Sonoco Products Company

Yesterday evening, we issued a news release and posted an investor presentation that reviews Sunoco's second quarter 2025 financial results. Both are posted on the investor relations section of our website at sunoco.com. A replay of today's conference call will be available on our website, and we'll post a transcript later this week. If you would turn to slide two, I will remind you that 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. 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. Joining me this morning are Howard Coker, President and CEO, Roger Fuller, Chief Operating Officer and Interim CEO of Sunoco Metal Packaging EMEA, Jerry Cheatham, Interim Chief Financial Officer and Paul Johimchik, our new Chief Financial Officer. For today's call, we have prepared remarks followed by Q&A. If you turn to slide four in our presentation, I will now turn the call over to Howard.

Thank you, Roger, and good morning, everyone. Our second quarter results reflected the growing strength of the new Sunoco as we produced strong top line and bottom line growth along with margin expansion. However, we were impacted by global macroeconomic pressures, which affected consumer and industrial demand, and by the delay of the European packing season compared to last year. As slide 5 shows, net sales grew 49%, and adjusted EBITDA was up 25%, while adjusted EBITDA margin expanded by 100 basis points to 17.2%. due primarily to improving margins from our industrial business. Total adjusted earnings grew 7% and were impacted by higher than expected interest expense. 115% growth in adjusted EBITDA in the consumer packaging segment reflects 10% gains in volume mix in our metal U.S. business. In the addition of EVOSIS acquisition, which we have rebranded as Sunoco Metal Packaging, SMP, and EF. The segment also generated solid productivity savings. Our industrial segment grew adjusted EBITDA by 16% due to a favorable price-cost environment and productivity. Industrial segment EBITDA margins expanded to 19%, which was a seventh consecutive quarter of margin improvement. This performance is a tribute to our industrial team's efforts to drive value-based pricing and focus on productivity savings. Here we'll go through all the numbers and business drivers for the quarter in a few minutes. But I also want to formally introduce Paul Joanchek, who joined us as Chief Financial Officer at the end of June. We're really excited to have Paul join us, and he will discuss our guidance before we take a question. Over the past five years, we've been progressing a transformation journey to create a more focused enterprise providing value-added metal and fiber packaging. Slide six illustrates our strategy, in particular what markets we will participate in and how we expect to win in these markets. We're focused on businesses where we can drive a competitive advantage through advanced material science and technology expertise, where our products possess high functionality, and where we can best leverage continuous process improvements to drive productivity. We now have a portfolio of businesses with a mix of large, growing global consumers that value the competitive advantage we provide. As always, Sunoco wins through superior customer service, strong operational execution, innovation, and a culture that is built on our guiding principle that people build businesses by doing the right thing. As illustrated on slide seven, we believe we have now focused our portfolios along the competitive strengths that will allow us to win in the marketplace. Our core businesses include metal packaging, rigid paper containers, and industrial paper packaging. In each of these businesses, we check the box on our key strategic principles, including focusing on markets where we have market leadership. This slide also illustrates why we decided to divest thermoformed and flexible packaging, and why we plan to sell ThermoSafe, our temperature-assured business. Both have developed into meaningful, profitable, and attractive businesses. However, we felt they lacked certain aspects that would allow us to best deploy our operating model to our advantage. So we believe monetizing these assets to redeploy capital back into our core was the right capital allocation decision. Now, turning to slide 8, we continue to progress our transformation journey in the second quarter with the successful divestiture of TFP and the utilization of proceeds and cash to reduce our net leverage ratio to below 3.8 times. We're preparing ThermoSafe for a second half sale process with the expectation that proceeds will be used to further reduce net leverage towards our target of 3 to 3.3 times by the end of 2026. As a result of our portfolio changes, we're in the process of further optimizing our operating footprint and reducing support functions to align them with the needs of our fewer, bigger businesses. We've actioned approximately $20 million in annual savings from spending costs left by the divested businesses. But also, we're now positioned to better leverage shared services strategies some of our global administrative functions to better serve our business, our customers, and to reduce costs. Our successful integration of S&P EMEA continues, where the team is now projecting between $40 million to $50 million in run rate synergies by the end of this year. We also have line of sight to achieve greater than $100 million in cost savings through 2026. At the end of June, we were saddened by the news that Thomas Lopez, CEO of S&P EMEA, had died in his hometown of Murcia, Spain. Lopez was a legend in the European can-making industry, dating back to his leadership in developing the visa into the largest food can producer in the Iberian Peninsula and Morocco. He later became CEO of EBIOSIS and stayed on in that role when we acquired the business last December. Roger Fuller, our Chief Operating Officer, and who has been leading the integration of S&P EMEA, was named Interim CEO. Most of you are familiar with Roger's 40 years of leadership experience at Sunoco. He has been deeply engaged since day one of the acquisition and worked alongside Tomas to build strong customer, employee, and supplier relationships. While Tomas will be missed, Roger is providing leadership stability working with the team to continue our strategy of building global leadership in metal packaging. I'll now turn the call over to Roger to give us a brief update on S&P EMEA. Roger?

