Q2 2024 Pactiv Evergreen Inc Earnings Call

Good day, and thank you for standing by.

Speaker Change: Welcome to the Pactive Evergreen second quarter 2024 conference call.

Speaker Change: At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone, and you will then hear an automated message advising your hand is raised.

Curt Worthington: To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded and will access our supplemental earnings. Management's remarks today should be heard in tandem with this presentation. Before we begin our formal remarks, I want to remind everyone that our discussions today will include forward-looking statements, including those regarding our guidance for 2020. These forward-looking statements are not guarantees of future performance, and actual results could differ materially from those contemplated by our forward-looking experts.

Speaker Change: To withdraw your question, please press star 1 1 again. Please be advised that today's conference is being recorded

Curt Worthington: I would now like to hand the conference over to your first speaker today, Curt Worthington, Vice President of Strategy, Investor Relations.

Speaker Change: Kurt

Curt Worthington: Thank you, operator, and good morning, everyone. Welcome to our second quarter 2024 earnings call.

Speaker Change: With me on the call today, we have Michael King, President and CEO , and John Baksht, CFO . Please visit the events section of our Investor Relations website at www.pactivevergreen.com and access our supplemental earnings presentation.

Curt Worthington: These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. Our non-GAAP measures should not be considered in isolation or as a substitute for results prepared in accordance with GAAP, and reconciliations to the most directly comparable GAAP measures are available in our earnings release and in the appendix to today's presentation.

Speaker Change: Management's remarks today should be heard in tandem with reviewing this presentation.

Speaker Change: Before we begin our formal remarks, I want to remind everyone that our discussions today will include forward-looking statements.

Speaker Change: including those regarding our guidance for 2024.

Speaker Change: These forward-looking statements are not guarantees of future performance and actual results could differ materially from those contemplated by our forward-looking statements.

Speaker Change: Therefore, you should not put undue reliance on those statements.

Speaker Change: These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect.

Speaker Change: We refer all of you to our recent SEC filings, including our annual report on Form 10-K for the year ended December 31st, 2023, and our quarterly reports on Form 10-Q for the quarters ended March 31st and June 30th, 2024, for a more detailed discussion of those risks.

Speaker Change: The forward-looking statements we make on this call are based on information available to us as of today's date, and we disclaim any obligation to update any forward-looking statements, except as required by law.

Speaker Change: Lastly, during today's call, we will discuss certain GAAP and non-GAAP financial measures which we believe can be useful in evaluating our performance.

Speaker Change: Our non-GAAP measures should not be considered in isolation or as a substitute for results prepared in accordance with GAAP, and reconciliations to the most directly comparable GAAP measures are available in our earnings release and in the appendix to today's presentation.

Curt Worthington: Unless otherwise stated, all figures discussed during today's call are for continuing operations. With that, let me turn the call over to Pactiv Evergreen's president and CEO, Michael King. Thanks, Curt. Good morning, everyone.

Speaker Change: Unless otherwise stated, all figures discussed during today's call are for continuing operations only.

Michael King: Thanks for joining us today. Before we dive into our second quarter results, let me first begin by saying that Pactiv Evergreen has accomplished a significant milestone in our transformational journey over the last few weeks. In mid-July, we announced a definitive agreement to sell our Pine Glove paper mill and our Wingsville extrusion facility to Susano, a global paper and pulp producer with deep mill expertise. Upon closing of the transaction, we will exit our final remaining paper mill, allowing us to focus on our core North American converting application.

Speaker Change: Thanks, Curt. Good morning, everyone. Thanks for joining us today.

Speaker Change: Before we dive into our second quarter results, let me first begin by saying that Pactiv Evergreen accomplished a significant milestone in our transformational journey over the last few weeks.

Speaker Change: In mid-July, we announced a definitive agreement to sell our Pine Glove paper mill and our Williamsville extrusion facility to Susano, a global paper and pulp producer with deep mill expertise.

Michael King: Overall, we view the pending sale as a testament to our disciplined focus on value creation and believe it will be a win for all states. Turning to our results, the second quarter fell short of our expectations.

Michael King: From a customer and in-market perspective, and in response to the still weak consumer demand profile, we've seen our customers become more price sensitive and begin pulling additional levers to preserve their margin profiles. Some have been willing to trade high service levels and product quality for lower prices. We've taken a long-term approach in responding to those situations and upheld our unique value proposition. In some instances, we've made the decision to exit certain businesses. From an operational standpoint, we experienced temporary operational disruptions at our Pine Bluff paper mill during the quarter, which accounted for the majority of the variance.

Speaker Change: Turning to our results.

Speaker Change: From a customer and in-market perspective, and in response to the still weak consumer demand profile, we've seen our customers become more price sensitive and begin pulling additional levers to preserve their margin profiles.

Speaker Change: As we will cover in detail through the call today, we are taking decisive actions to address the year-to-date performance and expected end-market headwinds to position the business for future success.

Michael King: These actions are consistent with the stated objectives of our transformational journey, and we believe they will position us to emerge from what continues to be a period of economic uncertainty as a stronger and more resilient country. I'll begin with an overview of the key themes for the second quarter. Then I'll provide an update on the actions we're taking to advance our transformational journey and address the current environment, including how those are expected to help position a business for the long term. John will then provide updates on our key financial metrics and discuss our outlook for 2020. At the end of the call, we'll open up the line for Q&A. Turning to slide five.

Speaker Change: Turning to slide four.

Speaker Change: I'll close my initial remarks with an update on what we're observing from customers in the marketplace.

Speaker Change: John will then provide updates on our key financial metrics and discuss our outlook for 2024.

Michael King: We took a big step on our transformational journey by announcing the sale of our Pine Bluff Mill to Susano on July 12. We launched our Strategic Alternatives Review for Pine Bluff over a year ago. During this time, we evaluated all viable options and identified a partner with Deep Mill. We are enthusiastic about being entering into this long-term partnership, and we have confidence in Susano's ability to continue improving the performance at Pine Bluff and at Deep Mill. We expect the transaction to close in the fourth quarter of this year.

John: Turning to slide 5.

Speaker Change: We are enthusiastic to be entering into this long-term partnership, and we have confidence in Susano's ability to continue improving the performance at Pine Bluff into the future.

Michael King: Throughout the remainder of our remarks, we'll refer to Pine Bluff, Waynesville, and the associated assets being divested collectively as Pine Bluff for ease of reference. Transitioning to our second quarter results. We enter the quarter cautiously optimistic that end market demand would begin to show signs of improvement in the quarter. While these have been addressed, they contribute to the lower...

John: Transitioning to our second quarter results.

Speaker Change: We enter the quarter cautiously optimistic that end market demand would begin to show signs of improvement in the quarter.

Speaker Change: However, Q2 was negatively impacted by increased pressure on demand and volumes and the impact of strategically exiting certain business.

Michael King: While our results during the quarter fell below our expectations, we remain committed to our long-term strategy of creating value for all stakeholders. We believe we are well positioned to drive profitable growth into the future. Adjusted EBITDA was $183 million during the second quarter, which was meaningfully below our internal forecast and our year-ago adjusted EBITDA of $217 million.

Speaker Change: While these have been addressed, they contribute to the lower performance.

Speaker Change: While our results during the quarter fell below our expectations, we remain committed to our long-term strategy in creating value for all stakeholders.

Speaker Change: We believe we are well positioned to drive profitable growth into the future.

Speaker Change: Adjusted EBITDA was 183 million dollars during the second quarter, which was meaningfully below our internal forecast and our year-ago adjusted EBITDA of 217 million dollars.

Michael King: The negative variance compared to our expectations reflects our customers taking material cost actions in response to the consumer being more price conscious following multiple years of above average inflation, which we highlighted during the first quarter. It also reflects temporary operational disruptions at our Pine Bluff Mill following the completion of the planned annual mill outage in April, which accounted for the majority of the variance. While we expect the cumulative impact of multiple years of food price inflation to persist through the back half of this year, our focus remains on building volume momentum.

