希悅爾 (SEE) 2009 Q1 法說會逐字稿

Good morning. Welcome to the Sealed Air conference call discussing the Company's first quarter 2009 results. This call is being recorded. Leading the call today, we have William V Hickey, President and Chief Executive Officer, and David H Kelsey, Senior Vice President and Chief Financial Officer. After management's prepared comments, they will be taking questions. (Operator Instructions) We ask that you limit yourself to one question and brief related follow-up question per caller, so that others will have a chance to ask their question.

Now, at this time, I would like to turn the call to Amanda Butler, Director of Investor Relations. Please, go ahead, Miss Butler.

Thank you, Lisa. Good morning, everyone. Before we begin our call today, I would like to remind you that statements made during this call stating managements outlook or predictions for the future are forward looking statements. . These statements are made solely on information that is now available to us. Our future performance may be different due to a number of factors. Many are listed on our most recent annual report on form 10-k. We posted supplemental financial information on reconciliation of nonUS GAAP measures that we expect to discuss on our website, sealedair.com in the investor information section under quarterly results. And now, I will turn it over to Bill Hickey, our

Thank you, Amanda. Good morning, everyone. I'm Bill Hickey, President and CEO of Sealed Air Corporation. With me on the call today, in addition to Amanda, we have Dave Kelsey, our Chief Financial Officer. During today's call, I will provide a few highlights on our business performance in the first quarter and we will also discuss our 2009 guidance. Dave will then discuss details of our financial results and after Dave's remarks we will take your questions.

Our first quarter diluted earnings per share $0.33 excluding the $0.01 charge for global manufacturing strategy reflected not only the benefits of stabilizing input costs but also from the tremendous efforts of all of our employees in this very difficult environment. Our stringent control of expenses and our management of price mix combined with the benefits of our 2008 cost reduction and productivity program and our global manufacturing strategy, all made measurable contributions to our first quarter performance. These actions are particularly note worthy in the face of the declining market demand. Our average resulted in a 300 basis point increase in our gross profit margin. A 3% increase in operating profit. And a 220 basis point increase in our operating margin. We accomplished this despite a 7% decline in sales, excluding foreign currency exchange and a 12% decline in unit volumes. Both of these elements are due to slow economic conditions and a cyclical decline in animal production in the food packaging supply chain. Not a change in our market position.

The decline in unit volumes occurred in all regions and all businesses, except in our Asia-Pacific food business. Going into the quarter, we had anticipated volume declines due to the continuing weakening economic conditions and the forecast for decline in animal production in the first half of 2009. However, the decline in industrial output in the first quarter exceeded our expectations, which drove lower unit volumes than we expected in our protective packaging and specialty material businesses in North America and in Europe.

Having said that, our quarterly volume performance in these businesses appears to be generally in line with shipping proxies in the quarter. And we have not seen any further destocking activity among our customers. Despite the volume challenges, we were successful in managing price mix in most of our businesses and across all regions, which resulted in a 4.2% or $49 million growth in price mix in the first quarter. We have maintained pricing in most of our products but have lowered prices in a couple of product categories to meet certain competitive situations in select regions of the world.

In addition, we have opted to strategically walk away from some business to protect our margin performance, which did have a small additional unfavorable impact on our unit volumes. Our traditional growth areas face challenges in this quarter due to business conditions. Case ready and vertical pouch packaging sales declined 9% and 4% respectively. However, these number do include the unfavorable impact of foreign exchange. Geographically, developing regions sales did rise by 2%. Growth would have been higher if it were not for a 10% decline in sales in Brazil due to credit constraints facing meat processors and a slowdown in the beef exports to Europe.

Additionally, an 18% decline in sales in China due to the rapid decline in local manufacturing and exports in the quarter contributed to the reduced growth rate. On a brighter note, Latin America, excluding Brazil, rose 17% and in Poland and Russia, we saw slowdown in the rate of growth but did achieve sales increases at 20% and 10% respectively. These figures exclude the impact of foreign exchange.

