Greif Inc. (GEF) Q2 2021 Earnings Call Transcript

Greif Inc. (NYSE: GEF) Q2 2021 earnings call dated Jun. 10, 2021

Corporate Participants:

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

Peter G. Watson — President and Chief Executive Officer

Larry A. Hilsheimer — Executive Vice President, Chief Financial Officer

Analysts:

George Staphos — Bank of America Merrill Lynch — Analyst

Gabe Hajde — Wells Fargo — Analyst

Mark Wilde — BMO Capital Markets Corp. — Analyst

Adam Josephson — KeyBanc — Analyst

Matt Krueger — Baird Equity Research — Analyst

Justin Bergner — Gabelli — Analyst

Presentation:

Operator

Good day, and thank you for standing by. Welcome to the Greif Q2 2021 Earnings Call. [Operator Instructions]

I would now like to turn the call over to your speaker today, Matt Eichmann. Please go ahead.

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

Thanks a lot, Amy, and good morning, everyone. Welcome to Greif’s second quarter fiscal 2021 earnings conference call. This is Matt Eichmann. I’m joined by Pete Watson, Vice President and Chief Executive Officer; and Larry Hilsheimer, Greif’s Chief Financial Officer. Pete and Larry will take questions at the end of today’s call. In accordance with regulation fair disclosure, we encourage you to ask questions regarding issues you consider important because we’re prohibited from discussing material, non-public information with you on an individual basis. Please limit yourself to one question and one follow-up before returning to the queue.

Please turn to Slide 2. As a reminder, during today’s call, we will make forward-looking statements involving plans, expectations and beliefs related to future events. Actual results could differ materially from those discussed. Additionally, we will be referencing certain non-GAAP financial measures and reconciliations to the most directly comparable GAAP metrics can be found in the appendix of today’s presentation.

And now I turn the presentation over to Pete on Slide 3.

Peter G. Watson — President and Chief Executive Officer

Thank you, Matt, and good morning, everyone. We really appreciate your interest in Greif. Our purpose at Greif is to safely package and protect our customers’ goods and materials to serve the essential needs of communities all around the world. And that common purpose, combined with our vision to excel in customer service, binds our global colleagues and motivates us to perform at our best. And I want to make sure to thank the global Greif team for these efforts.

In the second quarter we generated strong year-over-year volume growth in most of our key global industrial packaging substrates. We also experienced robust demand in our corrugated sheet feeder network and significant demand improvement in our tube and cores business. While inflation remains challenging, we are executing strategic pricing decisions and contractual price increases to recover cost and stay ahead of inflation curve. This disciplined focus is helping us deliver solid financial results and reduce our leverage.

Our second quarter adjusted free cash flow grew by more than $47 million versus prior year and we repaid $235 million of debt. With improved visibility into the back half of the year, we are reintroducing fiscal 2021 annual guidance and anticipate generating adjusted Class A earnings per share of $4.70 at the midpoint.

Finally, we continue to make meaningful progress against our strategic priorities. We recently completed our fourth annual colleague engagement survey, which ranks us in the top decile of all manufacturers. In addition, we published our 12th annual sustainability report, reflecting the progress we’ve made around ESG and enhanced our customer service capabilities in line with our stated vision.

I’d ask you now turn to Slide 4. The global industrial packaging business delivered strong second quarter results. Global steel drum volumes increased by roughly 3% on a per day basis versus the prior year, while global Rigid IBCs and large plastic drum volumes rose by nearly 8% on a per day basis, and our global IBC volumes were quarterly record. Average selling prices were up across all key global substrates year-over-year due to raw material pass-through arrangements and strategic pricing decisions.

Product demand was strongest in APAC where steel drum and Rigid IBC and FIBC volumes rose by 14% and 11% respectively on a per day basis versus the prior year and benefited from improved industrial trends. Demand conditions were solid throughout most of the year for steel drums. Rigid IBCs and FIBCs rose by mid-single-digits on a per day basis. In North America, which features our most diverse product portfolio mix, steel drum volumes were down single-digits while Rigid IBCs, fibre drums and FIBCs displayed mid-single-digit growth on a per day basis versus prior year.

We continue to see improvement across many of our key end markets. For example, sales in the petrol products and lubricant end markets improved sequentially and were higher year-over-year. Paint coating sales also rose due to better auto and construction demand. And sales in the Balkans, especially [Indecipherable] markets were negatively impacted by ongoing customer force majeure actions and supply chain constraints, but underlying demand still remains solid. We see little indication of customers rebuilding inventories. And while supply chain conditions remained tight, we have not experienced any negative material impact related to sourcing raw materials.

GIP’s stronger volumes and higher average selling prices drove higher segment sales and gross profit year-over-year. GIP’s second quarter adjusted EBITDA rose by roughly $7 million due to higher sales, partially offset by higher SG&A expense, mainly attributed to a $13.5 million of higher incentive accruals for this segment. The business also benefited from a $7 million FX tailwind. And for comparison purposes, please keep in mind that GIP had a very strong 2020 when the segment benefited from panic buying and opportunistic sourcing benefits.

GIP’s strong second quarter performance carried over in May, the start of our fiscal third quarter. Global steel drum and Rigid IBC volumes both grew by low-to-mid double-digits on a per day basis versus the prior year due to stronger market demand and an easier prior year comparison and sequentially versus April were basically flat. May volumes of our filling business improved notably from early in Q2, which is one indication that conditions in the U.S. Gulf Coast are starting to pick back up.

