Q3 2023 Berry Global Group Inc Earnings Call
Good day and welcome to the third quarter 2023 Berry Global Group earnings Conference call. At this time, all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one one on.
Your telephone you will then we're an automated message advising your hand is raised to withdraw your question. Please press star. One again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, Dustin Stilwell Investor Relations. Please go ahead.
Thank you and good morning, everyone welcome to various third fiscal quarter 2023 earnings call.
Throughout this call we will refer to the third fiscal quarter as of June 2023 quarter.
Begin our call I would like to mention our website. We have provided a slide presentation to help guide our discussion this morning.
For today's call a replay will also be available on our website is very global dot com under our Investor Relations section.
Joining me from the company I Am Barry <unk>, Chief Executive Officer, Tom Salmon, and Chief Financial Officer, Mark miles.
Oh, Tom and Mark's comments today, we'll have a question and answer session.
To allow everyone the opportunity to participate.
The younger yourself to one question at a time and then fall back into the queue for any additional questions as.
As referenced on slide two during this call we will be discussing some non-GAAP financial measures. The most directly comparable GAAP financial measures and a reconciliation of the differences between the GAAP and non-GAAP financial measures are available in our earnings release and in <unk>.
Better presentation on our website.
Please note that our commentary today and within our reputation.
The prior year quarter or for year, we are adjusting cheaper than on a constant currency basis and remove the impact of divested businesses to provide the appropriate comparable results. A reconciliation to reported results have been provided in our earnings release.
Some of our presentation.
And finally, a reminder that certain statements made today maybe forward looking statements.
These statements are made based upon management's expectations and belief concerning future events impacting the company and therefore involve a number of uncertainties and risks, including but not limited to those described in our earnings release annual report on Form 10-K, and other filings within the FTC. Therefore, the actual results of operations or financial condition.
The company could differ materially from those expressed or implied in our forward looking statements and now let's turn the call over to Berry's CEO , Tom Salmon. Thank you Dustin and welcome everyone and thank you for being with US today, turning to our key takeaways for the quarter on slide four.
Today, we're pleased to reiterate our outlook for fiscal 2023, which is in line with our previously announced range our commitment to improving our mix of high value growth products and implementing structural cost reductions as effectively offset weaker demand from customers, including destock initiatives.
Our cost actions include site rationalizations, moving business to more cost efficient facilities and labor cost reductions all enabling improved productivity.
Notably we've made strategic investments in high growth markets, such as food service health and beauty dispensing and pharmaceuticals with a strong focus on sustainability linked customer projects.
Moreover, we have been dedicated to returning capital to our shareholders, having already purchased nearly 7 million shares in fiscal 2023 amounting to five 6% of total outstanding shares.
Looking ahead, we expect to meet our commitment of repurchasing $600 million of shares in fiscal 2023.
Our unwavering commitment to strengthen our balance sheet has allowed us to lower our long term leverage target to two and a half to three five times.
Expect to be at three seven times at the end of this fiscal year.
With plans to be below three five times by the end of fiscal 'twenty, four and well within our new targeted range.
While we recognize the overall market demand may present challenges for the remainder of the calendar year, we remain very optimistic.
Making long lasting structural cost improvements and advancing our strategic initiatives. We are confident next day 23, as a much stronger and more focused company.
Turning now to the financial results on slide five.
Earnings for the June 2023 quarter were modestly below our expectation, mainly due to higher inflation impacting market demand.
During the quarter and throughout the year. The teams have performed exceptionally well on things within our control we achieved another quarter of positive price cost spread from inflation recovery and we successfully implemented strong cost reductions and mix improvements across our businesses.
Okay.
Although our efforts were partially impacted by overall soft end market demand. We are encouraged by the fact that it aligns with what our global customers have experienced and the trends they reported across various regions.
Looking ahead, we anticipate an improvement in volumes in all four segments sequentially compared to prior year quarter, especially with the inflationary pressures easing on consumers.
In addition, we are thrilled to announce our inclusion in the S&P Midcap 400 index on June 20.
This is a significant milestone for berry, reflecting our strong progress as a leading global packaging company committed to providing protective of sustainable solutions to our worldwide customers.
