Q4 2024 Greif Inc Earnings Call

December 5, 2024

[music].

Good day and thank you for standing by welcome to the crisis fourth quarter 2024 earnings call. 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 one on your telephone you will then hear an automated message.

Speaker Change: I would think that your hand is raised to withdraw your question. Please press star. One again, please be advised that today's conference is being recorded I would now like to hand, the call over to Bill Donna Frio, Vice President corporate development and Investor Relations. Please go ahead.

Speaker Change: Thank you and good day, everyone and welcome to <unk> fiscal fourth quarter 2024 earnings conference call. During the call today are Chief Executive Officer, <unk> will provide you an update on the operating model optimization effort, we have undergone over the past year, which will be an important meeting to our invest.

Speaker Change: Your day next week. He will also provide his thoughts on fiscal 2024 as well as the current market landscape.

Speaker Change: Our Chief Financial Officer, Larry Hill, who will provide an overview of our fourth quarter financial results as well as our 2025 guidance.

Accordance with regulation fair disclosure for you to ask questions regarding topics you consider important because we are prohibited from discussing material nonpublic information with you on an individual basis. Please.

Speaker Change: Please turn to slide two.

Speaker Change: During today's call, we will make forward looking statements involving plans expectations and beliefs related to future events actual results could differ materially from those discussed. Additionally, we will be referencing certain non-GAAP financial measures and the reconciliation to the most directly.

Speaker Change: The comparable GAAP metrics that can be found in the appendix of today's presentation.

Speaker Change: I'll now turn the presentation over totally thanks, Bill and good morning, everyone and thank you for joining us today.

Speaker Change: Before we start I just wanted to address one matter.

Speaker Change: Yesterday, we released our 2024.

Speaker Change: For Q.

Speaker Change: Full year earnings. Unfortunately, we subsequently discovered an hour and we issued a release, let me turn this over to Larry to address before we proceed with the remainder all Steve's prepared remarks, Larry. Thank you Ali good morning. Despite are usually dependable quality controls we had an error in our original earnings release.

Larry Hill: And which we had incorrectly included $16 million of income tax expense related to a gain on the disposal of a business as a result, our originally reported Q4 net income excluding the impact of adjustments was $49 $6 million and our diluted class a earnings per share was <unk> 85 per share as corrected.

Larry Hill: Those figures are $65 5 million and $1 13 per share respectively.

I'll turn it back to you on slide three thanks, Larry again, we apologize for this one.

Speaker Change: What I, usually say in houses.

Speaker Change: We can all fail at times and when we do I used to be 10 organization. That's just a learning moments, we just learned something new and that's something we should be happy with.

Speaker Change: As Bill mentioned next week, we are hosting our Investor day in New York City.

Speaker Change: Today I will begin our presentation by highlighting a few key messages, which will be co onto the information you will hear at our Investor day.

Speaker Change: The half day event will be attended by our entire executive management team as well as each of the lead us of our new strategic business units, we highly encourage in person attendance, which will allow you to engage with our lead us one on one and deeply understand the value we are creating.

Speaker Change: Our build to last strategy.

Speaker Change: Please turn to slide four.

Speaker Change: Over the past year, we have fundamentally changed how we operate as a company organizing in a manner that will allow us to fully leverage our core competitive advantages and enable us to double the size of the company in the future.

Speaker Change: Going forward, we are operating and reporting results based on our <unk> material solutions.

Speaker Change: Customized polymer solutions doable metal solutions sustainable fiber solutions and integrated solutions.

Speaker Change: Making steel drums is very different from making polymer drums, which is again different from making small plastics, all Cuba cost. So aligning operations by material solution greatly enhances our ability to leverage our five distinct competitive advantages.

Speaker Change: First is it.

Speaker Change: Allow us to more efficiently utilize our robust scale and global network of facilities to be more agile and serving our customers even better.

Speaker Change: Second at Alliance operations to capitalize on our deep subject matter technology expertise within each material solutions partnering even closer with our customers to meet their unique needs.

Speaker Change: Third it enables further innovation and growth of surplus packaging solutions.

Speaker Change: And organizes our extensive portfolio of solutions in a manner that optimizes cross selling and margin expansion.

Speaker Change: Each of those four competitive advantages resulted in our fifth all encompassing advantages utilizing our world class culture to deliver legendary customer service with stripes loyalty share more of that increase and premium margins.

Speaker Change: Please turn to slide five.

Speaker Change: The key benefits of this operating model optimization for our Investor community is enhanced visibility to the performance of the underlying products within our portfolio. So that ends.

Speaker Change: But the market closest debate, we will be releasing fiscal year 'twenty to 'twenty, three and 'twenty to 'twenty four recast financial highlights to assist you in understanding the new segments.

Speaker Change: We have strong conviction in the synergies of operating this diverse comprehensive portfolio of products, which enables us to serve our customers more fully than other industrial packaging companies.

Speaker Change: That said, we have also made clear that the biggest growth opportunity, we see from a total addressable market and end market growth perspective is in polymer based products.

Speaker Change: This evolution has been occurring for years and now our polymer business is large enough to warrant individuals' segmentation to more clearly display the performance of those products.

This informs our decision to continue deploying capital in this space.

Speaker Change: We also plan to grow further in our caps and closures business, which is a key integrated solution.

Speaker Change: While smaller at presence in terms of the overall portfolio. We also expect this business to grow over time.

Speaker Change: I'll be highlighting onto linked growth expectations in each of these segments next week at Investor Day.

Speaker Change: We will utilize the rest of this fourth quarter 2020 for presentation to serve as a closing chapter of our global industrial packaging and paper packaging and services segments and discussing our quarterly results in the context of Gi and PPS for the final time.

Speaker Change: Please turn to slide six.

Speaker Change: Over the past three years, we have fundamentally changed the way our business operates and have made significant strides on our builds on our strategy.

Speaker Change: We have allocated over $1 billion of capital to margin and growth accretive acquisitions optimized our business model enhanced and accelerated the greif business system into GBS to final and invested in technology and innovation.

