Berry Global Group Inc

NYSE:BERY

Earnings Call Transcript 2024-Q2

[Operator]

Good day, and thank you for standing by. Welcome to the Second Quarter 2024 Berry Global Group Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

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

[Dustin Stilwell, executive]

Thank you, operator, and thank you to everyone for joining Berry's Second Fiscal Quarter 2024 Earnings Call. Joining me this morning, I have Berry's Chief Executive Officer, Kevin Kwilinski; and Berry's Chief Financial Officer, Mark Miles.

Following our prepared remarks today, we will have a question-and-answer session. In order to allow everyone the opportunity to participate, we do ask that you limit yourself to one question with a brief follow-up, and then fall back into the queue for any additional questions.

A few things to note before handing the call over, on our website at berryglobal.com, you can find today's press release and earnings call presentation under our Investor Relations section. As referenced on Slide 2 and 3, during this call, we will be discussing certain non-GAAP financial measures. These measures are reconciled to the most directly comparable GAAP financial measures in our earnings press release and presentation, which were made public earlier this morning.

Additionally, we will make forward-looking statements that are subject to risks and uncertainties. Actual results or outcomes may differ materially from those that may be expressed or implied in our forward-looking statements. Some factors that could cause the results or outcomes to differ are in the company's latest 10-K our other SEC filings and our news releases.

And now I will turn the call over to Berry's CEO, Kevin Kwilinski.

[Kevin Kwilinski, executive]

Thank you, Dustin, and thank you to everyone for joining us today to discuss Berry's second quarter results for fiscal 2024. The second quarter came in consistent with our expectations. Our proactive measures around repositioning our portfolio to higher-growth markets and reducing our cost structure have allowed us to outperform in a weaker-than-normal macro demand environment.

We're excited to share that our team has identified additional opportunities to enhance our competitive position. As a result, we've expanded our cost savings program by an extra $25 million bringing the total to $165 million. We're on track to achieve these savings by the end of fiscal year 2025.

Our confidence is bolstered by steadily improved volumes throughout the year with an accelerating improvement in April. As a result, we reaffirm our fiscal 2024 guidance, expecting low single-digit volume growth in the second half of the year, aligned with our long-term target. Our outlook for a robust second half of the year remains unchanged, and we are committed to achieving year-end leverage of 3.5x or lower.

With 6 months in the chair, having visited dozens of locations and having talked to numerous customers and suppliers, I'm struck by our fantastic opportunity for growth and operational excellence. We are focused on 3 key efforts: one, optimizing our portfolio to accelerate both growth and deleveraging; two, implementation of our lean transformation; and three, accelerating growth by improving our commercial excellence approach.

With respect to portfolio optimization, we are making substantial progress. We completed 2 additional divestitures in the quarter, and we have line of sight to much more. Looking forward, we believe cash proceeds could exceed $2 billion from strategic divestitures within the next year. This includes $1 billion from the already announced spin-off merger and another $1 billion from future portfolio optimization opportunities. Not only will these divestitures accelerate deleveraging, they will push us toward our goal of increasing our consumer products focus from over 70% to over 80% of volume.

In April, we announced the achievement of a regulatory milestone in the proposed transaction involving the combination of the majority of our Health, Hygiene & Specialty segment to include its global nonwovens and films business with Glatfelter with the expiration of the required waiting period under the Hart-Scott-Rodino Antitrust Improvements Act.

As previously announced in February, Berry and Glatfelter entered into a definitive agreement under which Berry will spin off and merge its HHNF business with Glatfelter in a reverse Morris Trust transaction. The transaction will create a leading publicly traded company in the specialty materials industry. The transaction is still expected to close in the second half of calendar 2024 and is subject to approval by Glatfelter shareholders and completion of customary closing conditions.

Both Glatfelter and Berry HHNL performed in line with our transaction thesis during the quarter, validating our belief that the business cycle has bottomed out for each of these companies. As we prepare for integration, we remain optimistic about substantial upside potential in our base synergy case.

Turning to our lean transformation. During the quarter, we made substantial progress in accelerating our continuous improvement focus. With the customer-first approach, we reengineered our quality and service management process to be directly connected to a new NPS process. During the quarter, we implemented our first cycle of NPS and collected valuable data to confirm our strength and to focus us on areas of opportunity that will lead to growth.

Our operational leadership from North America and Europe recently visited Toyota facilities to observe and learn firsthand about their world-class lean production system.

We also hired an experienced lean transformation leader who started this week and reports directly to me. This leader has a successful track record in lean practices at companies like Honda, Danaher and Honeywell. Additionally, we're actively developing a pipeline of opportunities to enhance efficiency by increasing overall equipment effectiveness and improving first pass yield. We're excited to incorporate these initiatives into our 2025 budget planning.

