Sonoco Products Company - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 delivered record net sales of $1.709B and record adjusted EBITDA of $338M, driven by a full quarter of Metal Packaging EMEA (Eviosys) and strong U.S. metals; adjusted EPS was $1.38 while GAAP EPS was $0.55.
• Reaffirmed FY25 guidance: adjusted EPS $6.00–$6.20, adjusted EBITDA $1.3–$1.4B, and operating cash flow $800–$900M; cash dividend raised to $0.53 per share, marking 100 consecutive years of dividends.
• Wall Street consensus (S&P Global) for Q1 2025 was EPS $1.41* and revenue $2.040B*; actual EPS missed slightly and revenue missed materially; adjusted EBITDA beat company’s YoY targets, but SPGI EBITDA definition differs from company’s adjusted EBITDA (see Estimates Context).
• Catalysts: Eviosys integration synergies raised to ~$40M in 2025 (on path to $100M by end-2026), URB price implementation expected to benefit 2H margins, and net leverage reduced to <4x post-TFP sale.

What Went Well and What Went Wrong

What Went Well

• Record results: net sales up 30.6% YoY to $1.709B and adjusted EBITDA up 38% YoY to $338M driven by Eviosys and positive price/cost; adjusted EPS up 23% YoY to $1.38.
• Metal Packaging strength: U.S. aerosol volume +~25% and food cans +~10% with ~10% organic volume/mix growth; EMEA margins and profitability improved with ~23% EBITDA increase YoY.
• Strategy execution: Completed $1.8B TFP sale, applied ~$1.5B after-tax proceeds to repay term loan; net leverage below 4.0x and reaffirmed FY25 outlook.

What Went Wrong

• Revenue vs consensus: Q1 revenue missed S&P Global consensus materially ($1.709B actual vs $2.040B* estimate), suggesting expectations overshot combined portfolio seasonality and discontinued operations treatment.
• Working capital drag: Operating cash flow was $(208)M and Free Cash Flow $(300)M due to seasonal working capital build in Metal Packaging EMEA, expected to reverse in 2H.
• Industrial volume softness: Segment net sales fell 6% YoY; volumes lower across the segment and FX headwinds, though margin expanded on price/cost and productivity.

Transcript

Operator (participant)

Thank you. I'd now like to turn the call over to Roger Schrum, Interim Head of Investor Relations and Communications. You may begin.

Roger Schrum (Head of Investor Relations)

Thank you, Rob, and good morning, everyone. Yesterday evening, we issued a news release and posted an investor presentation that reviews Sonoco's 2025 first-quarter financial results. Both are posted on our Investor Relations section of our website at sonoco.com. A replay of today's conference call will be available on our website, and we'll post a transcript later this week. If you would turn to slide two, I would remind you that during today's call, we will discuss a number of forward-looking statements based on current expectations, estimates, and projections. These statements are not guarantees of future performance and are subject to certain risks and uncertainties. Therefore, actual results may differ materially. Additionally, today's presentation includes the use of non-GAAP financial measures, which management believes provides useful information to investors about the company's financial condition and results of operations.

Further information about the company's use of non-GAAP financial measures, including definitions as well as reconciliations to GAAP measures, is also available on the Investor Relations section of our website. Finally, references to certain financial metrics, along with corresponding year-over-year comparable results made on this call, are on a full company basis, except when specifically referred to for continuing operations or for discontinued operations. Joining me on this call today is Howard Coker, President and CEO; Rodger Fuller, Chief Operating Officer; and Jerry Cheatham, Interim Chief Financial Officer. For today's call, we will have prepared remarks followed by a Q&A. If you'll now turn to slide four in our presentation, I'll now turn the call over to Howard.

Howard Coker (CEO)

Thank you, Roger, and good morning, everyone. Let me start. Our first-quarter results demonstrated the strength of the new Sonoco as our global team achieved record top-line and adjusted EBITDA performance. Slide five shows net sales were 31% or grew 31%, and adjusted EBITDA was up 38%, while adjusted earnings were up 23%, despite higher-than-expected interest expenses, taxes, and the negative impact from currency translation.

