Sonoco Products Company - Earnings Call - Q3 2020
October 22, 2020
Transcript
Speaker 0
Ladies and gentlemen, thank you for standing by, and welcome to the Third Quarter twenty twenty Sonoco Earnings Conference Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Roger Schrum, Vice President of Investor Relations.
Please go ahead, sir.
Speaker 1
Thank you, Josh, and good morning, everyone, and welcome to Sunoco's third quarter investor conference call. Joining me today is Howard Coker, President and Chief Executive Officer Roger Fuller, Executive Vice President and Julie Albrecht, Vice President and Chief Financial Officer. A news release reporting our financial results was issued before the market opened today and is available on the Investor Relations website at sunoco.com. In addition, we will reference a presentation on our third quarter results, which also is posted on our website this morning. Before we go further, let me remind you that today's call and presentation contains 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. Furthermore, 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 of those measures to the most closely related GAAP measure is also available in the Investor Relations section of our website. Now with that introduction, I'll turn it over to Julie.
Speaker 2
Thanks, Roger. I'll begin on Slide three, where you see that earlier this morning, we reported third quarter earnings per share on a GAAP basis of $0.82 and base earnings of $0.86 per share, which is above our guidance range of $0.73 to $0.83 per share. Due to the negative impact from COVID-nineteen, this $0.86 of base EPS is well below the $0.97 that we delivered in the third quarter of last year. At a high level, our third quarter twenty twenty earnings reflected mixed demand for our diversified products and negative price cost in our Industrial segment. Partially offsetting these headwinds was very strong productivity driven across our business.
Our third quarter base earnings were above our expectations, primarily due to better operating performance in certain businesses. Most notable are Integrated Industrial North America as well as our Protective Solutions and Display and Packaging segments. I'll highlight that certain important aspects of our business performed in line with our expectations, including our consumer results and the pricecost impact in Industrial. In terms of the $04 difference between base and GAAP EPS, dollars 0.18 is due to restructuring activities and $06 relates to non operating pension costs. These non base expenses were partially offset by a non base income tax gain of $0.20 driven by a deferred tax write down related to the pending sale of our D and P Europe business.
I would like to highlight that of the $24,000,000 of pretax restructuring expense, almost $20,000,000 is noncash and includes nearly $15,000,000 of noncash charges related to actions we're taking in our perimeter of store business. Howard will be talking more about this during his comments today. I'll add that as you can see, we did exclude any COVID-nineteen related P and L items from our base earnings. During the third quarter, we incurred approximately $3,500,000 of costs directly related to coronavirus, including purchasing protective gear, cleaning our facilities and paying employees who are in quarantine for work related reasons. Now looking briefly at our base income statement on Slide four and starting with the top line, you see that sales were $1,312,000,000 down $42,000,000 from the prior year period.
I'll review more details about our key sales drivers on that bridge in just a moment. Gross profit was $257,000,000 $8,000,000 below the prior year period. Despite the reduction in sales, we maintained our gross profit as a percent of sales at 19.6%. SG and A expenses, net of other income, were $126,000,000 and unchanged year over year. Lower expenses tied to COVID, such as travel and group medical, were offset by health and safety costs incurred for the pandemic, strategic spend on technology applications as well as the addition of acquisitions.
Also, we had almost $5,000,000 of unique other income items in last year's third quarter that did not repeat this year, all thus resulting in operating profit of $131,000,000 which is $8,000,000,000 below last year. I'll discuss the key drivers on the operating profit bridge in a few minutes. Net interest expense of $19,000,000 was $4,000,000 higher than last
Speaker 0
actions we've taken this year to strengthen our liquidity position
Speaker 2
million by temporarily holding more cash in lieu of debt repayment. Income tax expense of $27,000,000 was $1,000,000 lower than last year, driven by a combination of lower pretax profits, offset with a higher effective tax rate. Our third quarter twenty twenty effective tax rate of 24.1% was 180 basis points higher than the prior year period quarter prior year quarter due primarily to various discrete items. So moving down to net income, our third quarter twenty twenty base earnings were $87,000,000 or $0.86 per share. And looking at the sales bridge on Slide five, you see volume mix was lower by $54,000,000 or 4% for the company as a whole.
I'll highlight that while our third quarter volumes remained challenged due to COVID-nineteen, the year over year volume decline was a meaningful improvement from the 6.9% decline in the second quarter. This improvement reflects quarterly sequential demand increases in each of the Protective Solutions, Display and Packaging and Industrial segments. Consumer Packaging segment quarterly volume was down $1,000,000 from the prior year or 30 basis points. We did have nice growth in global rigid paper containers, which saw volumes increase by 2.3%, including 3% higher demand in North America. Within plastics, the prepared and specialty foods market had very strong volume growth at almost 16%, but this was offset by significant weakness in the industrial end use market.
Our flexible business saw a continued negative pandemic impact on demand in the confection market due to reduced foot traffic in convenience stores and other venues as well as lower seasonal Halloween volume. I'll highlight that when we remove the weak volume in our industrial plastics business, our third quarter consumer segment volumes actually grew by 1%. Display and Packaging volume was below last year, down $9,000,000 or 6% due to lower demand in domestic displays, paper amenities and retail security packaging. Volume in paper and industrial converted products was down $41,000,000 or just over 8% due to weak volumes in our global paper mill network as well as across our tubes, cores and cone operations. I'll note that this volume decline, however, was a solid sequential improvement over the 10.4% decline that we had in the second quarter.
And finally, sales volume in Protective Protective Solutions was down nearly $3,000,000 or almost 2%, driven mostly by virus related demand weakness. Moving over to price. You see that selling prices were lower year over year by $6,000,000 This was primarily in our Consumer segment, largely driven by resin price declines in our plastics and flexibles businesses. Moving to acquisitions. You see an impact on the top line of $30,000,000 from the tech and can packaging acquisitions in Consumer and the Corenso acquisition in our Industrial segment.
I'll note that Corenso is included in the acquisitions category for just over one month of the third quarter since it was acquired in early August of last year. And finally, foreign exchange and other was negative by $12,000,000 with the largest driver being a $5,000,000 negative impact from foreign exchange translation due to the stronger dollar. And in addition, this includes about $4,000,000 of lower sales from our exit of certain small operations in the Consumer segment. Moving to the operating profit bridge on Slide six and starting with volume mix. Our lower sales volume, combined with the impact of mix, had a negative impact on operating profit of $17,000,000 driven primarily by the Industrial segment.
