Mark Miles: Yeah. I wouldn’t say the CapEx requirements for that business are materially different than the rest of Berry’s business. What I would say the return on capital is marginally lower, but again not materially lower, so the return on capital metrics get a little better for what we’ll call RemainCo. But in terms of total CapEx needs as a percent of revenue, not different on a long-term basis, a little more choppy as you’re adding capacity at higher dollar amounts in that business, but over the long term, not significantly different. Now, I think in the near term, Curt can elaborate that, we’ve made a lot of investments. Glatfelter had also made a lot of investments. So, if you’re looking at NewCo, and I apologize for the terminology, I think the short-term capital needs for that business should be low, but over the long-term, again, I would say, to meet the growth dynamics of those markets, that investment will be necessary just not in the short-term.
Curt Begle: No, that’s a really good comment. Again, both businesses are well-invested. Both made appropriate investments during the pandemic in terms of where they were going to be growing, and where they felt that they had the right to win. From a maintenance standpoint, both — again, both businesses are well invested in. We’ll continue to find opportunities to grow with the right type of capital growth projects, but combining the two, and really a lot of those capital dollars will be used to optimize the two businesses and deliver on the synergies that we’ve outlaid in the forecast.
Kevin Kwilinski: I’d just add two comments on the CapEx. One, just to reemphasize what Mark was pointing out about, the size of the investments for HHS, call it, $80 million to $100 million, whereas our typical business unit of capacity investments more in the $8 million to $10 million range. That size brought on capacity that as it was ramping up and being absorbed by the market, created more volatility in earnings, and that’s the real difference in the CapEx. We have less volatility in our investments, and we’re able to do smaller investments and scale to add units of capacity in our core business outside of HHS. The second thing I want to say is the lean transformation isn’t just about improving product quality, service, and additional conversion cost reduction, but it is about unlocking capacity on our assets.
So as we make investments, we are going to get better returns in the future as we have more capacity per unit of invested dollar created, and I think that is going to be a long-term plus for our overall cash flows.
Arun Viswanathan: Thanks a lot.
Operator: Thank you. One moment for our next question. And our next question comes from Adam Samuelson with Goldman Sachs. Your line is now open.
Adam Samuelson: Yes. Thank you. Good morning, everyone. I guess the first question, just to confirm, the cash that’s coming to Berry once the transaction closes, is that largely intended for debt reduction, where you have the 3.5 times kind of at the high-end net leverage target and less EBITDA in the company? So, just making sure you reduced the gross debt against a lower EBITDA base, or it is more intended for repurchase within that $1 billion?
Mark Miles: Yeah, the intended use of proceeds of the $1 billion when the transaction closes would be towards debt repayment. But I would also add that we have an active share repurchase program that has around $400 million remaining that the Board has approved, and we will remain active in buying shares as the year continues to progress.
Adam Samuelson: Okay. All right. That’s helpful. And then just within the volume piece, I know the outlook for the full year at the Berry level was kind of volume is about flat, they were down in the fiscal first quarter. Was there impact from destocking where the fiscal first quarter volumes actually came in a little bit light of where you thought, or was that not actually the case? And as you think about the confidence in earnings growth in the second half of the fiscal year, is that more driven on volumes just to get the full year to flat, or is there kind of — is the confidence improving on price/cost and broader kind of cost savings and underlying operating leverage?
Kevin Kwilinski: Yeah. We have a number of reasons as we’ve outlined in the prepared remarks about why we feel confident in our second half, and it’s really as much about ongoing cost reductions, pricing actions that accrue more so to the second half. So that’s a big piece. I think on a volume standpoint, we basically are where we thought we’d be. So, we expected a certain amount of destocking to still be occurring. We don’t know exactly how to peel that out and quantify how much is that versus just the consumer demand being down. But in general, we were kind of right where we thought we would be, and we feel pretty confident, we will continue to outperform our peers on a volume basis, and I think that’s exactly what we saw for this quarter, and we will see it going forward.
Adam Samuelson: Okay. I appreciate that color. I’ll pass it on. Thank you.
Operator: Thank you. One moment for our next question. And our next question comes from Matt Roberts with Raymond James. Your line is now open.
