Ball Corp (BALL) 2010 Q3 法說會逐字稿

Good morning, ladies and gentlemen, thank you for standing by, and welcome to the third quarter 2010 Ball Corporation earnings conference call.

(Operator Instructions) As a reminder, this conference is being recorded Thursday, October 28, 2010.

I would now like to turn the conference over to Dave Hoover, CEO.

Please go ahead.

Thanks very much, Jennifer, and good morning everybody.

This is Ball Corporation's conference call regarding the company's third quarter 2010 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 other company SEC filings as well as company news releases.

And if you don't already have our earnings 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.

But joining me this morning on the call is John Hayes, our Chief Operating Officer and President, and Scott Morrison, Senior Vice President and Chief Financial Officer.

And in a moment, Scott's going to talk about our financial results for the quarter and for 2010, and John will follow with details about the operating performance.

Well, Ball reported strong third quarter results, due largely due to excellent operating performance and the impact of strategic actions taken during the last year or so.

In addition to improved results, key achievements in the third quarter included the sale of the plastics business, the acquisition of Neuman Aluminum, and announcement about the consolidation of our salmon can production, the acquisition of an incremental 10.1% of our Brazilian beverage can joint venture, and an announcement that we are expanding the production of our commercially successful Alumi-Tek bottle to meet customer demand.

Also and importantly, Ball Aerospace won significant new business, increasing our backlog to $852 million at the end of the quarter, up from $539 million at the end of the second quarter of 2010.

And after that active quarter, we have significant opportunities in front of us to improve performance.

And carry momentum into 2011 and beyond.

I'll turn it over to Scott to talk about the quarter and then, as I said, John will provide color on our operations before I address our outlook.

Scott?

Thanks, Dave.

Ball's comparable diluted earnings per share from continued operations were $1.40.

Well ahead of last year's $1.21.

The following factors contributed to improved results.

Positive impact from the four acquired beverage can plants.

Volume improvements in our global beverage--global metal packaging businesses, exceptional operating performance in our various businesses.

These positive factors were offset somewhat by a $5 million increase quarter-to-quarter in G&A, primarily due to competition costs.

Purchase accounting and other costs associated with Brazil totalled approximately $5 million, and we had higher interest expense, also related to Brazil.

During the quarter, the Company realized an $80 million gain on the consolidation of our Brazilian joint venture, which is recorded in equity earnings.

A 10% weaker euro negatively impacted diluted earnings per share by $0.07 in the quarter, and $0.13 year-to-date.

For a complete summary of third quarter results on a GAAP and non-GAAP basis, please refer to the notes section of today's earnings release.

Turning to some key financial metrics, interest expense in the quarter was up as expected, due to the acquisition financing from last purchase of the four metal beverage plants and two month's of interest expense from debt consolidated from Brazil.

We now anticipate full year interest expense to be in the range of $145 million on a comparable basis and the full year effective tax rate on continuing operations should be in the range of 31%.

At current exchange rates, year end debt, net debt is expected to be approximately $2.5 billion.

A roughly $100 million reduction from 2009, taking into account the $250 million outstanding under the company's AR securitization program in 2009.

Given the growth opportunities before the company, and the consolidation of Brazil, we see full year CapEx approaching $300 million.

However, free cash flow is expected to be at least $500 million, excluding the impact of the AR securitization coming on the balance sheet.

We continue to be focused on returning value to shareholders.

Our plan is to repurchase more than a net $400 million of our stock during 2010, and that's on track.

With that, I'll turn it over to John to talk more about the operations.

Thank you, Scott.

In the third quarter, our businesses performed very well across the board with EBIT in every segment up year-over-year on a constant currency basis.

Comparable results for the quarter in our metal beverage packaging in the Americas and Asia segment were up nearly 10%, with EBIT of $112.8 million versus $102.9 million in the third quarter last year.

This increase was driven largely by the impact of the acquired plants, strong volume growth in emerging markets and growth of certain specialty can sizes.

Offset by previously disclosed unfavorable volume comparisons at our legacy 12 ounce business, and the impact of purchase, accounting and other costs associated with consolidating Brazil into the segment that Scott referenced earlier.

In North America, Ball's legacy volumes were down mid single digits versus flat overall market, something we mentioned would happened during 2010 before our step up in volume in 2011.

As we described in the second quarter conference call, the strong promotional activity we saw in the early part of the summer subsided after the Fourth of July holiday, well in the beer segment, cans continue to take share from other packaging types of consumers focused on value.