Shifting over to pricecost. We had $27,000,000 of unfavorable pricecost with about half of this due to nonmaterial inflation. Most of the remaining unfavorable change occurred in our Industrial segment driven by a combination of higher OCC costs and lower market pricing. As usual, there's a slide in the appendix that shows recent OCC price trends and you'll see that Southeast OCC prices averaged $70 per ton in the third quarter, which, although down from the second quarter of this year, was double the $35 per ton average in last year's third quarter. Moving to acquisitions, you see that our Corenso, Teck and Can Packaging acquisitions contributed $2,000,000 to our third quarter earnings.
Next is the impact of productivity, where you see that our total productivity was a strong $40,000,000 year over year. We had solid execution across our productivity levers in materials, shop floor execution as well as fixed costs, all due to a combination of deliberate cost controls and restructuring benefits. And finally, the change in other was unfavorable by $6,000,000 with various moving pieces. Moving to Slide seven, you'll find our segment analysis, where you see that consumer packaging sales were up 40 basis points, driven by the addition of tech and can packaging, partially offset with a slightly weaker demand, lower prices tied to resin, the exit of certain small operations and negative foreign exchange translation. Consumer segment operating profits increased by almost 20%, primarily driven by strong productivity.
Our Consumer segment margin increased to 11.6% versus the 9.8% in the third quarter of last year. Display and Packaging sales were down almost 5%, mostly due to lower demand. Operating profit, however, was up almost 21% and margins improved by 170 basis points to 7.8%. The negative earnings impact from the lower demand was more than offset by fixed cost productivity. Our Industrial segment sales fell by over 7%, primarily due to the weak global volumes.
Industrial's operating profit declined by 42%. This was a direct result of the significant drop in demand as well as the much higher OCC market pricing relative to the third quarter of last year. These headwinds were somewhat offset by solid improvements in productivity. The Industrial segment's operating profit as a percent of sales was 7.5%, a nice sequential improvement over 6.9% in the second quarter, but lower than the very strong 12% in the third quarter of last year. And finally, although Protective Solutions sales were flat year over year, operating profit increased by 25% due to strong productivity.
This segment's margins improved to 13.3% from the prior year's quarter of 10.6%. So for the total company, sales were down approximately 3% and operating profit margin declined slightly to 9.9%. Moving to cash flow on Slide eight. Our year to date third quarter twenty twenty operating cash flow was $490,000,000 compared with $239,000,000 in the same period of last year, an increase of $251,000,000 The largest driver to this increase was the $200,000,000 of voluntary pension contributions, which did reduce last year's operating cash flow. Midway down the slide, you see that our current year to date increase in net working capital of $16,000,000 was $26,000,000 lower than the increase in the third quarter of last year.
Overall, our working capital management has been very solid this year despite the challenging business environment. Moving on to free cash flow, which we define as operating cash flow less net CapEx and dividends. Our free cash flow through the first nine months of this year was $252,000,000 an increase of $284,000,000 over the same period of 2019. Excluding the voluntary pension contributions made last year, free cash flow improved by $84,000,000 year over year. Net CapEx spending was $108,000,000 year to date, a reduction of $36,000,000 compared to the same period of last year.
And finally, our cash dividends paid year to date were $129,000,000 compared to $127,000,000 in the prior year period. On Slide nine, you see that our balance sheet is extremely strong and reflects the cash and debt positioning we did earlier this year in response to the pandemic. Our third quarter twenty twenty consolidated cash balance of $783,000,000 includes $578,000,000 held in short term investments that are very liquid and of high credit quality. Moving on to our debt balances. Our consolidated debt totaled $2,140,000,000 at the end of the third quarter, a decrease of $129,000,000 from the second quarter.
These changes in our cash and debt balances during the third quarter reflect debt repayments, the Can Packaging acquisition and our very strong third quarter cash flow generation. Moving to Slide 10. You find our base earnings per share guidance, which is $0.07 0 to $0.80 per share for the fourth quarter and $3.29 to $3.39 per share for the full year. This range continues to reflect the ongoing uncertainties regarding the challenging macroeconomic conditions stemming from the COVID-nineteen pandemic. You'll also see that we're expecting our full year 2020 operating cash flow to be in a range of $643,000,000 to $663,000,000 and free cash flow to be between $290,000,000 and $310,000,000 Specific to free cash flow, this updated full year outlook is a solid $40,000,000 improvement over our original guidance provided in February.
Turning to Slide 11. I'll cover some of the key assumptions and circumstances impacting our fourth quarter base earning guidance. Related to demand and first related to COVID-nineteen, we expect to have a mixed impact on demand for our products with the net impact being slightly negative to earnings compared to the fourth quarter of last year. In addition, our outlook assumes a typical seasonal year end slowdown in some of our businesses, such as protective solutions and display and packaging. Howard will provide more comments about our fourth quarter demand outlook in a few minutes.
Also, we'll continue our focus on controllable cost reductions in areas such as travel, and we expect to continue driving strong productivity results, although we don't expect our fourth quarter productivity contribution to be as strong as the third quarter. Moving to our pricecost expectations for the fourth quarter. While we forecast that OCC prices will remain stable in the near term, we do expect our Industrial segment to have a negative pricecost relationship compared to the fourth quarter of last year. We expect this negative earnings impact to be similar to what we experienced in this year's third quarter. Specific to certain nonoperational earnings assumptions, we've assumed a third quarter tax rate of 24.8, which is 160 basis points higher than our 23.2% tax rate last year.
Also, our interest expense will be higher than in the 2019 due to our increased debt balances that I mentioned a few minutes ago. These two nonoperational items combined for an expected $03 to $05 headwind versus the fourth quarter of last year. And finally, related to our M and A activity, our fourth quarter guidance includes tech, can packaging and display and packaging Europe. So while we expect the D and P Europe divestiture to close during the fourth quarter, we don't know the exact timing, so have kept the results in our guidance. This business is expected to contribute about $01 of EPS per month during the fourth quarter.
On Slide 12, you see the key assumptions underlying our full year cash flow outlook, and I'll highlight a few of these. We do continue to take advantage of government assistance programs around the world with most of the impact being here in The U. S. For full year 2020, we expect these programs to provide us with approximately $35,000,000 of positive cash flow and around $25,000,000 has already been recognized through the third quarter. I will note that most of this cash flow impact will reverse in the next couple of years.
