Operator: We go next to now to Anthony Pettinari at Citi.
Bryan Burgmeier: This is actually Bryan Burgmeier sitting in for Anthony. Just following up on Ghansham’s question on inflation. Do you expect your PPI pass-throughs in Metal Containers will meet or exceed the level of cost inflation you’re forecasting for 2023? And can you remind us when those pass-throughs typically reset?
Adam Greenlee: Sure. Bryan, so first of all, we do have inflation that we are continuing to experience in 2023. It will probably be no surprise that the level of that inflation is going to be less than what we experienced in 2022. So given the lag nature of that portion of our pass-through mechanism, you’ll be passing through last year’s inflation this year against a lower experienced inflation in 2023. So that should be a slight benefit for us. I don’t think we get into the specific details of when those pass-throughs hit. They vary by contract and they are throughout the course of the year than they run for 12 months from the implementation date.
Robert Lewis: Yes. I would add to that, that across the contracts, it’s not one particular metric. I mean we speak to it as a PPI-like but the metrics do vary contract to contract. But Adam’s point is the right one is that the pass-through given the fact that we’ve got relatively lesser inflation on a year-over-year basis should be some benefit for the year or it is some benefit to the year.
Bryan Burgmeier: Got it. And just one last one. It looks like 2022 CapEx came in a bit lighter than expected. Do you decide to push out or walk away from any projects? And then 2023 CapEx, are there any growth of productivity-related projects that you’d like to highlight?
Robert Lewis: Yes. So the CapEx came in a little bit lighter, really more to do with the timing of payments to vendors than actual projects. So we feel like we’re adequately investing in the right opportunities at the right time. So I think as you think about that from the free cash flow there’s some noise in the overall number but up in total because you had less CapEx and more interest expense that we were carrying through the year. So overall, a really good free cash flow generation. And then as we look forward to the CapEx in next year, it’s up a bit, largely because of some of these new opportunities really across the business but primarily in the Custom Containers business which we just talked about as well as some good opportunities in the Dispensing and Specialty Closures business. So we feel like we’re adequately investing with — for the right opportunities with the right customers.
Operator: We go next now to Kyle White at Deutsche Bank.
Kyle White: I want to go back to dispensing and the beauty and fragrance markets in terms of the growth rates that you called out. Are you seeing any differences between mass or prestige markets in beauty in terms of the growth rate for 2023? Or are you seeing any trade downs from consumers going away from prestige to mass or anything that you would call out?
Adam Greenlee: So really, no, we haven’t seen that. I mean our presence is much more in the prestige and luxury and we’re just seeing continued high demand in that segment of the market. And again, great relationships with our customers, very intimate relationship. And I think that they are clearly seeing additional growth opportunities. What I tell you, Kyle, is through the pandemic, new product launches were relatively limited and we’re now just now getting to the point where the new product launches are hitting the market and they’ve been very well received for the holiday season. and we’re feeling, again, really good about our volume as we go forward in the prestige area of the business without a whole lot of trade down that we can see into the mass market.
Kyle White: Got it. And then on Metal Containers, you guys have called out some supply chain issues impacting commercialization of new product within, I believe, pet food at the customer level. Is that mostly resolved as we go into 2023? And then relatedly, how are you thinking about your footprint within metal food can in the U.S.? Any room for optimization? Or are you content with what you have?
Adam Greenlee: Sure. I’ll take the second part first. And we’re always thinking about that footprint. And what we typically say is for every 2 plants that we have in our Metal Containers business, we’ve closed one through the course of time. So that relentless focus on driving cost out of that business is critical to our success and that’s just part of our DNA. So we’re always looking at that. We don’t have anything to talk about on this call at this point. But it’s something that is very much a focus of what we do each and every day. And then the supply chain challenges that our customers experienced in 2022, again, are investments to support their growth we made, we were able to commercialize on time. Early in the year, there were ingredient problems for our customers.
All of those have now been resolved. There’s protein available, there’s other packaging products available as well to ship additional products into the market. Really what we got to towards the latter half of the year in Q4 were labor availability challenges. And I tell you, for the most part, those are getting resolved as we start the year. We still have a couple of minor instances here or there across the broad set of customers. There was a lot of investment that went into the pet food category and filling additional products. And for the most part, we’re seeing the progress that we wanted to see and it is part of our growth assumption for 2023 that roughly in the early part of the year here, the rest of that gets figured out at our customers.
Operator: We’ll go next now to Arun Viswanathan at RBC Capital Markets.
Arun Viswanathan: I guess maybe I wanted to start with some of the comments you made about returns, not meeting your return threshold from certain contracts. Does that just happen from time to time? Or what’s the thrust of that? Is it maybe some of your customers also dealing with a lot of inflation and not being able to pass that on? Or maybe you can just provide a little bit more detail on that.
Robert Lewis: Arun, it does happen from time to time, particularly as contracts age out and maybe volume trajectory changes a bit. The competitive landscape has something to do with that relative to what assets may be available in the marketplace versus a customer that wants to have new assets put in place. So there’s a lot of different reasons for why that happens. I think what you’re seeing here is just sort of the overall Silgan discipline in that we’re cognizant of that. We’re making sure that we’re maintaining, particularly, in that business, right, we went back a long way to recover that business and say, look, we need to get the return profile to a point where that business can make money. We’ve actually done better than what we anticipated or what goal we set. So this is just staying the course with that and making sure that we’re not doing anything that’s detrimental to the overall profitability of that business and the long-term returns.
Arun Viswanathan: Okay. And then on a similar note, it sounded like there was still some macro challenges, maybe some volume destocking that’s pretty much run its course but still some potential risk. Would you say that the customer activity has migrated to now a little bit more promotional activity to move volumes? Is that something that we could potentially look forward to? And how does that affect your kind of decision making on some of these projects. And I’m just curious if promotional activity has picked up, if your customers are now feeling a little bit better, given that inflation has kind of moderated just a touch and maybe we can see some extra volume come through promotions.
