Sonoco Products Co (SON) 2024 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. My name is Christen, and I will be your conference operator today. At this time, I would like to welcome everyone to the third-quarter 2024 Sonoco Products earnings conference call. (Operator Instructions) Thank you. I would now like to turn the conference over to Lisa Weeks, Vice President of Investor Relations. Ms. Weeks, you may begin.

Thank you Christen, and thanks to everyone for joining us today for Sonoco's third quarter earnings call. Last evening, we issued a news release highlighting our financial performance for the third 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 at sonoco.com.

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 conditions and results of operations.

Further information about the company's use of nongaap financial measures including definitions as well as reconciliations to GAAP measures is available under the investor relations section of our website. Please join me this morning in welcoming Howard Coker, President and CEO; Rob Dillard, Chief Financial Officer; and Roger Fuller, Chief Operating Officer for today's call.

We will have a prepared remarks section regarding our results for the quarter and our outlook for the fourth quarter followed by a Q&A session. If you would please turn to page 5 in our presentation, I will now turn the call over to our CEO, Howard Coker.

Thank you Lisa. Good morning everyone and thank you for joining our third quarter call. As we announced late yesterday, we had another solid quarter where we delivered sequential and year over year increases in adjusted EBITDA adjusted EBITDA margins and earnings during the third quarter, sales were $1.68 billion adjusted EBITDA was $281 million and EBITDA margins remained strong at 16.8% adjusted earnings per share were a $1.49 and operating cash flow was $162 million in the quarter.

In consumer volumes were higher year over year in metal packaging and TFP, Richard paper can volume recovery continues to pace below our expectations. But we're hopeful this will improve as we head into the next year.

As expected, industrial volumes were flat sequentially. And up year over year in North America and Europe, industrial price/cost impacts remained ahead when which are expected to improve in the fourth quarter.

Overall, another solid quarter from the Sonoco team led by excellent productivity results of $39 million. And I just wanted to express thanks to the entire Sonoco family. This has been a difficult six week period when the first hurricane Helene track was posted. Sunoco had 63 facilities that were in the storm's potential path. We shut down operations and halted productions for the last three days of the quarter in the affected areas.

The supply chain disruptions continuing through the first week of October. A short time later, hurricane Milton made a path towards our operations in Florida with major damage to our plant city location. Through all this, we maintained our focus on caring for our people and finding creative ways to deliver products for our customers.

But to all the employees who gave generously to help your fellow team members and lift each other up during a time of need. We thank you if you please turn to page 6 where I'll provide an update on a few near term strategic priorities.

We continue to operate with discipline by driving productivity from supply chain savings, production efficiencies and fixed cost reductions. These focus efforts are underpinned by portfolio simplification and focus capital investment which have resulted in $141 million of productivity. Through the end of the third quarter, I couldn't be more pleased with the efforts from the entire Sonoco team.

We also remain focused on cost optimization activities including footprint consolidations most notably in industrial, we're in the process of closing one paper mill and three paper converting operations in China. By the end of this year, these activities will continue across our global industrial network. That's part of our ongoing network optimization program.

We also continue to invest strategic capital and innovation to support organic growth and sustainability initiatives.

At the recent 2024 food and drink federations. We received the Sustainable Innovations Award for a monomaterial Pringles can or recognized for inspiring European consumer packaged goods companies for its fully recyclable packaging innovation linked to sustainability as a competitive differentiator in a rigid paper container business. And we continue to invest for future growth in these products.

Regarding additional strategic priorities, we were pleased to announce the acquisition of abiosis in late June representing an important milestone to scale our strategic metal packaging platform.

The approval processes are well underway and Roger and the team are making great progress on planning for seamless integration based on the current schedule, we expect to close the transaction in the fourth quarter of this year.

If you'll turn to page 7, we're looking forward to the addition of Biosis, which will position Smoko as one of the leading metal food can and aerosol packaging manufacturers globally.

So the combination of our existing innovative infrastructure and Ed dsis technically advanced and well invested manufacturing footprint, We look forward to serving both existing and new customers and unlocking new opportunities and tra and attractive in markets and geographies.

The financial profile of this combination is compelling, the transaction will be immediately accretive to earnings and cash flow and this year's returns are expected to be well in excess or I should say the 1st year returns well in excess of our cost of capital.

But most importantly, it gives a strong, powerful operating platform in which to advance both commercial and operating improvements. It will help us continue to drive sustainable value and returns for our shareholders.

You turn to page 8 in September. We announced that we were reviewing strategic alternatives for our thermoformed and flex flexible packaging business. EFP which is part of the consumer packaging segment.

The goal of the review is to accelerate Sonoco's portfolio simplification strategy. Improve pro forma leverage and continue to align value, creating capital investments to the highest return opportunities or to further increase shareholder value.

