Q1 2024 Glatfelter Corp Earnings Call
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Operator: ... Please stand by. Good day and welcome to the Glatfelter's Q1 2024 earnings release conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Ramesh Shettigar. Please go ahead.
Mister Car: Good day and welcome to the Glatfelter Q1, 'twenty 'twenty four earnings release Conference call. Today's conference is being recorded at this time I would like to turn the conference over to Mister car. Please go ahead.
Ramesh Shettigar: Thank you good morning, and welcome to Glatfelter as 2024 first quarter earnings Conference call. This.
Ramesh Shettigar: Thank you, Ruth. Good morning, and welcome to Glatfelter's 2024 First Quarter Earnings Conference Call. This is Ramesh Shettigar, Senior Vice President, Chief Financial Officer, and Treasurer. Also on the call to present our first quarter results are Thomas Fahnemann, President and Chief Executive Officer of Glatfelter, and myself. Before we begin our presentation, I have a few standard reminders. During our call this morning, we will use the term adjusted earnings as well as other non-GAAP financial measures.
Ramesh Shettigar: This is Rob <unk>, our senior Vice President and Chief Financial Officer and Treasurer.
Thomas M. Fahnemann: On the call to present, our first quarter results as Thomas Vitamin President and Chief Executive Officer of Glatfelter and myself.
Ramesh Shettigar: A reconciliation of these financial measures to our gap-based results is included in today's earnings release and in the investor slides. We will also make forward-looking statements today that are subject to risks and uncertainties. Our 2023 Form 10-K, which has been filed with the SEC, and today's earnings release disclose factors that could cause our actual results to differ materially from these forward-looking statements. These statements speak only as of today, and we undertake no obligation to update them. I will now turn the call over to Thomas.
Ramesh Shettigar: Before we begin our presentation I have a few standard reminders during.
Thomas: During our call. This morning, we will use the term adjusted earnings as well as other non-GAAP financial measures.
Thomas: A reconciliation of these financial measures to our GAAP based results is included in today's earnings release and in the Investor slides.
Thomas: We will also make forward looking statements today that are subject to risks and uncertainties.
Thomas: Our 2023 Form 10-K, which has been filed with the SEC.
Thomas: In today's earnings release disclose factors that could cause our actual results to differ materially from these forward looking statements.
Thomas: These statements speak only as of today and we undertake no obligation to update them.
Ramesh Shettigar: I will now turn the call over to Thomas Thank you Ramesh Hello, everyone and welcome to club favored US first quarter 2024 investor call.
Thomas M. Fahnemann: Thank you Ramesh. Hello everyone, and welcome to Glatfelter's first quarter 2024 investor call. I'm pleased to report that the business produced solid but mixed results at the segment level as we continue to face industry-wide market headwinds and challenges from the volatile global economic environment, with Europe representing our most difficult market currency. We achieved adjusted EBDA of $23.8 million for the quarter, or approximately $1 million lower than the same quarter last year.
Thomas M. Fahnemann: I'm pleased to report that the business, but it was solid but mixed results at the segment level.
Thomas M. Fahnemann: As we continue to face industry wide market headwinds and challenges from the volatile global economic environment with Europe, representing our most difficult market currently.
Thomas M. Fahnemann: We achieved adjusted EBITDA of $23 $8 million for the quarter or approximately $1 million lower than the same quarter last year.
Thomas M. Fahnemann: Also, in relation to the proposed merger of Glatfelter with Berry Global's HHNF business, we reached a significant regulatory milestone with the expiration of the HSR waiting period. I will speak more to the work that is underway related to the proposed merger towards the end of today's call. Turning now to the highlights of Glatfelter's first quarter performance, the Sunday segment continues to gain momentum, having generated $5 million higher EBITDA versus the first quarter of 2023.
Thomas M. Fahnemann: Also in relation to the proposed merger of clubs held up with Berry Global H H N. S business, we reached a significant regulatory milestone with the exploration of the HSR waiting period I.
Thomas M. Fahnemann: I will speak more to the work that is underway related to the proposed merger towards the end of today's call.
Thomas M. Fahnemann: Turning now to the highlights of club sale does first quarter performance.
Thomas M. Fahnemann: This segment continues to gain momentum, having generated $5 million higher EBITDA versus the first quarter of 2023.
Thomas M. Fahnemann: This performance was driven primarily by ongoing price cost gap improvements combined with approximately $2.4 million of operational efficiencies throughout our spam-less site. In addition, we continue to hold pricing benefits for our branded Sontara product and realized further gains in our Solstrands facility following the site's 2023 restructuring. Also, in Spunlace, I'm pleased to report that our Tennessee facility is fully operational following the tornado that swept through the community in December.
Thomas M. Fahnemann: This performance was driven primarily by ongoing price cost gap improvements.
Thomas M. Fahnemann: Binds us approximately $2 $4 million of operational efficiencies throughout our spend less sites.
Thomas M. Fahnemann: In addition, we continue to hold pricing benefits for our brand of some type of a product and realize further gains in our solids, France facility. Following besides 2023 restructuring.
Thomas M. Fahnemann: Also in Spotless I'm pleased to report that our Tennessee facility is fully operational following the tornado that swept through the community in December.
Thomas M. Fahnemann: I commend the team for their hard work and dedication to restoring operations while ensuring customer commitments were met during the recovery effort. Transitioning to our composite fiber business, this segment continues to demonstrate a positive trajectory based on steps we have taken to maintain solid performance against the backdrop of a difficult European market. The Composite Fibers team delivered approximately 2 million higher EPTA compared to the first quarter of 2023. This performance was achieved primarily through price-cost gap improvements despite a nominal volume increase.
