Greif (GEF) Q4 2020 Earnings Call Transcript

Greif (GEF 0.10%)
Q4 2020 Earnings Call
Dec 10, 2020, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Greif Q4 2020 earnings conference call. [Operator instructions] After the speakers' presentation, there will be a question-and-answer session. [Operator instructions] Thank you. I would now like to hand the conference over to your speaker today, Matt Eichmann.

Please go ahead.

Matt Eichmann -- Vice President, Investor Relations and Corporate Communications

Thank you and good morning, everyone. Welcome to Greif's fourth-quarter and fiscal 2020 earnings conference call. I'm joined today by Pete Watson, Greif's president and chief executive officer; and Larry Hilsheimer, Greif's chief financial officer. Pete and Larry will take questions at the end of today's call.

In accordance with Regulation Fair Disclosure, we encourage you to answer -- we encourage you to ask questions regarding issues you consider material because we are prohibited from discussing significant non-public information with you on an individual basis. [Operator instructions] Please turn to Slide 2. As a reminder, during today's call, we will make forward-looking statements involving plans, expectations, and beliefs related to future events. Actual results could differ materially from those discussed.

Additionally, we'll be referencing certain non-GAAP financial measures and reconciliation to the most directly comparable GAAP metrics can be found in the appendix of today's presentation. And now, I'll turn the presentation over to Pete on Slide 3.

Pete Watson -- President and Chief Executive Officer

Hey. Thank you, Matt, and good morning, everyone. We really appreciate you joining us on today's call. First, I want to start by recognizing and thanking the global Greif team for their unwavering commitment this past year, first to each other and secondly to our customers.

Fiscal 2020 was unlike any year we've ever experienced. And through to all, our colleagues' dedication to our business and our customers was extraordinary, and I'm incredibly proud of their effort during the COVID-19 pandemic. We made notable progress across all of our strategic priorities in fiscal 2020, starting with customer service. Both our Customer Satisfaction Index scores and our most recent Net Promoter Score survey, improved versus the prior year.

We achieved all-time best scores. We remain laser focused on controlling those areas within our control, and that safety, customer service excellence and disciplined operational execution. And this focus builds additional momentum for our team as we head into fiscal 2021. Caraustar's integration remains well on track.

Through fiscal year end 2020, we have captured roughly $63 million in identified synergies since announcing the acquisition and we still expect to achieve synergies of at least $70 million over 36 months from deal close. The business continues to demonstrate strong strategic fit and robust cash generation in line with the acquisition strategic rationale. We're also -- have embedded Greif's strong sustainability program deeper into our business during the past year. In the spring, we published a companywide purpose statement that describes the very essential nature of our business.

We're also very pleased to be recognized again for sustainability leadership and we were awarded our third consecutive gold rating from EcoVadis, placing Greif among the top 3% of all suppliers evaluated by this firm. And finally, we made great progress toward our financial priorities. We delivered exceptional adjusted free cash flow of roughly $346 million, we reduced net debt by approximately $294 million in total debt, and we returned more than $104 million in dividends to our shareholders. I would like to now review our quarterly results by business segment, and if you could please turn the Slide 4.

Our Rigid Industrial Packaging & Services business, which is led by Ole Rosgaard, delivered solid fourth quarter results capping off a year in which the business demonstrated resilience in a very challenging operating environment. Global Steel Drum volumes declined by roughly 1% versus the prior year quarter on one less production day. On a per day basis, Global Steel Drum volumes rose by 1% and Global IBC production rose by roughly 3% in the quarter and by 6% on a per day basis versus the prior year. We continue to see pockets of strengths and weaknesses in various parts of the world that seemed to correlate to COVID-19 trends.

Demand in our fourth quarter was strongest in China, where steel drum volume rose by roughly 21%, thanks to improving economic activity while demand in Central and Western Europe steel drum volumes rose by 5% partly due to the new business wins. The Americas region experienced the weakest conditions with U.S. steel drum volumes down almost 12% versus the prior year. This was mainly a result of weak demand for bulk and specialty chemicals and lubricants that are specifically referencing that region.

Our RIPS fourth-quarter sales fell roughly $39 million versus the prior year quarter on a currency neutral basis due to lower volumes and lower average sales prices from contractual pricing adjustment mechanisms related to raw material price declines. RIPS fourth-quarter adjusted EBITDA fell by roughly $4 million versus the prior year quarter, primarily due to higher SG&A expense. And please keep in mind that in Q4 2019 results included a one-time $7 million Brazilian tax recovery that was recorded as income in SG&A, which distorts the year-over-year comparison. Looking ahead to fiscal 2021, RIPS is really well positioned to benefit as the industrial economy improves and as COVID recovery takes place and this planned plastic capital expansions ramp up.

We're seeing rising steel prices in the U.S. and EMEA due to supply and demand imbalance. This has been caused by faster auto production recovery than anticipated and supply stock replenishment, which is currently outpacing industry steel supply levels as blast furnaces restart. While we expect no issues regarding sourcing of steel, we are watching this dynamic closely and will plan accordingly.

I'd ask that you please turn to Slide 5. On a global basis, RIPS steel drum demand trended positively through the fourth quarter. And broadly speaking, we saw a positive demand for bulk and commodity chemicals and improving demand for lubricants specially chemicals and industrial paints as manufacturing levels improved and auto production recovered. Food demand was lower year over year due to a weaker conical season in southern Europe, related unfavorable harvesting conditions, and migrant worker availability in Europe.

I'd ask that you please turn to Slide 6. The Flexible Products & Services segments fourth quarter sales roughly flat to the prior year quarter and a currency neutral basis due to strategic pricing decisions and partially offset by lower volumes. Our fourth-quarter adjusted EBITDA rose by $3 million versus the prior year due to higher gross profit. We did have significant devaluation in the Turkish Lira, which provided roughly a $4.7 million tailwind, the flexibles results versus the prior year quarter.

