Sonoco Products Company - Q2 2023
August 1, 2023
Transcript
Operator (participant)
Good day, and thank you for standing by. Welcome to the second 1/4 2023 Sonoco Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you'll need to press star one one on your telephone.
You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your speaker today, Lisa Weeks, Vice President of Investor Relations. Please go ahead.
Lisa Weeks (VP of Investor Relations)
Thank you, operator, and thanks to everyone for joining us today for Sonoco's second 1/4 2023 earnings call. Joining me this morning are Howard Coker, President and CEO, Rob Dillard, Chief Financial Officer, and Rodger Fuller, Chief Operating Officer. Last evening, we issued a news release highlighting our financial performance for the second 1/4, and we prepared a presentation that we will reference during this call.
The press release and presentation are available online under the Investor Relations section of our website at sonoco.com. As a reminder, 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. Please take a moment to review the forward-looking statement on page 2 of the presentation.
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 available under the Investor Relations section of our website.
For today's call, Howard will begin by covering a summary of second 1/4 2023 performance. Rob will then review our detailed financial results for the 1/4, and along with Rodger Fuller, we'll discuss our guidance update for the full year 2023. Howard will then provide closing comments, followed by a Q&A session. If you will turn to Slide 4 in our presentation, I will now turn the call over to our CEO, Howard Coker.
Howard Coker (CEO)
Thank you, Lisa, and good morning to everyone. I just wanted to start by acknowledging the strong performance and cash flows of Sonoco against the backdrop of a highly volatile environment. Rob will take you through the details, but what I'll tell you is that market conditions were pretty turbulent in the 1/4, with a marked downshift in demand as the 1/4 progressed, translating into lower volumes across virtually every area of our business on a global basis.
For the second 1/4, net sales were $1.7 billion, EBITDA was $275 million, and adjusted earnings per share were $1.38. Most of our businesses were at or above expectations for the 1/4 through the commercial and operational excellence and productivity improvements.
The noted businesses that were most affected by lower volumes were Consumer Metal and Global Industrials, which were impacted by inventory management and destocking programs with our customers. To give you my perspective overall, customers in metal and industrials are buying less, both related to staples and discretionary items.
Our customers are searching for price point elasticity, which creates demand and inventory management challenges throughout the supply chain. Our customers are faced now with real macro-driven changes in consumer buying habits, their own working capital management priorities, and promotional timing, which makes visibility harder in the near term.
The downstream impact is reflected in our industrials business, where we provide products serving the broader manufacturing sector and packaging used in household staples, discretionary goods, and construction. Buying is slowing down and lower volumes are the result.
However, even though the through these turbulent times, we were able to deliver 16% of adjusted EBITDA in the 1/4. Our hard work over the past few years on the portfolio, structural simplification, operational improvements, and commercial excellence have enabled more stable profitability than in prior economic slowdowns in our history.
While we're not satisfied with these results, our excellent cash flow and EBITDA margins reinforce the durability of our underlying profitability and the integrity of our strategy. With that, I'll turn the call over to Rob for more details on the 1/4 and our 2023 outlook. Rob?
Rob Dillard (CFO)
Thanks, Howard. I'll begin on Slide 6 with a review of key financial results for the second 1/4. Please note that all results discussed will be adjusted, and all growth metrics will be on a year-over-year basis, unless otherwise stated. The GAAP and non-GAAP EPS reconciliation can be found in the appendix of this presentation, as well as in the press release.
As Howard said, the second 1/4 financial results reflect Sonoco's ability to deliver strong results despite a low volume environment. We continue to achieve strong results in most businesses in the portfolio, including meaningful improvement in rigid paper containers and all other, and record results in flexibles. A few businesses were below expectations and meaningfully impacted the consolidated results, mainly metal packaging and Consumer and Industrial North America. Consolidated sales decreased to $1.7 billion.
This sales decrease was primarily driven by lower volumes due to inflationary pricing and destocking at our customers and retail, as well as index-based price decreases in metal packaging and industrial.
