Q2 2024 Berry Global Group Inc Earnings Call
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Operator: Good day, and thank you for standing by. Welcome to the second quarter 2024 Berry Global Group Earnings Conference Call. At this time, all participants are in listen-only mode.
Speaker Change: Good day and thank you for skinny by welcome to the second quarter of 2020 for Berry Global Group Earnings Conference call. At this time, all participants are in listen only mode.
Operator: After this speaker's presentation, there will be a question and answer session. To ask a question during this session, you'll need to press star 1-1 on your telephone. You will then hear an automated message advising that your hand is raised.
Speaker Change: After the Speakers' presentation there'll be a question and answer session to ask a question. During this session you will need to press star one on your telephone.
Speaker Change: You're an automated message back from your hand is race to a jogger question. Please press star one again, he just like that today's conference is being recorded.
Operator: To withdraw your question, please press star 1-1 again. Please advise that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Dustin Stilwell, Investor Relations. Please go ahead.
Speaker Change: I'd like to hand, the conference over to your first speaker today, Dustin start walk Investor Relations. Please go ahead.
Dustin Stilwell: Thank you, operator. And thank you to everyone for joining Berry's second fiscal quarter 2024 earnings report. Joining me this morning are Berry's Chief Executive Officer, Kevin Kwilinski, and Berry's Chief Financial Officer, Mark Miles. Following our prepared remarks today, we will have a question and answer session. In order to allow everyone the opportunity to participate, we do ask that you limit yourself to one question with a brief follow-up and then fall back into the queue for any additional questions.
Dustin: Thank you operator, and thank you to everyone for joining bearing second fiscal quarter 2024 earnings call joining.
Dustin: Joining me this morning, I have Berry's Chief Executive Officer, Kevin called landscape, and Barry Chief Financial Officer, Mark miles.
Speaker Change: Following our prepared remarks today, we will have a question and answer session in order to allow everyone. The opportunity to participate we do ask that you limit yourself to one question with a brief follow up and then fall back into the queue for any additional questions.
Dustin Stilwell: A few things to note before handing the call over: on our website at berryglobal.com, you can find today's press release and earnings call presentation under our investor relations section. As referenced on slides two and three, during this call, we will be discussing certain non-GAAP financial measures. These measures are reconciled to the most directly comparable gap financial measures in our earnings press release and presentation, which were made public earlier this morning. Additionally, we will make forward-looking statements that are subject to risk and uncertainty.
Speaker Change: A few things to note before handing the call over on our website at Berry Global Dot Com you can find today's press release and earnings call presentation under our Investor Relations section.
Speaker Change: As referenced on slide two and three during this call we will be discussing certain non-GAAP financial measures.
Speaker Change: These measures are reconciled to the most directly comparable GAAP financial measures in our earnings press release and presentation, which were made public earlier this morning.
Dustin Stilwell: Actual results or outcomes may differ materially from those that may be expressed or implied in our forward-looking statements. Some factors that could cause the results or outcomes to differ are in the company's latest 10-K, our other SEC filings, and our news release. And now, I will turn the call over to Berry CEO, Kevin Kwilinski. Thank you, Dustin.
Speaker Change: Additionally, we will make forward looking statements that are subject to risks and uncertainties.
Speaker Change: Actual results or outcomes may differ materially from those that may be expressed or implied in our forward looking statements.
Speaker Change: Some factors that could cause the results or outcomes to differ are in the company's latest 10-K.
Speaker Change: Our other SEC filings and our news releases and now.
Speaker Change: I will turn the call over to Barry CEO, Kevin Quinlan scheme.
Kevin J. Kwilinski: And thank you to everyone for joining us today to discuss Berry's second quarter results for fiscal 2024. The second quarter came in consistent with our expectations. Our proactive measures around repositioning our portfolio to higher growth markets and reducing our cost structure have allowed us to outperform in a weaker than normal macro demand environment. We're excited to share that our team has identified additional opportunities to enhance our competitive position. As a result, we've expanded our cost savings program by an extra $25 million, bringing the total to $165 million.
Speaker Change: Thank you Justin and thank you to everyone for joining us today to discuss <unk> second quarter results for fiscal 2024.
Speaker Change: The second quarter came in consistent with our expectations.
Speaker Change: Our proactive measures around repositioning our portfolio to higher growth markets and reducing our cost structure have allowed us to outperform in a weaker than normal macro demand environment.
Speaker Change: We're excited to share that our team has identified additional opportunities to enhance our competitive position as.
Speaker Change: As a result, we've expanded our cost savings program by an extra $25 million, bringing.
Speaker Change: Bringing the total to $165 million.
Kevin J. Kwilinski: We're on track to achieve these savings by the end of fiscal year 2021. Our confidence is bolstered by steadily improved volumes throughout the year, with an accelerating improvement in April. As a result, we reaffirm our fiscal 2024 guidance.
Speaker Change: We're on track to achieve these savings by the end of fiscal year 2025.
Speaker Change: Our confidence is bolstered by steadily improved volumes throughout the year with an accelerating improvement in April.
Speaker Change: As a result, we reaffirm our fiscal 2024 guidance expecting low single digit volume growth in the second half of the year aligned with our long term target.
Kevin J. Kwilinski: We are expecting low single-digit volume growth in the second half of the year, aligned with our long-term targets. Our outlook for a robust second half of the year remains unchanged, and we're committed to achieving year-end leverage of 3.5 times or lower. With six months in the chair, having visited dozens of locations, and having talked to numerous customers and suppliers, I'm struck by our fantastic opportunity for growth and operations. We are focused on three key.
Speaker Change: Our outlook for a robust second half of the year remains unchanged and we are committed to achieving year end leverage of three five times or lower.
Speaker Change: With six months in the chair, having visited dozens of locations and having talked to numerous customers and suppliers.
Speaker Change: Struck by our fantastic opportunity for growth and operational excellence.
Speaker Change: We are focused on three key efforts.
Kevin J. Kwilinski: One, optimizing our portfolio to accelerate both growth and deleveraging, to implement our Lean Transformation, and three, accelerating growth by improving our commercial excellence with respect to portfolio optimization. We are making substantial progress. We completed two additional divestitures in the quarter, and we have line of sight to many more. Looking forward, we believe cash proceeds could exceed $2 billion from strategic divestitures within the next year. This includes $1 billion from the already announced spinoff merger and another $1 billion from future portfolio optimization opportunities.
Speaker Change: One optimizing our portfolio to accelerate growth and deleveraging.
Speaker Change: To implementation of our lean transformation.
Speaker Change: And three accelerating growth by improving our commercial excellence approach.
Speaker Change: With respect to portfolio optimization, we are making substantial progress.
Speaker Change: We completed two additional divestitures in the quarter and we have line of sight to much more.
Speaker Change: Looking forward, we believe cash proceeds could exceed $2 billion from strategic divestitures within the next year.
Speaker Change: This includes $1 billion from the already announced spinoff merger and another $1 billion from future portfolio optimization opportunity.
Kevin J. Kwilinski: Not only will these divestitures accelerate the leverage, but they will push us toward our goal of increasing our consumer products focus from over 70% to over 80% of volume. In April, we announced the achievement of a regulatory milestone in the proposed transaction involving the combination of a majority of our health, hygiene, and specialty segment, including its global non-wovens and films business with Glaston, with the expiration of the required waiting period under the Hart-Scott-Rodino Antitrust Improvement Act. As previously announced in February, Berry and Glatfelter entered into a definitive agreement under which Berry will spin off and merge its HHNF business with Glatfelter in a reverse Morris Trust transaction.
Speaker Change: Not only will these divestitures accelerate deleveraging they will push us toward our goal of increasing our consumer products focus from over 70% to over 80% of volume.
Speaker Change: In April we announced the achievement of a regulatory milestone in the proposed transaction involving the combination of the majority of our health hygiene and specialties segment to include its global Nonwovens and films business with flat filter with the exploration of the required waiting period under the.
Speaker Change: Hart, Scott Rodino antitrust improvements Act.
Speaker Change: As previously announced in February Barry and Glatfelter entered into a definitive agreement under which Barry will spin off and merge is H H N app business with glatfelter in a reverse Morris Trust transaction.
Kevin J. Kwilinski: The transaction will create a leading publicly traded company in the specialty materials industry. The transaction is still expected to close in the second half of calendar 2020, and is subject to approval by Glattfelter shareholders upon completion of customary closing conditions. Both Flatfilter and Berry HHNF performed in line with our transaction thesis during the quarter, validating our belief that the business cycle has bottomed out for each of these. As we prepare for integration, we remain optimistic about the substantial upside potential of our base synergy.
Speaker Change: The transaction will create a leading publicly traded company in the specialty materials industry.
Speaker Change: The transaction is still expected to close in the second half of calendar 2024 and.
Speaker Change: And is subject to approval by glatfelter shareholders and completion of customary closing conditions.
Speaker Change: Both glatfelter and Barry <unk> performed in line with our transaction thesis during the quarter.
Speaker Change: <unk>, our belief that the business cycle has bottomed out for each of these companies.
Speaker Change: As we prepare for integration, we remain optimistic about substantial upside potential in our base synergy case.
Kevin J. Kwilinski: Turning to our Lean Transformation, during the quarter, we made substantial progress in accelerating our continuous improvement focus. With a customer-first approach, we re-engineered our quality and service management process to be directly connected to a new NPS. During the quarter, we implemented our first cycle of NPS and collected valuable data to confirm our strengths and focus us on areas of opportunity that will lead to growth. Our operational leadership from North America and Europe recently visited Toyota facilities to observe and learn first-hand about their world-class lead production. We also hired an experienced lean transformation leader who started this week and reports directly to me.
Speaker Change: Turning to our lean transformation.
Speaker Change: During the quarter, we made substantial progress in accelerating our continuous improvement focus.
Speaker Change: With a customer first approach, we re engineered our quality and service management process to be directly connected to our new NPS process.
Speaker Change: During the quarter, we implemented our first cycle of NPS and collected valuable data to confirm our strength and to focus us on areas of opportunity that will lead to growth.
Speaker Change: Our operational leadership from North America, and Europe recently visited Toyota facilities to observe and learn firsthand about their world class lean production system.
Speaker Change: We also hired an experienced lean transformation leader, who started this week and reports directly to me.
Kevin J. Kwilinski: This leader has a successful track record in lean practice, companies like Honda, Danaher, and Honeywell. Additionally, we're actively developing a pipeline of opportunities to enhance efficiency by increasing overall equipment effectiveness and improving first pass yield. We're excited to incorporate these initiatives into our 2025 budget. Finally, I want to discuss our focus on commercial activity. Slide six speaks to the substantial levers that empower us to achieve consistent, dependable, and sustainable organic growth.
Speaker Change: This leader has a successful track record in lean practices at companies like Honda Danaher and Honeywell.
Speaker Change: Additionally, we are actively developing a pipeline of opportunities to enhance efficiency by increasing overall equipment effectiveness and improving first pass yield.
Speaker Change: We're excited to incorporate these initiatives into our 2025 budget planning.
Speaker Change: Finally, I want to discuss our focus on commercial excellence.
