Q1 2025 Sonoco Products Co Earnings Call
Thank you for standing by and welcome to the Sunoco first quarter 2025 earnings Conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question again.
Speaker Change: Press the star one thank you I'd now like to turn the call over to Roger Schrum interim head of Investor Relations and Communications you may begin.
Speaker Change: Thank you Rob and good morning, everyone yesterday evening, we issued a news release and posted in the Investor presentation that reviews. Sunoco is 2025 first quarter financial results.
Speaker Change: Both are posted on our Investor Relations section of our website at Sonoco Dot com.
Speaker Change: A replay of today's conference call will be available on our website and we'll post the transcript later this week.
Speaker Change: If you would turn to slide two I would remind you that during today's call. We will discuss a number of forward looking statements based on current expectations estimates and projections.
Speaker Change: These statements are not guarantees of future performance and are subject to certain risks and uncertainties. Therefore actual results may differ materially. Additionally.
Speaker Change: 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.
Speaker Change: Further information about the company's use of non-GAAP financial measures, including definitions as well as reconciliations to GAAP measures is also available on the Investor Relations section of our website.
Speaker Change: Finally references to certain financial metrics, along with corresponding year over year comparable results made on this call are on a full company basis, except when specifically referred to or continuing operations or for discontinued operation.
Howard Coker: Joining me on this call today is Howard Coker, President and CEO, Rodger Fuller, Chief operating officer, and Jerry Cheatham interim Chief Financial Officer.
Howard Coker: For today's call, we will have with prepared remarks, followed by a Q&A.
Howard Coker: If you'll now turn to slide four in our presentation I'll now I will turn the call over to Howard.
Howard Coker: Thank you Roger and good morning, everyone.
Howard Coker: Let me start our first quarter results demonstrated the strength of the new Sunoco as our global team achieved record top line and adjusted EBITDA performance.
Howard Coker: Five shows net sales were 31%.
Howard Coker: Our growing 31% and adjusted EBITDA was up 38%.
Howard Coker: Adjusted earnings were up 23%, despite higher than expected interest expenses taxes, and the negative impact from currency currency translation.
Howard Coker: I'll, let Jerry go through the key drivers for the quarter, but overall, we are pleased with the improvement in both our consumer packaging and industrial packaging segments.
Jerry: The 127% growth in adjusted EBITDA in the consumer segment reflects a full quarter of the UBS acquisition, along with strong volume mix from our legacy metal in rigid paper can businesses in a positive.
Howard Coker: Price cost environment.
Howard Coker: Industrial segment generated a 6% improvement in adjusted EBITDA stemming from a year over year improvement in price cost and productivity.
Howard Coker: Volume was down low single digits in the quarter, that's flat results in South America was offset.
Howard Coker: Our results in the rest of our served markets.
Howard Coker: As shown on slide six we completed the sale of the thermal formed or flexible space.
Howard Coker: <unk> holdings.
Howard Coker: Time and as expected.
Howard Coker: Received approximately $1 $8 billion in cash for the business, which generated approximately $156 billion in after tax proceeds, which we used to significantly reduce debt and strengthen our balance sheet.
Howard Coker: We do extend our best wishes for continued success to our approximately 4500, former TFA teammates and our new Pan Tang.
Howard Coker: On April one we completed the first phase of the integration of Avs.
Howard Coker: I read that branding the business sonoco metal packaging EMEA.
Howard Coker: As shown on slide seven we're changing our digital imagery as well as physical signage products overall.
Howard Coker: Overall, while early it's been a real nice start to the integration.
Howard Coker: We're going to treat our global metal packaging businesses as a single enterprise to better capture the best ideas and innovation and synergies.
Howard Coker: Our integration efforts produced strong synergy savings across the global metal packaging enterprise and the FERC order and we now believe we should be able to achieve approximately $40 million of savings at 2025 on our way towards our two year synergy target of $100 million.
Howard Coker: Working together, our global Cam business. Those are also identifying long term savings and carpark commercial opportunities that will benefit our customers for years to come.
Howard Coker: We are encouraged by the performance of our combined global metal packaging business and we continue to find opportunities to work with our customers to provide even greater by an enhanced innovation much stronger global supply chain.
Howard Coker: After one quarter together, our global metal packaging sales are tracking at or.
Howard Coker: Expectations on adjusted EBITDA margins was near 16%.
Howard Coker: Our U S metal packaging business had strong year over year result, as the business achieved 10% organic volume mix improvement a strong growth in aerosols in food cans coming from both existing customer demand and new customer wins.
