Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Pactiv Evergreen, Inc. Fourth Quarter and Fiscal Year 2020 Earnings Conference Call. [Operator Instructions].

As a reminder, this conference is being recorded. I will now turn the call over to Pactiv Evergreen. .

Thank you, operator. Before we begin, please visit the Events section of the company's Investor Relations website at www.pactivevergreen.com, and access the company's supplemental earnings presentation. Management's remarks today should be heard in tandem with reviewing this presentation. .

Before we begin our formal remarks, I need to remind everyone that our discussions today will include forward-looking statements. These forward-looking statements are not guarantees of future performance and therefore, you should not put undue reliance on them.

These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. We refer all of you to our recent SEC filings for a more detailed discussion of the risks that could impact our future operating results and financial condition..

Lastly, during today's call, we will discuss non-GAAP financial measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with GAAP.

And reconciliation to comparable GAAP measures are available in our earnings release..

On the call today, we have John McGrath, Chief Executive Officer; and Michael Ragen, Chief Operating Officer and Chief Financial Officer. With that, let me turn the call over to John McGrath.

John?.

Good morning, and welcome to the Q4 2020 Pactiv Evergreen Earnings Call. This is John McGrath, CEO of Pactiv Evergreen. Today, both myself and Mike Ragen, our CFO and COO, will present. .

Before we begin, I'd like to make a few comments. I continue to be very proud of the 14,600 Pactiv Evergreen employees that have kept this company functioning throughout the COVID-19 pandemic. .

Despite significant challenges, we have managed to keep our plants and warehouses operational while ensuring the safety of our employees. We are seeing a reduction in the number of daily positive cases company-wide as well as the number of employees out with COVID-related illnesses.

We are working with states and local municipalities to ensure that when vaccines are available, we offer them to our workforce. We are optimistic that over the next several months, our operations will continue to stabilize..

Please turn to Slide 3. During this presentation, we will discuss key takeaways and Q4 and full year 2020 highlights; a business update; our Q4 and full year 2020 financial performance for continuing operations; and our 2021 outlook. We will conclude with questions and answers..

Please now turn to Slide 5. As an overarching theme for today, as the country reopens and mobility increases, Pactiv Evergreen is best positioned to benefit. There are 6 key takeaways from today's presentation. We successfully completed our IPO and debt refinancing transactions.

Our 2020 adjusted EBITDA of $615 million was at expectations despite the ongoing pandemic. Our strategic investment program is on track from both a spend and a benefit perspective. COVID continued to affect our business resulting in a $178 million impact in 2020.

This was partially offset by our strategic investment program, procurement and SG&A savings and other items totaling $102 million, resulting in a $76 million shortfall to 2019. .

We have initiated a comprehensive Beverage Merchandising review as well as our next-generation Pactiv Evergreen waste elimination program. Our net pension obligation on PEPP, our largest pension plan, reduced from $654 million in 2019 to $439 million, a $215 million reduction. .

And finally, from an outlook perspective, we are expecting 2021 full year adjusted EBITDA to be between $700 million and $715 million as COVID-19 continues to impact the business. Additionally, we expect Q1 adjusted EBITDA to be between $110 million and $120 million, driven mainly by COVID-19 and mill outage timing.

These results exclude any onetime impacts caused by the recent deep freeze in the southwest and southeast..

Please now turn to Slide 6. Now let's move to Q4 2020 highlights. Net revenue of $1.175 billion was down 10% from Q4 2019 due to the ongoing impacts of COVID-19 as well as lower pricing due to contractual raw material pass-throughs. Net income from continuing operations was $18 million, and earnings per share from continuing operations was $0.10.

Adjusted EBITDA of $170 million for the quarter was down slightly from Q4 of 2019 due to both commercial and operational COVID-19 impacts. These results were offset by favorable raw material and employee costs. .

Free cash flow, defined as adjusted EBITDA less CapEx, declined to $82 million in Q4, driven by higher CapEx versus prior year. And finally, our strategic investment program is on track and delivered $20 million of benefits in Q4. .

Please turn to Slide 7. Now let's look at full year 2020 results. Net revenue of $4.689 billion was down 10% versus full year 2019 due to the impacts of COVID-19 and lower pricing from raw material pass-throughs.

Adjusted EBITDA of $615 million was off of 2019 due to COVID volume impacts, lower production volumes, plant-related corporate costs and mill outages. These events were offset by favorable raw material pricing and lower employee costs.