During the quarter, we performed well achieving strong operational performance, including progress on energy reduction in labor stability.
We also took additional cost reduction actions, including rationalizing facilities to optimize our assets, reducing our footprint by a total of 20 facilities resulted in a total annualized savings of $140 million from our cost initiatives of which $75 million is expected to be realized in fiscal 2023.
Additionally, we remain dedicated to providing strong capital returns for our shareholders haven't returned $513 million through share repurchases and dividends in the first three quarters of the year.
Furthermore, and in line with this commitment we expect to repurchase nearly 3 million shares or two 5% of our total shares outstanding during this fourth fiscal quarter, bringing our anticipated total share repurchases for fiscal 'twenty $3 million to $600 million.
We continue to believe our shares remain undervalued and these repurchases reflect our confidence in the outlook for our business and long term strategy.
Before handing over to Mark I want to review slide six and emphasize our continued focus on driving consistent dependable and sustainable organic growth.
We are investing in our businesses, particularly in key end markets like health care personal care beauty, and foodservice, which offer greater potential for differentiation long term growth.
We have grown these select markets over the past 10 years through 20% to now more than 30% of our portfolio, which has been compounded which has a compounded annual growth rate of more than 15% over the same period.
Our emerging market presence is also expanding supporting our commitment to global growth.
Moreover, we are passionate about the innovation and sustainability utilizing our product design leadership to continuously develop products that meet our customer needs and expectations.
Our efforts have resulted in significant growth in sustainable polymer purchases and we're working towards our goal of achieving 30% certainly material by 2030.
These combined efforts along with our ability to deliver continuous cost improvements through our scale advantages and capabilities instill confidence that we will consistently deliver solid earnings growth from our stable portfolio of businesses.
Now I'll turn the call remark will review Berry's financial results Mark.
Thank you Tom.
I would like to refer everyone to slide seven for our quarterly performance in our four operating segments. Our teams continue to execute well and focus on bringing value to our customers and generating cost productivity, while driving long term sustainable revenue and earnings growth.
The segment review will focus on the year over year changes for Q3.
Starting with our consumer packaging International Division revenue was down 4%, primarily from softer demand, partially offset by improved product mix to higher value products.
EBITDA was up an impressive 6% driven by our cost reduction efforts along with the improved product mix by increasing our presence in health care packaging pharmaceutical devices and dispensing systems.
We continue to recover cost inflation through pricing actions and cost reduction initiatives, while driving revenue growth from our sustainability leadership.
Okay.
Next on slide eight revenue in our consumer packaging North American Division was down 15%, primarily from lower selling prices due to the pass through of lower resin costs in the United States, along with softer overall demand mainly in our industrial markets.
We again delivered strong results in our foodservice market, including double digit volume growth for the last four consecutive quarters as we continue to see conversion from other substrates to our clear polypropylene costs.
We continue to add incremental capacity, including the startup of one of our manufacturing locations that has been repurposed with this technology as demand for our innovative products continues to outpace our ability to add supply.
EBITDA was lower by 8% from the softer market demand and the timing impact of increasing polypropylene costs in the United States, which is expected to be recovered in the fourth fiscal quarter.
The team continues to drive improved cost productivity from structural cost reductions and focus on delivering differentiated products in areas, such as foodservice closures and dispensing systems.
And on slide nine revenue in our engineered materials division was down 19% due to the lower selling prices from the pass through of lower resin costs in the United States and volume softness primarily in the European industrial market.
Along with some customer destocking.
Volumes were also impacted by our focused effort to mix up in certain categories like consumer and transportation films.
Consequently, our sales and advantaged higher value products has moved from around 25% of engineered materials portfolio in 2018 to now 45%.
EBITDA in the quarter was modestly lower as the softer overall customer demand offset our continued and focused effort on improving sales mix to higher value product categories and structural cost reduction initiatives.
On slide 10 revenue in our health hygiene and specialties division was down 17%.
Due to lower selling prices from the pass through of lower resin costs, along with a decline in volumes.
Business continued to see ongoing inventory destocking, along with softer demand in many of our specialty markets such as filtration building and construction.
As a positive takeaway disinfectant wipes in the U S and adult in cotton incontinence products in Latin America.