Yeah, thank you, Howard. Good day, everyone. If you turn to slide 10, I'll review some key points related to metal packaging EMEA's second quarter performance, third quarter outlook, along with a preview of some significant growth wins that will help us in 2026 and beyond. Second quarter results were impacted by the delay in the startup of the European vegetable packaging season as compared to last year. As we've explained, approximately 40% of our EMEA sales are seasonal and dependent on the timing of the vegetable harvest. In addition, difficult macroeconomic conditions in Europe have slowed consumer demand, and we've also seen a decline in sardine availability in Africa, which has further reduced our volumes. That said, demand for pet food, and certain premium food categories have remained resilient. Looking at the third quarter, which is by far our strongest quarter, we're seeing the harvest season ramp up. Our customers and experts are predicting a solid vegetable harvest that could extend through October, and we expect other food categories to be in line with our expectations. As Howard mentioned, the team is making tremendous progress to achieve synergy savings in the second half of 2025, along with generating opportunities for cost savings that benefit our U.S. metal packaging business. We recently integrated our U.S. and EMEA steel procurement teams into a single, globally focused organization based in Europe and led by a veteran Sunoco steel procurement expert. As we previously said, we expect significant procurement synergies in 2026 after they were delayed in 2025 due to the late closing of the acquisition. So let me close with some exciting new growth projects that our EMEA team signed in the second quarter. First is a multi-year contract with a pet food customer in Eastern Europe, where we'll provide up to 400 million incremental units annually. We expect to start providing cans for this customer from existing operations late in the fourth quarter, and we'll be ramping up production in 2026. Also, we've committed to developing a new satellite production facility in Eastern Europe to help manage their large volume needs. Next is a new five-year contract to provide unique-shaped cans for a powdered nutrition product that will begin in the fourth quarter of 2026 and scale up in 2027. The EMEA team is targeting several additional new customer opportunities that should lead to further volume growth in 2026 and beyond. I'm really excited to be working alongside such a strong international leadership team as we build upon their past success and drive future growth. With that, I'll turn it over to Jerry for the quarterly financial review. Thanks, Roger.

I'm pleased to present the second quarter financial results, starting on page 12 of the presentation. Please note that all results are on an adjusted basis, and all growth metrics are on a year-over-year basis, unless otherwise stated. The GAAP to non-GAAP EPS reconciliation is in the appendix of this presentation, as well as in the press release. Sales and adjusted EBITDA bridges are also in the appendix. Adjusted EPS was $1.37. Earnings per share increased 7% year over year, mainly driven by favorable price-cost performance in our industrial businesses of $20 million and continuous strong productivity of $15 million, driven by our S&P, U.S., and industrial businesses and the net impact of acquisition and divestment. This was partially offset by favorable volume mix in our industrial business and all other businesses and higher interest expense. Interest expenses were seven cents higher than anticipated due to the pull forward of amortization fees associated with the term loan paid off in April of this year and higher commercial paper balance. Second quarter net sales for continued operations increased 49% to $1.9 billion. This change was driven by the impact of the S&P EMEA acquisition, strong volume in our S&P U.S. business, and favorable price. Adjusted EBITDA of $328 million was up by an impressive 25%, and adjusted EBITDA margins improved by 101 basis points to 17.2%. primarily driven by items that affected sales growth in addition to productivity improvements. Page 13 has our consumer segment results on a continuing operation basis. Consumer sales were up by 110% due to the S&P EMEA acquisition, favorable volume, and price. Our domestic metal packaging business achieved double-digit growth reflecting solid demand and continued commercial execution. Sales for our global rigid paper can businesses were essentially flat as favorable price was offset by mix and lower volume. Consumer adjusted EBITDA from continuing operations through a remarkable 115% year-over-year due to the impact of acquisitions, continued productivity gains, higher volume, and the favorable impact of foreign currency. Page 14 has our industrial segment results. Industrial sales decreased 2% to $588 million. Results were impacted by lower volumes and actions to exit the China market, partially offset by better pricing. Adjusted EBITDA margins expanded by 290 basis points a year over year in the second quarter, primarily driven by favorable price costs, cost dynamics, and productivity gains. These benefits were partially offset by negative volume mix. Adjusted EBITDA increased by 15 million to 113 million, representing a 15% increase. Page 15 has our results for the all other business. All other sales were 95 million, and adjusted EBITDA was 16 million. Sales were flat. as higher volumes in ThermoSafe were offset by weaknesses in our plastic industrial business. Adjusted EBITDA declined 8% as unfavorable mix and price costs were partially offset by favorable productivity and other non-recurring items. And now I'll hand it over to Paul to walk us through an update on our full year guidance.

