Participants
Bill D’Onofrio; Vice President, Corporate Development & Investor Relations; Greif Inc
Ole Rosgaard; President, Chief Executive Officer; Greif Inc
Lawrence Hilsheimer; Chief Financial Officer, Executive Vice President; Greif Inc
Matt Roberts; Analyst; Raymond James
Ghansham Panjabi; Analyst; Robert W. Baird & Co.
Michael Roxland; Analyst; Truist Securities
Gabe Hajde; Analyst; Wells Fargo
Brian Butler; Analyst; Stifel
George Staphos; Analyst; Bank of America Securities
Presentation
Operator
Good day. Thank you for standing by. Welcome to the Greif third-quarter 2024 earnings conference call. (Operator Instructions)
Once again, please be advised that today’s conference is being recorded. I would now like to hand the conference over to your speaker today, Bill Donofrio, Vice President of Investor Relations and Corporate Development.
Bill D’Onofrio
Thank you and good day, everyone, and welcome to Greif fiscal third-quarter 2024 earnings conference call. During the call today are Chief Executive Officer Ole Rosgaard, who will provide you an update on current business trends as well as the latest updates on our ongoing operating model change, which will be a focal point of our upcoming Investor Day on December 11, our Chief Financial Officer, Larry Hilsheimer, will provide an overview of our third quarter financial results and our fiscal full year guidance.
In accordance with Regulation Fair Disclosure, please ask questions regarding topics. You consider important because we are prohibited from discussing material non-public information with you on an individual basis.
Please turn to slide 2. 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 will be referencing certain non-GAAP financial measures and reconciliation to the most directly comparable GAAP metrics that can be found in the appendix of today’s presentation.
I’ll now turn the presentation over to Ole on slide 3.
Ole Rosgaard
Thank you, Bill. Hello, and thank you for joining us. Over the past quarter. I’ve had the privilege of visiting many of our more than 250 plants around the world each week, I make it a priority to spend time with our teams on the ground often joining them in the early hours for the daily 6 AM safety meeting.
These moments are truly energizing and remind me of the incredible commitment and dedication that our colleagues demonstrate every day. I’m tremendously proud of how people live our purpose and values driving safety, quality, operational excellence and importantly, delivering legendary customer service.
It’s clear that these are more than just words, they are principles embodied in the work our teams do day in and day out across every location.
I also want to extend a heartfelt thank you to our leaders and executive team for their outstanding leadership during this quarter. Working alongside such a committed and talented group of people is not just a source of pride for me, but also a privilege as we review our results today, it’s important to remember that the achievements we’ve shared are the results of thousands of people pulling together aligned by a shared purpose and values.
I’m excited about where we’re headed and the opportunities that lie ahead and drive all of the work we perform is focused on our purpose, creating packaging solutions for life’s essentials, whatever you are located today. Listening to this move around the room, the adhesive that holds your desk together, the chemicals used to manufacture a smartphone, the former new seat cushion to solve issues the orange juice you have for breakfast, the vitamin supplements you talk this morning and the lubricants in the hydro to work. All of these are essential everyday products at all of them at one time contain materials, which was stored and shipped in bright packaging products.
We know that it was quite products because Greif maintains leading positions in nearly all industrial packaging capabilities globally and by no accidents. Those leading positions are the result of the deeply entrenched competitive advantages we have developed in our business, the most critical of which is our legendary customer service.
As outlined in our mission statement, price is in the middle of a significant evolution. We are making excellent progress on our strategic missions by following our principles and all of this is in the engine is engineered to create a flywheel of financial success through the Greif Business System.
Towards the end of today’s prepared remarks, I will provide you with some more information on the operating model changes we announced last December and are nearing completion on.
For now, let’s shift gears to near term performance in fiscal Q3. Please turn to slide 4. I’m pleased to report another solid quarter for Greif, where we continued to successfully manage through variable and uncertain operating environments.
All regions globally experienced net growth in the quarter despite choppiness on an individual end market basis, although small on a year on year basis, we are encouraged that North America has now evidenced the east to west demand improvements.
We have talked about over the past quarters, there’s still significant runway to reaching a normalized level of volumes, but recent trends have us cautiously optimistic as we have exited the trough of on volumes. This trend also applies to our LATAM region.
APAC improvement, while expected was also encouraging. As we mentioned, Q2 was negatively impacted by a sharp by significant destocking after Chinese New Year, but it’s now on the path to recovery. EMEA, our largest GIP market at approximately 45% of GIP sales, saw a third straight quarter of sequential improvements.
