Good day. And thank you for standing by. Welcome to the Second Quarter 2021 Sonoco Earnings Conference Call. [Operator Instructions] Please be advised that today's conference may be recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Roger Schrum, Vice President of Investor Relations.

Thank you, Liz, and good morning, everyone, and welcome to Sonoco's second quarter investor conference call. Joining me today are Howard Coker, President and Chief Executive Officer; Rodger Fuller, Executive Vice President; and Julie Albrecht, Vice President and Chief Financial Officer. A news release reporting our financial results was issued before the market opened today and is available on the Investor Relations website at sonoco.com. In addition, we will reference a presentation on our second quarter results, which also was posted on our website this morning. Before we go further, let me remind you that today's call and presentation contains a number of forward-looking statements based on current expectations, estimates and projections. These statements are not guarantees of future performance and are subject to certain risks and uncertainties. Therefore, actual results may differ materially. Furthermore, today's presentation includes the use of non-GAAP financial measures, which management believes provides useful information to investors about the company's financial condition and results of operations. Further information about the company's use of non-GAAP financial measures, including definitions as well as reconciliations of those measures to the most closely related GAAP measure is also available in the Investor Relations section of our website. Now, let me turn it over to Julie.

Thanks, Rodger. I'll begin on Slide 3, where you see that earlier this morning, we reported a second quarter loss on a GAAP basis, a $3.34 per share and base earnings of $0.84 per share, which is just shy of the midpoint of our guidance range of $0.82 to $0.88 per share. Despite strong volume growth in many of our businesses our second quarter operational results were challenged by unparalleled raw material and other operating cost inflation that did outpace our significant price increases and solid productivity results across our portfolio. In terms of the $4.18 difference between base and GAAP EPS, by far, the largest item was the $4.4 non-cash charge related to the settlement of approximately $1.4 billion of U.S. pension liabilities, as our pension termination process substantially wrapped up in June. This charge was just below the estimates that we've been communicating for a while. The next largest item also relates to a unique transaction in the second quarter. In May, we completed a tender offer for a portion of our 5.75% bonds due in 2040, that resulted in a debt repayment of $63 million. This transaction also resulted in an after-tax loss on the early extinguishment of debt of $0.15 per share. Next, UCR adjustments for normal, non-operating pension costs at $0.06 per share, as well as $0.02 related to net, favorable restructuring and asset impairments. The last item, all other at $0.05 per share is mostly composed of a $0.03 foreign exchange hedge gain on our euro denominated loan repayment and another $0.03 cent gain on favorable – on a favorable foreign VAT refund plus interest. So, moving to our base income statement on Slide 4, and starting with the top line, you see that sales were $1.383 billion, up $138 million or 11% from…

Thank you, Julie, and good morning, everyone. Let me provide you with my thoughts on our second quarter performance. Also give you a brief update on project horizon and our new sustainability commitments. I'll close with what we see entering the second half of the year. Our balanced portfolio of consumer and industrial businesses did well in the second quarter as we were well within our guidance range, despite unprecedented inflation and some lingering effects of COVID-19, where there remain lockdowns in parts of Asia, Europe, and Latin America, as all hotspots here in North America. Our industrial segment and all other groups of businesses experienced double digit volume growth during the second quarter with demand returning to near pandemic levels. As we anticipated, consumer volumes normalized from the pantry stocking record set during the second quarter of last year, although demand remains above pre-pandemic levels. As Julie mentioned, our biggest challenge in the second quarter, and frankly, the rest of 2021 is battling significant raw material and non-material inflation. In our consumer business, we have seen some resin prices nearly doubled from last year's level, while film, metals, paper packaging and freight are up mid single to double digits. Old corrugated containers our largest raw material have moved up from $85 a ton in January to $145 a ton in July. We now expect our external expenses, excluding OCC and label to rise in additional 2.5% over our prior estimate made just last quarter. This means our cost globally will increase approximately 8%. In addition, as Julie noted, we've seen SG&A [ph] expenses increased due to higher property insurance, more normal medical and incentive cost and additional PT costs. Having said that, I'm extremely proud of how our global team has worked to pull all labors to cover these…

[Operator Instructions] Our first question comes from George Staphos with Bank of America.

