Ball Corp (BALL) 2011 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Ball Corporation second-quarter 2011 earnings conference call.

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

(Operator Instructions)

As a reminder, this conference is being recorded Thursday, July 28, 2011.

I would now like to turn the conference over to John Hayes, President and Chief Executive Officer of Ball Corporation Please go ahead, Sir.

Thank you, Lynn.

Good morning, everyone.

This is Ball Corporation's conference call regarding the Company's second-quarter results.

The information 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 in the Company's latest 10-K and in other Company SEC filings as well as Company news releases.

If you don't already have our earnings release, it's available on our website at www.Ball.com.

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

Joining me on the call today are Scott Morrison, our Senior Vice President and Chief Financial Officer; and Ray Seabrook, Executive Vice President and Chief Operating Officer of Global Packaging.

In a moment, Scott will discuss our results and Ray will follow with details about our packaging operations.

I will close with comments on aerospace and the outlook for the balance of the year and beyond.

As mentioned in our press release, Ball reported solid second-quarter results, due largely to our people executing well against our strategy of maximizing value in our existing businesses and our Companies broadening our geographic region and expanding into new products and capabilities.

Highlights from the quarter include overall volume growth in our global beverage can businesses of more than 3% and strong operating performance across all of our businesses.

Excellent program performance in our aerospace business continued double-digit growth in emerging markets, particularly China; benefits from our prior actions to better match our supply with market demand in North America; and better than anticipated performance from aluminum slug and extruded aluminum aerosol businesses we acquired in the second half of last year and early this year.

In addition to our strong results in the quarter, we broke ground on 3 emerging market beverage can plants in Brazil, China, and Vietnam; started a beverage can line in Serbia; and relocated beverage can equipment in Canada; completed our expansion of our aerospace antenna manufacturing capabilities; began expansion of our satellite manufacturing operations in Boulder, Colorado; launched our new North American packaging graphics Center in Colorado; and earlier this month launched our 8-ounce trim can in the United States to meet school guidelines.

Our numerous CapEx projects that are diversified among many of our businesses from here in North America to Europe, Asia, and South America are on track and going quite well.

We continue to monitor supply and demand in each of those markets and recent M&A investments are performing well above expectations.

So in short, despite a challenging economic backdrop with muted volumes in several of our key market, Ball is performing quite well.

With that, I will turn it over to Scott.

Thanks, John.

Ball's comparable diluted earnings per share in the second quarter were $0.85 versus last years $0.69, a 23% year-over-year improvement.

The following factors contributed to improved result; the consolidation of our majority owned Brazilian JB; the acquisition of the extruded aluminum businesses in Europe and North America; volume improvements and excellent operating performance in our metal packaging businesses, particularly in China; exceptional program performance in our aerospace business, benefits of share repurchases, and a $0.04 FX benefit in the quarter.

These positive factors were partially offset by a year-over-year increase in interest expense, due to recent acquisitions and the consolidation of Brazil.

As a reminder, first-half performance was favorably impacted by 6 additional accounting days in the first quarter compared to the first quarter of 2010.

Second half 2011 performance will include 6 fewer accounting days in the fourth quarter than the prior year.

So when we talk about comparable volumes, we are adjusting the first-half volumes to reflect the extra days.

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

There are no changes or updates to our 2011 financial metrics provided on our April call.

We still anticipate full-year interest expense to be closer to $185 million; our full year effective active tax rate will run close to 32%; CapEx will approach $500 million; and as we said before, we expect 2011 free cash flow of at least $400 million, with the majority of free cash flow going to share repurchases.

Through the first 6 months of 2011, we've acquired a net $241 million of our stock.

At current exchange rate, year-end net debt is expected to be approximately $3 billion, up slightly due to the Aerocan acquisition.

Our balance sheet is solid, our capital structure is highly competitive, and the operations are providing strong results in cash flow.

We will continue our long-standing approach to balanced capital deployment and consistently return value to our shareholders through share repurchases and dividends.

With that, I will turn it over to Ray to talk more about the packaging operations.

Thanks, Scott.

Overall, our packaging business continued to perform inline with expectations, despite some challenging economies and weather in selected part of the globe.

