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Edited Transcript of BERY earnings conference call or presentation 31-Jan-20 3:00pm GMT

Q1 2020 Berry Global Group Inc Earnings Call

Evansville Feb 6, 2020 (Thomson StreetEvents) -- Edited Transcript of Berry Global Group Inc earnings conference call or presentation Friday, January 31, 2020 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* 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

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Conference Call Participants

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* Adam Jesse Josephson

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

* Anojja Aditi Shah

BMO Capital Markets Equity Research - Senior Associate

* Anthony James Pettinari

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

* Michael James Leithead

Barclays Bank PLC, 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

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Berry Global Earnings Conference Call. (Operator Instructions) As a reminder, this conference call is being recorded.

I would now like to hand the call over to your host, Mr. Dustin Stilwell. You may begin the call, sir.

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

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Thank you and good morning, everyone. Welcome to Berry's First Fiscal Quarter 2020 Earnings Call. Throughout this call, we will refer to the first fiscal quarter as the December 2019 quarter.

Before we begin our call, I would like to mention that on our website, we have 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 will 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, I'll remind you 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, our 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.

And now I'd like to turn the call over to Berry's CEO, Tom Salmon.

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

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Thank you, Dustin, and good morning, everyone. This morning, we'll be discussing several topics, including our fiscal Q1 results, highlights from our 4 operating segments, including an update on the RPC acquisition and our expectations for remainder of fiscal 2020. Afterwards, we'll be happy to answer any questions you may have.

Starting with our overall financial results and highlights for the quarter on Slide 4. In summary, our progress relative to our key 3 strategic initiatives remain on plan. As a reminder, these objectives are: to generate sustainable, profitable organic growth; integrate the RPC business; and continue to improve our strong balance sheet.

First, our results in organic growth progression were consistent with our plan. Specifically, turning to Slide 5, total net sales and operating EBITDA were records for any December quarterly period, $2.816 billion and $451 million, respectively. Overall organic volumes were flat in the quarter as we improved sequentially following our key objective of driving positive growth in our businesses.

I'm pleased to report that our North American Consumer Packaging division delivered positive organic volume growth while both our Health, Hygiene, & Specialties and Engineered Materials segments reported sequential volume improvement as expected. Our Consumer Packaging-International segment has gotten off to a solid start with cost synergy realization on plan and commercial activities to drive long-term growth well underway.

Our integration of the RPC business continues to move forward and synergy targets remain on track. Lastly, I'm very proud of our continued momentum on strength in our balance sheet as we were able to refinance and reduce our debt, saving the company $45 million in annual cash interest costs.

Now looking at some details specifically by segment. Our Consumer Packaging-North American business recorded stronger-than-expected organic volume growth in the quarter of 3% as we continue to focus on investing in growing markets where we have advantaged products. And we are encouraged by the momentum of the division delivering now 7 consecutive quarters of positive organic volume growth.

Our Health, Hygiene, & Specialties division reported flat organic volumes, excluding the customer product transition we spoke of previously, and saw sequential quarter-over-quarter volume improvement. We continue to innovate, deploy new capital for organic growth and focus on increasing our share of wallet with existing customers while pivoting our business to faster-growing markets such as adult incontinence, feminine care and medical. Our investments made in China and North America are on track and started benefiting us here in early 2020.

Inside our Engineered Materials division, we also saw sequential quarter-over-quarter volume improvement as projected, and we made progress onboarding our new business pipeline discussed in previous calls. Additionally, we have started to deploy capital as part of our commitment of investing $150 million over the next 3 years toward growth in next-generation products.

And lastly, our Consumer Packaging-International business reported another quarter of solid results. This segment primarily consists of business from our recent acquisition of RPC Group, which closed in July 9, 2019. It's now been 2 quarters since we acquired RPC and we're even more excited about the long-term benefits and strategic rationale of this combination. Our team continues to work diligently to identify opportunities and share best practices.

This acquisition has transformed Berry, creating a leading global company with an unmatched diversified global product offering and delivery capability, creating significant value for our customers. Additionally, through our combined collaboration know-how, material science, product development and manufacturing technologies, we truly are an innovative thought leader when it comes to designing for sustainability. We continue to integrate the business with an intense focus on realizing the cost synergies in our initial forecast of $150 million.

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 volumes in all segments. Additionally, I am pleased to say we anticipate delivering positive organic base volumes in the March '20 quarter.

Specifically, we continue to expect Engineered Materials to inflect to positive growth in the March '20 quarter with Health, Hygiene & Specialties inflecting the June '20 quarter. We remain committed to being a low-cost manufacturer with high-quality products and service to our customers that are used every day in consumer-centric product categories such as personal care, health care, food and beverage.

And finally, I want to remind our investors that as a global leader with scale and unmatched diversified portfolio, Berry is a consistent and dependable free cash generator irrespective of cost volatility, consumer demand or global macroeconomic conditions.

Globally, we believe plastics will continue to grow as it has for the past several decades with its clear cost and performance advantage. To support this expected growth, our suppliers are committing billions of dollars in capacity additions with the benefit of low-cost raw materials in the United States.

Now Mark will provide more details and remarks and then I'll come back to discuss our strategy and then open the call for questions. Mark?

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

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Thank you, Tom. I would like to refer everyone to Slide 6 now. As Tom referenced, first quarter reported sales were up 43% to just over $2.8 billion. The increase included revenue from the acquisition of RPC and continued positive organic volumes in our North America Consumer Packaging business. These positives were partially offset by lower selling prices due to the pass-through of lower resin costs and the sale of our Seal For Life business.

From an earnings perspective, the December quarter operating EBITDA increased by 36% to $451 million. The increase included contributions from the RPC acquisition, synergy realization and organic earnings growth in our North America Consumer Packaging segment. These improvements were partially offset by the sale of our Seal For Life business and anticipated unfavorable price/cost spread in our Engineered Materials and Health, Hygiene & Specialties segments.

