Silgan Holdings Inc (SLGN) 2014 Q3 法說會逐字稿

Thank you for joining Silgan Holdings third-quarter 2014 earnings conference call. Today's call is being recorded. At this time, I would like to turn the call over to Kim Ulmer. 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 2013 and other filings with the SEC.

Therefore, the actual results of operations or financial condition of the Company could differ materially from those expressed or implied in the forward-looking statements. With that, I'll turn it over to Tony.

Thanks, Kim. Welcome everyone to our third-quarter earnings call. As usual, I'll make just a few brief comments. Bob will cover off in a little more detail on the financial performance and our outlook for the fourth quarter, and then Bob, Adam, and I will be happy to take any questions.

As you saw in the press release, we delivered a strong third quarter with record adjusted earnings per share of $1.33, representing an 8.1% increase over a previous record quarter. Our metal container business performed well as a solid European performance and a good tomato pack were partly offset by weaker vegetable and soup volumes in the quarter.

Our closure business had a strong quarter as benefited from improved volumes, both organically and as a result of the Portola acquisition. We continue to be pleased with the ongoing integration of this business.

Our plastic container business continues to execute the strategy of repositioning our customer portfolio and saw volume gains in the quarter. Based on our year-to-date performance and the results of the fruit and vegetable pack season for the year, we're narrowing our full-year estimate of adjusted earnings per share to a range of $3.10 to $3.20.

This represents an increase of 13.1% to 16.8% over a record 2013 performance. With that, I will turn over to Bob to talk about the financial results in detail and provide explanations around our earnings estimates for 2014.

Thank you, Tony. Good morning, everyone. As Tony highlighted, we delivered record earnings for the third quarter of 2014. These results were in line with our guidance as operating income in each of our businesses improved versus the prior year.

On a consolidated basis, net sales for the third quarter of 2014 were $1.2284 billion, an increase of $60.5 million, or 5.2%, as increases in the closures in plastic container businesses were partially offset by a volume driven decline in the metal container business. Net income for the third quarter was $83.3 million, or $1.31 per diluted share, compared to third quarter of 2013 net income of $77.2 million, or $1.21 per diluted share.

Results for the third quarter 2014 include a rationalization charges of $0.03 per diluted share and a net profit in Venezuela of $0.01 per diluted share, for a total increase of adjusted earnings per share of $0.02. While results for the third quarter 2013 included rationalization charges of $0.01 and cost attributable to announce acquisitions of $0.01 per diluted share, for a total increase to adjust earnings per share of $0.02.

As a result, we delivered record adjusted income per diluted share of $1.33 in the third quarter of 2014 versus $1.23 in the same period a year ago. Interest and other debt expense increased $2.3 million to $19.3 million for the quarter, primarily as a result of higher weighted average interest rates and higher average outstanding borrowings.

Capital expenditures for the third quarter of 2014 totalled $34.3 million compared to $26.9 million in the prior-year quarter. Year-to-date capital expenditures totaled $94.3 million versus $79.9 million in the prior year. Additionally, we paid a quarterly dividend of $0.15 per share in September with a total cash cost of $9.7 million, and repurchased shares during the quarter for a total purchase price of $16.9 million.

I will now give you some specifics around the financial performance of each of the three business franchises. The metal container business recorded net sales of $827.7 million for the third quarter of 2014, a decrease of $3.4 million versus the prior-year quarter.

This decrease was primarily a result of lower unit volumes and the financial impact of customer contract renewals and extensions, partially offset by the pass through of higher raw material and other manufacturing costs. Volumes were lower year over year as a result of declines in core vegetables and soup, partially offset by volume gains in Europe and a stronger tomato pack in the US. Foreign currency was neutral for the quarter.

Income from operations in the metal container business was $112.2 million for the third quarter 2014 versus $108.3 million in the same period a year ago. The increase in operating income was primarily due to lower manufacturing and depreciation expense and better operating performance in Europe. These gains were partially offset by lower unit volumes in the US and the impact from customer contract renewals.

Net sales in the closure business increased $55.8 million to $241 million for the quarter, primarily due to an increase in unit volumes due to the inclusion of Portola and an organic volume improvements in both the US and Europe. Foreign currency was neutral for the quarter in this segment as well.

Income from operations in the closure business for the second quarter of 2014 increased $4.6 million to $27.7 million, primarily a result of the inclusion of Portola. Net sales in the plastic container business were $159.7 million for the third quarter, an increase of $8.1 million versus the prior year quarter as volume improvements and the pass through of higher raw material costs were partially offset by unfavorable foreign currency of $1.3 million.

Operating income increased $4.5 million to $13.1 million for the third quarter of 2014. This increase was primarily related to lower manufacturing and depreciation expenses, a customer reimbursement for project cost, and an increase in volumes. These gains were partially offset by higher rationalization charges in the quarter.

Turning now to our outlook for 2014. Based on our year-to-date performance and the outlook for the seasonally smaller fourth quarter, we are narrowing our estimate of adjusted net income per diluted share to reflect a $0.10 spread in the range.

As a result, we are providing fourth-quarter 2014 estimates of $0.51 to $0.61 per diluted share and full-year estimates of $3.10 to $3.20 per share, each of which excludes the impact from certain adjustments outlined in table B of our press release. These estimates compare to prior-year results of $0.40 for the fourth quarter and $2.74 for the full year, which represents a 13% to 17% improvement year over year.

We continue to forecast free cash flow generation to be approximately $200 million as we continue to invest in the areas that will benefit the Company over the longer term, and we continue to manage our working capital to an efficient and sustainable level. In addition, we continue to seek capital deployment opportunities directed at yielding the best possible return for our shareholders.

As a consequence, we continue to view an internal capital investment and acquisitions as the best use of our cash flow. That concludes our prepared comments so we can open it up for Q&A. I will turn it back to Jessica to provide directions for the Q&A session.

(Operator Instructions)

We'll first go to Chris Manuel from Wells Fargo.

Good morning, gentlemen. A couple questions for you.

First, could you maybe talk a little bit about what the differences were in the volumes globally? And particularly in the food side and in the plastic side we're looking at in particular? But it sounds like there was quite a difference between Europe and North America. And maybe an update as to how the borders and things are going there for product as well?

