Q2 2023 Glatfelter Corporation Earnings Call
Today's conference is being recorded at this time I would like to hand, the call over to Moshe to Garner. Please go ahead.
Thank you Ali good morning, and welcome to Glatfelter as 2023 second quarter earnings Conference call. This is <unk> <unk> Senior Vice President Chief Financial Officer and Treasurer.
On the call to present, our second quarter results as Thomas <unk>, President and Chief Executive Officer of Glatfelter and myself.
Before we begin our presentation I have a few standard reminders.
During our call. This morning, we will use the term adjusted earnings as well as other non-GAAP financial measures.
A reconciliation of these financial measures to our GAAP based results is included in today's earnings release and in the Investor slides.
We will also make forward looking statements today that are subject to risks and uncertainties are.
Our 2022 Form 10-K filed with the SEC and todays release are available on our website disclose factors that could cause our actual results to differ materially from these forward looking statements.
These statements speak only as of today and we undertake no obligation to update them.
I will now turn the call over to Thomas.
Ramesh Hello, everyone and welcome to Clodfelter second quarter conference call for 2023.
It's a pleasure to be with you today.
Throughout today's call I will take the opportunity to provide context on several key challenges the business faced during the second quarter as our results fell below expectations.
More importantly, I will highlight the outcomes, we delivered during the second quarter with our turnaround strategy to address these challenges.
The prevailing market headwinds and overall macroeconomic environment in both Europe , and North America, along with continued customer Destocking resulted in lower sales volume and negative earnings impact of approximately $7 million when.
<unk> with machine downtime to manage inventory levels.
Second.
The team diligently work to deliver approximately $7 million of earnings through our turnaround strategy with results attributed primarily to price increases and fixed cost reductions.
We also experienced two fires one in Fort Smith, Arkansas and another in our Asheville, North Carolina facility that resulted in an approximate $3 million loss of earnings during the second quarter.
I am thankful for the quick actions of our employees at each site that Fortunately have resulted in no personal injury or long term damage to either facility.
<unk> has benefited from top quartile safety performance over many years of benchmarking and refinements to our global safety program and we remain committed to incorporating even more stringent fire prevention measures in the months ahead.
In addition, we had another approximately $3 million negative impact, resulting from foreign exchange effects customer financing and other items.
Finally, as part of our portfolio review, we announced the closure of our <unk> site in May following a lengthy but unsuccessful sale process against the backdrop of <unk> profitability, given the week placebo and electrical markets.
Since that time the team has been working to fulfill remaining orders while negotiating the balance of interest and social plan with the sites Economic Committee and works Council, all while preparing to decommission the site.
Since announcing the closure costs.
Customers have been working to secure alternative suppliers.
And we are experiencing higher rates of employee absenteeism and turnover.
While we continue to manage the operations in this turbulent environment, we have incurred operating losses of approximately $4 million in the second quarter.
As I reflect on our performance this quarter, including the positive results, we delivered with a turnaround strategy.
Had it not been for the continued macroeconomic and operational challenges impacting our bottom line. Our second quarter results would have been in line with the first quarter of 2023.
The turnaround actions that we are taking are now setting the stage for improved profitability as sales volumes return.
While our business fundamentals remain quite sound, we are lowering our annual guidance to $100 million to $110 million in light of the market weakness and accelerated deterioration of <unk> financial performance following the closure announcement.
I will now turn the call over to Ramesh.
Thank you Thomas.
Slide three of the Investor presentation provides a summary of our second quarter results.
Adjusted EBITDA was $17 $3 million or approximately $10 million lower compared to the second quarter of last year.
As Thomas just described the primary drivers were <unk> and underperformance and negative impact from the two fires.
Airlift materials EBITDA was lower by approximately $2 million, mainly related to the fire in Fort Smith that led to downtime and unexpected maintenance costs.
Composite fibers EBITDA was lower by approximately $6 million driven by the negative effect of Woodbridge mitten weaker demand and lower production to manage inventory levels.
Spun laced demonstrated EBITDA improvement of approximately $1 million, despite the impact of the fire at Astro.
