Q3 2024 Sonoco Products Co Earnings Call
Ladies and gentlemen, thank you for standing by my name is Christa and I will be your conference operator today at this time I would like to welcome everyone to the third quarter 2020 for Sonoco products earnings Conference call all.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.
I would like to ask a question. During this time simply press star followed by the number one on your telephone keypad and if you'd like to withdraw that question again press star one.
Speaker Change: I would now like to turn the conference over to Lisa weeks, Vice President of Investor Relations Ms. <unk> you may begin.
Lisa Weeks: Thank you Krista and thanks to everyone for joining us today for Sonoco third quarter earnings call last evening, we issued a news release, highlighting our financial performance for the third quarter and we prepared a presentation that we will reference during this call.
Lisa Weeks: This release and presentation are available online under the Investor Relations section of our website at Sonoco Dot com.
Lisa Weeks: As a reminder, during today's call we will discuss a number of forward looking statements based on current expectations estimates and projections. These statements are not guarantees of future performance and are subject to certain risks and uncertainties. Therefore actual results may differ materially please take.
Lisa Weeks: A moment to review the forward looking statements on page two of the presentation. Additionally.
Lisa Weeks: Additionally, today's presentation includes the use of non-GAAP financial measures, which management believes provides useful information to investors about the company's financial condition and results of operations.
Lisa Weeks: Further information about the company's use of non-GAAP financial measures, including definitions as well as reconciliations to GAAP measures is available under the Investor Relations section of our website.
Speaker Change: Please join me this morning, and welcoming Howard Coker, President and CEO, Rob Dillard, Chief Financial Officer, and Rodger Fuller Chief operating officer for <unk>.
Speaker Change: Today's call, we will have a prepared remarks section regarding our results for the quarter and our outlook for the fourth quarter, followed by a Q&A session. If you will please turn to page five in our presentation I will now turn the call over to our CEO Howard Coker.
Howard Coker: Thank you Lisa good morning, everyone and thank you for joining our third quarter call as.
Howard Coker: As we announced late yesterday, we had another solid quarter, we delivered sequential and year over year increases in adjusted EBITDA, adjusted EBITDA margins and earnings.
During the third quarter sales were $1 6 billion adjusted EBITDA was $291 million and EBITDA margins remained strong at 16.
Howard Coker: 8%.
Howard Coker: Our adjusted earnings per share were $1 49, and operating cash flow was $162 million in the quarter.
Howard Coker: Consumer volumes were higher year over year in metal packaging and TFP.
Howard Coker: Richard paper can volume recovery continues to pace below our expectations, but we are hopeful this will improve as we head into next year.
Howard Coker: As expected industrial volumes were flat sequentially and up year over year in North America and Europe.
Howard Coker: Industrial price call syntax remained ahead.
Howard Coker: Which are expected to improve them before.
Howard Coker: Overall, another solid quarter from the Sunoco team led by excellent productivity results of $39 million.
Speaker Change: Just wanted to express thanks to the entire Sonoco family. This has been a difficult.
Speaker Change: Six week period, when the first Hurricane Helane track was posted Sunoco had 63 facilities.
That were in the storms potential path, we've shut down operations and halted production for the last three days of the quarter in the affected areas.
Speaker Change: The supply chain disruptions continuing through the first week of October.
Speaker Change: Short time later Hurricane Milton made a path towards our operations in Florida with major damage to our plant city location.
Speaker Change: All of this we maintained our focus on caring for our people and finding creative ways to deliver products for our customers.
Speaker Change: All of the employees, who gave generously to help your fellow team members now lift each other up during a time of need we thank you.
Speaker Change: If you please turn to page six where I'll provide an update on our near term strategic priorities.
Speaker Change: We continue to operate with discipline by driving productivity from supply chain savings and production efficiencies and fixed cost reductions.
Speaker Change: Focus efforts are underpinned by portfolio simplification and focus capital investments, which resulted in a $141 million of productivity through the end of the third quarter I couldnt be more pleased with the efforts from the entire sonoco team.
Speaker Change: We also remain focused on cost optimization activities, including footprint consolidations.
Speaker Change: Most notably in industrial we're in the process of closing one paper mill and three paper converting operations in China by the end of this year.
Speaker Change: Activities will continue across our global industrial network as part of our ongoing network optimization program.
Speaker Change: We also continue to invest strategic capital and innovation to support organic growth and sustainability initiatives.
Speaker Change: At the recent 2020 for food and drink Federation.
Speaker Change: We received the sustainable innovations award for our mono materials triangles can are recognized for our inspire and Europeans consumer packaged goods companies towards fully recyclable.
Speaker Change: Yes.
Speaker Change: Innovation late to sustainability as a competitive differentiator and a rigid paper container business and we continue to invest for future growth in these products.
Speaker Change: Regarding additional strategic priorities, we were pleased to announce the acquisition of Abiosis.
Late June represented an important milestone to scale, our strategic metal packaging platform.
Speaker Change: Yes approval processes are well underway and Roger and the team are making great progress on planning for seamless integration phase.
Speaker Change: Based on the current schedule, we expect to close the transaction in the fourth quarter of this year.
Speaker Change: If youll turn to page seven.
Speaker Change: We're looking forward to the addition of <unk>, which will position <unk> as one of the leading metal food can and aerosol packaging manufacturers globally.
Speaker Change: The combination of our existing innovative.
Speaker Change: Infrastructure and eds, just technically.
Speaker Change: <unk> advance and well invested manufacturing footprint, we look forward to serving both existing and new customers and unlocking new opportunities in attractive end markets and geographies.
The financial profile of this combination is compelling for <unk>.
Speaker Change: Action will be immediately accretive to earnings and cash flow and this year's returns are expected to be well in excess or I should say the first year return well in excess of our cost of capital.
But most importantly, it gives us strong powerful operating platform from which to advance both commercial and operating improvements that will help us continue to drive sustainable value and returns for our shareholders.
