Greif Inc (GEF.B) 2009 Q2 法說會逐字稿

Welcome to the Greif Incorporated Second Quarter 2009 earnings Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentations. (Operator Instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Ms. Deb Strohmaier, of Greif Incorporated. Thank you, you may now begin.

Thank you, Jackie. Good morning, 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's also available on our website.

We are on slide two. 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 two of this presentation, in the Company's 2008 Form 10-K and in other Company SEC filings as well as Company earnings news releases.

As noted on slide three, this presentation uses certain non-GAAP financial measures, including those that exclude special items such as restructuring charges and Timber land disposal. Management believes the non-GAAP measures a provide a better indication of operational performance and a more stable platform in which to compare the historical performance of the Company and 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 Second Quarter 2009 Earnings Release.

I will now turn over the call to Chairman and CEO, Mike Gasser.

Thank you, Deb. Good morning, everyone. Thank you for joining our Conference Call today. If you're following this presentation on the web, we're now on slide four.

Before we discuss our Second Quarter results, I want to take a moment to honor the memory of a member of our Board of Directors, Mike Dempsey, who passed away in late April. We miss him deeply. He was a good friend who provided wise counsel and wholeheartedly supported our Company. Everyone at Greif who had the great fortune to meet him came away knowing that they had a friend in Mike.

Please, go now to slide five. As we expected, the sharp economic downturn that began to impact our Company globally in the Fourth Quarter of 2008 continued through the Second Quarter of 2009. Although activity levels were 20% below the same period last year, we saw improvement of nearly 10% over the First Quarter. We are aggressively implementing the Greif business system and specific contingency actions to offset a significant portion of the impact of weak market conditions, and expect to capture at least $100 million in annual savings in Fiscal 2009. Consistent with our growth strategy, we are purposely balancing defense with offense. We are leveraging our resources to pursue acquisitions that will further strengthen our business.

As we mentioned in our last call, we completed two small tuck-in Industrial Packaging acquisitions in the Second Quarter. We also completed another small tuck-in Industrial Packaging acquisition subsequent to the end of the Second Quarter. This third move puts us in a new geographic market in the United States and serves the food industry. We anticipate there will be additional opportunities to expand our footprint geographically as well as our product and customer mix.

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

Thank you, Mike. Good morning, everyone.

Please go to slide six. Our disciplined response to the unprecedented events since last fall continues to gain traction. Positive contributions are being realized to benefit both current and future performance. Since the end of the First Quarter, we are encouraged by the growing number of signs of volume improvement in key markets. The realization of additional cost savings, incremental sales improvement and seasonal factors position us to deliver a solid performance in the second half of 2009.

Net sales decreased 29% or 20% on a constant currency basis to $648 million in the Second Quarter. The decline was due to lower sales volumes across all product lines; however, trends were favorable for Industrial Packaging which achieved sequential volume improvement. Conversely, Paper Packaging faced increased headwind which they've successfully mitigated. Operating profit before special items was $58 million compared to $89 million last year. A slight increase in Paper Packaging was more than offset by lower results for Industrial Packaging and Timber . Net income before special items was $0.53 per Class A share.

As Mike indicated, all segments continued to implement GBS initiatives and contingency plans. The financial impact from these actions is expected to accelerate during the remainder of the year. We are pleased with our progress thus far and expect to deliver above our initial targeted savings level.

On slide seven, we show Industrial Packaging net sales decreased 30% or 19% on a constant currency basis to $527 million, primarily due to lower activity levels. Operating profit before special items declined from $64 million last year to $41 million for the Second Quarter of 2009. The decrease was due to lower net sales which were significantly offset by lower raw material costs and related last-in first-out inventory accounting benefits.

Now on slide eight. Paper packaging net sales were $118 million in the quarter compared to $163 million for the same quarter last year. This decrease was primarily due to lower activity levels compared to the same quarter of last year. Operating profit before special items increased $15 million from $14 million. The improvement resulted from lower raw material costs, especially old corrugated containers, and related LIFO benefits. While OCC costs are well below a year ago, they began to rise during the Second Quarter.

