Pactiv Evergreen Inc. (PTVE) Q4 2021 Earnings Call Transcript

Pactiv Evergreen Inc. (PTVE -0.70%)
Q4 2021 Earnings Call
Feb 24, 2022, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to Pactiv Evergreen conference call. [Operator instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Dhaval Patel, senior vice president of investor relations and strategy. Thank you.

Mr. Patel, you may begin. 

Dhaval Patel -- Senior Vice President of Investor Relations and Strategy

Thank you, operator, and good morning, everyone. Thank you for your interest in Pactiv Evergreen, and welcome to our fourth quarter 2021 earnings call. With me on the call today, we have Michael King, chief executive officer, and Michael Ragen, chief financial officer. Before we begin, please visit the events section of the company's Investor Relations website at www.pactivevergreen.com and access the company's supplemental earnings presentation.

Management's remarks today should be heard in tandem with reviewing this presentation. Before we begin our formal remarks, I would like to remind everyone that our discussions today will include forward-looking statements, including statements regarding our guidance for 2022. These forward-looking statements are not guarantees of future performance and actual performance could differ materially from those contemplated by our forward-looking statements. Therefore, you should not put undue reliance on those statements.

These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. We refer all of you to our recent SEC filings and our upcoming annual report on Form 10-K for a more detailed discussion on those risks. The forward-looking statements we make on this call are based on information available to us as of today's date. And we disclaim any obligation to update any forward-looking statements except as required by law.

Lastly, during today's call, we will discuss certain GAAP and non-GAAP financial measures, which we believe can be useful in evaluating our performance. Our non-GAAP measures should not be considered in isolation or as a substitute for results prepared in accordance with GAAP and a reconciliation to the most directly comparable GAAP measures is available in our earnings release and the appendix to today's presentation. Unless otherwise stated, all figures discussed today, during today's call are for continuing operations only. With that, let me turn the call over to Pactiv Evergreen CEO, Michael King.

Mike?

Mike King -- Chief Executive Officer

Thank you, Dhaval. Good morning, everyone, and welcome. Yesterday, after market closed, Pactiv Evergreen released its fourth quarter 2021 results. We finished 2021 with momentum across all of our business segments, achieving 30% year-over-year revenue growth in the Q.

This included a 23% improvement in price/mix due to contractual cost pass-through and pricing actions that partially offset inflationary pressure in materials, conversion, and transportation costs. We were able to deliver a quarterly adjusted EBITDA of $205 million. This is our highest level as a public company. That said, due to the continued labor constraints impacting our industry that worsened in the fourth quarter due to omicron-related absenteeism, our fourth quarter and full year 2021 results remain below the revised full year fiscal 2021 adjusted EBITDA target we provided in September.

While these industry challenges will likely continue for several quarters, the company remains committed to strengthening our innovation pipeline, increasing productivity and exceeding our valued customers' expectations. I am proud of our employees, their perseverance and the sequential progress we've delivered over the past few quarters. We have taken a number of steps to stabilize, strengthen and better position the company for long term, but our work is not done. I will go through this later in more detail.

But first, I wanted to turn it over to Mike Regan to walk us through the financials for the fourth quarter.

Mike Ragen -- Chief Operating Officer and Chief Financial Officer

Thanks, Mike. Moving to Slide 6 and touching on our Q4 2021 highlights. We are encouraged by what we see in our Q4 results. Net revenue was $1.527 billion, up 30% from prior year.

Net income was $34 million, up 89% on prior year, and adjusted EBITDA was $205 million, up 21% on prior year and 72% on Q3 2021. Moving to Slide 7. For full year 2021, net revenue was $5.437 billion, up 16% on prior year. Net income was $33 million.

And adjusted EBITDA was $531 million, down 14% on prior year. Moving to Slide 9 and a deeper discussion of our Q4 2021 performance. Net revenue was $1.527 billion versus $1.175 billion in the same period last year, an increase of 30%. The increase was primarily due to favorable pricing, primarily due to higher material costs passed through to customers across all segments as well as a benefit from the Foodservice segment acquisition of Fabri-Kal on October 1, 2021, partially offset by slight declines due to lower volumes as well as the impact of a disposition in the first quarter of 2021.

Adjusted EBITDA was $205 million versus $170 million in the same period last year, an increase of 21%. The increase was primarily due to favorable pricing, partially offset by higher material, logistics and manufacturing costs. Free cash flow, defined as adjusted EBITDA, less capex, was $122 million versus $95 million in the same period last year, driven by higher adjusted EBITDA. Moving to Slide 10.

