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Operator
Greetings and welcome to Pactive Evergreen's conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Deval Patel, Senior Vice President of Investor Relations and Strategy. Thank you. Mr. Patel, you may begin.
Deval Patel
Thank you, Operator, and good morning, everyone. Thank you for your interest in Pact of Evergreen, and welcome to our fourth quarter 2021 earnings call. With me on the call today, we have Michael King, Chief Executive Officer, and Michael Reagan, Chief Financial Officer. Before we begin, please visit the events section of the company's investor relations website at www.pactofevergreen.com and access the company's supplemental earnings presentation. Management's remarks today should be heard in tandem with reviewing this presentation. Before we begin our formal remarks, I would like to remind everyone that our discussions today will include forward-looking statements, including statements regarding our guidance for 2022. These forward-looking statements are not guarantees of future performance, and actual performance could differ materially from those contemplated by our forward-looking statements. Therefore, you should not put undue reliance on those statements. These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect We refer all of you to our recent SEC filings and our upcoming annual report on Form 10-K for a more detailed discussion on those risks. The forward-looking statements we make on this call are based on information available to us as of today's date, and we disclaim any obligation to update any forward-looking statements except as required by law. Lastly, during today's call, we will discuss certain GAAP and non-GAAP financial measures which we believe can be useful in evaluating our performance. Our non-GAAP measures should not be considered in isolation or as a substitute for results prepared in accordance with GAAP, and a reconciliation to the most directly comparable GAAP measures is available in our earnings release and the appendix to today's presentation. Unless otherwise stated, all figures discussed today during today's call are for continuing operations only. With that, let me turn the call over to Pact of Evergreen CEO, Michael King.
Michael King
Mike? Thank you, Davil. Good morning, everyone, and welcome. Yesterday after market closed, Pact of Evergreen released its fourth quarter 2021 results. We finished 2021 with momentum across all of our business segments, achieving 30% year-over-year revenue growth in the queue. This included a 23% improvement in price mix due to contractual cost pass-through and pricing actions that partially offset inflationary pressure in materials, conversion, and transportation costs. We were able to deliver a quarterly adjusted EBITDA of $205 million, This is our highest level as a public company. That said, due to the continued labor constraints impacting our industry that worsened in the fourth quarter due to Omicron related absenteeism, our fourth quarter and full year 2021 results remain below the revised full year fiscal 2021 adjusted EBITDA target we provided in September. While these industry challenges will likely continue for several quarters, the company remains committed to strengthening our innovation pipeline increasing productivity, and exceeding our valued customers' expectations. I am proud of our employees, their perseverance, and the sequential progress we've delivered over the past few quarters. We have taken a number of steps to stabilize, strengthen, and better position the company for long term, but our work is not done. I will go through this later in more detail, but first I wanted to turn it over to Mike Reagan to walk us through the financials for the fourth quarter.
Mike
Thanks, Mike.
Mike
Moving to slide six and touching on our Q4 2021 highlights. We were encouraged by what we see in our Q4 results. Net revenue was $1.527 billion, up 30% on prior year. Net income was $34 million, up 89% on prior year. And adjusted EBITDA was $205 million, up 21% on prior year and 72% on Q3 2021. Moving to slide seven. For full year 2021, net revenue was $5.437 billion, up 16% on prior year. Net income was $33 million and adjusted EBITDA was $531 million, down 14% on prior year. Moving to slide nine and a deeper discussion of our Q4 2021 performance. Net revenue was $1.527 billion versus $1.175 billion in the same period last year, an increase of 30%. The increase was primarily due to favorable pricing, primarily due to higher material costs passed through to customers across all segments, as well as a benefit from the food service segment acquisition of Fabrikal on October 1st, 2021. partially offset by slight declines due to lower volumes, as well as the impact of a disposition in the first quarter of 2021. Adjusted EBITDA was $205 million versus $170 million in the same period last year, an increase of 21%. The increase was primarily due to favorable pricing, partially offset by higher material, logistics, and manufacturing costs. Free cash flow, defined as adjusted EBITDA less capex, was $122 million versus $95 million in the same period last year, driven by higher adjusted EBITDA. Moving to slide 10. Looking at our full year 2021 financial performance, net revenue was $5.437 billion versus $4.689 billion in 2020, an increase of 16%. The increase was attributable to favorable pricing, principally