Q4 2023 Pactiv Evergreen Inc Earnings Call
Participants
Curt Worthington; Vice President - Strategy, Investor Relations; Pactiv Evergreen Inc
Michael King; President, Chief Executive Officer, Director; Pactiv Evergreen Inc
Jonathan Baksht; Chief Financial Officer; Pactiv Evergreen Inc
Arun Viswanathan; Analyst; RBC Capital Markets
Ghansham Panjabi; Analyst; Robert W. Baird & Co. Incorporated
Anthony Pettinari; Analyst; Citi Investment Research
Jordan Lee; Analyst; Goldman Sachs
Philip Ng; Analyst; Jefferies
Curt Woodworth; Analyst; UBS Equities
Presentation
Operator
Good day and thank you for standing by, and welcome to the Pactiv Evergreen Fourth Quarter and Full Year 2023 earnings call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session to ask a question. During the session, you need to press star one one on your telephone. You will then hear an automated message, advising your hand is raised. To withdraw your question, please press star one and one again, please be advised today's conference is being recorded, and I would now like to hand the conference over to your speaker today, Curt Worthington, Vice President, Strategy, Investor Relations. Please go ahead.
Curt Worthington
Thank you, operator, and good morning, everyone. Welcome to our fourth quarter and full year 2023 earnings call with me on the call today we have Michael King, President and CEO, and Jon Baksht, CFO. Please visit the Events section of our Investor Relations website at w. w. w. dot Pactiv, Evergreen.com and access our supplemental earnings presentation. Management's remarks today should be heard in tandem with reviewing this presentation.
Before we begin our formal remarks, I want to remind everyone that our discussion today will include forward-looking statements, including those regarding our guidance for 2024. These forward-looking statements are not guarantees of future performance. Actual results could differ materially from those contemplated by our forward-looking statements. Therefore, you should not put undue reliance on those things. These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we are. We refer all of you to our recent SEC filings, including our annual report on Form 10 K for the year ended December 31st 2023. For more formal detailed discussion of these, the forward-looking statements we make on this call are based on information available to us as of today's date, and we disclaim any obligation to update any forward-looking statements except as required by law.
Lastly, during today's call, we will discuss certain GAAP and non-GAAP financial measures, which we believe can be useful in evaluating our non-GAAP measures should not be considered in isolation or as a substitute for results prepared in accordance with GAAP and reconciliations to the most directly comparable GAAP measures are available in our earnings release and in the appendix to today's presentation. Unless otherwise stated, all figures discussed during today's call are for continuing operations.
With that, let me turn the call over to Pactiv Evergreen's President and CEO, Michael Kim.
Michael King
Thanks, Curt. Good morning, everyone, and thanks for joining us today. I'll start with an overview of our key messages on Slide 4, 2023 was a pivotal year as we continue to reshape the Company. First, we set records for our primary financial metrics, including adjusted EBITDA, adjusted EBITDA margin and free cash flow. Full year adjusted EBITDA increased 7% to $840 million, marking the third consecutive year of growth. Our adjusted EBITDA margin of 15.2% improved 260 basis points compared to the last year. We also generated almost $250 million in free cash flow, up 60% year over year. Second, we made significant progress on our transformational journey by launching new initiatives to drive operational excellence, improving our overall productivity and achieving a number of important milestones in our Beverage Merchandising restructure.
Third we achieved one of our top priorities by reducing our net leverage ratio to 4.1 times at year end, with line of sight to reach the high threes in 2024. Our performance underscores the resilience of our business, our ability to meet the evolving needs of our customers and the significant operational improvements we've implemented since 2021. I also want to recognize these accomplishments would not have been possible without the tremendous effort of all of our employees. Our underlying value proposition remains the same, and we continue to leverage our broad range of product offerings, channel coverage and distribution network to generate improved margins and free cash flow. We remain focused on our strategy of value over volume, and we continue to make progress emphasizing higher margin products, focusing on operational excellence and improving our balance sheet. We're confident that concentrating on these strategic priorities will allow us to achieve shareholder value.
Turning to the rest of the agenda.
On Slide 5, I'll start with an overview of our performance and discuss the progress we made against our strategic priorities during the fourth quarter and the full year for 2023. John will then provide updates on our financial metrics and discuss our outlook for 2024 at the end of the call, and we'll open it up for Q&A.
Turning to Slide 7.
One of the themes we emphasized over the past years that our company is in the midst of a transformational journey that touches all aspects of our business. This slide includes an overview of the progress we've made during the past year and highlights the path that lies ahead for passive evergreen as we strive to unlock further value for our stakeholders.
First, we announced the combination of our food, merchandising and beverage and merchandising businesses into one seven and completed the closure of our current mill converting facility in homes that falls. These issues were a major step forward in becoming a pure-play converting operations and support our broader efforts to reduce ongoing capital intensity and fixed costs as well as reduce the volatility associated with our earnings and free cash flow.
Beyond the restructuring, we have concentrated on fundamental changes in our approach to the marketplace. This past year you've heard us talk about our approach to value over volume, but it goes beyond simply driving price. It really comes down to being deliberate about how we position our portfolio to create the most value for our customers and our stakeholders. Over the last two years, we completed extensive analysis across the organization with the goal of identifying how we deliver value to our customers and where we could potentially optimize profit. Through this effort, we've allocated resources to our long-standing customer relationships and partner with category leaders to grow relative to the market. Our customers also look to us to innovate and develop the highest quality, sustainable products to help them achieve their own sustainability goals.