Free cash flow of $333 million, as defined by adjusted EBITDA less CapEx, was down versus prior year due to lower 2020 adjusted EBITDA. And our strategic investment program is on track and delivered $65 million of benefit in 2020. Since the program's inception, the strategic investment program has delivered $121 million of benefit. .

Please now turn to Slide 9. As we have previously discussed, we have many significant EBITDA growth drivers that we expect will deliver benefits in 2021 and beyond. As the overall economy begins to rebound and COVID subsides, we should realize significant volume upside and decreasing operational costs.

In our Foodservice business, volume will improve as people return to pre-COVID activities and food and beverage consumption patterns resume, such as stopping to get coffee at Starbucks on the morning commute. .

Both our commercial and noncommercial segments will see an uplift with school reopenings driving growth in both Foodservice and beverage merchandise. The incremental costs associated with operating during COVID should also decline. .

COVID-19 has changed where, when and how people consume food and beverages. We believe the shift to online ordering, delivery and takeout will continue post-COVID, which bodes well for us. We have invested in incremental food container capacity and repurposed underutilized assets to ensure we can meet these demand shifts.

As sustainability continues to drive purchase decisions, we are well positioned to benefit. Our extensive product portfolio allows customers to choose packaging based on their sustainability goals, costs, appearance and functionality.

We continue to expand our EarthChoice line of sustainable products and continue to look for opportunities to address unmet market needs. And finally, we have several defined cost reduction initiatives that will continue to contribute to EBITDA growth. In summary, there are many drivers of EBITDA growth..

Please now turn to Slide 10. Product and material innovation will continue to be a big focus for Pactiv Evergreen going forward. We make our products out of 14 different fiber, metal and resin-based materials giving us the ability to sell the customer what they want, not what we have.

Industry trends will continue to drive innovation as e-commerce, delivery, food safety and sustainability all play key roles in shaping packaging design and functionality. We are well positioned to capitalize on these trends with our extensive in-house product and material development capabilities..

We have included on this slide a case study that highlights our continued efforts to drive sustainable new product introductions. From Q1 2020 through the end of Q1 2021, we will have introduced 94 new EarthChoice products made from 6 different sustainable substrates. These products align with today's customer preferences for alternate materials.

We expect substantial growth from these and other new products introductions. .

Please now turn to Slide 11. We continue to drive towards ESG excellence through our entire operation. The areas we are focused on are protecting our planet's resources, delivering sustainable products to our customers, valuing our people and our communities and promoting effective governance.

Between 2015 and 2019, we decreased our greenhouse gas emissions by 10%. We also were recognized last year by the American Forest and Paper Association with the 2020 Sustainable Forest Management Award.

We are currently in the process of launching 94 new sustainable products made from 6 different sustainable materials, all of which will be in the market by Q1 2021..

Safety continues to be our #1 area of focus. And in 2020, we were 3x better than industry benchmarks. And from a governance standpoint, we have a majority independent, diverse Board of Directors. .

Please now turn to Slide 12. We have several significant improvement initiatives in 2021. Our strategic investment program has delivered $121 million and is on track from a cost, benefit and timing standpoint. We have kicked off a comprehensive review of our Beverage Merchandising business.

This review will include our operational improvement program that is focused on returning our plans to the productivity levels previously demonstrated, a thorough product offering review in which we're evaluating the various products we make and sell, and will determine the optimum product portfolio..

Our previously discussed commercial integration program, in which we have identified numerous opportunities to utilize paper or board for new Foodservice and Food Merchandising products. These projects are in various stages in their evolution.

The next-generation Pactiv Evergreen waste elimination program will examine numerous facets of our business to determine the optimal organizational structure and operating models. We will also proceed with the next phase of our supply chain optimization program, as well as the complete review of all direct and indirect costs.

Additionally, we have other operating and cost initiatives around staffing, price management and efficiencies as well as ongoing plant and warehouse initiatives to offset inflation. We will update on the progress and results of these programs in subsequent calls. .

I will now turn it over to Mike Ragen for a detailed financial review. .

Thanks, John. Moving to Slide 14. Looking at our fourth quarter 2020 financial performance. Net revenue was $1.175 billion versus $1.303 billion in the same period last year, a decline of 10%. The decline was due to the impact of the COVID-19 pandemic and lower pricing, mainly due to lower raw material costs passed through to customers..

Adjusted EBITDA was $170 million versus $173 million in the same period last year, a decline of 2%. This was due to lower volume and higher manufacturing costs, offset by favorable raw material and employee costs. One segment was up and 2 were down year-on-year, but the overall adjusted EBITDA result is testament to the resilience of the business..