Speaker Change: I commend the team for their hard work and dedication to restoring operations, while ensuring customer commitments were met during the recovery efforts.
Thomas M. Fahnemann: Transitioning to our composite fiber business.
Thomas M. Fahnemann: This segment continues to demonstrate a positive trajectory based on steps, we have taken to maintain solid performance against the backdrop of a difficult European market.
Thomas M. Fahnemann: The composite fibers team delivered approximately 2 million higher EBITDA compared to the first quarter 2023.
Thomas M. Fahnemann: This performance was achieved primarily through price cost gap improvements despite a nominal volume increase.
Thomas M. Fahnemann: Overall, composite fibers continues to be managed, using a combination of carefully targeted pricing actions to effectively balance volumes, inventory, and operational uptime while mitigating volatile raw material and energy costs. Our most challenging segment in the first quarter was LA, as its European markets remain quite tenuous. The segment generated $9 million lower EBITDA, with approximately $8 million of the decline attributed to the prolonged European market weakness, which resulted in lower shipments and production along with adverse pricing dynamics.
Thomas M. Fahnemann: The all composite fibers continues to be managed.
Thomas M. Fahnemann: Using a combination of carefully targeted pricing actions to effectively balanced volumes.
Thomas M. Fahnemann: Inventories and operational uptime, while mitigating volatile raw material and energy costs.
Thomas M. Fahnemann: Our most challenging segment in the first quarter was elite athletes European markets remained quite tenuous.
Thomas M. Fahnemann: The segment generated $9 million lower EBITDA was approximately $8 million of the decline attributable to.
Thomas M. Fahnemann: Is it through the prolonged European market weakness.
Thomas M. Fahnemann: Which resulted in lower shipments and production along with adverse pricing dynamics.
Thomas M. Fahnemann: In addition, Airlade continues to experience growing competition from producers of related substrates. Nevertheless, despite the segment's dynamics, we are accelerating our efforts with new innovative products that have the potential to address customers' ongoing demand for sustainable, plastic-free alternatives and new creative applications using Glatfelter's air-laid materials. And I'm excited to share that we recently qualified a key customer for a brand new LED solution with production targeted at Europe. Shipping volume for this application, when fully ramped up, has the potential to generate meaningful volume annually.
Thomas M. Fahnemann: In addition.
Thomas M. Fahnemann: It continues to experience growing competition from producers of related substrates.
Thomas M. Fahnemann: Despite the segment's dynamics, we are accelerating our efforts with new innovative products that have the potential to address customers' ongoing demand for sustainable plastic free alternatives and new creative applications using cloud Philadelphia led materials.
Thomas M. Fahnemann: And I'm excited to share that we recently qualified to key customer for brand New Air led solution.
Thomas M. Fahnemann: Production targeted for Europe.
Thomas M. Fahnemann: Shipping volume for this application when fully ramped up has the potential to generate meaningful volume annually.
Thomas M. Fahnemann: Also, we recently shipped our first commercial plant-based caps to Blue Ocean Closures for use by a Swedish manufacturer of nutritional supplements. These innovation initiatives are part of our overall airline business strategy to reduce customer concentration in the sector. I will now turn the call over to Ramesh.
Thomas M. Fahnemann: Also we recently shipped our first commercial plant based cap to Blue Ocean closures for use by a Swedish manufacturer of nutritional supplements.
Ramesh Shettigar: These innovation initiatives are part of our overall business strategy to reduce customer concentration in the segment.
Thomas M. Fahnemann: I will now turn the call over to Ramesh.
Ramesh Shettigar: Thank you Thomas.
Ramesh Shettigar: Slide 3 of the investor presentation provides a summary of our first quarter results. Adjusted EBITDA was $23.8 million, approximately $1 million lower compared to the same period last year, while EBITDA margins improved by 70 basis points. Air Lid Materials' EBITDA was lower by $9 million versus a very strong quarter last year. The drop in earnings was mainly driven by weaker European demand leading to lower shipments and, consequently, lower production to manage inventory levels.
Ramesh Shettigar: Slide three of the Investor presentation provides a summary of our first quarter results adjusted.
Ramesh Shettigar: Adjusted EBITDA was $23 $8 million, approximately 1 million lower compared to the same period last year, while EBITDA margins improved by 70 basis points.
Ramesh Shettigar: ALLETE materials, EBITDA was lower by $9 million versus a very strong quarter last year the.
Ramesh Shettigar: The drop in earnings was mainly driven by weaker European demand, leading to lower shipments and consequently, lower production to manage inventory levels.
Ramesh Shettigar: Composite fibers EBITDA improved by $2 million, mainly from favorable price cost gap.
Ramesh Shettigar: The positive fiber improved by $2 million, mainly from a favorable price-cost gap. Spun Lacey Bita was higher by $5 million compared to the same quarter last year, driven by a favorable price-cost gap, headcount reduction, and operational improvement. Slide 5 shows a summary of first-quarter results for the air-lid material segment.
Ramesh Shettigar: Spun laced EBITDA was higher by $5 million compared to the same quarter last year, driven by favorable price cost gap head count reduction and operational improvements.
Ramesh Shettigar: Slide five shows a summary of first quarter results for the early material segment.
