Good day, and thank you for standing by. Welcome to the First Quarter 2023 Sonoco Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Lisa Weeks, Vice President of Investor Relations. Please go ahead.

Thank you, operator, and thanks to everyone for joining us today for Sonoco's First Quarter 2023 Earnings Call. Joining me this morning are Howard Coker, President and CEO; Rob Dillard, Chief Financial Officer; and Rodger Fuller, Chief Operating Officer. Last evening, we issued a news release highlighting our financial performance in the first quarter and we prepared a presentation that we will reference during this call. The press release and presentation are available online under the Investor Relations section of our website. As a reminder, during today's call, we will discuss a number of forward-looking statements based on current expectations, estimates, and projections. These statements are not guarantees of future performance and are subject to certain risks and uncertainties. Therefore, actual results may differ materially. Please take a moment to review the forward-looking statements on Page 2 of the presentation. Additionally, today's presentation includes the use of non-GAAP financial measures, which management believes provides useful information to investors about the company's financial condition and results of operations. Further information about the company's use of non-GAAP financial measures, including definitions as well as reconciliations to GAAP measures, is available under the Investor Relations section of our website. After management's prepared remarks, we will host a Q&A session. If you would please turn to Slide 4 in our presentation. I will now turn the call over to our CEO, Howard Coker.

Thank you, Lisa, and thanks to all of you for joining us today. As our first quarter results show, we've had a good start to the year. I'll let Rob cover the detailed financial results, but our commercial excellence programs and improving productivity are underpinned by what we consider a strong Q1 performance. As I mentioned before, we are not immune to the secular headwinds surrounding our customers and the economy in general. However, this demonstrates that our better portfolio management and business mix provide less volatile results than in previous business cycles. We have a backlog of growth and efficiency investments that are material to future earnings. While we navigate near-term macro volatility, we're going to invest in the businesses and place our investments on projects with the highest returns for our shareholders. I would like to extend my gratitude to our Sonoco employees in our operations, within our sales and engineering teams, and all those that support the business around the world. Thank you for what you do, and thank you for supporting our customers, Sonoco, and your focus on execution day in and day out. Before Rob takes you through the financial results and guidance, please turn to Slide 5. I want to highlight that we released our updated corporate responsibility report last week and provided a QR code in this presentation that you can scan to directly download the document. This report is critical to our senior leadership team and our Board on ESG commitments we're making, including those highlighted in our refreshed document. We're excited to release our first report in reference to GRI, TCFD, and SASB standards, and report progress to 2030 in line with the Science Based Target initiatives. On the social side, we have updated our workplace diversity progress, as well as updates on our supplier diversity and spending programs. Lastly, we have many R&D efforts centered on developing new and innovative products to meet the sustainability goals of our customers. We are tremendously proud of our capabilities and the work on this front-end. With that, I'm going to turn it over to Rob to walk us through the quarter and the financials.

