Q4 2023 Pactiv Evergreen Inc Earnings Call
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Operator: Good day, and thank you for standing by. Welcome to the Pactive Evergreen fourth quarter and full year 2023 earnings call. At this time, all participants are in a listen only mode.
Good day, and thank you for standing by and welcome to the attractive evergreen fourth quarter and full year 2023 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question during the session need to press star one on your telephone you will then hear an automated message advising your hand is raised to withdraw your question. Please press star wouldn't want again.
Operator: After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Curt Worthington, Vice President of Strategy and Investor Relations. Please go ahead.
Please be advised today's conference is being recorded I would now like to hand, the conference over to your speaker today, Kurt Worthington Vice President strategy Investor Relations. Please go ahead.
Curt Worthington: Thank you, operator, and good morning, everyone. Welcome to our fourth quarter and full year 2023. With me on the call today, we have Michael King, President and CEO, and John Baksht, CFO. Please visit the events section of our investor relations website at www.pactivevergreen.com and access our supplemental earnings.
Yeah.
Thank you operator, and good morning, everyone welcome to our fourth quarter and full year 2023 earnings call with me on the call today, we have Michael King President and CEO John <unk>.
Please visit the events section of our Investor Relations website at Www dot attractive evergreen dotcom and access our.
The earnings presentation.
Curt Worthington: Management's remarks today should be heard in tandem with this. Before we begin our formal remarks, I want to remind everyone that our discussions today will include forward-looking statements, including those regarding our guidance for 2020. These forward-looking statements are not guarantees of future performance. And actual results could differ materially from those contemplated by our forward... Therefore, you should not put undue reliance on these forward-looking statements. These statements are also subject to numerous risks and uncertainties, which could cause actual results to differ materially from what we expect. We refer all of you to our recent FEC filings, including our annual report on Form 10-K for the year ended December 31st, 2023, for a more formal, detailed discussion The forward-looking statements we make on this call are based on information available to us as of today's date, and we disclaim any obligation to update any forward-looking statements except as required by law.
In his remarks today should be hurting.
We're giving this presentation.
Before we begin our formal remarks I want to remind everyone that our discussions today will include forward looking statements, including those regarding our guidance for 2024.
These forward looking statements are not guarantees of future performance and actual results could differ materially from those contemplated by our forward looking statements and therefore, you should not put undue reliance on those statements. These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect.
We refer all of you to our recent SEC filings, including our annual report on Form 10-K.
The year ended December 31, 2023, or more formal detailed discussion of these remarks.
The forward looking statements we make on this call are based on information available to US as of today's date and we disclaim any obligation to update any forward looking statements, except as required by law.
Michael Jack King: Lastly, during today's call, we will discuss certain GAP and non-GAP financial measures, which we believe can be useful in evaluating. However, our non-GAAP measures should not be considered in isolation or as a substitute for results prepared in accordance with the regulations. Matt Krieger And last, unless otherwise stated, all figures discussed during today's call are for continuing operations. With that, let me turn the call over to Pactiv Evergreen's president and CEO, Michael King. Thanks, Curt. Good morning, everyone, and thanks for joining us today.
Lastly, during today's call, we will discuss certain GAAP and non-GAAP financial measures, which we believe can be useful in evaluating our performance. Our non-GAAP measures should not be considered in isolation or as a substitute for results prepared in accordance with GAAP and reconciliation to the most directly comparable GAAP measures are available.
In our earnings release and in the appendix to today's presentation.
Otherwise stated all figures discussed during today's call Archrock.
Continuing operations now with that let me turn the call over to active evergreens, President and CEO, Michael <unk> Michael.
Thanks Kurt.
Good morning, everyone and thanks for joining us today.
Michael Jack King: I'll start with an overview of our key messages on slide four. 2023 was a pivotal year as we continue to reshape the world. First, we set records for our primary financial metrics, including adjusted EBITDA, adjusted EBITDA margin, and free cash flow. Full-year adjusted EBITDA will increase 7% to $840 million, marking the third consecutive year of growth, and adjusted EBITDA margin of 15.2% improved 260 basis points compared to the last. We also generated almost $250 million in cash flow, up 60% year-over-year.
I will start with an overview of our key messages on slide four.
2023 was a pivotal year.
As we continue to reshape the company.
First we set records for our preliminary financial metrics, including adjusted EBITDA, adjusted EBITDA margin and free cash flow.
Full year, adjusted EBITDA increased 7% to $840 million.
Marking the third consecutive year of growth.
Our adjusted EBITDA margin of 15, 2% improved 260 basis points compared to the last year. We also generated almost $250 million in free cash flow up 60% year over year.
Michael Jack King: Second, we made significant progress on our transformational journey by launching new initiatives to drive operational excellence, improving our overall productivity, and achieving a number of important milestones in our beverage merchandising research. Third, we achieved one of our top priorities by reducing our net leverage ratio to 4.1 times at year-end, with line-of-sight to reach the high threes in 2020. Our performance underscores the resilience of our business, our ability to meet the evolving needs of our customers, and the significant operational improvements we've implemented since 2021. I also want to recognize that these accomplishments would not have been possible without the tremendous effort of all of our employees. I'll undo any doubt about that proposition in one minute.
Second we made significant progress on our transformational journey, while launching new initiatives to drive operational excellence, improving our overall productivity and achieving a number of important milestones in our beverage merchandising restructure.
Third we achieved one of our top priorities, while reducing our net leverage ratio to four one times at year end with line of sight to reach the high threes in 2024.
Our performance underscores the resilience of our business.
To meet the evolving needs of our customers and the significant operational improvements we've implemented since 2021.
I also want to recognize these accomplishments would not have been possible without the tremendous effort of all of our employees.
Our underlying value proposition remains a center.
Michael Jack King: We continue to leverage our broad range of product offerings, channel coverage, and distribution network to generate improved margins and free cash. We remain focused on our strategy of value over volume, and we continue to make progress synthesizing our higher-margin products, focusing on operational excellence, and improving our balance. We're confident that concentrating on these strategic priorities will allow us to achieve shareholder goals. Turning to the rest of the agenda, on slides.
We continue to leverage our broad range of product offerings channel coverage and distribution network to generate improved margins and free cash flow.
We remain focused on our strategy of value over volume and we continue to make progress emphasizing the higher margin products, focusing on operational excellence and improving our balance sheet.
We're confident that concentrating our new strategic priorities will allow us to enhance shareholder value.
Turning to the rest of the agenda on slide five I will start with an overview of our performance and discuss the progress we made against our strategic priorities during the fourth quarter and the full year for 2023.
Michael Jack King: I'll start with an overview of our performance and discuss the progress we made against our strategic priorities during the fourth quarter and the full year of 2020. John will then provide updates on our key financial metrics and discuss our outlook for 2024. At the end of the call, we'll open it up for Q&A. Turn to slide seven.
Jonathan will then provide updates on our key financial metrics and discuss our outlook for 2024 at.
At the end of the call will open it up for Q&A.
Turning to slide seven.
Michael Jack King: One of the themes we emphasized over the past year is that our company is in the midst of a transformational journey that touches all aspects of our business. This slide includes an overview of the progress we've made during the past year and highlights the path that lies ahead for Pacti Evergreen as we strive to unlock further value for our community. First, we announced the combination of our food merchandising and beverage merchandising businesses into one segment and completed the closure of our camp mill and converting facility in Olmstead Falls.
One of the themes, we emphasized over the past year is that our company is in the midst of a transformational journey that touches all aspects of our business.
This slide includes an overview on the progress we've made during the past year and highlights the path that lies ahead for <unk> as we strive to unlock further value for our stakeholders.
First we announced the combination of our food merchandising and beverage merchandising businesses into one segment.
Treated the closure of our Kent Moore.
Turning facility in Homestead falls.
Michael Jack King: These decisions were a major step forward in becoming a pure-play converting operation and support our broader efforts to reduce ongoing capital intensity and fixed costs, as well as reduce the volatility associated with our earnings and free cash. Beyond the restructuring, we have concentrated on fundamental changes in our approach to the market. This past year, you've heard us talk about our approach to value over money. But it goes beyond simply driving.
As decisions were a major step forward in becoming a pure play converting operation and support our broader efforts to reduce ongoing capital intensity and fixed costs as well as reduce the volatility associated with our earnings and free cash flow.
Beyond restructuring we are concentrated on fundamental changes in our approach to the marketplace.
This past year, you've heard us talk about our approach to value over volume, but it goes beyond simply driving price. It really comes down to being deliberate about how we positioned our portfolio to create the most value for our customers and our stakeholders.
Michael Jack King: It really comes down to being deliberate about how we position our portfolio to create the most value for our customers and our stakeholders. Over the last two years, we have continued extensive analysis across the organization with the goal of identifying how we deliver value to our customers and where we could potentially optimize. Through this effort, we've allocated resources to our longstanding customer relationships and partnered with category leaders to grow relative to the market. Our customers also look to us to innovate and develop the highest quality sustainable products to help them achieve their own sustainability goals.
Over the last two years, we completed extensive analysis across the organization with the goal of identifying how we deliver value to our customers and where we could potentially optimize profits.
Through this effort, we've allocated resources to our longstanding customer relationships and partnering with category leaders to grow relative to the market.
Our customers also look to us to innovate and develop the highest quality sustainable products to help them achieve their own sustainability goals.
Michael Jack King: An important goal in our transformational journey is not just to develop sustainable solutions for our customers that help them meet their goals but to develop our own solutions that help reduce the mark we leave on the world. Our goal is packaging a better future starts at our operations level, which affects the Evergreen we can hugely evaluate to improve. Early on in our journey, we recognized the need to drive operations.
Important role in our transformational journey is not just to develop sustainable solutions for our customers to help them meet their goals, but to develop are all solutions that help reduce the mark we leave on the world.
Our goal is packaging a better future starts at our operations level, which attractive evergreen we continuously evaluate your equipment.
Early on in our journey, we recognize the need to drive operational excellence. This realization quickly likes us identifying several opportunities that will improve productivity quality and reliability, while at the same time, taking cost out of the system.
Michael Jack King: This realization quickly led to us identifying several opportunities that would improve productivity, quality, and reliability, while at the same time taking costs out of the system. This was a top-down, company-wide effort that ultimately led to the implementation of our PETS, or Pactive Evergreen, production, with the goal of driving improved operational performance across the entire organization. As a reminder, TUS isn't just a production system; it's a holistic management philosophy that touches all aspects of our operations. 2023 was the first year of our PEPS rollout, and we set a goal for eight facilities to achieve brown status by the end of the year. I'm pleased to share that 15 facilities achieved ground status during 2023, almost doubling our initial target. Today, in 2024, two additional facilities have already achieved ground, and we recommended their first silver facility in early February. We expect to have 100% of our locations reach bronze status by the end of next year, with an additional two to four locations achieving silver status in 2024, and our first gold facility by 2025.
This was a top down company wide effort that ultimately led to the implementation of our pets or passive evergreen production system with the goal of driving improved operational performance across the entire organization.
As a reminder, adjusted production system, it's a holistic management philosophy it touches all aspects of their operations.
2023 was the first year of our Pepsi rollout when we set a goal for eight facilities to achieve brand status by the end of the year I am pleased to share that 15 facilities achieved brand status during 2023, almost doubling our initial target.
To date in 2020 for two additional facilities that already achieve broad status will.
We recognized the first silver facility in early February.
We expect to have 100% of our locations reached bronze status by the end of next year with an additional two to four locations achieving silver status in 2024, and our first gold facility by 2025.
Michael Jack King: We've seen the velocity pick up across the company as more facilities become PEP certified. They're able to share their lessons learned with other locations, which helps the remaining facilities get up the curve that much faster. I want to take this opportunity to recognize and applaud our team for their perseverance.
