Thanks to everyone for joining us today for Sonoco's second quarter 2022 earnings call. Joining me this morning are Howard Coker, President and CEO, Rob Dillard, Chief Financial Officer, and Rodger Fuller, Chief Operating Officer. Earlier this morning, we issued a news release highlighting our financial performance for the second quarter of 2022, and we prepared a presentation that we will reference during this call.
The press release and presentation are available online under the Investor Relations section of our website at www.sonoco.com. As a reminder, during today's call, we will discuss a number of forward-looking statements based on current expectations, estimates, and projections. These statements are not guarantees of future performance and are subject to certain risks and uncertainties. Therefore, actual results may differ materially. Please take a moment to review the forward-looking statements on page two of the presentation.
Additionally, today's presentation includes the use of non-GAAP financial measures, which management believes provides useful information to investors about the company's financial condition and results of operations. Further information about the company's use of non-GAAP financial measures, including definitions, as well as reconciliations to GAAP measures, is available under the Investor Relations section of our website.
For today's call, Howard will begin by covering a summary of second quarter performance. Rob will then review our detailed financial results for the second quarter and discuss our guidance update for the third quarter and the full year of 2022. Howard will then provide a progress report on our strategic priorities, followed by a Q&A session joined by Rodger Fuller. If you will please turn to slide four in our presentation, I will now turn the call over to our CEO, Howard Coker.
Thank you, Lisa, and thanks to everyone for joining our call today. Hopefully, you've seen our press release and the strong financial results we delivered in the second quarter, which exceeded the high end of our recently raised guidance. We've made tremendous progress on our strategic priorities that enable the quarter's performance and our outstanding first half of 2022.
Revenue for the quarter was up 38% over last year, and the $1.9 billion quarterly sales marked the highest in the history of Sonoco. Our revenue performance was driven by the continued benefits of our ongoing strategic pricing actions, great performance from the Sonoco Metal Packaging acquisition, relative stability in volume mix, and solid operational improvements. As you have no doubt heard repeatedly from companies across various industries, global supply challenges and inflationary issues persist.
Despite this, we expanded our base EBITDA margins over 200 basis points to 16% compared to last year from strong profit performance across the entire portfolio. On the bottom line, we grew base earnings per share to $1.76, which was 89% above our result in Q2 of last year. Based on our first half results and third quarter outlook, we're again raising our full year base earnings and per share guidance to a range of $6.20-$6.30.
Our operational commercial excellence and supply chain teams have just done an outstanding job, and I want to extend a special thanks to the entire Sonoco organization for delivering these results while continuing to support our customers. We've had great execution in the first half of the year, and again, these results are not by chance.
We have been working very hard on a set of strategic priorities to make our great company even better. Later in the call, I'll provide further updates on this progress. Now, to go over more details on our second quarter performance and our guidance, let me introduce you to our new CFO, Rob Dillard. Rob has been with Sonoco since 2018, handling corporate strategy and M&A activities.
Rob is a strategic leader of our company and brings extensive experience in corporate finance and accounting, operations, strategy, and corporate development from both Fortune 500 companies and investment banking. Rob has a deep understanding of Sonoco's culture and strategic opportunities to partner with our global business leaders to further drive performance improvements and shareholder value. Let me say congratulations, Rob, on your new role, and I'll now turn the call over to you.
Thanks, Howard. On slide five, we start our financial review with GAAP EPS and the reconciliation of GAAP EPS to base EPS. GAAP EPS was $1.33 for the quarter, a meaningful increase from the same period in 2021. As Howard said, this strong performance was due to continued strategic pricing performance, a relatively stable demand environment, strong performance in metal packaging, and improved productivity.
This improved profitability resulted in base EPS of $1.76, an 89% increase from the same period in 2021. The reconciliation from GAAP EPS to base EPS has $0.43 of adjustments, primarily related to the amortization expense, the metal packaging acquisition, increase in LIFO reserve, and the exit of our Russian operations, which impacted restructuring.
Slide six has our base P&L summary for the period. These exceptional results illustrate the power of our positions in stable and defensive end markets where we differentiate ourselves as a supplier of choice. We achieve value for this differentiation through strategic pricing performance that greatly contributed to our net sales growth of 38% to $1.9 billion in the quarter.