I'll let Jerry go through the key drivers for the quarter, but overall, we are pleased with the improvement in both our consumer packaging and industrial packaging segments. The 127% growth in adjusted EBITDA in the consumer segment reflects a full quarter of the Eviosys acquisition, along with strong volume mix from our legacy metal and rigid paper can businesses and a positive price-cost environment. The industrial segment generated a 6% improvement in adjusted EBITDA, stemming from a year-over-year improvement in price cost and productivity.

Volume was down low single digits in the quarter, and flat results in South America were offset by results in the rest of our served markets. As shown on slide six, we completed the sale of the Thermoform and Flexibles business to Toppan Holdings on time and as expected. We received approximately $1.8 billion in cash for the business, which generated approximately $1.56 billion in after-tax proceeds, which we used to significantly reduce debt and strengthen our balance sheet. We do extend our best wishes for continued success to our approximately 4,500 former TFP teammates and their new Toppan team.

On April 1, we completed the first phase of the integration of Eviosys by rebranding the business, Sonoco Metal Packaging EMEA. As shown on slide seven, we're changing our digital imagery as well as physical signage trucks. Overall, while early, it's been a real nice start to the integration.

We're going to treat our global metal packaging businesses as a single enterprise to better capture the best ideas, innovations, and synergies. Our integration efforts produced strong synergy savings across the global metal packaging enterprise in the first quarter, and we now believe we should be able to achieve approximately $40 million of savings in 2025 on our way towards our two-year synergy target of $100 million.

Working together, our global can businesses are also identifying long-term savings and commercial opportunities that will benefit our customers for years to come. We're encouraged by the performance of our combined global metal packaging business, and we continue to find opportunities to work with our customers to provide even greater value to enhance innovation and a much stronger global supply chain. After one quarter together, our global metal packaging sales are tracking at our expectations, and adjusted EBITDA margins were near 16%.

Our U.S. metal packaging business had strong year-over-year results as the business achieved 10% organic volume mix improvement, with strong growth in aerosols and food cans coming from both existing customer demand and new customer wins. Adjusted EBITDA for our EMEA metal packaging business was up approximately 23% in the first quarter on productivity savings and positive year-over-year price-cost environment.

Can volumes in Europe reflect the slower market conditions in the region, but we're encouraged by new customer wins, particularly in the pet food segment, where we will start seeing benefits in the second half and continue into future years as we build out additional production capability. Finally, our global rigid paper can business had a solid first quarter as low single-digit volume mix growth in North America and South America was somewhat offset by slower European and Southeast Asia volumes.

With that brief introduction, I'm turning the call over to Jerry to review the numbers.

Jerry Cheatham (Interim CFO)

Thanks, Howard. I'm pleased to present the first-quarter financial results starting on page nine of the presentation. Please note that all results are on an adjusted basis, and all growth metrics are on a year-over-year basis, unless otherwise stated. The GAAP to non-GAAP EPS reconciliation is in the appendix of this presentation as well as in the press release.

As Howard mentioned, on April 1, 2025, we finalized the sale of our Thermoform and Flexible Packaging business, marking a significant milestone in advancing our fewer-bigger businesses strategy. This divestiture strengthens our focus on core sustainable packaging platforms and positions us to reinvest in higher return opportunities that drive long-term earnings growth and margin expansion. Looking ahead, our leadership in two core markets will enable us to operate more efficiently and serve our customers with greater focus and agility. Adjusted EPS was $1.38.

Earnings per share increased 23% year-over-year, mainly driven by continued strong productivity of $17 million and favorable price-cost performance across our core businesses. These gains were partially offset by unfavorable volume mix, other non-recurring items, and currency translation. First-quarter net sales increased 31% to $1.7 billion, excluding discontinued operations of $321 million.

This change was driven by favorable price and the impact of the full quarter of SMP EMEA sales. Adjusted EBITDA of $338 million was up by an outstanding 38%, and adjusted EBITDA margin improved 170 basis points to 16.6%. This was driven by positive price-cost, sustained favorable productivity, and the impact of acquisitions, and partially offset by volume softness in the industrial segment and the impact of currency translation. Page 10 has our consumer segment results on a continuing operations basis. Consumer sales were up 83% due to the SMP EMEA acquisition and favorable volume mix.

