管理層發言
Thank you, and good day, everyone. Welcome to Greif's fiscal third quarter 2024 earnings conference call. During the call today, our Chief Executive Officer, Ole Rosgaard, will provide you an update on current business trends, as well as the latest updates on our ongoing operating model change, which will be a focal point of our upcoming Investor Day on December 11. Our Chief Financial Officer, Larry Hilsheimer, will provide an overview of our third quarter financial results and our fiscal full-year guidance. In accordance with Regulation Fair Disclosure, please ask questions regarding topics you consider important because we are prohibited from discussing material nonpublic information with you on an individual basis. Please turn to slide two. 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 reconciliation to the most directly comparable GAAP metrics that can be found in the appendix of today's presentation. I'll now turn the presentation over to Ole on slide three.
Thank you, Bill. Hello, and thank you for joining us. Over the past quarter, I've had the privilege of visiting many of our more than 250 plants around the world. Each week, I make it a priority to spend time with our teams on the ground, often joining them in the early hours for the daily 06:00 a.m. safety meeting. These moments are truly energizing and remind me of the incredible commitment and dedication that our colleagues demonstrate every day. I'm tremendously proud of how our people live our purpose and values, driving safety, quality, operational excellence, and importantly, delivering legendary customer service. It's clear that these are more than just words. They are principles embodied in the work our teams do day in and day out across every location. I also want to extend a heartfelt thank you to our leaders and executive team for their outstanding leadership during this quarter.
Working alongside such a committed and talented group of people is not just a source of pride for me, but also a privilege. As we review our results today, it's important to remember that the achievements we're sharing are the results of thousands of people pulling together, aligned by a shared purpose and values. I'm excited about where we're headed and the opportunities that lie ahead. At Greif, all the work we perform is focused on our purpose, creating packaging solutions for life's essentials. Wherever you are located today, listening to this, look around the room, the adhesive that holds your desk together, the chemicals used to manufacture your smartphone, the foam in your seat cushion, the soles in your shoes, the orange juice you had for breakfast, the vitamin supplements you took this morning, and the lubricants in the car you drove to work; all of these are essential, everyday products, and all of them at one time contained materials which were stored and shipped in Greif packaging products.
We know that it was Greif products because Greif maintains leading positions in nearly all industrial packaging capabilities globally, and by no accident. Those leading positions are the result of the deeply entrenched competitive advantage we have developed in our business, the most critical of which is our legendary customer service, as outlined in our vision statements. Greif is in the middle of a significant evolution. We are making excellent progress on our strategic missions by following our principles, and all of this is engineered to create a flywheel of financial success through the Greif Business System. Towards the end of today's prepared remarks, I will provide you with some more information on the operating model changes we announced last December and are nearing completion on. For now, let's shift gears to near-term performance in fiscal Q3. Please turn to slide four. I'm pleased to report another solid quarter for Greif, where we continued to successfully manage through a variable and uncertain operating environment.
All regions globally experienced net growth in the quarter, despite choppiness on an individual end market basis. Although small on a year-on-year basis, we are encouraged that North America has now evidenced the east to west demand improvements we have talked about over the past quarters. There's still significant runway to reaching a normalized level of volumes, but recent trends have us cautiously optimistic as we have exited the trough on volumes. This trend also applies to our LatAm region. APAC improvement, while expected, was also encouraging. As we mentioned, Q2 was negatively impacted by a short, but significant destocking as the Chinese New Year, but is now on the path to recovery. EMEA, our largest GIP market, at approximately 45% of GIP sales, saw a third straight quarter of sequential improvements. This is particularly important as underlying macroeconomic data from calendar Q1 into calendar Q2 continued to be negative with PMI fluctuating around the 45 mark.
In both Q2 and Q3, lubes, chemicals, paints, and coatings end markets are a source of strength. This is equally notable as our volume performance in the quarter outpaced many of the leading companies serving those end markets. This outperformance demonstrates our legendary customer service paired with the Greif Business System in action. We are maintaining close relationships with our customers and then reacting with decisive action when change occurs. With that, I will turn things over to Larry on slide five to walk through our third quarter results.
