Good afternoon, ladies and gentlemen, and welcome to the Q1 2021 Sonoco Earnings Conference Call. At this time, all participants are on a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder this conference call is being recorded.

I would now like to turn the conference over to your host, Roger Schrum. Please, go ahead. .

Thank you, Angela, and good morning, everyone, and welcome to Sonoco's first quarter 2021 investor conference call. Joining me today are Howard Coker, President and Chief Executive Officer; Rodger Fuller, Executive Vice President; and Julie Albrecht, Vice President and Chief Financial Officer.

A news release reporting our financial results was issued before the market opened today and is available on the Investor Relations website at sonoco.com. In addition, we will reference a presentation on our first quarter financial results, which also posted on our website this morning.

Before we go further, let me remind you that today's call and presentation contains a number of forward-looking statements based on current expectations, estimates and projections. These statements are not guarantees of future performance and are subject to certain risks and uncertainties. Therefore, actual results may differ materially.

Furthermore, today's presentation includes the use of non-GAAP financial measures, which management believes provides useful information to investors about the company's financial condition and results of operation.

Further information about the company's use of non-GAAP financial measures, including definitions as well as reconciliations of those measures to the most closely related GAAP measure, is also available in the Investor Relations section of our website. Now, with that, let me turn it over to Julie..

Consumer Packaging and Industrial Paper Packaging. Our remaining businesses are presented in an All Other group. Our previous Protective Solutions and Display and Packaging segments have been eliminated and their businesses moved into this new structure.

Changes to the Consumer Packaging segment include moving our TEQ health care packaging and industrial plastics business -- businesses into All Other. Industrial Paper Packaging is relatively unchanged except that our fiber protective packaging unit has been added from the former Protective Solutions segment.

All Other includes our health care and protective packaging businesses including TEQ, ThermoSafe, our consumer and automotive molded foam business as well as our alloyed retail security packaging unit. Now looking at the sales bridge on slide 6. You see volume mix was higher by $46 million or 3.5% for the company as a whole.

This increase reflects solid demand and two additional shipping days in this quarter versus last year. I will add that the severe US weather event in February of this year had a negative impact on our top line of around $9 million. Our Consumer Packaging segment volume was up $24 million, or 4.5%.

We continued to have impressive growth in Global Rigid Paper Containers, which saw volumes increase by 8%. Plastic food volumes were up almost 3%, while our flexibles volumes were essentially flat.

In our Industrial Paper Products segment, volume mix was up $13 million, or 2.6% driven by strong recoveries in our protective fiber and our global tubes cores and cones businesses. Finally, our All Other group saw an increase of $9 million, or 3.3%.

This was driven by stronger volume across our industrial plastics business as well as our medical plastics and ThermoSafe businesses. Moving to price. You see that selling prices were higher year-over-year by $48 million. This was primarily in our Industrial segment, as we worked to recover escalating OCC costs around the globe.

Moving to acquisitions and divestitures. You see a top line reduction of $60 million, which is mostly driven by the Display and Packaging Europe divestiture, but partially offset by the addition of Can Packaging in August of 2020. And finally, the sales impact from foreign exchange and other was positive by $16 million.

The primary driver was foreign exchange translation associated with a weaker US dollar year-over-year. So moving to the operating profit bridge and starting with volume mix. Our higher sales volume combined with favorable sales mix had a strong lift on operating profit of $20 million.

This favorable impact was spread among the segments, but with a more pronounced impact in industrial due to improved sales mix across our global paper mills. Shifting to price/cost. I will remind you that this category includes the earnings benefit from higher selling prices, as well as the impact of total inflation.

In our first quarter, we had $28 million of unfavorable price/cost. Our Industrial segment was hit the hardest with price/cost challenges due to the higher OCC costs internationally as well as higher-than-expected inflation and operating costs like energy and freight.

As usual there is a slide in the appendix that shows recent OCC price trends and you'll see that Southeast OCC official board market pricing was at $85 per ton in January and February this year until market pressures caused a jump to $90 in March.

This resulted in an average of $87 per ton in the first quarter, a $45 increase over the first quarter of last year. We do anticipate continued headwinds in OCC cost escalation this year and this is evidenced in April when the market moved to $95 per ton.

Next is the impact of productivity, which includes all results from our productivity actions including manufacturing, procurement and fixed costs. You see that our total productivity was a solid $22 million year-over-year with a favorable impact across all three segments.

Our productivity actions remain an important focus area across our business as we work to overcome inflation and ultimately drive higher margins. Moving to acquisitions and divestitures. The $3 million decrease in operating profit is the net impact from the Display and Packaging Europe divestiture and the Can Packaging acquisition.

Finally, the operating profit change in foreign exchange and other was unfavorable by $15 million with various moving pieces mostly within SG&A expense. Moving to slide 8.

You'll find our segment analysis where you see that consumer packaging sales were up almost 8%, driven by the addition of Can Packaging and higher volumes driven by COVID eat-at-home behaviors and the two additional shipping days in the period.