This is particularly important as underlying macroeconomic data from calendar Q1 into calendar Q2 continued to be negative with PMI fluctuating around the 45 mark in both Q2 and Q3 loops, chemicals, paints and coatings end markets are a source of strength.
This is equally notable as our volume performance in the quarter outpaced many of the leading companies serving those end markets. This outperformance demonstrates our legendary customer service paired with the great business system in action. We are maintaining close relationships with our customers and in reaction with decisive action when change occurs.
With that, I will turn things over to Larry on slide 5 to walk through our third quarter results. Larry?
Lawrence Hilsheimer
Thank you, Ole, and thank you all for joining our call. As Ole mentioned, we made progress on our operating model change in the quarter and are nearing completion. In the meantime, we continue to execute our strategy well and produce solid financial results under or under the circumstances.
APAC integration continues and synergy capture is in line with our business case expectations. We additionally made steps towards simplifying our portfolio through the divestiture of Delta Petroleum Company, which provided additional debt pay down towards our long-term debt leverage ratio range of 2 times to 2.5 times.
Please note that while our current leverage is at 3.66x, This does not include the impact of the Delta sale proceeds received on August 1. The pro forma adjusted leverage, including Delta proceeds would have been 3.59x.
As for financial results, we finished the quarter at $194 million of adjusted EBITDA, $34 million of free cash flow and adjusted earnings per share of $1.3. This EBITDA performance was driven by the volume performance that we outlined in his remarks and was in line with our expectations.
Our free cash flow performance was also aligned to our expectation for Q3 as we had modest working capital use as we ramped up the business with the nation volume recovery. Please turn to slide 6 to walk through the GIP results.
In Q3, GIP saw demand improvement in all regions totaling nearly 5% on a global year over year basis. While this is encouraging, I remind you that on a global basis, the current volume shortfalls to 2022 levels are significant.
GIP EBITDA margins remained strong a sequential basis, supported by our continued mix shift into higher margin polymer-based products. On a year-over-year basis, EBITDA margins were down 200 basis points due to expected cost inflation primarily related to acquisitions, investments in our ongoing operating model change and several one-time benefits in ’23, which did not recur.
Please turn to slide 7 for PPS results. Our paper business continued to experience the same conflicting dynamics as in Q2, continued improvement in volume and demand for our product, coupled with partially unrealized paper price increases, we firmly believe these are warranted based on our significant input cost inflation as well as improving demand.
As a result, PPS margins continued to lag prior year. The Paper Solutions team is continuing to manage controllable as well, including successful price increase implementation with our non-index based customers in URB.
However, the outsized impact of the index driven price cost dynamic, which we still view to not be in sync with real market trends is a headwind we have and will continue to aggressively work to offset.
Please turn to slide 8 to discuss fiscal 2024 guidance. When considering our guidance update, we ultimately determined that maintaining our guidance range consistent with our Q3 call is appropriate. Relative to our Q2 guidance, we are anticipating slightly more favorable price cost due to better paper pricing and value-based pricing and GIP.
In Q3, although volumes were positive in all regions year over year, the pace of that improvement was less than anticipated in Q2 and will present a slight headwind relative to prior guidance. We benefited from a variety of small cost tailwinds in SG&A relative to our prior guidance, however, some of that was offset by other items such as a slight headwind from the lack of contribution from Delta in Q4.
But what is important to remember when considering this Q4 guidance is the significance of certain tailwinds on the horizon. Our volumes, while are improving, are still down significantly on a two year stack and return to 2022 volumes which in fact were actually lower than ’21, would be approximately $160 million of EBITDA, adding the guidance midpoint of $700 million of EBITDA and $160 million of volume related increase, along with the incremental fiscal ’25 impact of recently recognized paper price increase will return EBITDA to over $900 million.
In the near term, we will continue to focus diligently on operational excellence and lean on our close customer relationships to ensure we maximize value capture when volume recovery begins in earnest.
Please turn to slide 9 to discuss capital allocation. We remain committed to our disciplined approach to capital allocation, and this quarter continued to demonstrate that through our capital deployment actions, we have long stated that our two priority deployment objectives are funding safety and maintenance CapEx, which ensures continued cash generation and funding our continually increasing dividend. Earlier this week, we announced another increase in our quarterly dividend.
After those modest uses of cash. Our next priority is growing our business aligned to our strategy. Earnings growth remains our core focus. However, sometimes it is wise to first shrink in order to enable that growth. We demonstrated that willingness this quarter with our sale of Delta.