Hi, everyone. Good morning.

Good morning, George.

Thanks for taking my question. Thanks for the details. Just a quick question, maybe to start for the third quarter, Howard and Julie, could you give us your rough approximation of what you think price cost will be either in millions of dollars or just from an EPS standpoint and related to that, just for comparison purposes, I think you said the net displaying packaging divestiture domestic businesses were something like $0.08 or $0.09 a quarter if I heard you correctly, would that be fair as an adjustment factor we should look at for the third quarter as well, or let me know what should be the case there, so that to start.

Yes, I think you're right on the D&P side that’s based on specificity, I will pass on to Julie.

Thanks, Howard, and hi, George. Yes, so, yes, you're right. The divestiture of D&P, with a little bit of offset from the Can Packaging acquisition, so call it all of our M&A there is about $0.08 of kind of a call it a headwind, a pullout from Q3 of last year. And from a price cost perspective, I'd say we are expecting that to continue to be slightly negative in the third quarter as we obviously in Howard and Rodger can provide more color, obviously a lot of dynamics going around contract reset, timing around price increases as well as just open market price increases. But I think nonetheless with the inflation, we continue to expect still slightly negative year-over-year.

Okay. But that implies that you'll see some fairly good improvement sequentially in price cost 2Q to 3Q. And should we assume that both industrial and consumer are slightly negative on price cost or can industrial keep its net positive as it was in 2Q on a price cost basis in 3Q?

Yes, we are expecting industrial to stay slightly positive price cost. Although, I mean, there's – it could be neutral again, the OCC headwinds, Rodger and Howard can talk a little bit more about that obviously, kind of uncertain there, but upward price increases. And so it's, I think puts and takes quite frankly across the segments. It really is going to depend on the continued inflation in resins and OCC especially, but I don't know if Rodger you want to add any more color on that.

Well, on the consumer side, George, as you would expect a fairly significant price increases going through in July. Most of our major CPGs and the consumer business, we have quarterly price change mechanisms where we recover the resins three months in a rear. So for instance, in July, we're implementing March, April – March, April May increases, we calculate in June. We put that enforce in July. So we saw more increases in June and July. So we will still see some negative price costs and consumer around resin. In the third quarter, we expect to start catching that up. We will catch that up in the fourth quarter.

Okay. Thanks, Rodger. My last one, I'll turn it over. Can you reflect on what you've learned about your consumer packaging businesses, and kind of the top two or three ones as we look out the next several years, right. Paper can, composite cans had a surge, and now they're normalizing, obviously there's a lot of margin that business flexibles, has remained somewhat pressure from a volume standpoint. Although a lot of that is, the convenience angle and confectionary, and you're seeing growth and consumer, what do you think is the right growth outlook for those businesses looking out the next couple of years and how much do you think the consumer has maybe readopted, what increment to growth normalized do you think you've gained in that business relative to what would have been the case pre-COVID? Thank you very much and good luck in the quarter.

Thanks, George. I'm not going to probably forecast the exact percentage, but just talking generally, if you talk about our paper can business, we know that volumes are ahead of 2019 levels. We do think there's been continued adoption here in North America. And some of the categories that's really exciting at this point in time is what we're seeing on an international perspective. The anti – let's just call it sustainability efforts. We're just – where our funnel is continuing to build and drop through in terms of folks wanting to switch over to paper container from another substrate. And it really is an exciting opportunity. If we look at on can side with Asia, we've seen double digit growth just quarter-over-quarter-over-quarter for a number of years now. And we expect that to continue as well. Flexible trays, the plastic tray business, we're really happy with how that business specifically flexible is being managed right now, relatively flat in the quarter, but we saw really good productivity throughout the business. We're going to see pickup. I think as we head into the future where we saw softness and confectionary other convenience and holiday related products, it was actually a bit of a drag on that business. So we expect that to be on a positive slant as we move forward. And I noted quickly about our plastic food frozen sector. That's the one that's really interesting that it's actually, the volume has actually tracked ahead of last year during the pantry stock. And I think that one's carrying probably more long term new consumer activity than any other. And the work from home, they will settle down, but there will be more people working from home than ever. And I think that just because these consumers have been driven to the market to a pantry stocking, they're finding the product is good. There'll be working from home, there'll be grabbing frozen meals out of their freezer. So really fill a very, very bullish about the consumer sector and totality not through just the end of this year, but into the future.