Ready to drink teas and energy drinks continue to grow relative to a soft 2009.

Given the growth in specialty beverage cans, capital will be deployed to meet customers' needs.

Our recent announcement to install a second Alumi-Tek bottle can line in North America is an example of the type of project that will benefit us in 2011 and beyond.

We continue to monitor and see store trends where certain single store product categories are growing upwards of 10%.

In Brazil, we continue to see strong growth in demand driven by overall beer growth and beverage can share gains.

We remain optimistic about our growth and future profitability in Brazil.

In China, herbal teas and beer demands, as well as package share gains by two piece beverage cans over three piece cans and glass, continue to be the main catalyst behind strong volume improvement.

We are expanding output in our recently acquired Foshan plant in order to meet demand for beverage cans in southern China, and have many exciting opportunities in the future.

In our European operations, third quarter EBIT was $63.1 million versus $68.8 million in the third quarter last year.

Volumes in Europe were up mid-single digits, and excellent cost controls and plan efficiencies were offset by lower than anticipated export volume and the FX translation headwind that Scott mentioned earlier.

On a euro basis, Europe's earnings were up in the quarter versus last year.

The momentum in the German beverage can market recovery continues.

Total industry can sales in Germany were up more than 56% in the quarter, versus third quarter 2009, and 41% year-to-date versus last year.

We remain bullish on recent trends in Germany, and as you know, Ball is well positioned to benefit from the continuing return of the can in that market.

Our food and household products segment had excellent quarter.

Given the early end to seasonal fruit and vegetable harvest in the midwest.

Volumes in the segment were down mid-single digits during the period.

Third quarter EBIT of $49.4 million was up significantly versus the $27.8 million recorded in the third quarter of 2009.

Excellent operating performance.

Our plants are doing a tremendous job, and better mix contributed to better results.

During the quarter we integrated the Neuman Aluminum acquisition into the segment.

The integration went extremely well and the collaboration was excellent.

We will leverage this business capabilities as we continue to assess opportunities, to broaden our product line within the food and household and beverage segments.

Aerospace had a strong quarter with a EBIT of $18.4 million versus $16.2 million a year ago on essentially flat revenue.

Exceptional program performance and on [orbit] and completion awards, favorably impacted the quarter.

While the recent wins in our aerospace business were contemplated, as you know we had mentioned that we had a number of irons in the fire.

It is gratifying to see some of them come to fruition, and we still have good opportunities for additional wins in the future.

As Dave mentioned, back log is up significantly, which sets us up nicely going into 2011 and beyond.

The recently awarded JPSS and Worldview-3 contracts, as well as others, are multi-year programs that will ramp up during 2011, allowing for more meaningful earnings impact being recorded in 2012.

So, in summary, our operations are in a strong position as we approach the end of 2010, and continued execution of selected opportunities as we move forward will only add to our strong base.

And with that, we'll turn it over to Dave to wrap it up.

Dave?

Thanks John, and thank you Scott for your comments as well.

You know the company is performing very well, and we've got the momentum going.

We expect this positive momentum to continue as we approach the end of this year, and progress into next year and beyond, as I said earlier.

We're in an incredibly strong position, both in operations, as you just heard John describe, but also our balance sheet and strong cash flow are good to see.

So, for the full year our goal continues to be to post second half 2010, comparable results, higher than those in the first half, which were $2.25 per diluted share.

And, we're going to do all we can to make that a reality.

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

Thank you.

(Operator Instructions) Our first question comes from George Staphos, Bank of America / Merrill Lynch.

Please proceed with your question.

Thanks.

Hi guys, good morning.

Congratulations on the quarter, I guess the first question I had as we look out to 2011, and the anticipated pickup in beverage can volume you see in North America, are there any things that you need to do in advance of that from an operating standpoint or a staffing standpoint or you think that you're pretty well situated to take that volume as it comes on?

George, this is John.

We're pretty well situated as we move into 2011.

We did take a step back and we had some -- a bit of open volume in our legacy plants in 2010, so as we move into 2011 we're in the process of various qualifications and other things, and so far so good.

Okay.

Similar question as far as aerospace goes.

It was nice to see the backlog pickup as it did.

Do you feel that as you went through this downturn, I know there's a balance between maintaining margins and maintaining flexibility when the business finally did come back, do you have again, the staffing and the capabilities ready to go as that business comes back in?

George, we are focused like a laser on just that and the short answer is yes.

