greater upside as market conditions improve. I want to thank our employees around the world for their continued dedication, commitment, and outstanding execution. Their efforts are the foundation of our accomplishments this quarter and give me great confidence in the opportunities ahead. With that, operator, let's open the line for questions.

Certainly. At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. We do ask to please limit yourself to one question and one follow-up. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Your first question for today is from Anthony Pettenari with Citi.

Good morning. You indicated that Waco is ready to produce URB. I'm wondering if your full year guidance assumes any URB sales in 26, and if so, how much?

And then just kind of any thoughts on how that business could ramp into 27.

Yeah. Hi, Anthony. thank you for your question. It does assume a modest, a small amount. We have our first orders in a couple thousand tons, and we have qualified URB for several other customers, and we're waiting for more orders. URB allows us to enter a large and attractive market. We have an immediate addressable opportunity in folding carton, laminations, and related applications, such as edge protection, folding carton applications, slip sheets, dividers, laminations. And we've just launched Paste Setter Ridgeline, which is made from 100% recycled fiber. And we do believe there's some meaningful growth potential. We're estimating that to be 100,000 tons or above for the company, supported by both internal demand, because we also use URB as a company, and incremental external market opportunities. So we see strong interest from the customer. It's early days. Our engagement and qualification efforts are progressing well. And the market receptivity is really supported by very tight industry supply conditions. and also the lamination qualifications that are expected to conclude in the fall. So, as I said, we have a couple thousand tons of orders filled so far, and it is a natural extension of our recycled platform. We have available capacity, and we have the operational flexibility to serve both CRB and URB. And, you know, this will help our production mix at Waco. It will be driven by market demand, return optimization, and allows us to balance service levels for the existing CRB customers and capture the growth in URB.

Okay, that's very helpful.

And then just shifting gears, I think inflation expectations, you said we're going from $60 million to $150 million. I'm just wondering if you're assuming any further inflation in OCC and or freight, or do you just kind of assume those levels hold flat through year end?

Yeah, this, Chuck, I'll take that. So overall, the way we approach our inflation forecast is, of course, we look at published indexes, forward curves, and other market pricing. And so that is, we do look at all of that. As we talked about in Q1 and looked at inflation in Q1, we had expected more of a moderating based on those trends. And now we expect inflation to stay higher for the rest of the year. So the silver lining in all that is, of course, the surety of supply conversations that have now started with our customers, and they're much more receptive to pricing. But they do see the inflation that we're seeing, and that's in the areas of logistics, converting materials, secondary fiber, and that's all items that are easily visible in the industry.

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

Your next question is from Mark Weintraub with Seaport Research Partners.

Thank you very much. I was hoping to maybe just get a little bit more clarity on the pricing, which you went through pretty quickly. Chuck, I think you referenced $145 million at one point, if I heard correctly. Could you could you re-explain what that was and how how this all breaks down and really trying to get a little trying to understand what's included for this year and sort of what our starting point going into next year would be if we just take into account what you're expecting to have in place through the balance of this year?

Yeah. So the $145 million is really just the annualized view of the $60 million that we expect to see in 2026. So that includes a few things. That includes the recognized $40 a ton on bleach folding carton, the $60 a ton on cup stock, the contractual price recoveries, and then the $1 billion of business that we have where pricing is not determined by a contract. So that's the flow through of all of that. As I mentioned, we have other pricing in the marketplace, and that's all embedded within the forecast, the outlook, and that's in the 145. We have other pricing in the marketplace, as I went through in the prepared remarks, and if all of that were recognized, that would be over $200 million of additional annualized, but based on timing of likely recognition, not expected to have a significant impact on 2026.

Super. So basically, if I understand correctly, so we got all the actions in place, $60 million this year, so then another $85 million essentially would show up in next year to get us to the $145 million. And then you have this new set of increases, which if successful would be additive to to the tune of up to $200 million on an annual basis. Yes, you got it.

Exactly.

Okay, great. That's very helpful. And maybe just if I could on this, so certainly we've heard others in the market out there on SDS. Can you, are you, to your knowledge, the first on the, and actually on URB as well, but are you the first and only right now to your knowledge on the UK and on CRB?