Speaker Change: The negative variance compared to our expectations reflects our customers taking material cost actions in response to the consumer being more price conscious following multiple years of above-average inflation, which we highlighted during the first quarter.

Michael King: This is largely a function of the end market related risks we mentioned during our first quarter earnings. We are taking actions to scale the business as we navigate the current market environment and expect to reduce our operating costs by approximately $15 million through the remainder of 2024. The planned cost actions will focus on overhead expenses, including targeted headcount reduction and lower spending.

Speaker Change: This is largely a function of the end market related risks we mentioned during our first quarter earnings call.

Speaker Change: We are taking actions to scale the business as we navigate the current market environment and expect to reduce our operating costs by approximately $15 million through the remainder of 2024.

Speaker Change: In light of the ongoing uncertainty about the timing and extent of near-term value growth, as well as the increase in pricing pressure in our end markets, we believe these actions are necessary to maintain our competitive cost structure.

Michael King: Similarly, as John will cover in more detail, we took proactive steps to strengthen our balance sheet and reduce our annual interest expense during the quarter. We've also adjusted our expectations for the remainder of the year. However, John will provide greater detail around our specific assumptions. However, I want to provide some context.

Speaker Change: Transitioning to our full year outlook.

Michael King: Our updated guidance assumes a delayed recovery in end-market fundamentals with a modest sequential improvement in the second half of the year. Following the annual mill outage in April, more consistent performance from Pine Bluff through the closing of the transaction, and lastly, we realized the savings from cost reductions announced today during our second half of 2020. Overall, we continue to monitor and navigate our end markets, and we will look to offset the operational disruptions at Pine Bluff and deliver against our long-term strategy.

Michael King: Turning your attention to slide 6, I wanted to briefly touch on the announced sale of the Pine Bluff Mill in the Waynesville Extrusion Facility to Suzette. Then, I want to revisit the steps we've taken in our transformational journey to enhance our position as a leader in food and beverage packaging in North America. In March 2023, we completed an extensive review of our portfolio and concluded that being vertically integrated into our paper mills would not yield sustainable value creation and was not in line with our strategic ambition.

Speaker Change: I want to revisit the steps we've taken in our transformational journey to enhance our position as a leader in food and beverage packaging in North America.

Speaker Change: In March of 2023, we completed an extensive review of our portfolio and concluded that being vertically integrated into our paper mills would not yield sustainable value creation and was not in line with our strategic ambitions.

Michael King: As a result, we initiated our beverage merchandising restructuring plan with the goal of transitioning the company to a more capital-light business model focused on our distinctive core strengths in converting. In conjunction with the announced restructuring, we closed our Canton Paper Mill and Olmstead Falls Converting Facility. We also launched a strategic alternatives process for the Pine Bluff Paper Mill and Waynesville Extrusion Facility. We diligently reviewed all viable alternatives to ensure Pine Bluff and Williamsville were adequately positioned for this.

Speaker Change: As a result, we initiated our beverage merchandising restructuring plan with the goal of transitioning the company to a more capital-light business model focused on our distinctive core strengths in converting.

Speaker Change: In conjunction with the announced restructuring, we closed our Canton paper mill and Olmstead Falls converting facility.

Speaker Change: We diligently reviewed all viable alternatives to ensure Pine Bluff and Williamsville were adequately positioned for the future.

Michael King: The recent announcement to sell both facilities to Susano ensures Pine Bluff and Waynesville will be successfully managed by an operator with deep mole expertise. The transaction represents a win for all stakeholders. On closing, this transaction will represent the successful completion of our strategic alternatives review. Importantly, it will also mark a significant milestone on Evergreen's transformational journey. We could not have completed the transaction without the tireless efforts of everyone at the mill. Before I turn the call over to Jim, I'll address other key drivers affecting our performance through the rest of 2024. Please turn the slides up loud.

Speaker Change: The recent announcement to sell both facilities to Susano ensures Pine Bluff and Waynesville will be successfully managed by an operator with deep mole expertise.

Speaker Change: Importantly, it will also mark a significant milestone impact of Evergreen's transformational journey. We could not have completed the transaction without the tireless efforts of everyone at the mill.

Speaker Change: Before I turn the call to Jon, I'll address other key drivers influencing our performance through the rest of 2024. Please turn to slide 7.

Speaker Change: The most important thing to know is that after almost three years of elevated inflation, the average consumer is financially stretched and has become more price conscious.

John: Not only do they continue to trade down where possible, they've also reduced their spending in certain categories.

Michael King: First, overall disposable income growth has slowed materially since last year and is currently below the average monthly rates going back to 2000. This has been coupled with a corresponding drop in household savings and an increase in credit card delinquencies, as consumers have taken on more debt in recent years to fund their... The consumer continues to adjust discretionary spending to account for this environment. This can be seen in monthly restaurant foot traffic, which throughout 2024 has been slower than the exit velocity of last year.

John: First, overall disposable income growth has slowed materially since last year and is currently below the average monthly rates going back to 2000.

John: This has been coupled with a corresponding drop in household savings and an increase in credit card delinquencies, as consumers have taken on more debt in recent years to fund their spending.

John: The consumer continues to adjust discretionary spending to account for this environment.

John: This can be seen in monthly restaurant foot traffic, which throughout 2024 has been slower than the exit velocity of last year.

Michael King: Industry foot traffic declined from Q1 to Q2, consistent with these dynamics. While the first half of the year proved to be challenging, we are taking decisive action to navigate near-term headwinds and reduce costs in response to the current market environment. Pricing in Q2 generally reflected higher raw material cost pass-throughs compared to last year. As we've talked about on previous calls, we have reduced our raw material pass-through lag to reduce volatility in our earnings. Partially offsetting the higher raw material pass-throughs, pricing pressure was more acute during Q2.

John: In fact, industry foot traffic is declining from Q1 to Q2, consistent with these dynamics.

Speaker Change: We believe we are well positioned to capitalize on a number of cost savings actions through the balance of the year. These actions are expected to partially offset the impact of the market challenges and operational disruptions at Pine Bluff we experienced during the first half of the year.

Speaker Change: Pricing in Q2 generally reflected higher raw material cost pass-throughs compared to last year. As we've talked about on previous calls, we have reduced our raw material pass-through lag to reduce volatility in our earnings.

Speaker Change: Partially offsetting the higher raw material pass-throughs, pricing pressure was more acute during Q2.

Michael King: This dynamic is the result of our customers looking for ways to contain costs in light of increasing price competition across both sectors. As I previewed earlier, we've responded strategically with the goal of preserving the value proposition of our service. From an operating standpoint and in response to a higher cost environment, we are focused on controlling what we can. Our commitment to positioning the business for more balanced and profitable growth is further emphasized by the actions we introduced today to reduce overhead costs through targeted headcount reductions and to curtail spending. In addition, we continue to leverage our Pactiv Evergreen production system, or PEPS, to increase productivity and drive future cost savings.

Speaker Change: impacting several of our customer categories.

Speaker Change: As I previewed earlier, we've responded strategically with the goal of preserving the value proposition of our service model.

Speaker Change: From an operating standpoint and in response to a higher-cost environment, we are focused on controlling what we can.

John: While we are still in the early stages of PEPS, we are building momentum, and we expect to see material improvements in our operating efficiency in the future. Before concluding my initial remarks, I want to reiterate that while the quarter did not meet our expectations, our team continued to execute at a high level. We took actions to scale the business as we navigated the current market environment, and we made significant progress on our transformational journey, evidenced by the expected sale of our Pine Bluff Mill.

Speaker Change: Before concluding my initial remarks, I want to reiterate, while the quarter did not meet our expectations, our team continued to execute at a high level. We took actions to scale the business as we navigate the current market environment, and we made significant progress on our transformational journey.