Speaker Change: Slide six speaks to this substantial levers that empower us to achieve consistent dependable and sustainable organic growth.
Kevin J. Kwilinski: Berry's inherent scale advantages drive both cost leadership and innovation capability, instilling confidence that we will consistently deliver robust earnings growth from our stable portfolio of businesses. But these levers need to be executed in the context of a world-class commercial excellence process. And in this aspect, Berry will become much stronger in the month.
Speaker Change: Berry's inherent scale advantages drive both cost leadership and innovation capabilities.
Speaker Change: Building confidence that we will consistently deliver robust earnings growth from our stable portfolio of businesses.
Speaker Change: But these levers needs to be executed in the context of a world class commercial excellence process.
Speaker Change: And in this aspect Barry will become much stronger in the months ahead.
Kevin J. Kwilinski: With company-wide world-class commercial excellence in mind, during the quarter, we created a beachhead in our core North American rigid consumer package. We have substantial opportunity to win in this space, and we are investing in creating a world-class commercial excellence model and accelerating innovation and technology to increase our strategic product differentiation. To drive commercial excellence, we launched an effort with a top-tier consulting organization to bring best-in-class processes and tools to our pipeline identification, management, and delivery.
Speaker Change: With company wide World class commercial excellence in mind during the quarter, we created a beachhead in our core North American rigid consumer packaging business.
Speaker Change: We have substantial opportunity to win in this space and we are investing in creating a world class commercial excellence model and accelerating innovation and technology to increase our strategic product differentiation.
Speaker Change: To drive commercial excellence, we launched an effort with a top tier consulting organization to bring best in class process and tool to our pipeline identification management and delivery.
Kevin J. Kwilinski: Following full successful implementation, we will take this new commercial excellence model and replicate it across the balance of our business. With respect to innovation and technology, we completed the strategic acquisition of F&S tools to give us access to and control of unique tooling intellectual property, allowing for more cost and capital efficient sustainable alternatives to traditional products.
Speaker Change: Following full successful implementation, we will take this new commercial excellence model and replicated across the balance of our businesses.
Speaker Change: With respect to innovation and technology, we completed the strategic acquisition of Fnf's tool.
Speaker Change: To give us access and control of unique tooling intellectual property, allowing for more cost and capital efficient sustainable alternatives to traditional products.
Kevin J. Kwilinski: F&S brings an incredible culture of entrepreneurial innovation, which will serve to accelerate our organic growth delivery while bringing additional scale to our already substantial, growing, and important tooling and automation. Combining superior product and service differentiation enabled by our lean transformation with the strongest innovation engine in the industry and executed in the framework of a world-class commercial excellence engine is allowing Berry to win faster in our market and achieve our growth objectives in a sustainable way. Now, I will turn the call over to Mark, who will review Berry's financial results. Mark.
Speaker Change: <unk> brings an incredible culture of entrepreneurial innovation, which will serve to accelerate our organic growth delivery, while bringing additional scale to our already substantial growing and important tooling and automation capability.
Speaker Change: Combining superior product and service differentiation enabled by our lean transformation with the strongest innovation engine in the industry and executed in the framework of a world class commercial excellence engine is allowing theory to win faster in our market.
Speaker Change: And achieve our growth objectives in a sustainable way.
Speaker Change: Now I will turn the call over to Mark who will review Berry's financial results Mark.
Mark W. Miles: Thank you Kevin.
Mark W. Miles: Thank you, Kevin. Turning now to financial results highlights on slide 8. As Kevin mentioned, our quarterly results for both revenue and earnings were in line with our expectations. I am pleased to report that sequentially volumes improved for each of our four operating divisions. Our global teams have continued to optimize our manufacturing footprint without disruption to our customers and improve our product mix across our business. We have made significant progress in consolidating our higher cost assets.
Mark W. Miles: Turning now to financial results highlights on slide eight.
Mark W. Miles: As Kevin mentioned, our quarterly results for both revenue and earnings were in line with our expectations.
Mark W. Miles: I am pleased to report that sequentially volumes improved for each of our four operating segments.
Mark W. Miles: Our global teams have continued to optimize our manufacturing footprint without disruption to our customers and improve our product mix across our businesses.
Mark W. Miles: We have made significant progress in consolidating our higher cost assets and as volumes recover we expect an incremental benefit to earnings on more efficient assets.
Mark W. Miles: And as volumes recover, we expect an incremental benefit to earnings on more efficient assets. Our focus on continuous improvement led to another increase in our cost reduction program of $25 million, which we plan on fully realizing in Cisco 2025. We still expect to realize $55 million in fiscal 24, and now $35 million in fiscal 25, which excludes incremental benefits we expect from the lean transformation. These strategic actions and focus are helping to counter the challenges of soft market demand caused by. For the quarter, adjusted earnings per share was similar to the prior comparable year, coming in at $1.95.
Mark W. Miles: Our focus on continuous improvement led to another increase in our cost reduction program of $25 million.
Mark W. Miles: We plan on fully realizing in fiscal 'twenty five.
Mark W. Miles: We still expect to realize $55 million in fiscal 'twenty, four and now $35 million in fiscal 'twenty, five which excludes incremental benefits, we expect from our lean transformation initiatives.
Mark W. Miles: These strategic actions and focus are helping to counter the challenges of soft market demand caused by inflation.
Mark W. Miles: For the quarter adjusted earnings per share was similar to the prior comparable year coming in at $1 95 per share.
Mark W. Miles: While operating EBDA was down 5%, primarily due to softer volumes and the impact of the timing of passing through polymer costs, with both of these items expected to change from year-over-year headwinds in the first half to tailwinds in the second half. I would like to refer everyone to slide nine for our quarterly performance by each of our four operators. This segment review will focus on the year-over-year changes for fiscal Q2. Starting with our Consumer Packaging International Division, revenue is down 8% primarily from the past through Apollo.
Mark W. Miles: While operating EBITDA was down 5%, primarily due to softer volumes and the impact from the timing of passing through polymer costs with both of these items expected to change from year over year headwinds in the first half the tailwind in the second half.
Mark W. Miles: I would like to refer everyone to slide nine for our quarterly performance by each of our four operating segments.
Mark W. Miles: The segment review will focus on the year over year changes or fiscal Q2.
Mark W. Miles: Starting with our consumer packaging International Division revenue was down 8% primarily from the pass through of polymer costs.
Mark W. Miles: Both our consumer and industrial markets improved by over 2% compared to the year-over-year changes in Q1. Both markets across Europe saw incremental growth, and we continue to execute our strategy to improve product mix to higher value. EVDA was down four percent, which was modestly higher than the 1% decrease in volumes, primarily driven by a modest negative impact.
Mark W. Miles: Both our consumer and industrial markets improved by over 2% compared to the year over year changes in Q1.
Mark W. Miles: Other markets across Europe saw incremental improvements modestly ahead of our expectations and we continue to execute our strategy to improve product mix to higher value products.
Mark W. Miles: EBITDA was down 4%, which was modestly higher than a 1% decrease in volumes, primarily driven by a modest negative impact from the timing of polymer faster.
Mark W. Miles: In the second half of 24, we expect to benefit from our cost reduction efforts, along with the decrease in energy costs in certain regions of the United States. We also continue to invest in and expect an improved product mix by utilizing our sustainability leadership and increasing our presence in health care packaging, pharmaceutical devices, and dispensing. Next, on slide 10, revenue in our Consumer Packaging North America Division was down 4%, resulting from softer overall customer demand of 3% due to inflation and lower selling prices due to the pass-through of revenue.
Mark W. Miles: In the second half of 'twenty four we expect to benefit from our cost reduction efforts along with a decrease in energy cost in certain regions of Europe.
Mark W. Miles: We also continue to invest and expect improved product mix by utilizing our sustainability leadership and increasing our presence in health care packaging pharmaceutical devices and dispensing systems.
Mark W. Miles: Next on slide 10 revenue in our consumer packaging North American Division was down 4%, resulting from softer overall customer demand of 3% from inflation and lower selling prices due to the pass through of resin costs.
Mark W. Miles: Overall volume trajectory improved, led by our food, beverage, personal care, home care, and industrial market. While food service markets saw a modest decline, given strong comparisons in that, we continue to see substrate conversions to plastic from paper, foam, glass, and metal. As we continue to incorporate more circular material, deliver a more sustainable solution, and provide end consumers with a better experience. The EVDA was down 11% compared to the prior year quarter, primarily driven by resident pass-through timing and softer market demand, partially offset by our cost reduction efforts and our focus on higher-value products such as closures, food service, and highly decorated, and on slide 11. Revenue in our flexibles division was down 9%, primarily due to lower selling prices in the past year due to lower rising costs and volume softness, primarily in our North American transportation and shrink film markets.
Mark W. Miles: Overall volume trajectory improved led by our food beverage personal care home care and industrial markets, while foodservice market saw a modest decline given the strong comparisons in that business.
Mark W. Miles: We continue to see substrate conversions to plastic from paper foam glass and metal as we continue to incorporate more circular material deliver a more sustainable solution and provides and consumers with a better experience.
Mark W. Miles: EBITDA was down 11% compared to the prior year quarter, primarily driven by resin pass through timing and softer market demand, partially offset by our cost reduction efforts and our focus on higher value products, such as closures foodservice and highly decorated containers.
Mark W. Miles: And on slide 11.
Mark W. Miles: Revenue in our flexible division was down 9%, primarily due to lower selling prices from the pass through of lower resin costs and volume softness primarily in our North American transportation and shrink film markets offset by growth in our European film products.
Mark W. Miles: All set by growth and our European sound product. Overall, volumes improved sequentially over Q1, and are impacted by our focused effort to mix up in certain categories, such as consumer and Transportation Protection. The EVDA for the quarter was flat versus the prior year quarter as we saw improved product mix into higher-valued product categories offset by softer customer demand in our North. On slide 12, revenue in our Health, Hygiene, and Specialties Division was down 6%, primarily due to lower resin prices and a modest decline in hygiene in certain specialty products, partially offset by improved demand in our surgical suite and Hard Surface Disinfectant White Martini.
Mark W. Miles: Overall volumes improved sequentially over Q1.
Mark W. Miles: And are impacted by our focused effort to mix up in certain categories, such as consumer and transportation protection products.
Mark W. Miles: EBITDA for the quarter was flat versus the prior year quarter as we saw improved product mix and the higher valued product categories offset by softer customer demand in our North American markets.
Mark W. Miles: On slide 12 revenue in our health hygiene and specialties Division was down 6%, primarily due to lower resin prices and modest decline in hygiene and certain specialty products.
Mark W. Miles: Partially offset by improved demand in our surgical suite.
Mark W. Miles: And hard surface disinfectant white markets.
Mark W. Miles: We are encouraged as overall volumes have improved sequentially over the past three, EBDA was essentially flat versus the prior year quarter, driven by structural cost reduction initiatives offset by timing of resin pass-through and. Our consistent cash flows have granted us the flexibility to provide robust returns to our shareholders. Key Strengths and Core Values of Our Community
Mark W. Miles: We are encouraged as overall volumes have improved sequentially over the past three quarters.