Slide five shows a summary of second quarter results for the Eliot materials segment.
Revenues were up 5% on a constant currency basis versus the same period last year, mainly driven by higher selling prices of approximately $12 million on lower volume.
The higher prices from contractual cost pass through arrangements as well as price increases in energy surcharges initiated for customers without such arrangement fully offset the higher cost of raw materials and energy.
Volume was lower by 4% year over year, primarily due to weaker shipments in the feminine hygiene category from customers' inventory Destocking, which was partly offset by improved shipments in tabletop wipes and homecare.
Operations were unfavorable by $2 $1 million versus the prior year, primarily due to the fire at Fort Smith, leading to downtime and unexpected maintenance cost.
Foreign exchange and related currency hedging positively impacted earnings by $900000, primarily from the strengthening of the euro.
Slide six shows a summary of second quarter results for the composite fiber segment.
Total revenues were up 1% on a constant currency basis due to higher selling prices of $5 5 million as well as successfully implemented as we successfully implemented multiple pricing actions and energy surcharges in 2022 to come back to inflation.
Volume was higher by 3% versus the same quarter last year, but mix was unfavorable negatively impacting both revenue and margin.
Demand was soft in almost all product categories, reflecting challenging market conditions, and some negative reaction to our pricing actions taken in late 2022.
Higher prices for energy key raw materials, and freight lowered earnings by $3 8 million versus.
Versus the same quarter last year and were more than offset by the pricing actions.
On a more positive note inflation on raw materials and energy improved on a sequential basis and we expect this trend to continue in the second half of 2023.
Operations and other was unfavorable by $5 $9 million driven by lower production to manage inventory levels.
Of the $5 $8 million year over year EBITDA decline for the segment $4 3 million was from <unk> underperformance. As this site is now slated for closure as previously announced in May.
Foreign exchange was unfavorable by $500000 driven by hedging gains from last year.
Slide seven shows a summary of second quarter results for the spun laced segments.
Revenues were down 19% on a constant currency basis, driven by lower shipments of 22%, but partially offset by higher selling prices of approximately $2 million coming from actions taken to address inflation.
The volume decline was primarily in the critical cleaning and hygiene categories critical.
Critical cleaning shipments were lower in Europe , mainly due to market softness while North America volume was more impacted by production constraints experienced on the converting side by our customers.
And hygiene most of the decline was in the European market, where our customers have access to lower cost alternatives as well as cheaper imports from Turkey and China.
We are continually exploring options to improve our cost competitiveness and asset utilization in Europe . As these are critical to the segment's profitability.
Raw material energy and other inflation.
Were favorable $400000 driven by lower energy prices.
Operations FX and other items were a net $300000 favorable.
Actions taken as part of the turnaround strategy to improve operations and reduce head count created a year over year benefit of approximately $4 million.
These benefits were offset by the fire Nashville, and lower production to control inventory as a result of weaker demand.
Slide eight shows corporate costs and other financial items for.
For the second quarter corporate costs were slightly lower versus the same period last year.
Slide nine shows our cash flow summary in.
In the second quarter of 2023, our adjusted free cash flow was lower by approximately $10 million versus the same period in 2022.
Earnings were lower by approximately $10 million and cash interest was higher by approximately $8 million.
These unfavorable items were partially offset by lower cash taxes as well as from a onetime refund of about $7 million received in Q2 related to the COVID-19, ERC tax credit recovery program.
Slide 10 shows some balance sheet and liquidity metrics.
Our bank covenant leverage ratio as calculated under the new credit agreement was three four times as of June 30.
We had available liquidity of approximately $145 million at quarter end.
Slide 11 shows our 2023 year to date EBITDA run rate normalized for certain items outside our control with those that have been addressed through our turnaround strategy.
Adjusting for <unk> results in the two fires our first half performance for the year would have been better than as reported.
As it relates to <unk>, we are expecting operations to season, the third quarter and any shutdown costs will be excluded from adjusted earnings thereafter.
