Thank you for joining the Silgan Holdings second quarter 2022 earnings results conference call. Today's call is being recorded. At this time, I'd like to turn the call over to Kimberly Ulmer, Senior Vice President, Finance and Treasurer, Silgan Holdings. Please go ahead. Thank you. Joining me from the company today, I have Adam Greenlee, President and CEO, and Bob Lewis, EVP and CFO. Before we begin the call today, we would like to make it clear that certain statements made today on this conference call may be forward-looking statements. These forward-looking statements are made based upon management's expectations and beliefs concerning future events impacting the company, and therefore involve a number of uncertainties and risks, including, but not limited to, those described in the company's annual report on Form 10-K for 2021 and other filings with the SEC. Therefore, the actual results of operations or financial conditions of the company could differ materially from those expressed or implied in the forward-looking statements. With that, I'll turn it over to Adam. Thank you, Kim, and welcome everyone to our second quarter 2022 earnings call. I'll make a few comments about the second quarter and share our thoughts regarding the remainder of the year. Bob will then review our financial performance and provide more detail about our 2022 outlook, and then we'll be happy to answer any questions at that point. We delivered yet another quarter of record earnings driven by the strength of our operational performance and the power of our diverse portfolio. Silgan's ability to perform in the face of ongoing and evolving economic uncertainties gives us great confidence in delivering another year of significant earnings growth in 2022. We look forward to discussing our strong quarterly results and more importantly, our favorable operational outlook for the remainder of the year and beyond. As you have seen in this morning's press release, we delivered an all-time record adjusted earnings of $1.08 per diluted share, which exceeded the high end of our earnings estimate and represents a 27% increase versus the $0.85 per diluted share reported in the second quarter of 2021. Each of our business segments proactively and successfully managed to mitigate the ongoing impact of inflation and supply chain disruptions while leveraging outstanding operational performance. As expected, certain areas of our business face challenging year-over-year volume comparisons, and we executed our plan to more efficiently manage inventory and to further drive down operating costs. In addition, our exceptional service levels allowed us to continue to meet our customers' needs, and our strong commercial relationships ensured our ability to successfully pass through the significant inflation we are experiencing. Together, these combined actions drove outstanding financial results as we managed through the expected but complex volume backdrop. Given our record first half performance and our outlook for the remainder of the year, which now includes the sizable FX and interest headwind, we are confirming our full-year earnings estimate in the range of $3.90-$4.05 per diluted share, representing a 17% increase at the midpoint over our record 2021 levels. With that, I'll turn it over to Bob. Thank you, Adam. Good morning, everyone. We're very pleased with our overall performance, noting each of our businesses successfully recovered their cost inflation and worked hard to eliminate previous manufacturing disruptions and inefficiencies related to running our plants full out for 18 months, allowing them to reduce costs and improve performance. As expected, volume comparisons versus the prior year were tough, but allowed us to reach our operating efficiency targets earlier than expected. The result was a strong quarter, delivering adjusted earnings per diluted share of $1.08 for the second quarter of 2022, which was above the high end of our estimates for the quarter. I'll also note the quarter was negatively impacted by $0.04 as a result of unfavorable foreign currency translation. On a consolidated basis, net sales for the second quarter of 2022 increased to $195.1 million, or 14.5% versus the prior year to $1.54 billion as each of our segments delivered top line improvement. These increases were largely the result of higher average selling prices due to the pass-through of higher raw material and other manufacturing costs, and the inclusion of $56 million for the quarter from the recent acquisitions, which were partly offset by lower volumes in the metal container and custom container segment and unfavorable foreign currency translation of approximately $45 million. We converted these sales to adjusted income before interest and taxes for the quarter of $186.6 million after adjustments of $3.4 million for rationalization charges and $25.2 million for the charge related to the settlement with the European Commission versus $153.4 million after adjustments of $400,000 for rationalization charges in the prior year quarter. This improvement was a result of increases in each of the segments. Highlights for our individual segments are as follows. Adjusted segment income in the Dispensing and Specialty Closures segment increased $17.4 million to a record $91.3 million in the second quarter of 2022 after adjustments of $100,000 for rationalization charges in 2021. The increase was primarily due to favorable cost pass-throughs, strong operating performance, and higher volumes, including from the recent acquisitions, which contributed approximately $5.5 million for the quarter. These benefits were partially offset by inflation in manufacturing costs and unfavorable foreign currency translation of approximately $5 million in the current period. Adjusted segment income in the metal container segment was $69.8 million, up $11 million versus the prior year after adjustments of $3.4 million in 2022 and $200,000 in 2021, each for rationalization charges. This increase was primarily attributable to favorable price pass-throughs, particularly for non-contract customers and strong operating performance, including from our inventory management program. Partially offset by inflation in manufacturing costs, the expected unit volume decline of 10% and unfavorable mix of cans sold, and unfavorable foreign currency translation of approximately $2 million. Adjusted segment income in the custom container segment increased $3.6 million to $30.9 million for the quarter after adjusting for rationalization charges of $100,000 in 2021. This increase was largely attributable to higher average selling prices due to the pass-through of inflation, strong operating performance, and the benefit from the lagged pass-through of lower resin costs as compared to the lagged pass-through of higher resin costs in the prior year, partially offset by inflation in manufacturing costs and lower volumes. Turning now to our outlook for 2022. We have delivered record performance through the first half of 2022, and our outstanding operations performance in each of our businesses is expected to continue through the remainder of the year. As discussed, we continue to have inflationary headwinds, rising interest rates, and unfavorable foreign currency outlook as the dollar continues to strengthen. As a result, we are confirming our full year earnings estimates in the range of $3.90-$4.05, which at the midpoint represents 17% increase over the record 2021 performance. This estimate assumes current exchange rates for euro to dollar, which will unfavorably impact earnings per diluted share by approximately $0.03 in the second half of 2022 versus our previous estimates. In addition, assuming the current forward curve for interest rates, we anticipate an additional unfavorable impact of $0.05 as a result of higher interest expense. We're also providing a third quarter 2022 estimate of adjusted earnings in the range of $1.15-$1.30 per diluted share, which at the midpoint represents a 20% increase over the record 2021 performance of $1.02 per diluted share in the third quarter of 2021. This estimate assumes current exchange rates for euro to dollar, which will unfavorably impact earnings per diluted share by approximately $0.02 in the third quarter of 2022. Assuming current forward curve for interest rates, we anticipate an additional unfavorable impact of $0.02 in the quarter as a result of higher interest expense. Based on our current outlook for 2022, we're also maintaining our free cash flow guidance of approximately $350 million, as improvements in cash from operations will be offset by the inclusion of the payment for the $25.2 million settlement with the European Commission. That concludes our prepared comments. Justin, I'll now turn it over to you and ask you to provide directions for the Q&A. Well, thank you. If you would like to signal with questions, please press star one on your touch tone telephone. If you're joining us today using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that will be star one. If you would like to signal with questions, star one. The first question will come from George Staphos with Bank of America. Hi guys, g ood morning. Thanks for the details and for taking my question. Two questions to start, and I'll turn it over. The first one, a little bit of a multipart on dispensing. So can you talk about your observations on the cyclicality of dispensing, especially as we may be going into a slowdown, and how your views on dispensing cyclicality or lack thereof have evolved since you first sort of grew the business largely with the acquisitions over the last couple of years? Related to dispensing, you know, on page three of your release, you mentioned a number of things that contributed to earnings, strong operating performance, selling prices, inventory management, cost recovery. Is there a way that you can sort of size those for us to some degree so that we can, you know, bridge your EBIT performance in that segment? The second question, unrelated, and I'll turn it over. Obviously, there's been a lot discussed about can sheet, aluminum can sheet supply. Given recent news, your press release says your guidance assumes you're able to obtain raw materials, which presumably includes aluminum. But can you update us on your ability to source and get can sheet and your exposure there? Thank you. Aluminum can sheet. Thank you. Sure. Thanks, George. I think Bob and I will ham and egg the first question, and I'll come back to the aluminum afterwards. You know, I think as we look at our dispensing and specialty closures segment, I mean, it has evolved certainly over time. I think one of the really interesting things to talk about, George, is what happened right at the time that we acquired the Albéa business. You know, primarily focused in beauty and fragrance right at the beginning of the pandemic, and that volume suffered dramatically at the beginning of the pandemic. What we call the power of the portfolio, the balance of our Dispensing and Specialty Closures segment more than offset the volume declines of at the time was what we would call a discretionary spend item. I think as we fast-forward to today, you're seeing a little bit of the reversal of that. Fragrance and beauty have recovered incredibly well, certainly well in advance of where we were at the time of the acquisition and what we suffered through the early parts of the pandemic. Feel really good about the balance of that portfolio. Obviously, we've got a large food and beverage business that's inside of Dispensing and Specialty Closures. That's very resilient in any time for us historically. I believe our forecast is solid on the Food and Beverage side as well. I think, you know, it's a very balanced business. When we talk about power of the portfolio, we're talking about all of Silgan, but certainly in our Dispensing and Specialty Closures segment, the diversity of that segment itself, the breadth and depth of the products we have, the markets we serve, provide for a very balanced performance in kind of what we continue to call any economic circumstance. Hopefully, that answers that question, George. Then Bob, I'll throw it over to you on the earnings piece of DSC. George, I think I'll try and bucket it for you. Obviously, I called out in the prepared remarks that acquisitions contributed about $5.5 million to that segment. The other two big pieces, really. I'll bucket it into two pieces. One is our ability to pass through price. I think that's a testament to the service levels that we have in that business. Across the board, both in the U.S. and in Europe, we did a really nice job of communicating with customers and getting that price pass-through going through. I think the operational performance and the inventory adjustment kind of goes hand in hand because it's our ability to really get through and past some of the inefficiencies that we've seen over time that really allowed us to kind of proactively go after the inventory levels there. I would say the remaining difference there is probably split between price and then the operational improvement and the inventory. George, your second question on aluminum supply. Yeah, I think how we would characterize it, George is we've been aware of the magnesium situation and supply situation for many months back into 2021. We've been proactively working not only with our suppliers, but throughout the supply chain to mitigate any of the impacts to Silgan or any of our customers. Really for us, there was no impact in the second quarter due to the active management of the situation. Between inventory management and a more diversified supply chain, we expect no impact in the third quarter as well. We think that force majeure situation mostly is going to be resolved early in the fourth quarter. You know, we're certainly aware of it. It's something we've been managing for quite a while now, and it has no impact on the bottom line to our business, and we don't think it's going to have any impact in Q3 or Q4. Hey, Adam. Fair to say that mostly aluminum is in pet, would that be right? Yes. In the metal container business, yes. Okay. That's the metal closures that are also utilized. You like, [aluminum ROPPs] right? That's the majority. Understood. Thank you. I'll turn it over. Thank you. Our next question will come from Adam Josephson with KeyBanc. Adam, Bob, good morning. Thanks for taking my questions. Bob, you mentioned, I think that FX will be a $0.03 drag full year compared to what you were thinking three months ago. Interest will be a $0.05 drag, so $0.08 right there. Obviously, you're maintaining your guidance range. It's a $0.15 range. Is there anything that you could point to that's offsetting those, or are you thinking you might be at the