Now looking at the results of each operating segment starting on Slide 7. The prior year results have been restated to match the current structure. For the quarter, our Consumer Packaging-International division delivered sales of over $1 billion and operating EPA of $142 million. This division primarily consists of business acquired as part of the RPC transaction and therefore, were not included in our historical results. So for comparison purposes, we are utilizing results prior to our ownership.

Legacy RPC operating EBITDA and volumes declined low single digits compared to the prior year quarter. Specifically, our pharmaceutical and waste management businesses produced solid volume growth in the quarter, along with flat volumes in our food business, offset by general softness in European markets.

As a reminder, 70% of the portfolio is consumer non-discretionary products such as food and beverage, health care and personal care, and the remaining 30% is tied into end markets like building and construction, automotive, distribution and other specialty categories. We now have 2 quarters of results under our belt and remain very confident of the long-term value creation opportunities from the combination.

Through these first 2 quarters, we are encouraged by the prospects of the business and proud of the execution of the team with the legacy RPC business generating low single-digit operating EBITDA growth on a constant currency basis on slightly lower base volumes.

Next, on Slide 8, sales in our Consumer Packaging-North America division were $680 million in the quarter, which was 13% higher than the December 2018 quarter as a result of the addition of the North America Rigid business from the RPC acquisition, along with better-than-expected organic volume growth of 3% as the business has continued executing its long-term strategy, focusing on advantaged products in targeted markets. These contributions were partially offset by lower selling prices from the contractual pass-through of lower resin costs to our customers.

Operating EBITDA for the division in the quarter was $121 million compared to $88 million in the prior year quarter. This 38% increase was primarily driven by the contributions from the RPC acquisition, including synergies from the combination and continued organic volume growth.

Turning to Slide 9. Our Health, Hygiene & Specialties division delivered sales of $541 million in the quarter compared to $659 million in the prior year quarter. The decrease was primarily attributed to the contractual pass-through of lower resin prices to our customers, the sale of our Seal For Life business and the customer product transition in hygiene we referenced on prior earnings calls.

Excluding the customer product transition, organic sales volume was flat for the quarter and on track relative to our commitment to generate positive organic volume growth as we continue to secure incremental demand and pivot our product portfolio to faster-growing end markets.

Operating EBITDA decreased by $18 million from the prior year quarter when adjusted for the sale of the Seal For Life business. This decrease was consistent with our expectations as highlighted on our last earnings call as a result of unfavorable price/cost spread and the lost earnings from the customer product transition. This will be the last quarter that customer product transition will have a significant impact on us on our year-over-year comparison.

Next, on Slide 10, sales for our Engineered Materials division was $585 million for the quarter compared to $661 million in the prior year quarter. The decrease was primarily attributed to the pass-through of lower resin prices and lower organic volumes, which were consistent with our expectation as we sequentially improved volumes and continue the qualification process of recent business wins.

Our effort and focus to regain market share with regional and local customers is positively impacting our results. Operating EBITDA in our Engineered Materials division was $101 million -- $106 million compared to $126 million in the prior year quarter, primarily as a result of unfavorable price/cost spread as expected.

We are encouraged by the progress our team has made and the positive momentum of the business. This momentum can be seen with the operating EBITDA in the December quarter coming in higher than the seasonally stronger September quarter.

Slide 11 provides a summary of our income statement for our first fiscal quarter. Overall, operating income was $199 million in the quarter compared to $176 million in the prior year quarter primarily attributed to the improved operating EBITDA just discussed, partially offset by incremental depreciation and amortization from the RPC acquisition.

Our net income for the quarter was $47 million and our adjusted earnings per share was $0.56, noting that we do not add back amortization of intangibles from acquisition. If we were to add back this amortization, it would result in an annual adjusted EPS improvement of over 30% and should be considered when comparing to other companies that adjust for amortization of intangibles from acquisitions.

Next, on Slide 12, the company generated $218 million of cash flow from operations in the quarter compared to $161 million in the December 2018 quarter, increasing over 35% primarily from incremental cash flow resulting from the RPC acquisition.

Net capital expenditures in the quarter were $148 million as we incurred spending on cost reduction initiatives as well as customer-linked growth-related projects and in line with our $600 million plan for fiscal 2020.

Our free cash flow for the December 2019 quarter was in line with the prior year quarter of $70 million. For the 4 quarters ended, free cash flow totaled $764 million. With our substantial free cash flow and our commitment to strengthen our balance sheet, we completed a partial redemption of $100 million on our 6% notes during the quarter and also issued a redemption notice on another $100 million that closed just last week.

We are pleased to report that we completed our first issuance into the European bond market, opening a new market for Berry. We issued 2 first lien notes, a EUR 700 million 5-year bond at a 1% fixed rate and a EUR 375 million 7-year bond at a fixed rate of 1.5% with the proceeds used to repay our EUR 1.1 billion term loan.

Also during the quarter, we refinanced $4.25 billion of our U.S. term loans, reducing the interest rate spread by 50 basis points. Annual cash interest savings from these recent refinancings and debt repayment is $45 million. 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.

Our fiscal year 2020 free cash flow guidance and assumptions are shown on Slide 13. Today, we are reaffirming our 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 includes a 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. Based on current interest rates, we will have a tailwind on cash interest given the completed refinancing and debt reduction just referenced.

Additionally, as softness in European markets persist, we would anticipate a headwind to our fiscal year earnings forecast. The volume trajectory of our legacy businesses remain on track as we anticipate positive organic base volume growth in our March 2020 quarter. We are proud of our history of exceeding our free cash guidance each and every year.

Looking beyond 2020, including the realization of synergies and excluding the associated integration costs, our normalized free cash flow would be more than $900 million, which represents a free cash flow yield of nearly 15% using our quarter end market capitalization.

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

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

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Thanks, Mark. Now across the company, as we look forward, our teams continue to be focused on integrating the RPC acquisition, optimizing our cost structure and fully realizing acquisition synergies, along with managing the investments in growth initiatives in each of our divisions.

Going forward, we will continue to focus on locating and identifying organic growth opportunities with targeted investments in select markets with advanced innovative solutions to provide high-quality products and service to our customers.

