Ball Corp (BALL) 2008 Q1 法說會逐字稿

Ladies and Gentlemen, thank you for standing by.

Welcome to the Ball Corporation first quarter 2008 earnings conference call.

During the presentation all participants will be in listen only mode.

Afterwards we will conduct a question and answer session.

(OPERATOR INSTRUCTIONS)

I would like to remind you today's call is being recorded, Thursday, April 24, 2008, and now I would like to turn the conference over to Mr.

Dave Hoover, CEO of Ball Corporation.

Please go ahead, sir.

Thanks, Fadi.

Good morning.

This is Ball Corporation's conference call regarding the company's first quarter 2008 results.

The information provided during this call will contain forward-looking statements.

Actual results or outcomes may differ materially from those that may be expressed or implied.

Some factors that could cause the results or outcomes to differ in the company's latest 10-Q and in other company SEC filings as well as company news releases and if you don't already have that release, it's available on our website at ball.com.

Information regarding the use of non-GAAP financial measures may also be found on our website.

With me on today's call are Ray Seabrook, Executive Vice President and Chief Financial Officer; and John Hayes, Executive Vice President and Chief Operating Officer of Ball.

Well, we had a solid first quarter and good start to the year.

We said back in January that we expected it to be a challenge to meet our unusually strong results for the first quarter of 2007.

Our performance improvement is a result of focused efforts by all of our segments.

In particular, we're pleased with improved results in our metal food and household products segment and continued strong results from our European beverage can segment.

But we're all pushing hard to do better.

We're focused on the right things and are beginning to see momentum building in all of our businesses.

Ray and John will provide some color on our financial and operations performance and I'll close with a few comments about our outlook.

Ray?

Thanks, Dave.

Comparable diluted earnings per share for the quarter were $0.80, another first quarter record, up from last year's record per share earnings that were 86% higher than in 2006.

Higher European beverage can and food and household earnings together with lower share price -- share count -- more than offset the lower North American beverage can and aerospace earnings.

Turning to the operations, both North American beverage cans and aerospace produce record earnings in 2007 and lower segment earnings were expected in 2008.

First quarter North American beverage can earnings were lower due to inventory metal gains earned last year, not recurring in 2008, but earnings were better than expected due to good manufacturing performance.

Aerospace first quarter earnings were lower due to contract mix and reduced sales volumes.

Continued strong double digit sales growth in Europe including growth in custom beverage can sales volumes and the strength of the Euro were the primary factors in higher European beverage can earnings in the quarter.

The higher Euro added $0.04 per diluted share in the quarter compared to 2007.

The food and household segment is off to a much better start than last year, and as we said on our fourth quarter conference call, considerable earnings improvement is expected in this segment in 2008.

First quarter sales volumes are down from a year ago, but we anticipate part of this volume decline will be recovered later this year.

First quarter food and household earnings are much improved over 2007, due to better manufacturing performance and some price recovery.

Due to lower interest rates, interest expense is almost $2 million lower in the quarter compared to a year ago and full year interest expense should be at least $6 million lower than in 2007.

The first quarter effective tax rate of 32% is a little better than our initial expectation and should be sustainable for the full year.

Turning to cash flow, we anticipate full year free cash flow to be in the range of $300 million, including a one-time payment in January of $69 million related to our customer settlement reached in the third quarter of 2007 and some build up of inventory levels in 2008.

The full year free cash flow forecast also includes $350 million of capital spending which will be affected by currency exchange rates as many of our capital projects will occur in Europe.

As we said on our fourth quarter call, approximately 75% of capital spending will be in worldwide beverage can business and more than 50% of that spending will be for new top line growth projects.

Cost reductions and maintenance capital should be less than 60% of depreciation expense.

Net balance sheet debt at the end of the quarter was $2.6 billion, higher than in December 2007 due to seasonal working capital requirements, elevated stock purchases, and a stronger Euro.

Our December 2008 target is to have net balance sheet debt of $2.25 billion which assumes the Euro will weaken a little before the end of the year.

The announced $300 million stock buyback program for this year is proceeding as planned and in the first quarter we purchased a net $125 million of stock at an average price of under $45 per share.

With that, I'll turn it over to John Hayes.

Thanks, Ray.

As Dave indicated, we're generally pleased with the first quarter, but by no means are we satisfied nor content.

