Mark Weintraub

Mark Weintraub asked how potential drops in trade journal CRB prices would affect Graphic Packaging's finished packaging pricing, given existing pressure from SBS overcapacity. He questioned if the company would experience a 'second hit' or how published prices influence realized prices. He also sought an update on the Waco startup costs, specifically the actual amount compared to the original $60 million estimate, how these costs are reported (e.g., in net productivity), and if they are excluded from Adjusted EBITDA.

Answer

Chuck Lischer, SVP and Interim CFO, explained that many of Graphic Packaging's contracts have transitioned to a cost model and are no longer tied to published pricing, though some still are. He noted that the current guidance does not reflect any unpublished or unannounced price changes. Regarding Waco startup costs, he stated they came in below original expectations at approximately $40 million in 2025, with $0 expected in 2026. He clarified that these costs are reported below the line, impacting cash but excluded from Adjusted EBITDA.

Mark Weintraub asked how overcapacity in bleached board, which has pressured finished packaging pricing, would affect the company if trade journals reported further CRB price decreases, questioning if they would be 'hit a second time.' He also sought clarification on the impact of further price changes given contract adjustments and an update on Waco startup costs, specifically how they are reported and if they are now included in net productivity.

Answer

Chuck Lischer, SVP and Interim CFO, explained that many contracts are now on a cost model, not tied to published pricing, though some still are, and guidance does not reflect unpublished price changes. He noted that the impact of further price changes involves timing and offsets from cost-model contracts, making specifics difficult. Lischer reported Waco startup costs came in below original expectations at around $40 million in 2025, with no expected costs in 2026 due to a strong startup. He clarified these costs are excluded from Adjusted EBITDA and reported below the line, impacting cash.

Mark Weintraub inquired about the order of magnitude for Waco's expected tonnage production in 2026, seeking to understand the ramp-up given its October in-service date and 12-18 month ramp-up period. He also asked for clarification on how Waco's tons fill in for capacity from East Angus and Middletown closures, inventory reduction, and/or growth.

Answer

President and CEO Mike Doss declined to provide specific tonnage figures for Waco's 2026 production but reiterated the 12-18 month ramp-up. He emphasized the immediate need for Waco's tons to service customers due to significantly reduced inventories in CUK and CRB. He noted that Waco adds a net of about 75,000 tons of additional capacity after accounting for East Angus and Middletown closures, and that the K1 machine in Kalamazoo would serve as a swing machine to balance supply and demand.

Mark Weintraub asked about the order of magnitude of tonnage expected from Waco in 2026, and how the Waco tons fill in for replacement board (East Angus, Middletown closures) and/or contribute to growth, considering inventory reductions. He sought clarification on the math of capacity changes and how Graphic Packaging is managing the transition period.

Answer

Mike Doss (President and CEO, Graphic Packaging) declined to provide specific tonnage for Waco in 2026 but noted its 12-18 month ramp-up. He explained that East Angus, Middletown, and other announced closures total 475,000 tons, while Waco adds 550,000 tons, resulting in a net 75,000 tons of additional capacity. He stated that Waco's tons are needed immediately to service customers due to dramatically reduced CUK and CRB inventories. He confirmed that Graphic Packaging will match supply and demand on CRB, using the K1 machine in Kalamazoo as the swing machine. He also acknowledged that Graphic Packaging has work to do with other substrates, which Waco and Kalamazoo will help enable.

Mark Weintraub requested clarification on the calculation for 2026 free cash flow and asked for an update on the potential implications of new US-Europe tariffs on the business.

Answer

EVP & CFO Stephen Scherger walked through the 2026 free cash flow math, starting with growing EBITDA and subtracting total cash uses of $750-$850 million. CEO Michael Doss described the new tariff situation as a 'modest net positive,' as it does not impact their internal exports to Europe, helps reduce non-tariff barriers, and erodes the cost advantage of folding boxboard (FDB) imports into the U.S.

Mark Weintraub sought to confirm the components of the revised EBITDA guidance, questioning if the $210 million reduction at the midpoint was driven by an $80 million increase in inflation and a $130 million impact from the 4% swing in volume outlook.

