Q2 2025 Greif Inc Earnings Call
Okay.
Yeah.
Speaker Change: Good day, and thank you for standing by and welcome to the Great second quarter 2025 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: This race 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 your speaker today building off Rio VP of Investor Relations and corporate development. Please begin.
Thank you and good day everyone.
Speaker Change: Welcome to <unk> fiscal second quarter 2025 earnings conference call today are CEO Ali Ross Guard will begin with an update on our colleague and customer engagement as well as progress on our cost optimization.
Speaker Change: He will then discuss key global market trends, our CFO Larry Hill Shimer.
Speaker Change: Through second quarter financial results and 2025 guidance, please turn to slide two.
Speaker Change: In 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.
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 a reconciliation to the most directly comparable GAAP metrics that can be found in.
Speaker Change: The appendix of today's presentation.
Speaker Change: I'll now hand, the call over to OLED on slide three.
Speaker Change: Thank you Bill and good morning, everyone.
Speaker Change: I want to start by recognizing our more than 14000 colleagues across the world.
Speaker Change: Our disciplined focus and execution continue to drive strong performance.
Speaker Change: In Q2, we made further progress on the all built to last strategy.
Speaker Change: Despite ongoing macroeconomic volatility.
Speaker Change: Resilient business model and emphasis on controlling what we can control gave us confidence in the road ahead.
Speaker Change: That confidence is reflected in our decision to raise full year guidance, which Larry will walk through shortly.
Speaker Change: Our culture remains a competitive advantage.
Speaker Change: Proud to report that we have once again been named one of Newsweek's top 100, most loved workplaces in the world.
Speaker Change: This marks our third consecutive year.
Speaker Change: In addition, we received Gallops exceptional workplace award for the second year in a row.
Speaker Change: Our colleague engagement score placed the source and the 86 percentile of all manufacturing companies globally, which is with a remarkable 94% participation rate.
Speaker Change: Please make a nations speak to the pride our team has taken that work and the environments, we built where people feel empowered values and connected to our purpose.
Speaker Change: That engagement drives legendary customer service.
Speaker Change: Five achieve was recently honored with the supplier Innovation award from the U S Postal service.
Speaker Change: U S. P. S joined us in 2024 and is now a key customer for our Dallas sheet feeder facility.
Speaker Change: This award is a strong validation of our long term value and customer loyalty we create.
Speaker Change: Sustainability also sets us apart.
Speaker Change: That's the right thing to do it is also a clear business advances.
Speaker Change: This marks our.
Speaker Change: 16th consecutive year publishing sustainability reports.
Speaker Change: Track records in our industry.
Speaker Change: Our sustainability strategy is central to strengthening customer relationships and pursuing doable high margin growth.
Speaker Change: Please turn to slide four.
Speaker Change: Our cost optimization efforts are progressing rapidly thanks to our team's focus and willingness to embrace change.
Speaker Change: As of quarter end, we have achieved 10 million in run rate savings toward our full year commitment of $15 million to $25 million and 100 million total commitments compared to our 2024 baseline.
Speaker Change: A few highlights of projects underway.
Speaker Change: Thank you to our colleagues in Walkman stopped Allison welcome in Oshkosh.
Speaker Change: Our operations and engineering teams.
Speaker Change: Bracing change and utilizing six sigma practices, so advanced scalable and structural change and process efficiency and scrap reduction across our middle and fiber production class.
Speaker Change: Second we made a strategic decision to close our L. A paperboard mill, removing 72000 tons of capacity.
Speaker Change: While difficult.
Speaker Change: This step streamline our network and improve long term performance across our fiber operations.
Speaker Change: Okay.
Speaker Change: These are there's too many projects underway each day, our conviction grows and our ability to achieve or exceed both our 2025 and 2027 commitments.
Speaker Change: Cross the board our strategy is working.
Speaker Change: Sharpening, our competitive edge, optimizing operations, and expanding and high return markets that positions us well when demand accelerates.
Speaker Change: Please turn to slide five.
Speaker Change: Our portfolio continues to show resilience with especially strong performance in the areas we are investing.
Speaker Change: Polymer solutions volumes improved year over year with small containers and IDC both up.
