This transcript is designed to be used alongside the freely available audio recording on this page. Timestamps within the transcript are designed to help you navigate the audio should the corresponding text be unclear. The machine-assisted output provided is partly edited and is designed as a guide.:.

00:04 Good day and welcome to the Pactiv Evergreen Third Quarter twenty twenty one Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded.

00:30 I would now like to turn the conference over to Dhaval Patel, Senior vice President of IR and Strategy. Please go ahead..

00:39 Thank you, operator and good morning, everyone. Thank you for your interest in Pactiv Evergreen, and welcome to our third quarter twenty twenty one earnings call. With me on the call today, we have Michael King, Chief Executive Officer; and Michael Ragen, Chief Financial Officer.

00:52 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.

01:08 Before we begin for our formal remarks, I would like to remind everyone that our discussions today may include forward-looking statements. These forward-looking statements are not guarantees of future performance, and therefore, you should not put undue reliance on them.

01:22 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.

01:40 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 and the appendix of today's presentation. 02:01 With that, let me turn the call over to Michael King.

Mike?.

02:08 Thank you, Dhaval. Good morning, everyone and welcome. Yesterday after market closed, Pactiv Evergreen released its third quarter twenty twenty one results that were broadly in line with the update we provided you on September eight. Our quarterly results demonstrated the resiliency of our product and our portfolio.

02:25 Demand recovery remained on track and total volume improvement was three percent in the quarter. Price mix was up fourteen percent in the quarter, in addition to ongoing contractual pass through of cost increases, we took additional pricing actions across both our contracted and street customers.

These pricing actions were necessary because of continued inflationary pressures across not just materials, but also conversion costs and higher rates of transportation.

02:54 In addition to pricing actions, we are addressing the labor challenges by continuing to focus on recruiting efforts and along with the retention bonuses and wage increases to address the shortage. We are making continued progress and expect a more normal labor market by late next year.

We are also mitigating logistic cost pressures through a more focused approach on optimizing inventories and maximizing lane and truck usage. While EBITDA and EBITDA margins remain muted in Q3, we believe they are on track for recovery over the coming quarters. 03:29 Please now turn to slide four.

During this presentation, we will discuss key business takeaways and 3Q twenty twenty one highlights, provide a business update, go through our third quarter financial performance and discuss our near term outlook. We will conclude with questions-and-answers. 03:49 Please now turn to slide six.

Net sales in the quarter were up about seventeen percent due to continued volume recovery and strong price mix. Customer and consumer demand remained strong across our end markets with total volume up three percent as we have discussed before.

EBITDA margins remain pressured because of the continuation of higher raw material, labor and supply chain costs. 04:13 In the face of this inflationary pressure, we remain focused on managing the variables that are in our control. Throughout our manufacturing and supply chains, we remain aggressively focused on productivity and efficiency.

In addition, to the ongoing contractual pass through of increased costs, we took additional pricing actions in our portfolio. The combination of these factors contribute to price mix being up fourteen percent across the system for the quarter. 04:43 We may continue to see significant inflationary pressure in the near-term.

If we do as others expect, we will have to pass through these cost increases through additional pricing as we remain committed to maintaining margins and profitability. While we have made some early strides, there is still some work here to be done.

Fortunately, I have the team in place to help position the company to manage any challenges while focus -- while we focus on growth in the future. 05:07 Byron Racki has been with us for over two months as the President of the Beverage Merchandising business and is already helping drive the culture of change in urgency.

I'm also happy to tell you the closure of the coated groundwood business is ahead of schedule and the majority of the work was completed by October thirty one. Byron remains focused on improving the pricing and profitability of the business unit, while also continuing to lead the business review of Beverage Merchandising.

05:36 Doug Owenby, our new COO has been with us for a little over six weeks. He has hit the ground running and is focused on improving productivity and reliability, driving new and better standards across the operations. He will also be focused on an employment retention and automation opportunities.

In addition, we announced a number of actions to better position the company for future growth. 06:00 On September eighth, we announced our plans to acquire Fabri-Kal and the acquisition was completed on October one. I'm excited to have Fabri-Kal join the team and welcome them to the Pactiv Evergreen family.

A month into the acquisition I would like to share that we have internally already laid out our integration strategy. We've begun to execute on that plan and remain on track to deliver synergies.

06:23 Now that we have closed on the transaction and further analyze the business, we are even more confident and excited about the combined companies breadth of sustainable product offerings, market reach and the synergies potential. We will provide more information on such transaction in the coming quarters.

06:43 In Q3, we also announced the pending sale of Beverage Merchandise, Middle East business in order to remain focused on growth in our core business, if I could turn your attention to slide seven. Let's move to Q3 twenty twenty one highlights.

Net revenue of one point three nine four billion dollars was up seventeen percent from Q3 of twenty twenty as we saw a continued volume recovery from the prior year and strong price mix improvement of up fourteen percent.

07:15 Net income from continuing operations was two million dollars and earnings per share from continuing now in operations was zero point zero one dollars.

