Good day and thank you for standing by. Welcome to the Greif's Fiscal Third Quarter 2021 Earnings Conference Call. At this time, all the participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's conference is being recorded.
I would now like to hand the conference over to your speaker today, Matt Eichmann. Please go ahead.
Thanks, Whitney, and good morning, everyone. Welcome to Brite's 3rd quarter fiscal 2021 earnings conference call. This is Matt Eichmann. I'm joined by Pete Watson, CRI's President and Chief Executive Officer Larry Hilsheimer, CRI's Chief Financial Officer and Ali Rosthard, CRI's Chief Operating Officer. We will take questions at the end of today's call.
In accordance with our Regulation Fair Disclosure, please ask 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 turn the presentation over to Pete on Slide 3.
Thanks, Matt, and good morning, everyone. We appreciate your interest in Greif And hope that you and your families are staying both safe and healthy during the pandemic. Gregg delivered robust third quarter results. We fueled by strong volumes and ongoing strategic pricing actions as we continue to experience strong demand across our global portfolio. Our leverage ratio fell at 2.8 times and our Board approved a $0.02 and a $0.03 increase to our Class A and Class B quarterly dividend respectively payable on October 1.
We're also increasing our adjusted earnings per share And adjusted free cash flow guidance reflecting our strong year to date results and positive outlook for the remainder of the fiscal year. Finally, in late June, we announced a planned executive leadership transition that will occur next year. Upon my retirement on February 1, 2022, Ole Rosgaard will assume responsibility for Greif's next Chief Executive Officer. Until that time, Ole will serve as Chief Operating Officer and work closely with me and our executive leadership team on this transition. Ole is a servant leader and a proven team builder with a demonstrated commitment to customer service excellence and disciplined operational execution.
Those attributes along his extensive manufacturing and industrial packing experience makes him the ideal leader to take Grife forward. Oli, I'd like to ask you to say a few words. Thanks, Pete, and good
day, everyone. It's great to be with you. As Pete mentioned, my name is Oli Roskoff, And I'm excited and humbled to be named as scribe's next CEO. I look forward to joining these calls in the quarters ahead And to working more closely with all of you in the future. As Head of Global Industrial Packaging, my focus Was on driving and delivering the operating and business results that our customers and shareholders expect.
As COO, that focus continues across the wider price portfolio. And as Pete said, I'm working closely with the executive leadership team on our fiscal 2022 business plan and will share more about my priorities for the future after I assume my new role. With that, I'll turn the presentation back over to Pete on Slide 4.
Thank you, Oli. On Slide 4, the Global Industrial Packaging business delivered outstanding 3rd quarter results. Our global steel drum volume increased by 8% per day, while global rigid IVCs and large Plastic drum volumes both rose by more than 25% per day. We also saw mid teens improvement in our filling volumes versus prior year quarter With demand accelerating specifically in APAC, 3rd quarter average selling prices were up across all key global substrates year over year due to raw material pass through arrangements and strategic pricing actions. In North America, which features our most diverse product mix, All of our key substrates recorded low teens volume growth or better versus the prior year, thanks to generally improving industrial conditions.
In Latin America, steel drum volumes rose by 15% on a per day basis versus the prior year and benefited from improved industrial trends and a Strong agricultural citrus season. In May, our 3rd quarter steel drum and rigid IBC lines increased by roughly 5% And 28% per day respectively was strong improvement across most key end markets. And finally in APAC, steel drum volumes rose by 7% per day versus the prior year. Demand was solid in China, A little softer in Southeast Asia due to COVID-nineteen related lockdowns that we continue to monitor across parts of that region. Across GIP, we see little indication of customers rebuilding inventory.
Supply chain conditions remain tight, Our team is managing this challenge very well. While we have not experienced any significant raw material shortage, Some of our customers have, which has negatively impacted our demand in certain regions. Labor availability is becoming more Which is not unique to Greif's and has impacted the productivity of some plants in both GIP and paper packaging. These disruptions are not material at enterprise level, but certainly present operational challenges nonetheless. GIP's key end markets are healthy.
We experienced a double digit performance volume demand year over year for both chemicals, specialty chemicals and lubricants in most parts of Global portfolio, volume demand for paints and coatings also strengthened, especially in the U. S. And EMEA. And volume demand for solid food and taste weakened versus the prior year quarter, but this was largely the result of pricing and margin decisions on our part that impacted chemical demand in Southern Europe. GIP's stronger volumes and higher average selling prices resulted in higher segment sales and gross profit year over year.