Sure. So I guess -- well, we will hit foods since that your main part. You're right that Europe -- and I can cover this more and I know we will get a pack question -- but Europe was strong, double-digit volume growth on the quarter. That is a combination of a strong pack, which was really good throughout our regions in Europe. And as we continue to build the new plants, we're getting benefit on volume on that side.

And so we're down in the 3%-ish range in the US, which we'll talk more about. That gets you to that net down 1.5% combined for food cans.

As the border issues, so far as to volume, it probably helped us a little bit, and some of this is speculation, but the pack volumes in Russia were strong. I think it would be logical to assume that anybody who could pack in that region for food would, given the import restrictions. And so, really not a huge impact on that. I would say we are beginning to see -- and there's a little bit more on the closure side -- but you are beginning to see some markets where there was export into Russia where we're now starting to see some slowdown on that. But that's not heavy in the quarter. That probably has a little bit more as we look at Q4 and out forward from there.

Okay. Could you maybe give us -- I know this is a tough question -- a sense of magnitude as to what that might be? Are we talking about, as we look across the closures platform, something that might be a 1%, 2% volume headwind for that type of --?

No, it's not that size. I am giving you a complete answer rather than trying to signal anything of meaning. It's something we ought to climb over, but it's not anywhere near that magnitude at that point.

Okay, that's helpful.

Last question. From Bob's prepared remarks, it sounds like you mentioned preferred use of the cash rate here are acquisitions and internal funding elements. It sounds like repurchase is probably not something that's on the table right now. Could you maybe give us a sense as to how you're feeling about acquisitions, and thoughts regarding -- are there things out there that you're finding that are attractive right now? Or likelihood that you will be able to get some things accomplished, say, in the next 12 months or so?

Yes. I think the underpinning here is that not a lot has really changed in our thought process. As we look forward to the end of the year, our leverage will probably end up, given the free cash flow generation that we would expect to generate here, to the lower end of our range.

There is quite a bit of activity in the M&A market right now. As you may know, there are also some larger properties that are coming to market. We would have some interest in looking at any and all of that activity. We certainly have room on our balance sheet, given where the leverage will end. None of that necessarily means that a deal will get done. But given that there is activity out there that we think may have some opportunity to fit our platform, we're taking every opportunity to make sure we run the traps on that. In the absence of that, then we'll turn our attention to some other form of return in capital, which is what we have historically done.

So I think right now -- and we've said this time and time again -- that we're going to be very disciplined about the approach we take to spending capital and look for opportunities, first, to build the platform and earn good return, and then in the absence of those opportunities over the longer term, return capital to shareholders.

Okay.

Chris, this is Tony.

Bob said it, but just to be clear, you shouldn't read anything we may have said as a shift in our opinion about acquisition versus buyback running out. It's same old. It's exactly where we have been in the past.

Okay. Thank you.

And we'll now go to Debbie Jones from Deutsche Bank.

Hello, good morning.

I was hoping you could give us some color on the Van Can Company acquisition that you did, and how that fits into your strategy?

Sure. First of all, a little bit about Van Can. They were a small can player in North America with two main production facilities. Their revenue last year was about $40 million. Big market areas for them is around protein, so chicken or fish. And then they do chafing dish heating cans, and those are the two larger market areas that they have. Two plants. One in South Carolina, one in Tennessee. Both fit well into our system.

And so the strategy around this, if you will, is basically just that we see opportunities wherever possible to consolidate the can business. We've got unprecedented knowledge around cans that we can bring to the business. But we also think there is good people in those plants that fit in well with our system. So it's, for us, just a nice synergistic fit to what we do.

Okay. Thanks, that's helpful.

And I guess, my last question should be on plastics. How is it that your performance versus expectations, your margins improved nicely, volumes are up pretty significantly. And I am just curious, what you think you can do going into 2015 as well in that business?

Sure, Debbie. It's Adam.

I think we feel pretty good about where our plastics business is and the progress we've made thus far in our portfolio rebalancing and the go-forward direction of that business. As you mentioned, volumes are up about 5%. So, one thing I will say there is that we are now fully cycled over one of the larger legacy losses that we had been talking about in that portfolio rebalancing. So that fell off at the end of Q2. So you're getting a better look at the base business.

And I know we've said this before as well: it's going to be a little lumpy going forward. Sometimes we are going to feel better about certain quarters than others because we will have more wins versus losses. This happens to be one of those quarters where I think we are feeling a little bit better about the business.

Regarding the margin expansion that we saw, we did have a partial reimbursement for project costs that we incurred for a specific customer who decided not take an end product into the market. So what I'd tell you about that is, just it's not unusual that we'd have a customer with that obligation contractually. But it is a little bit unusual that we got that far along in a process and had a project canceled that late in the game. But it did happen, and so that's what was reflected in the third quarter.

As we go forward, I think I'll just repeat what I said: it's going to be a little lumpy with wins and losses offsetting each other. Hopefully more wins as we go forward, but I think the strategic direction the business has set is paying dividends now and we expect continued growth going forward.

Okay. Great. Thanks. That's helpful.

Our next question comes from Adam Josephson from KeyBanc.

Thanks. Good morning, everyone. I'll ask the obligatory pack question since no one else has.

You mentioned on the last call that the pack in the Midwest was running a bit late. Obviously, you mentioned in your press release that you are experiencing an early end to the pack season. Tony, Bob, can you walk us through what happened exactly?

Sure. Just to be clear for everyone else, the Europe was good. Probably about as good as you could hope. That's part of the pack. The more important in terms of scale to us is on the US side, so everything else I say will be dealing with the US pack.

In total, our view for the year is the US pack will be down for the year and it was down on the quarter. So the part that everybody seemed to know and understand is that the tomato side was good and that is true. Tomatoes were good on the West Coast. They were even better to the extent that they are grown in the Midwest. We are a little underrepresented in the Midwest. We are more represented on the West Coast. But despite the drought, et cetera, very good on tomatoes, so we were up 5%-ish number. Some people will read bigger harvest numbers on that in tomato -- and we've talked about this before. But one of the things is not all that goes into can. A lot of that goes into bulk, paste, et cetera.

