Sonoco Products Q2 2022 Earnings Call Transcript

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Provided by Quartr
July 20, 2022

Key Takeaways

  • Positive Sentiment: Sunoco reported 38% year-over-year revenue growth to $1.9 billion, marking the highest quarterly sales in company history, driven by strategic pricing and the Metal Packaging acquisition.
  • Positive Sentiment: Base earnings per share rose 89% to $1.76 in Q2, leading management to raise Q3 guidance to $1.35-$1.45 and full-year base EPS guidance to $6.20-$6.30.
  • Positive Sentiment: Base EBITDA increased 62% to $306 million and base operating profit grew 78%, with margins expanding by over 200 basis points to 16%.
  • Negative Sentiment: Persistent supply chain disruptions and inflation drove elevated inventory levels, pressuring cash flows and resulting in maintained cash flow guidance despite strong operating performance.
  • Positive Sentiment: Sunoco accelerated its strategic priorities with a record $325 million in capital projects this year—including Project Horizon, paper can expansions, and sustainability initiatives targeting a 25% reduction in greenhouse gas emissions by 2030.
AI Generated. May Contain Errors.
Earnings Conference Call
Sonoco Products Q2 2022
00:00 / 00:00

There are 12 speakers on the call.

Operator

And thanks to everyone for joining us today for Sunoco's 2nd quarter 2022 earnings call. Joining me this morning are Howard Coker, President and CEO Rob Dillard, Chief Financial Officer and Roger Fuller, Chief Operating Officer. Earlier this morning, we issued a news release highlighting our financial performance for the Q2 of 2022, 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 www.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.

Operator

CFO. These statements are not guarantees of future performance and are subject to certain risks and uncertainties. Therefore, actual results may differ C. C. Cereally.

Operator

Please take a moment to review the forward looking statements on Page 2 of the presentation. CEO. 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 Conditions 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. For today's call, Howard will begin by covering a summary of 2nd quarter performance.

Operator

Rob will then review our detailed financial results for the Q2 and discuss our guidance update for the Q3 and the full year of 2022. Howard will then provide a progress report on our strategic priorities, followed by a Q and A session joined by Roger Fuller. If you will please turn to Slide 4 in our presentation, I will now turn the call over to our CEO, E. Howard Coker.

Speaker 1

Thank you, Lisa, and thanks to everyone for joining our call today. Hopefully, you've seen our press release and the strong financial results CFO, which exceeded the high end of our recently raised guidance. We've made tremendous progress on our strategic priorities CFO that enabled the quarter's performance and our outstanding first half of twenty twenty two. Revenue for the quarter was up 38% over last CFO, and the $1,900,000,000 quarterly sales marked the highest in the history of Sonoco. Our revenue performance was driven by the CFO.

Speaker 1

Continued benefit from our ongoing strategic pricing actions, great performance from the Sunoco Metal Packaging acquisition,

Speaker 2

CFO. As you have no doubt CFO.

Speaker 1

As you heard repeatedly from companies across various industries, global supply challenges and inflationary issues persist. C. Despite this, we expanded our base EBITDA margins over 200 basis points to 16% CFO. Compared to last year from strong profit performance across the entire portfolio. On the bottom line, we grew base earnings per share to 1 point C76, which was 89% above our result in Q2 of last year.

Speaker 1

Based on our first half results and third quarter outlook, We're again raising our full year base earnings and per share guidance to a range of $6.20 and C. E. Our operational, commercial excellence and supply chain teams have C. E. C.

Speaker 1

E. Just done an outstanding job, and I want to extend a special thanks to the entire Sunoco organization for delivering these results CEO continuing to support our customers. We've had great execution in the first half of the year, and again, these results CFO are not by chance. We have been working very hard on the set of strategic priorities to make our great company C. E.

Speaker 1

Even better. And later in the call, I'll provide further updates on this progress. Now to go over more details on our 2nd quarter performance CEO. Let me introduce you to our new CFO, Rob Dillard. Rob has been with Sunoco since 2018, handling corporate CEO of Strategy and M and A Activities.

Speaker 1

Rob is a strategic leader of our company and brings extensive experience in Corporate Finance and Accounting, Operations, Strategy and Corporate Development from both Fortune 500 Companies and Investment Banking. CEO. Rob has a deep understanding of Sunoco's culture and strategic opportunities to partner with our global business leaders to further drive performance improvements and shareholder value. Let me say congratulations, Rob, on your new role, and I'll now turn the call over to you.

Speaker 3

Thanks, Howard. On Slide 5, we start our financial review with GAAP EPS and the reconciliation of GAAP EPS to base EPS. C. GAAP EPS was $1.33 for the quarter, a meaningful increase from the same period in 2021. As Howard said, the strong performance was due to continued strategic pricing performance, a relatively stable demand environment, CFO.

