Silgan Holdings Inc (SLGN) 2013 Q1 法說會逐字稿

Thank you for joining Silgan Holdings first quarter earnings conference call. Today's call is being recorded.

So at this time, I would like to turn the call over to Kim Ulmer, Vice President and Controller. Please go ahead, ma'am.

Thank you for 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 2012 and other filings with the SEC. Therefore, the actual results of operations or financial conditions of the Company could differ materially from those expressed or implied in the forward-looking statements.

With that, let me turn it over to Tony.

Thanks, Kim. Welcome everyone to first quarter 2013 earnings conference call. Our agenda for this morning will focus on the financial performance for the first quarter and a review of our outlook for 2013. After these prepared remarks, Bob, Adam, and I will be pleased to answer any questions.

As you saw in the press release, the first quarter results are right in line with our expectations across our businesses. As a result, we've delivered adjusted earnings per diluted share of $0.46, with a temporarily higher tax rate for the quarter.

We also completed the tender offer, buying back approximately 5.5 million shares at $45.25 per share. We increased our cash dividend by 17%. We prepaid $300 million of term bank debt, and we completed a small closures acquisition, which expanded our presence in the Australian market.

While it's early days, and the first quarter had a pretty tough comp with a strong Q1 in 2012, we're thus far pleased with the respective performance of each of our businesses. Our Metal Container business benefited from stronger volumes, particularly in the soup and pet food markets. They also continue to make good progress towards our working capital goals, as we continue to reduce comparative inventory levels that were built in the prior year in advance of labor negotiations.

Our Plastic Container business performed well, but was faced with negative year-over-year comparisons as a result of the lag pass-through of resin cost changes in both years. Our Closures business was already being compared to an exceptionally strong first quarter of 2012, but was also negatively impacted by significant increases of resin cost for the quarter. More importantly, the Closure business in Venezuela was negatively impacted by currency devaluations, resulting in a $3 million asset remeasurement charge, as well as operating challenges in an environment of heightened political uncertainty. With that said, based on our first-quarter performance and our outlook for the remainder of 2013, we are confirming our full-year estimate of adjusted earnings per share in the range of $3.05 to $3.20 per share.

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 2013.

Thank you, Tony. Good morning, everyone.

As Tony highlighted, 2013 is off to a strong start. Our businesses delivered results in line with expectations. We're making good headway with stabilizing our Plastics operations, and volumes for the quarter were as expected. The surprises in the quarter were the devaluation of the Venezuelan bolivar, resulting in a $3 million charge for the remeasurement of assets; the operational challenges, as political instability in Venezuela led to an inability to acquire sufficient raw materials; and the timing of certain statutory rate changes, which led to a temporarily higher tax rate.

On a consolidated basis, net sales for the first quarter of 2013 were $795.7 million, an increase of $27.3 million, or 3.6%, as increases in Metal Containers and the Plastics business were slightly offset by declines in the Closures business. Net income for the first quarter was $25.4 million, or $0.38 per diluted share, compared to first quarter of 2012 net income of $32.8 million or $0.47 per diluted share. Results for 2013 included rationalization charges of $1.4 million, plant start-up cost of $800,000, loss on early extinguishment of debt of $2.1 million, and a charge for the remeasurement of assets in Venezuela of $3 million, for an aggregate total impact of $0.08 per diluted share; while 2012 included rationalization charges of $3.6 million, and plant startup cost of $1 million, for an aggregate impact of $0.04 per diluted share. As a result, we delivered adjusted income per diluted share of $0.46 in 2013, versus $0.51 in 2012.

We continue to be effectively hedged, having financed the international businesses in their local currencies, and we maintain a business practice of balancing out cross-border activity to help mitigate the effects of currency on our earnings. As a result, foreign currency was not material to the quarterly earnings. Interest and other debt expense increased $1.8 million to $17.4 million for the quarter, primarily as a result of the loss on early extinguishment of debt of $2.1 million, attributable to the prepayment of $300 million of term debt under the credit facility.

Capital expenditures for the first quarter of 2013 total $25.1 million, compared with $26.3 million in the prior-year quarter. We continue to anticipate capital spending for the full year to be in the middle part of our range of $125 million to $150 million. Additionally, we paid a quarterly dividend of $0.14 per share in March, with a total cash cost of $9.1 million.

