Silgan Holdings Inc (SLGN) 2007 Q1 法說會逐字稿

Thank you for joining the Silgan Holdings first quarter 2007 earnings conference call. today's call is being recorded. From the Company today we have Tony Allott, President and Chief Executive Officer. We have Bob Lewis, Executive Vice President and Chief Financial Officer, and Malcom Miller, Vice President and Treasurer. At this time I would like to turn the call over to Mr. Miller. Please go ahead, sir.

Thank you. Before we begin the call today, we'd like to make it clear that certain statements made today on this conference call may be forward-looking statements. These forward-looking statements are made based upon management's expectations and beliefs concerning future events impacting the Company and therefore involve a number of uncertainties and risks including, but not limited to, those described in the Company's annual report on Form 10-K for 2006, and other filings with the Securities and Exchange Commission. Therefore, the actual results of operations or financial condition of the Company could differ materially from those expressed or implied in the forward-looking statements. With that, let me turn it over to Tony.

Good morning, everyone, and welcome to our first quarter earnings conference call. As usual, our agenda for this morning will be to review the financial performance for the first quarter, to make a few comments about our outlook for 2007, and then after the prepared remarks we'll be pleased to take questions.

Well, there is no question that we've gotten off to a strong start with our first quarter of 2007. As you will see, we earned $0.75 per diluted share for the first quarter, well ahead of our expectations, and the $0.45 reported in the first quarter of 2006. A lot went right for us in the quarter, some of which increases our confidence for the year, and some represented a timing benefit which will impact later quarters, as I'll discuss in a minute.

Each of our businesses performed strongly, well ahead of prior year results. The closures business benefited from the inclusion of the international operations acquired in June of 2006, which continues to meet our expectations. Plastic benefited both from the continued progress on operating efficiencies, as well as the inclusion of the Cousins-Currie business acquired in December of 2006. This business was modestly accretive in the first -- in its first full quarter.

Finally, the food can business significantly outperformed our expectations as strong operating performance was complemented by a continued provisional build at inventory levels in advance of the union contract negotiation and plant closings, as well as our having realized some early benefits from those plant rationalizations. Neither the inventory build nor the plant rationalization benefits impact our full year estimates, as the inventories expect to be consumed by year-end and the rationalization is essentially a shift of timing of the total benefits.

Taking all these factors into account and the fact that we're still early in the year, we've increased our full year earn investment by $0.05 per share to $3.15 -- or, a range of $3.15 to $3.25 per diluted share. We have estimated a strong second quarter as well, at $0.65 to $0.75 per diluted share, or an increase of 20% to 39% over the second quarter of 2006.

As a result, it might appear that the second half of the year estimates do not compare favorably with the prior year, but these estimates include a negative $0.20 per share comparative impact of the planned inventory reduction. And keep in mind that the last half of 2006 also included a $0.15 per share benefit of a tax credit.

To be clear, the $0.20 per share comparative impact of the inventory shift represents the sum of the overhead benefits that we realized in the second half of 2006, which is more than half of the total, and the negative impact of reducing that inventory this year. So, less than half of this amount represents the unusual cost levels that will be incurred in the second half of the year.

Finally, we do anticipate strong cash flow generation for the year bolstered in part by this inventory reduction and continue to look for financial acquisitions to further strengthen our strategic position in these markets.

With that, I'll turn it over to Bob to provide some more specifics on the quarter performance and our outlook.

Thank you, Tony. Good morning, everyone. As Tony commented, each of our businesses did get off to a strong start in the first quarter and delivered financial results well above our estimates. On a consolidated basis, net sales for the quarter were 650.8 million for the quarter, up 80.9 million, or 14.2%, due to the inclusion of the international closures business and Cousins-Currie, each acquired in the latter part of 2006.

Additionally, our net sales benefited as a result of the contractual pass-through of higher raw material and inflation in other manufacturing costs, particularly in our metal food container business. These benefits were offset by slightly lower sales in the plastic container business as we pass through lower resin costs to our customers.

Net income for the quarter was 28.5 million, or $0.75 per diluted share, compared to net income of 17.2 million, or $0.045 per diluted share in the prior year quarter.

Based on our review of providing better comparisons and as included in Table 4 of the press release, adjusted net income per diluted share was $0.77 in the first quarter versus $0.48 in the prior year quarter, each of which excludes the impact of rationalization charges.

The rationalization charges of 1.1 million recorded during the first quarter of 2007 are related to the ongoing costs associated with the St. Paul and Stockton rationalization plans which were initiated during 2006.