Answer

CFO Stephen Scherger confirmed the logic was fundamentally correct. He affirmed the $80 million impact from higher inflation assumptions. He then explained that the 400-basis-point negative swing in volume guidance (from +2% to -2%) accounts for the remainder, driven by lower sales and the absorption impact of aggressively matching supply with demand.

Mark Weintraub asked for more detail on Weyerhaeuser's observations and customer feedback regarding the repair and remodel (R&R) market, including any pull-through seen and the outlook for the year. He also questioned the housing starts level required to sustain market balance for Weyerhaeuser's different businesses, considering recent mill closures, and asked about any implications of the PotlatchDeltic/Rayonier merger.

Answer

CEO Devin Stockfish stated that R&R is primarily a lumber play, with some OSB and growing EWP opportunities. He hasn't seen material pickup yet but customers expect low single-digit growth year-over-year. He believes lumber and OSB markets are not far off balance due to mill closures, while EWP is different with no meaningful curtailments. CFO David Wold stated he doesn't foresee any meaningful impact on Weyerhaeuser from the PotlatchDeltic/Rayonier merger.

Mark Weintraub asked for details on the repair and remodel market activity, including any observed pull-through and customer outlook for the year, and its importance across Weyerhaeuser's businesses. He also inquired about the housing starts level required to balance lumber and OSB markets given recent mill closures, and the potential implications of the PotlatchDeltic/Rayonier merger.

Answer

CEO Devin Stockfish indicated no material pickup in R&R activity yet, but customers expect low single-digit growth year-over-year, primarily impacting lumber and OSB. He suggested lumber and OSB markets are not far from balance due to mill closures, anticipating a strong rebound when housing demand improves. CFO David Wold stated the merger would have no meaningful impact on Weyerhaeuser.

Mark Weintraub questioned why there has not been a more significant industry supply response to low lumber profitability and asked for an update on the Section 232 investigation, including its effect on European lumber tariffs.

Answer

CEO Devin Stockfish suggested that lumber producers are likely waiting for clarity on the impact of upcoming duties before making significant curtailment decisions. He confirmed that tariffs on European lumber are paused during the Section 232 investigation and that the administration's focus on U.S. manufacturing could imply a potential for additional tariffs.

Mark Weintraub asked for the expected financial impact of the Q2 OSB maintenance, clarification on the recovery from the $11 million Q1 EWP fire, and whether the low Q1 tax rate implied strong optimism for the Wood Products business for the full year.

Answer

CEO Devin Stockfish stated the OSB maintenance impact would be minimal, with operating rates remaining in the low-to-mid 90s. He confirmed the $11 million EWP fire impact was isolated to Q1 and that most of the lost volume would be recovered throughout 2025. He also affirmed that the low tax rate reflects the projected earnings mix between the REIT and the TRS, with the latter being heavily influenced by the Wood Products business, suggesting a solid year is still anticipated.

Mark Weintraub of Seaport Research Partners sought more detail on production flexibility within the lumber, OSB, and EWP businesses in the context of potential tariffs. He also asked about the drivers for the increased U.S. South harvest plan in 2025.

Answer

CEO Devin Stockfish explained that OSB has little upside production flexibility as it typically runs at full capacity, but Weyerhaeuser's low-cost position is a key advantage. For EWP, Canadian-made products would be impacted by tariffs, but strong customer demand should mitigate issues. He confirmed the 3-4% harvest increase in the South is driven by recent acquisitions and some volume that rolled over from 2024 due to market conditions.

Mark Weintraub asked several questions about the Natural Climate Solutions (NCS) business, including the economics of solar projects, expiring solar options, progress on Carbon Capture and Sequestration (CCS) permits, and details on new forest carbon projects.

Answer

CEO Devin Stockfish declined to provide specific solar project economics to maintain negotiating leverage but noted the pipeline is growing. On CCS, he stated that permitting timelines are 'shockingly slow,' pushing project start dates out by 1-2 years. CFO David Wold added that they remain pleased with progress toward their overall $100M NCS EBITDA target. CEO Devin Stockfish also expressed encouragement about the growing demand and favorable pricing for high-quality forest carbon projects.