John: As our business continues to evolve, so too does our approach to innovating and delivering the highest quality sustainable product. We continue to focus on the controllables, improve the operations of our company, and execute against the evolving needs of our customers. With that, I would now like to turn the call over to John.

Speaker Change: We continue to focus on the controllables, improving the operations of our company, and executing against the evolving needs of our customers.

John: Thanks, Mike. The decrease is driven mostly by the closure of our Canton, North Carolina mill during the second quarter of 2023 and lower sales volume, excluding the impact of the Canton mill closure revenues which were down 3%. Overall volumes were down 3% in the quarter. However, food service volumes are flat, outpacing broader industry foot traffic trends, which were down almost 3% due to consumers cutting spending. Food and beverage retailing volumes decreased 5% during the quarter, mainly due to market softening and inflationary pressures and the strategic exit of some businesses as certain customers shifted their supply chains down market.

Speaker Change: With that, I would now like to turn the call over to John .

John: Thanks, Mike.

John: I'll start with our second quarter highlights on slide 9.

John: As Mike pointed out, our Q2 results were impacted by end-market weakness and temporary operational disruptions of Pine Bluffs. We reported net revenues of $1.3 billion for the quarter, which represents a decrease of about 6% compared to last year.

John: The decrease is driven mostly by the closure of our Canton, North Carolina mill during the second quarter of 2023 and lower sales volume. Excluding the impact of the Canton mill closure, revenue is down 3%.

John: Overall volumes were down 3% in the quarter.

Speaker Change: Food service volumes are flat, outpacing broader industry foot traffic trends, which were down almost 3% due to consumers cutting spending.

John: Food and beverage merchandising volumes decreased 5% during the quarter, mainly due to the market softening and inflationary pressures and the strategic exit of some business as certain customers shifted their supply chains down market.

John: Price mix was roughly flat, which was mostly a function of higher contractual pass-throughs, driven by higher raw material costs compared to the prior year period. This was offset by unfavorable product mix and increasing price competition. Adjusted EBITDA was $183 million, representing a 16% decrease compared to the prior year.

John: Price mix was roughly flat, which was mostly a function of higher contractual pass-throughs driven by higher raw material costs compared to the prior year period. This was offset by unfavorable product mix and increasing price competition.

John: The decrease in adjusted EBITDA reflects higher manufacturing costs and lower sale volume, partially offset by lower incentive-based compensation costs.

John: Our adjusted EBITDA margin was 14% compared to 15% in the prior year period. While we expect this dynamic to persist in the near term, we are confident in the actions we are taking to adjust our cost structure to position us for long-term growth and enhanced profitability. Our PEPS program continues to underpin our focus on continuous improvement and operational excellence. As more facilities become PEP certified, we expect this will enhance our ability to mitigate inflationary headwinds and scale the business to meet demand. During the second quarter, free cash flow was $37 million.

John: While we expect this dynamic to persist in the near term, we are confident in the actions we are taking to adjust our cost structure to position us for long-term growth and enhanced profitability.

John: Our PEPS program continues to underpin our focus on continuous improvement and operational excellence.

John: As more facilities become PEP certified, we expect this will enhance our ability to mitigate inflationary headwinds and scale the business to meet demand.

John: During the second quarter, free cash flow was $37 million. Free cash flow is lower than last year, largely due to lower earnings. As expected, we grew down our inventory in the second quarter as we entered our seasonally busier months.

John: As expected, we grew down our inventory in the second quarter as we entered our seasonally busier month. Net revenues were up 2% year over year, mainly due to higher contractual pass-throughs, partially offset by unfavorable product. Our food service segment is still coping with challenging consumer dynamics across QSRs and food distributors. Compared to the end of last year, the pace of year-over-year industry foot traffic declined, accelerated in Q1 and continued into Q2, impacting our performance.

John: From a quarter-over-quarter perspective, revenues increased 7%, due mostly to higher sales volume caused by seasonal trends, partially offset by unfavorable product mix.

John: Adjusted EBITDA was up 9%, mostly due to higher sales volume and lower incentive-based compensation costs, partially offset by higher manufacturing and transportation costs and unfavorable product mix.

John: Continuing to slide 10, we'll look at results by segment, beginning with food service.

John: Net revenues were up 2% year-over-year, mainly due to higher contractual pass-throughs, partially offset by unfavorable product mix.

Speaker Change: Compared to the end of last year, the pace of year-over-year industry foot traffic decline accelerated in T1 and continued into Q2, impacting our performance.

John: Some of our food service customers increased promotional activity at the end of the second quarter and into the third quarter to help mitigate these declines. With that backdrop, we continue to see price sensitivity, which we expect to persist through the rest of the year. Net revenues were up 12% sequentially, mostly due to seasonal volume dynamics.

John: With that backdrop, we continue to see price sensitivity, which we expect to persist through the rest of the year.

John: Adjusted EBITDA decreased 15% compared to last year to 109 million dollars and adjusted EBITDA margins decreased by a little over 350 basis points.

John: The margin variance reflects higher manufacturing costs and the unfavorable product mix, partially offset by higher pricing, netted material cost pass-through, and lower incentive-based compensation costs.

John: On a quarter of a quarter basis, our results reflected higher sales volume, which was attributable to seasonal trends and higher pricing due to the past due of higher material costs.

John: Adjusted EBITDA increased 21%, driven by improved sale volume and lower incentive-based compensation costs, partially offset by higher manufacturing costs. Turning to slide 11, food and beverage merchandising results reflect the scheduled outage at Pine Bluff in April, as well as unforeseen operational disruptions at the mill following the planned outage. Aside from operational disruptions, we've seen customers place greater emphasis on their own cost structures to help preserve their margin. To accomplish this, some customers have opted to choose lower-priced products within our portfolio, while others have gone downmarket.

John: Net revenues were up 12% sequentially, mostly due to seasonal volume dynamics.

John: Adjusted EBITDA increased 21% driven by improved sales volume and lower incentive based compensation costs, partially offset by higher manufacturing costs.

Speaker Change: Aside from operational disruptions, we've seen customers place greater emphasis on their own cost structures to help preserve their margins. To accomplish this, some customers have opted to choose lower-priced products within our portfolio, while others have gone downmarket.

John: We've strategically taken a long-term approach across our customer base and, in some instances, have exited certain businesses when necessary. In terms of the consumer, we've generally observed a continuation of reallocating food budgets from discretionary items toward Staphos. On a year-over-year basis, net revenues were down 16%.

John: We've strategically taken a long-term approach across our customer base and in some instances have exited certain business when necessary.

John: In terms of the consumer, we've generally observed a continuation in reallocating food budgets from discretionary items toward staples.

John: The decrease is primarily due to the closure of our Canton, North Carolina mill and lower sales volume. Lower sales volume was due to the market softening amid inflationary pressures and the strategic exit of certain businesses. Now turning to slide 12.

John: On a year-over-year basis, net revenues were down 16%.

John: The decrease is primarily due to the closure of our Canton, North Carolina mill and lower sales volume.

John: These are partially offset by lower incentive-based compensation costs.

John: Adjusted EBITDA margins were relatively unchanged versus the prior year, benefiting from the Canton Mill closure in 2023, offset by higher manufacturing costs and lower sales volume.

John: On a sequential basis, net revenues were up 2% due to seasonal trends partially offset by unfavorable product mix.

John: Before I provide an update on our balance sheet and full year guidance, I wanted to briefly touch on the financial impact of the Pine Bluff transaction. With respect to the transaction structure, the gross purchase price of $110 million, which is subject to certain customary adjustments at closing, such as working capital, we expect that the transaction will result in a non-cash impairment charge of $320 million to $340 million in Q3. At the closing of the transaction, we also entered into a long-term supply agreement with Susano to use Pine Bluff to supply liquid packaging board to Pactiv Evergreen's converting business.

Speaker Change: Now turning to slide 12. Before I provide an update on our balance sheet and full year guidance, I wanted to briefly touch on the financial impact of the Pine Bluff transaction.