Speaker 3

This improved profitability resulted in base EPS of $1.76 CFO, an 89% increase from the same period in 2021. The reconciliation from GAAP EPS to base EPS has $0.43 of adjustments, E. Primarily related to the amortization expense, the metal packaging acquisition, increase in LIFO reserve and the exit of our Russian operations, Which impacted restructuring. Slide 6 has our base P and L summary for the period. C.

Speaker 3

These exceptional results illustrate the power of our positions in stable and defensive end markets where we differentiate ourselves as a supplier of Torrey. C. We achieved value for this differentiation through strategic pricing performance that greatly contributed to our net sales growth of 38% to $1,900,000,000 in the quarter. CFO. Furthermore, this price is translating into strong operating leverage.

Speaker 3

This is best exhibited by our 62% increase in base EBITDA and CEO, and our 78% increase in base operating profit in the quarter. Base EBITDA was $306,000,000 and base operating profit was $250,000,000 in the quarter. C. E. We increased base EBITDA margin 2 30 basis points to 16% and base operating profit margin 2 90 basis E.

Speaker 3

C. And C. E. This focus on margin improvement is strategic and is backed by portfolio management actions, C. E.

Speaker 3

C. And C. E. C. And C.

Speaker 3

E. C. And C. E. C.

Speaker 2

And C. E. C. And C. E.

Speaker 2

C.

Speaker 3

And C. E. C. And C. E.

Speaker 3

C. And C. CEO. Turning to Page 7. Net sales grew $531,000,000 versus the same period in 2021.

Speaker 3

E. The strong performance was driven by several key factors. First, volume mix was negative 1% in the quarter, E. Was largely an indicator of relatively stable demand conditions in our increasingly defensive consumer oriented market profile, Best exhibited by our market leading global rigid paper cans business, which achieved 1% volumemix growth. This growth E.

Speaker 3

And growth in our other core U. S. Businesses was offset by strategic actions that led to volume declines as well as market weakness in consumer durable markets and International Industrial Markets. Pricing performance in the quarter was particularly strong with net price of $297,000,000 team. This figure excludes the pricing performance of metal packaging, which was also strong.

Speaker 3

C. This exceptional pricing performance was both contractual and strategic in nature and is the product of our commercial excellence strategy. E. Acquisitions and divestitures generated $290,000,000 of sales in the quarter as metal packaging continues its strong performance. C.

Speaker 3

Excluding the impact of acquisitions, net sales growth was still 17% in the quarter. Finally, FX and others was negative 44,000,000 CFO. It's important to note that approximately 72% of our net sales are generated in the U. S. C.

Speaker 3

As shown on Slide 8, base operating profit increased $109,000,000 or 78% from the same period in 2021. CFO. As previously stated, the primary drivers for this growth were strong price cost and performance, acquisitions and divestitures and improved productivity. Metal Packaging was largely responsible for the acquisition growth. This business achieved 21% operating profit margin in the quarter due to strong price cost performance and the benefits of integration.

Speaker 3

Slide 9 has our segment analysis and base figures. This analysis illustrates the strong performance across the breadth of our diverse C. E. Consumer net sales grew 66% to $990,000,000 in the quarter. C.

Speaker 3

E. Consumer volume mix was essentially flat during the Q2 as strong international rigid paper can volume mix and 4% flexibles volume growth was offset by mix and flexibles and strategic volume reductions in our perimeter store business. Consumer operating profit grew 114% CFO, up to $139,000,000 a 3 20 basis point increase in operating profit margin CFO, and our Chief Financial Officer of Corporate and Productivity. Industrial Paper net sales increased 20% to $727,000,000 E. The 8th consecutive quarter of record net sales.

Speaker 3

Industrial paper volume mix declined approximately 2% in the quarter due to disrupted demand and C. We are pleased to report that we are in the U. S. This URB market conditions are moderating in Europe C. E.

Speaker 3

As our U. K. Paper mill is again operational after our capital project, we anticipate that the U. S. URB market will be in balance CFO.

Speaker 3

Once Project Horizon has completed, industrial paper operating profit grew 57% to 94,000,000 CFO, a 310 basis point increase in operating profit margin to 13%, due primarily to price cost. Turning to Slide 10. Year to date, operating cash flow was $184,000,000 This strong performance was despite a C. E. A.

Speaker 3

C. E. The elevated levels of inventories associated with buffering disrupted supply chains CFO and to better serve our customers. Capital expenditures were $144,000,000 in the first half of twenty twenty two. We're maintaining our guidance of $325,000,000 in capital expenditures for 2022.

Speaker 3

Finally, we paid $92,000,000 in dividends in the period in support of our mission to provide an ongoing return to shareholders and support a market leading yield. Slide 11 has our balance sheet. As of July 3, 2022, our balance sheet is largely reflective of our strong performance and conservative capital structure. At the completion of 2022, we anticipate our net debt as a multiple of base EBITDA will be well below 3 times. C.