2008 is a year of execution.

There are a number of key operational initiatives underway to foster harmonization of processes, systems, and the way we conduct business to make sure that we are focusing on the right details and are fit for the future.

I will layout a brief summary of the first quarter achievements within the operations while also giving an update on the progress we are making and executing our strategic objectives.

The first quarter of 2008 got us off to a very good start.

Continued focus on cost recovery and our pricing initiatives, continuous improvement on the performance side of all of our businesses and business processes, our focus on growing our overall specialty packaging footprint, and executing on the various restructuring initiatives announced and continued disciplined international expansion are all proof points to the progress we are making as a company.

Now moving to first quarter performance.

Metal beverage packaging America and Asia came in above our expectations from a profit point of view despite difficult comps related to North American inventory holding gains on metal that benefited us in the first quarter last year.

Continued excellent operational performance, double digit percentage growth in specialty cans, improved efficiencies generated from our new end technology, and pricing initiatives were allowed by contract all played a role in offsetting the difference.

Overall, our volumes were down by more than 4% in North America due to slower CSD volumes in many of our dedicated supply points as well as reduced beer volumes as a result of our decision last year to not participate where we felt pricing actions didn't make business sense.

We announced yesterday plans to close our plant in Kent, Washington.

It was a difficult decision, but one that is required if we are to achieve our objective to ensure we are economically sustainable for the long term in our 12 ounce business.

We plan to redeploy those assets in other parts of our worldwide system, whether it be in other geographical regions or in other can sizes where we expect to generate more favorable returns.

Management will continue to monitor supply/demand relative to our current and expected future production requirements and is prepared to react to changes as required.

Our specialty can initiatives continue to bear fruit and we are on time and on budget for the anticipated third quarter start up of our 24 ounce can manufacturing line in Monticello, Indiana.

Our current specialty mix is approximately 17%, which is up nicely versus the same quarter one year ago.

In China, our volumes are up over 6% in this growing but competitive marketplace.

We are running at full capacity and are currently exploring ways to maintain our share of this market in the most economical way.

We continue to enjoy strong growth in Brazil, as the can market expands.

We are currently starting up 16 ounce can capacity in our [Jacquerie] plant to take advantage of rapidly growing demand for that package.

We are on track for the new plant in the Rio De Janeiro area which will start up next year.

In Europe, we continue to produce strong results.

Volumes grew over 13% while sales and EBIT grew more than 26% and 30% respectively, reflecting our efforts to recover costs and improve margins while continuing to invest in the future and expand our footprint for the future.

2008 will be another tight year in terms of of supply and demand, despite the full year effects of our new lines in Hassloch and Hermsdorf, Germany, and this sold out status reaffirms our need to add capacity to continue our profitable growth.

Our new facility in Poland we announced in January is proceeding nicely and we continue to make progress in India.

Volumes in growth regions continue to grow strongly.

Metal food and household products packaging achieved significant improvement in the quarter.

Driving this was renewed focus and discipline on cost recovery and the pricing of our products to reflect the value delivered.

Better operational performance also contributed in the quarter and our manufacturing people continue to focus diligently on improving the performance of our plants to sustainable levels.

Volumes for the quarter in this seasonally slow business were lower than expected and were down approximately 13% due in part to our decision to walk away from business that resulted in the closing of our Tallapoosa and Commerce plants, some unprofitable business we chose not to meet, and overall slower industry volumes as customers worked off higher finished good inventories carried in from 2007.

We expect, however, full year volumes to remain consistent with our expectations going into the year.

Our pricing initiatives for 2008 are largely completed and on target.

Our restructuring activities are on plan and while one quarter doesn't make a trend, nor a year, we are beginning to see the performance we expect out of this business.

I had a chance to accompany the senior management of this business through all of our facilities several weeks ago and we're encouraged by the alignment and resolve they have to make this business sustainable.

Momentum is clearly building in the food and household organization and disciplined focused on the execution of our plan should continue to deliver measured improvement in operating results in this segment.

Plastic packaging Americas results are improved over relatively easy comps.

Lower monolayer product volumes were offset by higher custom sales, resulting in an improvement in our mix from 12% custom to 16% custom in our PET business year-over-year.

While we continue to focus on our costs, we are are pushing all levers possible, including price, new passthrough models, and other measures with all of our customers in order to improve from these economically unsustainable levels.

