Silgan Holdings Inc (SLGN) 2010 Q1 法說會逐字稿

Good day and thank you for joining Silgan Holdings' first quarter 2010 earnings conference call. Today's conference is being recorded.

At this time I would like to turn the call over to Mr. Malcolm Miller, Vice President and Treasurer. Please go ahead.

Thank you. Joining me from the Company today I have Tony Allott, President and CEO; Bob Lewis, EVP & CFO; and Adam Greenlee, EVP & COO.

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 2009 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.

Thanks, Malcolm. Good afternoon, everyone, and thanks for joining our first quarter 2010 earnings conference call. As usual we'll make a few comments on the financial performance for the quarter and then our outlook for the second quarter and the full year 2010. After these prepared remarks Bob, Adam and I will be pleased to take any questions you may have.

As you saw in the press release we had a solid first quarter delivering adjusted earnings per share of $0.80 which exceeded the high end of our estimated range of $0.60 to $0.70 and was 9.6% above our prior year first quarter. The strong performance in the quarter was driven by continued excellent execution by our food can business, solid results and closures and continued resin volatility impacting our plastic container business. Our food can business experienced a more normal demand pattern as we cycled over a weaker volume first quarter of 2009 as a result of customer buy heads in the fourth quarter of 2008. While volumes in our closures business were down modestly from the first quarter 2009, trends show improving volumes in our single serve business and operating performance continues to be strong. Our plastic container business was well below the same quarter of the prior year but was only modestly below our expectations for the quarter. Recall that the first quarter of 2009 benefited significantly from lag pass-through of declines in resin costs while the first quarter of 2010 felt the initial negative impact of steep increases in recent resin costs.

On the bright side volumes were up mid-single digits and backlogs at this point are solid. And while I know we'll get more questions on it later, I want to say this now. Excluding the dramatic impacts of resin cost swings on the results, the plastics business is performing about where we expected them to at this point. Ultimately on a longer term basis explanations of variances don't mean much. It's actual performance as measured in cash returns that matters. We know this, we believe it to our core and so does our plastics team.

As a result of the strength of our first quarter performance and our positive outlook for the full year, we've increased our full year guidance by $0.10 per share to range of $4.35 to $4.55 adjusted earnings per diluted share which at the high end represents an 8.6% increase over our very strong 2009 results.

With that, I'll now turn it over to Bob to review the financial results in more detail and provide additional explanation around our earnings estimates for 2010.

Thanks, Tony. Good afternoon, everyone. As Tony highlighted, 2010 is off to a good start as year-over-year unit volume comparisons for the first quarter were favorable in both the metal food and plastic container businesses, and the closure business saw improving volumes indicating some strengthening in our single serve beverage business. As anticipated, the first quarter also experienced continued resin volatility and, in fact, saw very significant cost increases late in the quarter which did exceed our original estimates. As a result, we delivered first quarter of 2010 adjusted earnings per share of $0.80, up 9.6% from the prior year quarter of $0.73. In addition, as part of our ongoing efforts to enhance the competitive position of our plastic container business, we approved a rationalization plan during the quarter which provides for the closure of our Port Clinton, Ohio facility by year-end. As a result we incurred pre-tax rationalization charges of $2.1 million or $0.03 per diluted share during the quarter. We currently estimate incremental charges for the shutdown of the Port Clinton facility of $0.03 per diluted share to be recorded in the second quarter of 2010.

Given the recent devaluation of the Venezuelan currency, we also recorded a charge of $3.2 million or $0.08 per diluted share for the impact of the remeasurement of net assets in Venezuela. On a consolidated basis, net sales for the first quarter 2010 were $664 million, an increase of $8.6 million or 1.3%, primarily as a result of higher volumes in both the metal food and plastic container businesses and the impact of favorable foreign currency translation partially offset by lower unit volumes in the closures business. Net income for the first quarter was $26.8 million or $0.69 per diluted share compared to first quarter of 2009 net income of $26.9 million or $0.70 per diluted share. Foreign currency had very little impact on net income as we remain effectively hedged having financed the international businesses in their local currency, and we maintain a business practice of balancing cross border activity to help mitigate the effects of currency on our earnings.