Furthermore, this price is translating into strong operating leverage. This is best exhibited by our 62% increase in base EBITDA and our 78% increase in base operating profit in the quarter. Base EBITDA was $306 million, and base operating profit was $250 million in the quarter. We increased base EBITDA margin 230 basis points to 16% and base operating profit margin 290 basis points to 13.1% in the quarter.
This focus on margin improvement is strategic and is backed by portfolio management actions, footprint optimization activities, value-enhancing capital investments, and ongoing strategic self-help programs. Turning to page seven. Net sales grew $531 million versus the same period in 2021. This strong performance was driven by several key factors. First, volume mix was -1% in the quarter, largely an indicator of relatively stable demand conditions in our increasingly defensive consumer-oriented market profile, best exhibited by our market-leading global rigid paper cans business, which achieved 1% volume mix growth. This growth and growth in our other core U.S. businesses was offset by strategic actions that led to volume declines, as well as market weakness in consumer durable markets and international industrial markets.
Pricing performance in the quarter was particularly strong, with net price of $297 million contributing 21% to growth in the period. This figure excludes the pricing performance of metal packaging, which was also strong. This exceptional pricing performance was both contractual and strategic in nature and is the product of our commercial excellence strategy.
Acquisitions and divestitures generated $290 million of sales in the quarter as metal packaging continues its strong performance. Excluding the impact of acquisitions, net sales growth was still 17% in the quarter. Finally, FX and others was negative $44 million in the quarter. It's important to note that approximately 72% of our net sales are generated in the U.S. As shown on slide eight, base operating profit increased $109 million or 78% from the same period in 2021.
As previously stated, the primary drivers for this growth were strong price cost and performance, acquisitions and divestitures, and improved productivity. Metal Packaging was largely responsible for the acquisition growth. This business achieved 21% operating profit margin in the quarter due to strong price cost performance and the benefits of integration.
Slide nine has our segment analysis and base figures. This analysis illustrates the strong performance across the breadth of our diverse and improving portfolio of businesses. Consumer net sales grew 66% to $990 million in the quarter. Consumer volume mix was essentially flat during the second quarter as strong international rigid paper can volume mix and 4% Flexibles volume growth was offset by mix in Flexibles and strategic volume reductions in our perimeter store business.
Consumer operating profit grew 114% to $139 million, a 320 basis point increase in operating profit margin to 14.1% due to strong price cost and productivity. Industrial paper net sales increased 20% to $727 million, the eighth consecutive quarter of record net sales. Industrial paper volume mix declined approximately 2% in the quarter due to disrupted demand in international markets and the impact of a tight URB market in the U.S. These URB market conditions are moderating in Europe as our U.K. paper mill is again operational after our capital project. We anticipate that the U.S. URB market will be in balance once Project Horizon is completed.
Industrial paper operating profit grew 57% to $94 million, a 310 basis point increase in operating profit margin to 13% due primarily to price/cost. Turning to slide 10. Year-to-date operating cash flow was $184 million. This strong performance was despite a $258 million increase in net working capital in the first half of 2022. This increase in net working capital was primarily associated with the effects of inflation, Metal Packaging seasonality, the elevated levels of inventories associated with buffering disrupted supply chains, and to better serve our customers. Capital expenditures were $144 million in the first half of 2022. We're maintaining our guidance of $325 million in capital expenditures for 2022.
Finally, we paid $92 million in dividends in the period in support of our mission to provide an ongoing return to shareholders and support a market-leading yield. Slide 11 has our balance sheet as of July 3rd, 2022. Our balance sheet is largely reflective of our strong performance and conservative capital structure.
At the completion of 2022, we anticipate our net debt as a multiple of base EBITDA will be well below 3x. We intend to manage our capital structure appropriately to maintain our strong investment grade credit rating. Next, Slide 12 has our guidance update. Our strategy is gaining traction, and this enables us to raise our third quarter and full year guidance. We are raising our third quarter base EPS guidance to $1.35-$1.45.