I'll now turn to some specifics around the financial performance of each of the businesses. The Metal Container business recorded net sales of $463.8 million for the first quarter of 2013, an increase of $18.9 million, versus the prior year quarter. This increase is primarily a result of improved unit volumes, predominantly soup and pet food in the US; and the benefits of the new plant in Eastern Europe and higher average selling prices as a result of the pass-through of higher raw material costs. Income from operations in the Metal Container business was $39.6 million for the first quarter of 2013, versus $42 million in the same period a year ago. The decrease in operating income was primarily a result of the unfavorable impact of the planned smaller inventory build in the first quarter of 2013, as compared to the benefit from building higher inventory in advance of labor negotiations in the first quarter of 2012, continued weakness in the European markets, and an increase in rationalization charges. These decreases were partially offset by increased unit volumes.

Net sales in the Closures business decreased $1.9 million to $161.1 million for the quarter, primarily due to the unfavorable impact from the devaluation of currency in Venezuela, partially offset by higher average selling prices as a result of the pass-through of higher raw material cost. Income from operations in the Closures business for the first quarter of 2013 decreased $7.4 million to $10.6 million, primarily as a result of the remeasurement of net assets in Venezuela, the ongoing impact from the devaluation of currency, and an adverse political climate in Venezuela, which negatively impacted consumer demand and the ability to procure sufficient raw materials during the quarter. The quarter was also adversely impacted by significant increases in resin cost and continued weakness in the economic situation in Europe. These declines were partially offset by lower rationalization charges.

Net income in the Plastic Container business increased 6.4%, or $10.3 million, to $170.8 million in the first quarter of 2013, primarily as a result of the inclusion of net sales from the plastic food container operations which we acquired in August 2012, partially offset by the impact of lower unit volumes in the legacy plastics business. Operating income increased $1.5 million to $10.4 million for the first quarter of 2013. This increase was primarily related to the inclusion of the recently acquired plastic food container business and lower rationalization charges. As expected, these increases were partially offset by the negative year-over-year comparisons, resulting from the lag pass-through of changes in resin cost, and the legacy business was also impacted by lower number of pounds sold.

Turning now to our outlook for 2013. Based on our first quarter performance and the outlook for the remainder of 2013, we are confirming our estimate of adjusted net income for diluted share in the range of $3.05 to $3.20 per share, which excludes the impact of rationalization charges, plant start-up costs, the loss on early extinguishment of debt, and the impact of the remeasurement of net assets in Venezuela. This compares to record prior-year adjusted net income per diluted share of $2.70. We're also providing a second-quarter 2013 estimate of adjusted earnings in the range of $0.60 to $0.70 per diluted share, excluding rationalization charges and plant start-up costs, as compared to a record $0.55 in the second quarter of 2012.

Consistent with year-end guidance, we continue to forecast free cash generation to be approximately $250 million. We continue to see capital deployment opportunities directed at yielding the best possible return for our shareholders. As a consequence, we continue to view acquisitions as the best use of our cash flow, and in the absence of a meaningful opportunity, we will make decisions regarding alternative uses through the end of 2013.

That concludes our prepared comments. So we can open it up for Q&A, and I'll turn it back to Lisa to provide the directions for the Q&A session.

Thank you, sir.

(Operator Instructions)

Chris Manuel with Wells Fargo.

Good morning, gentlemen.

Hey Chris.

Just a couple questions to start with. One, could you maybe give us a walk-around through the different businesses, and as well, a little bit globally, if you can, as to what volumes were like through the quarter? In particular, I'm interested in understanding maybe what the difference in food in North America and Europe was, if there was a difference, and maybe some of the differences in closures as well, globally.

Sure. I'll start with metal, and then turn it over to Adam to talk about plastics and the closures. On an aggregate basis, volumes were up mid-single digits in the aggregate. Essentially, what we got was the benefit of the new plant startups in the Eastern markets. So the European volumes were up pretty good, quarter over quarter. Again, not totally comparative, because of the startups. And then, in the US, we benefited, as we indicated in the remarks, that both soup and pet food were up, year-over-year, as well.

So in North America, were you up a touch or--?

Yes, in that mid-single digit. Most of that volume increase is coming in the US.

Okay, thank you.

Moving over to closures, Chris. Essentially, closures were flat around the world. So we had again a very tough comp in the US business, with the single serve business from the Q1 of 2012, and we were right in line with that volume level from the prior year. On the plastics business, we've talked before, unit volume may not necessarily be the best measure. It was down slightly in unit volume, as we continue to realign our volumes and our strategies towards our growth markets. The best measure of this business, I think right now, is the pounds sold, as Bob said, and we're down low-single digits in the pounds sold for our plastics business.

Where there--When you look at your closures business, was there a lot of variance between some of the different markets in Europe, and maybe in the US and Europe, et cetera. What you are seeing?

No. Honestly, it was pretty consistent across the board, as far as comparable to prior year performance from a volume standpoint.