The EBITDA impact from the fires in Fort Smith, and Nashville was approximately $3 million in the second quarter and we do not expect any cost of carryover into the third quarter.
Slide 12 is a summary of our EBITDA and cash flow guidance for 2023.
Q2, EBITDA was below our expectations largely due to <unk> accelerated underperformance that we did not anticipate earlier in the quarter.
We were in the final stages of several months long process to sell the site operations to a prospective buyer with an anticipated close at the end of May.
However, all interested party negotiation installed in mid May due to market weakness and we announced the site closure decision at the end of the month.
As a result, the ongoing operations to wind down <unk> will have a continued negative financial impact when compared to our previously stated guidance.
Therefore, we are lowering our EBITDA guidance to now be between 101 hundred $10 million.
Regarding cash flow items, we expect the following.
Cash interest of approximately $60 million, which includes the latest projection of interest expense from the refinancing completed in the first quarter.
Capital expenditures to be between 30% and $35 million or approximately $5 million lower than our prior guidance.
We expect approximately $50 million of cash usage from working capital and turnaround strategy cash cost combined.
This is approximately $20 million higher than our prior guidance and is driven by the expected severance costs related to the <unk> shutdown and adverse accounts payable impact from shorter payment terms as a direct result of our credit rating downgrade last year.
And finally cash taxes are expected to be between 15% and $20 million or approximately $5 million lower than our prior guidance.
This concludes my prepared remarks, I will now turn the call back to Thomas.
Thank you Ramesh.
As we look forward to the remainder of the year. There are a few highlights that are important to shaping our overall performance in the five remaining months of 2023.
First I'm pleased to share that both electrical has officially joined the company on August one as senior Vice President and Chief Operating Officer, We previously announced borrowers. This decision to join clubs held in early April and while you're on out his termination notice period with his prior employer. He was successful with accelerating the start of his employment.
With clubs Hilda.
<unk> arrival as significant as this completes the establishment of our newly expanded senior executive team with borrowers. We will have an additional talented leader, whose sole focus will be to further integrate our global supply chain commercial and innovation functions and it will strengthen our new product management function and it's early.
<unk> to drive improved financial performance.
Boris this extensive background work and globally in both operations and commercial functions and having personally worked with <unk> in the past Im confident he will hit the ground running and I look forward to his contributions.
Second we must remain focused on managing the ongoing price cost gap and striking an effective balance between product price mix and volume as the challenging economic headwinds impacting our markets prevail.
This is particularly important as we face growing competition, including regions in the world that may not value. The same level of commitment that club soda is making to achieve truly sustainable products, while improving our overall operations.
Our single most important business imperative is to demonstrate an uncompromising partnership with our customers without foregoing profitable margins.
This requires us to act with intensity when executing the six key initiatives of our turnaround strategy, which the team continues to do exceptionally well.
Then finally, but perhaps most importantly as.
As a leadership team we are prepared to make any remaining difficult decisions that will improve the trajectory of our financial performance in the months ahead.
Actions, such as further curtailing operations, where needed to balance inventory levels.
Driving out additional fixed costs growing sales volume achieving additional pricing actions that are imperative for us to reach sustainable margins for the long term and continuing to assess and shape, our overall product portfolio and innovation pipeline with a greater level of financial rigor combined with real time market insights.
As I approach my one year anniversary with club soda I continue to believe the company's full potential has not yet been realized.
And I will remain very excited about the prospects of this business as our markets improve over time <unk>.
Meanwhile, we must stay the course with the disciplined approach that comes with our <unk>, one plan and adjust our real time action to confront the current realities of our markets and the industry we serve.
My team and I remain committed to doing just this.
I will now open the call for questions.
Thank you, ladies and gentlemen, if you would like to ask a question. Please press star one on your telephone keypad.
If you are using a speaker phone. Please make sure your mute function is it relates to our signature <unk> equivalents.
It is star one if you would like to ask a question and we will pause for a moment, everyone an opportunity to signal.
We will go ahead and take our first question from Joshua <unk> with Carlson capital. Please go ahead.
Thomas Ramirez good morning, Thanks for taking my questions.