And so, for the future, if you read about a blow-out tomato pack, I would just encourage everybody to understand that only some amount of that overage is going to get canned. The good news is that usually works on the bottom end, too, and we always say that we are somewhat protected on a bad pack unless it's right at the time of harvest. But short of that, there is always access and so there is enough for the cans, too. So you just tend to be more around norm on tomatoes.

And then fruit was particularly bad. West Coast, again, here. Yields were very low, particularly the late variety on fruit. So that was, again, a West Coast, not a good pack for us at all this year. And then in the Midwest, which is closer to your question -- what we had said on the second quarter call is that things went in late. It had been very cold Northern regions and then it had been very wet, you may recall, Minnesota, Wisconsin. So both peas and corn kind of got a late start to it. And as we said on the second quarter call, the only import of that is it tends to put you in later into the season typically where you worry more about frost. And as it happened, we had -- in mid-September, there was a soft frost in the Northern regions. Again, in early October there was a soft frost.

So there never was a hard frost where everything stopped. But what happened is yields started coming down as you got these soft frosts. And so, finally, just the yields were too low and most of our customers pulled off from going any further. So that affected corn and the peas on the late side and a cool growing season.

And then, finally, I would just add one other one. Which is, we have one of our large pack customers was going through an ownership transition at the same time. And that customer chose, for reasons I am not even sure I can answer entirely, but chose not to promote this year on their products. And so, in addition to all these growing things, we had one pack customer who just was not promoting and we saw some volume impact on that side.

I think the net of all that is, you'll find we are probably a little overrepresented on the shortfall on pack this year than the rest of the market, and so it ends up being down off of what was not a great pack last year, most of which we look at we think there is some opportunity for improvement on a more typical year going forward from here.

Thanks, Tony. And just a couple others.

One on soup. You mentioned it was down. How much below your expectation was it? And what would you attribute that shortfall to, or the weakness to? Obviously, your large customer has been dealing with ongoing difficulties in growing their soup business. But can you just elaborate on the soup volume decline?

Sure. First of all, just for all of us, remember that the first part of last year, soup was quite strong. And we had said that we thought -- and it was coming primarily from one of our customers who had shut down one of their major filling facilities in the US. And so our feeling was that there probably was some inventory shuffle going on, logistical challenges impacting that. And so we're cycling a little bit against that in Q3. Less so than Q1 and Q2, but a little bit. So some of the volume shortfall was just that fact. And you'll recall, Q4 last year, that all reversed and it was a fairly soft year in Q4. And so I think there is an opportunity for us to be up a bit year on year in the Q4 of 2014.

But as to 2013, we were down partly because of that. Partly just the volumes have been a continuation of a long story. If you look at condensed soup, for example, it's used in cooking; less people cook at home. So there is just some long-term trend issues that our customers are trying to get at, reeducating consumers on the value of soup and the opportunities for soup. And again, we're somewhat hopeful over time that they will be successful, but our view has always been, this is going to be a flattish market in the nearer term. Maybe even a bit of decline. So I hope that helps you.

No, thanks, Tony. And just one for Bob.

Just on cash flow, working capital year to date, a bit more of a drag than a year ago. Any concern about your ability to hit your free cash flow guidance based on that?

No, not really. I think what you're seeing is just more about timing of where we came out of the year, at a low point, building through the year. Keep in mind that we did pull out a fair bit of working capital at the end of last year. Our target this year is to see a little bit of a benefit this year, but certainly not to the order of magnitude. So I think what you got is just some timing there, and that will come back around in Q4 and that's reflected in our guidance.

Thanks, Bob. Thanks, Tony.

We'll now go to George Staphos from Bank of America Merrill Lynch.

Good morning. It's actually Alex Wong sitting in for George.

Maybe to start out with: with regards to Europe, I know we're still early in 4Q, but are you seeing any change in activity? Seasonally adjusted? Whether it's slowing, stable, or accelerating? Or your expectation for Europe?

Sure. Thanks, Alex.

Look, first of all, we are watching the economy like everybody else. I think I would put us in the cautious camp on Europe as we go forward. There is not much I can tell you in our numbers that show that right now. In fact, as you can tell, we had quite strong numbers thus far. So that's just partly on, it makes sense that you got to be a little concerned.

I also think the cycling against this year will be hard next year, just because of how good the growing season was. So as I sit here right now, I think it will be a tough comp for us in Europe next year in any case. And then we just got to watch the Russia-Ukraine issue, the Jordan-Syrian issue. Those, this year, really, as I said, didn't have much impact. It's a little hard to figure out what that might mean for 2015.

No, appreciate that.

And then just following up on pension expense for next year. And it's still early read. But based on where rates are, or given estimates, we're thinking $2 million of increase. Any color you can provide on that?

Yes. I would say it's hard to tell for a couple of reasons right now. But based on what we see today, I would say the numbers that you're thinking about are a little bit on the light side -- maybe a lot on the light side, depending upon what happens. We have got a couple of things that will be headwinds for us. One will likely be the discount rate, which will run against us at least as we look at it today. There is also some proposed changes to the mortality tables, which could have a meaningful impact. I would say, worse case, if everything cuts against us, we could see a headwind that could be $5 million or $10 million.

None of that, the mortality table changes, have not been finalized, and we'll have to wait and see where the discount rates end up at the end of the year. So somewhere between $0 and the $10 million is probably what we're looking at.

That's very helpful. And then just last question here on the closure margins.

Given 2Q and 3Q performance, should we assume that 4Q margins will also be down the range of 100 bps or so due to the mix of Portola? And then, are there any other trends impacting closure margins other than the mix impact from Portola?

No. It really was the impact of the Portola acquisition. If you look at Q3, both of our US and our European businesses had very good quarters. So volume was up. Margins were in line with our expectations. And as we've said all along, the Portola business does bring with it a lower margin rate. So, as you add those closures into the mix, it brings it down. So I would expect that to continue going forward.

Great. Thanks so much. And good luck in the quarter.