Okay, last question--

With one exception of Venezuela, where we had--as Bob said in the script--we had the issue where you basically couldn't source raw material, so you had a sizable revenue and volume shortfall, versus the same quarter a year ago.

Okay. Thank you, Tony. Last question I had is, could you give us just a sense of what the revenue contribution were from the acquisitions in the quarter?

Sure, the big one is going to be the plastic food container business, and that's $20 million of revenue contribution. You're going to get a couple $4 million or so, $5 million out of the Turkish acquisition. But the bigger one is going to be on the plastic food container.

Okay, thank you.

George Staphos with Bank of America/Merrill Lynch.

Thanks. Hi everyone. Good morning. Congratulations on the progress on the quarter. I guess I just wanted to confirm to Chris's prior question. So you saw mid-single digit growth in food cans in North America? Did I hear that correctly?

It's--In the aggregate, it's low to mid-single digits. In the US, it would be in the low single digits.

Okay, fine. Now to the extent that you have color that you can relate, what are your customers sharing with you about their marketing plans, and/or for that matter, ultimately the consumer? Are they seeing signs that the consumer is finally beginning to open up their wallet a bit more, or collectively has adjusted to higher pricing, such that you are seeing low to mid-single digit volume growth?

I think George, the--we have some customers who are absolutely doing more on promoting and advertising their product. I think soup's an obvious example of that.

Yup.

Probably say similarly on the pet food side, that you are seeing a pretty heavy effort to move product right now. So I don't--I am not so sure that's a consumer-driven difference. I think answering globally--the way you asked the question--certainly in Europe, I think you'd have to say that you're continuing to see a certain entrenchment of the consumer. So I--there's no sign of a particular robustness on consumption in Europe. And I would say US is more specific to what our customers are doing in the market, than we're seeing a big change in the consumer's sentiment.

Well, you know, Tony, one thing though, there've been other quarters in past years where the food companies have tried to promote more aggressively, and it didn't really have much of an effect. I don't know if you would agree with that--that's certainly my recollection--and if you do agree, why do you think these promotional trends now are having a little bit more resonance with the consumer?

It's a good question. Yes, I agree, first of all. There definitely have been those points. Although I have to say, sometimes you felt a lift at first, and then it didn't have sustainability to it, so--but you're right. There are definite efforts on that. I would say that I think, broadly right now, what we're seeing is a pretty positive set of advertising and promotional. And that is not just to a soup market or anything else, but it's much more about the what's good about the product on the shelf, not what's bad about the competition, the competing product. And so, it seems to be more of what we would like to see, in terms of the advertising. And examples of that are things about the sustainability nature of the food in the product, the health benefits of the food, and that--that positive message, I think, has a lot of power to it.

Okay. I'm going ask one more question and turn it over, so the call can keep moving. At one point in time, back a few quarters ago, if not a couple years ago, we were talking about plastics, and how we would ultimately determine whether the turnaround efforts within the Company would be successful. And one of the things I think you mentioned--correct me if I'm wrong--was that we would begin to see volume improvement for the Plastic Containers business. Now again, quarters vary. I realize that the last couple of years have been unusual, but should we not be seeing a little bit better volume trend in plastics by now, based on what you would have expected, say a couple of years ago? Any color would be helpful. Thanks.

You're right, first of all. Absolutely right, and what we kind of said is, here's the progression we would like to see. The first one is stabilizing the operations of the business. Then what we wanted to see is basically, we're going to through a process of being more focused on what markets we wanted to expand in. I think Adam made this point.

And so, there was going to be a certain amount of selecting of the business we wanted to do, and that was going to give us, frankly, volume pressure for a period of time, and that ultimately, to get back to where we really felt that had [to be, you'd] see sales growth. I think that conversation was sort of mid-last year we had, and I'm not sure I can tell you exactly when we would have said you had seen it. I don't think we would be saying yet. Certainly our mind right now is not disappointment around the volume side. But we are getting there.

There's no question that we are now--we're beginning to--we've figured out what markets we want to spend more on, which once we want to de-emphasize a little bit, and we are moving more to a commercial effort to make the sales in these target markets. And so, I do think that you would like to see it start to come in. Now, I've got to--the caveat here is that it's a long process to make the sale, to get the thing to a commercial product capacity and et cetera, and so. I think really, that's going more about '14, we'll see that volume growth. But that should be projects we're working on in earnest by the end of this year.

And just to add to that, Tony. I think the last pieces, the pressure on volume, that that realignment of our target focus does have an impact on our current volumes. So we're now starting to cycle over some volume losses that we have realigned our focus on other areas.

Helpful color. Thank you, guys. I'll turn it over.

Thanks, George.

Ghansham Panjabi with Baird.