Additional costs including labor, transportation and energy were also lower compared to the same quarter of 2008. On slide nine, Timber net sales and operating profit were consistent with plan for the quarter. The decline in operating profit compared to the Second Quarter of 2008 was due to a single large land sale last year.

The Company's effective tax rate was 32.9% during the Second Quarter, a 10 percentage point increase over the same period last year due to an earnings mix change. Capital expenditures excluding Timber land purchases were $27 million for the quarter compared with $40 million last year. Fiscal 2009 capital expenditures are expected to be approximately $85 million, which we anticipate to be $25 million below the annual depreciation, depletion, and amortization expense, and $58 million below 2008 Capital Expenditures.

While visibility remains limited, we are encouraged by the progress that's been achieved during the first half of this year, and more recently, by the signs of incremental volume improvement in Industrial Packaging. Therefore, we reaffirm our earnings guidance before special items of $3.25 to $3.75 per Class A share for Fiscal 2009. That concludes my remarks. You should now go to slide 11.

Mike and I would be pleased to answer your

Thank you. (Operator Instructions). Thank you. Our first question is coming from Chris Manuel of KeyBanc Capital Markets.

Good morning gentlemen.

Good morning, Chris.

A couple of questions, Mike. Maybe I'm a little confused when we're talking about some of the volume trajectory. You were off -- I think revenues were off constant currency 20-ish percent, yet you're suggesting volumes were off 20%. Are you talking about using revenues as a proxy for volumes? As I look year-over-year, your steel costs were clearly down, oh, half of what they were, close of half to what they were. Resin, the same way. So are you talking about organic volumes? You talking about revenue? Help me rectify and secondly, with the sequentially, they were up 10% because I think last quarter, you'd indicated that your volumes were off 18% to 20% actual volume numbers so how is that, can you help me with that maybe?

Let me try to help you, Chris. In terms of the constant currency decline of 20%, that is primarily volume related. What is being masked, because on the surface that would appear to be unchanged from the year-over-year comparisons in the First Quarter, but what we have seen is improvement within Industrial Packaging where they're about four percentage points better than during the First Quarter with improvement really across all regions, but it's, again, masked by Paper Packaging which has seen volume declines.

We also have a structural issue. Recall that in the Fourth Quarter of last year, we closed three of our seven box plants that were unprofitable -- or closed or disposed of three of the facilities. So although our volumes are down, and you had indicated down 28% on a segment basis for PPS and of course, there is no currency effect, that was really due to those facility closures. On a same structure basis, our volumes would have been down about 10% consistent with the industry.

Okay, so in the Industrial Packaging side, X currency and X, let's call it materials, the X currency revenue down 20%, but X materials that would have been off a lot, does that imply apples-to-apples number of units let's call it shipped were off something less than that, or how should I think about that?

Well, I would, again, point to during the First Quarter volumes were down in the 20% range, and we saw improvement in the 2% to4% range for the Second Quarter sequential improvement, and again, that was really across all regions.

Oh, okay, so sequential improvement in the rate of decline?

That's right.

That's helpful. So in other words then this quarter, if I can make this leap, down 16% to 18% then?

right, exactly. And Chris, I'll give you a little bit more granular because I think this is as granular as we want to go, because Don is absolutely right. The sequential decrease was less this quarter so it was an improvement. And just to run you around the world real quick, in North America, we had a sequential improvement in the low single digit area. In Europe, it was high single digit, so it was actually a greater improvement in Europe, sequential improvement. Asia was mid double digit and so we had big improvements back, especially in the China region.

Well, and if I remember right, Mike, didn't you indicate to us your volumes had been off something like 35% to 40% in Asia?

We did. We did, Chris, and exiting the quarter, we're getting close back to where we were last year in China alone, and so that has been a big improvement for us. And so we're exiting the quarter with the trend of volume improving. We don't want to get too far ahead of ourself, but we did exit with volume improvement across the whole Industrial Packaging region.

