Sonoco Products Co (SON) 2023 Q1 法說會逐字稿

Good day, and thank you for standing by. Welcome to the First Quarter 2023 Sonoco Earnings Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Lisa Weeks, Vice President of Investor Relations. Please go ahead.

Thank you, operator, and thanks to everyone for joining us today for Sonoco's First Quarter 2020 Earnings Call. Joining me this morning are Howard Coker, President and CEO; Rob Dillard, Chief Financial Officer; and Rodger Fuller, Chief Operating Officer. Last evening, we issued a news release highlighting our financial performance for the first quarter and we prepared a presentation that we will reference during this call. The press release and presentation are available online under the Investor Relations section of our website. As a reminder, during today's call we will discuss a number of forward-looking statements based on current expectations, estimates and projections. These statements are not guarantees of future performance and are subject to certain risks and uncertainties. Therefore, actual results may differ materially. Please take a moment to review the forward-looking statements on Page 2 of the presentation.

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. Further information about the company's use of non-GAAP financial measures, including definitions as well as reconciliations to GAAP measures, is available under the Investor Relations section of our web. After management's prepared remarks, we will host a Q&A session. If you will please turn to Slide 4 in our presentation. I will now turn the call over to our CEO, Howard Coker.

Thank You, Lisa, and thanks to all of you for joining us today. As our first quarter results show, we've had a good start to the year. I'm going to let Rob cover the detailed financial results, but our commercial excellence programs and improving productivity underpinned what we consider a strong Q1 performance. As I mentioned before, we are not immune to the secular headwinds around our customers and the economy in general. But this demonstrates our better portfolio management and business mix provides less volatile results than in previous business cycles. We have a backlog of growth and efficiency investments that are material to future earnings. While we navigate near-term macro volatility, we're going to invest in the businesses and place our investments on projects with the highest returns for our shareholders.

I would like to say to our Sonoco employees in our operations within our sales and engineering teams and all those that support the business around the world, thank you for what you do, and thank you for supporting our customers, Sonoco, and your focus on execution day in and day out. But before Rob takes you through the financial results and guidance, please turn to Slide 5. I want to highlight, we released our updated corporate responsibility report last week and provided the QR code in this presentation that you can scan to directly download the document. Now Sonoco will report quarterly to our senior leadership team and our Board on the ESG commitments we're making, including those highlighted in our refreshed document.

We're excited to release our first report in reference to GRI, TCFD and SASB standards and report progress to 2030 in line with the Science Based Target initiatives. On the social side, we have updated our workplace diversity hiring progress, as well as updates on our supplier diversity and spending programs. And lastly, we have many R&D efforts centered on developing new and innovative products to meet the sustainability goals of our customers. We are tremendously proud of our capabilities and the work on this front. And with that, I'm going to turn it over to Rob to walk us through the quarter and the financials.

Thanks, Howard. Up again on Slide 7 with a review of key financial results for the first quarter. Please note that all results discussed are adjusted and all growth metrics are on a year-over-year basis unless otherwise stated. The GAAP and non-GAAP EPS reconciliation is in the appendix of this presentation as well as in the press release. First quarter financial results again reflect Sonoco's ability to deliver solid performance through strategic pricing and operational excellence despite uneven end market conditions. Sales were down 2% to $1.73 billion in the first quarter. Sales for the quarter were in our expected range despite supply chain variability continuing to impact month-to-month volume/mix. January sales were stronger than planned and March sales were weaker than planned.

We do not believe that this reflects a trend, and we anticipate sequential sales growth in Q2, just as we achieved sequential sales growth in Q1.

Operating profit was $213 million, and operating profit margin was 12.3%. Likewise, EBITDA was $276 million, and EBITDA margin was 15%. This level of profitability was anticipated as we experienced negative $86 million of expected metal price overlap in the period. Excluding the impact of metal, EBITDA increased and EBITDA margins increased to over 17%.

Finally, earnings per share was $1.40. These results exceeded our initial guidance as we continue to execute our operating model to achieve price and productivity despite uneven end market conditions. Next, we have the sales and operating profit, which is on Slide 8. On the sales bridge, volume/mix was negative $116 million or negative 6.5%. Volume/mix was driven by low industrial volumes but benefited from acquisitions. (inaudible) integration is progressing as planned, and Q1 included an additional partial month of metal packaging. Price was $98 million positive, up by 5.5%. Price continues to reflect the efforts of our commercial excellence strategy, mainly selling to value and managing contracts to recover inflation.

