Sonoco Products Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 2, 2023

Key Takeaways

  • Strong Q1 results with sales of $1.73 billion, operating profit of $213 million (12.3% margin) and adjusted EPS of $1.40 beating initial guidance.
  • Raised full-year EPS outlook to $5.70–$6.00 and provided Q2 EPS guidance of $1.45–$1.55, while affirming EBITDA and operating cash flow targets.
  • Volumes declined due to consumer inventory destocking and ongoing industrial weakness, with industrial sales down 12% and notable softness in Europe and Asia.
  • Achieved a 5.5% price increase (adding $98 million) and delivered $20 million of productivity improvements in Q1 to offset inflation and an $86 million metal price overlap headwind.
  • Maintained disciplined capital allocation with $83 million of Q1 capex, strong operating cash flow, continued dividends and focus on high-return projects and strategic M&A.
AI Generated. May Contain Errors.
Earnings Conference Call
Sonoco Products Q1 2023
00:00 / 00:00

There are 13 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the First Quarter 2023 Sonoco Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. You will then hear an automated message advising your hand is raised.

Operator

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.

Speaker 1

Thank you, operator, and thanks to everyone for joining us today for Sudeco's Q1 2023 earnings call. Joining me this morning are Howard Coker, President and CEO Rob Dillard, Chief Financial Officer and Roger Fuller, Chief Operating Officer. Last evening, we issued a news release highlighting our financial performance for the Q1 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.

Speaker 1

These statements are not guarantees of future performance and are Additionally, today's presentation includes the use of non GAAP financial measures, which management believes provide useful information to investors about the company's financial Including definitions as well as reconciliations to GAAP measures is available under the Investor Relations section of our web. I will now turn the call over to our CEO, Howard Cooper.

Speaker 2

Thank you, Lisa, and thanks to all of you for joining us today. As our Q1 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 As I mentioned before, we are not immune to The secular headwind and wins 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 return for our shareholders. We'd like to say to our Sonoco employees and our operations 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 But before Rob takes you through the financial results and guidance, please turn to Slide 5.

Speaker 2

I want to highlight, we released our updated corporate responsibility last week and provided the QR code in this presentation that you can scan to directly download the document. Sunoco report quarterly to our senior leadership team and our Board on the ESG commitments we're making, including those highlighted in our refreshed documents. We're excited to release our first report in reference to GRI, TCFD and SASP standards And report progress to 2,030 in line with the science based target initiatives. On the social side, We have updated our workplace diversity hiring progress as well as updates on our supplier diversity and spending programs. And lastly, we have many R and D efforts centered on developing new and innovative products to meet the sustainability goals of our customers.

Speaker 2

We are tremendously proud of our capabilities and the work on this front. And with that, I'm going

Speaker 3

to turn it over

Speaker 2

to Rob to walk us through the

Speaker 3

Thanks, Howard. I'll begin on Slide 7 with a review of key financial results for the Q1. Please note that all results discussed are adjusted and all growth metrics are on a year over year basis unless otherwise stated. The GAAP to non GAAP EPS reconciliation is in the appendix of this presentation as well as in the press release.

Speaker 2

1st quarter

Speaker 3

financial results again reflect Inoco's ability to deliver solid performance through strategic pricing and operational excellence Despite uneven end market conditions, sales were down 2% to $1,730,000,000 in the Q1. Sales for the quarter were in our expected range Despite supply chain variability continuing to impact month to month volume, 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 $213,000,000 and operating profit margin was 12.3%. Likewise, EBITDA was 270 And EBITDA margin was 16%.

Speaker 3

This level of profitability was anticipated as we experienced negative 86,000,000 Excluding the impact of metal, EBITDA increased and EBITDA margins increased to over 17%. Finally, earnings per share was $1.40 These results exceeded our initial guidance as we continue to execute our operating model to Next, we have the sales and operating profit bridges on Slide 8. On the sales bridge, Volume mix was negative $116,000,000 or negative 6.5%. Volume mix was driven by low industrial volumes, but benefited from acquisitions. As this current integration is progressing as planned and Q1 included an additional partial month of metal packaging.

Speaker 3

Price was $98,000,000 positive, up 5.5%. Price continues to reflect the efforts of our commercial excellence strategy, mainly selling the value and managing contracts to recover inflation. Next, the operating profit bridge. Volumemix was negative 40,000,000 This low volumes impacted standard margin performance. Price cost was negative $22,000,000 as negative price cost in metal packaging offset positive price cost in Industrial price cost was positive $44,000,000 due to continued benefits of moving to index based pricing And historically above OTC, OTC averaged $35 per ton in Q1 2023 versus $160 per ton in Q1 Slide 9 has an overview of our segment performance for the quarter.