lower end of the range? Can you help me with that issue of what, if anything, is offsetting those drags that you called out in your prepared remarks? Well, you know, obviously, we've got overperformance in the front part of the year, right? Which we think will continue. I guess you do have those things that are, you know, relative to the backdrop of already performing well. We're not necessarily forecasting improvements from where we are right now, in the near term. I may answer the question slightly differently and just as I think about sort of the opportunities and the risks against the forecast. On the risk side, obviously, there could be further FX moves, right? Every $0.05 of change in FX rate is worth about $0.04 to the EPS line for the full year, so roughly $0.01 a quarter. Who knows where interest rates are gonna go, right? We're pegged at the current spot rate right now. You know, obviously, as Adam just said, you know, the raw materials, we think we're fine, but that could cut either way. You know, obviously, we're feeling like we're pretty well through some of our customer supply chain issues, but if they were to recur, that would. Those are all things that would lead us to the lower end. To the operational opportunities, you know, you got, you know, the opportunity to get more efficiencies. Resin costs right now looks like it could be an opportunity for us on a go-forward basis. I think there's some opportunity around pack volume that sits there. That's kind of the puts and takes against the forecast. Okay. Yeah, thanks. Just on the volumes in the quarter, were they much, if any, different than what you were expecting? Can you just talk about any surprises in terms of your volumes in 2Q? Any changes in terms of your full year volume expectations in any of your segments compared to where you sat three months ago? Sure, Adam. I think I'll start with Dispensing and Specialty Closures. I think, you know, the surprise that occurred during the quarter was major retailers coming out and talking about an inventory correction that they were doing within their four walls. The inventory correction we had been talking about relating to kind of hard surface cleaners, our home and hygiene products, really that was between ourselves and our customers and the supply chain amongst us. When the retail folks came out and stated they were going to reduce their inventories, that did impact our second quarter volume. For those products, again, we're talking garden, home, hygiene, primarily with our trigger sprayer volume. Our trigger sprayers were down 32% versus prior year, and that's a surprising number to us that we hadn't seen before. The good news is that volume recovers within the year. You know, you transfer out to the full year of dispensing and specialty, that one quarter change and, you know, the impact to Q3 will reduce our full year outlook for volume in dispensing and specialty. I'd say, you know, our organic volume is gonna be down slightly, but when you consider the acquisitions, we are gonna be up mid-single digits. That's the updated outlook for dispensing and specialty. Most of that also applies to our custom container business, because of the similar markets that they're dealing with. Mm-hmm I n garden and home and hygiene. What I'd also say, Adam, is that nothing about this temporary further inventory reduction changes our long-term outlook. As we turn the page to 2023, nothing about what has happened here has changed our outlook for volume in either one of those two businesses. I'll transition to the metal container business. Really no surprise, the year played out essentially as we'd expected. I think Bob did a very good job explaining the operational impacts that we've been able to achieve on the lower volume that we've had. As we roll forward into Q3, you know, we're expecting our second highest all-time shipment level in Q3 for our metal container segment only to the Q3 of prior year. You know, that volume was up kind of mid double digits, 15% last year. We think the full year volume has settled in metal containers at a rate that's approximately 10% above pre-pandemic levels. That has not changed for us versus our last forecast. I think as we roll metal containers into 2023, you know, nothing's changed there either. Pet food continues to grow. It continues to grow as our share of our metal containers business and continues to grow at a good clip as we go forward. We're feeling good about the volume story in all of our businesses. The real benefit in 2022 is that we're getting back to the operational efficiencies and low cost platform that we had experienced for many, many years pre-pandemic. No, that's terrific, Adam. Just one follow-up to that, your answer, and then one other question, which is, Walmart just came out and said, what, two days ago that they expect further pressure on general merchandise because inflation on consumables is so substantial that it's crimping people's ability to buy apparel, general merchandise, et cetera. Is that something that could further cause further supply chain corrections, if you will? Or is that already something you've taken into account? I think that's definitely included in our updated guidance for the year. I think, you know, that most recent announcement, which was either this week or late last week, and to your point, Adam, that was more about apparel and some other discretionary spend items. The original inventory reduction that the big box retailers announced, I think it was late April or May, that's the one that actually impacted our products. We think we fully factored it into the year. For the most part, as I kind of alluded to earlier, you know, our products are very resilient and have a good share of that dollar that's being spent in very uncertain economic times. I really appreciate it. Just one last one, Adam. I think you said in your prepared comments that your favorable operational outlook relates not only to this year, but also beyond, and that I think you were gonna touch on that further. Any preliminary thoughts on next year that you would care to share with us at this point, just based on what you've seen midway through the year? Do you think these are normalized volume levels across the board? Any thoughts about the baseline for next year would be helpful. Thank you very much. Sure. It's a great question. You know, I think, as we sit here and we talk about 2023, I'll be very clear and say we're before our budget process with our businesses at this point. You know, we're very early days in having those conversations. I think the best example I can give you, Adam, is related to our metal container business. If you go back to pre-pandemic levels, what I would tell you is we had the best food can business in the world. We were highly efficient. We had the right mix of technology between two-piece and three-piece. We had the right operational footprint to support our customers at a cost advantaged and competitively advantaged manner. What I would tell you is we are using that same operational footprint and operational focus to supply roughly 10% more volume today. That's, you know, you drop 10% additional volume into a fixed cost footprint, that's a meaningful change to the metal containers business. As we roll forward into 2023, for clarity, we expect pet food growth to continue next year, and it will continue to become