Execution on capital spending projects is progressing as planned and all projects are within budget.

From an overall beverage can market perspective through June, we are seeing volumes up in international markets, and in North America we are doing better than the market.

On a comparable basis, our North American beverage can volumes were flat in the quarter and up 2% through 6 months.

Through the first-half, operating earnings in the Americas are also well ahead of last year, and that's a trend we expect to see to continue through the remainder of the year.

We are working hard on lowering our manufacturing cost structure and leveraging innovation in North America.

The Torrance, California plant will be closed in the fourth quarter.

The relocation of a 12-ounce can line to Whitby, Ontario is complete.

A new specialty can line will be up and running in our Fort Worth, Texas plant by September.

And a second Alumi-Tek bottle-can line will also be up and running in our Golden, Colorado plant by the end of the year.

Year-to-date volumes in China are up over 35% due to strong market demand and the acquisition of the Foshan joint venture beverage can plant in June of last year.

Our China manufacturing capacity is stretched and we are speeding up existing equipment wherever feasible and bringing on more capacity with a new beverage can plant in Qingdao, China by the end-of-the-year.

We continue to foresee short and longer-term growth prospects in Asia, and we plan to grow with our customers which will most certainly require further investments as we look to 2012 and beyond.

In the quarter, Brazil beverage can volumes were softer than expected, due to higher beer pricing and a wet winter cold season.

We expect a better second half as we move into the summer season in Brazil with year-over-year volume increases in the 5% to 7% range.

The construction of a new beverage can plant in Alagoinhas has commenced and we look forward to the startup of this plant in the first quarter of next year.

In our European operation, trends are also positive.

European beverage can volumes are up 5% on a comparable basis through the first 6 months, and production output of the dually installed second beverage line in our Belgrade, Serbia plant is meeting expectations.

Despite cool summer weather in Europe so far this year, supply demand balance remains relatively tight.

Aluminum aerosol volumes are up over 20% year-over-year in our Ball Aerocan business which we acquired in January of this year.

To meet this continuing strong demand, we've planned further aerosol capacity additions for 2012.

Metal, food and household products results in the second quarter were solid and volumes held up reasonably well in the quarter.

Food can volumes were flat and aerosol volumes were slightly lower.

Second quarter operating earnings benefited from lower administrative and manufacturing costs, sales price mix improvements, and earnings from the aluminum slug business which we acquired in July of last year.

Due to the expected softness in the food can pack, we anticipate second-half earnings in the segment will be below last year, though full-year results are still forecasted to be better than a year ago.

To sum up, our people continue to step up and deliver.

And while we have numerous projects moving forward around the globe, we are on track to deliver these on-time and within budget, which will set us up nicely for 2012 and beyond.

With that, John, I will pass it back to you.

Great.

Thanks, Ray.

A few comments on aerospace and then the outlook.

Our aerospace and technologies business posted double-digit EBIT margins in the second quarter.

Earnings increased primarily due to continued excellent program performance.

Backlog ended the quarter at just over $900 million.

Washington continues to be an interesting and challenging place to observe and conduct business.

From a funding perspective, our 2011 programs and most of the 2012 projects are in good shape.

Ball Aerospace's capabilities are strategically important to our customer base and provide upside for the segment over the next couple of years.

Like all of Ball's businesses, our focus on delivering cost-effective solutions and the highest quality service while in an environment where our aerospace customers are more focused than ever on best cost and best value.

In terms of program highlights, we successfully tested our prototype docking sensor during the May space shuttle mission, guiding Space Shuttle Endeavor to a docking operation with the International Space Station.

NASA has identified this technology as critical for future space exploration missions.

While funding risks remain, our people in Aerospace are delivering on their commitments exceptionally well.

So in summary, our Company and people are performing very well, despite some external challenges.

And we are bullish on the opportunities in front of us to further improve results.

We will continue to deploy capital to enhance our diverse portfolio businesses and return value to our shareholders.

At the midway point of the year, we are well on our way to achieving our long-term goal of 10% to 15% earnings growth, and we expect second-half performance will exceed that of last year's second half.

