Ball Corp (BALL) 2009 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the third quarter 2009 earnings conference call.

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

Afterwards, we will conduct a question-and-answer session.

(Operator Instructions) As a reminder, this conference is being recorded, Thursday, October 29, 2009.

A rebroadcast of today's conference will be available beginning today at 11:00 a.m.

eastern standard time through November 5.

To access the rebroadcast, please dial 800-633-8284 and enter reservation number 21438727.

I would now like to turn the conference over to Mr.

Dave Hoover, CEO, please go ahead.

Thank you, Sarah.

This is Ball Corporation's conference call regarding the Company's strong third quarter 2009 results.

And with me today on the call are Ray Seabrook, Executive Vice President and Chief Financial Officer, and John Hayes, Executive Vice President and Chief Operating Officer.

Before I begin, I would like to remind everyone that 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 results or outcomes to differ are in the Company's SEC filings as well as in the Company's news releases.

And if you don't already have our earnings release, it is available on our website at Ball.com.

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

Well, our improved results in the quarter, which Ray is going to talk about here in a moment, were driven largely by the impact of cost rationalization activities we took during the last year to 18 months.

Our focus on cost management during the economic downturn is also paying off.

Our plants are running exceptionally well and we continue to focus on ways to reduce costs and be more efficient.

Earlier this month we successfully completed the acquisition of four metal beverage packaging manufacturing plants from Anheuser-Busch InBev.

The integration of those facilities is well under way and we are finding the new plants to be as good or better than we saw during due diligence.

Their addition to our worldwide beverage can business will provide meaningful benefits to our entire system.

Now I will talk about our outlook in a few minutes, but next Ray will review the quarter from a financial perspective and then John will discuss our operating performance.

Ray.

Thanks, Dave.

Comparable diluted earnings per share for the quarter were at $1.24 and through the first nine months were at $3.21, up 10% in the quarter and up through the first nine months compared to last year.

Turning to the operations, third quarter year-over-year sales volumes remain soft in North America and beverage can sales volumes were relatively flat in China and Europe.

A lower Euro exchange rate and decreased aluminum prices also contributed to lower sales dollars in the quarter and year-to-date compared to a year ago.

Despite lower third quarter sales and higher operating costs, higher corporate costs, comparable operating earnings and margins were up in the quarter due to improved earnings in our North American metals businesses in China.

Third quarter North American metal packaging profitability was improved by lower fixed costs due to previously announced plant closings, lower employee and energy costs, and better pricing.

Corporate costs were higher mainly due to mark to market accounting on company stock and held for compensation accounts.

As Dave mentioned, on October 1 we completed the acquisition of four metal beverage plants from Anheuser-Busch InBev.

Interest expense was increased by approximately $5 million in the quarter as a result of the acquisition finance timing.

We expect net earnings from the newly inquired plants to be flat or only slightly positive in the fourth quarter because of purchase accounting adjustments and plant integration expenses.

We anticipate full year capital spending will be reduced to around $200 million in 2009 and full year free cash flows to be at least $375 million.

Free cash flow will not increase notably above $375 million this year due to increased working capital levels in some businesses.

We plan to focus on paying down debt after the recent acquisition and expect free cash flow in 2010 to be significantly greater than in 2009.

With that, I will turn it over to John.

Thanks, Ray.

Let me talk first about the acquisition and then provide some color on our operational performance.

I will preface my comments by referring to our remarks in the second quarter.

We said our focus was on cost management and balancing supply and demand.

We wanted strong assets in the right places to serve our customer base and we wanted to be flexible in this dynamic marketplace and ready for when growth returned while we operated profitably in this economic environment.

Our results are showing the fruits of those efforts and now with the acquisition, we have some additional assets on the table that will make our system even better.

The AB InBev acquisition fits nicely into our strategic plan of growing our global beverage can business.

After making the required fourth quarter inventory valuation adjustments that Ray alluded to, we will quickly see the benefit of those plants early in 2010.

We are absolutely focused on best practice sharing between the new Ball plants and our legacy plants.

This sharing of practices is a two way street.

The successful sister plant concept we implemented during both the Reynolds and Schmalbach acquisitions is in place today.

We fully intend to steal shamelessly from each other in order to enhance Ball's low cost manufacturer status and beverage can making.

In August we named Michael Hranicka Chief Operating Officer of our North American metal beveraging packaging operations.

We wanted Michael in place to guide the integration of the new plants.

His disciplined systematic approach and his focus on getting close to our customers is setting the tone and Michael and his team are off to a great start.

This follows our announcement early this year naming Gerrit Heske head of Ball's European business.

These moves demonstrate our focus on talent management and we feel very good about the leadership team we are putting in to place for the future.

Now turning to the operations, profitability for the quarter in our metal beverage packaging Americas and Asia segment was up noticeably versus last year.