Additionally, we're raising our full-year base EPS guidance to $6.20-$6.30. We're also increasing our full-year base EBITDA guidance to $1.125 billion-$1.15 billion. We're not raising our cash flow guidance despite our expected strong operating performance due to uncertainty in supply chains and the impact of inflation on net working capital. Of note, our updated guidance reflects the shutdown of our n umber 10 paper machine for Project Horizon. We anticipate that this will have a $10 million-$15 million impact on base operating profit in the third quarter and the full year. Production will resume in the fourth quarter, and we expect the full benefit of the project in 2024. Now Howard will conclude our prepared remarks.
Thanks, Rob, and if you'll turn to slide 13 in the presentation, I'm gonna provide an update on the progress of our strategic priorities. Let me remind you that Sonoco is on a journey. I took the role of CEO one month before the COVID outbreak in 2020. At that time, I challenged the team to really start thinking about a better operating model to optimize our portfolio and footprint and asked them to imagine what the organization would look like to support both. I'll remind you that these planning sessions were going on amidst a global pandemic compounded by worsening supply chain conditions. Fundamentally, our aim was to be a much stronger company and to build a playbook that would result in long-term step change and profitability and value creation for our shareholders.
To do that, we had to first look at our portfolio. We are intentionally aligning to fewer, bigger businesses, focused on markets where we believe we have a right to win and gain leadership positions. Today, our consumer packaging segment represents over 50% of our business, and industrial paper packaging has retracted to around 38%. We're using a rigorous portfolio management lens to determine where and how we invest organically and otherwise.
In parallel, we're focusing on optimizing our manufacturing footprint. The outcome of these efforts have been to exit some unprofitable operations in Europe and North America as well, and to scale growth opportunities, particularly in Asia, South America, Europe, and yes, here in the United States. Our coupled focus, portfolio, and operational strategy is centered on serving our customers in the right locations with maximum efficiency to drive superior service and, of course, improve margins.
Secondly, we're aligning our organizational structure and talent to support these larger scaled businesses with a simpler infrastructure, leveraging centers of excellence and shared services. We're doing this with a greater focus on process standardization to lower operating expenses. In this more streamlined model, we're building a diverse and inclusive workplace through a set of focused actions to promote and hire the best talent in a highly competitive labor market.
We have a great leadership team at all levels to execute on these positive long-term changes for the company. Thirdly, we're investing to grow our consumer and industrial business with high return capital projects for organic growth and productivity improvement. In 2022, we have allocated a record $325 million to capital projects, of course, led by Project Horizon, which Rob spoke to earlier.
We're also investing more than $60 million to expand our global paper can production, $60 million to grow our flexible packaging business, and recently, $25 million into our domestic metal can division, to name a few of our other new investments. As we shared in our December analyst meeting, we are further investing in self-help actions with operational, commercial, and supply chain excellence programs for EBITDA growth and margin improvement over the next several years.
In addition to organic investments, we will evaluate targeted opportunities to inorganically augment these core businesses. Lastly, executing on sustainability initiatives is central to our mission. We're increasing our focus on sustainability to reduce the environmental footprint of our operation and commercially through the products we design.
These work hand in glove with our customers and supplier partnerships to drive circular economy solutions that support both our commitments to improve recycling and the recyclability of our products while meeting our aggressive targets to reduce greenhouse gas emissions at 25% by 2030. You can get more information on our sustainability progress when we publish our updated corporate responsibility report later this quarter.
As we continue to navigate these initiatives, we will keep capital allocation aligned to our strategic priorities. We're committed to returning cash to shareholders as evidenced by our 40 consecutive years of increasing dividends and maintaining a strong balance sheet. In closing, I've been with Sonoco for over 35 years, and I've never been more excited to be a part of this organization.
We are making step change improvements in how we more efficiently operate the company that is yielding the strongest financial performance in our history. I am optimistic about the actions we're taking to make Sonoco a better company and the value we will create for shareholders, not only this year, but on into the future. Thank you for your support. Thank you for your interest in Sonoco, and we certainly welcome any questions you may have.
As a reminder, to ask a question, you will need to press star one on your telephone. Please stand by while we compile the Q&A roster. Our first question comes from the line of Cleve Rueckert from UBS.
