Good day and thank you for standing by. Welcome to the Graphic Packaging Holding Company Second Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. I would now like to hand the conference over to your speaker today Ms.

Melanie Skijus, VP of Investor Relations. Please go ahead..

Good morning and welcome to Graphic Packaging Holding Company's conference call to discuss our second quarter 2021 results. Speaking on the call will be Mike Doss, the company's President and CEO; and Steve Scherger, Executive Vice President and CFO.

To help you follow along with today's call, we will be referencing our second quarter earnings presentation which can be accessed through the webcast via self-directed slides and also in the Investors section of our website at www.graphicpkg.com.

I would like to remind everyone that statements of our expectations, plans, estimates, and beliefs regarding future performance and events constitute forward-looking statements.

Such statements are based on currently available information and are subject to various risks and uncertainties and that could cause actual results to differ materially from the company's present expectations.

Information regarding these risks and uncertainties is contained in the company's periodic filings with the Securities and Exchange Commission.

Undue reliance should not be placed on forward-looking statements as such statements speak only as of the date on which they are made and the company undertakes no obligation to update such statements except as required by law. Mike, I'll turn it over to you..

Thank you, Melanie. Good morning to everyone joining us on the call and the webcast this morning. I'm excited to discuss quarterly results with you today and the positive developments that we are driving in our pursuit of Vision 2025. We are delivering for customers in providing packaging solutions that are resonating with consumers in the marketplace.

New innovative packaging introductions continue as our teams expand the new product pipeline and fuel our organic growth strategy. We are executing strategic M&A with transactions that are strengthening our capabilities extending our geographic reach and positioning us in growing markets.

And importantly, we are delivering on our commitments to stockholders. Notably, you saw us swiftly address the heightened inflationary environment with multiple price initiatives in the quarter that will play out in the second half of 2021 and 2022 in order to limit the impact of the current price-cost dislocation and ensure it is short-lived.

Turning to second quarter highlights on slide three. We delivered a meaningful 5% net organic sales growth in the quarter. Across all our markets, we continue to see significant demand for more sustainable packaging solutions..

Thanks Mike and good morning. Moving to slide 10, focused on key financial highlights in the second quarter of 2021. Net sales increased 8% from the prior year to $1.7 billion, driven by 5% net organic sales growth. Adjusted EBITDA declined from the prior year due to the accelerated inflationary environment.

Importantly, we earned on organic volume growth, which positively impacted EBITDA performance by $15 million and we generated a favorable $36 million in net performance.

As Mike just discussed, we have implemented multiple pricing initiatives to offset the current inflationary environment and we expect our adjusted EBITDA dollars and margins will improve in the second half of 2021 and 2022, all consistent with our Vision 2025 financial goals. Additional financial and market detail can be found on slide 11.

AF&PA industry operating rates increased sequentially with SBS and CRB at 95% and 98%, respectively at the end of the second quarter. Our CUK operating rate was over 95%, reflective of the continued strong demand environment. AF&PA second quarter data also reflected continued declines in industry inventory levels with balances at multiyear lows.

Backlogs increased from the previous quarter and all three substrates were at eight-plus weeks at quarter end..

Hello? Hello operator?.

Yes..

We're ready for questions..

One moment. And your first question comes from the line of George Staphos with Bank of America..

Thanks operator. Hi, everybody. Good morning. Thanks for your details. My two questions. The first one is going to be on pricing.

So, if we are to look at your current guidance which is $130 million for 2021 and the $270 million for '22 just as a frame of reference should we be comparing this to last quarter's, I think it was $90 million and $200 million? And if there are any puts and takes in that, I would appreciate it.

Relatedly Steve or Mike can you comment on, whether there's any pricing action that you've taken that is not in the cumulative $400 million? And I don't know if there'd be a way to quantify that or not? And then I had a follow-on..

Good morning, George, it's Steve. Let me just hit on that very specifically. The $400 million in price over the 2021, 2022 time horizon is entirely based upon known and recognized price actions. So, three examples.

These are recognized pricing for our contract customers that have recognized through third parties and so that's clearly recognized in the market. It includes price increases for noncontract customers that we have. It includes the price increases for term changes that we talked about in our remarks.

