Good morning. My name is Chris and I'll be your conference Operator today. At this time, I'd like to welcome everyone to the Grief Q1 2022 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question-and-answer session. [Operators Instructions] Thank you. Matt Eichmann, you may begin.

Thanks, Chris, and good morning, everyone. Welcome to Greif's First Quarter Fiscal '22 Earnings Conference Call. This is Matt Eichmann, I'm joined by Ole Rosgaard, Greif's President and Chief Executive Officer, Larry Hilsheimer, Greif's Chief Financial Officer, and Matt Leahy, Greif's Vice President of Corporate Development and Investor Relations. We will take questions at the end of today's call. In accordance with Regulation Fair Disclosure, please ask questions regarding issues you consider important because we're prohibited from discussing material non-public information with you on an individual basis. Please limit yourself to one question and one follow-up before returning to the queue. Please turn to Slide 2. As a reminder, during today's call, we will make forward-looking statements involving plans, expectations, and beliefs related to future events. Actual results could differ materially from those discussed. Additionally, we'll be referencing certain non-GAAP financial measures and reconciliation to the most directly comparable GAAP metrics can be found in the appendix of today's presentation. And now I'll turn the presentation over to Ole on Slide 3.

Thanks, Matt. And good morning, everyone for today's my first quarterly earnings call as Greif's President and Chief Executive Officer and I'm excited to be with you. My plans today is to review the state of our business, to briefly share our new built-to-last strategy and its key components, to introduce Greif's new executive leadership team. And finally, to engage meaningfully in a Q&A session. Big picture, our fiscal 2022 is off to an outstanding start, we delivered record financial results in the first quarter, despite a challenging operating environments complicated by the pandemic, supply chain disruptions, and inflationary pressures beyond our control. We also announced the pending divestiture of our 50% ownership in the flexible products and service business for outstanding value, solidified our net leverage position, and increased our profit expectations for Fiscal 2022. These accomplishments results from disciplined operational execution and a commitment of our global Greif team, and I thank our colleagues for their hard work this past quarter. Finally, we announced plans to hold an Investor Day in June and details about the event can be found in the earnings release we published yesterday. Please turn to Slide 4. I would like to briefly share our new built-to-last strategy with you. I will summarize the strategies high points today as we will dive much deeper into it at our Investor Day on June 23rd, and review our continued growth plans. The built-to-last strategy consists of four missions, creating thriving communities, delivering legendary customer service, protecting our future, and ensuring financial strength. Mission 1, creating thriving communities. Is about achieving a zero harm environments and creating an even more engaged, diverse, and inclusive workplace in the future. Thriving communities will help us win in the war for talent. Our second mission, delivering legendary customer service involves…

Thank you, Ole. Good morning, everyone. Thank you for joining us today. Like Ole, I want to start by thanking our colleagues for an outstanding first quarter with record financial results. By my count, this is the 13th consecutive quarter that we have met or exceeded consensus expectations. Along the way, we've dealt with COVID, supply chain constraints and labor challenges, yet we continue to execute with excellence thanks to the global Greif's teams dedication. First quarter adjusted EBITDA rose by $58 million year-over-year, despite an OCC index headwind of $42 million and roughly $33 million of non-volume related transportation and manufacturing labor inflation, absolute SG&A dollars rose $17 million versus the prior year quarter, mainly due to higher health medical and incentives costs, but fell 200 basis points on a percentage of sales basis. Below the line, interest expense fell by $8 million versus the prior year quarter due primarily to refinancing our 2021 Euro notes with a lower rate bank debt. We expect interest expense to fall further as we utilized proceeds from the flexibles divestment on debt repayment, and also benefit from having refinanced on Tuesday our 6.5% 2027 senior notes with additional bank debt, utilizing a mix of floating and fixed rates below 3.5%. Our first quarter non-GAAP tax rate was roughly 31% and significantly higher year-over-year due to increased pre -tax income, with a higher proportion of that income in the U.S., and less positive discrete items than the prior year. Even with significantly higher tax expense, our first quarter adjusted Class A earnings per share will still more than double to $1.28 per share. Finally, first quarter adjusted free cash flow was $19 million cash outflow and lower year-over-year primarily due to higher capex -related maintenance and organic growth investments in IBC's plastics and…

Thanks, Larry. Please turn to Slide 14 for a few closing remarks before the Q&A. I am very proud of our team's first quarter performance. As Greif's legendary customer service comes together with execution, discipline, and unmatched product portfolio approval and disciplined capital allocation strategy, and sustainability leadership to form a value creation engine that benefits our shareholders and other stakeholders alike. Looking ahead, we are well positioned to benefit from ongoing strength and improving trends in our key end markets and our future at this price. Thank you for your time and attention today. Operator, please open the line for questions.

