Greif Inc (GEF.B) 2008 Q2 法說會逐字稿

Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Greif Inc. second quarter 2008 results conference call. During today's presentation, all parties will be in a listen-only mode. Following the presentation the conference will be open for questions. (OPERATOR INSTRUCTIONS) This conference is being recorded today, Thursday, June 5, 2008.

I would now like to turn the conference over to Debra Strohmaier. Please go ahead, ma'am.

Thank you, Brittany. Hello everyone. As a reminder, you may follow this presentation on the Web at greif.com in the Investor Center under conference calls. If you don't already have the earnings release, it is also available on our website. We are on slide 2.

The information provided during this morning's call contains 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 on slide 2 of this presentation, in the Company's 2007 Form 10-K, and in other Company SEC filings, as well as Company earnings news releases.

As noted on slide 3, this presentation uses certain non-GAAP financial measures including those that exclude special items, such as restructuring charges and timberland disposals. Management believes the 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 Greif's second quarter 20078 earnings release. I will now turn the call over to Chairman and CEO, Michael Gasser.

Thank you, Deb. Good morning. Thank you for joining our conference call today. If you're following our presentation on the Web, please go to slide 4. We are pleased with the strong growth in net sales and profitability this quarter. We achieved solid organic sales growth, especially in Europe and the emerging markets for industrial packaging and benefited from higher containerboard selling prices and paper packaging relative to the same quarter last year.

Our results continue to demonstrate the value of geographic diversity and the positive contributions from the Greif business system. We're also pleased to have raised the dividend this quarter, in line with our policy of paying out approximately 30% to 35% of our net income. This marks the fifth consecutive year that the board has raised the dividend and the third year in a row for such a substantial increase.

Now please go to slide 5. Like everyone else we are dealing with increased costs for some raw materials, transportation and energy and the continuing uncertainty of the U.S. economy. However, unlike everyone else, we implemented the Greif business system five years ago to help us navigate through times just like these.

Our continued discipline in becoming more efficient and controlling costs, managing prices, and increasing diversity is serving us well as we confront the challenges that face us all. At the macro level we are seeing the global growth opportunities for packaging accessories, which includes closures, transfer protection products, barrier bags, paint, linings and other drum components. This business is working strategically with sourcing and gelling nicely.

We continue to ramp up our capabilities worldwide with training focused on leadership, finance, and communications as well as operations. We believe our preparation on this front creates an advantage for us in the global competition for talent. At the micro level the plants shut down of our mills for annual maintenance was successful. The mills are operating extremely well.

The best-in-class benchmarking that we touched on last quarter is progressing well. We are gathering the data now which will help us identify best practices to be replicated at all like plants in our network. Finally, with the surge in raw material costs we continue to use our commercial excellence tools and competencies to manage pricing to protect our dollars. On slide 6, you can see we remain on track to achieve our key 2009 financial performance targets.

Executive Vice President and Chief Financial Officer Donald Huml will now provide you with an update of our financial results.

Thank you, Mike. Good morning, everyone. Please go to slide 7. As you read in our earnings release, net sales increased by 13%, or 7% on a constant currency basis. This was driven principally by higher sales volumes for industrial packaging, and increased selling prices for containerboard.

On a year-over-year basis, operating profits before special items increased 30% to $89 million for the quarter. All three segments contributed to the operating profit, with improved net sales and continued traction from the Greif business system. Our effective tax rate for the quarter of 22.9% is down 70 basis points sequentially, due to a favorable earnings mix shift.

Net income before special items was $54 million, 38% higher than the same quarter last year. Now on slide 8, this slide provides context for our results and documents their positive upward trend which we credit primarily to portfolio diversity, and the continued execution of the Greif business system around the world. Slide 9 shows the results for our industrial packaging segment. Net sales increased 14%, or 7% on a constant currency basis to $748 million, largely due to higher sales volumes in most regions with particular strength in Europe and emerging markets.

Operating profit before special items increased to $64 million. Improved net sales and execution of the Greif business system contributed to the increase. Now on slide 10, net sales for paper packaging increased to $163 million, from $153 million, primarily due to higher containerboard selling prices relative to the same quarter last year. Operating profit before special items was $14 million, compared to $9.5 million last year, attributed to higher net sales and the Greif business system, partially offset by higher energy costs.