Next, the operating profit bridge. Volume/mix was negative $40 million as low volumes impacted standard margin performance.

Price/cost was negative $22 million as negative price/cost in metal packaging offset positive price/cost on paper containers and industrial. Industrial price/cost was positive $44 million due to continued benefits of moving to index-based pricing and historically low OCC. OCC averaged $35 per ton in Q1 2023 versus $150 per ton in Q1 2022 and $38 per ton in Q4 2022. Productivity was meaningfully improved at $20 million as we continue to execute our disciplined operating model. We've built a strong basis for meaningful productivity once volumes normalize.

Slide 9 has an overview of our segment performance for the quarter. Consumer sales grew 5% to $909 million due to acquisitions and strong price performance. Sales increased 3% sequentially. However, elevated customer inventory and normalizing supply chains continue to interrupt volumes across the Consumer business, and our near-term volume outlook is less positive than it was beginning of the year. Consumer volumes declined 1%, including acquisitions and divestitures. Volumes in Flexibles and Paper Containers were essentially flat. Metal Packaging can volumes were down as food growth -- frozen food was offset by low aerosol volumes due to high customer inventory levels.

Consumer operating profit was $92 million as Flexibles achieved its second best quarter in history, and Paper Containers continued to achieve strong operating profit and margins. Industrial sales declined 12% to $616 million as lower volumes offset higher prices. Industrial volumes were down 13%, volume turning lowest in Europe and Asia. The U.S. volumes were lower due to increased maintenance and lack of business downtime, as well as the impact of execute -- exiting the corrugated media markets and divestitures. It's important to note that Industrial sales grew sequentially based on higher sequential volumes.

Industrial operating profit grew 30% to $94 million as price/cost offset low utilization. Operating profit margin increased 490 basis points to 15.3%, (inaudible) excellence efforts. All Other operating profit increased 88% to $27 million due to strong price/cost and productivity. All Other is a notable example of the results of our disciplined operating model as we continue to operate these important businesses for optimal results.

These results continue to indicate that our operating model is working. Margins are up across all but a few of our businesses. We're focused on achieving appropriate prices for our value-added products and deemphasizing our exiting commodities markets, like the recently exited corrugated media market.

We're investing in the business and controlling costs, and expect meaningful productivity once volumes normalize. Moving to Slide 10. Our capital allocation framework is aligned with our business strategy to drive value creation for our shareholders. Our priority is to allocate capital to high-return investments in our core businesses, to drive growth and improve efficiency. From a free cash flow perspective, we remain focused on increasing the dividend, which was increased 4% to $0.51 per share on a quarterly basis or a greater than 3% annualized yield based on the current share price. After capital investments in the dividend, we prioritize investments in strategic M&A and maintaining our investment-grade credit rating.

For the quarter, operating cash flow was $98 million and purchase of property, plant and equipment was $83 million. Net of the proceeds from asset sales, capital investments were $12 million.

On Slide 11, we have our Q2 2023 guidance. In Q1, we beat our initial EPS guidance and achieved the top end of the revised range. For Q2, our EPS guidance is $1.45 to $1.55. We have tight control over our businesses, and they are running well.

This guidance includes $26 million of negative year-over-year metal price overlap and continued low volumes in Industrial in Q2. We are raising our full year 2023 EPS guidance to $5.70 to $6. We're cautiously optimistic about the remainder of the year, and we are managing our businesses with agility. We are affirming our EBITDA guidance of $1.1 billion to $1.15 billion. Likewise, we are affirming our operating cash flow guidance of $925 million to $975 million. We anticipate continued benefits from net working capital management throughout 2023.

Now Roger will discuss the outlook on a segment basis.

Thanks, Rob. Please turn to Slide 13, for our view on segment performance drivers for the second quarter of 2023. Across Consumer for the second quarter of 2023, we expect sequential volume growth across the segment, including metal cans. We see increasing demand for sustainable packaging solutions and new products and we're closely monitoring any potential softening based on consumer spending. In Q2, as Rob noted, will work through the remaining inventory impacted by metal price overlap, which will not continue in the second half the year. Beyond this year, we'll continue to invest capital to expand capacity for sustainable packaging in 2024 and beyond.