With that, I’ll turn things back to Ole on slide 10 to provide you with a preview of our up for our upcoming Investor Day.
Ole Rosgaard
Thank you, Larry. Greif has an Investor Day coming up on December 11 in Midtown New York and one item I would like to preview with you today are for you today, which will be important to our discussion in December is our ongoing operating model change.
We are currently in the process of organizing our operations and commercial functions by to solution as opposed to geography, while still ongoing, we now have better clarity on the likely materials solution verticals, which will encompass that organizational structure, polymers, metals payable, integrated products and our land portfolio through organizing by materials solutions, we plan to capture three distinct benefits, all of which we will discuss in detail at our upcoming Investor Day.
First, it will enable us to accelerate market alliance and value-driven growth through concentrating commercial and operations functions by subject matter expertise that will enable us to better capitalize on our comprehensive suite of packaging solutions by optimizing pricing and account planning to drive higher margins.
Secondly, by realigning functions, we will maximize the effectiveness of all our enabling functions. It will better align business results to individual functions and drive accountability at all levels of the organization. Cost efficiencies driven by that approach will also enhance margins.
Lastly, it will allow us to provide a deeper level of transparency to our investor community and help us to provide more predictable returns. It will streamline our capital allocation, prioritization and execution allowing us to deploy cash for growth faster.
It will also enhance our speed and ability to integrate acquisitions effectively and expand synergy capture on future deals. Additionally, we are currently assessing whether this upcoming change will result in a change to externally reported segments.
We have frequently asked feedback from our investor community that our current external segmentation is not sufficiently details on a product basis to clearly show the growth and margin profile of these leading businesses.
That assessment is still ongoing, but we have confidence that the end result will provide the transparency our investors are looking for and starting at our Investor Day, we plan to shift our cadence of talking about the business, primarily by materials solution and in markets with some regional color edits.
Please turn to slide 11. Part of the driving force behind our operating model change relates to shifting the mix of products in our portfolio. Specifically, our growth of polymers as a percentage of sales. We have been very clear in that focus that our growth priorities lie in resin or more accurately polymer-based packaging solutions.
And we have acted decisively on that focus over the past 24 months. In 2015, our business mix was approximately 10% in polymer-based packaging solutions as of our previous Investor Day in 2022 that mix has shifted to 15%. And now in just two short years, that mix is now approximately 20%.
We anticipate that sales to continue as we have significant runway for further growth in our polymer-based products, this quarter on the sale of Delta further accelerated that portfolio shift. While Delta is a solid business and we have received great value for it. It’s not core to price a price growth priorities and core competitive advantages.
Assets served much more cyclical end markets. For those reasons. We have parted ways. And in doing so added balance sheet flexibility by paying down debt with the proceeds.
Please turn to slide 12, to our investors. We sincerely hope you make the time to come to visit with us at our Investor Day on December 11. And as a reminder, please reach out to Investor Day at grace.com, and I’ll repeat that Investor Day at greif.com with any questions or to request a registration.
I hope you have enjoyed our presentation today, and I would like to reaffirm to you that our ambition to be the best performing customer service company in the world also extends to our financial customers. We are deeply committed to validating your investment in us through continued solid financial results and our proactively modernizing and evolving our business to warrant continued and increased investments.
One, our head earnings is not sufficient time to properly communicate the myriad of ways we are creating value by price. And so I’m confident that after our half day together in December, you will depart with strong confirmation that price is primed for breakout success in both the near and long term through our proven execution on the build Celeste strategy.
Thank you once more And operator, will you please open the lines for Q&A?
Question and Answer Session
Operator
(Operator Instructions)
Matt Roberts, Raymond James.
Matt Roberts
Hi, good morning, Ole and Larry, thank you very much. Ole, I appreciate the slide 10 and 11 and the prelude to Investor Day here. So And without stealing too much vendor from December, can you help me understand the margin contribution or benefit you’ve received as a result of that mix shift and how incremental margins on the poly based products compared to the total portfolio average or maybe is there a longer-term margin target you think is achievable either GIP or with that point were based business with GIP?
Ole Rosgaard
It is about time and I certainly can maybe first just remind you, of our M&A selection criteria. So when we review target companies, one of the criteria is to make sure that the EBITDA margin is accretive to our current margins. And that means that we are only looking at companies with a margin at or above 18%.
And we also are looking at companies with a free cash flow in excess of 50%. The segments that we’re looking at is primarily for polymer like resin based segments in the premium end of the markets. And you will typically find those companies having go up to like mid-20 EBITDA margins.