Global rigid paper container sales increased marginally compared to the prior year, while our domestic metal packaging business achieved double-digit growth, reflecting solid demand and continued commercial execution. Consumer adjusted EBITDA from continuing operations grew a remarkable 127% year-over-year due to the impact of acquisitions, favorable price-cost dynamics, continued productivity gains, and positive volume mix. Page 11 has our industrial segment results. Industrial sales decreased 6% to $558 million.

Results were impacted by lower volumes, the planned exit of our industrial operations in China, and unfavorable currency translation. These headwinds were partially offset by low single-digit improvements in selling prices driven by index-based price resets. Adjusted EBITDA margins expanded 200 basis points year-over-year in the first quarter, primarily driven by favorable price-cost dynamics and productivity gains. These benefits were partially offset by negative volume mix, as well as the impact of unfavorable currency translation and other items.

Adjusted EBITDA increased by $6 million to $101 million, representing a 6% increase. Page 12 has our results for the all-other business. The all-other sales were $85 million, and adjusted EBITDA was $14 million. These sales and adjusted EBITDA results were affected by the divestiture of protective solutions combined with the ongoing softness in some key end markets.

Turning to page 13, we are reporting on our debt reduction progress. As of today, we have reduced our net leverage to just under 4x net debt to adjusted EBITDA. We used approximately $1.5 billion in after-tax proceeds from the TFP sale to fully repay our $1.5 billion term loan. Our primary focus is to delever the business through strong organic cash flow and by using divestiture proceeds to reduce debt. We've established a clear and actionable roadmap to achieve this over the next 18 to 24 months.

Our liquidity position remains strong with approximately $915 million in available capacity, providing us with ample financial flexibility to support our operations, navigate market conditions, and invest in strategic initiatives as needed. Slide 14 provides a summary of the full-year guidance. We are reaffirming our full-year guidance. We expect to deliver adjusted EPS within the range of $6.00-$6.20.

This outlook reflects continued strength in our legacy businesses, the accretive impact of SMP EMEA acquisition, and the now completed divestiture of TFP, which is expected to be modestly diluted. We also anticipate some headwinds, including a higher effective tax rate and some softness on the industrial volume mix. This will be more than offset by the expected favorable price-cost outlook, actions to reduce fixed costs, strong volumes in the consumer segment, and the favorable impact of currency translations due to a weaker U.S. dollar.

The previously announced price increases on our URB and converted products in North America were intended to defend our margins from continued inflation. The implementation is going well, and we anticipate seeing those benefits in our second-half results. We expect another strong year of cash generation, with operating cash flow projected between $800 million to $900 million and free cash flow between $450 million to $550 million. I will hand it over to Howard to walk us through our transformation journey.

Howard Coker (CEO)

Right. Thanks, Jerry. One of the things we don't talk enough about when we do our quarterly results is the unbelievable work and dedication our team is putting in the transformation of the new Sonoco into a simpler, stronger, and more sustainable company. In the past quarter, our team successfully completed a complex carve-out divestiture of the TFP business. In addition, our 6,500 new teammates with Sonoco Metal Packaging EMEA are quickly working to integrate the business and drive expected synergy.

As we show on slide 15, since we began this journey five years ago, we have reduced the number of divisions in our portfolio from 18 down to three for consumer and industrial businesses while creating an enterprise that is positioned for future growth. As we show on slide 16, Sonoco was recently recognized by Newsweek as one of the most trustworthy and respected companies in the United States.

In addition, just last week on Earth Day, USA Today named Sonoco one of America's climate leaders for 2025 in recognition of our efforts over the past several years to reduce carbon emissions from our operations. These honors belong to our employees who work every day to make life better for our customers, our communities, and shareholders. We've been asked a lot recently about tariffs and how Sonoco may perform during periods of economic stress. Let me make a couple of observations.

First, Sonoco's consumer packaging business tends to perform well during periods of economic stress as consumers typically shift to the center of the store or packaged food. While our industrial paper packaging business has experienced some slowing during past recessions, I would point out that our industrial business in 2025 is significantly stronger and the markets we serve have matured since the COVID recession of 2020.