We are encouraged by the recent containerboard price increase announcements, but have not factored any into our guidance. On slide 11, timbers results were higher than last year due to the sale of special use properties and remain consistent with plan. Tactically in response to the currently depressed demand for harvested timber products we have shifted our mix more to monetizing special use properties.

The ability to adjust to market forces underscores the advantage of multiple revenue streams and options for unlocking the value of our timber portfolio. Now to slide 12, capital expenditures for the quarter were $40 million, the same as last year, and for 2008 are expected to approximate $125 million which includes expansion capital to support our emerging markets growth strategy.

Business trends remain favorable in industrial packaging, particularly outside of North America, stable to improving in paper packaging, and timber assets continue to be monetized as planned. These factors, coupled with benefits from the Greif business system are expected to contribute to a strong performance in the second half of 2008. Therefore, we are raising our 2008 guidance by $0.10 to $4.25 to $4.45 per Class A share which includes the $0.35 per Class A share impact from the first quarter net gain related to the divestiture of businesses.

That concludes my formal remarks. You should now go to slide 13. Mike and I will be pleased to answer your questions.

Thank you, sir. We will now begin the question-and-answer session. (OPERATOR INSTRUCTIONS) One moment for our first question. Our first question is from Jim Lucas with Janney Montgomery Scott. Please go ahead.

Thanks, good morning, guys.

Good morning, Jim.

Good morning.

Couple of questions here, first off, Mike, could we talk a little bit about the end markets of what you're seeing out there in terms of any that are doing much better than expected, maybe not performing the way, and maybe not just from a end market but also a geography standpoint because it was particularly interesting to hear that Europe is continuing to lead the way because we all read the same headlines and deja vu we had the same conversation three months ago. But would just be interested in kind of a quick synopsis of what you're seeing out there?

Yes, Jim, as you know, we've said repeatedly, approximately two-thirds of our business goes into the chemical-related field and about a third goes into the food or food-related industries. And generally our customers' business is good. It's very good outside the United States right now.

Pretty good in the United States in the Gulf Coast region, and I think most of that is going because of export business and we all know the currency situation, so it is advantageous to export. So it is good in the Gulf Coast region right now. Food business is very strong as you would imagine.

We talked last quarter about our new business down in Latin America, which is in agrochemical business and that's strong. We see food business being very strong. Generally our customers are doing well.

Many of them have raised their annual guidance for the year. But I would say that's probably driven a lot outside the United States.

Okay. Then from -- if you look within that, clearly the emerging market story has been there for sometime. But in western Europe in particular, again, this is the same question last quarter, but have you seen any hint of slowing anywhere? Or is it really that things are just going that well across the board?

We have not seen any slowing yet, Jim, our volumes for Europe are still strong, they are still mid to high digit, single-digits, which was consistent with what we had the first quarter. Emerging markets are still growing at a solid double-digit rate and the United States is a low single-digit. But the volumes in general in Europe, to answer that specifically, are consistent with what we saw in the first quarter.

Okay, and from a raw materials standpoint, I mean, clearly everybody is getting hit by material inflation. Have you seen any indication by customers looking at potentially substitution of steel for plastic or vice versa?

Well, customers are getting hit like we are, by many price increases. Whether it would be raw materials in our case or drums in their case. It's energy, it's transportation, price, costs are going up. Our packaging generally is a smaller component of their total cost. Now having said that, substitution is something that's always out there.

We have not seen any big change in that yet today. There are certain products that will always be packaged in steel drums. The compatibility issue, the safety issue, the strength issue, but it's something we are monitoring, something we have to look at. Depends on what you believe will dictate how long you think steel will stay up versus the other high density polyethylene or paper, which would be the other two raw materials that would compete with steel.

Okay, and, Don, could you just bring us up to date on the timber strategy, just clearly we saw a little bit more monetized in this quarter but just where you stand, what the outlook for the second half of the year, but going forward as well?

That's a very good question, Jim, because we did have a significant special use of property sale during the quarter. So we would not want you to annualize the year-to-date performance. One of the things we are doing is really reacting to the changing circumstances, stumpage prices are down meaningfully year-over-year.

So rather than continuing to sell harvesting rights, we basically have shifted to monetizing special use properties, and so included on that line item is 8,800 acres that we sold in Canada. And I would look for the balance of the year for nominal gains on disposition of assets. We are going to expect some increased pricing traction, and so operations are going to be really contributing to the expected strong performance in the second half of the year and once again, very limited gains on disposal of assets.