Adjusted EBITDA was one hundred and nineteen million dollars for the quarter as raw materials and logistics inflation along with labor challenges continue to impact the pace of the EBITDA recovery. Free cash flow defined as adjusted EBITDA less CapEx was fifty one million dollars. Finally, we announced and closed our acquisition of Fabri-Kal.

07:44 Turning to slide eight. Turning to our year-to-date highlights, net revenue was up eleven percent to three point nine one billion dollars due to increased pricing and strong volume recovery. Year-to-date adjusted EBITDA was three hundred and twenty six million dollars which includes a fifty million dollars one-time impact from Winter Storm Uri.

08:07 Please now turn to page nine. Two years ago, we created a path for the company that included ambitious and measurable ESG commitments. This plan built our long history of supplying sustainable products and developing responsible manufacturing processes.

In twenty twenty, we announced a goal of one hundred percent of our products to be made with recyclable and renewable materials by two thousand thirty. 08:32 This year, we are specifically focused on gathering internal data and organizing our reporting on operational metrics related to greenhouse gas emissions energy, water and waste.

Sustainable innovation is the top priority at Pactiv Evergreen to support our customers’ goals and our own. Since twenty nineteen, the company has introduced over one hundred new sustainable products that are specifically designed to improve our customers and our consumers experience while reducing the post to use impact on the environment.

09:04 A major part of this effort is a focus on sustainable material research, additionally, our commitment to integrity translates to continued improved communications around sustainable claims for packaging. This includes systematic, on product labeling for third-party certified compostable products.

We believe it will contribute to reinforce trust in our company and our industry. 09:26 From a manufacturing perspective, we are looking to reduce water and energy consumption. We recently undertook a water stress analysis for all company locations. The results indicated that ninety seven percent of our water useage is in areas with low water stress.

We continue to strive to reduce our overall water usage. We also initiated greenhouse gas emissions analysis for our paper mills. 09:51 Our largest source of emissions to identify improvement opportunities using these learnings will be incorporated into our goal setting exercise. Transparency is how we know we are doing what's right.

This summer, we published our first public CDP disclosures on climate change in water security. And we are really planning on releasing the SaaS meet and GRI disclosures in the coming months. More details of these and other activities may be found at investors.pactive.com in the ESG section.

10:25 I will now turn it over to Mike Ragen for a detailed financial review..

10:31 Thanks, Mike. Moving to slide eleven, looking at our third quarter twenty twenty one financial performance, net revenue was one point three nine four billion dollars versus one point one nine five billion dollars in the same period last year, an increase of seventeen percent.

The increase was primarily due to favorable pricing from raw material pass through and price initiatives, along with higher sales volume. 10:58 Adjusted EBITDA was one hundred and nineteen million dollars versus one hundred and seventy three million dollars in the same period last year.

The decrease was primarily due to higher raw material and logistics costs and labor challenges, constraining production and increasing costs, partially offset by higher sales volume and favorable pricing. Free cash flow defined as adjusted EBITDA less CapEx was unfavorable to the same period last year due to lower adjusted EBITDA.

11:30 Moving to slide twelve. Looking at our year-to-date twenty twenty one financial performance, net revenue was three point nine one billion dollars versus three point five one four billion dollars in the same period last year, an increase of eleven percent.

The increase was primarily due to higher sales volume, largely due to higher demand as the economy recovers from the COVID-19 pandemic as well as favorable pricing. 11:58 Adjusted EBITDA was three hundred and twenty six million dollars versus four hundred and forty five million dollars in the same period last year.

The decrease was primarily due to higher manufacturing logistics and material costs, net of price increases, and impact of Winter Storm Uri. Free cash flow defined as adjusted EBITDA less CapEx was unfavorable to the same period last year due to lower adjusted EBITDA. 12:27 Moving to slide thirteen.

This slide helps to bridge Q3 year-on-year revenue and EBITDA. Looking at revenue, when comparing to Q3 last year, we saw some volume favorability of thirty two million dollars with the key driver of our revenue growth being price increases of one hundred and sixty nine million dollars.

For adjusted EBITDA, whilst volume was marginally favorable given labor related production constraints, pricing was favorable by one hundred and seventy six million dollars but this was more than offset by two hundred and thirty one million dollars of higher COGS.

It important to note that in Q4, we expect that year-on-year our increase in price will be approximately forty million dollars higher than the increase in COGS, reversing the Q3 negative. 13:18 Moving to slide fourteen and our results by segment for Q3.

Our Foodservice segment saw net revenues up twenty six percent driven by higher pricing to recover COGS increases and steady volume recovery. Foodservice volumes for the quarter were up five percent on twenty twenty and down seven percent on twenty nineteen volumes.

Demand in foodservice is strong, however, labor constraints are impacting our ability to meet demand. 13:49 Adjusted EBITDA for our segment was down twenty one percent versus same period last year due to higher manufacturing, logistics and material costs partially offset by favorable price and higher sales volume.

