Silgan Holdings Inc Q4 FY2021 Earnings Call

Good day, everyone, and thank you for joining the Silgan Holdings' Fourth Quarter and Year-End 2021 Earnings Results Call. Today's conference is being recorded. At this time, I would like to turn the call over to Kim Ulmer, Senior Vice President, Finance and Treasurer. Thank you. Please go ahead, ma'am.

Thank you. Joining me from the company today, I have Tony Allott, Executive Chairman; Adam Greenlee, President and CEO; and Bob Lewis, EVP and CFO. Before we begin the call today, we would like to make it clear that certain statements made today on this conference call may be forward-looking statements. These forward-looking statements are made based upon management's expectations and beliefs concerning future events impacting the company and, therefore, involve a number of uncertainties and risks, including, but not limited to, those described in the company's Annual Report on Form 10-K for 2020 and other filings with the SEC. Therefore, the actual results of operations or financial condition of the company could differ materially from those expressed or implied in the forward-looking statements. With that, I'll turn it over to Adam.

Great, thank you, Kim, and welcome everyone to Silgan's 2021 year-end earnings conference call. With 2021 in our rearview, having navigated the continued complexities of the pandemic, managed unprecedented inflation and supply chain disruptions, and with an eye to an improved future, I want to thank the entire Silgan team, point out a few of the 2021 highlights, and then provide a brief preview of 2022. Bob will then review the financial performance for the full year and the fourth quarter, and provide more details around our 2022 outlook. Afterwards, Bob and I would be pleased to answer any questions. I'd like to first express my gratitude and respect for the entire Silgan team and what we have accomplished together, including delivering another year of double-digit adjusted EPS growth, a 34% increase in adjusted EPS for the fourth quarter of 2021, versus the prior year record achieved in 2020. Most importantly, we've also achieved a 10-year compounded annual growth rate for adjusted earnings per share of over 10%. We've accomplished this performance as our employees have repeatedly demonstrated their strength and commitment and the power of our performance-based culture. Our employees have done everything possible to ensure our ability to continually supply our customers in a timely, efficient, and complete manner. As a result, we are able to achieve several important milestones in 2021 and are well-positioned for further growth in 2022. As you saw in the press release, 2021 was an exceptional year for the company. Some select highlights include achieving record financial performance: Revenue improved to $5.7 billion, driven by strong volumes; adjusted net income per diluted share of $3.40, up 11% versus the record prior year; free cash flow of $466 million or $4.19 per diluted share, each a new record for the company; improved our capital structure to facilitate further growth opportunities. In addition, we increased our cash dividend for the 17th consecutive year. We also invested in several growth initiatives that position us well for the future, completing strategic acquisitions of Gateway, Unicep, and Easytech, expanding commercial supply for a major pet food customer in Eastern Europe, investing in operational improvements to drive out costs, and improve customer service levels. Our business franchises are poised for further growth in 2022 as we integrate the new acquisitions, invest alongside core customers, and continue to improve upon our operational excellence. Therefore, as Bob will discuss in more detail, we are providing full-year guidance for adjusted earnings per diluted share in the range of $3.80 to $4.00, with the midpoint of this range representing a 15% increase over the record performance in 2021. Our free cash flow is expected to be approximately $350 million as we anticipate higher working capital, increased capital expenditures for growth investments with core customers, and higher cash taxes to more than offset the earnings growth provided. With that, I'll turn it over to Bob.

