Greif Inc (GEF.B) 2005 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Greif, Inc. first quarter 2005 results conference call. (OPERATOR INSTRUCTIONS). And as a reminder this conference is being recorded today, Thursday, March 3 of 2005. I would now like to turn the conference over to Ms. Deb Strohmaier. Please go ahead, ma'am.

At this time I will read the Company's Safe Harbor statement which appears on slide 2. This presentation contains certain forward-looking information within the meaning of the Private Securities Litigation Reform Act of 1995. The words may, will, intents, projects, continues, believes, expects, anticipates, estimates, targets and similar expressions among others identify forward-looking statements.

All forward-looking statements are based on information currently available to management. Although the Company believes that the expectations reflected in these forward-looking statements have a reasonable basis, the Company can give no assurance that these expectations will prove to be correct. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual events or results to differ materially from those expressed or implied.

The risks and uncertainties related to forward-looking statements are discussed in the Company's annual report on Form 10-K for the fiscal year ended October 31, 2004. The Company assumes no obligation to update any forward-looking statement.

In addition, as noted on slide 3, this presentation includes certain non-GAAP financial measures that exclude restructuring and other unusual charges and gains, such as timberlands gains that are volatile from period to period. Management believes that non-GAAP measures provide a better indication of operational performance, and a more stable platform on which to compare the historical performance of the Company than the most nearly equivalent GAAP data. All non-GAAP data in the presentation are indicated by footnotes. Tables showing the reconciliation between GAAP and non-GAAP measures are available at the end of this presentation and in the first quarter 2005 earnings release, which is on the Greif website at www.greif.com.

Now I shall turn the call over to Mike Gasser.

Good morning to all of you. If you could turn your attention to slide 4 please. The first thing I want to do this morning is to set the stage for where we are today. If you have been falling us for a while, you are aware that in 2003 we introduced a performance improvement process that first focused on reducing our SG&A expenses. This process became our transformation initiative in the operations, commercial, working capital and supply chain areas.

Slide 4 puts it altogether in the model of the Greif Business System. As our core capabilities became more ingrained, we grew more confident that our focused Companywide continuous improvement and reduction of waste, fair value for our products and services, discipline and strategic sourcing, and the financial structure to support future growth.

And although we have made progress in putting the right people in the right jobs, we're still working on increasing the depth and breadth of our talent base and making adjustments where warranted. Ultimately no part of the Company is untouched, systems, processes, operations, people.

Slide 5 shows where we have either already implemented or are planning to implement the Greif Business System. Coincidentally this is also a map of our locations. So you can see that no part of our Company will go untouched.

Slide 6 shows our progress to date and our plans for this final phase of our transformation to the Greif Business System. Most recently operational and commercial excellence initiatives have been kicked off successfully at plants in Spain, Singapore, Malaysia, and Brazil. We are planning to officially start activities at our plants in China within the next month, and our Russian locations next quarter.

Paper, Packaging and Services is putting renewed emphasis on instituting lean principles in the plants, and adopting the commercial tools for their use. Finally, our global sourcing and supply chain group is taking shape and pursuing opportunities where they can have the first most immediate impact.

Now to slide 7. Because our activities have been explained in just so many words during our conference calls, I thought I would show you some photos of Greif people involved in this transformation of our business culture. Everywhere we go the majority of our people dive in and embrace this new concept of lean manufacturing, waste reduction, intelligent marketing, and personal involvement in success. We have been amazed and gratified by their enthusiasm. It is their passion and hard work that have contributed to the success of our initiatives.

On slide 8, you can see we have made tremendous headway. We continue to reap the benefits of all the efforts throughout our work streams. The Company's transformation initiative continues to enhance long-term organic sales growth, generate productivity improvements and achieve permanent cost reductions. The transformation, which began in fiscal 2003, has delivered annualized benefits of approximately $80 million through the end of fiscal 2004. Additional annual benefits of approximately 35 million are expected during fiscal 2005.

The opportunities continue to include improved labor productivity, material yield and other manufacturing efficiencies combined with further footprint consolidation.