John: As we have disclosed previously, most customer and supplier agreements we enter into are driven by market-based pricing, which will include adjustments based on changes in raw material and other input costs.

John: The agreement we reached with Susana is in line with our standard approach on pricing.

John: As I'll cover in greater detail during our formal guidance update, we expect that the sale will reduce our full year 2024 reported adjusted EBITDA by approximately $16 million. One of the highlights for Q2 was our successful repricing and upsizing of our senior secured term loans due in 2028 from $990 million to $1.3 billion. Together with the proceeds of a $350 million draw on our recently upsized revolving credit facility, we fully prepaid our $690 million term loans due 2026. We expect the repricing and prepayment to reduce our annualized cash interest expense by approximately $14 million.

John: As I'll cover in greater detail during our formal guidance update, we expect that the sale will reduce our full year 2024 reported adjusted EBITDA by approximately $16 million.

John: As a result, we expect Pine Bluff to be closer to break-even adjusted EBITDA for the full year 2024, and the transaction would be a deleveraging event for Pactiv Evergreen on an annualized run rate basis.

John: Turning to slide 13, we have selected balance sheet items and key components of our cash flow.

John: We expect the repricing and prepayment to reduce our annualized cash interest expense by approximately $14 million.

John: Overall, we were pleased with the strong demand and lender support for the transaction, which ultimately extended our debt maturities, reduced our annual interest expense, and enhanced our financial flexibility. Our net leverage for the quarter was 4.5 times, which is a slight increase compared to last quarter and largely reflects lower LTM adjusted EBITDA. In terms of free cash flow, we generated $37 million, largely due to lower earnings compared to last year. Our strong cash flow generating capabilities provide us with the opportunity to reinvest in our business for growth.

John: Overall, we were pleased with the strong demand and lender support for the transaction, which ultimately extended our debt maturities, reduced our annual interest expense, and enhanced our financial flexibility.

John: In terms of free cash flow, we generated $37 million, largely due to lower earnings compared to last year.

John: Our strong cash flow generating capabilities provide us with the opportunity to reinvest in our business for growth, and we believe these actions will enable us to serve our customer base more effectively and operate more efficiently while enhancing return to stakeholders.

John: And we believe these actions will enable us to serve our customer base more effectively and operate more efficiently while enhancing return to stakeholders. Turning to slide 14, as Mike highlighted earlier, we remain committed to our growth strategies and sustaining operational, Delayed Recovery, and End Market Fundamentals, and other cross headwinds, which we partially offset by the actions we were taking to reduce overhead costs, make headcount reductions, and curtailing spend. We are also removing the contribution from Pine Bluff after the transaction closes, which could occur as early as October 1st.

John: Turning to slide 14, as Mike highlighted earlier, we remain committed to our growth strategies and sustaining operational excellence.

John: As we close the challenging first half of the year, we revise our full year 2024 guidance to account for the following drivers.

Speaker Change: delayed recovery in end market fundamentals, and other cost headwinds.

John: We are also removing the contribution from Pine Bluff post-transaction close, which could occur as early as October 1st.

John: The timing is dependent on receiving foreign regulatory approval, so changes in the expected close of date could impact our guidance. Our guidance guidance is as follows, an adjusted EBITDA range of $800 million and $820 million. This compares to the previous range of $850 million to $870 million. With respect to the quarterly progression of our second half of Just A Divot Dot, we expect it to be roughly evenly distributed between Q3 and Q4 before excluding the contribution from Pine Bluff post-transaction close in Q4.

Speaker Change: Our advice guidance is as follows.

John: Adjusted EBITDA range of $800,000,000 and $820,000,000. This compares to the previous range of $850,000,000 to $870,000,000.

Speaker Change: With respect to the quarterly progression of our second half adjusted EBITDA, we expect it to be roughly evenly distributed between Q3 and Q4 before excluding the contribution from Pine Bluff post-transaction close in Q4.

John: Capital expenditures of approximately $260 million. This is a decrease from our original assumption of $300 million and reflects deferred capacity, expansion, as well as a decrease in other internal initiatives. Consistent with the revised range for Adjusted EBITDA, free cash flow is expected to be within a range of $180 million to $200 million.

Speaker Change: Capital expenditures of approximately 260 million dollars. This is a decrease to our original assumption of 300 million dollars and reflects deferred capacity expansion as well as a decrease in other internal initiatives.

John: This compares to our previous guidance of $200 million. Lastly, we anticipate ending 2024 with a net leverage ratio of approximately four times. With respect to our footprint optimization plan, the anticipated cash restructuring charges remain at $50 million to $65 million, and total non-cash restructuring charges remain at $20 million to $40 million.

Speaker Change: Lastly, we anticipate ending 2024 with a net leverage ratio of approximately 4 times.

Speaker Change: With respect to our footprint optimization plan, the anticipated cash restructuring charges remain at 50 million to 65 million dollars and total non-cash restructuring charges remain at 20 million to 40 million dollars.

John: These costs are expected to occur in 2024 and 2020. Turning to slide 15, we have the bridge of our 2024 Just Diva Dog Guidance to break out the key changes from our previous guidance to our revised guidance. First, we list the Q2 adjusted EBITDA variance relative to our expectation. This reflects the drivers we highlighted earlier, the majority of which were related to temporary operational disruptions at our Pine Bluff mill. These dynamics are included in our year-to-date results. The next four items relate to drivers that we expect to impact our second half performance. We have lowered our expectations for end market fundamentals across both of our reporting segments.

Speaker Change: Turning to slide 15, we have the bridge of our 2024 adjusted EBITDA guidance to break out the key changes from our previous guidance to our revised guidance.

Speaker Change: First, we list the Q2 adjusted EBITDA variance relative to our expectations.

Speaker Change: This reflects the drivers we highlighted earlier, the majority of which were related to temporary operational disruptions at our Pine Bluff Mill.

Speaker Change: These dynamics are included in our year-to-date results.

John: We now anticipate full-year volumes will be down low single digits compared to our previous expectation for full-year volume growth of low single digits. This assumes low single-digit volume declines in Q3, followed by slightly positive volume growth in Q4. As Mike mentioned earlier, we remain on track to deliver our customer wins. However, we expect some of the volumes associated with those contracts to slip into early 2025. We anticipate pricing to face increased pressure in the second half as our customers and end markets adjust to increased price sensitivity from consumers.

Speaker Change: This assumes low single digit volume declines in Q3, followed by slightly positive volume growth in Q4.

Speaker Change: As Mike mentioned earlier, we remain on track to deliver our customer wins. However, we expect some of the volumes associated with those contracts to slip into early 2025.

Mike: We anticipate pricing to face increased pressure in the second half as our customers and end markets adjust to increase price sensitivity from consumers.

John: As our customers have turned to selective price discounting to spur demand, it has heightened the need to reduce their costs to preserve their margin. The updated volume expectations are primarily a function of a delayed recovery in consumer demand, the resulting impact on customer price sensitivity, as well as the carryover of some of the customer actions taken during Q2. We continue to find ways to leverage our value proposition to preserve our price points where possible and seek to balance value and volume.

Speaker Change: The updated volume expectations are primarily a function of a delayed recovery in consumer demand, the resulting impact on customer price sensitivity, as well as the carryover of some of the customer actions taken during Q2.

John: As a result, the volume, price, and mix component of the bridge assumes additional actions during the second half. We expect to partially offset these headwinds by taking actions to reduce costs, including targeted end count reduction and lower spend.

Speaker Change: We expect to partially offset these headwinds by taking actions to reduce costs, including targeted end count reduction and lower spend.

John: Overall, we expect the actions we take to manage the business will contribute approximately $15 million in 2024. Next, we expect our full-year results to be negatively impacted by lower fixed cost absorption relative to lower production levels, partially offset by reduced incentive compensation, accounting for approximately $10 million of the revision to our full-year adjusted EBITDA. Lastly, we expect the announced sale of Pine Bluff to close during Q4. As a result, we have removed the expected adjusted EBITDA contribution from Pine Bluff post-transaction, which is approximately $16 million.