Ramesh Shettigar: Revenues were down 18% on a constant currency basis versus the same period last year, driven primarily by lower selling prices of approximately $20 million and 4% lower shipping. Selling prices were lower mainly due to cost pass-throughs reflecting declines in raw material and energy costs in Europe and selective price concessions to non-floating customers to regain volume. On a net basis, the price-cost gap was unfavorable to earnings by $2.4 million. Volume is lower year over year, primarily due to weaker shipments in categories like hygiene, home care, and Tabletop in Europe. The decline was largely driven by pricing actions taken in 2023 to protect margins and improve our price cost dynamic. However, ongoing market softness in Europe continued with downward pressure, further impacting volume.
Ramesh Shettigar: Revenues were down 18% on a constant currency basis versus the same period last year, driven primarily by lower selling prices of approximately $20 million and 4% lower shipments.
Ramesh Shettigar: Selling prices were lower mainly due to cost pass throughs, reflecting declines in raw material and energy costs in Europe, and selective price concessions to non floating customers to regain volume.
Ramesh Shettigar: On a net basis the price cost gap was unfavorable to earnings by $2 $4 million.
Ramesh Shettigar: Volume was lower year over year, primarily due to weaker shipments in categories like hygiene home care.
Ramesh Shettigar: And tabletop in Europe.
Ramesh Shettigar: The decline was largely driven by pricing actions taken in 2023 to protect margins and improve our price cost dynamic however, ongoing market softness in Europe continued to put downward pressure further impacting volume.
Ramesh Shettigar: In addition, mix was unfavorable compared to last year when we had much stronger color tabletop shipments. These two factors combined unfavorably impacted results by approximately $1.8 million. Operations were unfavorable by $3.8 million versus the prior year, primarily due to lower production of approximately 2,800 tons to manage inventory levels. Also, wage and other general inflation were higher compared to the same period last year. Foreign exchange and related currency hedging negatively impacted earnings by $1 million, primarily due to hedging gains from the prior year. Slide 6 shows a summary of first quarter results for the composite fiber sector.
Ramesh Shettigar: In addition mix was unfavorable compared to last year, when we had much stronger color tabletop shipments.
Ramesh Shettigar: These two factors combined unfavorably impacted results by approximately $1.8 million.
Ramesh Shettigar: Operations were unfavorable by $3 $8 million versus the prior year, primarily due to lower production of approximately 2800 tons to manage inventory levels.
Ramesh Shettigar: Also wage and other general inflation were higher compared to the same period last year.
Ramesh Shettigar: Foreign exchange and related currency hedging negatively impacted earnings by $1 million, primarily due to hedging gains from the prior year.
Ramesh Shettigar: Slide six shows a summary of first quarter results for the composite fiber segment.
Ramesh Shettigar: Total revenues were down 13% on a constant currency basis, mainly due to lower selling prices of $11 million from floating contracts implemented with larger food and beverage customers and targeted pricing actions to preserve volume. And although shipments overall were nominally higher by 1 percent, mainly from the composite laminates and metallized categories, MIGS also contributed to lower revenue for the quarter compared to the same period last year. Overall, the price-cost gap for composite fibers remains favorable, with prices declining by $11.1 million versus lower prices for key raw materials, energy, and freight, which improved earnings by $13.6 million versus the same quarter last year. However, operations and other were unfavorable by $800,000 mainly due to lower production, and Foreign Exchange was unfavorable by $200,000.
Ramesh Shettigar: Revenues were down 13% on a constant currency basis, mainly due to lower selling prices of $11 million from floating contracts implemented with larger food and beverage customers and targeted pricing actions to preserve volume.
Ramesh Shettigar: And although shipments overall were nominally higher by 1% mainly from the composite laminates and Metlife categories mix also contributed to lower revenue for the quarter compared to the same period last year.
Ramesh Shettigar: Overall, the price cost gap for composite fibers remains favorable with prices declining by $11 $1 million versus lower prices for key raw materials energy and freight which improved earnings by $13 $6 million versus the same quarter last year.
Ramesh Shettigar: Operations and other was unfavorable by $800000, mainly due to lower production.
Ramesh Shettigar: Foreign exchange was unfavorable by $200000.
Ramesh Shettigar: Slide seven shows a summary of first quarter results for the <unk> segment.
Ramesh Shettigar: Slide 7 shows a summary of first quarter results for the Spunley segment. Revenues were down 8% on a constant currency basis, driven by lower selling prices of approximately $4 million, coming from raw material cost pass-throughs, primarily in the hygiene and household categories. Volume was lower by 2%, driven by softer shipments in the wipes, healthcare, and hygiene categories, but partially offset by stronger shipments and critical cleaning.
Ramesh Shettigar: Revenues were down 8% on a constant currency basis, driven by lower selling prices of approximately $4 million coming from raw material cost pass throughs, primarily in the hygiene and wipes categories.
Ramesh Shettigar: Volume was lower by 2% driven by softer shipments in the wipes health care and hygiene categories.
Ramesh Shettigar: Partially offset by stronger shipments in critical cleaning.
Ramesh Shettigar: Raw material energy and other inflation were favorable by $7.4 million, resulting in positive price-cost gaps. Operations and other items were $2.4 million favorable through an intense focus on manufacturing efficiencies, headcount reductions, and lower operational costs. Slide 8 shows corporate costs and other financial items. Corporate costs were $700,000 lower versus the first quarter of last year, largely driven by lower professional services spending this year. However, strategic initiatives costs were higher this quarter, driven by our proposed transaction with Barry's HHNF business.
Ramesh Shettigar: Raw material energy and other inflation were favorable by $7 $4 million, resulting in positive price cost gap.
Ramesh Shettigar: Operations and other items were $2 $4 million favorable through intense focus on manufacturing efficiencies headcount reductions and lower operational spending.
Ramesh Shettigar: Slide eight shows corporate costs and other financial items.
