Berry Global Group Inc

NYSE:BERY

Earnings Call Transcript 2022-Q2

[Operator]

Ladies and gentlemen, thank you for standing by. And welcome to the Berry Global Earnings Call. At this time, all participants are in a listen-only mode. Please be advised that today’s conference is being recorded. After the speakers’ presentation there will be a question and answer session [Operator Instructions]

I would now like to hand the conference over to your first speaker today, Dustin Stilwell. Thank you. Please go ahead.

[Dustin Stilwell, Head of Investor Relations]

Thank you, and good morning, everyone. Welcome to Berry’s Second Fiscal Quarter 2022 earnings call. Throughout this call, we will refer to the second fiscal quarter as the March 2022 quarter.

Before we begin our call, I would like to mention that on our website, we have provided a slide presentation to help guide our discussion this morning. After today’s call, a replay will also be available on our website at berryglobal.com under our Investor Relations section.

Joining me from the Company, I have Berry’s Chief Executive Officer, Tom Salmon; and Chief Financial Officer, Mark Miles. Following Tom and Mark’s comments today, we will have a question and answer session. In order to allow everyone the opportunity to participate, we do ask you to limit yourself to one question at a time and then fall back into the queue for any additional questions.

As referenced on Slide 2, during this call, we will be discussing some non-GAAP financial measures. The most directly comparable GAAP financial measures and a reconciliation of the differences between the GAAP and non-GAAP financial measures are available in our earnings release and investor presentation on our website.

And finally for a reminder that, certain statements made today may be Forward-Looking Statements. These statements are made based upon management’s expectations and beliefs concerning future events impacting the Company, and therefore involve a number of uncertainties and risks, including, but not limited to, those described in our earnings release, annual report on Form 10-K and other filings with the SEC. Therefore, the actual results of operations or financial condition of the Company could differ materially from those expressed or implied in our forward-looking statements.

And now I would like to turn the call over to Berry’s CEO, Tom Salmon.

[Thomas Salmon, Chairman and Chief Executive Officer]

Thank you, Dustin. Welcome everyone and thank you for being with us today. I would like to refer everyone to Slide four to the quarterly presentation material. First, I’m pleased report that we exceeded our adjusted earnings per share expectation for the quarter and delivered record net sales of $3.8 billion with organic volumes, EBITDA and free cash flow finishing in-line with our expectations, despite additional inflationary pressure and macroeconomic challenges. We are reaffirming both our adjusted earnings per share and free cash flow ranges for the full fiscal year.

Additionally, we increased our cash return to shareholders, as we repurchase $300 million of shares or 4% of our outstanding total shares in the quarter. As we stated on our last call, we are committed to repurchasing at least $350 million in fiscal 2022, and we have already achieved that threshold during the first two quarters.

Given our top priority of driving shareholder value, we were fortunate to be able to repurchase our shares and take advantage of the attractive return opportunity at prevailing prices. If current valuations persist, we would expect to continue to repurchase shares at a similar pace in the back half of the fiscal year. We have approximately $700 million remaining on our recent authorized $1 billion share repurchase program, with the majority of our cash flow generated in our fiscal second half.

Next, we have seen continued inflation since our last earnings call. We are taking aggressive price action to offset these costs across our businesses. While we continue to navigate through this dynamic operating environment, our teams have executing exceptionally well.

We continue to prioritize our customers and our scale and operational agility had enabled us to service our customer demand and continue to focus on growth, while also recovering higher input costs at the same time.

And finally, our portfolio offering is unlike any other in our industry. Our ability to provide a one stop shop for our customers on a global basis is unique and differentiated. We are investing for the long-term growth with a focus on faster-growing product categories, growth-oriented geographies and innovations that drive growth along with sustainability-led opportunities for additional growth and value creation.

We have made great strides towards our sustainability goals, and we will continue to be ambitious with our commitments, which are being driven and led by the needed demand of our extensive global customer base.

Next, let me turn to our Number one core value on Slide 5 that is safety. Keeping all of our 47,000 teammates healthy and safe is our highest priority. We have an ongoing commitment to identifying, managing and minimizing safety risk. Our teams have continued to make great progress on safety despite a challenging environment.

Our safety performance speaks for itself. And as you can see, has continued to improve. We are very proud of our industry leadership delivering an OSHA incident rate below one for fiscal 2021, which is significantly better than the industry average of 3.7.

Our entire global team’s emphasis on working safely and servicing our customers in a challenging environment has made us a stronger and better Company today, giving us great optimism on the Company’s future success.

As you can see on the slide, we have a strong commitment to ensuring that we are providing better opportunities in bringing innovation to provide multiple lives to natural resources while having many initiatives with industry and external partners to improve circularity and our carbon footprint.

And lastly, I would be remiss not to mention how extremely proud I am of our Company and employees who continue to generously assist refugees from Ukraine during this extremely volatile and challenging period, providing both shelter and financial support.