I'd ask that you turn to -- please turn to Slide 7. Paper Packaging's fourth-quarter sales fell by roughly $33 million versus the prior year quarter due to lower published containerboard and boxboard prices and the divestiture of our consumer packaging group, which is partially offset by higher mill and corrugated sheet volumes. Paper Packaging's fourth-quarter adjusted EBITDA fell by roughly $31 million versus the prior year, largely a result of a significant $33 million price cost squeeze versus the prior year. We are currently executing on price increases for container board, uncoated and coated recycled box-board grades.

Please turn to Slide 8. So volumes in CorrChoice which is our corrugated sheet feeder system were up nearly 30% per day versus the prior year quarter from improved durables demand, auto supply chain recovery, and e-commerce growth. Looking ahead the business sees continued strong demand and all of our special product portfolio has record backlogs. We assume OCC will average $69 a ton in fiscal quarter one.

In our tubing core business fourth-quarter volumes are roughly flat to the prior year quarter on a per day basis. But we did show sequential improvement over the last three months. We continue to see strong demand in film and construction in markets and weaknesses in textiles. I'd like to now transition the presentation over to our chief financial officer, Larry Hilsheimer, on Slide 9.

Larry Hilsheimer -- Chief Financial Officer

Thank you, Pete. Good morning, everyone. I'll start by echoing Pete's comments and offer my thanks to our global Greif colleagues for their unwavering commitment this past year. The team delivered strong results and exceptional free cash flow despite operating in a choppy industrial economy with considerable COVID-19 uncertainty.

Fourth-quarter net sales, excluding the impact of foreign exchange fell by roughly 6% versus the prior year due to demand softness in RIPS, the divestiture of the Consumer Packaging Group, and lower year-over-year published containerboard and boxboard pricing partially offset by improved volumes in our paper segment. Fourth-quarter adjusted EBITDA fell roughly 17% versus the prior year quarter, primarily due to lower sales and a significant price cost squeeze in our paper business. SG&A expense was roughly $9 million higher but the prior year period included a one-time tax recovery of $7 million that Pete mentioned. Quarter four SG&A expense exceeded the prior year's figure after backing out the tax recovery partially due to a discretionary short-term incentive awarded by the board late this year that otherwise would have been ratably accrued for throughout the year.

The controllables in this year's quarter, including travel, professional fees, salaries, and benefits were all lower versus the prior year. Finally, FX was roughly a $3 million tailwind on a consolidated quarterly results and there were no material opportunistic sourcing benefits captured in the fourth quarter. Our fourth-quarter adjusted Class A earnings per share fell to $0.78 per share from $1.24 per share in the prior year quarter. For fiscal year 2020, we delivered adjusted Class A earnings per share of $3.22 slightly above the guidance range provided at quarter three.

Our fiscal 2020 non-GAAP tax rate was 27%. We've emphasized our focus on generating free cash flow and paying down debt in previous calls, and that's exactly what we did this quarter. Fourth-quarter adjusted free cash flow was outstanding and rose by roughly $24 million versus the prior year. Fiscal 2020 adjusted free cash flow rose by roughly $78 million versus the prior fiscal year and benefited from strong working capital performance in the fourth quarter throughout the year and lower capital expenditures in line with the range we communicated at quarter three.

Please turn to Slide 10. Given the continued COVID general uncertainty, we are providing quarterly guidance. We will revert back to fiscal year guidance when it's practical to do so. In fiscal quarter one '21, we expect to generate between $0.48 and $0.58 in adjusted Class A earnings per share.

On a sequential basis, we anticipate the paper business sales will be lower and manufacturing expense will be higher due to plan mill maintenance downtime. We anticipate sales and profits in our Rigid's business will be lower due to seasonality consistent with prior years. Compared to fiscal '20 -- quarter one '20, our paper business will experience a significant price cost squeeze. Our RIPS business faced COVID-related uncertainty this year that was not present in Q1 of 2019.

Finally, we expect first quarter working capital and free cash flow to be cash uses in line with our normal business seasonality. This year's lose will likely be greater than that of the prior year quarter primarily due to announced paper price increases and their impact on our accounts receivable balances only partially offset by increased accounts payable and well managed but higher cost inventories. We think it will be helpful to share several other points to be mindful of when modeling fiscal '21. First, we expect higher year-over-year freight cost in insurance premiums, which will flow through cost of goods sold and SG&A.

Second, we anticipate higher year-over-year SG&A expenses due to higher planned incentive payouts in fiscal '21 and an increase in professional fees and travel that was delayed or postponed during COVID this year. Third, we do not budget for or anticipate any opportunistic sourcing benefit in fiscal '21. But we, of course, will aim to take advantage of market dislocations as they occur. We achieved roughly $18 million in opportunistic sourcing benefits in fiscal '20.

Fourth, we expect a roughly $8 million drag in our paper business as a result of the profit elimination due to higher anticipated margins year over year.Fifth, we expect realization of at least $7 million more of synergies related to our Caraustar acquisition. And finally, we expect lower year-over-year interest expense as a result of lower overall debt levels and the favorable rates we locked on our recently announced term loan A3. We plan to draw on the term loan in July of '21 to finance our existing seven three-eights EUR 200 million senior notes which mature that month. Please turn to Slide 11.

As discussed in our third quarter call, we are providing an update to our fiscal '22 commitments today. Underlying these commitments is our assumption that the global economy and fiscal '22 looks more or less similar to that of fiscal '18. That is, there is no lingering material impact from COVID-19 and that we return to positive industrial production growth in major markets around the world. Our adjusted EBITDA range is $785 million to $865 million, or $35 million lower at the midpoint than what we shared in June of 2019.

Across our global business, we are assuming higher insurance and freight rates, which drags on profitability. While our Rigid's commitment was revised slightly higher primarily due to improved product mix and additional efficiencies, our paper business commitment was reduced for several reasons. First, we assume higher manufacturing expenses than previously contemplated due to upgrade repair, maintenance and safety standards, and to improve throughput resilience in our network. We previously assumed the benefit of those enhancements in fiscal '22 but the impact of COVID-19 has delayed some of that work.