Thank you very much.

Our next question comes from Josh Spector with UBS.

Yes. Hey guys. Thanks for taking my question. Maybe just to follow up on some of the sequential bridging. I guess if I listen to what you're saying about volumes being consistently strong, and you're talking about things getting better, you're getting pricing in the second half, but your updated guidance kind of implies flattish operating income in 3Q and maybe similar for 4Q. So what are the incremental negative factors in the second half, which hold back you from, perhaps lifting guidance versus prior expectations?

Josh really, it's just the continuation and lag of recovery of this hyperinflation period that we're in right now. And Rodger did a good job in explaining particularly resin, I mean, that's the one that has escalated the most. We have solid recovery mechanisms. It's just timing. And I think as Rodger pointed out that it's on average, we get three months in arrears with the fourth month of the month prior to the quarter is the calculation month. So as we look at Q2 inflation that we saw in June is going to carry into Q3 and we still are expecting to see inflation in early Q3 with that moderating us, we end that quarter and go into Q4 and that's how we're expecting things to play out.

So just so I understand that GAAP doesn't get any better sequentially. It's still remains similar to what it was in 2Q and 3Q because of that catch-up.

Yes. That's exactly the point.

Okay. I appreciate that. And just one other question, just on the rigid plastics side, we're reading more about some challenging growing conditions for certain fruit, vegetables, and specialty crops in the West Coast and North America specifically, is that something that you are seeing have an impact on your rigid plastics demand or could have an impact and is anything from that perspective baked into your guidance for the second half?

Josh, it’s Rodger. We are seeing some impact on the crops primarily in the northwest of the United States. We built that headwind into our sales forecast for the second half of the year. Same story there, PT, since the first of the year is up 30%-ish. So we're moving prices in that business as well, but any headwinds from weather fires and all that, we have built that into our forecast. But the answer is yes, for some specific crops in the northwest we have seen some impact.

Okay. Thank you.

Our next question comes from Mark Wilde with Bank of Montreal.

Great. Good morning, Howard. Good morning, Julie, Rodger.

Hey, Mark.

Good morning.

I wanted just to start out, you've done a good job of kind of walking us through some of the legs there in some plastic packaging, anything you can do to help us with just the cadence of kind of price costs catch up in other parts of the portfolio?

I turn it over to Rodger. But what I would say the headline here is related to resin. And when you say all the parts of the portfolio, if you look across where you see that resin influence really hit us hard and the all other category, which is effectively a resin based business. And of course, as we've just said on the consumer side but Rodger, any further thoughts?

No, I think that's right. If you look at the other, freight inflation, packaging, you name it, Mark, as you know, they're all escalating faster than expected. We're out on a regular basis with increases in those areas outside of our normal price change mechanisms. So that's happening, I'm sure we'll come on to OCC and our industrial side in a minute. But as you're aware, we've announced our fourth $50 increase for URB, which went into effect July 15th that went well. The thought with the 6% to 7% tube and core increase, which has gone well. So we're trying to stay out in front of industrial. And that's part of the reason we announced that when we did. We're expecting more headwinds in OCC in the second quarter with an upward bias to OCC prices throughout this quarter.

Okay. That's helpful. And is there any difference, Rodger, in sort of the – both the order of magnitude of the cost increases on OCC and your European business versus North America and also any timing difference between kind of North America, Europe and the other markets?

Well, Europe run faster, if you convert the European Euro metric ton to U.S. short ton, they're up to about $175 a ton on average. But the team there has done a really nice job of staying out in front of that. So I'd say their run up this happened in front of the U.S. I'm not sure that tells us exactly where the U.S. is going, but that's the comparison. But again, our team has done a good job there of recovering so far.

Okay. And the other question I have is, I guess, probably for Julie. And I'm just curious if I heard you correctly, it sounds like you're going to stop medium production at Hartsville at the end of the fourth quarter, but the ramp up on the URB is not until the end of the second quarter next year. And just kind of looking at the corrugating medium market this year, I'd assume that that machine has to be quite profitable this year. So I'm just curious if you can give us any help as we think about next year, the move into next year and what the earnings impact of the phase out of corrugating medium and the ramp up of URB, what that may be on a year-over-year basis?