Thank you, Adam. Good morning, everyone. As Adam highlighted, demand for our products remains strong, as we saw year-over-year volume improvement in our Dispensing and Specialty Closures and Metal Containers segments. Each of our businesses did an outstanding job managing unprecedented inflation through unwavering price discipline and operational improvement, yielding significant cost reductions across the businesses. In addition, we completed three strategic acquisitions and are making good progress on their integration. As a result, in 2021, we delivered adjusted earnings per diluted share of $3.40; we delivered free cash flow of $466 million, a significant increase over the prior year of $384 million. On a consolidated basis, net sales for the year were $5.68 billion, an increase of $755.2 million or 15.3% over the prior year. This increase was the result of higher net sales across each of our businesses, including the pass-through of higher raw material costs across all businesses, and favorable foreign currency translation of approximately $40 million. We converted these sales into adjusted income before interest and taxes for the year of $598.7 million after adjustments of $15 million for rationalization charges, $5 million for costs attributable to announced acquisitions, and $2.6 million for the purchase accounting write-up of inventory versus $551.2 million in 2020 after adjustments of $16 million for rationalization charges, $19.3 million for costs attributable to announced acquisitions, and $3.5 million for purchase accounting write-up of inventory. The increase was primarily the result of higher unit volumes in Dispensing and Specialty Closures and Metal Containers, a more favorable mix of products sold, and the pass-through of other cost increases in Dispensing and Specialty Closures, strong operating performance across each business, the benefits from acquisitions completed in 2020 and 2021, and higher pension income, partially offset by the lag pass-through of higher raw material costs, primarily resin, higher costs associated with labor and supply chain challenges, lower volumes in custom containers, and a less favorable mix of products sold in metal containers. Highlights of adjusted segment income for each of our segments are as follows: Adjusted segment income in the Dispensing and Specialty Closures segment for the full year of 2021 increased $35.9 million to $269.5 million, primarily due to the inclusion of recent acquisitions, including the full-year effect of the Albéa acquisition completed in 2020, year-over-year volume growth, a more favorable mix of products sold, strong operating performance, and the pass-through of other cost increases. These benefits were partially offset by the unfavorable net impact from the lag pass-through of significantly higher resin costs, higher costs associated with labor and supply chain challenges, and foreign currency transaction losses. Adjusted segment income in the Metal Container segment was $263.6 million for the full year 2021, an increase of $7.1 million or 2.8% versus the prior year, as a benefit of approximately 4% higher unit volumes, higher pension income, and higher foreign currency transaction losses in the prior year were partially offset by the negative impact from operational inefficiencies, higher costs associated with labor and supply challenges, and more small accounts. Adjusted segment income in the Custom Container segment increased $4.5 million or 5% to $92.7 million for the full year 2021. This increase was primarily attributable to strong operating performance, cost control, and lower SG&A costs, partially offset by lower volumes of approximately 10% as compared to record pandemic volumes in the prior year. For the fourth quarter, we reported earnings per diluted share of $0.76, as compared to $0.54 in the prior-year quarter. Earnings per diluted share were adjusted by $0.03 in 2021 and by $0.06 in 2020, resulting in adjusted earnings per diluted share of $0.79 in the fourth quarter of 2021 versus $0.60 in the same period a year-ago. Net sales for the quarter were $1.44 billion, up $212.7 million versus the prior year, driven primarily by the pass-through of higher raw material and other manufacturing costs, higher volumes in Dispensing and Specialty Closures and Metal Containers, and a more favorable mix of products sold in the Metal Container and Custom Container segments, partially offset by lower volumes