Thank you, Howard. Let's move to Slide 7 to review the key financial results for the first quarter. Please note that all discussed results are adjusted and reflect year-over-year growth metrics, unless stated otherwise. The reconciliation for GAAP and non-GAAP EPS is included in the appendix of this presentation and the press release. First quarter financial results reinforce Sonoco's ability to produce solid performance through strategic pricing and operational excellence, even with uneven end market conditions. Sales decreased by 2% to $1.73 billion in the first quarter. Sales for the quarter were within our expected range, despite ongoing supply chain variability affecting month-to-month volumes. January sales surpassed expectations, while March sales fell short. However, we don't see this as a lasting trend and anticipate sequential sales growth in Q2, similar to what we achieved in Q1. Operating profit reached $213 million, with an operating profit margin of 12.3%. Additionally, EBITDA totaled $276 million, resulting in an EBITDA margin of 15%. This level of profitability was expected, considering a negative $86 million impact from metal price overlap during the period. Excluding the metal impact, EBITDA rose, and EBITDA margins improved by over 17%. Lastly, earnings per share stood at $1.40, surpassing our initial guidance as we continued to implement our operating model to achieve pricing and productivity despite uneven net market conditions. Next, let's look at sales and operating profit on Slide 8. On the sales bridge, the borrowing mix was net negative at $116 million or -6.5%. The volume/mix was influenced by low industrial volumes, benefiting from recent acquisitions. The start of integration is advancing as planned, and Q1 included a partial month of metal packaging. Price contributed positively by $98 million, a 5.5% increase. This reflects our commercial excellence efforts, focusing on value selling and managing contracts to offset inflation. Next, regarding the operating profit bridge, volume/mix negatively impacted us by $40 million due to low volumes affecting standard margin performance. Price/cost was negative by $22 million since negative price/cost in metal packaging counteracted positive price/cost in Paper Containers and Industrial. Industrial price/cost was positively impacted by $44 million thanks to our transition to index-based pricing and historically low OCC. OCC averaged $35 per ton in Q1 2023 against $150 per ton in Q1 2022 and $38 per ton in Q4 2020. Productivity improved significantly by $20 million as we executed our disciplined operating model, establishing a strong foundation for meaningful productivity when volumes normalize. Slide 9 offers insights into our segment performance for the quarter. Consumer sales grew by 5% to $909 million, attributed to acquisitions and strong pricing. Sequentially, sales increased by 3%. However, high customer inventory levels and the normalization of supply chains are continuing to disrupt volumes in the Consumer business, resulting in a less favorable near-term volume outlook compared to the beginning of the year. Consumer volumes fell by 1%, including acquisitions and divestitures. Volumes in Flexibles and Paper Containers remained nearly flat. Metal Packaging can volumes decreased as growth in food was counterbalanced by low aerosol volumes due to high customer inventory. Consumer operating profit was $92 million as Flexibles recorded its second-best quarter in history, and Paper Containers maintained strong operating profit and margins. Industrial sales dropped by 12% to $616 million as lower volumes outweighed higher prices. Industrial volumes declined by 13%, with trends weaker in Europe and Asia. U.S. volumes decreased due to increased maintenance, reduced business activity, and the impact of exiting the corrugated media markets and divestitures. It's noteworthy that Industrial sales increased sequentially owing to higher volumes. Industrial operating profit increased by 30% to $94 million as price/cost factors balanced utilization. The operating profit margin grew by 490 basis points to 15.3% due to partial excellence initiatives. All Other operating profit surged by 88% to $27 million owing to strong price/cost dynamics and productivity. All Other showcases the effectiveness of our disciplined operating model as we optimize results across these significant business segments. These outcomes indicate that our operating model is effective, with margins rising across all Other segments. We’re concentrating on securing appropriate prices for our value-added offerings while reducing focus on exiting commodity markets like the recently exited corrugated media market. We’re investing in the business and managing costs, anticipating significant productivity gains once volumes normalize. Moving to Slide 10, our capital allocation framework aligns with our business strategy aimed at driving shareholder value creation. Our top priority is channeling capital into high-return investments within our core businesses to foster growth and enhance efficiency. In terms of free cash flow, we are committed to increasing the dividend, which rose by 4% to $0.51 per share quarterly, translating to an annualized yield exceeding 3% based on current share prices. Following capital investments and dividend disbursement, our next focus is on strategic M&A while ensuring we maintain an investment-grade credit rating. For the quarter, operating cash flow registered at $98 million, and expenditures for property, plant, and equipment amounted to $83 million. After accounting for proceeds from asset sales, net capital investments stood at $12 million. On Slide 11, we outline our Q2 2023 guidance. In Q1, we achieved our initial EPS guidance at the upper end of our revised range. For Q2, our EPS guidance is set between $1.45 and $1.55. We have robust control over our operations, which are functioning well. This guidance incorporates a $26 million negative year-over-year metal price overlap and ongoing low industrial volumes in Q2. We’re increasing our full-year 2023 EPS guidance to a range of $5.70 to $6. We're cautiously optimistic about the rest of the year, managing the business with agility. We are reaffirming our EBITDA guidance of $1.1 billion to $1.15 billion, along with our operating cash flow guidance of $925 million to $975 million. We expect continued benefits from effective net working capital management throughout 2023. Now, Rodger will discuss the segment outlook.