Now I will turn the call over to Mark who will review Berry’s financial results. Mark.

[Mark Miles, Chairman and Chief Financial Officer]

Thank you, Tom. Before we move ahead in the details for the quarter, please note that consistent with last quarter, we will compare the current period quarter to that of two years ago. The March 2020 quarter as COVID yet to meaningfully impact our businesses and we will refer to this on a two-year basis.

We believe this comparison provides meaningful and useful information to investors about the longer-term trends in our businesses and mitigates the impact of COVID, which has both benefited and negatively impacted portions of our business.

I would like to refer everyone to Slide 6 now. For the quarter, we delivered record net sales of $3.8 billion which is 12% higher than the prior year and up 31% on a two-year basis. Organic volumes were 2% lower than last year, in line with our expectations as we recorded 5% organic volume growth a year ago.

When compared to the pre-COVID levels on a two-year basis, organic volumes were up 3%. From an earnings perspective, operating EBITDA was down 6% from the prior year quarter as expected with the estimated $25 million product mix benefit realized a year ago.

On a two-year basis, operating EBITDA increased 4% and adjusted earnings per share increased by 21%. These strong results over the past two-years are driven by our focused strategy to invest organically in each of our businesses and strong execution in the face of significant cost increases in our primary raw material resin as well as inflation in other raw materials, freight, energy and labor.

As we have demonstrated historically, and will again throughout fiscal 2022, we remain committed to passing through these cost increases and believe we are well positioned given our scale, along with our ability to service customers from our facilities in close proximity to their locations, which provides both cost and sustainability advantages.

Our ability to efficiently pass through inflation was demonstrated again as our selling prices were nearly $600 million higher than the prior year quarter and up a substantial $2.5 billion over the last four quarters.

Now I would like to turn to the quarterly performance by each of our four segments, starting on Slide 7. For the quarter, our Consumer Packaging International division delivered a 7% increase in revenue over the prior year and a 17% improvement on a two-year basis, including organic volume growth of 4%.

Our food, beverage and health care markets recorded solid volume growth while some industrial markets continue to experience modest headwinds. Operating EBITDA on a two-year basis was up 8%, driven by the organic volume growth and cost productivity partially offset by the timing lag of recovering higher costs.

Next, our Consumer Packaging North America division delivered a 20% increase in revenue over the prior year and a 39% improvement on a two-year basis including organic volume growth of 5%.

Selling prices increased by over 21% versus the prior year from the pass-through of higher costs. Flat volume in the quarter exceeded our expectations coming off of a strong 5% organic volume growth delivered in the prior year.

From a market perspective, we continue to see strong demand from food and beverage markets, including strong demand for our clear polypropylene fully recyclable drink cups used by quick service restaurants and convenience stores. Operating EBITDA on a year-over-year and two-year basis was up 7% driven by the strong organic volume growth.

On Slide 8, our Health, Hygiene & Specialties division delivered a 30% increase in revenue on a two-year basis, including organic volume growth of 5% over the same period. In the quarter, similar to our other divisions, we saw selling prices increase significantly from the pass-through of higher costs.

As expected, volumes were lower than the prior year quarter as a result of strong year-over-year comparisons in our hygiene and health care markets from the pandemic. On a two-year basis, the segment benefited from organic customer committed capital investment supporting our customers in healthcare, hygiene and specialties products.

Operating EBITDA on a two-year basis was up primarily attributed to strong organic volume growth, partially offset by the timing lag of recovering higher costs. And lastly, our Engineered Materials division delivered a 17% increase in revenue over the prior year and a 36% increase on a two-year basis with a modest volume decline over the same period.

In the quarter, we saw selling prices increase by 24% from the pass-through of higher costs. Volumes were down modestly as the recovery in business was negatively impacted by COVID, along with the onboarding of new business were more than offset by supply chain challenges.

Operating EBITDA was up 4% compared to the prior year from cost reduction, projects and capital investments supporting productivity, but modestly down on a two-year basis related to the volume weakness from supply chain challenges.

Next, as you can see on Slide 9, we are reaffirming our adjusted earnings per share of $7.20 to $7. 70. The range assumes lower EBITDA primarily from divested businesses, foreign currency headwind from the strengthening U.S. dollar and the timing lag of recovering higher costs offset by a lower tax rate and the benefit from share repurchases.

As referenced on our last call, we remain committed to recovering the significant inflation we have incurred starting in fiscal 2021. We continue to anticipate from both an earnings and volume perspective and improved second half of the year as we continue to recover inflation along with the start-up of new business and capital investments.

Further, as we communicated at the beginning of the year, we expect organic volume growth to sequentially improve as the year progresses and anticipate low single-digit growth in the second half of the year.

For the full-year, we expect volumes to be flat to up 1%, coming off 4% organic volume growth in fiscal 2021. This is modestly lower than our prior guidance because of the timing of new business startups and continued supply chain challenges.