Finally, I want to discuss our focus on commercial excellence. Slide 6 speaks to the substantial levers that empower us to achieve consistent, dependable and sustainable organic growth. Berry's inherent scale advantages drive both cost leadership and innovation capabilities, instilling confidence that we will consistently deliver robust earnings growth from our stable portfolio of businesses. But these levers need to be executed in the context of a world-class commercial excellence process. And in this aspect, Berry will become much stronger in the months ahead.

With company-wide world-class commercial excellence in mind, during the quarter, we created a beachhead in our core North American rigid consumer packaging business. We have substantial opportunity to win in this space, and we are investing in creating a world-class commercial excellence model and accelerating innovation and technology to increase our strategic product differentiation.

To drive commercial excellence, we launched an effort with a top-tier consulting organization to bring best-in-class process and tools to our pipeline identification, management and delivery. Following full successful implementation, we will take this new commercial excellence model and replicated across the balance of our businesses.

With respect to innovation and technology, we completed the strategic acquisition of F&S Tool, to give us access and control of unique tooling intellectual property, allowing for more cost and capital efficient sustainable alternatives to traditional products. F&S brings an incredible culture of entrepreneurial innovation, which will serve to accelerate our organic growth delivery, while bringing additional scale to our already substantial growing and important tooling and automation capability.

Combining superior product and service differentiation enabled by our lean transformation with the strongest innovation engine in the industry and executing in the framework of a world-class commercial excellence engine is allowing Berry to win faster in our markets and achieve our growth objectives in a sustainable way.

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

[Mark Miles, executive]

Thank you, Kevin. Turning now to financial results highlights on Slide 8. As Kevin mentioned, our quarterly results for both revenue and earnings were in line with our expectations. I am pleased to report that sequentially, volumes improved for each of our 4 operating segments. Our global teams have continued to optimize our manufacturing footprint without disruption to our customers and improve our product mix across our businesses. We have made significant progress in consolidating our higher cost assets, and as volumes recover, we expect an incremental benefit to earnings on more efficient assets.

Our focus on continuous improvement led to another increase in our cost reduction program of $25 million, which we plan on fully realizing in fiscal '25. We still expect to realize $55 million in fiscal '24 and now $35 million in fiscal '25, which excludes incremental benefits we expect from the lean transformation initiatives. These strategic actions and focus are helping to counter the challenges of soft market demand caused by inflation.

For the quarter, adjusted earnings per share was similar to the prior comparable year coming in at $1.95 per share, while operating EBITDA was down 5%, primarily due to softer volumes and the impact from the timing of passing through polymer costs with both of these items expected to change from year-over-year headwinds in the first half to tailwinds in the second half.

I would like to refer everyone to Slide 9 for our quarterly performance by each of our 4 operating segments. The segment review will focus on the year-over-year changes for fiscal Q2.

Starting with our Consumer Packaging International division, revenue was down 8%, primarily from the pass-through of polymer costs. Both our Consumer and Industrial markets improved by over 2% compared to the year-over-year changes in Q1. Both markets across Europe saw incremental improvements, modestly ahead of our expectations and we continue to execute our strategy to improve product mix to higher-value products. EBITDA was down 4%, which was modestly higher than the 1% decrease in volumes primarily driven by a modest negative impact from the timing of polymer pass-through.

In the second half of '24, we expect to benefit from our cost reduction efforts, along with the decrease in energy costs in certain regions of Europe. We also continue to invest and expect improved product mix by utilizing our sustainability leadership and increasing our presence in health care packaging, pharmaceutical devices and dispensing systems.

Next, on Slide 10. Revenue in our Consumer Packaging North America division was down 4%, resulting from softer overall customer demand of 3% from inflation and lower selling prices due to the pass-through of resin costs. Overall volume trajectory improved, led by our food, beverage, personal care, home care and industrial markets, while foodservice market saw a modest decline given strong comparisons in that business. We continue to see substrate conversions to plastic from paper, phone, glass and metal, as we continue to incorporate more circular material, deliver a more sustainable solution and provide end consumers with a better experience.

EBITDA was down 11% compared to the prior year quarter, primarily driven by resin pass-through timing and softer market demand, partially offset by our cost reduction efforts and our focus on higher value products such as closures, foodservice and highly decorated containers.

And on Slide 11, revenue in our Flexibles division was down 9% and primarily due to lower selling prices from the pass-through of lower resin costs and volume softness primarily in our North American transportation and shrink foam markets, offset by growth in our European film products. Overall, volumes improved sequentially over Q1 and are impacted by our focused effort to mix up in certain categories such as consumer and transportation protection products. EBITDA for the quarter was flat versus the prior year quarter, as we saw improved product mix into higher-value product categories offset by softer customer demand in our North American markets.