Thank you, Ole, and thank you all for joining our call. As Ole mentioned, we made progress on our operating model change in the quarter and are nearing completion. In the meantime, we continue to execute our strategy well and produce solid financial results under the circumstances. Ipackchem integration continues and synergy capture is in line with our business case expectations. We additionally made steps towards simplifying our portfolio through the divestiture of Delta Petroleum Company which provided additional debt paydown towards our long-term debt leverage ratio range of 2 times to 2.5 times. Please note that while our current leverage is at 3.66 times, this does not include the impact of the Delta sale proceeds received on August 1. The pro forma adjusted leverage, including Delta proceeds, would have been 3.59 times. As for financial results, we finished the quarter at $194 million of adjusted EBITDA, $34 million of free cash flow and adjusted earnings per share of $1.03.
This EBITDA performance was driven by the volume performance that Ole outlined in his remarks and was in line with our expectations. Our free cash flow performance was also aligned to our expectations for Q3 as we had modest working capital use as we ramped up the business with the nascent volume recovery. Please turn to slide six to walk through GIP results. In Q3, GIP saw demand improvement in all regions totaling nearly 5% on a global year-over-year basis. While this is encouraging, I remind you that on a global basis, the current volume shortfalls to 2022 levels are significant. GIP EBITDA margins remained strong on a sequential basis, supported by our continued mix shift into higher-margin polymer-based products. On a year-over-year basis, EBITDA margins were down 200 basis points due to expected cost inflation, primarily related to acquisitions, investments in our ongoing operating model change and several one-time benefits in '23, which did not recur.
Please turn to slide seven for PPS results. Our Paper business continued to experience the same conflicting dynamics as in Q2, continued improvement in volume and demand for our product coupled with partially unrealized paper price increases. We firmly believe these are warranted based on our significant input cost inflation, as well as improving demand. As a result, PPS margins continued to lag prior year. The paper solutions team is continuing to manage controllables well, including successful price increase implementation with our non-index based customers in URB. However, the outsized impact of the index-driven price cost dynamic, which we still view to not be in sync with real market trends, is a headwind we have and will continue to aggressively work to offset. Please turn to slide eight to discuss fiscal 2024 guidance. When considering our guidance update, we ultimately determined that maintaining our guidance range consistent with our Q3 call is appropriate.
Relative to our Q2 guidance, we are anticipating slightly more favorable price costs due to better paper pricing and value-based pricing in GIP. In Q3, although volumes were positive in all regions year-over-year, the pace of that improvement was less than anticipated in Q2 and will present a slight headwind relative to prior guidance. We benefited from a variety of small cost tailwinds in SG&A relative to our prior guidance. However, some of that was offset by other items such as a slight headwind from the lack of contribution from Delta in Q4. What is important to remember when considering this Q4 guidance is the significance of certain tailwinds on the horizon. Our volumes, while improving, are still down significantly on a two-year stack. A return to 2022 volumes, which in fact were actually lower than '21, would be approximately $160 million of EBITDA. Adding the guidance midpoint of $700 million of EBITDA and the $160 million of volume-related increase, along with the incremental fiscal '25 impact of recently recognized paper price increase, would return EBITDA to over $900 million.
In the near term, we will continue to focus diligently on operational excellence and lean on our close customer relationships to ensure we maximize value capture when volume recovery begins in earnest. Please turn to slide nine to discuss capital allocation. We remain committed to our disciplined approach to capital allocation, and this quarter continued to demonstrate that through our capital deployment actions. We have long stated that our two priority deployment objectives are funding safety and maintenance CapEx, which ensures continued cash generation and funding our continually increasing dividend. Earlier this week, we announced another increase in our quarterly dividend. After those modest uses of cash, our next priority is growing our business aligned to our strategy. Earnings growth remains our core focus. However, sometimes it is wise to first shrink in order to enable that growth. We demonstrated that willingness this quarter with our sale of Delta. With that, I'll turn things back to Ole on slide 10 to provide you with a preview of our upcoming Investor Day.
