Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Ranpak Holdings Corp (PACK, Financial) reported mid-single-digit top-line growth with improved profitability driven by higher volumes for the fourth consecutive quarter.
- North America sales increased by 17% year-over-year, driven by strategic account activity and the plastic-to-paper shift.
- The company saw strong performance in Asia Pacific, particularly in Japan, contributing to overall growth.
- Ranpak Holdings Corp (PACK) maintained a strong liquidity position with a $65 million cash balance and no drawings on its revolving credit facility.
- The company is making significant progress in deleveraging, reducing its leverage ratio from 5.7 times in Q2 2023 to 4.2 times at the end of Q2 2024.
Negative Points
- Europe and Asia Pacific activity levels were less robust than North America, with volumes increasing only slightly and constant currency sales down about 1% year-over-year.
- The cushioning systems segment saw a decline of 0.3% year-over-year, impacted by lower activity levels in the industrial and manufacturing sectors.
- Gross margins were slightly lower due to a mix of lower cushioning and higher void fill, with a margin of 36.8% compared to 37% in the prior year.
- The company expects some input cost pressure in the second half of the year, which could impact margins.
- Energy pricing volatility in Europe remains a concern, particularly as the region approaches the fall and winter seasons.
Q & A Highlights
Q: Can you provide more details on the pricing headwinds in Europe and the impact on your financials?
A: (Omar Asali, CEO) The pricing headwinds in Europe were in line with our expectations, around 2% for the quarter. We anticipate these headwinds to start easing in August as we begin to lap the pricing actions taken a year ago. This should make the second half of the year comparisons easier from a pricing standpoint.
Q: Can you disaggregate the 20% increase in North American volumes between new wins and core markets?
A: (Omar Asali, CEO) The majority of the 20% volume increase in North America was driven by new strategic account wins. Our base business did grow, but the significant growth came from these new accounts. We expect continued growth from these strategic accounts in the second half of the year.
Q: What drove the decline in the cushioning business, and how should we think about it for the back half of the year?
A: (Omar Asali, CEO) The decline in the cushioning business was primarily due to lower industrial activity globally, particularly in Europe. Cushioning tends to have slightly higher margins, but the macroeconomic environment has impacted this segment. We are not seeing customer attrition or losses to competitors, and we expect to maintain our market share as industrial activity recovers.
Q: Has your view on revenue growth and EBITDA for the year changed given the performance in the quarter?
A: (Omar Asali, CEO) Our confidence has increased. The robust activity with large strategic accounts and the switch from plastic to paper has solidified our outlook. We expect more robust volume numbers in the second half of the year, even without assuming a significant recovery in the industrial channel.
Q: How much of the $5 million annualized savings from G&A cuts will be realized in 2024?
A: (Omar Asali, CEO) The $5 million in G&A savings will start to impact this quarter, with a more significant impact in Q4. The annual run rate going forward will be the full $5 million.
Q: Have you seen any evidence of other companies accelerating their plans to switch from plastic to paper following Amazon's announcement?
A: (Omar Asali, CEO) Yes, we are seeing more companies in the industry making the switch from plastic to paper. This trend is contributing to our growth in North America, and we expect it to continue.
Q: Are you still expecting automation to grow by 50% or more this year?
A: (Omar Asali, CEO) Yes, we have high conviction in achieving 50%+ growth in our automation business for the full year. Our bookings were up 100% in the past quarter, and we have a strong pipeline for the second half of the year.
Q: What is the current expectation for automation and other equipment revenue this year?
A: (William Drew, CFO) We expect automation to contribute significantly in the second half of the year. The recent bookings activity and strong pipeline support our confidence in achieving our growth targets.
Q: How are margins for the cushioning business relative to the company as a whole?
A: (Omar Asali, CEO) Cushioning tends to have slightly higher margins compared to other segments. However, the overall margin levels across our products are relatively close.
Q: Can you provide more details on the strategic account wins and their impact on EBITDA?
A: (William Drew, CFO) The strategic account wins are expected to contribute $5 million to $10 million in incremental EBITDA annually. We anticipate at least $3 million of this to be realized this year, with the remainder ramping up into next year.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