With this expanded divestiture plan for TFP and a previously announced Thermosafe divestiture. The Neo will finance the eb acquisition with debt and cash and no longer plans to issue equity based on our current plans. We expect to reduce net leverage from previous estimates within 24 months of the sis acquisition.

From a time perspective. We still expect to continue the strategic review of TFP through Q4 of this year if it has been a valuable part of the Smoko family for many years and the contributions have been and continue to be impactful for the company. And with that, I'm going to turn it over to Rob for a brief financial update. Rob.

Thanks Howard. I'm pleased to present the third quarter, 2024 financial results starting on page 10 of this presentation. Please note that all results are on an adjusted basis and all growth metrics on a year over year basis unless otherwise stated the GAAP to non-GAAP EPS reconciliation is in the appendix of this presentation as well as in the press release.

As Howard said, we continue to deliver strong financial results through our enduring operating model and strong market positions. We grew adjusted EPS to $1.49 which was within our guidance range and exceeded the consensus analyst estimates.

This result was driven by positive productivity of $0.31 per share and positive volume of $0.06 per share. Also by negative price, cost of $0.29 per share for the quarter sales decreased 2% to $1.68 billion as volume increases were also by negative price and negative $92 million from actions to exit or divest non strategic position.

Excluding these strategic actions, net sales would have grown 3%. We continue to believe that divesting the protective solutions business exiting nonprofitable thermoforming markets and reclassifying the recycling business will increase our focus and execution volumes across our diversified portfolio were positive but mixed as several businesses experienced near double digit improvements.

While others had low or no growth overall volume was positive. Low single digits in the quarter as mid single digit increases in consumer and industrial offset declines in all other organic volume was positive low single digits as low single digit increases in consumer and all other offset. A marginal decline in industrial price impacted sales negative 1% or $17 million.

Negative price was a product of contractual resets in new or existing long term contracts. We continue to execute our strategic pricing strategy and we're focused on balancing long term customer partnerships with improved price/cost adjusted EBITDA was $281 million and adjusted ebita margin was 16.8%. This is the highest adjusted EBITDA since Q3 2022 and the highest adjusted EBITDA margin since Q1 2022.

When we had meaningful metal price overlap, we achieved this strong profitability through a tight focus on productivity and lower cost productivity was positive $39 million in the quarter. This was our seventh quarter of year over year productivity improvement.

We anticipate that this trend will continue despite more challenging comparatives in Q4, price, cost was negative $37 million due to timing gaps between index driven price and cost changes on a year over year basis. While we anticipate sequential improvement in price/cost in Q4, we expect negative price costs on a year over year basis due to increased fixed and other expenses.

Page 11 has our consumer segment results. Our consumer businesses achieved strong volume increases and drove earnings growth through positive productivity. Consumer sales were flat at $984 million. While volume growth in TFP and metal packaging drove mid single digits overall. Consumer volume increases.

Our core customers continue to communicate that increased promotion is expected to increase demand and we expect a more predictable and improved trend as a result, consumer price decreased 2% due to index based price resets across the segment.

We expect this trend will continue in Q4, consumer adjusted EBITA increased 6% to $160 million due to strong performance in TFP and metal packaging. We have increasing conviction that our strategy of investing in our consumer segment is generating improved profitability through volume growth and productivity in the quarter, volume mix was positive $8 million and pro productivity was positive $18 million. This drove a 90 basis point increase and consumer adjusted ebita margin to 16.2%.

On a more granular level R PC performed as expected with sales declining low single digits to low single digit volume declines. We have partnership relationships with our core customers in R PC and believe that these volume shortfalls are temporary and due to mix, this is not a trend and we expect that volume and mix will normalize soon.

EFB sales were flat as positive less single digits organic volumes and strong acquisition performance from Napal was all set by the impact of the exit of a nonprofitable thermoforming market.

Metal packaging sales increased mid single digits as positive high single digits, organic volume was all set by negative index based price resets.

Template negotiations in 2025 or 2025 are ongoing. These negotiations are expected to last until the end of Q4 and we have no further updates currently page 12 has our industrial segment resolve industrial market conditions remain met and while we are optimistic, we continue to believe that we're in a U shaped market trend. Industrial sales increased 1% to $585 million.

These results include the reclassification of recycling which reduced sales by $20 million in the quarter adjusted for the impact of recycling reclassification. Industrial sales would have increased 4% volume increased mid single digits and organic volume was marginally negative price increased low single digits due to index based price resets for maintaining strong margins and and industrial due to tight cost controls and operational efficiency.

Industrial adjusted EBITA was $102 million as $18 million of positive productivity and $8 million of positive volume was offset by $23 million of negative price/cost page 13 has a result for the all other businesses.