On Slide 10, we are reaffirming our free cash flow guidance of $900 million to $1 billion. This includes cash from operations of $1.65 billion to $1.75 billion plus capital expenditures of $750 million as we continue to see a strong pipeline of growth and cost reduction projects, which returns well above our cost of capital.

I’m extremely proud of our ability to deliver on our cash flow guidance every single year since we started providing guidance nine-years ago. We have a clear and flexible capital allocation strategy, which includes funding organic growth projects, opportunistic share repurchases, debt pay down and strategic portfolio management.

We intend to use a portion of our strong dependable and consistent free cash flow to fund customer-supported investments that drive sustainable long-term organic growth. We have also historically generated significant value through active portfolio management, including both strategic acquisitions and divestitures.

As we continue executing our portfolio management strategy, we believe we are well positioned for continued value creation this year, having already executed three divestitures expected to deliver proceeds of around $150 million.

And as Tom noted, if the market continues to present us the opportunity to drive attractive shareholder returns through share buybacks, we will continue to use a portion of our cash flow to buy back shares at prevailing market prices.

This concludes my financial review, I will turn it back to Tom.

[Thomas Salmon, Chairman and Chief Executive Officer]

Thank you, Mark. As you can see on Slide 11, we have consistently driven top-tier results in nearly all key financial metrics, generating strong compound annual growth rate for revenue, earnings and free cash flow and grown our adjusted earnings per share every year as a publicly-traded company.

Our business model is extremely resilient through any economic cycle and includes the broadest portfolio of packaging solutions with strong, dependent and stable free cash flows to allow us the flexibility to drive the greatest returns.

We are well positioned to continue to deliver significant value for our customers and shareholders. The strategic choices we have made guide how we prioritize our investments in our business, which is why we are investing in several areas that we expect to drive long-term organic growth, including the initiatives highlighted on Slide 12.

We continue to invest in each of our businesses to build and maintain our world-class low-cost manufacturing base with an emphasis on key end markets, which offer greater potential and differentiation in growth like e-commerce, health care and pharmaceutical. I’m very confident in our team’s ability to meet our near-term and long-term expectations and execute on our commitments to provide sustainable, profitable growth.

Additionally, we will continue to invest and expand our emerging market position in support of our commitment to global growth. We believe that by increasing our presence in faster-growing end markets, along with continuing to invest into emerging market regions.

We will further enhance our ability to provide consistent, dependable and sustainable long-term growth. We will continue to focus on global megatrends, and we believe there will be a considerable demand for our protection products and regions with rapidly increasing populations.

And lastly, innovation and sustainability are increasingly embedded in everything we do, and we continue to believe this represents a great opportunity for growth and differentiation. We remain uniquely positioned to provide a consistent pipeline of innovative new packaging solutions.

We also continue to believe responsible packaging is the answer to addressing consumer concerns around packaging waste and by responsible packaging, we mean the combination of packaging design, recycling infrastructure and consumer participation.

We continue to invest in global innovation capabilities at centers of excellence to capitalize on what we believe is one of our strongest opportunities, that being the overwhelming demand for sustainable packaging solutions.

For example, as you can see on Slide 13, we recently introduced an environmentally friendly dispensing solution for retail and e-commerce applications. We have become one of the first packaging manufacturers to develop a fully recyclable dispenser Wave 2cc, part of our B circular product range.

Our plan is to invest over $100 million globally over the next several years in our new Wave product line with the goal of reinforcing our presence across the dispensing market by focusing on solutions that deliver a strong, sustainable benefit to our customers. Enabled by our internal post-consumer recycling capabilities in the U.K., the Wave product line is the FDA approved made of 100% plastic and can utilize 70% PCR content.

Additionally, as you can see on the right-hand side of the slide, in order to help some of our non-food customers increase the sustainability of their packaging, we are now able to offer 50% post-consumer recycled material as a standard in several of our existing and most popular industrial packaging products.

Importantly, these containers also offer a mono material solution as they are made solely of polypropylene. These solutions are space-saving, user-friendly packaging solutions for non-food products for business-to-business use as well as for consumer applications.

In line with these initiatives, as you can see on Slide 14, we have committed to minimizing product impact by enabling 100% of our fast-moving consumer packaging products to be reusable, recyclable or compostable by 2025.

Furthermore, Berry has received an A- rating for our leadership action on climate change from the carbon disclosure project, which is a not-for-profit organization that runs global disclosure systems for investors, company, cities, states and regions to manage their environmental impacts.

Berry is among over 12% of companies in the plastic product manufacturing group, who have reached this leadership position. We are continuously innovating and investing to work toward the global goal of a net zero economy. Through our Impact 2025 strategy, we are dedicated to delivering sustainable innovation for our customers and within our own operations.

