Q3 2019 Earnings 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 youd like to ask a question. During this time simply press Star then the number one on your telephone keypad, if youd like to withdraw your question press the pound key in order to ensure that everyone has a chance to participate we'd like to request that you limit yourself to asking one question and one follow up question during the Q and a session.
Thank you, Matt Eichmann, Vice President of Investor Relations you May begin your conference.
Thank you Jack and good morning, everyone welcome to <unk> third quarter fiscal 2019 earnings conference call.
Joining us on the call today are Pete Watson, Greifs, President and Chief Executive Officer, Larry Hilsheimer Rice, Chief Financial Officer.
Pete layer available to answer questions at the end of todays call in accordance with regulation fair disclosure. We encourage you to ask questions regarding issues you consider material because we are prohibited from discussing significant non public items with you on an individual basis.
Please limit yourself to one question and one follow up before returning to the queue.
Please turn to slide two.
As a reminder, during today's call we will be making forward looking statements involve plans expectations and beliefs related to future events actual results could differ materially from those discussed. Additionally, we'll be referencing certain non-GAAP financial measures and reconciliation to the most directly comparable GAAP metrics is contained in the appendix of today's presentation.
And now I turn the presentation over to Pete on Slide three hey, Thank you, Matt and good morning, everyone. Let me start todays call by providing quarterly highlights and a review of our business segments and then our CFO , Larry Hilsheimer will discuss our financial results and our fiscal 2019 outlook.
And as Matt remark. Following these prepared remarks, we will conduct a question and answer period. So overall, we're very pleased with our third quarter performance. Our adjusted EBITDA increased by roughly 39% first prior year quarter, our adjusted class a earnings per share grew by 5% versus Q3, a year ago.
And our global portfolio operated very well put continues to experience weak demand must slowing in the economy and uncertainty calls from trade tensions.
Our financial results also benefited from a full quarter contribution more care star acquisition, which exceeded deal assumptions and we're very pleased with the pace or integration process.
Finally, we achieved our best ever trailing four quarter customer satisfaction index score and were recognized at the end of the quarter for our leadership and sustainability with a second consecutive gold rating by Eco bought US an independent rating agency that specializes in corporate social responsibility evaluation.
Please turn to slide four is where we're going to review our business segments.
Rigid industrial packaging and services segment operated well during the quarter, but was challenged by weak demand as a result of the declining industrial manufacturing environment and continued uncertainty surrounding trade tensions.
Global IVC volumes grew by nearly 5% and continues to be an important strategic growth opportunity for us.
Global steel drum volumes declined by roughly 6% versus the prior year quarter.
Steel volumes were strong in the middle East and North Africa, due to growing industrial demand and in southern Europe , Thanks to a better agricultural season than prior year.
Steel drum volumes were most challenged in Asia Pac in the U.S. Gulf Coast due to trade uncertainty and reduced chemical import demand from China and elsewhere in the U.S. to the general softening conditions.
Rips third quarter sales were roughly $46 million lower versus prior year and on a currency neutral basis Rip sales fell by $29 million versus the prior year due to the volume softness partially offset by higher selling prices from strategic pricing decisions.
Rips third quarter adjusted EBITDA was flat to prior year, despite lower sales, a 3 million dollar foreign currency headwind and $3 million of less favorable opportunistic self sourcing opportunities.
And for comparison purposes rips results in Q3 of 2018 benefited from a onetime transportation expense reduction adjustment of $4.6 million. It would as was disclosed a year ago.
We continue to execute in a range of cost reduction activities and parts of our portfolio to help counter the softer market demand conditions, we face.
They include rationalizing our manufacturing footprint, managing our variable cost to align the demand and targeted asked you know reductions.
I'd like now to please turn to slide five.
Paper packaging third quarter, adjusted EBITDA rose by roughly 109% versus the prior year care stars quarterly adjusted EBITDA contribution was $65.4 million and exceeded its anticipated run rate.
Segment adjusted EBITDA also benefited to a lesser extent from a higher margin paper specialty products, which accounted for 20% of our legacy paper sales during the quarter, our best ever performance.
Paper packaging third quarter sales grew by $294 million versus the prior year quarter due to care stores contribution, partially offset by softer market conditions, and lower published prices and our containerboard businesses.
Volumes were also impacted by planned an extended maintenance downtime taken during the quarter.
If you could please turn to slide six.
We're ahead of schedule with a carrier store integration plan and continue to uncover additional synergies that will expand EBITDA and drive greater efficiencies in our business.
