Sonoco Products Company
Q1 2021 Earnings Call Transcript

Published: 22 Apr 2021

[Operator:]

Good afternoon, ladies and gentlemen, and welcome to the Q1 2021 Sonoco Earnings Conference Call. At this time, all participants are on a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder this conference call is being recorded. I would now like to turn the conference over to your host, Roger Schrum. Please, go ahead.

[Roger Schrum:]

[Julie Albrecht:]

Thanks, Roger. I'll begin on slide three, where you see that earlier this morning we reported first quarter earnings per share on a GAAP basis of $0.71 and base earnings of $0.90 per share, which was at the top end of our guidance range of $0.80 to $0.90 per share. At a high level, our first quarter results reflect solid top and bottom line results, despite various unexpected headwinds from severe weather in the U.S. and global supply chain disruptions. In terms of the $0.19 difference between base and GAAP earnings per share, $0.05 related to restructuring and asset impairments, $0.05 was from non-operating pension costs, $0.03 reflects the loss on our display and packaging U.S. divestiture and $0.06 primarily is related to acquisition and divestiture transaction costs. Moving to our base income statement on slide four and starting with the top line. You see that sales were $1.353 billion, up $50 million from the prior year period. I'll review more details about our key sales drivers on the sales bridge in just a moment. Gross profit was $278 million, $11 million above the prior year's quarter. This performance resulted in a solid 20.5% gross profit as a percent of sales, which was equivalent to the first quarter of last year.

[Howard Coker:]

Thanks Julie and good morning everyone. Let me provide some additional color regarding our first quarter performance, and then I'll talk about what we see entering the second quarter. Let me start by saying how proud I am of how our team came together to work through the challenges stemming from severe winter weather and global supply chain disruptions to meet the needs of our customers, while delivering a better-than-expected start to 2021.

[Operator:]

Our first question is from the line of Gabe Hajde with Wells Fargo. Please go ahead.

[Gabe Hajde:]

Good morning, guys. Thanks for taking the question and congrats on a solid start to the year. I was curious maybe Howard, if you can talk a little bit about the Consumer segment. And I think one of the questions or a lot of interest that we're getting is folks are somewhat fixated on week-to-week Nielsen data that is obviously negative, because we're comping some pantry stocking. But to the extent, you have any visibility, can you comment at all about inventory levels either within your operations, or again, kind of what you detect on your customer side, and I guess the potential for any kind of choppiness over the course of the year?

[Howard Coker:]

Thanks, Gabe. I'd say inventories are tight right now, particularly, if you think in context of the impact of the winter storm. We as well as our customers in terms of their feedstocks have had to go through various different channels just to ensure that we're able to maintain the flow of goods and products. So our inventories are low right now. And what we're hearing from our customers is very similar. So really aren't seeing a big concern there. The other, I would just note that, we've talked about in the past as it relates to the products that we actually serve on the consumer side, they're relatively quickly consumed. So we're just not seeing any of what you're referencing here as it relates to inventory in the system on our side, our customers' side, and their customers side from that standpoint, and that's my comment about the turnover of our products in the pantries.

[Gabe Hajde:]

All right. Thank you, And then I guess, Julie, the one thing that stood out for me on the operating profit bridge and I think you called it out mostly was maybe some management incentive comp. But that $15 million or so is that expected to kind of continue over the course of the year, or can you give us any look into how that might play out?

[Julie Albrecht:]

Yeah sure. Yeah we actually, I would say that type of variance or bridge item probably will continue as we've mentioned in our full year guidance. We absolutely plan for higher IT strategic spend. We knew property insurance premiums were going up. And as well as long as 2021 played out like we expected, we would be back to accruing incentives at target versus or appropriately depending on our outlook for the business versus what we were doing last year where obviously there was weakness very specific to COVID. So, yeah, I think I mentioned that our SG&A results while higher year-over-year in the first quarter were pretty much as expected. And so I'd expect that to continue generally through the year.

[Gabe Hajde:]

Okay. Thank you and good luck.

[Operator:]

Your next question is from the line of George Staphos with Bank of America. Please go ahead.