Free cash flow, defined as adjusted EBITDA less CapEx, was unfavorable to same period last year due to higher capital spend. Our fourth quarter 2020 results continue our strong recovery from COVID-19 lows in Q2 2020 with COVID-19-related headwinds offset by strong underlying business performance. .

Moving to Slide 15 and a deeper dive by segment for Q4. Our Foodservice segment saw net revenues down 13% versus same period last year due to the impact of COVID-19 on volumes and lower pricing due to pass-through of lower raw material costs to customers.

Adjusted EBITDA for the segment was down 4% versus same period last year due to lower sales volume, partially offset by lower raw material costs. And adjusted EBITDA margin improved from 14% to 15% this quarter versus same period last year. .

Our Food Merchandising segment saw net revenues flat to prior year, driven by favorable volume, offset by lower pricing due to raw material price pass-through and mix. Adjusted EBITDA was up 6% on favorable material costs. Adjusted EBITDA margin improved from 18% to 19% this quarter versus same period last year..

Our Beverage Merchandising segment saw net revenues down 13% versus same period last year due to the impact of COVID-19. Adjusted EBITDA for the segment was down 33% versus same period last year due to lower revenue and higher production costs, partially offset by lower raw material costs..

As mentioned in our last call, we had higher production costs at our Canton, North Carolina mill due to the fire that occurred in our mill outage. Adjusted EBITDA margin declined from 13% to 10% this quarter versus same period last year. .

Moving to Slide 16 and our full year 2020 financial performance. Net revenue was $4.689 billion versus $5.191 billion in the same period last year, a decline of 10%. The decline was due to the impact of the COVID-19 pandemic and lower pricing, mainly due to lower raw material costs passed through to customers.

Adjusted EBITDA was $615 million versus $691 million in the same period last year, a decline of 11%. This was due to lower volume and higher manufacturing costs, offset by favorable raw material and employee costs. Free cash flow, defined as adjusted EBITDA less CapEx, was unfavorable to same period last year due to lower adjusted EBITDA.

In summary, we had a good year considering the major headwinds from COVID-19 and are well positioned to benefit as mobility increases. .

Moving to Slide 17 and a deeper dive by segment for full year 2020. Our Foodservice segment saw net revenues down 16% versus prior year due to the impact of COVID-19 on volumes and lower pricing due to pass-through of lower raw material costs to customers.

Adjusted EBITDA for the segment was down 28% versus prior year due to lower sales volume and higher manufacturing costs, partially offset by favorable freight costs.

It should be noted that $84 million of the $95 million decline in Foodservice adjusted EBITDA for the year was in the first 2 quarters of 2020, following the onset of the COVID-19 pandemic. The quick reaction and mitigation actions of our team quickly put us into a stronger position. Adjusted EBITDA margin declined from 16% to 13% in 2020 versus 2019.

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Our Food Merchandising segment saw net revenues up 1% to prior year, driven by increased pricing, partially offset by unfavorable FX impacts. Adjusted EBITDA was up 13% on favorable material costs and higher pricing. And adjusted EBITDA margin improved from 16% to 18% in 2020 versus 2019. .

Our Beverage Merchandising segment saw net revenues down 9% versus prior year due to the impact of COVID-19 on volume and price.

Adjusted EBITDA for the segment was down 24% versus prior year due to higher manufacturing costs due to planned mill outages and production inefficiencies and lower pricing and sales volume, partially offset by lower raw material costs. Adjusted EBITDA margin declined from 12% to 10% in 2020 versus 2019. .

Moving to Slide 18. Here, we estimate the impact of COVID-19 to our business for both Q4 and full year 2020. Our Foodservice and Beverage Merchandising segments have been hit hard by the impact of COVID-19 with reductions in sales revenue, operating cost increases and delayed in mill outage timing in our Beverage Merchandising segment.

For full year 2020, we estimate the impact to Pactiv Evergreen as a reduction in revenue of $400 million and adjusted EBITDA reduction of $178 million. As we have discussed previously, we reacted quickly to mitigate the impact of the company, introducing cost savings initiatives and driving the ongoing benefits from our strategic investment program..

Whilst COVID-19 impacted our adjusted EBITDA by $178 million, our efforts to mitigate the effects of COVID-19 generated $102 million of offsets, reducing our year-on-year adjusted EBITDA decline to $76 million. We are well set to continue to see benefits from our cost reduction initiatives and to get back the impact of COVID-19 as mobility increases.

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Moving to Slide 19.

