Participants

Curt Worthington; Vice President - Strategy, Investor Relations; Pactiv Evergreen Inc

Michael King; President, Chief Executive Officer, Director; Pactiv Evergreen Inc

Jonathan Baksht; Chief Financial Officer; Pactiv Evergreen Inc

Ghansham Panjabi; Analyst; Robert W. Baird & Co. Incorporated

Phil Ng; Analyst; Jefferies

Arun Viswanathan; Analyst; RBC Capital Markets

Adam Samuelson; Analyst; Goldman Sachs

George Staphos; Analyst; Bank of America

Presentation

Operator

Good day and thank you for standing by. Welcome to the Pactiv Evergreen First Quarter 2024 earnings conference call. (Operator Instructions) Please be advised that today's conference is being recorded.
I would now like to hand the conference over to your speaker, Curt Worthington, Vice President of Strategy and Investor Relations. You may begin.

Curt Worthington

Thank you, operator, and good morning, everyone. Welcome to our first quarter 2024 earnings call. With me on the call today, we have Michael King, President and CEO; and Jon Baksht, CFO. Please visit the Events section of our Investor Relations website at www.PactivEvergreen.com and access our supplemental earnings presentation. Management's remarks today should be heard in tandem with reviewing this presentation.
Before we begin our formal remarks, I want to remind everyone that our discussions today will include forward-looking statements, including those regarding our guidance for 2024. These forward-looking statements are not guarantees of future performance and actual results could differ materially from those contemplated by our forward looking.
Therefore, you should not put undue reliance on those statements. These statements are also subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect. We refer all of you to our recent SEC filings, including our annual report on Form 10-K for the year ended December 31, 2023, and our quarterly report on Form 10 Q for the quarter ended March 31, 2024.
For a more detailed discussion of those risks. Forward-looking statements we make on this call are based on information available to us as of today's date, and we disclaim any obligation to update any forward-looking statements except as required by law.
Lastly, during today's call, we will discuss certain GAAP and non-GAAP financial measures, which we believe can be useful in evaluating our performance. Our Non-GAAP measures should not be considered in isolation or as a substitute for results prepared in accordance with GAAP and reconciliations to the most directly comparable GAAP measures are available in our earnings release.
And the appendix to today's presentation. Unless otherwise stated, all figures discussed during today's call are for continuing operations only.
With that, let me turn the call over to Pactiv Evergreen's, President and CEO, Michael King. Mike?

