Silgan Holdings Inc (SLGN) 2008 Q1 法說會逐字稿

Good day, everyone, and welcome and thank you for joining Silgan Holdings' first quarter 2008 earnings conference call. Today's call is being recorded. From the company today we have Tony Allott, President and Chief Executive Officer; Bob Lewis, Executive Vice President and Chief Financial Officer; Adam Greenlee, Executive Vice President of operations; and Malcolm 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 would 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 2007 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 express or implied in the forward-looking statements. With that, let me turn it over to Tony.

Thanks, Malcolm. Welcome, everyone to our first quarter 2008 earnings conference call. As usual, our agenda for this morning is to review the financial performance for the first quarter and to make a few comments about our outlook for the remainder of 2008. After these prepared remarks Bob, Adam and I would be pleased to take any questions you may have. As you saw in the press release, there is no question that we had a strong first quarter against our expectations, delivering adjusted earnings per diluted share of $0.63 versus an outlook of $0.45 to $0.55. These results are a bit behind the prior year as we were set up against very difficult comparisons.

As you may recall, the first quarter of last year was very strong. It exceeded its comparable quarter by over 60%, and benefited from a large build of can inventories, benefits from the timing of resin pass-throughs and a onetime gain from certain equipment sales. Against this backdrop each of our businesses met or exceeded our expectations, and we believe are well positioned to deliver improved results for the remainder of the year. Like everyone, we are watching the macroeconomic environment closely. As expected, the most notable impact so far has been on the demand for our plastic containers, largely to personal care markets where volume has been flat as opposed to our anticipated 2% to 4% growth.

On the other hand, demand seems fine in our other businesses and operating performance has been very good across our platform. We also continued the consolidation of the worldwide closures business with two acquisitions being completed this year. The first was the acquisition of the assets of the Vem business in Spain and China. While this is a relatively small acquisition, we believe it is an important step in the consolidation of the European closure market. We also closed on the acquisition in Brazil, representing the final piece of the White Cap acquisition. As a result of the solid first quarter performance, our view for the year and the momentum in each of our businesses, we gained confidence in our full-year forecast and as a result have confirmed our guidance in the range of $3.45 to $3.65.

At the high-end this represents a 10% increase over the very strong 2007 year. While our confidence is building, we have not increased our outlook at this point despite the first quarter (inaudible) because it is still early in the year, and we are seeing significant raw material volatility and have limited visibility to the macroeconomic situation.

With that, I will turn it over to Bob to review the financial results in more detail and provide additional explanation around our earnings estimates for 2008.

Thank you, Tony. Good morning, everyone. As Tony highlighted, the first quarter of 2008 is being compared against some pretty challenging results in the first quarter of 2007 as a result of several items which uniquely benefited the prior year. First the metal food container business benefited by nearly $3 million from an inventory build during the first quarter of 2007. Secondly, the plastic container business benefited from the lag effect of year-over-year resin pass-throughs as the first quarter of 2007 benefited from passing through the fourth quarter 2006 resin increases while resin costs were declining in the first quarter of 2007.

Conversely, resin costs in the first quarter of 2008 continued to increase thereby creating an incrementally negative comparison. Collectively the resin impact resulted in a year-over-year delta of approximately $4.5 million. Lastly, the closures business recognized a $1.4 million gain on the sale of previously leased capping equipment in the first quarter of 2007. As a result and as discussed during our year-end earnings call, our first quarter of 2008 adjusted earnings per share of $0.63 was below the prior year's quarter of $0.77 per share. After level setting for these items we are off to a strong start having outpaced our estimates for the first quarter. Much of this upside comes from the recognition of a management fee associated with the Brazilian White Cap operation as we closed the acquisition sooner than expected.

While the benefit was incremental to the quarter, it is not so for the year as we contemplated closing the transaction later in the year. In addition, as part of our ongoing efforts to pursue the most efficient, low-cost platform across each of our businesses we approved three new rationalization plans during the quarter. These include the closing of our Tarrant, Alabama metal facility, our Richmond, Virginia plastic facility and restructuring various functions throughout the European business.

As a result, during the quarter we incurred pretax rationalization charges of $4.7 million or $0.08 per diluted share. We expect additional charges in 2008 for these rationalization plans to be approximately $3.9 million and that these plans will drive attractive cash on cash returns for the business.

On a consolidated basis net sales for the first quarter of 2008 were $679.8 million, an increase of $29 million or 4.5% primarily as a result of the pass-through of higher raw material and other costs and favorable foreign currency translation which benefited net sales by approximately $14.5 million for the quarter.