As discussed previously, we announced the closing of our Valencia plastics facility during the first quarter of 2006, and therefore incurred a rationalization charge of 2.2 million during that quarter.

Interest expense increased $4.8 million during the first quarter of 2007, versus the same quarter a year ago, as we had higher outstanding borrowings directly related to the 2006 acquisition activity. Interest expense was also negatively impacted by the effects of higher market interest rate.

Consistent with the seasonal nature of our business, our first quarter debt balance increased versus year-end, as we used our revolving credit facility to fund working capital requirements. As a result, we closed the first quarter of 2007 with outstanding debt on the balance sheet of $1,135,000,000, compared to $857 million in March of 2006. The increase versus the first quarter of 2006 is a result of acquisition borrowings and a built-in provisional inventory offset by cash flow use to pay down debt at year-end.

Our fixed rate debt ratio at the end of the first quarter was 61% versus 47% in the same quarter last year. This increase is a result of swaps associated with the debt used to fund the 2006 acquisitions. Our current fixed debt ratio is consistent with our historical percentage and in line with our policy.

For those looking at cap liquidity metrics, depreciation and amortization for the first quarter of 2007 was 32.2 million versus 29.8 million for 2006. On a full year basis we expect depreciation and amortization in 2007 to be slightly higher than the 126 million recorded in the prior year, as depreciation associated with capital spending and the 2006 acquisition activity is partially offset by depreciation falloff from previous acquisitions.

First quarter capital expenditures total 37.5 million compared with 26.7 million in the same quarter last year. Our current 2007 capital forecast is approximately $130 million. Additionally, we paid a quarterly cash dividend of $0.16 per share in March, the total cash cost of which was 6.1 million.

I'll now provide some specifics regarding the financial performance of each of our franchises. First quarter net sales in the metal food container business were 345.6 million, an increase of 10.8 million versus the same period in 2006. The increase was a result of the pass-through of higher raw material costs and inflation in other manufacturing costs. I'll also note that food can volumes were up slightly for the quarter.

Income from operations in the metal food container business increased 10.6 million to 28.8 million for the quarter. This increase was attributable to improved manufacturing performance and ongoing cost reduction initiatives, and we experienced savings associated with the St. Paul and Stockton shutdowns ahead of schedule.

The metal food container results also included a year-over-year benefit of the lag contractual pass-through of inflation and other manufacturing costs as the pass-through has become effective on the contract anniversary date.

The first quarter also benefited from a temporary inventory build ahead of union contract negotiations and plant shutdowns. We continue to build inventory during the quarter in an effort to protect our customers and maintain supply leading into these events. This benefit is temporary as we expect to work off this inventory, as well as the inventory build in 2006 through the back half of 2007.

Net sales in the plastic container business were 162.4 million for the first quarter 2007, essentially flat with the prior year quarter. As the impact of the Cousins-Currie acquisition was offset by the pass-through of lower resin costs and reduced revenue due to the impacts in the Valencia rationalization. As a result, plastic container volumes were also flat on a year-over-year comparison.

Income from operations increased in the first quarter of 2007 by $6 million to $19.8 million versus the same period a year ago. Contributing to this increase were the benefits derived in the continued cost reductions including the Valencia rationalization, the addition of the Cousins-Currie acquisition, and rationalization charges for the closing of the Valencia facility, which were recorded in the first quarter of 2006.

Net sales of the closures business increased twofold to $142.8 million in the first quarter of 2007. This increase was directly attributable to the acquisition of the international closures business completed during 2006. The increase in income from operations in the closures business was also a result of the international acquisitions as operating income increased 5.2 million to 15.8 million for the first quarter 2007.

As you saw in this morning's press release, we increased our full year earnings estimates by $0.05 per share to a current estimate of adjusted net income per diluted share in the range of $3.15 to $3.25. While we significantly exceeded our earnings estimates for the first quarter, much of this benefit is temporary and is expected to reverse through the last nine months of 2007. The most sizable impact is related to the work-off of the inventory which was built during the latter part of 2006 and the first quarter of 2007.

We expect all this inventory benefit to reduce in the back half of 2007, resulting in a comparative negative impact to earnings of approximately $0.20 per diluted share. We also benefited from a timing difference related to the rationalization of St. Paul and Stockton. We were able to realize benefits ahead of the initial plan as we are now operating under a phased closing of these facilities. However, this results in a later final closing date and therefore the full impact remains unchanged.

