Q3 2023 Sonoco Products Co Earnings Call
Okay.
Okay.
Good day and thank you for standing by welcome to the Q3 2023 Sonoco earnings Conference call. At this time, all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone you will then hear an automated message if I assume that your hand is raised to withdraw. Your question. Please press star. One again, please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker reached a week.
Vice President of Investor Relations. Please go ahead.
Thank you operator, and thanks to everyone for joining us today for Sonoco third quarter 2023 earnings call. Joining me. This morning are Howard Coker, President and CEO, Rob Dillard, Chief Financial Officer, and Rodger Fuller Chief Operating Officer last evening, we issued a news release, highlighting our financial performance for the <unk>.
Third quarter, and we prepared a presentation that we will reference during this call.
Press release and presentation are available online under the Investor Relations section of our website at Sonoco Dot com as.
As a reminder, during today's call we will discuss a number of forward looking statements based on current expectations estimates and projections. These statements are not guarantees of future performance and are subject to certain risks and uncertainties. Therefore actual results may differ materially. Please take a moment to review the forward looking statements on page.
Two of the presentation.
Additionally, today's presentation includes the use of non-GAAP financial measures, which management believes provides useful information to investors about the company's financial condition and results of operation.
Other information about the company's use of non-GAAP financial measures, including definitions as well as reconciliations to GAAP measures is available under the Investor Relations section of our website.
For today's call, we will have prepared remarks regarding our results for the quarter and the outlook for the fourth quarter, followed by a Q&A session. If you will turn to slide four in our presentation I will now turn the call over to our CEO Howard Coker.
Okay, well. Thank you Lisa good morning, everyone and thank you for joining our third quarter 2023 earnings call. Let me begin with highlights of the quarter.
For <unk>, we executed well even with the ongoing market uncertainty sales came in at 1.71 billion adjusted EBITDA was $280 million and adjusted earnings per share was $1 46.
Sales were flat sequentially and generally in line with expectation.
In the industrial sector demand remains muted and volumes alone.
And consumer volumes were sequentially higher in most businesses, while metal aerosol can volumes continued to underperform driven by lower end market demand and ongoing customer destocking.
Our profit results were better than expected from strong productivity and effective cost management by our teams our productivity results are benefiting from the capital investments, we're making across our plant network, including automation and process improvements in energy cost reductions.
We expanded adjusted EBITDA margins to over 16% and delivered strong cash flow during the quarter.
We achieved these results even while we continue to invest in long term value, adding projects and R&D initiatives throughout the portfolio.
Overall I'm pleased with how these results reflect our continued ability to execute simplification transformation and operational excellence initiatives to build a more resilient company with strong performance through the cycles.
We were also pleased to close the Rts packaging and Chattanooga paper Mill acquisition in September.
Zack's acquisitions, well aligned with Sunoco as long term strategy to focus on our core integrated businesses and expand our sustainable consumer.
Marketing portfolio, serving food beverage and beauty markets.
Hi, Sam.
<unk> is well underway and we are delighted to welcome our new colleagues to Sunoco.
And with that I will turn it over to Rob for more details on the quarter Rob.
Thanks, Howard I'll begin on slide six with a review of key financial results for the third quarter. Please note that all results are on an adjusted basis and our growth metrics are on a year over year basis, unless otherwise stated.
The GAAP to non-GAAP EPS reconciliation is in the appendix of this presentation and in the press release.
As Howard said third quarter financial results reflects <unk> continued ability to deliver strong results in a low volume environment, we generated sequential growth in sales and adjusted EBITDA and approved yet adjusted EBITDA margin to 16, 4%.
Furthermore, we exceeded our expectations and achieved adjusted EPS of $1.46.
This strong profitability was broad base as impactful cost controls and improved productivity drove near record profitability in both flexible and rigid paper containers in the consumer segment and strong profitability in the industrial segment.
And the third quarter consolidated sales decreased to $1 7 billion sales.
Sales decreased due to low volumes and index based price decreases in both consumer and industrial adjusted operating profit decreased to $213 million.
And adjusted EBITDA decreased to $280 million, we maintained at about 16% adjusted EBITDA margin due to improved productivity and long term cost controls associated with our ongoing business transformation program.
Adjusted EPS of $1.46 was driven by strong operating performance as well as favorable tax and FX adjusted.
Adjusted EPS increased sequentially from the second quarter due to modest volume improvement positive productivity and positive nonoperating factors despite negative price cost.
The sales bridge on slide seven explains the year over year change in sales in the quarter volume mix was negative $145 million or negative seven 7%.
This volume decrease was anticipated and was the product of weakening consumer demand due to the impact of inflationary pricing and destocking at retail and continued low industrial demand.
We continue to take steps to improve demand visibility and we are managing the business to mitigate the impact of low volumes price was negative $58 million. Our pricing performance was driven by indexation based price decreases primarily in resin and metals based businesses.
FX and other had a positive impact of $23 million with FX contributed $17 million.
The adjusted operating profit bridge explains the year over year change in adjusted operating profit in the quarter volume mix was negative $31 million as low volumes impacted.
Profitability.
Cost was negative $10 million.
As index based prices declined more than overall inputs declined on a year over year basis.
We continue to experience inflation on fixed cost and variable inputs like labor, while market oriented inputs that drive index based pricing such as metal and most revenues declined on a year over year basis.
Productivity was $30 million due to restructuring activities targeting fixed cost and favorable manufacturing and purchasing performance.
Slide eight has an overview of our segment performance for the quarter consumer sales decreased to $938 million.
Volumes decreased eight 1% due to inflationary pricing and continued destocking at retail customers of our consumer packaging remain cautious we believe that our solutions are winning share.
Rigid paper container sales were flat as continued global growth, especially in Europe, and Latin America was offset by weakness in North America.
Flexible sales decreased high single digits as low volume with legacy customers offset share gains with new customers.
Metal packaging sales decreased due to template based pricing decreases and lower volume in both food and aerosol.
Demand from our core customers has stabilized and indications are that destocking with these customers has moderated.
Consumer operating profit decreased to $112 million as strong productivity was offset by lower volume mix and negative price cost.
Consumer operating profit margin increased to 11, 9% flex.
Flexible and rigid paper containers, both had near record operating profit due to strong productivity.
Turning to industrial and.
Industrial sales decreased to $580 million industrial volumes decreased seven 5% due to lower demand in all key markets and geographies.
We believe these declines are not share related as indications are that we continue to gain share based on quality and service operating profit decreased to $75 million due to lower volumes and negative price cost.
We generated positive productivity due to our focus on improving paper mill utilization and reducing fixed cost and SG&A.