So that is all known, it's contractual and it's in motion. It does not include the remaining price increases that we are pursuing. They range from $50 to $70 across the substrates. That is not in the $400 million. And that is representative of probably another $150 million of pricing that we are pursuing, but it is not in the $400 million.

The $400 million compares, you're correct. So the last time we talked, I think importantly we had about $90 million in price, this year the last time we spoke.

With the actions that we've been taking, with the acceleration in inflation, we took multiple additional price actions since the last time we spoke and that has resulted in that $40 million uptick for this year from $90 million to $130 million.

So $400 million, is known and being executed on an incremental $150 million beyond that, that we're pursuing based upon the unrecognized yet, to be recognized price actions that we have in the marketplace..

Thanks, Steve. And kind of a blue sky question for next year and I realize it's not fourth quarter. You're just reporting second quarter. But considering the way the stock has acted, and frankly given all the moving parts, it would be helpful to think about what guardrails exist for the outlook for next year.

What kind of considerations, what kind of fundamentals have to be in place for EBITDA perhaps, to reach a $1.4 billion level? You're starting at $1.1 billion this year with guidance. You talked about the pricing that you've already put into place and you have additional on hand. We have Kalamazoo coming.

We have AR Packaging presumably, closing at the end of the year. What are your biggest considerations and concerns about being able to hit that type of EBITDA in 2022, recognizing that inflation is the biggest wildcard? Thank you. And I'll stop there..

Sure. I'll start and then, Mike, can bring additional color. I think you walked it well. The components are quite clear running off of the $1.1 billion midpoint. We'll continue to earn on our 100 to 200 basis points of organic volume growth.

We'll continue to be productive at the core, having those two things more than offset commodity input cost inflation. So think of that as the traditional $30 million to $50 million of improvement from those items offsetting. We then have the $50 million of Kalamazoo, coming on next year, which we have confidence in.

And then you have the $200 million of acquisitions that will come in as well from AR Packaging assuming successful close late this year along with the second half. And then of course all of that is in the context of price offsetting commodity input cost inflation as we've articulated to you today.

And so that is to your point the critical path up towards $1.4 billion plus in terms of EBITDA next year. Obviously, price execution as we've laid out for you is a big part of that depending upon of course, where inflation goes and we'll take appropriate price actions to address that.

Mike?.

No I think you said it well, Steve. I mean look George, we're still executing on as Steve, said another $150 million worth of price. And one of the questions I'm sure we'll get here on the call is, if the world stopped today, how much of that inflation carry over into 2022? And that number would be somewhere between $50 million and $75 million.

Now, it's like you said, it's the end of July. The last thing we're going to try to do is predict inflation for 2022. But that gives you some pretty good guardrails to take a look at in terms of modeling I would hope..

Extremely helpful. Thank you, guys. Healthy quarter..

Thank you. Next question, operator please..

Next question is from the line of Ghansham Panjabi of Baird. Your line is now open..

Good morning, everyone. This is actually Matt Krueger, sitting in for Ghansham.

How are you doing today?.

Good morning, Matt.

How are you?.

Great, Great. Thanks. So I guess I just wanted to touch on some of the volume components here.

So can you give us an update on the volume outlook for some of the key end markets across your business, just with a particular emphasis on how the more traditional kind of CPG or consumer-type end markets are likely to trend versus latest the on the foodservice-type outlook? Just the split there is helpful..

Yes. So why don't I just revisit what we saw in the second quarter, because I think it's informative of kind of our outlook a bit here too, Matt. But you saw our foodservice rebounded like we expected it would. It was up 22% in the quarter. That was an easy comp for us, as you know, because our -- that was below watermark in 2020 in the second quarter.

We are encouraged to see our food business up food and beverage up 4% in the quarter. And so it drove 5% in the second quarter that we just went in. Now we'll -- as we kind of wind forward through the rest of the year, we'll see that foodservice continue to be higher.

It will slow down a little bit because we started to see some recovery as you know in Q4 of last year. On the food and beverage side of the business, we continue to see those pretty strong markets. But the context you should really be looking at for growth -- and we talked about this in the script is 100 to 200 basis of true organic growth.

We said in 2021, we'll be at the high end of that range, so 2%. And that number looks really good for us as part of our Vision 2025. And that's how we're kind of looking to run the business as opposed to trying to predict end-use markets by category. It's just difficult to do that. So think about us having positive growth.