GIP's 3rd quarter adjusted EBITDA was a record and rose by roughly $62,000,000 due to higher sales, partially offset by higher SGA expense, mainly attributed to higher incentive accruals. The business also benefited from a $9,000,000 operating tax recovery in Brazil and an $8,000,000 FX tailwind. Please recall that GIP's Q3 2020 results included an opportunistic sourcing $5,000,000 that did not recur. Looking ahead, GIP is off to a solid Q4 with August signs While the damage from Ida is extensive and dramatic, at this time and what we know, we do not We anticipate a material impact to our fiscal 'twenty one fiscal results from the storm. I'd ask you to please turn to Slide 5.
Paper Packaging's 3rd quarter sales rose by roughly $120,000,000 versus the prior year attributed to stronger volumes Higher selling prices due to increases in published containerboard and boxboard prices. Adjusted EBITDA rose by roughly $18,000,000 versus the prior year due to higher sales, partially offset by higher transportation and raw material headwinds, including a $24,000,000 OCC drag. SG and A expenses rose year over year primarily due to higher incentive accruals. We are actively executing on price increases in response to robust demand And cost inflation, since early June, we've announced 5 price increases, including a total of $100 a ton On CRB, dollars 120 a ton in total on URB and $70 a ton on containerboard. As of August, the published index has recognized $50 a ton on the CRB increases, $50 a ton on the URB increases and a $50 $60 ton on linerboard and medium respectively.
Demand in our current converting operations remained very, very strong. 3rd quarter volumes in Core Choice, our corrugated sheet 3rd quarter specialty sales, which includes litholaminate, triple alcohol, packaging and coatings were up more than 38% versus the prior year. 3rd quarter tubing core volumes were up nearly 18% per day versus the prior year and accelerated by mid single digits versus Q2. Thanks to improved demand for textiles and protective packaging and continued strength in the Filament market segment. Paper Packaging is off to a solid start in August.
Volumes in Core Choice and our Tubed Core business are comparable to July's actuals. Similar to my comments about GIP, we do not anticipate damage caused by Hurricane Io to have a material impact to our paper factory results in Q4. I'd like to now turn it over to our CFO, Larry Hilsheimer.
Thank you, Pete. Good morning, everyone. Please turn to Slide 6 to review our quarterly financial performance. Big picture, it was an outstanding quarter. 3rd quarter net sales, excluding the impact of foreign Change rose 34% versus the prior year quarter due to stronger volumes and higher selling prices and were a record.
Adjusted EBITDA rose by $78,000,000 and was also a record. As Pete mentioned, EBITDA results Include a $9,000,000 Brazilian tax refund from overpayment of revenue based taxes to the government that occurred in prior periods and were wrongly levied. That refund reduced SG and A. Keep in mind, our adjusted EBITDA result overcame more than a $50,000,000 of combined OCC and incentive versus the prior year, making our performance that much more impressive. Interest expense fell by roughly $6,000,000 versus the prior year quarter Our 3rd quarter GAAP and non GAAP tax rate were both 22% and were flat to prior year.
3rd quarter adjusted Class A earnings per share more than doubled to That said, our team is executing with discipline and controlling what it can with superb results As trailing 4 quarter working capital as a percentage of sales improved by 190 basis points year over year to 10.7%. Please turn to Slide 7 to review our outlook and key modeling assumptions. As Pete mentioned, we are increasing our adjusted earnings per share And adjusted free cash flow guidance, which reflects our strong year to date results and positive trajectory for the remainder of fiscal 'twenty one. At the midpoint, we anticipate generating Class A earnings per share of $5.20 which is $0.50 per share more than our guided Q2. This improvement is largely due to stronger volumes and favorable pricing more than offsetting the additional OCC headwinds We expect to incur for the remainder of fiscal 'twenty one.
With our anticipated fiscal 'twenty one result, we will have more than doubled earnings per share since Despite COVID-nineteen's negative impact, the closure and or divestiture of nearly 99.4 1,000 more shares outstanding now versus the end of 2015. We now anticipate generating between $335,000,000 365 1,000,000 in adjusted free cash flow with a bias to the upside of that range. At the midpoint, adjusted free cash flow has improved by 40 $5,000,000 relative to our Q2 guide due to improved earnings, slightly lower capital expenditures and cash tax savings, partially offset by higher working capital usage commensurate with our announced price increases to offset cost inflation. Please turn to Slide 8. We employ a consistent 3 pronged capital deployment strategy focused on business reinvestment, Debt reduction and capital returns.
We have executed on an aggressive delevering plan and repaid $370,000,000 in total debt since Q3 twenty Our compliance leverage ratio improved by nearly a full turn over that time period, and we now anticipate reaching the high end of our targeted Leverage ratio range by the fiscal year end. Given the dramatic improvement in our leverage profile Confidence in strong future cash generation, the Board approved a 4.5% increase to our quarterly dividends effective this year. This is a first step towards the practice of steadily increasing our dividend as we discussed in prior earnings call. With that, I'll turn the call back to Pete for his closing comments.
