希悅爾 (SEE) 2010 Q3 法說會逐字稿

Good morning everyone. And welcome to the Sealed Air conference call discussing the Company's third quarter 2010 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. And now at this time, I'd like to the turn the call over to Amanda Butler, Director of Investor Relations. Please go ahead, Ms. Butler.

Thank you, and good morning everyone. Before we begin our call today, I'd like to remind you that statements made during this call stating Management's outlook or predictions for the future, are forward-looking statements. These statements are made solely on information that is now available to us, and our future performance may be different due to a number of factors. Many of these factors are listed in our most recent annual report on form 10K, which you can find on our website at sealedair.com. We also discuss financial measures that do not conform to US GAAP. You may find important information on our use of these measures and their reconciliation to US GAAP, in the financial tables that we have included in our earnings release. And now, I'll turn the call over to Bill Hickey, our CEO. Bill?

Thank you, Amanda. And good morning, everyone. During today's call, I will be highlighting our business performance for the third quarter, and Dave will discuss details of our financial results. After Dave's remarks, we will take your questions, both from the phone lines and from webcast participants using text-in questions. Earlier today, we reported a 26% increase in our reported third quarter earnings per share of $0.43. And on an adjusted basis, we achieved a 13% increase. Our third quarter sales showed ongoing improvement in end market demand. And new business gain with our solutions across various applications and regions. Our consolidated sales increased 5%, to $1.1 billion, with 5% higher volumes and 1% higher price mix. These gains were partially offset by 1% on favorable foreign exchange. Volume performance improved in the quarter, even as year-to-year comparisons were slightly more challenging.

Our Protective Packaging segment led the growth with a 9%, or $28 million increase, which represented over half of our volume growth in the quarter. Another bright spot was in our Food business, where volumes rose 3%, largely driven by 5% increase in our Food Packaging business in North America, and a 7% increase in that segment's Latin American region. I should also note that equipment sales remain strong in all businesses, increasing 10% on a consolidated basis, but with a slightly lower margin contribution. Total Company price mix turned the corner, and was positive in the quarter, as earlier pricing actions and favorable contract adjustments, yielded $11 million of benefit in the third quarter. Price mix was largely driven by a $14 million, or 3% increase, in North America, from our Food businesses. These benefits were slightly muted by relatively flat price mix performance in the Protective Packaging segment, as that business has not yet received a favorable contribution from all of their pricing actions on a consolidated basis.

Developing Regions sales remained strong, with an 8% growth, which included 3% favorable foreign exchange. This growth reflected an 11% increase in sales in our Food Packaging business, and an 18% increase in Protective Packaging sales, each of which include 3% favorable foreign exchange. Our reported Developing Region growth rate was muted by pre-buying that occurred in the first quarter, as our medical customers in Asia built inventory ahead of our license renewal. Excluding our Asian medical sales to eliminate the pre-buying effect, our Developing Region sales would have increased 12%, which also includes a 3% favorable foreign exchange. Developing Regions represented 16% of our third quarter revenue, and we expect continued growth in these markets going into next year.

As for medical business in Asia, I am pleased to report that we were granted a new license in mid-September, and are currently supplying existing customers, and are expanding our presence in that market today. Input costs remained substantially high in the quarter, and reminiscent of 2008 levels, as our average resin price was only lower by 2% sequentially. Compared to the prior year period, we recorded $25 million of higher resin cost in the quarter. As price mix was positive in the quarter, we began resin cost recovery in the third quarter. And in combination with a generated [product] of approximately $10 million of benefits from productivity improvements from our global manufacturing strategy, and various cost savings and efficiency initiatives, we came close to achieving cost price parity in the third quarter. So, we are definitely moving in the right direction, and expect to continue to recover resin costs in the fourth quarter and next year. Now, I'd like to walk you through some of the key highlights by business area.