Okay. Thank you very much.

Thank you. Our next question is from Mark Wilde with Deutsche Bank. Please go ahead.

The first question I got, Don and Mike, is what is in the water out there? (laughter)

It really, it's a very encouraging performance in light of what we have been seeing from a lot of your competitors and what's happened to their margins from costs. I wondered, to start off, we can loop back to that land sales question and give us more color on that maybe in the 8,800 acres and whether there was anything else in those land sales in the second quarter?

Yes. On the 8,800 acres, that's in the Quebec area, and it's been property that we identified as special use back in August of 2006, when we really increased our focus on the HBU potential, within our timber holdings.

And that transaction resulted in about $1,000 per acre, but quite frankly, there will be a further adjustment, so that is it's very attractive recreational land, and we will continue to update you on the potential that exists. I think there has been understatement of the value of our Canadian holdings, because they really are quite attractive, and have uses that will allow us to realize much more value than the value of the timber.

Am I correct in recalling that an awful lot of that Canadian land is actually up in the lake country north of Toronto, is that right?

That is correct.

So the stuff you have in Quebec is probably a fairly small piece of the whole Canadian holdings?

That's correct.

Okay. All right. Next question, is it possible to get some of kind of an impact of the Greif business system on the performance in the paper business?

You really did quite well there, about half of the sales gain fell down to the EBIT line, which, I think, in light of the cost pressures that you must have been looking at on a year-over-year basis really is quite impressive. What did you get in that business from the GBS do you think?

We really don't break that out by segment. If you look across the Company and clearly we are getting a bit more in paper packaging because it's been fairly recent that we have implemented GBS. But one thing that I would point out, although overall the impact is a bit above what we had guided to, you may recall in our earnings guidance bridge at the beginning of the year, we indicated about $35 million in impact. We are tracking a bit above that.

So really looking at delivering $35 million to $40 million, and so about $10 million was the impact for the quarter, and there was meaningful impact within paper packaging. In the interest of full disclosure, we did have a little easier comparisons, you may recall last year we had a line breakdown at Riverville and we had to accelerate our annual maintenance and we incurred quite a bit of increased maintenance costs as a result of that.

So some of that year-over-year improvement were costs we incurred last year that we didn't have in this year's quarter.

Okay, got it. And also in the paper in terms of the outlook you said you are not assuming anything from this $55 a ton initiative that's out there?

We are have very encouraged. We will be looking to pulp and paper with the rest of the industry, we are very supportive of the increase, it's clearly justified based on the increased cost since the last increase. There is no question about that.

Best case, we would see impact in August perhaps of 25%. About 90% realization in September, again, if the pricing initiative is successful with a full realization in October. That would be our expectation. In terms of the upside potential, it would be in that $3 million to $5 million range, recall our fiscal year end is October 31.

Okay. So $3 million to $5 million for this fiscal year?

Exactly.

Okay. All right. Just one other paper question, that is, sheet prices have been pretty messy around the country, what are you guys seeing over in Core Choice in terms of sheet pricing right now?

Sheet prices are pretty stable right now, Mark. Volumes are good at Core Choice. And so we are not seeing that messiness in that region.

Okay. All right. Then, in terms of the industrial packaging, I think you said you were up about 7%, if we back out the currency effect. If you looked across that portfolio, how much did price, or cost pass through, contribute to that 7% would you guess?

Yes, and again, we focus on the consolidated results but since industrial packaging represents about 80% of the total, this may address your question. But we basically, in fact on a consolidated basis the 7% constant currency growth, which is basically organic growth, 6% is volume, and about 1% price.

What we are seeing a lot, there were a lot of price increase announcements toward the end of our second quarter, and we are going to really see in the second half, the impact from those. So it is going to very definitely be in evidence in the third and fourth quarter.

Okay. All right. I think that's it for me for right now. Again that's a nice quarter and nice job of offsetting all of the cost pressure that you're feeling.

Great, thank you.

Thanks, Mark.

Thank you. Our next question is from Chris Manuel with KeyBanc Capital Markets. Please go ahead. .

Good morning, gentlemen.

Hi, Chris.

Let me add to Mark's comments. Congratulations on another outstanding quarter.

Great. Thank you.

