Greif Inc (GEF) 2005 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Greif Inc. second quarter 2005 results conference call. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded today, Friday, June 3 of 2005. I would now like to turn the conference over to Deb Strohmaier. Please go ahead.

Thank you and good morning. At this time, I will read the Company's Safe Harbor statement which appears on slide 2. This presentation contains certain forward-looking information within the meaning of the Private Securities Litigation Reform Act of 1995. The words may, will, intend, project, continue, believe, expect, anticipate, estimate, target and similar expressions among others identify forward-looking statements. All forward-looking statements are based on information currently available to management. Although the Company believes that the expectations reflected in these forward-looking statements have a reasonable basis, the Company can give no assurance that these expectations will prove to be correct. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual events or results to differ materially from those expressed or implied. The risks and uncertainties related to forward-looking statements are discussed in the Company's annual report on Form 10-K for the fiscal year ended October 31, 2004. The Company assumes no obligation to update any forward-looking statements.

In addition, as noted on slide 3, this presentation includes certain non-GAAP financial measures that exclude restructuring and other unusual charges and gains, such as timberland gains, that fluctuate from period to period. 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 to 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 2005 earnings release, which is on the Greif Website at www.greif.com. Now I shall turn the call over to Mike Gasser.

Thank you, Deb. Good morning to all of you and welcome to our call. For those of you who are following our presentation on the Web, I would ask that you please go to slide 4.

Operating results for the second quarter of 2005 are in line with our expectations despite continued competitive pressures and higher input costs. During fiscal 2005, the Greif Business System, which is the way we do business, will continue to benefit our operations as we strive to sustain the positive results already achieved and look for new opportunities to further enhance shareholder value. Earlier this week, we announced a 50% increase in the quarterly cash dividend for both classes of common stock. We did this because implementation of the Greif Business System throughout the company in parallel with other strategic business activities has contributed to sustainable improvement and earnings capacity. We remain committed to paying down debt and creating additional shareholder value. I'm extremely pleased that we could do so in this matter.

We had a busy quarter for announcements. Slide 5 captures our business headlines. Here's the news behind the headlines. More favorable terms and conditions provided by the new revolving credit facility gave us improved pricing and flexibility. There was sustainable -- substantially equivalent to those typical for an investment graded rated company.

The first installment of our timberland sales was completed last week, providing $51 million of a $90 million sale. As announced, we will be using the first proceeds for general corporate purposes, including debt reduction. We expect to use later proceeds to buy more timberland.

We announced the planned retirement of John Lilak, head of our Paper, Packaging and Services business. Although we will announce his replacement at a later date, we expect John will affect a smooth transition to his successor.

And lastly, we talked to Aaron Burnett (ph) of Bloomberg's In Focus (ph) and the major metropolitan newspaper serving Central Ohio featured Greif in a compelling business story, according to their editors.

Part of our compelling business story is the Greif Business System, which is now the way we work. On slide 6, you see just one piece of the system that goes into making our plans operationally excellent. What this shows is one tool used in conducting an actual diagnostic at a plant. This particular line balancing tool breaks down the functions on one line and highlights the saving opportunities that can be achieved by balancing that line. As this illustration shows, with the proper line balance, we can produce the same amount or more with four fewer people.

Once this particular analysis is implemented, we will continue to assess our needs and the best way to work. Because of operationally excellent activities like this occurring around the world, I'm happy to report that labor productivity continues to improve.

On slide 7, we show you a sample of changeover analysis performed during a high impact event at one of our plants. A group convened to look at one function. The spaghetti chart on the left captures all the motions that workers made at that point to change one die. With some rearranging of space and tools, shown on the right, the wasted motion was identified and eliminated, saving time and increasing operations efficiencies.

Such events are occurring more regularly in our plants and continue as the Greif Business System becomes more ingrained in our culture. This is another method by which we drive continuous improvement.