For the first quarter of 2008 we converted these sales to net income of $21.2 million or $0.55 per diluted share compared to first quarter 2007 net income of $28.5 million or $0.75 per diluted share. I would also point out that foreign currency had very little impact on net income as we have financed the international businesses in their local currencies and our business practice has been to balance out cross border activity to help mitigate the effects of currency on our earnings.

Interest expense was essentially flat for the quarter as higher average borrowings offset lower market interest rates. As you can see on the balance sheet and consistent with year end, we continue to hold cash on the balance sheet as we maintain a conservative view of liquidity in the credit markets, thereby leading to higher average borrowings year-over-year. Our effective tax rate of 36.9% in the first quarter of 2008 is generally in line with expectations but about 110 basis points lower than the prior year quarter as the current year quarter benefited from lower statutory rates in certain jurisdictions. Keep in mind that the first quarter is a relatively small quarter, so small movements between taxable jurisdictions can have meaningful impact on the rate.

Capital expenditures for the first quarter of 2008 totaled $23.8 million compared with $37.5 million in the prior year quarter. We continue to expect full-year capital expenditures to be in a more normal range of $110 million to $140 million. However, in light of recent tax law changes which provide for accelerated tax depreciation on projects placed in service during 2008, we will make every effort to fully complete as many projects as possible in 2008, resulting in less carryover of capital into 2009. As a result our capital spending for 2008 could move to the higher end of the normal range. Additionally, we paid a quarterly dividend at $0.17 per share in March. The total cash cost of which was $6.5 million.

I will now talk about some of the specifics regarding the financial performance of each of our three businesses. The metal food container business recorded net sales of $351.2 million for the first quarter of 2008, an increase of $5.6 million versus the prior year quarter. This increase is primarily due to the effects of the pass-through of higher raw material and other inflationary costs partially offset by unit volume declines of approximately 2%.

Income from operations in the metal food container business decreased $3.7 million to $25.1 million for the quarter. The decrease in operating income was a result of the benefits derived in the first quarter of 2007 from the decision to build inventory levels, lower unit volumes and higher depreciation expense largely attributable to increased capital spending in the prior year. On the positive side rationalization benefits, cost reductions and solid manufacturing performance partially offset these declines.

Net sales in the plastic container business increased 6% or $9.8 million to $172.2 million in the first quarter of 2008, primarily as a result of the pass-through of higher raw material costs and favorable foreign currency translation in our Canadian operations. Volumes in the quarter were essentially flat as volume gains associated with new business awards were offset by weaker general demand. Operating income for the first quarter of 2008 decreased $7.2 million to $12.6 million for the quarter. The year-over-year resin impact was the primary driver as 2007 benefited from passing through the fourth quarter 2006 resin increases, as resin costs were declining in the first quarter of 2007. Conversely, resin costs in the first quarter 2008 continued to increase. In addition, we recognized rationalization charges of $800,000 in the quarter relating to the shutdown of our Richmond facility.

Net sales in the closures business increased $13.6 million to $156.4 million for the quarter, primarily due to favorable foreign currency translation of $9.3 million, strong unit volumes domestically and the impact of higher average selling prices resulting for the pass-through of higher raw material costs partly offset by a less favorable mix of products sold. Income from operations in the closures business decreased $1.3 million to $14.5 million in the first quarter of 2008 due to the rationalization charges incurred in the first quarter of 2008 and the 2007 gain on the sale of capping equipment, which were only partly offset by the benefits of increased volumes in the domestic operations and the management fee income relating to the Brazilian White Cap operation.

Turning now to our outlook for 2008, while it as early, the solid start in the first quarter leaves us confident in our current estimate of adjusted earnings per diluted share for 2008. As a result we are confirming our estimate in the range of $3.45 to $3.65 per share, which excludes the impact of rationalization charges but includes the impact of the acquired business of Vem and White Cap Brazil. We are also providing a second quarter 2008 estimate of adjusted earnings in the range of $0.75 to $0.85 per diluted share excluding rationalization charges.

We continue to forecast an increase in free cash flow in 2008 versus 2007 and the primary drivers are lower capital spending, a modest reduction of working capital and improved earnings. We continue to view reinvestment in the business through acquisitions or capital expenditures as a preferred use of this cash flow. That concludes our prepared comments and so I can open it up for Q&A. Dave, would you kindly provide the directions for Q&A?

(OPERATOR INSTRUCTIONS) Ghansham Panjabi, Wachovia.

On a normalized basis for the metal food can business what do you estimate volumes were on a year-over-year basis, i.e., stripping out some of the impact from inventories, if there was any? Thanks.

Inventories would not affect the volumes of sales if that's what you mean, on the container business. And if you want to get some reaction on the volume.