Now, does that mean that Sonoco is immune to an economic downturn or tariffs? Certainly not. If you turn to slide 17, you'll see we believe Sonoco is better positioned than ever to navigate the evolving geopolitical landscape. First, our manufacturing network is designed to serve local markets, reducing our exposure to cross-border disruptions and tariff-related risks. Second, while we are actively working with our customers to help manage the impact of higher input costs driven by tariffs, our business model allows for pricing adjustments when necessary. Most importantly, our transformed portfolio is significantly more resilient, with over two-thirds of our sales now coming from consumer food packaging, a segment that has historically demonstrated strong performance across economic cycles. Turning to slide 18, Sonoco's goal is to increase long-term profitability and return capital to shareholders.

Over the past two years, Sonoco has generated a record $1.7 billion in operating cash flow and approximately $1 billion in free cash flow. We've used much of this cash to invest in ourselves for future growth and to drive productivity savings. While we are currently focusing on using free cash to lower leverage, our dividend remains an important part of our value creation story.

Since 1925, which was roughly 100 consecutive years, Sonoco has paid quarterly dividends. That's why the investment service Sure Dividend has named Sonoco its number four Top Dividend Champion for 2025. It's also why our board of directors recently increased our quarterly dividend for the 42nd consecutive year, and it provides a strong yield of 4.6%. In closing, I thought it'd be worthwhile to review my priorities for the rest of the year, which are shown on slide 19.

First and foremost is to mind the store, to continue to drive improved performance of our core consumer industrial business. Embedded in that priority is to manage risk associated with the changing macroeconomic conditions. Next, we will continue to manage the metal packaging EMEA integration and look to further optimize our global manufacturing network and organization.

We will continue to prepare for the planned divestitures of our attractive non-core temperature assured business. Finally, we must better communicate our value creation story to help improve our very much underappreciated stock. Slide 20 was developed to better illustrate the new Sonoco, our businesses, our served markets, and our geographic footprint. As Jerry mentioned, we reaffirmed our full-year 2025 guidance as we expect to grow net sales by approximately 20% to nearly $8 billion. We expect adjusted earnings to grow approximately 20% and adjusted EBITDA by approximately 30%.

Despite seasonal working capital changes in the first quarter, Sonoco remains a strong cash flow generator, and we expect operating cash flow this year to be between $800 million and $900 million. Even with economic uncertainty, we remain confident in our ability to deliver continued growth, margin expansion, and strong cash flow generation, enabling us to drive even greater long-term value to our shareholders. With that, Operator, we are ready to take questions.

Operator (participant)

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star one again. Your first question comes from the line of George Staphos from Bank of America. Your line is open.

George Staphos (Managing Director)

Hi, everyone. Good morning. Thanks for the details. I guess first question I would have, if you could just give us a bit more color on the volume performance by region, by key segment or product line. I know you touched on a lot of it, Howard, during your remarks, but if you'd just give us sort of a quick review, North America versus Europe versus the rest of the world, if you care to talk to that rigid paper, metal, and industrial on an organic, if you have that, that'd be great. And then a couple of other questions.

Howard Coker (CEO)

Sure, George. I am, let's start with the consumer side. Felt really positive in total, but to drill into that, and we're talking mid-single digits over the consumer on a global basis. When you drill into that, what we're seeing is rigid paper North America was actually slightly up, and South America the same. South America was actually really strong. You go over to Europe and we were down. Similarly, which is for the first time in a long time, we saw that our Southeast Asia rigid paper volumes were down. In Europe and Southeast Asia, to some extent, and North America, one discrete customer, very large customers going through a transition at this point in time, and we've seen some pullback.

We do not see that as being nothing more than a timing issue, and particularly in Europe and South America, and benefit—not South America, Southeast Asia—and benefit as things clear up there. On the industrial side, really a lot of red, but low single digits. Like North America, I would suggest again, low single digits. The real issue call out there would be Europe.