Thank you, Jerry. First off, let me say that I'm deeply honored to join the Sunoco team at this exciting time for the company. With the recent acquisition and divestitures, it is time to reinforce the core values that have made Sunoco successful for more than 125 years that are grounded in a culture of innovation, collaboration, and operating excellence. We are confident that our teams will drive the targeted synergies from the SMP EMEA acquisition and continue to build upon our global metal packaging foundation. My first weeks at Sunoco, I've been impressed with the strong operational foundation of the company. I also want to thank Jerry for doing an excellent job as interim CFO and helping me transition into the organization. Looking at our outlook for the remainder of the year, shown on slide 17, we are maintaining our guidance with net sales in the range of $7.75 billion to $8 billion. While we have seen some softening of the market conditions due to global macroeconomic pressures, we are expecting strong results on our metal packaging and North American industrial businesses. From an adjusted EBITDA guidance, we remain confident in our range of $1.3 billion to $1.4 billion. Again, we see continued strength from our North American consumer and industrial businesses, being partially offset by softness in Europe and other international markets. Delays in recovering rising input costs, as well as impacts tariff uncertainty, is having on overall market conditions. For adjusted EPS, we are targeting the low end of our range of $6 to $6.20. This reflects our first half performance and the projected performance improvements in the second half. In addition, we are expecting variability in FX and interest, helping to mitigate some of the macroeconomic impacts mentioned earlier. Operating cash flows are still within our range of our previous guidance. but we are targeting the lower end due to higher than anticipated levels of net working capital usage, primarily from material inflation. We are extremely focused on improving our overall metrics, and we'll continue to make the right strategic investments in the business to ensure we can hit our future strategic goals. I will now turn the call back over to Howard for closing comments.

Thank you, Paul, and again, welcome to Sunoco. One of the key tenets of our strategy is investing in ourselves to drive profitable growth and productivity. For the first half of 2025, we've invested $188 million in capital and expect to be in line with our estimate of $360 million in total spending by year end. Return to slide 18, I highlight a few new projects. First is a $30 million investment we're making to expand production capacity to serve the growing U.S. adhesives and sealants market. This initiative will add a total of 100 million additional units of annual capacity at three facilities in Florida, Kentucky, and Ohio. Seneca is one of the largest producers of cartridges for adhesive sealants in the U.S., and we are currently sold out. As part of the capacity additions, we will be adding new state-of-the-art technology including digital printing. Recently, we expanded the robotic assembly of nailed wood reels in the Hartsell, Alabama facility to speed production, increase capacity, and lower unit costs. Sunoco is the leader of the production of wire and cable reels in the U.S., and this new automation project will allow us to keep up with our customers who are expanding the domestic energy and communications infrastructure. Overall, we're targeting $65 million in productivity savings in 2025. To achieve that goal, we're upfitting several of our manufacturing operations with automation to improve efficiency and reduce costs. A great example is an autonomous forklift and robotic assemblers we recently added to our Jackson, Tennessee, rigid paper containers operation. New customers and product development is key to the consumer packaging business, as growth is illustrated on slide 19. Our S&P U.S. business is projecting 12 and 15% growth in food and aerosol cans, respectively. For the year, this growth is coming from both new and existing customers. And as Roger mentioned, we have several new projects starting up in Europe in the fourth quarter and into 2026 and beyond. In addition, our global rigid paper container business continues to launch new all-paper and paper bottom cans for customers looking to substitute from less sustainable packaging substrate. As an example, we launched two new all-paper cans for pet nutrition products in the second quarter in Europe. The sustainability of our metal and fiber-based packaging is also getting recognition. As shown on slide 20, Sunoco And our customers won three awards for Sustainable Packaging Business of the Year, Sustainable Brand, and Sustainable Investment Projects at the Environmental Packaging Awards hosted by Packaging News. By 21 and 22, we're developed to better explain the key tenets of our investment thesis and to illustrate the new Sunoco, our businesses, our markets, and our geographic footprint. In closing, we are encouraged by our trajectory as we enter the busiest quarter of the year. We expect continued strong performance in our consumer segment with our S&P U.S. operations capitalizing on commercial wins to organically grow well above industry growth rates. And we continue the integration of our metal packaging EMEA operations and expect to exceed our synergy target. And our legacy industrial paper packaging segment should have another strong quarter as it continues to benefit from improved market conditions while focusing on driving margin expansion through operation and commercial excellence initiatives. Finally, we remain mindful of external risks which are leading to global macroeconomic uncertainty that may affect our customers and consumers. We will remain flexible. focus on meeting the changing needs of our customers while consciously controlling cost, capital, and reducing leverage while creating long-term value for our shareholders. Operator, we will now take any questions.

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. Your first question comes from the line of George Staffos from Bank of America Securities. Your line is open.

Hi, everyone. Good morning. Hope you're doing well. Hope you can hear me okay. Yep, there you go. Hey, Howard. So you mentioned you're pleased with the trajectory that you have going to the third quarter. Can you talk about across your major businesses, what kind of run rate you're seeing on volume right now. And related to that, if you can talk specifically about S&P EMEA, what kind of organic volume growth, or it sounds like declines, did you see 2Q versus 2Q? And what are you expecting in third quarter? And then I had a quick follow-on, and I'll turn it over after that.