As Ray mentioned, a blend of cost savings, price, mix and exceptional plant performance contributed to this segments improved performance.

Overall industry volumes in the US were down approximately 1% in the third quarter with beer volumes almost flat and CSD down a little over 1%.

Our volumes had beer being up and CSD being down for the quarter and overall we were down relative to the market.

However, we remain focused on balancing the value versus volume equation in this business.

We are having constructive conversations regarding current CSD negotiations, we are executing on cost optimization plans and we have added four low cost, well-run plants in our biggest business that will help us drive further improvements.

In China, volumes were flat in the quarter and profit performance was improved due to price and lower cost inputs.

While Europe's volumes were relatively flat in the third quarter, to ensure that supply was matched with demand, curtailments of select lines occurred in the quarter and we remain committed through short-term and long-term measures to balance our supply with the realities of market demand.

To that end, we have decided for the time being to postpone the start up of the Lublin, Poland plant subject to further market developments in the region.

We continue to believe that central Europe will be an area of growth once the economy recovers.

Turning to our food and household division, year-over-year segment EBIT performance improved.

The vegetable pack started late but was very strong in almost every region and ended just a couple of weeks ago.

The strong pack, effective supply chain management, and continued cost savings related to prior plant closings offset low single digit volume declines in food and high single digit volume declines in aerosol containers.

Plastic packaging America has reported a decline in EBIT in the quarter.

Unlike our other packaging businesses, volume did not improve quarter to quarter.

Custom food and beverage container volume gains were not enough to offset the double digit volume declines in CSD and sports drink categories.

We closed on the sale of our plastic pail business near Atlanta to BWAY on October 23 for $32 million.

We acquired this product line in 2006 with the acquisition of U.S.

Can, and it wasn't a strategic focus for Ball.

Now turning to aerospace, the successful launch of the WorldView-2 remote sensing satellite earlier this month highlighted some of the unique capabilities of this business.

If fact, we were able to view the first images just 11 days after launch which is truly world class and highlights our unique capabilities.

We said earlier this year that the second half would be challenging for the aerospace segment.

Year-over-year EBIT performance declined slightly in the quarter while backlog held fairly constant at $563 million.

We continue to have proposals in the pipeline.

We often describe this segment as being lumpy and right now we are in the thin part of the lumps but we know our capabilities and we are optimistic about our prospects for new business.

Additionally, across all of our businesses we are making progress in our sustainability efforts, whether it is reducing energy use, water or waste, our focus is on driving additional economic value for the company.

We are leveraging innovation platforms as well, like the recloseable beverage can end, the Alumi-Tek bottle, and PET wine bottles all of which have sustainability advantages.

And, of course, we continue to work with our customers on increasing the recycling rates of our products and benefiting from that increase both economically as well as environmentally.

In summary, operating performance in our packaging segments is very good and improving.

Our cost rationalization programs are bearing fruit and we will continue to focus on balancing our supply with our demand.

We anticipate taking additional down time in the fourth quarter as market conditions warrant to position our business for 2010 and beyond.

Our people are focused on the right things and we are all excited about the opportunities that lie ahead of us.

Dave.

Thank you, John.

Thanks, Ray.

This was another good quarter, a stronger quarter in some ways than we anticipated.

We are seeing improved results in North American beverage can segment, our plants across the board are running very well and we have an acquisition in our largest segment to provide an additional catalyst.

We certainly expect to have a better fourth quarter than we did last year and we are optimistic about 2010, particularly if the economy improves.

With that, Sarah, we are ready for questions.

Thank you.

(Operator Instructions).

Our first question comes from the line of George Staphos with Merrill Lynch.

Please proceed with your question.

Thanks.

Hi guys, good morning.

Morning.

First question or two is around the balance sheet.

It looked like receivables were up fairly substantially in the quarter.

I am guessing that's largely due to the impact of metal container corp.

or were there other factors to consider?

Similarly, was there any excess inventory that you took into the fourth quarter on aluminum or steel and might that have cost you any margin in the third quarter?

George, this is Ray.

The balance sheet is a little confusing.

Let me see if I can help you out.

You remember that we closed on our acquisition financing around August 20, I believe, to buy the InBev acquisition that closed October 1.

So we had around 40 days sitting with $700 million.

And so what we did was we used, if you want to, we used about $90 million to reduce revolving debt that we could pay off easily, $250 million we used to reduce our AR securitization program.

So the AR securitization program at the end of June, if you will, was $227 million and at the end of September was 0.

So we used that money to take that out, and the rest you can see on the balance sheet is cash.

So when you look at the cash flow statement, it is, the best way to look at it is just add $227 million to the third quarter change in working capital and add $250 million to the nine months and you are going to get the numbers that look more understandable.

It's really got to do with the AR securitization program.

