Sonoco Products Co Q3 FY2024 Earnings Call

Ladies and gentlemen, thank you for standing by. My name is Krista, and I will be your conference operator today. At this time, I would like to welcome everyone to the Third Quarter 2024 Sonoco Products Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. Thank you. I would now like to turn the conference over to Lisa Weeks, Vice President of Investor Relations. Ms. Weeks, you may begin.

Thank you, Krista, and thanks to everyone for joining us today for Sonoco's third quarter earnings call. Last evening, we issued a news release highlighting our financial performance for the third 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 at sonoco.com. 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. Please join me this morning in welcoming Howard Coker, President and CEO; Rob Dillard, Chief Financial Officer; and Rodger Fuller, Chief Operating Officer. For today's call, we will have a prepared remarks section regarding our results for the quarter and our outlook for the fourth quarter, followed by a Q&A session. If you will please turn to Page 5 in our presentation. I will now turn the call over to our CEO, Howard Coker.

Thank you, Lisa. Good morning, everyone, and thank you for joining our third quarter call. As we announced late yesterday, we had another solid quarter, where we delivered sequential and year-over-year increases in adjusted EBITDA, adjusted EBITDA margins, and earnings. During the third quarter, sales were $1.68 billion, adjusted EBITDA was $281 million, and EBITDA margins remained strong at 16.8%. Our adjusted earnings per share were $1.49, and operating cash flow was $162 million in the quarter. In Consumer, volumes were higher year-over-year in Metal Packaging and TFP. Rigid paper can volume recovery continues to pace below our expectations, but we're hopeful this will improve as we head into next year. As expected, industrial volumes were flat sequentially and up year-over-year in North America and Europe. Industrial price/cost impacts remained a headwind, which are expected to improve. Overall, another solid quarter from the Sonoco team led by excellent productivity results of $39 million. I just wanted to express thanks to the entire Sonoco family. This has been a difficult six-week period. When the first Hurricane Helene track was posted, Sonoco had 63 facilities in the storm's potential path. We shut down operations and halted production for the last three days of the quarter in the affected areas, and the supply chain disruptions continued through the first week of October. A short time later, Hurricane Milton made a path toward our operations in Florida with major damage to our Plant City location. Through all this, we maintained our focus on caring for our people and finding creative ways to deliver products for our customers. So, to all the employees who gave generously to help your fellow team members lift each other up during a time of need, we thank you. If you please turn to Page 6, where I'll provide an update on a few near-term strategic priorities. We continue to operate with discipline by driving productivity from supply chain savings, production efficiencies, and fixed cost reductions. These focused efforts are underpinned by portfolio simplification and focused capital investment, which have resulted in $141 million of productivity through the end of the third quarter. I couldn't be more pleased with the efforts from the entire Sonoco team. We remain focused on cost optimization activities, including footprint consolidations, most notably in industrial. We're in the process of closing one paper mill and three paper converting operations in China by the end of this year. These activities will continue across our global industrial network as part of our ongoing network optimization program. We continue to invest in strategic capital and innovation to support organic growth and sustainability initiatives. At the recent 2024 Food and Drink Federations Award, we received the Sustainable Innovations Award for our mono-materials Pringles can, recognized for inspiring European consumer packaged goods companies towards fully recyclable packaging. Innovation linked to sustainability is a competitive differentiator in our rigid paper container business, and we continue to invest for future growth in these products. Regarding additional strategic priorities, we were pleased to announce the acquisition of Eviosys in late June, representing an important milestone to scale our strategic metal packaging platform. The approval processes are well underway and Roger and the team are making great progress on planning for a seamless integration. Based on the current schedule, we expect to close the transaction in the fourth quarter of this year. If you turn to Page 7, we're looking forward to the addition of Eviosys, which will position Sonoco as one of the leading metal food can and aerosol packaging manufacturers globally. Through the combination of our existing innovative infrastructure and Eviosys’ technically advanced and well-invested manufacturing footprint, we look forward to serving both existing and new customers and unlocking new opportunities in attractive end markets and geographies. The financial profile of this combination is compelling. The transaction will be immediately accretive to earnings and cash flow, and this year's returns are expected to be well in excess of our cost of capital. Most importantly, it gives a strong, powerful operating platform to advance both commercial and operating improvements that will help us continue to drive sustainable value and returns for our shareholders. If you turn to Page 8, in September, we announced that we were reviewing strategic alternatives for our Thermoformed & Flexible Packaging, TFP, which is part of the Consumer Packaging segment. The goal of the review is to accelerate Sonoco's portfolio simplification strategy, improve pro forma leverage, and continue to align value-creating capital investments to the highest return opportunities to further increase shareholder value. With this expanded divestiture plan for TFP and our previously announced ThermoSafe divestiture, Sonoco will finance the Eviosys acquisition with debt and cash and no longer plans to issue equity. Based on our current plans, we expect to reduce net leverage from previous estimates within 24 months of the Eviosys acquisition. From a timing perspective, we still expect to continue the strategic review of TFP through Q4 of this year. TFP has been a valuable part of the Sonoco family for many years, and the contributions have been and continue to be impactful to the company. And with that, I'm going to turn it over to Rob for a brief financial update.

