Greif, Inc.

Good day, and thank you for standing by. Welcome to the Grice second quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. For 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 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Bill D'Onofrio, Vice President of Investor Relations and Corporate Development. Please go ahead.

Thank you, and good day, everyone. Welcome to Grice Fiscal Second Quarter 2024 Earnings Conference Call. During the call today, our Chief Executive Officer, Oli Roskar, will provide you with an update on our second quarter results, driven by our Build to Last strategy, as well as current business trends. Our Chief Financial Officer, Larry Hilsheimer, will provide an overview of our financial results and our fiscal full-year guidance. In accordance with regulation fair disclosure, please ask questions regarding topics you consider important because we are prohibited from discussing material, non-public information with you on an individual basis. Please turn to slide two. 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 will be referencing certain non-GAAP financial measures and reconciliation to the most directly comparable GAAP metrics that could be found in the appendix of today's presentation. I'll now turn the presentation over to Olli on slide three.

Thanks, Bill. Hello, everyone, and thank you for joining us. We are excited to discuss another successful quarter for Greif underpinned by solid execution across the business through the Greif Business System. Before we dive into our results, I would like to widen our lens and discuss key updates on our Build to Last strategy, specifically touching on each of our four missions for value creation. This will help contextualize our continued solid performance despite the persistence and varied headwinds our business has recently faced. as well as why we believe Greif is positioned for near and long-term outperformance. First, I will discuss our creating thriving communities and delivering legendary customer service pillars through the principles of the service profit chain. I will then touch on how we protect our future for our customers and our communities. Larry will discuss our quarter results and how we ensure financial strength through strategic capital allocation. As a reminder to all, our vision is to be the best performing customer service company in the world. We consider our primary customers to be our end product customers, our supply chain partners, our colleagues and our financial stakeholders. Everything we do focuses on improving our service to these customers through dedication to the principles of the service profit chain, which I'll now discuss on slide four. Our service profit chain has created a competitive advantage for Greif through investing in our people. This creates a flywheel for value creation as colleagues are engaged and dedicated to providing legendary customer service. Customers recognize the value Greif delivers from a differentiated product and service standpoint. This culminates in improved customer loyalty and increased share of wallets over time. Due to our steadfast conviction in the power of this value creation model, we monitor engagement of our colleagues and customers very closely. Net promoter score measure a customer's willingness to actively promote on our behalf, not simply a passive satisfaction in our product. Our net promoter score continues to consistently improve with each survey. Our most recent score of 68 completed this April is well above the average across the manufacturing sector of 49, which reflects that our customers advocate strongly on our behalf. We likewise measure colleague engagement through an independent survey conducted by Gallup. This score likewise has continuously improved and the most recent results of the 85th percentile puts Greif in the top tier of engagement among all manufacturing companies. We are proud to have been awarded the 2024 Exceptional Workplace Award by Gallup in recognition of our people first culture. This award follows from last quarter when we were named for the second year in a row among Newsweek's top 100 global most loved workplaces. These statistics are meaningful as they demonstrate our people are with us on our built to last journey and alongside our great business system are the enablers which drive our performance each quarter and are fundamentally changing how we operate and deliver results as a company. Let's now discuss protecting our future on slide five. At Greif, sustainability is ingrained in our culture, our processes, systems and relationships with our customers and suppliers. It's our belief that in order to provide legendary customer service, we must understand the needs of our customers and create solutions alongside them. This both continuously improves our own sustainability journey and also improves customer loyalty and share wallet over time. This quarter, we released our 15th annual sustainability report, which provides a comprehensive overview of our 2030 targets, as well as recent milestones and progress. Sustainability is another way in which Greif differentiates through the service-profit chain and has bolstered our profitable growth over time. We encourage all our stakeholders to read our latest sustainability report, which is available at greif.com. forward slash sustainability. Please turn to slide six. This dedication to the service profit chain and its resulting value creation flywheel has enabled us to accelerate our growth and transform our portfolio for the future. As we announced at our 2022 investor day and have discussed often since, we are pursuing an acquisition strategy to become a global leader in high-performance, high-margin, small plastic containers and jerry cans. This product group has an addressable market of over 3 billion and is favorably exposed to secular growth markets such as flavors and fragrances, food and beverage, pharma, and ag chem. In March, we completed our acquisition of IPAC Chem and in doing so, have now solidified the global platform that we committed to growing within the high performance portion of that 3 billion addressable markets. Integration into GRIFE is going well, and we are confident in our ability to capture the 7 million of synergies previously communicated. As a reminder, the primary synergy opportunities are in the form of raw material scale advantage and expected and planned elimination of executive leadership overlap both of which are already largely in effect. We are extremely pleased with our investments and value creation on the way. However, I'll also note that given recent short-term softness in the global active markets, our revised fiscal 24 guidance reflects an expectation of smaller contribution for the six-month ownership in fiscal 24 than previously communicated one rate. Additionally, Earnings for fiscal year 24 will be impacted by a one-time expected 8.4 million inventory evaluation expense, approximately 6.7 million of which was included in the second quarter results. This combined operating, the combined operating expertise of our Rife and legacy IPaC chem colleagues working together over the past 60 days has further strengthened our conviction in the solid organic growth fundamentals of the business as well as long-term earnings power of the capital we have invested in the small plastic and Jerican markets. Please turn to slide 7 as we shift gears to the quarter and a discussion of our recent operating environments. In the past three months, we have seen a continuation of the same mixed demand trends as in recent quarters. In APAC, which, as a reminder, is approximately 5% of total company net sales, was showing positive demand signals in Q1. However, in Q2, trends reversed after the market's strong demand expectations for Chinese New Year fell short of expectations and a quick but significant destocking occurred. That lower level of demand has thus far persisted into Q3 In AMEA, Greif's largest GIP market, positive demand trends have continued for the second quarter in a row, with growth coming broadly across end markets, but notably in chemical and lubricant demands. In the Americas, LATAM was flat year over year with mixed demands. However, we are encouraged that LATAM saw the same growth in chemical markets as AMEA, despite slower demand from AgChem. North America likewise remains mixed, but has improved overall on a sequential basis. Although overall chemical demand remains weak in that region, we anticipate continued sequential demand improvements in Q3 in North America, as well as LATAM and EMEA, which is reflected in our revised guidance. We'll be monitoring our key end markets closely and responding to real-time demand changes to ensure We fully capture opportunities as they present themselves. Lastly, our North American paper business continues a slow but steady improvement in container board, driven by our bulk box business, which feeds into e-commerce channels, offset by softer, although sequentially improving, Cuban core demands, driven by stronger construction and film core volumes. We also expect this modest improvement trend to continue. In May, we saw that continuation with our paper business showing modest improvement led by construction and film demands in URB and anticipate continued improvements in container boards driven by the opening of our Dallas sheet feeder. GIP EMEA, North America, and LATAM all show sequential improvement over April with APEC demand mixed with slower China demands and stronger Southeast Asia demands. Overall, when talking to our customers, there is generally positivity. However, it remains coupled with our customers indicating continued short visibility to their own demands, resulting in uncertainty to the duration of this improving demand trend. For that reason, we are continuing to be prudent on cost management, while also monitoring end markets closely for more clearly defined signs of improvements. And with that, I will now turn it over to Larry to walk you through our detailed financial results on slide eight.

