Sonoco Products Company

Good day and thank you for standing by. Welcome to the fourth quarter 2023, Sanoko's earnings conference call. At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question answer session. To ask a question during this session, you will need to press star 11 on your telephone. You will then hear automated message, advice in 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, Lisa Weeks, Vice President of Investor Relations. Please go ahead.

Thank you, operator, and thanks to everyone for joining us today for Sanoko's fourth quarter and full year 2023 earnings call. Joining me this morning are Howard Coker, President and CEO, Rob Dillard, Chief Financial Officer, and Roger Fuller, Chief Operating Officer. Last evening, we issued a news release highlighting our financial performance for the fourth quarter and full year, and we prepared a presentation that we will reference during this call. The press release and presentation are available online under the investor relations section of our website. As a reminder, during today's call, we will discuss a number of forward-looking statements based on current expectations, estimates, and projections. These statements are not guaranteed to future performance and are subject to certain risks and uncertainties. Therefore, actual results may differ materially. Please take a moment to review the forward-looking statements on page two of the presentation. Additionally, today's presentation includes the use of non-GAAP financial measures, which management believes provides useful information to investors about the company's financial condition and results of operations. Further information about the company's use of non-GAAP financial measures, including definitions as well as reconciliations to GAAP measures, is available under the investor relations section of our website. For today's call, we will have prepared remarks regarding our results for the quarter and 2023 in an outlook for the first quarter and full year of 24, followed by a Q&A session. If you will turn to slide four in our presentation, I will now turn the call over to our CEO, Howard Coker.

Thank you, Lisa, and thanks to all of you for joining our call this morning to review our 2023 results and 2024 outlook. In 2023, we continued to make progress on strategic initiatives and delivered solid results in what was a pretty difficult year from a volume perspective. Despite these lower volumes, we delivered strong EBITDA margins of 15.7%, which is somewhat similar to last year. Our strong margins were the result of record performances in our consumer rigid paper cans and flexibles businesses. On the industrial side, despite volume levels similar to 2008, our team delivered record profit margins through diligent cost management throughout the paper ecosystem. Our adjusted earnings of 526 were within our guidance range for the year. And with intentional focus on working capital, we generated record operating cashflow of $883 million and free cashflow of $600 million for the year. We also returned capital to shareholders and increased our annual dividend for the 40th straight year. We completed acquisitions into vestitures according to plans and our teams did not skip a beat on executing initiatives to further strengthen our foundation. I wanna close 2023 by thanking this incredible team of Sanoco for the resiliency and dedication throughout the year. Certainly the global economic and external factors did not make this an easy year at all, but we did not stand still and we delivered the second best annual financial performance in the company's 125 year history. I'm grateful to work alongside these great people of Sanoco, as well as our customers and supplier partners and we continue to look to the future with optimism. And with that, I'm gonna turn the call over to Rob to cover our financial results and outlook. Rob?

Thanks, Howard. I'm pleased to present the fourth quarter and full year 2023 financial results starting on page six of this presentation. Please note that all results are on an adjusted basis and all growth metrics are on a -over-year basis unless otherwise stated. The gap to non-gap EPS reconciliation is in the appendix of this presentation, as well as in the press release. As Howard said, 2023 was a record year for Sanoco and 2023 we achieved the second best financial results in the company's 125 year history in key metrics such as net sales, adjusted EBITDA and adjusted EPS. By many measures, this was our best year ever. We achieved record operating cashflow, record free cashflow, record productivity and we invested a record amount to drive future growth and profitability. We've built a foundation for continued strong financial performance, building on our enduring operating model, strong market positions, investment grade balance sheet and our differentiated dividend. We're excited about the future and feel good that 2023 was a year to solidify our improvements since 2021. Full year 2023 net sales decreased to 6.78 billion due to the volumes of cons from de-stocking and consumer and an elongated cycle on industrial. While these factors impacted -over-year results, we grew net sales at a 10% compared annual growth rate since 2021 due to strategic pricing, new product wins and acquisitions. Adjusted EBITDA grew 297 million from 770 million in 2021 to 1.067 billion in 2023. Over 150 million of this increase was organic improvement due to strategic pricing and productivity. Adjusted EBITDA margin was .7% in 2023, a 190 basis point increase from 2021. We achieved strong profitability due to price cost in 2022 and retained this profitability in 2023 due to record productivity of 109 million. We are operating with agility and continue to match cost controls with productivity investment. 2023 GAF EPS was $4.80 and adjusted EPS was $5.26, which was within our guidance range of $5.25 to $5.40. On page seven, we have our results for Q4 2023. Net sales decreased 2% to 1.64 billion. Volumes were lower .4% due to low single digit volume declines in both consumer and industrial and price was negative .3% due to negative index based pricing. Adjusted operating profit decreased to 167 million, adjusted EBITDA decreased to 236 million and adjusted EBITDA margin was 14.4%, a 20 basis point decrease from 2022. Q4 was an incredibly strong quarter operationally. We managed variable demand and generated record productivity of 49 million. This translated into a 180 basis point increase in gross profit margin. These operating profit results were offset by SG&A items that we consider infrequent in their magnitude, including higher employee expenses, healthcare and accounts receivable reserves. Gaff EPS was 82 cents and adjusted EPS was $1.02 within our guidance range of $1.01 to $1.16. Tax was a six cent drag on the quarter as the tax rate increased to .7% due to actions to repatriate cash. It's notable that without the specific higher SG&A items and tax items, we would have achieved at least the midpoint of guidance. Page eight has our sales and operating profit bridges for the quarter. Net sales declined to 1.64 billion due to negative volume mix and negative price. Volume mix was negative 20 million in the quarter as consumer continues to be impacted by inflationary pricing at retail and industrial continues to reach a cyclical low. Price was negative 39 million. We continue to achieve strong results from our strategic pricing program. Negative price was a result of deflation and index based prices in resin, metal and paper based businesses. Next on this page, we have the adjusted operating profit bridge. Adjusted operating profit was driven by negative volume mix and negative price calls with strong productivity benefiting results. Volume mix was negative 10 million. Price cost was negative 14 million as positive price cost and consumer and all other was offset by negative price cost and industrial. Productivity was positive 49 million as we achieved positive manufacturing productivity due to our lean programs and positive fixed cost productivity due to continued efforts to reduce our plant footprint and optimize supply chains. Other was negative 42 million due to employee expenses, healthcare and accounts receivable reserves. These expenses are not expected to repeat in this magnitude. Page nine has our segment results for the quarter. Consumer sales decreased 3% to 856 million. Consumer volumes decreased low single digits due to customer inventory management and the impact of inflationary pricing. Many consumer customers are beginning to return to historical pricing practices, including discounting. However, volumes have been slow to return to typical patterns. Bridget paper container sales declined low single digits due to mid single digit volume declines offsetting positive price. Flexible sales were flat as new customer gains also low legacy customer volumes. Metal packaging sales decreased mid single digits due to low single digit volume declines and negative index based price actions. Demand from our core customers in metal packaging has strengthened, but overall demand declined due to anticipated template based price reductions in 2024. Consumer operating profit decreased to 83 million as 23 million of productivity and 17 million of price cost was offset by volume mix and SG&A, a meaningful component of which we do not expect to repeat in this magnitude. Consumer operating profit margin was flat at 9.7%. Industrial sales decreased less than 1% to 593 million. Industrial volumes decreased low single digits due to lower demand in most key markets and geographies. Industrial prices decreased mid single digits due to index based pricing action. We continue to achieve strategic pricing, but we're impacted by declining paper indices and increasing OCC. OCC increased to $92 per ton from $38 per ton in 2022. Industrial operating profit decreased to 62 million due to 36 million of negative price cost offsetting 20 million of productivity. Industrial operating profit margin remained at a historically strong 10.4%. We're protecting margins with strategic pricing and with cost actions to reduce fixed costs. The business is well positioned to benefit from a return to normalized volumes. All other sales decreased 7% to 187 million due to broad volume declines. All other operating profit increased to 22 million due to strong productivity and positive price cost. Moving to page 10. Our capital allocation framework aligns with our business strategy to drive value creation through earnings growth and improved margins. In the fourth quarter, we generated operating cashflow of 267 million. We invested 108 million of this cash and capital expenditures to fund our growth initiatives and improve margins. Results from these investments are translating into improved productivity and growth with new customers and new products. Further, we remain focused on increasing the dividend, which at present is 51 cents per share on a quarterly basis or a .5% annualized yield based on our current share price. Next, we paid off 172 million of debt in the quarter and reduced our net debt to adjusted EBITDA to 2.8 times. We'll continue to be disciplined and improve our liquidity and access to capital. This is key to our strategy as we continue to have a proactive M&A strategy focused on executing the right deals based on strategic fit, scalability, financial profile, and cultural fit. We are being disciplined in a disrupted M&A market and we'll do the right acquisitions and investitures at the right time for us. Page 11 has our guidance for Q1 and full year 2024. Guidance for 2024 adjusted EPS is $5.10 to $5.40. This guidance is based on low single digit volume growth. Consumer volumes are expected to grow low single digits while industrial volumes are expected to experience only limited recovery. Price cost is expected to be meaningfully negative due to contractual resets in consumer and the impact of timing and pricing lags in industrial. Another meaningful input to guidance is a $32 million increase in depreciation. We expect to grow adjusted EBITDA in 2024 and are guiding to a range of 1.05 billion to 1.1 billion. Operating cashflow guidance is 650 million to 750 million. Working capital is expected to be a 100 million to 150 million use of funds as we invest in inventory and receivables to reset supply chains and enable volume growth. Guidance for our capital expenditures is 350 million. We've increased the proportion of capital expenditures focused on long-term growth and profitability projects. This investment is expected to drive record productivity in 2024 and beyond. Guidance for Q1 2024 adjusted EPS is $1.05 to $1.15. We're expecting modestly negative volume in consumer as our customers remain cautious. Consumer price cost is expected to be negative due to contract pricing resets. Industrial volumes are not expected to improve in Q1. Industrial price trends are improving, but price cost is expected to be meaningfully negative on a -over-year basis due to last year's low OCC comparative and last year's higher TAM spending chip comparative. Now Roger will further discuss the outlook for the business.