Michael King

Thanks, Curt, and good morning, everyone. Thank you for joining us today. Let me begin by commending our team on their efforts and contributions during the first quarter of 2024. The team's dedication to our continuous improvement culture and commitment to delivering for our customers positions Pactiv Evergreen to adapt to dynamic market conditions and create value for all stakeholders.
Turning to Slide 4, I'll start by highlighting the progress we made against our strategic priorities during the first quarter. Then I'll discuss some internal and external dynamics. We have been observing and actions we are taking to position the business for long-term success. John will then provide updates on our key financial metrics and discuss our outlook for 2024. At the end of the call, we'll open it up for Q&A.
Turning to slide 5, I will start with a few key themes that underpin our performance during the first quarter and also provide some context on our progress against our strategic priorities.
First, despite the first quarter presenting us with a new regular business environment, our team delivered solid results adjusted EBITDA for Q1 of 2024 was $168 million, which was at the high end of our guidance provided during our fourth fourth quarter earnings call.
Our results largely reflect a lower pricing environment, which was partially driven by lower raw material cost and the cumulative effect of sustained price inflation on consumer spending, resulting in lower volumes. We also saw higher employee related costs, partially offset by lower manufacturing and transportation costs.
Volumes decreased 3% in the quarter compared to the prior year, primarily due to a focus on value over volume in the Food & Beverage Merchandising segment volumes also reflected the market softening amid inflationary pressures.
During the fourth quarter earnings call, we highlighted weather related reductions in restaurant food traffic and the residual impact on our customers' supply chains, we were able to mostly offset this dynamic as well as the impact it had on our results.
Second, we find ourselves navigating a landscape that remains dynamic. While there are signs, the economy is still buoyant and overall inflation has moderated compared to the last two years, we hear from our customers that the financial health of the average consumer in the United States is still strained.
Since early 2020. Consumer prices have increased 21%, while food prices have increased 26%. At the same time, reports indicate that the total household savings have been depleted to below pre-pandemic levels. The net effect as a cautious consumer, who is still adjusting to a potentially lasting step change and the cost of living.
Third, I want to underscore that we are executing on a multiyear playbook of cost management initiatives. As I mentioned earlier, the broader market environment remains dynamic. We believe our disciplined approach and focus on managing our costs will help us navigate the current market conditions from manufacturing cost reductions to logistics, process improvements our teams are focused on identifying inefficiencies and eliminating unnecessary expenses.
We expect sequential improvements into the second half of the year, providing an additional layer of earnings momentum in 2024. While we expect the effects from recent inflationary uptick to persist through the second quarter before we see the foreseeing signs of improvement during the second half of the year, our focus remains on building volume momentum.
We are leveraging our long-standing partnerships with blue-chip customers in addition to our innovative product portfolio to gain share across our end markets. On that front, we've entered into agreements with new and existing customers across our business, including QSRs, distributors and CPG customers and expect those to ramp up during the second half of 2024, demonstrating our ability to execute.
And when we continue to invest in robust data analytics that enable us to better allocate resources to the markets that maximize our profitability. We are then able to leverage this capability to make informed choices that ultimately guide our portfolio and underpin our value-over-volume approach. We are also prioritizing our customer service levels, which have remained strong. The actions we are taking today are consistent with our transformational journey, and we believe they position us for long-term sustained growth.
Fourth, we are reiterating our full year outlook. While John will provide greater greater detail around our specific assumptions and want to provide some context. We are well positioned and expect to see an improvement in volumes during the second half, partly due to seasonality, but also due to our pipeline of customer wins, which are expected to ramp as we progress through the rest of the year.
In addition, we have line of sight to a number of cost-saving actions through the second half of 2024 that we expect to help us generate year over year adjusted EBITDA growth, given the actions that we have taken previously, our company is better equipped to adjust to market signals than in past years.
We are able to scale quickly to evolving market conditions while simultaneously capturing cost savings opportunities regarding the recent rise in inflation data, which is a bit of a divergence from the previous multiyear improvement trend, we do not currently anticipate a meaningful change in the market dynamics during the second quarter at the recent uptick in inflation and the resulting effect on both the consumer and our customers persist. Beyond the second quarter, we would expect our full year guidance to come in at the lower end of our guidance range.
Turning to slide 6, I will address other key drivers influencing our performance through 2024 year to date restaurant foot traffic is down compared to last year, reflecting the weakened consumer health and continued trading down to lower cost food options. And to a lesser extent, the severe weather experienced in January.
We continue to leverage our unique value proposition with our customers, which we believe has allowed our foodservice business to outpace its end markets and has supported strategic value over volume decisions within our Food and Beverage Merchandising segment.
Over the last few months, the pace of inflation has accelerated, which has made the current environment less conducive to a volume improvement many of our customers that were able to grow earnings over the past several years by trading volumes for pricing are leaning more heavily on their own cost structures to offset heightened price sensitivity by consumers.
We have reached a point where after several years of persistent inflation, consumers are less able to absorb further food price increases. While commodity input costs have trended down over the past two years, recent macroeconomic developments suggest that raw material costs may trend a bit upward. For example, the price of oil has recently increased, which has introduced more volatility in resin prices compared to last year.
That said, we ultimately pass the resin costs onto our customers and do not expect the recent volatility to have a material impact on results in the near future. We are also taking actions to mitigate the impact of higher oil prices on our transportation costs. We continue to monitor and navigate the dynamic nature of our business. We are confident in the actions we have taken over the last several quarters to position us to deliver against our long-term strategy, as evidenced by our Q1 results with that, I would now like to turn the call over to Joe. John?