Our volume was essentially as very close to as expected in the first quarter. We were down just about 2%, which in the grand scheme of things the first quarter had a reduction of about 1.6 shipping days due to the Easter holiday falling into the first quarter of this year. Again in the grand scheme of things I think we were essentially right where we expected to be.

And what about from a mix perspective?

Nothing too much to report on mix. It was kind of a normal mix.

And lastly, on the comment on plastics, you seem to allude that you had some areas of weakness; from an end market perspective I was hoping you could elaborate on that, please. Thanks.

I think in general we are seeing softer demand in our plastic container business given the macroeconomic environment in the US. So specifically targeted to consumer products in the United States.

And how big of your sales mix is that from an end market perspective?

It is over 50%.

I would say just broadly while that is true because it is large it would naturally be there. This is -- we talked about it in the first quarter. It is typical for our plastic business if there is kind of economic pullback it is not unusual at all that we would see that through most of our plastic business, and a little bit more in the personal care. But it is -- you should read this as being it is very general across our business. It is not specific customers or anything along that line.

Okay, thanks.

We will go next to Alton Stump at Longbow Research.

Good job on the quarter. Just a question in terms of the guidance, obviously maintaining it for the year, obviously realizing that it is still early. But it seems with the strong results and a pretty solid second quarter guidance that there might be some potential upside to the full-year number. Is there something in the back half of the year that we should be looking out for or is it more just a matter of trying to be conservative this early on?

Conservative maybe is not the exact word I would choose. I think what we said in the script is intended, which it is pretty early. Yes, we definitely got off to a strong start in the first quarter. There is a lot of inflation going on as you know and certainly in our metal business we do pass that through. So that is more just managing our way through it. It does create a little bit more of a challenge in the plastic business only because of the lags that are associated with that. So I think one thing we would say is there just is a lot of volatility going on out there in the commodity market, no surprising anyone on the call.

And then the second one is kind of who knows what the macroeconomic condition looks like. And again, that would be around our plastic business primarily. So those are the elements that we are looking at and saying we are leaving ourselves perhaps a little bit more room for the unknown than we might otherwise.

I guess just one other question on acquisition front obviously you made a couple of relatively smaller deals here in the last few months. Any outlook on what the accretion could potentially be if not in '08 maybe looking ahead to '09 from those businesses?

As it relates to 2008 they are in the current guidance with not much accretion between them collectively. They are both relatively small businesses and particularly in the case of the Spanish acquisition there is some work to do there around getting the business rightsized from our perspective in the marketplace. So I would say to 2008 it's essentially neutral to earnings. And I would say at this point we've got some work to do before we are ready to provide guidance around what '09 is going to look like relative to those acquisitions.

Okay, great. Thanks, guys.

Christopher Butler, Sidoti & Co.

Just getting back to the plastics business and the volumes, are you seeing that the run-up in resin costs are having an effect here? Are we looking at any sort of inventory correction, as well, or is this purely end market driven?

We can only speculate, of course. It is kind of you ship what you ship. But it seems logical to me that there is an element of it that would be inventory correction, that it wouldn't all just be consumers are buying less. I think our customers, if you will, retail outlets understand what is happening in the macroeconomic environment. So it is logical they would be pulling back inventory somewhat and that certainly has been our view of what has happened in the past. I think that is the reasonable way to look at it.

And now we wait and see what the consumer is actually doing, with the impact of that is. Again, we've been here before and we've seen it where it is a quarter, maybe two and that is sort of what we're thinking at this point in time. And again, I want to be clear my plastic volumes were flat, so (inaudible) it is not way off. It is just that we had indicated and did expect to have growth. We've invested some capital for growth, and so flat is not what we want to see for the year, for sure.

And the increased efficiency that you saw in the first quarter last year due to the building inventory, have you quantified what the benefit of that was last year to give us a better comparison to this year?

I think in the script Bob alluded to it, but essentially it is nearly $3 million kind of comparing the two periods.

So there is $3 million for the inventory build and did I get 4.5 due to the resin costs on the plastic side?

That's right, and then in the incremental $1.4 million or so for the sale of the capping equipment in the closures business last year.

And finally, looking at the balance sheet, the -- you increased debt a little bit more than you normally do for seasonality. Is this a timing issue, the closure of the two deals, what are we looking at here?

Yes. Essentially what you got going on there is a couple of things. You got FX impacting you there pretty significantly, as well as you've got the acquisitions there, as well. So FX is $15 million or so. And then you've got acquisitions of about another $10 million that are impacting it there.

