Greetings, and welcome to Reynolds Group First Quarter 2020 Results Conference Call. [Operator Instructions] Please note this conference call is being recorded..

It is now my pleasure to introduce your host for this call, Tom Degnan. Thank you. You may begin. .

Thank you, Rob. Good morning, everyone, and welcome. Today's call is a first for us. Every member of our team is dialing in from remote locations. So I hope it all goes smoothly..

John McGrath from Pactiv Foodservice and Food Merchandising. John Rooney, CEO of Evergreen, will be next and he will pass the call to Mike King of Graham Packaging. When Mike is done, he will then pass the call on to Allen Hugli, who will cover financial highlights..

The CEOs will cover their efforts to continue to safely manufacture and distribute their products and then they'll give more detail on the quarter. The virus will be covered by me and the CEOs. We shared our thinking and then executed our business continuity plans. As a result, you'll hear some of the same things from each of us.

Therefore, at the risk of being redundant, I hope you will get a better picture. Our most important objective here is the safety of our 21,000-plus employees. After safety, we want to take care of our customers..

One type of activity that has seen ramped-up efforts is raw material supply. We must have critical supplies on hand to meet our customers demand. This has meant holding, in some cases, more inventory than normal for critical supplies or single source supplies.

We're also holding, in some cases, more finished goods inventory, and this is at the request of customers. Closely tied to this is paying attention to our truck and rail transport suppliers..

In our plants, we're focusing on maximizing the production capacity of the products that have high demand and reducing the capacity of the products that have shown significantly reduced demand. We develop strategies to deal with absenteeism and downtime due to deep cleaning..

In terms of cost, each business has initiated hiring and travel freezes. Spending on advertising, marketing, professional fees and so on is considered to be limited to essential spending. We are reducing capital spending. The must-do projects are being done, but some of the planned projects that can be delayed will wait..

Now on to other matters. In February 2020, we distributed the Reynolds Consumer Products business just before its IPO. Reynolds Consumer Products is now shown as discontinued operation. Following the distribution of Reynolds and the sale of Closure Systems late last year, management has revised how it reviews operations.

What was previously disclosed as Pactiv has been now disaggregated and will be reported as Foodservice and Food Merchandising. All segments will continue to report to John McGrath..

In the quarter, we paid down $3.1 billion in debt..

Now the Q1 results. Revenue in Q1 2020 at $1.69 billion was 6% below 2019's first quarter revenue of $1.79 billion. EBITDA for 2020 Q1 of $264 million was essentially flat with 2019's $262 million..

And now I'll pass the call on to John McGrath. .

Thanks, Tom. Today I would like to start by extending my deepest gratitude to all of our employees who have worked incredibly hard to keep Pactiv running throughout the COVID-19 pandemic. More than ever, I'm proud to work alongside the people who make up this organization.

Our #1 priority has always been to keep our employees safe, and this has been and continues to be the foundation of all the decisions we make..

The highest measures of safety are enforced as we work to serve the many families relying upon our products to safely transport food and beverages in these challenging and unprecedented times. My deepest condolences and thoughts go out to those who are affected by the coronavirus and their loved ones..

I want to also extend sincere gratitude to medical staff and frontline workers, including those in essential businesses like ours who are working tirelessly to save lives and support the economy..

I will now take a moment to discuss what we have done from an operational standpoint in response to the virus. We have implemented rigorous deep cleaning processes in all of our facilities. Processes have been changed to enable physical distancing..

Our safety and operations teams analyzed and reduced potential touch points wherever possible, including door handles, time clocks and more. We are providing protective gear to all of our employees. We implemented frequent hand washing and sanitizing protocols as well as implementing temperature checks and verbal screenings with incoming workers..

In the event that employees have experienced COVID-19 symptoms, we are providing up to 14 days of paid sick leave, including for those who are self-isolating as a result of being in close contact with a COVID-19 patient.

Our hourly absentee policies have been amended to accommodate childcare and other family needs, and we were covering all COVID-19 testing fees as well as waiving co-pays for telemedicine health care visits..

All of our employees who are able have shifted to working remotely and we continue to provide support for them during the transition. We are also protecting our customers by quarantining any product we believe was produced and handled by an associate that tested positive for COVID-19..

Our employee assistance program has a wide variety of resources to help employees and their families navigate the changes they're experiencing as a result of COVID-19, including a new work environment, handling uncertainty, dealing with stress and anxiety, grieving, financial concerns and more.

Use of this program is entirely confidential, but some of our employees who have attended the real-time webinars say that they found the program to be helpful during this difficult time..