Next, the transformative acquisition of RPC gives us a world-class product innovation engine where we enjoy 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 benefit and financial impact of this combination represents an incredible opportunity for all stakeholders. 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 in the years ahead.

Despite the percent -- I'm sorry, 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. And again, with the RPC acquisition, we can generally say we're even more excited now than ever about the growth potential of its combination, the best practice sharing and global servicing capabilities it will provide, coupled with an unmatched unique set of global product solution offerings for our customers, creating an extraordinary opportunity for all stakeholders, which will generate much value.

We continue to work diligently across all 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 7 quarters. Our organic growth projects in both Engineered Materials and Health, Hygiene & Specialties divisions remain on track, and we remain confident in our projections of volume inflection for these divisions in fiscal 2020.

Our record level of expected capital expenditures in fiscal 2020 of $600 million is further evidence to our commitment and focus on organic growth while maintaining our low-cost position in the markets we serve to drive further value for Berry.

Additionally, I want to highlight again the continued strength we are seeing in our Consumer Packaging business. Despite the perception of possible headwinds regarding plastics, we continue to grow our share versus alternate substrates, evidenced by nearly 2 years of averaging 3% organic volume growth inside our North America Consumer Packaging business.

Through plastics' advantages of offering lighter weight, clarity, design versatility, durability, protection and cost and for these same benefits that has taken considerable share over the past 50 years, we now see additional opportunities as we design for sustainability and provide optionality for our customers to reduce plastics waste.

To be clear, we are doing everything possible to increase the demand of recycled materials, such as lightweighting, reformulation, tagging and identification and chemical recycling, all in an effort to create a more circular economy. As the market navigates and chooses the best options to improve recycling rates and reduce plastics waste, Berry, along with RPC's already proven expertise, puts us in a leadership and scale position to assist our customers in meeting their sustainability goals and initiatives.

Lastly, I would like to highlight that we remain committed to maintain a strong balance sheet, and we are well positioned to continue our historical track record of growing our free cash flow. We feel very confident in our ability to meet our $800 million free cash flow target in fiscal year 2020 just as we've done every single year as a publicly traded company. And we're equally confident in our expectations of volume trajectory in fiscal 2020.

And 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 and strengthening our competitive advantages to ultimately maximize shareholder value. The management of Berry continues to be focused on finding ways to extract more value for our stakeholders 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 am confident that the people at Berry will continue to drive positive results and achieve our goals and mission of always advancing to protect what's important.

Thank you for your continued interest in Berry. At this time, Mark and I will be glad to answer any questions you may have.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Neel Kumar from Morgan Stanley.

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Neel Kumar, Morgan Stanley, Research Division - Equity Analyst [2]

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You talked about some earnings risk from the weaker European economic environment. Can you just give us a sense of how you would quantify the downside? And how are trends looking so far in your March quarter for the industrial piece of the business for RPC?

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

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Well, like we said, we're -- it's early in the quarter right now. But clearly, while we're pleased with the progress we've made inside of RPC relative to synergy realization, we did see softness in our industrial space and generally, just the European market landscape as a whole, both Eastern and Western Europe. That was offset somewhat by strength in our pharma business, waste management and the food business was relatively flat.

So again, we're assuming, going forward, flat volumes for the legacy RPC business. And at this time, we're watching it closely to see just how transitory this is at this stage.

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Neel Kumar, Morgan Stanley, Research Division - Equity Analyst [4]

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Okay. And then just for my follow-up, could you just give us some more color on the price/cost headwinds in EM and HH&S? I know that some of it's been driven by the cost of onboarding new business and the negative operating leverage. But do you also expect that to inflect positive in 2Q for EM and 3Q for HH&S along with the volumes? And then, are you -- what are you embedding in terms of price/cost in your full year guidance?

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Mark W. Miles, Berry Global Group, Inc. - CFO & Treasurer [5]

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Yes, sure. For both businesses, we expect that relationship to continue to be negative in the March quarter and expect inflection to occur within the June quarter for both HH&S and EM, for the same reasons as we continue to see the volumes inflect and some of the start-up costs associated with the new assets wind down in the upcoming quarters, both, I would say, inflection within the June quarter. And that is -- both of those assumptions are embedded within our guidance.

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Operator [6]

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Our next question comes from the line of George Staphos from BoA.

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George Leon Staphos, BofA Merrill Lynch, Research Division - MD and Co-Sector Head in Equity Research [7]

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It's early in the year, and I wouldn't have expected you to adjust your guidance either way frankly, unless something significant had changed. But nonetheless, one of the obvious questions, I think, Neel was touching on a little bit is the risk that Europe presents or maybe doesn't to your free cash flow guidance.

So is there -- is the takeaway, yes, you've gotten whatever after tax, perhaps about a $30 million benefit from the refinancing and maybe it's a little bit less than that because it would happen partially through the year. Because of the European risk, is that basically one offsetting the other in terms of why you didn't adjust guidance now? Or is there something else that's at play here? Or perhaps it's just it's too early in the year to adjust guidance?

And again, if you were in our seat, part 2 of my question here, and we're trying to determine what combination of macro or other fundamental trends that we could track from the outside market that would occur that would make reaching your guidance a little bit more difficult than currently is the case.

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Mark W. Miles, Berry Global Group, Inc. - CFO & Treasurer [8]

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Yes. I think, George, relative to the interest comment, it's a combination of the refinancings, debt repayment as well as softer interest rates, and the order of magnitude of all of that would be about a tailwind of $50 million. That's pretax in fiscal 2020, relative to our original guidance. To your point, it's still early in the year. But based on current conditions, if interest rates were to remain the same and things were to play out as expected, we would have a tailwind of about $50 million pretax on interest costs.

Relative to European economies in our guidance, as you pointed out appropriately, it's early in the year. We have a flat assumption, as you may recall, embedded in our guidance. It started off a little weaker than that in Europe. We had offsets in our North America Consumer Packaging business as well as HH&S that got off to a little stronger start relative to volumes that helped to offset that weakness in Q1.