As we mentioned in the June 2019, Investor Day, we expect to achieve run rate synergies of at least $65 million by the end of fiscal 2022 and have $15 million of synergy baked into our 2019 outlook.
There are currently over 260 synergy opportunities, we're exploring and quantifying that could lose lead to increased the over $65 million that's already been identified in our process.
Some of the early wins driving that synergy capture include a carrier freight rebuild that yielded greater savings than initially comp contemplated accelerated integration of heavyweight linerboard from care Star Mills into the core choice sheet, Peter network and alignment of key systems and back office platforms for efficiency gains and cost reduction.
Finally during our June Investor Day, we announced a strategic review process for the consumer packaging business that assessment remains underway and we anticipate completing it prior to our fiscal year end.
Please turn to slide seven.
Got P. S delivered solid third quarter results and is performing to plan despite ongoing market softness in western Europe .
Segment sales were roughly 10% lower than the prior year quarter, but on a currency neutral basis fell by 6%.
Gross profit margin was higher versus prior year, thanks to lower price lower price raw materials and improved product mix.
Third quarter, adjusted EBITDA was roughly flat to the prior year.
And as we mentioned that our June 2019, Investor Day, we are developing a comprehensive strategy to profitably grow F. P. S in the future.
We anticipate sharing high level details about that strategy likely by the end of the calendar year.
I'd like to now turn it over the presentation to our Chief Financial Financial Officer, Larry Hilsheimer. Thank you Pete and good morning, everyone. Please turn to slide eight third quarter net sales, excluding the impact of foreign exchange and gross profit were roughly 26, and 29% higher respectively versus the prior year quarter, primarily due to care stars contribution, partially offset by market softness in reps and our containerboard operations.
PPS also had an extended maintenance period as Pete mentioned.
Third quarter, adjusted EBITDA rose by more than 39% versus the prior year quarter due to care stars contribution, partially offset by lower EBITDA in Fps and our legacy paper business.
Below the operating profit line interest expense rose by roughly $22 million other expense flowing to other income versus the prior year quarter due to lower pension expense and less expense related to our foreign currency hedges in transactions versus the prior year.
Adjusted class a earnings per share rose, 5% versus the prior year quarter to $1.26 per share and our adjusted tax rate during the third quarter was 27.7%, both our GAAP and non-GAAP rates benefited from a onetime recycling credit that reduced tax expense by $3.1 million or roughly five cents per share, which will not recur in the future. We continue to estimate that our adjusted tax rate will range between 28% to 32% for the fiscal 2019 year.
Third quarter adjusted free cash flow grew by $26 million versus the prior year quarter. The improvement in free cash flow was driven primarily by carrier stars contribution and by stronger working capital performance in our legacy Gripe business.
Please turn to slide nine to review, our fiscal 2019 guidance and key modeling assumptions.
We are pleased to maintain our fiscal 2019 adjusted class a EPS guidance range, especially in light of the challenging macroeconomic conditions present in the market today.
Our updated fiscal 2019 guidance, while static incorporates the lower than previously expected volumes, we have and are experiencing as well as $9 million of incremental depreciation and amortization expense as a result of higher than anticipated purchase price allocations to acquired operating assets and Amortizable intangibles.
Those headwinds are offset by various positive tax related developments and lower than planned interest and other expense items, we establish our guidance by assessing the range of possible result, both up and down after updating our forecast each quarter.
While we are confident in our range. We view the likely result is of having more downward and upward bias at this point given the economy.
For example, we have forecast no further economic downtime in our containerboard mill system beyond what we have experienced to date.
Our fiscal 2019 adjusted free cash flow guidance range is also unchanged at $230 million to $250 million, although flat to our Q2 free cash flow guidance. Our current view is that the bias on this metric is to the high end of the range. Thanks to current anticipated improvement in our management of operating working capital cash tax management and slightly lower capital expenditures than previously forecast.
That said there remains the possibility of lower cash generation do the same risk impacting our EPS guidance range, that's the maintenance of the range.
Capex band has been driven lower than expected due to weather related delay impacts on construction projects and we now expect to spend between 150 and $170 million for this fiscal year.
Finally, we assume mostly see prices of $33 per ton for the remainder of our fiscal year in our fiscal guidance.
As a reminder, every $10 movement no cc equates to a roughly $1.2 million change in EBITDA per month.
Turning to capital priorities on slide 10.
