Berry Global Group Inc

NYSE:BERY

Earnings Call Analysis

Expected Sequential Improvement and Shareholder Returns

The company expects improved performance across all four business segments due to easing inflation and favorable year-over-year comparisons. For fiscal 2023, it targets an adjusted EPS of $7.30 and operating EBITDA of $2.05 billion, with cost reductions anticipated to offset softer volumes. Fiscal Q4 EBITDA is expected to be $540 million, a $20 million increase over the prior quarter. Free cash flow is projected at $800 million, from operations of $1.45 billion minus capital expenditures of $650 million. The company also plans to return $700 million or more to shareholders through repurchases and dividends, aiming to reduce shares outstanding by 8%. Leverage is expected to near 3.7 times by year-end, aligning with their long-term target of 2.5 to 3.5 times by the end of fiscal 2024.

Sector Challenges and Hopeful Signs

The performance breakdown for this quarter illustrates a challenging period for the health, hygiene, and specialties division, where revenue decreased by 17% due to a combination of dropping resin prices passed through to customers and softer market demand, evident in declining sales volumes. Despite this downward pressure, there are growth signals, particularly in the disinfectant wipes in the U.S. and adult incontinence products in Latin America, suggesting resilience in specific niches.

Looking Forward: Financial Targets and Shareholder Returns

The company's outlook for fiscal 2023 includes an adjusted earnings per share (EPS) target of $7.30. In the fourth quarter (Q4), an anticipated EBITDA of $540 million reflects a favorable $20 million increase over Q3, enhanced by polypropylene cost reductions. Positive cash flow management is projected, with free cash flow expected to reach $800 million, derived from $1.45 billion in operational cash flow minus $650 million in capital expenditures. Notably, the company plans to return $700 million or more to shareholders through share repurchases and dividends, seeking an 8% reduction in outstanding shares.

Leverage and Long-term Growth Aspirations

Leverage ratios are forecasted to reach 3.7 times at year's end, with a goal to align within the long-term range by the end of fiscal 2024. The company presents a steady growth model targeting an EBITDA increase of 4% to 6%, an adjusted EPS uplift of 7% to 12%, and total shareholder returns of 10% to 15%, underscoring their commitment to consistent performance and return to investors.

Steady Volumes and Focus on Emerging Markets and Sustainability

Volume expectations across markets remain stable into Q4, with a slight weakening anticipated in Europe. The company is looking at emerging markets, particularly the opening of a new facility in Bangalore, promising growth for their foodservice category. Additionally, product lines driven by sustainability concerns elicit optimism for 2024.

Strategic Efficiencies and Capital Allocation

Anticipated cost-saving projects are set to contribute a $55 million benefit in fiscal '24. The optimized business footprint and lower-cost structure are expected to lead to bottom-line benefits, complemented by a prospective medium-term EBITDA growth rooted in low single-digit volume increases. Moreover, the corporate strategy includes leveraging their diverse portfolio for shareholder value maximization, balancing organic growth, debt reduction, and acquisitions. Recent strategic moves are expected to be offset by the end of the calendar year, illustrating an actively managed and agile business approach.

Earnings Call Transcript 2023-Q3

[Operator]

Good day, and welcome to the Third Quarter 2023 Berry Global Group Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers presentation there will be a question and answer session.[Operator Instructions]. Please be advise that today's conference is being recorded.

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

[Dustin Stilwell, Investor Relations]

Thank you, and good morning, everyone. Welcome to Berry's Third Fiscal Quarter 2023 Earnings Call. Throughout this call, we will refer to the third fiscal quarter as the June 2023 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 that you limit yourself to 1 question at a time and then fall back into the queue for any additional questions.

As referenced on Slide two, during this call, we'll 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.

Please note that in our commentary today and within our presentation, when we compare our results to the prior year quarter or full year, we have adjusted to present on a constant currency basis and remove the impact of divested businesses to provide the appropriate comparable results. A reconciliations to reported results have been provided in our earnings release and in the appendix of our presentation.

And finally, 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 within 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, Chief Executive Officer & Chairman]

Thank you, Dustin, and welcome, everyone, and thank you for being with us today. Turning to our key takeaways for the quarter on slide four. Today, we're pleased to reiterate our outlook for fiscal 2023, which is in line with our previously announced range.

Our commitment to improving our mix of high-value growth products and implementing structural cost reductions has effectively offset weaker demand from customers, including destock initiatives. Our cost actions include site rationalizations, moving business to more cost-efficient facilities and labor cost reductions, all enabling improved productivity.

Notably, we've made strategic investments in high-growth markets such as food service, health and beauty, dispensing and pharmaceuticals with a strong focus on sustainability linked customer projects.