[George Staphos:]

Hi, everyone, good morning. Thanks for the details. My line drops, I apologize if you already answered this question. Howard congratulations on the performance in Consumer. When you were talking about where you're adding capital this year, you enumerated a number of projects. One area you didn't really mention was composite cans. Even though the paper can business seems like it's having a great year, why are you spending or why are you not spending behind the growth that you're seeing in composite cans? And if you are spending where are you putting it in terms of the growth outlook there?

[Howard Coker:]

Yeah. Thanks George. Yeah, the intent and what the list I went through was just to give you a snapshot across the portfolio. We absolutely are engaged in capital expenditures on the can side of the business. From a project perspective we've got a -- it looks like a second line that we're going to be putting into Brazil for growth that we're seeing there. Can packaging is just absolutely starting to I hate to use the word explode but it seems like -- in fact I got a -- I actually went -- not that I wasn't listening to Julie, but I was checking my e-mails while she was speaking and just got a note that we picked up even another series of customers related to that technology and so we are extremely bullish in putting a lot of dollars deservedly, particularly on an international perspective. And then finally I didn't spend a lot of time talking about automation, but that's across the portfolio. It's something that drives the return in and of itself but it also addresses what I think we have a problem just across the country in terms of labor availability. But no we're very focused and are excited about the opportunities that we have going forward on the can side of the business.

[George Staphos:]

I appreciate that Howard. Again even listening to this and it sounds like again you have very impressive growth and some great returns so far with Can Packaging. You didn't really say much about North America even though again we're seeing volumes that frankly we haven't seen in the whatever 25 years that we've covered your company. So are you -- is that -- does that suggest that you're not as optimistic about the composite side in North America, even though you're saying consumers are rediscovering packaged foods again, or are you being modest and there is an investment in growth there that you expect will be sustained? How would you answer that question?

[Howard Coker:]

Yeah. So absolutely we're still very bullish on North America. And yes we've seen good growth really for the last multiple quarters in North America. But to say what I've already said, what's surprising to us is to see some categories that are highly seasonal that have just lifted. So yes we're very bullish. As we talk about Can Packaging, yes, I speak to it in terms of Europe, but we're looking that as a global play. It's a new acquisition that was we had hoped to start deploying the technologies on a pretty rapid basis around the world and COVID came around. Here we are we're starting to make progress in Europe. We've got projects identified elsewhere globally. And it also relates to the automation partnership that we just engaged in with the company ISI that I noted with -- one of the major intents is to help us further leverage here in North America and around the world the technologies that we've acquired through the Can Packaging acquisition. So, again, very, very pleased with the performance and the look forward across all markets that we serve with our can business.

[George Staphos:]

Last one and I'll turn it over. Just a quick one. Rigid plastic you noted growth, but it seems like and just remembering from the press release, fresh food was a bit of a weak patch for you there. I'm assuming that's just related to COVID and shoppers still not being out necessarily and shipping -- shopping in the perimeter of the store. But if I remember correctly what is -- what was driving that relative weakness? And is any of it related to kind of the ongoing issues you've had in that business over time? Thanks and I'll turn it over.

[Howard Coker:]

Sure. Thanks George. Thank you again. From a perimeter perspective, it's somewhat seasonal as it relates to the berry harvest. But Rodger do you have--

[Rodger Fuller:]

Yes, George, Rodger. The only other comment some of that volume weakness you're seeing is from our consolidation efforts that we took on the West Coast last year. And the good news is the EBIT impact is where we expected to be but we did give up some volume in that consolidation.

[George Staphos:]

Thank you, Rodger. I'll turn it over. Thanks Howard.

[Operator:]

Your next question is from the line of Adam Josephson with KeyBanc. Please go ahead.

[Adam Josephson:]

Thanks, good morning everyone. Julie one question on the guidance. So, you lost $0.09 from the sale of US Display. You nonetheless raised your full year range by $0.05 at the midpoint, so $0.14 underlying increase. I assume that's all volume-related. Is there any other moving parts there? Are your inflation expectations higher than they were three months ago? Can you just talk about whatever moving parts there were in that $0.05 uplift?