Hey, thanks, Rob. If you'll please turn to slide 12 for our view of segment performance drivers in 2024. Let me start with our first quarter outlook. In the consumer segment, we expect volumes to be up sequentially over the fourth quarter, but basically flat year over year from continued slower consumer spending due to retail price inflation. In rigid paper containers, we see volume is slightly down in North America versus a strong start last year, flat in Europe and some nice year over year sales growth in the rest of the world from new product launches in our expanded capacity in South America and Asia. Organic flexible volumes are projected to be flat to down slightly due to continued softness in our base soft baked goods and confection business, but aided in the first quarter from the benefit of the NFL acquisition in Brazil. And our metal pack business, we did see recovery of our steel aerosol business in the fourth quarter, offset by some softness in food. In the first quarter of 23, we expect low to mid single digit increases in both food and aerosol metal cans. In the industrial segment, volumes are up sequentially from last quarter, but down low single digits year over year with weakness primarily in Europe and Asia. As many of our end markets are tied to consumer staple and durable spending and inflationary factors that have slowed spending. We do expect higher paper mill utilization in the first quarter and our global paper system driven primarily in North America. During the first quarter, there'll be an outsize impact from negative price costs as input costs continue to rise and the timing of pricing updates lag. We expect the impact of negative price costs to improve over Q1 levels as we move throughout the year. Productivity remains strong as our teams effectively managing costs throughout our mill and converting systems. In the all other segment, volumes continue to remain soft with price offsetting some impact of the lower volumes. Now turning to the full year 2024 guidance. We expect consumer volumes to be up low single digits and productivity to remain strong. We're anticipating relatively stable material pricing and supply chain performance, but do expect consumer price for the year to be negative from contractual pricing resets somewhat offset by productivity. In industrial, we're not projecting volume recovery in the first half of the year. We also expect price costs remain negative from index based pricing and higher input costs which will be weighted to the first half of the year. As you know, we've announced price increases in North America on both our URB paper and converted products affected February 1st and these increases are progressing well. The team continues to do an excellent job of expense management and we expect productivity and manufacturing efficiencies will offset negative volume impacts. And lastly, in all other, we anticipate fairly stable demand across the businesses and good productivity to continue throughout the year. So overall we remain, I believe, appropriately conservative on volume recovery across the segments with good productivity and cost control in place until we see volume recovery. With that, back to you, Howard. Great,

thanks, Roger. As a state of my opening remarks, we're not standing still as we progress a robust set of plans and initiatives across the enterprise. And I thought I'd just share a few of those with you. First on the divestiture enclosure front, we continue to execute our portfolio transition and footprint optimization activities. Last week, we announced the closure of our Sumner Washington URB paper mill. This was the oldest mill in San Diego's North American network and the cost to recapitalize was just simply not feasible. We're moving tons to lower cost mills in the network. We've owned Sumner for over 40 years and extremely grateful for the support of this team through these years. We also announced the expected sale of our protective solutions business from our all other category or segment, which should close in the first half of 2024. This has been a great business for Sanoco with great leadership team. We know their knowledge and skills will serve them well into the future. As we continue our portfolio resolution, we will remain laser focused on simplification and the alignment and fit to what businesses remain in

our

core. Secondly, we're pleased to announce that we were recognized by Kelenova for designing, manufacturing, and commercializing a paper bottom in for our rigid paper cans, the Pringles, to achieve sustainable and recyclable initiatives in

Europe.