Ramesh Shettigar: Corporate costs were $700000 lower versus the first quarter of last year, largely driven by lower professional services spending. This year. However, strategic initiatives costs were higher this quarter driven by our proposed transaction with Berry's H H N F business.
Ramesh Shettigar: Slide nine shows our cash flow summary for the first quarter of 2024, our adjusted free cash flow was $9 million lower versus the same period in 2023 cash interest was elevated by approximately $5 million related to our refinancing in Q1, 2023, and the higher interest rate environment.
Ramesh Shettigar: Slide nine shows our cash flow summary. For the first quarter of 2024, our adjusted free cash flow was $9 million lower versus the same period in 2023. Cash interest was elevated by approximately $5 million related to our refinancing in Q1 2023 and a higher interest rate environment. Working capital cash usage was higher by $2 million, and cash taxes paid in 2024 were higher by $1 million. Slide 10 shows some balance sheet and liquidity metrics.
Ramesh Shettigar: Working capital cash usage was higher by $2 million and cash taxes paid in 2024 were higher by $1 million.
Ramesh Shettigar: Slide 10 shows some balance sheet and liquidity metrics.
Ramesh Shettigar: Our leverage ratio, as calculated under the bank credit agreement, was 3.7 times as of March 31, and we had available liquidity of approximately $85 million at the end of Q1. This concludes my prepared remarks. I will now turn the call back to Thomas.
Ramesh Shettigar: Our leverage ratio as calculated under the bank credit agreement was three seven times as of March 31, and we had available liquidity of approximately $85 million at the end of Q1.
Ramesh Shettigar: This concludes my prepared remarks, I will now turn the call back to Thomas.
Thomas M. Fahnemann: Ramesh, the team, and I remain excited by the prospects of Glatfelter merging with Berry Global's HHNF business, which is anticipated to close in the second half of 2024. Extensive efforts are underway to prepare for integrating the two businesses into a combined organization that will create a leading publicly traded company in the specialty materials industry. Integration planning includes extensive work to assess the two organizations and ensure effective operations starting on day one under the direction of Kurt Begle, NUCO CEO. Multiple teams are focused on key areas such as organizational structure, including the formation of a board of directors and the leadership team, while assessing talent throughout the organization.
Thomas: Thank you Ramesh the team and I remain excited by the prospects of club third emerging with Berry Global it's H H N that business, which is anticipated to close in the second half of 2024.
Thomas M. Fahnemann: Extensive efforts underway to prepare for integrating the two businesses into a combined organization that will create a leading publicly traded company in the specialty materials industry.
Thomas M. Fahnemann: Integration planning includes extensive work to assess the two organizations and ensure effective operations starting on day, one under the direction of quote Begley New co CEO.
Thomas M. Fahnemann: Multiple teams are focused on key areas, such as organizational structure, including the formation of our board of directors and the leadership team, while assessing talent throughout the organization.
Thomas M. Fahnemann: In addition, the work is focused on business processes and it systems, along with operational excellence that leverages, the combined companies' complementary product and manufacturing technologies.
Thomas M. Fahnemann: The integration is being guided by a carefully planned schedule, which is well underway and I'm pleased by the tremendous efforts of our collective teams.
Operator: In addition, the work is focused on business processes and IT systems, along with operational excellence that leverages the combined company's complementary products and manufacturing technologies. The integration is being guided by a carefully planned schedule, which is well underway, and I'm pleased by the tremendous efforts of our collective team. As we approach the closing of the proposed transaction, I look forward to sharing additional details regarding the integration and the efforts to ensure meaningful performance of Glatfelter in the coming months. I will now open the call to questions. Thank you. If you would like to ask a question, please
Thomas M. Fahnemann: As we approach closing of the proposed transaction.
Operator: Look forward to sharing additional details regarding the integration and the efforts to ensure a meaningful performance of club soda in the coming months.
Speaker Change: Well now open the call for questions Ruth.
Operator: Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, please press star 1 to ask a question. We'll pause for just a moment. We'll go first to Josh Wool with Carlson Capital.
Operator: Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad.
Josh Wool: You're using a speaker phone. Please make sure your mute function is turned off to allow your signal to reach our equipment again. Please press star one to ask a question.
Operator: Pause for just a moment.
Operator: Yeah.
Josh Wool: Well go first to Joshua <unk> with Carlson capital.
Josh Wool: Hey, Thomas, Ramesh. Good morning. Thanks for taking my questions. Good morning.
Josh Wool: Hey, Thomas <unk>. Good morning, Thanks for taking my questions.
Thomas M. Fahnemann: Good morning. Good morning.
Josh Wool: Good morning, good morning.
Thomas M. Fahnemann: Okay.
Josh Wool: Before I get to some questions on Q1, a few questions just on the Berry deal and the process from here. I know you noted HSR approval.
Josh Wool: Before I get to some questions on Q1, a few questions just on the battery deal and the process from here I know you noted HSR approval.
Josh Wool: You saw a press report in late April talking about the financing preparations when do you expect to place the new financing at outset of financing when do you expect to file a preliminary S. Four.
Josh Wool: And is there a target for when you put it out.
Josh Wool: Name for Newco.
Josh Wool: And some of the kind of the corporate branding.
Josh Wool: Uh huh.
Thomas M. Fahnemann: I also saw a press report in late April talking about the financing preparations. When do you and Berry expect to place the new financing? And outside of financing, when do you expect to file a preliminary S-4? And is there a target for when you could announce, you know, a name for NewCo and some of the kind of the corporate brand (inaudible)?