Okay, so let me follow that up with one other question then. As you were exiting the quarter, so coming out of April and now we've already got May under our belt at this juncture, trajectory thus far. So if the calendar quarter of -- or fiscal quarter of February, March, April was off, let's call it 16%, what's your most recent trajectory looking like? That's your average for the quarter, but it got better as the quarter went on. So what might have April or even May begun to look like?

Yes, and if you look at a core product line, steel drum, so that we can eliminate the mix effect, we basically saw a trough in volumes in January. And we have basically seen about 5% improvement per month through the end of the quarter, so that was -- that's basically how that key product line had -- that was the trajectory for that key product line.

Okay. So as we look at originally what when you gave us a $3.25 to $3.75 guidance range, and you had as you laid that out I believe embedded it down 10% to 15% for the full year in that range, it would appear as though given what we've done in the First Quarter, Second Quarter, as though we're tracking towards probably the higher end of that range, unless you see a very marked improvement in the third and Fourth Quarter. How should we think about that?

You're exactly right. When we originally constructed our guidance bridge, we assumed the 10% volume decline on a full year basis, and we have indicated that if it were in the 10% to 15% range, we felt that through the additional execution of contingency plans we could offset that further volume deterioration. And what we're saying now, based on the first half performance, that really, a volume decline of 15%, the upper end of that range is a more realistic expectation.

Okay, so last question and I'll turn it over. Being we are half way through the year and we've got now first six months of the year volumes and actually probably even seven if you're looking at May, help us with what would the scenario be that puts you at the low, $3.25 range, at the $3.50 range and low, middle and high of your guidance, being you've got 7/12 of the year under your belt at this juncture?

Yes, well I'll start with this, Chris. Volume is the key to all of this. And if we continue the same volumes that we have right now with the normal seasonality uptick, because we do -- as you recall, we have a seasonality the last part of the year and that appears to be materializing. But if we have the same volumes we have now with the normal seasonality uptick, then we'll be at the low end of the guidance is what we projected right now.

To get to the medium to the high end of the guidance, we'll be buying. Our buying comes back. We do have some headwinds, a little bit with tax rates being a little bit higher because of earnings mix that we'll have to offset, a little bit of headwind within the paper business. But our contingency plans are coming in strong, so we're comfortable in that range.

We have decided not to tighten it at all because there still is the uncertainty of volume, even though we're cautiously optimistic leaving the quarter, but we think that it's prudent in this market not to get overly aggressive in tightening the range.

Okay. Thank you. I'll jump back into queue.

Thank you. Our next question is coming from Walt Liptak of Barrington Research.

Hi, thanks. Good morning everyone. Just a follow on Chris' questions, I just want to make sure I understand. So the high end of guidance assumes a 10% volume decline through 2009, and low end at 15%?

Yes, it's difficult to calibrate precisely, but I think that's a reasonable characterization.

Yes, and I think the high end of guidance also would be that we were able to offset some of the tax changes that are there and some of the headwinds of paper. So it's a little bit more than just volume to get to the top end of the guidance there.

Okay, and the sequential improvement that you're seeing, how do you differentiate between just the seasonal uptick that you'd be getting this time of year anyways, and improvements?

Yes, I would say that that is fairly consistent with the seasonal uptick that we would anticipate. I mean, during these uncertain times, we were very pleased to see that it indeed occurred, and when that is coupled with the trends intra quarter with starting a bit slower and ending stronger, that we found encouraging.

Okay, and I guess along those lines, the commentary that Mike made about greater sequential improvement in Europe, most of the things that I've been reading about Europe are that it continues to be very slow. What, in particular, do you think is going on with international packaging there?

You know, Walt, sitting here in the United States, we read the same things about Europe being slow We've had a long Conference Call with Ivan Signorelli who runs Europe for us the last couple of days, and he's cautiously optimistic. We are seeing volumes trend up, we would see the lubricant business is picking up in Europe. That seems to be getting stronger. It is spotty. I would have to admit it's spotty.

