Matthews International Corp (MATW) 2011 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Matthews International year-end financial conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, with instructions given at that time. As a reminder, this conference is being recorded. (Operator Instructions). I would now like to turn the conference over to our host, Mr. Steve Nicola. Please go ahead.

Thank you, Nancy. Good morning. I'm Steve Nicola, and on the call with me today is Joe Bartolacci, President and CEO of Matthews. Today's conference call has been scheduled for one hour, and will be available for replay around noon today. To access the replay, dial 1-320-365-3844, and enter the access code 221479. The replay will be available until 11.59 PM November 25, 2011. We have posted on our website, which is www.MATW.com, the fourth-quarter earnings release and financial information we will discuss this morning. In the left column of our home page under Investor Relations, you can click on investor news to access the earnings release and click on reports to access the quarterly financial data. The documents are presented in a PDF file format.

Before beginning the discussion, at the advice of legal counsel, I've been advised to read the following disclaimer as it pertains to forward-looking statements. Any forward-looking statements in connect with this discussion are being made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks and uncertainties that may cause the Company's actual results in future periods to be materially different from management's expectations. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove correct. Factors that could cause the Company's results to differ from those discussed today are set forth in the Company's annual report on Form 10-K, and other periodic filings with the SEC.

In addition, please note that the balance sheet, income statement and cash flow information provided today are preliminary data, since our annual report on Form 10-K for the year ended September 30, 2011 will not be filed with the SEC until the end of this month. To begin the conference I will review the financial results for the quarter. Mr. Bartolacci will then provide general comments on our operations. Following that, we will open the discussion for questions.

For the quarter ended September 30, 2011, the Company reported earnings of $0.71 per share, compared to $0.67 for the fiscal 2010 fourth quarter, representing an increase of 6%. Consolidated sales were $240 million for the fiscal 2011 fourth quarter, compared to $215 million for the same quarter a year ago, representing an increase of 11.7%. The sales improvement for the current quarter primarily reflected growth in our Graphics Imaging, Merchandising Solutions and Cremation segments. In addition, the current quarter included incremental sales of approximately $11 million from acquisitions completed during the last 12 months, and a favorable impact of approximately $5 million from changes in currency exchange rates compared to last year.

Consolidated operating profit for the quarter ended September 30, 2011 was $33 million, compared to $32.7 million for the fourth quarter a year ago. The improvement in operating profit compared to the same quarter a year ago primarily reflected the impact of higher sales, the benefit of recent acquisitions and the effect of favorable changes in currency rates. These gains were partially offset by unfavorable changes in sales mix for our Memorialization businesses, and significant increases in commodity costs, such as Bronze, steel and fuel.

For the fiscal year ended September 30, 2011, consolidated sales increased 9.4% to $899 million, compared to $821 million a year ago, representing another record sales year for the Company. Each of the Company's segments reported higher sales for the year, which included increased sales volumes in our Cremation segments and each of our Brand Solutions businesses. In addition, the current quarter included incremental sales of approximately $44 million from acquisitions, and a favorable impact of approximately $11 million from changes in currency exchange rates compared to last year.

Fiscal 2011 consolidated operating profit was $118.5 million, compared to $116.6 million last year. The improvement resulted principally from the impact of higher sales, the benefit of recent acquisitions, and the effect of favorable changes in currency rates. These gains were partially offset by the impact of unfavorable changes in sales mix for our Memorialization businesses, and significant increases in commodity costs. For the fourth quarter and fiscal year, Bronze segment sales were relatively flat compared to last year. The segment's fourth quarter sales for the current year were $58.6 million, compared to $59.3 million last year. For the year, Bronze segment sales were approximately $225 million, compared to $224 million a year ago. The sales levels for the quarter and fiscal year compared to a year ago generally reflected the current market conditions of relatively flat to declining casketed death rates, competitive pricing pressures, and unfavorable mix changes.