Sure, let me kind of go around the world and I'll pass on the question to Roger, but let me start with our paper can business. Expectation is we're heading into our strongest part of the year, really September, end of August, September, and early October. But we're not forecasting significant growth, maybe 1% or so, low single digits. But, you know, if we look backwards into the Q2, you know, the business was slightly down. But, you know, Europe played a part of that, and we all know what's going on in the European marketplace today. And surprisingly, Asia, for the first time in a long time, was down. So not forecasting a lot of heavy recovery, but just slight. going into the busy season. On the metal can side here in the US, as I noted in my commentary, we saw about a 10% volume mix type improvement in Q2. If you look at that on a unit base, container base, 15% up in food cans, 25% up in aerosol. We expect pretty close to that. A little bit more of a difficult comp in Q3, particularly on aerosol, but the pack season is strong, and the winds sustain themselves through the remainder of the year. On the industrial side, just slightly up in the third quarter in total around the world. I'd call it flat. in our biggest market here in North America or the Americas. And what we really see happening there is, well, particularly in North America, operating rates are strong. We see that continuing going forward with a pretty good lift from a price-cost perspective. And Roger, if you want to talk about. Yeah.

Yeah. Thanks Howard. Good morning, George.

Yeah.

Thanks for the question. First, let me just say, as expected, it's clear to me now, you know, we remain really excited about the set of the S&P EMEA business into Sunoco and convinced that we can deliver all the value to the shareholders that we committed when we made the acquisition. So I feel like we're off to a good start with the team. We acknowledge the first half was softer than expected, George. You know, the two primary reasons, number one, the sardine catch, what we talked about. But if you look at the balance of the fish segment, it's been on expectations for the first half. It's on expectations for the second half. And the sardines are the relatively small subsegment of that overall segment, a small part of the overall segment. The vegetable harvest we talked about, we're getting a late start. It looks like it's about three weeks behind. So if you think about the fact that 40% of our volume is seasonal to the vegetable market, you push that three weeks out into the third quarter and potentially into October as well, you can do that math and see what kind of growth that we expect coming in the third quarter versus the first half of the year. July's off to a good start for our expectations. We're not building any kind of starting recovery into our re-forecast in the second half. Based on what we see now, it could be mid to upper single digit increases year over year in the third quarter. And so far in July, it looks like we're heading towards that level for those reasons that I've already talked about. There's been no material loss this year in the business for any reason. So pretty upbeat on the third quarter versus last year at this point.

Hey, Roger, so let me maybe try to put a point on that in the last question I turned over. So was S&P EMEA, you know, round numbers organically down 5% into, you know, if you want to give us a range there. And then one thing I noticed, incremental margin of consumer were relatively light from my vantage point. I think they were up only like they were 12.5%. Any reason why? Thanks and good luck in a quarter.

No, I don't think so, George. I mean, the business is performing well. Even with the volume shortfall in the first half versus our expectations, the business produced positive productivity. So the business is executing well. As I said, no share law. So for me, it could be.

Go ahead. So were you happy with 12.5% incremental margin? Because that would be normally relatively light and with all the productivity. So I was just trying to get a sense there.

Mixed, yeah, the mix, the seasonal mix did impact margins to some degree in the first half for S&P and me and George, so that's probably what you're seeing. Okay.

Hey, George, can you repeat that second?

I think you were getting ready to do it again, so can you repeat that second half? so like mixes effect running criminal margin and just wondering what was smp emea's volume year on year into q on an organic basis down five down ten down three just a rough thank you guys your your final the twelve and a half percent twelve and a half no no no volume was not down twelve and a half percent we'll give you a range but it's probably in that mid single digit yes yeah very similar to the product and that's on

Perfect.

Thank you, guys. Good luck in the quarter. Thanks.

Your next question comes from a line of John Dunnigan from Jefferies. Your line is open.

Hey, guys. Appreciate all the details. I just wanted to touch on, first, it seemed like you guys had some stranded corporate costs that were coming through in the quarter. We hadn't really factored that in. Is that something that would improve moving forward, or maybe you can give us just some thoughts around that? And then the interest expense stepping up in 2Q here, is that something that we should see as more one-time in nature, or that step up kind of moving forward as, you know, you had a decent amount of debt pay down as well, so maybe just interest expense for the full year as well?

Yeah, thanks, John. Let me take the interest expense question first. On the interest expense, yes, we do expect to see some improvement on that in the second half, really in line with what we previously assumed for the second half of this year. And also in the second quarter, we were impacted by, you know, about three cents a share of a pull forward on some loan amortization fees that will not happen in the second half of the year. On the stranded cost front, yeah, we do expect to see some improvement on that over the back half of the year and heading into 2026.

Yeah, let me just add to that. On stranded costs, we are laser focused on that. We have a sub team that has been working literally since late last summer, knowing that we were going to be turning over for selling the TFP business. So we have a roadmap that will benefit us as we enter into next year. But it'll take time. Some of these costs are pretty sticky. But we absolutely have a roadmap to full elimination going forward. The second half of this, which is not forest stranded costs, is comments that I alluded to in my opening. that as a much simpler company where we're managing, in my words, basically two big businesses, a large can business, metal and paper, and a large industrial integrated converted business, the amount of resources that it should take to manage those two businesses versus our prior portfolio dating back not too many years ago we should be able to simplify what we're doing in terms of how we support that business. So right-sizing that is a second work strain that we'll be talking about in more detail later in this year, early next year. Great.

