Q4 2023 Greif Inc Earnings Call

December 7, 2023

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Good day and welcome to the Great fourth quarter 2023 earnings call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will be given at that time. As a reminder, this call may be recorded I would like to turn the call over to Matt <unk> you may begin.

Thanks, and good morning, everyone and first let me apologize for the technical difficulties on our side, we were dialed in and for some reason we lost audio troubleshooting for the last several minutes, we truly appreciate your patience.

Welcomed two gripes fourth quarter fiscal 2023 earnings Conference call. This is Matt Lady Gripes, Vice President of corporate development, and Investor Relations and I'm joined by older Ross Guard Graves, President and Chief Executive Officer, and Larry Hill, Shimer, Gripes, Chief Financial Officer.

We will take questions at the end of today's call.

In accordance with regulation fair disclosure. Please ask questions regarding issues you consider important because we are prohibited from discussing material nonpublic information with you on an individual basis.

Please turn to slide two.

As a reminder, during today's call, we'll make forward looking statements involving plans expectations and beliefs related to future events and actual results could differ materially from those discussed. Additionally, we'll be referencing certain non-GAAP financial measures and reconciliation to the most directly comparable GAAP metrics can be found in the appendix of today's presentation.

And now with that I'd like to turn the presentation over to only on slide three.

Thanks, Matt and good morning, everyone and let me also apologize for the technical difficulties we had this morning.

Looking back on fiscal year 2023 seconds fiscal year under our belt, so that strategy.

I'm humbled and in all of the progress about global REIT team has made despite extra ordinary macroeconomic headwinds.

This year challenged us to execute with continued precision and excellence in a complex operating environments.

Proud to say that in the face of ongoing demand challenges the hard work from our teams were solid in the second best year in <unk> history on an adjusted EBITDA and adjusted free cash flow basis surpassed only by our exceptional performance in 2022.

Year over year, we improved both our EBITDA margins and our free cash flow conversion.

Even as primary product sales declined double digits across our businesses.

A true Testament to the commitment of our teams to operate through operational excellence and our value over volume philosophy.

Fiscal 2023 was a banner year for investing in the long term health of quite well.

We launched new organic growth projects in both P. P. S. N G. IP completed four acquisitions and announced the fifth an AIPAC him for an aggregate capital commitments of over 1 billion on M&A.

We maintained our focus on returning capital to shareholders by increasing dividends per share by seven 5% and completing our 150 million share buyback program earlier in the year and we did all of this while maintaining our leverage ratio.

Within our target range of two to two five times.

At Rice, we often talk about managing the presence while creating the future we're.

We're doing both exceptionally.

As we close out fiscal 2023.

Proud of what we have accomplished and where we're going but make no mistake managing depression can be hot, especially when business is under pressure.

And our business has been under pressure for some time and we are continuing to face near term headwinds, which Larry will cover.

With our low end guidance and modeling assumptions for fiscal 2024.

Box as proven.

2023.

Built to handle external impacts to our business by controlling what we can control our execution will remain strong and we will weather this storm.

Our full confidence in our mission and our global growth team.

After Larry provides a review of the first the fourth quarter I will share with you a broader update about our growth strategy for future value creation.

Built to last Larry.

Please turn to slide four.

And our fourth quarter, we generated nearly $200 million of adjusted EBITDA.

Third 30 million of adjusted free cash flow and $1 56 of adjusted earnings per share. Despite the complex operating environment.

Our team's execution from the plant floor through corporate functions over the past year was truly extraordinary and I would like to thank our colleagues for their hard work and commitment to delivering exceptional results in these difficult times.

Later in the presentation oliwa expand commentary around our recent M&A, but for now I'll remind our investors that the co pack and reliance acquisitions. Both occurred during the fourth quarter. Therefore Q4 results did not include the full contribution of these businesses, which along with Ipass <unk> in early 2024.

Provide a benefit to our performance in the coming year.

Let's turn to segment results starting on slide five.

The fourth quarter and VIP saw more of the same challenges we have now face for five straight quarters and extremely weak industrial sector with demand at staggeringly low levels compared to Q4 of fiscal 'twenty two global volumes in steel drums were up 8% large plastics up 14 per.

<unk> and fiber drums down, 19%, only IDC and small plastic volumes increased year over year on a two year stack basis, nearly all substrates globally in VIP are tracking down mid teens.

A reminder, for investors related to this historic demand period, and VIP more than 85% of basic and specialty chemicals globally are consumed by the industrial sector Global PMI has been trending negatively since December of 2021 and tracking below 50 since September of <unk>.

22.

Existing home sales in the U S are tracking at the lowest level. Since 2010. This is truly an unprecedented time with no comparable period, including the great recession, where we saw a steep drop in drawn drum volumes that quickly recovered.

While this is sobering data we take pride in the results. We have delivered those results have enabled us to continue to invest strategically in our build to last initiatives focused on the future while managing costs and operations effectively we are excited about the results of our VIP segment.

And what they will deliver when the industry industrial economy recovers, please turn to slide six.

Paper packaging as fourth quarter sales declined $84 million year over year, primarily due to lower volumes and growing price cost pressures. We took approximately 62000 tons of total downtime across our mill system in the fourth quarter compared to 35000 in Q4 of last year.

<unk> fared better than you or be with less economic downtime and better volumes in converting but overall the continued low volume environment combined with rising OCC costs during the quarter led to both EBIT dollars and margin compression compared to the prior year, our PPS team continues to control that.

Controllable as well and did an extraordinary job of managing working capital to close out the year.

Please turn to slide seven where I'll discuss 2024 low end guidance assumptions.

As already mentioned in his opening remarks, and I've covered as well we're sitting at a truly historic moment in time for great businesses with prolonged volume headwinds across the IP end markets, we serve and now a material price cost headwind in PPS with rising OCC and lower risky published prices.

The challenging time to give full year guidance, because we do believe the demand environment will turn positively we just don't know when you.

Given those these multiple near term headwinds and low visibility to a sustained recovery. We made the decision to present, a low end guidance to start fiscal 2024 of $585 million in EBITDA and $200 million in free cash flow.

This guidance methodology is simple it presents a continuation of demand price and cost trends for both businesses through the duration of fiscal 'twenty four at current levels. In addition, this guidance does not include our recently announced price increases in containerboard, which we don't include in guidance.