And then the third part is we are obviously sitting on more cash than in the past, which we've talked about in previous calls. So there is some borrowing depending on whether you are looking at net debt less cash or not. The debt would be a little higher because there is cash on the balance sheet, which essentially is us just given the current credit market, leaving ourselves more liquid for our seasonal requirements.

Thank you for your time.

Chris Manuel, KeyBanc Capital Markets.

Congratulations on an outstanding quarter. A couple questions for you. First is the management fee you mentioned that you had earned with respect to finishing the White Cap piece. Is it safe to assume that maybe that was accelerated here early in the year but that was something you either had baked into your full-year number or that you would have or effectively will earn now, that you own the business anyway through the back half of the year?

That is kind of two questions there. But essentially you are right as to the management fee. And I think I kind of addressed it in the script in that it was incremental to the quarter because we closed in the first quarter and thereby recognized the fee. But not incremental to the full-year because we did contemplate closing Brazil during 2008. And essentially that is the fee associated with managing the business from June of '06 forward to the approximate closing dates.

Okay, so going forward you are still going to be, I am assuming that putting that into place is still going to be accretive running the business.

Essentially you got accretion in the year by the $0.04 from the acquisition. But that is not, that is a longer period than just one year in terms of what that $2.2 million was.

Okay, that's helpful. And then gathered from some of your earlier comments to earlier questions about plastics, I think your full-year assumption was for something in that low single digit growth. Being we are off to a little slower start here and if you think its a quarter or two impact would you still anticipate the full-year plastic volumes are up maybe a point or two now instead of up low single digits?

Yes, we would. But you thought about that in the exact right way. What we've lost in Q1, we are unlikely to recover in the remainder of the year. But yes, our expectation -- and Q2 was kind of a wait and see on a little bit. But again, where we expected the growth was in growth projects we invested in. That growth is sitting there. It is more the general demand level and so yes, our expectations you will see some of that in the tail end of the year.

My last question is with respect to the restructuring what will be the cash component of all of the restructuring charges, the stuff you are newly announcing, I think two facilities and a piece in Europe?

There is total restructuring charges associated -- and this is P&L now -- associated with those restructuring charges of roughly $8.5 million or so. And the cash component of that will be $6 million or $6.5 million.

And the benefits from that, I'm assuming, when is everything going to be a run-through and close, and when would we start to see benefit from that?

Essentially most of these activities will take us through the majority of this year, so against the cost you won't see much benefit in the year. The benefit will really come in 2009. And I guess just to give you some benchmark against that, we would look at these projects as kind of having a payback or return of slightly better than three years cash on cash.

That's very helpful. And thank you much. That's it.

Rick Skidmore, Goldman Sachs.

Just talk about resin for a bit. What are you seeing there with regards to your resin pricing? Is it continuing to escalate, and does that continue to sort of put you behind the curve to really see the plastics business kind of normalize? And/or are you starting to see the resin prices level off?

What we had said as far as our expectations regarding resin pricing is that it would increase in the first quarter. And for the most part those increases have happened as we've expected. It may have been a little less than what we originally anticipated in the first quarter with a little slippage into the second quarter. But for the most part we've seen the increases that we expected to see. Now as we move forward we do see price stabilizing on a go forward basis, albeit at higher price levels. But we do see a second half stabilization on the resin prices.

So at oil and natural gas prices starting to move higher or having moved higher meaningfully over the last month or so, you are not seeing your resin suppliers come back with significantly higher resin prices?

At this point the answer is no.

Thank you.

George Staphos, Banc of America Securities.

The first question I had, plantings and acreage intention seem relatively normal for a year. Anything that struck you as positive or negative or by surprise from what you saw from the data? Obviously at the end of the day it has got to come out of the ground. It is not the acreage, but what are your thoughts there?

To your point, in general our expectations that we will experience a normal [pack] season; but the one comment that I would make is there has been a lot of dialogue about corn plantings and acreage on corn. And obviously we talk specifically about sweet corn used for food products. And acreage is actually increased year on year by about 3%. So the reductions they are talking about in acreage for corn are really more for feed or field corn. But our products are actually increasing in acreage for sweet corn. In general the balance of the plantings look good. They are essentially on schedule with maybe a week or two delay here or there but we expect a normal pack season.

And as you know, George, we will talk about this more as the summer unfolds.

And you will soap opera. Second question -- I think I know the answer but I just want to confirm it. With your discussion on input cost inflation you weren't suggesting any change in your view in your ability to manage it on the metal side through your various mechanisms. And I guess in a related question there has been a fair amount of chatter on the calls and the community overall as to -- let's say the template for producers come in with a midyear surcharge or force majeur or whatever they would potentially attempt. Does that worry you at all in terms of your ability to again get that through the door in terms of a higher selling price? Why or why not?

