U.S. Markets closed

Edited Transcript of BERY earnings conference call or presentation 21-Nov-19 3:00pm GMT

Q4 2019 Berry Global Group Inc Earnings Call

Evansville Dec 2, 2019 (Thomson StreetEvents) -- Edited Transcript of Berry Global Group Inc earnings conference call or presentation Thursday, November 21, 2019 at 3:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Dustin Stilwell

Berry Global Group, Inc. - Head of IR

* Mark W. Miles

Berry Global Group, Inc. - CFO & Treasurer

* Thomas E. Salmon

Berry Global Group, Inc. - CEO & Chairman of the Board

================================================================================

Conference Call Participants

================================================================================

* Adam Jesse Josephson

KeyBanc Capital Markets Inc., Research Division - Director and Senior Equity Research Analyst

* Anthony James Pettinari

Citigroup Inc, Research Division - VP and Paper, Packaging & Forest Products Analyst

* Arun Shankar Viswanathan

RBC Capital Markets, Research Division - Analyst

* Brian P. Maguire

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Gabrial Shane Hajde

Wells Fargo Securities, LLC, Research Division - Associate Analyst

* George Leon Staphos

BofA Merrill Lynch, Research Division - MD and Co-Sector Head in Equity Research

* Ghansham Panjabi

Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

* Kyle White

Deutsche Bank AG, Research Division - Research Associate

* Mark William Wilde

BMO Capital Markets Equity Research - Senior Analyst

* Molly Rose Baum

BofA Merrill Lynch, Research Division - Research Analyst

* Neel Kumar

Morgan Stanley, Research Division - Equity Analyst

* Salvator Tiano

Vertical Research Partners, LLC - VP

* Tyler J. Langton

JP Morgan Chase & Co, Research Division - Research Analyst

================================================================================

Presentation

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

Ladies and gentlemen, thank you for standing by and welcome to the Berry Global earnings conference call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions)

I would now like to hand the conference over to your first speaker for today, Mr. Dustin Stilwell. Thank you. Please go ahead.

--------------------------------------------------------------------------------

Dustin Stilwell, Berry Global Group, Inc. - Head of IR [2]

--------------------------------------------------------------------------------

Thank you, and good morning, everyone. Welcome to Berry's Fourth Fiscal Quarter 2019 Earnings Call. Throughout this call, we will refer to the fourth fiscal quarter as the September 2019 quarter.

Before we begin our call, I would like to mention that on our website, we provided a slide presentation to help guide our discussion this morning. After today's call, a replay will also be available on our website at berryglobal.com under our Investor Relations section.

Joining me from the company, I have Berry's Chief Executive Officer, Tom Salmon; and Chief Financial Officer, Mark Miles. Following Tom and Mark's comments today, we'll have a question-and-answer session. (Operator Instructions)

As referenced on Slide 2, during this call, we will be discussing some non-GAAP financial measures. The most directly comparable GAAP financial measures and a reconciliation of the differences between the GAAP and non-GAAP financial measures are available in our earnings release and investor presentation on our website.

And finally, a reminder that certain statements made today may be forward-looking statements. These 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 our earnings release, annual report on Form 10-K and other filings with the SEC. Therefore, the actual results of operations or financial condition of the company could differ materially from those expressed or implied in our forward-looking statements.

Now I would like to turn the call over to Berry's CEO, Tom Salmon.

--------------------------------------------------------------------------------

Thomas E. Salmon, Berry Global Group, Inc. - CEO & Chairman of the Board [3]

--------------------------------------------------------------------------------

Thank you, Dustin, and good morning, everyone. I will start with our recent acquisition of RPC, which is truly transformational. We've made significant progress in the integration over the last 5 months, and we're even more excited about the organic growth opportunities we believe it will provide. Next, we'll reflect on our September quarterly results, then we'll provide an update on progress and momentum we're having in driving profitable, sustainable organic growth across the portfolio. And finally, we'll discuss our sustainability initiatives, which are leading to growth opportunities and why we believe we are uniquely positioned for the long term. At the end, Mark and I will be happy to answer any questions you may have.

On July 1, we completed our acquisition of RPC Group Plc. The integration process is well underway with multi-disciplined teams working together to identify incremental opportunities to create value for our customers and shareholders. While working diligently on this integration, I'm pleased with the first quarter results that this team delivered, as the legacy RPC business on a constant currency basis reported an 8% increase in operating EBITDA while sales and volumes were consistent with the prior year quarter. Specifically, the legacy RPC business recorded growth in food and personal care markets offset by softness in the European industrial markets.

Berry is a global plastic and recycled packaging industry leader serving thousands of customers with high-quality, innovative and protective solutions, matched by the industry's most diversified, unique and expansive manufacturing platform. Furthermore, the acquisition has created one of the world's largest dispensing solution providers supporting health care and pharmaceutical customers with worldwide value delivery capabilities. This combination gives us the opportunity to leverage our combined know-how to create significant value for our shareholders.

Through this shared approach, and as we previously communicated, we anticipate $150 million in annual cost synergies, with approximately half of these synergies expected to be realized in fiscal 2020. In order to effectively capture these synergies and to align us with our customers, provide superior service and drive future growth opportunities, we've realigned our businesses into 4 geographic and market-focused divisions. We remain highly impressed by the tremendous depth of talent and resources at joint Berry, and we're looking forward to the opportunity to strengthen our combined platform with the wealth of experience and expertise this team has to offer.

Turning now to our overall financial results and highlights for the quarter on Slide 5. In summary, both our results and organic growth progression were consistent with our expectations. Net sales and operating EBITDA were records for any quarterly period at $3 billion and $497 million, respectively. The quarter included a strong start in our newly formed Consumer Packaging-International division, continued growth in our Consumer Packaging-North America business and sequential volume improvement from our Health, Hygiene & Specialties and Engineered Materials segments. Our adjusted earnings per share was $0.90 in the quarter, and we generated $480 million in free cash flow, closing 2019 with an annual record of $764 million.

We're extremely happy and fortunate to have these consistent and dependable free cash flows, which allow us the opportunity to invest in our businesses and provide maximum value for our shareholders.

Now looking at some of the details specifically by segment. Our Consumer Packaging-North American business reported volume growth in the quarter of 1% as we continue to focus on investing in growing markets where we have advantaged products. And we're very encouraged by the momentum of this division, delivering 6 consecutive quarters of positive volume growth.

Our Health, Hygiene & Specialties division saw a sequential quarter-over-quarter volume improvement as anticipated, and we continue to innovate, deploy new capital for organic growth and focus on increasing our share of wallet with existing customers. We're very pleased with the progress our team made in the quarter towards securing a stronger pipeline of new business awards. Our investments made in China and North America remain on track and will begin benefiting us in early 2020.

Inside our Engineered Materials division, we also saw a sequential quarter-over-quarter volume improvement as expected, and we made progress on-boarding our new business pipeline discussed in previous calls. We're allocating capital to this business to reduce costs and continue growing our specialty products. We anticipate investing over $150 million to be allocated over the next 3 years toward growth in next-generation products. These new products are more sustainable and use less resin while providing equal to or greater performance characteristics.