In conjunction with the multitude of sustainability initiatives earlier in the year, we announced our most ambitious sustainability packaging goal to date, as you can see on Slide 15. 30% circular content used across our fast-moving consumer goods packaging by 2030.

Our new 30/30 goal aims to give natural resources multiple lives and introduce alternative renewable options as the industry continues to pivot towards recycled and renewable resources. We look forward to continuing to lead the way in driving innovation and sustainability based growth and announcing many more opportunities over the next several years.

In summary, we are very pleased with the hard work of our 47,000 employees delivering solid quarterly results in the face of persistently higher costs and tough year-over-year comparisons. As Mark stated earlier, we are confident we will continue to recover inflation, continue to see supply chain improvements and see new business and capital investments ramp up in the back half of this year.

Additionally, if current valuations persist, we expect to continue to opportunistically repurchase shares in the back half of the year just as we did in the first half. And furthermore, we will continue to focus on driving organic growth, supplemented by inorganic opportunities, if available, while providing more consistent return of capital to create maximum value for shareholders.

I thank you for your continued interest in Berry. At this time, Mark and I will be glad to take any of your questions. Operator.

[Operator]

Thank you. [Operator Instructions] Our first question comes from the line of Ghansham Panjabi from RW Baird. Your line is now open.

[Ghansham Panjabi, Robert W. Baird]

Thank you. Good morning everybody. I know you called out supply chain challenges for the EM segments. But as you think about the rest of the portfolio, are there any major constraints that are impacting your service levels for your customers and any significance? I guess I’m referring to resin constraints, labor freight and if you could also touch on current operating conditions in Europe, just given the sequence of events there. Thank you.

[Thomas Salmon, Chairman and Chief Executive Officer]

Good morning Ghansham. Clearly, I think in general, we are seeing some improvement in supply chains. Specific to EM, it was really tied around certain specialty chemicals and resin formats that help support extended shelf life.

As a result, during the quarter, we had to prioritize the allocation of that to some of our higher-margin business in the space. Freight, in general, continues to get better and I think we will continue to see that improvement into the back half of the fiscal year.

No doubt, in Europe, the war in Ukraine has created energy instability causing the cost of those inputs to rise dramatically. They are actively being passed through from an inflationary perspective.

And in general, I would say, the industrial complex in Europe has recovered at a slower rate than what we have seen in the United States, though we expect that to continue to improve in the back half of 2022 and into calendar 2023 as well.

[Ghansham Panjabi, Robert W. Baird]

Thank you.

[Operator]

Thank you. Our next question comes from the line of Mike Leithead from Barclays. Your line is now open.

[Michael Leithead, Barclays Bank]

Great. Thanks, good morning guys. Just one on my end on the capital deployment side of things. I think as of quarter end, you are maybe a little bit above four times levered. So I guess, A, where would you expect net leverage to be by year-end and does that kind of impact your way at all in your pace of buybacks. Obviously, you picked it up a bit near-term, but just how should we think about that balance between net leverage and buybacks this year?

[Thomas Salmon, Chairman and Chief Executive Officer]

We continue to believe after the full-year, we will be able to operate the company within our targeted range, and it is reinforced by the fact that the majority of our cash flow generation typically occurs in the fourth quarter - third and fourth quarter.

[Michael Leithead, Barclays Bank]

Got it. Thank you.

[Operator]

Thank you. Our next question comes from the line of Arun Viswanathan from RBC Capital Markets. Your line is now open.

[Arun Viswanathan, RBC Capital Markets]

I just wanted to go back to the volume question. So it does appear that, obviously, you have the tough comps. But when you look kind of structurally you have some new product initiatives across the portfolio. Maybe if you could just help us understand how we get back to kind of low single-digit growth in each of the segments. PP&A is it a requirement that we have some new product wins. EM, I guess, that would probably be an industrial recovery. And I guess, what would you cite in HH&S and CP International if anything? Thanks.

[Thomas Salmon, Chairman and Chief Executive Officer]

Sure. I will kind of take them in order. We actually believe that given the success of the Wendy’s program and the strong interest on our all clear, fully recyclable drink cup program that that will provide a lift for us in the back half of the fiscal year for CPNA.

I will also remind you that this will be the fifth consecutive year of organic volume growth in that business and I clearly believe that the following year will be the sixth year of growth. So that business continues to be strong. We continue to provide innovative, sustainable solutions that are winning, and the portfolio is comprised as well of products that people consume every day.

And very similar to what we have in our CPI business as well. So things like food service, beverage, the success that we have had in investor area will carry the day for those two specific businesses. In HHS, no doubt about it in the back half of the year, the fourth fiscal quarter. The comparable in the prior year mathematically creates a nice windfall of opportunity inside HHS.

Now I will also remind you that even though that business has components of the portfolio that were benefited from the pandemic, they continue even though they might be negative on a year-over-year basis, they continue to trade at elevated level versus 2019, which is encouraging for us, and that business continues to see strong fem care and baby business for that portfolio.