Speaker Change: That impact was partially offset by lower large polymer drum volumes due to softer industrial demand.
Speaker Change: Our polymer growth was driven by our target growth markets of agrochemicals, food and beverage pharma and flavors and fragrances, which all showed year over year growth.
Speaker Change: This contrasts contrasts with metals, which was down 5% year over year due to exposure to chemical and lubricant markets.
Speaker Change: Continues to be softer.
Speaker Change: Fiber solutions volumes were down slightly compared to.
Speaker Change: Compared to last year, but improved each month throughout the quarter.
Speaker Change: Our corrugated business outperformed and was up high single digits.
Speaker Change: Per day versus an industry decline of 2%.
Speaker Change: This differentiation was driven by strong independent demand.
Speaker Change: And the greatest solutions saw continued growth led by recycled fiber wireless external volumes and closures.
Speaker Change: Signings in adhesives held steadily as we manage our own internal needs.
Speaker Change: External demands.
Speaker Change: It is interesting to note that last year was a leap year, giving one additional day of business as well.
Speaker Change: Demand remained stable across all regions outside North America.
Speaker Change: In North America softness persistence due to greater exposure to industrial end markets.
Speaker Change: The key takeaway across the previous four slides is clear.
Speaker Change: Our strategy is working.
Speaker Change: Investing in resilience high growth markets, reinforcing our competitive strengths and optimizing our cost base simultaneously.
Speaker Change: This all prepares us to capture even further upside when demand meaningfully whereabouts.
Speaker Change: Please turn to slide six.
Speaker Change: Yeah.
Speaker Change: In closing.
Speaker Change: I want to briefly touch on a topic, which demonstrates the resilience of our business model on.
Speaker Change: On tariffs.
Speaker Change: We are staying ahead of potential disruption yes.
Speaker Change: Year to date, we have not seen major demand shifts tie directly to tariffs.
Speaker Change: Continue to monitor demand patterns and talk closely with customers to identify any potential impacts on our end markets.
Speaker Change: Our network of more than 250 facilities in over 40 countries and allows us to buy produce and sell locally.
Speaker Change: This flexibility minimizing disruption serves our customers' needs more flexibly.
Speaker Change: Competition and allows us to obtain a fair price for the additional exceptional service and adaptability, we provide our customers.
Speaker Change: Our global sourcing team continues to assess risks and we reaffirm that our maximum direct cost exposure is less than $10 million annually, although that figure at present is even lower due to mitigation actions and.
Speaker Change: And tariffs currently in effect versus worst case scenario.
Speaker Change: Meanwhile, we are capturing more value through network flexibility and pricing. We are also benefiting from pass through mechanisms in our maintenance business as steel producers respond to raw material inflation.
Speaker Change: With that I'll turn it over to Larry to walk through our Q2 financial performance on slide seven.
Larry: Thank you Ali and good morning, everyone for the second quarter of fiscal 2025, adjusted EBITDA increased $44 million year over year to $214 million and adjusted EBITDA margin was up 300 basis points to 15, 4%. These results are testament to our disciplined cost management.
Speaker Change: Resilient business model and our team's unwavering commitment to value creation.
Speaker Change: We generated $110 million of adjusted free cash flow up from $59 million in Q2 of 24, and adjusted EPS of $1 19 versus <unk> 83 in Q2 of 'twenty four.
Speaker Change: The sale of our land management business. So Terra is on pace and we are excited about the web and the quality of interest we've received.
Speaker Change: The proceeds from Mr. Taro divestment combined with our accelerating cash flow generation will be used to reduce debt following our capital allocation framework as outlined at Investor day.
Speaker Change: Our decision to close our ally paper Bell Paperboard mill, while extremely difficult due to the impact on our colleagues is a prime example of the next stage of optimization for Greg.
Speaker Change: At our December Investor Day, we discussed how we've executed on the vast majority of opportunities in the lowest quartile of our quadrant analysis. We are now focused on moving from good operators two great operators across our global footprint of 250 plus facilities.
