Greif, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the GRIFE second quarter 2020 earnings conference call. At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speaker today, Matt Eichmann. Thank you. Please go ahead, sir.

Thank you, Takanya. Good morning, everyone. Welcome to Grice's second quarter fiscal 2020 earnings conference call. On the call today are Pete Watson, Grice President and Chief Executive Officer, and Larry Hilsheimer, Grice Chief Financial Officer. Pete and Larry will take questions at the end of today's call. In accordance with regulation fair disclosure, we encourage you to ask questions regarding issues you consider material because we are prohibited from discussing significant non-public information with you on an individual basis. Please limit yourself to one question and to one follow-up before returning to the queue. Please turn to slide two. As a reminder, during today's call, we will make forward-looking statements involving plans, expectations, and beliefs related to future events. Actual results could differ materially from those discussed. Additionally, we'll be referencing certain non-GAAP financial measures, and reconciliation to the most directly comparable GAAP metrics can be found in the appendix of today's presentation. And now I turn the presentation over to Pete on slide three.

Hey, thank you, Matt, and good morning, everyone. We really appreciate you joining us today. On behalf of Greif, I'd like to offer our thoughts and best wishes to all of you who have been impacted by COVID-19 pandemic and express our thanks and admiration for the brave healthcare workers and first responders on the front lines of the health crisis. I'd also like to recognize our 16,000 global colleagues at Greif and their families for their enduring spirit and perseverance as we've been adapting to new ways of working and communicating. And I'm really inspired by the efforts and proud of our performance and the global team that we've delivered during the crisis. COVID-19 pandemic remains an evolving situation and we continue to monitor the latest updates. Our global and regional pandemic task force are meeting multiple times weekly to ensure we safeguard the health of our colleagues and the continuity of our supply chain to serve our valued customers. Our purpose at Greif is to safely package and protect critical goods and materials that serve the greater needs of communities all around the world. And given our position, Greif has been identified as an essential business as we continue to operate all of our production facilities in more than 40 countries. Our global portfolio is uniquely capable of fulfilling customer needs worldwide, and our sourcing and supply chain is well supported with extensive alternate backups in place for all critical products and components. If you could please turn to slide four for an overview of the quarter. We continue to make really strong progress across all of our strategic priorities. Our second quarter adjusted EBITDA and adjusted free cash flow both improved versus prior year quarter with especially strong performance in our global Ridge Industrial Packaging segment. In addition to improved financial performance, we completed our third annual Gallup Colleague Engagement Survey scoring in the 89th percentile of all manufacturing companies. We also recorded our best ever trailing fourth quarter customer satisfaction index score. We firmly believe there's a linkage between engaged colleagues and customer service excellence to improve financial performance. We also published our 11th annual sustainability report, which reflects the progress we've made to reduce our environmental footprint and build a more circular supply chain as part of our overall business strategy. Lastly, we completed several portfolio optimization moves aligned to advancing our strategy. First, we acquired a minority stake in Centurion Container, which is an expanding IBC reconditioning capability in North America, and we have an optional path to full ownership in the future. Second, we completed the sale of the Consumer Packaging Group to Graphic Packaging for $85 million, subject to customary closing adjustments, enabling us to refocus on our industrial franchise, optimize our capital expenditures, and pay down debt. Third, we announced yesterday the closure of our Mobile Alabama Uncoated Recycled Box Board Mill as part of our ongoing network cost optimization initiatives. We also consolidate two rigid industrial packaging operations, one in Brazil and the other in the west coast of the United States, as we examine ongoing our portfolio performance in that business. I'd like to now review our business performance by segment, and if you could please turn to slide five. Our rigid industrial packaging business delivered a solid second quarter. We generated record global IBC production with volumes 26% higher versus the prior year quarter, thanks primarily to our new IBC investments in Tolu, which is an IBC reconditioner in Europe, and our two new IBC plants, one in Houston, Texas, and the other in Kaluga, Russia. Global steel drum volumes declined by 70 basis points versus the prior year quarter. Steel drum demand in EMEA, which is our largest steel drum region, grew by roughly 60 basis points, and North America increased by 1.6% due to strong first half of the quarter, fueled partly by increased