<unk> recognized by risky and it also excludes any impact from AIPAC Sham, which we expect will close sometime in calendar Q1.

Our hope is that our actual fiscal 'twenty. Four result will end up significantly above this low end guidance. However, we have always stated that we do not guide based on hope our downside view is driven by current price cost in PPS and no volume inflections in 2024, we have seen some green shoots but no.

<unk> compelling trends yet to give us conviction that a recovery is emerging.

Note that if volumes recovered 50% of the gap to 2022 volumes, our EBITDA would increase approximately $85 million and 100% recovery would add approximately $170 million.

Our business is designed to weather short term cycles, we continue to delight our customers. We are firing on all cylinders and controlling what we can control. We're proud of our teams and we know that we will continue to execute through this difficult time and come out on the other side a stronger better business. The investments we are making under build that.

Last our laying the.

<unk> for breakout performance in the years to come and I'd like to hand, it back to OLED to cover more about our long term strategy and growth plans.

Thanks, Larry.

You could please turn to slide eight.

Build to last it's about producing quality results on an annual basis.

It is also more than that it's about leading through our values. Our purpose vision and mission all reflects our goal to better serve our colleagues and customers throughout the world and I would like to briefly highlight a few achievements in 2023 on each of our missions.

And how they set us up for future success.

The customer satisfaction index has long been one of our most reliable measures of success in delivering legendary customer service, which directly aligns to our vision of being the best performing customer service company in the world.

Our aspirational target is 95%.

And we are proud that in 2023, our average score was 94%.

We also recently completed our 13th net promoter score survey of nearly 5000 customers receiving a result of 68 Nuc right Records and a leading score within the manufacturing industry.

Consider the macroeconomic context of these results our customers clearly know we are devoted to serving them with excellence, particularly when times are tough and we are being rewarded for it.

On the creating thriving communities, we completed our sixth annual Gallup survey this year with over 90% colleague participation and the result, again showed an improvement in engagements, placing us firmly within the top quartile of all manufacturing companies surveyed across the world.

We also show our industry leadership through our commitments to sustainability.

Protect our future and this year, we published our 14th annual sustainability report with our new 2030 targets around climates waste circularity supply chain and Eni.

This mission is a foundational element of our long term success and I highly encourage our investors to visit the sustainability page of our website to read more about our initiatives.

Turn to slide nine.

Now that we have two years under the built to last strategy, we want to provide a broader update on some ongoing internal strategic initiatives that we believe are the pillars of driving long term value creation for all stakeholders.

First we shared with you the benefits throughout 2023 from centralizing, our global operations supply chain and it functions under the one gripe panel.

We are building out these functions to serve a larger footprint of businesses in the future with <unk>.

The expectation of our growing scale advantage.

In alignment with our one <unk> mentality, we are executing and organizational shifts from geography based operations to substrate based operations.

This structure was piloted in 2023 and <unk> in North America, and we solid in clients and regional level operating efficiencies improved best practice sharing and better decision, making around capital investments and growth.

We will use this fiscal year to prepare and plan to update you with a more complete picture as we get closer to implementation targeted.

For the beginning of full year 2025.

Additionally, we plan to change our fiscal year end to September 30th beginning in fiscal year 2026.

This change has been requested by our investors and analysts for years.

And we believe it will better align us to the standard industry calendar and increase our exposure to the investment community.

Importantly, all of these initiatives have been part of our build to last strategy from inception, and our expectations is they will make us better at driving results, improving transparency and increase equity value creation.

And actually these changes takes time and effort, which will result in some short term SG&A cost inflation in the coming fiscal year.

While we firmly believe that these changes will lead to a better and more successful in the future.

In addition to the internal work being done I'm also excited about our recent growth through targeted M&A.

Please turn to slide 10.

At our Investor day in 2022, we outline gripes acquisition priorities in three areas.

<unk> downstream converting in paper.

Stay inability alliance reconditioning services.

And pursuing a roll up acquisition strategy and the restaurant base, Jerry cans and small plastics market.

These acquisition verticals share the same very attractive attributes.

We are aligned to growing end markets.

<unk> strong circle arity characteristics and enjoy an elevated margin profile.

With a growing addressable gerrick end markets of $3 1 billion, we see a great opportunity to be the global leader in this high performance packaging sector as we have the technical capability.

Offering and scale to service customers in all our markets.

We accelerated our growth in this market over the past year with the acquisitions of Lee container reliance products and look to bolster our position following the close of the iPad came acquisition.

We anticipate by the end of our fiscal second quarter.

In summary.

We will enter 2024 positions to become one of the largest most technically sophisticated small plastic plastic product offerings in the world.

Please turn to slide 11.

And not object to our acquisition path is to build greater balance in our portfolio from an end market and substrate perspective.

The transactions announced in fiscal 2023 gift drive greater exposure to secular growth trends and agricultural and speciality chemicals as well as exposure to newer markets for us in pharmaceuticals and medical diagnostics.

The Jerry can and small plastic product line is extraordinarily versatile and our teams are excited about the follow on organic growth potential as we serve and grow with customers in these markets. Additionally.

Additionally, you will notice that nearly 75% of the acquisitions completed or announced in fiscal 2023, while restaurant base improving our overall sustainability profile as most of these products can be recycled and reused and require less energy and raw materials to manufacturer.

Yeah.

Please turn to slide 12.

A final note on acquisitions.

In addition to the improved end market mix and sustainability benefits. We are also buying great businesses.

These companies are the companies, we acquired and dose and our M&A pipeline, Amit seriously margin, a creative and have better free cash flow characteristics than our legacy <unk> business overall.

Overtime. This pass along with the work our teams are doing to continuously improve our base business everyday will drive our performance towards our long term goals.

18%, plus EBITDA margins and well over 50% free cash.

<unk>.

We will continue to utilize our strong balance sheet and remain disciplined on acquisitions going forward, while actively lowering our leverage through a combination of debt pay down and EBITDA growth.

Our capital allocation strategy will remain balanced ensuring the financial strength and growth of the business for years to come.

In closing on Slide 14, let me remind you of the reasons I'm. So excited for the long term growth prospects at <unk> and why we remain well positioned to weather this historically soft demand and pricing environments.

I have full confidence in our ability to control, what we can control and excel through successful execution of our build to last strategy.