Looking at segments in more detail, I would like to quickly highlight a few additional points. In our food packaging segment, we anticipated the decline in sales and unit volumes in the quarter due to the fact as I previously mentioned. Our team worked terrifically to achieve a $29 million increase in product price mix. At retail, we saw meat consumption hold steady in most regions except in Europe, as well as, the trend of consumers eating more at home and seeking out value cuts of meats. Looking ahead, this segment expects comparable weak animal production rates in North America in the second quarter, which will increase seasonally as we enter the Summer barbecue season. We are also expecting ongoing strength in US beef exports to Asia. Particularly, South Korea and Vietnam.

We expecting these benefits to be largely offset by ongoing weakness in Europe and in Brazil. As both regions are being unfavorably impacted by weak economic conditions and meat demand in Europe. We expect that the net effect will be a low single-digit percent decline in unit volumes for the full year in this segment.

Looking at our food solutions business, we experienced a 5% decline in unit volumes which included the residual effect of the previously announced change in packaging format by our retailer, as well as, the significant slowdown in the food service sector. Although the change in packaging format had officially lapsed in the fourth quarter of 2008, one remaining product is still transitioning through April of 2009. Excluding this impact, volumes would have been essentially flat in North America and the segments volume decline would have been 3%. The European market contrasted with North America as meat consumption in Europe continued to decline due to economic conditions resulting in a 10% decline in unit volumes in that region. Our business did see some strength in products associated with the global eat-at-home trend in both North America and in Europe.

We saw an uptick in our pizza packaging solutions and doubled our first quarter sales versus prior year in our new case ready format Mirabella in Europe. Outside of Europe, we achieved a 30% increase in microwaveable simple-step solution in North America. Looking ahead, the market has shown signs of stabilization with no new destocking. But also has not shown any real signs of recovery. As such, our food solutions team will remain focused on numerous pilot tests that are ongoing with our new food solutions worldwide and we anticipate sales performance excluding the impact of foreign exchange to be relatively flat year-over-year for the full year. We do anticipate some risk in price mix that one might typically see in this kind of environment.

Protective packaging was the one area of the business that was most impacted by reduced manufacturing levels and weak retail sales. The business appeared to track at about the same rate since the end of the fourth quarter 2008 suggesting that the market may be close to leveling out. However, we are not seeing any signs of a recovery. Overall, volumes declined 22%, primarily in North America and Europe.

Although, we saw declines in volume in our developed regions as well. Manufacturing zones, like the MaKia Dora along the Mexico US border and Asian export markets saw production rate slump in the quarter due to economic conditions. The day our protective packaging team has been holding the market position and one interesting note is that despite the rough and challenging market, we added more new customers in the first quarter in North America than we did in the same quarter in 2008.

Part of that reason is the slowdown has given people more opportunity to look at new total cost solutions in which we specialize. And secondly, our sales people are out calling on new customers rather than pursuing price increases as they have done the last two years. Despite the downturn in volumes and limited number of price concessions, we were successful in maintaining positive price mix in the first quarter.

Looking ahead, again, we aren't expecting a quick recovery in this segment and our focus will be to continue to bring economically measurable value to our customers to offer them a complete line of solutions and managed price mix.

And lastly, our other category saw sharp declines in volume largely due to a 44% decline in unit volumes of our specialty materials business. Like protective packaging, special materials was adversely affected by slowdown in manufacturing export activity worldwide and in addition, our special materials business does sell to construction, automotive and housing markets. An additional unfavorable impact from these conditions is that the business continued to use inventory that was previously manufactured under our interim supply agreement with Dow. Thus, negatively impacting our operating margin in that business. At current sales rates we anticipate working through this inventory by the end of the Summer and then we will shift to internally produced product.

Before I hand the floor over to Dave, I would like to discuss our full year 2009 earnings guidance. Despite lower volumes in our protective packaging and specialty and material business in the first quarter and our expectations for ongoing weak global conditions to at least the third quarter, we were maintaining our full year 2009 diluted earnings share of $1.17 to $1.37. This includes a charge of $20 million net of taxes or $0.08 per share expected to be incurred relating to our global manufacturing strategy in 2009. Excluding this charge, the full year 2009 diluted earnings per share guidance continues to be in the range of $1.25 to $1.45.

It is important to note that we have updated our assumptions to reflect a mid-single digit percent decline in unit volume growth and benefit of lower operating expenses. Our assumptions regarding total year average resin costs are capital expenditure range, foreign exchange rates and our full year effective tax rate, which we outlined in our fourth quarter earnings press release have not changed. In addition, we remain on track to deliver benefits of $115 million in 2009.

