George Staphos: Okay. So I wanted to piggyback on Gabe’s questioning on GCF. Again, to the extent that you can provide a bit more color, what else do you have embedded in the discussion on a significant improvement? I take from your comments that you’re assuming current levels of pricing, you’re not really making a forecast, at least internally on the direction of pricing? Or are you? Anything that you could provide us there? Anything that you could provide us with the current snapshot, right, in terms of cost and operations, what you might see in terms of a profit delta, ’23 versus ’22?
Tim Nicholls: I’m sorry, I missed the last part of that, George. I mean I think it’s no different than what I was just talking about with Gabe. We got big structural changes in the contract negotiations in GCF in the fourth quarter. So that hits now. That starts as we go through first and second quarter. And then just in terms of most of the initiatives their internal self-help, whether they’re structural through a build a-better IP or they’re just getting back to more normalized levels of operation across a number of categories including supply chain, usage in the mills on inputs and the like. So we’re not immune from the macro environment but there’s a lot that we think we have in front of us that we can work on, especially as it relates to the marginal cost that were incurred in a more run full type of environment.
George Staphos: Would it be fair to say, Tim, if I just very simplistically annualize what you’re seeing in industrial packaging on price mix as kind of a headwind you need to manage against that GCF to basically close the gap as maybe a couple of hundred million dollars or better profit-wise in ’23 versus ’22? Ex any changes in pricing in the market?
Tim Nicholls: Order of magnitude, yes, it’s close…
Mark Sutton: George, this is Mark. I think that’s a good way to think about it, although they’re not the same market be the numbers work out. There one way to just verbalize what you should be thinking about with Cellulose Fibers, a lot of commercial changes on all types of accounts and customers and regions of the world occurred through 2022. And those benefits now are largely locked in, in our commercial agreements for the full year 2023, coupled with improving our cost position. So that’s where the expansion comes from, commercial is the driver, layered on top of a much more sane higher-velocity supply chain and lower cost structure. And that gets you the significant earnings improvement.
George Staphos: Make sense. Two last ones and I’ll turn it over. One related to the GCF and then one to the industrial packaging business. So for GCF, Tim and Mark, you mentioned that inventories are low. You believe at your customers’ levels, I thought you said but also that there is a potential for destocking in the first quarter. So can you help us reconcile those 2 points? And then in industrial, as you’re bringing on the Pennsylvania box plant and as you have been targeting potential other converting investments. What are the implications? And how are you managing against the — what the implication for the rest of your box business? And how do you keep retention at high levels as you perhaps adjust your converting footprint in any given region, including in Pennsylvania and New Jersey.
Tim Nicholls: George. Yes, on the inventory side, it’s a combination of 2 things. So we believe inventories are historically low. They’ve been that way for the past couple of years. But you’ve got a little bit of a phenomena going on with the accelerated velocity in supply chain through the third quarter that people were able to recover a little bit but still not get back to what would be historical levels of inventory. So they’ve got a little bit more to work with but they’re low on a historical basis and then we believe once you get through Chinese New Year, buying picks up again. So on GCF, the labor issue, yes, that’s been a battle through ’22 but the business is deploying a lot of strategies there.
Mark Sutton: George, the way to think about the example of the Pennsylvania box plant coming on and then with obviously a softer demand environment. I’ll take you back to the last maybe 3 quarterly calls where I commented on our running to meet demand required structural over time in a lot of our plants. And so in that particular part of the country, we are — we don’t have enough capacity even with our employees working a fair amount of overtime. So this plant is going to help us not only gain business, we’ve had to turn away in some places but stabilize the entire region of plants around it by getting onto a more sustainable operating schedule for our employees. So customer retention because we’re stretched on our capacity.
And it’s not an average statement. It’s in different parts of the country. This is one of them. This will actually have benefits from the incremental volume of the plant and secondary benefits by stabilizing the nearby operations into a more sustainable schedule. So I think we feel really good. It’s a total net add and an improvement in our operating cost and our operating efficiency and our employee resiliency. So we’ve got several other examples in different parts of the markets where we’re going to be doing the same thing.
Operator: The next from Seaport Research Partners, the line of Mark Weintraub.
Mark Weintraub: So 2 quick questions. One was on the cellulose fibers, with the changes that you’re making, do you think that pricing beyond 2023 is going to be less impacted by shifts we see in PPW, for instance, is it kind of — are these more fixed? Or are we still going to be moving quite a bit with where the open market transactions are going?
Tim Nicholls: Yes. I mean it’s — so Mark, it’s Tim. I don’t want to start making forecasts or predictions but we do believe, as we’ve said, that the business is structurally taking efforts to get paid for the value that they’re delivering. And you do have a mix across the different channels and segments that we serve. This last piece that we referenced in terms of the contract negotiations in the fourth quarter were structurally something that needed to be corrected by the business and it took a little bit of time to do it. So not making a prediction but we believe that the actions that we’re taking consistent with how we get paid for value. And so you can read into what you think that means as we go through ’23 and ’24.
Mark Weintraub: Okay. So I guess I’d read that hopefully, it leads to reduced volatility. Is that a fair — that’s the intent of the contracts?
Tim Nicholls: Well, I think it’s the intent of the approach that we’ve taken with each of our customers and just recognizing that the value equation doesn’t change dramatically over time.
Mark Sutton: Mark, I think it’s fair to say our commercial objective is to improve profitability, as Tim just described and there’s multiple ways to do that depending on the segment and the type of customer. And then secondly, obviously, to reduce volatility in the way that we make When we throw words like strategic customer relationships, that’s partly what we mean by the word strategic versus transactional that there is a longer-term view which usually comes with less volatility versus playing a very transactional market by the month or by the quarter. you need probably a mix of all of it but our objective is to improve profitability which we are doing and reduce volatility.
Mark Weintraub: Understood. And then just quickly on the Industrial Packaging, when you talked about volume, you talked about the 4 more seasonal days. You talked about the seasonality typically being a negative, of course. Now are you not seeing any signs that maybe the destock which negatively impacted the third quarter and then again in the fourth quarter by your customers. Any signs that we may be getting towards an end? And might that become a positive? Or any indications from customers as to when that might start working less against you?
Tim Nicholls: Yes. I think that’s right, Mark. A large portion was taken care of in the fourth quarter. It feels like maybe there’s some remnants but that it’s getting close to the end. And if you look at where we are just in January, year-over-year, it looks like we don’t have numbers yet but just following cut out. It looks like we’re down 5% year-over-year but stabilizing from fourth to first.
Operator: Then next, we go to Truist Securities in the line of Mike Roxland.