An important role in our transformational journey is not just to develop sustainable solutions for our customers that help them meet their goals, but to develop our own solutions that help reduce the mark we read on the world. Our goal is packaging and better future starts at our operations level, which attractive evergreen. We continuously evaluate for improvement early on in our journey. We recognize the need to drive operational excellence. This realization quickly led to us identifying several opportunities that will improve productivity, quality and reliability, while at the same time taking cost out of the system. This is a top-down Company-wide effort that ultimately led to the implementation of our pets or Pactiv Evergreen production system with the goal of driving improved operational performance across the entire organization. As a reminder, isn't just a production system. It's a holistic management philosophy that touches all aspects of our operations. 2023 was the 1st year of our touch rollout. We set a goal for eight facilities to achieve brand status by the end of the year. I'm pleased to share that 15 facilities achieve brand status during 2023, almost doubling our initial tire today in 2024 two additional facilities that are ready to ramp status. And we recognize that for silver facility in early February, we expect to have 100% of our locations, which branches by the end of next year with an additional two to four locations achieving silver status in 2024 and our first gold facility by 2025, we've seen the velocity pickup across the Company. As more facilities become hub certified, they're able to share lessons learned with other locations, which helps the remaining facilities get up the curve that much faster I want to take this opportunity to recognize and applaud our team for their discipline. However, there is more to do as we continue our transformational journey and position our Company for long-term sustainable growth.
Looking ahead to the rest of 2024 and beyond, we intend to build on these accomplishments, which include the strategic alternatives review of our Pine Bluff paper mill continue to do a lot of tests, drive operational excellence and generate solid free cash flow. Achieving these important milestones in 2023 has allowed us to pivot to the next phase of the transformational journey through a targeted optimization of our operating footprint. Over the next two years, we intend to rationalize a portion of our physical footprint and shift existing production and warehousing within our network to better match our capacity with the industry demand. And we estimate this will yield approximately $35 million in annual run rate cost savings by 2023. We expect these cost improvements will help position the Company to continue to meet the needs of our customers and compete and win in the markets we serve we also firmly believe these actions will enhance the long-term margin profile of that business and contribute to improved overall plant utilization and network productivity.
Before I turn the call over to Jon, and we'll touch on what we are observing across our end markets as well. So we continue to win with our key customers.
Turning to Slide 8 for overall inflation has moderated in recent months to prices are still elevated compared to historical levels, particularly in restaurants where menu prices continue to outstrip inflation. Consumers have responded by trading down and shifting the food budgets towards lower cost options like quick-serve restaurants instead of dining restaurants or by opting not to dyno in favor of selling their pantries within the grocery store, consumers reduced purchases of more discretionary items like baked goods. This dynamic has persisted for the past several quarters, and we believe the consumer has become more stretched in recent months, which may impact industry demand through 2024. It's also important to note that weather conditions can impact volumes in consumer demand. While this wasn't a headwind during the fourth quarter of 2023 we saw the severe winter weather in January of 2024, reduced restaurant foot traffic and temporarily restrict our customers' supply chain. This had an unfavorable effect on our volumes during January, we expect the impact of the severe weather will be isolated to our first quarter results, driving profitable growth and generate consistent returns for our shareholders.
Our top priorities like everyone we have experienced inflation driven headwinds. However, we believe the underlying business remains resilient and we continue to invest in our customers and strategically allocate resources to those that are well-positioned and taking share in the marketplace.
On the other front, we see limited promotional activity by some of our customers, although we haven't seen large-scale promotional activity pricing yet, to the extent that overall customer promotional activity picks up, we believe it would be a net positive for the sector as well as for Pactiv Evergreen. As mentioned in prior calls, we've mostly worked through our customer destocking, and we're confident that that dynamic will have a minimal impact in 2024.
From a raw materials standpoint, the trend in 2023 was towards lower cost when compared to 2022 as broader inflationary pressures ease, we've seen that translate through to overall price levels, which are generally lower than last year due to our contractual pass-throughs. Additionally, we've made a concerted effort to reduce the lag with our contractual pass-through mechanisms. So we don't expect the recent commodity price volatility to have a material impact on results in the near future. Definitely, we've seen some of our customers attempt to offset consumer price sensitivity by reducing their input costs, including packaging. And we expect that trend to continue through 2024. At the same time, we continue to identify opportunities to leverage our value-over-volume strategy, which was evident in our Food and Beverage Merchandising segment during the fourth quarter. Overall we remain uniquely positioned to capitalize on favorable long-term fundamentals across our end markets. These core strengths underpin the base of their transformation, and they're designed to propel profitable growth in the years to come.
With that, I would now like to turn the call over to Jon. Jon?
Jonathan Baksht
Thanks, Mike. I'll start with our quarter highlights on Slide 10. Before I cover the results in detail, I'll provide some context for the financial performance. Recall in our fourth quarter of 2022, our end markets are still experiencing inventory destocking, and we are still contending with historically high inflation levels across our cost structure. Both of those dynamics have moderated over the course of 2023. As a result, our Q4 2023 performance reflects the impact from lower raw material costs as well as underlying demand that has modestly improved but is still weaker than historical levels.
We reported net revenues of $1.3 billion for the quarter, which represents a decrease of just over $200 million compared to last year's similar to our third quarter results. The majority of the decline was due to the Beverage Merchandising restructuring plan and the impact of the Canton mill closure last May. Excluding those items, our revenue was down just over $17 million, largely due to a lower raw material cost environment versus the prior year and favorable mix as well, strategic value or volume decisions.
Overall volumes were down 3% in the quarter. Foodservice volumes increased year over year, while Food and Beverage Merchandising volumes decreased mainly due to strategic value or volume decisions as we continued to optimize the portfolio. Freight mix was down 4%, which is mostly a function of lower contractual pass-throughs driven by lower raw material costs compared to the prior year period. We continue to strategically align ourselves with our core customers, and we are positioning the business to grow with their success. The price mix trends over the course of 2023 reflects those efforts.