Our recent capital investments such as project Horizon have enabled us to focus on the right markets with the right assets. We are operating with agility and continue to evaluate system improvements to maximize profitability.
Operator: Good day, and thank you for standing by.
Operating profit margin remained at a historically strong 12, 9% a meaningful improvement from previous economic lows.
Operator: Welcome to the Q3 2023 Sonoco Earnings Conference Call. At this time, while participants are in a listen-only mode.
Operator: After the speaker's presentation, there will be a question and answer session. To ask the question during the session, you will need to press star-1-1 on your telephone. You will be in here and audited message advising that your hand is raised. To withdraw your question, please press star-1-1 again.
All other sales decreased to $192 million due to low volumes operating profit increased 66% to $26 million due to strong price cost and productivity.
Moving to slide nine.
Our capital allocation framework aligns with our business strategy to drive value creation through earnings growth and higher margin, our priority to dynamically allocate capital to long term strategies to improve growth and profitability in our core businesses. We remain focused on increasing the dividend, which at present at <unk> 51 per share on a quarterly basis or on a <unk>.
Operator: Please be advised that today's conference is being recorded.
Lisa Weeks: I would now like to hand the conference over to your speaker, Lisa Weeks, Vice President of Investor Relations. Please go ahead.
Lisa Weeks: Thank you, Operator, and thanks to everyone for joining us today for Sonoco's third quarter 2023 earnings call. Joining me this morning are Howard Coker, President and CEO, Rob Dillard, Chief Financial Officer, and Rodger Fuller, Chief Operating Officer. Last evening, we issued a news release highlighting our financial performance for the third quarter, and we prepared a presentation that we will reference during this call. The press release and presentation are available online under the Investor Relations section of our website at sonoco.com.
But 4% annualized yield based on our current share price.
After capital investments and the dividend, we prioritize investments in accretive and strategic M&A balanced against our priority of maintaining strong liquidity and access to capital.
And the third quarter, we increased the size of our revolving credit facility and refinanced our term loans to extend maturities and reduced average interest rates, while also funding the Rts acquisition.
Lisa Weeks: As a reminder, during today's call, we will discuss a number of forward-looking statements based on current expectations, estimates, and projections. These statements are not guarantees of future performance that are subject to certain risks and uncertainties. Therefore, actual results may differ materially. Please take a moment to review the forward-looking statements on page 2 of the presentation. Additionally, today's presentation includes the use of non-GAAP financial measures, which management believes provides useful information to investors about the company's financial conditions and results of operations. Further information about the company's use of non-GAAP financial measures, including definitions, as well as reconciliation to GAAP measures, is available under the Investor Relations section of our website.
We began the fourth quarter with record liquidity and the ability to continue to pay down debt with cash from operations in the third quarter, we generated operating cash flow of $268 million and invested $93 million in capital expenditures on.
On slide 10, we have our guidance update.
We are increasing our full year 2023, EPS guidance to $5 25 to $5 40.
Raising the lower end of the range to reflect our year to date performance, but maintaining the top end of the range to reflect the current market instability, especially considering recent weak demand trends in December were also increasing our full year 2023, adjusted EBITDA guidance to one point of 5 billion to $1 8 billion.
Lisa Weeks: For today's call, we will have prepared remarks regarding our results for the quarter and outlook for the fourth quarter followed by a Q&A session.
To reflect these changes and to reflect our expectation of maintaining higher receivables and lower payables and anticipated. We're revising our full year 2023, operating cash flow guidance to $850 million to $900 million.
Howard Coker: If you will turn to slides 4 in our presentation, I will now turn the call over to our CEO, Howard Coker. Okay. Well, thank you, Lisa. Good morning, everyone. And thank you for joining our third quarter of 2023 earnings call. Let me begin with highlights of the quarter. For Sanucco, we executed well even with the ongoing market uncertainty. Self came in at $1.71 billion, adjusted either $1,280 million, and adjusted earnings per share was $1.46.
We are managing capital expenditures appropriately and expect to invest between $300 million and $325 million in 2023 now.
Now Roger will discuss the fourth quarter outlook.
Thanks, Rob if you please turn to slide 11 for our view on the segment performance drivers for the fourth quarter of 2023.
First in the consumer segment for the fourth quarter, we expect stable volume performance versus last year and down slightly sequentially to the third quarter due to seasonality, primarily in our flexible and rigid plastics businesses.
Howard Coker: Fels were flat sequentially and generally in line with expectation. In the industrial sector, the man remains muted and volumes low. In consumer volumes were sequentially higher in most businesses, while minimal aerosol can volumes continue to underperform driven by lower end market demand and ongoing customer disliking. Our profit results were better than expected from strong productivity and effective cost management by our teams. Our productivity results were benefiting from the capital investments we're making across our plant network, including automation, process improvements, and energy cost reductions.
In our global rigid paper containers business softness and some legacy products is being offset with new products using our proprietary sustainable paper solutions. We're excited to continue the global expansion of our rigid paper containers as we'll utilize the new capacity added in our existing operations in Brazil, Malaysia, and Poland. These operations are utilized.
Our state of the art equipment and automation technologies with plans for more investments in 2024 and emerging markets for paper cans.
And our flexible packaging business, we expect seasonally lower volumes after the third quarter holiday pack, but we should see continued solid productivity and flexibility as a result of recent investments in new technology and.
Howard Coker: We expanded the adjusted EBITDA margins to over 16% and delivered strong cash flow during the quarter. We achieve these results even while we continue to invest in long-term value-adding projects and R&D initiatives throughout the portfolio. Overall, I'm pleased with how these results reflect our continued ability to execute, simplification, transformation, and operational excellence initiatives to build a more resilient company with strong performance through the cycles. We are also pleased to close the RTS packaging and Chattanooga paper mill acquisition in September.
In metal cans, we expect seasonally lower food can volumes after the peak tax season in the third quarter and metal aerosol volumes are expected to remain soft in the fourth quarter, we expect positive productivity in metal to continue in the fourth quarter due to capital investments.
Turning to the industrial segment as we expected for the second half of 2023 global demand for our paper and converted products remained soft in the fourth quarter global industrial volumes will be slightly lower versus last year.
We have seen some slight demand improvement in our north American paper and converted products business with Europe, and Asia remain remaining quite weak.
Howard Coker: These acquisitions well aligned with Sonoco's long-term strategy to focus on our core integrated businesses and expand our sustainable consumer packaging portfolio, serving food, beverage, and beauty markets. The integration process is well underway and we are delighted to welcome our new colleagues to Sonoco.
Also in the fourth quarter price cost benefits will be lower industrial due to index based pricing and cost inputs.
