Michael King: I’ll take it, PEPS. So good question. So we’re still early days in PEPS. I just want to reiterate that. And so we’ve got 18 sites that have certified bronze, three silver, and we just had our first gold site in Canton, North Carolina. And so 22 sites total certified. The program is largely enrolled out from an independent standpoint. So independent evaluations have happened across the board. So all plants are operating on the same operating system. In terms of actually value creation, so if you think about the first stage of PEPS, it’s really about stability, George. And so having the plants all in one system, it creates the portability of talent, allows us to insulate ourselves from labor challenges and be able to move labor.
And so we have a total labor management system that allows us to leverage that. And when you can go from plant to plant and understand operating systems the same in every facility, it really allows us to leverage that. So the first stage is really about cost avoidance and stability. When you get to silver, you start to see cost improvement. Our CI teams are building Six Sigma projects. And when you’re gold, you actually have a forecasted savings that we build into the system. So with only one gold site, it’s really not about the dollars today, but long-term, we look at this as a lever that will do a lot more than just offset inflation and really generate that ability, that lever to handle true EBITDA growth and performance. We’re not there yet.
We have 31 more sites to be certified, and that’s going to happen over the coming quarters well into next year. So no victory speech there yet, but we are seeing green shoots. We are seeing a shift in our plant’s ability to be proactive, and it’s allowed us to really kind of stay ahead of the inflation that used to really hamper us on a Q-over-Q. And one of the reasons we’ve been able to weather some of the mixed market and inflationary pressures we’ve gotten is because of PEPS so far. And so we expect more out of that. Too early to really quantify it, George, but it’s something we look forward to, update the market on.
George Staphos: But presumably, Mike, without putting a number on it, I appreciate that. As you roll this out more and more, and to the degree you get more stability across your system, you should get also a requirement for less work in capital. You’ll be able to take inventory out of the system. You’ll be able to obviously produce at a more predictable level, not that you’re obviously out of line right now, and that should accrue benefits on return as well, which I think sometimes we don’t appreciate. I’m sorry, go ahead.
Michael King: Yes, you’re 100% right. And in fact, we are, from an avoidance standpoint and efficiency standpoint, we are seeing those things come through. But you’re exactly right.
George Staphos: And on the PEPS’ distribution network, whether you’re able to really leverage that or not at this juncture, either were train or rail is or truck-in, excuse me?
Jon Baksht : Yes, George, I’ll take that one. And I think if I understand your question right, I think you’re implying that without seeing more inflation in the logistics side of the business, maybe our distribution network, which is a differentiator isn’t quite as differentiated.
George Staphos: That’s correct. Yes, that’s correct.
Jon Baksht : I don’t know if I would necessarily agree with that. I mean, it is still a differentiator for our business and having the built-out distribution network and being a low-cost distributor and having that value added to our customers. I mean, to your point, it’s still a value added and differentiator for us. And if pricing was to go up across the network for everyone. I suppose that competitive bridge would only increase. But it’s still there today. And it’s something that we are able to take a benefit from.
Michael King: The add I would make to this is if you look at our food service business as an indicator, foot traffic was down near 4%. The fact that we’re able to provide mixed product and create value that our customers don’t have to rely on themselves for, regardless of inflation, continues to set us aside. And we saw that with our performance in the 1.5% down on a unit basis. So we all paced food service, foot traffic, largely because of our ability to create value and in partner with the customers that see that value. Now, what I’d also tell you is. Our network is scalable, so I would tell you to your earlier question on PEPS, one of the good things about our hub-and-spoke network is we can adapt our plan operations to regional demand signals.
We can adapt it to water market and product trend signals, and so our ability to scale back or scale up is something that’s, for us, been a focus, and we’ve seen that come through as well. So whereas a big supply chain could often be a weight in economic downturn, we use it as a lever to actually adjust and scale, if that makes sense.
Operator: And I’m showing no further questions. I would now like to turn the call back to Mike for closing remarks.
Michael King: Thank you. As we close today, I want to again thank the entire Pactiv Evergreen team for their hard work during the first quarter. We are executing on our strategy and will continue to progress on our transformational journey in 2024. We look forward to updating you during our second quarter conference call. Thank you for joining today.
Operator: This concludes today’s conference. Thank you for participating. You may now disconnect.