Second, we optimized our URB mill network with the closure of the Mobile mill. While volumes are now lower than what was assumed in 2019, we anticipate that our profits will be higher longer term as we realize price increases and remove less profitable tons from our system. Third, and to a lesser extent, our original $220 million run rate for Caraustar included a small EBITDA contribution from CPG and that was divested this year. Bigger picture, despite the lower adjusted EBITDA, our adjusted free cash flow range remains intact at $410 million to $450 million due primarily to improvements in cash taxes, lower capital expenditures due to our footprint optimization and lower cash interest payments from lower debt balances and lower interest rates.

Please turn to Slide 12. Our capital allocation priorities are unchanged and include reinvesting in our business, paying down debt, and returning cash to our shareholders. At year end, our balance sheet is in great shape with roughly $538 million of available borrowing capacity on our revolver. Other than the EUR $200 million senior notes due in July, we have no other sizable maturities due in -- until fiscal '24.

We anticipate that our first quarter capital investments to be in the range of $30 million to $40 million. As we continue to generate cash, pay down debt, and reduce leverage toward our target range of two to two and a half times over time, we will shift the enterprise value to the benefit of our equity holders. With that, I'll turn the call back to Pete for his closing comments before our Q&A.

Pete Watson -- President and Chief Executive Officer

Hey. Thank you, Larry. Fiscal 2020 presented new challenges for our company and I'm incredibly proud of how our Greif team adopted and responded to these difficult times. Through a sharp focus on operational discipline and execution levers of the Greif business system, we're generating free cash flow and paying down debt in line with our financial priorities.

And looking ahead, the demand environment is improving and we are positioned well as businesses improve and the world emerges from the COVID-19 pandemic. We thank you for your interest in Greif and, Jacklyn, if you could please open the lines for questions.

Questions & Answers:

Operator

Certainly. [Operator instructions] Your first question comes from George Staphos from Bank of America Securities. Your line is open.

George Staphos -- Bank of America Merrill Lynch -- Analyst

Hi. Thank you. Hi, guys. Good morning.

Thanks for the details. Congratulations on closing the year. I had two questions. First, Larry, can you talk to that year-end incentive accrual or Pete if could? I just wanted to get a little bit more detail on that, and what the effect was, if you had mentioned that I'd missed it.

And then on paper, you had mentioned there is an $8 million drag that you're expecting, I believe, in the upcoming quarter. I was curious, if you could give it a little bit more detail on that. If I heard correctly, and relatedly, assuming normal progressions in paper, when should we expect to see most of the benefit from the price actions are in the market right now? I would assume it's more like a fiscal 2Q event, but any thoughts there would be great. Thank you.

Larry Hilsheimer -- Chief Financial Officer

Yes. George, great to hear from you and thanks for your questions. I'll let Pete deal with the timing on the price adjustments after I address your first two. On the year-end incentive adjustment, the board determined, particularly given really great cash performance and more importantly, just managing the health and safety of our workers worldwide that they move us to our threshold level of incentive on our operating profit level part.

And it was basically net-net an $8 million item that came in in fourth quarter that otherwise would have been included ratably through the year, so it has an outsized impact on the fourth quarter. Obviously, if you just add out, it shows that we really performed way better in the fourth quarter than what we had talked about in the third quarter call. Obviously, some of that related to demand in our paper business, but also increased performance around the world, as we mentioned. Second item, the $8 million drag is actually a year-over-year thing.

And this is the item that I mentioned in our last call about intercompany profit. So we sell from our mill systems into our converting facilities. There is a profit that happens that flows in our mill systems, but we can't recognize that for accounting purposes till we sell to the external customer. That will not build back up because we're going to manage our inventory, our working capital be consistent or down year over year.

So it's basically sort of one-time permanent result because of our dramatically improved management of working capital in that business. Pete, you want to cover the timing of price increase?

Pete Watson -- President and Chief Executive Officer

Yes, George. So all three price increases containerboard, URB, and CRB will be implemented through the first quarter but will have no material benefit in Q1. We'll see starting in February, which is the beginning of our Q2, full realization of all three of those price increases.

George Staphos -- Bank of America Merrill Lynch -- Analyst

Thank you, Pete.

Pete Watson -- President and Chief Executive Officer

Yes. Thank you, George.

Operator

Your next question comes from Adam Josephson from KeyBanc Capital Markets. Your line is open.

Adam Josephson -- KeyBanc Capital Markets -- Analyst

Pete, Larry, Matt, good morning. Hope you're well and thanks as always for taking my questions. Larry, regarding the fiscal '22 guidance, just a couple of questions there. So you initially gave the guidance in mid-19, you're having to reduce it by 4% now, and you're saying that it embeds an assumption that the gold economy will have fully recovered from COVID? I guess why make that assumption when you just had to reduce the guidance you gave initially, particularly given that you're not inclined to give fiscal '21 guidance because there's so much uncertainty? So presumably, there'd be just as much if not more uncertainty about fiscal '22.

So I guess why continue to provide even a fiscal '22 target for that matter?

Larry Hilsheimer -- Chief Financial Officer

Yes, that's a fair question. Adam. I mean, our view of it is that, our investors would like to have some idea of what this company look like, once you're beyond this whole COVID travesty. Our general view, as you and everybody else does, we monitor and watch everything we can get around COVID and the path and the predicted success of vaccinations.

We watch and listen to all the economic analysis, we use some private groups that we do work with around their forecast of the economy and those kind of things. We put all those together. The general view of most is that that the economy is going to improve and going to come back robustly at some point in either late '21, or the latest early '22. I mean, you got Goldman and Morgan Stanley on the close end of the optimism, and you got some others on the far end.

And so, we thought it was a reasonable assumption to say that we think the economy is back and we needed to have some assumption to be able to work to give our investors some idea of what will this company be doing at that point, if the economy is to return to that level.

Adam Josephson -- KeyBanc Capital Markets -- Analyst

I appreciate that, and just one follow up. So, if you're assuming the economy gets back to pre-COVID, then why cut your capex guidance for fiscal '22? Because I would think you wouldn't need to do that, if the economy is going to be functioning perfectly normally. I asked just you cut your capex guidance last year, you're cutting it for fiscal '22. So can you just give us some sense of how much lower you're expecting your cumulative capex to be over that period and why?