Couple of questions for you. Let me start with the steel, resin issue you were just talking about. By our math, year-over-year steel prices were up in a neighborhood of 40%. If you only had a little bit of price impact in there, that suggests to us just some rough math, that you might have been 20-ish or so million, $15 million to $20 million behind the curve in the quarter from a spread standpoint.

Was the delta that significant and is there any reason to believe that as steel stabilizes out later in the year that you won't begin to catch up on that?

I think your math is accurate of the 40%, Chris, so I think we would tend to agree with that math. Again, the numbers that Don gave you were on a consolidated basis, too. So it's hard to extrapolate based upon that. We focus pretty much on these rising price times to recoup the dollars and try to get the margin percents, but as the prices continue to go up that becomes difficult. As prices stabilize, then the margins come back.

So we don't have, we are not concerned right now that we won't recoup all of that. As you know we have a lot of raw material pass throughs in our contracts. Every contract has a raw material pass through. There is a delay depending on the contract of different amounts.

But I think the team has done a nice job of passing through the costs in accordance with the contract. But these are quite Draconian times right now with steel and all raw materials going up as fast as they are.

Would it be safe to assume that you're still quite a bit behind passing through the steel just based to the quarterly, of the timing of it?

There is a gap as of the end of April, you're right. As of the end of this quarter, the results did have a gap in -- increases did go out in May to offset that, but as of the end of April, yes, there was a gap between the costs and the price increases.

And was it different, but would the gap have been greater or smaller in different regions around the world?

There are some regional differences. For example, in China, just to get a little bit granular, they use an index based on the leading steel producer, Bao Steel. It's sort of a dysfunctional index, so in a rising cost environment, it tends to understate the cost. Similarly in a declining cost environment, it's rather sticky.

So you're going to have some of these regional differences, but if you look at what's happened to the cost of steel globally, it's not quite as Draconian. And just to illustrate, up about a third year-over-year, but when you look sequentially it's up 25%. So most of that increase has happened really rather recently, your points, your point is well taken.

We are a little bit behind the curve, the one thing that is unprecedented this time is the rapidity of the increases. But normally our quarterly reset is sufficient to keep us, to keep us in line with the increases, but, again, there were was an increase in the frequency. You will see in the back half a bit of catch up.

Okay. That's helpful. Could you give us a little more color on the Delta business that you had acquired, that Delta Petroleum piece? You've had it now a little over a year. Can you maybe give us an update on, in present type and market conditions here in North America being a bit sluggish, what have volumes been like there and are you pleased with the business, what do you think the opportunity is?

Yes, it's a very good question, Chris. We have talked about that in repeated calls. We are very pleased with the progress we are making in Delta. I want to start off by saying that. As I've said previously, the sales cycle to replicate Delta is a longer sales cycle.

But once you make the sale you tend to have a lot better continuity in the sale because you actually get very intimate with your customer when you put a filling line within their location or tie them into a filling process. Initially we went into that business, as we've said, and we had to make some changes. We wanted to put the Greif business system into it. We wanted to get it into position where it was replicable before we went out and grew the business.

It is at that point today where we believe it is replicable. As I've said previously, we are having conversations and we're getting more and more to the final stages of conversations with people to put the business in other places. So we are generally very pleased. As far as the volumes, the volumes are quite strong in the Delta business. And so from that standpoint we are pleased.

I think we believe it is a growth arm for us, we think we will see in the not so distant future some additional expansion in that business. But it's taking longer than we probably originally thought a year or a year and a half ago.

Okay, that's helpful. And then the other question I had was on the use of the cash. I saw you raised the dividend from here your debt levels are -- I won't say your balance sheet is grossly underlevered, but you're getting to a point where you're a bit underlevered.

How do you feel going forward of use of the cash or the acquisition markets looking attractive to you now? Share repurchase, things of that nature, can you help us with the pecking order?

We have historically talked about three different avenues, for cash is to bring cash back to the shareholders in the form of cash dividends and some stock buybacks, and I think our increase in dividend of about 39% is indicative of the board's view of the earnings. We try to keep in the 30% to 35% of net income, and this would be in that range a bit. It might be in the lower end of that range, but it would be in that range.

Debt pay back, we still continue to look at if it makes sense to pay some debt back. But growth is a big component of it. We believe there is opportunities for us to continue to grow our portfolio, both in emerging market and there are a lot of white spaces out there that we still can use to enhance the core business. We believe there is good growth opportunities.

Some will be organic, Chris, some will be greenfield in emerging markets, and there could be some bolt-on acquisitions to enhance our business.