Food Packaging business constant dollar sales growth of 4% reflected the growth factors that we outlined last quarter. North American beef production rose by approximately 3% in the quarter, as compared to negative 2% production rates in the first half of the year. Additionally, we benefited from increased demand for our equipment systems, as customers continued to automate their operations, and ongoing successful piloting and commercializing solutions in easy-open and cook and shrink bags globally. For example, in Brazil, we continued to expand our market presence through merchandising programs, targeted at the local Brazilian consumers.

Price mix performance was also favorable in Food Packaging, reflecting the benefits of both prior price increases and contract adjustments. Looking ahead to the fourth quarter, we're anticipating ongoing growth, due to expectations for solid holiday meat demand, an increase in customer production rates in several regions of the world, and a steady growth in US beef export demand, which is actually up 22% for the third quarter. As resin cost recovery remains a priority, the business has also announced targeted price increases, some of which were implemented in the third quarter, and the remainder of which will be implemented in the fourth quarter. We also expect to continue to benefit from favorable contract price adjustments through year-end.

The Food Solutions business continued to experience improvement in the quarter, with a 4% increase in price mix, associated with benefits from prior price increases and contract adjustments. Additionally, the business achieved a solid 3% volume increase. North America also achieved solid growth, driven largely by Case Ready and vertical pouch packaging. And I am pleased to say that all regions achieved volume growth in the quarter, as our solutions showed strong penetration in Developing Regions, although off a small sales base. Looking at our key product families, our Case Ready business sales were relatively flat this quarter overall. However, we saw solid growth in North America, where sales increased over 15%, as we continued to expand our market presence with new customers and new applications. For example, both our Mirabella lid stock and tray package, and our Darfresh Vacuum Shrink Package, have adopted by a number of retailers in the United States and Canada. And they're helping to extend our Case Ready presence in the market and across a variety of meat types.

In Europe, Case Ready sales remained below last year's levels, but showed sequential improvement with strength in fresh pizza and in whole poultry applications. Additionally, Mirabella sales are accelerating in the region, as we have expanded our pilot test into large retailers and in growth applications, such as seafood. Our Bulk Liquids Packaging sales, led by our Vertical Pouch Packaging portfolio, increased 13% in the quarter, which included 7% favorable foreign exchange. We achieved the largest growth in North America, where sales grew over 15%, due to strong equipment demand, and improving food service industry conditions. We also had good success in other regions. In Europe, we doubled our Aseptic Pouch sales in the quarter, and are continuing to expand that product's presence into Eastern Europe. I should also note that our Ready Meals portfolio, while smaller in comparison, continues to be rolled out at various retailers as food processors adopt our packaging solutions for their expanding, ready-to-eat offerings.

So, in sum, through the balance of the year, we continue to expect similar favorable volume and price mix trends in Food Solutions, as additional targeted price announcements in the third quarter will start to benefit the business in the fourth quarter. As you saw on our financials, the Protective Packaging segment continued to be the standout segment., as the business provided over half of our increased volume. Its 9%, volume growth was largely driven by 9% growth in North America, and 8% growth in Europe. And I should also note that Developing Region volumes were up at double-digit levels.

Second quarter trends held through the third quarter, where demand increased across all industries in North America, driven from both real demand and some restocking. The European market remained characterized by uneven recovery rates, while the northern European countries represented the strongest rates of recovery and growth for us, with sales growing at double-digit rates to meet demand associated with higher industrial output, and improved consumer confidence. As previously noted, price mix was relatively flat in this segment. With resin prices remaining high, the business has already announced targeted price increases, some of which were implemented in the third quarter, and balance implemented in the fourth quarter, in an effort to continue to recover resin costs.

Shifting to our EPS guidance, we have narrowed our range from $0.20 range to a $0.06 range, is now $1.54 to $1.60 on a reported basis, or $1.56 to $1.62 on an adjusted basis. This compares to our full-year EPS guidance, which was $1.48 to [$1.60] on a reported basis. Additionally, we raised our effective income tax rate guidance to 28% from 27%, as our original guidance anticipated an extension of the US R&D income tax credit, that expired in 2009. If Congress does pass and retroactively applies these tax credits, which are approximately $0.03 per share, then we expect to be in the upper end of our EPS range.