Investing in our existing business through appropriate maintenance projects inorganic growth opportunity remains our top priority since the cash our existing business generates will fund our aggressive de leveraging plan, our net debt declined sequentially by roughly $440 million versus the second quarter and given our anticipated free cash generation, we expect to return to our targeted leverage ratio of two to two and a half times within 36 months from the date, we acquired care Star our leverage ratio at the end of Q3 was roughly 3.6 times.
Finally, we have no plans to alter our industry, leading dividend, which today pays a compelling yield of roughly 5%.
With that I will turn it back to Pete for his closing comments before our Q Annette. Thank you Larry and we're now on slide 11.
In summary, we delivered solid third quarter performance, despite an extremely challenging macroeconomic environment.
We are taking proactive steps to mitigate the market softness we face and are focused on operating levers within our control to drive value, we remain well positioned to serve a variety of attractive markets through our industry, leading product portfolio and demonstrated commitment to customer service excellence.
Thank thank you for participating this morning, we appreciate your interest in Greiff, Jack If you could please open the line for questions.
Certainly at this time, if you'd like to ask a question. Please press star one on your telephone keypad again in order to ensure everyone has a chance to participate we would like to request that you limit yourself to asking one question and one follow up question during the Q and a session.
Steve Chercover with Davidson Your line is open.
Thanks, Good morning, everyone.
Morning, Steve.
So my first question is just on your guidance on slide nine what constitutes the $15 million reduction in other expenses and that's a pretty big shift for it.
Three months forward known unknowns as we would call him.
Is there some discretion in the timing of those other expenses.
Yes, Hi, Steve Good question, Yes. This this.
Item of other income and expense had been running in that $10 million to $15 million range for a number of years.
One of the primary items that runs through that line is the impacts of our hedge program on cash flow.
For currency as well as gains and losses on transactional currency matters.
The fact of the matter is that at the second quarter, we didnt feel comfortable changing what we thought it would end up being through the rest of the year, although had been trending.
And reflecting a more stable currency market that we than we've historically had the other aspect is that we've continued to invest in the capabilities. We have in this arena and it's allowed us to become much better at managing that item. Just one one small example is yeah we.
We centralize our balance sheet hedging around our accounts receivable program and we generally been averaging.
A couple of million dollars losses per year and that this year its 43000.
And.
It's just that we've gotten more comfortable and confident about how we're managing the or the other big item in there is the is in pension.
There is about a 6 million dollar improvement in that and it really relates to the returns related to the payment that we made in the prior year.
We had built some of this into our guidance range. When we were dealing with the second quarter, but we didn't really.
You talk about it specifically.
And we've just gain more.
Comfort then it's just showing up in the actual numbers as weve evolved out, but the big items, you had about 4 million related to cash flow hedges that about.
2 million net on other currency transactions and about 6 million on pension items.
Okay. Thanks, Larry.
And my second question.
No we'll have to wait till the end of the year for an update on the.
Potential disposition of the consumer business.
The announcement of a new CRB machine, which doesnt change capacity, but.
Changes, perhaps industry cost structure.
Change the tone and frequency of inquiries. If you don't want to take that could you just tell us how.
Potential disposition might impact $65 million synergy target.
Yes, Steve. So this is Pete so the announcement really is a net neutral to capacity. So I'll leave that question to that we really don't comment on competitors and what they're doing but I don't think it has any any impact on the process that we're moving through the.
Right now well that CPG business and again, we will disclose that most likely before the end of our fiscal year.
And your second part of that question, Steve I'm, sorry, sorry, I got it. Okay. So he was asking about the synergies in Boca happened to the $65 million and.
Steve as we look at it about 15% of the synergies that weve identified to date would relate to that piece of the business and 85% would remain.
And I will tell you that I'm I'm highly confident that that above $65 million is going to be growing.
As we noted in our prepared comments, we have a lot of yet to be quantified ideas that are still being pursued.
So a little bit a disproportionate amount of the synergies are with the remainder of the business.
Got it okay. Thank you both.
Thanks, Steve.
George Staphos with Bank of America Merrill Lynch. Your line is open.
George Staphos your line is open.
Your next question comes from the line of Matt Krueger with Baird. Your line is open.
Hi, Good morning, this is Matt on for Ghansham.
I just wanted to quickly ask Guy can you provide some added detail on how you were able to keep the operating profit flat in the rigid industrial business. Despite some significant volume headwinds that you're seeing across the segment was there anything unique to this year's quarter or the comparison from last year that kinda diminished the impact or the visible impact from the lower volumes.
Yeah, Matt This is Pete so.