All other sales were $107 million as the divesture of protective solutions meaningfully impacted sales excluding the impact of protective solutions, all of sales would have grown low single digits, all other adjusted EBITDA was $20 million as $4 million of productivity was all set by negative price/cost. Moving to page 14.

Our capital allocation framework aligns with our business strategy to drive value creation through earnings growth and margin improvement. The four pillars of our capital allocation model are capital investment to drive growth and improve profitability dividend increases to reward shareholders, programmatic M&A to action the portfolio strategy and share purchases to return capital and maximize shareholder value.

Our goal is to be the most disciplined deployer of capital in our industry. To achieve this goal, we utilize a dynamic capital allocation strategy that allocates capital to the best strategies and the best businesses. Through this. We expect it to improve roic and generate strong cash flow. Today, this strategy has generated impressive results.

We have generated over $250 million of productivity since the beginning of 2023. And we have invested to we are investing to increase volumes in our core R PC and metal packaging businesses. We expect that these strategies will drive the next phase of growth and profitability improvement.

In addition to these organic plans, we're preparing to close the acquisition of Ebio Sis in Q4. This acquisition and the evaluation of strategic alternatives for both PFP and Thermoset will enable more focused investment through our fewer bigger businesses strategy.

Following these transactions, each of our three core businesses will have a leading global market position through this. We expect to drive greater efficiency and improved customer support. We're excited about these next steps and we will provide further updates as our plans progress on page 15. We have our cash flow performance for the quarter.

Strong operating performance drove solid operating cash flow of $162 million. We're on track with all major capital initiatives. We invested $92 million in the quarter and we anticipate investing between $350 million and $375 million in 2024. Turning to page 16.

The foundation of our value creation strategy is disciplined management of our investment grade balance sheet. This strategy provides sco incredible access to capital, strong liquidity and low cost. We're pleased that we utilize this access to capital to great effect in the financing of the acquisition.

We've now closed or secured commitments for the $3.9 billion to fund the acquisition. We received commitments for a two year $700 million delayed draw term loan in July. This term loan will be drawn to fund the EOS acquisition and is intended to be repaid with the proceeds from the sale of Thermosafe in 2025.

In September, we received commitments for a 364 day $1.5 billion delayed draw term loan. This term loan will be drawn to fund the EOS acquisition and it's intended to be repaid with the proceeds from the sale of TFP in 2025. Additionally, we expect to repay the 2025 maturities and other debt with the proceeds from the sale of TFP.

Finally, in September, we raised $1.8 billion in bond financing with maturities of 25 and 10 years to fund the VSS acquisition. This was an incredibly successful capital raise and it was over five times oversubscribed as a result.

We were able to achieve a weighted average cost of debt on these bonds of 4.7%. We believe that this reflects investor confidence in our strategy and the strength of our credit position. This issuance was investment grade rated by Moody's S&P and Fitch.

We're committed to reducing debt and maintaining our investment grade credit rating and we're targeting to be below three times net leverage in 2026. Page 17 has our guidance for Q4, 2024 guidance for Q4, 2024 adjusted EPS is $1.15 to $1.35.

We expect consumer volumes to grow low single digits in Q4 due to acquisitions and improvements in TFP and RPC. We expect industrial volumes will remain flat in Q4 as we do not yet anticipate a robust recovery price trends are expected to improve the price. Puls is still expected to be negative in Q4. OTC is expected to experience a typical seasonal decline in Q4 and the TB and chip index is expected to continue to reflect market increases.

We are reaffirming our guidance for full year 2024 adjusted EPS and tightening the range to $5.05 to $5.25. Similarly, we are reaffirming our full year 2024 adjusted EBITDA guidance of $1.5 billion to $1.9 billion and we are reaffirming our operating cash flow guidance of $650 million to $750 million.

Now, Roger will further discuss the outlook for the business.

Thank you, Rob. If you please turn to page 18 for our view of segment performance drivers for the fourth quarter of 2024. In the consumer segment, we expect four core sales to be lower year over year due to a thermoforming facility closure and negative price/cost headwinds. We expect consumer volumes to be up year over year from improving demand and new business wins in our rigid paper containers and TFP businesses.

Our sustainable solutions with Sonoco proprietary technology and design continues to be well accepted in the marketplace and metal cans for the fourth quarter, we expect seasonally lower food can volumes after the peak pack season in Q3. But in total, we expect metal can volume to be essentially flat year over year.

From a profitability perspective, we anticipate price/cost to be flat sequentially and down slightly year over year and productivity to continue to be positive across all our consumer business early in the fourth quarter. As Howard mentioned, we were impacted by a major facility damage to one of our large thermoforming operations in Florida and we lost approximately two weeks of operating time. We're working through insurance recoveries now for this damage and we'll try to resolve that during the quarter.