Year to date we are about $1 million dollars ahead on free cash flow.

We didn't -- to my knowledge we didn't carry any extra inventory into the 4th quarter.

John, do you want to answer that?

That's correct, Ray.

We did not.

Was there any charge related to inventory in the third quarter?

No, inventory charges of any kind in the third quarter.

Okay, guys.

I will turn it over.

Our next question comes from the line of Joseph Naya with UBS.

Please proceed with your question.

Morning, guys.

Good morning.

I was just curious in the metal beverage America and Asia obviously is a very strong quarter there.

Could you provide any additional color on what the big moving parts were, maybe the magnitude of what you saw in the quarter?

Yes, I will start, John, why don't you chime in here, too.

But, we as I mentioned in the opening comments, we have been doing some restructuring in the business, closing plants and doing other things, and we are beginning to see real positive results from that.

The cost savings that we were talking about and so on, so that came to the floor.

We also, as Ray just said, had no negative metal in the quarter.

We are running really, really well.

Can you amplify that, John?

It is exactly what we said at the second quarter what we expected going through we'd see the cost savings that Dave mentioned and you hit on the lack of inventory and the exceptional performance of our plants.

In terms of maybe the benefit from the restructuring, can you give an idea of what that was in the quarter?

It is always difficult to break this out a little.

But if you recall on our first quarter conference call we laid out very clearly our expectations over the next 12 months and we are delivering on what we committed that we would.

All right.

Thanks a lot.

Our next question comes from the line of Ghansham Panjabi with Robert W.

Baird.

Please proceed with your question.

Good morning.

Morning.

Could you give us an idea of what specialty can volumes did during the quarter, not just North America but Europe as well?

I can give you qualitatively.

I don't think I have the specific information, but let's start with Europe.

We mentioned in our earnings release that we continue like we have in the first half of the year a mix issue, and what that effectively means is people have traded down from $0.50 a liter to $0.33 a liter.

That trend has continued, although it has abated a little bit and it has to do with region by region, market by market.

There's nothing new in the third quarter relative to what is happening in the first and second quarters.

In North America, in the first half of the year we did see some slow down in that business.

I think it started to come back a little bit.

In fact, what we are seeing as we go forward is many of our customers are very much focused on differentiation and I would expect that you should see a wide variety of different sizes and different formats as we go into 2010 related to specialty cans.

Okay.

Remember -- Sorry.

Go ahead.

Just remembering back from last year when you delayed the plant in India, just given what's happened in the world in terms of the economy sort of improving across the emerging markets, are there any plans for you to revisit that?

Nothing at this time is the best way to say it, but we have plans in place for every region around the world.

And, as Dave likes to say, you need motive and opportunity.

That's what we are focused on and make sure that, for example, even in the Polish plant, yes we have seen improvement in eastern Europe, for example in the third quarter Poland was up slightly in terms of can volumes but not enough to start a new plant.

And just, John, just finally back to specialty volumes, are you supporting the -- are you part of the producer for the Coke [spring] can that's being offered?

Yes, we are.

Okay.

Great.

Thank you.

Our next question comes from line of Claudia Hueston with JPMorgan.

Please proceed with your question.

Good morning.

Morning.

I just had two questions really.

One, I was hoping you could just comment a little bit on volume trends over the course of the quarter, particularly in the plastics business.

I know you said they were sort of flattish.

Did they change at all over the course of the quarter, and then if there was any sort of notable change in any of the other segments in terms of volume trends that would be great.

Well, with PET, to be honest, we had expected to see improved volumes in the PET side of the business that did not materialize, although our food and specialty side of that business was up mid single digits.

I think the issue really has to do with just less share of stomach for all products.

If you look across all the various non-alcoholic product lines which PET plays a part, everything effectively is down, so I do think that people are just drinking less packaged soda, less packaged water, less packaged sports drinks, et cetera.

In terms of just trends that we saw in other businesses, nothing out of the ordinary that we haven't mentioned before.

On the beverage can side, the promotional activity really didn't give us as much of a boost as we were hoping for, although what I would tell you is the can as a share of package mix on CSD has been improving, and so while CSD was down, it was down less than overall CSD and the beer continues to hold up reasonably well.

And then we talked about the terrific food pack that we had and that went into -- even into October.

So I don't think there's anything unusual there.

Okay.

That's really helpful color.

Thank you.

And then just real quick on your corporate expense, could you just talk about what we -- how we should think about that going forward?

Do you want to comment on that, Ray?

Yes.

As I have said, the main thing this quarter that caused it to go upwards, the biggest item was mark to market on the stock price.

So as we, if stocks held in deferred accounts, which a fair amount of it is, it is mark to market and the difference is put through our P&L.

So, you know year-to-date we probably had $5 million or $6 million of that.