Larry Hilsheimer -- Chief Financial Officer

Yes. We really haven't cut it, Adam. It really goes to all the facilities we've closed and when we disposed the CPG business, we indicated that there was going to be a reduction on an ongoing basis there. So, we were previously a little bit higher, but it had to do with our footprint.

When we closed more facilities, the capex needed on a recurring basis goes down. As well, we've long talked about the fact that when we get done with SBP, we're going to have a drop off in some of our IT capex. So it's really not reduced and it's exactly the same essentially, if you adjust for those. So it's in the midpoint right about $160 million range.

Adam Josephson -- KeyBanc Capital Markets -- Analyst

Great. Thanks so much, Larry.

Operator

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

Mark Wilde -- BMO Capital Markets -- Analyst

Thanks. Good morning.

Pete Watson -- President and Chief Executive Officer

Good morning, Mark.

Larry Hilsheimer -- Chief Financial Officer

Hey, Mark Wilde.

Mark Wilde -- BMO Capital Markets -- Analyst

I wanted to just dig into a couple of the segments, if I could. First over into RIPS, the volume was down about 8% in North America. I'm just curious about what's going on here. It doesn't seem like the comps for that -- in most other packagers are actually reporting North America is one of their better global markets.

For you guys, it's the weakest global market. So, Pete, can you give us some additional color behind that? I think you talked about kind of lubricants and petroleum product being weak but I'm just a bit puzzled about why this would be the weakest regional market.

Pete Watson -- President and Chief Executive Officer

Yes. So in North America, Mark, obviously, our paper business has been very dynamic. But in our Rigid business, the end use segments that we serve, and it particularly relates to steel drums is down. And if you look around the globe, we saw similar drops during COVID but the recovery points have moved from east to Europe to starting to see it in North America but I think it has to do with the substrates and the products that we serve.

In U.S. also has been hurt in the last year and a half through some of the trade tariffs, where our largest concentration of steel drum production is in the Gulf Coast. That is predominantly an export-heavy market for us, where our drums are used for export shipments. So it's a combination of end use impact to COVID and also the tariff's impact.I would tell you that our plastic drum volume in North America is recovered well.

We're mid-single digits in plastic drums and in low single digits in IBC. So I think it's related to the substrate in those end markets but they are recovering from -- through November and we expect to see better improvement in Q1.

Larry Hilsheimer -- Chief Financial Officer

Yes, Mark. You see in some of that trade up and trade flows. The tariff thing that Pete mentioned, which impacted at the beginning of the Trump administration, and then that following year, we've seen pickups in other areas of the world like in shipments out of our Star facility in Saudi Arabia and those kind of things. So it does -- it just shifted.

Mark Wilde -- BMO Capital Markets -- Analyst

OK. And then I wondered if we could just toggle over to the paper business. You were down year over year, about $31 million. You're pointing to 33 million of negative price costs.

But at the same time, you're also pointing to $40 million for the full year in Caraustar synergies and then 8% volume growth. So just putting all of those things together, I would have expected a smaller year-over-year decline in the paper business.

Larry Hilsheimer -- Chief Financial Officer

Yes, good observation, Mark. And let me just walk you through it. Yes, we got $12.5 million impact from pricing about $21.8 million on OCC and a few chemical costs that increased CorrChoice volumes pick us up about $5.8 million. The synergies year-over-year pickup in PPS itself was about $2.7 million, another $1.8 million are in corporate.

And if you think about it, we started recognizing synergies in fiscal '19 more in the third and fourth quarters with the most in fourth quarter. We then started this $40 million annual increase, there was more in the first quarter of '20, second quarter it went down about, third -- so it's just a phenomena if you're looking at the fourth quarter on that year over year where we had picked up some in '19 and it's just that year-over-year comparison.The other remaining piece is then stuff that has to do with the incentive element that I mentioned that flows into PPS. Sorporate allocations went up to PPS this year because their revenue has a higher proportion, and we've talked about that in prior quarters. And then, we have just some manufacturing cost increases that some of which are inefficiencies driven out of just operating in a COVID environment that are -- that don't meet the necessary criteria to exclude it cleanly in SEC because you don't know where there's going to go permanently.

So hopefully that's helpful. I mean, the primary thing is the cost price squeeze, which is about $0.41 a share in and of itself.

Mark Wilde -- BMO Capital Markets -- Analyst

OK. Sounds good. I'll turn it over.

Operator

Your next question comes from Ghansham Panjabi from Baird. Your line is open.

Ghansham Panjabi -- Baird -- Analyst

Hey, guys. Good morning. [Inaudible] and happy holidays.

Pete Watson -- President and Chief Executive Officer

Thanks.

Ghansham Panjabi -- Baird -- Analyst

Yes. So I guess first off, it looks like it's about $180 million EBITDA differential between what you realized in fiscal year '20 and what you're sort of guiding for fiscal year '22 at the mid-point. I was just curious as to how we should think about each of the segments from a contribution standpoint toward that $180 million or so improvement. And there's just so much going on with your numbers with COVID in fiscal year '20 and price cost in paper, so any incremental color would be helpful.

Larry Hilsheimer -- Chief Financial Officer

Yes. Sure, Ghansham. And I think, hopefully, this will be helpful. What we tried to do is, walk from where we were before on the commitments and if you think back what we took was our '18 results across the businesses.

We added in the 220 million of run rate from Caraustar. We added in, then $60 million of synergies. We had some for our Tholu acquisition, and we had just some other organic growth related to capex or [Inaudible] addition and all those. And that got us to the fundamental pieces of each of the businesses.

So let me take you and walk you from where we were on the midpoint in each of them previously to where we are now with the big elements. And PPS at that time had a midpoint target of about $510 million, we got to a $10 million drop that is really related to a long-term decision we made that really, we believe will drive profitability over the long-term. And that was the closure of our Mobile mill facility, very inefficient mill system, low profit, one that we know over time the closure of that's going to drive more profitability, but it in that shorter period through '22, actually is a decrement to where we were before of about 10 million, but then we'll drive profitability after that. The other related item is we have seen a need increase our manufacturing costs short-term in some of our the acquired facilities and even some of our legacy around improved safety protocols, all those kind of things that will continue.