Thanks, Rob. Please turn to Slide 13, for our view on segment performance drivers for the second quarter 2023. Across Consumer for the second quarter of 2023, we expect sequential volume growth across the segment, including metal cans. We see increasing demand for sustainable packaging solutions and new products and we're closely monitoring any potential softening based on consumer spending. In Q2, as Rob noted, we will work through the remaining inventory impacted by metal price overlap, which will not continue in the second half of the year. Beyond this year, we'll continue to invest capital to expand capacity for sustainable packaging in 2024 and beyond. In our Industrial segment, we see continued softness in volumes globally in our converting and trade paper sales in the second quarter. We're monitoring European and Asian demand recovery carefully as that will be critical to the overall volume outlook for the full year. Thus far, we have yet to see any significant improvements, which is reflected in our forecast. Demand remains soft in our core Industrial markets and in protected packaging for the consumer white goods market. We've modeled price/cost benefits to moderate as we progress through the year in the Industrial segment but still expect full-year price/cost to be positive, while some inflationary impacts are lessening, labor and related costs continue to increase. Our global uncoated recycled paper mill operations in the second quarter, we will maintain reasonable backlog levels by region. In North America for the second quarter, there is no planned lack of business downtime, with normal levels of scheduled maintenance downtime similar to the first quarter, as we've seen the North American URB network supply and demand stabilize in the last month. We will continue to take periodic lack of business downtime in Europe and Asia at similar levels to the first quarter until demand improves. In our other businesses, we continue to have net stable volume demand across this collection of businesses with improving productivity and favorable pricing actions. We expect continued increases in profitability this year. Overall, we had a good start to productivity in the Consumer and All Other businesses, and we expect to see the benefits in Industrial when volume growth returns. We're seeing the positive impact of our increased capital spending in the last few years focused on productivity and a fairly significant easing of supply chain constraints on our materials and labor. With improvements across the breadth of our excellence programs and just really executing well, we're continuing to build resiliency in our operating model. With that, back to you.

Okay. Well, thank you, Roger. If you would turn to Slide 14, I want to end our discussion as we look ahead to 2023 and beyond. First, Sonoco is a global leader in sustainable packaging, our funnel of packaging solution design provides Sonoco with a long runway of growth opportunities across our businesses. We are continuing to transform this great company through portfolio management and strategic M&A. We have spent the last 18 months and beyond working on structural transformation to solidify our base. In the future, you're going to see increased efforts to further focus the portfolio. We will exit some businesses and expand others at the right timing to maximize value, and we will keep you informed as we progress through this journey. We're in the early stages of leveraging our operating model to expand margins; our operating model is solid and sound. Through our excellence programs, footprint optimizations, and enterprise standardization, how we operate the business will only get better over time and reflect our solid performance in the uncertain times we live in today. As Rob covered very well earlier, we remain disciplined in capital allocation, and we expect to continue investments to grow. Lastly and importantly, we are committed to improving the lives of our team members, our customers, and the communities in which we live and work. Our recent corporate responsibility report only scratches the surface of the great things happening within Sonoco to fulfill these commitments. We look forward to keeping you informed along the way of all the improvements we are undertaking. And with that, operator, we are pleased to open up to questions.

Our first question comes from Ghansham Panjabi with Baird.

Yes. Thank you. Good morning, everybody. I guess, first off, could you just give us some more granularity on the first quarter volumes across the various Consumer verticals? If you have covered some of this, I apologize; we had some audio issues on our end during the prepared comments.

Yes, we can talk about the different Consumer verticals in Q1. From a volume perspective or from an operating profit perspective?

Volume would be helpful.