Nice growth in the quarter.
EBITDA was down 23% for the quarter, which was in line with our expectation as our improvement initiatives were offset with weaker demand in some of our higher value specialty markets.
As we look forward for the division, we expect to improve earnings sequentially as demand improves and on a year over year basis. As we have now lapped the tough comparisons from Covid and related inventory adjustments in the market.
Overall for the company through the first three fiscal quarters. Our teams have delivered similar EBITDA by driving substantial cost savings offsetting weaker market demand from inflation and destocking initiatives. Okay.
As Tom mentioned earlier, given the easing of inflation and easier comparisons we expect volumes across all four of our segments to sequentially improve when compared to the prior year quarter.
As we stated from the beginning of the year, we will continue to take proactive structural cost reduction actions.
To help offset softer demand here in fiscal 'twenty three.
These cost savings initiatives are expected to provide annualized cost savings of $140 million and we expect to realize $75 million of these savings in fiscal 'twenty three with.
But the majority of the balance realized in fiscal 'twenty four.
Our fiscal 'twenty three guidance and assumptions are shown on slide 11.
We are now targeting adjusted earnings per share of $7 30 for fiscal 'twenty three.
The updated estimate assumes operating EBITDA of $2.5 billion as we expect cost reductions to offset softer volumes.
Our fiscal Q4 assumes EBITDA of $540 million or $20 million increase.
Over the fiscal third quarter.
The two sequential key bridge items, which give us confidence in our Q4 EBITDA targets include a $10 million charge from a third party warehouse fire in fiscal Q3.
And the timing tailwind of lower polypropylene costs, which will benefit us in the first fiscal fourth quarter.
We expect free cash flow to be $800 million, assuming cash flow from operations of 145 billion.
Less capital expenditures of $650 million.
The increased level of capital spending from our prior guidance is due to the timing of payments and we would expect fiscal 2020 for capital spending to be less than $600 million.
We are proud of the team's execution as we expect to achieve our free cash flow guidance. Our teams have generated incremental working capital savings to offset additional capital investment and restructuring costs from our cost out actions.
For the last four quarters through fiscal Q3, we generated substantial free cash flow of over $1 billion.
Our cash flow year in and year out has been a dependable key strengths and core value for our company.
It provides us the opportunity to invest in our businesses to grow and become more efficient while returning capital to shareholders.
As you can see on slide 12, our capital allocation strategy as return base.
And includes continued investment in growth markets share repurchases debt repayment and a growing quarterly cash dividend.
In line with our strategy to reduce debt, we repaid a total of $200 million in June and July on our outstanding term loans.
In fiscal 'twenty three as we've stated before we expect to return $700 million or more to shareholders via share repurchases and dividends.
Including further reducing our shares outstanding by 8% at current valuation levels.
Given our strong dependable cash flow and earnings last quarter, we moved our long term leverage range down to three and a half or excuse me two and a half to three five times as we continue to focus on delivering long term value for our shareholders.
Based on our current view, we expect that we will be at approximately three seven times at the end of this year.
And within our long term range by the end of fiscal 'twenty four.
We believe we are well positioned for continued value creation through both our resilient business model and strategic portfolio management opportunities.
That concludes my financial review and now I'll turn it back to Tom.
As you just heard from Mark our business model has proven to be exceptionally resilient with a diverse range of consumer staple in industrial packaging solutions. We've achieved strong dependable stable cash flows, allowing us the flexibility to drive robust returns for our valued shareholders as.
As demonstrated on slide 13, we've made remarkable progress in reducing our net debt by nearly $3 billion. Since mid 2019 with further plans to return over an anticipated $1 3 billion to shareholders through share repurchases and dividends in fiscal 2000 22023.
We take great pride in being a top five global toolmaker and a top five recycler in Europe , which gives us unmatched scale advantages and differentiation capabilities compared to our competitors. Our in house design centers, along with our ability to serve local and regional customers and markets reinforce our position as a leader of the industry.
As you can see on slide 14, we remain committed to enhancing long term value for all stakeholders by maintaining a stable and dependable portfolio.
Our history of driving top tier results across various key financial metrics, such as revenue earnings and free cash flow highlights our consistent growth as a publically traded company.