Speaker Change: We are digging deeper to identify untapped opportunities to increase our return on invested capital within facilities in each quadrant. This may lead to strategic investment or closure as was the case of ethane, but our actions. We will remain focused on driving the highest long term return on capital.
Speaker Change: Please turn to slide eight for a segment RV overview.
Speaker Change: In our customized polymer solutions segment, adjusted EBITDA increased $19 million year over year to $53 million driven by a combination of volume growth favorable product mix and continued discipline on value over volume pricing.
Speaker Change: Our polymer segment is performing well given the demand environment as our target growth end markets continue to be more resilient than other areas of our business.
Speaker Change: Durable metal solutions sales were lower year over year due to the softness of the industrial end markets. All we mentioned earlier.
Speaker Change: Our core focus for us is capitalizing on operating leverage in metals and industrial end markets recover.
Speaker Change: Encouraging gross margins were up year over year through value over volume focus.
Speaker Change: Sustainable fiber solutions posted $80 million of adjusted EBITDA relative to $50 million in the prior year.
Speaker Change: EBIT margins also improved to 13, 3% from eight 5% in the prior year.
Speaker Change: As a reminder, in February risky recognized $40 a ton of containerboard price increase which contributed to this quarter's results. While we are certainly pleased with the improvement in price.
Speaker Change: <unk> costs in our fiber business, we consider the market to be out of balance.
Speaker Change: $30 a ton <unk> price increase recently recognized by Rusty will continue to improve margins, but we have conviction that the demand. We are seeing warrants recognition of the $450 to $70 a ton we announced in March those price increases will continue to push our fiber business towards normalized margins near 20%.
Speaker Change: Get us closer to achieving our objective of greater than 18% margins for the enterprise.
Speaker Change: Integrated solutions delivered $17 million and adjusted EBITDA up slightly from prior year, while volumes were strong in Q2. The overall product mix was incrementally heavier on recycled fiber, which led to lower sales mix, resulting in modest growth year over year.
Speaker Change: Sales were still up year over year in closures as we continue to grow that business. However, <unk> linings in adhesives and lower external volumes in the quarter.
Speaker Change: Please turn to slide nine to discuss guidance.
Speaker Change: We are raising low end fiscal 2025 guidance adjusted EBITDA is now expected to be at least $725 million up from $710 million and adjusted free cash flow guidance is increased to $280 million from $245 million due to the increased EBITDA and improving.
Speaker Change: Operating working capital management.
Speaker Change: This raise increases yes.
Speaker Change: <unk> reflects the impact of better price cost performance in Q2, and revised higher price cost expectations for the second half.
Speaker Change: Given this is how is low end guidance, we reduced that impact with a more bearish volume assumption than in our previous guidance as well as <unk>.
Speaker Change: The negative EBIT impact of higher incentives due to our import through performance.
Speaker Change: The largest variable which could provide upside to this guidance as volume.
Speaker Change: We're not yet providing a range due to the continuously evolving trading dynamics, but have high conviction in our raised low end.
Speaker Change: This increase is not based on optimism. It is grounded in our demonstrated ability to execute we've proven that Greg can deliver performance even in a challenging industrial economy.
Speaker Change: Nice cost performance, especially in fiber is improving Oliver has continued to grow and our disciplined cost structure is enabling margin expansion, we're raising guidance because our actions are driving results and we're confident in our ability to sustain this for.
Speaker Change: Formats through the balance of the year with that I'll turn it back to <unk> on slide 10.
Speaker Change: Thanks, Larry.
Speaker Change: Let me close by underscoring what this quarter confirms.
Speaker Change: Our strategy is working.
Speaker Change: Spending margins growing EBITDA and generating strong free cash flow.
Speaker Change: The challenging macro environments.
Speaker Change: We set ambitious cost optimization commitments at our Investor day, and we are delivering exactly as planned.
Speaker Change: Our commitment to achieving $1 billion in EBITDA at $500 million in free cash flow by 2027 is unwavering.
Speaker Change: As we have consistently done with every commitment we have given in the past. We are also delivering on these commitments we.
Speaker Change: We remain focused on what we can control the culture, we have built centered on high engagements agility and disciplined execution continues to be a powerful competitive advantage to us.
