Q3 2023 Glatfelter Corp Earnings Call
Good day and welcome to the Black filters Q3, 2023 earnings release Conference call. Today's conference is being recorded at this time I'd like to turn the conference over to Rhemish should occur. Please go ahead Sir.
Thank you Lisa good morning, and welcome to Glatfelter as 2023 third quarter earnings Conference call. This is Ravi Shankar Senior Vice President Chief Financial Officer and Treasurer.
On the call to present, our third quarter results as Thomas Vitamin President and Chief Executive Officer of blackout her 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.
22 Form 10-K filed with the SEC and todays release are available on our website and disclose factors that could cause our actual results to differ material 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 Thank you Ramesh Hello, everyone and welcome to collapse their desk third quarter conference call for 2023.
I'm pleased to begin today's call by sharing our third quarter results improved over the second quarter.
Our team took very concerted actions to address the one time operational issues that occurred during the previous quarter, which contributed to our improved results in the third quarter. Overall, we posted adjusted EBITDA of $25 5 million for this quarter, reflecting our strong sequential recovery at all.
Our turnaround strategy continues to deliver benefits and improved earnings through operational efficiencies and organizational wide sizing.
Equally important our enterprise EBITDA margin profile is trending in a positive direction with the third quarter margin achieving the highest level in the past eight quarters.
Our third quarter performance also benefited from the accelerated sale of Wabash, Merton, which allowed us to mitigate the sites previously anticipated future losses and drag on our overall performance.
And most notably our segments performed well overall with composite fibers posting sequential EBITDA gains.
<unk> materials, achieving sequential volume growth.
And spun laced delivering operational improvements and disciplined cost control.
These outcomes. We are direct result of important key Turner won't initiatives, such as completing the broad reorganization of our sewage France facility.
<unk>, our Asheville, North Carolina operation.
And expanding the commercial resources dedicated to increasing the profitability of all of a sudden tower business.
While I continue to be quite pleased with the team's ability to deliver these important achievements, we cannot minimized the ongoing negative impact from the difficult market conditions that have been lagging our industry and glad to have this business throughout all of 2023.
The uncertain geopolitical situation created by the Russia, Ukraine and Middle East conflicts.
Continue the Ric havoc on the global economy, including overall consumer confidence energy stability raw material pricing and labor inflation.
For these reasons, we are lowering our annual EBITDA guidance by $10 million.
This change reflects the downward pressure from the prevailing headwinds we continued to experience and anticipate for the foreseeable future.
When we last issued guidance, we previously believed that market conditions and customer Destocking would improve beginning with the third quarter based on market insights available at that time.
However, these improvements have been slower to materialize than originally anticipated.
Despite this environment, we remain confident in the fundamentals of our business and our ability to deliver ongoing improvements that will position our business to capture the benefits from an improved market in due time.
I will now turn the call over to Ramesh.
Thank you Thomas.
Slide three of the Investor presentation provides a summary of our third quarter results.
Adjusted EBITDA was $25 5 million or approximately 8 million higher compared to the prior quarter.
This sequential improvement was despite continued market weakness.
Main drivers included benefits from turnaround actions absence of one time adverse items in the second quarter and the sale of the <unk> operations in mid August.
Alec materials EBITDA was lower by approximately $5 million versus a record high quarter. During the same period last year.
This was mainly driven by adverse price cost gap lower shipments and lower production to manage inventory levels.
Positive fibers EBITDA was higher by approximately $1 million driven by favorable price cost gap as raw materials energy and freight costs declined at a faster pace than selling price and energy surcharge reductions.
Unless EBITDA was higher by approximately $4 million compared to the same quarter last year, driven by actions from the turnaround strategy and favorable price cost gap.
Slide five shows a summary of third quarter results for the elite materials segment.
Revenues were down 8% on a constant currency basis versus the same period last year, mainly driven by lower shipments and lower selling prices of approximately $5 million.
Selling prices were lower mainly due to costs pass through arrangements, reflecting declines in raw material costs and energy surcharges in Europe, and selective price concessions to non floating customers to preserve volume.