Our cross-functional business continuity planning team continues to proactively respond to the changing environment on a daily basis and assess risk levels, provide communications and recommend policy changes. As local, state and federal recommendations continue to evolve, we are implementing any new safety measure that is not already in place..

We are fortunate that the products produced at our facilities are considered essential in supporting people getting their food to their home via the supermarket or restaurant takeout delivery and that our 11,000 employees are able to keep their jobs and paychecks.

It is important that we are doing what we can to help give back to our local communities that have supported us..

We have donated food containers to many food banks and kitchens throughout the United States as they prepare food for those less fortunate and first responders. We have donated plastic sheets to a variety of companies that make face shields and are now making the shields ourselves.

We are also in the process of using existing underutilized equipment to make N95 type masks. We will get through this together..

Foodservice and Food Merchandising. Foodservice includes chain restaurants such as McDonald's and distributors such as Cisco that sell to independent restaurants. Food merchandising includes chain supermarkets such as Kroger, distributors such as Bunzl that sell to independent supermarkets, and food processors such as Tyson.

Included in this segment will be our Mexico business, our sales to Reynolds Consumer Products, as well as our film sheet and export businesses..

Let's start with Foodservice. In Q1 2020, Foodservice revenue decreased by 10% to $473 million. This decrease was driven by lower sales volume due to market contraction from the impact of the COVID-19 pandemic.

We also passed through raw material cost decreases to our contracted customers, as well as adjusting our non-contracted customer pricing downward to comprehend the lower material costs. Last 12 months' revenue decreased by 3% to $2.109 billion due to many of the same reasons already stated..

In Q1 2020, our adjusted EBITDA decreased 18% to $65 million. Excluding the impact of the change in lease accounting, adjusted EBITDA decreased by 21%. This decrease was primarily driven by the lower sales volume due to COVID-19.

Additionally, lower pricing to comprehend lower raw materials for both our contracted and non-contracted businesses as well as higher employee-related costs contributed to the decline. Of the $15 million EBITDA decline in the quarter, $13 million was in the month of March..

Last 12 months' adjusted EBITDA increased to $348 million. Excluding the impact of the change in lease accounting, last 12 months' adjusted EBITDA decreased by 1%. We expect our Foodservice business to continue to be impacted throughout the duration of COVID-19 shelter-in-place orders.

Most significantly impacted will be our hot and cold drink cup business as people stay home versus commuting to work, mirroring the softness in the quick-service restaurant channel..

Our takeout and delivery container business should improve as people continue to stay away from dine-in restaurants. Our sale to lodging, tourism, recreation, leisure, schools and universities and business and industry will all be down, partially offset by health care.

With the declining cup sales, we have repurposed the idled assets and are making products geared to takeout and food delivery..

Now let's turn to Food Merchandising. In Q1 2020, Food Merchandising revenue increased by 1% to $344 million. This increase was driven by more consumers getting their food from supermarkets versus restaurants due to COVID-19.

We provide packaging for the perimeter of the supermarket, fresh meat, dairy, produce, deli and bakery, as well as the center of the store in frozen and shelf-stable foods..

These increases were partially offset by lower demand from some large customers who had increased inventory levels in Q4 2019 as well as lower pricing due to pass-through of lower material costs. Last 12 months' revenue decreased by 2% to $1.392 billion..

Adjusted EBITDA increased 4% to $58 million. Excluding the change in lease accounting, adjusted EBITDA was flat. The results in the quarter were driven by lower raw materials, net of lower-cost pass-through to the customers, offset by higher manufacturing costs and higher employee-related costs..

Last 12 months' adjusted EBITDA increased by 4% to $243 million. When excluding the lease accounting change, last 12 months' EBITDA decreased by 1%..

Our Food Merchandising segment should benefit from COVID-19 as supermarket sales increase. Packaging for meat, eggs, produce and deli prepared foods will benefit, while in-store bakery packaging will decline as graduations and other seasonal celebrations will not occur..

The potential upsides we'll see in our Food Merchandising business will not offset the declines we will see in our Foodservice segment. We, therefore, expect to be significantly off the prior year in Q2, with recovery towards the end of the quarter and into Q3..

I don't know what the new normal will be, but people have to eat and food has to be packaged and we make food packaging. The volume of food consumed will not change, just the way it is consumed. Our ability to continue to repurpose equipment and adjust to evolving needs will ensure we are well positioned to capitalize on the new normal..