Now to slide 9. We're getting a strong and balanced performance from Industrial Packaging and Services, as Don will explain more in depth later. I will say at this quarter IP&S showed a strong improvement over the same quarter last year. IP&S increased net sales and nearly doubled operating profit, which demonstrates that the new structure combining North America, Latin America and Africa and its new leadership, along with our strong structure in IP&S in Europe and Asia-Pacific, is working well.

At Paper, Packaging and Services we did see some quarter over quarter improvement in our mills driven by higher pricing levels. However, we saw some weaknesses downstream in our converting activities. Although the first quarter is seasonally a slow quarter, we do have some concern here and we will be focused on improving profitability and performance of this business.

We continue to be confronted with high raw material costs. Steel is up and supply is still an issue. Resin and OCC are also high. We have implemented price increases to recover these costs, productivity improvements also help mitigate the impact of cost increases. And of course, we continue to focus on institutionalizing the Greif Business System in everything we do.

Generally we are pleased with our operating results for the first quarter of 2005. During the year we continued to focus on transitioning our transformation initiative into the Greif Business System, that is the way we do business and create value for the long term. At this point I will turn the presentation over to Don Huml.

If you will go to slide 10. The first quarter of 2005 gave us a good start on the year. The quarter was characterized by transformation traction driven primarily as planned by operational excellence activities, a strong Industrial Packaging and Services Americas performance, resulting in a threefold improvement in profit, with a continued, solid performance by the other IP&S regions and the nearly twofold improvement for Paper, Packaging and Services.

Net sales rose 24 percent to 582 million for the quarter compared to the same quarter a year ago. On a constant currency basis net sales increased approximately 21 percent. Higher selling prices, primarily in response to increased costs of steel, resin and old corrugated containers, contributed to this improvement. Operating profit before special items rose 68 percent over the first quarter of last year to 31 million, while net income before special items increased to 14.5 million versus 4.5 million year ago. Earnings per fully diluted Class A share before special items increased to 50 cents from 16 cents a year ago.

As shown on slide 11, gross profit was $89 million or 15.2 percent of net sales for the first quarter of 2005 versus 70 million or 14.8 percent of net sales for the first quarter of 2004. The principal factors impacting the improvement in gross profit margin compared to a year ago were improved selling prices and efficiencies in labor and other manufacturing costs resulting from the ongoing transformation initiative. High raw material costs partially offset these positive factors to the gross profit margin improvement.

On slide 12, SG&A expenses were $60 million or 10.3 percent of net sales for the first quarter of 2005 compared to 51 million or 10.9 percent of net sales for the same period a year ago. The dollar increase in SG&A expenses was primarily attributable to an increase in salaries and employee benefits, including incentive compensation, medical and pension expenses, and a $1.6 million increase related to currency translation.

As Mike mentioned earlier, our Industrial Packaging and Services business delivered an exceptionally strong performance. On slide 13, you'll see that on a constant currency basis net sales increased 23 percent over the same quarter last year. This was due to higher selling prices due primarily to higher raw material costs, and generally improved volumes for steel and plastic drums. Improvements in labor and other manufacturing efficiencies more than offset the impact of higher costs. Operating profit before special items rose to $18 million for the first quarter of 2005 from 9 million for the same period a year ago.

For the first quarter comparisons shown on slide 14, the weakness in the environment for our Paper, Packaging and Services business is reflected. Net sales rose 18 percent to 148 million for the first quarter of 2005 compared to the same period last year, due to improved selling prices for this segment's products.

Operating profit before special items was $10 million for the first quarter of 2005 compared with 5 million the prior year. The increase in operating profit before special items was primarily due to improved selling prices, partially offset by higher raw material costs, particularly OCC in the containerboard operations. We have been disappointed with our inability to fully recover containerboard price increases downstream. Addressing this profit leakage will be a near-term focus.

Slide 15 reflects our performance in our timber business over the past 4 years. Timber sales have been consistent with planned levels during each of the years shown on this slide.