On a net basis the price cost gap was unfavorable to earnings by $2 $2 million.
Volume was lower by 4% year over year, primarily due to weaker shipments in the feminine hygiene in tabletop categories. This was largely driven by residual inventory destocking market weakness in Europe and ongoing competition from alternate substrates due to the high cost of fluff pulp.
Operations were unfavorable by $1 $8 million versus the prior year, primarily due to lower production to manage inventory levels and higher maintenance spending.
Foreign exchange and related currency hedging positively impacted earnings by $700000 due to a strengthening of the euro.
Slide six shows a summary of third quarter results for the composite fiber segment.
Total revenues were down 20% on a constant currency basis due to the lower shipments and lower selling prices of $2 $1 million from floating prices implemented with larger food and beverage customers.
The year over year volume decline of 11% was driven by the combination of us initiating the wind down and subsequent divestiture of the <unk> assets and from the softness in food and beverage composite laminates and Metlife product categories.
Ongoing market weakness and inventory Destocking also impacted some of our larger customers.
The lower shipments combined with unfavorable mix from declines in higher margin products negatively impacted income by $2 $6 million. In addition, the <unk> results were negative $1 $7 million year over year due to significantly lower volume and productivity.
On a positive note lower prices for key raw materials energy and freight improved earnings by $6 $8 million versus the same quarter last year reversing the negative price cost gap trend.
Operations and other was favorable by $500000 driven by benefits from cost out actions that were partially offset by lower production to manage inventory.
Foreign exchange was unfavorable by $300000 driven by hedging gains from last year.
Slide seven shows a summary of third quarter results for the spun laced segment.
Revenues were down 19% on a constant currency basis, driven by lower shipments of 18% and lower selling prices of approximately $1 million coming from raw material cost pass through provisions primarily on the hygiene and wipe side.
The volume decline was seen across all categories and negatively impacted results by $1 $6 million.
The three primary drivers leading up to this where general market weakness in Europe, where customers trading down to cheaper imports from Turkey and China.
Production constraints at Sun Sentara is outsource converter, despite stable north American demand and unprofitable customer accounts and salts, France that we chose to exit.
The counteract these headwinds we rightsize our operations at this site earlier this year, reducing our workforce by 25% to improve site profitability.
And the customer rationalization from this site's portfolio further bolstered margins.
Raw material energy and other inflation.
Were favorable by $4 $7 million, eliminating the price cost gap <unk>.
Experienced for all of 2022 and into 2023.
Operations FX and other items were $1 $4 million favorable to intense focus on manufacturing efficiencies headcount reductions and exiting unprofitable customer relationships.
Slide eight shows corporate costs and other financial items.
Corporate costs were slightly higher versus the same period last year in the current quarter, we had a $1 2 million write down of raw materials sold into the secondary market.
Related to faulty material provided by a key supplier in 2022, we have filed a claim with the supplier and we are actively working with them on their insurance carrier to recover our costs.
This negative financial impact was partially offset by benefits from the headcount reduction actions and lower professional services costs compared to the same quarter last year.
Slide nine shows our cash flow summary.
In the third quarter of 2023, our adjusted free cash flow was in line with the same period last year cash.
Cash interest was elevated by approximately $8 million related to higher interest rates.
Working capital cash usage was lower by approximately $23 million driven by raw material price declines and working capital management.
Other cash flow items were unfavorable by approximately $15 million versus the same period in 2022, driven by higher prepayments and cash cost for implementing our turnaround actions.
Slide 10 shows some balance sheet and liquidity metrics, our leverage ratio as calculated under the bank credit agreement was three one times as of September 30th.
Slide Slide 11 is a summary of our EBITDA and cash flow guidance for 2023.
While our Q3 EBITDA was certainly a strong recovery from Q2, the ongoing market weakness present challenges to realizing the full potential of our turnaround initiatives. We expect this to continue into Q4, coupled with volatility and input costs, such as energy driven by the geopolitical conflicts in Russia, Ukraine, and the middle East.