Moreover, we have been dedicated to returning capital to our shareholders, having already purchased nearly 7 million shares in fiscal 2023 amounting to 5.6% of total outstanding shares.

Looking ahead, we expect to meet our commitment of repurchasing $600 million of shares in fiscal 2023. Our unwavering commitment to strengthening our balance sheet has led us to lower our long-term leverage target to 2.5 to 3.5 times, and expect to be at 3.7 times at the end of this fiscal year.

We plan to be below 3.5 times by the end of fiscal 2024 and well within our new targeted range. While we recognize that overall market demand may present challenges for the remainder of the calendar year, we remain very optimistic.

By making long-lasting structural cost improvements and advancing our strategic initiatives, we are confident in exiting 2023 as a much stronger and more focused company.

Turning now to the financial results on slide five. Earnings for the June 2023 quarter were modestly below our expectation, mainly due to higher inflation impacting market demand.

During the quarter and throughout the year, the teams have performed exceptionally well on things within our control. We achieved another quarter of positive price cost spread from inflation recovery, and we successfully implemented strong cost reductions and mixed improvements across our businesses.

Although our efforts were partially impacted by overall soft Denmark demand, we're encouraged by the fact that it aligns with what our global customers have experienced, and the trend they've reported across various regions.

Looking ahead, we anticipate an improvement in volumes in all four segments sequentially, compared to prior year quarter, especially with the inflationary pressures easing on consumers.

In addition, we are thrilled to announce our inclusion in the S&P MidCap 400 Index on June 20. This is a significant milestone for Berry, reflecting our strong progress as a leading global packaging company, committed to providing protective and sustainable solutions to our worldwide customers.

During the quarter, we performed well, achieving strong operational performance, including progress on energy reduction and labor stability. We also took additional cost reduction actions, including rationalizing facilities to optimize our assets, reducing our footprint by a total of 20 facilities, resulting in a total annualized savings of $140 million from our cost initiatives, of which $75 million is expected to be realized in fiscal 2023.

Additionally, we remain dedicated to providing strong capital returns for our shareholders, having returned $513 million through share repurchases and dividends in the first three quarters of the year.

Furthermore, and in line with this commitment, we expect to repurchase nearly 3 million shares, or 2.5% of our total shares outstanding during this fourth fiscal quarter, bringing our anticipated total share repurchases for fiscal 2023 to $600 million.

We continue to believe our shares remain undervalued, and these repurchases reflect our confidence in the outlook for our business and long-term strategy. Before handing over to Mark, I want to review slide six and emphasize our continued focus on driving consistent, dependable, and sustainable organic growth.

We are investing in our businesses, particularly in key end markets like health care, personal care beauty, and food service, which offer greater potential for differentiation and long-term growth.

We have grown these select markets over the past 10 years from 20% to now more than 30% of our portfolio, which has been compounded -- which has a compounded annual growth rate of more than 15% over the same period.

Our emerging market presence is also expanding, supporting our commitment to global growth. Moreover, we are passionate about the innovation and sustainability utilizing our product design leadership to continuously develop products that meet our customer needs and expectations.

Our efforts have resulted in significant growth and sustainable polymer purchases, and we're working towards our goal of achieving 30% circular material by 2030. These combined efforts, along with our ability to deliver continual cost improvements to our scale advantages and capabilities, instill confidence that we will consistently deliver solid earnings growth from our stable portfolio of businesses.

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

[Mark Miles, Chief Financial Officer]

Thank you, Tom. I would like to refer everyone to slide seven for our quarterly performance in our four operating segments. Our teams continue to execute well and focus on bringing value to our customers and generating cost productivity while driving long-term sustainable revenue and earnings growth.

The segment review will focus on the year-over-year changes for Q3. Starting with our consumer packaging international division, revenue is down 4%, primarily from softer demand, partially offset by improved product mix to higher value products.

EBITDA was up an impressive 6%, driven by our cost reduction efforts along with the improved product mix by increasing our presence in healthcare packaging, pharmaceutical devices, and dispensing systems. We continue to recover cost inflation through pricing actions and cost reduction initiatives while driving revenue growth from our sustainability leadership.

Next on slide eight, revenue in our consumer packaging North America division was down 15%, primarily from lower selling prices due to the pass-through of lower resin costs in the United States, along with softer overall demand, mainly in our industrial markets.

We again delivered strong results in our food service market including double-digit volume growth for the last four consecutive quarters As we continue to see conversion from other substrates to our clear polypropylene cup.

We continue to add incremental cup capacity including the startup of one of our manufacturing locations that has been repurposed with this technology as demand for our innovative products continues to outpace our ability to add supply.