We've seen the velocity pick up across the company as more facilities become Pep certified Theyre able to share lessons learned with other locations, which helps the remaining facilities get up the curve that much faster.
I want to take this opportunity to recognize and applaud our team for their discipline.
Michael Jack King: However, there is more to do as we continue our transformational journey and position our company for long-term, sustainable growth. Looking ahead to the rest of 2024 and beyond, we intend to build on these accomplishments to conclude the Strategic Alternative Review of our Pine Bluff paper, continue to roll out PEPs, drive operational excellence, and generate solid free cash. Achieving these important milestones in 2023 has allowed us to pivot to the next phase of the transformational journey through a targeted optimization of our operations. Over the next two years, we intend to rationalize a portion of our physical footprint and shift existing production and warehousing within our network to better match our capacity with the Industry Dimension. We estimate this will yield approximately $35 million in annual run rate cost savings by 2030.
However, there is more to do as we continue our transformational journey and position our company for long term sustainable growth looking ahead to the rest of 2024 and beyond we intend to build on these accomplishments will preclude the strategic alternatives review of our Pine Bluff paper mill continue.
Continued there were a lot of pets drive operational excellence and generate solid free cash flow.
<unk> important milestones in 2023 has allowed us to pivot to the next phase of the transformational journey through a targeted optimization of our operating footprint.
Over the next two years, we intend to rationalize a portion of our physical footprint and shift existing production and warehousing within our network to better match our capacity.
With the industry demand.
We estimate this will yield approximately $35 million in annual run rate cost savings by 2026.
Michael Jack King: We expect these cost improvements will help position the company to continue to meet the unique needs of our customers and compete and win in the markets we serve. We also firmly believe these actions will enhance the long-term margin profile of our business and contribute to improve overall plant utilization and network productivity. Before I turn the call over to Jon, I want to touch on what we are observing across our end markets, as well as how we continue to work with our key customers. Turn to slide eight.
We expect these cost improvements will help position the company to continue to meet the unique needs of our customers.
And win in the markets. We serve we also firmly believe these actions will enhance the long term margin profile of our business and contribute to improved overall plant utilization and network productivity.
Before I turn the call over to John I want to touch on what we are observing across our end markets as well. So we continue to win with our key customers.
Turning to slide eight.
Michael Jack King: While overall inflation has moderated in recent months, food prices are still elevated compared to historical levels, particularly in restaurants where menu prices continue to outstrip inflation. Consumers have responded by trading down and shifting their food budgets towards lower-cost options like quick-serve restaurants instead of dine-in restaurants, or by opting not to dine out in favor of filling their pantry. Within the grocery store, consumers have reduced purchases of more discretionary items like baked goods.
While overall inflation has moderated in recent months keep prices are still elevated compared to historical levels, particularly in restaurants, where menu prices continue to outstrip inflation.
Consumers have responded by trading done in shifting the feed budgets towards lower cost options like quick serve restaurants, instead of dine in restaurants or by opting not to dine in favor of filling their pantries.
Within the grocery store consumers have reduced purchases of more discretionary items like baked goods.
Michael Jack King: This dynamic has persisted for the past several quarters, and we believe the consumer has become more stretched in recent months, which may impact industry demand through 2020. It's also important to note that weather conditions can impact volumes and consumer demand. While this wasn't a headwind during the fourth quarter of 2023, we saw the severe winter weather in January of 2024 reduce restaurant foot traffic and temporarily restrict our customers' supply. This had an unfavorable effect on our volumes during January. We expect the impact of the severe weather will be isolated to our first quarter results. Driving profitable growth and generating consistent returns for shareholders are our top priorities. Like everyone, we have experienced inflation-driven headwinds. However, we believe the underlying business remains resilient. We continue to invest in our customers and strategically allocate resources to those that are well positioned to take share in the market. On that front, we've seen limited promotional activity by some of our customers.
This dynamic has persisted for the past several quarters and we believe the consumer has become more stretched in recent months, which may impact industry demand through 2024.
Also important to note that weather conditions can impact volumes and consumer demand. While this wasn't a headwind during the fourth quarter of 2023, we saw the severe winter weather in January of 2020 for reduced restaurant foot traffic and temporarily restrict our customers' supply chains.
Unfavorable effect on our volumes during January we expect the impact of the severe weather will be isolated to our first quarter results.
Driving profitable growth and generating consistent returns for our shareholders. Our top priorities like everyone. We are experienced deflation driven headwinds. However, we believe the underlying business remains resilient.
We continue to invest in our customers and strategically allocate resources to those that are well positioned and taking share in the marketplace.
On that front, we've seen limited promotional activity by some of our customers. Although we haven't seen large scale promotional activity pricing yet to the extent that overall customer promotional activity picks up we believe that would be a net positive for the sector as well as for pack of evergreen.
Michael Jack King: Although we haven't seen large-scale promotional activity pricing yet, to the extent that overall customer promotional activity picks up, we believe it would be a net positive for the sector as well as for Pactiv Evergreen. As mentioned in prior calls, we've mostly worked through our customer de-stocking, and we're confident that that dynamic will have a minimal impact in 2020. From a raw material standpoint, the trend in 2023 was towards lower costs when compared to 2022 as broader inflationary pressures eased.
As mentioned in prior calls we have mostly worked through our customer destocking and we're confident that that dynamic will have a minimal impact in 2024.
So move raw materials standpoint, the trend into 2023 was towards lower cost when compared to 2022 is broader inflationary pressures. We've we've seen that trend flow through overall price levels, which are generally lower than last year due to our contractual pastures. Additionally, we've made a conservative effort.
Michael Jack King: We've seen that trend flow through the overall price levels, which are generally lower than last year due to our contractual past. Additionally, we've made a concerted effort to reduce the lag with our contractual past with Mike. So we don't expect that recent commodity price volatility to have a material impact on results in the near future. Additionally, we've seen some of our customers attempt to offset consumer price sensitivity by reducing their input costs, including, And we expect that trend to continue through 2024. At the same time, we continue to identify opportunities to leverage our value-over-volume strategy, which was evident in our food and beverage retailing segment during the fourth quarter. Overall, we remain uniquely positioned to catalyze unfavorable long-term fundamentals across our businesses. These core strengths underpin the base of their transformation, and they're designed to propel profitable growth into the years to come. With that said, I would now like to turn the call over to Jon. Jon?
To reduce the lag with our contractual pass through mechanisms. So we don't expect the recent commodity price volatility to have a material impact on results in the near future.
Separately, we've seen some of our customers attempt to offset consumer price sensitivity by reducing their input costs, including packaging.
And we expect that trend to continue through 2024 at.
At the same time, we continue to identify opportunities to leverage our value over volume strategy, which was evident in our food and beverage merchandise in the segment during the fourth quarter.
Overall, we remain uniquely positioned to capitalize on favorable long term fundamentals across our end markets.
These core strengths underpin the base of their transformation and they're designed to propel profitable growth into the years to come.
With that I would now like to turn the call over to John.
John.
Jonathan H. Baksht: I'll throw in our fourth quarter highlights on slide two. Before I cover the results in detail, I'll provide some context for the financial performance, as called in our fourth quarter of 2022. Our end markets were still experiencing inventory de-stocking, and we were still contending with historically high inflation levels across our costs. Those are the dynamics that moderated over the course of 2020. As a result, our Q4 2023 performance reflects the impact of lower raw material costs, as well as underlying demand that it's modestly improved, but it's still weaker than historical levels. We reported net revenues of $1.3 billion for the quarter, which represents a decrease of just over $200 million compared to last year. Similar to our third quarter results, the majority of the decline was due to the beverage merchandising restructuring and the impact of the Canton Mill Closure last May. Including those items, our revenue is down just over $70 million, largely due to a lower raw material cost environment versus the prior year, unfavorable mix, as well as strategic value over volume. Overall volumes were down 3% in the quarter.
Thanks, Mike.
With our fourth quarter highlights on slide 10, before I cover the results in detail I'll provide some context for the financial performance.
And our fourth quarter of 2022, our end market for solar experiencing inventory Destocking and we are still contending with historically high inflation levels across our cost structure. Both of those dynamics have moderated over the course of 2020 period as a result, our Q4 2023 performance reflect the impact from lower raw material costs as well.
Underlying demand that is modestly improved but it's still weaker than historical levels.
We reported net revenues of $1 3 billion for the quarter, which represents a decrease of just over $200 million compared to last year.
Turning to our third quarter results. The majority of the decline was due to the beverage merchandising restructuring plan and the impact of the <unk> mill closure last may.
Excluding those items, our revenue was down just over $70 million.
Due to a lower raw material cost environment versus the prior year unfavorable mix as well as strategic value or volume decisions.
Overall volumes were down 3% in the quarter.
Jonathan H. Baksht: Food service volumes increased year over year, while food and beverage merchandising volumes decreased mainly due to strategic value over volume, as we continue to optimize the portfolio. Price mix was down 4%, which is mostly a function of lower contractual past driven by lower raw material costs compared to the prior year period. We continue to strategically align ourselves with our core customers, and we are positioning the business to grow with them. The price-mix trends over the course of 2023 reflect those... And Justin Iguodala with $207 million, which is a 24% increase compared to the prior year and slightly ahead of our guidance. We benefited from lower raw material costs, net of cost pass-through, and lower transportation costs.
Foodservice volume increased year over year, while food and beverage merchandising volumes decreased mainly due to strategic value over volume decisions as we continue to optimize the portfolio.
Great mix was down 4%, which is mostly a function of lower contractual pass throughs, driven by lower raw material costs compared to the prior year period.
We continue to strategically align ourselves with our core customers and we are positioning the business to grow with their success.
Mixed trends over the course of 2023 reflects those efforts.
Adjusted EBITDA was $207 million, which is a 24% increase compared to the prior year and slightly ahead of our guidance range. We benefited from lower raw material costs net of cost pass through and lower transportation costs are.
Our adjusted EBITDA margin surpassed 16% for the second consecutive quarter coming in at 16, 2%, which is our second highest quarterly adjusted EBITDA margin since our IPO and almost 500 basis points better than last year.
Jonathan H. Baksht: Our adjusted EBITDA margin surpassed 16% for the second consecutive quarter, coming in at 16.2%, which is our second highest quarterly adjusted EBITDA margin since our IPO and almost 500 basis points better than last year. The margin performance is particularly impressive considering our fourth quarter is typically a seasonally low quarter. Our fourth-quarter free cash flow was negative due to timing of CapEx and cash interest. Our full-year CapEx of $285 million was slightly above our previous guidance of $280 million. As a result, our four-year free cash flow came in at $249 million, slightly below our guidance of $250 million.
The margin performance is particularly impressive considering our fourth quarter is typically a seasonally low quarter.
Our fourth quarter free cash flow was negative due to timing of capex and cash interest payments, our full year capex of $285 million was slightly above our previous guidance of $280 million as a result, our full year free cash flow came in at $249 million slightly below our guidance of 250 million.
Plus.
We continue to focus on deleveraging our balance sheet by reducing total debt by $25 million during the quarter and achieving our net leverage ratio at four one times at year end.
Jonathan H. Baksht: We continue to focus on deleveraging our balance sheet by reducing total debt by $25 million during the quarter and achieving a net leverage ratio of 4.1 times at year-end. For the full year, we reduced our total debt by $550 million and brought our net leverage ratio down by a half turn compared to the beginning of the year. From a quarter-over-quarter perspective, net revenue and adjusted EBITDA reflected our typical seasonal patterns as the fourth quarter and first quarter tend to have lower volumes than the second and third quarter. The 8% decline in revenue was mostly due to a sequential decrease in volumes and partially due to lower contractual pass-through prices, and Justin Evita was 9% lower than the third quarter, mostly due to lower seeds in the water. Pre-cash flow was lowered on a sequential basis due to the timing of our CapEx and interest, as well as a slight seasonal inventory build during the fourth quarter.
