Avery Dennison Corp (AVY) — Q3 2018 Earnings Call Transcript

Thanks, Chris. Today, we'll discuss our preliminary unaudited third quarter results. Please note that throughout today's discussion, we'll be making references to non-GAAP financial measures. The non-GAAP measures that we use are defined, qualified, and reconciled with GAAP on Schedules A-4 to A-8 of the financial statements accompanying today's earnings release. We remind you that during this call we will make certain predictive statements that reflect our current views and estimates about our future performance and financial results. These forward-looking statements are made subject to the Safe Harbor statement included in today's earnings release. On the call today are Mitch Butier, President and Chief Executive Officer; and Greg Lovins, Senior Vice President and Chief Financial Officer. And now, I'll turn the call to Mitch.

Thanks, Cindy, and good everyone. I'm pleased to report another solid quarter. Adjusted EPS grew 15%, in line with our expectations, and sales were up 6% organically, with both high-value categories and emerging markets continuing to deliver above-average growth. Label and Graphics Materials delivered a solid quarter. Sales grew organically by more than 6%, driven by both higher prices and volume. Emerging markets in high-value categories were once again up high single digits. LGM's margin, however, declined more than expected for the quarter, largely reflecting the lag between when we see inflation and when we can adjust pricing. I am confident that we will see meaningful margin recovery here in the fourth quarter, just as I am confident in the strength of our competitive position. We again saw evidence of this in the strong attendance in customer engagement at our industry's recent tradeshow in North America. Much of the energy in our booth focused on two key areas. The first was sustainability, specifically our products that enhance recyclability, and second, our Intelligent Labels platform, which is generating as much buzz among our converter network as it has among retailers and brand owners, which brings us to Retail Branding and Information Solutions. The team delivered, again, another strong quarter, with over 8% organic growth and significant margin expansion. The base business of RBS continued to grow at a healthy clip through ongoing share gain, and RFID grew once again by over 20% in the quarter. We continue to see strong engagement among apparel retailers and brands across all stages of the pipeline, as well as promising early-stage developments in other end markets. Our investments to sustain this growth in the form of capacity additions, R&D, and business development resources are all on track. Overall, we're pleased with the progress we've made in building out our Intelligent Label platform as we lean forward to capture this high-growth opportunity. At the same time, we are realizing the benefits from the transformation of the base business that we started just a few years ago. Combined, these catalysts are driving another year of solid growth and margin expansion in RBIS. Now, results in Industrial and Healthcare Materials segment were clearly disappointing. Sales were well below our expectations largely due to greater than expected declines in China. Over the past couple of months, Greg and I have been going through a deep-dive assessment of the IHM segment. We continue to see great opportunity here, both in terms of the market and our own performance. While we've made progress in improving our fundamentals, our pace of change has fallen short of our expectations, so in the process of making adjustments. We remain confident in our long-term strategy for IHM, and in our ability to achieve the 2021 growth and margin targets that we laid out for this business. All in all, another solid quarter. Our strategic playbook continues to work for us. We will continue to benefit from the two key catalysts that enable our consistent GDP growth over the long-term: high-value segments and emerging markets. And we'll continue to focus on our four overarching priorities: driving outsized growth in high-value product categories, growing profitably in our base businesses, relentlessly pursuing productivity improvement, and remaining disciplined in our approach to capital management. We continue to position the company for superior value creation over the long-term and expect to deliver our seventh consecutive year of strong top-line growth and double-digit adjusted EPS growth. Now, I'll turn the call over to Greg.