Hey guys, good morning. On the Wrexham acquisition, can you give us a sense as to how volume sort of flowed through? I guess you didn't have assets a year ago, but just relative to performance numbers, how the markets are doing there?

Well, first of all, I would say that the business has been fully integrated into our Plastic Containers segment, and the acquired business is performing exactly as we expected, so we're happy with both the management team and the business itself. It did have a headwind in resin in the first quarter, but volumes essentially were close to our expectations. We continue to see good growth opportunities in this business, both internationally and domestic, but given the food markets that we serve, it does take time for some of those projects to come to fruition. So I--Without giving you exact numbers, I would say we feel very good about the business. Tony had commented on the revenue line. Volumes and profits were right in line with our expectations.

So, just to--I understand the sensitivity on numbers, but were volumes up for that business, year-over-year?

No, they were off a little bit, although they--one part of that business services the military, and so, with sequestration, that was expected. But I think if you look actual year-to-year, you're going to be down some.

Yes, and I think it's so--the differentiation there is versus our expectation, which we knew about the sequester, and versus prior year.

Got it. Okay, and then it looks like one of your competitors out of Europe is making a big investment in North America. They highlighted North American food, and also highlighted the fact that they had some contracts to go behind that. Do you foresee any change in your market share position, as we look out to the rest of the year, in North American food and also into '14 also? Thanks.

No, we don't. Again, recall that most of our--I assume the question is around USA Foods, I think, with dog food cans. The majority of that business is under long-term contracts, and so, we don't foresee any shift there in our share.

Okay, right. Thank you.

Adam Josephson with KeyBanc.

Thanks. Good morning, everyone.

Good morning, Adam.

Tony, to what extent does the ongoing weakness in Europe reduce your appetite for acquisitions there? I assume the prices would be lower to reflect current conditions, but obviously, I don't know for sure.

That's a good question. First of all, what we would say about Europe, and try to say in the release, is that nothing's improving. It is not dramatically worse than it was, but it's not improving. I think our view on Europe at this point is, broadly, that it's going to have a long, long fight here. And so, there's going to be many years of lackluster growth is our view of Europe.

So, to your question, it's certainly something we think about on acquisitions. And so, I think the value of an acquisition in Europe has to consider that fact. Now, the trick here is sometimes opportunity is exactly where things are at their worst. And so, you can't--you would never want to say, no acquisitions in Europe, as you might find great opportunities there, but we definitely are factoring in my previous comments on what we expect from the market, as we survey the acquisition opportunities around the world.

And just one more on the M&A pipeline. How would you characterize it today, relative to what it's been in previous quarters?

As we would typically indicate, we continue to look for opportunities. We keep Fred pretty busy. But I think there's no question if you look comparatively at the early part of '13, against the activity that was in the market in '12, it's a little bit softer than it had been. Now, we don't view that as a permanent situation. I think it's just the market taking a breather, as things that were going to come to market came and get digested. The view right now, based on our read and landscaping in the market, and talking to investment bankers is that the activity will start to pick up in the back part of the year. And that same dialogue probably goes not only for the packaging space, but for the M&A market in general.

Thanks for that, Bob. And just one more on soup volume. How much of the improvement would you attribute to changes in how the product is being marketed, versus just the colder weather this winter compared to last?

Well, that's a great question, and you went by one that I meant to mention, which is-- First of all, I don't know. It's very hard to tell that. I'm going to guess that between those two, it has more to do with the advertising and promotional activity, but I can't prove that. The third one that we didn't mention--we should--is recall that one of our large soup customers, Campbell's, is moving out of one of their four US production facilities, and so, you have to also wonder how much could be inventory build, associated with the fact that they'll have less billing as they go forward through the year. And unfortunately, we don't really know the answer to that one, either. It's going to be a function of all of those points.

Got it. Tony, thanks a lot.

Phil Gresh with JPMorgan.

Hey, good morning.

Morning, Phil.

So, to follow-up on the previous question around the M&A, just kind of capital allocation, should we kind of assume that you're looking at these things on an annual basis, and if you don't really find anything, as we approach the end of the year, that you might do a similar kind of magnitude or share buyback? A big one-time buyback, like you did?

I wouldn't necessarily want you to walk away with the opinion that it's so formulaic that that's the way we're operating. I mean, clearly, we do look at the annual cash flow generation, kind of marry that up against the opportunities in the pipeline, as well as kind of keeping the balance sheet in an efficient state. And that's relative to what's going on in the world. So in periods of time where we've been more nervous about the credit markets, we've been less levered than another periods of time. So the 2.5 to 3.5 times leverage metric that we put out there, I would say is more kind of a longer-term view, as opposed to looking at every single year and saying, if you are not in there, then we're going to do something calculated to be there. But in general, I would say if we don't find opportunities that deploy capital through M&A, we will try and keep our balance sheet in an efficient state and return capital where warranted. But it's not as formulaic as maybe you'd like to think.

