Greif Inc (GEF.B) 2009 Q3 法說會逐字稿

Greetings and welcome to the Greif, Inc., third-quarter earnings conference call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator instructions) As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Deb Strohmaier, of Greif, Inc., Vice President of Communications. Thank you. You may begin.

Good morning. 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 the 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 and the company's 2008 Form 10-K and in other company SEC filing 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 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 the third-quarter 2009 earnings release.

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

Good morning everyone, and thank you for joining our conference call today. If you are following this presentation on the web, we are on slide four.

The global economic downturn that became apparent last fall and the defensive plans that we have implemented this year to mitigate its effects continue to impact our results for the third quarter. Despite lower sales volumes year-over-year, we are encouraged by the sequential improvement in sales volume and stronger operating results.

We recorded sequential volume improvements in all regions, particularly in MEA. Europe represents the largest portion of this region's business, and we continue to observe signs of improvement there. While the market response is not yet uniform, we are encouraged by the sequential increase in sales volumes and cost savings realized thus far in fiscal 2009. Also Asia-Pacific is rapidly recovering, with sales volumes higher than last year by nearly 10%.

As discussed last quarter, we are also executing disciplined growth plans. These include further consolidating the industry, filling in white spaces and evaluating industry adjacencies. We will remain close to our core.

During the third quarter we completed two tuck-in acquisitions, one in North America and one in China. We're pursuing several opportunities to increase our product portfolio and global footprint. Our strong balance sheet plus increased financial capacity and flexibility reinforce these efforts.

Accelerated Greif Business System initiatives and contingency actions we implemented are delivering impacts above targeted levels. One result is our operating profit margin, which expanded to 11% from 10%.

Now to slide five. Throughout the third quarter, formal GBS reviews were conducted in much of Europe. I attended reviews of many of our operations in Houston. From reports I received and through personal observation, I am confident that we still have exciting opportunities for savings and for growth in our operations around the world. With our lower cost structure and an improved operating leverage, solid capital structure, financial and operational flexibility, we are positioned to fully participate in any level of global recovery.

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

Good morning, everyone. Please go to slide six.

We are encouraged by our third-quarter accomplishments, the 16% sequential improvement in sales volumes, and the recent further uptick in activity levels during July and continuing into August. Net sales for the quarter decreased 31%, or 24% excluding the impact of foreign currency translation, to $718 million. The constant-currency decline resulted from 18% lower sales volumes and 6% lower selling prices due to the pass-through of lower raw material costs.

Our gross profit margin has improved compared to the same quarter last year, due to the Greif Business System initiatives and contingency actions as well as lower raw material costs. The initial plan for $100 million in annual savings was expanded to $150 million during the quarter. Approximately 80% of these savings are expected to be permanent.

Operating profit before special items was $81 million for the quarter, a decline of 25%, or less than that 31% delta in net sales. This decrease was due to lower net sales in industrial packaging and paper packaging, which were partially offset by gross profit margin expansion and lower SG&A expenses.

The company's effective tax rate was 23.6% during the quarter compared to 23.3% for the same period last year. The decline from the second quarter was due to a favorable earnings mix shift and to a lesser extent alternative fuel mixture credits of $3.5 million.

Diluted earnings per share before special items were $0.88 compared to $1.18 per class A share for the third quarter of 2009 and 2008, respectively. These results are in line with our full-your expectations.

On slide seven, industrial packaging net sales decreased 30%, or 22% excluding the impact of foreign currency translation, to $594 million. As mentioned earlier, lower sales for industrial packaging were partially offset by cost reductions including accelerated Greif Business System initiatives and contingency actions.

Operating profit before special items decreased to $69 million in the quarter from $93 million last year. The decrease was due to lower sales partially offset by lower raw material, labor, transportation, and energy costs.

Now on slide eight, paper packaging net sales were $120 million compared to $178 million last year. This quarter-over-quarter decrease was primarily due to lower sales volumes and lower containerboard selling prices. Operating profit before special items decreased to $8 million in the quarter from $13 million last year, primarily due to lower net sales and containerboard pricing partially offset by raw material costs, especially for OCCs and the labor transportation and energy costs.

On slide nine, timber operating profit improved by $2.3 million as a result of a special-use property sale in the quarter. Timber continues to perform as planned.

On slide 10, we were pleased with the successful $250 million aggregate principal amount of 7.75% 10-year senior notes issued at the end of the third quarter. This issue was over-subscribed by 2.5 times. The net proceeds from the issuance of the new notes are to be used for general corporate purposes.

