GREIF, INC (GEF.B) Q4 2024 Earnings Call Transcript

Good day, and thank you for standing by. Welcome to the Greif Fourth Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the call over to Bill D’Onofrio, Vice President of Corporate Development and Investor Relations. Please go ahead.

Thank you, and good day, everyone. Welcome to Greif's fiscal Q4 2024 earnings conference call. During the call today, our Chief Executive Officer, Ole Rosgaard, will provide you an update on the operating model optimization effort we have undergone over the past year, which will be an important lead-in to our Investor Day next week. He will also provide his thoughts on fiscal 2024, as well as the current market landscape. Our Chief Financial Officer, Larry Hilsheimer, will provide an overview of our fourth quarter financial results, as well as our 2025 guidance. In accordance with regulation fair disclosure, please ask questions regarding topics you consider important because we are prohibited from discussing material non-public information with you on an individual basis. Please turn to Slide 2. During today's call, we will make forward-looking statements involving plans, expectations, and beliefs related to future events. Actual results could differ materially from those discussed. Additionally, we will be referencing certain non-GAAP financial measures, and the reconciliation to the most directly comparable GAAP metrics can be found in the appendix of today's presentation. I'll now turn the presentation over to Ole.

Thanks, Bill, and good morning everyone and thank you for joining today. Before we start, I just want to address one matter. Yesterday, we released our 2024 Q4 and full year earnings. Unfortunately, we subsequently discovered an error and reissued the release. Let me turn this over to Larry to address before we proceed with the remainder of the prepared remarks. Larry?

Thank you, Ole. Good morning. Despite our usually dependable quality controls, we had an error in our original earnings release in which we had incorrectly included $16 million of income tax expense related to a gain on the disposal of a business. As a result, our originally reported Q4 net income excluding the impact of adjustments was $49.6 million and our diluted Class A earnings per share was $0.85 per share. As corrected, those figures are $65.5 million and $1.13 per share respectively. Ole, I'll turn it back to you on Slide 3.

Thanks, Larry. And again, we apologize for this. And what I usually say in-house is that we can all fail at times. And when we do, I usually tell our organization, that's just the learning moments. We just learn something new and that's something we should be happy with. As Bill mentions, next week we are hosting our Investor Day in New York City. Today, I will begin our presentation by highlighting a few key messages, which will be core to the information you will hear at our Investor Day. The half-day event will be attended by our entire executive management team, as well as each of the leaders of our new strategic business units. We highly encourage in-person attendance, which will allow you to engage with our leaders one-on-one and deeply understand the value we are creating under our Build to Last strategy. Please turn to slide 4. Over the past year we have fundamentally changed how we operate as a company, organizing in a manner that will allow us to fully leverage our core competitive advantages and enable us to double the size of the company in the future.

Going forward, we are operating and reporting results based on our four material solutions: Customized polymer solutions, durable metal solutions, sustainable fiber solutions, and integrated solutions. Making steel drums is very different from making polymer drums, which is again different from making small plastics or tube and cores. So aligning operations by material solution greatly enhances our ability to leverage our five distinct competitive advantages. First, it allows us to utilize our robust scale and global network of facilities to be more agile in serving our customers even better. Second, it aligns operations to capitalize on our deep subject matter technology expertise within each material solution, partnering even closer with our customers to meet their unique needs. Third, it enables further innovation and growth of circular packaging solutions. Fourth, it organizes our extensive portfolio of solutions in a manner that optimizes cross-selling and margin expansion.

Each of those four competitive advantages results in a fifth all-encompassing advantage, utilizing our world-class culture to deliver legendary customer service, which drives loyalty, share of wallet increase, and premium margins. Please turn to Slide 5. The key benefits of this operating model optimization for our investor community is enhanced visibility to the performance of the underlying products within our portfolio. So that ends, after the market closes today, we will be releasing fiscal year 2023 and 2024 recast financial highlights to assist you in understanding the new segments. We have strong conviction in the synergies of operating this diverse, comprehensive portfolio of products, which enables us to serve our customers more fully than other industrial packaging companies. That said, we have also made clear that the biggest growth opportunity we see from a total addressable market and end-market growth perspective is in polymer-based products.