in Custom Containers and unfavorable foreign currency translation of approximately $10 million. Adjusted income before interest and income taxes for the fourth quarter of 2021 increased by $19.2 million to $133.3 million after adjustments of $2 million for rationalization charges, $900,000 for costs attributable to announced acquisitions, and $1.7 million for the purchase accounting write-up of inventory. The increase in adjusted income before interest in income taxes was primarily due to higher volumes and a more favorable mix of products sold in Dispensing and Specialty Closures and Metal Containers, strong operating performance across all businesses, higher pension income, and the benefits from recent acquisitions. These gains were partially offset by lower volumes and a less favorable mix of products sold in the Custom Containers business, higher costs associated with labor and supply chain challenges, and the unfavorable impact of the lag pass-through of higher resin costs in Dispensing and Specialty Closures. Turning now to our outlook for 2022, our estimate of adjusted earnings per diluted share for 2022 is a range of $3.80 to $4 with the midpoint representing a 15% increase over record adjusted earnings per share of $3.40 for the full year 2021, reflected in our estimate for 2022 are the following: segment income in the dispensing and specialty closure segment is expected to increase significantly over the prior year, primarily due to the inclusion of a full-year effect of the acquisitions of Gateway and Unicep, the cost pass-through benefits of a less volatile resin market, more efficient operating performance, a continued recovery in the beauty and fragrance markets, and volume normalization for hygiene and cleaning products. Segment income in the Metal Container segment is forecasted to benefit from improvements in operational efficiencies, cost reductions to pass through other inflation, and the inclusion of a full-year impact of the Easytech acquisition. These benefits will be partially offset by lower volumes. We are expecting segment income in the Custom Container segment to benefit from anticipated higher volumes as a result of a return to normal volume levels for hygiene and cleaning products, continued growth in pet food, and manufacturing efficiencies. In addition, we expect interest expense to increase versus 2021, largely as a result of higher average outstanding borrowings due to the recent acquisitions, and higher weighted average interest rates. We currently expect our tax rate to be approximately 25% as compared to the effective rate of 23% in 2021. This estimate does not contemplate the effect of any tax law changes that may arise during the year. Also, we expect capital expenditures in 2022 to be approximately $280 million, up from $232 million in 2021, as a result of various growth opportunities for core customers and the impacts of the recent acquisitions. We're also providing a first quarter 2022 estimate of adjusted earnings in the range of $0.70 to $0.80 per diluted share as we include benefits from the recent acquisitions, improved operational efficiencies, and anticipated lower resin costs, offset by volume declines in the Metal Container and Custom Container segments compared to the prior period. The decrease in volumes for Metal Container is due to the pre-buy activity in 2021 ahead of significant raw material inflation for 2022. The decrease in volumes for Custom Container is due to strong pandemic-driven volumes in the first quarter of 2021 that are not expected to repeat. These estimates exclude rationalization charges, costs attributable to announced acquisitions, and losses on early extinguishment of debt. Based on our current outlook for 2022, we're providing an estimate of free cash flow of approximately $350 million as earnings growth is offset by a sizeable headwind for working capital, higher CapEx, as we have attractive growth opportunities with core customers, and the one-time cash tax benefit of $25 million related to the accelerated depreciation resulting from the recent acquisitions that will not repeat. The working capital headwind is largely the result of the significant ongoing inflation in raw materials. That concludes our prepared comments. Before I turn it over to Alan, we would ask you to limit your questions to one question and one follow-up. So, Alan, I'll now turn it back to you to provide directions for the Q&A session.