Speaker Change: So turning to page eight in September we announced that we were reviewing strategic alternatives for our ophthalmic formed inflect flexible packaging business.
Speaker Change: Which is part of the consumer packaging segment.
Speaker Change: The goal of the review of <unk> accelerates Sunoco portfolio simplification strategy improved pro forma leverage and continue to align value, creating capital investments to the highest return opportunities.
Speaker Change: To further increase shareholder value.
Speaker Change: With this expanded divestiture plan for TSA, and our previously announced therma safe divestiture.
Speaker Change: <unk> will finance the EPS this acquisition with debt and cash and a lot of our plans to issue equity.
Speaker Change: Based on our current plans, we expect to reduce net leverage from previous estimates.
Speaker Change: Within 24 months of the Evs.
<unk> from.
Speaker Change: From a timing perspective, we still expect to continue the strategic review of TSP.
Speaker Change: Through Q.
Speaker Change: Q4 of this year.
Speaker Change: <unk> has been a valuable part of the <unk> family for many years and our contributions have been and continue to be impactful to.
Speaker Change: For the company and with that I'm going to turn it over to Rob for a brief financial update.
Speaker Change: <unk>.
Rob Dillard: Thanks Howard.
Rob Dillard: Pleased to present, the third quarter 2024 financial results starting on page 10 of this presentation.
Please note that our results on an adjusted basis and all growth metrics on a year over year basis, unless otherwise stated the.
The GAAP to non-GAAP EPS reconciliation is in the appendix of this presentation as well as in the press release.
Speaker Change: Howard said, we continue to deliver strong financial results through our enduring operating model and strong market positions. We grew adjusted EPS to $1 49.
Speaker Change: Which was within our guidance range and exceeded the consensus analyst estimates.
Speaker Change: This result was driven by positive productivity of 31 per share and positive volume mix of <unk> <unk> per share offset by negative price cost of 29 per share.
Speaker Change: For the quarter sales decreased 2% to $1 six 8 billion as volume increases were offset by negative price and negative $92 million from actions to exit or divest non strategic position.
Speaker Change: Excluding these strategic actions net sales would have grown 3%.
Speaker Change: We continue to believe that divesting the protective solutions business.
Speaker Change: Sitting nonprofit of both thermal forming markets and reclassifying, the recycling business will increase our focus and execution.
Speaker Change: Volumes across all of our diversified portfolio were positive, but mix as several businesses experienced near double digit improvements, while others had low or no growth.
Speaker Change: Overall volume was positive low single digits in the quarter as mid single digit increases in consumer and industrial offset declines in all other.
Speaker Change: Organic volume was positive low single digits as low single digit increases in consumer and all other offset a marginal decline in industrial.
Speaker Change: Price impacted sales negative, 1% or $17 million negative price was the product of contractual resets and new our existing long term contracts with.
Speaker Change: We continue to execute our strategic pricing strategy and we're focused on balancing long term customer partnerships with improved price cost.
Speaker Change: Adjusted EBITDA was $281 million and adjusted EBITDA margin was 16, 8%. This is the highest adjusted EBITDA since Q3, 2022, and the highest adjusted EBITDA margin since Q1, 2022, when we had meaningful metal price overlap.
We achieved a strong profitability through a tight focus on productivity and lower cost productivity.
Speaker Change: Productivity was positive $39 million in the quarter. This was our seventh quarter of year over year productivity improvement. We anticipate that this trend will continue despite more challenging comparative in Q4.
Speaker Change: Price cost was negative $37 million due to timing gaps between index, driven price and cost changes on a year over year basis, while we anticipate sequential improvement in price cost in Q4, we expect negative price costs on a year over year basis due to increased fixed and other expenses.
Speaker Change: Page 11 has our consumer segment results are.
Speaker Change: Our consumer businesses achieved strong volume increases and drove earnings growth through positive productivity consumer sales were flat at $984 million.
While volume growth in TSP and metal packaging drove mid single digits overall consumer volume increases.
Speaker Change: Our core customers continue to communicate that increased promotion is expected to increase demand and we expect to more predictable and improved trend as a result.
Speaker Change: Consumer price decreased 2% due to index based price resets across this segment.
Speaker Change: We expect this trend will continue in Q4 consumer.
Speaker Change: Consumer adjusted EBITDA increased 6% to $160 million due to strong performance in TSP and metal packaging.
Speaker Change: We have increasing conviction that our strategy of investing in our consumer segment is generating improved profitability through volume growth and productivity in the quarter volume mix was positive $8 million and potent productivity was positive $18 million. This drove a 90 basis point increase.
Speaker Change: And consumer adjusted EBITDA margin to 16, 2%.
Speaker Change: On a more granular level RPC performed as expected with sales declining low single digits to low single digit volume declines.
Speaker Change: We have a partnership relationships with our core customers on RPC and believe that these volume shortfalls are temporary and due to mix. This is not a trend and we expect that volume and mix will normalize soon.
Speaker Change: <unk> sales were flat as positive low single digits organic volumes and strong acquisition performance from NFL was offset by the impact of the exit of a nonprofit of both thermal forming market.
Speaker Change: Metal packaging sales increased mid single digits as positive high single digits organic volume was offset by negative index based price resets.
Speaker Change: Pinpoint negotiations in 2025 or 2025 are ongoing. These negotiations are expected to last into the end of Q4 and we have no further updates currently.
Speaker Change: Page 12 has our industrial segment results.
Speaker Change: Industrial market conditions remain mixed.
Speaker Change: And while we are optimistic we continue to believe that we are in a U shaped market trend industrial sales increased 1% to 585 million. These results include the reclassification of recycling, which reduced sales by $20 million in the quarter adjusted for the impact of recycling reclassification industrial sales would have increased.
Speaker Change: Two 4%.
Speaker Change: Volume increased mid single digits and organic volume was marginally negative price increased low single digits due to index based price resets.
Speaker Change: We're maintaining strong margins and in industrial due to tight cost controls and operational efficiency.