Speaker 3

E. We intend to manage our capital structure appropriately to maintain our strong investment grade credit rating. Next, Slide 12 has our guidance update. Our strategy is gaining traction and this enables us to raise our Q3 and full year guidance. We are raising our Q3 base EPS guidance to $1.35 to 1 $0.45 E.

Speaker 3

Additionally, we're raising our full year base EPS guidance to $6.20 to $6.30 We're also increasing our full year base EPS C. EBITDA guidance to $1,125,000,000 to $1,150,000,000 We're not raising our cash flow guidance despite our expected strong operating performance due to uncertainty in supply chains and the impact of inflation on net working capital. Of note, our updated guidance reflects CEO. We anticipate that this will have a $10,000,000 to $15,000,000 impact on base operating profit in the 3rd quarter CFO and the full year. Production will resume in the Q4, and we expect the full benefit of the project in 2020 Now Howard will conclude our prepared remarks.

Speaker 1

Thanks, Rob. And If you'll turn to Slide 13 in the presentation, I'm going to provide an update on the progress of our strategic priorities. CEO. Let me remind you that Sunoco is on a journey. I took the role of CEO 1 month CFO for the COVID outbreak in 2020.

Speaker 1

At that time, I challenge the team to really start thinking about a better operating model to optimize our portfolio and footprint and ask them to imagine what the organization would look like to support

Speaker 4

We're getting

Speaker 1

some feedback in our room. I'm hoping this is carrying through, and I will continue with my comments and CEO. And repeat, I'll remind you that these planning sessions were going on amidst a global pandemic comp CFO, founded by worsening supply chain conditions. Fundamentally, our aim was to be a much stronger company And to build a playbook that would result in long term step change and profitability and value creation CFO for our shareholders. To do that, we have to first look at our portfolio.

Speaker 1

We are intentionally aligning to fewer, bigger businesses focused on markets where we believe we have a right to win C. A. N. Leadership positions. Today, our Consumer Packaging segment represents over 50% of our business C.

Speaker 1

And industrial paper packaging has retracted to around 38%. We're using a rigorous portfolio management lens Determine where and how we invest organically and otherwise. In parallel, E. We're focusing on optimizing our manufacturing footprint. The outcome of these efforts have been to exit some unprofitable operations in Europe, and North America as well and to scale growth opportunities, particularly in Asia, South America, Europe and yes, here in the United States.

Speaker 1

C. Our coupled focused portfolio and operational strategy is centered on serving our customers in the right locations with maximum efficiency to drive superior service and of course improve margins. CEO. Secondly, we're aligning our organizational structure and talent to support these larger scaled businesses with a simpler infrastructure, Leveraging centers of excellence and shared services. We're doing this with a greater focus on process standardization to lower operating expenses.

Speaker 1

C. In this more streamlined model, we're building a diverse and inclusive workplace through a set of focused actions C. E. Coker, President and C. E.

Speaker 2

Coker, President and C. E. Coker, President and C. E. Coker, President and C.

Speaker 2

E. Coker, President and C. E. Coker, President and C. E.

Speaker 2

Coker, President and C. E. Coker, President and C. E. Coker, President and C.

Speaker 2

E. Coker, President

Speaker 1

and C. E. Coker, CFO. Thirdly, we're investing to grow our consumer and industrial business CEO of the company with high return capital projects for organic growth and productivity improvement. In 2022, C.

Speaker 1

E. We have allocated a record $325,000,000 to capital projects, of course, led by Project Horizon, CFO, which Rob spoke to earlier. We're also investing more than $60,000,000 to expand our global paper can production, C. E. C.

Speaker 1

C. $60,000,000 to grow our flexible packaging business and recently $25,000,000 into our domestic metal can E Division to name a few of our other new investments. As we shared in our December Analyst Meeting, C. E. We are further investing in self help actions of operational, commercial and supply chain excellence programs for EBITDA growth CFO and margin improvement over the next several years.

Speaker 1

In addition to organic investments, C. E. We will evaluate targeted opportunities to inorganically augment these core businesses. Lastly, executing on sustainability initiatives is central to our mission. We're increasing our E.

Speaker 1

Coker, our focus on sustainability to reduce the environmental footprint of our operation and commercially through the products we design. C. E. These work hand in glove with our customers and supplier partnerships to drive circular economy solutions that C. Both our commitments to improve recycling and recyclability of our products are meeting our aggressive targets to reduce greenhouse gas emissions CFO at 25% by 2,030.