Thanks, Howard. I'm pleased to present the third quarter 2024 financial results, starting on Page 10 of this presentation. Please note that all results are on an adjusted basis, and all growth metrics are on a year-over-year basis unless otherwise stated. The GAAP to non-GAAP EPS reconciliation is in the appendix of this presentation as well as in the press release. As Howard said, we continue to deliver strong financial results through our enduring operating model and strong market positions. We grew adjusted EPS to $1.49, which was within our guidance range and exceeded the consensus analyst estimates. This result was driven by positive productivity of $0.31 per share and positive volume mix of $0.06 per share offset by negative price/cost of $0.29 per share. For the quarter, sales decreased 2% to $1.68 billion as volume increases were offset by negative price and negative $92 million from actions to exit or divest non-strategic positions. Excluding these strategic actions, net sales would have grown 3%. We believe that divesting the Protective Solutions business, exiting non-profitable thermoforming markets, and reclassifying the recycling business will increase our focus and execution. Volumes across our diversified portfolio were positive but missed as several businesses experienced near double-digit improvements while others had low or no growth. Overall, volume was positive low single-digits in the quarter as mid-single-digit increases in consumer and industrial offset declines in all others. Organic volume was positive low single-digits, as low single-digit increases in consumer and all others offset a marginal decline in industrial. Price impacted sales negatively by 1% or $17 million. Negative price was the product of contractual resets in new or existing long-term contracts. We continue to execute our strategic pricing strategy, and we're focused on balancing long-term customer partnerships with improved price/cost. Adjusted EBITDA was $281 million, and adjusted EBITDA margin was 16.8%. This is the highest adjusted EBITDA since Q3 2022 and the highest adjusted EBITDA margin since Q1 2022 when we had meaningful metal price overlap. We achieved this strong profitability through a tight focus on productivity and lower costs. Productivity was positive $39 million in the quarter. This was our seventh consecutive quarter of year-over-year productivity improvement. We anticipate that this trend will continue despite more challenging comparatives in Q4. Price/cost was negative $37 million due to timing gaps between index-driven price and cost changes on a year-over-year basis. While we anticipate sequential improvement in price/cost in Q4, we expect negative price/cost on a year-over-year basis due to increased fixed and other expenses. Page 11 has our Consumer segment results. Our Consumer businesses achieved strong volume increases and drove earnings growth through positive productivity. Consumer sales were flat at $984 million, while volume growth in TFP and metal packaging drove mid-single-digit overall consumer volume increases. Our core customers continue to communicate that increased promotion is expected to drive demand, and we expect a more predictable and improved trend as a result. Consumer price decreased 2% due to index-based price resets across the segment. We expect this trend will continue in Q4. Consumer adjusted EBITDA increased 6% to $160 million due to strong performance in TFP and metal packaging. We have increasing conviction that our strategy of investing in our Consumer segment is generating improved profitability through volume growth and productivity. In the quarter, volume mix was positive $8 million, and productivity was positive $18 million. This drove a 90 basis point increase in consumer adjusted EBITDA margin to 16.2%. On a more granular level, RPC performed as expected, with sales declining low single-digits to low single-digit volume declines. We have partnership relationships with our core customers in RPC and believe that these volume shortfalls are temporary and due to mix. This is not a trend, and we expect that volume and mix will normalize soon. TFP sales were flat as positive low single-digit organic volumes and strong acquisition performance from NFL was offset by the impact of exiting a non-profitable thermoforming market. Metal Packaging sales increased mid-single-digits, as positive high single-digit organic volume was offset by negative index-based price resets. Tinplate negotiations in 2024 are ongoing. These negotiations are expected to last into the end of Q4, and we have no further updates currently. Page 12 has our Industrial segment results. Industrial market conditions remain mixed. While we are optimistic, we continue to believe that we're in a U-shaped market trend. Industrial sales increased 1% to $585 million. These results include the reclassification of recycling, which reduced sales by $20 million in the quarter. Adjusted for the impact of recycling reclassification, industrial sales would have increased by 4%. Volume increased mid-single-digits, and organic volume was marginally negative. Price increased low single digits due to index-based price resets. We're maintaining strong margins in Industrial due to tight cost controls and operational efficiency. Industrial adjusted EBITDA was $102 million as $18 million of positive productivity and $8 million of positive volume mix was offset by $23 million of negative price/cost. Page 13 has our results for the All Other businesses. All Other sales were $107 million as the divestiture of Protective Solutions meaningfully impacted sales. Excluding the impact of Protective Solutions, All Other sales would have grown low single digits. All Other adjusted EBITDA was $20 million as $4 million of productivity was offset by negative price/cost. Moving to Page 14. Our capital allocation framework aligns with our business strategy to drive value creation through earnings growth and margin improvement. The four pillars of our capital allocation model are capital investment to drive growth and improved profitability, dividend increases to reward shareholders, programmatic M&A to action the portfolio strategy, and share repurchases to return capital and maximize shareholder value. Our goal is to be the most disciplined deployer of capital in our industry. To achieve this goal, we utilize a dynamic capital allocation strategy that allocates capital to the best strategies and the best businesses. Through this, we expect to improve ROIC and generate strong cash flow. Today, this strategy has generated impressive results. We have generated over $250 million of productivity since the beginning of 2023, and we are investing to increase volumes in our core RPC and Metal Packaging businesses. We expect these strategies will drive the next phase of growth and profitability improvement. In addition to these organic plans, we're preparing to close the acquisition of Eviosys in Q4. This acquisition and the evaluation of strategic alternatives for both TFP and ThermoSafe will enable more focused investment through our fewer bigger businesses strategy. Following these transactions, each of our three core businesses will have a leading global market position. Through this, we expect to drive greater efficiency and improved customer support. We're excited about these next steps, and we will provide further updates as our plans progress. On Page 15, we have our cash flow performance for the quarter. Strong operating performance drove solid operating cash flow of $162 million. We're on track with all major capital initiatives. We invested $92 million in the quarter, and we anticipate investing between $350 million and $375 million in 2024. Turning to Page 16. The foundation of our value creation strategy is the disciplined management of our investment-grade balance sheet. This strategy provides Sonoco incredible access to capital, strong liquidity and low cost. We are pleased that we utilized this access to capital to great effect in the financing of the Eviosys acquisition. We've now closed or secured commitments for the $3.9 billion to fund the acquisition. We received commitments for a two-year $700 million delayed draw term loan in July. This term loan will be drawn to fund the Eviosys acquisition and is intended to be repaid with the proceeds from the sale of ThermoSafe in 2025. In September, we received commitments for our 364-day $1.5 billion delayed draw term loan. This term loan will be drawn to fund the Eviosys acquisition and is intended to be repaid with the proceeds from the sale of TFP in 2025. Additionally, we expect to repay the 2025 maturities and other debt with the proceeds from the sale of TFP. Finally, in September, we raised $1.8 billion in bond financing with maturities of 2, 5, and 10 years to fund the Eviosys acquisition. This was an incredibly successful capital raise, and it was over five times oversubscribed. As a result, we were able to achieve a weighted average cost of debt on these bonds of 4.7%. We believe that this reflects investor confidence in our strategy and the strength of our credit position. This issuance was investment-grade rated by Moody's, S&P, and Fitch. We're committed to reducing debt and maintaining our investment-grade credit rating, and we are targeting to be below three times net leverage in 2026. Page 17 has our guidance for Q4 2024. Guidance for Q4 2024 adjusted EPS is $1.15 to $1.35. We expect consumer volumes to grow low single-digits in Q4 due to acquisitions and improvements in TFP and RPC. We expect industrial volumes will remain flat in Q4 as we do not yet anticipate a robust recovery. Price trends are expected to improve, though price/cost is still expected to be negative in Q4. OCC is expected to experience a typical seasonal decline in Q4, and the Tan Bending Chip Index is expected to continue to reflect market increases. We are reaffirming our guidance for full year 2024 adjusted EPS and tightened the range to $5.05 to $5.25. Similarly, we are reaffirming our full year 2024 adjusted EBITDA guidance of $1.05 billion to $1.09 billion, and we are reaffirming our operating cash flow guidance of $650 million to $750 million. Now, Rodger will further discuss the outlook for the businesses.