Many of these programs don't wrapup, ramp up month one, they will start to ramp up over a series of six to twelve months .

And so that allows us some flexibly in terms of making sure we have the right people with the right experience and training in the right positions.

So, we feel pretty good where we are right

And you know, George, (inaudible) slowed down, we really didn't have to separate that many people and we've been real careful to maintain critical capabilities.

Are there any capabilities that you need to recruit for, David, at this juncture or again, do you feel you're pretty well situated?

We're going to have to grow our employment somewhat, but I think, John, we were down like at a net 28 people this year.

So, even during the time where you reduced in some cases we've been hiring and others.

And as you can see the results in the quarter, I don't think we got down as much as I was fearful that we might.

And so, this is really good news, and, as John says, it's not going to flip like a rubber band but it really [undergirds] the next few years of performance for this business.

Okay thanks I'll turn it over.

Thank you.

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

Baird.

Please proceed with your question.

Hi, guys.

Good morning.

Good morning.

Hey, looks like steel tin plate prices can be about '11.

Are you anticipating any pre- buy in 4Q in any of your steel-based businesses?

You know nothing of significance that would be out of the ordinary.

There's all sorts of discussions about what's going on in the steel markets and we are in the midst of negotiations right now and I don't think it's wise to comment on these things, but we do live in a volatile world and we're going to do all that we can to negotiate as best we can on behalf of our customers.

Okay.

And just separately, one of your competitors in particular is adding a lot of capacity in Brazil and China and I realize that you have added capacity in Brazil as well, but just given your comments one how strong China volumes are, can you share with us your thoughts on how you're manufacturing footprint in China will change over time?

Will I think we're in a pretty good place.

The market continues to grow quite strongly, call it 20% plus or minus, and off of a base, somewhat healthy , so when you think about what that means, there's a couple billion cans per year coming into the market.

And so, we have, as you know, our footprint in China is very well situated in the north, the central, and the south, and as opportunities continue to come up we're going to take advantage of them in a prudent

Okay.

Thanks.

Thank you.

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

Please proceed with your question.

Yes, following on that.

Is there any chance over the next year or so you might be able to provide us with a little more granularity between North America and Brazil and China?

Granularity in terms of--?

Just the size of the business unit volume in the different markets?

I guess the short answer is yes.

We can certainly talk about that.

As we sit here today, as you know the North American beverage can market is approximately 100 billion.

We have approximately 40 billion of those, excluding the joint venture we have.

Down in Brazil, let's call it 13 million growing quite strongly and we've got approximately, remember we're adding a second line as we speak, it will probably be up and running by the end of this year and we're looking at other opportunities, but once that line comes in will have well over 3 billion, 3.5 billion of capacity down there that's all sold out.

Then as you go over into China, it's about the similar size and our position in China is a little bit bigger than that.

So, we think we're in a pretty good position to take advantage of some of this growth in a prudent way and as it comes our way, we're very much customer focused and so we're talking with our customers and they're talking with us actively about it.

To the extent it makes sense for Ball Corporation's been investing in these regions, we're all at it.

Okay.

And, John, when you look in other markets, like let's say Argentina, are you shipping cans out of Brazil into those markets or how do you deal with that?

Not particularly.

The Brazil market is so strong right now and the Argentina economy is only fair right now.

They have a lot of changes that's going on there and the can market is not that big there.

They do sell cans into it, but our primary focus is into the Brazil market.

Okay.

And finally can you guys talk at all about BPA?

There was a story out with the Canadian move several weeks ago, and just talk to us about what you're doing right now to potentially phase out or move away from BPA in your business?

Yes, over the last -- I won't get into the politics of BPA, I'll leave that others, but we recognize that at a minimum from a consumer perspective, that people have some questions, and over the last 18 months to two years we've been actively working within Ball Corporation as an industry and with the coating suppliers to provide alternatives to our customers relative to BPA.

We've had some success in terms of test packs in a good number of different categories and we're still working on some others, so, we are pushing as hard as we can to make sure that we are providing what our customers need.

But it's -- these things because of FDA approvals, and other matters,they don't happen overnight , and one of the issues that the industry has to be mindful of is, as we move into alternative coatings, that they fit within the requirements of FDA.

And, that is a moving target as well these

Okay.

And is that Canadian decision, does that have in the near-term impact on the business?

No, it doesn't.

Okay, very good, thanks.

Thank you.

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

Please go ahead.

Yes, good morning.