Thank you, Uli, and thank you all for joining our call. Our second quarter results reflect improving but still weak demand and the extremely challenging price-cost dynamics in our paper business, resulting in $170 million of adjusted EBITDA, $59 million of free cash flow, and adjusted EPS of 82 cents per share. As Ole mentioned, we are leaning on the Greif Business System to serve our customers with excellence, manage costs, and diligently monitor our business for signs of an inflection. The Greif Business System champions for continuous improvement, accelerates plant modernization and automation, as well as creates value through GEMBA and Six Sigma programs. Using these tools, we continue to drive structural cost out and build productivity gains that not only help optimize our current business, but also provides the foundation to accelerate integration and synergy capture as we grow through acquisitions. While managing the present, we are also growing for the future through the IPAC acquisition and through high-value capital projects, such as our recently opened Dallas Sheep Feeder. These investments are critical to our long-term vision and strategy and will position us well for outperformance once markets return to a normalized state. We are reinstating the guidance range given our confidence in our view of the remainder of our fiscal year. We are pleased to raise the low end from our prior $610 million to $675 million and add a high end of $725 million. Before discussing guidance assumptions, let me provide a segment performance update starting on slide 9. For GIP, continuing weak but improving demand led to a year-over-year sales decline of $57 million and margin compression of 1.5% year-over-year. In addition, SG&A costs were up year-over-year in line with our expectations communicated in our Q4 call, This is primarily a result of DNA's step up on new acquisitions, as well as our ongoing strategic investments in IT and global operating excellence, which, while expensed, we view as strategic capital we are investing for long-term margin improvement. Despite the incremental cost of these investments, margins rallied strongly by over 4.4% on a sequential basis from fiscal Q1 2024. As Ole touched on, EMEA continued to improve underpinned by strong lube and chemical markets. The Americas remained flat to down as lube and chemical demand improvement has not yet been seen. However, North America has seen overall sequential improvement, and we do anticipate that recovery to continue into the second half of our fiscal year. Please turn to slide 10 for PPS results. The continued delayed recognition of announced price increases combined with the rising OCC cost has led to a significant margin compression of over 10% despite flat sales. Our PPS team is continuing to manage controllables well, including successful price increase implementation on our non-index-based customers. However, the outsized impact of the index-driven price-cost dynamic which we still view to not be in sync with real market trends, is a headwind we have and will continue to aggressively work to offset. On the volume side, in container board, we are seeing modest improvement, while the tubing core and markets remain flat to down. While managing the present, we are also continuing to invest in the future within this product group, resulting in SG&A cost inflation for similar strategic initiatives as discussed with GIP. Please turn to slide 11 for our updated guidance and outlook. As previously stated, we are providing a guidance EBITDA range of $675 to $725 million, reflecting an increase of $65 million on the low end. The high end of our guidance range reflects recognition of our announced paper price increases as well as continued margin improvement in GIP. By contrast, the low end of our guidance range assumes no paper price recognition slight further OCC cost inflation, and no margin improvement in GIP. On the volume side, our guidance change of $22 to $62 million of EBITDA assumes further contribution of the improving volume trends across most of our products and markets. As Ole mentioned earlier, our incremental EBITDA contribution from IPAC Chem is less than previously disclosed run rate due to a full-year impact of purchase accounting of $8.4 million, as well as short-term slowness in the global ag markets. Lastly, we anticipate volume-related as well as inflationary transport and manufacturing headwinds of $19 to $39 million of EBITDA relative to prior guidance. As for free cash flow, we are leaving our previous guidance unchanged as our midpoint at $200 million for the full year. We anticipate that the increase in our EBITDA guidance midpoint of $90 million will not result in incremental cash flow within fiscal 24. The drivers of this are, at the midpoint, higher spend on strategic capex and efficiency-related maintenance projects for $20 million, higher cash interest primarily related to the acquisition of IPACs of $25 million, higher cash taxes of $26 million related to improved earnings as well as the failure of Congress to extend favorable tax provisions. Higher working capital needs to address improving demand of $32 million, partially offset by a favorable $13 million of other miscellaneous cash items. As Ole mentioned in his remarks, while we continue to monitor our business near term, it is critical we also maintain a long-term lens and invest for the future. As such, I would like to discuss capital allocations on slide 12. Underbilled to last, which we define as fiscal 22 through present, we have deployed over $2.6 billion of capital. Our capital allocation framework is simple. We first invest in two non-negotiables, our safety and maintenance capex, which keeps our cash machine running, and our regular and increasing dividend. While critical, these uses are not a significant portion of total cash generated in that same timeframe, and so the rest we devoted towards growing our business and increasing shareholder returns. On the growth side, the recent majority has come through developing the leading global small plastics platform, which Foley discussed in his remarks. The long-term benefits of this business are substantial, and we are encouraged by our successful execution of the transactions, our integration progress, and synergy realization. We balance growth with debt reduction at times when it is necessary to temporarily increase our leverage above our long-term target of leverage ratio in the range of two to two and a half times in order to capitalize on long-term value accretive growth opportunities such as IFAC-10. Given our current leverage, we anticipate in the short term prioritizing incremental debt reduction. We have confidence in the value creation benefits of our capital deployment under Bill DeLasse, and we'll plan to dive deeper into this topic at our upcoming investor day in December. With that, I'll turn things back to Ole for closing on slide 13.

Thank you, Larry. I appreciate each of you taking the time to listen to my opening remarks on our strategy and hope that I clearly communicated the value creation which is occurring through leveraging what we do best, customer service, to drive growth and transform our business. Our recent capital investments and internal initiatives are setting the stage for the next wave of accelerated growth at Greif. Our bright business system and dedication to the service profits chain have combined to create a flywheel of success which is driving growth and our disciplined capital allocation framework. We have an investor day upcoming this December and plan to discuss in greater detail the changes we are currently making through the GRIDE business system to transform our organization for breakout success. Operator, will you please open the lines for Q&A? Thank you.

As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Our first question comes from the line of Gonsham, Punjabi with Baird. Your line is now open.

Hi, good morning. This is Matt Krieger sitting in for Gonsham. How's everybody doing today?

Great, Matt. Thank you.

Wonderful. So I guess I just wanted to start off with a quick question on volumes. Can you provide some added detail on the volume cadence across both business segments during the quarter? And then just some early thoughts on how the third fiscal quarter has kicked off would be really helpful as well.

Let me give you some comments. Let me sort of zoom out first and give you kind of a regional overview year on year. And then we can go into substrates and I'll make some comments on perhaps on the end markets. So if you look at it regionally, so the strongest market was EMEA, where we saw an 8% growth. And it's also our largest GIP markets. LATAM was flat. We were a little bit weaker in North America, minus 5%. And we were down 11% in APAC. The broad improvement we saw in EMEA was across our industrial end markets for the second straight quarter, mostly in bulk chemicals and loops. In LATAM, we saw pockets of strength both in bulk chemical and taints and coatings. And as I mentioned, we had some softness in AgChem, like we've seen most other places. And again, in North America, it was, you know, we see continued slow bulk and commodity development and ag chem demand is down, but sequentially from Q1, we do see improvements. And I made some comments earlier on APAC. Q2 volumes were negatively impacted by seasonality from the Chinese New Year and weaker demand from food and dev. If we look at substrates year-on-year, the strongest substrate was plastic, where we have invested, and IBC, and we are up in low teens year-on-year. Steel is flat, but it's actually improving up to 10% sequentially. We're down low singles in fiber, but we are improving again sequentially, and it's up 10%. As I said, the end markets are really bulk chemicals, lubricants, where we see strong developments. If we look at also the economic indicators, so the global PMI was above 50 for the last four months, including May, which is positive and which is reflected. And these positive signals that we've seen exiting makes us very positive. positive for the future. We stay connected to our customers, our supply chain partners, and as demand hopefully keeps increasing, we will react quickly like we have done in EMEA.

Great. That's very helpful. And then just to follow up, I wanted to touch on price-cost a bit. Can you provide an updated view on the absolute price-cost expectation for the year? If you could provide some detail on how that, you know, how that was, how that performed this quarter and what you would expect from the upcoming two quarters, that would be helpful as well. It seems like we could be reaching kind of a peak price cost pain point across your business, given the, you know, the pricing initiatives you have in the market. I just want to check the validity of that statement.