Speaker 1

You can get more information on our sustainability progress when we publish our updated corporate responsibility CFO later this quarter. As we continue to navigate these initiatives, we will keep capital allocation aligned to our Chief Financial Officer. We're committed to returning cash to shareholders as evidenced by our 40 consecutive years CFO of increasing dividends and maintaining a strong balance sheet. In closing, I've been with Sunoco for over 35 years and I've been C. E.

Speaker 1

Never been more excited to be a part of this organization. We are making step change improvements in how we CFO. More efficiently operate the company that is yielding the strongest financial performance in our history. I am optimistic about the actions we're taking to make CFO. Sunoco a better company and the value we will create for shareholders not only this year, but known into the future.

Speaker 1

CEO. So thank you for your support. Thank you for your interest in Sunoco and we certainly welcome any questions you may have.

Speaker 5

C. Our first question comes from the line of Clive Rueckert from UBS.

Speaker 1

Good morning, Clay.

Speaker 6

Congratulations on a nice set of results. E. Just sort of 2 high level questions for me on the guidance. Firstly, I'm just curious, I appreciate the cash flow is sort of second half weighted, but I'd like to understand what it would take to unlock C. E.

Speaker 6

The working capital that you called out and perhaps outperform the cash flow guidance. And then just secondly, I think in the release you talked about Returning to a more normalized margin in the future. And I just E. Like to know if you can give us a sense of what that margin run rate is and whether it's contemplated in your implied

Speaker 3

CEO. Yes, sure. I'll Cleave, thanks for that question. I'll take the cash flow question and then we CEO. And let Howard and Roger discuss margins as well.

Speaker 3

So I would say on working capital, we were conservative. C. The inflation trends that we've seen have still persisted in some areas. We're seeing nice trends there, but E. That definitely has impacted net working capital in the first half and so has kind of continued supply chain disruptions, which has led to Kind of elevated inventory levels as we've persisted in kind of being a stable supplier for our customers.

Speaker 3

E. And we're starting to release some of these excess levels. We also have, of note, relatively meaningful seasonality in E. C. And that packaging, as you can imagine, releases in the Q4 after the pack season.

Speaker 3

I'd say the other thing Kind of a note to your question on how we unlock this value, that's exactly what we're focused on now and we want to guide to what we control can control and we're C. We've got new and accelerated initiatives really to manage working capital in the future. We think there's a meaningful opportunity to improve asset efficiency. C. And it's really just the timing to achieve this, the key variable, whether or not it will be this year or next, but we're opportunistic and C.

Speaker 1

Yes. Clayton, let me talk about the commentary on normalized and C. That's really talking into the 3rd Q4. We've got the inflation that discrete inflation that Rob alluded to. E.

Speaker 1

We also have the impact noted between $10,000,000 $15,000,000 on the industrial side with our number 10 C. E. So we've got some exposures, Supply Chain, etcetera, that well publicized and we're cognizant of as we finish out the year. C. If you go beyond this year, we are extremely bullish about not only the performance this year, but C.

Speaker 1

And just to kind of give you some color C. Really macro things that are going on right now. If you think about number 10, the costs that we're going to incur this year and C. And the benefit next year. Back in December, we talked about our walk to $180,000,000 of C.

Speaker 1

E. A. We've been working that frankly for the last year, year and a half C. With some, but little benefit. I think the most benefit we've seen is on the commercial excellence side.

Speaker 1

E. But we've got that tailwind as that really starts kicking in into next year. Synergies from the acquisition And frankly, continued improvements on the capital that the prior owners put into the metal business and that we're putting into the business today. CFO. Portfolio Optimization, and I could keep going on.

Speaker 1

So the real headline here is we're having a remarkable this year, and we do not I expect to step back from that going into next year in the future and the expectation is to improve on that year on and year out.

Speaker 6

CEO. That's very clear. Thank you very much.

Speaker 5

Thank you. Our next question comes from the line of George Staphos from Bank of America Merrill Lynch.

Speaker 7

CFO. Thanks for the details and congratulations on the quarter. Rob, we look forward to working with you and congratulations. I wanted to pick up on that Question, Howard, could you give us a sense for on the shared services and that area of self help, what we could be looking at Into 2023, it sounds like there's not been as much for understandable reasons, pickup on that this year. CEO.

Speaker 7

But next year, if you could help us understand what that could be perhaps? And if not, quantitatively, sort of directionally, if there's any way to Talk to that point.

Speaker 1

Yes. George, I do not want to take up the entire Q and A session to talk through all of the work we're doing, but I'm C. To summarize, basically, we're taking a different approach and look towards the company. So E. We've identified what we call our core businesses and those are our can businesses, our flexibles businesses C and our Global Integrated Paper Business.

Speaker 1

And we're structuring our centralized functions in C. Of those critical, longstanding C. Businesses within the company. On the other side, we have a group of disparate businesses known in the all other category that we're going to manage Definitely. We are no longer going to support from Center.