Howard Coker: Adjusted EBITDA for our MAA metal packaging business was up approximately 23% in the first quarter on productivity say savings and positive year over year price cost environment.
Howard Coker: Can volumes in Europe reflect a slower market conditions in the region, but we're encouraged by new customer wins, particularly in the pet food segment, where we will start seeing benefits in the second half and continue on into future years, as we build out additional production capability.
Howard Coker: Finally, our global rigid paper can business had a solid first quarter as low single digit volume mix growth in North America, South America was somewhat offset by slower European.
Howard Coker: Southeast Asia volumes.
Howard Coker: With that brief introduction I'll turn the call over to Jerry to review the numbers.
Jerry: Thanks Howard.
Jerry: I'm pleased to present, the first quarter financial results starting on page nine of the presentation.
Jerry: Please note that all results on an adjusted basis and all growth metrics on a year over year basis, unless otherwise stated.
GAAP to non-GAAP EPS reconciliation.
Jerry: In the appendix of this presentation as well as in the press release.
Jerry: As Howard mentioned on April one 2025, we finalized the sale of our thermal form new flexible packaging business, marking a significant milestone in advancing a fewer bigger businesses strategy.
Jerry: This divestiture strengthens our focus on core sustainable packaging platforms and positions us to reinvest in higher return opportunities that drive long term earnings growth and margin expansion.
Jerry: Looking ahead.
Jerry: Our leadership in two core markets will enable us to operate more efficiently and serve our customers with greater focus and agility.
Jerry: Adjusted EPS was $1 38.
Jerry: Earnings per share increased 23% year over year, mainly driven by continued strong productivity of $17 million and favorable price cost performance across our core businesses.
Jerry: These gains were partially offset by unfavorable volume mix.
Jerry: Other nonrecurring items and currency translation.
Jerry: First quarter net sales increased 31% to $1 7 billion, excluding discontinued operations of $321 million.
Jerry: This change was driven by favorable price and the impact of the full quarter of S&P EMEA sales.
Jerry: Adjusted EBITDA of $338 million was up by an outstanding 38% and adjusted EBITDA margin improved 170 basis points to 16, 6%.
Jerry: This was driven by positive price cost so.
Jerry: Stained favorable productivity.
Jerry: And the impact of acquisitions, and partially offset by volume softness in the industrial segment and the impact of currency translation.
Jerry: Page 10 is our consumer segment results on a continuing operations basis.
Jerry: Consumer sales were up 83% due to the S&P EMEA acquisition and favorable volume mix.
Jerry: Global rigid paper containers sales increased marginally compared to the prior year, while our domestic packaging business, our domestic metal packaging business achieved double digit growth, reflecting solid demand and continued commercial execution.
Jerry: Consumer adjusted EBITDA from continuing operations grew a remarkable 127% year over year due to the impact of acquisitions favorable price cost dynamics.
Jerry: <unk> productivity gains and positive volume mix.
Jerry: Page 11 has our industrial segment results.
Jerry: Industrial sales decreased 6% to $558 million.
Jerry: Results were impacted by lower volumes.
Jerry: Planned exit of our industrial operations in China, and unfavorable currency translation.
Jerry: These headwinds were partially offset by low single digit improvements in selling prices driven by index based price resets.
Jerry: Adjusted EBITDA margins expanded 200 basis points year over year in the first quarter, primarily driven by favorable price cost dynamics and productivity gains.
Jerry: These benefits were partially offset by negative volume mix as well as the impact of unfavorable currency translation and other items.
Jerry: Adjusted EBITDA increased by $6 million to $101 million, representing a 6% increase.
Jerry: Page 12 has our results for the all other business.
Jerry: The all other sales were $85 million and adjusted EBITDA was $14 million.
Jerry: These sales and adjusted EBITDA results were affected by the divestiture of protective solutions combined with the ongoing softness in some key end markets.
Turning to page 13, we are reporting on our debt reduction progress.
Jerry: As of today, we have reduced our net leverage is just under four times net debt to adjusted EBITDA.
We used approximately one 5 billion in after tax proceeds from the TSP sale to fully repay our $1 5 billion term loan.
Jerry: Our primary focus is to delever the business through strong organic cash flow and by using divestiture proceeds to reduce debt.
Jerry: We've established a clear and actionable roadmap to achieve this over the next 18 to 24 months.
Jerry: Our liquidity position remains strong with approximately $915 million in available capacity.
Jerry: Adding us with ample financial flexibility to support our operations navigate market conditions and invest in strategic initiatives as needed.
Jerry: Slide 14 provides a summary of the full year guidance.