Looking at our full year 2021 financial performance, net revenue was $5.437 billion versus $4.689 billion in 2020, an increase of 16%. The increase was attributable to favorable pricing, principally due to higher material costs passed through to customers within the Foodservice and Food Merchandising segments, as well as higher sales volume within the Foodservice and Beverage Merchandising segments, largely due to higher demand as markets continue to recover from the COVID-19 pandemic. In addition, the Foodservice segment's acquisition of Fabri-Kal on October 1, 2021 contributed $106 million of higher sales for the year ended December 31, 2021, as compared to prior year. Adjusted EBITDA was $531 million versus $615 million in the same period last year.

The decrease was primarily due to higher manufacturing, logistics, and material costs, net of higher cost pass-through to customers. These decreases were partially offset by higher sales volume. Adjusted EBITDA for the year ended December 31, 2021 included $50 million of additional costs incurred related to the impact of Winter Storm Uri. Free cash flow, defined as adjusted EBITDA less capex, was unfavorable to 2020, primarily due to lower adjusted EBITDA.

Moving to Slide 11. This slide helps to bridge Q4 year-on-year revenue and adjusted EBITDA. Looking at revenue, when compared to Q4 last year, the key drivers of our revenue growth were price/mix of 265 and $96 million from the acquisition of Fabri-Kal, net of the disposition. For adjusted EBITDA, price/mix favorability more than offset higher costs, while the benefit of the Fabri-Kal acquisition added $9 million.

Moving to Slide 12 and our results by segment for Q4. Our Foodservice segment saw net revenues up 57%, driven by higher pricing to recover COGS increases as well as the impact from the acquisition of Fabri-Kal and higher sales volume. Foodservice volumes for the quarter were up 19%, including the Fabri-Kal acquisition and up 4% organically on 2020, and up 3% on 2019, including the Fabri-Kal acquisition, or down 11% on an organic basis. Adjusted EBITDA for the segment was up 46% versus same period last year, primarily due to favorable pricing and the impact from the acquisition of Fabri-Kal, partially offset by higher material and manufacturing costs.

Our Food Merchandising segment saw net revenues up 17%, driven by favorable pricing, primarily due to higher material costs passed through to customers, partially offset by lower sales volume, primarily due to labor shortages. Food merchandising volumes for the quarter were down 7% on 2020 and down 2% on 2019 volumes. Adjusted EBITDA for the segment was up 5% versus same period last year due primarily to favorable pricing, partially offset by higher material and manufacturing costs, as well as lower sales volume. Our Beverage Merchandising segment saw net revenues up 13%, driven by favorable pricing, primarily due to higher material costs pass-through to customers, higher sales volume due to the market recovery from the COVID-19 pandemic, and favorable product mix.

Beverage merchandising volumes for the quarter were up 3% on 2020, but down 7% on 2019. Adjusted EBITDA for the segment was up 25% versus same period last year, primarily driven by favorable pricing, lower manufacturing costs, and higher sales volume, partially offset by higher material and logistics costs. I'll now pass it back to Mike King for further comments.

Mike King -- Chief Executive Officer

Thanks, Mike. Now if you'll turn to Page 14. While we have faced a number of challenges in market volatility during this time, we do believe we have made steady progress over the past 12 months. We have taken additional pricing actions to help offset inflationary pressures.

We have started to stabilize the performance of our paper mills, and we've made progress on our strategic review of our Beverage Merchandising segment, including the completion of our exit from the coated groundwood business. We also announced the sale of our 50% interest in Naturepak Beverage Packaging as well as our carton packaging and filling machines business in China, Korea and Taiwan, as we focus on growth in North America. The proceeds from the sales will also lower our net debt and leverage ratios. We acquired Fabri-Kal and are making steady progress on integrating the business and unlocking growth synergies.

We announced a second pension lift out that significantly reduces our pension obligations. Please turn to Slide 15. We also continue to make progress on our ESG goals. As a paper manufacturer and converter, we believe that supporting sustainable forestry is critical to our long-term success.

One way we do this is by procuring fiber from third-party certified sources. In 2021, 32% of our fiber was purchased from these certified sources, up from 30% in 2020. All Pactiv Evergreen facilities follow the sustainability metrics benchmarking the company introduced last year, including the recently acquired Fabri-Kal facility. In addition to providing sustainable products, we believe that we must also support organizations that educate consumers about recycling and composting and provide opportunities for consumers to recycle or compost our products.

We are proud to collaborate with our industry partners on these important initiatives and celebrate each milestone. For example, as a result of these initiatives, paper cups are now accepted for recycling in Atlanta, Georgia, Detroit, Michigan, and Madison, Wisconsin. Further, as we make progress on our ESG journey, we actively report on our activities through a variety of value disclosures. We already started to see improvements in our ESG ratings, notably from CDP and Sustainalytics in the fourth quarter, and we invite shareholders to view our disclosures and other reports found in our investors.pactiveevergreen.com site in the ESG section.

Most importantly, as you'll see on the slide, in 2021 our safety record improved. Pactiv Evergreen's overall injury rates ranked more than 2.5x better than industry averages. More specifically, total case rates were down 19% compared to 2020 and lost time, restricted time case rates were down 24% during the same period. In addition to our employees' physical safety, Pactiv Evergreen values our employees.