Adjusted operating profit decreased to $211 million, and adjusted EBITDA decreased to $275 million. Importantly, we maintained an above 16% adjusted EBITDA margin through continued focus on commercial and operational excellence, as well as long-term cost controls associated with our business transformation program. Adjusted earnings per share decreased to $1.38. Non-operating factors impacted EPS -$0.07 due to higher interest rates on floating rate debt.
The sales bridge on Slide 7 provides the primary drivers for revenue growth in the 1/4. Volume/mix was -$190 million, or -9.9%.
This volume decrease was anticipated and was in the low to mid single digits in most businesses. We continue to have active dialogue with customers and have been able to mitigate low volumes with operational and cost actions in most businesses.
Two notable exceptions to this were the disrupted demand in a handful of customers in metal packaging and lower than anticipated demand in industrial North America. The fixed cost structures of these businesses make them more sensitive to volume uncertainty, and this had a meaningful impact on the consolidated results.
Acquisitions to divestitures also had a minor negative impact on sales and were accounted for in volume on the bridge. Excluding acquisitions from divestitures, volume mix was negative 9.7%. Price was negative $15 million.
Our pricing performance continues to reflect strategic pricing efforts associated with our commercial excellence strategy, manage selling the value and managing contracts to recover inflation. Most businesses achieved marginally positive price performance in the 1/4.
This was offset by meaningful index-based price decreases in metal packaging and Consumer, and the paper businesses globally and Industrial. The adjusted operating profit bridge illustrates the year-over-year change in greater detail.
Volume/mix was negative $65 million, as operations were impacted by the previous discussed impact of inflationary pricing and destocking at our customers and retail. Price/cost was positive $12 million in the 1/4, as strategic pricing and purchasing offset the predicted impact of $27 million of metal price overlap. Other included higher depreciation and positive effects, and improved operating profit of $4 million in the 1/4. Slide 8 has an overview of our segment performance for the 1/4.
Consumer sales decreased to $924 million. Flexible sales grew mid single digits, rigid paper container sales grew low single digits due to strong price and generally resilient Volume/mix. Sales in metal packaging decreased due to template-based price pass-throughs and inventory management-driven volume decreases at a handful of customers in both food and aerosol.
Consumer operating profits decreased to $95 million, due primarily to lower volume and negative price/cost. Flexibles had record operating profit, rigid paper containers grew operating profit more than 15%. Consumer operating profit margin decreased to 10.3%.
Consumer price/cost was -$20 million. The strong price/cost in rigid paper containers and flexibles was offset by the impact of metal price overlap. Excluding metal packaging, the consumer segment would have grown operating profit over 30% and operating profit margins would have been 15%.
Metal packaging is performing well in a disrupted demand environment and has improved results from the year we purchased the business when adjusted for metal price overlap. We're ahead of plan on our synergy projects, and we believe we've improved the competitive position of the business as we continue to invest in high return projects.
Turning to industrial. Industrial sales decreased to $585 million. Industrial volumes decreased 15% due to lower demand in all key markets and geographies. This decrease was most acute in North America and Europe, though all regions were impacted. Operating profit decreased to $87 million, as positive price/cost was offset by lower volumes and negative productivity from deleveraging. Notably, this was only $7 million less than the record results in the first 1/4 of 2023.
The industrial segment achieved positive price/cost of $21 million, as commercial excellence activities continue to align price with the value our products create. Operating profit margin increased to 14.9%, a meaningful improvement from previous cyclical lows. All other sales were flat at $197 million. Operating profit increased 73% to $29 million.
Moving to Slide 9. Our capital allocation framework is aligned with our business strategy to drive value creation for our shareholders. Our priority is to allocate capital to high return investments in our core businesses to drive growth and improve efficiency. We remain focused on increasing the dividend, which at present is $0.51 per share on a 1/4 ly basis, or greater than 3% average yield over the past 12 months.
After capital investments in the dividend, we prioritize investments in accretive M&A aligned with our long-term strategy, balanced against our strategic priority of maintaining strong liquidity and access to capital. We ended the second 1/4 with over $1 billion in total liquidity.
