Good morning, everyone. Welcome to the Silgan Holdings Fourth Quarter 2022 Earnings Conference Call. At this time, I will hand it over to Ms. Kim Ulmer, Senior Vice President, Finance and Treasurer. Please continue, ma'am.

Thank you. Joining me from the company today are Adam Greenlee, President and CEO; Bob Lewis, EVP and CFO; and Alex Hutter, Vice President of Investor Relations. 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 and Form 10-K for 2021 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.

Thank you, Kim, and welcome, everyone, to Silgan's fourth quarter and full year 2022 earnings call. On the call today, we will review the highlights of our full year performance and provide details around our fourth quarter results and our outlook for continued growth in 2023. 2022 was another exceptional year for Silgan, posting our sixth consecutive year of record sales and delivering yet another year of record double-digit growth in adjusted EPS as the momentum we've built in the business continues to show in our results. I'm incredibly proud of the entire Silgan team and the accomplishments that we've achieved together, proving that through a variety of economic environments, Silgan remains a steadfast partner to our customers, employees, and shareholders. Day in and day out, our teams prove that our founding principles of competing and winning in the marketplace by being the best at what we do continue to translate into meaningful value creation for all of our stakeholders. Our ongoing and unwavering focus yielded significant adjusted earnings growth in 2022 despite difficult volume comparisons as our business overcame known challenges from the prior year pre-buy activity ahead of significant raw material inflation, ongoing supply chain disruptions, and customer and retail inventory destocking throughout the year. In combination with our outstanding operational performance, our long-term contractual arrangements, and focused discipline on passing through inflationary costs helped our business to grow adjusted earnings in a period of unprecedented inflation in raw materials, labor, energy, and other costs. A few highlights we delivered in 2022 are as follows; record sales of $6.4 billion, up 13% versus the prior year. Record adjusted earnings per diluted share of $3.98 which increased 17% versus the record prior year. Free cash flow of $368 million while continuing to make investments in future growth opportunities; and finally, record revenue, volume, and segment income in our high margin Dispensing and Specialty Closures business. As we exit 2022 with unit volumes well ahead of pre-pandemic levels and our businesses executing at an exceptionally high level, we remain confident in our ability to build on our momentum in 2023 and beyond. More specifically, as we look to 2023, we believe the business will continue to drive at least mid-single-digit improvement in total adjusted segment income organically which will be partially offset by higher interest expense due to higher interest rates expected in 2023. In addition, as outlined in the press release, beginning in 2023, we have adjusted the prior year results for pension income and the amortization of acquired intangibles. From a segment perspective, we expect our Dispensing and Specialty Closure segment to produce high single-digit adjusted segment income growth driven by mid-single-digit volume growth and improved mix, including double-digit volume growth in our higher-value dispensing products. In our Metal Container segment, we see low single-digit volume and low to mid-single-digit adjusted segment income growth in 2023, primarily as a result of mid-single-digit volume growth in our pet food markets which represent roughly half of our total volume in the segment and continued operational improvements in the business. In our Custom Containers segment, we expect adjusted segment income to grow in the low single digits, with low single-digit volume growth as volume trends are expected to improve throughout the year as we continue to cycle over a previously discussed decision to not renew a long-term piece of business and to replace that volume with new higher-margin contractual business later in the year. We're excited about what the future has in store for Silgan and the opportunity to continue to showcase the unique nature and continued success of our business in 2023 and beyond. With that, Bob will take you through the specifics of our financial results for the quarter and provide additional color around our earnings estimates for 2023.