Speaker Change: Overall, we expect the actions we take to manage the business will contribute approximately $15 million in 2024.

Speaker Change: Next, we expect our full year results to be negatively impacted by lower fixed cost absorption relative to lower production levels.

Speaker Change: Partially offset by reduced incentive compensation, accounting for approximately $10 million of the revision to our full year adjusted EBITDA guidance.

Speaker Change: Lastly, we expect the announced sale of Pine Bluff to close during Q4. As a result, we have removed the expected adjusted EBITDA contribution from Pine Bluff post-transaction, which is approximately $16 million.

Speaker Change: For the purposes of the updated guidance, this assumes a closing date of October 1st, 2024.

Speaker Change: It's important to note that the results for Pine Bluff are significantly weighted to the second half due to the impact of severe weather that influenced Q1, along with a planned outage and operational disruptions that weighed on Q2.

John: While we expect near-term end-market weakness to persist through the remainder of the year, we remain optimistic about the actions we are taking to mitigate costs, drive operational improvements, and increase volumes during the second half of the year. We believe that the actions we have taken to build momentum in the second half of the year position us to achieve a justity of a duh within our new full-year guidance. With that, I'll turn the call back over to Mike. Thanks, John.

Speaker Change: While we expect near-term end-market weakness to persist through the remainder of the year, we remain optimistic about the actions we are taking to mitigate costs.

Michael King: Our management team has demonstrated our willingness to optimize the portfolio and respond to the market. We continue to leverage our longstanding strategic partnerships with our customer base, many of which are blue chip companies, and are constantly working to innovate and develop the highest quality, sustainable We expect the actions we're taking today to make Pactive Evergreen an even more efficient and productive company will yield solid adjusted EBITDA and free cash flow generation as industry volumes recover.

Speaker Change: We continue to leverage our longstanding strategic partnerships with our customer base, many of which are blue chip companies, and are constantly working to innovate and develop the highest quality sustainable products.

Michael King: 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.

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 Phil Ng from Jeffreys. Your line is now open.

Phil Ng: Hey guys, appreciate all the great color and the bridge for your full-year guidance, how you get from what you had early in the year to the updated outlook. The $19 million you guys call out for volume slash price mix. Jon, based on your volume guide and the back half, it looks like it's maybe a third of the volume and maybe two thirds the price cost. Is that how we should interpret that? Yeah, no, thanks.

Speaker Change: Hey guys, appreciate all the great color and the bridge for your four year guidance, how you get from what you had earlier in the year to...

Speaker Change: The 19 million you guys call out for volume slash price mix, John , it looks like based on your volume guide and back half, it looks like it's maybe a third volume and maybe two thirds price cost. Is that how we should interpret that?

Michael King: Thanks, Bill. It's a mix on the volume and price. It's, You know, in terms of breaking out the components that make up that volume. You know, there is a component of volume. I guess I'll give you the volume impact for the back part of the year. If you look at the general dynamic we're looking at for Q3 and Q4, we're going to be up. Okay, so when we think about, you know, some of the pricing pressure you called out with your consumers kind of adjusting to consumer inflation and protecting their margins.

Speaker Change: You know, in terms of breaking out the components that's volume,

Speaker Change: Hi, I'm sorry. We're going to be up low single digits for the back part of the year And really both business units. We're seeing some volume pickups and both business units We should see low single-digit volume growth. We don't really break out how much of the the 19 is volume related

Michael King: Do you have a pretty good view of how that's going to be for this year based on how you're set up contractually and what you negotiated, or is that still a very fluid situation? You know, we've largely worked through a lot of the chop there, you know, in the back. Based on the current environment, I think we have a pretty good handle. Okay, that's helpful, Mike.

Michael King: And then when I look at your food service business, volumes were relatively flat, but you even dialed it down about call it 15%, and price mix was net positive off of material. So it seems like the miss was largely manufacturing costs and perhaps mix. Can you expand on that a little bit? And does that kind of linger in the back end as well? Just seems like a big number. Yeah, no, it's it's it's a bit of both.

Speaker Change: was net positive off of material. So it seems like the miss was largely manufacturing costs and perhaps mix. Can you expand on that a little bit? And does that kind of linger in the backup as well? Just seems like a big number.

Michael King: So, you know, there is a mixed component to it. But, you know, as we talked about in the prepared remarks, higher manufacturing costs are part of it, and we are facing the impacts of inflation. And that is impacting our results as our biggest components of inflation are largely going to be around labor or some utility, we're feeling that pressure. And our customers are also being very cost-conscious, because their consumers are being more price sensitive. So I think that's the piece where you're seeing some of that market compression. Okay, and just one last quick one for me.

Speaker Change: And there is, that is impacting our results as our

Speaker Change: The biggest components of inflation are largely going to be around labor or some utilities.

Speaker Change: that we're feeling that pressure, and our customers are also being very cost-conscious, and their consumers are being more price-sensitive. So I think that's the piece that you're seeing, some of that market compression.

Michael King: The back half, you're calling call 10 million of other cost drag and, you know, the good guy from incentive comp. Does any of that have to do with curtailing your inventory just because demand is a little softer and that perhaps gets relieved as we kind of look at next year or gives us a little more color and the back half drag on that? Okay, but nothing like your inventory is generally fine.

Speaker Change: Okay, and just one last quick one for me. The back half, you're calling, call it $10 million of other cost drag and, you know, good guy from incentive comp. Does any of that have to do with curtailing your inventory just because demand is a little softer than that perhaps?

Michael King: It doesn't sound like you need to curtail your inventory at this point in the back. Well, we are going to bring down inventories in the back half of the year. If you look at our free cash flow, part of the free cash flow benefit we're looking forward to in the back part of the year is a working capital benefit, including bringing down inventories to levels more similar to where we were at the end of last year.

Speaker Change: If you look at our free cash flow, part of the free cash flow benefit we're looking towards the back part of the year is a working capital benefit including bringing down inventories to levels more similar where we were at the end of last year.

Speaker Change: One of the reasons, if you look at the broader results,

Michael King: And if you look at the first half free cash flow levels, one of the reasons, if you look at the broader results, we would have liked to have seen a bit more free cash flow in the first half, but given some of the volume dynamics we touched on, we probably exited the first half of the year with a bit more inventory than we would have liked, but we expect to work that down to more normalized levels by the back part of the Thank you. Please stand by while we receive our next question. Yes, thank you. Good morning, everyone.

Speaker Change: Thank you.

Speaker Change: Thank you. Please stand by while we receive our next question.

Speaker Change: Our next question comes from the line of Adam Samuelson of Goldman Sachs. Your line is now open.

Operator: Morning. Good morning. So maybe if you could, I'd love to hear more color on some of the demand trends as you laid them out. I think, especially on the food service side, you alluded to some of the promotional activity kind of helping to mitigate volume declines, but more broadly, you kind of talked about, I thought I heard low single-digit volume growth for both segments in the back half, and he's helped us, kind of unpack that a little The improvements have been more visible in the order pattern or what you're kind of counting on and especially if there's any delineation.

Adam Samuelson: Good morning. Good morning. Good morning. So maybe if you could, I'd love to hear, get more color on some of the demand trends as you laid them out. I think especially on the food service side, you alluded to some of the promotional activity kind of helping to mitigate volume declines, but more broadly, you kind of talked about

Speaker Change: I thought I heard low single-digit volume growth for both segments in the back half. Can you help us kind of unpack that a little bit in terms of where?