Despite this quarter's margin rebound to pre2008 levels, continued progress will be achieved one day at a time. We remain focused on our plan of stringently controlling costs, managing price mix, benefiting from our supply chain initiatives and we will focus on solid cash flow generation. Now, I am going to turn the call over to Dave Kelsey to review some additional details of our financial performance and liquidity position. Dave?

Thank you, Bill. As Bill mentioned our sales were 100 -- were $988 million for the quarter. For those participating in the call who would like additional detail, tables posted on our website, sealedair.com present the components of the change in that sale by business segment, and by geography, the impact of foreign currency translation on sales by geographic region and the percentage of sales by geographic region. As you saw in our financial statements, gross profit was $286 million, a decrease of $19 million in the first quarter compared to the prior year.

Our lower sales volume, particularly as Bill mentioned in protective packaging segment, was the primary contributing factor. Excluding foreign currency translation of $23 million, gross profit would have been $309 million, higher than last year by approximately $4 million. Marketing, administrative and development expenses decreased $20 million in the first quarter compared to the prior year. On a constant dollar basis, operating expenses were $178 million lower by $8 million or a decrease of 4.5% as compared to the prior year.

Savings from our cost reduction and productivity program and lower travel expenses both contributed to the year-over-year decrease in spending. Bad debt expense, which gets recorded in this section was approximately $3 million or $2 million higher than our expense in the first quarter of 2008. Operating profit was $120 million or 12.1% of revenue. When we exclude expenses of $3 million related to our global manufacturing strategy, as well as, restructuring and other charges, operating profit increased to $123 million or 12.4% of revenue. On a year-over-year comparison, foreign currency translation had a significant impact on our operating profit.

Excluding the effects of foreign currency translation and the effects of GMS restructuring and other charges, the operating profit for the first quarter would have been $135 million or 11% higher than the prior year. Interest expense decreased one-half million dollars in 2009 as compared to 2008. The April 2008 retirement of our five and three-eighth percent note and December 2008 call of a portion of our 6.95% notes were offset by interest on our new 12% notes which we borrowed in February of this year. In the first quarter of 2009, we recorded charges of $3 million related to the implementation of our global manufacturing strategy. We still expect to realize incremental benefit of $20 million in 2009 bringing our cumulative benefits to $45 million increasing to $55 million in 2010 and there after.

Reviewing our 2008 cost reduction and productivity program, we realized approximately $13 million of savings in the first quarter. These savings were split between our cost of sales and operating expenses. We still expect annualized savings from this program to be between $50 and $60 million. From a cash flow perspective, we made cash payments of approximately $15 million from the first quarter for termination benefits. The cash payments related -- the total cash payments related to this program had been approximately $32 million. The majority of the remaining payments will be in the balance of this year less than $5 million falling in 2010.

I will conclude with some key balance sheet and cash flow items. Our accounts receivable declined $45 million from December 31, 2008. In the quarter, we did not sell any receivables under our accounts receivable securitization facility retiring the $80 million that we had outstanding at year end. In a constant dollar basis, accounts receivable would have decreases to approximately 7% compared to March of last year. We consider ourselves to be well prepared to manage our receivables balances in the current economic climate. Our day's sales outstanding or DSO were lower at March 31st than at both December 31st and March of last year. Credit and collections are one of many note worthy efforts in the current economy. We experienced no appreciable increase in the percent of our receivables that remained uncollected at their contractual due dates.

Inventory investment at March 31st declined $15 million during the quarter. This decline is attributable to decrease in inventory held outside of the US primarily due to foreign currency translation. Further contributing to the decline since the start of the first quarter has been a successful effort to reduce inventories in our US food segments subsequent to the July 1st, 2008 Go Live of SAP of those business. Compared to March 31st of last year, inventory investment was down $94 million or $11 million after adjusting for foreign currency translation. Total borrowings at March 31st were $1.776 billion up $297 million from the end of December primarily due to the issuance of our 12% senior notes in February.