Thank you, sir. We'll take our first question from George Staphos with Bank of America.

Thanks very much. Hi, everyone. Good morning. Thanks for the details. My questions will be around volume. So, if possible, can you give us a view on volume for the fourth quarter by segment, excluding acquisition effects, and relatedly as we look to 2022, what is embedded roughly in your volume outlook ex-acquisitions? My second question is, how comfortable are you in particular that both Custom Container and DSC can grow through some of the post-COVID de-stocking and other headwinds you mentioned? Hygiene and cleaning volume return to more normal levels for Custom Containers, what gives you the comfort that you'll be able to do that in both segments, again ex-acquisitions? Thanks, guys.

Good morning, George. Regarding the fourth quarter volume, I'll review the operating segments. We saw a 15% increase in Dispensing and Specialty Closures, with organic volume growth of 8.5% in Q4. In Metal Containers, volume rose 3% in the quarter, and there were no significant acquisition impacts. Custom Containers, as mentioned in the press release, experienced a 12% decline in volume for Q4. Looking ahead to 2022 and our guidance, we aim for 4% organic volume growth in Dispensing and Specialty Closures, excluding acquisitions. For Metal Containers, there was some pre-buy activity, which we will cycle through in Q1 of 2022, and we expect to normalize vegetable pack volumes back to pre-pandemic levels, anticipating a 4% to 5% decrease in food can volumes. Regarding Custom Containers, we are transitioning from the pandemic-driven surge in specific product demand, with one more quarter of elevated volumes to cycle over. We project volume growth of 2% to 3% in the Custom Container business for 2022. As for Dispensing and Specialty Closures and Custom Containers' growth numbers, I feel highly confident about Dispensing and Specialty Closures. Our food and beverage segment remains a stable source of growth, and we expect continued expansion. We are also starting to see a normalization in volumes for hygiene and home cleaning products, with an uptick compared to previous levels, and we believe further normalization will happen in 2022. In the fragrance and beauty area, we've fully recovered to pre-acquisition, pre-pandemic volume levels, and our order book is strong through Q1. We are considering additional capital expenditures to support this growth in the fragrance and beauty sector, which has recovered significantly. Regarding Custom Containers for 2022, we have targeted a 15% EBITDA business, and over time, we've developed a more profitable business mix. The pandemic allowed us to operate our assets efficiently on a low-cost structure. As pandemic volumes return to normal, we expect to sell this capacity at better margins than in the past. Our market performance has continued to be strong throughout the pandemic, with new commercial awards expected in 2022 and further wins anticipated in 2023 and beyond. That wraps up everything you asked, George.

No, Adam, really appreciate the rundown. I'll turn it over. Thanks for the comments.

Our next question will come from the line of Adam Josephson with KeyBanc.

Thanks. Good morning, everyone. Happy New Year. Bob, just a couple of questions about your guidance assumptions. Can you help me with pension income compared to last year, price-cost, what magnitude of benefit you're expecting versus the $10 million drag last year, acquisition accretion, and better operational performance just given the supply chain and labor difficulties you had much of last year? Just help walk us through the $0.50 expected growth, including any below-the-line items, if you don't mind?

Yes, so, as we said relative to the acquisitions, we expected that we would see $0.10 to $0.12 accretion when we gave you a preliminary guidance back at the end of the third quarter. I think we're running right in line with that. There may be a little bit of upside opportunity as we continue to look to commercialize new business wins. But that's what's forecasted in our EPS guidance for 2022. Price cost side of things, as we said, we're running about $10 million negative on the resin side. It's about a $25 million resin cost issue, and we've put through some out-of-market price increases that our customers have taken, that we've offset about $15 million of that. We should continue to recover that in next year, that's in our guidance as well. And then, you heard the volume outlook that Adam laid out, and that's sort of the rest of the story to get us to the numbers for next year. Oh yes, sorry, and you asked about pension as well. So, pension will be about a $5 million headwind on a year-over-year basis. That's more to do with our funded status being at about 128% at the end of the year. We made a decision to de-risk that plan a little bit. We're moving our asset portfolio to be a bit more weighted to fixed income versus historically more weighted to the equity side. That change will cost us about $5 million year-over-year in the income side.

Thanks, Bob. And just one other guidance-related question, so, the 1Q guidance implies a modest year-over-year decline, yet the full-year guidance implies $0.50 of growth. And I know you had the buy-ahead in 4Q. But is there anything else besides the buy-ahead that will come out of 1Q that is influencing the year-over-year rate of change? In other words, why such significant growth in the latter three quarters, compared to a modest decline in the first quarter?

Well, part of what you have is a comp issue, right, to the prior year. You had really strong pandemic-driven volumes across the board in the prior year that, as Adam laid out, we're expecting that to normalize for 2022. So, that's probably the big driver.

All right, the next question will come from the line of Gabe Hajde with Wells Fargo.

Good morning, everyone. Hope you and your families are well. My first question, I apologize in advance, may be tough to talk about. But just I'm looking at kind of some transactions that have happened in the market or in the past six months or so in the Metal Containers side. I'm just curious your perspective on what the market might be missing in terms of how valuable your business may be worth? I appreciate there is a difference between strategic value and sort of ongoing running of the business, but just how that could influence your thought process going forward?