a bigger part of our total containers business. With that growth, we're expecting growth in metal containers as one example. I just think it's really leveraging the operational performance that we've driven cost out of our system yet again this year, and putting the incremental volumes back in on an already efficient system, we're expecting growth next year. Thanks so much, Adam. Our next question will come from Mark Wilde with Bank of Montreal. Thanks. Good morning, Adam. Good morning, Bob. Adam, just to drill a little bit deeper on the can business. You know, through a lot of the 2010s, we had an oversupply or apparent oversupply situation in the food can business in North America, and then we had this big jump in volume in the pandemic. If we take the sort of 10% or partial correction that we're seeing right now, and you factor in the increases in supply that we've seen in the market, how would you kind of characterize the overall sort of operating environment in food cans right now from just a supply-demand standpoint? Sure. It's a great question. I think that as we look at the capacity that's being added, just for clarity, you know, in 2021, we wanted to be very supportive of the market. We actually did increase our sales volumes to those that could not secure their cans elsewhere. As the market was very tight last year, we were able to execute to create more capacity within our system to support the market, and that's other customers, that's other can makers. It's broadly speaking, we believe the food can is an essential product, and it was important to get those products into the market. What you're seeing, some of these capacity additions, is essentially those producers being able to self-make the products that we provided last year that made our system incredibly inefficient. As we enter 2022, I think we were pretty clear saying down volume is gonna be okay for us because it's gonna let us get back to operating our footprint and network as Silgan has traditionally done in a very efficient manner. We think it's pretty well in balance. We think the new sustained kind of normalized rate of food cans is certainly at a much higher rate than it was pre-pandemic. We feel great about the footprint that we have to support our customers, and they're continuing to do very well in the market. Retail data does absolutely support the fact that food and canned food in particular is doing well in these kind of uncertain economic times. Okay. You mentioned the earnings release this morning, a big customer renewal. Could you put any color on that? Well, sure. You know, the release did say that it was a contract renewal in our metal containers business, and it is for our largest steel food container customer. We aren't really gonna go into any of the details to talk the specifics of any customer agreement, but this renewal is consistent, sort of Mark, with what we've done with prior renewals of long-term contracts. To me, it's just another example of our commercial success in the market and how, you know, our very intimate customer relationships and partnerships create values for both parties. We're excited to have renewed that contract. It is for a long term, just like we would typically do in our food container business. All right. Then just one last one for me, just over in custom containers. I know in that business you move a fair amount of volume through brokers and distributors, and I wonder, does that have any impact on sort of when you see these inventory swings going on in the market, does that, you know, more complicated or more multi-step distribution? Does that have any effect in terms of, you know, making those inventory swings sharper? Sure. I think it's muted, but it certainly has an impact. When you bring someone else into that supply chain, there inherently is going to be a little bit more inventory that you have to work through. It's an important part of our business. We've got good relationships through distribution. You know, we think there's a real value where they're providing a set of solutions to customers at the end of the day. You know, for clarity, it does create a little bit more time to resolve some of the inventory issues that we're working through, particularly on these home and hygiene products. Okay. Very good. I'll turn it over. Thanks, Adam. Thank you. Our next question comes from Arun Viswanathan with RBC Capital Markets. Go ahead. Great. Thanks for taking my question. Apologies for that. Yeah, so I guess first off, if we just think about Q3 and the vegetable and fruit pack, I guess, you know, there's been some reports of wetter weather earlier in the year. What are you kind of expecting, I guess, as we go into that period right now? Thanks. Hey, Arun. We do expect a good pack. As we came into the year, we were expecting a more normalized pack. Just as a reminder, last year, our metal containers volumes were up 15% in Q3 as in large part, the vegetable pack was quite strong last year. We're anticipating a very good pack. You know, our volumes reflect that in metal containers, and so far, we're off to a very good start. The pea pack in particular is expected to be at sort of record levels for us. That's a reasonable percent of our overall pack business. Corn looks to be very good. Tomatoes on the West Coast are good. Remember, most of our products, our core veg is Upper Midwest, so a little bit out of the range of some of that 100-degree weather that the Midwest was working through last week. Then on the West Coast, the vast majority, if not all of our tomato crops are actually irrigated. You know, water, while it is an issue in California, we're able to get that for the irrigation of our crops. As we sit here today and we're, you know, one month into the quarter, feeling pretty good about the vegetable pack. Okay. Thanks for that. If I could just ask about resin costs, which, you know, last year were definitely a negative. We have seen some rolling over in spot polyethylene recently, though. How should we think about your, you know, exposure there and potential price cost gap if there is any and margin recovery? Thanks. Sure. You know, resin, as you said, has been volatile really, you know, for the first six months of the year, and for us, it's been inflationary. We have really good mechanisms for passing those costs on to the market and to customers. You go across our businesses. You know, we talk about Custom Containers a lot. They've got very tight pass-through mechanisms, so their exposure is pretty limited to the moves of resin. Our Dispensing and Specialty Closures business has more of a mix of pass-through mechanisms, a little more exposure. You know, our forecast right now for the balance of the year, we essentially take what we know about resin, and we hold it flat for the year. As Bob alluded to, I think there's some upside to our forecast if resin plays out the way the indices are forecasting it to at this point. We've got probably a couple million of favorability built into our forecast. There's probably a couple million more as we go forward if the indices are correct. I'll just remind you that we sit here essentially sort of at the start of hurricane season, and I'm pretty sure the indices are not forecasting a hurricane to create supply chain challenges for us. I think that's really where we are with resin at this point. Thanks. Our next question