Ramesh Shettigar: Yeah. Thanks for the question Josh.
Thomas M. Fahnemann: Again, we are still heavily working on all the different.
Thomas M. Fahnemann: Yeah, thanks for the question, Josh. Again, we are still heavily working on all the different things we have to do and conditions we have to meet in order to close the transaction, which includes approval by Glatfelter shareholders and securing several regulatory approvals outside of the U.S. So, we are still very optimistic that we will close the transaction in the second half of this year. And as far as your question about financing is concerned, that's still to be determined, and it depends, first of all, on whether we need to get all the approvals from the different authorities.
Thomas M. Fahnemann: Things, we have to do when conditions, we have to meet in order to close the transaction.
Thomas M. Fahnemann: Which includes the approval by shareholders see carrying several regulatory approvals outside of the U S. So we are still a very.
Thomas M. Fahnemann: Domestic that we are closing the transaction in the second half of this year and as far as your question about financing is concerned that's still to be determined and it depends first of all we need to get all the approvals from the different authorities.
Thomas M. Fahnemann: Okay.
Josh Wool: Okay, thanks for that. And then on Q1, normally, I ask about volumes generally, and then price costs generally. But given the performance of airlines, I thought I would just kind of focus on that segment as a whole. And it seems the biggest driver of the weakness was the economic downtime. And so I guess I'm trying to understand a little bit about how you guys were caught so off guard.
Thomas M. Fahnemann: For that and then on Q1 normally I ask you about volumes generally and then price costs generally, but given the performance in your wage I thought I would just kind of focus on that segment as a whole and it seems the biggest driver of the weakness was.
Josh Wool: Economic downtime and so I guess I'm trying to understand a little bit.
Josh Wool: Kind of how you guys were caught off guard I mean, I realize shipments were down year over year, but they improved sequentially and I think the year over year decline was a little bit worse in Q4.
Josh Wool: I mean, I realize shipments were down year over year, but they improved sequentially, and I think the year over year decline was a little bit less than in Q4. And maybe as it relates to that question, some of the CPG data I've seen has continued to improve sequentially, including some of what I'm hearing from Europe, like the guys that make label stock, which can usually be a leading indicator. So kind of like, what was the issue with either planning or forecasting that? Or why you had to take such kind of such a severe downtime to get your inventory back.
Josh Wool: And maybe as it relates to that question some of the CPG data I've seen has continued to improve sequentially, including some of what I'm hearing from Europe like the guys that make label stock, which can usually be a leading indicators so kind of like what what was the issue with either planning or forecasting that or why you had to take.
Josh Wool: Such.
Josh Wool: Such a severe.
Josh Wool: Downtime to get your inventory back in line.
Thomas M. Fahnemann: Okay, Josh, I think I'll just go through segment by segment because we have a different picture in each segment. Maybe we should start with composite fibers.
Josh Wool: Okay.
Speaker Change: Let me just go through segment by segment, because we have a different picture in the segment, maybe let's start with composite fibers.
Thomas M. Fahnemann: In composite fibers, we saw a 10% volume growth from Q4-23 to Q1-24, and this growth was mainly driven by composite laminates and wall cover. The food and beverage side was slightly lower, and that was mainly driven by tea, but we're expecting that this kind of sub-segment tea will pick up in Q2. We are still seeing, and again, in the other areas, I think the de-stocking has more or less vanished. It's gone.
Josh Wool: In composite fibers, we still a 10% volume growth from Q1 'twenty three two Q1 24 and this growth was mainly driven by a composite laminates and World Cup all.
Thomas M. Fahnemann: The food and beverage side was slightly lower and that was mainly driven by tea, but we are expecting that this kind of sub segment T will pick up in Q2.
Thomas M. Fahnemann: We are still seeing and again in the other areas I think the destocking has more or less vanished. It. It's gone the only segment, where we're seeing it a little bit it's still in the food and beverage area, mainly coffee where.
Thomas M. Fahnemann: The only segment where we're seeing it a little bit is still in the food and beverage area, mainly coffee, where we are still kind of – that's still lagging the trend of all the other areas. And then, what's really positive in the CF area, composite laminates, we are running right now at a rate which would actually, if we continue doing this, would be 20% higher than in 2023. So that's kind of the app on the Spunlay side.
Thomas M. Fahnemann: While we are still kind of that's the lagging the trend all the.
Thomas M. Fahnemann: The other areas.
Thomas M. Fahnemann: And then what's really positive in the Seattle area of composite Laminates are you running right now at a rate, which would actually if we continue doing this would be 20% higher than in 2023.
Thomas M. Fahnemann: So that's kind of the apps on the bottomless sides.
Thomas M. Fahnemann: Also, Thumblace is actually improving. We had an overall 5% volume growth from Q4'23 to Q1. And the growth in that area was mainly driven by hygiene and wipes. But we have seen some large customers buy additional volume in Q1. And going into Q2 and seeing April a little bit, I mean, we also see some upsides here on the volume and also on the mix side. Santara, and you might remember when we talked about this a year ago, we said we were qualifying and all that, but we are seeing right now that Santara shows a 10% increase, mainly in the critical cleaning with higher volumes from new business development but also with existing customers. So that's kind of the spunlace area.
Thomas M. Fahnemann: Also some less is actually improving and we have an overall, 5% volume growth.
Thomas M. Fahnemann: From a Q4 'twenty three two Q1 and the growth in that area was mainly driven by our hygiene and wipes.
Thomas M. Fahnemann: First of all we have seen some large customer support additional volume in Q1.