We're also providing estimates of adjusted net income per diluted share for the second quarter of 2007 in the range of $0.65 to $0.75 per share. The primary drivers of the increase versus the prior year are the impact of the 2006 acquisitions, benefit to the rationalization programs, and better year-over-year volumes in the metal, food and plastic container businesses.

We continue to estimate we will generate approximately 150 million of cash assuming capital expenditures of 130 million that would be available for acquisitions, further debt reductions, or other permitted purposes including dividends, share repurchases, or additional capital expenditures. As we have said previously, our preferred use of this cash is to continue investing in the growth of the business either by finding good strategic acquisitions or making further capital investment.

At this time I will turn it over to Lisa so we can open it up for Q&A. Lisa, would you please provide directions for the Q&A session?

Thank you. (OPERATOR INSTRUCTIONS) Our first question today comes from George Staphos with Banc of America Securities. Sir, your line is open. Mr. Staphos? I'm hearing no response from him. We will go to Edings Thibault with Morgan Stanley.

Good morning. This is Allison Plume calling on behalf of Edings Thibault.

Good morning. Allison?

Yes.

Okay, good morning.

Quick question. Given the increased dedication of land to corn for ethanol production, are you seeing any evidence of an impact in other crops?

That's a good question, first of all. The answer is, yes, there's impact. For everyone who may not know, but the ethanol is driving up the cost of corn and, in fact, many other agricultural products, maybe even into livestock, etc., as those products are consumed. And essentially what has happened is that it's made it much more expensive to contract for acreage to grow corn, in this case of your question.

What we understand to be the case is that our customers have now successfully contracted the acreage that they need. So, essentially, they do have the acres they need, so our expectation right now is for a pretty normal, at least attempt at growing corn during the season. But they're certainly having to do that at a higher cost and will have to pass that through, I assume, to the market subsequently.

So, the quick answer is the acreage is there for us, but it is going to be a higher price to our customers.

Okay, great. Thanks very much.

And next we'll take a question from Chris Manuel from KeyBanc Capital Market.

Morning. This is actually [Gabe Hadeon] for Chris. Congratulations on what looks to be a fabulous quarter. Just a couple of things here. With volumes looking to be flat in the quarter, and it looks like expectations for slightly up in food and plastics -- am I reading the body language right there?

Well, I would say no change, really, what we talked about at the end, when we first put our estimates out, that you're right, flatish on volumes. Really, if you look at kind of what we had talked about food cans for the year, that's essentially what we were expecting for the year. So, there should be really no surprise there. What we had talked about is essentially we had some problems with our pack in the West Coast, certainly the timing changed a lot as tomatoes shipped in from Q3 to Q4 last year.

But you may recall, by the end of the year we said tomatoes came out okay, and then the Midwest had a very strong pack last year. So, our thinking is we'll pick up a little bit on tomatoes, and then we should pick up a bit on fruit, on the peach side, but the Midwest would be off of that. So, the net of that is we were thinking kind of flatish on the can side and no real change in that from what we're seeing now.

The plastics, we had talked about unit growth. We still anticipate unit growth as we go through the year. We were not anticipating it in the first quarter. One of the things is we're cycling over the shutdown of the Valencia facility on the plastic side, so we knew we were going to lose the volume -- some volume associated with that. Alternatively, we have the inclusion now of the volume from Cousins-Currie. So, the net of that on flat looks pretty reasonable to us at this point. So, we are expecting some volume growth on the plastic side as the year progresses.

Okay, so the anniversary is really set in the first quarter.

Into the second quarter.

Of Valencia, okay. And then moving on to the Cousins-Currie acquisition, it looks like you indicated slightly accretive to the first quarter. Is that a little bit ahead of what you guys were looking for? And, two, I guess have you guys identified any sort of synergies or technologies you may be able to adapt?

Yeah, it is a bit ahead. I think we would have naturally been a little cautious just because it was the first quarter out of the box, and so it certainly was better than what we probably would have had ourselves prepared for. It was a very good quarter for that business. There were some synergies that we had anticipated when we did the deal, and those looked to be real and kind of coming through already in the first quarter. So, the financial answer to your question is it was a little better than we expected. It certainly puts us feeling as good on the business as we had hoped, maybe even a bit better than that, frankly.

And then the soft answer to your question is, the integration goes very well. You'll recall we were very -- felt very good about the management team and the way the business had been managed in the past. We've been very careful to try to integrate that team in a way that they can continue to provide the values that they had in the past. So, far that has been quite successful for us.