Before I pass the call to Dave, I would like to reaffirm that we continue to anticipate ongoing recovery in our end markets in 2011, and are staying focused on innovation and bringing differentiated solutions and technologies to the market.

Our upcoming participation in the Pack Expo International exhibit next week in Chicago, will showcase several new products in our pipeline, including the launch of Cryovac 360, which is an innovative multi-layer shrink sleeve solution for primary or multi-pack labelling. For example, around beverage bottles. We are excited about this solution as it allows us to expand into new markets with a higher performing and more sustainable solution than what is available on the market today. Additionally, we will be launching our Smart Life initiative, which is an organization-wide approach designed to raise awareness about the importance of sustainable packaging. We'll also be highlighting how we are enhancing our sustainability mission through our business strategy across our solutions, and we'll be updating our five-year sustainability goals. And now, I'm going to turn the call over to Dave Kelsey to review some additional details of our financial performance and our liquidity position. Dave?

,Thank you, Bill. Bill has already commented on the components of our sales growth. Given the year-over-year volatility of exchange rates, I would like to provide some further detail on foreign currency exchange. Compared to the third quarter of 2009, our sales were unfavorably impacted by $10 million from foreign currency translation as the Euro weakened against the US dollar by approximately 11%. Our Euro-denominated sales are in the high teens as a percent of total Company sales. Year-over-year, the unfavorable impact of the Euro was partly offset by the strengthening of our diversified basket of other currencies, such as Australian dollar and the Canadian dollar.

Gross profit for the quarter increased 3%, or $9 million, to $321 million. Excluding unfavorable foreign currency translation of $3 million, gross profit would have been $12 million, or 4% higher than 2009. Gross profit growth was largely driven by volume growth in our industrial businesses. Also contributing to our higher gross profit, were $11 million in favorable product price mix from our previously announced pricing actions and contract pricing adjustments, benefits realized from our supply chain productivity improvements, and benefits from producing products in our new low-cost facilities in Developing Regions. These benefits were partially offset by approximately $25 million of increased resin costs compared to last year.

Third quarter marketing, administrative, and development expenses decreased 4%, or $7 million, to $173 million. Excluding favorable foreign currency translation of $2 million, these expenses would have decreased $5 million. This decrease was due to lower provisions for variable incentive compensation expenses, as our year-to-date results are not achieving our compensation program targets fully. We continue to invest in new product development, and these costs were higher year-over-year. For the full year, operating expenses are expected to be approximately 16% of net sales, at the lower end of our January guidance. Operating profit was $147 million, or 13% of revenue on a reported and constant dollar basis. There was no year-over-year impact from foreign currency translation.

On a sequential basis, from the second to third quarter of 2010, operating profit increased 12%. This growth was largely driven by a 21% increase in operating profit in our Food businesses, due to the benefits mentioned earlier. You may have noticed in our financials, that our tax provision increased to 28%, from 24% last year. As Bill indicated, this was mostly due to the benefit of the utilization of some US income tax credits, namely the R&D tax credit in 2009, but which expired, and have not yet been renewed for 2010.

I'll conclude with some key cash flow and balance sheet items. Cash and cash equivalents increased $100 million in the third quarter, to $762 million at September 30. During the quarter, we paid cash dividends of $21 million and used $20 million for capital expenditures for maintenance, sales growth and productivity improvements. Our total year capital investment is still expected to be in the range of $80 million to $100 million. This range includes our second quarter investment in an additional manufacturing facility in Brazil, and is consistent with our annual capital spending, before commencing our GMS projects in 2006.

