Ladies and gentlemen, thank you for standing by and welcome to the Third Quarter 2020 Sonoco Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions]. I would now like to hand the conference over to your speaker today's, Roger Schrum, Vice President of Investor Relations. Please go ahead, sir.

Thank you, Josh. And good morning and welcome to Sonoco's third quarter investor conference call. Joining me today is 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 third quarter results, which also was 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 operations. 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 on the Investor Relations section of our website. Now, with that introduction, I will turn it over to Julie.

Thanks Roger. I will begin on Slide 3, where you see that earlier this morning, we reported third quarter earnings per share on a GAAP basis of $0.82, and base earnings of $0.86 per share, which is above our guidance range of $0.73 to $0.83 per share. Due to the negative impact from COVID-19, this $0.86 of base EPS is well below the $0.97 that we delivered in the third quarter of last year. At a high level, our third quarter 2020 earnings reflected mixed demand for our diversified products, and negative price costs in our industrial segments. Partially offsetting these headwinds with very strong productivity driven across our business. Our third quarter base earnings were above our expectations, primarily due to better operating performance in certain businesses. Most notable were integrated industrial North American, as well as our Protective Solutions, and display and packaging segments. I will highlight that certain important aspects of our business performed in line with our expectations, including our consumer results and the price cost impact in industrial. In terms of a $0.04 difference between base and GAAP EPS, $0.18 is due to restructuring activities, and $0.06 relates to non-operating pension costs. These non-base expenses were partially offset by a non-base income tax gain of $0.20 driven by a deferred tax write down related to the pending sale of our DNP Europe business. I would like to highlight that of the $24 million of pretax restructuring expense, almost $20 million is non-cash and includes nearly $15 million of non-cash charges related to actions we are taking in our perimeter of store business. Howard will be talking more about this during his comments today. I will add that as you can see, we did not exclude any COVID-19-related [P&L] (Ph) items from our base earnings. During…

Thanks Julie. And good morning, everyone. Let me start by saying really how proud we all are of the way our associates continue to respond to the critical needs of our customers during these unprecedented times. During the third quarter, diverse mix of consumer and industrial related businesses reflected the improved global macroeconomic conditions coming off of the pandemic induced recession in the second quarter, as we were able to exceed the high end of our bottom line expectations. Our Consumer Packaging segments produced solid year-over-year improvements as at home food demand stabilize from the preceding quarter's pantry stocking, while our paper and industrial converters products experienced improvement sequentially from the prior quarters lows, reflecting a partial recovery of our global industrial serve markets. In addition, our Protective Solution segment achieved record quarterly results of customer demand rebounded and our Display And Packaging segment achieves one of the best quarters and more than a decade, really driven by cost reduction activities. Julie gave you the details for the quarter. So I won't repeat those achievements. But I do want to spend the bulk of my comments highlighting actions we are taking to further improve our businesses. When I first spoke with you in February, I have told you we have been initiating an increased sense of urgency to tackle some of the lingering issues that have been impacting our results. Our first area of focus was addressing our corrugated media machine in Hartsville. As you are aware, Sunoco is the small independent producer of medium and it made no sense long-term for us to remain in this market. As a result, our team engineers, which are familiar with project horizon to convert the medium machine into 180,000 tons per year uncoated recycled paper bowl machines. When completed in early 2022,…

[Operator Instructions] Our first question comes from George Staphos with Bank of America. You may proceed with your question.

Hi, everyone. Good morning. Thank you for all the details. I guess the first question that I had, you mentioned some of the puts and takes within the consumer segments in the third quarter. Howard, how did your customers run during the quarter? Were there any supply chain issues looking at the front end that might have helped or maybe impaired your ability to generate volume in the quarter. And what is the outlook on that flow through to retail at the present time?

George, our customer, frankly, to the court around well. We certainly saw some disruptions in the second quarter, but really no issues there at all. That I can think of, Rodger do you have anything to add to that. No, thanks. Again, the shock of Q2 has been recovered, and folks seem to be managing through it fairly well.