Fiscal 2019 was a busy year for us in our sustainability journey. Just to highlight a few initiatives. On Slide 6, you'll see that we became a founding member of the Alliance to End Plastic Waste. We laid out Berry's Impact 2025 strategy and signed a new plastics economy global commitment to eliminate plastics pollution at its source. And just recently, we announced we joined SABIC in the production and use of circular polymers from chemical recycling. We're excited about the potential of chemical recycling, which we believe complements mechanical recycling and allows Berry to recover harder-to-recycle materials and keep them in the circular economy.

And finally, before I turn the call over to Mark, who will review our financial results in more detail, I want to reiterate our focus on driving profitable and sustainable organic growth and our expectation of delivering positive sales volumes in all segments in the back half of 2020.

I would like to highlight our commitment to maintain a strong balance sheet and that we are well positioned to continue our historical track record of growing our free cash flow and delivering on these commitments, just as we've done every single year as a publicly traded company. Mark will provide more detail in his remarks, and then I'll come back to discuss our strategy and sustainability efforts and then open the call for questions. Mark?

--------------------------------------------------------------------------------

Mark W. Miles, Berry Global Group, Inc. - CFO & Treasurer [4]

--------------------------------------------------------------------------------

Thank you, Tom, and good morning, everyone. I'd like to refer everyone to Slide 9 now -- or 7 now, excuse me. As Tom referenced, fourth quarter reported sales were up 47% to just over $3 billion. The nearly 50% increase included revenue from the acquisition of RPC, which closed at the beginning of the quarter, along with continued strength in our North American Consumer Packaging business. These positives were partially offset by lower selling prices due to the contractual pass-through of resin costs; anticipated volume headwinds in our Engineered Materials and Health, Hygiene & Specialties segments; the sale of our Seal for Life business; and an unfavorable currency impact. From an earnings perspective, the September quarter operating EBITDA increased by 44% to $497 million. The increase included contributions from the RPC acquisition, partially offset by unfavorable price/cost in both our Engineered Materials and Health, Hygiene & Specialties segments. After accounting for the annualized impact of acquired and sold businesses, our adjusted EBITDA totaled $2.215 billion for fiscal 2019.

Before turning to segment results, please turn to Slide 8. As Tom highlighted briefly, we have reorganized our segments to better align with our customers, provide improved service, drive future growth and facilitate cost efficiencies. The new structure organizes our business into 4 geographic and market-focused divisions. The new Consumer Packaging-International segment is primarily comprised of RPC's international business. Berry's legacy Consumer Packaging division has been renamed Consumer Packaging-North America and also includes RPC's North American rigid business.

Engineered Materials and Health, Hygiene & Specialties remain the same, with a few pieces of the business moved to and from the newly formed Consumer Packaging-International segment.

Now looking at the results of each operating segment with the prior year results restated to match the current structure, starting on Slide 9. For the quarter, our Consumer Packaging-International division delivered sales of $1.1 billion and operating EBITDA of $173 million. Again, this division is primarily RPC's international businesses, and as Tom referenced earlier, had a solid start, with growth in food and personal care markets offset by softness in the European industrial markets. We are encouraged by the earnings improvement in the quarter and progress with the integration.

Next, on Slide 10. Sales in our Consumer Packaging-North America division were $744 million in the quarter, which was 15% higher than the September 2018 quarter as a result of the business realignment from RPC and a 1% organic volume growth as the business has continued executing its long-term strategy focused on advantaged products in targeted markets. These contributions were partially offset by lower selling prices from the contractual pass-through of lower resin costs.

Operating EBITDA for our Consumer Packaging-North America division in the quarter was $137 million compared to $101 million in the prior year quarter. The 36% increase was primarily driven by the business realignment from RPC, continued organic volume growth, productivity improvements, along with favorable price/cost from the recovery of prior year inflation.

Turning to Slide 11. Our Health, Hygiene & Specialties division delivered sales of $570 million in the quarter compared to $680 million in the prior year quarter. The decrease was primarily attributed to the contractual pass-through of lower resin prices, lower organic volumes and an unfavorable currency impact. The sales volume decline was primarily a result of the customer product transition in Hygiene that we referenced on prior earnings calls. Volumes in the segment sequentially improved as we continue to secure incremental demand toward our commitment to generate positive organic volume growth starting in fiscal Q3 2020.

Operating EBITDA decreased by $23 million in the prior year quarter when adjusted for the sale of the Seal For Life business and on a constant currency basis. This decrease was primarily a result of unfavorable price/cost spread, along with the customer product transition.

Next, on Slide 12. Sales for our Engineered Materials division was $628 million for the quarter compared to $673 million in the prior year quarter. The decrease was primarily attributed to pass-through of lower resin prices and lower organic volumes, partially offset by volume from the Laddawn acquisition.

Organic volumes were consistent with our expectation as we sequentially improve volumes and begin the qualification process of recent business wins. Operating EBITDA in our Engineered Materials division was $101 million compared to $122 million in the prior year quarter, primarily as a result of unfavorable price/cost spread, including mix of products sold and higher manufacturing costs. These increased manufacturing costs were primarily driven by cost to onboard our robust growth pipeline as well as negative overhead leverage resulting from the lower organic volumes.

Slide 13 provides a summary of our income statement for our fiscal fourth quarter. Overall, operating income was $398 million in the quarter compared to $194 million in the prior year quarter, primarily attributed to the improved operating EBITDA just discussed as well as a gain on the sale of our Seal For life business in July, partially offset by expenses associated with completing the acquisition of RPC in the quarter.

Our net income in the quarter was $229 million, up 72% compared to the prior year quarter of $133 million, and our adjusted earnings per share was consistent at $0.90.

Next, on Slide 14. The company generated a quarterly record of $630 million of cash flow from operations in the quarter compared to $448 million in the September 2018 quarter. Net capital expenditures in the quarter were $128 million as we incurred spending on cost reduction initiatives as well as growth-related projects. Our free cash flow for fiscal 2019 of $764 million represents a cash flow yield of nearly 15% using our quarter end market capitalization. With this substantial free cash flow and the proceeds from the SFL sale, we made early principal payments on our term loans of over $550 million in the quarter and issued a partial redemption on $100 million of our 6% second priority senior secured notes after year-end. We anticipate further reducing our overall debt and will pursue additional opportunities to reduce our interest costs by refinancing some of our existing debt in addition to operating our capital structure more efficiently with opportunities from the recent RPC acquisition.

We remain committed to maintaining a strong balance sheet, and our consistently increasing, dependable and improving free cash flow provides us the opportunity to further improve our strong balance sheet as we have demonstrated historically.

We are reaffirming our fiscal year 2020 free cash flow financial guidance and assumptions shown on Slide 15. We are targeting fiscal 2020 free cash flow of $800 million, which includes $1.4 billion of cash flow from operations, partially offset by capital expenditures of $600 million. This guidance also includes the use of cash for working capital and other restructuring-related costs related to the RPC acquisition of $90 million, along with cash taxes of $160 million and cash interest of $500 million.

We continue to feel confident with our projected volume inflection in mid-2020. Looking beyond fiscal 2020, including realization of synergies and excluding costs associated with the integration of the RPC acquisition, our normalized free cash flow would be more than $900 million, which represents a free cash flow yield of over 17% using our quarter end market capitalization.

This concludes my financial review, and now I will turn it back to Tom.