Interest expense increased $2.1 million to $12.5 million for the quarter as a result of higher average interest rates primarily attributable to the impact of the issuance of the 7.25% senior notes in May of 2009. As you'll note on the balance sheet, we reduced our cash position to $99.2 million by the end of the quarter as we used cash to fund working capital. Our effective tax rate of 39.4% in the first quarter of 2010 is higher than expected, primarily due to the negative impact of the remeasurement of the net assets in Venezuela which is non deductible for tax purposes. Capital expenditures for the first quarter of 2010 totaled $24.1 million compared with $23.9 million in the prior year quarter. We continue to anticipate capital spending for the full year to be near the mid-point of our normal range of $110 million to $140 million. Additionally, we paid a quarterly dividend of $0.21 per share in March with a total cash cost of $8.2 million. This dividend represents a 10.5% increase versus the previous quarter's dividend. At the end of the quarter we made a voluntary pension contribution of $92 million to our domestic pension plans thereby essentially fully funding the December 31st, 2009 pension benefit obligation for these plans. As a result, we expect significant reductions in future contribution requirements for the next several years.

I'll now provide some specifics regarding the financial performance of the three businesses. The metal food container business recorded net sales of $375 million for the first quarter of 2010, an increase of $3.5 million versus the prior year quarter. As expected, the first quarter of 2010 benefited from favorable volume comparisons versus the first quarter of 2009 which was unfavorably impacted by the customer buy-ahead during the fourth quarter of 2008. Income from operations in the metal food container business increased to $46.4 million for the first quarter 2010 versus $26.6 million in the same period a year ago. The increase in operating income was a result of higher unit volumes, the year-over-year benefit of the timing of implementing certain contractual pricing pass-throughs of manufacturing costs and improved manufacturing efficiencies.

Net sales in the closure business increased $1.7 million to $144 million for the quarter primarily due to a favorable mix of products sold and favorable foreign currency translation of $4.1 million partially offset by lower unit volumes. Income from operations in the closures business for the first quarter of 2010 decreased $3.2 million to $11.1 million. The first quarter of 2010 was impacted by a $3.2 million charge related to the remeasurement of net assets in Venezuela, a negative impact from the lag pass-through of higher resin costs and lower unit volumes, partially offset by the benefit of ongoing cost controls, improved manufacturing efficiencies and $1.4 million lower rationalization charges.

Net sales in the plastic container business increased 2.4% or $3.4 million to $144.9 million in the first quarter of 2010, primarily as a result of an increase in unit volumes and favorable foreign currency of $4.9 million, partially offset by an unfavorable mix of products sold during the quarter. Operating income decreased $12 million to $2.9 million for the first quarter of 2010. As expected, the year-over-year resin impact was the primary driver as 2009 benefited significantly from the lag pass-through of the fourth quarter of 2008 and early first quarter 2009 declines in resin costs, while 2010 suffered the initial negative impact from the delayed pass-through of rising resin costs during the quarter. Resin costs remained volatile during the quarter both in terms of timing and magnitude of price increases with late quarter increases far outpacing our expectations. The first quarter of 2010 was also negatively impacted by rationalization charges of $2.1 million for the shutdown of the Port Clinton manufacturing facility.

Turning now to our outlook for 2010, we're off to a good start for the year with a solid quarter behind us. Based on this first quarter performance and a positive outlook for the remainder of 2010, we're raising our full year estimate of adjusted net income per diluted share by $0.10 to range of $4.35 to $4.55 per share, which excludes the impact of rationalization charges and the remeasurement of net assets in Venezuela. And it does assume resin cost declines to more normalized levels in the second half of the year. While we saw improving unit volume trends across each of our businesses during the first quarter and are optimistic about the full year, we expect the recent spike in resin costs for our plastic container business and the plastic portion of our closures business to create significant headwind until the second half of 2010 as a result of the lag pass-through of resin price increases. Again we are assuming these historically high resin costs abate in the second half of the year. As a consequence, we are providing a second quarter 2010 estimate of adjusted earnings in the range of $0.85 to $0.95 per diluted share excluding rationalization charges, as compared to $0.91 in the second quarter of 2009.

