Thank you for standing by, and welcome to the Q3 2021 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. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. Should you require any further assistance, please press star zero. I would now like to hand the conference over to your host, Vice President of Investor Relations, Roger Schrum. Please go ahead. Thank you, Lateef, and good morning, everyone, and welcome to Sonoco's third quarter investor conference call. Joining me today are Howard Coker, President and Chief Executive Officer, Rodger 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 sonoco.com. In addition, we will reference a presentation on our third quarter results, which also was posted on the 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 provide useful information to investors about the company's financial condition and results of operation. 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, let me turn it over to Julie. Thanks, Roger. I'll begin on slide 3, where you see that earlier this morning, we reported third quarter earnings per share on a GAAP basis of $1.12 and base earnings of $0.91 per share, which is just above the midpoint of our guidance range of $0.87-$0.93 per share and $0.05 higher than the base EPS we delivered in the third quarter of last year. At a high level, we experienced strong volume growth in many of our businesses, but our third quarter operational results continue to be impacted by significant cost inflation and supply chain challenges. In terms of the $0.21 difference between base and GAAP EPS, the largest item was a $0.30 per share benefit from the use of additional foreign tax credits on our recently amended 2017 U.S. income tax return. Next, we recognized $0.03 per share in GAAP earnings related to net restructuring and asset impairment expenses. Finally, there was a $0.06 impact from a variety of adjustments, including approximately $11 million in discrete income tax expense items, partially offset by $5 million of after-tax net gains running through operating profit. Moving to our base income statement on Slide 4 and starting with the top line. You see that sales were $1.415 billion, up $103 million or almost 8% from the prior year period. I'll review more details about our key sales drivers on the sales bridge in just a moment. Gross profit was $258 million, a $1 million increase over the prior year's quarter. This resulted in gross profit as a percent of sales of 18.2% compared to 19.6% last year. SG&A expenses net of other income were $135 million, an increase of $9 million year-over-year. This increase was expected, and key drivers were higher expenses for normalized management incentives, group medical activity, as well as strategic IT projects. All of this resulting in third quarter 2021 operating profit of $122 million. I'll discuss the key drivers on the operating profit bridge in a few minutes. Net interest expense of $14 million was $5 million below last year due to reduced debt balances and a more favorable mix of fixed and floating rate debt. Income tax expense of $20 million was $7 million below last year due to our lower effective tax rate of 18.1% compared to last year's 24.1%. Much of this lower tax rate was anticipated, we did recognize an increased benefit from project work related to R&D tax credits. Moving down to net income, our third quarter 2021 base earnings were $91 million, an increase of almost 5% compared to the $87 million that we generated last year. Now looking at the sales bridge on Slide 5, you see that volume was higher by $43 million or almost 4% for the company after removing the Display and Packaging sales divested from 2020. Overall, all segments experienced demand recovery or continued strong pandemic-driven volumes, although there was a diverse mix of volume trends within our various markets. Consumer packaging volume mix was up $6 million or 1.1% as very strong growth in flexibles was mostly offset by lower demand in both global rigid paper containers and plastic foods. In our Industrial Paper Packaging segment, volume mix was up $25 million or just over 5%, with a continued surge in post-COVID economic recovery across most of these operations. Our global tubes, cores, and cones franchise volume rose by approximately 12%, and our global paper business increased by almost 3%. Finally, our all other group saw volume mix growth of $12 million or almost 8% when excluding the impact of Display and Packaging from 2020 sales. This was primarily driven by a very strong rebound in Industrial Plastics at almost 45%, and solid demand at ThermoSafe, which grew by 6%. Moving to price, you see that selling prices were higher year-over-year by $161 million as we continue to increase prices to battle inflation globally. This was mostly driven by our industrial segment as we work to recover escalating OCC, freight, labor, and energy costs. In both our consumer segment and all other group, we have also been acting on price increases to recover the significant inflation in resins and other operating costs. Moving to acquisitions and divestitures, you see a top-line negative impact of $111 million, which is driven by the divestitures of our Display and Packaging Europe and U.S. operations, partially offset by the Can Packaging acquisition completed in August of last year. Finally, the sales impact from foreign exchange and other was positive by $9 million. The primary driver is approximately $13 million of foreign exchange gain associated with a weaker U.S. dollar year-over-year. Moving to the operating profit bridge on Slide 6 and starting with volume mix, our higher sales volume of $43 million, combined with the impact of mix, had a positive impact on operating profit of $13 million. Shifting to price-cost, I will remind you that this category includes the earnings benefit from higher selling prices as well as the impact of total inflation. In the third quarter, we had a $14 million unfavorable price-cost impact, with most of this falling in our Consumer Packaging segment. In our industrial segment, we faced continuing increases in OCC costs during the third quarter. As usual, there is a slide in the appendix that shows recent OCC price trends, and you'll see that Southeast OCC Official Board Market pricing was $125 per ton in June and increased to $195 per ton in September, resulting in an average of $175 per ton in the third quarter. This represents a $105 increase relative to the third quarter of last year and a $68 per ton sequential increase just over this year's second quarter. Next is the impact of total productivity, which includes all results from our productivity actions, including manufacturing, procurement, and fixed cost. You see that our total productivity contributed $15 million year-over-year with a favorable impact being predominantly driven in our consumer segment. Moving to acquisitions and divestitures, the $10 million decrease in operating profit is the net impact from the divestiture of our global Display and Packaging businesses and our Can Packaging acquisition. Finally, the operating profit change in FX and other was unfavorable by $12 million with various moving pieces, but mostly within SG&A expenses. Moving to the segment analysis on Slide 7, you see that consumer packaging sales were up by 9.7%, driven by higher selling prices, which were mostly implemented to offset cost inflation. Consumer segment operating profits fell by 5.4%, driven by unfavorable price-cost, but with a positive impact from their strong productivity results. Our consumer segment margin declined to 10.2% versus the third quarter of last year when the margin was 11.8%. Our industrial segment sales grew by