Speaker Change: Industrial adjusted EBITDA was $102 million is $18 million of positive productivity and $8 million of positive volume mix was offset by $23 million of negative price cost.
Speaker Change: Page 13 has our results for the all other businesses.
Speaker Change: All other sales were $107 million as the divestiture of protective solutions meaningfully impacted sales excluding the impact of protective solutions all of their sales would have grown low single digits. All other adjusted EBITDA was $20 million is $4 million of productivity was offset by negative price cost.
Speaker Change: Moving to page 14.
Speaker Change: Our capital allocation framework aligns with our business strategy to drive value creation through earnings growth and margin improvement. The four pillars of our capital allocation model, our capital investment to drive growth and improve profitability dividend increases to reward shareholders programmatic M&A to action the portfolio strategy.
Speaker Change: And share repurchases to return capital and maximize shareholder value. Our goal is to be the most disciplined deploy capital in our industry to achieve this goal we utilize a dynamic capital allocation strategy that allocates capital to the best strategies and the best businesses.
Speaker Change: Through this we expected to improve ROIC and generate strong cash flow to date. This strategy has generated impressive results, we have generated over $250 million of productivity since the beginning of 2023 and we are investing we are investing to increase volumes in our core RPC and metal packaging businesses. We.
We expected these strategies will drive the next phase of growth and profitability improvement.
Speaker Change: In addition to these organic plans, we're preparing to close the acquisition of <unk> in Q4, this acquisition and the evaluation of strategic alternatives for both <unk> and <unk> will enable more focused investment through our fewer bigger businesses strategy.
Speaker Change: Following these transactions each of our three core businesses will have a leading global market position through this we expect to drive greater efficiency and improved customer support.
Speaker Change: We're excited about these next steps and we will provide further updates as our plans progress on page 15, we have our cash flow performance for the quarter.
Speaker Change: Strong operating performance drove solid operating cash flow of $162 million.
Speaker Change: We're on track with all major capital initiatives, we invested $92 million in the quarter, and we anticipate investing between $350 million and $375 million in 2024.
Speaker Change: Turning to page 16.
Speaker Change: The foundation of our value creation strategy is disciplined management of our investment grade balance sheet. This strategy provides sunoco incredible access to capital strong liquidity and low cost. We're pleased that we utilize this access to capital to great effect in the financing of the <unk> acquisition.
Speaker Change: Now closed our secured commitments for the $3 9 billion to fund the acquisition, we received commitments for a two year $700 million delayed draw term loan in July. This term loan will be drawn to fund the <unk> acquisition and is intended to be repaid with the proceeds from the sale of therma safe in 2025 and.
Speaker Change: In September we received commitments for our 364 day $1 5 billion delayed draw term loan. This term loan will be drawn to fund the <unk> acquisition and is intended to be repaid with the proceeds from the sale of <unk> in 2025. Additionally, we expect to repay the 2025 maturities and other debt with the proceeds from the sale of TSP.
Speaker Change: Finally.
Speaker Change: In September we raised $1 8 billion in bond financing with maturities of two five and 10 years to fund. The <unk> acquisition. This was an incredibly successful capital raise and was over five times oversubscribed. As a result, we were able to achieve a weighted average cost of debt on these bonds of four 7%.
Speaker Change: We believe that this reflects investor confidence in our strategy and the strength of our credit position. This issuance was investment grade rated by Moody's S&P and Fitch.
Speaker Change: We're committed to reducing debt and maintaining our investment grade credit rating and we're targeting to be below three times net leverage in 2020.
Speaker Change: Page 17 has our guidance for Q4 2024 guidance for Q4 2024, adjusted EPS was $1 15 to $1 35.
Speaker Change: We expect consumer volumes to grow low single digits in Q4, due to acquisitions and improvements in TSP and RPC. We expect industrial volumes will remain flat in Q4, as we did not yet anticipate a robust recovery.
Speaker Change: Price trends are expected to improve so price cost is still expected to be negative in Q4 OTC.
Speaker Change: OTC is expected towards experienced a typical seasonal decline in Q4 and the Tan bending chip index is expected to continue to reflect market increases.
Speaker Change: We are reaffirming our guidance for full year 2024, adjusted EPS and tightening the range to $5 <unk> to $5 25.
Speaker Change: Similarly, we are reaffirming our full year 2024, adjusted EBITDA guidance of $1 5 billion to $1 9 billion and we are reaffirming our operating cash flow guidance of $650 million to $750 million.
Speaker Change: Now Roger will further discuss the outlook for the business. Thank you Rob If you. Please turn to page 18 for IV segment performance drivers for the fourth quarter of 2024.
Speaker Change: In the consumer segment, we expect fourth quarter sales to be lower year over year due to a thermo forming facility closure and negative price cost headwinds.
Speaker Change: We expect consumer volumes to be up year over year from improving demand and new business wins in our rigid paper containers and <unk> businesses.
Speaker Change: Sustainable solutions with Sonoco proprietary technology and design continues to be well accepted in the marketplace.
Speaker Change: And no cats for the fourth quarter, we expect seasonally lower food can volumes. After the peak tax season in Q3, but in total we expect metal can volume to be essentially flat year over year.
Speaker Change: From a profitability perspective, we anticipate price cost to be flat sequentially and down slightly year over year and productivity to continue to be positive across all our consumer business.
Speaker Change: Early in the fourth quarter as Howard mentioned, we were impacted by a major facility damage to one of our large thermo forming operations in Florida, and we lost approximately two weeks of operating time, we're working through insurance recoveries now for this damage and we will try to resolve that during the quarter.
Speaker Change: Turning to industrial we expect sales to be slightly down sequentially from last quarter and year over year, including the impact of the reclassification of our recycling businesses and the exit of some nonprofit will locations in Asia and Europe paper.
Speaker Change: Paper volumes are expected to be stable year over year.
Speaker Change: Price cost in North America will be positive in the fourth quarter as contract pricing has been reset and input OCC costs are lower overall price cost will remain negative as price recovery is lagging in the rest of the world.