Morning, Cleve.
Congratulations on a nice set of results. Just sort of two high-level questions from me on the guidance. Firstly, I'm just curious, and I appreciate the cash flow is sort of second half weighted, but you know, I'd like to understand what it would take to unlock the working capital that you called out and perhaps outperform the cash flow guidance. Then just secondly, you know, I think in the release you talked about returning to a more normalized margin in the future. I'd just like to know if you can give us a sense of what that margin run rate is and whether it's contemplated in your implied Q4 guidance. Thanks.
Yeah, sure. Cleve, thanks for that question. I'll take the cash flow question, and then we can let Howard and Rodger discuss margins as well. I would say on working capital, we were conservative. The inflation trends that we're seeing have still persisted in some areas. We're seeing nice trends there, but that definitely has impacted net working capital in the first half, and so has kind of continued just supply chain disruptions, which has led to kind of elevated inventory levels as we've been persistent in kind of being a stable supplier for our customers. We're starting to release some of these excess levels. We also have of note relatively meaningful seasonality in Metal Packaging.
That packaging, as you can imagine, releases in the fourth quarter after the pack season. I'd say the other thing kind of note to your question on how we unlock this value, that's exactly what we're focused on now, and we wanna guide to what we can control, and we've got new and accelerated initiatives really to manage working capital in the future. We think there's a meaningful opportunity to improve asset efficiency. And it's really just the timing to achieve this that's the key variable, whether or not it'll be this year or next. We're opportunistic about what's ahead there.
Yeah. Cleve, let me talk about the commentary around normalized margins. That's really taking into the third and fourth quarter. You know, we've got the inflation, that discrete inflation that Rob alluded to. We also have the impact noted between $10 million-$15 million on the industrial side with our number 10 shutdown and restart. So we've got, you know, some exposures, supply chain, et cetera, that well publicized and we're cognizant of as we finish out the year. You know, if you go beyond this year, we are extremely bullish about not only the performance this year, but continuing that trend on into next year and beyond.
Just to kinda give you some color to, you know, really macro things that are going on right now. If you think about number 10, you know, the costs that we're gonna incur this year and the benefit next year. You know, back in December, we talked about our walk to $180 million of self-help work. We've been working that, frankly, for the last year and a half with some but little benefit. I think the most benefit we've seen is on the commercial excellence side. We've got that tailwind that really starts kicking in to next year.
Synergies from the acquisition and frankly, continued improvements on the capital that the prior owners put into the metal business and that we're putting into the business today. Portfolio optimization, and I could keep going on. You know, the real headline here is we're having a remarkable year this year, and we do not expect to step back from that going into next year or in the future. The expectation is to improve on that year in and year out.
That's very clear. Thank you very much.
Thank you. Our next question comes from the line of George Staphos from Bank of America Merrill Lynch.
Thanks for the details and congratulations on the quarter. Rob, we look forward to working with you. Congratulations. I wanted to pick up on that question. Howard, could you give us a sense of the shared services and that area of self-help, what we could be looking at into 2023. It sounds like there's not been as much, for understandable reasons, pick up on that this year. Next year, if you could help us understand what that could be, perhaps, and if not quantitatively, you know, just sort of directionally, if there's any way to talk to that point.
Yeah, George, I do not want to take up the entire Q&A session to talk through all of the work we're doing, but I'm gonna try to summarize. Basically, we're taking a different approach and outlook towards the company. We've identified what we call our core businesses, and those are our can businesses, our flexibles businesses, and our global integrated paper business.
We're structuring our centralized functions in support of those critical longstanding businesses within the company. On the other side, we have a group of disparate businesses known in the all other category that we're gonna manage differently. We are no longer gonna support from center. We're gonna allow them to. They're not integrated.
There, you know, there's not a lot of relationship between many of these. We're gonna set them up to stand alone. We'll be supported by our centers when that makes sense to the core from a cost perspective. The end result is gonna be much greater focus on those, again, core businesses. It's gonna be more focus as it relates to, you know, how do we support and manage those core businesses, and it will provide significant SG&A savings as we fully implement that. It is a totally different view of how we're gonna be managing the company into the future. Rodger's heading that up, and he may have a couple of comments that he would like to make as well.