Thanks, Larry. If everyone could please turn to Slide 9. I want to personally thank our global Greif team for executing with discipline to deliver outstanding third quarter as we continue to strive towards our vision of being the best Looking ahead, we are well positioned to benefit from ongoing strength and improving trends in our key end markets. Our extensive global portfolio, differentiated service capability and sharp focus on operational execution Enable us to best serve our customer needs, while generating significant shareholder value. Thank you for your interest in Greif.
And Whitney, if you could please open the line
Your first question is from the line of Ghansham Panjabi with Baird.
Thank you. Good morning, everybody.
Good morning, John.
And congrats Pete and Oli on your new roles. Wish you best in the future. I guess On the Industrial Packaging side and the operating leverage you delivered was quite substantial. Can you give us a bit more insight into whether there was any sort of mix benefit For that segment, I'm just looking at volumes, which basically reversed the decline from 3Q 2020. So I guess I'm trying to what drove the extent of the margin expansion even with cost inflation to the extent you experienced?
Yes. So I'll talk a little bit about the volume and a little bit And then Larry can add. But from a volume standpoint, Danshan, we had some low benchmark comparisons versus prior year. But all of our end markets were very healthy. I think in our opening comments, the only end segment that we had lower volumes was the food and solid Food business, but that's more relative to the decision we made on price and margin in Southern Europe.
Our volumes and all our substrates are strong. The end markets are very healthy. We don't see much change in that going forward. And we continue to Keep the discipline on some of our self help initiatives that we've talked about, and we're very disciplined in our pricing actions, both on Executing on pricing for raw materials to our PAMs, we've done a really good job in that business of Getting non raw material increases, I think 55% of our contracts included opener. The teams have done an exceptional job and We're executing very well operationally and driving a lot of self help initiatives through a variety of our actions to drive better margins.
So we're really pleased and Excited. We think there's good upside going into next year. Larry, any other thoughts?
Yes, Gunther. Mike, I'd take it down to 3 things. 1, We have been maniacal on our approach to staying ahead of inflation and our teams have executed extremely well. The annual openers that we built into the contracts over the last 4, 5 years have really provided A way to offset those other increasing costs, that's number 1. Number 2 is The PAMs and making them way more efficient and shutting down the lag period, that has benefited us greatly in a period of highly Accelerating raw material costs.
And so we've had some nice tailwinds from that. And third is our focus on Really getting rid of underperforming operations. I mentioned previously where we were, what we're now up to about 89 plants. We've Over $500,000,000 of revenue we walked away from on low, very low margin business that was 2% or EBITDA or So all of those things combined are what's driven the margin, whereas we and we can expect to continue to execute Going forward.
Got it. And just for my second question, I know it's early, but any reason why we should not use the back half of this year's EPS run rate At a minimum, as a baseline for fiscal year 'twenty two EPS, adjusting for any seasonality, I
mean, you have a lot
of pricing coming through and volumes seem to be in a good spot. So any reason why That would not be the case.
No. Very clear. Thank you.
Your next question is from the line of George Staphos with Bank of America Securities.
Hi, everyone. Good morning. Thanks for taking my question. And congratulations, Oli and Peter, again. I guess to start, So if you can talk about the cost inflation you incurred in the quarter, You mentioned $26,000,000 in terms of OCC, if I heard you correctly.
What was
the pull, including OCC, of Variable cost pressure year on year in the fiscal Q3, if I can see another input cost. And then because you had about $250,000,000 of pricing. And then how does that what's built into your assumptions For the fiscal 4th quarter, again, on variable cost inflation year on year, including OCC, transport
Yes, George. So in the paper business, the inflationary element Q3 over Q3 was about $36,000,000 $24,000,000 of that was OCC. The other was related Chemicals, adhesives, etcetera. Transport was another $13,000,000 just on higher volumes, another $21,000,000 when you take into account labor, other temps and additional Transport on just core volumes. So substantial in the paper business, I don't have let me Back up on the GIP piece, we had raw material price increases of around 46,000,000
Currency
dragged about $8,000,000 And then we had also Manufacturing and transport of another $22,000,000 from higher volumes, inflationary Manufacturing and transport of $10,000,000 I'm sorry, the $46,000,000 was actually our price increases. I don't have a number on the raw material cost year over year. Do you have
24 for others.
Yes, 5 for other pieces and 36 in total. But just to give you a sense, George, cold rolled steel is about 3 times more expensive right now than it was a year ago and similar ratio on resin.
