Greif (GEF) Q4 2021 Earnings Call Transcript

Greif (GEF 0.95%)
Q4 2021 Earnings Call
Dec 09, 2021, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, my name is Chris, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Greif Q4 2021 earnings conference call. [Operator instructions] Matt Eichmann, you may begin.

Matt Eichmann -- Vice President, Investor Relations, External Relations and Sustainability

Thanks, Chris, and good morning, everyone. Welcome to Greif's fourth quarter and fiscal '21 earnings conference call. My name is Matt Eichmann. I'm joined by Pete Watson, Greif's president and chief executive officer; Larry Hilsheimer, Greif's chief financial officer; and Ole Rosgaard, Greif's chief operating officer.

We will take questions at the end of today's call. In accordance with Regulation Fair Disclosure, please ask questions regarding issues you consider important because we're prohibited from discussing material nonpublic information with you on an individual basis. Please limit yourself to one question and one follow-up question before returning to the queue. 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 reconciliations 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. As always, we appreciate your interest in Greif. I'm going to start by recognizing and thanking the global Greif team for outstanding achievement this past year. The team delivered excellent results despite a challenging operating environment that was complicated by the pandemic, supply chain disruptions, and inflationary pressures beyond our control.

Fiscal 2021 was an exceptional year with record financial results. We significantly de-levered our balance sheet, improved our shareholder returns, achieved top decile colleague engagement, and were recognized as a leading workplace in the United States. Looking ahead, these accomplishments have us positioned for an even stronger future as our fiscal 2022 guidance points to performance in line with the commitments we established in 2019. Finally, in this past year, we made meaningful enhancements to our already strong sustainability performance and have embedded ESG deeper into our business strategies.

I'd like to ask Ole Rosgaard, our chief operating officer, to make a few comments regarding ESG that's on Slide 4.

Ole Rosgaard -- Chief Operating Officer

Thank you, Pete, and good day, everyone. I hope you and your families are well. In my mind, sustainability is not an afterthought or corporate function, rather it's a leadership focus that creates business value by reducing risk and costs and bringing new market opportunities to growth. We achieved several notable ESG accomplishments in 2021.

For example, we diverted a minimum of 90% of waste from landfills at more than 140 of our global facilities, increasing our global diversion rate to roughly 85% from about 70% last year. Even more impressive, at year end, 50 of our global facilities had achieved zero waste to landfill status. We launched our fourth Colleague Resource Group to provide professional development opportunities and further foster a more representative and inclusive culture across Greif. And finally, we linked ESG KPIs to the Greif business system, improving our performance management capability to further drive this critical work.

The takeaway here is that Greif's strong ESG focus is core to our plans for sustainable value creation. I look forward to sharing additional highlights with you in the future. And now, back over to Pete to discuss our business results on Slide 5.

Pete Watson -- President and Chief Executive Officer

Hey, thank you Ole. The global industrial packaging business delivered an outstanding fourth quarter result. Our overall global primary product line was strong and benefited sales by almost 3% versus the prior year. Fourth quarter global large plastic drums and intermediate bulk container volumes grew by more than 18% and 10%, respectively, per day versus the prior year and benefited from the strategic growth investments in the U.S.

and EMEA and ongoing recovery in our industrial end markets. Global steel drum volume fell by 1.5% per day versus the prior year. The biggest shortfall was in APAC, reflective of our decision to implement strategic pricing actions and supply chain disruptions that negatively impacted our customers' operations. Fourth quarter global steel drum volume was also impacted by performance in EMEA where volumes, where steady through most of the quarter but did slow in October as customers in this region faced their own set of supply chain disruptions.

The Americas region recorded strong mid-single-digit growth during the quarter. Generally speaking, our industrial end markets remain healthy. Customers report solid order backlogs and strong underlying demand, but they do face external supply chain disruptions. Across GIP, we see little indication of customers building inventory, but some are carrying more stock than normal due to supply chain disruptions, impacting their ability to ship to their customers.