No, your read is absolutely correct. There is no change to our structure of how we do pass-throughs or our confidence in passing through costs to our customers. No changes at all. On the steel side we are 90% under contract, and they call for pass-through of what we experienced. On the resin side essentially you get there can be lags but you pass through what happens in the market. So no change there at all, and that would also hold true if in fact there were some kind of a midyear move in tin. Now I think the tin market has traditionally negotiated beginning of the year, and that is sort of it for the year. And as you will recall we did -- the tin suppliers did come through and implement significant increase in the US, midteen kind of numbers. And so that I assume contemplated significant inflation in the year. I'm sure that they are experiencing that inflation. But it is not clear that that wasn't already covered in that increase.

Okay, but if they did come through then your mechanism allow -- if they came in with a midyear your mechanisms and the industry structure would allow for pass-through from your vantage point?

That is correct.

Let me ask two quick ones then and turn it over. On free cash flow, you obviously said that CapEx could trend toward the higher end of your range for free cash flow. Would that mean that perhaps free cash flow is less than maybe you would have targeted or might it be made up elsewhere, and what would your target be at this juncture?

No, I think, George, there is a possibility that we could end up with slightly higher CapEx than maybe we originally we were forecasting. But I think in general should we do that it will be in conjunction with the change in tax law that gives us the incremental depreciation. And therefore gave us some cash tax on it. Net net I think my own view today is that would essentially be neutral to the cash flow generation for the year.

Okay, so perhaps there would be a lag on that you would get it in '09 but it sounds like you would get it in '08.

That's right; it would be a benefit to the '08 cash tax number.

Okay.

In terms of target we are still kind of trending in the same spot we were at the end of the year that we thought we would be able to improve the prior year free cash flow by essentially taking lower CapEx and shrinking our working capital from where we were at year end.

I thought the number was around 150. Is that incorrect?

That is essentially where we fell short from in at the end of the year. You are correct.

Last one, I think you said FX in total was $14 million. I thought that $9 million of that was in closures. Did I hear that right? If that is true, was the rest in plastics because of Cousins-Currie?

That's right.

Okay, thanks. I will turn it over.

Claudia Hueston, JPMorgan.

You mentioned the less favorable mix in the closures business. I was hoping you could elaborate on that and just comment if there is any sort of notable variance in demand trends in closures, just by product or end market or geography.

Two parts to that, there is some relation of the two parts, but not entirely. Really the mix, the trick here is we sell closures that range in size, some metal, some plastic, the amount of decoration on them et cetera. So there's just a wide range in the mix of what is sold; so really there is not tell you more than that. A little bit of that would be driven by Europe versus the US. There is more decoration and tends to be a bit larger closures if you look at the mix in Europe. So that -- there is partly a geographic answer to your question, at least.

Europe is, was softer for sure in the closures side and the US was stronger volumes in total were up. And just to remind you on top of everything else that was good about the first quarter last year, the European market was very strong in the first-half last year and we talked about that at the time. So I would just characterize nothing more right now in Europe than it is not quite as strong as it was a year ago. And then I might add to that that we do some of the business in Europe is US dollar-denominated export business. And of course that gets a little tougher to want to do that as the dollar declines. So those two points make up a little less of the volume in Europe and a little more in the US. And then add to that more decorated, larger sizes et cetera throwing the mix around.

Okay, that's helpful. Then just on the plastics side just two more questions on demand there. One I guess just wondered if you could maybe elaborate, provide a little bit of color on the new projects that you talked about as sort of being an offset to some of the general demand trends that you were seeing. And then I was curious too in terms of the overall softness in the plastics market; has it gotten worse over the course of the quarter, or is it sort of stabilizing? Just some sense of that would be helpful, as well.

(inaudible) Answering this one, I'll take the first part and let Adam take the second part. After the projects you will recall over the last 18 months or so what we have said is that we have been feeling a little better about kind of the dynamics of the plastic market, that we were allowing more capital to be spent in that market. So I would just characterize these as sort of across the business. Some is personal care. Some is food, some is over-the-counter pharmaceutical. So it is a bit across the board in that regard, but it is essentially what you ought to expect if we increase the capital going into the business that we are doing that to get profitable growth out of the business. The second part on demand.

On the demand side through the quarter we did not see a decrease in demand through the quarter so from a trend standpoint that -- we didn't experience that at all. And again, we have I think reasonable expectations for volume growth for the balance of the year. So we are not seeing the negative trend.

Thanks very much, guys.

Tim Thein, Citigroup.