Okay, and the last question I have is, Don, you had given us some updated numbers in respect to where you were with guidance. I think originally when you gave us you'd indicated $35 million, you're now going to be a little bit above that.

At the same time, you had originally given us some color there would be about $15 million or similar to '07 levels of special item sale timber dispositions and things of that nature. It looks like year-to-date you're running ahead of that. Can you give us a little better update here half way through the year on where you think that shakes out?

Yes, as we discussed, the asset gains should not be annualized. We would expect a very modest contribution for the back half of the year, and the one, you mentioned a couple of positives to our original earnings bridge. We also have an increase in interest expense and some of that really is currency related as part of our risk management process, we have denominated debt in the currencies that our net assets are denominated in.

So with the strength of the euro, the interest expense is up a bit. In funding the emerging markets growth strategy, we are funding in local currencies at a higher rate. So you see that interest expense is up a little bit so that is somewhat an offset to the GBS impact.

Okay. Thank you very much, gentlemen.

Thanks, Chris.

Thank you. (OPERATOR INSTRUCTIONS) Our next question is from Jack Hain with Barrington Research. Please go ahead.

Good morning, gentlemen. My first question regards segment operating margin, in paper packaging, it was down a bit sequentially, you cite here in the release that OCC prices, energy and transportation costs all contributed there. I was wondering if you could provide some sort of proportional breakout of the effect there? Is it mostly increases in OCC prices?

Yes, I'm glad you asked the question, because I would like to make a comment about energy while it was up, we did have the benefit of natural gas hedges in place. And as part of that process, so we did mitigate some of the energy increase during the period. Now in subsequent quarters, there is going to be a ratcheting up as the hedge prices increase because those hedges are done on a very systematic basis, but on a quarterly basis, we are putting those hedges in place.

So definitely benefited the second quarter, less of a benefit in the back half of the year which clearly has been factored into the guidance that we have provided. But as far as the OCC, or the old corrugated containers, that on a year-over-year basis is up a little over $10 per ton.

And we have some other material costs increases that would be on top of that. But it would be in that range. Just to refresh your memory in terms of the sensitivity, we consume annually about 480,000 tons of OCC or waste paper, and so for the quarter that would be an impact of about $1.5 million.

Okay, and you've said that the newly revised outlook doesn't make any assumptions about the $55 per ton price initiative. What other assumptions are in there as far as raw materials pricing? Do you expect prices to stabilize or come down?

Well, we expect steel to continue to go up and starting in May and early June they have, so we anticipate that. High density polyethylene is trending up, and we anticipate that. We are looking at a flat OCC market at this point in time.

Okay. I apologize if you already addressed this, but could you add any more granularity to the $7.3 million in restructuring charges?

Yes. As we stated at the beginning of the year, the restructuring activities would be primarily related to acquisition integration, and for the quarter, we have provided for the closure of two steel drum plants, one in Canton, Mississippi, and the other in Alsip, Illinois, and that's really part of a rationalization of capacity following to tuck-in acquisitions. By the way, of that amount, 40% is cash, and 60% would be a non-cash impairment of assets.

Thank you, and congratulations on the quarter.

Okay, thanks.

Thank you. Our next question is from Bob Franklin with Prudential Financial. Please go ahead.

Hi. You mentioned earlier that about two-thirds of the business was chemical and one-third food. You were talking about the industrial side at that point?

That's correct, Bob.

Okay. Do you have a sense of where those chemicals end up, what the end uses are?

I think it varies across the envelope. You know, I wouldn't be in a position here to try to articulate all of that. We could get that for the next meeting.

Okay. I'm just trying to figure out if there is one particular sector of the economy that for any reason goes bad that would be a good leading indicator.

No, no. It's pretty broad, it's very broad, Bob, so I think you probably couldn't come up with anything in that direction.

Okay. Do you have similar kind of statistics on the paper packaging side?

No. The focus really is more on the industrial side as opposed to the consumer.

Okay. Is most of your paper packaging business in North America?

It's all in the Midwest.

Okay. Thank you very much.

Thank you, sir. Our next question is a follow-up question from Chris Manuel with KeyBanc Capital Markets. Please go ahead.

Good morning, again. I just had one last question for you. I think the last few days you were meeting with the team and doing your strategic update for the balance of late into '09. Are there any key takeaways that you can share with us, Mike?