Turning to industrial, we expect sales to be slightly down sequentially from last quarter and year over year including the impact of reclassification of our recycling businesses and the exit of some nonprofitable locations in Asia and Europe paper. Volumes are expected to be stable year over year.

Price/cost in North America will be positive in the fourth quarter. As contract pricing has been reset and input costs are lower. Overall price/cost will remain negative as price recovery is lagging in the rest of the world similar to consumer. We expect industrial productivity to be positive in the industrial businesses in the fourth quarter.

Also as Howard mentioned, we continued on our footprint optimization journey beyond our actions in industrial China business. We are reviewing our network of operations throughout other geographies where we operate and anticipate future closures and consolidation in our other businesses. We expect lower sales from seasonality and from the divesture of our protective packaging business.

In conclusion for the fourth quarter, the team's focus on strong execution in support of our customers footprint optimization and all forms of productivity will continue to be critical as we navigate the puts and takes of the current global environment.

With that back to you Howard.

Thanks Roger. If you'll turn to page 20 I want to take a moment to remind everyone of the plans we laid out to deliver long term shareholder value in our February 2024 investor day. Over the next five years, we're targeting a just over $1.5 billion with the high team even Diors.

And we're expecting to generate cumulative operating cash flow of $4 billion to $5 billion while we remain committed to our growing and competitive dividend.

We're in full execution mode of our next air enterprise strategy with the integration of the highly strategic bios' acquisition further portfolio simplification strategy and execution of our long range plans and our legacy paper and metal packaging businesses.

We expect to deliver these results in closing on page 21. We have a number of upcoming investor events through the end of the year as well as our next investor day. We're planning in February we look forward to providing updates in our journey in the coming months. And with that operator, please open the line request.

(Operator Instructions) Your first question comes from the line of George Staphos with Bank of America Securities. Please go ahead.

Thanks so much. Hi, everyone. Good morning. Hope you can hear me. Okay. Thanks for the details. So I just wanted to bring up kind of a strategic question to start and I'm sure you've gotten this, you know, since the last conference calls that you've done EIO says you've outlined why this is a good acquisition in your view for Sonoco.

You're getting a leading food and aerosol can business, etcetera. At the same time, you're doing the strategic review for TFP, which while maybe smaller is also a leading player in its markets. So help us understand what this potential trade if you will does to your return on capital and your capital intensity and your growth outlook for the company.

So thanks George. You know, a lot of impact there as usual. What I would tell you is, let me start with your question about TFP, leading to, I mean, leading leading positions they have in the market, you know, you can question that. But yes, very good businesses. And in the segments that we serve and the niches we serve. You know, you're right, we have very strong market positions.

But as we looked at what it was going to cost from a capital outlay perspective, be it organic or inorganic. The size of the market opportunities within these niches really didn't think that that was going to going to take us to where we needed to be as we compared it to the strong capital demands that we have in our organic core paper can business. We've talked a lot about the investments we're making there globally.

And as we look at the, at the, at the metal side again, a niche market, but a much larger market where, you know, we will have a significant position on a global basis. And I feel like we stack all these up and frankly, as we finished our our five year strategic plan journey and look at that the amount of capital demand we had too many miles to feed. So at the end of the day, we're, we're trading up if you will in terms of market opportunity, size position and frankly different differentiation opportunities from a technology sustainability and growth perspective.

Okay. If I could, I just want to see if you have it. Do you have any kind of quantification, Howard or Rob in terms of what you think this would add to your return on capital, you know, a 0.2 points, what it may or may not do in terms of your growth rate organically going forward and the capital intensity. If there's any way you can dimensionalize it for us with figures.

And then my follow on, I'll turn it on, turn it over to the other folks. Assuming no change with TFP, right? You're doing a strategic review. What do you think your interest expense is on a going forward basis for Sonoco?

And then let's assume you do move on from TFP. What would be the cost of debt for the debt you'd pay down with those proceeds? Thank you.

Yeah, that's a good question. And we, we think a lot about capital return and capital efficiency is a core component of our strategy as we think about the businesses. One reason why we are pivoting as Howard said to these three core businesses is their capital efficiency and ability to generate return on investments in those businesses.

As you know, kind of the current row depending upon how you calculate it is about as 12%. 12.1% is our current calculation. We expect that to meaningfully improve to the teams as we execute these transactions. The primary reason for that is recycling capital at a better basis.

You know, selling businesses at higher margins and buying at lower, lower and then also the capital efficiency of the remaining business. And so a quantification guide to that is pro forma for all these transactions will have added over a billion dollars in revenue and over $200 million of EBITDA and the capital investment required of the business will be the same if not less. And so the capital efficiency per capital required per dollar of EBITDA generated by the business will be less and the growth rates and ability to continue to invest in those businesses will be greater.