Consumer segment operating profits increased by almost 19%, driven by strong volume mix and productivity results. Our Consumer segment margins increased by 120 basis points to a very strong 13%. Our industrial segment sales grew by 12.5% due to year-over-year price increases as well as recovering demand and the increased days in the period.

However, industrial's operating profit declined by almost 16% due to much weaker price cost dynamics compared to the prior year. These headwinds were somewhat offset by improvements in productivity and volume mix. Our industrial segment's operating profit was 8.9%, down by 300 basis points when compared to the first quarter of last year.

And finally all other sales declined by 21%, primarily driven by the sale of display and packaging Europe. Operating profit decreased by 32.5% due to the divestiture as well as price/cost headwinds. For this all other group operating profit margins declined to 6.8%, 110 basis points lower than the prior year period.

So for the total company, sales increased almost 4% but operating margin declined slightly to 10.3%. Moving to cash flow on slide 9. Our first quarter 2021 operating cash flow was a very solid $139 million, an increase of $51 million over last year.

This increase was primarily driven by a reduced consumption of working capital in this year's first quarter, compared to the same period of last year. Our global team's focus on disciplined working capital management continues to show in our strong cash flow results. Looking at CapEx in the first quarter.

Our net spend was $39 million this year compared to $31 million in the first quarter of 2020. We do expect our CapEx spend to ramp up over the balance of this year as we make progress on Project Horizon and other important projects. Howard will be providing additional comments on this activity in a few minutes.

This takes us to our free cash flow generation of $99 million for the first quarter of this year compared to $57 million last year. And finally, we paid cash dividends of $45 million in the first quarter of 2021, compared to $43 million in last year's first quarter.

On slide 10, you see that our balance sheet and our liquidity position remain extremely strong. Our first quarter 2021 ending consolidated cash balance of $588 million, includes approximately $340 million of cash held in short-term investments that are very liquid and of high credit quality.

I will add that while we recognize the Display and Packaging US divestiture in the first quarter, we received the cash proceeds on the first day of our fiscal second quarter. Our consolidated debt totaled $1.7 billion at the end of the first quarter of 2021 essentially flat from year-end.

As we move through this year, we expect to reduce these cash balances and rebalance our debt portfolio to our historical splits between floating and fixed rate debt. We expect to take actions focused on putting our cash balances to work, while delivering shareholder value and continuing to position ourselves for further growth. So moving to slide 11.

You see that our guidance range for second quarter base EPS is $0.82 to $0.88 per share. As Howard will discuss in more detail, this outlook reflects solid demand trends, but also continued intense inflation headwinds as well as the divestiture of Display and Packaging US.

Shifting to our updated full year 2021 base earnings per share guidance, we are narrowing our guidance to the upper half of our original full year guidance range.

Our new guidance is $3.50 to $3.60 as we have increased confidence in the macroeconomic and environment and the related impact on our business especially as we look into the second half of this year.

This outlook does include the impact of the Display and Packaging US divestiture, which removes around $0.09 of base EPS for the last three quarters of this year. I'll also note that our cash flow guidance is unchanged for the full year.

Our guidance range for operating cash flow remains at $570 million to $600 million, and our outlook for full year free cash flow is still $270 million to $300 million. This outlook does exclude the approximately $150 million pension contributions that we expect to make later in the second quarter related to our pension termination process.

So this concludes my review of our first quarter results and our outlook for the second quarter and full year of this year. So I'll turn it over to Howard..

Thanks Julie and good morning everyone. Let me provide some additional color regarding our first quarter performance, and then I'll talk about what we see entering the second quarter.

Let me start by saying how proud I am of how our team came together to work through the challenges stemming from severe winter weather and global supply chain disruptions to meet the needs of our customers, while delivering a better-than-expected start to 2021.

Our operations were impacted by winter storm Uri in February with more than 40 of our US plants being temporarily shut down due to a lack of natural gas or electricity. Most of the shutdowns were only for a few days and we were able to meet the needs of our customers.

However, the storm aggravated already tight supply chains, which is further impacting the availability and prices for resins, chemicals, adhesives and freight.

Despite these headwinds our Consumer Packaging segment had a strong result producing the second best operating profit ever as many of our products continue to benefit from consumers' at-home eating habits.

As an example, our Global Rigid Paper Container business registered an 8% improvement in volume mix with North America up 6%; Europe up 9%; and Asia up nearly 30%. Our customers are telling us they are seeing young consumers rediscovering staple foods as an experiment with cooking at home.

For example, we have seen a resurgence in products such as refrigerated dough, which is up 27% this quarter in North America and equally as strong in Europe. Our customers are also telling us that the adoption of remote work is providing a structural change in demand for convenient, frozen and prepared meals.

This trend is helping our recyclable plastic food tray business, which has been -- has seen double-digit growth for the past several quarters. And as I believe we'll start seeing some COVID-impacted categories start to improve as markets continue to reopen.

