thank you.

So I, you know, I'm not a paper and packaging analyst per se. I cover a lot of things and my coverage in the industrial world is saying that there is still low level growth in the industrial economy.

and yet your volume outlook in 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 you know when we went to the 740 last quarter that was in the face of significant declines in union.

comment more specifically on some of the end market impacts. Michael, the three biggest end markets we have where we see declines is in chemicals.

And bulk chemicals, particular bulk chemicals, chemicals like TDI and MDI, they're used to produce the insulation in your fridge, you know, the form in your seats, and that sort of thing, that's sports and cars. So with the fact that people move less around the world, they buy less houses, and so on.

That means they're buying less fridges and that sort of thing. The other one is paint and coatings and the reasons there are the same. And then the last one is the loop business. So those are the three biggest segments and they're down. We don't see any more destocking per se.

But the order pattern has changed from a lot of our customers. They are now taking their safety stocks down to a significant lower level than we've seen in the past. And what that means to us is that we see a lot of smaller but more frequent ordering.

We see some urgent orders, 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 in recycled fiber.

And how have you reflected that in this revised guidance? Yeah, you are aware Michael that RSI increased OCC pricing a week ago or earlier this week.

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. 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 the one-off kind of things in various communities. The pricing is still not a level that allows profitability, so our belief is some still getting landfill instead of sold. All right, thanks.

Okay, thank you very much. Please stand by for the next question.

The next question comes from George Stapos 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 the question was, what to expect tomorrow, the end of the month.

Clarification, during the discussion, Ola, you were talking about your end market. You'd 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 weakened, and then had a couple of other follow-ons.

Yeah, so George, the breakdown on that 56 million was 51 GIP and 5 PPS. And to reiterate, this is the walk from the guidance numbers we gave the Q1 to the revised guidance. So, you know, different from obviously year over year, Q2.

Q2 to Q2, which I can address separately if you'd like, but I'll turn it back to Ole. 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...

volumes were still down year over year, but those markets are actually showing greater resiliency than other regions. That's primarily coming from Ag again and then the auto-int 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 70, if I wrote it down right, GIP 37, PPS 33, and that's obviously from the low end of your guidance to where we are right now.

What's the lead time on taking those sorts of actions? It's not as if you snap a finger and it all comes into play. Said differently, when did you start working on this relative to 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 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 let me address the transportation manufacturing costs first. Our GIP business really jumped on this aggressively as we started to see volumes decline from like beginning of July last summer and really executed with excellence on shift management, eliminating shifts.

really being hawks on overtime and also looking at improving maintenance costs and then leveraging. The reason Ollie spent the time he did in his opening comments on 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, working with vendors on negotiating better rebates and those kinds of things, and also managing overtime specifically well.

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, overtime is sort of, it's structurally built in. And they work very diligently to make sure that they take...

you know, restructured shift lines and those kind of things and took out the cost. So those were the key elements. That's about the timing. And so a lot of that really came to play in the second quarter when you combine all that across both of them.

In terms of your question on price-cost mix on the GFE side in steel, what we saw, if I go quarter over quarter, year over year, price in the steel, what we saw, if I go quarter over quarter, year over year, what we saw, if I go quarter over quarter, year over year,

And our steel business is 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.

in 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 11 on your telephone. Please stand by for the next question. The next question comes from Gabe Hady with Wells Fargo. Your line is open. All right, Larry, good morning and nice work on that.

higher right now, so pretty bad situation when we're talking about borings being down mid to high teens, which I think would fit the characterization of a pretty nasty backdrop. If we add in maybe the 50 million from lead container as well as...

the 22 or so from Centurion and think about it structurally, okay, the baseline now or the worst case scenario is 700 million VBA for rice.

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 for EVPA or is 780 now the new base and that

Yes, it's a fair question. I mean, obviously we laid that out in investor day and we're at that point maybe not as optimistic at how our teams would do on executing on every element of the strategy and they've been doing a great job.

Yeah, I think you walk through you add the elements you mentioned on Lee and and also Centurion. You then, you know, we came out with low end guidance last quarter at 740 that included, you know, Lee for the rest of the year did not include Centurion. I don't see any scenario where we end up.

in the future below 740 plus a full impact of LEED plus Centurion. And we have more acquisitions in front of us. So I think those old baselines are

So yeah, I think the ballpark you're playing, we haven't really walked through to say what's our new baseline. We'll come back to that, but I don't think what you just walked through could be far off at all.

Again, we mentioned some of the operational improvements we made. What we haven't mentioned is the rooftop consolidations that we made as well. We've done six, most of them are in progress, while 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 X-Ting the year as well. Yeah, and those are primarily 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, because that's the easiest, 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 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 only one month for you guys but would that be kind of upside or how are you thinking about maybe the midpoint and what gets you to low end high end? Yeah I think you said it correctly Gabe. You know we you know we when we went to low end guidance the first quarter we talked about the reason being just total uncertainty where we're at.