Thank you, Larry. Greif has an Investor Day coming up on December 11 in Midtown New York. And one item I would like to preview with you today that will be important to our discussion in December is our ongoing operating model change. We are currently in the process of organizing our operations and commercial functions by material solution as opposed to geography. While still ongoing, we now have better clarity on the lively material solution verticals, which will encompass that organizational structure; polymers, metals, paper, integrated products and our land portfolio. Through organizing by Material Solutions, we plan to capture three distinct benefits, all of which we will discuss in detail at our upcoming Investor Day. First, it will enable us to accelerate market alliance and value-driven growth through concentrating commercial and operations functions by subject matter expertise. That will enable us to better capitalize on our comprehensive suite of packaging solutions by optimizing pricing and account planning to drive higher margins.
Secondly, by realigning functions, we will maximize the effectiveness of all our enabling functions. It will better align business results to individual functions and drive accountability at all levels of the organization. The cost efficiencies driven by that approach will also enhance margins. Lastly, it will allow us to provide a deeper level of transparency to our investor community and help us to provide more predictable returns. It will streamline our capital allocation prioritization and execution, allowing us to deploy cash for growth faster. It will also enhance our speed and ability to integrate acquisitions effectively and expand synergy capture on future deals. Additionally, we are currently assessing whether this upcoming change will result in a change to externally reported segments. We have frequently heard feedback from our investor community that our current external segmentation is not sufficiently detailed on a product basis to clearly show the growth and margin profile of these leading businesses.
That assessment is still ongoing, but we are confident that the end result will provide the transparency our investors are looking for. And starting at our Investor Day, we plan to shift our cadence of talking about the business primarily by Material Solution and end markets with some regional color added. Please turn to slide 11. Part of the driving force behind our operating model change relates to shifting the mix of products in our portfolio, specifically our growth of polymers as a percentage of sales. We have been very clear in that focus that our growth priorities lie in resin or more accurately, polymer-based packaging solutions, and we have acted decisively on that focus over the past 24 months. In 2015, our business mix was approximately 10% in polymer-based packaging solutions. As of our previous Investor Day in 2022, that mix had shifted to 15%. And now, in just two short years, that mix is now approximately 20%.
We anticipate that shift to continue as we have significant runway for further growth in our polymer-based products. This quarter, the sale of Delta further accelerated that portfolio shift. While Delta is a solid business and we received great value for it, it's not core to Greif's growth priorities and core competitive advantages as it served much more cyclical end markets. For those reasons, we have parted ways, and in doing so, added balance sheet flexibility by paying down debt with the proceeds. Please turn to slide 12. To our investors, we sincerely hope you make the time to visit us at our Investor Day on December 11. And as a reminder, please reach out to investorday@greif.com with any questions or to request a registration. I hope you have enjoyed our presentation today and I would like to reaffirm to you that our vision to be the best performing customer service company in the world also extends to our financial customers.
We are deeply committed to validating your investment in us through continued solid financial results and are proactively modernizing and evolving our business to warrant continued and increased investments. One hour at earnings is not sufficient time to properly communicate the myriad of ways we are creating value at Greif, and so, I'm confident that after our half day together in December, you will depart with strong confirmation that Greif is primed for breakout success in both the near and long-term through our proven execution on the Build to Last strategy. Thank you once more. And operator, will you please open the lines for Q&A?
分析師問答
Certainly. And our first question will be coming from Matt Roberts of Raymond James. Your line is open.
Hi. Good morning. Ole, Larry, and Bill, thank you all very much. Ole, I appreciate Slides 10 and 11 and the prelude to Investor Day here. So, without stealing too much thunder from December, maybe could you help me understand the margin contribution or benefit you've received as a result of that mix shift and how incremental margins on the poly-based products compare to the total portfolio average? Or maybe is there a longer-term margin target you think is achievable either in GIP or in that polymer-based business within GIP?