On Slide 12, revenue in our Health, Hygiene & Specialties division was down 6%, primarily due to lower resin prices and modest decline in hygiene and certain specialty products, partially offset by improved demand in our surgical suite and hard surface disinfectant white markets.

We are encouraged as overall volumes have improved sequentially over the past 3 quarters. EBITDA was essentially flat versus the prior year quarter, driven by structural cost reduction initiatives, offset by timing of resin pass-through and product mix. Our consistent cash flows have granted us the flexibility to provide robust returns to our shareholders, a key strength and core value of our company. This financial stability allows us to invest in our businesses, foster growth, enhance efficiency and simultaneously return capital to our shareholders.

As illustrated on Slide 13, our unchanged capital allocation strategy is return-based and encompasses continued investment in growth markets, strategic portfolio management, debt repayment, share repurchases and a growing quarterly cash dividend. As part of our ongoing efforts to improve our product portfolio, we completed 2 divestitures in the quarter. We divested a European industrial vehicles business and a U.K.-based home and garden business, which were both historically reported inside our Consumer Packaging International segment.

Revenue for these businesses totaled approximately $150 million, with profit margins well below the company average. Since the RPC acquisition in 2019, we have completed 10 divestitures as we have continued our strategic portfolio management. As Kevin mentioned, we expect to generate proceeds of over $2 billion within the next year, including our previously announced proposed spin merger transaction with Glatfelter as we continue the optimization of our portfolio. These divestitures are in direct alignment with our long-term strategy of simplifying the portfolio and enhancing the stability of earnings and improving long-term growth.

Leveraging our strong and dependable cash flows, we have continued to strengthen our strong balance sheet focusing on driving long-term value for our shareholders and anticipate being within our targeted leverage range by the end of fiscal '24. We believe we are well positioned for continued value creation. Our strong cash flows have allowed us the flexibility to drive robust returns for our shareholders.

As demonstrated on Slide 14, Berry has reduced net debt by more than $3 billion since mid-2019, along with more than $1.5 billion returned to shareholders through both share repurchases and dividends in fiscal '22 and '23. In fiscal '24, we anticipate a balanced capital allocation, utilizing our free cash flow for debt repayment, share repurchases and regular quarterly dividends. By the end of fiscal '24, we expect that we will have returned an impressive $5.4 billion of cumulative net debt reduction and capital returns since fiscal 2020.

As you can see on Slide 15, Berry's history of driving top-tier results across various key financial metrics such as revenue, earnings and free cash flow, highlights our consistent growth from the solid execution of our strategies. We remain committed to enhancing long-term value for all stakeholders by maintaining a stable and dependable portfolio. This consistency has been validated through many different economic cycles. And since our last significant acquisition of RPC in 2019, we have delivered free cash flow every year between $850 million and $1 billion.

Additionally, from an earnings perspective, our annual adjusted EPS CAGR of over 20% from 2015 to 2023, hold the leading position amongst our peer set and is well above the peer adjusted EPS CAGR of 8%.

This concludes my financial review, and now I will turn it back to Kevin.

[Kevin Kwilinski, executive]

Thank you, Mark. Our fiscal '24 guidance and assumptions outlined on Slide 16, reflect a solid first half performance, aligning with our expectations. Today, we are reaffirming our full year guidance for adjusted earnings per share ranging from $7.35 to $7.85. We expect earnings to strengthen in the second half of fiscal '24, both sequentially and on a comparable basis to fiscal '23. This is driven by resin pass-through timing, benefits from cost reduction efforts and capital project timing. We continue to expect given our strong April volumes, the easing of inflation and easier comparisons year-over-year reported volumes to improve as we progress through the second half of fiscal 2024.

Also, as Mark stated, we anticipate incremental benefits to earnings on more efficient assets as volumes recover during the year. We continue to expect free cash flow to be in the range of $800 million to $900 million, assuming cash from operations of $1.35 billion to $1.45 billion, less capital expenditures of $550 million.

Furthermore, and in line with our focus on driving long-term shareholder value, in fiscal 2024, we expect to prioritize repayment of debt to meet our leverage target commitment, along with further share repurchases. We continue to believe our shares are undervalued, and our repurchases reflect our confidence in the outlook for our business and long-term strategy.