And then lastly, inside Engineered Materials, no doubt that business was impacted by really three things in the quarter that we believe will moderate. One, it was tied to the fact that we had some softening of demand given by destocking that was done, given that the primary channel market for Engineered Materials is distribution. So it is very typical to increase and decrease stock based on anticipated inflation.

Secondly, many of the converted customers that we were working on new business, they too have supply chain issues that we believe will moderate, supporting the closure of new business in the back half of the year.

And thirdly, in that business, really, there were some supply chain challenges, specifically around EVOH as a product that caused us to have to prioritize that precious commodity in the prior quarters that we are working with our suppliers to increase that supply demand. So that is what gives us the confidence in the back half of the year.

[Arun Viswanathan, RBC Capital Markets]

Great. Thanks for that comprehensive answer, Tom. And then, yes, I guess, I just also wanted to ask about capital allocation. So you have indicated potentially an increase for share repurchase activity. And I guess, how you are thinking about that longer term? I know - maybe if you could just kind of reiterate if you would like to keep leverage below in the low threes, say, and what you are seeing in the M&A market? Is there anything peaking your interest that would potentially cause you to rise above those levels? Thanks.

[Thomas Salmon, Chairman and Chief Executive Officer]

You know the plan is to continue to operate the company in our targeted range between three and 3.9 times. Given the current dislocation we saw in the share price, it was a unique opportunity. And I think, as you mentioned, M&A, we have a long history creating shareholder value through mergers and acquisitions.

And as such, when we look at the value of repurchasing our shares in the period, it was an extraordinary value for us. So I’m happy to take advantage of that dislocation and as we committed, should we continue to see that going forward, we will continue to act similarly as we did in the front half of the year in the back half of the year. Time will tell on that.

[Arun Viswanathan, RBC Capital Markets]

Thanks.

[Operator]

Thank you. Our next question comes from the line of Anojja Shah from BMO Capital Markets. Your line is now open.

[Anojja Shah, BMO Capital Markets]

Hi everyone, good morning. You talked about your plans to expand in emerging markets, which you have been talking about for many quarters now. But I just want to know how you balance that with what seems like bigger - more geopolitical issues in many parts of the world and the strengthening of the U.S. dollar and upheaval in international supply chains. How do you balance both of those?

[Thomas Salmon, Chairman and Chief Executive Officer]

Yes, the majority of our business today continues to be in the developing geographies of the world, specifically in the United States and Europe. Our ability to complement that in faster-growing geographies where we have stable customer base, stable management teams is where we would prioritize our time.

We have been thrilled with the most recent announcement that we have had with our health care market expansion in Bangalore, which in spite of the pandemic, in spite of the disruption in the global economy continues to be on track and we are partnering with global brands serving that local market. So that in and of itself helps derisk it, because we are serving local markets. We are not exporting those goods in most instances outside.

Similarly, the investments that we make alongside our customers, like the Wave dispensing investment in our CPI business can have global application. So again, any investment opportunity that has done alongside in conjunction with our end customers, de-risks some of that volatility that you noted. And we continue to believe it is a tremendous opportunity to complement the significant base of business we have in the two most developed regions of the world.

[Anojja Shah, BMO Capital Markets]

Great. Thank you.

[Operator]

Thank you. Our next question comes from the line of George Staphos from BAML. Your line is now open.

[George Staphos, BofA Securities]

Thanks very much. Hi everybody, good morning. Thanks for all the details. Tom, Mark, I was hoping you could give us a bit more color in terms of how the volume and EBITDA projections changed across the segment. So if you could talk about where you saw the decrement to volume across the businesses and how the new low single-digit growth applies across the four segments. And similarly, how that allocated if you will, the decrement across the segments from an EBITDA standpoint, especially I would be interested in HHS since you have been putting so much investment there. Thanks guys.

[Mark Miles, Chairman and Chief Financial Officer]

Yes. Sure, George. It is Mark, good morning. Yes. I would say in terms of the volume portion of your question relative to our update from last quarter, I would say, mostly Europe, China. So we have taken a more conservative view with respect to volumes in those regions. With respect to earnings, I think the timing lag in recovering inflation is mostly occurring in our HHS business.

So our volume outlook continues to be robust, I would say, in the other businesses outside of CPI, and perhaps a little bit of EM with the supply chain challenges Tom mentioned lingering here in the back half of the year. As you recall, last quarter, when we gave our outlook, we had expected improvement in that area and while we have seen improvement continues to be choppy.

[George Staphos, BofA Securities]

Yes. Mark, if I could ask just more clarity. So what are you looking for, if it is low single-digit for the whole portfolio. How does that sort of stack rank or in terms of rough percentages breakout by the segments? Thanks again.