Our adjusted our annual adjusted EPS CAGR of 23% from 2015 to 2020 to hold the leading position amongst our peer set and well above the average CAGR of 10%.
Our strategic investment choices and focus on driving shareholder value are at the core of our priorities.
We've invested significantly in growth targeting faster growing markets and regions and improving the mix of our product portfolio is shown on slide 15.
Also by maintaining lower leverage range and returning cash to shareholders together with our recent inclusion in the S&P 400 mid cap. We believe will continue to close the valuation gap presenting an attractive investment opportunity.
Moreover, we are deeply invested in innovation and sustainability, which provides us with a competitive advantage. We are investing in several markets and product categories that we expect to drive long term organic growth and complement our ongoing and efforts of building an increasingly resilient portfolio of products, including a few of those.
Which we've highlighted here on slide 16.
The increase in demand for sustainable packaging solutions aligns perfectly with our design capabilities and producing and sourcing recycled resin globally.
Our leadership in these areas position us for higher growth opportunities supporting long term value creation for our customers and shareholders.
As you can see on slide 17, our long term targets emphasize the consistency and dependability of our model.
With EBIT growth of four 6% adjusted EPS growth of 7%, 12% and total shareholder returns of 10% to 15%.
We have consistently met or exceeded these targets over the past three years and we expect to continue doing so in the future.
Additionally, our newly initiated dividend is set to grow annually and we aim to achieve our updated long term leverage target by the end of fiscal 2024.
In summary, we are focused on delivering sustainable growth, while providing safety and service to our customers.
With agility strategic evaluation of our portfolio and dedicated cost optimization efforts, we are determined to maximize shareholder value.
As you can see on slide 18, our strong cash generation supports our ability to drive returns for shareholders through first a broader global portfolio.
We have an abundance of investment opportunities in high value end markets, such as healthcare foodservice and beauty along with leadership position sustainably led product offerings and third we have demonstrated historically, we are an ongoing opportunity to consolidate our fragmented set of high value end markets to drive significant revenue and cost synergies and fourth.
All while returning capital to shareholders and operating in a leverage range between 2535 times.
And finally, we are extremely optimistic about our outlook for fiscal Q4, as we anticipate a positive impact from the easing of inflation and more favorable comparisons.
We anticipate that volumes across all four segments will show sequential growth over the prior year quarter.
Additionally, our aggressive repurchases of nearly 3 million shares further demonstrate our unwavering confidence in the strength and potential of our businesses. We are looking forward to an improved quarter ahead.
Before I close with how grateful we are for the hard work of our employees and we remain dedicated to building on our progress delivering greater value for all of our stakeholders.
For your continued interest in Berry and with that Mark and I are happy to address any questions you may have operator.
At this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced to withdraw your question. Please press star one again.
One moment, our first question.
Our first question comes from Josh Spector with UBS. Your line is open.
Yeah, Hi, Thanks for taking my question.
I just wanted to ask on the volume cadence here. So clearly I mean, you're talking about some easing sequentially on a year over year basis part of that on comps which is <unk>.
The last couple of quarters, I think two year stack, you've been down about 89% is that the right way at the right way of how things are trending into the next quarter and then any comments on what youre seeing on destocking within that mix versus underlying demand to help us think about trends into next year. Thanks.
Yes, we gave a couple of reasons why we're optimistic relative.
Q4, and the sequential improvement.
Clearly as we've said I believe on the last call. We believe that Destocking in that phenomenon will probably continue to exist through our fiscal fourth quarter and perhaps into our fiscal Q1, but nonetheless, that's going to become a more normalized environment and frankly they are encourage that.
From our brands that we serve you are hearing a lot more conversation around increased promotional spending.
With an effort to ultimately draw more people into the stores, which should create more demand for those targeted products as well as the impulse purchases that will benefit from them. So those are a couple of the aspects.
<unk> of our confidence in that sequential improvement and frankly, the consumers are facing now a more stable inflationary environment. There was a pretty significant run up for a while it's a little more stable at this point.
That coupled with the brands, having a stronger objective now is to drive organic volume growth, we should benefit from that.
Yes, Josh on your volume or first part of your question in Q3 to Q4.