Rob, you said $20 million of EBITDA you said incremental.

It'll be about $200 million depending on what you're doing with synergies there.

I think you're also including Thermoset.

Also including Thermoset.

The divesture of Thermoset, which we've announced and that'll be coming later in the year.

And on the financing side of those questions.

Yeah. So for the interest expense, I mean, we're, we're committed and fully oriented to our plan and we've structured this plan and are progressing with the strategic alternatives for these two businesses with great effect.

We feel really confident that we're going to hit the base plan and that we'll be able to repay the term loans, which was why we did term loans for the easy repay ability. Those those term loans actually have higher cost of debt.

They're, you know, so for plus 3 8, so they're kind of right now on the sixth of the percent of debt that we would be paying off on a pro forma basis. I think that pro forma for, you know, all of that completing, even with the repayment of the 2025 which are 1.8% our total cost of debt will be in the low four.

We anticipate that even if we weren't to do these deals, which we fully intend to, that we could refinance those that capital at similar rates and thus it wouldn't affect our overall cost of debt meaningfully at all.

All right, I'll turn it over. Thank you.

Thanks George.

Your next question comes from the line of Ghansham Panjabi with Baird. Please go ahead.

Hey guys, good morning. You know, just, focusing on, on the current operating outlook for the businesses that you do have, at least for now. What, what does it feel like in terms of, you know, the operating backdrop for industrial and consumer? Do you see any sort of, you know, green shoots on from a, on a volumetric basis? I understand the productivity and price/cost and so on and so forth. But in terms of your volumes as we look out to 2025 what is the base case at this point?

Yeah. Thanks, got some, you know, first off, let's talk about from fourth quarter as we're, you know, probably into the end of October would say that we're pretty encouraged by the volume levels we're seeing. I think some of that however, is a carry over from the loss of the, or the downtime associated with the hurricanes.

But, certainly a positive trend that we're, we're starting this quarter out on, you know, for next year. You know, we're, we're not building in a tremendous amount of optimism, low single digits up on the consumer side, basically flat on the industrial, because we aren't seeing, it still feels like particularly on the industrial side, feels like, we're still trying to crawl out of this, this slow down, you know, I will enforce the fact that the industrial team has done a fantastic job in terms of maintaining the margin profile, the productivity that we're seeing in this light, lighter environment.

But I'm looking for a, or expecting, a significant turnaround. Next year, what we are seeing on the consumer side is, real positive signs, then all set by, by, by some, some lower, lower volumes that we don't see as necessarily a secular, more of a mix related short term issue. But again, going into next year, we're going to be taking more of a conservative viewpoint there.

Got it. And then on the portfolio side, you know, obviously you're swapping large portions, right? With Ebio Sis and simultaneous strategic reviews, how are you managing the organization, you know, including your employees and also your customer customers during this period of uncertainty to sort of ensure execution, consistency.

And then just related to that Pro Forma for Ebio Sis and assuming you exit TFP and Thermosafe, what would be the split between metal and paper? And would you have any plastics left at that point?

Yeah, go, I really appreciate the question because that, you know, as I look at this organization and talk to you guys, this is the, the probably the largest spirit of change. This company has been through in our 125 year history.

And so, how are we managing through what we need to accomplish is what smoke has always done is open, H1sty, communications, fairness. And frankly, you know, from, from a customer perspective, making sure that they were still receiving the, the tremendous service and quality that they've grown accustomed to from Sonoco as we go through this transition. Similarly, you know, the internal communications, etcetera, We're being very thoughtful on how we handle that.

Second part of the question, metal versus paper. I don't know, the split is probably about 50%, 50%. And, you know, you have to effectively, we're out of single use plastic. We will main, but we are going to continue with our industrial plastics division which produces plastic cores, supports our res division, etcetera, but it's more durable. And I'm single use.

So we will be, we'll talk extensively and when we're together in February, you know, predominantly from a consumer perspective, not predominantly fully parked in the two most recycled substrates with within within the recycling industry being paper, aluminum and steel.

Okay, perfect. Thank you.

Your next question comes from the line of Matt Roberts with Raymond James. Please go ahead.

Thank you and good morning everybody. First off, I hope you all and all the team members that were impacted by the storms are, are recovering and doing well. My, my first question on productivity Roger, I mean, that continues to come in strong, you know, well above the initial $100 million that you laid out earlier in the year.

So, were you able to realize these continued savings? And where is there still room for those for the games in four q irrespective of volume and do the games that you're seeing now have a any impact either on the timing or magnitude in, in regard to the longer term $300 million to $500 million that you laid out through 2028 last February?

Yeah, good question. You know, we talked in the last quarter, the quarter before, you know, we laid out that $300 million to $500 million range really based on volumes and, and the uncertainty around the global economy and global environment.