Speaker 1

We're going to allow them to they're not integrated. C. There's not a lot of relationship between many of these. So we're going to set them up to stand alone and we'll be supported by CFO, when that makes sense to the core from a cost perspective. But the end result is going to be much greater focus on those, again, core businesses.

Speaker 1

It's going to be more C. E. Focus as it relates to how do we support and manage those core businesses and it will provide significant SG C. E. As we fully implement that.

Speaker 1

So that is a totally different view of how we're going to be managing the company into the future. Roger is heading that up and he may have a couple of comments that he would like to make as well.

Speaker 2

Yes, I

Speaker 4

think you covered it well, Howard. But George, I'd add, we talk a lot about automation and team. We've got a tremendous amount of really strong capital automation projects going through that will be hitting next year. A lot of focus on operational technology and how do we give C. Our operators, our maintenance teams, better online data to improve productivity.

Speaker 4

As you know, productivity has been very tough this year. I think

Speaker 2

the team has

Speaker 4

done a fantastic job under very difficult situation with supply chain challenges and labor challenges. So unlocking that productivity in 2023 C. E. It's going to be critical and I'm feeling very, very bullish about that as well. So we'll start to see those projects pay off as we head into early 2023 as well.

Speaker 7

C. Thanks for that Roger and Howard.

Speaker 8

Would it be fair

Speaker 7

to say that in 'twenty three, clearly the incremental pickup will be more than what you saw in 'twenty two And that in turn, it would be more than what you see incrementally 24 versus 23?

Speaker 4

That's correct.

Speaker 7

C. Okay. Thanks for that. Two others for me and I'll turn it over. One, can you talk about the trajectory that you're seeing in industrial CFO.

Speaker 7

As the quarter progressed May into June and then I realize we're not that deep into the Q3, E. But any views that you could share with us in terms of what you're seeing in industrial, early Q3? And similar question, looking at consumer, CEO. There's some puts and takes. Your important businesses did well.

Speaker 7

This might take obviously in cans and flexibles. C. Any change in the trajectory of the businesses as the quarter progressed and then early into 3Q? Thank you guys. I'll turn it over.

Speaker 4

C. Hi, George. Roger. On Industrial, as we look at the Q3, surprisingly, the U. S.

Speaker 4

Is maintaining C. Really good strength.

Speaker 1

If you look at the tube and core business in

Speaker 4

the U. S. In the second quarter, came in 1.6% positive, strong film results, strong C. E. A little bit of downside on paper mill cores, but strong.

Speaker 4

And we've seen that continue into the 1st part of July. And we expect E. Very similar trends in North America in the U. S. And North America than we had in the Q2.

Speaker 4

So we're really not seeing any kind of slowing C. As you would expect, Europe and China, specifically in Asia was difficult. C. Our Tubing core numbers in Europe were down about 6%, but we had the Russia exit. We've exited a plan in Saudi Arabia.

Speaker 4

We exited a losing A profit losing plan in France will be making really smart moves. You take that out and the European business was down about 3%. Most of that's coming from textiles, and that textiles softness is really generated by the war in Ukraine and the supply chain disruptions we're seeing there. Asia overall was weak and that's driven by China. As an example, China, our comb business, which is textile focused, E was down 37% year over year, so China was soft.

Speaker 4

So for me, other than the incremental energy challenges that we may see in Europe in the second quarter, We're seeing very similar trends as we move into the Q2. So the most optimistic C. E. Piece is really that U. S./Canada piece, which is holding up well.

Speaker 4

No significant changes As we rolled into the Q3 and our can business, we are seeing a rebound in our powdered input formula business. C. E. There's a well publicized challenge with 1 of our large customers in the powder and the formula business. That seems to be behind us now.

Speaker 4

So our North American C. E. Rob has already mentioned seasonally the second half in metal can is softer than the first. That's in the guidance. And C.

Speaker 4

And really, I want to call it our plastic food business. Yes, the volume was down, but it was down by our choice. We've been talking now for 3 or 4 quarters CEO. The consolidation, plant consolidations we're doing in that business, the pricing strategy we have in that business and we've walked away from some unprofitable E Business, so the volume was down in plastic foods, but they had a record profit performance. So I'll take that trade off at any time.

Speaker 4

So Really, the only significant change we're seeing is really energy focus in the Q3 and that's a watch out, not only price of energy, C. E. The availability of energy, specifically Germany, as we get into the quarter.

Speaker 7

Makes sense. Thanks very much, guys.

Speaker 5

Thank you. Our next question comes from the line of Mark Wintraub from Seaport Research Partners.

Speaker 2

C. E. And Mark.

Speaker 9

Another really good quarter. And also thank you for laying out some of the controllables that you're going to be The levers are going to be pulling to drive profits going forward. One thing you helped us out within the Q1 is you had noted that E. There had been about $0.30 to $0.35 from quasi one time price cost. C.