Thank you, Adam. Good morning, everyone. As Adam highlighted, the business continues to execute at a high level, delivering record fourth quarter and full year sales and adjusted earnings per share. Our businesses did an outstanding job managing through a complex volume backdrop, ongoing supply chain disruptions, and significant cost inflation. This is a testament to our contractual pass-throughs, cost recovery discipline, and endless pursuit of operational excellence to mitigate inflation. Net sales for the fourth quarter of 2022 were $1,460 million, up $16 million or just over 1% versus the prior year as net organic revenue growth was partially offset by unfavorable foreign currency of approximately $39 million. Our organic growth was driven by favorable price/mix resulting from inflationary cost pass-throughs which more than offset expected volume declines in each of our segments. Total segment income for the quarter of $81 million declined on a year-over-year basis, primarily as a result of rationalization charges of $67 million in the fourth quarter of 2022. During the quarter, we recorded a restructuring charge of $74 million to write down assets which were used to service the Russian market as we will no longer produce the limited humanitarian products sold in 2022 for this market. Highlights of our segment income for the quarter are as follows: Our Dispensing and Specialty Closure segment income increased from the prior year, driven by strong pricing and cost recovery disciplines and better operating performance. These benefits more than offset a foreign currency headwind of approximately $3 million and an 8% volume decline. The volume decline in the quarter was primarily the result of lower demand for steel closures in the food and beverage end markets as compared to the prior year period which benefited from pre-buy activity ahead of significant steel inflation in 2022. Our Metal Container segment decreased from the prior year as a result of $66 million of rationalization charges in the quarter. Excluding the impact of rationalization charges, segment income increased 28% versus the prior year, with strong operating efficiency as a result of lower volumes which allowed us to better utilize our footprint and more efficiently manage our inventory levels. These benefits, combined with inflationary costs recovered, more than overcame a 13% volume decline. The decline in volumes in the quarter was primarily due to difficult volume comparisons from the pre-buy activity in the prior year quarter ahead of approximately 80% steel inflation in 2022. Segment income in our Custom Container segment decreased as a result of an expected 11% decline in volumes, overshadowing improvements in price pass-through and cost recovery. As we previously discussed, the decline in volumes in the quarter was primarily the result of not renewing a customer contract that did not meet our reinvestment return hurdles as well as the delayed recovery in lawn and garden, home, and personal care products. The decision not to renew the expiring contract will continue to have an unfavorable impact on volumes through the first half of 2023 as we expect to commercialize new business awards later in the year. Turning to the outlook for 2023. As we leverage the momentum of delivering six consecutive years of record adjusting earnings, we are expecting further growth in 2023 as we estimate adjusted earnings per diluted share for 2023 in the range of $3.95 to $4.15. To align our external reporting more closely with the internal metrics by which we manage our businesses, we are excluding the impact of U.S. pension income and amortization of acquired intangible assets from our definition of adjusted segment income and adjusted earnings per diluted share. Our domestic pension plans ended 2022 at approximately 130% funded and are close to new participants. Therefore, we have elected to deploy a liability-driven investment portfolio which we believe will satisfy the cash requirements of the plan. As to the amortization of acquired intangibles, our view is that this is a non-cash expense that is not reflective of the ongoing performance of the acquired business. Furthermore, this will align us on a comparison basis with our peers. For comparative purposes, a reconciliation of prior periods to remove these adjustments has been posted to our website in the Investor Relations section. We expect total adjusted segment income to increase by mid- to high single digits in 2023 as compared to the prior year. The midpoint of our range of adjusted earnings per share represents a year-over-year increase of $0.04 per share which includes full-year interest expense of approximately $155 million, a year-over-year headwind of $0.20 per share, and a tax rate of between 24% and 25%. These estimates exclude the impact from certain adjustments as outlined in Table B of our press release. Based on our current earnings outlook for 2023, we are providing an estimate of free cash flow of approximately $425 million in '23, a 16% increase from 2022 as earnings growth and lower use of cash for working capital as compared to '22 is partially offset by higher CapEx which we expect to be approximately $250 million in 2023 as we invest alongside our core and new customers. Turning to our outlook for the first quarter of 2023, we are providing an estimate of adjusted earnings in the range of $0.75 to $0.85 per diluted share as compared to adjusted net income per diluted share of $0.79 in the prior year period. Included in the first quarter of 2023 estimate is incremental interest expense of approximately $0.05 per share as a result of higher interest rates while the first quarter of '22 included approximately $0.01 per share from earnings from our Russian operations. Adjusted segment income in Dispensing and Specialty Closures is expected to be flat as the benefit in the first quarter of 2022 from the lag pass-through of resin price declines in the prior year is not expected to repeat. We anticipate higher adjusted segment income in our Metal Containers business as a result of the negative impact in the first quarter of 2022 from the customer pre-buy activities during the fourth quarter of 2021. We also expect slightly lower volumes and adjusted segment income in the Custom Containers business as a result of the previously discussed exit of a customer that did not meet return hurdles. Volumes in this segment are expected to improve throughout the year. That concludes our prepared comments and we're happy to open the call for questions. I'd like to ask everyone to limit your questions to one question and one follow-up. And if time allows, we'll take further questions from the queue. So Bill, I'll finally turn it back to you to give directions for the Q&A.

Thank you, Mr. Lewis. We'll take our first question this morning from Adam Josephson of KeyBanc.