Next, we've adjusted our 2020 CapEx spending outlook to $180,000,000 from the $195,000,000 we mentioned in July. This outlook continues to include 15 to $20,000,000 of capital for Project Horizon, and Howard will discuss this strategic project more in his comments. We also still plan to defer our voluntary U. S. Pension contribution estimated at approximately $150,000,000 and related to the termination process into 2021, but we do have a related $37,000,000 cash tax benefit this year.
And finally, as you see on Slide 13, our current liquidity position is very strong. It was approximately $1,300,000,000 at the end of the third quarter. This was composed of the $783,000,000 of cash and short term investments that I just mentioned a few minutes ago as well as our $500,000,000 revolver availability. Due to our excellent cash generation and stability of the financial markets, we are using $300,000,000 of our excess cash balances to proactively repay certain bank term loans today as we continue our focus on maintaining an investment grade balance sheet. So this concludes my review of our third quarter financial results and our outlook for the fourth quarter.
So I'll turn it over to Howard.
Speaker 3
Thanks, Julie, and good morning, everyone. Let me start by saying really how proud we all are of the way our associates continue to respond to the critical needs of our customers during these unprecedented times. During the third quarter, our diverse mix of consumer and industrial related businesses reflected the improved global macroeconomic conditions coming off of the pandemic induced recession in the second quarter as we were able to exceed the high end of our bottom line expectations. Our Consumer Packaging segment produced solid year over year improvements as the at home food demand stabilized from the preceding quarter's pantry stocking, while our Paper and Industrial and Converted Products segment experienced improvement sequentially from the prior quarter's lows, reflecting a partial recovery of our global industrial served markets. In addition, our Protective Solutions segment achieved record quarterly results as customer demand rebounded, and our Display and Packaging segment achieved one of its best quarters in more than a decade, really driven by cost reduction activities.
Julie gave you the details for the quarter, so I won't repeat those achievements, but I do want to spend the bulk of my comments highlighting actions we're taking to further improve our businesses. When I first spoke with you in February, I told you we'd be initiating an increased sense of urgency to tackle some of the lingering issues that have been impacting our results. Our first area of focus was addressing our corrugated medium machine in Hartsville. As you're aware, Sonoco is a small independent producer of medium and it made no sense long term for us to remain in this market. As a result, our team engineered what you're familiar with, Project Horizon, to convert the Medium machine into 180,000 ton per year uncoated recycled paperboard machine.
When completed in early twenty twenty two, this machine will be one of the largest and most cost effective URB machines in the world. While we are well into design and engineering of this important project, our team has determined we can drive additional cost savings by modernizing and optimizing our raw material and finished goods handling for the entire Hartsville mill complex. As a result, we plan to spend an additional $30,000,000 over the next two years to construct new paper roll finishing and packaging capabilities, construct a new 160,000 square foot finished goods warehouse to eliminate off-site storage and transportation and provide for 150,000 square foot storage area to accommodate 100 of our OCC furnish for the entire mill complex. When completed in 2022, these projects are expected to drive an incremental $5,000,000 in savings. So combined with the original $83,000,000 calls for Project Horizon, we now expect to invest a total of $113,000,000 over the next two years to drive a combined $29,000,000 in annual savings, and of course, with returns well above the cost of capital.
You probably heard me say that I'm a strong believer in looking in the mirror rather than looking out the window. What I mean by this is we believe we can achieve greater success by investing in ourselves. We believe that investing in this extended project horizon can create significant long term value. Next on our list has been to address the issues we have faced in our perimeter of the store operations on the West Coast. Based on the experience we have gained over the last few years and the need to adjust the changing market conditions, we have made the decision to consolidate three of our thermoforming converting operations into a single focused plant serving the fresh berry and whole fruit markets across the West Coast and into Mexico.
Logistically, we'll be relocating equipment from our facilities Mexico and Washington State, primarily into our larger Southern California operation. As Julie mentioned, total estimated restructuring costs will be approximately $18,000,000 And as you've heard, we have recognized most of that in the third quarter. Once completed, our expectation run rate savings will be approximately 10,000,000 to $12,000,000 We will continue to serve our West Coast and Mexico based customers as well as expand our capabilities to support the growing fresh egg market by redeploying resources both in California and into our operations in Florida. For some time, we've discussed the need to optimize our portfolio, and we took action a few weeks ago to progress our increased focus on our core consumer and industrial related businesses by signing an agreement to divest our European contract packaging business for $120,000,000 in cash. Sunoco built this business from scratch over the past twenty years to serve global CPGs with custom packaging and supply chain management services throughout Europe and into The Middle East, Africa and Asia.
This business has grown to nearly $300,000,000 in sales with 2,600 employees, but the nature of the business produced margins that are lower than most of our consumer and industrial converting operations. In fact, if you remove the business from our financial results, our overall EBITDA margin improves by approximately 40 basis points. I want to thank our dedicated management team and employees in our contract packaging operation in Poland for their contributions to Sunoco, and we wish them all the best with their new owners. We expect the transaction to close during this quarter, and we expect to use the proceeds to reduce debt while providing additional capital to invest in our core businesses. Also during the third quarter, we completed the acquisition of CAN Packaging, a technology driven designer and manufacturer of sustainable paper packaging and related manufacturing equipment located in France.
This acquisition provides us a new option to our paperboard CAM portfolio, including patented technology to produce high performance paper packaging that can be made round, square, rectangular, oval, oblong or even triangular. Adding can packaging innovation, intellectual property and proprietary manufacturing capabilities will allow Sonoco to leverage our strong material science and engineering capabilities to develop a paper packaging solution designed to meet the needs of demanding products and supply chains across a variety of markets. We also see using canned packaging's unique low cost machine technology to expand our consumer products offering into other growth markets. Now looking ahead for the fourth quarter, we assume that global macroeconomic conditions will remain relatively stable and that our customers' demand will experience a normal year end slowdown. On Slide 14 of our presentation, we show you how we believe our businesses will respond to current market conditions.
So looking ahead, we expect our Consumer Packaging segment will continue to benefit for consumers' at home eating patterns. Our industrial related served markets are expected to experience weak year over year demand, but we do expect these markets continue to show gradual sequential improvement. As Julie mentioned, our Paper and Industrial Converted Products segment should continue facing a negative pricecost headwind during the fourth quarter due to higher year over year recycled fiber cost and lower market pricing, and we expect OCC prices to remain relatively stable. I'll mention we announced this week a $50 a ton price increase for uncoated recycled paperboard in The U. S.