almost 30% due to year-over-year price increases as well as recovering demand from pandemic lows last year. Our industrial segment's operating profits surged by 30%, driven by the global turnaround in demand as well as procurement productivity. Our industrial segment's margin profile was unchanged compared to last year at 8.4%. All other sales declined by just over 34%, driven by the sale of the Display and Packaging businesses, but this was partially offset by volume mix growth as well as price increases. Operating profit in all other decreased by almost 68% due to the Display and Packaging divestiture and price-cost headwinds. Margins declined to 4.5% from the prior year's 9.1%. For the total company, sales were up almost 8% and operating profit declined by 6%, resulting in a company-wide operating margin of 8.6%. Moving to cash flow. In the middle of slide 8, you see that our year-to-date third quarter operating cash flow was $220 million, compared with $490 million last year. Back to the top of this slide. I'll note that we had a year-to-date GAAP net loss of $150 million compared to a profit of $290 million in the prior year period. Most of this decrease relates to the $404 million after-tax and non-cash settlement charge related to our pension termination process that was substantially completed in the second quarter. This leaves us with several primary drivers to our lower operating cash flow. One is the $133 million pension contribution related to the pension termination process. Next is the $59 million increased use of cash by working capital, driven both by inflation and by a greater increase in business activity year-over-year. Finally, we had a $35 million negative impact related to last year's COVID-related FICA deferrals that were partially paid in this year's third quarter. Moving down to our year-to-date CapEx spend, our net spend was $146 million this year compared to $108 million for the same period last year. This $38 million increase is mostly due to the spending on Project Horizon. This takes us to free cash flow of $74 million, compared with $381 million for the same period last year. This $307 million decrease, again, is mostly driven by the pension termination process, increased working capital, and higher CapEx spend. I'll note that we paid cash dividends of $135 million year-to-date this year, compared to $129 million for the same period of 2020. On slide 9, you see that our balance sheet and our liquidity position remain very strong and reflect several strategic actions implemented through the first nine months of this year. Our third quarter ending 2021 consolidated cash balance was $160 million, a $405 million decrease from year-end 2020. This decrease was driven by significant deployments of cash this year, which have included the accelerated share repurchase of $150 million, almost $500 million of long-term debt repayments, and the already mentioned $133 million of pension contributions. These cash uses were somewhat offset by the Display and Packaging U.S. divestiture gross proceeds of around $80 million, operating cash flow generation, as well as commercial paper borrowings. Our consolidated debt was approximately $1.5 billion at the end of the third quarter, a decrease of $231 million from year-end, and reflecting the debt portfolio actions that I just mentioned. Finally on slide 10, for your reference, we've included our quarterly earnings history for 2020 and for this year. I'll note that the now divested Display and Packaging businesses contributed $0.29 of EPS in full year 2020, with $0.21 coming in the first nine months of last year. This compares with this year, when we earned $0.03 of EPS in the first quarter before the divestiture of these U.S. operations. Focusing on this year and our fourth quarter guidance, you see that our range for Q4 base EPS is $0.84-$0.90 per share. This guidance includes several key assumptions. Starting with volumes, we expect that demand will remain solid, but this is more than offset by six fewer days than in last year's fourth quarter. For price-cost, our outlook is to have a positive overall result in the fourth quarter as various inflation-driven price increases continue to be implemented. While the Display and Packaging divestiture is a $0.08 headwind, this is more than offset by lower SG&A expenses, lower interest expense, and reduced shares outstanding. I'll add that our expected effective tax rate in this year's fourth quarter is approximately 25%, slightly higher than last year's 23.5%. Based on our year-to-date actual base earnings, plus our updated fourth quarter outlook, we are updating our full-year guidance to be $3.49-$3.55 per share. Related to our cash flow guidance on a full-year basis, we are not changing our full-year free cash flow guidance of $270 million-$300 million. We are reducing our outlook for operating cash flow by $50 million to be between $520 million and $550 million. This reduction is driven by our updated expectations for slightly higher year-end 2021 net working capital balances due to a combination of inflation, as well as increased fourth-quarter business activity, in addition to our updated forecast for the timing and amounts of certain tax payments. These operating cash flow headwinds are offset by our expectations for lower capital spending, which is now approximately $250 million instead of our original $300 million target. As a reminder, our cash flow guidance excludes the $133 million of one-time pension contributions that we made in the second quarter. This concludes my review of our third quarter results and our outlook for the fourth quarter and full year 2021. Howard, I'll turn it over to you. Okay. Well, thanks, Julie, and good morning, everyone. Let me share thoughts on our third quarter performance. Would also like to provide you a brief update on some important capital projects and what we see as we finish out the year. First, we were very pleased with the improved top and bottom line results delivered in the quarter as our team navigated through supply chain disruptions, raw material shortages, and frankly, unrelenting inflation to meet the needs of our customers. Sales reached a record level, driven by an almost 4% improvement in volume mix, despite the impact of the divestiture of the Display and Packaging business. We experienced solid demand in each of our business segments while facing numerous supply chain challenges. For example, we had a sizable consumer customer who shut down for more than a week due to logistic problems, while other customers were impacted by labor and material shortages. Our team did a remarkable job in keeping our plants running despite similar challenges. Base earnings per diluted share improved 6% and above the midpoint of our guidance. Operating profits in our Consumer Packaging segment declined 5% in the quarter as strong productivity improvements were more than offset by a negative price-cost relationship as we continue to chase inflation of critical raw materials and other inputs. Our industrial segment experienced a 30% improvement in operating profit due to strong demand and the associated leverage through our operations. Finally, we were disappointed in results from our All Other segment, which consists of our Industrial Plastics, Protective Healthcare, and Retail Security Packaging units. While the 68% decline in operating profit primarily reflects the divestiture of Display and Packaging, several of the businesses struggled due to price-costs, as well as a high degree of COVID-related volume impacts, such as chip shortages. A key element of our strategy is investing to drive growth and margin improvement. Let me provide you a brief