Mark Weintraub sought clarification on how corporate costs are factored into the $3.5 billion to $3.7 billion EBITDA guidance and if the spin-off would alter corporate cost expectations. He also questioned the 12-15 month timeline for the spin-off and expressed concern about the confidence in the significant H2 2026 step-up in North America, given past uneven performance in operations and costs.

Answer

SVP and CFO Lance Loeffler clarified that the total company guidance includes corporate costs, with the difference between regional and total numbers covering the corporate line item. Chairman and CEO Andy Silvernail added that corporate costs would be allocated to independent regions post-spin, without an overall increase. Mr. Silvernail explained the 12-15 month spin timeline is due to complex accounting mechanics, aiming for quicker completion. Regarding H2 2026 confidence, Mr. Silvernail highlighted that most actions are already taken, with lingering closure costs diminishing, and new initiatives in supply chain, procurement, and Lighthouse model rollouts are expected to drive accumulated benefits.

Mark Weintraub asked for clarification on whether corporate costs are included in the provided guidance numbers and if the spin-off would significantly alter expected corporate costs. He also sought reassurance regarding the company's confidence in achieving the projected significant step-up in North America's performance in the second half of 2026, given past inconsistencies in operational and cost performance.

Answer

SVP and CFO Lance Loeffler confirmed that the total company guidance includes corporate costs and that corporate costs would not see an overall increase post-spin, but rather be allocated to the independent regions. Chairman and CEO Andy Silvernail expressed confidence in the H2 2026 step-up, attributing it to actioned items like finalizing closures, ongoing supply chain and procurement improvements, and the rollout of the Lighthouse model across the mill system, emphasizing the granular nature of their plans.

Mark Weintraub of Seaport Research Partners inquired about the persistent mill reliability issues, asking what is hindering progress and what the path to resolution is. He also requested an update on the timeline for the strategic review of the Global Cellulose Fibers (GCF) business.

Answer

CEO & Chairman Andrew Silvernail attributed the mill reliability problems to years of underinvestment, stating the solution involves foundational execution and reinvesting capital from non-strategic assets into advantaged ones. He described it as a steady, ongoing process. Regarding the GCF business, Silvernail confirmed the company is on track with its goal to close the strategic process by the end of the year.

Mark Weintraub questioned the drivers of the significant EBITDA increase expected from the first half to the second half of the year. He specifically asked about the modest price/mix benefit in Q2 for North American Packaging and the potential pricing tailwind in Europe.

Answer

Executive Andrew Silvernail clarified that the second-half EBITDA ramp-up is driven by actions already taken, including accelerating cost-outs from facility closures and the mechanical roll-through of previously announced price increases. In Europe, he confirmed the first of two recent price increases is factored into the forecast, but he remains cautious about the realization of the second increase due to market weakness.

Mark Weintraub asked for confirmation on the expected volume trajectory, questioning if a return to positive growth in the second half of the year is still a reasonable expectation, and requested more color on the $350 million productivity and reliability shortfall.

Answer

Executive Andrew Silvernail confirmed the volume decline is proceeding as expected, with sequential improvements anticipated quarterly and a potential return to growth in the second half of the year. He attributed the $350 million productivity loss to a combination of historical underinvestment in mill reliability and a need to improve operational execution, which is now being addressed with targeted spending and training.

Mark Weintraub asked for more detail on the path to the company's long-term EBITDA target, specifically how much of the 80/20 cost and operational benefits could materialize in 2025 and whether these gains would outpace inflation.

Answer

Chairman and CEO Andy Silvernail clarified that the long-term improvement is expected to be a 60/40 split between cost and commercial initiatives. While not providing a specific figure for 2025, he stated it is a multi-year journey and that the company is trying to 'get ahead' on cost reductions to fund reinvestment. He affirmed his expectation that the net impact of cost savings and inflation should be positive for the company in 2025.

Mark Weintraub sought to understand the timing and magnitude of benefits from the 80/20 initiatives, particularly how much of the long-term cost savings target could be realized in 2025 and whether these gains would outpace inflation.