Is it disinfecting? Is it plug to -- all of those kind of things, but also just some inefficiencies and how we've been operating that we believe will -- we will turn around over time, but through '22, we won't have turned those around yet.Insurance and freight are -- we're in a really hard market in property and casualty insurance. And we -- through discussions with our brokers and consultants, we don't see that turning around. And freight costs are up, which I think is relatively well known. It's been a decrease in the number of drivers and as part of the whole impacts of things.

So that's about $15 million. I think I mentioned manufacturing costs was about $20 million.And then the other was in that 220, in the original we had some there was -- see they had been running at about $5 million of profitability in the CPG business, but it had begun to deteriorate. And we had a path to turn it around. But it was going to require a lot of capex to get us back to an acceptable level, which led us to then sell the business and get rid of that, what was not a productive asset for us and avoid the capex.

And we did so also with a long-term supply contract where we agreed in those contracts, the prices that were slightly less than what we have on our internal contracts selling to ourselves. So that was about $8 million. So you take those items, you get $10 million on the mobile, you got CPG is about $8 million, the manufacturing cost item is $20 million, insurance and freights $15 million, then you get a $1 million of other minor stuff that takes you from 510 to 456 as a mid-point on PPS. On RIPS, it's essentially looking at this and just improvements in operating profits and some things that we see happening in that business where we believe that are -- will increase our profit by $11 million and then we've got another net $5 million or so of SG&A benefits that we have plans to achieve incremental to where we were at the time of the last commitment so.

And then, just some other decreases in expenses, from some of the things that we've done around cash flow hedging, lower pension costs, and those kind of things. So that's nine. So you go from 302 to 307, in those two, so PPS is obviously the major, major item.

Ghansham Panjabi -- Baird -- Analyst

Got it. And then just, finally, I guess, I mean, obviously, you guys have recovered from the first lockdown. And here we are looking at the second one in Europe, especially, possibly parts of the U.S., etc. Just what are you embedding for volumes specific to 4Q? Sorry, your fiscal 1Q by segment.

And, our customers kind of thinking about managing inventories. I mean, you talked about working capital maximization, I assume your customers are doing the exact same thing now that as they focus on finishing out the year from a cash flow standpoint. So what do you see in real-time? And then what are you embedding for your fiscal year 1Q? Thank you.

Pete Watson -- President and Chief Executive Officer

Yes, Ghansham. This is Pete. So you're exactly right. All of our customers across our entire portfolio are managing their inventories very tightly because conditions are tight, but others are really managing the working cash capital as we have, which means shorter orders, less more frequent deliveries and lower order quantities.

So our Q1 forecasts, our volumes embedded in that in our RIPS business. Steel, we're forecasting to 1% to 2% growth on a global basis. IBCs we're pointing to high single-digit growth through the Q1. Large plastic drum, which is predominantly a U.S.

product, is mid-single digit growth. And our FIBCs and FPS, we're guiding to flat growth. In paper, again, it's an extremely strong market, our mills -- forecasted to be like they were or currently we have very high backlogs and very high operating capacities, our CorrChoice sheet feeders we're embedding in the forecast 20%, 25% to 30% growth, which is very similar to what we had in Q4. In our tubing core growth, we've seen improvement that we're embedding in the guidance 1% to 2% volume growth.

So again, we're seeing improvement. It's still uncertain beyond Q1.

Ghansham Panjabi -- Baird -- Analyst

OK. Thanks so much.

Pete Watson -- President and Chief Executive Officer

Thank you.

Operator

Your next question comes from Steve Chercover from DA Davidson. Your line is open.

Steve Chercover -- D.A. Davidson -- Analyst

Thanks. Good morning, everyone.

Larry Hilsheimer -- Chief Financial Officer

Hey, Steve.

Pete Watson -- President and Chief Executive Officer

Hey, Steve.

Steve Chercover -- D.A. Davidson -- Analyst

Good morning. So couple questions on paper packaging, and one is just want to emphatic clarification. So the decline in the profit EBITDA in paper, that's due to the price declines earlier in 2020 but it's got nothing to do with divestitures with consumer packaging, is that correct?

Larry Hilsheimer -- Chief Financial Officer

That's correct.

Steve Chercover -- D.A. Davidson -- Analyst

OK. Great. And with respect to your guidance, I presume it incorporates the containerboard CRB and URB price hikes that have imprinted in pulp and paper weak, but not the pending CRB hike for January?

Larry Hilsheimer -- Chief Financial Officer

I'll let Pete talk about the timing of when those things flow through because I think that's probably the biggest thing, obviously, as we saw people's write ups last night about the disconnect between our earnings guidance, and I think what people were thinking on timing and these things. Pete will walk you through it.

Pete Watson -- President and Chief Executive Officer

Hey, Steve, so we're obviously only guiding the first quarter. And while we are executing on the price increases, there's no material impact to our benefit until Q2. So at the end of January and started in February, we'll have full impact to all three price increases through the integrated system.

Steve Chercover -- D.A. Davidson -- Analyst

OK. But just to, I guess, drill down a little bit. Let's not talk about guidance, but just as you contemplate things, if it's not printed in pulp and paper weak, then it hasn't happened. So it would not be incorporated in any forward thinking.

Is that --

Pete Watson -- President and Chief Executive Officer

Yes, that's correct, Steve.

Larry Hilsheimer -- Chief Financial Officer

Yes. And, Steve, I mean, really, there's a very little benefit, like -- I'll repeat what Pete just said very little benefit of those price increases in our first Q. We'll get some of the containerboard because it'll be effective in January, but most of the other price increases will be beneficial in Q2. And we still have the big year-over-year impact of OCC cost, impacting us negatively in Q1, which is really about $12.3 million of drag year over year.