Yeah, I think you covered it well, Howard. But George, I'd add, you know, we talk a lot about automation. You know, we've got a tremendous amount of really strong capital automation projects going through that'll be hitting next year. A lot of focus on operational technology and how do we give our operators, our maintenance teams better online data to improve productivity.
As you know, productivity's been very tough this year. I think the team's done a fantastic job under a very difficult situation with supply chain challenges and labor challenges. Unlocking that productivity in 2023 is gonna be critical, and I'm feeling very, very bullish about that as well. We'll start to see those projects pay off as we head into early 2023 as well.
Thanks for that, Rodger and Howard. Would it be fair to say that, you know, 2023, clearly the incremental pickup will be more than what you saw in 2022, and that, in turn, it would be more than what you see incrementally 2024 versus 2023?
That's correct.
Okay. Thanks for that. Two others from me, and I'll turn it over. One, can you talk about the trajectory that you're seeing in Industrial as the quarter progressed, you know, May into June? Then I realize we're not that deep into the third quarter, but any views that you could share with us in terms of what you're seeing in Industrial, early third quarter. Similar question looking at consumer, you know, there's some puts and takes. Your important businesses did well, is my take, obviously in cans and flexibles. Any chnge in the trajectory of the businesses as the quarter progressed and then early into 3Q? Thank you, guys. I'll turn it over.
Hey, George, Rodger. On industrial, as we look at the third quarter, surprisingly, the U.S. is maintaining a really good strength. If you look at the tube and core business in the U.S. in the second quarter, came in 1.6% +. Strong film results, strong textile, tape and specialty. A little bit of downside on paper mill cores, but strong.
We've seen that continue into the first part of July, and we expect very similar trends in North America, in the U.S. and North America than we had in the second quarter. We're really not seeing any kind of slowing to speak of. As you would expect, Europe and China, specifically in Asia, was difficult. You know, our tube and core numbers in Europe were down about 6%, but we had the Russia exit.
We've exited a plant in Saudi Arabia. We exited a losing, a profit-losing plant in France, so we're making the really smart moves. You take that out, and the European business was down about 3%. Most of that's coming from textiles, and that textile softness is really generated by the war in Ukraine and the supply chain disruptions we're seeing there. Asia overall was weak, and that's driven by China.
As an example, China, our cone business, which is textile-focused, was down 37% year-over-year. China was soft. For me, other than the incremental energy challenges that we may see in Europe in the second quarter, we're seeing very similar trends as we move into the second quarter. The most optimistic piece is really that U.S., Canada piece, which is holding up well.
No significant changes as we rolled into the third quarter in our can business. We are seeing a rebound in our powdered infant formula business. You know, there's a well-publicized challenge with one of our large customers in the powdered infant formula business. That seems to be behind us now, so our North American paper can business should be stronger. Rob's already mentioned seasonally the second half in metal can is softer than the first. That's in the guidance.
I want to call out our plastic food business. Yeah, the volume was down, but it was down by our choice. We've been talking now for three or four quarters about the consolidation, plant consolidations we're doing in that business, the pricing strategy we have in that business, and we've walked away from some unprofitable business. The volume was down in plastic foods, but they had a record profit performance. I'll take that trade-off at any time. But really, the only significant change we're seeing is really energy costs in the third quarter, and that's a watch-out, not only price of energy, but availability of energy, specifically Germany, as we get into the quarter.
Makes sense. Thanks very much, guys.
Thank you. Our next question comes from the line of Mark Weintraub from Seaport Research Partners.
Hey, Mark.
Another really good quarter. Also thank you for laying out some of the controllables that you're gonna be the levers you're gonna be pulling to drive profits going forward. One thing you helped us out with in the first quarter is you had noted that there had been about $0.30-$0.35 from quasi one-time price cost. Was there much, if any, in the second quarter as we start thinking about what's the right platform to think 2023, where kind of the starting number should be? Is there a number for the second quarter that would be equivalent to that $0.30-$0.35 you talked about in the first quarter?