Quick first question as you mentioned the volume trends in Europe for up about mid-single digits but that you had lower exports from Europe.

What would that have done to the overall segment volumes?

Was it still up even including the export decline?

Oh yes.

Yes, they were.

We export out from Europe, use it as a base from everywhere from to Africa, a little bit in the Middle East as well as into India and places like that.

And so -- but that's not a huge component of our business, but it certainly did put a little bit of damper on it, just to give you context, the overall market was, call it up 4% or so, and we were right in line with that.

We might have been a little bit better had the export had been better.

Got you.

And then as a follow-up, and I think it's been a while since we asked you a question about this, but my goodness, the aerospace backlog really took off in the quarter and especially given some of the budget issues I think that was a surprise.

Certainly it was to me, and good news for you.

Can you talk a little bit about how, what's going on there and how you think that that business going to progress into next year, because obviously you do have some lead-time in terms of how the earnings flow from that business?

Well you know, as we said earlier, as John said, these programs are hardware oriented primarily.

And the Worldview-3 win that we had is for the company out here in Longmont that does imaging of the Earth, this is the third in a series of satellites that we've built.

It will ramp up starting kind of now.

And, through next year, I don't really know when the peak employment will be, but probably not even next year.

And, so that gives you an idea of how these work.

It's going to take a few years to build at least the initial parts of these.

The other thing is that some of the programs that we are getting involved with with these, like the national weather satellites and so forth, there is a continuous kind of need.

They're long-term operational programs and some that we can't talk about, but they're just real good basic business for our company.

We had in our board meeting yesterday a discussion about this, and we had a number of pretty good growth years a couple of years ago, then we had a bit of a dip through the last year so, I think and hope that we're back on the trajectory that we were.

So, I don't know that we would project above double digits or single digit growth over time, but it could happen.

I mean, the business a decade ago with 10% of the Company when we were $3 billion and it's still 10% of the company when we're $8 billion.

And, so it has had a pretty good growth trajectory during that time, we think it will continue.

A lot of things also, is the reason why I mentioned in my comments, that we're well-positioned not only for '11 but more importantly, '12 and beyond is because there's -- each of the programs we're in a bit of a transition.

2010 has been strong because despite relatively flat revenue, we've been performing extremely well on many of these projects and programs that are completing.

So, we've been receiving awards because we've been doing quite well on that.

And so as we start to ramp up in 2011, some of these new ones, there's a bit of a mix issue.

Nothing to worry about that really positions us well for 2012.

Got you.

Thank you.

Thank you.

Our next question comes from the line of Richard Skidmore from Goldman Sachs.

Please proceed your question.

Good morning.

Thank you.

John, maybe I could just are on the America's beverage performance if I look at it on a year-over-year basis, you're up about $10 million in EBIT, but your revenue is about $300 million.

Could you just help us bridge the difference?

I know you mentioned there was some acquisition costs in there.

But maybe help us bridge why it wasn't up perhaps more?

Yes.

This is Scott.

From a margin percentage basis you have to remember that the metal that we told for customers is going to have an impact on margin so, year-over-year, the LME is up about 15%, so just passing that metal through, reduces or margin by about point and a half.

Up from an EBIT dollars standpoint, it doesn't change it, but from a margin percentage it does.

And then the consolidation of Brazil, remember we didn't consolidate Brazil for the full quarter, just for part of the quarter, and the purchase accounting cost that we have with that and some other one-time costs is going to dampen the EBIT dollars for the quarter.

Okay, so just to make sure I understand that, the purchase accounting is the full effect, but you just got Brazil for part of the quarter?

Correct.

That's why you see on the noncontrolling line down below you don't see anything going out.

In the future, you see dollars going out on that line as we as the purchase accounting effects go away.

And we start to earn more normalized profitability.

Okay.

And then, can you just maybe do the similar type of bridge in the Americas food and household segment?

Just in terms of that segment was up pretty significantly from third quarter of '09 to third quarter '10 upwards of $21 million, just help us in terms of bridging what drove that meaningful performance?

I'll tackle that one.

Two things really drove it.

Number one, product mix, aerosol was stronger and some other things in terms of value added the food side, and then, the other thing is, as I mentioned in my comments, our plants have been performing tremendously well.

In the year-over-year improvement despite a strong 2009, tip of the cap to our folks, because they've been doing an absolutely wonderful job in the plants of making sure we're focused on the right things and getting after it as soon as practical.