Yes. Good question, Mark. In fact, it's probably going to go down later of part of the first quarter of next year. And we'll be down for six to seven weeks as we make that conversion. We're not at a point at this point in time where we have even sat down and looked at the overall impact and how that would be reflected in our 2022 assumptions. So it'll be coming, but it won't be a 20, won't be this year. It'll be a latter part of the first quarter and into the second quarter of next year.

Howard without, trying to lead you too far on this, but would it be reasonable to assume that you might take a little bit of an earning set in 2022, just because you're going to give up very profitable, medium production this year, and you're going to have a not only a period where the machine is not running, but you're going to have kind of a startup curve after the rebuilt?

Sure. That's a fair assumption, but you've got, I guess, where I'm coming from. We'll have to see what the entire corporate roll up looks like and the material that is going to be. But anytime, yes, you're starting up a new process, a new plant, new equipment. You've got to walk through that.

Okay. Last one real quickly for me, how's the Halloween season looking in the flexible packaging business.

Actually, you need to get your trick or treatment stuff ready because the CPGs are acting as business as normal.

Okay. All right. Sounds good. Thanks, Howard.

Our next question comes from Ghansham Panjabi with Baird.

Hi, good morning. This is actually Matt Krieger, sitting in for Ghansham. How are you doing today?

Hi, Matt.

Good morning.

Great, great. So I was hoping that we could touch on volumes for the back half of the year. So what are your embedded volume assumptions on a segment basis for the second half of 2021? And what type of underlying market environment are you kind of projecting within these assumptions? If you could provide any detail by region or by product line kind of the major product basis that would be really helpful?

To kind of share with it from a macro perspective. It might help to talk about where we thought we were going to be this year, which is about a 2% for the year. And we've seen Q1 up 4%. Q2 is up 8%. And our forecast now for Q3 is just over 5% with the bulk of that. Well, our consumer side slightly up 1% to 1.5%. The industrial side continuing to try an upward 7.5% to 8% or so. And the all other category showing the biggest ramp up in this particular quarter to about 12%. I don't know if we're prepared to really talk about each individual business within the – in the sectors that we do expect to see volume to be very positive going forward.

Great. That's helpful. And then I guess I just wanted to touch on maybe see if you could talk about how inventory levels are trending across the various end markets in which you play, have you incurred any incremental costs to service customers in and out of pattern manner from a freight or supply perspective? And if you had any challenges in gaining access to raw materials in any specific markets or instances?

Yes, Matt. Yes, so all of the above inventories are tight that particularly in the mill system where it's driving more changeovers which does impact productivity. But then again across the company, very pleased with how we've managed productivity, but it certainly has been very dynamic situation for us on an income and raw material perspective. Yes, it's tight. We're managing literally particularly resin base that's resin, that's adhesive. We're having to manage that almost on where we are, not almost daily, if not a seven day a week type situation. Outbound freight, similarly we're working weekends to make sure that we've got trucks that can come in and make the shipments that we've committed to our customers. So it is a very interesting dynamic situation right now. But again, I can't tell you how pleased I am with how well our team is managing through this.

Understood, understood. That's very helpful. Just one follow-up and then I'll drop off. Is there any timeline for normalization there that you could feel as reasonable or is it just kind of a day-to-day assessment?

It's a macro issue, it's not a Sonoco issue, this throughout North America. We're managing in the day by day basis. I really couldn't forecast out what we're saying. These type of costs and issues that we're facing are going to continue for some time to come, our biggest labor that we're going to be able to pull with all of the headwinds that we're facing is getting this material cost recovery from our costumers and just managing the rest of it the best we can.

Great. That's it for me. Thanks.

Our next question comes from Adam Josephson with KeyBanc.

Howard, Rodger, good morning. Hope you're well.

Good morning.

Yes. Good morning, Adam.