Adjusted EBITDA was $207 million, which was a 24% increase compared to the prior year and slightly ahead of our guidance range. We benefited from lower raw material costs, net of cost pass-through and lower transportation costs. Our adjusted EBITDA margin surpassed 16% for the second consecutive quarter coming in at 16.2%, which is our second-highest quarterly adjusted EBITDA margin since our IPO and almost 500 basis points better than last year. Margin performance is particularly impressive, considering our fourth quarter is typically a seasonally low quarter.
Our Q4 free cash flow was negative due to timing of CapEx and cash interest payments. Our full-year CapEx of $285 million was slightly above our previous guidance of $280 million. As a result, our full year free cash flow came in at $249 million, slightly below our guidance of $250 million plus. We continue to focus on deleveraging our balance sheet by reducing total debt by $25 million during the quarter and achieving a net leverage ratio of 4.1 times at year end.
For the full year, we reduced our total debt by $550 million and brought our net leverage ratio down by 0.5 turn compared to the beginning of the year from a quarter-over-quarter perspective, net revenue and adjusted EBITDA reflected our typical seasonal patterns as the fourth quarter and first quarter tend to have lower volumes than the second and third quarters. The percent decline in revenue was mostly due to a sequential decrease in volumes and partially due to lower contractual pass-through pricing.
Adjusted EBITDA was 9% lower than third quarter, mostly due to lower seasonal volumes. Free cash flow was lower on a sequential basis due to the timing of our CapEx and interest payments as well as a slight seasonal inventory build during the fourth quarter.
And finally, we are extremely proud of our full year results for 2023. The 11% decline in net revenue was mostly due to the Canton mill closure and the divestiture of our Beverage Merchandising Asia business in the third quarter of 2022. Excluding those items, net revenue was down 4%, mostly due to inflation driven impacts on consumer spending in our value-over-volume strategy. However, we leverage our focus on operational excellence to deliver 7% adjusted EBITDA growth compared to 2022, which we achieved an EBITDA margin of 15.2% for the full year, which was a 260 basis point improvement over the prior year.
Please turn to Slide 11 to look to the third quarter.
Our Foodservice segment posted another strong quarter, highlighted by a return to positive year over year volumes of 3%, despite ongoing weakness in restaurant foot traffic and overall foodservice industry volumes. We continue to align ourselves with our core strategic customers that benefit from our unique value proposition and our intern winning in their end markets. This allowed us to once again outpace our primary foodservice end-markets. Price mix was down 4%, mostly due to lower contractual pass-throughs, which were a function of low raw material cost environment. Credit last year, adjusted EBITDA was 32% compared to last year. And adjusted EBITDA margins improved by over 440 basis points as we successfully absorbed lower raw material costs. Net of cost pass-through increased sales volume and benefited from lower transportation costs overall for the strong quarter that really showcased our ability to strategically grow lines, manage costs and deliver solid profitability on a quarter over quarter basis, our results were impacted primarily by lower volumes, including seasonal factors, restaurants, but traffic is still down compared to last year, although warmer temperatures across the US in December it provided a slight offset.
Net revenues were down 7%, mostly due to the seasonal volume dynamics. Adjusted EBITDA declined 4%, driven by lower sales and higher manufacturing costs, partially offset by lower raw material costs, medical staff.
Turning to slide 12, Food and Beverage Merchandising experienced a continuation of the theme from the third quarter that food and beverage prices are still elevated compared to historical levels despite the recent moderation in consumer pricing, the end result is that consumers are curbing their spending and weighing their budgets towards stable like Protein A. We also continue to see consumers opting for lower-priced dairy beverages that utilize different packaging formats. In addition, our agricultural channel benefited from easier comps caused by weaker market conditions in the fourth quarter of 2022. This partially offset the residual impact of severe weather during the first half of 2023, which ultimately delay the fruit bars and reduced overall fresh food quality causing an unfavorable impact on our third quarter results.
From a year-over-year standpoint, volumes were down 22%, which is mostly due to the impact of the Canton mill closure in May 2023. Excluding the Canton impact, volume was down 7%, mostly due to strategic value of our buying decisions to focus on our core customers that value our unique service offering underlying demand was down in the low single digits, nearing the broader market impact from higher food prices. Adjusted EBITDA was up 4% as lower raw material costs, net of cost faster and lower transportation costs more than offset lower volumes, the closure of the Kent mill and higher manufacturing costs. We're also working closely with our customers to manage production costs and inventory levels to match our volumes, which has helped our profitability.
On a sequential basis, revenue was down 8%. Volumes were lower by 10%, mainly due to value over volume decisions and to a lesser extent, seasonal declines in categories like protein for the holiday season leads to large format products like strategic. Look, these different types of packaging price mix was down 1%, mostly due to contractual pass-throughs. Adjusted EBITDA declined 13% compared to the prior quarter due to lower sales volume and higher manufacturing costs partially offset by lower material costs. There are prospects there.
Turning to slide 13, our transformational journey has been evident in all aspects of our financial results over the past three years.
From 2021.
Our full year adjusted EBITDA has grown 58% from $531 million to $840 million. Over that same time period, our diligent approach to pricing and our cost discipline has also helped us improve our margins from high single digits to the mid 10s, and we intend to continue that trajectory into the upper 10s over time. Improved profitability also translated into dramatically higher free cash flow. It is important to note that we generated almost $250 million of free cash flow this past year despite incurring $107 million of cash outflows for restructuring charges. Again, that strongly reflects our company's inherent cash-generating growth.