Okay, thanks for that Howard. The next question I had is on PICP in industrial. Obviously, the pandemic had a pretty big negative effect on you this year. Kudos to you and the team on the productivity there and frankly, across the whole organization. What would you need to see, if we had a crystal ball that was perfectly accurate, what would we need to see in terms of macro or demand? Or whatever else you choose to put into this for paper industrial converted products to be up year-on-year and EBIT in 2021 versus 2020? And for that matter, comparable with 2019? What would have to happen? And related point, do you have the price increases? That you are out with today? Any benefit at all? I wouldn't imagine so. But any of that built into your guidance for fourth quarter?

Sure thanks George. I guess, what would need to happen, First of all, frankly, we are seeing it on particularly here in North America as a relates to the paper business. We noted, we experienced backlogs, not only on the Euro based side of the business from the number 10. So it is certainly not a volume question as it relates to the paper side of the business. And I'm going to jump ahead and talk about the price increase. Now we didn't build anything really into the quarter based on the timing of the yield. But that would be the second component to your first question for the paper side of the business. So we are feeling pretty good as we finish out the year and go into next year. On the tubes and core side, you really got to look inside the quarter to see the sequential improvements, certainly quarter-over-quarter, but we are seeing month-over-month. So frankly, we will just need to see that continued pace of ramp up. And if it was to continue at the type of rates that we saw from the second half of last quarter onwards. We could be fairly close to the areas that you are talking about within the first quarter of next year, maybe end of the second. But there is a lot of caveats obviously built around that side of it. But Rodger unless you have got any?

No, I think you covered Howard, I mean, George sequentially, we saw improvement, our tubes and core business, the film tape second textile, every month of the quarter and the same for the paper segment. Every month of the quarter, we saw improved output we saw higher unmade orders. And if you look at operating margins for the industrial segment and improved from July to August, improved from August and September and we expect that to continue in October.

Last one, I will turn it over, thanks. If you think about how COVID and the vaccine might affect the business, I know it is too early to call. I know there would be very, very wide guardrails around this. But in the scenarios as you have thought about them calculated and painted them, what could a vaccine do for Sonoco on an annualized basis within protective? Thank you guys.

We have run - first off, we have for some time, basically, from the beginning have been working very closely with our customers to make sure that we have the available capacity. And we are preparing, we are prepared for that. And, of course, have run various scenarios in terms of what it could mean to us. And I'm not sure at this point down, we know enough for to actually throw a number out there. Because there is such a wide range, it just really depends on, is the solution a an existing customer that we are predominant, or 100% supply. That is a beautiful thing to think about on the high side, but it could be a solution that is not a customer. But our expectations are based on the high level of global demand that no matter who comes up with the solutions, that they will have to engage across the supply side to ensure that the demand requirements are met so.

So, how much should you increase your capacity, Howard?

Roger, why don't you jump in on that one.

Yes, George, what I would tell you is, obviously we have got great experience already delivering high volume vaccines, we do over half of these seasonal flu vaccine in the U.S. every year. You know, this year, we are seeing a spike of about 30%. So, we are going through that season now. We are about halfway through that season, at the end of the third quarter, we will finish it up in the next, let's call it 30 to 45-days. The nice part about the COVID vaccines coming, seasonally they will be starting to really drive through our system we think in mid first quarter all through second quarter so seasonally, the vaccines season - that is the slow season for the seasonal vaccines. So, we have got existing capacity ready for these six customers. And we are meeting with many of them today talking about where can we go ahead and upfront add capacity. So, it is hard to give you an exact number except to say we are working closely with all them and trying to be as prepared as possible for the necessary capacity once they are ready to roll out the vaccine.

Thank you very much guys.

Thank you. Our next question comes from Mark Wilde with Bank of Montreal. You may proceed with your question.

Great, thanks Howard, good morning. Howard I want to just to start off, if we could talk about the decision to just hold the dividend flat. I think probably the whole time you have been working at Sonoco the dividends gone up every year. So, maybe just provide us with a little color on the board about that decision?