Yes. Hi, Matt, I certainly can. Maybe first, just remind you of our M&A selection criteria. So, when we review target companies, one of the criteria is to make sure that the EBITDA margin is accretive to our current margins. And that means that we're only looking at companies with a margin at or above 18%. And we're also looking at companies with a free cash flow in excess of 50%. And the segments that we're looking at is primarily polymer, like resin-based segments in the premium end of the markets. And you will typically find those companies having up to like mid-20 EBITDA margins. Obviously, we have a current business, so even with the acquisitions we make now, once they're accretive, it's not changing the margins for the whole enterprise. But in the long-term, you will see a trend towards reaching the 18% margin.
Thanks, Ole. I appreciate that and look forward to hearing more in December. And as a follow-up, Larry, you noted in the presentation, continued price/cost headwinds, albeit sequentially improving. And since last quarter, we've seen OCC come down slightly and $20 go through on URB that you did mention. So, maybe relative to your expectations you gave in the last quarter, at current prices, where is the price/cost range tracking in your guide? And is there a certain price you need to see either in URB or containerboard to be at the midpoint there? Or would any changes here on out be more of a 2025 impact? Thank you all, again, for taking the questions.
Yes, Matt, thank you. During the quarter, we experienced slightly better outcomes than we had predicted regarding price increases due to market volatility. Initially, we had only anticipated partial recognition of the price increases, but in June, $40 was recognized for containerboard and $20 for URB in August. These adjustments contributed positively to our revised full-year guidance. Additionally, we saw better-than-expected value-based pricing benefits in GIP, as our teams effectively concentrated on value over volume. The combined effect of these factors slightly exceeded our expectations, and there was also a minor upside with raw material costs. Regarding paper pricing guidance, we still anticipate more developments, and while I don’t expect any changes in the remainder of our fiscal year, I am optimistic that we will see something in 2025 due to inflationary pressures across the industry and improving demand trends, especially in containerboard.
Volume performance was better but slightly lower than we had expected. We discussed last quarter that we observed some increase in demand and were hopeful for continued improvement, but the results were more mixed than we predicted, leading to a slight downside compared to our Q2 guidance. We also achieved some improvements in miscellaneous costs as part of our efforts to enhance operations, although this was somewhat counterbalanced by the loss of fourth-quarter EBITDA from Delta following its sale. All things considered, our overall guidance range remains unchanged. As for the future beyond 2024, we are still assessing the rapidly changing environment. We will monitor developments from the Fed in September, which could significantly influence our platform. We will provide guidance updates in our next call. Additionally, while we have begun operations with our Dallas sheet feeders, we have not yet seen a net benefit to our bottom line due to startup costs; however, we are very optimistic about their contributions in 2025.
Appreciate all the color. Thank you guys, again.
Thank you, operator. Good morning, everyone. Referring to slide six, where you're discussing the near-term outlook within GIP and customer sentiment, could you provide more insight based on your direct conversations with customers given the current environment? Additionally, regarding your volumes that are stabilizing at a lower level for an extended period, can you address any shifts in competitive activity? Are you observing anything out of the ordinary compared to the typical competition in the industry?
Thanks, Ghansham. Market competition has not eased, and while we see some positive volume trends, the number of requests for tenders remains high. Certain market participants are pricing at levels that we believe are unsustainable to keep their volumes. We continue to prioritize our value over volume strategy, focusing on building trusting relationships with our customers. Our commitment to operational excellence and this philosophy has contributed to our margin strength in GIP over recent quarters, despite competitive pressures. In the past, customers have returned to us after pursuing lower prices, and we believe our high quality and exceptional customer service are unmatched. Over time, these customers come back, leading to long-term wins for us. Regarding specifics, in our second quarter, the strongest volumes came from lubricants, bulk chemicals, and paints and coatings. However, it seems that customers are less optimistic in their own earnings calls regarding these end markets.