Thanks, everyone. Good morning. Good to talk to you. Adam, can you help me with the closures volume performance in the fourth quarter? I know a year ago, you called out the impact of the pre-buy in the metal cans business from rising tinplate costs. But I don't think you said anything about closures along similar lines but then you mentioned it this quarter as having been a very difficult comparison versus last period. Were you expecting your closures lines to be down as much as they were? Can you just talk about that segment's performance, both in terms of volume and profitability compared to what your expectations were and how that might affect your outlook for '23?

Good morning, Adam. We anticipated that the pre-buy would negatively impact our Dispensing and Specialty Closures segment, similar to its effects on our Metal Containers business. This segment includes our longstanding Silgan closures business, which supports the food and beverage industry with both metal and plastic closures. We expected this outcome. The pre-buy impact accounted for approximately 95% of the volume shortfall for the Dispensing and Specialty Closures segment this quarter. The primary contributor was food and beverage, particularly the metal closures used for glass jars that we have supplied for many years, so this was not surprising for us. From a profit perspective, we had a solid quarter, successfully managing to overcome the volume challenges with strong operating performance. Resin conditions were slightly favorable, which we had anticipated. Overall, I would say the quarter for Dispensing and Specialty Closures was largely in line with our expectations.

Okay, Adam, thank you. Bob, I know we are responsible for the consensus earnings estimate for '23, not you. However, when comparing your guidance to the existing estimate from three months ago, interest expense is $0.05 higher than we both anticipated. Additionally, you opted to exclude amortization of intangibles and pension income or expense, which contributed about $0.03 to last year's earnings. Therefore, all else being equal, the consensus should have been $0.03 higher for '23 as a result. Can you help me align your guidance with what you believe the consensus was expecting?

Yes. I think you basically have it right. The two adjustments that we made for very different reasons, obviously, but they basically offset. So if you think about where consensus would have been, it's roughly in line with what we're suggesting now. So there's really no more broader details to that than those two main points.

So it's really just that interest went up by $0.05 and that's pretty much it from your vantage point?

Yes. That's right. As interest rates continue to affect the later part of the year.

Thank you, Bob.

Thank you. We'll go next now to Ghansham Panjabi at Baird.

Good morning, everyone. Thank you for having me. To address the destocking issue, many sectors have reported destocking from retail down through the supply chain, and you have also seen some of this. What is your assessment of the current inventories compared to consumer demand?

Yes, sure. It's the great question. And I think maybe I'll go back to Q4 and give you some insight there. Just what we saw through Q4 was really a pretty good early part of Q4, October, November and that was, I'll just say, both in our North American markets and in Europe as well. What we saw also at the end of Q4 was that our large CPG customers essentially sort of shut down in the last couple of weeks. So a little bit unexpected for us but that was a bit of the volume shortfall for the quarter as well as sort of the abrupt end of the year. I think the better news is that we were also seeing some good signs of recovery in some of the markets and product lines that have been challenged due to the destocking effort a little bit earlier in the year. And most importantly, Ghansham, I'd tell you that January has started on a pretty strong note for us and all of those same customers. So we are seeing recovery. We've talked about trigger sprayers on this call or the last, I think, two calls. We've seen almost a full recovery in Europe at this point which typically is a precursor to what happens in North America for many of our product lines. So we're feeling better about the recovery of the destocking than we were, I think, as we entered the last call. And we've certainly seen more positive signs from our customers. And then we're having a really good start to the year so far here in January.

Okay, terrific. That's very helpful. And then in terms of the inflation dynamics that you've been experiencing, maybe just lay out for us what your embedded assumptions are for the big substrates that you're exposed to? And then also on the variable cost side with transportation, etcetera, what are you seeing at this point in real time?

Sure. Let's start with steel, which impacts several of our segments. As Bob mentioned in the prepared remarks, we have passed through about 80% of the tinplate price increase to the market. It seems our customers have successfully transferred that to the retail level and to their clients. Looking ahead to 2023, we observe that tinplate prices are relatively stable, indicating not much change at this time. There are some supply-side challenges in terms of capacity for tinplate. As the largest tinplate buyer globally, we believe we maintain strong relationships and partnerships with our suppliers, ensuring we will obtain the necessary tinplate in the regions we require it. Regarding resin, we anticipate a minimal benefit in our Q1 guidance. Overall, after experiencing volatility in resin prices over the past couple of years, the pricing forecast ahead appears stable. As is our usual practice, we will apply the known changes for Q1 for the rest of the year, and this year, our forecast appears to be on target. Addressing your other question about categories like freight, we are noticing some increased costs. Although fuel surcharges have decreased, the rates and availability of freight have posed challenges recently. We do not expect significant relief in this area, and while inflation pressures will continue, they are not expected to be as great as in the past 18 months. As you may know, most of our contracts permit the transfer of that inflation to the market, contributing to our overall strategy. I hope that covers your questions.