Speaker Change: Similar to consumer we expect industrial productivity to be positive in the industrial businesses in the fourth quarter.
Speaker Change: Also as Howard mentioned, we continued on our footprint optimization journey beyond our actions in industrial China business. We are reviewing our network of operations throughout other geographies, where we operate and anticipate future closures and consolidations.
Speaker Change: And our other businesses, we expect lower sales from seasonality and from the divestiture of our protective packaging businesses.
Speaker Change: In conclusion for the fourth quarter, the team's focus on strong execution in support of our customers' footprint optimization in all forms of productivity will continue.
Speaker Change: Continue to be critical as we navigate the puts and takes of the current global environment.
Speaker Change: With that back to your house.
Speaker Change: Thanks, Roger if Youll turn to page 20, I want to take a moment to remind everyone of the plans we laid out to deliver long term shareholder value at our February 2020 for Investor Day.
Speaker Change: Over the next five years, we're targeting adjusted EBITDA of $1 5 billion.
Speaker Change: With a high teens EBITDA margins and we're expecting to generate cumulative operating cash flow of <unk>.
Speaker Change: 4% to $5 billion, all while we remain committed to our growing and competitive dividend.
Speaker Change: We're in full execution mode of our Nextera enterprise strategy with the integration of the highly strategic Avs's acquisition further portfolio simplification strategy and execution of our long range plans and our legacy pay per metal packaging businesses, we expect to deliver these results.
Speaker Change: In closing on page 21, we have a number of upcoming investor events for the end of the year as well as our next Investor Day. We're planning in February we look forward to providing updates on our journey in the coming months and with that operator.
Speaker Change: Please open the line for questions.
Speaker Change: Thank you we will now begin the question and answer session. If you would like to ask a question. Please press star one on your telephone keypad to raise your hand and join the queue and if you would like to withdraw that question again press star one.
Speaker Change: Your first question comes from the line of George Staphos with Bank of America Securities. Please go ahead.
George Staphos: Thanks, So much hi, everyone. Good morning Hope you can hear me okay.
Speaker Change: Thanks <unk>.
George Staphos: So I just wanted to bring.
George Staphos: Bring up kind of a.
George Staphos: T J question to start and I'm sure you've gotten this now since the last conference calls that you've done.
Speaker Change: <unk> outlined why this is a good acquisition in your view for Sunoco.
Speaker Change: Youre getting a leading food and aerosol can business et cetera at the same time, you're doing the strategic review for TSP, which.
Speaker Change: Maybe smaller is also a leading player in its markets.
Speaker Change: Help us understand.
Speaker Change: This potential Trey.
Speaker Change: Trade if you will does to your return on capital and your capital intensity and your growth outlook.
Speaker Change: For the company.
George Staphos: Thanks George.
George Staphos: Lot to unpack there as usual.
Speaker Change: What I would tell you as let me start with your question about TSA, leading Lady.
George Staphos: <unk> lighting.
George Staphos: Physicians they have in the market.
George Staphos: The question that but.
George Staphos: Yes, very good businesses.
George Staphos: And in the segments that we serve and the niches we serve.
George Staphos: You are right, we have very strong market positions.
George Staphos: As we looked at.
George Staphos: What it was going to cost from a capital outlay perspective.
George Staphos: Be it organic or inorganic.
George Staphos: The size of the market opportunities within these niches.
Really didn't think that that what's going to take us to where we needed to be as we compared it to.
George Staphos: The strong capital demands that we have in our organic core paper can business.
George Staphos: Talked a lot about the investments, we're making there globally.
George Staphos: <unk>.
George Staphos: And as we look at the metal side again.
George Staphos: A niche market, but a much larger market.
George Staphos: We're.
George Staphos: We will have a significant position on a global basis.
Speaker Change: Thanks, Bill like we stack all of these up and frankly as we finished our.
George Staphos: <unk>.
George Staphos: Our five year strategic plan journey and looked at that the amount of capital demands we had too many miles to feed so at the end of the day.
George Staphos: We're trading up if you will in terms of market opportunity size.
George Staphos: <unk> and frankly.
George Staphos: Differentiation opportunities from a technology sustainability and a growth perspective.
George Staphos: Okay.
George Staphos: If I could I just wanted to see if you have it.
George Staphos: Do you have any kind of quantification Howard or Rob in terms of what you think this would add to your return on capital 0.2 points, what it may or may not too in terms of your growth rate organically going forward.
George Staphos: And the capital intensity, if theres any way you can dimensionalize it for us.
George Staphos: With figures and then my follow on and I'll turn it on turn it over to the other folks.
George Staphos: Im assuming.
George Staphos: Assuming no change with TMT right, you're doing the strategic review what do you think your interest expense is on a going forward basis for Sunoco.
George Staphos: And then let's assume you do.
George Staphos: Move on from TSP.
George Staphos: What would be the cost of debt.
George Staphos: For the debt you would pay down with those proceeds thank you.
Yes, Joe that's a good question, we think a lot about capital return and capital efficiency is a core component of our strategy as we think about the businesses. One reason why we are pivoting as Howard said these three core businesses as their capital efficiency and our ability to <unk>.
George Staphos: Generate return on investments in those businesses.
As you know kind of the current ROIC, depending upon how you calculate it it's about 12% 12, one of our current calculation, we expect that to meaningfully improve to the teams as we execute these transactions.
George Staphos: Primary reason for that is recycling capital at a better basis.
George Staphos: Selling businesses at higher margins than buying at lower lower.
George Staphos: And then also the capital efficiency of the remaining business and so a quantification or guide to that as well.
George Staphos: No former for all of these transactions, we will have added over $1 billion in revenue and over 2000 $200 million of EBITDA.
George Staphos: The capital investment required of the business will be the same if not less.
George Staphos: And so the capital efficiency per capital required per dollar of EBITDA generated by the business will be less and the growth rates and ability to continue to invest in those businesses will be greater we believe.