And Canada effective November 16. We are experiencing significantly longer backlogs in our mill system and inventories are lower than normal. In fact, we put off a scheduled outage this month to continue running to meet demand. In addition, we are seeing inflation of input costs driven by much higher freight and paper making chemical costs. So this price release is important to keep up with our customers' needs.
We were extremely pleased by the strong third quarter turnaround in our Protective Solutions business, and we believe improved demand should continue into the fourth quarter, especially in our pharmaceutical and appliance served markets. While we do not yet know the role we may play in the potential cold chain transportation of future FDA approved COVID vaccines and therapeutics, our industry leading ThermoSafe temperature assured packaging experts stand ready to assist in a much anticipated launch of new life saving medicines. Finally, in our Display and Packaging segment, we expect to experience continued slow demand for retail promotional display activity, but the related impact of operating profit should be mitigated by continued cost controls. While we have not fully recovered from the pandemic induced recession, we continue to see gradual improvement. I'm extremely pleased with how our teams are executing and delivering strong earnings and cash flow during this challenging time.
Finally, I'm more confident than ever that Sunoco is poised to emerge as a stronger, more resilient company positioned to generate solid returns for our shareholders. Now with that, operator, would you please review the question and answer procedure?
Speaker 0
Our first question comes from George Staphos with Bank of America. You may proceed with your question.
Speaker 4
Hi, everyone. Good morning. Thank you for all the details. I guess the first question that I had, you mentioned some of the puts and takes within the consumer segment in the third quarter. Howard, how did your customers run during the quarter?
Were there any supply chain issues looking out the front end that might have helped or maybe impaired your ability to generate volume in the quarter? And what's the outlook on that flow through to retail at the present time?
Speaker 3
George, our customers, frankly, through the quarter ran well. We certainly saw some disruptions in the second quarter, but really no issues there at all that I can think of. Roger, do you have anything to add to that? No. Things again, the shock of Q2 has been recovered and folks seem to be managing through it fairly well.
Speaker 4
Okay. Thanks for that, Howard. The next question I had is on PICP in Industrial. Obviously, the pandemic has had a pretty big negative effect on you this year. Kudos to you and the team on the productivity there and frankly across the whole organization.
What would you need to see if we had a crystal ball that was perfectly accurate? What would we need to see in terms of macro or demand or whatever else you choose to put into this for paper and industrial converted products to be up year on year in EBIT in 2021 versus 2020? And for that matter comparable with 2019, what would have to happen? And related point, do you have the price increases that you're out with today any benefit at all? I wouldn't imagine so, but any of that built into your guidance for fourth quarter?
Speaker 3
Sure. Thanks, George. I guess what would need to
Speaker 4
be
Speaker 3
happen, first off, frankly, we're seeing it on particularly here in North America as it relates to the paper business. As I noted, we are experienced backlogs not only on the URB side of the business, but on the number 10. So it's certainly not a volume question as it relates to the paper side of the business. And I'm going to jump ahead talk about the price increase. Now we didn't build anything really into the quarter based on the timing of the yield, but that would be the second component to your first question for the paper side of the business.
So we're feeling pretty good as we finish out the year and go into next year. On the tube and core side, you really got to look inside the quarter to see the sequential improvements, certainly quarter over quarter, but we're seeing month over month. So frankly, we will just need to see that continued pace of ramp up. And if it was to continue at the type of rates that we saw from the second half of last quarter onwards, we could be fairly close to the areas that you're talking about within the first quarter of next year, maybe end of the second. But there's a lot of caveats obviously built around that side of it.
Roger, unless you've got other
Speaker 5
No, think you covered it, Howard. George, sequentially, saw improvement in our Cuban core business, the film segment, the tape segment, textile every month of the quarter and the same for the paper segment. Every month of the quarter, we saw improved output. We saw higher unmade orders. And if you look at operating margins for the Industrial segment, it improved from July to August and improved from August to September, and we expect that to continue in October.
Speaker 4
The last one, I'll turn it over. Thanks. If you think about how COVID and the vaccine might affect the business, I know it's too early to call. I know there'd be a lot of there'd be very, very wide guardrails around this. But in the scenarios as you've thought about them, calculated them, painted them, what could a vaccine do for Sunoco on an annualized basis within Protective?
Thank you, guys.
Speaker 3
We've run first off, we have for some time, basically from the beginning, have been working very closely with our customers to make sure that we have the available capacity and we're preparing we are prepared for that. And of course, have run various scenarios in terms of what it could mean to us. And I'm not sure at this point in time we know enough to actually throw a number out there because there's such a wide range. It just really depends on is the solution an existing customer that we're predominant or 100% supply. That's a beautiful thing to think about on the high side, but it could be a solution that is not a customer.
But our expectations are based on the high level of global demand that no matter who comes up with the solution that they'll have to engage across the supply side to ensure that the demand requirements are met. How much did
Speaker 4
you increase your capacity, Howard?
Speaker 3
Roger, why don't you jump in on that one?
Speaker 5
Yes. George, what I'd tell you is, obviously, we've got great experience already delivering high volume vaccines. We do over half of the seasonal flu vaccine in The U. S. Every year.
This year, we're seeing a spike of about thirty percent. So we're going through that season now. We're about halfway through that season at the end of the third quarter. We'll finish it up in the next, let's call it, thirty to forty five days. The nice part about the COVID vaccines coming in is seasonally, they'll be starting to really drive through our system, we think, in mid first quarter and all through second quarter.
So seasonally, the vaccines the seasonal effect that's the slow season for the seasonal vaccines. So we've got existing capacity ready for these six customers and we're meeting with many of them today talking about where can we go ahead and upfront add capacity. So it's hard to give you an exact number except to say we're working closely with all of them and trying to be as prepared as possible for the necessary capacity once they're ready to roll out the vaccine.
Speaker 4
You very much guys.
Speaker 0
Thank you. Our next question comes from Mark Wilde with Bank of Montreal.
Speaker 6
Thanks, Howard. Good morning. Howard,
Speaker 3
I wanted
Speaker 6
just to start off, if we could talk about the decision to just hold the dividend flat. I think probably the whole time you've been working at Sonoco, the dividend has gone up every year. So maybe just provide us with a little color on kind of how you and the Board thought about that decision.