Speaker 3

Consumer sales grew 5% to $909,000,000 due to acquisitions Strong price performance. Sales increased 3% sequentially. However, elevated customer inventory and normalizing supply chains Consumer volumes declined 1%, including acquisitions and divestitures. Volumes on flexibles and paper containers were 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 $92,000,000 as Flexibles achieved its 2nd best quarter in history and Paper Containers continued We achieved strong operating profit and margins.

Speaker 3

Industrial sales declined 12% to 616,000,000 As lower volumes offset higher prices, industrial volumes were down 13%. Volumes remained low in Europe And Asia, the U. S. Volumes were lower due to increased maintenance and lack of business in Canada as well as the impact of exiting the corrugated media markets It's important to note that industrial sales grew sequentially based on higher sequential volumes. 4.90 basis points to 15.3 percent for Shell Lexicon's efforts.

Speaker 3

All weather operating profit increased 88% $27,000,000 due to strong price cost and productivity. All Weather 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 but a few of our businesses. We're focused on achieving appropriate prices for our value added product And deemphasizing our exiting commodities markets like the recently exited corrugated media market, We're investing in the business and controlling calls and expect meaningful productivity once volumes normalize.

Speaker 3

Moving to Slide 10. Our capital allocation framework is aligned with our business strategy to drive value creation for our shareholders. Our priority is to allocate capital to high return investments in our After capital investments and the dividend, we prioritize investments in strategic M and A and maintaining our investment grade credit rating. For the quarter, operating cash flow was $98,000,000 and purchase of property, plant and equipment was $83,000,000 Net of the proceeds from asset sales, capital investments On Slide 11, we have our Q2 2023 guidance. In Q1, we beat our initial EPS guidance and achieved the top end of the revised For Q2, our EPS guidance was $1.45 to $1.55 We have tight control over our businesses And they are running well.

Speaker 3

This guidance includes $26,000,000 of negative year over year metal price overlap and continued low volumes in industrial in Q2. We're 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 businesses with Agility. We are affirming our EBITDA guidance of $1,100,000,000 to 1,150,000,000 By Quest, we are affirming our operating cash flow guidance of $925,000,000 to $975,000,000 We anticipate

Speaker 4

Thanks, Rob. Please turn to Slide 13 for our view on segment performance drivers for the Q2 of 2023.

Speaker 2

Across consumer

Speaker 4

for the Q2 of 2020 We expect sequential volume growth across the segment, including Bell 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, we'll work through the remaining inventory impacted by metal price overlap, which will not continue in the second half of the year. Beyond this year, we'll continue to invest capital to expand capacity for Spinal 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 2nd quarter.

Speaker 4

We're monitoring Europe and Asia 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 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 Our global uncoated recycled paper mill operations in the Q2, we will maintain reasonable backlog levels by region. In North America for the Q2, there is no planned lack of business downtime with normal levels of scheduled maintenance downtime Similar to the Q1, as we've seen the North American URB network supply and demand stabilize in the last month.

Speaker 4

We will continue to see periodic lack of business downtime in Europe and Asia at similar levels to the Q1 until demand improves. At 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 returns. 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 is just really executing well.

Speaker 4

We're continuing to build resiliency in our operating model. With that, back to you, Howard.

Speaker 2

Okay. Well, thank you, Roger. If you want to turn to Slide 14. I want to end our discussion as we look ahead to 2023 and beyond. First, Snuggle is a global leader in how they use Sample packaging, our funnel of packaging solution designs provides Sunoco with a long runway of growth opportunities across our businesses.

Speaker 2

We are continuing to transform this great company through portfolio management and strategic M and 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 And others all with the right timing to maximize value. And we will keep you informed obviously as we

Speaker 3

progress through this journey.

Speaker 2

We're in the early stages of leveraging our operating model to expand margins. Our operating model is solid. Through our excellence programs, footprint optimizations, enterprise standardization, how we operate the business will only get better through time And it's reflective of our solid performance in uncertain times as we live

Speaker 4

in today.

Speaker 2

As Rob covered very well earlier, we remain disciplined in capital allocation and we expect to continue And lastly and importantly, we are committed to improving the lives of our team members, our customers Our recent CIRR report only scratches the surface of the great things happening within the Sunoco 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 listen up to questions.

