GEF
#Thank you, <UNK>.
So the slowing in July and August could be tied to the holiday season in Europe.
But going forward, I would expect that we will see similar trends that we've seen in the last four months.
We've got to remember, there's still expansion.
It's just slowing.
And at this point, since we've seen volumes improve in August, through the end of August, talking to our team there, we do not have any significant concerns that that trend will change.
Two points.
There are ---+ our customers are transitioning from some packaging mediums to IBCs.
A lot of times, it's more efficient in their supply chain.
And secondly, quite frankly, is our position is smaller, and so we are ---+ as we are growing and adding capability around the world, those increases are higher.
And as we grow our footprint, those would stabilize slightly more.
But in general, the growth rates for IBCs are at a higher rate globally than steel drum or fiber drum or plastic drums.
Certainly.
Thanks for the question.
Effectively, there is the element of the taxes, which is about $14 million or so.
And then we also have about $7 million on pick-up of just the midpoint of our CapEx range, and the balance is just a continued improvement in our working capital elements.
Those three items essentially total up to the move of our range.
On a go-forward basis, we remain committed to delivering on our transformation commitments.
The operational improvements that we'll continue to deliver through next year, and also continued focus on further improvements in working capital management, will help us deliver on those commitments.
And we do have one bit of tailwind going into next year.
We'll be refinancing our bond, and we'll have some pick-up even on interest expense cash out next year, as well.
Yes.
So what we have is visibility, that I have visibility in probably the first three weeks of August, which is dangerous to make assumptions from three weeks.
But again, in Europe, we were quite pleased that we started seeing volumes trend back to more normalized volume trends across all of Europe.
I think I commented, there are a few weak spots.
Saudi Arabia is one that's been weak all of Q2, although it's not necessarily material to our RIPS business overall.
I would say in North America, we don't see any dramatically different trends from the first three weeks in August, from what we saw in the third quarter.
And that's one of the typical exceptions, is that fiber tends to slow down in Q4, because the large input of the ag season on the West Coast, since that didn't happen, we tend to see flatter ---+ we'll see a flatter trend in that segment.
Does that answer what you were are poking at, <UNK>.
In steel we've been running between 1% and 2.5% to 3% in steel throughout the year.
I think that will be probably toward the lower end of that, only because what we see the trending of the manufacturing data.
I think IBCs will continue to grow at a similar rate this year, and hopefully we expect next year, because of some of the additions we're making in that business.
In North America, I think you will start seeing year ---+ but mainly in steel because we'll have a fair comparison based on our consolidation efforts changed in Q4 last year.
So it's just a more even comp.
And I think our IBC business will continue to grow in North America as well, at a rate similar to what we're seeing this year, or potentially higher.
Again, as we've added capability.
So a lot of components go into the gross margin line.
And from a pricing ---+ because we have a high pass-through mechanism, when you look at our raw materials, whether it's predominantly steel, because that's about 65% of our substrate volume in RIPS.
You have pass-through mechanism, when it goes up, we pass that through, when it goes down, we do the same.
There's lags, and depending on the timing, so it's not always clear.
I think there's three big parts of what we're doing from a gross margin standpoint.
It's we are making decisions on where we participate, and where we don't.
And that's based on the margins we get.
Secondly, it's supply chain and sourcing initiatives.
As an example, we've got 50 to 60 different initiatives, whether it's in transportation, whether it's in sourcing that we do, whether it's indirect materials that we do constantly, to try to create value.
And then another big part is our operating costs and our operating execution levers.
One of the biggest areas there has to do with unplanned down time in our operations, and that really speaks to improved reliability and consistency in our manufacturing operations, and there's a variety of levers that drive that.
I think my point on value over volume is we have to and we are changing our culture, that volume is strictly a vehicle for profit.
And we're not going to be slaves to chasing volume in competitive arenas, where the margins are eroding.
We have to be smart about where we participate and where we choose to participate, and with the right strategic customers.
So that doesn't necessarily mean that you're always going to get high margins, because it is a competitive environment, but it's based on the decisions you make in certain circumstances that drive our behavior, which is profit first, and volume second.
We don't have it in there, <UNK>.
We've never really tried to quantify it ourselves.
It's a thing that we can look at and see whether it's something we could do, but we have not yet done it.
The other thing, <UNK>'s talked about, we have multiple, multiple number of pass-through mechanisms, and the question how reliable and how much time it would take to do that.
We know what increases we're getting or decreases in material, and how that would behave and we track that.
But to roll it up would be very challenging, and I'm not so sure would tell us a different story, and make us change what we're doing, running the business, if that makes sense to you.
That's a great question.
So our belief is the biggest opportunity in RIPS and reconditioning is tied with IBCs, because that's more of a supply chain strategy.