Obviously, we have a current business. So even with the acquisitions we make now once they’re accretive, it’s not changing the margins for the whole enterprise. But in the long term, you will see a trend towards reaching the 18% margin.
Matt Roberts
Thanks a lot. I appreciate that. And look forward to hearing more in December.
On the follow-up, Larry, you noted in the presentation continued price cost headwinds, albeit sequentially improving. And since last quarter, we’ve seen OCC come down slightly in 20, I’ll go through on URB that you did mention.
So maybe relative your expectations you gave in the last quarter at current prices, where is the price cost range tracking in your guide? And is there a certain price you need to see either in URB or containerboard to be at the midpoint, there would any changes here and be more of a 2025 impact.
Thank you all again for taking the questions.
Lawrence Hilsheimer
Yeah, Matt, thanks. In the quarter, we ended up benefiting from a little better than we anticipated on the price increases.
Yeah, due to the volatile recognition typically through receive, we had assumed only partial recognition of the outstanding price increases at that time. But then actually recognize 40 in June and for containerboard and 24 in August for URB.
So the net impact of those provided a little bit of a tailwind for our revised full year guidance. And we had we also had better than expected value-based pricing benefits in GIP. Our team just did a great job of focusing on value over volume kind of the combined benefits as or slightly better than expected, and raw material costs were a little bit of an upside as well.
In relation to the paper pricing guidance, yes, we still believe there should be more to come. I don’t anticipate anything in the remainder of our fiscal year, but certainly we’re optimistic that something should be recognized in ’25 given the inflationary costs in the entire industry and improving demand trends, particularly in containerboard.
Volumes on the other hand, actually worse, while better were slightly below what we had expected. We talked in the last quarter that we had seen some lift in demand, and we’re hopeful that that would continue to improve.
It was more mix than we expected. And for that reason, there’s sort of a little bit of downside relative to where our Q2 guide was. And we also had some miscellaneous cost bucket improvements as we focused on improving things. But that’s a little bit offset by the take out of the fourth quarter.
EBITDA would add from Delta had we not sold it when you put all that together, it just led us to where our guidance range didn’t change a whole over basis and US as far as things before beyond ’24, we’re not there yet. I mean, things are changing so rapidly in the environment, you know, we’ll see what we get from the FED in September, which I think could be a big impetus for us across our platform.
So we’ll be talking about guidance, obviously at our next call. It also though we do and we’ve had the startup of our balance sheet feeder, but we have had no net bottom line benefit to that yet as we go through our start-up costs that we’re very excited about what that will be contributing for us in ’25 as well.
Matt Roberts
Appreciate the time. Thank you guys.
Operator
Ghansham Panjabi, Baird.
Ghansham Panjabi
Thank you, operator. Good morning, everybody, and I guess going back to slide 6, where you’re talking about the near-term outlook with GIP and customer sentiment and so on and so forth. Can you just give us a bit more color as it relates to your direct conversations with customers and contacts with the environment that we have today.
And then just in terms of your volumes that have starting to plateau at a sort of a lower-for-longer volume dynamic basically, maybe touch on competitive activity. Are you seeing anything different than the usual competition that you’ve seen in the industry over time?
Ole Rosgaard
Thank, Ghansham. First of all, I mean, market competition has really despite obviously some positive volume trends. The number of tender size queues remains very high and we see market participants are some market participants are pricing at what we believe to be loss making levels to maintain their volume.
We continue our strict adherence to our value-over-volume approach. And we simply focus on maintaining our trusted relationships with our with our customers and the commitment of our teams to operational excellence and our value over volume philosophy is a large part of our continued march margin strength in GIP over the past quarters.
Despite these competitive pressures in the past, we have seen customers return to us after chasing low competitive pricing. Our superior quality and our legendary customer service at this point, in our view, aren’t able to be matched. So over time that those customers come back and then they win in the long term.
In terms of in terms of sort of a bit more color on in our Q2, the strongest volume was coming from loose bulk chemicals and paints and coatings. Well, as you may have noticed in those customers’ homes on the earnings calls, they seem to be less bullish than before these end markets and the end markets we are investing in have likewise been mixed.
Food and beverage have been solid box, at home is still stagnating after the destock that occurred earlier in the year. You may have read an article a recent article in the Wall Street Journal about the know the access sector in North America where this year the farmers will have a bumper crop, but they’re going to lose money.