I'll be followed by John Rooney, who will discuss Evergreen results. .

about $10 million in price decreases primarily in our paper business and an eco offset of about $10 million and volume increases primarily in our North American packaging business. Our LTM revenue of $1.605 billion was likewise flat..

For EBITDA, excluding lease accounting, our 1Q 2020 EBITDA of $48 million is $2 million or 4% better than prior year. There were 3 primary drivers that, in summation, nearly offset each other.

One of 3 is the favorable input cost of $26 million, unfavorable operations of $12 million, and lastly, as mentioned in the revenue section, unfavorable pricing of about $10 million primarily in our paper business..

Excluding lease accounting, our LTM EBITDA is $40 million unfavorable, primarily driven by unfavorable operational performance in our 2 paper mills worth $38 million.

We've begun to move the needle favorably in paper mill productivity; meaning running well when equipment is available to run, and at times we run extremely well, but we need sustained improvement and reliability..

In terms of comments around COVID-19, I'd like to first make comments about employees and operations and then lastly about our customers. In employees and operations, we have remained fully operational during the COVID-19 pandemic and there has been no adverse impact to customers.

Today across our approximate 4,000 employees, we have 10 employees who have tested positive for COVID-19, which is 0.25% of our employee population. Of the 10 employees, 0 had been hospitalized, 5 have been released by the medical physicians and have returned to work, and the remaining 5 are recovering at home..

prior to venturing into our facilities, all employees and visitors are subject to body temperature measurement and completion of a COVID-19 risk assessment questionnaire. Anyone not near entry criteria is not permitted into our facilities. Additionally, all personnel must wear face masks 100% of the time while in our facilities..

We've been very purposeful in our business continuity plans, processes, targeted communications and reminders to follow CDC recommended guidelines, including social distancing, frequent and scheduled cleaning and disinfections throughout work areas and frequent hand washing..

We had a COVID-19 steering committee led by me that meets on a schedule basis every other day and more frequently as events come up. Additionally, we have a series of COVID-19 subcommittees that work across all aspects of the situation, including communications, positive reinforcement and adoption of improved processes and preventive practices.

We have a detailed response plan to methodically address all types of COVID-19 employee circumstances. This provides clarity and uniformity in our approach..

All facilities have business continuity plans proactively and purposely to manage actions during operations and customers if/when conditions change. Some of our facilities [indiscernible] and the proactive working relationship with new representatives has been very good.

The union district director has said he uses Evergreen as a model when talking with other employers regarding preventive measures..

Lastly in this section, we have not experienced any supply shortages from our vendors, including no shortage of personnel protective equipment and no shortages of masks. In fact, we were able to donate some masks to local medical providers..

In terms of customers, we continue to stay in close communication with our customers, and as mentioned, we've had 0 interruption in supply to our customers and we've had 0 interruption in supply from our vendors..

In terms of demand, some of our product lines have seen increases and other product lines have experienced decreases in demand. For example, plant-based dairy substitutes and specialty dairy in the retail channel are up, while school milk and printing paper demand are down..

If current trends continue throughout 2020, we anticipate the net impact of COVID-19 to be roughly an adverse 5% to our otherwise planned EBITDA. Again, this is provided current trend continues throughout the balance of the year..

That concludes my comments. I'd like to pass it over to Mike King. .

Thank you, John. I'm going to speak to you about the results for Graham Packaging first, and then I will jump into the COVID-19 activity within Graham Packaging and how it's impacting our business..

For the first quarter of 2020, our revenue of $478 million is $35 million or 7% lower than the same period in 2019. That decline in revenue was primarily driven by the decline in pricing due to lower resin costs, which we passed through to our customers, and contractual price movements.

There are some other smaller impacts to the decline coming from lower sales volume, unfavorable foreign currency, and then some strategic businesses which we've exited. For the last 12 months, our revenue decreased by 8% to $1.889 billion..

Shifting to EBITDA. For the first quarter of 2020, our adjusted EBITDA of $92 million excluding the change in lease accounting impacts is $5 million or 6% better than the first quarter of 2019. Including the impact of changes to lease accounting, our adjusted EBITDA is $100 million and is $5 million or 5% better than the same period in 2019.

The increase in EBITDA was primarily driven by lower operational cost and lower material input cost, partially offset by the decline in pricing due to our contractual price arrangements..

For the last 12 months, our adjusted EBITDA has increased by 8% to $375 million. We do exclude the impact of lease account -- or the changes to our lease accounting. The LTM adjusted EBITDA has increased by 1% to $343 million..