This evolution has been occurring for years and now our polymer business is large enough to warrant individual segmentation to more clearly display the performance of those products. This informs our decision to continue deploying capital in this space. We also plan to grow further in our caps and closures business, which is a key integrated solution. While smaller at present in terms of the overall portfolio, we also expect this business to grow over time. We'll be highlighting underlying growth expectations in each of these segments next week at Investor Day. We will utilize the rest of this fourth quarter 2024 presentation to serve as a closing chapter of our global industrial packaging and paper packaging and service segments and discuss our quarterly results in the context of GIP and PPS for the final time. Please turn to slide 6. Over the past three years, we have fundamentally changed the way our business operates and have made significant strides on our Build to Last clarity.

We have allocated over $1 billion of capital to margin and growth and creative acquisitions, optimized our business model, enhanced and accelerated the Greif Business System into GBS 2.0 and invested in technology and innovation. The collective impact of these changes provides us with the confidence to now announce a formal business optimization effort of at least $100 million of cost reductions to be completed by the end of fiscal 2027. This initiative, which is a combination of SG&A rationalization, network optimization, and operating efficiency gains enabled by GBS 2.0, has come as a result of the accumulated learnings of our strategic acquisition integration and business model optimization. This initiative will be supported by further investments in technology and innovation. We plan to talk more about the drivers and impact of this program at Investor Day next week. Now let's turn our attention to Q4 results on Slide 7.

Our business continues to operate with excellence against the historic period of industrial contraction. Since tracking of US industrial activity began in 1948 by the Institute of Supply Management, we have not seen an industrial contraction longer than the current period, which is 25 months through November. Our performance during the protracted length of this cycle has been impressive, but it is critically important to keep this soft macroeconomic environment in mind as Larry presents our 2025 guidance. In the fourth quarter, EMEA remained the strongest region, although volumes were down slightly on a sequential basis. On our Q3 call, we commented on the notable less bullish sentiment from our global customer base heading into Q4, a sentiment that has remained overall pessimistic into November and was taken into consideration when formulating our fiscal 2025 guidance. That said, we are still outperforming market expectations in EMEA, which we attribute not to any specific market, but rather to our ongoing business model optimization that is driving increased demand and cross-selling opportunities in both our polymer and metals business.

Our largest market, North America, has not seen the same recovery as EMEA. In GIP, demand remains choppy, with polymer-based products continuing to offset softness in our durable metals business. Overall, GIP North America still has significant untapped operating leverage, with volumes down almost 18% on a two-year basis in the quarter. We fully anticipate a recovery of those volumes, which we believe are the result of this extended demand contraction cycle. In PPS, demand has been okay, although it is still down over 4% on a two-year basis in the quarter. Containerboard has shown a few consecutive quarters of year-over-year growth on the same store basis and is running at over 90% operating rates, while our URB business is still mixed and is currently operating at over 80% operating rates through November. As a reminder, APAC and LATAM are small pieces of our portfolio. LATAM is improving while APAC has continued to be soft, but the overall offset of those regional demand factors is about neutral on a year-over-year basis in the quarter. And with that, I will turn things over to Larry on Slide 8 to walk through our financial results. Larry?

Thank you, Ole, and thank you all for joining our call this morning. Our fourth-quarter results demonstrate our consistent ability to execute regardless of the operating environment. Fourth-quarter adjusted EBITDA was $198 million compared to $202 million last year. However, our business also experienced an unplanned $2 million headwind from Hurricane Helene. Fourth-quarter adjusted free cash flow was $145 million compared to $136 million last year as our teams acted decisively on the bearish demand sentiment that we identified exiting Q3 and reduced working capital to appropriate levels. While managing results in the presence, we continue to take steps towards the future. As Ole mentioned, we finalized our operating model optimization effort, which unlocks significant new value levers for Greif, and that we are excited to talk about more next week at Investor Day. This quarter, we completed our 14th Net Promoter Survey, resulting in a score of 69.