For the full year, we reduced our total debt by $550 million and brought our net leverage ratio down by half a turn compared to the beginning of the year.
From a quarter over quarter perspective, net revenue and adjusted EBITDA reflected our typical seasonal patterns as the fourth quarter and first quarter tend to have lower volumes than the second and third quarters.
The 8% decline in revenue was mostly due to a sequential decrease in volumes and partially due to lower contractual pass through pricing.
Adjusted EBITDA was 9% lower than third quarter, mostly due to lower seasonal volumes.
Free cash flow was lower on a sequential basis due to the timing of our capex and interest payments as well as a slight seasonal inventory build during the fourth quarter.
And finally, we are extremely proud of our full year results for 2023, 11% decline in net revenue was mostly due to the cat mill closure and the divestiture of our beverage merchandising Asia business in the third quarter of 2022, excluding those items net revenues down 4% monthly due to inflation driven impacts on <unk>.
Jonathan H. Baksht: And finally, we are extremely proud of our four-year results for 2020. The 11% decline in net revenue was mostly due to the Canton Mill closure and the divestiture of our Beverage Merchandising Agency in the third quarter of 2020. Excluding those items, net revenue is down 4%, mostly due to inflation-driven impacts on consumer spending and our value-over-volume strategy. However, we leverage our focus on operations to deliver 7% adjusted EBITDA growth compared to 2020, and we achieved an EBITDA margin of 15.2% for the full year, which was a 260 basis point improvement over the prior year. Please turn the slide left.
Ending and our value over volume strategy.
Over leveraged our focus on operational excellence to deliver 7% adjusted EBITDA growth compared to 2022.
We achieved an EBITDA margin of 15, 2% to the full year, which was a 260 basis point improvement over the prior year.
Please turn to slide 11.
Similar to the third quarter, our foodservice segment posted another strong quarter highlighted by a return to positive year over year volumes of 3% despite ongoing weakness in restaurant foot traffic and overall foodservice industry volumes.
We continue to align ourselves with our core strategic customers that benefit from our unique value proposition and our intern winning in their end markets.
Jonathan H. Baksht: Similar to the third quarter, our food service segment posted another strong quarter, highlighted by a return to positive year-over-year volumes of 3%. Despite ongoing weakness in restaurant foot traffic and overall food service industry blindness, we continue to align ourselves with our core strategic customers, benefits from our unique value property, and our intern, Winnie Nguyen-Marc. This allowed us to once again outpace our primary food service competitors.
This allowed us to once again outpace our primary foodservice end markets.
Price mix was down 4%, mostly due to lower contractual pass throughs, which are a function of lower raw material cost environment compared to last year.
Adjusted EBITDA rose, 32% compared to last year, and adjusted EBITDA margins improved by over 440 basis points as we successfully absorbed lower raw material costs net of cost out through <unk>.
Jonathan H. Baksht: Price nix is down 4%, mostly due to lower contractual tax, which is a function of low raw material costs in barn and congratulations. Adjusted EBITDA rose 32% compared to last year, and adjusted EBITDA margins improved by over 440 basis points as we successfully absorbed lower raw material costs and made a cross path, increased sale volume, and benefited from lower transportation. Overall, it was a strong quarter that really showcased our ability to strategically grow lawns, manage costs, and deliver solid profits. On a quarter-over-quarter basis, our results were impacted primarily by water volumes, including the seasonal... Restaurant foot traffic is still down compared to last year, although warmer temperatures across the U.S. in December did provide a slight uptick.
Increased sales volume and benefited from lower transportation costs overall.
Overall, a strong quarter that really showcased our ability to strategically grow volumes manage cost and deliver solid profitability.
On a quarter over quarter basis, our results were impacted primarily by lower volumes, including the seasonal factors restaurant foot traffic is still down compared to last year, although warmer temperatures across the U S. In December did provide a slight offset.
Net revenues were down 7%, mostly due to the seasonal volume dynamics adjusted EBITDA declined 4% driven by lower sales and higher manufacturing costs, partially offset by lower raw material costs net of cost pass through.
Turning to slide 12.
Within beverage merchandising experienced a continuation of the theme from the third quarter that food and beverage prices are still elevated compared to historical levels. Despite the recent moderation in consumer prices.
Jonathan H. Baksht: Net revenues are down 7%, mostly due to seasonal volume dynamics; adjusted EBITDA declined 4%, driven by lower sales and higher manufacturing, partially offset by the low raw material cost and native cost. According to slide 12, food and beverage merchandising experienced a continuation of the themes from the third quarter, as food and beverage prices are still elevated compared to historical levels, despite the recent moderation in consumer prices. The end result is that consumers are curbing their spending and weighing their budgets towards staples like protein and. We also continue to see consumers opting for lower-priced dairy beverages that utilize different packaging. In addition, our agricultural channel benefited from easier crops caused by weaker market conditions in the fourth quarter of 2020.
The end result is that consumers are curbing their spending and wanger budgets towards staples like protein and egg.
Continue to see consumers opting for lower priced dairy beverages that utilize different packaging formats and.
In addition, our agricultural channel benefited from easier comps caused by weaker market conditions in the fourth quarter of 2022.
This partially offset the residual impact of severe weather during the first half of 2023, which ultimately delayed deferred harvest and reduced overall fresh fruit quality, causing an unfavorable impact on our third quarter results.
From a year over year standpoint volumes were down, 22%, which was mostly due to the impact of the canton mill closure in May 2023.
Excluding the canton impact volume are down 7%, mostly due to strategic value of a volume decisions to focus on our core customers that value our unique service offering.
Underlying demand was down in the low single digits nearing the broader market impact from higher food prices.
Adjusted EBITDA was up 4% as lower raw material costs net of cost pass through and lower transportation costs more than offset lower volumes.
Jonathan H. Baksht: This partially offsets the residual impact of severe weather during the first half of 2023, which ultimately delayed the fruit harvest and reduced overall fresh fruit quality, causing an unfavorable impact on our third quarter harvest. From a year-over-year standpoint, volumes are down 22 percent, which is mostly due to the impact of the Canton Mill closure in May 2020, including the cancer impact. Volumes are down.
The closure of the camp mill and higher manufacturing costs.
We're also working closely with our customers to manage production costs and inventory levels to match, our volumes, which has helped our profitability.
On a sequential basis revenue was down 8%.
Volumes were lower by 7%, mainly due to value of our buying decisions and to a lesser extent seasonal declines in categories like Turkey, where the holiday season leads to large format products like turkeys or would they use different types of packaging.
Price mix was down 1%, mostly due to contractual passengers.
Jonathan H. Baksht: Mostly due to the strategic value of volume and focus on our core customers that value our unique service offer, underlying command was down in the lower single digits, nearing the broader market impact from higher raw material costs, net of cross pass period, and lower transportation costs, more than offset lower volume. The Closure of the Canton Mill and Iron Maiden's Throne.
Adjusted EBITDA declined 13% compared to the prior quarter due to lower sales volume and higher manufacturing costs.
Firstly offset by lower material costs net of costs last year.
Turning to slide 13, our transformational journey has been evident in all aspects of our financial results over the past three years in 2020 one our full year adjusted EBITDA has grown 58% from $531 million of $840 million over that same time period, our diligent approach to pricing.
Jonathan H. Baksht: We're also working closely with our customers to manage production costs and inventory levels to match our volume, which has helped our crossfit, although revenue is down. The lines are lowered by 10, mainly due to the value of life and, to a lesser extent, seasonal declines in categories like.., where the holiday season leads to large format products like turkeys or roots that use different types of price mix was down 1%, mostly due to contractual. At Just Adida Judd, applying 13% compared to the prior quarter due to lower sale points and higher manufacturing costs, partially offset by lower material cost and native cost
And our cost discipline that helped us.
It helped us improve our margins from high single digits to the mid teen and we intend to continue that trajectory into the upper teens over time.
The improved profitability also translated into dramatically higher free cash flow.
Important to note that we generated almost $250 million of free cash flow. This past year, despite incurring $107 million of.
Cash outflows for restructuring charges again that strongly reflects our company's inherent cash generating ability.
Finally, we capitalize the higher crude profitability and free cash flow to make progress in strengthening our balance sheet in 2023.
Jonathan H. Baksht: Turning to slide 13, our transformation and journey has been evident in all aspects of our financial results over the past. In 2021, our full-year adjusted EBITDA has grown 58% on $531 million to $840 million. Over that same time period, our built-in approach to pricing and our cost discipline have also helped us improve our margins from high single digits to the mid-digits. We intend to continue that trajectory to the upper teens over the next few years. The improved profitability also translated into dramatically higher free cash flow. It's important to note that we generated almost $250 million of free cash flow this past year, despite incurring $107 million of cash outflows for restructuring. Again, that strongly reflects our company's inherent cash-generating... Finally, we capitalized on our improved profitability and free cash flow to make progress in strengthening our balance sheet in 2020. During the fourth quarter, we reduced our total debt by $25 million, bringing our total debt reductions to $664 million over the last four years. As a result, we close 2023 with a net leverage ratio of 4.1 times and achieve our previously stated goal to reach a low force by the year 2030. I'd like to reflect on that accomplishment.
During the fourth quarter, we reduced our total debt by $25 million, bringing our total debt reduction to $664 million over the last two years as a result, we closed 2023 with a net leverage ratio of four one times and achieved our previously stated goal to reach the low fours by year end I.
I'd like to reflect on that accomplishment for just a moment.
This was one of our top priority in 2023.
We began the year with a net leverage ratio of four six times and through a combination of solid free cash flow and adjusted EBITDA growth, we reduced our net leverage ratio by half a turn in 2023 and established excellent momentum to continue delevering, our balance sheet into the high threes in 2024.
That brings us to the next phase of our transformation you may recall that our third quarter earnings. We indicated that the next leg of that journey will include incremental cost structure optimization and right size.
We expect today's announcement of our footprint optimization will allow us to reduce our annual operating costs by approximately $35 million, while improving utilization levels across our operations.
The initiative will require incremental investment in the near term, which we alluded to last quarter. When we discuss the next stage of our transformation. This next phase positions us to be more adaptable and enhances our ability to serve our customer base more effectively and operate more efficiently.
This effort to impact approximately 10% of our total footprint.
This is important we identified a willingness to optimize our portfolio by continuously evaluating non core businesses to help us focus on our core markets and maintain a disciplined capital allocation process.
Jonathan H. Baksht: This was one of our top priorities in 2020. We began the year with a net leverage ratio of 4.6 times, and through a combination of solid free cash flow and adjusted EBITDA growth, we reduced our net leverage ratio by half a turn in 2020, establishing excellent momentum to continue delivering our balance sheet into the high threes in 2020.
As we consider additional cost reduction initiatives, our ability to consistently generate strong cash flow enables us to reinvest in our business for growth.
Our capital allocation framework is designed to put our company in the best position to invest in profitable growth and we expect our ongoing transformational journey to help us achieve that objective.
Now turning to slide 14, we introduced our 2024 outlook for the first quarter and the full year.
Jonathan H. Baksht: You may recall that in our third-quarter earnings, we indicated that the next leg of that journey would include incremental cost structure optimization. We expect today's announcement of our footprint optimization will allow us to reduce our annual operating costs by approximately $35 million while improving utilization levels across our... The initiative will require incremental investment in the near future, which we alluded to last quarter when we discussed the next stage of our transition. This next phase positions us to be more adaptable and enhances our ability to serve our customer base more effectively and operate more efficiently. We expect this effort to impact approximately 10% of our total population. This is very important.