Speaker Change: The collective impact of these changes provide us with the confidence to now announce a formal business optimization efforts of at least $100 million of cost per Doc shifts to be completed by the end of fiscal 2027.

Speaker Change: This is chip, which is a combination of SG&A rationalization network optimization and operating efficiency gains enabled by GBS to particle has come as a result of the accumulated learnings of our strategic progress for.

Speaker Change: Acquisition integration and business model optimization.

Speaker Change: This initiative will be supported by further investments in technology and innovation.

Speaker Change: We plan to talk more about the drivers and the impact of this program at Investor Day next week.

Speaker Change: Now, let's turn our attention to Q4 results on slide seven.

Speaker Change: Our business continues to operate with excellence against the historic period of industrial contraction.

Speaker Change: Since tracking of U S. Industrial activity began in $19 48 by Institute of supply management, we have not seen and industrial contraction longer than the current period, which is 25 months through November.

Speaker Change: Our performance during the protracted length of this cycle has been impressive.

Speaker Change: But it is critically important to keep this soft macroeconomic environment in mind as Larry presents our 2020 five guidance.

Speaker Change: In the fourth quarter EMEA remained the strongest region, although volumes were down slightly on a sequential basis.

Speaker Change: On our Q3 call. We commented on the notable less bullish sentiment from our global customer base heading into Q4.

Speaker Change: <unk> that has remained overall pessimistic internal benchmark and was taken into consideration when formulating our fiscal 2025 guidance.

Speaker Change: That said, we are still outperforming market expectations in EMEA, which we attributed not to any specific end market, but rather to our ongoing business model optimization that is driving increased demand and cross selling opportunities in both our polymer and metals business.

Speaker Change: Our largest market North America has not seen the same recovery SMA and.

Speaker Change: <unk> <unk>.

Speaker Change: Demand remains choppy with polymer based products continuing to offset softness in our durable metals business.

Speaker Change: Overall, CIP North America still has significant untapped operating leverage with volumes down almost 18% on a two year basis in the quarter.

Speaker Change: We fully anticipate a recovery of those volumes, which we believe are the result of this extended demand contraction cycle.

Speaker Change: And PPS demand the speed, okay. Although it is still down over 4% on a two year basis in the quarter.

Speaker Change: Container Board has shown a few consecutive quarters of year over year growth on a same store basis and is running at over 90% operating rates, while our U K business is still mixed and is currently operating at over 80% operating rates through program.

Speaker Change: As a reminder, APAC and Latam are small pieces of our portfolio.

Speaker Change: Latam is improving while APAC has continued to be soft, but the overall offsets of dose regional demand factors is about neutral on a year over year basis in the quarter and with that I will turn things over to Larry on slide eight to walk through our financial results Merit. Thank you Alley and thank you.

Larry Hill: All for joining our call. This morning, our fourth quarter results demonstrate our consistent ability to execute regardless of the operating environment fourth quarter, adjusted EBITDA was $198 million compared to $202 million last year.

Larry Hill: However business also experienced an unplanned $2 million headwind from hurricane elite.

Larry Hill: Fourth quarter adjusted free cash flow was $145 million compared to $136 million last year as our teams acted decisively on the barest demand sentiment that we identified exiting Q3 and reduced working capital to appropriate levels.

Larry Hill: Managing results and the presence we continue to take steps towards the future as Obi mentioned, we finalized our operating model optimization effort, which unlocks significant new value levers for growth and that we are excited to talk about more next week at our Investor Day. This quarter, we completed our 14th net promoter survey, resulting in a score.

Larry Hill: <unk> 69. This rating is well above 51, which is considered the benchmark for world class in the manufacturing industry that last level of customer engagement is proof of our significant competitive advantage of legendary customer service.

Larry Hill: At Investor Day next week, we will provide information that shows the high correlation between NPS and financial performance to clearly outline.

Larry Hill: The significance of our continually increasing customer loyalty and advocacy.

Larry Hill: Lastly, we are now just over eight months into our ownership of buyback and have made significant progress on integration and synergy capture as we have noted in the previous few quarters. The AG sector was impacted by significant.

Destocking in the year and has continued to operate at low volumes since then.

Larry Hill: While we have high conviction in our business case financials, we anticipate that overall EBIT contribution in the first full year of ownership will be less than that business case, which I will touch on in guidance.

Larry Hill: Please turn to slide nine to walk through the <unk> results.

Larry Hill: As already stated in his global market overview, we are very proud of the results. Our team provided given the uncertain embarrass demand environment. We experienced in Q4, we finished the quarter up $4 million on adjusted EBIT of $1, but down 70 basis points on EBITDA margin pricing competition has been.

Larry Hill: Intense in our DIY business, but our team is finding ways to win and sticking to our value over volume philosophy, resulting in resilience exiting Q4 sentiment is generally pessimistic.

Larry Hill: Please turn to slide 10 for PPS results.

Larry Hill: Our paper business experienced an adjusted EBIT dollar decline of $8 million and adjusted EBIT margin declined 240 basis points year over year. However, EBIT margins improved sequentially by 220 basis points as a result of some recovery of the price cost imbalance that our business has endured throughout the year.

Larry Hill: Underlying demand in our paper business remains mixed containerboard and corrugated volumes are solid and operating rates or rates of 90 plus percent, while European tube and core volumes have continued to lag due to soft paper core demand. This is driven by the overall box board industry, which is generally less positive than container.

Larry Hill: We anticipate that margins in the new sustainable fiber solutions segment will continue to improve heading into fiscal 'twenty five due to the continued flow through of recognized paper pricing and the recent favorable OCC changes, which is contemplated in our guidance. Please.

Larry Hill: Please turn to slide 11 to discuss capital allocation.

Larry Hill: Now three years into our build to last strategy, we have deployed capital exactly according to the priorities we laid out in our 2022 Investor Day next week I will provide an update on our go forward capital allocation framework, which will fuel the next evolution of growth for Greg.