customer stocking and new customer growth. Steel drum volumes in APAC were roughly flat versus the prior year, while volumes in Latin America were down nearly 16% due to weak demand for lubricants as well as the loss of a low margin, high volume customer. RIP's second quarter sales fell roughly $9 million versus the prior year quarter on a currency neutral basis due to raw material price declines and corresponding contractual pricing adjustments, which was partially offset by strategic pricing actions and better volumes in certain regions. RIP's second quarter adjusted EBITDA rose by roughly $23 million versus the prior year quarter due to favorable product mix, lower raw material costs, including roughly $7 million of opportunistic sourcing benefits, and lower segment SG&A expenses, all partially offset by the impact of lower sales. For a comparative purpose, RIPs in our second quarter of 2019 adjusted EBITDA was negatively impacted by a $1.5 million customer bankruptcy bad debt write-off that was previously disclosed. I'd like to now have you turn to slide six. Given the extraordinary time we find ourselves in, I want to spend a moment to discuss what we are currently seeing in the market. One of Grice's strengths is our broad-end market exposure, and our business is not overly dependent on any one customer or any one segment. Broadly speaking, during the quarter, we experienced additional demand for pharmaceuticals, sanitizers, and disinfectants, partly due to the pandemic and volume softness in lubricants, paints, and coatings as economic activity slowed. Looking ahead, we anticipate several of these end markets improving as economies reopen, and those currently strong will remain that way. If I'd ask you to turn to slide seven. Our flexible products and services segment second quarter sales fell roughly 9% versus the prior year quarter in a currency neutral basis. Soft demand, raw material price declines, and corresponding contractual pricing adjustments were the main drivers. Our second quarter adjusted EBITDA fell by roughly $1 million versus the prior year due to lower sales, which is partially offset by lower segment SG&A expense. We estimate that FPS lost Roughly $600,000 in adjusted EBITDA during Q2 due to government mandated operated capacity reductions in Turkey aimed at preventing the spread of COVID-19 in that region. Those restrictions are slowly being lifted and we anticipate operating at full capacity in our fiscal third quarter. I'd please ask you to turn to slide eight. Our paper-patching second quarter sales fell by roughly $16 million versus the prior year quarter, primarily due to lower published container board and recycle prices. Volumes were also negatively impacted by 24,000 tons of container board economic downtime taken in the second quarter. Paper-patching second quarter adjusted EBITDA fell by roughly 4% versus the prior year, as lower sales were only partially offset by lower segment SG&A expense and by the incremental adjusted EBITDA contribution for 11 more days of Caristar assets this year. We estimate that PPS experienced roughly an $8 million adjusted EBITDA headwind during Q2 from non-essential customer closures. For comparison's sake, paper packaging's second quarter in 2019 The adjusted EBITDA was negatively impacted by a $9 million inventory step-up charge that was previously disclosed. During the quarter, we announced a $50 a ton price increase for all grades of uncoated and coated recycled board, effective with shipments beginning May 13th of 2020, which we're continuing to implement. Yesterday, we announced the closure of our URB mill in Mobile, Alabama, as part of our ongoing network cost optimization activities and then further enhance our capital deployment efficiency. The total capacity of this mill was 140,000 tons, which includes the shutdown of our mill's number one paper machine that was accomplished in October of 2019. We thank all of our colleagues in Mobile for their hard work. and we're committed to supporting them through this transition. I'd like to ask you to turn to slide nine. Similar to our rigid packaging review, I want to provide a little bit more commentary on what we're seeing in the paper packaging and markets. Our core choice corrugated sheet feeder network consists of six state-of-the-art facilities east of the Mississippi River that service a mix of independent and integrated corrugated box plants. During the quarter, sales to integrated customers were softer as they internalized some of the volumes previously outsourced to us in their own networks. Sales to independent customers were negatively impacted by lower durable goods demand as a result of the slowing economic activity and automobile manufacturing closures. Similar to our rigid industrial packaging business, our tube and core business serves a diverse mix of end markets. We estimate that roughly 40% of our top 10 tube and core customer markets were labeled as non-essential businesses during the health crisis in Q2, which dragged on our results. We are particularly impacted by weak demand in cloth, yarn, and carpet segments. Film core volume growth was solid versus the prior year, and we expect demand for construction and protective board products to moderately improve over the remainder of the year. I'd like to now turn over the presentation to our Chief Financial Officer, Larry Hilsheimer, on slide 10.