Q3 2023 WestRock Co Earnings Call

Good morning, and thank you for joining our third fiscal quarter 2023 earnings call. We issued our press release this morning and posted the accompanying presentation to the Investor Relations section of our website they.

It can be accessed at IR dot west dropped dot com or via a link on the application you are using to view this webcast.

With me on today's call are West Rock's, Chief Executive Officer, David tool, and our Chief Financial Officer, Alex Pease.

Following our prepared comments, we'll open the call for question and answer session.

During today's call, we will be making forward looking statements involving our plans expectations projections targets estimates and beliefs related to future events.

These statements involve a number of assumptions risks and uncertainties that could cause actual results to differ materially from those we discussed during the call.

We describe these assumptions risks and uncertainties in our filings with the SEC, including our 10-K for the fiscal year ended September 30th 2022, and our 10-Q for the fiscal quarter ended March 31 2023.

We will also be referencing non-GAAP financial measures during the call. We have provided reconciliations of these non-GAAP measures to the most directly comparable GAAP measures in the appendix of the slide presentation as.

As mentioned previously the slide presentation is available on our website.

With that I'll turn it over to you David.

Thank you Rob and thank you all for joining our earnings call today I'll.

I'll begin our call with a review of our fiscal third quarter results and the progress we're making on our self help initiatives following that Alex will review our results in more detail and provide our outlook for the fourth quarter.

We exceeded our guidance due to strong execution productivity gains and moderating input costs.

Net sales were $5.1 billion and consolidated adjusted EBITDA was $802 million.

Adjusted EPS was <unk> 89 cents, our strong results this quarter against a dynamic backdrop reflect the resiliency of our business and the tremendous efforts of our talented team members. As a reminder, we faced difficult comparisons with record results in the prior year quarter.

While demand for corrugated packaging declined year over year, our north American shipments per day were sequentially stable. We've seen improvement in July with per day shipments up mid single digits from the third quarter and the strongest backlogs, we've seen all calendar year.

Consumer packaging market volumes were down during the quarter as customers and retailers reduced excess inventory elevated inflation impacted consumer demand and we lapped strong prior year health care results looking forward, we expect improvement in the first half of fiscal 'twenty 'twenty four.

Driven by inventory rebalancing moderating inflation and new business wins long term fundamentals in our consumer packaging business remained healthy and we are well positioned with strong customer relationships and in markets that are growing over time, we expect continued organic growth due to our innovative solutions growing demand for <unk>.

Sustainable packaging and our expanding machinery business, we've seen a moderation in our global paper business. After a record year in fiscal 2022.

To navigate the current environment, we are leveraging our scale broad portfolio substrates and strategic customer relationships longer term, we expect our portfolio optimization strategy will enable us to prioritize our strategic customers, while reducing our overall exposure to external paper sales I'm.

Extremely pleased at how our teams are executing and winning new business. Our commercial teams are focused on building growth pipelines and demonstrating the value of our differentiated offerings all of which are delivering new business wins.

Our cost savings progress to date has exceeded expectations and I'm excited to report that we are on track to exit this fiscal year with more than $450 million and run rate savings.

During the quarter, we achieved $66 million of cost savings and $150 million year to date, excluding downtime and inflation.

We are making great progress and we see tremendous opportunities ahead, and we continue to optimize our portfolio.

Earlier this week, we made the difficult decision with the announcement of the closure of our Tacoma, Washington Mill.

We are working closely with our employees on the transition and expect to cease operations in September .

Additionally, we sold our minority interest in a non strategic joint venture and also announced the consolidation of three additional packaging converting locations, bringing our total to seven through July .

I'll provide more details on our portfolio actions in just a moment.

Turning to slide four we are laser focused on unlocking value from our broad portfolio of assets and we've made tremendous progress already.

We continue to target more than $1 billion in cost savings by the end of fiscal 'twenty 'twenty, five and we're well on our way our SG&A reductions productivity efforts and supply chain efficiencies are delivering significant results.

As previously mentioned, we are on track to exit fiscal 'twenty twenty-three with more than $450 million and run rate savings. We are pleased with the progress we've made and we remain committed to unlocking further efficiencies in our business, we've been proactively optimizing our footprint by closing less efficient facilities.

And consolidating production and larger plants.

Our goal is to improve our cost structure drive efficiencies and improve our return on invested capital.

Our recent announcement to close our Tacoma Mill is another example of this strategy.

Similar to our previous mill closures, the Tacoma mill required significant investment to remain competitive and we did not see a path to achieving our return targets.