I please ask you to turn to Slide 5. Paper packaging second quarter sales rose by roughly $55 million versus the prior year due to stronger volumes in our corrugated sheet and tube and core businesses and higher published containerboard and boxboard prices. For comparison purposes, the prior year included $35 million of sales attributed to the divested CPG business. Paper packaging second quarter adjusted EBITDA fell by roughly $11 million versus the prior year, primarily due to a significant $24 million recovered fibre and transport cost headwind.

SG&A expenses also increased year-over-year, primarily due to the $11.5 million of higher incentive accruals. in March, we announced a new set of price increases for recycled boxboard grades with immediate effect in response to strong demand and cost inflation. And we have fully implemented increases on all non-resi-type customer contracts and we’ll benefit from this in the fiscal third quarter.

Similar to quarter one, demand in our converting operations remained robust. Second quarter volumes in CorrChoice, our corrugated sheet feeder system, were up roughly 37% per day versus the prior year quarter as demand for durables, e-commerce growth, the auto supply chain and food and beverage remained very strong. Specialty sales, which includes litho-laminate bulk packaging and coatings, were up more than 31% versus the prior year quarter.

Volumes in our tube and core business accelerated through the second quarter, were up nearly 6% versus the prior year. In addition to continued strong demand in construction and steel end market segments, demand for textiles picked up this quarter and reflects a double-digit increase year-over-year in this business. Paper packaging’s fiscal third quarter is off to a strong start. In May, our volumes in CorrChoice and our tubes and core business were both double-digits on a per day basis versus the prior year and reflects flat-to-single-digit grow sequentially versus April.

I’d ask you now turn to Slide 6. I’d also like to take a moment to highlight our ongoing ESG efforts that are embedded in our strategy. In April, we published our latest sustainability report outlining the ESG achievements we made in 2020 as well as the outcomes for our second materiality assessment, which helped to shape our future priorities. We also recently announced a new greenhouse gas reduction target and continue to advance projects to improve our product circularity.

Finally, we are deploying an inclusive leadership program to all global managers throughout the remainder of 2021 to further enhance Greif’s already strong engagement culture. I encourage all of you to visit our website to review our sustainability progress to become more familiar with our strategy.

I’d like to now turn it over to our Chief Financial Officer, Larry Hilsheimer.

Larry A. Hilsheimer — Executive Vice President, Chief Financial Officer

Thank you, Pete. Good morning, everyone. Please turn to Slide 7 to review our quarterly financial performance. Second quarter net sales, excluding the impact of foreign exchange, rose by 13% versus prior year due to stronger volumes and higher selling prices in our two primary business segments. Second quarter adjusted EBITDA fell by roughly 3% versus the prior year quarter. While sales were higher, cost inflation, especially in transportation and OCC, dragged on profits.

In GIP, we are implementing price increases in response to strong product demand and to stay ahead of inflation in order to maintain appropriate profitability. We are working diligently on implementing price increases in paper packaging as we respond to robust demand and seek a return to appropriate segment profitability.

SG&A expense rose by roughly $26 million versus the prior year quarter due to roughly $25 million of higher incentive accruals across the company. This year-over-year change due to an accrual decreased last year as we forecasted a poor Q3 and second half, which this year has swung to an accrual increased due to our anticipated strong second half results being substantially over our budget. Our second quarter non-GAAP tax rate was 20%, reflecting a one-time benefit of roughly $4 million from return to provision adjustments and reserve releases due audit settlements and statute expirations. Second quarter adjusted Class A earnings per share rose by roughly 19% to $1.13 per share.

Finally, adjusted free cash flow rose by 60% to nearly $127 million versus the prior year, primarily due to improved profitability and working capital management, partially offset by slightly higher capital expenditures. Trailing 12-month average working capital as a percentage of sales improved by 180 basis points year-over-year to just over 11%.

Please turn to Slide 8 to review our outlook and key modeling assumptions. We have reintroduced annual guidance giving better visibility into the remainder of our fiscal year and continued confidence in our businesses’ improving fundamentals. The transformation that we commenced earnestly in late 2015 has produced tangible and meaningful change. With our anticipated fiscal ’21 results, we will have more than doubled earnings per share since 2015 despite COVID-19’s negative impact. The closure and/or divestiture of more than 70 non-core or sub-optimal clearance and without any share repurchase benefit. In fact, we currently have 600,000 more shares outstanding now versus the end of 2015.

We forecast our fiscal ’21 adjusted free cash flow to range between $285 million to $325 million, inclusive between $130 million to $150 million spent on capex, and we expect working capital to be a substantial cash use this year commensurate with our announced price increases to offset cost inflation. Finally, we assume that OCC will average $101 per ton for this fiscal year and $122 a ton during our second half. We expect fiscal 2021 interest expense to range $97 million to $101 million and our full year non-GAAP tax rate to be between 22% and 26%.

Please turn to Slide 9. We have a consistent three-pronged capital deployment strategy focused on reinvesting in the business, returning cash to shareholders and delevering the balance sheet. During the quarter, we paid roughly $26 million in dividends and repaid $235 million in debt. Our compliance leverage ratio was 3.2 times as of April 30, 2021 and we continue to drive toward our targeted range of 2 times to 2.5 times. As a reminder, we will not engage in any material M&A until we’re back within that range. Finally, as we continue to generate cash, pay down debt and reduce leverage, we will shift enterprise value to the benefit of our equity holders and eventually renew this steadily increasing dividend policy.

With that, I’ll turn the call back to Pete for his closing comments before our Q&A.