Well, I guess maybe the easiest way to say just a bit of extra precaution as we go into the fourth quarter. And if you are talking about the year-over-year, we did - but we are not doing now we are planning to take a hard look at it in February. And if we take action in February, we maintain that annual year-over-year increase. So, we just felt like at this time. Let's operate with an abundance of caution and revisit this in our February Board meeting.

Okay, and then secondly, I wondered anted them without getting too kind of granular on the call just, the potential for any kind of further portfolio moves in the wake of the European display sale?

Yes, and thank you for pointing out non-granular. We are certainly looking at - continue to challenge our portfolio. We see opportunities, and that works in progress.

Okay. And then the last one I want to ask, is just you know if you have given any thought that kind of improving the effectiveness of the company in terms of M&A capital. It seems like over the last 30-years, you have spent a lot of money on various forms of consumer packaging. But if we step back and look at a company today, the biggest piece of Consumer Packaging is probably still the legacy composite Canvas where you have not only grown the core, but you have added things that like this deal you just did in France, or that deal you did over in Europe about four, five years ago.

Yes, where we are absolutely. I think I have mentioned to most of you, certainly, individually, maybe even a previous call, that we have been going through our strategic planning process. And part of that is talking about just what you are suggesting, going back in time looking what has been successful for the company, maybe some things but not so. But to start with, to say that what one walk away is outside of the cleaning up of some businesses that you noted earlier, where we feel like we have got a fairly solid foundation. We don't need to add any more capabilities, if you will from an acquisitive perspective. And the real take away from the early view of our strategic plan reviews I spoke to, during my comments, and that is looking in the mirror before you look out the window. And one of the things we are seeing is that we have got as our business units come to us and say, feed me more capital, I have got more returns to do to deliver our owners, our shareholders. And we can actually generate even organic growth and businesses otherwise. Maybe previously, we thought not. So that is where I get into that conversation about investing in yourself. And we recognized that is why the highest level of returns correlates to our chain coming through from the paper division saying give us $30 million more and we can improve the flow of this complex and generate a really nice return. So sorry for being long winded is to say, acquisitions are going to be important to us that they are going to be relative to the markets and the products that we produce today. But you are going to hear from us overtime that we are going to spend a lot more activity and dollars around improving the foundation of this business.

Okay, very good. Thank you. I will turn it over.

Thank you. Our next question comes from Gabe Hajde with Wells Fargo. You may proceed with your question.

Good morning. Thanks for taking the question. Just two quick ones, as it relates to projects horizon. I just want to confirm, Howard that you are not in fact adding any additional capacity or freeing anything up. This is more about I guess, improving efficiencies. And then you and the industry has done a pretty good job or some heavy lifting in terms of keeping supply demand and balance and more recently, we heard of someone adding a little bit of capacity on the URB side. I'm just curious if you are still kind of looking across your platform to further optimize or if a lot of that work has already been done.

Thanks Gabe. Yes second phase of project horizon, they are basically two different projects. We have got 100-year old mill complex and I'm not going to try to explain to you the inefficiencies that we have in terms of how we are handling raw materials and finished goods, but it is all about what you say, it is a step up change in terms of efficiencies, not just related to the number 10. But the machine but to all of the conflicts. Aware of that new facets coming in the market. But we are going to continue to challenge our output and our footprint on URB side. But it is more related to what we have done over the last call it four plus years, where we have, many of you remember, on AS project, where we have increased capacity in our best machines, and took out capacity by keeping the market relatively stable. Of course the same conversation around project horizon, big fancy coming under market flow. That is the whole point, we are positioning ourselves as low cost producer. We are going to be the strongest player in this market. And if others want to come into the market, so be it, but we are very confident that we are going to be able to be highly, highly competitive, going forward. And yes, we are going to continue to challenge how do we become that much more efficient in everything we do.