Operator

Thank Our first question comes from the line of Ghansham Panjabi with Baird. Your line is open. Please go ahead.

Speaker 5

Yes. Thank you. Good morning, everybody. I guess, first off, could you just give us some more granularity on the Q1 If you covered some of this, I apologize, we had some audio issues on our end during the prepared comments.

Speaker 3

Yes. We can talk about the different consumer verticals in Q1. From a volume perspective or from an OP perspective?

Speaker 5

Volume would be helpful.

Speaker 3

Okay. Yes, From a volume perspective, I think the primary trend we saw was a strong start and a soft finish to the 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.

Speaker 5

Got you. And then in terms of productivity, you hit the Q1 was around $20,000,000 plus. How should we think about the rest of 2023? And then also on pricecost, you said you expected the full year to be positive. Just expand on that in terms of sequencing for the full year?

Speaker 5

Thanks.

Speaker 4

Yes. On Productivity, John, this is Roger. I think you should expect pretty similar levels by quarter. As I said, we're seeing supply chain constraints, He's up to some degree and the team executing extremely well on the capital that we put in place over the last Focus on productivity, footprint optimization, as Howard already mentioned, and the supply chain team working extremely well with the businesses. So I think you

Speaker 5

And on pricecost?

Speaker 3

Yes. On pricecost, 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

Speaker 5

Got it. Thanks so much.

Operator

Thank you. And one moment for our next question. And our next question comes from the line of Anthony Pettinari with Citi. Your line is open. Please go ahead.

Speaker 6

Good morning. 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 destocking cycle in metal composite food cans maybe Zarasol 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 and that destocking cycle and where we are?

Speaker 2

Sure. Anthony, this is Howard. As Ross said and we noted when we updated our guidance

Speaker 4

mid to the end of

Speaker 2

the Q1. When we came out In January, it really felt true in terms of the destocking activities on the consumer side, particularly in our legacy Businesses, and we came out of March really, really strong January, early February. And I don't think it's unique to Sunoco that we started seeing a paper and all for Banking crisis, other uncertainties in the macro environment, but we did see some backing down there. So I would suggest to you that on our legacy side of the business that there's still question marks in terms of the full value chain from They were to the supplier of books like us basic raw materials, but not as a concern That's what we had first expected and how we came out of the blocks. 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 handle we expected, but we're looking at secular improvements Quarter to quarter and getting assurances that they should be working through their situation, let's call it, through the mid to the end So unique one off situation on the aerosol side, and we'll just have

Speaker 4

to write that out. Yes. And happy on industrial, Mr. Roger. We modeled in a mid single digit continued decline in industrial volumes in Q2.

Speaker 4

And that's really driven by Europe and Asia, this continued weakness there. Some one offs, The textile business out of Turkey with the impact of the earthquake has a pretty significant impact. As I said earlier, the North American market, We've seen it stabilize. We're not modeling any growth there, but we've seen it stabilize over the last month, and that's what we're expecting for the Q2. So really watch out is Europe and Asia as far as the second half of the year.

Speaker 2

Yes. And that's what I'd say, I'm going back to my prepared remarks and to 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 business, the operation side. I just cannot be prouder of a relatively weak volume scenarios and posting the type of Productivity numbers that we're posting. And I'd say, 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 Roger and the team and what they're doing on the operations side and others.

Speaker 6

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 were quite strong in the quarter, certainly versus historical levels. 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 are you thinking about that segment strategically?

Speaker 2

To start with, Anthony, it's kind of a poster child for the entire If we go back a year or 2 ago, when we restructured not only how we report out from a segment perspective, How we manage the businesses. So as you recall, we created in the all other category a 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 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,

Speaker 7

these are good businesses, many

Speaker 4

of which are 1

Speaker 2

or number 2 in the market Segments, and we're going to continue to operate them to their full capability And continue to drive through while we operate independent, we're still driving through the productivity and Other transformational type programs that we have in place 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 running for some businesses That may belong better off with others. And from an acquisition perspective, we see the inverse of that as well.

Speaker 2

So we'll keep you posted to let you know that the intent right now is we're going to run these businesses to the

Speaker 4

And they're very resonant, as you know, Anthony, as a managed price cost extremely well in the Q1 and we'll do the same in a second.

Speaker 6

Okay. That's very helpful. I'll turn it over.

Operator

Thank you. And one moment for our next question. And our next question comes from the line of George Staphos with Bank of America Securities. Your line is open. Please go ahead.