Good morning, Howard. Howard or Rodger, can you just on resin and OCC, just a little more clarification if you don't mind. So as of last quarter, I think you were expecting 10% resin costs inflation for the year, would be interested in knowing what that expectation is now. On OCC, I think the last call you were thinking OCC would go up to 120 by June and you nailed it. And I went up by another 20 in July, and I think Julie or Rodger said, you expect further upward pressure. Can you just put a little more meat on that bone? And then lastly, on freight, just can you remind me what your expectations were for the year end or now?

Hi Adam. It’s Rodger. I'll give it a shot and then Howard or Julie can add to this. But on resin, if you look at what we're expecting now for the calendar year of 2021, and this is expecting some moderation and potentially slight reductions end of the year, we're expecting a 30% increase for the year. As you know, I mean, if you go from year-over-year, in many cases, as I think Julie said, resins have doubled, polypropylenes up 140%. So we buy a basket of resins. We bought about 120 million pounds a quarter over half that's P based, about 30% is polypropylene and then a bunch of all others. So we're looking at a 30% increase now, but again that's assuming we get moderation in the back of the year of 2021. OCC, as you know, has already moved to 145 in the month of July. And what I said earlier is there's an upward bias. The container mills are still pulling very heavily. We're seeing premiums in the marketplace. So, at this point, I wouldn't tell you exactly what it's going to do in the coming months. But there is an upward bias, and that's the way we're looking at it today. On freight, I believe we said 6% to 7% for the year. And in the end of the first quarter, we're now at nine to 10 which is not that significant move, but that the comments Howard made for me are even more important. It's the availability of trucks and trailers and drivers and the added cost of changing schedules that this has been a bigger headwind for us, but that's more color if you need more, we can answer it.

No. Thanks, Roger. And just one follow-up on the cost issue, which is, I think you mentioned in Europe. OCC is up, the U.S. equivalent of 175 bucks. I forget over what timeframe you were talking about, but in the U.S., a year-to-date Southeast prices are up 60, I believe. So are you – would that lead you to think that there's a lot more to go in the U S or how are you thinking about that relationship between Europe and the U.S. in terms of the year-to-date inflation?

Yes, I'll just say the equivalent price of what we're paying today in Europe short tons would be $175 at the time.

I’m sorry.

So that was the point. And again, I'm not saying we're going to go to $175, but that just shows you the demand globally. And again, containerboard mills are pulling heavily. So, we do see upward bias in the quarter.

Yes, Adam, I am not so sure you can totally create a correlation between the Europe situation and the U.S., to make an assumption that whatever levels they are, we may be heading to, I don't think we've seen that historically. It's basically independent market, market dynamics.

Yes. Thanks, Howard and Rodger. And on demand by region, can you just talk about what you are seeing, obviously, U.S., Brazil have been exceptionally strong all year. Europe has gotten better, China is getting worse depending on what you read markedly worse. So can you just talk about what you're seeing by region, what you think is going on in China, obviously Southeast Asia is having COVID problems. China is having other problems, just what you are seeing by region and your expectations along those lines as embedded in your guidance?

Yes, I think you covered it pretty well, actually. I don't know. If you look at Latin America on the Industrial side, very strong same dynamics, we're seeing here order backlogs, et cetera, in our mill system, South America, as you noted same, our Consumer business in South America is also very strong. And just as a footnote, I mean, we're actually having to do and this is part of our challenges here in North America in terms of mill capacity, but we're actually shipping board out of the U.S. to supplement our mills in South America.

Yes.

So really – and in fact, and it's rolled into the bottom line as well, the South American businesses performed exceptional on both sides, Industrial, Consumer. You talked about Europe, Europe is somewhat similar to here. Very, very strong, our mills are full. Demand on the tube and core side is where we would hope it would be. On the Consumer side, which is mostly our paper cam business, I made comments earlier to George's question that very, very solid, current demand and pending new orders. Asia as we look is relatively small for us and the full scheme. From COVID a year ago to the day we're extremely pleased with the turnaround. Take our cone business, as example, is about 97% of 2019 that was dropping from about 40% this time last year. So, we're still somewhat enjoying the recovery, but no doubt about it we're seeing that we expect when things settle down, that there is going to be more pressure as it relates to just the overall macroeconomic conditions in China. And I guess lastly, I just point to Southeast Asia COVID is a real issue for us. It's showing in Indonesia where we have our fairly large paper complex, but probably the biggest hit has been our Consumer business, where we've got our largest Asian paper can facility that has been down for weeks now due to government mandates and new lockdowns and that continues. This is the first quarter that I can remember, I noted earlier when we see in double digits, just quarter after quarter in Asia was actually flat because of that reason that we had a major complex down for the period.