due to higher material costs passed through to customers within the food service and food merchandising segments, as well as higher sales volume within the food service and beverage merchandising segments, largely due to higher demand as markets continue to recover from the COVID-19 pandemic. In addition, the food service segment's acquisition of Fabrikal on October 1st, 2021 contributed $106 million of higher sales for the year ended December 31, 2021 as compared to prior year. Adjusted EBITDA was $531 million versus $615 million in the same period last year. The decrease was primarily due to higher manufacturing, logistics and material costs net of higher costs passed through to customers. These decreases were partially offset by higher sales volume. Adjusted EBITDA for the year ended December 31, 2021 included $50 million of additional costs incurred related to the impact of winter storm year. Pre-cash flow defined as adjusted EBITDA less capex was unfavorable to 2020, primarily due to lower adjusted EBITDA. Moving to slide 11. This slide helps to bridge Q4 year-on-year revenue and adjusted EBITDA. Looking at revenue, when comparing to Q4 last year, the key drivers of our revenue growth were price mix of $265 million and $96 million from the acquisition of Fabrikal, net of a disposition. For adjusted EBITDA, price mix favorability more than offset higher costs, whilst the benefit of the Fabrikal acquisition added $9 million. Moving to slide 12 and our results by segment for Q4. Our food service segment saw net revenues up 57% driven by higher pricing to recover COGS increases, as well as the impact from the acquisition of Fabrikal and higher sales volume. Food service volumes for the quarter are up 19%, including the Fabrikal acquisition, and up 4% organically on 2020, and up 3% on 2019, including the Fabrikal acquisition, or down 11% on an organic basis. Adjusted EBITDA for the segment was up 46% versus same period last year, primarily due to favorable pricing and the impact from the acquisition of Fabrikal, partially offset by higher material and manufacturing costs. Our food merchandising segment saw net revenues up 17%, driven by favorable pricing, primarily due to higher material costs passed through to customers partially offset by lower sales volume, primarily due to labor shortages. Food merchandising volumes for the quarter were down 7% on 2020 and down 2% on 2019 volumes. Adjusted EBITDA for the segment was up 5% versus same period last year, due primarily to favorable pricing, partially offset by higher material and manufacturing costs, as well as lower sales volume. A beverage merchandising segment saw net revenues up 13%, driven by favorable pricing, primarily due to higher material cost pass-through to customers, higher sales volume due to the market recovery from the COVID-19 pandemic, and favorable product mix. Beverage merchandising volumes for the quarter were up 3% on 2020, but down 7% on 2019. Adjusted EBITDA for the segment was up 25% versus same period last year, primarily driven by favorable pricing, lower manufacturing costs, and higher sales volume, partially offset by higher material and logistics costs. I'll now pass it back to Mike King for further comments.
Mike
Thanks, Mike.
Michael King
Now if you'll turn to page 14. While we have faced a number of challenges in market volatility during this time, we do believe we have made steady progress over the past 12 months. We've taken additional pricing actions to help offset inflationary pressures. We have started to stabilize the performance of our paper mills. We've made progress on our strategic review of our beverage merchandising segment, including the completion of our exit from the coated groundwood business. We also announced the sale of our 50% interest in nature pack beverage packaging, as well as our carton packaging and filling machines business in China, Korea, and Taiwan, as we focus on growth in North America. The proceeds from the sales will also lower our net debt and leverage ratios. We acquired Fabrikal and are making steady progress on integrating the business and unlocking growth synergies. We announced a second pension lift out that significantly reduces our pension obligations. Please turn to slide 15. We also continue to make progress on our ESG goals. As a paper manufacturer and converter, we believe that supporting sustainable forestry is critical to our long-term success. One way we do this is by procuring fiber from third-party certified sources. In 2021, 32% of our fiber was purchased from these certified sources, up from 30% in 2020. All Pactive Evergreen facilities follow the sustainability metrics benchmarking the company introduced last year, including the recently acquired Fabri-Cal facilities. In addition to providing sustainable products, we believe that we must also support organizations that educate consumers about recycling and composting and provide opportunities for consumers to recycle or compost our products. We are proud to collaborate with our industry partners on these important initiatives and celebrate each milestone. For example, as a result of these initiatives, paper cups are now accepted for recycling in Atlanta, Georgia, Detroit, Michigan, and Madison, Wisconsin. Further, as we make progress on our ESG journey, we actively report on our activities through a variety of value disclosures. We already started to see improvements in our ESG ratings, notably from CDP and Sustainalytics in the fourth quarter. And we invite shareholders to view our disclosures and other reports found in our investors.pactofevergreen.com site and the ESG section. Most importantly, as you'll see on the slide, In 2021, our safety record improved. Pactive Evergreen's overall injury rates ranked more than two and a half times better than industry averages. More specifically, total case rates were down 19% compared to 2020 and lost time restricted time case rates were down 24% during the same period. In addition to our employees' physical safety, Pactive Evergreen values our employees. Overall wellbeing in the fourth quarter The company introduced an enhanced paid time off benefit for our U.S.