In the second 1/4, we generated $251 million of operating cash flow and invested $78 million in capital expenditures. On Slide 10, we have our guidance update. Our Q3 EPS guidance is $1.25-$1.35. We're revising our full year 2023 EPS guidance to $5.10-$5.40. We're also revising our full year 2023 adjusted EBITDA guidance to $1.2 billion-$1.07 billion.
We are affirming our full year 2023 operating cash flow guidance to $925 million-$975 million. We anticipate closing the RTS and WestRock paper mill acquisition this year, and this is not in our forecast. Now, Rodger will discuss the 2023 outlook.
Rodger Fuller (COO)
Thanks, Rob. If you'll please turn to Slide 11 for our view of segment performance drivers for the 3/4 of 2023. First, with the consumer segment for the 3/4, we expect continued strong performance in our global rigid paper containers from both existing and new products, as sustainability-driven initiatives are driving a pipeline of new growth opportunities.
On a positive note, select European customers are launching our all-paper products in European markets this summer, using Sonoco's unique and proprietary technology. In fact, we're expanding capacity for rigid paper containers in Brazil, Malaysia, and Poland to take advantage of globalization of products that use our technology.
We also expect continued strong performance in our flexible packaging business. The team is doing just a phenomenal job expanding this business with new and existing customers, and their productivity numbers are very impressive.
These drivers will sustain flexibles' performance into the next 1/4. We anticipate metal volumes improving sequentially in the 3/4 as we enter pack season. Both food and aerosol can volumes are below our original expectations for the second half due to inventory destocking that Howard and Rob have already referenced.
Even with lower volumes, metal profitability will improve from higher sequential volumes and the reduced impact of metal price overlap. Lastly, we expect seasonally soft volumes in our rigid plastic foods business, where volume was also a challenge in the second 1/4. Turning to the industrial segment, we expect volumes to decline sequentially from the second 1/4 and remain soft globally through the second half of the year in both our paper and converted products.
All geographies are suffering from persistent demand weakness across our core industrial markets for paper, gum cores, and textiles.
Our customers are citing lower end market demand and customer destocking as factors for these declines. Protective packaging for consumer white goods was up 5% versus a relatively soft demand in 2022. We're also expanding this paper-based protective packaging into the European market. With lower volumes, productivity improvements remain challenging from deleveraging.
We continue to aggressively manage variable expenses as a countermeasure to minimize the impacts from the lower volumes. In our all other businesses, we continue to have net stable demand across this collection of business, with some positive seasonal impacts to note for vaccine shippers and our ThermoSafe products business. We're managing price costs as resin prices remain stable to declining, so minimal impacts to all other businesses from resin in the 3rd 1/4.
Finally, as we've discussed before, we're continuing to invest in high-return capital in all other businesses for productivity and run these businesses as efficiently as we can. We expect to also see the benefits of these improvements into the next 1/4 and beyond. Overall, in the consumer segment in the 3/4, we have seasonal sales improvement, and the all other segment is expected to continue to perform well.
In our industrial segment, we're suffering through a really challenging demand environment. Thanks to our team for their diligence in managing these tough times, as we will see greater benefits in industrial when volumes return, as evidenced by our margin performance in industrial in Q2. With that, Howard, I give back to you.
Howard Coker (CEO)
Thanks for that update, and I think Rob and Roger have covered the results and outlook well. Before we open up for questions, I just want to provide an update on elements of Sonoco that are core to our enterprise strategy, and you can find them on Slide 12. First, I continue to receive questions on where we are relative to reshaping the portfolio. I'll just tell you, it is active.
We are managing a funnel of accretive acquisitions and plans for non-core divestitures over the next few years. As you know, the deal environment is not great right now, and any future selling or buying of assets or businesses will be based on timing for the best value for our shareholders. On the operating model side, I think our EBITDA results prove we are operating well in choppy waters right now.
