Ball Corp (BALL) 2013 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Ball Corporation's third-quarter earnings conference call.

(Operator Instructions)

As a reminder, the call is being recorded Thursday, October 24, 2013.

I would now like to turn the conference over to John Hayes, Chairman, President and Chief Executive Officer.

Please proceed.

Thank you, James, and good morning, everyone.

This is Ball Corporation's conference call regarding the Company's third-quarter 2013 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 are in the Company's latest 10-K and in other Company SEC filings, as well as Company news releases.

If you do not 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.

It was great seeing many of you in New York earlier this month at our investor field trip.

We hope that you walked away with a better sense of who we are, and more importantly, where we are going.

A special thanks to Ann Scott for organizing a great event.

Joining me on the call this morning is Scott Morrison, Senior Vice President and Chief Financial Officer.

I will provide a brief overview of our Company's performance.

Scott will discuss financial and global packaging metrics, and then I will finish up with comments out of our aerospace business and the outlook for the remainder of 2013.

Our third-quarter results came in ahead of expectations, excluding the impact of a provision for a customer receivable, which Scott will speak to in a moment.

Solid operating performance across our various business units, a strong year-over-year volumes back in North America and a normalization of volumes in our global beverage business, where volumes were up across all regions, save for the previously announced loss of some 12-ounce business in North America, all contributed to stronger performance as we expected.

As we discussed previously, we knew that we had headwinds entering 2013, and while those headwinds in the first half of the year were quite frankly stronger than anticipated, the hard work and efforts by all here at Ball have positioned us for a more constructive second half of 2013 and have created some tailwind for us as we enter 2014.

As we cycle into the fourth quarter, and more importantly into 2014, the Company is well-positioned from a capacity utilization, product mix, and earnings and cash generation perspective.

During the quarter, we continued to aggressively manage manufacturing output for 12-ounce capacity in North America with the rationalization of our 12-ounce capacity in Milwaukee, Wisconsin.

We also improved our fixed costs leverage in our European segment, as we progressed through the initial cost out initiatives related to the headcount reductions and the announced closure of our Ratingen, Germany, administrative office relocation.

In Brazil, we completed the installation of a second line in our Alagoinhas beverage can manufacturing plant, which sets us up nicely for a double summer as we prepare to meet our customers' need in the summer down here in Brazil in 2014, as well as the 2014 World Cup.

In Asia, we optimized our footprint and improved our cost structure there with the relocation of our Shenzen beverage can plant into our existing Foshan plant.

We also completed the installation of another production line in our Mexican impact extruded facility, and we expect continued growth in this region during 2014.

Lastly in the quarter, we completed the conversion of a standard can line to specialty can production in North America.

We are seeing the benefits of our renewed efforts to manage our cost structure and drive further EVA dollar growth.

In fact, since 2010, we have improved our EVA dollars generated as defined in our 10-K from $110 million to more than approximately $160 million today.

And with that, I will turn it over to Scott for a review of our third-quarter numbers.

Scott?

Thanks John.

Ball's comparable diluted earning per share from continued operations in the third quarter were $1 versus last year's $0.90.

In addition, the Company recorded an after-tax charge totaling approximately $32 million, primarily related to a provision for a customer receivable.

Due to the confidential nature of the customer situation, we are unable to talk about it in great detail here, but will provide more detail in the 10-Q.

Our Metal Beverage Americas and Asia segment comparable earnings were down roughly $7 million year-over-year.

Cost-containment programs, excellent operating performance at the plant level, and double-digit specialty can growth in the Americas nearly offset segment volumes being down mid-single digits in the quarter due to the loss of the 12-ounce business in North America that has been well documented.

Brazil volumes were up strongly again year over year, and our China volumes were up mid-single digits.

Across the segment, we were running at high asset utilization rates, and the recently installed second line at our Alagoinhas Brazil facility is online and ramping up to meet our customers in [Noguri] located just down the road.