--------------------------------------------------------------------------------

Thomas E. Salmon, Berry Global Group, Inc. - CEO & Chairman of the Board [5]

--------------------------------------------------------------------------------

Thank you, Mark. Our September quarter delivered in line with our expectation, and I'm very pleased with the progress and the integration of RPC with the business generating solid financial results. This transformative acquisition gives us a world-class product innovation engine, which enjoys leading positions in higher value-added closures, dispensing systems, medical devices and health care packaging. We have and will continue to commit resources to create profitable and sustainable organic growth across these markets.

Similarly, RPC's presence in emerging markets complements various growth objectives in multiple industry segments. The strategic merit, long-term benefits and financial impact of this combination represent an incredible opportunity for Berry, its customers, suppliers, employees and shareholders. Being able to leverage our combined know-how, material science, supply chain, product development, manufacturing technologies and sustainable solutions gives us certainty that the combination will benefit Berry for years to come. We remain confident in our total cost synergy target of $150 million, with half or $75 million expected to be realized in fiscal year 2020. We continue to work diligently across all of our businesses to grow organically and have been able to demonstrate organic volume growth by providing advantaged products in targeted markets, as evidenced in our Consumer Packaging-North America segment, which has grown positive volumes for the past 6 quarters.

We remain confident in our projections of volume inflection for our Engineered Materials and Health, Hygiene & Specialties division in fiscal 2020. Our record level of expected capital expenditures in fiscal 2020 of $600 million is further evidence of our commitment and focus on organic growth while maintaining our low-cost position in the markets we serve to drive further value for Berry.

Now specifically, what are we doing to drive growth in each of our segments? Within our Consumer Packaging-International business, we're excited about the potential of the new dispensing portfolio with unique airless pump technologies and specialty valves. Global dispensing solutions is a key area of focus for Berry and complements nicely with our closures products. Our pharma business growth potential is also a key highlight of our acquisition and positions Berry as a growing global health care packaging market player. RPC brought niche and specialty health care products, including innovative respiratory devices, among others, and we're exploring greater penetration in this space with new strategic investments.

And within our Consumer Packaging-North American business, our value proposition and recent success around connectivity, sustainability and cost innovation has led to innovative packaging solutions which address unmet needs. The division is making excellent progress replicating the successful strategy across multiple subsegments as we continue to increase the percentage of advantaged products within our portfolio.

Our pipeline of growth opportunities, which includes blood diagnostics, infection control containers, child-resistant packaging markets, and we expect to continue generating positive organic volume growth in this space.

Within our Engineered Materials division, we're focused on lightweighting numerous products while providing similar or enhanced physical properties enabled by recently completed alternative material qualifications. An example of a recent innovation relates to our PACK EXPO award-winning Entour product line, which recently won the 2019 Technology Excellence Award. This barrier film offers all the functionality and performance of a traditional barrier film while remaining polyethylene recycle-stream compatible. The design has an excellent moisture and oxygen barrier that can go through the store drop-off PE recycle stream. As I stated earlier, we made progress toward our objective of regaining lost share with our local and regional distribution accounts during the quarter and remain committed to sequential improvement toward our continued objective of positive organic growth.

Within our Health, Hygiene & Specialties division, our previously announced investments in China in a state-of-the-art technology for premium hygiene and air filtration applications, along with our North American investment in our proprietary Spinlace technology for the wipes market, all remain on target. These capital expenditures reinforce our commitment to investing in growth regions and segments to further strengthen our leadership position and provide additional momentum for sustainable growth in these global markets.

In line with these investments, customer demands for premium quality and differentiation have continued to escalate as consumer preferences and features and attributes are beginning to outweigh the lower prices for lesser products. In addition, we are well positioned with our asset base and product solutions related to discretion and comfort, which was augmented by our Clopay acquisition to build on our leading market share positions in the faster-growing incontinence and premium hygiene segments. We continue to pivot our resources in these more attractive markets, as just mentioned, along with biopharmaceutical and specialty applications, while working diligently to increase our share of wallet with existing global health care and hygiene customers.

Just recently, we entered into a long-term agreement with a large biopharmaceutical customer to produce an advanced solution product which will supply flexible clean packaging to support this growing industry. We believe that we will see continued improvement in our comparable organic volumes and expect to achieve year-over-year growth in the second half of fiscal 2020.

Lastly, let me take a moment to discuss sustainability and the growth opportunity it provides Berry. As the global sustainability leader, we must take a proactive approach in providing environmentally friendly solutions, educating customers and providing design innovation all to aid in the collection and support of a circular economy for plastics. As you can see in my prior comments, one of our key organic growth opportunities for Berry comes from the increasing consumer demand for more sustainable or environmentally friendly packaging. At Berry, we continue to believe the possibilities in uses of plastics are endless. In fact, over the years, customers and consumers alike have become accustomed to the advantages of plastics packaging: weight, versatility, durability, convenience, barrier properties allowing fresh food to be kept fresh longer, and cost effectiveness. Now all of us have an additional expectation, and that is for the packaging to have an accountable end-of-life solution that retains the value of the packaging material and prevents it from becoming waste. We believe the way to focus on these growing requirements, particularly around waste, is through sustainable packaging. Berry is uniquely positioned globally to lead the way in this evolution.

As an industry leader, we have the scale and resources to innovate and develop new products as desired. We are collaborating with our customers and our stakeholders and have taken the initiative to educate particularly around the topics of recycling and what delivering more sustainable packaging means.

Turning a moment to what we're doing internally around product development, which includes a broad range of alternatives and solutions focused on recycling and sustainability and raw materials. In the area of recycling and sustainability within our Consumer Packaging-International segment, 3 specific market-leading businesses allow us to meet our customers' increasing need for products to incorporate recycled material. First, we're one of the U.K.'s leading recyclers of rigid plastics packaging, providing high-specification materials for both industrial and consumer packaging markets, and we continue to expand our processing capacity in support of growing customer demand. Second, we also have the leading position in the U.K.'s recycling of agricultural and industrial films. This business has a true closed loop, where we've converted over 65,000 tons of material this past year. And third, we also have the leading European position in waste management storage solutions, providing market-leading products and services to the waste collection industry.

In the area of raw materials, each year, our products use less and less material through redesign and technology improvements. Berry's leading position and success in lightweighting has been a strong core differentiator for decades. And just this year, we saw several product lines lightweighted by more than 15%. We are well positioned to help customers with recyclable, PCR-based and reusable packaging solutions.

Inside both our Consumer Packaging segments, PCR content is growing, and more and more of Berry's polypropylene, including products such as wine bottles, body wash and industrial containers, are reaching 100% recycled content.

Additionally, within Engineered Materials, we made strategic partnerships to provide closed-loop solutions for products serving the e-commerce channel. In Health, Hygiene & Specialties, by the end of 2021, we expect 90% of our hygiene portfolio will have bio-based materials available to serve our customers. The bottom line is that plastics has become an indispensable part of all of our lives, and we must work together to take the necessary steps to drive sustainability throughout the value chain.

Finally, Berry will continue to take the steps necessary to remain a leader in the markets where we participate through a relentless focus on building the strength in our competitive advantages to ultimately maximize shareholder value. The management of Berry continues to be laser-focused on finding ways to extract more value for our shareholders by reinvesting in our leading low-cost position, leveraging our resources around the businesses with the greatest opportunity to grow and create value for our customers, all while doing our part to protect our environment.

I'm confident that the people at Berry will continue to drive positive results and achieve our goals and mission of always advance to protect what's important.

Thank you for your continued interest in Berry. And at this time, Mark and I would be happy to answer your questions.