With the lower volumes in industrial productivity improvements remain challenging, but we will continue to aggressively manage variable expenses as a countermeasure to minimize the impacts from volume deleveraging.
And finally in our all other businesses, we expect slightly lower volumes from seasonality.
Howard Coker: And with that, I will turn it over to Rob for more details on the core.
So in conclusion for the fourth quarter. The team is focused on cost control footprint optimization in all forms of productivity will be critical till we see a sustained improvement in customer demand.
Rob Dillard: Rob?
Rob Dillard: Thanks, Howard.
Rob Dillard: I'll begin on slide six with a review of key financial results for the third quarter. Please note that all results are on an adjusted basis, and all growth metrics are on a year-over-year basis, unless otherwise stated. The gas and non-gap EPS reconciliation is in the appendix of this presentation and in the press relics. As Howard said, third quarter financial results reflect Sonoco's continued ability to deliver strong results in a low volume environment.
With that back to you out alright, thanks, Roger in closing I, just want to state that despite all the external demand uncertainty. This year our team is performing extremely well.
And we have continued to solidify the foundation of the Sunoco and make progress on our strategic initiatives.
Further on behalf of Sunoco <unk> management team I would like to recognize the dedication and hard work demonstrated through the quarter and year.
Rob Dillard: We generated sequential growth and sales and adjusted EBITDA and approved the adjusted EBITDA margin to 16.4%. Furthermore, we exceeded our expectations and achieved adjusted EPS of $1.46. This strong profitability was broad base as impactful cost controls and approved productivity drove near-record profitability in both flexible and rigid paper containers in the consumer segment and strong profitability in the industrial segment. And the third quarter consolidated sales decreased to 1.7 billion. Sales decreased due to low volumes and index-based price decreases in both consumer and industrial.
At that at this point and thank all of you for the work you've done our transformation is well underway. There is still more to be done and I know our teams are up to the challenge.
Just to further touch on these strategic initiatives, which have been covering through the year I'll remind you that we are only midway through reshaping our portfolio and we look forward to completing our noncore divestitures, when we can maximize value in the marketplace.
On the operating model side, Sonoco is becoming a more focused agile and operate operationally efficient company.
The continued optimization of our mix and factory footprint combined with driving productivity and value added capital projects. It projects will sustain and drive margin expansion in the future.
Rob Dillard: Adjusted operating profit decreased to 213 million and adjusted EBITDA decreased to 280 million. We maintained in about 16% adjusted EBITDA margin due to improved productivity and long term cost controls associated with our ongoing business transformation program. Adjusted EPS of $1.46 was driven by strong operating performance as well as favorable tax and FF. Adjusted EPS increased sequentially from the second quarter due to modest volume improvement, positive productivity and positive non-operating factors despite negative price cost.
Our balance sheet remains strong and we continue to generate cash and allocate capital in a disciplined and efficient manager management.
And lastly, our commitment to ESG and sustainability and so those are unwavering and remain wholly aligned to the core values of the company.
There are a lot of great things going on in Sunoco and the team and I generally look forward to providing more in depth updates on our progress during our planned Sunoco Investor day, which is scheduled for February 22nd of next year at 75, Rockefeller Plaza in New York City we.
Rob Dillard: The sales bridge on slide seven explains the year of your change in sales in the quarter. Volume X was negative 145 million or negative 7.7%. This volume decrease was anticipated and was the product of weakening consumer demand due to the impact of inflationary pricing and destocking at retail and continued low industrial demand. We continue to take steps to improve demand visibility and we are managing the business to mitigate the impact of low volume.
We will be sharing key updates on our segments, our markets and our fantastic technology innovations and we look forward to seeing you there.
At this time, operator, we would be happy to answer any questions.
That folks may have 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.
Rob Dillard: Price with negative 58 million, a pricing performance was driven by index based price decreases, primarily in resin and metals based businesses, effects and other had a positive impact of 23 million with effects contributing 17 million. The adjusted operating profit bridge explains the year of your change in adjusted operating profit on the quarter. Volume X was negative 31 million, as low volumes impacted profitability. Price cost was negative 10 million, as index based prices declined more than overall inputs declined on a year of your basis.
One moment for our first question.
Okay.
Our first question will be coming from George Staphos of Bank of America. Your line is open.
Hi, everyone. Good morning, Thanks for the details.
Thanks for taking my question I guess, the first question I had.
Howard and team third quarter, you performed better than your guidance congratulations on that it sounded like.
Rob Dillard: We continue to experience inflation and fixed costs and variable inputs like labor while market oriented inputs that drive index based pricing such as metal and most resins declined on a year of a year basis. Productivity was 30 million due to restructuring activities targeting fixed cost and favorable manufacturing and purchasing performance.
A lot of that was productivity.
So I guess my question would be.
What if that's the correct premise what was the driver of the outperformance and as we overlay that into the fourth quarter might.
Might we not see that continue.
And yet we're looking at a steeper drop in fourth quarter earnings year on year.
Rob Dillard: Slide 8 has an overview of our segment performance for the quarter consumer sales decreased to 938 million consumer volume decreased 8.1% due to inflationary pricing and continued destocking at retail. Customers of our consumer packaging remain cautious. We believe that our solutions are winning share.
And the related question to that would be is that largely because of price cost becoming a bit more negative.
For the reason that you mentioned.
If you add color on that that'd be great.
One follow on after that.
Sure George Yes, the third quarter.
Rob Dillard: Bridget paper container sales were flat as continued global growth, especially in Europe and Latin America was also by weakness in North America. Fust will sales decreased high single digits as low volume with legacy customers also share gains with new customers. Metal packaging sales decreased due to template based pricing decreases and lower volume in both food and aerosol. Demand from our core customers has stabilized. Indication are that destocking with these customers has moderated consumer operating profit decreased to 112 million. A strong productivity was also by lower volume and negative price cost consumer operating profit margin increased to 11.9%.
Volumes were.
We're.
About where we expected them to be a little bit softer, but youre right productivity actually covered that so.
That's the real driver as well as how we manage.
General cost containment et cetera, as we look into the fourth quarter, we're seeing seasonal declines.
Declines.
Ahead of Us I expect that.
Productivity still should be pretty solid.
But the real question Mark is all around what the volumes are going to be.
And.
As we hit into that December timeframe that that's that's the real watch out for us. So we see people, taking extended downtime drama holidays et cetera.
Rob Dillard: Flexibles and rigid paper containers both had near record operating profit due to strong productivity.
So we are being cautious in that regard, but that's the main drivers of what we're looking at for the remainder of the year.