-based salaried employees. We believe this improved benefit will drive our people-centric culture by providing our employees increased flexibility and by empowering employees to prioritize mental and personal well-being. Now, if you could turn to slide 16. We are providing our fiscal year 2022 adjusted EBITDA guidance of $705 million. This guidance assumes continued pricing actions as needed to offset continued inflationary pressures. The guidance also takes into account the continued labor challenges, which we expect to persist in the first half of 2022 before improving in the second half. We expect volume recovery to be more muted as our business segments face tougher comps, and we focus on rebuilding inventories to improve service and reliability. Our forecast includes a full-year contribution from the Fabrikale acquisition and accounts for scheduled mill outages in the second half of this year. At this time, I would like to thank all of the PACT of Evergreen workforce for their commitment and continued hard work to serve our customers and enhance the value of the company for all of our stakeholders. We remain focused on continuing to improve our production capabilities and service our customers to the best of our ability. With that, let's take your questions. Operator?
Operator
Thank you. At this time, I'll be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. In the interest of time, we ask that you each keep to one question and one follow-up. Thank you. Our first question comes from the line of Chris Parkinson with Mizuho. Please proceed with your questions.
Chris
Great. Thank you so much for taking my question. Mike, I'd say the first one, just taking a step back from everything that's going on, given the management changes, the strategy evolution over the past few quarters, as well as the general op initiatives, especially at the mills, how would you just broadly grade your efforts thus far, and how should investors expect this to further evolve over 22 in terms of potential benefits? Thank you.
Michael King
Yeah, so a lot there. Thanks, Chris. So, you know, given the circumstances and the things that, you know, we all have faced in this industry, I think, you know, we grade ourselves fairly well. You know, setting some of those circumstances aside and getting to the controllable elements of a business, you know, I'm very pleased with the team that I'm building and you know, the velocity that we're getting, especially as we exit Q4 in early days here in Q1 of 2022. So, you know, our strategy, both micro and macro within the business is working. And I think if you just look at the Q4 results and the challenges in the prior Qs, you know, we're starting to see our plans take traction. And that's broadly across all three of our segments.
Chris
Great. Thank you. And just a quick follow-up. Just, you know, just given all the inflationary pressures the business is facing in terms of the raw material basket and even, you know, labor, can you just highlight just your expectations for the cadence throughout the year? You had a few comments on slide 16, but if you could further dig down and just offer some additional color as well as how we should think about non-pass-through pricing efforts. Thank you.
Michael King
Yeah, just generally speaking, pass-through or non-pass-through, we've taken a pretty aggressive stance in terms of making sure we're staying on the right side of the rising inflationary pressures we're getting. The cadence will be as it has to be, and so we continue to take aggressive steps on both the RAS. Also, just broadly, With kind of this inflationary environment, you know, the open dialogues both ways, I will just say, you know, we've gotten a lot of support. You know, the customer base is very aware and living the same challenges we are. So I think all the way to the store shelves, we're going to continue to see that. And I think you can expect us to stay aligned, if not somewhat ahead of that pace through 2022 and beyond.
Chris
Thank you so much.
Operator
Thank you. Our next question comes from the line of Ganshan Punjabi with Baird. Please proceed with your question.
Gansham
Hey, guys. Good morning. Thanks for taking my question. So I guess first off, in terms of the bridge between 21 and 22 in terms of EBITDA, you know, can you just give us some high-level parameters? What are you making in terms of volumes by segment? You had $130 million, you know, unfavorable price cost in 2021. What does that look like for 22? And then the impact from the mill outages, can you just sort of desegregate that relative to the variance of the Winchester-Murray impact of $50 million from 2021?