Speaker 3
Well, we're I guess, maybe the easiest way to say, just a bit of extra precaution as we go into the fourth quarter. And if you're talking about the year over year, we did take what we're not doing now, we are planning to take a hard look at it in February. And if we take action in February, we maintain that annual year over year increase. So we just felt like at this time, let's operate with an abundance of caution and revisit this in our February Board meeting.
Speaker 6
Okay. And then secondly, I wondered without getting too kind of granular on the call, just the potential for any kind of further portfolio moves in the wake of the European display sale?
Speaker 3
Yes. And thank you for pointing out non granular. We're certainly looking at continue to challenge our portfolio. We see opportunities and that works in progress.
Speaker 6
Okay. All right. And then the last one I want
Speaker 7
to ask is just if you've
Speaker 6
given any thought to kind of improving the effectiveness of the company in terms of M and A capital. It just it seems like over the last thirty years, you've spent a lot of money on various forms of consumer packaging. But if we step back and look at the company today, the biggest piece of consumer packaging is probably still the legacy composite can business where you've not only grown the core, but you've added things like this deal that you just did in France or that deal you did over in Europe about four, five years ago.
Speaker 3
Yes. We're absolutely I think I've mentioned to most of you, certainly individually, maybe even on a previous call, that we've been going through our strategic planning process. And part of that is talking about just what you're suggesting, going back in time, looking what has been successful for the company, maybe some things that not so. What I'd start with is say that one walk away is outside of the cleaning up of some businesses that you noted earlier, where we feel like we've got a fairly solid foundation. We don't need to add any more capabilities, if you will, from an acquisitive perspective.
And the real takeaway from the early view of our strategic plan reviews I spoke to during my comments, and that's looking in the mirror before you look out the window. And one of the things we're seeing is that we've got as our business units come to us and say, Feed me more capital, I've got more returns to deliver our owners, our shareholders, and we can actually generate even organic growth in businesses that otherwise maybe previously we thought not. So that's where I get into that conversation about investing in yourself. We recognize that's where the highest level of returns correlates to our team coming to us from the paper division saying, give us $30,000,000 more and we can improve the flow of this complex and generate a really nice return. So sorry if I'm being long winded.
It's to say acquisitions are going to be important to us, but they're going to be relative to the markets and the products that we produce today. But you're going to hear from us over time that we're going to spend a lot more activity and dollars around improving the foundation of this business.
Speaker 6
Very good. Thank you. I'll turn it over.
Speaker 0
Thank you. Our next question comes from Gabe Hajde with Wells Fargo. You may proceed with your question.
Speaker 8
Good morning. Thanks for taking the question. Just two quick ones as it relates to Project Horizon. I just want to confirm, Howard, that you're not in fact adding any additional capacity or freeing anything up. This is more about, I guess, improving efficiencies.
And then, and the industry has done a pretty good job or some heavy lifting in terms of keeping supply demand in balance. And, more recently, we heard of someone adding a little bit of capacity on the URB side. I'm just curious if you're still kind of looking across your platform to further optimize or
Speaker 5
if a lot of
Speaker 8
that work has already been done.
Speaker 3
Thanks, Gabe. Yes, project the second phase, Project Horizon, they're basically two different projects. We've got 100 year old mill complex, and I'm not going to try to explain to you the inefficiencies that we have in terms of how we're handling raw materials and finished goods. But it's all about what you said. It's a step up change in terms of efficiencies, not just related to the number 10, but the machine, but to all of the complex.
Yes, aware that new capacity is coming in the market. Look, we are going to continue to challenge our output and our footprint on the URB side. But it's more related to what we've done over the last, call it, four plus years, where we have many of you will remember our NAOS project, where we've increased capacity in our best machines and took out capacity while keeping the market relatively stable. Of course, the same conversation around Project Horizon. New capacity coming into the market, look, that's the whole point.
We're positioning ourselves as low cost producer. We're going to be the strongest player in this market. And if others want to come into the market, so be it. But we're very confident that we're going to be able to be highly, highly competitive going forward. And yes, we are going to continue to challenge how do we become that much more efficient in everything we do.
Speaker 8
Thank you for that. And Julie, maybe on the recent divestiture announcement, now I appreciate that there's some timing associated with it. But assuming you kind of redirect the capital, think you said to kind of pay down debt, can you give us a directional ballpark? And I think you said $01 per month, but just what the net impact might look like for next year on a bottom line basis or something?
Speaker 2
Yes, sure, Gabe. Yes, the full year kind of estimated EPS impact of V and P Europe is around $0.15 So that's what we would expect kind of full year 2020 to full year 2021, roughly.
Speaker 0
Okay. Thank you. Thank you. Our next question comes from Steve Chercover with D. A.
Davidson. You may proceed with your question.
Speaker 7
Thanks. A couple of mine have already been answered, but there's a new company that's making a bit of a splash in biodegradable plastic packaging. And I'm just wondering how hotly you're pursuing biodegradable plastics for some of your perimeter of the store applications?
Speaker 3
Well, not necessarily. There's so much news about so many emerging technologies here. I'm not completely aware of the company you're referencing. But from our perspective, our real focus, the premise stores is PET. It's the rPET content going into the package and where we're spending a lot of our time and effort is ensuring that, first and foremost, that folks understand that a Berry tray is as recyclable as a water bottle.
In fact, its components have been built off of recycled water bottles. And so we're spending more time in terms of educating and participating with the industry to ensure that folks recognize that. And I'll add, now that you bring the topic up, I'm really pleased we have announced really last week that we now have, for the first time ever, Staff Vice President, Head of Global Sustainability reporting in to me to really help organize all our efforts around all our formats within our company. And just to put
Speaker 5
a plug in, her name
Speaker 3
is Elizabeth Rue and been with this company for fifteen years and a superstar. I'm really looking forward to her contributions and further positioning ourselves as sustainable company.
Speaker 7
Well, to be argumentative, but I think the knock on plastic is that we know it's recyclable and we know that the overwhelming majority isn't being recycled. And that's why people are excited about the biodegradable element.
Speaker 5
Yes. That's something to
Speaker 3
Fair enough. And but it's that's what the industry is working on right now is to get that message out and make sure that the collection programs are in place to increase the amount of material that is coming back into the system versus into the landfill. But don't disagree. If there's a holy grail in terms of a fully biodegradable, that's something to be looked at.