Yes, it does. Thank you so much.

Thank you. We go next now to George Staphos at Bank of America.

Hi, everyone. Good morning. Thank you for the information. I wanted to discuss two key factors related to your guidance concerning DSC and Custom Containers. First, could you explain how significant the new business you're onboarding with Custom Containers is for the fourth quarter and your overall guidance for the year? Also, what are the critical aspects we should evaluate that will determine if the business and earnings are meeting expectations? Additionally, what are the associated risk factors? Similarly, regarding DSC, which has a very strong growth outlook this year now that destocking is complete, what are the main risks we should be aware of that could impact volume and earnings this year as you anticipate for DSC? Thank you, and best of luck this quarter.

Sure, let's begin with Custom Containers and the new business wins. The profit impact for 2023 is expected to be minimal. However, we anticipate an increase in volume as we progress. The positive news is that we are moving forward with our capital spending plans and aim to commercialize these products in late Q3 or early Q4. The focus is more on the run rate as we conclude 2023 and transition into 2024 with these new business wins. We will keep you updated on their commercialization as the year progresses. Regarding Dispensing and Specialty Closures, there are a couple of points to consider. First, we are not anticipating any pre-buy activity in our metal closures segment, which means we expect a typical year in that area. We are seeing ongoing strength in fragrance and beauty, and over the last few calls, we've discussed our order book and visibility. Our customers had a successful holiday season, leading to a strong new product launch season as we enter 2023. Therefore, our insights into the order book extend further into 2023 than previously noted. We believe 2023 will be another robust year for fragrance and beauty, and we're in discussions with our customers about adding incremental capacity, as is customary at this time. We remain optimistic about fragrance and beauty for the year ahead. As for general risks, we are not anticipating a significant recovery in the lawn and garden sector that would affect either Dispensing and Specialty Closures or Custom Closures, so we haven’t incorporated that risk into our budget for the year. Furthermore, we recognize that prevailing economic conditions may influence consumer behavior. Nonetheless, I maintain that the Silgan portfolio performs well in all economic environments. While certain products may thrive in a poor economy compared to a booming one, the bottom line is that we consistently deliver results, irrespective of the economic climate.

Thanks, Adam. Very clear. I'll turn it over.

Thanks, George.

Thank you. We go next now to Gabe Hajde at Wells Fargo.

Good morning, Adam and Bob. I wanted to explore your comments, Adam, regarding DSC and its potential for 2023, particularly highlighting the fragrance dispensers which are showing low double-digit growth. Building on George's question, is there a specific strategy with your customers that has proven successful? Additionally, in relation to George's inquiry about risks, do you see any upside potential from the reopening of China, particularly regarding consumer mobility and travel in relation to duty-free shopping? Any insights you could share would be appreciated.

Sure. I won't repeat myself to avoid any confusion, but regarding our activities in the market, particularly in Dispensing and Specialty Closures, we have a strong team dedicated to those areas. We're focused on growth and delivering new products and innovations to our customers, which enable them to succeed in the market, and in turn, we benefit from that, especially in our premium and luxury fragrance and beauty product lines. As long as we keep offering new products that help our customers excel, we will see positive results. We've experienced this trend in our Dispensing and Specialty Closure segment for several years, and we feel optimistic about it. I can say that we are in talks with our customers to expand capacity to support their growth in these markets, and we're confident about future growth prospects. 2023 appears to be promising, with limited risk based on discussions with our customers regarding volume for fragrance and beauty. As for China, it remains a relatively small market for Silgan, which has always been the case. However, considering the mobility of consumers in this region, especially in the fragrance and beauty sectors, we anticipate that increased travel, particularly through duty-free international airports, will positively influence our product lines. While we may not see a significant benefit from the broader reopening in China directly for Silgan, traveler movement could have a certain impact, though we do not expect a major effect on our business overall.

Okay. The inflection comment indicated that there seems to be increased conviction and optimism about the business in your opening remarks. Yes, all good. The second one...

Yes. Got it.