Thanks, Mitch, and hello everyone. As Mitch mentioned, we delivered another solid quarter. Adjusted earnings per share was $1.45, up 15% compared to the prior year and in line with our expectations. We grew sales by approximately 6% on an organic basis, as currency translation reduced reported sales growth by 1.3 points in the quarter. Currency translation also represented a roughly $0.03 headwind to EPS compared to the same period last year. Adjusted operating margin increased by 10 basis points to 10.7%, as the benefit of higher volume was largely offset by the impact of increased investment spending. And we realized $6 million of net restructuring savings in the quarter. Gross restructuring savings, most of which benefited RBIS, were partially offset by roughly $5 million of transition costs for LGM's European restructuring action. We will continue to incur quarterly transition costs of $3 million to $5 million for this large project through the middle of next year, with the cost tapering off quickly in the back half of 2019. Recall this project is expected to drive $25 million of savings beginning in 2020, providing a strong return on the total investment. Turning now to cash generation and allocation, free cash flow year-to-date was $261 million, up by roughly $5 million compared to the prior year. As we've discussed, we've increased our pace of fixed capital in IT-related spending this year. Gross capital spending year-to-date is up by roughly $20 million. As a reminder, our free cash flow calculation excludes the one-time cash contributions to the U.S. pension plan associated with its termination. As expected, we contributed $200 million to this plan in the quarter, allowing us to deduct that contribution on our 2017 U.S. income tax return. During the first three quarters of the year, we repurchased roughly 1.6 million shares at an aggregate cost of $175 million and paid $131 million in dividends. Year-to-date, we returned a total of $306 million to shareholders, up from $221 million for the same period last year. So, turning now to segment results for the quarter, Label and Graphics Materials sales grew 6.4% organically, which included roughly half a point of timing-related benefits, largely due to pre-buying associated with the price increases taking effect in North America and Europe. Results for the quarter reflected continued high single-digit growth for high-value product lines that was relatively broad-based. In particular, sales for specialty endurable labels were up roughly 10%, and sales of graphics and reflective products were up high single-digits. In looking at LGM's organic growth in the quarter by region, results were solid in the mature regions, with North America outpacing Western Europe, and we continue to see strong growth in emerging markets led by double-digit growth in South Asia, Eastern Europe, and Latin America, which more than offset softer market conditions in China. Adjusted operating margin for the segment declined by 100 basis points, reflecting inflation and the timing of related price realization, as well as the transition costs associated with our restructuring in Europe. As Mitch mentioned, the margin decline was more than we anticipated for the quarter. Raw material inflation came in higher than we expected at the start of the quarter, and we announced new pricing actions that have taken effect in early Q4. As a result, the net impact of pricing and raw material costs became a more significant headwind for us this past quarter than what we had previously seen. We do anticipate meaningful margin recovery here in the fourth quarter on a seasonally adjusted basis. Recall that margins in this business typically drop between the third and fourth quarters by roughly a point. However, in light of the timing of pricing actions, and with the expectation that raw material costs will be relatively stable through the fourth quarter, we expect LGM's Q4 margin to be more in line with Q3 this year. While the inflationary pressures have been more significant and persistent than we anticipated at the start of 2018, namely in the mid-single-digit range for the full year, we continue to expect to fully recover the cumulative gap between cost and price that we have experienced since the middle of last year. So, turning to Retail Branding and Information Solutions, RBS delivered another excellent quarter. The team continues to execute very well on its business model transformation, enabling market share gains or driving significant margin expansion. RBS sales were up 8.2% organically, driven by the continued strength of RFID, which grew once again by more than 20%, as well as solid growth of the base business. The growth of the base is particularly encouraging when you consider the holiday timing and prior-year sales associated with the World Cup represented a headwind to the quarter on the order of about 1.5 points. Adjusted operating margin for the segment expanded by 240 basis points to 11.4%, driven by the benefits of higher volume and productivity; these benefits were partially offset by the impact of higher investment spending, particularly in RFID, as well as higher employee-related costs. Finally, turning to the Industrial and Healthcare Material segment, sales declined 0.4% on an organic basis, driven largely by a softer automotive market in China. Excluding China, the industrial portion of the portfolio continues to deliver mid-single-digit growth. IHM's adjusted marketing margin increased by 60 basis points, reflecting lower transition costs from prior-year acquisitions and lower employee-related costs, which more than offset growth-related investments, and the net impact of pricing and raw material costs. As Mitch indicated, over the longer term, we remain confident in our target of 4% to 5% plus organic growth for this segment. We expect to see margins gradually expand to LGM's level or better by 2021. So, turning now to our revised outlook for the company for 2018, we have maintained our guidance for adjusted earnings per share at $5.95 to $6.10, despite an incremental $0.05 headwind from currency translation in the second half. We've increased our guidance for reported earnings per share by $0.07 primarily reflecting a reduction in our severance associated with the European restructuring. We've outlined some of the other key contributing factors to our guidance on slide nine of our supplemental presentation materials. In particular, just focusing on the changes from our last guidance, we now estimate that organic sales growth will be approximately 5.5% for the year, at or near the high end of our previous range. At recent exchange rates, currency translation represents a roughly one-and-a-half point addition to reported sales growth for the year. In a pretax operating income tailwind of roughly $12 million, down from the roughly $18 million tailwind we anticipated in July. We expect savings from restructuring net of transition costs to come in near the high end of our previous range, and we have lowered the high end of the range for an estimate of capital spending this year. In summary, we're pleased with the progress we've made this quarter. We remain confident in our ability to achieve both our 2018 and long-term goals. Now, we'll open up the calls for your questions.