While aerospace continues to perform well on its programs, but to a certain extent we are held back by a slowdown of the U.S.

Government to award new contracts.

Backlog for the quarter finished at $727 million which is down from $774 million at year-end.

2008 should be another good year, and while our backlog has declined due to many of those new government programs sliding to the right, we are aggressively pursuing and bidding on several new opportunities that can help to continue to grow the growth of this business.

Our renewed focus on embracing the leadership role, revenue and value management, operational performance and driving more employee engagement across Ball is beginning to bear fruit.

We are excited about what the future holds if we successfully execute on the plans and objectives we have set for ourselves.

With that, I'll turn it back to Dave for some closing comments.

Thank you, John and thanks also, Ray, for your comments.

We're building new facilities internationally in growth markets redeploying assets to achieve greater returns on them, consolidating operations to improve results and raising the bar in our ongoing efforts to have leaner, more efficient businesses.

We said in our January call we were going to work hard to exceed last years results for the full year, and it's only April, but we're more confident that we'll be able to achieve that.

The middle two quarters of the year are usually the strongest quarters in our company.

Historically the third quarter is better than the second quarter.

We're also expecting to return at least $350 million to shareholders through dividends and stock repurchases this year.

Total dividends and share repurchases through the four years from 2005 to 2008 should exceed $1.1 billion.

All of this is occurring while improving our credit quality and appropriately investing for the future.

We see opportunities to improve our operations over the next two to three years.

We have plans in place to build on our early momentum and we are focused on executing those plans.

And with that, Fadi, we're ready for questions.

(OPERATOR INSTRUCTIONS) The first question is coming from the line of George Staphos with Banc of America.

Please proceed.

Thanks, hi, everyone, good morning.

I guess first question I had is on the operation, John, or Dave, or Ray if you could give a bit more color on what kind of improvement you were seeing by project, what benefit perhaps you've been getting out of operations, reduced spoilage, et cetera, and how that helped in the quarter.

Can we at this juncture 12 months hence talk perhaps how much the inventory gain was last year so we have a base for comparison?

And if not we understand, and then I had a follow on.

George, you need to get a little more excited.

Be like we are.

But yes, I think we can talk around all of those points.

Yes.

The inventory gain in last year's first quarter was $43 million.

Okay.

Project net we've always advertised delivering a return somewhere between 10 to 15%.

We think that return is about 13%, and that is one of the contributors to the improvement in our performance in the first quarter in U.S.

beverage -- project net is working exactly as we had planned.

Have you got any other comments?

No, I think that summarizes it well.

What else are you seeing -- I am excited!

I've just balanced it.

Okay, well you sounded like you were a little slow off the mark here, I just wanted you to be okay, George.

Oh, come on!

I'm recommending your stock too.

So in any event, tell me a little bit about what's going on with spoilage and operations otherwise and how that might have helped the quarter?

Well, yes, George, our operations are performing terrifically well.

As you know, manufacturing excellence is a hallmark of Ball and we've been doing very well on that and continue to do well on that.

I don't think we ever will or going forward we will break out exact spoilage for a variety of reasons, but we are seeing improvement throughout all of our manufacturings, not only in beverage can but I think across the board in all of our product lines.

Okay, last one and I'll turn it over.

In food can, the performance was significantly ahead of last year, so congratulations on that.

Again, if you could somehow give us a bit more clarity in terms of how much of it was productivity, how much of it was priced -- when I take some of your details discussed thus far, it seems like pricing was up high single digits, low double digits.

Would you care to comment on that?

Thanks, guys.

Yes.

I think on the food and household products side, we have a variety of moving pieces, as you know we're in the process of our restructuring that business with Tallapoosa and Commerce.

The manufacturing plants are performing better.

But what I'd tell you is we still have a lot of room for improvement and our manufacturing people know that and are very focused on achieving that.

On the cost recovery side we've tried to be very disciplined because as we go through it and everyone knows what's been going in the raw materials market, we have to recover those costs and we have been diligently focused on that and the sales and marketing people have done a very good job in a very difficult environment to make sure that we are getting value for our product.

And on net pricing then?

You had mentioned upper single digits lower digits.

It varies by customers and we have contracts all over the Board but we are recovering those costs and I think you're generally in line with what we would expect.

All right thanks, guys, I'll turn it over and I'll try to drink some Jolt or something.