Yeah, that's a great question. I think Larry will answer that. Yeah. I mean, you know, if you,

Look, I mean, clearly, you know, as we looked at, you know, what price cost we had relative to Q223, you know, major impact year over year, price cost squeeze of about $49 million in paper and about 20, about positive 17 out actually in GIP. So you had $12 million of volume benefit in GIP and $27 million of volume benefit in PPS. So trends on volume is good. Price-cost squeeze, very harmful to us. And then you're looking at going from our former guidance to current guidance. We show from that 610 low end that we gave, you know, actually, you know, price cost benefit in our GIP business of about 39 million and volume of 27. Within PPS, you know, at midpoint, you know, $29 million, or I mean, I'm sorry, $16 million price cost lift from prior where we were and 15. If I'm going from prior year to where we are now, Obvious squeeze numbers on going from the 819 of last year to 700 million of this year within the PPS business. Major squeeze clearly on OCC of roughly $9,500 million. URB at 5 million in pressure and container board about flat. And then in our GIP business, You know, price and cost about $59 million positive and volume about $30 million positive. So hopefully that's what you were looking for, Matt.

Yeah, no, that's very helpful. That's it for me. Thank you.

Thanks, Matt. Our next question comes from the line of George Staffos with Bank of America Securities. Your line is now open.

Hi, everyone. Good morning. Thanks for the details. I wanted to go to – and congratulations on the quarter. I wanted to go to slide 11 where you have the waterfall. And Larry, if we look at – and Oli, if we look at the volume pickup in your guidance, recognizing there are no guarantees in life. Things could move more positively. Things could move more negatively. Where are you right now in terms of that $22 to $62 million, would you say, roughly – in terms of the volume pickup that in turn informed your improvement in your guidance?

Yeah, I would say, George, where we're at in the trend right now is right smack in the middle of that. And so what we did is build a range around it based on, as Ole mentioned in his comments, There's still some nervousness in some of our customers, but there's also some areas where we're seeing there's potential optimism. So we built a range around what we thought was possible for the rest of the year.

Larry, I probably missed this, but if you could, either by end market or by substrate, maybe both, Could you just give us kind of a quick where are you year-on-year early in fiscal 3Q in terms of trends you're seeing at the moment on volume? You mean in May?

Yeah. Let me just get – I think I have a note of you here. Yeah. So exit trends in May, they were generally positive, George. Steel and container board, they kept improving throughout Q2. Plastic and URP was a bit more mixed on a month-to-month basis during the quarter. But if we look at GIP and then EMEA, they remain sequentially strongest, as I mentioned, but also with North America and Latin improving. Container board continue to improve and will soon start benefiting from our Dallas Sheet Feeder, which, by the way, is operational and it's producing a sheet that's being sold. And in URB, we continue to see construction and film demand increasing in May, despite the mixed demand in all of our end markets.

Okay. My last two and I'll turn it over. Just if you could, Ole, give us a bit more color or remind us what you said in terms of year-on-year in paper. It sounded like Container Board was, all right, not gangbusters, but up modestly year-on-year. Sequentially, Cuban Core URB was getting better but still down. If you could sort of affirm that and discuss what you're seeing early in May there. And then what kind of price cost should we expect out of steel and GIP in particular?

the rest of the year do you have improving or sequentially decelerating benefits there thank you yeah so on steel so that that will generally uh keep improving and i'll maybe touch upon that a little bit later on uh what we're doing internally self-help um in tube and core as i mentioned uh Film calls are positive and source construction. Where we see, and which is, by the way, our biggest end segment is paper calls. We haven't really seen any major recovery there. Whilst we are doing well in paper calls, we're also selling to other paper companies, and we haven't seen a pick up there yet.

But hopefully we'll see that soon. Thank you so much.

Thank you. Our next question comes from the line of Mike Roxland with Truist Securities. Your line is now open.

Thank you, Larry and Bill, for taking my questions. First question I just had on slide 11. I think, Larry, if I heard you correctly, you mentioned there the $19 to $39 million of manufacturing headwinds, and that's new. What's driving that?

The predominant driver of that is volume. So with volume pickup, you get more just incremental transport costs and then a little bit of additional manufacturing costs, just volume driven.

Gotcha. Perfect. Thank you for that. And can you talk about the pent-up operating leverage in the business that could be released maybe once global volumes start to normalize? So you're certainly in your early stages, depending on region, In terms of seeing the volume improvement, once everything, let's say, is firing on all cylinders, what's this pent-up operating leverage that could potentially be released and positively impact the business?

Basically, as this volume picks up, the predominant cost occurring in addition to transport is just the raw material cost. But your value-add is going to be about 50%. But I'd say generally just assume excess of 20% gross margin pickup on incremental volume. And if you look back, if we get a return to 22 volume levels, we would end up picking up about $160 million of EBITDA. And that doesn't even factor in the incremental EBITDA from getting to full run rate on all of our acquisitions. and getting back on price-cost where we need to be on paper. So, yeah, we see a path back with returning economic conditions to well over $900 million of EBITDA.

Let me also just touch on our internal initiatives on cost savings and the impact of our bright business systems. So we're operating at a high level, and we're always looking for what we call internally aggregation of marginal gains across our 250 locations. Our sourcing team, as an example, recently finalized a targeted review in North America, in a particular area, which reduced total spend for this area by an estimated 8%. They also did a recent review of a certain global indirect material spend, which resulted in an estimated one-way cost savings of 5%. We also recently conducted, as an example, two full-scope steel plant operational excellence reviews. These plans were previously underperforming to our expectations. These reviews include a full value stream mapping and Lean Six Sigma review. By focusing on raw material usage and reducing scrap, each of these two plans have seen a sustainably down margin increase of approximately 800 bps relative to their prior performance. I visited a plant recently who have over the past few years made a significant improvement on their NPS and Gallup scores and when you look at the profitability trend for that plant it correlates extremely well and with these things, and their plant performance is now top tier. So the aggregation of these types of marginal gains, they are a big part of our improved structural margin profiles. So we are truly playing on the entire piano, as you can hear, spanning from operational and commercial excellence initiatives to supply chain and sourcing, and I should also mention our automation efforts, which is reflected in our earnings.

Thank you, Olin. One quick follow-up. How many of your facilities could be subject to those types of reviews? How much further runway do you have in terms of improving plant-level profitability like that?

To be honest with you, previously I thought, okay, there must be a limit somewhere, but I keep getting surprised. We have a six-sigma program, and just to give you an idea of the size of our six-sigma program, We have nearly 700 participants across the globe today. We have 400 white belts, 170 yellow belts, 130 green belts, and we have 10 black belts. And they all have projects of a certain magnitude driving savings to the bottom line. And when you look at the, you know, we have deployed this in 250 plants. The things I see, and I mentor some of them, the things I see that surprises me, hey, could we really find that sort of saving there? It's just amazing. And you're looking at years and years of runway on these initiatives, and you can say, okay, you find like 300,000 here and 700,000 there, but when you add it up, and that's why we call it aggregation of marginal gains, it becomes big numbers over time.

Understood. Thanks very much for the call.

Thank you. Our next question comes from the line of Brian Butler with Stifel. Your line is now open.

Hey, good morning. Thank you very much for taking the questions. You talked about getting to the $900 million EBITDA. I was hoping we'd maybe just talk about Maybe high level, what are those components that get you there and just kind of walk through it, you know, the price, cost, volume, and if there's anything else from the $700 million?

