Silgan Holdings Inc (SLGN) 2010 Q3 法說會逐字稿

Thank you for joining Silgan Holdings Q3 2010 earnings conference call. Today's call is being recorded. At this time I would like to turn the call over to 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 and CFO, and Adam Greenlee, EVP and COO. Before we begin the call today we would like to make it clear that certain statements made on the call will 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 included but not limited to those described in the annual report on 10K and other filings with the Securities and Exchange Commission, the actual result of operations or condition of the Company could differ from those expressed or implied in the forward-looking statements.

With that, let me turn it over to Tony.

Good morning everyone welcome to our third quarter 2010 earnings conference call. Our agenda is to review the financial performance for the third quarter make a few comments about our outlook for the rest of 2010 and Bob, Adam and I will be happy to take questions you may have.

Much of the discussion of the third quarter of 2010 will revolve around comparison to the usually strong third quarter of 2009. Remember that during third quarter Q3 of last year our metal food container business benefited from a strong fruit and vegetable pack season that finished reasonably early while our plastics business also suffered the effects of spiking resin costs. In comparison the third quarter of 2010 was a solid earnings quarter and was in line with our expectations, as we delivered adjusted earnings per diluted share of $0.89. This is the second strongest quarter in the history of the Company, which unfortunately happens to compare against the strongest.

Generally, the quarter came together as we expected. Our metal food container business continued to maintain good cost control and manufacturing efficiencies driving solid performance despite the tough volume and mix comparisons. Our closures business was cycling over a strong prior year quarter but continued to experience volume recovery particularly in the single serve beverage markets. While we are not satisfied with a profitability of plastics business, it did deliver its best quarter since the first quarter of 2009 as volumes continued to expand and resin costs abated as head wind.

In addition to these solid operational performances, we also took some strategic steps to return our balance sheet to more optimal levels and to continue to drive shareholder value. Specifically, we have initiated a $202 million redemption of 6 and 3/4 senior sub bonds, which are due in 2013 and we commenced a tender offer to acquire up to $247 million worth of our common stock. For sometime now we have been indicating our intention to make certain moves to better optimize our balance sheet and believe these announced moves will position us well in this regard, while still leaving ample capacity for strategic investment opportunities. Based on our year-to-date performance, past completion data and outlook for the remainder of the year we have confirmed our full year guidance of adjusted earnings per diluted share to be in range of $2.10 to $2.20. 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 the remainder of 2010.

Thank you Tony. Good morning everyone. As Tony highlighted the third quarter of 2010 was another solid quarter, as we delivered earnings in line with our expectations. Noting a delayed pack season which shifted some volumes particularly larger can sizes from the third quarter in to the fourth quarter and we were faced with difficult comparisons against extremely robust 2009 pack. Volumes in our closures and plastic business showed continued improvement and our plastic business benefited from the comparative affect of the delayed pass through declining resin costs. As a result, we delivered third quarter adjusted earnings per share of $0.89 versus the prior year quarter of $0.96.

On a consolidated basis net sales for the third quarter of 2010 were just over $1 billion a decrease of $14.4 million, or 1.4%, primarily as a result of revenue declines in our metal food container and closures business due to lower average selling prices resulting from the pass through of lower template price,s lower unit volumes in metal food container and impact of unfavorable foreign currency translation in Europe. These decreases were partially offset by revenue gains in our plastic business, as a result of the pass through of higher raw material costs, incremental volumes and the impact of favorable foreign currency translation in Canada. Net income for the third quarter was $65.2 million, or $0.84 per diluted share, compared to third quarter 2009 net income of $73.8 million or $0.96 per diluted share. Foreign exchange had very little impact on the earnings of the aggregate business as we continue to believe we are affectively hedged, having financed the international businesses in their local currency and we maintain a business practice of balancing out cross border activity to help mitigate the effects of currency on our earnings.

Interest expense before the loss on early extinguishment of debt for the quarter, increased $2.3 million versus the same period a year ago to $16 million. The increase is attributable to believe higher average interest rates and higher outstanding borrowings as a result of the refinancing of our senior credit facility in July of 2010. As a consequence of that July refinancing, we also recorded a loss on early extinguishment of debt of $4.5 million dollars in the third quarter. Capital expenditures for the third quarter of 2010 totaled $27.9 million, compared with $23.3 million in the prior year quarter. On a year to date basis capital expenditures totaled $76 million in 2010, versus $72.1 million in the prior year. We continue to anticipate capital spending for the full year to be the higher end of our normal range of $110 million to $140 million. Additionally we paid a quarterly dividend of $0.105 per share in September, with a total cash cost of $8.2 million.

I will provide details regarding each of our three businesses. The metal food container business recorded net sales of $688.9 million for the third quarter 2010, a decrease of $27.6 million versus the prior year quarter. This reduction was primarily result of lower average selling prices due to pass through of lower raw material and other manufacturing costs and unfavorable mix of products sold and lower unit volumes primarily attributable to the shift of a portion of the seasonal pack for the fourth quarter of 2010. Income from operations in the metal food container business decreased $8.9 million, $95.3 million for the third quarter of 2010 versus $104.2 million in the same period a year ago. The decrease in operating income was primarily a result of unfavorable mix of products sold, lower unit volumes and the negative year-over-year impact resulting from the timing of certain contractual pass throughs of changes in manufacturing costs. These declines were partially offset by on going cost control and continued improvements in manufacturing efficiencies.