EBITDA was lower by 8% from the softer market demand and the timing impact of increasing polypropylene costs in the United States, which is expected to be recovered in the fourth fiscal quarter.

The team continues to drive improved cost productivity from structural cost reductions and focus on delivering differentiated products in areas such as food service, closures and dispensing systems.

And on slide nine, revenue in our engineer materials division was down 19% due to the lower selling prices from the pass-through of lower resin costs in the United States and volume softness primarily in European industrial markets along with some customer destocking.

Volumes were also impacted by our focused effort to mix up in certain categories like consumer and transportation films. Consequently, our sales and advantaged higher-value products has moved from around 25% of Engineered Materials portfolio in 2018 to now 45%.

EBITDA in the quarter was modestly lower as the softer overall customer demand offset our continued and focused effort on improving sales mix to higher-value product categories and structural cost reduction initiatives.

On Slide 10, revenue in our health, hygiene & specialties division was down 17% due to lower selling prices on the pass-through of lower resin costs, along with a decline in volumes. The business continued to see ongoing inventory destocking along with softer demand inside many of our specialty markets such as filtration, building, and construction.

As a positive takeaway, both disinfectant wipes in the U.S. and adult incontinence products in Latin America both saw nice growth in the quarter. EBITDA was down 23% for the quarter, which was in line with our expectation as our improvement initiatives were offset with weaker demand in some of our higher value specialty markets.

As we look forward for the division, we expect to improve earnings sequentially as demand improves and on a year-over-year basis as we have now lapped the tough comparisons from COVID and related inventory adjustments in the market.

Overall for the company through the first three fiscal quarters our teams have delivered similar EBITDA by driving substantial cost savings offsetting weaker market demand from inflation and destocking initiatives.

As Tom mentioned earlier, given the easing of inflation and easier comparisons, we expect volumes across all four of our segments to sequentially improve when compared to the prior year quarter.

As we stated from the beginning of the year we will continue to take proactive structural cost reduction actions to help offset softer demand here in fiscal 2023. These cost saving initiatives are expected to provide annualized cost savings of $140 million and we expect to realize $75 million of these savings in fiscal 2023 with the majority of the balance realized in fiscal 2024.

Our fiscal 2023 guidance and assumptions are shown on slide 11. We are now targeting adjusted earnings per share of $7.30 for fiscal 2023. The updated estimate assumes operating EBITDA of $2.05 billion as we expect cost reductions to offset softer volumes.

Our fiscal Q4 assumes EBITDA of $540 million or a $20 million increase over the fiscal third quarter. The two sequential key bridge items which give us confidence in our Q4 EBITDA target include a $10 million charge from a third-party warehouse fire in fiscal Q3 and the timing tailwind of lower polypropylene costs, which will benefit us in the fiscal fourth quarter.

We expect free cash flow to be $800 million assuming cash flow from operations of $1.45 billion, less capital expenditures of $650 million. The increased level of capital spending from our prior guidance is due to the timing of payment and we would expect fiscal 2024 capital spending to be less than $600 million.

We are proud of the team's execution as we expect to achieve our free cash flow guidance. Our teams have generated incremental working capital savings to offset additional capital investment and restructuring costs from our cost out actions.

For the last four quarters through fiscal Q3 we generated substantial free cash flow of over $1 billion. Our cash flow year-in and year-out has been a dependable key strength and core value for our company. It provides us the opportunity to invest in our businesses to grow and become more efficient while returning capital to shareholders.

As you can see on slide 12, our capital allocation strategy is return-based and includes continued investment in growth markets, share repurchases, debt repayment and a growing quarterly cash dividend.

In line with our strategy to reduce debt, we repaid a total of $200 million in June and July on our outstanding term loans. In fiscal 2023, as we've stated before, we expect to return $700 million or more to shareholders via share repurchases and dividends including further reducing our shares outstanding by 8% at current valuation levels.

Given our strong dependable cash flow and earnings, last quarter we moved our long-term leverage range down to 3.5, or excuse me, 2.5 to 3.5 times as we continue to focus on delivering long-term value for our shareholders.

Based on our current view we expect that we will be at approximately 3.7 times at the end of this year and within our long-term range by the end of fiscal 2024. We believe we are well-positioned for continued value creation through both our resilient business model and strategic portfolio management opportunities.

This concludes my financial review and I'll turn it back to Tom.

[Thomas Salmon, Chief Executive Officer & Chairman]

As you just heard from Mark, our business model has proven to be exceptionally resilient with a diverse range of consumer staple and industrial packaging solutions. We've achieved strong dependable and stable cash flows allowing us the flexibility to drive robust returns for our valued shareholders.