As a result, we're lowering our full year EBITDA guidance by $10 million rigor.
Regarding cash flow items, we expect the following cash.
Cash interest of approximately $50 million.
Capital expenditures to be between 30 and $35 million.
We expect approximately $60 million of cash usage from working capital and turnaround related cash cost combined this is approximately $15 million higher than our prior guidance and is driven by unfavorable payment terms with European utilities.
And cash taxes are expected to be about $15 million or $2 5 million lower than our prior guidance. This.
This concludes my prepared remarks, I will now turn the call back to Thomas.
Thank you Ramesh.
As I referenced during our previous second quarter calls there are several areas that are extremely important for us to deliver on for the remainder of 2023 and well into 2024.
Our customers' expectations up has remained very high for navigating the challenging economic headwinds.
The management team and I continue to carefully evaluate the ongoing cost to serve our customers and make the appropriate adjustments, while delivering on our high product standards and overall sustainability goals.
<unk> outperformance was recognized when plateaued as Ashwin facility was awarded the prestigious supplier of the year designations by Rockland industries to further distinguish us as a business partner, who shares rock lines core values.
In addition, we have been nominated as a finalist for the 2023 Hygienic Innovation award for our clad pure product range, which includes a full complement of Biobased absorbent hygiene components derived from renewable materials and.
Last but certainly not least we will further advance all efforts related to the turnaround strategy. As this program has served us very well throughout 2023.
While not a new theme, we will continue our efforts to optimize our product portfolio along with balancing price versus volume also we will capture ongoing operational efficiencies by investing in our most productive assets.
And we will refine our organizational structure to optimize resources.
Being a sense of urgency and accountability.
We are committed to instilling a culture of continuous transformation as an ongoing way of doing business.
Which I'm confident will serve us well for many years to come.
When combined the power of all these actions aimed at positioning the company to capture the markets as they begin to improve at some point in the future.
I will now open the call for questions.
Thank you Thomas if you'd like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment again. It is star one to ask a question.
And we'll move to our first caller, our first call comes from Josh <unk> with Carlson capital.
Please go ahead, Sir your line is open.
Thomas <unk> good morning, Thanks for taking my questions.
Good morning, Josh Good morning.
As usual I'll start with the top line and then move down to EBITDA and margin and then I have a few questions on cash flow in the guide.
Starting with volumes, obviously destocking has taken a toll on your customers and some of your competitors, but some of these players were able to report sequential volume improvement. However, your volumes, particularly in composite fibers and spun ways weaken sequentially. So maybe you could give a little bit more color on what drove the decline.
And particularly in composite fibers, how much of that was driven by the shut of over Schmidt in and then how much was walking away from unprofitable business or destocking getting worse or losing share to some of these other substrates.
Okay.
Yeah, Let me just maybe go through the different segments.
Because every segment is behaving a little bit different Josh.
So, let's maybe talk about Destocking, which we.
We're hoping that we are done with that but it's still ongoing and what we are experiencing in the what we experienced in the third quarter. So that's also the different segments definitely feminine hygiene segment is still on the path of Destocking. So we say, we see some weakness in the market overall plus destocking.
That's one area, where we are we definitely see this which we didn't expect.
Other one is.
Table top food services normally Q3 is a relatively strong quarter. I mean, you have all these outside activities for the.
Our restaurant business in all of this and this has been relatively weak and there is also still destocking happening and it happened in the third quarter moving on we are also seeing it in certain sub segments of our wipes business, where we still have some.
Demand is actually relatively stable to what we can see but theres still a lot of inventories at our customers and their destocking here and then let me talk about the food and beverage business is a little bit I think we have kind of tool.
And two things going on there if I may start with coffee, they're still destocking going on and what we're also seeing is that although overall coffee consumption is stable, even maybe growing a little bit we are seeing and this is mainly true for Europe.
The move from single serve where we are participating to normal to a dark coffee and that's surprised issue. So there we see some weakness in overall tea.