Matt Roberts: Hey, good morning, everybody. Thank you for your time. Mark, quickly on the leverage again, you addressed that well, but following the refinancing you did plus the $1 billion from HHS, is there anything left over through 2026 that you need to address that is not covered by free cash flow generation? And for that $435 million remaining repurchase authorization, does that expire this year, or do you expect to exhaust that this year? Just trying to gauge you some of the timing there. Thank you.
Mark Miles: Sure. Yeah. The last part of your question, the share repurchase authorization does not have an expiration date. And with respect to our debt maturities, obviously, the company continues to generate substantial free cash flow. Obviously, the debt markets are available to us for refinancing opportunities. We took advantage of that here recently to longest maturity, the company has actually ever issued at 10 years. So, we’re really happy with the execution of that. And we’ll continue to assess whether or not we want to repay with cash or refinance the debt, but a top priority is deleveraging our balance sheet, which we continue to do. And as you heard in the prepared comments, we’ve already, this year, repaid $300 million of debt on our term loans. So, plenty of cash flow to support repayment of our maturities, but we’ll also continue to look at refinancing opportunities as we go forward.
Matt Roberts: Thank you so much for the color there, Mark.
Operator: Thank you. One moment for our next question. And our next question comes from Phil Ng with Jefferies. Your line is now open.
Phil Ng: Hey, guys. Mid-single-digit volume declines, I believe, if I heard you correctly, Kevin, is embedded in your guidance for the first half, which doesn’t seem heroic at all. But any color on how volumes and orders are tracking in January, February or maybe any progression late last year to now? And ultimately, do you have enough levers to kind of deliver a flattish EBITDA in fiscal 2Q, or that’s more of a back-half event where you kind of get out of the hole that you saw in 1Q?
Kevin Kwilinski: Yeah, I think we have substantial levers, and we have not been slow to pull those levers. So, we do expect to have some improvement in Q2 from those levers, and those actions that their impact flowing through that we took kind of mid-quarter in the first quarter. I think we don’t have any big changes in our volume in our outlook. And we really are seeing basically what we expected to see. We do see some first shoots of improvement. I would say some of our industrial segments that were really hit harder have seen more recovery, and we’re seeing that in our numbers already showing a trend of improvement. And I’d say we’re starting to see some consumer behavior that looks promising to us. So my view on volume is that it’s just going to get better as we proceed through the year.
Phil Ng: All right. That’s helpful. Price cost in 1Q was negative. I believe a lot of that was timing related. Mark, any color on whether you get back to more neutral in 2Q? And then, perhaps bigger picture, in a softer demand environment, are you guys having tougher conversations on pricing more broadly with your customers?
Mark Miles: Yeah, sure. About half of our cost is polymer. We’re mostly buying polyethylene and polypropylene. We have very efficient pass-throughs as you’ve seen us demonstrate over many years, but there is a modest timing lag. Unfortunately, polypropylene has been a little more volatile in recent periods. So, that timing lag, due to the volatility of the material, cost has created some earnings [good guides] (ph) and headwinds. And our Q1 just happened to have the opposites. It had a tailwind a year ago and a headwind this year. So, it just amplified the impact. As we roll forward into Q2, while we don’t give quarterly guidance, that comparison gets much better. And so, I would expect our price/cost to be relatively neutral on a year-over-year basis because we don’t have that dynamic of lag impacting us in Q2 on a year-over-year basis.
Kevin Kwilinski: And what I would add on the pricing pressure question, I think, the company did a fantastic job during COVID and the aftermath of educating our customers on all of the drivers of inflation within our COGS. And so obviously, resin has historically been pretty transparent, and it’s just a matter of timing of recovery. The customers have seen a pretty dramatic reduction in the price of resin based on the market in general from the highs. So, they’re actually seeing a lower net price, but at the same time, we have inflation that we are still recovering and price actions we’re taking on other elements of our cost structure that are still important drivers of costs like labor. So, we have — it actually creates a better environment for us to recover those non-resin areas because overall, the customer’s price is still down.
And that’s certainly been something we have had to go to market with and have had success in driving forward because we have real cost inflation in some of those categories that we can substantiate and communicate.