One last question for Scott in terms of what the current share count is?

When we filed the Q&A a couple days ago, it was 88.4 million shares.

Thank you very much.

Thank you.

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

Please go ahead.

Good morning.

Couple questions for you.

First, we've got to come back to our favorite business that's 10% of you guys now, aerospace.

A lot of these contracts that you've been winning, have they been fixed contracts or are they cost-plus?

It's a combination, but a fair amount of fixed-price work here.

There are things we know how to do and have done, like the Worldview for example, so that's the answer to that.

Okay so that probably bodes pretty well then for margins one would expect?

Touch wood, we think so.

Okay.

Second question was for you Scott, on the corporate expense side, and that really picked up quite a bit in 3Q, could you maybe give us a little color as to what happened there and what a reasonable run rate might be?

If you're looking-- if you compare it to the second quarter, most of that difference would be stock price difference.

And the impact of that has on our composition plans, if you look year-over-year, most of that has to do with other compensation.

We're performing better so we get paid a little bit better.

Okay.

That's helpful.

And if I could ask a question about your recent Neuman acquisition, you mentioned that that scenario that you're looking at to target for other investments or other opportunities.

As you look out at the landscape there, what types of opportunities do you think, which markets look most attractive?

Obviously you're big in beverage, but the aluminum, the aerosol market seems to be growing pretty rapidly as well.

Could you maybe give us a little color there as to what you see as opportunities and geographic commentary, as well?

Yes.

I'd be happy to.

I don't want to be too specific for obviously competitive reasons.

The reason why we think it's attractive to us, because we think this geographic play, we think we can leverage both our aerosol and the beverage side of the business and a lot of the know-how in what we do in terms of forming aluminum in particular.

And those three things provide us opportunities.

As you know, the Neuman acquisition was not a big acquisition, but it allows us to get into a part of the supply chain that we think is important, and we have different options we are currently considering with respect to what other things we ought to be doing.

Last question as a follow-up on that one is from a cost perspective, would it be capital intensive to build out some of that business?

It requires capital but it's not like the beverage business, I would say.

Okay.

Thank you.

Our next question comes from the line of Philip Ng from Jefferies.

Please proceed with your question.

Morning guys.

Just a quick question.

Europe's bev can business- heading into the year, there was some concerns that there might be some slack capacity, but obviously demand's been really strong, so can you give us a feel for operating rates and just pricing as we head into 2011?

This first in terms, I'll call it, operating rates, remember it is more seasonal the other parts of the world in terms of that.

And to be quite honest we for a short period of time this summer, we weren't able to keep up with the demands of customers.

So we're actively looking at how to treat with that going into 2011.

I think all of our plants are running very well and the industry was reasonably tight during the summer months.

What that means going forward in the pricing, who knows it's still early, and we're in discussions with our various customers.

We've had some raw material increases, we've had some input increases and so those discussions are, as I said, in the beginning stages of them.

Okay.

Do you have an update for us on the Lublin plant?

Nothing, other than we're actively looking at making sure we have the right capacity to fulfill our customer demands, not only in the west but also in the east.

Okay, all right.

Thanks, guys.

Thanks.

Thank you.

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

Please proceed with your question.

Thank you, good morning.

Morning.

One of your glass competitors, or one of your original packaging competitors I should say, in glass was talking about that they had seen beer volumes get a bit better over the last month or two, heading into the fourth quarter.

I just want to get an idea of if you're seeing any signs of that recovery on bev cans as well and canned beers domestically?

Well, what I would say generally in the beer, I don't think we've seen any meaningful deviations over the last month or two.

Many of the beer industry there's a lot of noise about aggressive price taking from the beer companies in a declining beer market, but the reality for us is that consumers don't trade out of beer they trade down in beer and that's why the beverage can has actually been performing pretty well during 2010 in the US beer market.

Okay, thanks.

And just one quick follow-up on Europe.

I was a bit surprised that the Eastern European business didn't seem to do a bit better with a couple of the major beverage guys talking about nice growth there.

Are you seeing any rebound in that market or is it still pretty stagnant?

No, it's modest increases, but nothing like it was before.

It is actually down very slightly relative to the overall market.

I think the Western Europe has been growing at a clip higher than the average and Eastern has been a little lower than the average.

Okay.

that's all I have, thanks.

Thank you.

Thank you.

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

Please proceed with your question.

Thanks.

Good morning.

Good morning.

Maybe a question for John.