As you can see on Slide 17, Berry has consistently met or exceeded its targets over the past several years, and we expect to continue doing so in the future. Our long-term targets emphasize the consistency and dependability of our model, with EBITDA growth of 4% to 6%, adjusted EPS growth of 7% to 12% and total shareholder returns of 10% to 15%. Additionally, our dividend is expected to grow annually and we aim to achieve our recently lowered long-term leverage target by the end of fiscal 2024.

In summary, our strategic priorities remain steadfast, optimize the portfolio, implement lean transformation and accelerate growth with world-class commercial excellence. With line of sight to achieving low 3s leverage in the next 12 to 18 months, a lean transformation pipeline, allowing for 2% to 3% conversion cost reduction per year and an ability to organically grow 2% to 3% per year, we expect to deliver peer-leading performance.

Our optimism for the remainder of fiscal 2024, stems from several factors, including the continued easing of inflation and a return to more normalized levels of customer promotional activity. We reaffirm our earnings and cash flow guidance confident in our visibility towards solid earnings growth in the second half.

Finally, we have executed on areas to improve our valuation multiple. We have improved our strong balance sheet, lowered our targeted leverage range and returned substantial cash to shareholders. Additionally, as we continue to demonstrate sales volume at or above peer average and execute our strategies. We believe we will continue to close the valuation gap to peer group, presenting an attractive investment opportunity. Thank you for your time and interest in Berry.

And with that, Mark and I are happy to address any questions which you may have. Operator?

[Operator]

[Operator Instructions] Our first question comes from the line of George Staphos of Bank of America Securities.

[George Staphos, analyst]

Thanks for the details. I want to first ask a question around the implied guidance for the second half of the year given some inbounds that we have gotten. We're looking at basically 7% year-on-year growth in the second half and very strong double-digit growth sequentially from the first half. What gives you confidence that you'll be able to achieve that gentlemen?

And tell us how the April volumes, which you said are strong, if you could quantify what that means, how that's leading into that? And foodservice, which was down, you said how that also plays into your guidance? And then I had a second question.

[Kevin Kwilinski, executive]

Sure. Thank you, George. I'll start and Mark can maybe add on. But I think, what we see in our guidance is a really soft second half last year. So the comparisons are certainly much easier. We, overall, for our flat overall full year guidance, we're expecting basically a similar kind of demand environment throughout the year. And when you put our seasonality in place and you compare -- you look at the comparison to prior year, we really didn't have to see much change in the actual market dynamics to achieve our overall flat.

I think what we are seeing in April is a step-up to that. We've seen really good momentum better than we expected. We're -- it's a single data point, so we're not ready to raise guidance, but we certainly feel very positive about the development through the quarter of volume and an acceleration of that volume in April.

Regarding foodservice. Yes, in the quarter, foodservice was soft. I would note that we were substantially better than foot traffic we are taking share, and we have wins coming online that will continue to accelerate our foodservice performance in the second half.

[Mark Miles, executive]

Yes, George, it's Mark. Just to put some numbers to what Kevin described. So in fiscal '23, our second half was $85 million EBITDA improvement over the first half. This year, we're expecting a similar improvement plus another $80 million. And that's really coming from 2 dynamics: one, the volume inversion, that Kevin referenced, where we had a $30 million headwind in the first half this year compared to last year, basically flipping to a similar positive number in the second half. And on price cost, similar dynamic where we had a headwind in the first half from timing of resin lag predominantly in the U.S. related to polypropylene costs increasing, which you probably noted have subsided here in April. And so we're expecting that dynamic to invert to a tailwind in the second half. Part of it is the drop in polypropylene. The other part of it is just our selling prices catching up to the increases that occurred at the beginning of fiscal '24.

[George Staphos, analyst]

Okay. Mark, I guess, is there any way to quantify April? I know it's a step-up, I know it's stronger. Can you give us a number there? And then kind of my second question, we appreciate the confidence in the incremental, if you will, $1 billion of proceeds. Are you including the 2 divestitures that you announced today or talk to you today as part of that why even put out a target that you now have to get to? And what would be the margin associated with that incremental $1 billion of divestitures?

[Kevin Kwilinski, executive]

Yes. I think what we're trying to do is give a high level of transparency to what we expect to execute on. And those -- that additional $1 billion plus is not including HHS or already divested businesses. We think we are going to execute those in the next 12 months at or above our trading multiple and it will be a very good deleveraging opportunity for the business, which will allow us to further invest in improving our core business and growing it at a faster rate.

[Mark Miles, executive]

Yes, George, with respect to your question on volume, I would say April is in line with our expectation for low single-digit volume growth in the second half. And I know there were a lot of questions about that when we referenced it on the last call and just wanted to give people more confidence in that expectation for low single-digit volume growth in the second half. Certainly, we're a short-cycle business, but our transparency here in Q3 gives us more confidence related to that outlook.