But, you know, even at that time, I had confidence we could hit the high end of that range, assuming volume was reasonable. And obviously, the last 7, 8 quarters, we've done an excellent job delivering productivity.

And that confidence really came from the capital we've invested in our businesses over the last 4 to 5 years, you know, in optimizing our global paper mill footprint investing and modernizing our, our most impactful production lines, consolidating unprofitable operations and investments in automation and all that takes time.

And what we're seeing now over the last few quarters, is it really, really kicking in? So I'm confident it can continue assuming volume stay, you know, where they are and improve some for the fourth quarter and our guidance, you know, we needed productivity some, it'll be positive.

I think it's in the $20 million range in our, in our guidance simply because of the way the holidays fall this year in the middle of the week, you know, the last part of December is going to, our customers will take downtime and we'll probably follow our customers. So, you know, with the team staying focused to continue investments, we're making some still to come.

We've got investments laid out for the next two years to continue to drive growth and productivity. So we're confident we'll re up that estimate on productivity in February when we're together. But my confidence is high, the team's confidence is high that will continue to to deliver going forward, even with the changes that we talked about, we're already preparing for those changes and how we'll change our investment strategy to focus on those three global leadership platforms.

Okay, great. Thank you very much for all that color there. And then my next question, maybe Rob on, on the divestitures, the thermo safe timing in [3,225] it seems more definitive at least, but still in line with the 12 to 18 months that you laid out previously given, it's still a year, year away. Is there anything that gives you more confidence in providing a more specific range for that business?

And, and I know you said no further updates on TFP, but it doesn't stop me from trying to see if you could provide any additional color in terms of transaction options or magnitude of the range that you're considering here in the fourth quarter. Thanks again for taking the questions.

Yeah. Thanks Matt, both questions are, are really valid. I I think Thermosafe we're getting really positive performance from that business in the market. I think that we were waiting for a bit of an inflection point as they went through a bubble this year in volume and that business is performing really well as a result. I think that they've got a really ambitious growth and innovation plan that's going to show incredible incredibly well in the market.

And that business is really well positioned to launch a process in the near future. We're, we're anticipating that through that process, with the interest that we've already gotten, we'll be able to run a very efficient process.

And in that, in the middle part of next year, with the funds available, you know, by the end of next year, for sure, the thermoset, the TFP process is well underway. We're running an option. We have advisers as we stated that are doing an excellent job. We feel really confident about how that process is unfolding.

A high degree of confidence in how the business is performing throughout that process, which is always a great indicator of success in a process. I think the management team doing a great job and that we feel, you know, as always when you're selling a business, you start to realize how great it is.

And then when you, it's hard to kind of let things go, but we're committed to kind of getting this portfolio simplified in the, in the right way. And EFP was just the next step in that. And so we feel like we'll have a signed agreement in six weeks or so. And we're excited about announcing that and then getting that those, those funds in the bank.

And then let, let me just add the, I've been asked a few times, so I'll just preempt it if someone wants to ask it is that you know, with the safe, this is a capacity issue for us in terms of, of deals.

So, you know, we're, we're at the tail end of of obviously the Adios, right in the middle of the PP, we don't have the human capital to try to do a thermo safe at the same time. So that, that's why we're doing the back to back. And as, as Rob indicated, you know, we expect the performance to be alive and well early and in the, in the first half of next year.

That'll make sense. Appreciate the additional color there.

Your next question comes from the line of Anthony Pettinari with Citi. Please go ahead.

Good morning. Is it possible to talk a little bit more about? Hey, is it possible, can you talk a little bit more about the decision making process? You know, for potentially exiting single use plastic?

And I guess what I'm asking is, you know, was this purely kind of an ROIC decision that you would just make for any business or were you, you know, kind of contemplating sustainability trends or regulatory or, or getting feedback from customers or other stakeholders that kind of made you want to accelerate the move out of consumer plastic, you know, more into metal and paper. Just curious if you could kind of walk us through the decision making process.

Yeah. You, after this goes back to, gosh, 345 years ago when we have leadership team, it was took a hard look as, as you guys would recall, we we had a lot of complexity within our portfolio. So we spent the first couple of years this, this this leadership team and looking at all of our businesses and, and evaluating certainly the financial methods that, that you, you you referenced.

But where, which one, which ones of these have the potential in and of themselves to, to be a, a major future core platform or Sonoco where we significantly number one or number two and in the selected markets and, and, you know, a lot of analysis went into that financially as well as as none.

And that's where we decided, as you recall, we created the all other category to start with. And we've been whittling away at that and then, certainly the, the TFEP combined asset played played a role in that sustainability was not part of the conversation.

There is, I firmly believe we firmly believe that there's a fit for purpose needs for for all of all of the products in their applications, but it certainly doesn't hurt with the story at the end of the day, Italy and other parts of the world.