2023, with a solid year with several important milestones and accomplishments. It also allowed us to build strong operating momentum we expect to carry into 2024.
At the same time, despite the recent moderating of inflation the outlook for the U S economy remains uncertain as overall prices remain at historic levels.
Weigh on consumer spending as well as our customers' purchasing decisions and the order patterns in the near term.
Starting with adjusted EBITDA, we expect to deliver between $160 million and $170 million for the first quarter and between $850 million and $870 million for the full year.
Jonathan H. Baksht: We have demonstrated our willingness to optimize our portfolio by continuously evaluating non-core businesses to help us focus on our core markets and maintain a disciplined capital allocation. If we consider additional cost reduction in the, Our ability to consistently generate strong cash flow enables us to reinvest in our business. Events, and more.
As Mike mentioned, while feed prices have moderated we are seeing the cumulative impact of persistent inflation, our consumer demand in early 2024.
We also have the impact of severe weather in January which will flow through our first quarter results.
Plan to continue our strategy of aligning with category leaders to drive volumes, we expect to realize benefits from continuous improvement initiatives and are identifying cost improvement opportunities through our supply chain, which we expect to recognize in the second half of the year in order to help us achieve our full year adjusted EBITDA guidance.
Jonathan H. Baksht: We are a company designed to put our company in the best position to invest in profitable growth, and we expect our ongoing transformational journey to help us achieve that objective. Now, turning to slide 14, we introduce our 2024 outlook for the first quarter and the full year. 2023 was a solid year with several important milestones.
Moving to Capex, we expect to incur $300 million in 2024.
As part of our transformational journey, we continue to take actions to reduce the capital intensity and earnings volatility of our business and ultimately improve our free cash flow profile into the future. This.
Jonathan H. Baksht: It also allowed us to build strong operating momentum. You know, we expect to carry it to 20- At the same time, despite the recent moderating of inflation, the outlook for the U.S. economy remains uncertain, as overall prices remain at historic levels. This may weigh on consumer spending as well as our customers' purchasing decisions and the Order Patterns in New York City.
This year, we are taking definitive steps, making the necessary investments to achieve those goals.
While this forecast is our capex slightly higher on a year over year basis, a portion of the uplift can be attributed to the footprint optimization, we alluded to earlier.
Jonathan H. Baksht: Starting with adjusted EBITDA, we expect to deliver between $160 million and $170 million for the first quarter, and between $850 million and $870 million for the full year. As Mike mentioned, while food prices have moderated, we are seeing the cumulative impact of persistent inflation. Consumer Demand in Early 2020
Between 'twenty 'twenty, four and 'twenty five we expect the footprint optimization resulted in 40 million to $45 million in Capex with about 15 million to $20 million occurring in 2024 <unk>.
Additionally, we expect to incur total cash restructuring charges of 50 million to $65 million.
In total noncash restructuring charges of 20 million to $40 million, primarily during 2024 and 2025 I'll also point out that these ranges do not include the benefit of any cash proceeds from the possible sale of any property and equipment from the facilities are impacted by the footprint optimization.
Jonathan H. Baksht: We also have the impact of severe weather in January, which will flow through our first quarter of the year. We plan to continue our strategy of aligning with category leaders to drive... We expect to realize benefits from our continuous improvement initiatives and are identifying cost improvement opportunities through our support, which we expect to realize in the second half of the year, in order to help us achieve our full year at Justice Evening. Moving to CapEx, we expect to incur $300 million in 2020. As part of our transformational journey, we continue to take actions to reduce capital and temps and ultimately improve our free cash flow profile. This year, we are taking definitive steps, making the necessary investments to achieve those goals.
Our Capex guidance also includes approximately $35 million of capital spending our envelope mill, while our review of strategic alternatives to them. They will continue we remain committed to investing in the future success of our business.
Excluding both the impact of our footprint optimization initiatives and the timeless spin our 'twenty 'twenty four capex is expected to be approximately $250 million.
As it relates to expected charges for a beverage merchandising restructuring, we reiterate our previous guidance and expect to incur a total noncash charges in the range of 325 million to $330 million.
And cash based charges in the range of $150 million to $160 million. The majority of which were incurred during 2023. We have included a reconciliation in the appendix to today's presentation.
We expect to generate at least $200 million of free cash flow in 2024, which reflects higher cash taxes, and a reduced working capital benefit compared to 2023, partially offset by reduced interest expense and restructuring charges.
Jonathan H. Baksht: Well, this forecast puts our capex slightly higher on a year-over-year basis. A portion of the uplift can be attributed to the footprint optimization using the... Between 2024 and 2025, we expect the footprint optimization to result in $40 million to $45 million in capital, with around $15 million to $20 million occurring in 2020. Additionally, we expect to incur total cash restructuring charges of $50 million to $65 million. $20 million to $40 million, primarily during 2024. I'll also point out that these ranges do not include the benefit of any cash proceeds from the possible sale of any property and equipment from the facilities impacted by the footfall.
Finally, consistent with our previous guidance, we expect to bring our net leverage ratio into the high threes by year end 2024, although based on our first quarter EBITDA guidance relative to the first quarter of 2023, we do expect our net leverage ratio to temporarily increase during the first half of the year before declining into year end.
With that I'll turn the call back over to Mike.
Thank you Jonathan.
Before we open the line to Q&A I wanted to provide an update on sustainability here impact of evergreen.
Part of our focus on profitable growth is to build a more resilient sustainable and ethical pact of evergreen one.
One of the benefits all stakeholders from employees and customers to shareholders and to our communities.
This is what drives our environmental social and governance initiatives, which are aligned with our packaging our better future purpose.
Jonathan H. Baksht: Our CapEx guide also includes approximately $35 million in capital spending on our Pine. While our view of strategic alternatives to the deal continues, we remain committed to investing in the future success of our economy, including both the Impact or Footprint Optimization Initiative and the Pinewood Spin. Our 2024 Cathodex is expected to be approximately 250 and a release of expected charges for a beverage merchandising instruction. We reiterate our previous guidance and expect to incur a total of non-cash charges in the range of $325 million to $330 million and cash-based charges in the range of $150 million to $160 million, the majority of which will be incurred during 2020-21. We have included reconciliation in the appendix to today's program.
Fourth quarter marked the release of our latest ESG report.
Showcasing the progress we've made in 2021 and 2022.
In line with our commitment to transparency. Our ESG report is based on the <unk>. He says the frameworks. We received limited assurance on scope, one and two location based emissions and energy consumption and energy intensity for scope, one and two location based emissions.
It also details of our arrangement with the UN sustainable development goals.
We're incredibly proud of our team's achievements on this ESG journey and the report dives into the details for example.
Between 2015, and 2022, we reduced our scope one and two emissions by 21%, which we believe demonstrates that our commitment to environmental action is yielding results.
We have over 100 sustainability champion through our facilities, we're driving sustainable practices across our company.
And we're innovating to develop more sustainable options, helping our customers achieve their sustainability goals offering over 40, new certified compostable products launched in 2022.
Jonathan H. Baksht: We expect to generate at least $200 million of free cash flow in 2024, which reflects higher cash taxes and a reduced working capital benefit compared to 2020, but these are expected to be offset by reduced interest expense and restructuring. Finally, consistent with our previous guidance, we expect to bring our net leverage ratio into the high threes by year-end 2024. However, based on our first quarter EBITDA guidance, relative to first quarter 2023, we do expect our net leverage ratio to temporarily increase during the first half of the year before declining. With that, I'll turn the call back over to you. Thanks, y'all.
Internally, we're also investing in our people and communities.
Our new leadership development programs are empowering future leaders, while supplier audits to ensure ethical practices throughout our supply chain.
Every day, we strive to integrate sustainability in everything we do from our products to our manufacturing and supply chains.
I invite shareholders to explore a full report found that investors that active evergreen dot com and the ESG reporting section.
And particularly proud of our team for their focused execution through 2023, we've made significant progress on our transformational journey during 2023.
Major steps towards becoming a pure play converting operation with a capital light business model.
Michael Jack King: Before we open the line to Q&A, I want to provide an update on sustainability here at Pactive Evergreen. Part of our focus on profitable growth is to build a more resilient, sustainable, and ethical Pact of Evergreen. One that benefits all stakeholders, from employees and customers to shareholders in our community.
We took decisive actions to optimize our portfolio eliminate waste increase our focus on operational excellence.
Those actions have positioned us for the next phase of our journey. We are proud of the progress demonstrated by our 2023 results and remain very excited about the future of package of evergreen.
That concludes our prepared remarks with that let's open it up for questions operator.
Michael Jack King: This is what drives our environmental, social, and governance initiatives, which are aligned with our packaging a better future purpose. The fourth quarter marked the release of our latest ESG report, showcasing the progress we made in 2021 and 2022. In line with our commitment to transparency, our ESG report is based on the GRI and SASB frameworks. We receive limited assurance on Scope 1 and 2 location-based emissions and energy consumption and energy intensity for Scope 1 and 2 location-based activities.
Thank you ladies and gentlemen, if you have a question or a comment at this time. Please press star one on your telephone extra question has been answered you assume with yourself from the queue. Please press star one again, we will pause for a moment, while we compile the Q&A roster.
Our first question comes from Arun Viswanathan with RBC capital markets. Your line is open.
Arun Your line is open you can ask your question.
Sorry about that.
Yes, congrats on the progress so.
Michael Jack King: It also details our alignment with the UN Sustainable Development Goals. We're incredibly proud of our team's achievements on this ESG journey, and the report dives into the details. Between 2015 and 2022, we reduced our Scope 1 and 2 emissions by 21%, which we believe demonstrates that our commitment to environmental action is yielding results. We have over 100 sustainability champions at our facilities who are driving sustainable practices across our country. And we're innovating to develop more sustainable options, helping our customers achieve their sustainability goals. Offering over 40 new certified compostable products will be launched in 2020.
I just wanted to get an idea of the outlook here. So when you think about.
The 20 million or so.
Our EBITDA growth.
From 23% at the midpoint of that 24 range.
Is there a way you could maybe bucket that out into volume and price cost and restructuring gains or how should we think about how that evolves and also maybe if you could touch on those items for Q1 that would be great. Thanks.
Yes, Hi, Brian.
So broadly speaking I think it is.
The gains are broad based I think as you.
As you try to bridge from 2024 or 25, three excuse me to 2024.
Michael Jack King: Internally, we're also investing in our people and communities. Our new leadership development programs are empowering future leaders, while supplier audits ensure ethical practices throughout our... Every day, we strive to integrate sustainability in everything we do, from our products to our manufacturing and supply chains. We invite shareholders to explore our full report found at investors.pactivevergreen.com and the ESG reporting. We are particularly proud of our team for their focused execution through 2020. We've made significant progress on our transformational journey in 2023. We took major steps towards becoming a peer play converting operation with a capital light business. We took decisive actions to optimize our portfolio, eliminate waste, and increase our focus on operational activities. Those actions have positioned us for the next phase of our journey. We are proud of the progress demonstrated by our 2023 results and remain very excited about the future of Pactive Evergreen.
Give you some high level thematic to help paint the narrative here.
Really if you if you look at how we're starting the year and some of the guidance around Q1, we have been impacted by.
Inflation here starting year, we've got some coal recovery could have a lag and additionally, we've got some cost improvement initiatives that are going to ramp up throughout the year and as you look at some of the bridging items those cost improvement initiatives are going to be a net positive to us as you look at as you go forward.