So I'm sorry, Larry, I didn't quite get that. You said the $46,000,000 in GIP was actually your selling Yes, that was broad and
non raw price increases. I was reading the wrong line.
All right. I I guess
what I'm getting at, if I look at your guidance and I take the run rate of pricing that you got into the fiscal Q4 and I add up, Again, not labor, but all the other variable cost pressures. It seems like your guidance is fairly conservative And is building in room for maybe another $50,000,000 it seems like of incremental cost inflation. I don't know if you can Okay. Those specific factors, but any color there would be great. And then my other question, I'll turn it over.
Pete, I heard you comment a little bit about the 3rd quarter excuse me, fiscal Q4, but could you give us a bit more detail in terms of what trends you're seeing volumetrically across the businesses early in fiscal 4th? Thank you.
Yes. So on our what we're seeing on volumes in the market in August, which is the 1st month of our fiscal 4, The trends are very similar to what we saw in July. So again, healthy end markets, our volume trends will continue to Be strong. You do have to remember, our Q4 last year, our volumes started picking up from the COVID Drop off, so the increases will not be as substantial as they were in Q3, but they'll still be pretty strong and we feel really good about The market and the demand equations for our 4th quarter in both PPS and GIP.
And George, I don't have I don't think you made clear data on the raw material component. We do expect that Our margin in our GIP business will be slightly lower in Q4 than It was in Q3 because we don't anticipate steel costs going up as much. And so we've had a catch We'll have a catch up where our pricing indexes do not increase, but we have some higher cost steel coming in to our inventories, But still very healthy margins.
Okay. Thank you. I'll turn it over.
Your next question is from the line of Mark Wilde with BMO Capital Markets.
Thanks. Good morning, guys. Pete, I just want to say kind of congratulations to both you and Mike. I can remember 6 years The company was in a much tougher situation when you took over and it's nice to see you kind of getting ready to go out with such strong Now my questions are really, if you can help us a little bit more on what is left in terms of pricing. You talked about Sort of the board price initiatives you have, but I'm also just curious in terms of kind of the lag roll through On tubes and cores and corrugated sheets and converted products.
So if you can just help us think about that issue.
Thanks, Mark, and I appreciate the kind words. And I've got to tell you, we've got a very deep bench here at Greif, and we've got a great talented team. And I have very, very high belief that we're going to have a great future, right. So to your question on what's left of The mill increases, so as we said containerboard is a 60 and medium 50 in liner, it's been recognized. We'll start getting impact in Timber was full impact by October.
So not a full Q4 impact, but it'll be accelerating through the quarter. On URB, we have a $50 ton increase that has been recognized and again the impact will start in September And be fully realized through October, what's left on URB is we announced $70 on September 13. We fully expect that to be recognized as the backlogs and demand for that product is very, very strong at this point And don't see any change in the future. On CRB, we announced a $50 and it was recognized in 2 Pieces 1 in 30 and 1 in 20. Our recognition or impact won't be till calendar 2022
Due to
contracts in that business, we have also announced a $50 ton increase for August 30th For CRB, we fully expect that to be recognized as well. Again, business conditions are strong, our backlogs are long, And we're real bullish on this business right now.
Okay. So Pete, for my second question, I'm just curious about Potential investments in the URB business, I mean, you've got one really large competitor there. They picked A very efficient machine in Wisconsin a few years ago. They're rebuilding their main complex down in the Southern U. S.
So To remain competitive with them as they improve their asset base, do you need to make incremental investments in your
Yes. So you make a good point and our largest competitor has done some investments. And as you know, they Taken a stranded media machine and converted it to a wider and a very efficient URP machine. But we've got a plan for how we're going to improve our URB system, and it combines both our mill system and our converting capability. We don't see that we're going to have a significant disadvantage in cost in that.
I think what's more important is what we do and how we go to market And create a differentiated advantage, high touch from a customer service standpoint, we create value for our customers And grow that business through that customer service differentiation. But we are looking at ways to improve the overall All structure and footprint of that mill system and we'll have more to come into 2022.
Okay. And if I could flip this one more, is it possible to just remind us Sort of the roll off on the Graphic CRB contract?
It is we're not going to go specifically into it, Mark, only because that's Between us and Graphic, but it's rolling out through the 3 different mills sequentially starting next This year into late 2024.
Okay. Sounds good. Thanks, Pete.
Thank you.
Your next question is from the line of Adam Josephson with KeyBanc Capital Markets.
Good morning. Pete and Oli, congratulations and all the best of luck to both of you. Larry, one on GIP, Pete, just on your 4th quarter assumption
and then I have a
full year
question. So you had the FX Benefit the Brazil benefit, there is seasonality typically in that business and that profitability is normally lower 4Q versus 3Q. You mentioned that the Steel price issue. Can you just help me with what your expectations are for the profitability in that business in 4Q? And then I'm going to again ask a full year related question.