We continue to forecast strong cash generation from the businesses as outlined previously. We chose to deploy a portion of that cash flow to t make a sizable pension contribution at the end of the first quarter. After reflecting that cash contribution, we expect our remaining free cash flow for 2010 to be in the range of $85 million to $135 million.

That concludes our prepared comments and we can open it up for Q and A. I'll turn it back to Dawn so she can provide the instructions for the Q and A session.

Thank you. (Operator Instructions). Our first question will come from George Staphos from Banc of America. Your line is open. Please go ahead.

Thanks. Hi, guys. Good afternoon. The first question I had, could you perhaps provide a bit more granularity on the volume changes, not just directionally but maybe put some brackets that you saw, brackets around the volume changes you saw in food and closures and plastic bottles. And I had a couple follow-ons.

Sure. We can start with our food can business. We did have a strong quarter in Q1 again. I would say it was right in line with our expectations. We were up mid-single digits which was also in line with the market, as well. We spent some time on the last call talking about an adjusted trailing number and we've done some more work on that here for this quarter. And basically when you focus on our core markets in food cans, you look at the last 12 months versus the 2008 adjusted number and we see market growth for our food can business and we're up in line with that, as well. So again I would say we're right in line with our expectations.

As far as our closures business, volumes were down low single digits and the difference in the closures business this year is that we are seeing a positive trend certainly through the quarter and certainly versus the fourth quarter of last year as we head into the filling season for our hot filled beverages.

Moving over to plastics, a good story on volume. Volume was up in the mid-single digit range for our plastic container business.

Okay. Just quickly on the plastics, is that a reflection hopefully of the marketers coming back to life, any pipeline refilling? I wouldn't imagine there's a lot of pre buying that occurred ahead of resin but just any kind of color on that?

Sure. I think it's a combination of a bunch of things and we're seeing it essentially across the board. So there is some thought that there is some retail inventory restocking that may be happening after the significant declines over the last 18 months, but we would just say it's across the board demand at this point.

George, it's an interesting question about the prebuy. I think our take on it is that there's not a lot of that, that people don't really have a lot of room to buy in a lot of bottles. There's got to be some, but our thinking is not too much of it. The other piece here is remember that you did have some volume spike the tail end of last year around H1N1 and, in fact, in these numbers you're actually seeing some burnoff of that inventory out there. So there's a little bit of negative against that that would imply the rest of the market is a little bit stronger.

Okay. The second question I had, if I look at the fact that you're increasing your guidance relatively early in the year, admittedly you're not taking it up by the entire amount that you beat in the first quarter but yours is not a pennies business, but more nickels and dimes business when it gets down to the bottom line. And I look at the headwinds that you have in plastics and with enclosures in plastics. It suggests a fair amount of confidence on the outlook for the food can business for 2010. Is that a correct assessment? If so, what's behind it? If not, could you clarify?

Yes, George, I think generally your comment's probably right that it does speak to the confidence that we have to the year and certainly we have confidence in the food can business, as well. I think where you might be slightly off the kilt there is the fact that, while resin is going to be a headwind to both the other businesses in the near term, we do think that it's coming back. So if you look at the closures business, as an example, on a year-over-year basis, if you adjusted for the resin, it actually had a pretty good quarter. So it's not as disappointing as others might be thinking. And with the volume trend in plastics it all shakes out to be pretty positive for us. We did have a pretty nice beat in Q1. We'll get a little bit of a benefit on the full year from the pension contribution. And I think what you're hearing is the pullback against that, is some caution around resin for sure and then just the fact that it is early days. We're in the first quarter here of a long year with a lot of the pack left in the season.

Okay. One last question and I'll turn it over and come back. When we look at Venezuela, maybe it's a two-part question. One, how would you guide us to build in an effect from Venezuela on a going forward basis? I realize a lot of it's going to be driven by currency and the vagueries of that market. And then stylistically, one of your not direct competitors but peers anyway within packaging reports that as part of operations no one told you to not go to Venezuela and operate there. Why do you extract it out of your operating earnings? Thanks, guys.