Yes. I think there's a lot to consider here. We are finishing the year right where we anticipated in terms of leverage, around the 3x mark with improving free cash flow expected next year, surpassing what we achieved in 2022. This will represent almost another half a turn of deleveraging, bringing us to the lower end of our range. The capital markets are evolving, still featuring higher interest rates than we've experienced in the past decade, but they're changing. As we mentioned in the last call, there was a pause in M&A opportunities at year-end as companies assessed the market. Early this year, we are seeing increased activity with businesses wanting to enter the market, which is promising because there are several targets of interest for us. We are well-positioned to capitalize on this for two reasons. First, our leverage is in a good place, and we have significant available capacity on our revolver, giving us an advantage over other potential asset buyers by allowing us to act quickly and with certainty. We will see how this unfolds. Additionally, we have successfully integrated our recent acquisitions and believe we have the management capacity across our businesses to integrate something new when the opportunity arises. We will continue to follow the same approach, which is a core strength of ours and one that we believe will continue to create value and strong returns for our shareholders. We hope to find some opportunities this year.

I appreciate it. Good luck. Thank you.

Thank you. We go next to now to Anthony Pettinari at Citi.

This is actually Bryan Burgmeier sitting in for Anthony. Thanks for taking the question. Just following up on Ghansham's question on inflation. Do you expect your PPI pass-throughs in Metal Containers will meet or exceed the level of cost inflation you're forecasting for 2023? And can you remind us when those pass-throughs typically reset?

Sure. Good morning, Bryan. So first of all, we do have inflation that we are continuing to experience in 2023. It will probably be no surprise that the level of that inflation is going to be less than what we experienced in 2022. So given the lag nature of that portion of our pass-through mechanism, you'll be passing through last year's inflation this year against a lower experienced inflation in 2023. So that should be a slight benefit for us. I don't think we get into the specific details of when those pass-throughs hit. They vary by contract and they are throughout the course of the year than they run for 12 months from the implementation date.

Yes. I would add to that, that across the contracts, it's not one particular metric. I mean we speak to it as a PPI-like but the metrics do vary contract to contract. But Adam's point is the right one is that the pass-through given the fact that we've got relatively lesser inflation on a year-over-year basis should be some benefit for the year or it is some benefit to the year.

Got it. Thanks for the detail. And just one last one. It looks like 2022 CapEx came in a bit lighter than expected. Do you decide to push out or walk away from any projects? And then 2023 CapEx, are there any growth of productivity-related projects that you'd like to highlight?

Yes, the capital expenditures came in lower than anticipated, mainly due to the timing of vendor payments rather than any project delays. We believe we are appropriately investing in the right opportunities at the right time. When considering the free cash flow, there are some fluctuations in the overall figure, but it is still positive due to lower capital expenditures and increased interest expenses we carried throughout the year. Overall, we generated a solid amount of free cash flow. Looking ahead to next year's capital expenditures, we anticipate a slight increase, primarily driven by new opportunities across the business, especially in the Custom Containers sector, as well as favorable prospects in the Dispensing and Specialty Closures segments. We are confident that we are making the right investments in the right opportunities with the right customers.

Got it. Thanks a lot. I will turn it over.

Thank you. We go next now to Kyle White at Deutsche Bank.

Hi, good morning. Thanks for taking my question. I want to go back to dispensing and the beauty and fragrance markets in terms of the growth rates that you called out. Are you seeing any differences between mass or prestige markets in beauty in terms of the growth rate for 2023? Or are you seeing any trade downs from consumers going away from prestige to mass or anything that you would call out?

So really, no, we haven't seen that. I mean our presence is much more in the prestige and luxury and we're just seeing continued high demand in that segment of the market. And again, great relationships with our customers, very intimate relationship. And I think that they are clearly seeing additional growth opportunities. What I tell you, Kyle, is through the pandemic, new product launches were relatively limited and we're now just now getting to the point where the new product launches are hitting the market and they've been very well received for the holiday season. and we're feeling, again, really good about our volume as we go forward in the prestige area of the business without a whole lot of trade down that we can see into the mass market.

Got it. And then on Metal Containers, you guys have called out some supply chain issues impacting commercialization of new product within, I believe, pet food at the customer level. Is that mostly resolved as we go into 2023? And then relatedly, how are you thinking about your footprint within metal food can in the U.S.? Any room for optimization? Or are you content with what you have?