This year we'll be at the upper end of our 100 to 200 basis points. And we're on good track to do that because through the second quarter we were up 3.2%..

Great. That's very helpful. And then just switching over to kind of the inflation outlook.

Can you break down some of the various components behind the substantial increase in cost inflation expectations for 2021? And then just kind of following up on that, what are you seeing in terms of customer understanding or willingness to accept your price increases versus some of the prior inflation cycles? Any update there is also helpful..

Yes. Matt, it's Steve. I'll take the first and then Mike can bring on the second component with the customers. But it was very broad-based. The $100 million increase in our midpoint of our inflation assumption really was across the big basket of our commodities. Wood and secondary fiber moved kind of late as you've seen.

But chemicals, energy, resin logistics all really stayed at heightened levels as we kind of exited out of Q1 and into Q2. As we look at the full year, our assumption is that we'll have continued inflation for the major components, chemical, energy, resin, logistics.

We are factoring in a little bit of an accelerated inflation around wood and fiber, which moved -- secondary fiber, which moved a little bit later in the quarter. So that's how we have built the band around the $190 million to $230 million, but it is quite pervasive across the totality of our commodity input cost purchase..

And then just to build a little bit Matt on your question around customer reaction. Look, they're seeing inflation in their business across a wide basket too. I mean you've seen some of our customers have announced their results here in the last 30 days and they've been pointing to pretty significant inflation.

And as you heard Steve talk about here, the vast majority of our pricing is contractually driven. So they know what's coming and they're planning for it..

Great. That’s helpful. I’ll turn it back over..

Next question, please..

Next question is from the line of Neel Kumar of Morgan Stanley. Your line is now open..

Hi. Great. Thanks for taking my question. In terms of your contract structures I think in the past you talked about half of your converting volumes having a cost-plus structure and the other half tightening index.

Is there an opportunity to further increase the percent of volumes of cost-plus just given the amount of inflation we're seeing this year?.

Neel, its Steve. I mean I think obviously, when we talk to our customers about contractual renewals, we offer both alternatives today. Customers choose them based upon their confidence or beliefs in what is best for their mid- to long-term contractual relationships.

Over time both models have tended to inure similar price-cost relationships over the mid- to long term. I don't think Mike, we've seen any material movement among customers as they think about the basket --.

No, I think that's right. Look our cost models are working fine Neel. We pick up the costs that we're experiencing here and we'll obviously give you a true-up on that in October, as we have another quarter behind us and certainly, a final one, as we announce year-end results in early February.

But I think the bigger story here is the strength of these paperboard markets. If you look at these paperboard markets operating rates are up on really all grades. Inventories are down and backlogs are higher. And so what that's really allowed us to do is be more aggressive on pricing to -- our market pricing to go recover these inflationary costs.

And that's in fact, what we've done and what we're continuing to do..

Neel Kumar:.

anticipated:.

Yes. Neel, as we've talked we don't really see any material movement in our cash taxes next year. They might move up very modestly. But we're still out into the 2025-2026 time horizon before we become a material US cash taxpayer. The completion of Kalamazoo, the exiting of the IP partnership, are all supportive of that.

And so, you should expect to see an EBITDA as we've articulated earlier step up materially. Our CapEx at $450 million is a statement that we've made again today. Cash tax is not up material. Pension not up material.

And then, obviously we'll have interest on the debt, which will be in that $5 billion, $5.5 billion range upon completion of the transactions.

And that will inure very significant cash flow generation in 2022, that we've talked about before in that $600-plus million range, and obviously moving the debt profile down into that 3.5 time range by the end of 2022 is something that we've shared with you previously upon the announcement of the intended AR Packaging acquisition.

And that remains our intended goal with two years into that down and back into the 2.5 to three times range..

All right. Thank you..

Thanks. Next question please..

Next question is from the line of Mark Connelly of Stephens Inc. Your line is now open..

Hi, Mike. Two things. It looks like you're finally in a position to get bleached board pricing back to a better place.

If you were to implement all of these hikes that have been announced so far, you have restored that business as to cost of capital or are we still a ways away from there?.

Yes. Mark, its Steve. Obviously, we talk about that a lot as you can imagine. And the answers, if you look at it is kind of at the $200 level per ton of what we're executing on across really all the substrates.