As you pointed out, it's just early in the year. We have a short-cycle business. To the extent European economies stay the same as they did in Q1, it would be a pretty similar offset to the interest savings that we have. But as you said, it's still early, we'll continue to update the market on a quarterly basis.

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Thomas E. Salmon, Berry Global Group, Inc. - CEO & Chairman of the Board [9]

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And George, I would say, any macro factors in Europe, we believe, ultimately, will be transitory. The business will be a low single-digit grower long term. We have no doubts about that whatsoever. We continue to invest in aspects of that business, specifically around dispensing solutions and closures because, as with the combination of RPC in Europe and legacy Berry, we have a global leading portfolio around those product lines, serving areas like health care, pharmaceutical, as you heard from our results, both those business lines, with food being flat and waste management was favorable as well.

So a little early in the year, but we're just articulating what we're seeing from a macro perspective. But by no means do we think that has any negative impact relative to our expectation that this will be a low single-digit grower longer term.

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George Leon Staphos, BofA Merrill Lynch, Research Division - MD and Co-Sector Head in Equity Research [10]

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Right. But if the exit rate continues the rest of the year, basically what's the best you could model now? As I say, we won't hold you to this because there are so many vagaries in the model and the forecast anyway, it would offset the interest, but hopefully, it shouldn't continue for the whole year, is that a fair summary?

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Thomas E. Salmon, Berry Global Group, Inc. - CEO & Chairman of the Board [11]

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Yes, that's quite fair.

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Mark W. Miles, Berry Global Group, Inc. - CFO & Treasurer [12]

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That's fair. Yes, that's fair.

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Operator [13]

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Our next question comes from the line of Anthony Pettinari from Citi.

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Anthony James Pettinari, Citigroup Inc, Research Division - VP and Paper, Packaging & Forest Products Analyst [14]

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Tom, I think both your legacy business and RPC have facilities in China. And I was wondering if you could just remind us what your total presence in China is now from a sales perspective. And then just what impact you're seeing or you might anticipate seeing from the coronavirus?

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Thomas E. Salmon, Berry Global Group, Inc. - CEO & Chairman of the Board [15]

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Thanks, Anthony. We've got 15 facilities within what I would describe as the affected areas of China and Thailand. Those regions represent about 5% of our overall sales. I am frankly very proud of our Berry team in China. We are actually prioritizing the manufacture of materials, nonwovens, specifically for the health care market. We have been working with local authorities to maximize 24/7 the production of surgical grade face mask materials, N95 respirators as well as surgical gowns and drapes for the protection of airborne and blood-borne pathogens in the region.

Our plants continue to operate. We continue to work closely with the relevant health authorities, with the priority of making certain our people are safe. But similarly, consistent with our mission of always advancing to protect what's important, we're providing products on the nonwoven side to support what is a growing crisis around the world, with protective solutions specific to face masks, gowns and in the United States, the protection of disinfectant wipes for surgical suites and other regions. So the business is very active relative to that, and we are prioritizing the health care and medical portfolio across all of our sites, specifically in our Nanhai facility in China.

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Anthony James Pettinari, Citigroup Inc, Research Division - VP and Paper, Packaging & Forest Products Analyst [16]

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Okay. That's great to hear. And I guess just sticking with HH&S, you indicated organic volumes were ahead of your expectations in the quarter. It seemed like some of the big customers in the space maybe had a tough quarter from a volume standpoint. Just wondering what you're doing that kind of allowed you to outperform your own expectations in the quarter on HH&S.

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Thomas E. Salmon, Berry Global Group, Inc. - CEO & Chairman of the Board [17]

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We have -- I'm very proud of this team. And as we've talked about for several quarters, the level of agility that this business showed when -- frankly, we made a growing -- a focused effort to increase our share of wallet with existing customers. We made targeted investments in faster-growing regions of the world. We pivoted our portfolio to areas such as adult incontinence, feminine care, biopharma and specialty applications and it's paying dividends. I will reiterate, I'm very confident we will hit the volume inflection as we've committed.

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Operator [18]

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

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Ghansham Panjabi, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [19]

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Tom, just picking up on that last comment on the March quarter volume inflection year-over-year and just to clarify. Is that comment specific to legacy Berry, so CP-North America, Engineered Materials and HH&S? Or does that include RPC as well? And if so, does that assume the RPC volumes will be flat? Just trying to get a better sense of that.

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Thomas E. Salmon, Berry Global Group, Inc. - CEO & Chairman of the Board [20]

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Yes, relative to the organic volume tied to legacy Berry, that would be the organic definition. And we're assuming it's going forward. I'm sorry.

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Ghansham Panjabi, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [21]

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Okay. And then for the EM segment, it does have some level of macroeconomic exposure, I think, with industrial end markets, et cetera. Can you just give us a sense as to how big that industrial end market composite would be for that segment? How did they perform in the December quarter? And what are you embedding for that specific end market for the March quarter?

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Thomas E. Salmon, Berry Global Group, Inc. - CEO & Chairman of the Board [22]

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Yes. We -- on previous calls, we've talked about our effort to ultimately regain our share at small and midsize customers. I am very pleased with our progress towards that objective. And ultimately, it's driving the confidence that we have in the volume inflection.

I will state that the month of December for our Engineered Materials business was positive on a year-over-year basis, which is a positive inflection for us relative to our Q2 pivot to positive growth. We are represented by small now, midsize as well as national distributors. It was a key objective for us to regain that share.

And similarly, we're also, as Mark had talked about, some of the price/cost headwind, part of that is also driven by additional resources that we brought into the business from a technical perspective to not only onboard the new demand pipeline that we've talked of in the past but also relative to the support of our capital investments, which are about $150 million that we'll invest over the next 3 years to support not only next-generation products, but also invest in our conversion cost to make certain that it -- that we maintain our low-cost leadership position.

I'm also pleased that from a commercial perspective, the team has done an excellent job not only working with our operations to onboard the pipeline, but also continue to build that pipeline. And I feel pretty confident that the size of the pipeline that we'll enjoy in 2020 will be consistent with what we saw in 2019 as well.