Net sales in the closure business decreased $3.5 million to $162.8 million for the quarter, primarily due to the negative impact of $8.1 million from the unfavorable foreign currency translation, pass through of lower net raw material costs and unfavorable mix of products sold. These declines were partly offset by improved unit volumes as we continue to see recovery in the domestic single serve beverage markets and Europe experienced overall volume improvement. Income from operations in the closures business for the second quarter of 2010 decreased $2.3 million to $22 million, largely as a result of the 2009 benefit from the delayed pass through of raw material cost declines in Europe and negative mix of products sold. These declines offset by volume improvement.

Net sales in the plastic container business increased 12.5%, or $16.7 million to $150.4 million in the third quarter of 2010, primarily as a result of higher average selling prices due the pass through of resin cost increases and increase in unit volumes and favorable foreign currency translation of $1.6 million. Operating income in plastics increased $5.1 million, to $8.2 million as a result of the benefit from the lag pass through of declines in resin costs and higher unit volumes. These benefits were partially offset by higher year-over-year rationalization costs.

Turning now to our outlook for 2010, we are pleased with our year to date performance as we delivered adjusted earnings per diluted share of $1.77 in line with a very strong 2009. Based on our yeat-to-date performance overall pack volumes and outlook for the remainder of 2010, we are confirming full year estimate of adjusted net income per diluted share in the range of $2.10 to $2.20, which excludes the estimated impact of a loss on early extinguishment of debt resulting from redemption of 6 and 3/4 senior notes, the loss on early extinguishment of debt from the senior credit facility, rationalization charges and impact of the remeasurement of net assets in Venezuela. On an operating basis, our guidance remains consistent. However, expenses attributable to ongoing corporate development activities will offset the late year benefits from both the redemption of 6 and 3/4 notes and the proposed share repurchase. As a result, our fourth quarter 2010 estimate of adjusted earnings per diluted share is in the range of $0.33 to $0.43, which excludes rationalization charges and loss on early extinguishment of debt. Comparatively, we earned $0.31 per diluted share in the fourth quarter of 2009.

Consistent with our guidance last quarter we maintain our estimated capital expenditures to be in the high end of our range resulting in a free cash flow estimate in the lower part of our original range. As a consequence, we are now forecasting free cash flow for 2010 to be in a range of $85 million to $100 million, after taking into account the $92 million pension contribution that was made in the first quarter of 2010. In addition I will note we are deploying $202 million to redeem the 6 and 3/4 notes and up to $247 million to repurchase our shares. After all of this capital deployment, we continue to be well positioned to pursue other strategic alternatives to further optimize our balance sheet. That concludes our prepared remarks so we can open it up for Q-and-A. And with that, Mat, would you kindly provide the directions for the Q&A session.

(Operator Instructions). The first question today will be from George Staphos with Banc of America Merrill Lynch.

Thanks, hi, guys. I wanted to ask you about the expense you said that is occurring in the fourth quarter that offsets the benefit from the refinancing and share repurchase. What did you say that expense was attributable to?

I think you are referring to the what we called out as on going corporate activities is that right?

I guess so. I might have missed -- I might not have heard you correctly. But, what's that expense associated with?

Essentially as we said for many quarters now we got a pretty significant pipeline of M&A activity we are looking at. Obviously as we go through that process there is a cost associated with that. That's the cost we are talking about, the cost of that type of activity that's running through and you will see some of that, that hit in the quarter as SG&A expense is up. Essentially the cumulative affect of those costs will offset the benefits that we would get from both the share repurchase and the redemption that will happen late in this year.

Okay. Relative -- relative to three months ago, Bob, to the extent that when you last provided guidance, these expenses I guess would be greater than you would have projected, does that imply that the strategic opportunities have become perhaps more visible than maybe would have been expected three months ago.

I don't know how to define visible but I would certainly tell you there is a very significant effort underway at various levels of the Company here as we pursue various opportunities so I would say if you are talking about the amount of effort and the cost associated with the efforts is it different than expected, for sure. There is a lot more activity than we would have expected.

Appreciate the color.

I wanted to characterize it. It's the same kind of activity we had in the past. I don't think too much should be read in to other than the way the accounting works is all the stuff is written off as its incurred. I can see the since of wanting to read too much in to it. We have been saying we are very active there is a pipeline out, there we have been active in the past, the expenses are higher at this point we are calling that out, those expenses are over several quarters and we are comparing that to a couple of months of impact of the tender and the bond redemption. So it's not really a fair comparison that's why the total earnings investment hasn't moved.

That's fine, I appreciate the clarity. I guess the next question I had, the mix effect that you mentioned in food cans, could you mention why the mix was negative and in general give us a little bit more quantification on what your volume trends were in metal package and closures and plastic bottles.