In our Industrial segment, we see continued softness in volumes globally in our converting and trade paper sales in the second quarter.

We're monitoring Europe and Asian demand recovery carefully, as that will be critical to the overall volume outlook for the full year. Thus far, we have yet to see any significant improvements, which is reflected in our forecast. Demand remains soft in our core industrial markets and in protective packaging for the consumer white goods market. We've modeled price/cost benefits to moderate as we progress through the year in the Industrial segment, but still expect full year price/cost to be positive. While some inflationary impacts are lessening, labor and related costs continue to increase. In our global uncoated recycled paper mill operations in the second quarter, we will maintain reasonable backlog levels by region.

In North America for the second quarter, there is no planned lack of business downtime, with normal levels of scheduled maintenance downtime similar to the first quarter, as we've seen the North American URB network supply and demand stabilize in the last month.

We will continue to take periodic lack of business downtime in Europe and Asia at similar levels to the first quarter until demand improves. In our other businesses, we continue to have net stable volume demand across this collection of businesses. With improving productivity and favorable pricing actions, we expect continued increases in profitability this year. Overall, we've had a good start to productivity in the Consumer and All Other businesses, and we expect to see the benefits in Industrial when volume growth return. We're seeing the positive impact of our increased capital spending in the last few years focused on productivity, and a fairly significant easing of supply chain constraints on our materials and labor.

With improvements across the breadth of our excellence programs and just really executing well, we're continuing to build resiliency in our operating model.

With that, back to you, Howard.

Okay. Well, thank you, Roger. If you would turn to Slide 14, I want to end our discussion as we look ahead to 2023 and beyond. First, Sonoco is a global leader in high-value and sustainable packaging. Our funnel of packaging solution designs provides Sonoco with a long runway of growth opportunities across our businesses. We are continuing to transform this great company through portfolio management and strategic M&A. We have spent the last 18 months and beyond working on structural transformation to solidify our base. In the future, you're going to see increased efforts to further focus the portfolio. We will exit some business and expand others, all with the right timing to maximize value, and we will keep you informed, obviously, as we progress through this journey.

We're in the early stages of leveraging our operating model to expand margins. Our operating model is solid, it's sound. Through our excellence programs, footprint optimizations, enterprise standardization, how we operate the business will only get better through time and is reflective of our solid performance in uncertain times as we live in today. As Rob covered very well earlier, we remain disciplined in capital allocation, and we expect to continue investments to grow. And lastly and importantly, we are committed to improving the lives of our team members, our customers and the communities in which we live and work. Our recent CRO report only scratches the surface of the great things happening within Sonoco to fulfill these commitments. We look forward to keeping you informed along the way of all the improvements we are undertaking.

And with that, operator, we are pleased to open up to questions.

(Operator Instructions) Our first question comes from the line of Ghansan Panjabi with Baird.

Yes. Thank you. Good morning, everybody. I guess, first off, could you just give us some more granularity on the first quarter volumes across the various consumer verticals?

If you have covered some of this, I apologize, we had some audio issues on our end during the prepared comments.

Yes, we can talk about the different consumer verticals in Q1. So from a volume perspective or from an OP perspective?

Volume would be helpful.

Okay. Yes. From a volume perspective, I think the primary trend we saw was a strong start and a soft finish to the quarter. Really, when you think about Flexibles and Rigid Paper Containers, those both had really good quarters, but ended up relatively flat with kind of an uncertain trend for the rest of the year. Metal was down slightly, really due to weakness in aerosol.

So those were the primary drivers there.

Got you. And then in terms of productivity, you hit -- the first quarter was around $20 million plus. How should we think about the rest of 2023? And then also on price/cost, you said, you expected the full year to be positive, just expand on that in terms of sequencing for the full year?

Yes. On productivity, Ghansham, this is Rodger. I think you -- we should expect pretty similar levels by quarter. As I said, we're seeing supply chain constraints ease up, labor ease up to some degree, and the team executing extremely well on the capital that we've put in place over the last few years focused on productivity, footprint optimization, as Howard already mentioned, and the supply chain team working extremely well with the businesses. So I think you should see similar levels going forward from today.

And on price/cost?