So the commitment that we are making towards organic growth, it's real. It's for all of our businesses, again, with the objective to have all our businesses delivering low single-digit growth.

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Mark W. Miles, Berry Global Group, Inc. - CFO & Treasurer [23]

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This is Mark, Ghansham. The only thing I would add is -- so Engineered Materials is almost exclusively a North American business. Our Health, Hygiene & Specialties is a global business where we did see some softness again in Europe. They were able to overcome that in the other regions and achieved flat volume even with that weakness. So I think...

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

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Yes, I think that's a great point. As Mark said, the weakness we saw was not tied specifically to RPC. We saw it similarly in our European base business tied to HHS, but we were fortunate to offset it with strength in CP-North America and North America HHS business in the quarter.

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Ghansham Panjabi, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [25]

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And just to clarify, that 70%, 30% for RPC that you sort of outlined, what's that 70% due from a volume standpoint in the December quarter and what about that other 30%?

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Mark W. Miles, Berry Global Group, Inc. - CFO & Treasurer [26]

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Yes. I don't have that breakdown in front of me, Ghansham. I think the weakness, that was more pronounced in the 30% than the 70%, but I don't have it broken down in that manner. But it was a larger negative in the 30%, more industrial type applications on the legacy RPC business.

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Thomas E. Salmon, Berry Global Group, Inc. - CEO & Chairman of the Board [27]

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Yes. More industrial applications, automotive, some softness as well, as you've heard in other calls, relative to the personal care business.

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Operator [28]

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

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Tyler J. Langton, JP Morgan Chase & Co, Research Division - Research Analyst [29]

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I guess now that you've had time to dig into RPC a bit more, I mean, are there any, I guess, assets that you'd kind of consider selling? And then also just have you rationalized any products? I know there's not a whole lot overlap with your sort of consumer North America, but has there been any sort of rationalization that's sort of weighed on volumes?

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Thomas E. Salmon, Berry Global Group, Inc. - CEO & Chairman of the Board [30]

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Not significant rationalization from an RPC perspective. But I would note, any time we do an acquisition and with a portfolio the size of Berry's as well prior to the acquisition of RPC, we're constantly looking at the portfolio and determining if there's areas that ultimately aren't going to be prioritized relative to our growth objectives relative to paring or shedding businesses. That's an active process that we undertake. And at a point in time that we have anything to share that is actionable, we'll be certain to share it on a future call.

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Tyler J. Langton, JP Morgan Chase & Co, Research Division - Research Analyst [31]

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Great. And then just with Consumer in North America, the volume is up 3%. I guess could you give a little bit more detail sort of what's driving that growth? And then, I guess, compared to last quarter, I guess, do you think that higher rate's sustainable? And just kind of what you think about that for the back half of the year?

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Thomas E. Salmon, Berry Global Group, Inc. - CEO & Chairman of the Board [32]

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Yes, that's a good question. Listen, CP is a business that, again, we -- I think we talked about in previous calls. We've been investing in that business relative to organic growth now to support our objective to deliver low single-digit growth. I would say CP is going to be a low single-digit growth producer.

Clearly, we were pleased with 3% in the quarter, but we saw it from a range of product lines inside that category, containers, bottles, pharmaceutical, health care, our vials business were all strong in the quarter. And we're really pleased with the pace of progress from those teams and the pipeline that ultimately they're executing against that will benefit us not only here in 2020 but certainly, '21 and beyond.

This is a strategic commitment and objective for our company to deliver the growth, and we're applying the right resources towards the right targeted investments to make it happen. And the fact that we saw growth across such a diverse number of segments gives us a great deal of confidence.

And what we're doing in CP-North America is the same thing that we're doing and deploying in the acquisition of RPC; making certain that we're prioritizing our investments where we can further stimulate growth where we can expedite and speed the pace of growth in businesses that we believe we have a sustainable differentiated advantage, the same model that we're applying across all the businesses.

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Operator [33]

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

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Brian P. Maguire, Goldman Sachs Group Inc., Research Division - Equity Analyst [34]

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Just wanted to come back to some of the differences in volumes between North America and International consumer and I guess Europe in general. And I know, Tom, you said that you're not seeing any real impact from the sustainability conversation. But I guess the question is really, why do you think so much of the weakness that you are seeing in volumes is taking place in Europe right now? I know their economies may be a little bit slower than in the U.S. but seems like the consumers may be holding up all right. I just wondered if you could talk about if you're seeing like more pronounced destocking there or things like Brexit have any impact.

And then just sort of related to that, if 30% of that Consumer International business is sort of more industrial facing, maybe why not put that in the EM segment or break it out a little bit separately because it does seem like a lot of the volume weakness you're calling out are more industrial and cyclical markets than truly the more stable consumer markets we're used to seeing.

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Thomas E. Salmon, Berry Global Group, Inc. - CEO & Chairman of the Board [35]

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So I would say that on how we ultimately pivot products in given segments, it's something that we look at on a regular basis. Actually, we did some of that when we first bought RPC by moving some of the North American businesses from International to our North American side of CP.

As you said, that 30% is tied into things like automotive. And if you look at the major economies in Europe relative to automotive demand, think about Germany, think about the U.K., think about Spain, you've got economic softness in those regions. I believe that it's transitory. And we continue to believe though, this business will be a low single-digit grower, and it's really about -- there were pockets of destocking or softness tied to personal care and you've heard others mention that. We saw some of that as well. But by no means is this a component that we're losing share to other substrates. I reiterate, this is not about us losing share to other substrates. This is about transitory macro softness specific to our industrial-based businesses.

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Brian P. Maguire, Goldman Sachs Group Inc., Research Division - Equity Analyst [36]

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Okay. And then just a separate question on capital reallocation priorities. This call and others, you guys have highlighted the free cash flow yield. I think -- you think that's an attractive valuation metric. And the priority has clearly been to repair the balance sheet and delever. But with the stock under pressure again, any thoughts on maybe delaying the deleveraging process and restarting the buyback authorization? Is that something that's on the table?