Michael King: Yeah, I don't think there's any... Any secret to the, you know, the QSR segments clearly, menu pricing and trying to do things to promote and so, in your early youth, you're starting to see that, you know, flattening to trending. I would say we're a bit less optimistic on an inflection there. Distribution, foot traffic remains strained, so while we continue to outpace foot traffic on the food away from home space, non-QSR food away from home space, we are... You know, we're kind of seeing an inflection point, but not what we'd call an inflection point. And then on the food and beverage merchandising side. Restructuring of the Beverage Merchandising Business. How far along do you think you'll be by the end of the year?

Speaker Change: You know reacting and have started reacting at the end of Q2 to menu pricing and trying to do things to promote and so

Speaker Change: flattening to trending of those volumes come back.

Speaker Change: Distribution, foot traffic remains strained, so while we continue to outpace foot traffic on the food away from home space, non-QSR food away from home space, you know, we are

Adam Samuelson: We're kind of seeing a slight improvement or flattening of that, but not what we'd call an inflection. And then on the food and beverage merchandising side...

Speaker Change: You know, that's...

Michael King: Yeah, sure. In terms of the footprint optimization and the program we announced, as we talked about when we announced it last quarter, those expenses are largely going to be back half driven, and really the benefits will be recognized. [inaudible] Okay, all right. That's helpful. I'll pass it on, thank you.

Speaker Change: In terms of Footprint's optimization and the program we announced, as we talked about when we announced it last quarter,

Speaker Change: Thank you all.

Speaker Change: Thank you.

Operator: Thank you. Thank you. Arun, your line is now open. Our next question comes from the line of Ghansham Panjabi from Baird. Your line is now open.

Speaker Change: I will go to the next question.

Speaker Change: Our next question comes from the line of Ghansham Panjabi from Baird. Your line is now open.

Ghansham Panjabi: Hey guys, good morning. Can you hear me okay?

Ghansham Panjabi: You know, it's broadening into food services, as you already know, at this point. What is the most surprising to you as it relates to the operating environment for your specific businesses? You know, it sounds like there's a shift in terms of how customers are prioritizing the value proposition that you bring versus just flat out price. Or is it, you know, just pricing pressure in the industry? What is surprising to you?

Speaker Change: It's broadening into food service, as you already know, at this point.

Ghansham Panjabi: What is the most surprising to you as it relates to the operating environment for your specific businesses? It sounds like there's a shift in terms of how customers are prioritizing the value proposition that you bring versus just flat-out price.

Speaker Change: Or is it, you know, just pricing pressure in the industry? What is what is surprising to you?

Michael King: I don't know if I'd call this as much surprising as the speed of the reaction of some of our markets, but I would say, you know, as we see people buy down. So how fast has that happened? I would say that surprised us.

Speaker Change: I don't know if I'd call this as much a surprising as to maybe the speed of the reaction of some of our markets, but I would say...

Speaker Change: You know, I think, uh, I think...

Speaker Change: is we see people buy down and they kind of run out of space. And so how fast that's happened, and then the reaction of our multiple category customer base.

Michael King: We expected a faster reaction by our customers, and I would say the delayed response there. We're all much more up to date now. Okay, and then in terms of what your view is in terms of the catalyst to get volumes moving again, I mean, clearly affordability is going to be an issue, and yeah, there's some promotions, etc. What are your thoughts on that? And then separately, just so I understand it, with the absence of Pine Bluff, assuming it closes on October 1st, and your EBITDA is $800 to $820, what would be the delta, 25 versus 24, given that Pine Bluff won't be part of your reserve? I'll speak to what needs to happen to start, the Alternate Growth Outlook. And certainly, affordability is the root of it. The consumer is pretty beat up.

Speaker Change: You know, affordability seems to be much more pervasive.

Speaker Change: and your EBITDAs, you know, 800 to 820. What would be the delta, 25 versus 24, given that Pine Bluff won't be part of your results next year?

Speaker Change: So,

Michael King: And so we need to see consumer confidence. So how did that happen? A host of waves. I won't go into that, but we're not waiting for that, and so as we look... being the ready, fast provider of those and capturing those opportunities where we see success. So we're addressing not just our cost structure but our product portfolio to adapt to what our customers need to solve their problems. So we're doing that, uh, and then in line with that, you know we're and Matt Krieger.

Speaker Change: You know, I think there's still a fair bit of shrink relation happening within our customer base. So as they alter their products

Speaker Change: being the ready, fast provider of those and capturing those opportunities where we see success and growth. So we're addressing not just our cost structure, but our product portfolio to adapt to what our customers need to solve their problem. So we're doing that.

Speaker Change: We're partnering with Blue Chips and folks that value how we go to market, and so we're leveraging those relationships, and we're playing long ball with these customers that value what we do.

Michael King: Valuable, you know, where we have the right portfolio and are willing to adjust and spend our resources and capital to help these customers, we are rewarded with their business and their credit, we're also leading in hard, long-term success.

Michael King: And as it relates to the second part of your question, Ghansham around Pine Bluff and the kind of impacts going into next year, I think I'll expand on some of the financials around Pine Bluff. As I mentioned in prepared remarks, if we were to have Pine Bloss in our portfolio for the full year, it would still have been just slightly negative EBITDA for us, even with that $16 million we'd expect in Q4.

Speaker Change: As it relates to the second part of your question, Gautam, around Pine Bluff and kind of impacts going into next year, I think I'll expand on some of the financials around Pine Bluff just to give you some perspective.

Speaker Change: As I mentioned in prepared remarks, if we were to have Pine Bluffs in our portfolio for the full year, it would still have been just slightly negative EBITDA for us, even with that $16 million we'd expect in Q4. The thing to keep in mind in the middle of the state...

Michael King: The thing to keep in mind at the mill is they do have their cycles, and as we go through maintenance cycles, we have periods of negative EBITDA and then positive EBITDA, so it's not a straight-line performer.

Speaker Change: They do have their cycles, and as we go through maintenance cycles, we have periods of negative VBITDA and then positive VBITDA, so it's not a straight-line performer.

John: And so even looking into our first half versus second half results, I mentioned this last quarter, just to reiterate this quarter, one of the drivers of the growth between EBITDA first half of the year to second half of the year is Pine Bloss. It contributes around 50% of the EBITDA growth first half versus second half, given that we don't have an outage in the second half of the year, any planned outage, I should say. And then, if you look at just other periods, LTM EBITDA as of Q2 for Pine Bloss and Waynesville is around negative $14 million.

Speaker Change: One of the drivers between the growth between EBITDA first half of the year to second half of the year is pine bluffs. It contributes around 50 percent of the EBITDA growth, first half versus second half, given that we don't have an outage.

Speaker Change: And then if you look at just other periods, you know, LTN EBITDA as of Q2 for Pine Bluff and Waynesville is around negative $14 million.

Operator: And then the other thing to keep in mind around some of the strategic benefits for us, highlighting what Mike mentioned in his prepared remarks and our strategic direction is going to capital light, LTM. We've incurred around $35 million of capex, along with that negative EBITDA. One moment while we have technical difficulties. Please remain on the line. Your conference will resume shortly. Again, thank you for your patience.

Speaker Change: One moment while we have technical difficulties.

Operator: Please remain on the line. Your conference will resume shortly. Thank you for your patience.

Speaker Change: Again, thank you for your patience. Please remain on the line. Your conference will resume shortly.

Operator: We are almost there. Please remain on the line. Your conference will resume shortly. Operator, this is the company. Are we back online? Yes, you are back online.

Speaker Change: Thank you for your patience. We are almost there. Please remain on the line. Your conference will resume shortly.

Speaker Change: Operator, this is the company. Are we back online? Yes, you are back online.

Operator: Where did we get cut off? You were talking about CapEx of $35 million. Okay, for LTM. Okay, so I think you heard most of my response. No, I just picked that back up to give you a sense of the financial profile for the mill. So, just LTM EBITDA was about negative $14 million, and then CapEx for the same period was $35 million.

Speaker Change: You were saying, you're talking about CapEx of $35 million.