Peter G. Watson — President and Chief Executive Officer

Thank you, Larry. And I’d ask everybody to please turn to Slide 10. Now to wrap it up, Greif delivered really a solid second quarter, and I’m pleased with our business performance. We’re making strong progress across all of our strategic priorities and are focused on the operating levers within our control. Our extensive global portfolio, differentiated service capabilities with our short focus on operational execution positions us to uniquely serve the needs of our customers and generate significant value creation in the benefit of our shareholders.

And I really appreciate your interest in Greif. Amy, please feel free to open the line for questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Your first question comes from the line of George Staphos with Bank of America Securities. George, your line is open.

George Staphos — Bank of America Merrill Lynch — Analyst

Hey, thank you. Hi, good morning, everybody. Thanks for the details.

Peter G. Watson — President and Chief Executive Officer

Good morning, George.

George Staphos — Bank of America Merrill Lynch — Analyst

Good to hear your voice. Hope you’re all well. So my two questions, and they’re related. So we look at the implied guidance for the second half, and this is my phrasing, you’re going to be looking at some boomer third and fourth quarter earnings, yet, certainly, inflation has been a major headwind for you. What gives you — what two or three things give you confidence that the guidance you’ve given is manageable, achievable even with that pretty large headwind right now and inflation? The related question, can you talk to what pricing assumptions you have built into that guidance? And if an existing customer puts in an order today with you, specifically here on your day, what is the price that they are paying versus the May published price? Thank you.

Larry A. Hilsheimer — Executive Vice President, Chief Financial Officer

Hey, George. I’ll comment on service and Pete will probably add to it as well. We have a very high degree of confidence on our pattern of working to stay ahead of inflation, particularly in our global industrial products business where we have, I’d say, more direct control on pricing with our price adjustment mechanism contracts, but also our openers for other items. The teams have been very diligent as we’ve been talking about inflation for a couple of years now.

And so as we see things playing out in our third quarter, we have pretty good visibility into the fact that our margins are going to maintain and slightly grow the gross profit dollars and the profit — the data maintained into the fourth quarter. Our volumes in the first month of our third quarter grew at exceptional levels. And so we’re not seeing anything slowing that down. We’re bullish on the economy and we’re bullish on staying ahead of the inflation. In fact, in the inflationary times through these TAM adjustment mechanisms has actually helped our value-add significantly because of just the timing of inventory deliveries against the price increases.

With respect to the paper business, as Pete commented in his remarks, we have executed every dollar of the price increases that we have announced in our non-index-type business. In our URB business, 60% of our business is not tied to risky [Phonetic] index. So we have announced $150 since last October and we’re getting every dollar of it in the market.

I don’t know, Pete, if you have any other comment.

Peter G. Watson — President and Chief Executive Officer

Yes. So George, from a volume standpoint, again, as Larry said, we expect to have a strong end of the — strong second half volumes really consistent with what we’ve seen in Q2. In terms of pricing, to Larry’s point, just on URB, to give you a perspective, so our backlogs are nine weeks plus in this grade. Our customers are on allocation. We have no capacity to take on any new customers at any price. That’s how challenged it is. And as we both indicated, all our non-contract customers were up to full $150 ton price, and that’s a really very robust market. Our price guidance into our full year guidance is what we’ve realized in the indexes today. So it doesn’t forecast any future potential price changes, which we’re not going to comment on anyway.

George Staphos — Bank of America Merrill Lynch — Analyst

Okay. That’s great detail. I’ll turn it over, and good luck. Thank you.

Peter G. Watson — President and Chief Executive Officer

Yeah. Thank you, George.

Operator

Your next question comes from the line of Gabe Hajde with Wells Fargo. Gabe, your line is open.

Gabe Hajde — Wells Fargo — Analyst

Pete, Larry, good morning. Hope you guys are well.

Peter G. Watson — President and Chief Executive Officer

Good morning, Gabe.

Gabe Hajde — Wells Fargo — Analyst

Thanks for all the detail. Listen, I was — I guess more of a high level question, looking at kind of housing starts and just looking at some different research out there, talking about maybe potential for deurbanization. And like I said, if I look at the five year average for housing starts is around $1.25 million and projections for that to be $1.5 million plus. So I was kind of hoping if you could remind us sort of in your two different businesses where your highest exposure to construction and/or tangentially whether it’s carpet, tubes and cores and stuff like that? And what that business has looked like maybe over the past couple of years? And then what benefit they can provide? I know it’s difficult, maybe more in the GIP business, you don’t have great line of sight as to where some of these paints and coatings, etc., may ultimately end up. But just directionally, if that’s been a drag and could potentially be, like you said, medium term benefit for you?

Peter G. Watson — President and Chief Executive Officer

Yeah. Thanks for the question, Gabe. So in our paper packaging business, as you said, in our tube and core, some of the key end markets are carpet and products that will go into a house. And as you know, 2019, we had weak tube and core volumes, that was part of the end markets that were weaker. Those are starting to recover with the growth in homebuilding and home goods, etc. So that’s part of why we’re — our tubes and cores were up almost 6% year-over-year in the quarter.

Our restaurant paper packaging, CorrChoice and our mills, as you know, is our raw material supplier. So it’s more difficult to align the end markets in that business. But it does help indirectly for our mills and for our CorrChoice operations that provide products that go into new homes and buildings. On our GIP side, when you look at the chemicals that we produce, many of those chemicals are flexible foam or rigid foam. And those are all components that either go into furnishings, furniture, laminates, materials that go into home. So it certainly has been one part of the end market segment that has improved and will continue to help our business.