Thank you, Rob. If you please turn to Page 18 for our view of segment performance drivers for the fourth quarter of 2024. In the consumer segment, we expect fourth quarter sales to be lower year-over-year due to a thermoforming facility closure and negative price cost headwinds. We expect consumer volumes to be up year-over-year from improving demand and new business wins in our rigid paper containers and TFP businesses. Our sustainable solutions with Sonoco proprietary technology and design continues to be well accepted in the marketplace. In metal cans for the fourth quarter, we expect seasonally lower food can volumes after the peak pack season in Q3. But in total, we expect metal can volume to be essentially flat year-over-year. From a profitability perspective, we anticipate price cost to be flat sequentially and down slightly year-over-year and productivity to continue to be positive across all our consumer business. Early in the fourth quarter, as Howard mentioned, we were impacted by a major facility damage to one of our large thermoforming operations in Florida, and we lost approximately two weeks of operating time. We're working through insurance recoveries now for this damage and we'll try to resolve that during the quarter. Turning to Industrial. We expect sales to be slightly down sequentially from last quarter and year-over-year, including the impact of a reclassification of our recycling business and the exit of some non-profitable locations in Asia and Europe. Paper volumes are expected to be stable year-over-year. Price/cost in North America will be positive in the fourth quarter as contract pricing has been reset and input OCC costs are lower. Overall, price/costs will remain negative as price recovery is lagging in the rest of the world. Similar to consumer, we expect industrial productivity to be positive in the industrial businesses in the fourth quarter. As Howard mentioned, we continue on our footprint optimization journey. Beyond our actions in the industrial China business, we are reviewing our network of operations throughout other geographies where we operate and anticipate future closures and consolidations. In our other businesses, we expect lower sales from seasonality and from the divestiture of our protective packaging businesses. In conclusion, for the fourth quarter, the team's focused on strong execution in support of our customers' footprint optimization, and all forms of productivity will continue to be critical as we navigate the puts and takes of the current global environment. And with that, back to you, Howard.