We're committed to further strengthening our balance sheet and improving financial flexibility. Slide 16 profiles our capital structure for the first quarter of 2005, at year-end fiscal 2004, and for the same quarter last year. Total debt at January 31, 2005 was 42.7 percent of total capital, unchanged from year end and down from 53.8 percent at January 31, 2004.

Slide 17 provides some detail about our refinancing transaction. Because of our improved financial profile we were able to arrange a new revolving credit facility with pricing terms consistent with an investment-grade rated company. We're excited about this new facility and its improved flexibility. The structure of this facility, coupled with the strong support of our financial partners, further evidences our improving financial performance and balance sheet strength.

Slide 18 presents our key financial performance goals. We're making solid progress toward achieving our fiscal 2006 targets. The ratios represent the 12 month period ended January 31, 2005. The metrics are calibrated to position the Company in the top quartile of its peer group.

Operating and profit margins are improving, and we are on track to realize our goal of 10 percent by fiscal year 2006 on a run rate basis. Return on net assets is also improving based on expanding margins and improved asset velocity. The latter driven primarily by reduced working capital intensity.

Selling, general and administrative expenses to net sales have shown the most significant progress. For the 12 months ended January 31, 2005 we were at 9.8 percent, down from 9.9 percent in our last reporting period. We also reached our goal of our operating working capital to net sales of 12 percent or less. We hit 11.9 percent for the last 12-month period.

Ongoing benefits from the transformation initiative, which include incremental savings of $35 million to be realized in fiscal 2005, and the improving fundamentals for the Paper, Packaging and Services segment are expected to drive earnings improvement. These positive factors will be partially offset by a lower planned timber segment results.

Although the Company exited the first quarter with positive momentum, challenges remain, especially with respect to raw material and other costs. Management reaffirms guidance before restructuring charges and timberlands gains in the range of $3.50 to $3.60 per Class A share for fiscal 2005.

That concludes my formal remarks. Mike and I will now be pleased to answer your questions.

(OPERATOR INSTRUCTIONS). Chris Manuel with KeyBanc Capital Markets.

A whole bunch of questions here for you. First as you kind of dissect the change in revenues, total revenues up 24 percent in the quarter, I know you said 3 percent were currency. How would we kind of dissect the remainder in terms of how much was related to volume, how much was raw material pass-through pricing, things of that nature?

As you mentioned, the currency represented 3 percent, and volume would be in the 2 percent range, with the remainder price. So you can see that really the pass-through of cost increases is a significant contributor to the sales delta.

And as you are starting to roll through second quarter here is that a -- did you see volume picking up, falling off, or how is the volume picture look as you see it now?

Volume is pretty consistent today. We have been 33 days into our second quarter, so we have just begun. But we have not seen any noticeable change from what we have done in the first quarter.

The only additional comment, we have seen a little bit of an uptick within the Paper and Packaging segment which could be attributed to the announced price increases. But that -- it is really too early to say.

And our comments are taking into consideration that the first quarter is always seasonably the slowest quarter. So when I say no change it really -- and Don and I are really consistent is that there is a seasonably slow part to the first quarter. The second quarter is better. So what I am saying is consistent, it is consistent with what we would normally anticipate.

So even with volume growth when you look at it year-over-year, the majority of your volume growth comes in the middle back half of the year.

We have -- the first quarter historically has been the slowest quarter for us because of holidays that we experience. We do have historically seasonally uptick in the third and fourth quarters of our year. If you look at our historical results the third and fourth quarter historically have been the largest quarters from a volume standpoint.

Okay. So I am just trying to understand it that when you say volume up roughly 2 percent, that is compared to last year's first quarter?

That's correct.

Let me switch gears for a second ask you about raw materials. How would you characterize your ability thus far to offset higher raw material costs? Do you think that you have been able to use price thus far to offset some, most, not enough yet or how would you characterize your performance there?

I would say that in the Industrial Packaging side we have done an exceedingly good job of passing through cost increases. And there has been a pretty full recovery of the cost increases that we have absorbed. And then due to some improved productivity and lower fixed costs, we have been actually able to enhance our gross profit margin during this challenging period.