We have proven over the past two years that we have the team and strategy to performing complex operating environments.

We have managed the business tightly while also investing for the future we.

We have accelerated our growth through M&A and high impact organic growth projects and lastly, we are keeping a long term lens regarding our operations and business strategy.

<unk> cumulative impacts of our efforts will result in a more robust efficient growth orientated and defensible business model, which we believe positions scribed for success and strong earnings growth as the cycle normalizes.

Thank you for your interest in Greif and operator will you. Please open the lines for questions.

Certainly as a reminder to ask a question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby, while we compile the Q&A roster.

And one moment for our first question.

Okay.

And our first question comes from Ghansham Panjabi of Baird. Your line is open.

Hey, guys good morning.

Hi, good morning, guys.

Good morning, just making sure the audio is working.

I guess first off on the EBITDA Bridge Larry.

$819 million generated fiscal year 'twenty three.

Can you just give us more color in terms of.

The non volume variances.

I'm just trying to reconcile down to your $5 95, which would be a pretty significant step down relative to the.

Almost $200 million generated an EBITDA of <unk>.

Yes sure thing.

Some obvious question right so.

Hi.

Yes.

I walked through it we have a year over year impact because of the strengthening dollar.

Against our that bucket of currencies of about $29 million.

We also had throughout the year a series of sort of one off one time items.

For example, we had insurance recovery of about $6 million related to a fire where the costs were actually in.

'twenty two.

We had another fire recovery same thing before we had some legal recoveries.

Utility refunds that EMEA issued because of the high cost there were some governmental initiatives and then a tax recovery down in Brazil of about $6 million that was an operating type of attack. So all of those were they flowed in throughout the year. They werent like big lumps, but they totaled up to 29 million.

So.

We don't anticipate those to reoccur so between those two items you have almost $60 million.

We then have the gist of the paper pricing.

Element in at cost price squeeze in PPS is roughly $140 million year over year to where we are right. Now now again that does not take into account the price increase we just announced.

We will be implementing January one.

And then <unk>.

Bit of just index timing on our forecast on cost is about $17 million drag year over year.

And then we have some investments in.

Ali mentioned Thats going to a segment structure, we got cost of that about $6 million that we believe will generate a lot of benefits for us for Mac concentrated focused on different segments going forward. We also are investing as we've talked a lot about our digitization efforts.

Yet, we anticipate future strong benefits of the GAAP rules require us to expense. It we view it more of as an investment but that net of the benefit. So we believe we'll start to see some benefits. This year is about $8 million that will turn into turnaround to more benefit generation.

In 'twenty, five 'twenty, six and going forward.

And then Theres, just a $5 million of southern.

Other inflationary things those kind of matters, so that should get you from the.

<unk> thousand 19 to $5 85.

Okay. That's super helpful and then the volume recovery.

<unk> hundred percent up $170 million like the scaling that you gave us is that relative to two years ago or is that just to make sure I have that right.

That's just relative to 'twenty, two so I guess that would be two years ago 24 months.

If we went back actually to what we look at sort of over the last normalized year because of that.

Covid everything else going on to go back to 19, the volume got redeemed in higher numbers, but.

But yes, the 174 is relative to 'twenty two.

Okay got it perfect. Thank you and then in terms of your comments on Green shoots more color. There and then just lastly on the Capex guidance is that reflective of the low end.

<unk> or <unk>.

So is that something that would be scaled up if the year turns out to be better than you think.

Yeah on the Green shoots it's mostly just to what we started to see in.

In our in our.

Containerboard business Ghansham, we we've seen I don't think we're ready to call. It a trend yet or an inflection point, but certainly the last couple of months have been much better in our mill system is full at the moment and backlogs are good. So that's what we're talking about we really haven't seen it any place else.

And then.

Im sorry, what was the second part of it.

Capex capex. Thank you.

Capex guidance, Yes, Ghansham, we've said Hey look if we actually end up with a year. That's at this low and we're going to manage our capex spend.

Just.

It does not have anything to do with our strength because obviously, we can do more but more just to manage it for appropriately for investors. So if we do see an inflection point, we would probably up our capex, but it wouldn't be proportional on that same ratio.

Obviously, theres a core amount of Capex that we have to do every year to make sure we maintain critical maintenance and obviously, that's what impacts are.

Cash generation ratio.

Okay terrific. Thank you so much and happy holidays to all of you.

Thank you John Thank you.

And one moment for our next question.

Okay.

Our next question will come from Kashi and killer.

With Bank of America. Your line is open.

Yes, hi, good morning, this is cash flow and for charge offs conflict. This morning business related.

So just on containerboard I know youre, not including that in guidance here, but I guess can you generally speak to your rationale behind the price increases and then.

You also talked to some improvement just on containerboard.

Training better relative to your base or just on the demand front. There can you talk at all just how that maybe trended throughout the quarter and what are you hearing from your customers on that front as well.

Yes.

We are raising the prices because we like everybody else are faced inflationary cost pressures, obviously OCC is up.

We deliver great services to our customers and demand has been up so we are.

We've gone out with that and it will be effective January one.

Yes, that's essentially it.

Okay, and then on just on demand in containerboard.

Yes.

You've got a trend.

Yeah.

And you talked about fourth quarter, yes, yes. So.

The mills.

Let's see here.

Mills.

As a percent.

And in sheets and core charge two 8%.

Bulk spot, we were down $6 nine and chubu core down seven 6% sequentially a significant turnaround because we had been running negative so.

Okay.

I appreciate that color.

And then I know you've done a number of acquisitions or announced a number of this year.

And I'll, let you talk to.

M&A being part of the story kind of longer term here.

And on past calls you have talked to start maybe on the kind of immediate term pipeline. So at this point is there anything that you can.

Potentially execute on in the coming year.

Or how can we kind of think about that.

Okay.

We haven't closed on AIPAC cabinets that will close yet.

First calendar quarter.

We dialed back in.

Operate in nine countries.

And given the volume situation, we have at the moment in our guidance, we are not sort of going out aggressively to buy but we have the means to do something and we remain opportunistic over the next six months in terms of whats available and.

And we're not going to Miss a good opportunity to talk with you. Yes. The thing I would I would also just shares even if we had hit this low and that's all that happens. This year, we still are well well within any of our debt covenants and we will.