Larry Hill: Our top near term priority is debt reduction on our recent acquisitions, coupled with the low EBIT a denominator in our leverage ratio calculation resulted in a 353 leverage at the end of fiscal 2024 relative to our target range of two to two five times.

Larry Hill: When demand recovers the EBIT the denominator, we're quickly scaled down our ratio. However, immediate intermediate time, we will focus on paying down debt to get within our target range. In 2019, we made an acquisition at the beginning of an industrial recession, and we were still able to pay down debt in advance of our externally stated <unk>.

Larry Hill: Aggregate and we'll utilize that same playbook now to manage leverage during this industrial recession. Please.

Larry Hill: Please turn to slide 12 to discuss our fiscal 2025 outlook.

Larry Hill: Given the continued market uncertainty and mixed demand trends, which we've commented on throughout the prepared remarks today and in previous quarters. We feel it is most prudent to again present low end only guidance to start fiscal 2025, we have yet to see any significant inflections positive or negative that give us confidence in <unk>.

Larry Hill: Renting a range.

Larry Hill: It is important also to remember that we are changing our fiscal year end 2025 next fiscal year will be 11 months long and end on September 30, with a two month long fourth quarter for that reason our guidance was calculated on a 11 month basis.

Larry Hill: You understand our low end guidance I'd like to provide you with a few key drivers, which can bridge you from 2024 on an 11 month basis to fiscal 'twenty Fives 11 month guidance fiscal 2004 did not have any significant seasonality impact that year end and so fair comparative starting point is simply taking yearend <unk>.

Larry Hill: Good EBITDA.

Fiscal 'twenty four of $694 million dividing it by 12 and multiplying it by 11.

Larry Hill: That gets you to a $636 million starting point.

Larry Hill: For an 11 month 24.

Larry Hill: From there we have assumed a few key tailwind heading into fiscal 'twenty five first $83 million of price cost uplift most of which is coming from Rishi recognized paper pricing.

Larry Hill: And OCC change as of the date of this call.

Larry Hill: With price cost and polymers metals and integrated largely neutral year over year.

Larry Hill: A $19 million incremental uplift from M&A, which represents the incremental ownership period of iPad Tam less the fiscal year EBIT contribution from our disposed of Delta U S business.

Larry Hill: Third inorganic.

Volume uplift of $76 million based on the continuation of exit rate trends in each of our new segments that volume tailwind is primarily driven by an assumption of mid single digit growth in polymers and fiber solutions, despite low single digit headwind in metals and integrated those two.

Larry Hill: <unk> bring you from 636 up to 814, we also have several headwinds assumed in guidance. Let me take you through those to help you understand how we ended up at $675 million as our low end guidance number.

Larry Hill: First the $19 million headwind from unfavorable year over year FX driven by the strengthening U S dollar.

Larry Hill: Second $34 million headwind from items, such as a $10 million shift from cost of goods sold into SG&A in our new operating model, which is also reflected in the operating business elements of $10 million increase for medical and other benefits and additional headwinds from increased.

Larry Hill: It costs due to license fees cyber security investments and investments in commuter customer Digitization, which we reflect FERC <unk> Greg plus.

Larry Hill: In addition to these headwinds to SG&A, our fiscal year end change creates a headwind of 12 months contractual fees as applied to 11 month fiscal years. For example, your audit fees and tax fees don't change because you have an 11 month year.

Larry Hill: The final headwind.

Speaker Change: Centered in this low end guidance, we also assume an incremental $86 million in manufacturing and transportation cost headwind, partially attributable to the increased volume assumption, but also factoring in incremental inflationary costs those factors off center tailwind and bring us to the 60 70, but remember this is Lee.

Speaker Change: Low end guidance. So it assumes the full impact of all potential headwinds, but only explicitly known tailwind with that I'll turn things back to only on slide 13 to provide you with a preview of our upcoming Investor day.

Speaker Change: Thank you all for dialing in today and for your continued interest in <unk> next week at Investor Day, We will demonstrate to you that drive is a global market leader for essential industries, well positioned to deliver continually stronger earnings power and proactively.

Speaker Change: Allocated capital for the highest shareholder return.

Speaker Change: Im proud of the work our global team teams have done since our last Investor day to accelerate all built on our strategy and we anticipate our event next week will be compelling insightful and a valuable use of your time.

Speaker Change: Registration is still open and so please E mail our team at Investor Day at <unk> Com. If you are interested in attending and that his investor day at <unk> Com. Thank you for your time today, operator will you. Please open the lines for Q&A certainly as a reminder to ask a.

Question. Please press star one on your telephone and wait for your name to be announced to withdraw. Your question. Please press star one again, please standby will be compile the Q&A roster.

Speaker Change: And one moment for our first question.

Speaker Change: Hi, My first question will be coming from Daniel Herman <unk> with Sidoti <unk> Company. Your line is open.

Daniel Herman: Thank you Hey, guys. Good morning, Thanks for taking my questions.

Speaker Change: I don't want to feel two months from next week's investor day, but looking out for the future of the company, obviously customized polymer solutions is going to be the focus, but where else can we expect to see some incremental investment.

Speaker Change: If it is not solely in the polymer solutions and then Larry just regarding where you are from a leverage perspective, if you could just provide a little bit more commentary regarding how you feel about that level, given what <unk> been able to accomplish in the past.

Speaker Change: Acquisitions in a difficult environment. Thanks.

Speaker Change: Hi, Danielle thanks for the question.

Speaker Change: Obviously polymer solutions.

Speaker Change: Ill.

Speaker Change: The primary place, where we invest for growth.

Speaker Change: That's because we can achieve margins well in excess of 18%.

Speaker Change: And in that business, we can also achieve.

Speaker Change: A free cash flow conversion in excess of 50% or so so that's why it's so attractive to us to invest in that market.

Speaker Change: The runway that we will also demonstrate at Investor day, it's very very long at that markets, while saying that we still have a few.