As demonstrated on slide 13, we've made remarkable progress in reducing our net debt by nearly $3 billion since mid-2019 with further plans to return over an anticipated $1.3 billion to shareholders through share repurchases and dividends in fiscal 2022-2023.

We take great pride in being a top five global toolmaker and a top five recycler in Europe, which gives us unmatched scale advantages and differentiation capabilities compared to our competitors.

Our in-house design centers along with our ability to serve local and regional customers and markets reinforce our position as a leader in the industry. As you can see on slide 14, we remain committed to enhancing long-term value for all stakeholders by maintaining a stable and dependable portfolio.

Our history of driving top-tier results across various key financial metrics such as revenue, earnings and free cash flow highlights our consistent growth as a publicly traded company.

Our adjusted, our annual adjusted EPS CAGR of 23% from 2015 to 2022 holds the leading position amongst our peer set and well above the average CAGR of 10%. Our strategic investment choices and focus on driving shareholder value are at the core of our priorities.

We've invested significantly in growth targeting faster growing markets and regions and improving the mix of our product portfolio as shown on slide 15. Also by maintaining a lower leverage range and returning cash to shareholders together with our recent inclusion into the S&P 400 MidCap, we believe we'll continue to close the valuation gap presenting an attractive investment opportunity.

Moreover, we are deeply invested in innovation and sustainability, which provides us with a competitive advantage. We are investing in several markets and product categories that we expect to drive long-term organic growth and complement our ongoing efforts of building an increasingly resilient portfolio of products including a few of those which we've highlighted here on slide 16.

The increase in demand for sustainable packaging solutions aligns perfectly with our design capabilities in producing and sourcing recycled resins globally. Our leadership in these areas position us for higher growth opportunities supporting long-term value creation for our customers and shareholders.

As you can see on slide 17, our long-term targets emphasize the consistency and dependability of our model with EBITDA growth of 4% to 6%, adjust EPS growth of 7% to 12%, and total shareholder returns of 10% to 15%. We've consistently met or exceeded these targets over the past three years and we expect to continue doing so in the future.

Additionally, our newly initiated dividend is set to grow annually and we aim to achieve our updated long-term leverage target by the end of fiscal 2024. In summary, we are focused on delivering sustainable growth while providing safety and service to our customers.

With agility, strategic evaluation of our portfolio, and dedicated cost optimization efforts, we are determined to maximize shareholder value. As you can see on slide 18, our strong cash generation supports our ability to drive returns for shareholders through first, a broader global portfolio.

Second, we have an abundance of investment opportunities in high value end markets such as healthcare, food service and beauty, along with leadership position in sustainability led product offerings.

Third, we have demonstrated historically. We have an ongoing opportunity to consolidate a fragmented set of high value end markets to drive significant revenue and cost synergies. And fourth, all while returning capital to shareholders and operating in a leverage range between 2.5 and 3.5 times.

And finally, we are extremely optimistic about our outlook for fiscal Q4 as we anticipate a positive impact from the ease of inflation and more favorable comparisons. We anticipate that volumes across all four segments will show sequential growth over the prior year quarter.

Additionally, our aggressive repurchases of nearly three million shares further demonstrate our unwavering confidence in the strength and potential of our businesses. We are looking forward to an improved quarter ahead.

I want to close with how grateful we are for the hard work of our employees and we remain dedicated to building on our progress, delivering greater value for all of our stakeholders. Thank you for your continued interest in Berry.

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

[Operator]

Thank you. [Operator Instructions] Our first question comes from Josh Spector with UBS. Your line is open.

[Josh Spector, UBS]

Yes. Hi. Thanks for taking my questions. Just wanted to ask on the volume cadence here. So clearly, I mean, you're talking about some using sequentially on a year-over-year basis, part of that on comps. It's just the last couple of quarters, I think two-year stack, you've been down about 8%, 9%. Is that the right way to how things are trending into the next quarter? And then any comments on what you're seeing on destocking within that mix versus underlying demand to help us think about trends into next year? Thanks.

[Thomas Salmon, Chief Executive Officer & Chairman]

We gave a couple of reasons why we're optimistic relative to Q4 and the sequential improvement. Clearly, as we've said, I believe, on the last call, we believe that destocking in that phenomenon will probably continue to exist through our fiscal fourth quarter and perhaps into our fiscal Q1. But nonetheless, that's going to become a more normalized environment, and frankly, we're encouraged that from our brands that we serve, you're hearing a lot more conversation around increased promotional spending with an effort to ultimately draw more people into the stores which should create more demand for those targeted products as well as the impulse purchases that we'll benefit from.