Thanks, Rodger. If you'll turn to Page 20, I want to take a moment to remind everyone of the plans that we laid out to deliver long-term shareholder value in our February 2024 Investor Day. Over the next five years, we're targeting adjusted EBITDA of $1.5 billion with a high teens EBITDA margin, and we are expecting to generate cumulative operating cash flow of $4 billion to $5 billion, all while we remain committed to our growing and competitive dividend. We're in full execution mode of our next era enterprise strategy with the integration of the highly strategic Eviosys acquisition, further portfolio simplification strategy, and execution of our long-range plans in our legacy paper and metal packaging businesses. We expect to deliver these results. In closing, on Page 21, we have a number of upcoming investor events through the end of the year as well as our next Investor Day we're planning in February. We look forward to providing updates on our journey in the coming months. And with that, operator, please open the line for questions.

Your first question comes from the line of George Staphos with Bank of America Securities. Please go ahead.

Thanks so much. Hi, everyone. Good morning. Hope you can hear me okay. Thanks for the details. I just wanted to bring up a strategic question to start, and I'm sure you've gotten this since the last conference calls that you've done. Eviosys, you've outlined why this is a good acquisition in your view for Sonoco. You're getting a leading food and aerosol can business, etc. At the same time, you're doing the strategic review for TFP, which, while maybe smaller, is also a leading player in its markets. So help us understand what this potential trade, if you will, does to your return on capital and your capital intensity and your growth outlook for the company?

Thank you, George. There’s a lot to discuss here, as always. To begin with your question about TFP and its market position, while you can debate its standing, it’s true that we have very strong businesses in the segments and niches we operate in. However, when we evaluated the capital investment required, whether through organic growth or acquisitions, we didn't see the market opportunities in these niches as being sufficient to meet our needs, especially compared to the substantial capital demands of our core paper can business. We have invested significantly there on a global scale. Looking at the metal side, it’s another niche but with a much larger market where we expect to have a strong global presence. After completing our five-year strategic plan, we realized we had too many capital demands to manage effectively. Ultimately, we are focused on upgrading our market opportunities in terms of size, position, and the potential for differentiation through technology, sustainability, and growth.