Speaker Change: I have never been more confidence in our team Im optimistic about <unk> future.
Speaker Change: We are building a stronger company and doing it the right way for our customers for our colleagues and for shareholders. Thank.
Speaker Change: Thank you for joining us today, operator will you. Please open the line for questions.
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: Yes, 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 limit yourself to one question and one follow up and one moment for our first question.
Speaker Change: And our first question will be coming from Ghansham Panjabi of Baird. Your line is open.
Speaker Change: Hey, everyone. This is actually Josh on for Ghansham. Thanks for taking my questions.
Speaker Change: Ali you provided some commentary on tariffs.
Speaker Change: It seems like demand fluctuation was relatively minimal, but I'm just curious what those conversations with customers look like as it relates to kind of what theyre seeing in end market demand and how they're thinking about that on a go forward basis.
Speaker Change: Yes, I mean generally the sentiment.
Speaker Change: Really unchanged.
Speaker Change: If you look at housing for instance.
Speaker Change: Sales of existing housing is at its lowest since 99.
Speaker Change: <unk> 95.
Speaker Change: Auto builds at its lowest in three years and.
Speaker Change: Tariffs that we keep talking about reoccurring themes and all of this really has an impact, especially on our chemical customers.
Speaker Change: And until we see a improvement of existing home sales.
Speaker Change: This is linked to the interest rates.
Speaker Change: We don't really believe in our customers don't really believe they'll see any demand improvement either.
Speaker Change: Great Alright.
Speaker Change: Right.
Speaker Change: Yeah, Yeah, no that's great color. Thank you.
Speaker Change: And then maybe just for my follow up I just wanted to clarify on some of the raw material inflation that you were talking about that was tariff related just any more color on what you guys are seeing there and what the near term impact on EBITDA margins might be for the year.
Speaker Change: As I said.
Speaker Change: The maximum worst case impact for us is around $10 million.
Speaker Change: But we're not even close to that we have.
Speaker Change: Team has done a great job in minimizing that impact that we have we.
Speaker Change: We are much much lower than that at the moment.
Speaker Change: So, it's really not material and Josh the other element of that obviously as we've already seen steel producers in the U S push up cost or price.
Speaker Change: Is that then implies against our lower base inventory and provide some lift in margin that while temporary until things catch up will provide additional spread. So this increase in tariffs to the 50% level would probably end up being helpful above our low end guidance I think it could actually end up being a tailwind for us Josh.
Speaker Change: Again, I just wanted to remind that we operate 250 facilities in over 40 countries. So most of our business.
Speaker Change: Locally we source raw materials locally locally manufactured locally we sell locally, which obviously means that tariffs doesn't come into place.
Speaker Change: Okay, great. Thanks, guys I'll turn it over.
Speaker Change: Okay.
Speaker Change: One moment for our next question.
Michael Roslyn: And our next question will be coming from Michael Roslyn.
Speaker Change: <unk> Securities. Your line is open mic.
Michael Roslyn: Thank you Ali Larry Bill and Dan for taking my questions and congrats on all the progress.
Speaker Change: Okay.
Speaker Change: First question I have just one on SG&A.
Speaker Change: We believe remains elevated.
Speaker Change: I think there was a slight decline sequentially in SGA as a percentage of revenue, but still above the average for last year. So I'm just curious as to what's driving the elevated SG&A and what level of SG&A as a percent of sales are you targeting and over what time.
Speaker Change: So you've got a couple of factors going in I mentioned in my commentary.
Speaker Change: Somewhat of an increase in incentives because the team is performing well so that's a little bit of impact you've got the entry of that sort of a full quarter of iPad camera and then you've got currency impacts, which on the bottom line or actually a web but on SG&A, it's increasing it but yes, we agree with you our SG&A is higher than what we view it.
Speaker Change: Need to or should be over a long period of time.
Speaker Change: And as part of our.
Speaker Change: Cost optimization efforts.
Speaker Change: We'd like to see as the volume recovers in our revenue goes back we expect our SG&A to be below 10% now it gets somewhat inflated when you do an acquisitions could you end up with depreciation related to intangibles that flows in there, but that as a general rule is what our target is longer term Michael.