Yes, thanks, Gabe. Look, I think this is the message that we've been trying to send for some time now, right, that the food can business is not what everybody thinks it is from a negative perspective. It does perform pretty well through all cycles, quite frankly. It generates a lot of free cash flow. We're seeing in more private transactions that value is being ascribed to those businesses. So, we'll continue to beat the drum, continue to improve performance, and hopefully, the equity markets begin to see that. I think that's a big part of Adam's opening dialogue about the performance in the 10-year CAGR in improvements here. That's driven a lot by acquisitions, but those acquisitions are funded upon the strength of that food can business. We don't find anything that's real surprising about those valuations, other than the public market perhaps not getting all the way there just yet.

And maybe just one other thing I would add to that. Bob, I agree with everything you said. I think as we think about food can volumes, again on a full-year basis in '21 we were up 4% on top of the 14% growth that we experienced in 2020. What we just said about our 2022 guidance is we believe now, volumes have normalized. For the most part, everything normalized back in 2020, the peak of the pandemic occurred in 2020. Vegetable peak was in 2021. So, we believe '22 is a normalized year, and that year is going to be double-digit volume increases over pre-pandemic levels. We feel really good about the line of sight we have into those volume levels that are again up over 10% versus pre-pandemic levels.

All right, thank you, guys. And then not to try to pin you down too far, but maybe some other building blocks on guidance. If I sort of back into the midpoint at $3.90, can you give us, I mean, I think the implied EBITDA might be around $975. If you can kind of confirm that or help us again, maybe with building blocks as it relates to pull you're expecting for D&A and or interest?

Yes, you're pretty close on the EBITDA side. Interest will be up a bit on a year-over-year basis. And that's largely the acquisition and some increase in weighted average rates.

D&A?

Bear with me one second.

You're forcing him to go to the book.

Yes.

Just with the acquisitions, I apologize.

Yes, let's just come back around to that one offline, if you don't mind.

No worries. Thank you.

We will next go to Salvator Tiano with Seaport Research Partners.

Yes, congratulations on having a strong year. My first question is about the growth investments, you mentioned for some core customers. Can you provide more color on in which areas besides beauty and fragrance have you already clarified, if there are any measurable additions to your volume growth we should expect and what would be the addition to CapEx for 2022?

Sure, I'll talk about this specific project. And Bob can talk about the impact on CapEx for 2022. So, again, I think as Bob correctly highlighted, these investment opportunities are with our core customers, and our strategic markets that we continue to allocate capital to. The first one you would say is Dispensing and Specialty Closures; we have many opportunities to continue to invest with our customers. These investments would be very similar to kind of the historic Silgan investments where these are going to be backed by customer contracts and customer commitments. We feel like we've got a plethora of opportunities. Again, I mentioned fragrance and beauty a little bit earlier on the Dispensing side of the business. We'll be investing there for sure. Our flat cap business again, we've seen continued growth in flat caps required for products like sports drinks, etc. So, we've got plenty of opportunities throughout our Dispensing and Specialty Closures segment. We do have a couple of pet food investments that we're going to continue to make in our Metal Container segments. On Custom Containers, we have a large investment that's going through this year for a new business, and that will be included in our guidance for this year. I think the rest of the items I described to you, for the most part, are going to be capital spent this year with a return that begins in 2023.

Yes, so that all nets to a CapEx number that's up on a year-over-year basis, call it round numbers, about $50 million. Some of that is acquisition-related, but a large part of that additional CapEx is related to those projects that Adam just laid out.

Okay, perfect. My follow-up question is a little bit on the 2022 free cash flow guidance of $350 million. I think last quarter you were expecting there to be a higher number as a preliminary figure. Can you tell us a bit what changed? Since this is largely working capital and obviously the CapEx have you mentioned impact here, can you see a significant boost in 2023 free cash flow?