In spite of the volume drops and the challenges in that market. We had improved gross margins a year over year and when you eliminate the $4.6 million in the transportation adjustment that I referenced in my comments, we're real pleased Weve got a very strong and active pipeline on cost reduction activities.
We've made some strategic pricing decisions that's improved our overall performance in both the M&A pack and again, we've been very proactive since the beginning of the end of 2018 regarding those cost actions are really around our portfolio management, we've closed or consolidated seven facilities in rigid packaging or since the end of 2018.
We've.
Taken pretty significant action and our assets unit costs, where we've reduced.
Our salaried workforce by 5% in that business and we've done a significant amount of operating improvements in our business to drive out variable costs to align our cost structure to man. So again I think our team has operated very well and again both the main a pack of had actually a really good quarter. The big challenge we have in the whole picture is the economy and the performance in our North America business. So overall pleased with how we've responded and control the operating levers that are within our control.
Great. That's very helpful. And then can you provide some added detail around the cadence of volume growth throughout the quarter, just with a particular emphasis on whether the volume declines that you've seen across your businesses accelerated or decelerated as the quarter wore on kind of on a monthly basis and then obviously any early trends into a into August are always helpful.
Sure Matt So let me, let me talk about rigid industrial packaging first.
So in the quarter, our steel drum volume was weak as we talked about but in July they were slightly better than the overall Q3 volumes.
In Ibcs, where we're up 5% in July our volumes were double digit growth, which is more in line with what we have experienced in the past couple of years and August looks favorable as well and I think overall, if you you wrap a bow around geography is I think our most challenged.
Geography and demand in our rigid businesses North America at this point, both in the quarter and what we see going forward.
Great. That's helpful. That's it for me thanks.
Thank you.
George Staphos with Bank of America Merrill Lynch. Your line is open.
Thanks, very much thanks for taking my question.
And thanks for all the details good morning, I just wanted to piggyback on that last question from Matt So.
Pete can you comment a bit about how rigid is doing is saying, it's doing a bit better but are you still in the negative.
Category in terms of volume trends in North America, and then more broadly for the segment as fiscal fourth quarter is started related Lee IVC decelerated. It sounds like it was a one off blip related to trade war, but if you had any color about whether that's a correct premise or not and what's going on in ibcs more broadly as you've been trying to gain share there that'd be helpful. That's question number one question number two.
Pete Larry if you can comment quickly what are you doing in terms of working capital.
Management, that's really being driven by operational improvement relative to anything that may be driven by.
Factoring extending payable terms and you know more sort of financial and less operationally driven types of improvement in working capital if any at all thank you I'll turn it over.
Yeah. Thanks, George So a on the volumes and rigid so as we talked about in the quarter. Oh, we are negative in July slightly better, but they were still in the negative volume trend.
And we see a similar trend in August .
When you reference Ibcs and your your premise is exactly right we had one.
A month of the hiccup in those around some extended maintenance work done in an operation in Germany, and the U.S., but July and August again reference back to a double digit growth.
Which has been very consistent with our growth strategy.
And I'd also tell you that the acquisition we did in the Netherlands. During the quarter total is very favorable and the short stint we've had a we don't see that trend changing much going forward as we look at it today.
If you look overall regionally I would say a may is probably the most promising market in regard to our volume.
Yeah. It is slightly negative and the most challenging right now is our North America overall demand Ah portfolio and a big part of that relates to the trade tension I think I've referenced before a 41% of our steel drum production is located in the U.S. Gulf Coast, ER and our customers located they're shipped steel drums.
When they export product and that's been significantly hampered due to trade tensions, but overall, it's a softer general industrial economy in the U.S.
So I'll address your operating working capital question, George and no real financial engineering, driving that and any significant level, it's really pretty much basic blocking and tackling.
We've had certain.
Groups, who have done phenomenal jobs, it really improving dramatically their working capital management, particularly are a pack group in our Rigids team, who made just focused effort and they had a lot of opportunity, but they've delivered very very well.
We have instituted to they.
A better asked no p. process, although we have further opportunity there to get better on the planning and coordination of how much inventory of the different types of.
Steel in particular that we need to maintain and just managing that better one big area of a gain has been our treasurer business, our closures business, which has operated relatively independently and autonomously previously and so what we ended up discoveries we had a lot of excess inventory because we had some in their plants and then some sitting in our rigid plants and we're doing that on a coordinated basis now and really driving out a lot. There we are extending payables, but I would as much as we can but I'd tell you. That's a global phenomenon on both sides of the equation. So that's happening to us on the IR site and those two tend to net out so it really comes down to managing making sure you're collecting when you when it's due so you don't have long.