But SBS speaking to that specifically, it would move it into that cost of capital-type return profile, which is important to us as we've talked about it isn't there and it's a critical priority for us.

And so, obviously some of that will depend upon inflation and then, we'll have to take -- if there's a need for more we'll do that if inflation were to be persistent. But that $200 goes a long way towards the cost of capital-type returns for the SBS platform..

Okay. That's super helpful. And then, just a couple of quick questions on OptiCycle.

Can you talk about how quickly that product will roll out and whether those cuts are going to be collected by the stores or whether they're recyclable in normal collection streams?.

Yes. Mark thanks for the question. I mean we're early days there. But we're working with our customers around being able to collect those cups, because it's really good fiber. As you know, its high value and we can use it back in our process.

OptiCycle is a water-based dispersion coating that has lower coat rates and has similar characteristics to polyethylene in terms of barrier, but the recovery of the fiber is actually higher up around 98% and much more readily recyclable too by institutional recyclers. So, we're pretty excited about it.

We expect that we'll have some progress here in the second half of the year, that's meaningful in gaining momentum into 2022. So, it's a big step forward for us. And consistent with our Vision 2025 goal of being able to reduce low-density polyethylene usage by roughly 40% and we're on track..

Super. Thank you..

Next question please..

Next question is from the line of Mark Weintraub of Seaport Research. Your line is now open..

Thank you. I just wanted to quickly just go back over that preliminary component bridge you laid out when thinking about 2022, make sure I got all the components right there. So, I think you said that volume and net productivity should be a plus $30 million to $50 million. Kalamazoo $50 million. Acquisitions $200 million.

So, $280 million to $300 million from those components and our starting point being roughly $1.1 billion this year, so that gets us close to not quite maybe but close to that $1.4 billion number that was referenced by George earlier. And then, if I understand correctly, you've got $270 million on implemented and recognized pricing.

And if we were just to look at the carry-through on costs that's $50 million to $75 million so let's just say $70 million. That would be another $200 million on top. And then, of course, if there's more inflation we got to think about that and whether you get this additional $150 million in process on additional initiatives.

Am I thinking about it right or did I get something wrong in that thought process?.

Well, Mark its Steve. I mean I think you got the fundamentals right. Obviously, what is very difficult to predict which we won't is where does inflation go as we move into 2022. And so the key components that kind of got you up to that $1.4 billion obviously we've got price-cost recovery that needs and will occur in 2022 as well.

And so I think you were touching on the key components correctly..

Right.

And just to clarify it sounded like that if we can get all that pricing that's been recognized that if we don't get hit by too, too much inflation next year we can actually potentially get a good bit above that type of number?.

Yes, I mean look that's the math. I think the bigger question is and we said it Mark and just to caution, we are not trying to tell you what inflation is going to be like in 2022 because we don't know..

Okay, fair enough..

I think the bigger story though is as I mentioned earlier the strength of these paperboard markets and how we've been aggressive going after recapture that input cost inflation with the pricing we've been taking and we're not done. So, the setup as we head into 2022 we like a lot better than some of the setups we've had in the past for sure..

Right. I'm sure operating rates and all that and backlogs are way stronger than they were in 2017, 2018 if we look at where they are today. And just one last little one.

DD&A for next year, you gave us kind of the updated CapEx number, just for modeling purposes including AR, what would DD&A likely be next year?.

Mark we're still working through that. Because my only caution with you is let us get through a little closer to the AR Packaging acquisition. The core without that isn't going to be materially different than kind of where we're at maybe up very slightly up a little bit just because of Kalamazoo.

But we'll do a refresh for you inclusive of AR Packaging. Obviously, on an EPS basis AR Packaging we believe will be accretive on an all-in basis pre-synergies. But let us come back to you probably in the October time frame with a little more definition on where we think that's heading. But excluding that, it should be up just modestly..

Got it. Thanks for that..

You bet..

Next question?.

Next question is from the line of Mark Wilde from Bank of Montreal. Your line is now open..

Good morning Mike, Steve, Melanie..

Hey Mark..

Steve, I wanted just to start off, can you give us some sense of kind of what your fiber assumptions are in the second half for OCC? And also kind of around pulpwood there was this kind of troubling story in the trade paper over the weekend.