European segment profit increased in the quarter in the mid-upper single digit volume growth, brought about by better weather conditions, coupled with reduced labor and input costs, both of which continue to be addressed aggressively.

In the Food and Household segment, earnings were higher due to better volume, our recently acquired Mexico plant, and good performance in our steel and aluminum aerosol business.

Segment volumes increased nearly 10% in the quarter as a result of the favorable North American seasonal food and vegetable pack, and solid aerosol container demand.

Transitioning from operations, during the quarter, our corporate undistributed costs and the effective tax rate were in line with expectations and year to date.

We have repurchased a net $268 million of our stock.

Net balance sheet debt at the end of the quarter was approximately $3.35 billion.

Credit quality and liquidity of the Company remains solid with comparable EBITDA interest coverage of 4.7 times and net debt to comparable EBITDA at 2.9 times.

Committed credit and available liquidity at the end of the quarter was in excess of $1 billion.

Given our seasonality and strong free cash flow, we continue to anticipate year-end net debt levels to be in the range of [$3.2] billion.

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

Moving on to financial metrics for full-year 2013, really no changes here.

Interest expenses will be in the range of $183 million, the full year effective tax rate on comparable earnings is expected to be approximately 27%.

We still anticipate full-year corporate expenses to be approximately $73 million, CapEx will come in in the range of $400 million, and free cash flow should be in the range of $450 million.

A majority of our free cash flow is expected to be returned to shareholders via share repurchases and dividends.

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

Thanks Scott.

Our aerospace business continued to perform well in the quarter with solid execution on existing programs.

During this quarter, the Ball-built WISE spacecraft was roused from a two-year hibernation to resume its near-Earth asteroid hunting mission.

We also delivered the STPSat-3 satellite for the US Air Force Operationally Responsive Space-3 mission, and contracted backlog at the quarter end was $942 million, down just slightly from the previous quarter.

Despite lingering effects of sequestration and the recent US government shutdown, we continue to see operationally -- opportunities, excuse me, both domestically and internationally to help grow our aerospace business.

Now looking out across our Company today, our businesses are leveraging new processes and systems, our world-class employee base, and their EVA mindset to drive out cost-out initiatives and execution on key programs and projects.

We have invested prudently in our businesses for incremental EVA dollar growth, whether it has been specialty growth in North America, geographic growth in Latin and South America, or cost-out initiatives in Europe and Asia, which we expect to generate positive returns in 2014 and beyond.

in europe Beverage, we are on track to get back to our operating margins consistent with the 2010 and 2011 period by 2015.

And in our global Food and Household products packaging business, we are ramping up aluminum aerosol production and focusing on maximizing returns across our steel product lines.

In summary, we expect continued strong free cash flow and full-year 2013 comparable results to exceed full-year 2012 comparable diluted earnings per share.

Given our operational momentum and reduced future CapEx target, we expect 2014 to be more consistent with our historical earnings-per-share growth goal of 10% to 15% and higher free cash flow generation.

And with that, James, we are ready for questions.

(Operator Instructions)

Philip Gresh, JPMorgan Asset Management.

Can you hear me?

Okay.

First question for you, sounds like the volumes are pretty good in Europe.

I was bouncing between calls, I think you said about mid-to high- single-digit.

I just want to get a little bit more color, just regionally or by country or whatever additional color you could give about the Europe volume performance.

Certainly.

I think on our second quarter call, we started the season at the beginning of July some more normalized weather patterns, and the good weather led to an increase in fillings in Europe.

For us, I think it was largely driven by the Benelux region, by France, by the UK, even Poland and to a lesser extent Germany.

So those as you all know is the sweet spot of where we operate, so I think we were just the beneficiaries of much more normalized weather.

And as we said, across Europe for us, it was mid- to upper-single digits, kind of 7% range.

Got it.

Okay.

Second question in Europe, there has been so much shadow around this aluminum premiums issue.

I was wondering if you think about the past two years in the run-ups in those premiums, do you have any sense that you could give us -- or quantification you could give us as to just how much of a headwind that has been for you over time?