Also, architectural Bronze product sales remained lower due primarily to the current economic environment. In addition, for the year-to-date comparison, the segment's current year sales benefited from the impact of the acquisition of United Memorial products in December 2009. Operating profit for the Bronze segment for the fiscal 2011 fourth quarter was $13.6 million, compared to $15.1 million a year ago. For the fiscal year, Bronze segment operating profit was $52.5 million in 2011, compared to $56.2 million last year. The declines in operating profit for the quarter and year-to-date periods resulted primarily from a significant increase in Bronze metal cost compared to last year, lower architectural product sales, and unfavorable shift in memorial product mix.

Casket segment sales were $54.3 million for the quarter ended September 30, 2011, compared to $52 million for the same quarter last year. For the year, casket segment sales were $239 million in fiscal 2011, compared to $210 million a year ago. The quarter and year-to-date increases resulted primarily from recent acquisitions. However, lower product mix and competitive pricing pressures unfavorably impacted the segment's sales. Operating profit for the casket segment for the fiscal 2011 fourth quarter was $5.7 million, compared to $6.2 million for the fiscal 2010 fourth quarter. The decline for the quarter mainly reflected the unfavorable change in product mix, competitive pricing, and an increase in commodity costs, such as steel and fuel. For the year, casket segment operating profit was $26.8 million for fiscal 2011, compared to $26.2 million a year ago. The improvement for the year reflected the benefit of acquisitions and the impact of recent cost savings initiatives.

Fiscal 2011 fourth quarter sales for the Cremation segment were $13.2 million, compared to $11 million for the same quarter a year ago. Cremation segment sales for the year were $43.8 million in the current fiscal year, compared to $39.4 million last year. The sales improvement for the quarter reflected an increase in equipment sales in all of the segment's principal markets, the US, UK and Europe. For the year, increases in Europe and the UK were the significant drivers of the sales growth. In addition, current year sales included the benefit of the acquisition of a cremation equipment manufacturer in England in March last year. Operating profit for the Cremation segment for the quarter ended September 30, 2011 was $1.7 million, compared to $1.6 million a year ago. For the year, the segment's operating profit was $5.7 million in fiscal 2011, compared to $4.9 million last year. The improvements in operating profit primarily reflected the increase in US equipment sales.

For our Brand Solutions group, Graphics Imaging sales were $75.6 million in the fiscal 2011 fourth quarter, compared to $61.8 million a year ago. For the year ended September 30, 2011, the graphics segment reported sales of $269 million, compared to $240 million last year. For the current fiscal year, the segment reported sales growth in all of its geographic markets including Europe, the United States and Asia. In addition, the segment's sales benefited from a recent acquisition in Turkey, as well as favorable changes in foreign currency rates. Changes in foreign currency values, principally the Euro, had a favorable impact of approximately $3 million on the segment's sales for the current quarter, and $5 million for the year, compared to the same periods last year. Operating profit for the Graphics Imaging segment was $6.7 million for the fiscal 2011 fourth quarter, compared to $7 million a year ago. An unfavorable change in product mix in the segment's European gravure businesses and some personnel reduction costs were the principal factors in the decline for the quarter. For the year, operating profit for the graphics segment increased to $22.4 million for fiscal 2011, compared to $21.1 million last year, primarily resulting from higher sales and improvements in the segment's US cost structure.

Marking Products segment sales for the quarter ended September 30, 2011 were $18.8 million, compared to $14.4 million for the same quarter last year. For the year, Marking Products segment sales were approximately $62 million, compared to $51 million last year. The sales improvement primarily resulted from higher unit volumes in the United States and China, and the benefit of two recent acquisitions in the US, one of which was completed in March 2011, and the other in August 2011. Operating profit for the Marking Products segment was $3.1 million for the fiscal 2011 fourth quarter, compared to $1.8 million a year ago. For the year ended September 30, 2011, Marking Products operating profit was $7.8 million compared to $5.8 million last year. Higher sales and the benefit of recent acquisitions were the principal contributors to the profit improvement, which were offset partially by investments in new product development initiatives.