Mike
Yeah, good morning, Gansham. This is Mike Reagan. So in terms of volumes for next year, or for this year actually, what we'd expect to see is some growth obviously food service will have, you know, the benefit of the Fabrikal acquisition. And we expect to see growth in both food service and food merchandising. And so, you know, the impact from volume there should be, you know, quite substantial in both of those segments. In terms of beverage merchandising, because we closed the Kota Groundwood complex and we're just going to and also we're just rebuilding our inventories there, there won't be much volume effect year on year. I just want to note, though, that one of the things that we are doing in terms of volume is we've got to rebuild our inventories so that we can continue to service our customers. So what you would expect to see may not be exactly the way that it comes through in our financials. So we want to build inventory so that we service our key customers. And so the volume recovery might not be as high in both of the food segments as you'd expect, but it will be reasonably substantial. But a lot of the additional production that we're going to be pumping out is going into inventories. So in terms of pure dollars or pure numbers, I think food service will be up because of fabric out probably around 10%, food merchandising up a couple of percent.
Gansham
Okay, great. And then on the food merchandising segment, I mean, this is, you've called out labor issues specific to that segment, you know, over the last, at least of the last quarter as well. Is there something unique about the construct of that business that's more labor intensive than the other two segments? Any insight there? And then also, you know, as it relates to maybe out of stocks for that segment, you know, has it already peaked? And are we on the flip side of that? Or how should we think about the recovery curve specific to that segment?
Mike
It's not unique in terms of the labor issues. However, there's been a couple of things there. It was mostly driven by labor issues in some of the dedicated plants for food merchandising. We're spread very much across the U.S., but some of our plants... on the East Coast have been hit a lot harder than others. And so that's just sort of the way the cards fell. And so in terms of getting labour into those plants, the labour thing was really around getting full-time workers in, but also the various regions involved that the food merchandising plants were in were just hit harder by Omicron all at once. So there was a lot of absenteeism, and that was problematic for us. And so it just, as I said, it was just kind of the way the cards fell there with those plants.
Michael King
The other thing I would say is we are seeing the same progress we've seen in the other segments. We're seeing the same improvement, so it's not more exposed. It just, to Mike's point, was really around where Omnicron really was dense at that period.
Gansham
Very helpful. Thank you.
Operator
Thank you. Our next question comes from the line of George Staffos with Bank of America. Please proceed with your question.
George Staffos
Hi, guys. Good morning. Thanks for all the details. Hey, piggybacking on Gonsham's question, Mike, if you mentioned it, I apologize, I missed it, but can you parse out some of the bigger bridge items to the EBITDA 705 from the 531 this year? Faber-Cal, you know, what do you expect that to add, you know, $40 million plus or minus? Do you recover the price cost negative this past year, which is $130 million? And if you mentioned what the outage cost was, I'd missed it again. What do those items look like going from 531 to 705? That's question number one. Question number two, what is your goal for net leverage by the end of 22? Within that, what cash flow, true free cash flow, do you generate that you can apply to deleveraging after dividends, after taxes, after interest. Thank you.
Mike
Yeah, sure. No worries, George, and good morning. So in terms of the benefit from Fabrikal, it's about $50 million in that bridge. Okay. In terms of the price-cost dynamic, we're expecting to see costs continue to go up, and we have... But we do think that we do get on top of the pricing, and we have already, as you saw in Q4. So there's probably a $50 million benefit from that price-cost dynamic. Now, obviously, there's a lot going on in the world at the moment. Sure. You know, some things there. What I'll tell you also with regards to there are some increases in – and our SG&A and other that probably weren't factored into anyone's bridges. Just some things like transition services arrangement income and things like that. Some bonus, resetting the bonus and the long term incentives there that do drag on the the forecasted earnings there. And then the remainder being higher volume in the business. And like I said, George, we're not going to sell through all of the additional volume that we're manufacturing this year because we want to get back to normalised service levels and to continue to be the best partner we can to our key customers.
George Staffos
Okay, so that drag, what would it be? And again, the outages, what would it cost? If you had mentioned it before, I apologize, but I didn't hear it in your response here.
spk14
Mike? The drag, probably around $40 million.
George Staffos
Four zero?
spk14
Yeah.
George Staffos
Okay. And the outages?
Mike
The outages, net net outages, will probably increase costs this year about 10.
George Staffos
Okay, thank you. And on the leverage and cash flow?