Our food merchandising segment saw net revenues up ten percent, driven by favorable pricing, partially offset by lower volume. 14:11 Food merchandising volumes for the quarter were down six percent on twenty twenty and down eight percent of twenty nineteen volumes.

As with our Foodservice segment, demand is strong, however, labor constraints are impacting our ability to meet demand. Adjusted EBITDA for the segment was down thirty two percent versus same period last year due to higher COGS and lower sales volumes, partially offset by favorable price.

14:38 Our Beverage Merchandising segment saw net revenues up twelve percent driven by strong volume recovery. Adjusted EBITDA for the segment was down eight million dollars versus same period last year.

The key drivers being higher COGS partially offset by higher sales volume and favorable pricing and customer mix and additional costs related to Tropical Storm Fred. 15:05 Moving to slide sixteen. We are maintaining our full year adjusted EBITDA guidance at five hundred and fifty million dollars.

We are holding this guidance despite the anticipation of continued inflationary pressures and with the expectation that resin prices will remain flat in Q4 into Q3. All of our segments are seeing strong demand with our ability to meet demand being dependent upon increasing labor levels in our manufacturing facilities.

15:34 Our efforts to increase labor are helping to lift our production output and we expect to see this improving in Q4 and into twenty twenty two. We expect a strong year-on-year lift in pricing of around two hundred million dollars in Q4.

As mentioned previously, we expect year-on-year price increases to exceed COGS increases by approximately forty million dollars in Q4. Also, the integration of Fabri-Kal is ongoing and the business review of Beverage Merchandising remains on track. 16:06 Thank you for your time.

As an appendix to the presentation, we have included Q3 year-to-date highlights by segment.

Q3 year-to-date revenue and adjusted EBITDA bridges versus same period last year, consolidated statements of income and loss, a reconciliation of net income and loss to adjusted EBITDA and free cash flow, and the summary of progress in our strategic investment program. 16:32 I'll now pass it back to Mike King for closing comments..

16:37 Thank you, Mike. In closing, while the third quarter was in line with our September update, we continue to believe we are in a transitionary environment and our results do not reflect our true potential.

While we still face a number of challenges in the near term, I am confident our team and employees are up to the task and we'll continue to take actions to improve our performance. 16:56 We continue to believe that, if and when raw material input costs moderate, our contracted pricing actions will catch up and lead the improved margins.

In addition, we have closed the acquisition of Fabri-Kal began its integration. And remain on track on the business review of the Beverage Merchandising segment. We will provide further updates on these initiatives in the near future.

17:18 Finally, I'd like to thank all of the Pactiv Evergreen workforce for their continued hard work, to serve our customers and to enhance the value of the company to all of our stakeholders. 17:28 With that, we will now open it up for your questions.

Operator?.

17:35 We will now begin the question-and-answer session. [Operator Instructions] And the first question comes from Ghansham Panjabi with Baird. Please go ahead..

17:57 Thank you. Hey, guys. Good morning. I guess, first off on the 3Q to 4Q, sort of EBITDA bridge, over one hundred million, there's lot going on with Fabri-Kal, price cost, volumes, labor shortages, et cetera.

Can you just help us bridge that differential on a sequential basis for us?.

18:15 Yeah. Good morning, Ghansham. This is Mike Ragen.

How are you?.

18:20 Yeah. Thank you. Good..

18:22 So, on slide thirteen of the presentation, you would have seen that essentially price is up by -- this is the Q3, price is up one hundred and seventy six million dollars. The COGS were up two thirty one, so a negative of fifty five there.

The expectation is for Q4 that price will be up some over two hundred and thirty million dollars while -- this was year-on-year while COGS will be up around one hundred and ninety million dollars. So there's sort of a ninety dollars to one hundred million dollars swing in the price COGS dynamic between the quarters.

19:08 And then over and above that, Fabri-Kal adds about -- it's around ten million dollars into the quarter. Volumes quarter-on-quarter, no major change, we’re expecting labor challenges to continue, but they're improving, we're getting better.

We're getting more people into the plants, but it does take a little bit of time to train them up and make them effective..

19:43 Sure. Thank you for that.

And then in terms of Food Merchandising, the volume declined, I know you called out labor challenges there, but is there some degree of just mean reversion where mobility is boosting Foodservice but coming of the expense of grocery stores, et cetera? Or is that just purely the constraints that you cited there?.

20:05 So the biggest thing here in our Food Merchandising is, to your point, a little bit of that and what I'll point to is that egg sales are down versus twenty twenty. They're down fifteen percent to twenty percent in the quarter. As you know, we're the sort of leading packager in egg cartons and so that's a key driver there.

And over and above that may trade volumes are down somewhat. Both of those surged in twenty twenty because more people were eating at home. And so there is a bit of a reversion there. Most of the other areas are pretty much flat year-on-year..

20:56 Okay. Thank you very much..

20:58 No problem..

21:03 The next question comes from Chris Parkinson with Mizuho. Please go ahead..

21:08 Great. Thank you very much. Good morning. You've recently made a few new hires on your team and are still assessing several strategic initiatives or opportunities across both your cost structure as well as the portfolio.