Quick question here that hasn't been asked is what you're seeing in terms of penetration to easy open and kind of a corollary to that -- and I don't know if this is a stretch, but do you think there is any or will there be any kind of negative impact if you continue to see food cost inflation as dramatic as it has been in terms of some potential reluctance by the -- on the part of the food processors to tack on another whatever the percentage cost increase is relative to a conventional can?

To answer the question on our QuickTop penetration, obviously we continue to firmly believe that the consumers prefer the convenience that our QuickTop ends provide. As I think we mentioned on the last call, we did have several products that were in tests in 2007. We didn't plan for any large-scale conversions in 2008, and at this point we don't have any large-scale conversions that are occurring. We are seeing incremental growth in the categories that are closed with an easy open or a QuickTop end. So our penetration percentages are relatively unchanged at this point. We do have additional capacity that we had installed ahead of some market moves. So we are ready for the moves when they happen. And we think it is not a question of if they will move. It is more when they will move for QuickTops.

Okay, and that penetration, that is around 60%. Is that right?

It is right up to 60%.

Okay.

I think kind of the second part of your question is, does the inflationary environment impact all this and the decision to move forward. I think there is probably no doubt the answer to that is yes, that if you're already trying to pass through a lots of other inflation, just adding cost to the package is a harder decision to make. Now we would sit here and tell you it is a good decision to make. In fact maybe there is a real opportunity that sits there at this point in time, but yes, in answer to your question that does make it a harder decision for our customers.

That's it. Thanks, guys.

Bob Franklin, Prudential Financial.

Just about everything has been asked, but and answered; but an out of curiosity question, what is it in personal care that people are buying less of?

It is really across the board. I mean if your question is what in personal care are we doing it is shampoo, mouthwash, it can be kind of across the board. Again, it is not so clear whether this is inventory reduction or consumer spending. So there may be nothing more to this than the retail outlets are just working back inventories in expectation. But it does seem to happen whenever you kind of have economic situation so it is possible that people are actually consuming less of those products.

As in trading off hygiene for --

You could take it to that degree, I suppose.

Okay, then. Thank you.

Tom Maher, Lord Abbett.

Actually my questions have been answered, but one follow on in terms of the working capital improvement, have you guys sized that for this year?

No, although what we did say is at the end of the year we left roughly $50 million or so in working capital beyond what we expected. And the large part of that was some inventory buy ahead as well as some payables that we paid down. So that is kind of the barometer of what we thought we would be able to get back, less whatever inflation does to the working capital for the year.

Which is not unimportant as we (inaudible) all this raw material inflation.

Sure. Thank you. I appreciate it.

Eugene Fox, Cardinal Capital Management.

My questions were answered. Thank you.

George Staphos, Banc of America Securities.

Just a quick one. Impact on easy open, we've talked about the food inflation issue I think a couple months ago. One thing we've been looking at, though, is there any change in technology in the market that is causing a shift away from your easy open end toward other technologies or substrates? What are your thoughts there? Thanks, guys.

George, I would say no. I mean they're changing technology all the time and we are part of that. So we've always talked about easy open as a family of products. So it is not just a steel easy open end. It could be a flexible aluminum easy open end, a membrane, et cetera. If you look at that family I am not really aware of for the application that we are selling into, kind of a competing technology against that. But yes, against steel it could go into something else. But those are all things that we would be in the market with, as well.

Okay, and again, aseptics I would imagine then probably even better than they used to be a couple years ago in terms of conversions, again just given the cost environment. Would you agree with that or disagree with that realizing it is an easy question hopefully for you to answer.

We are not aware of any, so I guess that is a positive on that. I think your logic [pulse] which is you got to make a major capital investment and therefore investment in the product et cetera in a time of inflation. But the logical -- since we are not really in that market is we can't say exactly what is driving that but that makes sense. We are not seeing conversions out there. Nor have we been in any kind of meaningful way.

Okay. Maybe one last quick one. Do you feel at all -- certainly 1Q performance wouldn't suggest this, but nonetheless do you feel at all as to whether your or the company is being stretched a little bit thinner than it used to be given the growth in closures, given the increased international exposure, now given Brazil? And how do you manage against that over time, not just now but over the next couple of years?

I will take the tail piece of that just because it's easy. In Brazil we've been managing Brazil that's we got (multiple speakers)

No, I understand.