Terrific. Thanks so much, Howard.

Our next question comes from Kyle White with Deutsche Bank.

Hey, good morning. Thanks for taking the question. Wanted to go to rigid paper containers and food packaging. Are you able to provide any kind of cadence or details on how volumes trended throughout the quarter on a month-to-month basis and into July here, just trying to understand what impact you are seeing as markets reopen and the kind of at-home consumption trend weakens here a bit?

Yes, not within the quarter, I think, we noted that in total we were down about 5%, but we were above where we were in 2019. Julie, I really don't have that data in front of me.

Yes, not as much from a monthly perspective, but – I think, basically volume trends during the quarter were, I'd say, relatively steady and I don't think anything unusual on a month-to-month basis during the quarter. As Howard just mentioned, I think, maybe you're talking about global cans being down about 6%. But again, it was a really tough comp, again the plastics food business, had a very solid like again a year-over-year growth after a very strong second quarter of 2020. And so that volume growth continues to be very solid. But I'd say, I don't think there's anything terribly unusual monthly during the second quarter.

Got it. And then going to All Other, what are you seeing or expecting in terms of the flu season this year for that business? And what are you hearing from your customers in terms of how sustainable some of the vaccine demand will be going forward?

Yes, hi, it's Rodger. Flu season, we're expecting a good flu season. We typically captured over half of that volume, $15 million to $20 million. One thing we are seeing is the main customers are pulling early, pulling it earlier with some concerns about supply constraints as we get into the fall. So, we saw some of that volume come in, in the second quarter, we'll see the balance in the third quarter. So, we're expecting a normally pretty solid flu season. From a COVID vaccine standpoint, it's playing out almost like we talked last quarter to the point of we see this turning into more of a vaccine type similar to the flu season. As we get in now to booster shots, as we get into some of these shots for younger children, five to eleven, what we're hearing from our customers is going to turn into more of a standard ThermoSafe package or temperature-controlled package. And we expect about $15 million to $25 million impact on an annual basis for COVID vaccine. So, really no change to the guidance from the last quarter.

Got it. Thank you. And good luck for the balance of the year.

Thanks.

Our next question comes from Salvator Tiano with Seaport Research Partners.

Yes, hi. Thanks for taking my questions. So firstly, I know you mentioned that tough comps in rigid paper containers globally, but as we look at kind of the end market demand, can you tell us a little bit about the trends, why are you seeing essentially the deviation with the rigid plastics specifically, even though both benefited from pantry loading?

Sal to make sure I understand your question, you are asking why plastics…

Essentially, why plastics have outperformed the rigid paper containers this quarter?

Yes, I understand. I think it's just the nature of the products that we're starving back to my earlier point with the frozen, QSR opening up with fast food that's certainly been a benefit. But equally so is that truly the acceptance of the consumer of frozen meals that they, some of the consumers were re-introduced for first time consumed through COVID are continuing to go back and continue. So, we're actually seeing the frozen side slightly up over the peak of last year. If you look at the Can business a lot of that is related to snacks and other items, refrigerated. And we just saw a bit of a pullback here in North America. Again, Europe was in good shape actually just slightly up, and then I've already talked to the scenario in Asia as it relates to the shutdown that we had there.

Okay, great. I wonder if you can also elaborate a little bit on the margin differential between the two, because I think when we think about the $15 million negative price cost for the Consumer Packaging business that you mentioned, that leaves a pretty steep operating income decline year-over-year, given the just 2% volume. So, I would imagine the rigid paper cans have a much higher margin. Was that the reason for the, I guess, the incremental margins being so high?

Julie, yes.