Fiscal 2011 fourth quarter sales for the Merchandising Solutions segment were $19.3 million, compared to $16.2 million a year ago, representing an increase of 19%. For the year, the segment's sales were $60.6 million for fiscal 2011, compared to $56.9 million last year. The current quarter reflected an increase in projects from several larger global customers. As a result, the segment's operating profit was $2.2 million for the current quarter, compared to $1 million a year ago. For the year, the Merchandising Solutions segment reported operating profit of $3.3 million, compared to $2.4 million last year.

Sales and operating profit by segment for the quarter and fiscal year are posted on our website for your reference. The Company's consolidated operating margin for the fiscal 2011 fourth quarter was 13.8% of sales, compared to 15.3% a year ago. For the year ended September 30, 2011, our consolidated operating margin was 13.2% of sales, compared to 14.2% last year. The decline in operating margin primarily reflected the impacts of higher commodity costs and unfavorable changes in product mix in several of our businesses. Gross margin for the quarter ended September 30, 2011 was 38.3% of sales, compared to 40.6% for the same period a year ago. For the year, gross margin for fiscal 2011 was 39.1% of sales, compared to 39.3% last year. The declines primarily reflected unfavorable changes in sales mix and the impact of commodity price increases on direct material costs, particularly for the Bronze and casket segments.

Selling and administrative expense for the current quarter was 24.5% of sales, compared to 25.4% for the same quarter last year. Cost containment initiatives favorably impacted our SG&A percentage for the current quarter. Selling and administrative expense for the current fiscal year was 25.9% of sales, compared with 25.2% of sales a year ago. The impact of recent acquisitions was the principal factor in the increase in our SG&A percentage on a full-year basis. For the fiscal 2011 fourth quarter, the Company incurred a net investment loss of $801,000, compared to investment income of $628,000 a year ago. The current quarter reflected a decline in the market value of investments held in trust for certain of the Company's benefit plans. For the year ended September 30, 2011, investment income was $1.4 million, compared to $2.5 million last year.

Interest expense for the current quarter was $2.2 million, compared to $1.8 million for the same quarter last year. For the year, interest expense was $8.2 million for fiscal 2011, compared to $7.4 million a year ago. The increase in interest cost for the current year resulted primarily from a higher average level of outstanding borrowings, which were due primarily to borrowings for recent acquisitions and the purchase of the remaining 22% interest in Saueressig, which occurred in April 2011. Other income deductions net for the fiscal 2011 fourth quarter represented income of $1.8 million, compared to a deduction of $225,000 a year ago. For the year, other income deductions net represented income of $298,000 for fiscal 2011, compared to a deduction of $1.3 million a year ago. The fiscal 2011 fourth quarter included a currency gain on the settlement of inter-company debt.

Other income and deductions generally include, among other things, the impact of currency gains and losses on inter-company loans and banking-related fees. The impact of net income from non-controlling interest was not significant for the fiscal 2011 fourth quarter, compared to a deduction of $895,000 a year ago. On a year-to-date basis, the deduction for net income from non-controlling interest was $1.1 million for the current quarter, compared to $2.7 million last year. The change for the current quarter and fiscal year principally resulted from the Company's purchase of the remaining 22% interest in Saueressig. The Company acquired its initial 78% interest in this entity in May 2008.

In addition, effective as of the beginning of this fiscal year, the Company purchased the remaining 25% ownership in one of its other German graphics subsidiaries. The Company's effective income tax rate for fiscal 2011 was 34.4% of pretax income, compared to 35% last year. Both fiscal years included favorable income tax adjustments related to the closure of certain prior income tax periods. These adjustments were equivalent to $0.02 per share in fiscal 2011, and $0.03 in fiscal 2010. Excluding the favorable impact of these adjustments, the effective tax rates were 35% this year compared to 35.8% last year. The reduction in the consolidated effective income tax rate for the current year reflected the impact of recent operating structure initiatives in Europe, which are expected to result in an ongoing benefit.

At September 30, 2011, the Company's consolidated cash and short-term investment balance was approximately $62 million, compared to $61 million at September 30, 2010. Our current ratio is 2.3 at September 30, 2011, and September 30, 2010. Outstanding accounts receivable at the end of the current fiscal year approximated $165 million, which represented 62 days sales outstanding, compared to approximately $151 million or 63 days sales outstanding at September 30, 2010.