George Staphos: Rob So we feel <unk> of EBITDA, you said incremental.
George Staphos: It'll be about 200, depending on what Youre, what youre doing with synergies. There I think you also imported tons, but also including thermostat.
George Staphos: The divestiture of farmer site, which we will announce and that'll be coming later in the year.
And on the financing side of those questions.
Speaker Change: Yes, so for the interest expense I'm aware were.
Speaker Change: Completed and fully oriented to our plan and we've structured this.
Speaker Change: Plan and are progressing with the strategic alternatives for these two businesses with great effect.
Speaker Change: We're really confident that we're going to hit the base plan and that will be able to repay these term loans, which was why we did term loans further EV repay ability those those term loans actually have higher cost of debt there so for a plus three eight.
Speaker Change: So they're kind of right now in the <unk> as a percent of debt that we would be paying off on a pro forma basis.
Speaker Change: Think that pro forma for.
Speaker Change: And all of that completed.
Speaker Change: Even with the repayment of the 2020 fives, which are one 8% our total cost of debt will be in the low fours.
Speaker Change: Anticipate that even if we want to do these deals, which we fully intend to that we could refinance those that capital at similar rates and thus it wouldn't affect our overall cost of debt meaningfully at all.
Speaker Change: Alright, I will turn it over thank you.
Speaker Change: Thanks George.
Speaker Change: Your next question comes from the line of Ghansham Panjabi with Baird. Please go ahead.
Ghansham Panjabi: Hey, guys good morning.
Speaker Change: Yes.
Focusing on the current operating outlook for.
Ghansham Panjabi: So the businesses that you do have.
Ghansham Panjabi: At least for now what does it feel like in terms of the operating backdrop for industrials and consumer do you see any sort of.
Ghansham Panjabi: Green shoots on.
Speaker Change: On a volumetric basis, I understand the productivity and price costs, and so on and so forth, but in terms of your volumes as we look out to 2025, what is the base case at this point.
Speaker Change: Yes.
Speaker Change: Thanks Ghansham.
Speaker Change: First off let's talk about fourth quarter is where we are.
Finally, an end to the end of October would say that we're pretty encouraged by the volume levels were seeing I think some of that however.
As a carryover from the loss of.
Speaker Change: While the downtime associated with the Hurricanes, but.
Speaker Change: Certainly a positive trend that we're starting this quarter at all for next year.
Speaker Change: Building on a tremendous amount of optimism.
Speaker Change: Low single digits up on the consumer side basically flat on the industrial.
Speaker Change: Because we all have seen.
Speaker Change: Feels like particularly on the industrial side feels like.
Speaker Change: We're still trying to call out of this.
Speaker Change: Slowdown.
Speaker Change: I will reinforce the fact that the industrial team has done a fantastic job in terms of 19.
Speaker Change: Maintaining the margin profile the productivity that we're seeing in the slide lidar environment, but not looking for.
Speaker Change: Are expecting.
Speaker Change: A significant turnaround next year, what we are seeing on the consumer side is.
Speaker Change: Some real positive signs.
Speaker Change: Offsetting bye bye.
Speaker Change: By some.
Speaker Change: Some lower lower volumes, but we don't see as necessarily a secular more of a mix related short term issue, but again going into next year, we're going to be taking more of a conservative viewpoint there.
Speaker Change: Got it and then on the portfolio side, obviously, youre swapping large portions right with <unk> and simultaneous strategic reviews.
Speaker Change: How are you managing the organization, including employees and also your customer customers. During this period of uncertainty.
Speaker Change: To ensure execution consistency and then just related to that pro forma for <unk>, assuming you exit TSP and thermal save what would be the split between metal and paper and would you have any plastics left at that point.
Yes, I really appreciate the question because if I look at this organization and talk to you guys. So this is the probably the largest period of change. This company has been through on our 125 year history.
Speaker Change: And so how are we managing through what we need to accomplish.
Speaker Change: But snuck has always done is open honesty medications fairness.
Speaker Change: And frankly from from a customer perspective.
Speaker Change: Making sure that they are still receiving tremendous service and quality.
Speaker Change: They've grown accustomed to from Sunoco as we go through this transition.
Speaker Change: Similarly.
Speaker Change: The internal.
Speaker Change: Communications, etc.
Speaker Change: We're being very thoughtful on how we handle that.
Speaker Change: Second part of the question none of our paper.
Speaker Change: The split is probably about the davinci.
Speaker Change: And.
Speaker Change: Yes.
Speaker Change: Actively were out of single use plastic.
Speaker Change: Named but we are going to continue with our industrial plastics division, which produces plastic cores.
Speaker Change: <unk> division et cetera, but it's more durable.
Speaker Change: Non single use we will be and we'll talk.
Extensive land when we're together in February.
Speaker Change: Predominantly from a consumer perspective, not predominantly fully.
Speaker Change: Parked and the two most recycle substrates.
Speaker Change: But then within the cycling the industry being paper.
Aluminum and steel.
Okay perfect. Thank you.
Speaker Change: Your next question comes from the line of Matt Roberts with Raymond James. Please go ahead.
Matt Roberts: Okay. Thank you and good morning, everybody first off I Hope you all in all the team members that were impacted by the storms are recovering and doing well.
Matt Roberts: My first question.
Matt Roberts: Productivity Roger.
Matt Roberts: Can use to come in strong.
Speaker Change: Well above the initial $100 million that you laid out earlier in the year. So where are you able to realize these continued savings, whereas theres still room for further gains in four Q irrespective of volume and to the gains that youre seeing now have any impact either on the timing or magnitude in regard to the longer term three years.
Speaker Change: 500 that you laid out through 2028 last February.
Speaker Change: Yeah, Matt Good question, we talked last quarter the quarter before we laid out that 300 $500 million range.
Speaker Change: Really based on volumes and the uncertainty around the global economy and global environment.
But even at that time had confidence we can hit the high end of that range, assuming volume was reasonable and obviously the last seven eight quarters, we've done an excellent job delivering productivity.