By closing the mill, we can shift capital toward other projects with greater returns. Additionally, with Tacoma and our previous mill closures, we are lowering our costs and improving our overall margin structure.

Tacoma's annual production capacity is approximately 510000 tonnes, including linerboard White top Kraft paper and pulp.

With the closure, we plan to ship the majority of the mill's production, excluding pulp to other facilities in our network, we expect to incur $345 million of restructuring charges with the substantial majority recognized in our fourth quarter.

Approximately two thirds of these charges are expected to be noncash.

With the announcement of the Tacoma closure, our mill portfolio is substantially different than it was 15 months ago.

As we evaluated our assets, we considered mill profitability technical age of assets ongoing capital needs product mix strategic fit and our network flexibility.

With our announced closures of higher cost mills and production capacity, we are reducing 1.9 million tons of capacity.

These closures and able us to repurpose anticipated annual capital spending averaging approximately $120 million and exit noncore and markets and.

In addition, with these actions we are decreasing our exposure to the open market and reducing our north American corrugated average mill cost by $12 per ton or.

Our smaller yet more efficient mill system enables us to serve our strategic end markets and customers.

Through our current footprint, we are well positioned to serve these customers in 'twenty 'twenty four and beyond we've also been disciplined in our capital allocation and remain focused on investing in our assets to improve our return on invested capital returning leverage within our target range of 1.75 times to 2.25 tie.

<unk> and returning capital to shareholders through a sustainable and growing dividend as we work to recapitalize our assets, we are targeting a greater than 15% IRR on future return generating projects, we expect our mill investments to drive efficiencies and enable us to further reduce our <unk>.

Costs.

Through our portfolio optimization and asset recapitalization strategies, we expect to improve margins and drive return on invested capital.

Lastly, we continue to invest in growth.

We're close to completing construction of our World class long view box plant, which is expected to start operations in November .

This state of the art facility will enable us to further consolidate converting operations in the Pacific Northwest.

And is expected to deliver $25 million in annual benefit once fully mature.

Another example of our investments in growth as our Mexico acquisition. This transaction increased our exposure to the fast growing Latin America market and brought us closer to many of our multinational customers.

Our Mexican operations are exceeding our expectations and we are excited about future growth prospects due to economic expansion and shortening supply chains through these ongoing initiatives, we expect to drive significant improvement in margins and return on invested capital increased integration reduce volatility.

Hillary and drive profitable growth.

Turning to slide five before passing it to Alex I'd like to highlight a recent example of how our broad portfolio and innovative solutions are helping our customers win and meet their sustainability needs.

Costco recently approached us with a request to replace single use plastic multipack handles with a fiber based sustainable solution and response, our designers develop enduro grip and cluster clip.

These new solutions provide bundling for multi packs of bottles and jars and a range of shapes sizes and weights. They are engineered for durability and comfort, while providing a fully printable surface for Chris vibrant graphics and eliminate the use of plastic and these handles.

Our strategic machinery business is also helping drive adoption as part of our partnership we are working with Costco manufacturers to automate their production lines increased packing speeds and drive efficiencies.

We're proud to partner with Cosco and their manufacturers to introduce sustainable packaging solutions that help reduce single use plastic packaging.

This is just one example of many of how west Rock's unique capabilities position us for growth Costco is one of our enterprise sales customers and we serve them through both our corrugated and consumer segments enterprise relationships like this demonstrate the value that west Rock's broad portfolio.

And differentiated solutions provide.

Through our diversified portfolio commercial excellence and strong customer relationships, we've achieved over $9 billion and enterprise sales our plastics replacement innovations continue to gain traction and we are on pace to deliver over $400 million in revenue this year.

We are targeting more than $700 million by fiscal 'twenty twenty-five.

With a global total addressable market of $50 billion for plastics replacements, we see significant opportunities ahead, I'll now turn it over to Alex to discuss our segment results in more detail. Thanks.

Thanks, David.

Moving to our consolidated quarterly results on slide six third quarter net sales were $5.1 billion down seven 2% and consolidated adjusted EBITDA was $802 million down 22%.

Consolidated adjusted EBITDA margin was 15.7% a decline of 250 basis points of year over year.

This decline was primarily within our global paper segment, which I will discuss in a moment.

Price and mix positively contributed $85 million year over year, lower operating costs contributed $66 million year over year and input cost deflation contributed $37 million.

Input cost deflation was largely driven by lower OCC and energy prices in the quarter.