Larry A. Hilsheimer — Executive Vice President, Chief Financial Officer

Yeah. I’ll supplement what Pete said, Gabe, because a little bit of where you’re going not only in construction, but we all know what’s going on in the auto segment where things are robust, but shy of where they could be advanced or semiconductors. What’s interesting for us and what we’ve talked about before, Pete and I have had long view that we talked about even last year in this same call, but we thought the economy would recover well right now. And that thought that by ’22 we may be back to an;18 economy, that’s still our belief. And what’s interesting is that the volumes in our — the remainder of our year are still projected to be significantly below our ’18 levels. So we believe ’22 have even more positive in front of us. And now, a lot of that construction depends can they waiver,can and they get their work done.

Gabe Hajde — Wells Fargo — Analyst

Right. Okay. Thanks for that guys. And then I guess dialing in on GIP in the second quarter, I just want to make sure that I heard everything correctly. If there is directionally a $14 million swing I think in incentive comp and then $6 million benefit from raw materials last year that did not recur this year. And then even if I adjust for the $7 million swing in FX, it looks like there is effectively a 100% drop through from volumes, and I know that’s not the case. So I’m just curious, if you can parse out for us if there is any sort of benefit from better utilization or what the improvement was year-over-year? I know you guys are taking a lot of cost out. So I guess really what we’re trying to understand or I’m trying to understand is what the benefit is kind of go forward? What the normal drop through should be from volume versus structural cost improvements that you guys have made?

Larry A. Hilsheimer — Executive Vice President, Chief Financial Officer

Yeah. Gabe, one of the big drivers of the improvement in GIP is really about margin expansion that you’ve been seeing us drive over the past few years. And we talked about in prior quarters, the dramatic improvement that we’ve made in the mechanics of our pass-through mechanisms in tightening up what used to be a acceptable lag. And that really drives improvement in a period of time when you are having rapidly increasing raw material costs.

So a good bit of this margin expansion while we have done a good job of improving our cost management is really the margin expansion relative to pricing processes. And some of that is the annual — the openers for non-raws, some of it is making sure that in contract renewals we have been very aggressive on pricing because we knew we are facing into an inflationary period. And then the last component is the element of the mechanics of the PAMs. The manufacturing cost improvement has actually been a relatively minor part of this. So it’s really volume and margin expansion are the two components.

Peter G. Watson — President and Chief Executive Officer

And Gabe, one other part I would provide, we certainly had healthy market demand in our end markets, but we’re also seeing really good dividends from our strategic capital investments, particularly on IBC volumes and the IBC reconditioning in our investments in plastic drums. So we’ve also got three additional blow molders that are going into Houston, Shanghai, into Central Europe. So this strategic growth initiative and our resin-based products will continue to benefit that business as well.

Gabe Hajde — Wells Fargo — Analyst

Okay. So it’s a little bit of a mixed benefit. Thank you, guys.

Operator

Your next question comes from the line of Mark Wilde with BMO Capital Markets. Mark, your line is open.

Mark Wilde — BMO Capital Markets Corp. — Analyst

Thank you. Good morning, Pete. Good morning, Larry. Good morning, Matt.

Peter G. Watson — President and Chief Executive Officer

Hey, Mark.

Larry A. Hilsheimer — Executive Vice President, Chief Financial Officer

Hey, Mark.

Mark Wilde — BMO Capital Markets Corp. — Analyst

I wondered, just to start out, Larry, can you talk with us a little bit about what we should expect from kind of SG&A in the back half of the year? I mean, it’s a big jump here in the second quarter and it really offset a lot of the improvement in gross profit. It’s also above 11% level. So I’m just trying to figure out whether that type of level is something we should expect kind of through the back half of the year?

Larry A. Hilsheimer — Executive Vice President, Chief Financial Officer

Yeah, it’s a fair question, Mark. We continue to focus on how do we drive SG&A cost out of the business, and some of that has to do with the fact that the SG&A that we took over when we acquired Caraustar was higher than ours and we continue to work on that. Some of that’s been delayed because of the COVID impact on implementing our ERP system. Unfortunately, it pushed us back about six to nine months on various implementations, and that’s having some impact on our SG&A costs.

The incentive adjustment that we mentioned is just a play, just on performance year-over-year and that will play out over time to get back to our target levels, and thus, we’re far exceeding our targets, which is the case this year. So specifically, though, if I look to the back end of this year, and we do anticipate that SG&A expense for the remainder of the year would be about $0.21 per share of a drag relative to what was in the first half of the year. And that is because we will start to see more travel and entertainment, particularly relative to last year, but even relative to the first part of this year. Now we’re not going to go crazy on any of that stuff. We’re going to manage that to be significantly lower than it was pre-pandemic. But it is going to be higher in the second half of the year.

And if I look at operations as a whole, if I just walk you, so the first half of the year was $1.74 EPS. Operations, excluding the OCC impact, is going to be a lift of about $2.22 a share. And that’s offset in there, this $0.21 a share of higher SG&A expenses in the second half of the year versus the first half. And about $0.13 of that is additional incentive increases in the second half of the year as it’s earned out over the remainder of the year. Then you’ve got OCC offsetting things, about $0.60 impact higher OCC in the second half of the year than the first half. And I might just finish this log. $0.07 benefit lower interest expense, $0.51 a share higher tax expense because of higher earnings and then there is a $0.04 of the NCI and other miscellaneous stuff gets you to $2.96 for the second half of the year versus the first half $1.74. Hopefully, that’s responsive.