On a volume standpoint, we are expected to be up low single digits, and we expect volumes to be up in both foodservice and food merchandize, the food and beverage merchandising and the other piece to just recall is if you do a comparison year over year last years to two.
Operator: That concludes our prepared remarks. With that, we'll open it up for questions. Operator?
2020, Three's results had the benefit.
The camp mill for a portion of the year that mill was shut down in May. So we did get partial year benefits of that that contributed last year. So netting those out those are I think probably some of the.
Operator: Thank you. Ladies and gentlemen, if you have a question or a comment at this time, please press star 11 on your telephone. If your question has been answered or you wish to unmute yourself from the queue, please press star 11 again.
The more material impacts year over year comparisons.
Great Thanks for that.
Operator: We'll pause for a moment while we compile our Q&A roster. Our first question comes from Arun Viswanathan with RBC Capital Markets. Your line is open. Arun, your line is open, you can ask your question. Sorry about that.
If you go back over the last couple of years.
Put out.
Guidance that through the year <unk> been able to.
Well we beat.
Beat and move higher.
Arun Shankar Viswanathan: Yeah, congrats on the progress. So just wanted to get an idea of the outlook here. So when you think about the 20 million or so of EBITDA growth from 23 to the midpoint of the 24 range, is there a way you could maybe bucket that out into volume, price, cost, and restructuring gains, or how should we think about how that evolves? And also, maybe if you could touch on those items for Q1, that'd be great. Thanks. Yeah, hi Arun.
Would you would you say that doesn't element of conservatism within your guidance range. This year.
And if so what are some of the factors that.
Maybe could go better and that would that would maybe push it to the upper end of that range or above.
Maybe you can just you could point out a couple of things that would be great. Thanks.
No I wouldn't.
Hi.
I wouldn't say there is a conservatism I think.
With where we sit today with the consumer backdrop.
We're <unk>.
Largely where we've been.
Jonathan H. Baksht: So, you know, broadly speaking, I think the gains are broad-based, and I think as you try to bridge from 2024, or 2023, excuse me, to 2024, I'll just give you some high-level thematics to help paint the narrative here. You know, really, if you look at how we're starting the year and some of the guidance around Q1, we have been impacted by inflation this year-ahead, we've got some coal recoveries that have a lag, and additionally, we've got some cost-improvement initiatives that are going to ramp up throughout the year, and as you look at some of the bridging items, those cost-improvement initiatives are going to From a volume standpoint, we are expected to be up low single digits, and we expect volumes to be up in both food service and food merchandise, which is food and beverage retailing.
Throughout the journey you've mentioned so.
Our ability to get after.
And slowly move our guidance up has really been a function of us being ahead of schedule on our productivity and cost out planning.
And also just our quality of earnings have gone up as a result of us.
Maximizing the quality of the earnings we have so it's not I don't think we're in a different boat so.
To the extent, we can continue to outpace that theres always opportunity right now I think.
I would I would classify our outlook as realistic.
And.
The consumer obviously is a vote now.
Our customers have opened yet and so there's always.
Really to see improvement, but yes.
I'd say it's realistic.
Okay. Congrats on the progress.
Thanks Aaron.
One moment for our next question.
Yeah.
The next question.
Comes from Ghansham Panjabi with Baird. Your line is open.
Thanks, operator, good morning, guys.
Jonathan H. Baksht: And the other piece to just recall is, if you do a comparison year-over-year, last year's 2023 results had the benefit of Camden Mill for a portion of the year; that mill was shut down in May, so we did get partial-year benefits of that that contributed to last year. So nothing goes out of those, I think, probably some of the more material impacts year-over-year comparisons. Great, thanks for that.
Kind of going back to the fourth quarter and the volume sort of divergence between the two segments right. So foodservice up 3% in food and beverage merchandising down is that a function of just foodservice, having kind of gone through the value over volume.
Previously and now Youre lapping those comparisons.
Jonathan H. Baksht: And if you go back over the last couple years, you know, you've put out guidance that through the year you've been able to fully beat and move higher. Would you say that there's an element of conservatism within your guidance range this year? And if so, you know, what are some of the factors that maybe could go better that would maybe push you to the upper end of that range or, or above? You know, maybe if you could point out a couple things, that'd be great. Thanks, but no, I wouldn't.
And Thats why youre showing that kind of growth that you are and then food and beverage merchandising is starting later is that a is that a fair way to think about it or just trying to understand why the volumes were down in that segment.
Yes, I think you have the right food.
Foodservice certainly.
A lot of work to do early.
That business is a bit ahead in terms of our value over volume execution, and I think you've articulated it well.
So.
Food and beverage merchandising is in the thick of their execution phases.
Jonathan H. Baksht: I wouldn't. I wouldn't say there's conservatism, I think, you know, with where we sit today, with the consumer backdrop. You know, we're largely where we've been throughout the journey you mentioned. So, you know, our ability to get after, you know, beats and slowly move our guidance up has really been a function of us being ahead of schedule on our productivity and cost out planning, and also just, you know, our quality of earnings has gone up as a result of us just... Maximizing the quality of the earnings we have. So it's not; I don't think we're in a different boat.
Over volume.
And Ghansham I'd also just add as you look and that's not just a Q4 dynamic I think as you look into kind of our our guidance for this year. There is that element I think we'll still see play out in that foodservice is more ahead in that value over volume journey.
Then food and beverage merchandising and so that dynamic should play to play out more throughout 2024.
Jonathan H. Baksht: And so to the extent we could continue to outpace that, there's always opportunity. Right now, I think I would classify our outlook as realistic, and, Yeah, the consumer obviously has a vote in that, and our customers have a vote in that, you know, room to see improvement. But, you know, I'd say it's realistic.
Got it and just from a high level standpoint, obviously packaged food got hammered last year with Destocking and just elasticity that the consumer is exhibiting fleets.
Foodservice is across the board seem relatively more resilient, how do you sort of think that dynamic plays out.
Jonathan H. Baksht: Okay, congrats on the progress. Thanks. One moment.
In 2024 is a lot of the packaged food.
Operator: One moment for our next question. Our next question comes from Ghansham Panjabi with Bayard. Your line is open. Thanks, operator. Good morning, guys.
Customers Tpg's et cetera are starting to ramp up promotional spending et cetera, do you see that as a.
Ghansham Panjabi: You know, kind of going back to the fourth quarter and the volume sort of divergence between the two segments, right? So food service up 3% and, you know, food and beverage retailing down. Is that a function of just food service having kind of gone through the value or volume initiative previously, and now you're lapping those comparisons, and that's why you're showing the kind of growth that you are, and then, you know, food and beverage merchandising is starting later? Is that a fair way to think about it?
Sort of counter weight to some of the volumes that you would normally see in your two segments just because if you are slightly different exposure there.
So I think it was.
As it relates to the elasticity I think you've articulated it well.
Our food merch.
And beverage merch businesses.
We'll certainly see.
And we started to see the.
Although all the tea leaves and trending around promotional activity ramping up.
I think destocking to your point it is largely.
Gone, but I think we're back to more of a normalized destocking trends that you would see seasonally.
Jonathan H. Baksht: Or, you know, just trying to understand why the volumes were down. Yeah, I think you have it right. You know, food service, certainly, we had a lot of work to do early, and that business is a bit ahead in terms of our value over volume execution. And I think you've articulated it well.
And it's less of a list of the theme for our business.
But yes I would.
<unk> got it right.
Foodservice resiliency is foot traffic.
Continues to moderate be tougher for foodservice.
The elasticity of promotional activity should show gains.
Jonathan H. Baksht: So, you know, food and beverage merchandising is in the thick of its execution phase of value over volume. And Ghansham, I'd also just add, as you look in, that's not just a Q4 dynamic. I think if you look at kind of our guidance for this year, there is that element, I think, will closely play out in that food service is more ahead in that value over volume journey than food and beverage retailing. And so that dynamic should play out more throughout 2024. I got it.
And that's kind of what's reflected if you look at our outlook.
Half two for both of our segments will benefit from that.
Okay and just finally on your optimization program that you announced.
The savings through 2026 et cetera is that those savings.
What portion do you think would drop to the actual bottom line versus just sort of being leavers that would offset normal.
Ghansham Panjabi: And just from a high-level standpoint, you know, obviously packaged food got hammered last year with destocking and just elasticity that the consumer was exhibiting. You know, food service across the board seemed relatively more resilient. How do you sort of think that dynamic plays out, you know, in 2024 as a lot of the packaged food customers, you know, CPGs, etc., are starting to ramp up promotional spending, etc.? Do you see that as a sort of counterweight to some of the volumes that you would normally see in your two segments just because of your slightly different exposure there? So I think, you know, as it relates to elasticity, I think you articulated it well, you know, Our food merch and beverage merch businesses will certainly see, and we've started to see the all the all the teelers and trending around promotional activity ramping up, I think I think destacking, you know, to your point is largely, you know, gone by to go back to more of a normalized destacking trends that you would see seasonally.
Inflation in labor and so on and so forth.
Yes, so because it is a multi year plan, where we sit today, we expect that those savings are true incremental savings.
<unk>.
Our strategy.
And where we've largely leaned in with our <unk> program.
We've been we've been successful at.
The handling throughout the year any impact to inflation. So as we mature purpose I fully expect that purposes are.
Our value creator and weapon against inflation.
Yes.
These programs would largely be the.
Functional changes, we would expect to create internal value.
Sure.
And position us well for for low cost base.
Low capital intensity and gone to and just to add to it.
To give you some incentives the sustainability of those cost savings. These are fixed costs that we're taking out of the system. So it is it is an effort to.
Ghansham Panjabi: And it's less of a theme for our business, um, But yeah, I would say you've got it right that, you know, food service, resilience is foot traffic, you know, continues to moderate and be tougher for food service, that elasticity and promotional activity should show gains. And that's kind of what's reflected if you look at our outlook, is that we have two for both of our segments. We'll benefit from that. Okay, and just finally, on your optimization program that you announced, you know, and the savings through 2026, etc., what portion do you think would drop to the actual bottom line versus just sort of being levers that would offset normal... inflation, labor, and... Yeah, so because it is a multi-year plan, you know, where we sit today, we expect that those savings are true incremental savings, you know, our strategy, and where we've We've been successful at handling, throughout the year, any impact of inflation.
Really really take that.
That fixed cost base in the system down and so there isn't really an offset so it really is hard dollar several will come out.
Okay very clear thank you so much.
Thanks, guys one moment for our next question.
Our next question comes from Anthony Pettinari with Citigroup. Your line is open.
Good morning.
Good morning.
The low single digit volume guide for the full year I am wondering if you can give us any more detail on the expected cadence in terms of whether that.
To be back end weighted and then.
And maybe the split between food service and food and Bev.
Yeah. So.
I'll take a run at a high level and then I'll, let John kind of peer group, where we said so.
When you think about both of our segments, both foodservice and our merchandising segments.
The front half of the year, we expect with the consumer backdrop kind of settling.
And mobility foot traffic and all those things.
A bit strained here in Q1.
Jonathan H. Baksht: So, you know, as we mature PEPs, I fully expect that PEPs will be our..., our value creator and a weapon against inflation. And, you know, these programs would largely be the functional changes we'd expect to create, you know, internal value in position as well for low-cost space. Yeah, and Ghansham, just to add to it, you know, just to give you some sense of the sustainability of those cost savings
We're off to a bit of a softer start.
Although we are seeing green shoots of late.
So we're kind of forecasting our outlook reflects kind of a flat first half and then inflection second half and really around ramp up on the food more so than the food merchandising and beverage merchandising side.