[Mark Miles, Chairman and Chief Financial Officer]

Yes. I mean we typically don’t provide, George, as you know, guidance by segment. I would say, in terms of which businesses we expect to overdrive the low single-digit growth. I think HHS continues to have strong demand in spite of, again, some of the COVID benefit waning. So I would say HHS stronger; CPNA stronger. And again, back to my last answer, CPNA may be lagging a little bit in terms of the company average for the back half.

[George Staphos, BofA Securities]

Thank you very much.

[Operator]

Thank you. Our next question comes from the line of Mike Roxland from Truist Securities. Your line is open.

[Michael Roxland, Truist Securities]

Thanks very much. Hi Tom and Mark, Dustin. Congrats on the quarter. Just wanted to follow along with the question on capital return. Can you just help me understand the approach during the quarter. You mentioned the current dislocation provide you with a unique opportunity. You only repurchased 300 million shares during the quarter and the stock was down about 20% year-to-date. Why not be more aggressive? You are relatively within your targeted range or maybe slightly higher this quarter. You still expect to generate impressive free cash flow despite EBITDA being a little more challenged than you originally expected. So why not be more aggressive, buy more shares this quarter and maybe - a little bit in the back half?

[Thomas Salmon, Chairman and Chief Executive Officer]

A lot of it has to do with just the cash generation for the company. The majority of our cash is generated in the back half of the year. We realized this is a dynamic marketplace right now with all the variables that play into these valuations, and we want to expose ourselves as much opportunity throughout the course of the year should the circumstance present itself to take advantage of the repurchase.

Frankly, a $300 million purchase met the full-year commitment that we made at the beginning of the year. And as we have committed should we continue to see that dislocation in the back half will act similarly in the back half of the year as well and the Company’s cash flow performance allows us to do that and we believe it is a unique opportunity for us and one of the best investments that we can make in our company right now.

[Michael Roxland, Truist Securities]

Thank you.

[Operator]

Thank you. Our next question comes from the line of Christopher Parkinson from Mizuho. Your line is now open.

[Unidentified Analyst]

This is [Kieran] (Ph) on for Chris. I was just wondering, within Health, Hygiene & Specialties, can you talk a little bit about what you are seeing in terms of price mix. It seems like you are ahead of the curve and the other segments, but there, you are still seeing a little bit of an impact. If You Can just parse out how you think about the price cost spread trending in the back half of the year? And then any opportunities you see in terms of, I guess, improving the product mix over time with some of these new introductions. I appreciate it.

[Thomas Salmon, Chairman and Chief Executive Officer]

Yes. We have got a host of investments that have been outlined in HHS, supporting health care supporting the expansion of compostable white substrates in Europe, an untapped market for us. And along with investments that bolster our existing base of hygiene and adult incontinence products and film-based substrates.

And there have been price actions that are and have been put in place. And frankly, there is just a longer lag associated with our HHS business that you will continue to see improvement over the next several quarters as an offset. And clearly, the rate of inflation in that business was much more significant than we had budgeted for and the appropriate actions are being taken with our end users.

What the current environment has outlined clearly is that there is a lot of different inputs that go into the cost of our products and to provide those products and we will continue to be working in conjunction with our end customers to have as comprehensive pass-through mechanisms, shorten those lags as much as possible.

Just as we have done in our other businesses, we have made tremendous progress over the years and shortening that lag as you saw with the success we had in CPNA and Engineered Materials and CPI.

[Unidentified Analyst]

Very helpful. Thank you.

[Operator]

Thank you. Next question comes from the line of Phil Ng from Jefferies. Your line is now open.

[Philip Ng, Jefferies LLC]

Hey guys. Tom, I guess you addressed some of this already, but your full-year guidance, you are assuming EBITDA comes down. Part of that is a lag on cost pass-through. Just curious what kind of progress you are making passing through non-resin inflation? And just given the amount of energy prices, you are seeing move out particularly in places like Europe. Have you been able to kind of pass it through a little more real time and are you looking to implement freight surcharges if you haven’t yet?

[Thomas Salmon, Chairman and Chief Executive Officer]

All of the above, we have got different mechanisms. I won’t speak on a general basis for competitive reasons what we are doing. But we are addressing every aspect that you noted there, whether it is energy, whether it is freight, whether it is labor.

There is a variety of inputs and dynamics globally now that have changed that are simply too significant to ignore. So the teams are taking aggressive steps in collaboration with our customers to do it in a thoughtful way that ultimately allows us, over the long-term, to do it responsibly for both parties.

[Mark Miles, Chairman and Chief Financial Officer]

Yes. The only thing I would add, Phil, it is Mark, is if you look back at the history of the company, we have made tremendous progress in passing through inflation in a more timely manner. So while we still have a lag and some of our businesses, we have made dramatic improvements in accelerating that.

And I think you can see that in the numbers, right, with the order of magnitude of the inflation we have seen in the last few quarters and resilience of the Company’s profits through that kind of unprecedented inflationary cycle we have been in now for several quarters.