Overall, while being in the fourth quarter, the company introduced an enhanced paid time-off benefit for our U.S.-based salaried employees. We believe this improved benefit will drive our people-centric culture by providing our employees increased flexibility and by empowering employees to prioritize mental and personal well-being. Now if you could turn to Slide 16. We are providing our fiscal year 2022 adjusted EBITDA guidance of $705 million.

This guidance assumes continued pricing actions as needed to offset continued inflationary pressures. The guidance also takes into account the continued labor challenges, which we expect to persist in the first half of 2022 before improving in the second half. We expect volume recovery to be more muted as our business segments face tougher comps and we focus on rebuilding inventories to improve service and reliability. Our forecast includes a full year contribution from the Fabri-Kal acquisition and accounts for scheduled mill outages in the second half of this year.

At this time, I would like to thank all of the Pactiv Evergreen workforce for their commitment and continued hard work to serve our customers and enhance the value of the company for all of our stakeholders. We remain focused on continuing to improve our production capabilities and service our customers to the best of our ability. With that, let's take your questions. Operator?

Questions & Answers:

Operator

Thank you. [Operator instructions] Our first question comes from the line of Chris Parkinson with Mizuho. Please proceed with your questions.

Chris Parkinson -- Mizuho Securities -- Analyst

Great. Thank you so much for taking my questions. Mike, I'd say the first one is just taking a step back from everything that's going on. Given the management changes, the strategy evolution over the past few quarters, as well as the general op initiatives, especially the mills, how would you just broadly grade your efforts thus far? And how should you expect your investors expect this to further evolve over '22 in terms of potential benefits? Thank you.

Mike King -- Chief Executive Officer

Yeah. So a lot there. Thanks, Chris. We -- so given the circumstances and the things that we all have faced in this industry, I think we grade ourselves fairly well.

Setting some of those circumstances aside and getting to the controllable elements of our business, I'm very pleased with the team that I'm building and the velocity that we're getting, especially as we exit Q4, in early days here in Q1 of 2022. So our strategy, both micro and macro within the business is working. And I think if you just look at the Q4 results and the challenges in the prior Qs, we're starting to see our plans take traction. And that's broadly across all three of our segments.

Chris Parkinson -- Mizuho Securities -- Analyst

Great. Thank you. And just a quick follow-up. Just given all the inflationary pressures the business is facing in terms of the raw material basket and even labor, can you just highlight just your expectations for the cadence throughout the year? You had a few comments on Slide 16.

But if you could further dig down and just offer some additional color as well as how we should think about non-pass-through pricing efforts? Thank you.

Mike King -- Chief Executive Officer

Yeah, Just generally speaking, pass-through or non-pass through, we've taken a pretty aggressive stance in terms of making sure we're staying on the right side of the rising inflationary pressures we're getting. The cadence will be as it has to be. And so we continue to take aggressive steps on both the raws, also just broadly with the kind of this inflationary environment, the open dialogues both ways, I would just say, we've gotten a lot of support. The customer base is very aware and living the same challenges we are.

So I think all the way to the store shelves, we're going to continue to see that. And I think you can expect us to stay aligned, if not somewhat ahead of that pace through 2022 and beyond.

Chris Parkinson -- Mizuho Securities -- Analyst

Thank you so much.

Operator

Thank you. Our next question comes from the line of Ghansham Panjabi with Baird. Please proceed with your question.

Ghansham Panjabi -- Robert W. Baird and Company -- Analyst

Hey, guys. Good morning. Thanks for taking my questions. So I guess, first off, in terms of the bridge between '21 and '22 in terms of EBITDA, can you just give us some high-level parameters? What are you baking in terms of volumes by segment? You had $130 million unfavorable price cost in 2021.

What does that look like for '22? And then the impact from the mill outages, can you just sort of disaggregate that relative to the variance of the -- which is from Uri impact of $50 million from '21?

Mike Ragen -- Chief Operating Officer and Chief Financial Officer

Yeah. Good morning, Ghansham. This is Mike Ragen. So in terms of volumes for next year or for this year actually, what we'd expect to see is some growth.

Obviously, foodservice will have the benefit of the Fabri-Kal acquisition, and we expect to see growth in both foodservice and food merchandising. And so the impact from volume there should be quite substantial in both of those segments. In terms of beverage merchandising, because we closed the coated groundwood complex and we're just going to -- and also we're just rebuilding our inventories there, there won't be much volume effect year on year. I just want to note though that one of the things that we are doing in terms of volume is we've got to rebuild our inventory so that we can continue to service our customers.

So with what you would expect to see may not be exactly the way that it comes through in our financials. So we want to build inventory so that we service our key customers. And so the volume recovery might not be as high in both of the food segments as you'd expect. But it will be reasonably substantial.