update on some of our large capital projects, starting with Project Horizon. We've made a tremendous amount of progress over the summer. We've completed much of the work on the new stock prep system, which will allow us to use a larger% of lower cost mixed paper. This should be operational by the end of this year, and we expect the machine to be fully converted around the end of the third quarter. We will experience downtime during the conversion, but expect this will have only a minor impact on profitability in 2022 while providing, of course, significant savings going forward. Also in our industrial businesses, we are completing work on a new 100,000 sq ft plant in Tulsa, Oklahoma, where we will be combining our current tube and core operation with two new fiber SonoPost lines to serve growing appliance and HVAC customers in the Southwest. This fall, we are opening a new SonoPost operation in Poland and are working on growth opportunities in Turkey as well as Mexico. Our fiber protective business is attracting a lot of new orders as the market is looking for a more sustainable and durable protective alternative. In our can business, we recently approved approximately $15 million in new capital to develop additional capabilities to produce cans with new options, including paper bottoms and paper over caps. As I mentioned previously, we continue to receive increased interest, particularly in Europe, to convert products into a more sustainable paper can option. These new capital projects will go into our existing facilities in Belgium, Poland, and the U.K. We're making investments in renewable energy projects to help meet our target of reducing greenhouse gas emissions by 25% by 2030. Here in Hartsville, we plan to spend $2.5 million to convert waste methane generated from our mill effluent system into a fuel quality biogas, which will be treated, compressed, and injected into pipelines to be used in industrial applications. We're also investing a $1.5 million to install solar panels on an East Coast can plant and expect to add further solar power projects in the near future. Combining these projects will reduce approximately 5,300 metric tons of carbon dioxide annually while generating returns greater than our cost of capital. Entering the final three months of 2021, we do remain upbeat as demand for our products globally remains strong despite the supply chain challenges we all are facing. That said, inflation continues to be a concern. We expect certain raw materials, energy, freight, packaging, and other pressures will continue well into 2022. We now project inflation, excluding OCC and labor, will rise an additional 1.2% over our previous estimate from last quarter. This means our costs globally this year will have increased by more than $250 million or about 9%. As a result, we will continue executing price actions, and we will remain focused on controlling costs as we work to steer successfully through this continued difficult operating environment. As for volume, we expect our Consumer Packaging segment to continue to benefit from elevated at-home eating trends driven by remote working and consumers, particularly younger consumers, adopting new cooking habits. In most markets, demand for our global industrial products has recovered to pre-pandemic levels. Several of our businesses in the All Other segment, which have been negatively impacted by supply chain interruptions, are starting to see external conditions improve. We've taken actions to improve the overall performance of several of these businesses. Finally, we're pleased that our ThermoSafe cold chain packaging business has picked up significant new orders to provide temperature- assured shippers for transporting COVID-19 vaccines. Sonoco's coming out of the pandemic well-positioned. We have a strong balance sheet. We have strong businesses, and we have a solid cash flow. We'll continue investing in the long-term potential of our core consumer and industrial businesses while remaining committed to returning value to our shareholders through dividends and share repurchases, and as always, acquisitions that fit our portfolio and expand our capabilities. Let me close by inviting you to participate in our live virtual investor conference beginning at 8:00 A.M. Eastern on Friday, December the 10th. While we will miss meeting with you face to face, we will do our best to facilitate an open discussion in this virtual manner. You can expect us to talk in more detail about our value creation strategy, and we'll provide you a first look at our earnings expectations for 2022. Roger will be sending you electronic invitations after this call, so please consider joining us again on December 10. With that, operator, would you please review the question and answer procedures? Our first question comes from the line of Adam Josephson of KeyBanc Capital Markets. Your line is open. Thanks. Good morning, everyone. Good morning, Adam. Morning, Howard. On the price-cost situation, can you just kind of help us with. We know about all the price increases that you've been implementing in your industrial business, specifically URB and tubes and cores. Can you talk about what you're doing in consumer and elsewhere and more broadly, try to help us frame the price-cost drag that you're expecting this year or the EBIT margin hit that you're expecting this year? Give us some sense of what kind of recovery might be reasonable to expect next year based on all these price initiatives you have and if you were to flatline current costs or however you would want to frame it for us. Yeah, Adam, obviously, it tends to be the topic of the day on the industrial side as it relates to OCC. Certainly, we've spent a lot of time talking about resin. Just simply stated in terms of actions we're taking, certainly we have been pretty public in the open market in terms of our non-contract accounts. We have pretty solid cadence of recovery across all of our businesses. I will say on the consumer side, particularly on the can business, we've got some pent-up increases that are coming January 1 that have not had the opportunity contractually to pass through, let's just say, the second half of this year. Not to give you specific numbers, we're feeling extremely bullish. I think you all know and see what's happening with the OCC side of things. We've seen moderation, if you will, on the resin side. Of course, we do expect that we're going to be seeing increased inflation going into 2022, particularly as it relates to metals, well publicized as it relates to energy, freight labor. Frankly, I'm very comfortable that we're going to be on top, if not ahead of that as we move through next year. I hope that gives you some clarity of our thoughts. It does. Thanks, Howard. Specifically on resin and OCC, just given how large they are for you, can you just talk about what you're seeing, the magnitude of declines you're expecting in polyethylene, PET, OCC, et cetera, or in 4Q and even beyond for that matter, if you're willing to go out that far? Yeah. I'm going to turn to Rodger to get into hopefully more detail than I'm certainly able to. You see what's happening in OCC. Our indications are that, and our feelings are, our modeling right now as we look into the fourth quarter, is that we're going to fall more into that seasonal type pattern. That we do see some pullback, and are reflecting that in our guidance for the fourth quarter. Rodger can certainly give you even more color on that. Thanks, Howard. Yeah. On the OCC, Adam, we're thinking mid-$180s for the fourth quarter. We'll talk more about next year and OCC in our December meeting, but that gives you guidance for the fourth quarter. On