Categories such as confection, foodservice and some medical products are showing signs of growth and we expect this to continue as the year goes on.

Switching to our industrial business, we are clearly seeing global industrial markets reopen, which helped our industrial paper segment report sequential improvement in results for the third consecutive quarter, although operating profits remain down year-over-year.

In the first quarter, industrial segment sales grew 12.5%, due primarily to volume growth and higher selling prices implemented to offset higher raw material costs and non-material inflation.

Global tube, core and cone volume mix improved 3%, as North America volumes were down about 1%, which was more than offset by strong improvements in Europe, Brazil and Asia. Unfortunately, our industrial business continues to be negatively impacted by price/cost, due to rising recovered paper, chemicals, adhesives and freight.

We have mobilized our inflation recovery plans with targeted pricing actions already in the market, others communicated to our customers and some yet to come. Year-over-year, RISI's tan bending chip index has moved up 11% to $780 a ton and medium prices have moved nearly 20% to $735 per ton.

Demand for URB and medium remains strong and backlogs in North America are at the highest levels in recent history. As a result, we fully believe additional increases that have been announced will be reflected later in the second quarter.

After a slow start due to the pandemic, we're still making solid progress on Project Horizon and still expect the conversion of our number 10 paper machine to URB to be completed in the second quarter of 2022. As we previously mentioned, we're investing approximately $300 million in capital this year into our consumer and industrial businesses.

In addition to Project Horizon, we've identified a number of excellent projects that we expect to provide solid growth and margin improvement with returns well above our cost of capital.

For instance, we're building a new thermoforming line in our Waynesville, North Carolina plastic food tray plant to meet the increased demand I spoke to earlier for retail and institutional frozen meals. We're expanding our proprietary SonoPost appliance packaging technology into Europe with the opening of a new manufacturing facility in Poland.

This new facility will open this summer to service new customers, with a 100% recycled paper-based protective packaging. I'll mention that we saw a 29% increase in SonoPost appliance packaging volumes in North America in the first quarter alone.

In addition, we are funding the launch of two new products in our ThermoSafe temperature assured packaging business, including our new Pegasus ULD system, which offers a first-of-its-kind passive temperature assurance unit load device that can provide a cost-effective alternative for shipping sensitive pharmaceuticals via aircraft around the world.

Finally, we're funding a number of automation and technology projects to boost productivity in our operations. Earlier this year, we announced we’ll be partnering with ISI, an advanced manufacturing automation and robotics company to help us advance use of automation throughout our global operations.

In addition, we're funding capital projects across multiple businesses that will speed production, lower operating costs and reduce the need for product handling labor, which is proving to be extremely difficult to recruit and retain in the current work environment. After capital spending, returning cash to our shareholders remains a top priority.

For 96 consecutive years, we have paid cash dividends to shareholders. And we have increased our dividend for 38 straight years and our payout provides just under a 3% yield, nearly twice the S&P index payout.

In addition to approving our regular quarterly dividend yesterday, our Board has approved a new share repurchase authorization of up to $350 million. This new authorization further demonstrates our financial strength and illustrates our focus on a balanced capital allocation strategy.

Finally, we'll continue to improve our portfolio by selectively acquiring and divesting businesses to strengthen our core consumer and industrial base. Our strong balance sheet and robust cash flow provides us the flexibility to evaluate and pursue most internal and external opportunities.

However, we do remain committed to maintaining our investment-grade credit rating. Let me wrap up with a few remarks regarding our second quarter and full year outlook.

While we are cautious near term about inflationary risks, we are becoming more confident in our ability to benefit from the developing post-pandemic economic recovery, particularly in the second half of the year. As I mentioned, we expect to see continued inflation in recycled fiber, resins, chemicals adhesives, freight, and other operational costs.

We have a number of operational and commercial levers that we can pull to offset this pressure of course, including price. We also expect demand in most of our Consumer and Industrial businesses to remain solid for the foreseeable future.

The pandemic has provided a period of significant elevated consumer demand and we believe consumers will largely maintain the habits they've acquired over the past year. With 80% of our consumer portfolio focused on fresh frozen and processed foods, we believe we are uniquely positioned to continue benefiting from consumer at-home eating needs.

Demand for uncoated recycled paperboard remains strong globally and our tube core and cone products are also seeing a resurgence in demand frankly to near pre-COVID-19 levels in most of our served markets.

Finally, I'd be remiss, if I did not mention our sustainability efforts, particularly since today is the 51st anniversary of Earth Day and we have quite a number of activities planned.

Recently, we hired a senior leader of sustainability reporting directly to me to work more closely with our customers to identify opportunities to meet their challenging product requirements.

With that in mind, we continue to expand our EnviroSense line of sustainable packaging that incorporates increased recycled content and an improved recyclability. EnviroSense is represented across our portfolio from rigid plastics to flexibles, to our iconic paper containers.