When I give you those numbers it's Europe in general, so country by country goes a little bit different, but we don't get that granular. But I would think that it's just an increase in activity in the industrial activity, and he's cautiously optimistic that it will continue and it's not just an inventory build.

Okay. And then for a last question, you're an interesting company in that you've got a nice market position globally for your product. Based on what you're seeing and kind of you've alluded to some of this already, what part of the world do you think is going to recover first? Could it be North America because it was first in, would be first out, or is it based on your comments about China, that China would improve more because of stimulus?

I wish we had a crystal ball that could absolutely say which one was going to go first. What we're seeing, Walt, is China definitely has had the greatest improvement to date. We are getting close to pre-crisis levels in China, and if the trend continues we will be there shortly. There's a lot of stimulus, as you alluded to in China. So the question is will that continue long term, but there's a lot of domestic spending going on in China right now. So we're seeing that region as by far the fastest turn around region.

Europe, from our data, is turning around a little bit faster than North America at this point in time, which we've mentioned by the numbers, the percent deltas that we gave to you. All regions are seeing positive improvements, so we're not -- we don't really know which one is going to go if Europe is going to pass North America, but right now we're seeing Europe turn around faster than North America.

Okay. Thanks.

Thank you. Our next question is coming from Christopher Chun of Deutsche Bank.

Thanks, good morning guys.

Good morning.

I'd just like to go back to your 2009 guidance a little bit. If I look at your first half performance, you guys did $0.91 in adjusted Class A EPS, I believe. And so if I take $3.50 and deduct that, it suggested you're going to need to do $2.59 in the second half of the year to hit your $3.50 mid point and $2.59 is actually a little bit higher than the second half EPS that you posted in 2008.

You mentioned that the volume trends were improving relative to the first half of the year, but I would suspect that we need to assume that volumes are still going to be lower year-over-year in the second half, plus you have the additional headwind in terms of the tax rate. So I was wondering if you could just go over some of the other elements that would serve as an offset to those negatives on a year-over-year basis.

No, I think that's a very fair question and what I'd like to do is use basically operating profit, recognizing that we do have some below the line issues based on the higher tax rate. But in terms of bridging, I think it may be a little bit more meaningful at the operating profit level. So basically the mid point of the range would be fairly consistent with $350 million full year operating profit. And to your point, the first half was a little over $100 million, so it is a 2.5 X improvement that's required in the second half.

If we look at how we'll bridge the gap, of that, about $40 million would be related to the seasonal uptick in demand. That has tended to be anywhere from 10% to 15%, so if you assume it's 10% at our current contribution margin, that would be equivalent to $40 million. We also are anticipating that volumes on a full year basis would be down 15%. So we're basically saying there's going to be about a 10% cyclical improvement in volume levels, and so that would contribute another $14 million. We then had an issue in the first half of the year related to the high cost steel.

You'll recall from our last Conference Call, we normally have a very effective natural hedge for commodity cost increases as a result of the pass through clauses and the purchase price adjustments mechanisms. Those were rendered partially ineffective because of the sharp volume declines. And so when you consider what we had in inventory, plus what was in transit, that was about a $20 million unfavorable impact for the first half, and we have now really liquidated substantially all of the high cost inventories. So that would be a non-recurring item, so that basically gets $100 million of the $150 million that's required for the second half. And the remainder of that gap is going to be closed based on higher contributions from the Greif business system initiatives and contingency plans.

Those have been identified, 85% of the actions have actually been implemented, and we are confident that we'll be able to capture those.

Okay, great. That's a great explanation, Don. How about in terms of currency if the US dollar stays where it is today? I guess that the US dollar actually strengthened throughout your Fiscal 1Q and then weakened in your Fiscal 2Q. So does that make it sort of a wash in the second half relative to the first half if it doesn't change, or how does that affect things?

Well, that could be a positive, particularly as earnings improve outside of the United States. We will definitely get an additional benefit, and that's been a very significant headwind for us in the first half. And so no, that would be very beneficial if indeed the dollar weakness continued.