Good morning.
Josh.
Hi, I wanted to start with a few questions on volumes and the Destocking headwinds and then I have a few more questions around margins in the quarter, especially trying to flush out the fundamental performance, excluding the impact of the fires in the over Schmidt and closure.
Starting with volumes how did your volume performance varied by month in Q2 or at least entering the period versus exiting it and what picture is emerging of where inventories sit throughout the channel both at your customers and if you have the visibility at the end retailers as well.
Okay.
Yes.
I think I have to go a little bit into detail because it really varies by by segment.
Maybe if I look at the Destocking. The Destocking is still going on in the feminine hygiene and in the adult incontinence segment, so that where we're still seeing destocking is going on in the other area I would say, it's really has slowed down and its more demand issue now if I look at and go towards the single.
Segments feminine hygiene the volumes month to month is pretty much flat. So if I look at April versus June it's pretty much the same.
And here the weakness in Q2 was really a combination of Destocking and also one of our biggest customer had this fiscal year end in June .
So that's always been a little bit of a weaker <unk>.
Quarter.
Adult incontinence, it's kind of the same picture.
<unk>.
If we look at the.
Really really volume.
We have one big customer and there is also still destocking going on that was a big kind of when the product was launched back in 90 in 2018 2019 huge volume and is falling a little bit down, but there's still some destocking going on but also here a month over month is pretty.
Much flat.
If I go back to the next segment table top food services I would say that I mean, if you look at the month to month.
Volume development, it's increasing so from April to May we saw an increase from May to June we saw an increase.
And that's kind of also a little bit of seasonality, which we have in this business.
Because with warmer temperatures outdoor dining barbecues, and then and so we are seeing that now and the volume is really increasing while we're not seeing there's a lot of destocking I think that's done I think we are probably in that area. This is what we are.
The volume we are seeing right now is the real underlying demand.
<unk> business also the wipes volume month to month is relatively stable.
<unk>.
There is no real.
I mean ramp up.
It's relatively flat.
And if I go to the homecare area here, we are seeing a little decline.
A decline from.
From month to month.
And again, it's very difficult now to predict what the cute, but Q3 will bring but if I look at July I mean, it is not.
It's not substantial.
And.
But this business had substantial growth during COVID-19 because a lot of people were more concerned on sensitive about hygiene in August. So in this business is really from a volume standpoint from 'twenty to 'twenty, one and now if I look at 'twenty three is going down.
Coffee.
Coffee area overall demand is the same what we are seeing is a little bit of a shift from <unk> to <unk> coffee because it's cheaper.
And then this is mainly happening in Europe .
And I would also say for the coffee.
The destocking effect of things should be done in Q2, we don't expect anything there in Q3.
But however, the pad production, it's down because more sugar coffee and people are more price sensitive and they are moving more towards the total coffee.
Key.
If we look at the <unk> here, we really saw some major inventory build up in 2022 because of the concern of inflation curtailment and energy. So here, we are still in the middle of <unk>.
Destocking activities.
And.
So that's probably still continue on into Q3.
Then the composite laminate area.
This is not an inventory issue. This is really a demand issue.
Consumers are just not spending a lot of money for home improvement.
As they did during the quarter. It made a lot of do it yourself projects in all of this in this market is really.
Declined.
Then go to the next segment of wall covering I mean, the only insurance there really the sanctions imposed on Russia.
And the Western European market is also I would say on a relatively low level right now and this is in line with our composite laminate area I mean, there's not a lot of renovation on new builds going on.
Then electrical and pasting Paypal.
The thing. He is also we don't think Theres a lot of Destocking going on I think that's already taken care off in Q1 and early Q2.
So this is really the underlying demand, but we are seeing right now.
Sure.
Consumer wipes business is relatively stable.
Critical cleaning we increased our volume there, but this is probably based on our initiatives, which I mentioned in our Q1 call that this is the focus we have so we have seen we are seeing first successes here.
And the lost business.
I would tell you our Metlife business, Josh the Metlife business.
Has been relatively stable month over month, but overall demand is down.