Steve Chercover -- D.A. Davidson -- Analyst

OK. And one final one, if I could, were you surprised to see OCC print up 10 bucks? I mean, there's so much containerboard being consumed. For the full year, what is your outlook? Do you think that we're still going to be pretty awash in OCC?

Larry Hilsheimer -- Chief Financial Officer

Yes. In deed it was a surprise desk, it is not what our team has been seeing on the street, Steve. Clearly the residential collection process is different than the commercial process. But you're right, there's a lot being made.

And so, over time, we do believe that that will result in supply and demand getting maybe back more balanced. But, right now, it's a little higher than where we had expected it to be and, obviously, we're not building up for your guidance. But yes, we think it would stay in that or mitigate down a little bit, it might pop up a little bit, but that didn't come back down.

Pete Watson -- President and Chief Executive Officer

And Steve, this is Pete. So, I'd also tell you from the street, OCC is readily available, there's no tightness. That's what really surprised us. So we've guided to Q1 and then Rigid has a forecast annually, that's higher but that's too early to determine what that might look like.

Steve Chercover -- D.A. Davidson -- Analyst

OK. Thanks and happy holidays.

Larry Hilsheimer -- Chief Financial Officer

Thanks.

Pete Watson -- President and Chief Executive Officer

Thank you, Steve.

Operator

Your next question comes from Gabe Hajde from Wells Fargo. Your line is open.

Gabe Hajde -- Wells Fargo Securities -- Analyst

Pete, Larry, Matt, good morning. I appreciate the reticence to give a full-year outlook but if you can help us with maybe a couple of the moving pieces on the free cash flow bridge. Larry, I think you gave us some pointers on EBITDA but obviously working capital, it was roughly around the number $40 million benefit this year. I'm assuming it's going to be a drag, it's kind of what you indicated.

I think fiscal '18 when you had similar magnitude price increases flowing through, you would expect the working capital to be, I want to say a $30 million to $40 million headwind. So, just in that in and of itself could be a $70 million swing year to year. Anything else you would point us to or if you can comment there, and then anything on cash taxes would be helpful.

Larry Hilsheimer -- Chief Financial Officer

Sure. So yes, Gabe, I think that your analysis is appropriate. Obviously, the challenges that are causing us not give guidance for the year, go directly to being able to predict where we think sales will go. Are there going to be broad shut downs, all those kind of things.

And clearly as sales go, that's a big driver of working capital. And then, the other is, cost of raw materials. And as Pete mentioned, the steel business or steel cost in particular are driving up, because the steel manufacturers that shut down blast furnaces and they take a long time to come up and the auto production has grown more rapidly than they were anticipating. So steel is in shortage, prices are going up, that drives up, obviously, we're seeing OCC go up all those things are dragged -- or caused drag on working capital.

What I will then share is, we really -- the magnitude of improvement that our teams made in this year was incredible. We measured things on a trailing 12-month percentage of sale basis, that's what our part of our incentives are based on.Moving a 12-month average is really, really difficult. And so, we moved it pretty dramatically. I mean, yes, half percent, and slightly more actually.

But on a monthly basis, I'll tell you, we started the year at 14% and dropped to 9.9%. So we are at a very, very low level at the beginning of the year. Now despite that our objective and our incentives next year is to drop it even further. So even -- so the measure that we hold ourselves to is dropping our working capital.

But if the presumptions that you laid out about OK, recovery, and some sales go up, and we have these costs of inventories, and so it would still be a use of capital of some fashion. So yes, we had dramatic improvement in in fiscal '20. But it wasn't what year-end heroics. It was doing well all year.

And we expect that performance to continue on a go forward basis. But we obviously won't have that opportunity to drive significant one-year gains on it going forward.

Gabe Hajde -- Wells Fargo Securities -- Analyst

OK. Anything, I guess you need to mention?

Larry Hilsheimer -- Chief Financial Officer

Nothing really, no.

Gabe Hajde -- Wells Fargo Securities -- Analyst

OK. And then, Pete, I think in your prepared remarks, you'd mentioned some investments in risks, some of which I think were delayed COVID-related. Can you expand on -- I suspect some of those are, most of those are around the IBC business, but just magnitude of spend and timing of expected returns?

Pete Watson -- President and Chief Executive Officer

Yes. So those -- the reference was about plastics both IBCs and blow mowers for large plastic drums. We're coming into the second year of those investment scape. We disclose those a year ago.

So we just expect the ramp up particularly in large plastic drums and IBCs that are in line with our growth projections for Q1. You're probably talking about $15 million to $20 million in capital investments over the past year. And, again, we've had good execution of that and that's we really expect better execution this upcoming second year of those capital jobs.

Gabe Hajde -- Wells Fargo Securities -- Analyst

All right. Thank you. And one last one in the paper business. Larry, again, in the prepared remarks, you mentioned a little bit higher mill maintenance in this first fiscal quarter.

I'm curious just if you can lay out for us, maybe relative to fiscal 2020. Obviously, that's an abnormal year, if you're expecting higher on an annual basis, year-over-year maintenance, and then any timing related items that we should be talking.

Larry Hilsheimer -- Chief Financial Officer

Yes. We actually made a decision in the fourth quarter to delay a lot of our scheduled capital maintenance because demand had increased so dramatically. And so, we pushed some of that into this year. And so, there will be a year-over-year increased cost, exactly what that'll be right now, I don't have -- locked down because they're still working on exactly what they're going to do.

But it's somewhere, $9 million to $10 million, kind of increase for us.

Gabe Hajde -- Wells Fargo Securities -- Analyst

For the whole year [Inaudible]

Larry Hilsheimer -- Chief Financial Officer

Yes, throughout the year.

Gabe Hajde -- Wells Fargo Securities -- Analyst

Thank you, guys. Good luck.

Pete Watson -- President and Chief Executive Officer

Thank you, Gabe.

Operator

Your next question comes from Justin Bergner from G.Research. Your line is open.

Justin Bergner -- G.research -- Analyst

Good morning, Pete. Good morning, Larry.