On recycled, we just went out yesterday, and I haven't heard that anyone else is out yet. And on the majority of unbleached, yes, we were the first out with that as well. The uncoated unbleached, somebody was out with that previously, but the majority of the unbleached were the first out with that as well for the second round.

Gotcha. Appreciate the help.

Your next question for today is from Detlef Winkleman with J.P. Morgan.

Morning, everyone. Maybe just a follow-up, just to make sure I understand. I got the impression that some of the production curtailments had potentially been moved from 2026 into 2027. Firstly, did I understand that and hear that correctly? And then, you know, kind of secondly on that, can you quantify that?

Yeah, so, yes. Delift, this truck, I'll take that. I think the way to think about it is we adjusted our inventory expectations and then the downtime expectations as well. The downtime expectations we now expect to be around $90 million for the full year, but the inventory expectations we also adjusted as a result of the unbleached issues that We talked about where the planned maintenance was in the quarter, and then also the January weather impact and the other operational issues that are causing us to take a different strategy towards unbleached at the end of 2026. So a couple of things really going on in the inventory guide, but the downtime is lowered to about $90 million for the full year. Cool.

Thanks very much. Yep.

Your next question is from Gansham Panjabi with Baird.

Yeah, hi, everyone. You know, Robert, as you look out to the back half of this year, do you anticipate any change in how your customers are approaching their focus on price versus volume, you know, just given the step up in inflation year-to-date with energy costs and, you know, pretty much everything else? I know you maintained your volume outlook for the year, but just in terms of conversations with customers, do you sense any change coming?

Yeah, Ganshan, let me give you a high-level customer, and then I'd like to, if you're okay with that, go into quickly into subcategory level. With regards to the overall, you know, we do see the overarching theme remains a strong focus on driving volume and share recovery for the branded players, given the private label growth. The secondary theme, though, that we are starting to see is pricing to offset higher commodity inflation in the second half of 26 and into 2027. And our customers continue to simultaneously invest in promotions to drive traffic and share. But we do see a focus shifting a little bit from volume growth to profitable growth. What we heard, and I want to refer to a couple of the calls that were just done, earnings calls, We heard a very strategic intent to return categories to volume growth, moving from heavy investment and value price points to a focus on innovation-driven mix for the next 12 months. From one of the largest F&B players, we heard leveraging a sophisticated price-back architecture to balance must-buy promotional frequency with a variety of pack sizes as well from another one. So it's a little bit of a combination. Now, when you go to the category level, we do see pretty stable demand signals with some pockets of strength. We're seeing select growth across large customers and key segments, particularly in the center of store staples. So food, health, and beauty remain growth drivers. We saw a pretty resilient demand for value-oriented staples like cereal, pasta, rice, and snack bars. We saw strength in ready-made meals, and we saw strength in premium personal care products. We also saw some growth in the international markets. We saw that with dry tea and premium health and beauty categories, and we see a continued wellness and personal care trend. We also see challenges. Household remains challenged. Food service remains challenged as consumers shift more consumption towards meals prepared at home. And then one of the bright spots was pet food. We saw a year-over-year growth for the second consecutive quarter, despite some softness across other household categories.

Okay, great. Thanks for that. And then, Chuck, I'm sorry if I missed this, but what are you now assuming for a working capital benefit in 2026 relative to your revised free cash flow?

Yeah, that's helping us bridge to get to the current cash flow range. So the cash flow is, of course, negatively impacted by the EBITDA driven by the inflation and then also the lower inventory. But we are working other working capital initiatives around payment terms and around receivables to be able to offset that.

Okay, thanks very much.

Your next question is from Gabe Hottie with Wells Fargo.

Good morning, Robert, Chuck. Thanks for taking the question. I'm curious, as you look at the URB opportunity, I don't know, from a margin perspective, or maybe EBITDA per ton, can you talk about maybe what that looks like? Our math maybe suggests something in the $200 to $225 a ton range, but just curious how you guys are looking at it. And then any sort of early read on potential, I guess, impacts from the new distribution partner that one of your peers has for a recycled board in North America?