This was a multi-year and a true partnership effort. We're pleased with the acceptance of our innovative package design in the marketplace and we look forward to sharing more about this next week and our investor day. In December, we were also pleased to announce the acquisition of NFL, one of the leading flexible packaging companies based in Brazil. This is a strategic move to expand capacity for growing demand that we are feeling in Brazil where Sanoco is now the number two in this market. We welcome the NFL team and know that our aligned culture, values, and technical capabilities make this a winning combination. We've also taken steps this year to further align our flexible and thermoforming businesses into one larger scaled platform. We will be providing more details on this next step in our portfolio next week. In summary, I'd just like to leave you that Sanoco continues steady performance across our businesses. We wish volumes were better, but we are well positioned and ready to take advantage of incremental demand upticks across the portfolio. Now, if you'll turn to slide 15, I will wrap things up by saying we're looking forward to our investor day one week from today in New York in February. Oh, what is the date of the investor day? February 22nd. The next week. During this meeting, we will provide updates on our transformation operations or business unit plans and share thoughts on our longer term financial outlook. We look forward to hosting you live or virtually next week. But this time, I'm more than happy, we're more than happy to answer any questions that you may have. I'll turn it back over to the operator.

As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the

Q&A roster. One moment please for our next question.

And our first question comes from George Stafos with Bank of America Securities. Your line is open.

Hi, thanks very much. Good morning, everybody. Thanks for the details. I'll ask three questions. First question related to guidance. Can you talk through what is baked in for price cost for the year, recognizing there are no guarantees in life and how much of the U.S. dollar or B and converted product increases in industrial are baked into that guidance? Relatedly, what is the effect of the divestiture of protective solutions within all other relative to your guidance? And then last from me, Howard, one, I know you're gonna talk more about it next week, but why the integration of flexibles with thermoforming, recognizing they're plastic-based, they are somewhat different business processes and what should we have baked in for productivity from that and broadly for the year? Thank you.

Right, thanks, George. I'll turn over the more financial related to Rob. Yes, we will talk in more detail next week about the combination. And I think you'll see the rationale and why we view this as an obvious combine of the two. You just said a very high level, I can just say that synergistically, it makes a lot of sense. And then if you look at the markets that we serve and the customers we share, and there's more beyond that. So I'm gonna leave that where it is and we'll get into that one next week. Rob, you wanna talk about price cost?

Yeah, George, that's a good question because price cost is gonna be a meaningful driver for profitability or a meaningful factor for profitability in 2024. I'd say in Q1, we're anticipating that number to be between 50 and 55 cents of drag. We've said previously that industrial was gonna have $35 million of price cost in Q1 and we're expecting to see that. To your point on URB and price recovery there, we have continued to see OCC increase. Tan bending chip is kind of held constant. We're feeling really good about how that price is translating through the market. But that's something that actually takes a fair amount of time to really translate through to the P&L. So there's a bit of a drag there. Overall, we do think that industrial price costs will continue to be negative going into the second quarter and we're hopeful for some opportunity in the second half of the year.

Okay, and then just on the impact of protective.

Yeah, on protective. Yeah, so protective, we haven't closed the deal. We're expecting to close. We have a great counterparty there. We feel really good about that transaction. On a gross basis, that divestiture would be 10 cents dilutive to EPS on a full year basis. So we are expecting to close that by the end of Q1 and have some visibility to that and it's not in the 525 of guidance.

Okay, and the productivity for the year?

Productivity of the year, we had a great year this year. Obviously, we continue to invest behind it. We see we've got a better path forward this year than we did last year, I would say. So we're expecting to have another record year.

Thank you very much.

Our next question comes from the line of Anthony Pedinari with Citi. Your line is open.

Good morning. Good morning. Good morning. You're expecting a consumer volume growth in I think the mid single digit, the high single digit range, a quarter over quarter in one queue. And I'm just wondering, is it possible to maybe parse that out between, and does that just reflect sort of typical seasonality or is there some end market demand improvement or deterioration or any de-stocking or anything? I'm just wondering if you can kind of parse that out between those drivers.

No, Anthony's Roger. Consumer for the first quarter is basically flat year over year. So you've got slightly down in rigid paper containers versus a strong start last year in North America. Basically flat, the slightly negative flexibles. And again, that's our base business cookies, confectionary being soft offset by some of the Brazil acquisition. Well, metal cans is actually projected to be up low to mid single digits. And we started in that way. And then plastics up slightly. So you put it all together, Anthony, it's basically a flat volume for the first quarter. For the year, we do see that low single digit growth for the year. And that's just recovery in some of our base business with some share that we've gained in flexibles and new products and flexibles. And a good result, we're very hopeful on this combination between flexibles and thermoforming. So first quarter flat, mid single digit, mid to low single digits for the year with some recovery in our base business.

Yeah, and I'd say we're also cautiously optimistic. It's as we see our customer starting to market more, you're seeing more discounting actions. So the expectation is that through the course of the year we'll start seeing some improvements, as Roger just said.

Okay, that's very helpful. And then in metal pack, I'm sorry if I missed this, but would you expect full year volumes to be flattish or maybe slightly up or slightly down? And then I'm just curious on aerosol, another packager has discussed aerosol potentially being under some pressure due to cost and ESG concerns. I'm

wondering if

you're seeing anything similar to that. And then just broadly, if I think about the composition of metal pack between food cans, aerosol, and maybe closures, how that business has changed or if you've kind of shifted the mix around since you acquired it.

Yeah, of course, long shelf life, the stocking has carried a little bit further than you normally would expect. Again, star portfolio. What we're seeing right now, we're expecting what we're hearing from our customers and how the year started, we're actually looking at a net being up year over year. Call it low to mid single digits. Aerosol in particular is actually on the favorable side of that. If you look at the fourth quarter alone, year over year aerosols were actually up mid to low single digits. And so it was slightly down. So, pretty pleased with what we're seeing in terms of recovery from a volume perspective with a pretty weak, very weak start the last year, but very understandable, again, considering the long shelf life associated with these products. So pretty bullish about volume recoveries as we kind of start the year, as we finished out January and as we look into next year and as we finished last year in the fourth quarter.

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

Our next question comes from the line of Gansham Punjabi with Baird. Your line is open.

Yeah, thanks. Good morning, everybody. I guess going back to the industrial segment, looking at the margins of the fourth quarter, this was the first quarter of year over year and the margin declines since the first quarter of 21. Just curious your thoughts on the evolution from here and I know there's a lot going on with OCC and just the index based pricing faster, et cetera. I would just love to hear your thoughts as it relates to 2024.