Thank you. [Operator Instructions] Our first question is from Ghansham Panjabi with Baird. Your line is open.

Hey, guys, good morning. Thanks for all the details. Congrats to the -- to Matt as well as well as you Ole. I guess first off on the GIP segment, at least as it relates to the first quarter and the operating profit outperformance, did that come in better than you thought? It certainly came in better than our assumptions. Just take us through the what perhaps drove the upside specific to that segment in the first quarter?

Ghansham, not only comment as well, but a couple of things. Volume was as strong as we expected to be slightly better. Pricing was much better. And the -- we had also thought that steel costs drop in December, which they did not really drop until January, which worked out very well for us in terms of price adjustment mechanisms. Those were the two key elements of it, but you already do know operate with a very disciplined pricing approach on all our markets. And we continue to have value over volume in minds. You will see on our APAC volumes stay if they are a lower. And that's really due to these de - business that was in the rate. We have a great team out there really executing hard on staying ahead of the inflationary price curve. And they've gone really well. We will continue to do that.

Got it. Okay. And then last quarter on your conference call, you noted that the steel cost run-up added about a $100 million to FY2021, as specific to GIP, an operating profit. And I think you assumed that 2022 guidance basically embedded stable steel cost environment. The world has changed. Commodities are reflecting again, so can you just update us on that view for 2022?

Yes, your recollection is correct, Ghansham, we indicated we had that $100 million tailwind last year because of the rapid increase. We did indicate that we thought there would be some decrease in steel, but then it would remain fairly stable for the rest of this year. We've got that essentially built into our guidance going forward, but of the last week, we all are hearing potential for steel cost increases that the -- whether that creates a benefit for us or not will just depend on the timing and the pace, but it's not bad news for us.

But you haven't changed that specific to the revised guidance, right?

We have not. We've just stayed with our prior view on the path of steel cost for the year.

Thanks so much.

The next question is from Adam Josephson with KeyBanc, your line is open.

Ole, Larry, good morning and congratulations to everyone on your new roles. Best of luck to you.

Thank you.

Thank you.

Larry, just following up on Ghansham's final question, can you update us on your price cost expectations for the year in the paper business and others. What were they three months ago? What are they now? How much have they gone up by? Just given lower OCC and the price increases that you're implementing, any help there would be great.

Yeah, we have not dramatically decreased our thoughts on OCC. It's now a 158, so not a dramatic decrease relative to the upside in pricing. You know what we've got out on the street, we basically built into our range about a $65 million net price cost benefit for the rest of the year above what we had previously had in paper, Adam. And we've got ranges around that just to provide some upside, downside given the uncertainties in the economy but that's the amount we build in.

Just one follow-up on that, Larry. So $65 million higher than three months ago. What is -- so what is your actual price cost expectation for that segment for the year now?

It's consistent with what we put out in price increases. Obviously, we are fully expecting that we will achieve the 70 and the containerboard, there's 50 in the 50, and we're at 158 on OCC.

I just mean in terms of the price-cost relationship for the year in that business as embedded in your earnings guidance.

I don't have that.

What's going to improve? Yes. We added up substantially in our initial guidance.

Got it. Okay. And just on the cash flow, Larry, so it seems like some of the same factors that are resulting in increases in your earnings guidance, notably the improving price-cost relationship is also resulting in lower cash flow expectations, the same was the case last year. I guess, would you agree with that that they're very much connected to each other and if so, what would you expect beyond Fiscal '22 if the price cars relationships normalize, in other words, would you expect cash flow to go up and then EBITDA to go down, just the opposite of what's happening this year?