These benefits were more than offset by lower volumes of $243 million and economic downtime of $89 million, we incurred 359000 tons of economic downtime in the quarter with 258000 tons in our corrugated system and 101000 tons in consumer.

Noncash pension costs also negatively impacted consolidated adjusted EBITDA year over year by $39 million.

As a reminder, our U S pension plans remain overfunded.

During the quarter, we generated $479 million of adjusted free cash flow. We use this strong cash flow to repay $479 million of debt and we ended the quarter with net leverage of 2.51 times, we continue to prioritize debt reduction and returning our leverage to our target range of 1.75 times to two point.

Two five times.

We are now targeting 800 million to $1 billion of adjusted free cash flow for fiscal year, 2020 three.

Turning to slide seven corrugated packaging segment sales, excluding trade sales were $2.5 billion, an increase of $176 million or seven 7% year over year.

This growth was primarily due to our Mexico acquisition and strong price and mix.

Adjusted EBITDA increased $45 million or 11.6% adjusted.

EBITDA margin, excluding trade sales increased 60 basis points year over year to 17, 4%.

Year over year, adjusted EBITDA benefited $55 million from input cost deflation $28 million from lower operating costs and $25 million due to favorable price and mix.

These benefits were partially offset by lower volumes of $45 million and economic downtime of $37 million.

Note that our corrugated packaging results include revenue of $37 million and adjusted EBITDA of $4 million related to the realignment of certain Latin American consumer converting operations in connection with our Mexico acquisition.

As David indicated corrugated packaging shipments were stable from last quarter as we move forward, we expect gradual improving volumes and easier year over year comparisons we remain focused on driving commercial excellence and productivity to mitigate the impact of previously published price declines.

Turning to the consumer packaging business on slide eight says.

Segment sales were $1.3 billion, a decline of $20 million or 1.5% year over year.

Adjusted EBITDA declined $5 million or two 1% and adjusted EBITDA margin was 18.4% a decrease of 10 basis points year over year.

Strong price and mix contributed $98 million and lower operating costs contributed $19 million. These benefits were more than offset by lower volumes of $51 million inflation of $39 million economic downtime of $13 million as well as other items.

Adjusted for the previously mentioned realignment of certain consumer converting operations revenue increased 1.4% and adjusted EBITDA increased 1.5% year over year.

Net organic sales volumes declined six 6% year over year, driven by softer market demand inventory reductions through the supply chain and difficult comparisons from last year's strong health care business.

We are managing well and continued to gain new business as a reminder, last year's adjusted EBITDA was up over 28% year over year.

As David indicated we expect improving conditions in the first half of fiscal year 'twenty 'twenty four due to inventory rebalancing moderating inflation and new business wins longer term, we are well positioned to drive profitability due to our growing end markets, increasing demand for sustainable packaging and expanding machinery business.

Turning to slide nine.

Global paper segment sales decreased $545 million or a 33.8% year over year to $1.1 billion.

Adjusted EBITDA declined 55.6% to $177 million with adjusted EBITDA margin declining to 16, 6%.

Note that since the third quarter of 2020, our adjusted EBITDA is up 6% and margins are up 230 basis points.

Input cost deflation contributed $27 million and lower operating costs contributed $15 million.

These were more than offset by lower volume of $142 million.

Price and mix of $37 million and economic downtime of $39 million.

During fiscal year 2023, our external containerboard volume has experienced year over year declines driven by elevated inflation shifting consumer spending and excess inventories throughout the supply chain.

Additionally, published price changes have negatively impacted our revenue and margins. We continue to believe U S. Containerboard demand has stabilized and we expect improving volumes as the calendar year progresses.

Similar to our consumer packaging segment, we've recently experienced softer demand in our external paperboard business driven by elevated inventories and softer demand principally in commercial print and food packaging.

These conditions have continued into the fourth quarter.

However, we expect improvement in fiscal 2024, given the relative stability of our end market exposure.

Next our distribution results are on slide 10.

Our sales and adjusted EBITDA were down year over year due to a decline in our moving and storage business and difficult comparisons from last year's large health care order, we are focused on improving operations and driving cost savings to navigate the current environment.

Over time, we see opportunity to grow our distribution business by leveraging our unique capabilities and driving operational excellence.

Turning to guidance on slide 11, while market conditions remain challenging with continuing realization of published price declines we expect the impact of those conditions to be partially offset by gradually improving volumes are forecast for fourth quarter consolidated adjusted EBITDA is $675 million to 725.

$5 million and adjusted EPS between <unk>, 66, and 83 cents a share.