Speaker Change: Labor base that enables based business.

Speaker Change: Primary.

Speaker Change: Investments, we will do there, especially the metals will be automation it would be maintaining the cash machine that that generates.

Speaker Change: And automation and I will be remiss of me if I don't mention of Capstone closest as well, which is also part of us.

Speaker Change: A relative small part of our business, but it's a very very attractive business that we intend to expand it.

Speaker Change: The thing I would supplement what that is.

Speaker Change: We've mentioned this often as we also will continue to consider downstream integrated very profitable businesses for our paper operation much.

Speaker Change: Much like the co pack transaction, we did which were very very pleased with so those those are opportunities that are not as much a focal point, but we will be opportunistic on those as well.

Relative to the leverage ratio.

Speaker Change: We feel very very comfortable where we're at right now.

Speaker Change: Cause.

Speaker Change: The impact of this industrial recession, and how rapidly we will be able to.

Speaker Change: Change that ratio.

Speaker Change: As recovery occurs.

Speaker Change: With $160 million volume gap.

Speaker Change: At normal margin rates.

Just because of the.

Speaker Change: Volume reductions that alone if replace would take us down rapidly to below three and the cash Paydown would aggressively take us further down from there. So we're comfortable where we're at but it is a priority.

Speaker Change: Focus for us to pay down that debt ratio.

Speaker Change: Okay, guys. Thanks, so much and best of luck in the coming year.

Speaker Change: Thank you very much Dan Thanks, Danielle.

Speaker Change: Thank you one moment our next question.

Speaker Change: And our next question will be coming from Ghansham Panjabi of Baird. Your line is open.

Ghansham Panjabi: Thank you and good morning, everybody.

Speaker Change: I guess going back to the cost out program of $100 million over I think you said 2027 can you just give us more details on how that came about is that a function of your new operating structure that allows you to target something so substantial because it is quite large relative to your EBITDA base and then also how should we think about realization timing.

Speaker Change: Over the next three years and then also how did the buckets how did the savings kind of flow through across the various elements.

Speaker Change: Elements that you cited I think SG&A network and productivity.

Speaker Change: Thanks Ghansham.

Speaker Change: First of all we're not fixing anything thats broken out by the spot expressed that we are very good but we want to be EBIT better. That's our ambition. That's why we started the program.

Speaker Change: <unk>.

Speaker Change: As I said, it's the.

Speaker Change: The way we have now organized ourselves combined with the high level that we operate our business systems that now.

Lean six Sigma has really enabled us to do this now there's three buckets, obviously the first bucket is SG&A.

Speaker Change: The second bucket is network organization, we operate 254 facilities around the world and we do believe that we can optimize that further.

Speaker Change: Then we simply have operating efficiencies driven by.

Speaker Change: Our grid business systems patent will talk more about the network optimization benefits in the new structure June Investor Day, and Tim will also talk about GBS to partner with how we are accelerating that and.

Speaker Change: And the new stocks.

Speaker Change: As to win.

Speaker Change: It's difficult to say, obviously, we would like.

Speaker Change: The ability to come sooner rather than later, but we have.

Speaker Change: Anticipate realizing the full savings as outlined before.

Speaker Change: Three fiscal years out.

Speaker Change: And then.

Speaker Change: Yeah, Okay, great. Thank you.

Speaker Change: And then in terms of.

Speaker Change: Just as it relates to your outlook for next year, obviously youre starting up at the low end and we can do the math on adjusting for 12 months versus 11.

Speaker Change: The construct of your guidance what is the base volume assumption in there.

Speaker Change: Larry you mentioned quite a few things that I just wanted to clarify as to what the starting point is for volumes across your legacy businesses. If you can.

Speaker Change: And.

Speaker Change: What gives you confidence on being able to hit that number because it seems quite large $76 million EBITDA improvement specific to the volume component.

Speaker Change: Yeah.

Speaker Change: We are seeing.

Speaker Change: <unk> been seeing that uplift in our containerboard and corrugated business for some time now ghansham. So yeah. Good.

Speaker Change: A good bit of that left us from the paper segments.

Speaker Change: Polymer solutions as well, we have confidence that we're going to see some of the growth from the investments we've made in our intermediate bulk container business and I am sorry, Let me go back on the paper business here, we did open our Dallas sheet feeder business.

Speaker Change: In June of this year and that is ramping up and we had a significant contractual win in the recent months that will contribute a lot only what was this.

We won the business from the U S Postal service and Thats 55000 tons.

That was the effect of that and just to give you an idea that's about that will feed us total capacity is around 120000 tonne. So thats a major win for us and Thats a multiple multiple year contracts that contract will be service not only out of Dallas, but our other.

Speaker Change: She Peter facilities as well, but it was significant win so we have great confidence in the fiber side of the business.

Speaker Change: Our ABC the investments that we've made we have nice growth.

Speaker Change: Yes.

Aspects in there so let me give you just broadly.

Speaker Change: 60, <unk> hundred $70 million in our fiber business $27 million is definitely roughly in our polymer solutions business across all three platforms. However in our metal solutions, we're actually looking at volume contraction.

Speaker Change: Roughly about <unk> 19 $20 million.

Speaker Change: Gotcha, So hopefully that's helpful.

Okay. Thanks, so much.

Speaker Change: One moment for our next question.

Speaker Change: Our next question will be coming from Matt Roberts of Raymond James Your line is open.

Matt Roberts: Hey, good morning, everybody and thank you for having me on the call.

Speaker Change: Larry I appreciate the very thorough color that you gave on the low end 2025, EBITDA bridge, but.

Speaker Change: If you could help me kind of frame what a high end scenario could look like without speculating on pricing some of your peers in containerboard space have recently announced price increases in.

Speaker Change: Given your independent mix and early read throughs on demand what are you hearing from customers in regards to that passing through and ultimately what kind of price cost range could be reasonable pending any any further price increases or further decrease in OCC.