Speaker 9

Was there much, if any, in the second quarter as we start thinking about what's the right platform to think 2023, where kind of the starting number should be. Is there a number for the Q2 that would be equivalent to that $0.30 to $0.35 you Talked about in the Q1.

Speaker 1

Yes, Mark, for the Q2, really across several divisions, we probably C. E. C. Butler:] So you can back that out and say the rest was pretty much pure. E.

Speaker 1

Your question really is around how do we comp that to next year and there you go. I'm not going to repeat all the CEO. Things that we have from a tailwind perspective that number 10 is a great headline, but as George asked, we haven't seen a lot Because we're in the planning cycles right now in terms of structural transformation, we expect that to truly kick in next year. E. And again, I'm not going to repeat all the things, but well, I will say if you look at number 10, that's been like the poster child E.

Speaker 1

Because it's such a large our largest ever capital investment, but we've got just I don't know C. 10, 20, 30, 40, 50 number 10 like projects that are in the 1,000,000, 5,000,000 10,000,000 C. E. Type range that drive us up to that 325 in capital spending and increased capital spending last

Speaker 2

year and the returns coming from those are really going to

Speaker 1

start kicking in next The terms coming from those are really going to start kicking in next year. And then finally, synergies have started C. With the acquisition, but we expect to see meaningful improvement and tailwinds from that as well. So you talked about the $0.30 to $0.10 And while you guys whether we've gone from $3.93 to $6.20 something CFO. And 1 year, we expect to be able to maintain that going forward because of all the work that this great team has undertaken over the last C.

Speaker 1

Super.

Speaker 9

Thank you. And also, I guess, one question folks have been asking, C. The volumes were flat down a little bit. You called out the plastic food. If you if it's possible to sort of Put to the side where you made decisions to essentially sell less, can you give us a sense as to what Kind of the remaining business volumes would have looked like?

Speaker 1

Yes. I don't think we can hit a number for you, but it is Something that we are going to start pointing out going forward. When you say you're 1% down and whatever, C. We do make strategic decisions that actually can impact that 1% and that was a great C. That Roger pointed out where our perimeter store business was 9% down, CFO, which is in our consumer sector, 9% down and we had profits that we haven't ever had in that business, CEO.

Speaker 1

Making smart moves, sacrificing volume in exchange for much, much higher profits. So Mark, sorry, I can't just sit here and say, hey, here's a number, but we are recognizing that we're not giving you guys the total picture of C. What is actually a market driven versus our own self actions that are causing our volumes to be down. That will be coming in the future.

Speaker 8

C. Super and thank you for the color.

Speaker 5

Thank you. C. Our next question comes from the line of Gregory Andropoulos from Citigroup.

Speaker 2

CFO. Hey, Gregor.

Speaker 8

Hi, Don for Anthony. I just had a quick question about the full year guide, kind of C. Going back to that. So the raise to 620 to 630, to my mind that's above what the 2Q preannounce would have implied. C.

Speaker 8

So my thought process is your expectations for the second half are above what they were back in April when you updated us last. E. So I guess my 2 kind of related questions. First question is, how has the second half outlook changed since April or since earlier this year? And C.

Speaker 8

And is it possible to kind

Speaker 1

of parse out some of the drivers of the guidance raise?

Speaker 8

And also I just wanted to kind of know how E. C. E. C. And Natural Gas, and kind of what levels of inflation the full year guide assumes for the rest of the year.

Speaker 3

CEO. Yes, Gregory, good question. In terms of C. The real kind of drivers there and how we're thinking about it sequentially from the Q1, Q2 and then 3rd, as you mentioned, kind of E. The increasing guide for the year as we are, as Roger said, really monitoring and participating really actively in our markets and understanding the demand drivers.

Speaker 3

And I would say that in our really defensive consumer markets like rigid paper E. Cans, metal foods and flexibles and thermoforming food, we're able we feel really good about kind of stability there and defensibility there and C. E. That should just continue to provide kind of performance opportunities on the price side. On industrial, it is cyclical and we are kind of C.

Speaker 3

We're monitoring it as Roger and Howard both said that there's various kind of puts and takes there, but we aren't predicting kind of a meaningful downturn in our core U. C. We've seen kind of a meaningful downturn in our core U. S. Tube and core and paper markets.

Speaker 3

C. E. Those markets continue to be relatively strong. I think that one component on the guide that is C. E.

Speaker 3

Coker, our Chief Financial Officer, our Chief Financial Officer, our Chief Financial Officer, our Chief Financial Officer, our Chief Financial Officer, CFO. Pretty meaningful profitability this year, and we're expecting that profitability will be I would say this is the C. E. C. And C.