Speaker 8

Thanks a lot. 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 Q1?

Speaker 4

I can, George. It's Roger. About Right at 10% in North America, closer to high, closer to 20% in Europe And pushing 25 in Asia, so pretty significant.

Speaker 8

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.

Speaker 4

Yes. Yes, sold tons across the system about 70,000.

Speaker 8

Okay. I

Speaker 2

don't really have it.

Speaker 4

I don't have it by reason, George.

Speaker 8

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 talk to, the breadth of your product line And therefore, the input that you get back in a couple of senses, not Solving for world peace here, but what do you think happened?

Speaker 8

Because your businesses Are relatively stable. Going into the quarter, I think you're 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.

Speaker 8

And maybe it's just that, but what are your thoughts there?

Speaker 4

Yes, George, it's Rod. From our large consumers,

Speaker 2

I mean, you can see

Speaker 4

in their results, they're taking significant price in the marketplace. Yes. And some of our customers' products are price sensitive. And I think you're seeing that start to impact some of their volumes or it did at In the Q1, you see the major big box guys starting to push back hard on price. But as we said, our food can our metal food can business was up 5%.

Speaker 4

So that came in about where we expected. And the other maybe the other supply was some of the inventory in some of our other customers, the Blockchain challenges they've had, and they've just built up more inventory than we expected coming into the end of the Q1.

Speaker 2

But, Georgian, I know you don't want warranties, and I will not give you So what I will say is that we are staying conservative with our outlook on volume recovery. We're really looking at seasonal increases quarter to quarter on most of the consumer side of the business, Yes. And then in industrial, we're saying, look, we're not expecting any recovery, and then for the period.

Speaker 8

So if I keep it sounds like you're being very sort of consistent, very basically assuming very little Sequential improvement. What do you have, I think, Roger, 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?

Speaker 4

In Consumer, high single digits sequentially in the 2nd quarter over 1st. And then all other, again, I think some of our volumes going into the 2nd quarter, but some are levels of

Speaker 2

Okay. So that's what we're saying across the category, we're

Speaker 6

saying we're seeing sequential recovery.

Speaker 2

Exactly. And again, is it seasonal

Speaker 8

Okay. Thanks. I will turn it over. Thank you, guys.

Operator

Thank you. And one moment for our next question. Our next question comes from the line of Mark Reinthrop with Seaport Research Partners. Your line is open. Please go ahead.

Speaker 9

Thank you. Just one question. I'm not sure I heard it exactly right. You said 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, though I'm suspecting I misheard you.

Speaker 9

Could you just clarify that?

Speaker 3

Yes. The metal price overlap this year was negative 86 in Q1.

Speaker 9

86, okay.

Speaker 3

86, Yes. And we still we anticipate that for the full year, it will be slightly more than what we had originally

Speaker 9

Okay.

Speaker 2

Thanks. As you look into the there is carryover, but we expect to have completely worked through this We're net to the end of the second quarter.

Speaker 9

Okay. Thank you. 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.

Speaker 9

Can you sort of just help me piece that together?

Speaker 4

Yes. If you think about the across the system, and the URB system in the Q1, I think The AFPA published numbers came out, capacity utilization was something like 80%. So there was pretty significant downtime Across the market in the Q1, 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, the ERB market, we expect micro business downtime in the Q2. The market has stabilized And volume is not significantly improving, but it's not that it's stabilized.

Speaker 4

It's not falling, so we feel like that will hold for the quarter.

Speaker 9

Okay. So is it fair to think that the level of downtime taken in the Q1 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 And otherwise, we potentially have some more lack of order downtime later in the year. Is that a reasonable way to think of it?

Speaker 3

Well, I think if you think about the volumes on a year over year basis, there is a reduction in volume On the URB side associated with the conversion of number 10 and the remainder of the Project Horizon activity. And so that's actually that our mill system being kind of appropriately sized for the market right now, which we feel good about.

Speaker 9

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?

Speaker 2

Yes. That is Fair, Mark. Again, as we came out of the year, it was pretty impressive with what we were So we're moderating our expectations for the full year. We do think it will be slightly up On the consumer side, by the time it's all said and done,

Speaker 4

but,

Speaker 2

gosh, I guess we missed it in terms I'm just going to keep going back and pointing towards

Speaker 7

the execution side of the business

Speaker 2

and being able to not only

Speaker 9

Great. Thank you for the color.