I think there's a couple of points to be made there. One, it's a relatively small business for us. So the exposure is limited. So I would say as you think about guidance on a go forward basis, this is a one off indication which is why we accounted for it the way we did, or treated it the way we did. As to why we treated it this way, I don't believe it's indicative of the future earnings state of the business, nor was it included in the guidance that we provided. The competitor that you speak to, I don't know whether they included it in their guidance for the street or not.

They do.

Right. So there's the difference. They had it in their guidance and therefore it is a comparative number. For us, we didn't include it and we think it's a one off treatment for a one off decision in that area of the world.

This is just a one time -- I say one time, unless there's another revaluation -- but it's a balance sheet count, essentially the net assets of the business has been revalued. To me it's so clearly not part of the operations of what we do.

Okay. I'll turn it over. Thanks, guys.

Thank you. And our next question will come from the line of Claudia Hueston with JPMorgan. Your line is open.

Thanks very much. Good afternoon. I was hoping you could just talk a little bit more about the pickup that you've seen in closures, maybe how it progressed over the quarter and what your expectations are for the year. And then I was just curious how you're thinking about long term demand trends within the closures business. Has your outlook changed at all as you've come out of the downturn?

Sure. When you're looking at the first quarter, again, we've seen a nice pickup in the order backlog for our plastics business which primarily is non-carbonated single serve beverages, and we were right at the starting point of our filling season for those products. So the backlog is in better shape than it's been in in recent years.

And as far as the trend of shipments through the months of the first quarter, we certainly saw improvement sequentially each month and we're seeing more of the same here in April. So we're expecting good things out of our plastic closure business on this aspect for the near term. If you look at the full year, we did expect some recovery in the single serve market in 2010. So it's not terribly different than what our original expectation was for the year. So again, planning for that recovery in our initial outlook.

And then does your long, long term demand trends, what do you think volume growth overall long term basis should look like in closures?

If you quickly look back at the plastic closure growth that we've seen in the US business, it was an absolute tiger, and it was growing high teens, double digits every year. We don't see it returning to that level again, but we do see it returning to better than beverage market growth rates going forward.

Okay. That's really helpful. And then just if you gave any guidance on the tax rate, I missed it, and if you didn't give guidance, could you give some guidance on the tax rate?

Sure. I didn't really give guidance during the call here. What happened in the quarter, it's just a pure mathematical impact of the devaluation in Venezuela which should be isolated to the quarter. I think on a go forward basis we'll be back in a more normal rate that's in line with where we ended last year.

Okay. Thank you.

We'll take our next question from Ghansham Panjabi with Robert W. Baird & Company.

Hi, guys. If you mentioned this already, I apologize but the 12.4% operating margin in metal food in the first quarter, that seems to be a new record. Is that the new baseline going forward?

Unfortunately not really. There were a couple things that impacted that margin rate in the first quarter that aren't going to be sustainable for us going forward. One, we did have an inventory build that occurred in the first quarter. And two, we've got the timing of our contractual pass-throughs. Not all of our pass-throughs are enacted on January 1. So those are phased in sometimes over the first quarter. We get the full pass-through, but the timing of the initial pass-through is phased in the first quarter. So while we feel good about the food can business and what we've done and where we're going in that business, we think the margin rate is sustainable for the year but we don't think that we'll have a repeat of some of those items as we go forward.

Okay. And can you take us through the decision making on why fund the pension plan now? It seems like the markets have recovered and interest rates directionally look higher not lower. Why such a sizable contribution so early in the year?

Yes. It was really just a decision against all the other opportunities that sat out in front of us given our current capital structure, and it represented an opportunity for us to earn a pretty good return because we could take some favorable arbitrage against that capital structure. I think part of the reason, to put it in perspective, is it literally is only about one-quarter of a turn of leverage or less. So it really doesn't get in the way of us looking at alternative value creating opportunities whether it be acquisitions or whether it be dividends or share repurchases. So it was really an opportunistic deployment of our capital.