I was curious if you could amplify your comments or maybe it was David's comments on Germany.

Obviously some big growth rates off of a low base, how much of the potential market of pack types you think cans can take in Germany over what time frame and how you think about positioning for growth there?

Let's have a little history, go back in history.

In 2002, prior to the beverage can being imposed with a deposit, there was a -- call it, with domestic consumption -- call it 6 billion to 6.5 billion units.

It got to a low of several hundred million cans a few years ago.

We believe we have a shot this year as an industry of approaching close to 1 billion cans.

I don't know it we will it reach quite there, but you see the trajectory when you're talking about 41% increases year-over-year that's quite strong.

What's driving it is that the discount retail chains are starting to list cans which are good.

I think now if not two there's three that are listing them currently.

The big guys have yet to list them, so that could be a lot of upward pop if that were to happen.

But I think the whole tone and tenor of the discussion about the return of the beverage can into Germany is much better, and much more constructive today than it has been in the last eight years.

Very helpful.

And then, how do you position to invest or participate in that growth?

Well that is what we are actively studying and that's why, when we have something to announce, we will, but we think we are very well positioned relative to our installed capacity to take advantage of that right now.

And what we probably have to do is look at our overall footprint and look at the regional supply and demand make sure we're matching that appropriately.

Okay.

And, shifting to Brazil, certainly a very strong market, but we've also seen very significant announcements over the next 12 to 18 months for bev can capacity expansion.

I'm curious how you would characterize the risk of potentially getting to an oversupply situation anytime soon in Brazil?

One of the things we track very closely is what our customers are doing in terms of investing in the filling operations for cans.

And that has been growing very, very strongly.

So, that gives us comfort that the supply and demand should not be too far out of whack at all because they continue, our customers continue to invest in can filling, the can continues to take shares of package mix and the overall beer market which is really driving this, continues to grow mid to upper single digit growth rates.

So you put those three things together and I think it bodes well in the future.

Very helpful.

Thanks, guys.

Thank you.

Our next question comes from the line of Al Kabili from Macquarie.

Please proceed with your question.

Hello, thanks.

I just wanted to get your comments on volumes in Western Europe versus Eastern Europe if you're seeing any signs of recovery in Eastern Europe and what your customers might be thinking about growth there next year?

Well as we talked, the Western Europe is growing a little bit faster than Eastern Europe currently, what's driving both West and East growth there is actually not beer, it's more soft drink.

Which has been a reversal back through the most of the 2000's, where beer was really driving it hard.

Not that beer is down so to speak, but it's a little bit more muted than some of the things we're seeing in the soft drink side.

So as we look into 2011, I think a lot of it has to do with the economic recovery.

Eastern Europe is a bit behind Western Europe in terms of recovery, from an economic perspective, and I think that drives some of the use of our product and the use of beer versus soft drink generally.

So, we remain constructive about Eastern Europe, don't get me wrong, but the economic recovery has to accelerate before we see a strong acceleration of beer and CSD consumption.

Okay.

I may have missed it, did you indicate what your Eastern European volumes did?

Yes.

We talked about that before.

I said overall market's about 4%, Western Europe's a little bit higher than that, Eastern Europe's a little bit below that, but they're all in growth mode.

Okay.

Sorry I missed that part.

I wanted to also, with steel prices going up, wanted to get your thoughts on how you view the relative competitive profile of your steel beverage cans in Europe versus aluminum?

We've had a dual metal strategy for a long time in Europe and as we talked about before, there is a lot of noise at the marketplace about what's going to happen with steel versus what's going to happen with aluminum.

I think it's too early to tell.

But our dual metal strategy has played us well, and when one gets out of whack with the other, we take advantage of that with one substrate over the other and vice versa when those things reverse.

So, it doesn't overly concern us too much at this time.

Okay.

And is there a point at which steel rises where you feel you need to convert some of that capacity to aluminum or are we very far from that right now?

Never say never but there's always a point where aluminum gets too high we would consider moving to steel and vice versa.

I don't think we're at that point now, but we're very cognizant of the fact that we have to be competitive in the marketplace and the very substrates we use have to be competitive in the marketplace.

Okay.

Thanks and final question is this CapEx, if for next year if you have any type of preliminary CapEx number for next year?

Thanks.

Not a number, but I think directionally we're seeing a lot of opportunities that we're looking at pursuing so I could see CapEx drifting up.

And also we're consolidating Brazil so by definition it's going to be higher as well.

That's true.

Okay.