GIP's generally stronger volumes and higher average selling prices resulted in significantly higher segment sales and gross profit year over year. GIP's fourth quarter adjusted EBITDA rose by roughly $47 million due to higher sales, partially offset by higher raw material, manufacturing, and transportation costs. The business also benefited from a $3 million dollar FX tailwind. Looking ahead, we expect GIP's fiscal 2022 profits to be lower year over year, while we do anticipate volume growth, contribution from new capex projects, and beneficial efficiency gains.

Profits will be lower as the unprecedented run-up in steel costs provided a roughly $100 million tailwind to GIP's fiscal 2021 results that will not recur. We anticipate GIP's normal profit cadence through the year to persist. All right. Please turn to Slide 6.

Paper packaging's fourth quarter sales rose by roughly $120 million versus the prior year due to stronger volumes and higher published containerboard and boxboard prices. Adjusted EBITDA rose by roughly $10 million versus the prior year due to higher sales that were substantially offset by higher raw material, manufacturing, and transportation costs, including a significant $50 million -- $51 million drag from higher OCC index cost and an $8 million natural gas cost spike not contemplated in our guidance. The business benefited from a $4 million legal settlement tailwind reported in SG&A that will not recur. Volume demand across our paper business remains strong that our combined mill backlogs exceed eight weeks.

Fourth quarter volumes in our CorrChoice sheet feeder system were up 2.4% today versus the prior year. The demand for durables, e-commerce growth, and the OEMs auto supply chain all remained very solid, and we see no slowdown on the horizon. Fourth quarter tube and core volumes were up 7% per day versus the prior year. Demand was strong in most key end markets, including film, paper cores, textiles, and protective packaging.

Looking ahead into fiscal 2022, we expect significantly higher profits in paper packaging due to strong demand and continued flow through published price increases. I'd like to now turn it over to Larry Hilsheimer, our CFO, on Slide 7.

Larry Hilsheimer -- Chief Financial Officer

Thank you, Pete. Good morning, everyone. Thank you for joining us today. Big picture, our team delivered excellent fourth quarter results despite significant external challenges.

Fourth quarter net sales, excluding the impact of foreign exchange, rose 35% versus the prior year quarter due to stronger volumes and higher selling prices. Adjusted EBITDA rose by 57 million, including a 7 million combined tailwind from FX and a one-time legal settlement. Keep in mind our adjusted EBITDA result overcame an OCC index headwind of 51 million and roughly 40 million of non volume related transportation and manufacturing inflation, including an $8 million unforecasted natural gas cost spike. Interest expense fell by 9 million versus the prior-year quarter due to lower debt balances.

We also benefited by reaching a lower interest rate tier in our credit facility as a result of our substantial debt repayments. Our fourth quarter GAAP and non-GAAP tax rate were both roughly 11%. Fourth quarter adjusted Class A earnings per share more than doubled to $1.93 a share. For fiscal '21, we delivered adjusted Class A earnings per share of $5.60 a share, a 74% improvement versus the prior year and a significant beat relative to our Q3 guidance.

Part of the earnings improvement came from a lower-than-anticipated non-GAAP tax rate of 18.1%, which benefited from reserve releases due to audit settlements, and statute of limitation expirations. We estimate the lower tax rate relative to the guidance we shared at $0.15 at -- to fiscal '21 results. The lion's share of our year-over-year earnings improvement came from disciplined operational execution. Fourth quarter adjusted free cash fell roughly $79 million versus the prior year.

While profits improved significantly, capex rose and working capital dragged on cash flow primarily due to higher raw material costs than we anticipated in our forecast. Working capital was also negatively impacted by lower-than-anticipated October volumes outside the U.S. while customers struggled with external challenges and ordered fewer drums. That said, our team is controlling what it can with strong results and trailing 12-month average working capital as a percentage of sales, improved by a significant 140 basis points to a -- year over year to 10.8%.

Please turn to Slide 8. Our core capital priorities are clear and remain consistent: reinvest in the business as needed to create value and support growth, return excess cash to shareholders via an attractive and growing dividend, and de-lever our balance sheet and maintain a compliance leverage ratio between two to two-and-a-half turns. Our balance sheet is in great shape. Thanks to aggressive de-leveraging, we have repaid $261 million in total debts in Q4 '20 and returned to our targeted compliance leverage ratio faster than originally contemplated.We anticipate spending between 150 million and 170 million in capital expenditures in fiscal '22 and target growing our dividend in '22 as mentioned in previous calls.