Sure. I'll take the second part first. And we're always thinking about that footprint. And what we typically say is for every 2 plants that we have in our Metal Containers business, we've closed one through the course of time. So that relentless focus on driving cost out of that business is critical to our success and that's just part of our DNA. So we're always looking at that. We don't have anything to talk about on this call at this point. But it's something that is very much a focus of what we do each and every day. And then the supply chain challenges that our customers experienced in 2022, again, are investments to support their growth we made, we were able to commercialize on time. Early in the year, there were ingredient problems for our customers. All of those have now been resolved. There's protein available, there's other packaging products available as well to ship additional products into the market. Really what we got to towards the latter half of the year in Q4 were labor availability challenges. And I tell you, for the most part, those are getting resolved as we start the year. We still have a couple of minor instances here or there across the broad set of customers. There was a lot of investment that went into the pet food category and filling additional products. And for the most part, we're seeing the progress that we wanted to see and it is part of our growth assumption for 2023 that roughly in the early part of the year here, the rest of that gets figured out at our customers.

Sounds good. I'll turn it over.

Thank you. We go next now to Arun Viswanathan at RBC Capital Markets.

Great. Thanks for taking my question. I guess maybe I wanted to start with some of the comments you made about returns, not meeting your return threshold from certain contracts. Does that just happen from time to time? Or what's the thrust of that? Is it maybe some of your customers also dealing with a lot of inflation and not being able to pass that on? Or maybe you can just provide a little bit more detail on that.

Arun, it does happen from time to time, particularly as contracts age out and maybe volume trajectory changes a bit. The competitive landscape has something to do with that relative to what assets may be available in the marketplace versus a customer that wants to have new assets put in place. So there's a lot of different reasons for why that happens. I think what you're seeing here is just sort of the overall Silgan discipline in that we're cognizant of that. We're making sure that we're maintaining, particularly, in that business, right, we went back a long way to recover that business and say, look, we need to get the return profile to a point where that business can make money. We've actually done better than what we anticipated or what goal we set. So this is just staying the course with that and making sure that we're not doing anything that's detrimental to the overall profitability of that business and the long-term returns.

Okay. Thanks for that. And then on a similar note, it sounded like there was still some macro challenges, maybe some volume destocking that's pretty much run its course but still some potential risk. Would you say that the customer activity has migrated to now a little bit more promotional activity to move volumes? Is that something that we could potentially look forward to? And how does that affect your kind of decision making on some of these projects? And I'm just curious if promotional activity has picked up, if your customers are now feeling a little bit better, given that inflation has kind of moderated just a touch and maybe we can see some extra volume come through promotions.

Well, I think maybe we should just talk about that by business segment because I think the answer will vary by segment. So certainly in Dispensing and Specialty Closures, promotion is part of the answer for those prestige and luxury fragrance and beauty products and we are seeing greater promotion. We understand greater promotion will continue in those particular markets. And maybe I would jump over to the Metal Containers business and say, we have seen more promotion in soup and we believe it's working for whatever that's worth. And I think pet foods, you're going to see more promotion in pet food in a variety of different formats. So I think in fits and starts, yes, there's more promotional activity. It's where I think volume growth is coming from as well. They're trying to leverage that volume growth and turn it into an even greater set of volume for the business. So I think our customers are feeling better broadly speaking about where we are, where our products collectively sit in the marketplace for consumers as we turn the page to 2023.

And then just lastly, if I could, just on the M&A front, maybe you can just discuss maybe some of your priorities, if you do have any, maybe does the Russia exit provide you with any extra capital to potentially deploy into that area? Or how should we think about M&A here going forward? Thanks.

Yes. As I mentioned earlier, mergers and acquisitions are a fundamental aspect of our strategy and contribute significantly to our long-term growth. We will continue to pursue opportunities actively. It's well-known that our focus is primarily on investing in the Dispensing and Specialty Closure segments of the business. However, we are also open to enhancing other areas. If we refer to our strategic approach, it will be largely centered around dispensing. The withdrawal from Russia does not impact our capacity or intent to allocate capital to other parts of the business. It remains a core capability of ours. That segment has unfortunately been affected by circumstances, but we will address it and focus on managing the overall business effectively.

Thanks. We'll go next now to Daniel Rizzo at Jefferies.

Hi guys. Thank you for taking my question. I know you're a different company now but can you just for historical purposes, just show us what happened with volumes during the 2008 and 2009 recession. Were you largely unaffected? Or was it kind of a different time, different thing?

Yes. The main impact I mentioned was on food can volumes during that period. Volumes remained fairly stable during both the downturn and recovery for distinct reasons. For example, during the downturn, fruit and vegetable volumes improved as people tended to stay home and eat more. Similarly, the pet food market saw a shift from wet to dry food for larger pets at that time. As recovery occurred, there was a reversion in these trends. Overall, volumes were stable in both periods, but the product mix changed. What's different this time is the significant change in pet ownership and population, making it more reliant on the wet pet food market. Thus, I expect the food can business to continue performing well.