Be in great shape going forward, even if we got to just like recovering 50% of our volume this year.

We would with AIPAC, we'd still be right around three.

On a on a on a.

Leverage ratio.

Obviously as we recover.

We think theres significant upside in the pillow point on that.

So we're out at $5 85, if we recovered pay.

Paper in pricing margins to the average of the last five years, we've picked up a $101 million.

<unk> recapture the volume, where he said it's $174 million.

If we add AIPAC Cameron there say roughly 60 were up to $920 million.

If those things happen, we're already back down and our debt ratio.

Target.

Okay got it understood.

And then just one last one and I'll turn it over just what the change in terms of your fiscal year is.

Is it possible at all to quantify what the inflation might be in.

Or what costs, you might incur of related to that.

Yes.

Fiscal year change thing is relatively minor.

A couple of million dollars kind of thing for that element of it.

Got it thanks, I'll turn it over.

And one moment for our next question.

Our next question will come from Eddie threshold of Stifel. Your line is open.

Good morning, Thanks for taking my questions.

If you could just talk about what's you're watching as indications of change in the business fundamentals and what needs to happen to the portal positive churn is coming.

And you would feel more comfortable providing the guidance range.

Well what needs to happen is I mean, obviously, there's a lot of affects us enroll but if we see a.

Interest rate reduction, we will probably see some improvements in the housing sector.

The housing sector when people move houses drives a lot of the business, we see from our paints and <unk>.

<unk>.

But also on on containerboard.

He was positive.

Probably the biggest I would say.

And then you have all the issues on geopolitical conflicts we have around the world that has an effect as well those would probably be the biggest yes I would just.

I'll ask you to reflect on last year, we came out after our first quarter call with lowering guidance by the second quarter, we gave a range.

So we're not I mean.

When we see something we will we will react and get everybody. The information that you would rather see but I'll also tell you.

Year ago on this call at this time, our paper customers were telling us they thought business was going to bounce back in January our chemical companies were saying first or second quarter calendar last year and by the time, we got to the first quarter everybody was like.

<unk>, what's going on and it started extending further and further out so.

And I'll also reflect on the great recession, when we did see an inflection point it was rapid.

The demand kicked off aggressively so hopefully we start to see a recovery there tied to some of the things that always just mentioned.

We are well positioned to respond.

I'll just ask for that add to that Matt.

When you just look globally at industrial production.

Ism's PMI.

<unk> were peaking in may of 2021 and trending down almost since then they've actually been trending negatively globally since September of 2022, and a contractionary period for over 12 months.

Our global industrial business is levered to some of those trends if not directly. So I think if you look for a turn on a recovery in PMI, our ISN that that could also indicate we're probably seeing a demand recovery as well.

Alright, Thanks, a lot.

<unk>.

And just about the cadence of pricing volume by quarter, maybe within each segment like it seems like.

Within both we have the toughest comp in the <unk> sequentially improves and maybe it's flat year over year sort of kind of.

What you built into your guidance am I thinking about this correctly.

Yes, we didn't really.

Look at the price cost I don't I am not ready to answer that on a quarter by quarter basis. I mean, we didn't make that I didn't go back and look at where we were on each but.

I guess just off the top things trended throughout the year, obviously with OCC going up on the paper business throughout the year and get price cuts more.

So we had back half back half of the year. So yes.

Yes.

That would say that you'd be better at the end of the year than at the beginning.

But then we've got our <unk>.

Rice increase announced that we are implementing on January one so that would obviously help.

In the first and more in the second quarter than the first and I did all that.

First quarter tends to be the lowest in our business cycle as well.

Alright, and just one last one from these two deals that you've already closed.

Rollover contribution to sales EBITDA and free cash flow assumed in the guidance from that.

And I can give you EBITDA is roughly $20 million.

In terms of the contribution to 2024.

Generally these businesses collectively are running at a 60% free cash flow conversion, we havent guided to that but I'm not sure of what the capex needs of our next year, but that's directionally accurate from an EBITDA perspective.

Alright, Thank you for taking my question.

Yes.

And one moment for our next question.

Our next question will come from Roger Spitz of Bank of America. Your line is open.

Thank you. Good morning, first what was Abcs fiscal Q4 volume increase on a percentage basis and would you have for steel plastic fiber and <unk>.

Full fiscal year 2020 for volume.

On a percentage basis.

Hi, Roger I can give you the first one in Q4 was a contraction of four 3%.

On <unk>.

Right.

Okay I thought you said okay.

My fault.

And you don't have the full year Johanna is what youre, saying for all four.

Full year.

Contraction of nine 5%.

Okay.

It is small plastic packaging businesses.

Higher margins in your legacy large packaging.

It's a small package plastic packaging more fragmented and large.

Large packaging really only has.

Three producers with maybe 80% global market share so.

A less fragmented business.

Yes number one it is a less consolidated business across the globe.

A lot of players it's also a more sophisticated product to produce.

You could on small plastic and Erica and you could kind of split it up in three buckets you have a commodity.

The markets when you have the middle and a little bit commodity a little bit.

Premium and then you have the premium market, which is really where we operates where you have things like barrier technologies you have special designs.

And that sort of thing.

One thing to supplement always answer because only was answering on <unk>.

Same store basis without.

The impact of Centurion acquisition so.

On <unk> whitson carrying in our volumes on <unk>.

Were up 2% and 424.

We expect them to be up 12 year over year.

Got it thank you very much for your time.

Thank you Youre welcome.

One moment for our next question.

And as a reminder, if you would like to ask a question. Please press star one one and wait for your name to be announced.

Our next question comes from Gabe.

<unk> of Wells Fargo. Your line is open.

Yeah.

Good morning, guys.

Hey, Gabe I'm sure you've been called worse.

Okay.

I wanted to ask something a little bit that's been in the publications here recently about imported.

<unk> recycle board and just historically speaking not being really a paper grade that's been important and I think for a variety of reasons one of which is.

There are probably other paper grades that are higher price point, but that could be justified to be imported but I'm. Just curious if you all have seen this in the past.

Or if in fact, you can confirm that.

That you've seen in the marketplace.

And I'll stop there.

Yeah, Gabe, it's something that there's always been some it is really minor in the overall market.

We've seen a little bit more but it's not substantial.