We are in the midst of our strategic planning process to determine the focus and extent of growth activities going forward to prudently leverage our strong balance sheet for the benefit of our shareholders. Please turn to Slide 9. We are pleased to introduce fiscal '22 guidance, excuse me, that delivers on the commitments we made more than two years ago. Our guidance reflects the considerable improvement we've made in the base business over the last several years, including the successful Caraustar integration and synergy capture, and demonstrates Greif's resilience in overcoming the unforeseen and considerable external challenges presented by COVID and dramatic inflationary headwinds well beyond our control.

At the midpoint, we anticipate generating $6.15 of adjusted Class A earnings per share in '22. Overall, we expect lower profits in GIP in fiscal '22 to be more than offset by higher profitability and EPS, highlighting once again the benefit of our diversified portfolio. Interest expense will be significantly lower in fiscal '22 as a result of our aggressive de-leveraging, and we expect it to evolve further when we move to refinance our 6.5% 27 senior notes sometime in the first half of calendar '22. We anticipate '22 adjusted free cash flow between 400 million and 460 million.

In addition to increased capital expenditures, we anticipate significantly higher cash tax in fiscal '21, mainly due to additional pre-tax income. We anticipate working capital revert to a cash source. It was a $222 million use in '21 as raw material cost inflation accelerated. Now, a few reflective comments for your consideration.

From my perspective, the Greif of today is a far different company than the Greif of six years ago. Our margin profile has stabilized and grown, profits have increased significantly, and our transparency and communication has improved and been applauded. Our capital allocation strategy has been steady, disciplined, and predictable. We have delivered on what we promised, and we continue to derive even greater value for our shareholders.

Despite these improvements, we continue to trade at a discount to our historical metrics in the broader market. As an example, assuming a historic free cash flow of 11% in the midpoint of our '22 free cash flow guidance would imply a combined market cap of roughly $3.9 billion, or an increase of roughly 30%. So, while we don't get to vote when it comes to our valuation, our opinion is that we deserve a closer look, given the discount present in our stock today. Now, I'm going to take a minute and go off-script.

As most of, if not all of you are aware, today is Pete Watson's last earnings call. It would just seem inappropriate to not pause and acknowledge the great leadership Pete has provided our colleagues at Greif. Pete embodies the leadership and has a personal connection with many of Greif's colleagues that developed through personal contact. He is a humble and respected leader who leans on his athletic coaching background for the skills in building a cohesive team.

As he took leadership at Greif, many things were broken. Since taking the helm in November of 2015, the results have been extraordinary. In safety, steady improvement, in colleague engagement, we improved dramatically to be a top decile in gallops industrial sector. Those engaged colleagues have delivered outstanding customer service and driven incredible improvement in doubling our NPS scores over that period.

That focus on virtuous service profit chain has lead to financial improvement that has been exceptional. From 2015 to 2021, [Inaudible] and EBITDA have essentially doubled. Adjusted EBITDA EPS has gone from $2.18 to $5.60 with no stock repurchases. And adjusted free cash flow, which was $70 million in 2015 has averaged nearly $30 million in the last three years and will exceed $400 million in '22.

Pete has worked diligently to ensure this succession plan and left Greif in good leadership hands going forward to secure his legacy as an outstanding leader. Pete, on behalf of all our colleagues, thank you for your leadership.

Pete Watson -- President and Chief Executive Officer

Oh, Larry, thank you very much. You certainly did go off-script and much appreciated. So, with that if you could turn to Slide 10. And again Larry, I appreciate your comments and thoughts.

You are a good man. As Larry talked about, today is my final earnings call as president and chief executive officer of Greif. You know, it's a great company. It's been my distinct honor to serve our global Greif team.

And I'm extremely proud, as Larry talked about, of what we've all accomplished together over the last six years. I'm incredibly grateful to all our colleagues for their passion and dedication to excellence and also for their commitment to our team and our customers. And while fiscal 2021 is a record year for our company, I'm even more excited for what lies ahead. We are well-positioned to benefit from ongoing strength and improving trends at our key end markets and our extensive global portfolio, our differentiated service capability, and our sharp focus on operational execution allows us to best serve our customers' needs and generate significant shareholder value.