In the Paper and Packaging side, we have seen increases in containerboard which are a real positive increase over $100 per ton on a year-over-year basis. The challenge that we've had is passing those increases through on the converting side. We estimate that we've actually recovered downstream about 75 percent of the containerboard increases. And so that is the one area where there has been some leakage.

Okay, so a bit there to go. Okay. One last thing. You mentioned was steel with concerns for shortages of steel or things of that nature. Has there been anything that thus far has prohibited you from being able to get the quantities of steel you have needed?

No, we have been able to meet our customers' needs to date. We've had situations where selected plants have run pretty close, but we have been able to move steel around. And one of the advantages we have with our footprint, the size we are, is the ability to have a good raw material source and to move raw materials if that is needed.

Then the last -- well, the next question I wanted to ask you is something that I'm kind of struggling with your -- with the transformation process here. If I were to take to -- I forget what slide number it was -- but your cumulative amount of impact from the savings, 15 million in 2Q '04, close to 11 in third quarter, 15 -- I think you were close to 12 in 1Q '05. You've got listed. When I add those up that is roughly about 53 million of a delta. Right? Are you with me?

Yes.

That shows up in operating income, right?

Yes, it would.

If I were to look then year-over-year from 1Q '04 last year to 1Q '05 this year, all else equal, I would anticipate roughly a $53 million improvement in operating income. And there's a pretty big gap between what you have actually -- the delta in your operating income and the 53 million. I realize there are some other factors that may be involved, but can you kind of help me bridge the gap, or what am I missing?

There definitely a lot of other factors and those would basically be the cost inflation within the base business. So really -- we are identifying the impact of the transformation process, but we're not suggesting that that is really going to all be an incremental improvement. I mean we do have increases in wages and benefits. We do have the cost price squeeze that we need to offset.

So that is really what you are seeing there. Basically the results are consistent with the guidance we have provided. We're realizing the impact that we expected to, but clearly some of that is offsetting cost inflation.

Maybe I will follow up with you off-line and ask you -- talk a little more about that. But were there any impact in your -- when you talk about the 35 million of extra savings you anticipate this year, is any of that as a result of the procurement initiatives that you're working on, or is that mostly an '06 event?

That would be mostly an '06 event. And basically in the earnings bridge that we provided last quarter, we indicated that 35 million from operational excellence would basically be the contribution of the transformation initiative for 2005. We are clearly looking for some contribution from strategic sourcing. We have made a lot of progress in putting in place an infrastructure to realize sustainable savings. But it definitely is going to take time. And we would like to be a little bit cautious for this -- really the initial year that this team is on the ground.

And then the last question I wanted to ask you before I will turn it over is free cash usage for '05. What are your primary targets? I am assuming debts, what we've talked about in the past, continue to pay debt down. Anything else on the horizon or what do you anticipate using your free cash for?

You hit -- we always said every time, Chris, is that we are going to use free cash flow to pay down debt. I think we have guided that we will have about 75 million in CapEx for the year. And that is the real 2 primary reasons right now. And then we will see what else we are going to do with the cash flow depending on the cash that we generate.

I guess where I'm going with that is I saw you increase your share repurchase authorization. Is there any anticipation to pick up the pace there, or what is a use for free cash?

The share repurchase authorization was because we really were at a threshold that the Board had approved. And so we really didn't have much headroom there. And so just to allow us to have an opportunity to get into it, that is the reason the Board approved it. It was not a signal for anything other than the fact that there was no more headroom on the Board authorization.

Okay, so basically you are not signaling to me that you anticipate buying a lot more shares or changing the strategy for free cash flow?

It was not meant to be any (multiple speakers) by that approval.

Christopher Chung with Deutsche Bank.

I just had a question about your transformation initiative. You are targeting $35 million more in 2005. And it looks like you've gotten about 12 in the first quarter already. Do you care to comment on how the remainder of that should flow through for the rest of the year?

We were anticipating that that was going to be very front-end loaded. You'll recall that in 2004 we announced that there were be approximately $50 million of savings for operational excellence initiatives. And that 15 million would impact 2004, and then 35 would carry over into 2005. So that is a front-end loaded number.