So that's been in the complexity. I think the answer is sure. If you go back to when we did the acquisition there is no question that was one of our driving thoughts about this, is it just added complexity, added all kinds of infrastructure challenges for us et cetera. Thank you. I think it is so that it's working pretty well so far; but I would say the answer is, there is no question that is something that we are -- we struggle with all the time. We think we're doing a pretty good job with it. But yes, there is work there all the time around it. It is definitely, as you know, much more complex and a worldwide situation than it is a North American one. And so yes, but I would have given you that same answer. I don't want you to read too much into it. I would have given you that same answer when we did the acquisitions, too.

Does the work require systems? Do you feel you are pretty much in place? Does it require even further strengthening of the bench? How do you define work?

You got it in the second one. To us this is all about people. That is kind of how you win or lose at this business, is getting the right people and getting them focused on the right things. So that is what we are thinking about almost all the time about this. We have definitely been strengthening the bench, some of which we've talked about in previous calls. But there is certainly an opportunity for us to continue to do it. One of the things that we are very focused on is getting in real deep with talent throughout the organization so when new opportunities come along or challenges, we know exactly where we're going to go to address those. So it is not systems at all. In fact, we intend to kind of chafe against that type of solution and go much more to people solutions.

All right. Last, last question and I will turn it over. And I think there has been a lot of good Q&A around plastics this quarter and certainly in the past. It has been a business that I think you would admit has not been quite up to your standards; the last few years the volume has been impacted this quarter from a macroeconomic standpoint. Does there come a time where you maybe more critically evaluate whether it really belongs in the portfolio? Obviously food cans as mundane a business as it is, generates very, very high economic profit. But what about plastics? Do you get to a point where you say enough is enough with the resin, with the volume, inventory draw downs and pull aheads? How would you answer that question? Obviously on a somewhat difficult forum to talk about that.

I would say that A, we critically evaluate it? The answer to that I hope is yes, we try to always critically evaluate these kind of questions. So we certainly do do that. I can't tell you there is much movement around our thinking around it, which is that the returns on that business continue to be very attractive. And we are creating shareholder value all the time in that business.

If you look over the last couple years you've actually seen pretty nice improvement on the absolute earnings of the business and also on the returns from it. So the problem with the topline metric is there is a lot that drives that. But if we can get more efficient and get better business through it and now we're putting in growth; remember we held back the growth accelerator for a while, and we've been putting that back on the business. So I would say that it is different than our can business. I think there is no question about that but the returns have been good. And so we still like it. But yes, we will continue to critically evaluate it and all of our businesses.

Thanks for your time, guys.

(OPERATOR INSTRUCTIONS) Rick Skidmore, Goldman Sachs.

Tony, wanted to come back on the question that was talked about perhaps in the fourth quarter and past quarters, about the potential opportunities for growth in your businesses, given your leverage you are likely to see leverage down into levels that you wanted to be as you move through the year. Given the credit markets are you -- do you have a greater appetite, less appetite? Are you seeing the pipeline get more full with opportunities? Cam you just talk about what potential opportunities there are out there and thinking of your timing?

We continue to think, and we keep saying it so I'm sure you believe us, the greatest way we can create value is through acquisitions, consolidations and strengthening our franchises. So we do continue to believe that is a very good use of funds if we can find the right opportunity. And we try to be very disciplined about that. So you don't know when they are going to come. So as to when do we see it, we would have liked to have seen more last year. Frankly, if you had asked me at the beginning of 2007 I would have speculated for you if I could have that it would have been a deal in that year. That didn't happen. Plenty we look at, but it has got to be at a price that works because that is really where the first spot where value gets created.

So in terms of timing it is very hard to answer it. The pipeline is obviously the credit crisis or situation has created a few issues. One is that the sellers are not yet ready to adjust. Buyers adjust right away on what happens in the credit market. Sellers are struggling more with that. So I think its the pipeline is defined as businesses that people would sell, I think there is quite a good pipeline out there. If they would sell at what makes sense right now in terms of a price credit market et cetera, that is a smaller population for sure. So that means there is plenty to businesses for us to look at and talk to and see if we can figure out ways to pry them loose. But it has always been for us and will continue to be an opportunistic process. I really don't know when it will happen.

Just to make sure I understood it sounds like there is sufficient in the pipeline; you just haven't seen the valuations come into the levels that you really would want to step up on them, is that a fair.

I would agree with that.

Rick, what I would add to that -- and Tony sort of touched on this -- but in this environment patience and discipline and keeping powder dry is our ally, I think. Because sooner or later it will turn around, and sellers will adjust their expectations. And being at the ready to make a transaction at that point in time, I think we will find good value creating opportunities if we continue to stay to that mark.

And across your three businesses is there one that seems to be opportunity or ones that you would be more inclined to look at?