Our Strategic Investment Program is a 4-year $661 million program that commenced in 2018 and focuses on growth CapEx for capacity expansion and the launch of sustainable products, productivity CapEx, most notably our automation, integrated supply chain, factory asset intelligence and other cost-saving initiatives and onetime equipment reliability and facilities improvements.

We continue to invest in our strategic investment program, having, to date, spent $484 million of the $661 million total program spend, and we will continue to invest through 2021. We expect to see 2 to 2.5-year annualized benefits from the program, having, to date, realized $121 million of annualized adjusted EBITDA benefit to date.

To be clear, we look at the annualized adjusted EBITDA benefit from a 2-year payback program as half of the investment, with a substantial benefit to be realized from our strategic investment program. .

Moving to Slide 21. Looking at our outlook for 2021, the ultimate impact of the COVID-19 pandemic to Pactiv Evergreen remains uncertain. In our forecast, we have made certain assumptions regarding a second half recovery of Foodservice and Beverage Merchandising revenues that are dependent upon increased mobility and may not eventuate.

We have been neither conservative nor aggressive in these assumptions. For full year 2021, we expect adjusted EBITDA between $700 million and $715 million.

Our key focus areas will be revenue recovery in Foodservice and Beverage Merchandising, recovery of raw material commodity prices, our strategic investment program and other key initiatives outlined earlier by John and operations improvement..

We are assessing the impact of the following at this time, the ongoing effect of COVID-19 and the deep freeze in the U.S. south. Any estimates that we are providing today exclude the onetime impact of cost increases due to the deep freeze, which we will clearly articulate in future earnings calls.

At this point, the onetime operational cost impacts to the business in February could potentially be $25 million to $30 million or more..

Finally, whilst we will not normally provide quarterly guidance, at this point, we feel it is prudent to provide guidance for Q1 2021. We expect Q1 2021 adjusted EBITDA to be between $110 million and $120 million, with the key drivers of variance to last year being the ongoing effect of the COVID-19 pandemic and timing of a mill outage.

As mentioned before, this is before any impact from the deep freeze in the U.S. south..

Thank you for your time. As an appendix to this document, we have included Q4 and full year 2020 revenue and adjusted EBITDA bridges versus same period last year, consolidated statements of income/loss and a reconciliation of net income/loss to adjusted EBITDA and free cash flow. I'll now pass it back to John for closing comments. .

Thanks, Mike. This concludes our presentation. We will now open the line for questions. .

[Operator Instructions] Our first question has come from the line of Ghansham Panjabi with Baird. .

So maybe you can just give us a sense as to how to think about the progression in EBITDA on a quarterly basis, apart from what you've guided for 1Q. I mean, there's just so much going on with higher costs and volume variability by segment, especially Foodservice.

How do you see this summing just thinking about the progression? Maybe second half versus first half, I think you're betting some sort of improvement from a mobility standpoint. Just provide some parameters as it relates to volumes and also the EBITDA progression, please. .

Sure.

Mike, do you want to start, and then I'll join in?.

Yes, sure. So I'll just -- why don't I address Q1 first and then I'll talk a little bit to volumes after that. So for Q1, our expectations, and this is all before the impact of the deep freeze. Our expectations are that Foodservice and Food Merchandising segments, they should be a little ahead of prior year in terms of adjusted EBITDA.

In terms of volumes, they'll both be -- like Foodservice versus 2020 will be down by around 7% -- 7% to 8%, and Beverage Merchandising will be down a couple of percent. Sorry, Food Merchandising down a couple of percent. .

So the impact in Q1 to adjusted EBITDA is all around the Beverage Merchandising segment. And so whilst COVID is affecting the volumes and revenues for Foodservice and Food Merchandising. In terms of Beverage Merchandising, the total amount that will be down year-on-year is all due to Beverage Merchandising and for 4 key pieces to that.

The first one is price and volume. And we discussed those a lot. And that's all impacts due to COVID-19. The second one is resin. Resin has increased substantially, as we all know, and that won't be recovered in the quarter. So that's problematic.

We had -- I did -- in the last call, I also talked about outage timing and that we moved the outage for one of our mills from late last year into Q1. So that's the third reason why Beverage Merchandising will be down in Q1. .

And then the fourth reason is year-on-year, there's been an operations -- a small decline in operational performance. So they are the 4 reasons, and that's the reasons behind the decline in performance in Beverage Merchandising. So then looking ahead to the rest of the year, and I'll talk a little bit to volumes year-on-year for the Foodservice first.

But I'll also compare them versus 2019 to give you a feel for how we compare..