I'm sorry for the dumb question but does it mean people have small dogs now? Is that what we're kind of saying?

More of them as well. So yes, the pets in the households have trended to the smaller size and there's more of them as a consequence of smaller pets being more manageable in the house.

And the wet pet food category, Dan, is both small dogs and cats. And the cat population has continued to grow over recent years as well.

Okay. You mentioned that there is an 80% pass-through for metal costs or metal containers. Have you ever disclosed how much of the resin costs are passed through? Did I miss that information?

Generally, we pass through resin on a lagged basis. So it varies by resin type and by business. But at its longest, it's probably 60 days in terms of the lag pass-through and in many cases, much shorter than that.

But to be clear, we do pass through the cost changes of resin to the market as well. And I think if you go back to our Dispensing and Specialty Closures segment, it was a large negative roughly in 2021, if memory serves me correct and we basically recovered that negative through the course of 2022 and now we're anticipating relatively stable prices for resin as we move forward into 2023.

Thank you very much, guys.

And we'll go next now to Jeff Zekauskas at JPMorgan.

Thank you very much. Various pet associations are noting that many pet owners are struggling to afford their pets, with a third expressing concerns about the financial strain. Additionally, there has been a significant increase in the number of pets in shelters in both the United States and Europe. Is your cat food market positioned at a higher-end level, making it somewhat insulated from these trends? Or do you not observe these trends affecting demand due to increased stress on pet owners?

So a couple of things there, Jeff. I think, first of all, we don't see that stress through the markets that we serve. And again, I think Bob really highlighted a very good point about the mix of business that we had, call it, back in '08 or '09, I think large pets do have the pressure that you're talking about, a, the consumption of product just by the sheer nature of the size of the pet is much greater. And I do think you see a trade down to dry. I'll also say a 40-pound bag of dried pet food is quite expensive. When you look at the products that we manufacture and the markets that we serve and that kind of small dog and cat wet food population, we don't see a trade down. We don't see that same level of stress that you're describing again, we talk a lot about the Silgan customer service model and our customer intimacy, where we spend a lot of time talking to and with our customers about the specifics of the markets that we collectively serve. And we are not feeling that pressure in dealing with our customers having that dialogue.

Yes, Jeff, I would take that a step further and just remind you that we are not speculating on the market, right? We're making investments where our customers are making investments and we're doing that with commitments from those customers. So we feel like we're pretty well aligned with what is happening in their markets and where their markets are going.

Okay. And then for my follow-up, is it fair to say that your EBIT growth in 2023 to really be a function of your volume growth and that the price raw material spread really won't make so much of a difference to the EBIT change?

I think that's right. There are no acquisition timing issues. So what you're seeing is, really what we've been talking about, right? I mean I think we stood and delivered in 2022 and we talked a lot about the dynamics of each of our segments and the growth profiles of each of our segments then delivered it in '22, it rolls right forward to '23. So you're seeing the kind of power of the portfolio and each of our individual operating segments delivering growth in their own way for 2023. I think you've got it right, Jeff.

Okay. Good. Thank you so much.

And we'll take a follow-up question now from George Staphos of Bank of America.

Hi, everyone. Thanks for taking the follow-on. I'm guessing the answer will be no, there's no change but it's a box-checking exercise here. So given that there's been changes in the landscape of other players in the North American metal container sector, are you seeing any change in the level of competitive activity, bids, things like that, that we should be mindful of? And then knowing that it's not 2024 yet, can you size for us a couple of things. One, how big was that custom container win that you're going to get at the end of this year on an annualized basis in terms of what it might mean for '24. And as we now or in the next sort of phase, are you done with your big contract renewals in metal container for the next several years. Thank you, guys and good luck in the quarter.

Bob and I will go through that for you, George. Regarding competitive activity, you raised a good point, and I agree with your assessment. Essentially, there hasn’t been any significant change. As a reminder, a large portion of our business operates under long-term contracts, so we aren’t constantly bidding on new opportunities every day. We achieve growth when we offer a competitive advantage to our customers in the market, enabling them to succeed in their respective sectors. There hasn’t been any shift in rates. Concerning our contractual renewals in the Metal Container business, we typically have a few renewals here and there. However, I can’t think of any significant renewals for 2024 at this moment. That said, you know our business model well, and we are continuously engaged in discussions with our customers about investing in new capacity to support their growth. We intend to keep those conversations ongoing.