And I think a lot of us remember back a couple of years ago when you did see some real pressure on hardwood costs. So, maybe if you can just help us kind of quantify what your expectations is on both of those elements in H2..

Yes, Mark as we mentioned kind of across the whole basket of our commodities, we expect continuation of kind of the big components chemicals, logistics, resins, et cetera and some continued acceleration around wood and secondary fiber.

Now, we like you were seeing some of the more recent articles which appears to have leaked some impression that some of that could be accelerating. But we do have a good $10 million of acceleration baked in into the second half of the year.

But I think more importantly, we're just -- we don't expect to see an abatement of inflation as we march into the second half. We haven't made any assumptions along those lines..

Okay. Just like specifically, Steve, I mean there's been some talk about kind of OCC kind of spot deals being done like up at the $200 range.

If we were to see $200 OCC would that be covered in your guidance? Or would we need to adjust costs up further?.

No, we'd be adjusting out further Mark if we saw that kind of spike beyond kind of where the markets are at today. Obviously, it's dependent on when it would occur whether it would make it within this year's.

But if we saw a continuation of that kind of accelerated OCC like, we've spoken before we would of course understand the value of that and then take additional price..

I think that's the point, Mark is as we see more inflation and you've seen this coming out of Q1 call, so, if we saw more inflation we'll take more price. And that's in fact what we did. So you've got our best kind of forecast based on everything we're looking at now.

But if we see things continue to run we're going to have to go recover those input cost inflation with additional pricing..

Okay. And for my follow-on Mike, I just wondered if it's possible for you to kind of unpack that first quarter -- or that first half volume growth. I'm curious about in particular, how much of that organic growth is being driven by the beverage can market? I mean, globally beverage can volumes are very, very strong particularly here in North America.

And then of course you've got the introduction of the KeelClip, I think particularly over in Europe. So just if we could get some sense of how important that overall kind of beverage growth is to your organic volume growth it would be helpful..

Yes. Thanks for the question. I would actually -- you're right it's been strong in North America. But it's been as a percentage Mark, even stronger in Europe because of all the shrink wrap film we're replacing on carbonated….

Yes..

-- soft drink and beer. And so we're seeing it up materially in that market. And our numbers have kind of held along those lines where we talked at the end of our last quarter call, that about half of that volume growth that we're seeing is truly kind of new product development and new replacement for plastic and other type applications.

And about half of it has just been overall markets being strong. And you can think about that in terms of that 3.2% we saw year-to-date. It's better to, I think look at it in totality along those lines. But beverage has certainly been a key driver of that, for the reasons I described..

So is it possible Mike, I mean could we say that, half of that 3.2% is coming from just growth in the beverage market? Or is it a bigger proportion even than that?.

No, I'd say beverage and food. I mean, it's half of that 3.2% is beverage and food. Of the beverage and food beverage is certainly a greater percentage of it. And then, the other half of that is some of the recovery in these markets like particularly foodservice..

Okay, all right. That’s helpful. I turn it over..

Operator, next question..

Next question is from the line of Gabe Hajde of Wells Fargo Securities. Your line is now open..

Hey good morning. Thanks for taking my questions. There's always kind of a delicate balance, between recovering inflation with price. And then, kind of restoring profitability levels to where you want them in certain grades. And maybe with the exception of CUK, I think producers over time have largely rationalized boxboard capacity.

More recently, there's a domestic producer that has kind of left themselves optionality to potentially convert into boxboard. And over in Europe I think even we saw an announcement today of some incremental capacity, maybe paying less attention to what's happening over in Asia.

But higher level big picture question, how do you think about, I guess, returns and the potential to entice unwanted capacity with some of these price increases?.

Well, look, I think the first part Gabe is, we've got a fair amount of inflation we got to recover first. And as we said, we don't know exactly what inflation is going to look like in 2022 and nobody else does either. I think the other part of that that we're doing is, we've got line of sight to our 80% integration rate.

On the low side of that we said 80% to 90% as part of our Vision 2025. We're at 72% now over the next 24 months. Between Americraft, unwinding the supply agreements and our organic growth we can see that path to 80%. And so, we're making tons that are being downstream converted in our own converting operations.