Jonathan H. Baksht: These are fixed costs that we're taking out of the system. So it is an effort to really take that fixed cost base in the system down. And so there isn't really an offset.
The foodservice side.
Albeit modest low single digit growth in foodservice as well so that's second half certainties.
Jonathan H. Baksht: So it really is hard dollars that will come out. Very clear. Thank you so much.
Jonathan H. Baksht: Thanks. One moment for our next question....
Operator: Our next question comes from Anthony Pettinari with Citigroup. Your line is open. Good morning.
We're expecting it to be stronger a stronger consumer and stronger promotional activity driving that inflection for us.
Anthony James Pettinari: Um, on the low single-digit volume guide for the full year, I'm wondering if you can give us any more detail on the expected cadence in terms of whether that's, you know, maybe back-end weighted and then maybe the split between food service and food and beverage. Yeah, so, uh... I'll take a run at a high level, and then I'll let John kind of fill in, you know, empirically, where we fit. When you think about both our segments, both food service and our merchandising segments, the front half of the year, you know, we expect, you know, with a consumer backdrop kind of settled, and with mobility, foot traffic, and all those things being a bit strained here in Q1, that we're off to a bit of a softer start, um, although we're seeing green shoots of late.
And I think just to maybe add a bit more color around some of the inflection so food food and beverage merchandising, we're expecting that that volume growth to be.
Such higher than foodservice volume growth.
We go out the year, but it will be back end focus, particularly in food and beverage merchandising youll, probably see a bit of a dip on volumes in the first half of the year before ramping up at the end of the year and part of that there is some noise with our exit of our canton, but even netting that out I think that dynamic will still hold true.
Anthony James Pettinari: So we're kind of forecasting our outlook reflects kind of a flat first half and an inflection second half and really around a ramp up on the food, more so on the food merchandising and beverage merchandising side, and then the food service side. All via modest, low-single-digit growth in food service as well. So that second half certainly is going to... We're expecting to be a stronger consumer and stronger promotional activity driving that inflection for us. Yeah, and I think just to maybe add a bit more color around some of that inflection.
As we as we've progressed throughout the year.
Okay.
That's very helpful.
And then I'm just wondering on Pine Bluff, I mean, it seems like there's been some moving pieces in box board recently with SPF prices coming down and maybe some SBB imports.
Recent acquisition and consolidation in the space I was just wondering if you could give us kind of like.
Maybe a state of the union on on that asset understanding that you are looking at.
Jonathan H. Baksht: So food, food, and beverage merchandising, we're expecting that volume growth to be a touch higher than food service volume growth as we go out the year, but it will be the back end focus, particularly in food and beverage merchandising. You'll probably see a bit of a dip on volumes in the first half of the year before ramping up at the end of the year. And part of that is some noise with our exit from Canton that even nets that out. I think that the dynamic will still hold true as we progress throughout the year. Okay, that's, that's, that's very helpful. And then I'm just wondering what on Pine Bluff.
Essentially all different options for it.
Yes so.
As we've reported in prior quarters, we are in the midst of a strategic review that we continue to be in the midst of.
And.
You identified the material dynamic and Thats.
No magic there for us.
But.
We have mechanisms that allow us to manage that.
In terms of.
Other.
Seems.
Seems to share I would just say that we continue to drive that mill and invest in that mill in a cold mill outage.
Michael Jack King: I mean, it seems like there's been some moving pieces in box board recently with, you know, SBS prices coming down and maybe some FBB imports and recent acquisitions and consolidation in the space. I'm just wondering if you could give us kind of a maybe, you know, State of the Union on that asset, you know, understanding that you're looking at, you know, potentially different options for it. Yeah, so, as we've reported in prior quarters, you know, we're in the midst of a strategic review that we continue to be in the midst of. And, you know, you identify the material dynamic. And that's, you know, no, there's no magic there for us.
Start.
You are kind of at the end of the queue and into the start of the second Q.
And we're doing all the right things to make sure that.
That asset is.
Care of our converting network.
Our customers.
So it's.
It's really a way of the share.
Okay. That's helpful I'll turn it over.
Yes.
One moment for our next question.
Sure.
Our next question comes from Jordan <unk> with Goldman Sachs. Your line is open.
Thanks Ben.
Pat.
Thailand.
Brian one of the codes are.
Good morning, everyone.
Good morning.
Good morning, So I guess my first question is.
Michael Jack King: That's, You know, we have mechanisms that allow us to manage that. In terms of other, you know, themes to share, I would just say that, you know, we continue to drive that mill and invest in that mill, and we have a cold mill outage that's gonna start here kind of at the end of the queue and into the start of the second queue. And we're doing all the right things to make sure that that asset is taking care of our converting networks and our customers. So it's... I don't know. That's really all I have to share on it. Okay, that's helpful. I'll turn it over to you.
On the guidance and as I think about the.
First quarter versus the balance of the year.
I'll take that one.
170 equaled the first quarter.
You need to be a kind of quarterly run rate over 230 million of EBITDA related to getting to the midpoint or higher.
First to hit our full year guidance.
And I guess I'm, just trying to make sense.
The magnitude I mean, there are some seasonality in the first quarter is always a.
Anthony James Pettinari: One moment for our next question. Our next question comes from Jordan Lee with Goldman Sachs. Your line is open. Hi, this is Adam Samuelson speaking of the silent problems with the code. Sorry. Morning, everyone.
Per quarter.
The magnitude of.
Maybe January fresh air.
Foodservice volumes.
And the magnitude.
Kind of incremental cost savings do you think about theyre counting on later in the year that would help US bridge kind of where you think youre going to be in the first quarter to where you have to be over the balance of the year to get to the full year.
Operator: This morning, So I guess my first question is on the guidance and as I think about the first quarter versus the balance of the year and if I'm bridging kind of if I took a 170 for the first quarter, you need to be kind of a quarterly run rate over 230 million to be the dot really getting to the midpoint or higher for to hit the full year guidance. And I guess I'm just trying to make sense of the magnitude. I mean, there's some seasonality in the first quarter. It's always a softer quarter to begin with. But the magnitude of maybe January pressure on food service volume and the magnitude of incremental cost savings that you're counting on later in the year would help us bridge where you think you're going to be in the first quarter to where you have to be over the balance of the year to get to the full year outlook. Yeah,
To play out.
Yes.
Yes.
I think if you look at the pace of our ability to get after cost.
We are.
We're a good year into that journey and.
We're starting to see Natalie.
And year benefits the run rate benefits of prior year work, but we're eclipsing that so.
This will be the first year, we get to China to lap.
Our productivity and.
The fitness, we've got in some of our cross sell so we're absolutely expecting.
Adam L. Samuelson: I think if you look at the pace of our ability to get after cost, you know, we're, were, you know, a good year into that journey and are starting to see not only the in-year benefits, the run rate benefits of prior year work, but we're eclipsing that. So this will be the first year we get to kind of test our productivity and the fitness we've got and some of our costs out. So we're absolutely expecting year over year improvements in that productivity area, quarter over quarter. And the other thing I would tell you is, certainly we're expecting a stronger H2, as we just alluded to in some of the prior questions, as a result of a couple things. One being higher promotional activity, but also as a function of a backlog of business we've secured that comes online kind of in Q3 and Q4. It's not one thing; it's a combination of all those things.
No.
Year over year improvements in that productivity area quarter over quarter.
The other thing I would tell you is.
Certainly we are expecting.
A stronger each too as we just alluded to.
And some of the prior questions as a result of a couple of things 1 billion higher promotional activity.
But also as a function of a backlog of business we secured that.
Comes online kind of in Q3 and Q4 so.
It's not one thing it's a combination of all those things.
And I would also add.
Moving to this.
And one of the prior questions but.
<unk> does impact our Q Q1, a bit more than.
Michael Jack King: Oh, and I'd also add, you know, I alluded to this in one of the prior questions, but inflation does impact our Q1 a bit more than the rest of the year; we start feeling more impact of some labor increases and other increases at the beginning of the year. And there is a timing impact of, we do have a COLA recovery, but they do have a lag. And so you start seeing that really help us look from a margin basis as the year goes on. And yeah, just on that, maybe on that specific point as well as kind of the volume hit from week or from week January in food service given the weather, what does that any way to frame what's that what that's costing you in the first quarter as we think about them coming out of the system or going back and turning to the balance of the air so it' So in terms of the winter storms, yeah, I think the weather, from a Q1 standpoint, we did have some impact there.
The rest of the year, we start feeling more impacts of some some labor increases in <unk>.
Other increases at the beginning of the year and there is a there is a timing impact of us that we do have.
Cola recoveries, but they do have a lag and so you start seeing that.
And really help us with from a margin basis as the year goes on.
Okay, and just on that maybe.
On that specific point is while our Canada.
Volume from weaker currently January in crude service given the weather.
What does that any way to frame what's that what that's costing you in the first quarter as we think about that.
Coming out of the system are paid back going back into earnings over the balance of the year so as they recover.
So in terms of the winter storms.
Yes.
The weather that from a Q1 standpoint, we did have some impact there it's probably in the range of $5 million to $10 million is what the impact on a on a quarter over quarter basis.
Jonathan H. Baksht: It's probably in the range of $5 to $10 million is the impact on a quarter-over-quarter basis. You know, the other thing I noticed, if you do a Q1 comparison to last year, you might recall we mentioned that in Q1 of 2023, we had a one-time customer payment show up in the quarter of about $7.5 million, which also impacted the quarterly loss...
I noticed you do if you do a Q1 comparison to last year.
Recall, we mentioned that we had in Q1 of 2023, we had a one time customer payment true up in the quarter of about $7 $5 million.
Which also impacted the quarter over quarter walk.
Adam L. Samuelson: And then the COLA recovery, you know, and the other one to note is just that the COLA recoveries might be a bit more of a lag going into the rest of the year. That's very helpful. And then just to cure up on some other modeling items, what is the expectation on interest expense for the year? And I think you lose the higher cash taxes for 2024, both the book and cash tax rates, as you see right now. You kind of cut out a little bit on the front end of that question; could you rephrase that?
And then Nicole recovery.
The other one to note is just the cola recoveries might be a bit more of a lag going into the rest of the year.
Okay.
That's very helpful. And then just to sure up on some other modeling items what is expectation on interest expense.
For the year ends and then you lose the higher cash taxes.
Kurt.
24.
Both the book and cash tax rate.
Yep.
You kind of cut out a little bit on the front end of that question could you re ask that.
Adam L. Samuelson: Just what's the expectation on interest expense and book and cash now? Yeah, maybe I'll just take a step back and just give a bit of a free cash flow walk. I think it would probably be helpful just to understand the 200 plus guidance for the year versus last year's close to 250. And if you go through the line items, so EBITDA, our midpoint of our guidance is about $20 million more. CAPEX, we've got it to about $15 million higher, so that's a negative 15 on a free cash flow basis. So interest, which you mentioned, we did pay down $550 million of debt. And so last year, our cash interest was approximately $249 million.
Just what's the expectation on interest expense and book and cash taxes.
Alright, yes.
Maybe I'll just take a step back and just give a bit of a free cash flow walk I think would probably be helpful. Just to understand.
The 200 plus guidance for the year versus last year is close to $2 50.
And if you go through the line items below EBITDA.
Point of our guidance is about $20 million more.
Capex, we've guided to about $15 million higher so that's a negative 15 on free cash flow basis. So interest, which you mentioned, we did pay down $550 million of debt and so last year, our cash interest was approximately $249 million. This.
Jonathan H. Baksht: This year, just using, you know, we do still have a portion, about a quarter of our debt is still floating rates, so it will be subject to the interest rate environment. But given the current forward curve, it's roughly $220 million of cash interest, so savings of roughly $30 million year over year. On a cash tax basis, 2023 was $69 million.