We'll now go to Al Kabili from Macquarie.

Hello. Thanks. Good morning.

I guess, Tony, just your perspective on food can volumes? I hear you on the pack this year, but it also just seems that some of the other categories are a bit soft as well. And I'm wondering just your thoughts on if you think this is just the general malaise in packaged food that we are seeing everywhere? Or if the can is losing share? And why maybe you are not getting that trade down benefit perhaps as much this year as you might have had previously?

Sure. Thanks, Al.

I think, to be honest with you, our view is that this is what we expected, that there is not really a surprise. First of all, let's cover history here for a minute. That you had an increase in volumes last year, which we talked about, driven by a really strong pet growth number and some of the soup that we talked about, et cetera. So you had some growth last year. It's possible, excluding Van Can, that you will see some decline on the total for this year. The total of all that will be somewhat flattish, I think, over that time period.

And I believe we have always discussed -- I'm only talking about US on all that -- I think we've always discussed the can business seemed flattish. That it does tend to lose share of stomach over time, and that, that's been the norm, and that's as much because of the food consumption patterns. People eat out more. More fresh produce in store, et cetera. And so, I think that, really, this is just continuation of the same.

Against the point you make, pet food, as I just said, has been quite strong over a period of time. We view that as having an area that has been growing. I think the vegetable and tomato area have been flattish over time and just impacted by the packs and what happens on the growing season, and we spend a lot of time talking about that. But really it only moves us $0.10 on earnings year by year.

And then you look at the rest of the markets -- maybe soup excepted from that -- and it seems as we expected. I think soup does have a challenge that clearly our customers are trying to figure out. I think they do need to find ways to be more relevant to a new generation. I think, again, as I said, they are, our customers are finding ways to do that. We are also out as an industry trying to help educate and promote the great attributes of using food cans in the home. And so, I think, with a little bit of push there, you can probably turn it to holding flat to up a little bit. But that's our expectation for food cans.

Okay.

Well, we can take the cash from that and deploy it into the business to lower our costs, or elsewhere to drive return for shareholders. And that has been the history of Silgan from the beginning.

Okay. I appreciate that, Tony.

To the degree that soup, if it stays weak, where you're overweight, what can you do to, within your control, to maintain or slightly grow the earnings in the business? Is this where Can Vision 2020 comes in? Are there other few drivers that you have at your disposal within your control, given the trends?

Great question. Past is prologue. I mean, the story on soup I just gave you is not new. That has been the trend line for the last decade. The answer is that we continually work at our costs and drive down our costs. We continually -- what's a little new on that is Can Vision 2020, where we are really thinking more with our customer and with our suppliers, bolder things we can do to drive down the cost of the package and to enhance, if you will, the opportunity for our customers to grow that package in their mix.

And so, we are doing that as well. But it's really just getting at costs all the time. The package is, as we've talked around here before, it's so unique in its capability. It's a low cost way to deliver great food, long shelf life. So there is so many great attributes to the package. But try to drive down costs on that is a big part.

And then, as I said, educating the consumer wherever we can, and our customers can, of how good it is. If you ask most consumers, they think there's preservatives in a can. Well, there aren't. And so, the more we can help ourselves and our customers try to explain to people that there's no preservatives in a can, the more you can, I think, improve the prospects. We keep driving backing at our costs all the time.

Okay. I appreciate that, Tony.

Just if we can switch gears to closures. It looks like all of the segment performance year on year is driven by Portola. And I am wondering what the puts and takes were there? And what we may expect organically over the next year? And if we can see some organic improvement in that business? You talked about some caution around Europe to that point.

Sure. And it's Adam, Al.

I guess I'll go back and restate a little bit of what I said earlier. As we look at our organic business, both we were up in the US and we were up in Europe in the quarter. So both businesses organically had good quarters. The primary driver for the quarter's earnings increase was the Portola acquisition. So there is really no other way to look about it. But as we go forward, we continue to see really good opportunities in the organic business as well as the Portola business in the future, and our prospects for closures continue to be very strong as we go forward.

Okay. All right.

To the point on Europe food, and the comps get tough next year just given how good the pack was, what's your view on current supply-demand? We have lost some margin over the last few years in Europe. Is there opportunity? How are you seeing things from a supply-demand perspective? And perhaps regaining some of that loss margin?

Sure. Al, I'll answer this one and we will move to the next question.

But, again, remember that we are a little more Eastern focused. And so, in those markets, really you have got a case where there is a fairly unsophisticated domestic supply, and then you've got new entrants of ourselves and other multinationals coming in. So there is pretty good demand for that kind of Westernized quality of package, if you will. And so that's one-half of it.

I think if you look at the rest of Europe, it seems like it's a little bit better. I think it will take time. But I think you're beginning to see some rationalization and recognition amongst the industry that there has got to be a reasonable margin of balance. And so, I think you're seeing modest headway, but that will take time.

Okay. Thanks. I'll turn it over. Thanks and good luck.

And we'll now move to Mark Wilde from BMO Capital Markets.

Good morning.

Tony, any chance that we can get just a sense of what your utilization rate would be in the Western European can business?

Well, funny, we got asked that last time. It's very hard. You're talking about just ours in Western Europe?

Well, I am talking about -- and actually I'm thinking more in Eastern Europe and down into the Middle East where it sounds like you have had some facilities that have been underutilized. So I'm just trying to get a sense of where we're at right now?

Got you, yes. What I would tell you -- and the problem is you got individual lines for individual sizes and markets. And so, there is no one easy answer to that. But I would say that broadly speaking this year was a very good year. And so, we got fairly tight on capacity. If I take Russia, as an example, in the packing region of Russia we were extremely tight. You know, Jordan has definitely increased its utilization. Now, I could go a little bit more, but you are now seeing more filling happening as Syrian packagers are moving into Jordan to fill. And so, you're seeing advantage on that. So there is some capacity there, but it's becoming less and less available. So it's tightening.

But the thing is, remember, these were smaller plants we put in that need to have more -- at some point you need to increase the amount of lines, et cetera, to get full scale over the operating costs. And that's where the political issues become more sensitive, because then you got to think about, is it stable enough where I want to continue the path to put in more capacity in order to cover the overhead? And that will be the next step for us. And by no means are those easy decisions at this point.