This rating is well above 51, which is considered the benchmark for world-class in the manufacturing industry. The level of customer engagement is proof of our significant competitive advantage of legendary customer service. At Investor Day next week, we will provide information that shows the high correlation between NPS and financial performance to clearly outline the significance of our continually increasing customer loyalty and advocacy. Lastly, we are now over eight months into our ownership of Ipackchem and have made significant progress on integration and synergy capture. As we have noted in the previous few quarters, the ag sector was impacted by significant destocking in the year and has continued to operate at low volume since then. While we have high conviction in our business case financials, we anticipate that overall EBITDA contribution in the first full year of ownership will be less than that business case, which I will touch on in guidance.

Please turn to Slide 9 to walk through the GIP results. As Ole stated in his global market overview, we are very proud of the results our GIP team provided given the uncertain demand environment we experienced in Q4. We finished the quarter up $4 million on adjusted EBITDA dollars, but down 70 basis points on EBITDA margins. Pricing competition has been intense in our GIP business, but our team is finding ways to win and sticking to our value over volume philosophy resulting in resilience. Exiting Q4, sentiment is generally pessimistic. Please turn to Slide 10 for PPS results. Our paper business experienced an adjusted EBITDA dollar decline of $8 million and adjusted EBITDA margin decline of 240 basis points year-over-year. However, EBITDA margin improved sequentially by 220 basis points as a result of some recovery of the price-cost imbalance that our business has endured throughout the year.

Underlying demand in our paper business remains mixed. Containerboard and corrugated volumes are solid and operating rates of 90-plus percent, while URB in tube and core volumes have continued to lag due to soft paper core demand. This is driven by the overall boxboard industry, which is generally less positive than containerboard. We anticipate that margins in the new sustainable Fiber Solutions segment will continue to improve heading into fiscal '25, due to the continued flow-through of recognized paper pricing and the recent favorable OCC changes, which is contemplated in our guidance. Please turn to Slide 11 to discuss capital allocation. Now three years into our build-to-last strategy, we have deployed capital exactly according to the priorities we laid out in our 2022 Investor Day. Next week, I will provide an update on our go-forward capital allocation framework, which will fuel the next evolution of growth for Greif.

Our top near-term priority is debt reduction. Our recent acquisitions, coupled with a low EBITDA denominator in our leverage ratio calculation resulted in a 3.53 leverage at the end of fiscal 2024 relative to our target range of 2 times to 2.5 times. When demand recovers, the EBITDA denominator will quickly scale down our ratio. However, in the intermediate time, we will focus on paying down debt to get within our target range. In 2019, we made an acquisition at the beginning of an industrial recession, and we were still able to pay down debt in advance of our externally stated target, and we'll utilize that same playbook now to manage leverage during this industrial recession. Please turn to Slide 12 to discuss our fiscal 2025 outlook. Given the continued market uncertainty and mixed demand trends, which we have commented on throughout prepared remarks today, and in previous quarters, we feel it is most prudent to again present low-end-only guidance to start fiscal 2025.

We have yet to see any significant inflections, positive or negative, that give confidence in presenting a range. It is important also to remember that we are changing our fiscal year in 2025. Next fiscal year will be 11 months long and end on September 30 with a 2-month long fourth quarter. For that reason, our guidance was calculated on an 11-month basis to help you understand our low-end guidance. I'd like to provide you with a few key drivers, which can bridge you from 2024 on an 11-month basis to fiscal '25's 11-month guidance. Fiscal '24 did not have any significant seasonality impact at year-end. So a fair comparative starting point is simply taking year-end adjusted EBITDA for fiscal '24 of $694 million, dividing it by 12 and multiplying it by 11. That gets you to a $636 million starting point for an 11-month '24. From there, we have assumed a few key tailwinds heading into fiscal '25.