And then also not related to working capital, but it certainly helps on cash and profitability is making sure. We're taking advantage of every discount so it it's basic blocking and tackling at a detailed level and the teams are doing a good job.
Thanks, Larry.
Steve <unk> with Wells Fargo Securities. Your line is open.
Good morning, gentlemen.
Hate to try to dig in on some of the detail here, but I'm looking at the the volume.
Discrepancy by geography, and there is a disconnect I think Pete you talked about.
Where are your steel drum capacity is and how some of those products can export it.
But I also noticed in APAC was down by almost 11% I think part of that is due to the fact that you close a facility, but the question is really.
And trade tensions stay where they're at or even escalate.
Do you have the capabilities over in Asia to maybe capture some of the volumes that you're living losing here domestically.
Or is the structure to fragmented to capitalize on that and then question number two is more on the guidance I don't think it was explicitly stated, but I'm assuming that you guys are embedding flat benchmark prices.
For the relevant products that you make if you could confirm that and then if there were any changes more in the kerris our business how would that flow through.
I know somewhat speculative when if something were to change here in the last couple of months.
Assuming that would it impact more fiscal 2020, but just any help there would be.
I appreciate it.
Yeah, Gabe so on the steel drum volumes give you a global perspective, we have four regions that are more sensitive to trade, where our customers are exporting their product in our drums and that the us Gulf coast.
It's the Benelux and Singapore and its China.
And that represents about 38% of our global portfolio of steel drum production. So that certainly had an impact what your reference to whether China is benefiting from any of that disruption in the supply chain flow due to the trade I think it's a little too early to tell but if you look at that macro number you referenced on China that does include shutting down a operation in China, and we did that because some of the margins were not very good. So we've selected out of some of those accounts. That's part of the reduction we also divested our business in the Philippines, which also is a part of that double digit negative trend. So I would say over sequentially over the last six months.
While our volumes and steel drums, or negative and APAC, a they're not quite as significant as the total number reflects.
And what other dynamic in Singapore is there's a new competitor in steel drums, and that's creating a little a local tension around volumes, but again our aim as we've always talked about is how do we drive excellence to our customers and how do we make decisions based on value over volume and we will continue to evaluate the right decisions to create growth in EBITDA and margins. So hope that answers. Your question Gabe, Yes, that's probably the first part and you know Gabe on on pricing you know.
Rigids business no significant movement is anticipated in and rigid business.
And with respect to your question on Cara Star in price changes.
The lag on the CRB stuff.
Place through some of that.
I was just implemented in the last quarter and will carry forward, we're not anticipating any other.
Price changes in the near term.
Anything that would play and now would probably impact next year as opposed to this year.
Thank you.
Roger Spitz with Bank of America. Your line is open.
Thank you and good morning.
Good morning, LTM period, and the LTM period, how much EBITDA did care star have.
Before it was acquired and how did that split among those quarters.
So.
If you go back to when we when we announced the acquisition we talked about terrorist are having a.
A run rate EBITDA as of September 30 timeframe of 220 million.
There's not a whole lot of of.
Seasonality in that business, so it's relatively stable.
Throughout the year so obviously.
Having EBITDA of 65 million in this quarter were quite pleased on a relative basis, even though there are clearly some challenges in some segments of that business as well. So the team has been doing a good job on operating and and obviously taking advantage of some of the synergies is helping us drive some of that EBITDA performance.
Thank you and my follow up is.
Are you able to provide your 2000.
18, EBITDA for consumer packaging business Center.
As you review and you spoke about the sale process, having started I guess June .
Can you say, where you are in that process for instance had you receive your initial nonbinding.
Indications of interest from potentially interested parties.
So we're not going to talk about the that sub segment EBITDA at this point, particularly given what we've got going on process process is moving along.
Yes, no no binding.
Situations at this point, but we're very pleased with how the process is moving along and as we talked about are Pete mentioned in his remarks, we anticipate this being brought to conclusion by the end of our fiscal year.
Thank you very much.
Keep in mind, Tara with BMO capital markets. Your line is open.
Good morning, Pete Larry.
Laurie turning to us.
First question you people packaging volumes were down close to 9% this quarter isn't any we do kind of recall how much.
How real volumes performed in the legacy business versus kind of start kind of at a high level.
Sure Kate on so and you're right, we had weaker volumes in the paper packaging business and as prime primarily on the legacy side around containerboard and to a lesser extent corrugated.