Okay. All right.

And then one other question around cans, and that is -- just you mentioned again in the release this morning the impact from these renegotiated contracts. If we look out over the next two to four quarters, any further impact that you anticipate from more contracts coming up from a renewal?

Sure. I think we talked about it before.

What we did late last year that affected this year was a big group of our contracts. As it happened, they were coming up, and Can Vision 2020 forced a lot of conversations. But there are certainly some more contracts that come up and that we are trying to get covered so the Can Vision 2020 ideas can be spread throughout the market. So, yes, I would expect there will be some more in 2015. I would expect it to be a smaller number for sure. But there will be a little bit more.

Okay. And then the last question I had is just back on Portola. Is there any reason structurally, if we look out over two or three years, that the Portola margins should be lower than your legacy closures business?

Yes. I think fundamentally they -- it's a different market than our organic closures business. And traditionally, and certainly the dairy segment, the price points on those closures are indeed lower as well. But historically, they have carried slightly lower margin rates and that's what we would anticipate going forward.

And, Mark, this is Bob.

I think we'll close the gap from where we are today just as we wring out the remaining part of the synergies. But fundamentally, Adam's right, that the underlying margin is going to be slightly lower than where our vacuum closures sit today.

That does not mean the returns on capital are lower. Again, we think more returns on capital. So you are getting less dollar per revenue item, but then the capital is -- you're getting a lot of output off these lines, which is part of why the price is a little bit lower.

Same point, Tony, that you made about the plastics business, I think, in the past?

Yes.

Okay. Sounds good. Thanks.

And we'll now move to Scott Gaffner from Barclays.

Good morning.

Just following up on the renegotiated contracts. Have you seen anything with those customers where you're still renegotiating, where they're actually delaying purchases? I don't know if that's something they could even do as they don't carry that much inventory. I just wondered if that affected the demand from those customers so far this year?

Not at all. And by the way, we tend to -- because these are coming up as much as anything because of Can Vision 2020 efforts, you are not at the end of the contract where that makes any sense for them.

You are really proactively working with them to get a longer term so that we can make the investments that make sense down the road. So, A, I don't think they could. B, they really have no incentive in this case to do that.

Okay. And speaking of the investments you mentioned, I think you said before, you spent $94 million year to date on CapEx, and the last number I recall is that you thought you might spend $160 million on CapEx in 2014, which would be a pretty big number in the fourth quarter.

Do you have those kinds of projects in line for 4Q? Or is there something that's going to push over into 2015?

Yes. I think you're on it. We did indicate that we would spend to the higher end of the range. I think the good news is that we are seeing projects that will allow us to make those kind of investments. I think the timing of when the cash will actually go out the door will be determined here.

Do I think we'll get all the way to the high end of the range in Q4? There may be some opportunities there to scale back or have the benefit of not having the cash go out the door. But I think the projects are ultimately on the docket and will get spent over time.

Okay. And these are mostly projects related to cost reduction? Or how would you characterize these projects?

Yes. They're broadly, that's right. That they are projects to get at cost reduction. They may be logistical-based. They may be about the can itself. They may -- so there is a broad -- we're catching a lot with that answer, but it is all -- Can Vision 2020's whole point was, drive down the cost of the package to enhance its competitive advantage against alternatives. And so, it's all about cost at some point in there.

Now, you may end up with a better package as you go through that, as well. But the driver here was to make a more competitive package.

Okay. Last question around resin. First of all, what are you seeing as far as resin pricing? And if it does come down in 2015, historically, what has been your ability to maintain or even expand margins in a declining resin environment? Thanks.

Sure, Scott. I'll start with Q3. Actually, we did have just a slight headwind in Q3 across both our plastics business and closures business in 2014. As we sit here today, looking forward, there are also increases coming at us in Q4 as well. So it's always been a dynamic market towards the end of the year with primary resins on the run here.

But as we go forward into 2015, again projections vary, but I'll use your example of potentially a declining resin market. I mean, we have contractual pass-through of our raw material costs and those are increases and decreases. And the tricky thing about resin versus some of our other raw materials is that the rise and the rate of, and timing of the rise, which sets our pass-through, has to match exactly, essentially, the decline and the timing of the decline for us to be neutral. So there is always a little bit of movement on either side of that. But for clarity, we pass through both the increase and the decrease to our customers as we experience it through our pass-through mechanisms.

Okay, thank you.

We'll now move to Chip Dillon from Vertical Research Partners.

Hello, good morning.

When we look at the closures business, can you just remind us of the seasonality aspects of Portola? Is that pretty flat throughout the year? Or does the contribution vary in terms of the top line?

The Portola acquisition, the business that we acquired, again, is largely a dairy-based business. And so, there is very little seasonality compared to the balance of our closure business and the acquired business.

Okay. And then I guess the second question is, you're up close to $1 billion in revenues there annually. When you think about -- I guess the closures businesses or industry is really a lot of sub-industries. And do you sense you have the capability to double that size maybe through acquisition without bumping up against any regulatory challenges? Or would that put you in a position where it might be challenging to double the business?

I think we, theoretically, we could do that. It's a very diverse business of closures. I mean, you just heard Adam talk about the dairy closure versus our legacy business was a vacuum closure. And so, they are very different markets, very different attributes. So I don't think that would be a particularly challenging thing to do.

Okay. And then I guess just a last one, a quick follow-up on the CapEx. Let's just say you pushed $10 million into next year. I would imagine that next year's CapEx would still not be down. So, let's say you did $150 million, $155 million. Could we see a similar number next year? And is that a sustained run rate based on the projects you see and based on your current footprint?

No. I think that you could -- first of all, I would encourage everybody to wait on this as much as possible until we get to the end of the year, and we are going to have a little more visibility on 2015 for everyone. But theoretically, that number could be up a fair amount more than that, depending on if all these projects start hitting and make sense for us and customers are moving forward at the pace we'd like to. It could happen.

Now, it's pretty clear in 2014 it happened a little later than we thought it was going to happen. I suppose it could push a little more. But it seems to me 2015 is going to get more of it.