Okay. Fair enough, fair enough. If I look at the Closures performance year-over-year, the EBIT, if you adjust for the Venezuela, the EBIT was down maybe $6.5 million, year-over-year, and you said the volumes are flat. Could you break apart that delta between resins versus something else?

Sure. We've already talked about the $3 million for the remeasurement of the assets in Venezuela. There's another $3 million in Venezuela for the ongoing operational impact of the currency devaluation, and as Bob alluded to, kind of the tense political environment down there, and our ability to get raw materials and service that market. There's $6 million we would attribute to Venezuela. There was a bit of a negative lag for resins in the quarter, about $1 million. So that kind of gets you all the way to the complete story, and volume was flat.

Got it. Okay. And what was the total resin impacted, when you factoring in the impact on the Plastics business?

If I look at Plastics, I would say probably $2.5 to $3 million in total, on a comparative basis and again, Closures. I just gave you the million so--.

Okay. And then what's your view? What are you factoring in for resins for this current quarter?

For Q2, dividing out by business, our primary resins for the Plastic Container business are expected to continue to increase. Resin will be a headwind in Q2 for the business. As we think back and on the comparative basis, we had a significant benefit in Q1 of last year that we're comparing to right now, for Q1 of 2013. We also had a benefit in Q2 of 2012. That benefit was less than the Q1 benefit. So that, in conjunction with the headwind that we anticipate in Q2 of 2013, will essentially be a couple million dollars unfavorable for the Plastics business.

The Closures business--the primary resins used in Closures have been a lot more volatile than our other resins that we use in the other businesses. So it really depends on the timing of the decreases. Our primary resins for Closures are expected to decrease through the balance of year. Depending upon that timing, we should recover the headwind that we have experienced. It may not necessarily be in Q2, but we should recover that by the end of the year.

Got it. Thank you. Last question is, can you give us the margin in the quarter for the legacy plastics business?

It's kind of hard to do that, once you blend everything together. I think it's safe to assume it's lower than the blended total. But it's--I wouldn't know how to do that, with all the SG&A kind of bearing over all of that.

Okay, fair enough. We have a lapse fee on the acquisition annually, so that's what I was trying to ask. But I appreciate that, thanks.

Understood.

Anthony Pettinari with Citi.

Good Morning.

Morning.

Just to follow up on Phil's question on Plastics. You discuss some of the drivers of improvement in that business. But I was wondering to the extent that you can, if you can, quantify what kind of margin improvement potential we might expect from 2012, going into 2013, or maybe out to 2014. I think before the downturn, you are doing closer to 8%, maybe above 8% operating margins in that business. Is that a reasonable target for 2014, 2015? Is there any kind of color you can give us on that?

I think what we've said in the past on that is that our expectation is that over the next year or two, we thought we could get back to where we were before we started having the operational challenges. So I would put that more in the kind of mid--5%, 6% -ish kind of numbers. And that to get back to the 8% to 10% on operating margin, those kind of numbers will take a more fundamental change in terms of the--to some degree, the footprint of the business and the more long-term cost structure for the business. And to a degree, having real success in moving more into target markets and making further investments in those markets. So I would view that as a longer-term answer.

Mark Wilde with Deutsche Bank.

Good morning.

Morning, Mark.

Tony, I noticed in the release you mentioned Sacramento. You talked about Campbell's a little earlier. I'm just curious, with the restructuring that you did there, are you pretty satisfied with your Sacramento area footprint now? And are you sized for the shutdown of the Campbell's plant?

Yes, for now, we're satisfied. The--Essentially, you'll recall that that plant serviced both Campbell's and other customers in the region. So we need the capacity. We did size-down the plant, and moved some of that capacity. So we're reasonably satisfied. The reason we can't give you a more formal answer to that is that that's still a Campbell's site. It's still under lease with Campbell's. We don't have 100% certainty that we can stay there forever, and so that will continue to be something we'll evaluate as we go. But in either case, we need the bulk of that capacity in the West Coast.

Okay. And then turning to the plastic food business, the Wrexham business, can you just give us some direction, as to what you think the potential is in that business over the next two or three years, from kind of a volume standpoint? And whether you may have to put any additional capital in that business, domestically or offshore.