Mark W. Miles: EBITDA was essentially flat versus the prior year quarter, driven by structural cost reduction initiatives offset by timing of resin pass through and product mix.
Mark W. Miles: Our consistent cash flows have granted us a flexibility to provide robust returns to our shareholders a key strength and core value of our company.
Mark W. Miles: This financial stability allows us to invest in our businesses, foster growth, enhance efficiency, and simultaneously return capital to our shareholders. As illustrated on slide 13, our unchanged capital allocation strategy is return-based and encompasses continued investment in growth markets, debt repayment, share repurchases, and a growing quarterly cash flow. As part of our ongoing efforts to improve our product portfolio, we completed two divestitures in the past year. We divested a European industrial vehicles business and a UK-based home and garden business, which were both historically recorded inside our consumer packaging. Revenue for these businesses totaled approximately $150 million, with profit margins well below.
Mark W. Miles: This financial stability allows us to invest in our businesses foster growth enhance efficiency and simultaneously return capital to our shareholders.
Mark W. Miles: As illustrated on slide 13, our unchanged capital allocation strategy as return based.
Mark W. Miles: And encompasses continued investment in growth markets strip.
Mark W. Miles: Strategic portfolio management.
Mark W. Miles: Debt repayment share repurchases and a growing quarterly cash dividend.
Mark W. Miles: As part of our ongoing efforts to improve our product portfolio, we completed two divestitures in the quarter.
Mark W. Miles: We divested our European industrial vehicles business, and a UK based home and garden business, which were both historically reported inside our consumer packaging International segment.
Mark W. Miles: Revenue for these businesses totaled approximately $150 million with profit margins well below the company average.
Mark W. Miles: Since the RBC acquisition in 2019, we have completed 10 divestitures as we have continued our strategic portfolio. As Kevin mentioned, we expect to generate proceeds of over $2 billion within the next year, including our previously announced, Thank you all for joining us for our proposed spend merger transaction with Bladfelter as we continue the optimization of our portfolio. These divestitures are in direct alignment with our long-term strategy of simplifying the portfolio and enhancing the stability of earnings for improving long-term growth.
Mark W. Miles: Since the RPC acquisition in 2019, we have completed 10 divestitures as we have continued our strategic portfolio management.
Mark W. Miles: As Kevin mentioned, we expect to generate proceeds of over $2 billion within the next year, including our previously announced.
Mark W. Miles: Post spin merger transaction with Glatfelter as we continue the optimization of our portfolio.
Mark W. Miles: These divestitures are in direct alignment with our long term strategy of simplifying the portfolio and enhancing the stability of earnings and improving long term growth.
Mark W. Miles: Leveraging our strong, independable cash flows, we have continued to strengthen our strong balance sheet, focusing on driving long-term value for our shareholders, and anticipate being within our targeted leverage range by the end of fiscal... We believe we are well-positioned for continued value. As demonstrated on slide 14, Berry has reduced net debt by more than $3 billion, mid-2019, along with more than $1.5 billion return to shareholders through both share repurchases and dividends, and Cisco In fiscal 24, we anticipate a balanced capital allocation utilizing our free cash flow for debt repayment, share repurchases, and regular quarterly dividends.
Mark W. Miles: Leveraging our strong and dependable cash flows we have continued to strengthen our strong balance sheet focusing on driving long term value for our shareholders and anticipate being within our targeted leverage range by the end of fiscal 'twenty four.
Mark W. Miles: We believe we are well positioned for continued value creation.
Mark W. Miles: Our strong cash flows have allowed us the flexibility to drive robust returns for our shareholders.
Mark W. Miles: As demonstrated on slide 14 areas reduced net debt by more than $3 billion since mid 2019, along with more than $1 5 billion returned.
Mark W. Miles: We returned to shareholders through both share repurchases and dividends in fiscal 'twenty, two and 'twenty three.
Mark W. Miles: In fiscal 'twenty, four we anticipate a balanced capital allocation utilizing our free cash flow for debt repayment share repurchases and regular quarterly dividends.
Mark W. Miles: By the end of fiscal 24, we expect that we will have returned an impressive $5.4 billion of cumulative net debt reduction and capital return. As you can see on slide 15, Barry's history of driving top-tier results across various key financial This report highlights our consistent growth from the solid execution of our. We remain committed to enhancing long-term value for all stakeholders by maintaining a stable and dependable portfolio. This consistency has been validated through many different economic...
Mark W. Miles: By the end of fiscal 'twenty four we expect that we will have returned an impressive $5 4 billion of cumulative net debt reduction and capital returns.
Mark W. Miles: Fiscal 2020.
Mark W. Miles: As you can see on slide 15, various history of driving top tier results across various key financial metrics, such as revenue earnings and free cash flow highlights our consistent growth from the solid execution of our strategies.
Mark W. Miles: We remain committed to enhancing long term value for all stakeholders by maintaining a stable and dependable portfolio.
Mark W. Miles: This consistency has been validated through many different economic cycles and since our last significant acquisition of RPC. In 2019, we have delivered free cash flow every year between $850 million and $1 billion.
Mark W. Miles: Since our last significant acquisition of RPC in 2019, we have delivered free cash flow every year between $850 million and $1 billion. Additionally, from an earnings perspective, our annual adjusted EPS figure of over 20% from 2015 to 2023 holds a leading position amongst our peer set and is well above the peer-adjusted EPS figure of 8. This concludes my financial review, and now I will turn it back to Kevin. Thank you, Mark.
Mark W. Miles: Additionally from an earnings perspective, our annual adjusted EPS CAGR of over 20% from.
Mark W. Miles: From 2015 to 2023, although leading position amongst our peer set and is well above the peer adjusted EPS CAGR of 8%.
Mark: This concludes my financial review and now I will turn it back to Kevin.
Kevin: Thank you Mark.
Kevin J. Kwilinski: Our fiscal 24 guidance and assumptions outlined on slide 16 reflect a solid first half performance aligning with our expectations. Today, we are reaffirming our full year guidance for adjusted earnings per share, ranging from $7.35 to $7.85. We expect earnings to strengthen in the second half of Fiscal 24, both sequentially and on a comparable basis to Fiscal 25. This is driven by resident pass-through timing, benefits from cost reduction efforts, and capital projects.
Kevin: Our fiscal 2000 and for guidance and assumptions outlined on slide 16 reflect a solid first half performance aligning with our expectations.
Kevin J. Kwilinski: Today, we are reaffirming our full year guidance for adjusted earnings per share ranging from $7 35 to $7 85.
Kevin: We expect earnings to strengthen in the second half of fiscal 'twenty for both sequentially and on a comparable basis to fiscal 'twenty three.
Kevin: This is driven by resin pass through timing benefits from cost reduction efforts and capital project timing.
Kevin J. Kwilinski: We continue to expect, given our strong April volumes, the easing of inflation, and easier comparisons year over year, reported volumes to improve as we progress through the second half of fiscal 2021. Also, as Mark stated, we anticipate incremental benefits to earnings on more efficient assets as volumes recover during the year. We continue to expect free cash flow to be in the range of 800 million to 900 million dollars, assuming cash from operations of 1.35 to 1.45 billion, less capital expenditures of $550 million. Furthermore, and in line with our focus on driving long-term shareholder value.
Kevin J. Kwilinski: We continue to expect given our strong April volumes, the easing of inflation and easier comparisons year over year reported volumes to improve as we progressed through the second half of fiscal 2024.
Kevin: Also as Mark stated, we anticipate incremental benefits earnings on more efficient assets as volumes recover during the year.
Kevin J. Kwilinski: We continue to expect free cash flow to be in the range of 800 million to $900 million.
Kevin: Assuming cash from operation of 135 to 145 billion.
Kevin J. Kwilinski: Capital expenditures of $550 million.
Furthermore, and in line with our focus on driving long term shareholder value in fiscal 2024, we expect to prioritize repayment of debt to meet our leverage target commitment along with further share repurchases.
Kevin J. Kwilinski: In fiscal 2024, we expect to prioritize repayment of debt to meet our leveraged target commitment, along with further share repurchase. We continue to believe our shares are undervalued, and our repurchases reflect our confidence in the outlook for our business and long-term strategy, as you can see on slide 17. Berry has consistently met or exceeded its targets over the past several years, and we expect to continue doing so in the future. Our long-term targets emphasize the consistency and dependability of our model, with EBITDA growth of 4% to 6%, adjusted EPS growth of 7% to 12%, and total shareholder returns of 10% to 15%. Additionally, our dividend is expected to grow annually, and we aim to achieve our recently lowered long-term leverage target by the end of fiscal 2021. In summary, our strategic priorities remain steadfast.
Kevin J. Kwilinski: We continue to believe our shares are undervalued and our repurchases reflect our confidence in the outlook for our business and long term strategy.
Kevin: As you can see on slide 17.
Kevin J. Kwilinski: Barry has consistently met or exceeded its targets over the past several years and we expect to continue doing so in the future.
Kevin: Our long term targets emphasize the consistency and dependability of our model with EBITDA growth of 4% to 6% adjusted EPS growth of 7% to 12% and total shareholder returns of 10% to 15%.
Kevin: Additionally, our dividend is expected to grow annually and we aim to achieve our recently lowered long term leverage target by the end of fiscal 2024.
Kevin J. Kwilinski: In summary, our strategic priorities remain steadfast optum.
Kevin J. Kwilinski: Optimize the Portfolio, Implement Lean Transformation, and Accelerate Growth with World-Class Commercial Partners With line of sight to achieving low 3s leverage in the next 12 to 18 months, a lean transformation pipeline allowing for 2 to 3% conversion cost reduction per year, and an ability to organically grow 2 to 3% per year, we expect to deliver peer-leading performance. Our optimism for the remainder of fiscal 2024 stems from several factors, including the continued easing of inflation and a return to more normalized levels of customer promotional activity.
Optimize the portfolio.
Implement lean transformation.
Kevin J. Kwilinski: And accelerate growth with World class commercial excellence.
Kevin J. Kwilinski: With line of sight to achieving low threes leverage in the next 12 to 18 months.
Kevin J. Kwilinski: Lean transformation pipeline, allowing for 2% to 3% conversion cost reduction per year, and an ability to organically grow 2% to 3% per year, we expect to deliver peer leading performance.
Kevin J. Kwilinski: Our optimism for the remainder of fiscal 2024 stems from several factors, including the continued easing of inflation and a return to more normalized levels of customer promotional activity.
Kevin J. Kwilinski: We reaffirm our earnings and cash flow guidance, confident in our visibility towards solid earnings growth in the second half. Finally, we have executed on areas to improve our valuation. We have improved our strong balance sheet, lowered our targeted leverage range, and returned substantial cash to shareholders.
Kevin J. Kwilinski: We reaffirm our earnings and cash flow guidance confidence and our visibility towards solid earnings growth in the second half.
Kevin J. Kwilinski: Finally, we have executed on areas to improve our valuation multiple we.
Kevin J. Kwilinski: We have improved our strong balance sheet.
Kevin J. Kwilinski: Lowered our targeted leverage range and return substantial cash to shareholders.