Speaker 3

E. And that margins will normalize from their current 21% range that we saw in the Q2. But I think that all this, the big driver here remains price cost. E. And I think we really want to make the point that, we're not kind of oscillating around kind of a neutral price cost where Margins would continually kind of revert to some mean that we've been really focused on margin expansion and pricing to value.

Speaker 3

And C. And that as a result, we think price cost for the full year of which we've gotten $164,000,000 this year C. It should be in the range of $250,000,000 to $300,000,000 for the full year. And that's really the driver for a lot of

Speaker 2

C. E.

Speaker 4

Yes, this is Raj. On the inflation side, we feel like inflation peaked in the second and C. E. Now having said that, there will continue to be supply chain challenges and inflation challenges, but we do feel like it's steep. E.

Speaker 4

We're seeing some easing up in freight finally, truck availability, driver availability, some offset obviously in diesel costs, CEC. Some drop in things like aluminum ingot. They're really and keep in mind what resin C. So not good purchases, but we are calling our resin inflation going up for the year. We're about 18% in last E.

Speaker 4

The 50% of the resin we buy, we buy £500,000,000 a year, 50% of what we buy is PET. CEC. And it looks like PET is going to escalate 40% to 45% this year. So you got to keep that in mind. But I think the point on the second half, in the Q1, we didn't know what we didn't know about supply chain challenges and inflation.

Speaker 4

We've got a better view for it now. We've been more precise. And to Rob's point on strategic pricing, you build that in with a little bit of easing and inflation in the second half, and that helps you understand The guidance changes for the second

Speaker 8

half. Great, great. That's very helpful. Thank you. I'll turn it over.

Speaker 2

CEO.

Speaker 5

Thank you. Our next question comes from the line of Kyle White from Deutsche Bank.

Speaker 10

CFO. Congrats Rob on the new role and looking forward to working more closely with you going forward. I guess just to start, curious overall across the business If you guys starting to see any kind of trade down impacts, maybe consumers moving more to food cans or to paper containers versus fresh foods, anything that

Speaker 1

you would call out? CEO. I don't think we're seeing the only areas within the portfolio that are notable would be actually on The more high value parts of our business and that's the supply end of the white goods industry, refrigerators, washer, dryers. Some of that is related to their own supply chain issues, but our customers are telling us they're seeing some pullbacks. But C.

Speaker 1

We're not seeing at this point what we normally would see in a recessionary period and that is a Fairly substantial tick up in the staple food side of our business. So it's kind of business is normal at this point in time.

Speaker 2

CFO. Got it. That makes sense.

Speaker 10

And then Rob, since you're not new to Sunoco and you already have an understanding of the business, just kind of curious C. E. What strategic actions you might be looking to implement here from day 1? Anything you're thinking about and changing in regards to the cap allocation? Or what's your view on leverage and share buybacks?

Speaker 3

Yes, we're still evaluating that. I mean, it's early days. I think the C. Legacy practices have certainly served us well. We definitely have a dedication to being investment grade and are thinking really thoughtfully about what that means C.

Speaker 3

We've bought back shares in the past and we consider doing that, C. We really like returning capital to the shareholders through the dividend and think about that every quarter with the Board.

Speaker 5

Question comes from the line of Adam Josephson from KeyBanc Capital Markets.

Speaker 11

CFO. Rob, congratulations. I look forward to working with you as others have said. 1 on the price cost, C. Robert, you gave your updated expectation of $250,000,000 to $300,000,000 benefit for the year.

Speaker 11

E. If memory serves, the company's expectation coming into the year was 125 plus, so it's gone up. It's more than doubled C. Since the beginning of the year, can you help me with which segments that's in and just Frame for us the magnitude of that full year price cost benefit compared to what the company has experienced historically? C.

Speaker 3

Yes, Adam, that's a good question and it's something we're really focused on. I mean, if you think about it in a historical context, C. Over the last two years, we've experienced negative price cost of $153,000,000 And in the first half of this year, We're back to positive 164. So really offsetting really just was 2 years of a negative trend. I would say that C.

Speaker 3

That whole 2 years and this year, we've been really working on getting price in a really strategic way and thinking about how to deliver value C. And so that's changed a lot of how we think about price and how we think about margin. C. That's really the driver for how we think that this price cost curve over the 3 year period that you're C. If you include the last 2 years, we'll actually just show if you get to the 250 to 300 just the good work C.

Speaker 3

We've done over the last couple of years. So we feel really confident about that. It's a capability we've been building for a number of years and CEO. And one that we've increasingly gotten focused on. I think Roger can talk a little bit more about some of the puts and takes.

Speaker 3

I There's definitely businesses that are experiencing better pricing, but I would say it's a core capability that we're pushing from center And that it's across the board, we're seeing price. There is no just one pocket of price here or there. Every business is really seeing price.

Speaker 4

Yes. That's well said, Rob. I think the only thing I would add, Adam, is we talked about it now for 18 months or more. C. E.