Sure.

Phil, this is Scott.

Last year, cost was probably EUR4 million.

We started to ramp up in the back half of the year last year.

This year kind of a full-year is going to be closer to EUR8 million or EUR9 million.

They just started to moderate recently, but with inventories and we have to flush inventories through the system, we really did not get any benefit of that yet.

But that is the magnitude of the cost that's hit us in the past 1.5 years.

Got it.

Okay.

That is very helpful.

And just last question, curious on how you are feeling about China today.

Where are we on the supply and demand curve heading into 2014?

How are you thinking about pricing for next year?

It seems like maybe flat to down that best.

But just want to get your thoughts here.

Yes.

I think you are spot on.

Not much has changed from our point of view about China.

What I mean by that is, number one, we are -- do continue to see strong growth in volumes.

Number two, there is still a fair amount of excess capacity.

I think some of the players have slowed down some of their growth, plans but others have continued on.

And so from a pricing perspective, it is not getting any better as we sit here today.

I do not think it is getting materially worse, but it is certainly not getting better.

And so until some of this capacity is better utilized through growth in the market, then I think our expectation is that we are not going to have much upward mobility in pricing.

Okay.

Congrats, good quarter.

Thanks.

George Staphos, Merrill Lynch.

Hi John, Scott.

This is actually Alex Wong sitting in for George.

First, can you discuss maybe what the pace of delayering in Europe and how that is going for you guys?

I'm sorry.

You said the pace of what in Europe?

Delayering.

Delay ring?

If you are talking about the pace of our costs, I think there is really we just continue to move down that continuum of make taking cost-out.

We said on the second quarter it is going to take some time because you have to have the various discussions with councils and unions.

We announced the closure of our Ratingen, Germany administration facility, but that will not close until the first quarter or so of 2014.

So while we have been taking some short-term measures to take costs out, our folks have been doing a great job of that.

This is more of an 18-month type of play, and as we said, it is really the second half of 2014 and going into 2015 when we really will start to see the benefits of that.

In terms of the timing wise, everything is to your expectations at present?

We are on track.

Okay.

And then just second question, can you discuss what you are seeing or maybe hearing from customers about marking programs and trends in North America beverage, particularly in CSD?

Yes.

We did see -- particularly around the Labor Day weekend, we did see some greater than recent normal promotional activity by the soft drink customers as well as even some of the beer customers.

There have been I think both on the beer and the CSD side, they continue to focus on the revenue line.

But I also -- we also see that they are much more constructive about the volume relative to the pricing increases.

And their price increases have been a little bit more moderate over the past few months as they go into 2014.

I do know in both of those segments, new products are very important.

I think the biggest question on the soft drink side is not how cans are doing, but rather why are consumers drinking less CSD, and what are they drinking instead?

And I think the soft drink companies are very focused on that, whether it is natural low-calorie sweeteners or new products that help respond to that new channel opportunities.

So I think we are seeing a slightly more constructive end market, but having said that, it is still -- the growth is anemic at best.

And we need to -- if there's one thing that we are focused on, it is particularly on the soft drink side, I'm less concerned about beer.

But we are very much focused on trying to make sure that we understand what is going on from the soft drink perspective.

Great.

Thanks very much.

Appreciate it.

I will turn it over.

Chris Manuel, Wells Fargo.

Good morning gentlemen.

Congratulations on a strong quarter.

A couple questions for you.

First, could you -- as we think about what the free cash flow might look like next year and parts of working capital -- sorry, CapEx heading into next year, where are you at early thinking with respect to those?

And any big projects or things that may spill over into next year?

Well, -- hi Chris.

This is Scott.

We had about $100 million of carrying capital this year.

So I would expect -- we are spending at a pretty decent clip this year.

And so I would expect to have less carryover capital into 2014.

So I think capital will come down.

There is still some growth projects that we are evaluating that would be in that number.