Mark Wilde — BMO Capital Markets Corp. — Analyst

All right. And then just as a follow-on, I would like to kind of double back on George’s question around pricing. You talked about sort of the fact that these open market non-indexed URB prices had been fully passed through. I’m just curious if we think about the paper segment overall, what would be approximate number and kind of just quarter-to-quarter improvement as we go into the third quarter? As I look at it, it seems like you must had a limited benefit in the second quarter from that second containerboard price hike. And I’d also like to get — so if you could confirm that? And then I’d also like to get some sense of where pricing is actually moving in the uncoated business on the converted products? So you’ve raised kind of open market URB prices, but what’s happened to tube and core prices? And what’s sort of a cadencing for kind of roll through in converted products?

Peter G. Watson — President and Chief Executive Officer

Yeah. So let me talk first about containerboard, Mark. As you know, that flowed through the benefit to our mill system, started at the end of the last month of our second quarter. So we’ll have full capture in Q3 on that $60 a ton increase. So we’ve got full capture on that. Downstream and corrugated, that’s been a very strong market. We have actually got benefit of that very quickly after the containerboard increases. So Q3 in our corrugated and containerboard system will have full implementation. That has been offset by higher OCC and higher chemical cost, adhesives, etc. But from a pricing standpoint, we’d capture that fully plus some of our converting.

And on coated, so we’ve announced $150 a ton. The index has only recognized $80. And as we both said, we have raised all our non-contract prices, the full $150 per ton price in the media effect. Downstream in tube and core, it’s very similar to our corrugated implementation. It’s been very strong. We’ve been very aggressive with it. And we are fully capturing that business pricing on the tube and core business. And really, look at PPS performance overall. Our converting businesses, CorrChoice and tube and core performed at very high levels. The big challenge we had is in our mill system where you have the price cost squeeze with OCC and chemicals and catching up on the price. So you’ll start seeing in Q3 and Q4 that realization is of price.

On coated CRB, we don’t cut downstream capability. We most recently announced $50 on that effective July 5. So the index has only recognized $70. And again, the non-contractual customers that are related to index are all up the $140 and the $50 will be implemented in July 5. So hope that covers what you’re looking for?

Mark Wilde — BMO Capital Markets Corp. — Analyst

Yeah, that’s helpful. Thanks, Pete. Thanks, Larry.

Peter G. Watson — President and Chief Executive Officer

Thank you.

Operator

Your next question comes from the line of Adam Josephson with KeyBanc. Adam, your line is open.

Adam Josephson — KeyBanc — Analyst

Thanks. Good morning, everyone. Hope you’re well?

Peter G. Watson — President and Chief Executive Officer

Good morning, Adam.

Adam Josephson — KeyBanc — Analyst

Good morning, Pete. Good morning, Larry. Matt. Larry, one on tax. So if I go back to your Investor Day in mid-2009, you were talking about a significant improvement in your tax strategy. And you mentioned your long-term targeted adjusted tax rate range was 26 to 30. If you hit the low end of your guidance this year, you’re going to be down to 22. So it strikes me as an exceptionally low adjusted tax rate even compared to what you were thinking two years ago when you had mentioned all the improvements you were making in your tax planning. So can you just help — and over the past four years, I think you’ve consistently outperformed your tax rate guidance from the start of each year. So what is your long-term tax rate expectation? Is this year anomalous in any way? And just help us understand what’s going on there, because you’ve been meaningfully undershooting the mark on tax?

Larry A. Hilsheimer — Executive Vice President, Chief Financial Officer

Yeah. I think actually if you look at it on an annual basis, most of the time we’ve been within the range but on the lower end of the range. But the — you’re right. When we did that conference back in ’17, that was what we laid out, but that was also pre-tax reform which lowered the U.S. tax rate pretty significantly. And that obviously was a benefit of few points on the range that we’ve provided then to where it is now.

The other element that’s impacting our tax rate is, I also had alluded at that point that we had a lot of reserves setup for some planning things that were — which were of a nature that required us to have reserves established. We’ve worked through a lot of the statute of limitations and a lot of exams in the U.S. and in other countries around the world. And as we’ve gotten through those, we’ve gotten favorable settlements on a lot of things. That results in those reserves being released because there is no longer contingent tax liability related to those. And those things are what’s causing some of the bumpiness in the tax rate on an overall basis. But if — I think the go forward becomes more difficult to project at this point, just because of what’s going on in the — within the new administration and their view on U.S. taxes, on corporations, but also the work that they’re trying to do globally to get into setting up minimum taxes on certain areas.

So it’s difficult for me to tell you right now what I anticipate our expected tax rate to be. I would say that if there was no changes in the current tax structure that over the next two to three years I would expect that our range would come down another point or so because of some other things that we’ve got going on relative to tax planning. And so I think our tax team has done a very, very good job of executing on the strategies that we were referencing back in that ’17 call. We’ve got another one or two arrows in the quiver that we’re going to do. And again, that is just subject to what happens on tax reform.

Adam Josephson — KeyBanc — Analyst

Got it. I appreciate that, Larry. And on cash flow, can you help us with the — you mentioned you expect a substantial working capital drag this year. Can you quantify that? The reason I ask is, your capex is going to be below normal this year. You will have a significant working capital drag. I’m just trying to project to next year because obviously the midpoint of your guidance this year is about 300, next year your commitment is around 430. So it implies about 130 million of improvement, part of that would be working capital, presumably no longer being a drag and maybe who knows what will happen with EBITDA next year. But I’m just trying to understand that the working capital and capex component specifically this year versus potentially next year.