So, those are a couple of the aspects of our confidence in that sequential improvement. And frankly, the consumers are facing now a more stable inflationary environment. There was a pretty significant run-up for a while. It's a little more stable at this point. And that, coupled with the brands having a stronger objective now to drive organic volume growth, we should benefit from that.

[Mark Miles, Chief Financial Officer]

Yes, Josh, on your volume -- first part of your question, Q3 to Q4. We're normally pretty similar, so our Q4 volumes are relatively similar to Q3 with the exception of Europe, can have a touch weaker volume in Q4 typically. But overall for the company, pretty similar, Q3 and Q4 in most years.

[Operator]

One moment for our next question. Our next question comes from George Staphos with Bank of America. Your line is open.

[George Staphos, Bank of America]

Hi. Good morning, everybody. Thanks for the detail. I joined the call a bit late, just given the conflicts here. I had one question. I hope it hasn't already come up. Apologies if it has. When we look at HHS and the performance, certainly, you've been going through a destock and kind of the other side of the hill after COVID but we are now certainly on our math, seeing profits trending somewhat below where you had been prior to COVID.

And so Tom and Mark, if you can talk about how business has been relative to your expectations, say, from a couple of years ago in terms of how things would transpire. If you agree with the premise, what's been driving that performance in HHS. On the other side of the ledger, I think I heard you say that volumes are stabilizing and you're hoping to see some improvement in the fourth quarter, if you could confirm that? And which of your new products, in particular, are you most positive about relative to what will hopefully drive volume growth for fiscal 2024? Thank you very much and good luck in the quarter.

[Thomas Salmon, Chief Executive Officer & Chairman]

Thank you, George. Relative to HHS, clearly, the specialties business is probably one of the most unique aspects of the profitability inside HHS, specifically with specialty items like house wraps, pool chemicals, filtration and the likes, higher-margin products that have been negatively impacted from a demand perspective. The team is doing a very good job as we continue to pivot more of the portfolio into the higher growth categories like adult and contents like premium fem care as well as the wipes offering that not only we're a leader in North America, but also developing a burgeoning growth position in Europe as well.

[Mark Miles, Chief Financial Officer]

Yes. So relative to expectations, George, Q3 was right on top of what we'd expected for that business. And as Tom mentioned, on a year-over-year basis, the headwinds are again, as expected. But due to that specialties business being softer that Tom referenced.

[George Staphos, Bank of America]

Mark, if I -- Tom, if I could just sort of pick at that for a second. Is the level of competitive activity worse than you would have anticipated a year or two ago in HH&S? And maybe it's just natural because you had that downturn cyclically house wrap and the like? Or no, how would you have us sort of think about it from your perspective? And then my other question, you can answer it. Thank you.

[Thomas Salmon, Chief Executive Officer & Chairman]

I would simply sum it up that we continue to be a leader in this space. And we continue to serve the customers that are most valued in this category, and as we continue to do that, its going to continue to create more opportunities for incremental growth opportunities for us. No doubt about it. You've seen the prints from many major brands around the world. We take some comfort that our demand outlook is very consistent with what they're experiencing. As they improve, we're clearly going to improve alongside them.

[Mark Miles, Chief Financial Officer]

Yes. We have very strong products in that portfolio that have brands and the quality and service we provide are very good. So we're comfortable that we're maintaining our share position. Just that market is just weaker. Now I will say, there's a little bit of a lag, but if you look at some of the market data around permitting in the US and some of those things, the outlook appears more favorable, which gives us some optimism in our outlook. But again, there will be a slight timing lag as to how that impacts our BNC business.

[Thomas Salmon, Chief Executive Officer & Chairman]

I do expect to see increased promotions you hear is marketed by many of the world's leading brands to ultimately combat some of the organic growth dynamics that they've been facing and as those ultimately get launched and rolled out it's going to increase storage traffic, which will again benefit us for sure.

[George Staphos, Bank of America]

Okay. Thank you so much.

[Operator]

One moment for our next question. Our next question comes from Ghansham Panjabi with Baird. Your line is open.

[Ghansham Panjabi, Baird]

Hey guys, good morning. I guess first off, how are you thinking about the outlook for volumes between the US and Europe? The transfer declines very similar and it's one region further along with destocking than the other just based on what you're seeing at this point. And then separately, it looks like you're going to be spending about 5% of sales as it relates to CapEx. Just given the persistent volume declines in 4Q of '21 year-over-year, is that the right level, is that the right threshold for spending as we think about fiscal year 2024 as well? Thanks.