Adam, I don't have the breakdown of that business For the elements that you just spoke of, so let me just walk through just what we anticipate and what changed in from our prior year I can talk broadly at the factors that are going to impact GIP, which will have lower profitability in the 4th quarter For some of the reasons you mentioned, but we had previously guided to $4.70 a share. Yes, we're now up to a midpoint of $5.20 and just roughly you've got $0.82 of operational improvement that's related to volume and prices Offset by about $0.42 of OCC, interest expense is a $0.05 left, tax is a $0.01 left and then we got other on the earnings and stuff, it's roughly $0.04 on the midpoint. There's ranges around all of those. But yes, we won't have any more tax refund from Brazil in this Current year and likely not in the future, although there's a slight possibility we may get something further down the line. The element of steel cost catch up, as you're accelerating rapidly, you clearly have some benefit of the The inventory that you have already purchased at a lower cost as things accelerate.
The curve has started to flatten a bit, although there's been a recent cold rolled deal cost increase again in the U. S, but the rate of increases has dramatically decreased. And so you'll have some Margin squeeze as that plays through the inventory. We don't anticipate Relative to the given current economic projections by most economists that there's going to be Dramatic drop in steel cost, which would be the only thing that would really be problematic for us. But we do see a little bit of squeeze in the margin and then the seasonality impact that you mentioned clearly plays out in the 4th quarter.
A step down in profitability in the 4th quarter for GIP is the correct assumption on your part.
Thanks. And just 2 more. So one on the so if I look at the full year, Larry, let's say that your EBITDA in that segment ends up being, call it, 4 If I look at the previous 4 years, it was somewhere around $300,000,000 per year. So you'd be going from basically $300,000,000 to $450,000,000 which is a 50% jump. Can you help us with is that the right baseline in your mind to go off of for next year?
I mean, the improvement is truly dramatic and I'm just trying to understand if you think that is kind of the right baseline or there are some perhaps temporary factors Such that, that is not the right baseline to go off for next year.
Yes. I mean, our team has been doing an outstanding job of improving operational. I do want to Matt point it out, I think I might have said 89 facilities closing. It's actually 79, so I haven't stated that. But Like I said, we've walked away from a lot of unprofitable business.
We've replaced virtually all of it with more profitable business I'm winning through our focus on customer service and improved margin business. So I think The basics of what you say, I'm not going to get into specific numbers, but are accurate. But we will as the steel cost Flattens, there will be some margin degradation, but we also have a lot of continuing self help Efforts going on, we have additional CapEx projects on blow molders and a few other operations that are going to Continue to improve. So it's a good baseline to work off of is the bottom line answer to your question.
Thanks so much. And just one more, if you don't mind. Can you however you want to answer this, in other words, include the price increases you've announced but Haven't been recognized, you just limit the answer to those that have been recognized. But if you add all of them up, containerboard, URB, CRB, What would the impact be on your revenue in Paper Packaging next year? And similarly, if you The assumed 4Q OCC price and you just flat line it through next year, what would the impact of that be?
Yes. If we take all that and go with the assumption that Pete and I have of recognition of the last price
Your next question is from the line of Gabe Hajde with Wells Fargo.
Good morning, Tony. It's been a pleasure working with you and all we look forward to working with you going forward.
Thanks, Gabe. Appreciate it.
A lot of questions have been asked and but I want to kind of come back to what Adam was dialing in on. And I think Maybe instead of focusing on margins because raw materials can play a pretty big role in what those numbers shake out to be. Even if I go back to kind of coming out of the global financial crisis, I think the comment is Pretty consistent in that EBITDA, I think, kind of peaked out around $366,000,000 in 2010. And so taking into account all the business that you've walked away from, and I'm asking sort of in the context of You guys have given kind of fiscal 2022 financial objectives. Is there anything in that business that you can point to or direct Whether it's mix of business from a product standpoint or geographic standpoint That makes it structurally different than kind of what the business was before, appreciating obviously, you told us you walked away from $500,000,000 in revs.
Steve, I'd make some comments, I'd repeat some. So big picture, if you think about it, we've been consistently Talking to all of you about the fact that we've been focused on building our business in plastics And IBCs, it's a pretty big structural change relative to the margin profile, particularly after we walk away from The poor business we had and the other is a bigger focus on the end markets we serve. So we have shifted away where if you went back to that post financial crisis time that you spoke of, We were way more heavily dependent on the chemical companies than we are today. And so those are 2 big structural Shifts for us that I would mention, Pete?