Monster maybe.

Thank you.

The following question comes from the line of Ghansham Panjabi with Wachovia Securities.

Please proceed.

Hi, guys, good morning.

Good morning.

The closure of the Kent plant, is the capacity going to be reallocated towards specialty cans or is it just sort of rebalancing your supply/demand footprint?

Well, in the short-term it's rebalancing our supply and demand footprint because we were not earning appropriate returns on that equipment and so we have as you know, we have a lot of international expansion going on and we're taking a fresh look at where we can redeploy that equipment.

Much of it is 30 years old, so when it comes to some of the equipment we aren't going to be able to move it.

But we are very diligently looking on how to reuse that equipment in a more effective way.

Okay, and in Europe, this business has been tremendous for awhile now.

Volumes up 13%, off of very very tough comparison.

Given some of the slowing we're seeing on the consumer side in the U.S, some thought that maybe Europe is not too far away in terms of a slowdown.

What do your customers say about the outlook for the rest of the year and are they trying to sort of brace for a slowdown in that particular market?

Thanks.

No.

As of right now we're not really seeing anything.

There's a couple of factors that are impacting that.

Number one, we have the Olympics and we also have the European world championship which is very good.

As you know, we have a more weighting towards beer than we do soft drink in Europe, which helps in that, and the other thing is the can unlike North America, the can generally in Europe is more of a premium package.

So actually, a lot of the volume has been coming from as it starts to go down a little bit mainstream, it starts to get into the multi-packing and gets into better distribution, whether it's in Eastern Europe or Western Europe as well, that's all helping.

So we're seeing no slowdown.

There's an interesting statistic though that is important.

As you know, the can in particular is a take home package in many parts of the world.

And in recessionary times at least in the U.S, at home food consumption goes up 4%.

And when you put those two together, we think we're relatively recession proof.

Okay, and so if I were to think of just one final question if I could.

If '08 is sort of boosted by some pricing and metal food along with productivity and Europe obviously sounding like it's going to continue for awhile in terms of strength there, is it fair to say that in '09, maybe '10 maybe pricing in your other businesses start to improve, particularly plastics and maybe North American beverage cans as well?

Is that right?

Yeah I think that comments I made at the end about the next two to three years, each year we think can benefit from a bit of a different lift and everybody has got to get better.

We've got a lot of work to do to accomplish that, but we see a pretty good track for the next two or three years and for those reasons that you were talking about.

Okay, great.

Thanks so much.

Good luck in the quarter.

Thank you.

Thank you.

The following question comes from the line of Claudia Hueston, JPMorgan.

Please proceed.

Hi, thanks very much, good morning.

Good morning.

Just had a couple of questions on the metal, food and household business as well.

I was hoping you could talk maybe just a little bit about the demand trends in the sub-businesses there and comment on what gives you confidence that volumes will recover in the second half there?

Well, there's a couple of things going on.

I'd mentioned that our customers had finished 2007 with higher finished goods inventory.

We don't expect growth in that business, but as you try and neutralize what we walked away from in terms of the aerosol side and some of the other things, we expect roughly flat volumes adjusted for those conditions.

Obviously as we say every time this year, it depends on how the weather goes this summer and other things like that but we see no reason to think that anything is going to be materially different than it's been in the past, and that's what our conversations and our planning is with our customers.

Yeah, that business for us is more seasonal even in the beverage business but recall that the first and fourth quarters are the slow quarters for our company and the middle two are the stronger ones so I just echo what John said.

Okay, great.

And then just in terms of continuing to improve the profitability there, obviously there's a good step change in the first quarter.

And how should we think about sort of the development of margin improvement over the rest of the year -- should we expect sort of even improvement over the course of the year or should it be more back end loaded as we think about it?

No.

I think it's going to vary an awful lot about how as we said the weather goes.

For example, on the salmon side we know that there's lower expected salmon catch this year up in Alaska, which puts a little bit downward pressure on it but a lot of it has to do, we've had a lot of costs increases, we've been recovering those costs in the marketplace and really it comes down to how our manufacturing plants perform through the balance of this year.

Going into 2009 let's not also for get that we really don't get much in the effect of the restructuring this year related to Commerce and Tallapoosa, so going into next year that provides us some added upside, if we execute correctly.

Okay, but those benefits would be more for '09?