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Operator [1]

--------------------------------------------------------------------------------

(Operator Instructions) Your first question comes from the line of Anthony Pettinari of Citi.

--------------------------------------------------------------------------------

Anthony James Pettinari, Citigroup Inc, Research Division - VP and Paper, Packaging & Forest Products Analyst [2]

--------------------------------------------------------------------------------

Tom, you talked about the volume recovery in Engineered Materials, and I guess there's a component of that, that you can control, the product qualification issue that impacted you earlier this year. Maybe there's a component you can't control in terms of weakness in industrial markets. If we just zoom in on the product qualification issue, can you give us an update on how that volume recovery is going relative to your expectations maybe 3, 6 months ago and the kind of the cadence of volume recovery for the next couple of quarters there?

--------------------------------------------------------------------------------

Thomas E. Salmon, Berry Global Group, Inc. - CEO & Chairman of the Board [3]

--------------------------------------------------------------------------------

Yes, Andy. We've -- of the pipeline, about 30% has been qualified and is part of our current run rate. So we've got another 2/3 to go for the remainder of 2020. You'll see that begin to be onboarded here now in our Q1, Q2, benefiting us in the back half of 2020.

--------------------------------------------------------------------------------

Anthony James Pettinari, Citigroup Inc, Research Division - VP and Paper, Packaging & Forest Products Analyst [4]

--------------------------------------------------------------------------------

Okay. That's helpful. And then in HH&S, you referenced the China and U.S. capacity that's driving the expectations for volume growth in the back half of 2020. Just wondering if you could give an update on the time line for that capacity ramping and getting sold into the market. And then can you just remind us when you lap that customer loss that you referenced earlier?

--------------------------------------------------------------------------------

Thomas E. Salmon, Berry Global Group, Inc. - CEO & Chairman of the Board [5]

--------------------------------------------------------------------------------

Certainly. The customer lapping happens in conjunction with our Q3 pivot to growth for HHS. But China investments, since we just had a review yesterday, those projects remain on track. We are qualifying the machines running right now. So we're running plastics through the line, qualifying materials consistent with our expectations. The team has done a terrific job building a pipeline for that asset. Clearly, it's one of a kind. The growth dynamic remains very strong for this product line, supporting feminine care, premium hygiene in the space. The support from our end customers has been very positive, giving us a lot of confidence that, that will deliver as expected, on time, as we've outlined.

--------------------------------------------------------------------------------

Operator [6]

--------------------------------------------------------------------------------

Your next question comes from the line of Ghansham Panjabi of Baird.

--------------------------------------------------------------------------------

Ghansham Panjabi, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [7]

--------------------------------------------------------------------------------

I guess, first off, can you just give us more color on volumes by subsegment for RPC? Tom, you mentioned growth in categories such as food and personal care. Can you sort of quantify the volume growth? And also how big is the industrial end market for RPC? What specific end market verticals would qualify as industrial within that? And can you just kind of quantify the volume decline specific to RPC industrial?

--------------------------------------------------------------------------------

Thomas E. Salmon, Berry Global Group, Inc. - CEO & Chairman of the Board [8]

--------------------------------------------------------------------------------

Sure. The -- listen, we -- when we first did our due diligence in RPC, we were very attracted to the fact that it had a portfolio very similar to what we had in Berry North America. 70% of the portfolio in RPC is consumer nondiscretionary products such as food and beverage, health care, personal care. The remaining 30% of the market's tied into things like building construction, waste management, distribution and other specialty segments.

We clearly would tell you the RPC business, we believe, can -- will be a low single-digit growth business. And while there certainly can be factors in Europe that are more macro-oriented, somewhat out of our control, we still feel that this business will be low single-digit growth for our company going forward.

--------------------------------------------------------------------------------

Ghansham Panjabi, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [9]

--------------------------------------------------------------------------------

Okay. And then just in terms of the EBITDA cadence for fiscal year '20, I mean there's a lot going on with RPC, the synergies and also the volume inflections in EM and HH&S. I mean how would you have us think about EBITDA from first half, second half or however you want us to think about it?

--------------------------------------------------------------------------------

Mark W. Miles, Berry Global Group, Inc. - CFO & Treasurer [10]

--------------------------------------------------------------------------------

Yes. Sure. I would say our historical pattern of EBITDA, RPC doesn't change. As Tom said, it's products and markets similar to Berry. So we start off the year, the December quarter is typically our weakest quarter, followed by March. And then typically, June is our strongest quarter, with September being the second-strongest quarter. And then, again, you have to recognize, to your point, that synergies will build as well as the year goes. But in terms of excluding synergies, the ranking again would be June -- from strongest to weakest, June, September, March and then December. And I would say, if you look at our historical results from Berry, it would be very similar post-RPC.

--------------------------------------------------------------------------------

Operator [11]

--------------------------------------------------------------------------------

Your next question comes from the line of George Staphos of Bank of America.

--------------------------------------------------------------------------------

Molly Rose Baum, BofA Merrill Lynch, Research Division - Research Analyst [12]

--------------------------------------------------------------------------------

This is Molly Baum sitting in for George. He's traveling today. I just wanted to ask a quick question on Health, Hygiene & Specialties. Can you -- and sorry if I missed this in the prepared remarks, but can you kind of go through a little bit more detail on what's driving the $14 million of negative price -- sorry, price/mix and kind of how you expect that to improve as you enter fiscal 2020?

--------------------------------------------------------------------------------

Thomas E. Salmon, Berry Global Group, Inc. - CEO & Chairman of the Board [13]

--------------------------------------------------------------------------------

Yes. The drivers, we've talked about in some previous calls, is there was a technology change that ultimately created a headwind for us. We'll pass through that headwind beginning in the third quarter. During that time, that will, obviously, on a comp basis, provide lift and improvement. But the real driver comes from the benefit that we've been working towards, which is increasing our share of wallet with existing customers, which continues to go very well, the deployment of our new R5 technology in Asia, our air filtration investment in Asia as well as our premium wipes technology in North America. So it's really those things that are driving the benefit, coupled with a recent investment in clean-room medical packaging, where we were very excited about signing a 10-year supply agreement with an end user in this very stable, high-growth space. So those are the key drivers for the pivot inside of HHS.

--------------------------------------------------------------------------------

Molly Rose Baum, BofA Merrill Lynch, Research Division - Research Analyst [14]

--------------------------------------------------------------------------------

And particularly from price/cost as well or are those kind of more volume comments?

--------------------------------------------------------------------------------

Mark W. Miles, Berry Global Group, Inc. - CFO & Treasurer [15]

--------------------------------------------------------------------------------

Yes. The impact of that [-- those] volume on price/cost. So we've got the double factor of incremental business coming on, the costs associated with that, starting up new lines, starting up new business and maintaining the cost that we had on weaker volumes, right? So we're at an inflection on price/cost as those volumes ramp up.

--------------------------------------------------------------------------------

Operator [16]

--------------------------------------------------------------------------------

Your next question comes from the line of Brian Maguire of Goldman Sachs.