In fact, we recently began working with a customer in Europe to transition their product to one of our EnviroCan paper containers from a less sustainable substrate. We do expect this trend to continue. Now with that, operator, would you please review the question-and-answer procedures..

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

Good morning, guys. Thanks for taking the question and congrats on a solid start to the year. I was curious maybe Howard, if you can talk a little bit about the Consumer segment.

And I think one of the questions or a lot of interest that we're getting is folks are somewhat fixated on week-to-week Nielsen data that is obviously negative, because we're comping some pantry stocking.

But to the extent, you have any visibility, can you comment at all about inventory levels either within your operations, or again, kind of what you detect on your customer side, and I guess the potential for any kind of choppiness over the course of the year?.

Thanks, Gabe. I'd say inventories are tight right now, particularly, if you think in context of the impact of the winter storm. We as well as our customers in terms of their feedstocks have had to go through various different channels just to ensure that we're able to maintain the flow of goods and products. So our inventories are low right now.

And what we're hearing from our customers is very similar. So really aren't seeing a big concern there. The other, I would just note that, we've talked about in the past as it relates to the products that we actually serve on the consumer side, they're relatively quickly consumed.

So we're just not seeing any of what you're referencing here as it relates to inventory in the system on our side, our customers' side, and their customers side from that standpoint, and that's my comment about the turnover of our products in the pantries..

All right. Thank you, And then I guess, Julie, the one thing that stood out for me on the operating profit bridge and I think you called it out mostly was maybe some management incentive comp.

But that $15 million or so is that expected to kind of continue over the course of the year, or can you give us any look into how that might play out?.

Yeah sure. Yeah we actually, I would say that type of variance or bridge item probably will continue as we've mentioned in our full year guidance. We absolutely plan for higher IT strategic spend. We knew property insurance premiums were going up.

And as well as long as 2021 played out like we expected, we would be back to accruing incentives at target versus or appropriately depending on our outlook for the business versus what we were doing last year where obviously there was weakness very specific to COVID.

So, yeah, I think I mentioned that our SG&A results while higher year-over-year in the first quarter were pretty much as expected. And so I'd expect that to continue generally through the year..

Okay. Thank you and good luck..

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

Hi, everyone, good morning. Thanks for the details. My line drops, I apologize if you already answered this question. Howard congratulations on the performance in Consumer. When you were talking about where you're adding capital this year, you enumerated a number of projects. One area you didn't really mention was composite cans.

Even though the paper can business seems like it's having a great year, why are you spending or why are you not spending behind the growth that you're seeing in composite cans? And if you are spending where are you putting it in terms of the growth outlook there?.

Yeah. Thanks George. Yeah, the intent and what the list I went through was just to give you a snapshot across the portfolio. We absolutely are engaged in capital expenditures on the can side of the business.

From a project perspective we've got a -- it looks like a second line that we're going to be putting into Brazil for growth that we're seeing there.

Can packaging is just absolutely starting to I hate to use the word explode but it seems like -- in fact I got a -- I actually went -- not that I wasn't listening to Julie, but I was checking my e-mails while she was speaking and just got a note that we picked up even another series of customers related to that technology and so we are extremely bullish in putting a lot of dollars deservedly, particularly on an international perspective.

And then finally I didn't spend a lot of time talking about automation, but that's across the portfolio. It's something that drives the return in and of itself but it also addresses what I think we have a problem just across the country in terms of labor availability.

But no we're very focused and are excited about the opportunities that we have going forward on the can side of the business..

I appreciate that Howard. Again even listening to this and it sounds like again you have very impressive growth and some great returns so far with Can Packaging. You didn't really say much about North America even though again we're seeing volumes that frankly we haven't seen in the whatever 25 years that we've covered your company.

So are you -- is that -- does that suggest that you're not as optimistic about the composite side in North America, even though you're saying consumers are rediscovering packaged foods again, or are you being modest and there is an investment in growth there that you expect will be sustained? How would you answer that question?.

Yeah. So absolutely we're still very bullish on North America. And yes we've seen good growth really for the last multiple quarters in North America. But to say what I've already said, what's surprising to us is to see some categories that are highly seasonal that have just lifted. So yes we're very bullish.

As we talk about Can Packaging, yes, I speak to it in terms of Europe, but we're looking that as a global play. It's a new acquisition that was we had hoped to start deploying the technologies on a pretty rapid basis around the world and COVID came around. Here we are we're starting to make progress in Europe.

We've got projects identified elsewhere globally. And it also relates to the automation partnership that we just engaged in with the company ISI that I noted with -- one of the major intents is to help us further leverage here in North America and around the world the technologies that we've acquired through the Can Packaging acquisition.

So, again, very, very pleased with the performance and the look forward across all markets that we serve with our can business..