Speaker 4

The other initiative is really going through all contracts with all customers across primarily the consumer and industrial, our two C. E. C. E. C.

Speaker 4

And really understanding price change mechanisms and timing on those price change mechanisms using the correct CFO. But most importantly in the environment of the last 18 months, making sure we can recover as we should be able to labor increase C. All other increases, all the materials besides things like OCC and resin and metals. So I think, as Rob said, the team has done a fantastic job. I think C.

Speaker 4

That's a driver of most of the incremental that you're calling out, and we continue to push that going forward, and we see that continuing in the second half of the year.

Speaker 1

C. And I would add, through the COVID period, it's really rare. I can't think of C. We actually materially cause downtime for our customer during these difficult supply chain CFO, and I think it just really helped pull forward our customers' C. The recognition of the value of doing business with a global company like Sunoco that when we have a discrete raw material shortage that C.

Speaker 1

We have literally a global reach and are willing to do whatever it takes to make sure our customers stay in the market C. E. And deliver that value that we have for so long. And I think they too are understanding that And we're being rewarded for that in terms of margin improvement.

Speaker 11

C. E. I appreciate that Howard. Just one clarification on that. So you recouped all of what you lost over the past 2 years just in the first half and then you're going to get you're C.

Speaker 11

I think a lot more in the second half. But then I think in response to Cleave's question, you were saying Howard that you don't think you'll be In effect over earning this year despite what appears to be a historically large price cost benefit. Is that because you were thinking perhaps you were In effect, under pricing in recent years plus you had that drag over the past few years that you recouped in the first half. Is that How you would have us think about that issue?

Speaker 1

That's how we think about it. It's look, I mean, In a perfect world, price has nothing to do with cost, right? And our customers are understanding that C. Doing business with Sonoco is the right partner to be doing business with and that we can keep them in. So our value recognition C.

Speaker 1

It's higher today than there ever has been. And as Roger talked to, we've been working at this for a year and a half, 2 years really on top of our commercial excellence CEO. We're getting that message out. It's just COVID just absolutely reinforced to our customers that C. We are the right folks to be doing business with because look, we have a major recession.

Speaker 1

We have a hurricane C. It's not coming. I don't have insights of that, but it can happen team. Literally in a matter of weeks that we have a global supply chain issues. Our customers know that we will keep them in supply At whatever cost and it may be a short term impact to our P and Ls, but we are going to be there to serve.

Speaker 11

CEO. I appreciate that. And just one other one on the URB business, which is obviously in 2008, 2009, E. That business took a very big hit, both in terms of volume and profitability. And I know you think about the business a lot differently and the industry for that matter much Differently than you than it was back then.

Speaker 11

Can you just remind us of that? And then more near term, I think, Rob, you expressed C. Confidence that the North American Tubes and Coors demand would hold up. What gives you that confidence given the economic sensitivity C. Of those end markets, particularly given what that business saw in 2008, 2009 volume was?

Speaker 11

Thank you.

Speaker 1

We're all looking around and who's going to answer that one. Okay. So I'll start. CEO. Look, the balance in terms of we've been short here already.

Speaker 1

C. We've talked about that quarter after quarter allocations. With number 10 coming on, we hope to E. To get our inventories back up. And let me add to that.

Speaker 1

I mean, the productivity, negative productivity that we C. Seeing through this period of shortness where we've been changing over and moving volume from mill to mill to mill just to keep ourselves and our trade customers and C. E. Look, it's still a very tight market. Number 10 is going to come on.

Speaker 1

We'll see relief. C. E. We'll see inventories hopefully get up to the appropriate levels, so our productivity will improve substantially. And C.

Speaker 1

We just think that overall C. These market conditions are set to sustain the type of margins that we've enjoyed.

Speaker 4

E. Adam, it's Roger. I think and you have to go back before Project Horizon. If you remember, we put tens of 1,000,000 of dollars of capital investments into our paper mill system, E. Focusing on expanding the capacity of our lowest cost machines and aggressively taking out our high cost capacity.

Speaker 4

E. And that continued after the recession for several years leading up to Project Horizon and Project Horizon is just going to build on that. And then we'll continue with that. So Project Horizon is not the last investment we'll make in URB. So the whole our system, our URB system is much lower cost.

Speaker 4

C. We've committed to keeping capacity basically flat and that's what we've been doing and that's our commitment going forward. So it's really a different market today than it was back in 2008 and 2009 in my opinion.

Speaker 11

Thanks very much, Roger.

Speaker 2

C.

Speaker 5

CEO. I would now like to turn the conference back over to Lisa Weeks for closing remarks.

Operator

Thank you again for joining our call today and thank you for your interest in Sunoco. If you have any follow-up questions, don't hesitate to give us a call and please enjoy the rest of your day.

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