Thank you for that. And Julie maybe on the recent divestiture announcement. Now I appreciate. there is some timing associated with it. But assuming you kind of redirect a capital, I think you said to kind of pay down debt. Can you give us a directional ballpark, I think you said a penny per month. But just what the net impact might look like for next year on a bottom-line basis or something?

Yes sure Gabe. Yes the full-year estimated EPS impact of DNP Europe is around $0.15. So that is what we would expect kind of full-year 2020 to full-year 2021, roughly.

Okay. Thank you.

Thank you. Our next question comes from Steve Chercover with D.A. Davidson. You may proceed with your question.

Thanks. A couple might have already been answered. But there is a new company that is making a bit of a splash in biodegradable plastic packaging. And I'm just wondering how [hardly] (Ph) you are pursuing biodegradable plastics for some of your perimeter of the store applications?

Well, not necessarily. There is so much news about so many emerging technologies here. Not completely aware of the company referencing but from our perspective, our focus from the store is PET, it is, they are Orpet content going into the package. And where we are spending a lot of our time and effort is ensuring that first and foremost that first understand that a berry tray is recyclable as a water bottle. In fact, it is components as we built off of recycled water bottles. And so we are spending more time in terms of educating and participating with industry to ensure that folks recognize that. And I will add in knowledge to bring the topic up. I'm really pleased we have announced really last week that we now have, for the first time ever, staff Vice President Head of Global Sustainability reporting to me to really help organize our efforts around our formats within our company and just put a plug in or an envelope with a throw and then with this company for 15-years and a superstar, and I'm really looking forward to her contributions and further position on ourselves as a sustainable company.

Well not be argumentative, but I think the knock on plastic is that we know what's recyclable. And we know that the overwhelming majority isn't being recycled. And that is why people are excited about the biodegradable elements so --

Yes, fair enough. but that is what the industry is working on right now is to get that message out and make sure that the collection programs are in place to increase the amount of material that is coming back into the system versus into the landfill, but don't disagree. If there is a holy grail in terms of a fully biodegradable, that is something to be to be looked at.

Okay, and one quick clarification from Julie please. So, if the European packaging or contract packaging is a penny per month, then how is the impact in 2021 $0.15, I thought it would be less than $0.12, assuming you pay down some debt?

Yes, well you know I was really focused more on the kind of operating profit after tax and tax of that business. There is some seasonality I think as you know, in the displays business, and so the fourth quarter is generally is slightly lower than other particular quarters during the year for that business.

Okay, thanks guys.

Thank you. Our next question comes from Salvator Tiano with Seaport Global. You may proceed with your question.

Yes, hi. Thanks for taking my questions. So firs it will be on your capital structure and capital location. Obviously, you raised from that as many others did in Q2 due to COVID uncertainty. But you seem to be paying these quite slowly, even though on a net basis, I see quarter-to-quarter you keep on delivering. So, what is the rationale for maintaining most of this debt even after the 300 million you just mentioned, on your balance sheet at this point? Do you see, for example, any near-term M&A opportunities that presented themselves and you should be ready to add that?

Hey Sal it is Julie. Yes, I mean, I guess, we did repay in the second quarter, and very early in the third quarter, July $250 million term load. And I mentioned in my comments, we are actually repaying another 300 million of bank term loans today, just drawing down excess cash, and I wouldn't be surprised, depending on - based on what I know, today, if we have already paid all of our short term pre payable debt by the end of this year. So, we are, we wanted to see how the third quarter went, you know, came through, we are extremely pleased with the results of the business, and especially the cash flow generation, which again, is driving this 300 million today. And again, I expect more debt repayment in the fourth quarter. At that point, I mean, again, we have paid our short-term debt. And we have mentioned for next year, we do have stem for project Horizon, we have our pension termination related contribution. And so, in addition to potential acquisitions, we do have some, kind of call it invest in ourselves higher stem next year that we are also planning for. So, all of that comes into play when we look at our cash in dept.

