Silgan Holdings Inc (SLGN) 2011 Q3 法說會逐字稿

Thank you for joining Silgan Holdings' third quarter 2011 earnings conference call. Today's call is being recorded. At this time, I would like to turn the call over to Kim Ulmer, VP Controller for Silgan Holdings. 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 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 2010 and other filings with the SEC. Therefore, the actual results of operations and financial conditions of the company could differ materially from those expressed or implied in the forward-looking statements.

With that, I'll turn it over to Tony.

Thanks, Kim. Welcome, everyone, to our third quarter 2011 earnings conference call. Our agenda for this morning is to review the financial performance for the third quarter, to make a few comments about our outlook for fourth quarter of 2011, and to provide some preliminary thoughts about 2012. After these prepared remarks, Bob, Adam, and I will be pleased to answer any questions.

As you saw in the press release, despite several external challenges, this was another record quarter for Silgan Holdings. We reported adjusted earnings per share of $1.14, increasing nearly 27% versus the prior year quarter, further demonstrating the strength of our franchises and the power of our disciplined approach to capital deployment.

These results were achieved in spite of sluggish demand for single-serve beverages, one of the worst fruit and vegetable pack seasons in recent memory, and a worsening of economic conditions in Europe. Each of the recently acquired businesses, Vogel & Noot, IPEC, and DGS, performed well in the quarter and were accretive to earnings. Only our Plastics Container business had a declining profit quarter, which resulted largely from costs and productivity losses incurred to address specific operating challenges. While we're seeing signs of operational progress, our response to this situation will likely continue to negatively impact results in the near-term.

During the quarter, we also continued to deploy capital to enhance our business by acquiring the steel pet food business from Nestle Purina PetCare and buying back additional shares under our share repurchase program. Given our year-to-date performance through these volatile market conditions, we've refined our full-year estimate of adjusted earnings per diluted share to $2.60 to $2.65, representing a forecasted annual increase of between 17.1% and 19.4% over 2010 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 2011.

Thank you, Tony. Good morning, everyone. As Tony highlighted, the third quarter of 2011 was a record quarter as we delivered adjusted earnings in line with our expectations and 27% above the third quarter 2010, despite the fact that each of our businesses were faced with significant headwinds during the quarter. Keys to the quarter are positive contributions from our recently acquired businesses and solid operating performance in our Metal Container and Closures businesses, while the third quarter continued to experience the negative impact of the lag pass-through of resin costs to our customers in our U.S. closure business.

As a result, we delivered third quarter adjusted earnings per diluted share of $1.14 versus the prior year quarter of $0.90. On a consolidated basis, net sales for the third quarter of 2011 were $1.148 billion, an increase of $145.9 million, or 14.6%, as net sales in each of our businesses improved. Net income for the third quarter was $78.8 million or $1.12 per diluted share, compared to the third quarter of 2010 net income of $65.2 million, or $0.84 per diluted share.

While we experienced volatility in foreign exchange across the business, the net impact of foreign currency was immaterial as we continued to be effectively hedged having financed the international businesses in their local currencies. We did, however, experience a transaction loss as a result of the significant devaluation of the Polish zloty late in the third quarter. Interest expense for the quarter was virtually unchanged from the same period a year ago, as additional costs associated with incremental year-over-year borrowings were largely offset by lower average cost to borrowings. We also recorded a loss on early extinguishment of debt during the quarter to reflect the July 2011 refinancing of our senior secured credit facility.

Capital expenditures for the third quarter 2011 totaled $39.1 million, compared with $27.9 million in the prior year quarter. On a year-to-date basis, capital expenditures totaled $123.2 million in 2011, versus $76 million in the prior year. We continue to estimate that capital spending for the full year will be in the range of $160 to $170 million, largely a result of the compression of capital into 2011 to maximize tax deductibility, incremental investments in eastern Europe, and the impact of foreign currency. Additionally, we paid a quarterly dividend of $0.11 per share in September with a total cash cost of $7.8 million. During the quarter we also deployed $15.8 million to repurchase stock pursuant to our $300 million share repurchase authorization approved by the Board during the third quarter of 2011. The average price per share repurchased during the quarter was $35.79.

