Sonoco Products Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 1, 2023

There are 11 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the Second 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'd 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 Sunoco's Q2 'twenty three 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 Q2 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 sunoco.com. 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 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 website.

Speaker 1

For today's call, Howard will begin by covering a summary of Q2 'twenty three performance. Rob will then review our detailed financial results for the quarter And along with Roger Fuller, we'll discuss our guidance update for the full year 2023. Howard will then provide closing comments followed by a Q and A session. If you will turn to Slide 4 in our presentation, I will now turn the call over to our CEO, Howard Coker.

Speaker 2

Thank you, Lisa, and good morning to everyone. I just want to start by acknowledging the strong performance and cash flows That's a backdrop of a highly volatile environment. Rob will take you through the details, What I'll tell you is that market conditions were pretty turbulent in the quarter, with the market downshipped in demand as the quarter progressed, Translating into lower volumes across virtually every area of our business on a global basis. For the Q2, net sales were $1,700,000,000 EBITDA was 275,000,000 And adjusted earnings per share were $1.38 Most of our businesses were at or above expectations for the quarter The commercial and operational excellence and productivity improvements. The noted businesses that were most affected by lower volumes were Consumer Model Global Industrials, which were impacted by inventory management and destocking programs with our customers.

Speaker 2

To give you my perspective overall, customers in Metal and Industrials are buying less, those related staples and discretionary items. Our customers are searching for price point elasticity, which creates demand and inventory management challenges throughout the supply chain. Our customers are faced now with real macro driven changes to consumer buying habits, their own working capital management priorities And promotional timing, which makes visibility harder in the near term. The downstream impact is reflected in our Industrials business, We provide products serving the broader manufacturing sector and packaging use and household staples, discretionary goods and construction. Time is slowing down and lower volumes are resolved.

Speaker 2

However, even though the through these turbulent times, we were able to deliver 16% of adjusted EBITDA in the quarter. Our hard work over the past few years on the portfolio, structural Simplification, operational improvements and commercial excellence have enabled more stable profitability than in prior economic slowdowns in our history. While we're not satisfied with these results, our excellent cash flow and EBITDA margins reinforce the durability of our underlying profitability and the integrity of our strategy. And with that, I'll turn the call over to Rob for more details on the quarter and our

Speaker 3

2023 outlook. Rob? Thanks, Howard. I'll begin on Slide 6 with a review of key financial results for the Q2. Please note that all results discussed will be adjusted And all growth metrics will be on a year over year basis unless otherwise stated.

Speaker 3

The GAAP and non GAAP EPS reconciliation can be found in the appendix of this presentation as well as in the press release. As Howard said, the 2nd quarter financial results reflect Sunoco's ability to deliver strong results despite a low volume environment. We continue to achieve strong results in most businesses in the portfolio, including meaningful improvement in Rigid Paper Containers and All Other And record results are flexible. A few businesses were below expectations and meaningfully impacted the consolidated results, mainly Metal Packaging and Consumer and Industrial North America. Consolidated sales decreased to $1,700,000,000 The sales decrease was primarily driven by lower volumes due to inflationary pricing and destocking at our customers and retail, as well as index based price decrease The Metal Packaging and Industrial.

Speaker 3

Adjusted operating profit decreased to $211,000,000 and adjusted EBITDA decreased to 275,000,000 Importantly, we maintained an above 16% adjusted EBITDA margin through continued focus on commercial and operational excellence as well as long term cost controls associated with our business transformation program. Adjusted earnings per share decreased to $1.38 Non operating factors impacted EPS negative $0.07 due to higher interest rates on floating rate debt. The sales bridge on Slide 7 provides the primary drivers for revenue growth in the quarter. Volume mix was negative 190,000,000 Negative 9.9 percent. This volume decrease was anticipated and was in the low to mid single digits in most businesses.

Speaker 3

We continue to have active dialogue with customers and have been able to mitigate low volumes with operational and cost actions in most businesses. Two notable exceptions to this were the disrupted demand in a handful of customers in Metal Packaging and lower than anticipated demand in Industrial North America. The fixed cost structures of these businesses make them more sensitive to volume uncertainty and has had a meaningful impact on the consolidated results. Acquisitions divestitures also had a minor negative impact on sales and were accounted for in volume on the bridge. Excluding acquisitions and divestitures, Volume mix was negative 9.7 percent.