Some assumptions behind our sequential outlook include stable costs, driven by slightly higher energy costs higher costs for recycled fiber and moderately lower costs and Virgin fiber and chemicals.

And adjusted effective tax rate of between eight and 10% note. This lower rate is favorably impacted by approximately $30 million related to the release of uncertain tax positions state tax credits and other discrete items.

And lastly, approximately 257 million diluted shares outstanding.

Additionally, we're planning 32000 tons of scheduled maintenance downtime across our system in the fourth quarter I'll now turn it back to David to conclude before we move to Q&A.

Alex as you can see we are delivering on our commitments and I am incredibly proud of the progress we've made.

As we continue our journey I couldn't be more excited about the opportunities in front of us.

In addition to our large self help opportunity west rock remains uniquely positioned to deliver a full range of sustainable packaging solutions to our customers.

With over $9 billion in enterprise sales customers value our scale diverse portfolio and the sustainable solutions, we provide are.

Our innovation platform growing machinery business and plastic replacement solutions continue to position west rock extremely well for long term growth.

I'm excited about the path ahead, and I'm confident in our ability to drive growth margins and long term shareholder value.

Thank you and with that Rob, let's move to Q&A.

Thanks, David Operator, we're ready for questions.

We will now begin the question and answer session.

To ask a question I started I'm wondering you touched on.

If youre using a speakerphone please pick up your handset before pressing the keys.

Who has dropped from the question queue. Please press Star then two.

As in agriculture, and beverage has been really strong for us as well and what's exciting about beverage is with our Mexico acquisition are multinational beverage comp customers are really gravitating to our ability to serve the entire Americas. So we just see that as a positive trend as we move.

Forward.

Yeah. Thank you for the kind of David and then just in terms of Boxboard.

We're going to a packaging, obviously things start to weaken him like a quarter or so ago. In response, you've taken so long it takes them economic downtime you mentioned, though that you expect an improvement in your physical first half I guess, what gives you the confidence that things are going to improve their.

Is there any.

Any indications from customers that they're gonna have to restock I mean, what how could you say <unk> what gives you that that level of certainty.

Things are gonna get better from here sooner and little say.

Mike That's a great question, because we we work really closely with our customers on that and.

And what we saw in the last 60 days is a lot of our large customers in the consumer space. It took about a week off and manufacturing just to rebalance their inventories and as I went through that process. We were working very closely with them.

And the commentary we we received was you know this this gets us re shifted to the right inventory levels will work through.

That this quarter and then.

And and it's really consistent across all of our customers in the space is as we go into 2024 were gonna be ripe for growth and they've said that to us internally as we build out our forecast for them as well as a they've expressed it externally to the open market. So there's just a concern.

<unk> C and everything we here I think will be stable in queue for from Q3, and then everything they're telling us everything we're seeing is growth in 2024.

Thank you very much and good luck for the rest of the year.

Thanks Bye.

Our next question will come from George Staphos.

America.

You may not go ahead.

Thanks, very much high every once in the morning, thanks for the details.

David out I wanted to talk a little bit about the mill closures that you've announced over the last year and change and.

You talk a lot about how you expect that'll help your return on capital in total.

When you think about when we think about the 1.9 million tonnes of capacity of clothes.

What do you think that has taken off the top lowered your EBITDA on an annualized basis from what it otherwise would have been and what do you think it's added to.

To your incremental return on capital can you talk to that.

Just specific to that <unk>, those closures that you've announced.

Sure so.

The the easy answer is all of these mills or in the current conditions not generating positive EBITDA. So the combination of basically avoiding the the high fixed costs nature, and then reallocating production to the other males.

Winds up a creative both tip to EBITDA dollars and EBITDA margin. So it was the right decision from an overall profitability standpoint, and I think it really speaks to the flexibility of our network and a lot of the great work, we're doing operationally to just reduce the unplanned downtime and unlock a lot of the hidden factories. So that we can move.

Production of district substrates from the notice that we're closing in to the other males. We did exit certain product lines that were not strategic to us So doris or <unk> would be one example, flopped to help would be another example, so we did exit those markets, but again those weren't strategic.

Strategic stripes or products for us and and we weren't really making any money there anyway in terms of capital.

It's more than $100 million of of capital combined that we were able to divert from essentially.

Keeping these mills on life support for lack of a better term and redirecting that towards growth oriented capital.

So we were.

Basically, reducing our sustainable Catholics sustaining capital needs and increasing our growth capital availability and as David mentioned in his prepared remarks, typically those grilled capital investments or anywhere between 15 and 20 per cent IRR.