Answer

Chairman and CEO Andy Silvernail clarified that achieving the full benefits is a multiyear journey, but the company is trying to 'get ahead' and pull as much forward into 2025 as possible. He noted the savings would be reinvested back into the business to drive growth. When asked directly, Silvernail confirmed his expectation that the net impact of cost-saving initiatives and inflation would be positive for the company in 2025.

Mark Weintraub sought clarification on the minimal Q1 impact of the $70/ton price increase due to flow-through, and if more shipping days would increase mill system demand. He asked for 4Q-1Q cost impact metrics and expected Q2 recovery, and how current containerboard box markets compare to the past two years.

Answer

President Tom Hassfurther confirmed the minimal Q1 price increase impact is due to flow-through and that more shipping days would increase mill system demand. He stated the 4Q-1Q cost impact is $0.45-$0.50, with under half recovered in Q2, plus Wallula benefits. Tom Hassfurther described the market as 'much improved' compared to a year ago, citing cleared uncertainties, positive GDP growth, and wages outpacing inflation.

Mark Weintraub from Seaport Research Partners sought clarification on the de minimis Q1 impact of the $70 containerboard price increase due to flow-through time, and confirmed that two additional shipping days would increase demand on the mill system. He also asked for metrics on the expected Q4 to Q1 cost impact and the anticipated recovery in Q2, and how current containerboard box market conditions compare to the past two years.

Answer

President Tom Hassfurther confirmed that the $70 price increase's impact on Q1 would be minimal due to the time it takes to flow through to boxes, and that two extra shipping days would indeed increase demand. He stated the Q4 to Q1 cost impact was about $0.45-$0.50 per share, with just under half expected back in Q2, plus additional benefits from Wallula. Tom Hassfurther described the current market as 'much improved' compared to the last two years, citing cleared uncertainties, positive GDP projections, and wages outpacing inflation.

Mark Weintraub sought reconfirmation on Greif's CapEx of $50-60 million, significantly lower than its D&A, and asked about any tax shield benefits from accelerated depreciation on the acquired assets. He also questioned PCA's ability to achieve business wins and grow faster than the industry in a difficult environment, whether capacity closures were creating tightness in the containerboard market, and the rationale behind closing two box plants in Q4.

Answer

CEO Mark Kowlzan confirmed that CapEx for Greif mills would be in the tens of millions over the next year or two, similar to past improvements at International Falls. President Tom Hassfurther added that Greif's converting plants were well-capitalized, requiring no major capital. CFO Kent Pflederer confirmed significant cash tax reductions in Q3 due to bonus depreciation on Greif's PP&E. Tom Hassfurther stated PCA continues to earn business wins despite economic headwinds from beef and building products, and that the industry is right-sizing to demand. He explained the Q4 box plant closures were due to facilities not fitting PCA's needs and being in markets where PCA has better-equipped plants, with customer retention being a priority. Mark Kowlzan noted PCA's history of acquisitions and plant rationalizations over 16 years.

Mark Weintraub questioned if the $50-60 million CapEx estimate for GRIF assets to reach PCA efficiencies was still reasonable, especially given the higher D&A from purchase accounting. He also asked about tax shield benefits from accelerated depreciation on GRIF assets, recent business wins, and any market tightness due to North American containerboard capacity closures. Finally, he sought color on the decision to close two box plants in the fourth quarter.

Answer

CEO Mark Kowlzan confirmed the $50-60 million CapEx estimate for GRIF mills over the next year or two remains valid, similar to past successful improvements at other mills. President Tom Hassfurther added that GRIF's converting plants were well-capitalized, requiring no major investments. CFO Kent Pflederer confirmed significant cash tax reductions in Q3 due to bonus depreciation on GRIF's acquired property, plant, and equipment. Tom Hassfurther noted that while PCA continues to earn business wins and grow within existing accounts, overall volume is impacted by the economy, tariffs, and specific segments like beef and building products. He stated the industry is right-sizing to demand, and PCA runs to demand, having closed some less efficient corrugated assets. He explained the two box plants closing were not suitable for capitalization and were in markets where PCA has better-equipped facilities, ensuring customer retention.