I'll now provide some specifics regarding the financial performance of the three businesses. The Metal Container business recorded net sales of $798.7 million for the third quarter of 2011, an increase of $109.8 million versus the prior year quarter. This increase is primarily a result of the inclusion of net sales from Vogel & Noot and higher average selling prices as a result of the pass-through of higher raw material and other manufacturing costs, partially offset by lower unit volumes due to a weaker fruit and vegetable pack as compared to 2010, and inventory reductions at certain customers.

Income from operations in the Metal Container business increased $16.4 million to $111.7 million for the third quarter of 2011, versus $95.3 million in the same period a year ago. The increase in operating income was primarily attributable to the acquisition of Vogel & Noot, the favorable year-over-year comparison resulting from the timing of passing through deflation and manufacturing costs in 2010, as compared with inflating costs in 2011, ongoing cost controls and productivity improvements, and lower rationalization charges. These benefits were partially offset by lower unit volumes in the U.S. as previously discussed.

Net sales in the Closure business increased $26.7 million to $189.5 million for the quarter, primarily due to the inclusion of IPEC and DGS, favorable foreign currency translation of $7.4 million, and higher average selling prices due to the pass-through of higher raw material costs. These increases were slightly offset by continued softness in the single-serve beverage markets. Income from operations in the Closures business for the third quarter of 2011 increased $2.4 million to $24.4 million.

This increase is a result of the inclusion of the IPEC and DGS businesses, the benefits of prior restructuring activities, and improved manufacturing performance. These improvements were partially offset by the negative impact of the lag pass-through of significant increases and polypropylene resin costs, lower unit volumes in the single-serve beverage markets, and higher rationalization charges.

Net sales in the Plastic Container business increased $9.4 million to $159.8 million in the third quarter of 2011, primarily as a result of higher average selling prices due to the pass-through of resin cost increases, and the impact of favorable foreign currency of $1.9 million. These benefits were partially offset by lower unit volumes and a less favorable mix of product sold. Operating income in Plastics decreased $4.4 million in the third quarter 2011 to $3.8 million, versus $8.2 million in the prior year quarter as a result of lower unit volumes and a less favorable mix of products sold. While we did make some operational improvement during the quarter, these gains lagged expectations.

Turning now to our outlook for the remainder of 2011, as Tony indicated in his opening remarks, the overall tone of the year has been one challenged by external influences. Even so, we have successfully delivered financial results well in excess of the prior year. In fact, our nine-month adjusted earnings per diluted share increased $0.29, or 16.3% versus the prior year period.

Based on this year-to-date performance and our outlook for the remainder of 2011, we're refining our full-year estimate of adjusted net income per diluted share in the range of $2.60 to $2.65, which excludes the impact of the Graham acquisition termination fee, the loss on early extinguishment of debt, costs associated with announced acquisitions, rationalization charges, and the impact of the test product liability dispute was which resolved in the second quarter of 2011.

As a result, we're also providing fourth quarter 2011 estimate of adjusted earnings per diluted share in the range of $0.53 to $0.58, which excludes rationalization charges. Comparatively, we delivered adjusted earnings of $0.45 per diluted share in the fourth quarter of 2010. We continue to forecast free cash flow for 2011 to be at the higher end of our original range, which was $180 million to $220 million as the benefit of the termination fee is partially offset by higher capital expenditures.

While we're in the midst of our 2012 budget season, we do understand the desire for early thoughts regarding 2012. At this point, we expect improvement in our Metal Container business as 2012 will benefit from the full-year impact of the Vogel & Noot and Nestle Purina PetCare acquisitions. We should see a more normal seasonal pack in the U.S. as compared to the 2011, and we expect that the specific customer inventory reductions experienced in 2011 are behind us. These benefits could be partially offset by uncertainties in the European economy. We also expect our Closures business to show improvement as the negative impact of the lag pass-through of rising polypropylene costs in 2011 are not expected to repeat and volumes are anticipated to recover somewhat.

We expect 2012 to be a building year for our Plastics business but do expect some improvement in our financial results. That concludes our prepared remarks, so we can open it up for Q&A, and I'll turn it over to James who can provide instructions for that Q&A session.

(Operator Instructions).

James, you still with us?

We'll take our first question today from Ghansham Panjabi with Robert W. Baird.

Good morning. It's actually Matt Wooten sitting in for Ghansham today. Good morning. Your press release indicated some inventory reductions by customers in metal food containers. I was just wondering if you could help us quantify the impact on sales and profitability, and should we expect this to be a one-quarter event or is it something that could persist in the first half of next year as well?

