Thomas Hassfurther: Adam, this is Tom. Let me — Adam, this is Tom. Let me just add something here real quick because I think this is really important, and we’ve been very, very consistent about this. We’re not a company that builds it and hope they will come. Hope is not our strategy, has never been our strategy. Our strategies are built around our customers and what they see and what they need. So that’s never going to change and we see the reality of the marketplace out there. And as we’ve said many times, there’s not a huge open market, the export markets are under some duress right now around the world. There’s not an immediate place to go to with these tons. And so we’re going to be flexible and adapt to whatever the market conditions are. And our customers appreciate the fact that we will always be there for them, and we’ll be prepared, and we’re ahead of the curve.
Mark Kowlzan: Adam, what Tom just said and this plays into what we’ve always done, our competitors typically would have done one big project, got the entire project done at one time and had all of this capacity and had all of this complexity to deal with. We determined 2 years ago; we would do this project in phases. And if you go back decades, go back 20 years, we’ve always done our projects in multi phases. Now there’s reasons for that. Besides capital effectiveness and uses of cash and prudent management of our cash, there’s also risk mitigation and then growing with our customers’ needs. And so it all plays into our historical behavior on how we go about projects and how we grow our business.
Adam Josephson: Yes. That makes perfect sense, Mark. Tom, just back to the box demand issue. So your — you said you’re running about 6% above 2019 — 1Q ’19 levels on a per day basis. So it sounds like demand is not at particularly depressed levels for you. So when you talk about per day shipments, expecting those to be flattish sequentially, is there a lot of destocking in there that you can see? Or do you think that that’s a reasonably “normalized” level of demand for you if you get my drift?
Thomas Hassfurther: That’s the million-dollar question right there. Let me tell you. I’d like to be able to predict that perfectly. Obviously, I can’t. As I said, I said that’s we’re taking a pretty conservative approach in the first quarter to our projections because we really don’t know when this destocking is going to end. I think we’re clearly past the midpoint in that. I know that for a fact, and I can feel that. But to what extent it goes further, I really can’t tell you, but I think even with this conservative approach, my point about comparing to 2019 was, it’s still pretty solid compared to 2019, just to get us all calibrated as to where we are.
Adam Josephson: Right. And just to be clear, when you talk to your customers, you don’t have a firm sense of whether they’ve done 90% of whatever destocking they’re going to do or 70%, it’s just not clear.
Thomas Hassfurther: Well, I think some of — when we talk to specific customers, I mean, we get kind of a mixed bag is what we get. Some have completely — some are completely destocked and others still have significant inventories and significant issues. And even on their side, they’ve got a lot of product of their own sitting there in warehouses that was prepared for a COVID environment, and now we’re post COVID, and it’s a different environment. So they’re making their adjustments as well. And I did mention the supply chain issues that a lot of them are still dealing with.
Adam Josephson: Yes, I appreciate that. And just one last one for me on the wood cost issue. Can you help me with what magnitude of declines you’re seeing sequentially in wood costs? I appreciate that it’s regional. So it varies by the mill. But overall, what you’re seeing, how much is transport related? How much is weather related, just any — the percentage decline you’re experiencing? Any — if you can flesh that out because it’s not the most transparent of issues for us.
Robert Mundy: Adam, this is Bob. What we said in our release and in our prepared remarks is we were talking about wood prices, not necessarily wood cost. Wood cost sequentially is fairly flat because typically, as you go into the much colder months, your wood yields and so forth aren’t as good. So you see some usage going the other way. But the pricing improvement that we’re seeing is, it is — it was a bit drier than normal. The weather cooperated at least as far as wood supply goes over the last few months. So we’re in a good place with our inventories and the price of that wood. And demand, quite frankly, there’s a lot — there has been downtime when the industry, as everyone knows, so demands and that helps you with price. So wood typically does not jump around a lot, and it’s — but I do think overall for the year, we think it will be — should be down slightly on a price basis and maybe costs fairly flat for the full year.
Operator: Our next question comes from Gab Hajde from Wells Fargo.
Gabrial Hajde: I just had one on capital allocation. And I know that you reserve the right to spend is warranted in terms of returns and things like that. But you made the comment that you’ve come out of a couple of years of elevated spend. This year’s CapEx is $475 million. Is it appropriate for us to sort of think about, I don’t know, $450 million to $500 million in CapEx as normalized. And then on the capital allocation side, Mark, you also said, “Hey, we want to take a balanced approach. But I can’t help but look at history when you guys have been aggressive buyers of your shares. It seemed to be opportune and give you a nice return. So can you just talk a little bit about how you internally talk — think about returns on capital as it relates to projects versus share repurchases?
Mark Kowlzan: First of all, starting off for the last 5 or 6 years, we’ve had historically high capital spending to retool our — primarily our box plant system and then take care of the mill big conversion projects and some of these big efficiency opportunities. But in my prepared statements, I commented that we’ve made clear to the investment community that this year, in particular, would be a reset down to more normalized levels of capital coming off those big highs, and so as we look at this year, we’re coming down probably $350 million off of last year’s $824 million capital spend. And so as we get into the $400 million area, I think for the next couple of years, that’s going to be the range we’re into. We’ve got some work to finish up in the box plants.
We’ve got some big opportunities. We’re finishing this year as an example. And then when we finish up Jackson, that will be one piece. It’s not an extraordinarily large amount of capital, but it will finish up. But I think we’re in a very comfortable period of time going forward now that we will be able to maintain our assets in very good condition. We’ll be able to continue to take care of customer growth opportunities with capital installations on converting pieces of equipment. We have obviously the capacity in our mill system to supply that growth in a very, very cost-effective manner. So I think, again, the new capital trend going forward is significantly lower than it has been, which bodes well again for or what we do with the cash and how we deploy cash to provide return to our shareholders.
And then in terms of how we look at returns on investment, we’ve always had probably the highest hurdle rate in the industry in terms of what we set internally as our target of acceptable returns for projects. Now some of these projects, obviously, you’re growing with customers, but you’re growing with valuable, high profitable added box business. But again, I’m not going to give you the return targets we set, but you can assume, and we’ve always said this, that we set some very high hurdle rates on our expectations on $1 spent on what we expect for that return. And that reflects itself in the return on invested capital number. It’s not only the highest in the industry, but in manufacturing industrial sector alone, it ranks amongst the highest.
Does that help you?
