Adam Greenlee: Yes, I think that’s a great question. And it’s 1 we debate here internally. Number one, it is not included in our forecast. So I’ll make that really clear. There was such an adjustment at all levels of the supply chain and this destocking effort that I’m just going to assume Gabe, that not everybody got it exactly right. And in some cases, there may have been too much drawdown for the various components of the supply chain. So it is a potential upside for us. It’s not in our forecast. To your point, we do think the destocking is now behind us. Our order book for Q2 for those items is very strong. And in fairness, the Q2 order book has been strong all year long. So we knew some of our smaller customers were going to be returning in Q2 to replenish the demand that was impacted by the destocking activities.
Operator: We’ll take our next question from Mike Roxland with Truist Securities.
Mike Roxland : Congrats for the good performance thus far. One quick question just on the pack. Adam, you mentioned things simply looking okay. Can you talk about — a little bit more color around the pack how that’s shaping up? And any impact from the volatility witness in the West Coast, even the inclement weather?
Adam Greenlee: Sure. It’s a great question. And really, when you think about Silgan’s pack business, there’s a couple of things are primarily our core vegetables you think of sweet corn and peas and some of our bean products, really, that’s more upper Midwest in the U.S. for us. And really, that hasn’t been impacted by the weather phenomenon that we’ve been talking about on the West Coast. When you get to the West Coast, it’s a little bit more about our tomato business, a little bit about fruit for us as well. So our tomato business on the West Coast, look, at what conditions the acreage that’s been contacted has been consistent with where we’ve been earlier in the year. I think the plantings might be delayed 1 to 2 weeks. So nothing significant at this point, but just something to be aware of that there might be a week or 2.
I don’t think that’s necessarily material. When you move to Europe and think about our business in Europe, there’s — there are some unions in Northern Italy for some of the pack products really Southern Italy, it’s fine. Most of the Mediterranean is fine from a pack perspective. So for closures and Metal Containers business in Europe feel like we’re right in line with our expectations as well.
Unidentified Company Representative: Mike, 1 thing I’ll add to that is, as you think about tomatoes in particular, and that is where maybe some of the volatility around the pack is. That’s also — if you think about the food can as being the premium portion of that pack, they tend to try and allocate as much to the can as they can before they flex elsewhere. So it doesn’t translate necessarily to as big of an impact on the food can business as what a pack itself might look like.
Mike Roxland : Got it. That’s very clear. And then just 1 quick color on pet food. Obviously, the demand was pretty strong in 1Q. Just wanted to get your thoughts on pet food demand trends. The some have been calling out normalizing demand after a period of accelerating growth the last few years. I think there was a survey out there was a conference out that mentioned that the percentage of households with pets has declined to 66% in 2022. I think it was 70% or so in 2021. I realize that still participates in a unique part of the market. But I just want to get a sense of what you’re seeing from pet food where the growth is still there? When do you expect it to continue what the trajectory is like just relative to some of the noise around pet food recently?
Adam Greenlee: Sure. And I think, look, we’re very positive on the pet food market, and particularly the segments that we participate in and wet pet food primarily for small dogs and cats as kind of the market. In fairness, Mike, I think the data that you are referencing is a little inconsistent with what data we look at and what data our customers are sharing with us. So for clarity, our business is up again in the mid-single-digit area year-over-year. We talked a lot last year about the significant investments that our customers were making in capacity additions for wet pet food for the markets that we serve, a lot of challenges last year and bringing that capacity up and getting the utilization rates to an acceptable point.
The great news is, I think that is behind us now as our volume growth in the first quarter really is supported by our customers having better utilization of the new capacity they brought online in the first quarter of ’23. So as we go forward, April has been a really good month for our wet pet food markets as well. I think we have to be really careful looking at the broad market studies because, again, you think about the products that we make, again, we’ll talk about cat food for 1 second, a 3-ounce can, that volume component of a 3-ounce can is significantly different a 40-pound bag of dry dog food. And I do think you see some buy down or rationalization of those purchases. We just simply have not seen it in our segments. Our customers have not seen it in the segments that we provide to less data points for you.
We know for certain there are still stock-outs of our products in retail. And we also know that our 2 largest customers are displeased with their service rates to retail of their products in wet pet food. Meaning, they have orders that they are not fulfilling at the rate that they would desire to fulfill those orders again back to the stock out component. So look, we feel really good about pet food. I’ll keep saying we’ve been doing this for 35 years in pet food at Silgan. The trend line is exactly where it’s always been, and we have a very high degree of confidence that we’ll deliver our growth projections for wet pet food and thus the Metal Container segment in ’23.
Operator: We’ll take our next question from Anthony Pettinari with Citi.
Anthony Pettinari : In Custom Containers, the step-up that you expect in the second half. I’m just wondering, is that based on contracts or LOIs that you’ve signed now or that you’re kind of very late stage on. I’m just wondering if there’s any way to kind of quantify if there’s any risk that we get to 3Q and maybe some of those volumes don’t materialize or if there’s any kind of color you can add in terms of the kind of the activities that are driving the confidence in that second half pickup?
Adam Greenlee: Yes, sure. And you think about those agreements and conversations, we won’t talk about any of them in particular. But I would say we have the full spectrum of what you sort of described. We have agreements. We have verbal agreements. We have LOIs. We’ve got a broad spectrum of new business awards that we are working through to commercialize. I think what we have realized is as we exit the pandemic, some of our customers are having some resource challenges, whether they be technical or whether they be in the commercial teams and procurement that we’re dealing with and their ability to commercialize some of these new business wins seems to be coming under pressure just a bit. So I think as we showed very nicely through the pandemic, Silgan will be ready to commercialize when we said we would be ready to commercialize whether our customers are able to do that with their resource constraints in certain areas, that’s really what we’re working through now.
In fairness, I think our language softened a little bit, that we’re looking now a little more later in the year. We said back half before, it’s probably later in the back half now for some of those commercializations to really hit. And then obviously, you’ve got the start-up costs associated with those new wins that from a profit standpoint, will dampen a bit the impact in the current year as we commercialize. But the exciting thing for us is the volume run rates at the end of the year, we think, are on track to be what we had talked about previously.
Anthony Pettinari : Okay. Okay. That’s very helpful. And then on Metal Containers, there is a large food company that specifically called out quality issues that they were seeing with food cans. And I don’t think that’s a comment on your business. And I don’t want to ask you to comment on a competitor situation. But I’m just wondering, is there any sort of indirect impact to Silgan in terms of maybe you being able to sell a few more cans or maybe tightening up industry supply demand? Or I don’t know if you’d comment on just sort of the general — maybe some of the challenges the industry has had in terms of bringing on new capacity. But I don’t know if there’s anything that you could add there.
Adam Greenlee: I don’t think there’s a whole lot of read-through for us on that 1 in particular, Anthony. I think, again, as we showed through the pandemic, in an effort to get the lowest cost means of nutrition to consumers who need nutrition. We’re willing to step up and provide those cans when they’re needed and particularly when others in the market aren’t able to supply. So outside of what happened during the pandemic, we’ve not been participating in any other activity sort of what you described there. So not a lot of read-through from us. I think we’re still feeling great about the competitive advantage that we bring to the table in Metal Containers and the quality and a surety of our supply has been fantastic for many, many years. And I think that’s 1 thing that does set still got apart in the marketplace.
Operator: We’ll take our next question from Arun Viswanathan with RBC Capital Markets.