Perfect. Thank you, gentlemen. I'll hop back in.

And next we move on to Dan Khoshaba with KSA Capital.

Hi, good morning, guys. Good quarter. Let me ask you a question. The acquisition pipeline, how does it currently look relative to maybe this time last year? Are you seeing more opportunities in metal versus plastic and are you still able to look at properties in this environment without being involved in competitive bids?

Yeah, I would say just kind of generally, because that's the only way we would talk about it, that the -- there's quite a bit that seems to be out in traffic and being discussed and thought about, etc. So, I guess I'd say maybe a little more than a year ago. It also seems that the -- to some degree the financial sponsors seem to be more interested in bigger deals now, and perhaps a bit less interested in some of the deals that fall more to our sweet spot.

So, to the extent there was competition there, and you'll recall we don't usually buy at auction anyhow, so there probably was not ever a lot of direct competition. But I would say there's a little less of that, that the smaller properties are probably not as target focused for the financial sponsors anymore.

Okay. And kind of an unrelated question. I believe it was two plants that you closed in the -- correct me if I'm wrong -- but in the Minneapolis or Minnesota area?

No, one is in St. Paul and one is in California.

Okay, so you were going to move the volume in those two plants to other facilities.

That's correct.

And you thought you'd be able to do that without losing any business. How is that working out? Were you able to essentially keep all of that volume? Are you still getting benefits from integrating that volume into these other plants? What would you say the success has been in that endeavor?

Yeah, the success has been very good. Bob mentioned in the script, but it's happening a little differently than we thought. What we thought we would be able to do is essentially build enough inventory to go black on those plants a little earlier. And because the customers continue to be there, because supporting customers are A-1 priority, essentially we've done it a little different. We still build inventory, which is part of the inventory build that you saw in Q4 and Q1.

Right.

But we also went to more of a ramp-down process, where we're taking some lines down, we're keeping some running so we can supply the customers, and that will end up being a slightly later [inaudible] close. So, the total benefit in this year is about the same. We're getting a little more earlier.

Okay, great, great. And then last question, if I could. It's tempting when I have you guys on the phone. The White Cap acquisition obviously doing very well. You bought the one piece earlier on, and then recently not too long ago closed on the second piece, correct?

That's correct, yeah.

How is the second piece working out, and what are you doing there? Is there anything to do at all, or is it just locked and loaded and producing?

Well, first of all, the first piece that we bought in Europe, which was 87% of the total business. So, I don't want to spend a lot of time on the second piece, but I also don't want everybody thinking it's not doing well. So, the second piece you're referring to was essentially the Venezuela location and China and Philippines, depending on our timing here. And the quick answer is they're all doing very well. No concerns there at all. Essentially each running a little bit better than we had anticipated at this point.

Okay, great. Thanks a lot, guys.

And next we'll move on to Christopher Butler with Sidoti & Company.

Hi, good morning, gentlemen. You probably gave this to me, but I missed it. The volumes in the metal container segment for the first quarter, did you give us that number?

We did. I think what we can tell you is that it was up very slightly, half a percent type range.

Okay. And baked into the -- into your assumptions for metal containers, I think you said it's fairly flat over the course of the year. Should we -- are you expecting any tip-over in the easy-open containers during the course of this year, or are we looking out 2008 at this point?

Well, there will be a little bit this year. We are anticipating a bit of growth on the easy-open end. We don't have a lot of capacity left, so we really couldn't support a major tip yet. That's part of why we're putting in more capacity that will be here the beginning of 2008 or late 2007, so ready for the busy season of 2008. So, there really wasn't opportunity for sizable increases there, but on the margin there will be continued growth on easy-open end this year.

Okay. Could you give us an idea of your assumptions for cost of resins and also in the metal container segment here baked into your guidance for '07?

Sure. First of all, let's start with metal. Metal, the most important thing is that most people on the call know it, so I'm repeating it, but 90% of our business is under contract. Those contracts allow pass-through the metal. So, whatever happens there would be pass-through to our customers, which does not mean we're indifferent to it, it's just financially you're buffered from it.

Basically what happens in the steel industry is you get an increase at the beginning of the year, and so we're already through that. We had talked, I think, last quarter that that increase in the U.S. was -- announced increases were mid-single digits up to 10%, somewhere in that range. So, that increase came early in the year. That's gone to market, in essence, and really no issue to report there at all.