[Julie Albrecht:]

Yes sure. I mean really -- and you're right about noting the fact that we did have Display and Packaging US in our original full year guidance. And so very specifically that $0.09 is coming out of the balance of the year. But absolutely I mean the increase there in the guidance is really just second half. We are pretty optimistic about volumes continuing to increase as we move through the year as well as, as we move through what we think is going to be a challenging Q2 from a price/cost perspective we think we'll then be well positioned. We're expecting and hoping that inflation pressures let's say moderate into the third and fourth quarter. And then we will be again just better positioned from a price/cost perspective. So, really again a lot of it relates to our bullish outlook for the second half of the year. I don't know if Rodger wants to add any more color there. Or we're good? Okay?

[Rodger Fuller:]

Nothing, you said it well.

[Adam Josephson:]

Wonderful. And Julie speaking of raw materials I think you and Howard talked about your expectation that OCC will continue to go up beyond what it went up in April to $95 in the Southeast. What exactly are your expectations there as well as on resin and chemicals? And just back to OCC, obviously, there were significant production disruptions in February and really throughout the first quarter and there's significant maintenance happening in the Southeast specifically. So, one would think that OCC wouldn't be going up by too much but obviously it is. So, can you just talk about what exactly you're experiencing? And how much more you expect it to go up and why? And then also in Europe I think OCC is at an all-time high. Just any thoughts there as to when that -- you would expect that to moderate?

[Rodger Fuller:]

Yes Adam, this is Rodger. I'll start and Howard and Julie can add in. But as we look at the second quarter and some of this is pretty recent, but we're expecting OCC throughout the quarter to get up into the 120s at this point. That's more than probably it was expected 30 days ago. But you know everyone knows the strength of the containerboard market that continues. We're seeing very strong bids for any new open opportunities that come forward for future contracts for OCC. We're starting to see some more availability of containers still pretty tight, but they're coming available. So you'll start to see more exports. So all of that in our opinion is going to drive OCC up a little bit from what was expected probably 30 days ago. So, the answer to your question up into the 120s by the end of the second quarter. To hit the price side of that you've seen the move in RISI last week on both medium and URB. So we fully expect we can offset that, but we do expect the additional OCC headwinds. On resin you've seen the impact in the first quarter tremendous. We expect most resins will peak in the second quarter. About -- if you look at the basket of Sonoco resins about half of what we buy is PET. We see that peaking this month. Polypropylene probably peaked at the end of the second quarter. The rest of the basket all the other resins will peak sometime in the second quarter. So as Julie said, we expect second quarter to be our toughest quarter from a price/cost standpoint in our resin-based businesses. And finally, Europe we are starting to see those record OCC prices start to peak out in Italy and Spain. So as you said, they are at record levels, but we expect those to sort of moderate. And we're in the midst of our third or fourth price increase announcement in Europe to recover that inflation as well.

[Adam Josephson:]

Thanks a lot, Rodger. And just last one for me. Can you talk about freight and labor? I don't -- I forgot if you mentioned it earlier on the call, but are you expecting those pressures to moderate? I assume that you're not expecting the labor pressures to moderate given the enhanced unemployment benefits. But any thoughts freight and labor how consequential that has been for you what your expectations are, et cetera?

[Rodger Fuller:]

Yes. You said it on labor Adam very difficult. We are struggling to hire the people we need in many of our operations that we -- that goes back to Howard's comments on automation. We've got four or five really strong projects in our Tier 1 plants to help us with headcount not to remove jobs of people we have today, but to operate our lines and supply products to our customers. So labor will continue to be a challenge. We don't see that moderating at all this year. Freight very -- again, another difficult quarter in the first quarter. We -- I think we projected a 10% increase in freight for the year. We saw -- probably saw more than that in the first quarter that we're seeing some moderation. So I'd say that's still a good number for the year. It tightens from time to time but that level of inflation is probably still a pretty good number to use in your evaluation.

[Adam Josephson:]

Thanks a lot, Rodger.