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Thomas E. Salmon, Berry Global Group, Inc. - CEO & Chairman of the Board [37]

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Our priorities are clear what we stated. We're going to delever the company, get our leverage back below 4x and ultimately, deliver on our commitments relative to growth, along with the predictable free cash flow, which is over $900 million on a normalized basis, and I think things will take care of themselves.

This business now, with the ability for us to deliver value on a global basis and with the diversity of our portfolio, with the strength of the sustainability capability we have both from a design as well as the use of post-consumer, chemically recycled, mechanically recycled materials and our ability to ultimately interface with our end users to the degree we are to support waste reduction in the circular economy is frankly, a very strong value proposition.

We announced yesterday a partnership with Georgia-Pacific, further reiterating our ability to support the circular economy, where we'll ultimately take recycled materials from Georgia-Pacific. We'll ultimately reintroduce those into new products, again, demonstrating our ability to deliver on that commitment to reduce plastics waste, to take advantage of a valuable raw material and resource, and we have the ability to partner with key end users and partners like a Georgia-Pacific with all the end users that we serve throughout the market. We're doing this as an example. And what was announced yesterday, we're doing this in the e-commerce space and there's a lot more to come. This is an incredibly dynamic time, and we're thrilled to be part of the narrative.

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Operator [38]

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

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Michael James Leithead, Barclays Bank PLC, Research Division - Research Analyst [39]

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I guess first on the resin side. We've been hearing from the resin producers about greater discounting in the U.S. market just given the new supply there. I know you're already quite a big buyer in that market. But I was curious if you're seeing any incremental impact from greater resin discounting in the market today.

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Thomas E. Salmon, Berry Global Group, Inc. - CEO & Chairman of the Board [40]

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Well, the majority -- resin for us is ostensibly a pass-through. Clearly, what I would -- what I think is most pertinent is that we see continued stability in the commodities markets unlike that we've seen in the prior years, and that stability ultimately is a plus.

As you're all aware, there's been significant investment made in North America relative to polyolefins. And clearly, it supports, frankly, from a cost perspective, the value of this material versus other substrates. So I think it's more that we're seeing not only in resin but frankly, other raw materials as well as freight, greater stability this year than we saw last year, for sure.

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Michael James Leithead, Barclays Bank PLC, Research Division - Research Analyst [41]

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Got it. That's helpful. And then I was hoping you could provide a like-on-like volume number for the Consumer International business for the quarter because I think that was the one segment I didn't see a volume number for in the release.

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Mark W. Miles, Berry Global Group, Inc. - CFO & Treasurer [42]

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Sure. It was down approximately 3% year-over-year.

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Operator [43]

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Our next question comes from the line of Anojja Shah from BMO Capital Markets.

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Anojja Aditi Shah, BMO Capital Markets Equity Research - Senior Associate [44]

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I wanted to go back to this Georgia-Pacific announcement you made yesterday on recycling plastic. Is this similar to what RPC is already doing in Europe? And can recycling plastic waste eventually be a profit center for Berry?

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

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We're not doing this just as a public service. We believe any opportunity to monetize these opportunities to recycle materials, to eliminate plastics waste, given Berry's scale, number of facilities and ability to reclaim and reprocess as a unique value proposition. So yes, we'll look to continue to replicate this.

The differences in -- it's similar to what we do in RPC, not exactly the same. But the project with RP -- with Georgia Pacific is just very unique that you're taking an experienced company in the recycling industry, the opportunity to collaborate and partner with them to remove these materials from the landfills, reincorporate them in new products is an exceptional opportunity. And we clearly believe that from a scale perspective, that is a competitive advantage for us because we have the end-use relationships, the number of manufacturing and converting sites to ultimately execute in and against it.

Your comment relative to RPC, again though, in terms of what they're doing for recycling, we're learning a ton from them. They clearly, when we bought them, were further ahead from a sustainability perspective and the opportunity to steal best practices from them and explore other opportunities that we can participate in the circular economy, whether it's chemical recycling, mechanical recycling, it's something we're really encouraged by. And frankly, RPC has helped enable that for us.

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Anojja Aditi Shah, BMO Capital Markets Equity Research - Senior Associate [46]

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Great. And then for my follow-up question, sorry if I missed it, but can you talk about foodservice volumes in Consumer Packaging in the quarter? And also what you're seeing in foodservice relative to the battle between plastics, fiber and other alternatives?

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

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Foodservice continues to be a strong performer. It similarly supported the positive growth in the quarter. And I would only argue that the success of that business over the last 2 years has been driven by substrate conversion in our favor.

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Operator [48]

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Our next question comes from the line of Kyle White from Deutsche Bank.

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Kyle White, Deutsche Bank AG, Research Division - Research Associate [49]

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Just following up on the Georgia-Pacific announcement and the talk on post-consumer resin, curious how much post-consumer resin you currently use. And where do you think that could go in the next few years?

And then on top of that, are you finding that customers -- I think we can all agree that the brands are wanting to become more sustainable, but are you finding that customers are actually willing to pay up to use this kind of material versus virgin?

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Thomas E. Salmon, Berry Global Group, Inc. - CEO & Chairman of the Board [50]

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Our percentage of use in terms of post-consumer materials relative to our overall spend, it was up on a year-over-year basis, but it's still a relatively smaller percentage of our overall spend from a raw material perspective. I will tell you, the discussion and conversation with end users is better, more collaborative, more balanced than it's ever been.

The -- both, I think, converters like ourselves as well as end users are balancing not only supply but ultimately, determining what the best sustainable designs will be for them going forward. And I think this is going to continue to materialize throughout the course of the year, but it's very encouraging, the level of dialogue and the percentage of time that we're spending collaborating with our end users on how we can meet their sustainability objectives of reducing plastic waste, reducing waste to landfill and supporting our objective and certainly, our commitment to end plastics waste, of eliminating plastics waste. And it's been very positive. I've been doing this a lot of years and the dialogue is more actionable and better than ever before.