First, $83 million of price-cost uplift, most of which is coming from RISI recognized paper pricing and OCC change as of the date of this call, with price cost in polymers, metals, and integrated largely neutral year-over-year. Second, a $19 million incremental uplift from the incremental ownership period of Ipackchem less the fiscal year EBITDA contribution from our disposed of Delta U.S. business. Third, an organic volume uplift of $76 million based on the continuation of exit rate trends in each of our new segments. That volume tailwind is primarily driven by an assumption of mid-single-digit growth in Polymers & Fiber Solutions, despite low single-digit headwinds in Metals and integrated. Those tailwinds bring you from 636 up to 814. We also have several headwinds assumed in guidance. Let me take you through those to help you understand how we end up at $675 million as our low-end guidance number.

First, a $19 million headwind from unfavorable year-over-year FX driven by the strengthening US dollar. Second, $34 million headwind from items such as a $10 million shift from cost of goods sold into SG&A in our new operating model which is reflected in the operating business elements, a $10 million increase from medical and other benefits, and additional headwinds from increased IT costs due to license fees, cybersecurity investments, and investments in customer digitization. In addition to these headwinds to SG&A, our fiscal year-end change creates a headwind of 12-month contractual fees as applied to 11-month fiscal years. For example, your audit fees and tax fees don't change because you have an 11-month year. The final headwind is considered in this low-end guidance. We also assume an incremental $86 million in manufacturing and transportation cost headwind partially attributable to the increased volume assumption, but also factoring in incremental inflationary costs.

Those factors offset our tailwinds and bring us to the $675 million. Remember, this is low-end guidance. So it assumes the full impact of all potential headwinds, but only explicitly known tailwinds. With that, I'll turn things back to Ole on Slide 13 to provide you with a preview of our upcoming Investor Day.

Thank you all for dialing in today and for your continued interest in Greif. Next week at Investor Day, we will demonstrate to you that Greif is a global market leader for essential industries well-positioned to deliver continually stronger earnings power and proactively allocating capital for the highest shareholder return. I'm proud of the work our global teams have done since our last Investor Day to accelerate our Build to Last strategy, and we anticipate our event next week will be compelling, insightful, and a valuable use of your time. Registration is still open. And so please e-mail our team at investorday@greif.com if you are interested in attending. Thank you for your time today. Operator, will you please open the lines for Q&A.

Our first question will be coming from Daniel Harriman of Sidoti & Company. Your line is open.

Thank you. Hi, guys. Good morning. Thanks for taking my questions. I don't want to steal too much from next week's Investor Day, but looking out for the future of the company, obviously, customized Polymer Solutions are going to be the focus. But where else could we expect to see some incremental investment if it's not solely in the polymer solutions? And then, Larry just regarding where you are from a leverage perspective, if you could just provide a little bit more commentary regarding how you feel about that level given what you've been able to accomplish in the past after acquisitions in a difficult environment. Thanks.

Hi, Daniel, thanks for the question. Obviously, Polymer Solutions is one of the primary places where we invest for growth and that's because we can achieve margins well in excess of 18%. And in that business, we can also achieve a free cash flow conversion in excess of 50%. So that's why it's so attractive to us to invest in that market. The runway that we will also demonstrate at Investor Day is very, very long in that market. But saying that, we still have a fiber-based and a metals-based business. Primary investments we will do there, especially in metals, will be automation. It will be maintaining the cash machine that generates an automation. And I would be remiss if I didn't mention caps and closures as well, which is also volumes, it's a relatively small part of our overall business, but it's a very, very attractive business that we intend to expand in.

Yes. I want to add that we will continue to explore downstream integrated businesses that are highly profitable for our paper operations, similar to our recent transaction, which we are very pleased with. While these opportunities may not be a primary focus, we will remain open to them. Concerning the leverage ratio, we feel very comfortable with our current position due to the effects of the industrial recession and our ability to improve that ratio as recovery takes place. With a $160 million volume gap at normal margin rates, simply replacing that volume would quickly bring us below three, and paying down cash would further reduce it. We are confident in our current situation, but reducing the debt ratio remains a priority for us.

Okay guys. Thanks so much and best of luck in the coming year.

Thank you very much, Daniel.