This year, just using we do still have a portion about a quarter of our debt is still floating rates. So it will be subject to the interest rate environment, but given the current forward curve.
Curve.
Roughly $220 million of cash interests.
Savings of roughly $30 million year over year on a cash tax basis, 2023 was $69 million and I'll note that we did have a benefit from tax savings due to the beverage merchandising restructuring. So we were able to benefit our cash as there are cash taxes from the restructuring activity.
Jonathan H. Baksht: And I'll note that we did have a benefit from tax savings due to the beverage merchandising restructuring, so we were able to reduce our cash taxes from the restructuring activities. This year, we're not going to have that same benefit. And so I would, you know, in taxes, there's still some work there to do, but I would say that we're likely going to be approximately $100 million in cash taxes, so about a $30 million degradation there in free cash flow. A couple other free cash flow items: inventory. You know, last year, we had the benefit of $179 million in inventory reduction. That's not something that's going to be repeatable this year.
<unk>.
This year, we're not going to have that same benefit and so I would.
And taxes, there is still some work there to do but I would say that we're likely going to be approximately $100 million in cash taxes. It's.
It's about a $30 million degradation there in free cash flow.
A couple of other free gaslog items inventory.
Last year, we had the benefit of $179 million of inventory reduction.
That's not something that's going to be repeatable. This year were at more normalized inventory levels. This year.
Jonathan H. Baksht: We're at more normalized inventory levels this year. And then the last one I'll touch on is restructuring. Last year, we had $107 million in restructuring charges. This year, that number is going to be lower.
And then the last one I'll touch on is restructuring.
Last year, we had $107 million in restructuring charges. This year that number is going to be lower.
Beverage merchandising restructuring the remainder there based on the guidance is between five and $15 million. This year and then if you look at the footprint optimization restructuring, we just announced that should be around 15% to $20 million. This year, so taking adding those together thats roughly 20% to 35.
Jonathan H. Baksht: The beverage merchandising restructuring, the remainder there based on the guidance is between $5 and $15 million this year. And then, if you look at the footprint optimization restructuring we just announced, that should be around $15 to $20 million this year. So adding those together, that's roughly $20 to $35 million of restructuring charges. So if you walk that down, that gets you into the low $200 level for free cash flow.
<unk> of restructuring charges.
So if you walk that down that gets you into the low two hundreds level for free cash flow.
We are obviously going to pursue more than that and there could be some working capital benefits that accrued throughout the end of the year.
Jonathan H. Baksht: We're obviously going to pursue more than that, and there could be some working capital benefits that accrue throughout the end of the year. But that's the bridge to the $200 million free cash flow. Any other questions? Operator, do we have, do we have any other questions? Sure, one moment.
But that's that's the bridge to the $200 million free cash flow.
Any other question.
Okay.
Operator, do we have.
You have any other questions.
Operator: Our next question comes from George Staphos. Your line is open. Yeah, hi, good morning. This is actually Cashen sitting in for George this morning.
Sure one moment. Our next question comes from George Staphos. Your line is open.
Yes, hi, good morning. This is actually Catherine sitting in for George just wondering if you had to contemplate.
Cashen John Keeler: He had a conflict. So maybe just staying on the first quarter here, you know, I know you talked about weather impacts in January, but are you able to comment at all, just in terms of volume trends in February and kind of what you're seeing from here into March as well? Yeah, sure. From a volume perspective, I think, let's just start with food service, you know, food service for the quarter. The general market is a bit softer, I would say that the volume, what we're seeing from, I would say from third-party sources, so this isn't ours, I'll get to ours, but it does feel like foot traffic is a bit down. And so just really moderating foot traffic slightly down, we should, what we're seeing for our volumes is probably slightly flat up slightly. We do feel like we are looking at gaining some share within the food service segment and outperforming, outpacing the market in food service. It is, but there are still certainly some challenges for the consumer there.
So maybe just staying on the first quarter here I know you talked about weather impacts in January but are you able to comment at all just in terms of volume trends in February and kind of what youre seeing from.
From here into March as well.
Yeah sure from a from a volume perspective, I think let's just start with foodservice.
Foodservice for the quarter the general market.
It's a bit softer I would say that.
<unk> volume what were seeing from.
Well I would say from third party sources. So this isn't ours I'll get to ours that it does feel like foot traffic is a bit down and so.
Just really moderating foot traffic to slightly down we should what we're seeing for our volumes is probably slightly flat to up slightly we.
We do feel like we are.
Looking at gaining some share within the foodservice segment and outperforming outpacing the market in foodservice.
But there are still certainly some challenges with the consumer there.
Jonathan H. Baksht: And like we mentioned in the prepared remarks, we are strategically aligning with our customers to help drive some of that growth. On the food merchandising, food and beverage merchandising side, I think it's, the volumes are going to be a little bit further off than food service. So we're expecting that volumes will be down. Part of that obviously is the Canton effects from the first quarter last year, but netting that out, we should still see some volume degradation going into the first quarter. I got it.
And like we mentioned in the prepared remarks, we are strategically aligning with our customers to help drive some of that growth.
On the food merchandising food and beverage merchandising side I think it does.
Volumes are going to be a little bit.
Further off than than foodservice, so were expecting that.
Volumes will be down part of that obviously is the canton effects.
From first quarter last year, but netting that out we should still see some some volume degradation going into the first quarter.
Michael Jack King: And then just on the footprint optimization plan, can you comment at all on what particular areas of the business these facilities were serving and just generally kind of what are the next steps on that front and when you'll begin executing on it? And then I know you outlined some of the cost savings and restructuring impacts, but maybe if we think about, you know, the top line or volume perspective, what kind of initial impact do you expect there as a result of closing these facilities, at least in 24? Yeah, so it's a combination of facilities. So we're a hub and spoke, you know, operating model. So we've got, you know, roughly 100 facilities, split between warehouses and distribution and our manufacturing.
Okay got it.
And then just on the footprint optimization plan.
You comment at all.
What particular areas of the business. These facilities, we're serving.
Yes, generally kind of what are the next steps on that front and when youll begin executing on it.
And then I know you outlined some of the cost savings and restructuring and bags, but maybe if you think about.
The top line or volume.
What kind of initial impact.
Do you expect there as a result of closing these facilities how they spend 24.
Yes.
So its the combination.
Combination of facility. So we're a hub and spoke operating model. So we've got.
<unk>.
Roughly 100 facilities.
Split between warehouses and.
Our distribution and our manufacturing plants.
Michael Jack King: And approximately 10% of those facilities are what are outlined in our footprint plan. I would tell you that, you know, while it's footprint optimization, we're certainly not expecting a large degradation in our, our, uh... Our book of business as a result of this. There is some attrition there, but it's mostly a consolidation effort where we're moving business into other facilities. And we're really just optimizing our distribution network to the right size for the business. So it's more low-hanging fruit.
Approximately 10% of those facilities.
Or what are outlined in our footprint plan.
I would tell you that.
Well its footprint optimization, we're certainly not expecting a large degradation in R. R.
Our book of business as a result of this there is there is some attrition there, but it's mostly.
Our consolidation effort, where we are.
We're moving business into other facilities and we're really just optimizing.
Our distribution network right size to the business, so it's more lower hanging fruit.
Michael Jack King: And as John alluded to earlier, you know, it's basically a removal of fixed costs, not a, not an exit plan, if you will, in terms of a book. And in terms of financial impacts into this year, most of the impacts will be felt later this year really into going into next year. I would tell you that, There is some of the expenses. We'll start incurring the expenses this year. But the way to think about it is really, we won't see any real financial benefit into Q4 this year. And the benefits are really gonna be, are contemplated in our guidance already. But I would tell you that going into 2025, It kind of year end run rate for saving. This is more of a 2025 item than a 24 item. You know, we're probably looking at somewhere around 10 to $15 million exit rate at the end of the year in terms of annualized cost savings from that, in 25. You're going into 25. Entering 25.
John alluded to earlier.
Yes.
Basically a removal of fixed cost.
Not an exit plan if you will in terms of a book of business.
And in terms of financial impact this year most of the impact will be felt later this year really into going into next year.
I'd tell you that.
There is.
Some of the expenses, we will start incurring the expenses this year, but the way to think about it is really we won't see any real financial benefit into Q4 this year and.
Benefits are really going to be are contemplated in our guidance already but I would tell you that going into 2025.
It kind of year end run rate for savings and this is more of a 2025 items in 2004 item.
We're probably looking at somewhere around $10 million to $15 million exit rate at the end of the year in terms of annualized cost savings from that.
In 2020 going into 'twenty entering 'twenty five ship.
Operator: Great, thanks. One moment for our next question. Our next question comes from Phil Eng with Jeffrey. Your line is open.
Great. Thanks.
One of them before our next question.
Our next question comes from Phil <unk> with Jefferies. Your line is open.
Phil Eng: Hey guys, the low single-digit volume guide for this year, how much of that is market growth versus the new business you've won and that's secured? And are the business wins more heavily weighted in one segment versus the other? And John, if you have more of a flattish volume environment this year, do you have enough levers to kind of effectively hit your guidance from EBITDA? Yeah, in terms of just in terms of the market versus not, it's, it's really hard for us to break that down as we go into the full year. I would say our general expectations are aligned with what the current macro expectations are. So in terms of, you know, a soft landing type of environment, kind of low single digits, GDP growth, etc.
Hey, guys.
The low single digit volume guidance for this year, how much of that is market growth versus some of the new business you've won.
One.
That scared.
And as the business was more heavily weighted in one segment versus the other and John If you have more of a flattish type volume environment. This year do you have enough levers to kind of effectively hit your guidance.
EBITDA standpoint.
Yes in terms of just in terms of the market versus not.
It's really hard for us to break that down as we go into the full year I would say our general expectations are aligned with what the current macro expectations are so in terms of.
Soft landing type of environment.
And a low single digit GDP growth et cetera, if that's the environment. That's really the guidance if the environment is better or weaker our results will likely have some effects of that attracts the consumer and so we really think about the business in that in that sense.
Jonathan H. Baksht: If that's the environment, that's really the guidance; if the environment is better or weaker, our results will likely have some effects on that, you know, you track the consumer. And so we really think about the business in that sense. In terms of if the market gets weaker and, you know, if volumes come in a bit short of those low single-digit guidance expectations, would we have some additional levers to pull? We would.
In terms of if the market gets weaker and.
Volumes come in a bit short of that low single digit guidance expectations, what do we have some additional levers to pull.
Jonathan H. Baksht: We are very focused on delivering sustainable results, and we have scalability in the business to flex up and flex down. And, frankly, as part of this footprint optimization effort as well, to help remove some of the fixed costs from the business to help us be more adaptable to the market environment. Okay, that's helpful.
We would we are very focused on that.
Delivering.
Sustainable results.
We have scalability with the business to flex up and flex down and frankly, that's part of this footprint optimization effort as well.
Remove some of the fixed cost from the business to help us be more adaptable to the to the market environment.
Okay. That's helpful.
Phil Eng: Margins were up pretty nicely in 2023 with your value-over-volume approach, along with a reduction in COGS and SG&A. Can you kind of help us parse out how much of that is, you know, some of the hard work you guys are doing on the cost-out efforts and restructuring rather than just call it deflation? And do you still have a lot in TAP in 2024?
Margins were.
Were up pretty nicely in 2023 with tiered volume value over volume approach along with reduction in Cogs and SG&A can you kind of help us parse out how much of that is some of the hard work you guys are doing on the cost out efforts and restructuring rather than just call. It deflation and do you still have a lot and tap in 2024.