Now on slide 11, capital expenditures excluding timberland purchases were $28 million for the quarter compared with $38 million last year. Fiscal 2009 capital expenditures are expected to be in the range of $95 million to $100 million, which we anticipate to be below depreciation, depletion and amortization expense for the year. This increase from previous estimates includes additional expansion capital for Asia.

We have implemented significant cost reduction plans during 2009 to mitigate the impact of lower volumes attributable to the global economic recession. We have achieved positive contributions during the first nine months of fiscal 2009, and we expect to realize substantial cost savings during the fourth quarter. Further cyclical improvement in sales volumes are also expected during this period. Based on these factors, our fiscal 2009 earnings guidance is in the range of $3.25 to $3.50 per class A share.

That concludes my remarks, and you should now go to slide 11. Mike and I will be pleased to answer your questions.

(Operator instructions) Ryan McLean, Janney Montgomery Scott.

Can you just spend some time and give a run-through the state of the different end markets that you guys sell into for industrial packaging, please?

The end markets? We've talked about this in the past. It's really broken out a third, a third, a third. And a third of it would be in the food business, and a third would be in the special chemical business and a third would be in the lube business. And as we've looked at those, the food business has been fairly stable and actually quite good this year because our food drum business, both in Europe and the United States, is very strong right now, actually stronger this year than even in last year. So that has been good.

The lube business has been down. It's been down in the single-digit range, but we're seeing some improvement there.

And the big end market that has been down was in the special chemical business. As we've mentioned in previous calls, that has been the one where we had the greatest decrease, and we are starting to see some light there. As we look at volumes through the quarter and continuing into the fourth quarter we are seeing the volumes improve in all those regions.

Also can you describe in a little bit more detail -- I saw in the press release there were two tuck-in acquisitions, and you briefly mentioned them in your remarks. But just what they bring to Greif overall in terms of substrates, geographies, etc.?

Yes. The one that's in North America, it's in the Florida region, and it's really -- would bring in -- the big customers there are the food, citrus crops region. So that gives us a stable substrate down there, so it's a small tuck-an acquisition.

And the second one we announced was in China, and that was a -- it's a great consolidation play, a couple of plants. We have become pretty good at doing these consolidations. So same customer base, and it will be a consolidation play.

So I should mention that both of those are under a $25 million purchase price, so they are not large. But they are good tuck-in type acquisitions.

Finally, in the press release you called out the sales, the special use property. I'm just wondering how many acres were sold? Or if you want to give us how many acres you have left sitting on the Greif's balance sheet?

The number of acres we sold was 4500, and we have probably -- is it 26,000 and some?

Yes.

Around 25,000 to 30,000 is what we have left.

Chris Manuel, KeyBanc Capital Markets.

This is Jason Brown on for Chris. I guess I'm trying to reconcile here your commentary that you are seeing gradual improvement in volumes versus I think you were down 16% to 18% on the industrial side in the second quarter and down 18% this quarter. I guess I would have thought that meant improving year-over-year trajectory. So maybe you can help me with that a little bit, the discrepancy there.

Yes. And I'm going to give you some -- I think the best way to do this is probably go a little bit more granular from a month standpoint than we've done in the past because we are definitely seeing volume improvement. And your reconciliation -- because historically, the third quarter is better. So volumes are better, normally, because of the seasonality.

But what I want to do, because I think it's a very good question, is I want to take the four main regions, which would be Europe, Asia, North America, and Latin America, and I'm going to make four comparisons for you. And so maybe this will help. I'm going to compare, first of all, third quarter this year to third quarter last year.

So this would be year-over-year on a quarter basis. So in Europe we were down 10% to 15%, Asia up 10%, North America down 15% to 20%, and Latin America down 15% to 20%.

Then the next comparison I want to do is compare this quarter, third quarter, to our second quarter, so to show you the sequential change that we've had. And so Europe was up 25%, Asia was up 15% to 20%, North America was up 15% to 20%, and Latin America was up just a little under 5%, and Latin America recovery is later. They were later going down, but they are later coming back.

And then to try to -- the granular, what I want to do is something -- is give you a month-to-month comparison because I think this will help you see what we are seeing. So I'm going to compare July to June, the last two months of our quarter, the third quarter. So Europe, July was 10% to 15% better than June. Asia was 10% to 15% better, July than June. And North America/Latin America, the June and July were fairly stable because they had their recovery early in the month.