And then looking at your targets for 2006, they look fairly ambitious to me. Do those targets have baked in any further benefit from the transformation initiative in '06?

Yes, they do. It will be a continuation of our operational excellence with a contribution from the commercial initiative. And sourcing will start to be much more impactful in 2006.

I would like to make one other comment about the financial target. I would say the one that is going to be perhaps the most challenging is the operating profit margin. And that is a commitment and a target that we're going to be working towards. But again I think that one is going to be a challenge. What we would expect to do is increase our asset velocity to the extent that if there is a bit of a shortfall, we will be able to offset that in terms of our return on net asset performance.

And Christopher, just to add to what Don said about the transformation initiative in '06. We have really made a commitment that this transformation initiative is going to be the Greif Business System, or what it is going to be is a way of life. So we would anticipate that at every year there will be some contribution from the process that we're putting in place.

We realize that each and every year there's going to be cost price squeezes. There are going to be inflationary costs. There are going to be other cost increases. And so we believe through this process that we will be able to offset most of it and gain on it. So at every year from '06, '07 on out we will have some benefits from the Greif Business System. So it is a way of life for us today.

That's helpful. Next I would like to ask a couple of questions about your box business. You mentioned that you've only really recovered about 75 percent of the containerboard hikes that went through in the market. Do you think that is really going to be it for the hikes from last year, or will there be a little bit more trickle through yet?

At this latest stage it is probably where it is going to be at. We are always constantly looking at trying to increase that cost and get more. But it has been far enough down the road that it is probably where it is going to end up today. We will have to see.

We have announced another liner and medium increase effective April 1 of $50. And so we have announced that, and we are actually going out with a containerboard increase the 1st of April. We anticipate that we will aggressively go out with box increases to downstream capture that. And we will work very hard. That is our objective is to work very hard to recoup that, but that will probably be on the next increase.

Right. Can you comment a little bit about what you're seeing in terms of box demand right now?

We had I think touched just briefly on that a little bit in the beginning. Box demand is seasonably where we thought it would be at this time of year. The first quarter, it is seasonably slow. This starts to pick up, and we have had some additional activity right now. It is a mixed bag a lot of places. You'll have 2 fairly good weeks and then you'll have 1 bad weak, and then you'll have fairly 2 good weeks and then 1 bad week. And so generally it is okay. But it is not something that is on a consistent week after weak basis.

And can you update us on your CapEx plans?

Basically our guidance remains unchanged that we would be at the $75 million range, which would represent about 75 percent of our depreciation and amortization.

And then beyond this year?

I think that that relationship to depreciation and amortization is probably one that is sustainable.

Brent Miley (ph) with Rutabaga Capital.

I had a couple of questions, if I could. I was wondering, Don, if you had seen anything -- any major changes on the working capital side?. Obviously with all the raw material price increases that sometimes can have a bearing on the working capital. I was just wondering if you expected that to be able to hold the line or whether you might have to eat some of that this year?

Well, we have actually been quite pleased with the progress. Our operating working capital for the -- at the end of first quarter was about 222 million. That compared to the prior year of 264 million. And it is not withstanding the rapidly increasing costs. So we have seen about an 11 day reduction in our operating working capital days. So it is very definitely something that is getting a great deal of attention. And we are really quite pleased with the progress.

Do you think that you can -- you obviously have improved turns a lot to offset the dollar increases in that. Do you think that is sustainable?

Yes.

On the purchasing side of things since folks have touched on it. I was wondering if you just refresh our memory -- I actually think you have given this number before, but I can't remember what it was. What is your total purchasing budget for a year in terms of steel and raw materials and all that good stuff? And I think you -- I'm just trying to get a feel for how much of an opportunity that might be if you can knock a couple of percent off that?

We basically have identified the addressable spend as 1.4 billion. And I think we mentioned previously that based on others that have undertaken strategic sourcing initiatives that a 3 to 5 percent of that addressable spend was not an unrealistic expectation.