--------------------------------------------------------------------------------

Brian P. Maguire, Goldman Sachs Group Inc., Research Division - Equity Analyst [17]

--------------------------------------------------------------------------------

RPC, it looked like the EBITDA came in. I know the acquisition contribution total was $198 million. Seems like maybe RPC specifically, it might have been $192 million. That seemed a bit better than what you guys had been targeting, from my recollection. Just wondering if you could comment how much of that might have been any synergy capture that occurred in the quarter that might have been already kind of getting a head start on the $150 million versus just maybe better margin or underlying trends. And sort of related to that, the volume outlook for RPC, I think you talked about a 1% or low single-digit kind of an increase, which is consistent with what you talked about in the past. But I know in the past, after you've done acquisitions, sometimes there's a little bit of going through the portfolio and pruning some of the less attractive pieces. Just wondering if you -- if we should expect a similar kind of phenomenon in RPC in 2020 when looking at volume growth.

--------------------------------------------------------------------------------

Mark W. Miles, Berry Global Group, Inc. - CFO & Treasurer [18]

--------------------------------------------------------------------------------

Yes, we're really pleased with the start from RPC. The synergy realization was pretty modest in the quarter. Not a meaningful impact there. So the results there were driven by strong operations. As we said in the prepared comments, we're off to a good start there.

With respect to the last part of your question on volumes, the company has a very historical track record of delivering low single-digit growth. And we're really excited about the combination of the products with our existing businesses, and we're going to look to overdrive that [down]. This will be a multiyear process, and we're excited about the opportunities that the combination of the product lines will provide globally.

--------------------------------------------------------------------------------

Thomas E. Salmon, Berry Global Group, Inc. - CEO & Chairman of the Board [19]

--------------------------------------------------------------------------------

And Brian, I'd add -- I just have to reiterate what Mark said. The transformational nature of this is exciting for us because it gives us an opportunity to look beyond the first 2, 3 years in terms of process optimization throughout the combined business, the sharing of best practices, which the collaboration between the 2 groups, both Consumer Packaging-International with Consumer Packaging-North America, has been outstanding. We're saying if there's product line components that we ultimately bring value in through legacy RPC that we ultimately can adopt in North America, let's do it quickly and vice versa in North America. So that collaboration in itself is actually creating a pipeline of opportunity for us to bring more value to our end customers.

--------------------------------------------------------------------------------

Brian P. Maguire, Goldman Sachs Group Inc., Research Division - Equity Analyst [20]

--------------------------------------------------------------------------------

Okay. And just final one for me. Just congrats on getting the SFL deal closed. Just wondering as you're looking at the portfolio of diverse businesses you've got now following the RPC deal closing, any updated thoughts on potential further divestment opportunities as a way to sort of accelerate the deleveraging process?

--------------------------------------------------------------------------------

Thomas E. Salmon, Berry Global Group, Inc. - CEO & Chairman of the Board [21]

--------------------------------------------------------------------------------

Nothing we'd comment during the call. But suffice to say, it's an ongoing process inside our company and with our Board of Directors relative to doing portfolio reviews, making certain that we understand how and where we extract value in each of our portfolios and what its strategic fit is based on our overall organic growth and capital investment objectives.

--------------------------------------------------------------------------------

Operator [22]

--------------------------------------------------------------------------------

Your next question comes from the line of Neel Kumar of Morgan Stanley.

--------------------------------------------------------------------------------

Neel Kumar, Morgan Stanley, Research Division - Equity Analyst [23]

--------------------------------------------------------------------------------

So you've talked about a pipeline of $120 million in new revenue opportunities in EM. Could you just give us a sense of what type of new product introductions does this consist of?

--------------------------------------------------------------------------------

Thomas E. Salmon, Berry Global Group, Inc. - CEO & Chairman of the Board [24]

--------------------------------------------------------------------------------

Multilayer films and converted films are 2 of the key components for Engineered Materials. Those tend to be higher-margin components for our business. And again, we like it because they are specified materials with a specific end user. This isn't -- this is tied to a targeted piece of business with a known demand outline. So that's why we're -- we enjoy that component of our pipeline. It's far more predictable.

--------------------------------------------------------------------------------

Neel Kumar, Morgan Stanley, Research Division - Equity Analyst [25]

--------------------------------------------------------------------------------

Great. That's helpful. And then in Consumer Packaging-North America, are there any other key drivers of the volume improvement over the past 6 quarters that you would call out besides for the growth in foodservice products? And what's your confidence that the growth can be sustained?

--------------------------------------------------------------------------------

Thomas E. Salmon, Berry Global Group, Inc. - CEO & Chairman of the Board [26]

--------------------------------------------------------------------------------

I have a high degree of confidence that the growth can be sustained. Inside our Consumer Packaging business, the foodservice space continues to impress. The performance in the quarter versus a very difficult comp in prior year, I think, is a strong testament to that. We're looking to translate those successes, not only in foodservice, but the methodology of how we're penetrated in that space, incorporating that both in our closures business as well as our containers business. And I would also say that IML as well, the combination between RPC and legacy Berry's created the world's largest in-mold label provider worldwide. So all those things go into our level of confidence. And again, we continue to further penetrate foodservice by consolidating other SKUs inside that space, both plastic substrates and others.

--------------------------------------------------------------------------------

Operator [27]

--------------------------------------------------------------------------------

Your next question comes from the line of Tyler Langton of JPMorgan.

--------------------------------------------------------------------------------

Tyler J. Langton, JP Morgan Chase & Co, Research Division - Research Analyst [28]

--------------------------------------------------------------------------------

Just on the synergies, I know you talked about getting $75 million of the $150 million total this year. Can you just talk a little about, is that mostly just your procurement or just sort of where you're seeing sort of some of the initial successes?

--------------------------------------------------------------------------------

Thomas E. Salmon, Berry Global Group, Inc. - CEO & Chairman of the Board [29]

--------------------------------------------------------------------------------

Like most of our acquisitions, the primary driver typically is on materials, followed by process improvement optimization and then where there's opportunities for redundant synergies in terms of people or process.

--------------------------------------------------------------------------------

Tyler J. Langton, JP Morgan Chase & Co, Research Division - Research Analyst [30]

--------------------------------------------------------------------------------

Got it. And then just switching to EM. I think you mentioned the $150 million of CapEx investments over the next 3 years. Could you just talk a little bit about, I guess, the timing of that and kind of how we should think about those investments benefiting sort of revenue and earnings?

--------------------------------------------------------------------------------

Thomas E. Salmon, Berry Global Group, Inc. - CEO & Chairman of the Board [31]

--------------------------------------------------------------------------------

Well, as we said, that's going to play out over the next several years. Two things. One, we're continuing to make investments around automation and finding ways to further automate our facilities. Secondly, investing in converting technologies that allow us to continue to weight reduce and incorporate other materials in those film substrates to lower the basis weight while at the same time driving performance that is consistent with what was the legacy product.

It's too early to talk about, but we continue to make pretty significant strides in that business relative to weight reduction, relative to our current standard unit of measure, which is pounds. So the team is doing, I mean, very good work right there. And a lot of the work that we've done around qualification of other raw materials, the know-how that we have in the business relative to material science is allowing that, with some converted films being lightweighted up to 20%. So when you think about that on a comparable basis, it's quite significant and generating the same physical properties. So that's a general description of those investments.

--------------------------------------------------------------------------------

Operator [32]

--------------------------------------------------------------------------------

Next question comes from the line of Kyle White of Deutsche Bank.

--------------------------------------------------------------------------------

Kyle White, Deutsche Bank AG, Research Division - Research Associate [33]

--------------------------------------------------------------------------------

Just focusing in on Engineered Materials. The price/mix headwind kind of continues to accelerate sequentially here now for a few quarters. Can you talk about the competitive dynamics in this business? Is it becoming more price competitive as you start to see softness in industrial markets? Or is this something that's more related to cost inefficiencies from the material qualification?