You know, Mark, for the second quarter, you know, really across several divisions, we probably saw in that $0.08-$0.10 type benefit. You can back that out and say the rest was pretty much pure. Your question really is around how do we comp that to next year? You know, there you go. You know, I'm not gonna repeat all the things that we have from a tailwind perspective that and number 10's a great headline. As George asked, we haven't seen a lot because we're in the planning cycles right now in terms of structural transformation. We expect that to truly kick in next year.
Again, I'm not gonna repeat all the things, but well, I will say, if you look at number 10, that's been like the poster child because it's such a large, our largest ever capital investment. We've got just, I don't know, 10, 20, 30, 40, 50 number 10-like projects that are in the $1 million, $5 million, and $10 million type range that drive us up to that $325 million in capital spending and increased capital spending last year. The returns coming from those are really gonna start kicking in next year. Finally, you know, synergies have started with the acquisition, but we expect to see meaningful improvement and tailwinds from that as well.
You talk about the $0.30-$0.10, and while you guys, what are we going from? $3.93 to $6.20 something, in one year. We expect to be able to maintain that going forward because of all the work that this great team has undertaken over the last two years.
Super. Thank you. You also, I guess one question folks have been asking, you know, the volumes were flat down a little bit. You called out the plastic food. If it's possible to sort of put to the side where you made decisions to essentially sell less, can you give us a sense as to what kind of the remaining business volumes would have looked like?
Yeah. I don't think we can hit a number for you, but it is something that we are going to start pointing out going forward. You know, when you say you're 1% down and whatever, we do make strategic decisions that actually can impact that 1%. That was a great example that Rodger pointed out where our perimeter store business was 9% down, which is in our consumer sector, 9% down, and we had profits that we haven't ever just had in that business, making smart moves, sacrificing volume, in exchange for much, much higher profits.
Mark, sorry, I can't just sit here and say, you know, here's a number, but we are recognizing that we're not giving you guys the total picture of what is actually a market driven versus our own self-actions that are causing our volumes to be down. That will be coming in the future.
Super. Thank you for the color.
Thank you. As a reminder, to ask a question, you will need to press star one on your telephone. Our next question comes from the line of Gregory from Citigroup.
Hey, Gregory.
Hi, Greg on for Anthony. I just had a quick question about the full year guide, kind of circling back to that. The range $620-$630, to my mind, that's above what the 2Q pre-announce would have implied. You know, my thought process is your expectations for the second half are above what they were back in in April when you updated us last. I guess my, you know, two kind of related questions. First question is, how has the second half outlook changed?
Since April or since earlier this year. Is it possible to kind of parse out some of the drivers of the guidance raise? Also, I just wanted to kind of know how costs are trending in July in terms of resin, OCC, natural gas, and kind of what levels of inflation the full year guide assumes for the rest of the year.
Yeah, Gregory, good question. You know, in terms of the guide, you know, the real kind of drivers there and how we're thinking about it sequentially from the first quarter, second quarter and then third, as you mentioned, kind of the increasing guide for the year as we are, as Rodger said, really monitoring and participating really actively in our markets and understanding the demand drivers. I would say that, you know, in our really defensive consumer markets, like rigid paper cans, you know, metal foods and flexibles and thermoforming food, you know, we feel really good about kind of stability there and defensibility there, and that should just continue to provide kind of performance opportunities on the price side. On industrial, it is cyclical, and we're kind of monitoring it.
Rodger and Howard both said that there's various kind of puts and takes there, but we aren't predicting kind of a meaningful downturn in our core U.S. tube and core and paper markets. Those markets continue to be you know relatively strong. I think that you know one component on the guide that is unique was that metal packaging does have material seasonality through the year, and that the first half has you know pretty meaningful profitability this year. We're expecting that profitability will be you know I would say this is the component where profitability will be normalized for the remainder of the year, and that margins will you know normalize from their current kind of 21% range that we saw in the second quarter.
I think that all this, you know, the big driver here remains price cost. I think we really wanna make the point that we're not kind of oscillating around kind of a neutral price cost where margins would continually kind of revert to some mean. That we've been really focused on margin expansion and pricing to value. As a result, we think price cost for the full year, of which we've gotten, you know, $164 million this year, should be in the range of $250 million-$300 million for the full year. That's really the driver for a lot of the earnings for the rest of the year.