Yes. Really three things, how we've improved the overall structure and how we lead that Business, first, it's much more improved price discipline. So we've talked a lot this year about the improvements to our contracts in PAMs In shorter pass throughs also about the nonmaterial nonraw material price increases. But more importantly, We're much more coordinated in that business with 1 leader under Ole Rosgaard. We've centralized all pricing desk With really strong analytics.
So I think technically, we're better at what we do. We have better Overall view of the markets on a global basis, which most of our customers are global in nature. So I think we're much more consistent And over our strategy, the value over volume, which goes to Larry's point, we've walked away from a lot of unhealthy business And we've gone after markets that are growing higher and have opportunities to be more profitable. We can also look at What GIP has done from a customer service initiative, when we started in 2015, they had a 57% CSI score, now they're above 95. So our ability to serve our customers across the global portfolio is dramatically improved.
As Larry said, our strategic growth initiatives are into the resin based products, IVCs, IVC reconditioning And plastic drum, if you remember 5 years ago, I think our total percentage of products or revenue in Steel was over 60%. It's now at 51%. So that growth is in better profitable business and higher growth markets That the plastic drums and the IBCs address. And third, we've talked about this, It's really important. We've had some tremendous self help initiatives that as Larry said, we've closed significant Shocks that were losing money were at low EBITDA.
We've done rooftop consolidations to reduce our fixed cost structure And we've done some structural changes to our SG and A cost as part of running this as a global business. So When you look at all that, Ole Roscoe has done a really tremendous job at changing the trajectory of that business. And we feel really
Thank you guys for that. The other one is on capital allocation. I mean, obviously, you guys kind of bumped the dividend here and you've talked about that.
And you
talked about investing in the business on Slide 8. One of the things I think you put in prior slide decks is kind of your framework for which you kind of filter and think about inorganic or M and A. Can you remind us a little bit maybe Larry as to How you think about M and A, I guess from a financial standpoint and sort of how does that coincide with the way management is incentivized?
Yes. Thanks, Gabe. Look, we will remain committed to spending the capital needed to make sure that we Feed the cash machine we have, meaning we will spend what we should on maintenance capital. Yes, I think you'll see us doing more and more around automation given the labor components of things. So highest priority is Always making sure that we save and grow what we have.
And we will continue to focus on Getting our debt leverage ratio down to where we target, but obviously we're very close and expect to be there at the end of this So we've talked previously about we're in the middle of a strategic plan focusing on wrapping that up by The early part of next year and then we'll communicate out to all of you about what our go forward look is relative to M and A That kind of thing. But we also recognize that we are going to be in a situation of really having a lot of excess capital Very shortly. And so to the extent that we don't meet our criteria, which That same chart that we showed many years ago around the various return criteria that we have given the risk of Potential investment will continue to apply. And to the extent that we don't find opportunities that fit our appetite, then we'll be returning even more capital to
Gabe, this is Pete. I just want to make one comment on that. So I think we've done a phenomenal job at deleveraging the balance sheet. But I just want to make it clear, regardless of what our debt leverage ratio is, we're going to be really disciplined in our process to capital allocation. I think that's important.
We're going to stay true to our strategy and our priorities. So I feel really good about that process that we've put in. And again, we're going to have a very, very disciplined approach for how we allocate capital to create the best value for the shareholders.
I appreciate that, gentlemen. I just obviously, there was an initial response to the Caraustar acquisition and questions around timing and such. So just wanted to kind of refresh as to how you guys think about it. Thank you.
Thanks,
Your next question is a follow-up from the line of George Staphos.
Hi, everybody. Thanks for taking
the follow on. Pete, I was wondering if
you could talk about where your volume trends are End market relative to what they were pandemic. And Larry, if you could, I think you commented a little bit on this on the last Call,
I'll start with the
call that there should continue to be growth For Gris in the markets and for the company's fiscal 'twenty two and fiscal 'twenty three, because a lot of the questions obviously From the analysts today, ourselves included is, hey, you've had a great year, but you also have a tough comparison now. So where is the growth going to come from essentially?
Yes. I think I got most of your points, George, but you broke up pretty significantly on the part that addressed me, but I'll try it. And if I don't hit it, then maybe come back to you. But I'll let Pete go through your First question first on end markets and that and then I'll try to tack yours on what are we seeing growth in the future?
Yes. So George, let me comment first on our paper pack So our business models to serve both integrated and independent box plant raw materials. And then on tube and cores, we certainly have a direct model, a pretty widely dispersed end market segment. So That model has really accelerated our customer service model in a really tight supply chain environment. So I think it's enhanced our paper packaging value proposition.