So really proud of the team’s ability to execute more timely price increases. And we are going to continue to work on that going forward. It is an ongoing effort of the company to shorten that lag.

[Philip Ng, Jefferies LLC]

And Mark, I guess, within your guidance, if I understand it correctly, you are assuming resin prices don’t move from here. How confident are you in hitting your, I think, $5 0 million headwind price cost? Certainly, the non-resin piece, curious what kind of inflation assumptions are you baking and it is a pretty dynamic environment certainly.

[Mark Miles, Chairman and Chief Financial Officer]

Yes. No, that is well said. I think we have obviously only got a couple of quarters left and we are part of the way into the third quarter. So those variables become less meaningful, I guess, with respect to the outlook for this year, given the flow-through of inventory as well. So you are right, Phil. I mean, we did assume polymer prices, current polymer prices. To the extent those change, it would have an impact in Q4.

Again, it could go either direction, obviously. But you are right, that would be both I guess, a risk and an opportunity depending on the direction they go. But again, I would highlight that I think we have done a nice job in reducing that lag, but we would still have some impact to the extent they move between now and the end of the fiscal year.

[Thomas Salmon, Chairman and Chief Executive Officer]

I have to piggyback on Mark’s comments there because one thing that we should note is that over the last several years, we have continued to invest heavily in automation, and other investments to improve our efficiency and that coupled with the fact that we are fully committed to offsetting the inflation creates some tailwind opportunity for us as we see that benefit of the price recovery from a margin perspective.

[Philip Ng, Jefferies LLC]

Okay, thank you. I appreciate the color guys.

[Operator]

Thank you. Next question comes from the line of Joshua Specter from UBS. Your line is open.

[Lucas Beaumont, UBS Investment Bank]

This is Lucas Beaumont on for Josh. In a similar vein, I just wanted to go back to the volume weakness sort of in Europe and China. So you kind of discuss sort of the factors of what is going on there. I mean, it is obviously very volatile as well. But I mean, what are you guys assuming in your guide in that sense, are you assuming things get better from here or are they stay the same or are you assuming any deterioration?

[Mark Miles, Chairman and Chief Financial Officer]

We have some modest deterioration. I mean it is about, call it third of our business is in Western Europe. And as we discussed earlier, that is dragging on the plus low single-digit outlook for the back half of the year. So we do have some deceleration.

We are fortunate in that the majority of our products are our everyday consumer products, but we do have some exposure in Europe to industrial categories, like chemicals, paints, automotive, et cetera, some more industrial-type businesses and we do have some deceleration built in for the back half of the year in those categories.

[Lucas Beaumont, UBS Investment Bank]

Great. And then in terms of HH&S the sort of demand declines there, I was just wondering if you could talk about what material specifically. Is that seeing a headwind year-on-year? And just given that is an area where you have added some capacity over the past two years, just wondering how capacity utilization is going there on those assets? Are they sort of above or below sort of where they were a year ago? Thanks.

[Mark Miles, Chairman and Chief Financial Officer]

Yes, sure. Our wipes business is mostly focused in disinfecting categories, whether or not it is consumer or food service as an example. So we have both retail presence with our customers as well as a more, again, industrial-type applications.

I would say that business, we expect to continue to grow in the long-term in the mid-single-digit category. I think that is pretty much what all industry outlooks would suggest and what our customers anticipate growth in that category to be long-term.

In the very near-term, like last quarter, as an example, we did have some destocking in that category. As you can imagine, demand was way outpacing supply for a period of time through the pandemic. And so there was some inventory buildup in the chain where we did see some destocking last quarter, but we do expect that to reverse over the next several quarters.

[Mark Miles, Chairman and Chief Financial Officer]

I think that it is notable that for - in that product line and you contrast that versus 2019 levels, it continues to be a growth category for us. And given what was exceptional performance from that business in totality to be up 5% on a two-year basis, much of which is driven by strength in fem care, in baby, adult incontinence.

Those are areas that we strategically chose to pivot to and to we are partnered with the right end users that are winning the marketplace and it gives us great confidence in that division for the long-term.

[Lucas Beaumont, UBS Investment Bank]

Great, thank you.

[Operator]

Thank you. Our next question comes from the line of Kyle White from Deutsche Bank. Your line is open.

[Kyle White, Deutsche Bank]

Hey good morning , thanks for taking the question. Good to see some of the divestitures that you made more recently. I guess I’m just curious, how much more opportunity do you believe there is for more pruning of noncore assets and should we expect any incremental proceeds to be used towards share repurchases?

[Mark Miles, Chairman and Chief Financial Officer]

Unfortunately, I would love to be able to give you specific details, but it continues to be something we review on a regular basis. We review it both internally as the management team as well as with our Board of Directors. It will continue to be an area of opportunity for us to take advantage of.