We are in Mendig, Germany, we've reconfigured our manufacturing footprint for IBCs in that region, consolidated, improved it and part of that is putting an integrated new IBC reconditioned facility in one, in central Germany and that is almost completed, and we are building a similar capability in the Netherlands, and we have other partners around the world that we also do that.
So that is our focus in reconditioning.
Hey, <UNK>.
This is <UNK>.
Why don't you ask your additional question now.
Because I think we're going to just take <UNK> and <UNK> and end after that.
So if you have an additional question we'd be happy to address it now.
<UNK>, you're referencing just FPS.
The big next milestone, as we've talked about is Q4.
So we've ---+ and you can see on what we've released, is we expect to have EBITDA $3 million in Q4.
We're really pleased with the pace and activity that's happening there, both in managing our underperforming operations, and what we're doing in the market, and operationally.
But that is a big milestone for us.
Our leader, Hari Kumar, is confident in the activities that are going, and everything we're doing is poised to that, as that is the next milestone.
Yes, sure.
So because it's a little bit convoluted right now, as you know, let me talk, if I could, real quick about this fourth quarter.
So our fourth quarter, as you know, is August through October.
So we're going to have a balance between agreements that we have the $15 a ton medium reduction and then plus a beginning a blending of the $50 a ton increase on container board.
So we're talking about an estimated $1 million to $1.5 million impact in Q4 on the negative side, depending on the timing.
And in 2017 and really starting in our Q1, <UNK>, which is November to January, we expect to have the $50 a ton increase on container board in.
There might be a month delay for our corrugated product sheets, so we'll be getting that during early Q1, our Q1, which is November.
And then probably ---+ if you just take our volume and if you can use for reference about 550,000 tons is medium and 200,000 tons is linerboard, and do the math on the $50 and the $15, that will give you a fairly clear view of what we think that impact will be in 2017.
And the key would be, is our Q2 is January through March, so we will ---+ we should start having good run rates in our Q1.
We're going to expect to produce about 750,000 tons today.
I'd just say 550,000 for medium and 200,000 for linerboard as a good reference point.
What we've said, <UNK>, is we want our SG&A to be below 10% of revenue, so obviously it tends to be a little bit of a moving target.
But when we laid out our commitments in June, you'd be at the [$33 million] level.
So obviously below $330 million for the year.
So it fluctuates a little quarter to quarter, because of some things, and you get incentive accruals that vary throughout the year.
But that ballpark is where we should be.
<UNK>, I saw the European numbers that came out, I've not seen that, the North American one.
So yes, it actually to go down to 49, that is surprising.
I haven't got a chance to look at it, so I'll leave that comment.
Thanks, <UNK>.
I'll make some comments on it, <UNK>, but I'll just be very direct.
I have not re-looked at what I think 2017's projection would be, except to just do a gut check on, do I think we are able to get there, based on what we've looked at before.
And I have absolute confidence that we will get there.
But if I just go to your pieces and parts, CapEx this year in the fourth-quarter numbers that we laid out, obviously we said down a little bit.
That has to do with discipline in our process.
So when we take tentative approval in our budgetary process on a project, we tell the teams when you come for real spend, you have to redo your business case with actual bids.
That sometimes puts pressure in the process, where the bids delay, and some things get pushed back.
CapEx is probably slightly lower right now, than where I would expect it to be.
I think I'd stay consistent with what we said before, $99 million to $119 million, call it $100 million to $120 million, somewhere in that range, so maybe slightly more on CapEx.
But we're just beginning that process for our budget for next year, so we haven't landed on a number yet.
The second element would be, as I mentioned, we anticipate some element of tailwind from interest cost savings.
Third element is, I do expect further cost reductions in our SG&A spend, and just operating results, as you mentioned, that will drive a lot.
And then working capital, we do expect to get another $10 million to $30 million of savings out of next year, and hopefully even more, depending on what we're able to accomplish this final quarter, as well.
We had contemplated that there would be some savings.
We're probably looking at slightly more now than we did then.
Thank you, <UNK>.
So I'll comment on what we see, and how that impacts our decisions.
So actually our backlog in our mills is actually better now than it was at the beginning of Q3, which would suggest we're seeing some improved activities and our CorrChoice sheet feeder system continues to have good growth.
I think we're up 4.1% quarter over quarter, and we still see a good growth opportunity there.
So again, our biggest decision on the announcement has to do with what we believe we have to do, to provide the right return for the capital invested in the business, and offset the increased cost that we've seen over the past 3.5 years eroded our margins.
I hope that answers your question, <UNK>.
Great.
Hey, thanks a lot, Julie.
That concludes our presentation today.
The replay of this question-and-answer session will be available later on our website, at www.Investor.Greif.com.
We really appreciate your participation and your interest.
We hope you have a great remainder of your week.
Thank you.