Jerry: We are reaffirming our full year guidance.
Jerry: We expect to deliver adjusted EPS within the range of $6 $6 20.
Jerry: This outlook reflects continued strength in our legacy businesses.
Jerry: The accretive impact of S&P EMEA acquisition.
Jerry: And the now completed divestiture of TSP, which is expected to be modestly dilutive.
Jerry: We also anticipate some headwinds.
Jerry: Including a higher effective tax rate and some softness on the industrial volume mix.
Jerry: This will be more than offset by the expected favorable price cost outlook.
Jerry: Actions to reduce fixed cost total volumes in the consumer segment and the favorable impact of currency translations due to a weaker U S dollar.
Jerry: The previously announced price increases on a euro being converted products in North America were intended to defend our margins from continued inflation.
Jerry: The implementation is going well and we anticipate seeing those benefits in our second half results.
Jerry: We expect another strong year of cash generation with operating cash flow projected between $800 million to $900 million and free cash flow between $4 $50 million to $550 million.
Jerry: And now I'll hand, it over to Howard to walk us through our transformation journey alright.
Howard Coker: Alright, Thanks, Gerry one of the things we don't talk enough about will view our quarterly results is the unbelievable work and dedication of our team.
Howard Coker: Thats floating around the transformation of the new Sunoco into software stronger and more sustainable company.
Howard Coker: In the past quarter, our team successfully completed a complex carve out divestiture of the TFP business and.
Howard Coker: In addition, our 6500, new teammates with Sunoco metal packaging EMEA are quickly.
Howard Coker: Working to integrate the business and drive expected synergies.
Howard Coker: As we show on Slide 15, since we began this journey five years ago, we have reduced the number of divisions in our portfolio from 18 down to three.
Howard Coker: Three for consumer and industrial businesses, while creating an enterprise that is positioned for future growth.
Howard Coker: As we show on Slide 16, Sonoco was recently recognized by Newsweek as one of the most trustworthy and respected companies in the United States. In addition, just last week on Earth day.
Howard Coker: Today nine Psycho one of America's climate lasers for 2025 and recognition of our efforts over the past several years to reduce carbon emissions from our operations.
Howard Coker: These honors belong to our employees, who work every day to make life better for our customers our communities and shareholders.
Howard Coker: We've been asked a lot recently about tariffs and how Sunoco may perform during periods of economic stress.
Howard Coker: Let me make a couple of observations first in arcos consumer packaging business tends to perform well during periods of economic stress as consumers typically shift the center of the store packaged food.
Howard Coker: While industrial paper packaging business has experienced some slowing there in past recessions I would point out that our industrial business in 2025.
Howard Coker: Significantly stronger than the markets, we serve have matured since the COVID-19 recession of 2020.
Howard Coker: Now does that mean that <unk> is immune to an economic down downturn or tariffs certainly not.
Howard Coker: If you turn to slide 17, Youll see we believe <unk> is better positioned than ever to navigate the evolving geopolitical landscape.
Howard Coker: First our manufacturing network is designed to serve local markets and reducing our exposure to cross border disruptions on tariff related risks.
Howard Coker: Second while we are actively working with our customers to help manage the impact of higher input costs, driven by tariffs or business model allows for pricing adjustments when necessary.
Howard Coker: Most importantly, our transform portfolio is significantly more resilient with over two thirds of our sales now coming from consumer food packaging segment that has historically demonstrated strong performance across economic cycles.
Howard Coker: Turning to slide 18, Sonoco, whose goal is to increase long term profitability and return capital to shareholders.
Howard Coker: Over the past two years <unk> generated a record $1 $7 billion in operating cash flow and approximately $1 billion of free cash flow.
Howard Coker: Much of this cash to invest in ourselves for future growth and to drive productivity savings.
Howard Coker: While we are currently focusing on using free cash to lower leverage.
Howard Coker: Our dividend remains an important part of our value creation story.
Howard Coker: Since 1925, which was roughly 100 consecutive years Sonoco has paid quarterly dividends and Suwanee investment service share dividend of <unk> <unk>, It's number four up dividend champions for 2025.
Howard Coker: While our board of directors recently increased our quarterly dividend for the 40 <unk> consecutive year and that provides a strong yield of four 6%.
In closing I thought it'd be worthwhile to review my priorities for the rest of the year, which is shown on slide 19.
Howard Coker: First and foremost is the mine the store to continue to drive improved performance of our core consumer industrial business.
Howard Coker: Embedded in that priority is to manage risk associated with the changing macro economic conditions.