On slide 8 you'll see another example of operational excellence put into practice. Something as simple as moving tools -- something as simple as moving where tools are situated and keeping them organized and in their place will return much in efficiencies, especially when you modify one change in one plant but a same change that can occur in our plants around the world.

For those of you looking at the slide, LOTO means lock out, tag out.

We're nearly finished with the introduction of the Greif Business System to our facilities around the world. Slide 9 lists where we are now. Currently teams, are teaching the fundamentals of lean manufacturing and continuous improvement to plant employees in China, Russia, and Argentina. Our end state is sustainable advantage provided by operational and commercial excellence, effective management at working capital and a global sourcing and supply chain organization that helps take costs out of our system.

On slide 10, looking ahead, our operations in Asia, including China, Singapore, Malaysia, and the Philippines, represent a growing opportunity so we are looking at intensely at the Asia region. As I stated earlier, we launched the Greif Business System in Russia, China, and Argentina and because of the exceptional reception to the initiative in our Brazilian operations, earlier reports from Argentina are quite positive. Continued to work on commercial initiatives which are aimed at receiving fair value -- fair return on value provided.

That wraps up my portfolio of the business for the quarter. Don will now provide you with an update of our financial results.

Thank you, Mike. Slide 11 presents our financial summary for the quarter. As Mike said earlier, results were in line with expectations, despite the difficult operating environment in North America. Compared to the same quarter a year ago, net sales rose 13% to 613 million for the quarter, or 10% on a constant currency basis. This improvement in reported sales was due to a $59 million increase for Industrial Packaging and Services and a $12 million increase for Paper, Packaging and Services, both driven by higher selling prices.

Operating profit before special items rose 28% over the second quarter of last year to 43 million, while net income before special items increased to 24 million versus 16 million a year ago. Earnings per fully diluted Class A share before special items increased to $0.81 from $0.56 a year ago.

If you'll move to slide 12, gross profit was 98 million or 16% of net sales for the second quarter, versus 89 million or 16.5% of net sales for the same quarter last year. The erosion in gross profit margin is related to generally lower sales volumes and higher raw material costs, partially offset by improved selling prices and labor and other manufacturing efficiencies relating to ongoing transformation initiatives.

In particular, the shrinkage in volume led to underabsorption of fixed costs. We are focusing on increasing volume levels and profitable growth through commercial excellence activities.

On slide 13, SG&A expenses were 56 million for the second quarters of 2005 and 2004. While employee benefits and professional fees primarily related to Sarbanes-Oxley Section 404 compliance were higher on a quarter-over-quarter comparison, certain other SG&A expenses were reduced. As a percentage of net sales, SG&A expenses declined by 120 basis points to 9.1%, which is below our 10% target established for 2006.

On slide 14 you'll see that on a constant currency basis net sales increased 11% to 458 million for the Industrial Packaging and Services segment from 400 million for the second quarter last year. We implemented higher selling prices primarily in response to higher raw material costs for steel and resin. However, sales volumes were generally lower for steel and fiber drums. Operating profit before special items increased to 29 million for the second quarter of 2005 from 28 million for the same period a year ago.

The second quarter comparisons for our Paper, Packaging and Services business are shown on slide 15. Net sales rose 9% to 150 million for the quarter, compared to the same period last year due to higher selling prices. Sales volumes for containerboard, corrugated sheets and corrugated containers were down on a quarter-over-quarter comparison. Operating profit before special items was 10 million for the second quarter compared with 2 million the prior year. This increase was primarily due to improved selling prices, partially offset by generally lower sales volumes and higher transportation and energy costs in the containerboard operations.

Slide 16 reflects performance in our timber business over the past four years. Timber sales have been consistent with planned levels during each of the years shown on this slide. As referenced earlier, we recently closed on the first phase of a previously announced $90 million transaction to sell 56,000 acres of timber, timberland and associated assets. In this phase, we sold 35,000 acres of the timberland holdings, primarily in Florida for $51 million.