Sure, Mark. It's Adam. I think as we look for--again, as I mentioned earlier, we see good growth opportunities, both in the US and internationally. To your last point, I think what we're going to wind up having to do over time is we will have to invest in additional capacity in that business. It is a one location operation, as we sit here today, and significant growth will require additional footprints considerations for that business. So while we are still off identifying all those opportunities around the world, and obviously in the US as well, we do expect significant growth and I think--I don't think we've put a number out there, but certainly in the upper single digit kind of growth profile in the longer-term for that business and new opportunities.

Okay, and just finally, in terms of the guidance for both the second quarter and the year, I was kind of struck that the range for the second quarter is almost as wide as the range for the year. And I wondered if you could just give us some sense of what you think the main variables are that you are dealing with in the second quarter?

Well, the big one is always timing of the year. You'll hear this even stronger from us in Q3, but you just have this issue of exactly when does the fruit pack come in, when does some of the early vegetable pack happen. And so, you--unfortunately in our business, you get fairly sizable swings, just in the timing of when things happen. We've always said we're better at estimating the year than we are quarters. And I think history has certainly born that out. That's the main point. There's not a lot more to it than that.

Okay. Is there anything else, Tony, beyond just sort of the pack in the food can business that you regard as significant swing issues in the second quarter?

Well, I'd like Venezuela to be able to get steel. So that's one. We are assuming that that will settle itself down, and they'll be able to get steel, and get back to work. So that's important. Europe, I think we've been pretty negative in our forecast of Europe, so I don't expect a lot more there. But again, Europe continues to be on our mind.

Okay. Tony, how big is Venezuela in the grand scheme of Closures?

Relatively small. If you look at this quarter for instance, it's only $3 million or $4 million revenue. Unfortunately, it was $7 million a quarter, a year ago. So you can see sort of the magnitude of the difference there. So it's not big, but what happens is, it made money in the first quarter a year ago, because it was getting its steel. In fact, it was doing some catch up in that case. To a case here, where it loses money, because it's sitting, waiting for steel. You can get a sizable swing from that.

Mark, I think I'll try and add a little clarity to that, too. Largely that happens because of the monetary policy in Venezuela, and the fact that their raw materials come from outside of Venezuela. So it's only when the government is letting funds flow that you can actually bring steel in. So their production and their sales, because the customers are buying everything that's available when they're producing and bleeding that inventory off for their own purposes when the Venezuelan operation can't get steel. So it's just naturally lumpy, and this happens to be one quarter where it's going in the opposite direction, year-over-year, because of that ability to get steel.

Okay, and I believe this is now the second devaluation that we've had, what, in the last two or three years?

I think the last time was 2010 or '11, I believe.

Yes, you're right.

Okay. All right. Very good, guys. Good luck in the second quarter and through the balance of the year.

Thanks.

[Alka Beeley] with Macquarie.

Hi, thanks. Yes, just wanted to follow up on Venezuela. So with the lower currency that we've got there now, plus assuming this steel issue gets resolved as you expect, what's the ongoing annual drag to earnings in the segment, just on the lower base of currency, going forward?

Yes, I think where we're thinking right now, assuming that the steel issue gets behind us, the impact that we saw in the first quarter is probably largely what we will see for the full year. That we'll get back to operating, and we won't see more negative drag. Again, assuming that they get the steel situation resolved.

Okay. And cash-wise, I imagine you don't have much down there, but can you remind us how much cash is maybe stranded in Venezuela at this point?

There's not a lot there. There's probably the equivalent of a few million US dollars there. The total net assets down there are probably only about $7 million to $10 million, I think it is.

Okay.

Truly our goal was never to talk about Venezuela. It's just because you have EBITDA evaluation, but then you have this kind of relatively strong quarter against a relatively bad quarter. So it's our hope to answer your first question, that it's close enough we never talk about Venezuela again this year.

Okay. All right. Fair enough. I guess the final question is, so with that drag resin I think probably a little bit more of a drag than you would have originally anticipated, yet you've kept your outlook for the year intact. What was there that sort of offsets that that surprised to the upside? Is it the US food can business? Or what was--what's the upside that lets you keep your guidance in line?

That's a great question. I might add the fact that we actually--the buyback was at the highest price. We got the least shares, so that actually shaved a little off the top, too. The best answer I have for you is it's early days. We tend to, whether we come out strong in the first quarter or not, we tend to try to hold to the year at that point in time. So I would encourage you not to read to much into it. It's not that there's some really good piece of news that's buried in there. It's just more we didn't feel compelled to either move the number up or down at this point in time.

Okay. All right. Fair enough. Actually, that reminds me, I did have one last question. Europe food can, can you talk--I know you talked the volumes are up. Can you talk about profitability there, year-on-year, excluding startup costs? Are you up, in terms of profitability in Europe, and what are you seeing on the pricing front in the European food can business? Thanks.