Hi, everyone. Good morning.

Hello, Ghansham.

So, I guess, Greg, just to clarify on your comment that 4Q margins for LGM will be comparable to 2Q. Can you just elaborate on that? Is it just pricing that will get you there or some level of pricing and productivity? And I'm just asking because it seems aggressive given higher raw and some sort of sequential deceleration of volumes due to the pre-buy?

Yes, Ghansham, as I indicated earlier, we typically do see a bit of a margin decline Q2 to Q4, largely driven by the fact that some of our higher-value categories like Graphics and Reflective have their high points of seasonality in the third quarter, and then we see a seasonal decline in Q4 sequentially, as well as some other categories like Logistics and Labels that pick up sequentially, which are a little bit lower than our average margin for the holiday period and things like Single's Day in China. So we typically see a bit of decline Q2 to Q4. With the sequential inflation we saw here in the third quarter, margins came in a bit lower than we had expected, as we said. We have implemented pricing actions which have largely already taken effect at the beginning of October. So we're confident that that's a big driver of the sequential improvement that we'll see from Q3 to Q4, so that'll help us be a little bit better than we normally would be from the third quarter to the fourth quarter, and that is the biggest driver that we see improving our margin sequentially from what we have seen historically.

So, does that mean you're getting pricing net of raw material cost because otherwise the math wouldn't necessarily work on that, right?

Yes, I mean, right now we're expecting raw material cost to be relatively stable from Q3 to Q4 sequentially. And the pricing actions that we implemented in the beginning of the quarter then should be a net benefit in the quarter sequentially, versus inflation.

Got it. And then just for my second question, a lot of the CPG customers that reported so far, I mean that seems to be sort of a theme during the earnings season. There's obviously been a function of inflation, everyone's raising prices, there seems to be some level of demand dislocation as inventories are managed tightly, not just in the U.S., but also the emerging markets as well. Are you seeing any sort of caution in terms of inventory management from your customers as we cycle into year-end and into 2019?

Ghansham, we are not observing anything outside of the usual, but it's challenging to make a global comment. In the North American market, there is quite a bit of activity and excitement. Conversely, in China, growth has slowed compared to previous levels. There isn't a prevailing theme across the board that stands out. We continue to witness growth and expect the label category to grow by 4% in the long term.

Got it, thank you.

Thank you.

Good morning. Just following up on Ghansham's question, with IHM, the weakness that you say in China, is there any way that you can quantify that either in terms of volumes or earnings? And is that something that sort of worsened over the three months of the quarter, maybe into October, or kind of any color you can give on what you're seeing there?

The softness we experienced in China in IHM was primarily driven by the automotive sector. In the third quarter, following a relatively strong first half of the year for the China automotive market, we began to see declines, roughly around 5% in both July and August, with a more pronounced drop in September. As we continued through Q3, the general trend in the China automotive market was towards a more significant decline. Looking ahead, we anticipate a weaker automotive market in China for the fourth quarter. The China automotive segment comprises about 15% of our IHM revenue, and this had a notable impact on the overall decline in IHM for the quarter.