[George Staphos, analyst]

Good luck in the quarter, guys.

[Operator]

Our next question comes from the line of Philip of Jefferies.

[Philip Ng, analyst]

It sounds like you're pretty confident you could get, call it, $1 billion of potential divestitures through the finish line and get a pretty attractive multiple. Kevin, perhaps, where are you kind of in this process? What gives you this confidence? And then in the deck, I mean, there's subtle handset, and you just kind of alluded to maybe using the proceeds to perhaps pivot to faster-growing markets on the consumer front. So kind of help us contextualize all this, right? You get some proceeds, you can do some M&A, what's your comfort level on leverage perhaps being above 3.5? Or you would still kind of stay firmly in that range you guys kind of provide for us?

[Kevin Kwilinski, executive]

Sure. Yes, I think we do have high confidence or we wouldn't have given the guidance that we just gave. We have a group of businesses that are not in the long-term core strategic part of our business that we want to grow. They are excellent businesses, profitable businesses, and they have a high level of interest and are good fit for others in the market. And we are confident we'll be able to monetize those in a way that is great for Berry's shareholders.

I think what I have said from my first call, this is the third now, but from the very first one, I think I used the word, I am a bias for action. And I am absolutely committed to getting this portfolio right as fast as we can so that we can be very focused on growing our core consumer business, and that is what we are doing.

[Mark Miles, executive]

And with respect to proceeds, applying those potential transactions to debt reduction would be 2 to 3x of additional deleveraging opportunity for Berry.

[Philip Ng, analyst]

Okay. But whatever acquisition you guys would pursue, Mark, you guys would still be firmly in that leverage ratio? Or would you go above that for the right deal, I guess?

[Mark Miles, executive]

We're committed to being within our range.

[Philip Ng, analyst]

Okay. Super. And then good to see the team is executing at a very high level and upsized your cost-out program. Where are you seeing some of the upside improvement? And then, Kevin, you kind of highlighted how you're talking about implementing your lean transformation and ramping up these commercial efforts, appreciating these initiatives do take time. How do you kind of see this ramping up? And what's a realistic time frame you expect to start seeing more tangible benefits in your business?

[Kevin Kwilinski, executive]

Yes. I mean, I think we're already starting to see the benefits of the focus. And it's not just in cost, but it's also in our consistency of delivering quality and service that is superior to our competitors and will allow us to grow faster. And that's a big part of why we are focused on this lean transformation. We have a significant amount of availability issues in key assets where we have unplanned downtime due to really what I would consider a lack of world-class total predictive maintenance kind of approach. We are very focused on elevating that and accelerating our implementation of a consistent world-class maintenance program here.

I think that's going to pay dividends on several fronts, not just variable cost reduction, but improved reliability for product and service and also a more efficient capital deployment. We have significant opportunity to continue to increase our first pass yield. We have a high ability in our facilities to reuse waste materials. But when you reuse waste materials, you still are giving up the energy and labor component of it. So we are very focused on how do we drive that first pass yield, more stable delivery of our quality and service from that and getting that in place as fast as we can. And to that, we are investing in the resources necessary to make that happen.

[Philip Ng, analyst]

And Kevin, to kind of unlock that, should we expect a noticeable step up, whether it's SG&A or CapEx in the coming years? Or you could kind of manage it at your current trajectory?

[Kevin Kwilinski, executive]

Yes, I don't see a step-up in CapEx due to those efforts in any way. I think we will redeploy SG&A. I look at our SG&A, and I would say, overall, we're relatively lean. But we have really not taking advantage of the opportunity to automate and leverage through shared service in a great way and through the consistency of our IT systems. So where I am -- the way I am of thinking about this is I want to eliminate and automate some of the SG&A we have today in order to redeploy it into more value-added capabilities in this area of continuous improvement and continued commercial excellence, really building out our commercial excellence approach and rigor so that we have high confidence in our ability to continue to accelerate our wins.

[Operator]

Our next question comes from the line of Adam Samuelson of Goldman Sachs.

[Adam Samuelson, analyst]

I just want to first just hone a little bit on the cadence through the second half of the year. Obviously, there's a pretty decent-sized step-up in both earnings and growth on a year-on-year basis, but also sequentially versus the first half and the second quarter, in particular. Is there anything that we should be mindful of just phasing between the third and fourth quarter as you're looking at it today, particularly what we can think about kind of how price cost kind of recovery and lags might kind of come back and benefit one or both of the quarters? By how we think about the phasing within the second half of the year to hit the guidance range?