To answer that in inverse order, the pricing was a little bit more stable this year than last. There's certainly is some pressure, but more stable. Last year was a tougher year in that regard. The business is definitely down in profit, compared to year first quarter to first quarter, partly because you've got the cost now of these smaller, newer sites that are ramping up, and so even--we're no longer calling it startup, but they're--and by the way, I should mention that in some of those cases, like Russia, those plants are for the seasonal period. You carry the overhead, but you don't have much of the sales yet in that case.

Beyond that, you just had the-- I think Bob went though the volumes, but if you carve out the new plants, the volumes were down for the rest of Europe. Some of that probably had to do with the Easter break being in March, versus April this year. Which is, Easter's a much bigger holiday, in terms of vacation time off, and so that had more shipping days impact in Europe than it did here. So but all that is not big numbers. So you're talking about down, if you carve all that out, $1 million or so. So it wasn't a big point. And we think some of that will be recaptured as the shipping days grow out.

Okay. Great, very good. Thanks, good luck.

Scott Gaffner with Barclays.

Good morning.

Hi Scott.

Just a follow up on the Venezuelan assets. It's, as you said, a relatively small business, don't want to talk about it much, but any chance you could exit this business, since it may be the operating environment just has become too difficult to operate in, going forward?

You could. I don't know that--I'm not sure why you would. I mean, the fact is, you're there. We're--we have a great position in that market. The investment, it was acquired as part of an overall purchase, so there was no discreet investment made to go into Venezuela, and we would have not done that in that case. But it kind of came with the entirety of the business. So once you've made that investment, which we minimize everywhere we could, our view is you might as will let that money that's on the table play.

You can't really take it out anyhow. And so, that's--And that's why we would rather just not talk about it. Because to us, it's sort of a side enterprise, if you will. It does what it does. We aren't taking risk--additional risk in funding it, and we can't really take a lot of money out of it. But with that said, I'm not sure there's a great reason to exit it.

Okay, and then just on the soup cans volumes in the first quarter. You said in the guidance that you actually expect soup to be strong again in the second quarter. Is that related to the promotional activity? Or what-- You said it was difficult to sort of break it down promo versus weather in the first quarter. What gives you confidence that the second quarter soup cans volumes are going to continue to be strong?

Well, partly our customers' own forecasts indicate that. Partly that we know that really everything that we've said that we believe impacts the first quarter, they're all continuing. So the promotion effort is continuing. The need, if there is an inventory build, and the logic to continue to build inventory would be a continuing need. So we don't really see much change in the drivers here.

Just lastly, the--you closed one facility in the quarter, looks like you're closing it, the Crystal City, Texas facility. Is that--Can you give us some details on that location?

Yes, it's a relatively small, actually, I'd say it's a very small, by comparison of our other plants' facility. We did take a charge of about $300,000 for that particular plant. It's largely cash severance cost. Unfortunately, there were about 20 people in that location that were affected. So you can kind of see just in terms of the number of employees the size and scale of that plant was not very large.

But it's footprint consolidation, if that's your question. It's not business loss or anything.

Thank you, good luck in the quarter.

Great, thanks.

Alex Ovshey with Goldman Sachs.

Thanks. How are you guys?

Hi Alex.

Want to ask a question on the European metal food business. I mean, you're entering year three post the new acquisition of Vogel & Noot. You're really getting into that business. I wonder if we can take a step back, and you can talk about how that acquisition has performed, relative to your expectations in the context of a very difficult environment in Europe, and whether you've really been able to grow the operating earnings of the business since you've acquired it.

Good question. We'll start with your last bit first, which is the financial one. Operating earnings have not grown in that business since we've owned it. Although I attribute that almost entirely or entirely to your first side of it, which is that the market has been very challenging. So I think the bigger point is we still feel very good about the strategies that we're pursuing, about the markets that we're growing into.

A lot of this, you know, a lot of the European market tends to be more Western Europe. And challenges in Western Europe, which really isn't the strategic focus of the business. It just happens to have a footprint in the Eastern side of West Europe or Central Europe. And so, our view is that it's the right strategy, it's the right spot for canned goods to continue to grow. It's the right kind of consumers and food markets.

Our customers are continuing to think the same way and move into those markets. We feel very good about the team. They continue to be exactly what we expected, which is very entrepreneurial. And continue to drive the business really the direction we want it. We would just view all of this, as we knew and we talked about that we were going to go through this transition period as we brought these plants up, the fact that they're doing that in a tougher market isn't helping. But we're still very pleased with the position that we're building.