--------------------------------------------------------------------------------

Mark W. Miles, Berry Global Group, Inc. - CFO & Treasurer [34]

--------------------------------------------------------------------------------

Yes. It's as we expected, Kyle. We -- as we talked about earlier on one of the questions, we're onboarding the new business and so we've got costs associated with onboarding that business. But yes, while we're still lapping the year-over-year headwind from volumes, obviously, we've got stranded costs associated with that, that will be absorbed as this new business ramps up. So as the business comes online, we would expect that relationship to continue to improve sequentially as the volume increases. But right now, we're at that point where we've got the costs associated with the new volume that's being incurred without the full impact of the volume benefit.

--------------------------------------------------------------------------------

Kyle White, Deutsche Bank AG, Research Division - Research Associate [35]

--------------------------------------------------------------------------------

Got you. That makes sense. Just moving to HH&S. I'm just trying to understand what's embedded in guidance. We've talked about the kind of inflection in the back half for this segment as you lap the customer product transition. I'm just curious what guidance assumes for the baby care market. Are you assuming similar levels of weakness? Or are you assuming that it kind of stabilizes in the back half there?

--------------------------------------------------------------------------------

Thomas E. Salmon, Berry Global Group, Inc. - CEO & Chairman of the Board [36]

--------------------------------------------------------------------------------

The -- in aggregate, we're not forecasting significant changes in the baby category. However, the share-of-wallet gains that we've worked toward and achieved will provide a lift for us in the back half of the year.

--------------------------------------------------------------------------------

Kyle White, Deutsche Bank AG, Research Division - Research Associate [37]

--------------------------------------------------------------------------------

Good luck into fiscal 2020.

--------------------------------------------------------------------------------

Thomas E. Salmon, Berry Global Group, Inc. - CEO & Chairman of the Board [38]

--------------------------------------------------------------------------------

Thank you.

--------------------------------------------------------------------------------

Mark W. Miles, Berry Global Group, Inc. - CFO & Treasurer [39]

--------------------------------------------------------------------------------

Thanks, Kyle.

--------------------------------------------------------------------------------

Operator [40]

--------------------------------------------------------------------------------

Our next question comes from the line of Arun Viswanathan of RBC Capital Markets.

--------------------------------------------------------------------------------

Arun Shankar Viswanathan, RBC Capital Markets, Research Division - Analyst [41]

--------------------------------------------------------------------------------

I just wanted to clarify the volume outlook again. I thought -- I was under the understanding that, I guess, EM could potentially turn around to positive volume growth in the March quarter and HH&S in the June quarter. And I guess now you're kind of maybe expecting that to happen in the back half. Am I right in that understanding? Have you pushed that out? Or -- and if so, what drove that?

--------------------------------------------------------------------------------

Thomas E. Salmon, Berry Global Group, Inc. - CEO & Chairman of the Board [42]

--------------------------------------------------------------------------------

No, nothing's changed. Same projections relative to EM and HHS. That's changed. HHS is Q3, EM is Q2.

--------------------------------------------------------------------------------

Mark W. Miles, Berry Global Group, Inc. - CFO & Treasurer [43]

--------------------------------------------------------------------------------

No change.

--------------------------------------------------------------------------------

Arun Shankar Viswanathan, RBC Capital Markets, Research Division - Analyst [44]

--------------------------------------------------------------------------------

Okay. Great. And then going back to the price/cost side, I know that there's been culling of lower-margin volumes over the last little while in EM and so on, but maybe you can just give us a little bit more on potentially how you expect to win back some share loss. I mean would it be necessary to compete on the price side? Or how do you expect to, I guess, drive that volume growth outside of your own initiatives?

--------------------------------------------------------------------------------

Thomas E. Salmon, Berry Global Group, Inc. - CEO & Chairman of the Board [45]

--------------------------------------------------------------------------------

Yes. First, we compete every day as a low-cost producer in the space. We continue to make investments in that regard. And our core competency is the ability to work with our customer partners on things like I talked about, where you ultimately can find ways to reduce weight of substrates, provide the same exact physical properties. We talked about the onboarding of 2/3 of a $120 million pipeline still to come in that business in the back half. We made sequential improvement in terms of recovering distribution business, and we plan to continue to do that.

And similarly, the capital investments that I talked about will not only benefit us by reducing material usage but also allow us to reallocate our labor towards more value-added activities in the plant and also reduce our energy consumption. So those are the buckets that drive that change. It's innovation. It's the continued improvement and the sequential improvement in terms of the volume recovery and to reinvest in our low-cost position that we enjoy today.

--------------------------------------------------------------------------------

Arun Shankar Viswanathan, RBC Capital Markets, Research Division - Analyst [46]

--------------------------------------------------------------------------------

And just lastly, in regards to your deleveraging, I know that's a large focus. Could you just confirm that, that that's the main use of capital? I mean are you looking at any bolt-on M&As? Or would you consider anything at this point? Or are you solely focused on deleveraging?

--------------------------------------------------------------------------------

Thomas E. Salmon, Berry Global Group, Inc. - CEO & Chairman of the Board [47]

--------------------------------------------------------------------------------

The primary objective for us is to delever the company. I would say that the cash flow generation in our company gives us an incredible amount of flexibility to not only reinvest in our business, but similarly also focus on those delevering objectives.

--------------------------------------------------------------------------------

Operator [48]

--------------------------------------------------------------------------------

Your next question comes from the line of Gabe Hajde of Wells Fargo Securities.

--------------------------------------------------------------------------------

Gabrial Shane Hajde, Wells Fargo Securities, LLC, Research Division - Associate Analyst [49]

--------------------------------------------------------------------------------

I'm going to try to take a stab one more time, I guess, at EBITDA cadence. Mark, can you -- should we expect EBITDA for the first fiscal quarter to be down on a sequential basis? You guys are almost 2 months through that, if you could give us any color on that. And then any change in, I guess, business trajectory, whether it's legacy or RPC that you can call out or would like to?

--------------------------------------------------------------------------------

Mark W. Miles, Berry Global Group, Inc. - CFO & Treasurer [50]

--------------------------------------------------------------------------------

Yes. Certainly, December quarter, again, is a weaker quarter seasonally. Although Berry is not a significant seasonal business, we do have the holidays that impact our customers given their shutdowns. So yes, the December quarter -- a specific answer to your question would be the December quarter would be -- we would expect to be sequentially weaker than the September quarter that we're reporting on today. And again, that would build as the year progresses throughout fiscal 2020, a, just for -- to account for normal seasonality; and b, as the synergies begin to be realized throughout fiscal 2020 and ramp up.

--------------------------------------------------------------------------------

Gabrial Shane Hajde, Wells Fargo Securities, LLC, Research Division - Associate Analyst [51]

--------------------------------------------------------------------------------

And last one, I don't know if -- I mean I know part of the rationale to acquire RPC, I mean you guys have some overlap in blue chip customers. Has there been any inbound inquiries that you can talk about, Tom, maybe in terms of, I guess, customers looking to source from you on an international basis now that you have the presence? I don't want to get ahead of ourselves in terms of revenue synergies, but just anything you can speak of.