Although overall and underlying demand is still I would say a relatively stable customers are still sitting on a lot of inventory.
Coming from 'twenty to 'twenty, one and 2022.
So that's kind of the if I look at.
Maybe if I look go more in the area of spun Liz I would say in that area.
Critical cleaning segment is probably the one which is most impacted still impacted by destocking.
Okay. That's that's helpful and then maybe to compare a little bit the regions or I guess Europe versus North America, one of your competitors in wipes talked about.
And more consumer weakness and in more competitive intensity in Europe versus North America, and it seems like you called out some of the same things.
This morning, and in the press release and Airways. So how would you compare Europe versus North America and is it a secular trend or just a kind of a moment in time.
No I think Theres a couple of issues here, Josh number one but we are seeing is that the overall economy is weaker in Europe compared to the U S. And we also see that consumers are relatively hesitant and so we see.
Definitely the U S markets are much healthier than the European market on top of this very I would say week.
Macroeconomic environment in Europe, what we're also seeing that we have.
Relatively inexpensive.
Imports coming in from Turkey from Asia, China.
Which also negatively impacting it and we are seeing also in Europe. Some in some areas.
Some some trends of trying to substitute certain products with cheap us up substrates.
So all of that is coming up but I would totally agree Europe is much more challenging than the U S.
Okay, and then last one on just the volumes as you plan for 2024.
What visibility do you have into a volume recovery I know.
It seems like you're taking a conservative stance.
Given you expected some improvement in Q3 and it didn't materialize and what are the tangible data points I mean I can.
Read what some of your customers say about kind of their growth algorithm shifting from price to more volume growth, but what else should we be looking at or thinking about as we try to.
I guess the plan for 2024.
Now again it.
To be quite honest theres not a lot of visibility right now like you rightfully pointed out we thought that we have kind of reached the bottom at the end of Q2, when that Q3 would help us from a volume standpoint didn't do that.
So, it's it's really difficult, but what I for US right now and if I look at our next 12 months ahead and this is not all market. But this is also the things we're doing internally in our turnaround strategy and our continuous transformation process. So I would say that's five volume is concerned.
We have reached the bottom as Pops Clotfelter is concerned. So we are building up I think the big question is if the markets are coming back earlier.
We are well positioned to capture them the value which is in there.
Got it.
It will come faster, but overall, we are planning volume growth for next year.
But it's not coming from the market adjust based on what we have right now I mean, if I look at our process right now our budget. We are kind of looking at the market right. Now we are not betting on any market improvements, but with actions. We are taking which we can influence we see volume growth for next year.
That's helpful.
And then moving to just profitability.
I would agree you guys have made progress on overall margins.
I guess the issue is with the depressed topline the absolute dollars are.
Flattish on a year over year basis. So.
My question is based.
Based on what you just said if your volume improvement is coming from just your own growth or not.
Market assumption, how much more progress can you make on just.
EBITDA margin in this type of environment and how much is will be predicated are premised on a turnaround in volumes to really kind of reach you.
That historical level of profitability that we've talked about getting back to you mhm yep.
Again without going into too much detail, but if you look at two of our main businesses. If I look at L. A it yeah, a little soft first half EBITDA margin is concerned in the third quarter.
But also a composite fibers I mean, we are already in the double digits and you might remember when we said at the beginning of and they introduced the <unk> strategy that we set the business needs to be between 10, and 15% depending on where we are in the marketplace.
So if I look at if I look at and it was there before but composite fibers as they are now in Q3 in a very difficult market environment, we'd be kind of positioned it and I think so that's very promising now coming to spud days, we still have a way to go but if you look the year over year improvements and again with Barclays to have to look at two different.
Segments, we have the hygiene and wipes and behalf, which probably will get five 6% EBITDA margin that is on top of our overall, we are making a lot of progress there as well.
If you look really into the segments.