Consolidated inventories at September 30, 2011 were $126 million, compared to $108 million at September 30, 2010. Acquisitions and currency changes contributed to the increase in inventories during the current year. In addition, as we discussed last quarter, the recent implementation of a hub and spoke casket distribution system for the northeast region has resulted in a short-term increase in inventories. However, this system is expected to result in a reduction in inventories over the next 12 months.

Long-term debt at the end of the current fiscal year, including both current and long-term portions approximated $317 million, compared to $237 million at September 30, 2010. The increase resulted principally from borrowings in connection with acquisitions completed over the last 12 months, and the Saueressig transaction in April 2011. At September 30, 2011, $250 million of the outstanding debt balance represented borrowings under our domestic revolving credit facility at an average interest rate of 2.6%. This facility provides for borrowings up to $300 million, and has a maturity of December 2015.

The Company had approximately 28.4 million shares outstanding at September 30, 2011. During the current fiscal year, the Company purchased approximately 1.3 million shares under its share repurchase program, at a cost of approximately $45 million. Depreciation and amortization expense for the year ended September 30, 2011 was $27.7 million, compared to $27.3 million last year. Capital expenditures for the current year were $22.4 million, compared to $21.4 million in fiscal 2010. For fiscal 2012, we expect capital expenditures to increase to around $30 million. The projected increase is primarily attributable to expansion of our production facilities in Mexico, and the anticipated purchase of additional cylinder production equipment for our operations in Turkey.

In November last year, we provided guidance that our fiscal 2011 earnings per share were projected to grow in the mid to high single-digit percentage range over fiscal 2010, excluding unusual charges from both years. On a comparable basis, our earnings per share for fiscal 2011 increased 7%, which was within our expected range. As we begin fiscal 2012, we continue to face several challenges. The uneven pace of the economic recovery will influence the pace of growth in all of our businesses. The recent financial market issues in the European economic community are beginning to have an effect on several of the countries in which we operate. This may also have an unfavorable impact on currency exchange rates.

In addition, our Memorialization businesses continue to operate in a climate of relatively flat death rates, competitive pressures on pricing and product mix, and volatile commodity costs. As a result, projecting future results in this environment remains difficult. However, we are continuously working on productivity and cost reduction initiatives to strengthen all of our businesses. In addition, we expect our recent acquisitions to contribute favorably to our fiscal 2012 results. On this basis, we currently estimate fiscal 2012 earnings to grow in the mid single digit percentage range over fiscal 2011, excluding unusual items from both years.

While we generally do not provide quarterly guidance, it is important to note that we are currently projecting earnings per share for the fiscal 2012 first quarter to be lower than the first quarter last year. There are several factors contributing to this expected result. Higher year over year commodity costs in our Bronze business represent one of the significant factors in the decline. Although copper prices have declined recently, the first quarter a year ago benefited from Bronze ingot purchases made in the latter half of fiscal 2010, which were at lower prices than today. In addition, we have experienced a decline in order rates in our Italian operations, which we believe to be attributable to the recent economic concerns in this country.

We have again experienced another slow start to the quarter in some of our Brand Solutions businesses. With the slower holiday period approaching, we currently don't expect a significant opportunity to make up this ground before the end of this quarter. Lastly, we are completing the implementation of a new ERP system in our Bronze segment this quarter. This implementation has been planned for some time, and as you can appreciate, we are taking the appropriate steps to ensure it is successful. As can be expected in any significant systems transition, we are anticipating additional short-term costs which we have consciously added to ensure a proper implementation. In addition, as we also anticipated, the actual system cutover period has resulted in a reduction in the number of full shipping days during this quarter, which will have a short-term timing effect on sales. However, despite this start to the year, we still currently expect to recover over the balance of the fiscal year and achieve our mid single-digit percentage growth target for fiscal 2012. This concludes the financial review, and Joe will now comment on our operations.