The single largest component of that is just getting back to volume levels of 22. And that alone is a $160 million driver at current margin rates. So, you know, we look good on a little bit on volume recovery sequentially, but you look at a two-year stack, volumes are still significantly off, and obviously that's evidenced in the economic data with PMI statistics and everything else. So, you know, getting back to that kind of volume level drives a huge amount of earnings lift for us. And so, as Oli mentioned, we undertake all these operational improvement areas to make really change our structural cost drivers so that we can even tweak that more and cover other inflationary costs. The secondary element is clearly getting back to what we consider much needed, well-deserved in price cost in our paper business as evidenced by the price increases we recently announced. And, you know, those things can drive a big pickup as well. And then just getting full run rate on and performance level back on the acquisitions we've done. And then also this new Dallas sheet feeder business in our container board business. You put all those elements together and it drives you easily over that $900 million figure.

Okay. And you mentioned the recent kind of the URB price increases. And how much of that is in the 40 to 70? Is that, you know, the low end zero and the high end 100% or some other mix?

You know, we really expect that we should get full recognition of these price increases. They're needed and deserving. Inflationary costs we've had in all of our production and paper grades is substantial. And, you know, we obviously need to earn appropriate returns on the capital. So, but, yeah, look, we're also pragmatic, and we still remain burdened by this archaic survey system utilized by Richley, which, and look, we, once again, we'd love them to become very relevant, move to a data-driven automated system to correctly report the true market. But as a result, we hedged the upside. You know, I mean, our guidance would have no recognition and our upside we we've um you know got a range there you know we put in a range to um deal with the risky system and you know we also have timing issues related to any time they're recognized so you know you look at the 50 liner board and 80 medium uh that we have effective june 1st that's recognized you know this month it would start uh to come through the p l in late july and the 50 to 70 in URB effect of July 18th. If that gets recognized timely, then we'd start benefiting in late August to September. So there's some play in that upside. If we got everything immediately when we rolled it out, then there'd be even more upside.

And when you think about kind of like the midpoint of what you're assuming there, if that was a rollover, what's the benefit in the 25? from a perspective of incremental EBITDA that you would be able to capture.

Yeah, you know, if you look at our pricing in general, I'd just say a $10 change in... Where am I at? Find my... Yeah, $10 impact on... Container board is $700,000 a month, so roughly $8 million annually. And URBs, half a million a month to $6 million annually. So that should give you the numbers to back into whatever your assumptions would be.

Okay. And then one last one, maybe on the capital expenditures. That kind of increased a little bit on the updated guidance. Maybe break that out. Is that all IPAC Chem or are there other growth initiatives that you're spending that $20 million on?

Very little IPAC Chem at all. What it really is, is you had some inflationary costs on the Dallas Sheep Feeder as a strategic growth project. that ran that up slightly over, but that's at full bulk going to generate about $2 million of EBITDA a month when fully operational, so money well spent in our estimation. And then, frankly, we were producing more cash, and some of our engineering group came to us and said, hey, look, there's some high-need safety and maintenance projects that we really think we should pull forward. And, you know, we didn't want to take the risk of not spending on that kind of thing. And since we had the cash capital available, we said move it forward.

Okay. Nice quarter. Thank you for taking the questions.

Thank you. Thank you. As a reminder, to ask a question at this time, please press star 1-1 or your touchstone telephone.

Our next question comes from the line of Gabe Hady with Wells Fargo. Your line is now open.

Oli, Larry, Bill, good morning. Just a housekeeping question on the $8.4 million that you called out, Larry. Was that backed out as a one-timer, or are you flowing that through? I know it's non-cash.

Yeah, we flow it through. I mean, it's accounting. We have to mark to basically sales price any finished goods inventory we acquire. So had IPAC Chem gone forward with it, it would have been profit, but for us it's not. So that's a one-year thing that'll Yeah.

Okay. And then I wanted to ask a question about, I guess, Southeast Asia or maybe China specifically. If memory serves on the GIP side, you guys have, I think, four remaining plants there. But when we look at, I don't know, EV production and all these different things, it seems like some activity more than others is fairly robust. And again, I know you guys are being selective about customers and what you're doing over there. Can you just talk about an appetite to grow over there or maybe limiting factors that prevent you from deploying more capital in Southeast Asia in general? I know, obviously, it's a returns-oriented mindset, but just curious about that.

First of all, we have a very disciplined approach to the way we deploy cash. And as Larry mentioned earlier, when somebody comes with a request for safety capex, we never say no. And then we have our cash machine with our steel network and other assets, and we need to maintain them. And we do that, and then we have dividends. And then after that, we then start looking at growth capex. When we have a periodic review of all the requests that comes in, and then we apply filters such as ROI and payback and so on, but we also look at the geopolitical aspect of it. And I would say China is not the country that's at the highest priority in terms of geopolitical aspects. So if there is a choice, we would likely do it elsewhere. We have invested in maintenance, safety, and some upgrades for automation in China. But I would be amiss to say that we've just built a new IPC plant in Malaysia. So it's more the surrounding region we are investing in terms of AIPAC.

Yeah, the thing I would add, Gabe, is AIPAC does have some operations in China. Whenever we assess any kind of project, we always have, as Oli mentioned, geopolitical as part of our risk factors. Now, what does that mean mechanically in our capital decisioning process? It means the hurdle rate for us investing in some place like that is much higher. So if it can't meet the hurdle rate, we ain't getting it done. And then the other thing is part of our enterprise risk management program, as we look at those kind of things, and we did this in IFAC Chem, you look at what happens if something goes wrong. What's your next plan? And so we have plans to deal with anything that could evolve as best as we would be able to.

I appreciate that. One last one.

Just one last comment on that. So bear in mind, we operate in 41 countries across the globe. So we've done that for decades. What happens on a geopolitical stage is really part of our, you know, disciplined operating system, but we always focus on that. And since we are talking about APAC, we do have growth plans in that region. And as a result, Matt Leahy has been promoted to lead that region, and he's actually already in place to do that.

Good luck, Matt.

I haven't heard you guys talk about, excuse me,

IBC deployment here recently. I appreciate, obviously, the manufacturing backdrop hasn't supported that. Just curious if that's part of the little bit of a tickle up in CapEx and or on the flip side, maybe you guys have built out that infrastructure. I think I understand those lines pretty well, such that you're positioned to service your customers on the IBC side when demand does, in fact, inflect.

I mean, we have continued to expand on our IPC network, not through acquisition, but primarily organic. We've deployed blow molders and new lines in throughout last year and also this year. And I said in September, we will formally open our new IPC plant in Malaysia. Last year, we opened a new IPC plant in Turkey, and we have put additional lines in many of the existing facilities So this is an area where we have we've continued to grow and it's also part of our M&A strategy because it's resin based It's high margin. So it's a very attractive market for us to to grow in and we do that and request of our customers as well that you know when they Expand they tend to come and ask if we could provide them the service, you know on certain locations Yeah, and Gabe you'll remember this but just to remind everybody that

We increased our equity ownership of Centurion last year significantly, and we continue to explore opportunities with other IBC recyclers around the world. Most of them are relatively small, but they fill out our footprint, and we continue to have dialogues around those in many geographies.

Thank you.

Thank you. I will now hand the microphone over to Ole Rosgaard for closing comments.

Ole Rosgaard Thank you. Before we end the call, I just want to thank you all for the questions and your continued interest in Greif. We're very proud of our global Greif team for utilizing the Greif business system to its fullest, as you've heard, and creating significant operating leverage during this temporary sluggish demand environment. We are equally excited to realize the outperformance we have positioned the business to capture through Built to Last and will continue to execute with excellence and provide you with the legendary customer service for which we are known. Thank you to all of our colleagues, our customers, and stakeholders for your dedication, loyalty, and commitment to Rife. Have a great day.

This concludes today's conference call.

Thank you for your participation. You may now disconnect. you Thank you. Thank you. Bye.