I'm going to shift now to speak to you about how the COVID-19 pandemic is impacting our business and what we've done similar to the other businesses to mitigate these risks and speak to you about what's going on around the different segments of Graham Packaging..

In order to provide an overview of how this pandemic is impacting Graham Packaging, I would like to cover with you the status of our operations, our supply chain and then, again, what we've done to protect our teams, our customers, and what we anticipate we will have -- what we'll experience in the foreseeable future..

To start, we are fully operational at this time, but we've had 25 positive cases in the quarter.

Across our worldwide plant network, we've experienced limited and short term plant shutdowns in order to thoroughly clean and disinfect the work areas and return to production in short period -- most of the time in short periods of time with no impact to our customers..

All of our plant personnel are required to wear face masks at all times, which are available and provided by the company. We continuously communicate and reinforce best practices in terms of social distancing. We're requiring employees to take their temperature 15 minutes prior to their shift.

We require frequent hand washing and any other PPE necessary to do their jobs..

As I've stated, we've had no shortage of supply to our customers and very early on took proactive steps to secure additional critical supplies and materials to ensure there would be no shortage that would impact our production and delivery of our essential products..

We communicate frequently and consistently with our customers. We have a dedicated team monitoring our supply chain and logistics to ensure no interruption of supply.

We've also supported many customers with bottles and technical help to aid in the support of hand sanitizer production for a number of critical care non-traditional channels, aiding in getting materials on the user's hands quickly..

We've also made donations of masks to various local first responders and medical personnel as we have the utmost respect and gratitude for these people and what they are doing to fight this pandemic..

While we have seen some increased cost as it relates to COVID pay for our workforce and the essential PPE and similar items, thus far we've been able to mitigate those cost increases with proactive cost reduction initiatives as outlined by Tom to keep us financially whole..

In terms of the markets we serve, we've experienced some increased demand in markets where you would expect to see, such as food, beverage, household cleaning products, as people are staying and eating at home, kids are out of school and there's an increased level of sanitation and cleansing..

That being said, we're also experiencing an offsetting decline in the automotive markets as people drive less and stores have cleared the shelf space for more essential products rather than oil and chemical products..

We began to see some impact of these volume declines. They started to occur in early March through now and they were there through the month of April. We expect this to be a continuation and we in the short term see this in the forecast as well..

Looking forward, the food, beverage and household markets are beginning to, what we'll call, stabilize and level off to what we've seen as a somewhat normal volume in demand, while we still continue to see automotive trends rebound anywhere from 60% to 70% off of our normal levels for the next few months.

This obviously has a negative impact on our operations since we've had to scale down in various ways to mitigate the financial impact of our lower volumes in automotive..

To close this out, we are full steam ahead in operations and we will continue to adapt as we look to get our people back to work. Those who have been working remotely since March, we will continue to work and adhere to government regulatory guidelines working safely from home..

With the continued decline in automotive volumes, we will see some negative financial impact in the short term, particularly as our other markets level off. We're taking proactive steps to contain the impact of these changes while being fiscally responsible to not put our future at risk as well..

With that, I'll hand the call over to Allen Hugli. Thank you. .

Thanks, Mike. So as Tom has touched on, there have been a few changes in the period under review and I shall try and give a quick summary of how these are reflected in the group's financial statement..

The Consumer business was distributed in February. The results for that business up to the date of distribution are reported as a discontinued operation in the P&L in both the current 3 month period and in the 2019 comparatives.

Similarly, a majority of our Closures business, which was sold in December of 2019, is also presented as a discontinued operation in the 2019 quarter..

During the quarter under review, what we previously reported as the Package segment has been disaggregated and we now separately report Foodservice and Food Merchandising. Our comparative numbers have been recast to reflect this change..

Moving on to the numbers. Reported revenue for the group for the quarter was approximately $1.7 billion, down 5% from last year. This was mainly due to lower selling prices, primarily as a result of passing through lower input costs and some volume declines..

On an LTM basis, revenue is $7 billion. Adjusted EBITDA from continuing operations for the quarter was essentially flat, up 1%. Pro forma adjusted EBITDA for the LTM period is $1.16 billion. A full reconciliation of adjusted EBITDA is attached as an appendix to this presentation..

Capital expenditure for the quarter was $113 million. During the quarter, we continued to focus on reducing our cost base and meeting customer requirements. Given recent market changes, all discretionary CapEx has been reviewed and reprioritized. My expectation is that the full year spend for continuing businesses will be down on last year.

We will continue to review this spend as market conditions evolve..