Speaker Change: Very helpful answer.
Speaker Change: Is that you really it's.
Speaker Change: Largely those factors in terms of.
Speaker Change: Comp in <unk>.
Speaker Change: Hi back maybe a little FX really youre expecting accelerating revenue to bring down that ratio. So it's more of a much more market related.
Speaker Change: In terms of driving that ratio.
Speaker Change: No. It's a combination, but yes, I mean, ultimately we do obviously there'll be an impact of the ratio.
Speaker Change: Related to the recovery of volumes and.
Speaker Change: Our cost optimization is like one of our key focus is obviously and so we announced a $100 million cost optimization I would call business optimization of our entire platform.
Speaker Change: If that relates into business operations some of its SG&A, but it's over our 24 levels. So.
Speaker Change: Yes, it's a combination but I just was trying to give you. The long term impact we tried to get down below that 10%, which would be a combination of some revenue recovery, but a lot of it is still cost out.
Speaker Change: Got it I appreciate all the color then just my second question.
Speaker Change: You mentioned strong <unk> demand would you believe it was the full price increase of $50 to $70 a ton. So if you get that incremental 20 to $40 a ton of UAB pricing all else equal what type of incremental EBITDA should we expect you generate and what type of margin would you have in sustainable fiber as a.
Speaker Change: All of that and then quickly just lastly, just you see the potential for further rationalization in CRB.
Speaker Change: And maybe just becoming solely focused on <unk> and containerboard thanks very much.
Speaker Change: Let me answer the last piece first and then come back to the incremental impact on.
Speaker Change: Pricing.
Speaker Change: So the remaining CRB machine, we have is actually.
Speaker Change: A swing machine, so we could swing between <unk> and CRB, depending on market demand right now.
Speaker Change: Our niche little player in our space, Yeah, we're happy with the operations there and we don't really have any any plan to make it full time U R. B or we're just taking advantage of whatever we can.
Speaker Change: Get in the market relative.
Speaker Change: Relative to the impact of pricing.
Speaker Change: About $10.
Speaker Change: Ton unchanged.
Speaker Change: <unk> pricing is about $530000 a month for us.
Speaker Change: So hopefully that gives you some something to work with and Mike just one added comment to what Larry said, so on the CRB, we will continue to optimize paper grades.
Speaker Change: By highest return.
Mike: And if we're swinging a machine to be from CIB. That's what we will do if that's what it provides us.
Speaker Change: Okay.
Speaker Change: Got it thank you very much again.
Speaker Change: I wanted to on that for our next question.
Speaker Change: Our next question will be coming from Matt Roberts of Raymond James Your line is open Matt.
Matt Roberts: Hey, good morning, Larry Good morning.
Speaker Change: First question on the volume I believe you said not giving a range, but maybe could you just help.
Speaker Change: Let me understand what underpins this.
Speaker Change: 125 guide.
Speaker Change: And.
Speaker Change: The tariff impact on volumes I know, you've noted no demand shifts but light of.
Speaker Change: <unk> day in early April can you provide some incremental color into demand in April whether there was any front running ahead of that or how trends have progressed in April and may.
Speaker Change: More recently, there is a window open and the tariffs I'm wondering if you've seen any any spike more recently there.
Speaker Change: Yes.
Speaker Change: All we can supplement what I say, but we haven't seen really any.
Speaker Change: Trends, specifically tied to tariffs even in indications with.
Speaker Change: Customers.
Speaker Change: It really.
Speaker Change: And particularly in the U S has a whole lot more to do with interest rates in homebuilding and the demand impact that's having on the chemicals industry and even auto production being down which perhaps that's indirectly tied to tariffs, but what we saw is.
Speaker Change: I go from our prior guidance of seven to 10 to 725, we got about.
Speaker Change: $53 million roughly price cost benefit in that which metal solutions is up 17 million polymer solutions was up 17 million fiber solutions is up $26 million and integrated with the OCC costs coming down is down eight and then if you go on the volume side.
Speaker Change: About $5 million in metal solutions about $5 million of polymer solutions and down $30 million in fiber solutions, just relative to just an overall impact relative to where we were previously.