Operator

Thank you. And one moment for our next question. And our next question is going to come from the line of Kyle White with Deutsche Bank. Please go ahead.

Speaker 10

Hey, good morning. Thanks for taking the questions. I wanted to follow-up a little bit on that 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 a bit above your initial expectations, but yet you're maintaining the EBITDA range for the full year? Is that just driven by the mercury and the softness in terms of the volume backdrop that we're seeing right now?

Speaker 10

Or was it also driven by maybe Tandenion ship price has been a little bit weaker than what was initially assumed. Maybe just any details you can provide there would be helpful.

Speaker 3

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 $50,000,000 So I think you can read into 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

Speaker 4

And we have built in some margin compression in

Speaker 3

the quarter over quarter in

Speaker 4

the industrial business for the balance

Speaker 10

Got it. If I can follow-up on that, I assume you're keeping current list prices Can betting shift in North America, is that fair assumption in the guidance?

Speaker 4

Yes, that's fair. And we're also assuming, let's call it, dollars 15 to $20 increase in Average OCC price between now and the end of the year. So there are some cost increases coming in, but we left hand being just flat for the year.

Speaker 7

Got it. That's helpful. And then

Speaker 10

for my second question, there's a lot of weather events this past quarter. Just curious if that had any impact on your fresh fruit packaging business? And then also if there's any anticipated impacts for the PAC harvest related to it?

Speaker 2

Yes. Kyle, we Certainly, fellas in the variant trade business, which is, as you'll note, is California. And that season is what they're coming off in that late January timeframe, strawberries, And then of course, we have the cross activity down in Florida. So that's certainly reflected in to some extent in Performance of that business, that one business in the Q1. I think we're working through that as we move forward.

Speaker 2

On the metal side, our focus on the bean and tomato Mark, it's really in the Midwest and where we have not seen the type of environmental issues that

Speaker 10

Got it. That's helpful. I'll turn it over. Thanks.

Operator

Thank you. And one moment for our next question. Our next question is going to come from the line of Cleave Rooker with UBS. Your line is open. Please go ahead.

Speaker 11

Hey, good morning everybody. Thanks for taking my questions. 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. You're talking about, I think we've talked a couple of times about industrial volumes They're weak.

Speaker 11

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 more broad comment across other end markets?

Speaker 4

Yes. Clint, this is Rod. It's broad. It's across all markets, textiles, especially wheat, Really, most every region, globally, film also down, As you said, containerboard down. So it's really across the board.

Speaker 4

Specialty, anything housing related was down fairly significantly. So it was broad based across all 4 of the categories that we tried.

Speaker 11

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, are you confident that Q1 was a trough?

Speaker 4

In fact, we modeled in some continued modest declines in the second quarter, driven by weakness in Europe and Asia.

Speaker 2

So that's the that's what we have

Speaker 4

in the guidance at this point.

Speaker 11

Yes. I'm sorry. But North America Is starting to affirm.

Speaker 4

Yes, relatively flat quarter

Speaker 11

to quarter. 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 Or where there's just some more question marks about how the second half is going to materialize. Is that

Speaker 4

For industrial support, yes, for industrial specifically,

Speaker 11

Right. Got it. Got it. And it was a nice set of results for the quarter. But that's not going unnoticed.

Speaker 11

Thanks everybody. I'll turn it over.

Speaker 2

You kicked off and cleared it.

Speaker 11

Yes. No, I'll talk to you guys later. Thanks.

Operator

Thank

Speaker 3

you.

Operator

And our next question comes from the line of Gabe Hajde with Wells Fargo Securities. Your line is open. Please go ahead.

Speaker 9

Good morning, guys.

Speaker 6

Good morning.

Speaker 12

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 snapped 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 a 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 wild card or the factor that we should be most mindful of? Or is there something else going on?

Speaker 2

Yes. You know, Gabe, I would say, it's Certainly way too soon to say is this a new operating environment trend from our customers' perspective. And it's probably I'd like to think it is related to really what's going on in the macro world. And so I know that and we all know that There was a lot of question marks entering March with what was going on in the banking world sector and how is that going to reverberate through The global economy, so can I hang my hat on that? Is that the decline that we saw?

Speaker 2

Certainly, in December, the

Speaker 3

expectation was just that, that they were

Speaker 2

trying to draw I suppose it's just that, that we're trying to draw inventories down and complete the year quarter to quarter. I don't think we're seeing A new phenomenon here that's sustainable. You may see it in December, which we all do in December, trying to pull back on our working capital as much as possible. And talk about the improvements going into the 2nd quarter on the consumer side. Yes, it's from the base that we're at right now.