During the quarter, the group repaid approximately $3.2 billion of debt. We currently have approximately $1.5 billion of cash on hand..

I'll now hand it back to Tom. .

Thank you, Allen. And Rob, we can now take some Q&A, please. .

[Operator Instructions] Our first question comes from Sam McGovern with Credit Suisse. .

I was hoping you guys could talk a little bit about the cadence of demand over the last number of weeks.

How have we -- how have you guys seen volumes decline in the Foodservice business and how have you seen volumes improve in some of the other businesses? And have you seen any changes in any of the states that have subsequently reopened?.

So why don't we just go to each one of you 3 guys, starting with John McGrath. And then we'll go to John Rooney and then Mike King. .

Sure. So our Foodservice business, we are -- beginning probably mid-March through present, we've seen our demand for products decrease, as I alluded to, specifically cups. So these will be paper hot and cold cups and plastic cold cups.

And if you think about when most of those products get consumed, it's people driving to work, people going out from work to lunch. So as that activity has pretty much closed down, we're way off in our cup business..

However, for the month of May -- so April was significantly bad. We are coming back in May, and as we're starting to see some of states reopen, we are seeing the volume come back. So we would believe that April would be our trough and that we would continue to increase in the Foodservice business going forward..

We have seen an uptick in Foodservice in the demand for carry-out containers, both plastic and paper, as people who still want to eat restaurant food are getting takeout and delivery. But the offset -- the uptick in carry-out containers doesn't come close to offsetting the downside in cups.

So we've taken many of our large cup assets, our cup thermoformers, our cup -- the lines that produce our cups and we've converted them to run containers, where we continue to see the demand uptick. .

Okay. Got it.

And then in terms of what you guys are thinking as sort of a new separated business, how do you think about the proper amount of leverage on the pro forma business? Is the same amount of leverage that you were targeting for the total group appropriate, is lower leverage or are you more comfortable with higher leverage? How do you think about that? And then what are your plans for the cash that's sitting on the balance sheet?.

So Sam, you only got John McGrath's view on your first questions, and the other 2 guys can speak if you'd like. In terms of the last questions, I think Allen Hugli will address those. .

Yes, that would be great. I apologize. I didn't realize I guess on the other 2. .

That's okay.

So John Rooney, do you want to go ahead?.

Yes. Sure. So for Evergreen, in terms of the volume question, I'm going respond to it in terms of quarters, swings in the first quarter and then second quarter. In total for our first quarter, our volume was actually up, but only a tiny bit, less than 1%. And the story within that, though, is the different parts of our business.

Some are up a bit and some are down. The biggest swing we had in the quarter was that international packaging was down 10% and COVID-19 had hit there first. But that has begun to rebound, and it's still down, but it's down less. And I think it will be back to normal in about June.

So first quarter 2020 versus first Q 2019, we're up a bit, just less than 1%, with some minor plusses and minuses within it..

Thus far, for 2Q 2020 versus 2Q 2019, in total across all our various product lines were down 7% in total. And again, there's some puts and takes in there. And within our packaging business, both domestically and internationally it's down a bit, but within that some pieces are up and some are down, like school milk is down, but retail is up..

In totality, the biggest swing we had within -- our paper business is down, but it's so small -- on a percentage basis, but it's a smaller percent of our overall portfolio as compared to packaging. So that's it for me. And unless you've got a question, I'm going to pass it to Mike King for Graham. .

So for Graham Packaging, I'm also going to talk in terms of Q versus Q. And so Q1, our volumes were up slightly, similar to what John Rooney just stated for Evergreen. So we were up slightly at 1%. And that was primarily driven as a result of the buying in our food and our beverage business.

That did offset a bit of softening in the automotive markets, as I discussed earlier..

When you look into Q2 2020, we are seeing, as I mentioned, a normalization in our food and the beverage markets. In some cases, we're seeing a decline, specifically in our isotonics and our auto volumes. So parts of our beverage business and parts of our auto business while rebounding softly are well below normal trends for the spring..

And so we're seeing anywhere from 85% to 90% of what we would expect to be our normal run rates for May and June. So we're anticipating kind of about 85% to 90% of the volume for Q2 that we would normally have expected across the business, primarily driven by auto being down and the buying on the beverage business not being as strong as it was in Q1.

.

Okay.

Allen, you want to address the leverage question?.

Sure. So I think our leverage target, we're staying where we were before, 4.5x. I think it's a number that we are comfortable with. That remains a target..