Speaker Change: Hey, Matt Matt just on tariffs so directly.
Speaker Change: Impact that's something we can control and so there is.
Speaker Change: No direct impact on us.
Speaker Change: One thing we cannot control thats, the indirect impacts and with towers.
Speaker Change: Affects the overall demands in the market that obviously has an effect on all of US which is something we can't control.
Speaker Change: While we do have the flexibility to adapt production for customers and we will price spreads.
Speaker Change: And then all ranges of these outcomes they are considered.
Speaker Change: This revised guidance.
Speaker Change: Okay. Thank you very much for the incremental color there.
Speaker Change: And for my follow up specifically in polymer.
Speaker Change: Business wins and market driven growth in target end markets.
Speaker Change: Elaborate on what you're expecting in those targeted end markets for the rest of the year and more specifically on those new business wins, what areas, where they and what do you attribute those two.
Speaker Change: Greater scale or are you starting to realize cross savings benefit following acquisitions.
Speaker Change: Customer service tools, providing a benefit.
Speaker Change: <unk> plus has rolled out further is any incremental color there on the new market wins, thanks again for taking the questions.
Speaker Change: Well, let me just zoom out and then they go back to we often referenced at Investor day, but that's why we presented our whole strategy.
Speaker Change: Our growth strategy hinges around us.
Speaker Change: The following and segments.
Speaker Change: Agrochemical, food and Bev flavor and fragrances and pharma.
Speaker Change: Those end segments, they grow faster than GDP, that's why we haven't picked them to really focus on them the products that service. The store segment stay our polymer products. That's why we are focusing our polymer and our strategy and what we have seen in the in the quarter is exactly that.
Speaker Change: At dose and segments have proven to be more resilient than other end markets exactly as we planned and expected and also we have grown year over year.
Speaker Change: Those end segments.
Speaker Change: The overall growth in our polymer has been the one 5% year over year, but then our legacy polymer business, which is large polymer drops, especially in North America.
Speaker Change: That markets serves the chemical industry.
Speaker Change: The industrial side of it and that market is down, but even with that we still have seen overall growth in the polymer markets.
Ali: Good to see thank you Ali.
Ali: And one moment for our next question.
Speaker Change: Our next question will be coming from George Staphos.
Speaker Change: Bank of America Securities. Your line is open.
George Staphos: Thanks, So much hi, everyone. Good morning Hope you can hear me okay.
Speaker Change: Sure.
Speaker Change: How are you.
Speaker Change: So.
Speaker Change: My question to start I know, we have two questions here is on paperboard broadly so when we consider the la closure and also also are still.
Speaker Change: What will that do ultimately to your blended cost per ton.
Andrew: Andrew or margin as you see it normalized.
Andrew: For the business.
Andrew: And given the closures will adjust.
Andrew: Require you to adjust operations or inventory management.
Andrew: She'll have fewer facilities to produce from.
Andrew: And therefore, you might need to keep more buffer stock or do other things from an operating standpoint, so cost per tonne given the closures and then operating adjustment that you might need given the closures and then I had a follow on.
George: Yes George.
George: Don't have the answer for you on what the cost per ton impact is what I can tell you is that with the closures of.
George: Pittsburgh again.
George: La <unk>, yes.
George: After we get through the transition dairy cost that sort of offset that stuff that would be an annual bottom line EBIT cost impact or a positive 10 million bucks a year or two to the bottomline.
George: As we said on each of those facilities.
George: And customer mix, we shifted what made sense to being served out of our existing mill footprint.
George: And so obviously that all factors in to drive a lower average cost per ton.
George: Higher margin that drives to that bottom line $10 million impact.
George: For that but yes.
George: Looked at what the average cost per ton impact is.
George: Unfortunately.
George: And just on the operations aside from sort of optimizing your production relative to your target end markets anything else that you would relate to us that we will be able to discern watch monitor in your financials.
George: Yes.
George: Obviously, it's all part of as you noted our cost optimization and cost out program and I would just add to that $10 million on the bottom line for fiscal 'twenty.
George: Six of them forward.
George: Okay.
George: I was.