As a reminder, in a few weeks we will use a combination of available cash in short-term committed lines of credit to retire the remaining $137 million of our 6.95% notes when they come due. While capital markets have improved over the course of the first quarter, the environment is not yet stable. Thus, it seems appropriate to comment on Sealed Air's liquidity position. First, at March 31st, we had $426 million in cash and cash equivalents. In addition, we have access to over $600 million of committed borrowing capacity. Precash flow, one of our key metrics as a management team, gets close attention. As shown in the supplementary information furnished with our financial statements, free cash flow for the first quarter was $160 million compared to a use of $1 million last year.

As I stated previously, our accounts receivable and inventory and investment levels were a source of free cash flow during the quarter. Capital investment will be lower in 2009 as work is completed on our three new plants in emerging markets. So we currently expect 2009 capital spending to be in the range of $100 to $125 million. This will return our capital investment to the levels that we made annually in the early part of this decade prior to commencing investments for our global manufacturing strategy. The capital we do invest will be for a combination of maintenance and growth projects.

Cash flow projections suggest that we have sufficient liquidity to fund operations and great settlement should have become payable later this year. However, there is still no date certain for the funding of the settlement and it is conceivable such a funding won't occur this year.

In the mean time, we will continue to assess conditions in the capital markets. Should a date become certain to fund the settlement we will be prepared. We will also assess opportunities to refinance the $431 million of convertible notes that have an initial put date in June of 2010. And now, I will turn the call back to bill and to your questions.

Thank you, Dave. Operator, I would now like to open the call up to any questions from the participants.

(Operator Instructions). Our first question comes from George Staphos with Banc of America Securities. Please, go ahead.

Thanks. Hi, guys. Good morning, Thank you for the details. The two questions here. First off, Bill, as we look at the first quarter performance and the guidance for the year is the simple take that price mix, which you did a very good job in the quarter sequentially declines and it's offset by the continued ramp in the operational cost GMS restructuring savings. And the second question is, are you seeing any intensifying and competition at all, whether it's in protective packaging or even in the fresh case in recent weeks or recent quarters? Thanks.

Let me come back and start with your first question, George, on trend of price mix versus the other cost savings coming through. I think that's a reasonably good way to look at it. Price mix was good in the first quarter. You get the delta as you go through the year because price increases begin to lapse and obviously, in a competitive market like there is today you will probably concede some of that ensuing quarters. One of the things Sealed Air has done extremely well is manage the downside of the cycle to more than offset the costs on the upside of the cycle and no reason why we won't do that again.

As far as your second question on competitive landscape, there is primarily been a pick up of the protective side of the business. I think that's because you have a fixed amount of capacity competing for kind of a few amount of demand. And unfortunately, market share has been a primary focus of some of our competitors. However, I'm not convinced how sustainable that strategy is inlieu of the debt levels and covenants that a number of our competitors have on the protective side of the business. It doesn't change our game plans. It keeps a sharper on our feet. On the food side competition remained relatively steady.

Thanks, Bill.

Our next question comes from Rosemarie Morbelli with Inglass and Snyder.

Good morning, all. And congratulations for a pretty good quarter given the environment.

Is the growth margin improvement of this particular level sustainable and actually better yet do you expect sequential improvement even though it is essentially higher than what I expected for the first quarters?

I think, Rosemarie, if I could tailback to the continue to answer I gave to George on the last question is clearly in the first quarter we had the benefit of the max of the price increases and the trough of the resin costs. Clearly, that's a high number.

We will manage that as we go through the cycle and obviously our price increases will lapse as we go forward. But there is no reason at this point why we shouldn't have -- be able to maintain higher margins in 2009 that we had in 2008 on overall basis.

All right. What you are really saying is that sequentially we are not necessarily going to see an improvement and we could actually have slightly lower margins because of the dynamic future you are talking about. Am I reading this properly?

I wouldn't look for as significant an expansion in margins going forward as you saw in the first quarter.

Okay. And if I could ask my second question. What could be the potential impact from the Swine Flu as it seems that export curtailment being talked about by Europe and other countries.

Right, right. Sure. I figure I could get by the second person without a question -- it's actually H1N1 flu. Our customers in the pork industry don't like the name. They feel it has not been a properly characterized. I will refer to it as H1N1 or North American flu.

I am writing it down.

