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Text: Speaking on the call will be Mike Doss, the company's President and CEO; and Steve Scherger, Executive Vice President and CFO.
Information regarding these risks and uncertainties is contained in the company's periodic filings with the Securities and Exchange Commission.
I'm excited to discuss quarterly results with you today and the positive developments that we are driving in our pursuing Vision 2025.
We are delivering for customers and providing packaging solutions that are resonating with consumers in the marketplace.
New innovative packaging introductions continue as our teams expand the new product pipeline and fuel our organic growth strategy.
We are executing strategic M&A with transactions that are strengthening our capabilities, expanding our geographic reach and positioning us in growing markets and importantly, we are delivering on our commitments to stockholders.
Notably these swiftly address the heightened inflationary environment with multiple price initiatives in the quarter that will play out in the second half of 2021 and 2022 in order to limit the impact of the current price cost dislocation and ensure is short-lived.
Turning to second quarter highlights on Slide 3.
We delivered a meaningful 5% net organic sales growth in the quarter across all our markets.
We continue to see significant demand for more sustainable packaging solutions.
Our focus on innovation and our design for the environmental approach, which is an integral part of our new product development process are providing continued opportunities to satisfy this demand.
We are ahead of our 100 to 200 basis point organic sales growth goal for the first half of 2021, expect to be at or above the high end of that range for the full-year.
Adjusted EBITDA in the second quarter was $248 million.
Importantly, EBITDA was positively impacted by $15 million of improved volume mix related to net organic sales growth and $36 million of favorable net performance.
Our teams did an excellent job of navigating the challenging operating environment to meet customer demand and deliver sales growth.
The solid execution was however offset by $67 million of accelerated inflation across the broad basket of commodities.
We address the inflationary environment head on during the quarter successfully implementing multiple pricing initiatives.
This included Paperboard price increases across all 3 substrates as well as positive modification of other business terms.
One example is our move to shift freight recovery and contracts where we are responsible for product delivery costs to 4 openers per year.
A second example is the date specific implementation of price increases for paperboard purchases in the open market, replacing the linkage of price increases to industry trade obligations.
We committed to stockholders that we would shorten the time period for price to offset commodity input cost inflation and we demonstrated commitment in the second quarter.
We have changed the pricing dynamics in our business since the last period of dislocation between 2016 and 2018 and this will be on full display as we progress through the second half of 2021.
I will talk more about this shortly.
While navigating the challenges supply chain environment, our teams worked tirelessly to meet strong customer demand.
Our foodservice business increased sales by 22% year-over-year as consumer mobility picked up well food, beverage and consumer sales improved a healthy 4% year-over-year.
I'm excited to see the growing global interest for fiber-based consumer packaging solutions.
Growth in fiber-based packaging is now being realized as we projected at our Investor Day in September of 2019.
Since that time, we've continue to position the company to meet increased demand through our ongoing investments in our leading paperboard platform, our teams and through strategic acquisitions.
In May, we announced the acquisition of payer packaging and more recently, we successfully completed the acquisition Americraft Carton.
These transactions are aligned with our growth ambitions and have us on a path to achieving our Vision 2025 goals.
On Slide 4, let me recap the compelling strategic rationale there packaging combination and provide an update on timing.
The transaction brings together 2 highly innovative workforces serving diverse a complementary customer sets.
The acquisition expands our global scale and strengthens our presence in Europe, which is driving the world and a push toward a more circular economy.
We see significant opportunities to expand and grow with global customers as the premier fiber based consumer packaging leader, we are encouraged that the regulatory approval processes are proceeding as expected and anticipated close by the end of the year.
Recognizing the impact to leverage from the announced day, our Packaging transaction.
It is important to reiterate that we are fully committed to utilizing our significant cash flow generation to reduce leverage back to our targeted 2.5 to 3 times range.
We intend to be back to targeted levels within 24 months following the close of the acquisition.
Turning to Slide five.
Innovation and new product development continue across our 3 growth platforms as we rollout packaging solutions designed to address retailer and producer calls for fiber-based packaging alternatives.
Last quarter, I discussed the rapid acceptance we are seeing for our PaperSeal line the food trade Packaging in Europe and Australia and the excitement over the new Punnet tray line introduced from [Indecipherable] snacking size vegetables.