Okay, that's very helpful. And then just stepping back and looking at full-year guidance. I guess as you stand here at the end of October, what are the swing points that could get you to the higher end or the lower end of the range? And then I think in previous years you kind of narrowed the range when you reported 3Q but not this year, any reason for that?

Yes, overall, I think where we're sitting now versus where we were a quarter ago, we still feel like our overall guidance is pretty much in line with our expectations from a quarter ago. There are a little bit bigger currency headwinds than we had before, offset by what we think are some operational benefits versus where we were a quarter ago as well. I think in terms of the range or the size of the range, we saw a number of currency movements happening around the world in the third quarter. Our range may be a little bit broader here for the rest of the year to account for potential movements in currencies as we go through the rest of the quarter here, like we saw in Q3. If you look at the range overall, the mid to higher end of the range assumes inflation kind of stays stable, as I mentioned earlier. With lowering the range potentially you would see some more sequential inflation than we're currently expecting.

Okay, that's helpful. I'll turn it over.

Hi, everyone. Good morning. Thanks for the commentary and the details. I guess, first question I had regarding volumes in LGM. Can you comment how variable information did in the quarter? And the reason I ask during September, we've heard from some companies that box shipments were perhaps a bit weaker, some of the interior protective packaging material was maybe a little bit slower. So it paints a narrative, and perhaps parcel shipments were maybe a little bit slow during September. Did you see that at all in your LGM business exposed to e-commerce and shipments?

Yes, so George, specifically within the LGM, the variable information labels, where e-commerce did slow a little bit. I think there are two factors; one is what you're calling out, hard for us to gauge exactly how impactful that is. We actually think, as Greg said earlier, Q4 that tends to ramp, and we are starting to see a little bit of that in October. The other reason is we did see a little bit of share in this category basically as we've been moving price, we talked about in North America, we've regained the share we talked about losing a couple of years ago, but this is one category that we've held firm with the pricing and are willing to, in the near term, see the better of share, and that's what's happening. So we're seeing it on two fronts.

Okay. On that note, I'm wondering if you're noticing any increased competition related to pricing changes. Also, are there any indications of a broader slowdown in your LGM business? It seems like there aren't, but I thought I'd ask to clarify.

Yes. I mean, growth rates, as you could tell, were robust overall. We are in a competitive market, but this inflation is broad-based, and I think everybody's raising prices to the extent they need to. You're always going to, in a period of change, have some puts and takes on the sub-segment. So we got to look at the macro, and then we look at the individual customers and product categories. That one that you called out is the one where we've seen a little bit slower for things to move, but broad-based we're seeing the market adopt the price increases, meaning that converters are taking them because they know that the inflation is coming through. They're working and passing those through to the CPG firms and their other end users. As far as broad-based on volume, if you look for the full-year year-to-date, our volumes are up right in the middle of our long-term range for this business of 4% to 5%. Within Q3 they're below the low end. About half of the growth was price and half was volume within LGM. It's a little bit lower in Q3. Ghansham, that might have been the question you were trying to get to earlier, but a little bit slow. But that's not unusual in a single quarter to see things move by a point or two. Overall, we're seeing broad-based continued growth.

Okay, thanks for that, Mitch. My last one and I'll turn it over and come back. So you mentioned RFID continues to grow at 20% in the quarter, recognizing we're still early in terms of the adoption phase and it tends to be customer-by-customer, and the cliché of clichés, lumpy quarter-by-quarter. Are there end markets that you're seeing particularly good growth? I assume it's mostly apparel, but are you seeing any pickup in the other areas? And do you have any kind of early read on the outlook on RFID for 2019?

Yes, we set a long-term growth target of 15% to 20% or more, and we've actually exceeded 20%, staying at the higher end of that range. We're seeing strong momentum across various areas, as we've mentioned. Apparel still accounts for over 95% of our revenue, and we anticipate this momentum to persist within that category. Additionally, we're beginning to gain traction in other categories, especially food, beauty, and logistics, where we are helping to automate last-mile delivery for logistics companies. From a pipeline perspective, our overall pipeline has grown by 30% since the beginning of the year, with each stage increasing between 20% to 40%, and the non-apparel segment of the pipeline has doubled. There's a lot of activity and momentum, but much of it in categories outside of apparel is still in the early stages.