Sure George it's Adam. When you talked about why the mix is negative in Q3, it essentially boils down to a weaker pack as Tony alluded to in his comments and delayed pack primarily for our tomato business on the west coast, those are typically larger cans we will see a shift from Q3 to Q4 of those larger cans for the west coast pack business. As far as -- sorry George?

No, I was commenting that it makes sense.

As far as general volume trends I'll go ahead and give you all three businesses since you asked for the Metal packaging, but if you look at volume trends for our metal food can business, I think the first place to start is CMI, and CMI was down 1.2% versus last year with the record harvest essentially. Really good year last year from a comp standpoint. We were down slightly in the quarter, pretty much in line with the categories of CMI and again we are overweight in certain categories versus others. The other thing I would point out is on the last call we talked about a seasonal pack customer whose volume shifted from Q2 to Q3 that was a salmon customer and that did actually occur in Q3. So, that's part of the reason why the volumes might be a little bit different than the CMI data but generally we are in line there.

Closures business volume was up high single digits across the world. We had stronger volume performance in the US business primarily related to our noncarbonated single serve business that's particularly our plastic closure business in the US, European volumes up slightly but continue to see weakness in certain markets and geographies across western and central Europe.

Then finally with our plastics business we were up low single digits in the quarter and part of that growth is from new business awards that we are commercializing kind of on a rollout basis. We are seeing a slight improvement in our base business in the overall volumes of the business. Feeling better about overall volumes in general.

Okay. Thanks I'm going to turn it over.

Thanks George.

The next question will be from Mark Wilde with Deutsche Bank.

Good morning. Wonderer if we could talk about just raw material costs looking ahead there is a lot of talk about template pricing moving up sharply and after dropping in the second quarter looks like resin prices are rebounding in September and maybe even further in October. If you could talk about how those may play out in your business over the next couple of quarters.

Sure, I'll start with template pricing and again in 2010 we did see template prices stabilize after pretty volatile two years of pricing in the marketplace. As we look in to 2011, obviously there has been renewed talk of price increases and those discussions are going on right now as we speak, they are pretty dynamic and the value of those increases vary depending on what geography you are talking about and specifically, what I tell you is in Europe we are likely to see higher increase on template in Europe than in the United States. In Europe in the low double digit range is what is bantered about in the marketplace.

Jumping over to resin, you are right, maybe I'll make a broader comment on resin too. I mean we did expect a nice tail wind from resin as we pass through the delayed cost of resin to the market in Q3. We did have an unplanned price increase in resin in September. It did reduce a little bit of the tail wind we were expecting. As we look forward in to Q4 Mark, primarily PET is the one expected to go up now in Q4 but resin will be a bit of a tail wind or bit of a head wind excuse me in Q4 as a we are moving forward here.

Just turning to the dutch option and the share count, can you just remind us or give us a sense of what the timing will be in the Q4 and how that will effect that share count?

Essentially the if you assume the with the full 247 is successful essentially somewhere in the neighborhood of 10% in the aggregate share count but because that will close kind of call it sometime mid November-ish, what that will have is a pretty limited effect on the average waited shares for the Q4 and even less so for the full year so the accretion that you get out of that for this year is pretty minimal relative to the view that it's a 10% share reduction.

Okay. Just finally if I could, it seems like we are seeing some customer consolidation in the consumer products business, [UniaLabor] buying Culver and some other names around are you seeing any effect of that in your plastic business in terms of contract negotiations.

Well, we are certainly not at this point, some of the ones you are raising are fairly current. I would say more broadly this has been a pretty long-term process particularly as it affects the plastic business. There's been a lot of consolidation of that world for a long time. But that business tends to be brand based business so what we are selling is the individual product and brand on the shelf as opposed to a broad customer relationship so the contracts tend to be that way as well because the investment around tooling is around a particular package. I wouldn't think it would have broad impact on the contract side over time it's changed the strength balance of customer to us. I would say that's happened at such a large degree, I don't think there is much significant change there.

Okay, that's helpful, Tony. Good luck in the fourth quarter.

Thanks.

Moving along we will hear from Ghansham Panjabi with Robert W Baird. Please go ahead.

Good morning. Can you share with us the interest expense expectations for 2011 as you adjust for the share buy backs and your new facility terms assume no acquisitions or anything?

Yes, guess what we would say is on a comparative basis, year-over-year, there will be a benefit on a net basis that's probably somewhere in the neighborhood of $0.03 or $0.04 on EPS basis, what that has got is you will have roughly 10.5 months of comparative benefit for the takeout of the 6 and 3/4 notes and that will be offset a bit by a, a larger revolver and the associated fees associated with that as well as the increase in the spreads that we pay on the revolver in term loan. So, net, net there is a benefit there that sits at $0.03 or $0.04 for the year.

And as we think about pension expense for 2011 this is obviously a moving target, any thoughts based on what you are seeing at current.

You're right. It is a moving target. If we looked at it today the biggest factor is the bond market e verdict on discount rates that today probably says that we got a net head wind for pension of something that looks like $2.5 million or $3 million for the full year next year. And again, that will change I think every 25 basis points move in the discount rate is worth somewhere around $1 million or $1.2 million.