Finally, we capitalize on our improved profitability and free cash flow to make progress in strengthening our balance sheet in 2023. During the fourth quarter, we reduced our total debt by $25 million, bringing our total debt reductions to $664 million for the last two years. As a result, we closed 2023 with a net leverage ratio of 4.1 times and achieved our previously stated goal to reach the low 4s by year-end. I'd like to reflect on that accomplishment, suggesting that this was one of our top priorities in 2023 we began the year with a net leverage ratio of 4.6 times. And through a combination of solid free cash flow and adjusted EBITDA growth, we reduced our net leverage ratio by half a turn to 2023 and establish excellent momentum to continue delevering our balance sheet into the high threes in 2024. That brings us to the next phase of our transformation. You may recall that our third quarter earnings, we indicated that the next leg of that journey would include incremental cost structure, optimization and lifestyle. We expect today's announcement, what footprint optimization will allow us to reduce our annual operating costs by approximately $35 million, while improving utilization levels across our operations initiative will require incremental investment in the near term, which we alluded to last quarter when we discuss the next stage of our transformation, this next day positions us to be more adaptable, enhances our ability to serve our customer base more effectively and operate more efficiently. We expect this effort to impact approximately 10% of our total footprint.
This is important. We have demonstrated a willingness to optimize our portfolio by continuously evaluating non-core businesses to help us focus on our core markets and maintain a disciplined capital allocation process as we consider additional cost reduction initiatives, our ability to consistently generate strong cash flow enables us to reinvest in our business for growth. Our capital allocation framework designed to put our Company in the best position to invest in profitable growth and we expect our ongoing transformational journey to help us achieve that objective.
Now turning to slide 14, we introduced our 2024 outlook for the first quarter and the full year 2023 with a solid year with several important milestones and accomplishments, it also allowed us to build strong operating momentum. We expect to carry into 2024 at the same time despite the recent moderating of inflation, the outlook for the US economy remains uncertain as overall prices remain at historic levels. This may weigh on consumer spending as well as our customers' purchasing decisions and the order patterns in the near term.
Starting with adjusted EBITDA, we expect to deliver between $160 million and $170 million for the first quarter and between $850 million and $870 million for the full year. As Mike mentioned, poultry prices have moderated. We are seeing the cumulative impact of persistent inflation on consumer demand in early 2024. We also had the impact of severe weather in January, which will flow through our first quarter results. We plan to continue our strategy of aligning with category leaders to drive volumes. We expect to realize benefits from continuous improvement initiatives and are identifying cost improvement opportunities through our supply chain, which we expect to recognize in the second half of the year in order to help us achieve our full year adjusted EBITDA guidance.
Moving to CapEx, we expect to incur $300 million in 2024. As part of our transformational journey, we continue to take actions to reduce the capital intensity and earnings volatility of our business and ultimately improve our free cash flow profile in the future. This year, we are taking definitive steps, making the necessary investments to achieve those goals for this forecast of our CapEx, slightly higher on a year-over-year basis, a portion of the uplift can be attributed to the footprint optimization we alluded to earlier between 2024 and 2025. We expect the footprint optimization to result in $40 million to $45 million in CapEx, with around $15 million to $20 million occurring in 2024. Additionally, we expect to incur total cash restructuring charges of $50 million to $65 million and total noncash restructuring charges of $20 million to $40 million, primarily during 2024 and 2025.
I'll also point out that these ranges do not include the benefit of any cash proceeds from the possible sale of any property and equipment from the facilities impacted by footprint optimization.
Our CapEx guidance also includes approximately $35 million of capital spending, our Pine Bluff mill or review of strategic alternatives. The mill continues. We remain committed to investing in the future success versus Excluding both the impact of our footprint optimization initiatives and upon what's been, our 2024 CapEx is expected to be approximately $250 million as it relates to expected charges for our Beverage Merchandising restructuring, we reiterate our previous guidance and expect to incur total non-cash charges in the range of$ 325 million to $330 million in cash based charges in the range of $150 million to $150 million, the majority of which were incurred during 2023. We have included reconciliation in the appendix to today's presentation, we expect to generate at least $200 million of free cash flow in 2024, which reflects higher cash taxes and reduced working capital benefit compared to 2023, partially offset by reduced interest expense and restructuring charges.
Finally, consistent with our previous guidance, we expect to bring our net leverage ratio into the high threes by year-end 2024. Although based on our first quarter EBITDA guidance relative to first quarter 2023, we do expect our net leverage ratio to temporarily increase during the first half of the year before declining the year.
With that, I'll turn the call back over to Mike.
Michael King
Thanks, Joe. Before we open the line to Q&A, I want to provide an update on sustainability here.
A pack of Evergreen part of our focus on profitable growth is to build a more resilient, sustainable and ethical pact of Evergreen one that benefits all stakeholders from employees and customers to shareholders and to our communities. This is what drives our environmental, social and governance initiatives, which are aligned with our packaging, a better future purpose. The fourth quarter marked the release of our latest ESG report, showcasing the progress we made in 2021 and 2022, in line with our commitment to transparency. Our ESG report is based on the GRI and SASB frameworks. We receive limited assurance on Scope one, two location based emissions and energy consumption and energy intensity for Scope one and two location based emissions. It also details our alignment with the UN Sustainable Development Goals. We're incredibly proud of our team's achievements on this ESG journey in the report dives into the details. For example, between 2015 and 2022, we reduced our Scope one and two emissions by 21%, which we believe demonstrates that our commitment to environmental action is yielding results. We have over 100 sustainability champions through our facilities for driving sustainable practices across our company, and we're innovating to develop more sustainable options, helping our customers achieve their sustainability goals offering over 40 new certified compostable products launched in 2022. Internally, we're also investing in our people and communities. Our new leadership development programs are empowering future leaders while supplier audits, ensure ethical practices throughout our supply chain every day, we strive to integrate sustainability in everything we do from our products to our manufacturing and supply chains We invite shareholders shareholder suits for a full report found at investors dot Pactiv Evergreen.com in the ESG reporting section. I'm particularly proud of our team for their focused execution through 2023. We made significant progress on our transformational journey during 2023 and took major steps towards becoming a pure play converting operation with a capital light business model. We took decisive actions to optimize our portfolio and eliminate waste, increase our focus on operational excellence. Those actions will position us for the next phase of our journey, and we are proud of the progress demonstrated by our 2023 results and remain very excited about the future of Pactiv Evergreen. That concludes our prepared remarks. With that, let's open it up for questions. Operator?