resin, we are finally seeing some signs that the market is turning to be more balanced. If you look at the basic raw materials like polyethylene and polypropylene, we've seen those top out. They're not announcing price increases, but they're not going through. They're being pushed down. I think that's a very good sign. We're seeing some material now in the secondary and spot markets. On the other hand, if you look at foaming resins like expanded polystyrene, EPP, polyurethane, we are seeing those continue to escalate in the fourth quarter and into the first quarter next year. EPS is as much demand as there's consolidation of the suppliers in the marketplace. Finally, the most impactful to Sonoco is the PET market. That's about half of the basket of resins that we purchase. We're seeing escalation continue in the fourth quarter for both virgin and recycled grades, and we expect that to continue into early next year as well. On average, the fourth quarter is slightly up versus Q3. Just being slightly up is so much better than we've seen in the first three quarters of the year from a quarter-to-quarter standpoint. As Howard said, we have seven resin-based businesses with some mix of price change mechanisms. Four of those seven will turn price-cost positive in the fourth quarter, two will be closer to flat, and one will still be negative and catching up. More to do with supply and demand versus price-cost and price increases in the marketplace. Hopefully that gives you a little feel for where we stand. Yeah, no, that's perfect. As Howard said, much more positive going forward on recovery and what we're seeing in the resin market. Thanks, Rodger. Just one last one perhaps for Julie on the CapEx guidance. Can you just talk about, is that Project Horizon related? Is it something else? Should we expect that to just come back next year such that CapEx would be elevated? Just any details, Julie or anyone else, would be helpful. Thank you very much. Yeah, Adam. Howard? Yeah. A big part of it is Horizon, but as you can only imagine that with all the supply chain freight, personnel availability to execute on the level of capital we had expected to have in place this year, we just don't think we're going to be able to get everything accomplished that we had expected. to your point, yes, we do expect to see an increase in carryover into next year. as Rodger just noted, as we're together in New York, we'll give you much more clarity in terms of what our expectations are next year for capital spend. Thanks a lot, Howard. Thank you. Our next question comes from Mark Wilde of BMO Capital Markets. Your line is open. Thank you. Good morning. Howard, for my first question, I'm just curious, are you seeing any sign of these supply chain issues starting to ease at all? Not much. I would say that we're not seeing all that material issues in terms of impacts to us and to our customers. We're seeing pockets. I would say it's not a systemic type issue for us today. I've cited a case in the third quarter where we had a customer that couldn't get packaging materials that shut them down for a week. The ones that really are sticky right now for us have to do with chips. that's impacting us on the automotive and our protective white goods space. We've got an example, again, showing that it's not systemic, but we've got an example going into the fourth quarter where we've got about a $3 million headwind having to fly critical components from Europe to keep operations going. To answer your question from a holistic perspective, it seems to be much broader across the economy in general, but not as material to us as advertised in the opening. Okay. The other question I had is just to unpack sort of what went on in consumer packaging in the quarter. On the upside, I'm curious about the benefit you got from a more normal Halloween this year. Is there any way to quantify that impact? Yeah, sure. That obviously was an impact in our flexibles business. As we noted before, flexibles, with all of the eating at home, was actually not benefited through last year in the heart of the COVID crisis. We saw a nice pickup, I'd say somewhere around 13%-15% improvement in volume in flexibles alone. If you look at our can business, globally, we were just 1%-2%, 1.5% down. You dig deeper into that, the biggest impact there was in North America. What I'd say there is that was the case, the example I gave in the commentary, where we lost a major customer for a week. Back to, I guess, Adam's question or your earlier question about supply chain. We don't talk about it a lot, but in our can business, we are a very large supplier in adhesives and sealants industry, probably 10% - 15% of our North American volume. That is a case where we saw a lack of material availability to our key customers in that segment. To carry forward on cans, Europe continues to shine up about 4%. Asia was about flat, but that is truly COVID in that our largest operations are in Malaysia, and they went through a series of shutdowns last quarter and this quarter. Tons of pent-up demand. We expect as we're opening back up there, that they're going to get right back on track with double-digit type growth rates. Hope that helps you kind of get an understanding of what's going on. That does. The one other question I had around consumer packaging, you called out the weakness in fresh food, and I wondered if you could unpack that for us a bit. How much of that would be just soft markets, and how much of that might be in some of these rigid plastic areas, like for produce, where you're maybe facing more competition from fiber-based alternatives for produce packaging or the decision by supermarket chains to just try to reduce the amount of plastics that they're using? Yeah. I'll hand that over to Rodger for more detail. just on the macro perspective, no, we're not seeing any kind of shifts from format. Rodger, why don't you talk to what really happened? Yeah, Mark. Really two key drivers in the quarter. Number one, during the pandemic, our egg business was very strong, and it's still good. It's back probably closer, slightly up on '19 levels, but that was part of it. The biggest impact on that business is what we've been talking about for several quarters now, about our restructuring of that business itself. Being very aggressive in the marketplace to get pricing where we think it needs to be to get a return on that business. You probably saw that we announced the shut of our Wilson, North Carolina plant, ended up selling that plant, but that's the final piece of our restructuring of what we call our perimeter of the store business. it's not so much fiber, it's not really fiber competition, it's more us being much more aggressive with pricing in the marketplace and walking away from business where we think it's necessary. Now we're vended where we wanted to end, which is one major plant in Florida, one major plant in California to service the market. Again, that business is restructured. You will see that impact on volume. You saw it in the fourth quarter, and some of that will continue on into early next year. All around, getting the price in the marketplace where we thought it needed to be. Okay. That's really helpful, Rodger. Thanks. I'll turn it over. Thank you. Our next question comes from George Staphos of Bank of America. Your question, please. Thanks. Hi, everyone. Good morning. Thanks for the details. I wanted to dig a little bit more into price-cost. Howard, and Julie, and Rodger, can you talk a little bit about within the industrial businesses, what price-cost was in the third quarter? I don't think you called it out. Obviously, you had a lot of pressure, but perhaps the pricing