Yes, you have good insight, Chris. Yes, we are in the final phases of our strategy review, and actually this week we had a two and a half day meeting with our board members and presented a strategy document to them. First of all, I was very, very pleased and excited about what the team has come up with. We have a team made up of individuals from all over the world who were on the strategy team.

They spent about six and a half, seven months working on it. They spent probably a little over 9,000 man hours. So the reason I'm giving you those statistics is to show you this was a very holistic review. So it was quite in-depth. The board gave us their input. They are pleased, they are quite excited about what we are coming up with.

I would say the next conference call we probably can go into some of the details to share it with you. But as a highlight of it, Chris, I mean, we are excited because they found a lot of opportunities, a lot of opportunities in the core business, so whether it would be white spaces or emerging markets, so that's exciting. And so the future of Greif is quite exciting right now.

When you look at the three components that you need to have a successful company, one is do you have the people, and with Dave Fischer as our new President, and Mike Patton taking on increased responsibility in North America, and Ivan Signorelli running Europe, Gary Martz running timber, Ron Brown running sourcing, we truly have a great group of people today to lead us forward.

Then the second step you look at is do you have the process. The Greif business system has been proven to us over the last five and a half years that it is a good process, so we are excited about that. Then the third component is do you have the vision.

I think this strategy document is really going to allow us to continue to be a growth oriented, profit oriented Company in the space that we elect to play with. It's exciting, I encourage you to hang on. We are very excited about what we have come up with.

Okay. That's helpful. Good luck on the next quarter.

Thank you.

Thank you. Our next question is a follow-up question from Mark Wilde with Deutsche Bank. Please go ahead.

Yes. Don, I wonder if it would be possible to go back to page six to those targets that you set out some time ago for 2009, and just walk us around the four metrics that you focused on and those 2009 targets and how you feel about hitting each one of those bogies by 2009?

Let me start with the real positive and that is that we are showing that the operating working capital to sales ratio target has been achieved. I would say that the return on net assets is a comprehensive performance metric, the one that arguably is most closely correlated with share price. And we are very confident that we are on track to deliver the targeted 25%.

The operating profit margin is, that is where we have the largest gap and we clearly will be challenged. One of the things that we have done is really in our road map to the 2009 targets, we have translated operating profit into -- operating margin into an equivalent operating profit in dollars, the $450 million on a same structure basis and basically have reaffirmed our commitment to delivering the dollars.

And one of the things that is really making that a bit problematic is we have, as Chris Manuel referred to as hyper inflation in raw material costs, and the one thing that we are very pleased with is the ability to pass through those cost increases. But there is likely to be some margin erosion in that process.

But we can deliver the dollars, we are going to do whatever we can to mitigate any margin contraction. And I really do think in delivering the dollars and the returns that we are going to create the value. But we do need to hedge a little bit on the operating profit margin target.

Okay. Then the last one is that SG&A number where it seems like you've kind of plateaued out in that kind of 9.5% range the last several years, and your target is quite a bit below that.

Yes, and the focus is really, the initial -- the initial SG&A optimization initiative, we reduced by one-third our expenses. And that was a pretty Draconian process. We have indicated that we are really going to achieve the 7.5% through leveraging our SG&A infrastructure.

So really the focus is creating scalability through common business processes and standardized systems, so we are very far along in adopting a standard ERP system. That is really going to be creating the scalability and as we continue to grow the top line, we feel we are going to be in a position to deliver the 7.5% target. That one we would look at really a on a run rate basis at the end of 2009.

That one, Mark, we will have to have the top line growth which we would anticipate would come during that period of time.

Okay. Very good. Thanks, guys. Good luck in the coming quarter.

Great, thank you.

Thank you. Ladies and gentlemen, this does conclude our question-and-answer session for today's call. I would like to turn the conference back over to Deb Strohmaier for any closing remarks.

Thank you, Brittany, and thank you all again for joining this morning. As a reminder, this call will be available for replay from Noon today and ending at 11:59 p.m. Eastern time on Monday.

The playback telephone numbers are 800-405-2236 for domestic callers, and plus 1-303-590-3000 for international callers. The passcode is 11103000#. A digital replay of the conference call will also be available in approximately one hour on the Company's website at www.greif.com.

We appreciate your joining us this morning. Have a great day.

Thank you. Ladies and gentlemen, this does conclude the Greif Inc. second quarter 2008 results conference call. You may now disconnect