The markets we are focusing on have shown mixed results. The food and beverage sector has been solid, while the agricultural chemicals segment remains stagnant following earlier destocking. A recent Wall Street Journal article highlighted that this year farmers are expected to have a significant crop yield but will incur losses, which impacts their investment in fertilizer and machinery. Overall, our teams have excelled in engaging with customers and monitoring changes in demand patterns, which reflects in our volume performance. Compared to significant players in the lubricants and bulk chemicals markets, we have outperformed due to our quick response. However, we won't become complacent; we will maintain our focus as demand signals remain mixed. We aim to stay closely connected with our customers as a vital supply chain partner, which we believe will help us achieve better-than-industry volume performance.
Okay, thanks, Ole. Very comprehensive. And then on the reorganization by substrate versus geography, is this something that the customers themselves have been pushing for or is it just a natural evolution based on all the acquisitions you've done and the scale of the company at this point? And just separately, what percentage of your sales base in GIP goes to multinationals that want a cross-border supplier?
Well, first of all, the changes we are anticipating to make, number one, yes, it's really to serve our customers better. So, if you think of GIP and PPS; in GIP, we have all types of materials that we're making, whether it's polymer-based, steel, fiber drums and so on. So, in a way, our teams are kind of a jacks-of-all-trades. And what we want to do in our drive to be even better is to really focus on one material solution. So blow-molding a jerrycan is obviously different from making a steel drum. So separating, like jerrycans out in a separate SBU, under a separate SBU management, means that all they need to think about is to be the best in the world in making jerrycans and that will help our customers with even better quality. And at the same time, we're doing that for each of our material solutions. And then, we've extracted the commercial organization out of all those. So, our commercial organization becomes an enabling function, so to speak, under a Chief Commercial Officer, and that will drive up sales and cross-sales.
As in the past, a salesperson would have visited a customer in the morning and another salesperson from Greif comes to sell another product in the afternoon. And by combining sales this way, we will just be much more effective in that, and it will also drive margins, and we will be able to serve our customers better. And then lastly, when we do an M&A, we will be even more effective in integrating these companies into our structure. So, overall, the structure has been designed or is being designed for growth.
Thank you, Ole, Larry, and Bill, for answering my questions. I wanted to quickly follow up on your response to the last question. Regarding the portfolio transformation, does that require any additional headcount, considering the sales force split?
Well, you mean in our evolution to modernize the organization?
He asked if you would increase it.
No, we won't increase it. We've had some questions whether we will be taking out headcount, and it's not designed to take our headcount, but we do believe we will be able to operate much more effectively. And as we are adding volume or growing our volume, we will be able to do that without adding further headcount to the organization. So, in effect, we will be operating much more effectively. But we certainly won't be adding.
Got you. I was just wondering if your sales force is now going to become specialists in targeted products. Please, go ahead.
Yes. No, the sales force will be more generalist and they will turn more from farmers to hunters. And then we have created a very strong product management function that will be more of a support to sales or rather than our sales teams acting as product managers, we will have a dedicated central product management function by material solution, serving the sales teams, but also our customers.
Got it. That was very clear. Thank you, Ole. In terms of Global Industrial Packaging, what do you attribute your outperformance relative to the market to? Obviously, you showed sequential improvement in EMEA despite PMIs remaining depressed. So I'm wondering if there's something that you're doing differently, some type of restocking? Like, how are you able to outperform despite the broader market still being somewhat challenged?
I want to acknowledge the hard work of our teams, which is crucial to our success. Our ongoing commitment to customer service is a key factor behind this. Think about your own experiences with vendors or stores; when you've encountered poor service, you likely shared that with others and decided not to return. On the other hand, when you've had outstanding customer service, you not only share that positive experience but also prefer to return, even if it means paying a bit more. This is true for our customers as well. For a long time, we have prioritized providing exceptional customer service, continually improving in that area. We strive for excellence, fully aware that perfection is unattainable, yet this pursuit has positioned us as a leader in our field, enabling us to achieve solid results in the current market conditions.
Got it. Really well...
Yes, of course, high quality. Please continue.
No, I'm sorry. Please go ahead.