Good morning. Thank you, Steve. Given the difficult economic environment, we were generally pleased with our consolidated results for our fourth quarter. Both of our business segments improved revenues during the quarter, as we benefited from organic growth in some businesses and acquisitions in others. Our efforts for the year resulted in a 7% increase in fiscal 2011 earnings per share, despite over $11 million in material cost increases, and increased consumer preferences for lower price products.

During 2011, we also returned $54 million to our shareholders in the form of dividends and buybacks, while again producing over $95 million in operating cash flow. We believe these to be good results, considering the challenges we faced. Our Marking Products division and our Merchandising Solutions division both contributed operating profit improvement for the quarter. Also, despite challenges in Europe, our US Cremation division produced solid year over year results for the quarter. However, commodity costs, and pricing and mix pressures, especially in our casket business continued to create challenges for the balance of our Memorialization group.

Unfortunately, our Italian Bronze business saw reductions in sales and operating profit for the fourth quarter, which is typically their busiest period of the year. The decline was largely attributable to the economic conditions in the country and increases in commodity costs over prior year. We expect to continue to see commodity cost pressures during 2012, and therefore, we've accelerated our plans to improve our manufacturing efficiencies in several of our businesses. In our casket division, we expect to further our integration of recent acquisitions and focus our efforts on improving our distribution costs, while in our Bronze business, lean initiatives should help offset some of the pressures we continue to confront.

All in all, we are performing as planned in a very difficult environment. Rising commodity costs, consumer preferences, and economic uncertainty remain critical concerns for us as we try to forecast expected results for 2012. Given the current commitment that we have made to purchase raw materials, we already know that we will have yet another significant increase in commodity costs during 2012. Further declines in the discount rate and portfolio value of our pension assets have further increased the cost of our defined benefit plans in 2012. We also remain uncertain of the impact that the economic turmoil in Europe will have on our businesses and the Dollar-Euro exchange rate. Therefore, we will remain cautious by expecting a mid single-digit improvement in EPS for 2012. With that, I'd like to open it up for questions.

At this time, for those of you that will be asking questions, we request that you limit them to one question and a follow-up question until all those who wish to participate have had an opportunity to do so. Nancy?

(Operator Instructions). We have a question from Clint Fendley from Davenport. Please go ahead.

I wonder if you guys could remind us what your total end market exposure is for Europe. My understanding, most of it's around Germany, but I know, Steve, you mentioned Italy a bit in your comments here. Could you just quantify that between the countries there?

Steve, while Steve confirms it, I think our numbers are accurate to say we're about $250 million in sales, and last year we would have had somewhere near $30 million in operating profit. Steve's confirming that right now.

In Europe, Clint, we had almost $300 million of sales in fiscal 2011. Again, in Europe. The other countries, Canada, Australia, Asia, are relatively small compared to that, and again, as Joe said, the bulk of that's going to be in Germany.

Okay. And is there any material exposure to some of the problem countries over there? Notably, Italy, Greece, how should we think about the headlines that we're seeing affecting your business there?

It's difficult to quantify what is material. Obviously, with the Euro exiting at $1.40 or so, 2011, any significant decline in the exchange rate would impact 2012 significantly for us. Given the challenges that we're having elsewhere in the businesses with the economies, we find all these little changes to be challenging.

Italy, we have a nice presence, $4 million of operating profit in the area between two businesses. So, that's where we think there's a real risk of some impediments for the year. But it could spread elsewhere.

Okay. Great. Thank you, guys.

Our next question is coming from Jamie Clement from Sidoti.

If I get my math right, if you're assuming a down first quarter, then the rest of the way the numbers are kind of implied, kind of high single digit growth on the bottom line. Is that about right?

That's kind of what we're expecting, Jamie. There's still a lot of uncertainty out year, but our plans would put us there.

Sure, sure. No problem. And just I don't think you gave me the number. I was looking on the sheet that you provide on the website. But how much stock did you repurchase in the fourth quarter? And what's the current number of shares outstanding as of September 31st?

Current number of shares at September 30th is around 28.4 million, Jamie.

Okay.

And we purchased over 900,000 shares during the fourth quarter.