Because actually it is not connected with eating pork or with pork products. And as a result, there is no reason to ban pork exports or to reduce consumption of pork products.

It doesn't mean that what people are doing, though.

Right, right. And actually some of our customers have seen a drop in the last couple of days. Hopefully, reason will prevail. The US Department of Agriculture has come out clarifying that there is no risk from eating pork or pork products. Right now, the risk is probably contact with other people. We have not seen an effect on our business as of now. You are correct in that there have been some reduction in imports. I think Russia has -- are banning trade restrictions on pork out of Mexico. As well as six states. Most of our US customers feel that they are qualified to export pork.

Japan who is a large global importer of pork was going to ban imports of pork but upon reflection of the facts actually changed its decision. China is reportedly not concerned and has been putting out positive information to consumers. Rest of them export market appears relatively stable. What limitations there have been have been on pork coming out of Mexico. And pork coming out of a couple of states in the US and our estimate is that could be up to 3% of our business at this point. So obviously, we are continuing to watch the situation and monitor as it goes along.

In fact, we have a call this afternoon after our earnings release to get an update on the situation on H1N1 around the world. In the meantime, we probably will see increases in purchases and shipments and consumption of beef and chicken as those consumers who may incorrectly decide not to purchase or eat pork will likely buy a beef or chicken as an alternative.

Thanks a lot.

Our next question comes from Richard Skidmore with Goldman Sachs.

Good morning. Thank you. You made the comment about walking away from some business. Can you just clarify which segments that's in and what the total impact might have been and then a follow-up to that is as you go forward into the second quarter is that a trend that you are going to continue?

Yes. It's primarily protective and specialty which tend to be the parts of our business that are more sensitive to poly ethylene pricing. So some competitors have really very quickly moved with the poly ethylene price increase that happened earlier in the quarter in the marketplace.

It's a relatively small amount and something we have done selectively, you may have heard Dave mention a year or two ago in Europe, where we deliberately made a move to improve the profitability of our European business and walked away from 5% of our business in Europe. It's not on that scale in the US but we felt it was important to let you know that was part of the volume decline.

So of that 20% decline in volumes and protective, it's one or two percent at most?

A couple of a percent.

Is that something you will continue to be doing as you go forward?

Well, I think we will look and see what happens in the marketplace. See what happens to raw material inputs for those of you that follow it actually ticked up a little bit at the end of the first quarter. So that we think holding pricing was a reasonable thing to do and we will watch what happens to raw materials as we go through the rest of this year. They are up a little bit from where they started the year at and obviously, the competitors who jumped the gun are feeling a little bit of pain.

Thank you.

Our next question comes from Claudia Hueston with JPMorgan.

Thanks very much. Good morning. It was strong cash flow quarter for you and it sounds like inventories were a big help there. Can you talk about how you expect working capital to trend over the remainder of the year and how you expect your productivity initiatives to contribute to cash flow. And then, maybe comment on your priorities for cash.

Okay. Let me pass you over to Dave Kelsey.

Clearly, the first quarter was exceptional. Not only good cash flow from operations but in part due to the seasonal decline in sales we seen in the first quarter, relative to the fourth quarter last year and the slowdown in the economy we had much less invested in working capital.

As we moved through the year, I wouldn't expect to see any significant change in the cash coming from operating activities and certainly we expect to track to that $100 million to $125 million spending for capital items. In terms of working capital, I think a lot of the improvement is behind us in the accounts receivable. I do think going forward there will be some improvement in inventories. But nothing on the scale of what we saw in the first quarter. I wouldn't expect to see any $160 million quarter of free cash flow for the balance of the year.

Okay. And then priorities for cash?

Well, as I think you know, our operating activities tend to be self-sustaining. Every quarter of the year we do generate positive cash flow from operations.

So there is other than some timing issues, if we have to make a large interest payment or the $137 million in debt that will be retiring in May, we don't tend to need to go into our working capital facilities to borrow. So that leaves as the big priority for the balance of the year the great settlement. As I mentioned in my prepared remarks, there is no assurance that settlement is going to occur this year. And if it were to occur, we have adequate funds at our disposal to do the settlement.

Okay. Thank you.

Our next question comes from Mark Wilde with Deutsche Banc.