Okay, thanks Mitch, I'll turn it over.

Thanks, George.

Thank you. Good afternoon, everyone. I have a quick question. You mentioned that you might be losing some market share because you are maintaining your pricing. Who are you potentially losing that share to? Do those competitors have an advantage over you?

So, my comment was about a specific subcategory and a specific region because that's where the question was. Overall, we're actually seeing relatively stable share or gaining share in North America. In North America, if you look over the last few years, we had lost some share between '14 and '16, we've recovered that. We're seeing stable share in other regions. So, and broad-based, do people have more of a cost advantage? The simple answer is no. Our scale advantage, our material science capabilities, our process technology, what we see is an advantage relative to the rest of the marketplace. So, no, we don't see that we're at a cost disadvantage or anything else.

Okay, that's what I thought. And one quick one on IHM, I mean, at the end of August you had a management change there. Like what wasn't working right and how quickly do you believe you can fix those issues?

Yes, so simply if you look back over the last few years, we've made a few adjustments in each of our businesses. If I look at some of the shifts we need to do, we need to pivot a little bit more to just focusing on the fundamentals. I draw the analogy that was one of the aspects we focused on within RBIS. Just getting on the fundamentals of excellence in service, in quality, and in cost, that's one area. The other would be, and that I'd draw the analog of RBIS there, we did other things within RBS, dramatic cost reduction, distributing decision-making, and so forth. This is more on the first aspect. The other is just we're managing a little bit too much to the average. Disaggregating our approach to the markets and having an end-to-end segmented strategy, that's something we talked about, both when we did the strategic pivots within LGM as well as the strategic adjustments within RBIS, is having a more segmented approach, disaggregating the business, and that's what we're going through right now. We see a tremendous amount of opportunity within the market, obviously within our performance as well. If I just call back again to those previous changes, LGM was a strategic pivot, I would say, and more of just segmenting the business. RBIS was a major shift strategically, as well as a major refocus on the fundamentals. Here, the strategy is right; the market is growing, and it's really around focusing on the fundamentals of rebalancing the strategy. As far as timing, we'll give an update in the next earnings call as I said, Greg and I are going through a deep-dive assessment. We're working through that with the rest of the team. We have a very capable team at the local level, and we're working with them to identify how we further segment this business and get the fundamentals right. So we'll update you in January.

Okay. Thank you, guys.

Thank you, and good afternoon. I just want to come back a bit to China again. What is happening in China? You called out the automotive, but also on the LGM side. What has changed and what are you seeing heading into Q4 and 2019? And also on the cost inflation side, your base case scenario would be stable inflation. What caused that incremental higher inflation in Q3, and what are you now seeing that you would expect that to stabilize?

Sure. To start the China question, again, the automotive impacts in China really affected the IHM segment. In terms of LGM, we were up modestly in the quarter. Not at the same pace we had been in the first half, but that was also against very tough comps from prior year where we grew in mid-teens in China in Q3 of 2017. Despite those tough comps, we're still up a little bit here in the quarter versus prior year. We continue to see the market growing in the third quarter as well, albeit at a slightly slower pace than what we had in the first half. Right now, what that feels to be is just a little bit of softness in the macro in China. GDP is coming down a little bit, and PMI is coming down a little bit that seems to be affecting overall demand, at least in the short-term here. That's what we've experienced in the quarter. We continue to grow here. We continue to be in kind of that mid-single-digit rate for year-to-date, so we feel pretty good overall about where we are in China right now. We did see the blip here; the automotive piece had a bigger impact on IHM, but in LGM we continue to grow albeit at a more modest pace in the quarter.

And also, just one more question about the rollout of RFID. You're successfully implementing it, but are you making any progress in other markets outside North America? It seems that most of the advancements are happening in North America.

No, it's actually relatively broad-based. It's in North America, it's in Europe, again largely in apparel. Latin America, we've got a number of key developments going on; Asia-Pacific as well. A lot of that is linked to global companies growing within Asia-Pacific. So it's relatively broad-based.