Rob Dillard: Turning to industrial industrial sales decreased to 580 million industrial volumes decreased 7.5% due to lower demand and all key markets and geographies. We believe these declines are not share related as indications are that we continue to gain share based on quality and service operating profit decreased to 75 million due to lower volumes and negative price cost. We generated positive productivity due to our focus on improving paper mill utilization and reducing fixed cost and SGNA.
You guys have any other.
Yes, George that's a good question I think that Howard hit it hit it right. If you think about next quarter. What we're thinking is volume will be a little bit weaker just generally because of the seasonality and we always have been cautious about projecting December in the last couple of years, but the productivity is.
It's been really strong and is due to some of the strategic investments we've been making so we're hitting really on all three cylinders.
Rob Dillard: We think capital investments such as project horizon have enabled us to focus on the right markets with the right assets. We are operating with agility and continue to evaluate system improvements to maximize profitability operating profit margin remainder to historically strong 12.9% and meaningful improvement from previous economic lows.
Our procurement manufacturing and really getting after fixed cost and that's what all.
All of the activity of the team has been doing so if you think about year over year in the fourth quarter, we're expecting to have pretty similar year over year performance and productivity.
<unk> 2020 five of improvement.
Rob Dillard: All other sales decreased to 192 million due to low volumes operating profit increased 66% to 26 million due to strong price cost and productivity.
And so we feel really good about how all of that starting to flow through the P&L.
Thanks for that Rob.
Yes.
One related question and then a quick one on metal. So you mentioned that legacy flexible was weak or meaning your legacy customers and flexible week, you picked up some new business that helped to offset.
Rob Dillard: Moving to slide 9, our capital allocation framework aligns with our business strategy to drive value creation through earnings growth and higher margin. Our priority is to dynamically allocate capital to long term strategies to improve growth and profitability in our core business. We remain focused on increasing the dividend, which are present at 51 cents per share on a quarterly basis or an approximate 4% annualized yield based on our current share price.
Richard paper was down in North America.
It's sort of the same.
Novel, we've been all reading in terms of all the companies, but what are your customers in those key consumer markets, where you're saying about.
Rob Dillard: After capital investments in the dividend, we prioritize investments in a creative and strategic M&A, balanced against our priority of maintaining strong liquidity and access to capital. And the third quarter we increase the size of our revolving credit facility and refinance our term ones to extend maturities and reduced average interest rates, while also funding the RTS acquisition. We began the fourth quarter with record liquidity, and the ability to continue to pay down debt with cash from operations. And the third quarter we generated operating cash flow of 268 million and invested 93 million in capital expenditures.
Whether we're done with Destocking, where the consumer demand is looking sequentially better as we get into 'twenty four and then.
Last question metal, where is that performing versus your deal model at this juncture given all of the volume degradation. We've seen thank you good luck in the quarter.
Yes.
What our customers are saying right now George and what we're seeing is and you can say it as well that were starting to see more.
Additional activity on the shelves more discounting.
And a part of what we've been dealing with and I think the sector in general.
Rob Dillard: On slide 10, we have our guidance updates. We are increasing our full year 2023 EPS guidance to $5.25 to $5.40, raising the lower end of the range to reflect our year-to-date performance, but maintaining the top end of the range to reflect the current market instability, especially considering recent week demand trends in December. We're also increasing our full year 2023 adjusted EBITDA guidance to 1.05 billion to 1.88 billion.
Yes.
The price inflation through the course of the year trying to maintain that and so we're starting to see breaks in that.
Don't expect that that's going to be a material impact.
In the first quarter, we're still early to kind of.
Looking at.
What is next year going to look like but certainly we are seeing having conversations with customers and youre seeing them on the shelf as it relates to.
Rob Dillard: To reflect these changes and to reflect our expectation of maintaining higher receivables and lower payables than anticipated, we are revising our full year 2023 operating cash flow guidance to $850,900 million. We are managing capital expenditures appropriately and expect to invest between 300 million and 325 million in 2023.
At the two exchanging price for volume.
At our customer level.
As it relates to the deal model all model, we're right, where we said we thought we would be particularly if you look at it.
The ebbs and flows of year, one and as we encroach the end of year two we.
We had this.
Phenomenal year last year.
Rodger Fuller: Now Roger will discuss the fourth quarter afloat. Thanks Rob.
Really relative to the.
To the well publicized.
Rodger Fuller: If you please turn to follow the evidence for our view on the segment performance drivers for the fourth quarter of 2023. First in the consumer segment for the fourth quarter we expect stable volume performance versus last year and down slightly sequentially to the third quarter due to seasonality primarily in our flexible and rigid plastic businesses. Our global rigid paper containers business softness and some legacy products is being offset with new products using our proprietary sustainable paper solutions.
Inventory variances that we had year over year positive versus negative you take him an average amount and we're right on top of exactly where we thought we would be.
So we feel very good about that but even more importantly.
As we continue the integration has gone fantastically the synergies that we identified.
Are there and being obtained in frankly.
Really pleased with the incremental synergies that we didnt anticipate that we have ahead of us.
Rodger Fuller: We're excited to continue the global expansion of our rigid paper containers as we utilize the new capacity added in our existing operations in Brazil, Malaysia and Poland. These operations are utilizing our state of the art equipment and automation technologies with plans for more investments in 2024 and emerging markets for paper cans. In our flexible packaging business, we expect seasonally lower volumes after the third quarter holiday pack, but we should see continued solid productivity and flexible as a result of recent investments in new technology.
And I've said this before the market reaction has been very very.
Positive.
Frankly, this is a marathon not a not a sprint, but really pleased on how it's been integrated will it.
Pleased with the overall financial performance.
And looking forward to.
Two continuing.
With the synergies and other opportunities that we see over the coming period.
Rodger Fuller: In metal cans, we expect seasonally lower food can volume after the peak pack season in the third quarter and metal aerosol volumes are expected to remain soft in the fourth quarter. We expect positive productivity and metal to continue in the fourth quarter due to capital investments.
Thank you very much good luck in the quarter.
Thanks.
One moment for our next question.
And our next question will be coming from Anthony Pettinari of Citi. Your line is open Anthony.
Rodger Fuller: Turning to the industrial segment as we expected for the second half of 2023, global demand for our paper and converted products remains soft. In the fourth quarter, global industrial volumes will be slightly lower versus last year. We've seen some slight demand improvement in our North American paper and converted products business with Europe and Asia remaining quite weak. Also in the fourth quarter, price cost benefits will be lower industrial due to index-based pricing and cost inputs.
Hi, good morning.
Rodger Fuller: With lower volumes in industrial productivity improvements remain challenging, but we will continue to aggressively manage bearable expenses as a countermeasure to minimize the impacts from volume deleverging. And finally, in our other businesses we expect slightly lower volumes from seasonality.