So in Q2, we'd expect volumes to be up versus 2020 by about 22%. Now that's still 7% down versus 2019. And as you'll recall, in Q2 last year, that was when everything fell out in Foodservice. So whilst we're up 22% versus 2020, we'll still be down versus 2019.

And then as we go into Q3 versus 2020, we're thinking we'll be up about 13%, but still down versus prior year by 2% or 3% and then the same in Q4. So whilst we're thinking we'll be up in terms of our volumes in Foodservice versus prior year, we'll be down versus 2019. .

In terms of Food Merchandising, Food Merchandising, we're looking at -- in Q2, we think we'll be about 10% up versus prior year and about 8% to 9% in Q3 and Q4. As you know, in Food Merchandising, we weren't affected so much. There were some effects during the year, but it varied by segment, some were up, some were down.

And so versus 2019, Q2 would be about 5% up, Q3 about 7%, and Q4 about 18%. So that's the way those sort of volumes play themselves out..

And then for Beverage Merchandising, we expect sales volumes to increase in Q2 through Q4. And that will get back to similar levels to 2019. And so because volumes declined in Q2 so much, we'll be about 20% up, Q3 about 15%, and Q4 about 14% versus 2020.

So at a high level, we expect Q2 to be better than last year, simply because last year was the lowest point in the COVID time line. Q3 and Q4, we expect a gradual ramp-up as mobility increases. .

Okay. That's super helpful.

And then as it relates to the Beverage Merchandising operational review and also the next-gen waste elimination program, can you just give us some high-level views in terms of what specifically you're doing? What do these operational reviews entail, et cetera?.

Sure. So thanks for the question, Ghansham. So on the Beverage Merchandising comprehensive review, there's really a couple of pieces to that. The operational improvement program has been ongoing. We're tracking that for our PMO. That's part of it.

The other part is converting some of the other Beverage Merchandising facilities onto some of the legacy Pactiv programs around energy, around just staffing operations, a lot of things like that. So that's the operational improvement program. .

The big change here, though, is we're -- we've retained a third-party to look at our entire product portfolio. So we're looking at every product that we make coming off the machines in both of our mills and assessing going forward which products make sense for us to be in and which products might not make sense.

After that -- and we're about 2 or 3 weeks into that right now. After that assessment is done, that will drive what -- some decisions that we'll make around potentially footprint, capacities, markets that we participate in, organization, things like that. .

But this will be pretty much a top to bottom review of the entire business. We felt it prudent to start with the product piece, understanding from a going-forward basis, what should our product portfolio look like, and that will drive a lot of the other initiatives that would be associated with perhaps a different product portfolio. .

From the next-generation Pactiv Evergreen waste elimination program, there's really 3 components here. We -- when we put Pactiv and Evergreen together, there was another piece of our business -- kind of a corporate piece called Reynolds Leveraged Services. We have not yet gone through and looked at integrating all 3 of those together.

So from an organization standpoint, that will take place. .

Also, we have Phase 2 of our supply chain program. So we've implemented the warehousing and transportation modules of our supply chain optimization program and we are seeing the benefits. In fact, warehousing, our exit rate in 2020, we were up about 40% in productivity as expressed in throughput cube per man hour worked..

So with that behind us now, we're moving to the next phase of supply chain optimization will be around planning and around scheduling, and we do think there's opportunity there. And then finally, we'll complete a thorough direct and indirect spend review.

Nothing in this next-generation Pactiv Evergreen program is comprehended in our budget or in our plan, nor is any of the incremental things that we're doing around the Beverage Merchandising comprehensive program. That would be in addition to what we've already outlined for our plan. .

We will again then continue with our strategic investment program where we got $65 million in 2020. We would expect 2021 to be vastly similar to 2020 in that we should realize around that $65 million mark. And then finally, we have ongoing plant and warehouse initiatives to offset inflation and these are just things we do every year.

So 4 components of what I'll call EBITDA improvement programs with pieces of this that are obviously not included in anything we've discussed thus far. .

Our next question has come from the line of George Staphos with Bank of America. .

I guess I wanted to dig in a little bit more into the cost question.

So John, Michael, the $20 million to $25 million or $25 million to $30 million or more of deep freeze impacts that's not in your guidance, what is actually in that figure? Is that logistics around the Foodservice and Food Merchandising business? Is that resin pass-through? Is that some one-off mill outages? What's in that number, so we know how to disaggregate or aggregate the figures as we're forecasting for 1Q?.