Mark Weintraub from Seaport Research Partners asked for clarification on the Greif acquisition's $212M run-rate EBITDA, including the Dallas facility's contribution and the forward-looking impact of price increases. He also questioned the outlook for Q3 box shipments given tough comps and the potential for upside.

Answer

President Thomas Hassfurther confirmed there is upside to the reported $212M run-rate EBITDA for the Greif assets, as they were still implementing price increases post-agreement. He noted the Dallas facility's potential was conservatively built into synergy estimates. Regarding Q3, Hassfurther clarified that year-over-year volumes would be relatively flat against a tough comp, but the risk is to the upside, as any certainty on tariffs or interest rates could unlock pent-up demand.

Mark Weintraub asked for the mix of contract versus non-contract business, the drivers of strong Q1 pricing, the basis for expecting significantly higher second-half volumes, and the impact of e-commerce on lightweighting strategy.

Answer

President Tom Hassfurther stated the business is consistently 70% contract and 30% non-contract. He attributed strong Q1 pricing to the swift implementation of non-contract and open market price hikes. He noted the second-half outlook is based on macro views and the ramp-up of new facilities. He and CEO Mark Kowlzan emphasized that lightweighting is a key, customer-driven strategy enabled by significant mill investments like the Jackson #3 machine.

Mark Weintraub sought to understand how much of the January price increase is factored into Q1 guidance to gauge potential upside, and asked for details on the process of transitioning customers away from RISI-based pricing.

Answer

EVP Thomas Hassfurther explained that PCA took a 'relatively conservative approach' in its Q1 guidance regarding the price increase realization due to timing issues with contracts tied to the RISI index, confirming there is upside once the index reflects the change. He described the move away from RISI as a gradual process involving direct negotiations with customers, who are also frustrated with the index. CEO Mark Kowlzan added that customers understand the need for price adjustments to support PCA's significant capital investments.

Mark Weintraub questioned the containerboard system's operating rate in Q3, the potential for future large-scale internal projects, and the key drivers behind the Paper segment's exceptionally strong EBITDA margin. He also sought clarification on what constitutes a 'normal' annual maintenance outage expense.

Answer

Chairman and CEO Mark Kowlzan confirmed all mills ran at full capacity and noted future incremental tons could come from projects at the Counce and Valdosta mills. He credited the Paper segment's 27% margin to the high efficiency of the International Falls mill. CFO Robert Mundy indicated that a normal outage expense would be lower than 2024's $0.87 per share, with the lighter 2025 schedule expected to yield roughly 100,000 tons of additional production.

Mark Weintraub asked when North American box shipments might inflect positively against the industry, how long the process of shedding "underappreciated" business will continue, and about the strategy for outside sales of containerboard in North America (export and domestic channels). He also inquired about the ease of switching between SBS and CRB on customer machinery.

Answer

CEO Tony Smurfit anticipated North American box shipments to inflect positively by Q3 2026, with the shedding of uneconomic business continuing through Q1/Q2 2026. He noted the export market for containerboard is weak due to high inventories, expecting a sharp price increase when it turns, and confirmed continued service to long-term domestic independent customers. Smurfit stated that switching between SBS and CRB on customer machinery is relatively easy, potentially requiring minor adjustments, and customers report SBS runs better due to being a cleaner sheet.

Mark Weintraub inquired about the expected inflection point for North American box shipments relative to the industry, the anticipated duration of shedding uneconomic business, the strategy for outside sales of containerboard in both export and domestic channels, and the ease of switching between SBS and CRB grades on machinery.

Answer

CEO Tony Smurfit anticipated a positive inflection in North American box shipments by Q3 next year, driven by the completion of shedding poor business and the realization of a strong new business pipeline. He described the export market as weak due to high inventories and uneconomic prices, expecting a sharp rebound eventually. Tony confirmed continued sales to long-term domestic independent customers. He also stated that switching between SBS and CRB on machinery is relatively easy, with SBS often offering better runability.