No, not necessarily. Certainly we like all three of the businesses and would be happy to think about transactions across the platform. And I think as to the pipeline there is activity in and around all those businesses. So not one that is more weighted. Now obviously there is different characteristics in each business so depending upon how you define attractive you may get to a different answer on each one. But certainly from our perspective we would be happy to continue to grow out each of those three franchises.

Thank you.

Timothy Burns, Cranial Capital.

If you're looking to extend that bench I will take a multiyear contract and work out of the Paris office if it is possible.

Can you hit 350?

Yes, I can. On certain days. It is pretty clear when you look at your portfolio, you've got franchised businesses in metal food containers and closures. You don't yet have that type of franchise in plastic containers. Clearly Continental, White Cap and then Amcor, they squeezed out everybody, basically. There is players. Crown is out there et cetera. And you did the consolidating in the food can business. I mean, why not repeat that in plastic containers? Is it a function of availability or price or I know we just talked about that, but it would just seem like the businesses that continue to do well are the businesses that have the fewest players. Can you ever get to the fewest players in plastic containers?

That's a big question, Tim.

I am trying to make up for George Staphos.

I think the -- I would characterize the plastic business is a bit different in that as you kind of closed out on that; I think it would be hard to get to the same kind of franchise position that you have in food cans or closures. Because there are so many players in plastic bottles, broadly spoken. On the other hand again the franchise becomes a slightly harder concept to define, but we really believe it is kind of around the specialty design, decorating customer, custom focus. And really believe that our business is uniquely qualified to meet that requirement from customers. And so the only problem with that is then therefore a logical easy acquisition to build that up is not so easy to find it. There is so much unique about what I just said. Now that does not mean there aren't plastic businesses that could help expand that, and we could then build more of that and expand our capability into those businesses. So I think yes, you are right, the consolidation is an opportunity to the business. But I don't think the same concept system where we can roll up and get to kind of 50% share of plastic bottles, not water plastic bottles, it will look different always.

Maybe you could get a 40% share in personal care or something like that so that you don't get branded with a broad plastic bottle business.

In many ways that's where we are, probably not quite that percentage, you can't really get at the data anymore. But we were in the nearing to 30% at a point in time and I think most of what happened there has been kind of swap of share from the other players. So we do have a personal care meaningful position. The problem is there is some element of personal care that doesn't need everything I just described to you, doesn't need that custom-design decorating. So that really isn't the market where our franchise benefit can play as strongly. So you tend to look more to other markets around it and the customers in those markets that need the capability I just described.

My sense is there is a lot of shampoo, mouthwash containers that might have been thrown out with a quarter or a little less than that left in the bottle, and it's getting used these days.

Yes, I think thta is a good point. There is a question of how is it that demand can fall off and I think that is one -- you don't have to necessarily shampoo twice every time if you're worried about paying the rent.

I have to do that. But two more questions; I will keep them quick. Number one, the old adage that if this is going to be a long and deep economic recession, then people will be throwing more cans into the pantry. Is that still true given the change in lifestyle and eating habits or do we not know?

I don't know that we know. The funny thing about it, I think I even said this to you, I would have thought that the American consumer would keep going to the restaurants no matter what. So I am the first to say that I was surprised to see restaurant comps start to come down. To the extent that happens I can't figure out how food cans don't benefit from that. Some of those people at least are going to cook at home and they are bound to, to some degree have to use food cans in that process. So I can only speculate for you that would continue to hold true, but certainly that has been the history here.

Okay, and then your plastic closures business, we know it is not the bulk of your productline, in fact it is not, but there are still conversions going on. Are you making them, are they as profitable as the metal they are replacing, and where do we go with that?

We do see conversion from metal to plastic in our closures business. And our business is strong from a profitability standpoint whether it is in metal closures or in plastic closures. So the real dollars may be a little different but the bottom line impact from a margin percentage standpoint is a nice conversion from us going from metal to plastic.

What is interesting about that, though, Tim, when we got into the closures business and did our first acquisition we talked about the idea that we should expect this business kind of flattish top line, maybe you will get this transition going on. What's actually happened thus far is much of the plastic growth has not been from the metal vacuum closure but it's actually been growth in the products that are beverage products et cetera, Gatorades and other drink beverage areas. So you've seen growth beyond what Adam just referred to, which is that substitution over from what we do, as well. And that is part of why the US business is now more than half in terms of unit in the plastic side.

We're going to try to help you out. I'm heading up a group of bald men and we're coming out with a new product called the Telly Savalas Kojak cream wash. And we think we will take a quote from you guys in a few weeks. Thanks.

Gentlemen, we have no other questions in the queue at this time. So we would like to thank everyone for their participation, and you may now disconnect. Thank you.