Rodger Fuller: So in conclusion for the fourth quarter, the teams focus on cost control, footprint optimization, and all forms of productivity will be critical till we see a sustained improvement in customer demand.
Howard Coker: And with that, back to you, Howard. All right, thanks, Roger. And closing, I just want to say that despite all the external demand uncertainty this year, our team is performing extremely well. And we have continued to solidify the foundations of Sonoco and make progress on our strategic initiatives.
Howard Coker: Thinking further on behalf of Sonoco's management team, I would like to recognize the dedication and hard work demonstrated through the quarter and year at this point and thank all of you for the work you've done. Our transformation is well underway. There's still more to be done and I know our teams are up to the challenge. And just to further touch on these strategic initiatives, which I've been covering through the year, or remind you that we're only midway through reshaping our portfolio.
Some improvement in the U S. I I don't know if that's just purely a function of easier comps or there's maybe some organic growth there and I just wonder if you can comment on that and then in Asia and Europe. You don't understand you don't have great visibility and there's a lot of macro uncertainty <unk> do you have any sense, whether those markets are getting.
Howard Coker: And we look forward to completing our non-core divestitures when we can maximize value in the marketplace. On the operating model side, Sonoco is becoming a more focused, agile, and operationally efficient company. The continued optimization of our mix and factory footprint combined with driving productivity and value added capital project will sustain and drive margin expansion in the future. Our balance sheet remains strong and we continue to generate cash and allocate capital and a discipline and efficient management management.
<unk> worse or sort of stable are getting better or any other comments you can give there.
Yeah, Hey, Roger again, Yeah, North America, you know I said slight improvements and I think that's what we're saying we certainly seen the we feel at the bottom in North America from a from a volume standpoint and industrials.
If you look at our U R. B system, you know, we we operated about 85% capacity in the third quarter, which was you know five per cent better than the market place.
So we felt we felt good about that that's coming from our integrated <unk>.
Howard Coker: And lastly, our commitment to ESG and sustainability initiatives are unwavering and remain wholly aligned to the core values of the company.
System as well as some really good strong longterm customer relationships. So North America, a little signs of improvement you know I wouldn't call. It a trend yet, but we will see how <unk> how it goes in the fourth quarter and moving to the the first quarter.
Howard Coker: There are a lot of great things going on in Sonoco and the team and our generally look forward to providing more in depth updates on our progress during our plans for Sonoco investor day, which is scheduled for February 22nd of next year at 75 Rockefeller Plaza in New York City. We will be sharing key updates on our segments, our markets, and our fantastic technology innovations and we look forward to seeing you there.
Europe and Asia remain weak, there's not getting worse, which is nice but there remain wait <unk>. You are based systems ran in that 75 to 80 per cent capacity.
Area Oh, we expect the same for the fourth quarter and if you look at year over year industrial volumes for the fourth quarter, where we're calling it down about the per cent and a half to two per cent.
Operator: At this time, I'm afraid we would be happy to answer any questions that folks may have. Certainly, as a reminder to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please stand by when we compile the Q&A roster. One moment for our first question.
And that's versus down 75% in the third quarter a year over year. So incrementally we're seeing a little improvement plus of course, the cops are getting easier as we move quarter to quarter and that will continue into the first half of next year.
I have to add just add to that as we talk about the volume side and and we feel like we've been in manufacturing.
Fresh general Recession's really since December or so of last year volume says you.
George Staphos: Our first question will be coming from a Georgia staff of Bank of America. Your line is open. Hi everyone, good morning. Thanks for the details. Thanks for taking my question. I guess the first question I had. Howard and Team, you know, third quarter, you performed better than your guidance. Congratulations on that. It sounded like a lot of that was productivity.
Saying through the course of that period of time on industrial have been.
Then challenged to say the least but I can't tell you how impressed I have been with the team performance.
Howard Coker: So I guess my question would be, what was, if that's the correct premise, what was the driver of the outperformance, and as we overlay that it's the fourth quarter, might we not see that continue. And yet we're looking at a steeper drop in fourth quarter earnings year on year, and the related question to that would be, is that largely because of price cost becoming a bit more negative for the reason that you mentioned.
We talk about productivity, we talk about the investments that we've made.
I.
I guess you guys are probably glad we're not talking about project horizon every moment that you see us or hear from us but.
That's just the poster child of.
Not being in the corrugated medium market right now vertically integrated and how does that flattened out and and frankly improves particularly in in times like like this.
Our overall industrial margin profile so.
Saying some degradation very high levels last year from a <unk> perspective, even with with difficult volumes.
Howard Coker: And if you had color on that, that would be great. I had one follow on after that. Sure, George. Yeah, the third quarter, you know, volumes were about where we expected them to be a little bit softer, but you're right, productivity actually covered that. So that's the real driver as well as how we managed, you know, general cost containment, etc. As we look into the fourth quarter, you know, we're seeing seasonal type declines ahead of us, I expect that productivity still should be pretty solid.
At the same time <unk> has dropped by $20 a ton.
We are extremely confident that we're going to maintain those double digit type margins, even in difficult times and what excites me about where we stand today is there will be a recovery, we're not losing chair.
The market's not shifting in any way and they will be recovery and when that happens the the the leveraging effect we are not enjoying right now in our productivity.
Will come into play.
And.
Looking forward to.
Getting out of the situation that we're and hopefully that will be.
Howard Coker: But the real question mark is all around, you know, what the volumes are going to be. And, you know, as we hit into that December timeframe, that that's the real watch out for. So we see people taking extended downtime around the holidays, etc. So being cautious on that regard, but that's the main drivers of what we're looking at for the remainder of the year. Are you guys having the other? Yeah, George, that's a good question.
And for US it's <unk>, it's hard for anybody to have a crystal ball.
Maybe next year, we start seeing.
Some type of improvements on on the industrial side and with that will come added leverage as it relates to the investments in the productivity that we.
Okay that that's very helpful I'll turn it over.
Howard Coker: I think that, you know, how it hit it, hit it right. If you think about next quarter, what we're thinking as volume will be a little bit weaker just generally because of the seasonality and we always have been cautious about projecting December in the last couple of years. But the productivity performance has been really strong and as due to, you know, some of the strategic investments we've been making, so we're hitting really on all three cylinders of, you know, our procurement manufacturing and really getting after fixed cost.
And one moment for our next question.
Our next question will be coming from Mark <unk>, a seaport research partners to your line is open Mark.
Thank you for the first question was Ah New York has transaction getting completed obviously, the world's changed a little bit OCC higher Europe EBIT lower.
Can you update it's a kind of on what type of accretion or EBITDA contribution.