Mark Weintraub of Seaport Research Partners asked about the impact of currency fluctuations on results, why guidance was not raised despite favorable developments, and for clarification on the maintenance downtime between Q2 and Q3.

Answer

EVP & Group CFO Ken Bowles explained that the net currency impact on EBITDA was minimal in the quarter as moves in Europe were offset by Latin America. He provided a sensitivity of +/- $12 million for every one-cent move in the EUR/USD rate. CEO Tony Smurfit attributed the unchanged guidance to uncertainty in the broader economic environment and the lack of a volume pickup in the U.S. Ken Bowles added that lower Q3 downtime is expected, partly due to the recent closure of the Forney mill.

Mark Weintraub requested a breakdown of the factors bridging H1 to H2 EBITDA, asking for the potential negative offsets to positive drivers like pricing and synergies. He also questioned the surprising strength in European waste paper prices given the soft demand environment and asked about its sustainability.

Answer

CEO Tony Smurfit explained the European waste paper price spike was a surprise, caused by a 'panic bid' at an Italian auction that created a ripple effect, and its sustainability is uncertain. CFO Ken Bowles detailed the year-over-year cost headwinds, including energy (~$350M), labor (~$200M), and downtime (~$150M), which are being offset by positive pricing and some OCC relief in North America. He noted that demand volume remains the biggest variable.

Mark Weintraub of Seaport Research Partners asked for perspective on the new containerboard capacity coming online in Europe and its potential market impact. He also sought to clarify if 'smaller machines in folding boxboard' referred to coated recycled board (CRB).

Answer

CEO Tony Smurfit expressed that the European market would likely absorb new capacity through producer downtime or exports, as seen in the past, noting that integrated players are disincentivized from crashing prices. He confirmed the reference was to coated recycled board (CRB) and that the company will analyze the long-term quality competitiveness of those assets.

Mark Weintraub of Seaport Research Partners asked about the impact of currency fluctuations on results and the sensitivity going forward. He also questioned why guidance was maintained despite some favorable developments, and sought clarity on the change in maintenance downtime between Q2 and Q3.

Answer

EVP & Group CFO Ken Bowles stated that the net currency impact on EBITDA was minimal in the quarter (~$8M) as regional moves offset each other. CEO Tony Smurfit explained that guidance was held due to uncertainty in the broader economic environment and the lack of a volume pickup in the U.S. Ken Bowles clarified the lower Q3 downtime is partly due to the impact of the Forney mill closure, reducing the need for market-related downtime.

Mark Weintraub from Seaport Research Partners asked about the use of the $500 million in opportunistic cash, specifically its relation to the special distribution and the cash/stock mix. He also inquired if the development business trajectory still aligns with the Investor Day outlook, about share repurchases since quarter-end, and the potential timeline for meaningful revenue from Carbon Capture and Storage (CCS).

Answer

President & CEO Mark McHugh confirmed the special distribution guidance of $1.00-$1.40 per share, with the cash/stock mix to be determined later in the year. He affirmed that development business expectations are largely in line with the Investor Day outlook, highlighting strong momentum and a long runway at the Wildlight and Hartwood projects. McHugh also confirmed additional share buybacks post-quarter. EVP & Chief Resource Officer Douglas Long added that for CCS, administrative actions aim to shorten permit times, which could accelerate projects, but the 3-5 year timeline from lease to build remains the general expectation.

In a follow-up question, Mark Weintraub of Seaport Research Partners asked for an update on the evaluation of strategic alternatives for Rayonier's New Zealand joint venture, which was announced a year ago.

Answer

President & CEO Mark McHugh responded that the company is still actively engaged in the evaluation process for its New Zealand assets and that the process has not concluded. He reiterated that it is a lengthy process due to the complexities of the joint venture structure and that there was nothing specific to report at this time.

Mark Weintraub asked for clarification on how the recent dispositions were accretive to NAV per share. He also questioned if Rayonier might exceed its $1 billion disposition target, the associated EBITDA from the sold properties, and the expected timeline for solar and CCS land options to be exercised.

