Operator: One moment for our next question. Our next question will come from the line of Angel Castillo from Morgan Stanley. Your line is open.
Angel Castillo: Hi. Good morning. Thanks for taking my question. I was just hoping we could unpack a little bit more of the kind of 2023 growth. You talked about volumes, but I guess if I look at the organic growth that was outlined of maybe minus 1% to plus 3% kind of implies flattish to modestly up. And then I think the Liquibox contribution, if I €“ if we just look at the EBITDA margin that, that business has, implies that the EBITDA full year guide based on those two factors would be €“ would kind of put you at the high end of the guide just with that starting point. So, just curious, should we kind of view that as conservatism, or is there any other kind of factors that as we think about maybe a more base business kind of flattish and contribution from Liquibox that maybe are offsetting some of it, whether it’s anything on the cost side or kind of cost of ramping up that business or integrating it?
Christopher Stephens: Okay. Thanks for the question Angel. So, let me €“ so, to your point, let me unpack it. So, we talk about overall food being up in €˜23, low-single digits from a volume perspective as well as a price, as we continue to benefit from some price actions that we took in 2022 that will continue to benefit us in €˜23. That’s on the food side. FX is for both segments providing some level of headwind when you think about it on a reported basis. But when you get to protective, protective is where the pinch point is. I mean we saw it in the second half of last year. We continued that that outlook to be negative for us, unfortunately, in the first half of this year, so roughly down low-single digit growth. We don’t expect much in the way of price activity in the first half given where we are recovering, the inflationary pressures that we have seen and that will continue to evolve as we execute in 2023.
So, hopefully that gives you €“ provides a little bit of color. And then the automation piece of it, just to overlay and recognize automation for both food as well as protective is less than 10% of each segment sales, but that overall growth algorithm growing that business double digits is what we expect that we shared on slide , something €“ Slide 9 in our earnings supplement.
Ted Doheny: Yes. And just again to highlight to your second part of your question on Liquibox. So basically, the simple story is we are seeing a flat year first half being challenge, second half being recovery. So, the question of the conservatism could be is just are these markets that we are facing in the first half are they as tough as we are seeing. The optimism is moving on to the high end of the guide is if we get through that first half, we definitely see the opportunity in the second half. On Liquibox alone, you saw in the model, we put the $30 million of cost-out in the first 3 years. Emile is in the room, and Emile is definitely working on the cost side of that, even though we have said eight days official. But I think we really see some good opportunities on the costs out there quick on the Liquibox.
But the part on the Liquibox that we are really excited about is the growth side. That’s we are working with the team right now. That’s been fairly resilient, it’s into the markets that we really like with the quick service. It is converting rigid container market. So, that’s really the upside, can we do more. And I will just highlight again, if you look at the numbers what we have in for Liquibox, that’s going to be leveraging better than the rest of the core business. So, that’s the upside on the earnings. And I just want to highlight it, we didn’t mention it, but paying down that debt quickly that’s how we are going to get the EPS back to where the model says it should be, and we want to pay down that debt very fast, and that’s what we are focused on.
Brian Sullivan: Okay. Next question.
Operator: One moment for our next question. Our next question will come from the line of Adam Josephson from KeyBanc. Your line is open.
Adam Josephson: Hi Chris. Good morning. Thanks very much for taking my question. In terms of guidance, just a two-pronged question. One is, obviously, there are cost levers you can pull and you are able to achieve your EBITDA guidance, I think volume and free cash flow obviously, last year were a lot harder for you. How much confidence would you say you have in the various components of your guidance, just given your experience last year with €“ specifically with volume and free cash flow? And just, Chris, could you tell me what your pro forma leverage is now as well as what exactly your working capital expectations are for the year? Thank you very much.
Christopher Stephens: Yes. So, good. So, let me just answer the second half of your question and we will come back to the overall guidance, but for purposes of €“ we anticipate right now, Q1 to end at a leverage ratio of roughly 3.5x and also continue to kind of work that down recognizing our working capital improvements in terms of the normalization that we talked about, getting inventory reduced, selling through that inventory, collecting those receivables. We would see that working capital cash generation come through using that excess cash to pay down debt. It would be priority one. So, the overall guidance, as you see on Slide 16, when we provide our full year view, we have got outlook ranges that we would like to provide to give you guys as well as investors a sense of what we are seeing on the potential downside of our guide versus the upside range, and I will let you €“ you can kind of read through them yourself.
But specific to your question on sales, pretty confident that €“ recognize the first half, second half discussion, we discussed for €“ if I break it down on a regional basis. One reason I wanted to highlight for us is APAC recognizing China opening up again. And Ted recently been over in Asia, just listening to our team over in APAC, is that although it is somewhat muted initially, we are not too bullish in terms of how quickly that’s going to come back, but we would expect second half improvement out of our business in China to help give us some confidence in terms of that top line sales. Food will continue to be resilient regardless of what happens in terms of the consumer behavior, in terms of what they choose to buy since we play in most, if not all, of the proteins.
You get to the protective side, we are hopeful that it’s the first half type of situation every quarter getting it better and better in terms of our protective end markets. But that’s a little bit on the cautious side. And we talked about the destocking potentially persisting. And then the other element of our four metrics that we provide, you mentioned free cash flow. I would say the confidence is pretty high. We saw the reduction in inventory to start to occur second half of the year, getting more meaningful in the fourth quarter. That will continue in the first half of the year, and we would expect that, that cash generation would show a better profile than what we have seen in 2022. So, that’s what gives us confidence. I would also want to highlight that we are very conscious to make sure when we think about the cost actions, when we think about the investment actions, we do not want to starve areas that’s going to help our future growth.
So CapEx, as an example, you can see we expect to spend more next year than we did in the prior year. We think about innovation and the things that we are doing with reformulations, to be able to meet the markets and meet our sustainability goals, etcetera, etcetera. We are not holding back on the investments in our business to drive where we are going.