Yeah, this is Rodger. On the inflation side, you know, we feel like inflation peaked in the second quarter. Now having said that, there'll continue to be supply chain challenges and inflation challenges, but we do feel like it's peaked. We're seeing some easing up in freight finally, truck availability, driver availability, some offset obviously in diesel costs, some drop in things like aluminum ingot. You know, and keep in mind what resin Sonoco purchases, but we are calling our resin inflation going up for the year. We're about 18% in last quarter, now it's up to about 26%. But 50% of the resin we buy, we buy 500 million pounds a year. 50% of what we buy is PET, and it looks like PET is gonna escalate from 40% to 45% this year.
You've got to keep that in mind. I think the point on the second half, you know, in the first quarter, we didn't know what we didn't know about supply chain challenges and inflation. We've got a better view for it now. We've been more precise. To Rob's point on strategic pricing, you build that in with a little bit of easing and inflation in the second half, and that helps you understand the guidance changes for the second half.
Great. That, that's very helpful. Thank you. I'll turn it over.
Thank you. Our next question comes from the line of Kyle White from Deutsche Bank.
Just taking the question. Congrats, Rob, on the new role. I'm looking forward to working more closely with you going forward. I guess just to start, curious overall across the business, if you guys are starting to see any kind of trade down impacts, maybe consumers moving more to food cans, rigid paper containers versus fresh foods, anything that you would call out?
No, I don't think we're seeing, you know, the only areas within the portfolio that are notable would be actually on the more high value parts of our business, and that's the supply end of the white goods industry, refrigerators, washer, dryers. Some of that is related to their own supply chain issues, but our customers are telling us they're seeing some pullbacks. We're not seeing at this point what we normally would see in a recessionary period, and that is a fairly substantial tick up in the staple food side of our business. You know, it's kind of business as normal at this point in time.
All right. That makes sense. Rob, since you're not new to Sonoco and you already have an understanding of the business, just kind of curious, what strategic actions you might be looking to implement here from day one. Anything you're thinking about changing in regards to the cap allocation or what's your view on leverage in share buybacks?
Yeah, we're still evaluating that. I mean, it's early days. I think legacy practices have certainly served us well. We definitely have a dedication to being investment grade and are thinking really thoughtfully about what that means for the capital structure and what strategic alternatives are. We've bought back shares in the past, and we consider doing that, but we really like returning capital to the shareholders through the dividend and think about that every quarter with the board. Sounds good. I'll hand it over.
Thank you. Our next question comes from the line of Adam Josephson from KeyBanc Capital Markets.
Everyone. Rob, congratulations. I look forward to working with you as others have said. One, on the price/cost, Rob, that you gave at your updated expectation of $250 million-$300 million benefits for the year. If memory serves, the company's expectation coming into the year was $125 million+. It's gone up. It's more than doubled since the beginning of the year. Can you help me with which segments that's in, and just frame for us the magnitude of that full year price/cost benefit compared to what the company has experienced historically?
Yeah, Adam, that's a good question, and it's something we're really focused on. I mean, if you think about it in a historical context, you know, over the last two years, we've experienced negative price cost of $153 million. In the first half of this year, we're back to + $164 million. Really offsetting just was two years of a negative trend. I would say that, you know, that whole two years and this year, we've been really working on getting price in a really strategic way and thinking about how to deliver value in the right way to our customers and receive the right value for what we're delivering. That's changed a lot of how we think about price and how we think about margin.
That's really the driver for how we think that, you know, this price cost curve over the three-year period that you're thinking about, if you include the last two years, will actually just show if you get to the $250 million-$300 million, just the good work that we've done over the last couple of years. We feel really confident about that. It's a capability we've been building for a number of years and one that we've increasingly gotten focused on. I think Rodger can talk a little bit more about some of the puts and takes. I mean, there's definitely businesses that are experiencing, you know, better pricing. I would say it's a core capability that we're pushing from center and that it's across the board, you know, we're seeing price.