And -- but a lot of the additional production that we're going to be pumping out is going to into inventories. So in terms of pure dollars or pure numbers, I think foodservice will be up because of Fabri-Kal, probably around 10%, food merchandising up a couple of percent.

Ghansham Panjabi -- Robert W. Baird and Company -- Analyst

OK. Great. And then on the Food Merchandising segment, I mean, this is -- you've called out labor issues specific to that segment over the last, at least over the last quarter as well. Is there something unique about the construct of that business that's more labor-intensive than the other two segments? Any insight there? And then also, as it relates to maybe out-of-stocks for that segment, has it already peaked? And are we on the flip side of that? Or how should we think about the recovery curve specific to that segment?

Mike Ragen -- Chief Operating Officer and Chief Financial Officer

Yeah. It's not unique in terms of the labor issues. However, there's been a couple of things there that was -- it was mostly driven by labor issues in some of the dedicated plants for food merchandising plants. We're spread very much across the U.S., but some of our plants on the East Coast have been hit a lot harder than others.

And so it just -- that's just sort of the way the cards fell. And so in terms of getting labor into those plants, the labor thing was really around getting full-time workers in, but also the various regions that the food merchandising plants were in were just hit harder by omicron all at once. So there was a lot of absenteeism and that was problematic for us. And so it just -- as I said, it was just kind of why the cards fell there with those plants.

Mike King -- Chief Executive Officer

The other thing I would say is we are seeing the same progress we've seen in the other segments. We're seeing the same improvement. So it's not more exposed just to Mike's point was really around where imicron really was dense at that period.

Ghansham Panjabi -- Robert W. Baird and Company -- Analyst

Very helpful. Thank you.

Operator

Thank you. Our next question comes from the line of George Staphos with Bank of America. Please proceed with your question.

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

Hi, guys. Good morning. Thanks for all the details. Just piggybacking on Ghansham's question, Mike, if you mentioned it, I apologize, I missed it, but can you parse out some of the bigger bridge items to the EBITDA, 705 from the 531 this year.

Fabri-Kal, what do you expect that to add $40 million, plus or minus, do you recover the price cost negative this past year, which is $130 million? And if you've mentioned what the outage cost was, I missed again, what do those items look like going from 531 to 705. That's question number one. Question number two, what is your goal for net leverage by the end of '22? Within that, what cash flow, true free cash flow do you generate that you can apply to deleveraging after dividends, after taxes, after interest? Thank you.

Mike King -- Chief Executive Officer

Yeah. Sure. No worries, George, and good morning. So in terms of the benefit from Fabri-Kal, it's about $50 million in that bridge.

OK? In terms of the price cost dynamic, we're expecting to see costs continue to go up. And we have, but we do think that we do get on top of the pricing and we have already as you saw in Q4. So there's probably a $50 million benefit from that price cost dynamic. Now obviously, there's a lot going in the world at the moment, some things that.

What I'll tell you also with regards to -- there are some increases in our SG&A and other that probably weren't factored into anyone's bridges. Just some things like transition services arrangement income and things like that, some bonus, resetting the bonus and the long-term incentives there that do drag on the forecasted earnings there. And so -- and then the remainder being higher volume in the business. So -- and like I said, George, we're not going to sell through all of the additional volume that we're manufacturing this year because we want to get back to normalized service levels and to continue to be the best part that we can to our key customers.

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

OK. So that drag, what would it be? And again, the outages, what would it cost if you had mentioned it before, I apologize, but I didn't hear it in your response there, Mike.

Mike King -- Chief Executive Officer

The drag probably around $40 million.

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

40.

Mike King -- Chief Executive Officer

Yeah.

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

OK. And the outages?

Mike King -- Chief Executive Officer

The outages, net debt outages will probably increase costs this year of about 10.

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

OK. Thank you. And on the leverage and cash flow.

Mike King -- Chief Executive Officer

So the leverage we're expecting to be somewhere between five and five and a half times by the end of the year. And then in terms of cash flow, it really all depends on what happens with working capital. We are looking to -- we have -- in terms of pure numbers, the EBITDA we've talked about. Capex, we're probably expecting to be somewhere between -- somewhere similar to this year, maybe a little higher, between 280 and 310.

And then in terms of working capital, if we continue to increase our working capital, if that could be a cash outflow of up to $100 million, now we can sell that inventory through. But I just want to call that out that we are looking to build inventories again to get back to service levels. So we do think -- and over and above that, we do have the asset divestitures that the beverage merchandising Asia and Middle East divestitures that we've announced, which should bring in substantial cash flow if they close. 

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

Thank you, Michael.

Operator

Thank you. Our next question comes from the line of Mark Wilde with Bank of Montreal. Please proceed with your question.