Europe was softer than we expected. If you take South America, which is basically flat, slightly down, and US, we are pretty much holding our own on the industrial side as well. That is kind of the big picture. Oh, and you asked about metal. Metal, in North America, as I said, we said 10%, but let me unpack that a bit. Our aerosol business was up roughly 25% quarter over quarter. Our food can business was probably 10+%.

What is embedded in there is our intercompany sales related to components, so loose ends, etc. Again, we have one discrete customer that has pulled back on their volumes that we expect to see return in the relatively near future. If you really talk about can bodies, you're up probably in that 15% type range in total between aerosol and food. In Europe, while we are very pleased with how things have started and improvement year-over-year in terms of profitability of the business, a little slower than our expectations, and I'd say right on mid-single digits down to our expectations. We see that as a bit of a timing issue as typically a softer first quarter, and as you're well aware, a ramp up through second and third.

George Staphos (Managing Director)

Okay, Howard. You are pleased with Europe but it is down mid-single digits in metal so far, correct?

Howard Coker (CEO)

Say that again.

George Staphos (Managing Director)

Europe, you're pleased, but it's down mid-single digits in metal, correct?

Howard Coker (CEO)

Yes.

George Staphos (Managing Director)

Okay.

Howard Coker (CEO)

Yes. Yeah. Profitability was up. EBITDA was up about 25% year-over-year.

George Staphos (Managing Director)

Thanks for that rundown, Howard. Two quick ones, and I'll turn it over. One, are you seeing any changes in purchasing behavior, any changes in supply chain, anything to call out on customer promotional activity given tariffs, given the macro? I know it's sort of a big question. You don't have to go through everything, but if there's anything in particular we as analysts should know about relative to how we're modeling you going forward, that's kind of what's behind that question.

You talk about messaging and trying to, this is my wording, not yours, get the story out to a larger degree on Sonoco. It's neither here nor there, but what do you think needs to be better understood by the market relative to the discount you see in the stock versus where you think it should be? Thanks, and I'll turn it over.

Howard Coker (CEO)

Sure. What we're seeing of changes, supply chain, customers, etc., really not a lot. I think when we'll start feeling it is when we start seeing what I would suspect would be increased pull-through from our consumer customers, which historically our consumer businesses have performed very well. Not a lot. What I would suggest that is unique to Sonoco is that we do have our largest paper can customer in the midst of an acquisition. To your point about marketing, etc., we've seen decreases there as they anticipate the turnover of that business. A little stagnation in the last quarter or so with that customer, and we have very, very strong opinions about where the new owner can take this business. We'll see how that manifests itself post-close, mid-year.

The message is really more about as we're ending this whole transition, as you guys know, as you know, the numbers, it's tough to follow what's all going on and to be able to start reaching a point of, I wouldn't ever say finish state, but certainly on the trajectory we've been over literally the last five years, start being able to connect the significantly improved performance the company has seen over the last couple of years and the inverse relationship to our stock and start telling the story on where we are, where we're landing, where we're going.

I think even starting today, it should be a little more clear, a lot more clear than would have been in earlier periods. That is just it. Just getting the message out about who we are, where we're going, what the opportunities look like. It is a pretty exciting go forward story for the company.

George Staphos (Managing Director)

All right. Howard, I appreciate it. Thanks. I'll turn it over. Good luck in the quarter.

Howard Coker (CEO)

Thanks.

Operator (participant)

Your next question comes from the line of Michael Roxland from Truist Securities. Your line is open.

Michael Roxland (Managing Director)

Thank you, Howard, Jerry, Roger, and Roger for taking my questions and congrats on all the progress. Can you help us? You mentioned managing your global network. Can you give us a sense of where there are opportunities and some of the things that you're considering doing around your global network?

Roger Schrum (Head of Investor Relations)

Yeah, Michael, this is Roger. I think that's specifically talking about our metal can business, our metal end supply, and Howard's already mentioned how that's integrated into our paper can business. With significant added operations in Europe, with a lot of the strategic tin plate supply being provided out of Europe, we're looking across the platform, our European platform, our Asia and U.S., and deciding where is the best location, primarily to produce easy open ends, non-easy open ends, components for all of our businesses, all of our consumer businesses now, our can businesses, and making those decisions over the next couple of years, strategically, where can we provide the lowest cost solution to our operations and to our customers and working through that as we speak.