The aluminum market, by the way, does move more -- it's more volatile, but typically our customers bear kind of the direct risk of the movements in the market. You could hedge if they want to or not, but generally speaking there's really no impact to us in that regard.

Then on the resin side, essentially we are now at a point where resins are on the climb again. There was a fall-off middle of Q4 into Q1. As inventories have been built up ahead of the hurricane season, no real hurricanes came, so there is excess inventory, and that kind of flooded into the market. That's behind us now and we are seeing increases generally in the markets, and that's expected to continue for at least the middle part of the year. Maybe it will abate by late year. That will probably depend on hurricane season again, frankly.

Again, our plastics side, we pass through 65% or so of business is under contract. That will also get a pass-through to our customers. There can be lag, and we talked a little bit about the lag impact in the first quarter this year and last year, but essentially it gets pass-through with the lag.

Thank you for your time.

And moving on we'll take our next question from Richard Skidmore with Goldman Sachs.

Good morning. This is Alex Osh asking a question on behalf of Rick Skidmore. After reporting your Q4 '06 results, Silgan originally guided to $0.40 to $0.50 for the first quarter, and this morning obviously the results was much better than the original guidance. So, I'm just wondering what was different from your original expectations that drove the meaningful upset to the original guidance?

A couple of things. First is, as we said on the call, this was a good quarter. There is no question the operations did a very good job. So, part of it is there is some true peak in the quarter, but certainly not to the extent of the $0.27 over our high end of our guidance.

The other items are that we did not necessarily expect to build inventory in the first quarter. We had already built some at the end of last year. We chose to go forward and build inventory to continue to get prepared for a union negotiation coming up, as well as getting ahead of the rationalization programs that we are doing. And, frankly, keep getting -- moving on easy-open end, because we have a limited capacity.

So, we had a couple of reasons and we chose to keep building inventory, which had a pretty meaningful benefit to us in the first quarter.

We also, as we talked about on the call, is we were not expecting benefit from the restructuring programs early in the year, and so we pulled -- essentially pulled some of that forward. Doesn't change the full year estimate, but that's what happened.

Okay.

Thirdly, on the plastic side, one of the things we talked about is we knew we were coming up over a period in the first quarter of 2006 that had a big benefit from the lag effect of resin pass-throughs, because there had been a very dramatic drop in resin late 2005 that came into 2006. So, the way our contracts work is we have a delay in passing that through, and we would benefit from that. By, the way, when it goes the other way we suffer a detriment. So, in net-net it works out.

So, the first quarter of prior year had that benefit. We were kind of acutely aware we were going to have to climb over that. Essentially what happened this year is the same kind of direction of changes, not the same degree, but it happened and we were not anticipating that.

Okay.

So, we got the benefit, if you will, of nowhere near the comparative issue on resin that we had expected.

Okay, understood. I guess my second question following up on your last point. In the plastics business you guys reported 12%, slightly better than 12% operating margins in that business. So, what part of that is the favorable price cost spread that you saw in the quarter, and I guess are those margins sustainable going forward? Do you expect double-digit margins in the plastics business going forward?

Well, I would say the answer to that is no to the last part, you definitely did get the benefit of that. So, I would not be anywhere -- you know, would not expect to be at the level it was in Q1. I think double digits would be a stretch for this year. Business has been there before, many years past. It could get back there, but I wouldn't necessarily expect that in near term. But there is no question there is an improvement on the operating margin side of the business.

To give you one statistic, if you go back 18 months. We've talked a lot about productivity and the efforts we've done on productivity automation, etc. But we're actually getting 12% more units out per employee than we were 18 months ago. So, there has been really some very gradual and steady but meaningful improvement to the business just on the cost side.

So, yes, we expect improvement and, no, I wouldn't use Q1 as a model for necessarily a direct or specific number.

Okay, that's very helpful. Thank you very much for your time.

(OPERATOR INSTRUCTIONS) And now we'll move on to Ghansham Panjabi with Wachovia Securities.

Good morning, guys. This is Phil Dowling in for Ghansham. Quick question on the closure business, it looks like -- correct me if I'm wrong. The base business itself looks like it slowed down a little bit? I mean, most of the top line growth seemed to be driven from the acquisition. Is that the case or --

I would not say in our case it has been slowing down. I think that you are reading it correctly, that we were quite clear that the real driver here was the international operation. But essentially what's happening there is you've got a fairly meaningful volume difference in the domestic business around isotonic drinks.

Okay.