But I think overall, CapEx should start to trend down and free cash flow will trend up.

We have more things on the working capital front that we think will benefit us next year.

And so we feel pretty good about the growth in the free cash flow for 2014.

That is helpful.

So when you think -- let me come at it from a different way -- when you think about utilization levels globally and you put in a bunch of capacity in China, you have got some still going in Brazil.

As you have those now all fully contributing, or the plant down in Brazil is still ramping up and coming together.

But where do you think you will be at utilization?

Do you have pockets where including -- Vietnam in there too.

You did some work there.

Where do you think you will end up being for utilization?

Are you going to be running tight over the next year or two that those would be areas you might be looking at for capacity?

How would we think about where you will be targeting?

I think across the board in every region in which we participate, we are running pretty tight relative to capacity.

Certainly with the closure of Milwaukee, that was -- and you all know that we have been very assertive in managing our supply and demand there.

That really depends on what the market growth or lack thereof occurs in 2014, but we are tight as we speak in North America.

In Europe, we are very tight, and I do think that over the next 18 months, our number one priority is to cost-out.

But as we start to think about going into 2015, we have to think about capacity because we are getting very tight there.

China we really have not added all that much capacity.

We moved the facility from Shenzhen up into Foshan, but that was not necessarily net-net any significant increase in capacity.

So we are running very tight there.

You mentioned Vietnam.

I think all of Southeast Asia, I think there's probably some more opportunities, but we are going to be balanced around that.

And then in Brazil, as you rightly pointed out, the second line in Alagoinhas is just getting started up, so I do not see any new capacity going into Brazil.

I think some of the growth projects Scott were talking about, we have not finalized them right now, but it is looking at geography and it's looking at new products.

I think those are the two big areas when you think about where that could come from.

Last question was when I looked at some of the language in your press release, talked about investing in the extruded aluminum.

Are you referring to what you're doing down in Latin America, or are there thoughts for additional potential line either in North America or Europe there?

Our intent was talking about Latin America.

Mexico specifically.

Okay.

Thank you.

[Lucia Guntapolly], Goldman Sachs.

A quick question, first, could you provide any early read on fourth-quarter volumes across regions?

I think it is premature to talk about fourth-quarter volumes.

I will say as the weather continues to moderate, we have not seen any meaningful deviations from the trend lines that we saw in the July, August, September.

But as you know, the fourth quarter is seasonally slow.

The only deviation I will point out from that is probably in the food can business where we thought a quarter ago that we would get -- it would be pushed -- some of the opportunity would be pushed into the fourth quarter, which it does not look like it will.

You all saw we had a very strong fourth quarter in that segment -- in the third quarter, so I think while we thought maybe some of that pushed to fourth, I think it stayed in third.

But absent that, the volume trends particularly in the beverage side you are referring to is nothing inconsistent with what we would expect.

That is helpful.

Thank you.

And looking at the next 12 to 18 months, could you remind us about the major cost savings that you expect to achieve across segments?

Yes.

Very quickly in Europe, we will start there.

We have talked about getting back to a more normalized margin structure, which if you look back in the 2010 and 2011 timeframe, it was a 11% to 12%.

We said over the next 18 months we have a clear line of sight.

We do not have to rely on net pricing to get there, although we are also focused on net pricing.

I think in North America beverage, our folks have done a very good job of managing a difficult situation, not only with the losses in 12-ounce business, but also with the very tough macro economic environment relative to beverage can demand here in North America.

So we continue to take costs out, and I think the Milwaukee Wisconsin rationalization is a good example of that.

I think our Food and Household products business here in North America over the next 12 to 18 months is very much focused on it as we start to cycle into it into 2015 when we will have a loss of some business there, but our folks are very much on top of that.

And as we sit here today, I think our folks are up for the challenge no doubt.

Down in Brazil, it is not so much about a cost-out as it is managing and optimizing the supply demand relative to what we expect to be a very strong year next year.

Because, as I mentioned, the summer months are really October through March.