Speaker 3

Price was negative $15,000,000 Our pricing performance continues to reflect Strategic pricing efforts associated with our commercial excellence strategy, mainly selling the value and managing contracts to recover inflation. Most businesses achieved marginally positive price performance in the quarter. This was offset by meaningful index based price decreases in Metal Packaging and Consumer And the Paper Businesses Globally and Industrial. The adjusted operating profit bridge illustrates the year over year change in greater detail. Volumemix was negative $65,000,000 as operations were impacted by the previously discussed impact of inflationary pricing and destocking at our customers and retail.

Speaker 3

Price cost was positive $12,000,000 in the quarter, as strategic pricing and purchasing also had the predicted impact of $27,000,000 of metal price over volume. Other included higher depreciation and positive FFF and improved operating profit of $4,000,000 in the quarter. Slide 8 has an overview of our segment performance for the quarter. Consumer sales decreased to 924,000,000 Flexible sales grew mid single digits and rigid paper container sales grew low single digits due to strong price and generally resilient volume mix. Sales in Metal Packaging decreased due to template based price pass throughs and inventory management driven volume decreases A handful of customers in both food and aerosol.

Speaker 3

Consumer operating profit decreased to 95,000,000 Due primarily to lower volume and negative price cost, Flexibles had record operating profit and Rigid Paper Containers grew operating profit more than 15%. Consumer operating profit margin decreased to 10.3%. Consumer price cost was negative 20,000,000 The strong price cost in Rigid Paper Containers and Flexibles was offset by the impact of metal price overlap. Excluding Metal Packaging, Consumer segment would have grown operating profit over 30% and operating profit margins would have been 15%. Metal Packaging is performing well in a disrupted demand environment and has improved results from the year repurchased the business when adjusted for metal price overlap.

Speaker 3

We're ahead of plan on our synergy projects and we believe we've improved the competitive position of the business as we continue to invest in higher term projects. Turning to Industrial. Industrial sales decreased to $585,000,000 Industrial volumes decreased 15% due to lower demand in all key markets This decrease was mostly acute in North America and Europe, though all regions were impacted. Operating profit decreased to $87,000,000 as positive price cost was offset by lower volumes and negative productivity from deleveraging. Notably, This was only $7,000,000 less than the record results in the Q1 of 2023.

Speaker 3

The Industrial segment achieved positive price cost of $21,000,000 as commercial excellence activities continue to align price with the value our products create. Operating profit margin increased 14.9%, a meaningful improvement from previous cyclical lows. All weather sales were flat at 197,000,000 And operating profit increased 73 percent to $29,000,000 Moving to slide 9. 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 core businesses to drive growth and improve efficiency.

Speaker 3

We remain focused on increasing the dividend, which at present is $0.51 per share on a quarterly basis are greater than 3% average yield over the past 12 months. After capital investments in the dividend, we prioritize investments in accretive M and A aligned with our long term strategy, Balanced against our strategic priority of maintaining strong liquidity and access to capital, we ended the 2nd quarter with over $1,000,000,000 in total liquidity. In In the Q2, we generated $251,000,000 of operating cash flow and invested $78,000,000 in capital expenditures. On Slide 10, we have our guidance update. Our Q3 EPS guidance is $1.25 to $1.35 We're revising our full year 2023 EPS guidance to $5.10 to 5.40 We're also revising our full year 2023 adjusted EBITDA guidance to $1,020,000,000 to 1,070,000,000 We are affirming our full year 2023 operating cash flow guidance to $925,000,000 to 975,000,000 We anticipate closing the RTS and WestRock Paper Mill acquisition this year and this is not in our forecast.

Speaker 3

Now Roger will discuss The 2023 Apple.

Speaker 4

Thanks, Rob. If you please turn to Slide 11 for our view of segment performance drivers for the Q3 of 2023. First, with the consumer segment for the Q3, we expect continued strong performance in our global rigid paper containers from both existing and new products Sustainability driven initiatives are driving a pipeline of new growth opportunities. And on a positive note, select European customers are launching Launching our all paper products in European markets this summer using Sunoco's unique and proprietary technology. In fact, we're expanding capacity Rigid paper containers in Brazil, Malaysia and Poland to take advantage of globalization of products that use our technology.