We at Berry believe that our ability to educate around designing for sustainability and the alternatives that are available to our end customers are real. Clearly, right now, there is a disparity between virgin costs and recycle costs. But over time, as demand continues to increase, that will level set. And frankly, some are challenging themselves to take on the responsibility and pass that cost forward. So we'll see.

It's going to continue to evolve over time. But I will tell you, it's not just -- it's just not commitments on paper. The discussions are active and they're actionable, and I expect to see that number in terms of post-consumer usage and demand increase as well as the objectives to overall weight-reduce, which Berry is similarly an industry leader, and our ability to reduce and take weight out of our plastic parts.

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Kyle White, Deutsche Bank AG, Research Division - Research Associate [51]

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Got you. That's helpful. And then just a quick one. If I look at the normalized free cash flow, the $900 million, can you just help me bridge the $800 million this year that you're guiding to, to the normalized $900 million? I guess if I layer on the additional $75 million of synergies, kind of tax effect those and then take out the working capital and other headwinds that you had this year, I get to a little bit higher number, but I understand there's probably some level of conservatism?

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Mark W. Miles, Berry Global Group, Inc. - CFO & Treasurer [52]

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No, that's the exact math. Yes, just taking the $800 million, adding back the unrealized synergy as well as eliminating the integration costs associated with RPC and tax effecting those.

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Operator [53]

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Our next question comes from the line of Salvator Tiano from Vertical.

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Salvator Tiano, Vertical Research Partners, LLC - VP [54]

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Firstly, a little bit of a big picture question. You kind of addressed it, talking about convergence in foodservice to plastics. But just big picture, when we go back a few years ago, there are many, many years in a row with negative volumes. And now you're in a very sustainable past 2 years roughly of positive growth. Can you tell us a little bit what you've done on your end to change the business segment? And what had changed with regard to the end markets, not just foodservice and I guess plastic cups, but broadly, that has led to this growth trajectory?

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

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Yes, happy to. I think strategically, you have to go back and realize that oftentimes, historically, when we would do acquisitions, we would cull volume or walk away from volume because it may not have met our margin expectations. The business for Consumer Packaging-North America hasn't been impacted by an acquisition for the last 7 -- 5 or 7 years or so. So it's really been operating on its own.

And our focus was identifying which opportunities we could create differentiation and then invest behind the differentiation. And as a result, it has paid dividends for us not only in foodservice but in our specialty bottles business and our pharma and health care business, and we're making similar investments to support our already leading position in closures and vials, and we'll continue to do that.

And I think it's a -- the -- all investments are not considered equal, and we really are making tough decisions to make certain that the investments we make are absolutely on the right opportunities, no different than what we've done inside of HHS to support growth in a faster-growing region like China, with our high-loss soft material and our R5 investment, which remains on track and will be sold out by the end of 2020.

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Salvator Tiano, Vertical Research Partners, LLC - VP [56]

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Great. And just as a follow-up, I wanted to see a little bit the impact of lightweighting in Engineered Materials and Health, Hygiene & Specialties. I think historically, given how you count volumes on a resin basis, lightweighting in Consumer Packaging has been a headwind to the reported volumes. As we look more -- as we look to make more sustainable products, will this have a measurable impact to the way you report the volumes in these segments?

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

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It's a fair commentary. There's not a perfect unit of measure inside our business, but we're not doing this just to affect the metric. The reality is if we can make products better, more cost-effective, meeting the feature needs and benefits for our end customers, we'll do it. We're doing it in Engineered Materials by our expertise in material science. We're doing it in HHS by our ability to combine nonwovens with breathable film technology, a complement of the most recent Clopay acquisition.

But yes, it's an ongoing effort to define the best unit of measurement that can best reflect the progress that we're making towards growth. And we'll continue to seek out what those are. But it's -- there's not a perfect one in our business given the diversity of what we do.

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Operator [58]

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

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Gabrial Shane Hajde, Wells Fargo Securities, LLC, Research Division - Associate Analyst [59]

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To revisit the China commentary, Tom, that you made specific to HH&S, notwithstanding any ripple effect that, I guess, this virus may have on the economy or sentiment, should we interpret that, that it would be a net positive to volumes in HH&S, to the extent that this persists?

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Thomas E. Salmon, Berry Global Group, Inc. - CEO & Chairman of the Board [60]

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I would -- I think it's too early to say that it's going to be a net positive. The 2 plants that are manufacturing the majority of those materials are our Nanhai facility and Suzhou facility, but it's just -- it's a little too early to say what that will be. It all really depends how long this health crisis lasts. In some instances, we're ultimately deferring the production of other materials to support the health care product, to support the need that both China and the world economy has relative to shortages in those product lines.

I'll say none of our plants right now are ultimately closed. So there's a variety of facilities that are continuing to serve local markets. I think we'll continue to serve the local Chinese market. People need to continue to eat. People need to continue to do those things that they do to support their everyday life as a component of our overall portfolio.

But a little too soon to say. I'm just proud of our team's ability to provide these kind of products ultimately to meet what is an unfortunate demand right now.

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Gabrial Shane Hajde, Wells Fargo Securities, LLC, Research Division - Associate Analyst [61]

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No, understood. You've made a couple of comments in the past couple of quarters about the dispensing systems business within the acquired RPC operations. I was curious if now you've had a couple of quarters to look underneath the tent here, where that business had historically been successful and what type of investment might be necessary to expand it.

Is this a function of really installing some assembly equipment here, maybe domestically and maybe even something where you can co-locate operations and then, I guess, get some commercial folks in place or what time line? Or anything you can give us on that front would be helpful.

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

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Yes. It's one of the most attractive parts of the RPC acquisition. Combining RPC's closures, dispensing business with Berry's, creates close to a $2 billion business for Berry. And the team right now is prioritizing around their innovation pipeline to get it commercialized as quickly as possible.

Secondly, where they have commercialized around pharmaceutical, around health care, how we can deploy those existing application and parts to other regions of the world. So it's really part of the -- of that global value delivery capability that we are hyper-focused on.