Really appreciate the details.

Yeah. And, John, just to be a little more helpful on the instance expense side, we're expecting that number to be around $50 million-ish a quarter for the second half of the year.

Great. That's very helpful. And then just to move over to EVOSIS for a second question here. Coming into the year, you guys had expected about 10% improvement on EBITDA for the full business. Obviously, a little weaker here in 2Q. It seems like synergy capture should be a bit better this year. Are you still expecting to be up year over year in that EVOSIS business? And then just kind of adding on to that, the projects that were called out, you know, 400 million of incremental units in one project and adding some of these other new projects that are going to be flowing through, you know, it sounds more like a 2026 type of flow through. How much does that actually add to volumes for the total business? Thank you. Appreciate the details again.

Yeah, John, to answer your first question, yes. We expect EBITDA to be up year over year versus what the business experienced in 2024. So the answer to that question is yes. You know, if you think about total volumes for the business, you know, 400 million, you know, let's add another 100 million to that of incremental business. You know, it's significant. You know, I'm not going to get into the exact numbers for that. But, you know, we produce, you know, we put these numbers out, what, 8 billion-ish cans a year. So you can do the math. I think what I am very optimistic about is not only those two wins, but what I'm seeing in the business about other potential new business that we can bring in. I mean, it's clear to me now we are the service, quality, technical support leader in the market. You know, we inherited a strong and deep leadership team. And you combine this with the strong business team we have in the U S you know, I am convinced we will build a global leader and metal packaging. So, uh, none of that's changed. And then being directly involved with the business, I have even more confidence at this point that, uh, we will do, as we said, we would do. Very helpful. Thank you guys.

Your next question comes from a line of Anthony from city. Your line is open.

Uh, good morning. I'm wondering if you could talk a little bit more about any potential tariff impacts, whether you're seeing them directly, maybe in terms of steel or how your customers are positioning the food can, or maybe indirectly in terms of consumer behavior, or just any impact that you're seeing directly or indirectly on any of your businesses.

Yeah, thanks, Anthony. You know, of course, I don't think there's many people that like tariffs. We certainly don't. We're doing all we can to mitigate those. And we've said this multiple times. But unfortunately, they're happening, and we have efficient ways to push those through. I'd suggest to you that our customers are saying that this is certainly going to be an impact in retail. You know, when you start looking at the numbers, it doesn't sound material, but when you do it by volume, it is material. So, more to learn in terms of how that impacts the consumer. Ultimately, our expectation is if there's a slowdown, and it's not going to be just in our categories. It's going to be throughout retail, throughout grocery. But we say if there's slowdowns, it drives consumers to the center of the store. And that's been something historical within our paper can business and our closures business. And probably see more upside than downside, if you will, in that regard. Jerry may want to talk about what we're seeing in terms of a financial perspective, just what is the magnitude of the numbers, et cetera.

Yeah, I would just say we've been able to mitigate the impact thus far on our from an EPS standpoint and from a margin standpoint, and that's our expectation going forward, that we would, you know, anticipate fully recovering that on the P&L side. And we are seeing some impact of that on the balance sheet, as we talked about earlier, just the impact of, you know, higher carrying levels of network capital balances.

Got it. Got it. That's helpful. And then maybe switching gears on the industrial business, maybe just two very quick questions. Pulp and Paperweek recognized, I think, most of a URB price increase. And I'm wondering if you can remind us on kind of the flow through or timing around that. And then you called out strength in reels, which I don't think you've necessarily called out before in the slides. I'm just wondering...

what's driving that and you know maybe how big of a business that is for you on the industrial side thanks thanks anthony uh on the uh on the urb pricing we're going to start seeing uh benefit uh healthy benefit in the third quarter growing into the fourth quarter um so the timing of those increases coupled with the as the market increased which was was uh um fairly fairly um um successful in terms of getting through to the market um is is going to both both cases be favorable again building uh through the course of the of the end of the year and in the next year real it was a point out uh it's not not necessarily very large business for us uh But it's just a highlight. It's a very profitable business. We're number one. And we don't talk about it a lot. It's been embedded in our industrial converting business for a long time. But because of the growth that we're seeing with fiber, I'm not a technical guy. So fiber optics and this overall energy shortages that are throughout North America, We're seeing heavy demand. We're out of capacity. And it's important for us to note to our stakeholders that we are putting significant capital to maintain our large market share in that business. The relationship to it within our industrial is we take the scrap and use it to make core plugs for our urban core business. We sell into it with paper tubes for barrels. So it is definitely a great fit within our industrial business. And again, because of the capital and the improvements we see there, just wanted to point that out.

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

Your next question comes from a line of Matt Roberts from Raymond James. Your line is open.