Yes. On price/cost, I'd say for the balance of the year, we were -- we probably started the year a little bit pessimistic on where we would end up in price/cost, and we've seen pretty good performance and pretty good results from how input costs and our ability to get price off those input costs and recover inflation has come out.

That's one of the reasons for some of the upside in the forecast.

And one moment for our next question. And our next question comes from the line of Anthony Pettinari with Citi.

I was wondering if you could talk a little bit more about maybe customer inventory positions, maybe starting with Consumer, where are we in sort of the destocking cycle in metal composite food cans, maybe versus aerosol versus flexibles.

And then on the Industrial side, are there any sort of trends you'd flag in North America versus rest of world in terms of customer inventories in that destocking cycle and where we are?

Anthony, this is Howard. As Rob said, and we noted when we updated our guidance mid- to the end of the first quarter, when we came out in January, it really fell through in terms of the destocking activities on the Consumer side, particularly in our legacy businesses, and we came out of the blocks really, really strong in January, early February.

And I don't think it's unique to Sonoco, we started seeing tapering off with the banking crisis, other uncertainties in the macro environment. So we did see some backing down there.

So I would suggest to you that on our legacy side of the business that there's still question marks in terms of the full value chain, from retailer to supplier of folks like us, basic raw materials, but not as a concern as what we had first expected and how we came out of the blocks.

On the metal side, the results are relatively consistent with what you've heard from others as well as CMI, with up on the food can side, down on the aerosol side. In our case, we've got a couple of customers that the destocking activities are -- have extended longer than they and/or we expected, but we are looking at secular improvements quarter-to-quarter and getting assurances that they should be working through their situation, let's call it, through the mid to the end of this year. So a unique one-off situation on the aerosol side, and we'll just have to write that now.

Yes. And at the -- on Industrial, it's Rodger. We're modeled -- we modeled in a mid-single-digit continued decline in Industrial volumes in Q2. And that's really driven by Europe and Asia, this continued weakness there. Some one-offs, took the textile business out of Turkey with the impact the earthquake has a pretty significant impact. But as I said earlier, the North American market we've seen stabilize. We're not modeling in any growth there, but we've seen it stabilize over the last month, and that's expecting for the second quarter. So really, the watchout is Europe and Asia as far as the second half of the year.

Yes. And that's what I'd say, I'm going back to my prepared remarks and to the this team and, frankly, the activities we've undertaken over the last, I said 18 months, but 2, 3 years, in terms of transforming how we manage the day-to-day of the business, the operations side, I just cannot be prouder of a relatively weak volume scenarios and posting the type of productivity numbers that we're posting.

And I'd tell you, it just gives me a nice warm feeling that volume, as it will return over time, that we're in an extremely solid position to leverage that productivity in a more material way. So I guess, thanks to Rodger and the team and what they're doing on the operations side and others.

Okay. That's very helpful. And maybe just one follow-up on productivity. All Other, obviously, a smaller part of the business, but the margins there were quite strong in the quarter, certainly versus historical levels. I'm just wondering if you could talk about maybe some of the internal improvements you've made in those businesses, maybe the sustainability of that kind of margin, and just how you're thinking about that segment strategically.

To start with, Anthony, it's kind of a poster child for the entire company. If we go back a year or 2 ago, when we probably -- we restructured not only how we report out from a segment perspective, but how we manage the businesses. So as you recall, we created in the All Other category a more entrepreneurial-type environment. Allowing them to operate within the guidelines of the business, unique businesses that they support. And from that, we're seeing the results.

And again, pockets and across the rest of the company, similar as you're seeing. How we're looking at it for the long term, these are good businesses, many of which are #1 or #2 in their market segments, and we're going to continue to operate down to the full capability and continue to drive through -- while they operate independent, we're still driving through the productivity and other transformational-type programs that we have place in for them. So they're really set up well to show you and a snapshot of what we're seeing across the company. We'll be evaluating businesses over time. And I think I did mention it in my prepared remarks that -- the time is right for some businesses that may belong, better off with others.

And from an acquisition perspective, we see the inverse of that as well.

So we'll keep you posted, we'll let you know, but the intent right now is we're going to run these businesses to the best they can possibly perform, to deliver the amount of value that our shareholders expect.

And they're very [resonant], as you know, Anthony, and they matched price/costs extremely well in the first quarter, and will do the same in the second.

