Okay. Good afternoon. Thank you all for joining. Gabe Hajde, Wells Fargo, Senior Paper Packaging Analyst. We've got our last presentation of the day, Magnera. The company started life as a public company in November of 2024, the product of a spin-off of Berry's Berry Global HHNF business and legacy Glatfelter, the leading global producer of non-woven materials on the planet. Representing the company, we've got Curt Begle.
Begle.
Begle from CEO and Jim Till, the CFO. You guys have a couple of prepared remarks, I think, some presentation materials for us. We thank you for attending. With that, please, Curt.
Thanks, Gabe. There's no better way to start to end your day than with the magnificent new era of materials. For those that are calling in, thanks for joining. And for the interest in Magnera, we're excited to tell our story to anybody that will listen. While we're in the early phases since the go-live on November 4th, we made a lot of great progress. I'm just going to highlight a couple of things about our business because a lot of times people just don't know exactly what we do. The more you understand the essential products that we provide, the intimate nature for which we have consumers across the globe gives you a lot more confidence in the business is a very stable one and has a great growth outlook.
I'll get through a couple of the initial slides here as we're bringing these up. You mentioned the size and scale of who we are. If you do some research and look at some of the peer set or companies that we compete against every day, we are the trusted supplier to the largest CPGs in the world from a global standpoint, but we're also very entrenched and have an intimate relationship with small regional players, particularly in private label to branded guys. It's a pretty simple kind of overall makeup of who we are from a major kind of business segment standpoint. We split the world up into two segments. We have Americas and Rest of World. EMEA, Rest of World. And then within those two businesses, we have a consumer solutions business.
You can see some of the product categories that we supply on the left-hand side of the chart, as well as our personal care side, which is anything from incontinence products, so baby, adult incontinence diapers, fem care products. Also, we are heavy in the surgical suite. Everything that gowns, drapes, high barrier non-woven materials that are used to protect you from Ebola virus to the most premium brands on baby and adult inco. On the consumer solutions side, we have the largest portfolio of wipes. Wipers, they are called in certain segments. We do anything from hard surface disinfectant wipes with some proprietary technology and innovative technologies to our institutional business, which is sold through quick serve restaurant distribution chains for dry wipe goods.
We also have the consumer wipes, which are anything from flushable wipes to baby wipes to just your general purpose cleaning wipes. We have a piece of our infrastructure business where we have strong brands in that space. The TYPAR Building Construction Wrap is our brand. We compete against Tyvek in that space. We also have GeoFabrics for erosion control. We are heavy into large programs, large projects. We also do high voltage cable wrap for green energy programs over in Europe. That is a nice niche business within that segment.
On the home food and bev side, that's made up of a large portion of what they call the incline wire business within Glatfelter, but your tea and coffee filters for both the single serve use that you would have on just a normal tea bag to Keurig K-Cups and some of the filtration that goes inside of that. We also manufacture things like dryer sheets, so Bounce dryer sheets in North America. We have Color Catcher wipes as well. Again, broad segments, but well diverse. The interesting thing about our mix, our top 10 customers roughly make up 40% of our overall revenue. We sell most of them in every major continent geography. We're in the U.S., Latin America, South America, Europe, and Southeast Asia. It's really important for the large CPGs because they need redundancy of supply.
We have quality standards that are required to be able to supply those customers. That is a nice differentiation for us. We have a full array of various technologies of components that go into end products. I mentioned diapers before, but this is, you are talking about 12 different components that go into making that product. We do 11 of them. That is highly unique and a value proposition that we give our customers. Just a geographic footprint, you can see even though you are distributed across the globe, 46 total sites. It is kind of split 23, 23 in the Americas and Rest of World. We are where our customers are and where they need us to be. I mentioned just the mission critical products that we have. These are not products that people necessarily do not need or do not want to have. We extend lives.
We're with you from the time you pop out of the womb to the time you jump in the box. Really our job is to protect the world. Nothing became more evident during the COVID pandemic where we were asked to step up for a number of government entities, health systems, and our customers, quite frankly, because of the way that we were able to provide the products that really were saving lives and extending lives, which plays well into our adult inco business. The longer you live, we hope you live long enough to enjoy our products later on in life as well. Again, good mix of various products that we have in that segment. You see the customer mix that we have and the complementary nature of the two organizations coming together.