We're committed to further strengthening our balance sheet and improving financial flexibility. Slide 17 profiles our capital structure at the end of the second quarter at year-end fiscal 2004 and for the same quarter last year. Total debt at April 30, 2005 was 42.1% of total capital, down 60 basis points from year-end and down significantly from 52.5% a year ago. Net debt was 39.4% of net capital at the end of the second quarter compared to 51.3% for the same quarter last year.

Our key financial performance targets for 2006 are pictured on slide 18. The bars for 2002 through 2004 represent the respective fiscal years. The bar for 2005 shows the 12 months ended April 30, 2005. You can see we have achieved two of our targets -- SG&A to net sales and operating working capital to net sales -- and continue to make progress toward achieving the other two.

Operating profit margin continues to improve and we are on track to meet our return on net assets target by 2006. Selling, general and administrative expenses to net sales has shown the most significant progress to date. For the 12 months ended April 30, 2005 we were at 9.5%, down from 9.9% in fiscal 2004. We also reached our goal of operating working capital to net sales of 12% or less. We achieved 11.2% for the last 12-month period.

Side 19 recaps the savings we have achieved through our transformation to the Greif Business System. We continue to enhance productivity and achieve permanent cost reductions. Through the end of fiscal 2004, the transformation had delivered annualized benefits of approximately $80 million. We're well on our way to meet or exceed additional annualized benefits of approximately 35 million during fiscal 2005.

Slide 20 reaffirms our guidance. Ongoing benefits from the transformation initiatives, which include the incremental savings of 35 million to be realized in 2005, favorable comparisons for Paper, Packaging and Services and generally better results in the international operations of the Industrial Packaging and Servicing segment are expected to drive earnings improvement. These positive factors will be partially offset by lower planned timber sales, coupled with downward pricing pressure and lower than planned sales volumes during the second half of fiscal 2005.

Management reaffirms previous earnings guidance before special items in the range of $3.50 to $3.60 per Class A share for fiscal 2005.

That concludes my formal remarks, and you should turn to slide 21. Mike and I will now be pleased to answer your questions.

(OPERATOR INSTRUCTIONS). Mark Wilde, Deutsche Bank.

I wondered if you can just walk us through where you are seeing pricing pressure, and also kind of how you are seeing volume in your two businesses and in the industrial packaging business, how you're seeing it on a global basis region by region?

In terms of volumes overall on a global basis, they are down in the 5% range and a bit more in North America than in the rest of the world. And I would say that that is fairly consistent across our product portfolio. I will say that part of that is due to a very disciplined approach to pricing. We are focusing more on profitability than volume. We don't -- as Mike likes to say -- we don't think we've lost any customers in this process, but we have lost a few orders.

Just to add a little bit of color to that, talking just about the industrial packaging. In my prepared remarks, I did talk about our aim is to receive fair value -- fair return on the value provided. So we have been very disciplined. Quite frankly, we're going to continue to look at that to make sure that we didn't push the envelope a little bit too far. We may have, but if we had it to do over again, we would make the same mistake because we really needed to -- being the leader in that business, we need to lead also from a price standpoint.

So that is not overly concerning to us at this point in time. Volumes are off a little bit and our volumes off is consistent with what we have seen by other indices. The steel companies put out a notice a couple of weeks ago and said that steel shipments were off X-percent to the container industry, which is fairly consistent with what we are at. So we see that being pretty consistent at this point in time.

Did I hear you say that price in the containerboard and corrugated business was down a quarter to quarter basis, or is that just volume?

No, that was just volume, and in that mid-single digit range. But, no, clearly up markedly on a year-over-year basis.

And the volume for the mill was down a little bit this quarter, Mark, primarily for two reasons. One, we had a little bit of operating problem which we think we have fixed now. And two, we had a mix change. We were running lighter weight board as opposed to heavier. So as you know, if you what run lighter weight, you produce fewer tons. So that was primarily the combination of why the mill was down a little bit from a volume standpoint.