Last one and I'll turn it over. Just a quick one. Rigid plastic you noted growth, but it seems like and just remembering from the press release, fresh food was a bit of a weak patch for you there. I'm assuming that's just related to COVID and shoppers still not being out necessarily and shipping -- shopping in the perimeter of the store.

But if I remember correctly what is -- what was driving that relative weakness? And is any of it related to kind of the ongoing issues you've had in that business over time? Thanks and I'll turn it over..

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

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

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

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

Thanks, good morning everyone. Julie one question on the guidance. So, you lost $0.09 from the sale of US Display. You nonetheless raised your full year range by $0.05 at the midpoint, so $0.14 underlying increase. I assume that's all volume-related.

Is there any other moving parts there? Are your inflation expectations higher than they were three months ago? Can you just talk about whatever moving parts there were in that $0.05 uplift?.

Yes sure. I mean really -- and you're right about noting the fact that we did have Display and Packaging US in our original full year guidance. And so very specifically that $0.09 is coming out of the balance of the year. But absolutely I mean the increase there in the guidance is really just second half.

We are pretty optimistic about volumes continuing to increase as we move through the year as well as, as we move through what we think is going to be a challenging Q2 from a price/cost perspective we think we'll then be well positioned. We're expecting and hoping that inflation pressures let's say moderate into the third and fourth quarter.

And then we will be again just better positioned from a price/cost perspective. So, really again a lot of it relates to our bullish outlook for the second half of the year. I don't know if Rodger wants to add any more color there.

Or we're good? Okay?.

Nothing, you said it well..

Wonderful. And Julie speaking of raw materials I think you and Howard talked about your expectation that OCC will continue to go up beyond what it went up in April to $95 in the Southeast.

What exactly are your expectations there as well as on resin and chemicals? And just back to OCC, obviously, there were significant production disruptions in February and really throughout the first quarter and there's significant maintenance happening in the Southeast specifically.

So, one would think that OCC wouldn't be going up by too much but obviously it is. So, can you just talk about what exactly you're experiencing? And how much more you expect it to go up and why? And then also in Europe I think OCC is at an all-time high.

Just any thoughts there as to when that -- you would expect that to moderate?.

Yes Adam, this is Rodger. I'll start and Howard and Julie can add in. But as we look at the second quarter and some of this is pretty recent, but we're expecting OCC throughout the quarter to get up into the 120s at this point. That's more than probably it was expected 30 days ago.

But you know everyone knows the strength of the containerboard market that continues. We're seeing very strong bids for any new open opportunities that come forward for future contracts for OCC. We're starting to see some more availability of containers still pretty tight, but they're coming available. So you'll start to see more exports.

So all of that in our opinion is going to drive OCC up a little bit from what was expected probably 30 days ago. So, the answer to your question up into the 120s by the end of the second quarter. To hit the price side of that you've seen the move in RISI last week on both medium and URB.

So we fully expect we can offset that, but we do expect the additional OCC headwinds. On resin you've seen the impact in the first quarter tremendous. We expect most resins will peak in the second quarter. About -- if you look at the basket of Sonoco resins about half of what we buy is PET. We see that peaking this month.

Polypropylene probably peaked at the end of the second quarter. The rest of the basket all the other resins will peak sometime in the second quarter. So as Julie said, we expect second quarter to be our toughest quarter from a price/cost standpoint in our resin-based businesses.

And finally, Europe we are starting to see those record OCC prices start to peak out in Italy and Spain. So as you said, they are at record levels, but we expect those to sort of moderate. And we're in the midst of our third or fourth price increase announcement in Europe to recover that inflation as well..

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

But any thoughts freight and labor how consequential that has been for you what your expectations are, et cetera?.

Yes. You said it on labor Adam very difficult. We are struggling to hire the people we need in many of our operations that we -- that goes back to Howard's comments on automation.

We've got four or five really strong projects in our Tier 1 plants to help us with headcount not to remove jobs of people we have today, but to operate our lines and supply products to our customers. So labor will continue to be a challenge. We don't see that moderating at all this year.

Freight very -- again, another difficult quarter in the first quarter. We -- I think we projected a 10% increase in freight for the year. We saw -- probably saw more than that in the first quarter that we're seeing some moderation. So I'd say that's still a good number for the year.

It tightens from time to time but that level of inflation is probably still a pretty good number to use in your evaluation..

Thanks a lot, Rodger..

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

Hey, hi. Thanks for taking my question. Just curious on the industrial volumes side of things.

Understanding the first quarter impact from storms in the US, just curious what utilization and what output could do from a volume perspective sequentially into the second quarter? I don't know if you could provide any characterization of how you're thinking about that..

Yes. This is Rodger. As we look at the second quarter, we're seeing a sequential 1% to 2% improvement in volumes from the first quarter. Obviously, year-over-year a very strong improvement, because we were in the midst of the beginning of the pandemic.

But if you look at achieving core in that 1% to 1.5% range URB will get -- we will get recovery from the storm. So, probably in the 3% to 4% range. So, sequentially again, I think that 2% quarter-over-quarter volume improvement is a good number to use..