In terms of the aggregate Raul I see that part of your question.

You know quite candidly it would be <unk> because the the denominator is is such a large number.

Just by way of sort of a heuristic a billion dollars of.

Invest in capital generates about 40 basis points incremental R. A y C. So in total all of these mills combined was probably in the order of a billion dollars I think about $900 million.

Invested capital so that would be you know call at 40 basis points improvement of our life fee, but really where we get the left as in the improved our life or in the improved EBITDA because you.

You know that generates oh, a much greater return for us than than reducing the denominator, but David what what would you at no I I think Alex captured as well and I I think the important thing is when you look at our productivity efforts and when you look at as Alex mentioned the capital we can redeploy too.

Other facilities not only is it just getting the cost benefit of reducing those higher cost mills, but we're actually getting more profitable at the meals were running so it's it's really going to be a return generating entity for us.

Thinks that run the no that was really helpful. I guess next question I had for you again in terms of Westrock.

Strategy M O I mean, we talk a lot you talk a lot about the enterprise sales and also machinery installations enterprise sales you said, we're at 9 billion or more which I think was the figure from last quarter <unk>.

Recognizing you know 9 billion is a lotta money a lot of revenue can you talk maybe more precisely about the progress you're seeing there.

The progress you're seeing machinery installations, and what that adding in terms of profit and then laughs and I'll turn it over just a tychy tack question I.

I think in terms of the overall economic downtime. You said you took this last quarter 359000 tons and if I didn't Miss hear you I think you said 258000 for corrugated 101 for consumer did I Miss something there what was the figure for paper. Thank you guys.

Sure I'll I'll start by answering the first part of your question I'll have Alex just give you a kind of a rundown on our on our economic downtime.

Georgia, when I think about our enterprise capability.

I think we're.

At the point, where we just had the most momentum we've had in a long time and I alluded to in an earlier comment about Mexico.

So for example, we had a a large consumer customer that we were doing business with the United States. They expanded a product line in Mexico that was an corrugated that came to us asking for a solution and that handoff wishes seamless we were able to help them.

Coordinate all of that and come up with a very effective solution and then what was also exciting who has that same.

Consumer customer and it's a it was a beverage customer was looking for further plastics replacement and wanted to be very efficient and their process and doing that and then we received a large machinery order at their at their sites. So we can help them be more efficient as a eliminate single use plastics and <unk>.

Move into a fiber based solution and plastics replacement. So it's that connectivity, that's really driving our excitement about enterprise sales because there's just so many customers now that are looking for solutions that crossover between corrugated a consumer we're just <unk>.

And we're just able to do that and I think you know just when you look at our corrugated results alone you could just see the benefits are are <unk> are working in the indoor bottom line. So we feel great about enterprise, we now have over 5300 machines in place worldwide our backlog as.

Incredibly strong that is a key component is our ability to customize our machinery to our customer's production lines. So with the plastics replacement. This is enormously important and finally, you've heard a lot of e-commerce customers talk about wanting to exit.

Plastic mailers and so that is a great opportunity for Kraft paper in her pack and demand.

Machinery business, which we're just seeing a lot of excitement and energy around that as well. So combining all that that's why we're just really excited about the future and what our portfolios able to provide our customers.

And just just the Costco example alone enterprise customers came to us asking for a solution there was machinery and and again, we have a consumer and coordinated relationship with them as well I'll turn it over to Alex to talk about your economic downtime question.

Yeah, So, Georgia, just a couple of facts to put out there so our our integration rate.

And corrugated are between 80 and 90% so.

You know if you apply that to the 258000 tons of of downtime and the corrugated business you'd get.

Roughly 40 40000 tonnes related the corrugated business and then if you do the same math on consumer integration rates and consumer around.

Around 50 per cent give or take so that will give you about 50000 tons for the merchant business and the consumer segment another way that.

Consumer segment, so that that should stop.

Give you the breakdown of how that how that falls out.

That's great and it looks thank you for that I'll turn it over good luck in the quarter.

Thank you for it.

David <unk>. Good morning. Thank you for taking the question I wanted to ask about some of the strategic investments that you guys are are making you have the the box plant that you're doing up in the Pacific Northwest and I think that the Investor day, you called out I think $3 million to $500 million annually kind of over it.

The three year period.

You know in in return oriented projects can you kind of talk about where you're at with that I mean, obviously like I said that I know the box plant.

And then maybe.

Is there an acceleration of that and that's part of the reason why why cashless is coming down a little bit just given the EBIT a beat kind of here in the third quarter and tingling in line fourth quarter outlook.

