George Staphos: Thank you, gentlemen.
Stephen Scherger: You bet.
Operator: Next question comes from Matt Roberts from Raymond James. Matt, your line is open. Please go ahead.
Matt Roberts: Hey, good afternoon, everybody. Thanks for the question. If I could touch a little bit on the pricing strategy, have you seen any near-term impact on your market share or has there been any near-term trade-off in volumes for price? And when you do present new initiatives to customers, are there any certain metrics or cost inputs that you’re able to demonstrate to warrant those price changes?
Michael Doss: Yeah. So the way I’d answer that question, Matt, is, look, it’s a competitive marketplace. We compete with a variety of different substrates and with different competitors that make the same things that we do, but that’s not new. That’s really been the competitive backdrop that we’ve faced ever since I started in this industry almost 35 years ago now. So what we have is, we’ve got a very broad-based converting network that tends to be able to take care of what our customers need, have the capabilities in those package manufacturing facilities to be able to sell them, the wraps, the trays, cartons, different things that they need and really provide them exceptional service and quality. Beyond that, as we talked about where it makes sense, where we can drive higher ROICs and create competitive advantage, we’ve invested in paperboard manufacturing.
And then the grades that we manufacture post Augusta, we are clearly the low-cost producer of those grades. And that allows us to be able to get acceptable cost of capital return, the types of margins that Steve talked about, and be able to deal with a competitive situation that we do each and every day. And so in terms of share loss, it’s pretty de-minimis. There are some of those things that you take a few nicks here or there. You also get some wins. And so really, from that standpoint, I won’t spend a lot of time thinking about that dynamic. It’s really our future and our success will be driven by our innovation and our ability to drive new product sales. And as you know, our target this year is $200 million that we’ve got going there. And then the balance of that is something that we just kind of do day in and day out.
Matt Roberts: That’s helpful. Thank you, Mike. Appreciate that. And maybe think a little longer term about Waco, you talked about the $50 million cup per day recycling capabilities. What percent of your output does that represent? And what’s the cost trade-off like versus existing procurement methods? Are there any incremental costs with procuring those cups that we should consider? We’re trying to think about the potential margin trade-offs there. Thank you.
Michael Doss: We’ll take a step back and really think about how we price for value with our customers and ultimately, the end use consumer and our customers are driving for more circularity, more sustainability and more convenience. Our ability to work with our customers and in the case of Waco, think about that Texas Triangle we’ve talked about, collect the cups that are within that region, our customers will get some revenue just like the retailers get some revenue for OCC. So that’s a positive for them. And they like that because it’s also an answer for an ability to show their consumers they’ve got a license to use that cup without feeling guilty about it not being recycled because it’s going to go back to us in Waco. And I think the part of it that’s really not completely understood at a high level is that’s going to be the first fiber source that we put down.
When we clean that paper cup off, it’s incredibly high-value bleached fiber and we’ll lay that fiber down on the very top of the paperboard that we’re manufacturing in Waco. And historically, producers that make coated recycled paperboard had to buy sorted office paper and sorted office paper has increasingly become difficult to get and when things get difficult to get, it gets more expensive, which is exactly what has been happening. So from our standpoint, over a multi-decade period of time, our ability to control our own destiny with stable pricing, helping our customers with their circularity and their sustainability goal really helps us create competitive advantage there. And it’s a very differentiated model than really any of our competitors are doing.
And that’s really what gets us so excited. So we’ll see some cost stability there. We’ll work with our customers and ultimately we’ll create a more sustainable package and it’s really exciting.
Matt Roberts: Certainly. Thank you all again for the time.
Operator: The next question comes from Arun Viswanathan from RBC Capital Markets. Arun, your line is open. Please go ahead.
Arun Viswanathan: Great. Thanks. I just wanted to get your thoughts on, again, going back to some of the volume developments that we’ve observed and how you think about the rest of the year. So it seems like there was a little bit of a slowdown versus your commentary in February at the Investor Day in certain of these categories, maybe including, as you noted, frozen and food and so on. As you look out into the rest of the year, are you hearing from your customers that potentially that was transitory and maybe that there will be some increased promotional activity? And related to that point, when you think about the rest of the year, do you think that Q2 is going to look a lot like Q1 and maybe the second half is going to be higher as you get some of those gains back on the volume side or will be — will it be different just given the sale of Augusta? Thanks.
Michael Doss: Thanks, Arun. So from our standpoint, really our miss to our expectation that we talked about at the Investor Day, the 1% was really all about Easter. I mean, at the end of the day, it was around customers taking a little bit more production downtime around the Easter holiday than we had anticipated they would. It’s bounced back here in April as we talked about. We expect the second quarter to be sequentially stronger than Q1, but our strongest quarters will be in Q3 and Q4, and you’d expect that to be the case given the comps that I kind of ran through for George a few minutes ago. So second half will definitely be volumetrically our strongest year. And that’s a little unusual. As I mentioned to Ghansham, but it’s really a function of the ’23, ’24 destocking phenomenon that occurs.