Correct.

Okay, great.

Thanks a lot.

Thank you.

Thank you.

The following question comes from the line of Richard Skidmore of Goldman Sachs.

Please go ahead.

Good morning, thank you.

Dave, just wanted to touch on the pricing perhaps in North America.

Is there any opportunity from your perspective to perhaps get more pricing as opposed to just a passthrough of the raw materials in the North American beverage can business?

I think that we're focused like a laser on really understanding what is happening, and as we move through contract negotiations with our customers, we and they have to understand that there's inflation back.

So this isn't something that you do overnight and we don't have 8 billion customers around the world.

We have several, but not many.

And so we're working really closely with all of our customers to communicate with clarity what it is that we've got to do to get some fun back into our 12 ounce business, for example.

And then be sure that and we are driven importantly by cost recovery, but we've gotten a little behind in a place or two for good reason.

We've got to turn that around, and I think as an economy got used to very low inflation rates, but as this comes back you can talk to any of our customers about it.

It isn't just the packaging costs that are going up for them.

So this has got to be recaptured unfortunately from the consumer.

But that's the world that we live in and that's the focus that we've got.

What we look at is making the right return for the investment that we have.

When we can't we do things unfortunately like we just did in Kent, but we are very focused communicating very well and tend to be -- to have businesses all of which make reasonable returns.

Yes, I might just add-on to that that it's important, what we're trying to do is getting paid for the value delivered and we do an awful lot of things.

You all know about the customer technical service that we do.

We also do a lot of hedging and metal management for customers and that creates costs and value delivered to the -- to our customers.

Our quality and lab services, a lot of the things we do well there, and then lastly on the innovation side.

Yesterday we had a Board of Directors meeting and the Head of Innovation in North America stood up and we were talking about 22 product launches across all of our packaging businesses with more than 4 billion units this year of new products that are going to be launched.

Some of them are small wins, some are larger.

In March, we launched the recloseable can in Europe.

We have the Alumatech bottle in North America and in the plastic business we're launching our Gamma Clear bottle.

We've got under tab printing in the U.S.

here.

And at the end of the day, what we're trying to do is give our customers and ultimately their consumers a value proposition because we know it's very difficult in the supply chain.

Don't forget the vented in, John.

Correct.

And on the contract, do the contracts allow you to or I guess how often can you go back to your customers to think through if there's an ability to go above inflationary pricing?

Is that on an annual basis or are these contracts multi-year that will take a while to work through?

Well, we don't have a standard agreement with everybody and we're addressing these things as they come up as we can and sometimes in advance.

So I'm not really going to give you a straight answer because I'd have to answer for every different customer.

But rest assured, where we believe we've fallen behind is in the 12 ounce business and we've got it recovered, and that is a real focus for it.

It won't happen overnight, but we can see it.

And then just separately, can you talk to what the drivers were for the decline in volumes in the U.S.

in beverage cans and does the closing of the Kent plant now get you to where your system is essentially running full across all of the other remaining plants?

I think in the opening comments I alluded exactly to what was driving the volume in North America, and in terms of our CSD volumes we have sole supply areas that were down year-over-year.

I think that was more than just it's a seasonally slow quarter and as people ramp up for the summertime.

So I wouldn't read into too much of that.

And then we also had a specific situation in beer that a year ago this time we chose to walk away from that hurt our volumes a little bit, but I think as we go forward again the balance of the year, we remain relatively constructive that our volumes will be where we think they should be and the announcement of the closing of Kent does help bring our 12 ounce capacity much more in line so that we are fit for the future.

Thank you.

Thank you.

The following question comes from the line of Alton Stump, Longbow Research.

Please proceed.

Thank you.

Good morning.

Hi.

Just had a question on the European can business, obviously a great volume growth in quarter.

Could you just give me an idea from the capacity standpoint what type of volume growth you might be able to handle in '08?

In '08, well we are, I said earlier all of our manufacturing assets throughout the world are performing well and not the least of which is in Europe.

So every can made is a can sold, and we saw great great improvement in the first quarter in terms of overall volumes and with Hassloch and Hermsdorf the full year and we're having some speed ups projects -- remember in Radomsko we announced last July, that's beginning to just start to kick in.

So I think we're well positioned in 2008.

But it is a very very tight situation and thus our announcement about the new plant in Poland for 2009 and some other small speed ups here and there allow us to continue to grow.