Mark Wilde -- BMO Capital Markets -- Analyst

Good morning, Michael and Michael. I wondered just to start off, could you give us some sense, Mike Ragen, of what the year-over-year benefit will be from all of these increases that are out there in bleached board and uncoated paper pricing?

Mike Ragen -- Chief Operating Officer and Chief Financial Officer

Yeah. Look, I think in terms of the Beverage Merchandising segment, we're expecting just pure pricing to go up over $100 million in that segment.

Mark Wilde -- BMO Capital Markets -- Analyst

All right. And how would you expect that to roll in through the year? Do you have any sense of that?

Mike Ragen -- Chief Operating Officer and Chief Financial Officer

It will be reasonably consistent through the year. A lot of the announcements have already been put through, maybe a little lighter in Q1 than the other three quarters.

Mark Wilde -- BMO Capital Markets -- Analyst

OK. And then over on the labor issues, I'm just curious, Mike King, whether you -- whether you expect these to persist for some time? And also, whether it's just changing how you're thinking about work processes and investment in automation in those businesses?

Mike King -- Chief Executive Officer

Yeah. We're absolutely focused on doing two things. So the world has changed a lot in the last couple of years. And the virtual work opportunity people have today versus manufacturing jobs is something we're addressing and how we bring people to work and we retain them.

And we're seeing that shift in, we'll call it, the manufacturing culture take hold. And we're retaining people and doing things that I think are table stakes now versus maybe historic manufacturing employment environment. Outside of that, absolutely, you hit it on the head. Automation has been a core focus of ours through our strategic investment program, historic kind of creamy.

But I would tell you that we are looking at every way that we can insulate the business from that absenteeism dynamic that we continue to face.

Mark Wilde -- BMO Capital Markets -- Analyst

OK. Just finally on the labor...

Mike King -- Chief Executive Officer

All three segments as well. That's not...

Mark Wilde -- BMO Capital Markets -- Analyst

And Mike, I'm just curious, with all the labor issues, it seems like all companies are seeing more turnover. And can you just talk about how that's affected productivity? I mean you have a lot of people cycling through. You've got people who are new to jobs. Any idea what that's done to just productivity for you?

Mike King -- Chief Executive Officer

Yeah. I would tell you the biggest challenge we have is adapting to change, which is coming fast in for us, whether it be weather events, whether it be new waves or variants and the pandemic. All those things are what are contributing to, we'll call it slower than desired momentum on our major initiatives. And I think we had an estimate of last year's impact of well over $150 million in terms of our ability to get after productivity and really get out in front of the mills, specifically in the business.

This year and really into Q1, we did get caught up on labor. We think the retention element is a dynamic battle that will continue to have to address through retention programs and sign-ons and things like that. But to pin down a number, it's really -- it's squishy, and it's definitely real. But I'd say that we're most hampered in our ability to manage and adapt to change quickly versus execute the projects.

What should have taken in the quarter last year, it took us three quarters for instance.

Mark Wilde -- BMO Capital Markets -- Analyst

OK. Very good. I'll turn it over. Thanks.

Operator

Thank you. Our next question comes from the line of Arun Viswanathan with RBC Capital Markets. Please proceed with your question.

Arun Viswanathan -- RBC Capital Markets -- Analyst

Great. Thanks for taking my question. And I guess just following up on this line of questioning, you guys have definitely gone through a lot of difficulties and changing dynamics over the last couple of years. If I recall back around the time of the IPO, we were modeling kind of an $830 to $850 million number on EBITDA for '22.

If you were to think about now the guidance being in the $700 million or so slightly above that range, that's maybe 130, 150 delta. So is that the right thinking? And if you -- and if it is, maybe could you help us kind of understand maybe some major buckets of that say, $100 million plus? Is it maybe resin, say $50 million or so, then the impacts from some of the labor and other issues that you called out and then maybe the beverage merchandising also another $50 million. So equally split between those? Or how do you kind of think about the delta of where you are now versus where you thought you'd be, say a couple of years ago?

Mike King -- Chief Executive Officer

Yes. I think the biggest -- I'll start with the biggest and work my way backwards. So the largest variance really is around the Beverage Merchandising segment. And essentially, the mill performance, we would have expected to be some $70 million to $80 million better than where it is today.

So that was where we would have expect it to be. And it's just taking a whole lot longer than expected to recover that operational performance. And then over and above that, the inflation, the operational performance of the business and these labor challenges over -- and also we would have expected that we would have seen a greater recovery from COVID, that makes up the remainder there. When we were modeling the -- back at the IPO time, we would have expected COVID to be done and dusted in early 2021.

Well, we all know that the lag on that it's been up and down and the effect has been far greater. Initially, the effect for us was really around foodservice volumes and some school mill issues and things like that, but the effect has really been much larger in terms of the workforce, in terms of absenteeism, the amount of time that has gone on between what we would have expected and what has actually happened around COVID.