Question and Answer Session
Operator
(Operator Instructions) Arun Viswanathan, RBC Capital.
Arun Viswanathan
Congrats on the progress. So just wanted to get an idea of the outlook here.
So what do you think about them? The $20 million or so of EBITDA growth from 23, it at the midpoint of the 24 range? And is there a way you could maybe bucket that out into volume and price cost and restructuring gains? Or how should we think about how that evolves and also maybe if you could touch on those items for Q1 would be great. Thanks.
Jonathan Baksht
Yes, Arun. So broadly speaking, I think it's a it's the big gains are broad-based. I think as you as you tried to bridge from 2024 or 2023, excuse me, to 2024. I'll just give you some high-level thematics to help paint the narrative here. It really if you look at how we're starting the year and some of the guidance around Q1, we have been impacted by inflation here starting the year with custom coal recoveries that have a lag. And additionally, we've got some cost improvement initiatives that are going to ramp up throughout the year. And as you look at some of the bridging items, those cost improvement initiatives are going to be a net positive to us. As you look at as we go forward from a from a volume standpoint, we are expected to be up low single digits. And we expect volumes to be up in both food service and food merchandise, Food and Beverage Merchandising. And the other piece to just recall is if you do a comparison year over year, last year's 2023's results had the benefit of the Canton mill for a portion of the year. That mill was shut down in May. So we did get partial-year benefits of that that contributed last year. So netting those out those, I think probably some of the more material impact year-over-year comparisons.
Arun Viswanathan
Well, thanks for that.
And then as you go back over the last couple of years, you've put out our guidance that through the year you've been able to, but we beat and move higher and would you would you say that there's an element of conservatism within your guidance range this year? And if so, what are some of the factors there and maybe could go better that would that would maybe push you to the upper end of that range or above on or maybe even if you could point out a couple of things? I'd be great. Thanks.
Michael King
No, I would I would I mean, I wouldn't say there's a conservatism, I think with where we sit today with the consumer backdrop, we're largely where we've been throughout the journey I've mentioned. So our ability to get after a beat and slowly move our guidance up has really been a function of us being ahead of schedule on our productivity and cost out planning and also just your quality of earnings have gone up as a result of this, maximizing the quality of the earnings we have. So it's not I don't think we're in a different boat. So to the extent we can continue to outpace the there's always opportunity right now, I think.
Yes, I would I would classify or our outlook is realistic and the consumer obviously has about math and our customers have opened up. So there's always room to see improvement, but I'd say it fits realistic.
Operator
Ghansham Panjabi, Baird.
Ghansham Panjabi
Good morning, guys. Kind of going back to the fourth quarter and the volume sort of divergence between the two segments, rates of foodservice up 3% and Food and Beverage Merchandising down. Is that a function of just foodservice having kind of gone through the value-over-volume initiative previously and now you're lapping those comparisons, and that's why you're showing the kind of growth that you are. And then Food and Beverage Merchandising is starting later. Is that a is that a fair way to think about it or just to understand why the volumes were down in that segment?
Michael King
Yes, I think you have a right of foodservice. Certainly, we had a lot of work to do early, and that business is a bit ahead in terms of our value-over-volume execution. And I think you articulated it well. And so food Food and Beverage Merchandising is in the thick of their execution phase of value over volume.
Jonathan Baksht
And I might also just add, as you look at that's not just a Q4 dynamic. I think as you look into kind of our guidance for this year, there is that element, I think we'll see play out in that foodservice is more ahead in that value-over-volume journey than the Food & Beverage Merchandising. And so that dynamic should play out more throughout 2024.
Ghansham Panjabi
Got it. And just from a high-level standpoint, obviously, packaged food got hammered last year with destocking and just elasticity that consumer was exhibiting in foodservice across the board seemed relatively more resilient. How do you sort of think that dynamic plays out in 2024 us, a lot of the packaged food customers. So CPGs, et cetera, are starting to ramp up promotional spending, et cetera. You see that as a sort of counterweight to some of the volumes that you would normally see in your two segments, just because of your slightly different pleasure there.
Michael King
So I think as it relates to elasticity, I think you articulated it well, but our food merch as average merge businesses, we'll certainly see. And we've started to see via, although over tea leaves and trending around promotional activity ramping up. I think I think destocking to your point has largely gone by I think we're back to more of a normalized destocking trends that you would see seasonally, and that's less of a less of the theme for our business. But yes, I would say you've got it right, that foodservice resiliency is foot. Traffic continues to moderate and be tougher for foodservice. That elasticity of promotional activity should show gains. And that's kind of what's reflected if you look at our outlook that we have to for both of our segments will benefit from that.
Ghansham Panjabi
Okay. And just finally, on your optimization program that you announced the savings through 2026, et cetera, is that those savings what portion do you think would drop to the actual bottom line versus just sort of being levers that would offset normal inflation and labor and so on?
Michael King
And so yes, so because of the multiyear plan where we sit today, we expect that those savings are true incremental savings on our strategy and where we've largely leaned in with our pets program. And we've been we've been successful at handling throughout the year, any impact to inflation. So as we mature, perhaps, I fully expect that UPS is our value creator and weapon against inflation and these programs would largely be the functional changes we'd expect to create the internal value and positioned us well for a for low cost base and low capital intensity.