I was just going to add, you know on top of that, providing top quality products, as you would expect. Yes. I'll let Larry take that one.
Yes. When we examine that, it represents about 35% of our customers in the URB space. We've experienced significant success. I can't confirm it's fully 100% of that 35%, but it's very close.
Got it. Thank you guys very much, and good luck in the final quarter.
Thanks, Mike.
Thank you. And one moment for our next question. Our next question will be coming from Gabe Hajde of Wells Fargo. Your line is open.
Ole, Larry, Bill, good morning.
Good morning.
Good morning Gabe.
I wanted to ask you, Larry, you gave us an inch, so I'm going for the mile. If you can assist us in fiscal '25 regarding some of the known items you mentioned, particularly about Delta Petroleum. You noted a slight headwind in the fourth quarter. Should we consider that a $15 million to $20 million annualized EBITDA number for the sold assets, and how does the gross price flow through based on the price increases already reflected in the indices? Finally, I noticed there were some higher compensation items mentioned in the press release. Is that trend returning to normal, which would be positive? Are there any other one-time items we should anticipate for next year?
Sure. Yes, on Delta, that number is indeed high. Our $90 million was about 8.5 times after we've been managing stranded costs and similar issues. You can do the math on that. The business tends to fluctuate throughout the year. The fourth quarter is actually expected to be a little higher, approaching 4 million in that quarter, but for the full year, it remains 8.5 times on 90 million. Regarding pricing, we did have a $20 increase on URB, which will result in about a million impact in the fourth quarter this year, primarily flowing through in October. On a full year basis for $10 on URB, you can anticipate about $650 million. Excuse me, what was that number?
650,000 a month.
Yes, $650,000 a month on the URB. I'm trying to find the incremental price increase we had on the container board. Matt, what’s the number on containerboard?
It's 750 for $10.
Yes, 750 per $10. So on those, how much is it?
And that was recognized in June. So it'll be fully beneficial to Q4.
Right. Yes. Does that address that question?
It does. I mean, the other thing I was thinking about was. I don't think that I heard economic downtime mentioned in the prepared remarks or in the slides. Just curious kind of where you guys are running in the system today?
Yes. We've been running full out in our containerboard business. We've had some economic downtime in our URB space. Do you have that number?
It was nothing significant from the other...
Yes, I know it's minor, So...
We are operating at nearly optimal levels from a backlog perspective in containerboard.
Yes.
Okay. And one last one, just on the M&A front. Obviously, you guys have been active there. You called out kind of being 3.6 times levered on a pro forma basis. Are there still opportunities out there, given kind of where we are in the interest rate cycle or do you feel like it might get more competitive again if the Fed, in fact does cut?
No. We still have a lot of opportunities, Gabe. We have a very robust pipeline and are engaged with many companies and owners, which we will continue to do. We don't always control the timing, so we need to keep that approach. If an opportunity arises, even if the timing isn't perfect, we have the ability to pursue it. However, I want to emphasize that our current focus is to reduce debt to return to a leverage ratio of 2 to 2.5.
Understood. Thank you.
Thank you. One moment for our next question. And our next question will be coming from Brian Butler of Stifel. Your line is open.
Thank you. Good morning. Thanks for taking the questions.
Good morning Brian.
Just maybe on the first one. When you talk about that $160 million kind of in a more normalized volume environment. What has to happen for that? I mean, are we there at current kind of volumes right now if those just kind of sustain through the back or through 2025? Or do we really need to see some step-up in the macro recovery to kind of get back to kind of the normalized 2022 levels?