Okay. Thank you.

We'll take our next question from the line of Chris Manuel with CitiBank Capital. Your line is open.

Good afternoon. A couple quick questions for you. First, Bob, could you quantify, if you wish, the impact that the resin lag had on you, how much you think you might be behind both on the plastic side as well as in the closure side?

Sure, Chris. This is Adam. I'll do that quickly. If you look at the benefit that we had last year in resin, and recall as we came into 2009 last year, resin prices fell dramatically towards the end of the year. So we were passing through what we had suffered previously in 2008 in the first quarter of 2009 against a cost basis that was lower. So that impact in Q1 2009 was about $9 million. If you look at the impact on 2010, we suffered about $3 million in unfavorable resin for the quarter. So you put the two together on a comparative basis it's about $12 million versus Q1 2009.

Okay. That's helpful. Was that both businesses together or was that just in the plastics side?

That was just the plastic container business. If you look at the plastic piece of our closures business, it was about a $6 million comparative difference using the same kind of math I just went through on the plastic container business, as well.

And then while we're talking about some of the closures component, were the rates within each of those, whether be it the metal or on the plastics side, much different within closures through the quarter or was one potentially better or worse than the other?

I think again we're in the pre season for the filling of the non carbonated beverages certainly in the US market. So I would say the volume uptick was much more on the plastic closure side of the business in Q1.

Okay. That's helpful. And then last question relates back to some of your guidance. As you look at what you've embedded for the year, what sort of volume rates would you be assuming within your guidance, the high end and the low end?

You want me to go through each of the businesses? I'll start with metal food cans first. We're still forecasting essentially flattish volumes for 2010. And again, remember that we had a record harvest last year in our metal food can business. Moving over to closures, we again continue to see recovery in our single serve beverage business. We also are expecting more recovery in Europe. It's been a little sluggish over there here through the first quarter with northern Europe being slow, a little bit of Spanish economic issues impacting our business over there as well. But in total our closures business we do expect to be up year on year. And our plastic container business we definitely expected to see growth in that business, and I think our Q1 results are essentially in line with where we are expecting the year to wind up.

Okay. And I did have one other follow-up. On the pension side, Bob, I think you mentioned that there may be some benefit over the balance of the year, I think in response to an earlier question, that enabled you to raise some of your guidance. Could you maybe provide a little color as to whether that's the case or whether that really shows up in 2011 or the magnitude as well?

There is some benefit of a few cents that we would recognize in 2010 and then you'll get a full year annualization of that on a go forward basis.

Okay. Thank you.

We'll take our next question from the line of Chip Dillon with Credit Suisse. Please go ahead.

Yes. Good afternoon.

One thing I noticed is that the working capital build this year was certainly bigger than it has been in, I think, any first quarter. And one thing I noticed is actually the payables went down, while, of course, the inventories and receivables went up. Was there a reason that your payables were down year on year? Were there special discounts offered by some of your suppliers?

No. This is going to speak to one of the nuances of Silgan, I think. If you're looking at the cash flow statement, what you see is exactly so, but what you've got to look is down in the financing section there's a line that says, "changes in outstanding checks, principally vendors." That's essentially just how the timing of when we pay vendors gets recorded. So in our view and from a working capital standpoint, we look at that as part of payables. So if you reconcile that back into both years, payables are essentially flat. They are a couple million dollars apart. But you're right, that working capital does have the appearance that it built on us and, in fact it, did a little bit.

A big piece of that is related to the cash collections at the tail end of last year. You might recall that we spoke to having free cash flow that outpaced our expectation largely because we collected a lot more receivables right in the final days of the year than we expected. What we're seeing now is those receivables are rebuilding back to a normal level for Q1. So it looks like a working capital build and in a sense it's a cash use. But against the years it's just timing. And then the other piece of that is we did build some inventory in both our closures business and our containers business.

Got you. You mentioned the high payment, I guess the pension plan. If I heard you right, are you seeing yourself in a position where you don't have to make really any significant contributions, say, between now and 2012, 2013?

I don't know what the exact date will be but yes, that's certainly the idea is that we'll get a funding holiday, if you will, in the near term.