Jonathan Baksht
Yes. And Ghansham, just to add to it to give you some senses, the sustainability of those cost savings is your fixed costs that we're taking out of the system. So it is it is a an effort to really really take that, that fixed cost base in the system down. And so there isn't really an offset. So it really is hard dollars that will come out.
Operator
Anthony Pettinari, Citigroup.
Anthony Pettinari
Good morning. I'm wondering on the low single digit volume guide for the full year.
I'm wondering if you can give us any more detail on the expected cadence in terms of whether that may be back-end weighted And then and maybe the split between foodservice and food and bev?
Michael King
Yes. So well, I'll take a run at a high level and then I'll let John can fill in periods where we said so when you think about both our segments, both foodservice and our merchandising segments that the front half of the year, we expect with the consumer backdrop kind of settling and with no mobility for traffic and all those things being a bit strange here in Q1 that we're off to a bit of a softer start, although we're seeing green shoots of late. So we're kind of forecasting our outlook reflects kind of a flat first half and an inflection second half and really around ramp up on the food more so in the Food Merchandising and Beverage Merchandising side than the foodservice side, albeit modest, low single-digit growth in foodservice as well. So that second half certainly is not going to we're expecting to be stronger, a stronger consumer and stronger and promotional activity driving that inflection for us.
Jonathan Baksht
And I think just to maybe add a bit more color around some of the the inflections of food, Food and Beverage Merchandising. We're expecting that that volume growth to be a touch higher than food service volume growth as we go throughout the year. But it will be back end focus, particularly in Food and Beverage Merchandising. You'll probably see a bit of a dip on volumes in the first half of the year before ramping up at the end of the year. And part of that, there is some some noise with our exit of Canton. But even netting that out, I think that that dynamic will still hold true as we are as we've progressed throughout the year.
Anthony Pettinari
Okay. That's very helpful.
And then I'm just wondering on Pine Bluff. I mean, it seems like there's been some moving pieces in boxboard recently with SPF prices coming down and maybe some FBB imports and recent acquisition and consolidation in the space. I'm just wondering if you can give us kind of like us maybe state of the union on on that asset, understanding that you're looking at potentially all different options or?
Michael King
Yes. So as we've reported in prior quarters, we're in the midst of a strategic review that we continue to be in the midst of and if you've identified the material dynamic and that's no, no, no magic there for us. That's we have mechanisms that allow us to manage that.
In terms of other themes to share, I would just say that we continue to drive that mill and invest in that mill and we have a cold mill outage that's going to start here kind of at the end of the Q and into the start of the second Q and where we're doing all the right things to make sure that that asset is taking care of our converting network and our customers. So it's that's really all I have to share out.
Operator
Jordan Lee, Goldman Sachs.
Jordan Lee
(technical difficulty) So, I guess my first question is on the guidance. And as I think about the first quarter versus the balance of the year. And if I'm bridging kind of particular $170 million for the first quarter, you need to be at the kind of quarterly run rate over $230 million of EBITDA really getting to the midpoint or higher for the full year guidance? And I guess I'm just trying to make sense of the magnitude. I mean, there's some seasonality in the first quarter is always a with a softer quarter in Vietnam, but the magnitude of maybe January pressure on foodservice volumes and the magnitude of kind of incremental cost savings that you think about that you're counting on later in the year that would help us bridge kind of where you think you're going to be in the first quarter to where you have to be over the balance of the year to get to the full year to play out?
Michael King
Yes, I think if you look at the pace of our ability to get after costs were worth a good year into that journey in are starting to see not only the in-year benefits the run-rate benefits of prior year work, but we're eclipsing that. So this will be the 1st year we get to kind of to lap our productivity. And on the fitness, we've gotten some of our costs out. So we're absolutely expecting, you know that year over year improvements in that productivity area quarter-over-quarter. And the other thing I would tell you is certainly we're expecting and a stronger H2, as we just alluded to in some of the prior questions as a result of a couple of things, one being the higher promotional activity, but also as a function of the backlog of business we've secured that comes online kind of in Q3 and Q4. So it's not one thing. It's a combination of all those things.
Jonathan Baksht
I'll also add what I alluded to this in one of the prior questions, but in inflation does impact our Q4 Q1 a bit more than that and the rest of the year, we start feeling more impacts of us and some labor increases and other increases beginning of the year. And there is that there's a timing impact of us that we do have a COLA recoveries, but they do have a lag. And so you start seeing that really help us from a margin basis as the year goes on.
Jordan Lee
Yes. And John, just on that, maybe on that specific point as well as kind of the volume hit from weaker probably January in foodservice given the weather. But what does that any way to frame? What's that, what that's costing you in the first quarter as we think about them, if that's not coming, catalyst system were paid back going back into earnings over the balance of the years or recovered.
Jonathan Baksht
So in terms of the winter storms? Yes, I think that with the weather that it from a Q1 standpoint, we did have some impact there. It's probably in the range of $5 million to $10 million is what the impact on a on a quarter to quarter basis. The other thing I'd note is we do it if you do a Q. one comparison to last year, you might recall, we mentioned that we had in Q1 of 2023. We had a one-time customer payment true-up in the quarter, about $7.5 million, which also impacted the quarter over Q1 and then the coal recovery and the other, the other one to notice just because of the recoveries might be a bit more of a lag going into the rest of the year.
Jordan Lee
Okay. That's very helpful. And then just to clear up on some other modeling items, what is the expectation on interest expense for the year ends and then you lose the higher cash taxes for 2024, both book and cash tax rate as we position for now.
Michael King
You can take that out a little bit on the front end of that question. Could you re-ask that?
Jordan Lee
and just what your expectation on interest expense and book and cash taxes are?