It's interesting, the dynamics among – between those kinds of two – there are really several parts of our Consumer business, you've got different dynamics and productivity and labor challenges as well as the different inflation, whether it's very resin oriented in the plastic food business and flexibles versus other types of inflation being more prevalent in the cans business. So, I think, there's no simple answer there, quite frankly. The dynamics around, again, the different raw materials across our Consumer businesses, again labor challenges, I mean, we have a broad footprint across all these businesses and depending on COVID impact, labor availability, et cetera, obviously impacts productivity. And so just lots of moving pieces that really, we won't be able to now get into any more granularity about that with the dynamics of what's impacting the margins in the different key parts of our Consumer sector.

Yes, I'd say Sal, just in summary, the inflation that we're seeing is really, as we’ve said, in our resin-based businesses, and so we're getting hit really hard, even the volumes were up in the – on the plastic tray side. We're back to this whole price cost capturing that raise in inflation.

Okay, perfect. And just quickly can you provide a little bit more color on the inflation of the cost differential between what you are seeing in the Consumer Packaging business and the other businesses, the other segment, I guess, because obviously at $10 million price cost headwind for other it's super substantial for such a small segment. So, can you elaborate on the differential in terms of pustules and resins that you use in the other segment versus Consumer Packaging?

It is exactly that, it's back to the resins. All Other is almost 100% resin-based businesses embedded in there. So, it's just as simple as that really that's what's driving that large number.

Okay, great. Thank you very much.

Our next question comes from Gabe Hajde with Wells Fargo.

Howard, Julie, Rodger, good afternoon, I guess. Thanks for taking the question, late in the call. I was curious there has been a lot of, sort of exogenous factors influencing OCC let's say over the past 18 months in terms of China's actions obviously the COVID impact, and then what we're seeing right now in terms of, I think, no operating rates and stuff like that. But I'm curious if there's anything that you would view as instructive in terms of kind of what the new normal might look like for OCC? And really the genesis or the what's behind the question is, I'm looking at a list of 25 to 30 recycled pulp projects across the globe, and it seems like China kind of has reached the upper limit in terms of what they can maybe collect domestically. And obviously we know they're not going to be importing OCC, but put potentially, obviously recycled pulp. So just curious if there's potential for OCC to remain, I don’t know, above a $100 a ton or something like that in the foreseeable future?

The potential is certainly there. And if it does, it's really about stability, right. Right now we've seen what nine consecutive months of increase in OCC it differentially will reach its plateau and hopefully get back to a more normal type trending. If it's a 100 that plateaus that, so be it, if it's 150, so be it, but we've caught up, price has been passed through, I mean, cost has been passed through and you are back in a normalized situation. What is really the issue today is just that, it's month after, month after, month after, month, it's the chase. In terms of how the global market is going to settle, really, really hard to say.

Okay. Just curious, I know it's difficult in terms of visibility, but I guess from some of the work that we've done, it appears as if your customers’ inventories are starting to normalize where before it felt like they were living kind of hand-to-mouth a little bit. Any visibility there in terms of where customer inventories are at? And then real quick on CapEx, I think, you talked about incurring most of Project Horizon spend this year, call it a $100 million such that $15 million would fall in the next year. I know you are not giving guidance for next year. But directionally, in that $200 million of CapEx were spend knowing what we know today.

That's what we've modeled out as an incremental finishing up on our free cash flow guidance, I think, you can go to the bridge that Julie provided that we're assuming that we will have spent to that 300 level. I can tell you that with the delays we've seen associated with COVID, et cetera, that could push out into next year. It's too early right now for us to make that call. I think by the time we're together in October, we will be able to really have pure visibility in terms of how much of this CapEx is going to fall into this year, or maybe even bleed into the next year. On the other – yes on price you are right on the customer side, as you said on the food side, you are right, I think, our customers are saying their inventories have stabilized. So, we're not seeing anything there. Just like us they are struggling with some raw materials, but I would say on average, they are back to more normal levels. Any customer that's dealing with like appliances and automotive, the chip shortage, we're seeing, – in both cases our sales to those customers were up obviously, significantly over the second quarter. Last year, we could have sold more and our customers could have sold more appliances. Appliance sales were up 23% year-over-year, but they could have been up higher. Automotive sales, you all know the story there. So, I think anything to do with housing or anything to do with chip, the chip shortage, I think, our customers still have plenty of upside from a sales standpoint, which means upside to us.