We've also had an increase in our [IC] accruals but if the stock price is up a lot, that number moves, and if it goes down actually we put a credit through, believe it or not, that is how generally accepted accounting principles work.

Okay.

Thanks.

Our next question comes from the line of Mark Wilde with Deutsche Bank.

Please proceed with your question.

Morning.

Morning.

I wondered if you can give us some sense with this Brazilian plant coming up here a little bit later in the quarter what sort of a benefit or a drag we might see from that over the next couple of quarters?

The first line is actually we saw pictures yesterday as running some cans.

It is supposed to start production mid November, I believe.

Really we expect it to be an additive from the get go.

Okay.

And then --

The line is sold out.

Can you also just give us a little color on these CSD negotiations that you mentioned and at what point you might have some clarity on what that does or doesn't do for you?

This is John.

As I said in my opening remarks that we have been making good progress.

I think everything is on track and I think it would be remiss to say anything more than that at this time.

Okay.

All right, very good.

Thanks.

Our next question comes from the line of Chip Dillon with Credit Suisse.

Please proceed with your question.

Yes.

Good morning.

Ray, I know back in July you had mentioned that you saw about $50 million of incremental free cash flow from the acquisitions of the InBev plants, a little less than that in the first full year, and of course you had the early close.

Could you just update us on that?

Is that where you still see the numbers?

And I guess I will just also tack on to that for all of you guys, do you see the potential given the ease of closing this deal for maybe another can plant or two to be available to be purchased, do you think that's a possibility?

Let me start with the free cash flow.

As I said we were a little disappointed this year, the fact that we have had some businesses and we are going to put some working capital in those businesses, and that is a temporary phenomenon.

So, if you look at our 375 this year, I think we are still thinking that the number is $50 million on an ongoing basis for these acquired plants, a little bit less in the first year because we have some things to do.

But fundamentally is we expect to get that working capital out next year.

So, when you kind of do the math, you are going to see that we expect to have a significantly very strong next year in free cash flow.

As far as additional plants, I will turn that over to Dave.

I'm not-- who knows.

I thought maybe you were going the answer that, Ray.

I don't think we would speculate on that, certainly we make no bones about the fact that we were trying to grow our global beverage can business and we are delighted actually to have these plants part of Ball Corporation, they are running very well and we will see what the future holds.

That's a little dance around your answer.

Okay.

And just shifting gears just quickly, we have seen in last six months, PepsiCo buy their beverage plants -- sorry, their bottling plants.

Have you noticed any difference in their sort of attitude or plans in the future toward pushing volume vis-a-vis price?

In other words, could that be a positive or maybe a concern of yours?

Specifically, with respect to the customer you mentioned, no.

I do think, and they have publicly stated this, one of the reasons -- they are committed to CSD and that's one of the reasons why they are firing these two bottlers and they want to move things to market quicker, that's what they have said.

When you just take a step back and look what's going on, the CSD volumes are down across the board irrespective of what brand you're talking about.

We do know that they're very much focused on getting that right.

They have had head winds depending on what customer you are talking about in terms of some of their hedged material, whether it is high fructose corn syrup, whether it's aluminum, things like that.

As those things start to come off, I think they're very much focused on reinvesting in their business to make sure they're not losing any share gains and making sure that they're maximizing this value versus volume equation.

I had mentioned earlier that they are looking at a variety of new formats and other things like that, I think you should expect that that is going increase as we move forward.

Thank you.

Our next question comes from the line of Alton Stump with Longbow Research.

Please proceed with your question.

Yes.

Thank you.

Good morning.

Good morning.

Just curious if you could maybe give a bit more color, if I missed it earlier I apologize, but looking at your overall volume situation in Europe, have you seen any recovery in eastern Europe to date and, if so, do you think we could see that recover as we head into early next year?

Well, good question.

There has been a slight growth in certain parts of Eastern Europe but, as I mentioned earlier, not enough to give us confidence to start up our new Lublin plant.

Just to give you an example, in Poland in the third quarter it was up mid single digits, the Czech Republic was up a few percent.

These were markets that had been in decline up until the third quarter.

So I think this bottoming out, if you want to think of that.

The question is as you move forward into 2010, what kind of trajectory do we expect there.

We have talked about the World Cup being in the same time zone at least of Europe next year, which should be helpful because that's a very big promotional event for the beer customers.

We expect some improvement.

It is just, to be honest, I think many of our customers are putting plans in place right now in terms of their pricing, their promotions, their volumes, and it is a bit too early to say anything, although I do believe the worst is behind us.

And then even in Western Europe, it is, we saw some good growth this quarter in France and the UK, it was offset a little bit by Belgium and Southern Europe that kept the overall market relatively flat but we are seeing signs of some recovery in certain parts of Europe.

Okay, great.

That's all I had.

Thank you.