Thank you.

You're welcome.

Yes. Thanks for taking my question. I guess, one of the things I guess I'm a little curious about is the Label and Graphics, the margins obviously came under pressure on the raw material front, yet it looks like the industrial and healthcare materials margins, which I would think have somewhat similar overlapping raw material trends didn't really take much of a hit I guess, can you help us understand why that might be, or are we often in terms of what the relative raw material baskets might look like for these?

Yes. So, John, basically if you are asking why didn't it come up under the same pressure as LGM...

Yes.

I believe that addressed your question. Last year, there were significant acquisition and integration costs that impacted us. Additionally, while inflation continues to affect chemicals and resins, it is also present in paper-based materials; however, much of the paper-based inflation does not impact IHM.

Got it, that's a valid point. Regarding mergers and acquisitions, we haven't seen much activity from your side lately. Given the market downturn, are you noticing more opportunities available, or are potential sellers hesitant to sell because they feel valuations are currently too low? How should we approach this situation?

Yes, regarding the recent market, it's still too early for us to change our expectations and actions within the M&A pipeline. We are actively engaging with various parties, but you shouldn't anticipate any conversions this year. However, we are managing several active engagements. As we have mentioned, we are in a position of strength and are working through necessary evaluations and adjustments.

Great. Thanks very much.

Thanks. Good morning, everyone.

Hi, Adam.

Hi.

Mitch, could you discuss the potential impacts of the trade war between the U.S. and China on your RBIS business as well as any effects on your other businesses?

Yes. So, specifically with RBIS, the big question would be if there were a broad-based tariff on apparel. I think you can see a bit of more of an acceleration of the migration out of China into other regions for apparel sourcing. That will take time, because there's just such a huge infrastructure within China. But it's actually where we would be from a position standpoint, very well positioned. We can support our retailer and brand owner partners as well as the mega apparel manufacturers in helping to migrate that volume because that's something that we see as the position of strength for us, something we can provide tremendous partnership and support to our customers through that migration. The bigger question, and you have to draw your own conclusions if there were a major tariff in the timeframe; what would that do to end pricing and so forth, and ask the broader question of trade conflicts between major economies.

Yes. Thanks. Just a couple others, on the organic sales growth, the 6%, how much was volume versus price?

Within LGM, it was roughly equal mix, price and volume.

And how does that compare to previous quarters?

It's ramping as you would expect, because we've had sequential price increases every quarter for four quarters now.

Okay, yes, sure. And FX-wise, what are your assumptions for the euro and renminbi, and can you just remind us what your sensitivity is to those currencies, and relatedly have the FX fluctuations had any impact on your margins, positive or negative?

Yes. I believe our assumptions for the year are around 115 renminbi, approximately 0.145 in terms of our expectations for the remainder of the year. We've experienced several impacts; we mentioned Argentina where we transitioned to a U.S. dollar base functional currency this quarter due to the high inflation there, and we are managing that situation. Additionally, in several other countries, especially in South Asia, we've noticed a decline in their currencies against the dollar. Some of their raw materials are being bought in dollars. We are also implementing pricing strategies in those countries to address currency-driven inflation. This quarter, our margins were slightly affected. The pricing changes we expect from Q3 to Q4 are also influenced by inflation related to currency adjustments.

We got it. Thank you, Greg.

Hi there, good morning.

Good afternoon.

Hi, Scott.

How are you doing? Mitch or Greg, if you look at the LGM margins, based on your assumption for the fourth quarter being essentially flat compared to the third quarter, do you still expect to see a zero margin decline year-over-year? How much has price cost affected margins compared to the end of 2018? Greg, in your prepared remarks, you mentioned cumulative cost recovery; does this suggest we can expect further recovery as we enter 2019, even if raw materials remain flat?