Good morning. Bill, I wonder if you could talk about that volume decline and protective packaging. It was a bit bigger than I expected. Was it a surprise to you it's up quite that much?

As I say in my prepared comments, I said the volume dropoff exceeded our expectations from earlier in the year. But Mark, it's interesting and I know you asked Amanda about comparing it to shipments of corrugated boxes. But a couple of things I should point out. One is the corrugated shipments in March are actually down 16%. Global air freight is down 20%. US rail ex-coal down to mid-20s. Sealed Air has built its business around the world. Let's not forget that half our business is outside the US. And in some of the developing parts of the world, particularly the export-oriented economies in Asia, we saw numbers drop 25%, 30%.

And if you really look at us as a better measure of industrial activity on a global basis, I will really point to 3M, which released earnings a couple days ago and I believe in their press release they reported their global volumes were down around 19.5%. I think that's kind of the better surrogate for the Sealed Air of 2009 that really is -- has a global footprint with half our business in other parts of the world and increasing components of our business outside of the core US corrugated box business. So I hope that helps you understand it.

That's very good. If I could as a follow on, Bill, in the two food businesses that you are in you mentioned you have seen a slow down in meat consumption in Europe. Are you seeing any other kind of changes in consumption patterns in either the developed markets or the emerging markets like China with the slowdown in the economy?

In Brazil we have seen a little bit of contraction in domestic demand in Brazil. And we also seen a movement to kind of cheaper cuts in the same animal. Actually, ground beef is doing, obviously. you know in this economy, ground beef is doing better than T-bone steaks. That we are seeing across the world.

Okay. No slowdown in terms of China perhaps?

No. Actually, China reduced its imports of pork but that's because their herd is recovering. They had that Blue Ear Epidemic year, year and a half ago. And they actually importers of pork. But they are building their herd back up. The pork imports are actually down. No dramatic change in consumption. But probably not as quick a growth in this economy either.

That's helpful. Thanks.

Our next question comes from Peter Ruschmeier with Barclays Capital.

Thanks. Good morning. Just wanted to clarify coming back to protective packaging, I believe you said down 22% but leveling out but not necessarily an upturn and yet I think you said you thought the inventory of destocking was over. If the inventory destocking was over you, then I would think you would have a noticeable upturn in your volume.

That actual net down number is down 20%. Net down 20. And I like to say it this way. The customer behavior seemed to be bouncing along the bottom. There is no incentive to rebuild inventory because manufacturing output is down. And everyone is sort of holding on waiting for it to recover before they turn on the next machine.

It's interesting. We did a look at our top 50 customers in our protective business. We didn't lose a single account in those top 50 customers. But all of them were down in the 20, 20 plus percent range depending on the company, the industry they were in and part of the country they were in. And we really don't see that turning on the machine and manufacturing their product and calling us for the packaging. We have three to five day lead times, so we are pretty close to what actually happens. And they are running on a substantially lower inventory level than they had before.

And just to elaborate, Bill, if I could, if we are expecting flattish demand going forward at this depressed level, presumably that means we should -- knowing what we know today, continue to see those kinds of year-over-year declines. Is that fair?

Actually, lapse again. You obviously will get to the point in the third quarter where it began to go down last year you will see that decline lapse. I mean, you will see it lesser and then by the time you get to the fourth quarter assuming it hasn't recovered, you will see it flat, slightly up. But I'm still a green sprout person that somewhere along the line people will run out of things and will have to go out and buy them. And they will turn on that machine and the orders will come in.

Thanks very much, Bill.

Our next question comes from Al [Cabeli] with McCarrie.

Hi. Good morning. A question on the cost saving. I may have messed up but the 13 million, does that include the restructuring plus the GMS and does he expect us to just layer in linearly throughout the year?

The 13 million from the cost reduction program, which was the major head count reduction initiative that we launched last summer is expected to be in the range of 50 to $60 million for the year. So $13 million is a pretty good run rate. We did have some employees who didn't depart until the first quarter this year. So that number should pick up marginally. But there will also be some back fill as critical positions get restaffed. I don't see a big change from that current run rate. And for clarity, I would like to emphasize that the savings occur in both cost of goods sold and in our marketing administrative and development expenses. So you need to think about that as on the order of 50/50, 60/40 split in savings.