But in our planning just so you know, we are not expecting this double digit growth.

So even with all of that capacity coming on we're thinking of mid single digits and it's above that we're going to have to be scrambling a little bit more.

Thank you, and just one quick followup.

I think I asked you guys this question every conference call.

But could you just give me a quick update on Germany?

How that market is recovering, if there's been any change, either positive or negative in the last one or two quarters?

The trends that we've been seeing in Germany are very consistent with what we've said over the last couple years.

We're seeing good growth off low volumes -- low base if you will.

It is a marathon, not a sprint.

But double digit volumes keep going on and on and it's just going to be a situation that evolves over time, but we see certainly no negative relative to where we've been and only positive as we go forward.

In a way it's good they aren't growing faster because we don't have enough cans the way it is.

Right.

Okay, thank you.

Thank you.

The following question comes from the line of Chris Manuel with KeyBanc Capital Markets.

Please proceed.

Good morning, gentlemen and congratulations on a good quarter.

Thanks.

A couple questions, just more or less housekeeping stuff really, but can you, if I could zero in again on the metal food and household, you had a very very strong performance there.

When we look at the margin percentage it's one of the best levels we've seen in quite a while.

Is it your view that with the pricing and such that you put through even if, considering a volume improvement, that the year-over-year or the incremental change in margin is sustainable or in fact can continue to go up through the rest of the year or can you give us a little more help there, Dave, or John?

Maybe Ray should answer this question.

Love to.

I mean, every time, what I'd like to tell you we made no money last year, so we finally made some money.

So while it looks like a great improvement, we were last year was brutal.

So we're finally getting around where we're making a little bit of money so let's not, we expect -- we told you guys, if we couldn't have got any worse, so we expect big improvements from that business throughout this year.

And as John said, the rationalization program that we announced in the fourth quarter doesn't really kick in until '09.

So we look to be significantly better in that business throughout this year and next year.

Okay, so for example, first quarter I think a little better than 5.5% margin, we should expect for the full year your business can do at least that with subject to improvement due to restructuring next year.

Would that be a fair way to think about it?

That's a fair way to think about the it.

I think probably on a comparative basis, this quarter we just finished since as Ray said we didn't make money last year and we did this year will probably be our biggest percentage gain for sure.

Yes.

And remember last year in this business as time went on through the year, we were getting better and better, not to where we needed to be, don't get me wrong but as Ray said we didn't make any money in the first quarter so it's a very easy comp.

That's helpful.

Do you have volumes for plastics and aerosol by chance?

I don't.

Plastics on the commodity side of our business on the monolayer side, they were down 6% approximately and on the custom side, we were up about that similar amount, maybe a little bit less.

And on the aerosol side, I'm sorry I don't have the numbers off the top of my head.

Okay.

The last question I had was with respect to I think one of the markets you guys talked about looking at and potentially putting a plant in is India.

If you could give us a little color as to how you think about that market, what you think the potential, clearly there's a lot of people in India -- but of what you think the potential might be for the beverage can there, the competitive landscape, a little more information on the thought process as you consider entering India.

Yes, well, it's certainly a developing region as we all know.

If you, let me give an analogy.

If you look back 10 years into China where everyone talks about the per caps were less than one can per person, but the reality is you got to look at the middle class and look at the buying patterns of the people there.

The economy in India has been exploding and going very strong and the middle class is growing at a a far greater rate than many other places in the world, and that's quite good for the beverage can.

This year, or in 2007, we estimated approximately a little bit more than 300 million cans and we see very strong double digit growth in that over the foreseeable future.

Now, not to say it's without impediments.

There's a lot of bureaucratic issues in terms of the various states within India that make it difficult from an alcohol perspective.

There's a lot of religious issues that go on there that may impede a little bit on the beer side.

But having said that, it seems as every week you're reading about a new beer customer putting in new capacity and really investing for the future and we're just following along the coat tails with our customers.

That's helpful.

That's all I had.

Congratulations on a good quarter and good luck the rest of the year.

Thanks, Chris.

Thank you.

The following question comes from the line of [Debbie] Jones, Deutsche Bank.

Please proceed.

Hi.

I have some questions about your capital projects.

You mentioned 75% of them will be outside the U.S.

I was wondering if you could break that down a little bit and give more detail on that?