Gansham's Roger, as we look at the margins for the first quarter industrial, it's basically flat to the fourth quarter. We are seeing, as we've already said, this will be our largest impact, negative impact on price costs, but we're also seeing recovery in our paper mill system, primarily in North America. Our global URB system ran about 87% capacity in Q4, but our North American URB capacity was close to 92% in Q4 and we expect that to move up into the mid-90s in Q1 with increased demand as well as the move we made on the summer mill. So we expect, yes, negative price costs, but we also expect better productivity through capacity utilization and our biggest part of our URB system, which is North America.

And I would add that I think the acceptance of the price increase effective mid-quarter, mid-first quarter has been

positive. Yeah, I think as you know, we're about 60% weighted to the RISD TAM Bending Index, about 20% weighted to OCC and 20% open market. So obviously we're going off to the open market now, but as Rob mentioned, the 60% weighted to TAM Bending, TAM Bending Shift will impact more the second quarter than the first.

Okay, that's helpful. And then back to the consumer business, just the volume weakness of being persistent over the last several quarters, it's not just you, it's the peer group in terms of de-stocking, et cetera, that's impacted the supply chain. Can you just characterize the competitive backdrop as we progress through this lower for longer volume weakness paradigm and you have a bunch of different businesses with the consumer and just would love to hear your thoughts as it relates to just the competitive backdrop in context of an industry that's typically very competitive anyway.

Yeah, well, I mean, we feel really good. I mean, from a share position perspective, I'm not aware of any material share loss. In fact, I've probably got a longer list of share gains. They're just not overcoming the overall segment, consumer segment situation and demand profile. Frankly, if we talk about volumes and it's across all our businesses through the year and then you flip over and look at the productivity performance and I thought about this before, we've invested extremely heavily in all our businesses in the core and are continuing to see our productivity increase and as volumes do recovery and leverage starts really materializing or normalizing within our facilities and pretty bullish about how we can convert that into even higher productivity than we've been saying thus far. But no, from a share position, we're in good shape from a share position as far as I'm concerned.

Very clear. Thank you.

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

Howard, Rob, Roger, good morning.

I wanted to revisit the integration that George initially asked about of flexibles with thermal forming and just bigger, I guess, picture context around. You guys, I think, have talked about trying to build a franchise position in rigid metal packaging. I'm curious if this move changes that perspective. You guys have talked about the sustainability attributes of rigid metal packaging and then maybe if anything changes from your perspective and is there further risk to your outlook, especially in the template business given the announcement this morning from Clift to idle a facility here in North America?

Yeah, again, we'll get into this in more detail and I think it will be a lot more obvious to all of you next week of why it makes sense to combine these under one leadership team. And as we look at... So, look, we do think it's going to open up the aperture in terms of acquisition opportunities within that side of the business, but it doesn't take away from any of the other core businesses at all. It just makes, and you'll see that next week, makes good, solid sense. The Cleveland, not really a big surprise as related to the mill, not a material impact to us at all from a supply position. And that's really all I can say to that. We don't view that as an impact to us in any way this year or in future years going forward, depending on how long they do intend to keep that milled out.

Okay. And then the recovery and consumer, we're reading about cocoa hitting new highs in terms of commodity costs. How has the recent dialogue gone with your customers in terms of expectations there? I mean, we're reading articles about smaller chocolate bars and things like that, and just curious if that's baked into your outlook.

Okay, I think as we said in my opening comments, I think we're being fairly conservative actually, in terms of volume. Our customers are planning to react to the new weight loss drugs they're planning for. So far they say they've seen no impact on that. Really, in my view, it goes back to the pricing on the shelf. And Howard mentioned it earlier. There's a lot of pressure from the big retailers now on our customers to start to bring their prices down. You're starting to see more promotions. You know, all these baked goods, snacks, confection, are discretionary items. And they hit a price point where it's really impacted their volume. So what we're hearing from our customers is they're going to be more aggressive on promotions and more aggressive on regaining some of the volume that's been lost over the last year. So that's what we're depending on, along with the good job our team does on new products and like the paper bottom for the Pringle scan for Kelenova. And the global expansion on those packages has been fantastic. That's why we're more confident about a recovery and consumer volumes as we go throughout the year.

Okay, thank you. And one last one. I apologize, just for posterity's sake. The divestiture that you all announced, if I heard you correctly, assuming it closes at the end of Q1, it's maybe a seven, eight cent drag to the midpoint of your guidance. Is that what I'm hearing? And then on the URB and downstream related products, price increases. Are you assuming or embedding in your outlook today that the 20% of the open market, there's price realization there and then we'll wait to see this Friday what's recognized by RISI, maybe specifically what's embedded in the Q1 outlook or H1 outlook? Thank you.

Yeah, so we expect the sale of Protectzik to close at the end of Q1. And if it does, then that'll be a seven cent drag on the year we anticipate. For industrial pricing, we're seeing that flow through. Certainly the trade market sales Howard and Roger has said, it's flowing through well.

That's a component of the trade market. That's a component of our current guide.

Thank you. Thanks.

As a reminder, if you would like to ask a question, please press star one one on your phone. And our next question comes from Mark Weintraub with Seaport Research Partners. Your line is open.

Maybe kind of first, more housekeeping. What did the metal overall? What's the metal overall? You thought embedded for 2024?

We lost you for a second there, Mark, but I'm assuming you're asking about metal price overlap. For the year, it'll be slightly less than what it was last year. So it's actually a slight positive on a year over year basis. In Q1, because of the timing, it's gonna be net neutral.

Okay,

great.

Hopefully you can hear me now. Do you, so what did it end up being in 2023?

Oh yeah, yeah. So last year it was 41 million negative. This year we anticipate just the Q1 component of that to repeat.

Okay. And can you quantify that for us?

Sure. It was between 20 and 25 million. Okay, super.

And then on the URB, I think you mentioned that you expect to be in the mid 90s post the actions you've been taking in North America and demand getting a little bit better. Where are you now in terms of integration in URB in North America? Maybe start with that.

Oh, you're talking about integrated volume. We're about 55, 56% integrated volume now, Mark, with the RTS

acquisition.

And as a reminder, if you would like to ask a question, please press star 11 on your phone. Again, that is star 11.

One moment please. Please.

And I'm showing no further questions at this time. I would now like to turn the conference back to Lisa Weeks for closing remarks.

Thank you all for joining us today. If you have any follow-ups, we'll be around after the call to answer your questions or contact me to schedule a follow-up. As Howard stated, we'd look forward to hosting you at our Investor and Analyst Day in New York next week on February 22nd. This will be an in-person event and a webcast will also be available. Registration details are on our website. We also look forward to seeing you on the road at our planned conferences and events in the coming months and we'll talk to you again in May when we report our first quarter results. Thanks to everyone and have a great day.

And this concludes today's conference call. Thank you all for participating. You may now disconnect.

Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you.

Thank you. Thank you. Good day and thank you for standing by. Welcome to the fourth quarter of 2023, Sanoco's 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 conference call, in this session, you will need to press star 11 on your telephone. You will then hear an automated message. Advice in 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, Lisa Weeks, Vice President of Investor Relations. Please go ahead.

Thank you, operator, and thanks to everyone for joining us today for Sanoco's fourth quarter and full year 2023 earnings call. Joining me this morning are Howard Coker, President and CEO, Rob Dillard, Chief Financial Officer, and Roger Fuller, Chief Operating Officer. Last evening, we issued a news release highlighting our financial performance for the fourth quarter in full year, and we prepared a presentation that we will reference during this call. The press release and presentation are available online under the Investor Relations section of our website. As a reminder, during today's call, we will discuss a number of forward-looking statements based on current expectations, estimates, and projections. These statements are not guarantees of future performance and are subject to certain risks and uncertainties. Therefore, actual results may differ materially. Please take a moment to review the forward-looking statements on page two of the presentation. Additionally, today's presentation includes the use of non-GAAP financial measures, which management believes provides useful information to investors about the company's financial conditions and results of operations. Further information about the company's use of non-GAAP financial measures, including definitions, as well as reconciliations to GAAP measures, is available under the Investor Relations section of our website. For today's call, we will have prepared remarks regarding our results for the quarter and 2023 and an outlook for the first quarter and full year of 2024, followed by a Q&A session. If you will turn to slide four in our presentation, I will now turn the call over to our CEO, Howard Coker.

Thank you, Lisa, and thanks to all of you for joining our call this morning to review our 2023 results and 2024 outlook. In 2023, we continued to make progress on strategic initiatives and delivered solid results, and what was a pretty difficult year from a volume perspective. Despite these lower volumes, we delivered strong EBITDA margins of 15.7%, which is somewhat similar to last year. Our strong margins were the result of record performances in our consumer rigid paper cans and Flexibles businesses. On the industrial side, despite volume levels similar to 2008, our team delivered record profit margins through diligent cost management throughout the paper ecosystem. Our adjusted earnings of 526 were within our guidance range for the year, and with intentional focus on working capital, we generated record operating cash flow of $883 million, and free cash flow of $600 million for the year. We also returned capital to shareholders and increased our annual dividend for the 40th straight year. We completed acquisitions and investitures according to plans, and our teams did not skip a beat on executing initiatives to further strengthen our foundation. I wanna close 2023 by thanking this incredible team of Sanoco for the resiliency and dedication throughout the year. Certainly the global economic and external factors did not make this an easy year at all, but we did not stand still, and we delivered the second best annual financial performance in the company's 125 year history. I'm grateful to work alongside these great people of Sanoco, as well as our customers and supplier partners, and we continue to look to the future with optimism. And with that, I'm gonna turn the call over to Rob to cover our financial results and outlook.

Rob. Thanks, Howard. I'm pleased to present the fourth quarter and full year 2023 financial results starting on page six of this presentation. Please note that all results are on an adjusted basis, and all growth metrics are on a -over-year basis, unless otherwise stated. The gap to non-gap EPS reconciliation is in the appendix of this presentation, as well as in the press release. As Howard said, 2023 was a record year for Sanoco, and 2023 we achieved the second best financial results in the company's 125 year history in key metrics, such as net sales, adjusted EBITDA, and adjusted EPS. By many measures, this was our best year ever. We achieved record operating cashflow, record free cashflow, record productivity, and we invested a record amount to drive future growth and profitability. We've built a foundation for continued strong financial performance, building on our enduring operating model, strong market positions, investment grade balance sheet, and our differentiated dividend. We're excited about the future and feel good that 2023 was a year to solidify our improvements since 2021. Full year 2023 net sales decreased to 6.78 billion due to the volumes of cons from de-stocking and consumer and an elongated cyclone industrial. While these factors impacted -over-year results, we grew net sales at a 10% compared at annual growth rate since 2021 due to strategic pricing, new product wins, and acquisitions. Adjusted EBITDA grew 297 million from 770 million in 2021 to 1.067 billion in 2023. Over 150 million of this increase was organic improvement due to strategic pricing and productivity. Adjusted EBITDA margin was .7% in 2023, a 190 basis point increase from 2021. We achieved strong profitability due to price cost in 2022 and retained this profitability in 2023 due to record productivity of 109 million. We are operating with agility and continue to match cost controls with productivity investment. 2023 GAAP EPS was $4.80 and adjusted EPS was $5.26, which was within our guidance range of $5.25 to $5.40. On page seven, we have our results for Q4 2023. Net sales decreased 2% to 1.64 billion. Volumes were lowered .4% due to low single digit volume and the price was negative .3% due to negative index based pricing. Adjusted operating profit decreased to 167 million, adjusted EBITDA decreased to 236 million and adjusted EBITDA margin was 14.4%, a 20 basis point decrease from 2022. Q4 was an incredibly strong quarter operationally. We managed variable demand and generated record productivity of 49 million. This translated into a 180 basis point increase in gross profit margin. These operating profit results were offset by SG&A items that we consider infrequent in their magnitude, including higher employee expenses, healthcare and accounts receivable reserves. GAAP EPS was 82 cents and adjusted EPS was $1.02 within our guidance range of $1.01 to $1.16. Tax was a six cent drag on the quarter as a tax rate increased to .7% due to actions to repatriate cash. It's notable that without the specific higher SG&A items and tax items, we would have achieved at least the midpoint of guidance. Page eight has our sales and operating profit bridges for the quarter. Net sales declined to 1.64 billion due to negative volume mix and negative price. Volume mix was negative 20 million in the quarter as consumer continues to be impacted by inflationary pricing at retail and industrial continues to reach a cyclical low. Price was negative 39 million. We continue to achieve strong results from our strategic pricing program. Negative price was a result of deflation and index based prices in resin, metal and paper based businesses. Next on this page, we have the adjusted operating profit bridge. Adjusted operating profit was driven by negative volume mix and negative price costs with strong productivity benefiting results. Volume mix was negative 10 million. Price cost was negative 14 million as positive price cost and consumer and all other was offset by negative price cost and industrial. Productivity was positive 49 million as we achieved positive manufacturing productivity due to our lean programs and positive fixed cost productivity due to continued efforts to reduce our plant footprint and optimize supply chains. Other was negative 42 million due to employee expenses, healthcare and accounts receivable reserves. These expenses are not expected to repeat in this magnitude. Page nine has our segment results for the quarter. Consumer sales decreased 3% to 856 million. Consumer volumes decreased low single digits due to customer inventory management and the impact of inflationary pricing. Many consumer customers are beginning to return to historical pricing practices including discounting. However, volumes have been slow to return to typical patterns. Bridget paper container sales declined low single digits due to mid single digit volume declines, offsetting positive price. Flexible sales were flat as new customer gains offset low legacy customer volumes. Metal packaging sales decreased mid single digits due to low single digit volume declines and negative index price actions. Demand from our core customers in metal packaging has strengthened, but overall demand declined due to anticipated template based price reductions in 2024. Consumer operating profit decreased to 83 million as 23 million of productivity and 17 million of price costs was offset by volume mix and SG&A, a meaningful component of which we do not expect to repeat in this magnitude. Consumer operating profit margin was flat at 9.7%. Industrial sales decreased less than 1% to 593 million. Industrial volumes decreased low single digits due to lower demand in most key markets and geographies. Industrial prices decreased mid single digits due to index based pricing action. We continue to achieve strategic pricing, but we're impacted by declining paper indices and increasing OCC. OCC increased to $92 per ton from $38 per ton in 2022. Industrial operating profit decreased to 62 million due to 36 million of negative price costs offsetting 20 million of productivity. Industrial operating profit margin remained at a historically strong 10.4%. We're protecting margins with strategic pricing and with cost actions to reduce fixed costs. The business is well positioned to benefit from a return to normalized volumes. All other sales decreased 7% to 187 million due to broad volume declines. All other operating profit increased to 22 million due to strong productivity and positive price costs, moving to page 10. Our capital allocation framework aligns with our business strategy to drive value creation through earnings growth and improved margins. In the fourth quarter, we generated operating cashflow of 267 million. We invested 108 million of this cash and capital expenditures to fund our growth initiatives and improve margins. Results from these investments are translating into improved productivity and growth with new customers and new products. Further, we remain focused on increasing the dividend, which at present is 51 cents per share on a quarterly basis for a .5% annualized yield based on our current share price. Next, we paid off 172 million of debt in the quarter and reduced our net debt to adjusted EBITDA to 2.8 times. We'll continue to be disciplined and improve our liquidity and access to capital. This is key to our strategy as we continue to have a proactive M&A strategy focused on executing the right deals based on strategic fit, scalability, financial profile, and cultural fit. We're being disciplined in a disrupted M&A market and we'll do the right acquisitions and investitures at the right time for us. Page 11 has our guidance for Q1 and full year 2024. Guidance for 2024 adjusted EPS is $5.10 to $5.40. This guidance is based on low single digit volume growth, consumer volumes expected to grow low single digits while industrial volumes are expected to experience only limited recovery. Price cost is expected to be meaningfully negative due to contractual resets in consumer and the impact of timing and pricing lags in industrial. Another meaningful input to guidance is a $32 million increase in depreciation. We expect to grow adjusted EBITDA in 2024 and are guiding to a range of 1.05 billion to 1.1 billion. Operating cashflow guidance is 650 million to 750 million. Working capital is expected to be a 100 million to 150 million use of funds as we invest in inventory and receivables to reset supply chains and enable volume growth. Guidance for our capital expenditures is 350 million. We've increased the proportion of capital expenditures focused on long-term growth and profitability projects. This investment is expected to drive record productivity in 2024 and beyond. Guidance for Q1 2024 adjusted EPS is $1.05 to $1.15. We're expecting modestly negative volume in consumer as our customers remain cautious. Consumer price cost is expected to be negative due to contract pricing resets. Industrial volumes are not expected to improve in Q1. Industrial price trends are improving, but price cost is expected to be meaningfully negative on a -over-year basis. Due to last year's low OCC comparative and last year's higher 10-pending chip comparative. Now Roger will further discuss the outlook for the business.