So with that, Lynn, we are ready for questions.

Thank you.

(Operator Instructions) The first question comes from the line of Ghansham Panjabi from Robert W.

Baird.

Please proceed with your question.

Hey, guys.

The morning.

On Brazil and kind of thinking back to the first quarter, I think the beer market there was weak -- I think some of your customers attributed to unfavorable weather down there.

Do you think that what you and industry saw is industry reduction related, just based on what happened in 1Q?

I think at the number of things, Ghansham.

If you talk to our guys in Brazil, it's been the wettest, coldest winter ever down there.

The whole market in the second quarter was down 7% to 8%, believe it or not, and that's a first for a longtime.

So it was a combination of increased taxes on basically beverages, beer and soft drinks, but primarily our business is beer there so it hurt us.

We think that's pretty much washed out, and we expect to have a much better second half.

Okay.

And then switching to North America.

Obviously, your customers have pursued a strategy of price over volume and just listening to their comments over the last couple weeks or so, they may seem to be rethinking that, just given the weak consumer spending environment in North America.

Have you seen any sort of improvement in July, or is it still too early?

I think it's a little early.

John mentioned that with Washington and all the uncertainty, it's causing a lot of disruption in the Americas.

Let's face it.

Until that gets straightened out, I think just consumers are nervous.

Whether it's buying softness or buying a new house or whatever it is.

So I think is just a little tough in all businesses in the Americas until the US gets its act together.

But, yes, we are seeing the market -- it's a little soft, it's been a little bit better through July 4, but it hasn't picked up to the volumes we would like to see.

Let's put it that way.

Got it.

Thank you.

Thank you.

The next question comes from the line of George Staphos from Bank of America Merrill Lynch.

Please proceed with your question.

Thanks.

Hi guys, good morning.

I guess the first question I had is around capital deployment and the execution on the projects.

As we think about 2012, it seems like it would be difficult for you to have the same level of activity and I guess parenthetically spending that you saw or are seeing in 2011.

On the other hand, you're executing well, so maybe that increase your appetite for the next project.

How should we think about this equation, realizing it's a little bit early to be guiding to free cash flow and CapEx for 2012?

Gorge, when you think about our CapEx this year, it's not just in emerging markets and driven by growth.

As I had mentioned, we're doing everything in aerospace.

We are doing some things in terms of specialty here in North America.

I think in everyone of our businesses, say probably for food can, we have big capital projects that as you said, we are executing on very well.

As you think about going into 2012, we are opportunity focused.

We are trying to drive it with our customers.

As we sit here today, I would not anticipate that we are going to have the wide variety of different capital projects going on.

But as Ray mentioned, we continue to see opportunities in Asia, so that is an area of focus for us, for example.

So, John, if I could, do you think that actually might mean lower spending next year?

Yes.

Okay.

Yes, I think it could be.

How much lower is just what we don't know right now.

Because opportunities pop up and we want to be responsive to those.

It also would suggest that -- well, your priorities for the use of that excess cash wouldn't change on a going forward basis, would it?

Absolutely not.

In fact, what Scott said is we believe our Company has created a lot of value over the years by returning it to shareholders, by making acquisitions, and by investing in our business.

And we look at those three buckets as we go forward, just like we have in the past.

Okay.

Last question and I'll turn it over.

On aerospace, I think you said if I heard you correctly that the backlog is now around $900 million, just under.

I recall from the last quarter it was about $1 billion.

If you could relay what the delta has been?

I guess you are starting to work on those project., that's the reason why the backlog is declining.

But if you could help me understand what the delta there is?

And you mentioned the risks that emanate from what's going on in Washington -- how would those actually materialize in your business?

Would it mean a stretching out of the revenue and project work?

Or could we see, if the wrong things happen, a reduction in your backlog of projects are canceled?

Thanks.

Yes, you're point is spot on.

And the summary is debt ceiling in Washington.

Our backlog is a funded backlog.

So you've seen a decline quarter-over-quarter because the government just hasn't been funding some of the longer-term things.

So as I mentioned in our prepared remarks that we believe for 2011 and 2012, we are in pretty good shape on that.