Okay. And then the last thing is, as you look at the fact that your balance sheet has continued to gradually deliver over time, we have huge dividend tax increases. The Journal is writing about that today. And capital gains rates go up next year and again in 2013. Any thought to making a more significant distribution of cash to shareholders this year, whether it be in the form of a dividend or buyback or do you feel that just looking at the tax law might be a little short sighted?

I would say that you can't just look at the tax law. But you might recall, we institute our initial dividend at the time the tax came down. So it's clearly something we think about. The truth of this, and we've talked quite a bit about it, the big driver here is even more than that is our own balance sheet, as you started on. We've gotten the balance sheet to a point that we've said it's inefficient and so we've been pretty clear that our view is, as we come to the end of this year, there comes a time for us to do something in any case. So I would say to answer your question, what's going to happen on the dividend is interesting and would impact that but it's not the main driver. The main driver is that we're at a point where we need to think about our balance sheet and do something, in any case, and that's how we're lined up.

Again we've also said, just to be the historian on this, that there's not any one answer here. We could do a blending of different things, which is why the taxes is somewhat interesting against it. Including acquisition which doesn't fit to your point exactly. So we're right where we've been. We think the time is this year at some point to get at this issue. We still like the idea of deploying cash for acquisition. It's where value has been created in Silgan in the past but we're open to looking at all means of returning capital or deploying capital.

And just the last point, looking at the acquisition situation, obviously there could be potential in both closures and the plastic packaging, but is it still probably more likely than not that if you did something significant, it would be overseas and probably in the food area?

I don't know that I would necessarily say more likely than not. We keep a pretty active pipeline across all of the portfolios that we operate in and across all geographies, quite frankly. So, I think there's opportunities across the business landscape for to us look at. And more importantly is finding opportunities that fit up against our idea of a strategic franchise that earned good returns. So we don't necessarily have a bent to one segment or another.

Got you. Thank you.

Our next question will come from the line of Mark Wilde with Deutsche Bank. Your line is open.

A couple questions. One just a nit. You mentioned in the plastic container business that there was some unfavorable mix. I wondered if you could give us a little color on that.

Sure. There's a couple pieces to it. But one element of that is you'll recall some of our business is food-based business and that tends to be higher priced point food products and so that's an area where it's pretty high price point for us, and that's an area that is down. Then you just get into where is the more decorated, higher dollar areas, and larger size, and those have been a little bit slower on the rebound essentially.

Okay. And then the other question, just coming back on what you were just talking about with Chip on the acquisition side, I'm just curious, Tony, with risk premiums seeming to come down, capital is more available and seeing some private equity guys active in the space again, is this making it more difficult for you now from a competitive bid standpoint, or has none of this really rolled through into deal valuations yet?

So far I don't think that's been a big issue. There was a period of time there where we thought it might just be us out there and nobody else and we liked the idea of that. I think that's clearly not the case. But equally I would say there's no sign we're back to the frothy days where it's hard for strategics to keep any process. I think we're probably more on a balanced playing field in that regard.

I might say it slightly different in the sense that we haven't lost a deal that we really liked to private equity around price or anything. So I think that's just evidence of where the market is.

If you could just generally, could you just refresh for us how you think about acquisitions in the three main areas, and maybe if there's a fourth area that you'd think about, if you could give us some general ideas about that?

I think we've said that an acquisition in food cans in the US market would be the most synergistic, given our platform, albeit there's only a little bit short of 20% of the market that's not already consolidated. So there's probably less of them, but certainly attractive. We would look at other opportunities on a geographic basis assuming that it fit up against those other ideas of the franchise and that we could earn a good return on a risk adjusted basis. I think the plastics business is still an area that could benefit from some consolidation, particularly in the US market. I think that's the one where any appetite for acquisitions is likely oriented around the domestic market and not on a broader geographic scale.