And one moment for our next question. And our next question comes from the line of George Staphos with Bank of America Securities.

Hi, everyone. Good morning. Thanks for the details. I guess the first question I had, if you had already mentioned it, I apologize, but can you provide the lack of order downtime by region in the first quarter?

I can, George. It's Rodger, about right at 10% in North America, closer to high -- closer to 20% in Europe and pushing 25% in Asia, so pretty significant.

Okay. And if you -- Roger, if you could help us, just in terms of tons, what would that look like? I mean we can go back into it, but just while I have you quickly. If you don't have it -- go ahead.

Yes, total tons across the system, about 70,000. I don't really have -- don't have it by region, George.

That's fine. Perfect. Perfect. I guess the next question I had -- and you're right, other companies saw a deceleration as the quarter went on and March was, in some ways, year-on-year weaker for many companies than was the beginning of the quarter. Given the number of consumer companies you talk to, the breadth of your product line, and therefore the input that you get back, in a couple senses, not solving for world peace here, but what do you think happened? Because your businesses are relatively stable. Going into the quarter, I think you were looking for mid- single growth in food cans, I think pretty similar growth in flexibles. Volumes don't swing around that much.

So what you're hearing from your customers, what happened to the consumer that they went into the bunker to such a degree? And maybe it's just that, but what are your thoughts there?

Yes, George, it's Rodger. From our large consumers, I mean, you can see in their results, they're taking significant price in the marketplace. And some of our customers' products are very -- are price sensitive. And I think you're seeing that start to impact some of their volumes or it did at the end of the first quarter as you see the major big-box guys starting to push back part on price. But as we said -- our metal food can business was up 5%. So that came in about where we expected.

And the other -- maybe the other supplies -- with some of the inventory in some of our other customers, the supply chain challenges they've had. And they've just built up more inventory than we expected coming into the end of the first quarter.

But George, and I know you don't want War and Peace, and I will not give you War and Peace, so what I will say is that, we are staying conservative with our outlook in terms of volume and volume recovery. And, we're really looking at seasonal increases quarter-to-quarter on most of the Consumer side of the business, including the metal side. And then in Industrial, we're saying, look, we're not expecting any recovery for the period.

So if I keep -- it sounds like you're being very sort of consistent, basically assuming very little sequential improvement. What do you have, I think, Rodger, you said you're looking for mid-single-digit declines, correct me if I'm wrong, on Industrial in 2Q.

What do you have dialed in across the big categories for 2Q and for the year on a volume basis, embedded in your guidance?

And Consumer, up high single-digits sequentially in the second quarter over first. And then All Other, again, I think similar volumes going into the second quarter, but similar levels of...

(inaudible) we're seeing across the category, and we're seeing sequential recovery, and again, is it seasonal? Part of it is, certainly not...

And one moment for our next question. Our next question comes from the line of Mark Weintraub with Seaport Research Partners.

Just one question. I'm not sure, I heard it exactly, but what -- you touched something on the metal price overlap. I thought you said it was a negative -- you're thinking of it as a negative 26% for this year versus last year -- I'm suspecting I misheard you. Could you just clarify that?

Yes. The metal price overlap this year was negative 86% in Q1.

86?

Yes. So we still -- we anticipate that for the full year, it will be slightly more than what we had originally expected. So more than 100%.

So as you look into -- there is carry-over, but we expect to have completely worked through this, the net to the end of the second quarter.

Okay. That makes a lot more sense than what I thought I heard, which was wrong.

The second, I'm just trying to understand a little bit, I think you said that you don't see any lack of order downtime in your North American Industrials business, kind of going forward, which I guess seems surprising to me given the reduction in demand that we have seen, and you weren't talking about it getting a lot stronger. Can you sort of just help me piece that together?

Yes. If you think about the across the system in the URB system in the first quarter, I think the SBA published numbers came out and capacity utilization was something like 80%. So there was pretty significant downtime across the market in the first quarter. And so I think that worked out some of the high inventories.

And as I said earlier in my opening comments, at this point for the North American market, URB market, we expect lack of business downtime in the second quarter, the market has stabilized.

And volume is not significantly improving, but it's not -- it has stabilized. It's not following. So we feel like that will hold for the quarter.