will come from Gabe Hajde with Wells Fargo. Adam, Bob, good morning. Thanks for taking the question. I wanted to revisit or piggyback off of kind of what George was asking. I mean, I appreciate and I know that you guys are not asleep at the switch. You know, maybe play a little bit of devil's advocate here. I mean, I think to summarize your response, Adam, you said, Hey, you know, we've got a fairly diversified portfolio within dispensing. During the pandemic when some of the semi-discretionary, discretionary items took a hit, we had this offset from surface cleaners, et cetera. But that was also, again, appreciating the fact that there was a pandemic, right? You know, if we go into this slowdown and it feels like a lot of your customers are kinda locked and loaded, you know, for the holiday selling season, and then it'll be about product launches for 2023 kind of in the fragrance, beauty, cosmetic area, how are you feeling about kinda innovation pipeline, new product introductions, things like that? Do you feel like should there be a downturn, a gain, I appreciate food and beverage component, which [$80 million] of that segment will do fine. But that there's maybe some cost out initiatives and you guys be proactive there to maintain profit levels in that, you know, more acquired piece of the business. Yeah. I'll start at the end there, Gabe. You know, we've done a heck of a job of driving out cost across all three of our businesses. You know, that's a hallmark of Silgan. You know, we are good operators. We do operate low-cost facilities, and we do find ways to provide continuous improvement throughout our operations. None of that's changed. I think, you know, maybe the point I'll focus on in your commentary was really our innovation pipeline. As I sit here today, our innovation pipeline for Dispensing and Specialty Closures is as strong as it's ever been. Just for clarity, we are winning in really all of the markets that we participate in, whether it be fragrance, whether it be food, beverage. We've got terrific teams in place. Our pipeline for innovation is full. We've got products that our customers are recognizing the attributes and the favorable attributes that we bring to the market. You know, I think the diversified portfolio speaks for itself. You know, I was trying to give the one example that during the pandemic, you're right, it was a pandemic, but you know, something happened that impacted one segment of our dispensing and specialty closures segment negatively. It also would have a favorable impact to another side of that business. I just think we can probably hypothetically play a bunch of games with what happens next and what part of your diversified portfolio is impacted by that. We feel like we've got a very balanced portfolio that will withstand any economic uncertainty that comes at us. No, I appreciate that, Adam. It sounds like, I mean, I kinda got what I was looking for, which is you guys, it sounds like you're winning some business in the marketplace. The second question, quickly, if you can comment at all. I know, I appreciate it's not a very big business. Food cans in Europe, you know, on one hand, we could say, "Hey, they're, you know, again, they're under pressure, the consumer over there, and maybe the food can does a little bit better." On the other hand, obviously, there's this ongoing conflict. Just curious, any color there? Yeah. I mean, our European business and food cans in particular has done quite well this year. You know, I'd say the European consumer is a little different than the consumer that we have here in North America. They did not have the pantry loading event because they really don't have the same level of pantries to load in Europe, broadly speaking, that we have here in the States and in North America. That business has been consistent from a volume standpoint, and we're continuing to see very good demand across multiple categories, including pet food again, as that's been a growing market for us. The impact of Russia and our volume in Russia is obviously the negative piece of what's happened there in 2022. We're continuing to supply from inventory to the market some essential humanitarian products, particularly vegetable cans for the vegetable pack. Outside of that, it's a very favorable year for us in our European food can business this year. Thank you, guys, and good luck. Thank you. Our next question will come from Ghansham Panjabi with Baird. Hi. Good morning, everyone. This is actually Matt sitting in for Ghansham. You know, I just wanted to touch on some of the significant price increases that are flowing through across your businesses and really focus in on how that might impact consumer elasticity moving forward. How might that be the case across your various businesses, and have you seen any kind of consumer or customer elasticity impact on the business so far? Great question, Matt. I think, you know, starting with our dispensing and specialty closures segment, I think the real impact of some of that inflation is very current right now. I think some of the commentary you see about consumers and consumer activity hasn't quite made its way into our data. What I can tell you is in Q2, the consumer was really resilient as it relates to our products. Our products did quite well in an inflationary environment. It's clear to us that the CPGs are passing through the inflation that they've incurred from their supply base onto consumers. You move over to our metal container business, and that's the one again where I would say, you know, it's a very resilient segment for us. You know, the consumers continue to procure metal containers at a higher rate than they did pre-pandemic. We're feeling really good about that at the retail level. I think as the dollars get a little tighter, you know, the real benefit there are food and beverage packaging, and we've got a significant portion of our overall business portfolio that's in food and beverage packaging. I think, you know, as you get to custom containers, our third business, I do think that, you know, there's a segment there that's food as well that has done quite well through this inflationary environment. You know, I think that the inventory correction that we talked about at retail from a home, from a garden, and from a hygiene perspective, those are a little bit of discretionary spending right now that the consumer seems to be moving those dollars and putting them more towards food and beverage. Again, that's just, that's current information that I don't know that the data has caught up to just yet. Got it. That's really helpful. That makes a lot of sense. And then, you know, I just wanted to focus in on the raw material situation and price cost a little bit. We touched on resin already, but what's your budgeted level of raw material inflation across your business for 2022 overall? How does it compare first half versus second half across your businesses? And then maybe if you could kind of roll that into what the price cost scenarios might look like. What does a tailwind look like as we move throughout the year versus the headwind that we likely saw in the beginning of the year? Maybe I'll give that a shot, and Bob can help me with anything I miss here. You know, you think about raw materials in our metal container segment. You know, we talked about resin already. In the metal container segment, we