And then they have the World Cup in June and July.

And then in Asia, we have to be low-cost there.

And I think we have proven over time that we are low-cost, and what we are trying to do is widen the gap relative particular to local competitors there because of our global know-how and global expertise.

So that is just a quick snapshot of the various levers that we are trying to pull from a cost perspective.

Thank you.

Good luck in the fourth quarter.

Thank you.

James Armstrong, Vertical Research Partners.

Good morning.

Congratulations on a good quarter and thank you for taking my question.

My first question is on the food can segment.

I know this is really early days, but would you update us on any progress you have made to offset the volume being lost in 2015?

The short answer is nothing material that we can add at this time.

We had investor day that was webcast a few weeks ago -- close to a month ago.

And we talked in a slightly more granular way about we have a half a dozen or so very discrete items that we are focused on from a project perspective, and we expect to begin to execute on those in the fourth quarter.

But really more likely the first half of 2014.

This business remains with us throughout 2014, so it is really 2015.

We have got 15 months or so to manage it, and I think that folks are very in tuned and focused on what needs to be done.

Perfect.

And then, switching gears, in the aerospace segment, have you seen any major impact from the government shutdown?

Also, as sequestration hits the government aerospace contracts with potential for more, could you give us a sense of what you are replacing those contracts with?

Yes.

In turn, we have seen the sequestration kicked in March.

We have seen a slowdown in decision-making with the government, and with the complete shutdown for 16 days or so it was, everything just stopped.

And so that is why I inferred our backlog was down slightly but nothing fundamentally has changed.

I think just decision-making is taking a little bit longer.

I will say it is a bit frustrating that they just punted just a couple months, and so we are talking about the January and February time frame having a similar set of discussions.

And that just puts timing and decision-making up in the air as well.

So that gives me a little bit of concern.

But again, as I said, the fundamentals of what we do for the US government has not changed at all, nor has the opportunity set.

We have however, as we have talked in the past, looked at other scenes of growth and revenue, whether it is internationally or with some more commercially oriented opportunities and whether it is the Sentinel program which is done in the non-for-profit world that is not affiliated with the US government or the GEMS contract we won in South Korea.

I think those are good examples of the types of things we are looking at, and we continue to explore those opportunities.

And we do believe that over time we are going to win our fair share of those.

Very good.

Thank you very much.

Thank you.

Todd Wenning, Morningstar.

As you look across your various businesses, which segment do you have the most momentum in terms of EVA dollar generation going into 2014?

That is a good question.

I think all to one degree or another.

Our European folks have really rallied around the cost-out.

And given that, that is in our control, more than anything else, we don't have to rely on weather, we don't have to rely on external demands, we see a clear line of sight there.

I think down in Brazil as well, as I mentioned the two summers.

As we sit here right now, we are actually in Brazil.

We brought our board down here this week, and we see a lot of very good momentum.

And it is quite clear that a lot of the market share gains of cans relative to glass are not just temporary.

They are permanent.

And so we are feeling pretty good about Brazil.

North America is really a volume game there.

So our folks have been doing a great job there, but it just -- it is too premature to predict what 2014 volumes will look like, and I think the same with China relative to the volumes versus the price mix.

So it is really Europe and Brazil have the greatest line of sight into EVA dollar generation.

Great.

And then as more specialty can capacity is being added by the industry in North America and Europe, have you seen the margin spread between standard and specialty contract in a meaningful way?

No we haven't.

Any maturation curve of any new product, you need to expect over time that it will gravitate towards a mean.

But I think what we are trying to do is stay out ahead and have the flexibility for our customers.

So when we talk about specialty, we are not just talking about one different can size.

We are talking about a wide variety in North America and/or in Europe, we are making over 20 different sizes in each of those locations.

And so it allows us the flexibility to flip between sizes on behalf of our customers, and I think they find there is value in there for them as well.

Thank you very much.

Joe Stivaletti, Goldman Sachs.

Good morning.