I will say in general, the level of investment to support this business was outstanding. From an automation perspective, from a converting equipment perspective, it's really about making certain that we get more of that pipeline commercialized faster, consistent with what we talked about our overall strategy, which is investing in advantaged products, in targeted markets and deploying the resources and capital against it.

But we're excited about that business. And that is a -- our objective clearly is to be a global leader in closures and dispensing solutions.

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Gabrial Shane Hajde, Wells Fargo Securities, LLC, Research Division - Associate Analyst [63]

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Great. And last one, if I can squeeze it in. Can you remind us on the, I guess, Versalite product, given the decline in polypropylene? Is that more of a cost-competitive product now and something that you still have dialogue with customers on for hot cup applications?

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Thomas E. Salmon, Berry Global Group, Inc. - CEO & Chairman of the Board [64]

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We continue to have questions. We continue to enjoy business. We've made great strides relative to the cost of that substrate. Our portfolio of customers that enjoy today and our pipeline is robust. I'll leave it at that, and it's robust with the majors. So we continue to believe it's one of the world's most advanced drink cup solutions. And our existing customers continue to enjoy its benefits, and there's a pipeline of new opportunity for us to consider.

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Operator [65]

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

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Adam Jesse Josephson, KeyBanc Capital Markets Inc., Research Division - Director and Senior Equity Research Analyst [66]

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Mark, just one on RPC volumes. I know that you said they were slightly down in the 2 quarters you've owned them. Can you just give us some context as to what they have been? I think they were flat in the quarter or 2 beforehand, and then they had been, I think, growing low single digits over the past few years, if memory serves. Can you just talk to us about what RPC's volume trends have been over the past few years?

Because I know the European economy is not great, but it has -- it's been in a malaise for many years now. So I'm just, I guess, trying to understand what, if anything, has changed from the days when RPC was up low single digits?

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Mark W. Miles, Berry Global Group, Inc. - CFO & Treasurer [67]

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Sure. Yes, I think, Adam, the progression, I think you laid it out pretty accurately, plus 1%, plus 2%. And as a reminder, they reported every 6 months. So quarter-to-quarter, I don't know that I've looked at it that closely to figure out volatility within the quarter. So I'd hesitate getting too excited about one quarter's performance.

But yes, starting under Berry's ownership, first Q1 or 2 quarters in, first quarter was flat. This quarter was down 3%. So for the first 6 months were essentially flat, down 1% on volumes. And I wouldn't say there's been any significant change other than what we called out, weakness in some of the European markets here in the most recent quarter.

But again, as we pointed out, too early to call how long this will last. We just want to be prudent in our approach and call out that it is weaker at the moment, but that could certainly change as the clock rolls forward.

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Adam Jesse Josephson, KeyBanc Capital Markets Inc., Research Division - Director and Senior Equity Research Analyst [68]

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Sure. And just one on resin, Mark. I know you mentioned year-over-year, prices are down quite a bit. They flowed through your sales line. How much of a benefit to your EBITDA was resin in the quarter? And what, if any, changes are you expecting on resin prices, polypro and polyethylene for the balance of the fiscal year? And just what's your outlook on supply/demand in those markets?

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Mark W. Miles, Berry Global Group, Inc. - CFO & Treasurer [69]

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Yes. As a reminder, resin is a pass-through for us. So the fact that resin is down year-over-year has reflected in a lower top line, but that's also a lower price for our customers, right? So our -- it makes our products less expensive for our customers. So in terms of impact on our profitability, not that significant as it's passed through to our customers.

In terms of outlook, I think Tom may have mentioned this in some earlier answers, but it's been relatively stable, up, down $0.01 or $0.02 a month, but it's been a pretty stable market here in the recent history.

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Adam Jesse Josephson, KeyBanc Capital Markets Inc., Research Division - Director and Senior Equity Research Analyst [70]

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And you're expecting no change for the balance of the fiscal year, I assume, in your guidance, along those lines?

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Mark W. Miles, Berry Global Group, Inc. - CFO & Treasurer [71]

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Yes. We're expecting a relatively stable market for resin going forward, which, on cash flow, I should point out as well, that would be a modest tailwind to the extent resin does stay benign. But again, early in the year, so we're not adjusting at this stage.

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Operator [72]

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Our last question comes from the line of George Staphos from BoA.

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George Leon Staphos, BofA Merrill Lynch, Research Division - MD and Co-Sector Head in Equity Research [73]

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It's late, I'll make it quick. Can you let us know or remind us what are the next 1 or 2 steps relative to Engineered Materials requalifying and filling the pipeline in line with your targets to hit your guidance and -- or what's embedded in your guidance?

And then relatedly, could you remind us what's in the $150 million of spending for this segment over the next 3 years? What are you basically -- when it's all said and done, what will that segment look like? How will it be different? How will it be more competitive, so on and so forth? Good luck in the quarter.

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Thomas E. Salmon, Berry Global Group, Inc. - CEO & Chairman of the Board [74]

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Sure. The onboarding remains on track. We completed over 50% of the new opportunities that have become commercialized. We'll do the remaining 50% here in this quarter and into the June quarter to kind of round out the whole year.

The good news, George, it's not cast in stone, so it's very dynamic and we continue to add to that pipeline. And that ultimately is what we're most excited about, that they continue to add on to the pipeline side of Engineered Materials that gives us support for beyond 2020.

We are making investments inside that business just to make certain that we've got the technical aptitude and know-how from everything to support more automation inside that business so that we ultimately can prioritize our human capital around the most value-added applications inside the business to support some, which I can't describe specifically, converting technologies that will give us advantages relative to composition of products, material science and the overall cost of conversion inside that space.

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Operator [75]

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I would now like to turn the call back to the company for final comments.

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Thomas E. Salmon, Berry Global Group, Inc. - CEO & Chairman of the Board [76]

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Very good. I want to thank everybody for your interest in our Q1 results. Look forward to speaking to you next quarter. Thank you.

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Operator [77]

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Ladies and gentlemen, this concludes today's conference call. Thank you for your participation and have a wonderful day. You may all disconnect.