In a big way, so that's kind of.
Question is.
Are they using a different product, but if I also look at the base paper industry. They also suffering because of the labeling business I mean, the labeling business is also down so and Ria hit as well.
So this hopefully sorry for but I think you really have to look at that segment. So.
It's the colors actually helpful and I know the Destocking has been an industry wide phenomenon from everything from food.
Central consumable products that you sell maybe two more brief questions on the volume side, how much of the Destocking in some of your channels is driven by customers wanting to buy at lower raw material prices. Because you are obviously sell some products that are pulp based pulp prices have been.
Coming way down so strategic decisions on the part of <unk>.
Customers to wait and then the second question is how much is the mix of private label changed over the last let's call it year year and a half.
And how has this impacted your margins if at all.
Yes to your first question, Josh Yes, I mean, what we're seeing is raw material prices are coming down the energy prices are kind of I would say normalizing, although they are not back to where we were pre inflation.
So customers are.
We're looking at the following quarter, where we have quarterly pricing and said I mean, what's happening in the next quarter absolutely. I mean this is happening but this is not a lot of volume. So we are catching up and it's always a question of how to kind of schedule and all of this but yes, I mean, absolutely right customer said I'll wait until July because I am expecting July prices will be lower than June prices.
So.
Thats very clear.
Your question on branded business, what we're seeing right now.
And is that the U S is mainly unchanged the branded business in the U S is pretty much what it was the same with the with the White label business in Europe . However, we are seeing a shift branded business is losing and non branded is picking up.
And Thats, probably based on price consciousness of the European consumers, but we haven't seen that yet in the U S.
But.
I guess your volumes are relatively unchanged by that because you are selling into the channels, but does it have an impact on your profit margin.
Correct correct.
Yes, Okay now.
No FX.
Okay, and then moving over to the margin side, I mean I guess.
I'm going to give you a kind of big picture.
Before I give you my detailed questions, but I'm trying to kind of understand the core margin performance and the trend exiting in the second quarter.
And maybe the way I'll ask the question is.
If I look at slide 11, and I'll give you credit for that bridge, which is theoretical and I say $52 million of run rate EBITDA, it's around 7% implied margin if I look back to the first half of last year I think the margin was around call. It.
Six 7%, so very similar margin and maybe Destocking was $7 million so that would be.
1%.
Impact so where are we kind of running at 8% is that the level, we should think about exiting Q2 and entering Q3.
Just to have context, if we were at 7% last year and we're trying to get back to 10% plus to call. It historical levels are we at 8% or are there other things in that bridge that you would point me too.
I would like to maybe look at it from a different way.
If you look at our second quarter performance and the $7 million I mentioned, which is really market driven the weak market. So this 7 million just the loss of volume was around about $3 million, but the fixed cost absorption, which we had was for.
Okay.
Which we didn't have actually last year. So if you add that up I mean, that's 7 billion.
And this is the biggest issue which were really impacting our our our earnings plus the one time or nonrecurring issue or issues, we have addressed languish mitten.
The vendor financing we have addressed all of that but this is actually you have to take this into consideration that the fixed cost absorption, which we have to this is a hit of $4 million. We undertake in order to manage our working capital and our cash.
So the answer your question I think it's a little bit higher than that.
And it's getting there so.
You are right, we have said that.
In an ideal situation a business in the nonwoven space with the portfolio that we have should be operating between 10 and 15% EBITDA margins now we've been in that ZIP code before we're clearly challenged because they spend less and because some of the market dynamics that we've seen here recently, but yes, where we're making.
Our way up there very gradually so what you may have seen seven.
7% last year, good very easily translate to.
Eight 5% this year and then continuing to make progress as we take more cost out as the turnaround strategy traction kicks in as we have.
<unk> eliminated some of these one off distractions, whether it's <unk> or the <unk> fire.
For the <unk> topic or the fires and so on this should help.
<unk> become accretive to our EBITDA margin profile going forward.
Sure.
So maybe.
Let's start from that kind of eight 8% level, but as we think about the cost trends going forward over the last six months.