Thanks, Daniel.

Thank you. One moment for our next question. Our next question will be coming from Ghansham Panjabi of Baird. Your line is open.

Thank you. Good morning everyone. Regarding the Caraustar program, which is projected to amount to $100 million by 2027, could you provide more details on how this was developed? Is it linked to your new operating structure that enables you to aim for such a significant target, especially considering it’s quite large compared to your EBITDA base? Additionally, how should we anticipate the timing of realization over the next three years? Lastly, how do the savings distribute across the different areas you mentioned, such as SG&A, network, and productivity? Thank you.

Thank you, Ghansham. To clarify, we are not addressing any issues that exist; rather, we are aiming to enhance our operations. This ambition is the driving force behind our program. Our current organization, paired with our efficient business systems and Lean Six Sigma methodologies, has positioned us well. We have identified three areas for improvement. The first area is SG&A, followed by our network organization, which includes 254 facilities globally. We believe there is potential for further optimization in this area, alongside operational efficiencies provided by our effective business systems. Paddy will elaborate on the benefits of network optimization in our new structure during Investor Day, and Kim will discuss GBS 2.0 and how we are fast-tracking it in this new framework. While it is challenging to predict exactly when we will achieve our targets, we hope to see the $100 million savings realized sooner rather than later, with full savings expected before the end of the three fiscal years.

Yes. Okay. Great. Regarding your outlook for next year, it appears you're starting at the low end, and we can calculate the difference for 12 months compared to 11, which relates to your guidance. What is the base volume assumption in your projections? Larry, you've mentioned several factors, but I want to clarify what the starting point is for volumes in your legacy businesses, if possible. What gives you the confidence to reach that number? The anticipated $76 million EBITDA improvement related to the volume component seems quite significant.

Yes, we have observed an increase in our containerboard and corrugated business for some time now, Ghansham. A significant portion of that growth is attributed to the Paper segment, along with Polymer Solutions. We are confident that our investments in the intermediate bulk container business will drive additional growth. Regarding the Paper business, we opened our Dallas sheet feeder operation in June of this year, which is now ramping up, and we secured a substantial contractual win recently that will contribute significantly. Ole, what was the--

Yes. We won the business from the U.S. postal service, and that's 55,000 tonnes, that was the effect of that. And just to give you an idea, Ghansham, Dallas sheet feeders' total capacity is around 120,000 tonnes. So that's a major win for us, and that's a multiple-year contract.

Yes, that contract will be serviced not only out of Dallas, but also from our other sheet feeder facilities. It was a significant win, and we have great confidence in the fiber side of the business. Our investments in IBC have promising growth prospects. To provide some context, we expect about $68 million to $70 million in our fiber business, and approximately $27 million in our Polymer Solutions business across all three platforms. However, in our metal solutions, we are anticipating a volume contraction of around $19 million to $20 million. Hopefully, that clarifies things.

Okay. Thank you so much.

Our next question will be coming from Matt Roberts of Raymond James. Your line is open.

Larry, good morning everybody and thank you for having me on the call. Larry, I appreciate the very thorough color that you gave on the low-end 2025 EBITDA bridge. But maybe if you could help me kind of frame what a high-end scenario could look like without speculating on price, some of your peers in the containerboard space have recently announced price increases. And given your independent mix and early read-throughs on demand, what are you hearing from customers in regard to that passing through and ultimately, what kind of price-cost range could be reasonable pending any further price increases or further decreases in OCC?

Thanks, Matt. So obviously, if we had real confidence in a high-end range, we’d put a range together. But I'll give you some things that could happen. And look, the biggest driver for us at going with following guidance is just the uncertainty of when this industrial recession is going to turn. And that can just create such a wide variety of things. You put any high-end number, and then everybody is going to focus on a midpoint. So it's folly, I think to put something up. But that said, we also just rolled out this week to our customers a price increase in the containerboard space, $70 on liner and $100 on medium effective January 1. Obviously, the demand dynamics in that space are very strong right now and we believe, supports that price increase. The other is the volume inflection. We still have out there this roughly $160 million of volume centered gains that will come when the industrial economy recovers to levels of our 2021 volume level.