Good day, and thank you for standing by. Welcome to the Grice second quarter 2024 earnings conference call. At this time, all participants are in a listen-only mode. For 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 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Bill D'Onofrio, Vice President of Investor Relations and Corporate Development. Please go ahead.

Thank you, and good day, everyone. Welcome to Grice's fiscal second quarter 2024 earnings conference call. During the call today, our Chief Executive Officer, Ole Roskar, will provide you with an update on our second quarter results, driven by our Build to Last strategy, as well as current business trends. Our Chief Financial Officer, Larry Hilsheimer will provide an overview of our financial results and our fiscal full-year guidance. In accordance with regulation fair disclosure, please ask questions regarding topics you consider important because we are prohibited from discussing material, non-public information with you on an individual basis. Please turn to slide two. 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 will be referencing certain non-GAAP financial measures and reconciliation to the most directly comparable GAAP metrics that could be found in the appendix of today's presentation. I'll now turn the presentation over to Olli on slide three.

Thanks, Bill. Hello, everyone, and thank you for joining us. We are excited to discuss another successful quarter for Greif underpinned by solid execution across the business through the Greif Business System. Before we dive into our results, I would like to widen our lens and discuss key updates on our built-to-last strategy, specifically touching on each of our four missions for value creation. This will help contextualize our continued solid performance despite the persistence and varied headwinds our business has recently faced. as well as why we believe Greif is positioned for near and long-term outperformance. First, I will discuss our creating thriving communities and delivering legendary customer service pillars through the principles of the service profit chain. I will then touch on how we protect our future for our customers and our communities. Larry will discuss our quarter results and how we ensure financial strength through strategic capital allocation. As a reminder to all, our vision is to be the best performing customer service company in the world. We consider our primary customers to be our end product customers, our supply chain partners, our colleagues and our financial stakeholders. Everything we do focuses on improving our service to these customers through dedication to the principles of the service profit chain, which I'll now discuss on slide four. Our service profit chain has created a competitive advantage for Greif through investing in our people. This creates a flywheel for value creation as colleagues are engaged and dedicated to providing legendary customer service. Customers recognize the value Greif delivers from a differentiated product and service standpoint. This culminates in improved customer loyalty and increased share of wallets over time. Due to our steadfast conviction in the power of this value creation model, we monitor engagement of our colleagues and customers very closely. Net Promoter Score measures a customer's willingness to actively promote on our behalf, not simply a passive satisfaction in our product. Our net promoter score continues to consistently improve with each survey. Our most recent score of 68 completed this April is well above the average across the manufacturing sector of 49, which reflects that our customers advocate strongly on our behalf. We likewise measure colleague engagement through an independent survey conducted by Gallup. This score likewise has continuously improved and the most recent results of the 85th percentile puts Greif in the top tier of engagement among all manufacturing companies. We are proud to have been awarded the 2024 Exceptional Workplace Award by Gallup in recognition of our People First culture. This award follows from last quarter when we were named for the second year in a row among Newsweek's top 100 global most loved workplaces. These statistics are meaningful as they demonstrate our people are with us on our build to last journey and alongside our great business system are the enablers which drive our performance each quarter and are fundamentally changing how we operate and deliver results as a company. Let's now discuss protecting our future on slide five. At Greif, sustainability is ingrained in our culture, our processes, systems, and relationships with our customers and suppliers. It's our belief that in order to provide legendary customer service, we must understand the needs of our customers and create solutions alongside them. This both continuously improves our own sustainability journey and also improves customer loyalty and share wallet over time. This quarter, we released our 15th annual sustainability report, which provides a comprehensive overview of our 2030 targets, as well as recent milestones and progress. Sustainability is another way in which Greif differentiates through the service-profit chain and has bolstered our profitable growth over time. We encourage all our stakeholders to read our latest sustainability report, which is available at greif.com. forward slash sustainability. Please turn to slide six. This dedication to the service profit chain and its resulting value creation flywheel has enabled us to accelerate our growth and transform our portfolio for the future. As we announced at our 2022 investor day and have discussed often since, we are pursuing an acquisition strategy to become a global leader in high-performance, high-margin, small plastic containers and jerry cans. This product group has an addressable market of over 3 billion and is favorably exposed to secular growth markets such as flavors and fragrances, food and beverage, pharma, and ag chem. In March, we completed our acquisition of IPAC Chem, and in doing so, have now solidified the global platform that we committed to growing within the high-performance portion of that 3 billion addressable markets. Integration into GRIFE is going well, and we are confident in our ability to capture the 7 million of synergies previously communicated. As a reminder, the primary synergy opportunities are in the form of raw material scale advantage, and expected and planned elimination of executive leadership overlap, both of which are already largely in effect. We are extremely pleased with our investments and value creation on the way. However, I'll also note that given recent short-term softness in the global at-care markets, our revised fiscal 24 guidance reflects an expectation of smaller contribution for the six-month ownership in fiscal 24 than previously communicated run rates. Additionally, earnings for fiscal year 24 will be impacted by a one-time expected 8.4 million inventory revaluation expense, approximately 6.7 million of which was included in the second quarter results. This combined operating, the combined operating expertise of our Rife and Legacy IPaC-CAN colleagues working together over the past 60 days has further strengthened our conviction in the solid organic growth fundamentals of the business as well as long-term earnings power of the capital we have invested in the small plastic and Jerican markets. Please turn to slide seven. as we shift gears to the quarter and a discussion of our recent operating environments. In the past three months, we have seen a continuation of the same mixed demand trends as in recent quarters. In APAC, which, as a reminder, is approximately 5% of total company net sales, was showing positive demand signals in Q1. In Q2, trends reversed after the market's strong demand expectations for Chinese New Year fell short of expectations, and a quick but significant destocking occurred. That lower level of demand has thus far persisted into Q3. In EMEA, Greif's largest GIP market, positive demand trends have continued for the second quarter in a row, with growth coming broadly across end markets, but notably in chemical and lubricant demands. In the Americas, LATAM was flat year over year with mixed demands. However, we are encouraged that LATAM saw the same growth in chemical markets as AMEA, despite slower demand from AgChem. North America likewise remains mixed, but has improved overall on a sequential basis. Although overall chemical demand remains weak in that region, we anticipate continued sequential demand improvements in Q3 in North America, as well as LATAM and EMEA, which is reflected in our revised guidance. We'll be monitoring our key end markets closely and responding to real-time demand changes to ensure we fully capture opportunities as they present themselves. Lastly, Our North American paper business continues a slow but steady improvement in container board driven by our bulk box business which feeds into e-commerce channels offset by softer although sequentially improving Cuban core demands driven by stronger construction and filled core volumes. We also expect this modest improvement trend to continue. In May we saw that continuation with our paper business showing modest improvement led by construction and film demands in URB and anticipate continued improvements in container boards, driven by the opening of our Dallas sheet feeder. GIP EMEA, North America, and LATAM all show sequential improvement over April, with APAC demand mixed with slower China demands and stronger Southeast Asia demands. Overall, when talking to our customers, There is generally positivity. However, it remains coupled with our customers indicating continued short visibility to their own demands, resulting in uncertainty to the duration of this improving demand trends. For that reason, we are continuing to be prudent on cost management while also monitoring end markets closely for more clearly defined signs of improvements. And with that, I will now turn it over to Larry to walk you through I will detail financial results on slide eight.