[Mark Miles, executive]

Sure. Yes. It's Mark. I mentioned earlier in an answer to a question that we had about an $80 million improvement in the second half of '24 compared to '23. While we don't give granular guidance by quarter, I would say it's a little back-loaded to Q4. And that's largely driven by the lag I referenced earlier with polypropylene falling in April. It will impact us positively a little this quarter because we have about a 2-month timing lag from the time the cost change occurs to the time that it impacts our cost of goods sold. So it may help a little bit in Q3, but largely that benefit will flow through to Q4.

[Adam Samuelson, analyst]

Okay. That's helpful. And if I could just kind of ask a follow-up on the demand side. As we think about kind of April being a much stronger month and that giving you the confidence in the outlook. Could you maybe frame just the areas kind of where you've seen that demand maybe notably above average in the portfolio in the areas that might be lagging? I know foodservice, the comps are tougher for you because of kind of the wins you've had on comps so that might get the demand is slowing, but help us think about kind of areas of particular strength and an improvement relative to where they were in the first half of the year.

[Kevin Kwilinski, executive]

Yes. I would point out, as I already said, foodservice is accelerating. That's been a drag in the first half. Overall, I would say North America is -- came in strong where Europe is more in line with what we expected.

[Operator]

Our next question comes from the line of Matt Roberts of Raymond James.

[Matthew Roberts, analyst]

If I could just dive in a little bit deeper on the April trends that you mentioned. So in regard to that step-up, I mean, is there anything in the prior quarter that could distort that, whether that's from the timing of an acceleration of any destocking or holiday timing in March? And while I respect that you don't give quarterly guidance, it seems like consensus numbers are looking like a $25 million step up in EBITDA versus 2Q? Is that something you're comfortable with, given the way April is shaping up? Just trying to get some goalposts there.

[Mark Miles, executive]

Yes, I think again, I don't want to repeat what Kevin said with respect to April, I would echo what he said. I might add that some of our businesses in some of the more industrial categories, had a bigger headwind last year from the destocking, especially our roll stock type products. So that will be a nice tailwind as we lap those comps here in the second half. I mean with respect to your specific question, I don't -- in my prior answer, I would stick to, which is that $80 million, I would spread slightly more to Q4, which sounds like it's in line with the numbers you referenced.

[Matthew Roberts, analyst]

Mark, I appreciate that. I apologize if I missed this in the remarks, but did you say how much cash you received from the divestitures that you did in the quarter? And when you look out to that $1 billion opportunity, you explicitly mentioned divestitures, but are there any other considerations or deal type structures that you would consider?

[Mark Miles, executive]

Sure. Yes. On your first question, I would say the proceeds from those divestitures were very similar to the purchase price for F&S that occurred right after quarter end. The future opportunities, we would expect those to be cash transactions.

[Operator]

Our next question comes from the line of Christopher Parkinson of Wolfe Research.

[Unknown Analyst]

It's Andrew Arm sitting in for Chris. So our main question really is, do we -- are there areas where you're still seeing some destocking pressure either in the past quarter or going forward into the third? And if that's still true, how do you think channel inventories are looking as we get kind of towards the end of the year in areas where there might still be some inventory over here?

[Kevin Kwilinski, executive]

Yes. The only thing I would say where we would say there's potentially some destocking still occurring would be in some of the health care parts of the HHS business. But even that, I think, has mostly run its course. And the rest of our business, there's really nothing material related to any continued or ongoing destocking.

[Mark Miles, executive]

Yes. I would echo what Kevin said, it's occasionally, you'll hear reference to it, but I would say it's very immaterial. And I don't think inventories are at an unusual level. I'm not hearing that or seeing that from any of our customers.

[Operator]

Our next question comes from the line of Ghansham Panjabi of Baird.

[Ghansham Panjabi, analyst]

Kind of -- Kevin, as you kind of [indiscernible] out you think about your portfolio and what's happening with the end markets with obviously the global consumer being weaker and being very price sensitive in terms of how they approach their spending and so on and so forth. How is Berry's portfolio aligned with that in the sense that your customers are very likely, including in foodservice, going to have to start stressing the value portion of their product mix? Just your thoughts on that? And just given where volumes are in the industry, which is obviously at a low point, how would you sort of assess the competitive backdrop as well?

[Kevin Kwilinski, executive]

Yes. I would say we feel very good about our alignment with the core consumer categories that we're exposed to. We are strong in both branded and private label volume in both Europe and North America. So we are able to win even when there's some trading down happening. We think the long-term trends in these markets when we look at the data and the projections, are positive, and we will be exposed to market growth in the 2% to 3% or 4% range. And in some of our categories is much higher than that.