I wouldn't necessarily say EBITDA would go down, but if the cost remains flat after going up because of the price increases, it would stay flat and we would see an increase in cash flow because the working capital would not change, and as a matter of fact, we'd look forward to go down just through managing it better through our systems. But if you look at it, we have a number of elements, the operational improvements obviously are going to increase cash flow, get a little hiccup, say that's somewhere north of approaching $55 million. We've got $28 million or so as a decrement from disposing of the FPS business which had significant improvement in their working capital structured for the second half of the year. So you got those two nets to about $28 million, you got interest expense as a positive, 14, change in working capital down about 42 at the midpoint and cash taxes up about $30 million over where we were previously. So the net of those takes you from where we were at 430 down to 410 as a midpoint.

Got it. Thanks so much, Larry.

[Operator Instructions]. The next question is from Gabe Hajde with Wells Fargo Securities, your line is open.

Good morning, everyone. Congratulations on the good start to the year.

Thanks, Gabe.

Thanks.

Curious, Ole if you've heard anything not obviously specific but anything on the external world that we should be mindful of in terms of competitive landscape on the GIP side whether it's locally, regionally?

I haven't. We don't really dwell on our competitors, instead we focus on serving our customers and our own people. But I haven't, I've got nothing to report there.

Okay. I think you guys are investing call it $60 million to $70 million return capital into the business. I think again, most of its time the IBC and plastic side. Is there anything that we should be again, mindful of the external world, whether it's supply, seeing delays or anything like that, that can push contribution from some of these into fiscal '23 or just supply chain disruptions in general?

We continue a very disciplined allocation strategy on CapEx and our strategy is to grow in our resin-based products and our new ERP system. In terms of challenges, the biggest challenge to market phase is still labor, primarily in the U.S. Our customers report strong all order books, strong demands, but they can't fulfill that because they lack certain raw materials and they have labor challenges as well.

Gabe, we haven't specifically had anything happen yet to delay the execution of our CapEx projects. But we obviously we monitor it with the disruptions going on relative to Russia and Ukraine, obviously, that could impact things. But as to-date, nothing.

Great. Thank you.

The next question is from Justin Bergner with Gabelli Funds. Your line is open.

Good morning and congratulations, Ole.

Thank you.

And morning, Larry. Good morning Matt.

Good morning, Justin.

My first question relates to the price cost dynamic in paper packaging. I just wanted to make sure I heard you correctly, that you have a $65 million better outlook than you did a quarter ago in that segment and if so, does that mean that your view on global industrial packaging has come down or are there other offsets to that $65 million benefit in paper packaging?

We do expect that the -- currently, in our current guidance, we do expect that the GIP second half of the year will be less favorable just because of the dynamics of the play through on the cost elements. But it's not significant, the bigger drop on ours was actually they divestiture, loss of the FPS, EBITDA that was in our original guidance, Justin. So I walk through that a little bit on the cash flow side with Adam's question, but on the EPS side, the FPS divestiture is about $0.28 a share, drag from our original guidance. So there's really no degradation of against our original guidance from the GIP side is exactly what we had forecasted originally.

And then the $0.28 loss from the divestiture reduction -- the divestiture, that would be net of minority interest in the benefit of debt pay down or just --

The benefit of the debt pay down as reflected in our change in interest expense. So it's not netted in there, but it is yes, for the other elements, you're correct. One thing I did want to supplement is on the price cost benefit in the paper business that is offset by some incrementally higher transport and utility costs, which is why when I walked through that differential, the cash impact was less than you would have gotten just from the price and cost elements of OCC.

Okay. And then just one nuance question. I saw that the basic share count for Class A shares was $26 million this quarter. And it was $26.6 million shares in 4Q, but I didn't think I saw any repurchases. So is that correct? And if so, what caused that delta?

No, it is incorrect. We had actually caught that. That'll be fixed in our queue. It was an unfortunate error that was missed on in the production of the earnings release. However, the earnings per share is correct.

Okay. Thank you.

The next question is from Adam Josephson with KeyBanc, Your line is open.