Jonathan Baksht
Yes, no, what or maybe I'll just take a step back and just give a bit of a free cash flow walk. I think it's probably helpful just to understand the $200 million-plus guidance for the year versus last year's close to $250 million. If you go through the line items below EBITDA, you know, our midpoint of our guidance is about $20 million more. And CapEx. We've guided to about $15 million higher. So that's a negative $15 millionon a free cash flow basis. So interest, which you mentioned, we did pay down $550 million of debt. And so last year, our cash interest was approximately $249 million this year just using We do still have a portion about a quarter of our debt is still floating rate. So it will be subject to the interest rate environment. But given the current forward curve, it's roughly $220 million of cash interest. Savings of roughly $30 million year over year. On a cash tax basis, 2023 was $69 million. And I will note that we did have a benefit from tax savings due to the Beverage Merchandising restructuring. So we were able to benefit our cashes there. Our cash taxes from the restructuring activities this year, we're not going to have that same benefit. And so on with the taxes, there's still some work there to do. But I would say that what we thought were likely going to be approximately $100 million in cash taxes us about a $30 million degradation there in free cash flow.
A couple of other free cash flow items inventory. Last year we had the benefit of $179 million of inventory reduction. That's not something that's going to be repeatable this year. We're at more normalized inventory levels this year.
And then the last one I'll touch on is restructuring last year, we had $107 million of restructuring charges this year. That number is going to be lower. The Beverage Merchandising restructuring. The remainder there based on the guidance is between $5 million and $15 million this year. And then if you look at the footprint optimization restructuring we just announced that should be around $15 million to $20 million this year. So taking on adding those together, that's roughly $20 million to 35 million of restructuring charges. So if you walk that down, that gets you into the low two hundreds levels for free cash flow. We're obviously going to pursue more than that. And there could be some working capital benefits that accrued throughout the end of the year. But that's the bridge to the $200 million free cash flow.
Operator
George Staphos .
Yes, good morning. This is actually [cash] sitting in for George this morning.
Just wondering if you had to contemplate to maybe just staying on the first quarter here, you talked about weather impacts in January, but are you able to comment at all on just in terms of volume trends in February and kind of what you're seeing and from here in March as well?
Jonathan Baksht
Yes, sure. From a from a volume perspective, I think let's just start with foodservice for the quarter, the general market is a bit softer. I would say that the volume what we're seeing from a final say from third party sources. So this isn't all gets ours that it does feel like foot traffic is a bit down and so just really moderating foot traffic to slightly down. We should what we're seeing for our volumes is probably slightly flat to up slightly. We do feel like we are looking at gaining some share within the foodservice segment and outperforming outpacing the market in foodservice. But there are still certainly some challenges with the consumer there. And like we mentioned in the prepared remarks, we are strategically aligning with with our customers to help drive some of that growth on the Food Merchandising, Food and Beverage Merchandising side, I think it's it divides. You're going to be a little bit further off than than foodservice. So we're expecting that the volumes will be down. Part of that, obviously, is the Canton affects from first quarter last year. But netting that out, we should still see some volume degradation going into the first QUARTER.
Got it. And then just on that footprint optimization plan, can you comment at all what particular areas of the business, these facilities we're surveying and just generally kind of what are the next steps on that front and when you'll begin executing on it and then I know you outlined some of the cost savings and restructuring impact. Maybe if you think about the top line or volume perspective, what kind of initial impact do you have as a result of closing, these facilities has been 24.
Michael King
So it's a combination of facilities. So we're a hub and spoke operating model. So we've got a deal roughly 100 facilities split between warehouses and distribution and our manufacturing plants and approximately 10% of those facilities are or what are outlined in our footprint plan. I would tell you that well as footprint optimization. We're certainly not expecting a large degradation in our OR our book of business as a result of this. There is some attrition there, but it's mostly a consolidation effort where we're we're moving business into other facilities, and we're really just optimizing our distribution network to rightsize the business. So it's more lower hanging fruit.
And as John alluded to earlier, it's basically a removal of fixed costs, not a not an exit plan, if you will, in terms of book of business.
Jonathan Baksht
And in terms of financial impacts into this year, most of the impact will be felt later this year, really into going into next year. I would tell you that there is there is that some of the expenses will we'll start incurring the expenses this year. But the way I think about it is really we won't see any real financial benefit into Q4 of this year and the benefits are really going to be are contemplated in our guidance already. But I would tell you that going into 2025, it kind of year end run rate for savings and this is more of a 2025 item than a 24 item. We're probably looking at somewhere around $10 million to $15 million exit rate at the end of the year in terms of annualized cost savings from that .
In 2020?
Jonathan Baksht
going into '25. Entering 25.
Operator
Phil Ng, Jefferies.
Philip Ng
You guys is the low single-digit volume guidance for this year. How much of that is market growth versus the new business you've won that secured and is the business was more heavily weighted in one segment versus the other? And John, if you have more of a flattish type of environment this year, do you have enough levers to kind of effectively hit your guidance of the EBITDA?
Jonathan Baksht
Yeah, in terms of just in terms of the market versus not know, it's really hard for us to break that down as we go into the full year, I would say our general expectations are aligned with what the current macro expectations are. So in terms of soft landing type of environment, can low-single digit GDP growth, et cetera, if that's the in. But that's really the guidance. If the environment is better or weaker, our results will likely have some effects that you track the consumer. And so we have we really think about the business in that in that sense in terms of if the market gets weaker and volumes come in a bit short of that low single-digit guidance expectations. We have some additional levers to pull.
We would we are very focused on delivering sustainable results, and we have scalability with the business to flex up and flex down. And frankly, as part of this footprint optimization effort as well to help remove some of the fixed cost from the business to help us be more adaptable to the to the market environment.