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

So if some of the consumption trends normalize would you expect sales to be higher or lower versus that time frame?.

Yes. Josh, this is Howard. I'd say right now things are fairly stable, it's -- here in North America as I noted earlier. We are seeing volume pickups in Europe and Asia, Europe actually substantially. So -- and that seems to be related to not only the Can Packaging acquisition, but the overall sustainability footprint of the package.

And Asia is just continuation. It's been double-digits for multiple, multiple quarters, and as we noted earlier 30% in this quarter. So if there's a win-loss I'd say it's probably -- we don't really track it that way particularly on a global base but I'd say it's we're on the winning side at this point in time. .

Got it. Thank you..

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

Good morning Howard. Good morning, Julie..

Good morning..

Just to start off Howard or Julie. I wondered if you could talk about that share repurchase authorization some thoughts on cadencing. And historically you've used repurchases just to offset options dilution.

Is there any shift in kind of strategy in terms of how you're thinking about share repurchase maybe as a part of your overall capital deployment strategy?.

Yes Mark, I'll start on that Howard can add some comments there. I think our view on share repurchase really as usual is that we have as a tool right as a part of our overall capital allocation strategy and how we return cash and value to shareholders. So we did refresh.

The Board refreshed the authorization this week to shift from number of shares to a dollar amount which we do think kind of better signifies again this kind of return of value to shareholders. Although quite frankly we do keep our eye on dilution, but it's not the sole driver for how we would now look at share repurchase.

So I think the bottom line is we're just as usual and extremely right now very well positioned with our balance sheet, the cash our leverage to have share repurchase on the table as a way that we again continue returning value to shareholders. .

Well said. .

Okay.

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

No. Julie summed it up nicely. Thank you. .

Okay. And then I'm just curious in terms of the new divisional segmentation. F r a time you've been kind of breaking out protective and temperature assured.

And I'm just wondering whether we should read anything into this new segmentation in terms of your strategy for which businesses you're going to grow or not grow?.

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

And that's how we've landed at this point with what you see today. So it was driven by the divestitures frankly. .

Okay. And last one for me Howard.

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

Yes. Mark I'd say, no really in a -- of course there's evolution over time. We've talked about the strategic planning review process that this team has been through over the last year or so.

And our focus really is on what we've -- what I've stated from the very beginning is that we're going to focus on markets segments that we feel like we have a right to participate in that we have core competencies around. And that does get across the breadth of our portfolio some stronger than others but still active engaged.

And we'll let you know as the next one comes through. But it's all around where we've got a right to be in that particular business be it a bolt-on or otherwise. .

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

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

Thanks everybody.

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

Thanks to the field effort coming out of last year's recession, if you want to call it that. The growth around the world is looking very positive. From a structural perspective, we think that the markets here in North America are in good shape and orderly, if I can say that.

As we go as you say around the world down in South America, we've done a lot of work not only there but Europe and the US in terms of rationalizing our operations, rightsizing the business, positioning ourselves for declines when we see those, but certainly being able to take the opportunity when we see situations like we're seeing right now where it feels like things are really starting to heat up.

So barring the inflation that, we're facing right now that, I think we should see us driving through in the second quarter, we feel like we're structurally in a very, very sound position to come out stronger than possibly we had in previous recoveries over history..

Okay. And then on the Consumer Packaging volumes, I mean, just stripping out the two extra selling days – or shipping days. The growth in rigids was there any pull-forward associated with that? And then also, I'm trying to get a sense maybe Julie, the margin increase in that segment year-over-year.

Was that a function of mix, or was there anything else that kind of boosted the margins in the context of obviously higher inflationary costs et cetera?.

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

And to your second question about the margin improvement, we did have some positive mix absolutely in the – from a – in that sales volume perspective really across that portfolio not in every business but in the larger businesses in consumer very nice mix.

As well, just good productivity, right? When you think about the higher volumes we're able to leverage our fixed costs very effectively. That obviously, helps margins as well. And there was some pricing increase too.

So it's really kind of across the board, but I would definitely attribute a lot of the margin improvement to very nice sales mix, as well as the strong volumes just helping drop-through better productivity to the bottom line..

So Julie just to clarify, so for Q2 which is seasonally I think stronger than 1Q for that segment so 13% operating margins in the first quarter.

Do you think margins will be at that level higher or lower for the second quarter?.

Our outlook right now because of the price/cost challenges that we've mentioned several times on this call, we don't expect the consumer margins to be quite at the 13%. So maybe 100 basis points or so below that. But – so again, we expect volumes to remain solid sequentially in the segment.

But again, a bit of concern over like Rodger was mentioning resins and how we're able to pass-through those costs the timing of that, especially we expect that to be a slight headwind Q1 to Q2 for consumer..

Got it. Thanks so much..

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

Hi. Good morning. Thanks for taking my question. I actually wanted to ask about resin and follow-up on that.