had come into the year essentially saying the cost of steel roughly doubled. I think that's gonna settle in kind of the high 80%-low 90% increase year-over-year. As you very well know, we have, I'll say, bulletproof, you know, pass-through mechanisms to pass those increases on to our customers. We fight like crazy for our customers and work to offset and mitigate that inflation. Unfortunately, you know, they are bearing the brunt of that, which is then passed on to the consumer. That's roughly in line with what our budget expectation was, and there hasn't been a whole lot of change. I think from an aluminum perspective, staying in metal containers, you have seen some pressure on commodities, certainly on aluminum ingot itself, that has come down through the course of the year. Again, that's almost a direct pass-through for us with our customers in many cases. You know, we think that, you know, the price-cost benefit is pretty tightly connected as far as what we experience and what we're passing through to our customers from a raw material perspective. I'll pause and say, I wanna repeat what Bob said in his prepared remarks. We have done a fantastic job from an operational standpoint, driving cost out of our system. That's getting all the inefficiencies of supplying everyone with a variety of products last year back to a more efficient operation this year across all three of our businesses. That's where the cost benefit has really benefited our bottom line year to date and will continue to do so for the balance of the year. Yeah, Matt, the other thing I would add to that is that obviously a big part of our metal business is under long-term contracts. Adam kind of touched on those contractual pass-throughs, right? Look, we do that for a very specific reason. We enjoy the benefit of consistent volume through the system, which allows us to leverage our fixed costs. They benefit because they get the scale of our purchasing power. It's a little bit different story in the components of that business that are not contracted. That's where we have a little more price-cost favorability there. You know, we are on it. Our businesses are on it from the perspective of making sure that we're capturing that inflation, particularly in non-contract parts of the business. Is the, you know, for Dispensing and Custom Containers, is it basically any price cost tailwind would basically be centered around the resin impact? There's nothing added on top of that? I think, you know, as Bob just alluded to, there's a portion of that business that is non-contract as well, or non-long term contract that there is in certain, you know, pockets of Dispensing and Specialty Closures, we do have some pricing power. We have recovered price in those market spots where we were able to. Again, we've got a metal closures component that fits into our Dispensing and Specialty Closures segment that has very similar pass-throughs to what we just described on the metal container side of our business. Okay, great. That's helpful. Thank you. Our next question will come from Kyle White with Deutsche Bank. Hey, good morning. Thanks for taking the question. Just wanted to focus on metal containers and the volumes there. You initially targeted, I think, mid-single digit declines this year, and it's trending quite a bit below that. Yet your commentary seems to remain relatively unchanged since last quarter, when you point to volumes relative to pre-pandemic levels. Just trying to better understand, do you have a new target for what you think volumes will be this year? And then maybe what's kind of the difference relative to that initial target? Sure. You know, I think we feel roughly the same about metal containers that we did coming into the year. Maybe two things to think about there. One, obviously we had known about the pre-buy impact on the year, and that was factored into our guidance as well. I think maybe the learning that we've had through the first half of the year, Kyle, is that, you know, our customers in pet food who had invested in additional capacity, who have installed additional capacity, continue to struggle with the supply side of ingredients and of labor and other packaging materials. Our cans are ready to go. Our capacity is ready for them, when they're able to fill more volume. The reality is there are still stock outs in pet food at the retail level, and we believe that. They continue to communicate with us that they could sell more if they could fill more. So we had a greater pet food assumption for volume growth in the first half than what has been delivered by our customers simply because they cannot find the labor and secure the ingredients and other packaging materials. So how does that translate into the full year? You know, our Q3 volumes, we always knew Q3 was going to be a very strong volume quarter for 2022. So nothing's changed from that perspective. We think the pack's gonna be a really good pack. As I mentioned, our anticipation for the third quarter, it'll be the second highest shipment level that we've had in our company history compared to the prior year third quarter. How that plays out through the course of the year with fourth quarter, we'll wait and see, you know, what happens with steel pricing as we go into 2023. You know, if we were expecting down kind of mid-single digits coming into the year, Kyle, we're probably just a couple of points beyond that right now because of the lack of our pet food customers' ability to execute against the higher volume that they've invested for. We think that will resolve itself, you know, certainly in the back half, and we're planning on being fully resolved as we go into next year. Got it. Then just two quick follow-ons on metal containers. You had a small closure during the quarter. Can you just talk about that and the reasoning for it and any cost savings related to it? Then on the contract renewal, does that present any kind of margin headwind next year? I think that's typically, historically, you start at a lower point and you work your way up through productivity on the life of the contract. I'll take the rationalization and then Adam can comment on the contract. We did announce a closure in our Lyons facility. That's not really anything new, right? It's back to kind of one of the plants that we had talked about previously in the footprint restructuring. That one in particular is not a reduction of capacity in totality. That's a plant that's been around for a long time. Customers have continued to migrate their filling locations to other geographies. This is just sort of a move of capacity, if you will, to align ourselves with where customers are filling so as to avoid the kind of incidents that we experienced a few years ago, where we were out of orbit with freight and cost structure. Nothing more than that. Then somewhere along the line, you probably noticed that there was some layoffs in the Sacramento plant. That's just routine seasonality that happens year in and year out, just given the seasonality of that particular plant. Kyle, over to the contract renewal. You know, it's just a typical long-term contract renewal. As we've talked about over time, typically, you know, over time, as we make operational improvements and gain a little bit of margin through the contract and operational improvements, that's been kind of revisited with the customer during