Phil Eng: The reason why I ask is because from an absolute price cost and inflation standpoint, it sounds like it's going to be a little negative to start the year. So when do you kind of expect that to get back to neutral, just from the inflation piece and the price-cost contractual dynamic? And do you expect that spread to be neutral to positive this year as well?
Reason why I ask is you guys from a absolute price cost inflation standpoint, it sounds like.
Send me a lot of negative to start the year. So when do you kind of expect that to get back to neutral just just from the inflation piece in price cost contractual dynamic and do you expect that spread to be neutral to positive this year as well.
Michael Jack King: I think thematically, you know, John alluded to inflation to start the year. And if you just look a year prior, in 23, you know, a lot of our COLA adjustments, cost of living adjustments, happening in Q1. I think the difference is in Q throughout the year, and it'll ramp up throughout the year here for us because those coal adjustments are spread out for us this year. So, you know, where we've been successful at getting customer support on those, the cadence of that is more quarterly than it is at a point in time in Q1. And so while we feel inflation, predominantly in the labor space and the variable space when it comes to things like electricity, gas, diesel, fuel, transit costs, all those things hit us in Q1. And they are muted as the year goes on and as we recover those costs, You know, just from our kind of high-level view of how this year and last year are a little different. I think it's important to understand that. John, anything you want to add to that?
Dramatically.
John alluded to inflation.
To start the year.
If you just look a year prior and 23.
Our Cola adjustments.
Cost of living adjustments happened in Q1.
I think the differences in Q.
Throughout the it'll ramp up throughout the.
The year here for US is those cola adjustments are spread out for us this year.
So where we've been successful at getting customer support on those.
The cadence of that as more quarterly than it is a point in time in Q1, and so while we feel that inflation.
Dominantly in the labor space.
The variable space when it comes to things like electricity energy.
Diesel fuel transit costs, all of those things hit us in Q1.
They are muted as the year goes on and as we recover those costs. So just from a.
Kind of a high level view of how this year than last year, a little different I think it's important understating that John anything you'd add to that and I think Phil just to kind of give you a sense of what's driving our margin enhancement, which is the heart of your question.
Jonathan H. Baksht: Yeah, and I think, Phil, just to kind of give you a sense of what's driving our margin enhancement, which is the heart of your question, you know, back to the strategic initiatives that Mike touched on and we're really operating here, you know, value over volume was a big initiative last year. We were very much focused on having the right book of business and aligning our business with strategic customers that really valued the value proposition, the differentiated value proposition that we provide. And so there was probably, I would say 2023; there was probably more of that last year. And clearly, a big piece of that was the beverage merchandising restructuring, which is a cost-out initiative and just broadly restructuring our business model to help lower our fixed costs through the reduction of a high-cost paper mill, a high-capital-intensive paper mill. So that was part of it.
Back to the strategic initiatives that Mike touched on and we're really operating here.
You have our volume was a big initiative last year, we were very much focused on do we have the right book of business and aligning our business with strategic customers that really value the value proposition.
<unk> value proposition that we provide and so there was there was probably I would say 2023, there is probably more of that last year and clearly a big piece of that was.
The beverage merchandising restructuring, which is a cost out initiatives and just broadly restructuring our business model to help lower our fixed cost.
Through reduction of.
At a high cost paper mill high capital intensive paper mill.
Jonathan H. Baksht: And then the other cost initiatives, clearly the PEPs program, the continuous improvement that we're doing, you know, as Mike said, we're still in the early innings of those initiatives really starting to really pay off in our margins. We are facing inflation challenges that right now we are keeping up with and offsetting through either COLAs or through cost-reduction initiatives. But as you note in our guidance for this year, as those cost initiatives start taking hold, I think this year, 2024, you'll see that the cost-reduction initiatives probably start outpacing the value over volume that you saw last year, particularly going into the back half of the year. And then, bringing back the other point we mentioned in food service, specifically, the value over volume is really, you know, we're really past that. Food and beverage merchandise, we still have some room to go there. But as we come out of value over volume in food service, it's the cost-reduction initiatives that are going to help divide the margin and have some going into the back part of 2024. Okay. Appreciate the color, guys.
That was part of it and then the other cost initiatives clearly the Pep program the continuous improvement that we're doing.
Like I said, we're still in the early innings.
Those initiatives really starting to.
To really recognize themselves in our in our margins we are facing inflation challenges that right. Now we are keeping up with an offsetting through either <unk> or new cost reduction initiatives.
As you note in our guidance for this year as those cost initiatives start taking hold I think this year 2024, youll see that the cost reduction initiatives, probably start outpacing the value over volume that you saw last year, particularly going into the back half of the year.
And then bringing back the other point, we mentioned in foodservice specifically.
The value over volume is really.
We're really past that food and beverage merchandise, we still have some room to go there but.
But as we as we come out of the value over volume in foodservice, it's the cost reduction initiatives theyre going to help the volume.
<unk> has been going into the back part of 2024.
Okay I appreciate the color guys.
Thank you one moment for our next question.
Phil Eng: Thank you. Our next question comes from Curt Woodworth of UBS. Your line is open. Yeah, good morning. Thanks for squeezing me in.
<unk>.
Our next question comes from Curt Woodworth with UBS. Your line is open.
Yes, hi, good morning, Thanks for squeezing me in so.
Operator: So just wanted to kind of understand maybe operating leverage within the model. You know, you're guiding to low single-digit unit growth for this year, but the EBITDA guide is up only 2%. And you talked about you're going to get incremental productivity. And if you look at the slide deck, the last two quarters, you've had over $90 million of year-on-year improvement in your COGS. So this is the right way to think about the operating leverage component that, basically, price costs and costs are kind of offsetting. So the unit growth is kind of netting out to an equivalent EBITDA growth. Or what's the right way to think about that? I actually think you're real close.
So.
Just wanted to understand maybe operating leverage within the model Youre guiding to low single digit unit growth for this year, but the EBITDA guided up only 2%.
And you talked about you're going to get incremental productivity.
And when you look at the slide deck last two quarters, you've had over 90 million beyond the or improvement in your Cogs basis. So.
Is the right way to think about.
The operating operating leverage component of that.
Basically quite cost in Cogs are kind of offsetting the unit growth is kind of netting out to an equivalent.
EBITA growth or what's the right way to think about that.
I actually think you're real close I mean, no secret we keep in the inflation for us is really a real especially on the labor side.
Curtis Rogers Woodworth: I mean, no secret, we keep hitting that. Inflation for us is very real, especially on the labor side. So our productivity, you know, where we sit today in our operating leverage, early, early days and past, we've been able to battle that back. I think the fruit, there was lower hanging fruit.
So our productivity, where we sit today and our operating leverage.
Early early days in <unk>, we've been out with the battle that pack.
I think the fruit there was lower hanging fruit and yogurt was lower hanging fruit in the last latest quarters and so you've seen that come through I think as we improve as we ramp up perhaps youll see that we start to outpace that.
Michael Jack King: I know there was lower-hanging fruit in the last quarters, and so you've seen that come through. I think as we improve, you know, as we ramp up PEPs, you'll see that we start to outpace that. Inflation Recovery, and you'll see that that plus the support we get from our customers, and that becomes less of a variable. And to the extent you see unit growth, you're seeing that come through kind of, pretty close to one-to-one in our depth. And so, you know, I think you've characterized it well. It's not perfectly clean, and certainly, time's our friend and time's our enemy, the longer we have to implement more facilities and get after some of the footprint work, so I think... It's why we're excited.
Inflation recovery and you'll see that that.
That plus the support we get from our customers and that becomes less of a variable.
And to the extent you see unit growth you are seeing that come through.
Pretty close to one to one.
And our EBITDA and so.
I think you've characterized it well, it's not perfectly clean and certainly.
Times are front end times, our enemy the longer we have to implement.
More facilities and get after some of the footprint work I think.
Curtis Rogers Woodworth: It definitely improves our operating leverage. Okay, and then I guess just thinking longer term about capital spending requirements for the business, I mean, given kind of this transition to a more asset-light model and a lot of the restructuring footprint actions you're taking. You know, how should we think about what that means to either go for maintenance cutbacks or kind of future cutbacks, I know you called out? sort of a, more of a maybe a proforma number around 250 million ex-Pine Bluffs and some of the... Capitalist Funding for Footprint. But how do you see that going forward? Thank you. Yeah, sure. It's a good question.
It's why we're excited with this definitely improves our operating leverage.
Okay.
Okay, and then I guess, just thinking longer term about capital.
Spending requirements for the business given kind of the transition to a more asset light model on the restructuring footprint actions we're taking.
How should we think about what that means to either go forward maintenance capex or kind of future Capex I know you called out.
Sort of.
More but maybe a pro forma number around 250 million ex pine Bluff and some of them.
Capital spending for footprint, but how do you see that going forward. Thank you.
Yes, sure it's a good question.
Jonathan H. Baksht: From a, you know, we're not providing longer term capital guidance on this call, but to give you a sense of the the composition of the 2024 capital plan. And one of the reasons we did bridge to that 250 for even this year was to give a sense of, you know, net of the, you know, the Pine Bluff paper mill and the footprint optimization, 250 is, is more of a normalized number. In terms of kind of the geography of that capital.
Providing longer term capital guidance on this call, but to give you a sense of the composition of the 2024 capital plan and one of the reasons, we did bridge to that $2 50.
Refer even this year just to get a sense of.
Net of the Pine Bluff paper mill and the footprint optimization two <unk> is more of a normalized number in terms of kind of the geography of that capital. So to give you a sense. This year 24 about half of the $2 50, so about $120 million.
Jonathan H. Baksht: So to give you a sense this year, 2024, you know, about half of the 250 million, so about 120 million, will be sustaining capital in that plan. We've got probably 50 million of capital that's really investment to offset, you know, changes in customer mix or changes in the customer's product mix, etc. And then the remainder, about 100 million, is return yielding, growth, automation, cost savings, etc.
Be sustaining capital and Thats in that plan we've got.
Probably $50 million of capital, that's really investment to offset changes in customer mix or changes in the customer's product mix et cetera, and then the remainder or about $100 million returned yielding growth automation cost savings et cetera.
Jonathan H. Baksht: And to the extent that, you know, going into future years, it's the growth part that we can really flex, we're going to be disciplined in how we think about growth, but when we find opportunities to drive value for investors and shareholder value through capital, we're certainly evaluating that consistently, you know, all the time. And I'm not showing any further questions at this time. I'd like to turn the call back over to Mike for any closing remarks. Yeah, thank you, operator. As we close today, I want to thank you again on behalf of the entire Pactive Evergreen team for joining us. I also want to thank the entire Pactive Evergreen team for delivering an outstanding result in 2023. We are executing on our strategy and will continue to progress on our transformational journey. We look forward to updating you during our first quarter conference call, and I want to thank you again. Ladies and gentlemen, this concludes today's presentation. You may now disconnect and have a wonderful day. Visit my blog for more information.
And to the extent that going into future years, if it's the growth part debt that we can really flex we're going to be disciplined in how we think about growth when we find opportunities to.
Drive value for investors.
Shareholder value.
<unk> capital.
We're certainly evaluating that.
Yeah.
All the time.
And I'm not showing any further question at this time I'd like to turn the call back over to Mike for any closing remarks.
Yes, thank you operator.
As we close today I want to thank you again on behalf of the entire effective evergreen team.
Thanks for joining I also want to thank the entire effect of evergreen team for delivering an outstanding result in 2023.
We are executing on our strategy and we'll continue to progress on our transformation transformational journey excuse me.
We look forward to updating you during the first quarter conference call and I want to thank you again.
Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
Okay.
[music].
Sure.