And you guys have been currently doing this on a really regional or divisional level. In other words, you have not done much in terms of consolidating it all to this point, is that correct?

That's correct.

Yes, it has been very fractional throughout the world.

And, Mike, you mentioned something earlier that I was hoping we could go back to. On the converting side of things, I think you mentioned there had been some weakness there. Can you just elaborate on that a little bit?

Weakness in the converting?

Yes. I think you alluded to it. And it kind of slipped by me. And I was just curious whether I can get some context on that? I don't know if that was just downstream in the box business or what, but --?

I think we're saying that we have -- we have had some weakness in capturing the containerboard increases by box prices last year. Right now business is seasonably where we thought it would be. We have a couple of good weeks and 1 bad week, a couple of good weeks and 1 bad week. And we are -- we have announced, I think I mentioned a paper and containerboard increase effective April 1 of $50 for both medium and liner. We anticipate that that will -- that that will go through. And we will aggressively go out with box increases to support that and to capture those costs.

I got you. Okay. And I appreciate the clarification. Thanks a lot.

And, Brent, I'm actually glad that you mentioned that, because we are pretty hard on ourselves because of that 75 percent recovery downstream of the containerboard increase. That really isn't the high end of the range of realizations within the industry. What we have been hearing is that the typical recovery has been in the 50 to 75 percent range. So we're not satisfied, but we have performed well relative to the industry.

Great. I appreciate the context. Thanks.

Timothy Burns with Cranial Capital.

I had a couple of questions. I'm not going to turn it into my personal conference call, like some previous callers, but that is another story. Analyst etiquette. The thing -- I guess the point I have in terms of the corrugated pass-through problem in the converting section, okay, it has been a problem. Can it become an opportunity? How much was lost, I guess, in the pass-through? Is it permanent, or can there be some recovery which will come back to the P&L to benefit us?

I would agree with Mike that as far as the increases initiated last year, I think where we are at is where we're going to remain. I think the opportunity is really sort of a renewed commitment to the box increase that we have just announced and being very disciplined in its implementation.

And Jim, I think that is a very good question. And we, as Don said, we're probably harder on ourselves than anyone else. So we constantly look at those as opportunities. And we're just giving your a realistic, as we see it today. That doesn't mean we're sitting back and not trying to do anything about it. But it could be an opportunity. It could be an upside. We're not planning for it right now, but we're sure working to try to make it one if we could.

Is it one of these things where business has to be good already and demand pretty tight, and when the increase is announced you have got to send your guys out to war and they have got to -- they've really go to fight to get it, don't they?

Yes, it takes a lot of personal commitment. And it takes a lot of commitment on the Company's part to say that we're going to get it. And going to war is probably about the best analogy that you can use today. And so your demand is obviously something that is important, but also it takes a commitment on the Company's part to say, we're going to get that increase. So that is why probably we are at the higher end of everyone that we can -- that we understand today on last year's increases. But that is not where we want to be. And so if we express some disappointment it is because our expectations are quite high.

We want to continue to go forward.

And you guys commented about the strength of the North American IP&S business, where I think you said profit is up threefold. I wonder if you could provide some color around that, because it sounds like a pretty good performance?

Yes, and that was actually for Industrial Packaging Americas. And because we did have -- we did have a good performance in North America, but also in Latin America and South Africa. They did really exceptionally well.

So it is just good volume, good performance and -- you know, but profit is up threefold. Was something wrong last year?

I would say that for North America there were fairly easy comparisons.

And it is part of the Greif Business System kicking in that allowed us to have part of that. but Don is right, we did have an easy comparisons to first quarter last year. The comparison gets tougher of the year goes on.

And my last question, notice it was only 2 with a follow-up. In terms of the timber sales, you guys are managing that, Don, as best you can. Sometimes it gets lumpy I think. But any thoughts on how this things ramps down? Do you have a big surge in a quarter or 2 and then it is over? How do you manage that? I have seen it done in other companies. And it is done with precision and in other companies it is done as opportunistically as possible.

We set a target at the beginning of year based upon the growth and the age maturity of our trees. If you're talking about cutting, which I think you're talking about.