And the article goes into what that means to them in terms of investing in fertilizer and so on and even machinery. But overall I feel that our teams have done a really exceptional job of engaging with our customers and keeping close tabs on shifting demand patterns.
And it shows in our volume performance and if you compare our volumes to some of the significant players in the end markets we serve, like gloves for chemicals and so on. We have outperformed due to our quick reaction time.
But that doesn’t mean we’re resting on our laurels. We’re going to keep that focus up as overall demand signals are very mixed still. So we just remain deeply connected with our customers as a critical supply chain partner and expect that we’ll continue to drive better than industry volume performance.
Ghansham Panjabi
Okay. Thanks. Very comprehensive. And then on the reorganization by substrate versus geography. Is this something that the customers themselves have been pushing for? Or is it just a natural evolution based on?
Yeah, all the acquisitions you’ve done and the scale of the company at this point.
And just separately, what percentage of your sales base in GIP, it goes to multinationals that want a on cross-border supply?
Ole Rosgaard
Well, first of all, the changes we are anticipating to make that number one. Yes, it’s really to serve our customers better. So if you think of our GIP and PPS, GIP, we have all types of materials that we’re making, whether it’s polymer base, steel, fiber, drums and so on.
So in a way, our teams are kind of a jack of all trades. And what we want to do in our drive to be even better is to really focus on one material solution. So blow-molding a generic, and it’s obviously different from making a steel drum.
So separating like General Counsel and a separate SPU under a separate SPU management means that all they need to think about is be the best in the world in making generic ends, and that will help our customers where we don’t even better quality.
And at the same time, we’re doing that for each of our material solutions and then we have extracted the commercial organization out of all those. So our commercial organization becomes an enabling function, so to speak, under a Chief Commercial Officer, and that will drive up sales and cross sales.
As in the past, a salesperson would have visited a customer in the morning and another salesperson from Grief comes to sell a lot of product in the afternoon. And by combining sales this way, we will just be much more effective in that and it will also drive margins and we will be able to serve our customers better.
And then lastly, when we do M&A, we will be even more effective in integrating these companies into our structure. So overall, the structure has been designed or is being designed for growth.
Ghansham Panjabi
Okay, terrific. Thank you.
Operator
Mike Roxland, Truist Securities.
Michael Roxland
Thank you, Ole and Larry for taking my questions on. Just wanted to follow up quickly and got one on one on your response to the last question on the portfolio transformation.
Would that require any additional headcount given the sales force split?
Ole Rosgaard
I mean in our evolution to modernize the organization?
Michael Roxland
Exactly, yeah.
Ole Rosgaard
But it’s not but it’s not designed to reduce head count that has never been easier after the increases and not knowing all these ingredients of oil increases. We’ve had some questions whether or not we will be taking out in all headcounts, and it’s not designed to take our headcount, but we do believe we will be able to operate much more effectively. And as we are adding volume or growing our volume we will be able to do that without any further headcount to the organization.
So in effect, we will be operating much more effectively, but we certainly won’t be adding so much–
Michael Roxland
Got it, I was just wondering if your sales force, I mean, it sounds like your sales force now that become specialists in certain in a targeted product. so I’m trying to get–
Ole Rosgaard
The sales force will be more generalists and then will turn more from farmers to hunters. And then we have created a very strong, a product management function that will be more of a support to sales rather than our sales teams acting as product managers. We will have a dedicated central product management function by the two solution. It’s serving the sales teams, but also our customers.
Michael Roxland
Got it. That’s very clear. Thank you. In terms of global industrial packaging, what do you attribute your outperformance relative to the market to obviously show sequential improvement EMEA despite PMIs remain depressed. I’m wondering if the thing that we’re doing differently is something of a restocking, like why are you able to outperform despite the go the go to market still being somewhat challenged?
Ole Rosgaard
Well, I mean, I gave a lot of kudos to our teams and they know that that’s one of them. But it’s really our long term focus on customer service that’s driving. That’s, I’m imagining you probably had the experience of dealing with a vendor a store where you got a really bad service and you go home, you tell you tell your family. I’m never going to go back there again, and everybody ended up that word spreads.
And conversely, you’re probably also tried to shop somewhere or deal with a vendor that has provided you that exceptional level of customer service. And then you tell people that as well. And then you prefer that over and you are even prepared to pay a bit more for that service. And the same thing goes with our customers.
So we have a very long time focused on providing legendary customer service and we get better and better and better. And in that respect, I mean, we’re chasing perfection knowing that we will never catch it. But in the process, we have become best in class. And that is really why we can it deliver solid results in this current environment.