Howard Coker: Next we will continue to manage the metal packaging EMEA integration and look to further optimize our global manufacturing network and organization will continue to prepare for the planned divestitures of our attractive the non core temperature assured business and finally, we must better communicate our value.
Howard Coker: Asian story to help improve our very much under appreciated stock.
Howard Coker: Slide 20 lists developed a daughter illustrate the new Sunoco.
Howard Coker: Our businesses are served markets and our geographic footprint.
Howard Coker: As Jerry mentioned, we reaffirmed our full year 2025 guidance as we expect to grow net sales by approximately 20% to nearly $8 billion.
Howard Coker: We expect adjusted earnings to grow approximately 20% and adjusted EBITDA by approximately 30%.
Howard Coker: Despite seasonal working capital changes in the first quarter snooker remains a strong cash flow generator and we expect operating cash flow this year to be between.
Howard Coker: 800 $900 million.
Howard Coker: Even with economic uncertainty, we remain confident in our ability to deliver continued growth margin expansion and strong cash flow generation enabled us to drive even greater long term value for our shareholders.
Howard Coker: And with that operator, we're ready to take questions.
Speaker Change: Thank you we will now begin the question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad to raise your hand and joined the queue. If you would like to withdraw your question simply press Star one again.
Speaker Change: Our first question comes from the line of George Staphos from Bank of America. Your line is open.
George Staphos: Hi, everyone. Good morning, Thanks for the details.
George Staphos: I guess first question I would have if you could just give us a bit more color.
George Staphos: On the volume performance by region.
George Staphos: By key segment or product line I know you touched on a lot of it.
George Staphos: Our during your remarks, but if you'd just give us sort of a quick review nor.
George Staphos: North America versus Europe versus rest of World, If you care to talk to that.
George Staphos: Rigid paper metal and industrial on an organic if you have that that'd be great and then a couple of other questions.
George Staphos: Sure George.
George Staphos: And let's start with the consumer side.
George Staphos: Felt really positive in total, but the drill into that.
George Staphos: And we were talking.
George Staphos: Mid single digits over the consumer on a global basis, but when you drill down to what we're seeing is ready to taper North America was actually slightly up.
George Staphos: In South America, the same South America was really strong.
George Staphos: You go over to Europe, we were down.
George Staphos: Similarly wishes for the first time in a long time, we saw that our South East Asia.
George Staphos: Rigid paper volumes were down.
George Staphos: Europe, and southeast Asia and to some extent.
George Staphos: In North America, one discrete customer very large customers going through a transition at this point in time and we've seen some pullback.
George Staphos: So we don't see that as being nothing more than a timing issue.
Particularly in Europe, and South America and benefit.
Speaker Change: Not South America, Southeast Asia and benefit.
George Staphos: As things clear up there on.
Speaker Change: On the industrial side.
Speaker Change: Really a lot of red, but low single digits.
Speaker Change: Mike.
Speaker Change: North America suggests again.
Speaker Change: Low single digits, the real issue call out there would be Europe Europe was.
Speaker Change: Softer than we expected.
Speaker Change: But if you take South America, which is basically flat slightly down in U S.
Speaker Change: We're pretty much holding our own on the industrial side as well so.
Speaker Change: Okay, that's kind of the big picture.
Speaker Change: And you said asked about metal so metal.
Speaker Change: But in North America as Ive said, we said, 10%, but let me, let me unpack that a bit.
Speaker Change: Our aerosol business was up roughly 25% quarter over quarter, our food can business was probably 10 plus percent.
Speaker Change: But what's embedded in there is our intercompany sales related to components. So loose ends et cetera, where again, we have one discrete customer.
Speaker Change: That has pulled back on their volumes that we expect to see a return in the relatively near future. So.
Speaker Change: If you're really talking about can bodies.
Speaker Change: Europe, probably in that 15% type range in total between aerosol food.
Speaker Change: Europe.
Speaker Change: While we are very pleased with how things have started an improvement year over year in terms of profitability of the business.
Speaker Change: Slower than our expectations and I would say right all mid single digits down to our expectations.
Speaker Change: Okay, and we see that at least we see.
Speaker Change: We see that as a bit of a timing issue.
Speaker Change: It's typically a softer first quarter and as Youre, well aware a ramp up through second and third.
Speaker Change: Okay, and just Youre pleased with Europe, it's down mid single digits and metal so far correct.
Speaker Change: Say that again.
Speaker Change: Europe, Youre pleased but it's down mid single digits and metal.
Speaker Change: Yes.
Speaker Change: Okay, Yes.
Speaker Change: Yes.