Hey, thanks, Rob. If you'll please turn to slide 12 for our view of segment performance drivers in 2024. Let me start with our first quarter outlook. In the consumer segment, we expect volumes to be up sequentially over the fourth quarter, but basically flat year over year from continued slower consumer spending due to retail price inflation. In rigid paper containers, we see volume is slightly down in North America versus a strong start last year, flat in Europe and some nice year over year sales growth in the rest of the world from new product launches in our expanded capacity in South America and Asia. Organic flexible volumes are projected to be flat to down slightly due to continued softness in our base soft-baked goods and confection business that aided in the first quarter from the benefit of the NFL acquisition in Brazil. In our metal pack business, we did see recovery of our steel aerosol business in the fourth quarter offset by some softness in food. In the first quarter of 23, we expect low to mid single digit increases in both food and aerosol metal cans. In the industrial segment, volumes are up sequentially from last quarter but down low single digits year over year with weakness primarily in Europe and Asia as many of our end markets are tied to consumer staple and durable spending and inflationary factors that have slowed spending. We do expect higher paper mill utilization in the first quarter and our global paper system driven primarily in North America. During the first quarter, there'll be an outside impact from negative price costs as input costs continue to rise and the timing of pricing updates lag. We expect the impact of negative price costs to improve over Q1 levels as we move throughout the year. Productivity remains strong as our teams effectively managing costs throughout our mill and converting systems. In the all other segment, volumes continue to remain soft with price cost offsetting some impact of the lower volumes. Now turning to the full year 2024 guidance. We expect consumer volumes to be up low single digits and productivity to remain strong. We're anticipating relatively stable material pricing and supply chain performance but do expect consumer price costs for the year to be negative from contractual pricing resets somewhat offset by productivity. In industrial, we're not projecting volume recovery in the first half of the year. We also expect price costs remain negative from index based pricing and higher input costs which will be weighted to the first half of the year. As you know, we've announced price increases in North America on both our URB paper and converted products affected February 1st and these increases are progressing well. The team continues to do an excellent job of expense management and we expect productivity and manufacturing efficiencies will offset negative volume impacts. And lastly, in all other, we anticipate fairly stable demand across the businesses and good productivity to continue throughout the year. So overall, we remain, I believe, appropriately conservative on volume recovery across the segments with good productivity and cost control in place until we see volume recovery. With that, back to you,

Howard. Great, thanks, Roger. As a state of my opening remarks, we're not standing still as we progress a robust set of plans and initiatives across the enterprise. And I thought I'd just share a few of those with you. First, on the divestiture and closure front, we continue to execute our portfolio transition and footprint optimization activities. Last week, we announced the closure of our Sumner Washington URB paper mill. This was the oldest mill in San Diego's North American network and the cost to recapitalize was just simply not feasible. We're moving tons to lower cost mills in the network. We've owned Sumner for over 40 years and extremely grateful for the support of this team through these years. We also announced the expected sale of our protective solutions business from our all other category or segment, which should close in the first half of 2024. This has been a great business for Sanoco with great leadership team. We know their knowledge and skills will serve them well into the future. As we continue our portfolio resolution, we remain laser focused on simplification and the alignment and fit to what businesses remain in

our

core. Secondly, we're pleased to announce that we were recognized by Kelenova for designing, manufacturing, and commercializing a paper bottom in for our rigid paper cans, the Pringles to achieve sustainable and recyclable initiatives in

Europe.