Thank you, Ole, and thank you all for joining our call. Our second quarter results reflect improving but still weak demand and the extremely challenging price-cost dynamics in our paper business, resulting in 170 million of adjusted EBITDA, 59 million of free cash flow, and adjusted EPS of 82 cents per share. As Ole mentioned, We are leaning on the Greif Business System to serve our customers with excellence, manage costs, and diligently monitor our business for signs of an inflection. The Greif Business System champions for continuous improvement, accelerates plant modernization and automation, as well as creates value through GEMBA and Six Sigma programs. Using these tools, we continue to drive structural cost out and build productivity gains that not only help optimize our current business, but also provides the foundation to accelerate integration and synergy capture as we grow through acquisitions. While managing the present, we are also growing for the future through the IPAC acquisition and through high-value capital projects such as our recently opened Dallas Sheep Feeder. These investments are critical to our long-term vision and strategy and will position us well for outperformance once markets return to a normalized state. We are reinstating the guidance range given our confidence in our view of the remainder of our fiscal year. We are pleased to raise the low end from our prior $610 million to $675 million and add a high end of $725 million. Before discussing guidance assumptions, let me provide a segment performance update starting on slide nine. For GIP, continuing weak but improving demand led to a year-over-year sales decline of $57 million and margin compression of 1.5% year-over-year. In addition, SG&A costs were up year-over-year in line with our expectations communicated in our Q4 call. This is primarily a result of D&A's step up on new acquisitions as well as our ongoing strategic investments in IT and global operating excellence, which While expensed, we view as strategic capital we are investing for long-term margin improvement. Despite the incremental cost of these investments, margins rallied strongly by over 4.4% on a sequential basis from fiscal Q1 2024. As Ole touched on, EMEA continued to improve underpinned by strong lube and chemical markets. The Americas remained flat to down as lube and chemical demand improvement has not yet been seen, However, North America has seen overall sequential improvement, and we do anticipate that recovery to continue into the second half of our fiscal year. Please turn to slide 10 for PPS results. The continued delayed recognition of announced price increases combined with the rising OCC cost has led to a significant margin compression of over 10% despite flat sales. Our PPS team is continuing to manage controllables well, including successful price increase implementation on our non-index-based customers. However, the outsized impact of the index-driven price-cost dynamic, which we still view to not be in sync with real market trends, is a headwind we have and will continue to aggressively work to offset. On the volume side, in container board, we are seeing modest improvement, while the tubing core and markets remain flat to down. While managing the present, we are also continuing to invest in the future within this product group, resulting in SG&A cost inflation for similar strategic initiatives as discussed with GIP. Please turn to slide 11 for our updated guidance and outlook. As previously stated, we are providing a guidance EBITDA range of $675 to $725 million, reflecting an increase of $65 million on the low end. The high end of our guidance range reflects recognition of our announced paper price increases as well as continued margin improvement in GIP. By contrast, the low end of our guidance range assumes no paper price recognition, slight further OCC cost inflation, and no margin improvement in GIP. On the volume side, our guidance change of $22 to $62 million of EBITDA assumes further contribution of the improving volume trends across most of our products and end markets. As Ole mentioned earlier, our incremental EBITDA contribution from IPAC-CAM is less than previously disclosed run rate due to a four-year impact of purchase accounting of $8.4 million, as well as short-term slowness in the global ag markets. Lastly, we anticipate volume-related as well as inflationary transport and manufacturing headwinds of $19 to $39 million of EBITDA relative to prior guidance. As for free cash flow, we are leaving our previous guidance unchanged as our midpoint at $200 million for the full year. We anticipate that the increase in our EBITDA guidance midpoint of $90 million will not result in incremental cash flow within fiscal 24. The drivers of this are, at the midpoint, higher spend on strategic CapEx and efficiency-related maintenance projects for $20 million Higher cash interest, primarily related to the acquisition of IPACs of $25 million. Higher cash taxes of $26 million related to improved earnings, as well as the failure of Congress to extend favorable tax provisions. Higher working capital needs to address improving demand of $32 million, partially offset by a favorable $13 million of other miscellaneous cash items. As Ole mentioned in his remarks, while we continue to monitor our business near-term, it is critical we also maintain a long-term lens and invest for the future. As such, I would like to discuss capital allocations on slide 12. Under Build to Last, which we define as fiscal 22 through present, we have deployed over $2.6 billion of capital. Our capital allocation framework is simple. We first invest in two non-negotiables, our safety and maintenance capex, which keeps our cash machine running, and our regular and increasing dividend. While critical, these uses are not a significant portion of total cash generated in that same timeframe, and so the rest we devoted towards growing our business and increasing shareholder return. On the gross side, the recent majority has come through developing the leading global small plastics platform, which Foley discussed in his remarks. The long-term benefits of this business are substantial, and we are encouraged by our successful execution of the transactions, our integration progress, and synergy realization. We balance growth with debt reduction at times when it is necessary to temporarily increase our leverage above our long-term target of leverage ratio in the range of two to two and a half times in order to capitalize on long-term value accretive growth opportunities such as IFAC-10. Given our current leverage, we anticipate in the short term prioritizing incremental debt reduction. We have confidence in the value creation benefits of our capital deployment under Bill DeLesse, and we'll plan to dive deeper into this topic at our upcoming investor day in December. With that, I'll turn things back to Ole for closing on slide 13. All right.

Thank you, Larry. I appreciate each of you taking the time to listen to my opening remarks on our strategy I hope that I clearly communicated the value creation which is occurring through leveraging what we do best, customer service, to drive growth and transform our business. Our recent capital investments and internal initiatives are setting the stage for the next wave of accelerated growth at Greif. Our bright business system and dedication to the service profits chain have combined to create a flywheel of success which is driving growth and our disciplined capital allocation framework. We have an investor day upcoming this December and plan to discuss in greater detail the changes we are currently making through the GRIDE business system to transform our organization for breakout success. Operator, will you please open the lines for Q&A?

Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Our first question comes from the line of Gansham, Punjabi with Baird. Your line is now open.

Hi, good morning. This is Matt Krieger sitting in for Gansham. How's everybody doing today?

Great, Matt. Thank you.

Wonderful. So I guess I just wanted to start off with a quick question on volumes. Can you provide some added detail on the volume cadence across both business segments during the quarter? And then just some early thoughts on how the third fiscal quarter has kicked off would be really helpful as well.

Let me give you some comments. Let me sort of zoom out first and give you kind of a regional overview year on year. And then we can go into substrates and I'll make some comments on perhaps on the end markets. So if you look at it regionally, so the strongest market was EMEA, where we saw an 8% growth. And it's also our largest GIP markets. LATAM was flat. We were a little bit weaker in North America, minus 5%. And we were down 11% in APAC. The broad improvement we saw in EMEA was across our industrial end markets for the second straight quarter, mostly in bulk chemicals and loops. In LATAM, we saw pockets of strength both in bulk chemical and paints and coatings. And as I mentioned, we had some softness in AgChem, like we've seen most other places. And again, in North America, it was, you know, we see continued slow bulk commodity development and ag chem demand is down, but sequentially from Q1, we do see improvements. And I made some comments earlier on APAC. Q2 volumes were negatively impacted by seasonality from the Chinese New Year and weaker demand from food and dev. If we look at substrates year-on-year, the strongest substrate was plastic, where we have invested, and IBC, and we are up in low teens year-on-year. Steel is flat, but it's actually improving up to 10% sequentially. We're down low singles in fiber, but we are improving again sequentially, and it's up 10%. As I said, the end markets are really bulk chemicals, lubricants, where we see strong developments. If we look at also the economic indicators, so the global PMI was above 50 for the last four months, including May, which is positive and which is reflected. And these positive signals that we've seen exiting makes us very positive. positive for the future. We stay connected to our customers, our supply chain partners, and as demand hopefully keeps increasing, we will react quickly like we have done in EMEA.

Great. That's very helpful. And then just to follow up, I wanted to touch on price-cost a bit. Can you provide an updated view on the absolute price-cost expectation for the year? If you could provide some detail on how that, you know, how that was, how that performed this quarter and what you would expect from the upcoming two quarters, that would be helpful as well. It seems like we could be reaching kind of a peak price cost pain point across your business, given the, you know, the pricing initiatives you have in the market. I just want to check the validity of that statement.