Thomas M. Fahnemann: Going into Q2, and seeing April a little bit and then we also see some upside here on the volume and also on the mix side.
Thomas M. Fahnemann: On tower and you might remember when we talked about this a year ago. We said we are qualifying and all that but we are seeing right now is on towers, so that 10% increase.
Thomas M. Fahnemann: Mainly in the critical cleaning with higher volumes from new business development, but also with existing customers.
Thomas M. Fahnemann: And on air late, we really have to look at the different regions. If I look at air late, in North America, we had an overall volume increase of 13% in Q1 versus Q4. And we are seeing this really in all different categories. It's not just one category; we see it in hygiene and women's, tabletop, and home care. And also here, we think that the stocking has been done.
Thomas M. Fahnemann: So that's kind of the the spotless area and L. A we really have to look at the different regions.
Thomas M. Fahnemann: I look at the L H.
Thomas M. Fahnemann: In North America, we have a overall volume increase of 13%.
Thomas M. Fahnemann: In Q1 versus Q4.
Thomas M. Fahnemann: And we are seeing this really in all different categories. It's not just one category recede in hygiene and wipes tabletop home care.
Thomas M. Fahnemann: And and also here, we think the Destocking has been done.
Thomas M. Fahnemann: Unfortunately, Europe is a totally different story. The markets are much more challenging, and our volume dropped by 7% from Q4 to Q1, and the decline in that area in Europe was mainly driven by hygiene, probably minus 10, minus 11%. We have made some really good progress with new products and new customers, and we are kind of at the edge right now of – that we are kind of really making – supplying customers with the first shipments and all this, and we'll see better results than in Q2 in the second half of this year, but probably in 2025.
Thomas M. Fahnemann: Unfortunately in Europe is a totally different story in Europe. The market is a much more challenging and our volume dropped by 7% from Q4 to Q1.
Thomas M. Fahnemann: The decline in that area in Europe was mainly driven by hygiene.
Thomas M. Fahnemann: Probably minus 10 minus 11%.
Thomas M. Fahnemann: And here, we had to take actions to really.
Thomas M. Fahnemann: Protect our margins and.
Thomas M. Fahnemann: Our goal in all of them you have an overall strategy to really be less dependent on big customers and widen our product portfolio.
Thomas M. Fahnemann: We have to offset this with new products. We have made some really good progress with new products and new customers.
Thomas M. Fahnemann: And we are kind of at the edge right now.
Thomas M. Fahnemann: That would be kind of really making supplying customers with the first shipments and all of this and what we would see actually better results than in Q in the second half of this year, but probably in 'twenty five.
Thomas M. Fahnemann: But Europe is the big issue as far as air late is concerned, and what we're also seeing is competition from other substrates, competition from Asia, and Turkey. Europe is the issue in LA. And you know Josh, we did kind of flag Europe as being an issue, right, when we kind of came out of the fourth quarter, but clearly, things have gotten worse there for us, you know, from a geographic standpoint, and that's why the dramatic decline in kind of year-over-year earnings.
Thomas M. Fahnemann: But Europe is the big issue.
Thomas M. Fahnemann: It is concerned and what we're also seeing as competition from other substrates competition from Asia.
Thomas M. Fahnemann: Turkey.
Thomas M. Fahnemann: Europe is the issue and are late and you know Josh we did kind of flag Europe is.
Thomas M. Fahnemann: Being an issue right when we kind of came out of the fourth quarter, but clearly things have gotten worse there for us.
Thomas M. Fahnemann: From a from a geographic standpoint, and that's why the dramatic decline in kind of year over year earnings.
Josh Wool: Now, the context is helpful, including around the other segments, but just to kind of home in a little bit more on just kind of the inventory and the downtime. How unusual. I don't have a table of your economic downtime in airlines, but give us some context. How unusual is that level of downtime? I'm just trying to understand how much of that is going to be persistent. Maybe, to some extent, we've been spoiled by the reliability of airlines for many years, which is just surprising because it's not like you went from a strong period of demand and volume growth in Europe. I'm wondering what could have really happened this quarter that was so much different than your expectations, or maybe this happens from time to time.
Josh Wool: Now that the the context is helpful, including around the other segments, but just to kind of home in a little bit more on just kind of the inventory and the downtime.
Josh Wool: How unusual I don't have a table of your economic downtime in <unk>, but like give us some context, how unusual is that level of downtime I'm just trying to understand how much of that is going to be persistent.
Josh Wool: Maybe to some extent, we've been spoiled by the reliability and it relates for many years, but it just is surprising because it's not like you went from a strong period of demand and volume growth in Europe.
Josh Wool: So.
Josh Wool: Just.
Josh Wool: I'm wondering what could really happen this quarter that was so much different than your expectation or maybe.
Josh Wool: If this happens from time to time.
Speaker Change: Yes, I would say.
Thomas M. Fahnemann: Yeah, I would say, you know, clearly, as we were seeing the demand kind of soften for us in Europe, we had to dial down our production as well. So the absorption impact of that was quite meaningful. You know, the capacity utilization, or we've typically seen this being in the mid to high 80s, was kind of in the mid to high 70s. And, you know, having a pretty capital-intensive business across all three segments, absorption can play a very, very meaningful role.
Josh Wool: Nearly as we were seeing the demand kind of soften for us in Europe, we had to dial down our production as well so the absorption impact of that was quite meaningful.
Thomas M. Fahnemann: The capacity utilization or we've typically seen this being in the mid to high Eighty's was kind of in the mid to high seventies and.
Thomas M. Fahnemann: Having a pretty capital intensive business across all three segments. The absorption can play a very very meaningful role.