I, along with the rest of the board, are confident in Ole Rosgaard's ability to lead Greif going forward. His operational background, strategic mindset, and passion for team building and serving customers will be advantageous to Greif's future. I look forward to the company thriving under his leadership. It has certainly been a pleasure working with all of you, and we certainly appreciate your interest in Greif.

Chris, if you could please open the line for questions.

Questions & Answers:

Operator

[Operator instructions] Our first question is with George Staphos with Bank of America. Your line is open.

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

Thanks very much. I'm sure everyone's going to say this as well, Pete, but you and your team have done a remarkable job by sort of hold in terms of turning around Greif. So, you have much to be proud of, and we wish you and Ole best with the next chapters. I guess from that, I would say, could you talk a little bit about what was embedded in that comment that you see little signs of inventory building by customers, but that stocks were higher in industrial? You know, what was -- what are you seeing that we should be mindful of? And if you could talk about it relative to geography.

And my second question, not that it would be surprising. We've obviously been reading a lot about what's been happening in Asia, but, you know, it seems like last time we saw a bit of price competition in Asia-Pac, that was a bellwether. Now, again, there's some obvious idiosyncratic things going on in Asia right now, which maybe makes this a one-off. But can you tell us why we shouldn't worry about what this means looking out the next year or so? Thanks.

Pete Watson -- President and Chief Executive Officer

Sure. Well, thanks for your comments, George. I very much appreciate it. I'll make a few comments.

First, I'll talk about APAC, then I'll ask Ole to comment on customers and inventories. You know, in APAC, couple of components. We have been strategically fixing some price margin components of that business. So, we have, from pricing decisions and margins decisions, made some stands and loss in buying there.

There's also been some pretty significant supply chain disruptions, as you referenced. You know, one of those being some of the national power challenge they've had. And we've had to operate it off-peak hours. But it is also interrupted some of our customers' operations and demand.

And there's also -- it's not as vibrant as it's been. But at this point, we don't see that as any trend that makes us fearful that it's a reverse of what we saw in the last year. So, Ole, if you could comment on George's question on the inventory.

Ole Rosgaard -- Chief Operating Officer

Yes. Hi, George. On stock we -- primarily in Europe, obviously, I speak to a lot of customers, and we have not seen any customers doing stock building. As you know, our customers are telling us that their order books are solid, but due to the supply chain issues, they simply can't fulfill their, you know, order books, which has a knock-on effect.

What they're doing with their stocks is they just -- a stock -- adjusting their stock levels accordingly. So, there's no stock building or destocking really taking place.

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

OK. So, what you're saying is, their inventory velocity is appropriate, given what they're seeing in terms of supply chain. But you're not seeing a degradation and buildup beyond that. Is that fair?

Ole Rosgaard -- Chief Operating Officer

Yes, that's correct. That's correct.

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

Thank you, Ole.

Operator

Our next question is from Ghansham Panjabi with Baird. Your line is open.

Matt Krueger -- Morgan Stanley -- Analyst

Hi, good morning. This is actually Matt Krueger sitting in for Ghansham. And just want to extend my congratulations to Pete as well. It's obviously been terrific working with you.

And we'll look forward to continuing that sentiment with Ole. You know --

Pete Watson -- President and Chief Executive Officer

Thank you, Matt. I appreciate it very much.

Matt Krueger -- Morgan Stanley -- Analyst

Absolutely. You know, I was hoping that we could talk a bit about some of the embedded assumptions for next year on a segment basis. So, can you maybe talk about what your embedded volume growth assumptions are for each of the segments in just a little more detail? And then, maybe provide some detail on what sort of underlying macro-economic outlook you're projecting for each of your major geographies heading into next year?

Pete Watson -- President and Chief Executive Officer

Yes, so from a volume assumptions for the two main segments in GIP, we're talking about global steel drum volume, low single digits on a global basis. And then the IBC business, we're projecting high to mid-teens. And that's really reflective of the continued strategic investments we've been making in this business. On the PPS side, our corrugated sheets, we're embedding in our guidance low single digits.