We're normally pretty similar so our Q4 volumes are relatively similar to Q3 with the exception of Europe .
Yes.
And have a touch weaker volume in.
Q4, typically but.
Overall for the company pretty similar Q3 and Q4.
In most years.
One moment for our next question.
Okay.
Our next question comes from George Staphos with Bank of America. Your line is open.
Hi, good morning, everybody. Thanks for the details I joined the call a bit late just given the complex here.
One question I hope it hasnt already come up apologies if it has.
When.
We look at.
HHS.
And the performance certainly you've been going through a destock and kind of the other side of the hill after COVID-19.
But we are now on our math.
Seeing profits trending somewhat below where you had been prior to Covid and so Tom.
Tom and Mark if you can talk about.
How business has been relative to your expectations say from a couple of years ago in terms of how things would transpire.
If you agree with the premise.
What's been driving that performance and HHS.
On the other side of ledger.
I think I heard you say that volumes are stabilizing and you're hoping to see some improvement in the fourth quarter.
If you could confirm that and which of your new products. In particular are you most positive about relative to what will hopefully drive volume growth for <unk> for fiscal 'twenty four. Thank you very much and good luck in the quarter.
Thank you George relative.
Relative to HHS clearly the specialties business is probably one of the most unique aspect of the profitability inside HHS.
Specifically with specialty items like house reps pool chemicals filtration and the likes.
Higher margin product that had been negatively impacted from a demand perspective.
The team is doing a very good job as we continue to pivot more of the portfolio into higher growth categories like adult and continent like premium Fem care.
As well as the the wife's offering that not only we're a leader in in North America, but also develop and a burgeoning possess.
Physician in Europe as well.
Yeah, so relative to expectations, George Q3 was right on top of what we've expected for that business.
And as Tom mentioned on a year over year basis.
<unk> again as expected, but due to that specialties.
Business being softer that Tom referenced.
Mark if I can Tom if I could just sort of.
Ticket that for a second is the level of competitive activity worse than you would have anticipated a year or two ago and HHS and maybe it's just natural because you had that downturn cyclically.
In house wrap and the like or or know how would you have us sort of think about it from your perspective and then my other question I can answer it. Thank you.
I would I would simply sum it up that we continue to be a leader in this space.
And we continue to serve the customers that are most valued in this category.
And as we continue to do that is going to continue to create more opportunities for incremental growth opportunities for us no doubt about it <unk> seen the prince from many major brands around the world.
Take some comfort that our our demand outlook is very consistent with what they're experiencing.
And as they improve we're clearly going to improve alongside them.
We have very strong products in that portfolio that have.
Brands and the quality and service we provide are very good.
So we're comfortable that we're maintaining our share position just that market is just weaker and I will say.
There's a little bit of a lag, but if you look at some of the market data around permitting in the U S and some of those things the outlook appears more favorable.
Which gives us some optimism in our outlook, but again there will be.
A slight timing lag as to how that impacts our P&C business.
Do expect to see increased promotions you here in March.
And by many of the world's leading brands.
Combat some of the organic growth dynamics.
Inc.
And as those off May get launched and rolled out it's going to increase store traffic, which will again benefit us for sure.
Okay.
Thank you so much.
One moment for our next question.
Okay.
Our next question comes from Ghansham Panjabi with Baird. Your line is open.
Hey, guys good morning.
I guess first off how are you thinking about the outlook for volumes between the U S and Europe .
Transfer declines very similar and it's one region further along with Destocking and the other just based on what Youre seeing at this point and then separately it looks like youre going to be spending about 5% of sales as it relates to capex.
Given the persistent volume declines in the <unk> 21 year over year.
Is that the right level is that the right threshold for spending as we think about fiscal year 'twenty four as well thanks.
The volume dynamic between CPI as well as CPN is very similar between the two product categories I will say Europe has been.
And more of a deeper or recessionary cycle more so in the United States and for a longer period of time, you'll notice that the majority of the.
Efforts that we've made relative to plant closures has taken place inside of our CPI portfolio.
To make sure that we've got the right footprint ultimately to us to manage the business going forward, but.
So we'd see the dynamic between the two and I think it's really these are typically very stable.
Product category, specifically food and beverage.
<unk> service.