Yes. Mark, just to maybe add a little clarity to that.

Remember, we've said that $120 million to $160 million is a good range to think about our base business. And that as we start to think about the Can Vision 2020 projects, that, that will likely, at least in the nearer term as those projects get off the ground, that will be incremental to that. I think it will largely depend upon where we are with some of the Can Vision 2020 projects with our customers. And that's really, I think, to Tony's point, that it could be incremental to the normal run rate.

And then a qualitative -- Go ahead, sorry.

Let me finish one other point, which is that we're talking about Can Vision 2020, which is a main driver. But we have also been talking for a while about our plastic business and the fact that we are going through a strategic shift to that business and pushing harder on the commercial side. So I also think that you're going to begin to see some capital spend as we gain confidence and win customers on the plastic side as well.

And when you think about some of the Can Vision projects, are they more required under your contracts? Or are they more of an opportunity, given that you have these contracts?

They are an opportunity given that we have a contract. And as I said, in many cases, we renewed the contract in order to give us the runway to make the investment in the first place.

No, there is really nothing about Can Vision 2020 that is required. These are way outside opportunities for us to make more meaningful changes to the package and the costs of the package.

Very helpful.

So it's in the contract, you're right, that there are some -- if we get more efficient, there is contractual obligation to share that, et cetera. But this is a very different kind of project.

I see. That's helpful. Thank you.

And we will now go to Ghansham Panjabi from Baird.

Hello, guys. Good morning.

Back to the acquisition commentary, Bob, that I think you had on the various properties that may or may not come to the market, how do you view diversifying your end markets as a priority for Silgan? I guess, would you consider moving your exposure away from direct consumer and package food and maybe beverage, into something more industrial in nature?

Well, I think we've been pretty clear over a longer period of time that we viewed our universe of where we would play as rigid packaging for consumer goods. I don't think there is anything about those markets that we would move away from. I think as to, are there other parts of that market that are different than what we have today, we wouldn't be opposed to looking at those. But I think for us to get too far afield from the rigid packaging for consumer goods is not where we're likely heading.

Okay. That's helpful. And then just given the Portola impact on closures, and just wondering if you could give us an update as to what the end-market distribution is for that specific segment now, in terms of beverage?

In terms of beverage, I would say the vast majority of those, of our closures, continue to go to the hot fill beverage. So you're talking about ready-to-drink teas, you're talking about nutraceuticals, isotonics, et cetera. The Portola acquisition, again, was largely dairy-based. So probably a heavy weight to the legacy closures business that we had and maybe a 25%, 30% of the business going to the Portola side.

Okay, and then just one final one on plastics. I mean, volumes were down eight quarters in a row for that business. You had a very, very good quarter from a top line perspective in 3Q. You mentioned that you've comped some market share losses or business that you walked away from. But was there anything else? Were there some big contract wins in that business specific to 3Q? And is that a good run rate going forward?

Well, what I would say is, we have had contract wins throughout the course of the year. We have been on this rebalancing the portfolio project for some time now. So we are seeing wins. Previously, you hadn't gotten to see the drop through of those wins as we were cycling over the legacy losses. So we feel good about that and where we are.

But as we go forward, again, it's just the timing of wins versus the timing of losses. And so I don't want to say plan on that rate going forward. But it all depends on the timing of wins and losses.

And the bigger wins take a long time. If you've got to make capital investments, et cetera, those could be a year, upwards, almost to two. So that's part of the thing -- we have a better sighting of what's in the backlog, if you will.

Correct.

And that's what has us keep saying, this is going to be very inconsistent, because we know that stuff is coming but we know it takes time. We know we're going to incur costs to get ready for it. And meantime, you got legacy, in some cases businesses we are walking away from, and other cases you got just the normal price challenges on that side. So it really will not be a straight line. And I know we keep saying it, but that's because we know it's true.

Okay. Thanks so much.

We will now if to Anthony Pettinari from Citi.

Good morning.

When you look at full-year earnings, if you exclude the impact of Portola and lower DNA, do you think about your underlying EBIT as flat for the year? And as you looked at 2015, this year you had some contribution from Portola, last year from Rexam. How do you think about the levers to grow earnings next year from a big picture perspective?

Sure. No, we don't. We would tell you we still see an improving year. You mentioned some big points to that. But it still is an up year, no matter how you think of those items.

But there was a lot we're doing this year that made it a modest growth on the EBIT line, right? As we talked about a lot, we've renewed a whole bunch of contracts for a long period of time in our can business, recognizing that's going to give us an opportunity to spend against that to drive returns on future projects, and to do what we always do, which is continue to take costs out, share some of that with customers with benefits, some of it on our side as well. We have invested a lot of costs into Can Vision 2020. We have invested into our Cans Get You Cooking -- industry promotion for the can.

And so we have made a lot of investments here that we think will drive improvements as we go forward. And so we actually look at the year and feel pretty good, given everything that was going on around us in terms of that EBIT improvement. But that is the nature of our business, right? We always know there is going to be challenges coming at us. We are the kind of people that we know this and we see those challenges so vividly, and then we just get to work at trying to figure out what are we going to do to work ourselves around that?

And that's why this budget process that we are not done with yet is so important, right? Because we know pension's going to be a challenge. We know plastics is going to be in transition next year. And so, that's clear to us. But we also know that we've got a long history of just looking internal and finding ways to overcome that. Some years it might be modest, some years it's better than that. But that's kind of the sausage-making that happens.

Okay. That's very helpful.

And given the contract renewals and Can Vision 2020, if you look at the three segments, do you expect maybe the most potential upside next year from the metal containers business? Or if you were to parse that into the three businesses, how should we think about that?

Yes. I'd love to get through that sausage-making first before I answer that, but I understand your question. I think that, in terms of raw dollar drop-through, obviously the can business is so big that, that's going to be an important part to any improvement period. I think on a percentage basis, my own view is I think the closures business has got some real opportunities for it. I think you're hearing us on plastics, that we just -- it's too hard for us to gauge right now whether the legacy stuff we're adjusting is more powerful in 2015 than the new stuff coming on. And we really don't know the answer to that. And we're really much more focused on the long-term answer there.