the negotiation. It's just a very typical contract renewal. Sounds good. Appreciate it. Our next question will come from Daniel Rizzo with Jefferies. Hi, everyone. Thank you for fitting me in. Have you thought about what the effect of energy curtailment would be on your production in Europe or on the production of your customers? A good question, Dan. You know, as we look at, again, kind of our products, we believe our products are essential humanitarian products. You know, a lot of food products that we manufacture in Europe, beverage products that we manufacture in Europe. We feel very good about maintaining our operations throughout the European community. There are some of our facilities, particularly on the dispensing and specialty closures side, that are focused on fragrance. We have spent a lot of time talking to our customers, with our customers about plans to mitigate any impact from, you know, the tightened supply of energy and just how we would work through that. At this point, you know, we don't have the sensitivity to what those plans would mean in 2023. We feel really good about where we are through the end of the year now, and we'll continue those conversations. If there's something to report as we go forward related to 2023, we'll be happy to talk about it then. That's great. Thank you for the color. Just my second question. You mentioned capacity in food cans and expansions. I was just wondering what your current capacity utilization is and what your goal is or if there's a target. Well, if you think about, you know, again, where we were through the pandemic, I would say we were fully utilized through the pandemic, but we were not operating in an efficient manner. While our volumes were greater, you know, kind of our internal dialogue here, we take great pride in making the right can in the right plant, which is right next to our customers. Given the demands on the business, we were making cans in a different plant and, you know, not necessarily next to a customer. The way we want to run our facilities, we're very efficient. We're highly utilized. There is incremental capacity on the shoulders of our, you know, calendar year that we typically talk about. You know, it's volume that would have to travel quite a ways, you know, almost to the point that Bob was just making about the closure of our Lyons facility, to reach consumers. We just don't think that's a very viable option in under normal circumstances. You know, the way we want to run our plants, we're very efficient. We're highly utilized. I don't want to give you a utilization number because it's different by each one of our facilities and each one of our businesses. I'll just tell you, it's the most efficient footprint in the food can manufacturing industry, and I'm gonna say worldwide. Yeah. Dan, I think you can also think about utilization rates in two very different forms, right? As Adam said, the way we want to run our plants is important, and that's sort of historically where we've been, where the rates have been relatively high against the staffing of those plants, which allows us to get to efficiency gains in those plants. During the pandemic, we had shift differential changes that gave us the ability, at least for a short period of time, albeit we ran them that way for 18 months. Right. That's not sustainable, right? This is really getting us back to a sustainable rate of utilization where the plants are at their most efficient point. Okay. Thank you very much. Our next question will come from Alex Lorenzo with Truist Securities. Hey, Adam. Hey, Rob. Congrats on the quarter. Great stuff. Looking forward to more. Actually, all my questions were just answered, so I don't have any more at this time. Great. Thank you. All right. Great. Thanks, Alex. Our next question will come from George Staphos with Bank of America. Hi, guys. Thanks for taking the follow on. On metal, to the extent that you know, can comment. The last time we had a third quarter that was in the $100 million range of EBIT, or in excess, to be fair, was 2015, 2016. Now, on the one hand, volumes will be down off of a record in 3Q. It's gonna be very pack driven, which tends to be lower mix. However, you have said you're gonna be more efficient operationally. Is this a quarter where you get back over $100 million in the metal business after a few years where you haven't been in that range during 3Q? How should we think about that, if you can comment? Well, I think it's a great question, and maybe instead of giving you exact numbers, whether it's $100 million above or below, what I'd tell you is that, you know, we are into a very efficient operating window of time. The volume is 10% greater than it was pre-pandemic level. You know, I would just say, George, you know, we're thinking about a really good third quarter. If you look at the totality of our guidance, our Q3 is up 27% at the midpoint for EPS. Versus the prior year record. A big chunk of that's gonna come from our metal container business and the leverage of that volume on the fixed cost base. Okay. We appreciate the thoughts there. I guess related to metal and maybe something you don't really wanna get into too much discussion on, but could you just remind us for posterity maybe, you know, the background again on the European Commission investigation, and how ultimately the evolution and the settlement wound up relative to what your expectations would've been going into it? Yeah, George, this is Bob. This dates back to, you know, obviously, well into the prior periods. Yep. It essentially deals with one employee in Germany that was accused of you know sharing some information among the trade group on sales volume. I'll remind everybody that that kind of coincides with a period of time where we were doing a lot of work around BPA non-intent in particular. There was you know sort of an industry-wide desire to make sure the industry was able to convert and protect volume for the food can. Be that as it may, the German commission raised it, spent a number of years trying to find some activity there. It ultimately didn't come to fruition, and we had then applied for leniency in Germany. Ultimately, the German authorities dropped it. It got picked up by the European Commission. Based on everything that we knew at the time, we didn't believe that there was much there. Fast-forward, you know, five years plus, spending a fair bit of money on you know proceedings, and ultimately we felt it best to just get it off our plate and move on. That's the settlement. What transpired obviously is that we didn't get the leniency because we didn't think there was much to worry about. Ultimately that's why the differential there. Understood. I appreciate you going through that, Bob. Last thing, there have been a lot of questions understandably on inflation into the second half into next year, and obviously you'll need to manage against that on the raw side. Can you talk to us, not that fixed costs and labor are the biggest portion of your cost structure, certainly not in metal, but nonetheless, can you talk to us a little bit about the inflation we're seeing in some of the fixed line items in your cost structure and how that might look in particular in 2023, and if you have any specific or different ways of approaching it or maybe it's the same playbook in terms of managing against that into next year. Thanks