Sonoco Products Company (NYSE:SON) Q1 2023 Earnings Call Transcript

Sonoco Products Company (NYSE:SON) Q1 2023 Earnings Call Transcript May 2, 2023

Sonoco Products Company beats earnings expectations. Reported EPS is $1.4, expectations were $1.32.

Operator: 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.

Lisa Weeks: Thank You, operator, and thanks to everyone for joining us today for Sonoco’s First Quarter 2020 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 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 web. After management’s prepared remarks, we will host a Q&A session. If you will please turn to Slide 4 in our presentation. I will now turn the call over to our CEO, Howard Coker.

Robert 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, but we consider a strong Q1 performance. As I mentioned before, we are not immune to the secular headwinds around our customers and the economy in general. But this demonstrates our better portfolio management and business mix provides 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 say 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. But before Rob takes you through the financial results and guidance, please turn to Slide 5. I want to highlight, we released our updated corporate responsibility report last week and provided the QR code in this presentation that you can scan to directly download the document. And that Sonoco report corely 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 high progress, as well as updates on our supplier diversity and spending programs. And 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. And with that, I’m going to turn it over to Rob to walk us through the quarter and the financials.

Robert Dillard: Thanks, Howard. Up again on Slide 7 with a review of key financial results for the first quarter. Please note that all results discussed are adjusted and all growth metrics are on a year-over-year basis, unless otherwise stated. The GAAP and non-GAAP EPS reconciliation is in the appendix of this presentation as well as in the press release. First quarter financial results again reflect Sonoco’s ability to deliver solid performance through strategic pricing and operational excellence despite uneven end market condition. Sales were down 2% to $1.73 billion in the first quarter. Sales for the quarter were in our expected range despite supply chain variability continuing to Impact month-to-month volume end. January sales were stronger than planned and March sales were weaker than planned.

We do not believe that this reflects the trend, and we anticipate sequential sales growth in Q2, just as we achieved sequential sales growth in Q1. Operating profit was $213 million, and operating profit margin was 12.3%. Likewise, EBITDA was $276 million, and EBITDA margin was 15%. This level of profitability was anticipated as we experienced negative $86 million of expected metal price overlap in the period. Excluding the impact of metal, EBITDA increase and EBITDA margins increased over 17%. Finally, earnings per share was $1.40. These results exceeded our initial guidance as we continue to execute our operating model to achieve price and productivity despite uneven net market conditions. Next, we have the sales and operating profit, which is on Slide 8.

On the sales bridge, borrowing mix was net at $116 million or negative 6.5%. Volume/mix was driven by low industrial volumes that benefited from acquisitions. So the start integration is progressing as planned. Q1 included an additional partial months of metal packaging. Price was $98 million positive, up by 5.5%. Price continues to reflect the efforts of our commercial excellence strategy, mainly selling to value and managing contracts to recover inflation. Next, the operating profit bridge. Volume/mix was negative $40 million as low volumes impacted standard margin performance. Price/cost was negative $22 million as negative price/cost in metal packaging offset positive price/cost on Paper Containers and Industrial. Industrial price/cost was positive $44 million due to continued benefits of moving the index-based pricing and historically low OCC.

OCC averaged $35 per ton in Q1 2023 versus $150 per ton in Q1 2022, and $38 per ton in Q4 2020. Productivity was meaningfully improved at $20 million as we continue to execute our disciplined operating model. We’ve built a strong basis for meaningful productivity once volumes normalize. Slide 9 has an overview of our segment performance for the quarter. Consumer sales grew 5% to $909 million due to acquisitions and strong price performance. Sales increased 3% sequentially. However, elevated customer inventory and normalizing supply chains continue to interrupt volumes across the Consumer business. And our near-term volume outlook is less positive than it was beginning of the year. Consumer volumes declined 1%, including acquisitions and divestitures.