Thomas M. Fahnemann: Also, keep in mind that, you know, we made some conscious volume decisions with certain customers, you know, in terms of going into 2024, which we had also talked about previously, that, you know, if the business is not, if the book of business is not generating enough money, then we want to be able to reallocate that capacity to the BNC customers. And that takes time, right? We want to make sure that we're broadening the customer base. We want to make sure
Thomas M. Fahnemann: Also keep in mind that we are.
Thomas M. Fahnemann: Made some conscious volume decisions with certain customers.
Thomas M. Fahnemann: In terms of going into 2020 for which we had also talked about previously that.
Thomas M. Fahnemann: The business is not if the book of business is not generating enough money, then we want to be able to reallocate that capacity to the BMC customers and that takes time right. We want to make sure that we're broadening the customer base are you going to make sure.
Thomas M. Fahnemann: Yes.
Speaker Change: Yeah, maybe sorry, just another question then.
Josh Wool: Yeah, maybe the last question then around this is just so I was saying that the last question I have about kind of the issue in airlines is so broadening out the customer base and finding, I guess, new customers to replace some of that. When do you think that could get the absorbency the operating rate and absorption back to a more normal level? Is that like a Q2 or is it more of a second half? [inaudible] Okay, Josh. Now,
Josh Wool: Around this is just so.
Josh Wool: Oh, I was saying that the last question I have around kind of the issue and airways's, so broadening out the customer base and finding I guess new customers to replace some of that.
Josh Wool: When do you think that could get the absorbing the operating rate and absorption back to a more normal level is that like a.
Josh Wool: Q2 or is it more second half just some context there.
Speaker Change: Okay, Josh now what we're seeing right now is that we.
Thomas M. Fahnemann: Okay, Josh, now what we're seeing right now is that we are seeing first shipments in Q2. But these are, again, we are ramping up its new application and all this. We see some volume coming in the second half of this year, and then the full impact you'll see in 2025 and 2026, when we can replace it. And again, as I mentioned in my remarks earlier, it's really exciting. We have nice, absolutely new applications where we can position air late, and also in a segment which is also providing enough profitability, because that's the biggest issue, because we get faced with other substrates which have a totally different price point, and we just can't do that.
Thomas M. Fahnemann: We are seeing first shipments in Q2.
Thomas M. Fahnemann: But these are again, we are ramping up its new application and all of this we see already coming some volume in the second half of this year and then the full impact you will see in 2025 and 2026.
Thomas M. Fahnemann: While we can replace it and again as I mentioned in my in my remarks earlier, it's really exciting we have a nice absolutely new applications. So that we can position are late and also in a in a segment, which is also providing enough profitability because thats the biggest issue because we get.
Thomas M. Fahnemann: Faced with other substrates, which have a totally different price point and we cannot we just can't do that we don't see that in the U S. Yet, but we're seeing it in Europe, mainly coming from Turkey and Asia.
Thomas M. Fahnemann: We don't see that in the U.S. yet, but we're seeing it in Europe, mainly coming from Turkey and Asia. And we already initiated the strategy back 15-16 months ago, and it's coming to fruition. But again, coming back to your question, you'll see something a little bit in the second half of this year, and then in 25-27.
Thomas M. Fahnemann: And we already initiated the strategy back 15, 16 months ago, and it's coming to fruition, but again coming back to your question you will see something in little bit in the second half of this year and then in 'twenty five 'twenty six.
Thomas M. Fahnemann: Okay.
Josh Wool: Okay, and let's talk about the price of pulp. And here you can speak about aeroids as well as composite fibers, but just kind of looking at pulp prices in North America and Europe, they entered 2023 at a very elevated level. They dipped pretty hard through the summer, and now they've been rising again, albeit below the last peak. When should we see the impact of rising pulp prices on your margins? And will the experience be any different this year, positive or negative, given either changes to contracts or the fact that you're not also being squeezed on energy, or maybe negatively because of what you said, competition with other substrates and that competitiveness getting worse as the price of pulp goes up?
Thomas M. Fahnemann: And.
Josh Wool: Let's talk about the price of pulp and here you can speak to airways as well as composite fibers.
Josh Wool: Kind of looking at pulp prices in North America, and Europe. They entered 2023 at a very elevated level, they dipped pretty hard through the summer and now they've been rising again, albeit youre below the last peak when should we see the impact of rising pulp prices and your margins and will the experience.
Josh Wool: Be any different this year.
Josh Wool: Positive or negative given either changes to contracts or the fact that youre not also being squeezed on energy where may be negatively because of what you said competition with other substrates and that.
Josh Wool: That competitiveness getting worse as the price of pulp goes up.
Josh Wool: Okay. Okay. So I mean, we are seeing the power price increases in Q2.
Thomas M. Fahnemann: Okay, I mean, we are seeing part price increases in Q2. So we are normally holding a two, two and a half month inventory. Then, if I look at our floating customers, we will pass that on with a, I would say, around about three months' time lag. So we'll get it, but there's a time lag. Contracts are a little bit different, but on average, they're around about three months.
Thomas M. Fahnemann: So we are holding normally two two and a half months inventory.
Thomas M. Fahnemann: Then if I look at our floating customers, we will pass that on with the I would say around about three months time lag.
Thomas M. Fahnemann: So we'll get it but there is a time lag and.
Thomas M. Fahnemann: Yeah.
Thomas M. Fahnemann: [noise] contract a little bit different but it's on average it's around about three months.
Thomas M. Fahnemann: And also we have a as you know implemented some of these floating mechanisms in our food and beverage segment and with other customers. So that that'll help that's always the time lag, but it will help and will pass that on.