[Thomas Salmon, Chief Executive Officer & Chairman]

The volume dynamic between, CPI as well as CPN is very similar, between the two product categories. I will say Europe's been in more of a deeper or a recessionary cycle, more so in the United States and for a longer period of time. You'll notice that the majority of the efforts that we've made relative to plant closures has taken place inside of our CPI portfolio to make certain that we've got you know the right footprint ultimately to manage the business going forward. But it's how we see the dynamic between the two and I think you know it's really these are typically very stable product categories specifically food and beverage, food service, you know, continues to lift both of those particular businesses. But yes, we were very conscious and focused that the cost reduction efforts in CPI around plant closures was tied to the economic environment that they were facing.

[Mark Miles, Chief Financial Officer]

On the CapEx question, looking at it on a percentage basis, it's a little tricky just because, as you know, resin can move around our sales dollars and not the capital dollars. But I think in terms of absolute dollar spending, we continue to believe that $600 million of capital or so a year will drive the results that we commit to, which is low single-digit volume growth and mid-single-digit EBITDA growth. Again, next year might be a touch lighter than that is just timing of some of the spending it's coming through in 2023 versus 2024. But on an outlook basis, I think $600 million or so of capital is the right number for us.

[Ghansham Panjabi, Baird]

Perfect. Thank you.

[Thomas Salmon, Chief Executive Officer & Chairman]

Thanks, Ghansham, I wanted -- there was a third part of your question that we didn't get to, but relative to the categories that give us the greatest cause for optimism, Clearly, foodservice continues to be a very strong category for us with the opening of our new facility in Bangalore and it's going through the regulatory approvals for start-up. We're excited about the prospects for emerging market growth for that unit. The continued investments that we've been making in trigger sprayers, airless pumps and frankly, in general, sustainability-led product categories as well as Leamington Spa site all give us great cause for optimism as we look forward to 2024. Next question please.

[Operator]

One moment for our next question. Our next question comes from Aaron Viswanathan with RBC Capital Markets. Your line is open.

[Arun Viswanathan]

Great. Thanks for taking my question. And I just wanted to ask, I guess, about two things. So first off, thinking about a bridge maybe for EBITDA as we look into fiscal 2024, it looks like the volume impact was a negative $44 million in this last quarter. Maybe is it fair to assume that you could return maybe to low single-digit growth in fiscal '24, especially given easy comps. And so maybe that would be a benefit of maybe $20 million a quarter. And then you'd have some of your cost reductions as well, also giving another $80 million. So I don't know if that's the right math, but are we somewhere in the ballpark maybe for thinking about mid- to high single-digit EBITDA growth for next fiscal year based on low single-digit volume growth? Thanks.

[Mark Miles, Chief Financial Officer]

Yes. I think that the way you described it -- I didn't quite follow all your numbers, Arun, but yes, we're expecting the cost save projects that benefit fiscal '24 by $55 million. And I think volume, obviously, we're short cycle business. But I think all the things that Tom referenced earlier that give us some optimism remain true. And we've given targets in terms of our top line and EBITDA growth, which is low single-digit volume growth and mid-single-digit EBITDA growth, and I would expect 2024 to be in line with that.

[Thomas Salmon, Chief Executive Officer & Chairman]

One of the parallel points to the growth outlook that Mark mentioned is we're going to be in a position in 2024 as we see growth in the general market environment improve ultimately going to benefit from having actually executed against 20 facilities that have been shut down and not having a need ultimately to add incremental CapEx to serve that business. So that's -- it's very exciting for us going forward, that optimized footprint, lower cost structure ultimately is going to benefit us on the bottom line as well.

[Arun Viswanathan]

Great. Thanks for that. And just as a quick follow-up on that note then. So the $800 million of free cash flow, would it grow just in line with EBITDA next year? Or are there any other discrete items that could maybe push it above EBITDA growth, maybe in the $900 million or $1 billion range? Thanks.

[Mark Miles, Chief Financial Officer]

Yes. I mean, obviously, we'll have some spending relative to the cost save program in 2024. As we mentioned in our prepared comments, we've done a really nice job here in 2023 of delivering savings to offset those costs. So we'll see as we approach the year, but I can't think of any large items that would swing 2023 and 2024.

[Arun Viswanathan]

Thanks.

[Operator]

One moment for our next question. Our next question comes from Phil Ng with Jefferies. Your line is open.

[Phil Ng, Jefferies]

Fourth quarter guidance, Mark, I think, implies about 12% uptick in EPS sequentially. You called out a $10 million tailwind reversing, I guess, effectively from the warehouse cost headwind. Any color on how to think about the polypropylene talent sequentially? And then you talked about demand being up sequentially. How has demand trended intra-quarter into July? Have you seen any like pickup and what kind of sequential uptick are you assuming for volumes in the fourth quarter?