Yes, great question. Look there's a few things that are sort of, I'll call them more timing related issues that are hitting here. So, 2021 benefited from the buy ahead, which helped us on volume, many of those customers paid us as well. We got the benefit of that in the upside to the free cash flow forecast for 2021. That was about $15 million. We also, which we talked about earlier in the year, as we raised the free cash flow guidance that we were getting an accelerated tax benefit coming with the acquisition of Gateway to the tune of about $25 million, that's kind of a one-time benefit that won't continue to recur. And conversely, as you look into 2022, the working capital is going to be a pretty significant headwind. It was a benefit in 2021, maybe even a bit more than we were expecting, because we weren't able to rebuild inventory to the level that we intended. So, you've got that rebuilding effort coming back at us in terms of a headwind in working capital, and then you've got the impact of the significant inflation in raw materials. The other piece of that will be the CapEx that we just talked about. And then the higher cash taxes of that $25 million, so that kind of back down to the 350. I would say, if you were thinking about this business on a right run rate basis, probably the normalized free cash flow looks like something in the $400 to $420 million kind of range. So, you can see it getting back into that level in 2023.

Great, thank you very much.

Next, we'll go to Mark Wilde with Bank of Montreal.

Good morning, Adam, good morning, Bob. Just I wondered if you can give us any color on sort of where the tinplate increases have settled out in 2022 and whether the cost increases are having any effect that you can see on consumer behavior, or if you're going to see it, which markets might we see it in?

Sure, good morning, Mark. Tinplate, we did spend some time talking about that on the last call. The guidance we gave is roughly a doubling of the costs associated with steel tinplate for our Metal Containers business. As it turns out, that's essentially where we settled, so just under a doubling of the cost. It was a challenging negotiation from every respect. We do have pass-through mechanisms with our long-term contract customers. But we take it very seriously that this type of inflation is incredibly stressful for their business models, in order to be able to deal with passing that kind of inflation on to retailers and ultimately consumers. The market is stressed right now, those increases roughly took effect at the beginning of the year. As you can imagine from a pre-buy perspective, literally anyone who bought metal packaging from Silgan was asking to participate in a pre-buy. I'll go back and talk about our supply chain challenges that we had in 2021. We just weren't able to get all the raw materials that we wanted to, in order to support customers. Every chance we could support them, we did. We worked with them to facilitate a little bit of a pre-buy, mostly for on-site, near-site type customers. I think everybody is concerned about the inflation and the impact it's going to have, certainly at the beginning of the year, but we will not have seen consumer activity around this cost inflation at this point in the year. I think it's a great question. I think it's one that we will probably have some data points as we move into the first quarter results that we'll be talking about in April, but it's a challenge because it was significant inflation that we've never seen in our Metal Container segment.

Okay, just as a follow-on, is it possible for you to give us some sense of what you see in terms of inventory in the channel between yourselves and consumer, whether it's a kind of food or packaged goods firms that like packaging distributors? What's your sense for kind of where the channel is right now?

Yes, I think there was a bubble that was created through 2021 related to the pandemic kind of surge of volumes and how quickly some of those volumes reverted back to a normalized level. So, you had this inventory bubble that was working its way through the system. Our data would tell you that it started to move through to consumers sometime in the fourth quarter. We saw a nice pickup in December, just from a trending perspective, for many of those products where we had been challenged and been going through an entire supply chain inventory correction for most of the last three quarters of 2021. As we sit here today, we feel like we're at the end of the inventory correction cycle, and those volumes are going to normalize very early in 2022.

Okay, your next question will come from the line of Arun Viswanathan with RBC Capital Markets.

Great. Thanks for taking my question. Congrats on a strong performance here. I guess, I just wanted to get back to some of the comments you had on growth in the food container. As you noted, there was about 14% growth in 2020 and then 4% on top of that on the volume side. In the past you talked about some rationalization. Now it seems like you're putting into capacity on pet food. How do you kind of look at this business going forward? I guess, is this kind of a low single-digit business now that you have confidence in that will turn in some kind of consistent growth in that range? And then similarly, on the closure side, it seems like this business now is actually poised for that or maybe slightly better growth. Overall, I guess, would you look at the Silgan portfolio as kind of a low single-digit grower and then you've leveraged that on the EBITDA line? Is that the right way to look at those two algorithms?