Howard Coker: And that's what, you know, all the activity the team's been doing. So if you think about year of a year in the fourth quarter, we're expecting to have pretty similar year of a year performance and productivity of, you know, between 20 and 25 cents of improvement. And so we feel really good about how all that's starting to flow through the piano.
In the current environment.
Rob Dillard: Thanks, that Rob.
Is it reasonable to be anticipating.
Yeah. That's a good question really no change I mean, we've been really pleased with how those assets have come over to our portfolio and always when we talked about it last year. We said it was 50 million and EBITDA with about $60 million a targeted synergies, but 10 of those were kind of day, one and what we're seeing.
George Staphos: I guess one related question and then a quick one on metal. So you mentioned that legacy flexible was weak, or meaning your legacy customers and flexible week. You picked up some new business that helped offset a rigid paper was down in North America. You know, it's sort of the same novel we've been all reading in terms of all the companies. But what are your customers in those key consumer markets for you saying about whether we're done with destocking, whether consumer demand is looking, you know, sequentially better as we get into 24.
<unk> is that those synergies are coming through day, one so the businesses performing well I would say there.
The TSA load is probably a little bit more than you probably were anticipating we think that this is.
That it's give or take five plus or minus a couple of cents per quarter next year.
So we feel really good about how that's how that's coming through and how the business is operating and is Howard said I think that it's additive to the system and this low volume environment because the mill is relatively covered but it gives us more tons to spread across the system. So we feel really good about that.
Howard Coker: And then last question, metal, where is that performing versus your deal model at this juncture given all the volume degradation we've seen. Thank you. Good luck in the quarter. Yeah, what our customers are saying right now, George and what we're seeing is, and you can say this as well, that we're starting to see more emotional activity on the shelves, more discounting, in the part of what we've been dealing with. And I think the sector in general is, you know, the price inflation through the course of the year trying to maintain that.
Okay, great and that that that includes the Chattanooga when you're talking.
In this conversation.
Yeah. That's a good question I was talking about both I mean, we think about it all is is one kind of integrated transaction.
Got it makes sense and then.
What are some of the other.
Actions that you're taking that can move the dial that are outside of business getting better that are are going to be flowing through next year that you'd want a highlight as we think about.
Howard Coker: And so we're starting to see breaks in that. Don't expect that that's going to be a material impact. In the first quarter, we're still early kind of, you know, looking at, you know, what is next year going to look like, but certainly we're seeing having conversations with customers and you're seeing them on the shelf as it relates to. To, to exchanging price for volume at our customer level.
Bridging out 24 versus twenty-three.
Mark Yeah.
We continue on our journey as it relates to you know three years ago, four and a half years ago, we really started kicking up our capital related to to growth and productivity.
And with the Covid normal capital cycle, Ken Ron <unk> two years Covid.
Howard Coker: As it relates to the deal model on metal, we're right where we said we thought we would be, particularly if you look at the evidence flows of year one, and as we encroached the end of year two, we had a just phenomenal year last year. And it's really relative to the well-publicized inventory variances that we had year over year, positive versus negative. You take them and you average them out, and we're right on top of exactly where we thought we would be.
Is extended that so where the expectation is we're going to see.
Incremental improvement.
From those investments go into next year.
And we've talked a lot about it.
Restructuring, how we manage our businesses from the center and what does the portfolio going to look like going forward. So we've been busy over the last 18 months or so.
The term around the air is clear in the underbrush, but don't small the vast assurers closing facilities.
Howard Coker: So we feel very good about that, but even more importantly, you know, as we continue, the integration has gone fantastically. The synergies that we identified are there and being obtained and frankly, really pleased with the incremental synergies that we had didn't anticipate that we have a head of us. And, you know, I've said this before, the market reaction has been very, very positive, and frankly, this is a marathon, not not a sprint, but really pleased on how it's been integrated.
Our dilutive too.
So the overall company and non strategic.
That's going to continue and we're together in February.
We plan to try to we will.
Presented to you guys.
Let's not mission accomplished it's where we stand at this point in time, and I think you'll you'll be pretty impressed with some of the restructuring activities that that will announce at that point in time, and how we're going to be managing the company going forward from a modeling perspective, sorry, I can't can't help you with how that all equate.
Operator: Really pleased with the overall financial performance and looking forward to continuing the synergies and other opportunities that we see over the coming period. Thank you very much. Good luck in the quarter. Thanks. And one moment for our next question.
Economically quarterback or through the year, but.
Hopefully more.
More information will be coming.
As we we get together in February.
Okay fair enough and lastly, recognizing it's a dynamic environment, but.
Given where it can play it is et cetera did you have a perspective, whether there is likely to be additional.
Anthony Pettinari: And our next question will be coming from Anthony Pettinari, a city your line has opened Anthony.
Inventory impacts that flow through you know metal benefits or.
Rodger Fuller: Good morning. Just following up on Georgia's question, you know, in consumer, you obviously fell into a lot of different end markets and customers. I'm just wondering are there specific markets where destocking maybe is a bit closer to an end or others where maybe you're seeing, you know, new rounds of destocking or pullback that surprising you. And I'm sorry if I missed this, but is it possible to quantify what you're expecting for 4Q and consumer on a year over your basis.
Negative impacts next year or any.
Any help there I mean, it would seem like another negative but.
Yeah, well, it's it's earlier and you know everybody's aware of.
Of what's going on from a supply side perspective, their tariffs acquisition discussions et cetera, a lot of noise, which is causing delays in terms of of our negotiations. So it is really not there yet to talk about what we think from a direct inflationary impact what I would say is from a.
Rodger Fuller: Hi, I think it's Roger. Yeah, consumer fourth quarter looking flat on a year over your basis was with some improvement in the metal and the cans out of business, but metal and paper and some continued volume struggles and flexible but flat year over year. And you really have to look at it, you know, almost SKU by SKU, but into flexible area. Confection and snacks have been very weak. I wouldn't call that destocking.
Ah slice and or deflation part, what let's say is that the our customer profile from an inventory perspective is much more favorable.
Major customers are saying in one case, those with with with a customer with a couple of weeks ago, who is.
<unk> their inventory.
Rodger Fuller: I think that's more of a price on the shelf issue. And then you have to think about where the inventory and the stock is really more in our metal side of our business where you have longer shelf life on products and is Howard said we're seeing that, you know, start to ease. And come to come to an, not come to an end, but ease up. So again, in the fourth quarter, we see slightly better metal volumes in fourth quarter of last.
To our detriment in the first half of the year as they voted down and they'll come in and so we're saying that across the board that the <unk> are starting to normalize so whatever happens I'll still pricing up or down.
Rodger Fuller: Thank you. Okay, that's very helpful.