Jonathan Baksht

Thank you, Mike. I'll start with our first quarter highlights on Slide 8. Before I cover the results in detail, I'll provide some context for our performance in the quarter. As we outlined in March, we expected our Q1 results to be impacted by lower volumes and the continued adjustment of consumers to higher for longer inflation.
We also outline the actions we're taking to build earnings momentum for the remainder of 2024, including volume growth and cost improvements based on that backdrop, Q1 was generally as expected. We reported net revenues of $1.3 billion for the quarter, which represents a decrease of about 13% compared to last year.
The decrease was largely due to the closure of our Canton North Carolina mill operations during the second quarter of 2023, lower pricing due to the pass-through of lower material costs and lower sales volume. Lower sales volume generally reflected a focus on value over volume in the Food & Beverage Merchandising segment and market softness and that inflationary pressures, excluding the impact of the Canton mill closure, our revenue was down approximately $95 million or 7%.
Overall, volumes were down 3% in the quarter. Foodservice volumes were slightly negative year over year, but outpaced industry foot traffic trends, which were down more than 3% during the quarter. Food and Beverage Merchandising volumes decreased mainly due to strategic value over volume decisions as we continue to optimize the portfolio underlying industry demand and Food and Beverage Merchandising, it was roughly flat outside of those actions.
Price mix was down 4%, which was mostly a function of lower contractual pass-throughs driven by lower raw material costs compared to the prior year period. Adjusted EBITDA was $168 million at the high end of our guidance range provided in March, but an 11% decrease compared to the prior year.
The decrease in adjusted EBITDA reflects lower pricing net of material cost pass through reduced sales volume and higher employee related costs, partially offset by favorable manufacturing and transportation costs.
Our adjusted EBITDA margin was 13.4% compared to 13.2% in the prior year period. Our year-over-year adjusted EBITDA comparison also reflects the one-time impact from the extension of key business of approximately $8 million in Q1 of last year. This had a positive impact on prior year adjusted EBITDA margins.
During the first quarter, free cash flow was negative $74 million, which was impacted by seasonal factors, including typical inventory build ahead of the summer season in Q2 and Q3. By comparison, during Q1 of last year, we experienced a working capital benefit as we were in the process of working down our strategic inventory build from 2022 entering this year, our inventories were closer to normalized levels.
As a result, I would characterize inventory build in Q1 as more typical for our Company we remain committed to deleveraging our balance sheet and are focused on maximizing long-term free cash flow generation.
From a quarter-over-quarter perspective, revenues declined 2% due to lower sales volume decreases generally driven by seasonal trends in the foodservice segment, adjusted EBITDA was 19% lower, mostly due to higher manufacturing and material costs and lower sales volume, primarily due to seasonal trends in the foodservice segment.
Continuing to slide 9, we will look at results by segment, beginning with foodservice. Net revenues were down 3% year over year, mainly due to lower pricing reflecting the pass-through of lower material costs and unfavorable product mix lines or down marginally.
Foodservice is still contending with challenging consumer dynamics, but we believe our business is more resilient than the broader industry with our segment volumes outpacing industry foot traffic data price mix was down 2%, reflecting lower than expected demand from some of our higher-margin transactional relationships as well as a higher weighting to lower margin product categories, prices down slightly due to the lower contractual pass-throughs.
As Mike previewed during his prepared remarks, we have started to see increased price sensitivity from some of our foodservice customers. While we were largely able to offset this dynamic during the quarter, we anticipate this headwind will persist through the balance of the year.
Adjusted EBITDA decreased 15% compared to last year to $90 million, and adjusted EBITDA margins decreased by just over 200 basis points. The margin variance reflects unfavorable product mix, higher manufacturing costs and lower pricing net of cost pass-through.
On a quarter-over-quarter basis, our results were impacted mainly by lower volumes, which were attributable to seasonal trends. Similar to our year-over-year comparisons our volumes on a quarter-over-quarter basis outperformed broader industry foot traffic trends, which is consistent with our strategy to align with customers winning in their respective end markets.
Net revenues were down 5% sequentially, mostly due to seasonal volume dynamics. Adjusted EBITDA declined 20%, driven by lower sales volume and higher manufacturing costs.
Turning to slide 10, Food and Beverage Merchandising experienced a continuation of the themes from the fourth quarter as retail food at home prices are still elevated compared to historical levels, despite moderating more noticeably than food-away-from-home prices.
The end result is that consumers are curbing their spending and weighing their budgets towards staples like protein and eggs are produced. Packaging benefited from easier comps as heavy rains and flooding in California last year, delayed the harvest into the later part of 2023.
Our beverage carton business also benefited from non-dairy drinks that utilize our packaging format. On a year-over-year basis, net revenues were down 22%. Volumes are down mostly due to the Canton North Carolina mill closure in May 2023 pricing, largely due to the pass-through of lower material costs and lower sales volume.
Excluding the impact, funds are down 4%, mainly due to focus on value over volume and lower demand for discretionary food products like bakery items. Adjusted EBITDA decreased 1% compared to last year, primarily due to lower sales volume, unfavorable product mix, lower pricing, net of material cost pass-through, partially offset by lower manufacturing costs.
Adjusted EBITDA margins increased by just over 300 basis points due to progress in our beverage merchandise restructuring. First quarter of 2023 also included the onetime impact from the extension of key business of approximately $8 million in Q1 of last year I mentioned previously.
On a sequential basis, net revenues were up 1% due to a marginal improvement in sales volume, while pricing and mix were consistent over the prior period. Adjusted EBITDA declined 12%, largely due to higher manufacturing and raw material costs, partially offset by lower transportation costs.
Turning to slide 11, we have a summary of our balance sheet and key components of our cash flow. The slight uptick in our leverage during the quarter was expected as a result of an increase in net debt and lower LTM adjusted EBITDA.
However, we still anticipate ending 2024 with a net leverage ratio in the high threes in terms of free cash flow, we experienced a $74 million outflow, which partially reflects lower profitability compared to last year, as well as the seasonal inventory build heading into the summer months.
On Wednesday, we further amended the credit agreement to increase the capacity on our revolving credit facility from $250 million to $1.1 billion, materially enhancing our available liquidity and extending the maturity date to May 1, 2029.
We also amended the applicable interest rate and other pricing terms, including by replacing the facility fee with a lower fee on utilized unutilized capacity. There were no other material changes to the terms of the credit agreement.
As it relates to our capital allocation priorities. Our approach remains aligned with our long-term strategy and underlying consumer trends, we are committed to delivering profitable growth, which in turn will allow us to meet our goals to delever the balance sheet and preserve liquidity.
Our strong cash flow-generating capabilities provide us with the opportunity to reinvest in our business for growth. And we believe these actions will enable us to serve our customer base more effectively and operate more efficiently while enhancing returns to stakeholders.
Turning to Slide 12. As Mike mentioned, we are reiterating our financial guidance for fiscal 2024, including our adjusted EBITDA range of $850 million to 870 million. We expect near-term challenges such as lower consumer demand to persist into the second quarter. That said, we are also optimistic about the actions we are taking to mitigate costs, drive operational improvements and increase volumes during the second half of the year.
As Mike noted earlier, our Q2 results may be unfavorably impacted by the recent rise in the Consumer Price Index and overall food prices in March, which may temper the magnitude of the volume inflection outside of typical seasonal factors during Q2 against that backdrop, we believe the actions we have taken to build volume momentum in the second half of the year.
In addition to cost reduction initiatives, we have implemented position us to achieve adjusted EBITDA within our full year guidance range. To put a finer point on the second half inflection, we are guiding to we expect an improvement in adjusted EBITDA for the second half of the year of more than 30% compared to the first half.
Approximately half of that improvement is related to our Pine Bluff mill, which just completed a planned outage in April for the remaining sequential adjusted EBITDA growth volume accounts for the majority of the expected improvement, while the remainder is attributable to cost savings and favorable price mix for further context on the block volume growth component.
We expect most of that to be driven by seasonality and general market improvement with the remainder resulting from our strategy of aligning with core customers that are outperforming their end markets. In addition, our full year guidance is based on modest improvement in industry volumes predicated on continued moderation in inflation throughout the year, coupled with expanded volumes with several new and existing customers.
If inflation pressures persist and impact the consumer, our full year results will trend towards the lower end of our guidance range. Our full-year guidance for capital spending and free cash flow remains unchanged versus our original guidance. And we still expect net leverage to be in the high threes by year end.
With respect to the Beverage Merchandising restructuring, we have narrowed our guidance to approximately $160 million of cash restructuring charges and approximately $330 million of non-cash restructuring charges as of Q1, we have recorded substantially all of the expected restructuring costs for that initiative.
With respect to our footprint optimization plan, the expected restructuring charges remain at $50 million to $65 million and total noncash restructuring charges remain at $20 million to $40 million. These costs are expected to occur in 2024 and 2025. We will provide further updates on the footprint optimization as it is implemented.
To wrap up, our first quarter tracked closely to our expectations, driven mainly by the actions we undertook to position our business for second-half momentum and long-term growth. While we expect relative weakness in the near term, we are confident in our plans for the rest of the year within both segments of our business.
We expect to deliver margin expansion in the second half of the year, paired with improvements in the trajectory of volume and mix. Our team remains focused on executing our strategy and positioning our build business to build momentum and achieve our full year guidance.
With that, I'll turn the call back over to Mike.