Last week, we introduced a new product line OptiCycle to grow in our foodservice markets.
Our OptiCycle line includes an innovative non-polyethylene coating alternative to traditional PE and PLA coated products.
On Slide six, you can see the details of this latest innovation in the foodservice packaging.
OptiCycle uses a water-based coating instead of polyethylene.
The foodservice cup and containers feature should require less coating material versus traditional options and are designed to be more easily recyclable.
When we pull 98% of the fiber, can be recovered and used to make other recycled products.
We continue to push forward with our sustainability journey and OptiCycle fits squarely with our ESG commitment to decrease our LDPE usage by 40% by 2025.
With this non-PE packaging solution, we are providing a new option for customers to evaluate as they pursue their own sustainability goals and meet the needs of today's consumer.
We expect the line to be commercialized in North America in the next few months.
As we enter the second half of 2021, I'm pleased with the path we are on.
Employees have produced exceptional results and demonstrated commitment to customers as an essential supplier.
We have rolled out new product innovations provided outstanding customer service and captured additional demand.
In addition, in support of our investments for growth and expansion.
We have prudently and effectively raised in deploying capital.
We continue to differentiate ourselves by the investments we are making in our paperboard infrastructure.
On Slide eight, you will see details of our transformational Kalamazoo recycled paperboard investment.
This project is a pivotal case in point.
We expect our new world-class coated recycled board machine to be producing paperboard in a few short months.
With it, we will serve existing and new customers, delivering the highest quality product in the marketplace at the lowest cost to produce.
Furthermore, the investment provides environmental and sustainability benefits through the reduction of greenhouse gases, purchased energy and water usage in the paperboard production process.
We remain confident in $100 million of incremental EBITDA for this investment once it's fully implemented and expect to capture the first $50 million of additional EBITDA in 2022.
Another area where we are redefining leadership in the industry is through our solid track record of execution and integration of strategic acquisitions.
The announced acquisitions we have touched on today and our capabilities position us and new growing markets and allow us to further integrate our paperboard platform.
Vertical integration is a strategic priority, and we expect meaningful increases in our integration rate in the quarters ahead.
As we grow organically internalize more paperboard from recent acquisitions and unwind existing supply agreement.
Our vertically integrated model price increase operating efficiencies that benefit both stakeholders and customers.
The final point I will make on Slide seven is something I noted earlier, I would like to spend a bit more time discussing with you today.
Over the past couple of years, we have successfully implemented numerous pricing model revisions that are now flowing through the business during this time of accelerated inflation.
Realization of our pricing initiatives will be on full display over the next 2 quarters and then into 2022.
This is the primary reason we expect to generate significantly stronger EBITDA in the second half of the year.
Moving to slide 9.
I will talk through material price cost spread of recovery that we expect will occur in the second half of the year and in the 2022.
The on the left hand of the slide reflects the heightened inflationary environment we experienced in the first half of 2021 and our expectations for inflation during the second half.
The right hand of the slide shows pricing that has been successfully implemented and recognized and it's flowing through our contracts over the coming 6 months.
We expect approximately $120 million of pricing in the second half of 2021, which is intended to address the negative price cost spread experienced in the first half of 2021.
The recovery occurring in just 6 months clearly demonstrates more constructive pricing dynamics inherent in our model.
Implemented and recognized pricing will yield a cumulative $400 million over the 2021 and 2022 time horizon, as we actively address commodity input cost inflation.
Overall, we are confident in the actions we are taking to address inflationary headwinds and more broadly, we remain confident in the fundamental drivers of our business and our ability to capitalize on the opportunities ahead.
Simply put, we are running a different race.
We are executing for customers driving our growth strategy forward and strategically positioning the company to capture global demand opportunities in the fiber based consumer packaging.
We are on track to achieve our Vision 2025 growth goals.
Moving to Slide 10, focused on key financial highlights in the second quarter of 2021, net sales increased 8% from the prior year to $1.7 million driven by 5% net organic sales growth.
Adjusted EBITDA declined from the prior year due to the accelerated inflationary environment.
Importantly, we are known organic volume growth, which positively impacted EBITDA performance by $15 million and we generated, of a favorable $36 million in net performance.