Can you simply give us a quick update what's been potentially pleasant surprises thus far? What's kind of the incremental opportunity and are potentially there are other things you believe are going to be more challenging. Just anything that you can give us for twenty two or twenty three would be appreciated? Thank you..

21:39 Yeah. Thanks, Chris. Yeah. So as I mentioned in the call here, I’m been pleasantly surprised with the adds to the team. Specific to Byron Racki, the President of our Beverage Merchandising business, I think bringing in an experienced guy that knows the paper making and board making world has been beneficial.

Certainly, no secret that our mills have been challenged, getting velocity and turning around those mills while we take the time to strategically review our product portfolio, our operations, our footprint, all those things. He brings a lot to the table there and we're already seeing the green shoots from his short tenure.

22:34 As it relates to operations, getting some velocity on positioning our operations to be world class in terms of digital enablement automation, things that we see ongoing headwinds in the markets around labor. Our goal there being to insulate ourselves and frankly position ourselves to win on the back end of the current supply chain.

Doug Owenby brings a lot to the table there as we get fitness around what we're considering a new labor force and very dynamic labor force. We don't expect that to change.

Insulating our factories from the variables that come with that and really have an optionality around automation as we’re seeing progress in the last kind of two months that as we position the business to win there, Doug brings a lot to the table. Yeah, I'm excited about that.

23:38 We've had a handful of others really all the other adds on the team and visibly and behind the scenes have all been to get velocity.

Not just on productivity, but really – as you started to see our acquisition activity and strategic looks at product mix and positioning the business not just for a good next twelve months, but a good next five years and beyond has become a focus.

So getting proactive with all elements of the strategies of the business is really, I would tell you generally or I've seen progress in the last six month is whether it'd be how we procure products, position or supply chain, go after strategic and tactical productivity items.

And frankly just get on our front foot with the realities of what mother-nature and some of the macro, micro economic challenges that face us those things don't slow down. 24:45 So having the bandwidth proactively manage that, I can tell you that we're in a better position today than we were six months ago.

And that's largely because of the adds and the team I have in place.

24:59 That's helpful color. And just as a quick follow-up, can you just give us let's say two points on volume trends for each segment as we head into twenty twenty two. And then hopefully you're improving ability to meet that demands post twenty one supply chain, disruptions and labor headwinds.

Just any color on that would be very helpful? Thank you..

25:23 Mike, you want to -- you want to do that or are you -- I'm happy to give you..

25:29 Up to you Mike..

25:30 Yeah. Go ahead and I'll fill in I....

25:34 Okay. Sure, I think in Foodservice, we've continued to see strong volumes around containers. And as the economy opens up and people start to go back to work, we're seeing strong demand in cups as well.

And that ties closely to the sort of non-commercial sector opening up again, things like schools and universities and ballparks and things like that. So, we're seeing strong demand there. 26:14 In Food Merchandising, I mentioned before that protein and egg sales are down a little bit, which is the inverse of the Foodservice trends.

But overall, we'll expect to see those ones normalize, but everything else should continue to be strong. And then the Beverage Merchandising, we're seeing school milk come back, which is great to see that drives both our cotton sales and our external board sales.

And as Foodservice cups come back, paper cups specifically, we see better boards sales as well. Not to mention that we're also seeing uncoated free sheet, we're seeing some stronger demand there as well. So that would more or less summarize by segment what we're seeing..

27:19 Thank you very much..

27:26 The next question comes from George Staphos with Bank of America. Please go ahead..

27:31 Thanks. Hi, guys. Good morning. Thanks for taking my questions. Hope you are doing well and thanks for the details. I wanted to first hit a little bit on operations and segue to Fabri-Kal. So Mike and Mike, can you talk a little bit about how you will and how we should try to observe and measure your ability to improve on the labor situation.

I think you said, you hope it normalizes and you're not alone here. So we're not blaming you guys by any stretch, by later in twenty twenty two. And I noticed that Mike, you said Mike Ragen that Fabri-Kal will be roughly about ten million dollars in EBITDA in the quarter.

I seem to remember that the LTM for Fabri-Kal you announced the deal was somewhere in the mid-fifties.

So maybe that's just operating friction when you first bringing it in the business, but is there any labor issues there that also needs to be normalized for Fabri-Kal looking out to twenty twenty two?.

28:33 Yeah. So, I'll give you color on labor and then I let Mike talk to the Fabri-Kal question in terms of earnings. So, Fabri-Kal is no different. They're faced with the same challenges as I think everybody who's a manufacturing in the country right now. So we didn't get a larger than expected surprise on labor.

What I can tell you is, the green shoots we're seeing headed into Q4 and the progress we're making, adding humans to both businesses is positive. We're not seeing a regression in terms of labor. We are seeing it go the other way. 29:21 I think what you heard me say in the call and I certainly welcome more clarity as we move into twenty twenty two.