Okay.

And I guess to revisit the bridge question.

I apologize in advance, but you Larry laid out I think a lot of the negative factors.

To get to the $5 85.

Arent necessarily giving yourselves credit for.

Any of the positives that would be included even taking into account sort of what youre assuming.

And the guidance and what you're experiencing today at least on the containerboard side and what I mean by that is it sounds like the system is full at this point, which would imply no economic downtime in our containerboard mill system, but.

So Matt throughout plus 24 acquisitions.

I don't know if I have the exact number correct I want to say that with about 120000 tons of economic downtime in your seaborne system.

Assuming some of that comes back.

Those are all additive.

Sort of just based on what your assumptions are today.

Is that the right way to think of it.

Partially I mean, we have built in some <unk>.

Relatively minor growth.

In gain from containerboard.

In the year.

But it's.

Right.

$60 million now, we also closing down our Santa Clara mill, So that would take a little bit out, but yes, you are right where.

We're being relatively conservative in that low end guidance I mean, it's low end because it's low end.

Okay.

Santa Clara remind me is that CRB.

The declared yet.

Yes.

Okay.

Painter for it.

Yes.

Our cfe.

No it's containerboard.

The tonnage on that.

Yes.

We have excellent let me check we will get that data yet.

Okay.

Alright.

That'll be it thank you.

And Im showing no further questions I would now like to hand, the call back to Matt Lucey for closing remarks.

Alright, well. Thank you everyone again for your patience today and our challenges at the beginning of the call. We hope you all have a wonderful holiday.

This concludes today's conference. Thank you for participating you may now disconnect.

[music].

Call over to Matt Leahy, you may begin.

Welcome to <unk> fourth quarter fiscal 2023 earnings Conference call. This is Matt <unk>, Vice President of corporate development, and Investor Relations and I'm joined by older off Guard, Greg <unk>, President and Chief Executive Officer, and Larry Hill, Shimer grapes, Chief Financial Officer.

We will take questions at the end of today's call and in accordance with regulation Fair disclosure. Please ask questions regarding issues you consider important because we are prohibited from discussing material nonpublic information with you on an individual basis.

Please turn to slide two.

As a reminder, during today's call we will make forward looking statements involving plans expectations and beliefs related to future events and actual results could differ materially from those discussed. Additionally, we'll be referencing certain non-GAAP financial measures and reconciliation to the most directly comparable GAAP metrics can be found in the appendix of today's presentation.

And now with that I'd like to turn the presentation over to <unk> on slide three.

Matt and good morning, everyone and let me also apologize for the technical difficulties we had this morning.

Looking back on fiscal year 2023, the second fiscal year onto our build to last strategy.

Humbled and in all of the progress of our global <unk> team has made despite extra ordinary macroeconomic headwinds.

This year challenge us to execute with continued precision and excellence in a complex operating environments.

Routes to say that in the face of ongoing demand challenges the hard work from our teams with solid in the second best year in <unk> history on an adjusted EBITDA and adjusted free cash flow basis.

Past only by our exceptional performance in 2022.

Year over year, we improved both our EBITDA margins and our free cash flow conversion, even as primary product sales declined double digits across our businesses.

True Testament to the commitment of our teams to operate through operational excellence and our value over volume philosophy.

Fiscal 2023 was a banner year for investing in the long term health of quite well.

We launched new organic growth projects, and both PPS and VIP completed four acquisitions and announced the fifth an AIPAC him for an aggregate capital commitments of over $1 billion on M&A.

We maintained our focus on returning capital to shareholders by increasing dividends per share by seven 5% and completing our 150 million share buyback program earlier in the year.

We did all of this while maintaining our leverage ratio within our target range of two to two five times.

At <unk>, we often talk about managing the presence while creating the future we're.

We're doing both exceptionally.

As we close out fiscal 2023.

Proud of what we have accomplished and where we're going but make no mistake managing depression can be hot, especially when business is under pressure.

And our business has been under pressure for some time and we are continuing to face near term headwinds, which Larry will cover with our low end guidance and modeling assumptions for fiscal 2024.

As proven.

2023.

We are built to handle <unk> impacts to our business by controlling what we can control.

Our execution will remain strong and we will weather this storm and I have full confidence in our mission and our global growth team.

<unk> provides a review of the first the fourth quarter I will share with you a broader update about our growth strategy for future value creation on the built to last.

Please turn to slide four.

And our fourth quarter, we generated nearly $200 million of adjusted EBITDA.

$130 million of adjusted free cash flow and $1 56 of adjusted earnings per share. Despite the complex operating environment.

Later in the presentation only will expand commentary around our recent M&A, but for now I'll remind our investors that the co pack and reliance acquisitions. Both occurred during the fourth quarter. Therefore Q4 results did not include the full contribution of these businesses, which along with Ipass <unk> in early 2024 will.

<unk> a benefit to our performance in the coming year.

Let's turn to segment results starting on slide five.

The fourth quarter and VIP saw more of the same challenges we have now face for five straight quarters.

Extremely weak industrial sector with demand at staggeringly low levels.

Third to Q4 of fiscal 'twenty, two global volumes in steel drums were up 8% large plastics up 14% and fiber drums down 19% only IV C and small plastic volumes increased year over year on a two year stacked basis, nearly all substrates globally.

And Gis are tracking down mid teens.

'twenty two.

Existing home sales in the U S are tracking at the lowest levels. Since 2010. This is truly an unprecedented time with no comparable periods, including the great recession, where we saw a steep drop in drawn drum volumes that quickly recovered.

And what they will deliver when the industry industrial economy recovers, please turn to slide six.

Containerboard fared better than you or be with less economic downtime and better volumes in converting but overall the continued low volume environment combined with rising OCC costs during the quarter led to both EBIT dollars and margin compression compared to the prior year, our PPS team continues to control.

The controllable as well and did an extraordinary job of managing working capital to close out the year.

Please turn to slide seven where I'll discuss 2024 low end guidance assumptions.

As already mentioned in his opening remarks, and I've covered as well we're sitting at a truly historic moment in time for grapes businesses with prolonged volume headwinds across the IP end markets, we serve and now a material price cost headwind and PPS with rising OCC and lower risky published prices.

The challenging time to give full year guidance, because we do believe the demand environment will turn positively we just don't know when.