Mike
So the leverage, we're expecting to be somewhere between five and five and a half times by the end of the year. And then in terms of cash flow, it really all depends on what happens with working capital. We are looking to, we have, in terms of pure numbers, the EBITDA we've talked about, CapEx, we're probably expecting to be somewhere between somewhere similar to this year maybe a little higher between 280 and 310 and then in terms of working capital if we if we continue to increase our working capital it that could be a cash outflow of you know up to a hundred million dollars now we can sell that inventory through but you know I just want to call that out that you know we are looking to you know build inventories again to get back to service levels so we do think and you know over and above that we do have the asset divestitures that you know the beverage merchandising Asia and Middle East divestitures that we've announced which should bring in substantial cash flow if they close.
George Staffos
Thank you, Michael.
Operator
Thank you. Our next question comes from Mark Wild with Bank of Montreal. Please proceed with your question.
Mark Wild
Good morning, Michael and Michael. I wondered, just to start off, could you give us some sense, Mike Reagan, of what the year-over-year benefit will be from all of these increases that are out there in bleached board and uncoated paper pricing? Just approximately?
Mike
Yeah, look, I think in terms of the beverage merchandising segment, we're expecting just pure pricing to go up over $100 million in that segment.
Mike
Year on end.
Mark Wild
All right, and how would you expect that to roll in through the year? Do you have any sense of that?
Mike
It'll be reasonably consistent through the year. A lot of the announcements have already been put through, maybe a little lighter in Q1 than the other three quarters.
Mark Wild
Okay. And then over on the labor issues, I'm just curious, Mike King, whether... whether you expect these to persist for some time and also whether it's just changing how you're thinking about work processes and investment in automation in those businesses.
Michael King
Yeah, we're absolutely focused on doing two things. So, you know, the world's changed a lot in the last couple of years. And, you know, the virtual work opportunity people have today versus manufacturing jobs is something we're we're addressing and how we bring people to work and we retain them. And we're seeing that shift in, we'll call it the manufacturing culture, take hold. And we're retaining people and doing things that I think are table stakes now versus maybe historic manufacturing employment environments. Outside of that, absolutely. You hit it on the head. You know, automation has been a core focus of ours through our strategic investment program, historic kind of pre-me, but I would tell you that we are looking at every way that we can insulate the business from, you know, that absenteeism dynamic that we continue to face.
Mark Wild
Okay, just finally on this labor issue.
Michael King
In all three segments as well.
Mark Wild
Mike, I'm just curious. With all the labor issues, it seems like all companies are seeing more turnover. Could you just talk about how that's affected productivity? I mean, you have a lot of people cycling through. You've got people who are new to jobs. Any idea what that's done to just productivity for you?
Michael King
Yeah, I would tell you the biggest challenge we have is adapting to change, which is coming fast and furious, whether it be weather events, whether it be new waves of variants and the pandemic. All those things, you know, are what are contributing to, we'll call it slower than desired momentum on our major initiatives. And, you know, I think we had an estimate of last year's impacts of well over $150 million. in terms of our ability to get after productivity and really get out in front of the mills, specifically in the business. This year, and really through Q1, we did get caught up on labor. We think the retention element is a dynamic battle that we'll continue to have to address through retention programs and sign-ons and things like that. But, you know, to pin down a number, it's really squishy, and, you know, it's definitely real. But I'd say that we're most hampered in our ability to manage and adapt to change quickly versus execute the projects. What should have taken a quarter last year took us three quarters, for instance.
Mark Wild
Okay, very good.
Mike
I'll turn it over. Thanks.
Operator
Thank you. Our next question comes from the line of Arun Viswanathan with RBC Capital Markets. Please proceed with your question.
spk11
Great. Thanks for taking my question. And I guess just following up on this line of questioning, you guys have definitely gone through a lot of, you know, difficulties and, you know, changing dynamics over the last couple of years. If I recall back, you know, around the time of the IPO, we were modeling kind of an 850, 830, 850 number on EBITDA for 22. You know, if you were to think about now the guidance being in the 700 or so, slightly above that range, that's maybe 130, 150 Delta. So, um, is that, is that the right thinking? And if you, and if, if it is, um, maybe could you help us kind of understand maybe some major buckets of that, say a hundred million plus, um, is it maybe resin say 50 million or so, um, you know, then the impacts from, from, uh, you know, some of the labor and other issues that you've called out and then maybe the beverage merchandising also another 50. So equally split between those or, How do you kind of think about the delta of where you are now versus where you thought you'd be, say, a couple years ago?