Okay, perfect. Thank you very much. And my second question is a little bit on the [indiscernible] price increase. If you can remind us of how - you came out also the tube and core price increase. And if you can remind us, we see your one million from North America system how many tons of open market URB sales and converted to been core sales have been affected by what you announced? And what other pricing mechanisms you have in place.

Yes, Sal, it is Rodger. In round numbers, in both our paper and tube and core business, about 50% or so of our price change mechanisms moves up - move up the [indiscernible] chip index. Probably about 25% or so to move off OCC and another 25% are open market. So as you look at price increases for both paper and tube and core what you need think about what can we do in the open market. So it is about 25% of the volume. And then when does Indiscernible] Chip index, which is totally up to that organization as we go forward. So that is why we built in a minor amount of price impact into the fourth quarter. So more than in fact, will come in starting in the first quarter of next year.

Okay.

Thank you. Next question comes from Adam Josephson with KeyBanc. You may proceed with your questions.

Thanks. Good morning, everyone.

Good morning.

Good morning.

Howard, it seems like the construction market is in need of some help. So I hope you and everyone else there is planning to do your part this Halloween season.

I'm hoping, yes, thanks for getting that out, get that message out.

One more on the portfolio, Howard. So I know you are selling the European display business. But just more broadly, tell me if you disagree, but I think Sonoco is viewed as somewhat of a hybrid in that you have many defensive characteristics, the balance sheet, the dividend, the consumer business, but you have some cyclical aspects as well, notably the paper and industrial business. So you don't fit in a neat bucket either by Sonoco in an Armageddon scenario or by Sonoco in some reflationary economic recovery scenario. And I'm just wondering, if at all you think that affects the multiple at which you trade versus your competitors? If you think there are misperceptions in terms of where you fit in a portfolio is saturated? Just if you are satisfied with the stock performance, given what your earnings performance has been in recent quarters and years for that matter?

Yes, thanks Adam. Of course, I'm not satisfied with our stock performance. And, to your point first off, when we talk about cleaning up the portfolio, there is some outliers that that I think most of you have even recognized that we are working on. But if you talk on the broad perspective, it is been a long standing strategy of the company that we participate on the consumer side of the market and on the industrial side of the market. And what that has done and you can go back in time period after period in terms of situations, just like what we went through, and are going through right now are you see a good balance in terms of strength on the consumer side that is able to overcome weaknesses. So in effect, it is kind of built into our internal thesis is that we are a company you can invest in, and we can pretty much guarantee you consistency throughout the good times and the bad times. Got a balance sheet that reflects that and, as Mark pointed out, a record and paying dividends. We feel like these are all things that are extremely important to the owners of the company or investors. And so we are absolutely going to continue maintaining that balance. But I do want to point out again, that the industrial side of the business, if you go back to the last recession. Our even margins were vastly different than they are today. And if you think about the amount of self help that we put in terms of improving operations. We feel like we have created a new floor as we are walking around this 7% type range. And we should get that business back in normal times to that double-digit, low-double-digit type space. So the strategy is a strategy and we are going to clean it up, but we are going to continue to invest so that we can improve the returns on these foundational businesses.

I appreciate that Howard. And Rodger Fuller, just one for you back to the paper backlog in North America, et cetera. So I think what you said was that there was gradual improvement demand a permit throughout the quarter. But you found yourself in a position and which you have very low inventory such that I believe you said you are actually having to postpone maintenance outage. So I just, I guess I don't quite understand if it was gradual improvement, why you would have found yourself short of inventory. And so can you just talk about, again, the pace at which demand got better? Was there a sharp recovery, say in September? Or was it really, in fact, gradual? What you think is driving this improvement? And particularly just given the resurgence of COVID cases throughout the country? Are you at all surprised by the demand or however you are saying? Thank you.