actions are starting to catch up there. within your guidance for the fourth quarter, are you expecting price-cost for the industrial businesses to be broadly positive, flat, or negative? If you could quantify, that'd be great. Hi, George. Rodger. Yeah, price-cost was actually slightly positive in industrial in the third quarter. Quite frankly, some of that driven by really good work across the board, but also our protective business as well as our wooden reels business. We are expecting it to be more positive in the fourth quarter, to your point, as the price increases that are into the marketplace come through the system. It was a little over $4 million positive in the third quarter. We expect it to be more positive in the fourth quarter and headed in the right direction. Yes, that's what we see for the fourth quarter coming up. Okay. I assume you're not seeing any signs of this now because the demand is good, and that would be both for your products and what your customer is saying in terms of consumer behavior going forward. Why are you not worried, or are there any worries that you would have that at some point the pricing actions that your customers have had to make in the market and that you've had to take because of all the inflation will at some point start to feed back negatively on demand. It's kind of hard to replace a tube and core, I get it, but why are you not worried about that in any of your product lines and for your key customers' product lines as well? George, I'd say because it's going to be across the entire retail chain. The bigger question is what happens to the consumer spending power? I don't think it's a question of someone's ability to, or willingness to not pass this inflation on and go from. Look, all commodities have to increase, and you're seeing it right now. You're hearing it from the major CPGs. We feel like we're going to be on a level playing field. It really turns into more of a macroeconomic question and the ability for consumers to afford the products, if that makes any sense. What I would say is extremely. If we look at fourth quarter, it's typically a strong start and a glide path through the holidays. Last year played out not that way. This year looks to be exactly the same. Inventories are extremely low, and we expect to drive fully all the way through the three months, and frankly, not only consumer, but industrial, and in the all other, that this trend is going to continue well into next year. As we sit here and we look into the forward periods, extremely bullish that this top line demand profile that we're seeing, the price-cost catch-up that we've been working on, and as Rodger just spoke to getting there, that we're just highly encouraged about how things are going to play out end of this quarter and on into the better part of next year. Inventories are just extremely low, so demand's going to be there. Howard, that's a great rundown and segue to my last question. As we think about fourth quarter, I think you mentioned that volume would be solid. I know it's kind of hard to gauge a quarter off a few weeks of volume, and you have the six-day negative comparison on volume as well. What do you think, adjusting out the six days, what do you think underlying volume is growing right now within industrial, within consumer? Thinking about the things that are going to come back to you next year, the price-cost, the initial productivity from Horizon, all the other things that you're doing, a working capital improvement. If we think out two years from now, if you had to stack rank or quantify, what do you think are going to be the biggest drivers of return on capital for Sonoco? You're down a little bit this year, but for obvious reasons. What do you think the biggest drivers are? if you could quantify them looking out two years, what would they be given the volume, productivity, and so on? Yeah, sure. George, we're thinking somewhere on a normalized basis of about a 3% improvement across the portfolio in the fourth quarter. That, again, coming off of a very strong fourth quarter last year from a volume perspective. Sure. I hope that gives you not micro, the macro color. If we go out two years from now, we're getting a little ahead of my skis. I can just say that every capital investment that we've, on a value generating basis, that we've approved to include Project Horizon, and that one, of course, we've been very public in terms of what the economics are on it, are going to be well above our cost of capital. Again, I wish I had that type of clarity of what two years is going to look like. We think next year's going to be a rock solid year, and with the benefit of the capital. I appreciate the question because a dollar you spend today sometimes takes 18 months, two years to see the yield. We expect that's going to be material going into 2023. Is that greater than price-cost? I just wonder if you could stack rank it. Thanks, I'll turn it over. Yeah, I'd say price-cost. Look, from where we sit and the lens that we're looking through, very bullish for next year. That lens can get clouded in a hurry, depending on, again, I keep using the word macro, but what happens in the world today or two quarters from now, I don't know. From what we have visibility of today, we're very positive about price-cost. You'll see that being a major driver to performance certainly through the first half of next year, and you'll start seeing the productivity, the returns from capital starting to show up later in the year and solidly into 2024. Thanks, Howard. Good luck in the quarter. Thanks. Thank you. Our next question comes from Ghansham Panjabi of Baird. Your line is open. Thank you. Good morning, everybody, and I'm sorry to go back to price-cost. Just to clarify, and I'm sorry if I missed this, but the year-to-date price-cost has been negative $65 million, and Q3 looks like it came in at negative $14. Did you give us a formal outlook for Q4? I know you talked about industrial being positive, but on a consolidated basis, what does that number look like? Based on all your recognized pricing and just assuming all else being equal on the raw material trajectory side, including resin, would you recover the entirety of what you lost in 2021 and 2022? Hey, Ghansham. It's Julie. I'll start with your fourth quarter comment. As we've mentioned, we do expect the fourth quarter, on a consolidated basis, to shift to be positive from a price-cost perspective, and I think Rodger mentioned specifically some of that, really a lot of that, in industrial. I'd put that in that mid-single digit to $10 million type of range is what we're expecting at this point. Trending positive, but not a call it dramatic turnaround there. Obviously extremely, I'd say we're optimistic that we're going to shift into the positive territory versus what we've experienced so far this year. Yeah. As we look into 2022, the expectation is we'd be fairly well caught up, but we just have to see what happens. We started third quarter of this quarter really with a super strong July, and then here we go again. Because we caught up, but inflation roared back. We don't expect that to happen. We don't expect that at all to happen. To be fair, it could. What you're seeing today, you should be seeing that we continue to increase price. Non-material related price, I should add as well. For instance, we all know what's going on in energy, particularly in Europe. We're getting way ahead of that, and we've put out a EUR 100 a ton on the paper side of our business. Well, it's happening now, but also built in preemptively of what we see coming into the first quarter. We are very mindful and are very active to make the moves today that