Arun Viswanathan -- RBC Capital Markets -- Analyst

That's very helpful. Thank you. And I guess just as a follow-up then, do you see a path, I guess, to getting back to those levels? Where would you say that we are on, say, Bevmerch? And then the other areas, it does seem that some of those could be potentially addressed through pricing and obvious -- and then maybe some moderation in inflation would help too. But is there a path back to those levels over the next two years?

Mike King -- Chief Executive Officer

Absolutely. So certainly, those levels and the changes in our business have to come into account as I look at this, but we got divestitures, we've got some -- we've executed the closure of Coated Groundwood. So the world has changed a little bit. We've acquired Fabri-Kal.

So you got to take those things into account. But absolutely, in terms of all the things you just rattled off and more inclusive of our own internal initiatives, it's not unreasonable to expect us to be back at those levels.

Arun Viswanathan -- RBC Capital Markets -- Analyst

OK. Thanks.

Operator

Thank you. Our next question comes from the line of Adam Samuelson with Goldman Sachs. Please proceed with your question.

Adam Samuelson -- Goldman Sachs -- Analyst

Hi. Yes. Thank you. Good morning, everyone.

Mike King -- Chief Executive Officer

Good morning.

Arun Viswanathan -- RBC Capital Markets -- Analyst

So I guess a bunch of questions following up on some of the earlier discussions on the 2022 guidance bridge. Maybe first, as we think about volumes across food merchandising and foodservice, labor kind of -- my understanding was caused some volume loss, especially in the second half of '21. You couldn't -- did not have the people to actually run your plants full and sell what you wanted to sell. Do we take that -- how do we think about that from a comp perspective in '22? Is that the point just we might be building inventory as opposed to -- actually as opposed to actually increasing our sales volume, just feeling that there's some pretty easy volume comps, especially in the food merchandising business in the second half that doesn't seem to be reflected in the guidance?

Mike King -- Chief Executive Officer

Yeah. in terms of the guidance, I'll start with food merchandising. We're expecting to see growth in food merchandising in a number of areas. In 2021, obviously, there was some labor challenges and we expect to be on top of those.

There's growth expected in certain pieces of that business. In 2021, we're in an area that were lower than historically and even lower than pre-COVID. So we'd expect to see that come back. And we also are expecting to see conversions away from cartons that we don't produce into molded fiber and clear PET head cartons that we do produce.

And so -- and then in that segment as well, our Mexican business continues to grow strongly as does our protein trade business. So we do expect to see good volume growth in food merchandising. In foodservice, the key for us there, obviously, we've got the year-on-year benefit from Fabri-Kal. But the key for us in foodservice is to ensure that we can service our large food service distribution customers so that they can win in the market.

And that's where we want to build our inventory somewhat. And then we'll be selling through all of that volume as we get later in the year. So there is a little bit of a take a step back to move forward. It's best for the long term of the business.

But within 2022, you won't see the benefit of that large growth in volume. And we have actually strategically exited a couple of customers just to make sure that we are servicing our key customers as best as we possibly can. 

Arun Viswanathan -- RBC Capital Markets -- Analyst

OK. And then just a couple of clarifying questions. So first, the volume pressures -- the labor challenges related to omicron in the fourth quarter, is it reasonable to assume that those would have persisted in January and might be coloring some of your more guarded comments on labor for the first half? And then does the guidance assume that you've divested the Asian beverage packaging and filling business? Or still assume a full year contribution from that in the 705? 

Mike King -- Chief Executive Officer

So the 705 does assume that we have divested both of those beverage merchandising businesses throughout the year. And in terms of the labor impacts through Q1, as with any sort of data out there, you can see the number of cases in terms of omicron, they've come down. And we've seen early on in January there was a massive spike and there was absenteeism. But we're getting back to sort of normalized levels now.

Arun Viswanathan -- RBC Capital Markets -- Analyst

OK. Thank you. I'll pass it on.

Operator

Thank you. Our next question comes from the line of Kyle White with Deutsche Bank. Please proceed with your question.

Kyle White -- Deutsche Bank -- Analyst

Hey. Good morning. Thanks for taking the question. You made a number of divestments and exited the Coated Groundwood recently, the business there.

Do you still have more to go in terms of assets that you view as noncore? Or do you think you have the portfolio where you want it now? And then kind of relatedly, is the strategic review still ongoing?

Mike King -- Chief Executive Officer

So just in line with what I've shared historically on this is we are -- we continue to evaluate the beverage merchant. And truthfully, we've tried to be as transparent and as I mentioned before, it's going to be an iterative process. So as we've kind of arrived at intersections where we can make the decisions and be very open, we continue to plan to do that. I would tell you, we're still very heavily engaged in the review process that's going to be ongoing.

By no means do we have any other decisions to share at this point. But yeah, I would just say largely similar to 2021 activities is ongoing and we'll be open about decisions as they come forward.