Our receivables increased $49 million from June 30, 2010 on a reported US dollar basis. Excluding foreign currency translation of $32 million, which reflects a strengthening Euro in the quarter, our receivables increased $17 million, in line with our increased sales volumes. Based on an analysis of day sales outstanding and past due aging balances, the quality of our receivables remains good. Inventory investment increased $27 million during the quarter. Excluding foreign currency translation of $22 million, also mainly due to the strengthening Euro in the quarter, inventories increased $5 million, reflecting our seasonal trend in inventories where we build up inventory ahead of peak fourth quarter demand.

Debt, net of cash and cash equivalents, at September 30 was $826 million, down $96 million from June 30, 2010, mainly due to the accumulation of cash and cash equivalents in the quarter. Also, at September 30, we had no amounts outstanding under our global or European credit facilities, or our Accounts Receivable Securitization Program. Our available committed borrowing capacity was over $750 million at September 30. As shown in the supplementary information furnished with the financial statements, we generated $206 million of free cash flow in the first nine months of the year. This reflects an unfavorable impact of foreign currency translation on our working capital items, of approximately $20 million. Historically, our first and fourth quarters are the strongest quarters for generating free cash flow. We continue to expect free cash flow to exceed $300 million in 2010. Now, I'll turn the call back to Bill and to your questions.

Thank you, Dave. Operator, we'd now like to open up the call to any questions from the participants, and we'll follow up with any text questions from our webcast participants as well.

Thank you very much. (Operator Instructions). Your first question comes from the line of George Staphos of Bank of America. Please proceed, sir.

Thanks. Hi, everyone.Good morning.

Good morning, George.

I guess my first question is around pricing. As I recall from earlier in the year, and even last year, the Company I think stated that it would be a bit more aggressive and timely in raising prices to offset inflation and input costs. We talk about global manufacturing, we talk about new products, we talk about emerging markets, but at the end of the day, it seems to me that getting resin passed through still winds up being the biggest thing that we talk about, or that you talk about in your press releases. So, from here on out, why should we expect that you will be more aggressive in passing through resin when you had very little that we could see in Protective Packaging in the third quarter?

A couple things in Protective, George, just to point out. One is, European price increase went into effect in September, September 1, and Europe actually had a resin increase earlier than North America. North America had their resin price increases, and resin price increases actually didn't occur until really the last month of the quarter. So, we're out there within 30 to 45 days of the increase with our price increases. Kind of the second, and the numbers aren't clear here, because we have this item called price mix. And on the Protective business, one of the largest single growth products was the inflatable product line, which grew about 16.9%. And that does have a lower margin than the rest of the Protective business. So, that is appearing in the price mix column. It's appearing as you're attributing it to price, but it's actually a mix component of it. If you take that out, the number is essentially flat. So, it does have an impact when you folks look at price mix.

And I think the third item was, is there were some rebate adjustments in the quarter. And that occurs when customers hit certain volumes, they hit certain rebate levels. So, you put all of those together, I think getting our price increases out quicker or something, we have done. The price mix, the mix component of it, obviously we've got to find a better way to communicate that to you. Kind of the rebates is, just happens during the year. So, those are essentially the three components. And you'll see with Europe, Europe actually had only one month of price increase. The US really didn't have any months of it. But again, the US cost increases were [occurred] at the very end of the quarter. So, the answer is we are more aggressive. I think 30 to 45 days is pretty reasonable, which is a lot faster than Sealed Air had historically done. And it will always be a 30 to 45 day lag, George.

Okay. Bill, I appreciate that. The follow-on I had, you had mentioned that you will effectively offset this, that's my wording not yours, but I thought that's what you were saying by fourth quarter. But, you also said into 2011. So again, around the same theme, why would it take into 2011 to offset the input cost pressures you've seen? Thank you.

I'll just say, perhaps being conservative there, the price increases kind of roll through. And I'd sure like to target it all for the end of this year, but we just gave ourselves a little leeway.

Okay, thank you.

Yes.

Your next question comes the line of Ghansham Panjabi of Robert W. Baird. Please proceed.