To give you a little more context, we had a planned an extended maintenance outage at our Riverville, Virginia Mill, which is the largest site in our system. We took 17 days to complete a capital dry and upgrade along with a variety of other capital projects and gave a reference as a comparison to one year ago. In Q3 2018, that's nine days more than our planned outage year ago. So that's one big part of it and our corrugated volumes were down about 2.4% for the quarter.
Regarding.
Care Star recycle box for business.
The CRB and you are be milled demand was less robust than one year ago.
But the overall view continues to reflect a very stable supply and demand environment.
So I hope that gives you a little more clarity around that those numbers. Okay, yes, it does and isn't any way to quantify how much.
Often impact that incremental Ninetys was on your results.
Yeah, you're looking at probably 70.
They're about so.
On the on your books.
Round numbers.
Okay.
Got it Okay, and then did you want to take any economic downtime this past quarter in paper packaging.
No we did not take any any.
Economic downtime, we run to demand and the downtime is all relative to the plan then extended maintenance downtime, we talked about in the Riverville.
Got it that's very helpful I'll turn it over.
Again, if youd like to ask a question. Please press star one on your telephone keypad, Adam Josephson with Keybanc. Your line is open.
Thanks, Good morning, everyone as Larry just following up on Roger's question about Caris Star and the EBITDA contribution I think Larry you said, it's not that seasonal a quarter to quarter. So if I annualize the carriers start EBITDA I'd get to about an annualized.
EBITDA of 260, which would obviously be higher than the pro forma EBITDA of 220 that you provided when you announced the acquisition last December so was there anything unusual in the quarter or do you actually think that.
To 60 of EBITDA is an achievable number just based on what happened in the quarter.
You know obviously that performance stands we obviously.
I think the numbers. So yes, we do think that that performance is indicative of what it can obtain when I talked about lack of seasonality I mean its.
Yes, there is some but it's just not that significant.
From quarter to quarter, Adam I mean couple of million dollars here and there, but do remember that when we did that to 20, we had 100 dollar.
Time LCC assumption in it.
So you have a significant pickup there and.
So obviously with what's going on containerboard space one of the end markets that that business services has been impacted as well. So there's a lot of give and take so if we.
As we play out.
I don't anticipate the economy being where it is.
Two or three years from now where it is today hopefully it's better than it is and so we're very very bullish on the performance of this business.
Thanks, I have just two other clarifications one on on volumes what were Kara stars volumes in the quarter and then in terms of the.
The variation of volumes through the flow of volume throughout the quarter and you mentioned August was down was August down.
More or less than what total volume was down in fiscal Threeq you.
So with regard to care stars we referenced.
The a year ago is very robust so it's less than a year ago, but still very stable in our view and as it relates to supply and demand environment regarding tube and core business.
Adam.
Our volumes in the quarter was aligned with the industry rates have been publicly disclosed.
By other other companies and at this point, we're looking at total recycle boxboard.
System numbers.
I don't know if that explains what you what you've asked.
Yes, I was just the one other thing Pete was just the total company volume in Threeq was down 6.6. So you mentioned in August was down was that down roughly in line with what fiscal Threeq was down or was it appreciably different.
So in August what we're seeing is steel drums are similar to Q3.
IVC volumes.
We expect to be equal to or better than than what we saw in the in the quarter and again July and August looked much more favorable so I think in our reps portfolio.
It will be very comparable in containerboard and the paper business, we're seeing a little improved demand.
In our corrugated volumes and also in our ERP and CRB systems that Weve seen Q3, and Q4 and that's part of what we forecasted yes, I'll go to just to be clear on that so we did we're starting to see some positive things. We did for the month of August we did have.
You know add 11000 tons of.
Economic downtime in our containerboard system.
Thanks, Larry just one on cash flow. If you don't mind. So that can you just talk about the kind of the capex guidance reduction what that was attributable to and then Larry you mentioned in the context of holding cash flow guidance. The same you have $10 million lower Capex I think you have more favorable working cap can you quantify that I think you said more favorable cash taxes, if you wouldn't mind quantifying that as well just so we understand the moving parts. Thanks, so much yes.
Yes, certainly so the big driver has been on.
Number of construction projects that we have that have been impacted by.
Your weather impacting the.
Corrugator that we're putting in eastern Pennsylvania, just slowed down things because of the amount of rain earlier in the year, you cap or the footers you can't put in the concrete pad. It just pushes you back on everything I said that's been that's the biggest element. There's also been other construction projects that have been just impacted by the lack of labor force in the construction industry has as put a slow down on getting things completed. So those are the two primary items, but let me just walk you on the midpoint. So midpoint previously was to 40 Capex add another 10 to that interest savings of five working capital roughly a 7 million dollar improvement over the improvement we had already talked about the last quarter taxes netted with some additional restructuring is about another 8 million up and then operational.