Okay, and then I have a couple quick questions on your paper business. Tell us what your box volume trends were in May relative to earlier ones.

In terms of box volumes, they are down significantly for the reason I alluded to a bit earlier.

Oh, right, but on a same structure basis.

On a same structure basis, we're down about 10%.

kay, did you see that pick up at all in May relative to April or March?

We saw really very little uptick, and I would say really more a stabilization.

Okay. What about in terms of pricing trends?

We are tracking very closely to pulp and paper. During the quarter, there was about $40 to $50 per ton in price erosion.

Okay. And then finally, can you tell us a little more about these tuck-in acquisitions that you did, how big they were, to what extent they might be accretive?

Yes, Chris, they're very small in total magnitude, and they are almost de minimus in that nature. But they can be impactful and they will be accretive the first year, marginally accretive. But really, the advantage of us having these tuck-in acquisitions, it puts us in another geographic region and, one, it puts us in the food business which is a business we wanted to get into.

We've become pretty good at these tuck-in acquisitions and it's something we'll continue to look at to try to continue to enhance the footprint of Greif as we go forward. But I wouldn't add a lot or anything because of these tuck-ins for this year.

Okay, you were already in the food business though. Is it a different type of food business?

Yes, it's a different type of food business, yes.

all right, I'll go ahead and turn it over. Thanks.

Thanks, Chris.

Thank you. Our next question is coming from Steve Chercover of D.A. Davidson.

Thanks. A number of my questions have been answered already, but my first question is a total change from the current line. Are you investigating black liquor tax credits at your mill down in Virginia? I know initially you weren't, but there's a lot of money being handed over.

Hi, Steve. Yes, we and our consultants are actually going through, we're finishing up a review on that process and, hopefull, within the next couple weeks we'll have that done. At that time, there will be a decision whether we do submit that for the credit.

We have not factored anything into our guidance before that credit, nor have we elected to try to disclose what that would be until we determine whether we would qualify for that. I would tell you at the end, at the next quarter Conference Call, we'll be able to definitively tell you whether we did get it or not get it and then how much that would be.

So you are not currently certified as a biofuel mixer?

That is correct.

And assuming you do submit the application, is it fair to assume that it would be effective, call it, June 1 or July 1, or can you do it retroactively ?

Treasurer is looking at me saying, yes, we can do it retroactively. So I'd assume he's correct on that. So June 1 is what he's saying, so I don't know that detail right now, but it looks like we will get it at that point if we qualify for it, yes.

Maybe a few pennies from heaven then.

Yes, it would be nice.

Sure. Well, can't blame you for taking free money.

That's right.

And then, with the decline of the dollar recently, is it appropriate to continue using a 32% tax rate, or do you expect that to go back down?

We do think that it's appropriate at this time. We will be refreshing the forecast and the expected mix of earnings next quarter so, hopefully we'll see some improvement.

Okay, and we talked a lot about the run rate or exit rate of volumes. Can you just give us a little color on your pricing power for Industrial Packaging vis-a-vis steel prices which, I believe have probably bottomed and might be starting to work their way back higher?

Yes, we have said in previous calls, Steve, our pricing for steel drum normally is tied to a steel index. So as that price goes up or down, about 50% of our business is under contract, and that contract has a reopener for prices as they go up or down. So as prices went down, they would lag and go down. And as prices go up, they would automatically trend that way also. And that has worked well for us over the years. Don alluded to the natural hedge, and that has always been a natural hedge. And we did have a disconnect in the first half of the year because volumes dropped so precipitously and the inventory levels we had were much greater than the contract periods. And so we really got stuck with absorbing higher priced inventories. But we're through all of that now, and so I think our pricing will fluctuate with the commodity prices as that goes up and down from a natural hedge standpoint.

Thanks. One final question on acquisitions. Do you have anything more in the pipeline and do they tend to be North American or across the whole geography?