Speaker 7
Okay. And one quick clarification from Julie, please. So if the European packaging or contract packaging is $01 per month, then how is the impact in 2021 dollars $0.01 5? I thought it would be less than $0.12 assuming you pay down some debt.
Speaker 2
Yes. Well, I was really focused more on the kind of operating profit after tax impact of that business. There's some seasonality, think, as you know, in the displays business. And so the fourth quarter is generally slightly lower than other particular quarters during the year for that business.
Speaker 0
Our next question comes from Salvator Tiano with Seaport Global. You may proceed with your question.
Speaker 9
Yes, hi. Thanks for taking my questions. So first a little bit on the on your capital structure and capital allocation. Obviously, you raised some debt as many others did in Q2 due to COVID uncertainty, but you seem to be paying these quite slowly even though on a net debt basis, I see quarter to quarter you keep on delevering. So what is the rationale for maintaining most of this debt even after that $300,000,000 you just mentioned on your balance sheet at this point?
Do you see, for example, any near term M and A opportunities that could present themselves and you should be ready to act fast?
Speaker 2
Sal, it's Julie. Yes, I mean, I guess, we did repay second quarter I'm sorry, early in the third quarter, July, dollars 150,000,000 term loan. And I mentioned in my comments, we're actually repaying another $300,000,000 of bank term loans today, just drawing down excess cash. And I wouldn't be surprised, depending on based on what I know today, if we're not if we haven't repaid all of our short term prepayable debt by the end of this year. So we are we wanted to see how the third quarter went came through.
We're extremely pleased with the results of the business and especially the cash flow generation, which, again, is driving this $300,000,000 today. And again, I expect more debt repayment in the fourth quarter. At that point, I mean, again, we've repaid our short term debt. And we've mentioned for next year, we do have spend for Project Horizon. We have our pension termination related contribution.
And in addition to potential acquisitions, we do have some kind of, call it, invest in ourselves higher spend next year that we're also planning for. So all of that comes into play when we look at our cash and debt.
Speaker 9
Okay, perfect. Thank you very much. And my second question is a little bit on the $50 price increase. If you can remind us of how you came out also with the tube and core price increase and if you can remind us within your 1,000,000 ton North America system, how many tons of open market URB sales and converted tube and core sales have been affected by what you announced? And what other pricing mechanisms you have in place?
Speaker 5
Yes, Sal, this is Roger. In round numbers in both our paper and our tube and core business, about 50% or so of our price change mechanisms move off the RISI tan bending chip index, probably about 25% or so move off OCC and another 25% are open market. So as you look at price increases for both paper and tubing core, what you need to think about is what can we do in the open market. So that's about 25% of the volume. And then when does RISI move the TAM Bending Chip Index, which is totally up to that organization as we go forward.
So that's why we built in a minor amount of price impact into the fourth quarter, but more of the impact will come in starting in the first quarter of next year.
Speaker 0
Our next question comes from Adam Josephson with KeyBanc. Question.
Speaker 10
Thanks. Good morning, everyone.
Speaker 2
Good morning.
Speaker 10
Howard, it seems like the confection market is in need of some help. So I hope you and everyone else there is planning to do your part this Halloween season.
Speaker 3
I'm hoping yes, thanks for getting that out and get that message out.
Speaker 10
One more on the portfolio, Howard. So I know you're selling the European display business, but just more broadly, tell me if you disagree, but I think Sunoco's view is somewhat of a hybrid and that you have many defensive characteristics, the balance sheet, the dividend, the consumer business, but you have some cyclical aspects as well, notably the Paper and Industrial business. So you don't fit in a neat bucket either buy Sunoco in an Armageddon scenario or buy Sunoco in some reflationary economic recovery scenario. And I'm just wondering if how if at all you think that affects the multiple at which you trade versus your competitors, if you think there are misperceptions in terms of where you fit in a portfolio etcetera. And just if you're satisfied with the stock's performance given what your earnings performance has been in recent quarters and years for that matter?
Speaker 3
Yes. Thanks, Adam. Of course, no, not satisfied with our stock performance. And to your point, first off, when we talk about cleaning up the portfolio, there's some outliers that I think most of you have even recognized that we're working on. But if you talk on the broad perspective, it has been a long standing strategy of the company that we participate on the consumer side of the market and on the industrial side
And what that has done, and you can go back in time period after period in terms of situations, just like what we went through and are going through right now, where you see a good balance in terms of strength on the consumer side that is able to overcome weaknesses. So in effect, it's kind of built into our entire thesis is that we're a company you can invest in, and we can pretty much guarantee you consistency throughout the good times and the bad times. We've got a balance sheet that reflects that. And as Mark pointed out, a record in paying dividends. We feel like these are all things that are extremely important to the owners of the company, our investors.
And so we're absolutely going to continue maintaining that balance. But I do want to point out again that on the industrial side of the business, if you go back to the last recession, our EBIT margins were vastly different than they are today. And if you think about the amount of self help that we've put in terms of improving our operations, we feel like we've created a new floor as we're walking around this 7% type range and that we should get that business back in normal times to that double digit, low double digit type space. So the strategy is the strategy and we're going to clean it up, but we're going to continue to invest so that we can improve the returns on these foundational businesses.
Speaker 10
I appreciate that, Howard. And Roger, Fuller, just one for you back to the paper backlog in North America, etcetera. So I think what you said was that there was gradual improvement demand improvement throughout the quarter. But you found yourself in a position in which you have very low inventories such that I believe you said you're actually having a postponed maintenance outage. So I just I guess I don't quite understand if it was gradual improvement why you would have found yourselves short of inventory.
And so can you just talk about again the pace at which demand got better? Was there a sharp recovery say in September? Or was it really, in fact, gradual? What you think is driving this improvement? And particularly just given the resurgence of COVID cases throughout the country, are you at all surprised by the demand recovery you're seeing?
Speaker 5
Yes. Adam, thanks. Yes. I don't know if I'd say gradual. Certainly, was gradual in the tube core side of our business.
And again, I think the tube and core volumes for the fourth quarter will look a lot like the third quarter. What we've seen is pretty fast improvement, substantial improvement in unmade orders starting really in the first of July and expanded each month throughout the quarter. RISI reported the unmade orders for September, they were the highest since January, October. You're going to see a higher number, I am sure, which will be the highest since sometime last year. We're turning away orders.