And then I guess the related question, it seems like most of what you're seeing in the reduction is around COVID and the pace of reopening. But if I could ask, relative to 3Q, relative to the IPO, what has actually changed the most in 1Q versus your prior expectations? If you could enumerate that, that would be great. .

Okay. So the $25 million to $30 million deep freeze there, George, it's essentially 2 components, right? The first one is energy rate. And you saw that energy sort of spiked up in different areas, not just in Texas but in Arkansas, so that was a big piece. And the second piece is we had 9 locations that were forced to close for varying pieces of time.

And those locations incurred costs around them. For all sorts of things and -- not only some of the things that you mentioned, but restarting sites and those sorts of things. So generally, it's both of those things. We haven't included resin or anything like that in this..

In terms of what's the change versus the IPO in the first quarter? At the highest level, I think our assumptions around COVID recovery on volumes is the first one. That would be -- that's the first piece.

The second piece is the operational -- the timing of all of the various mill outages, the 2 mill outages, they changed and pushed everything back because we couldn't get people into do the mill outages. We obviously had the fire, which increased cost in Q3 and Q4.

And quite frankly, the operational performance in the Beverage Merchandising segment -- because of the delays in terms of doing these outages, we've not seen the improvement that we would have expected through the IPO process. .

Yes. So again, George, the big change is around the Beverage Merchandising, pretty much Foodservice and Food Merchandising, what we would have talked about during the IPO is there or thereabouts of what we said with the exception of, as Mike indicated, a volume component on Foodservice.

And that's mainly around -- we would have thought that in Q1, we would have seen a whole lot more of the noncommercial food service operations open, whether it be schools or lodging or travel or business and industry. We're just not seeing that in the first quarter. So that's a shortfall on Foodservice..

And to Mike's point on the Beverage Merchandising, he kind of ticked off the reasons there. But -- so to think about Q1 up in Foodservice, up in Food Merchandising a bit versus where we thought, corporate costs are a little bit favorable and the negativity comes from Beverage Merchandising. .

That's helpful, guys. I want to then swing over to Beverage Merchandising and it sounds, again, like you're going to be reviewing the business I think, John, you said top to bottom, and reviewing products and mix, what you're going to offer, what you're not going to offer on a going-forward basis.

If you -- given what you know right now, and I realize you're going to learn a lot more, are the issues primarily at the mill level? I mean, that would be our assumption having tracked you for the last few quarters.

And do you need the mills to offer -- I wouldn't expect that you would necessarily to offer the fiber-based packaging, which is so important to your mix.

How should we think about your view on that currently and how the evolution might be?.

And then my last question, and I'll turn it over, to SIP, not that it's a big deal but I think at one point in time, SIP was supposed to generate about $80 million of benefit for 2021. You hit the $65 million number in '20. Your run rate has been $20 million a quarter in the last 2 quarters.

Why are you off a little bit on SIP? Is that just Beverage Merchandising not being where you want it to be and so therefore, the pull forward on the SIP isn't where you'd like it to be?.

Thanks. Okay, George, I'll take the first part. The question of whether or not we need to be in the mills in order to service our business. Look, we like liquid packaging board. We think being vertically integrated makes a lot of sense for our business. We like being vertically integrated in cupstock.

I think we have a competitive advantage there as it relates to our Foodservice business. We do in both of the mills, though, we run other products that that's what we'll be assessing. I mean I think at the end of the day, liquid packaging board will look to continue to improve, obviously.

Same with the cupstock but the other paper segments are what is getting a lot of our attention right now. .

So really too soon to tell how that's going to play out. But if you look at the complexity in both of our mills, we run -- we run liquid packaging board at both of our mills, but then we also run coated groundwood and uncoated freesheet along with that.

So strategically, if there was an opportunity to do something different there, could it be a benefit? Our suspicion is yes. Again, too soon to tell.

But based on where we come out on, what our optimal product portfolio is going forward, that will determine a lot of the other initiatives that we'll be undertaking around, again, things like that we -- things that we have already discussed, capacity footprint, the markets we're in, pricing, things like that.

Mike, on the SIP, the question of run rate versus... .

Yes. So in terms of run rate, I acknowledge what you're saying, George.

There has been some challenges around some of the implementations on where we need to be in plants and warehouses and they've been a little slower than we could, obviously, because we can't get people in the right places at the right time with given challenges around travel, et cetera.

We do think you're talking $80 million in 2021, we'll be -- we're expecting to be up sort of on this year in terms of our dollars. Whether or not we'll be quite at $80 million is -- remains to be seen, but we should be $70 million or above. .

Okay. Understand. It's a big part of your long-term EBITDA progression. That's why we're checking on that. .