With respect to the use of cash, in the short term we're going to continue to carry the cash until we get more clarity on what's going on in the world. Longer term -- we've got no short-term maturities, but we do have the floating rate notes that are due middle of next year. That's approximately $750 million.

So I think that's probably a good use for them there. .

Our next question comes from [ Roger Spitz ], a private investor. .

Evergreen gave 2020 EBITDA impact from COVID-19, if things kept going on as they had been -- down 5%, if I heard that correctly.

If you gave that guidance, would it be possible to give similar guidance for each of Foodservice, Food Merchandise and Graham Packaging?.

I think we're reluctant because we don't know what's going to happen. But I think we'll ask Mike and John McGrath to try and give you something to take. But again, we don't really know.

So why don't you go first, Mike?.

So if things stayed where they were and we use Q2 as an indicator, we could be down 3% or 4% overall volume and units for the year. So I mean how that impacts the business obviously and how we react would drive the financial impacts. And we look to mitigate that.

We have no -- there's no indicator that, that softness will continue, but nobody does -- nobody really knows. So that's kind of how we're looking at our forecast. .

Yes. And I guess from a Pactiv standpoint, very hard to predict. If things were to stay the way they are, it could be 15% down. But already in May, we're starting to see some really good things happening as the shelter-in-place orders get lifted and people return back to normal. So again, call it 15% if nothing at all were to change.

But things are changing, things are evolving, but very hard to speculate at this point, though. .

Can you provide at some point, if you don't have it at hand, on the sales and EBITDA historically for the new Foodservice and Food Merchandising for the quarters of Q2, Q3, Q4 '19 and perhaps a few years of annuals. You may not have it at hand, but maybe you can provide it to us at some point. .

Sure. I think Allen and I spoke about that, and I think he's going to be posting something when he's got it correct. .

That's great.

And can you give an update now that the IPO was completed on your March 31 RP capacity, perhaps both -- break it out -- or combine the cumulative credit plus any available basket carve-outs that you have?.

Allen?.

The cumulative credit is approximately $1.8 billion, just a bit over. And I'm not sure which other baskets you'd be talking about. There's a general basket, there's a variety of baskets. But the cumulative credit is the $1.8 billion. .

$1.8 billion is the total, including baskets. Got it. And lastly, do you have pro forma Q2 '19 sales and EBITDA? I suspect we can get very close, but it sounds like there's been some slight potential movements. I don't know if you have that at hand. .

Why don't we post it, if that's acceptable to you? I've got a rough number in front of me, which is probably a couple of million dollars out.

But can we post that, please?.

Sure. Absolutely. .

Our next question comes from James Finnerty with Citigroup. .

So on the comments you made on the cash balance and the floating rate notes, should we assume then that on a total debt basis you're looking to take total debt down over the next -- over the near term?.

Allen?.

I think at some point -- I don't know what you defined as near term. When we get clarity on the world, then -- obviously, we don't need to have $1.5 billion of cash in what used to be a normal world. .

Okay.

And then on Graham Packaging, just to make sure I understood it, the comments of 85% to 90%, that's for 2Q and that's for the entire segment, right? Is that the way to think about it?.

That's right. That's in that unit's -- net unit figure for Q2. .

That's volumes. Okay. And then on Roger's question to make sure I understood the answer.

The 3% to 4% if it continues, was that in terms of volumes or in terms of EBITDA?.

That was in terms of EBITDA. .

EBITDA. And then the -- and the 15% as well. .

Our next question comes from Mack Fuller with GSO Capital Partners. .

A lot of my questions were answered. Just a couple of others. If I'm reading the -- your release correctly, raw materials in aggregate, it looks like it was a benefit. First, can you confirm that? And is the outlook that it will continue to be a benefit? I'm often not sure how the timing works with your capacities. .

Well, I think we can -- each -- again, each of the CEOs can talk about the quarter. But I always feel in terms of going forward -- I mean, who knows. So I'm uncomfortable really with saying what the expectations are, say, for resin for the rest of the year. But you guys want to take a shot at it? John, you can -- John McGrath, you could start. .

Yes. So raw materials have dropped. We have not seen the benefit yet. As our volumes are lower, we have not seen the lower costs flow through our P&L. We also do some hedging. We hedge the lag period on polystyrene, polyethylene and PET. So we do, though, anticipate seeing a benefit in the second half of the year, if things stay the way they are. .

John Rooney?.

For Evergreen, input cost thus far as compared to prior year has been a friend. But last year, we got whacked extremely heavily due to input cost for fiber, more specifically wood. It was a one in a lifetime event and that has bounced back as expected. So wood has been normalized and that's a huge swing for us.