George: Larry I was getting more into sort of how you run the business, but I'll leave it there I guess on the cost out.
George: Out program and the progress we're making towards.
George: The goal on the high end $25 million this year and the $10 million I think you've got three.
George: <unk> are the categories of benefit the same throughout the year do they evolve.
George: And if they do evolve over the course of the next couple of quarters, what does that mean in terms of the business and the margin.
Speaker Change: Rest of the year and into 2026, I'll turn it over there.
Speaker Change: <unk>.
Speaker Change: So it may add some color too but.
Speaker Change: Basically what we've got so far is a combination of operational cost out and.
Speaker Change: And SG&A.
Speaker Change: Cost reductions and reemphasize the $10 million is what it would be run rate and what we know will be run rate. This year was $5 million is what we'll actually realize this year.
Speaker Change: And then.
Speaker Change: And in the $10 million I mentioned from those three mills closures does not impact this year. So.
Speaker Change: Effectively locked up against our long term objective already 20 of the 100.
Speaker Change: Kind of thing.
Speaker Change: So this whole program goes against the broad cost structure and revenue opportunities of our business. So whether it's manufacturing cost of our SG&A, but we're very pleased with the progress to date.
Speaker Change: Even enhanced our confidence of getting to our $1 billion plus.
Kevin: Commitment for Kevin.
Kevin: Covenant going into 'twenty eight.
Kevin: With every month that we go go further Josh just to give you some us on some color.
Kevin: But Atlanta last year, we reorganized the business, which was really the precursor plant precursor for doing the business optimization.
Kevin: And so and that business up some I'd say, we have more than 70 work streams.
Kevin: In motion at the moment.
Kevin: Yes.
Kevin: SG&A rationalization network optimization.
Kevin: Operating efficiency games.
Kevin: Our gains and so on so so.
Kevin: So in terms of that.
Kevin: Dominion's, we talk about the playing on the piano.
Kevin: And we will continue to do that and Thats things that in that's in flight that we can't talk about on the earnings call.
Kevin: But I can just mention again that we have over 70 work streams in flight.
Kevin: Very good I'll turn it over I'll have one more question when we come back in queue. If we get there. Thanks.
Speaker Change: As a reminder to ask a question. Please press star one one from your Touchtone telephone.
Speaker Change: Our next question will be coming from Gabe Haiti of Wells Fargo. Gabe Your line is open.
Speaker Change: Fully Larry good morning.
Speaker Change: Good morning.
Speaker Change: I wanted to ask about slide eight.
Speaker Change: You referenced some price and volume impacts in the metals business.
Speaker Change: I'm just curious if you're specifically, calling anything out from a competitive standpoint or if this is in relation to steel and then maybe revisiting the question that Matt Roberts was asking about on slide six.
Speaker Change: It seems like there's sort of two discrete items, you've got identified 10 up to $10 million impact and it's not clear if that's volume related or cost related but maybe if you can clarify that and then.
Speaker Change: I think two bullet points down you say theres a potential positive.
Speaker Change: Tailwind from.
Speaker Change: I am assuming rising steel if you didn't.
Speaker Change: Can you quantify that for us or is that included in the.
Speaker Change: $17 million, a favorable price cost that you called out Larry.
Speaker Change: In response to another question.
Speaker Change: Yes. It is included in there Dave.
Speaker Change: So what we are referencing relative to the metals business is the fact that in the U S.
Speaker Change: Index cost.
Speaker Change: Index have risen, causing our price adjustment mechanisms to kicked gan against lower cost inventory now what we haven't tried to build in because it is speculative right. Now is is there going to be incremental to that because of this newly announced.
Speaker Change: Increase that.
Speaker Change: So the 50% level on tariffs, we built nothing in for that.
Speaker Change: And then your first question on page eight.
Speaker Change: Can you repeat that.
Speaker Change: Yes, I mean, it just says in the metal segment sales were impacted by both price and volume.
Speaker Change: Didn't know if that was competitive price or if youre talking about the positive price impact.
Speaker Change: Talking about the positive price development that the price cost mix was positive to volume was negative.
Speaker Change: And the negative volume.