Yes, this is Bob. It's something that we've seen through the course of the year. We wouldn't expect that it will continue into next year and that we outlined that as we went through at least the thoughts on 2012. So it was pretty significant in terms of a volume. I don't think we'll call out a particular customer or a specific unit volume. But it was pretty meaningful for the quarter, and, again, we don't expect it to continue.

Okay. I can appreciate that. And then separately, it looks like France is planning to ban BPA by 2014. I actually think that this could present an opportunity for Silgan to compete more directly in Europe and was just hoping that you could comment on that.

Sure. We talked about BPAs here before. There's plenty of raging debate about science versus politics versus consumer preferences. What you're referring to in France is the middle of that. It has to do with politicians more than it does any change in science. Interestingly, the regulatory authorities in Europe continue to feel that BPA is fine at the levels in food cans; have continued to be even really stronger than we've seen on the regulation side here in the U.S. Nonetheless, you have to deal with all of those challenges, and so you're right that France has indicated an intention to move forward and may well do that.

And you're absolutely right. We would agree with you that in the end, that becomes an advantage for those that spend the time, research, etcetera, to advance the technology of the product. And so as you know, we've been working for a long time, five plus years, on BPA replacement. And that is something that we are in the process of launching alternatives. And so if that, in fact, is what the marketplace requires, then we would expect to be able to meet where we are not using BPA in the production process of the can. That's something that is on the horizon for us. So I think you're right. It could be an opportunity, but ultimately we think it's just important that the can continues to move out of the consumer interest on this point and gets away from the challenges of the press around it.

Okay. Thank you and good luck for the rest of the year.

Thanks.

Next we'll hear from Chris Manuel with Wells Fargo.

Good morning, gentlemen.

Good morning, Chris.

A couple questions. First, could you remind us, you had a lot of activity and when you purchased Vogel & Noot, there was a build-out of capacity coming. Can you just give us a sense of where you are with that, what was your capacity at the time it was bought, where are you at? I think it was over a couple year period that you were taking up capacity there. Give us a sense of what you've got, whether the earning stream is coming from that yet. Help us phase from the development activity over there.

Sure. Chris, this is Bob. As you might remember, when we acquired the business, they were operating essentially 12 plants throughout central and eastern Europe, and there were plans that were being developed to build out an incremental four facilities. We've been moving forward with those initiatives since we've owned the business. They're in various stages. I think probably the nearest to commercialization is one of the facilities that happens to sit in the Russian market. We are going through some customer qualifications as we speak. We would expect that by the end of this year and into the start of 2012 that that will be commercialized and we'll be providing commercial cans for customers in that marketplace.

On the far end of that spectrum is another plant that we're building that right now we've just got a shell of a building where we've got the infrastructure being built out there and equipment that will be going in. That's probably more of a mid-2013 approach. And then the two plants that are kind of in in-between stage, if you will, we've got equipment being installed and coming up and running, and we would expect that mid-2012, those plants will be commercialized as well. I will point out that the expectation should be that these are not U.S.-type can plants. They're small niche operations with one or two can lines to service the local market that can serve as building blocks over time. So keep in mind that we're talking about a total investment across all four plants that looks something around about $25 million.

Okay. That's helpful. And from the perspective of -- part of the reason I'm asking the question, has there been any change with respect to timing? I.e., have you accelerated any of these, pushed any of them back a bit, and how do you feel about future expansion into some of these developing regions as well?

Yes, I would say that we're progressing nicely against the original plan that was there. There's been no real material change to the schedule. I would say that the team there has been doing a great job of getting the activity under way. So far, we're pleased there. Look, without committing to any given market, I think that's the sole -- one of the big reasons that we bought this business, that we saw opportunity over time to keep building out in those growing regions. So I think we'll continue to look for opportunities and be opportunistic when we can to bring western quality into those markets and be ready to support a broader customer base.

Okay. That's helpful. One last question before I jump back in the queue and that's regarding capital redeployment the rest of the year. Obviously you have transaction that didn't go through. The balance sheet still is in terrific shape. I know in the past you've done different repos and things of that nature to maintain at a bottom of where you would consider to be, or depending on your perspective, but at that optimal state with flexibility. How are you thinking about optionality for cash as you look the next 12 months? Are you still seeing deals in the marketplace? Do you think that -- maybe a little color there would be helpful.