Speaker Change: Thanks Wes.

Speaker Change: So.

Speaker Change: Obviously, if we had real confidence in our high end range, we've put a range today, but I'll give you. Some things that are a few things that could happen and look the biggest driver for us going with Boeing guidance is just the uncertainty of when is this industrial recession going to turn and that can just create such a <unk>.

Speaker Change: <unk> variety of things you put any high end number then everybody is going to focus on our midpoint.

Speaker Change: It's <unk>.

Speaker Change: It's falling I think to put something out but that said we also just rolled out this week to our customers a price increase in the containerboard space 70 Bucks on liner and 100 on medium effective January one.

Speaker Change: Obviously the demand.

Speaker Change: Dynamics in that space are very strong right now and we believe supports that price increase.

Speaker Change: Yes, the other is the volume inflection.

Speaker Change: We still have out there this roughly $160 million of.

Speaker Change: Volume centered.

Speaker Change: <unk>.

Speaker Change: Gains that that will come when the industrial economy recovers to.

Speaker Change: Levels.

Speaker Change: Our 2000.

Speaker Change: 41 volume level so.

Speaker Change: So that 'twenty, one or 'twenty two 'twenty two themes alright. Thank you.

Speaker Change: So those things are just very powerful drivers there you add to that what do we gain out of the $100 million initiative that we spelled out. This year. So there is a lot of drivers for upside and like we said we built in all the negatives and none of the positive so.

Speaker Change: Yes.

Speaker Change: Give us optimism for a.

Speaker Change: Fairly good year Hey.

Speaker Change: Hey, Matt if I can just interject with few comments as well. So if we look at sort of the length of this volume contraction that we have.

Speaker Change: And how the market operates in terms of what will drive recovery.

Speaker Change: So if you look at the underlying end market stay remain historically low.

Existing home sales over the last two years they have been the lowest since 1995 I believe.

Speaker Change: But that they do I have a lot of hopes home sales all housing impacts chemicals that Luke.

Speaker Change: And people buying fewer durable goods and then also when you look at U S auto sales being below the long term average for three years now.

And you look at the PMI the comments I made earlier.

Speaker Change: It's still below 50.

Speaker Change: Most of these things are interest rate driven.

Speaker Change: And so when the interest rates hopefully will keep going down that will start opening up.

Speaker Change: <unk> home sales and that will have a major effect on not only our business, but our customer business as well. So that's one to watch.

Speaker Change: Okay and Larry Thank you very very helpful.

Speaker Change: And maybe if I could ask maybe on the <unk>.

Speaker Change: Polymer side of the business. So you recently opened up the ABC plant in Malaysia, maybe if you could discuss how initial demand is trending for that mental capacity and speaking more broadly on those polymer products.

Speaker Change: Both organically and Inorganically.

Speaker Change: Are you having to give any price per share gains on that space or on the contrary our competitive price pressures still lingering in that business that you discussed last quarter. Thank you again for taking the questions.

Speaker Change: First of all I don't comment on individual plants, but if you look at the.

Speaker Change: The overall polymer space that we operate in.

Our chosen end segment as the Premier end of that market, where we can achieve margins in excess of 18% in fact willing to the 20th.

Speaker Change: That's an important factor to mention the other driver drive us in that market is particular in the <unk> market and with the acquisitions. We've made we are now the global leader in packaging for actual chemicals.

That market is growing and it's driven by population.

Speaker Change: Population growth that we see.

Speaker Change: In the world, So there's less arable land to farm Pudong.

Speaker Change: That means that the.

Speaker Change: Demand for higher yield on Atlanta.

Speaker Change: Available.

Speaker Change: Ties into why we have focused on really getting into becoming a leader in that market.

Speaker Change: I am confident we will continue to grow in that market and we will continue to enjoy and yields good margins and helping our customers grow as well.

Speaker Change: Alright, Thank you all again.

Speaker Change: One moment for our next question.

Speaker Change: And our next question will be coming from George Staphos of Bank of America Securities. Your line is open.

Speaker Change: Hi, everyone. Good morning doing well thanks George.

Speaker Change: Yep.

So I want to cover it a little bit just now, but can you talk a little bit about.

Speaker Change: The variance in AIPAC Cam relative to the deal model.

Speaker Change: Can you talk about some of the underlying drivers obviously, you've covered a little bit.

Can you quantify kind of where you are with that and why you remain confident going forward.

Speaker Change: Want to push back a little bit on the cost optimization.

Speaker Change: Obviously, you spent a lot of time developing this.

Speaker Change: You quantified it and you gave us the target by 2007.

Speaker Change: That would suggest you have some window in terms of the cadence.

Speaker Change: Tell us what might be able to hit the numbers for.

Speaker Change: Fiscal 'twenty five and what is giving you the biggest pause.

Speaker Change: And outlining ago I had a couple of follow ons.

Speaker Change: I'll, let Larry answer the first question, but before I do that.

Speaker Change: Josh Let me just say that when we.

When we close the deal on AIPAC Kevin.

Speaker Change: After that we saw because we saw this.

Speaker Change: Contraction in the actual chemical markets that obviously played into our business case, a little bit that.

Speaker Change: But that's going the right way now.

Speaker Change: It goes through the numbers.

Speaker Change: Yes.

Speaker Change: You look at we had that $8 million inventory cost adjustment impact that we had.

Speaker Change: Our uplift from AIPAC compared to $24 $26 million.

Speaker Change: That will still leave us sure.

Speaker Change: Our business case, which we thought was about 57, plus seven of synergies with the volume decreases were about $4 million on run rate on synergies Thats, all volume dependent coming out of this year, but we have high confidence in obtaining that once we get the volumes back.

Speaker Change: The farmers are doing everything they can to manage their bottom line right now.

Speaker Change: Sure.

Speaker Change: Using less dilutive thing is all of that kind of thing eventually things things will come back in.

Speaker Change: Obviously, you have to buy things when they are for sale and it was a strategic buy and we're confident on the long range profitability of that business.