A classic example, two of the plants are in Russia. They continue to sell very well. They're making great inroads into the Russian market. That market is developing, so that's a perfect example of where we think it's working great. One of the plants went into Jordan Valley. It was-- It does service the Mideast region, including--it was intended to be Syria and Lebanon.

Obviously, that plan is a bit on hold as to Syria, and it's hard to get to Lebanon, given transit issues in that region right now. So we still like where that plant is. We still see that as a long-term right market to be in. It's not going to drive good results in the next year or so until the region settles down. So long way around, we feel very good with the strategy. We're very pleased that that business is part of Silgan, and that the management team is part of our Company. And we think it's going to be good in the long-term.

Thanks for all that color, Tony. And a question on the plastics side and resin pass-through. A number of players in the marketplace have talked to pursuing shortening the lags of the pass-through of resin. Is there anything you think you can do across any of your businesses that are exposed to resin to shorten the time lag of the pass-through?

Honestly, Alex, we work on it every single day. It's been part of our strategy to shorten the pass-through mechanisms in our Plastics business or anything that really involves resin for some time now. And essentially, it just takes time. We operate on a lot of contractual agreements, and as those contracts come up for renewal, we are aggressively trying to change those pass-through mechanisms. We had some success, so we've got a lot of work left to do, but it is very much a focus of all of our businesses that are resin -based, to shorten those pass-through mechanism lags.

Got it. Thanks, Adam.

George Staphos, Bank of America/Merrill Lynch.

Hi. Thanks for taking the call. Tony, Bob, on capital allocation, the question came up earlier in terms of how we should mark your progress, relative to M&A. Let's hold M&A constant for minute, and just think about value returned to shareholders. Given that you have had a couple of large repurchases over the last three years, and given at least in the past, you know, my observation, some concern if you will, about the float in the stock, would it make sense that whenever that next value return moment arises, that perhaps a special dividend is more apt to be considered, relative to a buyback for those reasons, and also for that matter, given investors' desire for yield? Mentally, this would be a one-off type of pickup in yield.

Yes, I wouldn't say more likely. I think what we would definitely say is that a special dividend is absolutely on the table, along with anything else. I don't know the float--really, we used to hear a lot about float, we don't hear as much about float anymore. So I don't think that's a pressing issue, but it's one you've got to watch, for sure. And that's part of what we keep a dividend on the table. A dividend is frankly easier to execute, too, so it's got some [pluses] to it. So I wouldn't rule that out. I would note there's one third one you didn't mention, which is there's always organic capital opportunities, too. And that's not an unimportant one, as we think about our Can Vision 2020 project, as an example. There's probably going to be more opportunities to invest right into our core business to take costs out, et cetera. And I think that will--has been, but will also be a very important place for us to deploy capital as well.

You segued into what was going to be my final question. But just on the question of regular dividends then, what is it that makes the Board comfortable that the current dividend payout is the appropriate one, given the cash flows in the business, the size of the business, its relative lack of volatility? I'm guessing some of it's the investment opportunities, but if you had any other thoughts on that, that would be appreciated.

I think it's exactly--It's basically the idea of when we initiated it, and we discuss every year as we think about the dividend is. Right now, it's used as a way to allow income or investors to consider the stock, that those portfolios can buy the stock. We're not necessarily trying to drive ourselves all the way up to be a primarily focus of an income-oriented investor. Partly because we think some of the other things we can do with the cash can be more important to value creation over time--acquisition or internal investment, et cetera. So that's what the thinking so far has been, that we were trying to get over a certain threshold on it, and not trying to drive it beyond that, because we have good uses for the cash.

On Can Vision 2020, what is the update, and if you could provide a bit more color. Obviously, have to do perhaps some kind of forum on what the required investment might be. That would be great. Thank you guys.

Sure. For those who don't recall, the Can Vision 2020 project is essentially our effort to look at all parts of the supply chain of canned goods to the consumer, and try to take costs out of all of it, from supply side to our piece of the canned production, to what our customers then do with the cans and the product going in the cans, et cetera. We continue to make very good progress on that. It is a long-term project, so this will be many years, and the results will come from that over a long period of time, but we continue to be pleased with the opportunities that we're seeing. They absolutely are taking investment. We've spent something like $1 million this quarter on it. We'll continue to spend, and then, there will be capital, as we get closer to meaningful investments with customers. I think the capital side of that will show much more in '14 than '13, although you might see some by--in the tailend of '13.

Anybody else?

And there are no further questions. I would like to turn the conference back over to our speakers for any additional or closing remarks.

Okay. Thanks, Lisa. Thank you, everyone for your time, and we look forward to speaking with you in July about our second quarter. Have a good day.

And that concludes today's teleconference. Thank you for your participation.