[Operator:]

Your next question is from the line of Josh Spector with UBS. Please go ahead.

[Josh Spector:]

Hey, hi. Thanks for taking my question. Just curious on the industrial volumes side of things. Understanding the first quarter impact from storms in the US, just curious what utilization and what output could do from a volume perspective sequentially into the second quarter? I don't know if you could provide any characterization of how you're thinking about that.

[Rodger Fuller:]

Yes. This is Rodger. As we look at the second quarter, we're seeing a sequential 1% to 2% improvement in volumes from the first quarter. Obviously, year-over-year a very strong improvement, because we were in the midst of the beginning of the pandemic. But if you look at achieving core in that 1% to 1.5% range URB will get -- we will get recovery from the storm. So, probably in the 3% to 4% range. So, sequentially again, I think that 2% quarter-over-quarter volume improvement is a good number to use.

[Josh Spector:]

Thanks. That's helpful. And just within the Consumer Paper Packaging side to kind of come back to that. I don't know if there's a way that you can frame the typical churn that you see in that business or like a win-loss ratio. And just curious if things are any different now versus two years ago. So if some of the consumption trends normalize would you expect sales to be higher or lower versus that time frame?

[Howard Coker:]

Yes. Josh, this is Howard. I'd say right now things are fairly stable, it's -- here in North America as I noted earlier. We are seeing volume pickups in Europe and Asia, Europe actually substantially. So -- and that seems to be related to not only the Can Packaging acquisition, but the overall sustainability footprint of the package. And Asia is just continuation. It's been double-digits for multiple, multiple quarters, and as we noted earlier 30% in this quarter. So if there's a win-loss I'd say it's probably -- we don't really track it that way particularly on a global base but I'd say it's we're on the winning side at this point in time.

[Josh Spector:]

Got it. Thank you.

[Operator:]

Your next question is from the line of Mark Wilde with Bank of Montreal. Please go ahead.

[Mark Wilde:]

Good morning Howard. Good morning, Julie.

[Julie Albrecht:]

Good morning.

[Mark Wilde:]

Just to start off Howard or Julie. I wondered if you could talk about that share repurchase authorization some thoughts on cadencing. And historically you've used repurchases just to offset options dilution. Is there any shift in kind of strategy in terms of how you're thinking about share repurchase maybe as a part of your overall capital deployment strategy?

[Julie Albrecht:]

Yes Mark, I'll start on that Howard can add some comments there. I think our view on share repurchase really as usual is that we have as a tool right as a part of our overall capital allocation strategy and how we return cash and value to shareholders. So we did refresh. The Board refreshed the authorization this week to shift from number of shares to a dollar amount which we do think kind of better signifies again this kind of return of value to shareholders. Although quite frankly we do keep our eye on dilution, but it's not the sole driver for how we would now look at share repurchase. So I think the bottom line is we're just as usual and extremely right now very well positioned with our balance sheet, the cash our leverage to have share repurchase on the table as a way that we again continue returning value to shareholders.

[Howard Coker:]

Well said.

[Mark Wilde:]

Okay. And then Howard did you have any thoughts, or does that kind of covers on that?

[Howard Coker:]

No. Julie summed it up nicely. Thank you.

[Mark Wilde:]

Okay. And then I'm just curious in terms of the new divisional segmentation. F r a time you've been kind of breaking out protective and temperature assured. And I'm just wondering whether we should read anything into this new segmentation in terms of your strategy for which businesses you're going to grow or not grow?

[Howard Coker:]

Yes. Thanks Mark. No really it was triggered with -- because we had the Display and Packaging segment that once we divested Europe we recognized. And as you know today, we've sold the US side, we knew that sector was or segment was going to dissolve. And so, we took a different approach in terms of how we are going to structure ourselves. And that's how we've landed at this point with what you see today. So it was driven by the divestitures frankly.

[Mark Wilde:]

Okay. And last one for me Howard. Is it possible to just get a few thoughts about how you're thinking about acquisitions at the moment which areas you're focusing on and whether you've shifted focus at all over the last 12 to 18 months as you've settled into the CEO seat?