Speaker Change: Mainly attributed to North America, which relies on the industrial sectors of chemical.
Speaker Change: Yes, okay.
Speaker Change: And then maybe.
George Staphos: What George was trying to get at was with integration and the <unk> business. I mean, I think if I did my math right. You are around 650000 tonnes now of of ERP capacity and is the goal there to be fully integrated or are you there already.
Speaker Change: And if not.
Speaker Change: Yes, Mike This goes back Gabe and we've said this all along integration is not that important in that business because of the breadth of customers.
Speaker Change: And that there are out there the numbers of them in the small number integration value.
Speaker Change: That just becomes much less important in that space.
Speaker Change: Then it is in the containerboard space.
Speaker Change: And so.
Speaker Change: Phil do you know what our integration level, even as your base, it's over 50%, but so yes. So we're happy with it if they were if they were really high margin opportunities to acquire integration. We do it I mean sort of like the co pack acquisition, we did we've talked about.
Speaker Change: The joint venture we have.
Speaker Change: And we're thrilled with it because really nice high margin business on the beverage can divider business, but it's not something that we need to seek out because of the just general structure of that industry.
Speaker Change: Perfect. Thank you.
Speaker Change: Thank you one moment for our next question.
Speaker Change: Our next question will be a follow up from George Staphos of Bank of America Securities. Your line is open.
George Staphos: Alright, Thanks for taking my question Larry.
Speaker Change: I seem to remember in the discussion that you said on the.
Speaker Change: Increase in the guidance.
Speaker Change: Low end.
Speaker Change: You were still build again, some I guess additional volume downside that might not have been your phrasing, but nonetheless in the worst case scenario.
Speaker Change: If I got that correctly, and you tell us a little bit about where you are baking.
Speaker Change: Taking a little bit worst case on volume. Thank you very much and good luck in the quarter.
Speaker Change: Yes, yes.
Speaker Change: Yes, we had.
Speaker Change: We did have a walk.
Speaker Change: And I gave the numbers on the volume element of that that shows a volume impact of a negative 40.
Speaker Change: A lot of that within the fiber business already happened in the second quarter like we said each month, they got better through the second quarter. So I was just giving it relative to where we were in Q1.
Speaker Change: And we already talked about metals being last and also we build in.
Speaker Change: <unk> partners, but again, we build in sort of a worst case scenario and giving our low end guidance. So no.
Speaker Change: What we've provided is as low end and we have extreme confidence in delivering it.
Speaker Change: And so.
Speaker Change: Those are the factors that I gave you Georges current demand pretty much.
Speaker Change: While as expected.
Speaker Change: Slower start to fiber in Q2 guidance improved backlogs are really now about as high as they've been in two years and.
Speaker Change: Then cautionary step.
Speaker Change: Understood and on pricing you mentioned.
Speaker Change: Ultimately that you still think.
Speaker Change: So real quick on Watson again, this is my phrasing that yours.
Speaker Change: Appropriate relative to need the attention in the U R B market.
Speaker Change: With that if thats correctly Youre afraid are you still attempting to get a full price hikes in the market or have you at this juncture stop than you think and what you've taken thanks again and good luck in the quarter.
Speaker Change: We're obviously still working that price increase.
Speaker Change: In the market.
Speaker Change: We're not an index type contracts.
Speaker Change: And just call that our backlogs are actually stronger.
Speaker Change: Two plus years at the moment.
Speaker Change: Understood. Thank you guys.
Speaker Change: And I would now like to turn the conference back to only Roth for closing remarks.
Speaker Change: I want to say thank you for your time today.
Speaker Change: And also for your continued interest and investment in growth.
Speaker Change: We remain committed to continue delivering exceptional.
Speaker Change: Alex.
Speaker Change: And are focused on accelerating our performance towards our 2027 target of $1 billion, EBITDA and $500 million and free cash flow.
Speaker Change: We are confident that our lenses pursuit of operational excellence and customer centric growth will create enduring value for all our stakeholders. Thanks again for joining us today.
Speaker Change: Yes.
Speaker Change: And this concludes today's conference call. Thank you for participating you may now disconnect.
Speaker Change: Okay.
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