Agreed. .

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

Just following up on Ghansham's question, is it possible to quantify the impact of price cost in 1Q either with the storm or without the storm? And then can you talk a little bit how you'd expect price cost to inflect, how you'd expect to recover cost over the next few quarters? And any kind of specific pricing actions you've taken or just kind of remind us what the lags tend to be.

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Sure. So look, on the raw material run up, I think we've discussed in previous calls that on the legacy Pactiv side, Foodservice and Food Merchandising, we're hedged across most of the -- or a lot of the materials that we participate in. So we will not see the raw material impact in Q1 in Food Merchandising and in Foodservice.

And as we roll into Q2, that hedge coverage will give us the ability to raise our price in Q2 through our contract resets. Beverage Merchandising does not hedge. The main material is polyethylene. It's polyethylene that's used to coat the board. And we would envision in the quarter somewhere between a $9 million to $11 million impact.

However, that will be recovered in subsequent quarters.

Mike, do you have anything to add to that?.

No. I -- in terms of the -- I don't know whether, Anthony, you were also talking about price, but in terms of the pricing peak, we -- what we look at in spread. And so what -- we look at spread, the variance between price and materials.

And so Foodservice merchandising is favorable, but Beverage Merchandising, to John's point, is unfavorable, and that's the circa -- including the resin number that John included, circa $20 million. .

Okay. Okay. That's very helpful. And then in Beverage Merchandising, you discussed some of the operational issues and the impact from the winter storm. I'm just wondering, separate from your own execution, how is demand in that market trending? And then I think that there's an outstanding price increase for SBS in March.

There's anything around the winter storm? Or is it operational issues complicate the implementation of that price increase? Can you just talk about general sort of demand trends in that business?.

Yes. So from a demand standpoint, our beverage carton business sold into supermarkets for plant-based milk alternatives, healthy juices, those kind of things. That continues to remain good, to remain healthy. I mean, we're probably up 1% to 2% down. We see that continuing.

School milk is way off as only 63% of all school districts are open with full-time teaching or in-person teaching. So we -- until that changes, we will continue to be down in school milk.

It has kind of a double impact, not just on our carton sales, but we also sell liquid packaging board to 2 of our competitors that participate heavily in that school milk segment as well. .

So we will continue to see softness in our cartons and in liquid packaging board as it relates to schools. On the cupstock side, our softness in cupstock will mirror the softness in paper cups that we're seeing in our Foodservice business. And again, that's 100% COVID related. And then on the paper segment, it's kind of a mixed bag.

We saw a pretty significant decline in the paper segments in Q3, Q4. Early indications in Q1, I was starting to see some of that come back. .

Okay.

And then no issues implementing price increase, just given some of the operational issues?.

No. .

Our next question has come from the line of Kyle White with Deutsche Bank. .

Hope everyone is doing well.

Is it possible to get a little bit details on your cash flow, some of the items there? What do you expect for CapEx, working capital, cash taxes or any other material items?.

Sure. So in terms of working capital, clearly, what we'll see is, as revenue increases, we'll see a usage of working capital. So if I was modeling it, I would just use the days that you've seen and however you're going to model your revenue. In terms of cash taxes, we expect an inflow this year. And mostly, that's returns from prior years.

So that's the -- I would say, it won't be -- it will be less than $30 million of inflow. Debt repayments, we announced a debt repayment that we will focus on mandatory repayment. And interest, we've given guidance to around $160 million of interest payments. .

Got it.

Did you give CapEx? Or did I miss that?.

CapEx, I apologize. Similar to what we've been talking about in the past around $305 million. .

Got it. And then shifting gears a little bit here, focusing on your EarthChoice brand.

The 94 new products offering that you're launching in 1Q, can you just provide a little bit more context on this? How does this compare to maybe a normal quarter for you in EarthChoice in terms of your product launches? And then how much of these product launches would you classify as, I don't know how to characterize it, but actually new products and not going to cannibalize existing volumes in your system?.

Yes. So the 94 products would be more than we typically would introduce in a year's time. This has been an exceptionally aggressive, if you will, new product year. We analyzed our portfolio and came to the conclusion that we did have some gaps. So a lot of this product is in addition to what we have and it's not cannibalization.

I think a lot of the products that you're seeing or that you will see introduced are around takeout and delivery. So we would have seen the takeout and delivery trend even before COVID growing, and we positioned ourselves to develop containers that would be suitable for takeout and delivery.

So all of that growth would correspond with the growth that we're seeing in takeout delivery. .