[Howard Coker:]

Yes. Mark I'd say, no really in a -- of course there's evolution over time. We've talked about the strategic planning review process that this team has been through over the last year or so. And our focus really is on what we've -- what I've stated from the very beginning is that we're going to focus on markets segments that we feel like we have a right to participate in that we have core competencies around. And that does get across the breadth of our portfolio some stronger than others but still active engaged. And we'll let you know as the next one comes through. But it's all around where we've got a right to be in that particular business be it a bolt-on or otherwise.

[Mark Wilde:]

Okay. Very good. Thanks. I will turn it over.

[Operator:]

Your next question is from the line of Ghansham Panjabi with Baird. Please go ahead.

[Ghansham Panjabi:]

Thanks everybody. Howard as you kind of think about previous economic cycles and how your Industrial segment has recovered is there anything that you think could be different with the current recovery cycle than maybe what you've seen in the past from a macro perspective? And also, how is the segment specifically positioned differently if at all this time around?

[Howard Coker:]

Thanks to the field effort coming out of last year's recession, if you want to call it that. The growth around the world is looking very positive. From a structural perspective, we think that the markets here in North America are in good shape and orderly, if I can say that. As we go as you say around the world down in South America, we've done a lot of work not only there but Europe and the US in terms of rationalizing our operations, rightsizing the business, positioning ourselves for declines when we see those, but certainly being able to take the opportunity when we see situations like we're seeing right now where it feels like things are really starting to heat up. So barring the inflation that, we're facing right now that, I think we should see us driving through in the second quarter, we feel like we're structurally in a very, very sound position to come out stronger than possibly we had in previous recoveries over history.

[Ghansham Panjabi:]

Okay. And then on the Consumer Packaging volumes, I mean, just stripping out the two extra selling days – or shipping days. The growth in rigids was there any pull-forward associated with that? And then also, I'm trying to get a sense maybe Julie, the margin increase in that segment year-over-year. Was that a function of mix, or was there anything else that kind of boosted the margins in the context of obviously higher inflationary costs et cetera?

[Howard Coker:]

Yeah, Ghansham, I'd say on the pull-forward no, I would not classify that that's what's going on right now at all. So we're seeing pretty stable, but much higher demand on a global basis.

[Julie Albrecht:]

And to your second question about the margin improvement, we did have some positive mix absolutely in the – from a – in that sales volume perspective really across that portfolio not in every business but in the larger businesses in consumer very nice mix. As well, just good productivity, right? When you think about the higher volumes we're able to leverage our fixed costs very effectively. That obviously, helps margins as well. And there was some pricing increase too. So it's really kind of across the board, but I would definitely attribute a lot of the margin improvement to very nice sales mix, as well as the strong volumes just helping drop-through better productivity to the bottom line.

[Ghansham Panjabi:]

So Julie just to clarify, so for Q2 which is seasonally I think stronger than 1Q for that segment so 13% operating margins in the first quarter. Do you think margins will be at that level higher or lower for the second quarter?

[Julie Albrecht:]

Our outlook right now because of the price/cost challenges that we've mentioned several times on this call, we don't expect the consumer margins to be quite at the 13%. So maybe 100 basis points or so below that. But – so again, we expect volumes to remain solid sequentially in the segment. But again, a bit of concern over like Rodger was mentioning resins and how we're able to pass-through those costs the timing of that, especially we expect that to be a slight headwind Q1 to Q2 for consumer.

[Ghansham Panjabi:]

Got it. Thanks so much.

[Operator:]

Your next question is from the line of Kyle White with Deutsche Bank. Please go ahead.

[Kyle White:]

Hi. Good morning. Thanks for taking my question. I actually wanted to ask about resin and follow-up on that. Is there a way to put a finer point on the impact of the lag in the pass-through of resin that was – that occurred this quarter? And then also, what you're expecting for next quarter in terms of the dollar amount?