But it doesn't feel like the controllable elements aside, it doesn't feel like things are going to slow down in a meaningful way and even if they did in terms of unemployment and bringing people back to manufacturing jobs. I think we're all chasing the curve still.

Our modeling and what we see based on the progress here headed into the Q4, we do anticipate getting whole in twenty twenty two. When that is, its Q3 or Q4 that there's a lot of things we don't control that will dictate that..

30:12 What do you think your labor inflation might look like here on year twenty two versus twenty one, including if you normalize for Fabri-Kal, obviously ….

30:20 Well, there's two, so that's a tough one, but I'll take a run at it. We've added a lot of labor inflation in year, frankly. So, we've taken a lot of that pain this year. And in a normal year, I think our labor inflation was between two percent and three percent.

And we're going to be order of magnitude twice maybe three times that, if you added to the twenty twenty one moves we've made and what we need to do to position ourselves to keep humans in twenty twenty two..

30:56 Yeah, George. I'll just weigh in a little bit on that to give you and Mike, directionally is right, dependent on where we are in the country, dependent on which plant, seven to ten percent is what we're expecting year-on-year increase in labor..

31:16 Thank..

31:18 Makes sense. And that, I appreciate that. I just wanted to hit one more question on growth then I'll turn it over. So I wouldn't have expected you to continue at the fantastic growth that you saw obviously, comps were easier in 2Q for Foodservice where you were up over thirty percent this quarter, you were up, I think the volume was five percent.

Are there any things in your view that would trouble you about the five percent, or are you happy with that? Are you seeing any signs that the pricing that you need to put into the market, we totally understand is having any kind of demand destruction in your business or not.

Relatedly Mike, and Mike can you tell us where the cup and led businesses versus twenty nineteen. You're obviously up a lot versus last year? And if you could give us any kind of view on plastic versus fiber based in foodservice is there one sector that's growing paper versus plastic more than the other? And if you could quantify that'd be great.

Thanks. I'll turn over and have a great quarter..

32:27 Yes. Thanks, George. So on the pricing or the commercial elements of demand, we can sell every container and cup and item we can make. So the pricing action we've had to take isn’t curb demand..

32:44 Got it..

32:45 We're constraining our demand through our ability to make product at the moment and we're moderating that based on keeping stable inventory. So truthfully, demand is not the concern. The concern is making sure we're positioned to meet and recover inventories and demand heading into the next queues. Yes, go ahead..

33:11 George versus twenty nineteen our cup, led volumes were about nine percent down in the quarter and most of that is driven by fiber cups. And that's a lot to do with the number of people that are going to work and picking up the coffee on the way to work. Yes. We'll start to see that sort of pick up a little bit.

We think in the near future, but plastic cups are very strong..

33:50 All right. Thanks, guys. I'll turn it over..

33:58 The next question comes from Adam Samuelson with Goldman Sachs. Please go ahead..

34:04 Hi. Thank you. Good morning, everyone. So, I guess my first question is, thinking about this price cost balance in the third quarter and then kind of the flip that you're expecting turn positive in the fourth quarter. In 3Q, you talk about COGS being a two hundred and thirty one million dollars year-on-year headwind.

Can you break that down a little bit into whether the pure raw materials, supply chain logistics kind of where can help us think about the different buckets of that COGS inflation and how you would think about that tracking in the fourth quarter?.

34:44 So pure raw materials are around one hundred and ninety million dollars of that. And then the remaining piece of fifty million dollars is higher manufacturing and logistics costs..

35:01 And how would that look in 4Q?.

35:07 In 4Q, it's -- hang on a sec. It's mostly materials year-on-year..

35:20 And why was the supply chain -- the supply chain logistics on a year-on-year basis, not could be a headwind? I’m just making sure, I'm clear on that..

35:30 Because in the last year, we had a mill outage in our Canton, North Carolina facility. And so year-on-year, those costs won't repeat..

35:47 Okay. And then just a clarifying point on guidance, believe when you had -- when you announced Fabri-Kal early September and you’ve taken the full year guidance to five hundred and fifty million dollars. At that time, the five fifty, I didn’t believe actually included any contribution from Fabri-Kal because it hasn't closed yet.

Now obviously the five fifty does, just want to make sure is that true.

And if so, just make sure we're clear, just -- is it just more raw material pressure and labor constraints that are in the fourth quarter that are offsetting the incremental Fabri-Kal earnings?.

36:26 Yes, it does. It does include Fabri-Kal, as I mentioned before it's circa ten million dollars for Fabri-Kal. And so we're maintaining our five fifty number and we'd like to be better than that, but we're just sticking with the five fifty..

36:48 Okay.

And then if I could squeeze one more, if you look at the labor constraints and the impact that it's had on your volumes any way to quantify or frame, what you think that cost on a volume basis in 3Q and how much of that is still costing you in Q4 from a production perspective?.

37:08 It's a little bit, how long is the piece of string really. We know that the demand is there. We know that our customers want more product. We know that other people out in the market don't other customers or potential customers are coming to us asking for product, particularly in Foodservice.