Okay. Thoughts on cash contribution and pension?

We don't have any mandatory pension contribution requirement. I think when we made the $92 million pension payment it was with the eye toward we would have holiday on a go forward basis. That's where we sit we will be pretty well funded against liability as we exit the year.

Just one final question if I could on the closure side was there any sort of mix effect sequentially between Q2 and Q3? I'm trying to understand margin difference between the two quarters.

No I don't think there was a particular mix effect differential, as we talk about really what happened in the closures business and in Q3 versus prior year, it was a combination of things. The combination of our pricing and the European market with the cost structure we had and if you think about our contracts and Ghansham, we said historically these are closer to one year contracts so we typically negotiate those on annual basis and any change on cost structure during the year is then negotiated in the following year in the following period. We did have a favorable raw material effect in Europe in 2009, Q3 that did not repeat in Q3 of 2010, we also have plastic closures in our US business that are that did grow significantly versus prior year and while those have a good margin percentage, the selling price and revenues generated by plastic closures are lower than our metal closures.

Got you, okay. Thank you so much.

Moving along we will hear from Chris Manuel with KeyBanc Capital Markets.

Good morning gentlemen.

Morning, Chris.

Couple of questions for you. First as we look at your outlook into -- capital spending outlook for this year is basically implies you are going to spend more here in Q4 than you ever spent in the quarter in the past. Can you maybe give us a little bit of color in to the types of projects that you are undertaking whether they're I'm assuming you haven't deferred as maintenance until the end of the year they are probably return oriented projects for 2011. So can you give us a sense of what business you are spending those in, what types of projects they are, certain geography, things of that nature might be helpful.

We did talk about this a little bit last call it's fairly broad base across all businesses. You are correct there absolutely is a investment element to that. So, in the can business it deals with easy open ends in some cases and expanding that side and the plastic business, had to do with new launches and new customers which is the nature of that business in general and as we talked about the single serve on the closure side we are continuing to see nice growth there and return to a degree of that market. So it really is kind of broad based across the business I know you heard this from me many times before but people ask me what leading indicator do I like about Silgan and I always say if you look at the success we had at deploying capital in the past I like our capital spending a as one of the leading indicators unlike the market I think that's a favorable trend. You are on the right point where we are spending has to do with new opportunities.

Along the lines in the plastic side of the investment I know this is an area where you guys have maybe underspend compared to some of the other businesses over the last 10 years, clearly you are seeing new opportunities there. Could you talk about the types of opportunities you are seeing. It is new products companies coming to you wanting to relaunch products? Is it more automation type stuff? How should we think about that?

I would say there is some automation but that's less the point. In some cases this against a new contract there is recapitalization to more efficient equipment that's certainly part of it. But it's also in some cases new customers and markets that we want to grow in for those customers in other cases it's existing customers where we are getting new opportunities again to some degree this is the nature of that business you are constantly reinventing yourself and brands are moving around to a degree, but on balance we are seeing a little bit more opportunity.

Would it be fair to follow up on that point to say then that by starting to go back and continue to make more investments in the business that as you look over the next 12, 18, 24 months that the EBIT contribution should begin to step up, that we've kind of bottomed out.

That is certainly what we are thinking at this point. In fact, I think we'd go one step more. We would say we like to think of this quarter as a bit of the beginning of an inflection point. I don't necessarily want you to take this quarter and start extrapolating on top of that. There is some inflection you are seeing in this current quarter. .

I like that you doubled from Q2 to Q3. [Laughter] Then last question I had was as you are out looking at M&A opportunities, are there certain are you finding opportunities mostly domestically? Are you finding opportunities internationally, to expand in to different verticals? To the extent you can talk about it, can you give us a little color about where most of your busy M&A pipeline is taking you?

We obviously respect going to comment on specific opportunities but I think we have been pretty clear that what we are focused on is rigid packaging, generally along the categories that we play in today and that geography with some limitation really isn't a factor. So we are seeing opportunities of kind of what I would say all shapes and sizes that we are running to the ground right now. And again we are not necessarily constrained by the geography of North America. Some of that depends upon the specific businesses we are talking about.

To close the point we made many times before we feel like a great opportunities in North America the message is balanced on that. We don't have to do anything internationally. Nor do we feel like we wouldn't do anything internationally.

Okay. Actually, one last question I forgot to ask. In your release in the metal food side in the operating income section you talked about some of the decrease year-over-year -- modest decrease in operating income due to certain timing contractual pass throughs and changes in manufacturing costs could you elaborate a little bit on that. Was there anything -- normally we thought about these things happening closer in realtime. Maybe could you give us a little color as to what happened.

Sure. You are right the raw material side really is kind of a realtime issue Chris. This is kind of the all other and manufacturing cost pass through. So as you lack at our 2010 third quarter what we had is we are passing through on annual basis deflation that we saw last year. If you go back to 2008 we were experiencing inflation that didn't get pass through until the following year of 2009. So as we look at 2009 again, the cost structure that's on a lower base level with a price pass through mechanism on a one year lag, you got a nice priced cost situation there, that's flipped on us this year we got modest inflation in the manufacturing base in 2010 and price pass through mechanisms that pass through the deflation that we experienced in 2009.