Yeah, So I'll I'll I'll start game, and then I'll turn it over to David.

So in terms of the overall Capex guidance I believe the number we gave an investor day. It was between two and $500 million on top of a billion dollars of base load capital and and that's still the number that we're we're sticking to when we start talking about 2024, you know we'll have a finer view on what our 2024 capex outlook looks like at all.

Longer range view, but you know more strategically yes, we are as David mentioned his prepared remarks, we are.

Really focused on driving a higher level of strategic investment recapitalization.

In the in the mail network, and converting network, which which will drive higher ROI C. As in higher higher margins and the Longview boss plan is a perfect example of that that's going you know <unk> exceedingly well, it's gonna allow some some other footprint actions that where where.

Planning and it allows us to operate much more efficiently. We're planning an order of five more of those types of investments really around the country to really optimize our converting network. We're looking at some opportunities within our mill footprint to increase the flexibility of our mill assets and all of that work is.

Is going on kind of as we speak so we're not prepared to talk about any of it today, but we will as we start talking about 2024 and beyond but I think it's a really exciting time for the company as we think about investing in our business and really dry it driving higher returns in terms of the cash flow.

Guide of $800 billion to $1 billion. There. There's a couple of things that are behind that.

You know obviously are are ebitdas is.

Slightly slightly below our expectations when we when we started that the year.

But look I I mean, I think we're delivering exceptionally good results in a really challenging environment, we've been able to invest around a billion dollars in our business, which is more than we invested last year were catching up from some of the Ah bottleneck.

Bottlenecks in capital deployment during Covid. So all of this is is frankly really positive and candidly even at the low end of that range to deliver $800 million. In this operating environment is I think a pretty exceptional testament to the strength of our our business in the amount of cash flow regenerate.

The strategy overall I would blanket it.

Kind of this way is Alex alluded to redeploying the capital at our Mills, we had to make the difficult decision to shut down because of the higher cost.

We are going to make those mills exceptionally more <unk> more efficient and profitable with the additional capex will we're able to redeploy so Ah mill network is going to be more efficient and then as Alex talked about honor converting assets as we do these consolidations there's capex.

Essentially involved as we make these converting assets much more efficient larger more output.

Per site and so that's gonna also drive more profitability and combined will give us a higher or Oh I see so that's how we kind of think about it overall and then tying that into our commercial strategy what are the segments.

That we're really focused on that are higher growth higher margin, where you have a great solution and right to win that consolidates everything together as we look at our overall strategy.

Thank you both for that and then one hopefully quick one point of clarification more near term focused.

David I think you said you were prepared remarks.

Yeah. So for clarification it was up mid single digits from <unk>.

Two three.

So sequentially, we were up mid single digits and our backlog with the strongest it's been in the calendar year. So we're seeing that improvement as we move forward in Q4, and we just expect that to continue as we get into 2024. So we really feel like we we have come up.

Thank you both and good luck.

Thanksgiving.

Our next question will come from Mark <unk>, Let's see for research partners you.

You may not go ahead <unk>.

Thank you.

So you you mentioned redeploying some of the the capital that that otherwise would have been going to some of the facilities. Your closing to increase efficiency at the remaining mills et cetera.

Is this likely gonna be incremental projects or or is it gonna make the most sense to be doing Florence type projects at some point.

Mark <unk>.

Really good question and it's gonna be a combination of both we look at all of our assets, we look at where we want to the company to be and what drives the highest returns. So if there is another type foreign investment that we need for our footprint that's the direction.

We're gonna go in addition to some of these incremental projects. So I think as Alex talked about that $2 million to $500 million when you get into that strategic investment you're gonna see a combination of both and as we go get closer to 2024 fiscal year will will give you a much more detail and color around it.

Okay. Great. Thank you then second just kind of focusing still on that that the self-help I believe the billion dollar profit improvement program was gonna target about 250 million in <unk> 23 50.

So if you could just sort of let us know I know you <unk> you talked about exit rates, but it's an order of magnitude. What you think you will have accomplished and physical twenty-three and then how much would be likely on the docket for fiscal 24, I think they're probably would be a step up I just wanted to clarify.

Yeah, I think the way we've we've bridged it is.

Is 250, and and and 23 around 350, and and 24 and then the bread the remainder and twenty-five actually the <unk>, where we're well ahead of that so as we mentioned where you know exiting the year at around 450 run rate are in.

Your savings you know, we're anticipating being north of the 250 that we committed to because the teams just making great progress and you know the the balance of what we're talking about at this stage of the game is really around SG&A savings and supply chain relate.