Speaker Change: And that confidence is really came from the capital we've invested in our businesses over the last four to five years.
Speaker Change: And optimizing our global paper mill footprint investing in modernizing our most impactful production lines.
Speaker Change: Consolidated unprofitable operations and investments in automation all of that takes time.
Speaker Change: And what we're seeing now over the last few quarters is it's really really kicking in.
Speaker Change: I am confident it can continue assuming volumes stay where they are and improve so for.
Speaker Change: For the fourth quarter and our guidance.
Speaker Change: Needed productivity some there'll be positive I think is in the $20 million range and our guidance simply because of the way the holidays fall this year in the middle of the week.
Speaker Change: The last part of December is going to our customers will take downtime, we will probably follow our customers.
Speaker Change: With the team staying focused to continue investments, we're making some still to come we got investments laid out for the next two years to continue to drive growth and productivity. So we're confident.
Speaker Change: We're already up that estimate on productivity in February when we're together.
Speaker Change: But my confidence is high the team's confidence is high.
Speaker Change: We'll continue to to deliver going forward, even with the portfolio changes.
Speaker Change: We've talked about we're already preparing for those changes.
Speaker Change: We will change our investment strategy to focus on those three global leadership platforms.
Speaker Change: Okay, great. Thank you very much for all that color there.
Speaker Change: The next question.
Speaker Change: Maybe Rob one on the divestitures.
Speaker Change: Save timing and 325, it seems a more definitive at least but still in line with the 12 to 18 months you laid out previously.
Speaker Change: Given it is still a year away is there anything that gives you more confidence in providing a more specific <unk>.
Speaker Change: Our range for that business.
Speaker Change: And I know you said no further updates on TSP, but it doesn't stop me if im trying to see if you could provide any additional color in terms of transaction options or magnitude of the brands that you're considering here in the fourth quarter. Thanks again for taking the questions.
Speaker Change: Yes.
Speaker Change: Thanks, Matt both questions are really valid I think thermos say, we're getting really positive.
Speaker Change: Performance from that business in the market I think that we were waiting for a bit of an inflection point as they went through a bubble this year and volume in that business is performing really well as a result, I think that they've got a really ambitious growth and innovation plan thats going to show incredible incredibly well in the market.
Speaker Change: And that business is really well positioned to launch a process.
Speaker Change: In the near future.
Speaker Change: We are anticipating that.
Speaker Change: Through that process with the interest that we've already got and we'll be able to run a very efficient process and in that in the middle part of next year.
With the funds available by the end of next year for sure the thermos.
Speaker Change: <unk>, the TFP processes, well underway, we're running an auction we have advisors.
Speaker Change: Advisers as we have stated that are doing an excellent job and we feel really confident about how that process is unfolding.
Speaker Change: High degree of confidence in how the businesses performing throughout that process, which is always a great indicator of success in our process I think the management team is doing a great job in that.
Speaker Change: We feel as always when you are selling a business you start to realize how great. It is.
Speaker Change: And then when you it's hard to kind of let things go but we're committed to getting this portfolio simplified in the right way.
Speaker Change: <unk> was just the next step in that and so we feel like we'll have a signed agreement.
Speaker Change: Six weeks or so.
Speaker Change: We're excited about announcing that and getting that those those funds in the bank.
Speaker Change: Let me just add.
Speaker Change: Then after a few times so I'll just preempt to someone wants to ask us that.
Speaker Change: Yes with farmers say.
Speaker Change: This is a capacity issue for us in terms of of <unk>.
Speaker Change: Deals so.
Speaker Change: We're at the tail end of.
Speaker Change: Obviously, the doses right in the middle of the TSA, we don't have the human capital to try to do a farmer safe at the same time. So that's why we're doing the back to back.
Speaker Change: And as Rob Bob indicated.
Speaker Change: We expect the pharma side to be alive and well early in the.
Speaker Change: The first half of next year.
Speaker Change: That all makes sense I appreciate the additional color there.
Speaker Change: Your next.
Speaker Change: Question comes from the line of Anthony Pettinari with Citi. Please go ahead.
Speaker Change: Good morning.
Speaker Change: Is it possible to talk a little bit more about.
Anthony Pettinari: Is it possible can you talk a little bit more about the decision making process.
Anthony Pettinari: For potentially exiting single use plastic and I guess, what im asking is was this purely kind of an ROIC decision that you would just make for any business.
Anthony Pettinari: Are you kind of contemplating sustained.
Anthony Pettinari: Sustainability trends or regulatory or getting feedback from customers or other stakeholders that kind of made you want to accelerate the move out of consumer plastic.
Anthony Pettinari: More into metal and paper.
Anthony Pettinari: Just curious if you could kind of walk us through the decision making process.
Anthony Pettinari: Yes.
Anthony Pettinari: After this goes back gosh 345 years ago, when we his leadership team.
Anthony Pettinari: Take a hard look is.
Anthony Pettinari: You guys.
Anthony Pettinari: With recall.
Anthony Pettinari: We had a lot of complexity within our portfolios. So we.
Anthony Pettinari: We spent the first couple of years.
Anthony Pettinari: This this leadership team and looking at all of our businesses.
Anthony Pettinari: Valuation certainly the financial metrics that.
Anthony Pettinari: You referenced.
Anthony Pettinari: But we're.
Each one of which ones of these have the potential.
Anthony Pettinari: And in of themselves to be.
Anthony Pettinari: A major future core platform, our Sunoco, we significantly number one or number two in the selected markets.
Anthony Pettinari: Okay.
Anthony Pettinari: A lot of analysis went into that financially as well as <unk>.
Anthony Pettinari: And that's where we decided as you recall, we created the all other category.
Anthony Pettinari: To start with.
Anthony Pettinari: Ludlam away at that and then.
Anthony Pettinari: Certainly the <unk>.
Anthony Pettinari: Combined asset play a vital role in that sustainability was not part of the conversation.