Michael King

Thanks, Jon. Before we open up the line to Q&A and want to reiterate that we believe we have a robust platform that enables profitable growth and sustainable returns. We're an industry leader in Foodservice and Food and Beverage Merchandising and remain focused on generating sustainable returns.
Our management team has demonstrated a willingness to optimize the portfolio and deliver on our commitments. We continue to leverage our long-standing strategic partnerships with our customer base, many of which are blue-chip companies and are constantly working to innovate and develop the highest quality sustainable products.
We expect that the actions we are taking today will yield solid adjusted EBITDA and free cash flow generation, which we carefully manage to drive deleveraging and further growth through our disciplined capital allocation process.
In closing, I would like to thank all of the Pactiv Evergreen workforce for their continued commitment and hard work. I would also like to thank our valued customer and vendor partners for their continued commitment to our mutual success.
That concludes our prepared remarks. For that, let's open up the line to questions.

Question and Answer Session

Operator

(Operator Instructions)
Anthony Pettinari, Citi.

Morning, Brian Bird Meyer on for Anthony. Thank you for taking the question. And maybe just to start a question on kind of the revised outlook, and I totally understand that ongoing inflation has concern. Can you just maybe help us kind of understand the magnitude?
Is it greater on the top line and the former consumer spending and volumes, is it going to be greater on the bottom line from rising costs? And can you help us frame maybe which segment is seeing the greater impact right now?

Michael King

Yes, I'll take the front end of that. So we we reiterated our guidance. We didn't revise our guidance. So I just want to make sure we get that out there.

Got it.

Jonathan Baksht

Yes, sure. I'll reiterate a few comments that I made in the prepared remarks here. Just to give you a sense of where the improvement is coming from the second half improvement, we're expecting 30% our growth year over year, up from first half to the second half from an EBITDA perspective.
So 50% or approximately 50% is coming from Pine Bluff. As I mentioned, we had a planned outage in April, which is now behind us we also had some weather-related downtime at that mill on in the first quarter. So there will still be a meaningful improvement from just the operations of Pine Bluff of the remainder the majority is driven by volume.
Some of that is seasonality going into the back part of the year. Part of that is general market improvements as some of the I guess the the current market environment, we're expecting some easing there and as we mentioned, growing with some key customers. And so we've had some customer wins that will ramp up with some volume going into the second to second half of the year. The remainder is cost savings and some favorable price mix that we're expecting.