Speaker Change: Stability was EBITDA was up about 25% year over year.
Speaker Change: Thanks for that rundown Howard.
Speaker Change: Two quick ones and I'll turn it over one are you seeing any changes in purchasing behavior or any changes in supply chain.
Speaker Change: To call out on customer promotional activity given tariffs given the macro and that's sort of a.
Speaker Change: A big question you don't have to go through everything, but if there's anything in particular, we as analysts should know about Ross how we're modeling <unk> going forward, that's kind of what's behind that question and then you talk about messaging and trying to.
Speaker Change: This is my wording not yours get the story out to a larger degree on sonoco.
Speaker Change: Neither here, nor there, but what do you think needs to be better understood by the market.
Speaker Change: Relative to the discount you see in the stock versus where you think it should be thanks, and I'll turn it over.
Speaker Change: Sure, what we're sort of trying to supply chain cost.
Speaker Change: Spurs, etcetera, and really not a lot.
Speaker Change: I think when we will start feeling that is when we start seeing.
Speaker Change: What I would suspect would be increased pull through.
Speaker Change: From our consumer customers, which historically.
Speaker Change: Our consumer businesses have performed very well.
Speaker Change: But not a lot what I would suggest that unique to sunoco.
Speaker Change: We do have.
Speaker Change: Our largest.
Speaker Change: Paper <unk> customer in the midst of an acquisition.
Speaker Change: So to your point about marketing et cetera, we've seen.
Speaker Change: We've seen decreases there so as they anticipate the turnover of that business. So those stagnation in the last quarter or so with that customer.
Speaker Change: Yes.
Speaker Change: Very very strong.
Speaker Change: Opinions about where the new monarch and Bob can take this business. So we'll see how that manifests itself post close mid year.
Speaker Change: <unk>.
Speaker Change: It's really more about as we're ending this whole transition.
Speaker Change: As you guys know as you know.
Speaker Change: The numbers, it's tough to follow whats all going on and to be able to start reaching a point of I would never say finished state.
Speaker Change: Certainly on the trajectory we've been literally the last five years.
Speaker Change: Start being able to connect the significantly improved performance. The company has seen over the last couple of years and the inverse relationship to our stock and start telling the story on where we are where we're landing where we're going.
Speaker Change: And I think Dave and starting today, it should be a little more clear from a lot more clear than it would've been.
Speaker Change: In earlier periods. So that is just is just getting the message out about who we are where we're going what the opportunities look like.
Speaker Change: And it's pretty exciting pretty exciting go forward story for the company.
Howard Coker: Alright, Howard I appreciate it thanks, I'll turn it over good luck in the quarter.
Speaker Change: Thanks.
Speaker Change: Your next question comes from the line of Michael <unk> from <unk> Securities. Your line is open.
Michael: Thank you Jerry.
Michael: Roger Roger for taking my questions and congrats on all the progress.
Speaker Change: Can you help US you mentioned managing a global network can you give us a sense of where there are opportunities.
Speaker Change: And some of the things that you are considering doing around your global network.
Roger Schrum: Yes, Michael this is Roger I think that specifically talking about.
Roger Schrum: Our metal in our metal can business or metal and supply in hours already mentioned net debt, how that's integrated into our into our paper can business.
Roger Schrum: Significant added operations in Europe, with a lot of the strategic tin plate supply being provided out of Europe.
Roger Schrum: Looking across the platform, our European platform, our Asia and U S and deciding where is the best location primarily to produce easy open ends non easy open ends components for all of our businesses all of our consumer business now our can businesses.
Roger Schrum: And making those decisions over the next couple of years strategically where can we provide the lowest cost solution to our operations into our customers.
Roger Schrum: And working through that as we speak so that's really in my opinion outside of the tremendous synergy opportunity, which we can talk about later that we have just combining our two are two metal businesses. So again is looking at this global platform, we have now and making those longer term decisions on whereas the low cost opportunities how do we use at the game.
Roger Schrum: Sure to grow our business, which is the ultimate objective of looking at that global platform, Yes, Michael Let me add one other.
Roger Schrum: And if you look at our global rigid paper container business. This is how we operate.
Roger Schrum: We operate under one single umbrella globally.
Roger Schrum: And the benefit and we started that probably 10 to 12 15 years announced.
Roger Schrum: David will take the best of the best of each market in terms of technology.
Roger Schrum: R&D innovation and have that centralized where theres not cross border.
Roger Schrum: The challenges.
Roger Schrum: As our competition, but.
Roger Schrum: But.
Roger Schrum: Being able to create the best global in terms of those categories.