A lot of it is you're seeing the pickup in economic activity. So our specialty category for fluor aligners, external tube and core volume is very strong. So were we surprised? A little surprised about how fast it came on. But I think the fact is it looks like it's going to stick and it seems to expand every day and every week.
So that's kind of where we are today. So yes, the pickup as quick as it happens surprised us, but as far as we're concerned, it looks like it will last through the cycle again.
Speaker 10
Thanks, Roger. Sure.
Speaker 0
Thank you. Our next question comes from Ghansham Panjabi with Baird. You may proceed with your question.
Speaker 11
Hey guys, thanks for fitting me in. I guess just as a follow-up to Adam's question on Paper and Industrial. So your volumes were down 10% in 2Q, just kind of rounding a little bit and 8% in 3Q. How should we expect that progression over the next, I don't know, three quarters? And the reason I ask is because obviously 2Q was impacted by the shutdown, etcetera.
A And lot of other companies that have industrial exposure have commented on a more significant recovery sequentially than what you showed.
Speaker 5
Yes. Again, sequentially, I mean, if you even look outside of our industrial businesses, I mean, think about our auto consumer businesses and the sharp turnaround there. So in some of what you may classify as other markets outside of industrial, we're seeing that. But yes, we're seeing sequentially for paper, we're only giving guidance so far for the fourth quarter. So we're seeing that strength really pick up.
Tubing core, again, I think you'll see flat in the fourth quarter. So as you at this point, I think as far as we can see, those paper volumes remain extremely strong. Do you guys Yes.
Speaker 3
I mean I can get pretty direct and just say as we modeled out Q4, Ghansham, that you noted, the 10%, 8% last, we're I'll just tell you, we're modeling to about a 5% for Q4. So that's inclusive of exactly what Roger talked about with improvement in paper and tube and core as well.
Speaker 11
Terrific. And then on consumer, can you just remind us how big industrial plastics is as a percentage of that segment? How much was it down in 3Q? And then the same for flexibles as well. How much was flexibles down in the quarter?
I'm sorry if I missed that, if you already said it.
Speaker 2
Yes, this is Julie. The industrial business is wow, of the it's
Speaker 1
$130,000,000 in For annual the quarter, it impacts us on a volume basis around $7,000,000 So again, it was fairly substantial impact to that the plastic space. And as Julie mentioned, if you look at our overall consumer volumes, they actually added about a full percent in terms of our volume. So again, kind of shows the impact of that one particular component. Again, kind of offset really strong performance in some of our pure consumer related plastic businesses. Maybe switching to flexible, we were a little bit lower for the year.
And again, as Roger mentioned, that was principally driven by confectionery being down what it was. The other businesses did fairly well. But again, when you're having people not buying those sweets that they normally like to get when they're in and out of convenience stores or traveling as well as the slower build that we see for Halloween this year that's had that negative impact.
Speaker 11
Okay. And then just one final one, maybe for Julie is, can you quantify the temporary savings that you experienced in 3Q that may not repeat going forward? What was the dollar amount of that?
Speaker 2
Our travel, just as an example, was down about $6,000,000 year over year. I think what's interesting is there are costs that are down specific to the pandemic. Group medical is another kind of $1,000,000 or $2 So then you've got the reality that unfortunately incentives are down as well. And so there are various costs that are lower. So I'd call it in the kind of maybe $10,000,000 or so.
Speaker 1
Again, I'll ahead and
There's also some offsets, Ghansham, As we talked about, there are increased costs because of we're having to make sure that our employees are in a safe environment and that so we're having to increase additional costs as well, which we don't remove from our discussion.
Speaker 11
Okay. That's a good point. Thanks so much.
Speaker 0
Thank you. Our next question comes from Josh Spector with UBS. You may proceed with your question.
Speaker 12
Yes. Hey, everyone. Thanks for squeezing me in here. Maybe a build from that prior question is just if you look at the productivity that you guys have done year to date and your comments about your expectations around fourth quarter, you're probably looking at maybe 100,000,000 and $10,000,000 or so in productivity this year, significantly above what you guys have done in the prior years. I guess if you were to bridge into next year and assume a modest volume recovery, how much productivity should we expect into next year?
Or how much give back from this year would you expect?
Speaker 3
Yes, it's pretty hard to say. Before I'm going hand it over to Julie on the specific, but I appreciate you bringing that up because productivity has been really critical to our performance this year. And it's across the board. And I just have to give recognition to the fact of how much energy we've put in over the last three, four, five years as it relates procurement organization to our SBS operational and direct investments. So it's amazing really as we watch these volumes start to slide back in that we're starting to see where we really are able to do a lot more with less.
But Julie, as it Yes, relates to next year
Speaker 2
sure. I'm just looking at 2019, we delivered close to $50,000,000 of productivity. And you're right, this year, I think we'll easily be above $100,000,000 I think for next year, in between those two, when you look across supply chain, fixed costs, efficiencies in the factories, again, we've been really doing a lot of restructuring, as you've probably noticed this year, taking out unnecessary costs that we'll be able to leverage more as those businesses as volumes increase. So I think it's reasonable to assume next year lands basically between 2019 and 2020.
Speaker 12
Okay. So you would expect incrementally productivity to be additive to growth next year, and there's not really a headwind we should consider from some of the temporary items. Is that fair?
Speaker 2
Absolutely. I mean we when you look back at our history, I mean we generate productivity every year across the different kind of levers that we focus on. And so absolutely, we would expect continued contributions from productivity next year.
Speaker 12
Okay. Thanks. Yes, that's clear. And one other one around the Camp Packaging acquisition. I thought it was interesting.
You talked about that expanding into maybe other higher growth markets outside of consumer markets. I was just curious what markets would that acquisition allow you to target? And why is it now that you can target those markets with that acquisition versus what you had prior?
Speaker 3
Yes. Let me this is Howard. To clarify, our definition of markets and my comments were really around geographic. One of the things that this brings with us is machine unique machine building capabilities that are small footprint, low cost, relatively lower volume. It's a different model than Sonoco has traditionally had.
So it's now giving and affording us the opportunity to go into to expand. We're already in Brazil, but to go into Brazil, go into China deeper, Southeast Asia and bring a lower cost but differentiated product to those types of markets. And we're seeing a lot of pent up demand for just that. So when I said markets, it really meant geographies.
Speaker 12
Okay. Thank you.
Speaker 0
Thank you. Our next question comes from Brian Maguire with Goldman Sachs. You may proceed with your question.