And then the last comparison I'm going to give you -- and this is really current news -- is comparing August to July. So we are starting our fourth quarter now, so what we are seeing in August. And at a very high level, we are seeing both Europe, Asia, and North America up mid single digits over July, and Latin America is up low double digits. So for Latin America, recovery is coming later but it is coming. So we're seeing improvement around the globe sequentially.

So I hope that will help you give a little bit more granularity into what we are seeing from a volume standpoint.

So you would say the sequential improvement that you are seeing in every region is equal to or greater than the normal seasonal improvement you would see in this time frame?

Yes.

If I can jump to the paper packaging side, since you divested those box plants at the end of last year, we've seen the first couple quarters where you probably had an abnormally high spread for raw materials, and then this quarter where there was a pretty good decline. Would you characterize most of that decline from OCC coming up? Or was it an increase -- or a further deterioration in volumes? And then also, what would you consider a normalized -- is it more indicative of what we saw in the third quarter or the first half?

You hit on a couple key points there. I think when we look at the paper and packaging segment and you see where the sales are down and the profit is down 30% to 35% quarter over quarter, this year to last year, when we break it down into a little bit more granular, the mills' sales down are about the same, but the profit's only down 15% to 20%. So we are doing a good job with the mills, and they really are overcoming the higher OCC costs. And you are right; we do have the -- we're primarily OCC based, and OCC has gone up $20 during the quarter.

We also -- our biggest problem that we have, our biggest challenge we have is in the downstream pressure. And we have a structural change. We last year closed three of our seven box plants, which you have referred to. During the year when the -- the economy being soft, we sold a lot of sheets to integrated mills. They have taken those back into their own system now, so we've lost some volume there.

And then finally, there's a lot of competitive pressures today because the mills are incented to run. And that will end soon, and so we think those pressures will go away. But add those three things up, and that's causing the situation.

I would tell you -- one thing I've learned about the paper business, there is no normal, because the paper price has either gone up or gone down, costs are going up or down. I would believe that this quarter isn't as indicative because of all the pressures I've told you about, and the first six months were fairly strong. So it's probably some combination in between, depending what your assumption would be for prices and costs as we go forward.

I appreciate all the detail. The only last question is your free cash flow expectation for the year. I think you were at around $250 million, if I remember right, before, and I'm just wondering if you can give us an update on that.

Yes. That is really quite consistent, with the exception that we have increased our restructuring activities when we stepped up for the additional $50 million in savings, and we have also approved some additional expansion capital for Asia. And that really is based on what Mike was referring to, that very meaningful improvement in volumes where we are really now at the peak levels that were set last year.

So if we look at our cash flow, I would say, after adjusting for those items, we are still in that $200 million range.

Mark Wilde, Deutsche Bank.

I wonder if we can just -- just a nit here at the start. Can you just recap for us what you said volume and price did on a year-over-year basis? I think you said volume down 16% or 18% across the business mix?

Yes; it was down 18% on a year-over-year basis. And it was improved 16% sequentially.

And then the price effects across the portfolio?

That was down 7% -- or excuse me -- 6%. And one of the things that's interesting, Mike had mentioned the more recent sequential improvement between June and July. If you look at the run-rate, basically we are at about 10% below the prior year in July. And also, when you look at the price change June to July, we were down 1%. So it basically indicates that we are reaching an inflection point. We are now going to see, really, a reversal of that trend where now pricing should be positive. Also currency was actually positive by 2 points second quarter to third quarter.

So some of those headwinds in the top line are reversing.

Can you just refresh for us -- the black liquor credits that you said you got in this quarter? And then can you compare that with prior quarters?

This is really the first quarter that we have really included those within our effective tax rate calculation. And so that is basically what the expectation would be for the fiscal year.

And the total for this quarter, was it $3.5 million?

Exactly. That would be basically the total anticipated for our fiscal year. Again, we are taking it as a credit, and so we are factoring it into our estimated effective tax rate.

You did drop the high end of the guidance range by about $0.25. And I just wondered, in light of the fact that you've stepped up your cost take-out goals for this year, where the deltas came, in your view.

That's absolutely right. And Don has a bridge, and I think he's going to go over it. But really, before we get to the bridge, the main reason we dropped that down is that the volume increase came a little bit later than we thought it would. Don mentioned that we thought we'd be at that 10%. We thought it would really be at the beginning of the quarter versus the end of the quarter.

So the good news -- it got where we thought it would be. It didn't hit when we did. So -- and if you factor that two months in there, that would get you close to the upper end of that range, if everything worked out. So that was the main reason.