Speaker 4

We also expect continued strong performance in our Flexible Packaging business. The team is doing just a phenomenal job of expanding this business with new and existing customers and the productivity numbers are very impressive. These drivers will sustain Flexible's performance into the next quarter. We anticipate metal volumes improving Sequentially in the Q3 as we enter pack season, both food and aerosol can volumes are below our original expectations for the second half Due to inventory destocking that Howard and Rob have already referenced, even with lower volumes, metal profitability will improve from higher sequential volumes And the reduced impact of metal price overlap. Lastly, we expect seasonally soft volumes in our Rigid Plastic Foods business, where volume was also a challenge in the 2nd quarter.

Speaker 4

Turning to the Industrial segment. We expect volumes to decline sequentially from the 2nd quarter and remain soft globally through the second half of the year in both our paper and All geographies are suffering from persistent demand weakness across our core industrial markets for paper, film cores and textiles. Our customers are citing lower end market demand and customer destocking as factors for these declines. Protective packaging for consumer white goods was up 5 versus a relatively soft demand in 2022. We're also expanding this paper based protective packaging into the European market.

Speaker 4

With lower volumes, productivity improvements remain challenging from deleveraging. We continue to aggressively manage variable expenses as a counter measure to minimize the impact In all other businesses, we continue to have net stable demand across this collection of business With some positive seasonal impacts to note for vaccine shippers and our ThermoSafe Products business. We're managing price cost as Resin prices remain stable to declining, so minimal impacts to all other businesses from resin in the Q3. And finally, as we've discussed before, we'll continue to invest And high return capital in all other businesses for productivity and running these businesses as efficiently as we can. We expect to also see the benefits of these improvements into the next quarter and beyond.

Speaker 4

So overall, in the Consumer In the Q3, we have seasonal sales improvement and the All Other segment is expected to continue to perform well. In our Industrial segment, we're suffering through a really challenging demand environment. Thanks to our team for their diligence in managing these tough times as we will see greater benefits in Industrial when volumes return as evidenced by our margin performance in Industrial in Q2. And with that, Howard,

Speaker 2

I'll get back to you. Thanks for that update. And I think Rob and Roger have covered the results in half of well. Before we open up the question, I Just want to provide an update on elements of Sunoco that accord our enterprise strategy, and you can find them on Slide 12. First, I continue to receive questions on where we are relative to reshaping the portfolio.

Speaker 2

I'll just tell you, It is active. We are managing a funnel of accretive acquisitions and plans for non core divestitures over the As you know, the deal environment is not great right now and any future selling or buying of assets or businesses We'll be based on timing for the best value for our shareholders. On the operating model side, I think our EBITDA results prove we are operating well in choppy waters right now. We have the plans, capabilities and discipline operate in this market and we have durable processes to manage and align cost to opportunities and challenges. Given our expectations for market demand, we have amplified our ongoing discipline and expense management.

Speaker 2

As Rob highlighted, we're continuing to generate solid cash in the business and our investment grade balance sheet is strong. We raised our dividend last quarter, and we will remain focused on the best ways to generate returns for our shareholders. And finally, our commitments to ESG and sustainability initiatives are unwavering and remain wholly aligned to the core values of the company. I'll just close with this. A hallmark of Sunoco is to serve our customers whenever, wherever and however They need us to be and they know we will be there to help them navigate the future as we have through COVID and a number of other challenges.

Speaker 2

Actions we have taken over the past 3 or 4 years have resulted in a stronger operating model We have all times of uncertainty, and we will continue to adapt and evolve to build a better Sunoco now and in the future. And with that and at this time, we'll be happy to entertain any questions you may have.

Operator

Our first question comes from the line of Ghansham Panjabi with Robert W. Baird.

Speaker 5

Hey, guys. Good morning. There's obviously a lot going on with comparisons of the impact of COVID, But you're now around 10% EBIT margins for the consumer segment, which basically matches segment margins from back in 2019. Just curious, Howard and Roger, is this the right baseline for margins on a go forward basis?