Volumes in Flexibles and Paper Containers were essentially flat. Metal Packaging can volumes were down as food growth — growth in food was offset by low aerosol volumes due to high customer inventory levels. Consumer operating profit was $92 million as Flexibles achieved its second best quarter in history, and Paper Containers continue to achieve strong operating profit and margins. Industrial sales declined 12%, to $616 million as lower volumes offset higher prices. Industrial volumes were down 13%, volume trend were lower in Europe and Asia. The U.S. volumes were lower due to increased maintenance and lack of business , as well as the impact of execute — exiting the corrugated media markets and divestitures. It’s important to note that Industrial sales grew sequentially based on higher sequential volumes.

Industrial operating profit grew 30% to $94 million as price/cost offset utilization. Operating profit margin increased 490 basis points to 15.3%, partial excellence efforts. All Other operating profit increased 88%, to $27 million due to strong price/cost and productivity. All Other is a notable example of the results of our disciplined operating model as we continue to operate these important businesses for optimal results. These results continue to indicate that our operating model is working. Margins are up across All Other of our businesses. We’re focused on achieving appropriate prices for our value-added products and deemphasizing our exiting commodity markets like the recently exited corrugated media market. We’re investing in the business and controlling costs, and expect meaningful productivity once volumes normalize.

Moving to Slide 10. Our capital allocation framework is aligned with our business strategy to drive value creation for holders. Our priority is to allocate capital to high-return investments in our core businesses, to drive growth and improve efficiency. From a free cash flow perspective, we remain focused on increasing the dividend, which was increased 4% to $0.51 per share on a quarterly basis or a greater than 3% annualized yield based on the current share price. After capital investments in the dividend, we prioritize investments in strategic M&A, and maintaining our investment-grade credit rating. For the quarter, operating cash flow was $98 million and purchase of property plant and equipment was $83 million. Net of the proceeds from asset sales, capital investments were $12 million.

On Slide 11, we have our Q2 2023 guidance. In Q1, we see our initial EPS guidance and achieve the top end of the revised range. For Q2, our EPS guidance is $1.45 to $1.55. We have tight control over our businesses, and they are running well. This guidance includes an $26 million of negative year-over-year metal price overlap and continued low volumes in Industrial in Q2. We are raising our full year 2023 EPS guidance to $5.70 to $6. We’re cautiously optimistic about the remainder of the year, and we are managing our business with the agility. We are affirming our EBITDA guidance of $1.1 billion to $1.15 billion. Like wise, we are affirming our operating cash flow guidance of $925 million to $975 million. We anticipate continued benefits from net working capital management throughout 2023.

Now Roger will discuss the outlook on the segment base.

Rodger Fuller: 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, will work through the remaining inventory impacted by metal price overlap, which will not continue in the second half 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 Europe 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 whitegoods 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 the 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 stabilized 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 return. We’re seeing the positive impact of our increased capital spending in the last few years focused on productivity at 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, .

Unidentified Company Representative: 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 business and expand others all with the right timing to maximize value, and we will keep you informed, obviously, 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, enterprise standardization, how we operate the business will only get better through time and is reflective of our solid performance in uncertain times as we live in today. As Rob covered very well earlier, we remain disciplined in capital allocation, and we expect to continue investments to grow. And 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 CRO report only scratches the surface of the great things happening within the 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.

Q&A Session

Operator: . Our first question comes from the line of Ghansan Panjabi with Baird.

Ghansham Panjabi: 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.

Robert Coker: Yes, we can talk about the different Consumer verticals in Q1. So from a volume perspective or from an OP perspective?

Ghansham Panjabi: Volume would be helpful.

Robert Coker: 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.

Ghansham Panjabi: Got you. And then in terms of productivity, you hit — the first quarter 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?

Rodger Fuller: Yes. On productivity, Ghansham, this is Rodger. I think you — 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 executing extremely well on the capital that we put in place over the last few years focused on productivity, but print optimization, as Howard already mentioned, and the supply chain team working extremely well with the businesses. So I think you should see similar levels going forward from today.

Ghansham Panjabi: And on price/cost?

Rodger Fuller: Yes. On price/cost, I’d say for the balance of the year, we were — 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 and pretty good results from how input costs and our ability to get price off of a food cost, and government inflation has come out. That’s one of the reasons for some of the upside in the forecast.