Anthony Pettinari: There is.
Anthony Pettinari: Firmly believe we firmly believe that there is.
Anthony Pettinari: For purpose needs for.
Anthony Pettinari: For all of the products and their applications, but it certainly doesn't hurt with the story at the end of the day.
Anthony Pettinari: <unk> and other parts of the world.
Speaker Change: Got it got it that's very helpful. And then I'm just wondering on metal pack.
Anthony Pettinari: Positive price cost and organic volume growth.
Speaker Change: Despite what seemed like a pretty weak pack season, and Easter for many crops I'm. Just wondering if you could talk a little bit more about sort of the drivers of a strong performance.
How do you kind of characterize inventories across.
Speaker Change: Aerosol and food when you kind of look at the customer base.
Speaker Change: Yes, what I would say on the food side slightly down actually but.
Speaker Change: If you take in consideration if you recall fourth quarter last year, we had a.
Speaker Change: A customer that.
Speaker Change: Bankrupt on US we had to take the write down.
Speaker Change: So.
Speaker Change: Obviously, it lost volume so effectively our food can volume was about flat.
Speaker Change: Driver there.
Speaker Change: And a good mix of customers with good tax seasons, coupled with.
Speaker Change: A bit of.
Speaker Change: Share gain within existing customers on the aerosol side, we're seeing.
Speaker Change: Arnaud normalcy, if you will.
Speaker Change: I think aerosols, if we talk about.
Speaker Change: Inventory bills Destocking post COVID-19.
Speaker Change: You can certainly tie yourself the disinfectants for someone bought a case and it is taking them a while to work through so what we're seeing from <unk>.
Speaker Change: Our legacy customers.
Speaker Change: Coming back to pulling that normalized rates.
Speaker Change: The second thing that's happened midyear was a smaller competitor in the market the sudden drop out.
Speaker Change: And Thats certainly introduced some incremental volume as well so the combination of net on the aerosol side.
Speaker Change: Okay. That's super helpful I'll turn it over.
Speaker Change: Sure.
Speaker Change: Your next question comes from the line of Mark Weintraub with Seaport Research partners. Please go ahead.
Mark Weintraub: Just wanted to follow up a little bit on the M&A since it really just strikes me that you don't seem to be getting any credit for this transformation. If he can deliver the types of things youre talking about in terms of accretion and first thank you for the explanation on timing with them I think that was very clear and helpful.
Speaker Change: One of the other questions that I think is coming up is to getting to that $200 million of EBITDA accretion. It embeds like $430 million from <unk> and I see that you are reiterating that in your slide deck, which is great. But if you look to the first six months. The EBIT was not at that type of run rate.
Speaker Change: So I just wanted to check in and get a sense as to what level of confidence do you have at this juncture are you getting the updates. So that you have good visibility that that really is a good base number to be using as we try to analyze the net effect of these transactions.
Speaker Change: Yes, Mark that's the <unk>.
Speaker Change: We continue to use no we have not received a firm.
Speaker Change: Year to date number at this point in time, but indications are we should be right around where we targeted.
So we're not concerned about that at all in fact.
Speaker Change: Roger can speak to it as we've noted Rogers heading up the integration has been a lot of time in Europe with the team all of that is going extremely well and I think if anything we are walking away with a strong resolve in terms of our targets around synergies.
Speaker Change: And opportunities there, yes, mark seasonally.
Speaker Change: <unk> third quarter is their strongest quarter in that carrier is pretty strongly into October the first in the fourth quarter as well so.
Speaker Change: So it's hard to look at first half results and annualize that.
Speaker Change: Howard said, we don't have that update yet, but we'll get it soon but they are in the middle of their heavy season in October like our October seems to be in.
Speaker Change: Pretty good shape.
Speaker Change: And yes, great to have a fantastic leadership team developing good relationships focusing on all the planning that goes into.
Speaker Change: The integration and the day one obviously there are a lot of things we don't know yet.
Speaker Change: But doing a lot of communication has spent a lot of time with the team and getting very comfortable with the synergy targets that we laid out.
And Mark your first your opening comments that doesn't feel like we're getting a lot of credit for what's to come.
Speaker Change: We agree with that 100%.
Speaker Change: We are dealing with century.
Speaker Change: My viewpoint in terms of where we're trading at this point in time, but.
Speaker Change: Yes.
Speaker Change: Uncertainty.
Speaker Change: I get it we got a lot going on all opened up by saying that we are at.
Speaker Change: This is not the norm for Sunoco.
Speaker Change: We are on the medicine.
Speaker Change: More changed in this company has ever undertaken in its history.
Speaker Change: But we are extremely excited confident.
Speaker Change: We think that.
Speaker Change: We know we will we will we will.
Speaker Change: Move outs, our forecast and our expectations.
Speaker Change: And the market will respond accordingly.
Speaker Change: I appreciate the color.
Again, if you would like to ask a question. Please press star one on your telephone Keypad. Your next question comes from the line of George Staphos with Bank of America Securities. Please go ahead.
George Staphos: Hi, Thanks for taking the follow on guys.
George Staphos: I was hoping you could maybe give us a bit more.
George Staphos: Detail in terms of what Youre seeing in the industrial markets, you've got some positive momentum.
George Staphos: <unk> pricing, which is good you said industrial markets are still.
George Staphos: We're trying to crawl out from the recovery or into a recovery can you give us a sense for what the cadence of volume has been.
And there's been a lot of discussion.
On the earnings calls we were just at one of the industry conferences about the supply of box board globally. Recognizing that you are being what you do is very much a niche. Nonetheless are you seeing any pressure.
George Staphos: From the supply that's out there in the box board markets or really not that big of a deal at all for many reasons, including your integration so pricing trends how is that moving demand what kind of cadence in the third quarter to the fourth quarter and the outlook for next year is flat Y if youre, improving and then <unk>.
George Staphos: Fly on box board globally, and what it means for you or not thanks, guys. Good luck in the quarter.