I would like to know if you can quantify what impact this might have on your return on capital, perhaps by one or two points, and what it may mean for your organic growth rate moving forward and the capital intensity. If you could provide some figures, that would be helpful. Additionally, what do you anticipate your interest expense will be for Sonoco going forward if there are no changes with TFP? Lastly, if you decide to move on from TFP, what would the cost of debt be for the debt you would be paying down with those proceeds? Thank you.

Yeah, George, that's a good question. We think a lot about capital return and capital efficiency as a core component of our strategy as we think about the businesses. One reason why we are pivoting, as Howard said, to these three core businesses is their capital efficiency and ability to generate return on investments in those businesses. As you know, the current ROE, depending upon how you calculate it, is about 12%, 12.1% is our current calculation. We expect that to meaningfully improve to the teens as we execute these transactions. The primary reason for that is recycling capital at a better basis selling businesses at higher margins and buying at lower and then also the capital efficiency of the remaining business. A quantification of a guide to that is pro forma for all these transactions, will have added over $1 billion in revenue and over $200 million of EBITDA, and the capital investment required of the business will be the same, if not less.

Rob you said, $20 million of EBITDA, you said incremental?

It will be about $200 million, depending on what you're doing with synergies there.

I think also including ThermoSafe.

Yes, also including ThermoSafe.

The divestiture of ThermoSafe, which we've announced and that will be coming later in the year.

And on the financing side, those questions?

Yeah. So for the interest expense, I mean, we're committed and fully oriented to our plan, and we've structured this plan and are progressing with the strategic alternatives for these two businesses with great effect. We feel really confident that we're going to hit the base plan and that we'll be able to repay these term loans, which is why we did term loans for the easy repayability. Those term loans actually have a higher cost of debt; they're SOFR plus 3.8%. So they're kind of right now in the 6s as a percent of debt that we would be paying off on a pro forma basis. I think that pro forma for all of that completed, even with the repayment of the 2025s, which are 1.8%, our total cost of debt will be in the low 4s. We anticipate that even if we weren't to do these deals, which we fully intend to, that we could refinance that capital at similar rates and thus it wouldn't affect our overall cost of debt meaningfully at all.

Alright. I will turn it over. Thank you.

Thanks, George.

Hey, guys. Good morning. Just focusing on the current operating outlook for the businesses that you do have, at least for now, what does it feel like in terms of the operating backdrop for industrials and consumer? Do you see any sort of green shoots on a volumetric basis? I understand the productivity and price costs and so on and so forth. But in terms of your volumes as we look out to 2025, what is the base case at this point?

Thanks, Ghansham. First off, regarding the fourth quarter, I would say that by the end of October, we are quite encouraged by the volume levels we are observing. Some of this may be a continuation from the downtime associated with the hurricanes, but it is definitely a positive trend as we start this quarter. Looking to next year, we do not have a high level of optimism, projecting low single-digit growth on the consumer side and essentially flat for the industrial segment because we still feel that, especially in industrials, we are working to recover from the slowdown. I want to emphasize that our industrial team has done an excellent job maintaining our margin profile and productivity in this lighter environment. However, we do anticipate a significant turnaround next year. On the consumer side, we are seeing genuinely positive indications, although we are also facing some lower volumes, which we believe are more of a mix-related short-term issue rather than a long-term trend. As we move into next year, we will adopt a more conservative perspective there.

Got it. And then on the portfolio side, obviously, you're swapping large portions, right, with Eviosys and simultaneous strategic reviews. How are you managing the organization, including your employees and also your customers during this period of uncertainty to sort of ensure execution consistency? And then just related to that, pro forma for Eviosys and assuming you exit TFP and ThermoSafe, what would be the split between metal and paper? And would you have any plastics left at that point?