But they are still the biggest gap to where we want to be is still and spun laced, but if I look at the last two or three quarters. We have made lot of progress. Okay. And then I have one question just on composite fibers profitability. It seems like you've got some nice improvement from the decline in softwood and fluff pulp prices.
Which I know we're on a lag those prices also came down in Q3, so should we expect to see a little bit more price cost.
In Q4 based on those declines and then have you guys been impacted at all by some of the capacity closures.
In North America on fluff and softwood pulp side.
Oh.
Although.
I would we are still expecting a little bit of that in Q4, but I mean as.
As a rule of thumb.
We are buying the raw materials anomaly lets just say three months later, we are consuming them in some cases, it's early yet but kind of everything.
You have seen in Q3 was actually bought in Q2 and now for Q4 Skus here. So there should be some some lag effect light effect.
Overall outlook for power is kind of difficult like a lot of other things I would say overall the market is still weak. What we are seeing is some in some areas that people have kind of bottomed out now as far as pricing is concerned now plus.
We're just very very important raw material for us Unfortunately took much longer to get down there.
And it didn't come as $5 as we were hoping to be quite honest.
But it came down and when we should see some some positive effects in Q4 and all your other.
Question.
It's impacting US right now we don't have any supply issues. So this is all in line, but overall if you think about 500 600000 tons less capacity in the market that's might have an impact.
Yes, Josh and trying to hang on to this price cost gap for as long as we can on the non floating side is also going to be a key focus area for us in Q4 and that will also help.
Improve the margin profile.
Basically we want to make sure. There is firm evidence of some of these key input costs coming down in a sustained way before we start to give that up in price.
Okay.
And then I have one question about cash flow and one question about the guide I guess first on the guide you have one quarter left and if I, just remove or take 10 million out of the midpoint of your EBITDA guidance last year. It implies a pretty wide range for Q4, So I guess.
Hi.
I'm wondering what are the key factors that will drive whether we land at the higher end or the lower end of that range.
Yes, I would I would say Josh look.
We previously guided.
Between 100 and 110, so even if you take the midpoint there of 105 were essentially calling for roughly a $95 million EBITDA year, alright, and to get to 95 that implies a $27 million EBITDA for Q4.
So yes. The market continues to remain soft there is going to be some sequential growth Q3 to Q4. We also end up having some one time rebates that typically come in the fourth quarter. So.
It's not as wide a range that we are anticipating for the fourth quarter given that we are pretty much in early November now.
Looking at the data coming from how we have done here in October we're feeling we're feeling optimistic of hitting that revised guidance. If you will for the fourth quarter because of the visibility that we have from October and our ability to influence the continued initiatives around the turnaround and <unk>.
Being able to keep a close watch on the market as well so we feel pretty good about where we are for the fourth quarter, not where we would have liked clearly, but I think the market had a lot to do with it. We're glad <unk> is behind US we are glad that some of these one time items that came in Q2.
Truly one time items and I think the second quarter. The third quarter's results have demonstrated that and so it's a matter of doing whatever we can within our span of control, making sure. We keep a tight lid on costs and be ready with a very very strong operating leverage for when that volume does come back to be able to really realize.
Full potential here.
All right makes sense and my last question is just.
And I, obviously I'm not asking for.
Cash flow guide for next year, but as I think about.
Just some of the items that you guys have dealt with this year in terms of like.
Payable terms changing.
I guess, yes payment to utilities, changing the onetime turnaround costs that you're spending.
Can we think about next year's cash flow being more earnings driven and I guess vis vis your working capital.
The level you are at today is at a normalized level is at a level that's high because raw material prices are still pretty high and so working capital could be a source of funds next year, just any general color on the contours of free cash flow next year would be helpful.
Absolutely Josh you first of all Youre right that next year's cash flow will primarily be driven by earnings but there are several one time items that have hit us this year.
The CEO transition costs that we've talked about it's the turnaround actions and the cash costs related to that.
Youre right about the working capital challenges on the payables side, but then we've also done a pretty good job of trying to counteract as much of that is possible with tight inventory management and really collection of past due so.