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

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

Howard Coker: Anthony, this is Howard. As Rob said, and we noted when we updated our guidance mid- to the end of the first quarter. When we came out in January, it really fell through in terms of the destocking activities on the Consumer side, particularly in our legacy business and we came out with really, really strong in January, early February. And I don’t think it’s unique to Sonoco, we started seeing tapering off with the banking crisis, other uncertainties in the macro environment. So we did see some backing down there. So I would suggest that on our legacy side of the business that there’s still question marks in terms of the full value chain, from retailer the supplier of folks like us, basic raw materials, but not as a concern as what we had first expected and how we came out .

On the metal side, the results are relatively consistent with what you’ve heard from others as well, as CMI, with up on the food can side, down on the aerosol side, in our case, we’ve got a couple of customers that the destocking activities are — have extended longer than they and/or we that were looking at secular improvements quarter-to-quarter and get assurances that they should be working through their situation, let’s call it, through the mid of end of this year. So a unique one-off situation on the aerosol side, and we’ll just have to write that now.

Rodger Fuller: Yes. And at the on Industrial, it’s Rodger. We’re modeled — that we model down a mid-single-digit continued decline in Industrial volumes in Q2. And that’s really driven by Europe and Asia. This continued weakness there. Some one-offs, took the textile business out of Turkey with the impact the earthquake has a pretty significant impact. But as I said earlier, in the North American market, we’ve seen stabilize. We’re not modeling in any growth there, but we’ve seen it stabilized over the last month, and that’s expecting for the second quarter. So really, the watchout is Europe and Asia as far as the second half of the year.

Robert Coker: Yes. And that’s what I’d say, I’m going back to my prepared remarks and to the this team and frankly, the activities we’ve undertaken over the last, I said 18 months for 2, 3 years in terms of transforming how we manage the day-to-day of the business, the operations side I just cannot be prouder of a relatively weak volume scenarios, proposing the type of productivity numbers that we’re posting. And I’d tell you, it just gives me a nice warm feeling that volume as it will return over time, that we’re in an extremely solid position to leverage that productivity in a more material way. So I guess, thanks to Rodger and the team and what they’re doing on the operations side and others.

Anthony Pettinari: 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, certainly versus historical levels. I’m just wondering if you could talk about maybe some of the internal improvements you’ve made in those businesses, maybe the sustainability of that kind of margin? And just how you’re thinking about that segment strategically.

Howard Coker: To start with, Anthony, it’s kind of a poster shot for the entire company. If we go back a year or 2 ago, when we probably — we restructured not only how we report out from a segment perspective, that how we manage the businesses. So as you recall, we created in the All Other category or more entrepreneurial type environment. Allowing them to operate within the guidelines of the business, unique businesses that they support. And from that, we’re seeing the results. And again, pockets and across the rest of the company, similar as you’re seeing. How we’re looking at it for the long term, these are good businesses, many of which are 1 or #2 in the market segments, and we’re going to continue to operate down to the full.

So the full capability and continue to drive through why they operate independent, we’re still driving through the productivity and other transformational type programs that we have place in for them. So they really set up well to show you and a snapshot of what we’re seeing across the company. We’ll be evaluating businesses over time. And I think I did mention it in my prepared remarks that — the time is some businesses that may be long, better offer to others. And from an acquisition perspective, we see the inverse of that as well. So we’ll keep you posted, we’ll let you know, but the intent right now is we’re going to run these businesses to the best they can possibly perform, to deliver the amount of value that our shareholders expect.

And they’re very resonant, as you know, Anthony, and they match price/costs extremely well in the first quarter, and we’ll do the same in the second.

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

George Staphos: 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?

Rodger Fuller: I can, George. It’s Rodger, about right at 10% in North America, closer to high — closer to 20% in Europe and pushing 25% in Asia, pretty significant.

George Staphos: Okay. And if you — Roger, if you could help us just in terms of tons, what would that look like? I mean we can go back into it, but just while I have you quickly. If you don’t have it — go ahead.