Kevin J. Kwilinski: Additionally, as we continue to demonstrate sales volume at or above peer average and execute our strategy, we believe we will continue to close the valuation gap to peer groups, presenting an attractive investment opportunity. Thank you for your time and interest in Berry, and with that, Mark and I are happy to address any questions which you may have, Operator. Thank you. At this time, we will conduct the question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced.
Kevin J. Kwilinski: Additionally, as we continue to demonstrate sales volume at or above peer average and execute our strategies. We believe we will continue to close the valuation gap to peer group presenting an attractive investment opportunity.
Speaker Change: Thank you for your time and interest in Berry and with that Mark and I are happy to address any questions, which you may have.
Operator: To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of George Staphos of Bank of America Securities. Your line is now open. Thanks very much.
Kevin J. Kwilinski: Operator.
Speaker Change: Thank you at this time, we will conduct a question answer session. As a reminder to ask a question you will need to press star one on your telephone and wait for your name to be announced towards your question. Please press star one again, please stand by while we compile the Q&A roster.
George Leon Staphos: Our first question comes from the line of towards Staphos of Banc of America Securities. Your line is now open.
George Leon Staphos: Hi, everyone. Good morning. Thanks for the details. I want to first ask a question around the implied guidance for the second half of the year given some inbounds that we have gotten. You know we're looking at basically 7% year-on-year growth in the second half and very strong double-digit growth sequentially from the first half. What gives you confidence that you'll be able to achieve that, gentlemen?
George Leon Staphos: Thanks, very much higher one good morning.
George Leon Staphos: Thanks for the details.
George Leon Staphos: I want to first ask a question around the implied guidance for the second half of the year, given some inbounds that we've gotten.
George Leon Staphos: We're looking at basically.
George Leon Staphos: 7% year on year growth in the second half.
George Leon Staphos: So very strong double digit growth sequentially from the first half.
George Leon Staphos: What gives you confidence that you'll be able to achieve that gentlemen, and tell us how the April volumes, which et cetera strong if you could quantify what that means how that's.
Kevin J. Kwilinski: And tell us how the April volumes, which you said were strong, if you could quantify what that means, how that's leading into that. And food service, which was down, you said, how that also plays into your guidance.
Kevin J. Kwilinski: A leading into that and foodservice, which was was down you said how that also plays into your guidance and I had a second a second question.
Kevin J. Kwilinski: Sure, thank you, George. I'll start, and Mark can maybe add on, but I think what we see in our guidance is a really soft second half last year, so the comparisons are certainly much easier.
Speaker Change: Sure. Thank you George I'll start and Mark can maybe add on but.
Kevin J. Kwilinski: What we see in our guidance is.
Kevin J. Kwilinski: Really soft second half last year.
Kevin J. Kwilinski: Overall, for our flat overall full-year guidance, we're expecting basically a similar kind of demand environment throughout the year. And when you put our seasonality in place, and you compare it to the comparison of the prior year, we really didn't have to see much change in the actual market dynamics to achieve our overall plan. I think what we are seeing in April is a step-up from that. We've seen really good momentum, better than we expected.
Kevin J. Kwilinski: So the comparisons are certainly much easier.
Kevin J. Kwilinski: We overall for our flat overall full year guidance, we're expecting.
Kevin J. Kwilinski: Likely a similar kind of demand environment throughout the year and when you put our seasonality in place and you compare if you look at the comparison to prior year, we really didn't have to see much change in the actual market dynamics to achieve our overall flat.
Kevin J. Kwilinski: I think what we're seeing in April is a step up to that.
Kevin J. Kwilinski: We've seen really good momentum better than we expected.
Kevin J. Kwilinski: We are, it's a single data point, so we're not ready to raise guidance, but we certainly feel very positive about the development of the volume through the quarter and an acceleration of that volume in April. Regarding food service, yeah, in the quarter, food service was soft. I would note that we were substantially better than foot traffic. We are taking share, and we have wins coming online that will continue to accelerate our food service performance in the second half. Yeah, George, good morning.
Kevin J. Kwilinski: We are.
Kevin J. Kwilinski: It's a single data point, so we're not ready to.
Kevin J. Kwilinski: Raise guidance, but we certainly feel very positive about the developments through the quarter of volume and an acceleration of that volume in April.
Kevin J. Kwilinski: Regarding foodservice yet in the quarter foodservice was soft I would note that we were substantially better than foot traffic.
Kevin J. Kwilinski: We are taking share and we have wins coming online that will continue to accelerate our foodservice performance in the second half.
Mark W. Miles: It's Mark just to put some numbers on what Kevin described. So in fiscal 23, you know, our second half was an $85 million EBITDA improvement over the first half. This year, we're expecting a similar improvement plus another $80 million. And that's really coming from two dynamics.
Kevin J. Kwilinski: Yes, George Good morning, it's Mark just to put some numbers to what Kevin described so in fiscal 'twenty three or second half.
Mark: It's $85 million EBITDA improvement over the first half.
Mark: This year, we're expecting.
Mark: Similar improvement plus another $80 million and Thats really coming from two dynamics one.
Mark W. Miles: One, the volume inversion that Kevin referenced, where we had a $30 million headwind in the first half of this year compared to last year, basically flipping to a similar positive number in the second half. And on price-cost, a similar dynamic where we had a headwind in the first half from timing of resin lag, predominantly in the US related to polypropylene costs increasing, which you probably noted have subsided here in April. And so we're expecting that dynamic to invert to a tailwind in the second half. Part of it is the drop in polypropylene.
Mark: Our volume inversion that Kevin referenced where we had.
Mark W. Miles: $30 million headwind in the first half this year compared to last year basically flipping to a similar positive number in the second half.
Mark W. Miles: And on price cost similar dynamic, where we had a headwind in the first half from timing of resin lag predominantly in the U S related to polypropylene costs increasing.
Mark W. Miles: What you probably noted have subsided.
Mark W. Miles: Here in April.
Mark W. Miles: So we're expecting that dynamic to invert to a tailwind in the second half part of it is the drop in polypropylene. The other part of it is just our selling prices catching up to the increases that occurred at the beginning of fiscal 'twenty four.
Mark W. Miles: The other part of it is just our selling prices catching up to the increases that occurred at the beginning of fiscal 24. Okay. Mark, thanks. I guess, is there any way to quantify April?
Mark W. Miles: Okay.
George Leon Staphos: I know it's a step up, but I know it's stronger. Can you give us a number there? And then, kind of, my second question. We appreciate the confidence and the incremental, if you will, billions of proceeds. Are you including the two divestitures that you announced today or talked about today as part of that? Why even put out a target that you now have to get to?
Speaker Change: Mark Thanks for that I guess is there any way to quantify April.
George Leon Staphos: It's a step up I don't know its stronger can you give us a number there and then and then kind of my second question.
George Leon Staphos: We appreciate the confidence and the incremental if you will $1 billion of proceeds.
George Leon Staphos: Are you, including the two divestitures that you announced today or talk to you today as part of that why even put out a target that you now have to get to and what would be the margin associated with that incremental $1 billion of divestitures. Thank you.
Kevin J. Kwilinski: And what would be the margin associated with that incremental billion of divestitures? Yeah. You know, I think what we're trying to do is give a high level of transparency to what we expect to execute on. And that additional billion plus is not on, not including HHS or already divested businesses. We think we are going to execute those acquisitions in the next 12 months at or above our trading multiple. And it will be a very good deleveraging opportunity for the business, which will allow us to further invest in improving our core business and growing it at a faster rate. Yeah, George, with respect to your question on volume, I would say April is in line with our expectation for low single-digit volume growth in the second half.
George Leon Staphos: Yes.
Kevin J. Kwilinski: I think what we're trying to do is give a high level of transparency to what we expect to execute on.
Kevin J. Kwilinski: And those that additional $1 billion plus.
Kevin J. Kwilinski: Not on not including HHS or already divested businesses.
Kevin J. Kwilinski: We think we are going to execute those in the next 12 months.
Kevin J. Kwilinski: At or above our trading multiple.
Kevin J. Kwilinski: And it will be a very good deleveraging opportunity for the business, which will allow us to.
Kevin J. Kwilinski: Further in fast and improving.
Kevin J. Kwilinski: Our core business and growing at a faster rate.
Kevin J. Kwilinski: Yeah, and George with respect to your question on volume I would say April is in line with our expectation for low single digit volume growth in the second half.
Mark W. Miles: And I know there were a lot of questions about that when we referenced that on the last call, and I just wanted to give people more confidence in that expectation for low single-digit volume growth in the second half. Certainly, we're a short cycle business, but our transparency here in Q3 gives us more confidence related to that outlook. Thanks so much.
Mark W. Miles: And I know there were a lot of questions about that when we referenced on the last call and just wanted to give people more confidence.
Mark W. Miles: And that expectation for low single digit volume growth in the second half.
Mark W. Miles: Certainly we are a short cycle business, but our transparency here in Q3 gives us more confidence related to that outlook.
George Leon Staphos: Good luck in the quarter, guys. Thanks, George. Thank you. One moment for our next question. Our next question comes from the line of Philip of Jeffreys. Your line is now open.
Speaker Change: Thanks, so much.
Speaker Change: Good luck in the quarter guys.
Philip: Thanks, Rick.
Philip: Thank you one moment for our next question.
George Leon Staphos: Our next question comes from the line of Philip <unk> of Jefferies. Your line is now open.
Philip H. Ng: Hey guys, it sounds like you're pretty confident you could get, call it, a billion potential investors through the finish line and get a pretty attractive multiple. Kevin, perhaps, where are you counting this process? What gives you this confidence? And then in the deck, I mean, there's subtle hints that, and you just kind of alluded to maybe using the proceeds to perhaps pivot to faster growing markets in the consumer front. So kind of help us contextualize all this, right?
Philip: Hey, guys.
Philip: It sounded like you're pretty confident you could get call. It a 1 billion of protective divestitures through the finish line.
Philip H. Ng: Get a pretty attractive multiple Kevin, perhaps where you got in this process what gives you this confidence.
Philip H. Ng: And then in the deck.
Philip H. Ng: Subtle handset and you just kind of alluded to maybe using the proceeds to perhaps pivot to faster growing markets on the consumer front, so kind of help us contextualize all of this right.
Kevin J. Kwilinski: You know, you get some proceeds, you can do some M&A, you know, what's your comfort level on leverage, perhaps being above three and a half, or you would still kind of stay firmly in that range you guys kind of provide. Sure, yeah, I think we do have high confidence, or we wouldn't have given the guidance that we just gave. We have a group of businesses that are not in the long-term core strategic part of our business that we want to grow. They are excellent businesses, profitable businesses, and they have a high level of interest and are good fits for others in the market, and we are confident we'll be able to monetize those in a way that is great for Berry shareholders.
Kevin: You'll get some proceeds can do some M&A whats your comfort level on leverage perhaps being above three and a half or you would still kind of stay firmly in that range you guys kind of provide for us.
Speaker Change: Sure, Yes, I think.
Speaker Change: We do have high confidence so are we wouldn't.
Speaker Change: Given the guidance that we just gave.
Speaker Change: We passed.