I appreciate the question, Ghansham. Looking at our organization, this is likely the most significant period of change in our 125-year history. We are managing our goals with the open honesty, communication, and fairness that Sonoco has always provided. We are focused on ensuring that our customers continue to receive the high level of service and quality they expect from us during this transition. We are also being very deliberate in our internal communications. Regarding your second question about the split between metal and paper, it’s approximately 50:50. As for single-use plastics, we have exited that area. We will continue our Industrial Plastics division, which produces durable plastic cores to support our reels division, but these will not be single-use. We will delve into this further when we meet in February, particularly from a consumer standpoint, especially since both paper and aluminum or steel are the two most recycled materials in the industry.

Okay, perfect. Thank you.

Thank you, good morning everybody. First off, I hope you all and all the team members that were impacted by the storms are recovering and doing well. My first question on productivity, Rodger, I mean, that continues to come in strong, well above the initial $100 million that you laid out earlier in the year. So where are you able to realize these continued savings? And where is there still room for those other gains in Q4 irrespective of volume? And to the gains this year seeing now have any impact either on the timing or magnitude in regard to the longer-term $300 million to $500 million that you laid out through 2028 last February.

Sure, Matt, that's a great question. In the previous quarters, we established a range of $300 million to $500 million, which is really influenced by volumes and the uncertainties of the global economy. I believed we could reach the upper end of that range if volumes were reasonable. Over the past seven to eight quarters, we've excelled in boosting productivity, driven by the capital we've invested in optimizing our global paper mill operations, modernizing key production lines, consolidating unprofitable segments, and advancing automation. This has taken time, but we are now beginning to see the benefits. I remain optimistic that this will continue if volumes either maintain or improve. For our fourth-quarter guidance, we've adjusted our productivity expectations down a bit, but it will still be positive, around $20 million, due to the timing of the holidays falling midweek. Many of our customers will be taking downtime at the end of December, and we will likely align with them. However, with our team’s focus and ongoing investments, we have plans for the next two years to further enhance growth and productivity. I’m confident that in February, we can revise our productivity estimates upward when we meet again. My confidence, and the team's confidence, is strong that we will keep delivering results moving forward, even with the portfolio adjustments we've discussed. We are already preparing for these changes and adjusting our investment strategy to concentrate on our three global leadership platforms.

Okay. Great. Thank you very much for all the color there. And then my next question maybe, Rob, on the divestitures, the ThermoSafe timing in Q3 '25, it seems more definitive at least, but still in line with the 12 to 18 months that you laid out previously. Given it's still a year away, is there anything that gives you more confidence in providing a more specific range for that business? And I know you said no further updates on PFP, but it doesn't stop me if you're trying to see if you could provide any additional color in terms of transaction options or magnitude of the range that you're considering here in the fourth quarter. Thanks again for taking the question.

Thanks, Matt. Both questions are valid. We're seeing strong performance from ThermoSafe in the market. We were looking for a turning point, and it seems we've hit that after a volume bubble this year. The business is thriving, and they have an ambitious growth and innovation plan that will perform well in the market. They are well positioned to initiate a process soon. We expect that, given the interest we've received, we will conduct an efficient process and secure funds by the end of next year at the latest. The TFP process is progressing well, and we have advisers who are doing an excellent job. We're confident in how the process is developing, and the business's performance during this time is a positive sign of success. The management team is doing great work, and whenever you're in a position to sell a business, you appreciate its value even more, making it tough to let go. However, we are committed to simplifying our portfolio, and selling Eviosys is the next step. We anticipate having a signed agreement in about six weeks and are eager to announce that and secure the funds.

And, Matt, let me just add, I've been asked a few times, so I'll just preempt it if someone wants to ask it, is that with ThermoSafe, this is a capacity issue for us in terms of deals. So we're at the tail end of, obviously, the Eviosys, right in the middle of the TFP. We don't have the human capital to try to do with ThermoSafe at the same time. So that's why we're doing the back-to-back. And as Rob indicated, we expect the ThermoSafe to be alive and well early in the first half of next year.

That will make sense. Appreciate the additional color there.

Good morning. Can you provide more details about the decision-making process regarding a potential exit from single-use plastic? Was this decision based solely on return on invested capital, or were factors like sustainability trends, regulatory considerations, and feedback from customers or other stakeholders also taken into account that influenced your shift from consumer plastic to metal and paper? I’d like to understand your decision-making process better.