Yes, sure. Clearly our balance sheet is in good shape. With the cash flow that we would expect to generate in 2011, we'll be to the low end, maybe even slightly below where we would say is the optimal range, all else equal, and that range is two-and-a-half to three-and-a-half times. We do and have continued on the heels of the Graham transaction to keep our foot on the accelerator looking for opportunities in the M&A market. We continue to look at a lot of different transaction opportunities. I think what's important and I think what displayed as we came through the Graham transaction is that discipline is really important here, and that holds as true today as it always did. So price really matters here when we look at opportunities and that we're not going to go out on a limb and break from that discipline.

So they'll come as they do, opportunistically. If we don't find them, then we'll look at other strategic opportunities. I think what I would point out is you made the comment that a deal that fell through, but more importantly I would say if you look back over the last 12 months, we've actually deployed $700 million or so towards strategic activities. Roughly $400 million towards the four acquisitions being Vogel & Noot, DGS, Purina, and IPEC, and nearly another $300 million through share repurchases. So we've been quite active in deploying capital strategically back in this business and I think you should view that past as prologue for the future.

I agree. Thank you, gentlemen.

Thanks, Chris.

Our next question will come from George Staphos with Bank of America Merrill Lynch.

It's actually Benjamin Wong filling in for George. He's on another call. On food can volumes, can you give some additional color on it. I know fruit and vegetable was pretty weak, but I think pet foods was actually up for the industry in the third quarter. If you could give any more details, that would be great.

Sure, if you look at the food can volumes in the U.S., we were down mid single-digits, which is essentially right in line with what the industry would suggest. I think CMI has got the industry down about 6% or so. And if you look at that, it's right in line with what we saw across the pack. All the categories that would be pack-related are down. As you suggested, the one that's not pack-related is pet food, which was up a bit, and that happens to be a category that we're pretty well entrenched in. So we did see that benefit. All in all, it's attributable to the two things we called out, the down pack and a bit around the inventory reduction side at certain customers.

Okay. Thanks. And how much did Vogel continue in revenue to the business in the quarter, if you can talk about that?

Yes, it's roughly about $100 million to the revenue line.

Okay. Two more questions. With regards to your customers, do you know if they're having any different outlook on the cans run, the packaging mix, especially when we talk about the center of the grocery store?

No, I'm not sure there's any particular change. I think, you know, there's been sizable inflation in the can, as you know, over time. That's been true of a lot of other packages. But I think the key for us is to focus on inflation and keeping the can competitive and that's where we're putting a lot of our time and energy. But that's a long-term story and it still is, as you know, it is a premium package in terms of the value you get from it. And so it still is today the better package in that regard. Our focus, just making sure that we keep that spread as great as we possibly can. But the quick answer to your question is we're not seeing any major shifts there.

Okay, right. Last question, just on Plastics. There have been some challenges there. Can you talk about at what point do you evaluate when's enough is enough and how you think about that business longer-term?

Sure, Benjamin, it's Adam. I guess I would start by saying that the issues that we're facing in Plastics are nothing new. We've been dealing with them for a little while now and they're mostly associated with a rationalization program we put in place about 18 months ago. We, in an effort to reduce our overall cost structure, elected to close one of our largest manufacturing ,which essentially led to us move about 24 manufacturing lines to other existing facilities. So it was a big project. Our execution of the plan against that project did not go particularly well. I think when you generally do a rationalization of a program as large as what we did, it can be distracting to other parts of your organization, so we're spending quite a bit of time talking about what's not going well in Plastics when in fact there are also some parts of Plastics that are doing quite well, and I think what we struggled with is keeping the parts of the business that are performing well focused on doing what they're doing well and not get distracted by the noise of what else is happening.

So I think with our Plastics business going forward, what we're doing right now first and foremost is we're focusing on meeting the needs of our customers and we're doing that with quality products on time and within our customers' expectation. Unfortunately, part of our issue, as both Tony and Bob commented on and you saw in the press release, we're running a little bit slower than we would like right now. We've got additional resources focused on meeting those customer needs so we are incurring additional costs. We're going to do that now for a little while into the future. I think our core Plastics business is still a very good business. We've got a couple specific items that are plaguing the business that we're now putting together concrete plans to fix those issues and move back to where we expect and our Plastics business should be performing.