Yes, I can give you a little flavor on it.

We expect we're going to spend in the neighborhood of what we call, we define as Europe, we're probably going to spend about $175 million.

And that the spending is going to be as John talked about we got new plants and speed ups we're doing in Europe, so we're spending a lot of money in Europe and really most of that is for new top line growth.

We think we got to finish our project and someone referred to earlier in U.S -- this is a final spending of project net in the U.S.

It is delivering the results that we said it was going to deliver.

And we'll be spending in the neighborhood of -- in total the U.S.

beverage cans we'll be spending probably $75 million to $80 million in U.S.

beverage cans.

And really the rest of the businesses we're spending less than depreciation.

Okay.

That's helpful -- and I'm also wondering the shift of China to the Americas, do you have a rationale for that or are you going to provide restated segment information too?

Well, we already did that and if you look at your --

I know, I wasn't sure if you gave all four quarters of that 2007.

You'll get all four quarters eventually.

Okay.

But that's just for the first quarter, but yes, those are our restated.

And the reason we changed it is we had a management reorganization we announced in January.

And as part of that reorganization people's responsibilities changed, and when that happened, we reorganized our segments in accordance with how we expect to run the business.

Okay, great.

Thank you very much.

Thank you.

The following question comes from the line of Kean Marden, (inaudible).

Please proceed.

Good morning, gentlemen.

I've got a couple of questions.

The first regards your European beverage can business.

I'm just wondering if you can help break out the 13% volume growth between capacity additions at Hassloch and Hermsdorf and sort of more underlying picture first of all.

I'm not sure I understand the question because overall in growth for us was 13% and I think the industry was about that same amount as well.

We wouldn't have been able to supply it if we didn't have the Hassloch and Hermsdorf lines up.

But where we're seeing growth is continued trends of what we talked about before and in fact maybe a little accelerated growth in Western Europe.

For example, in the UK, partially because of the economy, partially because of smoking ban and other things, we saw double digit growth in volumes there which we have not seen for a long long time.

Yes, that's a good number.

Certainly.

Okay.

And just on diesel costs, I mean I understand diesel prices have increased quite substantially over the last three to four months.

Just wondering how much of an issue that is for your business and whether you've got any option here to hedge your exposure or whether it's a delayed passthrough in terms of the pricing from your supply base.

Well, we have been looking into over a year how to hedge diesel costs because as you pointed out that's been going up quite rapidly.

And to date we haven't found a mechanism we're happy with how to hedge it, but we've been looking at that for awhile.

Some of our contracts have passthroughs for those kind of costs.

Some of our contracts are freight delivered.

Some of our contracts are actually the customer base of freight.

So it's all over the map, but some of it is passthrough and some of it isn't.

Is this cost increase that worries you?

Your aluminum increases have been obviously an issue for the last couple of years and you're obviously attempting recover those, whereas the spike up in diesel seems to have been particularly pronounced over the last three to four months.

Yes, on a relative scale, it's not the biggest cost driver on our business but it is not unimportant and this is as Dave alluded to in talking with our customers, as our contracts are up for renewal in those places where we're not able to get recovery, we're certainly focused on that.

Okay, understood.

Thanks very much for your time, guys.

You bet.

Thank you.

(OPERATOR INSTRUCTIONS) We do have a follow-up question coming from the line of George Staphos.

Please proceed.

Thanks, hi, guys.

Three questions.

First off, in aerospace, are there any key projects that you can lay out for us that we should be on the watch for that will help the backlog and be positive for the '09 to 2010 timeframe?

Can't give a lot of information there.

A couple things that we're following pretty closely that are significant.

One is, I can't talk about and another is a communication satellite.

What John was talking about is we think we're well positioned to win our share of work, but with a continuing resolution in the country right now, budgetary wise, new starts are hard to come by.

So that's some of the delay in some of the business that we see.

We've got a lot of proposals that are active.

We do win work.

We won a little less than we did in the first quarter as you saw from the backlog number, but I can't -- I wouldn't say there's a program that's make or break.

It's a number of things.

A handful are pretty good size.

We hope to win our share of those and we hope to see our backlog moving up.

I think realistically, though, we're in a Presidential election year.

I'm sure you know that because you can't help but know that, given all of the publicity around it.

And that really just slows things down a little bit in this business.