And based on everything that we’ve heard from our customers and we’re pretty close with them, as you know, in terms of managing their supply chains, making sure they have what they need, driving innovation and new products that we’re selling to them, that all seems to square pretty well.
Arun Viswanathan: Great, thanks. And then if I could just have one follow-up. So you will be getting the cash from Augusta. I guess you’re going to be winding down the Waco investment over the next year or two. So as you look out into the future, I guess, you’ve laid out a nice Vision 2030 plan that’s potentially more aggressive. How does that relate to maybe how you’re thinking about leverage and capital return? So do you think next year you could pivot to maybe a stronger capital return profile or what are your thoughts there? Thanks.
Stephen Scherger: Yeah, Arun, it’s Steve. I think as we discussed in the prepared remarks, obviously, we measure our capital allocation decisions against share repurchase as we always have. And in the context of the funds from Augusta as an example, sitting here today with the confidence that we have in the business and the forwards that we’re conveying to you today, we’re comfortable with our debt levels. And so we’ll, of course, make decisions around debt for share repurchase as we always do, whether it’s from funds that come in tomorrow or on a go-forward basis, primarily supported by the very significant cash-flow generation that we are on the way to generating more in 2025 and then significantly more in ’26 and beyond. But overall, we are comfortable with the debt levels that we have today. That’s a good thing because it gives us the optionality that we’ve shared with you around capital allocation trade-offs.
Arun Viswanathan: Thank you.
Operator: The next question comes from Anthony Pettinari from Citi. Anthony, your line is open. Please go ahead.
Anthony Pettinari: Good morning. We’ve heard a lot about imports impacting SBS. And I’m just wondering if you’ve seen any meaningful impact on CRB or CUK from imports of those or other grades. And with the boxboard hikes not being reflected in Pulp and Paper Week, I mean the CRB, CUK, I mean there’s really relatively small number of domestic producers. So I’m just wondering if there’s anything about the competitive environment that’s different and if the import dynamic is meaningful or different than in previous years?
Michael Doss: Thanks for that, Anthony. I’ll take that. I think if you take a step back since you asked the question, I’ll give you a complete answer. I mean, if you really look at the imports, which is primarily from the Nordic countries, wood, energy, transportation are all up, right? I mean, the producers were talking about on their Q1 calls and all through last year, the structural reset of wood costs that they’re dealing with in those markets. And ultimately, as you know, there were some port issues here this year. And so imports as a category actually tracked down year-on-year in Q1. And the other thing to remember about that is that many of those grades don’t even compete in the marketplace where we’re competing. And so it’s different things.
And I’ll give you an example like a LithoFlute top sheet is a big item that comes in there. And I know you understand what that category is, so I’ll give you a little color on that. But from our standpoint, you guys and Richie spent a lot more time thinking about it than we do. We buy FDB in Europe and we have normal pass-throughs that pass it through into our contracts. This quarter, they were down a little bit because prices had gone down. They’re starting to announce increases and our normal pass-throughs in Europe will allow us to pass those through like we always do. And in North America, we hardly ever run into anybody competing with that to be fair. If it is, it’s some really small packaging converter that they have the reasons for using that.
But it’s a pretty small part of what we see. And so from that standpoint, I don’t see it impacting CRB or excuse me, our coated recycled paperboard or our unbleached paperboard markets that you asked the question on. And as I indicated earlier, we’re actively implementing the increases that we put out there. So that’s our approach and that’s how we’re managing it. And there’s pluses and negatives that always occur. But I’ll point back to again, we were able to grow the revenue top line the way we did it and ultimately generate a 19.6% EBITDA margin with all those things that are going on. And I think that’s the most important takeaway to think about the company we’ve become now with 95% of all our sales being a package of some kind, whether that’s a tray, a bowl, a wrap or folding carton or a cup, all those things are what we sell to customers and that’s really where our focus is as opposed to kind of the supply and demand dynamics where we actually, in some cases now can win some of those dislocations just given the — how we’ve set-up the company in terms of our purchases and how we operate it.
So it’s different than it was in the past and it will take a little while for you guys to see that, but structurally, tomorrow is a big day for us.
Anthony Pettinari: Got it, got it. That’s very helpful. And then just quickly on your European business in the quarter. I mean you talked a little bit about, I think a healthcare pullback in the EU. Generically, like how has that business performed in terms of sort of end-market demand year-to-date, Europe specifically?
