Andres Lopez: Thanks.
Operator: Our next question comes from Gabe Hajde from Wells Fargo. Gabe, your line is now open, please go ahead.
Gabe Hajde: Andres, John, Chris, good morning.
Andres Lopez: Good morning.
Gabe Hajde: I was hoping maybe you can give us a little bit of clarity just, I guess, on the second quarter bridge. So I think, John, you mentioned $35 million of inventory revaluation benefit that occurred in Q1 that would not recur in Q2. And then I think you talked about elevated activity across the system being a headwind and then partially offset by seasonally higher volumes. But maybe if you can put a finer point on some of these other items and if I missed anything? Thank you.
John Haudrich : Yes, yes. So, some of the bigger pieces, moving pieces there that will be sequential headwind, so to speak, if you want to call it that, it’s probably a $0.25 to $0.30 change in inventory revaluation. So that’s the biggest component that comes through. The elevated operating cost because of commissioning new capacity and also we have kind of a large wave of maintenance activity is probably $0.10 probably closer to $0.15 quarter-over-quarter headwind. And then as we look at interest expense, it’s probably another time at least as we stand here today. So yes, we’ll have a seasonally stronger sales volume that will partially offset that, but those are the big moving pieces.
Gabe Hajde: Okay. And I guess just — again, I appreciate April 2023, but you guys are talking about earnings being up next year. I’m interpreting that as EBITDA. And so I guess as we translate that down to cash this year, I think, was supposed to be peak for CapEx. So if I start with the $175 million and assume kind of EBITDA I don’t know, up $20 million or $25 million, whatever the number is, CapEx being down, call it, $75 million to $100 million. Are there any other cash flow items that we should be mindful of? I mean is there anything with the working capital that will be required for the business?
John Haudrich : Yes. And I mean, without getting into specific — like I said, it’s a little early to get into the numbers per se. If you take a look at some of the moving pieces, obviously, we’ve got to take a look at our capital plan and whether there’s any adds or any adjustments, whether that’s the level of maintenance spending or the strategic projects we have, that’s has still a little bit in front of us. Now on the working capital side to the degree that you do have sales via growing, obviously, you will have to support that through receivables and inventory. So those are all moving parts, but I think it gave us a little early to give the texture of 2024 cash flows.
Gabe Hajde: Fair enough. Thank you.
Operator: Thank you. Our next question comes from Arun Viswanathan from RBC Capital Markets. Your line is now open. Please go ahead.
Arun Viswanathan : Good morning. Thanks for taking my question. Just curious on the volume outlook. So it does seem like the — you guys are capacity constrained. We’ve been hearing actually that the consumer is kind of also a little bit weak in certain areas in certain regions. You described the potential for a snapback next year. Is that dependent on a better macro environment, or how are you thinking about the volume trajectory that you are seeing for the next little intermediate term, especially given your capacity additions? Thanks.
John Haudrich: Yes. Yes. Just for clarity, I think our volumes will — should be up next year, irrespective of macro snapback so to speak, because the majority benefit of our expansion program right now from adding capacity really comes through next year. If we have a snapback, that is a further boost to that outlook, but as the growth next year, we don’t believe it’s contingent on a snapback.
Arun Viswanathan : Okay. Thanks, John. And then just on the price cost side, you noted that a lot of the pricing actions are from prior year catch-up and you don’t expect to maybe see some of that gain in the future. Is that accurate, or – and how much price should you potentially hold on to, given that we are kind of moving through a deflationary environment? Would you consider that Europe is still oversold. And again, these are structural price increases that we should kind of consider, put you at this earnings power level kind of on a go-forward basis?
John Haudrich: Yes. So I would say that we are confident in our price position. like you said, just to reiterate, the majority of what you saw in the first quarter pertained to price adjustment formulas or prior period activities and then really the incremental inflation — I mean, incremental price increases that we did in the first quarter were all in response to incremental cost inflation. And don’t forget that this is a world where we’re still seeing inflation, right? It’s still 7% or so and whether it is an open market or whether it is price adjustment formulas on a look-back basis going into next year, that should benefit us. And one thing I would also say is net price is not a luxury in our business. It’s not only — this doesn’t tell the full picture.
We also have to cover higher interest expense, inflation on SG&A, inflation on capital goods, so for our position, we really need to manage through the cash cycle and look at inflation through the cash cycle. And so we shouldn’t look at just net price is what’s going on competitively dynamic about being able to manage through the cycle. So I think, like I said, it’s not a luxury is something that we need to be able to manage the cash cycle.
Arun Viswanathan : And just one more quick one, if I can. Just on the free cash flow, when do you expect your free cash flow will be closer to that adjusted number of $475 million, and so you just be providing one kind of guidance number.
John Haudrich: So keep in mind, the adjusted free cash flow is to demonstrate what the underlying cash flow is of the business operationally, and it deducts the cost of maintenance capital. So I think yes, I’m sorry, it does not include the impact of expansion capital. Included in that is the netting of the maintenance capital. So that will always be there. So I think we’ll always have some level of expansion growth-related IRR related investments in the business. So I don’t know if you ever totally close that gap. But the important point is through the strategic projects that we’re doing right now, they ultimately lift up the total EBITDA. And then the true free cash flow should actually surpass the level of adjusted free cash flow of the business eventually, right?
So — that’s what we’re trying to aspire to, and I don’t want to get caught up in one bucket or another. But we believe that at the end of the day, all of this is creating a virtuous cash cycle for the business.
Arun Viswanathan : All right
Operator: Thank you. Our next question comes from Mike Roxland of Truist Securities. Mike, your line is now open. Please go ahead.
Mike Roxland: Thank you. Thank you. Andres, John. Chris, congrats on a very good quarter.