Just from a strategic standpoint, as I know Gabe wants to get, he wanted at least 25 minutes here for Q&A. The combination of the two organizations is something that we've had a lot of experience with among the leadership team at Berry is finding ways to have one plus one equal greater than two. The combination of these two organizations really was a blessing as it came together as an RMT. I remember having the conversations even with Paul as none of us quite knew what a Reverse Morris Trust spin-off was, even though we'd done 30 acquisitions and integrated them over time. The beauty of carving out of Berry was having an established organization that was already publicly traded and had a back office to be able to build upon.
Our IT systems are going to be very important as we separate from the TSA agreement we have with Berry, well-established back office. As that was made, that transition was much more meaningful to us to be able to have a business that was going to be ready to go from day one. That comes with standing an organization up and really stabilizing it. I'm very proud of what the group has done, the team has done just in the few seven short months that we've been together as one entity. We are through that phase. There are still certain departments that we build up as we peel away from the TSA, but we're right in the optimization phase.
If you look at kind of what we had laid out from the combination of where we would find synergies, there's a heavy amount of work that's been taking place within the procurement group, a lot of work around network optimization, a lot of work on best practices and sharing from that standpoint, but feel very good about where we're at in that journey despite some of the macroeconomic challenges that are happening in the market. Fortunately, we have things to chew on and stand this organization up. Ultimately, our business is going to grow not only with the markets that we're serving, but the innovation pipeline that we have with our customers. We talk about a vitality index. Everybody has a certain portion of their portfolio that's going to be more commoditized for that part of the business.
It's making sure that we're the low-cost producer and that we're structurally set up to have those businesses generate cash and help pay for where we truly have differentiation. If you look at the amount of IP, over 1,000 patents, the proprietary technology we have, that's roughly 25% of our portfolio. That's the above-average margin that we have for the business. We have a nice, very defined set of competitors and customers within about 30% part of that portfolio as well, where we have differentiation and there are some limiting factors for people to get into that space. For us, a good mix and a good opportunity to partner with and continue to partner with our customers to drive innovative products for their growth on the shelf. We've talked a lot about our capital allocation. Our focus is pretty simple, right?
We need to integrate these two businesses, position them for longer-term growth. While we're doing that, really being mindful of our free cash flow generation and the deleveraging target that we've laid out, which is three times, which is roughly a quarter turn a year over the next four years. CapEx, the nice thing about our business, that both of them are very well invested, both of them have ample capacity to grow. The maintenance CapEx that we've established is something we're very comfortable with. Ideally, as the market and some of the longer supply-demand dynamics start to shorten up within certain segments, you're going to have some become more reinvestable in the future. That's where you're making some of those larger organic growth investments. For us, we have ample capacity to grow within the footprint we have for the next two, three, four years.
We're comfortable with the CapEx standpoint. That's it, Gabe. Hopefully, that was about as quick speed dating as I could get through there, Paul.
No, great. We're at 25 minutes on the dot.
Yeah, good. I'm on it, man.
You're on it. One of the things that's sort of unique about packaging is I think some people underappreciate when they go to the grocery store or put the diaper on the baby is like, "Oh, I just open the box and here we go." There's a lot of technology involved, number one. These are true high-velocity assets that you got to make things within certain specs, etc. Can you talk about the machinery and the technology behind non-wovens, how it might be a little bit different than some of the other traditional packages out there, which you're not necessarily packaging? Unfortunately for you, you get to be covered by the packaging analyst.
Actually, we have some packaging with our very sophisticated siliconized films for fem care wraps and those type of, and some healthcare packaging as well that I can show you later. Yes, we need packaging to protect the intimate products that we're making for the consumer.
Right. No, just the machinery, the equipment capacity that you all have installed that's maybe different than what your competition has.