Got it, got it. No, it's very helpful. And then I'm just wondering on Metalpack, I mean, you saw positive price/cost and organic volume growth, you know, despite what seemed like a pretty weak, pack season, at least for, for many crops.

I'm just wondering if you could talk a little bit more about sort of the, the drivers of the strong performance and how you kind of characterize inventories across, aerosol and food when you kind of look at the customer base.

Yeah. What, what I'd say, on the food side, slightly down actually. But if you take in consideration, if you recall fourth quarter, last year, we had a customer that went bankrupt on us, we had to take the right down you, you know, so that obviously is lost volume. So effectively, our food can volume was about flat driver there.

You know, good mix of customers with good pack season coupled with a bit of share gain within existing customers. On the aerosol side, we're seeing return to normalcy if you will. I think aerosols, if we talk about, you know, inventory bills, de stocking post COVID, you can certainly tie yourself to disinfectants where someone bought a case and it is taking them a while to work through what we're seeing from our our legacy customers is coming back to pulling at normalized rates.

The, the second thing that's happened, mid year was a smaller competitor in the market and decided to drop out and that certainly introduced the micro volume as well. So the combination and that and on the aerosol side.

Okay. That, that's super helpful. I'll turn it over.

Sure.

Your next question comes from the line of Mark Weintraub with Seaport Research Partners. Please go ahead.

Thank you. I just want to follow up a little bit on the M&A since it really just strikes me that you don't seem to be getting any credit for this transformation. If you can deliver the types of things you're talking about in terms of accretion.

And, and first, thank you for the explanation on timing with Thermosafe that was very clear and helpful. One of the other questions that I think is coming up is, you know, to getting to that $200 million of EBITDA accretion, it sort of it, it embeds like $430 million from Aosis and, and I see that you are reiterating that in your, your slide deck, which is great.

But you know, if you look to the first six months, the EBITDA was not at that type of run rate. And, and so I just wanted to check in and get a sense as to what level of confidence do you have at this juncture? Are you getting the updates so that you have good visibility that, that, that really is a good base number to be using as we try to analyze the net effect of these transactions.

Yeah, mark that that's the number we continue to use. No, we have not received a firm year-to-date number at this point in time. But the indications are we, we, we should be right around where we targeted.

So we're not concerned about that at all. In fact, you know, Roger can speak to it, but as we've noted Rogers heading up the integration, spend a lot of time in Europe with the team. All of that is going extremely well and I think if anything, we're walking away with a strong resolve in terms of our targets around synergies and opportunities there. Yeah.

Yeah. Mark seasonally reos this third quarter is their strongest quarter and that carries pretty strongly into October the first of the fourth quarter as well. So it's hard to look at the first half results and, and annualize that as Howard said, we don't have that update yet, but we'll get it soon.

But they're in the middle of their heavy season in October, like our October seems to be in pretty good shape and yeah, great. They have a fantastic leadership team developing good relationships, focusing on all the planning that goes into the integration. And in the day one, obviously, there are a lot of things we, we don't know yet, but doing a lot of communication, spend a lot of time with the team and getting very comfortable with the synergy targets that we laid out.

And mark your first your opening comments. It doesn't feel like we're getting a lot of credit for what's to come. Thank you. Agree with that 100%. We are a deal of a century is my, my viewpoint in terms of where we're trading at, at this point in time. But I mean, uncertainty, you know, I get it.

We got a lot going on. I opened up by saying that we're at the, the, this is not the norm for SCA we are in the midst of, more change in this company if I'm ever undertaken in its history. But we are extremely excited, confident and, we think that, you know, we know we will, we will, we will, move out our forecasts and our expectations and, and the market was fine accordingly.

Appreciate the color.

(Operator Instructions) Your next question comes from the line of George Staphos with Bank of America Securities. Please go ahead.

Hi, thanks for taking the follow on guys. If I was hoping you could maybe give us a bit more detail in terms of what you're seeing in the industrial markets, you've got some positive momentum on urb pricing which is good. You said industrial markets are still sort of trying to crawl out from the recovery or into a recovery. Can you give us a sense for what the cadence of volume has been.

And there's been a lot of discussion, you know, on the earnings calls, we were just at one of the industry conferences about, you know, the supply of boxboard globally. Recognizing that you are being what you do is, is very much a niche nonetheless, are you seeing any pressure from the supply that's out there in the boxboard markets or really not that big of a deal at all for many reasons including your integration.

So, pricing trends, how is that moving demand? What kind of cadence in the third quarter into the fourth quarter? And the outlook for next year is flat? Why if you're improving and then supply on, on, on boxboard globally and what it means for you or, or not? Thanks guys. Good luck in the quarter.