Yes. I would say, George, just to remind you that with 90-plus percent of our business under some form of long-term contracts, there's always something that's coming for renewal but there's nothing that's out of the ordinary nor is it a large block of business. We've had these periods where we have the conversation that we've renewed a significant piece of our business and it's had a meaningful price step down. We don't have any impacts coming at us in the near-term.

And that's what we're getting at.

This is more ordinary course that's out in front of us.

Understood. And custom, how big might that be someday?

So there's a couple of large contractual pieces of business. So I think, George, you should think about them in kind of the range of $8 million to $10 million of revenue for each of those opportunities. So call it two opportunities that will be commercializing in that range.

Got it. Thank you so much.

Thank you. We'll take a follow-up question now from Gabe Hajde at Wells Fargo.

Yes. Actually, I wanted to ask about the metal container renewal. So it's been covered. Thank you guys.

Okay. Thanks, Gabe.

Thank you. We go next now to Adam Josephson at KeyBanc.

Thanks everyone. To Jeff's question earlier, by the way, I certainly hope you're doing your part to support national pet ownership. Bob, in terms of...

I promise you, we are, Adam.

Bob, on working capital, you're expecting improvement there. Can you flesh out roughly how big a source of cash you'd expect that to be? Is it coming from lower inventories, lower receivables, any impact on payables?

Well, so what we're really looking at is a smaller use on a year-over-year basis. So it's a bit of a benefit. But given where inflation is and as we anticipate it to go, it's not like we're liquidating a lot of working capital. We just got a lesser use as we move year-over-year. So basically, if you think about where the free cash flow generation is coming from, it's essentially the improvement in earnings, a little bit less of a use of working capital and the elimination of the payment for the European Commission that was made offset by the slightly higher CapEx is how you get to the broad bridge for working capital change.

All right. So there are no components of working capital that you're expecting to be major sources or uses it sounds like, just a modest use on an absolute basis.

Yes, nothing out of the ordinary.

Okay. And Adam, just to put a bow around all the comments you've provided. Your guidance range for this year, the range is 5% which is entirely consistent with what it's been in previous years, obviously, many people have concerns about the global economy but those don't seem to be manifest in any wider range for you than normal? Because I ask because some other companies have provided much wider ranges than usual given the tremendous uncertainty that seems to exist. So do you have any less confidence just in the outlook than you've had in previous years given the state of the economy. I assume the answer is no but just hoping you could address that anyway.

Sure. Maybe I'll start with the last piece. So no, you're right. The answer is no. We actually have more confidence, I think, as we sit here heading into 2023 than we had heading into 2022 because of all the uncertainty that we were facing. And Adam, we did have a lot of debate around this table and with our team about what that range should be. And ultimately, it's kind of the last point. We said that we think there's less volatility and less risk than what we came into 2022 with. And we think that we've got pretty good insight into the depths of our business and we should be providing that level of insight to the market. And there was discussion of a change but ultimately, we all agreed and decided that it would be appropriate to leave the range exactly where it was.

No, I appreciate it. And what is the if there is a particular source of uncertainty for you, is it about around inflation? Is it demand? Is there anything? Is that the pack? It's January, so you probably don't know much of anything about the pack. But is there any particular source of uncertainty that you would call out or not really?

Well, I think, look, the destocking situation that affected both Dispensing and Specialty Closures and Custom Containers that will resolve itself at some point, right? We think we've got a really good signals that, that is resolving literally as we speak. If that gets delayed for any reason or for whatever reason, that would be a little bit of risk, Adam. That's probably the biggest one in dispensing and then over in custom. I think the food can business, you've got right. I think that is more about the pack. Remember, '21 was the year that the supply chain got replenished for that. So we were up significantly and expected a normal pack in '22 which we got. The pack ended in Q3 which was a little earlier than what we expected but that was fine for us. So we are anticipating a good pack this year. And there's always the normal risk around the pack but it's not like the year is dependent upon pack volumes. It's just the one item that does have some play into the absolute volume numbers at the end of the pack.

Terrific. Thanks so much and best of luck.

Great. Thank you, Bill and I appreciate everyone's interest in Silgan and we look forward to discussing the first quarter results in late April. Thank you.

Thank you. Again, ladies and gentlemen, thank you for joining Silgan Holdings' fourth quarter earnings conference call. I'd like to thank you all so much again for joining us, and wish you all a great remainder of your day. Goodbye.