So setting up for 2011, I'm assuming these are incidentals, freight energy, coating, things of that nature. For 2011, this probably then sets up in a more favorable manner.

One would assume you will have inflation which unfortunately you will take it first and then you will pass through.

That's this year you are taking it.

That's the problem we are passing through the deflation from last year while we are experiencing inflation on the cost level. This really isn't anything new. It happens to be that you got inflation deflation going offsetting year-over-year and we've long talked about those passed through on a delayed pass through.

Okay, perfect, thank you, guys.

Sure.

Moving along we will hear from Sara Magers with Wells Fargo. Please go ahead.

I'm wondering what you are assuming for your share count and guidance for the full year 2010 and for Q4?

For the full year it's going to be somewhere around about 77,350, less the impact of the share repurchase on a weighted average basis. Depends upon when it gets done and at what price.

Okay.

The problem here is we are getting refined on something we don't know yet. The data is out there we just all have to wait and see what happens.

Okay. So I understand a bit better I know you said you have the expenses are getting a bit higher in terms of the corporate development opportunities that you have out there. Are they hire relative to where they were in Q2? Or at the same level? I'm trying to understand that a bit better.

I think you are on the point. There is increasing activity and the flow of cost kind of increased from Q2 in to Q3 and expectation that some of that will roll in to Q4 as well.

You expect the level you saw in Q3 to continue on from here.

Roughly.

Okay. Last question, I may have missed it so I am sorry I'm wondering what the reasons were for lowering the high, the top end of the free cash flow guidance

Yes, essentially it's all related to incremental cap ex, which we changed really in our Q3 guidance. We are just maintaining that and refining the range a bit.

Okay. Wonderful. Thank you very much and good luck in Q4.

Thanks.

The next question will be from Chip Dillon with Credit Suisse.

Hi, good morning. Morning, Chip. Hey, I guess the first one Tony you were talking about I think it was you were talking about the resin you know head wind that you see in the Q4 do you think you will see that not reverse but lagging pricing benefit in the Q1 that could help you off to a better start.

Yes, Chip, its Adam. If the costs increase in Q4 we will see the offset in Q1.

If they thaw again.

If they remain stable or fall, correct.

Quick question that make sure on the right page on the free cash flow line, it would seem like normally you see this tremendous reduction in working capital in the Q4 and some years it will cause your net debt to drop $300, last year it was $375 million, obviously this year you got the buy back and yet it would seem to me based on guidance that you probably are look for something a $50ish million decline in net debt from the third to the Q4 is that in your thinking?

I think it maybe in the way you are thinking about free cash flow. When we define free cash flow that wouldn't factor in deployment of capital for the share repurchase. Essentially when we talk about free cash flow it's cash from operations adjusted for the change in outstanding checks on our cash flow statement less dividends is kind of how you get to that number. That's the metric we are defining against. We will expect more free cash flow than what you suggested in Q4 so our net debt position would be down pretty sizably from from where it is in Q3 to Q4.

So, in very broad terms, your net debt probably doesn't fall below $600 million but should fall below $650 million by year end.

No. If you factor in the share repurchase assuming that's.

$247 million.

Yes, you would be a bit higher than that.

Okay, the net debt would be a little bit higher. Got you. Then on the volumes, not to get too granular if you can but you did mention low to mid growth in plastic containers or low single digits. It would seem like in the closures business was it similar in terms of the increase there?

Actually our closures business was up high single digits. Again it's different per market our US business saw greater growth than our European business did. We did see better performance from volume growth standpoint in closures and plastics.

There is a big mix element to that but the number is high single digits.

That's very helpful. Lastly, I was a little confused you were going through earlier about the puts and takes of interest expense and maybe I'm missing something I know it was $16 million in the third quarter and I know in the fourth quarter you got I believe a lot of moving parts, were you saying it would be $0.02 to $0.03 better I think that was for the year. As I look at it sequentially is there reason I would be widely different from the fourth. The debt level will come down but at the same time I think when you draw on the revolver to do the buy back the average interest rate might go up.

Yes. Certainly our average interest rate will be higher because our spreads are also higher. I know all this is based on looking at today's forward yield curve. But essentially the commentary was more around the full year so you take out the $200 million that we have today at 6 and 3/4 and you benefit of 10.5 months of that next year that would be offset by the impact of the higher spreads and the higher revolver in there by the fees that are paid associated with that would offset that benefit to a large degree that would net us to something that looks like a $0.03 or $0.04 net benefit in 2011.

For next year. Totally see that. For the Q4 it should be roughly the same as the third and the mid teens.

In that range. Because of the flow of cash in you get some benefit of that so maybe a hair lower but not much. Sorry I misunderstood your question there, Chip.

No problem. Last point is and I know it's early days but you mentioned some of the positive feelings you are getting in the plastic container side if we exclude the possibility of whatever acquisitions might be out there that might end up happening used to earn in the $50 million range in that segment is it possible you could see somewhere maybe at least back to where we were in 2009 in 2011, at least in the 30s or do you think you could get halfway between that rate of earnings and say what you were doing in the earlier years when you were around 50.