Rodger Fuller: Yes, all tons across the system, about 70,000. I don’t really have — don’t have a lot of reasons, George.

George Staphos: That’s fine. Perfect. Perfect. I guess the next question I had — and you’re right, other companies saw a deceleration as the quarter went on and March was, in some ways, year-on-year weaker for many companies than was, the beginning of the quarter. Given the number of consumer companies you have talked to, the breadth of your product line and therefore, the input that you get back — in a cup of sense, not solving for world peace here, but what do you think happened? Because your businesses are relatively stable going into the quarter. I think you were looking for mid- single growth in food cans I think, pretty similar growth in flexibles. Volumes don’t swing around that much. So what you’re hearing from your customers, what happened to the consumer that they went into the bunker to such a degree? And maybe it’s just that, but what are your thoughts there?

Rodger Fuller: 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 — are price sensitive. And 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 part on price. But as we said — our food can business was up 5%. So that came in about where we expected. And the other — maybe the other supply with some of the inventory in some of our other customers, the supply chain challenges they’ve had. And they’ve just built up more inventory than we expected coming into the end of the first quarter.

Howard Coker: But George, and I know, you don’t want to warranty, so I will not give you they warranty. So what I will say is that, we are 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. And then in Industrial, we’re saying, look, we’re not expecting any recovery for the period.

George Staphos: So if I keep — it sounds like you’re being very sort of consistent basically very — assuming very little sequential improvement. What do you have, I think, Rodger, you said you’re looking for mid-single-digit declines, correct me if I’m wrong, on Industrial in 2Q. What do you have dialed in across the big categories for 2Q and for the year on a volume basis, embedded in your guidance?

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

Howard Coker: 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.

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

Mark Weintraub: Just one question. I’m not sure, I heard it exactly, but what — you touched something on the metal price overlap. I thought you said it was a negative — you’re thinking of it as a negative 26% for this year or last year — suspecting I misheard you. Could you just clarify that?

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

Mark Weintraub: 86?

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

Howard Coker: So as you look into the various carry-over, but we expect that completely work through this, the net to the end of the second quarter.

Mark Weintraub: 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?

Rodger Fuller: Yes. If you think about the across system in 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 market in the first quarter. And so I think that worked out some of the high inventories. And as I said earlier in my opening comments, at this point for the North American market URB market, we expect macro business downtime in the second quarter. market has stabilized. And volume is not significantly improving, but it’s not — it has stabilized. It’s not following. So we feel like that will hold for the quarter.

Mark Weintraub: 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 cushion. And then hopefully, we get a little bit stronger demand in the latter part of the year. And 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?

Rodger Fuller: Well, I think if you think about the volumes on a year-over-year basis, there is a reduction in volume associated on URB side associated with the conversion of #10 and the remainder of the project horizon activities. And so that’s actually got to our mill system mean, kind of appropriately sized for the market right now, which we feel good about.

Mark Weintraub: 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?

Rodger Fuller: 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 by the time by the time it’s all said and done. But gosh, I guess we missed it in terms of the exuberants that we were feeling, as we entered the year with that mid- single digit. I’m just going to keep going back and going towards the execution side of the business and being able to type of environment.

Operator: And one moment for our next question. And our next question is going to come from the line of Kyle White with Deutsche Bank.

Kyle White: 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 and the softness in terms of the volume backdrop that we’re seeing right now? Or was it also driven by maybe in a can bin prices being a little bit weaker than what was initially assumed. Maybe just any details you can provide there would be helpful.

Rodger Fuller: Yes. I think that 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 as to kind of where the guide is in terms of 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 at volumes, and the Consumer side are a little bit weaker than what we had originally planned. And we have some margin — and we have built in some margin compression in over a quarter in Industrial for the balance of the year in our guidance.

Kyle White: 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 something in the guidance?

Rodger Fuller: Yes, that’s fair. And we’re also assuming, let’s call it, a $15 to $20 increase in the average OCC price between now and end of the year. So there was some cost increases coming in, but we left in it, just flat for the year.

Kyle White: 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 farmers related to it?