[Rodger Fuller:]

Yeah. This is Rodger. Everybody is pointing at me, so I'll answer. I can't really give you a specific dollar amount. I think, if you look at the impact, Julie has mentioned the impact in Consumer. The other impact will be in the All Other category, with the removal of the US Display and business – Display and Packaging business that segment will be a 100% resin-based. So we are expecting some margin pressure in that segment as well. But I went through kind of where we saw the resins peaking. So again, I think the second quarter is our toughest quarter. But at this point, I can't put a specific dollar amount for you.

[Kyle White:]

That's fair. Just shifting gears to temperature-assured packaging in regards to the vaccine rollout. How is it going relative to your expectations? And does the current pause in one of the major vaccines has a major impact on you relative to the other vaccines out there?

[Rodger Fuller:]

Yeah, this is Rodger. It's going okay. If you think about again going back in a little bit of history, we supply about half of the packaging for the normal flu vaccine every year to a tune of US$20 million in sales or so. Over time, we expect the COVID vaccine to get into that normal level of routine and sales for us. Our closest relationships frankly are with J&J and AstraZeneca you just mentioned one of the headwinds there. So, yes, we've gotten off to a slow start. We did have impact in the first quarter with those -- some support areas for vaccines. We expect that to ramp up throughout the year as these vaccines get full approval by the FDA. They're being distributed by the government today primarily in larger packages. As it gets more into the retail environment and these last mile smaller packages, we expect the impact for Sonoco to improve at that point. So I would think it's a lot like the flu vaccine going forward for us in the second half of this year and into 2022.

[Kyle White:]

Got it. Thank you. I’ll turn it over and congrats on the quarter.

[Howard Coker:]

Thanks.

[Operator:]

Your next question is from the line of Salvator Tiano with Seaport Global. Please go ahead.

[Salvator Tiano:]

Yeah. Hi, Howard, Julie and Rodger. Firstly, a couple of questions on some items that are in your updated guidance. So if I understood correctly with the U.S. display and packaging sales that was $0.09 for just three quarters now. So we're talking about roughly a $0.15 raise in the full year number. So, firstly, with regard to just to the U.S. URB pricing, is it correct to assume based on what you said before that you're now incorporating even the third price hike that you announced in March in the guidance? And secondly, I wanted to ask about productivity here also, because I think your initial bridge from last quarter showed around $50 million, $55 million productivity improvements for the year, but you already delivered $22 million in a single quarter. So is that something that also is coming above what you expected earlier?

[Julie Albrecht:]

Yeah. Maybe I'll start with the productivity question and Howard and Rodger can clarify a little more on the pricing increases because there's so much activity there. You can have an extremely dynamic environment with price and cost changes. You're right. We've started out the year the $22 million operating profit delivered from productivity is a really, really solid start to what we were expecting for this year and what's in our guidance. I'd say embedded in our guidance is probably a slight increase in what we expected before. But I would say at the same time nothing really dramatic there. When I looked at it, we delivered about one-third of our gross productivity in the first quarter of our full year expectations. So a little ahead of what we expected but not dramatic. So -- but it's possible that we could land the year and I would hope we would land the year above our expectations. But I would say in the guidance nothing really material related to productivity above expectations but maybe slightly.

[Howard Coker:]

And Sal briefly on the URB, no, our last increase is not -- was not baked into guidance. It's effective I think April 26 or so. And you really should not be surprised if you see further increases as we progress through the quarter.

[Salvator Tiano:]

Just to clarify when you said further increase, you mean in URB price or in the guidance?

[Howard Coker:]

As talked before. But certainly URB with what we're seeing with -- as we've already talked about we're seeing everything we buy is inflating. And that's…

[Salvator Tiano:]

Okay. And just -- sorry go ahead.

[Howard Coker:]

No. You go ahead.

[Salvator Tiano:]

Just one last question on industrial paper packaging. Can you break down essentially how the legacy business tubes cores et cetera; it would have performed in terms of operating profitability, if you didn't have the fiber protective business that I think has been doing very well in the past few quarters?

[Howard Coker:]

No, we really don't look at it that way. Again we're happy with how both businesses performed and both are being impacted equally as it relates to the URB and OCC-type increases that we're seeing.