Finally, it looks to me like if you add another -- pick up another $45 to $50 million from this timber sale in the third quarter, you're going to be sitting on around $100 million worth of cash. Can you talk about that a little bit more? It sounded like debt reduction was probably the main focus for that.

That is correct. Initially, the proceeds would be applied to debt reduction and that will clearly give us a bit of financial and strategic flexibility, but our present intention is to reduce debt.

Can you finally -- can you just talk when you think about kind of strategic options, can you maybe refresh everybody on what they might see you do strategically?

We have been very consistent at least over the last year and a half or two years to focus on what we call the Greif Business System, which is really putting lean manufacturing operations in all our plants to really put in skill-sets to allow our sales and commercial people to value sell, to work diligently on working capital and asset utilization and to focus on people management. That is all under the premise that we want to be able to earn our right to continue to grow in the future. And so we're getting close to the point of saying that we believe we have embedded this and so we are looking at strategic options and there are many and this would really not be the place to actually go through all of those options that we have right now. But we believe that we have options in all of our business lines to both expands both geographically and by product wise.

So it's something we are looking at, but whatever we would do, it would be very diligent and after much study to make sure that it would continue to bring value to our shareholders at the end.

I must say you have done about the most impressive job I have seen of really putting costs and productivity improvements on the bottom line.

Thank you. Thanks for your support.

Thanks very much.

Chris Manuel, KeyBanc Capital Markets.

A couple of questions for you. First of all, if we could dive into the volume issue a little bit more. Specifically if I read into what you were saying correctly, Mike, you may have pushed a little harder on price and that may have hurt you a bit on volume. But in your press release, you talk about that volumes will probably remain weak through the remainder of the year. Is there something else more systemic, market specific, that is going on? I guess -- let's put it this way -- that's causing 5%-ish, 4%-ish volume declines. Is there substitution or something else that is taking place?

We've dealt with this substitution issue on most calls and it's really no change from what we have answered in the past. There is a slight substitution, but nothing that would cause any due concern. The volume issue, the economies are slowing a little bit. We are seeing a little bit of slowness, nothing to be concerning but a little bit of slowness. We gave you the reason -- I think we did push a little bit. As I said, when I answered Mark, I believe that was the right thing to do and believe that if we had to do over again, we would do the same thing. But we're going to revisit that.

We're comparing this year to the last year. And last year, we really had sort of a perfect storm atmosphere. Steel was very, very tight. We actually picked up a little volume from other people because we could get steel and they could not. That dynamic has changed a little bit. So that volume change -- we wouldn't want you to read too much into it to think that it's all lost opportunities. It was a tough comparison to last year because of that perfect storm arrangement, if I could use that terminology, in the industrial packaging.

So that takes care of the second quarter. When you alluded to volumes potentially being soft through the remainder of the year, is that just down from -- we shouldn't -- let me ask it this way. Would you imply that you think volumes are actually going to be down, or would they be below let's say a GDP level sort of thing?

What we were implying is that we're comparing to last year again and that arrangement that I talked about continued for a period of time last year. And we're going to look at volumes as we go forward, but it was really softening compared to what we looked at last year.

The second question I wanted to ask you was along the lines of -- there was other income that you had listed there that was a pretty big swing factor in the quarter, at least compared to my model. What's included there? I think it was about $2 million of other income -- what all is in their?

That is really sundry income, rental income primarily. There's some royalty income. So those would basically be continuing sources of revenue. There's also a little bit of noise related to foreign exchange, some transaction exposures that we have. And so some quarters, you're going to see a modest positive and other quarters, you'll see a modest negative, depending upon currency changes. So it was basically in line with what we had anticipated.

Okay. One other housekeeping issue. Usually each quarter, you give us an estimate as to what transformation savings were. Do you have an estimate as to what they were in the second quarter?