Yes, thanks. I think gradual, certainly it was gradual in the season course of out of our business. And again, I think that is even core volumes for the fourth quarter will look a lot like the third quarter. What we have seen is pretty fast improvement, substantial improvement and unmade orders starting really in first July. And it expanded each month throughout the quarter. Recently reported the unmade orders for September they were the highest since January, October, you are going to see higher number, I'm sure. Which will be the highest and sometime last year. We are turning away orders. A lot of it is you are seeing the pickup and economic activity. So especially category for liners external to the core volumes very strong. So were we surprised a little surprised about how fast it came on. But I think the fact is, it looks like it is going to stick and it seems to expand every day and every week. So that is kind of where we are today. So the pickup as quick as it happened, surprise, as far as we are concerned it looks like it will last through the cycle again.

Okay. Thanks Rodger.

Sure.

Thank you. Our next question comes from Ghansham Panjabi with Baird. You may proceed with your questions.

Hey guys thanks for putting me in. I guess just as a follow-up to Adam's question on paper and industrial. So your volumes were down 10% in 2Q just cut around a little bit and 8% in 3Q? How should we expect that progression over the next, I don't know three quarters? And the reason I ask is because, obviously 2Q was impacted by the shutdown, et cetera. A lot of other companies that haven't done so exposure have commented on a more significant recovery sequentially, and what you showed?

Again, sequentially, I mean, if you even look outside of our industrial businesses. I mean, think about our auto consumer businesses, in the sharp turn around there. So, in some of what you may classify as other markets out of industrial, we are seeing that. But yes, we are seeing - going sequentially for paper, we are only giving going so far for the fourth quarter. So, we are seeing that strength really pick-up, tube and core, again, I think you will see flat in then the fourth quarter. So, at this point, I think as far as we can see, those paper volumes remain extremely strong. I don’t know if you guys -

Yes. And I can get pretty direct, and just say, as we modeled our Q4, down from this you noted the 10% - 8% last, we are going to say we are modeling about a 5% for Q4. So, that is inclusive of exactly what Rodger talked about with improvement and paper and tube and core as well.

Okay, terrific. And then on consumer, can you just remind us how big industrial plastics is, as a percentage of that segment? How much was a doubt in 3Q? And then the same for flexibles as well. How much how much was flexibles down in the quarter? Yeah, I'm sorry, if I missed that you already said it.

Yes, this is Julie. The industrial business is - of the it is -

130 million in annual sales, for the quarter if it impacts us on a volume basis, around $7 million. So again, it was fairly substantial impact to that the plastic space. And as Julie mentioned, if you look at our overall consumer volumes that actually added about 4% in terms of our volumes. So again that kind of shows the impact of that one particular component. Again, kind of offset really strong performance and, and some of our pure consumer related plastic businesses. Maybe switching deflectable, we were a little bit lower, for the year. And again, as Rodger mentioned, that was principally driven by confectionery being down what it was. The other businesses did fairly well. But again, when you are having people not buying, those sweets that they normally like to get when they are in and out of convenience stores are traveling, as well as the slower build that we see for Halloween this year, that had that negative impact.

Okay, and then just one final one, maybe for Julia is, can you quantify the temporary savings that you experienced in 3Q that may now see going forward? What was the dollar amount of that?

You know our travel, just as an example, was down about $6 million a year-over-year. I mean, I think what is interesting is, there are costs that are down specific to the pandemic. And it is in a group medical is another kind of million or $2. So, then you have got the reality that, unfortunately, incentives are down as well. And so there are various, costs that are lower, so I'd call it in the, kind of maybe $10 million or so.

And, again, some offsets gone from as we talked about, there are increased costs, because we are having to make sure that our employees are in a safe environment. And that is so we are having to increase additional cost as well, which we don't remove from our discussion.

Okay, that is a good point. Thanks so much.

Thank you. Our next question comes from Josh Spector with UBS. You may proceed with your question.

Hey everyone, thanks for squeezing me in here. Maybe a build from that prior question is just if you look at the productivity that you guys have done year-to-date, and your comments about your expectations around fourth quarter, you know you are probably looking at maybe $100 million $110 million or so in productivity this year. Basically above what you guys have done in the prior years, I guess, if you would have bridged into next year and assume a modest volume recovery, how much productivity should we expected to next year? How much get fast from this year would you expect?