George Staphos: Hey, George It's Raj I'll try to give you some color and if you have a follow up to that fine but.
Speaker Change: Yes tube and core volumes, especially in North America have been it's been pretty good the last two quarters.
Speaker Change: Up a couple of percent in the third quarter assessment, it's just been uneven and that's what we've seen really across the board even in the paper side of our business, you'll feel like Youre really seeing some volume pushed it up and then it softens up but if you look at the third quarter specifically paper.
Speaker Change: Paper mill cohorts in film cores were both strong on a year over year basis, which we feel like is driven by consumer spend and retail on food and other types of products.
On the other side textiles protective packaging light goods very weak.
Speaker Change: And that's something we've seen in the last couple of quarters. So.
Speaker Change: Balances from quarter to quarter, if you look at the fourth quarter.
Speaker Change: We expect it to be basically flat in North America, the real weakness that we're seeing and driving that global industrial number down is outside of the U S Asia very very slow.
Speaker Change: Both paper and tube and core even ex the work we're doing to exit China industrial the rest of the Asian market very slow Europe, a lot more competitive on the box board side on the tube and core side and we've seen weakness there we've exited the grease market. So we're doing our best to get out of nonprofit will.
Operations, but all in all pretty uneven and that's why we're calling it flat next year because you just don't see any sustainable trends as you look as you look forward.
Speaker Change: On the <unk> side.
Speaker Change: Capacity in the third quarter for US was still pretty strong in North America of about 94%.
Speaker Change: Globally about 89000 were driven down by Europe, and Asia, we expect that to come down some in the fourth quarter simply because of the holiday is pretty normal in the high <unk> probably.
Speaker Change: But yes, we're not again, we get the question all the time box board imports or <unk>, we see a little bit of that we don't see anything that's changed substantially.
Speaker Change: Substantially but were seeing the same thing in our paper markets tissue and towel was strong in the third quarter. It seems to be slowing some in the fourth quarter, probably just inventory adjustments.
Speaker Change: So it's the reason, we're saying flat next year, because theres just no sustainable trends are really tied to.
Speaker Change: On a multi quarter basis.
Speaker Change: Sure.
Speaker Change: Got a question coming in all related on behalf of somebody.
Speaker Change: Do you expect any regulatory hiccups with <unk> comment there and then also the question.
Speaker Change: Why do you think what's going on in RPC is not secular as opposed to just timing thanks, guys and.
Speaker Change: Good luck in the quarter.
Speaker Change: Yes, Thanks George.
Speaker Change: Safe Clarence.
Speaker Change: Sure.
Speaker Change: Across the board.
Speaker Change: And.
Speaker Change: Now on the.
Speaker Change: <unk> face with the CMA, So we don't expect.
Speaker Change: Any any issues there, yes RPC.
<unk>.
Speaker Change: Really you can talk to us a couple of customers.
Speaker Change: Frankly, the issue or if it was their conference call they've designed high volumes have been pretty good they measure their performance.
Speaker Change: As it relates to kilos of product.
Speaker Change: They've.
Speaker Change: Produced and shipped and it's been good.
Speaker Change: But it has created a mix issue for us is that they've gone to slightly larger packs versus smaller packs.
Speaker Change: Math issue in terms of units.
Speaker Change: One through our RPC organization Thats, why I say that this happens.
Speaker Change: Can be a quarter or two and then it trends back and we get back to a normalized mix.
Speaker Change: Okay. Thanks, so much for all the time guys have a great one.
Your final question comes from Gabe.
Speaker Change: With Wells Fargo. Please go ahead.
Speaker Change: Good morning, everyone.
Gabe: Two questions. Roger I think you made a reference to tan bending chip prices continuing to move up and I was curious if there is an active price increase in the marketplace that we're not aware of <unk>.
Gabe: Meaning was that a reference to indices moving hauling or is this just a function of what's been posted working through.
Gabe: On your contracts.
Yes, I think I was in Rob's prepared comments gay, but yes.
Gabe: Where we are.
Where it is we don't expect it to move higher this year.
Gabe: So at this point with OCC coming down we expect it will be flat for the balance of the year.
Gabe: Okay.
Speaker Change: Unless I misheard that and then there is some consolidation in a couple of your big customers.
Speaker Change: Just curious.
Speaker Change: Looking back in history, how that's impacted the business if at all.
Speaker Change: What I would tell you is.
Exactly which one you're talking about is it's been very positive.
Speaker Change: <unk>.
Speaker Change: No.
Speaker Change: I guess I don't want to get into brands, but.
Speaker Change: Typically.
Speaker Change: When we say a consolidation like this.
Speaker Change: There we see.
Much more activity in terms of <unk>.
Speaker Change: Promotion of the brand in this particular example tremendous opportunities to increase.
Speaker Change: Distribution chains and channels.
Speaker Change: The previous honor.
Speaker Change: May not have had a strong presence.
Speaker Change: <unk>.
Speaker Change: And frankly, we have great relationships with all of our customers.
Speaker Change: And the example that you are citing.
Speaker Change: Say the same there. So we think there is this is a very very positive thing.
Speaker Change: The prior owners have done a fantastic job and reinvigorating.
Speaker Change: The brand and.
Speaker Change: We expect that theres going to be even more coming.
Speaker Change: Great. Thank you guys. Good luck.
Speaker Change: Thanks Scott.
Speaker Change: That concludes our question and answer session I will now turn the conference back over to Lisa weeks for closing remarks.
Lisa Weeks: Yes. Thank you everyone for joining us today as Howard noted were going to be out and about in the fourth quarter. We look forward to speaking with you and seeing you at our Investor Day in February.
Lisa Weeks: Have any questions. Please don't hesitate to reach out and we'll be happy to take any follow ups that you may have.
Thank you again and hope you all have a wonderful day.
Speaker Change: Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation and you may now disconnect.
Speaker Change: Please wait the conference will begin shortly.
Speaker Change: [music].
Speaker Change: Okay.
Yes.
Okay.
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: [music].