Good morning. It's actually Matt Wooten sitting in for Ghansham. How are global beef price increases and changes in consumption affecting the volume distribution across your Food businesses?

We haven't seen that much of an effect. Interestingly enough, beef is actually up in the third quarter versus the first half, even though prices are up somewhat. US exports are up, primarily on actually the strength of the Australian dollar, which actually has opened up markets to US beef competitively that Australia had previously supplied. And if you asked a question about Australia, Australia beef exports are actually down. But as far as your question on beef consumption related to prices, we haven't seen much of an impact in overall consumption. We've seen it shift around the world. Brazil, because of the strength of the currency, is actually consuming more beef at home than export. But that's probably the best I can give you right now, is flavor, as things are around the world.

Okay. And then a follow-on, if I could. There's been quite a lot of M&A activity in the plastic packing niche over the last 18 months to 24 months. Has there been impact on Sealed Air, and do you expect be more aggressive on M&A in 2011?

We've always been a net [acquirer] in this industry. We continue to look for the right assets. We'll see what happens.

Thank you.

Your next question comes from the line of Rosemarie Morbelli of Ingalls & Snyder. Please proceed.

Good morning, all.

Good morning.

Bill, the reason for your guidance, I understand you are narrowing the range, but what was in your assumptions that would have gotten you to $1.70 and have changed, which will only get you at the high end to $1.62?

I think a lot of it was more stable resin in -- I mean if you look earlier in the year, most projections were flat resin through the balance of 2010. The increases that occurred at the end of the third quarter, the $25 million that Dave referred to in his comments, was sort of not there when we did the earlier guidance in the year, Rosemarie. And we've been pretty good on the outlook for volume, but a higher volume would have given us at the upper end. But, I'd say the most significant piece has been the higher input costs that occurred, that were not in the original outlook.

Okay, that is helpful. If I may, at 14.5% your Food Packaging margin is at its highest point. How high do you think it can go as volume increases? What is some kind of a long-term goal?

I think we've said on numerous occasions, that our goal for the Company, and it would include each of the businesses to get back to a 15% operating margin. That's our intermediate goal, that's what we're working towards, and that's what we're aiming for.

Okay, thanks.

Your next question comes from the line of Phillip [Ing] of Jefferies. Please proceed.

Good morning guys. Just a quick question on the Protective Packaging business. [Volume] isn't very strong, but comps start to get a little tougher in Q4 and next year. Wanted to get a feel for what kind of outlook you have on the volume front for Q4. And as we look at 2011, what's the normalized run rate going forward?

We're still looking for, I'd say, mid- to-high single-digits as you look forward. That's sort of where we see that business over kind of the intermediate term. And the economy's been holding up. I know there's always been a concern about the possibility of a slowdown later in the year or double-dip, but right now, the numbers we see don't show a double-dip. And if there's a slowing down from the 9%, we're saying from the mid- to-high single-digits.

Okay. And then, I guess bigger picture, just from a -- when you look at your portfolio products longer term, are there any areas that you want to get bigger in? Or, do you think there's a void from a technology standpoint or material from a geographic perspective?

[I think it gets bigger in everything]. Yes, but I do think we'll increase our presence in medical.

Okay.

I do think -- one of the things you've heard me say a number of times is more of the business will continue to be outside the US. The Asian business, if you look at the components, I mean Protective business in China was up 23%, and the Food business in China was up 31%. So, those are the parts of the world that'll get a bigger share of our attention, our sales growth.

Okay, all right. Thanks guys.

Your next question comes from the line of Sara Magers of Wells Fargo Securities. Please proceed.

Good morning. I have a quick question regarding -- actually just a piggyback on George's question on the Protective Packaging volumes in the quarter. Was there any kind of pre-buy given the price increase that happened in September? How did the volumes trend throughout the quarter?

Yes, I actually think July was probably our slowest month of the quarter. July was actually probably our slowest month of the quarter. August got a little bit better, September got a little bit better. But the price increase September 1 wouldn't have affected the quarter. So, so you had the back-to-school effect, so to speak, but I wouldn't see any pre-buying in Q3.