Is there a way to put a finer point on the impact of the lag in the pass-through of resin that was – that occurred this quarter? And then also, what you're expecting for next quarter in terms of the dollar amount?.

Yeah. This is Rodger. Everybody is pointing at me, so I'll answer. I can't really give you a specific dollar amount. I think, if you look at the impact, Julie has mentioned the impact in Consumer.

The other impact will be in the All Other category, with the removal of the US Display and business – Display and Packaging business that segment will be a 100% resin-based. So we are expecting some margin pressure in that segment as well. But I went through kind of where we saw the resins peaking.

So again, I think the second quarter is our toughest quarter. But at this point, I can't put a specific dollar amount for you..

That's fair. Just shifting gears to temperature-assured packaging in regards to the vaccine rollout.

How is it going relative to your expectations? And does the current pause in one of the major vaccines has a major impact on you relative to the other vaccines out there?.

Yeah, this is Rodger. It's going okay. If you think about again going back in a little bit of history, we supply about half of the packaging for the normal flu vaccine every year to a tune of US$20 million in sales or so. Over time, we expect the COVID vaccine to get into that normal level of routine and sales for us.

Our closest relationships frankly are with J&J and AstraZeneca you just mentioned one of the headwinds there. So, yes, we've gotten off to a slow start. We did have impact in the first quarter with those -- some support areas for vaccines. We expect that to ramp up throughout the year as these vaccines get full approval by the FDA.

They're being distributed by the government today primarily in larger packages. As it gets more into the retail environment and these last mile smaller packages, we expect the impact for Sonoco to improve at that point. So I would think it's a lot like the flu vaccine going forward for us in the second half of this year and into 2022..

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

Thanks..

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

Yeah. Hi, Howard, Julie and Rodger. Firstly, a couple of questions on some items that are in your updated guidance. So if I understood correctly with the U.S. display and packaging sales that was $0.09 for just three quarters now. So we're talking about roughly a $0.15 raise in the full year number. So, firstly, with regard to just to the U.S.

URB pricing, is it correct to assume based on what you said before that you're now incorporating even the third price hike that you announced in March in the guidance? And secondly, I wanted to ask about productivity here also, because I think your initial bridge from last quarter showed around $50 million, $55 million productivity improvements for the year, but you already delivered $22 million in a single quarter.

So is that something that also is coming above what you expected earlier?.

Yeah. Maybe I'll start with the productivity question and Howard and Rodger can clarify a little more on the pricing increases because there's so much activity there. You can have an extremely dynamic environment with price and cost changes. You're right.

We've started out the year the $22 million operating profit delivered from productivity is a really, really solid start to what we were expecting for this year and what's in our guidance. I'd say embedded in our guidance is probably a slight increase in what we expected before. But I would say at the same time nothing really dramatic there.

When I looked at it, we delivered about one-third of our gross productivity in the first quarter of our full year expectations. So a little ahead of what we expected but not dramatic. So -- but it's possible that we could land the year and I would hope we would land the year above our expectations.

But I would say in the guidance nothing really material related to productivity above expectations but maybe slightly..

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

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

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

Okay. And just -- sorry go ahead..

No. You go ahead..

Just one last question on industrial paper packaging.

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

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

Yeah, Sal this is Roger Schrum. I'll just remind you that that's an integrated product so it uses paper that's produced in our paper division. And then it's converted into the product the posts that we sell.

So, it obviously makes sense to be in that particular segment, but there was already profitability for the paper that was being sold into that segment anyway. So, it's -- again it's not a material number to talk about..

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

Thank you very much..

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

Hi, guys. Thanks for taking the follow-on. I'll be quick. So, can you update us on Project Horizon, both in terms of where you stand relative to your prior guidepost? It sounds like you maybe are off to a little bit of slow start with the storms.

So, where do you stand in terms of starting the stock prep area? And related what projects beyond this Project Horizon might you have down the pipe? Maybe you can share a little bit of color on in terms of your ability to use mixed waste and other types of furnish relative to OCC. Second question is just one more on composite cans.

I think at one point in time you'd expected volume to be down for the year modestly because of the comparison the very strong comp from 2020 that you had. Is that still the case? Could you give us a number for the year? And then last question back maybe to Adam's question on guidance.

So I think looking out this year if we were this was two quarters ago the ballpark was somewhere around $3.40-ish when we did the math on the divestitures and dilution. And you've done a good job obviously performing and raising the guidance.

When you think about that variance from the $3.40 to $3.50 to $3.60 is it mostly mix? Is it mostly pricing? Is it volumes of productivity if you could just stack rank them? Thank you guys. Good luck in the quarter. Appreciate the time..

Great. Thanks George. On Horizon things are going extremely well. We are delayed by a quarter and that really relates to the actual machine conversion. Just to remind the project was a couple of things. One was of course to take the medium machine and convert it to the largest URB machine in North America.