Continues to lift both of those particular businesses, but yes, we're very conscious and focused at the cost reduction efforts in CPI around.
Our our plant closures was tied to the economic environment that they were facing.
Yes on the Capex question.
Looking at it on a percentage basis is a little tricky just because as you know resin can move around our sales dollars and not the capital dollars.
But I think in terms of absolute dollar spending we continue to believe that $600 million of capital or so a year.
We will drive the results that.
We commit to which is low single digit volume growth and mid single digit EBITDA.
EBITDA growth again next year might be a touch lighter than that is just timing of some of the spending.
It's coming through in 'twenty, three versus 24 by Donna.
On an outlook basis, I think $600 million or so of capital is the right number for us.
Perfect. Thank you.
Thanks, Ghansham George I wanted to there was a third part of your question that we didn't get to but relative.
Relative to the categories that give us the greatest cause for optimism clearly foods.
Foodservice continues to be a very strong category for us.
With the opening of our new facility in Bangalore.
It's going through the regulatory.
Approvals for startup we're excited about the prospects for emerging market growth for that unit. The continued investments that we've been making and trigger sprayers airless pumps and frankly in general in our sustainability.
Led product categories as well as our London phosphate I'll give us great cause for optimism as we look forward to 'twenty four.
Next question one moment for our next question.
Okay.
Okay.
Our next question comes from Erin Vishwanathan with RBC capital markets. Your line is open.
Great. Thanks for taking my question.
Just wanted to ask I guess about two things so first stop.
Thinking about a bridge maybe for EBITDA as we look into fiscal 'twenty four.
It looks like the volume impact.
Negative $44 million in this last quarter.
Maybe.
It fair to assume that you could return maybe to low single digit growth in fiscal 'twenty for especially given easy comps and so maybe that would be a benefit of maybe $20 million a quarter.
And then you'd have some of your cost reductions as well.
Also giving another $80 million. So I don't know if thats the right math, but are we somewhere in that ballpark maybe for thinking about.
Mid mid to high single digit EBITDA growth for next fiscal year based on low single digit volume growth.
Okay.
Yes, I think that.
The way you described I didn't quite follow all your numbers Arun, but yes, we're expecting that.
The cost save projects the benefit fiscal 'twenty four by $55 million.
And I think volume, obviously, we're short cycle business, but I think all the things that Tom referenced.
Earlier that give us some optimism remain true.
And we've given targets in terms of our topline and EBITDA growth, which is low single digit volume growth and mid single digit EBITDA growth and I would expect.
24 to be in line with that.
One of the.
Parallel point to the the growth outlook that Mark mentioned is we're going to be in a position in 'twenty four as we see growth in the general market environment improve.
Also we're going to benefit from <unk>.
<unk> actually executed against 20 facilities that have been shut down.
And not having a need ultimately to add incremental capex to serve that business. So thats very exciting for us going forward that the optimized footprint lower cost structure off but it's been a benefit on the bottom line as well.
Great. Thanks for that and just as a quick follow up on that note then so the $800 million of free cash flow.
Would it grow just in line with EBITDA next year are there any other discrete items that could maybe push it.
Above EBITDA growth, maybe in the 900 or $1 billion range.
Yes, obviously, we will have.
We will have some spending relative to the cost save program.
In 'twenty four as we mentioned in our prepared comments, we've done a really nice job here in 23 of delivering savings to offset those costs.
So we will see as we approach the year, but I can't think of any large items that would swing 'twenty three and 'twenty four.
Thanks.
Yeah.
Our next question.
Yes.
Our next question comes from Phil <unk> with Jefferies. Your line is open.
Hey, guys.
Fourth quarter guidance, Mark I think implies about 12% uptick in EPS sequentially.
Called out.
$10 million tailwind reversing I guess effectively from nowhere warehouse cost headwind any color on how to think about the polypropylene tailwind sequentially.
And then you've talked about.
Demand being up sequentially.
How has demand trended intra quarter into July have you seen any like pick up and pick up what kind of sequential uptick are you assuming for volumes.
Yes.
Sure Yeah with respect to your first question.
At the beginning of calendar 'twenty through 'twenty, three U S polypropylene costs increased pretty rapidly.