I like the question the way you posed it. For fear of positive feelings being too exuberant we seen some improvement. We got heavily lifting still to do. It's a market that gets whip sawed by resin. That's a big part of the story. It's a market where you are constantly coming out with new products. It's one we think money can be made in it so we standby that point. That's a long way of saying we begun to turn we think but this is going to be a slower process. I think to your specific question do we think we can get back to the 2009 kind of numbers is answer to that is yes we do. We got to figure out how, et cetera are we going to get pack to the peak of the business next year I definedly do not think that is likely.

Just so we can think about this right last quick question, would you say the turn around is tied to new products and demand or is it maybe also due or more so due to some of the changes in the come competitive structure on the supply side?

I'm not sure I follow the entirety of the question. Let me try to answer. What I would say about the business is that it's -- the resin side of it has been a big player to it. That's set a lot of head wind.

When I mention supply side I meant among you and competitors. You seen few people get out of the business et cetera.

Thank you, glad you made that point. Mostly this is not been about broad competition in the market. I think we want to talk about the last ten years of this business that would be about market changes, but really what has happened here more than anything else is you had a big pull back in consumer good products companies wanting to spend a lot on their package in the middle of a recession, so they were less likely to launch product, they were more likely to go with a less custom differentiated package. You have that factor happening. You got a very volatile resin market. In a business we used to not talk a lot about resin movements we are talking about all the time now. That sets a lot of head wind for us. Those are the broad points.

The sub text behind that is as volume fell we took a lot of people out of this business the business did a phenomenal job taking costs out. When things ramp up that's not as easy to deal with. One of the things that the business is going through now is getting ramped back up efficiently against increasing demand. So some of it is internal and how we are handling ourselves and we can do better, a lot of it is external in the market. The final one somebody else on the call raised this business is about how much we want to invest in acquisition and we want to invest in new opportunities. As we improve everything else I just talked about, we will want to do more of that that will help the business grow and expand as well. That's why it's going to take multi-years to get through it.

That's great. Thank you very much.

Thanks Chip.

Moving along we will hear from Alton Stump with Longbow Research.

This is actually Phil Terpolilli calling in for Alton. Just wanted to circle back on metal container revenues. Looks like results came in little bit ahead of what we were expecting, even factoring in the pack shifts. So, I know over the last several months a lot of the soup manufacturers talked about a step up in promotional activities. Just wondering if you experienced any benefit from that in the quarter or if you believe you did?

Yes, we did see a slight increase in soup volume late in the quarter so mostly in the month of September. If you look at the promotional activities they are more longer term in nature than some of the previous activities that our customers have embarked upon. This activity is going to be spread over the next year and a half to two years, but I would also say they are generally positive campaigns about the positive attributes of the product. That should be good for the category itself. We think this is more of a 2011 issue for us that we will see the lift potentially in 2011 but we saw a little bit of lift late in the quarter.

Great. Thanks.

Thanks.

Moving along we will hear from Al Kabili with Macquarie. Please go ahead.

Good morning. Wanted to circle up on M&A a leverage given the opportunities that are out there is there a way assuming the valuations are attractive to you is there way to think about what you might be willing to take your max leverage ratio up to? I know your long-term targets 2.5 to 3.5 times would you go above that if there is enough opportunities and attractive enough for you?

Yes. You hit it spot on that we kind of talked at our preferred range is 2.5 to 3.5. Certainly in the right opportunity presented itself and we saw a good path to deleveraging through the cash flow, could we see ourselves going a little bit higher? Maybe for the right opportunity. I think you have to keep in mind that there is kind of a cap leverage around our credit agreement that is at 4 times. So we are a little bit constrained by that. Generally it's about the cash flow of the acquisition opportunity and what that would look like will factor in what kind of leverage we will take on.

Thanks and also just wanted to clarify on the plastics business, how much of the Port Clinton savings were running through at this point in Q3, I think I heard you were moving around some equipment.

Yes, that was kind of the intent when we initiated that. That it would take us through the better part of the year to get through that restructuring and that the benefits would be coming in 2011. I would add to that that we have been running a bit behind in that rationalization program. So if anything we have suffered a bit of incremental cost as a result of that. As opposed to seeing the benefits right now.

Okay. Finally, if you could help us clarify on the resin tail wind what that was for plastic containers and closures? Thanks.

Sure. If you are focusing specifically on the plastics business, the benefit we had in the quarter from P&L standpoint was about $1 million or so. The operating results improved to 8.8. Benefited a bit by the resin impact. Our closures business typically has a bit of a longer delay in their pass through mechanism. No material impact to our closures business in the quarter.

Okay. Thank you very much.

Moving along we will hear from Christopher Butler with Sidoti and Company.

Good morning, guys.

Good morning Chris.

Working from the last question, what your raw material costs on the plastic containers side sequentially could you give us idea of how those changed?

Quarter to quarter.

Yes, please.

Within the year. Hang on one second.

Then the follow up there would be do you expect any further price increases to find their way into the fourth quarter?