And in Foodservice could we see ten percent higher, maybe it would be a guess..

37:47 Okay. All right. I appreciate the color. I'll pass it along. Thanks..

37:56 The next question comes from Mark Wilde with Bank of Montreal. Please go ahead..

38:02 Thanks and good morning.

Mike and Mike, I wonder, first of all, can you give us any help in just thinking about sort of magnitude of the -- all the pricing initiatives that have been announced over Beverage Merchandising at both board and paper and then how you would see that kind of cadencing in over the next few quarters?.

38:26 Sure. So what I can tell you is that year-on-year, we're expecting pricing in the Beverage Merchandising segment to be around thirty million dollars favorable in Q4.

And so what we've been doing is, we've been out pushing price, whether it's -- we've obviously got a lot of contracts in place around our cottons, but we've been taking out of market price increases and pushing those as hard as we possibly can.

So quarter-on-quarter, Q4 versus Q3, we're expecting around sixty million dollars of higher pricing in that segment..

39:16 Okay.

And then how should we think about what is yet to come over the next couple of quarters when we factor in lags? And also, I think you guys were out with more price increases just earlier this week?.

39:29 Yeah. I think in coming quarters, we'll continue to see the full effect of our increases, I think year-on-year, if I was looking forward to twenty twenty two, I'd expect price to be up over one hundred million dollars in that set..

39:55 Okay. All right. Then wondering just kind of broader one for both of you and Mike King. I'm just curious about what you're actually seeing on the ground there in terms of the customer pressure to move out of plastics to other substrates.

We hear about all of this potential movement yet couple of weeks ago, one of your competitors announced that they’ve had picked up a big piece of QSR business that was moving from paper in the plastics.

So just curious kind of across your portfolio, how much pressure you're really seeing on plastic packaging?.

40:40 I think I shall take this, I think we're seeing a -- I don't want to call it a pause, but I do see that we're seeing people or customers more interested in getting containers and packaging today given demand.

So some of the pressures on, for example, foam -- gingerly foam essentially from containers, things that we're trending out of service and we are seeing that kind of rebound and we've had to bring assets back to life, so to speak to meet demand or try to meet the demand.

41:18 I don't think we're seeing a big reversion through non-green or non-environmentally friendly substrates, but we certainly are seeing people, an acceptance of alternatives to get to meet demand. I think that if you just look at the regulatory environment, there has been no show down there.

So we've had things, we've had to make some moves to different substrates to address that too so to keep it balanced. 41:50 I'd say it's slowed, but I don't think it's gone away and we certainly expect that those pressures continue. Albeit they’re a bit curved at the moment being outpaced by the desire for volume.

So if I take the example you gave there, I think yes, there's still a victory speech on the environmentally front with the move that was made there. So fiber versus the plastic it's -- they're both kind of in the same category if you dig into that one. So that one, okay. Those moves are happening and we're benefiting from those moves as well..

42:32 Just Mark, I'll just add one small thing. There is one area that we are seeing a push from retailers and that's really around cottons moving out of foam into loaded fiber in clear PET..

42:50 Okay. And the last one I had was, just understanding you've just gone through pretty big capital cycle at Pactiv Evergreen.

I'm just curious with these tight labor markets in the real escalation in labor costs, does it suggest that there you may need to take yet another step up in terms of capital for plant automation, things like that?.

43:19 Yes, it's a really good question. And in fact, one of the areas where as I mentioned with Doug Owenby, we are taking a bit of a different look there. Certainly, insulating our factories from dynamics and the labor force, but also just really positioning our factories to be more efficient. We are looking harder at automation for sure..

43:45 If you look at that capital intensity that we've had, we had a large portion of our strategic investment program has been around automation. And you can expect that we do look harder at that moving forward..

44:01 Okay. Very good. I'll turn it over. Thank you..

44:08 The next question comes from Arun Viswanathan with RBC Capital Markets. Please go ahead..

44:15 Great. Thanks for taking my question. I guess I just wanted to go through the guidance a little bit.

So assuming the midpoint -- assuming five fifty dollars for the year that implies kind of a two hundred and twenty four million dollars number for Q4, if I take off ten from Fabri-Kal, we're still at two fourteen, which is up about one hundred from the Q3 number.

So how are you thinking about that one hundred sequential improvement? Is that kind of Foodservice getting closer to about one hundred million dollars itself? I think you did that number in Q2 of twenty nineteen, excuse me, and then maybe a doubling of Beverage Merch to the thirty million dollars or thirty five million dollars level.

And that again, would imply kind of closer to one hundred million dollars number for Food Merch, which is a doubling. So just it seems quite a large magnitude of an increase sequentially so maybe you could just help us understand that bridge a little bit? Thanks..

45:16 Yes. Sure. Thanks, Arun. So if you think about each the segments, I'll give you a steer on that. Foodservice will be over one hundred million dollars and again, a lot of that's driven by the higher pricing net of some COGS increase. Food merchandising, I'm expecting that to be in the – like, somewhere between sixty five and seventy five.