I was just wondering from a bigger picture perspective if you could talk about your appetite for acquisitions, if that is something that you are spending much time on and what areas might be most likely?

Yes.

We are always spending a fair amount of time on acquisitions.

Many times nothing happens, but that does not mean that there is not a lot of activity going on.

As we have talked about in the past, given that we are a very disciplined EVA company, sometimes it is challenging to compete against private equity and other buyers when interest rates are so low and liquidity is so free.

And we see that right now.

As we go forward, though, I think there have been great opportunities when we are disciplined and we are tenacious on one hand, but also patient on the other hand.

To take advantage of situations when they are rise, when others are not as aggressive or not can be aggressive from a financial or operational perspective.

So we have not announced anything, but do not assume that we have not been looking and actively pursuing opportunities.

As we sit now, liquidity is still relatively free, and so it makes it a bit more challenging for us to compete.

But over the long term, we have been able to make a lot of money for our shareholders and for our Company by maintaining our discipline.

Are there any particular areas, whether it is geographic areas, product type areas, that are short of -- higher up on the priority list as you consider potential acquisitions?

Well, our pipeline is full of everything.

Everything from aerospace -- in January we did a very small acquisition, and that has gone exceedingly well.

So that was more trying to get into a new customer base.

On the packaging side, whether it is geographic, we have talked about the need for consolidation in China in particular.

I think over the longer term, there could be opportunities there.

I think there is further rationalization opportunities in some of the more mature markets and mature product lines, and we are focused on those.

And the one thing about acquisitions that we have realized, if you overpay for an acquisition, in our market it is always very difficult to get it back, so that is why we have been maintaining a disciplined approach.

Great.

Thanks for the color.

Ghansham Panjabi, Robert W. Baird.

Good morning.

Just judging by your customer comments, whether it is brand or private-label, it seems like most of your customers are surprised at the rapid decline in diet soda over the summer, and I guess that has been true for the full year as well.

John, can you kind of touch on how your portfolio is positioned against that trend in terms of how is Ball's North America footprint compared to the average, if you will for, diet soda as a function of the category?

And also, are you seeing anything comparable in Europe as well in terms of declines in diet soda?

No.

In fact, let me start with your first.

No.

In fact the soft drink was stronger than beer at large as an industry and for Ball in Europe and during the third quarter.

I do think some of it has to do with market share gains and other things like that.

I think here in North America, there are several things going on.

The first half, there was some weather issues.

It also has been a pricing versus volume strategy I think as a soft drug industry generally speaking.

Then it is also a demographic, and people are drinking less sodas and people are drinking less diet sodas.

Diet soda is skewed towards the older consumer.

And they have been drinking less.

And so I think our customers are acutely focused on that from a product formulation perspective as well as a channel perspective.

You have seen it, many more different types of SKUs out in the marketplaces, our customers trying to find the sweet spot relative to those various demographics.

And we expect a fair amount of innovation from a category perspective in 2014 because those customers are very much in tune with the macro trends going on.

Okay.

And then in terms of Europe, was there anything unusual for the industry as to why volumes were so strong?

Because again, reverting to Heineken yesterday, they were not exactly thrilled with the volume profile in Europe.

So what drove the strength in Europe for the industry during the third quarter you think?

It is always difficult to focus on the quarter, but you are absolutely right.

I think it has to do with the can has been winning relative to other packaging substrates.

At the end of the day, we continue to see slow but steady in Europe, slow but steady improvement in terms of the cans share of the package mix.

And that adds incremental growth to any of the liquid growth.

So that is probably the biggest thing that is going on.

Okay.

All right.

Thanks so much.

(Operator instructions)

Al Kabili, Macquarie.

Good morning.

This is Dan Moran on for Al this morning.

Just one quick one for me.

Did you receive any benefit from lower European metal premiums in the quarter?

And can you give us any visibility on any potential tailwind's in 2014?

No.

The premiums just started to moderate in the quarter, and with the inventory that we are running through the system, we saw a really virtually no benefit of that.