Savings roughly 50 50, each but as as we've talked about with some of these asset closures and plant consolidations, we're really starting to get the flywheel moving on a lot of the operational improvements, which will really drive a reduction in unplanned downtime and unlock of hidden factory lower waist rates and.

So.

You should see those numbers begin to accelerate so we feel you know really good about what we're doing on the productivity and cost savings Ah side.

Okay, and recognizing some very dynamic process.

Are we still thinking there is 350 million order of magnitude incremental in physical 24, <unk> keeping it separate if possible from the actions you did on the facility closures, where I have another follow up question just to.

Yeah. So just.

Just to make the math easy, let's let's say, we're gonna do between 250 and 300 and.

And 23, just take the top end of that so say, it's 304 50 accident rate that would put you at 150, just going into as a rollover into 24, and then to get our our 350 number you would say there's gonna be 200 incremental and 24, you know we're still building the opera.

Writing plans for 24, but I think that's frankly I think that number is conservative okay. Super and then just if we just focus on the the two meals that are in the process of being closed and and related converting plan actions you talked about this being EBITDA incremental.

And could you sort of give us Ah Ah Ah Ah.

So.

It's a little hard to answer your incremental EBITDA question, because a lot of it depends on volumes and in this volume environment, where things are so dynamic.

It's just it's just a tricky question to answer but to give you a sense that Tacoma mail that we just closed the cash cost per ton is around 900 $900 a tonne based on the number that I'm looking at the mills that we would reallocate capacity to and <unk>.

Just gonna use generalities are around.

Around two to $400 a tonne cheaper than the mail, we close so that will give you a sense of sort of the the incremental contribution that we would get from reallocating some of the capacity to those other males in terms of the in terms of the cash cost for the one we just recently closed.

The total was around $345 million about two thirds of that with non-cash about a third of that with cash related and the bulk of the cash comes in year, one and two and then it's off set by an assumption around the land sale.

Coming in the latter part of your too.

The only other thing I would add is it I'm sorry, just answer your question. If you look at the converting sites they are not as dependent on volumes as the mills.

So you'll you would see EBITDA of about $35 million to date and then as we continue to optimize that footprint that'll just continue to escalate and then to Alex is point on the mills. It is volume dependent. So you you would just see a range depending on volume.

<unk> so.

You know to to Alex's points, you can just kind of do the math of <unk>.

Where we are currently in what we would do I mean, you could you could see <unk>.

A range of from everything we've done from.

You know low double digits to to even higher on an improvement.

Okay, and just to clarify that that $900 per ton out the total cost I assume when did you say cash cost for cash cost.

Okay that was cash cost alright appreciate it.

Our next question <unk>.

Our next question will come from Cleve <unk> with you B S U.

You may not.

Great. Thank you for taking the questions and thanks for all the good color on the call instead of a couple of quick follow ups and I'm just looking at the the positive price mix and the particularly in the corrugated packaging segment.

And I'm wondering if if there are any index price legs that you expect to flow through that business. You know over the next couple of quarters or you know whether that that price mixes just remaining positive because of him because of the strategic actions that you've made and and the mixed improvements.

This resulted from.

So quavers, we look at our corrugated business with all of the the receive pricing that's been announced as as we go into this quarter.

$70 of the $90 will hit our contractual customers. So you'll see you know continued price price pressure through this quarter and then coming out of this quarter you know from the May increase about $20.

About 75 per cent of our customers are tied to that Ricci contract pricing. So that's kind of how we look at at at the the pricing and then from a consumer side just.

The the the recent announcements we will probably see those hit our consumer business till the end of the year and then Conversely, we see.

Both both on the on the containerboard side and paperboard side, we see those you know.

Within 30 days on a global paper business, which is which is why you've seen a lot of the pressure throughout the year, but then we'll we'll we'll cycle around that as we get into 2024 right.

Right Yeah. So there's just a lot more lag in the integrated.

For those businesses, you'll look looking ahead, I think it probably running a little higher than maybe we thought and and corrugated you know I'd just be curious if if you've sort of strategically thought about where you want to get too at this point, it's still part of the planning.

So as we think about our integration rates.

The 1.9 million times that we've taken and if you go back to say 2021 volume environment.

You know our containerboard.

Integration rates are are really tracking in the high eighties.

And you know as we get into that 90 per cent range, we feel really pretty good about that because it allows flexibility through the cycles. We have really good strategic partners on the global pay per side that or you know not on the commodity side of that you know.