And strategically that's really important for us. So will there be the occasional announcement around additional capacity? Yes. But it takes a long time to bring it on. If you're talking about imported material, as we look at the imported material here in the U.S.

through the first five months of the year because that's all the data we have FBB is up slightly roughly 50,000 tons year-over-year. It's all coming from the Scandinavian countries. But that's not a big market. That's on a five million-ton market. So as a total it's pretty small. And it's something we always watch. And we need to be aware of.

But I think I have given you enough statistics there and rationale for, how we're running a different race there by integrating it into our own operations..

All fair points. Thank you. And then just a point of clarification on guidance, I guess, two parts. One, I think Americraft was expected to be roughly $30 million annually with EBITDA. So I'm assuming, you're embedding roughly $15 million. And if I missed it in the slides, I apologize.

And then you did take up productivity, I think a little bit to be $80 million to $100 million.

Is that a function of just running the mills a little bit more full out given kind of what you're seeing on the demand side? Or is there something else there?.

Yes. Hello, Gabe, it's Steve. Yes, we've got $15 million in for the Americraft acquisition, which closed in July. And we do have a little bit higher productivity as we will run quite full between here and year-end.

We've got more limited downtime in the second half of the year, and we have good confidence in the productivity that we'll generate during the second half..

Okay. And one last one, I'm sorry guys.

For the avoidance of a guide, I guess AR Packaging you do not have anything embedded in guidance for that?.

No, we do. We have $15 million -- sorry, AR no. Gabrial, I apologize to you. No, there's nothing in any of the 2021 guidance with regards to AR Packaging. The only reference to AR Packaging that does impact the materials is our discussion around 2022 CapEx, which does include AR Packaging and Americraft when we articulate $450 million.

So nothing for 2021 and in 2022, we do have it embedded in our CapEx discussions..

Great. Thank you..

Next question is from the line of Adam Samuelson of Goldman Sachs. Your line is now open..

Yes. Thank you. Good morning, everyone..

Hi, Adam..

Hi, Adam..

Hi. So a clarification question just on the pricing actions, and how we think about the 2022 kind of carryover benefits from actions that have already been implemented. And I wanted to just make sure that, that's encompassing both the cost-plus in and the novelty based contracts. So I'm just trying to make sure what happens on the cost-plus side.

I mean, we're lapping some very significant inflation in a bunch of categories this -- in the first half of this year that might have been compounded by some of the winter storm impact and the disruptions in the chemical chain for example.

What happens, if there's some year-on-year declines in some of those in 2022? Does that $400 million still stick? Or is there a risk that some of that gets -- that that would leak away as you move into the back half of 2022? I'm just trying to frame it properly..

Yes. Adam, the $400 million is representative of everything that we know today which is of course what we know with regards to inflation. And so that's assumed with the six-month lags basically based upon known inflation.

This is the cumulative impact of all pricing actions, cost models, market models, changing conditions et cetera, and that's what has us line of sight today to a known $400 million. To your question, if inflation moved up from here we would pass more of that through in the form of cost models that would play out in the 2022, 2023 time horizon.

If inflation moved down, the same would occur for a cross-section of our contractual relationship. So we'll continue every quarter to update kind of the full inclusive look at pricing, which is really what we've pivoted to, because it's much more complex as you know than just purely a market-based or cost-based discussion.

So $400 million is on all known inflation, all known initiatives that would roll through, if in place, it moved up or down, the pricing would move commensurate with that over the six-month time horizon post..

All right. Now that's very helpful. And then just on the outlook on volumes and you kind of expressed some real confidence on the full year organic sales outlook.

Given some of the capacity constraints that have been cited in the industry, I mean, do you think any kind of customer innovation opportunities have been slowed by how tight the markets are? Or do you -- are you prioritizing some of those new customers and maybe paperboard conversion opportunities that are that are more incremental? I'm just trying to think about kind of how the current market environment may be hindering or accelerating some of those Vision 2025 goals?.

Adam, we haven't delayed any innovation as a result of some of the tightness of the markets. What's really caused us to do is have more dislocated supply chains, meaning we're trucking more material than railing to some of our converting plants, because we just need to get it there faster. That's got some implications in terms of cost.

And we've taken a big chunk of our annual outages as you know here in the second quarter of this year and the first half of this year really. In the second -- or the second half of this year there will be less. And so we'll be working hard.