And with our Strategic investments in that business, we've really taken advantage of the e commerce Packaging, so we've grown significantly in that segment compared to where we were 2 years ago. So I think that's one big trend. And I also think the pandemic, our tube and core business really damaged some of those markets and they're coming out of it very Well, as you can see by our growth of 18% year over year, we see really good strong trajectory of our end markets in our tube and core business in August and going forward. So I think we're really well positioned in the end segments There, I'd like to ask Oli to comment on those end segments' strengths in GIP, if you could, George. Thanks, Pete.
Hi, George. So
we see the end markets that we serve at the moment very strong and in particular Bulk and Specialty Chemicals are strong. Lubricants, oils and paints and coatings and adhesives, Those end markets are strong and we expect them to remain strong in the foreseeable future.
And I think one thing as you look at the trend, George, from a standpoint of disinfectant and cleanliness, which I think is going to be a bigger factor post pandemic, So some of those end products and chemicals we produce that will continue to improve. And again, our greater access To IBCs and IBC recondition, it really positions us well to some of those growing markets.
And George, relative to what I at least what I think I heard your question of, hey, this is great. We've had Full 2021 makes it for a comparable challenge in how might we be focusing on growth. And a lot of it's going to be sort of things remain the same. We are going to continue to leverage our focus on customer service. We have, we believe gained some market share.
We recovered the business that we walked away from with more profitable business and We attribute that to winning customer share because we are a reliable supplier and we are a value add And our teams have done a great job of building those relationships with the customers in both the GIP and PPS business and we'll continue to leverage that. 2nd It's back to the strategy of continuing to extend in the plastics and the IBCs and our plastic drum businesses And extending that. And then 3rd, we'll be looking at over integration in our paper business And what do we continue to do? We've been very pleased with the success of Palmyra even through COVID and coming out. That's been a fantastic Operation for us.
And then the last I'd say goes back to the process we're working on right now, which Our strategic focus in determining what is our growth plan going forward, which is So again, the sausage works right now. And again, we'll talk about that next spring.
Thanks, Larry. Can you hear me okay? Or is it still choppin? If it is, I will That's good now.
It's good now. Okay.
The question I have on follow
on is just on plastics. Do you feel you have sufficient Share and penetration both in IBC and plastics so that you get the plastics and metal. I'm guessing from your comments you feel you do because it seems like it's a focus.
Yes, I think, George, we have and you broke up again, but I think your question was, do we feel like we have a market position to begin to leverage that more fully? Yes. We've said this often before. Virtually every one of our IBC CapEx spend So we're being asked by customers because of the great service that we're providing them to get more into the IBC business. As we do more and more that virtuous cycle and the recycling component really starts to drive the margin improvement.
And we did the Tholu acquisition a couple of years ago. We did the investment And the recycling group here in the United States, we did another small deal in Italy. So we continue to do The execute on that whole recycling component of IBCs and Plastics. So I mean, we are a significant player drums already. I mean, in the U.
S, we're the largest player. So we have the opportunity to And our business in EMEA and in Asia. So there's a good growth path in front of us.
And George, to comment on Larry's Reconditioning comment, a big part of our strategy is grow that circular business economy model. It's Very, very important to customers, we're not only we supply the new IVC, but we have a system in place To collect it and repurpose it, whether it's cleaning and reconditioning it and sending it back out to customers or by using it for recycled PCR that we can go back and increase the amount of resin that's recycled in our Products and it's really important to customers and you'll see going forward, we need to improve and increase Our ability to do that, that in turn will really enhance our overall position in that market. And we're not we're behind some others, but we're making quick Moving to catch up and I think our customers have responded very well based on our growth rates in that business.
Wendy, we'll take your next question. We may have lost George.
Okay. Your next question is a follow-up from Mark Wilde.
Thanks. I've got 3 quick follow ups. First, Larry, can you give us a sense at both GIPS and in paper Of the year over year increase in the incentive accruals in the 3rd quarter?
Yes. The overall incentive increase corporate wide mark was $6,000,000 in PPS, dollars 8,000,000 in PPS and then the rest on corporate functions and other units. Okay.
All right. Second question, Oli, you've had a change in leadership recently It's your primary competitor in GIPS. And I just wondered whether you're seeing any changes in behavior there that you would You'd be comfortable talking about?
Thanks for the question. We primarily focus on our own business, Our own customers and my primary function is to serve our customers as best possible.
Okay. So no change in behavior that you've seen in the market?
No. Okay. All right.
Then the last one for Pete Anhali. I'm just Curious, any learnings from that sort of early teens experience in M and A That didn't go well as you think about sort of the strategic plan going forward, things that you learned you don't want to do again?