But until there is more clarity around what the governments priorities are going forward, I do think that there is a little bit of risk in the outer years, i.e.

going '13 and beyond with some of the projects that we've won.

But as we sit here today, many of the projects that we've won are very strategic and they have finite lines relative to the replacements, and for that reason we feel pretty good that we are in good shape relative to others.

Thank you.

Thanks.

Thank you.

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

Please proceed with your question.

Thank you.

Good morning.

I've asked this question the last couple of quarters in a row.

But any update on the Eastern European market in beverage cans, whether or not you are seeing any improvement there?

This is John, I'll take a first crack.

The short answer is yes, we are starting to see an improvement there.

I think in Eastern Europe, and that includes the Serbia region as well, I think in the quarter it was up around 11% or so.

So we are starting to see some improvement there.

But recall back in the mid-2000's and even up until the financial crisis, we're not seeing the 30% growth that we had been seeing.

But it is good, healthy, consistent growth.

Okay.

Thank you.

And then one quick follow-up.

With the comments on profitability being down in the back half in your food can business, I understand that there is going to be a late harvest this year, therefore a shift 3Q into 4Q most likely, but I'd be confused as to why overall for the back half products would be down?

It's primarily because some of our customers aren't planting as much product as they have.

They are taking products out of the system.

So we don't have as much planting in some of the fields as we normally do.

That's one of the reasons.

Okay.

Thanks, Ray.

Thank you.

The next question comes from the line of Chip Dillon from Vertical Research Partners.

Please proceed with your question.

Yes.

Good morning to all.

The first question has to do with the China situation.

Ray, you talked about the 35% growth.

Could you talk about that in terms of how much-- I assume some of it is from acquisitions, and how that growth compares to the overall market?

Yes.

I think the market is up around 15% year-to-date.

We are up higher, some of that is obviously our acquisition.

We acquired a joint venture plant with three can lines in it, so I think it might be the largest can plant in China.

I'm not sure of that, I think it is one of the largest.

So that's obviously contributed to our growth.

As we look at what's going on in China, as we talk to our customers, as we project the market, the beverage can market is relatively small in China on a relative basis.

We have beer penetration at the cans of like 2%.

It's going to continue to grow.

We have to make sure we capture our fair share of that, and that's exactly what we plan to do.

We think we are lined up with some wonderful customers, and we plan to as I said capture our share as that is progressing.

You don't need to be a rocket scientist to figure it's going to continue to increase, we just have to pick our spots and make sure we pick the right spots, that's all.

That's what we are trying to do and that's what we will do.

And when you look at the Vietnam opportunity that you guys are pursuing right now, it seems like others have also targeted Vietnam, but it seems like one that had might be slowing back or backing off a little bit.

Do you find as a result the market there is healthy and that the competitive situation there is constructive?

Yes.

I am very confident with our Vietnam operation.

We have signed contracts for the volume.

My guess is that line will be filled up pretty much when we get the plant started up.

It's been a very strong market.

Again, we are just trying to pick up a little bit of our share.

I don't see any issues for us in Vietnam.

I just think we have to get the plant built and get it up and running.

To amplify on that from a consumer perspective, consumer spending is continuing to increase in Vietnam.

The can is quickly becoming a preferred package there.

So we're seeing can penetration continue to increase.

You combine those two factors and the overall health of the end markets in Vietnam remain quite positive right now.

Got you.

Real quickly, and this might be a little off-the-wall.

I'd tell you the name if I remembered it, but one of the industrial companies that one of my colleagues covers mentioned the other morning that the government sent them a paper check for $100 million, a payment that normally would have been wired.

Are you seeing any changes in how the government pays you, are they actually sending a check swing before they would wire you money?

Are you saying the US government?

The US government.

No, we haven't seen any changes of how that's happening.

Okay.

Thank you.

Thank you.

The next question comes from the line of Philip Ing from Jefferies.

Please proceed with your question.

Good morning guys.

With volumes off to a slow start in North America in beverage, I just want to get a sense of how operating rates are stacking up for industry as well as for Ball?

And do you think there's a need to take out some capacity later this year?

This is John.

For us, as Ray said, year-to-date we are up a couple percent.