But do you want to go over the --

No; that really explained it. We had two components to the expected uptick in volume. One was seasonal and one cyclical. The seasonal materialized, the cyclical really didn't until the very end of the quarter.

That $150 million is a huge number relative to your sales base and is also quite impressive given what you have been doing for the last several years. Is it possible to give us a little better sense of different buckets that that $150 million might be coming out of?

Yes. I would say that about two thirds of that would really be the contingency actions that were undertaken, and that would be really supplemental to the Greif Business System, which really through those productivity improvement initiatives would normally contribute in that $40 million to $50 million range.

So the contingency actions have really been critical, and those have really involved about equal parts of SG&A reduction. We've had some de-layering within the organization. We also have had the wage freeze along with a hiring freeze. And we've taken other cost-containment actions in the area of benefits. We've frozen our pension plan and really have tried to cover all of the bases in addition to stopping discretionary spending.

The other half is really more the portfolio optimization where we have closed on a year-to-date basis 16 facilities, and we've also eliminated nearly 2200 positions.

One thing that we were very consistent, were very disciplined about is all the actions that we've talked about and all actions that we've done, which were quite a lot, we made sure that they were non-regret moves, because we really wanted to be and we believe we are adequately positioned that when the recovery comes, that we can participate fully. So there's no regret moves here.

At the beginning of the year, in December, which seems like a long time ago now, when we had our first conference call to kick off this year, I had said, because we had just started to see the beginning of this recession, that I really felt that we would exit this recession in better shape than when we went into it. And I'm absolutely convinced that that's the case today. Now our cost structure is much better. There's tremendous -- greater number of opportunities for us today. And our team is actually working too better.

So we are quite excited about 2010 and beyond. We just got to make it 57 more days in our fiscal year to get through 2009 and go forward.

In the paper business, are you selling much just roll stock into the market? And to the extent that you are, can you just talk about price trends in the open market for containerboard over the last few months?

We are selling some, yes. We do have customers on the outside, other than Greif. And prices are stabilizing. Over the last 30 to 60 days we are not seeing big pressures there right now. I think that -- we are going in -- as you know very well -- a seasonally strong period of time right now, and so -- our volumes are off, as we have said, in the paper business. But we are not running into tremendous competitive price pressures right now.

I wondered if you could just talk at all about the acquisition market right now?

Yes. We have a lot going on. Let me give you some -- I thought that maybe that question would come up, so I wrote some notes down here. Let me give you some clarity to it a little bit. We have 11 opportunities we are actively working on right now. We have a funnel system, and we started with 30-some, and we narrow it down. So we are down to 11 that we are working on. And I would say about a third of them are consolidation plays, which is what we've done in the past for the industry. A third are product line extensions, and then a third are close adjacencies to our business.

In aggregate, if we would do all of these acquisitions -- and you never know which ones you are going to do -- the total purchase price would be less than $500 million for all of them. Sales for these companies would be greater to significantly greater than the purchase price -- so to give you a degree of what the sales --

And then all the opp -- and the opportunities are regionally dispersed. By that I mean they are around the world, so they are not just in one region, part of the world, they are all over the world across all products. So it's a -- we feel confident that we would have the infrastructure to do these and confident that we would have the ability to integrate those, if they materialize. So hopefully, that gives you some idea of what we are looking at.

Yes. And have you -- I'm just curious about valuation and what the last 12 months have done to valuation.

Well, it's had an effect. We have been and will continue to be very disciplined buyers. And we still would be looking in the 5 to 7 times range. We're obviously going to try to get them lower than that if we can, and some of these will be lower than that because of just the industries that they are in. But valuations have dropped, and so it will be in those ranges. I think that would be the average, if you look at it, the 5 to 7.

Steven Chercover, D.A. Davidson.

My question was also along the line of Mark's. I was wondering if you could put in percentage terms the probability that we'd see a deal worth north of $100 million. So are some of these 11 prospects, some of them substantially larger than others?

Yes, they are definitely different sized. I think it's probably -- we don't want to break them out right now. I think the best thing is just to say in aggregate they are under $500 million. And there's 11 of them, so the math would show you about what the average would be. But some are definitely bigger than others, at the end.

And having winnowed down the opportunity set from 30 to 11, are all of these high probability that they will be consummated, and they are all deals that you would be delighted to have within the Greif family?

