Arun Viswanathan : I guess regarding the DSC performance, this is one of the quarters, I guess, where we kind of got it wrong. So I just wanted to understand exactly what’s going on here. Is it the case that maybe is it taking a little bit longer for resins to price movements to flow through that business? And is that a function of kind of the volume environment? Or has nothing really changed this is a function of those lags? I guess I’ll start with that.
Adam Greenlee: Sure. Well, look, nothing’s changed. I mean we have pass-through mechanisms that are, again, I’ll say, tried and true for the history of the company. And really what happened run in the first quarter you had resin escalating through the quarter. And again, we typically pass that through on a lagged basis. What also occurred in the first quarter is the largest increase occurred in the month of March. And that does create the longest lag for our recovery of the inflation. But again, I sit here with tremendous confidence in and we will absolutely recover that inflation. There’s really nothing else to it other than the cost index of resin did change during the quarter for the primary resins that we utilize.
Unidentified Company Representative: Yes. Arun, I might just remind everybody that this is the part of the business where the pass-through mechanisms are lagged relative to the rest of the business. And that kind of comes in 2 parts, right? This business has come from what I’ll call, more recent acquisitions. So we haven’t had as much time with those contracts as well as it is the higher margin business, right? So there’s perhaps a bit more of a tolerance to deal with that lag given the margin profile of the business. So there’s nothing new about what happened with resin. It’s as Adam said earlier, it’s all about the cadence and the spike that happened in the quarter that just has you chase in resin for a period of time.
Arun Viswanathan : And on that note then, when you think about the full year guidance, so is it the case that essentially your EBIT dollars that would have come in Q2 would come in Q3 and Q4 as those pass-through mechanisms are enacted?
Adam Greenlee: Yes, I think you’ve got it exactly right, Arun. So I mean think about something like approximately $0.05 of cost in the first half of the year will be recovered in the second half of the year. That’s right.
Arun Viswanathan : Okay. Perfect. And then just a couple of quick thoughts, if I could get your thoughts on what you’re seeing in some of the verticals there and you’ve already run through pet food and Metal Container, but maybe on the DSC side and Custom Container side, are you still seeing — because we’ve been hearing, obviously, weaker mobility trends in China and that taking a little bit longer. I’m curious if that’s affecting the fragrance market and some of the other markets there. And then similarly, on the Custom Container side, there’s been destocking in several categories. Has that subsided? Or what are you seeing across some of the verticals in both of those businesses?
Adam Greenlee: Sure. So maybe starting with Dispensing and Specialty Closures first. Again, I think as we said earlier, double-digit growth in fragrance and beauty products, really no change in the trajectory as we look forward in that business. As Kim mentioned in her comments earlier, we continue to win in that marketplace. And we’re expecting to continue to win in that marketplace. So continued growth in fragrance and beauty nice recovery for us kind of in lawn and garden and home products for the dispenser specifically, which is a big part of our Dispensing and Specialty Closures segment, those are the trigger sprayers we’ve been talking about. So it looks like the destocking is done there. And then food and beverage, we talked about much more of a normal timing for kind of the beverage filling side of our business and sports drinks and ready-to-drink teas.
When you move to Custom Containers, it’s a slightly different story on the lawn and garden products because we do sell a lot of bottles and containers to lawn and garden that recovery has not quite shown to the same degree that we’ve seen in our Dispensing, Specialty Closures business, which is normal for us. There’s typically a little bit of separation as inventory works through not only our customers’ pipeline but also through retail as well. So I think Custom Containers, obviously, we’re cycling over the nonrenewal of the contract. And then beyond that, as I mentioned, a little bit of softness in distribution that we had expected to see a little bit of recovery in the first quarter. It just didn’t materialize. We’re seeing some green shoots in that market for the second quarter, and it’s something we’re going to be talking about in the second quarter earnings call as well.
Arun Viswanathan : And just — I’m sorry, just to reiterate on the resin side, was that really related to the polypropylene spike? Or was it kind of both polyethylene and polypropylene and all the resins that you buy?
Adam Greenlee: Yes. So it really — 2 primary resins that were impacted were polypropylene and polyethylene. Those are the 2 largest resins that we buy, and both were impacted by the spike that Bob alluded to.
Operator: We’ll take our next question from Ghansham Panjabi with Baird.
Ghansham Panjabi : Adam, maybe a question for you to start off. If we go through a period of protracted diminished consumer spending environment in the U.S. How do you sort of visualize that impacting the pet food component of your metal food can business? Is that a positive, negative, sort of neutral-ish based on what you know at this point?
Adam Greenlee: Yes. Well, I was going to answer broadly first, and I’ll get to pet food. But I mean, we feel pretty confident in the representation that we have in consumer staple end market. So as dollars get tighter on the consumer spend, typically, it does move to the products that we’re talking about that we supply to our customers, just given our presence in consumer staple end markets. I think we spent a lot of time talking about pet food and how it performs through various economic cycles. So the first thing I would say, Ghansham, is a very small portion of our business in wet pet food is for large dog. Typically, that is under pressure during tough economic circumstances and is a product that does tend to convert to some degree back to dry.
And again, kind of a 13-ounce can of wet dog food versus a 40-pound bag of dry Kimble the economics are a little different there when you’ve got 3 servings for a 100-pound labrador or retriever every day. When you get to our core markets and wet pet food of small dog and cat, we have seen the humanization of pets for many, many, many years, and we’ve seen these trend lines through just about every economic cycle. For the last 35 years, we’ve been requirement suppliers to this market. So we don’t see it as a negative. We see it at least as neutral with the economic cycle, but at the same time, we’re seeing a shift of pet ownership into the smaller dog and cat ownership categories. That’s what’s really driven the growth over time in the business.
And again, we’ve got decades worth of growth rates that we look at on a requirements basis in those agreements that gives us a tremendous amount of confidence of how we look at the go-forward in wet pet food. I’d also tell you, we just delivered mid-single-digit growth in the first quarter and are going to do the same in the second quarter.
Unidentified Company Representative: Ghansham, I think what I would add to that is 2008, 2009, the data supports exactly what Adam just described, that what we saw migrate away from pet food at that time was the large animal primarily dogs. And if you look at our I’ll call it, consumer profile now. It is far more weighted to the small animal and primarily cat far and away, much more so than in that prior time frame.
Ghansham Panjabi : Okay. Got you. And then on Dispensing closures and the unit volume increase for fragrance and beauty, how much do you think came from just sort of restocking as China reopens, et cetera? How long do you think that will last in terms of momentum? And then secondly, as it relates to the operating leverage, is that playing out in a way — in line with your original expectations as it relates to those — what seem to be high-margin business?
Adam Greenlee: Yes. Again, I think our guide for the year when we came into the year with double-digit growth in certain Dispensing products, particularly for fragrance and beauty. So really right in line with our expectations. No restocking, if you will, Ghansham. We just saw continued good pull-through through the holiday season. Valentine’s Day in the first quarter was a good period for fragrance. I think you’ve got a couple of holidays here through the second quarter as well that will also benefit fragrance and beauty sales. But really no change versus what our original expectation was. I think a small portion of our business is related to the China mobility issue. We do think our customers are benefiting from consumers around the world traveling more and a little bit of a pickup in duty free stores for these products.
But really just good demand for the base products. I think as we talked before, ’23 was going to be an elevated year from a new product launch perspective. And that’s very true. The product launches were limited during the pandemic. And so we’ve seen good traction not only in the new product launches and the new products going to market, but — and are in the staples that have been successful for many years for our largest customers.
Operator: We’ll take our next question from Daniel Rizzo with Jefferies.