But the other portion was logistics and flow around the campus. And if you come down here now you'd be amazed at the amount of activity going on. So, we expect stock -- you mentioned stock prep specifically. I think that's expected to be up probably late October-ish sometime late third quarter early fourth quarter.

That particular system will be set up to -- with the cleaning equipment to manage mixed waste. Not sure on what -- exactly what you meant on what other projects that we maybe see coming into the future.

But kind of what I was talking through with -- in my prepared comments that we've got -- do we have a $100 million Project Horizon that's visible at this point in time. But the answer to that is what we do. But we're working on that.

That may be some time to come before we actually pull the trigger on that but we've got just a multitude of projects that were represented through the examples I gave in my commentary. I'll just finish on Horizon by just saying that, yes, things are holding as we had expected with that one quarter delay.

And to add to that, the medium market is good right now. So it does not impact the financial expectations that we have built into the models, the way the machine is performing right now. On cans, I would just ask Julie if she would give a couple of comments and move on to the --.

Guidance, yes. Yes, George, you're right. Our volume expectations for the global paper containers business were originally to be down, kind of, that 2% to 3% range. And I think we are more bullish on that business now for the full year. We had the great start.

And again we are optimistic about, again, these eat-at-home and different types of at-home cooking trends are going to remain more in place than maybe we did when we started the year. So, is the rigid paper container business flat year-over-year versus down 2% to 3%, I think, that would probably be our outlook at this point.

And to your -- if I captured your question on the guidance, yes, I think, most of this again improvement that -- and the tightening, the slight raise of that midpoint really is volume mix-driven with some small contribution from productivity, like I was mentioning a few minutes ago.

But I'd probably put it two-thirds in volume mix and a-third in productivity, just at a high level..

That’s perfect. Thank you so much..

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

Yes. Thanks for taking my follow-up. Howard, just one strategic question. So you have Project Horizon, you're talking about these other projects. It seems as though the company is investing more in itself than perhaps it has in years past.

And at the same time, you're pruning the portfolio by selling Display just to simplify the business mix, all of which suggests that you're focusing really on growing earnings internally, rather than relying on M&A to do so. But at the same time, obviously, Bloomberg mentioned that you were in the running for the Crown business.

So can you just talk about how you're thinking about growing the company in the years to come? How much, just from internal investments, how much from M&A, what your preferences are, to the extent you have any, and why? Thank you..

Thanks, Adam. Yes, as we talk about investing in ourselves, we have recognized that there are a lot of opportunities to mine. And in your words, more profitability, but equally important is there's opportunities to mine growth.

And -- so we think that, if you were to provide us that uses of cash, your best use is if you can grow with what you've got, top and bottom line, that's a wise use. But acquisitions are extremely important to us. They will be going forward. We are in the market at all times, looking at what opportunities may lay.

And so, I can simply say that, you'll be hearing from us on both sides. You'll be hearing that -- acquisitions will not stop us from continuing to do what we think are the right things, as it relates to capital investments going into our base, as we broaden the portfolio or strengthen the base through acquisitions.

So TBD, you guys will be the first to know when we pull the trigger..

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

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

Yes, just two quick ones.

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

I have not heard that.

Rodger do you? Have you?.

Maybe just on the margin on the fringes Mark. It was tight. Really what tightened it up is coming out of pandemic everyone came into the reopening with very low inventories. I think you tack on top of that the storm impacts the demand for tissue and towel due to the pandemic just very low inventories across the system.

So yes, there may be on fringes some of the mills running other products on potentially URB mills, but mostly it's just demand from the recovery. .

Yes. And I'll also add. We didn't note this, but in our first quarter while we had the outages related to the storm we had two really significant shutdowns. The entire Hartsville complex was down for close to a week with planned downtime that we had pushed and pushed and pushed.

And even as tight as we were, there was just no way that we could pass on the shutdown. So some of it self-inflicted as well at least in terms of our position and our performance for the quarter but we had to complete those downtimes. .

Okay. And then Howard just the other one. Just a quick update on your efforts to reengineer the composite can. I think a lot of this has been going on over in Europe.

But also maybe with that just how important is that reengineering of the can in terms of the structures to the customers around the world, or is it just Europe?.

I think Europe is where it really is. Here in North America, I think it's another way to talk about sustainability and our package. We've been collected and recycled through the steel stream for a long, long time and that continues today. So recent data I saw that maybe 90% of our cans were captured in our MRFs and other MRFs.

So it's more of a perception issue, I think is what you're seeing in Europe. We're recycled within the carton stream there.

But it's – what we're seeing is just right or wrong a perception around plastics and our customers or our future customers are coming to us saying look we'd like to get out of this format that we're in from a perception perspective.

Maybe it is or is not recyclable but the customers perceive it as a our package as a paper as a more friendly alternative. So it's really Europe where we're seeing the benefit and where we're focusing most of our attention. .

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

Thanks..

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

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

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