Speaker Change: In terms of your other question George I would put this in context I mean, we literally just.

Speaker Change: Arrived at our decision to initiate this cost takeout effort in the last couple of weeks.

Speaker Change: We announced it to our colleagues yesterday.

Speaker Change: We have ranges on each of those three elements that only mentioned, but we have not identified how much we're going to be able to get done in 25, how much will get done in 2006 and 2017, we're extremely confident of the $100 million number over that three year period, we are not confident about how much in each year or how much in each.

Speaker Change: Bucket at this point in time.

Speaker Change: Okay.

I'll leave it there, but Larry I would assume if you have a goal that you think you can get to by 2007.

Larry Hill: Yes had to been able to build that up somehow right. It doesn't just show.

Go up right.

Larry Hill: We've got a range we've built ranges George based on benchmarking data based on our analysis of things we have in our six Sigma program and all that but these ranges.

Speaker Change: Do not yield.

Speaker Change: <unk> identified Okay. You can do this by this month for this year. This part of the vision, we haven't laid all that out yet.

Speaker Change: It gets back you've been fair almost all the time is saying look I don't run a business I'm not in there every day doing it I would just say at this point just respect that that's how it works it's hard to get and you got a lot more work to do.

Speaker Change: This this is not this is not a target we will achieve in 2027.

Speaker Change: Got it.

Speaker Change: It's the one we have been working on for a while and so.

Speaker Change: I'd say, it's difficult to tell you that the next quarter will be this or that so, but it's definitely not backlog that I can say to that is well understood listen you are fair to say right. We don't run business, but we do advocate for your investors and that's what we're trying to do here.

Speaker Change: Can you talk a little bit about <unk>.

Speaker Change: Tariffs and what some of the positives or negatives might be in terms of how you evaluate the volume outlook for 2025 and beyond I know, it's difficult, but what do you know right now that you can share.

Speaker Change: Yes.

Speaker Change: We obviously had experiences from from the last time that they know tariffs.

Speaker Change: Imposed.

Speaker Change: You have to remember that we.

Speaker Change: By and large source, our raw materials locally.

Speaker Change: We've produced locally.

And we sell to our customers locally and that means tariffs will really play into our business. If it does play into our business. It would probably be from a positive point of view.

Speaker Change: For instance steel.

Speaker Change: Tariffs means that.

Steel prices go up which happened last time, we saw that that benefits us.

Speaker Change: So.

Speaker Change: And that's something we don't calculate it benefits us so thats.

Speaker Change: So the net effect of tariffs.

Speaker Change: Okay.

Net of whatever it might do for trade and obviously more trade would be better for you than the org structure.

Speaker Change: Last thing and I'll turn it over again I appreciate all the thoughtfulness.

Speaker Change: On the guidance and the buildup.

Speaker Change: Any help you can give us in terms of how the first portion of the year first quarter of the year will look relative to the latter quarters I'm guessing it'll be a slower ramp.

Speaker Change: In terms of earnings power over the rest of the year, but anything there would be helpful. Thank you guys.

Speaker Change: Yes.

Speaker Change: George.

Speaker Change: Our first quarter tends to be.

Slower ramp and obviously with what we.

Speaker Change: Just announced on paper pricing, although not built into our guidance, we would clearly expect that too.

Speaker Change: Be recognized at some point and be them would play through on a longer basis also we do have a little bit of a drag in our metals business in the first quarter because steel prices have been decreasing since about July and what that does.

Speaker Change: Ends to do as lowers our margins because as the index price changes on our price adjustment mechanism contracts were bleeding through slightly higher priced inventory. So you have a little bit of that impact in the early part of the year that will then.

Play out positively through the rest of the year.

Speaker Change: Larry.

Larry Hill: For me did you say your price increases were effective February one or January one I am sorry about that January January one, but they tend to roll through.

Speaker Change: On a delayed basis.

Speaker Change: Through the contract mechanisms.

Speaker Change: Thank you I'll turn it over.

Speaker Change: Okay.

Speaker Change: Our next question.

Speaker Change: And our next question will be coming from Gabe Haiti of Wells Fargo. Your line is open.

Speaker Change: Oh, Hey, Larry good morning.

Speaker Change: Okay.

I'm pretty sure I know the answer.

Speaker Change: I think referenced it twice now, but the $160 million of under absorbed fixed overhead, but in the context of the $100 million savings opportunity that you've laid out some of which is.

Speaker Change: It looks like rooftop consolidation et cetera does that limit your way or your ability to unlock kind of monetize that under absorbed fixed overhead from a volume standpoint.

Speaker Change: No.

Speaker Change: Okay.

Speaker Change: And then of course, you guys can disagree but.

Speaker Change: Two.

To your point or 25 months into what feels like an industrial winter.

Speaker Change: Have you guys started to do any work and perhaps this $100 million is a little bit reactionary.

Speaker Change: Is there any structural change.

Speaker Change: Demand that you might be seeing from your customers from.

Speaker Change: Got three things that kind of popped into my mind.

Speaker Change: <unk> transition in other words.

Speaker Change: Lubricants and additives and different things like that for ice engines versus EV.

Speaker Change: Maybe a permanent shift in consumer preferences for.

Speaker Change: Experiences versus stuff.

And then maybe a push towards multifamily living versus singles.

Speaker Change: Single family houses given affordability.

Speaker Change: Yes, I'd say three let me take those actually sort of in reverse.

Speaker Change: Pent up housing demand has never been higher in this in this country right now I mean, Columbus, Ohio happens to be the most underhoused market in the United States.

So I don't think Theres, a permanent shift to multifamily.

I think they are right now theres a lot of pent up demand of people sitting in multifamily who would love to get into single family housing, but also let me be clear the real driver for US is less about new homes than it is about existing home sales and existing home sales are now at the lowest point they've been since 1990.

Speaker Change: So when people move those homes, they freshen up the home theyre selling.