It happens every four years, so it's not a crisis.

We're continuing to do well.

We're expecting a pretty good year in aerospace actually overall, maybe not quite as good as last year in terms of sales.

Profits may be a little closer to last year, but we continue to work really hard on trying to figure out how to position that business well and win our share of the work, George.

Sure, I wasn't using make or break in my question, and I know there's a lot of stuff you can't talk about in aerospace, but that was helpful.

Second question, in food and household, if there is a mid year tin plate price hike, we don't expect it but who knows, maybe there could be one.

Would you go out and raise pricing to your customers to offset that?

Well, George, as I think a lot of people, we're aware of discussions around surcharges or increases and you read it in the paper all the time.

We believe that our contracts with our suppliers are clear, and they don't allow for any of these mid year increases.

I understand.

We will, we're going to defend this position on behalf of our customers, nearly all of which our customer contracts do have passthrough provisions, and we're not going to take on the commodity risk.

Okay, so if there's an increase that's announced, one, you would fight it because you feel you have the right to fight it, but if you ultimately have to take it then you also have the right and expect to raise pricing to your customer.

Is that a fair summation?

It is, if you assume that it would happen but we think our contracts with our suppliers are clear.

I understand, okay.

Last question.

I think you said Kent was earning cost of capital.

Is that a fair assessment in terms of why you closed it and aside from it maybe being an older facility, were there any customer dislocations that occurred that caused you to shut it as well.

And maybe it wasn't earning cost of capital for that reason?

Well, yes.

I think you may have, you said it was earning cost of capital and I think you meant to say it was not and that's the truth.

It was not.

It has not.

Right.

John mentioned one piece of business that we passed on a year ago or more.

Okay.

That hurt a little bit but also the region of the country had probably a little too much capacity.

We decided that -- you remember not so many years ago, we don't like to do these things for practice.

So I think that this is the exact right thing to do at this point in time for us.

The other part, George, remember I know a lot of our shareholders don't like us spending capital but when they see the results coming out of Europe, I imagine they like it better.

But we got capital spending with India and other places we think we can get good returns of these assets and we'll redeploy these to make proper returns.

In areas where you haven't recovered costs as well as perhaps you'd like, are those facilities or contracts largely under cost of capital as well, below cost of capital as well?

Yes.

That would be right, but it's not exactly sure I understood your point.

Well, I guess if Kent was not earning cost of capital and you shut it, and you've said that you're on a two to three year timeline to improve trajectory and returns across the whole business, and you haven't recovered cost as well as you would like in some areas of your Americas beverage can business -- that where you can't recover your cost as well as you'd like, those facilities might be subject to closure.

Would that be a fair assumption?

Yes.

I mean, that's not a forecast we're going to close anything but we look at all that all the time.

And we look at supply demand situations, customer situations, where we think the market is going.

And we reached the conclusion this was timely.

As Ray said we also have another use for some of this equipment that's a better one and I think we're going to make commitments to supply our good containers where we can make a return.

Dave, adjusted for the size of the business relative to the other segments obviously it's your biggest business.

But is Americas beverage the biggest opportunity for you -- Americas beverage can the biggest opportunity for you to improve your returns over the next two to three years?

Well, it's our biggest business, is --

Well, so adjusting for that?

Well, adjusted for that probably I don't know.

I'd say the global beverage can business certainly is because that's two-thirds of the company in terms of opportunities where we're spending our capital to grow in other parts of the world where we're changing the footprint making more specialty cans here in North America.

But if you look, I see opportunities in all parts of the packaging business, and I don't know that I could say exactly where it will happen.

But understand in the North American bev can business it's still a very very good business.

It's just that as I say, particularly in the 12 ounce, we've got to get a better economic proposition, and John, what's your term that you use?

To get paid for the value that we deliver.

More fun.

Exactly.

Yeah, that part too.

Having fun is mandatory, George.

Understand.

All right, and if not, the capacity comes out it would seem.

I think that's right.

All right congratulations on a great quarter, guys.

Thanks very much.

Good luck.

Thank you, George.

Thank you.

Mr.

Hoover, we have no more questions at this time.

Okay, well, thanks everybody for joining us today and we look forward to talking to you again in July.

And we are having fun.

Thank you.

Ladies and gentlemen, that does conclude the call for today.

We thank you for your participation and ask that you please disconnect your lines.