Our mills will be running hard to make all the tons that we can make because we need to service customers as well as rebuild our supply chains..

All right, great. That’s really helpful color. I’ll pass it on. Thanks..

Next question is from the line of Kyle White of Deutsche Bank. Your line is now open..

Hey, good morning. Thanks for taking the question.

Do you have a sense of customer inventory levels here? Any concerns that customers may be looking to get ahead of price actions or concerns about potential destocking with customers trying to secure as much supply just given all the supply chain tightness in the market, mostly focused on CRB here just with the markets reopening and maybe some declines on the food type of packaging?.

Yes. Thanks Kyle. In terms of like pre-builds, we just haven't had the material available. I mean it's been very tight. As you've seen inventories have dropped substantially out there across the entire space. In regards to some of the reopening, could we see some pressure on some of the CRB center of the store? Yes, that's certainly possible.

But on the other side of that our innovation as you know and product development activities really focus on the center -- or the outside perimeter of the store. So we're picking up opportunities there too..

Got it. And then I wanted to go back to -- I believe it was Neel's question earlier on some of the cost based models.

Are you looking to push your SBS business to cost-based model? Or are you happy with having that kind of fully market-based?.

Yes. Kyle right now as you know there's a fair amount of SBS that is still in the open market and those tend to move -- open market sales tend to move more with the risky type, risk based models, excuse me, the third-party models.

When it comes to our integrated volume, of course, that's a conversation that we do have with our customers around cost models versus market based models. And the cup business is a good example of that. And the cup business does have pass-throughs that tend to be cost based in areas like resins for example.

And so because the cup is a more complicated product than just -- you've got lids and the resins that are a part of it today. So I think Mike I don't know if you can add anything..

No, I think that's right. Look we, kind of, like the model the way its set up and SBS is more market based. And I expect it to remain that way..

Thank you. I’ll pass on..

Next question is from the line of Arun Viswanathan of RBC Capital Markets. Your line is now open..

Great. Thanks for taking my question. Congrats on a result. I guess, let me just ask a question maybe about 2022 if you can help us out. So your productivity looks like you're at a little bit higher level and maybe a little bit understandable just given the acquisitions.

So is $80 million to $100 million, kind of, the run rate that you expect to achieve now on productivity? And then also on price just to clarify, I think you noted that there is potentially $50 million to $75 million from further price initiatives.

So would the 2022 look be those two items plus acquisitions plus any of the $400 million that you don't realize in 2021? Or how are you thinking about what we should include for 2022? Thanks..

Yes. Arun it's Steve. I certainly want to caution you not to get ahead of yourself on additive, additive, additive there. So that was my only reaction to your statement.

Our core productivity excluding Kalamazoo, we've talked about as being more in that $60 million to $80 million range year-over-year, which is more than offsets our labor and benefits inflation to inure some favorable value there and then earning on organic growth.

So the earlier conversation was that we would expect net volume mix performance minus labor and benefits inflation to be net positive for the year. We then would add to that Kalamazoo and then the earlier discussion that we had on the call.

And then, obviously, as we talk, we have price initiatives we're that pursuing beyond the $400 million, which is about another $150 million that is yet to be in that characterization of fully recognized. And then obviously, that would be there to offset any additional inflation that would come through the business beyond this year's 2021 inflation..

Okay. Thanks. Appreciate the detail. And then just as a quick follow-up. This year you're running organic growth above your kind of long-term targets, also on a pretty impressive year last year.

So, when you look into the future, is there room to move up the 100 to 200 basis point organic growth target, especially given some of the new product innovation? Or is that really the right range that we should think about?.

Yes. Arun, thanks for the question. It's Mike. I'd ask you to think about the 100 to 200 basis points, as being the right goal for us as part of our Vision 2025. I appreciate your comments around the success we had in '20 and then now 2021, where we're at. But there will be some different mix that comes in over time, I'm sure.

And so, we really don't want to get ahead of ourselves here. We're obviously excited about AR Packaging and the fact that it's going to bring another insight into a very sustainably focused market, where consumer fiber-based packaging does very well. So we're going to learn some things from that that will help us.

But the 100 to 200 basis points is the right goal for us as part of our Vision 2025. And I'd ask you to stick with that..

Okay. Thanks a lot..

Thank you, participants. This concludes the call..