And then the container business, as I said, we assume there will be a little bit more contract stuff coming. This is the second pack year that was okay, but not great. I think that it's tempting to want to say, therefore, it will be better next year. We will probably want to hold our powder on that a little bit and wait and see. And so we have got work to do in there and we're going to keep spending on Can Vision 2020. So there are a lot of moving parts. But in order to move the number a lot, it's going to have to be in containers to a degree, in metals.

Okay. That's helpful. I'll turn it over.

And we'll now move to Alex Ovshey from Goldman Sachs.

Thank you. Good morning, guys. A couple of questions, Tony.

On the US food cans side, as you look at your manufacturing footprint and you look into 2015, do you think there is some opportunity there to continue to further consolidate the manufacturing footprint and drive earnings improvement that way?

Yes. I think there is opportunity for us to think about the footprint and the costs associated with that footprint. Remember, more so now than ever, we're thinking about the entire cost stream. So steel supply, to making of a can, to getting it to the customer, et cetera. So I think we are, rather than adjusting for our plants and can we further consolidate our plants, I think the thought is a little bigger here. But, yes, we are looking and thinking about the overall footprint. That is a possibility.

Okay. Got you. Thanks for that color.

And then on the plastics business, can you remind us what your end market exposure is? What I'm most interested in is food versus non-food, and just incremental color on what you are seeing in terms of end demand for the key categories in the plastics business?

Sure. I think if you look at the overall business, I think demand has been okay. It hasn't been a terrific year for demand. And if you go around the segments, I think the food business is holding its own. It's probably about on par with last year. I think where we've seen some good growth is a bit of healthcare and a little bit of our personal care products as well. But we're pretty well balanced around the wheel between those three categories as far as our exposure to those end markets.

And I think it's a good indicator for the general economy as our plastics business because we do touch multiple end markets. So I think we're essentially seeing a little bit of growth in a couple of areas and are right on the economic trends for the balance.

I think, in case this is the question -- because it came up in an earlier one and I didn't really address it -- but I think there is this broad question, is the consumer weaker and where are you seeing that, et cetera. We would say that the plastics business is where we tend to see that the most, and I think as Adam just said, we did feel it there. It's not as clear to us how we feel it in the can business. But we do think the consumer buying pattern is off and we do see that in the plastics side of that, as Adam said.

Got you. Thanks, Tony. Thanks, Adam. Appreciate it.

We will now go to Chris Manuel from Wells Fargo.

Good morning and thanks for taking a follow up.

A couple areas I wanted to focus in on. The first is, as you look forward into next year -- and I know this question was asked maybe a little bit different way -- if your CapEx comes in towards the middle-upper range, $150 million-ish, $160 million-ish, or something this year, that still would imply that you have had $75 million or so of growth-oriented projects heading in for next year.

That would be pretty solid of an EBIT bump that, that could portend. If there were some things that were to slide, as you suggested, which areas would it probably be in? Would it be more in the plastics side as you're continuing a repositioning? Would it be more in the metal side as you get after some projects now that you're getting a base set with contracts and such? Or would it be more on the closure side? How would we think about that?

I think the slide -- and the slide you're asking about is 2014 or 2015? Or if 2015 slides into 2016?

Well, for capital. I think of it, as you put the capital to work, you get a 15% to 20% return above your maintenance level for the next couple of years out of that project. So I am thinking, as I'm putting my own estimates together and assumptions, where might we see some of the return slide, or your capital spend slide come from, if that makes sense?

Okay. Well, the slide -- to answer the question, the slide will primarily come out of the containers business, I would think, because that's where there is the highest level of complexity around the projects we are trying to do, right, because we are trying to encompass customers and ourselves and new technologies. And that clearly is what slid in 2014. So I think that whichever period you are talking about, I think those are the most likely ones to slide.

Talking about metal containers or plastic containers?

Sorry, in metal containers. I am using our internal lingo there. Excuse me. In our metal container business.

Okay. And then what you're talking about for next year is potentially having something incremental beyond what the normal range is, whether that's for Can Vision or something else? Is that correct?

Yes.

Yes.

Okay. That's helpful.

Next question I had was, have you had any early discussions or color maybe from customers in the metals business, in particular, regarding what a pack might look like for 2015 and beyond? There have been some real water shortages and issues. And for this year, most of the folks had water locked up in out in the West Coast. Any color as to what they might think for 2015, given what they're able to procure for water and how that might portend to -- I mean, it's a lot of speculation there, but you see where I'm going?

I do. There is sort of two parts to the broad question you asked. The first one is the water part. So it is definitely on everyone's mind. This year, water was not that big of an issue. Bulk of our customers have access to well water. So it would require someone telling them they can't use well water before that is likely to become a major problem. Now, yields are a little hurt by the well water. But let's put that aside for a minute.

So we'd have to still advance the problem further from here before it becomes an issue. But it's clearly on everyone's mind. Now, this is a big industry for the West Coast. And so, that will be a hard decision for somebody if they get there. But that would clearly have real implication to us, if that did develop. I think there's early days on that question right now, though.

Okay.

The other part, I would just say -- because you asked the broad question -- anything else you know about the pack mixture. I did mention that we had a pack customer who was not promoting this year. It is our understanding that, that pack customer intends to get back to promoting next year. So you could argue that, that ought to be a bit plus to us, assuming that happens and they have some success with that.

Okay. Last questions, if I could.

I wanted to ask something about plastics again. And earlier you had referenced, in response to a question, that 2015 would continue to be a transition year for the business. And I was, quite frankly, under the impression, given some previous commentary you had, that if you didn't start to see some better returns out of the business sooner than later -- meaning this year and early next year -- that you might be thinking differently about it.

So, I guess where I'm going with my question is twofold. One, you had some pretty significant the lumps out the last few years out of the business. Are there more lumps that you envision happening over the next, call it 12 months? Or are we at a point now where we might actually see a few targeted adds to the business?