Hi, Matt, if I can just interject that you promise as well. So if we look at sort of the length of this volume contraction that we had and how the market operates in terms of what will drive recovery. So if you look at the underlying end markets, they remain historically low. Existing home sales over the last two years, they have been at the lowest since 1995, I believe, and that day drive a lot, home sales or housing impacts chemicals and loops and people buying fewer durable goods. And then also, when you look at US order sales, that's been below the long-term average for three years now. And you look at the PMI, the comments I made earlier, they are still below 50. Most of these things are interest rate driven. And so when the interest rate hopefully will keep going down, that will start opening up existing home sales, and that will have a major effect on not only our business but our customers' business as well. So that's one to watch.

Ole and Larry, very helpful. And maybe if I could ask maybe on the polymer side of the business. So you recently opened up the IBC plant in Malaysia. Maybe if you could discuss how initial demand is trending for that incremental capacity? And speaking more broadly on those polymer products, I mean you've grown both organically and inorganically. Are you having to give any price for share gains on that space? Or on the contrary, or competitive price pressure still lingering in that business that you discussed last quarter? Thank you again for taking the questions.

First of all, I don't comment on individual plans. But if you look at the overall polymer space that we operate in, our chosen end segment is the premium end of that market where we can achieve margins in excess of 18%, in fact well into the 20s. That's an important factor to mention. The other drivers in that market is, in particular, in the AgChem market. And with the acquisitions we made, we are now the global leader in packaging for agro-chemicals. That market is growing, and it's driven by the population growth that we see in the world, but also there's less arable land to farm food on. That means that there's a demand for higher yield on the land that's available, which sort of ties into why we have focused on really getting into becoming a leader in that market. So I'm confident we will continue to grow in that market, and we will continue to enjoy and yield good margins and help our customers grow as well.

Certainly, fair, thank you all again.

Thank you. One moment for our next question. Our next question will be coming from George Staphos of Bank of America Securities. Your line is open.

Hi, everyone good morning. Hope you doing well? Thanks for taking my question.

Hi, George.

So I know you covered it a little bit just now, but can you talk a little bit about the variance in Ipackchem relative to the deal model. Can you talk about some of the underlying drivers? Obviously, you've covered a little bit. Can you quantify kind of where you are with that and why you remain confident going forward? Secondly, I want to push back a little bit on the cost optimization. Obviously, you spent a lot of time developing this. You quantified it and you gave us a target by $27 million that would suggest you have some window in terms of the cadence. So tell us what might be able to hit the numbers for fiscal '25, and what is giving you the biggest pause in outlining the goal, I had a couple of follow-ons.

I'll let Larry answer the first question. But before I do that, George, let me just say that when we closed the deal on Ipackchem, after that we saw this contraction in the agrochemical markets then obviously played into our business case a little bit there. But that's going the right way now. And Larry go through the numbers.

Yes. We had an $8 million inventory cost adjustment impact. Our uplift from Ipack compared to 2024 is $26 million. However, that will still leave us short of the business case we initially thought was around $57 million, plus $7 million in synergies. With the decrease in volume, we are currently about $4 million on the run rate for synergies, which is entirely dependent on volume as we move through this year. We are very confident in achieving that once the volumes return. Farmers are doing everything possible to manage their finances right now, including using fewer diluting products. Eventually, conditions will improve. We made a strategic purchase, and we have confidence in the long-term profitability of that business. Regarding your other question, we recently decided to initiate this cost reduction effort within the last couple of weeks and announced it to our team yesterday. We have ranges for each of the three components mentioned, but we have not yet determined the specifics of what we can achieve in 2025, 2026, and 2027. We are very confident about reaching the $100 million target over the three-year period, but we are uncertain about the allocation of that amount across the years or the specific initiatives at this time.

Okay. I mean I'll leave it there. But Larry, I would assume if you have a goal that you think you can get to by '27, you had to have been able to build that up somehow, right? It doesn't just show up, right?