There is no just one pocket of price here or there. You know, every business is really seeing price.
Yeah. That's well said, Rob. I think the only thing I would add, Adam, is, you know, we've talked about it now for, you know, 18 months or more, you know, the other initiative is really going through all contracts with all customers across primarily the consumer and industrial are two platform businesses, and really understanding price change mechanisms and timing on those price change mechanism, using the correct price change mechanism. Most importantly, in the environment of the last 18 months, making sure we can recover as we should be able to labor increases and all other increases, all the materials besides things like OCC and resin and metals. I think, you know, as Rob said, the team's done a fantastic job.
I think that's a driver of most of the incremental that you're calling out, and we continue to push that going forward, and we see that continuing in the second half of the year.
You know, I would add, through the COVID period, it's really rare. I can't think of one that comes to mind where we actually materially called downtime for a customer during these difficult supply chain situations. I think it just really helped pull forward our customers' recognition of the value of doing business with a global company like Sonoco, that when we have a discrete raw material shortage, we have literally a global reach and are willing to do whatever it takes to make sure our customers stay in the market and deliver that value that we have for so long. I think they too are understanding that and we're being rewarded for that in terms of margin improvement.
No, I appreciate that, Howard. Just one clarification on that. You recouped all of what you lost over the past two years just in the first half, and then you're gonna get, you're expecting a lot more in the second half. I think in response to Cleve's question, you were saying, Howard, that you don't think you'll be in effect over earning this year despite what appears to be a historically large price cost benefit. Is that because you're thinking perhaps you're in effect underpricing in recent years, plus you had that drag over the past two years that you recouped in the first half? Is that how you would have us think about that issue?
That is how we think about it. Look, I mean, in a perfect world, price has nothing to do with cost, right? Our customers are understanding that doing business with Sonoco is the right partner to be doing business with, and that we can keep them in. Our value recognition is higher today than it ever has been. As Rodger talked to, you know, we've been working at this for a year and a half, two years, really, in terms of our commercial excellence and making sure we're getting that message out. It's just COVID absolutely reinforced to our customers that, you know, we are the right folks to be doing business with because, look, we have a major recession. We have a hurricane coming. It's not coming.
I don't have insight to that, but you know, it can happen literally in a matter of weeks that we have global supply chain issues. Our customers know that we will keep them in supply at whatever cost. It may be a short-term impact to our P&Ls, but we are gonna be there to serve them.
I appreciate that. Just one other one on the URB business, which is obviously in 2008, 2009, that business took a very big hit, both in terms of volume and profitability. I know you think about the business a lot differently and the industry for that matter, much differently than it was back then. Can you just remind us of that? Then more near term, I think, Rob, you expressed confidence that the North American tubes and cores demand would hold up. What gives you that confidence given the economic sensitivity of those end markets, particularly given what that business saw in 2008, 2009 volume wise? Thank you.
We're all looking around on who's gonna answer that one. Okay. I'll start. You know, look, you know, the balance in terms of we've been short URB. We've talked about that quarter after quarter allocations. You know, with number 10 coming on, we hope to get our inventories back up. Let me add to that. I mean, the productivity, negative productivity that we've seen through this period of shortness where we've been changing over, moving volume from mill to mill to mill just to keep ourselves and our trade customers in supply. Look, it's still a very tight market. Number 10 is gonna come on. We'll see relief. We'll see inventories hopefully get up to the appropriate levels so our productivity will improve substantially.
You know, we just think that overall these market conditions are set to sustain the type of margins that we've enjoyed.
Adam, Rodger, I think you have to go back before Project Horizon. If you remember, we put tens of millions of dollars of capital investments into our paper mill system, focusing on expanding the capacity of our lowest cost machines and aggressively taking out our high cost capacity. That continued you know after the recession for several years leading up to Project Horizon. Project Horizon is just gonna build on that. Then we'll continue with that. Project Horizon is not the last investment we'll make in URB. The whole our system, our URB system is much lower cost. We've committed to keeping capacity basically flat, and that's what we've been doing, and that's our commitment going forward. It's really a different market today than it was back in 2008 and 2009, in my opinion.
Thanks very much, Rodger.
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