Yes, Anthony, this dates back to five years ago when the leadership team thoroughly examined our portfolio. As you might remember, we had considerable complexity within it. So, we spent the initial years assessing all our businesses and analyzing the financial metrics you mentioned. We focused on identifying which of these have the potential to become a major core platform for Sonoco, where we could be a leading player in selected markets. A lot of financial and non-financial analysis informed our decisions. As you remember, we established the All Other category to start addressing this. The TFP combined asset contributed to this as well. Sustainability was not part of the initial discussions, but we genuinely believe there is a purpose for all our products in various applications. However, emphasizing sustainability certainly enhances our narrative, especially in different regions.

Got it. Got it. That's very helpful. And then I'm just wondering on Metal Pack. I mean, you saw positive price cost and organic volume growth despite what seemed like a pretty weak tax season, at least for many crops. I'm just wondering if you can talk a little bit more about sort of the drivers of the strong performance and how you kind of characterize inventories across aerosol and food when you kind of look at the customer base?

Yeah. What I'd say on the food side, slightly down actually. But if you take into consideration, if you recall, the fourth quarter last year, we had a customer that went bankrupt on us. We had to take the ride down. So that obviously is lost volume. So effectively, our food can volume was about flat driver there. A good mix of customers with good pack seasons, coupled with a bit of share gain within existing customers. On the aerosol side, we're seeing a return to normalcy. If we talk about inventory bills, destocking, you can certainly tie yourself to the disinfectants where someone bought a case and it has taken them a while to work through. So what we're seeing from our legacy customers is coming back to pulling at normalized rates. The second thing that's happened midyear was a smaller competitor in the market decided to drop out and that certainly introduced some incremental volume as well. So the combination on the aerosol side.

Okay, that is super helpful. I will turn it over.

Thank you. I just want to follow up a little bit on the M&A since it really just strikes me that you don't seem to be getting any credit for this transformation if you can deliver the types of things you're talking about in terms of accretion. And first, thank you for the explanation on timing with ThermoSafe, that was very clear and helpful. One of the other questions that I think is coming up is to getting to that $200 million of EBITDA accretion, it sort of embeds like $430 million from Eviosys. And I see that you are reiterating that in your slide deck, which is great. But if you look to the first six months, the EBITDA was not at that type of run rate. And so I just wanted to check in and get a sense as to what level of confidence do you have at this juncture? Are you getting the updates so that you have good visibility that, that really is a good base number to be using as we try to analyze the net effect of these transactions.

Yeah. Mark, that's the number we continue to use. No, we have not received a firm year-to-date number at this point in time, but indications are we should be right around what we targeted. So we're not concerned about that at all. In fact, Rodger can speak to it. But as we've noted, Rodger was heading up the integration, spending a lot of time in Europe with the team, all of that is going extremely well. I think if anything, we're walking away with a strong result in terms of our targets around synergies and opportunities there.

Yeah. Yes, Mark, seasonally, for Eviosys' third quarter is their strongest quarter, and that carries pretty strongly into October 1 of the fourth quarter as well. So it's hard to look at the first half results and annualize that, as Howard said, we don't have that update yet, but we'll get it soon. But they're in the middle of their heavy season in October, and it seems to be in pretty good shape. They have a fantastic leadership team, developing good relationships, focusing on all the planning that goes into the integration and the day 1. Obviously, there are a lot of things we don't know yet. But doing a lot of communications, spending a lot of time with the team and getting very comfortable with the synergy targets that we laid out.

Mark, your opening comments suggest that we aren't getting enough recognition for what lies ahead. We completely agree with that. From my perspective, we are a great deal at our current trading position. However, I understand the uncertainty. We have a lot happening. I mentioned that this situation is unusual for Sonoco. We are experiencing more change than we have ever seen in our history, but we are very excited and confident. We believe we will adjust our forecasts and expectations, and the market will react positively.

Your next question comes from the line of George Staphos with Bank of America Securities. Please go ahead.

Hi, thanks for taking the follow-on guys. I was hoping you can maybe give us a bit more detail in terms of what you're seeing in the industrial markets. You've got some positive momentum on URB pricing, which is good. You said industrial markets are still sort of trying to crawl out from the recovery or into a recovery. Can you give us a sense for what the cadence of volume has been? And there's been a lot of discussion on the earnings calls; we were just at one of the industry conferences about the supply of boxboard globally, recognizing that you are being what you do is very much a niche. Nonetheless, are you seeing any pressure from the supply that's out there in the boxboard markets, or really not that big of a deal at all for many reasons, including your integration? So pricing trends, how is that moving demand, what kind of cadence in the third quarter into the fourth quarter and the outlook for next year is flat? Why if you're improving, and then supply on boxboard globally and what it means for you or not? Thanks guys. Good luck in the quarter.