Okay. And then on the CapEx guidance, as we get closer to the end of the year, where do you expect to really come in regarding the CapEx range of $80 million to [$100] million? Because if you keep on trend that you've been going on through the balance -- I mean for the beginning three-quarters of the year, you'll probably end around $80 million, which is the bottom end of the range. So, is there anything that you have done so far in Q4 or that you're expecting to do in Q4 that would lead us to assume otherwise?

Dave?

It is a little inconceivable to think that we would get $40 million out the door by December 31, but there are a number of growth projects that we will be evaluating for investment. But those dollars are more likely to actually get spent in 2011. So, from a guidance perspective, it is realistic to trend us to the lower half of the range.

Okay, great. Wonderful. Thank you very much.

Your next question comes from the line of Rick Skidmore of Goldman Sachs. Please proceed.

Good morning. Just like to ask a question about Case Ready, and specifically what you're seeing from a competitive standpoint in Case Ready. We're understanding that there's a competitor out there with a product that helps to maintain the color of the meats. So, just wondering how you're seeing the competitive dynamic in that business.

We really haven't seen anyone in the marketplace. We still think we have the leading role in Case Ready, both the US, Europe, Latin America, and Asia. And we really haven't seen any significant competitor in the marketplace.

Okay. And then just maybe shifting, can you give us a better sense of how your new product pipeline looks currently?

I think the new product pipeline looks pretty good. I know I mentioned during my prepared comments that we will be participating in the International Pack Expo exhibition in Chicago next week. It's Sunday, Monday, Tuesday and Wednesday. And we will be exhibiting at least five new products that have not been seen before, which will be pretty exciting. So, if anyone is in Chicago, you're welcome to contact Amanda, and we'd be happy to show you what we're showing to our customers.

Great, thank you.

Your next question comes from the line of Al Kabili of Macquarie. Please proceed.

Hi, thanks, and good morning.

Morning.

Just a question, if you could help us clarify, on the price increases in Europe Protective Packaging. Just if you could give us a flavor for kind of average overall magnitude of those price increases. And then secondly, in terms of where you need to take pricing to recover the resin cost inflation, what percentage does that put you there in terms of what you've got in September that you mentioned? Thanks.

Yes, the Europe price increases were September 1, and those were probably mid-single digits. And North America is also mid-single digits. And if you look at our topline numbers and you're looking at saying we're trying to recover $25 million in resin, it doesn't take too many percents off of $4.5 billion, or $1 billion-plus a quarter, to kind of get you there.

Okay, fair enough. But second question I suppose is on specialty resins. Could you comment on what you're seeing on the cost front on specialty resins? If you've seen any uptick recently there? Thank you.

Yes, the specialties have ticked up a little bit. The specialties ticked up a little bit, obviously not as dramatically as the commodities, which go up $0.05 and $0.06 at a time. But they have sort of ticked up slightly over the last few months.

Okay, thank you very much.

Your next question comes from the line of Gil [Alexandre] of [Darfield] Associates. Please proceed.

Good morning. As you look into the future, would you have a rough idea what your capital expenditures could be in the 2011-2013 period?

Gil, it's great to hear from you, it's been a while. But let me let Dave answer that question.

I think there's a bit of a circular answer to that. It really depends on the growth rates we see in some of the new platforms. The $80 million to $100 million range that we have for our guidance this year is a good baseline for the business on a going-forward basis. That covers both maintenance, Capex and sufficient incremental capacity to support a mid-single digits growth rate in our core products. To the extent that we have higher growth in emerging markets or we start to get some real traction in some of our new growth platforms, then that amount would have to be ratcheted up. So,the next time to sort of check in on that would be at the end of January. When we give our guidance for next year, we'll have a much better handle on the investment requirements for some of those growth platforms. So, you'll see that both in our revenue projections and in the capital required to support those revenue projections. Okay, operator?