Yeah, look, on the back of a pad of paper, I kind of did the Math and said, "Okay, if I was just going to go invest in every asset that I have right now and go put a footprint around the world, it would be $12 billion. It would take us 20 years and I have to go get customers." When you think about the assets that have been in place, these are very significant. Now, we do have about $500 million of our revenue in the film business, which goes into baby back sheet, high breathable film, also into the healthcare space, and then some packaging. For the most part, from a non-woven standpoint, you have various technologies in non-woven. We're not going to go through the 101 of non-wovens.
To give people an idea of size and scale, one of our most recent investments was a $90 million investment. It is the size of a football field. It takes two and a half years to install. In today's environment, it will generate about $50 million of revenue. You are talking about in a longer market, it becomes more challenging for people to add capacity to a business that does not necessarily, a market that does not necessarily need it. Now, over time, non-wovens is a high growth area. Again, particularly from a global standpoint, there is a lot of penetration that is happening in countries like India, Africa, well established in North America, well established in Europe. There are growth dynamics that can take place down in South America just as adoption rates of some of these products pick up.
The size and the scale and the sophistication behind them, you're talking about facilities that are less direct labor required. Half of your labor inside of those facilities is indirect. So it's your technical folks on the line. It's your quality labs. It's your maintenance folks. It's major jumbo rolls of product that we're shipping to our customers so they can make the fine products that everybody enjoys today.
Got it. One of the challenges, again, I'm sort of thinking about food and beverage, but in general, we've got a consumer that's value-seeking behavior type of activity that's happening right now in the current backdrop. There's a lot of inflation that worked through the system. There were supply chain challenges, all those things that transpired kind of during and post-pandemic. Are you seeing any activity as it relates to your customers from a price that's an impediment to volumes? You talk about some of these products being kind of, I'll call them everyday convenience items where, again, I'll use a baby diaper, some of which are necessities if you go to the hospital or something like that.
Just going through, I think it was slide three, the wheel of what you kind of characterize as more resilient from a demand standpoint or what you expect demand to be. Are your customers raising price or doing anything with price that's impacting your business in 2025?
We go back to just the essential nature of what we do. The one thing that's unique when people ask, "Okay, well, how are you dealing with private label?" I love private label. We sell to private label. We sell to branded. What is on the shelf is what we look like. That's our mix of business. Now, the big thing that we work on with some of the customers that really are looking to demand a higher price on the shelf, that comes through the innovation. It comes through features and benefits that we can help them provide: softer material, better performing material, better form, fit, feel, function. We recently launched a product that helped protect the parent from blowouts, for instance, as everybody's had a kid and had one of those oopsie moments while you're holding them.
We really strive to partner and co-collaborate with those large customers that want to differentiate and earn that extra price on the shelf. Now, as customers and consumers look to find some savings, there are very high-end, high-quality products in the private label market as well that we supply those same similar components to. Again, for us, we really look at, we track receipt and stored to sale data in the baby care segment or could be in the food and beverage segment. It could be just overall behaviors in the wipe segment. In general, we look pretty consistent. We may just see it a little bit in advance of what's actually being sold through the shelf because of the customer sell-through of buying our products, then working it through their system and supply chain and ultimately to the end consumer.
You wouldn't characterize things as being necessarily like there's demand elasticity or price elasticity too much, or is that conversation?
Look, there's going to be price elasticity, I think, in what consumers are choosing on the shelf. We sell to the most sophisticated buyers of the world. This isn't their first rodeo, right? You're going to earn what you do every day with them, and you got to find productivity every year. Having the network of capabilities really gives us an advantage of scale. We can use that to make sure that we're buying appropriately our input cost and controlling that. More importantly, how can we help them sell more on the shelf? That's really what drives our intent focus with those partner customers.
Okay. Kind of a near-term news item, one of your large customers is, again, growth is tough to come by, making an adjustment on the cost side. In your experience, how has that impacted kind of the supply base or if at all?
Look, it comes down to consumption rates. There is a lot of businesses that customer has and has been impacted maybe in different ways through tariffs or just demand in certain categories. We look at it over time, even within the baby care segment, as that there may be flattish or declining birth rates in certain geographies. It is our adult inco that is actually gaining more and more share. If you look just at, I think this slide here, you can see on our personal care side, 23% of the total portfolio is baby, 18% is adult. It was not that long ago. Adult was closer to 10. When you talk about that shift, again, I am running the same technology for one product than I am for another market. In general, again, we believe in what we have seen over time.