Rodger Fuller: Yes. Kyle, we certainly folded in the variant trade business, which is, as you know, is California. And that season really coming off in that, late winter January time frame, Strawberries, et cetera. And then, of course, we have the cost activity down in Florida. So certainly reflected to some extent in the performance of that business, that 1 business in the first quarter. I think we’re working through that as we move forward. On the metal side, on our focus on the being at the tomato markets are really in the Midwest and where we have not seen the type of environmental issues as you see on the West Coast. But our customers are sellout business as usual. As it relates to that part of business.

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

Cleveland Rueckert: Just a couple of follow-ups for me because I think a lot of the big 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?

Rodger Fuller: Yes. Clearly, this is Roger. It’s broad. It’s across all markets, textiles, especially weak, really most every region globally firm, also down, as you said, containerboard down. So it’s really across the board. Specially, anything housing related was down fairly significantly. So it was broad-based across all 4 of the categories that we track.

Cleveland Rueckert: 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.

Rodger Fuller: In fact, we modeled in some continued modest declines in the second quarter, driven by weakness in Europe and Asia. And so that’s the — that’s what we have in the guidance at this point.

Cleveland Rueckert: Yes. Sorry. But North America is starting to firm.

Rodger Fuller: Yes, relatively flat, quarter-to-quarter.

Cleveland Rueckert: 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’s just some more question marks about how the second half is going to materialize.

Rodger Fuller: For Industrial — for Industrial specifically, that’s correct. I was just — probably more Europe than Asia is really, in total Consumer is only about 2% of our turnover.

Cleveland Rueckert: Got it. 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.

Rodger Fuller: It kicked off, includes as you like.

Cleveland Rueckert: Now I’ll talk to you guys later.

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

Gabrial Hajde: I just — I find it interesting that I feel like maybe some of your customers are probably maybe window dressing for 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 snap 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 sort of 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. And then maybe 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.

I mean is that sort of the wildcard or the factor that we should be most mindful of? Or is there something else going on?

Rodger Fuller: Yes. I would say, it’s certainly way too soon to say is there’s a new operating environment trend what from a customer’s perspective. And it’s probably — I’d like to think it is related to really what’s going on in the macro world, I noted, and we all noted. It was a lot of question mark January, March for what was going on in the banking world sector and how is that kind of through the global economy. So can I have my hat on that, is that the decline that we saw, certainly, indeed, summer, the expectation was just that, that we’re trying to draw all inventories down to complete the year. Quarter-to-quarter, I don’t think we’re seeing a new phenomenon here that’s sustainable may see it in December, which we all do in December trying to pull back on our working capital as much as possible.

And to talk about improvements going into the second quarter on the Consumer side, it’s from the base that we’re at right now. And from a sequential perspective. And yes, it’s just natural that — or I should say historical that we see elements of summer buildups in the spring as well as and I noted on the Can side of the business, tax season, et cetera. So I don’t see a pattern here at this point in time such a change, but I think it has to do with what’s going on around the world and reaction timing of those reactions is that impacted us in March.

Gabrial Hajde: Okay. And then maybe getting back to this All Other segment and the enhanced profitability. Is there any way to maybe frame up for us, sequentially and then maybe the second overall. I mean, should we kind of expect this level of profitability persist sort of on either 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.

Robert Dillard: Yes, Gab, this is Rob. That’s a good question. Those businesses, as Howard said, I mean we have kind of really changed the operating model both challenge them, but giving them a lot of freedom to operate. And what they’ve done is they’ve been really entrepreneurial and are generating really great results as a result. So those aren’t one-off or specific results that across the board, down line of those businesses, what we’re seeing is operating improvement that’s really generated by really tight cost control, investment in productivity a very disciplined investment in growth where they see it. So those levels of profitability are sustainable. Frankly, there’s a couple of businesses that have yet to really catch on and we’re excited to when those businesses to start performing as well.