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. And we did build into that upside G if something does come and the second half get a little thick up then that drives you up on the upside element bars.

But we are not forecasting any kind of improvement in demand over the second half other than some minor seasonality on some ag stuff. So, 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 and in GIP.

I know I appreciate that that was mostly timing related. There's that on-wind 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 G.I.P. earns twenty five million less next year because of the timing difference? It better not. They better not. And no, you know, Gabe, actually, you know, we're predicting relatively flat on.

skill costs right over the remainder of this year. But a lot of the fizz timing, we've talked about it incessantly, that normally over a year or so, cost trends on seal even out through that cycle because of the past through mechanism.

You know, we had a very odd, very rapid increase that benefit is highly in 21. It really bit us in the first quarter of this year as that turned around. We had some of that in the very beginning in 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 instruction, 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, you know, our customers see that value. But that could have some marginal impact.

Please stand by for our next question. The next question comes from George Sappos with Bank of America Securities. Your line is open. The next question comes from George Sappos.

hey thank you very much hey guys just one sort of knit type question not 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 uh... to q ebit dog goes up to sixty five million dollars

the cash tax expense goes up $26 million. And again, I wouldn't be applying a tax rate necessarily to EBITDA, but just the tax would go up a little bit more than I would expect given that EBITDA if I was just applying 25%. So anything else going on in terms of the cash tax outlook for this year.

and you know more importantly anything that we would take away for for the future and then is there anything else that you would call out on the war can capital you know significant improvement that you know we need to remember other for comparative reasons uh... the rest of this year or as we get into twenty twenty four thank you

So on the cash taxes, it's really just the mix of income, you know, 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 a tax rate on income generated over the remainder of the year. And it is.

Still, we didn't change the rate range of our tax rate. It remains at 23 to 27, so it's still right in that range. Relative to working capital, you know, we built into our bridges, obviously, it continued improvements.

on a year-over-year basis 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 concern us. We actually think that we continue to have opportunity to drive improvement in working capital. The teams are doing a...

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 obviously build working capital. Which should then be offset by growing profitability.

No, that's fine, but there isn't a watch 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. One last one while I have you guys and I'll turn it over. So Oli, Larry, if you reflect on the IBC business, do you have the platform you think you need right now, both there and also in reconditioning?

to grow with your customers and basically be the grife you want to be from a total product sweet. 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. you

we look at.

And we're not going to go outside our core business event. Okay, I appreciate the comments here. I'll turn it over. Thank you guys.

We're not going to go outside, we don't call business about. 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 Hady 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 had it on my list.

I would have expected sort of a rising interest rate environment, maybe tighter credit to translate into a more disciplined operating environment. I'm not asking you to speak for anyone specifically in terms of who you compete against just conceptually versus maybe where you guys are.

in your journey or from a balance sheet perspective and feeling pretty comfortable where you're at. Have you seen anything to date in this kind of tough economic backdrop or would you say that kind of anecdotal feedback from your commercial folks is that no, the competitive response has been pretty disciplined up to now on the GIP side? Yeah, and clearly so, 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 extremely good position from a balance sheet perspective. You know, closing half a billion dollars of acquisitions and having our debt.

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 extremely good position from a balance sheet perspective, closing half a billion dollars of acquisitions and having our debt.

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. Go at 6.6.0% rates. And...

Yeah, from a competitive standpoint, we know at least one of our very, very good competitors is not quite in that situation. So yeah, we look at it with optimism, but yeah, we're also realistic about things. I mean, they're going to continue to be good competitors, you know, going to be competing for the business. Cam here, man.

Yeah, we think they act in an appropriate way and haven't heard anything differently from our team. So, yeah, it's these proposals being, these RFPs 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 serve our customers.

through the pandemic when sometimes that wasn't true across the board. In addition to that, we've seen quite a few boomerang customers as well, as 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 then six months later they're back knocking on the door. We have several examples of that.

I would say that due to the exceptional service, we provide our customers.

Thank you for that, Ouy. One last one, I'm a price cost bridge that you talked about, plus 51, I think GIP, was plus 56, paper was minus five. I'm trying to compare contrast that too, if I just take the incremental $20 tonne cut and container board.

and assume that's applicable for 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. Yeah, I'm just clarifying, I gave the 56 on a total cost.

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 costs 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 as a core toys in a quarter,

CRB actually opposite way of 2 million up.

actually the opposite way of $2 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. This concludes today's conference call. Thank you for participating. You may now disconnect.

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