This was a multi-year and a true partnership effort. We're pleased with the acceptance of our innovative package design in the marketplace and we look forward to sharing more about this next week and our investor day. In December, we were also pleased to announce the acquisition of NFL, one of the leading flexible packaging companies based in Brazil. This is a strategic move to expand capacity for growing demand that we are feeling in Brazil where Sanoco is now the number two in this market. We welcome the NFL team and know that our aligned culture, values, and technical capabilities make this a winning combination. We've also taken steps this year to further align our flexible and thermoforming businesses into one larger scaled platform. We will be providing more details on this next step in our portfolio next week. In summary, I'd just like to leave you that Sanoco continues steady performance across our businesses. We wish volumes were better, but we are well positioned and ready to take advantage of incremental demand upticks across the portfolio. Now, if you'll turn to slide 15, I will wrap things up by saying we're looking forward to our investor day one week from today in New York in February. Oh, what is the date of the investor day? February 22nd. The next week. During this meeting, we will provide updates on our transformation operations or business unit plans and share thoughts on our longer term financial outlook. We look forward to hosting you live or virtually next week. But this time, I'm more than happy, we're more than happy to answer any questions that you may have. I'll turn it back over to the operator.

As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. Please stand by while we compile the Q&A roster. And our first question comes from George Staphos with Bank of America Securities. Your line is open.

Hi, thanks very much. Good morning, everybody. Thanks for the details. I'll ask three questions. First question related to guidance. Can you talk through what is baked in for price cost for the year, recognizing there are no guarantees in life, and how much of the URB and converted product increases in industrial are baked into that guidance? Relatedly, what is the effect of the divestiture of protective solutions within all other relative to your guidance? And then last from me, Howard, one, I know you're gonna talk more about it next week, but wide integration of flexibles with thermoforming, recognizing they're plastic-based, they are somewhat different business processes, and what should we have baked in for productivity from that and broadly for the year? Thank you.

Great, thanks, George. I'll turn over the more financial related to Rob. Yes, we will talk in more detail next week about the combination, and I think you'll see the rationale and why we would view this as an obvious combine of the two. You just said a very high level, I can just say that synergistically, it makes a lot of sense. And then if you look at the markets that we serve and the customers we share, and there's more beyond that. So I'm gonna leave that where it is, and we'll get into that one next week. Rob, you wanna talk about price cost?

Yeah, George, that's a good question, because price cost is gonna be a meaningful driver for profitability, or a meaningful factor for profitability in 2024. I'd say in Q1, we're anticipating that number to be between 50 and 55 cents of drag. We've said previously that industrial was gonna have $35 million of price cost in Q1, and we're expecting to see that. To your point on URB and price recovery there, we have continued to see OCC increase. Tan bending chip is kind of held constant. We're feeling really good about how that price is translating through the market, but that's something that actually takes a fair amount of time to really translate through to the P&L, so there's a bit of a drag there. Overall, we do think that industrial price costs will continue to be negative going into the second quarter, and we're hopeful for some opportunity in the second half of the year.

Okay, and then just on the impact of protective.

Yeah, on protect sick. Yeah, so protect sick, we haven't closed the deal. We're expecting to close. We have a great counterparty there. We feel really good about that transaction. On a gross basis, that divestiture would be 10 cents to dilutive to EPS on a full year basis. So we are expecting to close that by the end of Q1 and have some visibility of that, and it's not in the 525 of guidance.

Okay, and the productivity for the year?

Productivity of the year, we had a great year this year. Obviously, we continue to invest behind it. We see we've got a better path forward this year than we did last year, I would say. So we're expecting to have another record year.

Thank you very much.

Our next question comes from the line of Anthony Pedinari with Citi. Your line is open.

Good morning. Good morning. Good morning, you're expecting a consumer volume growth in I think the mid single digit to high single digit range, quarter over quarter in one queue. And I'm just wondering, is it possible to maybe parse that out between, and does that just reflect sort of typical seasonality, or is there some end market demand improvement or deterioration or any de-stocking or anything? Just wondering if you can kind of parse that out between those drivers.

No, Anthony's Roger. Consumer for the first quarter is basically flat year over year. So you've got slightly down in rigid paper containers versus a strong start last year in North America. Basically flat, the slightly negative flexibles. And again, that's our base business cookies, confectionary being soft, offset by some of the Brazil acquisition. Metal cans is actually projected to be up, low to mid single digits. And we started in that way. And then plastics up slightly. So you put it all together, Anthony is basically a flat volume for the first quarter. For the year, we do see that low single digit growth for the year. And that's just recovery in some of our base business with some share that we've gained in flexibles and new products and flexibles. And a good result, we're very hopeful on this combination between flexibles and thermoforming. So first quarter flat, mid single digit, mid to low single digits for the year with some recovery in our base business.

Yeah, and I'd say we're also cautiously optimistic. As we see our customers starting to market more, you're seeing more discounting actions. So the expectation is that through the course of the year, we'll start seeing some improvements as Roger just said.

Okay, that's very helpful. And then in metal pack, I'm sorry if I missed this, but would you expect full year volumes to be flattish or maybe slightly up or slightly down? And then I'm just curious on aerosol, another packager has discussed aerosol potentially being under some pressure due to cost and sort of ESG concerns. I'm

wondering

if you're seeing anything similar to that. And then just broadly, if I think about the composition of metal pack between food cans, aerosol, and maybe closures, how that business has changed or if you've kind of shifted the mix around since you acquired it.

Yeah, and of course, long shelf life, the stocking is carried a little bit further than you normally would expect against our portfolio. What we're seeing right now, we're expecting what we're hearing from our customers and how the year started, we're actually looking at a net being up year over year, call it low to mid single digits. Aerosol in particular is actually on the favorable side of that. If you look at the fourth quarter alone, year over year aerosols were actually up mid to low single digits and so it was slightly down. So pretty pleased with what we're seeing in terms of recovery from a volume perspective with a pretty weak, very weak start the last year, but very understandable, again, considering the long shelf life associated with these products. So pretty bullish about volume recoveries as we kind of start the year, as we finish January and as we look into next year and as we finished last year in the fourth quarter.

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

Our next question comes from the line of Gansham Punjabi with Baird. Your line is open.

Thanks, good morning everybody. I guess going back to the industrial segment, looking at the margins of the fourth quarter, this was the first quarter of year over year margin declines since the first quarter 21. Just curious your thoughts on the evolution from here and I know there's a lot going on with OCC and just the index based pricing faster, et cetera. I would just love to hear your thoughts as it relates to 2024.