We have the plans, capabilities and discipline to operate in this market, and we have durable processes to manage and align costs to opportunities and challenges. Given our expectations for market demand, we have amplified our ongoing discipline and expense management. As Rob highlighted, we're continuing to generate solid cash in the business, and our investment-grade balance sheet is strong.
We raised our dividend last 1/4, and we will remain focused on the best ways to generate returns for our shareholders. Finally, our commitment to ESG and sustainability initiatives are unwavering and remain wholly aligned to the core values of the companies. I'll just close with this: A hallmark of Sonoco is to serve our customers whenever, wherever, and however they need us to be, and they know we will be there to help them navigate the future as we have through COVID and a number of other challenges.
Actions we have taken over the past three or four years have resulted in a stronger operating model to handle times of uncertainty. We will continue to adapt and evolve to build a better Sonoco now and in the future. With that, and at this time, we'll be happy to entertain any questions you may have.
Operator (participant)
As a reminder, if you'd like to ask a question at this time, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Ghansham Panjabi with Robert W. Baird.
Ghansham Panjabi (Senior Research Analyst)
Hey, guys, good morning. you know, there's obviously a lot going on with comparisons of the impact of COVID, but you're now around 10% EBIT margins for the consumer segment, which basically matches segment margins from back in 2019. Just curious, Howard, you know, and Roger, is this the right baseline for margins on a go-forward basis?
Howard Coker (CEO)
On the consumer side, Ghansham?
Ghansham Panjabi (Senior Research Analyst)
Yes, exactly.
Howard Coker (CEO)
No, I, I think if you look at the impact and, if you, if you go back to, what we've well-publicized with the, the metal issues that we had to, to absorb, really year-to-date and through, the first 2 months of the second 1/4, really brought those down. Actually, we expect to be, be North of the 10%, well North of the 10% on the go-forward basis once we clear out some of these one-off type events.
Ghansham Panjabi (Senior Research Analyst)
Okay. On the industrial side, I mean, you know, I think you mentioned 15% decline in, in volumes in the segment. You know, obviously, end markets are weaker, and that's playing a major role in that. I'm just trying to reconcile that versus the operating margins you're delivering in that segment, which are quite a bit higher relative to your historical baseline, and just, you know, your thoughts as it relates to the sustainability of that margin threshold.
Howard Coker (CEO)
Yeah, Ghansham, you know, not, not to go back too, too far, but, you know, talk about the last 3 or 4 years, but really the last 5 or 6 years, we have really put a lot of capital towards improving the performance of our industrial business on a global basis. I, I won't talk through all of the projects that and opportunities that we've pursued over this period of time. The one I will is is Project Horizon. What I'll say about Horizon is, you can say, look, on the surface, with volumes where they are, we have not been able to take advantage of the productivity associated with that, that investment.
On the other hand, it also took us out of the corrugated medium market where we are non-integrated and a very small machine and scope of the rest of the industry. Which you think about previous times where we saw similar type slowdowns, be it in COVID or even all the way back to the 2008 or 2009 time period, we self-helped ourselves by 15% of our North American paper volume is no longer tied to a market that we have absolutely.
Really, at the time, had absolutely no, no outlet for that capacity. That's. Using that only as a reference to the number of projects that we've undertaken to improve the overall durability of our industrial business.
Ghansham Panjabi (Senior Research Analyst)
Perfect. Thank you.
Operator (participant)
Our next question comes from the line of Gabrial Hajde with Wells Fargo.
Gabriel Hajde (Analyst)
Yes, good morning. Thanks for taking the question. One was something we, we kind of picked up in the trade publications here in the past week or so, talking about URB imports into the U.S. I don't really recall this something as a topic we've read about maybe, I don't know, in the last 10 years or something like that. Just curious, Howard, do you view this more of a function of kind of local demand patterns that producers are maybe experiencing in their, in their local markets? Perhaps something maybe that you expect to persist for whatever reason. Just curious if, if you're moving anything around your own system, just based maybe on, on ability or, or cost of OCC.