There's some other smaller favorables, but the story is positively wood has moved back to normal. And that's it for us. .

Okay.

Mike?.

Yes. For Graham Packaging, we did see a benefit in Q1, approximately $8 million, driven by lower resin. There are some offsets to that due to lag because resin prices have dropped. We do pass resin through to customer. So there's a lag there. As far as the rest of the year goes, it's tough to say in this environment what resin is going to do.

So it's really tough to say that, that benefit will continue or not. .

Got it. And then just -- I think I got the big picture with regard to the Graham in terms of autos. It sound like that the -- if I heard you correctly, the decline in auto is going to offset what you've seen in food and bev especially as that's moderating.

Just for my record, how big is auto as part of the volume mix?.

Yes. So automotive is about in terms of volumes -- [ Chris ], you may want to help me on that one. I can tell in terms of revenue, it's about 1/4 of our business and it's one of the -- in terms of mix, it's one of our most profitable sectors.

So a unit in automotive, you should think about, is a greater impact to the business unfavorably than it would be any of the other segments..

So our beverage business -- well, I may just want to clarify something you said. Q1, we were fairly flat to slightly up 1% given the increase in food and beverage. We were down nearly 30% in Q1 in automotive, as low as 50% percent in one month.

And that softness, while it remains in that 70% to 75% of normal demand, we do not anticipate the same kind of offset in Q2. All the other businesses are kind of normalizing, so there is no offset. .

Okay.

And similarly on the Evergreen side, it sounds like Evergreen printing paper is a lot smaller with -- just for my record, how big is that as part of your mix?.

What's the question you're asking, how big paper is as a percent of our total?.

Yes, for Evergreen. .

So he's asking if you think about your carton and your board, cup stock, all those things.

Then you've got your uncoated and -- coated groundwood and uncoated free sheet, those two elements, what kind of percentage are those?.

So I'll give you a general answer and I'll dig through some papers. But it's less than 30% of our business and I'd have to dig through to find the percentage itself. But to give you a flavor, it's less than 30%. It's going to be probably more than 20% in terms of revenue. But that's it. .

That's all paper, right, including board [ at the top ]? Okay. .

I'm not including board in that, no. .

No, that's the uncoated free sheet and coated groundwood, which is magazine and envelope paper. .

[Operator Instructions] Our next question comes from Brian Lalli with Barclays Bank. .

Just a couple from me. You mentioned a few different times around looking at your capital spending plans.

Is there a number that you were thinking about and is now lower by 'x' dollars? Like what's maybe the right thing to make sure we have in our models correctly?.

So Allen, I don't have the number in my head.

Do you know what the expectation is for the year? Allen? Hello?.

Allen, if you're muted, please un-mute yourself. .

Well, let me take a shot and just let you know -- the number is not really that important. The stuff that we're putting off are the kinds of intelligent factory efforts, the costs for the professional services to go in and -- and these are all efforts to standardize your manufacturing processes and lower your costs and raise your quality.

They're not absolutely required to get done immediately, so -- and they're expensive..

So what we've decided to do is push them off a bit. I think we can probably ask Allen to post a estimated capital number for 2020. But anything that is safety related is mandated for environmental reasons, stay in business-type stuff. And the really fast payback projects, we're still going ahead and spending. .

Okay. Yes, of course. That's great. Yes, I appreciate. Obviously, a lot of companies as we're going through this are pulling back a bit to help insulate the cash balance. I was curious what that number would be. So yes, if you post it, that would be awesome..

I guess the second one would be -- I know you mentioned particularly around taxes some deferrals related to the CARES Act.

Are there any other items that are going to benefit you guys from a cash flow standpoint, a deferral standpoint, but again maybe ultimately flowing into cash from the CARES Act and from all the different things that the government is doing to help support employees and companies through this, if there's a way to quantify some of those?.

Allen, have you come back?.

I'm back. Yes, I have. Sorry. I'm back. .

Yes.

Can you answer that?.

Yes, I can. So yes, we are having some -- pieces of the payroll tax are being deferred in the year. And that's just a deferral, so we will have to pay that money. But it's about -- $44 million, I think from memory, this year will be deferred into next year..

The other big item, though, is income tax. So the CARES Act has allowed us to deduct more interest both for 2020 and 2019. So we have applied for a refund, let's call it $45 million, as it relates to 2019 year. I don't know when we'll get that. We should be getting it in the next 6 weeks is my understanding, but we have applied for that refund.