Yes. So back when we got back into an acquisitive mode in 2017 2018, we did Expensive learnings on what went right and what went wrong, both in process, which includes this risk management structure and framework and how we went about doing diligence, evaluating fits To our business and also how we executed determined the value we can create. So I think we demonstrated that in not only the Caraustar acquisition, but some of the other smaller acquisitions we've done. And so we're really pleased part of this process we're involved in now has to do with relearning. So let's go back and look at what we did really well In the past few years and what we need to improve on.
So we're always in this mindset of continuous improvement. And again, it's really important that we stay focused on what drives shareholder value and not be excited about growth for growth's It's got to be accretive to our current portfolio and to our the value we can deliver. And we're learning and we're Proving and what we want to do is get the reputation that we are great executors in our business operationally And our strategic intent, and I think we're making good progress on it. Ole, anything you'd like to add to it?
Melfi? Yes, I'll just add one thing, Mark. I mean, I'm a big believer in checklists, maybe it's back from my public accounting experience. But We have created checklist of all the lessons learned and whatever the business units have to present an opportunity to Pete and I, whether it's a CapEx project or a Acquisition opportunity, every one of those items on that list that came out of all those learnings has to be addressed. So We're very formalized about it, structured, and I think it will pay off for us continuously going forward.
Yes. I think, Mark, the other comment, what Ole has demonstrated in the last 5 years here is really strong execution, very disciplined approach to business. So I think him going into this role will create really stronger discipline in how we evaluate acquisitions and more importantly, How we execute them going further. So I feel real good about where we are and what we're going to do going forward in a very disciplined approach to Capital allocation.
Okay. Thanks, Pete. Good luck in the Q4 and as we look into next year.
Yes. Thanks, Mark. Thanks, Mark.
Your last question is from the line of Adam Josephson.
Thanks a lot, Pete and Larry. Appreciate it. Larry, one on the tax rate. So if you end up at the low end of your range at 20% this year, your tax rate will have gone from 27% last Do you consider that a sustainable level thereafter? Or is there something unusual this year that you would point us to?
We had some additional free up of reserves as some Tax exams were completed, but not substantial. I do believe, again, with the caveat of whatever Happens in Washington and other government capitals around the world on changing rates. But if rates were to stay Stable in the current tax system then low 20s is very sustainable for us. So Obviously, I can't predict at least I'm not willing to predict yet what's going to happen in Washington or in other places Around the world, but if it were stable, we'd be very confident in staying in that rate.
Yes. No, I appreciate that. And just on your OCC assumption and thoughts. So you're assuming, I think, a So you're assuming, I think, a $5 increase sequentially in SeptemberOctober. Some people I've talked to expect A lot more than that in September.
Can you just talk about why you appear to be assuming a fairly modest Increased sequentially in September, October. And what you think the sustainability of these kind of price levels is? Obviously, we're at the End of the historical OCC price range, box demand has been the best it's ever been. So it Comes as no surprise, I guess, that OCC is behind of its range. But how sustainable do you think these price levels are?
And why not
Yes. Obviously, we have a relatively sizable player in the recycled Pay for business. And so we go to our team for what they believe is going to happen. Obviously, we're not blind to what Yes, comments are being made at conferences and things that are driving some other people's views. That said, we've said we estimate $5 in the average.
And as you know, we have a range. So our range contemplates the numbers that have been throwing then thrown out There by others. So we're totally comfortable with the guidance we provided if that does happen. As to the I think it's going to be very interesting to see how things play out because as you mentioned, I mean, production of containerboard and boxes and everything else is Like all time highs. Well, that means there's a whole lot of supply out there.
It's just how are we getting it collected. And The supply of OCC is not matching the supply of production containerboard. And I think everybody would acknowledge it has a bit to do with the change And where stuff is going, obviously, more is going to e commerce than historically it happened. And the big driver we believe is labor. And it says much labor for collection, but it also in the MRFs.
And so we have active dialogues going on with the large Haulers, waste and Republican regional ones like Grumpy and others to try to understand what's going on in their business. And what we're hearing is they're all Somewhat optimistic that as some of these unemployment supplements roll off that they'll have more success in getting labor back into their Operations, if that happens, that should lead to more collection and more supply. So we're I'll say hopeful, I wouldn't say optimistic, but hopeful and believe that OCC costs should trend back down over time as The labor component
of this
gets addressed either through more employment or through more automation in their operations.
Thanks so much, Larry, and best of luck in the quarter.
Thanks. Thanks, Tyler.
At this time, there are no further questions. I will now hand the call back to Mac Eichmann for closing remarks.
All right. Well, thank you very much, Whitney. We'd like to thank everybody for their
That does conclude today's conference call. Thank you for joining. You may now disconnect.