Yes. It was a little over $15 million and about two-thirds of that related to the impact of operational excellence that Mike addressed during his remarks, and one-third was commercial excellence. That would include everything from account planning, our activities to reprice unprofitable business, and then there was also a contribution from sourcing.

Okay. So of the roughly 35 million you anticipate seeing this year, if you got 15 this quarter, you had about 12 last quarter, maybe about 8 left through the back half of the year, is that --?

That is correct. Basically we exited 2004 at a run rate of about $50 million on the operational excellence component. And so there was an expectation that that benefit would be a bit front-end loaded.

Greg Spiegel (ph), Pilot Advisers.

I apologize if you guys addressed this already, but not to continue to beat the horse. Just in terms of the volume outlook for the balance of the year, is there any color that you can provide in terms about the geographies or product lines that are suffering worse than others or that are more competitive than others?

I would say again that it's more across substrates, product lines and regions, perhaps a bit more intense in North America and in the steel drum product line. We do see plastic -- the plastic drums picking up a bit. And there, we did have some modest year-over-year increases. But it is basically across the portfolio.

The expectation for the remainder of the year is that the volume levels be relatively flat and we will be suffering, as Mike had mentioned, from some difficult comparisons.

Just out of curiosity, is there is a fairly active used market for steel drums, or not really?

There is a used drum market, Greg. The activity depends on a couple of factors. It depends on the price of new drums. That becomes more active. It depends on the product because it is a reconditioned market, so some people are concerned about the environmental or exposure reasons. But there is a used drum market, reconditioning market, for both steel and plastic all around world. It's not something that we believe right now that's taking away from new drums at this point in time.

It's not. And is that because the price differential is fairly tight?

I think there's a combination of factors. You know, price is obviously an issue, but you also have the environmental and exposure issue that some people are just -- the quality of their product and the integrity of product are concerned about putting it into a used container.

Mike Peasley, Priority Capital.

Just a quick question on the raw materials side. They continue to be a drag. Can you talk about a little bit about maybe the trends? It seems like from some of the things that I have read that the raw material pricing environment has improved of late, or has been improving slowly over the year. Can you talk a little bit about that?

We are definitely seeing that. For example, the largest spend for the company is steel. And on a year-over-year basis, costs are up in excess of 40%, but sequentially they're actually down about 3%. So to your point, we have seen -- we have seen some declines and that is both a positive and a negative for the company. The positive is that the longer-term it improves the competitive position of the core product line, but near-term it could clearly result in some margin compression.

And steel -- the outlook for steel, Mike, is really sloppy, to use that terminology right now. You could talk to many different analysts who follow steel and this has probably been the sloppiest period that they can recall. Near-term, most analysts are saying that steel has probably bottomed out right now and will go up in the fourth quarter, although you can find other people who will probably say it might drop down a little bit more. So it's a sloppy environment is the only way we can really categorize it. So it's something we're looking at and we have people working on that on a daily basis just to try to follow what is happening there.

Do you think that volumes may have been -- if you, just sticking on the steel side, volumes may have been impacted a little bit as buyers who are looking at the raw material market may be anticipating that it could be going down and kind of holding off on purchases in hopes of better pricing?

That's difficult, Mike. You might have a little bit but it would be such an insignificant amount that it wouldn't really move the needle at all. Our products are bulky and people can't inventory them and we don't inventory them. So they are really made to order. We get orders today to deliver tomorrow, so that would be a very difficult thing to make it of any magnitude to move the needle. It might be a little bit, but nothing to move the needle.

With respect to volumes, is there any way to quantify -- you said they were down globally 5%. Is there any way to quantify maybe what percentage of that was due to what you termed as maybe a little overaggressive pricing strategy?