Philip Ng
That's helpful. Our margins were up pretty nicely in 2023 with Pure Value value-over-volume approach, along with reduction in COGS and SG&A can you kind of help us parse out how much of that is some of the hard work you guys are doing on the cost-out efforts and restructuring rather than just call it deflation in these two have a lot in TAP in 2024. The reason why I ask is because from my absolute price cost inflation standpoint, sounds like it can be a little negative to start the year. So when you kind of expect that to get back to neutral just from the inflation piece and price-cost contractual dynamic and do you expect that spread to be neutral to positive this year as well.
Michael King
It dramatically. John alluded to inflation to start the year. And if you just look at your prior 23 A lot of our COLA adjustments. Cost-of-living adjustments happened in Q1. I think the differences in Q2 throughout that it'll ramp up throughout the year here for us as those coal adjustments are spread out for us this year. So we've been successful at getting customer support on those. And the cadence of that is more quarterly than it is a point in time in Q1. And so while we feel that inflation predominantly in the laser space and the variable space, when it comes to things like electricity, energy, diesel, fuel, transit costs, all those things hit us in Q1, and they are muted as the year goes on and we as we recover those costs.
So just from a kind of a high-level view of how this year and last year, a little different. I think it's important understanding that. Jonathan, rather Yes.
Jonathan Baksht
And I think Phil, just to kind of give you a sense of what's driving our margin enhancement, which is the heart of your question, you know, back to the strategic initiatives that Mike touched on and we're really operating here. Value-over-volume was a big initiative last year we were very much focused on do we have the right book of business and aligning our business with strategic customers that really value the value proposition, the differentiated value proposition that we provide. And so there was a there was probably, I'd say 2023. There was probably more of that last year. And clearly a big piece of that was the Beverage Merchandising restructuring, which is a cost out initiatives and just from restructuring our business model to help lower our fixed costs through a reduction of a high-cost paper mill, high-capital intensive paper mill.
So that was part of it.
And then the other cost initiatives, clearly the patch program, the continuous improvement that we're doing. As Mike said, we're still in the early innings of those initiatives really starting to to really recognize themselves in our in our margins. We are facing inflation challenges that right now we are keeping up with an offsetting there either Colas for the cost reduction initiatives. But as you note in our guidance for this year as those cost initiatives start taking hold, I think this year your 2024 you'll see that the cost reduction initiatives probably start outpacing the value over volume that you saw last year, particularly going into the back half of the year and then bringing back the other point we mentioned in foodservice specifically, the value over volume is really we're really past that food and beverage merchandise. We still have some room to go there. But as we as we come out of the value of volume in foodservice, the cost reduction initiatives, they're going to help provide the margin enhancement going into the back part of 2024.
Operator
Curt Woodworth, UBS.
Curt Woodworth
Yes, good morning. Thanks for squeezing me in. So just wanted to understand maybe operating leverage within the model. You're guiding to low single digit unit growth for this year, but the EBITDA guide is up only 2%. And you talked about you're going to get incremental productivity. And you look at the slide deck the last two quarters, you've had over $90 million of year-on-year improvement in your COGS basis, though, is the right way to think about the operating leverage component of that, basically, pipe costs and costs are kind of offsetting the unit growth is kind of netting out to an equivalent EBITDA growth? Or what's the right way to think about that?
Michael King
You're real close soon?
No secret that we keep in the inflation for us real, especially on the labor side. So our productivity where we sit today in our operating leverage early early days and past year, we've been out with the battle at that. I think the fruit there was lower hanging fruit. I know there was low-hanging fruit in the last five quarters, and so you've seen that come through, I think as we improve as we ramp up hubs, you'll see that we start to outpace that inflation recovery. And you'll see that that that plus the support we get from our customers and that becomes less of a variable. And to the extent you see unit growth, you're seeing that come through kind of pretty close to one to one from the R&R EBITDA up. And so I think you've characterized it well, that's not perfectly clean. And certainly, you know, time is our friend and times are intimate The longer we have to implement more facilities and get after some of the footprint work. So I think that's why we're excited. It definitely improves our operating leverage.
Curt Woodworth
And then I guess just thinking longer term about the capital side, funding requirements for the business. I mean, given kind of the transition to a more asset-light model and all of the restructuring footprint actions you're taking, how should we think about what that means to either go forward maintenance CapEx or kind of future CapEx number, you called out sort of more of a maybe a pro forma number around $250 million ex Pine Bluff and some of the capital spending for footprint, but how do you see that going forward? Thank you.
Jonathan Baksht
Yes, sure. It's a good question from a we're not providing longer-term capital guidance on this call that should give you a sense of the composition of the 2024 capital plan. And one of the reasons we did bridge to that $250 million refrain in this year is to get a sense of net of the Pine Bluff paper mill and the footprint optimization, $250 million is more of a normalized number in terms of kind of the geography of that capital. So to give you a sense, this year, 2024, about half of the $250 million, so about $120 million will be sustaining capital in that in that plan. We've got $50 million of capital that's really investment to offset changes in customer mix or changes in the customers' products mix et cetera. And then the remainder about $100 million is return yielding growth, automation, cost savings, et cetera. And to the extent that going into future years, if it's the growth part that that we can really flex. We're going to be disciplined in how we think about growth. They will find opportunities to drive value for investors and shareholder value through capital we're certainly evaluating. That's consistent all the time.
Operator
I'm not showing any further questions at this time. I'd like to turn the call back over to Mike for any closing remarks.
Michael King
Yes. Thank you, operator.
As we close today, I want to thank you again on behalf of the entire Pactiv Evergreen team for joining. I also want to thank the entire effect of our green team for delivering an outstanding result in 2023.
We are executing on our strategy and continue to progress on our clients in this transformational journey.
We look forward to updating you during the first quarter conference call, and I want to thank you again.
Operator
Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.