Yeah, let me take those one at a time, if you're okay with that. And Gabe, thanks again for inviting us to your conference. We had a great time. With regards to the margin expectations, we believe that our incremental demand for uncoated recycled board and the rising utilization at the Waco mill will result in higher EBITDA overall. It'll drive better margins and faster returns on the investment, and it'll drive stronger margins for the recycled platform overall. So really what it is about, it's balancing the system to maximize profits. And, you know, when you look at the decision we made to get into URB again, remember, we used to make URB at Middletown. The decision really reflects a pragmatic approach to accelerate value creation through flexibility. The flexing between the production of these grades will allow us to maximize both earnings and cash flow as well. And we maintain the long-term value of the asset. The production of CRB and URB are very straightforward, and we have a long-standing experience making URB at Middletown. So we can do both, and it will drive profitability at the system level. It's very low on CapEx. For what we're doing right now, there was no material CapEx required for these folding carton trials. And over time, we could probably expand to other applications like tubes and cores that would require some capital investment. Now, with regards to the additional, you know, volume coming into the market, we tend not to comment on competitors. But this is existing volume that's been in the market that's just looking for a new distribution channel. We don't think it's going to affect the markets in a major way.

Thank you.

And then slide four, the one thing that kind of jumps out at me was I would have expected food service in the second quarter of 26 to be pretty strong, given the on-premise trend that we saw with World Cup. I understand household, but that was the one that went more negative.

I don't know if there's some if this is related to the the Cuk issue I don't think it should be and then maybe just sort of expectations for the second half in food service specifically yeah it's an excellent question we we had hoped for a stronger quarter of food service overall for the industry we do see a shift back to meals prepared at home that tends to be driven by inflation and overall pressure on the wallet. And as we look forward, customers, we believe, will continue to run promotions in food service and limited time offers to drive volume. And, you know, there is this consumer affordability element to the QSR space. And so the way we look at it is we have to play in both food and food service because of these portfolio shifts. We've seen that before over the last five years, and we need to be able to grow or at least maintain volumes in both of these scenarios.

Thank you.

Your next question for today is from Hilary Caconando with Deutsche Bank.

Hi. Thank you for taking my question. So, just looking at your leverage ratio of 4.7 times, it looks like it's getting close to the covenant. Am I right in that your covenant steps down to 4.75 times, I guess, after December? And so, I guess, with that getting just close to covenant, how do you plan to address that?

Yep. So, a couple of points on that. First of all, our covenant leverage ratio is usually about 25 or 30 basis points better or lower than our printed leverage ratio, just the way the calculation works so so there's some natural headroom there but just to clarify what that what the amendment did it we have a five times covenant until the end of second quarter 2027 so it actually actually goes out into 2027 oh got it okay okay so then after that after 20 in the middle of it goes down to, what, 4.7?

4.75?

4.25 back in Q3, and that'll, of course, be after we pay down all the debt we expect to pay down this year and then drive the 2027 to EBITDA.

Okay, got it, got it. And then just going back to URB, I know you said that the volume, it's really existing volume it's not really going to impact the market at some point do you plan on getting much bigger in this space where it could have an impact on the volume?

The reference to the volume coming into the market was a reference to Mexican volume on coated recycled board that is going to be distributed by one of our competitors that we usually do not provide commentary on On URB, there's some tightness in the market, and we're entering with, you know, our grades to take advantage of the growth in that segment.

Got it. Okay, great. Thank you very much.

Your next question for today is from George Staffos with Bank of America.

Hi, everyone. Thanks for the details. I had two questions. The first is really a bridge to the second half, and then the second one is a question on Waco and where it sits in the industry. In terms of the bridge, Chuck or Robert, and I appreciate your comments earlier, can you talk a little bit about what the big buckets will be in terms of the step up, if you can quantify them at all, from the first half to the required second half EBITDA that you're targeting? In that regard, can you talk a little bit about how much productivity will add to that, and what the mix effect might be, either positive or negative in terms of your end market trends. The reason I bring it up is, you know, food service traditionally, I recall being pretty high margin for you relative to center of store, and I'm wondering if that is a drag or not that big of a deal. The second question is, with Waco, you know, when the mill came on, obviously, was positioned as really a primary packaging-grade mill and sub-trade producer. We understand why you want to use some of the capacity for URB. Where would Waco sit on the cost curve relative to the rest of the capacity that's out there for URB? Are the trim optimize over time. Thank you very much and good luck in the quarter.