Speaker 2

On the consumer side, got you.

Speaker 5

Yes, exactly.

Speaker 2

No, I think if you look at the impact and if you go back to what we've well publicized with The metal issues that we had to absorb really here today and through 1st 2 months of the second quarter Really brought those down. So actually, we expect to be north of the 10% well north of the 10% on a go forward basis Once we clear out some of these one off type events.

Speaker 5

Okay. And then on the industrial side, I mean, I think you mentioned 15% decline in volumes in the segment. Obviously, end markets are weaker and that's playing a major role in that. I'm just trying to reconcile that versus the operating margins you're delivering in that segment, which are quite a bit higher relative to your historical baseline and just your thoughts as it relates to the sustainability

Speaker 2

Yes, Gautam. Not to go back too far, but I've talked about the last 3 or 4 years, but really the last 5 or 6 years. We have really put a lot of capital towards improving The performance of our industrial business on a global basis, and I won't talk through all of the projects that and opportunities that we Pursuit over these periods of time, but the one I will is Project Horizon. What I'll say about Horizon is You can say, look, on the surface with volumes where they are, we have not been able to take advantage of the productivity associated with that net investment. But on the other hand, it also took us out of the corrugated medium market where we are nonintegrated And a very small machine and scope of the rest of the industry, which you think about previous times where we saw similar type Slowdowns be it in COVID or even all the way back to the 2008, 2009 time period.

Speaker 2

We self help ourselves by 15% of our North American paper volume is no longer tied to a market That we have absolutely really at the time had absolutely no I'll look for that capacity. So I'm using that only as a reference To the number of projects that we've undertaken to improve the overall durability of our industrial business.

Speaker 6

Perfect. Thank you.

Operator

Our next question comes from the line of Gabe Hajde With Wells Fargo.

Speaker 7

Yes. Good morning. Thanks for taking the question. One was Something we kind of picked up in the trade publications here in the past week or so talking about URB imports into the U. S.

Speaker 7

I don't really recall this something as a topic we've read about maybe in the last 10 years or something like that. So Just curious, Howard, do you view this more of a function of kind of local demand patterns that Producers are maybe experiencing in their local markets, and then perhaps something maybe that you expect to persist For whatever reason, I'm just curious if you're moving anything around your own system, just based maybe on ability or

Speaker 4

Hey, Gabe. This is Roger. Imports of URB into the U. S. Is really nothing new.

Speaker 4

I know it was picked up in the publication, but there have been imports coming in for many years. It did stop during COVID because of the high cost Logistics and transportation, and it's picked back up now as the cost of containers have returned to a more reasonable level. So that's new. And as far as our system, we're represented in every region. So we really don't move forward from region to region simply because we don't need Do that, but when volumes are soft like they are now, a seating board come in from on the East Coast from places like Italy or on the West Coast From Asia, it's not unusual and we've dealt with that for many years.

Speaker 7

Okay. And then I guess, maybe a question going into 2024. I mean, to the extent that we see some of these Kind of choppy order patterns or maybe softer than what we'd expect demand. Can you talk about just, I guess, your ability, I mean, To variableize the cost structure or I mean, you guys have been fairly active to drive margins higher here of late on the commercial side. Maybe how demand dependent some of your productivity is that you talk about getting on an annual basis and if there's anything Kind of outside a pattern that you could do as things are soft right now?

Speaker 2

Yes. We obviously are taking the necessary rightsizing actions to match the current demand profile, And that's across operations and certainly on the fixed side as well. Yes. As we look the encouraging encouragement I have about what's going on right now, we said all along, well, I'll say all along, last several Periods that we are in a better position today to handle on certain times as we're in right now. It just makes me feel very positive as we will see, hopefully see Demand starts to pick back up and the ability to leverage that beyond The margin profiles that we're looking at right now, I guess, calls for really positive Viewpoint as volumes do recover.

Speaker 7

Okay. Thank you. Good luck.

Operator

Our next question comes from the line of Mark Weintraub with Seaport Research Partners.

Speaker 6

Thank you. First, can you just kind of update us in your guidance, how much is the metal price Overlap, is it still kind of in the $40,000,000 region or has that changed?