Kevin J. Kwilinski: A group of businesses that are not in the long term core strategic.
Kevin J. Kwilinski: Bob.
Kevin J. Kwilinski: A part of our business that we want to grow they are excellent businesses.
Kevin J. Kwilinski: Profitable businesses.
Speaker Change: They have a high level of interest.
Speaker Change: And our good fits for others in the market.
Kevin J. Kwilinski: And we are confident we will be able to monetize those in a way that is great for berry shareholders.
Kevin J. Kwilinski: I think what I have said from my first call, this is the third call now, but from the very first one, I think I used the word, I have a bias for action, and I am absolutely committed to getting this portfolio right as fast as we can, so that we can be very focused on growing our core consumer base. And that is what we are doing. And with respect to proceeds, you know, applying those potential transactions to debt reduction would be two to three-tenths of additional deleveraging opportunity for Berry. But whatever acquisition you guys would pursue, Mark, would you still be firmly in that leverage ratio? Or would you go above that for the right deal?
Speaker Change: I think what I have said for my first call.
Kevin J. Kwilinski: Third now but from the very first one I think I used the word I have a bias for action and I am absolutely committed to getting this portfolio right as fast as we can so that we can be very focused on growing our core consumer business.
Kevin J. Kwilinski: And that is what we are doing.
Speaker Change: With respect.
Mark: With respect to proceeds apply.
Kevin J. Kwilinski: Applying those potential.
Mark: <unk> transactions to debt reduction would be two to three tenths of additional.
Kevin J. Kwilinski: Deleveraging opportunity for Berry.
Kevin J. Kwilinski: Okay.
Mark: Whatever acquisition you guys would pursue.
Kevin J. Kwilinski: Mark you guys would still be firmly in that leverage ratio would you go above that for the right deal I guess.
Mark W. Miles: We're committed to being within our range. Super, and then good to see the teams executing at a very high level and upsizing your cost out program. Where are you seeing some of the upside improvement? And then, Kevin, you kind of highlighted how you're talking about implementing your lean transformation and ramping up these commercial efforts, you know, appreciating these initiatives do take time. How do you kind of see this ramping up, and what's a realistic timeframe you expect to start seeing more tangible benefits in your business?
Mark: We're committed to being within our range.
Speaker Change: Okay Super.
Mark W. Miles: And then good to see the teams are executing at a very high level and Upsized your cost out program.
Mark W. Miles: Where are you seeing some of the upside improvement and then Kevin you kind of highlighted how you're talking about implementing your lean transformation and ramping up these commercial efforts appreciating. These initiatives do take time, how do you kind of see this ramping up and whats a realistic timeframe you expect to start seeing more tangible benefits in your business.
Mark W. Miles: Yeah, I think we're already starting to see the benefits of this focus, and it's not just in cost, but it's also, again, our consistency of delivering quality and service that is superior to our competitors and will allow us to grow faster. And that's a big part of why we are focused on this lean transformation. We have a significant amount of availability issues in key assets where we have unplanned downtime due to really what I would consider a lack of world-class total predictive maintenance. We are very focused on elevating that and accelerating our implementation of a consistent world-class maintenance program here.
Mark W. Miles: Yes, I mean, I think we're already starting to see the benefits of our focus.
Mark W. Miles: It's not just in cost, but it's also again, our consistency of delivering quality and service that is superior to our competitors and will allow us to grow faster and.
Mark W. Miles: And that's a big part of why we are focused on this lean transformation.
Mark W. Miles: We have a significant amount of.
Mark W. Miles: Availability issues.
Mark W. Miles: Key assets, where we have unplanned downtime due to really what I would consider a lack of world class total predictive maintenance kind of approach. We are very focused on elevating that and accelerating our implementation of a consistent world class maintenance program here.
Kevin J. Kwilinski: I think that's going to pay dividends on several fronts, not just variable cost reduction but improved reliability for product and service, and also more efficient capital deployment. We have a significant opportunity to continue to increase our first pass yield. We have a high ability in our facilities to reuse waste materials, but when you reuse waste materials, you still are giving up the energy and labor component of it.
Kevin J. Kwilinski: I think thats going to pay dividends on several fronts, not just variable cost reduction, but improved reliability for product and service and also a more efficient capital deployment.
Kevin J. Kwilinski: We have significant opportunity to continue to increase our first pass yield.
Kevin J. Kwilinski: We have a high ability in our facilities to re use waste material, but when you reuse waste materials, you still are giving up the energy and labor component of it.
Kevin J. Kwilinski: So we are very focused on driving that first pass yield, more stable delivery of our quality of service from that, and getting that in place as fast as we can. And to that end, we are investing in the resources necessary to do that. And Kevin, to kind of unlock that, should we expect a, you know, noticeable step up, whether it's SNA or CAPEX in the coming years, or could you kind of manage it at your current direction? Yeah, I don't, I don't see a step up in CapEx due to those efforts in any way. I think we will redeploy SG&A.
Kevin J. Kwilinski: So we are very focused on how do we drive that first pass yield.
Kevin: More stable delivery of our quality of service from that.
Kevin J. Kwilinski: And getting that in place as fast as we can and to that we are investing in the resources necessary to make that happen.
Kevin J. Kwilinski: And Kevin to kind of unlock that should we expect a noticeable step up whether it's SG&A or capex in the coming years or you can kind of manage it at your current directory.
Kevin J. Kwilinski: I look at our SG&A, and I would say overall, we're relatively lean, but we have really not taken advantage of the opportunity to automate and leverage through shared services in a great way and through the consistency of our IT systems. So, where I'm at, the way I'm thinking about this is I want to eliminate and automate some of the SG&A we have today in order to redeploy it into more value-added capabilities in this area of continuous improvement and continued commercial excellence, really building out our commercial excellence approach and rigor so that we have high confidence in our ability to continue to accelerate our win. I really appreciate the color, really exciting stuff; hopefully, this ramps up quickly.
Kevin: So I don't see a step up in Capex due to those efforts in any way.
Kevin J. Kwilinski: We will redeploy SG&A.
Kevin J. Kwilinski: I look at our SG&A and I would say overall, we're relatively lean, but we have really not taken advantage of the opportunity to automate and leverage through shared service and a great way and through the consistency of our it systems, So where I am.
Kevin J. Kwilinski: The way I'm thinking about this is I wanted to eliminate and automate some of the SG&A. We have today in order to redeploy into more value added capabilities. In this area of continuous improvement and continued commercial excellence really building out our commercial excellence approach and Rick.
Kevin J. Kwilinski: So that we have high confidence in our ability to continue to accelerate our wins.
Kevin J. Kwilinski: Okay.
Kevin J. Kwilinski: Really appreciate the color really exciting stuff hopefully this ramped up quickly.
Philip H. Ng: We get to see the fruits of your labor. Thank you. Please wait one moment for our next question. Our next question comes from the line of Adam Samuelson of Goldman Sachs. Your line is now open. Yes, thank you. Good morning, everyone.
Kevin J. Kwilinski: We get to see.
Speaker Change: The fruits of your labor. Thank you.
Adam L. Samuelson: Thank you Paul next question.
Philip H. Ng: Our next question comes from the line of Adam Samuelson of Goldman Sachs. Your line is now open.
Adam L. Samuelson: Yes. Thank you good morning, everyone.
Adam L. Samuelson: I just want to first hone in a little bit on the cadence through the second half of the year, a pretty decent size step up in both earnings and growth on a year-on-year basis but also sequentially versus the first half and the second quarter in particular. Is there anything that we should be mindful of just phasing between the third and fourth quarters as you're looking at it today? Particularly, we can think about kind of how price costs and recovery and lags might kind of come back and benefit one or both of the quarters, but how we think about the phasing within the second half of the year to hit the guidance range. Sure. Yeah, Good morning. It's Mark.
Adam L. Samuelson: I just wanted to first just.
Mark: Hone in a little bit on the cadence.
Mark: Through the through the second half of the year.
Speaker Change: Obviously, there is a.
Mark: Pretty decent sized step up in both the earnings.
Mark: Earnings and growth.
Mark: On a year on year basis, but also sequentially versus the first half in the second quarter in particular.
Speaker Change: Is there anything that we should be mindful of just phasing between the third and fourth quarter as Youre looking at it today, particularly with can think about kind of how price cost kind of recovery and lags might Mike.
Mark: Kind of come back and benefit.
Mark: Both of the quarters.
Mark: But how do we think about the phasing within the within the second half of the year to hit the guidance range. Thanks.
Mark W. Miles: I mentioned earlier in an answer to a question that we had about an $80 million improvement in the second half of 24 compared to 23. While we don't give granular guidance by quarter, I would say it's a little backloaded to Q4, and that's largely driven by the timing lag I referenced earlier with polypropylene falling in April. It'll impact us positively a little this quarter because we have about a two month timing lag from the time the cost change occurs to the time that it impacts our cost of goods sold. So, you know, it may help a little bit in Q3, but largely that benefit will flow through to Q4. Q4. Okay. That's helpful.
Mark: Sure Yes.
Mark: It's mark.
Mark W. Miles: I mentioned earlier enough.
Mark W. Miles: Answer to a question that we had about an 80 million dollar improvement in the second half of 'twenty four compared to 23, while we don't give granular guidance by quarter I would say, it's a little back loaded to Q4.
Mark W. Miles: That's largely driven by the.
Mark W. Miles: The lag I referenced earlier with polypropylene falling in April it will impact us positively.
Mark W. Miles: This quarter, because we have about two months.
Mark W. Miles: Timing lag from the time the cost change occur.
Mark W. Miles: So the time that it impacts our cost of goods sold so it may help.
Mark W. Miles: Little bit in Q3, but largely that benefit will flow through.
Mark W. Miles: Q4.
Kevin J. Kwilinski: And if I could just... (inaudible) the winds you've had on comps and so that might end the demand slowing, but help us think about kind of areas of particular strength and improvement relative to where they were in the first half of the year. Yeah, I would point out, as I already did, food service is accelerating. That's been a drag in the first half.
Speaker Change: Okay. That's that's helpful and if I could just add.
Kevin J. Kwilinski: Hi.
Speaker Change: To ask a follow up on the on the demand side as we think about kind of April being a being a much stronger months.
Kevin J. Kwilinski: Giving you the confidence in the outlook can you maybe frame just the areas is kind of where you've seen that demand, maybe notably above average in the portfolio in the areas that might be it might be lagging I know foodservice. The comps are tougher for you because of kind of the wins you've had on comps and so that might have been.
Kevin J. Kwilinski: The demand is slowing but help us think about kind of areas of particular strength and an improvement relative to where they were in the first half of the year. Thank you.
Kevin J. Kwilinski: I would point out.
Kevin J. Kwilinski: That foodservice is accelerating.
Kevin J. Kwilinski: It's been a drag in the first half overall I would say North America is key.
Kevin J. Kwilinski: Overall, I would say North America came in strong, while Europe is more in line with what we expected. Okay. All right. That's a helpful caller. I'll pass it on.
Speaker Change: Came in strong.
Kevin J. Kwilinski: <unk>.
Speaker Change: Europe is more in line with what we expected.
Kevin J. Kwilinski: Okay.