and good luck in the quarter. Sure, George. Probably the biggest inflationary item, other than perhaps energy, is gonna be on the wage line. Obviously contractually, we pass that through. Again, it gets passed through on a lagged basis as part of the index. There's recovery coming, at least in the contractual part of the business. I think generally it's large enough that we and everyone else are gonna have to pass it through. Unfortunately, it's just another element of inflationary consequence that the consumer is ultimately gonna feel. It's, you know, obviously you can just look around and see the order of magnitude of what's happening in the world. It's sizable inflation, so that combined with energy is gonna add up to a fairly sizable pass-through again next year. Where it's not pass-through, how will you handle? Yeah, look, I think it comes right back to the discipline that all of the teams have been, you know, sort of laser focused on through this year. That in particular, where we don't have contracts, and the customer, you know, is bearing the brunt of that right now, we are passing it through. I think, look, let's face it, when inflation is as high as it is, everybody sort of understands that it has to get passed along. Yeah 'Cause it's too big for one party to absorb. Understood. Thank you, guys. Thank you, Bob. Hey, George, I'll come back to your other question about Q3. Look, I think go back and look at Q3 last year, and we were pretty close to that benchmark. Yeah Obviously we had some inefficiencies in that quarter. You know, given everything that we're expecting about Q3 this year, I think you're well within balance to be thinking that this is a quarter that could break the hundred. That's what I was getting at. I appreciate it. Thanks, guys. Our next question will come from Adam Josephson with KeyBanc. Thanks very much for taking my follow-up. This is for Adam or Bob. Just on cap allocation and leverage, it seems like you'll end the year about three times, which is smack dab in the middle of your range. Obviously, you can carry a lot more than that if you need to. Just given the economic environment we're in, how are you thinking about the potential for large acquisitions, repurchases, where you wanna be within your leverage target range, et cetera? Yeah, good question, Adam. Look, I think you had it right in terms of where we'll end. What I would add to that is, you know, obviously we're looking forward into next year thinking that free cash flow improves from the $350 million this year. And so that's, you know, if you think about it, 18 months from now, we'll be sort of headed toward the low end of the range. So I think what that does for us, it gives us, you know, perfect flexibility that if the markets really start to rattle because of leverage, then obviously we've taken that off the table. I agree with you that this business, with its cash flow generation, can handle the leverage for sure. I think, you know, we still keep a keen eye on the M&A markets, and for the right transaction, we would do it. I think one of the other arrows that we have in our quiver, so to speak, is that, you know, we've got some incremental capacity through our bank facility, so we don't necessarily have to go to the credit markets, which are right now a little bit disruptive in order to do a deal. I'm not suggesting we could handle a very large transaction that way, but for small to modest tuck-ins, we absolutely could do that. I think we'll continue to keep ourselves abreast of the M&A market and pull the trigger where it makes sense. Ultimately, you know, we look at sort of share repurchases as the benchmark for any of those activities, right? What's in it for the shareholder for us to do an acquisition versus a return of capital, so to speak. I think that's certainly out there for us to consider. You probably saw that we got reauthorization for up to $300 million from the board more recently. That's just sort of a reset of a previous authorization. I'll tell you that, and you could see it in the financial statements, given some of the dislocation we saw in the stock during the quarter, we bought back about $26 million worth of shares. That's utilization of about 10% of that authorization. I think we will be very opportunistic about which levers we pull around the capital allocation. Obviously, our preference is to continue to try to find ways to continue to grow the portfolio. I really appreciate that. Just my last one for Adam, which is, I mentioned this, I think, on the last call, but your last Investor Day three years ago, you were trying to combat the perception of yourselves as a recession stock, if you will. Now here we are. It looks like we're heading into a recession. Obviously there are merits for owning Silgan in that type of environment. I know that's not necessarily the perception you want investors to have of the company. It's just you own it going into a recession. Adam, what do you think of the investor perception of the company at this point versus what you think perhaps the reality is? Great question. You know, I think that, you know, from my perspective, investors do, and even on today's call, what I would say a lot of questions about our second-largest business from a profit standpoint and metal containers. I think there is still a perception that we are a can business and a defensive business, and just by its very nature. You know, our can business is wonderful. It's a cash-generating powerhouse, and we love our can business. I think that when you think about, you know, the evolution that we've been making over the last, you know, call it five to seven years, we have more growth aspects to our business today than we did five or seven years ago. We're in categories that do provide growth beyond GDP, beyond kind of you know some other lower growth rate product categories. You know, that's exciting for us. You know, it's a blend and it's the power of the portfolio that is the message that we're trying to deliver to the investor and to the market, that we actually provide the best of both worlds. We've got an incredibly stable business that's focused on core products and food and beverage. We've got a strong, competitively advantaged growing business in categories that are growing at a much faster rate. Then when you take our operational performance and our commercial relationships, Adam, we believe we're positioned to grow in those markets at a faster rate than the market itself is growing. I think that, you know, for us, we like to point backwards and talk about what we've actually delivered. I would just say, when you look at what we've delivered from a performance perspective, we're very proud of the results and what our teams have done and the growth that we have provided, and we think that translates to the go forward as well. We're excited about the portfolio that we have and the products that we take to market every day. Absolutely. Thanks so much, Adam. Best of luck. Thank you. Thank you. That does conclude the question and answer session. I'll now turn the conference back over to you for any additional or closing remarks. Thank you, Justin, and thanks everyone for your interest in Silgan, and we look forward to discussing our Q3 results in late October. Thank you. That does conclude today's conference. We do thank you for your participation. Have an excellent day.