We have created ranges based on benchmarking data and our analysis of our Six Sigma programs. However, these ranges do not specify a timeline for completion, meaning we haven't outlined when we expect to achieve specific goals. It's important to understand that running a business involves complexities that are not easy to navigate, and there is still a significant amount of work to be done.

This is not a target we will achieve in 2027. We have been working on this for a while, and as Larry mentioned, it is challenging to predict how the next quarter will unfold. However, I want to assure you that it is not back loaded.

Yes. Understood. Listen, you're fair to say, right, we don't run visit, but we do advocate for your investors, and that's what we're trying to do here. Can you talk a little bit about your tariffs and what some of the positives or negatives might be in terms of how you evaluate the volume outlook for 2025 and beyond? I know it's difficult, but what do you know right now that you can share?

Yes. I mean, we obviously had experiences from the last time that notaries were imposed. You have to remember that we by and large source our raw materials locally. We produce locally and we sell to our customers locally. And that means tariffs won't really play into our business if it does play into our business, it would probably be from a positive point of view. If, for instance, steel channels means that steel prices go up, which happened last time, we saw that – that benefits us. So that's something we don't calculate with what it benefits us. So that's the net effect of tariffs.

Okay. Net of whatever it might do for trade and obviously, more trade would be better for you than worse at this juncture.

Yes.

Last thing, and I'll turn it over again, appreciate all the thoughtfulness on the guidance and the buildup. Any help you can give us in terms of how the first portion of the year, the first quarter of the year will look relative to the latter quarters? I'm guessing it will be a slower ramp. It builds in terms of earnings power over the rest of the year, but anything there would be helpful. Thank you guys.

Yes. I mean, George, usually, our first quarter tends to be a slower ramp. And obviously, with what we just announced on paper pricing, although not built into our guidance, we would clearly expect that to be recognized at some point and then would play through on a longer basis. Also, we do have a little bit of a drag in our metals business in the first quarter because steel prices have been decreasing since about July. And what that tends to do is lower our margins because as the index price changes on our price adjustment mechanism contracts, we're bleeding through slightly higher-priced inventory. So you have a little bit of that impact in the early part of the year that will then play out positively through the rest of the year.

Larry, forgive me. Did you say your price increases were effective February 1 or January 1? I'm sorry about that.

January 1, but they tend to roll through on a delayed basis through the contract mechanisms.

Thank you. I’ll turn it over.

Thank you. One moment for our next question. Our next question will be coming from Gabe Hajde of Wells Fargo. Your line is open.

Ole, Larry good morning.

Good morning Gabe.

I'm pretty sure I know the answer to this. Larry, you've referenced it twice now about the $160 million of under-absorbed fixed overhead. But in the context of the $100 million savings opportunity that you laid out, some of which looks like rooftop consolidation, etc. Does that limit your way or your ability to unlock or kind of monetize that under-absorbed fixed overhead from a volume standpoint?

No.

And then, of course, you can disagree. But regarding your point about being 25 months into what feels like an industrial winter, have you begun any work, and is this $100 million perhaps somewhat reactionary in that you might be noticing any structural changes in demand from your customers? I have three thoughts that come to mind: the transition to electric vehicles, which means less demand for lubricants and additives for internal combustion engines; a potential permanent shift in consumer preferences towards experiences rather than material goods; and perhaps a trend toward multi-family living instead of single-family homes due to affordability issues.

Sure, let me address those points in reverse. Currently, housing demand is at an all-time high in this country. For instance, Columbus, Ohio is currently the most under-housed market in the United States. I don't believe there is a long-term shift towards multi-family housing; right now, there is significant pent-up demand from people living in multi-family units who are eager to move into single-family homes. However, it's important to note that the key driver for us isn’t new homes but rather existing home sales, which have now reached their lowest levels since 1995. When people sell their homes, they typically make updates to prepare for sale, such as staging and making cosmetic improvements. This drives purchases. When potential buyers visit a new home, they often fall in love with it but might want to make changes once they see it in person. All these factors contribute to a surge in product sales and demand, especially in the lubricant sector.