Speaker Change: Okay, Alright, that's helpful color I'll pass it on thank you.
Adam L. Samuelson: Thank you one moment for our next question. Our next question comes from the line of Matt Roberts of Raymond James. Your line is now open. Hey, good morning, gentlemen. Thank you for your time.
Speaker Change: Thank you one moment for our next question.
Adam L. Samuelson: Our next question comes from the line of Matt Roberts of Raymond James Your line is now open.
Matthew Burke Roberts: Diving a little bit deeper on those April trends that you mentioned, so in regard to that step up, I mean, is there anything in the prior quarter that could distort that, whether that's from the timing of an acceleration of any de-stocking or holiday timing in March? And while I respect that you don't give quarterly guidance, it seems like the consensus numbers are $25 million step up in EBITDA for 2Q. Is that something you're comfortable with given the way April is shaping up?
Matthew Burke Roberts: Hey, good morning, gentlemen, thank you for the time if.
Speaker Change: If I could just.
Matthew Burke Roberts: Diving, a little bit deeper on the April trends that you mentioned.
Matthew Burke Roberts: So in regard to that step up is.
Matthew Burke Roberts: There anything in the <unk>.
Matthew Burke Roberts: Prior quarter that could distort that whether that's from timing of an acceleration of any destocking or holiday timing in March.
Matthew Burke Roberts: And while I respect that you don't give quarterly guidance. It seems like consensus numbers are looking like a 25 million step up in EBITDA versus two key I mean is that something you're comfortable with given the way April is shaping up so just trying to get some goalposts there.
Matthew Burke Roberts: Just trying to get some goalposts. Yeah, I think, again, you know, I don't want to repeat what Kevin said with respect to April. I would echo what he said, and I might add that some of our businesses in some of the more industrial categories had a bigger headwind last year from, you know, the de-stocking, especially our roll stock type products. So that'll be a nice tailwind as we lap those comps here in the second half. I mean, with respect to your specific question, I don't...
Matthew Burke Roberts: Yes, I think.
Matthew Burke Roberts: Again, I don't want to repeat what Kevin said with respect to a broad I would echo what he said I might add that some of our businesses and some of the more industrial categories.
Matthew Burke Roberts: Had a bigger headwind last year from the Destocking, especially our roll stock type products.
Matthew Burke Roberts: So that'll be a nice tailwind as we lap those comps here.
Matthew Burke Roberts: In the second half I mean with respect to your specific question I don't.
Mark W. Miles: In my prior answer, I would stick to, which is that $80 million I would spread slightly more to Q4, which sounds like it is in line with the numbers you referenced. Okay, thanks, Mark. I appreciate that. Now, I apologize if I missed this in the remarks, but did you say how much cash you received?
Matthew Burke Roberts: In my prior answer I would stick to which is about $80 million I would I would spread slightly more to Q4, which sounds like it's in line with the numbers you referenced.
Speaker Change: Okay. Thanks, Thanks, Mark I appreciate that.
Speaker Change: I apologize if I missed this in the remarks, but did you say how much cash you received from the divestitures that you did in the quarter.
Matthew Burke Roberts: from the divestitures that you did in the quarter. And when you look out to that one billion opportunity, I explicitly mentioned divestitures, but are there any other considerations or deal-type structures that you would consider?
Speaker Change: And when you look out to that about $1 billion opportunity.
Speaker Change: Specifically mentioned divestitures, but are there any other considerations are deal type structures that you would consider.
Mark W. Miles: Thanks again for taking the question. Sure. Yeah, on your first question, I would say the proceeds from those divestitures were very similar to the purchase price for FNS that occurred right after quarter end. The future opportunities, you know, we would expect those to be cash transactions. Very good.
Speaker Change: Thanks again for taking the questions.
Mark W. Miles: Sure Yeah on your on your first question I would say the proceeds.
Mark W. Miles: From those divestitures.
Mark W. Miles: We're very similar to the purchase price for FNF that occurred right after quarter end.
Mark W. Miles: The future opportunities.
Mark W. Miles: We would expect those to be cash transactions.
Speaker Change: Okay. Good thank you again.
Christopher Silvio Perrella: Thank you one moment for our next question. Our next question comes from the line of Christopher Parkinson of Wolf Research. Your line is now open. Hey, everyone. Morning. It's Andrew Orm sitting in for Chris.
Mark W. Miles: Yes.
Speaker Change: Thank you next question.
Andrew Orm: Our next question comes from the line of Christopher Parkinson of Wolfe Research. Your line is now open.
Andrew Orm: Hey, everyone. Good morning, it's Andrew arm setting in for Chris.
Andrew Orm: So our main question really is, do we, are there areas where you're still seeing some de-stocking pressure either in the past quarter or going forward into the third? And if that's still true, how do you think channel inventories are looking as we get kind of towards the end of the year in areas where there might still be some inventory overhang? Yeah, the only thing I would say where we would say there's potentially some destocking still occurring would be in some of the health care parts of the HHS business.
Andrew Orm: So our main question really is do we are there areas, where you're still seeing some destocking pressure.
Andrew Orm: Either in the past quarter or going forward.
Andrew Orm: Third.
Andrew Orm: And.
Andrew Orm: If thats still true how do you think channel inventories are looking at.
Andrew Orm: As we get kind of towards the end of the year and in areas, where there might still be some inventory overhang.
Andrew Orm: Yeah, the only thing I would say.
Andrew Orm: Where we would say there is potentially some destocking cell occurring would be and some of the health care part of the <unk>.
Andrew Orm: Jeff's business.
Andrew Orm: But even that, I think, has mostly run its course and with the rest of our business. There's really nothing material related to any continued or ongoing destocking. Yeah, I would echo what Kevin said. It's occasionally you'll hear reference to it, but I would say it's very immaterial.
Andrew Orm: But even that I think is mostly run run its course.
Andrew Orm: And the rest of our business there is really nothing material related to any continued our ongoing destocking yes.
Speaker Change: I would echo what Kevin said, it's occasionally youll hear reference to it but I would say it's very immaterial.
Kevin J. Kwilinski: And I don't think, you know, inventories are at an unusual level. I'm not hearing that or seeing that from any of our customers. Thank you for one moment for the next question. Our next question comes from the line of Ghansham Panjabi of Bayer.
Speaker Change: And I don't think inventories are at an unusual level I'm not hearing that or seeing that from any of our customers.
Ghansham Panjabi: Thank you Paul for next question.
Kevin J. Kwilinski: Okay.
Kevin J. Kwilinski: Our next question comes from the line of Ghansham Panjabi of Baird. Your line is now open.
Ghansham Panjabi: Your line is now open. Hey guys, good morning. You know, kind of, Kevin, as you kind of zoom out and you think about your portfolio and what's happening with the end markets with, you know, obviously, the global consumer being weaker and, you know, being very price sensitive in terms of how they approach their spending and so on and so forth. How is Berry's portfolio aligned with that, in the sense that, you know, your customers are very likely, including in food service, going to have to start stressing the value portion of their product mix?
Ghansham Panjabi: Hey, guys good morning.
Ghansham Panjabi: Kind of Kevin as you kind of zoom out and think about your portfolio and what's happening with your end markets with obviously, the global consumer being weaker than you know.
Ghansham Panjabi: Being very price sensitive in terms of how they approach their spending and so on and so forth.
Ghansham Panjabi: Various portfolio aligned with that in the sense that your customers are very likely including in foodservice gonna have to start stressing the value portion of their product mix.
Ghansham Panjabi: Just your thoughts on that and just, you know, given where volumes are in the industry, which is, you know, obviously at a low point, how would you sort of assess the competitive back... Yeah, I would say we feel very good about our alignment with the core consumer categories that we're exposed to. We are strong in both branded and private label volume in both Europe and North America, so we are able to win even when there's some trading down happening.
Ghansham Panjabi: Just your thoughts on that and just given where volumes are in the industry, which as you know.
Ghansham Panjabi: Obviously at a low point.
Ghansham Panjabi: How would you sort of assess the competitive backdrop as well.
Ghansham Panjabi: Yes, I would say, we feel very good about our alignment with the core consumer category that we're exposed to.
Ghansham Panjabi: We are strong in both branded and private label volume in both Europe and North America.
Ghansham Panjabi: So we are able to win even when there is some trading down happening.
Kevin J. Kwilinski: We think the long-term trends in these markets, when we look at the data and the projections, are positive, and we will be exposed to market growth in the, you know, two to three or more percent range and, in some of our categories, much higher. We are very focused on, as part of this commercial excellence, making sure that we are prioritizing the white space with the best growth opportunities. And we are very focused on using bolt-on acquisitions to give us capabilities and access to those higher growth markets and areas.
Ghansham Panjabi: We think the long term trends in these markets when we look at the data and the projection.
Kevin J. Kwilinski: Our positives and we will be exposed to market growth.
Kevin J. Kwilinski: The two to three or 4% range.
Kevin J. Kwilinski: And then some of our categories is much higher than that.
Kevin J. Kwilinski: We are very focused on as part of this commercial excellence and making sure that we are prioritizing the white space was the best growth opportunities.
Kevin J. Kwilinski: And we are very focused on using bolt on acquisition.
Kevin J. Kwilinski: Two.
Kevin J. Kwilinski: Give us capabilities and access to those higher growth markets and areas.
Kevin J. Kwilinski: And that's a key, really the key lens as we think about where we should think about acquisition because, you know, we'll get cost improvement synergy with any acquisition we do, given our scale, but we're really focused on how can we use acquisition to accelerate our organic growth for the long term. Ghansham, the food service, the food service part of your question, you know, our, our portfolio is largely cups and lids for beverages.
Kevin J. Kwilinski: And that's a key really be key lens as we think about.
Kevin J. Kwilinski: Where we should think about acquisition, because we'll get cost improvement synergy with any acquisition, we do given our scale.
Kevin J. Kwilinski: We're really focused on how can we use acquisitions to accelerate our organic growth for the long term.
Kevin J. Kwilinski: Yes, ghansham the foodservice foodservice part of your question.
Kevin J. Kwilinski: Our portfolio is largely cups on lids.
Mark W. Miles: And as you know, our customers continue to look to expand that category. It is a decent-margin product category for our customers, and so I continue to see them looking to expand that category, not, you know, not the opposite. Mark, just to clarify, how big is food service for Berry?
Kevin J. Kwilinski: For beverage.
Mark W. Miles: And as you know our customers continue to look to expand that category.
Mark: It is a decent margin product category for our customers.
Mark W. Miles: And so I continue to see them looking to expand that category not not the opposite.
Mark W. Miles: Mark just to clarify how big is foodservice Woodbury at this point.
Mark W. Miles: Yeah, it's largely in our CP&A business, you know, and I would call it, you know, 20 to 25% of that portfolio. And then, you know, for my second question, as it relates to the divestitures and, you know, potential outcomes going forward. You know, Kevin, what is the lens you're looking at as you consider it? I heard you mention, you know, in terms of CPGA exposure, consumer exposure to increase. But, you know, just some more color on it.
Mark W. Miles: Yes.
Mark: Largely in our <unk> business, and I would call it 20% to 25% of that portfolio.