Your next question comes from the line of Peter Ruschmeier of Barclays Capital. Please proceed.

Thank you, good morning.

Morning.

I was trying to better understand the relationship between your organic sales and your margins. If I look on a year-over-year basis, your Food Solutions had the best year-over-year margin improvement and yet it had the slowest organic growth rate. I guess I would have expected Protective Packaging, with a much faster organic growth rate, to have better margin uptick from the contribution margins. Can you help me understand those relationships?

I'll try to do it as simply as I can. But basically, mix is a big component of that. In Food Solutions, I'll start with that one, is a lot of that business contains outsourced trays. I think you've heard us tell the story before, is that for our Case Ready product, we don't manufacture the trays for most of the offering. We actually outsource the trays. And those are made of a different material, those are styrene. And as tray sales have gone down somewhat and film sales have gone up, they've really given a favorable mix component to the price mix on Food Solutions. So, they've kind of benefited more from the mix than the price side. And Food Solutions also had price increases in July, so they got the full benefit of that for the quarter. On Protective, you've got price increases going in in September and afterward, and those benefits will kind of follow. So, you've got a mix effect and a timing effect. But I understand where you're coming from, but they're two different businesses. On an apples to apples basis, organic growth in Protective compared to Food Solutions at constant raw material costs, Protective would be higher, yes.

Okay and just lastly, if I could, Bill. How significant is the pending Grace settlement as you think about your business? Has this held you up from strategic steps or actions you might consider? Or, is this -- once the settlement comes and goes, is it really business as usual [for you] there?

It's been somewhat of a weight on our shoulders, so to speak. Obviously it's a question investors ask. I know we frequently get questions. Now obviously, as the time has gone on and the settlement's come closer into view, the number of questions have gone down. But, in the early years of this nine-year odyssey, there was always concern that Sealed Air would be dragged back into court. So, I do think it's been an overhang on the Company. I think it's been somewhat of an overhang on our ability to raise capital at some point in time. Again though, that's probably gone down as the settlement has gotten closer. And it's got a negative effect on our earnings, as we spent a good bit of our cash flow for the last several years investing in asset on the balance sheet called cash so we can make the payment. And the negative arbitrage on that is about $0.12-plus, $0.12 to $0.14 a share. So yes, we'll feel very good when this is finally over. And as we said in our press release, it will result in a $0.12 to $0.14 per share pick-up in earnings per share just from eliminating the negative arbitrage on the balance sheet, as well as freeing up our future cash flow for investment in the business or paying down debt, or returning cash to shareholders.

We certainly look forward to the settlement. Thanks very much.

You have a follow-up question from the line of George Staphos of Bank of America. Please proceed.

Thanks, hi guys. Jumped back on. I wanted to piggyback off Pete's question there. Bill, is your read on the ramification and benefits to you still the same as was the case back earlier in the decade that when Grace does come out of bankruptcy, it once and forever resolves whatever issues you might have with Grace's claimants?

Yes, I think the settlement that we mentioned years ago, essentially gives us the protection of 524 G, which is a code provision that directs any claims related to asbestos to the trust and away from the Company that has that protection. So yes, we still believe that is the case. Yes.

Okay, now the related question to that is, Bill, again from my vantage point anyway, it doesn't look like you need any more capital, but rather you've probably got too much. Now again, that's our view, not necessarily yours. Could we see something more structural, more significant in return of capital back to your various constituencies once this occurs?

George, I really wouldn't want to speculate as to what we might do right now.

Okay. But it is one of the options that you'd be considering presumably?

There are many, many options.

Okay. I'll leave that to decide. The last question, and I'll turn it over, within Food, could we see an accelerated pick-up in demand for your packaging relative to what ranchers and feed lot operators are seeing right now in terms of feed costs and margins on cattle? I guess the point being, margins go down, you see accelerated slaughter, at least there's short-term pick-up in demand for your product, but longer term it [stunts] the cattle cycle again. Or, do you think this is -- we should have a normal cycle from here on outgoing forward.? Thanks. Good luck on the quarter.