Okay. So is it fair to think that the level of downtime taken in the first quarter essentially overshot you to a point where even with demand a little bit weaker, there's a bit of cushion? And then hopefully, we get a little bit stronger demand in the latter part of the year, and if that's the case, then we're in good shape, and otherwise, we potentially have some more lack of order downtime later in the year. Is that a reasonable way to think of it?

Well, I think if you think about the volumes on a year-over-year basis, there is a reduction in volume associated -- on the URB side associated with the conversion of #10 and the remainder of the project horizon activities.

And so that's actually led to our mill system being kind of appropriately sized for the market right now, which we feel good about.

Got it, Got it. And then lastly, just to come back to kind of questions have come up a few times, I think you had suggested you thought Consumer volumes this year could be up as much as 4% to 5% last quarter, recognizing it's gotten murkier, there's lots of uncertainty and you've talked about the consumer pulling back.

Do you have kind of a perspective on what you think that number for 2023 year-over-year built into your guidance might look like? I assume it's lower than that 4% to 5%. Is that fair?

That is fair, Mark. Again, as we came out of the year it was pretty impressive with what we're seeing and that has certainly slowed down. So we're moderating our expectations for the full year.

We do think it will speed slightly up on the Consumer side by the time it's all said and done. But gosh, I guess we missed it in terms of the exuberance that we were feeling as we entered the year with that mid-single digit. I'm just going to keep going back and pointing towards the execution side of the business and being able to (inaudible) type of environment.

And one moment for our next question. And our next question is going to come from the line of Kyle White with Deutsche Bank.

I wanted to follow up a little bit on that last question, but also just broader looking at your full year outlook, -- can you just talk about some of the moving parts considering 1Q from an earnings standpoint was a bit above your initial expectations, but yet you're maintaining the EBITDA range for the full year.

Is that just driven by the [murkier] and the softness in terms of the volume backdrop that we're seeing right now? Or was it also driven by maybe (inaudible) prices being a little bit weaker than what was initially assumed. Maybe just any details you can provide there would be helpful.

Yes. I think that the biggest driver there was really the range and the mechanics of it all.

We feel really good about where the EBITDA range is, and it's $50 million. So I think you can read in to kind of where the guide is in terms of where we think we're going to be in that range. The volume/mix, as we think about it, productivity was really an offset in the early part of the year, and we feel good about how productivity is unfolding through the rest of the year even if volumes on the Consumer side are a little bit weaker than what we had originally planned.

And we have some margin -- and we have built in some margin compression for over a quarter in Industrial for the balance of the year in our guidance.

Got it. If I can follow up on that, I assume you're keeping current list prices for tan bending chip in North America. Is that a fair assumption in the guidance?

Yes, that's fair. And we're also assuming, let's call it, a $15 to $20 increase in the average OCC price between now and end of the year. So there are some cost increases coming in, but we left tan bending chip just flat for the year.

That's helpful. And for my second question, there's a lot of weather events in the past quarter. Just curious if that had any impact on your fresh fruit packaging business? And then also if there's any anticipated impact for the [Pac] farmers related to it?

Yes. Kyle, we certainly felt solid in the [variant] trade business, which is, as you know, is California. And that season's really coming off in that late winter January time frame, strawberries, et cetera. And then, of course, we have the [Gulf] activity down in Florida.

So certainly reflected to some extent in the performance of the Pac business, that 1 business in the first quarter. I think we're working through that as we move forward.

On the metal side, our focus on the bean, the tomato markets are really in the Midwest and where we have not seen the type of environmental issues that you see on the West Coast. So our customers are telling us that's business as usual as it relates to that side of the business.

And one moment for our next question. Our next question is going to come from the line of Cleve Rueckert with UBS.

Just a couple of follow-ups for me because I think a lot of the big key points have been addressed. But I just wanted to dig in a little bit more specifically on the volume decline that you're talking about. I think we've talked a couple of times about Industrial volumes being weak. They're stabilizing at a low level, but not really quite growing yet.

Is that pretty much entirely coming from the containerboard industry, or is that a sort of a more broad comment across other end markets?

Yes. Clearly -- this is Roger -- it's broad. It's across all markets, textiles especially weak, really most every region globally, film also down, as you said, containerboard down. So it's really across the board, especially anything housing related was down fairly significantly.