Yeah, it's Roger. As we look at the margins for the first quarter industry, it looks basically flat to the fourth quarter. We are seeing, as we've already said, this will be our largest impact, negative impact on price costs, but we are also seeing recovery in our paper mill system primarily in North America. Our global URB system ran about 87% capacity in Q4, but our North American URB capacity was close to 92% in Q4 and we expect that to move up into the mid 90s in Q1 with increased demand as well as the move we made on the Sumner mill. So we expect, yes, negative price costs, but we also expect better productivity through capacity utilization in our biggest part of our URB system, which is North America.

And I would add that I think the acceptance of the price increase effective mid quarter, mid first quarter has

been positive. Yeah, I think as you know, we're about 60% weighted to the RISD TAM Bending Index, about 20% weighted to OCC and 20% open market. So obviously we're going off to the open market now, but as Rob mentioned that the 60% weighted to TAM Bending Shift will impact more the second quarter than the first.

Okay, that's helpful. And then, back to the consumer business, just the volume weakness of being persistent over the last several quarters, it's not just you, it's the peer group in terms of destocking, et cetera, that's impacted the supply chain. Can you just characterize the competitive backdrop as we progress through this lower for longer volume weakness paradigm, and you have a bunch of different businesses within consumer, and I just would love to hear your thoughts as it relates to just the competitive backdrop in context of an industry that's typically very competitive anyway.

Yeah, well, I mean, we feel really good. From a share position perspective, I'm not aware of any material share also, in fact, I've probably got a longer list of share gains. They're just not overcoming the overall segment, consumer segment situation and demand profile. Frankly, if we talk about volumes and it's across all our businesses through the year, and then you flip over and look at the productivity performance, and I've thought about this before, we've invested extremely heavily in all our businesses in the core, and are continuing to see our productivity increase. And as volumes do recovery and leverage starts really materializing or normalizing within our facilities, I'm pretty bullish about how we can convert that into even higher productivity than we've been seeing thus far. But no, from a share position, we're in good shape from a share position as far as I'm concerned.

Very clear, thank you.

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

Howard, Rob, Roger, good morning.

I wanted to revisit the integration that George initially asked about of flexibles with thermal forming, and just bigger, I guess, picture context around, you guys, I think you've talked about trying to build a franchise position in rigid metal packaging. And I'm curious if this move changes that perspective, you guys have talked about the sustainability attributes of rigid metal packaging, and then maybe if anything changes from your perspective, and is there further risk to your outlook, especially in the template business given the announcement this morning from Cliff to idle facility here in North America?

Yeah, and again, we'll get into this in more detail, and I think it'll be a lot more obvious to all of you next week of why it makes sense to combine these under one leadership team. And as we look at, so look, we do think it's gonna open up the aperture in terms of acquisition opportunities within that side of the business, but it doesn't take away from any of the other core businesses at all. It just makes, and you'll see that next week, makes good, solid sense. Now, the Cleveland, that's not really a big surprise as related to the mill, not a material impact to us at all from a supply position. And that's really all I can say to that. We don't view that as an impact to us in any way this year or in future years going forward, depending on how long they do, and tend to keep that no doubt.

Okay, and then the recovery and consumer, we're reading about, you know, cocoa hitting new highs in terms of commodity costs. How has the recent dialogue gone with your customers in terms of expectations there? I mean, we're reading articles about smaller chocolate bars and things like that, and just curious if that's baked into your outlook.

Okay, I think as we said in my opening comments, I think we're being fairly conservative actually on volume. Our customers are planning to react to, you know, the new weight loss drugs, you know, they're planning for. So far they say they've seen no impact on that. You know, really it goes, in my view, it goes back to the pricing on the shelf. And Howard mentioned it earlier, there's a lot of pressure from the big retailers now on our customers to start to bring their prices down. You're starting to see more promotions. You know, all these baked goods, snacks, confection, are discretionary items, and they hit a price point where it's really impacted their volume. So what we're hearing from our customers is they're gonna be more aggressive on promotions and more aggressive on regaining some of the volume that's been lost over the last year. So that's what we're depending on, along with the good job our team does on new products and like the paper bottom for the Pringles scan for Kelenova and the global expansion on those packages has been fantastic. That's why we're more confident about a recovery and consumer volumes as we go throughout the year.

Okay, thank you. And one last one, I apologize, just for posterity's sake. The divestiture that you all announced, if I heard you correctly, assuming it closes at the end of Q1, it's maybe a seven, eight cent drag to the midpoint of your guidance. Is that what I'm hearing? And then on the URB and downstream related products, price increases, are you assuming or embedding in your outlook today that the 20% of the open market, there's price realization there, and then we'll wait to see this Friday what's recognized by RISI, maybe specifically what's embedded in the Q1 outlook or H1 outlook, thank you.

Gabe, yeah, so we expect the sale of Protectix to close at the end of Q1, and if it does, then that'll be a seven cent drag on the year we anticipate. For industrial pricing, we're seeing that flow through, certainly the trade market sales Howard and Roger have said, it's flowing through well,

that's a component of our current guide.

Thank you. Thanks.

As a reminder, if you would like to ask a question, please press star one one on your phone. And our next question comes from Mark Weintraub with Seaport Research Partners. Your line is open.

Maybe kind of first, more housekeeping, what did the metal overlap, you thought embedded for 2024?

We lost you for a second there, Mark, but I'm assuming you're asking about metal price overlap. For the year, it'll be slightly less than what it was last year, so it's actually a slight positive on a -over-year basis. And Q1, because of the timing, it's gonna be net neutral.

Okay, great. Hopefully you can hear me now. So what did it end up being in 2023?

Oh yeah, yeah. So last year it was 41 million negative. This year we anticipate just the Q1 component of that to repeat.

Okay, and can you quantify that for us?

Sure, it was between 20 and 25 million. Okay, super.

And then on the URB, I think you mentioned that you expect to be in the mid-90s post the actions you've been taking in North America and demand getting a little bit better. Where are you now in terms of integration in URB in North America? Maybe start with that.

Oh, you're talking about integrated volume. We're about 55, 56% integrated volume now, Mark, with the

RTS acquisition.

And as a reminder, if you would like to ask a question, please press star 11 on your phone. Again, that is star 11.

One moment, please.

And

I'm showing no

further questions at this time. I would now like to turn the conference back to Lisa Weeks for closing remarks.

Thank you all for joining us today. If you have any follow-ups, we'll be around after the call to answer your questions or contact me to schedule a follow-up. As Howard stated, we'd look forward to hosting you at our Investor and Analyst Day in New York next week on February 22nd. This will be an in-person event and a webcast will also be available. Registration details are on our website. We also look forward to seeing you on the road at our planned conferences and events in the coming months. And we'll talk to you again in May when we report our first quarter results. Thanks to everyone and have a great day.

And this concludes today's conference call. Thank you all for participating. You may now disconnect.