Until recognized by risky and it also excludes any impact from Ipass <unk>, which we expect will close sometime in calendar Q1.

Our hope is that our actual fiscal 'twenty four results will end up significantly above this low end guidance. However, we've always stated that we do not guide based on hope our downside view is driven by current price cost in PPS and no volume inflections in 2024, we have seen some green shoots but no <unk>.

<unk> compelling trends yet to give us conviction that a recovery is emerging.

Note that if volumes recover 50% of the gap to 2022 volumes, our EBITDA would increase approximately $85 million and a 100% recovery would add approximately $170 million.

<unk> are laying the foundation for breakout performance in the years to come and I would like to hand, it back to OLED to cover more about our long term strategy and growth plans.

Thanks, Larry.

You could please turn to slide eight.

Build to last is about producing quality results on an annual basis.

It is also more than that it's about leading through our values. Our purpose vision and missions. All reflects our goal to better serve our colleagues and customers throughout the world and I would like to briefly highlight a few achievements in 2023 on each of our missions.

And how they set us up for future success.

The customer satisfaction index has long been one of our most reliable measure of success in delivering legendary customer service, which directly aligns to our vision of being the best performing customer service company in the world.

Our aspirational target is 95%.

And we are proud that in 2023, our average score was 94%.

We also recently completed our 13th net promoter score survey of nearly 5000 customers receiving a result of 68 Nuc right Records and a leading score within the manufacturing industry.

Consider the macroeconomic context of these results our customers clearly know we are devoted to serving them with excellence, particularly when times are tough and we are being rewarded for it.

On the creating thriving communities, we completed our sixth annual Gallup survey this year with over 90% colleague participation and the results again showed an improvement in engagement, placing us firmly within the top quartile of all manufacturing companies surveyed across the world.

We also show our industry leadership through our commitments to sustainability.

Protect our future and this year, we published our 14th annual sustainability report with our new 2030 targets around climates waste circularity supply chain and Eni.

This mission is a foundational element of our long term success and I highly encourage our investors to visit the sustainability page of our website to read more about our initiatives.

Please turn to slide nine.

First we shared with you the benefits throughout 2023 from centralizing, our global operations supply chain and it functions under the <unk> panel.

We are building out these functions to serve a larger footprint of businesses in the future with the expectation of our growing scale advantage.

Second in alignment with our one <unk> mentality.

Executing and organizational shifts from geography based operations to substrate based operations.

This structure was piloted in 2023, and <unk> North America, and we solid in plants and regional level operating efficiencies improved best practice sharing and better decision, making around capital investments and growth.

We will use this fiscal year to prepare and plan to update you with a more complete picture as we get closer to implementation targeted.

For the beginning of full year 2025.

Additionally, we plan to change our fiscal year end to September 30th beginning in fiscal year 2026.

This change have been requested by our investors and analysts for years.

And we believe it will better align us to the standard industry calendar and increase our exposure to the investment community.

Importantly, all of these initiatives have been part of our build to last strategy from inception, and our expectations is they will make us better and driving results improving transparency and increase equity value creation.

And actually these changes takes time and effort, which will result in some short term SG&A cost inflation in the coming fiscal year.

While we firmly believe that these changes will lead to a better and more successful in the future.

In addition to the internal work being done I'm also excited about our recent growth through targeted M&A. Please.

Please turn to slide 10.

At our Investor day in 2022, we outline gripes acquisition priorities in three areas.

<unk> downstream converting and payable to.

Sustainability Alliance Reconditioning services.

And pursuing a roll up acquisition strategy and the resin based gerrick, hence and small plastics market.

These acquisition verticals share the same very attractive attributes they are aligned to growing end markets hold strong circularity characteristics and enjoy an elevated margin profile.

With a growing addressable gerrick end markets of $3 1 billion, we see a great opportunity to be the global leader in this high performance packaging sector.

We have the technical capability product offering and scale to service customers in all our markets.

We accelerated our growth of this market over the past year with the acquisitions of Lee container reliance products and look to bolster our position following the close of the <unk> acquisition.

We anticipate by the end of our fiscal second quarter.

In summary, we will enter 2024 positions to become one of the largest most technically sophisticated small plaid a plastic product offerings in the world.

Please turn to slide 11.

And not object to our acquisition path is to build greater balance in our portfolio from an end market and substrate perspective.

The Jerry Ken and small plastic product line is extraordinarily versatile and our teams are excited about the follow on organic growth potential as we serve and grow with customers in these markets. Additionally.

Yeah.

Please turn to slide 12.

A final note on acquisitions.

In addition to the improved end market mix and sustainability benefits. We are also buying great businesses.

These companies are the companies, we acquired and those in our M&A pipeline, Amit yearly margin of creative and have better free cash flow characteristics than our legacy <unk> business overall.

Overtime. This path along with the work our teams are doing to continuously improve our base business everyday will drive our performance towards our long term goals.

18%, plus EBITDA margins and well over 50% free cash.

<unk>.

Our capital allocation strategy will remain balanced ensuring the financial strength and growth of the business for years to come.

I have full confidence in our ability to control, what we can control and excel through successful execution of our build to that strategy.

We have proven over the past two years that we have the team and strategy to perform and complex operating environments.

We have managed the business tightly while also investing for the future we.

We have accelerated our growth through M&A and high impact organic growth projects and lastly, we are keeping a long term lengths regarding our operations and business strategy.

The community the cumulative impact of our efforts will result in a more robust.

<unk> growth orientated and defensible business model, which we believe positions <unk> for success and strong earnings growth as the cycle normalizes.

We thank you for your interest in <unk> and operator will you. Please open the line for questions.

One moment farmers question.

And our first question comes from Ghansham Panjabi of Baird. Your line is open.

Hey, guys good morning.

Hi, good morning, gentlemen.

Morning, just making sure the audio is working.

I guess first off on the EBITDA Bridge Larry.

$819 million generated fiscal year 'twenty three.

Can you just give us more color in terms of.

The non volume variances.

Trying to reconcile down to your 595, which would be a pretty significant step down relative to the.

Almost $200 million generated an EBITDA of <unk>.

Yes, sure thing got some obvious question right.

<unk>.

I walked through it we have a year over year impact because of the strengthening dollar.

Against that bucket of currencies of about $29 million.