Yes overall, we would expect an improvement in the cash burn going from 2023 to 2024, driven by earnings driven by some of these one time items and if input cost do continue to come down then that use of capital working capital will also improve so we remain optimistic.
Mistake about our cash usage in 2024 relative to this year because there are a lot of things that we believe were onetime in nature.
That.
They are not expected to repeat itself and we are also.
Looking forward to.
Earnings growth year over year, which will also generate more cash flow for us.
Perfect I'll turn it over thanks for all the color.
Thank you. Thank you.
And our next question comes from Roger Spitz with Bank of America. Please go ahead, Sir your line is open.
Thank you and good morning.
Can you comment on that.
Hey.
Why spun laced wipes and hygiene were down so much more than the air laid wipes and hygiene.
Maybe talk about.
Are they going after different markets different.
No different uses.
Comment on the difference between the two yes.
Yeah, Okay. Yeah, you have totally different qualities here in the Elliott as the.
Qualitative higher product.
And spun and also as far as markets are concerned.
This is yes, there's competition.
Petition there, but it's still I would say our market position is relatively good in L. A now spun lais is a highly competitive market environment and what you're also seeing spun laced its a lower end product.
Do you also see is there's a lot of competition from Asia, and we deliberately and this is what I was relating to when I talked about the solids and Asheville.
That we deliberately.
Didn't participate in certain businesses and as always the question of volume versus price and I think we all know what path because both sides are profitable now and their word before.
But we again our decision that certain volumes, we don't want to participate in that kind of business.
So yeah Roger.
Go ahead.
So the volume.
Thomas is referring to is what I mentioned in my remarks, which is we had to take a look at the customer portfolio.
Particularly in software that has been a very cost uncompetitive site for us we addressed it with taking a fair number of people out in terms of production workers. But then also went and looked at our customer book of business and the margin profile and chose to walk away from volume.
Because it was just not contributing to the bottom line. So that is also adding to this comparison.
You were talking about between spun laced in early <unk>.
Got it and just to be clear the Asian competition is also fiber based.
Whites and products.
As yours, it meaning you are not competing.
Competing with polypropylene based wipes no correct correct, that's panelist that's comparable product and if we say Asia.
Spun laid and again also that Europe, much more competitive than the U S.
But the spun laced capacity, it's Turkey.
And maybe I can also mention all of that we were approached from the.
The Nonwovens Association in Europe, whether we would start and participate in antidumping claim and we are thinking about that so.
More product coming in where we said this is at the level of raw material advise us this doesn't make any sense, that's not sustainable and so the industry in Europe right now produce us.
Through the organization the association considering an antidumping case.
Got it.
Excuse me and then some.
My question is.
When I refer to as sort of other operating cash flow of course.
What I mean by that is if you look on your cash flow statement for Ocs and then you've.
You've got EBITDA interest taxes, and working capital right. The things identified and then everything else is kind of like everything else. This restructuring what have you question, yes, severance and CEO change. So first half of 'twenty three that was a 16 and change outflow. We don't have your 10-Q yet.
So I don't know what what was it in Q3 and do you have a guidance for what sort of that other.
Number would be for the full year.
Yes, so I would say for the third quarter. It was about 4 million and then for the fourth quarter also we're expecting about 4 million. Roger So I think what youre trying to get at are the elements that go from call. It free cash flow down to net cash flow right and if I use the the the column.
That we have in our cash flow statement, a year to date 2023, which is through Q3.
When you look at the negative six negative $67 of free cash flow before we make our adjustments to get to adjusted.
The pieces that are missing that youre not seeing on this page, which you will see in the Q are things like the <unk> cash cost that we've had things like the cash cost incurred with our recent refinancing in the first quarter and so on so when you add all that together, that's another $15 million of use of cash so.
Year to date, we're probably at around call it negative $80 million or so and then were based on our guidance going into the fourth quarter and for full year, we expect that to improve by about call. It $10 million in the fourth quarter and a good chunk of that is going to be coming from working capital. So.