Larry Hilsheimer -- Chief Financial Officer

Hey, Justin.

Pete Watson -- President and Chief Executive Officer

Hey, Justin.

Justin Bergner -- G.research -- Analyst

Just a couple of cleanup questions. The intercompany profit elimination that one-time headwind, I think you mentioned was $8 million, is that all going to be experienced in the first quarter? Is that going to be spread throughout the fiscal year?

Larry Hilsheimer -- Chief Financial Officer

It's just a year thing. It sort of -- if you go back to our third quarter call, you'll see that we talked about it then and realized it as thing -- our inventory levels went down at the end of that third quarter, but then they went down even further in the fourth. And, we expect our teams to manage the inventories in that business well, and so if it won't build back up and won't have to -- this opportunity for recovery, again, in the future, if we stay at those levels.

Justin Bergner -- G.research -- Analyst

OK. Maybe I -- part of what you initially said was a little hard to follow. So the 8 million is mostly in the first quarter or spread out throughout fiscal year '21.

Larry Hilsheimer -- Chief Financial Officer

We recognized it mostly in the third quarter of this year, is when it mostly came in. So that's where you'll see it on a year-over-year basis. But it's an annual thing not necessarily a quarter -- it won't be one quarter -- first quarter to first quarter, that kind of thing. It shifts around every quarter now generally.

It's just an accounting phenomenon when you're selling out of your mill systems. Imagine if there were the two separate businesses, two separate companies. One was our mill system selling into converting facilities. When our mill system sold it, you'd recognize the profit then.

However, since it's an intercompany thing, we can't recognize it for a GAAP purposes until it's sold outside of Grief. And so it gets deferred and that then, as those inventory levels come down, then you pull it into profit.

Justin Bergner -- G.research -- Analyst

OK. Got it. All right. So I'll think about a spread over fiscal year '21.

And then the transportation insurance headwinds you mentioned it was a $15 million reduction to how you're looking at the fiscal year '22 EBITDA. Should I think of that $15 million number is also being representative of what you might experience in fiscal year '21?

Larry Hilsheimer -- Chief Financial Officer

It's more like $12 million from '20 to '21.Justin BergnerOK. And the fiscal year '22 EBITDA guide, just to clarify, is that sort of run rate at the end of fiscal year '22, or is that what you expect to deliver for the entirety of fiscal year '22?

It's what we expect to deliver for '22. Obviously, subject to our assumption, our broad assumption on the economy.

Justin Bergner -- G.research -- Analyst

OK. And then, lastly, your presentation mentioned SG&A accrual headwinds. Is that something that you're trying to suggest might be a little bit larger than folks on our side of the table are modeling or is that just normal accrual headwinds because the business is resuming strength and there's more payout across the organization?

Larry Hilsheimer -- Chief Financial Officer

Yes. Look at it this way, when you have a dislocating event like this pandemic, and the impact on the broad economy, it dramatically impacted our business, you have an automatic governor, so to speak on our profitability tied to incentives, as performance goes down, incentives go down. And so if we look, even with the discretion that our Board decided to do that when you look at what normal incentives would be next year, based on just the target comp of our entire management team way down deep into the organization. So we're not talking just me and Pete and a few people up here.

We're talking about all the way through our management teams down to plant managers and everything.The impact on cost, year over year, if we would hit 1.0 target. The target next year would be a $27 million increase in expense to hit that. But we deal with this all the time. It goes up and down and we factor that into the guidance and things we give.

Justin Bergner -- G.research -- Analyst

OK. Thank you for taking all my questions.

Larry Hilsheimer -- Chief Financial Officer

Absolutely.

Operator

[Operator instructions] Your next question comes from George Staphos from Bank of America. Your line is open.

George Staphos -- Bank of America Merrill Lynch -- Analyst

Hi. Thanks for taking the follow-on. Pete and Larry, could you give us a bit more, I don't know parameters guardrails, however you want to call it in terms of what we should take away on your comments related to steel, are you concerned that pricing might pick up a little bit more quickly than you're able to recover through your contracts and normal mechanisms? It doesn't suggest that you may try to be proactive that if you can in building inventory, even you don't get a benefit, like you did last year from proactive working capital management or procurement. Now, what do you want to take away on that comment on steel? Should we be building that in as a headwind? That's kind of broad question number one.

And question No. 2, as you think about Caraustar, and the drop in your fiscal '22 guidance, and look, we always look at your long-term guidance more aspirational than find pointers for any business, there's so many different moving parts. Nonetheless, should we take away from your commentary that Caraustar, maybe in some elements of manufacturing wasn't quite at the levels that you had thought, and might not be able to flex profitability as much as you'd want it. As the business turned up both from a demand and your pricing standpoint, or would that be a wrong assumption? So everything you thought it would be and then, if so, please explain why.

Thanks, guys. Good luck in the quarter and happy holidays.

Pete Watson -- President and Chief Executive Officer

Yes, George. So on steel, we've got in EMEA and the U.S. a short term, supply and demand imbalance as we've talked about, and Larry commented, you've got a really fast recovering auto industry. You've got the steel industries, restarting blast furnaces, they had this three-month period, where there's challenges.

So that will not impact our inventories. In fact, our inventories are quite low right now and expect to be through Q1. We do really expect that steel supply and demand balance to become balanced and more normalized, after January. So again, it's a short-term dislocation.

We don't see any major significant impact at this point. But we are monitoring, we are -- have our attention up our sourcing team is doing a really good job, ensuring that the only potential downside could be if we need steel, if we have to buy it on the spot price in the short-term, you could pay higher prices. That's to be determined but it is a potential risk. In regard to Caraustar, I'll make one comment and let Larry talk.

But, when we bought Caraustar, we knew that we would have to spend some money. We knew that operationally in their mills, there are some opportunities to improve. And that doesn't really change how we -- we still feel that way. We've got a good team in place.

And we're working diligently to do that. But there are opportunities in the mill manufacturing capabilities. We're aware of it. We're working on it and it's no surprises at all.