It will the relative impact should be should they less favorable favorable or negative as inventories at our customer locations of a decrease.
I understood. That's helpful. Thank you.
And one moment for our next question.
Rodger Fuller: And then in industrial, you talked about maybe some improvement in the US. I don't know if that's just purely a function of easier comps or there's maybe some organic growth there.
And just as a brief reminder, if he would like to ask a question. Please press star one one from your telephone.
Rodger Fuller: And I just wanted to come in on that. And then in Asia and Europe, you don't understand you don't have great visibility and there's a lot of macro uncertainty. Do you have any sense whether those markets are getting worse or sort of stable or getting better or any other comments that you give there? Yeah, if they Roger again. Yeah, North America, you know, I said slide improvements. And I think that's what we've seen.
And our next question will come from Gabe Hodge and Wells Fargo Securities. Your line is open.
I have this is Alexander.
Thanks for taking my question I appreciate all the pharmacy got something wrong on the queue for but maybe just <unk> <unk> <unk> <unk> <unk>.
Rodger Fuller: We certainly seen the we feel like the bottom in North America from a from a volume standpoint and then to us reels. You know, if you look at our URB system, you know, we operated about 85% capacity in the third quarter, which was, you know, 5% better than the marketplace. So we felt we felt good about that that's coming from our integrated system as well as some really good strong long term customer relationships.
For.
Comment on how he was thinking of that.
Working capital.
Sorry.
Hey, Alex for Q4.
Okay.
T for I think 24 it.
Can comment on that next year's inventory yeah. So for for Q4, you know, how we're thinking about it and what we've thought as in and I think Howard kind of hit the point on on metal is that we have taken out and made a real concerted effort to take inventory out of the business and so at this point.
Rodger Fuller: So North America little sign of improvement, you know, I wouldn't call it a trend yet, but we'll see how we how it goes in the fourth quarter and move into the first quarter.
Rodger Fuller: Europe and Asia remain weak. There's not getting worse, which is nice, but the remain weak, the URB systems ran in that 75 to 80% capacity area. We expect the same for the fourth quarter. And if you look at year over year, industrial volumes for the fourth quarter, we're calling it down about the percent and a half to 2%. And that's versus down 7.5% in the third quarter year over year. So incrementally, we're seeing a little improvement. Plus, of course, the comps are getting easier as we move quarter to quarter. And that will continue into the first half of next year.
Inventories are a little over $250 million less than what it was we expect that it will be stable through the end of the year a big part of that reduction was was in metal.
For the for the other working capital categories.
From last year Q3, Q for we released $100 million or.
Of.
That's something that while.
While we don't expect it to be that magnitude every year. That's just part of the normal cycle for us and so we expect to release another $100 million of Q.
Howard Coker: Yeah, and I had to add to that as we talk about the volume side and we feel like we've been manufacturing depression or recessions really since December or so last year, volumes as you have seen through the course of that period of time on industrial have been then challenged to say the least, but I can't tell you how impressed I have been with the team performance. We talk about productivity, we talk about the investments that we've made.
Q for which will put us about taking out about $148 million of working capital give or take.
For next year.
Really early days, we are we are really managing inventory really aggressively and have been and we're managing.
<unk> really aggressively as well we.
We feel like we're at the right level of of days at this point.
And don't feel like we need to be too aggressive and pulling inventories down any further in the businesses, especially as.
Howard Coker: You know, I guess you guys are probably glad we're not talking about project arise in every moment that you see us or hear from us, but, you know, that's just the poster child of, you know, not being in the corrugated medium market right now vertically integrated. And how does that flatten out and frankly improve particularly in times like like this. Our overall industrial margin profile. So, you know, we're seeing some degradation very high level last year from price calls perspective, even with difficult volumes.
Some businesses are expecting growth next year, so I think that the days the metrics for working capital will stay constant next year and that would be the guidance, we would give on on working capital in 2024.
Okay.
Can you just remind me again <unk> portion of causes labor.
Okay portion of the cards.
In fact that again gave you're breaking up a zebra.
Howard Coker: You know, it's saying can't been in chief has dropped by $20 ton, you know, but we are extremely confident that we're going to maintain, you know, those double digit type margins, even in difficult times. And what excites me about where we stand today is there will be a recovery, we're not losing chair. The market's not shifting in any way and there will be recovery and when that happens, the leveraging effect, we are not enjoying right now and our productivity will come into play.
Sorry can change to remind us again, what will work.
Unfortunately causes labor and.
I guess, how should we think of that the new single digit labor inflation next year do you have anything in your in your contracts too.
<unk> two two.
To your customers through price increases.
We do have the.
The opportunity to pass pass on labor, but.
But.
And having to carry it until those com.
Howard Coker: And, you know, looking forward to getting out of the situation that we're in, I believe that will be, you know, and for us, it's hard to have for anybody to have the crystal ball. But. You know, maybe midnight next year, we start seeing some type of improvements on the industrial side and with that will come added leverages or relates to the investments and the productivity that we have.
Until the until the timing of cost adjustment come into place typically quarterly but.
Certainly labour inflation is continuing to to roll over.
Howard Coker: Okay, that's very helpful.
It's sort of this year and early next year, so it'll be a timing issue with the customers.
Operator: I'll turn it over. In one moment for our next question.
Okay, and lastly, just what unfortunate causes flavor.
Yeah. It varies by business you know I mean, I'd say that in some businesses. It's you know in the fifth and the 20 per cent range. Most of the Cogs is really materials and there's a component of that that certainly fix but it's definitely you know.
Mark Weintraub: Our next question will be coming from Mark Weintraub of seaport research partners. Your line has opened Mark. Thank you.
Less than 25% in every business and some businesses, it's really as noted in the single digits.
Rob Dillard: First question was the RTS transaction getting completed. Obviously the world's changed a little bit. OCC higher, you are be a bit lower. Can you update us a kind of on what type of accretion or EBITDA contribution in the current environment is reasonable to be anticipating? Yeah, Mark, that's a good question. Really no change. We've been really pleased with how those assets have come over to our portfolio. When we talked about it last year, we said it was 50 million at EBITDA, with about 16 million of targeted synergies, but 10 of those were kind of day one.
Okay. Thank you.
I'll turn it over thank you.
Okay.
And I would now like to turn the conference back to Lisa weeks for closing remarks.
Thank you for joining us today, if you have any follow ups will be around after the call to answer your questions are please feel free to contact me to schedule a follow up.
We look forward to seeing you on the right at our plane conferences and events in the coming week, and we will look forward to reporting our fourth quarter and full year results on February 15th 2024, one week later, we will be having our investors and analysts day on February 22nd 2024 in New York is Howard <unk>.