Got it. Got it. Thank you. Thanks for that detail. And then maybe just on those new business wins that you flagged, you've been talking about kind of winning alongside your strategic customers for a while now and maybe which end market is maybe winning the most. It sounds like it's in QSR.
And then is there any sort of trends or people I'm asking for more paper more plastic because about cups or trays? Obviously, any detail on kind of where those business wins are? Thanks. I'll turn it over.

Michael King

Yes, good question. So I wouldn't I wouldn't say it's in any one segment, I'd say we're kind of I see in our partnership across all of our end markets yield success. So as we've we've partnered now both on the Beverage and Food Merchandising side as well as the foodservice side, we're seeing new volume and share gains in just about every one of our channels. I would tell you, you know, we are we are not seeing any substrate, major substrate shift or anything at the moment. It's really pretty mixed across both fiber-based and poly. So hope it covers it.

Operator

(Operator Instructions)
Ghansham Panjabi, Baird.

Ghansham Panjabi

Good morning.

Michael King

Good morning.

Ghansham Panjabi

Michael, you know, just kind of go back to your comments, just trying to reconcile them. So at least from our vantage point last year was the year of a recession if you sold into the CPG channels and it's logical to assume that that sort of morphs into the foodservice channel as well. Is it is it your assumption that I mean, are you are you assuming that things it gets tougher in terms of foodservice as the year goes on or you actually seeing that I'm just trying to disaggregate your point you.

Michael King

So if you take Q1 as an indicator of the broader foodservice foodservice end markets. I think if you look at foot traffic, as we look at foot traffic is one of our indicators down close to 4%. If you look at our performance you know, we were substantially less at low single digit deal, [1.5-ish] type. So on the units for foodservice end-markets.
And if you think about kind of the the early days of Q2 here. And you know, our key customer earnings reports on the foodservice side, it's no secret that they're there beat up right now and that there needs to be, you know, a change.
And so back half your volume recovery for us and kind of what we're anticipating is kind of that low single digit recovery. So promotional activity still we've seen inventories get healthy here over Q1 with our customers, and we fully expect the, you know, the the joint kind of recovery would be felt the value they're trying to create the supply chain.
Our customers are creating the supply chain. It creates the ability for them to promote, and we'll see that come through largely in that low to single digit recovery with the end customer.

Ghansham Panjabi

But I guess with that and then your comments on the customer is less able to push pricing and focusing on the cost structures. Maybe you can expand on that. And then just the corollary to that would be your foodservice customers started stressing the value portion of their menus, which seems to be the case. Just judging by the comments they've made this week. How does that impact you?

Michael King

Yes, it definitely has an impact. We reported in Q4 that we started to see the yield. The customer approach start to shift, they certainly are looking for ways to create value, and they've turned up the other vendor bases. And so we're not insulated from that.
And so as we partner with our customers, yes, we're looking for ways to help them a way to create value within their own portfolios and then be there. Certainly there continues to be pressure on the entire cost structure.
So I would say that has certainly ramped up here in Q1, and we don't expect that to slow down in Q2. So yes, I think you got to get that right. I don't I don't anticipate and a shift in their inventory approach. Is there anything that would it will make the supply chain more fragile, but I do expect that they're going to our customers. And certainly we are looking to leverage our inventory, helped us to grow sales and promote the customers' foot traffic, especially in foodservice.

Ghansham Panjabi

Terrific. Thank you so much.

Operator

(Operator Instructions)
Phil Ng, Jefferies.

Phil Ng

You guys. Mike, I guess piggybacking on Ghansham's question of where perhaps you're seeing your customers under more stress? Is that largely a foodservice comment because a lot of the packaging companies that have more food and beverage consumer staple exposures are talking about, hey, the destock happened in fourth quarter. Things are kind of bottoming out in 1Q and perhaps get a little better in 2Q. Just kind of help us contextualize perhaps where things are a little more choppier and how we think about the back half, I guess?

Michael King

Yes. Thanks for clarifying that. It was certainly a foodservice comment. I kind of took Ghansham's questions specific to foodservice. Yes, I would say it's more mixed broadly. So we do feel a little better than half of our business is foodservice and the other the other bit is our Food and Beverage Merchandising segments.
And so those segments feel largely it's a mixed bag really. And so the destocking, I would agree with your comments on the destocking largely being over and we've now seen, you know, will normal seasonality and on the normal consumption trends happening.
So heading into Memorial Day, Mother's Day, Father's Day, yes, we're seeing protein season kick and grilling season with our with our protein business X has been really strong as the lowest cost protein in the market produce season is ahead of last year.
And it's ramping up sooner as we enter Q2. So that's a good thing. And if you if you think about last year when we had all the flooding, which delayed the various season and the fresh produce season, which we participate in.
And then we've also seen with the mix point, yes, we participate in retail. And so we still see a very depressed a big baked goods bakery with the consumer electing to spend their discretionary dollars elsewhere than on sweets and discretionary Qix and those kinds of things. So hopefully that I think I answered your question with that.