Let me answer your last question first. We did see price declines in resin for the first two months of Q3 sent we did see price increases in resin. There are announcements for further increases primarily in PET for Q4. We don't anticipate a whole lot more movement in Q4 at this point. But resin costs were actually down quarter to quarter Q2 to Q3 this year.

I'm not sure we have the exact answer the rough answer is Q2 suffered the detriment of the timing and it was sizable couple of million as I recall. Then this quarter is a million or so benefit that you have. That kind of magnitude move.

Appreciate your time.

The next question will be from Rick Skidmore with Goldman Sachs.

Good morning. Just a question for just a clarify a question for Bob Lewis on the pension when you talked about the $2.5 million to $3 million head wind in 2011 was that just from the interest rate declining or is that taking in to account the expected benefit from the contribution that you made.

That's a net delta so that would assume that you would end up with a discount rate that probably looks like something between 5% and 5.25%, which would create a bigger delta than what I gave you and the annualization if you will of the $92 million pension contribution would offset that to get to a net of $2.5 million to $3 million.

Okay. Couple of other questions first maybe in the closures segment with template prices likely going higher is there an opportunity for you in the closures business to get higher prices that will increase your dollar profit per unit in that business?

No I don't think so. Typically it's pass through to the market much like the balance of our metal operating businesses so I don't see an opportunity increase there.

Again in the US that's tended to be contractual for most of the business in Europe you do annual negotiations, but as Adam said earlier there is such a big increase coming already that's going to put our customers in a tough spot as it is the hope that you use that as a means to expand margins in that negotiation is not really terribly likely.

Okay. Maybe bigger picture question for Tony and Adam as I look at the food can business over the last couple of years your EBIT has grown from call it 150 roughly to your kind of on pace to do 220 this year, volume has been flat up a little bit and I think it's largely driven by productivity initiatives plant closures et cetera. As you look out over the next couple of years in this segment, what drives the improvement, is it from where you are today to the 220ish level do you see additional opportunities for further productivity that gets you another step change up in that segment or are we talking benefits in food cans really will come from modest volume recovery and on the margin modest productivity improvement?

We would be, I think as we sit here today we would say we are going to keep doing what we been doing, step changes I don't think so. It's about getting in and doing a better job everyday, more focused on where where you waste time, effort, material et cetera. That's what we would have told you at the beginning period of time. If you get in and do that you tend to find opportunities. Our list of things to focus on is not shorter than it was back then. I think we will continue to see improvement here. I would probably put the word modest around it but I would have at the beginning of that time too we will get more efficient and productive out of our can business overtime.

Thank you.

(Operator Instructions). We will take a follow up from George Staphos with Banc of America.

Want to piggy back on Rick's question. In terms of the list of projects as you mentioned it's probably about the same are you finding any differences in the returns that you are getting on your productivity moves and at times plant consolidations or do you think that that can also more or less the same type of return to you in to the future?

I would say again there is a variety here. We haven't lessened threshold or anything else on the projects and there are plenty out there. George, I know you heard, we've talked in the past, there is a limit people, that's why we have a list that's got the opportunities in it there is only so much a organization can handle a at period of time. We do see holding the same criteria. We still see opportunities.

Okay.

I was just going to say it looks so much clearer when you are look backwards than it was when you are looking forward. When you look forward all you see opportunities and and a lot of jobs, I hope we look back and see the same kind of trend.

Same thing true on the analyst side as well I guess. [Laughter] In terms of easy open end to the degree to which you are saying that your may invest more in this product category in to 2011 if I heard you correctly, does that suggest that you have some additional contract now in hand so that this is adding to our earnings next year and 2012?

No. Generally it's growth in the product category. I think easy open ends are again a preferred convenience package for our customers and our customers are again growing products with easy open ends on them. It's supporting market growth at this point.

So this is a little bit more on specific Adam is that the way to look at it?

I think that would be a fair statement, yes.

It's looking a at what we know about the markets than on spec. The last line we put in we put on spec. It took time but it worked.

It took sometime.

It did but there is no regret the returns on the effort made perfect sense. We said everyone if it didn't get sold out it would be true because we could shut other capacity down I would view a continuation of what we said that we think easy open ends will slowly and ultimately penetrate most all canned goods that is happening certainly the recession probably slowed the pace of that a little bit.

But I would say our activity and testing and evaluating the easy open end as package have maintained themselves through that recessionary period the interest sill remain high it's more a timing issue I think.

Okay. I guess the last question, I wasn't going to ask anything on plastics after some of the last conference calls but I figure I will tee it up one last time and other guys asked as well this was a business that used to be a low to mid teens margin business in the late 1990s, admittedly it's changed, its become more competitive, there's been some new entrance, resin has been volatile though supposedly that should be pass through. If it's going be such a slow crawl higher from here, we don't minimize all the efforts that your people are putting to the business and improve in performance, is it not better perhaps what is wrong with the view that perhaps a business you should maintain your current asset level and not reinvest in given what is going to be a granule incline in returns? Thanks guys. Good luck in the quarter.