We also had throughout the year a series of sort of one off onetime items. For example, we had insurance recovery of about $6 million related to a fire where the costs were actually in.

'twenty two.

Had another fire recovery same thing before we had some legal recoveries, we had utility refunds that EMEA issued because of the high cost. It was some governmental initiatives and then a tax recovery down in Brazil of about $6 million that was an operating type of attack. So all of those were they.

Float in throughout the year, they werent like big lumps.

But they totaled up to 29 million Bucks. So we.

We don't anticipate those to reoccur so between those two items you have almost $60 million.

We then have to.

Paper pricing.

Element in it.

Cost price squeeze in PPS is roughly a $140 million year over year to where we are right. Now now again that does not take into account the price increase we just announced.

We will be implementing January one.

And then <unk>.

Bit of just index timing on our forecast on cost is about $17 million drag year over year.

And then we have some investments in.

Only mentioned us going to a segment structure, we got cost of that about $6 million that we believe will generate a lot of benefits for us from that concentrated focused on different segments going forward. We also are investing as we've talked a lot about our digitization efforts.

That we anticipate future strong benefits of the GAAP rules require us to expense. It we view it more of as an investment but that net of the benefit. So we believe we'll start to see some benefit. This year is about $8 million that will turn into turnaround to more benefit generation.

And $25 26 in going forward.

And then there's this line of $5 million of southern or other inflationary things those kind of matters. So that should get you from the.

2019 to $5 85.

Okay. That's super helpful and then the volume recovery.

3rd% up a $170 million like the scaling that you gave us is that relative to two years ago is that just to make sure I have that right.

That's just relative to 'twenty two so I guess that would be two years ago 20 quarters going to if we went back actually to what we look at sort of over the last normalized year because of that.

Covid everything else going on to go back to 19, the volume got redeemed in higher numbers, but.

But you had 174 is relative to 'twenty two.

Okay got it perfect. Thank you and then in terms of your comments on Green shoots more color. There and then just lastly on the Capex guidance is that reflective of the low end.

<unk> or <unk>.

So is that something that would be scaled up if the year turns out to be better than you think.

Yeah on the Green shoots it's mostly just to what we started to see in.

In our in our <unk>.

Dana Board business Ghansham, we we've seen I don't think we're ready to call. It a trend yet or an inflection point, but certainly the last couple of months have been much better in our mill system is full at the moment and backlogs are good.

That's what we're talking about we really haven't seen it any place else.

And then.

I'm sorry, what was the second part of it.

Capex capex. Thank you.

Capex guidance, Yes, Ghansham, we've said hey look.

We actually end up with a year that's at the low end, we're going to manage our capex spend.

To just.

Not have anything to do with our strength, because obviously, we could do more but more just to manage it for appropriately for investors. So if we do see an inflection point, we would probably up our capex, but it wouldn't be proportional on that same ratio.

Obviously, theres a core amount of Capex that we have to do every year to make sure we maintain critical maintenance and obviously, that's what impacts are.

<unk>.

Cash generation ratio.

Okay perfect. Thank you so much and happy holidays to all of you.

Thank you John Thank you.

And one moment for our next question.

Okay.

Yes.

Our next question will come from Kashi and Keeler of Bank of America. Your line is open.

Yes, hi, good morning, this is cash on for George.

Conflict this morning business related.

So just on containerboard I know youre, not including that in guidance here, but I guess can you generally speak to your rationale behind the price increases and then.

You also talked to some improvement just on containerboard.

Training better relative to your base. So just on the demand front. There can you talk at all just how that maybe trended throughout the quarter and what are you hearing from your customers on that front as well.

Yes, I mean, we.

We are raising the prices because we like everybody else are faced inflationary cost pressures, obviously OCC is up.

We deliver great services to our customers and demand has been up so we are.

We've gone out with that and it will be effective January one.

Yes, that's essentially it.

Okay, and then on just on demand in containerboard.

Yes.

You've got a trend.

Yes.

Are you talking about fourth quarter, yes, yes. So.

The mills.

Let's see here.

Mills.

As a percent.

And in sheets and courtyards two 8%.

Bulk spot, we were down $6 nine and chubu core down seven 6% sequentially as significant turnaround because we've been running negative so.

Okay.

I appreciate that color.

And then I know you've done a number of acquisitions or announced a number of this year.

And I'll, let you talk to M&A being part of the story kind of longer term here.

And on past calls you've talked to soft maybe in the kind of immediate term pipeline. So at this point is there anything that you can.

Essentially execute on in the coming year.

Or how can we kind of think about that.

I mean, we.

We haven't closed on AIPAC cabinets that will close here in the first calendar quarter.

<unk> and <unk>.

Operate in nine countries.

And given the volume situation, we have at the moment in our guidance, we are not sort of going out aggressively to buy box. We have the means to do something and we remain opportunistic over the next six months in terms of what's available.

And we're not going to Miss a good opportunity to do with you yes.

I would I would also just shares even if we had hit this low and that's all that happens. This year, we still are well well within any of our debt covenants and we will.

Yes.

Be in great shape going forward, even if we got to just like recovery.

50% of our volume this year.

We would with AIPAC, we'd still be right around three.

On a on a.

Leverage ratio.

Obviously as we recover.

We think theres significant upside in the pillow point on that.

So we're out at $5 85, if we recovered pay.

Paper in pricing margins to the average of the last five years, we pick up $101 million.

<unk> recapture the volume we already said at the $174 million.

If we add Ipass <unk> in there and say roughly 60 were up to $920 million.

If those things happen, we're already back down and our debt ratio.

Target.

Okay got it understood.

And then just one last one and I'll turn it over just what the change in terms of your fiscal year is.

Is it possible at all to quantify what the inflation might be in.

Or what costs, you might incur of related to that.

Yes.

Fiscal year change thing is relatively minor.

A couple of million dollars kind of thing for that element of it.

Got it thanks, I'll turn it over.

And one moment for our next question.

Our next question will come from Eddie the restaurant of Stifel. Your line is open.

Good morning, Thanks for taking my questions.

If you could talk about what's you're watching as indications of change in the business fundamentals and what needs to happen to the portal positive churn is coming.

And you would feel more comfortable providing guidance range.

Well what needs to happen is I mean, obviously, there's a lot of affects us enroll but if we see a.