Yes. The second part of the question first, absolutely; and we are working on all those, and we have various stages of letters of intent already signed on some of these to starting some due diligence to negotiating letters of intent. So we are actively working on all 11 of those. A lot of things happen when you do deals, and it's a negotiating process. We have to be very disciplined as we do the due diligence to make sure there's no surprises.

So we've done a lot of these over the last four years. And so we, hopefully, are -- have our antennas up to know what we should be looking for and what are pitfalls. So we would say these 11 are deals that we want to do for the right terms and conditions and are actively working to try to consummate them.

And it's safe to say that none of these our turnaround situations?

We can't do turnarounds. We are not very good at that, so -- but we know our skill sets, and that's not something we're trying to find.

I'm not sure if I heard Don properly. Did you say $100 million CapEx for 2010?

Basically the guidance for 2009 is $95 million to $100 million.

Walter Liptak, Barrington Research.

The first question I had is on the guidance of 325 to 350. I wonder if you could provide us with the volume and price assumption that goes into that.

What we basically set out on our last call for the bridge was a 10% improvement, seasonal and cyclically. And so what we are basically looking at for Q3 to Q4 is a further increase of 10%, and it's really that improved volume coupled with the cost reduction activities that would allow us to deliver the guidance, to guidance.

So you are looking for a revenue level of 790, somewhere around in that range?

Well, we really don't forecast revenue. And as we have discussed previously, it's sometimes -- it's very difficult to do because of -- and it's for a good reason, because we do have pass-through mechanisms. And so you almost have to be able to forecast commodity costs in order to develop a sales forecast. So I would encourage you to really focus more on the operating profit and EPS.

What about the -- I'm sorry; I may have missed this -- the tax rate for the fourth quarter? What would be a good one to use?

In the 26% range.

During the quarter, have you quantified the -- or can you quantify for us the dollar amount of cost savings during the quarter in either cost of goods sold or at the SG&A line?

For the third quarter?

Yes, for the third quarter.

Yes. We calculated that impact to be in the $60 million range.

And what does the impact look like for the fourth quarter?

It would be in the -- we are anticipating in the $40 million range.

For the third quarter number, how does -- the gross margin looked very good this quarter, despite the lower volumes. And I presume that part of that is related to the cost take-out. Is that right?

That is correct.

Can we expect we would see a similar phenomenon in the next quarter?

Yes. And as you know, we tend to experience margin expansion, particularly with our core product line of steel drums, during a rising cost environment. And that's really what we would expect for the remainder of this year. Really, as an indication of the economic recovery, the market for steel is very tight, extremely tight. The lead times have gone from two to four weeks to really eight to 10 weeks. And there are shortages as the industry really kind of restarts its blast furnaces.

And so we do expect rising prices. That does create an opportunity for some margin expansion.

If I could ask about some balance sheet items, accounts receivable, pay-out, payable and the inventory?

Yes. I think we've done a reasonably good job. In fact quite frankly, right now I wish we had more inventories. But we have seen a contraction in the days sales outstanding of receivables of about three days. And in a very difficult economic environment, that is challenging. So I think our team has done a good job of closely monitoring receivables exposure.

Inventories are down four days. And once again, that is something that will continue just based on limited availability of key raw materials, particularly steel.

And payables -- that is now becoming more of a source of funds as activity levels increase and as we resume our procurement activities.

James Daly, Deutsche Bank.

Just real quick, backtracking a little on the volume front, I believe you said you are expecting a 10% sequential improvement in Q3 to Q4, and you gave us some good breakdown before of August. Can you give us an idea of how August 2009 is looking versus August 2008, what that 10% improvement equates to on a year-over-year basis?

Other than just characterizing what we have observed during the first month of our fiscal fourth quarter, it's going to really be difficult to get any more granular than that.

Mark Wilde, Deutsche Bank.

Just a couple of macro questions. There's been a lot of concern, first of all, out in Asia about just how much of the commodity strength is coming from just inventory rebuilding. I wonder, just given the nature of your business in China and across Asia, do you have a view on how much inventory building is going on versus how much of this is just fundamental more throughput in the economy?

I don't have a great visibility to that. I would tell to that our view of the Asian economy, especially the China economy, is quite robust right now. They put in a stimulus package that's really working in China to encourage people to buy household goods and cars and appliances. So the masses are spending money. And so the phenomena that has happened, a year and a half ago our business in China was primarily export business. China was making products that were then exported around the world.

Today a lot of the business we have is staying within China. So they are consuming a lot more right now. So I would think that is probably demand driven based upon that, versus inventory build. But I really don't have good data to be able to emphatically say that's the case.