I'd like just discussed, we have implemented multiple pricing initiatives to offset the current inflationary environment and we expect our adjusted EBITDA dollars and margins will improve in the second half of 2021 and 2022, all consistent with our Vision 2025 financial goals.
Additional financial and market detail can be found on slide 11.
AF&PA industry operating rates increased sequentially with SBS and CRB at 95% and 98% respectively at the end of the second quarter.
Our CUK operating rate was over 95%, reflective of the continued strong demand environment.
AF&PA Second quarter data also reflected continued declines and industry inventory levels with balances at multi-year logs, backlogs increased from the previous quarter and all three substrates we're an 8 plus weeks at quarter end.
On Slide 12 and 13, you will see our year-over-year revenue and EBITDA waterfalls.
Net sales increased $126 million very solid 8% in the second quarter of 2021.
Strong growth was driven by $76 million of higher volume mix resulting from 5% organic sales growth of $14 million in pricing and $36 million of favorable foreign exchange.
Adjusted EBITDA decreased $12 million to $248 million in the second quarter versus the prior year period.
Adjusted EBITDA benefited from $14 million in price $15 million in volume mix, $36 million in improved net productivity and $4 million from favorable foreign exchange.
Adjusted EBITDA was unfavorably impacted by $67 million of commodity input cost inflation and $14 million of labor benefits and other inflation.
We ended the quarter with net leverage of 3.7 times.
As we previously shared, leverage is currently above our long-term target of 2.5 to 3 times as we execute on critical investments to achieve our Vision 2025 goals.
We have clear line of sight to the cash flow generation required to drive leverage down to our targeted levels of 2.5 to 3 times within 24 months following the close of the AR Packaging transaction.
We have a substantial total liquidity with $1.9 billion available as of the end of the second quarter.
In July, we raised approximately $530 million to support our acquisition activity at very effective interest rates below 2%, $250 million was raised in a 7-year floating rate term loan from the farm credit system in a similar structure to the farm credit loan we raised earlier this year.
In addition, we raised Euro based debt when the EUR210 million delayed-draw term loan along with a EUR25 million increase in our European line of credit.
We funded the farm credit loan last week.
While we anticipate drawing the euro term loan in connection with the close of the AR Packaging transaction.
Turning now to guidance on slide 14 and 15.
We are updating our full-year EBITDA guidance to incorporate recent price actions expected commodity input cost inflation and the close of the Americraft Carton acquisition.
2021 adjusted EBITDA is projected to be in a range of 1.0-8 to $1.2 billion.
Components of EBITDA have changed modestly as higher contribution from volume mix and net performance are being offset by the transitory negative price cost spread that occurred in the first half of the year.
Notably on Slide 15, you'll see the significant increase in EBITDA, we are projecting in the second half of 2021.
Implemented price initiatives are expected to yield a material price cost recovery benefit to EBITDA in the second half of the year in a range of $80 to $120 million compared to the first half.
The Americraft acquisition closed on July 1 and is expected to provide an incremental $15 million to the second half adjusted EBITDA.
Turning back to the cash flow guidance on slide 14, we anticipate a range of $175 to $225 million for the year.
Guidance for capital expenditures in 2021 has been adjusted, modestly higher, as we are experiencing similar inflationary environment from materials and labor as we complete critical capital projects on time in 2021.
Interest and working capital components to cash flow have improved related to the attractive refinancing from our debt completed this year at very low interest rates and the positive impact on working capital as we have worked down inventories on stronger demand.
As we look through 2022, we remain committed to capital expenditures, returning to a more normalized range of $450 million and look forward to generating significant cash flow as we earn on the investments we've made to materially improve the profitability of the company.
For reference, $450 million in capital expenditures, estimated in 2022 includes both the AR Packaging and Americraft acquisitions.
Wrapping up my comments on Slide 16 and the conclusion of our successful partnership with International Paper during the quarter.
Partnership was foundational to building the highly integrated fiber-based consumer packaging business we are today and it created value for stakeholders.
Conclusion of the partnership with IP, return ownership interest of the partnership back to 100%.

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compname reports second quarter 2021 results: 5% net organic sales growth driven by strong demand for fiber-based consumer packaging solutions.
global liquidity was $1.9 billion at quarter end.

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