Speaker 3

Yes. Hey, Mark, this is Rob. For the quarter, metal price overlap was negative $27,000,000 And so that includes What we incurred this year plus the year over year impact. And in Q1, as you remember, that was 86,000,000 That's largely completed, if not totally completed for the year at this point. So the full year metal price overlap will be $113,000,000

Speaker 6

Okay. And so you cut Your guidance on EBITDA by $80,000,000 So could you kind of walk through what The biggest components of that reduction would have reflected?

Speaker 3

Yes. So it was a 5% to 15% decrease in the EBITDA guide. If you think about that by segment, Consumer is going to be down. We're expecting between 15% 20%, largely driven by the metal price overlap, which we just And then also some relatively negative or meaningfully negative performance in plastic foods, Which has been down due to the perimeter store business, which we're working through right now. Industrial is going to be relatively flat actually year over year with some positive price cost and volume mix kind of offsetting each other.

Speaker 3

Other will be up 40% to 50%, and so that should bridge you to the total impact for the year. Okay.

Speaker 6

And just to clarify, in terms of what the delta versus your prior expectations, Where was that concentrated?

Speaker 3

It's really in industrial. I think that when we originally set up the view for the year, we saw that the I set up the view for the year. We thought that the industrial would only really have these negative low volume environment for 1st half and that we see some moderation in the second half. And what we're seeing really with our customers is People have they haven't seen it this low for this long. We are at kind of 2,009 kind of levels in terms Volumes from an industry perspective and a utilization perspective.

Speaker 3

And so there has been this expectation that it has to recover sooner than later. And our current view is that it won't recover in 2023.

Speaker 6

Right. And it really is striking because it had fallen quite a bit even in 2nd half of last year. And are you getting a better sense as to How much of this may have been a function of the volumes having been inflated during the pandemic versus Destock or sort of where the trend line would be?

Speaker 3

No. We don't think that there was inflated volumes During COVID, actually there was a modest lift down. We think that this is really just Complete destocking of that industry and some disruption associated with inventories.

Speaker 6

Okay, super. And just one last quick one, if I could. Just on RTS, any update? You did say you anticipated it to close by the end of the year. I believe there's that second Any color you can give us in terms of how that's progressing?

Speaker 2

Yes, Mark, it's Howard. We expect to be closed late Q3, early Q4.

Speaker 8

Okay. Thank you.

Operator

Our next question comes from the line of Anthony Pettinari with Citi.

Speaker 8

Good morning. This is Greg on for Anthony. My first question is on the pack season. So we've heard comments from others around maybe some inclement weather, kind of a lackluster harvest season impacting this year. So I'm wondering from your perspective, how would you characterize this year's ag harvest and pack season relative Prior years and that relative to your expectations heading in and acknowledging the harvest is totally out of your control, is it possible to quantify the impact of weather or adverse harvest on food can volumes in the 2nd quarter and to what degree a poor harvest is factored into your full year guidance?

Speaker 2

Yes. I would say if you really got deeper into our metal volumes were pretty similar to what CMI data, The public data represented, but then when you really dig into it, it's down to a couple of discrete customers On the food can side and on the aerosol side as well. And if you take those out, You are actually flat to up. So and what we're seeing from a pack season perspective, What we're seeing from one in particular is that things are starting to pick up now and expect That they should start normalizing as we enter into the 3rd quarter. Others, the other couple related to conscious choices of price over volume, But also we're seeing that the volume is starting to return there as well.

Speaker 2

Similarly, not PAC related, but on the aerosol side, Same as we entered the Q3, July does not make a quarter, but we are seeing remarkable improvements in a couple of aerosol accounts That brought us down. So broadly speaking, and Rob talked to this, we're extremely pleased with the performance of the business, the integration, the synergies obtained And frankly, the market reception that we've received. So we view this as this second quarter phenomenon as not being One of any concern at all and we feel like we are starting to see in July and our customers are telling us We are making a positive turn at this point in time. So hope that helps, Greg. Thank Thank

Speaker 8

you, Mr. Coker. Yes, that's very helpful. I appreciate the color. And just my second question and last question is around price, I guess, across the entire Sonoco portfolio.