will prevent us from being into a chasing type environment going into next year. Okay, that's very clear. Thank you. In terms of the normalization you're seeing on the consumer side, I think you mentioned composite cans being a little bit weaker, comparisons being difficult. The adjustment you're seeing in sales, is that also a function of just inventory adjustments at the customer level, or is that not the case, it's just comps? I'm sorry, Ghansham, you kind of broke up at the end. Yeah, just in terms of what you're seeing with composite cans volumes. Are you seeing inventory adjustment at the customer level? Inventory in that they have no inventory. Yeah, there's some continuing catch up. From just a general market perspective, we're pretty comfortable with our position, and don't expect to see anything other than continued strong demand well into next year to, not only to get the retail outlets back in full, but also to get the inventories at the right level. Okay, just one final one on the $50 million delta in working capital for this year. Would that be an equal tailwind into 2022 based on what you see at this point? Yeah, Ghansham, the $50 million that we've reduced operating cash flow by isn't all working capital. You could say maybe about half of that is. We're also anticipating some higher tax payments in the fourth quarter than original. In the, I guess, working capital year-over-year, you might say $15 million-$25 million higher driven by the factors I've mentioned. We see it as possible that that could continue into next year as well. Again, right now we're kind of starting to fine tune, sharpen our pencil on the outlook for 2022. Again, depending on inflation, how that trends next year. Again, we will be expecting higher demand as Howard's been talking about. While we really feel very good about our inventory management all of that inflation and increased activity obviously does put some upward pressure on working capital. Okay. Thanks so much. Thank you. Our next question comes from Kyle White of Deutsche Bank. Please go ahead. Hey, good morning. Thanks for taking the question. I wanted to go through the All Other segment. You mentioned it was a bit below what you're expecting. I know you had experienced resin headwinds, and you mentioned the chip shortage, but this is something that has been occurring throughout the year. I guess, was there any other notable headwinds that impact your results or something that wasn't necessarily expected? Any other details you could provide on that segment for 3Q? Rodger, you want to take that? I think the most significant was probably in our medical ThermoSafe business. I think Howard mentioned in his opening comments that business relies heavily on elective surgeries with packaging for the operating room. We had expected that to recover in the third quarter, and it did slightly, but we're nowhere near back to where we were pre-COVID-19 levels. We're starting to see that come back, but that'll be a headwind to some degree again in the fourth quarter. The other major impact was, if you think about the pandemic and the automakers, about half of what we call our protective business services, the automotive industry, during the pandemic, they shut down for weeks at a time. We were able to shut down and take labor out of our plants. This past quarter they had rolling downtime, which made it very difficult for us to strip out costs and strip out labor. From a quarter-over-quarter, year-over-year standpoint, that business really suffered around supplying the auto industry. That was unusual for the quarter. As I said earlier, with price actions, with some self-help actions around taking costs out, we see at least 150 basis point improvement in operating margins as we go into the fourth quarter, and then we'll push it on from there. Kyle, let me add as well that talking about the negative impacts to the sector, I don't want to miss the opportunity to talk about the ThermoSafe business and the level of COVID activity. We talked from the very beginning of the vaccine rollout that the vaccines were being bulk shipped into central distribution points. Today, they're starting to be in smaller packs going direct to specific retail and hospital doctor outlets, and that's our sweet spot. We've received some significant orders starting this quarter, and very bullish about how that may continue through the course of next year. Got it. If I could actually follow up on that, on the vaccines, is it possible to either quantify the benefit you're receiving, the ThermoSafe business related to COVID vaccines? Do you expect with booster shots next year, as well as other regions still in the process of widespread distribution, do you anticipate next year's results could be even higher or similar, comparable to this year? Just any thoughts there. Kyle, it's Rodger. Yeah, a big part of the order that Howard's talking about for the fourth quarter is around booster shots, and it's around shots for children from 5-11. That's happening. That'll start delivering in November and will carry into the first quarter. We've been saying we felt like COVID vaccines could reach the similar level for us as flu vaccines, which is $20 million a year. Obviously now we feel like we can do much better than that. We're still getting our arms around that with the major pharma companies. Let's just say we're going to have a very strong fourth quarter for COVID vaccines. As we get together in December, we'll be able to do a better job of updating the impact for next year. Got it. That's helpful. For my next question, can you just remind us of your thoughts on capital allocation as we sit here today? I know you completed the ASR program last quarter, but how attractive does the M&A pipeline look? In absent M&A, should investors expect you to kind of repurchase shares in the open market going forward? Kyle, we're certainly active in the space. We are being very deliberate in terms of assets that we feel that are right and a good fit for Sonoco but are very much active. M&A is a critical part of our go-forward capital allocation strategy. Obviously, dividends. We talk extensively about internal capital deployment. Yes, we did the share buyback, and we'll certainly keep that as part of our capital use model, depending on what's going on, particularly on, as you point out, on the M&A side of things. Got it. Appreciate all the details. Thanks. Thank you. Our next question comes from Salvator Tiano of Seaport Research. Your line is open. Yeah. Hi, Howard, Julie, Rodger. Thanks for taking my questions. Firstly, I wanted to come back a little bit on the CapEx change. I do want to clarify that, have there been any outright cancellations or major adjustments to any of your projects, or is it solely delays that are pushing this $50 million? Yeah. No. Sal, there's no cancellation. This is strictly, as you can imagine, being able to get orders fulfilled on the projects, getting the engineering, all the work done that needs. It's back to the earlier question around supply chain. If you think in terms of Project Horizon, the paper industry, most of those critical technologies are coming out of Europe. We're just seeing those type of delays. No pullbacks because we've had lack of customer interest in a project or any items of that nature. Okay. Just following up on the CapEx, what inflation are you seeing in these projects, whether it's labor or raw materials? When you started kind of the year with a $300 million guidance, if there wasn't any timing changes, where do you think the cost would have been just due to inflation now? Impact of inflation on CapEx. Sal, right now, I don't know if I could quantify that. We