Well, as I said in our prepared remarks, Steve, we are balancing our scorecard and aggressively trying to go on the offense. We have a pipeline that's fairly full of the opportunities that goes across the globe. So this is spread across the world today that we're looking at. And we do believe during times like this, strong companies can exit this stronger than when they went into it. And we are looking at opportunities today that never would have existed in the past, and some of the values are better than we had ever seen in the past. Whether we're able to consummate these or not, we don't know, but we are having ongoing dialogues with a number of companies across the world.

Well, I do agree that these tough times can create some great opportunities, so best of luck. Thank you.

Thank you, Steve.

Thank you. Our next question is coming from Paul Barclay, a Private Investor. You may now ask your question.

Yes, my question was around the competition. Given that a lot of your operations, you have excess capacity, are you seeing a lot of pressure with some of the other competitors?

Well, our business has always been a competitive business and the capacity utilization has always been a concern and a challenge for us. So we're not seeing anything noticeably different today than what we have before, because this has always been a very competitive business that we've operated in.

Okay, thank you.

Thank you. Our next question is coming from Bob Goldberg of Scopus.

Good morning. I was just curious how you're tracking in terms of your cash flow expectations for the year. It looked like that was roughly flat from where it was in the January quarter, just wondering what's the outlook for the second half in terms of cash flow from operations?

We would expect strong cash flow in the second half. We have made good progress in reducing inventory levels. We would expect continued progress. We also are seeing that complete reversal of the commodity inflation that increased working capital requirements earlier. So that, coupled with the lower sales level will result in really very strong cash flows.

The expectation is when you look at our guidance for net income and you add back the non-cash items, it's in that $300 million range. And the working capital requirements will be really non-existent. So that should actually be a modest source of funds. And then with the targeted capital spending of $85 million below our depreciation provision, that should result in a cash flow in that $250 million range.

And again, the priority for using that free cash is acquisition, bolt-on acquisitions. Is that correct or is that other uses of cash?

Yes, I think we're consistent with what we did in the past. We're looking at it from a growth standpoint, Bob and so acquisitions growth would be a primary use of it. We also will return a portion to the shareholders, as we have done in the past ,through dividend payments. And then we'll constantly try to evaluate our debt load to keep it in the range that we feel we're comfortable with, so it will be that order we'll look at it.

What is that range that you're comfortable with?

Well, we've always said the 30% to 40% range over a cycle, so we'll get out of the range a little bit high at time, and then down a little bit lower but that is the range that we have historically talked about.

Okay, great. Thank you.

Thank you. Our next question is coming from Jim Lucas of Janney Montgomery Scott.

Good morning, this is Ryan McLean. How are you all doing today?

Good, Ryan.

You guys have done a good job of taking out costs, and we're trying to gain an understanding of what's permanent versus what's going to come back in the 401(k) match or salary freezes as they go away? Once we exit this downturn, so that we can get a better idea of what kind of contribution margins we can see from you guys?

Yes, that is really a key question, and the one thing that really has been emphasized is really making these cost reductions permanent. And in terms of our cost structure, our variable costs represent now about 10% of our total costs. And the one thing that has been a real positive is that as volumes have declined, we've actually been able to reduce those variable costs at a faster rate of improving productivity during this difficult period. So for example, for the Second Quarter, you've seen the contribution margin actually expand so that it was a bit above the 30% level, and our fixed costs were down $50 million on a year-over-year basis or down about 23%. And that is really a direct result of the contingency plan implementation. So those would clearly be expected to be permanent, and we really should be improving the operating leverage as we enter into the back half of the year.

And Ryan, I'll just add a little more color to that. One of the disciplines that we had when we went into our contingency plans, we had a saying of regret or non-regret moves. And we wanted to make sure anything we did was a non-regret move. And by that I mean we wanted to make sure, and we have, that we have not nor will we sacrifice any future earnings potential of our Company by these cost cuts. So we're comfortable what we've taken out now hasn't sacrificed it, and will allow us when volumes improve to actually have greater growth opportunities.