Kevin: Okay got it and then for my second question as it relates to the divestitures and potential outcomes going forward.
Mark W. Miles: Kevin what is the lens you're looking at as you consider additional divestitures in the portfolio is it I heard you mentioned in terms of CPG exposure can that human exposure to increase that but just some more.
Kevin: Color on that would be helpful.
Kevin J. Kwilinski: Yeah, I mean, that's really the primary lens. We have a core strategy to be a consumer-facing sustainable packaging supplier. And when we look at parts of our business that don't have that profile, we, you know, really have to question, is that where we should be investing our resources and capital? And that's really what leads us to the list of opportunities. If the only reason for owning that business is that it happens to use resin, then that's not a very strong reason.
Kevin: Yeah, I mean, thats really the primary lens as we have a core strategy to be a consumer facing sustainable packaging supplier.
Kevin J. Kwilinski: And when we look at parts of our business that don't have that profile.
Kevin J. Kwilinski: We really have to question is that where we should be investing our resources and capital.
Kevin J. Kwilinski: And Thats really what leads us to the list of opportunities.
Kevin J. Kwilinski: The only reason for.
Kevin J. Kwilinski: Owning that business that happens to use rather than that that's not a very strong region.
Kevin J. Kwilinski: And we have the ability to redeploy that capital in areas that we can create a lot more growth and long term value creation for our shareholders and that's why we're going down the path.
Ghansham Panjabi: And we have the ability to redeploy that capital in areas that we can create a lot more growth and long-term value creation for our shareholders. And that's why we're going down this path. Makes sense. Thanks so much.
Speaker Change: Makes sense. Thanks, so much.
Ghansham Panjabi: Thank you, one moment for our next question. Our next question comes from Arun Viswanathan of RBC Capital Markets. Your line is now open. Great, thanks for taking my question. I just wanted to ask a little bit more about what you're seeing in April and, I guess, your confidence level.
Speaker Change: Thank you one moment for our next question.
Ghansham Panjabi: Okay.
Ghansham Panjabi: Our next question comes from the line of Arun Viswanathan of RBC capital markets. Your line is now open.
Arun Shankar Viswanathan: Great. Thanks for taking my question.
Arun Shankar Viswanathan: I just wanted to ask a little bit more about what youre seeing in.
Arun Shankar Viswanathan: So I guess what you think drove the improvement in April? Was it increased promotional activity on part of your customers? And is that what gives you confidence that you'll continue to see that?
Arun Shankar Viswanathan: In April and I guess your confidence level. So I guess, what do you think drove the improvement in April was it increased promotional activity on part of your customers.
Arun Shankar Viswanathan: Is that what gives you confidence that you'll continue to see that.
Kevin J. Kwilinski: Continued Volume Improvement, or is it, you know, maybe restocking, or just trying to understand what gives you that confidence that you'll continue to see that improvement sustained over the next few months, end of the next year. Yeah, I would echo that we have been confident in our guidance for the year from the very beginning, and we haven't changed it. And it is playing out as we expected, with the addition of April coming in a bit stronger than we expected. So what's changed?
Arun Shankar Viswanathan: Continued volume improvement.
Kevin J. Kwilinski: Or is it.
Kevin J. Kwilinski: Maybe restocking or.
Kevin J. Kwilinski: Just trying to understand what gives you that confidence that youll continue to see that improvement sustained over the next few months.
Kevin J. Kwilinski: And then the next year.
Speaker Change: Yes, I would.
Kevin J. Kwilinski: I would echo that we we have been confident in our guidance.
Kevin J. Kwilinski: For the year from the very beginning and we haven't changed it and it is playing out.
Kevin J. Kwilinski: As we expected.
Kevin J. Kwilinski: With.
Kevin J. Kwilinski: The addition of April came in a bit stronger than we expected. So what's changed I think we are seeing more.
Kevin J. Kwilinski: I think we are seeing more aggressive promotional activity and a focus on brand building by our customers. I think we see a consumer that is increasing their level of consumption of categories that we are participating in, and it isn't unexpected.
Kevin J. Kwilinski: More aggressive.
Kevin J. Kwilinski: Promotional activity and focus on on brand building by our customers.
Kevin J. Kwilinski: We see a consumer that is.
Kevin J. Kwilinski: Increasing their level of consumption of categories that we're participating in.
Kevin J. Kwilinski: And we're talking about, you know, movements that are hard to predict on a month-to-month basis. But it's basically what we thought would happen, and it is happening. We have continued to build momentum through the year, and we think that will continue to be the case. Okay, thanks for that. And just a question on the strategy going forward. I guess you noted that you would be looking to bolt on acquisitions to bolster your presence in some of these growing verticals, like healthcare and more consumer-facing areas.
Kevin J. Kwilinski: And it isn't unexpected and we're talking about.
Kevin J. Kwilinski: <unk> that are hard to predict on a month to month basis.
Kevin J. Kwilinski: But it's basically.
Kevin J. Kwilinski: What we thought would happen and it's happening.
Kevin J. Kwilinski: We have continued to build momentum through the year and we we think that will continue to be the case.
Speaker Change: Okay, Thanks for that and just.
Speaker Change: Just a question on on the.
Speaker Change: The strategy going forward I guess.
Kevin J. Kwilinski: You noted that you will be looking to bolt on acquisitions to bolster your presence in some of these growing verticals like health care and and more consumer facing areas.
Kevin J. Kwilinski: So, I guess... Real quickly, does that mean, A, that you'll be getting rid of maybe industrial exposure, and then B, just curious why you would opt to make acquisitions the strategy to bolster that presence, and are there opportunities to pursue that growth organically? Granted, Berry is obviously one of the largest consumer packaging companies in the world, so I would imagine that you could potentially go after some of those markets organically. Is it just quicker to do it by acquisition, and maybe returns would be higher that way, or what is the strategy behind going after that acquisition base?
Speaker Change: So I guess.
Kevin J. Kwilinski: Real quickly does that mean.
Kevin J. Kwilinski: Hey that you'll be getting rid of maybe industrial exposure and then B I'm. Just curious why you would opt to make acquisitions the strategy to bolster that.
Kevin J. Kwilinski: You know that that presence and is there are there are opportunities to pursue that growth organically granted Barry is obviously one of the largest consumer packaging companies in the world. So I would imagine that you could potentially go after some of those markets.
Kevin J. Kwilinski: Organically is it just quicker to do it via acquisition.
Kevin J. Kwilinski: Maybe returns would be higher that way or.
Kevin J. Kwilinski: What is the strategy behind going after that acquisition base. Thanks.
Arun Shankar Viswanathan: Thanks. Yeah, exactly. First is the easy part. Part A: are we reducing our industrial exposure?
Kevin J. Kwilinski: Yes.
Kevin J. Kwilinski: The first is the easy part part a are we reducing our industrial exposure yes.
Kevin J. Kwilinski: Yes. On the second part, we always look at what's the best overall return for our shareholders on any growth strategy, and in many of those, organic growth by itself is, in fact, the best strategy.
Arun Shankar Viswanathan: The second part we always look at what's the best overall return for our shareholders of any growth strategy.
Kevin J. Kwilinski: And in many of those organic growth by itself is in fact, the best strategy and we're executing against that and we're doubling down on improving our ability to execute against that.
Kevin J. Kwilinski: And we're executing on that. And we're doubling down on improving our ability to execute on that. But in some areas, the fastest path and, therefore, the one that yields the highest return is to acquire a small business that you can scale out and replicate its access to technology or to a specific relationship or geographic market that you want to play in in a strong way.
Kevin J. Kwilinski: But in some areas the fastest path and therefore, the one that yields the highest return is to acquire a small business that you can scale out and replicate it.
Kevin J. Kwilinski: Access to technology or to a specific relationship.
Kevin J. Kwilinski: Our geographic market that you want to play and in a strong way and it's just a much.
Kevin J. Kwilinski: And it's just a much better return than just going your own way and building organically. We're very conscientious about that, and we expect to do that successfully and do it within our stated leverage rate. Thank you. Our next question comes from the line of Mike Layhead of Barclays. Your line is now open.
Michael James Leithead: Better return than just going your own way and building organically, we're very conscientious of that.
Michael James Leithead: And we expect to do that successfully and do it within our stated leverage range.
Kevin J. Kwilinski: Okay.
Michael James Leithead: Thank you Paul moving for our next question.
Kevin J. Kwilinski: Yeah.
Kevin J. Kwilinski: Yeah.
Michael James Leithead: Our next question comes from the line of Mike Lai Head of Barclays. Your line is now open.
Michael James Leithead: Great. Thank you. Good morning, guys. Just one question from my end. I wanted to ask them about the Gladfelter transaction. The market's obviously had some time to digest it. And if I look at Gladfelter's share price today and relative ownership of NUCCO, it seems to imply a NUCCO equity value of something like $800 million, which is quite a bit different from the $1.8 billion valuation you laid out last quarter. So I guess when your team looks at that, what do you think the market's missing? Is it just that he needs to better understand it?
Michael James Leithead: Great. Thank you good morning, guys.
Michael James Leithead: Just one question from my end I wanted to estimate Gladfelter transaction the.
Michael James Leithead: The market's obviously got some time to digest that and if I look at Gladfelter share price today and relative ownership of newco. It seems to imply a newco equity value of something like $800 million, which is quite a bit different than the $1 8 billion.
Michael James Leithead: Valuation you laid out last quarter, so I guess.
Michael James Leithead: On your team looks at that what do you think the market is missing is.
Michael James Leithead: Is it just needs to better understand it or perhaps do you think there needs to be something different and capital structure or something else just to better realize the value in that transaction.
Kevin J. Kwilinski: Or perhaps do you think there needs to be something different in the capital structure or something else to better realize the value in that transaction? Yeah, I think number one, we're in a bit of a holding pattern. And there isn't a short-term incentive for people to buy in until we get closer to the transaction closing. I think that, by far and away, the biggest issue. When we look at the actual results that we entered into the transaction on in the quarter, we see what we thought we would see in the quarter.
Michael James Leithead: Yes, I think number one.
Kevin J. Kwilinski: We have a.
Kevin J. Kwilinski: And a bit of a holding pattern and there isn't a short term incentive for people to buy and until we get closer to the transaction closing I think that bye bye.
Kevin J. Kwilinski: By far and away the biggest issue.
Kevin J. Kwilinski: <unk>.
Kevin J. Kwilinski: When we look at the actual.
Kevin J. Kwilinski: Results that we.
Kevin J. Kwilinski: Entered into the transaction on in the quarter.
Kevin J. Kwilinski: We saw what we thought we would see in the quarter. We are confident that we have seen the bottom of the cycle and we are now on the upswing and we have an improving business and as we've continued to do the work on synergy we see tremendous upside to the synergies that this business will be able to deliver its going to be.
Kevin J. Kwilinski: We are confident that we have seen the bottom of the cycle, and we are now on the upswing, and we have an improving business. And as we continue to do the work on synergy, we see a tremendous upside to the synergy that this business will be able to deliver. It's going to be the biggest player in the non-woven space, and it is going to be a very strong, successful company.