Hey, good morning, everyone. Thanks for the time here. Howard, you just discussed some of the timing of the URB price, and I know you also gave – you all talked to the bridge earlier, but could you quantify maybe how the guidance bridge has changed versus last quarter? How much incremental from that URB price or lower OCC cost? And then – Additionally, maybe how FX has changed, and I think productivity stayed similar at $65 million, unless I'm wrong there.

Right. Great. Jerry Hanlon, you're right on productivity. Yeah, Matt.

Let me take the URB question first. As we've said previously, about every $10 movement equates to about $6 million annualized benefit to us. from that URB movement. And we've modeled that to start happening in the third quarter. So we do expect to see that flow through of that, you know, $40 ton movement that happened, you know, could start kicking in.

Ten dollars.

Yeah. Yeah, each $10 represents about $6 million of annualized benefit is what we've shared previously. On the FX front, you know, we're looking at that number going forward somewhere, you know, call it, you know, on the Euro to the U.S. dollar, somewhere between $1.17 and $1.18, and we ended the third quarter at $1.13.

Okay. Thanks, Jerry. Appreciate that. Justin Cappos- Research engineers, I guess, a thermos safe selling volumes were positive and to Q, could you quantify what that was and what type of volumes you all are expecting and second half there, I believe there were some exciting growth opportunities and confirm the products in that business and i'm. Maybe versus, you know, 2024 investor, Dan, I know a lot has changed, but, you know, how have conversations, you know, potential suitors of that business, whether that, how have those changed, whether that be buyer appetite or just general business performance for most safe overall? And it might be a little early, but not sure if you'd care to throw out potential goalposts on what a pro forma leverage could be factoring in at sale there. Thanks again for taking the questions.

Yeah. You're correct. We've had some good wins, and we're onboarding those right now. I really don't have the detail exactly which products and markets. I believe it has to do, again, with the continuation of the expanse of GLP-1 and how they are now starting to ship. That has added nice growth, and... The profitability is going to continue to improve as we onboard that business. As far as the process goes, as I said, we're getting ready to go. The expectation is that we intend to have something signed by the end of this year. Really, at this point, I'd be guessing and not sure to We'll talk about what type of yield we get off of that and how that impacts our overall leverage, certainly in a positive way.

Fair enough. Appreciate it, Howard. Fair worth of trying, nonetheless. Thank you. Yep, thanks.

Your next question comes from a line of Mike Roxman from Truist Securities. Your line is open.

Yeah, thanks, everyone, for taking my questions. And congrats on the new role, Paul. I look forward to working with you. One quick question, just following up on John's question regarding S&P and EMEA and EBITDA generation you expect this year. I think when you announce the deal, I mean, I think, Roger, you mentioned that there's going to be up year over year. And I think a couple of quarters ago, you mentioned that the business itself would achieve EBITDA 430 million after 390 million of EBITDA last year. So I know you mentioned you're still expected to be up, but do you expect it to achieve that $430 million that you laid out a couple of quarters ago?

Yeah, Mike, as you know, we don't share business-specific profitability. What I will say is that certainly EBITDA will be up third quarter, year over year, as expected and as in the forecast. You know, you have the bridge. You got the profitability bridge that we put out with the announcement. And I will just repeat, we're pleased with where we are. Volume was softer than expected in the first half. We expect a nice recovery in the second half. And confident that we'll get to the levels and return on that business that we expected. One half doesn't make a year and doesn't tell the story of an acquisition. So there's nothing at this point. that I would say would lead us to believe that we're not going to get a return, a good return on that acquisition, as expected, and deliver the value to the shareholders.

Thank you. And just one quick follow-up. Can you just help us understand the factors affecting your revised guidance? You're maintaining EBITDA, but EPS is coming in at the lower end of your previous guide, and it seems like interest expense should be favorable in the second half. So can you help us, walk us through Paul, you're going to wind up at that low end of your EPS guide while maintaining EBITDA and you have better interest expense. Thank you.

Yeah, Mike, this is Paul. So I want to reiterate, too, we're really confident in our guide around our revenue and EBITDA. So we have really strong sales and our performance in North America and consumer businesses and industrial businesses that are there. But we did experience some softness and some weakness in international markets that were out there in the S&P and MEA. So that factored into our first half performance. You combine that with the tariff impacts as well. really led to macroeconomic uncertainty. So if you think about from a revenue perspective and EBITDA perspective, really confident. Now, EPS, let me switch gears to that. This was brought down primarily due to the interest expense that we experienced in the first half of the year. So Jerry talked about in his script, it was about $0.07 higher in the first half of the year. That was more than what we anticipated. That will pull through, and it does bring down our overall EPS guide for the full year that's there. but we are going to have a benefit in the back half of the year. As Howard and Roger both said, our Q3 is our strongest quarter that's out there to really are confident once you get back in that EBITDA and the revenue perspective, but EPS is really impacted by the interest expense that's out there. And then operating cash flows, we did lower that guide down as well to the low end of that range, mainly due to the usage of the networking capital, primarily as a result of the material inflation that Jerry had talked about in his results.

Thank you.

Your next question comes from a line of Gansham Punjabi from Baird. Your line is open.