Speaker 2

And then from a sequential perspective, yes, I mean, it's just natural that I should say historical that we see elements of Summer buildups in the spring as well as, as you noted and I noted on the camp side of

Speaker 7

the business in terms of tax season, etcetera. So

Speaker 2

Don't see a pattern here at this point in time, such as change, but I think it has to do with what's going on around the world And reactions and the timing of those reactions that impacted us in March.

Speaker 12

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, Yes, sequentially and then maybe the segment overall, I mean, should we kind of expect this level of profitability To persist sort of on an either absolute dollar basis or margin perspective, or was there something unique to the Q1, More sales of reels or something like that, that may be slowing things around a little bit more.

Speaker 3

Yes. Gabe, this is Rob. Hey, that's a good question. Those businesses, as Howard said, I mean, we have kind of really changed the operating model and We've both challenged them, but given them a lot of freedom to operate. And what they've done is they've been really entrepreneurial and are So, those aren't one off or specific results that across the board, down the line of those businesses, What we're seeing is operating improvement that's really generated by really tight cost controls, investment in productivity And very disciplined investment and growth where they see it.

Speaker 3

So those levels of profitability are sustainable.

Speaker 12

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 $115,000,000 Has that assumption changed?

Speaker 12

And then maybe just sort of The rationale or the thought process behind the wider range versus what you had before?

Speaker 3

Yes. Interest expense has Trended higher, so as kind of all other expenses in that category, it's really just related to how we budgeted the year. It looks like maybe we'll see some recovery in variable interest rates by the end of the year, but we certainly budgeted it flat with With the raise and have a fair amount of variable rate debt. So that's what's really flowing through there and then also kind of modeling 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 risks and opportunities, we felt really comfortable as we were leaving Q1, we had identified a lot of opportunities, but there was still this uncertainty in the market and the operating environment.

Speaker 3

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

Speaker 12

Okay. Thank you.

Operator

Thank you. One moment for our next question. Our next question is a follow-up question from the line of George Staphos with Bank of America Securities. Your line is open. Please go ahead.

Speaker 8

Thanks very much. Hi, guys. Thanks for taking the follow ons. Two questions from me. One, to the extent that you can comment, and again, if you'd mentioned Apologies that I missed it.

Speaker 8

1, price cost for the year, where does that Currently stand in terms of your expectation for 2023 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's productivity? Where's 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 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 there are no guarantees in life, Is there a level of volume degradation that would begin to Undercut, especially the low end of your guidance range.

Speaker 8

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? Thanks guys and good luck in the quarter.

Speaker 3

Hi, George. Yes. So as we think about the year and kind of where we planned it and what the bridge 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.

Speaker 3

So that's just a greater headwind than we had anticipated.

Speaker 8

Weaker, okay. And productivity then, what was kind of if you had a ballpark with that that's adding to you relative to your prior expectation?

Speaker 4

Yes, George, this is Roger. And our original plan for 2023, we have ramped up productivity throughout the year expecting it to take more time for some of these capital projects and Watching challenges the ease. So, Q1 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 maybe slightly above that.

Speaker 8

Okay. 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'd start to worry about your guidance Factors? Thank you.

Speaker 2

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 What we believe to be true on the lower side of it that way Over the course of the remainder of the year.

Speaker 2

And if you think of the question is more about what is the negative implication. What I would say is that we have history does not necessarily predict the future. But, Darren, because we for the most part on the consumer side, we participate in staple food, some of the store, But really only one exception there. When things get tougher, we attract things attract more folks to the products that we We're privileged to represent and that's both store brand as well as the name brand. I'd like to think that if things get tougher, consumer sizes would potentially benefit from that.

Speaker 2

But of course, that could have

Speaker 7

ramifications on other parts of the

Speaker 8

No, sure. Historically though on a relative basis, It does work for you, but thinking about it in absolute terms, what was driving that question? I'm sorry, go ahead.

Speaker 2

No, I was just going to say, so I basically didn't ask

Speaker 4

It's all part

Speaker 8

of the Mosaic though, Howard. It's all part of the Mosaic. We appreciate it. Thank you. Good luck in the quarter.

Operator

Thank you. 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 her closing remarks.

Speaker 1

Yes. Thank you all for joining us here today. I would highlight that we will be out on the road for the rest of the quarter. So please 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.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

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