We haven't really broken that out on this call, and won't. I think that's hard for us even to quantify. I think some of that is intuitive in nature and somewhat as we know because we are re-looking at some of these lost orders. And as Don said, and he has very appropriately said, we don't believe we lost a customer, we lost an order, and have actually gone back and recaptured those orders the next time they go around. But we have not quantified that.

Last question. I think you just stated a moment ago that you expected volumes generally to be flat in the second half of the year. I'm assuming that's on a year-over-year basis, and is that both industrial and paper, or is that steel drums? Can you just give a little more color on that?

Yes, that would be really across the board portfolio.

(OPERATOR INSTRUCTIONS). Mark Wilde.

I want to -- without flogging this volume issue to death, I want to just come back to it for a minute. You said in the release, and I think in your comments on the call here, second half volume weaker than planned. And I just -- I want to reconcile that also with what we saw just earlier this week in terms of another almost 2-point drop in the ISM index.

Do your comments about the second half, do they incorporate the deterioration that we've seen in that indicator over the last couple of months?

I think so. In our comments, we said weaker than planned. We had actually planned for volume to increase this year. And so our comments that it's weaker than planned, it was what we have planned initially. We said that there has been some softness. We recognize that, so we don't anticipate the increase. We have by our own actions probably had some further volume decrease which we think we can recoup, but we think it will be flat compared to where we are right now and as we go forward. So it does reconcile and when we look at it from the angle we're looking at, I think we're okay in that regard.

Have you ever looked at that ISM index in relation to how your business moves?

We have tried to test the tightness of fit for that and it's really not as tight as I would have expected it to be because we are seeing a bit of a gap and perhaps that could be attributed to more manufacturing moving or migrating offshore. But we have seen a bit of a disconnect.

Mark, we have looked hard and long to try to find some kind of indices that would track our movement just to be able to judge ourselves. So off-line, if you have some good ideas, let us know. We are always willing to look at those to help us.

Finally, is it possible to give us just a little update in terms of how corrugated and box pricing moves and what we may see on a view as we look out into the next quarter? I know that the trade papers have taken the spot price or their estimate of the spot price of containerboard down in the most recent month. It sounds like the box and sheet markets are pretty competitive. Can you just give us a little current color?

I will start with the paper and then Don can jump in on the box if you like. The paper did drop. There was a publication that did drop it. It was unforeseen by us. When that came out, we were actually shocked. We had not seen that large of a movement. So we were a little disappointed. All of a sudden a publication is making news, not reporting news we felt. So that was disconcerting to a degree. But prices did move accordingly and we are seeing very competitive sheet and box prices today. Because as you know, Mark, and you know this very well because you're the expert in this field, they do move in concert with paper. And so we are seeing competitive natures today in this business.

We believe we're well-positioned. Again, we are only in the Midwest. So we don't get some of the regions that I think tend to be a little bit more competitive or a little bit more -- have a little bit more activity, but we have seen some movement downward in those pricings. We did not factor in initially an increase in paper pricing for the year. We were anticipating that there would be one, but in our original guidance did not put one in because we thought there was going to be a little bit of sloppiness. We wish we were wrong, quite honestly. And we wish we had that upside, but we kept our guidance the same because we had not put that in originally.

Finally, on this issue, there are assets for sale out in your part of the woods right now. Is the corrugated and containerboard business a business you want to grow, or do you prefer to grow in some of the industrial packaging markets?

We're actually having a holistic, strategic review of all of our assets as we sit here today. We have publicly said in the past that the three businesses we're in -- the timber, the industrial packaging, the paper -- are businesses that we believe that we bring some value and can grow. So we are always looking at opportunities to grow those the right way. So we look at strategic bids and what it would mean to us. We are aware of assets that are for sale. We tend to look at those. We tend to react when it seems to fit with us. All three of those businesses as we sit here today are businesses that we're looking to see.

Can we expand and does it makes sense and does it bring value long-term to our shareholders at the end of the day is the ultimate test.

That's a good test.

Chris Manuel.