Speaker 13
Yes. Thanks. I know we're going late. So I'll try and keep it quick. Just wondered on general inflation, what trends you're seeing?
I think there's been some concern around freight moving higher. And then with regards to resin, any impact in 3Q from resin lags? And any expectations for what we might see in 4Q there?
Speaker 5
Yes, Brian, it's Roger. I think as we look
Speaker 11
at
Speaker 5
Q4 on resin, we're expecting about a 3% or so increase. And as you know, just a reminder, we move typically quarterly. So a small headwind in the third quarter, and we'll see how that plays out next year. There are projections for up to 5% to 7% next year, but we'll have to see. The bigger area we're watching is freight.
We're seeing our freight cost increase month over month, not so much fourth quarter. But as we look at next year, as we renegotiate contracts, that's an area we've really got a strong eye on and an area that we're seeing across the board, and I'm sure other companies are seeing that freight increase coming for 2021.
Speaker 13
Okay. And just last, real quick. I think you mentioned the number 10 machine, the backlogs have improved a lot. I'm guessing you've probably swung everything back over to corrugated medium from recycled pulp. And if you can just kind of confirm that given how tight that market is?
And just any thoughts on maybe adjusting the timing of the conversion of that machine to kind of take advantage of the more improved economics and outlook for corrugated in the near term?
Speaker 5
Yes, Brian. Again, it's Roger. Just a very small amount of pulp on that machine for the fourth quarter, some commitments we've made. Otherwise, we would have stripped it out. We stripped all the pulp out of our URB system.
And really no changes to timing on Project Horizon. That timing is determined by equipment cost, contractor cost. So we really can't pull that up. But at this point, very little pulp sales at all coming out in the fourth quarter.
Speaker 3
Yes. Horizon or the number 10 conversion, I guess the first phase is putting in the new pulping process, which we expect to have that in and feeding the whole network. And as a reminder, that is modern day, handles can handle mix extremely well. That's going to go in probably late next summer. And then we're going to the plan today is to take the machine down itself in December, have it up and running 2022, and you'll see a ramp up period during the 2022.
Speaker 13
Our
Speaker 0
next question comes from George Staphos with Bank of America. You may proceed with your question.
Speaker 4
Hi guys. Thanks for taking the follow on. Real quickly to conclude for me. We talked about portfolio. We talked about productivity.
You talked, Howard, about looking in the mirror as opposed to looking out the window. When we look out to 2021 and then choose whatever year, 2022, 2023, do you have a return on capital goal, an increase in return on capital, 200 basis points, 300 basis points, whatever that might be. The context in the past, you said the margin target is not a strategy. What about trying to grow return on capital given the history of the company where returns have been generally trending lower over the last ten years? Thanks, guys.
Good luck in the quarter.
Speaker 3
Thanks, George. I'd say, we have a specific goal set at this point in time? No. We're evaluating each opportunity, each project on its own merits. So to be perfectly fair, we're building the process right now, and we'll let you know you guys know exactly what we'll be looking at on an annualized basis as we start rack and stacking all of the opportunities we've got in front of us.
But we certainly expect to be flat to accretive.
Speaker 4
Okay. That's helpful. Thank you, Howard.
Speaker 0
Thank you. Our next question comes from Salvi Tortiano with Seaport Global. You may proceed with your question.
Speaker 9
Yes, sorry. Thank you very much for taking my follow-up. Quickly, we've been seeing by some of the producers of food cans both in Europe but also in The U. S. They've been commenting that their customers are commissioning higher plantings because they're trying to have more food cans in their portfolio.
Could this approach essentially cannibalize some of your fruit and vegetable sales next summer?
Speaker 3
Yes. It's really hard to say at this point in time. I wouldn't expect that, frankly, if the categories that we're participating in, particularly canned strawberries, I don't know if that's going to really be a big winner in the market as opposed to fresh. And that's the categories that we're in. We're talking about salads, berries.
I can certainly see if you're talking about canned corns and other products, that statement would hold true. But I really don't think it's going to play any bearing on the side of the market that we participate in.
Speaker 9
Yes, certainly. I mean shifting from strawberries or whatever other plantings that would benefit you to other fruits and vegetables being planted that traditionally would go to food cans. That was I guess, concern.
Speaker 3
Yes, yes. Sorry, we don't we don't anticipate any issues there.
Speaker 9
Okay. Thank you very much.
Speaker 5
Thanks.
Speaker 0
You. Our next question comes from Adam Josephson with KeyBanc. You may proceed with your question.
Speaker 10
Thanks everyone for taking my follow-up. For Howard or Roger, just on OCC, I don't think anyone's asked about it. I think you said that you don't expect prices to go anywhere anytime soon, just appreciating they're already below average. What do you think happens now that China's ban is about to go into effect? How do you expect China to supply itself with fiber?
What does that mean for their imports of containerboard either from The U. S. Or Europe or elsewhere? And how do you expect that situation to play out over the next several months and years for that matter? And what impact, if any, do you think it could have for you guys?
Speaker 3
Adam, as we've talked about in the short term, yes, China is out of the market. They're not going to have their permits next year. All the puts and takes, that's why we feel like OCC is going to stay relatively flat for the foreseeable future. As it relates to how it plays out in the long term, you certainly are aware and have seen all investments that the Chinese companies have made, not only here in North America, but globally. And so I think what we're going to start seeing more and more of is diversions of AOCC, European OCC, into pulping type operations to keep these mills filled.
And we'll have to play that out in terms of how that tightens the market up and the cost implications of that. The other side of it is, as has been noted several times during the call, that we and others have participated in producing pulp when it made sense to keep our mills running. It's going to be interesting to see, because I don't have the answer, As that as we become and the market becomes tighter, what is the price implications as China continues to work of that pulp as China continues to work out their long term supply plans. So really don't have a straight answer for you, frankly never had when it relates to OCC. And I think I won a $5 bet with Roger, as you would ask about OCC.
So
Speaker 4
thanks for bringing that in.
Speaker 10
Thanks a lot. A lot, Howard. Best of luck in the quarter.
Speaker 0
Thank you. And I'm not showing any further questions at this time. I would now like to turn the call back over to Roger Schrum for any further remarks.
Speaker 1
Well, again, thank you all for staying with us, and we appreciate your questions. We certainly also like your interest in the company. So as always, if you have any further questions, please don't hesitate to give us a call. Thank you.
Speaker 0
Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.