Mike
Yeah, I think, you know, the biggest... I'll start with the biggest and, you know, work my way backwards. So the largest, you know, variance really is around the beverage merchandising segment. And, you know, essentially, you know, the mill performance... we would have expected to be some 70 to $80 million better than where it is today. So that was where we would have expected to be. And it's just taking us a whole lot longer than expected to recover that operational performance. And then over and above that, the inflation, operational performance of the business and these labor challenges. And also, we would have expected that we would have seen a greater recovery from COVID. That makes up the remainder there. When we were modeling the back at the IPO times, we would have expected COVID to be done and dusted in early 2021. Well, we all know that the lag on that has been up and down and the effect has been far greater. Initially, the effect for us was really around food service volumes and some school meal issues and things like that. But the effect has really been you know, much larger in terms of the workforce, in terms of absentees and, you know, the amount of time that has gone on between, you know, what we would have expected and what has actually happened around COVID.
spk11
That's very helpful. Thank you. And I guess just as a follow-up then, do you see a path, I guess, to getting back to those levels? Where would you say that we are on, say, BevMerch? And then, you know, the other areas, it does seem that some of those could be, you know, potentially addressed through pricing. And then maybe some moderation in inflation would help, too. But is there a path back to those levels over the next two years?
Michael King
Absolutely. So certainly those levels and the changes in our business have to come into account, you know, as I look at this. But we've got divestitures. We've got some You know, we've executed the closure of Kota Groundwood. So, you know, the world's changed a little bit. We've acquired Fabrikal. So you've got to take those things into account. But absolutely, in terms of, you know, all the things you just rattled off and more inclusive of, you know, our own internal initiatives, it's not unreasonable to expect us to be back at those levels.
Mike
Okay. Thanks.
Operator
Thank you. Our next question comes from the line of Adam Samuelson with Goldman Sachs. Please proceed with your question.
Adam Samuelson
Thank you. Good morning, everyone. Good morning. So I guess a bunch of questions following up on some of the earlier discussions on the 2022 guidance bridge. Maybe first, as we think about volumes across food merchandising and and food service. Um, labor kind of, my understanding was caused some volume loss, especially in the second half of 21. Um, you couldn't have the people to actually run your plants full and then sell what you wanted to sell. Do we take that? How do we think about that from a comp perspective? And in 22, is that the point just, we might be building inventory as opposed to actually sell, um, as opposed to actually increasing our sales volume, just feeling that there's pretty easy volume comp, especially in the food merchandising business in the second half, that doesn't seem to be reflected in the guidance.
Mike
Yeah, in terms of the guidance, I'll start with food merchandising. We're expecting to see growth in food merchandising in a number of areas. In 2021, Obviously there was the labor challenges and we expect to be on top of those. There's growth expected in certain pieces of that business. Eggs in 2021 were an area that were lower than historically and even lower than pre-COVID, so we'd expect to see that come back. And we also are expecting to see conversions away from foam polystyrene egg cartons that we don't produce into molded fiber and clear PET egg cartons that we do produce. And then in that segment as well, our Mexican business continues to grow strongly as does our protein tray business. So we do expect to see good volume growth in food merchandising. In food service, the key for us there, obviously we've got the year-on-year benefit from Fabrikau, but the key for us in food service is to ensure that we can service our large customers food service distribution customers so that they can win in the market. And that's where we want to build our inventory somewhat and then we'll be selling through all of that volume as we get later in the year. So there is a little bit of a take a step back to move forward. It's best for the long term of the business. But within 2022, you won't see the benefit of that large growth in volume. And we have actually strategically exited a couple of customers just to make sure that we are servicing our key customers as best as we possibly can.
Adam Samuelson
Okay. And then just a couple of clarifying questions. So first, the volume pressures really are the labor challenges related to overcrown in the in the fourth quarter is it reasonable to assume that those would have persisted in January and might be coloring some of your more guarded comments on labor for the for the first half and then does the guidance assume that you've divested the Asian beverage packaging and filling business more solicit before your contribution from that in the 705 so the
Mike
The 705 does assume that we have divested both of those beverage merchandising businesses throughout the year. And in terms of the labor impacts through Q1, as with any sort of data out there, you can see the number of cases in terms of Omicron, they've come down. And we've seen... You know, early on in January, there was a massive spike and there was absenteeism, but we're getting back to sort of normalized levels now.
Mike
Okay. Thank you for that. I'll pass it on.
Operator
Thank you. Our next question comes from the line of Kyle White with Deutsche Bank. Please proceed with your question.