And as soon as we have information that we can share, we will do so. We are going to make certain that whatever we consider we do it thoughtfully, where it makes sense for us, makes sense for the portfolio, and it certainly gives us more flexibility in the capital allocation program that we have outlined in the presentation.

[Kyle White, Deutsche Bank]

Sounds good. I will leave with one question. Thank you.

[Operator]

Thank you. Next question comes from the line of Anthony Bettina from Citi. Your line is open.

[Bryan Burgmeier, Citigroup]

This is actually Bryan Burgmeier sitting in for Anthony. Can you discuss the impact from China that you mentioned in the press release. In the past, we have seen a step-up in demand around a covet outbreak, especially in health and hygiene markets. So why is it different this time? And have you seen an impact to your manufacturing capacity due to absenteeism?

[Thomas Salmon, Chairman and Chief Executive Officer]

In China, like anybody producing over there, that is a for China market for us today. And yes, certain geographies had in-plant confinements, upwards of 370 individuals at our Shanghai site as an example.

Amazingly proud of how the team navigated through that scenario and continue to navigate through it. We continue to be bullish on our opportunities there, targeting local demand, both inside of China as well as Southeast Asia.

I can’t speak to the nuance difference in terms of the heart of the pandemic versus now suffice to say the projects one being developed on time, which I’m really pleased with because of the availability of labor and such, very impressed with the team’s ability to execute in that regard.

And we are bullish that both from a premium hygiene perspective as well as our novice investment, which will be to serve health care for China Southeast Asia that it will be a growth vehicle for the company going forward.

[Bryan Burgmeier, Citigroup]

Great. Thanks, I will turn it over.

[Operator]

Thank you. Next question is from Angel Gracia from Morgan Stanley. Your line is open.

[Unidentified Analyst]

This is actually [Sebastian Rivera] (Ph) speaking. You probably have Angel here. A lot of ground covered. Just wanted to quickly circle back on price cost assumptions make sure I’m thinking of this correctly. So holding polymer prices cost in April, we currently are expecting a $50 million headwind for the year. Is that the right way to think about it?

[Mark Miles, Chairman and Chief Financial Officer]

The second half is about a $50 million positive overall price cost, which would include the polymer portion.

[Unidentified Analyst]

Understood. Okay. That is helpful. And apologies if this was covered already, but just talking about the reduction in CapEx on the guide. Is that kind of just more kind of a near-term being more prudent situation given the backdrop? Or is that kind of an appropriate benchmark to model off of long-term?

[Mark Miles, Chairman and Chief Financial Officer]

Yes, I would characterize that as just timing, timing of payments and projects, as you can imagine, the challenges you have heard in the macro environment have affected our suppliers, not only on raw materials, but also capital expenditures. And so that has resulted in some delays. And so I would characterize it as just timing at this point. .

[Unidentified Analyst]

Thank you. I will turn it over.

[Operator]

Thank you. Our next question comes from the line of George Staphos from BAML. Your line is open.

[George Staphos, BofA Securities]

Hi guys, thanks for taking the follow on. And that last question sort of piggyback or segue well into this one. So what opportunity do you have to maybe further reduce CapEx without damaging your intermediate-term volume and longer-term volume projections and growth plans, again, given the opportunity you have in both for buyback. And relatedly, how do you think, if at all, Tom and Mark, on dividend relative to buyback? It would seem like given where valuations are, buyback seems to be more the priority. So CapEx and ability to trim it back to buy back more stock with that damaging growth and dividends. Thanks guys.

[Thomas Salmon, Chairman and Chief Executive Officer]

On any capital expenditures, we are focused on being as prudent, making certain refining the lowest cost assets for the opportunities that we have in front of us that not only can serve as short term but long-term.

That will be an ongoing process, continues to be an opportunity. Obviously, working like we do on terms and conditions of any purchases will continue to be an opportunity in terms of CapEx. But I have to tell you, I’m actually thrilled that we have the pipeline of opportunities, especially in areas like sustainability, in areas like health care and pharmaceutical.

And today, we just put out a press release with a collaboration with Yum! Brands with Taco Bell with their 30 ounce drink cup, which I think just reinforces that Barry has been not just - we are not talking about sustainability. We are demonstrating how sustainability is a competitive advantage for our Company, it is a growth vehicle for our company. We will continue to invest in those kind of opportunities.

Relative to capital allocation, clearly - and George, we have a launch or history of identifying acquisitions and opportunities and seeking great valuations. And right now, there is no better valuation than very global. So it is a great opportunity for us just as we took advantage of it in the first half. If we continue to see the dislocation in the back half, we will do the same.

[George Staphos, BofA Securities]

Thanks. Good pause Tom. Good luck in the quarter.

[Thomas Salmon, Chairman and Chief Executive Officer]

Listen, I want to thank everybody for your time today, continue to stay safe. We will talk to you next quarter. Thanks, everybody.

[Operator]

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