Interest rate reduction, we will probably see some improvements in the housing sector.

The housing sector when people move out this drives a lot of the business, we see from our paints.

<unk>.

But also on containerboard.

A huge positive.

Probably the biggest I would say.

And then you have all the issues on the geopolitical conflicts we have around the world that has an effect as well those would probably be the biggest yes I would just.

I ask you to reflect on last year, we came out in the first.

First quarter call with low end guidance by the second quarter, we gave a range.

Yes, so we're not I mean, when we see something we will we will react and get everybody. The information that you would rather see but I'll also tell you.

They're out so.

And I'll also reflect on the great recession, when we did see an inflection point it was rapid.

Yes, the demand kicked off aggressively so hopefully we start to see a recovery there.

That ties to some of the things that always just mentioned.

We are well positioned to respond.

I'll just ask for that add to that Matt. So when you just look globally at industrial production.

<unk> P M.

<unk> were peaking in may of 2021 and trending down almost since then they've actually been trending negatively globally. Since September of 2022, and a contractionary period for over 12 months, our global industrial business is levered to some of those trends if not directly. So I think if you look for a turn on a recovery in it.

PMI or RSM that could also indicate we're probably seeing a demand recovery as well.

Alright, Thanks, a lot and.

And just about the cadence of price and volume by quarter, maybe within each segment like seems like within both we have the toughest comp in the <unk> sequentially improves and maybe it's flat year over year sort of kind of what you built into your guidance am I thinking about this correctly.

Yes, we didn't really.

Look at the price cost I don't I am not ready to answer that on a quarter by quarter basis, we didn't make that.

You can go back and look at where we were on each but I.

I guess just off the top things trended throughout the year, obviously with OCC going up in the paper business throughout the year and get price cuts more.

So if we add back half back half of the year. So yes.

Yes.

That would say that you'd be better at the end of the year than at the beginning.

But then we've got our <unk>.

Increase announced that we are implementing on January one so that would obviously help.

In the first and more in the second quarter than the first and I did all that.

First quarter tends to be the lowest in our business cycle as well.

Alright, and just one last one from these two deals that you've already closed what's the rollover contribution to sales EBITDA and free cash flow assumed in the guidance from that.

And I can give you EBITDA is roughly $20 million.

In terms of the contribution to 2024.

Generally these businesses collectively are running at a 60% free cash flow conversion, we havent guided to that but I'm not sure what their capex needs are next year.

That's directionally accurate from an EBITDA perspective.

Alright, Thank you for taking my question.

Yes.

One moment for our next question.

Our next question will come from Roger Spitz of Bank of America. Your line is open.

Thank you good morning first what was.

Rbc's fiscal Q4 volume increase on a percentage basis and would you have for steel plastic fiber and <unk>.

For the full fiscal year 2020 for volume changes on a percentage basis.

Hi, Roger I could give you the first one in Q4 was a contraction of four 3%.

On Rbcs.

Oh, Okay I thought you said, okay My fault.

You don't have the full year Johanna is what youre, saying for all four.

Full year is contraction of nine 5%.

Okay.

Why does small plastic packaging businesses.

Margins in your legacy large packaging.

Is it small package plastic packaging more fragmented and large.

Large packaging really only has made.

Maybe three producers with maybe 80% global market share so.

A less fragmented business.

Yes number one it is a less consolidated business across the globe.

A lot of players it's also a more sophisticated product to produce.

You could on small plastic and Eric and you could kind of split it up in three buckets.

Have a commodity.

The markets when you have the middle and a little bit commodity a little bit.

Premium and then you have the premium market, which is really where we operates where you have things like barrier technologies, you have special designs and that sort of thing.

Yeah.

One thing to supplement always answer because only was answering on <unk>.

Our same store basis without the impact of certain Korean acquisition, so on Centurion with Centurion in our volumes on <unk>.

Were up 2% and 424, we would expect them to be up 12 year over year.

Got it thank you very much for your time.

Thank you Youre welcome.

One moment for our next question.

And as a reminder, if you would like to ask a question. Please press star one one and wait for your name to be announced.

Yes.

Our next question comes from Gabe.

Much of Wells Fargo. Your line is open.

Yeah.

Good morning, guys.

Hey, Gabe I'm sure you've been called worse.

Okay.

I wanted to ask something a little bit that's been in the publications here recently.

Imported.

Uncoated recycle board and just historically speaking.

<unk> been really a paper grade that's been imported I think for a variety of reasons one of which is.

There are probably other paper grades that are higher price points.

Could be justified to be imported but I'm just curious if you all have seen this in the past.

Or if in fact, you can confirm that it is something that you've seen in the marketplace.

Now I'll stop there.

Yes Gabe.

There's always been some it is really minor in the overall market.

We've seen a little bit more but it's not substantial.

Okay.

And I guess to revisit the bridge question.

I apologize in advance, but you Larry laid out I think a lot of the negative factors.

To get to the $5 85, but werent necessarily giving yourselves credit for.

Any of the positives that would be included even taking into account sort of what youre assuming.

And the guidance and what you're experiencing today at least on the containerboard side and what I mean by that is it sounds like the system is full at this point, which would imply.

No economic downtime in the containerboard mill system.

Throughout plus 24 acquisitions.

I don't know if I have the exact number correct don't want to say there was about 120000 tons of economic downtime in your seaborne system.

Assuming some of that comes back.

Those are all additive.

Based on what your assumptions are today.

Is that the.

The right way to think of it.

Partially I mean, we have built in some rare.

Relatively minor growth in gain from containerboard.

In the year.

But it's.

60.

$60 million now, we also closing down our Santa Clara mill, So that would take a little bit out, but yes youre right.

We're being relatively conservative in that low end guidance I mean, it's low end because it's low end.

Okay.

Santa Clara remind me is that CRB.

Yes, yes, yes.

Okay.

Paperboard.

Hi.

Yep.

No it's containerboard.

The tonnage on that.

We have excellent let.

Let me check we will get that gave yes.

Okay.

Alright.

That'll be it thank you.

And I'm showing no further questions I would now like to hand, the call back to Matt Lucey for closing remarks.

Alright, well. Thank you everyone again for your patience today and our challenges at the beginning of the call. We hope you all have a wonderful holiday.

This concludes today's conference. Thank you for participating you may now disconnect.

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