Hi, George, it's Rodger. I’ll provide some insights, and feel free to ask follow-up questions. Achieving core volumes, particularly in North America, has been decent over the past two quarters, with a slight increase of a couple of percent in the third quarter. However, it has been inconsistent, which we've observed across all segments, including the paper side of our business. There are moments when volume appears to rise, followed by periods of decline. In the third quarter, paper mill cores and film cores showed strong year-over-year performance, which we attribute to consumer spending and retail activity in food and other products. Conversely, textiles, protective packaging, and light goods have been weak, a trend we've noticed over the last few quarters. This results in fluctuations from quarter to quarter. Looking ahead to the fourth quarter, we anticipate a flat performance in North America. The primary weakness impacting our global industrial figures is occurring outside the U.S. Asia is experiencing significant slowdowns in both paper and tube and core markets, even considering our efforts to exit China and the industrial sector. The broader Asian market remains sluggish. Europe is increasingly competitive within the boxboard and tube and core sectors, where we’ve observed weakness as well. We have exited the Greek markets to move away from non-profitable operations. Overall, the situation is quite uneven, which leads us to project flat growth for next year as we don’t see any sustainable trends evolving over multiple quarters. In terms of capacity in the third quarter, it remained strong in North America at around 94%, while globally it was approximately 89%, impacted by declines in Europe and Asia. We expect this to decrease somewhat in the fourth quarter due to the holiday season, settling in the high 80s, likely. We frequently get asked about boxboard imports or URB imports; we are seeing minimal changes in that area. The same applies to our paper markets. The tissue and tile segment was robust in the third quarter but seems to be slowing down in the fourth quarter, probably related to inventory adjustments. The reason for our flat projection next year is the absence of sustainable trends linked to multi-quarter performance.

Understood. I've gotten a question coming in. I'll relay it on behalf of somebody. Do you expect any regulatory hiccups with Eviosys? If you could comment there? And then also the question why do you think what's going on in RPC is not secular as opposed to just timing? Thanks guys and now good luck for the quarter.

Thank you, George. We have received clearance from all necessary parties and are now in the countdown phase with the CMA, so we don't foresee any issues there. When it comes to RPC, we've noticed that the performance can be linked to just a few customers. If they were on their own conference call, they would report that volumes have been quite solid, as they measure their success based on the kilos of product produced and shipped, and it's been positive. However, the shift to larger packaging has created a mix challenge for us, impacting the way units flow through our RPC organization. This can occur for a quarter or two, but typically trends back to a more normal mix.

Good morning, everyone. Two questions. Rodger, I think you made a reference to TAM lending chip prices continuing to move up. And I was curious if there's an active price increase in the marketplace that we're not aware of or haven't seen, meaning was that a reference to indices moving higher? Or is this just a function of what's been posted working through your contracts?

Yeah, I think that was in Rob's prepared comments, Gabe. But we're okay where it is. We don't expect it to move higher this year. So at this point, with OCC coming down, we expect it will be flat for the balance of the year.

Okay. Must have misheard that. And then there's some consolidation in a couple of your big customers. Just curious, looking back in history, how that's impacted the business, if at all?

What I can share is that I'm aware of the situation you're referring to, and it has been very positive. While I prefer not to mention specific brands, generally, when we experience a consolidation like this, we tend to see increased promotional activity for the brand. In this specific instance, there are significant opportunities to enhance distribution channels where the previous owners had a strong presence. Consequently, we are optimistic, and we enjoy excellent relationships with all of our customers. In the situation you're highlighting, I feel the same way. We view this as a very positive development, and the previous owners have done an outstanding job revitalizing the brand, and we anticipate even more benefits ahead.

Yeah. Thank you, everyone, for joining us today. As Howard noted, we're going to be out and about in the fourth quarter. We look forward to speaking with you and seeing you at our Investor Day in February. If you have any questions, please don't hesitate to reach out, and we'll be happy to take any follow-ups that you may have. Thank you again, and hope you all have a wonderful day.

Ladies and gentlemen, this does conclude today's conference call. Thank you for your participation, and you may now disconnect.