And we've been growing significantly more than that this year. But that's because of the comps become tougher. The new plant in Pennsylvania is up and running, and so, that's more reflective of what we'll see market growth. And then, in our tube and core business, we're seeing low single-digit growth as well.

And that's embedded in our guidance going forward. And I'll ask Larry to make some comments on our budget and guidance as it reflects to a broader market, and Ole can comment as well.

Larry Hilsheimer -- Chief Financial Officer

Yes. Matt, you know, from a broad perspective, you know, we've obviously watched the various economic forecasters. And as you've probably noticed, a lot of them are trending down. Goldman Sachs has called down their 4Q and then their '22.

And similar things going on in others. However, they remain positive. And our commitments, our guidance for next year aligns to those. Strongest, U.S., for sure.

You know, EMEA, good but not as strong as the U.S. APAC, recovering. I mean even as deflated as it is, it continues to be one of the more strongly growing economies in the world in China. Southeast Asia, a little bit weaker.

Latin America, sort of, you know, more like EMEA. So, those are the broad responses. If you have any more follow-up, I'm happy to address.

Matt Krueger -- Morgan Stanley -- Analyst

No. No. That's great on the volume side. I'd be stretching it otherwise.

So, I'll hop back in the queue.

Larry Hilsheimer -- Chief Financial Officer

Thanks, Matt.

Operator

[Operator instructions] Our next question is from Gabe Hajde with Wells Fargo. Your line is open.

Gabe Hajde -- Wells Fargo Securities -- Analyst

First off, guys, you know, Pete, congratulations, I do think that your service and leadership is very clear across the organization culturally. So, congrats. And, Ole, welcome. I look forward to working with you.

And I also apologize if there's some background noise here. First question I wanted to go at was paper volumes were a little bit weaker in Q4, but I think you mentioned tube and core up 7% and converted sheet, up 2.4%. So, I'm just curious at maybe outside sales of paper were a little bit lower, if there is a source for that weakness, or if I'm not interpreting kind of what we heard correctly.

Pete Watson -- President and Chief Executive Officer

Yes, Gabe, thanks again for the comments, and we appreciate working with you. Yes, we view the paper business as having, you know, strong demand and volume. And when you look at the corrugated industry stacks, you know, we're significantly ahead of that. We had, you know, good shipments at 2.4%.

We had -- our inventories actually went down in that business. And you've got to remember, there's -- the underlying demand is still really healthy. There's been a lot of supply chain disruptions that's prevented our customers from growing. So, I think that side is really healthy right now.

Our tube and core business has continued to grow mid to high single digits for the last year. They again grew by 7%. I think the other issue is we're really implementing the price increases and starting to gain traction there. So, we actually saw it as a really positive quarter and then improving in their step change on what we've targeted for their profits for next year.

So, other than some of the supply chain disruptions that have constrained some of the customer demand, I think they had a really strong quarter.

Larry Hilsheimer -- Chief Financial Officer

Yes, Gabe, I'll supplement it. Just to add some color, our teams, our finance team is working with our commercial teams, calculated that the negative impact to us in PPS of supply chain limits caused by our customers not being able to ship to their customers was $3 million in PPS and $5 million in GIP for the quarter.

Gabe Hajde -- Wells Fargo Securities -- Analyst

Thank you, gentlemen. That the last one, and I appreciate, obviously, that the -- I'll call it the steel -- favorable steel impact is a pretty big number year on year. But can you talk about pricing for some nonmaterial items? And I'm more specifically thinking about EMEA and the GIP business. You know, how frequent openers you guys have.

I mean you guys have done a phenomenal job this year out there recovering inflation. But just, again, we're seeing energy inflation. We're seeing labor inflation, etc., how that -- how you kind of expect that business to evolve over the next 12 months?

Pete Watson -- President and Chief Executive Officer

Yes. And I'll actually ask Ole to comment about that because he's front and center with our teams on it. But you're right, our teams have done an incredible job of staying ahead of inflation. We've been beating that drum.

And, you know, transportation and energy are huge along with labor right now. So, Ole, do you want to comment on the frequency that we are at?

Ole Rosgaard -- Chief Operating Officer

Yes. So, most of our steel has, as you noted, just over three months, Gabe. If you go way back in the past, we didn't have annual openness in our contracts. And that's something we have introduced.