And to clarify on the GMS savings, how much do you think could be at risk of the $20 million if volumes don't start to recover?

Well, right now, we are not backing off of that expected level. We make a point of referring to those as benefits as opposed to savings because we are loading up the new facilities as some of our lowest cost facilities globally. And so that is still our guidance, Al, is for $20 million of incremental benefit out of the global manufacturing strategy.

Second question, big picture, Bill, clearly focused on cost control through the challenging economic environment. What are the things you are doing now to position yourself for next year to hopefully take advantage as volumes recover?

I think a couple of key points is one continuing to invest in R&D. We have an active pipeline of new product development. We actually have a couple of new products coming out in the second quarter. We actually, as you heard me say in my prepared comments, calling on new customers. One of the phenomena I seen in the earlier downturns, which I believe will occur this time is as I said we saw the top 50 customers, their volumes fall off. We also seeing our sales people have called on more new customers in the first quarter of 2009 than in 2008.

What actually happens is when the economy begins to turn upward, we get those existing 50 customers start to come back to more normal and benefits of a new customer able to pick up during this period of slowdown and you get a double whammy effect on the upside and we are doing everything we can to be well prepared for that. We are continuing with our GMS program and completing the at capacity additions that we planned a couple years ago. We were continuing our R&D pipeline and we were continuing our new product introductions and I think those are the right things to do for both the short term and the long term. So that when the economy recovers, we will be positioned to benefit.

Thank you.

Our next question comes from Fritz von Carp with Sage Asset Management.

I was wondering, I wanted to go back to the general topic of inventory destocking and thought you might have insight in your protective business as to what various sectors -- where various sectors are in terms of their own inventory destocking process. Closer to the beginning or the end. Can you give me any color?

We sell about 400 different SIC codes and I'm not sure I can tell you particularly which ones are doing better or worse. Clearly, automotive and construction and anything relates to that side or really off the edge of the charts, so to speak. We seen a lot of the pumps and valves people, they are sort of bottoming or bottomed. Things like aircraft and aerospace, excluding automotive/transportation -- excluding automotive are probably pretty well bottomed out as far as we see unless there is another leg. It's a question whether it's a W or U. I talked to someone the other day who thought it was a W but I'm not in the W camp. In terms of the recession.

So overall that's about as much color on segments. Geographically I think Europe is in a deeper trough than the US. In Latin America, excluding Brazil, our business is up double digits. Business economies segments are pretty well in Russia and in Asia and I know despite some of the concerns expressed in kind of the media about eastern Europe and the financial institutions in eastern Europe, you heard me say our business in Poland is particularly up kind of double digit. That's really about as much color as I can provide at this level.

Thank you.

Our next question comes from Tim Burns from Cranial Capital.

Bill, David, Amanda, how are you?

Good morning, Tim.

Good morning. When we think food packaging, a lot of people think of big carcasses or volumes of chicken traveling around the world. But are you benefiting at all from I guess more economic alternatives such as quick-serve restaurants, meals ready to eat, where you might be selling for instance some of your septic bags or your poly propylene trays and lids.

Tim, I think you are right. Our business -- one of the reasons we separate out the food solutions business from the core food packaging business was the focus on sort of the value add downstream components of food packaging. And we are seeing that but you have to realize too that people are eating out less that a lot of the pick up we saw in the last year or two are actually quite soft. In fact, they are down mid-single digits.

You heard me say in my prepared comments in the heat and eat category, the home meal replacement or however you want to call it, the convenience food, are simple steps microwaveable offerings up about 30%, which is an indication of people eating at home, yet don't want to go through the cooking process.

So you can bring in a simple steps entree and priced in the $3.99, $4.99 or $5 category and get a meal for three or four people and that had good volume. I think as we watch this, the mid to upper priced out dining out is probably down a lot. The low cost that you seen in the McDonald's numbers and the fast food they are holding up reasonably well and doing well. And then they eat-at-home component. Whether it's the ground beef, where we are seeing positive growth or the take-home and eat. So I think your hypothesis is correct. Still a relatively small part of our business but it's one over the longer term as consumers focus more on convenience and ease of eating that long term, we think it's the right place to be.