We are very focused on, as part of this commercial excellence, in making sure that we are prioritizing the white space with the best growth opportunities. And we are very focused on using bolt-on acquisitions to give us capabilities and access to those higher growth markets and areas. And that's a key -- really the key lens as we think about where we should think about acquisition because we'll get cost improvement synergy with any acquisition we do, given our scale, but we're really focused on how can we use acquisitions to accelerate our organic growth for the long term.

[Mark Miles, executive]

Comps on the foodservice -- the foodservice part of your question, our portfolio is largely cups and lids for beverage. And as you know, our customers continue to look to expand that category. It is a decent margin product category for our customers. And so I continue to see them looking to expand that category, not the opposite.

[Ghansham Panjabi, analyst]

Mark, just to clarify, how big is foodservice for Berry at this point?

[Mark Miles, executive]

Yes. It's largely in our CPNA business, and I would call it, 20% to 25% of that portfolio.

[Ghansham Panjabi, analyst]

Okay. Got it. And then for my second question, as it relates to the divestitures and potential outcomes going forward. Kevin, what is the lens you're looking at as you consider additional divestitures in the portfolio? Is it -- I heard you mention in terms of CPG exposure, consumer exposure to increase that, but just some more color on that would be helpful.

[Kevin Kwilinski, executive]

Yes. I mean that's really -- the primary lens is we have a core strategy to be a consumer-facing sustainable packaging supplier. And when we look at parts of our business that don't have that profile we really have to question is that where we should be investing our resources and capital. And that's really what leads us to the list of opportunities. If the only reason for owning that business that happens to use resin, that's not a very strong reason. And we have the ability to redeploy that capital in areas that we can create a lot more growth and long-term value creation for our shareholders. And that's why we're going down the path.

[Operator]

Our next question comes from the line of Arun Viswanathan of RBC Capital Markets.

[Arun Viswanathan, analyst]

I just wanted to ask a little bit more about what you're seeing in April, and I guess your confidence level. So I guess what do you think drove the improvement in April? Was it increased promotional activity on part of your customers? And is that what gives you confidence that you'll continue to see that continued volume improvement? Or is it maybe restocking? Or -- I'm just trying to understand what gives you that confidence that you'll continue to see that improvement sustained over the next few months in to the next year?

[Kevin Kwilinski, executive]

Yes. I would echo that we have been confident in our guidance for the year from the very beginning, and we haven't changed it, and it is playing out as we expected with the addition of April came in a bit stronger than we expected. So what's changed? I think we are seeing more aggressive promotional activity and focus on brand building by our customers. I think we see a consumer that is increasing their level of consumption of categories that we are participating in. And it isn't unexpected, and we're talking about movements that are hard to predict on a month-to-month basis.

But it's basically what we thought would happen, and it's happening. We have continued to build momentum through the year, and we think that will have -- continue to be the case.

[Arun Viswanathan, analyst]

Okay. And just the question on strategy going forward, I guess, you noted that you will be looking to bolt-on acquisitions to bolster your presence in some of these growing verticals like health care and more consumer-facing areas. So I guess real quickly, does that mean that, a, you'll be getting rid of maybe industrial exposure? And then, b, just curious why you would opt to make acquisitions, the strategy to bolster that presence? And is there -- are there opportunities to pursue that growth organically, granted Berry is obviously one of the largest consumer packaging companies in the world. So I would imagine that you could potentially go after some of those markets organically. Is it just quicker to do it by acquisition and a little bit maybe returns would be higher that way? Or -- what is the strategy behind going after that acquisition base?

[Kevin Kwilinski, executive]

Yes, exactly. First, the easy part, Part A, are we reducing our industrial exposure? Yes. The second part, we always look at what's the best overall return for our shareholders of any growth strategy. And in many of those, organic growth by itself is, in fact, the best strategy, and we're executing against that. And we're doubling down on improving our ability to execute against that.

But in some areas, the fastest path and, therefore, the one that yields the highest return, is to acquire a small business that you can scale out and replicate its access to technology or to a specific relationship or geographic market that you want to play in, in a strong way, and it's just a much better return than just going your own way and building it organically. And we're very conscientious of that, and we expect to do that successfully and do it within our stated leverage range.

[Operator]

Our next question comes from the line of Mike Leithead of Barclays.

[Michael Leithead, analyst]

Just one question from my end. I wanted to ask on the Glatfelter transaction. The market's obviously had some time to digest it. And if I look at Glatfelter share price today and relative ownership of NewCo, it seems to imply a NewCo equity value of something like $800 million, which is quite a bit different than the $1.8 billion valuation you laid out last quarter. So I guess when your team looks at that, what do you think the market is missing? Is it just -- it needs to better understand it? Or perhaps do you think there needs to be something different in capital structure or something else to better realize the value in that transaction?