Thanks.

Our next question comes from the line of Chris Manuel with KeyBanc Capital Markets.

Please proceed with your question.

Good morning, gentlemen, and congratulations on a very good third quarter.

Thank you.

A couple of questions for you.

First is, Ray, if you could please expand on what the working, maybe give us a little more color on what the working capital issue was that took a little more here through the end of the year?

I heard what you said earlier about the adjustment in the accounts receivable lines, but I was thinking that would have probably come off or balanced out by the end of year anyway.

Was there something else?

What happens is when you make that adjustment to the line it goes through changes in working cap.

So as I said before, Chris, if you just -- the way to think -- if we didn't do the -- the other thing we could have done, we could have borrowed $700 million and put pretty much the $700 million in cash, and what we did was a better use of the money to pay down the AR program.

That's why your balance sheet and cash flow looks a little strange.

If you take that affect out of there, what you will find is year-to-date we're $200 million ahead on free cash flow compared to where we were last year.

The way to think about that is that basically increases the receivable line by $250 million.

That's what we did.

We basically, that line is -- that was a better return for our money than to leave the money in cash, it is that simple.

Year to date I believe on an apples to apples basis we are $200 million ahead on free cash flow from where we were last year.

Okay.

No, that's fair.

I didn't understand if it was just due to the -- what you did there with the receivables of if there was anything additional.

No, as a matter of fact as we sit here today, we are already into that line.

We thought we closed on the acquisition and that line is back in place.

So as we sit here today, that receivable line is back in use.

So it just happened to be that it's (inaudible) end of the quarter.

It is a little confusing but, as I said, if you add $227 million to an increase in changes in working capital in the quarter and that $250 for the year to date, you're going to get comparable numbers.

Thank you.

And then the second question I had was you had the metal container assets now about, I guess, 29 days or so and counting.

Any thoughts early in this first month as surprises, favorable things you've seen, maybe unfavorable things you have seen, just some early thoughts on how you are feeling at this point?

As I said in the opening, we find them to be as good or better than we thought, and we did significant due diligence.

These are excellent facilities and the people there are great.

I have been communicating the last two or three days with some of the plant managers.

I want to go see their plants.

And they seem delighted, too.

These are very large, very productive, very low cost plants and they are working really, really well.

I think, John, you might comment on the practice sharing and other things that we're doing and what we are beginning to see.

Yes, it is, to amplify on Dave's point, one of the facilities that we acquired not a week after we had acquired it had an all-time daily production record of over 9 million cans produced in a day.

That is truly world class.

We had a bunch of people led by Michael Hranicka go out from literally hour one after the acquisition go to all four of the plants, spend some time with the people, really get the people engaged and lay out what we mean by best practice sharing.

And as I said in my opening comments, it truly is a two way street.

This is a first class operation like ours, we do some things a little differently and now we need to identify whether it is in how you move metal through the system, how you call off various things, how you plan the warehousing, all that, there is best practice sharing and we truly are going to steel shamelessly from both of them as we go forward.

And it is most importantly, it is to get the engagement of the people as one team, focused on, these are not former AB InBev plants, they're new Ball plants.

Perfect.

Thank you, gentlemen.

Our next question comes from Richard Skidmore with Goldman Sachs.

Please proceed with your question.

Thank you.

Good morning.

Just a couple of areas of discussion here, first, wanted to talk about the Americas beverage for a minute and the sequential improvement second to third quarter.

I know you mentioned there were three areas, cost saves, price and mix, and if we look back at the second quarter call it seems like the cost saves probably run at about $10 million a quarter and you had something like a $10 million inventory gain.

Is the rest just price or is there some improvement out of China that you've had?

Let me take that.

Roughly, basically, remember in the second quarter we still had some inventory losses that hit us, they weren't huge but we had some aluminum losses that hit us in second quarter.

When we go to the third quarter, as we have alluded to, approximately $12 million of that improvement is related to the plant closing costs that both John and Dave talked about before.

A lot of other improvement in North America is the lower energy costs, lower labor and benefit costs, and in China we had improvement as well primarily volumes were up just a little bit.

They were pretty flat but they were up just a little bit.

We had some currency gains in China and, we had, again, the plants are working very well in China.

Offsetting all of that, believe it or not, is we had $4 million loss to do with lower volumes.

Great.

That's helpful.

Thank you.

And then just shifting to the plastics side of the business with the sale of the plastics plant to BWAY.

Does that reflect any change overall in the overall strategy for the plastics business?

And could we expect that you would start to see some of the cost saving initiatives that you've taken in plastics show up in the quarter in the next couple of quarters?

Well, the plant that we sold made large plastic buckets, think of it that way, for things like pool chemicals and so forth.

So it was not a fit with anything that we do.

So, the fact that we sold that plant it was kind of an orphan within our plastic business anyway.