What you had in the first quarter last year was a pretty strong consumption demand. Inventories were being built, and so it was a very different situation the first quarter this year. So, there was kind of that one specific volume difference. But we remain quite confident around this business and expect unit growth out of this business this year. So, that's really more of a timing issue in that regard.

Okay.

And the operation continued to perform nicely.

And from a margin standpoint, I notice in the press release you guys talked about how there were higher SG&A costs associated with the international business. Is that due to the second leg of the acquisition that was made, and should that cause wind down as the year progressed?

No, it's not due to that at all. It's really due primarily to Europe, and it's just the way you have to do business in Europe tends to be a higher SG&A. You know, separate sales organizations by country that speak the language, customer service. You've got financial reporting standards and obligations in each individual country. It just runs a more higher SG&A structure. That was in the EBITDA that we bought, so it's -- remember, we don't think so much about margin rank, we think about return on capital invested.

So, for us it just is what the business looked like when we bought it. You see a little more in the softer quarter, in a seasonally slower quarter. So, you won't get quite the same impact to the combined margins in a big quarter that you do in a softer first quarter.

Okay. Thank you very much.

And now we'll move on to George Staphos with Banc of America Securities.

Hi, guys, good morning. Sorry, we were doing three conference calls at once.

We know we're part of the problem on that one.

The good news, it will be over in short order. I guess first question I had was relative to the somewhat sluggish volumes you're seeing closures in North America, and I jumped on late, so if you've already covered this, I apologize. Do you think any of that is related to some of the pricing actions taken by your customers in beverages? You know, we heard that this is the first year in a while that isotonics and other beverages are -- their producers, their marketers are taking pricing up, closing the gap between those products and soft drinks. Do you think there's been any effect of that or not?

Well, I think probably the answer to that is yes. I think there are quite a few effects going on. A big part of it was just really that there had been real capacity problems a year ago. So, I wouldn't -- you used the word "sluggish." I don't think I did. If I did, I didn't mean to. Essentially, if you go back, the demand was very strong as capacity started coming back on stream a year ago. And so you're kind of rolling over a period where there is a lot of inventory build going on.

With that said, I think there's no doubt the expectation is that the growth rate, which has been phenomenal for these isotonic drinks, is probably going to be less this year. I think that's sort of everything. So, yes, I think the stellar growth rate that we had seen over the last couple of years is probably slowing down. That's not really a surprise to us.

Now, again, to the extent that carbonized the soft drink is the competitor to this product, there is still a lot of room for growth. So, we're not -- we're still pretty bullish on the product in total, but, yes, the growth rate is kind of slow here.

Okay. Second thing, again, you might have covered this. What effect did you -- or do you effect from a reversion to mean as you work down some of this inventory that you built up over the course of the year? Is it purely the $0.20?

No. You're saying what should you conclude from this year as you go forward?

Yeah. What should we be trying to back out of our model.

No. Because the $0.20, George, and you probably missed the script, but we tried to be pretty clear on this. The $0.20 is meant to be a comparative year, back half to back half kind of a number. So, it is some of the benefit we got last year, and the detriment we'll take this year. So, you really want to take a number and say how much is the impact for the year, it's going to be more like half of that number.

Okay, fair enough. Sorry for the duplication. Third, again, if you've covered this already, just direct me to the transcript, but if not, can you parse roughly what the gain and profit in plastics was this quarter versus the year-ago quarter from operations relative to the acquisitions, relative to anything else?

Yeah, I can at least try to order it for you. How's that?

Fair enough.

I'm looking as I think about that. Certainly, the acquisition sits pretty strongly on the improvement. Then it probably is, the operations again is pretty good. You also get one other thing. There's the acquisition and then there's the mix side of that. Again, you trade it off, low profitability sales from Valencia for high unit contribution not of the Cousins-Currie business.

Right.

You've got the mix impact, if you want to call it that, that's meaningful. That's sort of in the accretion, if you will, for Cousins-Currie. So, I would put it in that order.

Okay. Easy-open end, have you seen any customers get close enough so that you can give us any more indication for 2008 or not?

You'll recall that most of the vegetable producers have something in trial looking at the open end. It's pretty hard to get at that information because in many cases it sits on the shelves in the same geographic region with a flat panel in. And so there really is not a lot of data we have. I would say that we remain very confident that the consumer prefers easy open-end, and that sooner or later this switch is going to make logical sense. But I don't have any more concrete for you than that.