Subsequent to that in the second calendar quarter all of it kind of fell back out. So it went up and down and just the timing of the pass through of that resulted in a headwind in Q3.
It will benefit Q4 is our customer prices will reflect that.
The calendar Q1 pricing, but our costs will start to benefit from the <unk>.
Lowering that occurred in calendar Q2, and it's roughly $10 million is our estimate of the Q3 versus Q4 impact.
From that dynamic with respect to volume, we're not expecting a significant change.
Just underlying demand.
So the volumes that we experienced in Q3 will be similar to what we experienced in Q4, but the <unk>.
Year over year change gets a little more favorable.
As a result of a lower comparison in Q4 22.
Okay. That's helpful. So you're not assuming a big snapback could just easier comps, but have you seen any osha inter quarter trends.
Yes.
We don't give inter quarter guidance, but suffice to say, we continue to be confident in the outlook on a sequential improvement in quarter four versus quarter, three and again.
The strong commitment from the brands relative to how theyre looking at organic growth versus simply price is encouraging for our near term and longer term outlook that it should cause more foot traffic to be in stores, where the brands.
Are doing.
Doing all possible to grow and show organic growth in those numbers versus just price so will benefit alongside that as that occurs.
I would add to that you can you can see it in our pricing right hour for now were I.
I think three or four consecutive quarters. Our prices are a couple of hundred million dollars lower for the same skus. So are our customers are paying less for the same product.
On a year over year basis.
I think to Toms point.
History would tell you some of that money will get deployed into promotional activity and other things to drive demand.
Okay I appreciate the color guys.
One moment our next question.
Okay.
Our next.
<unk> comes from Gabe <unk>.
With Wells Fargo. Your line is open.
Mark good morning.
Okay.
Alright, I appreciate its tough on Mike like this but I'm just trying to maybe get a little better sense for what youre, telling us in terms of.
Getting well within the two five to three five turns of leverage.
Thinking about.
Divesting some non core assets.
And then on the other side you kind of talked about potentially trying to consolidate what is a pretty fragmented market and some of your key focus area. So.
Is it and is it.
And the data.
Thanks for that.
Where youre deploying maybe growth capital and returning capital would be the same places that you'd be looking to acquire assets.
And then just from a timing standpoint, it still sounds like by the end of the calendar year.
What youre expecting for maybe some of the deletes that youre looking at.
Yes, we were.
Good morning by the way, we clearly look at our portfolio.
As a tool to maximize shareholder value and deliver more consistent predictable and profitable growth that has not changed and we said on the last call. We were very comfortable with the small bolt on acquisition that we execute against that the proceeds from those types of actions were more than offset the cost of that acquisition.
We remain firmly committed to that in fact is the case and the size of our portfolio is such that that provides a unique opportunity a unique opportunity for us to continue to optimize our portfolio an opportunity to take proceeds from such actions that close to apply those towards the right.
Components of the business based on the need that we see whether that will leverage reduction, whether that's organic growth or whether thats.
Our bolt on acquisition, all while staying within that targeted range. So we.
We continue to believe we're in a really unique spot we give the size of our portfolio.
I continue to be encouraged with the pace of progress in terms of <unk>.
Some of those things that we're considering exploring.
And no different than the most recent acquisition is benefiting our consumer packaging North American business.
So that will be fully offset by buy one of those transactions.
At the latest by the end of the calendar year. So.
We're very bullish nest the tool again, it's a tool that allow us to maximize shareholder value.
That we think is.
Has has still has some legs to it so we're looking forward to it that helps.
It does thank you Tom.
I guess.
Again, I know, it's difficult but difficult.
Maybe we were expecting an announcement in terms of maybe Ernst.
Any update there.
Our board is fully engaged relative to the <unk>.
Identification of a successful candidate to take the seat.
I am very confident that between now and our fiscal Q4 call.
That successor will be named and introduced to the broader market.
Understood. Thank you very much.
One moment for our next question.
Okay.
Our next question comes from Adam Samuelson with Goldman Sachs. Your line is open.
Yes, Thank you and good morning, everyone.
Hi.
Tom you talked about some of the kind of reasons for optimism in your more consumer centric.
Businesses can.