There is a lot of answers to that I have given you many times the answer the overall returns of the business we like. I'll try a new one on you the new investment we make on new plo projects stand on their own returns. We have contract behind it and look at this that against our alternative uses for capital. Each of those stand. The obvious question is if we are not happy with the business it's more to do what is happening underneath the new investments. So each one we look at we like those investments. You get the fundamental question of do you like the business or not? Our answer to you is right now we think that it will never look good in are a recessionary time when you are making custom bottles for consumer good packing companies that are in a fight with private label. Our thinking is that does come back in time our business is well positioned on that. That there ought to be improvement of the baseline while we are making good investments against it. We think it makes sense, we understand your question and we are pushing the business to be sure we like all parts of it that we are doing or else we ought to stop doing those things. It goes to our own mission statement and principle if we are not uniquely competitively advantaged in something we need to stop doing it. We are always looking hard at the business, where are the areas where we are not uniquely positioned and the areas where we are. What you can hear from us is when we find the ones where we are uniquely positioned we like what that business looks like.

Tony, one last one, I appreciate your patience with it. I think I heard you say to Chris' question that you felt your more or less at the trough of inflection point or the beginning of the inflection point. Does that suggest if I could peel away the new investments you are making and looked at the base business, that as much as you could comment and have visibility on that this that leakage in the base business is done as well?

I think that's the right way to think about it. Yes.

Okay. Thank you, guys.

Thanks, George.

The next question will be from Robert Kirkpatrick with Cardinal Capital.

Good morning, thanks for your patience in answering all of our questions. How does the recent M&A in the food can space possibly change the industry dynamics over the next one to three years?

I don't know that it does. I think the essentially you had a competitor there I assume the primary one you are talking about the [Impress] transaction. And you already had a competitor there, you have a competitor with a different owner. There is nothing I can understand that would lead us to conclude they would behave in anyway differently. It's a relatively small point of competition between those two sides. If you talk about the global food can business, I don't see why it should change the dynamic. You could make an argument that given the leverage level et cetera of [R-Dog] that they will going to be more inclined to be sure that they get reasonable returns and margins I don't know if that's true either. I don't think it up sets it in any way.

Okay. One for Bob. In past years when the Company has been more active in acquisitions, the cost associated with looking at them and completing them have been capitalized. How much was spent back then on average is that a $500,000 number, $5 million number, $50 million number? Get some arms around that.

Yes, it's certainly not a $50 million number. But I would say it's largely dependent how many and how often and the size of those acquisitions. It's been all over the board. I think the difference is now is that the cost by the accounting rules are coming in real time in the period they are incurred in versus put to the cost of the deal. In no where are we even signaling that it's at a material detriment to the business today it's quite opposite that it's all oriented towards trying to grow the business. It's more visible through the P&L on a real time basis today.

I would expect to see that in both your when I look at the segment break down of operating income I would say that in G&A number, corporate number and as well as in the segments.

Yes. It's probably a little more oriented to the corporate number but yes there is certainly some cost that reside in the individual segments as well.

Great, congratulations on the quarter. And on your beginning steps of capital redeployment.

Thanks. The final question will be from Mark Wilde with Deutsche Bank please go ahead.

Tony, just one more kind of follow up in terms of M&A and potential growth for the company. Seems like a lot of other packing companies and containers and elsewhere putting most of their new capital in to emerging markets and offshore outside of the US, I just wondered going back to your comments on international versus domestic whether your view about where you want to deploy capital internationally has shifted over the last couple of years.

It's a good question. I wouldn't say it shifted I would say what I said before I will standby we see opportunities both places we think we like relatively mature markets that makes sense for us. But there is no doubt that our package and our packaging knowledge has some value in developing markets. I guess the best I can answer if we shifted at all, we've shifted in that's a consideration for us it's something we could include in our thought process but it's not so extreme as we are saying that is what we are going to do that there aren't opportunities nor us in mature developed markets I think there are and I think there could be opportunities in developing markets.

Just to follow on it, particularly in your core business in your metal container business if you go outside of North America, what are the real advantages you think you bring to going in to a new geography?

It's a good question we bring in depth knowledge of the manufacturing process, the needs of customers et cetera. I think we bring a unique understanding of customers and franchise building around customers. I think we -- obviously I think what has been successful for us here is the way we think about our customers and drive our business to meet the needs of those customers. I think that's a big one. Therefore we have global relationships that you also could theoretically bring to certain partners in certain cases. I think combination of technical capability the way we do business and think about conducting business and then we have major relationships with the global consumers in food cans.

Just as a one more follow on on that, you have been very good is constantly rethinking your footprint rationalizing your foot print trying to reduce costs there are some parts of the world where it's tougher to do that would that enter in to your thinking as well?

Absolutely. That's a great question. When we think about went ever we are looking we think about the overall discounted cash flow, long-term cash flows of the business. We are thinking a lot about not just what the is the price to get in what is the price to get that business to the level you want it to be. In many cases a purchase multiple might look reasonable but when you finally finish say you are going to have to restructure that, high cost markets where it's hard to take labor out we are thinking about all of that absolutely.

Listen, good luck.

Thank you. That was our last call. I want to thank everybody for your time and look forward to talking to you with our year end numbers. Thank you, all.

That does conclude today's conference call thank you for your participation.