Have there been synergies above and beyond what you expect out of White Cap, your benefiting a result? Obviously, when you purchased the business, and understandably so, it was positioned more as a complementary business and acquisition, not the traditional synergies that we might see in rigid packaging. But have you somehow found some additional synergies in the last several months that have been helping your results and, if so, where?

No, I think is the answer. Again, I think, as you know, we haven't gone hunting for them very hard, because we really wanted to let the business stand on its own. So, it has not been a priority for us to try to get synergies, partly because of what you said. We really didn't think much sat there. With that said, my guess is over time these businesses will cooperate more and find opportunities to go to market, perhaps more collectively develop products. And so I think it will be there, but in terms of your specific question in the numbers, the answer is no.

Okay, understand. Thanks, guys. I'll be back, or try to be.

(OPERATOR INSTRUCTIONS) And now we'll move to Tim Thein with Citi.

Hey, guys, good morning. Great quarter. I had a question on the -- if you went back on the plastics, someone asked earlier about the sustain -- or the potential there in terms of looking at it on an EBID basis which obviously a bit tough given that the volatility in what you're passing through. But if you strip that out in terms of the EBID margins, if you looked at it, I guess, kind of on a spread basis where you neutralize for the movement in resins, do you have an idea directionally where that's gone over the last two years? I know that's kind of -- it may not be one you have at the top of your fingers, but --

It would be hard for us to give you an exact numeric answer to that.

Right, but, I mean, is it --

I believe, if you give me a two-year time frame, if you give me longer, it will be harder to answer. I'm pretty confident that over the two-year period that the cost improvement to the business, automation, etc., to the business, has enhanced, if you take all of the resin impact out of that. Admitting that exact question I haven't done the numbers on, but intuitively I think that's the only possible answer there.

Yeah, okay. I guess asked a different way, how would you -- would you say it's been better or worse than if you looked at -- I mean, obviously there's a greater scale benefit in the metal container segment. But is it on par with what you presumably have experienced there? Again, just directionally, if you could.

Sure. I think it has been. In some ways, I think on the cost reduction side there were probably more opportunities that sat there. But in some ways there was probably more opportunity for us to go after and we have. So, I would say that's been positive. I would also say over the two years that the competitive environment has been reasonable. And so it's -- that doesn't mean there aren't some business that you win and you lose, but it's been reasonable over that time. So, I think there's been some improvement. Obviously we give -- you end up giving some of it back to your customers. That is part of the whole point here is we make the business more competitive over a long period of time. But I would still say that there has probably been an improvement.

Okay. In the second quarter, I guess staying with plastics, if you strip out the impact from the foregone volumes from Valencia, I think I recall the second quarter last year was also down quite a bit from a volume standpoint?

That's correct.

If you strip those -- sorry, go ahead?

Well, I was going to say, we would call the second quarter a little bit of an easier comparative quarter. So, we would, as we sit here today expect to see reasonable volume growth on the quarter.

Okay. Okay. And then just on the containers, are you seeing any -- or do you expect to se any kind of mix? You got the question a couple of times on easy-open, but should the mix there be trending upwards relative to, say, last year, or is there -- or is it kind of a constant?

I would call it very modest. Because easy open-end can be very modest pack. There is nothing I could point to that makes me say this is going to be a significantly different mix.

Okay. All right, guys. Thanks again.

And we'll now take a follow-up question from Chris Manuel with KeyBancCapital Market.

Good morning, gentlemen. I wanted to follow-up a question George had earlier, because I was a little confused, and that had to do with the $0.20. Should we really think about this quarter more as -- instead of, say, a $0.77 quarter more like a $0.57 quarter, that essentially borrowed an extra $0.20 from the back half of the year from extra inventory that you worked off? Or how should we think about that?

Definitely not. The $0.20, which we were trying to help be clear and we may not have succeeded in that. The $0.20 was intended to just show what the effects of inventory were going to be in our can business in the last six months of the year, okay?

So, all we were trying to do is on a comparative basis of the last six months 2006, the last six months 2007, what would be kind of the inventory impact of that period. Because we thought it would be helpful for everyone to understand kind of what the rest of the business condition was. So, that's what we were trying to do. But much of that inventory that we're going to be working off on the back half of the year was built last year, in 2006.

So, the first quarter did not benefit by $0.20, it benefited by a much smaller number, more in the range of a nickel, that with inventory build in the first quarter. If you go back to our year-end release, we talked about the fourth quarter that one of the main benefits in that quarter was inventory build. So, this has been getting built over two and a half quarters, let's say. All right?

So, again, to go back. The first quarter only benefited by something like a nickel around inventory build.