Speaker 8

So we've seen weaker volumes now for a few quarters destocking. I'm wondering historically how and when does Volume weakness translate into customer pushback on pricing. And then if you could segue that into what you're seeing in today's marketplace, that would be really helpful.

Speaker 2

Yes. Let me talk about the industrial side now to start with, which is a bit of a head scratcher for us. So we've always looked at if you think about what our industrial business, we supply at the beginning Of really industrial and consumer supply chains. And historically, what we would have seen is that As the industrial businesses slow, we see an adverse or The opposite happening on the consumer side that's starting to pick up. And this is kind of the unique Situation that we're in right now, our industrial, if you're looking at the data and data alone, you would say that the global economies are in pretty big trouble.

Speaker 2

But that is not what we're hearing, but it's certainly what we're feeling. So Question mark from our perspective is what is going on here for textiles, films, Major markets to be down on a global basis as they are understandably in Europe where they, I think, acknowledged in a recession, We understand it. But we're not we have not thus far seen the pickup on the consumer side. And I think that relates to your question, Greg, There's how many customers and we are seeing customers saying, hey, look, we're taking price over volume at this point in time, but we're starting to see cracks in that, That we are seeing more promotion activity. Our customers are telling us that we Should see some improvements going forward on the consumer side.

Speaker 2

The industrial side is the real head scratcher right now. But I will Say again that the position that we put ourselves in, in times like this allows us to perform extremely well even though the volumes Are to where we would like them to be.

Speaker 4

Yes. This is Raj. I would just add, we have built in some margin compression in Industrial in 10 to the 3rd 4th quarters, Primarily due to higher costs, OCC on average up, let's call it $8 to $10 a ton, well deserved wage increases for our team. So not so much from price, but some continued inflation in the system. So again, we did build in some margin compression as we get to the second half of the year.

Speaker 8

That That makes sense. Appreciate the color.

Operator

Our next question comes from the line of Cleave Rupert with UBS.

Speaker 9

Good morning. Thanks for taking our questions. I just have one follow-up on the guidance and really A couple of questions there. But firstly, how did market conditions develop in the Q2? I mean, it sounds like Maybe the plan had some improvement in industrial in the second half built in that didn't materialize.

Speaker 9

I'm just Curious to understand like did market conditions weaken in the Q2? Or was it just those lack of orders that didn't come through? And now you sort of lost some visibility into the

Speaker 4

Yes. This is Roger. In Industrial, yes. We were as we exited the Q1, we There's some improvement in volumes in Industrial in the second half of the year. While we're hearing from our customers now, we just believe that's simply not going to happen.

Speaker 4

So as you look at sequentially, the 3rd quarter is going to be down 4% versus our 2nd quarter volumes. So that's pretty weak and then some continued weakness into the Q4. So frankly, but again, we were expecting some of the inventory had worked itself out of the system and we'd see some pickup. Now on our guidance, we're not seeing that in the second half of the year. I think that was the biggest volume Change from our previous guidance to where we are today.

Speaker 9

Okay. So it's a sort of a lack of improvement, not necessarily Weakening market conditions.

Speaker 4

Correct. Correct. Seasonally, Europe is always slower than Q3. So again, total industrial seasonally down about 4% versus the 2nd quarter.

Speaker 9

Yes. And then so just in the industrial business, What are your lead times there in that business? And I'm just kind of curious like how quickly do you think Market conditions could turn around and improve. Is there like it looks like the guidance, if I just take the midpoints, Q4 is kind of the low point on EPS. It sounds like that's conservative, but I'm just wondering, is there potential To outperform that or do you kind of have visibility into the end of the year now?

Speaker 9

And if you do get the orders that you're looking for, They'll be coming in 2024.

Speaker 2

Yes, Clay, we don't normally carry large backlogs, So just the nature of our business. But what I'd say is right now, We're basing our forecast on the best information that we have. One of the best guys that I can look at is what we're hearing and across the North American Economic situation right now being more on a positive trend than most people thought, is that truly sustainable? You would certainly think that the business that we're in, which is the really the point, the tip of the arrow in terms of Manufacturing, industrial and consumer products that we should be we should benefit from that. So We don't have that crystal ball in front of us.