--------------------------------------------------------------------------------

Thomas E. Salmon, Berry Global Group, Inc. - CEO & Chairman of the Board [52]

--------------------------------------------------------------------------------

No. The simple answer is, absolutely. We truly now have a global value delivery capability, whereas previously, we had an international presence. Today, we can coordinate action effectively with a specifier in North America, and we can convert in Europe. We can convert in China. We can convert in South America. So we truly have that global value delivery and that is -- it's one of those attributes we talked about in our prepared comments. It's very synergistic with some of our other businesses in terms of people, in terms of footprint. And customers certainly, as they look to grow their businesses, having a single point of contact that ultimately coordinates everything from contracts, quality, innovation and allows them to do that on an international basis, it's unique. Not many companies have the opportunity to do that. And it's certainly something that we'll look to extract value from. And I think the -- I would say, since July, the amount of coordination between Consumer Packaging-International and CP-North America has been exceptional. We've shared talent, and it's going to go a long way to begin furthering those conversations to become quantifiable revenue and earnings.

--------------------------------------------------------------------------------

Operator [53]

--------------------------------------------------------------------------------

Your next question comes from the line of Mark Wilde of Bank of Montreal.

--------------------------------------------------------------------------------

Mark William Wilde, BMO Capital Markets Equity Research - Senior Analyst [54]

--------------------------------------------------------------------------------

Tom, I wondered, there's been all this talk about the backlash against plastic packaging. Yet, your European and North American packaging businesses had volume growth in the quarter. Can you talk about what you're seeing from the packaged food companies and CPGs right now in terms of packaging mix?

--------------------------------------------------------------------------------

Thomas E. Salmon, Berry Global Group, Inc. - CEO & Chairman of the Board [55]

--------------------------------------------------------------------------------

Yes. It's very fair. There's certainly a lot of question and interest in understanding what -- what's available, right? They all want to understand what the -- what type of materials from PCR will be available from a bio-based perspective. So now we're going to have the opportunity to sample and trial chemical recycled materials. So there's a big push in terms of ultimately what they might look to from a material composition perspective. But the number one thing that continues to get people's attention and the biggest request we have is how can you help us design for sustainability to make our products easier to ultimately recycle and reprocess inside a recycled facility? Secondly, how can Berry help us take weight out of the products that we're using? As an example, we gave a presentation at PACK EXPO. There was -- we ran out of space for people. The topic and subject matter was ultimately designing for sustainability. As a result, we hosted a webinar this week, a webinar. We had 367 participants and end users as part of that participation all focused on learning more from us relative to what they should think about in terms of designing for sustainability. So it's two-pronged. Weight reduce, understand how they ultimately design, understand then ultimately what materials will be available and what the cost differences may be versus virgin resin. That's why we're certainly taking advantage of all the different possibilities because there's still not one that has -- that I would say is the preferred way. Everyone, though, is heavily focused on finding a way to eliminate waste getting into our environment. And most recently, I worked with Congressman Bucshon here in Indiana and Representative Tony Cárdenas of California where they issued the RECOVER Act. And the RECOVER Act is all about how we ultimately create matching grants to support expanded recycling infrastructure, how it ultimately supports private partnerships aimed at increasing the recovery of materials, and it's the direct grant money to consumer education on recycled packaging. So we're in the early innings of this, Mark. But we feel on a global basis, we are very well positioned. In fact, we're evaluating over a dozen potential products -- projects, I should say, in the recycling side that would give Berry a strategic advantage, help drive end market demand for those materials and increase consumer recycling access. So early innings, more to come, but we're going into this knowing that whatever we do, it's all focused on how we generate growth and greater shareholder value.

--------------------------------------------------------------------------------

Mark William Wilde, BMO Capital Markets Equity Research - Senior Analyst [56]

--------------------------------------------------------------------------------

Okay. And Tom, I'm just curious, in your prepared comments this morning, I heard you talk a lot more about dispensing, pharma and health care than I can recall in the past. And it sounds like you might even be looking at some investments there. Can you give us a little bit of color on that?

--------------------------------------------------------------------------------

Thomas E. Salmon, Berry Global Group, Inc. - CEO & Chairman of the Board [57]

--------------------------------------------------------------------------------

Yes. Just the combination of the 2 platforms between our closures and dispensing solutions business creates about a $2 billion business inside of Berry. And when you consider that now we have the opportunity to take on any advantaged products that legacy RPC had already introduced or was marketing and deploy that in the U.S., it's an exciting space for us. So this is definitely something strategic. It's around that macro trend, Mark, that we've talked about before, which is health and wellness. It's a global phenomenon. It's not going away, and it's a great opportunity for us to participate in that. And even the carryover -- the clean-room medical packaging to support biopharmaceutical is another great example of we continue to look to find ways to pivot the portfolio to areas that have higher growth rates where we bring an advantage and ultimately we can capitalize and bring value to our end customer with a long-term agreement, just as we did in the medical packaging side as well.

--------------------------------------------------------------------------------

Operator [58]

--------------------------------------------------------------------------------

Your next question comes from the line of Salvator Tiano of Vertical Research.

--------------------------------------------------------------------------------

Salvator Tiano, Vertical Research Partners, LLC - VP [59]

--------------------------------------------------------------------------------

So first thing, I would like to clarify a bit, the working capital contribution for this year and next. What's kind of embedded in that working capital restructuring and other bucket? Especially for this year, I think if we take into account the TRA, I think working capital and other was around $140 million benefit. So if you can talk a little bit about what is happening there.

--------------------------------------------------------------------------------

Mark W. Miles, Berry Global Group, Inc. - CFO & Treasurer [60]

--------------------------------------------------------------------------------

Sure. Yes. So the TRA that you referenced, that was settled and terminated in fiscal 2019. So that's the cash out that will no longer exist going forward. With respect to working capital in fiscal 2019, we did benefit from falling resin costs in fiscal 2019 as those were passed through with lower selling prices as well as lower inventory costs. As we look forward into 2020, our assumption is essentially flat on materials. And we still have some integration costs remaining in fiscal 2020 relative to RPC integration. And so that's a $90 million headwind that's built into our $800 million guidance for fiscal 2020.

--------------------------------------------------------------------------------

Salvator Tiano, Vertical Research Partners, LLC - VP [61]

--------------------------------------------------------------------------------

Perfect. And on CapEx, I think the $600 million that you're committing to for fiscal 2020 seems to be, obviously, on the higher end of what a company with your sales would do in the long term. And I guess part of RPC's prior projects may be contributing to that. As we look into a normalized run rate, and you have a slide with $900 million-plus of normalized free cash flow, how should we think about CapEx as a percentage of sales? Should it be -- revert back to 4%? Or could your investments in sustainability keep it elevated around 5%?

--------------------------------------------------------------------------------

Thomas E. Salmon, Berry Global Group, Inc. - CEO & Chairman of the Board [62]

--------------------------------------------------------------------------------

It's really going to be driven by what opportunity we have ultimately to continue to invest in advantaged markets and product lines that ultimately allow us to generate strong organic growth, and that's part of the driver for the $600 million. It's actually a reinforcement that we're very serious about being able to deliver organic growth across our portfolio. And the capital investment is being supported by very good high-return projects.

--------------------------------------------------------------------------------

Operator [63]

--------------------------------------------------------------------------------

Your next question comes from the line of John Babcock of Bank of America.