Yeah. Hey, everybody. Good morning. And, Paul, my congrats to you as well. I look forward to working with you. I guess, you know, if you look at the consumer segment, kind of zooming out on a legacy basis, so, you know, setting aside EVOSs for a minute, you know, volumes are off to the best start in, you know, several years. And I'm just curious as to, Your thoughts as it relates to the sustainability of that in context of, you know, big food obviously porting very weak wild volumes, the consumer being impacted by affordability, and maybe some GLP-1, et cetera. So how are you thinking about the sustainability of that? You know, obviously this year has been led by the metal food can business, but just share your thoughts on that.

Yeah. So, gosh, thanks. You're right. Year to date, Q1 was strong. Q2 was strong. And we see that maintaining itself through the end of the year and frankly flowing in the next year. And you're right again, as it relates to the strength that we've seen in our S&P U.S. business. We've talked over and over again in terms of how much investment that we've got going on right now on the remaining part effectively of our consumer side, which is our paper can business. We've got... A new plant starting up in Mexico right now that's just, in our terms, starting to pull paper, just starting up. Similarly, in Thailand, we have assets that are going in place literally around the world, Brazil, the United States. It's all incremental, and it's going to take time, as in any capital deployment to get these up and running. On the foundation of the business, you know, again, bullish, you're seeing new products in the marketplace today. I won't really talk to them. I don't want to talk to customers, but the expectation is, and we're not forecasting, you know, major or big double digit type growth rates it's going to be incremental and it's going to take us time as these assets come on board and as these products continue to loss to launch from a glp perspective i don't think we've seen anything there uh i can't say that definitively i think most of if there's any any type of uh softness uh it's the balance between new wins growth and just some of the legacy products dating back for decades that have been in slow decline that we don't see that changing. So what we do see is that the growth will overtake that in the growing quarters in years.

Got it. Thank you for that, Howard. And then, you know, as it relates to ebiosis, I mean, obviously the first half, you know, it's played out slightly differently from a volume perspective. You know, you can't control where the fish swim, if you will, and the fish catch, et cetera. But can you just give us the specifics of where you are on the synergies relative to plan? What's been done so far? And just having another quarter of the business under your belt, how are you thinking about the $100 billion of synergies and maybe some upside to that relative to your initial forecast for 2026?

Yeah, gosh, Miss Roger, I feel really good about it. I think we've mentioned that a couple of times in our opening comments. We've raised the run rate for 2025 to that $40 to $50 million level. And just a reminder, you know, we closed the deal late in December, so we were not able to negotiate a lot of raw material synergies that we were looking for in 2025, and those will hit in 2026. So I would say we're ahead of the game. You know, what's encouraging about that is a lot of those are non-raw material synergies that seeing in that $40 to $50 million. So at this point, we think there's upside to the $100 million. You know, we're starting to have those discussions now about 2026 from a raw materials standpoint. So at this point, I see no reason why we would not hit and or exceed that $100 million level. You know, the team is executing extremely well, as I said before. are really focused and looking at a number of other non-raw material opportunities, but those have exceeded our expectations to this point.

Thank you. Your next question comes from a line of Mark Weintraub from Seaport Research Partners. Your line is open.

Thank you. First of all, thanks, by the way, for reinstating the sales and adjusted EBIT beverages at the end. Those are very helpful. On slide 17, the full year financial outlook, on the left side you've got upside-downside risk, and then you have the six variables. But it seems that those are sort of the drivers of what created the adjustment in your kind of guidance. So I'm just trying to understand, are those to be seen as the drivers that have created change in what you're now telling us, or are those things that you think could impact the The numbers that you are, the updated numbers, a little unclear to me on that.

Yeah, so Mark, great question. So go back into, and I'll start kind of at the bottom of the operating cash flow. So if we look at our usage of net working capital, that is a true update to the guidance that's out there. We did have more usage of our net working capital related to material price inflations that are out there. So that is a true change for us. And if you think about the interest expense that is out there, too, that is a driver of why we lowered the EPS range that's down there. So those are the drivers that are there. Now, if we go into it and we look at the upside of that, too, is we'll say is we do have some things around our crick's cost controls. We will control our controllables and softening markets and things like that as demand. So those are things that we can do to help enhance the outlook that's out there. But right now. So those largest two items around the interest expense and networking capital is what did bring the guy down on EPS and the networking capital or operating cash flows.

Gotcha. So then the other thing is obviously we've had a big move in the dollar. And so two questions on that. So what's the sensitivity? So for every... one cent move in the dollar-euro exchange rate? I mean, we know EBITDA at the former EBIOSIS, you know, order magnitude 400 million. So you might say just on conversion, that's $4 million. And so we've had like a, you know, a pretty significant move there. And then are there offsets? Because I do know you have some financial instruments, et cetera, which maybe create offsets. So two questions. One, How should we think about the sensitivity to dollar-euro moves running through your financial statements and to what you have embedded?