<unk> multiple grades longterm relationships, there's a lot of innovations that we're working on with them. So as we look at the mill footprints actions that we've taken and we look forward to 2024, I mean, we're really in a great position in our supply demand balance because as we've talked.

About <unk>, we want to match our supply to our customers demand. So you know the excitement that you hear about 2024 with the actions we've taken in the productivity, we feel really good about how we're entering the year.

Okay, I'll turn it over thanks guys.

Thanks.

Our next question will come from Phil <unk> with Jeffries.

You may not go ahead.

Good morning. This is actually John on fulfill hope you guys are doing well and congrats on a good corner I just wanted to go back to the to the footprint. You know you guys have taken a lot of action, particularly on the containerboard side over the past.

Say 15 to 18 months.

<unk> could you give us some perspective on how you're thinking about your footprint now and and you know do you do you see the actions taking already already announced being enough. What do you think there may be more to come whether you know that'd be westrock are generally the brought our industry and more importantly, and then just to follow on that how how should we think.

[noise] about Tacoma, which is expected to shut by the end of the fiscal year.

How should we think about the earnings leakage, whether it be in this fiscal fourth quarter or going into to 2024, I think I think he touched on it being positive, but just wanted to you know.

Maybe get a little bit more clarity on the flow through.

Sure John I'll I'll answer the first part of your questions and then I'll I'll have Alex go through Tacoma with a little more depth.

So as we look at our at our footprint, what we've always focused on is our customers demand.

With our supply footprint.

But our relationships with our customers are very strategic very connected you know a lot of our contracts or a longterm contracts.

Where are we see 2024, I mean, right now where you know this has been an unprecedented year as far as the downcycle. We've made all the footprint actions and as we see 2024 and 2025 with the connect.

Connectivity, we have with our customers and how they're projecting volumes you know, we really see a nice balance right now and you know we've got again you know, it's it's Virgin fiber, it's recycled paperboard. So you know having all of those substrates is really important.

The current supply environment that we have and I'll turn it over to Alex talk about Tacoma, Yeah, Let me I'll try to just that.

The headline that everybody should here on the call is that you know the meals that we've closed we're going to reallocate the strategic substrates to other mills in the network. So there won't be any way that that leakage associated with that it'll actually be EBITDA roissy accretive.

On Ah Tacoma, specifically, just the breakdown, it's 510000 tonnes a total capacity of about 105000 tons of that's linerboard about 275000 tonnes of that is white top 60000 tons is crap paper and about 70000 tons of pulp so with the exception of the Paul all of that other capacity.

Won't be reallocated around the network again, so it'll be <unk> <unk>.

Net margin and EBITDA dollar accretive in terms of.

Just.

It's not earnings leakage, but Castillo leakage, you will see about two <unk> or about one third of the $345000 of closure cost.

That the cash cost associated with that is about a third of that that number and that will happen in year, one and year to offset in the back half of your two with with land sale.

Got it okay. I appreciate that and then just just going back quickly David on the on the capacity.

Do you think the industry as a whole need to take out more you know it still seems like operating rates are.

Mmm relatively below where they where they should be I mean, I know your to come with <unk> has yet to come out, but you know just thinking about 2024 in the industry as a whole did did you see more actions needed to kind of stabilize price or do you see the the demand inflection you know at least from the customer conversations that you're having being enough to to see.

Babelized prices going into into next year.

Yeah, the way the way I would think that John is <unk>.

We are we are laser focused with our segments and our customer base and so we're just matching our supply to their demand as as I think about the industry and and obviously there's capacity coming online.

You know the customers that were focused on we we just think are gonna be different than where this new capacity is so we'll we'll let that sort itself out but we're focused on do we have the right supply and the right footprint with the demand, where we want to grow for value selling solution selling and.

You know with the 1.9 million times that we have with the demand forecast, we see as we go into 24 I'm into 25, I mean, we.

In which particular segment.

Appreciate it.

So that B R. T S C.

Sail is not complete we hope to have that complete in September .

As as we move forward in the business.

And and is again just a reminder, it was 375 million dollar sale.

Okay, and and what what segment was that in.

A R T S would have been.

Would've been within the concerned consumer to consumer adamant, it's the partitions business basically.

This concludes our question and answer session I would like to turn the comes back over to Rob Porcaro for closing remarks.

Thank you everybody for joining a call today, where we are available. If you have any other follow up questions and we look forward to updating you again next quarter. Thank you.

The conference has now concluded thanks for doing today's presentation you may now disconnect.