Okay, thank you.

Next we'll hear from Alton Stump with Longbow Research.

Thank you. Good morning. With inventory issue in food cans, any idea as to how much of that bleeds into the fourth quarter? Sorry if you did mention that and I missed it. As to what the volume outlook might like, ballpark, for the fourth quarter for food cans as a whole?

I think largely because the peak season is behind us, I would expect that the inventory issue is not going to be -- certainly not nearly as significant as it was in Q3. I think that's largely behind us. If you look at overall volumes in the can business for Q4, I think we would expect it to be flat to down a little bit in Q4 just because the pack ending abruptly in early October and late September versus last year we had a little bit of a hangover the pack coming into Q4. So I think a good expectation is that flattish range.

Okay, thanks. And just one quick follow-up on a cost front, namely Metal heading into next year. Any early read as this point as to what template is going to do next year?

Yes. What we understand at this point in time is that because of worldwide demand, that there still is inflation coming on the steel side. It would seem evident that that's going to be a little less than probably if we were talking about this a couple of months ago. So right now, it may be mid-single digits kind of a number. We are actively engaged in that. You heard me make the comments earlier that overall costs of steel packaging is critically important to us and so one of the things that we need to continue to do is convince the food industry that the food can is a great long-term steady market for the food can and whipping it around on cyclical costs for steel, because of requirements in China, etcetera, may not be such a good idea. So I think that's part of the effort we have to do is to try to manage this inflation as best we possibly can, which is a longer answer to your question. There is going to be some inflation and we'll see how much.

Okay, great, thank you.

Phil Gresh with JPMorgan has our next question.

Good morning. On Metal Containers, can you just elaborate real quick on the impact you saw from the pass-through of the higher manufacturing costs? I know that was a negative in the second quarter, turned positive here in the third quarter. How material was that impact and is it expected to be neutral in the fourth quarter?

Sure, Phil. This is Bob again. I think this is really largely about timing. We've had inflation coming through in bits and pieces as contracts have anniversaried, if you will, and you can see that in the year-to-date numbers. We had margin pressure through the first six months and now we're getting kind of the catch-up in Q3. That's largely because we're passing through inflation this year in Q3 versus we had deflation that was being passed through in Q3 of the prior year. So as we look through that, there's probably a couple million dollars of inflation benefit in Q3, and it was certainly less than that as a headwind in Q3 of last year. So net-net, there's probably a few million dollars of year-over-year comparative benefit that's sitting in Q3 this year. And again, most of that contractual renewal happens through the nine months, so it should be largely behind us as we move into Q4.

I think you know this. What we're talking about here is other manufacturing cost inflation. This has nothing to do with Metals inflation, just to be clear.

Yes, understood. On Vogel & Noot, how did the business perform organically? And you gave the sales number. Also if you could give the profit number?

It was accretive through that. It was accretive to the tune of something -- for the quarter, to the tune of a $0.06 accretion. Year-over-year was pretty comparable. It depended by regions. The pack seemed to end a little more abruptly late in the quarter, so if you look at the regions of service, the pack markets, and it was a little bit down. Then there was some good growth in some other spots. So it was comparatively pretty similar year-over-year.

Okay. At $0.06 accretive versus dilutive in the second quarter because of the accounting costs?

That's correct. It was dilutive for the first two quarters of the year. Correct.

And then just the commentary on 2012, most of what you're talking about sounded like price costs and volumes. I was wondering if you could talk a little bit about the productivity opportunities you see right now across the portfolio? I don't know if there was any carryover from activities that were earlier this year. I think the answer is no. But is there anything else you could share with us about opportunities that could contribute to the bottom line next year?

Sure. Really what the answer is what we do all the time. It's driving at costs in a relentless way. That sits in each of our businesses where we see continued opportunities either to make investment for automation or productivity enhancement. In some way it's lean programs and just continuing to move forward on better execution and operational excellence as we move forward. It's going to be more broad-based in that regard. There's not a lot of specific investment projects to talk about, although as Bob mentioned, we spent a lot of capital this year and some of that is productivity-based capital as well. And then finally, you have the Plastics one, which we're being pretty clear in saying that our focus right now is going to be making sure we serve the market and that's more important to us in the near-term than the quarterly results of that business. But obviously in as we move forward, we anticipate not having to spend that extra money and getting the benefits of the rationalization that we were originally going after. So there will come a time when we absolutely expect Plastics operations to improve. But we're going to be a bit patient about that so that we do it in the right way.