Larry A. Hilsheimer — Executive Vice President, Chief Financial Officer

Yeah. And I mentioned in my comments the phenomenal job that our teams have been doing on managing working capital as a percentage of sales, which is the primary measure we look at because the cost of inventory is something that’s much more difficult to control whether talking about OCC or steel or resin. When you look at steel or resin, they’ve effectively both doubled in cost over the last eight months. And that then translates into obviously higher sales prices, higher receivable balances and higher inventory. And that’s what creates the working capital drag. It’s all driven by cost. It’s not driven at all by core management. As a matter of fact, our management working capital has been incredibly strong. So that’s what’s causing drag. It’s roughly 80.

Peter G. Watson — President and Chief Executive Officer

If you look at ’18 levels, it was like drag of, call it, $35 million and it’s pre-Caraustar. So it’s going to probably double that, Adam, to Larry’s standpoint.

Larry A. Hilsheimer — Executive Vice President, Chief Financial Officer

And on capex, I mean, the frustrating thing for us on capex is we’re ready and we’re willing to spend, but the reality of what’s impacted our capex spend is things out of our control. It’s — you can’t get the deliveries. I mean, people are running behind on producing equipment and — I’m sorry. Yeah, the IT piece, which I was going to go on to. We’ve not been able to execute, as I mentioned in response to Mark’s question, a lot of the ERP implementation because of COVID travel restrictions. And so that has differed the spending on the IT side as well.

So we go — we went into the year with a plan to spend in that $150 million, $170 million range. And now obviously, we’re looking at $20 million less. Again, our plan into the future, and we haven’t budgeted for next year yet, but it would be that it would be higher because we have lots of things we would like to get done, but we’re captive to what we can get delivered.

Adam Josephson — KeyBanc — Analyst

Terrific. Thanks, Larry.

Operator

Your next question comes from the line of Ghansham Panjabi with Baird. Ghansham, your line is open.

Matt Krueger — Baird Equity Research — Analyst

Hi, good morning, everyone. This is actually Matt Krueger sitting in for Ghansham. How are you doing today?

Peter G. Watson — President and Chief Executive Officer

Hey, Matt. How are you?

Matt Krueger — Baird Equity Research — Analyst

Hey, I’m doing well. Doing well. So given all the moving pieces on a year-over-year basis for the back half of the year, I was just first hoping that you could provide some added detail on the expected weighting of EPS between the two remaining quarters for the back half of the year. I mean, just given the meaningful acceleration implied, some of the comparison issues and then obviously all the pricing that you’ve layered in. Any help there would be great?

Larry A. Hilsheimer — Executive Vice President, Chief Financial Officer

Sure, Matt. I mean, I would say this, we get into this every year about what’s going to be better Q3 or Q4, and a lot of it just goes to when does the ag season harvest. I would tell you that going in, our assumption is that it’s going to be sort of a normal pattern and that our Q3 would be stronger than Q4, but they are not substantially different. I mean, you can basically take that differential on our EPS from that $2.96, divide it by two and skew it a little bit to three and little last to four, and that’s essentially it. I mean, it’s not — there is not a huge difference between the two quarters.

Matt Krueger — Baird Equity Research — Analyst

Great. That’s really helpful. And then I was just hoping that we could get some more detail on what the estimated impact from winter storm Uri was on the global industrial packaging business? Anything you can provide from a volume perspective? And then also any margin impact as well would be great?

Larry A. Hilsheimer — Executive Vice President, Chief Financial Officer

Yeah. We — in looking at that, we had about 41 production days across a number of plants. It’s not — so take about five days from — or six days on a few of them where production was just shut down and it impacted sales. So from a volume perspective, it was about $1.5 million impact. We had substantially increased utility costs after that storm, it was another million or so. And then we had some broken pipes and those kind of things from freezing because we have installation down there, it was another $100,000 or $200,000. So you got $2.7 million of actual cost.

Now there’s a lot of indirect stuff there that you ended up with force majeure actions going down into some of the businesses of our customers being impacted by things they couldn’t get orders and that impacted things we did not try to figure out all of that. We do know that our Gulf Coast regions, volume levels are significantly less than the other areas of the world. That gives us cause for optimism going forward and into ’22, because as Pete mentioned, we’re really — we’re just now starting to see volumes in our filling business start to pick up, and that’s a very good sign for us. So we’re pretty bullish going forward. But it was about $2.7 million.

Matt Krueger — Baird Equity Research — Analyst

Okay, great. That’s helpful. That’s it for me. Thank you.

Operator

Your next question comes from the line of Justin Bergner with Gabelli. Justin, your line is open.

Justin Bergner — Gabelli — Analyst

Good morning, Pete. Good morning, Larry.

Larry A. Hilsheimer — Executive Vice President, Chief Financial Officer

Hey, Justin.

Peter G. Watson — President and Chief Executive Officer

Hey, Justin.

Justin Bergner — Gabelli — Analyst

One big picture question and then just a couple of specific clean-ups. Big picture, outside of URB, are there other parts of your business in industrial packaging or paper packaging where you’re sort of unable to meet incremental demand?

Peter G. Watson — President and Chief Executive Officer

Supply chains are tight. Our demand is really robust. We are meeting demand for our customers. My comment, Justin, is really about anybody that’s new that we don’t do business with that we’d like to do business with in that substrate we just can’t, because our backlogs or demand is so great. But we have actually grown other parts of our business because of our reliability. Now that has forced a lot of overtime and a lot of six and seven day work weeks. But URB is a little more severe. We are doing a really good job serving our customers and ensuring that we’re meeting their needs in actually in our GIP business and our converting business in paper, we’re actually making some inroads, because of that reliability, and it’s all related to our customer scores continue to improve in spite of a tough demand environment.