Answer

President and CEO Mark McHugh clarified that NAV accretion is achieved by selling assets at high private market valuations and redeploying the capital, for example via share buybacks, at lower public market valuations. He confirmed the company is not averse to exceeding its $1 billion target. He also estimated the partial-year EBITDA from the sold assets was roughly half of their $11 million 3-year average. Executive Vice President Douglas Long and Mr. McHugh added that while solar options typically take 2-3 years to exercise, recent regulatory reforms are expected to improve and accelerate the conversion process for their existing pipeline.

Mark Weintraub of Seaport Research Partners questioned the drivers behind Siding's price realization, asking how much was due to product mix versus the broader market environment. He also inquired about other strategic adjustments, like marketing spend, and asked for an update on new product innovations that could fuel future growth.

Answer

EVP & CFO Alan Haughie clarified that the modest price realization was primarily a product mix effect, with strong volumes of lower-priced panel products dampening the average. CEO Brad Southern added that while they are containing costs in OSB, they will continue to invest in Siding's sales and marketing to drive growth. He highlighted new products like brush smooth siding, the Natural series, and 3D corners as key innovations opening up new market segments.

Mark Weintraub from Seaport Research Partners questioned the Siding segment's price realization, asking if an unfavorable product mix was the primary cause. He also inquired about the company's broader strategic adjustments, such as marketing spend, in response to the challenging market environment.

Answer

CFO Alan Haughie confirmed that a product mix shift toward higher-volume, lower-priced panel products was the main reason for the dampened price realization. CEO Brad Southern outlined a dual strategy: aggressive cost containment in the OSB business while continuing to invest in sales and marketing for the Siding business to drive long-term growth and brand recognition. He also highlighted new product innovation as a key growth driver.

Mark Weintraub followed up on a competitor's merger with a decking company, asking about potential synergies between decking and siding and whether LP is considering adding a 'third leg' to its business. He also asked if the Section 232 investigation has any implications for OSB or Siding.

Answer

CEO William Southern stated that LP has not observed a strong correlation between decking and siding projects. He emphasized that LP already possesses significant scale by combining its leading OSB and Siding businesses. He clarified that the company's M&A focus is on opportunities that directly complement its Siding or Structural Solutions segments, not on adding a new business leg. He also said he does not believe the Section 232 investigation will impact OSB or Siding.

Mark Weintraub of Seaport Research Partners sought clarification on the price/mix assumptions in the Siding margin guidance, asked about specific drivers for 2025 market share gains, and inquired about the current state of customer inventories.

Answer

CFO Alan Haughie clarified the guidance includes list price increases but not additional favorable mix. CEO William Southern identified new product innovation (e.g., smooth portfolio), inroads with builders, and contractor conversion in R&R as key growth drivers. He also confirmed that channel inventories are at normal seasonal levels.

Mark Weintraub requested a breakdown of the 17% Siding volume growth across end markets (R&R, single-family, sheds) and asked how much growth was driven by same-store sales versus expanded distribution.

Answer

CEO Brad Southern attributed the growth primarily to strength in new construction and repair & remodel (R&R), with retail being average and sheds flat. He explained that growth is a function of both securing new distribution, such as lumber yards to support builder wins, and gaining loyalty with contractors, with significant runway remaining to expand one-step distribution for R&R.

Mark Weintraub asked for perspective on the Section 232 investigation, the basis for forecasting a lower duty rate next year, and commentary on the high percentage of corporate overhead relative to EBITDA since early 2023.

Answer

President & CEO Eric Cremers reiterated that his view on a Section 232 tariff is "pure speculation" and that the forecast for a lower duty rate next year was based on an external industry analysis. Regarding corporate costs, Cremers argued that comparing overhead to "trough earnings" is not a fair metric, as a base level of costs is necessary to run the business. He asserted that the percentage would appear more reasonable with normalized lumber margins and that adding scale would not proportionally increase corporate overhead.

Mark Weintraub followed up on Q2 lumber pricing guidance, the rationale for expecting tariffs from the Section 232 investigation, and the company's comfortable level of cash on its balance sheet for capital allocation.