Some the other products, we were -- we have a line of compostable plates and bowls. We're not in that business today. So that would be additive. We're launching a line of what we're calling OneBox. It's a carry-out container made out of board. It's kind of a foldable board that would replace other types of carry-out.

But again, this is specific segments of the market that we don't participate in. Because of this product, so that will be additive. .

So again, I'm not saying there won't be any cannibalization because typically, when we look at EarthChoice, the price points are a little bit higher. And if people decide that they want the enhanced sustainability and the enhanced benefit of going with those products, they pay a little bit more.

So we're okay if there is some cannibalization because we tend to margin up from that standpoint.

And I'm sorry, what was the second part of your question?.

No, I think you answered it there on the cannibalization part. That was the second part. I appreciate it. .

Our next question has come from the line of Arun Viswanathan of RBC Capital Markets. .

I guess, first off, on 2021. It appears most of the reduction on the full year guidance is focused on Q1 and is mostly in Beverage Merchandising. I guess just to reiterate, could you confirm that to be the case? And again, maybe that's due mainly to the resin and some of the operational issues. You spelled out those 4 factors.

But I'm just surprised that there's -- is that the right way to read this that it's mostly in Beverage Merchandising, it's mostly in Q1?.

That is correct. Yes. .

Okay. So given that's the case, you also mentioned maybe some inability to get in and do some of the strategic investments and some of those benefits.

But when you look out into '22 and '23, is there any reason to believe that there's been some structural or lasting impacts in '20 and '21 that prevent you from getting to where you want it to be in '22 and '23? Or you still feel comfortable with the trajectory you're on?.

John, do you want me to take that one?.

I'm sorry, from a Beverage Merchandising standpoint?.

No. From an overall standpoint. I mean you've called for a recovery, I guess, in the second half in Foodservice and Beverage Merchandising, and I think that's fair. But I'm just curious if there's any structural issues across the company, operationally that would prevent you from getting to your '22 and '23 kind of trajectory. .

At this point, no. .

And then lastly, just related to that, given what you're doing in Beverage Merchandising, do you feel that there's actually incremental gains to -- that would be realized there that would lead you to maybe better-than-expected results in '22 and '23? I mean is it the case that you feel that maybe '22 is back at 2019 levels or above that level?.

I think on this comprehensive review of our Beverage Merchandising business, it's -- we're still very early. It really is too early to speculate on what the benefit might be. My personal opinion is, I do believe there's going to be benefit here. .

Our next question has come from the line of Roger Spitz with Bank of America. .

Perhaps you said this during the prepared remarks, but could you say what the percentage volume down in Q4 year-over-year was for Food Merchandising and Beverage Merchandising? And in 2020, overall, Food Merchandising volume down on a percentage basis?.

Mike, do you want to grab that one?.

Food Merchandising volume was essentially flat 2020 versus 2019. .

And Foodservice?.

Foodservice was down 13%. .

And is that 2020 or Q4? That was 2020, I'd take it. .

Yes, that's for full year 2020. .

Okay. And what was -- the Pine Bluff mill maintenance outage in Q1, what was the EBITDA impact of that? I don't know if you separated that out or not. .

I didn't, but it's $9 million. .

There are no further questions at this time. I would like to hand the call back over to management for any closing comments. .

Thank you. Look, COVID-19 had a significant impact on our business in 2020 and will continue for the first part of 2021.

The fact that we were able to quickly capitalize on the changing consumption trends by adding capacity and repurposing underutilized assets as well as aggressively reducing costs allowed us to mitigate much of the downside that was caused by the pandemic.

And now as the economy begins to reopen and people return to pre-COVID activities, we really do believe we're uniquely positioned to benefit and to drive EBITDA growth. .

I think if you -- in closing, I think there's really 3 drivers that are going to be enablers for our success. Number one is the EBITDA improvement programs that I talked about, our strategic investment program, the Beverage Merchandising comprehensive review and the next-generation Pactiv Evergreen waste elimination programs.

We have to execute on those, and we will. That's number one. .

Number two is we're gaining Foodservice volume as COVID subsides. We need to get our Foodservice volume back. And then to continue to drive the recovery process in our mill. Those 3 are really the drivers for success. .

And just in closing, we will continue to manage and drive improvement in those areas that we have control over. Obviously, there are some things that are outside of our control. We'll do the best we can to mitigate those but the things within our control, the ones we're focusing on. And that's what we will continue to drive for sustained improvement..

So with that, I'll close. Thank you very much for your participation. .

Thank you. That does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time. Have a great day..