(multiple speakers) But I was just going to add on top of that not providing top-quality products as you would expect.
Michael Roxland
Got it. And just one final question before turning it over. Just on in terms of PPS and non-index customers, how much of your business is not indexed? And are you fully implementing the announced price increases with those non-indexed customers, and I’ll let Larry.
Lawrence Hilsheimer
So when we when we look at that, it’s really about 35% of our customers in the URB space. And so feel just driving yet at that. And we’ve had great success. I can’t tell you it’s 100% of that 35%, but it’s pretty close.
Michael Roxland
Got it. Thank you guys very much and good luck in the coming quarter.
Operator
Gabe Hajde, Wells Fargo.
Gabe Hajde
Good morning. I wanted to me wanted to Larry, you gave us some guidance on some going for the mile. If you can help us on that. Our fiscal ’25 on some of the known items that you kind of called out, and I’m thinking about Delta Petroleum for sure. You said a little bit of a headwind in the fourth quarter, is that maybe a $15 million to $20 million annualized EBITDA number that we should be thinking about for the assets sold. And then on kind of gross price flowing through based on price increases that have already been reflected in the indices.
And then I guess lastly, I think there were some higher compensation items called out in the press release. Is that kind of getting back to normal, which I guess is a good thing, but are there any other kind of onetime items in interiors re-thinking the model?
Lawrence Hilsheimer
Yeah, on Delta is I know that number is high. It was about $90 million was spent 8.5 times and after even the Australian cost and that kind of stuff. So more in the way you can do the math on that. So yeah, now that that business vacillate during the year, so the fourth quarter actually was going to be a little higher than that would be approaching $4 million in that quarter, but and for a full year, 8.5 times or $90 million subs relative to the pricing element, we obviously added the $20 increase on URB.
That ends up being and about $1 million that will hit in the fourth quarter this year because it will flow through mostly in in October only and on that ’22 at full year basis for your 10 bps on URB, you basically have about 650 million times or what’s that number?
Yeah, [$650,000] a month on the URB and the incremental price increase that we had on the containerboard sorry, I’m struggling through my notes here for a minute here that what’s the number on containerboard, et cetera, that have been done [50 bps] for $10?
Ole Rosgaard
And those elements that was recognized in June. So it will be fully beneficial to Q4, right?
Lawrence Hilsheimer
Yeah, that address the question.
Gabe Hajde
I mean, the other thing I was thinking about was I don’t think that I heard on economic downtime. You mentioned in the prepared remarks or in the slides just curious kind of where you guys are running the system today.
Lawrence Hilsheimer
Yeah, we are and we’ve been running full-out in our containerboard business. We’ve had some economic downtime in our URB space, do you have that number?
Ole Rosgaard
There was nothing significant from.
Lawrence Hilsheimer
Yeah, no, it’s minor.
Ole Rosgaard
So any economic in any paper grade, but near optimal levels of from a backlog perspective and containerboard business.
Gabe Hajde
Okay. And one last one, just on the M&A front. Obviously, you guys have been active there and you called out kind of being 3.6 times levered on a pro forma basis. Are there still opportunities out there given kind of where we are in the interest rate cycle or and do you feel like it might get more competitive again, if the FED in fact does cut note that?
Ole Rosgaard
We still have a lot of opportunities. We have a very robust pipeline. We are engaged with a lot of companies that own us, and we’ll continue to do that. We don’t always decide the timing. So we have to continue that. And if an opportunity comes along, although the timing may not be ideal. We have the capability to do it. But I will tell you that our focus right now is to pay down debt so that we get back to the 2.5% a leverage ratio level.
Gabe Hajde
Understood. Thank you.
Operator
Brian Butler, Stifel.
Brian Butler
Good morning. Thanks for taking the questions. Just maybe a follow-up on the first one.
When you talk about that $160 million kind of in a more normalized volume environment. What has to happen for that? I mean, are we there at that current kind of volumes right now, if those just kind of sustain through the back or through 2025? Or do we really need to see some step up in the macro recovery to kind of get back to kind of the normalized 2022 levels?
Lawrence Hilsheimer
Yeah, we need a step change just to give you a perspective on where we were in volumes versus Q3 ’22. And if you look back and let me just give you some numbers, just for example, for total for total GIT, if I go to Q3 ’22 to ’21 was down 4.3%.