Kyle White -- Deutsche Bank -- Analyst

OK. Great. And then on the inventories, understanding the rationale to try to build up inventory so you can better service some of your key customers longer term. But are you able to give us a sense of, one, when do you expect to reach your target levels? And are you trying to get back to pre-pandemic levels? Or do you expect to still run a little bit leaner relative to pre-pandemic?

Mike King -- Chief Executive Officer

So we're targeting kind of getting healthy on inventories across all the segments in Q3, late Q3-ish. And yeah, so no, I don't believe we will target a pre-pandemic inventory levels in all cases. Certainly, as you look at buy-ins and consumer buying trends, we need to move with some of those. And so in some cases, we'll look to raise inventories.

And in other cases we'll look to optimize and reduce. The other thing I just want to say because it continues to come up is service levels are a huge piece of the need to rebuild inventories. But the other side of that is we have to take cost out of the system. And so if you can imagine the efficiency of our trucking and transportation costs, not having the right level of inventory, not being able to fully cube trucks is a big deal.

And so improving our efficiency on transportation, which is when you look at one of the biggest inflationary levers impacting the business, no secret there. And so servicing customers, but taking cost out of the system for everybody is a part of that strategy as well. And so it's not just the right thing for our customers. It's the right thing for the overall business as well.

Kyle White -- Deutsche Bank -- Analyst

Got it. Thank you for the details. I'll hand it over.

Operator

Thank you. Our next question comes from the line of Anthony Pettinari with Citigroup. Please proceed with your question.

Bryan Burgmeier -- Citi -- Analyst

Hi. This is actually Bryan Burgmeier sitting in for Anthony. Is it possible to say what level of contribution you expect from the strategic investment program in 2022? I think around the time of the IPO you were looking for maybe a $50 million contribution in '22. Is that still reasonable? And is that included in the price cost guidance that you gave earlier?

Mike Ragen -- Chief Operating Officer and Chief Financial Officer

I think -- well, what we'll see is that for what we've spent, we'll see the remaining piece just play itself out. So in terms of -- we're sort of moving away from being focused on that because we spent most of those categories. We're moving into other spends. We're doubling down on automation and those sorts of things.

But in terms of the plan itself, I think we would expect to see some residual benefits probably in the $30 million, $40 million amount that flow in through 2022. Frankly though, Bryan, we've sort of been looking at all of our capex, not just specific to the strategic investment program because we have new investments in 2022 that we'll see benefit then. And so the benefits from capex are sort of all on together. I even gone through and said, this one was part of this program and this one was part of another one.

Mike King -- Chief Executive Officer

Yes. And so largely, we're shifting and we kind of rounded out strategic investment program as discussed previously in 2021. And so as we talk about automation, we talk about digital enablement, we talk about reactive capacities. Those are the things in the areas that we have to focus on to insulate our business from not just the labor challenges, but improve our ability to manage change.

And so that's the shift you'll see. We'll see much more benefit on a run rate basis from the prior SIP. The last phase of the SIP, if you recall, was a much -- it was a longer-term run rate payback. So automation programs with longer tails and we're kind of rounding that out now.

Bryan Burgmeier -- Citi -- Analyst

Got it. Thanks for that. And just on the capex number, I think around time of the IPO, you were looking like $250 million for '22. Obviously, you've done Fabri-Kal, so it's going to go up a little bit.

You're looking for north of $300 million this year. Is it still reasonable to think maybe 50% of that goes toward growth and productivity projects and 50% toward maintenance? Any detail you can provide there would be great.

Mike Ragen -- Chief Operating Officer and Chief Financial Officer

Yes. I think as a rough split, that's a reasonable number, like 50-50.

Mike King -- Chief Executive Officer

The other thing I would say that normalized $250 level, I think, is also reasonable as well. I mean, our spend is elevated currently if you look at the work we're doing in our mills on the maintenance side and the reliability side. So I don't think that's indicative of normal, just to reiterate that.

Bryan Burgmeier -- Citi -- Analyst

Yeah. Makes sense. So I'll turn it over. Thanks a lot.

Operator

Thank you. Our next question comes from the line of Andrew Scheffer with Onex Credit Partners. Please proceed with your question.

Andrew Scheffer -- Onex Credit -- Analyst

Hi. Good morning. Thanks for taking my questions. Can you inform us what you're seeing on the labor front that informs your expectations that labor will improve in the second half of the year?

Mike King -- Chief Executive Officer

Yeah. So we've got several KPIs we look at, and it's site to site. So it's a very integrated view of the world for us, and it's different region to region. But the key things we look at are vacancy rates, retention rates and the curves, both proactive and reactive metrics to tell us that we're getting on the right side of it.

And we've been making progress since kind of late summer with some ebbs and flows linked to known spikes, weather events, you name it, and the data shows that we're winning. We're not shedding humans. We're gaining humans in that facilities and we're retaining them. So both those metrics are what give us confidence.