Hey George, it's Roger. I'll try to give you some color and if you have a follow up to that fine. But yeah, tubing core volumes, especially in North America have been, it's been pretty good the last two quarters. Up a couple of percent in the third quarter. It's just, but it's just been uneven and that's what we've seen really across the board.

Even in the paper side of our business, you'll feel like you're really seeing some volume push up and then it, then it softens up. But if you look at the third quarter, specifically, paper mill cores and film cores are both strong on a year over year basis, which, you know, we feel like is driven by, you know, consumer spend and retail on food and other types of products.

On the other side, textiles, protective packaging and white goods is very weak. And that's something we've seen in the last couple of quarters. So it kind of bounces from quarter to quarter if you look at the fourth quarter, you know, we expect it to be basically flat in North America.

The real weakness that we're seeing and driving that global industrial number down is outside the US Asia very, very slow in both paper and tubing core. Even ex the what the work we're doing to exit China industrial, the rest of the Asian market very slow. Europe, a lot more competitive on the boxboard side, on the tubing core side and we've seen weakness there.

We've exited the Greece market. So we're doing our best to get out of nonprofitable operations, but all in all pretty uneven and that's why we're calling it flat next year because you just don't see any sustainable trends. As you look as you look forward on the urb side, you know, capacity in the third quarter for us was still pretty strong in North America, about 94% globally, about 89% because we were driven down by Europe and Asia.

We expect that to come down some in the fourth quarter simply because of the holidays pretty normal. In the high 80s probably. But yeah, we're not, again, we get the question all the time. Boxboard imports or URB imports, we see a little bit of that. We don't see anything that's changed substantially.

But we're seeing the same thing in our paper market is tissue tile was strong in the third quarter. It seems to be slowing some in the fourth quarter, probably just inventory adjustments. So, you know, it's the reason we're saying flat next year because there's just no sustainable trends that really tie to on a, you know, on a, on a multi quarter basis.

I should, I, I had gotten a question coming in. I'll, I'll relate it on behalf of somebody. Do you expect any regulatory hiccups with Eev OSIS if you can comment there? And then also the question, why do you think what's going on in, in our PC is not secular as opposed to just timing? Thanks guys. And, and now good luck for the quarter.

Yeah. Thanks for George. No, we don't, we don't, we've, we've received clearance A across the board and are now in the countdown phase with, with the C MA. So we, we don't expect any, any issues there. Yeah, R PC, you know, really, you can tie it to just a couple of customers.

And frankly, if you were, if it was their conference call, they'd be saying, hey, logs have been pretty good. They measure their, their performance as it relates to kilos of product based, they've, they've produced and shipped and it's been good.

But it's created a mix issue for us as they've gone through slightly larger packs versus smaller packs. So it's a math math issue in terms of units run through our PC organization. That's why I say this, this happens, you know, it can be a quarter or two and then it turns back and we, we get back to a normalized mix.

Okay, thanks so much for all the time guys. Have a great one.

All right, thanks.

Your final question comes from Gabe Hajde with Wells Fargo. Please go ahead.

Good morning everyone. Two questions. Roger, I think you made a reference to 10 vending chip prices continuing to move up and I was curious if, if there's an active price increase in the marketplace that we're not aware of or haven't seen. Meaning was that a reference to indices moving higher or is this just a function of what's been posted working through your contracts?

Yeah, I think I was in Rob's prepared comments. Okay. But yeah, we, we're, we're we're okay where it is, we don't expect it to move higher this year. So at this point, you know, with OCC coming down, we expect it'll be flat for the balance of the year.

Okay. Must have misheard that and then there's some consolidation in a couple of your big customers. Just curious looking back in history, how that's impacted the business, if at all.

You know, what I tell you is not exactly which one you're talking about, it has been very positive. You know, I guess I don't want to get into brands, but you know, typically when you, when we see a consolidation like this, there we, we, we see a much more activity in terms of, of promotion of the brand.A

nd in this particular example, tremendous opportunities to increase distribution chains and channels where the previous may not have had a strong presence. So we're bullish. And frankly, we have great relationships with all of our customers and, and, and, and the example that you're citing, I say the same there.

So we think there's a, this is a very, very positive thing and the, the the the prior owners have done a fantastic job and reinvigorating the brand and we expect that there's going to be even more coming.

Great. Thank you guys. Good luck.

Thanks, Gabe.

And that concludes our question and answer session. I will now turn the conference back over to Lisa Weeks for closing remarks.

Yeah, thank you, everyone for joining us today. As Howard noted, we're going to be out and about in the fourth quarter. We look forward to speaking with you and seeing you at our Investor Day in February.

If you have any questions, please don't hesitate to reach out and we'll be happy to take any follow ups that you may have. Thank you again and hope you all have a wonderful day.

Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation and you may now disconnect.