Kyle White
Hey, good morning. Thanks for taking the question. You made a number of divestments and exited the Dakota Groundwood recently, the business there. Do you still have more to go in terms of assets that you view as non-core, or do you think you have the portfolio where you want it now? And then kind of relatedly, is the strategic review still ongoing?
Michael King
So just in line with what I've shared historically on this is we continue to evaluate the beverage merchant. And truthfully, we've tried to be as transparent and, as I mentioned before, it's going to be an iterative process. So as we've kind of arrived at intersections where we can make the decisions and be very open, we continue to plan to do that. I would tell you we're still very heavily engaged in the review process. It's gonna be ongoing. By no means do we have any other decisions to share at this point. But yeah, I would just say largely similar to 2021, activities is ongoing and we'll be open about decisions as they come forward.
Kyle White
And then on the inventories, understand the rationale to try to build up inventory so you can better service some of your key customers longer term. But are you able to give us a sense of, one, when do you expect to reach your target levels? And are you trying to get back to pre-pandemic levels or do you expect to still run a little bit leaner relative to pre-pandemic?
Michael King
So we're targeting kind of getting healthy on inventories across all the segments in Q3, late Q3-ish. And yeah, so no, I don't believe we will target pre-pandemic inventory levels in all cases. Certainly, as you look at buy-ins and consumer buying trends, we need to move with some of those. And so in some cases, we'll look to raise inventories, and in other cases, we'll look to optimize and reduce. The other thing I just want to say, because it continues to come up, is service levels are a huge piece of the need to rebuild inventories. But the other side of that is we have to take cost out of the system. And so if you can imagine the efficiency of our trucking and transportation costs not having the right level of inventory not being able to fully cube trucks is a big deal and so improving our efficiency on transportation which is you know you look at one of the biggest inflationary levers impacting the business no secret there and so servicing customers but taking cost out of the system for everybody's a part of that strategy as well and so It's not just the right thing for our customers, it's the right thing for the overall business as well.
Kyle White
Got it. Appreciate the details. I'll hand it over.
Operator
Thank you. Our next question comes from the line of Anthony Pettinari with Citigroup. Please proceed with your question.
Anthony Pettinari
Hi, this is actually Brian Bergmeier sitting in for Anthony. Is it possible to say what level of contribution you expect from the strategic investment program in 2022? I think around the time of the IPO, you were looking for maybe a $50 million contribution in 22. You know, is that still reasonable? And is that included in the price cost guidance that you gave earlier?
Mike
I think...
Mike
Well, what we'll see is for what we've spent, we'll see the remaining piece just play itself out. So in terms of we're sort of moving away from being focused on that because we've spent most of those categories. We're moving into other spends. We're doubling down on automation and those sorts of things. But in terms of the plan itself, I think, you know, we would expect to see some residual benefits probably in, you know, the $30 million, $40 million amounts, you know, that flow in through 2022. You know, frankly, though, Brian, you know, we've sort of been looking at all of our CapEx not just specific to the strategic investment program because we have new investments in 2022 that will see benefit then. And so, you know, the benefits from Capnex are sort of all lumped together. I haven't gone through and said this one was part of this program and this one was part of another one.
Michael King
Yeah. And so, you know, largely we're shifting and we kind of rounded out the strategic investment program as discussed previously in 2021. And so as we talk about automation, we talk about digital enablement, we talk about reactive capacities. Those are the things in the areas that we have to focus on to insulate our business from not just the labor challenges, but improve our ability to manage change. And so that's the shift you'll see. We'll see much more benefit on a run rate basis from the prior SIP. The last phase of the SIP, if you recall, was a much... It was a longer-term run rate payback, so automation programs with longer tails, and we're kind of rounding that out now.
Anthony Pettinari
Got it. Thanks for that. And just on the CapEx number, I think around the time of the IPO, you were looking at like $250 million for 22. Obviously, you've done FabriCal, so it's going to go up a little bit. You know, you're looking for north of $300 million this year. Is it still reasonable to think, you know, maybe 50% of that goes towards growth and productivity projects and 50% towards maintenance? Any detail you can provide there would be great.
Mike
Yeah, I think as a rough split, that's a reasonable number, like 50-50.
Michael King
The other thing I would say, that normalized 250 level I think is also, you know, reasonable as well. I mean, our spend is elevated currently if you look at the work we're doing in our mills on the maintenance side and reliability side.
Mike
So I don't think that's indicative of normal, just to reiterate that.
Anthony Pettinari
Yeah, makes sense. I'll turn it over. Thanks a lot.