Speaker Change: Pain it people come in and say well you need just to look better take the carpet out put this in so you can stage for us.

Speaker Change: To sell it that causes people buying things then you also go to the New House and you go into I fall in love with it and then one spouse or the other decides when you get in Oh I didn't really like this room this way I'm going to change this.

Speaker Change: Just drives a lot of product sales a lot of demand, particularly in the lubricant business.

Speaker Change: In terms of consumer demand and that kind of thing and as shifts too.

Speaker Change: Experiences rather than stuff I mean look that could be a long term macro trend and that would have consequences.

Speaker Change: I don't Havent read anything that indicates people think that that's a long term thing on Evs. The third element you mentioned the analysis, we did have that a number of years ago.

Speaker Change: Vast demand for our lubricants is not in the vehicles or it's really in machinery and industrial plants.

Speaker Change: And ironically it within the Evs themselves a lot of the.

Speaker Change: Actuals and all the things that actually need lubricants, there's actually as much in an EV as there is in a in a.

Historical combustion engine car.

Speaker Change: And if you look at like look like oil quotes the CAGR on that towards 2030 is actually over 5%.

Speaker Change: And it's driven by people run that cost long ago.

Speaker Change: EV has plateaued out what youll see growers.

Speaker Change: Hybrids.

Speaker Change: Bill requires loop. So so we don't see any effect of that.

Speaker Change: On Russia.

Speaker Change: Listen I mean, we'd love the theme you guys unlock that $150 million.

Speaker Change: Just trying to understand what the impediment has been from a volume standpoint.

Speaker Change: Yes.

Speaker Change: So I'm just going to say in terms of putting more call. It. So that 100 million, we will be doing that at Investor Day next week actually both the <unk> and Patty M'lady will cover that in their presentations.

Speaker Change: Well I was going to go there I mean, I know George kind of try to dice.

Speaker Change: The different pieces and maybe got some butt.

Speaker Change: Is any of this also in response to things maybe your customers are doing in terms of consolidating their own footprint.

Speaker Change: And trying to be proactive there.

Speaker Change: I'll leave it there.

Speaker Change: Yes, we don't I mean, its not related to that obviously, if our customers did something that.

Speaker Change: Brazil, the us not needing a particular plant we would obviously address that but this is not related to that in any fashion.

Speaker Change: Okay last question, maybe putting a little bit too fine a point, but you gave us some data points I want to try to use them appropriately.

Speaker Change: Sure.

Speaker Change: The diligence.

Speaker Change: Math or EBITDA associated with IP Cam was 57, and the $7 million of synergies.

Speaker Change: I think you said $26 million was the contribution in fiscal 'twenty four and then you told US 19 in fiscal 'twenty, five but that was AIPAC him less delta.

Speaker Change: Im seeing a $94 million inflow of cash from the sale of Delta.

Speaker Change: Maybe that.

$10 million or so of EBITDA that goes away so.

Speaker Change: I mean, he has a pretty close on an iPad camera or is that not the right math.

Speaker Change: Yeah. So on on Delta, we sold Delta for about $90 million, which was eight five times.

Speaker Change: So it is a headwind in Q4 was about 4 million. So the net of that is seven they were a little back ended on the results for Delta on an iPad can the lift year over years $26 million.

Speaker Change: From last year, I think we'd get toward at $42 million run rate and our low end guidance for <unk> for the year for AIPAC. This coming year. So it's still $27 million short of our business plan, which is all demand trend driven Gabe. So hopefully that helps you in that 42 is an 11, yes, I'm sorry, yes, it's 11 months.

Speaker Change: Okay.

Speaker Change: Thank you guys.

Speaker Change: Okay.

Speaker Change: And one moment for our next question.

Speaker Change: Our next question will be coming from Brian Butler of Stifel. Your line is open.

Brian Butler: Hi, guys. Thanks for taking my question.

Brian Butler: Future.

Brian Butler: Paul maybe you said, you're kind of going down the path of re segmenting and you have a low end guidance for 25.

Speaker Change: Can you give some color around the new segments and maybe what organic growth is kind of built into that low end guidance.

Speaker Change: Yes, I mean, when we look at what we're seeing in our.

Speaker Change: Corrugated business.

Speaker Change: A lot of the growth is.

Speaker Change: As I said is tied to the investment in our Dallas sheet feeder.

Speaker Change: <unk> kind of business.

Speaker Change: The growth trend for our <unk> CRB, we've got about 8%.

Speaker Change: In tubes and cores about four you've got.

Two to five on containerboard and corrugated sheets.

Speaker Change: Kind of range or plastics.

Speaker Change: 3%, roughly and then like I said in our metal solutions, it's really low.

Speaker Change: Low single digits down.

Speaker Change: Okay and then on the.

Speaker Change: On the 100 million in savings I know, we've kind of gone over this a couple of times, but I might just maybe asking it another way if not $100 million all coming in 2027. So theres thumping in 25, you don't know what that is but you haven't zero in your low end guidance does that not a fair statement that's just.

That's accurate.

Speaker Change: Okay.

Speaker Change: So again, whether it's $5 million or 20 million I don't know, but it's something that it's something other than zero.

Speaker Change: We will get something in this fiscal year.

Speaker Change: And just to remind you Brian.

Speaker Change: It's 24 24 is our baseline for 'twenty fiscal year.

24 for what the $100 million.

Speaker Change: Although savings savings is from a 2024 baseline.

Speaker Change: Right. So starting starting this year, but youre going to youre going to get the savings over the next three years there wasn't any savings in 'twenty four.

Speaker Change: Great.

Speaker Change: Okay.

Speaker Change: Right Okay.

Speaker Change: Alright, I think that was all the all my other questions been asked so thank you very much.

Speaker Change: And one moment for our next question.

Speaker Change: Our next question will be coming from Michael <unk> of Truth. Your line is open.

Speaker Change: Yeah, Hi, guys. Thanks for taking my questions. This is a unique opportunity on for Mike today.

Speaker Change: Yes.