Okay. Yes. From a volume perspective, I think the primary trend we saw was a strong start and a soft finish to the quarter. Really, when you think about Flexibles and Rigid Paper Containers, those both had really good quarters, but ended up relatively flat with kind of an uncertain trend for the rest of the year. Metal was down slightly, really due to weakness in aerosol. So those were the primary drivers there.

Got you. And then in terms of productivity, Q1 was around $20 million plus. How should we think about the rest of 2023? And then also on price/cost, you said you expected the full year to be positive; just expand on it in terms of sequencing for the full year?

Yes. On productivity, Ghansham, this is Rodger. I think we should expect pretty similar levels by quarter. As I said, we're seeing supply chain constraints ease off, labor is up to some degree, and the team is executing extremely well on the capital that we put in place over the last few years focused on productivity and print optimization. So I think you should see similar levels going forward from today.

And on price/cost?

Yes. On price/cost, I'd say for the balance of the year, we probably started the year a little bit pessimistic on where we would end up in price/cost, and we've seen pretty good performance from how input costs and our ability to get prices off of food costs and government inflation have come down. That's one of the reasons for some of the upside in the forecast.

And one moment for our next question. And our next question comes from the line of Anthony Pettinari with Citi.

I was wondering if you could talk a little bit more about maybe customer inventory positions, starting with Consumer. Where are we in the destocking cycle in metal composite food cans versus aerosol versus flexibles? And then on the Industrial side, are there any trends you'd flag in North America versus the rest of the world in terms of customer inventories in that destocking cycle, and where we are?

Anthony, this is Howard. As Rob said, when we updated our guidance in the middle to the end of the first quarter, we noted when we came out in January that it fell through in terms of the destocking activities on the Consumer side, particularly in our legacy business. We came out really strong in January and early February. I don't think it's unique to Sonoco; we started seeing tapering off with the banking crisis and other uncertainties in the macro environment. So we did see some backing down there. I would suggest that on our legacy side of the business, there are still question marks in the full value chain, from the retailer to the supplier and basic raw materials, but it's not as concerning as we had first expected. On the metal side, the results are relatively consistent with what you've heard from others, as CMI, with growth on the food can side and declines on the aerosol side. In our case, we've got a couple of customers whose destocking activities have extended longer than they or we had expected. We're looking at secular improvements quarter-to-quarter, and we're getting assurances that they should be working through their situation through the middle to the end of this year. So it’s a unique one-off situation on the aerosol side, and we'll just have to wait and see.

Yes. And at the Industrial, it's Rodger. We're modeling down a mid-single-digit continued decline in Industrial volumes in Q2, which is really driven by Europe and Asia. This continued weakness there, along with some one-offs, including the impact from the earthquake in Turkey, has had a significant impact. But as I said earlier, in the North American market, we've seen stabilization. We're not modeling in any growth there, but we've seen it stabilize over the last month, and I'm expecting that for the second quarter. So really, the watch-out is Europe and Asia as far as the second half of the year.

Yes. And just going back to my prepared remarks and what I mentioned earlier, I cannot be prouder of the team and the activities we've undertaken over the last 18 months to transform how we manage the day-to-day of the business. Despite a relatively weak volume scenario, we are proposing type of productivity numbers that we're posting. It just gives me great confidence that when volume returns, we'll be in an extremely solid position to leverage that productivity in a more material way. So thanks to Rodger and the team for what they're doing on the operations side.

Okay. That's very helpful. And maybe just one follow-up on productivity. All Other, obviously, a smaller part of the business, but the margins there are quite strong in the quarter compared to historical levels. I'm just wondering if you could talk about some of the internal improvements you've made in those businesses, maybe the sustainability of that kind of margin? And just how you're looking at that segment strategically.