We tend to do one a year. But because of the volatility of the markets, we've been doing several a year lately. And we will continue to do that as we are faced with increased labor costs and other non-raw material costs.

Gabe Hajde -- Wells Fargo Securities -- Analyst

Got it. Thank you, guys. Good luck.

Pete Watson -- President and Chief Executive Officer

Thanks, Gabe.

Ole Rosgaard -- Chief Operating Officer

Thanks.

Operator

Our next question is from Adam Josephson with KeyBanc. Your line is open.

Adam Josephson -- KeyBanc Capital Markets -- Analyst

Good morning. Pete, congratulations on and all the best to you in your retirement. And Ole, all the best to you in your new role.

Pete Watson -- President and Chief Executive Officer

Thank you, Adam. I appreciate it very much.

Ole Rosgaard -- Chief Operating Officer

Thank you.

Adam Josephson -- KeyBanc Capital Markets -- Analyst

Pete or Larry, I -- the steel benefit that you mentioned earlier, the 100 million, can you just help -- I have a couple of guidance questions obviously. The -- are you expecting in 2022 that that 100 million will just go away, or that there'll actually be a drag such that the year-over-year delta will be in excess of that? Can you just help me with what is embedded in your '22 guidance with respect to the steel issue in GIP?

Larry Hilsheimer -- Chief Financial Officer

Sure. So, the -- as you know, the 100 million just evolved over the cost acceleration and the lag from deliveries. Our forecast for -- and guidance for 2022 embeds a pretty stable steel cost environment. We've built into our budget slight decreases in steel cost in EMEA and in North America, but nothing dramatic.

So, the risk factor would be if steel cost would deflate aggressively. We don't see that. It's not aligned to the economic forecast of most economists. You know, We've had strong steel demand, despite low production in cars.

If trend -- if the chip shortage even starts to come back, that's going to shift. And while we don't expect dramatic impact from the infrastructure bill in the U.S. necessarily in '22, we do expect some. So, our assumption is that steel -- which is the big driver of this, is that it will stay relatively stable, some decrease but nothing rapid that we can't manage through our normal processes.

Adam Josephson -- KeyBanc Capital Markets -- Analyst

In other words -- thank you for that. In other words, you're not expecting a steel-related drag on EBITDA next year. Is that a fair assumption?

Larry Hilsheimer -- Chief Financial Officer

Yeah, nothing significant. I mean there's a slight drag with the decrease just because you have, you know, higher cost inventory that you've got if it drops the index a little bit. We've built that in. It's already embedded.

So, it's a slight drag but not significant.

Adam Josephson -- KeyBanc Capital Markets -- Analyst

OK. I appreciate it. And then two other ones, if you don't mind, one on FX. What are you assuming in terms of FX translations? I think you had a 23 or so million-dollar benefit in GIP in '21 from the Turkish lira.

We don't see in 2022 -- yes, go ahead.

Larry Hilsheimer -- Chief Financial Officer

You know, any assumed benefit in because we build our budget around the forward market on currency. So, to the extent that it shifts -- and we hedged a good fit from a cash flow perspective. So, we, you know -- we're not like building in any benefit from currency, so to speak.

Adam Josephson -- KeyBanc Capital Markets -- Analyst

No. In other words, if you hold current rates constant through the balance of 2022, would that imply a benefit or a drag in terms of [Inaudible]?

Larry Hilsheimer -- Chief Financial Officer

We don't budget it that way, Adam.

Adam Josephson -- KeyBanc Capital Markets -- Analyst

RIght. Got it.

Larry Hilsheimer -- Chief Financial Officer

We based it on the future, I mean -- and I don't know the answer to your question about what the year-over-year currency changes. I don't know, Matt, if we have that in place or not.

Matt Eichmann -- Vice President, Investor Relations, External Relations and Sustainability

I don't -- no.

Adam Josephson -- KeyBanc Capital Markets -- Analyst

Yeah. OK. OK. And just on the guidance that you provided.

Obviously, you've been giving -- you provided an EBITDA commitment two and a healf years ago, and you've been talking about that EBITDA commitment ever since. And now you're...