Rodger Fuller (COO)
Hey, Gabrial, this is Rodger. You know, imports of URB into the U.S. is really nothing new. I know it was picked up in the publication, but there have been imports coming in for many years. It did stop during COVID because of the high cost of logistics and transportation, and it's picked back up now as the cost of containers have returned to more reasonable levels. That's new. As far as our system, you know, we're represented in every region, so we really don't move board from region to region simply because we don't need to do that.
When, when volumes are soft, like they are now, seeing board come in from on the East Coast, from places like Italy or on the West Coast from, from Asia, is not unusual, and we've dealt with that for many years.
Gabriel Hajde (Analyst)
Okay. I guess, maybe a question going into 2024, I mean, or to the extent that we, we see some of these kind of choppy order patterns or, or maybe softer than what we'd expect, demand, can you talk about just, I guess, your ability, I mean, to, to variabilize the cost structure or, I mean, you guys have been fairly active to drive margins higher here of late on the commercial side? Maybe how demand-dependent, some of your productivity is, that you talk about getting on an annual basis, and if there's anything kind of outside of pattern that you could do, as things are soft right now?
Rodger Fuller (COO)
Yeah. We're obviously are taking the necessary right-sizing actions to match the current demand profile, and that's across operations and certainly as on the fixed side as well. You know, as we look, the encouraging encouragement I have about what's going on right now, we've said all along, well, I'll say all along, the last several periods that we are in a better position today to handle uncertain times as we're in right now.
It just, you know, makes me feel very positive as we'll see, hopefully see, demand start to pick back up, and the ability to leverage that beyond, you know, the margin profiles that we're looking at right now. I guess, calls for a really positive viewpoint as volumes do recover.
Gabriel Hajde (Analyst)
Okay, thank you. Good luck!
Operator (participant)
Our next question comes from the line of Mark Weintraub with Seaport Research Partners.
Mark Weintraub (Analyst)
Thank you. first, could you just kind of update us, in your, your guidance, how much is the metal price overlap? Is it still kind of in the $40 million region or, has that changed?
Rob Dillard (CFO)
Yeah. Hey, Mark, this is Rob. For, for the 1/4, metal price overlap was -$27 million, and so that includes, you know, what we incurred this year, plus the year-over-year impact. In Q1, as you remember, that was $86 million. That's, that's largely completed, if not totally completed, for the year at this point. The full-year metal price overlap will be $113 million.
Mark Weintraub (Analyst)
Okay. You, you cut your, your guidance on EBITDA by $80 million. Could you kind of walk through what the, the, the biggest components of that reduction would have reflected?
Rob Dillard (CFO)
Yeah. It was a, you know, a 5%-15% decrease in the EBITDA guide. If you think about that by segment, you know, consumer is gonna be down, we're expecting between 15% and 20%. You know, largely driven by the metal price overlap, which we just discussed, and then also some, you know, relatively negative or meaningfully negative performance in plastic foods, which has been down, you know, due to the perimeter store business, which we're working through right now.
Industrial is gonna be relatively flat, actually, year-over-year, you know, with some positive price/cost and Volume/mix kind of offsetting each other. Other will be up, you know, 40%-50%, and that should bridge you to the total impact for the year.
Mark Weintraub (Analyst)
Okay. Just to clarify, in terms of what the delta versus your prior expectations, where was that concentrated?
Rob Dillard (CFO)
It's really in industrial. You know, I think that when we originally set up the view for the year, we saw that the industrial would only really have these negative, these low volume environment for the first half, and that we'd see some moderation in the second half. What we're seeing really with our customers is, people have, they haven't seen it this low for this long.
You know, we are at kind of, 2009 kind of levels in terms of volumes from an industry perspective and a utilization perspective. There has been this expectation that, it has to recover sooner than later. Our current view is that it won't recover in 2023.
Mark Weintraub (Analyst)
Right. And it, it really is striking because it, it had fallen quite a bit, even in the second half of last year. I mean, are you getting a better sense as to how much of this may have been a function of the volumes having been inflated during the pandemic versus a destock, or sort of where, where the trend line would be?