To start with, Anthony, it's become a model for the entire company. If we go back a year or two ago, we restructured not only how we report out from a segment perspective but also how we manage the businesses. We created a more entrepreneurial-type environment in the All Other category, allowing them to operate within the guidelines of the business, supporting unique businesses that they serve. And from that, we're seeing results. Again, there are pockets across the rest of the company, similar to what you're seeing in All Other. How we're looking at it for the long term, these are good businesses, many of which are first or second in their market segments, and we're going to continue to operate them to achieve their full capability while driving through the productivity and transformational programs we have in place. So they are well positioned to show you a snapshot of what we're seeing across the company. We'll be evaluating businesses over time, and I did mention in my prepared remarks that the time is coming to possibly exit some businesses that may be long-term better off for others. From an acquisition perspective, we see the inverse of that as well. We'll keep you posted and let you know, but the intent right now is to run these businesses as efficiently as possible to deliver value for our shareholders. They are very resilient, as you know, Anthony, and they matched price/costs extremely well in the first quarter, and we’ll do the same in the second.

And one moment for our next question. And our next question comes from the line of George Staphos with Bank of America Securities.

Hi, everyone. Good morning. Thanks for the details. I guess the first question I had, if you had already mentioned it, I apologize. But can you provide the lack of order downtime by region in the first quarter?

I can, George. It's Rodger. About right at 10% in North America, closer to high 20% in Europe, and pushing 25% in Asia. Pretty significant.

Okay. Roger, could you share what the tonnage figures would look like? We can revisit this later, but I wanted to ask while I have you. If you don't have it, that's fine.

Yes, all tons across the system, about 70,000. I don't really have that.

That's fine. Perfect. I guess the next question I had is that other companies experienced a slowdown as the quarter progressed, and March was, in some ways, weaker year-on-year for many companies compared to the beginning of the quarter. Considering the number of consumer companies you have engaged with and the variety of your product line, what do you think happened? Your businesses were relatively stable going into the quarter, and you were anticipating mid-single growth in food cans and similar growth in flexibles. Volumes typically do not fluctuate significantly. So, based on what you are hearing from your customers, what caused consumers to retreat so significantly? I'm curious about your thoughts on this.

Yes, George, it's Rodger. From our large consumers, I mean, you can see in their results, they're taking significant price in the market place. And some of our customers' products are very price-sensitive. I think you're seeing that start to impact some of their volumes or did at the end of the first quarter, and you see the major big-box guys starting to push back on price. But as we said, our food can business was up 5%. So that came in about where we expected. The other issue is some of the inventory challenges and the supply chain difficulties that our customers have faced. They've just built up more inventory than we expected coming into the end of the first quarter.

But George, I know you don't want a warranty, so I will not give you a warranty. What I will say is that we're staying conservative with our outlook in terms of volume and volume recovery, and we're really looking at seasonal increases for a quarter on most of the Consumer side of the business, including the Metal. In Industrial, we're saying, look, we're not expecting any recovery for the period.

It sounds like you're maintaining a consistent outlook, essentially anticipating minimal sequential improvement. Rodger, if I'm not mistaken, you mentioned you expect mid-single-digit declines in Industrial for the second quarter. What do you have planned across the major categories for the second quarter and for the year in terms of volume as part of your guidance?

In Consumer, up high single-digits sequentially in the second quarter over the first, and then All Other, again, I think similar volumes going into the second quarter but similar levels of...

So my thought, we're seeing across the category, and we're seeing sequential recovery, and again, is it seasonal, part of it is certainly not.

And one moment for our next question. Our next question comes from the line of Mark Weintraub with Seaport Research Partners.

I have a question for clarification. I believe you mentioned something regarding the metal price overlap. Did you refer to it as a negative 26% for this year or last year? I might have misheard that. Could you please clarify?

Yes. The metal price overlap this year was negative 86% in Q1.

86?

Yes. So we still expect that for the full year, it will be slightly more than what we had originally expected—more than 100%.

So as you look into the various carry-over, we expect that to be completely resolved by the end of the second quarter.