John: So it gives you this perspective of cash generation. And as we've talked about in terms of moving to a capital-like business model, I think some of the benefits for us moving into next year are going to be that reduction in capital. And given the EBITDA contribution, which has been on the lighter side, we expect to have some benefits going into next year. Okay, very good. Thanks so much.

Speaker Change: perspective of the cash generation and we've talked about in terms of moving to a capitalized business model, I think some of the benefits for us moving into next year are going to be that reduction of the capital and given the EBITDA contribution which has been on the lighter side.

Speaker Change: We expect to have some benefits going into next year.

Speaker Change: Okay, very good. Thanks so much.

Speaker Change: Thank you.

John: Thank you. Our next question comes from the line of Anthony Pettinari of Citi. Your line is now open. Uh, good morning.

Speaker Change: Thank you.

Anthony Pettinari: You talked about trade down and customers going down market, and I'm wondering if there's any implications for you know, substrates and maybe your sustainability offerings. I guess with the focus on cost, do you see more customers? I'm wondering if you talk about substrate mix and any kind of impact on margin, if any. I can't; as I sit here, I don't have anything that says that it's more of a trade to a less or more sustainable substrate. I think it's more about, you know, lower cost or maybe lesser quality or maybe less reliability, trading off what we call just-in-case supply for more just-in-time supply and so on.

Speaker Change: You talked about trade down and customers going down market, and I'm wondering if there's any implications for, you know, substrates and maybe your sustainability offerings, I guess, with the focus on cost, do you see more customers?

Speaker Change: going to plastics or is that not the case? And just I'm wondering if you talk about kind of substrate mix and maybe any kind of impact on on margin, if any.

Speaker Change: Yeah

Speaker Change: I can't, as I sit here, I don't have anything that says that it's more of a trade to a lesser or more sustainable substrate. I think it's more about...

Speaker Change: you know, lower cost or maybe lesser quality or maybe less reliability. And so trading off what we call just-in-case supply for more just-in-time supply. And so

Michael King: What we are referencing particularly is our at-will customers, our non-contract customers that have the ability to move volume around and cherry pick things. We're seeing that activity. Some of that activity kind of picked up as they go downstream or to alternative Lesser Reliable Supply as they become more. Also, they're just, you know, I think in a lot of cases, taking inventories.

Speaker Change: What we are referencing particularly is our at-will customers or non-contract customers that have the ability to move volume around and cherry-pick things.

Speaker Change: We're seeing that activity, seeing some of that activity kind of pick up as they go.

Speaker Change: downstream or, you know, to alternative, lesser reliable supply as they become more price sensitive. Also, they're just, you know, I think in a lot of cases, tidying inventories and doing things that, you know, more cost conscious.

Michael King: We're seeing the results. And on the sustainability side, the only thing I'd add is that we have seen a bit of an increase in the margin on some of the bioresins that our customers are using, and from a margin perspective. We're really agnostic in terms of the substrates, from a mixed standpoint.

Speaker Change: So, we're seeing the result of that.

Michael King: Got it, got it. And then on the CapEx profile, I think you made a reference to deferred capacity expansion. And I don't know if it's possible to say, I mean, is that deferred from 24 to 25 or postponed indefinitely, or if it's possible to kind of talk about the scope of those projects.

Speaker Change: Got it, got it. And then on the CapEx profile, I think you made a reference to deferred capacity expansion, and I don't know if it's possible to say, I mean, is that deferred from 24 to 25, or postponed indefinitely, or if it's possible to kind of talk about

Speaker Change: The scope of those projects.

John: Yeah, I would say the right way to think about it is we've got agreements with customers. And so we're gonna, we're gonna honor those agreements and make those investments. We have had to defer some of those investments into the future.

Speaker Change: Yeah, I would say the right way to think about it is we have agreements with customers and so we're going to honor those agreements and make those investments. We have had to defer some of those investments into 25.

John: Other things are, you know, we've gotten more on Capitol, and then I will tell you. You know, you can't lose sight of the fact that we're not planning to have a Pine. The other concept just abridged for you is, you know, we mentioned that we're moving some of our volumes from 24 into 25 as part of the updated guidance, and so I'd also think about that capacity expansion really tied to the volume, and so we're seeing some of the volume moved into next year and the capital along with it. Okay, that's very helpful.

Speaker Change: The other concept that's abridged for you is, you know, we mentioned that we're moving some of our volumes from 24 into 25 as part of the updated guidance.

Operator: Thank you. One moment for our next question. Our next question comes from the line of Josh Spector of UBS. Your line is now open. Hi, good morning.

Operator: Actually, this is Sean speaking on behalf of GEOSH. Thank you for taking my questions. So my first question is any comment on the volume performance by Substrate this year? Yeah, we really, we don't really give by substrate value. We kind of, as Jon said, are pretty agnostic on the substrate, so...

Michael King: Okay, got it. So, well, in terms of, I mean, the next year's volume, do you think it's safe for us to assume that next year's volume growth will be similar to the second half? In terms of, we're not providing a 2025 outlook just yet; we'll do that later. But I think the way to think about it generally is that as we talk about some of the volumes picking up in the next year, maybe just give a bit of a reiteration of some of the drivers between the first half and the second half.

Speaker Change: But I think the way to think about generally is that, as we talked about some of the volumes picking up in the next year, maybe just give a bit of reiteration of some of the drivers between first half and second half.

Michael King: Volume growth, as we mentioned, we are expecting to see some. Now, while some of the seasonality, we also do have some customer wins that we're expecting to pick up in the back half of this year. We are ramping up some capacity, a little bit less than we thought originally, but there is some capacity that we're ramping up. And so as those elements flow into the second half of next year, we don't see any reason why that wouldn't extend into 2025 when you start looking at the first half. Thank you; I will turn it over to you.

Speaker Change: a.k.a. Iowa Tune Into Old World.

Operator: Thank you. Our next question comes from the line of Arun Viswanathan from RBC Capital Markets. Your line is now open. Great, thanks for taking my question. Hope you guys are well.

Speaker Change: Our next

Speaker Change: Question comes from the line of Arun Viswanathan from RBC Capital Markets. Your line is now open.

Arun Viswanathan: You know, obviously, we've been going through some challenging dynamics on the food service side, with, you know, consumers continuing to be impacted by inflation and potentially trading down and just not going out as much. I guess, you know, how do you see that playing out? I guess, you know, there has obviously been the introduction of value meals, and maybe there have been some. Is it just kind of more promotional activity and maybe more deflation and pressure coming off the consumer that will help the food service segment, or what are some of the dynamics that you guys are watching and hoping for better trends, and what should we be looking out for?

Arun Viswanathan: I guess, you know, how do you see that playing out? I guess, you know, there has been obviously the introduction of value meals and, you know, maybe there has been some

Speaker Change: You know, resumption of activity there, but

Arun Viswanathan: Yeah, I think Arun you hit the nail on the head, we need the consumer to feel better about things. So, you know, as we highlighted on the call and in our prepared remarks, No secret, as you outline it, the consumer is pretty beat up and has been for some time. I think where we're at now is that consumers have kind of run out of places to go get calories at a lower cost through our different categories and our different customers.

Speaker Change: I think where we're at now is the consumers kind of run out of places to go get calories at a lower cost than we've seen.

Speaker Change: You know, what we see is, you know, the reaction.

Michael King: So I think we're starting to see some of what needs to happen, with a, I think largely, you know. It's multi-pronged, it's got to be, the products need to be addressed, so shrink inflation, all the things we're doing product-wise, portion control, lightweighting of the product. There's a big cycle happening right now to address a lot of that. As we navigate the cost structure, and when I say we, I mean the broader industry, customers, and supply chains. I think that has to come along. I don't think all this inflation never comes out.

Speaker Change: There's a big cycle happening right now to address a lot of that.

Michael King: So we're going to have to address that and get smarter. And so that's happening. And then, obviously, it's the Macro Outlook that also will help for Travel. Consumer Sentiment and all the things you go into seeing our customers. I'm Danny Araba.