It's a matter of you'll see maybe a stalled or a dip in one, two quarters, and then a recovery in another. Ultimately, people need our products.
Okay. Maybe shifting gears a little bit and thinking about the value proposition of Magnera and putting the two businesses together. I won't go over all the history and specific numbers, but just as you look at the market opportunity, we'll stick with 2025, I guess. We had some guidance numbers out there. There's a lot of uncertainty in the marketplace. You guys have made an adjustment. Maybe any updates in terms of volume, competitive behavior, anything like that that we should be aware of? I got a couple more.
I've been well trained by our legal group on not giving any mid-quarter guidance. What I can talk about is what led to the decision on the call down. I think we had some conversations post the call. Historically, our business, we can see kind of 90 days out in terms of the S&OP processes that we have with our customers on a daily basis, what campaigns they're going to run, what we're going to run in that particular quarter to fulfill their requirements. One thing that certainly caused pause for us, and it's based on the history that we have with our businesses. I mean, the three of us in this room are 80 years plus of industry experience.
Not this guy.
I'm talking about Robert over here and Jim and myself. As we got into the last two weeks of March leading up to Liberation Day, we started to experience very erratic order patterns and behaviors from our customers and could not get a real line of sight into what they were doing and how they were thinking about things. I think there was just some overall anxiety of what they were going to need and then where the demand dynamics on their end were going to shift. As we got into April, that was more of, "Okay, if this is going to, how long is this going to last?" For us, if I had 12 months in front of me, that will flush out, right?
When I got five months left in a year, I had to go with what, A, we've experienced maybe before what we were seeing or what we knew at that time. It does not change the fundamentals or the strength or the overall long-term value proposition that we have for the organization. It is kind of a situation where you got half a year left and there is a lot of unknowns. The good news for us during these times, we were not the concern for our customers because of how we are established in country, primarily buying materials in those countries and selling to our customers in a short cycle business. There was a lot of war room discussions, I think, going on across the globe trying to figure out what their supply chain was.
I view it as an opportunity for us long-term because of the stability of who we are and how we serve. As customers continue to find ways to drive efficiencies in their own supply chain, who better to put more business with than one of your best partners that's global?
You mentioned something about supply chains and value chains, things like that. Raw material, polypropylene is a pretty big input for you all. Two-part question. One is, to the extent that maybe in the past, when you look in the rearview mirror, do customers get cute around order patterns? Maybe that was feeding some of that behavior in anticipation of lower resin. That is kind of part number one. Part number two, being local with your resin suppliers and having a good procurement arrangement, does that give you an advantage over your competition, do you think?
Oh, look, we've been very fortunate starting up. I'll talk about the second piece first. Berry, I would say, had a world-class procurement group, a good structure in place, and very talented people. We've been very fortunate to bring a couple of those key members along with us. Fortunately, very cooperative with Berry's board of directors that gave me that opportunity. We feel very good about the structure that we're building out from a procurement side, and we expect that to carry on. When you talk about buying behaviors or how much of a game you can play, it's very difficult for many of our customers to game that too much to any extent because, A, they're not going to go add a bunch of inventory for the sake of it. B, that may change in terms of the mix that they need over time.
Same for us. We look to get turns pretty quick, 45 days in some cases. There are pieces of the cloud filter business that we're working on narrowing, some of that just from working capital and inventory position targets. Yeah, there's some of that that takes place, but you're not talking about 15%. It could be a couple percent in a week or a month or two.
Yep. And then back to the synergy number that was, I mean, I think part of the attractiveness of putting these businesses together initially identified as $55 million. Can you update us on where you are today, sort of what you expect to be, either on a run rate basis or absolute in fiscal 2025, and then maybe the cadence, maybe if there's anything that's demand dependent or operating rates that need to get back to a certain level?