--------------------------------------------------------------------------------

George Leon Staphos, BofA Merrill Lynch, Research Division - MD and Co-Sector Head in Equity Research [64]

--------------------------------------------------------------------------------

Yes. This is George Staphos. Sorry for joining the call late. You may have already asked -- answered this question a couple of times. But my first question is really, Tom, Engineered Materials, we have heard the discussion in terms of why it's been lagging in terms of performance for several quarters now. Yet, this is a business that senior management is very, very close to and knows very well. It was a very large component of Berry back a number of years ago in terms of what was IPO-ed. And it just strikes us that -- it's just odd that it's still struggling at this juncture when you know the business so well, you know the customers so well, you know the manufacturing so well. What comfort should we take that, in fact, the business will inflect by the fiscal second quarter, from what I recall, on volumes and ultimately be back performing where it should be based on history? And then I had a follow-on on Consumer Packaging.

--------------------------------------------------------------------------------

Thomas E. Salmon, Berry Global Group, Inc. - CEO & Chairman of the Board [65]

--------------------------------------------------------------------------------

No, I'm happy to, George. And I think it goes back to we still have 2/3 of our $120 million pipeline to onboard inside that business. We made sequential improvement in terms of recovery in the distribution business. But we're doing it, George, in a prudent manner, right? We want to do it in a way that ultimately preserves the integrity of our leadership position, the value we bring, and we're selling value while we do that.

--------------------------------------------------------------------------------

George Leon Staphos, BofA Merrill Lynch, Research Division - MD and Co-Sector Head in Equity Research [66]

--------------------------------------------------------------------------------

Okay. So you remain very comfortable 2Q, 3Q, from a fiscal standpoint, you've inflected positively on volume and then ultimately earnings. Would that be fair? Or am I putting too much ahead of you at this juncture?

--------------------------------------------------------------------------------

Thomas E. Salmon, Berry Global Group, Inc. - CEO & Chairman of the Board [67]

--------------------------------------------------------------------------------

No, that's fair.

--------------------------------------------------------------------------------

George Leon Staphos, BofA Merrill Lynch, Research Division - MD and Co-Sector Head in Equity Research [68]

--------------------------------------------------------------------------------

Excellent. The other question I had -- I wasn't surprised what you said about the trade shows and the interest that you're getting on plastic packaging. What are you seeing, aside from the -- and maybe that's the answer for foodservice. What are you seeing resonate the most with the consumer, with your customers right now in terms of new packages from Berry? Relatedly, it strikes me that the ready-to-recycle program seems like it has some traction. From your data, are the consumer companies finding the consumer is actually buying into this being part of the solution, that's why you're maybe seeing some improving volume? Or is that really still out in the netherworld and not really driving volume at this juncture? Again, I'm talking about the ready-to-recycle program.

--------------------------------------------------------------------------------

Thomas E. Salmon, Berry Global Group, Inc. - CEO & Chairman of the Board [69]

--------------------------------------------------------------------------------

Thanks, George. No, it's still a very small percentage of our business, but I think this is going to take time to roll out. I mean there are -- there's a number of products that we've introduced in the past that have a strong sustainable story that the market needs to get comfortable around from a cost perspective in many instances. And then ultimately, the recycle -- how it ultimately gets recycled and reintroduced to be reprocessed is a key component. So I think how that infrastructure gets built over time will ultimately play a big role in that. I'm excited about the RECOVER Act ultimately coming on board, and the work that the Alliance to End Plastic Waste is doing as well is beginning to showcase some opportunities in Southeast Asia in terms of how we ultimately keep plastic waste from getting into the environment and ultimately allow it to be part of the circular economy. So I would just say, George, it's in the very early innings. It is not stopping us from presenting other solutions that are either lighter weight; let's say, reusable, recyclable, compostable, the amount of content, regardless if it's chemical recycling, virgin materials, PCR-based, bio-based, we are really exploring every possible alternative to give our end customers the ability to choose, and then they ultimately have to make a decision with their end customers relative to the cost and value equation and what makes sense.

--------------------------------------------------------------------------------

Operator [70]

--------------------------------------------------------------------------------

Our next question comes from the line of Adam Josephson of KeyBanc.

--------------------------------------------------------------------------------

Adam Jesse Josephson, KeyBanc Capital Markets Inc., Research Division - Director and Senior Equity Research Analyst [71]

--------------------------------------------------------------------------------

One on cash flow. So forgive me if this was asked, but your cash flow being $100 million higher than what you had guided to, was that resin? Can you just help me understand what exactly that was?

--------------------------------------------------------------------------------

Mark W. Miles, Berry Global Group, Inc. - CFO & Treasurer [72]

--------------------------------------------------------------------------------

Sure. Yes. We had a benefit from working capital in the year, again, due to falling raw material prices, Adam, and that was offset partially by expenses associated with completing the RPC transaction, fees to advisers, lawyers, accountants, bankers, et cetera. So it's a benefit from lower raw materials, offset by charges associated with completing the RPC transaction.

--------------------------------------------------------------------------------

Adam Jesse Josephson, KeyBanc Capital Markets Inc., Research Division - Director and Senior Equity Research Analyst [73]

--------------------------------------------------------------------------------

And just one other one on your EBITDA expectation for this year. I think on the last call, you've kind of got us to a range around $2.15 billion. Is that still your -- I know you've been asked about the cadence of EBITDA, but do you still expect that same $2.15 billion or so? And within that, what are your expectations for RPC specifically?

--------------------------------------------------------------------------------

Mark W. Miles, Berry Global Group, Inc. - CFO & Treasurer [74]

--------------------------------------------------------------------------------

We don't provide explicit EBITDA guidance. But obviously, from the guidance we do provide, there's an implied number there, and that number you're giving would be in line with that implied result. With respect to RPC, they were doing, call it, $760 million-ish of EBITDA, and we would expect again continued growth in that as well as the benefit from the synergies in fiscal 2020.

Now the RPC business, keep in mind, will be co-mingled within some of our segments. As we mentioned in the prepared comments, the North America rigid business was moved into our CP-NA business. You'll still see it as acquisition contribution throughout fiscal 2020, but again, there won't be a separate line, if you will, that you can tie to, but you can add what goes into the components, acquisitions as we go forward.

--------------------------------------------------------------------------------

Adam Jesse Josephson, KeyBanc Capital Markets Inc., Research Division - Director and Senior Equity Research Analyst [75]

--------------------------------------------------------------------------------

Sure. And just your pro forma leverage at year-end, I forget -- I don't know if you mentioned it.

--------------------------------------------------------------------------------

Mark W. Miles, Berry Global Group, Inc. - CFO & Treasurer [76]

--------------------------------------------------------------------------------

Sure. Yes. We came in at 4.8. Obviously, the strong cash flow helped us. So our leverage came in at 4.8. Our targeted leverage remains below 4x. And our, again, consistent predictable cash flow allows us to get below that in a very efficient time frame. And that's our top priority as a company in addition to growing the company organically.

--------------------------------------------------------------------------------

Operator [77]

--------------------------------------------------------------------------------

I'm seeing no further questions at this time. I'd like to turn it back to Tom for any closing comments.

--------------------------------------------------------------------------------

Thomas E. Salmon, Berry Global Group, Inc. - CEO & Chairman of the Board [78]

--------------------------------------------------------------------------------

Thanks, everybody, for your interest in Berry Global. We look forward to speaking to you next call. Take care.

--------------------------------------------------------------------------------

Operator [79]

--------------------------------------------------------------------------------

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.