[Roger Schrum:]

Yeah, Sal this is Roger Schrum. I'll just remind you that that's an integrated product so it uses paper that's produced in our paper division. And then it's converted into the product the posts that we sell. So, it obviously makes sense to be in that particular segment, but there was already profitability for the paper that was being sold into that segment anyway. So, it's -- again it's not a material number to talk about.

[Julie Albrecht:]

And honestly that's a really nice business but it's really not that material quite frankly when you look at the entire Industrial Paper segment that we have. So, it wouldn't be a big needle mover anyway.

[Salvator Tiano:]

Thank you very much.

[Operator:]

Your next question is from the line of George Staphos with Bank of America. Please go ahead.

[George Staphos:]

Hi, guys. Thanks for taking the follow-on. I'll be quick. So, can you update us on Project Horizon, both in terms of where you stand relative to your prior guidepost? It sounds like you maybe are off to a little bit of slow start with the storms. So, where do you stand in terms of starting the stock prep area? And related what projects beyond this Project Horizon might you have down the pipe? Maybe you can share a little bit of color on in terms of your ability to use mixed waste and other types of furnish relative to OCC. Second question is just one more on composite cans. I think at one point in time you'd expected volume to be down for the year modestly because of the comparison the very strong comp from 2020 that you had. Is that still the case? Could you give us a number for the year? And then last question back maybe to Adam's question on guidance. So I think looking out this year if we were this was two quarters ago the ballpark was somewhere around $3.40-ish when we did the math on the divestitures and dilution. And you've done a good job obviously performing and raising the guidance. When you think about that variance from the $3.40 to $3.50 to $3.60 is it mostly mix? Is it mostly pricing? Is it volumes of productivity if you could just stack rank them? Thank you guys. Good luck in the quarter. Appreciate the time.

[Howard Coker:]

Great. Thanks George. On Horizon things are going extremely well. We are delayed by a quarter and that really relates to the actual machine conversion. Just to remind the project was a couple of things. One was of course to take the medium machine and convert it to the largest URB machine in North America. But the other portion was logistics and flow around the campus. And if you come down here now you'd be amazed at the amount of activity going on. So, we expect stock -- you mentioned stock prep specifically. I think that's expected to be up probably late October-ish sometime late third quarter early fourth quarter. That particular system will be set up to -- with the cleaning equipment to manage mixed waste. Not sure on what -- exactly what you meant on what other projects that we maybe see coming into the future. But kind of what I was talking through with -- in my prepared comments that we've got -- do we have a $100 million Project Horizon that's visible at this point in time. But the answer to that is what we do. But we're working on that. That may be some time to come before we actually pull the trigger on that but we've got just a multitude of projects that were represented through the examples I gave in my commentary. I'll just finish on Horizon by just saying that, yes, things are holding as we had expected with that one quarter delay. And to add to that, the medium market is good right now. So it does not impact the financial expectations that we have built into the models, the way the machine is performing right now. On cans, I would just ask Julie if she would give a couple of comments and move on to the --

[Julie Albrecht:]

Guidance, yes. Yes, George, you're right. Our volume expectations for the global paper containers business were originally to be down, kind of, that 2% to 3% range. And I think we are more bullish on that business now for the full year. We had the great start. And again we are optimistic about, again, these eat-at-home and different types of at-home cooking trends are going to remain more in place than maybe we did when we started the year. So, is the rigid paper container business flat year-over-year versus down 2% to 3%, I think, that would probably be our outlook at this point. And to your -- if I captured your question on the guidance, yes, I think, most of this again improvement that -- and the tightening, the slight raise of that midpoint really is volume mix-driven with some small contribution from productivity, like I was mentioning a few minutes ago. But I'd probably put it two-thirds in volume mix and a-third in productivity, just at a high level.

[George Staphos:]

That’s perfect. Thank you so much.

[Operator:]

Your next question is from the line of Adam Josephson with KeyBanc. Please go ahead.