In terms of consumer demand and the shift towards experiences rather than material goods, it's possible that this could be a long-term trend with significant implications. However, I haven't seen any evidence suggesting that people believe this will be a lasting change. Regarding electric vehicles, the analysis we conducted a few years ago shows that the primary demand for our lubricants comes from machinery and industrial plants, rather than vehicles. Interestingly, electric vehicles require just as much lubrication for their axles and other components as traditional combustion engine cars do. The CAGR if you look at oil quarts, the CAGR on that towards 2030 is actually over 5% and it's driven by people who run their cars longer. And EV has plateaued out. And what you see grow is hybrids, which still requires loop. So we don't see any effect of that.

Understood. We would love to see you unlock that $160 million. We're trying to understand what the obstacles have been in terms of volume.

I'm just going to say, in terms of putting more color to that $100 million, we will be doing that at Investor Day next week, actually. Both Kim Kellermann and Paddy Mullaney will cover that in their presentations.

I was going to address that. I know George attempted to analyze the different aspects, but is any of this a response to your customers consolidating their own operations and being proactive about it? I'll stop there.

No, it is not related to that. If our customers' actions led to us not requiring a particular plant, we would address that, but this situation is not connected in any way.

Okay. Last question, maybe putting a little bit too fine a point, but you gave some data points, so I want to try to use them appropriately. The diligence or math or EBITDA associated with Ipackchem was $57 million and the $7 million of synergies. I think you said $26 million was the contribution in fiscal '24. And then you told us $19 million in fiscal '25, but that was Ipackchem less delta. I'm seeing a $94 million inflow of cash from the sale of Delta. Maybe that's $10 million or so of EBITDA that goes away. So I mean you guys are pretty close on Ipackchem? Or is that not the right math?

Yes. So on Delta, we sold delta for about $90 million, which was 8.5 times. The headwind in Q4 was about $4 million. So the net of that is $7 million. They were a little back-ended on the results for Delta. On Ipackchem, the lift year-over-year is $26 million from last year. I think we get to a $42 million run rate in our low-end guidance for the year for Ipack this coming year. So it's still 20-some million short of our business plan, which is all demand trend-driven, Gabe. So hopefully, that helps you.

And that $42 million is on an 11-month basis.

Yes, I'm sorry, yes, it's 11 months, obviously.

Yeah, okay. Thank you guys.

And one moment for our next question. Our next question will be coming from Brian Butler of Stifel. Your line is open.

Hi guys. Thanks for taking my question. Maybe since you're kind of going down the path of re-segmenting and you have a low-end guidance for '25. Can you give some color around the new segments and maybe what organic growth is kind of built into that low-end guidance?

When we examine our corrugated business, much of the growth is linked to investments in our Dallas sheet feeder operations. The growth rates for our URB and CRB are around 8%, while tubes and cores are approximately 4%. For containerboard and corrugated sheets, the range is between 2% to 5%, and our plastics segment has seen about 3%. In contrast, our Metal Solutions division is experiencing low single-digit growth declines.

Okay. And then on the $100 million in savings, I know we've kind of gone over this a couple of times, but I'm going to just maybe ask it another way. It's not $100 million all coming in 2027. So there's something in '25. You don't know what that is, but you have zero in your low-end guidance. Is that a fair statement?

That's accurate.

Okay, whether it's $5 million or $20 million, I don't know, but it's something other than zero.

We'll get something in this fiscal year. And then just to remind you, Brian, it's '24, is our baseline, the '24 fiscal year.

'24 for what, the $100 million?

The $100 million savings is from a 2024 baseline.

Right. Yes.

Right. So starting this year, but you're going to get the savings over the next three years. There wasn't any savings in '24.

Right. Yes.

And I would now like to turn the call back to Ole Rosgaard for closing remarks.

Thank you. And thank you once more for your interest in Greif, and we all hope to see you next week at Investor Day. Thank you.

And this concludes today's conference call. Thank you for participating. You may now disconnect. Thanks.