Roger Schrum: It's worked well for us.
Roger Schrum: On the.
Roger Schrum: On the paper Cam side.
Roger Schrum: You'll see us over time.
Roger Schrum: That's the same type of structure and so again taken the best of one region in the best of the other region in creating something that no one else has been able to.
Speaker Change: That's very helpful guys, just on that'd be oca's history, and transitioning I think.
Roger Schrum: You said EBITDA was up 23%.
Roger Schrum: Year over year, one Q I think you reiterated the guide for EBITDA would be up 10% is that just conservatism or is that.
Roger Schrum: Is that some concerns over tariffs and economic concerns like why why reiterate the more modest guide relative to what strong one key performance.
Roger Schrum: I'm just I guess.
Roger Schrum: Conservative in comps.
Roger Schrum: No doubt about it last year was a weaker order.
Roger Schrum: <unk> quarter this year.
Roger Schrum: Being conservative as we go forward.
Roger Schrum: Nothing operationally it stands out.
Roger Schrum: Because it just.
Roger Schrum: Yes.
Roger Schrum: Okay.
Roger Schrum: Yes.
Speaker Change: Got you and one last quick one last question before turning it over just in terms of dws is like integration.
Speaker Change: Last quarter, you mentioned, having a very strong leadership team there.
Speaker Change: Does the company done to ensure that the team has retained and theres not turnover in the near term that could cause disruption and negatively impact results.
Speaker Change: Yes.
Speaker Change: Yeah, Michael It's Roger let me just talk a little bit about the integration and maybe this gets out in front of a couple of questions that I know, it's on People's minds, but youre right. We are pleased with the integration very impressed with the capabilities and talents of the.
Speaker Change: The new team and seeing nice progress on the integration across the board.
Speaker Change: I think number one.
Speaker Change: Spending time with the leadership team and the critical people in the business.
Speaker Change: Across the board from our customers from the market standpoint.
Speaker Change: And our people are very pleased to see a strategic buyer coming in stepping in and taking a leadership position in the food can market.
Speaker Change: In Europe. So in general the team is very pleased to be part of Sunoco and they understand the vision and they understand what we're trying to do with the global business.
Speaker Change: And they wanted to deliver they want to deliver the results that we're looking at so typically.
Speaker Change: As you go through these I think you know they were retention type discussions that we have.
Speaker Change: Around timing around packages around the business.
Speaker Change: Thats, all going extremely well the leadership team has tremendous experience in the metal can market.
Speaker Change: They want to continue with the business. So it's really just that constant communication and really the culture of sonoco is making people in the field involved with the business, making people feel part of something bigger and again I can tell you across the board we feel comfortable that the critical people that we need in the business will continue to stay with.
Speaker Change: Let me go ahead and talk about synergies because I know it will come up from a cost synergy standpoint, Howard has already mentioned, we're upping our run rate this year to the $40 million level by the end of the year, becoming more and more confident that we can at least hit that $100 million level by the end of 2026, which has been.
Speaker Change: Our commitment.
Speaker Change: Direct synergies materials direct materials, we're looking at it from a global tin plate business standpoint.
Speaker Change: Indirect logistics business SNA, we're looking at it from a European footprint standpoint, keep in mind that over 40% of Sonoco is now based in Europe that we're looking at synergies across our paper can business, our industrial business and our metal business in Europe and.
Speaker Change: And then finally ABS is as you know as a standalone business. So from a corporate S. A nice standpoint, good synergies there as well with the team that we have here primarily in hartsville, but we're most excited about the market and the customer synergies as I said tremendous response from our local customers with a strategic stepping into a leadership position.
Speaker Change: <unk> global customers that we may serve in both regions or one of the other regions are very interested in our global capabilities now that gets back to your earlier questions on the global capability in the platform that we're looking at self manufacturer opportunities Howard talked about innovation. So all in all feel very good about it very very good about that.
Speaker Change: Team.
Speaker Change: From a turnover standpoint.
Speaker Change: At this point, we're not concerned at Ts very involved very engaged and we feel good about the connection that they have with our leadership team here and Sunoco in general So all in all going well.
Speaker Change: We're depending on that leadership team to continue to help us work, our way and lead.
Speaker Change: Lead the business and deliver on the commitments, we made from a synergy standpoint.
Speaker Change: That's great I really appreciate it and good luck in <unk>.
Speaker Change: Your next question comes from the line of Mark Weintraub from Seaport Research Partners. Your line is open.
Mark Weintraub: Thanks, so much so.
Mark Weintraub: <unk> dot that you've upped the target on synergies by $10 million.