Yeah, Mark, this is Jerry. Yeah, on the sensitivity, you know, on the euro to the U.S. dollar, every penny equates to about, you know, two and a half cents of movement on EPS on an annualized basis. And as I mentioned earlier, what we've modeled going forward for the second half of the year is that Euro between $1.17 and $1.18. Okay.

And because I believe at the start of the year, you were thinking like $1.05. And now we have, you know, that's, so that would suggest that we got like 10 or 15 cents of, you know, averaging it out of, benefit from the exchange rate. And so that's already included in your updated guide. Is that the correct way to read that?

Yeah, that's embedded in our guide. And yes, we did begin the year with that URL at $1.055, call it $1.06. Okay. Thank you so much.

Your next question comes from a line of Gabe Haught from Wells Fargo. Your line is open.

Paul, look forward to working with you. Howard and the team, good morning. There's been a lot of moving parts in the organization. I don't think anyone would debate that. And I think shareholders today are worried about what's going to happen maybe on a go-forward basis. I'm just curious if you're willing to comment at all on some of the big moving parts. into 26. I mean, you alluded to some business wins in S&P EMEA. Obviously, the North American metal food and aerosol business is performing well. So, from our vantage point, a couple things that are obvious. You talk about run rate synergies of 40 to 50 and escalating to close to 100 by the end of next year. So, call it incremental 40 to 50 next year. If I flow through the URB hike, call it 10 million bucks positive. You're working really hard on productivity. You're doing 65 million this year. Maybe there's 50 to $60 million of productivity. Yes, I know there's the inflation treadmill. And maybe we can get a little bit of volume growth in the composite container business once that big customer transitions. So I'm just curious if there's other things that we should be thinking about. And again, you guys can't control FX. You can't control the macro, but maybe we can be out of the industrial winter as well. So just anything you can help us in EBTA terms, bridge 25 to 26. Thank you.

Hey, Gabe, I think you did a great job of kind of covering the moving pieces going forward into the second half of the year. You know, if you really talk about, yes, I mean, there has been a lot of activity over the last, not just orders, but years. And we're at the point of now ending and normalizing the portfolio with a focus on a lot of things, but one of which is leverage. And I think we've made really nice movement here in the early part of this year. And I've talked about ThermoSafe. That, too, is going to be another benefit on a go-forward base. But in terms of just from an EBITDA perspective and the puts and takes for the quarter, I can't tell you how bullish I am. If you just look at the first half, Who would have thought that Sunoco is going to be running at north of the 17% EBITDA margin? The metrics and the execution across the core of the business is exceptional. And as we've noted, there's been spot issues in terms of volume, ups and downs, but our team continues to deliver. I'm even more bullish, particularly as we get into the second half of this year with the traditional seasonal upticks that we see, and now we're going to be able to leverage that. I think Jerry and Paul have done a nice job of talking about below the operating profit line in terms of interest and the improvements that we expect to see. We noted the the FX implications. But I guess I'm here to just say that I'm proud of the team and all of what they've done and continue to do. And we're sitting in a better position than this company ever has been. And a very difficult operating environment and with a lot of change. And I'm going to repeat myself, but the culture of the company is alive and well. And even though we've been through this much change, but the future looks extremely promising.

Yeah, and Gabe, I would just add cost, right? I mean, we've talked about getting the stranded cost out. We're on that, but with the new three global segments, the simplification of the business, a lot of efficiency opportunities around procedures, how we get things done on a day-to-day basis, where we operate some of those support services. So a real focus on cost that should also impact 2026.

Right. Well, I think you called out 20 million of annualized savings there. OK. And then maybe one last one as it relates to taxes. Obviously, you talked about a net number and you already redeployed those proceeds of the pay down debt from TFP. But any other tax items that we should be mindful of particularly given the passage of tax legislation here, if anything changes for you on the cash tax side?

You know, from a tax standpoint, we expect the full year rate to really come in at approximately 25% that we, you know, that we modeled in at the start of the year. And, you know, the tax legislation, the impact of the, you know, beautiful bill, you know, we don't see that having a significant impact on us in 2025. Got it.

Perfect. Thank you.

Your final question comes from the line of Anoja Shaw from UBS. Your line is open. Okay.

Hello?

Can you hear me?

Hi. Hi. Just a quick clarification. I don't know if I caught it, but you do have a lot of CapEx projects going on. Did you give some sense of how much your CapEx is expected to step up in 2026? Did I miss that?

A little early to talk about that. I don't see it stepping up materially. We if you go back a number of years ago we we were running in 100 170 to 190 and uh we we ended up around 360 last year and that's our forecast for this year um the beautiful thing is we've got a lot of growth customer assigned capital we'll see how that looks uh going into 26 uh any major win could mean where we move we may need to pop up to support some some serious growth. So we'll just see how that plays out. But this year is right on top of last year. Your modeling, I would go there. But really, too soon to say.

Okay. Thanks very much. I'll turn it over.

And that concludes our question and answer session. I will now turn the call back over to Roger Schrum for closing remarks.

I want to thank everybody for your participation today. And as always, if you have any further questions, don't hesitate to give us a call. Thank you.

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