So it was broad-based across all 4 of the categories that we track.

Yes. Okay. But it sounds like you're getting some confidence that orders are starting to pick back up and, at least from a volume from like tons produced standpoint, you're confident that Q1 was the trough.

In fact, we modeled in some continued modest declines in the second quarter, driven by weakness in Europe and Asia. And so that's the -- that's what we have in the guidance at this point.

Yes. Sorry. But North America is starting to firm.

Yes, relatively flat quarter-to-quarter.

Yes. And then just quickly on that. So in terms of the variability in the outlook, just the kinds of things that we should track through the balance of the year as we think about skewing towards the top or the bottom end of the guidance, it sounds like really the European and Asian regions are where there's just some more question marks about how the second half is going to materialize. Is that...

For Industrial -- for Industrial specifically, that's correct.

And I would just point out, probably more Europe than -- Asia is really, in total, including (inaudible), is only about 2% of our turnover.

Got it. Got it. And it was a nice set of results for the quarter but that's not going unnoticed. Thanks, everybody. I'll turn it over.

(inaudible)

No, I'll talk to you guys later.

And one moment for our next question. And our next question comes from the line of Gabe Hajde with Wells Fargo Securities.

I just -- I find it interesting that I feel like maybe some of your customers are probably maybe window dressing for balance sheets coming into the end of the specific quarters.

Because if memory serves, December was a pretty bad month on the Consumer side and then January snapped back, and we kind of had a similar experience in March.

So I'm curious if you could comment at all about sort of how April is trending. I think you said, Howard, that you're expecting sort of the normal seasonal sequential step-up in the food can business, maybe some moderation and destocking in the aerosol side.

But then just maybe the legacy Consumer business.

And then maybe as we think about monitoring the quarters and the rest of the year as it progresses, maybe paying more attention to what your customers are saying in terms of maybe modulating their own purchases and responding to consumer behavior.

I mean is that sort of the wildcard or the factor that we should be most mindful of? Or is there something else going on?

Yes. I would say, it's certainly way too soon to say is this a new operating environment trend from our customer's perspective. And it's probably -- I'd like to think it is related to really what's going on in the macro world, as I noted, and we all noted. There was a lot of question mark January, March for what was going on in the banking world sector and how would that kind of reverberate through the global economy.

So can I hang my hat on is that, that the decline that we saw, certainly, indeed, summer, the expectation was just that, that we're trying to draw inventories down to complete the year.

Quarter-to-quarter, I don't think we're seeing a new phenomenon here that's sustainable. We may see it in December, which we all do in December trying to pull back on our working capital as much as possible. And to talk about improvements going into the second quarter on the Consumer side, it's from the base that we're at right now

from a sequential perspective. And yes, it's just natural that -- or I should say historical -- that we see elements of summer buildups in the spring as well as and I noted on the can side of the business in terms of tax season, et cetera. So I don't see a pattern here at this point in time, subject to change, but I think it has to do with what's going on around the world and reactions and the timing of those reactions is what impacted us in March.

Okay. And then maybe getting back to this All Others segment and the enhanced profitability.

Is there any way to maybe frame up for us sequentially and then maybe the segment overall. I mean, should we kind of expect this level of profitability persist sort of on either absolute dollar basis or a margin perspective?

Or was there something unique to the first quarter, more sales of reels or something like that, that maybe swung things around a little bit more.

Yes, Gab, this is Rob. That's a good question. Those businesses, as Howard said, I mean we have kind of really changed the operating model and really both challenge them but giving them a lot of freedom to operate. And what they've done is they've been really entrepreneurial and are generating really great results as a result.

So those aren't one-off or specific results, but across the board, down the line of those businesses, what we're seeing is operating improvement that's really generated by really tight cost control, investment in productivity and very disciplined investment in growth where they see it.

So those levels of profitability are sustainable. Frankly, there's a couple of businesses that have yet to really catch on and we're excited to -- when those businesses to start performing as well.

Okay. And one last one as it relates to the guidance. I mean, I think you guys kind of widened the range a little bit, which I maybe understand, but following a Q1 beat just feels a little odd.

The one thing that jumped out at me, interest expense was tracking a little bit higher.

I think you guys guided us $115 million -- has that assumption changed?

And then maybe just sort of the rationale or the thought process behind the wider range versus what you had before?