Softwood pulp prices coal prices have declined substantially I think both.
In North America, and Europe , So remind us how much of your cost of sales as raw materials or even pulp. If you can be that specific and when do you expect to see the full impact of lower pulp than boats.
As it comes into your inventory, but also as it gets reported into your cost of sales just because.
The tissue producers that are reporting are starting to see some of that in their margins as recently as this quarter and I think more of that is going to come in Q3, but kind of remind us what we should expect to cross.
The Airways and <unk>.
Maybe more composite fibers, where you don't have the pass throughs.
Okay.
If I look at pulp softwood and fluff pulp and it depends a little bit on the product, but the raw material is roundabout, 50% to 55% of Cogs cost of goods sold.
On average across the segments.
And.
One of the issues and we have seen that I mean absolute <unk> prices are coming down. Unfortunately, I also have to say is the gap between fluff and softwood is widening.
It's now also under pressure and also fluff pulp was coming down more but this was a little bit of a time lag and normally what we have is when prices are coming down and you can say it takes us probably a two to three months because of our raw material inventory, which we have to keep in all of our sites to really see the real impact.
I would say, it's probably eight to 12 weeks than we see it as well.
Okay.
And question on the pass through.
Yes, I mean, we have rhonda bottom.
In La Ronde about 30% is not on the pass through and this is mostly the smaller table top customers.
While we don't have a contract, but they're buying from us.
And so we and we are very price set they are very price sensitive and we are price sensitive and this is exactly what you were mentioning before and they are sometimes waiting from June to July and August but to answer your question on about 30% is not on a on a on a pass through in <unk> and round about 50% in <unk>.
Yes, yes, well, we have to amend it okay per month.
And then maybe a similar question on energy.
Maybe first the percentage of your cost of sales that is energy I think years ago. It was call it 8% to 10%, but that was before the squeeze in Europe gas prices in 2021. So what is it today and when do you expect the recent declines in energy to phase into margins for instance, where you get the full impact in Q3.
Or will it be Q4.
I mean, if you look at <unk> as a whole.
And then I want to go into the different segments, because the big difference I mean, when we started before the inflation I mean youre absolutely a variety of around about at 8%. We went all the way up to 11% during the hype of the inflation as a company and we are down to nine so we're in the middle we are not back on where we were but more importantly.
If you look at.
CF and we have most of our assets are in Europe , where we have much bigger exposure to the higher energy price I mean.
We are up but still today in today's world at 14% to 15%.
Despite the fact that energy prices came down.
And we were before historically in the range of 11% to 12% and we are still at 15% last year. We peaked at around about 17, almost 18%. So again, we are going in the right direction, but we are by far not.
Way back to <unk>.
Inflation levels.
Okay.
And then maybe kind of stepping back considering both the pulp side as well as the energy side.
Assuming that these declines we've seen continue or at least don't reverse how comfortable are you with the raw material and energy cost levels today in terms of supporting your goal is to restore historical margins.
In 2000, 2000, 22024 and beyond while also meeting some customer expectation of relief on near cost of sales, which seems to be.
More of an imperative.
Listening to some of the brand owners today, even versus a couple of quarters ago.
Okay.
Okay.
We have taken all of the pricing initiatives back in September October November to bring the prices based on that raw material cost at that time to the level, which we need so and I would say we are we are really really fear the biggest problem, we have and what would it take.
As the market weakness right now so whenever the volume comes back and it will come back I. Just a question of time and again I can just say the volume loss of volume cost us from a customer standpoint around about $3 million and fixed cost absorption of $4 million. So we're talking about $7 million just in Q2, so whenever that comes back.
The margins will be where they need to be.
But even now if I haven't got the details and one of the things I mean, even with some losses, we overcompensated this was pricing.
Okay. So we've talked I didn't want to interrupt you perfect and then.
To win the dominant because I have one final question just around cash flow.
Given that your guidance for working capital includes both working cap as well as the turnaround cash cost it would be helpful to know what your guidance implies for working capital spend or generation in the second half or I guess, maybe.