900,000 shares. Do you know what the average price was, roughly, or if you have the amount that you paid for it. I don't have the cash flow statement in front of me.

In total we paid for the year about $45 million, and I would tell you the average price in the quarter is somewhere in the low $30s.

Low $30s. Great. So, 900,000 shares during the quarter and just --

Over 900,000.

What's that?

I said over 900,000.

That was in the quarter alone, right?

Correct. That's in the fourth quarter alone.

Is this -- I mean, this is something that has come up over the years, but obviously, that's a fair amount of stock that you repurchased, and obviously, this is going to -- it will be impacted by what's out there from an acquisition standpoint, but has the Board changed its tune a little bit over the years with respect to capital allocation? You haven't done a big acquisition in a number of years and you obviously repurchased a lot of stock here. Should investors be expecting return of capital to be more of a priority than it's been at points in the last decade?

I wouldn't suggest that there's any significant deviation. The reality is, Jamie, that we found ourselves with what we considered to be a relatively low price of our stock, and very low interest rate opportunity, so we took advantage of that last quarter.

We will evaluate, as we have always done, acquisition opportunities as they are presented going forward. The fact of the matter is we did not have any significant ones to consider over the last 12 months.

Right.

So, we did not do that. That's not to say that if a significant acquisition were to be presented, that the Board would think otherwise toward it. But when there lacks that opportunity, as we've always done, we will buy back our shares.

In other words, if the market's trading sideways for the next couple of quarters and who knows what's going to happen there, you're perfectly comfortable taking excess cash flow and buying back stock with it. Would that be a fair assessment?

That's exactly fair. That's exactly our thinking.

Okay. Great.

We're not going to venture beyond our knitting right now.

Right.

And the deal's got to be right.

Great. Thanks a lot for your time.

All right. Our next question is from Liam Burke from Janney Capital Markets. Please go ahead.

Joe, could you give us some sense on the progress on the casket business? I know you had some stated objectives around mid single-digit operating margins. It came in around 10.5% this quarter. I know you had some integration and Steve mentioned on his prepared statements about the inventory issues, but how do you see the margin trend for the business in 2012?

We expect to see that margin expansion, Liam for the 2012 period. The issue that we ran into, that was somewhat accelerated, we believe in the last quarter and over the last 12 months, has been our mix shift. And that we are trying to address internally. We think that could be a longer-term trend, but not to the significance that it is today.

Okay. And Steve, you mentioned $30 million in CapEx. I know you laid out the projects there. If I look at what your guidance is, roughly on the income side, stepped up CapEx, typically your cash flow after CapEx is $75 million to $80 million a year. Should we step that back a little, based on your forecasted CapEx numbers?

I would keep that relatively constant, because with the increase in income and the increase in CapEx, a little bit of an increase in depreciation and amortization, relatively flat, maybe a slight decline, depending on where CapEx ends up the year.

The only thing I would add to that is, we are expecting to take inventory out of our businesses over the course of the next 12 months, which should offset any increase in CapEx for the year.

Our next question is coming from Adam Hamill from Gates Capital Markets. Please go ahead.

Could you tell us what the internal growth rate was in the Memorialization business, and maybe break out into pricing and volume?

We do not have that information readily available at this time. We could provide it to you, though.

Okay. On the cash use, I know you guys made the Kroma acquisition. Were there any other acquisitions in the quarter, or how much did you spend on acquisitions in the fourth quarter?

We made a small acquisition in our Marking Products division, but it was relatively small.

Okay. Were there any other non-operating cash uses? Just looked like you used about $45 million, your net debt went up by about $45 million. Just trying to --

We went on a -- we borrowed some money to buy back some shares at these lower interest rates right now.

Okay. Appreciate it.

We now have a question from Jason Rodgers from Great Lakes Review. Please go ahead.

I had to jump off the call, so I apologize if you already mentioned this. Did you indicate tax rate for fiscal 2012?

We didn't indicate a tax rate, Jason, but for fiscal 2011 we ended up the year with a -- I'll call it a steady state effective tax rate of 35%, and I don't see that changing in fiscal 2012.