Okay. That makes a lot more sense than what I thought I heard, which was wrong. The second, I'm just trying to understand a little bit. I think you said that you don't see any lack of order downtime in your North American Industrials business kind of going forward, which I guess seems surprising to me given the reduction in demand that we have seen, and you weren't talking about it getting a lot stronger. Can you sort of just help me piece that together?

Yes. If you think about the capacity utilization across the URB system in the first quarter, I think the SBA published numbers came out, and capacity utilization was something like 80%. So there was pretty significant downtime across the market in the first quarter. I think that worked out some of the high inventories. As I said earlier in my opening comments, at this point, for the North American market URB market, we expect minimal business downtime in the second quarter. The market has stabilized. Volume is not significantly improving, but it has stabilized. So we feel like that will hold for the quarter.

Okay. So is it fair to think that the level of downtime taken in the first quarter essentially overshot you to a point where even with demand a little bit weaker, there's a bit of a cushion? And then hopefully, we get a little bit stronger demand in the latter part of the year? If that's the case, then we're in good shape. And otherwise, we potentially have some more lack of order downtime later in the year. Is that a reasonable way to think of it?

Well, if you think about the volumes on a year-over-year basis, there is a reduction in volume associated with the conversion of #10 and the remainder of the project horizon activities. And that's actually adjusted our mill system to be kind of appropriately sized for the market right now, which we feel good about.

Got it, got it. And then lastly, just to come back to kind of questions coming up a few times. I think you had suggested you thought Consumer volumes this year could be up as much as 4% to 5% last quarter, recognizing it's gotten murkier. There's lots of uncertainty, and you've talked about the consumer pulling back. Do you have kind of a perspective on what you think that number for 2023 year-over-year built into your guidance might look like? I assume it's lower than that 4% to 5%. Is that fair?

That is fair, Mark. Again, as we came out of the year it was pretty impressive with what we're seeing, and that has certainly slowed down. So we're moderating our expectations for the full year. We do think it will speed slightly up on the Consumer side when it’s all said and done. But I guess we missed it in terms of the exuberance we felt as we entered the year with that mid-single-digit growth expectation. I'm just going to keep going back to the execution side of the business and being able to manage in this type of environment.

And one moment for our next question. Our next question comes from the line of Kyle White with Deutsche Bank.

I wanted to follow up a little bit on the last question, but also just broader looking at your full year outlook. Can you just talk about some of the moving parts considering 1Q from an earnings standpoint? Was it a bit above your initial expectations, but yet you're maintaining the EBITDA range for the full year? Is that just driven by the softness in terms of the volume backdrop that we're seeing right now? Or was it also driven by maybe some weakness in can bin pricing being a little bit weaker than what was initially assumed? Maybe just any details you can provide there would be helpful.

Yes. I think the biggest driver there was really the range and the mechanics of it all. We feel really good about where the EBITDA range is, and it's $50 million. So I think you can read into that, as to where we think we're going to be in that range. The volume/mix, as we think about it, productivity was really an offset in the early part of the year, and we feel good about how productivity is unfolding through the rest of the year. Even with volumes, the Consumer side is a little bit weaker than what we had originally planned. We built in some margin compression over the coming quarters in Industrial for the balance of the year in our guidance.

Got it. If I can follow up on that, I assume you're keeping current list prices for can bidding shift in North America. Is that fair to say for something in the guidance?

Yes, that's fair. And we're also assuming a $15 to $20 increase in the average OCC price between now and the end of the year. So there were some cost increases coming in, but we left it flat for the year.

That's helpful. And for my second question, there's a lot of weather events in the past quarter. Just curious if that had any impact on your fresh fruit packaging business? And then also if there's any anticipated impact for the farming community related to it?

Yes, Kyle. We certainly took into account the variant trade business, which is centered in California, and that season really coming off in that late winter January time frame with strawberries and other fruits. And, of course, we have the cost activity down in Florida. So that certainly reflected to some extent in the performance of that business in the first quarter. I think we're working through that as we move forward. On the metal side, our focus on the tomato markets is really in the Midwest, where we have not seen the same types of environmental issues as you see on the West Coast. But our customers are continuing business as usual.