Got it.

Okay but you still think $500 million of free cash is a sustainable number even with the drift up in CapEx, it sounds like?

I think it's a little early to pin it down next year, but we expect to continue to have real strong cash flow even with an increase in CapEx

That's exactly right our cash flow this year will be very strong, and we don't see anything in the future that would dramatically change our free cash flow number, but obviously we spent a little bit more CapEx.

We think we're going to make more money next year, too.

Okay.

Great.

Thank you very much.

You bet.

Our next question comes from the line of Dan Rutter from WHV.

Please proceed with your question.

Yes, good morning gentlemen.

I'm wondering, could you talk a little bit more about in the aerospace, is the nature of the revenues there?

Could you talk about the mix between the contracts and projects and I'm curious do you expect with the investment going up in '11, that we'll see an operating margin shift downward temporarily?

In the aerospace business?

I think as David mentioned earlier, historically we do the full spectrum, everything from cost plus to firm fixed price and sometimes cost plus with the success fee and it goes everything from one end to the other.

I think, as we look forward, some of the projects that we've won, they are a little bit more biased toward fixed-price than they are cost plus typically, when we performed well, that bodes well for us.

You had mentioned investment.

I don't think we anticipate much investment if you will in the business.

Yes.

We are making sure we have the right skillset of people, but as many of our successful programs are rolling off this year, and we're building the ones next year, we are going to have higher sales in that business.

We most likely are going to have higher profits in that business, but the margin is probably going to be a little bit more muted just because this mix of starting programs versus finishing successful programs.

But again nothing to worry about as we go into 2012, as we execute on these programs, we feel very good about where we stand with that business.

We've said this before, too.

I don't know how long you've followed the Company, but we also make antenna and other hardware and that business has been growing nicely and continues to.

And, we have a tech services part of the business, a lot of software people that work in DOD.

And both of those are well above $100 million in sales or each of them is.

So out of the total and even to this period for the hardware business was down a little bit they've been continuing to grow and certainly contribute to the success.

And we contract both with civil and DOD and some commercial work, but that sort of the mix of business.

I think we used to talk over time, if we were on our game in the cost type work, we should be able to make a percent or so in the fixed-price we're going to make a little more than that because we're taking a little more risk, and you can look at the numbers and see that that's the kind of year we're having.

Thank you very much.

Yes.

Thank you.

And our next question is a follow-up from George Staphos from Bank of America Merrill Lynch.

Please proceed.

Thanks.

Hi guys, I wanted to come back on a couple questions relative to food cans.

Question came up earlier, I guess, from Mark, on BPA and one of the things I understood about the alternative coatings that you've been working on, is that there was some application, obviously, and success with certain products, but there were other, perhaps more aggressive products where the alternative coatings that your suppliers were working on hadn't quite been able to deal with them.

Is that still the case if I'm remembering it correctly?

Generally speaking, that is the case.

I'll also remind you though, of some of those more aggressive products, certainly the ones high in asset and other things, it's not a big proportion of the food can market.

Okay.

I guess to the extent that your customers are willing to experiment with these coatings, is their view that the ultimate consumer is willing perhaps to contend with less good performance from these coatings and perhaps aftertaste and that sort of thing?

Or have they even gone down the road yet?

It is premature to talk about that.

There's trade-offs with everything.

With some of these new coatings the shelf life might be a bit shorter, so our conversations with our customers, they're certainly aware of that and they are factoring into that into their plans as they go forward.

John, last question, actually two last questions on food.

On the one hand, the margin that you're putting up, are terrific by historical standards and everyone in the organization should be congratulated about that.

I guess perhaps the negative is, do you think that you can sustain this level of performance now within food and household into the future.

What do you see is the key risk to that performance?

The related question is; with steel pricing having gone up, quite a bit in 2008 and 2009, do you worry at all about conversion data out of food cans into other substrates over time?

To address the first question, the answer is a bit like Scott was talking about aluminum.

What we endeavor to do is pass forth all the price increases on the sales side of the business and so, it's always tough to talk about margins in a business in which that's the business model, but in terms of absolute EBIT dollars, the guys have been doing a great job, we've gotten to the targets we think we can achieve.

Is there some upside there's always some upsides, you're never perfect.

But, it is where we think it should have been when we made the US can acquisition.

As we go forward, in terms of steel, it remains to be seen what happens there.

One of the issues around processed food is the steel food can has a big installed base in terms of processing, and for our customers to recapitalize that, that is a significant capital throw.