Can you maybe just comment on what Youre seeing in your more industrial non consumer oriented businesses in terms of activity levels as the destocking trends similar.
Presenting added color and that kind of part of the portfolio.
Sure I'll start with <unk> and again, we made.
Basically lap the impact of Destocking because at some point you get to a normalized level up.
The inventory that companies are going to keep.
And Fortunately berries, well equipped to be as agile as needed with our customers.
To provide just in time inventory and the like Baidu expect that to normalize by the end of our fiscal Q4 at the latest by the end of our fiscal Q1 to a more normalized inventory level. The other piece is relative to the industrial businesses.
I'll speak to housing specifically I think we're at very close to an inflection point in housing at being quota at the bottom youre not seeing a tremendous amount of.
Of of people willing to walk away from very low interest rate mortgages as such trading demand for more residential housing bills and will clearly be a benefit and a factor from that in areas like our house wrap business and in parts of our tapes business as well I think youll see that begin to materialize over the next couple of <unk>.
<unk>.
Between building permits being issued ground being broken in.
Structured to be interacted, but I think we're very close I think I think that is really a very positive sign for some of our businesses that have been negatively impacted by that.
Okay. No. That's that's very helpful. And then just coming back to this discussion on 24 and return to growth is there some of the discrete plant investments that you've made.
Think of the Baylor health care facility.
The circular facility in the UK come to mind that are more discrete growth projects that would be kind of additive to your kind of underlying kind of market activity that would seem like you've got ample capacity to serve for the near term.
Yes, I think I think those are at the early stages and I think only have room to go we've made concentrated.
Levels of organic growth investment around dispensing solutions.
The facility in South, Florida will open to serve foodservice.
In our fiscal Q1, and as Mark had said in some of his comments. The demand is just exceptional there where not only are we growing the business low single low double digits.
But we're also taking share from other substrates and the demand continues to be wildly robust the pharmaceutical excitement that we have around Bangalore and serving these emerging markets can benefit us not only from organic perspective, but we also believe that some point inorganically as well again, all while staying within those targeted leverage ranges and certainly healthcare.
The introduction of our Levington spot side in Europe , and our circular polymer solutions that we'll be introducing.
Great cause for optimism I would clearly anticipated we look forward into 2024 that youll see additional announcements of other facility that can provide these circuit materials.
Done in conjunction with leading brands around the world today.
To demonstrate how both between using innovative design, coupled with sustainable materials. It can be a strong organic growth vehicle for the company. We're an interesting business and we've talked a lot about what we've done from a cost reduction perspective, but this company.
And his team members all we have a unique ability not only to innovate, but optimize that apparel Ll pack at the same time and I think <unk> seen that from the actions that we've taken throughout the course of the year, we're not talking about things are going to benefit us and 25 and 26, we're taking action in areas that are going to benefit us here now in the current fiscal year and next year as well.
And we will continue to verbalize, our costs as well as make the appropriate organic investments to drive that more consistent predictable profitable growth and again, where we can use our portfolio as a tool to do that and help maximize that value for our shareholders.
Hey, I appreciate the color I'll pass it on thanks.
Thank you that concludes the question and answer session. At this time I would like to turn it back to management for closing remarks.
Well first I think the.
Thank you everybody for the time and interest in the company, but I want to share something I think is a nuance for our company right now and when you think about the performance.
In the given quarter.
I think it really demonstrates the resiliency of our portfolio and in the face of what some would argue are somewhat unprecedented market conditions and dynamics and I view it as a super very solid positive for our full year results both from an earnings and a cash perspective, given those those dynamic.
When you couple that though with us being on target to be inside of our leverage range comfortably in 'twenty four.
Delivering on what was a substantial share repurchase program optimizing our footprint four to be better suited to support organic growth in 'twenty four and beyond.
And as we just talked about having an active program, where we're evaluating our portfolio as a tool to maximize shareholder value.
It's an incredibly exciting time for Barry and I couldnt be prouder of this team.
<unk>, putting out the results that they have year to date and what we expect to deliver for the full year and well into 'twenty four and beyond team is doing a fantastic job. We're grateful for your interest in this company. Thanks everybody.
Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
Yes.
[music].
Okay.
Yes.