Said differently slide nine you have the cash flow bridge I think if you combined working capital and other it's around $63 million of cash usage in the first half.
Should I compare that to your guidance of $40 million to $50 million.
With the implication being that working capital will be a $15 million to $20 million source of funds in the second half.
Is that kind of the right analysis.
Yes, Yes, I think you can think about it that way because generally the second half of the year for us as a source of cash in working capital, but then like I said.
The two additional headwinds that we're calling out this time around in our guidance, which is why this number has gone from 20 to $30 to $40 to 50, which is a 20 million hit.
10 of that is coming from the older Schmidt and shutdown.
<unk> is coming from just AP headwinds because of payment terms so.
But holding setting that aside the way youre thinking about working capital for the second half of the year versus what Youre seeing now in the first half is correct.
Perfect, Okay, well I'm going to get back in the queue.
Definitely appreciate all the color and I know it was a difficult quarter, but.
Keep on focusing on the things you can control I appreciate it guys.
Thank you. Thank you.
Our next question will come from Mike Jennings with Angelo Gordon. Please go ahead.
Good morning Thompson Ramesh.
Good morning.
So look I think a lot of the points you raised on destock are fairly similar to what we've heard from from materials peers more broadly I guess I want to contrast that with.
Recent commentary from consumer products companies, which seems to suggest that after the last two years of kind of price sled topline growth, there's going to be a bit of inflection of volume lead over the next two years.
How do you what's the visibility like on those volumes were where we are hearing and again. This is primarily related to the early materials side, what kind of visibility do you guys have looking out back half of the year or into 'twenty four.
Volume recovery off of putting aside any destock or restock.
Yeah.
I would tend to agree with you Mike I mean, we are also seeing some market improvement sequentially.
We have and then talk about <unk>.
We are expecting volumes in the second half being more and bigger than in the first half.
We're already seeing this a little bit in July also has a little bit to do with one of our biggest customer has this financial year end in June and so historically July August is a little bit better.
We also and Thats really important more for our CFS business that we are also expecting a better mix in Q3, I mean in our CF business, it's really important.
Which product setting because there are different margin profiles. So.
We think that an hour in client via products are more profitable.
Have a much better fixed cost absorption than wall cover all the metallize product, though and we are also seeing and expecting that the inclined wire products are improving.
In the second half compared to the first half.
And for us to be honest right now is really the the biggest focus for us to see taking.
Taking all of the inflationary pressures the site, we need to really go back like I mentioned with <unk> question, we need to go back to.
Pre inflation margins. So we are now on our way down with energy prices coming down raw material prices coming down and we are going to leverage this because we need to also make sure that we're not missing the boat here. So we need to also be on our toes to make sure that we have that.
We hit the right price and Youre, absolutely right it'll be a volume game in other price game okay.
Perfect. Thank you and then maybe one follow up I just wanted to make sure I understood. Your response correctly I'd Wanna Joshua questions.
Good morning.
We were talking when he was asking about the branded versus unbranded.
What is the impact to us of a customer trade down effect that we're seeing in the market if any.
To be honest for us.
It's almost nothing because we are serving both sides of the equation. So we are serving customers switch.
Providing their products to the to the branded business and we are serving customers who have the non branded business. So there's no big impact for us.
Perfect. Thank you I'll just hop back in the queue. Okay.
Okay. Thank you.
And as a reminder.
It is star one to ask a question. We will go ahead and take our next question is from Roger Spitz with Bank of America. Please go ahead.
Thanks very much.
Regarding the the benefit of lower pulp high.
Lower pulp prices.
See I mean, eventually see all the benefit or has there been any change in terms of your contracts with some of your customers.
Where you will not be able to see that benefit as pulp prices fall.
We will see the benefit.
That no changes to the negative our contracts.
We will see the benefit but as I mentioned this is a little bit of a time lag.
But other than that we will see the full benefit of that.
Perfect.
And in terms of the cash flow guidance I just wanted to make sure. So.
So the 2023 cash restructuring and closure costs are all in the $40 million to $50 million of working capital lines and cash restructuring.