Speaker 2

Our customers can only tell us what they know at this point in time. And so, yes, we are continuing to drag out The current type of demand profile that we're I answer the end of the year. Could that change? I sure hope so.

Speaker 9

Yes. Yes. That's very clear. I'll turn it over. Thanks for taking the questions guys.

Speaker 9

Appreciate

Operator

Our next question comes from George Staphos with Bank of America.

Speaker 10

Hi, everyone. Good morning. How are you? Thanks for the details. Can you hear me okay?

Speaker 7

Yes.

Speaker 10

So happy August. I guess the first question I had, if we look at the sequential earnings downtick 3Q versus 2Q. And Roger, I think you covered this already in some of the other questions. Is it roughly fifty-fifty, would you say, between the inflation And the volume downtick you're seeing in Industrial, would that be or how would you frame it for us from the 2Q number to the 3Q guide?

Speaker 4

That's close, George. I think that's probably very close.

Speaker 10

Okay. Now, thanks for that. Now, what's interesting is that some of the other companies that buy Tubes and cores for winding their products that we cover have started to see some sequential improvement, still down year on year, But seeing improved trends 3Q versus 2Q, and yet what you're relaying here Is industrial still pretty weak? So how should we reconcile that? What are we missing in terms of that interpretation?

Speaker 10

And which end markets look particularly weak sequentially 3Q versus 2Q.

Speaker 2

Yes, it's really tech sales.

Speaker 4

Yes, right, George. It's Roger. Tech sales and film are the weakest As we look forward, we have seen some recovery in the paper side and more on the corrugated side, not so much on printing and writing. What we're hearing primarily from Texels and film really globally, they're seeing little recovery and I It goes back to inventory in the system and their customers working through the inventory they have in the system. As Howard said, we hope their crystal ball is Not totally correct, but we're going by what they tell us.

Speaker 10

Okay. Good. We appreciate that color there, Roger. Last next question, I should say, and then we'll have one other and we'll turn it over. In metal, can you give us What you believe the year on year volume impact to EBIT or EBITDA will be Versus 2022, we have the metal overlap as you called it, over $100,000,000 between 1Q and 2Q.

Speaker 10

What is the year on year impact from volume for metal and consumer EBIT for 2023 versus 20 22?

Speaker 3

Hey, George. It will be between $40,000,000 $60,000,000 this year and that's volume and the associated productivity

Speaker 10

Okay. And then my last question Is when you sit back and you look at your volumes and that impact relative to what's coming out of CMI, what gives you comfort That you are and I haven't sort of mapped this, so perhaps this would be exactly the same. But what gives you comfort that you are not Losing share, said differently, could you give us on a year to date basis what your volume was Thank you, guys. And I'll turn it over.

Speaker 2

Yes. I'll have that in front of me, George. Well, I'll do it, Don. Food down about 10% aerosols around 14%. But again, when you dig into that, it relates to Really a couple of customers in both segments of the business and their stories behind, One being more inventory carryover and the other one related to Price versus volume decisions that customers are making.

Speaker 2

Well, again, I'm repeating myself, but That was a second quarter phenomenon that we see pulling out of as we entered the Q3, more normalized volumes. And I'm taking time to sort of your question about share. We have not lost any share That I'm aware of at all. Certainly nothing material and the market reception has been extremely positive Sunoco has never been supposed since last year. So we look at this as just a one off, if you will, for the quarter And we're going to be pulling ourselves out of it.

Speaker 2

Our customers are telling us that's exactly what the case is. And we're again excited about the market reception That we've received thus far.

Speaker 10

Thank you, Howard. I'll turn it over and try to get back in queue.

Speaker 2

Right. Thanks.

Operator

That concludes today's question and answer session. I'd like to turn the call back to Lisa Weeks for closing remarks.

Speaker 1

Thank you for joining us today. If you have any follow-up questions, we'll be around after the call or we can follow-up with a scheduled call later. We look forward to seeing you on the road through the late summer and fall until we share our Q3 results in early November. Thank you to everyone and have a great day.

Operator

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

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Earnings Conference Call
Sonoco Products Q2 2023
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