[Mark Miles, Chief Financial Officer]

Sure. Yes. With respect to your first question, at the beginning of calendar 2023, U.S. polypropylene costs increased pretty rapidly. Subsequent to that, in the second calendar quarter, all of it kind of fell back out. So it went up and down. And just the timing of the pass-through of that resulted in a headwind in Q3, but it will benefit Q4 as our customer prices will reflect the calendar Q1 pricing, but our costs will start to benefit from the lowering that occurred in calendar Q2. And it's roughly $10 million is our estimate of the Q3 versus Q4 impact from that dynamic.

With respect to volume, we're not expecting a significant change in just underlying demand. So the volumes that we experienced in Q3 will be similar to what we experienced in Q4. But the year-over-year change gets a little more favorable as a result of a lower comparison in Q4 2022.

[Phil Ng, Jefferies]

Okay. That's helpful. So you're not assuming a big snapback, it's just easier comps. But have we seen any notable shift in inter-quarter trends?

[Thomas Salmon, Chief Executive Officer & Chairman]

We don't give inter-quarter guidance, but suffice to say, we continue to be confident in the outlook on the sequential improvement in quarter four versus quarter three. And again, the strong commitments from the brands relative to how they're looking at organic growth versus simply price, is encouraging for our near-term and longer-term outlook that it should cause more foot traffic to be in stores where the brands are doing all possible to grow and show organic growth in those numbers versus just price. So we'll benefit alongside that as that occurs.

[Mark Miles, Chief Financial Officer]

Yes. And I would add to that, you can see it in our pricing, right? For now we're, I think, three or four consecutive quarters, our prices are a couple of hundred million dollars lower for the same SKUs. So our customers are paying less for the same products on a year-over-year basis. And I think to Tom's point, history would tell you some of that money will get deployed into promotional activity and other things to drive demand.

[Phil Ng, Jefferies]

Okay. Appreciate the color, guys.

[Operator]

One moment for our next question. Our next question comes from Gabe Hajde with Wells Fargo. Your line is open.

[Gabe Hajde, Wells Fargo]

Hi, Mark. Good morning. I appreciate it's tough on – as like this, but I'm just trying to maybe get a little better sense, Tom, for what you're telling us in terms of getting well within the 2.5 times to 3.5 times turns of leverage, thinking about divesting some non-core assets. And then on the other side, you kind of talked about potentially trying to consolidate what is a pretty fragmented market and some of your key focus areas. So is it safe to assume -- where you're deploying maybe growth capital or returning capital would be the same places that you'd be looking to acquire assets? And then just from a timing standpoint, it still sounds like by the end of the calendar year is what you're expecting for maybe some of the deletes that you're looking at?

[Thomas Salmon, Chief Executive Officer & Chairman]

Yes. Good morning, by the way. We clearly look at our portfolio as a tool to maximize shareholder value and deliver more consistent, predictable and profitable growth. That has not changed. And we said on the last call, we were very comfortable with the small bolt-on acquisition that we executed against that the proceeds from those types of actions would more than offset the cost of that acquisition. We remain firmly committed that, that, in fact, is the case.

And the size of our portfolio is such that, that provides a unique opportunity, a unique opportunity for us to continue to optimize portfolio, an opportunity to take proceeds from such action at close to apply those towards the right components of the business based on the need that we see, whether that's the leverage reduction, whether that's organic growth or whether that's a bolt-on acquisition, all while staying within that targeted range.

So we continue to believe we're in a really unique spot. We give the size of our portfolio I continue to be encouraged with the pace of progress in terms of some of those things that we're considering and exploring and no different than the most recent acquisition is benefiting our Consumer Packaging North American business, that will be fully offset by one of those transactions at the latest by the end of the calendar year. So we're very bullish, and it's a tool. Again, it's a tool to allow us to maximize shareholder value that we think is -- still has some legs to it. So we're looking forward to it. Does that help?

[Gabe Hajde, Wells Fargo]

It does. Thanks for your comment. And I guess, again, I know it's difficult, but maybe we were expecting an announcement in terms of maybe -- any update there?

[Thomas Salmon, Chief Executive Officer & Chairman]

Our Board is fully engaged, relative to the identification of a successful candidate, to take the seat. I'm very confident that between now and our fiscal Q4 call, that successor will be named and introduced to the broader market.

[Gabe Hajde, Wells Fargo]

Understood. Thank you very much.

[Operator]

One moment for our next question. Our next question comes from Adam Samuelson with Goldman Sachs. Your line is open.