Yeah, that's a great question. I think Larry will answer that. Yeah. I mean, you know, if you,

Look, I mean, clearly, you know, as we looked at, you know, what price cost we had relative to Q223, you know, major impact year over year, price cost squeeze of about $49 million in paper and about 20, about positive 17 out actually in GIP. So you had $12 million of volume benefit in GIP and $27 million of volume benefit in PPS. So trends on volume's good, price-cost squeeze very harmful to us. And then, you know, looking at going from our, you know, prior, our former guidance to current guidance, you know, we show from that 610 low end that we gave, you know, actually, you know, price cost benefit in our GIP business of about 39 million and volume of 27. Within PPS, you know, at midpoint, you know, $29 million, I mean, I'm sorry, $16 million price cost lift from prior where we were and 15. If I'm going from prior year to where we are now, Obvious squeeze numbers on going from the 819 of last year to 700 million of this year within the PPS business. Major squeeze clearly on OCC of roughly $9,500 million. URB at 5 million pressure and container board about flat. And then in our GIP business, you know, price and cost about $59 million positive and volume about $30 million positive. So hopefully that's what you were looking for, Matt.

Yeah, no, that's very helpful. That's it for me. Thank you.

Thank you. Our next question comes from the line of George Staffos with Bank of America Securities. Your line is now open.

Hi, everyone. Good morning. Thanks for the details. I wanted to go to – and congratulations on the quarter. I wanted to go to slide 11 where you have the waterfall. And, Larry, if we look at – and, Oli, if we look at the volume pickup in your guidance, recognizing there are no guarantees in life. Things could move more positively. Things could move more negatively. Where are you right now in terms of that $22 to $62 million, would you say, roughly – in terms of the volume pickup that in turn informed your improvement in your guidance?

Yeah, I would say, George, where we're at in the trend right now is right smack in the middle of that. And so what we did is build a range around it based on, as Ole mentioned in his comments, There's still some nervousness in some of our customers, but there's also some areas where we're seeing there's potential optimism. So we built a range around what we thought was possible for the rest of the year.

Larry, I probably missed this, but if you could, either by end market or by substrate, maybe both, Could you just give us kind of a quick where are you year-on-year early in fiscal 3Q in terms of trends you're seeing at the moment on volume? You mean in May?

Yeah. Let me just get – I think I have a note of you here. Yeah. So exit trends in May that were generally positive, George – Steel and container board, they kept improving throughout Q2. Plastic and URP was a bit more mixed on a month-to-month basis during the quarter. But if we look at GIP and then EMEA, they remain sequentially strongest, as I mentioned, but also with North America and Latin improving. Container board continue to improve and will soon start benefiting from our Dallas Sheet Feeder, which, by the way, is operational and it's producing sheets that's being sold. And in URB, we continue to see construction and film demand increasing in May, despite the mixed demand in all of our end markets.

Okay. My last two and I'll turn it over. Just if you could, Ole, give us a bit more color or remind us what you said in terms of year-on-year in paper. It sounded like Container Board was, all right, not gangbusters, but up modestly year-on-year. Sequentially, Cuban Core URB was getting better but still down. If you could sort of affirm that and discuss what you're seeing early in May there. And then what kind of price cost should we expect out of steel and GIP in particular? the rest of the year, do you have improving or sequentially decelerating benefits there? Thank you.

Yeah, so on steel, that will generally keep improving, and I'll maybe touch upon that a little bit later on what we're doing internally, self-help. In tube and core, as I mentioned, Film costs are positive, and so is construction. Where we see, and which, by the way, is our biggest end segment, is paper costs. We haven't really seen any major recovery there. Whilst we are doing well in paper costs, we're also selling to other paper companies, and we haven't seen a pick-up there yet.

But hopefully we'll see that soon.

Thank you so much.

Thank you.

Our next question comes from the line of Mike Roxland with Truist Securities. Your line is now open.

Thank you, Larry and Bill, for taking my questions. First question I just had on slide 11. I think, Larry, if I heard you correctly, you mentioned there the $19 to $39 million of manufacturing headwinds, and that's new. What's driving that?

The predominant driver of that is volume. So with volume pickup, you get more just incremental transport costs and then a little bit of additional manufacturing costs, just volume driven.

Gotcha. Perfect. Thank you for that. And can you talk about the pent-up operating leverage in the business that could be released maybe once global volumes start to normalize? So you're certainly in your early stages, depending on region, In terms of seeing the volume improvement, once everything, let's say, is firing on all cylinders, what's this pent-up operating leverage that could potentially be released and positively impact the business?

Basically, as this volume picks up, the predominant cost that's going to end up occurring in addition to transport is just the raw material cost. But your value add is going to be about 50%. But I'd say generally just assume excess of 20% gross margin pickup on incremental volume. And if you look back, if we get a return to 22 volume levels, we would end up picking up about $160 million of EBITDA. And that doesn't even factor in the incremental EBITDA from getting to full run rate on all of our acquisitions. and getting back on price-cost where we need to be on paper. So we see a path back with returning economic conditions to well over $900 million of EBITDA.

Let me also just touch on our internal initiatives on cost savings and the impact of our bright business systems. So we're operating at a high level, and we're always looking for what we call internally aggregation of marginal gains across our 250 locations. Our sourcing team, as an example, recently finalized a targeted review in North America, in a particular area, which reduced total spend for this area by an estimated 8%. They also did a recent review of a certain global indirect material spend, which resulted in an estimated one-way cost savings of 5%. We also recently conducted, as an example, two full-scope steel plant operational excellence reviews. These plans were previously underperforming to our expectations. These reviews include a full value stream mapping and Lean Six Sigma review. By focusing on raw material usage and reducing scrap, each of these two plans have seen a sustained EBITDA margin increase of approximately 800 bps relative to their prior performance. I visited a plant recently who have over the past few years made a significant improvement on their NPS and Gallup scores. When you look at the profitability trend for that plant, it correlates extremely well and um with these things and their plant performance is now top tier so the aggregation of these types of marginal gains they are a big part of our improved structural margin profiles so we're truly playing on the entire piano as you as you can hear spanning from operational and commercial excellence initiatives to supply chain and sourcing and should also mention our automation efforts which is reflected in our earnings

Thank you, Olin. One quick follow-up. How many of your facilities could be subject to those types of reviews? How much further runway do you have in terms of improving plant-level profitability like that?

To be honest with you, previously I thought, okay, there must be a limit somewhere, but I keep getting surprised. We have a six-sigma program, and just to give you an idea of the size of our six-sigma program, We have nearly 700 participants across the globe today. We have 400 white belts, 170 yellow belts, 130 green belts, and we have 10 black belts. And they all have projects of a certain magnitude driving savings to the bottom line. And when you look at the, you know, we have deployed this in 250 plants. The things I see, and I mentor some of them, the things I see that surprises me, hey, could we really find that sort of saving there? It's just amazing. And you're looking at years and years of runway on these initiatives, and you can say, okay, you find like 300,000 here and 700,000 there, but when you add it up, and that's why we call it aggregation of marginal gains, it becomes big numbers over time.

Understood. Thanks very much for the call.

Thank you. Our next question comes from the line of Brian Butler with Stifel. Your line is now open.

Hey, good morning. Thank you very much for taking the questions. You talked about getting to the $900 million EBITDA. I was hoping we'd maybe just talk about Maybe high level, what are those components that get you there and just kind of walk through it, you know, the price, cost, volume, and if there's anything else from the $700 million?