Okay. So and just to be clear across the rest of the portfolio, it sounds like rationalizations are really not part of the thinking at this stage, even despite what we've seen just in terms of the volume being a bit sluggish lately?

That's correct. The sluggishness you're talking about, let's put it in context. On the can side, you're talking about a pack, which is interesting. We spend a lot of time in these calls talking about the pack and what might happen. You've got a pretty good view here of what a pretty bad pack looks like and I think one of the things you should hear from us is we feel pretty good about the ability of the business to adapt and deal with that. So we certainly would not take out capacity around that particular volume decline that we're experiencing. Secondly, Bob talked about specific customers working down inventories. Those are very specific. We're very -- the customer's communicating us with about what they're doing, and so we have a pretty good sense of what's happening there. So again, you wouldn't really want to change anything about your capacity on that. Finally, we've done a lot of rationalization, as you know. I think you're right, that we do not see -- as we sit here right now, we don't see big opportunities to rationalize and take plants out. But that's something that we turn over and over again. We never leave that one alone. We always go back and look. And so you never know, one might pop up, but I wouldn't put a high probability.

Okay, thank you. Just the last question on Plastics is, I guess one you haven't talked too much about yet on the call, is just the mix impact. Obviously moving more towards commoditized products and things like that. I don't know if the mix impact is more, I guess, volume-related in that the volumes are shifting downward, or also there's some increase -- let's say pricing pressure at those lower levels. Maybe you could just elaborate how important this mixed impact has been because you've called it out for a couple quarters.

I would say, first of all, price pressure is always there in all of our businesses, so there's nothing unique or new about that and that's not really what we're talking about. To a large degree, this has to do with the rationalization and the challenges we've had where you just have a shift of mix going on. As it happened where you were struggling a bit, it was good business and over time, you cycle and you pick up certain business and where you are in that ramp-up affects the numbers. I don't think there's a fundamental shift here that we're servicing a different market, etcetera. I do think we've got some volatility going on right now while we go through this rationalization and that's buffeting our mix a little bit at this point in time.

Okay. Great. Thanks for all the color. I appreciate. It.

(Operator Instructions). We'll now hear from Christopher Butler with Sidoti & Company.

Hi, good morning, guys.

Good morning, Chris.

Looking at the metal cans business, you know, with most of 2011 behind us and the inventory destocking and the difficult harvest, as we look to 2012, what kind of volume boost do you expect to just getting back to normal, not even including growth for next year?

Well, you know, first of all, we haven't finished the year, so it's a little hard to talk about what the gross is going to be next year. We'll probably end up with low single-digit volume decline despite all of this this year. I think probably you would expect to get more or less that back, so you would be talking about low single-digit kind of growth next year would be our expectation.

And shifting gears over to the Plastics, you had mentioned that there's some added costs from strategic changes. Is this entirely encapsulated in this shifting capacity in the shakeout that you've been talking about, and can you quantify that for us at all?

Sure, Chris, it's Adam. It is primarily around the rationalization program that we discussed and I would say the impact in the quarter was probably a couple million dollars.

And looking into next quarter, would you think it would be similar or start to diminish then?

I think next quarter will be a similar kind of number and then as we work through 2012, that will begin to diminish on a quarter-by-quarter basis.

I appreciate your time.

Next we hear from Tim Burns with Cranial Capital.

Good morning, everybody.

Good morning, Tim.

You guys mentioned that the single-service closure was down significantly. What was the driver there?

Hey, Tim, I would say the driver for the most part was our hot sale beverage market for single-serve in the U.S. If you recall just how this year has played out, we had a very strong preseason sale that took place in Q1, so our Q1 volumes were up nicely in Closures. As we came into Q2, we really did have cool wet weather across the U.S. and just a couple weeks of warm weather. So the hot sale season really is a February to September timeframe, and as we got through Q3, the single-serve market just wasn't growing at the rate that everyone expected, so it's a single-serve beverage issue mostly in the U.S.