That's really, in my opinion, outside of the tremendous synergy opportunity, which we can talk about later, that we have just combining our two metal businesses. Again, it's looking at this global platform we have now and making those longer-term decisions on where is the low-cost opportunities, how do we use that to gain market share, to grow our business, which is the ultimate objective of looking at that global platform.

Howard Coker (CEO)

Yeah, Michael, let me add one other. If you look at our global rigid paper container business, this is how we operate. We operate under one single umbrella globally. The benefit, and we started that probably 10, 12, 15 years in March, and be able to take the best of the best of each market in terms of technology, R&D, innovation, and have that centralized where there is not cross-border challenges or competition, but being able to create the best of global in terms of those categories. It has worked well for us on the paper can side, and you will see us over time with that same type structure. Again, taking the best of one region and the best of the other region and creating something that no one else has been able to do.

Michael Roxland (Managing Director)

Gotcha. That was very helpful, guys. On Eviosys, who's transitioning, I think I heard you said that EBITDA was up 23% year-over-year in one Q. I think you reiterated the guide for EBITDA to be up 10%. Is that just conservatism, or is that some concerns over your tariff and economic uncertainty? Why reiterate the more modest guide relative to the strong one Q performance?

Howard Coker (CEO)

I just think it's conservative and comps, so no doubt about it. Last year was a weaker quarter, stronger quarter this year, being conservative as we go forward.

Michael Roxland (Managing Director)

Nothing operationally stands out, though. It's just work. It's just.

Howard Coker (CEO)

No, it's just flow. Yeah.

Michael Roxland (Managing Director)

Gotcha. Last question before turning it over. Just in terms of the Eviosys integration, last quarter, you mentioned having a very strong leadership team there. What has the company done to ensure that the team is retained and there is not turnover in the near term that could cause disruption and negatively impact results?

Roger Schrum (Head of Investor Relations)

Yeah, Michael, it's Roger. Let me just talk a little bit about the integration, and maybe this gets out in front of a couple of questions, but I know it's on people's mind. You're right. We're pleased with the integration, very impressed with the capabilities and talents of the new team and seeing nice progress on the integration across the board. I think number one, it's spending time with the leadership team and the critical people in the business across the board from our customers, from the market standpoint, and our people are very pleased to see a strategic buyer coming in, stepping in and taking a leadership position in the bootcamp market in Europe. In general, the team is very pleased to be part of Sonoco, and they understand the vision.

They understand what we're trying to do with the global business, and they want to deliver the results that we're looking at. Typically, as you go through these, I think you know there are retention-type discussions that we have around timing, around packages, around the business. That's all going extremely well. The leadership team has tremendous experience in the metal can market.

They want to continue with the business. It's really just that constant communication. Really, the culture of Sonoco is making people feel involved with the business, making people feel part of something bigger. Again, I can tell you across the board, we feel comfortable that the critical people that we need in the business will continue to stay with us. Let me go ahead and talk about synergies because I know it'll come up from a cost synergy standpoint.

Howard's already mentioned we're upping our run rate this year to the $40 million level by the end of the year, becoming more and more confident that we can at least hit that $100 million level by the end of 2026, which has been our commitment. Direct synergies, materials, direct materials, we're looking at it from a global tin plate business standpoint. Indirect logistics, business S&A, we're looking at it from a European footprint standpoint.

Keep in mind now, over 40% of Sonoco is now based in Europe. We're looking at synergies across our paper can business, our industrial business, and our metal business in Europe. Finally, Eviosys, as you know, is a standalone business. From a corporate S&A standpoint, good synergies there as well with the team that we have here primarily in Hartsville. We're most excited about the market and the customer synergies.

As I said, tremendous response from our local customers with a strategic stepping into a leadership position. Global customers that we may serve in both regions or one or the other regions are very interested in our global capabilities now. That gets back to your earlier questions on the global capability and the platform that we're looking at. Self-manufactured opportunities, Howard talked about innovation.