Justin Bergner — Gabelli — Analyst

And moving to specific questions. Just to clarify, the $25 million incentive accrual headwind, that was all in Q2 and then there will be a smaller incremental effect in the second half. Is that incremental to the first half or incremental year-on-year?

Larry A. Hilsheimer — Executive Vice President, Chief Financial Officer

So the $25 million was a combination — or $24.6 million was a combination of last — so that was year-over-year, Q2. And last year we had — we decreased the accrual for incentives. And this year we increased the accrual for incentives relative to what we had budgeted. So that was that $25 million in the first. The second half is about the same. Again, for the remainder of the entire year, it’s about $52.6 million, at about — $52.6 million is what we’re currently planning on a year-over-year higher incentives.

Justin Bergner — Gabelli — Analyst

Okay. And then lastly, just on the tax rate. You mentioned that the tax rate might come down 100 basis points, but that’s not from the 26 to 30, that’s from the 26 to 30, which initially had come down a few hundred basis points because of the tax reform bill, correct? So it might be — it’s more than 100 basis points down from the 25 authority, just clarifying?

Larry A. Hilsheimer — Executive Vice President, Chief Financial Officer

Yeah. No, no, yeah, I’m talking about from where we’re at now and where we’re guiding to where we think we’ll be going forward.

Justin Bergner — Gabelli — Analyst

Okay. Thank you.

Larry A. Hilsheimer — Executive Vice President, Chief Financial Officer

Thank you.

Peter G. Watson — President and Chief Executive Officer

Thanks, Justin.

Operator

[Operator Instructions] Your next question comes from the line of Mark Wilde with BMO Capital Markets. Mark, your line is open.

Mark Wilde — BMO Capital Markets Corp. — Analyst

Yeah. Just a few follow-ups here real quickly. One, on the land sales. The gross price was just absolutely exceptional. Can you talk with us about sort of how the tax leakage looks? And how you’re thinking about the balance of the portfolio when the land business — if we ever get down to a point where just scale in that business is an issue?

Larry A. Hilsheimer — Executive Vice President, Chief Financial Officer

Yeah. Sure, Mark. First of all, I’ll just say, I’ll answer your second question first. We don’t have any intention to liquidate anymore of our land portfolio. We talked about that, for strategic optionality, we view it that way. It obviously helps us on our interest rate, and we like the business. And we had some unique circumstances, I mean, we always talked about rainy days and I think it was raining pretty hard last year. So we decided to execute on it.

And that goes also to the other factor that drove that because of some other tax planning that we had been doing relative to timber gains that had been deferred from transactions a decade ago, we recognized that we had some capital losses that were available for us to utilize, to offset gains on timber transactions. And so that played into what we executed on. The gain ended up being more than we thought, because as you said, we got values per acre that were outside anything that bankers told us they thought they could get, which was obviously good news. But at the tax leakage, it was minimal. We were basically able to utilize other tax loss carry-forwards that we had available to us to eliminate any federal tax. We had some small state and local taxes, and that was it.

Mark Wilde — BMO Capital Markets Corp. — Analyst

Okay. Another follow on I had was probably perhaps more for Pete. And that is just, can you give us a sense of sort of supplies and approximate market share on the IBC business? I remember when you bought Fusti about 11 years ago, it was kind of the number three player in the market, first time with a dominant guy than miles are. And so I think your strategy was to kind of expand our geographic footprint and try to pick up some share. So I wondered if you could just give us a sense of how big that business is right now? And sort of where you would see yourselves vis-a-vis the competition? And finally, how rapidly is that market growing overall right now?

Peter G. Watson — President and Chief Executive Officer

Yeah, Mark. So we’ve got about 30% global market share in IBC and IBC reconditioning, and we’re third behind the two privately-held companies, so [Indecipherable] We’ve stated that that’s a high growth area. We’ve made capital, strategic capital investments. We now have 20 IBC blow molders around the world. We’re in the process of adding three. That is a business or a product line that’s growing mid-to-high single-digits. So it’s the fastest growing product line on a global basis in our portfolio.

And I think what’s really important too is, in the last two years, we’ve either done joint venture partnerships or strategic partnerships with re-conditioners to create a really compelling end-of-life product service, and that creates a really circularity play for IBC. So it’s really important part. And right now, our biggest footprint is in Europe. We are growing our North American footprint. And as I said, we’re adding a second line into Asia, now in China. So — and also, when we look at the product portfolio in GIP, prior to this strategy, we were — over 60% of our product mix was in steel drums, that’s moved to 50%. And our resin-based products now are well over 20%. So you’ll continue to see that transfer and switch in terms of portfolio mix a little bit more into the resin-based products, IBCs, plastic drums and less on steel drums.

Mark Wilde — BMO Capital Markets Corp. — Analyst

Okay. And then if I could slip one more, Pete. I just wanted to talk briefly about the boxboard business. One thing is I’m assuming that some of the tightness that you’re experiencing in URB is the outcome of having shutdown Mobile. But I’m just curious, you’ve got those two coated mills, and I wonder whether you might convert that URB at one of those mills? And whether in the CRB business, the two remaining mills, whether they kind of risk being kind of behind the technological curve? It just seems like with what Graphic is doing at Kalamazoo, we’re seeing more and more of the CRB business moved to Ford when you’re machines that can do kind of multiplies and maybe offer customers improvements in performance and basis weights. So just to get your thoughts around potential conversion and where you stand from just a technological standpoint there?