Mark Weintraub: At the same time, you've talked about the volume.
Mark Weintraub: Environment being weaker I think you had originally come into that Youre thinking like a 2% to 3% type of growth.
Speaker Change: In consumer packaging was viable correct me, if I'm wrong, there, but what would your updated view B and then presumably that delta would be more than $10 million negative delta. So I'm curious what are some of the other.
Mark Weintraub: Explicit drivers you think are going to help offset that.
Mark Weintraub: In keeping the guidance where it had been.
Mark Weintraub: Yes.
Mark Weintraub: When you say consumer were actually all looking at an increase in terms of volumes as we head into the upcoming quarter. So.
Mark Weintraub: Really you just cannot look at the first quarter.
Mark Weintraub: Particularly in this business, which does have seasonality. So as we're looking out we are seeing that much stronger second quarter third quarter.
Mark Weintraub: Rates really across both the paper can as well as the global model can businesses.
Mark Weintraub: We're not really factoring, saying hey, there is.
Mark Weintraub: That was 7% down first of all of that translates for the year that will work our expectations are that will work itself out through the course of the year.
Speaker Change: Sorry, just to clarify so youre still kind of embedding a 2% to 3% volume increase for the year, which I think is what you had been.
Mark Weintraub: I'm talking about three months ago.
Speaker Change: Yes.
Speaker Change: Okay fair enough Thats correct.
Speaker Change: And then second.
Speaker Change: Any update on thermo safe and where your thought process there might be.
Speaker Change: Yeah, well first of all very pleased with the continued solid performance from from the team.
Speaker Change: <unk>.
Speaker Change: Really not not a formal update on and say that.
Speaker Change: Preparing ourselves and we will make a decision on when to go.
Speaker Change: And frankly, what it's going to turn out to be what does the macro situation like that at that time, but.
Speaker Change: Officially right now I'd say, we're still looking at.
Speaker Change: By the end of the year.
Speaker Change: Coming to resolution on that.
Speaker Change: But again happy with the trajectory of the business and we'll see how that unfolds through the course of the year.
Speaker Change: Thanks very much.
Speaker Change: Again, if you'd like to ask a question press star one on your telephone Keypad. Your next question comes from the line of Matt Roberts from Raymond James Your line is open.
Matt Roberts: Hey, good morning, everybody. Thanks for the time.
Speaker Change: Quick question on leverage.
Speaker Change: The GFP Paydown on April 3rd what where does your net adjusted debt stand I know you said it was less than four times, what would that have been at the end of <unk> and recognizing there is some seasonality with the larger metal business, where do you expect that leverage to be by year end 'twenty five.
Speaker Change: Yeah.
Chris: Yes. This is Chris.
This is Jerry as we stated we expect it to be by the end of this year under four times.
Chris: And we're still on track to reach our target of 3% to three three to three three times by the end of 2026.
Speaker Change: Okay. Thank you for the clarification sort of less important than it will be around 25 got it.
Speaker Change: And secondly on the price cost expectations could you say, where your OCC cost expectation now is versus where we had it in January and what kind of market conditions informed that and we're sharing some constructive commentary around the EUR B list price increase although it is not yet reflected in the index.
Speaker Change: Does the guidance assume any incremental debt I sit there and if so how much.
Speaker Change: Usually it's not reflected on less pass through but just curious your thoughts or any color you have there. Thank you again.
Speaker Change: Yeah.
Speaker Change: We assumed in our original guide was was an average OCC of around of $100.
Speaker Change: Obviously it was it was around 80 $85 in the first quarter and we expect it to be that similar in the second and we're expecting it to average somewhere between 90 and 95 in the.
Speaker Change: In the second half of the year.
Speaker Change: Thanks Jay.
Speaker Change: <unk> price.
Speaker Change: Yes, the <unk> price has been.
Speaker Change: Youre right for the unique I guess, all paper grades will run and then probably 92% to 93% utilization rates right now.
Speaker Change: Strong yield on.
Speaker Change: Against the $70 increase in the market. So it would be extremely disappointed if.
Speaker Change: The appropriate indices did not pick that up.
Speaker Change: At their next go around.
Jerry: Hi, Jerry Thank you again.
Speaker Change: Your next question comes from the line of Gabe <unk> from Wells Fargo. Your line is open.
Speaker Change: Good morning team.
Speaker Change: I had a question maybe point of clarification I apologize, it's a busy morning.
Speaker Change: Did you talk about consumer volumes in aggregate on an organic basis.
Speaker Change: Question number one and question number two.