Larry Hilsheimer -- Chief Financial Officer

The new EBITDA range, Adam, is 785 to 835. It's down from where we were just because of all the inflationary, you know, costs in transportation and energy. And when you look at OCC, the assumption that we had in that original range, if you think about it, it was 55. Now, we're at 163.

Adam Josephson -- KeyBanc Capital Markets -- Analyst

Right.

Larry Hilsheimer -- Chief Financial Officer

That's an $185 million headwind that our teams have stayed ahead of.

Adam Josephson -- KeyBanc Capital Markets -- Analyst

Right. So, basically, you're thinking EBITDA will be up about 45 million year on year with PPS --

Larry Hilsheimer -- Chief Financial Officer

Yup.

Adam Josephson -- KeyBanc Capital Markets -- Analyst

Obviously, up much more than that. And then obviously, GIP down, I would assume, a considerable amount, just given the steel issue.

Larry Hilsheimer -- Chief Financial Officer

Yeah. It won't be down 100 million because the teams continue to do well on all of their factors. But, yeah, it will be down significantly. And PPS will be up significantly.

Adam Josephson -- KeyBanc Capital Markets -- Analyst

Yeah. No. I appreciate it. And just one last one, Larry.

In terms of the range, it's a wide range, obviously, the EPS guidance range. Can you just talk about what factors get you to the high end, low end, and why such a wide range?

Larry Hilsheimer -- Chief Financial Officer

Yeah, you know, it's a broad range just because of all the uncertainties in the market right now. It's about, you know, $0.10 wider than we would have had in -- that we did have in '19. And it's just recognizing that there is possibility that you could have inflation, deflation. And OCC is such a wildcard.

Adam Josephson -- KeyBanc Capital Markets -- Analyst

Yeah.

Larry Hilsheimer -- Chief Financial Officer

That we just built a range around it. I mean, I can venture to say that nobody on this call, including all of you smart guys out there, had any idea where OCC was going this year.

Adam Josephson -- KeyBanc Capital Markets -- Analyst

That is absolutely true. Well, all the best. Thanks, Larry.

Larry Hilsheimer -- Chief Financial Officer

Thanks, Adam.

Operator

Our next question is from Justin Bergner with Gabelli Funds. Your line is open.

Justin Bergner -- Gabelli Asset Management -- Analyst

Good morning, Pete. Good morning Larry. Good morning, Ole. Welcome on board and thank you, Pete, for a great number of years of service.

And all the best on your next steps.

Pete Watson -- President and Chief Executive Officer

Thank you, Justin. I appreciate it very much.

Justin Bergner -- Gabelli Asset Management -- Analyst

So, in terms of questions, just to clarify one question from earlier, I mean if the steel prices go down quicker than you're forecasting in your model, the drag is a temporary one. I mean that would subside once the steel price is sort of steady at a new level, correct? There's nothing ongoing.

Larry Hilsheimer -- Chief Financial Officer

Yes, yes. To that degree, Justin, the real issue is velocity of change and timing. Because of the price adjustment mechanisms in the contract, if you have a slow slope up or down, it really has minimal impact and you work through that. But if you have dramatic declines and they have at the time, let's -- for example, let's say that the last week of December, steel dropped unexpectedly by $200 a ton, that would not be a good thing, because a lot of index contracts change, you know, based on the end of quarter number.

And they change as of the first of the month, many of them. And you'd be stuck with higher cost inventory. We don't see that environment. But -- so, it's all velocity and timing.

Justin Bergner -- Gabelli Asset Management -- Analyst

Got it. One more clarifying question as well. The $8 million natural gas headwind, were you trying to suggest it was more of a one-time headwind? Or is that sort of an ongoing, I guess, with higher level of natural gas prices?

Larry Hilsheimer -- Chief Financial Officer

It was a headwind relative to the fact that natural gas spiked up dramatically from the time we did our forecast in July to what it ended up being in September, you know, in that quarter. So, it was that headwind. Where do natural gas markets go? I mean, there's a lot of speculation on that across the globe. And a lot of it is dependent on the winter.

So, you know, to answer it, to say it's a one-time thing, I think, would be inappropriate. I think it's more of an item that is going to be dependent just on supply, and demand, and weather.

