Sonoco Products Company

Thank you for standing by and welcome to the Sunoco first quarter 2026 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star one. Thank you. I'd now like to turn the call over to Roger Shrum, head of investor relations and global marketing communications. You may begin.

Thank you, Rob, and good morning, everyone. Last evening, we issued a news release and posted an investor presentation that reviews Sunoco's first quarter 2026 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 later today, and we'll post a transcript later this week. If you would turn to slide two, I would 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 operation. 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 today are Howard Coker, President and CEO, and Paul Johimchik, Chief Financial Officer. For today's call, we will provide prepared marks followed by your questions. If you'll turn to slide four in our presentation, I'll now turn the call over to Howard.

Thanks, Roger, and good morning, everyone. During our February Investor Day, we set up a framework for our focus strategy over the next three years, which is linked to our three priorities of sustainable growth, margin improvement driven by our profitability performance plan and efficient capital allocation, which is focused on investing in ourselves, debt reduction, and returning value to our shareholders. We made strides in each of these priorities in the first quarter while achieving a solid start to the year, despite some significant headwinds. Paul will go through the numbers in more detail, but as shown on slide five, our adjusted earnings for the first quarter of $1.20 met our and consensus estimates. This performance was primarily driven by strong productivity savings, favorable price-cost environment, and a successful start to our profitability performance plan despite lower volume mix. I was really proud of our team's performance in the first quarter, despite severe winter weather, which temporarily closed some of our customers and our operations, a fire that destroyed a recycling facility in Greenville, South Carolina, and the effects of rapidly changing macroeconomic conditions stemming from the Middle East conflict. Our consumer packaging segment exceeded our expectations during the quarter, but our industrial paper packaging segment managed well through both operational and demand challenge. As I mentioned, severe winter weather disrupted several of our U.S. operations in late January, as well as some of our large consumer customers who face power outages, some lasting over a week. February was a much better month from a volume perspective, but with the onset of the Middle East conflict, we began experiencing rapid input cost inflation in March. And as I mentioned, an unfortunate fire in our Greenville facility on March 24. Thankfully, no one was hurt, but it did lead to a one-time cost of $2 million within a quarter. As you would expect, we're not standing still in the face of these macroeconomic challenges. If you turn to slide six, I'll talk further about the steps we're taking to mitigate rising costs and ensure supply for our customers in this challenging inflationary environment. Energy and freight and other petrochemical-related input costs, such as resins, coatings, and other chemicals, represent approximately 10% of our annual sales, while the impact on the first quarter was under a few million dollars. Based on current estimates, we believe this inflation could add between $8 to $10 million in additional costs in the second quarter. We are leveraging our global sourcing and supply assurance team to do all we can to help offset these rising costs. That said, we must recover this inflation and have implemented a number of necessary price increases, including a $70 per ton uncoated recycled paperboard increase in the U.S. and an 80 euro per ton increase in Europe, along with other pricing actions. These actions are showing traction in the market. Fast markets reported last Friday an initial $60 per turn increase in USURB prices. Given our current backlogs and solid mill utilization rates entering April, we feel confident about the sustainability of our actions. As shown on slide seven, we have purposefully shifted our mix to more resilient consumer-focused businesses For today, two-thirds of our sales were generated by our leadership positions in paper and metal cans. We're focused on affordable, center-of-the-store, faithful food categories, which have historically remained resilient during periods of economic stress. I'm happy that our recent portfolio work has substantially reduced our exposure to resin-based packaging. In 2023, we used approximately 240 million pounds of petroleum-based resins, while today we use only about 75 million pounds, primarily in our industrial plastics business and our plastic cartridges for adhesives and sealants, where we do have recovery mechanisms in place. As it relates to our growth pillar, we recently opened a new paper can plant in Nongye, Thailand. As shown on slide eight, Paul and I had the opportunity to participate in the grand opening with our team in Asia in March. This highly automated operation is expected to annually produce approximately 200 million units for the growing stacked chip markets in Asia. And it's one of the reasons we saw a 6% lift in paper can volume in the region in the first quarter. This plant was built to accommodate future capacity expansion, and we believe it could eventually become one of the largest global paper can operations over the next several years. In our industrial business, we are investing $20 million to add a new automated nailed wood reel production line at a hard cell Alabama facility. As shown on slide nine, when this new line opens at the end of the second quarter, we expect it will increase our capacity by 15% and able us to meet the needs of the fast-growing wiring cable industry as it supplies the booming power infrastructure demand for AI-centered work. I'll add that sales in our REELS business were up 13% in the quarter. In addition to funding Our growth, our disciplined capital allocation strategy remains focused on reducing debt and returning capital to shareholders. As shown on slide 10, last week our board of directors authorized the 43rd consecutive annual increase of dividends to shareholders, raising the payout to $2.16 per share, which provides an annual yield of about 3.8%. Sunoco is one of only a few public companies that has paid dividends consecutively for more than 100 years. In summary, we had a good start of the year despite challenges, and we remain confident in our portfolio, our strategy, and ability to execute through economic cycles. With that, I'll turn it over to Paul.