Phil Ng

Okay. But in terms of size for your food and beverage, food and beverage merchandise, I mean, I know there's some noise with the compares with Bill, that's your business you're exiting. But like on an organic basis, apples to apples basis, we shouldn't expect while your volume cadence into EBITDA worth to be softer, right on a yearly basis, maybe some modest improvement?

Michael King

Yes, we're flat to maybe low single digit improvement. Yes, that's what we're looking at.

Phil Ng

Helpful. And then one question for John. You gave some color in terms of how to think about the first half versus back half of the year from an EBITDA standpoint, sounds like 2Q will in all likelihood be down a little bit on a year-over-year basis, do you inflect positively by 3Q?
And what are some of the things that you have at your disposal? I know last quarter you're talking about playing catch-up on Cola. We're obviously seeing some movement on inflation on resin, but just kind of help us think through the EBITDA cadence on yearly basis in 2Q kind of progressing the 3Q and certainly you guys sound pretty upbeat about the back half.

Jonathan Baksht

Yes. No, thanks. That's a good question. And so I think that's the right way to think about it. I don't have Q2?Yes, maybe I'll start with Q2 and then we can talk about the back half a bit further. So Q2 does benefit from seasonality on a sequential basis.
And then if you look at year over year, volumes are relatively going to be flattish on building on Mike's comment, one thing to note about Q2 as it relates to just kind of EBITDA. Do we I mentioned that we have the Pine Bluff plant outage that was completed in April.
And the net effect of that is probably a $20 million impact to Q2 that's complete behind us. We don't have any other planned outages for the remainder of the year. And then if you look to Q2 and we still are in fact, in anticipating the impact of inflation on food prices, consumers are still being felt we're seeing that.
So in April, I think as you kind of go on to the back part of the year, we're expecting some of the actions that we've talked about to build some volume momentum in the second half. And so part of that is on the top line. We talked to Mike answer the question around customer wins, it was during the call.
So we are expecting some of that to to start being felt. And then the cost initiatives as you mentioned, the COLA clause does have a bit of a lag effect. We tend to do some of our labor increases at the start of the year.
And as those labor on a kind of add backs come back and you'll just start seeing that kick in more as the year goes on, plus we have several cost initiatives that are underway and those do take a bit of time to see start to start recognize that in the P&L.
But we expect several those cost initiatives and cost savings. It does start to building up throughout the year. And when I'm talking about some of those cost savings, even just bifurcating that there is a path to continuous improvement.
And those are initiatives that are that are underway and those are those are more than just the back half of the year benefits. We are those are longer-term programs that we have in place that we believe will continue to see some saving on.
And then just also to delineate the footprint optimization, which is a bigger program we introduced last quarter, I mentioned last quarter's call, but just to reiterate, a lot of those benefits will be seen really starting 2025, although we will see some benefits of that program again in Q4.

Phil Ng

I appreciate the color guys. Thinking in.

Operator

Arun Viswanathan, RBC Capital.

Arun Viswanathan

Great. Thanks for taking my questions. I just wanted to maybe get your thoughts on food. Bev merch seems like there's been some improvement there and you guys are still going through some restructuring, but nice to see a little bit of improvement there. So maybe it sounds like foodservice could be a little bit softer, but what are you seeing on the food beverage side? Thanks.

Michael King

Yes, I think on the food and bev merch. It's like I said on the prior question, it's still mixed. I think we're ahead of where we could be given year-over-year seasonality. So I mentioned the ag season. I think the biggest thing you're seeing improvement was in our food merchants, some pricing, Fidelity.
And so as we've it kind of eclipsed some some contracts and started to get some help on the US price cost side were our value-over-volume strategy starting to come through and that business, which was a little behind our foodservice business.
If you recall from the Q4 call, so overall, the teams doing well. I think they're also benefiting quite a bit from the PEPS improvements we've made. And so as those operations become more stable, that's also flown through.

Arun Viswanathan

Great. Thanks for that. And then I guess just on price cost, yes, having read resin prices may have moved maybe ticking up here a little bit. Obviously, you guys have pretty robust pass-through mechanisms, but maybe you can just give us your thoughts on and potential volatility if that would cause any volatility on your margin side and what maybe your outlook is for the yes, next couple of quarters.