You know just performance $30 million down obviously working capital is now a matter of.
Operations, but we broke out those do so to 40, plus Tampa Slide seven plus eight minus 30 gets you back to to 40 and added just on that Capex piece I mean, I think it was a significant delay for weather I mean, it's 20 or 25 days that we lost for construction on the new sheet feeder in Pennsylvania, So to Larry's point.
Tight labor markets and also that weather impact and we had been forecasting to get that thing up and operational.
In October and that's not.
Playing out yeah.
George Staphos with Bank of America Merrill Lynch. Your line is open.
Thanks for taking the question.
Pete can you go back through whats gone.
And your view, particularly well in terms of the integration process with cost are there one or two items in particular that you've been able to move the.
The football.
The most on and if there's a way to quantify.
What those might be that's question number one my second question.
No can you talk at all about what your people are saying about the hurricane season, this year, whether it's going to be.
Worse or normal or better than normal and if you've seen any sort of shutting in.
Recently, just given the Dorian and what that might mean for your volumes and you know and as part of the quarter. Thank you.
Yeah round around the synergies with the care Star acquisition I think the biggest is a cultural compatibility. We have teams that are highly focused.
Very aligned on what the targets are and working very diligently in a very detailed fashion I'm on on the challenges and the opportunities and as I mentioned in my.
Comments of that $15 million that we expect to be accretive in this this fiscal year.
The biggest part is the sourcing opportunities we had a relative to transportation I think we've been very pleased with how.
The value, we're driving on that and regarding the hurricane season at this point, we don't have any any.
Concerns because we can't forecast what may or may not happen. So we certainly have operations that are in the strike zone is if a major hurricane occurs.
We have a storm right now looking at Florida.
But we don't project and try to forecast what may or may not happen with that but it's certainly if a large hurricane hits the Gulf coast.
That has a significant impact on our cup major customer base and that our operations.
Hey, Pete just on the sourcing and transportation I do remember you, saying that earlier in the call now is that eliminating dead head or what's driving the the better procurement on transportation. Thanks for the the double dip there.
And I'll turn it over so its two fold so.
Got a more advantageous opportunity as a buyer, but we also have much broader and larger spend and we have a accumulated lanes. So in certain regions. We have more spend and we have more leverage on those lanes and we're also looking at supply chain routes.
From suppliers to our facilities back to our customers Backhauls and looking at a total close loop supply chain system and that transportation. This has a benefit so a combination of the market, but also a combination of a wider spread of opportunity. We can source, a and b more importantly in larger.
Well opportunities in the most.
Buying from a from candidates who are supplying or transportation.
One one small example, just an easy pickup was related to the you recycled fiber group that we got.
We in.
Purchasing LCC per our mills before we were incurring a decent amount of transport cost because of the location of Riverville mill.
And that's been reduced dramatically just because of the.
The expertise and the.
Sourcing capabilities of that group.
Thank you very much.
JBT with Wells Fargo Securities. Your line is open.
Thanks for taking the follow up the tax efficiency that you talked about Larry just I think the prior expectation had been book and tax excuse me book and cash tax rates would would kind of converge.
The past couple of years I think.
Cash has been in the low.
Twenties.
Anything that you're finding there and I appreciate it's a dynamic market, but are dynamic situation, but just any thoughts on what cash taxes could look like going forward yes.
I think you know I did tax work diverse 20 years my career. The primary objective of a tax advisors to figure out how to pay your taxes. A lot later than you need do you book taxes are harder to manage to find permanent tax adjustments.
So it's been a focus since I arrived to working with our tax team in challenging them to find opportunities to.
I develop strategies and plans on ways to defer the taxes and they've they've done a lot of good work around that but beyond that Theyve also we had opportunities where we've gotten the tax group working cohesively with the business groups. One was the example, this recycling credit it's a kentucky matter that ends up.
Driving 3.1 million Bucks into this quarter that is.
Something that will take advantage of on a cash basis actually overtime, but the GAAP rules have us book it now.
The other is in R&D credits, where weve really significantly enhanced our capture of things that qualify.
For R&D credit and I will tell you I'm optimistic looking to the future because one of the things that we have not.