It actually came to us as part of the U.S.

Can acquisition.

So hopefully the BWAY folks will be able to add it to what they do and have a nice business.

It just didn't fit with us.

So I wouldn't assume that that has any impact on the rest of our plastic business.

John, do you want to comment on the cost savings possibilities?

The cost benefits from the closed plants really only had a very small impact in the third quarter largely because Baldwinsville, which far and away was the largest facility, ran actually into the third quarter, it ran until the end of August.

So we expect to begin to flow these cost savings to flow through in the fourth quarter and then really hit hard in 2010 relative to the full amount of cost benefits realized from those closings.

Okay.

Maybe just one last one on the plastic side of things.

Is it really just a volume issue in the plastics business or is there something else structurally that is a bigger challenge for you there?

Right now it is really just a volume, volume issue.

Great.

Thank you.

Our next question comes from the line of Al Kabili with MacQuarie.

Please proceed with your question.

Good morning.

Thanks.

Just wanted to I guess follow up on the cost saves, I think you guys were targeting $80 million of total cost savings over 2009 and 2010.

And now as we are in October and as you total this all up, what -- kind of where are you tracking this year and what is incremental next year relative to the $80 million goal that you had?

Wow, I don't know.

I shouldn't say that.

I think that we are probably -- these things all happen at different points in time.

I think we were still looking to get at the end of the second quarter another 50 or more.

And we got some of that, we will still be getting some benefit as we go into next year, I would say at least half way through the year, as everything anniversaries and we get out of there.

It gets increasingly difficult as time passes to find every dollar and say that adds up to 80, but what you will see is just like you did this quarter is in improved results, Ray just mentioned we had $12 million of that in the third quarter.

So.

Yes, and you really have to go plant by plant.

If you think about the eight facilities we have closed and we talked about this, I believe, on the first quarter.

We had three facilities in North American metal beverage.

It was Kent that we said we really wouldn't get much of the benefit until 2010 because we were shipping out of pattern to fulfill customer contracts.

We had Kansas City that we really didn't start getting benefit until the second half of the year and you're clearly seeing it in the numbers, and also the same with Puerto Rico, although that's not all that big.

On the food and household product side of the business, this year we are getting a full year benefit of that and if I remember correctly it is in the range of $15 million.

Then on the two plastic plants, as I just alluded to, we really aren't getting much of anything, certainly we haven't gotten much yet.

We will get a little in fourth quarter but then we will really get the run rate in 2010.

Right.

Okay I just wanted to make sure.

I mean I am kind of coming out as $20 million incremental cost saves next year but just wanted to check that against where you are tracking.

Okay.

On the -- I guess switching over to the aerospace business, can you talk a little bit more about the pipeline, potential project pipeline there?

Do you see potentially that you could grow your backlog again next year?

Yes, I think that's a possibility.

John mentioned in his remarks the fact that the backlog sort of stabilized in the quarter and really they're performing better than we thought they might through the first nine months, and I think they will all year this year.

We haven't had to have the reduction in forces that we might have anticipated and so on because of winning some business as we go along.

The thing that is somewhat heartening and you don't know until you win or lose, but we have been bidding on a number of programs lately and we are optimistic that we are going to start winning some of those.

We can't declare victory, but at least my feel on this business is it is beginning to turn a little bit.

I don't know, John?

Completely agree.

As Dave said we are seeing a lot more deal flow if you would like to call it that.

And just on a probabilistic point of view, when we are seeing more of that we have more of an opportunity.

And so, as we said it is all on the come but I think the tone and tenor of the marketplace in which we compete is much more constructive today than it was six months ago.

Okay.

Thank you.

Our next question comes from the line of Peter Ruschmeier with Barclays Capital.

Please proceed with your question.

Thanks.

Good morning.

A couple of questions.

In the metal food business, I am curious, you mentioned that the food pack has continued a little bit into October.

I am curious on if you could characterize this season, how much the food pack is slipping over to the fourth quarter or how much was captured in the third quarter?

As Dave just mentioned in Colorado at least not much because we have about two feet of snow on the ground.

It was an above average pack, point one.

Some of it did carry over into the fourth quarter, point two.

Not tremendously so but I think the first frost happened about the ninth or so of October, which ends, you have a couple of days after that but it really ends that.

But that is, usually try and shoot to if you can get to the first week of October that's usually pretty good.

We got a little past that which is a little bit better.

And so overall I think we did get some benefits in the third quarter that will continue slightly into the fourth quarter.

Okay.

That's helpful.

Now I know previously there was some discussion that consumers may have been shopping their pantries.

I am curious as you look at the supply chain out there, presumably it is kind of hard to hide a lot of cans out there.

But what's your assessment as to the supply chain and whether there has been a depletion of cans through the pipeline, including consumers?