Yes.

And then we manage that. We try to spread it as evenly as possible, but we do do a little opportunistic depending upon pricing. If pricing fluctuates a little bit and it seems like we're getting a seasonably high price, we might cut a little bit more. A seasonably low price we might cut a little bit less. But we really try to manage to a yearly total versus any kind of quarterly total. That would be on the cutting.

As far as timberland gains, that would truly just be on an opportunistic basis. When the right opportunity comes that we believe is of value, that is better than what we could get for growing trees on them, that would be on an opportunistic basis.

Great. Thanks a lot guys, and good luck for the rest of year.

(OPERATOR INSTRUCTIONS). Ross Haberman with Haberman Funds.

I just want to say having followed you now for just 3 or 3 years, but I think you have done a very commendable job in terms of turning around the operation. So I just want to preface that. And actually 1 quick question on the industrial side. Are we at capacity on the industrial packaging side, or how far away are we?

First of all, thank you for the complement. That was very nice of you to say that. No, we are at not anywhere near capacity on the industrial side. We have worked very hard at doing footprint consolidation and instilling lean manufacturing. And as you would imagine, as we put the lean manufacturing principles into our plants we have actually generated more capacity. So we would continue to be looking at more footprint consolidation as we try to streamline our operations making them the most efficient as possible. So no, we're not near capacity. We have a lot more headroom to go.

And just a quick detail question. What kind of pricing are you getting on the timber sales? And has there been much change from 6 months or a year ago?

Yes, on a per acre basis that has been up because we have been realizing in the $1,800 an acre range. So it has been improving.

If my recollection is right, historically -- you were selling part of that historically the better, I guess, locals to developers. Is that who you're presently selling to or are you going to trip (ph) these for the timber product?

Yes, we had 2 things going on here. The land sales that we had sold, and we had 2 different situations. 1, we did sell some land to a developer to develop land. And as I had said previously, civilization has finally caught up with some of our lands. And it became much more valuable, and so it was opportunistic for us to sell land. So land would be either to developers or to someone else who wants to use that land for something else.

The timber sales, which goes into -- and timberland sales is specifically called out in our statement, so that shows as a separate line item. Timber sales, which we are actually selling timber, that actually is sold to people who will use the lumberyards, paper mills for pulp, for poles. It actually used the product -- the timber itself, we don't sell land there.

And I'm going to assume with the land sales you're getting a lot more than $1,800 an acre for development, sorry?

For development, you know it depends. The $1,800 an acre was full value if they're very mature trees. So it really depends a lot on what kind of trees are on there. Raw land is nowhere near $1,800 an acre. But $1,800 that is -- if you had a full acre of very mature trees, that is what you would get.

Okay, thank you. The best of luck.

Chris Manuel.

I will try to keep this to a question and a couple follow-ups, I guess. Substitution. Have you seen any impacts of substitution in the quarter from shifting from let's say steel to plastic, or from -- to fiber or things of that nature that has impacted the mix?

There has been some substitution, but it has been very limited. We're still at relatively equilibrium.

Okay. And then the last 2 are just some modeling questions. Tax rate for you're anticipating in your guidance for '05?

We were at 28 percent for the first quarter. I think that is a reasonable estimate for the remainder of the year.

And then interest expense, now we've got your -- you have done your refinancing and that sort of stuff, is this a reasonable interest expense to anticipate?

We will see a -- we were at about $10 million for the first quarter. And we will gradually see that decline based on lower rates and utilizations. That would be the expectation.

Management, there are no further questions at this time. Please continue.

Thank you again for joining us on today's quarterly conference call. As a reminder, this call will be available for replay from noon Eastern time today through noon on Tuesday, March 8. The playback telephone numbers are 800-405-2236 for domestic callers and 303-590-3000 for international callers. The Reservation number is 11024714 pound.

This call will be posted on the Company's Website in approximately 1 hour. We appreciate your participation.

Thank you. Ladies and gentlemen, this concludes the Greif, Inc. first quarter 2005 results conference call. You may now disconnect. And thank you for using AT&T Teleconferencing.