Gabrial Hajde: Okay. And one last one as it relates to the guidance. I mean, I think you guys kind of widened the range a little bit, which I maybe understand. But following a Q1 beat just feels a little odd. The one thing that jumped out at me and interest expense was tracking a little bit higher. I think you guys guided us $115 million — has that assumption changed? And then maybe just sort of the rationale or the thought process behind the wider range versus what you had before?

Robert Dillard: Yes, interest expense has trended higher than thought, kind of All Other expenses in that category and it’s really just related to how we budget at the year. Looks like maybe we’ll see some recovery and variable interest rates by the end of the year, but we certainly budgeted flat. with the raise and have a fair amount of variable rate down. So that’s what’s really flowing through there and then also kind of modeling in what we think we’re going to do with the balance sheet for the balance of the year. With regards to the range and moving it up, I think what where we were thinking really was as we evaluated the risk and opportunities, we felt really comfortable as what we were , Q1 as we had identified a lot of opportunities, but there was still this uncertainty in the market and the operating environment.

So we want to make sure that, that was a wide enough range that we could achieve it. And that’s why we really kept the EBITDA gain where it was as well because we feel really confident that our expectation for the year is narrowing in on that range.

Operator: . Our next question is a follow-up question from the line of George Staphos with Bank of America Securities.

George Staphos: Two questions from me. One, to the extent that you can comment, and again, if you mentioned this, apologies that I missed it. One, price/cost for the year, where does that currently stand in terms of your expectation for ’23 relative to what you would have had coming into the year and/or your last guide. So what was the positive variance there, which seems to offset the volume uncertainty that you have understandably. And similarly, on productivity, where do you — where is productivity? Where is operations, if there’s a way to quantify to some degree now for the year relative to where you would have been entering the year. Again, which helps to offset sort of the volume uncertainty. The second question I had is just in terms of volume, and I think you had mentioned that you expect Consumer to be up modestly this year.

And recognizing no guarantees in life, is there a level of volume degradation that would begin to undercut especially the low end of your guidance range. So instead of low — very low single digit, if you put up a minus 2 or minus 3 at the end of the year, does that risk your guidance? How would you have us think about those sorts of questions?

Robert Dillard: Yes. So look, as we think about the year and kind of where we planned it and what the bridge is we really do think that the positives are really going to be productivity and then a little bit of volume positive here and there. The price/cost was the big driver for the performance in Q1, and then will be a big driver throughout the year, really overcoming the metal price overlap with a lot of really strong performance across the broader business. So I’d say metal price overlap is coming in higher than we had anticipated. So that’s just a greater headwind that we had anticipated and we’re seeing pockets of strength. But overall, I think price/cost will probably be weaker than what we had anticipated.

George Staphos: Weaker. Okay. And productivity then, what was kind of — if you, kind of ballpark with that, that’s adding to you relative to your prior expectation?

Rodger Fuller: Yes, George, this is Rodger and our original plan for 2023, we have wrapped up productivity throughout the year, expecting to take more time for some of these capital projects and supply chain challenges to ease. So first quarter was probably twice what we expected — so if you think about the next several quarters, we’re pretty optimistic that we’ll be at plan or even you can slightly above that.

George Staphos: And then just on the volume question, again, no guarantees, but is there a level — certainly, there is. What level would you say if you’re seeing x amount of volume degradation where we start to — you start to worry about your guidance factors?

Howard Coker: Yes, George, you’re right. that’s a tough one. It’s really going to handle on. 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 really bad way for the course of the remainder of the year. And if you take — the question is more about what is the negative implications. What I would say is that we have history does not necessarily predict the future. But George because we — for the most for, on the Consumer side, we participate in staple food, certainly are consumer store, but really on the one exception there. When things get tougher, we attract — seems to attract more folks to the products that we were privileged to represent — and that’s both store brand as well as the name brand. So I’d like to think that if things get tougher, Consumer side would potentially benefit from that. But of course, that could have ramifications on other parts of the .

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

Howard Coker: No. I was just going, it’s basically didn’t answer your question.

George Staphos: It’s all part of the Mosaic though, Howard. It’s all part of the Mosaic. We appreciate it.

Operator: 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 any — for her closing remarks.

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

Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.