I think not only on the food can side but whether it is aerosol, whether it's PET we talked about earlier, people are just buying less things.

It gets to year-over-year comparisons and the trajectory of those trends.

We believe generally speaking probably the worst is behind us, in terms of that.

The question is will people start consuming back to their old habits and that is a question only for the people that own crystal balls.

But we feel reasonably good where we sit right now that most of it is behind us and because people still need to eat, people still need to drink.

And the question is, are they going to be drinking tap water or CSD?

And are they going to be eating fresh or canned foods?

We feel just generally constructive about where we sit right now.

Okay.

And just lastly, if I could, coming back to the European can business, eastern Europe in particular, you touched on some points, Poland getting better.

I am curious on how you think about the market longer term, that if you had double digit gains there not too many years ago, has that market matured so that you are just never going to get back to those rates of unit can consumption, or are you thinking that you are going to get back there and so just from a modeling standpoint, I mean what is, what's the outlook for the levels that we hope to make it back too?

Long term, we still believe that there is a fair amount of embedded growth in Europe generally, obviously markets are different.

But just let me give you a couple of statistics that help that out.

In the can share of the package mix in beer in Europe is about 18%, in North America it is 49%.

When you think about the trends from two-way packaging to one-way packaging that clearly favors things at the can particularly when they are at the 18% level.

There are certain markets that are in Europe that are over 40% and there's certain that are in the single digit market.

But based on that fact alone you can have flat beer, and the same works for CSD, but you could have flat consumption but trades of package mix going from two way to one way will provide upside lift over the long term.

I think we are seeing as you see the rebound in oil prices, that has to be good for the Russian economy.

I was reading a piece this morning, that what Russia has got to do and some of us were there recently, but what they need to do is diversify their economy away from raw materials, they're trying very hard to do that.

And with oil trading $70, $80 a barrel versus $40, that's a quick shot in the arm really to the economy there.

That was one place that we can (inaudible).

I think the other eastern European countries by and large were just on the front end of converting to cans and a lot of that was driven by the consolidation on the part of the beer industry.

That certainly continues and it is definitely related to the state of economy.

We saw signs today, although we are not adding jobs in the US as much as we want to, we apparently bottomed out here in the second quarter and had 3% growth or something in the gross domestic product in the third.

Too early to declare victory, but cycles happen and hopefully we are through the worst of it.

Very good.

Lastly, if I could, a quick one for Ray.

Do you have a preliminary estimate for capital spending for 2010?

And if you do, do you care to comment on a couple of the key spending projects you are working on?

Well, we don't have an estimate yet for 2010 but we have a general theme and you've been hearing it from both Dave and John is that until demand picks up we are not going to be putting capital to work until we know we can get a return on it, as you might expect.

As we sit here today I wouldn't expect full year capital to be too much different than it is this year to next and that's something (inaudible).

John, do you want to add anything to that?

No, I think that's generally right.

Very helpful.

Thanks, guys.

Our next question comes from George Staphos.

Thanks, hi, guys.

Ray, it may be a little bit too early to provide anymore precision in the guidance on free cash flow, you said substantially higher for next year.

But are you in a position at this juncture to be able to bracket that at all?

If not, conceptually we add $50 million for MCC as I recall, correct me if I am wrong on that.

What are the other sources of free cash flow improvement that you are expecting for next year if you wanted to stack rank them?

Let's just say it was flat, George.

A good way to think about that is that we said we expect to have at least 375 (technical difficulty) we are going to put in in the neighborhood of $70 million of additional capital.

And, hello?

I'm here.

We are going put in about $70 million of additional capital.

So, on a normalized basis, you could add that to this year's number and then add 50 to it to get you a starting point.

We would not expect to increase -- to have additional capital going to our business next year.

The 70 is, you said capital, Ray, you mean working capital?

Yes.

I meant working capital.

Okay, and so --.

I said that is a temporary increase in working capital that we expect to be able to get out next year.

Okay.

So again to summarize we are starting with 375 plus 70 plus 50.

I realize it never works out quite that mechanically.

And then presumably some upside from earnings if we have a better versus a worse global economy?

That's a reasonable way to look at the starting point, George.

Okay.

I appreciate it.

The other thing I wanted to turn to is within PET you have already done a fair amount of restructuring with the business, I think in answering one of Rick's question earlier, there's not much that you expect to see from a structural standpoint in terms of improvement from here.

Is there anything that you can do from a marketing standpoint to improve the performance of the business or are you just really at this juncture more or less waiting for people to open up their pocketbooks at gas stations and the like to buy bottled water and Gatorade?

I think we are doing a lot, particularly on the food side, food and beverage side, non-say PET.

The soda and water sales, you hit on one of the big problems right now, it is not being acquired certainly in the convenience stores and even in grocery stores the way it was.