Okay. And then looking at copper and steel prices, they've come down this year, at least in the futures markets, and I was wondering if you could estimate when you think Bronze and steel costs would be at least stop being a headwind for you.

Well, that's anybody's guess, frankly. We don't have the ability to buy on a spot market what we need for every day, so we have purchased out for a significant portion of 2012. Having said that, if we saw material change in our price of Bronze ingot we would buy further out and blend in and get some of that benefit this year and move it into 2013. That's the nature of our business, frankly.

Okay. And then finally, looking at the area of those tobacco packs, the images in the US, the federal judge delaying those, I wonder if you could talk about that, and what that means for your Graphics Imaging business, the opportunities in the US there?

First off, my understanding is, the law was -- the judge blocked the need to have to do that. But the other issue is, we do not have a significant presence on the gravure side in the United States. As we look for opportunities, if we thought it was the right thing to do, we would come to the States with our gravure businesses from Europe. Today, as we sit, we do not have that opportunity in our portfolio.

Thanks very much.

The next question is coming from Scott Blumenthal from Emerald Advisors. Please go ahead.

Joe, I guess Jason's question was a particularly good lead-in. I guess in the past you had expressed, perhaps, an interest to bring some of your gravure business over here to the US, especially the Saueressig business.

Right.

Now that you own all of it, I was wondering what your plans are with that.

It's interesting, Scott. We have always looked at opportunities. We continue to scour. There's a few things that we've been talking to. It's got to be appropriate.

The concerns we have, frankly, is getting stability in all of our businesses right now. Once we can feel that we think we can move forward on a stable footing, I think that's something we will continue to consider. I don't see it as an imminent opportunity, though.

Apparently you like the business, though, with the Kroma acquisition and you see some opportunity to expand production there. Was wondering what you think the opportunity is in Kroma, since you're planning on putting a significant amount of your future investments in that.

Let's talk about Kroma for a second, because Kroma has been a geographic expansion for our European businesses. Our customers have actually sent us there. They're the ones that have said we need you to be -- we need a high-quality provider in a Turkish market, which is becoming more of the central hub of the European packaging industry, moving central, central-east. Central-west, let's put it that way. Central-east. Excuse me.

So, that market will become a pivotal market for the middle part of Europe, when you look at Croatia and you look at Poland and other places, and it just strengthens our position geographically in an already strong business for us in Europe.

Is that a cigarette-packaging centric business, Joe?

It is a strong cigarette packaging. However, it also has some packaging influence.

Okay.

Not just cigarette packaging. It's actually the cigarette itself.

Got it. Okay. And can I slip one more in here while I have you?

Sure.

Can you talk about in the -- I guess the Bronze business, the mix. Granite does fall into the Bronze business, correct?

It does.

Can you talk about -- I understand that granite is a slightly lower margin business there, and can you talk about how mix might be affecting that segment?

It is affecting it in two ways. We made pretty significant investments in the sales and marketing side of our granite business, so it's not a significant operating profit contributor this year, but as we look forward, we expect that margin to be double-digit, as we continue to expand that footprint across the United States. So, looking over 2011, not -- in fact, probably a detractor. Moving forward, we expect it to add double-digit -- low double-digit operating profit to our businesses today.

But you do believe that granite can ultimately be a 15% business?

I would say maybe a little lower than that, but I would tell you that it will be a low-cost investment from that standpoint. I mean, the return on the actual assets invested should be pretty good.

Okay. Terrific. Thank you.

Thank you.

(Operator Instructions). All right. No additional questions at this time.

Okay. Well, we would like to thank everyone for participating in the call this morning and taking the time and we look forward to our call toward the end of January with our first-quarter results. Thank you, and have a great day.

Ladies and gentlemen, this conference will be available for replay after 11 today through November the 25th, 2011, at 1159. You may access the AT&T teleconference replay system at any time by dialing 1-20 -- sorry, 1-320-365-3844, access code, 22147. Those numbers again are 1-320-365-3844, access code, 221479. This does conclude our conference for today and thank you for your participation and for using AT&T executive teleconference. You may now disconnect.