And so, yes we always are concerned about substitution and talk with our suppliers all the time about being penny wise and pound foolish.

But on the other hand, we haven't seen to date, any meaningful change in package share mix in the food can market, or in the food market, I should say.

Okay.

I guess the last question I had and I'll turn it over, you mention perhaps adding some capacity, that you will add capacity on Alumi-Tek in Golden, do you see perhaps a need to add capacity on trim-cans or are you pleased with what you have right there?

I think we just have to watch the market.

In our written comments and in John's comments we talked about specialty cans continuing to grow.

We intend to meet the market there.

So, once in a while we're going to be doing that.

I think we talked about what we're doing in California.

With demand where you thought it would be?

Seven?

No.

Okay.

Was demand where we thought it would be, Dave, on Trim-cans this year?

Yes I think that part is, really, we're not surprised by the market performances this year.

It was a little stronger in mid-year with some of the promotions on 12 ounce, especially stuff isn't -- we're in constant contact and it seems to still be doing well.

George, not only the slim, but also 16 and 24 has been growing.

I had mentioned that we were seeing some double digit growth in the specialty can sizes and, as Dave said, we monitor that very carefully and very closely and if it makes sense to invest we certainly will invest and we're prepared to invest.

Understood.

Thank you very much.

Thank you.

Thank you.

Our next question comes from the line of Andrew Fineman from Meridian.

Please proceed with your question.

Thanks.

So you're free cash flow so far is $371 million and you're saying it's going to be at least $500 million for the year.

So that means that you are going to get another $130 million in free cash.

And then you said your net debt is going to be $2.5 billion and right now it's $21 million less than that, so you've got $130 million in free cash and about $20 million increase in debt, so that's $150 million of cash in the fourth quarter, that you're going to spend.

So can I assume that's about how much stock you're going to buy back in the fourth quarter?

Yes.

I think that you're actually right.

I said we'd buy at least $400 million in stock, so I think your numbers are directionally right.

Okay thank you.

You bet.

Thank you.

Our next question is a follow-up from the line of Chris Manuel from KeyBanc Capital Markets.

Please proceed.

Good morning again.

Just a quick follow-up.

A lot of the growth that you're seeing in Brazil and in China and in Europe, is it predominately weighted towards any, whether it's beer or soft drink or other teas or things of that nature.

Could you maybe give us a little help as to what's been the big growth engine in the different regions?

Yes I think they're different by each region, and in China what you are seeing is beer.

Recall, we've talked about this before, cans as a share package mix in the beer segment is low single digits, 4% plus or minus across the country which it's a large country, obviously, but there's a lot of room for growth in that, and we're seeing it.

We're also seeing herbal teas convert from three-piece tin plate into two piece aluminum and I guess to a lesser extent, two piece steel with some of our competitors doing that.

So that is really driving in China.

In Brazil, it's beer.

As I said, there is growing strongly.

Our customers are investing in it strongly, and the can has taken packet share mix gains which is good.

And then, in Europe, it really, at least this year, has been driven more by CSD than it has been by beer has to with more than Western Europe than Eastern Europe.

Okay.

And can you remind us what the mix is in Europe for soft drinks to beer?

It's approximately 50-50.

Just off the top of my head I think it's 50-50.

Maybe a little bit more CSD than beer but not much.

Okay, that's helpful.

Thank you.

Thank you very much.

And our last question is a follow-up from Chip Dillion from Credit Suisse.

Please go ahead.

Yes, thank you.

I think I caught you and please tell me if I am wrong, that CapEx for the year would be about $300 million.

Is that right?

I said approaching $300 million.

Okay, and I was just curious because I remember back in, I think in July or August, it was supposed to be something closer to say to $230 [million].

When did that change or is that something that you're changing today?

No.

It changes in part with the consolidation of Brazil and we're putting a second line in in our Tres Rios plant, and then we announced the Alumi-Tek line in Golden, so that bumps it up a bit.

And there are some other smaller things, but those are the two big drivers of that number.

Totally understand.

But you really hadn't updated the market really specifically on this number until today.

Just to make sure I didn't miss it.

That's correct.

You didn't miss anything.

Okay, got you.

Thank you.

Thank you.

I' m showing no further questions from the phone lines at this time.

Okay Jennifer, thank you so much for being a great hostess.

And thank all of you for tuning into our call and we'll look forward to speaking with you in January.

(Operator Instructions) Thank you and have a good day.