So that's a place that we see, if cans are gaining share in the total market they are getting it at the expense of something and some of it is that.

I think we are working hard on new product development and with some success, so we are selling some more heat set containers, some more polypropylene containers and so on.

But on the other side of the coin I think we have got to see hopefully our customers promoting and people wanting to buy more of these things.

Dave, is the custom side of the house could it stand on its own or does it need the scale even if it is not getting much of a return on its own from the, if you will, the commodity side of the house and PET?

It is not a large business but it was a separate business within Alcan when we bought it.

Right.

It's a little larger now than it was then.

Okay.

All right.

Last question and I will turn it over.

In terms of promotional activity from your customers and soft drinks this year, it has been seemingly from our standpoint on again off again, on again off again.

And with that as a back drop then perhaps whatever they're telling you now might not necessarily have a heck of a lot lead time into the future or just visibility into the future, but what are they telling you right now in terms of their expectations for promotional activity into 2010?

Yes.

What they're telling us right now is they're very much focused on it.

They're really looking towards [2002] and they are putting together all their variety of plans, promotional activity, pricing strategy, all of those things in place as they go into 2010.

I think it is still a work in process for them, and so our discussions with them, they need to get through their work first.

Okay.

All right guys, I will turn it over.

Thank you.

Thanks.

Your next question comes from Andrew Feinman with Iridian Asset Management.

Please proceed with your question.

I have been asking you about securitized receivables every quarter for about the first five years and the one time when it actually would have been a good question you went and answered it before I got a chance to get in the queue.

I thought of that, Andy.

Yes.

That's-- I wasn't fast enough.

So the $200 million capital spending includes metal container corp., is that correct for this year?

That's correct.

That's correct.

And okay, so I think the last time we talked about it, maybe on the last call, it was looking like it was going to be maybe $40 million or $50 million higher than that.

Right --.

So can you -- can you talk about what you have, you know, what brought it down.

Lublin.

All right.

Okay.

That's the biggest piece, and of course we have been really careful about everywhere we are spending money but we are being very cautious as we look at this economy we are in.

The big number, the big move down is Lublin.

So there's a lot of, I mean you have the $32 million from the plastic sale, you've got, I think, about another $20 million coming in the fourth quarter from winding out of your collateral deals, and you have -- so I am trying to estimate, I guess if your receivables goes back to $250 million, which is around where you like to run it, between now and the end of the year --.

Right.

That's a good assumption.

Then what -- Okay.

So then what would your, can you give me some kind of a bracket of what your net debt might look like at the end of the year given all of those puts and takes?

A range?

Well, I would tell you we are looking at somewhere like to [2450], some of the exchange rate has an impact on that, too, Andy.

But we believe 2.4, $2.450 billion, something like (inaudible) in that neighborhood.

Great.

Okay.

That's terrific.

Thank you very much.

You bet.

Our next question comes from the line of Tim Burns with Cranial Capital.

Please proceed with your question.

Thank you, Operator.

Two foot of snow I think would equate to a school day off, I am impressed.

Well, what would you expect, Tim?

This is kind of a kooky question, and I don't know if it has been approached but the InBev Pepsi merger of certain purchasing activities, I mean it doesn't include packaging at this point.

I could see how you guys could benefit if it happened.

I could also see how you might struggle with it.

Is it something to worry about or should we just shelve it for now?

Worry about.

It is, this is part of a broader theme of just consolidation of customer bases, and so we have in one way shape or form we have been focused on this for a very long time.

With respect to your specific, it isn't about packaging it's about two beverage companies coming together and looking at all of their indirects.

As we sit here today we have got good relationships with both of those good customers of ours and we wouldn't expect any material changes.

Great.

And, John, where do you think the specialty can business is as a percentage of total today and maybe where might it go?

I mean it's obviously in high gear and probably will go into higher gear into 2010, what are your thoughts?

I think it is in the low double digits kind of low teens call it right now.

I do think, just go into a store today and compare it to what it was two years ago even in the height of the economy, you are just seeing a lot of different format changes, whether you define it as different sizes of cans or different packages of cans, you can see 20 packs out there you couldn't see two years ago, you see a lot more 16-ounce on the shelves, you see a lot in terms of juices and other things going into the smaller sizes.

You will start to see CSD going in to the smaller and the larger sizes depending on the channel that they're selling into.

So, I think this is a secular trend that isn't going away.

Great.

Thanks very much.

And good luck on the fourth quarter.

Thank you.

(Operator Instructions).

There are no further questions at this time.

Please continue with your presentation or closing remarks.

Okay.

Well, Sarah thank you very much, and thanks all of you for participating in our call.

We will look forward to speaking with you again in January, and we will continue to work hard to make Ball perform well.

Ladies and gentlemen, that concludes the conference call for today.

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