Hey, I'm George. I'll take the first part and then maybe Robert take the Waco part. On the bridge from first half to second half, yeah, as you mentioned, we covered that in the prepared remarks, but I'll just build a little bit more and try to give you some quantification. So first of all, several items that are favorably impacting the second half versus the first half and that we don't expect a repeat of the downtime due to weather that we had in Q1. We also had some other non-recurring items in the first half, and that all totals about $40 million. The pricing, as I talked about, would improve, and we've quantified that at $60 million. And we also, as you said, expect favorable mix. Food service is a part of that driver, but just back half mix will overall improve as well. And, of course, we'll continue to push for more pricing, given that we see continued inflation into the business. The $85 million of cost savings that we talked about, that adds about $15 million in the second half versus the first half, and as you saw us do in Q2, we'll, of course, push for additional cost savings, including procurement opportunities. Maintenance outages are favorable in the second half by about $10 million, and then other operating improvements, including I know Robert's going to comment on Waco. Waco is one of it, and then are just some of our normal continuous improvement initiatives. Those are all, of course, offset by the additional inflation, about $75 million of inflation, first half to second half, and then the lower volumes due to seasonality. So lots of moving parts and pieces, but where I think you'll really see it show up in our financials and our bridge is in the performance line.

Okay, and point of clarification, mix will be positive even with food service being weak. Would that be right?

Well, I mean, yes, yes, we expect that. I mean, food service hot cup season kicks in in the back half, and so maybe weaker than last year, but mixed still is positive first half to second half.

Gotcha.

Thank you, Chuck.

Hey, George. This is Robert. I just want to talk a bit about Waco and your question. So just a quick reminder, we closed Middletown and East Angus. We took about 280,000 tons out of the market. We had already closed TAMA and K3 at Kalamazoo. That was another 200,000 tons we took out. So when we added Waco, when we built Waco, we added 270,000 tons of capacity versus the system that we had in 2025. So that's just a quick, quick reminder of the capacity. We are very flexible, as I said, in Waco. With regards to URB, our caliper is 14 to 30 points. You know, we call it pay-set-a-ridge line. It is 100% recycled, and it's got at least 45% of post-consumer recycled content. And that particular grade is really usable due to the caliper profile and the surface appearance, as well as the compression, to things like edge protection, folding carton applications, slip sheets, dividers in beverage containers, and laminations. So that is a relatively sizable, addressable market that we can go into without any major capital investments and that we are currently already producing. And as I said, we have a couple thousand orders already on the books.

Okay, I'll turn it over. Thank you.

Your next question is from Phil Ng with Jefferies.

Hey, guys. But I guess first to kick things off, the incremental price increases you guys have announced for, I believe, C-U-K, C-R-B, one, can you give any color in terms of the magnitude of the increases? And then two, have you seen orders, backlogs, or any supply-demand dynamics that gives you perhaps more confidence this go around? Just because early in the year, you certainly got traction on SBS, but C-U-K was, at least the publications didn't pick up on it.

Yeah, hey, Phil. This is Robert. So we do see a tighter market than before, and we see as a result the industry fundamentals are improving, and that's resulting in price rolling through and catching up. We see in the recent AFMPA report that there are more and more backlogs across grades, which are really increasing. We've recently announced our second price increase on bleached cup stock and folding carton and unbleached. And now we've raised prices about 120 ton on each. We've also announced yesterday a 50 ton price increase on recycled paper board. You know, with the situation that we faced, it does warrant price increases and also, obviously, reflection of the inflation.

Okay. Powerful color, Robert. And then there's certainly Section 338 tariffs. We'll see how that all shakes out. But do you guys have any in-house view in terms of what potential impact it had in terms of trade flow and how impactful it could be for different grades? At least first flush, it could be impactful for SPS, unclear on CRB. But any more color you guys are comfortable sharing would be helpful.

Yeah, I mean, our researchers showed that that's about 200,000 tons of primarily FBB coming in. You know, the impact of it we'll, of course, see as time plays out. But I think that's the size of potential impact.

Any impact on CRB, Chuck? Is this just more of a FBBSBS dynamic, you think?

Yeah, there's just not as much that goes across the border, and so not a significant impact.

Okay.

Thank you for the call.

Our last question comes from Arun Viswanathan with RBC Capital.

Arun, your line is live. Arun, if your line is on.