Rob Dillard (CFO)
No, we don't, we don't think that there was inflated volumes at all during, during COVID. Actually, there was a, a modest slip down. We think that this is really just complete destocking of that industry and some disruption associated with inventories.
Mark Weintraub (Analyst)
Okay, super. Just one last quick one, if I could. Just on RTS, any update? You did say you anticipated it to close by the end of this year. I, I believe there's a, that second request. Any, any color you can give us in terms of how that's progressing?
Howard Coker (CEO)
Yeah, Mark, it's Howard. We expect to be closed late 3/4, early fourth 1/4.
Mark Weintraub (Analyst)
Okay. Thank you.
Operator (participant)
Our next question comes from the line of Anthony Pettinari with Citi.
Anthony Pettinary (Analyst)
Good morning. This is Greg on for Anthony. My first question is on the pack season. We've heard comments from others around maybe some inclement weather, you know, kind of a lackluster harvest season impacting this year. I'm wondering from your perspective, how would you characterize this year's ag harvest and pack season relative to prior years and then relative to your expectations heading in?
Acknowledging the harvest is totally out of your control, is it possible to quantify the impact of weather or adverse harvests on food can vols in the second 1/4? To what degree a poor harvest is factored into your full year guidance?
Howard Coker (CEO)
Yeah, I would say, if you really got deeper into our, our, our metal volumes were, were, pretty similar with to what CMI data, the public data represented. Then when you really dig into it, it's down to a couple of discrete customers on the food can side and on the aerosol side as well. If you take those out, you are actually flat to up.
What we're seeing from a pack-sizing perspective, what we're seeing from, one in particular, is that things are starting to pick up now, and expect that, that, they should should start normalizing, as we enter into the 3/4.
Others, the other couple related to conscious choices of price over volume, also we're seeing that the volume is starting to return there as well. Similarly, not pack related, on the aerosol side, same as we enter the 3/4, July does not make a 1/4, we are seeing remarkable improvements in a couple of aerosol accounts that brought us down.
Broadly speaking, and Rob talked to this, we're extremely pleased with the performance of the business, the integration, the synergies obtained, and frankly, the market reception that we've received.
We view this as, this, this second 1/4 phenomenon as not being, one of, of any concern at all. We feel like we are starting, we are starting to see in July. Our customers are telling us that, that we are making a, a positive turn at this point in time. Hope that helps, Greg.
Anthony Pettinary (Analyst)
Thank you, Mr. Coker. Yeah, that, that's very helpful. I appreciate the color. Just my, my second question and last question is around price, I guess, across the entire Sonoco portfolio. We've seen weaker volumes now for a few 1/4s, destocking. I'm wondering historically, how and when does volume weakness translate into customer pushback on pricing? If, then, if you could segue that into what you're seeing in today's marketplace, that would be really helpful.
Howard Coker (CEO)
Yeah, you know, let me, let me talk about the industrial side to start with, you know, which is a bit of a head scratcher for us. We've always looked at, if you think about what our industrial business, we, you know, we supply the beginning of really industrial and consumer supply chains. Historically, what we would have seen is that as the industrial businesses slow, we see it adverse or the opposite happening on the consumer side, that's starting to pick up.
This is kind of a unique situation that we're in right now, where industrial, if you're looking at the data and data alone, you would say that the global economies are in pretty big trouble. But that is not what we're hearing, but it, it's certainly what we're feeling.
Question mark from our perspective is, what is going on here for the, for textiles, films, major markets to be down on a global basis, as they are understandably in Europe, where they, I think, acknowledged in a recession, we understand it.
We're not, we have not thus far seen the pickup on the consumer side, and I think that relates to your question, Greg, is how many customers, and, and we are seeing customers saying, "Hey, look, we're, we're taking price over volume at this point in time," but we're starting to see cracks in that. That, we are seeing more promotion activity. Our customers are telling us that, that we should see some improvements going forward on the consumer side. The industrial side is the, is the real head scratcher right now.
I will say again, that the position that we've put ourselves in, in times like this, allows us to perform extremely well, even though the volumes aren't, aren't where we would like them to be.