The following year, it was down another 10 points up, and we’ve only regained 4% of that, right. So pretty significant drop off slow from where we were. If I go to IBCs, they were because of acquisitions step, we are up 9.5 and Q3 ’22 over ’21, but we were down 13.7% according to IDC because of our acquisitions have come back pretty strong.
And if I go to paper in our total mill volumes for Q2 ’21 was down 2.6 next year was down 16.3, and we’ve only recovered to 7.9% up. So we still have a long way to go to get back to the volume levels that we were at.
And so yeah, it is more of a macro issue, Brian, than it is just some marginal change. So if I look at PPS as a whole for us if we got back to normal volume levels. And this is not yet including the impact of the price changes that have been recognized this is just sort of average value add for the year, we’d pick up another $56 million of EBITDA in our PPS business.
And on our old line GIP business, it’s a $90 million list and then you go into the acquisitions that we’ve made. And if you get back to normalized volumes for them, you know, picking up another $21 million. So it’s a big macro piece against the entire environment.
Ole Rosgaard
And Brian, if I can just add a little bit of comments with $160 million as well so as Larry alluded to, that’s not one single factor as you have to consider that most of current volume dynamics is driven by macroeconomic factors.
So why we proved that in Q three that we can outpace the macro on volume. It is still the primary bottleneck to truly know rebounding demand. And one major factor in that equation is the current interest rate situation. In previous instances, interest rate cuts have been shown to drive production, specifically pent-up housing demand, both for new builds and existing housing sales.
And that would be a major volume driver for us. As you know, when you move house or buy a new house, you do more than just buy the house, you paint the walls and the old house for us to sell better. You may find new carpets appliances and 100 some odd items for, you know, when that happens and all of those things they drive industrial production and demand for our products.
And then another component, as an example, would be APAC. I just talked about it earlier. It’s we are experiencing short-term softness. The some of it is interest rate, the plane in action two. And at that software, a base you again, you will see that van segment to improve. So there’s a lot of little factors involved in returning to $160 million.
Brian Butler
Okay. That’s helpful. And second question, when you think of the operating model evolution that you’re kind of in the process for what’s the time line on how long that that takes to kind of implement? And is there a during that time? Is there a short term impact either on slower sales or higher costs as that gets pushed through?
Ole Rosgaard
On sales now on costs that obviously we’re doing this in conjunction with changing our fiscal year, as you know, and that there are some costs involved in that, but it’s not material.
Lawrence Hilsheimer
Yeah, we disclosed, Brian, how we were going to end up incurring, as you know, it’s about $6 million to $7 million related to just the cost of going through this change.
Brian Butler
Okay. And is that is that change kind of completed in fiscal ’24 here? Or does that really roll into ’25 well?
Lawrence Hilsheimer
We’ll be rolling, we’re evolving into this and we will roll out the details in December, but we will be operating this model beginning November 1.
Brian Butler
Okay. And then maybe one last one on your shift towards more polymers versus kind of the other segments?
And how do you view kind of the market organic growth for the polymers and that kind of specialty piece that you’re moving into versus the other subsegments? What does that organic growth look like?
Ole Rosgaard
Well, first of all, this, why are we doing this well, we are growing in polymer-based products because the margin profile is much, much higher and the [cyclicality] on those products is much, much smaller. So we want to be a higher-margin company that’s a lot less cyclical on all on the organic side.
mean, next week, I’m traveling to Malaysia to help with the new IBC plants, which is up versus Panama. We are adding lines all over the world all the time we opened earlier this year, we opened another IBC plant in Turkey. So yes, Brian, we are also growing organically.
Brian Butler
Okay. Thank you for taking the questions.
Operator
(Operator Instructions)
George Staphos, Bank of America Securities.
George Staphos
Hi, everyone. Good morning, hope you’re doing well. So we’ve touched on this a couple of different ways on the call regarding Europe. But only as you think about it, is there a horizon where you won’t be able to outperform Europe in spite of your model and guide of the legendary customer service.
Where do you think the next couple, of course, with for their reason you should be able to outperform in Europe in spite of what’s been sluggish conditions that you could put some maybe some quantification on that somewhat sort of qualitative question.
Secondly, can you talk about what your exit trends were by big business into the fourth quarter? I’m particularly interested in what you’re seeing in core choice in terms of the marginal trends there and I’ll leave it. There might have one follow-up.
Ole Rosgaard
Thanks for that, George. On the Europe, first of all, I think that the answer to the question is yes, I believe we can still outperform. And why do I believe that? Well, if we look back and I have to go back to our philosophy of value-over-volume, we have said no to quite a lot of business in the past. And we can see now that, you know, after a certain period, that business is trickling back to us.