And then Beverage Merchandising is a large lift between fifty million dollars and sixty million dollars. And so why the big lift, it's predominantly price increases and price actions partially offset by higher COGS in that segment.

So it's a decent lift in that segment, but a lot of those price actions are contractual and we're fully expecting that segment to hit their numbers..

46:31 Great. Thanks. And as a follow-up, maybe we can just kind of extend that into twenty two. So, given that you're going to be exiting the year say it two twenty five run rate. And then maybe you assume a little bit more synergy capture, maybe some progress on restructuring and price cost.

Is two twenty five kind of the right quarterly run rate that we should think about from here on and improvements to that and that would kind of imply kind of a longer term nine hundred million dollars annualized EBTIDA level.

Is that kind of what your headed towards or already there or is that -- is there something specific that jumps the Q4 number above that level?.

47:17 Yes. There's a bit of a tailwind in Q4. So no, I wouldn't just multiply it by four. But getting to a normalized number, we'll see margins starting to get back to normal in Q4. And -- but there is a bit of a margin tailwind in that quarter that isn't necessarily indicative of ongoing..

47:51 And then just lastly, if I could on Bev Merch, you laid out some of the issues that you were facing there in the past within the mills and noted that maybe progress needed to be made and need to be eight stages in the production process. Could you provide an update on where you stand maybe in that evolution? Thanks..

48:16 So, yeah, for those who maybe need refresh, we look at our mills as kind of eight or nine sub factories. Each one of those sub-factory has had and faced need for efficiency and productivity gains and reliability gains. I would tell you that we have made progress in all phases of those sub factories.

We've also faced some challenges with flooding and lagging effects of a Winter Storm. So those things have hampered some of those sub factories. But I can tell you from a decluttering of our focus exiting the coated groundwood business and pine bluff that shutting that complex down has been beneficial.

We've been able to displace humans into open positions and fully staffed the mill that's been a big win for us. 49:22 And then in Canton, recovering from the flood that we had in Q3 as well as being we will address some of the reliability, the break fixed type items.

We've gotten after the spending that’s why some of the excitement, you'll hear in our voices around Q4 there. We're seeing better days. So, we have made progress in all fronts and we have lot to do still. And we'll keep doing that. But yes, we made progress despite some of the challenges in each one of those kind of sub factories..

50:04 Thanks..

50:10 The next question comes from Kyle White with Deutsche Bank. Please go ahead..

50:16 Hi. Good morning. Thanks for taking the questions. I wanted to follow-up on Arun’s first question, but I ask you in a little bit different way. The fourth quarter outlook implies kind of an increase of fifty four million dollars year-over-year on EBITDA.

Your price cost expected to be up forty million dollars and then you have Fabri-Kal of ten million dollars coming in. That makes up almost entirety of the increase.

I guess why should we see a stronger fourth quarter than the outlook implies considering expected volume growth? Is it just some conservatism in the guide or is volume contribution expected to kind of impacted by the supply chain environment?.

50:52 Yes, That's correct. The supply chain challenges will mute volume at least that's what we've forecast. We're pushing to produce as much as we possibly can, but we do expect the challenges – they’ve today. We're one month into the quarter already and they're still led up it is getting better..

51:21 Got it. Thanks. And on price cost as we look to twenty twenty two a lot of moving parts considering you should be catching up on resin and you have some paperboard price increases rolling through.

Are you able to give us a sense us to what you expect price cost to be next year in total, either using today's kind of current pricing environment or however you want to phrase it?.

51:39 Yes. We are expecting, I think we talked about this, I think it was when we revised guidance. We're expecting to have a little bit of a tailwind into twenty twenty two because pricing lags, it's probably fifty million dollars to sixty million dollars..

52:04 Perfect. I'll turn it over now. Thanks..

52:11 The next question comes from Andy Scheffer with Onex Credit Partners. Please go ahead..

52:16 Good morning. Thanks for taking my questions.

Can you give us an expectation on CapEx for the fourth quarter?.

52:25 What I can tell you for the full year will be between two seventy five and two eighty five..

52:33 Okay.

And then as it relates to the labor inflation that you were discussing earlier, seven percent to ten percent, is that in total and should we think about that as -- it's seven percent to ten percent increase on a call it ninety five percent of full staff?.

52:58 Yes. That's the pure inflation. As we add people in, we get additional output. So that gets factored into the COGS, the marginal increase in COGS..

53:17 Okay.

And then the Naturepak Beverage, what will the cash proceeds be for that?.

53:24 I'm sorry, what did you say?.

53:28 The joint venture that you're selling the beverage packaging business in the Middle East, what will the cash proceeds be for that?.

53:36 It's forty million dollars to fifty million dollars..

53:48 And then can you sort of walk us through the labor issues just in terms of how the journey is been and where you stand now and describe for us how we get to that normalization in the third and fourth quarter? Just in terms of magnitude of headcount and what you think the drivers are and maybe what's maybe be working for you in terms of success and bringing people back?.