Thomas M. Fahnemann: And also, we have, as you know, implemented some of these floating mechanisms in our food and beverage segment and with other customers. So that'll help. There's always the time lag, but it'll help, and we'll pass that on. If I look at the non-floating side, we already were able to increase our prices roughly by 2-3% in North America, and this was generally accepted. Again, here in Europe, it is much more challenging with very competitive market conditions, but we are working on that as we speak.
Thomas M. Fahnemann: If I look at the non floating side.
Thomas M. Fahnemann: We already were able to increase our prices roughly by two 3% in North America.
Thomas M. Fahnemann: And this was generally accepted again here Europe is much more challenging.
Thomas M. Fahnemann: A very competitive market conditions, but we are working on that as we speak.
Josh Wool: Okay, that was helpful. Just one last question.
Speaker Change: Okay. That's helpful. Just one last question and then I can get back in the queue around cash flow just any context on the performance in Q1 versus your expectations and kind of the normal seasonality and are there any guideposts around.
Josh Wool: Seasonality.
Speaker Change: And also the timing of some of the restructuring spend over the balance of 2024 that can kind of help us model that out.
Ramesh Shettigar: Sure. So, Josh, I would say in terms of seasonality in cash flow, typically, the first quarter is a heavy cash outflow for us, and we've seen that over, you know, the last several years. I would say from a working capital standpoint, if inflation stays moderated, we can continue to have at least a break-even to slightly positive working capital profile, and that's what we've been expecting.
Josh Wool: And then I can get back in the queue around cash flow. Just any context on the performance in Q1 versus your expectations and kind of normal seasonality? And are there any guideposts around seasonality? And also the timing of some of the restructuring spend over the balance of 2024 that can kind of help us model that out? Sure.
Speaker Change: Sure So Josh I would say in terms of.
Josh Wool: Seasonality in the cash flow typically the first quarter is a is a heavier cash outflow for us and we've seen that over the last several years.
Josh Wool: Would say from a working capital standpoint, if inflation.
Josh Wool: Stays moderated we can continue to have at least a breakeven to slightly positive working capital profile.
Josh Wool: And that's what we've been expecting but if inflation starts to creep up here or whether it's an input cost whether it's in energy.
Ramesh Shettigar: But if inflation starts to, you know, creep up here, whether it's an input cost, whether it's an energy cost, you know, that could have a similar impact like we saw last year as well, where working capital was quite strained. But our going-in expectation is that, with the cost pass-throughs structured, you know, appropriately, we should be able to manage the working capital situation this year as well. So, overall, you know, as we think about the rest of the year, the second half of the year is typically more positive cash flow from a seasonality perspective.
Ramesh Shettigar: That could have a similar impact like we saw last year as well, where we're working capital was quite strained, but our going in expectation is having the cost pass throughs are structured appropriately we should be able to manage the working capital situation this year as well so.
Ramesh Shettigar: Overall, you know as.
Ramesh Shettigar: As we think about the rest of the year.
Ramesh Shettigar: The second half of the year is typically.
Ramesh Shettigar: More positive cash flow from a seasonality perspective, but some of these one time restructuring costs. The costs that were incurring related to the kind of pre merger integration in the AR. The Haj NEF transaction all of that is kind of fairly spread out throughout the year all the way until closing so we're going to be continuing to man.
Ramesh Shettigar: But some of these one-time restructuring costs, the costs that we're incurring related to the kind of pre-merger integration and the HHNF transaction, you know, all of that is kind of fairly spread out throughout the year, all the way until closing. So we're going to be continuing to manage that appropriately. But as of right now, our cash flow picture going into this year versus where we are right now is largely unchanged.
Ramesh Shettigar: That appropriately, but as of right now our cash flow picture going into this year versus where we are right now is largely unchanged.
Josh Wool: Okay, perfect. I'll get back in the queue. Thanks, guys. Thanks, Josh.
Speaker Change: Okay, perfect I'll get back in the queue. Thanks, guys.
Speaker Change: Thanks, Josh.
Speaker Change: Truth is there anyone else in the queue.
Operator: Is there anyone else in the queue at this moment? There are no others in the queue at this time. Then why don't we give Josh an opportunity to ask any further questions if he has any. Yes, sir, Mr. Wolf.
Operator: Yes.
Operator: There are no others in the queue at this time.
Operator: Then why don't we give josh and opportunity.
Josh Wool: To ask any further questions. If he does have.
Operator: Yes, sir, Mr. Wool, if you do have a question, please press star 1.
Speaker Change: Yes, Sir Mr. <unk> do you have a question please press star one.
Josh Wool: That's it for me, guys. I appreciate it, and thanks for taking the question. Thanks, Josh.
Speaker Change: That's it for me guys I appreciate it.
Speaker Change: Yes, thanks for taking the question.
Speaker Change: Thanks, Josh Thank you Josh.
Josh Wool: Yes.
Operator: There are no other questions at this time.
Josh Wool: There are no other questions at this time.
Thomas M. Fahnemann: All right, thank you very much, and we will speak with you again next quarter. Okay, thank you.
Thomas M. Fahnemann: Yes.
Thomas M. Fahnemann: Alright, Thank you very much and we will speak with you again next quarter. Okay. Thank you.
Operator: This does conclude today's conference call. Thank you for your participation. You may now disconnect.
Speaker Change: This does conclude today's conference call. Thank you for your participation you may now disconnect.
Operator: Okay.
Operator: [music].
Operator: Yeah.
Operator: [music].
Operator: Yeah.