Kevin J. Kwilinski: The biggest player in the nonwoven space and it is going to be a very strong successful company and we are putting extra.
Michael James Leithead: And we are putting excellent leadership in place under Kirk, coming from the long history of Berry management. So I think overall, we think the market is just getting it wrong. And the biggest factor is, we just need to get this thing closer to close and, and let them, you know, move on. Great, thank you so much. Thank you. One moment for the next question. Our next question comes from the line of Michael Roxanne of True Securities.
Kevin J. Kwilinski: Excellent leadership in place and.
Michael James Leithead: Under Kurt coming from the long history of Berry management, So I think overall.
Michael James Leithead: We think the market is just getting it wrong and.
Michael James Leithead: The biggest factor is we just need to get the same closer to close.
Michael James Leithead: <unk>.
Michael James Leithead: Move on.
Michael James Leithead: Great. Thank you so much.
Michael James Leithead: Thank you William for next question.
Michael James Leithead: Our next question comes from the line of Michael Roxanne of Tree Securities. Your line is now open.
Michael James Leithead: Your line is now open. Hi guys, this is Niccolo Piccini from MicroOxygen today. I appreciate you taking my question. I guess first off, I think you've mentioned previously that European assets might be more advanced than the US in terms of a process and operations vantage point compared with the US and other regions.
Michael James Leithead: Hi, guys. This is Nick <unk> on for Mike Roxanne Today I. Appreciate you taking my questions I guess first off I think you had mentioned previously that.
Michael James Leithead: Got European assets might be more advanced than the U S.
Michael James Leithead: In terms of the process and operations vantage point.
Michael James Leithead: Go to the U S and other regions.
Niccolo Andreas Piccini: How has that progressed, maybe in your initial findings, as you benchmark those assets again, your operations elsewhere? And is there any low-hanging fruit that you can address quickly? Yeah, I think there is low-hanging fruit, and we are addressing it quickly. I would say that I wouldn't use geographic region as the primary differentiator between highest performing and lowest performing.
Michael James Leithead: How has that progressed maybe in your initial findings.
Niccolo Andreas Piccini: As you benchmark those against.
Niccolo Andreas Piccini: Operations elsewhere and is there any low hanging fruit that you can address quickly.
Niccolo Andreas Piccini: Yes, I think there is low hanging fruit and we are addressing that quickly.
Niccolo Andreas Piccini: I'd say that I wouldn't use G geographic region as a primary differentiator of.
Niccolo Andreas Piccini: Of highest performing and lowest performing I think the reality is we have.
Kevin J. Kwilinski: I think the reality is we have a range of performance within each of our businesses, and we have room to improve the best, and we have a lot more room to improve those that aren't the best. Yeah, thank you. And then just with respect to, I think it was described as a beachhead, you're building in consumer packaging North America in the rigid, How long, if you could give a timeline, do you think?
Kevin J. Kwilinski: A range of performance within each of our businesses.
Kevin J. Kwilinski: And we have room to improve the best and we have a lot more room to improve those that arent the best.
Speaker Change: Got it. Thank you and then just with respect to I think it was described as a beachhead youre building in the consumer packaging North America and a rigid.
Kevin J. Kwilinski: How long if you could give a timeline do you think.
Kevin J. Kwilinski: Bye, we will see that spread to your other parts of your portfolio. Yeah, I think we can have the process well ingrained within six months in that business. And we will begin kind of halfway through there, starting to talk to the other businesses about what's happening, and they will begin to adopt it, and we'll continue to execute that over the coming year through the course of 25. And I think the impact will be relatively quick.
Kevin J. Kwilinski: We would see for that to spread to your other.
Kevin J. Kwilinski: Other parts of your portfolio.
Kevin J. Kwilinski: Yes, I think we can have the process well ingrained within six months in that business.
Kevin J. Kwilinski: And we will began.
Kevin J. Kwilinski: Halfway through there.
Kevin J. Kwilinski: Starting to talk to the other business is about what's happening and they will they will begin to Paul adoption and we will continue to execute that over the coming year through through the course of 'twenty five.
Kevin J. Kwilinski: And I think it will the impact will be relatively quick.
Niccolo Andreas Piccini: We have some good momentum already. We're not talking about taking something that is broken, but I think we can accelerate the pipeline we have that we're managing. We can make it a better pipeline, a stronger one, and it will accelerate, definitely, in 25 and 26, our ability to win.
Kevin J. Kwilinski: We have some good momentum already we're not talking about taking something that is broken.
Niccolo Andreas Piccini: But I think we can accelerate the pipeline we have that we're managing we can make it a better pipeline a stronger one and it will accelerate definitely in 'twenty five 'twenty six our ability to win.
Niccolo Andreas Piccini: Understood. Thank you very much. Thank you one moment for our next question. Our next question comes from the line up for Lane Rodriguez of Mizzou.
Speaker Change: Understood. Thank you very much.
Edlain S. Rodriguez: Thank you one moment for our next question.
Niccolo Andreas Piccini: Our next question comes from the line of Edlin Rodriguez of Mizuho. Your line is now open.
Edlain S. Rodriguez: Your line is now open. Good morning. Thank you. Just one quick one on the volume that you're seeing out there. I mean, again, volume has sequentially improved, and you expect it to continue to improve in the second half. Like, what you're seeing, like, is it mostly inventory restocking you're seeing, or are you seeing real fundamental demand driving that volume? Yeah, I think early in the year, you know, as we entered into our fiscal 24, you still had a bit of destocking in some categories that was happening.
Edlain S. Rodriguez: Good morning, Thank you.
Kevin J. Kwilinski: So I think some of that acceleration was coming from that. But overall, the bigger factor is just the consumption level improving, which we expected to be the case. And we expect to continue to see improvement as more and more CPGs are focused back on volume creation and driving volume and not just on, you know, taking price and profit. I think the other thing I would like to emphasize is that we look very closely at how we perform relative to our peers and relative to the volume indication that we get from some of our customers in there that are public.
Edlain S. Rodriguez: Just one quick one on the volume that you're seeing out there I mean again sequentially.
Kevin J. Kwilinski: Sequentially improve and you expect it to continue to improve.
Kevin J. Kwilinski: In the second half.
Kevin J. Kwilinski: What do you see like is it mostly inventory restocking, you're seeing or are you seeing a real fundamental demand.
Kevin J. Kwilinski: That volume.
Kevin J. Kwilinski: Yes.
Kevin J. Kwilinski: Yes, I think early in the year.
Kevin J. Kwilinski: As we entered into our fiscal 'twenty four you still had a bit of destocking in some categories. It was happening. So I think some of that acceleration was coming from that but overall the bigger factor is just the consumption levels are improving which we expect it to be the case.
Kevin J. Kwilinski: And we expect to continue to see improvement as more and more.
Kevin J. Kwilinski: CPG is our focus back on volume creation and driving volume it not not just on taking price and profit.
Kevin J. Kwilinski: I think the other thing I would like to emphasize is we looked very closely at how we perform.
Kevin J. Kwilinski: Relative to our peers and relative to the.
Kevin J. Kwilinski: Volume indication that we get from some of our customers in there that are public.
Kevin J. Kwilinski: And we continue to outperform our peers, whatever how soft we have been in volume, we have outperformed our peers in this area, and we will continue to do so. Now, some of our peers, about half of them don't give volume guidance. So you don't have that transparency, but we do, and we hold ourselves accountable to that volume, and we feel very good about how we have performed from a volume basis relative to our peer set.
Kevin J. Kwilinski: And we continue to outperform our hour.
Kevin J. Kwilinski: However, soft we have been in volume we have outperformed our peers in this area.
Kevin J. Kwilinski: And we will continue now some of our peers about half of them don't give volume guidance.
Kevin J. Kwilinski: So you don't have that transparency, but we do and we hold ourselves accountable to that volume and we feel very good about how we have performed from a volume basis relative to our peer set.
Edlain S. Rodriguez: And my follow-up is, in terms of the portfolio optimization, again, forgive me if I missed that before. Can you talk about where in the portfolio you still have much work to do? Like, is it primarily in the flexible segment, or is it more in the consumer packaging? Like, where would those diverse issues be more likely to be coming from?
Speaker Change: Okay makes sense and then my follow up is in terms of the portfolio optimization.
Edlain S. Rodriguez: Forgive me if I missed that before.
Edlain S. Rodriguez: Can you talk about where in the portfolio you still have much work to be done like is it primarily in the flexible segment or is it like on the consumer packaging like where would those divestitures would be more likely to be coming from.
Kevin J. Kwilinski: Yeah, we have opportunities in flexibles and CPI, so Consumer Products International, and some smaller ones in CP&A. So it's across the board. But I would say, you know, look at flexibles and CPI as the bigger impact.
Speaker Change: Yes, we have opportunities.
Kevin J. Kwilinski: And flexible and CPI CPI, so consumer products international.
Kevin J. Kwilinski: And some smaller even in CPM, so it's across the board.
Kevin J. Kwilinski: But I would say.
Kevin J. Kwilinski: Look at flexible and CPI is.
Kevin J. Kwilinski: The bigger impact.
Speaker Change: Okay. Thank you very much.
Kevin J. Kwilinski: Yeah.
Speaker Change: Thank you Juan <unk> for next question.
Edlain S. Rodriguez: Okay, thank you very much. Thank you, one minute for the next question. Our next question comes from the line of John Roberts of Missoula. Your line is now open. John Roberts, your line is now open.
Kevin J. Kwilinski: Our next question comes from the line of John Roberts of Mizuho. Your line is now open.
Edlain S. Rodriguez: John Roberts your line is now open.
John Ezekiel E. Roberts: I'm sorry, I wasn't cued up. Okay, sorry about that. Thank you. This concludes the question and answer session. I would now like to turn it back to management for closing remarks. I just want to thank everyone for their interest in Berry. We feel great about where we stand at this point in the year, and we're looking forward to a great second half.
John Ezekiel E. Roberts: I'm, sorry, I wasn't queued up.
John Ezekiel E. Roberts: Yeah.
Speaker Change: Okay, sorry about that.
Speaker Change: Thank you. This concludes our question and answer session I would now like to turn it back to management for closing remarks.
John Ezekiel E. Roberts: Just want to thank everyone for your interest in Berry we.
Speaker Change: We feel great about where we stand at this point in the year and we're looking forward to a great second half. Thank you.
Kevin J. Kwilinski: Thank you. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Speaker Change: Thank you for your participation in today's conference. This does conclude the program you may now disconnect.
Kevin J. Kwilinski: [music].
Kevin J. Kwilinski: Yes.
Kevin J. Kwilinski: [music].
Kevin J. Kwilinski: Okay.
Kevin J. Kwilinski: [music].
Operator: The Ultimate Parody Site! [inaudible] ............ The Ultimate Parody Site!
Operator: Yes.
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Speaker Change: Thank you.
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Speaker Change: Thank you.
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Operator: Thank you for watching! ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? You're watching the Daily Show with The Daily Show. I'm your host, Adam Samuelson. And I'm your host, Gabriel Hajde. And I'm your host, Anthony Pettinari. And I'm your host, Gabriel Hajde. ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ??
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