Great. Sounds like my wife's cooking. The other question I had was, when you guys have these unfortunate catastrophes but shifting in the consumption of protein due to whatever, Blue Ear or N1H1, do you find that your skillset in moving around production has improved because of that? And is there less loss of profit as a result?

Tim, that's a excellent point. You said something that I have been think being and maybe this gives me an opportunity to say it. The footprint we have around the world and the capability our people have and the skillsets that we have particularly with the new additions with China, Poland and Hungary and Brazil and the rest of the world, we have really got to develop a very flexible organization that can move on a dime. A dime is pretty quick. But move reasonably quickly for the size organization to build on changes in pork not going to Mexico and going into China and chicken not going to Russia coming out of Brazil.

We manage that I think pretty well and I think that's a capability that I don't think anyone else in our space has. And I will give you an example because it gives me an opportunity. In Latin America in New Mexico with the H1N1 issue, our Latin American group, our management in Mexico immediately jumped on the case. We instituted extra hygiene procedures in our plant. The employees are washing their hands every hour. We are sanitizing our equipment much more frequently. People are wearing face masks. The way in which we gotten accustomed to dealing dealing with these changing catastrophes. The organization responds and responds well. I want to compliment our organization in Latin America and Mexico for responding as quickly as they have for what's happening in Mexico. That's the capability we developed. I guess the hard way, Tim, going through a couple of these crises over the last ten years.

Got you. Go Calves. Thanks very much.

(Operator Instructions) And we have a follow-up question from George Staphos with Banc of America Security.

Hi, Bill. Bill, when volumes were down as much as they are in protective packaging for understandable reasons, I guess it doesn't matter that much product by product. I was curious if you think about the various sub categories within protective. How are they trending? Seeing instant packaging holding up better or getting worse? What are you seeing in terms of inflatables and bubble wrap and that sort of thing to the overall average.

I was just looking at those numbers just before the call and probably the instant pack business has been the one that has been sort of hurt the most and that's tends to protect the high end, high value shipments, heavily manufactured goods. Then the bubble wrap, little less down than that. Mailers are actually up a little bit. The mailers as a replacement for corrugated boxes in terms of relatively compared to the rest of the business. And foam, the thin foams are pretty much down quite a bit. Little around the instant pack range and the thick foams. The plank like the foam business which goes into computer packaging, construction insulation and that's down in the 30% range.

There is a mix in that range going from down single digits to down in the 30% range and that 20 is a composite number of them all and obviously, each of our products serve a different segment, serve a different application, serve a different channel. What you are seeing is the total and ranges probably 10% either way.

Given things you mentioned, it amplifies the benefits you got both from mix and from productivity and cost reductions when you look at the mix associated with those product lines.

Okay.

The other question I had is within food packaging, can you remind us again what product lines that you have now that are best situated to the consumer who is trying to get a meal from the supermarket, a meal replacement as opposed to eating out or prepare at home for that matter as well?

That's primarily in the food solutions business and primarily the simple steps which is the ready to heat and eat. It's a vacuum skinned entree under a tray sold under a number of brands in the supermarket in the refrigerated component of the store.

For retailer who was offering a product for the consumer to take home, what product lines are you offering there?

I'm not sure -- you mean put in the microwave and heat and eat. That will be the simple steps, right.

I will turn it over.

Operator, we are out of time. I do want to make a comment is that due to technical issues we are not seeing any text questions which have sent in over the internet. So if you have sent any questions in over the internet, our vendor has logged all of those in and will be able to answer your questions off-line or at our May 4th meeting, which will be webcasted. So I apologize we have not been able to pick up questions that were submitted over the internet. You know I always try to pick those up along the way. Please log those questions in off-line.

I do want to thank you all for participating in the call today. And I also like to thank all of our employees around the world who are really worked hard in the first quarter and made a lot of personal sacrifices to control expenses at the same time continuing to offer our customers exceptional service.

As a team, we are staying focused on improving our operating profit and cash flow from operations from the continue benefits of our productivity programs, our supply chain initiatives and management of price mix.

Even in challenging times, we are really excited about our future and we know our efforts will ultimately result in more efficient and more agile organization and we will be well positioned to accelerate sustainable growth in the organization once economic conditions improve. Thank you all again for taking the time to listen to us today. Thank you.

And that concludes the day's teleconference. Thank you for your participation.