Speaker Change: You threw out a bunch of numbers for the metal food business and so maybe if we could.
Speaker Change: Break it down North America versus Europe and organic.
Speaker Change: You talked about some pretty big numbers, I think double digit growth in the north American metal business.
Speaker Change: It's quite a bit better than what we saw for the industry data.
Speaker Change: Maybe suggesting.
Speaker Change: Guys are winning some business there can you talk about that.
Speaker Change: And what is your view that.
Speaker Change: Customers are trying to buy ahead of.
Speaker Change: Any potential price increases.
Speaker Change: In material costs, and again I apologize for that.
Speaker Change: Yes.
Gabe: No problem Gabe.
Speaker Change: We're looking at.
Speaker Change: Consumer.
Speaker Change: From an organic perspective.
Speaker Change: Two 4% up.
Speaker Change: For the first quarter in total.
Speaker Change: That's excluding the acquisition.
Speaker Change: On the metal side of the business in terms of breaking now further North America Dotcommer details less so on Europe, but.
Speaker Change: North America, we saw about 10% improvement in food.
Speaker Change: About a 25 and keep in mind about a third of our businesses aerosol.
Speaker Change: So.
Speaker Change: <unk> recovered nicely up about 25%.
Speaker Change: And then I also noted was that we when you look at units and we've got some work to do in terms of how we report the stuff that we've got metal in that go to a select customer legacy Sunoco customer.
Speaker Change: There has been some drawdowns that we expect that we will recover so that's what brought the total.
Speaker Change: Math doesn't work at 10% of your food cans.
Speaker Change: Only 5% of your aerosol, but youre, 10% up in total it's because.
Speaker Change: <unk>.
Speaker Change: Low value metal ends our call.
Speaker Change: Collated and that number will work on that going forward.
Speaker Change: Europe.
Speaker Change: Really it's one discrete market.
Speaker Change: A seasonal market that hasn't kicked in.
67%.
Speaker Change: The Finnish market and normally doesn't really start taking off till now or through up until early June or so so we're expecting to see that turn.
Speaker Change: In the very near future.
Speaker Change: Most of the other markets, we're exactly where we expected them to be in the strategy other commentary to it.
Speaker Change: That's right.
Speaker Change: So as far as the pre buy.
Speaker Change: Not seeing any activity there.
Speaker Change: Say I mean, there could be an isolated case, but.
Speaker Change: So with all of our customers going in as we're rolling into the second quarter.
Speaker Change: Very encouraging in terms of what the volume profile looks like particularly here in North America.
Speaker Change: But it's not that's not pull forwards.
Okay, so to be clear I guess adjusting for the end sales, which seems like it should balance out over the course of the year.
Speaker Change: You would expect pretty darn strong volumes in aerosol and food cans also to be up for the full year in North America.
Speaker Change: Correct.
Speaker Change: Okay, and then a point of clarification I think Gary you mentioned.
Speaker Change: Embedded in the guidance.
Speaker Change: <unk> talked about getting <unk>.
Early realization on the <unk> price increase.
Speaker Change: But you would expect that to flow through in the back half of the year. A is that in fact, what you said and B.
Speaker Change: Quantification of what that benefit will look like in the second half.
Speaker Change: Yeah, Let me, let me answer that kind of a two part way.
Speaker Change: The increase is going well in the marketplace, but you got to realize it about.
80% of the business is really tied to contracts in some of those contracts reset based off the timing of when the Tan bending chip move which is what the majority of those contract contractual customers wrong. So that's why we expect the benefit that mostly occur in the second half of the year just depending on the timing of when the team meeting Chip index move.
Speaker Change: It is not reflected the open market increase as we speak speak today, but we do expect that to happen.
Speaker Change: In the coming in the coming month or two.
Speaker Change: In terms of in terms of the impact.
Speaker Change: As previously stated.
Speaker Change: Tough to say how much the the Tan bending chip index will move, but what I would say is that with each $10 move in that index typically represents about <unk>.
Speaker Change: Incremental $6 billion a year on an annualized basis.
Speaker Change: Revenue.
Speaker Change: Perfect Super helpful. Thank you.
Speaker Change: And that concludes our question and answer session I will now turn the call back over to Roger Schrum for closing remarks.
Roger Schrum: Certainly I appreciate everybody participating in todays call I know you've had a very busy day, if you've got follow up questions. Please don't hesitate to give me a call at your convenience you can disconnect now.
Roger Schrum: This concludes today's conference call. Thank you for your participation you may now disconnect.
Roger Schrum: Please wait the conference will begin shortly.
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