And one moment for our next question. Our next question is going to come from the line of Cleve Rueckert with UBS.

Just a couple of follow-ups for me because I think a lot of the key points have been addressed. But I just wanted to dig in a little bit more specifically on the volume decline that you're talking about. I think we've talked a couple of times about Industrial volumes being weak. They're stabilizing at a low level but not really quite growing yet. Is that pretty much entirely coming from the containerboard industry, or is that a sort of a more broad comment across other end markets?

Yes. Clearly, this is Rodger. It's broad. It's across all markets—textiles especially weak, really most every region globally is experiencing this downturn. Also down across containerboard so it's really broad-based across all four categories that we track.

Yes. Okay. But it sounds like you're getting some confidence that orders are starting to pick back up and at least from a volume from like tons produced standpoint, you're confident that Q1 was the trough.

In fact, we've modeled in some continued modest declines in the second quarter, driven by weakness in Europe and Asia. So that's what's included in our guidance at this point.

Yes. Sorry. But North America is starting to firm.

Yes, relatively flat, quarter-to-quarter.

Yes. And then just quickly on that. So in terms of the variability in the outlook, just the kinds of things that we should track through the balance of the year as we think about skewing towards the top or the bottom end of the guidance. It sounds like really the European and Asian regions are where there are just more question marks about how the second half is going to materialize.

For Industrial specifically, that’s correct. I would say probably more Europe than Asia is really the main concern. I also want to point out that Consumer is only about 2% of our turnover.

Got it. And it was a nice bit of results for the quarter but that's not going unnoticed. Thanks, everybody. I'll turn it over.

Finally, I'd like to include myself as well.

And one moment for our next question. And our next question comes from the line of Gabe Hajde with Wells Fargo Securities.

I just find it interesting that I feel like maybe some of your customers are probably window dressing for the balance sheets coming into the end of the specific quarters. Because if memory serves, December was a pretty bad month on the consumer side, and then January snapped back, and we kind of had a similar experience in March. So I'm curious if you could comment at all about sort of how April is trending. I think you said, Howard, that you're expecting the normal seasonal sequential step-up in the food can business, maybe some moderation in destocking in the aerosol side, but then just maybe the legacy Consumer business. As we think about monitoring the quarters and the rest of the year as it progresses, maybe paying more attention to what your customers are saying in terms of maybe modulating their own purchases and responding to consumer behavior. Is that the wild card or the factor that we should be most mindful of? Or is there something else going on?

Yes. I think it's too early to determine if there's a new trend in the operating environment from a customer's viewpoint. I like to believe it is connected to the current macroeconomic situation, which we've all observed. There were many uncertainties in January and March regarding the banking sector and its impact on the global economy. The decline we experienced likely stemmed from efforts to reduce inventories as we rounded out the year. Comparing quarters, I don’t think we’re seeing a sustainable new phenomenon; we could see it in December, which is typical as companies aim to minimize working capital. Regarding improvements for the Consumer side going into the second quarter, it certainly depends on our current position and the seasonal context. Yes, it's expected based on historical patterns that we observe increases during the spring for summer inventory, particularly in the can segment of our business.

Okay. And then maybe getting back to this All Other segment and the enhanced profitability. Is there any way to frame up for us, sequentially and then maybe over the second overall? I mean, should we kind of expect this level of profitability to persist sort of on either an absolute dollar basis or a margin perspective? Or was there something unique to the first quarter more sales of reels or something like that that may be slowing things around a little bit more?

Yes, Gab, this is Rob. That's a good question. Those businesses, as Howard said, we have really changed the operating model, both challenging them and giving them great freedom to operate. What they’ve done is we're really entrepreneurial and generating some great results as a result. These are not one-off or specific results that we can attribute to any quarterly fluctuation. Across the board, down the line of those businesses, we’re seeing operating improvements driven by really tight cost control, investment in productivity, and a very disciplined investment in growth where they see it. So those levels of profitability are sustainable. Frankly, there are a couple of businesses that have yet to really catch on, and we're excited to see those businesses start performing as well.