Do you guys have any color on how the carbonated soft drink beverage cans can go down 5% to 6%? The share of stomachs has got to go elsewhere. I'm thinking teas, light flavored waters, isotonics. Maybe some of the products that you pack. Did you feel any positive impact from that?

No. To a large degree that's the stuff Adam is talking about. We really didn't see that. I would say that you're talking about pretty volatile markets if you'd look at a quarter on those, and I think the demand does seem to come and go a little bit, has certainly been our experience on it.

Okay. And IPEC, I'm seeing it more and more in the dairy cases. Is that going well?

It is, it is, yes.

It's my beverage of choice for my White Russians. I just want to let you now. (Laughter).

Well, keep drinking those then. Make sure it's the right closure on those bottles, though.

I will. And the Vogel & Noot capital program, Bob, I guess you said you're spending $140 to $160. Is that $25 million in this year's number to support those new four lines or four plants?

Yes, just to clarify. I think the total CapEx spent for the year is $160 to $170, a component of which is the Vogel & Noot, and the $25 million-ish is going to be largely in this year and there will be some of it rolling into next year as we work to commercialize those remaining plants. But the bulk of it is embedded in our $160 million to $170 million.

And because those plants are what I would call seed plants, obviously our hope is that more capital will get spent in future years as we see growth, which is not encompassed in that. But that's part of the beauty of the way that the Vogel & Noot team goes about this, is they get that seed plant on the ground and then service the market and hopefully grow from there.

Is White Cap coordinating with these guys or do they need to? They were already pretty eastern European-centric to begin with, if I'm correct.

Yes and no. Yes is the answer. They are coordinating. So White Cap is the Closures arm for us throughout those regions, but obviously the Vogel & Noot team has stronger position in many of those eastern European markets and so we are absolutely -- the White Cap is absolutely using that and the Vogel & Noot team are being very helpful in that regard.

And last question. Bob, you said that you've deployed $700 million in capital before acquisitions. The other $300 million goes to share repurchase and other?

Yes, well, the $700 million I gave you is exactly that. Four acquisitions leading to about $400 million of it and almost $300 million for share repurchases. What I didn't include in that $700 million is the CapEx that we've deployed over that time as well. So that's incremental from a strategic standpoint of growing the business.

So it's $700 million plus the CapEx?

That's correct.

Okay. That's a huge number. Tony, last question. We've heard on a couple of calls this morning how food inflation has really got the consumer pinching their pocketbook, and I know you've already talked about it this morning and don't seem to feel any benefits. But first thing people do is usually run to Wal-Mart to try to buy cheaper. I guess with fewer crops coming out of the ground, would we not see the use of those crops in higher value products like soups and stews and things of that nature where you have higher value cans?

Well, you could. I think broadly I would say this is the kind of market you would expect to be good for the can. As you've heard me say several times in this call now, the challenge we have, like many other markets, is there's a lot of inflation there. We have to get at that because the consumer is picking through the grocery store. They are thinking about all of their choices as they spend on that. So on the ingredients question, I would say broadly, yes. The trick with that is in any particular pack season, which is not soup, but in fruits and vegetable packs, a very limited time for those decisions, and once you can't harvest anymore because of mold on tomatoes in California or frost in the Midwest, you're kind of done. So even if you would rather have more tomatoes, because a canned tomato is a higher source, you're not really dealing with that this year. You would have to wait until next year and contract for more acreage. I would say that stuff moves more slowly in that regard. But I do think that this is a very good economy for canned goods if we can help solve the inflation question a little bit more. Right? So the can is the better package out there and it needs to be priced accordingly and so that's a pretty important part of all this.

I can tell you that, you know, cost per ounce of food in a ready meal from new high-tech polypropylene tray, microwaveable, pull back the film. People look at that versus a good can of soup and a salad. There's no contest.

You're right.

Because I'm at that point right now, along with my White Russians. Listen, it's always a pleasure and good luck in the fourth quarter.

Appreciate it, Tim and we agree with the point. There's a real value proposition out there and it's important that we protect it, and we're very hopeful that our customers will be successful in communicating it.

Thanks.

Tim Thein with Citigroup has our next question.

Just coming back to the Vogel & Noot question in terms of the contribution in the quarter. If I did the numbers correct, Bob, it looks like Omnit caught $100 million in top-line contribution to get to the $0.06 of EPS. It implies something a tad below the segment average. Do I have that right? And then how should we think about that going forward as you work through some of the -- you get the business fully integrated and work through some of the initial deal-related costs?