Okay. Thank you. And good luck.

Our next question comes from George Staphos with Bank of America.

Hey guys, sorry to come in late here. I'll make it real quick. So could you, Howard, remind us with Project Horizon, the cost of the project has moved higher over time, to the current level of $150 million. How much of that is just inflation in the construction materials? How much of that is flexibility that perhaps you're building it to the system, maybe optionality that even though you are net neutral on capacity with all of the closures that may be if URB grows on a more secular basis coming off some very strong growth that we're seeing now, that you'd have the flexibility to hit that demand if that happens? And then the second question I had just what preparation if anything at All Other than trying to get pricing up, are you doing in advance of hurricane season, which always brings a little bit of volatility to resin? Thanks, guys. And again, good luck in the quarter.

Thanks, George. Yes, we did increase the original capital of Horizon, but that was really built on the backs of incremental opportunity that the team had identified as we had after completion of the first capital submission. So, the incremental $40 million that brought it up to that $115 million range was a very justifiable and a good return opportunity presented itself to basically redo not just the paper machine, but the complex in terms of raw material flow outside warehousing. So, when you come to the campus next, you'll see a new 120,000-foot warehouse. You'll see how the flow of OCC now does misappropriate to the to the backend of the machines. So that's where that incremental amount came from. And it was again justified on the savings we would achieve by spending that. The second question was around the demand profile. As I noted in my comments, we've announced the close of a couple of machines, but that's all depending on market conditions. So, we'll see what things look like. Hopefully, the demand that we're seeing today will continue, and that may lead us to continue operations versus bring down machines. But the closure timing that that I shared with you earlier today is just our communication to our internal team, giving them an annual notice so that we can make appropriate – our employees can make the appropriate choices. But it could be, hopefully we're saying we're going to – we've got the new machine going and the other ones are full too, and we're going to keep that situation for whatever time period that that goes. Hurricane prep, well, we've talked a lot about. And for us hurricane prep is not an operational issue, but more of a supply chain issue. We should all be concerned about that. Yes, inventories as Rodger spoke to, were low. Supply chains are being managed on a day-to-day basis. So, you are not seeing within the Gulf Coast supply chain the normal pre-build of materials in anticipation of such an event. So, it's something that we should all be concerned about that we'll let to what mother nature brings us there.

All right. Thank you very much.

Our next question comes from Adam Josephson with KeyBanc.

Howard, thanks so much for taking my follow-up. Just really, quickly, on that hurricane issue, just to be clear, are you – I know it's impossible to forecast hurricanes, but what, if any supply chain disruptions are you expecting in your updated full-year resin cost forecast? And then in terms of your OCC assumptions, I think, you are expecting OCC prices to go down in the fourth quarter as collections improve and demand slows, but obviously with e-commerce box demand has been exceptionally strong in recent fourth quarter. So, I'm just wondering why you would expect demand to slow and therefore OCC prices to go down seasonally in the fourth quarter? Thanks very much.

Adam it’s [indiscernible] this is nothing new. We have never really built in any type of forecast of what could happen if we have a hurricane. But forever we have always managed to maintain stock in an event that our suppliers go down for a week or whatever period of time they may go down to ensure that we have raw materials to continue to operate. My only point here and it's something could never – I just cannot forecast. We'll figure a way we always do, but we as I assume, others including our suppliers who typically push material out ahead of the season, that's not happening this year. So, there's no way to forecast what the ultimate impact of that would be. With OCC, and Rodger, you may want to talk about, I think, he spoke with Jhonny this morning, but we're just following the traditional seasonal trends. We'll say one thing whether it will carry through the fourth quarter, I don't know, but we have seen that the exports are starting to drop as prices have risen as we're seeing India and others starting to pull further back out of the market, and that's creating more supply within North America. As you know it’s a very complicated, dynamic market. But that is our expectations at this point in time that we should see things start to moderate to come down.

Right. Thanks a lot, Howard.

Showing no further questions in queue at this time.

Well, thank you, Liz, and thank you everyone for joining us today. And again, we certainly appreciate your interest in the company. As always, if you have further questions, please don't hesitate to contact us. We'll be glad to talk further. Thanks for the call today.