I can give you kind of a, we've not given 2026 guidance yet, so I can give you kind of a general walk. When we came into this, this $55 million is a net synergy number. So we had about $12 million-$15 million of standalone costs that we were going to need to offset. As I talked about stabilizing the organization and getting it stood up and getting the right people and disciplines in place, I'm very proud of what the team's been able to accomplish. We have been able to, and for the most part, offset those standalone costs, and we would expect to continue to see some benefits there, just being able to have a standalone business without exceptional costs. When we're talking about the net $55 million, a big portion of that, which we publicly put out there, was $35 million of procurement synergies.
That was really a big part of those savings, falling within some of the cloud filter spend as it related to sole source supply, single grades of material that have not been challenged the way that we would expect to. Now, we're not doing it just for savings. We're doing it for continuity, business continuity. If you have a supplier go bankrupt, you can't get material. I can't get product to my customers. The priority is making sure that my customers get the products they need to be able to get it on the shelf. That process, we really weren't expecting any savings in 2025 because of the nature of the qualification of the materials, getting the quality that we needed off of our lines, and then getting our customers approving it. Lastly, working through the inventories that we were sitting on.
Volume dependent is what we've given the guide. We accelerated as much as we could this year to try to bring some of those procurement savings forward. We'll get a little bit of that. We've not really been experiencing it yet. It's somewhat volume dependent between now and the end of the year if we're able to flow through those materials. The good news is that we're well on track to achieve that synergy number. It's the timing of when it gets pulled through to our customer base. I know, Jim, the low end of the guide had the volume expectations that we kind of cautioned out. The higher end of the guide would be experience a little bit more of that savings, but you're going to get more of it in 2026, 2027. It's not a whole lot there this year.
On the operation side, there's warehouse leases and things like that that we still need to fulfill. Once those end, you'll be able to get those. We've taken quite a bit of action on identifying the right key operating metrics and the business acumen and the sites to improve their profitability. There are some network optimization plans that we've been going through.
Doing great.
Jim, do you have anything you want to share? Yeah.
Low end.
Sorry, I'm stuck at all the other ones you've got up here. I've had three cuts down.
No, you're doing awesome. No, you got it down. No, low end of the range is roughly $5 million. As you climb up, as you climb up the guided range, it's incremental in terms of the synergies, how much we can flush through. You nailed it, right? And he's absolutely right. You're probably talking about 60% or 70% of what's remaining in 2026 with the remainder in 2027. Okay. Are you willing to give us a sort of volume that underpins maybe the low end and the high end?
If you remember, we guided flat, right, to the second half. What that would say is, hey, if you're down for the year, roughly 2%-3%, because we were down 1% in the first half, the back half is down 3% versus the prior, which is flat to the first half. To the extent that we're softer than that, which pulls us down to the lower end of the range, but we've highlighted before, to the extent that we see the lower end of the range and we think consumption levels are at a new level, which is lower, we'll start looking at footprint and things like that as we go into the bid cycle. We won't sit still is what I would say, right?
At that point in time, that's when we start taking different actions and different movements that are outside of the synergy pieces.
Okay. A little bit of a market-related question. Again, for some markets, it may matter less or more. Utilization rates are important for you all. You make more money as utilization kind of hits the mid-80s. You don't have to tell us by geography or by asset, but just if you're willing to share with us kind of where Magnera sits today or where you estimate certain geographies of the market sit and where you think a healthy range should be as that growth materializes that we've seen over time.
Yeah. Look, that's the key factor. I mean, first of all, there's ways that you can organically take some capacity out. We've taken some of those actions, and some of it's a phased approach due to the nature of local laws, etc. For us, we're operating in the high 70s. Ideally, we want to be 85%-88% utilization. We believe the total market and total globe is right around mid to low 70s. We operate a little bit better than, from a load standpoint, when you think about all of our portfolio, than the market. Again, for us, when we have sites that are dipping into that 60% or even 50% utilization, it's very difficult to generate free cash and have that be a viable facility. We would expect and we anticipate that's going on in other places. It's not quite as publicly put out there.
We compete against a lot of folks in the private segment, but we're going to do what's right for the portfolio, what's right for generating the right earnings and the right cash.