Yes, I think you're referring to the margin being below the broader segment and that's true. It is a bit lower margin business. I think it's largely just because it's spread out geographically in different cultures as well. But it's not significantly different. And in terms of the integration, this was never really intended to be an integrated business. It's more of a complementary-type acquisition. So you shouldn't necessarily be thinking that there's costs to be wrung out as we go through the integration. If anything, this is a business that we're going to continue to invest capital in and let it grow. So what is behind us is the draft of purchase accounting that we saw in the first two quarters. So from here forward, the earnings ought to be pretty pure as to what the business performance is driving.

We always say that we don't really like talking about operating margins because it's really cash in, cash out. There's no question that that business will probably always be a lower margin business, just you think about a smaller plant servicing smaller customers in a lot more markets and regions. So it's really not a fair straight-up comparison in any way. It's just really a question of cash in, cash out.

Fair point. I guess you said $25 million for four plants. I guess that does speak to a lower capital intensity, I would imagine, as well.

Exactly.

Separately, just back on Closures, you spent some time on Plastics. Can you give any color in terms of -- I know the forward visibility here isn't great, but that business does have a -- the Metal piece have a significant presence in Europe, just what you're seeing there in terms of the fourth quarter volume outlook?

Sure. Fourth quarter volume outlook actually seems to be reasonable at this point. When we include the IPEC and DGS acquisitions, obviously we're going to be up probably in the low double digit range, but the organic business continues to do well and we'll see the organic business probably up slightly, both in the U.S. and everywhere else around the world for Q4.

Okay. Last one for me. Bob, just back on the CapEx outlook for next year with the bonus depreciation pull-ahead as well as I think there's some easy open capacity you're expanding or adding this year. What should we think about in terms of CapEx? Should it fall back closer to that $110 million, $120 million next year, or what are you thinking on that?

Yes, I'm not really prepared to give an exact number as we sit here right now. We are going through all those budgets right now. I think certainly we're going to have a more keen focus on what we're spending, where and why. But I think we've demonstrated that where we can find good opportunities to invest capital and get good returns, we would do that. But I think naturally a lot of the Vogel & Noot expansion will be behind us. That should come out. We'll certainly have a prudent eye. So I would expect it to be down but I can't say that $110 million to $120 million is the right number. We've have to get through our budget before we can provide that level of detail.

Okay. Thanks, fair enough.

We have a follow-up question from George Staphos with Bank of America Merrill Lynch.

Hi, guys. Good morning. I know Benjamin asked a couple of questions on my behalf. You might have discussed this, apologies in advance. First off, with volumes obviously not trending as well perhaps as you would have expected this year -- certainly food can volumes have been below my forecasts for the year -- do you think there's opportunity to once again re-assess your manufacturing base in North America, or would you really at this juncture rather keep the structure as it is, and why or why not?

Yes. We did cover it, so I'll be a little quicker, George. But the answer is that, first of all, historically, recall that we have done a lot of rationalization here, so we have a pretty optimal structure. Secondly, most of the things around volume are pretty identifiable. We don't expect each and every pack to be the worst in recent memory. The inventory workdowns are quite specific. We're talking about specific customers doing specific things. And so really we aren't feeling like that you're seeing a trend on the volume side. You're seeing an anomaly, if you will. So we are not at all thinking different about our footprint.

Okay. Appreciate that. And I guess the other question I have is obviously it's been a tough year historically when there have been different years volume-wise and pack-wise. All that's led to is greater acreage indications in the upcoming year. It's not March yet, I realize that, but are there any discussions yet from your customers that suggest they may contract for more volume in 2012?

No. It's so early. But we talked earlier. I could imagine it. I think there is -- food is a challenge on a worldwide basis, both the cost of it and the quantity, and that's becoming more true here, too. So my own expectation is that the acreages will be robust next year but that's just me hypothesizing right now.

Okay. I'll turn it over. Thank you.

Thanks, George.

At this time there are no further questions. I'm turn the call over to Mr. Tony Allott for any additional closing comments.

Thank you, everyone, for the time today. We look forward to talking to you about Q4 and 2012 early in February. Thanks.

Thank you. That does conclude today's conference call. Thank you for your participation and have a nice day.