[Adam Samuelson, Goldman Sachs]

Yes. Thank you. Good morning, everyone. Maybe to start, Tom, you talked about some of the kind of reasons for optimism and your more consumer-centric businesses. Can you maybe just comment on what you're seeing in your more industrial, non-consumer oriented businesses in terms of activity levels as the destocking trend similar present any added color in that kind of part of the portfolio?

[Thomas Salmon, Chief Executive Officer & Chairman]

Sure. I'll start with the destocking, again, we had made us basically lack the impact of destocking because at some point, you get to a normalized level of inventory that companies are going to keep. And fortunately, very well equipped to be as agile as needed with our customers to provide just-in-time inventory and the like but I do expect it has to normalize by the end of our fiscal Q4, at the latest by the end of our fiscal Q1 to a more normalized inventory level.

The other piece is relative to the industrial businesses. I'll speak to housing specifically. I think we're at a very close to an inflection point in housing as being quoted at the bottom. You're not seeing a tremendous amount of -- of people willing to walk away from very low interest rate mortgages as such, it's creating demand for more residential housing builds and will clearly be a benefactor from that in areas like our house wrap business and parts of our tapes business as well.

I think you'll see that begin to materialize over the next couple of quarters between building permits being issues, ground being broken and structures to be directed. But I think we're very close, I think that is really a very positive sign for some of our businesses that have been negatively impacted by that.

[Adam Samuelson, Goldman Sachs]

Okay. That's very helpful. And then just coming back to this discussion on 2024 and return to growth. Is there some of the discrete plant investments that you've made. Think of the Bangalore Healthcare Facility, the circular facility in the U.K. come to mind, that are more discrete growth projects that would be kind of additive to kind of underlying kind of market activity that seem like you've got ample capacity to serve for the near term?

[Thomas Salmon, Chief Executive Officer & Chairman]

Yes. I think those are at the early stages, and I think only have room to go. We've made concentrated levels of organic growth investment around dispensing solutions. The facility in South Florida will open to serve food service in our fiscal Q1. And as Mark had said in some of his comments, the demand is just exceptional there where not only are we growing the business, low single, low double digits. But we're also taking share from other constraints, and the demand continues to be wildly robust.

The pharmaceutical excitement that we have around Bangalore and serving these emerging markets can benefit us not only from an organic perspective, but we also believe at some point inorganically as well. Again, all while staying within those targeted leverage ranges and certainly, health care and the introduction of our Leamington Spa site in Europe and our Circular Polymer solutions that will be introducing give a great cause for optimism, and I would clearly anticipate, as we look forward into 2024, that you'll see additional announcements of other facilities that can provide these Circular materials done in conjunction with leading brands around the world to demonstrate how both between using innovative design coupled with sustainable materials, it can be a strong organic growth vehicle for the company.

We're an interesting business. And we've talked a lot about what we've done from a cost reduction perspective, but this company and its team members, all we have unique ability, not only to innovate but optimize in a parallel path at the same time. And I think you've seen that from the actions that we've taken throughout the course of the year. We're not talking about things that are going to benefit us in 2025 and 2026. We're taking action in areas that are going to benefit us here now in the current fiscal year and next year as well, and we'll continue to variable our cost as well as make the appropriate organic investments to drive that more consistent, predictable, profitable growth. And again, where we can use our portfolio as a tool to do that and help maximize that value for our shareholders.

[Adam Samuelson, Goldman Sachs]

Okay. I appreciate the color. I'll pass it on. Thanks.

[Operator]

Thank you. That concludes the question-and-answer session. At this time, I would like to turn it back to management for closing remarks.

[Thomas Salmon, Chief Executive Officer & Chairman]

Well, first, I think the -- I thank everybody for the time and interest in the company. But I want to share something I think is a nuance for our company right now. And when you think about the performance in the given quarter, I think it really demonstrates the resiliency of our portfolio. And in the face of, what some would argue or somewhat unprecedented market conditions and dynamics, and I view it is a super very solid positive for our full year results, both from an earnings and a cash perspective, given those dynamics.

When you couple that, though, with us being on target to be inside our leverage range comfortably in 2024, delivering on what was a substantial share repurchase program, optimizing our footprint for -- to be better suit to support organic growth in 2024 and beyond. And as we just talked about, having an active program where we're evaluating our portfolio as a tool to maximize shareholder value, it's an incredibly exciting time for Berry, and I'm -- I couldn't be prouder of this team putting out the results that they have year-to-date and what we expect to deliver for the full year and well into 2024 and beyond. Team is doing a fantastic job. We're grateful for your interest in this company. Thanks, everybody.

[Operator]

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