Rodger Fuller (COO)
Yeah, this is Rodger. I would just add, we have built in some margin compression in industrial into the third and fourth 1/4s, primarily due to higher costs. You know, OCC on average, up, let's call it $8-$10 a ton. Well-deserved wage increases for, for our team. Not so much from price, but some continued inflation in the system. Again, we did build in some margin compression as we get into the second half of the year.
Anthony Pettinary (Analyst)
That makes sense. Appreciate the color.
Operator (participant)
Our next question comes from the line of Cleveland Rueckert with UBS.
Cleveland Rueckert (Analyst)
Well, good morning. Thanks for taking our questions. I just have one follow-up on, on the guidance and, you know, really... Well, a couple of questions there, but, but firstly, you know, how, how did market conditions develop in the second 1/4? I mean, you know, it, it sounds like maybe the plan had some improvement in industrial in the second half built in that didn't materialize.
I'm just curious to understand, like, did market conditions weaken in the second 1/4, or was, was it just this lack of orders that didn't, didn't come through, and, and now, you know, you, you sort of lost some visibility into the second half?
Rodger Fuller (COO)
Yeah, this is Rodger. In industrial, yes. You know, we, as we exited the first 1/4, we expected some improvement in volumes in industrial in the second half of the year. What we're hearing from our customers now, lead us to believe that's simply not gonna happen. As you look at, sequentially, the 3/4 is gonna be down 4% versus our second 1/4 volumes.
That's pretty weak and some continued weakness into the fourth 1/4. Frankly, again, we were expecting some of the inventory had worked itself out of the system, and we'd see some pickup. Now in our guidance, we're not seeing that in the second half of the year. I think that was the biggest volume change from our previous guidance to where we are today.
Cleveland Rueckert (Analyst)
Okay. It's a sort of a lack of improvement, not necessarily, a weakening of market conditions. Right, you sort of?
Rodger Fuller (COO)
Correct. Correct. Correct. Seasonally, Europe is always slower in the 3Q. Again, total industrial seasonally down about 4% versus the 2Q.
Cleveland Rueckert (Analyst)
Just in the industrial business, you know, what, what are your lead times there in, in that business? I'm just kind of curious, like, how quickly do you think market conditions could, could turn around and improve? You know, like, it looks like the guidance, if I just take the midpoints, Q4 is kind of the, you know, the low point on, on EPS.
You know, it sounds like that's conservative, but I'm just wondering, you know, is, is there potential to, to outperform that? You know, do you kind of have, have visibility into the end of the year now, and if, if you do get the orders that, that you're looking for, they'll be, they'll be coming in 2024?
Howard Coker (CEO)
Yeah, Cleveland, the, you know, we don't normally carry large backlogs, just the nature of our business. But, you know, what I'd say is right now, you know, we're, we're basing our forecast on, on the best information that we have.
You know, I, one of the best stats that, that, that I can look at is what, what we're hearing and, you know, across the North American, economic situation right now, being more on a positive trend than most people thought. Is that fully sustainable? You would certainly think that, the business that we're in, which is the, the, the really the point, the tip of the arrow in terms of, the manufacturing, industrial, and consumer, products, that, we should benefit from that.
We don't have that crystal ball in front of us. Our customers can only tell us, what, what they know at this point in time. Yes, we are continuing to drag out the current type of demand profile that we're seeing through the, through the end of the year. Could that change? I sure hope so.
Cleveland Rueckert (Analyst)
Yeah. Yeah, that's, that's very clear. I'll turn it over. Thanks for taking the questions, guys. Appreciate it.
Operator (participant)
As a reminder, if you'd like to ask a question at this time, please press star one one on your touch-tone telephone. Our next question comes from George Staphos with Bank of America.
George Staphos (Managing Director and Senior Equity Analyst)
Hi, everyone. Good morning. How are you? Thanks for the details. Can you hear me okay?
Howard Coker (CEO)
Yep, George.