The single largest component of that is just getting back to volume levels of 22. And that alone is a $160 million driver at current margin rates. So, you know, we look good on a little bit on volume recovery sequentially, but you look at a two-year stack, volumes are still significantly off. And obviously, that's evidenced in the economic data with PMI statistics and everything else. So, you know, getting back to that kind of volume level drives a huge amount of earnings lift for us. And so, as Ole mentioned, we undertake all these operational improvement areas really change our structural cost drivers so that we can even tweak that more and cover other inflationary costs. The secondary element is clearly getting back to what we consider much needed, well-deserved in price cost in our paper business as evidenced by the price increases we recently announced. And, you know, those things can drive a big pickup as well. And then just getting full run rate on and performance level back on the acquisitions we've done. And then also this new Dallas key feeder business in our container board business. You put all those elements together and it drives you easily over that $900 million figure.

Okay. And you mentioned the recent kind of the URB price increases. And how much of that is in the 40 to 70? Is that, you know, the low end zero and the high end 100% or some other mix?

You know, we really expect that we should get full recognition of these price increases. They're needed and deserving. Inflationary costs we've had in all of our production and paper grades is substantial. And, you know, we obviously need to earn appropriate returns on the capital. So, but yeah, look, we're also pragmatic and you, we still remain burdened by this archaic survey system utilized by Richie recently, which, and look, we once again, we'd love them to become very relevant and move to a data driven automated system to correctly report the true market. But as a result, we had the upside, um, you know, I mean, our guidance would have no recognition. And our upside, we've got a range there. We put in a range to deal with the risky system. And we also have timing issues related to any time they're recognized. So you look at the $50 liner board and $80 medium that we have effective June 1st. That's recognized this month. It would start to come through the P&L in late July. and the 50 and 70 in URB effective July, 50 to 70 in URB effective July 18th. If that gets recognized timely, then we'd start benefiting in late August to September. So, you know, that's, there's some play in that upside. If we got everything immediately when we rolled it out, then there'd be even more upside.

And when you think about kind of like the midpoint of what you're assuming there, if that was a rollover, what's the benefit in the 25 from a perspective of incremental EBITDA that you would be able to capture.

Yeah, you know, if you look at our pricing in general, I'd just say a $10 change in... Where am I at?

Find my... Yeah, $10 impact on...

Container board is $700,000 a month, so roughly $8 million annually. And URB is half a million a month, so $6 million annually. So that should give you the numbers to back into whatever your assumptions would be.

Okay. And then one last one, maybe on the capital expenditures. That kind of increased a little bit on the updated guidance. Maybe break that out. Is that all IPAC Chem, or are there other growth initiatives that you're spending that $20 million on?

Very little IPAC Chem at all. What it really is, is you had some inflationary costs on the Dallas Sheet Feeder as a strategic growth project. that ran that up slightly over, but that's at full bulk going to generate about $2 million of EBITDA a month when fully operational, so money well spent in our estimation. And then, frankly, we were producing more cash, and some of our engineering group came to us and said, hey, look, there's some high-need safety and maintenance projects that we really think we should pull forward. And, you know, we didn't want to take the risk of not spending on that kind of thing. And since we had the cash capital available, we said move it forward.

Okay. Nice quarter. Thank you for taking the questions. Thank you.

Thank you. As a reminder, to ask a question at this time, please press star 1-1 or your attached phone telephone.

Our next question comes from the line of Gabe Hady with World Fargo. Your line is now open.

Oli, Larry, Bill, good morning. Just a housekeeping question on the $8.4 million that you called out, Larry. Was that backed out as a one-timer, or are you flowing that through? I know it's non-cash.

Yeah, we flow it through. I mean, it's accounting. We have to mark to basically sales price any finished goods inventory we acquire. So had IPAC Chem gone forward with it, it would have been profit, but for us it's not. So that's a one-year thing that'll Yeah.

Okay. And then I wanted to ask a question about, I guess, Southeast Asia or maybe China specifically. If memory serves on the GIP side, you guys have, I think, four remaining plants there. But when we look at, I don't know, EV production and all these different things, it seems like some activity more than others is fairly robust. And again, I know you guys are being selective about customers and what you're doing over there. Can you just talk about an appetite to grow over there or maybe limiting factors that prevent you from deploying more capital in Southeast Asia in general? I know, obviously, it's a returns-oriented mindset, but just curious about that.

First of all, we have a very disciplined approach to the way we deploy cash. And as Larry mentioned earlier, when somebody comes with a request for safety capex, we never say no. And then we have our cash machine with our steel network and other assets, and we need to maintain them. And we do that, and then we have dividends. And then after that, we then start looking at growth capex. When we have a periodic review of all the requests that comes in, and then we apply filters such as ROI and payback and so on, but we also look at the geopolitical aspect of it. And I would say China is not the country that's on the highest priority in terms of geopolitical aspects. So if there is a choice, we would likely do it elsewhere. We have invested in maintenance, safety, and some upgrades for automation in China. But I would be amazed to say that we've just built a new IPC plant in Malaysia. So it's more the surrounding region we are investing in terms of AIPAC.

Yeah, the thing I would add, Gabe, is AIPAC does have some operations in China. Whenever we assess any kind of project, we always have, as Oli mentioned, geopolitical as part of our risk factors. Now, what does that mean mechanically in our capital decisioning process? It means the hurdle rate for us investing in some place like that is much higher. So if it can't meet the hurdle rate, we ain't getting it done. And then the other thing is part of our enterprise risk management program, as we look at those kind of things, and we did this in IFAC Chem, you look at what happens if something goes wrong. What's your next plan? And so we have plans to deal with anything that could evolve as best as we would be able to.

I appreciate that. One last one.

Just one last comment on that. So bear in mind, we operate in 41 countries across the globe. So we've done that for decades. What happens on a geopolitical stage is really part of our disciplined operating system, but we always focus on that. And since we are talking about APAC, we do have growth plans in that region. And as a result, Matt Leahy has been promoted to lead that region, and he's actually already in place to do that.

Good luck, Matt.

I haven't heard you guys talk about – excuse me.

IBC deployment here recently. I appreciate, obviously, the manufacturing backdrop hasn't supported that. Just curious if that's part of the little bit of a tickle up in CapEx and or on the flip side, maybe you guys have built out that infrastructure. I think I understand those lines pretty well, such that you're positioned to service your customers on the IBC side when demand does, in fact, inflect.

I mean, we have continued to expand on our IBC network, not through acquisition, but primarily organic. We've deployed blow molars and new lines in throughout last year and also this year. And as I said, in September, we will formally open our new IBC plant in Malaysia. Last year, we opened a new IBC plant in Turkey, and we have put additional lines in many of the existing facilities So this is an area where we have we've continued to grow and it's also part of our M&A strategy because it's resin based It's high margin. So it's a very attractive market for us to to grow in and we do that and request of our customers as well that you know when they Expand they tend to come and ask if we could provide them the service, you know on certain locations Yeah, and Gabe you'll remember this but just to remind everybody that

We increased our equity ownership of Centurion last year significantly, and we continue to explore opportunities with other IBC recyclers around the world. Most of them are relatively small, but they fill out our footprint, and we continue to have dialogues around those in many geographies.

Thank you.

Thank you. I will now hand the microphone over to Ole Rosgaard for closing comments.

Thank you. Before we end the call, I just want to thank you all for the questions and your continued interest in GRIVE. We're very proud of our global GRIVE team for utilizing the GRIVE business system to its fullest, as you've heard, and creating significant operating leverage during this temporary sluggish demand environment. We are equally excited to realize the outperformance we have positioned the business to capture through Built to Last and will continue to execute with excellence and provide you with the legendary customer service for which we are known. Thank you to all of our colleagues, our customers, and stakeholders for your dedication, loyalty, and commitment to Rife. Have a great day.

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