Andrew Scheffer -- Onex Credit -- Analyst

OK. And then on the asset sales, remind us what the expected net after tax and fee proceeds will be if those sales both go through?

Mike Ragen -- Chief Operating Officer and Chief Financial Officer

Yeah. Around $330 million.

Andrew Scheffer -- Onex Credit -- Analyst

OK. And then just on the mill outage, can you remind us which ones and what the timing is in which particular quarters? And is it roughly 50-50 split?

Mike King -- Chief Executive Officer

Both mill outages will be in Q4 this year.

Andrew Scheffer -- Onex Credit -- Analyst

OK. Thank you.

Operator

Thank you. Ladies and gentlemen, our final question this morning is a follow-up from the line of George Staphos with Bank of America. Please proceed with your question.

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

Hi, guys. I'll try to make it quick. So following on Bryan's question, if we think about productivity for Pactiv on an ongoing basis, how much can you get at on an annual basis without applying much capital, just best practices and the like? And how much would require further capital investment? Is there a way to quantify that? That's question number one. Question number two, as we think about 1Q and trying to have some loose guardrails around it, what would you offer to us? Should we just simply take last year and add back Storm Uri? How would you have us sort of begin to model that? And then for Mike King.

Mike, you're the relative newcomer, so to speak. How do you think about the dividend overall in terms of value return and capital allocation? Why do you see it important? Is it important? Obviously, the company has got a lot of other things that can generate more return. How do you view the dividend? Thank you, guys. Good luck in the quarter. 

Mike Ragen -- Chief Operating Officer and Chief Financial Officer

OK, George. So I think first, this is Mike Ragen. I'm going to answer. And in terms of the dividend right now, like when I look at this, with our current share price, we're running at a circa 4% dividend yield.

And to me that's pretty damn good. And so it may well be that it's not the dividend or the share price issue. But anyway, I quite like to look at that, particularly what we spend off in Q4 for adjusted EBITDA and the way that we've restructured our balance sheet, our gearing in terms of -- as we sort of blow forward the EBITDA and then over and above that, our maturity profile on our debt looks kind of good. But in terms of the benefit that -- or the uplift in terms of output that we can get at without investing capital, we have multiple manufacturing platforms just so it's not one size fit all.

But look, if we can get an extra 5% out of our assets, sweat the asset somewhat, I would say that's a go-get for us. And I think it's something that we can do. And can we get more? Well, I think I'll hand that over to Mike King, but he's sort of coming in and from what I'm hearing from him, he thinks we can get more.

Mike King -- Chief Executive Officer

So you're hearing us taper optimism here. But yes, so look, there's certainly value to unlock without having to spend a bunch of capital. Reality is there's enough choppiness in the network right now that we talked about earlier. It's all about momentum, being able to focus on waste elimination and keep an eye on profitable growth as well as manage inventory growth.

Those are the priorities and resources we've got. Is there a $100 million worth of opportunity in the system? We think there is. It's all about philosophy, which we believe we can get that on top of rebuilding inventories, keeping people coming through the door. And that's really it.

So with stability, absolutely are confident in that number. The pace at which we can get after that and manage through the change is the real dynamic we're managing for.

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

And any thoughts on 1Q? Thanks, guys.

Mike King -- Chief Executive Officer

George, in terms of Q1, I think Q1 for us is generally a lower quarter demand. To me, in Q1 we should be upwards over $150 million. You can look at the impact of Winter Storm Uri. I think this time last year demand wasn't as strong as well.

But I think, let's say $140 million to $160 million, I'll give you that spend in Q1.

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

That's fantastic, guys. Thank you. Good luck in the quarter. I appreciate all the time.

Mike King -- Chief Executive Officer

Thank you.

Operator

Thank you, ladies and gentlemen, that concludes our question-and-answer session. I'll turn the floor back to Mr. King for final comments.

Mike King -- Chief Executive Officer

I just want to say thank you, everyone, for joining, and we look forward to talking to you at the end of Q2.

Operator

[Operator signoff]

Duration: 59 minutes

Call participants:

Dhaval Patel -- Senior Vice President of Investor Relations and Strategy

Mike King -- Chief Executive Officer

Mike Ragen -- Chief Operating Officer and Chief Financial Officer

Chris Parkinson -- Mizuho Securities -- Analyst

Ghansham Panjabi -- Robert W. Baird and Company -- Analyst

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

Mark Wilde -- BMO Capital Markets -- Analyst

Arun Viswanathan -- RBC Capital Markets -- Analyst

Adam Samuelson -- Goldman Sachs -- Analyst

Kyle White -- Deutsche Bank -- Analyst

Bryan Burgmeier -- Citi -- Analyst

Andrew Scheffer -- Onex Credit -- Analyst

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