And we will be paying less provisional payments for the 2020 tax year. Those are the 2 main items -- or the 3 main items. .

And in terms of the CapEx for this year, can you post the number, an estimate?.

We put a number of $475 million into the quarterly report. I'm sure you've already touched on this, Tom. And that's just being reviewed regularly. But $475 million is what we put into the document. .

Yes. So what Allen is referring to is we -- at the beginning year, everybody has a wish list, but the projects get approved project by project in the course of the year or not approved.

So that may be a target number, but it could come in less, or if something pops up that we really feel we need to do that wasn't in that list of projects, it might be something more. .

Got it. Okay. Yes. And I apologize. I missed the $475 million in the quarterly report.

And I guess maybe just a last one in summation of all this I guess, Tom, around -- the expectation given the uncertainty -- and I appreciate that it's hard to forecast everything, but is the hope still that you guys can be free cash flow positive for the year given all the moving pieces? Again, I know it's difficult, but you're starting to see some positive signs.

What would maybe be the hope from a free cash flow standpoint?.

Well, I mean that's certainly a goal. But see, I'm not -- I've heard comments of seeing some positive things. We're way, way early in this piece. We are so dependent on restaurant trays and things like that. Who knows when those -- when that sector is going to open, what the social distancing impact on those facilities will be.

And one of the real unknowns is with everybody eating so many meals at home, how much of that is going to stick and how much will be people going back to restaurants in a more traditional frequency. And all that's completely unknown. So I mean I would be just taking a shot in the dark and I have no idea whether I'd be accurate. .

We have reached the end of the question-and-answer session. Excuse me, someone jumped into queue. Our next question comes from Travis Edwards with Goldman Sachs. .

I actually have 2 quick questions.

I appreciate that details were a little bit limited, but was just wondering as a follow up of sorts for your restaurant exposure, do you have an estimate for the consolidated business on what your exposure is to, I guess you could call it, on-premise consumption versus off-premise consumption?.

John, do you -- can you take a shot at that? Or is that something we know that well?.

Yes. So Mike -- Graham might have to help me out on this. So you're looking for on-premise.

If I just look at our Foodservice segment and exclude that from Food Merchandising, which is supermarkets -- so just within our Foodservice segment, how much is on-premise versus quick service or drive-through or carryout? Is that question?.

Yes. Sure. That's appropriate. .

Yes. So look, any dine-in restaurant, for the most part, they're not using a lot of disposables except when somebody is done with their meal and they want a go-box if they can't finish what they're eating. So we do big business with dine-in restaurants there. Or some of the fast casual like a Panera Bread kind of a restaurant.

They still use disposables even though it's a dine-in environment. So I would say the split in Foodservice is probably maybe 70% off-premise or drive-through or carryout and 30% dine-in..

But that's just restaurants. The other piece that you need to comprehend is what I'll call the non-commercial foodservice. So things like stadiums. If there's not going to be any major league baseball fans, we're not selling a lot of plastic cups, people aren't drinking a lot of beer at the stadium. Same with Disney. Disney is a big customer.

If Disney shut down for a period of time, we don't get any of the disposables there. But as more and more people, unfortunately, go into hospitals, then we benefit..

So our split commercial versus noncommercial is probably -- it's probably 70%-30% commercial versus a noncommercial. So the 30%, the noncommercial, which again the stadiums and the theme parks and that kind of stuff, hotels and -- it all depends on really when that comes back.

When business -- when life gets back to normal and people start doing things they used to do, that business will, in turn, pick up. But again -- so -- of just the restaurants, it's probably -- 30% would be our business at dine-in. .

Got it. That's really helpful. I appreciate you walking through that.

My last question would just be, with the business evolving now that RCP is divested, Closures is gone, just thinking about capital allocations, what is sort of an appropriate level of cash just through the cycle would be appropriate to keep it on the balance sheet? I know you have $1.5 billion now. Obviously, you don't need that much.

But as you're thinking about just kind of minimum cash needs on the balance sheet, where do you guys come out?.

Allen, you want to handle that?.

Sure. Listen, I think we could run the business with a couple of hundred million dollars quite comfortably. I don't see [indiscernible] with just running with a couple of hundred million dollars. .

We have reached the end of the question-and-answer session. At this time, I'd like to turn the call back over to Tom Degnan for closing comments. .

Okay. Well, thank you, Rob, and thank you, everybody, for calling in. And I hope everybody stays healthy. Goodbye. .

This concludes today's conference. You may disconnect your lines at this time. And we thank you for your participation..