[Adam Josephson:]

Yes. Thanks for taking my follow-up. Howard, just one strategic question. So you have Project Horizon, you're talking about these other projects. It seems as though the company is investing more in itself than perhaps it has in years past. And at the same time, you're pruning the portfolio by selling Display just to simplify the business mix, all of which suggests that you're focusing really on growing earnings internally, rather than relying on M&A to do so. But at the same time, obviously, Bloomberg mentioned that you were in the running for the Crown business. So can you just talk about how you're thinking about growing the company in the years to come? How much, just from internal investments, how much from M&A, what your preferences are, to the extent you have any, and why? Thank you.

[Howard Coker:]

Thanks, Adam. Yes, as we talk about investing in ourselves, we have recognized that there are a lot of opportunities to mine. And in your words, more profitability, but equally important is there's opportunities to mine growth. And -- so we think that, if you were to provide us that uses of cash, your best use is if you can grow with what you've got, top and bottom line, that's a wise use. But acquisitions are extremely important to us. They will be going forward. We are in the market at all times, looking at what opportunities may lay. And so, I can simply say that, you'll be hearing from us on both sides. You'll be hearing that -- acquisitions will not stop us from continuing to do what we think are the right things, as it relates to capital investments going into our base, as we broaden the portfolio or strengthen the base through acquisitions. So TBD, you guys will be the first to know when we pull the trigger.

[Adam Josephson:]

Thanks so much, Howard. Good luck on the quarter.

[Operator:]

Your final question is from the line of Mark Wilde with Bank of Montreal.

[Mark Wilde:]

Yes, just two quick ones. Howard can you just put a little more color on what you think has tightened the URB business up? I mean I'm hearing the one thing that might be coming into play is some URB mills actually running some containerboard where possible?

[Howard Coker:]

I have not heard that. Rodger do you? Have you?

[Rodger Fuller:]

Maybe just on the margin on the fringes Mark. It was tight. Really what tightened it up is coming out of pandemic everyone came into the reopening with very low inventories. I think you tack on top of that the storm impacts the demand for tissue and towel due to the pandemic just very low inventories across the system. So yes, there may be on fringes some of the mills running other products on potentially URB mills, but mostly it's just demand from the recovery.

[Howard Coker:]

Yes. And I'll also add. We didn't note this, but in our first quarter while we had the outages related to the storm we had two really significant shutdowns. The entire Hartsville complex was down for close to a week with planned downtime that we had pushed and pushed and pushed. And even as tight as we were, there was just no way that we could pass on the shutdown. So some of it self-inflicted as well at least in terms of our position and our performance for the quarter but we had to complete those downtimes.

[Mark Wilde:]

Okay. And then Howard just the other one. Just a quick update on your efforts to reengineer the composite can. I think a lot of this has been going on over in Europe. But also maybe with that just how important is that reengineering of the can in terms of the structures to the customers around the world, or is it just Europe?

[Howard Coker:]

I think Europe is where it really is. Here in North America, I think it's another way to talk about sustainability and our package. We've been collected and recycled through the steel stream for a long, long time and that continues today. So recent data I saw that maybe 90% of our cans were captured in our MRFs and other MRFs. So it's more of a perception issue, I think is what you're seeing in Europe. We're recycled within the carton stream there. But it's – what we're seeing is just right or wrong a perception around plastics and our customers or our future customers are coming to us saying look we'd like to get out of this format that we're in from a perception perspective. Maybe it is or is not recyclable but the customers perceive it as a our package as a paper as a more friendly alternative. So it's really Europe where we're seeing the benefit and where we're focusing most of our attention.

[Mark Wilde:]

Okay. That’s helpful. Thanks. Good luck in the second quarter and through the year.

[Howard Coker:]

Thanks.

[Operator:]

Ladies and gentlemen -- and I'm showing no further questions at this time. I would now like to turn the conference back to Roger for closing remarks.

[Roger Schrum:]

Okay. Thank you again, Angela. And again, let me thank everyone for joining us today. We certainly appreciate your interest in the company. And as always if you have further questions, please don't hesitate to contact us. Have a good day.

[Operator:]

Ladies and gentlemen this concludes today's conference call. Thank you for your participation. Have a wonderful day. You may all disconnect.