Okay. One last question regarding the guidance. It seems you have widened the range, which I can somewhat understand. However, it feels a bit unusual to do so after a strong performance in Q1. I noticed that interest expenses are tracking higher than expected; you previously guided us to $115 million. Has that assumption changed? Also, could you explain the reasoning behind widening the range compared to your previous guidance?

Yes, interest expense has trended higher than thought, and it's related to how we budget every year. It looks like we may see some recovery in variable interest rates by the end of the year, but we certainly budgeted flat as we have a fair amount of variable rate down. So that’s what's flowing through there. With regards to the range moving it up, I think where we were thinking really was as we evaluated the risk and opportunities; we felt really comfortable with what we had identified in Q1 as we identified a lot of opportunities, but there was still some uncertainty in the market and the operating environment. We want to ensure that the range is wide enough to achieve it. That’s why we really kept the EBITDA gain where it was, as well, because we feel really confident that our expectations for the year are narrowing in on that range.

Our next question comes from George Staphos with Bank of America Securities.

I have two questions. First, could you comment on your price and cost expectations for this year? How do they compare to what you anticipated at the start of the year and your previous guidance? What positive variance are you seeing that helps offset the volume uncertainty? Additionally, how would you assess productivity? Is there a way to quantify where operations stand now for the year compared to your initial expectations, especially in relation to the volume uncertainty? My second question relates to volume. You mentioned expecting consumer volume to increase modestly this year. Considering there are no guarantees, is there a point of volume decline that could impact the low end of your guidance range? For example, if you ended the year with a decrease of 2 or 3 percent, would that jeopardize your guidance? How should we think about these concerns?

Yes. So look, as we think about the year and kind of where we planned it, the bridge really includes productivity and a little bit of volume positive here and there. The price/cost was the big driver for the performance in Q1 and will continue to be a big driver throughout the year, really overcoming that metal price overlap with strong performance across the broader business. So I'd say metal price overlap is coming in higher than we had anticipated. That's certainly a greater headwind than we had anticipated, but we are seeing pockets of strength. Overall, I think price/cost will probably be weaker than what we originally anticipated.

Weaker. Okay. And productivity then, where is that kind of adding to you relative to your prior expectation?

Yes, George, this is Rodger. In our original plan for 2023, we wrapped up productivity throughout the year expecting more time for those capital projects and supply chain challenges to ease. The first quarter was probably twice what we expected; so if you think about the next several quarters, we're pretty optimistic that'll be at plan or even slightly above that.

Regarding the volume question, while I can't make any promises, there definitely is a level. At what point would you begin to be concerned about your guidance factors if you observe a certain amount of volume decline?

Yes, George, you're right. that's a tough one. It's really going to depend. What I would say is that I think what we've modeled out is what we believe to be true on the lower side of that. The question is more about what the negative implications could be. What I would say is that we find that history does not predict the future. But George, for the most part, on the Consumer side, we participate in staple food, certainly for consumer goods, and really on one exception there. So when things get tougher, we seem to attract more folks to the products we represent—both store brand and name brand. I'd like to think that if things get tougher, the Consumer side would potentially benefit from that, but of course, that could have ramifications on other parts of the economy.

No, sure. Historically, though, on a relative basis, it does work for you, but thinking about in absolute terms, what was driving that question. I'm sorry, go ahead.

No. I was just going to say I hope that answered your question.

And I am showing no further questions at this time. And I would like to hand the conference back over to Ms. Lisa Weeks for her closing remarks.

Yes. Thank you all for joining us here today. I would highlight that we will be out on the road for the rest of the quarter, and you can consult our website to see where you can connect with us. In the meantime, if you have any further questions, please don't hesitate to reach out. We hope you all have a wonderful day, and we talk to you on our next earnings call. Thank you.

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