What's your mix in China look like relative to that third, a third and a third you gave us for the overall global mix?

Yes, it -- and I don't have that. We don't have hardly any food business, so it would be more in the lube/special chemical. In our food, if we have some, it's very small. So it wouldn't be the third and a third, so it would probably be more 50/50 than what we would have around the world.

And in fact, that is a -- I think that's a good point because right now we are primarily a steel drum producer. We produce intermediate and large steel drums. But one of the reasons for the stepped up capital spending is to broaden our product offering to include fibre drums, which would position us to serve the agricultural market, and plastic drums.

So we're going to have a much broader product offering and participation within the country.

And then just the other macro indicator that I watch is this ISM index for manufacturing, which -- it was up pretty significantly again last month. How important is that to you in using it perhaps as a forward indicator for your business mix?

We were very excited when we saw that data also, so it's -- when it -- we were thrilled to see that it finally got above 50 again. So there is some optimism out there. We have tried very hard to find forward-looking indices that would be a predictor of drum business, and there is none that we can find. There's a lot of them that we look at. We also look at trucking rates, we look at a lot of different indices to try to get a feel where the economy is going.

So it's not used any more than any other one that we use, but we are always thrilled when they become positive like it was last month.

Bob Franklin, Prudential Financial.

Do you happen to have your cash flow from operations?

The cash flow from operations -- that will be in our 10-Q. But to give you a preview, that would be in the $115 million range.

That's for the quarter?

That's for the third quarter.

When do you expect to file your Q?

On Friday.

Like tomorrow?

Yes.

Okay. Sorry to trouble you. Thank you.

(Operator instructions) Tim Burns, Cranial Capital.

The contingency actions have obviously really helped your cost structure. But I guess it's probably not realistic to think that's something you can do every year. That's a kind of every recession type of thing?

No. I would say that there is clearly a non-sustainable component. The one thing that we have acknowledged is that of the $150 million in cost reductions, that about 80% of that would be expected to be permanent. We have other items like the wage freeze, discontinuing the 401(k) match, and the hard-stop on discretionary spending that once the recovery progresses to a certain point, those will be relaxed.

So I hope this doesn't mean your employees can't go to the Waffle House. I'd be upset about that, but that's another story.

Mark ran down the road a little bit with this one. I guess this is one thing that I wonder about how you guys think is, as you are sculpting the growth and the portfolio of the company, I guess you really got four tenets, right? You got the end markets you are in today. You've got geography, either to build further or to grow into new, and you've got this M&A program, which I'm a big fan of. And then you've got your decision-making process.

Is it as simple as, hey, we need more food, we need more plastic in China, we need more presence in Mexico? Is your adjacency and general M&A program aimed at that, but really you settle for, I guess, what becomes available? Let's face it, life is kind of luck. Is it thought about that way? Do you really want to dilute steel drums sold to specialty chemicals, given how profitable they are?

I think that's the core of my question. Do you modify the portfolio in a recession to broader coverage but potentially lower returns? I don't know the question. I'm just kind of asking.

It's a very interesting question. We -- I think one of the -- I know one of the strengths of Greif has been and will continue to be in the future is its diversity. That's why we are in 48 countries. So geographic diversity is very important and has proved extremely important during this recession because China came out early and is doing well.

So we will continue to look at and capitalizing on our infrastructure because that's something that's very difficult if not impossible for someone to replicate today.

And another diversity and strength we have is product diversity. We really don't dictate the products that the customer use; the customer does. And so we will try to solve the needs of the customer given the products they want. So we would expect to expand our product offerings, which we would call white spaces, in regions that we don't have certain products. If customers want those products, we would expand it.

And then the third diversity we have is a diversity of customers. That has proved to be very successful to us. And we talked about the third and a third and a third, and food in this time has been much more recession proof. We'll look at other end markets to see if expanding that end market will help us, too.

So I think the crux of the whole thing is that we capitalize on our diversity theme, both geographic products and end markets, to see what's the best growth vehicle for us.

Great. That's not an easy question, but it sounds like you've got your arms around it.

Ladies and gentlemen, there are no further questions at this time. I would now like to turn the floor back to Deb Strohmaier for closing comments.

Thank you all, again, for joining us this morning. But digital replay of the conference call will be available in approximately one hour on the company's website at www.Greif.com. Once again, thank you and we appreciate your joining us.

Ladies and gentlemen, this concludes today's teleconference. All parties may disconnect now.