All in all, feel very good about it. They're very good about the team. From a turnover standpoint, at this point, we're not concerned. The team's very involved, very engaged, and we feel good about the connection that they have with our leadership team here and Sonoco in general. All in all, going well, and we're depending on that leadership team to continue to help us work our way and lead the business and deliver on the commitments we made from a synergy standpoint.

Michael Roxland (Managing Director)

That's great, Paul. I really appreciate it, and good luck in 2Q.

Operator (participant)

Your next question comes from the line of Mark Weintraub from Seaport Research Partners. Your line is open.

Mark Weintraub (Senior Analyst and Head of Business Development)

Thanks so much. Appreciate that you've upped the target on synergies by $10 million. At the same time, you've talked about the volume environment being weaker. I think you had originally come into the year thinking like a 2-3% type of growth in consumer packaging was viable. Correct me if I'm wrong there. What would your updated view be? Presumably, that delta would be more than a $10 million negative delta. I'm curious, what are some of the other explicit drivers you think are going to help offset that in keeping the guidance where it had been?

Howard Coker (CEO)

Yeah, Mark, when you say consumer, we're actually all looking at an increase in terms of volumes as we head into the upcoming quarter. You just kind of look at the first quarter, particularly in this business, which does have high seasonality. As we're looking out, we're seeing that much stronger second quarter, third quarter rates really across both the paper can as well as the global metal can businesses. We're not really factoring saying, "Hey, there was a 7% down in the first quarter. That translates for the year." Our expectations are that'll work itself out through the course of the year.

Mark Weintraub (Senior Analyst and Head of Business Development)

Just to clarify, so you're still kind of embedding a 2-3% volume increase for the year, which I think is what you had been talking about three months ago?

Howard Coker (CEO)

Yes.

Mark Weintraub (Senior Analyst and Head of Business Development)

Okay. Fair enough.

Howard Coker (CEO)

That's correct.

Mark Weintraub (Senior Analyst and Head of Business Development)

Second, any update on ThermoSafe and where your thought process there might be?

Howard Coker (CEO)

Yeah. First off, very pleased with the continued solid performance from the team. Really not a formal update other than to say that we're preparing ourselves and we will make a decision on when to go on, frankly, what it's going to turn out to be, what is the macro situation like at that time. Officially, right now, I'd say we're still looking at, by the end of the year, coming to a resolution on that. Again, happy with the trajectory of the business, and we'll see how that unfolds through the course of the year.

Mark Weintraub (Senior Analyst and Head of Business Development)

Thanks very much.

Operator (participant)

Again, if you'd like to ask a question, press star one on your telephone keypad. Your next question comes from the line of Matt Roberts from Raymond James. Your line is open.

Matt Roberts (VP of Packaging)

Hey, good morning, everybody. Thanks for the time. Quick question. On leverage post the TFP pay down on April 3, where does your net adjusted debt stand? I believe you said it was less than 4x, but what would that have been at the end of one Q and recognizing there is some seasonality with a larger metal business? Where do you expect that leverage to be by year-end 2025?

Jerry Cheatham (Interim CFO)

Yeah, this is Jerry. As we stated, we expect it to be by the end of this year under 4 times, and we're still on track to reach our target of 3-3.3x by the end of 2026.

Matt Roberts (VP of Packaging)

Thank you for the clarification. Less than 4x this year in 2025. Got it. Secondly, on the price-cost expectations, could you say where your OCC cost expectation now is versus where you had it in January and what kind of market conditions inform that? We are hearing some constructive commentary around the URB list price increase, although it is not yet reflected in the index. Does the guide assume any incremental benefit there? If so, how much? Usually, it is not reflected on most pass-through, but just curious your thoughts or any color you have there. Thank you again.

Jerry Cheatham (Interim CFO)

Yeah. What we assumed in our original guide was an average OCC of $100. Obviously, it was around $80-$85 in the first quarter. We expected it to be that similar in the second. We are expecting it to average somewhere between $90-$95 in the second half of the year.

Matt Roberts (VP of Packaging)

Thanks, Jerry. On the URB price?