Yes, it is pretty hard to say. but before I'm going to hand it over to Julie on specifics. But I appreciate you bringing that up, if productivity has been really critical to our performance this year, and it is across the board. And I just have to give recognition for the fact of how much energy we have put in and over the last three, four, five years as relates to procurement organizations or SBS operational and direct investments. So, it is amazing, really as we watch these volumes start to slide back in that we are starting to see what we really are able to do a lot more with less. But Julie as it relates to next -

Yes, sure. I'm looking at 2019, we delivered close to $50 million in productivity. And, you are right. This year I think we will easily be above $100 million. So, I think for next year, in between those two, when you look across supply chain, fixed costs, efficiencies in the factories again - we have been really doing a lot of restructuring, as you have probably noticed this year, taking out unnecessary costs, that we will be able to leverage more as long as those businesses as volumes increase. So I think it is reasonable to assume next year lands basically between 2019 and 2020.

Okay. So you would expect incrementally productivity to be additive to growth next year, and there is not really a headwind we should consider for some of the temporary items. Is that fair?

Yes. Absolutely. When you look back at our history, I mean, we generate productivity every year across the different kind of levers that we focused on. And so absolutely, we would expect the continued contributions from productivity next year.

Okay, thanks. You know that is clear. And other one around the Can Packaging acquisition, what was interesting you talked about that expanding into maybe other higher growth markets outside of consumer markets. I was just curious, what markets would that acquisition allow you to target? And why is it now that you can target in this market with that acquisition versus what you had prior?

Yes, this is Howard, clarify. Definition of markets and in my comments were really around geographic. One of the things that this brings with this is unique machine - building capabilities that are small footprint, low cost relatively lower volumes. It is a different model than Sonoco has traditionally add. So it is now affording us the opportunity to go and to expand. We are already in Brazil, but to go into Brazil, go into China, deeper Southeast Asia, and bringing a lower cost that differentiated product to those types of markets. And we are seeing a lot of pent up demand for just that. So when I said markets, it really meant geographies.

Okay, thank you.

Thank you. Our next question comes from Brian Maguire with Goldman Sachs. You may proceed with your question.

Yes, thanks. I know we are going late. So I will try and keep it quick. Just wondered on general inflation what trends you are seeing, I think there is some concern around freight moving higher. And then with regards to resin any impacting in 3Q from resin lags and any expectations for we may see in 4Q there?

Yes Brian its Rodger. I think as we look at Q4 on resin. We are expecting about a 3% or so increase. As you know, just a reminder, we move typically quarterly so small headwind in the third quarter. And we will see how that plays out next year. There are projections for up to 5% to 7% next year, but we will have to see. The bigger area we are watching is freight, we are seeing our freight cost increase month-over-month. Not so much fourth quarter, but as we look at next year as we renegotiate contracts, that is an area we have really got a strong eye on and an area that we are seeing across the board. And I'm sure other companies are seeing that freight increase coming for 2021.

Okay and just last real quick. I think you mentioned in the number 10 machine, that backlogs have improved a lot, I'm guessing you have probably swung everything back over to corrugated medium from recycled pulp and to just kind of confirm that given how tight that market is? And just any thoughts on maybe suggesting the timing of the conversion of that machine to kind of take advantage of the more improved economics and outlook for corrugated in the near-term?

Brian, it is Rodger. Just a very small amount of pulp on that machine for the fourth quarter some commitments we have made. Otherwise, we would have stripped it out, we stripped all the pulp whatever you URB system. And really no changes to timing on project horizon. That timing is determined by equipment costs, contractor costs. So we really can't pull that up. But at this point, very little pulp sales at all, coming out in the fourth quarter.

And horizon are the number 10 conversion, I guess the first phase is putting in a new pulping process, which we expect to have that in and feeding the whole network. And as a reminder, that is modern day can handle along next extremely well. That is going to go in probably late next summer. And then we are going to plan today is to take the machine down itself in December have it up in running early January of 2022. And you will see a ramp up period during the first quarter of 2022.