And so if it benefited by a nickel in the front, there would still have been a -- help me walk through what was a very, very sizable delta between your $0.40 to $0.50 guidance and $0.77. We talked about a nickel of it here.

Fair enough. You've got the inventory build --

It sounds like plastics didn't perform quite as well as you thought, too, with volumes being flush.

No, no, no. Plastics out-performed by a fair margin of what we had anticipated. Because we were prepared for climbing over all of the negatives of this resin swing that we got first quarter last year, the lag benefit in the first quarter last year. We were not anticipating any of that this year. And what actually happened is resin took a similar kind of roller-coaster ride, although not as dramatic. So, we have a benefit from that on lag, too, that we were not anticipating.

Okay, so -- all right, that's fine.

Well, let me give you two more. One is that we also had -- we had the restructuring that got pulled forward in the year. We were not anticipating that. So, we got benefit from a restructuring program ahead of those plants going black, which we were not counting on.

There's one final one, which I will throw out here. It's not too sizable but it's worth mentioning, is that our closures business also benefited by the sale of two -- two of our customers approached us around camping equipment that they had been leasing from us. You may recall in the closure business we also have an equipment side to that.

Okay.

And they approached us about buying those out, and so they did in the quarter buy us out. And so we have an income to the tune of something like $0.02 also in the quarter for the sale of that equipment, which we then lose in not having the rent as the year goes on.

Okay, so that sort of accelerated that a bit.

That's correct.

Okay. Then the last question I wanted to ask you really centers around -- I know it's early in the year, but as you look at crop plantings and that type of stuff, where we are thus far, any surprises either more favorable or less favorable. And while maybe a different way to look at that is, I know your customers give you an early look at anticipated orders. Thus far, would that lead you to believe that '07 would be a flatish year in food cans, or slight up or slightly down sort of year?

The quick answer to your question is the net of all of it looks to be kind of what we expected, which is sort of flatish. Because we had anticipated the Midwest would not be as strong as it was last year, which was a record kind of a year. And right now there is nothing happening to make us change our thinking on that, that we have.

But then tomatoes essentially recovered much of the shortfall by the end of last year. So, tomatoes had kind of a 90% year last year. There may be a little bit of improvement on tomatoes as it gets to 100%, if that in fact happens.

And then peaches were off quite a bit last year, but half of that decline was trees being pulled out that will never come back. Half of it was around the growing season. So, we should pick up some peaches, will be kind of Q2, primarily, maybe a bit in Q3. So, the net of all that probably kind of flattens it out.

Now, anything I've heard -- your other question is, so far early on things sound pretty good. Tomatoes planting has begun, in many areas it's in. The acres look good. You may even read places the acres are really strong for tomatoes, but that probably doesn't matter much to canned tomatoes, the rest of that will go into the paste commodity market. They'll fill what they need for canned tomatoes. So, right now you'd have to look at tomatoes and say it looks like it could be 100% kind of a year.

Peaches right now are growing well. It's been cool and they're able to rest and all that kind of fun stuff. So, peaches look good. The Midwest was a little cold, the ground was a little cold. We had late snows, etc., so things are going in a little late in the Midwest, but I don't think anybody is really worried about yields, etc., around that at this point.

So, that's the detail behind the general answer, which is kind of what we expect so far.

Perfect. I'm excited about the sleeping peaches. My last little housekeeping item is, can you tell us what the revenue that -- how much extra revenue you had from the acquisitions, and which segments? I'm assuming it's just going to be in the closures and in the plastics?

Yeah. Well, almost all of the increase year-over-year in closures is the international acquisition. So, it's something that looks like high 60s, million or so, in the quarter.

Okay.

Around tennish million would be associated with the customary [piece].

Okay, perfect. And good luck in the next quarter, gentlemen. Thank you.

And now we'll move not to a question from Robert Kirkpatrick with Cardinal Capital.

Where do you expect your debt to be by the end of the year?

Well, I guess we'd be forecasting down off of 955 or so at the end of last year, and assuming our cash flow generation is what we forecast it to be, we'd be at 805. That assumes that we don't find any acquisitions to augment the cash flow or to utilize the cash flow.

Great. Thanks so much. Congratulations.

And at this time it appears we have no further questions. I'd like to turn the call back over to you, Mr. Allott.

Great. Well, thank you, everyone, for listening in on our first quarter conference call. We look forward to second quarter and hope to talk to you all soon.

And that does conclude today's conference. We thank you for your participation and have a great day.