Justin Bergner -- Gabelli Asset Management -- Analyst

OK, understood. And then lastly, on capital allocation, I realize there's a CEO transition. But at least for the, you know, 2022 fiscal year, is the priority sort of remaining in the deleveraging camp? And then on a related note, sort of is the 150 million to 170 million of capex that you're guiding for this year, does that represent a semi-normal level of capex as you see your business looking forward out of the fourth quarter?

Larry Hilsheimer -- Chief Financial Officer

Yes. Yes. Justin, two things. One, the answer to your first question, our priorities will remain the same.

We will be very disciplined to make sure we're spending the appropriate amount on maintenance capital and safety, deleveraging and aligned to our priorities, focus on expanding our presence in plastics, particularly IBCs, and on integration in our paper business. Nothing has changed there. And we -- like I said, we'll be in our strategic planning process in terms of what do we focus next on from a broader growth perspective. But with respect to 150 million to 175 million -- or 170 million being normal, look, that's what we believe we wanted to be normal for the last four or five years.

Unfortunately, supply chain issues have really impacted the ability to spend at that level. It's not been a capital issue for us, nor a human capital issue. It is getting the machines that are ordered delivered. So, our -- we believe we have line of sight to spending that this year in '22 and we would do so if we're able to get that delivered.

And we believe we will. That's the spend that I would say would be our normalized level currently if we can get the equipment delivered.

Justin Bergner -- Gabelli Asset Management -- Analyst

Got it. OK, thank you.

Operator

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

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

Thanks very much. Hi guys. I just wanted to come back on one thing. So, you know, tax aside, your earnings in GIP in particular, implicitly were better than expected.

And so when you look back at fiscal fourth quarter, what was the key factor in terms of the surprise on the guidance, which was very, very significant relative to where you were back in July, even with some of the headwinds that you talked about here, including in nat gas? And then, my second question, just -- you gave us, thank you, the outlook from a volume standpoint you're expecting across the businesses. Can you talk about what exit rates you're seeing right now on volume early in fiscal 1Q, you know, across the regions and/or the product lines? Thank you.

Larry Hilsheimer -- Chief Financial Officer

Yeah. George, I'll answer the second first, which is November was very strong. We're very pleased with the start of the year. Early December looks good, but it's early.

And it's pretty consistent with what we spoke to in volumes in the third quarter. Margins are good still, and so a really great start to the year. It gives us encouragement about where we're headed and achieving our commitments. As to the fourth quarter, the big driver was exactly the factor that caused our working capital to be higher.

The maintenance of the high levels of inventory costs allowed the indexes to not change and the [Inaudible] not to go down and our margin spread to maintain. And so that drove with a little bit of better volumes in particularly in August and September and strong in North America, in particular, is what drove the operational improvement. And a little bit of just higher pickup sooner on pricing in paper than we had built into the forecast.

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

Thanks, Larry. I'll turn it over.

Operator

We have no further questions at this time. I'll turn the call over to Mr. Eichmann for any closing remarks.

Matt Eichmann -- Vice President, Investor Relations, External Relations and Sustainability

Thank you. You know, I think, Chris, George just popped back in Bank of America. He had his hand raised there.

Operator

He's not in the queue currently.

Matt Eichmann -- Vice President, Investor Relations, External Relations and Sustainability

OK, terrific. Well, thank you very much, everyone, for participating in our call today. We appreciate the time that you've spent with us. We look forward to talking again soon.

And please have a very happy and safe holiday season ahead.

Operator

[Operator signoff]

Duration: 42 minutes

Call participants:

Matt Eichmann -- Vice President, Investor Relations, External Relations and Sustainability

Pete Watson -- President and Chief Executive Officer

Ole Rosgaard -- Chief Operating Officer

Larry Hilsheimer -- Chief Financial Officer

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

Matt Krueger -- Morgan Stanley -- Analyst

Gabe Hajde -- Wells Fargo Securities -- Analyst

Adam Josephson -- KeyBanc Capital Markets -- Analyst

Justin Bergner -- Gabelli Asset Management -- Analyst

More GEF analysis

All earnings call transcripts