So that’s one reason for why we will continue to outperform. And the other one is we are really focused on growth in segments where we have not historically been very strong and the number one is the food and pharma
And we have teams really working hard on getting into those segments because the margins are higher. It’s much more sticky and it’s always much more that are much less cyclical as well. So with that those combinations, I believe that we will continue to see solid performance come out of Europe and we have added more capacity as well, by the way, organically, sequentially on core choice, some core choice was a well-managed businesses.
George Staphos
But yeah, I mean, the quarter sorry about that.
Ole Rosgaard
I was just answering your second question. So sequentially core choice was also up nearly 10% as containerboard demand continued to improve, which was slightly better than we expected in our Q2 guidance.
And I would remind you and our investors of our niche role in North America containerboard as the champion of the independents, which gives us earlier visibility to demand cycles than our competition. As we have a view of the four markets, we are positioned well for this recovery.
Champion of the independent is a competitive advantage to us. So we are skilled at handling complexity. We can produce any flu, any size wrong and any light about combination with speed and profitability. So we’ve those are some of the reasons for why we see a lot of growth in Containerboard side.
George Staphos
And only listed in general. And what were the other exit trends that you were seeing in the quarter?
Ole Rosgaard
I can’t really talk about Q4, but the exiting Q3 is still choppy. I would say it’s very choppy a little bit like walking us and you take two steps forward and then a slight step backwards so we have months where we see, yes, it’s all coming.
And then the following months now we receive no dive again. And then the next month, it goes up again. But the overall trend is positive in all on volume across the segment?
Lawrence Hilsheimer
Yeah, the one thing, August is always tough because if you have a vacation holiday month in Europe and so it always gets choppy and it also goes to a lot to harvest seasons in the south of Europe. But yeah, they’re substantially the same as what we saw exiting in July.
George Staphos
Thank you. Last question for me and I’ll turn it over back to containerboard core choice and the business overall, to the extent that you have a view and your customers could offer one what you’d share on this conference call volumes for the calendar second quarter in targeted markets were okay, not great.
Yeah, flat up a little bit down a little bit depending on what adjustment you want to make, but all very easy comparisons.
What are your customers saying, what are you seeing through your businesses in terms of why we’re seeing that market trend, recognizing you’re doing better and what kind of no holiday calendar fourth quarter season are we setting up for in the targeted markets given what you’re seeing?
Thank you guys and good luck the rest of the year.
Lawrence Hilsheimer
Yeah. I mean, we’re hearing the same thing that we’ve been expressing. I mean, it’s just a mixed bag out there from a high degree like the Dow Studios comments in their earnings call, and it’s like talking very positively. If interest rates drop in home sales kick off, we feel the same way.
I mean, we and we see others. I think Henkel was very positive. We had other BSF, not in the paper business. It’s the same kind of mix bag is what we’re hearing from our people on the street is one week, it’s hot next week. It’s not it’s that’s why we termed it is mix.
Ole Rosgaard
And I think the rate drop will obviously affect this because we know no average person looks at their credit card debt and debt payments, and it’s linked to down to the interest rates and if they go down, they get a little bit more money between their hands. They shop more and Amazon and all that helps the industry. So we don’t have a crystal ball because I tried to say it, but, yes–
George Staphos
You’re closer to it than we are. So we appreciate the color. Thank you, guys.
Lawrence Hilsheimer
Thank you, George.
Operator
Gabe Hajde, Wells Fargo.
Gabe Hajde
Thank you for real quick on what when we’re talking about, I guess the different end markets. Can you remind us and roughly speaking in your North American GIP business, how much is directionally tied to housing?
Ole Rosgaard
It’s difficult to give you a number on that. It really is because it’s take chemical. Bulk chemicals is one of our largest ones. Some goes into insulation. Some goes into enough to solve issues and some goes into the fridge you buy, it’s just difficult to sort of–
Lawrence Hilsheimer
We don’t have any that are going on and at all game.
Gabe Hajde
No worries, thank you.
Operator
And I would now like to turn the conference back to Ole for closing remarks.
Ole Rosgaard
Thank you. First of all, a big thank you for all the questions and your continued interest in Greif. We really appreciate that and we look forward to reporting our Q4 2024 earnings to you in early December and subsequently also seeing you at our Investor Day on December 11, in Midtown New York. Have a wonderful day, everyone.
Operator
And this concludes today’s conference call. Thank you for participating. You may now disconnect.