Okay, thank you very much for that. Also, with orders kind of coming back, obviously not as much as at the same level as they were last year, we were trying to get a sense of have you noticed any difference in the size of the orders that you are receiving now versus what you received? For instance, if a customer ordered 100 historically, is it more like 10 to 20 now and very short order times, or are the order rates just down with volume?

We don't have the data at our fingertips nor do we I think know sitting here right now if the order size decrease. We do know that on a per diem basis, the orders are down. I would hypothesize that the orders number is about the same, so the size probably has decreased, but that would be a hypothesis based upon that. I do know that on a per diem basis they're down. And we still have the same number of customers, so you probably could get to that conclusion.

And Don, you mentioned the sequential improvement in steel drum since January, and I'm wondering if that's a good proxy for the other substrates, or if there's any differences between substrates.

There are going to be some differences, for example, fiber drums tend to serve the more defensive sectors, so they didn't fall as far. But the recovery rate, I mean it's really been more stable as opposed to one where we have seen a recovery from lower levels. But you're going to see differences by substrate.

Fair enough. Thank you very much.

Thank you. Our next question is coming from Matthew Conroy of Octavian.

Hi, good morning. Two quick questions. One, I wanted to follow-up on the competitive situation, and just curious if you're seeing weaker players exit the market or reduce capacity?

Well, weaker players very seldom exit a market quickly. A lot of our competitors are family owned businesses, and they tend to hang around for a long period of type because that's their livelihood. And so we have been in this business a long time and been through many cycles.

I think what we're seeing is some emotional weakness, Matthew. By that, I mean owners are saying, I don't know if I want to go through this anymore. So this is giving us opportunities to talk to them about some consolidating opportunities. So I think we're seeing a little bit of that, but not people just exiting because they financially can't make it, and some of them do have some cost structures that are more difficult.

Okay, great and then the second question was regarding the volume improvements you're seeing. Do you have any sense for how much that volume improvement is restocking and your customers getting back to kind of a normal inventory level?

We have struggled when they were destocking how much it was, and so we don't believe there's a lot of restocking at this point in time. But very honestly, Matthew, we don't have a great degree of visibility into that. So we would guess it's not a lot but I can't sit here and tell you honestly that it is not.

All right, thank you.

Thank you. Our last question is coming from Chris Manuel of KeyBanc Capital Markets.

Good morning again, gentlemen and thanks for taking all of our questions. I just wanted to kind of come at it a little different direction with respect to your end markets for volumes. I think you've got, if memory serves, about a third goes into oil based lubricants, paints, pigments, that kind of stuff, a third chemicals, and a third then food and ag and pharma. What have the different pieces looked like, and have the trajectories been uniform across those or are some of them continuing to be quite different?

I would say that they are quite different, as we had addressed during last quarter's Conference Call. The food and pharmaceutical has been relatively stable, and so that has continued. We have seen, as Mike had alluded to earlier, some improvement in the lube oils, the lubricant business. That was down quite a bit, but not to the same extent as the chemicals sector. But we have definitely seen some good improvement in the lube oil markets, and I would say less so in chemicals. They have, particularly the commodity chemicals have tended to lag a bit.

Okay, and would that also kind of follow through geographically that those same trends you're seeing as well in Europe and in Asia, et cetera, South America?

Yes.

Okay. That's basically all I had with respect to questions. Thank you, gentlemen.

Thanks, Chris.

Thank you. There are no further questions at this time. I'd like to hand the floor back over to Deb Strohmaier for any closing comments.

Thank you, Jackie and thank you all again for joining us this morning. As a reminder this call will be available for replay from noon today and ending at 11:59:00 p.m. Eastern Time on Tuesday, June 9. The playback telephone numbers are 877-660-6853 for domestic callers and plus 1, 201-612-7415 for international callers. The conference ID is pound 323880.

Digital replay of the Conference Call will also be available in approximately one hour on the Company's website, WWW.Greif.com. We appreciate you joining us this morning.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.