[Kevin Kwilinski, executive]

Yes. I think, number one, we have, a, we're in a bit of a holding pattern and there isn't a short-term incentive for people to buy in until we get closer to the transaction closing. I think that's by far away the biggest issue. When we look at the actual results that we entered into the transaction on in the quarter, we saw what we thought we would see in the quarter. We are confident that we have seen the bottom of the cycle, and we are now on the upswing and we have an improving business.

And as we continue to do the work on synergy, we see tremendous upside to the synergies that this business will be able to deliver. It's going to be the biggest player in the nonwoven space, and it is going to be a very strong, successful company. And we are putting excellent leadership in place and under Kurt coming from the long history of Berry management. So I think overall, we think the market is just getting it wrong. And the biggest factor is we just need to get this thing closer to close and let them move on.

[Operator]

Our next question comes from the line of Michael Roxland of Truist Securities.

[Adam Samuelson, analyst]

This is Niccolo Piccini on for Mike Roxland today. I guess, first off, I think you'd mentioned previously that European assets might be more advanced than the U.S. in terms of the process and operations vantage point, both to the U.S. and other regions. How has that progressed maybe in your initial findings as you benchmark those assets against your operations elsewhere? And is there any low-hanging fruit that you can address quickly?

[Kevin Kwilinski, executive]

Yes, I think there is low-hanging fruit, and we are addressing it quickly. I would say that, I wouldn't use geographic region as the primary differentiator of highest performing and lowest performing. I think the reality is we have a range of performance within each of our businesses, and we have room to improve the best and we have a lot more room to improve those that aren't the best.

[Niccolo Piccini, analyst]

Got it. And then just with respect to -- I think it was described as a beachhead, you're building in the consumer package in North America and the rigids. How long, if you could give a time line, do you think we would see for that to spread to your other parts of your portfolio?

[Kevin Kwilinski, executive]

Yes. I think we can have the process well ingrained within 6 months in that business, and we will begin kind of halfway through there starting to talk to the other businesses about what's happening, and they will begin to pull adoption, and we'll continue to execute that over the coming year through the course of '25. And I think it will -- the impact will be relatively quick. We have some good momentum already. We're not talking about taking something that is broken, but I think we can accelerate the pipeline we have that we're managing, we can make it a better pipeline, a stronger one, and it will accelerate definitely in '25 and '26, our ability to win.

[Operator]

Our next question comes from the line of Edlain Rodriguez of Mizuho.

[Edlain Rodriguez, analyst]

Just one quick one on the volume that you're seeing out there. I mean, again, volume has sequentially improved, and you expect it to continue to improve in the second half. Like what you see -- like is it mostly inventory restocking you see? Or are you seeing real fundamental demand driving that volume?

[Kevin Kwilinski, executive]

Yes. I think early in the year, as we entered into our fiscal '24, you still had a bit of destocking in some categories that was happening. So I think some of that acceleration was coming from that. But overall, the bigger factor is just the consumption level is improving, which we expected to be the case. And we expect to continue to see improvement as more and more CPGs are focused back on volume creation and driving volume is not just on taking price and profit.

I think the other thing I would like to emphasize is, we look very closely at how we perform relative to our peers and relative to the volume indication that we get from some of our customers that are public and we continue to outperform. Our -- whatever -- however soft we have been in volume, we have outperformed our peers in this area and we will continue.

Now some of our peers, about half of them don't give volume guidance. So you don't have that transparency, but we do and we hold ourselves accountable to that volume, and we feel very good about how we have performed from a volume basis relative to our peer set.

[Edlain Rodriguez, analyst]

Okay. Makes sense. And my follow-up is in terms of the portfolio optimization, again, Mark forgive me, if I missed that before. Can you talk about where in the portfolio you still have much work to be done? Like is it primarily in the flexible segment? Or is it like in the consumer packaging? Like where would those divestitures be more likely to be coming from?

[Mark Miles, executive]

Yes. We have opportunities in flexibles and CPIs of Consumer Products International and some smaller even in CPNA. So it's across the board. But I would say look at flexibles and CPI as the bigger impact.

[Operator]

Our next question comes from the line of John Roberts of Mizuho.

[John Roberts, analyst]

I'm sorry, I wasn't queued up.

[Operator]

Thank you. This concludes the question-and-answer session. I would now like to turn it back to management for closing remarks.

[Kevin Kwilinski, executive]

Just want to thank everyone for your interest in Berry. We feel great about where we stand at this point in the year, and we're looking forward to a great second half. Thank you.

[Operator]

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.