Yes, interest expense has trended higher, so has kind of all other expenses in that category, and it's really just related to how we budgeted the year.

Looks like maybe we'll see some recovery and variable interest rates by the end of the year, but we certainly budgeted it as flat with the raise and have a fair amount of variable rate down.

So that's what's really flowing through there, and then also kind of modeling in what we think we're going to do with the balance sheet for the balance of the year.

With regards to the range and moving it up, I think what -- the way we were thinking really was as we evaluated the risks and opportunities, we felt really comfortable as we were leaving Q1 that we had identified a lot of opportunities, but there was still this uncertainty in the market and the operating environment.

So we wanted to make sure that that was a wide enough range that we could achieve it.

And that's why we really kept the EBITDA range where it was as well, because we feel really confident that our expectation for the year is narrowing in on that range.

(Operator Instructions) Our next question is a follow-up question from the line of George Staphos with Bank of America Securities.

Two questions from me. One, to the extent that you can comment, and again, if you mentioned this, apologies that I missed it. One, price/cost for the year, where does that currently stand in terms of your expectation for '23 relative to what you would have had coming into the year and/or your last guide.

So what was the positive variance there which seems to offset the volume uncertainty that you have, understandably. And similarly, on productivity, where do you -- where is productivity? Where is operations, if there's a way to quantify to some degree, now for the year, relative to where you would have been entering the year?

Again, which helps to offset sort of the volume uncertainty. The second question I had is just in terms of volume, and I think you had mentioned that you expect Consumer to be up modestly this year. And recognizing there are no guarantees in life, is there a level of volume degradation that would begin to undercut especially the low end of your guidance range.

So instead of low -- very low single digit, if you put up a minus 2% or minus 3% at the end of the year, does that risk your guidance? How would you have us think about those sorts of questions?

Yes. So look, as we think about the year and kind of where we planned it and what the bridge is, we really do think that the positives are really going to be productivity and then a little bit of volume positive here and there. The price/cost was the big driver for the performance in Q1 and then will be a big driver throughout the year, really overcoming the metal price overlap with a lot of really strong performance across the broader business.

So I'd say metal price overlap is coming in higher than we had anticipated.

So that's just a greater headwind than we had anticipated, and we're seeing pockets of strength, but overall I think price/cost will probably be weaker than what we had anticipated.

Weaker. Okay. And productivity then, what was kind of -- if you, kind of ballpark, what that's adding to you relative to your prior expectation?

Yes, George, this is Rodger, in our original plan for 2023, we had ramped up productivity throughout the year, expecting to take more time for some of these capital projects and supply chain challenges to ease.

So first quarter was probably twice what we expected -- so if you think about the next several quarters, we're pretty optimistic that we'll be at plan or even slightly above that.

And then just on the volume question, again, no guarantees, but is there a level -- certainly, there is -- what level would you say if you're seeing x amount of volume degradation where we start to -- you'd start to worry about your guidance factors?

Yes, George, you're right. That's a tough one to really get a handle on. What I would say is that I think what we've modeled out is what we believe to be true on the lower side of that way for the course of the remainder of the year.

And if you take -- the question is more about what are the negative implications. What I would say is that we have -- history does not necessarily predict the future. But because we -- for the most part, on the Consumer side, we participate in staple food, certainly the consumer store, but really on the one exception there. When things get tougher, we attract -- it seems to attract more folks to the products that we are privileged to represent -- and that's both store brand as well as the name brand.

So I'd like to think that if things get tougher, consumer side would potentially benefit from that. But of course, that could have ramifications on other parts of the [portfolio].

No, sure. Historically, though, on a relative basis, it does work for you, but thinking about it in absolute terms is what was driving that question. I'm sorry, go ahead.

No. I was just going to say, so I basically didn't answer your question, did I?

It's all part of the mosaic though, Howard. It's all part of the mosaic. We appreciate it.

And I am showing no further questions at this time. And I would like to hand the conference back over to Ms. Lisa Weeks for any -- for her closing remarks.

Yes. Thank you all for joining us here today. I would highlight that will be out on the road for the rest of the quarter, so please consult our website, and you'll see where you can connect with us.

In the meantime, if you have any further questions, please don't hesitate to reach out.

And we hope you all have a wonderful day and we talk to you on our next earnings call. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.