Okay. Very clear. Alright, I appreciate it. Take care.

Thanks.

Thank you. [Operator Instructions] Our next question comes from George Staphos with Bank of America. You may proceed with your question.

Hi guys thanks for taking the call and real quickly to conclude for me. We talked about portfolio, we talked about productivity, we talked out about looking in the mirror as opposed to looking out the window. When we look out to 2021 and then choose whatever year 2022, 2023. Do you have a return on capital goal an increase in return on capital 200 basis points, 300 basis points whatever that might be? The context in the past, you said the margin targets not a strategy. What about trying to grow return on capital given the history of the company where returns have been generally trending over the last 10-years? Thanks guys, good luck in the quarter.

Thanks George. I would say that do we have a specific goal set at this point? No. Well, we are evaluating each opportunity each project and its own merits. So to be perfectly fair, we are building the process right now and we will let you guys know exactly what we will be looking at on an annualized basis, as we start rack and stacking all of the opportunities we have got in front of us, but we can certainly expect to be flat to accretive.

Okay that is helpful. Thank you Howard.

Thank you. Our next question comes from Salvator Tiano with Seaport Global. You may proceed with your question.

Thank you very much for taking my follow-up. Quickly, it will be seen by some of the producers of food cans, both in Europe, but also in the U.S. They have been commenting that their customers are commissioning higher plantings, because they are trying to have more food cans in their portfolio. Could this approach essentially cannibalize some of your fruit and vegetable sales next summer?

It is really hard to say at this point in time. I wouldn't expect that, frankly, the category that we are participating particularly can strawberries, I don't know if that is going to really be a big winner in the market as appose to fresh. And that is the categories that we are in. We are talking about salads, berries. I can certainly see if you are talking about can corns and other products, that statement with whole through, and I really don't think it is going to play any bearing on the size of the market that we participate in.

Yes, certainly, I mean from strawberries or whatever other plantings that will benefit you to other fruits and vegetables being planted that traditionally would go to food cans. That was a I guess the concern.

Yes, sorry. We don't anticipate any issues there.

Okay. Thank you very much.

Thanks Sal.

Thank you. Our next question comes from Adam Josephson with KeyBanc. You may proceed with your question.

Thanks, everyone for taking my follow-up. For Howard or Rodger just on OCC, I don't think anyone has asked about it. I think you said that you don't expect prices to go anywhere. anytime soon, just appreciating they are already below average. What do you think happens now that now that China's ban is about to go into effect? How do you expect China to supply itself with fiber? What does that mean for their imports of containerboard either from the U.S. or Europe or elsewhere? And how do you expect that situation to play out over the next several months and years for that matter? And what impact, if any, do you think it could have for you guys?

Adam, as we talked about in the short-term, yes, China, China developed markets, they are not going to have it from us next year. All the puts and tags I have always felt like OCC is going to stay relatively flat. for the foreseeable future. As it relates how it plays out in the long-term, you are certainly are aware and as saying all the investments that the Chinese companies have made, not only here in North America, but globally. And so I think what we are going to start saying more and more of is diversions of a OCC, European OCC into pulping type operations to keep these mills filled and we will have to play that out in terms of how that tightens the market up and the and the cost implications of that. The other side of it is as has been noted several times during the call that we and others have participated in producing pulp when it makes sense to keep our mills running and it is just going to be interesting to see, because I don't have the answer is that as we become an the market becomes tighter. And what is the price implications as China continues to work of that pulp as China continues to work out their long-term supply plans. So, really don't have a straight answer for you, frankly never had when it relates they OCC and I think I want to talk about that with Rodger if you would ask about OCC so.

Thanks a lot Howard. Best of luck in the quarter.

Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back over to Roger Schrum for any further remarks.

Again, thank you all for staying with us. And we appreciate your questions. We certainly also like your interest in the company. As always, if you have any further questions, please don't hesitate to give us a call. Thank you.

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