Jonathan Baksht

In terms of some of the the impact of the kind of inflation impact on resins, we are seeing some of that. I think we're I think we're seeing on a cost perspective and probably two places in resin. And then also on a maybe on some transportation, I'll take them in pieces. So from a resin standpoint, we largely have a pass throughs on the resin for the majority of our business.
And so we do expect to recover that there. We've made a lot of efforts to reduce the lag that we have for those recovery programs. And so really on an on a year over on a on a this year basis, you really shouldn't see much of an impact really where you might see it is if we have a big spike or a big decrease at the end of the year, kind of November, December, and we don't recover that within year that might have an impact on our annual results.
But really anything that you're seeing come in the near mid term, there should be an impact to the P&L. We do touch a lot of that through. I think the and then as it relates to the transportation, we're relatively flat. We pass that through as well.
We have some capacities as it relates to customers where it impacts us. It could see an impact is on our transfer freight as we move some some products within our network. But we have other cost initiatives, savings programs, we're getting more efficient there, which will largely off set any impacts to the increase of. So And so net-net, we're really not factoring in anything for the year in terms of we should be able to insulate the business from any type of volatility in material pricing.

Arun Viswanathan

And then just lastly, sorry, just on the leverage. So it sounds like you guys are pretty committed and pretty confident that you will finish the year in the high threes and obviously the deleveraging I imagine will continue. So what's kind of the optimal target that you ultimately we want to strive for over the next couple of years?

Michael King

Yes, we're we're continuing to de-leverage. You know, we've only put out targets for this year, we haven't put out multiyear targets, but I could just say that we're not going to be satisfied in the high threes. That's where we can get to this year.
And we're going to keep going and we're looking to to substantially improve. We feel like some of the actions we've undertaken to date have helped, and we're continuing down that path. And even on top of that, we took a substantial action in increasing our liquidity and our available capacity under our revolving credit facility.
I'll just take a minute to point that out in terms of raising our capacity, our borrowing capacity from $250 million to $1.1 billion is something that, from a from a liquidity standpoint is a substantial improvement to our to our overall credit profile on top of the delevering that work that we're undertaking.

Arun Viswanathan

Thanks a lot.

Operator

(Operator Instructions)
Adam Samuelson of Goldman Sachs.

Adam Samuelson

Thank you. Good morning, everyone. So I guess the first question, John, maybe just to be clear and trying to get to the point on the $20 million on the Pine Bluff downtime or turnaround and the EBITDA cadence through the first and second half, or you're kind of implying second quarter EBITDA plus or minus about $200 million would be how that works if you're tracking it, but lower than the lower half of the full-year range. Is that the right outcome. Is that the right understanding you're generally on the right track at.

Michael King

And I think if you take my comments, we're not providing explicit guidance for Q2, but what I would tell you is when you look at my comments around second half improvements is 30% plus at the midpoint of our guidance range. That would imply a [206 for Q2, roughly speaking kind of just the math. But 30, we're expecting a 30% plus improvement. So really that's a that would take you down to a lower than the 206] from the over 30%.
So we're tracking to that. I think the $20 million of Pine Bluff, is it something that will impact Q2 at that that's factoring into the results there. Our expectations are, I should say.

Adam Samuelson

Got it, that's from. But that's very helpful. And then as we think about the footprint optimization and the Beverage Merchandising restructuring from a cash perspective, the Beverage Merchandising restructuring, the cash expenses are almost complete with only a couple of million dollars left from doing what you had spent last year and what your cash taxes this year.
And I want to confirm that. And then from footprint optimization, there's $8 million spent. And so that still most of that program is still to come, but I presume over the balance of this year, is that correct?

Michael King

Yes, that's correct. So when you we haven't changed any of our guidance for the footprint optimization as that program is really just getting underway and maybe taking pieces, the food and the Food & Beverage Merchandising restructuring.
As I mentioned on the call, we are largely complete with that program. And so our total cash charges did end up around the $160 million mark that we had guided to from a cash basis. And just to reiterate on the footprint optimization, how much of that is. We're anticipating this year, we're anticipating 2020 forecast charges in the $15 million to $20 million area for this year.

Adam Samuelson

Okay. That's helpful. And then just one final one. I know seasonally working capital ticks up in the first quarter, and that's what you saw. Do you think that there's room to get cash out of working capital this year, especially given the more muted volume environment that you're seeing in the near term?

Michael King

Yes. I think that's I think that is the right way to think about it I think working capital, we do expect to get some benefits there despite the negative working capital in Q1. But the big piece of that clearly was some of the timing of our accounts receivable.
If you look back to last year, Q1 was we had a similar dynamic and we anticipate that that should be worked through through the remainder of the year. And we will get some benefit of working capital included in our December guide, $200 million plus guide for free cash flow for the year.

Adam Samuelson

And that's from That's all really helpful. I'll pass it on. Thank you.

Michael King

Thank you.

Operator

(Operator Instructions)
George Staphos, Bank of America.

George Staphos

Hi. Thanks very much. Good morning, guys. Thank you for the details. Can you hear me okay?