We had always said that as we entered into 2011, we'd expect to be up mid-single-digits relative to the market, and we are.

We've taken out a fair amount of capacity, four plants over the last couple, few years.

And Torrance is coming down in the fourth quarter of this year.

From our operating rates, we are in pretty good shape here in North America.

But we are also wise enough to constantly be monitoring those things.

We know longer term if we need to do some things, we are going to have to take the tough decisions and do them.

But as we sit here right now, we have no plans to be doing that.

And could you remind me if there is any sizable contracts up for renewal?

I know most of that got chored up last year, if I remember correctly.

This year?

This year for coming 2012.

We do have one fairly sizable contract up for renewal in 2012.

And that's for North America, right?

Yes.

Thank you so much.

Thank you.

The next question comes from the line of Alex Ovshey from Goldman Sachs.

Please proceed with your question.

Good morning.

Can you just talk about how you see the supply and demand dynamics evolving in Brazil over the next couple years?

It looks like during the second quarter was soft but there was some seasonal factors.

Now you're talking about growth in the back half of 5% to 7%, which I think is slower than what it was in 2009 and 2010.

I think the capacity that's going into the Brazilian market is somewhere in the low-single-digit, double-digits range.

Are you concerned that there maybe some over-capacity that ends up happening in Brazil, in that type of scenario.

This is Ray.

I am not overly concerned, because remember our capacity is tied up with long-term contracts.

If there is any more capacity, it's not affecting us because we have contracts that make sure it doesn't happen.

If you ask me to use a crystal ball for Brazil, I would say that for us, you're talking about -- I don't see us building another plant immediately.

I see us trying to get some more can lines in the plants we already have.

I would say that you could see us maybe adding a can line a year for a couple years and then we'll see what happens.

Remember, we've still got the Olympics.

We've still got the World Cup coming to in Brazil.

This still a lot of stuff going on in the economy, there's a little inflation.

We've got to be careful what we are doing here.

I would say there is still some growth left.

And I could see us saying -- about a line a year, which is 800 million cans.

And let's not forget that there's a fair amount of import -- as we've said in prior calls -- a fair amount of imports in 2010, so there is a shortage going into 2011.

A decent chunk of this new capacity coming on is just to absorb what was already being demanded back in 2010.

Okay.

That's helpful.

And just on the European beverage side, it looks like bonds are pretty healthy.

Are you seeing any impact from the recent macro flare-up out in Europe on the demand trends here in July and then start of the third quarter at all?

No, we are not.

As you know, we are primarily focused on Western Europe and Eastern Europe.

We don't do much in Southern Europe, so where some of this debt is occurring, we really don't do much there.

Even from where we look, from the outside looking in, we don't see big changes going on there.

Thanks, John.

Thank you.

The next question comes from the line of Dan Scniedwind with AMI Asset Management.

Please proceed with your question.

Hi guys.

Congrats on another great quarter.

It looks like you guys continue to improve from a bondholders stand point, and it looks like you guys are -- your metrics look more like an investment grade company than a high-yield company.

Is there any internal interest in actually getting that upgraded?

And have you guys been in contact with the rating agencies about that?

We talk to the rating agencies all the time.

We have found that we can create tremendous value and have a lot of flexibility with where we are rated right where we are at.

We've always been able to raise capital at pretty competitive rates.

But it gives us a lot of flexibility to pursue acquisitions, to buy back our stock, to invest in our existing businesses.

So we are real happy right where we are at right now.

Okay, great.

Thanks.

Thank you.

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

Please proceed with your question.

Thank you, and good morning.

Just a few questions.

I'm curious if you can comment on what you're seeing in general line cans?

I was surprised to see some of the industry numbers, and maybe provide an update if you could on Neuman Aluminum and some of your slug business.

Yes, this is Ray.

Let's start with the slug business.

Slugs worldwide are tight.

I mean, fundamentally, there is not a lot of excess slug capacity.

So as this market grows, we are going to have to consider adding some more slug capacity, I would say.

We are looking at various options.

We are trying to improve our asset utilization of what we have, and we are making some investments in what we have to try to make that more efficient, so we are going to do that first.