Yeah. What we've guided people, Gabe, is that you're right. Part of the investment thesis is that utilization climbing back into the mid-80s where it has been historically for a long time, right? COVID obviously got it out of whack. What we've said is we believe that as it climbs back into that mid-80s, you're talking about a margin profile of 0.5%-2% just off of the utilization levels. Obviously synergies are another 2%. When you think about overall margins, we're not calling moonshot here. We're talking about kind of 15s, which it has been historically.
That's me.
What's that? Appreciate that. Okay. No, I mean, sorry. A little bit of a distraction. Mid-teens margins, I mean, I think that's relatively consistent for at least, again, the microcosm of packaging to not be above or below to attract capital. From a growth standpoint, where are you seeing growth? Absent the pandemic, because again, it's not comparable, but where would you expect to see normalized growth sort of on a forward-look basis?
Look, the wipes business inside of consumer solutions is a very strong platform. It has a good CAGR. It has over time. We invented the category for hard surface disinfectant in the United States back in the 2000 timeframe. That has been a nice steady grower. We would expect that as consumers, again, the heightened one thing that came out of the pandemic is people became a little bit more aware of good hygiene and good practices. The convenience of our cleaning products that our customers provide is definitely something we feel good about. From a healthcare standpoint, we are well positioned with the major players there. As there are some shifts from washable textiles to what is certainly more protective and hygienic of our disposable non-woven high barrier gowns and drapes, that is something that we would expect to be just a stable business and a grower for us long term.
From a personal care standpoint, I talked about adult inco being a growth platform. While there's going to be maybe some of the developed countries being a little bit more stable in demand or tempered in demand on baby, our focus there is innovation and differentiation so we can get higher margin components inside of that product. FemCare, again, slow to grow in certain developed countries, but certainly higher adoption rates and education that's taken place from our customers going into certain geographies and educating new consumers to adopting some of these products. We really like our infrastructure business. We have some parts in there that have been nice steady growth businesses with the extensions that we talked about on the last call.
We're constantly looking for improving the contractor experience of putting up a home, putting up a multifamily unit where it's not just our building construction wrap, but it's the tapes that are used to seal windows and use that product appropriately. The one thing that we are learning more about really is on the beverage side of the business. The amount of tea bags that are in the world is quite significant. An interesting thing I didn't know is Russia per capital is a large consumer of tea. That was a big hit to Glatfelter, which was experienced. Then you have single serve coffee, which again, can ebb and flow. Other people want to do the big bulk coffee pots or some of the individual capsules. We're well positioned there.
We think that water, air, blood filtration will continue to be a nice segment for us, which is filtration media and pool spa, high-end cabin air filtration, both in automotive households, air cabins for aerospace, and electronics. We do some filtration as well.
One off-the-cuff question that I learned in a prior meeting. There's some litigation around Tyvek, or I think it was around tariffs in China. Has that come up? Is that anything that you've read about?
We do not compete with Tyvek in China. I do ship some product to New Zealand and Australia, but our products are made right here in the U.S. We do compete against our great competitor, DuPont's great company. I can't really comment on what they're going through, no.
Okay. You guys haven't been named in anything is really the question. It sounds like no. Okay. Any final remarks or things that you'd like to leave us with?
You know, one of the things that you had asked me is like, "Curt, what are people missing about your story?" Look, the important thing for us is to get our story out, educate investors on who we are, what we do, and what our business strategy and what our model is going to be here, not only just near term, because it's a very clear line of sight to deleveraging and driving value that way, but what the long-term potential this business has and why we're excited about it. Thank you for allowing us to speak today. There is a time, believe it or not, that we need to work and run the business every day, but it's venues like this that we appreciate just so people at least are interested enough to do the work, learn more about us, ask questions.
Very capable IR person with me today who's got a finance background, has been with the business for a number of years. Of course, I like Jim to run the business as well, but no better person from a financial acumen or how to make money than my CFO. Please, yeah, we appreciate the interest and the coverage. Thank you for that as well.
No, not a problem. We appreciate you all participating. Yeah, I agree. I mean, Jim, fine hands on the finance wheel, and it's been a pleasure working with Robert. Thank you all.
Thank you.