No, actually George, that's an excellent question. I just read yesterday afternoon, so I'll have an update on the cattle. Actually, the near-term outlook is more cattle coming to market, probably at the expense of 2012 and some of 2011, mostly 2012. So, if feed costs remain high, more cattle will come to market sooner, and that'll be sort of a little bit of a gradual dip through the 2012 period and we'll build back up again the 2014. So, now the differences are plus or minus a couple of points. So, they're not dramatic differences. But, a 1% increase in cattle coming to market means a lot to us.

Especially when you look at the margins that you make in your Food Packaging business overall. But we appreciate the color, and good luck in the quarter again guys. Thank you.

Thank you.

Your next question comes from the line of Stewart Scharf of SP Equity. Please proceed.

Good morning. Would you be able to -- do you have any comments on Venezuela and any impact from some of the events with Chavez nationalizing operations? And what percentage of your business comes from Venezuela?

I think it's about 3%. Dave's got some more updated numbers, but it's about 3% of our business. Dave, do you want to want throw a little [flavor] on that?

Yes, it's probably in the ballpark of $20 million to $25 million in annual revenue. Compared to the other company who was in the news earlier in the week, it's a much more modest percentage of our consolidated net earnings, less than 5% of our consolidated net earnings. And given the nature of our business, where we import semi-finished product into the country and then finish it for customer specifications, I don't know that we would necessarily see a cutoff in our sales to Venezuela. It may just be a case of selling more finished product into the country as opposed to semi-finished product. So, we've certainly been watching things closely there, not just in the last three days, but the last several years, given the volatility of exchange rates and the challenging economy. But we do serve primarily the food industry. It's been a business we've managed successfully over multiple decades, and we continue to expect to have a profitable business in Venezuela.

Okay, thank you very much.

Okay, operator we have one more question here on the telephone, and then I'll look at the webcast

You have a follow-up question from the line of Sara Magers of Wells Fargo Securities. Please proceed.

Thank you for taking my follow-up. I just have one, and it's regarding resin. What are your assumptions for resin implied in your guidance? In order to get parity in Q4, do resin prices have to stay about where they were in September? Are you just looking -- I'm just looking for a range in what you have [vetted].

I think our outlook right now is pretty flat for the rest of the year.

Okay.

In terms of where we are right now, the increases that have occurred should continue through the rest of the year.

Okay, so flat, then?

Right, flat.

Wonderful, great, thank you very much. Good luck in the quarter.

Okay, thank you. I have a question from the webcast. The question is "Is the Company committed to achieving full investment grade credit ratings, and what is S&P waiting for? Completion of investment litigation or something else?" I really don't think I can comment on what any of the rating agencies may be waiting for. Obviously, that's a question they're more prepared to answer than we are. But, we anticipate that when the Grace settlement occurs to the extent that it has been a cloud over the business, that the various rating agencies may take another look at Sealed Air. And it's very possible they could decide to raise our rating to investment grade. But obviously, that's a decision that would have to be made by the rating agencies. And I guess any questions would have to go to them. But thank you for the question. At this point, operator, I think that concludes the questions. And I would just like to make a few closing comments before we wrap up the call.

I'd like to thank everyone for your time and participation. Our business picked up momentum in the third quarter, which we feel will hold through the year-end and into 2011. The ongoing economic recovery, strong growth in developing parts of the world, which is supported by an extensive lean footprint, a focus on recovering input costs, and our continued commitment to innovation and investment in the differentiated pipeline of solutions, remains our focus. We believe that strong execution and a balanced approach will continue to drive improved results and allow us to achieve our long-term goals and create value for all of our stakeholders. And I'll reaffirm again, that I'm proud and happy to be a Sealed Air shareholder. And thank you for taking the time to listen to us today. Thank you.

Thank you for joining today's conference. This concludes the presentation. You may now disconnect. Good day.