Well, there are adds in there. They have been, as Adam said, they are in the number but they have been modest. So, yes, I think we are expecting to see noticeable adds to the business, either new business coming on and investment against that new business, or actually seeing the returns from that. I believe what we said is that we thought if you weren't seeing some of the volume impact by 2015 and clear signs of volume gains in 2015, that's what we were going to be concerned about.

So I think that's what I believe has been the thought for a while. Certainly, that's our thought right now, is that you ought to be seeing volume coming through as we progress through next year, but again it could be projects coming in, investment against those projects. They may be bigger and longer term. But we'll certainly expect to be talking about those as they develop.

The other thing I would just say is partly because of the -- they had a pretty good year this year. And so, you also, if you talk about the growth from this year, you also have the issue that you are coming off a pretty good performance in 2014.

Okay, that's helpful. Last very quick question.

Could you help us quantify -- it sounds like in the quarter you had a one-time benefit maybe from a customer that didn't go forward, as you mentioned, with a project that reimbursed you for tooling or what have you. Could you maybe give us a sense as to what that was -- revenue, EBIT -- so we can think of what the base business would be like and as an on-going run rate?

Yes, Chris, as Adam said earlier, it is a contractual relationship. It's not uncommon for us to structure our contracts in that way, so that if there is this kind of event that happens -- and it does happen from time to time -- that there is recovery of costs there. And in this particular case, I won't go into the details about the customer and/or the product, but in this particular case, they chose not to take that product to market. And in the quarter, there is $2 million of benefit that's offsetting some costs over both in the quarter and in previous periods as well.

Okay. Thank you. Good luck.

One more point I'll make there, Chris, is that the reimbursement -- we did have costs that were in excess of the total reimbursement over the course of the project. So I don't want you to think that there is a big windfall in any particular period against it.

Okay. Thank you.

And we'll now go to Adam Josephson from KeyBanc.

Thanks for taking my follows ups. Bob, just one more on pension.

I know you talked about the potential increase in expense next year. Anything on contributions in light of the lower discount rates and changes to the mortality tables? I know your plans are basically fully funded and that your contributions this year are insignificant. But any increase you expect next year?

Yes. We really didn't have any contribution to speak of, at least against our US plans. Now, obviously, some of the more international plans we fund as we go, so there was some funding there. That will continue to be the case going forward. But as to the US sponsored plans, the change in discount rate and mortality table should have very little, if any, impact on our funding requirements, and we're expecting that we won't have any cash requirements next year, either.

Okay, thanks. And just one on M&A. Just a two-part question.

One is, how do you think of multiples today? Do you consider them inflated or not particularly? And the second part is, you have given the volatile economic conditions that exist today, how does that factor into your thinking in terms of where you might pursue acquisitions, particularly given what happened in Europe after you bought Vogel & Noot three years ago?

Sure. I think we would say that the multiples seem a little high to us right now. Now, obviously, your interest rates are lower and so you can afford a somewhat higher multiple, but they seem pretty high. It does seem like anybody who has anything to sell is trying to sell right now and that's usually an indication of something. So you got that as a bit of a challenge out there.

And then on volatility, I think it's pretty obvious, to us at least, that the risk discount for Europe, to pick a region, is higher than it has been at some times. Eastern Europe even more so. And so, that factors in, too. That doesn't mean you wouldn't do a deal there, but you just got to take a risk discount look at it.

But given how low discount rates are, you are saying that, that really offsets to some or a large extent the fact that multiples are a bit inflated at the moment?

I don't know if I would say it offsets it. Maybe I'll come back to more fundamentally how we look at it, right? Multiples have not necessarily been the metric by which we view acquisitions. It really goes to what the cash on cash returns are. Now, obviously, interest rates have something to do with that, and none of that actually factors in until you get to the risk side, right. So our view is still the same, is that we want to generate good returns on the cash that we're putting into the acquisition opportunities, and/or have opportunity to continue to invest in those acquisitions that will drive returns higher from where we start.

Thanks, Bob. Thanks, Tony. Appreciate it.

And we'll now go to Mark Wilde from BMO Capital Markets.

Hello, I have two follow ups.

One on FX. I was surprised in the quarter that you called out a little headwind in plastics, because I would think that the FX issues would be greatest in the other two businesses. I wondered if you can talk about that? And also, just how you're thinking about FX's headwind or tailwind as we move into 2015?

Yes, Mark, this is Bob. The impact really was around Canada.

Okay. That's what I suspected.

And movement in the Canadian dollar there. Not much really happened in the quarter, although we've seen a bit more of a move more recently that probably impacts Q4 more than anything. And most of that falls for us on the top line because, remember, we've got a lot of our funding or our financing in local currency as well. So we, probably different than many others, don't have a lot of FX exposure. Now, big swings, clearly from where we are, can have some impact. But in very few quarters have we ever had a meaningful move in FX on the bottom line.

Okay, that's helpful.

The other question I had was just going back to plastics, you acquired that Rexam business about three or four years ago. It seemed like a move that would reposition plastics a little bit because the end markets were a little different there. And it also sounded like that business had gotten off to a slow start up with you guys. I wonder if you could update us on that piece of the plastics business?

Mark, Tony.

First of all, I would say that our expectation for that business was always that it was going to be a fairly slow on the top line there. There had been expectation to grow in Europe or even internationally on that. That still sits there, but this is a high-priced, comparatively, product. And so, you really need a stronger economic time for that.

So from our perspective, what's happened instead is we've not had investment capital, which would have happened as it grew. And so, we have had pretty good cash flow from it and it has been pretty steady in terms of its performance. So we're pleased with that; I wouldn't put a sense of slow or anything negative around it.

On the end markets, it is a food business and some of the rest of our legacy plastics business are food businesses. But then the bulk of the rest of the plastics is more personal care and other markets. We are trying to grow in food on both sides. But as I said, on the Rexam piece, that's only largely going to come as there is international opportunities.

Okay. All right. That sounds good. Good luck in the fourth quarter.

And it appears there are no further questions. I will turn the conference back over to Tony for any additional closing remarks.

Great. Thank you, Jessica, for all your help, and thank you all for listening in. We look forward to talking to you about our year-end results in early February.

This concludes today's presentation. Thank you for your participation.