Larry Hilsheimer -- Chief Financial Officer

Yes, George. I would just supplement what Pete said. If you go back to our deal assumptions, yes, we've talked about a $220 million run rate and $45 million of synergy. So 265, if you look at where we're at now and if that included having CPG in there, like five.

Well, we got $80 million for selling off the CVG plants. And we obviously, avoided capex going forward, so we feel really good about that five coming out of there. So if I start with, 215, and I say, 45, I'd be a 260 with our deal assumptions. Right now, we're at -- if I talk to 215 and I add in 60 million of synergies, I'm at 275.

If I back off even the manufacturing costs, that we don't think we'll have turned around by then, I'm still in really good order of the deal metrics that drove us to do that. So we're real happy about it.And we believe that we made a very good decision on the closing of Mobile, and that will even become more profitable for us in the system over time, it's just that not by '22. And we'll also -- we'll get this manufacturing cost item turned around but we're not going to compromise on our safety of our people, and that's driving some of this.

George Staphos -- Bank of America Merrill Lynch -- Analyst

All right. Thank you very much.

Operator

Today's last question comes from Adam Josephson from KeyBanc. Your line is open.

Adam Josephson -- KeyBanc Capital Markets -- Analyst

Thanks so much, Pete and Larry. Pete, just one on the North American situation. So obviously, in the quarter RIPS was weak, and paper was phenomenally strong. Can you just give us some context as to how -- precisely how unusual the state of affairs is for you? And obviously, it's all pandemic-related.

But what you think a return to more normal conditions might look like what's -- I guess both in the RIPS and a business as well as the containerboard in URB businesses in North America?

Pete Watson -- President and Chief Executive Officer

Yes. I'll comment on RIPS again, confirm some of the comments I made to Mark. The substrates we have in North America are heavily weighted to steel. We also have plastics, growing plastics in our DC business.

But again, the end markets that we serve in RIPS in North America have recovered at a slower pace sequentially than Asia and EMEA. And that is normal for the course of what we've seen from other companies and inside our company. And now we are starting to see improvement in North America sequentially, we saw that through Q4. And we in our assumptions in the Q1 forecast, we continue to see that.

Again, the big challenge in our steel drum business in North America were the tariffs that dramatically impacted our Gulf Coast operations. That's 40% of our volume production in North America. So that weighs heavily on it. I will be able to tell you there's industry data in North America that in steel drum industry and our numbers are actually higher than what the industry volumes are.

So while, we don't like the volumes in RIPS North America, we do know that we're not losing market share, and it's more of a market-related issue, but we do expect that to gradually improve. In regard to paper, as you know, we've got incredible volume improvements. Our Mills have incredibly high backlogs. Our CorrChoice business is up 30%, when you take out the new Palmyra business, organic demand grew 17% up year over year, heavy emphasis from e-commerce, durable goods has improved, and particularly the auto supply chain and we're involved in serving raw materials to box plants that are really strong in home consumables, which are all strong.Will that continue to add strength? I think that e-commerce markets absolutely will be a permanent shift because the consumer buyer behavior has done that.

So that is more of a long-term trend. And I think we're really well-positioned to take care of that. In CorrChoice, we run short runs, customized sizes, we have the very short delivery cycles. We have the capability to run really lightweight fiberboard grades, and those are all capabilities that are attractive in support e-commerce demand and the SIOC patching protocols for Amazon.

So, I'm not going to say it's going to be 25% or 30% growth. But right now, it's really strong, and we don't see in our forecast through Q1, any change in that but it's pretty amazing. It's the strongest paper market I've seen in our 34 years that I've been in business, Adam.

Adam Josephson -- KeyBanc Capital Markets -- Analyst

Yes. No, it seems like a common comment, Pete. And Larry, just one last one for you on interest, the 110 to 115. If I just annualize the 4Q number, I'd get to 104.

And then, you refied the July 21 notes at a much lower rate. So I would think that you'd be now lower than the buck 10 to a buck 15 for this year. Just can you just tell me what I'm missing? And then again, health and happy holidays to all of you. Thank you.

Larry Hilsheimer -- Chief Financial Officer

Yes, Adam. It's a good observation. Remember though, recall that we generally will increase our debt loads with our first quarter tends to be our weakest quarter of the year and we're building up. So we end up going more into our lines.

And so that's a big factor, we won't really start to see that turn back around till third quarter, fourth quarter, that's just our real -- normal seasonality pattern where the debts higher in the first part of the year runs up, comes back down. The other thing that you have is an impact of capitalized interest. So some of the interest expense we get paid, that we pay on debt ends up getting capitalized into projects. And you even saw some of that in our fourth quarter where there's some of the interest dollars we spend end up not hitting interest expense.

Those capital projects, it just depends on when they play out in the year at least where we've modeled so far more of those going to hit later in the year. The other thing on the refinancing, there are just these ticking fees that is relative to having that loan structure in place. So, there'll be some cost offset and this year, but that'll mitigate over time as well. So it's more that it's more front-end loaded in the first year as we build up things here and then pay down the debt as the year goes through.

Adam Josephson -- KeyBanc Capital Markets -- Analyst

Thanks so much, Larry. Happy holidays.

Operator

This concludes today's Q&A session. I will now turn the call back over to Matt Eichmann.

Matt Eichmann -- Vice President, Investor Relations and Corporate Communications

All right. Thanks a lot, Jacklyn. Thanks a lot, everybody, for taking part in our call this morning. Hope you have a safe holiday season ahead.

Be well.

Duration: 63 minutes

Call participants:

Matt Eichmann -- Vice President, Investor Relations and Corporate Communications

Pete Watson -- President and Chief Executive Officer

Larry Hilsheimer -- Chief Financial Officer

George Staphos -- Bank of America Merrill Lynch -- Analyst

Adam Josephson -- KeyBanc Capital Markets -- Analyst

Mark Wilde -- BMO Capital Markets -- Analyst

Ghansham Panjabi -- Baird -- Analyst

Steve Chercover -- D.A. Davidson -- Analyst

Gabe Hajde -- Wells Fargo Securities -- Analyst

Justin Bergner -- G.research -- Analyst

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