54:24 Sure. We're short probably fifteen hundred people in our plants as total population of people is around fifteen thousand, so circa ten percent.

It's -- in terms of what you do to get that back, we have like, I guess SWAT teams that go round to each plant, they deep dive the data, they go through to work what the issues are with getting people in that particular area.

They come up with detailed solutions, detailed tracking and then go through an execution phase, onboarding, training and then embedding people into the plant. Now it's not a one and done thing. It's something that we have to do as an ongoing process because people leave all the time.

Someone opens a new Amazon facility down the road or someone else reacts to what we're doing. So it's a bit of a knife fight and it's different in every single area..

55:42 And then is there any overriding reason that's the one thing that you see in the press it? There's no good explanation as to or maybe it's not -- maybe there's not a one size fits all, but what has been driving it and what's caused it to last so long?.

56:04 I'd be speculating..

56:07 Yeah. The recipe is different everywhere. I mean, that's why what works in one region isn't working in other region. So, there's a host of ways to address it. We know it's bigger than just wages of money. So there's definitely a work life balance element, so being flexible with peoples had to be a big part of our recipe for success.

Retaining people, getting people is one thing retaining them as the other. So don't want to overlook the fact that curbing vacancy is one thing curbing people walking out EPs invest in training. So having retention elements in our approach has been a win for us in all areas.

But people -- there's a work workplace balance element that we can overlook when it comes to making it a place people want to work in manufacturing versus other sectors, I think are particularly pressured in that regard..

57:08 Okay. And then my last question is, you were discussing, answering some questions regarding the fourth quarter. And I just want to make sure what I took away was accurate.

It's volumes will still be up, but they will be up less obviously because of labor raw materials sourcing and whatnot and that it’s the increased costs in addition is offsetting some of that volume increase. It's not the would be that the supply chain and other issues are creating a situation where volumes will not increase.

They're just not increasing at the same rate, one and then there's added cost pressure that's continuing..

57:54 Yeah, that's correct..

57:57 Thank you..

58:05 [Operator Instructions] Your next question is a follow-up from George Staphos with Bank of America. Please go ahead..

58:09 Hi, guys. Thanks for taking the follow ons. I'll try to be quick about it. First of all, you showed good progress on SIP both in the quarter and the year.

As we look out to twenty two, will you keep updating us on SIP? How are you going to continue to communicate the productivity and the return on the investments that you're making relative to what you've said in the past? That's question number one.

58:35 My question number two, recognizing that you're catching up now on price cost which of your resins are still the most problematic in terms of obtaining supply for us so that for your converting operations, And then last question, I just want to come back to the growth of plastic versus paper recognizing as you pointed out with that QSR example, you can have a plastic package that is as sustainable as a paper based one, but what are you seeing in aggregate in your portfolio year-on-year growth either in the quarter or year-to-date, plastic versus paper, and if there are any highlights that you would point to.

I think prior you just talking to the cup piece. Thanks guys and good luck in the quarter..

59:23 I think George, with regard to the SIP, you can see there that in the update that in the sort of revenue generating areas at the top of the table. We've spent most of the money there. And so we're almost through that automation. We're going to continue to do that.

Where we're not doing so much of the spend is, in the areas that are lower payback around cost reduction at the bottom of the table.

In terms of keeping updated, I think what we'd like to do is to now incorporate this into our ongoing just our long ongoing way of life, right? We're going to have CapEx, we're going to be looking at CapEx from the point of view of what's profit generating and what's maintenance and then talking about that moving forward.

And well, obviously, there's some trailing benefits to come, but that's probably the way -- the best way for us to talk about this, because along into mix and interspersed with new investments next year. 60:48 In terms of resin supply, at the moment, in terms of supply itself, nothing for us is really overly problematic we get issues here and there.

Prices more are issue right now. And occasionally, you get something like last week, getting benzene to one of the big convertors was or the conversion sites to polystyrene was a problem and there's certainly out. But overall, it's not as big an issue.

And then in terms of the paper piece year-on-year, obviously, we're seeing our cottons and Beverage Merchandising coming back in school. So that's positive. In terms I talked about the drink containers, but also a lot of the -- there's a lot of growth in other containers like food containers in paper as well.

But no more so than what we're seeing in plastic and in fact plastic continues to be more favorable when carrying food or hot food in particular. 62:08 And then in things like meat trays and egg carton and things like that. Egg cartons, we are seeing a trend towards fiber meat trays.

We're not really seeing much going out of plastics and any other sort of containers that are in supermarkets, I think plastics are still leading, so, we're not seeing trends away from that at the moment..

62:40 This concludes our question-and-answer session. I will now turn the conference back over to Michael King for any closing remarks..

62:48 Yes. I'll just close by saying thank you everyone for your interest in our company and following us and joining us on the journey here. Look forward to brighter quarters as we close out twenty twenty one and twenty twenty two. With that, we'll talk to you in another quarter. Thank you..

63:14 The conference is now concluded. Thank you for attending today's presentation. You may now disconnect..