Michael King

Good morning.

George Staphos

Good morning. So two questions. One, can you give us a sort of deeper dive into that, how you're integrating that, where you stand in terms of the continuous improvement program there and what it can mean in terms of margin in the next couple of quarters and next couple of years across the two segment.
Second question, to the extent that yes, freight and rail and trucking have been relatively benign to some degree that is it creates a competitive disadvantage for you because of your logistics and distribution network to the extent we saw reversal?
And are you seeing that at any bank channel, how do you leverage your captive distribution model and network to improve volume and share and competitive advantage versus your peers? Thank you, guys, good luck in the quarter.

Michael King

Yes, I'll take the perhaps. So good question. So we're still early days, and I just want to reiterate that. And so we've got 18 sites and certified brands, three silver, and we just enter first of all gold site in Kinston, North Carolina, and so 22 sites total certified. The program has largely been rolled out from an independent standpoint.
So independent evaluations have happened across the board. So all plants are operating on the same operating system in terms of actually value creation. So if you think about the first stage of hubs, it's really about stability George.
And so having the plants all in one system, it creates the portability of talent, allows us to insulate ourselves from our labor challenges and be able to move labor and so we have a total labor management system that allows us to leverage that.
And when you can go from plant to plant and understanding operating systems, the same in every facility it really allows us to leverage that. So the first phase is really about cost avoidance and stability. When you get to silver and you start to see cost improvement, our CI teams are building Six Sigma projects. And when you're gold, you actually have a forecast of savings that we build into the system.
So with only one gold sites, it's really you know, not about the dollars today, but long term, we look at this as a lever that we'll do a lot more than just offset inflation and really generate, you know, that ability that lever to handle true EBITDA growth and performance. We're not there yet.
We have 31 more sites to be certified, and that's going to happen over the coming quarters well into next year. So, you know, no Victory speech there yet, but we are seeing green shoots. We are seeing a shift in our plant's ability to be proactive and it's allowed us to really kind of stay ahead of the inflation that used to really hamper us on a Q-over-Q.
And one of the reasons we've been able to to weather some of the mix, mixed market and inflationary pressures. We've done this because of pubs so far. And so we expect more of that too early to really quantify, George, but it's something we look forward to updating the market on.

George Staphos

But presumably, Mike, without getting I know I'm putting a number on it. I can appreciate that as you roll this out more and more and to a degree you get more stability across your system, you should get also a requirement for less working capital.
It will be it will take inventory out of the system, you'll be able to obviously produce kind of at a more predictable level, not that you're obviously out of one right now and that should accrue benefits on return as well, which I think sometimes we don't appreciate. I'm sorry, go ahead.

Michael King

Yes, you're 100%, right. In fact, we are. That's like from an invoicing standpoint and efficiency standpoint, we are seeing those things come through, but you're exactly right.

George Staphos

And on the practice of distribution or kind of whether you're able to really leverage that or not at this juncture?

Jonathan Baksht

Yes, I'll take that one. And I think that if I if I understand your question right, I think you're implying that with without seeing more inflation in the loop in the logistics side of the business, maybe our distribution network, which is a differentiator isn't quite as different as a direct.
Yes, I don't know if I would necessarily agree with that. I mean, it is still a differentiator for our business and having having the built-out distribution network and being a light low cost distributor and having that value add to our customers, I mean, to your point, it's still a value add and differentiator for us.
And if pricing was to go up across the network for everyone, I suppose the different that that competitive bridge or the moat would only increase, but it is still there today and it's something that we are able to take a benefit from that I would make to this is at if you look at our foodservice business as an indicator, foot traffic was down near 4%.
The fact that we're able to provide mixed product and create value that our customers don't have to rely on themselves for regardless of inflation continues to set us aside, and we saw that with our performance in the year under [1.5 time percent] down on a units basis. So we outpaced foodservice foot traffic largely because of our ability to create value and partner with the customers that they see that value.
Now what I'd also tell you is our network is scalable. So I would tell you that to the to your earlier question on tariffs went to one of the good things about our hub and spoke network is we can adapt our plant operations to regional demand signals, we can adapt it to broader market and product trends signals.
And so our ability to scale back or scale up it is something that's for us been a focus and we've seen that come through as well. So whereas a big supply chain could often be a wait and economic downturn, we use it as a lever to actually adjust and scale if that makes sense, it does does.

George Staphos

Thank you for the thoughts, guys. I'll turn it over.

Operator

I'm showing no further questions. I would now like to turn the call back to Mike for closing remarks.

Michael King

Thank you. As we close today, I want to again thank the entire Pactiv Evergreen team for their hard work during the first quarter. We are executing on our strategy, and we'll continue to progress on our transformational journey in 2024. We look forward to updating you during our second quarter conference call. Thank you for joining today.

Operator

This concludes today's conference. Thank you for participating. You may now disconnect.