Operator
Thank you. Our next question comes from the line of Andy Sheffer with Onyx Credit Partners. Please proceed with your question.
Andy Sheffer
Hi, good morning. Thanks for taking my questions. Can you inform us what you're seeing on the labor front that informs your expectations that labor will improve in the second half of the year?
Michael King
Yeah, so we've got several KPIs we look at, and it's a knife fight site to site, so it's a very integrated view of the world for us, and it's different region to region. But the key things we look at are vacancy rates, retention rates, And the curves, both proactive and reactive metrics, to tell us that we're getting on the right side of it. And we've been making progress since kind of late summer with some ebbs and flows linked to known spikes, weather events, you name it. And the data shows that we're winning. We're not shedding humans. We're gaining humans in our facilities, and we're retaining them. So both those metrics are... would give us confidence.
Andy Sheffer
Okay. And then on the asset sales, remind us what the expected net after-tax and fee proceeds will be if those sales both go through.
Mike
Yeah, around $330 million. Okay.
Andy Sheffer
And then just on the mill outages, can you remind us which ones and what the timing is in which particular quarters? And is it a roughly 50-50 split?
Mike
Both mill outages will be in Q4 this year. Okay.
spk08
Thank you.
Operator
Thank you. Ladies and gentlemen, our final question this morning is a follow-up from the line of George Staffos with Bank of America. Please proceed with your question.
George Staffos
Hi, guys. I'll try to make it quick. So following on Brian's question, you know, if we think about productivity for PACTA on an ongoing basis, How much can you get at on an annual basis without applying much capital, just best practices and the like? And how much would require further capital investment? Is there a way to quantify that? That's question number one. Question number two, as we think about 1Q and trying to have some loose guardrails around it, what would you offer to us? Should we just simply take last year and add back Storm Uri? How would you have us sort of begin to model that? And then for Mike King, Mike, you know, you're the relative newcomer, so to speak. You know, how do you think about the dividend overall in terms of value return and capital allocation? Why do you see it important? Is it important? You know, obviously the company's got a lot of other things that can generate more return. How do you view the dividend? Thank you, guys. Good luck in the quarter.
Mike
Okay, George. So I think... First, this is Mike Reagan. I'm going to answer . In terms of the dividend right now, when I look at this, with our current share price, we're running at a circa 4% dividend yield. To me, that's pretty damn good. And so it may well be that it's not the dividend, it's the share price issue. But anyway, I quite like the look of that, particularly what we spat off in Q4 for adjusted EBITDA and the way that we've restructured our balance sheet, our gearing in terms of as we sort of blow forward the EBITDA and then over and above that, our maturity profile on our debt looks kind of good. But in terms of the benefit or the uplift in terms of output that we can get at without investing capital, we have multiple manufacturing platforms. So it's not one size fits all. But look, if we can get an extra 5% out of our assets, sweat the assets somewhat, I would say that's a go-get for us. And I think it's something that we can do. And can we get more? Well, I think I'll hand that over to Mike King, but he's...
Michael King
know sort of coming in and from what i'm hearing from him he thinks we can get more but yeah yeah yeah so you're hearing his paper uh paper optimism here but yes so look there's there's certainly value to unlock without having to spend a bunch of capital reality is there's enough choppiness in the network right now that yeah we talked about earlier uh it's all about momentum being able to focus on waste elimination and keep an eye on profitable growth as well as manage inventory growth. Those are the priorities. Finite resources we've got. Is there $100 million worth of opportunity in the system? We think there is. It's all about the velocity at which we believe we can get at it. On top of rebuilding inventories, keeping people coming through the door. And that's really it. So with stability, absolutely are confident in that number. The pace at which we can get after that and manage through the change is the real dynamic we're managing through.
George Staffos
And any thoughts on 1Q? Thanks, guys.
Mike
George, in terms of Q1, you know, I think Q1 for us is generally a lower quarter. Yep. In terms of demand. You know, to me, you know, in Q1, we should be upwards, you know, over $150 million. You can, you know, look at the impact of winter storm theory. You know, I think this time last year, you know, demand wasn't as strong as well. But I think, you know, let's say 140 to 160, I'll give you that spear for Q1.
George Staffos
That's fantastic, guys. Thank you. Good luck in the quarter. Appreciate all the time. Thank you.
Operator
Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Mr. King for final comments.
Michael King
I just want to say thank you, everyone, for joining, and we look forward to talking to you at the end of Q2.
Operator
Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
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