George Staphos (Managing Director and Senior Equity Analyst)
Happy August. I guess the first question I had, if we look at the sequential earnings downtick, 3Q versus 2Q, Rodger, I think you covered this already on in some of the other questions. Is it roughly 50/50, would you say, between the inflation and the volume downtick you're seeing in industrial? Or how would you frame it for us from the 2Q number to the 3Q guide?
Rodger Fuller (COO)
That's, that's close, George. I think that's, probably very close.
George Staphos (Managing Director and Senior Equity Analyst)
Okay. Thanks for that. What's interesting is that some of the other companies that buy, you know, tubes and cores for winding their products that we cover, have started to see some sequential improvement, still down year-over-year, but seeing improved trends 3Q versus 2Q. Yet, what you're relaying here, is industrial, that's still pretty weak. How should we reconcile that? What are we missing in terms of that interpretation, and which end markets look particularly weak, sequentially, 3Q versus 2Q?
Rodger Fuller (COO)
Yeah, it's really-
George Staphos (Managing Director and Senior Equity Analyst)
For industrial.
Rodger Fuller (COO)
Yeah, right, George, it's Rodger. Textiles and film are the weakest as we look forward. We have seen some recovery in, in the paper side, more on the corrugated side, not so much on printing and writing. You know, what we're hearing primarily from textiles and film, really globally, they're seeing little recovery, and I think it goes back to inventory in the system and their customers working through the inventory that they have in the system. As Howard said, we hope, you know, their crystal ball is not totally correct, but we're going by what they tell us.
George Staphos (Managing Director and Senior Equity Analyst)
Okay, good. We appreciate that color there, Rodger. Last, next question, I should say, then we'll have one other, and we'll turn it over. In metal, can you give us what you believe the year-on-year volume impact to EBIT or EBITDA will be versus 2022? We have the metal overlap, as you called it, over $100 million between 1Q and 2Q. What is the year-on-year impact from volume for metal and consumer EBIT for 2023 versus 2022?
Howard Coker (CEO)
Hey, George, it'll be between $40 million and $60 million this year, and that's volume and the associated productivity with it.
George Staphos (Managing Director and Senior Equity Analyst)
My last question is, when you sit back and you look at your volumes and that impact relative to what's coming out of CMI, what gives you comfort that you are... And I haven't sort of mapped this, so perhaps this would be exactly the same, but what gives you comfort that you are not losing share? Differently, could you give us, you know, on a year-to-date basis, what your volume was by key end market in metal this year versus last year? Thank you, guys, and I'll turn it over.
Howard Coker (CEO)
Yeah, I don't have that in front of me. George, well, I'll do it, Omar. Food down about 10%, aerosols around 14%. Again, when you dig into that, it, it relates to really a couple of customers in both, both segments of the business.
There are stories behind one being more inventory carryover and the other one related to price versus volume decisions that, that customers are making. Well, again, I'm repeating myself, that was a second 1/4 phenomenon that we see pulling out of as we entered the 3/4, more normalized volumes. You know, our take in terms of your question about share, we have not lost any share of that, that I'm aware of at all.
Certainly nothing material, and the market reception has been extremely positive, as Sonoco has entered this business last year. We look at this as just a one-off, if you will, for the 1/4, and that we're gonna be pulling ourselves out of it. Our customers are telling us that's exactly what the case is, and we're, again, excited about the market reception that we've received thus far.
George Staphos (Managing Director and Senior Equity Analyst)
Thank you, Howard. I'll turn it over and try to get back in queue.
Howard Coker (CEO)
Great. Thanks.
Operator (participant)
That concludes today's question and answer session. I'd like to turn the call back to Lisa Weeks for closing remarks.
Lisa Weeks (VP of Investor Relations)
Thank you for joining us today. If you have any follow-up questions, we'll be around after the call, or we can follow up with a scheduled call later. We look forward to seeing you on the road through the late summer and fall, until we share our 3/4 results in early November. Thank you to everyone, and have a great day.
Operator (participant)
This concludes today's conference call. Thank you for participating. You may now disconnect.