Answer

President and CEO Eric Cremers clarified that the expected Q2 EBITDDA decline is driven by normal seasonality in the Timberlands segment, not Wood Products, which should see higher earnings. He explained his expectation for a Section 232 tariff is based on administration chatter and industry dynamics. He also stated that the company historically targets around $100 million in cash as a safety net and views share repurchases as a top capital allocation priority at current stock prices.

Mark Weintraub of Seaport Research Partners inquired about the expected 2025 financial contribution from Natural Climate Solutions (NCS), the sawlog mix in the U.S. South, and the potential impact of trade tariffs and Canadian duties on lumber prices.

Answer

Executive Wayne Wasechek noted that 2025 NCS contributions would be modest, around $4 million from option payments, with larger revenues expected in future years. He confirmed the Southern sawlog mix is expected to remain stable at around 55%. President and CEO Eric Cremers provided a detailed outlook on lumber, stating that upcoming increases in Canadian duties will raise the price floor and that the overall risk to lumber prices is 'clearly to the upside,' expressing surprise that markets have not yet reacted.

Mark Weintraub of Seaport Research Partners asked a series of questions covering accounting, guidance, and strategy. He inquired about the go-forward DD&A rate, the lumber price assumptions in the Q4 guidance, the expected EBITDDA contribution from NCS in 2024-2025, the timeline for lithium development, and future capital allocation priorities including 'normal' CapEx levels.

Answer

Executive Wayne Wasechek clarified that annual DD&A will be about $5 million lower going forward. President and CEO Eric Cremers noted that Q4 lumber prices are expected to be up 5% vs. Q3, though this may be conservative. Cremers stated that current NCS income is minimal ('dribs and drabs') from option payments and a legacy carbon project, with significant contributions not expected for a few years. He added that the lithium timeline is uncertain, pending a state commission ruling on royalty rates. Wayne Wasechek reiterated that capital allocation remains dynamic, with share repurchases attractive at current levels.

Mark Weintraub sought to clarify if the risks listed in the guidance slide were past drivers or future risks. He also asked for the company's sensitivity to the dollar-euro exchange rate and the specific rate embedded in the updated guidance.

Answer

CFO Paul Joachimczyk confirmed that higher interest expense and working capital usage were key drivers that already impacted the updated guidance. Interim CFO Jerry Cheatham provided the sensitivity of approximately $0.0025 of annualized EPS for every one-cent move in the EUR/USD rate and stated the H2 guidance embeds a rate between $1.17 and $1.18.

Mark Weintraub questioned how Sonoco is maintaining its full-year guidance given a weaker volume environment and requested an update on the potential divestiture of the ThermoSafe business.

Answer

President and CEO Howard Coker clarified that the company still expects a 2% to 3% consumer volume increase for the full year, viewing Q1's softness as seasonal. Regarding ThermoSafe, Coker stated the business is performing well and they are preparing for a potential divestiture, with the timing dependent on macroeconomic conditions, but a resolution is still anticipated by year-end.

Mark Weintraub from Seaport Research Partners requested clarification on the cash flow bridge from EPS to free cash flow, asked about any significant metal overlap, and questioned if the 10% growth forecast for Eviosys includes synergies. He also asked about the reasons for Eviosys's 2024 performance shortfall.

Answer

Interim CFO Jerry Cheatham explained that higher interest expense and a higher effective tax rate contribute to the difference between EPS and free cash flow. CEO Howard Coker confirmed there is no material metal overlap and that the Eviosys growth forecast is largely exclusive of synergies, which are now expected to be realized mostly in 2026 due to a delayed deal closing. Coker attributed the 2024 shortfall to volume issues and transaction-related disruptions.

Mark Weintraub followed up on the M&A strategy, noting the market may not be giving Sonoco credit for its transformation. He specifically questioned the confidence in Eviosys achieving its projected EBITDA, given its first-half performance was not on that run-rate.

Answer

CEO Howard Coker acknowledged the market sentiment but expressed extreme confidence in the strategy and future performance. He stated that indications are that Eviosys is on target. COO Rodger Fuller added that Eviosys's third quarter is seasonally its strongest, making first-half results an improper basis for annualization, and that integration planning has reinforced their confidence in synergy targets.