have an example in Project Horizon. We saw some inflation within scope. It hasn't been that material as we look at go-forward projects, some of which I talked to during my script. Right now, the costs that are built in are reflective of the cost that our vendors are seeing today. We'll have to see how it plays out over the long term, but right now we're pretty comfortable. Okay, perfect. I just also want to touch base on energy and what we're seeing in natural gas. If you can just put the finer print, firstly, on natural gas consumption, energy consumption by region, but mainly Europe and North America. Also, what procurement models do you have and what levers do you have besides URB discretionary price increases to offset this inflation? Sure. For nat gas, obviously our main usage are in our mill complexes both here and in Europe. It's not material necessarily in China, where I think we're actually on coal. To talk about the U.S., we've had longstanding protocols in terms of balancing via hedging. That as this inflation started coming in, we had a pretty significant, call it almost half of our usage hedged going into next year. As you talk about inflation recovery, that'll be part of the conversation, obviously, today. We've put in non-OCC related inflation we announced just recently here in the U.S. Similarly, in Europe, I'd say more exposure, but so is the entire market. We came out with a EUR 100 a ton increase just several weeks ago. We'll continue to follow whether that's going to cover or not, but we're also seeing that the entire competitive landscape is falling in, and we all have to get recovery on this. We don't see this as a major headwind for us because of the things I just said, that we've got a good position here in North America, and we are putting price in that's fully supported by all industry that uses nat gas in Europe. Okay, perfect. to clarify, just in Europe, on the procurement side, you don't have any hedges. You just rely on raising prices there? Yeah. We are not hedged in Europe. Correct. Okay, perfect. just a little bit, my last question on the volumes in industrial paper packaging. They were up around 5%, and you mentioned in most markets now you kind of have recovered from COVID. I'm just wondering now that we've reached that pre-COVID level, how much volume leeway do you see going forward as the markets grow and now that base returns have been made? Yeah. Industrial, it's hard to answer. Let me just put it to you this way. What we're seeing right now is really back to pre-pandemic levels as I stated in my commentary. Pockets that are just extremely strong right now on top of that, so greater than. If you look at our URB network here in North America, we still remain at very low inventories. Yeah, backlogs as well as the Losing my thought process here. Backlogs and allocations that we're having to put customers on. It continues to be an interesting dynamic. Where is it going to settle out? I think we're going to be in a pretty good place. Rodger, I don't know if you've got- The only thing I'd add, Sal, is we've seen in our tube and core business, seen a really nice pickup in the paper side of that business. Internet sales around container board. Our container board customers globally are very strong. We've seen newsprint really bottom out and actually show a few gains from here and there. As you would expect, film is strong with the economy being strong. The only weakness that we've seen is textiles, and we feel like that's probably more related to the chip shortage around automotive and some of the other supply chain constraints. If textiles picks back up, to Howard's point, if you look at about just all the segments we serve from an industrial standpoint, we're pretty strong going into 2022. Okay, perfect. Thank you very much. Thank you. Our next question comes from Josh Spector of UBS. Your line is open. Yeah. Hi, guys. Thanks for squeezing my question in here. Just to follow up on consumer and the low inventory at the customer level and its supply chain, just curious if you could quantify that. If there was no end market demand, how much would the restock be in terms of a benefit from a volume perspective into next year? I don't think we could give you a numeric answer to that. What I'd say is they're going to be full out, and until they reach that point of full inventory back to normalization, all I can say is our expectation is it's going to take a considerable period of time to get to that point well into next year. Okay, fair enough. Maybe just another medium-term one here is just looking at URB prices and where they're at, they're at relatively high levels versus a few years ago, and I expect you want to continue pushing them higher to recover costs. Just assuming OCC prices eventually decline, what's your view on the reaction of URB pricing and kind of anticipating you're going to say that they stay higher, what structurally would be your supporting points to kind of get you there? I'd say, there's an old saying that price has nothing to do with cost. If you look at market dynamics right now, as URB is falling, the demand is not. As I noted earlier, we're seeing allocation type scenarios in the marketplace that we're certainly having to put out. Again, not able to quantify, but we feel very good that, again, as we go into next year, that demand profile is going to continue. We'll see where OCC takes us, but with any given luck, the cost profiles go down, but demand's still strong and price remains strong. Okay, thank you. Thank you. Our next question comes from Gabe Hajde of Wells Fargo Securities. Your question please. Hey guys, thanks for taking the question. I was going to ask something more on the operational side and thinking about these energy issues over in Europe, and I guess maybe to the extent where we're heading into winter months and things become more pronounced and potentially industrial users get put on allocation or something like that. two-part question. One is, do you have kind of secondary energy sources to run paper mills over there or, I guess, contingency plans, if you will? can these mills run, I guess, at reduced energy supply in a reduced energy supply situation? kind of a corollary to that, have there been discussions about how the steepening, I guess, cost curve globally speaking for paper production, more thinking about container board here, may increase the attractiveness of U.S.-born product, and your customers kind of preparing for that on the tube and core side? Gabe, I'll take the first part. From our team and discussions that we're having internally, including members of our board actually, that are based in Europe, it's not a supply issue. We're not anticipating any issue being able to run our operations. The question really is or the issue really is around the inflation side of it. We're not even contemplating that. To say if we're wrong, no, we're not necessarily set up. That's not an easy change to go from one substrate to another to run your facility. We do not anticipate that to be an issue. On the cost curve and container board, I'm not sure if I truly understood your correlation there and influence on URB. Would you like to ask that again? Yeah. No, just I mean to the extent that energy is a big input component to the cost curve or cost of goods sold for product produced in Europe, and even for your own URB. I don't think you have any excess capacity to be exporting URB to Europe, but just if in fact it persists, then product produced here in the U.S. would require more tube and core. Just if those discussions are being had. Yeah, I really don't know how to answer that one. I think George asked a question about