Thanks, everyone, for taking my follow-ups. Larry, just one more on the paper price cut. Is it -- I'm thinking that the price cost benefit will be something in the neighborhood of a $150 million or so, does that sound off the mark? Particularly off the mark to you?

Yes, that's probably high Adam on -- for the part of the year that we're building [Indiscernible]

Less than, okay. So I would -- more than a 100 but less than 150, is that fair?

Again, like the supplemental comment I made, we've got a lot of offset going in for just higher transport costs, utilities, and those elements.

Got it. Okay. Just one last one on the -- per Justin’s question about the dilution of the sale. What is the net dilution relative to your previous guidance EPS?

It's $0.28.

Okay. So that is a net number, just to be clear?

Yeah. It's everything,

So in other words, the reduction in interest expense has absolutely nothing to do with the divestiture is what you're saying?

We just incorporated it into the end of the interest expense things. Let me walk through is just so you guys all have it. So we gave 615 and not just going down the midpoint, we've got ranges obviously. But $0.28 down on the FPS divestiture, $0.75 up on PPS pricing, and $0.16 on OCC positive, you got interest expense benefit of 24 and taxes down 42.

Got it. I appreciate that, Larry. And just on the tax rate, it was much lower than what you were thinking last year, last couple of years for that matter, it was much higher than the midpoint of guidance in fiscal 1-Q. Can you just talk about what your updated expectations are for the tax rate for the year, and also about why the tax rate is so volatile. It seems that it defies even your own predictions about where it's going, and I'm just trying to understand that dynamic a little better.

Yes. We always have stated because you have [Indiscernible], it'll jump all over the place quarter-to-quarter. But the guide for the year was '22 to '25 and adjusted basis it's still '22 to '25. We have said initially we thought it would be on the lower end of that range, but now we think it'll be on the higher end of that range. And the driving factors in the first quarter volatility is when you're doing -- trying to do dividend distributions and so like we were getting cash out of Russia doing those kind of things, you end up with withholding taxes, those withholding taxes are not income based, they're based on the amount of distributed out, but they impact your rate. And so that was a discrete item in the first quarter, and a year ago, we had actually closed out some U.S. IRS examines -- mother exams and had some discrete items that were beneficial. But the bigger driver of the rate change is that the predominance of our much larger proportion of our income is in U.S. now than what we had originally forecast. And that despite the reductions in corporate rates and Trump administration, it's still higher than many countries in the world. And so that's pushing our radar.

Yes. And I appreciate that. And just one last one about the full-year range. So obviously you said it's wider than normal. When you have the nine plants in Russia, there's just extraordinary volatility globally. What led you to increase the range as much as you did in light of all that on certainty versus just keeping it where it was?

Well, because when we go through our process each quarter, obviously, we update our forecast and we do an upside downside where we identify all of the areas we believe we have risk and areas we have opportunity. To be frank, I lowered that range. Even from where we think it could be to just put some conservativism given the uncertainty in the world. So we're very confident of delivering on this, but we did build in extra buffer for sure because of that, and it's no big deal, it's lowered at a dime at the center for just on Zirtny. And we'd already building upside downside, basically wiping out everything in Russia between the ruble and just operations and so we feel comfortable with what we put out.

Got it. Thanks so much, Larry.

[Operator Instructions] The next question is from Justin Bergner with Gabelli Funds. Your line is open.

Thanks for the follow-ups. I'm not sure I followed the earnings bridge correctly. Relative to your prior guide, there was a $0.42 headwind from the tax rate and you get that from just being in the low end of the range, 20% to 25% range or being on the high end of the range?

Right.

Okay.

You've got increased income here. So it's not just the rate is the fact the incomes way up.

Okay. But that's relative to your prior guide. That's not relative to last year.

No, that's correct. Yes, that's correct.

And then any material tax leakage from the flexible products sale or should we expect net proceeds is very close to that 123?

No, no significant tax leakage we will have some but not significant.

Okay. Thank you.

We have no further questions at this time. I will turn the call over to Matt Eichmann for any closing remarks.

Thanks very much, Chris. And thanks very much for the callers today who took part in our earnings call. We hope you have a safe and enjoyable rest of your week. Take care.

Ladies and gentlemen, this concludes today's conference call and thank you for participating. You may now disconnect.