Yes. We need a significant change. To give you some perspective on our volumes compared to Q3 '22, for total GIP, the figures show a decrease of 4.3% from Q3 '21 to '22, followed by another drop of 10.7% the next year. We've only managed to regain 4% of that loss, indicating a considerable decline from our previous levels. For IBCs, we experienced a 9.5% increase in Q3 '22 over '21 due to acquisitions, but in '22, there was a 13.7% decrease. Although we have seen a strong recovery because of our acquisitions, when I look at the paper and total mill volumes, we saw a decline of 2.6% from '21 to '22, followed by a more significant drop of 16.3% the next year, with only a 7.9% recovery so far. We still have a considerable journey ahead to return to our former volume levels. It’s more of a macro issue than just a minor change. If PPS could return to normal volume levels—excluding the impact of recognized price changes and focusing solely on the average value-add for the year—we would see an additional $56 million in EBITDA from our PPS business. For our overall buying GIP business, that's a potential $90 million increase. Additionally, considering the acquisitions we've made, normalizing volumes there could yield another $21 million. So, it's a significant macro challenge across the entire environment.
Brian, if I can just add a little bit of color to the $160 million as well. So, as Larry alluded to, that's not one single factor, as you have to consider that much of current volume dynamics is driven by, like, macroeconomic factors. So, while we proved in Q3 that we can outpace the macro on volume, it is still the primary bottleneck to truly rebound in demand. And one major factor in that equation is the current interest rate situation. In previous instances, interest rate costs have been shown to drive production, specifically pent-up housing demands, both for new builds and existing housing sales. And that would be a major volume driver for us. As you know, when you move house or buy a new house, you do more than just buy the house, you paint the walls on the old house for it to sell better. You may buy new carpets, appliances, and hundreds of other items for, you know, when that happens. And all of those things, they drive industrial production and demand for our products. And then another component, as an example, would be ag. I just talked about that earlier, and we are experiencing short-term softness. Some of it is interest rate play in action too. And as that softness abates, again, you will see that end segment to improve. So, there's a lot of factors involved in returning to the $160 million.
Okay, that's helpful. My second question is about the evolution of your operating model. What is the timeline for implementing this change? During that period, will there be any short-term effects such as slower sales or increased costs as you make this transition?
On sales, no. On costs that; obviously, we're doing this in conjunction with changing our fiscal year, as you know, and there are some costs involved in that, but it's not material.
Yes, we had disclosed, Brian, that we were going to end up incurring about $6 million to $7 million related to just the cost of going through this change.
Okay. And is that change kind of completed in fiscal '24 here or does that really roll into '25 as well?
We'll be evolving into this and will provide the details in December, but we will begin operating in this model starting November 1.
Okay. And then maybe one last one. On your shift towards more polymers versus kind of the other segments, how do you view kind of the market organic growth for the polymers in that kind of specialty piece that you're moving into versus the other segments? What does that organic growth look like?
Well, first of all, just why are we doing this? Well, we are growing in polymer-based products because the margin profile is much, much higher and the cyclicality of those products is much, much lower. So we want to be a higher-margin company, that's a lot less cyclical. On the organic side. I mean next week, I'm traveling to Malaysia to open a new IBC plant, which is polymer. We are adding lines all over the world all the time. We opened earlier this year, we opened another IBC plant in Turkey. So, yes, Brian, we are also growing organically.
Okay. Thank you for taking the questions.
And our next question will be from George Staphos of Bank of America Securities. Your line is open, George.
Hi, everyone. Good morning. I hope you're all doing well. We've discussed this in various ways during the call regarding Europe. Ole, do you believe there will be a time when you won't be able to outperform in Europe despite your model and exceptional customer service? Or do you think that in the next couple of quarters, you should still be able to outperform in Europe, even with the current sluggish conditions? If you could provide some quantification to what is somewhat of a qualitative question, that would be helpful. Additionally, could you share your exit trends by major business leading into the fourth quarter? I'm particularly interested in the trends you're seeing in CorrChoice. I'll stop there for now and may have a follow-up later.
Well, thanks. Thanks for that, George. On Europe, first of all, the answer to the question is yes, I believe we can still outperform. And why do I believe that? Well, if we look back and I have to go back to our philosophy of value over volume, we have said no to quite a lot of business in the past, and we can see now that after a certain period, that business is trickling back to us. So that's one reason for why we will continue to outperform. Another one is, we are really focused on growth in segments where we have not historically been very strong, and one is food and pharma. And we have teams really working hard on getting into those segments because the margins are higher, it's much more sticky, and it's much less cyclical as well. So with that, those combinations, I believe that we will continue to see solid performance come out of Europe. And we have added more capacity as well, by the way, organically. Sequentially on CorrChoice, CorrChoice was up.