But slug capacity, not just in Europe or North America, everywhere it is tight.

Slug capacity is going to have to be added.

We are trying to figure that out.

That's the first thing.

General line, we don't really have a very big general line business.

When I think general line, I'm thinking paint cans and things like that.

We do have a very small general line business, but it's very, very small.

So quite frankly, I haven't seen anything unbeknownst in that business.

It's the sort of -- it's doing relatively well.

For us it's very, very small.

John, do you have anything to add to that?

No, I think that's a good summary.

We generally are not in the general line business.

Okay.

And just to clarify, your second half guidance for the food can business, how much of the decline year-over-year is related to drought conditions and what's going on with agriculture?

Is that really -- or is there something else that I'm missing?

No, it's not magic.

The numbers are just going to kind of role off a little differently than they did last year.

Our food can business is having another excellent, excellent year.

If you look at year-to-date results, it's way, way ahead of last year.

And some of that there is various reasons for that.

But as we talk to our customers and we look at what they expect and we look at our quarters -- as Scott said, we have six less days in the fourth quarter that's going to affect that business.

So when we look at it, we are not going to do as well as we did last year, but we are still going to do significantly better than we did the year before.

Just try to give you a heads-up that we are not going to do as much of last year for those reasons.

Let's put it in context.

As Ray said though, our food and household products business is doing quite well.

Recall earlier this spring, late spring early summer, the whole Mississippi valley was flooded.

So the plantings got in late, now it's been very hot.

So we're just being a little pragmatic relative to what our expectations of the harvest will be.

And that's in part based on the facts that we can see and in part based on the conversations we are having with our customers.

There's nothing strange going on, it's just we are taking a view on the harvest in the third and fourth quarter.

Okay.

Lastly, if I could, looking at metal beverage margins kind of on a year-over-year basis, it looks like down 120 basis points.

I would imagine some of that is just because of price causing margins to be lower on reported basis, even though they might be more constant.

But is there something else going on there, or can you help us understand that 120 basis point variance?

What's impacting it?

By far the biggest difference is raw material pass-through.

I think if you just look at the LME, I think it's up 25% year-over-year, and you know our cost path-through model.

As you see, our overall profitability is actually better.

But the margins are down in large part because the sales are inflated because of pass-through positions.

That is far and away the largest part of it.

Fair enough.

Thanks very much guys.

Thank you.

(Operator Instructions) The next question comes from the line of George Staphos from Bank of America Merrill Lynch.

Please proceed with your question.

Thanks.

Hi, guys.

A couple of additional ones.

First, as we think about the recent repricing in template over in Europe, were there any issues that you need to contend with as you manage the business, how did that go or how has it been going for you thus far question?

We had no mid-year price increases in steel in Europe.

Okay.

I guess it's going pretty well for you then.

Secondly, in terms of free cash flow, maybe this year is somewhat a depressed year because of the projects and next year maybe more normalized.

If you consider it the future, what kind of growth rate do you think you can have on your free cash flow, over a three to five-year period, and what do you think the biggest drivers of that are?

Well, I think as we talked about, we've got quite a bit of growth CapEx happening this year.

A number of those projects that John talked about are kind of one time impacts to this year.

We expect to still see growth in places like Brazil and China longer-term, but frankly once you put a plant in, that's the big throw, and when you add additional lines, it's not as big of a throw.

We see the CapEx, even with continued growth in those markets, to come down quite a bit.

All the capital we are spending, all of those projects have nice returns and start flowing cash right away.

So we expect our free cash flow number to be back out this year $300 million plus of growth CapEx.

We expect the earnings to get to another level based on all of these projects.

We see nice growth over the next few years.

With our balance sheet and our capital structure right where we want it, it gives us a lot of flexibility to return value to shareholders.

Okay.

Thanks.

I will turn it over.

Thanks, George.

Thank you.

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

Please proceed with your question.

Good morning.

I wonder if you could just update us on that aluminum aerosol business and what kind of growth rates you are seeing for sort of the market and then year-round business there?

Yes, this is Ray.

Our growth rates, quite frankly, have been -- we knew it was a growth business, but it's been quite a bit better than even we been forecast when we put the acquisition together.