Well, let me start with kind of the growth conversation on the metal container business very quickly. You've got the growth numbers correct for 2021, and for 2020 as well. I want to clarify, pet food has been a growing market for us that we've been investing in for years, and I would go back a decade and longer as far as where we've continued to see strong growth in pet food. We've continued to invest in that growth. So, there's nothing new about our investments and additional pet food capacity. In fairness, that is going to continue as we go forward. During the pandemic, we did see pet ownership increase dramatically. That was skewed more to smaller dogs and cats. Those smaller dogs and cats typically have a higher consumption rate of wet pet food, and we're seeing that and our numbers would show that and they've shown that for quite some time. We believe Metal Containers is going to settle back to a point of normalization that is call it 10% higher than we were pre-pandemic. So, the baseline has shifted right, so we're up significantly in volume. I do think the forward trajectory is now going to return to a very similar plus or minus 1% on the margin, with core markets like pet food and protein continuing to provide growth as we go forward. We feel terrific about where metal container sits in our portfolio, the growth is provided. The new baseline is significantly higher than it was prior to the pandemic. As we think about closures, we just guided to 4% organic growth in 2022, and that's also our longer-term growth rate for the organic growth of the business. We have lots of opportunities to continue to invest around our closures and Dispensing and Specialty Closures business. That is where a lot of our capital allocation has gone. I don't want to give you a broad, how to think about Silgan from a growth perspective, including Custom Containers; I'd rather just talk about each of the individual components and go from there. And Bob I'll throw it over to you on the question of how to think about EBITDA.

Yes, so I think EBITDA probably grows about $35 million or $40 million on a year-over-year basis. That's largely from the acquisitions. We do have a bit of an acceleration down to the profit line because of our efficiencies. The scale that we get from that volume growth coming through the system. Bottom line, as you see our bottom line has grown as Adam has said, north of 10% on a CAGR basis. That's also the benefit of acquisitions, but I don't see any reason why that isn't what the future looks like on a go-forward basis as well.

And then one last comment for you Arun, you'd asked about the previous rationalization plans. Obviously, we put those on hold for the pandemic. Now, again, I just want to reiterate, the new baseline for our Metal Containers business is significantly higher than it was prior to the pandemic. We're evaluating that; we've got a relentless focus on driving costs out of our business that has never changed. As volume, as we projected a 4% to 5% decline in volume what that's going to allow us to do in 2022 is more efficiently operate the footprint that we have to support our customers. That's the immediate focus of what we're doing now. We'll continue to work on driving costs out, as we always do.

That's great. Thanks for the comprehensive answer there. So, and then just as a follow-up on capital allocation, it sounds like normalized free cash flow is in the form of million-dollar level. This year, it's going to be impacted a little bit by working capital, and some of the investments, but as you look into '23 then, would you prioritize capital return or is there any potential to do that, or would you still be looking at de-leveraging and if so, where would you want to get the leverage to, I guess?

Yes, look, I think we're in a good spot from a leverage perspective. If you look at where we are today, we're kind of back toward the higher end of our range on a pro forma basis. Then you layer on that incremental free cash flow coming next year, and you're right back in solidly in the range. That’s the beautiful part of the Silgan story; we have options, and I think our preference is to continue to deploy that capital to continue to grow out in the markets that we serve and in support of the customers that we serve. I wouldn't rule out acquisitions. But if in the absence of those where we don't find good opportunities, or we don't find the right kind of returns, then a return of capital is certainly within the purview.

All right, I would now like to turn the call back over to Mr. Adam Greenlee for any additional or closing remarks.

Great, thank you very much, Alan. We appreciate everyone's time today and interest in the company. We look forward to talking about our first-quarter results in April. Thank you.

And that does conclude today's conference. We thank everyone again for their participation. You may now disconnect.