And as we look at the closures business, that's one where any geography would work for us, but the fact of the matter is probably has more opportunity on the global market. And then broadly, although we've never really defined this, is that there are other opportunities that may from time to time present themselves in rigid consumer packaging that we would look at, but we don't necessarily have a strategic plan that says we have to go get X. And the one example I would use for that is if we dropped this conversation back five years ago, we would not have been talking about closures. So that's a good example of peripheral-type packaging that we bring good experience and expertise to.

That's excellent, very, very helpful. Thank you.

And our next question will come from the line of Robert Kirkpatrick with Cardinal Capital. Your line is open.

Good afternoon. You mentioned that you hadn't lost a deal to private equity that you've liked. Have you lost them to strategic buyers?

No. That's a good question, though. You were paying attention, I guess. No. Look, I think what has transpired of late is our own discipline. It's not the fact that we haven't looked at acquisitions, we haven't been active in the space. We just haven't really found one that's been compelling where we had a seller that was ready, willing and able to sell at a price that we thought made sense.

Okay. And then you have your bank agreement, I think, comes due a little more than a year from now. Could you update us on the status of when you plan to deal with that and how you're going about doing that?

Sure. We're pretty much in the same spot that we were at the end of last quarter. You're right, the credit facility does come due at the end of June of next year. So clearly it makes sense at some point for us to refinance. I'll take you back to the bond deal last May. A large part of why we did that was to make sure that we had liquidity and the ability to be patient around what was then just coming out of the throes of a horrible credit market. So what that enabled us to do is have time on our side and be patient for the markets to improve. Clearly they're improving right now. So I think so unless we saw a real tradeback in the credit markets, it's safe to say that we'll look at doing something between now and the end of the year.

Okay. Thank you so much.

We'll take our next question from Christopher Butler with Sidoti & Company. Your line is open. Christopher Butler, your line is open.

We can move on to the next question.

Certainly. We'll take our next question from Al Kabili with Macquarie. Your line is open.

Hi, thanks. Bob, I was just wondering if you could clarify on the outlook in 2Q rough order of magnitude what type of resin headwind we could be thinking about, and if there were any difficult comps last year in terms of resin benefit in any of the segments.

Al, it's Adam. If you recall last year in Q2, resin costs started to rise in Q2 of last year, as well. So the year on year results that we expect of our plastics business are going to be somewhat comparable to last year. And if you think about the impact of resin on Q2 of this year, it will be a couple million dollars of negative impact on the business for Q2.

Okay. And then also on the non contract business, in terms of pricing have you been able to at this point catch up to resin? Is there any difficulty in that in terms of the competitive environment? Thanks.

Maybe to answer your question this way. Our pass-through mechanisms continue to effectively pass through the changes in resin costs that we experience. Unfortunately we're riding a wave of increases here, so we're catching up still. And as Bob mentioned earlier, we do anticipate resin costs returning to a more normal level in the back half of the year, but as of now we're passing through and we're still trying to catch up.

Okay. But how about on the non contracted piece?

I would say it's the same between contract and non contract for our plastics business.

Okay. Great. Thank you.

And we'll take our next question from George Staphos from Banc of America. Your line is open.

Thanks. Hi, guys. I wanted to come back to plastics and I'm not going to get into relative returns here which we've discussed in the past. I forget, maybe you were answering Mark's question about consolidation potential within plastics. On my numbers, you have roughly about a 5% share of the overall blow molded market in North America. Now I realize the plastic bottle market is very, very fragmented both not only in terms of the supplier base but really in terms of the actual end markets and things that would be classified as packaging. Nonetheless are there niches that you think you could acquire into and have enough market share, given the fragmented nature of the business overall, where you could, in fact, have a bit more -- how to say it -- more control on your returns and relative margins?

I think you know our speak is what you're talking about is exactly what we think about it which is sustainable competitive market position. And the answer to your question is yes. We do think that there are areas where there are competitive advantages that fit. It may not be market share. So to answer your exact question, it could be small market share, but what you do is competitively advantaged to anybody else that does that and there is a market need for it. In fact, I would say our business does cater to some of those markets. Not entirely by any means, but it does cater to some of those kinds of customers in some of those markets. And yes, there are other opportunities out there. Now, again, I think all of our comments on acquisition are not meant to imply there's an immediacy on that. This is more strategic.