Rob Dillard: And what we're seeing is that those synergies are coming through day one. So the business is performing well. I would say that the TSA load is probably a little bit more than you probably were anticipating. We think that this is, you know, give or take 5 cents plus or minus a couple cents per quarter next year. And so we feel really good about how that's coming through and how the business is operating.
This will be an in person event and a webcast will also be available registration details pretty in person event as well as the webcast will be available on our website <unk>.
And with that will close the call and I Hope you all have a great day.
Rob Dillard: And as Howard said, I think that it's additive to the system in this low volume environment, because the mill is relatively covered, but it gives us more tons to spread across the system. So we feel really good about that.
This concludes today's call. Thank you for participating you may now disconnect.
Rob Dillard: Okay, great. And that includes Chattanooga when you're talking in this conversation. Yeah, that's a good question. I was talking about both. I mean, we think about it all as one kind of integrated transaction. Got it. Makes sense.
Mmm.
[music].
Howard Coker: And then maybe what are some of the other actions that you're taking that can move the dial that are outside of business getting better that are going to be flowing through next year that you'd want to highlight as we think about bridging out 24 versus 23. Mark, yeah, you know, we continue on our journey as it relates to, you know, three years ago, three and a half years ago, we've really started kicking up our capital related to the growth and productivity.
Howard Coker: And with food COVID, you know, normal capital cycle can run one and half to two years. COVID has extended that. So we're at the expectation is we're going to see incremental improvement from those investments going in next year. And, you know, we've talked a lot about, you know, the restructuring how we manage our businesses from the center. And, you know, what is the portfolio going to look like going forward? So we've been busy over the last 18 months or so.
Howard Coker: The term around the air is clear in the underbrush, but building small, the vestitures, closing facilities that are dilutive to the overall company and non-strategic, that's going to continue. And when we're together in February, we plan to try to, we will present to you guys, you know, it's not mission accomplished. It's where we stand at this point in time. And I think you'll be pretty impressed with some of us. Restructuring activities that will announce at that point in time and how we're going to be managing the company going forward from a modeling perspective. Sorry, I can't help you with how that all equates economically quarter by quarter or through the year, but hopefully more information will be coming as we get together in February.
Mark Weintraub: Fair enough.
Mmm.
[music].
Rob Dillard: And just lastly, recognizing it's a dynamic environment, but given where tin plate is, et cetera, did you have a perspective on whether there's likely to be additional inventory impacts that flow through, you know, metal benefits or negative impacts next year or any help there. I mean, it would seem like that could be another negative, but yeah, well, it's early and, you know, everybody's aware of what's going on from a supply perspective there, tariffs, acquisition, discussions, et cetera, by the noise, which is causing delays in terms of the environment negotiations.
Rob Dillard: So it's really not there yet to talk about what we think from a direct inflationary impact, what I would say is from a inflation or deflation impact, what I would say is that the customer profile from an inventory perspective is much more favorable. Major customers are saying in one case, so with with a customer a couple of weeks ago, who was, you know, half their inventory to our detriment in the first half of the year as they've rolled it down and they're coming in.
Mmm.
[music].
Rob Dillard: And so we're saying out across the board that the dementors are starting normalize so whatever happens on still pricing up or down. It will the relative impacts should be should be less favorable favorable or negative as inventories that are customer locations of decreased. Understood that's helpful.
Operator: Thank you. And one moment for our next question. And just at the brief reminder, if you would like to ask a question, please press star 11 from your telephone.
Gabe Hodge: And our next question will come from Gabe Hodge of Wolf Fargo Securities. Your line is open. Oh, yeah, this is Alex from Gabe. Thanks for taking my question. I appreciate all of you. I promise you guys made on the G4.
Rob Dillard: But maybe just a forward to kind of think about 2022. Can you kind of comment on how you're thinking? that the working capital and your inventory. Hey, Alex, for Q4. For Q4 and 24, if you can comment on that. Next year's inventory. Yes, so for Q4, you know, how we're thinking about it and what we've thought as, and I think Howard kind of hit the point on metal is that we have taken out and made a real, concerted effort to take inventory out of the business.
Rob Dillard: And so at this point, you know, the inventory is a little over $250 million less than what it was. We expect that'll be stable through the end of the year. A big part of that reduction was in metal. For the other working capital categories, you see, from last year Q3 to Q4, we released $100 million of AR. That's something that while we don't expect it to be that magnitude every year, that's just part of the normal cycle for us.
Rob Dillard: And so we expect to release another 100 million of AR and Q4, which will put us about taking out about $148 million of working capital give or take. For next year, you know, it's really early days. We are really managing inventory, you know, really aggressively and have been and we're managing AR and AP really aggressively as well. We feel like we're at the right level of days at this point and don't feel like we need to be too aggressive than pulling inventory down any further in the businesses, especially as, you know, some businesses are expecting growth next year. So I think that the days, you know, the metrics for working capital will stay constant next year.
Rob Dillard: And that would be the guidance we would give on working capital in 2024. Okay, thank you.
Rob Dillard: Can you just remind me again, or remind us again, what portion of COS is labor? I guess how should we kind of think about the mid single digit labor inflation next year? Do you have anything in your in your contracts to kind of pass this through to your customer's surprising crisis? We do have the opportunity to pass on labor. But, you know, we're having to carry it until the timing of by suggesting to come in the place, typically quarterly, but certainly labor inflation is continuing to roll over, you know, through this year and then the early next year.
Rob Dillard: So it'll be a timing issue with the customers. Okay, and sorry, lastly, just what portion of COS is labor? Yeah, it varies by business, you know, I mean, I'd say that in some businesses, it's, you know, in the 10 to 20 percent range, most of the COS is really materials. And, you know, there's a component on a lot that certainly fits, but it's definitely, you know, less than 25 percent in every business. And, and, you know, some businesses, it's really in the single digit. Okay. Thank you.
Operator: I'll turn it over. Thank you. Okay.
Lisa Weeks: And I would now like to turn the conference back to Lisa Weeks for closing remarks. Thank you for joining us today. If you have any follow-ups, we'll be around after the call to answer your questions or please feel free to contact me to schedule a follow-up. We look forward to seeing you on the road at our plan conferences and events in the coming weeks and we will look forward to reporting our fourth quarter and full year results on February 15th, 2024.
Lisa Weeks: One week later, we will be having our investor and analyst day on February 22nd, 2024 in New York as Howard's reference. This will be an in-person event and a webcast will also be available. Registration details for the in-person event as well as the webcast will be available on our website soon.
Operator: And with that, we'll close the call and hope you all have a great day. This concludes today's call. Thank you for participating. You may now disconnect.
Operator: [inaudible]