Peter G. Watson — President and Chief Executive Officer

Yeah. In the URB side, we close the mill — two machines mills in Mobile, 140,000 tons. That was a combination of — it was a really high cost Q4 mill that when we ever had economic downtime back in ’18 and ’19, it was always in that mill, and it needed a pretty significant amount of capital. So we decided to close it. The benefit obviously was that it created more volume than the rest of our system. We do have the capability in one of our CRB plants to run both European CRB, and we do that now. So there is a possibility that that machine could run more URB products in the future. I’m not going to say that’s what we’re going to do.

So it really remains with two pure-play CRB machines, one in the Midwest and one in the West Coast. They’re operating fairly consistently now. We have nice niches in those markets. So I wouldn’t say we compete specifically with some of those newer machines. So we find our niches really high service, very responsive. So I think those two machines will stay CRB. What we do in the future regarding our boxboard system, we’re evaluating some of that, but we really don’t have anything material to comment on that right now, but we are evaluating that.

Mark Wilde — BMO Capital Markets Corp. — Analyst

Okay. That’s really helpful, Pete. Good luck in the second half of the year.

Peter G. Watson — President and Chief Executive Officer

Yeah. Thank you, Mark.

Operator

Your next question comes from the line of George Staphos with Bank of America Securities. George, your line is open.

George Staphos — Bank of America Merrill Lynch — Analyst

Thanks. Hi, guys. My line disconnected. Two quick sort of clean-ups from me. One, Pete, I think you mentioned that URB lead times are nine weeks. If you could affirm that or correct that if I got it incorrectly? And really more relatedly, what are you seeing right now in terms of your lead times as you — and back on this, you can measure them on the containerboard side? And then on capex, recognizing it wasn’t your choice, you’re going to be $20 million lower this year. Where are you finding you can’t spend, you mentioned, ERP systems, I think in answering Mark’s question earlier. Are there any places where that lack of being able to install what you wanted is creating stress in your business, and therefore, are there any sort of important things that we need to focus on for ’22 in terms of what you need to get bolted in so that the year progresses like you’d like? And should we just similarly expect if you’re at 130, 150 this then maybe next year is

Pushing closer to 200 as we do normal plus add on another 20? Thank you, and good luck in the quarter.

Peter G. Watson — President and Chief Executive Officer

Yeah, George, just to comment, backlogs in URB are at nine weeks. Containerboard is eight to nine weeks depending on machine. So they’re really robust markets and those backlogs reflect that.

Larry A. Hilsheimer — Executive Vice President, Chief Financial Officer

Yeah. On capex, George, the delay in the ERP system is not anything that’s going to materially impact our operations in any negative way at all. It does delay some opportunities for efficiency gains and back office operations and that kind of thing, but it’s not significantly material. The other element on the capex is growth plans where we have things where we’re going to put in by new paint lines or new other equipment or things like that, and we just can’t get the deliveries. We’re still able to operate. It’s not impacting that. It’s just not again allowing us to get to the improvements that we’ve been working to build.

As to whether it will end up resulting in extra spend next year, probably not, because you get into just a human capital capacity what you can get done in a given year. So I would expect, but we haven’t finished our process yet for budget for next year that we’ll be back in the 150 to 170, but that could change, and we’ll talk about that as we go into guidance in our December call.

George Staphos — Bank of America Merrill Lynch — Analyst

All right. Thanks very much, Larry. Thanks, Pete. Good luck in the quarter. See you soon.

Peter G. Watson — President and Chief Executive Officer

Thanks, George.

Operator

Your final question comes from the line of Adam Josephson with KeyBanc. Adam, your line is open.

Adam Josephson — KeyBanc — Analyst

Thanks very much for taking my follow-up. Just a two part one, Larry. So when you talk about re-instituting guidance just based on better visibility, is that better visibility because you only have five months left in the fiscal year at this point or because there is much less macro uncertainty? And how does that relate to what you might do next year in terms of giving guidance at the outset of the fiscal year? And the other question I had was, I guess, given that the beat relative to your initial guidance in the quarter was because of FX and tax, both of which are effectively non-operational, why pre-announce the quarter? Thank you very much.

Larry A. Hilsheimer — Executive Vice President, Chief Financial Officer

On your first question, it’s both. Adam, the — in fact, we only have five months left, plus the fact that the economy has played out like Pete and I thought it was going to, and it just became more reaffirming. And so we feel very confident about our view of the remainder of the year. I can’t imagine any reason why we would not give annual guidance in December. That’s been our plan is to go back to our old practice.

Relative to why did we pre-announced, I’ve always operated on, if you’re going to — subs are going to change more than 10% from what you’ve already got out there, then you probably have to tell people that when you know it. So we used that as our guidance as to why. And the one thing I would comment on is, yeah, you’re right, if you can analyze it to say that this was really about FX and tax, but that doesn’t take into account the phenomenal improvement and operating performance in GIP, which overcame transport, higher other cost, overtime cost and incentive accrual adjustment. So we’re pretty bullish about where things are right now.

Adam Josephson — KeyBanc — Analyst

Thanks so much, Larry. Good luck in the quarter.

Larry A. Hilsheimer — Executive Vice President, Chief Financial Officer

Thank you.

Operator

This concludes our question-and-answer session. I will now turn the call back over to Matt for closing remarks.

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

Thanks very much for joining us everyone today. We hope you have a great remainder of your week and also weeks ahead. Thank you.

Operator

[Operator Closing Remarks]