It provides some potential upside next year if they keep moderating, but we are not -- we have not actually baked that in.

So no real impact in the third quarter.

We are still seeing higher costs than we were a year ago.

Okay.

Thank you.

Debbie Jones, Deutsche Bank.

Good morning.

I was just curious if we could go back to Europe one more time.

I was wondering if there are any specific regions or countries where you're seeing this outsize growth.

And then you talked about getting back to 11% to 12% margins in the region by 2014 or 2015, but it appears we are already there.

So I'm just wondering if this is stable in the near-term?

Yes.

First, the answer is, as I mentioned, the volumes were up nicely in the third quarter relative to where our strength is, which is really Germany, Benelux, France, and the UK.

I do think some of that was a bounce back since the first half of the year was very tough.

And as the summer came, I think there was just the consumer unleashing if you will of getting out and taking advantage of the weather.

So I wouldn't read into that too much.

Overall as an industry, we are a little bit stronger than our long-term expectations.

We said 2% to 5% growth over the medium to long term in Europe in part driven by the market share gains I talked about for cans relative to glass and others.

And that was kind of at the upper and the growth was at the upper end of that, so I would not read too much into it.

And then -- I'm sorry, your second question?

I forget now.

I was just talking about the margin and whether or not that is going to be sustainable in the near-term, because I thought that you had discussed at the Investor Day it being more of a 2014 or 2015 event when we got back to 11% or 12% margins in that business.

In the quarter, I know we were above that.

But remember we are a seasonal business, so we look at that on an annualized basis.

What really drove the improvement in the third quarter, a little bit of cost-out because our folks were beginning after that, but as we said, that is a longer-term issue.

It was really that we had strong volume, and when you are in a volume sensitive business, those things help.

We had negative volumes in the first half of the year, and I think that hurt.

But I wouldn't read into that other than, number one, we are on track with what we said and, number two, these cost-out programs really do hit in a more meaningful way the second half of 2014 and 2015.

Okay.

Thank you.

I guess my follow-up question is on Brazil.

It appears the ramp-up is going as planned, but industry trends appear to be subdued right now.

So I'm just try to understand what gives you confident that you will actually see a double summer materialize even with the World Cup coming.

What are your customers expecting, and I would expect that you guys are -- your volume should outpace the industry given your new capacity, but I just wanted to get your thoughts on that.

Yes.

I think in Brazil, everyone I believe is very much looking forward to 2014.

There is going to be a tremendous amount of promotional activity here.

They're expecting millions of visitors, which is going to help.

I think to your point, we do have new capacity coming on, and as you know, this business is chunky if you will.

And if you have new capacity on, you are usually the ones grabbing the incremental growth in the near-term.

But I think over the long term, our competitors have grabbed some growth in the past when we weren't putting in capacity and they were.

So I think from our product perspective, our customer portfolio perspective, we are in pretty good shape for 2014 in Brazil.

And you are happy with your mix of specialty cans in that region?

Yes.

We definitely are.

Okay.

Great.

Thank you very much.

Anthony Pettinari, Citi.

Hi.

This is actually William Mitchell filling in for Anthony.

Just one quick one for you guys.

How much of the volume growth in Metal Food and Household was due to the annual food pack?

Well, as Scott said, we were upper-single digits on volumes, and the overall market was up about 3%.

It is interesting when you look at what was strong and what was weak relative to the industry, what was strong was the vegetable pack and pet food.

And what was weak was fruit and soups.

We did not participate in a large way in the fruit or the soups, and so I think we just benefited from a customer mix that had a strong pack.

But all the growth we saw was related to the pack because that is the way the business works.

That is helpful.

Thank you.

I will turn it over.

There are no further questions from the phone lines at this time.

Okay.

Well thank you very much for participating.

We look forward to hopefully what is a strong finish to 2013 and a more constructive 2014.

And we look forward to talking with you in January.

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

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

Thank you.