Yes, so I guess overall, when you look at the margins in '18 versus '17, I did call out in the quarter here, we had some transition costs related to the European restructuring, we also had a little bit of that in the second quarter as well. That does for a year basis so far give us about 20 or 30 basis points of impact versus prior year. In terms of inflation, our biggest impact and we had a pretty modest impact price inflation in the first couple of quarters, the biggest impact here has been in Q3 as we said sequentially, we expect that to improve as we move into the fourth quarter. These are really the biggest drivers of margins year-over-year, a lot of give and take otherwise.

And continued recovery into 2019 or you feel like at the end of '20, 4Q a year back…

I think based on the pricing actions we've taken, if the raw material environment remained stable in the next couple quarters, we will make up the cumulative gap that we've had over the last number of quarters. That's our expectation right now; if markets remain stable. As we said before, if we continue to see some more sequential inflation and we need to do more sequential pricing actions we will do that accordingly, it may take us a quarter or so to get that through, but we will take those actions as necessary. If the markets remain stable then we think in the next couple of quarters we will be able to close any gap that we had over the last year or so.

Okay.

I think one of the things we are trying to communicate is, if you look at it, in addition to everything Greg laid out, if you look at our normal seasonal pattern of margins, within this business, Q2 and Q3 are higher than Q1 and Q4. That has been tracking through all year despite inflation because the timing of the lag was shorter, a little bit longer right now by really just a month or two. We saw a dip within Q3, and if you look at the normal seasonal trend. The other element is we do have transition costs that have come in for the European restructuring that are hitting the second half and will continue into through the first half of next year, which we will start seeing savings in the second half of next year. If you are trying to think about normal, think of normal seasonal trends. As you go into next year, there will be some of the savings that start to come in the second half of next year on top of that because of this restructuring program.

Right? Okay. And then just approaching the M&A opportunity, capital allocation questions a little bit differently; while multiples in the M&A private space might not have changed over the last few months, your stock price definitely has down close to 20% or 25%. From the peak, year-to-date, you've accelerated a little bit of a share repo, but any thoughts around maybe increasing that significantly more from here on a go-forward basis?

Yeah, I mean, John, overall, we don't comment on the timing or amount, but what we did do is, if you look, we paid, funded $200 million of the pension unless our leverage ratio is still well below their newly revised leverage ratio that we have. We have ample capacity and what you can see on a relative basis, we have stepped it up and we will continue to show discipline as we do that. Our objective is not to be well below the low end of our target range to long-term. We want to be within that range and that's our expectation to get there. Obviously, it depends on timing of M&A and everything else that they said earlier, don't expect anything to convert imminently here, but you shouldn't expect us to be anything other than disciplined and leaning forward more as prices go down and pulling back a bit as I surge.

Fair enough, just one last one. You threw out the sustainability comment in regard to the recent conference that you guys attended? Are you actually seeing any order there? Is it just more the level of interest is increasing? What's kind of happening there from a little bit more granular perspective? Thanks and good luck in the quarter.

Sure. Thanks, Scott. It's broad-based on the sustainability front. So there's a lot of interest in our products that enable enhanced recycling like our CleanFlake product as an example, which we brought out four years ago. As the market had greater need for more recyclability, we are seen as the innovation leader who can bring those products that they are more interesting or push around using sustainably sourced materials, certified paper. We had a target of increasing that dramatically. We are now at 88% of using certified papers coming from sustainably sourced forests and so forth. So overall, there is a desire for the whole sustainability theme. Our customers like to be able to tell a message to the end users around what we are doing in terms of greenhouse gases and sustainably and responsibly sourced materials. Those are the areas that we are working on. Specifically, the biggest if you look at a specific product, it's a product that enables recycling. We've started developing a number of years ago, the biggest one that you'll hear is CleanFlake, which came out four years ago and enables recycling. We're looking to expand that portfolio and investing our R&D resources to do just that, so more semantics, Scott.

Great. Thanks, Mitch. Thanks, Greg.

Thank you.

Thank you.

Okay. Thank you, everybody for joining the call. We're again pleased with the continuing strength of our competitive position in healthy growing markets and delivering another solid quarter. We expect the company to continue our strong performance both as we conclude the year and enter next year and really just want to thank the entire team for their commitment and focus on delivering exceptional value for our customers, our employees, our communities, and our shareholders. So thank you, everybody.