And there are no other cash items.
That implies at the midpoint of the range or CF less capex is negative.
Negative 50 is that the right way or are there or all of that is cash items.
Julien there you have it you have it exactly right project it would be a negative 50 of our net cash flow.
Perfect.
And can you.
Last call you spoke about.
Potential.
Sure or monetization of any noncore assets that might be coming sooner rather than later, perhaps you mentioned there.
<unk> I didn't hear but can you give us any update.
If you haven't mentioned that chip.
Number one I mean again at that time to time, we were trying to really divest Oberst Minton.
And as Ramesh mentioned and I mentioned earlier, we got pretty close but unfortunately, it didn't work and Thats why we had to kind of make the decision to shut the operations down because this for a long time, we're losing money in August and the market is not even getting worse. So this makes no sense to wait.
So.
All this is another business, where we might think about it but today is not the right market to do that to be quite honest. We are not in the pressure. So we would like to really make sure that we're not rushed into anything. So we have another asset in again very minor not changing kind of the overall company.
So its really some assets on the on the <unk>.
On the periphery in the periphery of our business is not really core but right now to be honest. There is not the right time to do that and Thats why we kind of put these activities.
To pause.
And whenever the market comes back we'll be back on there and working on that.
Got it and in terms of the overshooting.
The lingering.
Cash impact now maybe some of that's in your <unk>.
<unk> EBITDA guidance, maybe some of that is in your working capital.
Another cash flow item outflow of $40 million to $50 million, but yes.
You gave the Q2 number what do you expect to see in the next few quarters.
Dollar wise or.
That's.
Wind down of over Schmidt.
Yes, so Roger Yes, you are right the total impact of.
The cash costs related to the shutdown is reflected in <unk>.
And that working capital and turnaround strategy cash cost guidance.
This is the point, we're trying to make which is.
We had call it $4 $3 million worth of <unk>.
Roughly $4 million worth of negative earnings coming from Wedbush abating in the second quarter.
We're going to be in a wind down here for the next quarter or so we are hoping to cease operations in by the end of the third quarter and we still have.
Not just the losses coming but then as part of the wind down of monetization of the asset.
There are some water wells there there is inventory.
<unk> and all of that that we need to clear out and signed monetize to reduce.
The net financial impact from this deal, but we're hoping that with ceasing operations here in the third quarter, we can stop the bleeding.
Along the lines of what we saw in the second quarter and then by the fourth quarter were just finishing up any lost orders and then we shut the place down.
Still.
A bit of a moving target Roger I will say.
And we're taking all of that into account when we are bringing down our overall guidance for the year. So you can kind of do the math right.
Year to date, we've lost about $6 million from over Schmidt and Im bringing down my guidance by 10 that should give you a rough idea of how much more is left to go on the P&L side in our view.
Okay, so that and Thats, probably all of the sort of shut down.
Down costs or niche I should say net shutdown cost because you have some assets and inventory to shop.
That's the way to think about yes lots of shutting this down okay. That's great.
Great.
And that's it thank you very much.
Okay. Thanks.
We will now take a follow up from Mike Jennings with Angelo Gordon.
Hey, guys just one last point on the fires first glad to hear there was no injuries.
Was there any damage to the facilities or the b any knock on impact in Q3 or future quarters be that either positive from insurance proceeds or negative from kind of increase impact on sales of repair costs.
No no nothing Michael I mean, what happened I mean, it's that that had happened, but thanks. Scott. We were we have systems in place. So we had a couple of little damage, we had downtime and all that but it's all done and this is the $3 million no spillover no insurance all of that it was below the deductible.
And all of that so that's all taken care of and therefore, you should not see anything there and we have fire suppression systems and so on.
No there was no damage to the facility.
That is all repay.
John .
Excellent. Thank you.
It appears there are no further telephone questions I'd like to turn the conference back over to our presenters for any additional or closing comments.
Well. Thank you for participating on our second quarter earnings Conference call. We will speak with you again next quarter. Thank you.
Once again that does conclude today's conference. We thank you all for your participation you may now disconnect.