Speaker Change: I guess just.

Speaker Change: I apologize if I missed it earlier in the call, but does your guidance assume full implementation of the containerboard price increase.

Speaker Change: No as non event.

Speaker Change: Okay.

Speaker Change: Got it and then just I guess switching to.

Speaker Change: To your B, what are you seeing there and what are your thoughts on.

Speaker Change: We're <unk>.

Speaker Change: Pricing might go for U R B.

Speaker Change: Yes, we don't talk on future price increases.

Speaker Change: As we've said the demand in that segment.

Speaker Change: Yeah.

Speaker Change: Rates of operating rates have been.

Yes.

Speaker Change: Sort of stable demand, but no no real pick up the drag is really in paper cores for most of the box board grades of paper.

Speaker Change: And we haven't seen robust left or any kind of inflection in that business much across the rest of our portfolio being the same other than containerboard.

Speaker Change: Understood and then just last for me.

Speaker Change: Just on an index pricing in general.

Speaker Change: Sure.

Speaker Change: Has there been any more discussions or any any thoughts around them switching.

Speaker Change: Maybe further away from index pricing to the value added pricing model and paper.

Speaker Change: Are you going away from the originally model exactly yes.

Speaker Change: I mean, we thought part of that we don't discuss that we are in the container bought a small player.

So to my knowledge Thats been done developments.

Speaker Change: Okay understood. Thank you.

Speaker Change: And one moment for our next question.

Speaker Change: Okay.

Speaker Change: Our next question is a follow up from George Staphos of Bank of America Securities. Your line is open.

Speaker Change: Hi, guys. Thanks for taking the follow on Ken.

Speaker Change: <unk>.

Speaker Change: Provide perhaps a bit more color.

Speaker Change: On what Youre seeing in the box board markets.

Speaker Change: I was curious if I heard you correctly too one of the prior questions you are looking for growth.

Speaker Change: And you are being CRB.

Speaker Change: I thought you said, maybe 8% correct me, if I'm wrong and.

And how do Y in tube and core you have up for.

And yet based on your answer to I think mucosa question.

Speaker Change: Earlier.

Other than containerboard youre not seeing much of a lift in any of the paper market. So help me.

Put all of those.

Speaker Change: Those are those boxes together no pun intended thank you.

Speaker Change: Okay.

Speaker Change: If we just look at first of all on the corrugated market.

Speaker Change: Demand is up 2% year over year that excludes Dallas and if you look at the FPA numbers then the industry is down 2%. So we've experienced growth there.

Speaker Change: In Q1 call.

Speaker Change: We are down slightly year over year.

Speaker Change: And we are flat from Q3.

Speaker Change: <unk>.

Speaker Change: If you look at the spinal Mount products, we make we actually up 2%, but that's offset by <unk>.

Speaker Change: Softness in speciality products like and protect us on the adhesives.

Speaker Change: The North American market improvements really supports payments you demands although from a low base.

Speaker Change: So.

Speaker Change: Yes.

Speaker Change: I don't know if you have any.

Speaker Change: Mariner and conquer further to that.

Speaker Change: Okay.

Speaker Change: I think that's the best way.

Speaker Change: No not really.

Speaker Change: Okay. Thank you.

Speaker Change: And one moment for our next question.

Speaker Change: Our next question is a follow up from Gabe Haiti of Wells Fargo. Your line is open.

Gabe Haiti: Thank you guys for taking the question.

Gabe Haiti: As it relates to the $100 million.

Gabe Haiti: You called out $86 million of inflationary headwinds this year.

Gabe Haiti: Larry.

34 of sort of what I see as a discrete item.

Gabe Haiti: Medical technology things like that.

Speaker Change #101: So the question is that $86 million sort of a new and policing treadmill that we should think about.

Speaker Change #101: For growth on a go forward basis.

Speaker Change #101: And then secondarily are you incurring any costs, whether it's through opex or capex.

Speaker Change #101: To implement this $100 million and again I appreciate what kind of some thunder from next week.

Speaker Change #101: Yes.

Speaker Change #102: Inflationary cost increases was.

Speaker Change #102: Our overall increase in manufacturing costs.

Speaker Change #103: Yes. So we had some of it is related to just volume impact that we've said.

Speaker Change #103: It's all we're tying in all of these cost increases and obviously low end.

Speaker Change #103: <unk> guidance, but the.

Speaker Change #103: So you say you've got cost that met from acquisitions at a time when demand is low so you've added manufacturing costs, but the volume pressures down.

Speaker Change #103: Because of just the demand dynamics, so you've got that margin squeeze. This just related to that that then goes back to that $160 million left if the volume recovery comes about you might remember when we talked about that last quarter. We talked about is about in our old segments $90 million was in the Gi space.

Speaker Change #103: <unk> six <unk>, PPS and about $20 million and acquisitions don't live up to that roughly 160 178 number.

Speaker Change #103: So.

Speaker Change #104: Yes, there is inflationary labor cost and those kind of items in there, but it all comes just into the overall manufacturing cost less that will be going after part of that through operational efficiencies and Kim and Patty will talk more about those things next week.

Speaker Change #103: Yeah.

Speaker Change #105: Okay and are there any costs in discrete costs. This year in fiscal 'twenty, five with implementing $100 million savings.

Speaker Change #106: Yes, most likely there would be I mean, obviously to the extent that things.

Speaker Change #106: They are go to if we do any plant consolidations or to the extent that you do any head count moves that would obviously be some severance related costs that will generate that long term benefit obviously, but and that goes obviously into the whole equation of do you before it on something like that or not.

Speaker Change #106: Okay.

Speaker Change #107: Thank you.

Speaker Change #108: And I would now like to turn the call back to <unk> for closing remarks.

Speaker Change #109: Thank you.

Speaker Change #110: Thank you once more for your interest in <unk>, we all hope to see you next week at Investor Day. Thank you.

Speaker Change #110: And this concludes today's conference call. Thank you for participating you may now disconnect.