Done as well as I think we can in our tax leaders agree is on state and local tax planning in the U.S. and now that our domestic footprint is larger with our acquisition I think there will be opportunities. There. So I continue to see our GAAP and non-GAAP rates converging over time, and our overall rate trending downward, but I'm also looking to having more cash deferral benefit out of things.
I hope that's responsive.
It is thank you very much.
Ketone Mamtora with BMO capital markets. Your line is open.
Thank you.
Turning to flexible packaging.
Comment earlier in a bone.
Strategies to profitably grow the business and you appreciate that you said you would provide more color.
By calendar year end, but at a high level is and many audiences aren't all of that discussion.
Would you comment anything about that at all.
Yes sure case on so we've been going through this process for this past year and we're looking at how do we grow the profits of that business part of that is.
Capital projects in innovation and how do we.
Deliver and provide more innovative products to serve our customers.
Around food safety and and.
Products and services that have higher.
Yields and margins and part of that is looking at potential acquisition targets, but I'll tell you. It's that market is highly fragmented. So it would have to be a.
Very special opportunity that kinda line store strategy.
I hope that gives you some perspective, but we'll we'll provide a lot better clarity to you at the end of this calendar year, when we've completed that task.
So but at this point do you say its fair to say that Fps has on the right to grow.
They are they are performing very well and like all of our portfolio of businesses you always have to continue to earn that right to grow.
So we're happy with the progress, we're making they've got great leadership under her Kumar.
And we expect that to be a growing profitable business in the future.
Sounds good very helpful. I was done at a little good luck for the rest of the year.
Thank you.
Adam Josephson with Keybanc Your line is open.
Thanks, everyone for taking my follow up just two follow ups, one Larry or repeat on margin. So I asked about character earlier, and obviously you talked about lower LCC, helping.
You get to that $65 million of EBITDA.
And then Richard someone asked about bond with volumes being down six houses profit slide you talked about all these cost takeouts you've been doing. The result was you had a 16% adjusted EBITDA margin for the total company, which was the highest in any quarter in at least a decade from what I can tell so is it your view that that's a sustainable margin level now for the company.
Yes. So we believe it is and when you look at care Star as Larry pointed out well, while we've got lower input costs in RCC, then the assumptions where as Larry referenced.
We've got very strong margins and cost controls.
So again, we look at volume excuse me value over volume in that industry has enjoyed some very strong.
And consistent environment in regard to price in both the you are being CRB structure as well as a in tube and core.
We've got an improving consumer packaging group business.
And again, a very active synergy capture realization, which is all been part of how our gross margins improved in that business.
When you look at our rigid business again.
Volumes may be down, but our value add margins in our gross margins are better.
And we're also pivoting to plastic which as we move forward with the IVC reconditioning.
Upgrades are.
Gross margin mix over time so.
Again, we're controlling the levers we control its strategic pricing decisions, how we drive out cost how we rationalize our footprint to make sure that we have a system that's aligned the demand and again I reemphasize. Our focus is on how do we serve customers through a value proposition, that's driven on value versus chasing volume all over the world.
Thanks, Steve and just one clarification on the August trends you mentioned, so I think you said containerboard things are looking better but that you took market related downtime of I think 11000 tons. So can you help me square those two statements that things are looking better, but you took market downtime in the month.
Yes, So let me clarify that containerboard the backdrop is similar to what we see in Q3 and Q2 and.
As Larry referenced we took 11000 tons of downtime in August we are not forecasting any further downtime at this point my reference to corrugated volumes that in July and August our corrugated volumes were trending much better in Q4 than they did in Q3.
Thanks Pete.
Yes, yes, Sir.
Our final question comes from the line of Steve Chercover with Davidson. Your line is open.
Thanks.
So riverville probably be only paper mill in your fleet will meet its could be a needle mover can you quantify the financial impact of the the maintenance that you took during Q3.
Yes, so we would capitalize.
Large percentage of that maintenance downtime. So I think the best the best driver of how it impacted was the 16 17000 tons that we had that we did not achieve because of the down.
Downtime and maintenance. So if you take that times he pick what are.
Our margin is in that business and that would be relative to a an opportunity going for forward Steve.
Yes, and Steve just 16000 tons was the incremental amount over the prior year maintenance downtime in.
Matt talked about roughly 400 ton kind of number and it seemed like six to 7 million Bucks.
Thanks, Larry.
There are no further questions at this time I would now like to turn the call back over to management for final remarks.
Thanks, very much Jack Thank you very much everyone for joining us today on our conference call and we hope you have a nice long weekend ahead.
This concludes the Greif third quarter 2019 earnings conference call. We thank you for your participation you may now disconnect.