Well, all the businesses, but yes, lead with CorrChoice. Sorry about that.
I was just answering your second question. So sequentially, CorrChoice was also up nearly 10% as containerboard demand continued to improve, which was slightly better than we expected in our Q2 guidance. And I would remind you and our other investors of our niche role in North America containerboard as a champion of the independents, which gives us earlier visibility to demand cycles than our competition. As we have a view of the full markets, we are positioned well for this recovery. Champion of the independent is a competitive advantage to us. So we're skilled at handling complexity. We can produce any fluke, any size run, and any lighter board combination with speed and profitability. So those are some of the reasons for why we see that sort of growth in containerboard.
And Ole just in general, and what were the other exit trends that you were seeing in the quarter?
I can't really talk about quarter four, but the exiting quarter three, it's still choppy. I would say it's very choppy. It's a little bit like walking in sand. You take two steps forward and then you slide half a step backwards. So, we have months where we see, yes, it's all coming. And then the following months, we see a dive again, and then the next month, it goes up again. But the overall trends are positive across the segment.
Yes, the one thing, August is always tough because it's you know, vacation holiday month in Europe. And so it always gets choppy. And it also goes to a lot to harvest seasons in the south of Europe. But they're substantially the same as what we saw exiting in July.
Thank you. Last question following I'll turn it over. You know, back to containerboard CorrChoice and the business overall. To the extent that you have a view and your customers could offer one that you'd share on this conference call, you know, volumes for the calendar second quarter in corrugated markets were okay, not great, you know, flat up a little bit, down a little bit, depending on what adjustment you wanted to make, but all very easy comparisons. What are your customers saying? What are you seeing through your businesses in terms of why we're seeing that market trend, recognizing you're doing better? And what kind of holiday calendar fourth quarter season are we setting up for in the corrugated markets, given what you're seeing? Thank you, guys, and good luck the rest of the year.
Thank you. Yes, George, we are observing the same trends we've mentioned before. It's really a mixed situation out there. If you look at the comments from the Dow CEO during their earnings call, he is very optimistic about the possibility of falling interest rates and a rise in home sales, and we share that sentiment. Additionally, we've noticed other companies like Henkel expressing optimism, and BASF had a similar viewpoint. In the paper industry, we’re seeing the same mixed signals as reported by our contacts. One week things seem to be thriving, and the next week not so much. That's why we describe it as mixed.
And I think a rate drop will obviously affect it because, you know, average person looks at their credit card debt and their payments, and it's linked to the interest rates. And if they go down, they get a little bit more money between their hands, they shop more on Amazon, and it helps the industry. So, we don't have a crystal ball, that's what I'm trying to say.
Well, you're closer to it than we are. So we appreciate the color, as always. Thank you, guys.
Thank you.
And one moment for our next question. Our next question is a follow-up from Gabe Hajde of Wells Fargo. Your line is open.
Thank you. Real quick, when we're talking about, I guess, the different end markets, can you remind us, roughly speaking, in your North American GIP business, how much is directionally tied to housing?
It's difficult to give you a number on that. It really is, because if you take chemical, bulk chemicals is one of our largest ones. Some goes into insulation, some goes into the soles in your shoes, and some goes into the fridge you buy. It's just difficult to sort of play that out.
We don't have a number on that at all, Gabe.
No worries. Thank you.
And I would now like to turn the conference back to Ole for closing remarks.
Thank you. And first of all, a big thank you for all the questions and your continued interest in Greif. We really appreciate that. And we look forward to reporting our Q4 2024 earnings to you in early December and subsequently also seeing you at our Investor Day on December 11 in Midtown New York. Have a wonderful day, everyone.
And this concludes today's conference call. Thank you for participating. You may now disconnect.