Howard Coker (CEO)

Yeah. On the URB price, you're right. Pretty unique against all paper grades. We're running at probably 92-93% utilization rates right now. We're seeing strong yield against the $70 increase in the market. We'd be extremely disappointed if the appropriate indices did not pick that up at their next go-around.

Matt Roberts (VP of Packaging)

All right, Jerry. Thank you again.

Operator (participant)

Your next question comes from a line of Gabe Hajde from Wells Fargo. Your line is open.

Gabe Hajde (Equity Research Analyst)

Good morning, team. I had a question, maybe point of clarification. I apologize. It's a busy morning. As you talk about consumer volumes in aggregate on an organic basis, question number one. Question number two, Howard, you threw out a bunch of numbers for the metal food business. Maybe if we could break it down, North America versus Europe and organic. You talked about some pretty big numbers, I think double-digit growth in the North American metal business. It's quite a bit better than what we saw per the industry data, maybe suggesting you guys are winning some business there. Can you talk about that? Would it be your view that customers are trying to buy ahead of any potential price increases in material costs? I apologize if you covered that.

Howard Coker (CEO)

Yep. No problem, Gabe. We're looking at consumer from an organic perspective, about 4% up for the first quarter in total. That's excluding acquisition. On the metal side of the business, in terms of breaking down further, North America, I've got kind of details, less so on Europe. North America, we saw about 10% improvement in food and about a 25. Keep in mind, about a third of our business is aerosol. Aerosol has recovered nicely, up about 25%. What I also noted was that when you look at units, and we've got some work to do in terms of how we report this stuff, we've got metal ends that go to a select customer, legacy Sonoco customer, that there's been some drawdowns that we expect that we'll recover. That's what brought the total. The math doesn't work.

If 10% of your food cans are up, 25% of your aerosol, but you're 10% up in total, it's because low-value metal ends are calculated in that number. We'll work on that going forward. Europe really is one discrete market, a seasonal market that hasn't kicked in 6-7%. It's the fish market. It normally doesn't really start taking off until now or up until early June or so. We are expecting to see that turn here in the very near future. Other than that, most of the other markets were exactly where we expected them to be. Most likely, you have other commentary to it. Nope. That's right. In terms of pre-buy, no. Not seeing any activity there. I mean, there could be an isolated case, but no.

As we talked to our customers going in, as we're rolling into the second quarter, it's very encouraging in terms of what the volume profile looks like, particularly here in North America. It is not pulled forward.

Gabe Hajde (Equity Research Analyst)

Okay. To be clear, I guess, adjusting for the end sales, which seems like it should balance out over the course of the year, you would expect pretty darn strong volumes in aerosol and food cans also to be up for the full year in North America?

Howard Coker (CEO)

Correct.

Gabe Hajde (Equity Research Analyst)

Okay. A point of clarification, I think, Jerry, you mentioned embedded in the guidance, you talked about getting early realization on the URB price increase, but you'd expect that to flow through in the back half of the year. A, is that in fact what you said? B, quantification of what that benefit would look like in the second half?

Jerry Cheatham (Interim CFO)

Yeah. Let me answer that kind of in a two-part way. The increase is going well in the marketplace, but you got to realize that about 80% of the business is really tied to contracts, and some of those contracts reset based off the timing of when the Tan Bending Chip moved, which is what the majority of those contractual customers are on. That is why we expect the benefit to mostly occur in the second half of the year, just depending on the timing of when the Tan Bending Chip index moved. It has not reflected the open market increase as we speak today, but we do expect that to happen in the coming month or two.

In terms of the impact, as we previously stated, tough to say how much the Tan Bending Chip index will move, but what I would say is that with each $10 move in that index typically represents about an incremental $6 million a year on an annualized basis of revenue.

Gabe Hajde (Equity Research Analyst)

Perfect. Super helpful. Thank you.

Operator (participant)

That concludes our question and answer session. I will now turn the call back over to Roger Schrum for closing remarks.

Roger Schrum (Head of Investor Relations)

Certainly appreciate everybody participating in today's call. I know you've had a very busy day. If you've got follow-up questions, please don't hesitate to give me a call at your convenience. You can disconnect now.

Operator (participant)

This concludes today's conference call. Thank you for your participation. You may now disconnect.