But sure, there are cases where we absolutely believe that you get rewarded for that. And again, it goes right back to where you started which is the only evidence of that, the only meaningful proof, is that you get a return that is value creating for your shareholder, that you can deploy at a certain cost of capital and you get greater than that back. And that is in the end the only measurement that matters to us.

Are there any niches within plastic patching, as you see it, where you could combine some of your existing technology and know-how either in plastic bottles or within closures which would actually give you a differentiated business position to which you speak here?

Yes, but what I can't quite get from the question is whether you mean sizable businesses. I think that they tend to fit into smaller sizes that fit that. Is there one plastic business I would look at right now and say it is an ideal fit to harmonize the competitive advantage of our business? Not really. There's not any one that's a perfect fit that does that.

That's more where I was going with it. Thanks for that, Tony. Two last questions and I'll turn it over. Should we expect that both plastics and closures are back to year ago EBITDA levels by the end of the year or are we merely suggesting that by the time you get into the second half, as resin normalizes, you should be able to post improved EBIT just in those particular quarters?

George, our expectation coming into the year is that we would see modest improvement to the financial performance of both of those businesses and we continue to think that is the case.

Okay. That's encouraging. I will leave it there and thanks and good luck in the quarter.

(Operator Instructions). We'll take a follow-up question from George Staphos with Banc of America.

Sorry about that, I spoke too soon, one last question. The pension pre funding that you did, does that help you in any way in terms of finishing up your potential refinancing on the bank credit agreement?

Not necessarily. Clearly the credit agencies and others generally look at pension liability as a form of debt. So from that perspective it certainly does, but it's not something that we had to do in order to get to a refinance position in any way.

And therefore, that was not the reason why you did it.

That's correct. This is clearly a return-based decision on our part.

This was cash that was going to have to get deployed in the next couple years in any case. So to do it now and to essentially get some benefit on the P&L from that made sense to us rather than to be holding cash on our balance sheet.

Okay. Thanks again, guys.

And we'll take another follow-up question from Chip Dillon with Credit Suisse. Your line is open.

I had a question about the food can business and a more general question, more general framework. And that is, when you look at the demand side, we heard a lot about in the last year or so maybe during the recession as people ate more at home and didn't go out that could have helped volumes a little bit in the market. But as you look ahead do you see any other trends that could either hurt or help your business in terms of how food is packaged and consumed? Do your customers talk about that?

Our belief is that the food can is still a superior package in terms of cost and safety. And if you look at the infrastructures our customers have and filling their products and manufacturing their products, the food can is an integral part of that infrastructure. So there's nothing that we see, as we sit here today, that would indicate there are plans for changing that or we're not really engaged with our customers in dialogue about changing that.

Really either way. Again, remember that so much of what we're talking about here is retorted in food. So you have a whole infrastructure that's around the cans. So the good news of that is it's a pretty hard decision to think about moving away from it. The negative of that is it's a pretty unlikely proposition that people are going to all of a sudden say they want to do a whole lot more of it. So I think we're right where we've been. There's not a lot going on either side of that.

Okay. And just to make sure I heard you right, you mentioned when you look at the closures business, the single serve noncarbonated area had been good for you in the first quarter. How do you see that going forward, especially with some of the shifts taking place in the non alcoholic area?

Again the non-carb segment is a small segment of the total liquid refreshment beverage market. So it's a small percentage of the total. In the past it's grown dramatically, as I mentioned, the high teens type year on year growth. It should return to a high single digit type growth rate. I don't know that we're going to be there in 2010, but that's the long term prospect we have for that portion of our closures business.

And how much of your closures business are in non-carb and non alcoholic juices and waters, et cetera?

Literally almost 100% of the beverage side of our closures business would be non-carb business, which is non alcoholic. About 50/50 food beverage is the split across the entire franchise.

Got you. Okay, thanks.

We have no further questions in queue.

Great. Thank you, everyone, for your time and we look forward to our call to talk about our second quarter.

This concludes today's teleconference. You may disconnect at any time. Thank you and have a great day.