relative inflation, and I think that's an important thing, relative inflation, not specific inflation to just us. As inflation through energy goes through the paper systems in Europe, all ships will rise and that'll be the case there. If the question is related to maybe a lower cost position somewhere else in the world and moving paper around to take advantage of that, I don't see that happening at all, particularly in today's environment. We are shipping into Mexico. We are helping our own supply needs down in Brazil. At the cost of a container today, it just will never make sense until that normalizes to even contemplate cross- border, cross- ocean supply chain on this type of commodity. Okay. Just trying to think of maybe second, third derivative impacts from higher energy costs in Europe. I guess maybe a more, hopefully simpler one. Julie, you mentioned, I think, and I'm sorry if I missed it, a $0.05 kind of one time benefit, and I wasn't sure if that was. You said it hit operating profit, but maybe it was a Brazilian tax credit or something like that during Q3. Well, we did have something that we anticipated in the third quarter was a $0.05 unique tax item that we booked in the third quarter. In addition to that, we did have the lower tax rate from, again, expected 21.5%, so down about 18%, and that was just due to additional project work related mostly to R&D tax credits. Gabe, do you think that answers the question? Yeah. I guess to be clear, the $0.05 or $7 million or so that hit operating profit was part of your guidance. Okay. Yeah, I think you're talking about maybe in our GAAP versus non-base items. Yeah, there was a net $0.06 add back that was net about $11 million of a couple of one-time, again, GAAP non-base tax expenses that were partially offset by, again, some GAAP net gains that ran through operating profit, and that was just a variety of items. Net items that impacted GAAP, not base. There were some income tax items, yes, partially offset by some net gains. Okay. that was not included as part of base. Thank you. That's right. Those were GAAP. Yep. Thank you. Our next question comes from Adam Josephson of KeyBanc. Your line is open. Thanks for taking my follow-ups. I appreciate it. Howard, there have been some articles recently talking about renewed panic buying in the U.S. Have you seen any signs of that? Just relatedly, sometimes at fiscal year-end, some of your customers might reduce inventories to show better cash flow. I assume they're not going to be able to do anything like that given how low everyone's inventories are. Can you just talk about what's embedded in your consumer volume forecast for the fourth quarter and talk about what you're seeing now with respect to, again, any signs of panic buying or otherwise? Yeah. Adam, here we go again. What we're seeing, it is on the consumer side, but coming out of our URB network. As a reminder, we supply about 75% to 80% of all paper that goes into the tissue and towel sector. That volume is ramping up rapidly, and it's all back to that hoarding environment that we saw in the whole of last year. That's the one that clearly is in place right now. This is my opinion, but I think as we all get ready to do our seasonal holiday shopping, you're going to see a lot of stock out of those consumer-type products, food-related products, for all the reasons that we've talked about through the course of this call. For us, all that means is what we've already talked about, is that normally we would see October is the prep month to fill the warehouses, get ready for the holiday season. We just see this is going to be just full out all the way through the year, through the holidays. You will see stock outs. I couldn't possibly predict which exact products they would be. That's why, again, as we look into 2022, we say that we're expecting extremely bullish demand on the consumer side. I won't repeat again our thought processes as it relates to the same situation going on the industrial and All Other segment s. Sorry if I can't tell you exactly what you need to buy today in anticipation of your Thanksgiving prep. I would highly encourage you may want to go ahead and start thinking about that. It all spells for what we consider very good news as we finish out this year and going into next year. Sleep very comfortably that we're going to have a lot of continued strong demand going forward. Yeah, no, I appreciate that, Howard. Just two others. One on guidance. You give guidance earlier than most, at the Investor Day. You're dealing with unprecedented inflation, a supply chain mess. There's so much going on, the China situation. There's so many factors. That's always the case, but this is an unprecedented operating environment. Are you thinking any differently about annual guidance than you have historically, just given these myriad unknowns? No. We'll obviously be smarter in December than we are today. We're going to give you what we think we see coming for the year next year. If the question is, are we thinking about pulling out, maybe not giving as normal go-forward look, the expectation right now, and we'll be, again, smarter by December, is to provide you what we think 2022 and how it will unfold. I appreciate that, Howard. Just one last one on sustainability. In light of the shortages of seemingly everything, are your customers any less concerned about getting recycled resin or otherwise than they were perhaps before all these shortages existed and all these prices spiked? Let me talk. I'm going to ask Rodger to make comment direct to the resin side of things. No, our customers are still very engaged in terms of sustainability, in terms of the actions that we're taking, some of which I've talked about as a supplier in our actions in terms of our carbon emissions. From a format perspective, I also spoke to, which I have several times in recent quarters about what's going on in Europe and our can business, the capital that we're putting in place now as customers are coming to us with, I'm not going to name formats, but other substrates that they are anxious to move into a paper form. All that is continuing. More direct to your question around resin, Rodger probably has clearer visibility of rPET versus- Thanks, Howard. </edited_transcript If you look at rPET and the recycled PET resins, Adam, they're more expensive than virgin now. what's happening is, many of our customers have tried to implement minimum amounts of recycled resin into their product, into the manufacturer product, and they simply can't get enough. then at this point, it's driving that price up. there's just not enough recycled bottles coming back through the system at this point. today, recycled resins and PET is more expensive than virgin, and that's really put a damper on some of those activities. I don't see that changing anytime in the near future. Hopefully, as we get into next year and we see some recovery in PET bottle recycling, that will change. that's the situation today. Thanks so much, Rodger. Best of luck. Thank you. At this time, I'd like to turn the call over to Roger Schrum for closing remarks. Sir? Thank you again, Lateef. Again, thanks, everyone, for joining us today. As Howard mentioned, we'll be sending out electronic invitations for our December 10th virtual investor day next week. If you'd like to RSVP for the event in advance, you can contact Lisa Weeks in our investor relations office at 843-383-3450. Again, we appreciate your interest in the company, as always. If you have any further questions, don't hesitate to reach out to us. Thanks again for joining us. This concludes today's conference call. Thank you for participating. You may now disconnect.