Mike, could you give me an overview with where you think you are right now in terms of capacity utilization across the different fiber, steel, plastic, et cetera?

Sure. We believe that we have opened up quite a bit of capacity, to be very honest with you. We are putting in part of the Greif Business System in one of the components, as I mentioned previously, is instilling lean manufacturing in our plants. This process, and hopefully all of you of the call enjoyed some of the charts that we had in the script, because it showed some of the tools that we're using. The one I like the most is the spaghetti chart. That's a cute chart.

But what these tools allowed us to do is save space, improve productivity, reduce inventory. And all that does is increase our ability to produce products, and it's across all product streets (ph) -- steel drums, fiber drums, plastic drums, corrugated -- so we have greater capacity than we had in the past. We're looking at whether we should do further plant consolidations. Does that make some sense to us long-term? We have done a lot, as you know, taken some costs out. I believe that we have delivered a value when we have taken those costs, so that has been something we're constantly challenging ourselves with to say. With the implementation of the Greif system, increasing our capacity, does it makes sense to do some further plant rationalization? So it is something we're looking at. (multiple speakers).

In our press release, you kind of hinted that you're looking at more -- some more restructuring. Would there be a particular area? I believe historically, you had the most excess capacity let's say in steel. Would that be the area you would most likely look at for rationalization efforts?

I think that this probably wasn't steel. It was a combination of steel and fiber. We did a lot of plant consolidation in fiber a couple of years before we did the steel. So it would be both steel and fiber areas we would look at, both in United States and around the world. Without trying to show our hand because we're still trying to understand where that is at, it is something we're looking at, Chris. We haven't made a decision yet, but it's something that we -- capacity, our capacity increases are something we believe prudently we should look out.

From the plastics side, are you still modestly constrained there?

We have -- we're constrained by the number of machines we have. That's an area, as Don mentioned, that we have actually had a little bit of growth in volume this year. It's something that we're looking at just to see how do we want to grow in that substrate. We want to be also very conscious of not putting a lot of capacity in industries that we don't want to get overcapacity and have the same problems we have in some of the other businesses. So we're being very conscious from that standpoint also.

Sure. Last question. Don, you had mentioned a little bit of help from procurement initiative. I know it's something you guys have talked about a good bit in the past and you have reorganized and have a very competent fellow now working at that, I have to add. Any thoughts as to how much you think you can mine there out of procurement or how much cost savings you think you can achieve and any sort of time frames, things of that nature?

Yes. We would basically restate our position that 3 to 5% of the addressable spend would be a good bracketing of the opportunity, which would basically put it in the $50 to $75 million range on an annualized basis.

In terms of calendarizing that opportunity, we have stated before that an incremental 10 million for next year would not be an unrealistic expectation and we feel that we could start getting to the low end of the opportunity range on a run rate basis by the end of 2006, early 2007.

Mike Peasley.

One more. Looking at your industrial business and the customers and industries that you're exposed to, was there any one particular industry that maybe stood out a little bit more in terms of volume in the quarter?

We have said previously chemicals -- general terminology chemicals is a big industry that we deal with. Chemicals generally is the largest and there are many different types of chemicals and many different products in chemicals. But chemicals -- chemicals is sort of the two big users of our drums. But no, no one -- there was no change that one industry was better or worse historically than any other industry. So we did not see any fundamental switch from that standpoint.

Management, I'm showing we do not have any more audio questions. I will turn the call back over to you for any closer remarks you may have.

Thank you, and thank you again for joining us this morning. As a reminder, this call will be available for replay from noon Eastern time today through noon on Tuesday, June 7. The playback telephone numbers are 800-405-2236 for domestic callers, and 1-303-590-3000 for international callers. The pass code is 11031570-pound. This call will be posted on the Company's Website in approximately one hour. We appreciate your participation.

Ladies and gentlemen, that concludes today's teleconference. You may now disconnect.