Speaker Change: you know, ever comes out.

John: Okay, thanks for that. And then just as a follow-up, you know, looking at the bridge for your revised EBITDA guidance, you note something like a $19 million impact from reduced volume and price mix. But you do have the $15 million cost actions, I guess.

Speaker Change: You know, I'm dining out of the home.

Speaker Change: Okay, thanks for that. And then just as a follow-up, you know, looking at the bridge for your revised EBITDA guidance, you know, you note like a $19 million impact from reduced volume and price mix,

Arun Viswanathan: Should we should we be modeling growth from the new revised range in 25? The reason I'm asking is because, you know, obviously, we have the pine bluff mill sale, which would kind of lower the first half of 25 year on year, but do the cost actions kind of offset that? Maybe just help us kind of understand if you are expecting growth in EBITDA on 25. Thanks.

Speaker Change: But you do have the $15 million cost actions, I guess. Should we be modeling growth from...

John: Yes, no, broadly, I don't think we need to hide from the fact that we are expecting growth into next year. So, as I mentioned, I think Sean was asking about some of the growth we're going to see in the second half of this year and into next year. So, we do expect to see some growth. The cost actions are to help us mitigate some of the pressure that we're seeing right now, as you highlighted.

Speaker Change: Yes, no, broadly, I don't think we need to hide from the fact that we are expecting growth into next year. So, as I mentioned, I think it was Sean asking around.

Speaker Change: Some of the growth we're going to see in the second half of this year moving into into next year So we do expect we do expect to see some growth

John: And we can, and some of that is, some of those actions are savings that we will be able to carry into next year. I don't, not all of that, but probably two-thirds of those cost actions are, I would say, more transferable into next year. And some of that will come back in as volume growth picks up and we scale back to meet that additional growth. Okay, thanks. Thanks. Thank you. Our next call comes from the line of Cashin Keeler of Bank of America. Your line is now open.

Speaker Change: Some of those actions are savings that we will be able to carry into next year. Not all of that, but there is probably two-thirds of those cost actions are savings.

Speaker Change: I would say more transferable into next year, and some of that will come back in as volume growth picks up and we scale back to meet that additional growth.

Speaker Change: [inaudible]

Speaker Change: Thank you.

Speaker Change: Thank you.

Operator: Yeah, hi guys. Thanks for taking my questions. Apologies if we missed this. We're having phone issues on our end as well.

John: But is it possible to frame for us what the Pimeloft sale will mean in terms of CapEx moving forward? And where might you expect, you know, aggregate CapEx to settle on a normalized basis? And then given that this will presumably reduce your capital intensity going forward, I guess, where will you look to reinvest in the business or deploy capital moving forward? Sure, yeah, and I'll go through some of the capital numbers for Pine Bluff again, but, you know, generally speaking, we've been in the $35-$40 million range for Pine Bluff and Waynesville, depending on whether you look at LTM or 24, but it's, you know, that obviously will be falling away as we close that middle transaction and move to a more capitalized business model.

Speaker Change: Hi guys, thanks for taking my questions. Apologies if we missed this, we're having phone issues on our end as well, but is it possible to frame for us what the Pimeloft sale will mean in terms of CapEx moving forward, and where you might expect aggregate CapEx to settle on a normalized basis?

Speaker Change: And then given that this will presumably reduce your capital intensity going forward, I guess, where will you look to reinvest in the business or deploy capital moving forward?

Speaker Change: Sure, yeah, and I'll go through some of the capital numbers for Pineleaf again, but...

Speaker Change: You know, generally speaking, we've been in the $35-$40 million range for pie bluff in Waynesville, depending on whether you look at LTM or 24.

Speaker Change: But it's, you know, that...

John: As it relates to thinking about capital for next year, you know, we did mention that some of the capital that we had in the plan for this year, we are deferring, and so that is some additional growth that will be growth for the business that we'll be looking to run next year. We haven't provided broadly what the capital plan for next year would be, but generally speaking, we are deferring. Coming from the start of this year being around 300, including the mills, we're certainly going to be falling off of those levels and getting into something that is more representative of the capitalized business model that we're going to be looking like.

Speaker Change: as it relates to thinking about capital for next year.

Speaker Change: And so that is some additional growth for the business that we'll be looking to run next year.

Speaker Change: And we haven't provided broadly what the capital plan for next year would be, but generally speaking.

Speaker Change: Coming from the start of this year being around 300, including the mills, we're certainly going to be falling off of those levels and getting into something that is more representative of the capitalized business model that we're going to be looking like.

John: I think the overall message there is that we're certainly looking to shift to a more, the geography of our spends. Got it. Okay. And I guess looking forward, you know, given the actions you're taking today, how would you expect SG&A to sales to trend over time? And then maybe the aggregate amount of costs taken out of the business you'd expect on a structural basis over time from some of these actions?

Speaker Change: I think the overall message there, you know, we're certainly looking to shift to a more, the geography of our spends to a growth focus for sure.

Speaker Change: Got it. Okay. And I guess looking forward, you know, given the actions you're taking today, how would you expect SG&A to sales to trend over time? And then maybe what the aggregate amount of costs take out of the business you'd expect on a structural basis over time from some of these actions?

John: Yeah, sure. So, you know, if you look at that bridge we have on slide 15, the cost action is sort of $15 million, just to give you a sense of SG&A geography there. So about two-thirds of that is SG&A, or roughly $10 million.

Speaker Change: Yeah, sure. So, you know, if that if you look at that bridge we have on flight 15, the cost actions of $15 million.

John: And with that piece, we likely would see that extended next year, depending on our growth trajectories as we work through our 2025 plan. And just to give you a sense of the cost actions we're taking, and specifically around SG&A, we're currently eliminating approximately 80% of corporate positions as part of this program, and those eliminations we'll carry over for the most part.

Speaker Change: The cost actions we're taking, specifically around SG&A, we're currently eliminating approximately 80% of corporate positions as part of this program, and those eliminations we'll carry over for the most part.

John: Okay, got it. And then from an EPS perspective, you know, in terms of this year, should we more or less expect that to move in tandem with, you know, the changing guidance for EBITDA? Or is there anything else kind of below the line there that we should be mindful of?

John: Yeah, the only other thing I would say is, you know, we certainly have several one-time charges recently as related to the beverage merchandising restructuring and the sale of pine bluffs that will be charged. If you look at adjusted EPS and take those to the side, as I mentioned, we've worked on the balance sheet, and we've reduced our interest expense, and so $14 million of savings there will be a benefit to EPS. We continue to work on the tax line of the income statement as well, but it's hard to give you some guidance for the future on how the tax environment will work.

Speaker Change: Yeah, the only other thing I would say is, you know, we certainly have several one-time charges recently as it related to the beverage merchandising, restructuring, the sale of Pine Bluff that will be charges.

Speaker Change: As I mentioned, we're

Speaker Change: We've worked on the balance sheet, and we've reduced our interest expense, and so $14 million of savings there will be a benefit to EPS.

Speaker Change: We continue to work on the taxes.

Speaker Change: but we're

Speaker Change: It's hard to give you some guidance into the future on how the tax environment will work. There's lots of factors that go into that. But broadly speaking, we're focused on EPS as well. And there's no reason to think that EPS shouldn't track to EBITDA.

Speaker Change: Got it. Thanks.

John: Got it. Thanks. Thank you. This concludes the question and answer session. I would now like to turn it back to Michael King, CEO, for final remarks. Thank you. So as we wrap up today, I just want to again thank the entire Pactive Evergreen team for their hard work during the second quarter. We're executing on our strategy and are confident we will continue to progress on our transformational journey in 2024. We look forward to updating you on the third quarter conference call. Thanks again for joining us.

Speaker Change: This concludes the question and answer session. I would now like to turn it back to Michael King, CEO , for final remarks.

Speaker Change: Thank you.

Michael King: We're executing on our strategy and are confident we will continue to progress on our transformational journey in 2024.