We've got growth rates year-to-date in excess of 20%, and I think the second quarter was like 18%.

So it has been very strong for us.

John, I don't know -- the market I don't know.

Yes, it varies obviously by region.

South America continues to be quite strong, Europe continues to be quite strong.

I think North America, like most of the end markets that touch the consumer here in North America, it's been a touch soft.

But we continue to see good growth prospects in that business, generally speaking.

Okay.

Your footprint right now is just in Europe and in North America.

Is that correct question?

That is correct.

Okay.

Very good.

Thanks.

Thank you.

Thank you.

(Operator Instructions) The next question comes from the line of Phil Gresh with JPMorgan.

Please proceed with your question.

Hey there.

Good morning.

Just wanted to follow-up one more question on Brazil.

As a contingency plan I guess, in the event that the volumes aren't what you are expecting, the up 5% to 7% in the second half, if it's something closer to flat or even down -- is there anything that you would change about what you are doing down there?

Or you comfortable with the contracts such that it's locked and loaded in terms of 100% of your volumes?

How would you manage something like that?

The best I can prescribe if I describe it without going into massive detail, it's locked and loaded.

Okay.

And then just one quick question on the minority interest.

Could you remind us -- obviously, the earnings get -- if they get hit on the segment, then they would probably get hit on the minority interest line.

Just remind us, what drives the minority interest line?

It's the 40% of Brazil that we don't own.

Okay.

Great thanks.

Thank you.

Thank you.

The next question is a follow-up question from the line of George Staphos from Bank of America Merrill Lynch.

Please proceed.

Hey, guys.

One last question on capacity around 12 ounce in the states, two parts to it.

I think last call we talked a little bit about longer-term the option you might have if you need to, on the one hand, takeout some 12 ounce capacity, you might be able to utilize that on the food side of the house.

Is there any additional thinking as it regards to potential for that to occur in the next two to three years?

And as you think about your contracts for 2012, I think you mentioned earlier that there is some business that's up for renewal I guess at the end of this year into 2012?

I just want to confirm that, and if you would kind of size it.

Thanks.

Good luck in the quarter.

There's really nothing going on this year.

We have some things where we are negotiating, but there's nothing affecting this year.

We do have some business that is up at the end of 2012.

Okay.

Thanks, Ray.

That we'll have to negotiate in 2012.

And, George, about your question really about redeployment of equipment, we have a system around the world that we can do many different things.

Specifically to answer your question --are we considering moving some beverage can into food can?

We don't have any specific plans on the table, but we certainly know if we want to do something like that where we want to do it, how we would want to do it, and the cost of which.

But the other benefit that we have is the ability to take some of our equipment here in North America, if we have to, and deploy it in other parts of the world.

We have been doing that, as Ray had mentioned in terms of up-speeding and doing some other things in Asia.

We have some leverage to pull on that, that give us, in a way, a capital avoidance as we continue to grow in some of these emerging markets.

That's one of the benefits of having the system that we do.

So we are looking at those types of things.

That's a good point.

As I recall, I think Milwaukee was one of the facilities where you had done this, and maybe perhaps Columbus.

If you could remind me if you've audited the returns on these types of conversions from beverage to food, have they actually met your initial expectations, or were they off a bit one way or another?

Well as you might imagine, George, the initial answer is in the beginning they did not meet our initial expectations, but as you say now they are.

In fact, I think they are even exceeding our expectations today.

But yes, you are right.

To clarify, it's Milwaukee and Findly is where we did those, a dozen years ago or so.

They're performing quite nicely.

Okay.

I will let you go.

Good luck on the quarter.

Thanks, George.

Thank you.

Mr.

Hayes, it appears at this time that there are no further questions.

I will turn the call back over to you.

Thank you all very much.

Just one housekeeping item, we are planning on having an investor field trip out here in Colorado.

The dates will be October 10 and 11.

Please contact Dan Scott to register for the event.

Other than that, thank you very much for participating, and we look forward to talking to you all three months from now.

Take care.

Thank you.

Ladies and women, that does conclude the conference call for today.

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

Thank you and have a good day.