Those are the elements that really get to what we define as net.
Net cash flow after after all the sources and uses of cash to get to the cash burn.
Is that helpful. Roger absolutely absolutely.
I was looking good.
And then.
While covering up maybe talked about this a little bit the prepared remarks about walk covering up 31% and then metlife products down 41% I guess, both were a little surprising.
Is there any additional color you can provide on that.
Sure.
Hey, guys.
Our wall cover we were really.
Hit pretty hard with the Russia.
Russia, Ukraine wall, because a lot of this material went into Russia, and Ukraine, and we will always telling the guys that were trying to find alternatives. Because this material is coming from grace in one side. Okay. Very good. So so we were able and this is really was there positive to regain some business in.
In the Ukraine.
And then also in Europe, the rest of Europe, where other people were there and we were able to really capture additional volume in Europe.
So that's how you can explain the volume.
Is this something where we say this is now continuing for the future because I mean.
One side. This is a good this is very good news, but.
Im not sure how sustainable that is to be quite honest, we are still studying this and.
So, but yes, it looks it looks promising let me put it like that that we were that the team was really able to find alternative customers in Europe, and while we were able to increase the volume.
But it's not something where we said that is now an established business and we.
So we have to work hard on that one but again very positive news at least in Q3.
And sorry, and the Segmentalized tender Metanoia Metlife business. This is.
This is a problem and it's not really that we are losing market share as the overall market is down and people are also looking for alternatives cheap alternatives and all there so thats really it.
An issue right now and the volume is off.
In talking to our customers. They think the market will recover early next year, but this was something which we also didn't expect to this.
This extreme.
Because certain segments they are really fell off.
And generally labels in general is down big time.
Okay.
What are the what are the typical alternatives to Metlife products.
Alright.
Great.
Okay. All you kind of have plastics plastics and what you can also do is you can direct print onto the cloud to the glass.
So that's a couple of different ways. How you can do that and we are seeing that especially the metlife higher end labels due to the cost pressure that theyre also seeing mainly in Europe that they are trying to find alternatives chief autonomous.
Got it thank you very much for your time.
Sure. Thanks Roger.
And once again, if you'd like to join the queue. Please press star one to ask a question.
And our next question comes from Mike Jennings with Angelo Gordon. Please go ahead, Sir your line is open.
Good morning, Thomas <unk> appreciate all the disclosure so far just had one question I wanted to double click into.
Can we talk about energy for a moment and sort of how youre thinking about kind of both the upside and downside risks associated with that through the balance of this year and into 'twenty four.
Yeah, Great Great question Mike.
<unk> is certainly top of mind for us given the volatility that we've seen here pick up in in the last few weeks I would say partly related to the middle east conflict, partly related to again.
In our supply.
Conditions in Europe, even though storage levels are at very very high and healthy levels in countries like Germany.
With these pipeline issues that we're hearing about I think we will continue to probably see spikes in the spot market related to gas and a derivative impact of electricity, but from our standpoint, we're continuing to hedge.
Opportunistically, where we can for.
For the markets that we operate in which is France UK, Germany.
But this is something we're watching as well, but going into the fourth quarter we were.
Relatively well hedged and we've already layered in some hedges for the fourth first quarter of 2024, but it is something that we will continue to watch and make sure. We're taking exposure off the table so no different than what we're doing right now but.
Certainly a volatile situation from an input cost perspective for us.
Much appreciate it.
Okay.
And there are no further questions in queue.
Back to Thomas for any additional or closing remarks.
Thank you yes. Thank you for your time and we really appreciate your ongoing support for cloud fellow.
And then well.
Talk to you again when we.
We report our report our fourth quarter and the full year of 2023. Thank you very much. Thank you.
And this concludes todays <unk> Q3, 2023 earnings release conference call. Thank you for your participation you may now disconnect.
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[music].
Yeah.
[music].
Yeah.
Yeah.
Okay.
[music].
Yes.
[music].
Yes.
Yes.
Yeah.
[music].