Silgan Holdings Inc (SLGN) 2015 Q1 法說會逐字稿

Good day, ladies and gentleman. Thank you for joining the Silgan Holdings first-quarter 2015 earnings results conference call. Today's call is being recorded.

At this time, I'd like to turn the call over to Kim Ulmer, Vice President and Controller of Silgan Holdings. Please go ahead.

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

Before we begin the call today, we would like to make it clear that certain statements made today on this conference call may be forward-looking statements. These forward-looking statements are made based upon management's expectations and beliefs concerning future events impacting the Company, and therefore, involve a number of uncertainties and risks, including, but not limited to, those described in the Company's Annual Report on Form 10-K for 2014, 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.

Thank you, Kim. Welcome, everyone, to our first-quarter 2015 earnings conference call. Our agenda for this morning will focus on the financial performance in the first quarter, a review of our outlook for 2015, and after our 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 in line with our expectations, as we delivered record adjusted earnings per share of $0.54 and continued to advance our footprint optimization plans in each of our businesses. We also completed the tender offer, buying back approximately 2.8 million of our shares, and increased our cash dividend by 7%.

While our consolidated results are in line, each of our businesses experienced their own unique set of challenges. Our metal container business continues to anticipate volume growth for the year, along with a shift in some customer fill locations, which presents significant logistical challenges as a result of capacity constraints at certain production locations.

Our closure businesses benefited from improved volumes and favorable resin costs and have done a nice job of integrated Portola operations and shifting the manufacturing footprint to better serve each of their end markets. Our plastics business continues to make progress in their footprint optimization program, but also experienced the negative effects from softer market demand and delays in implementing cost-reduction programs intended to mitigate certain contract price concessions.

Based on the impact from a significantly stronger US dollar and fewer shares purchased in our Dutch auction tender offer, we're adjusting our earnings guidance to a range of $3.10 to $3.30 per share. On the operational side, our overall expectations remain unchanged.

With that, I'll now turn it over to Bob to review the final results in more detail and provide additional explanation around our earnings estimates for the remainder of 2015.

Thank you, Tony. Good morning, everyone. As Tony highlighted, each of our businesses is underway with their respective footprint optimization plans and continues to deal with market specific dynamics. In the face of these challenges, results for the first quarter 2015 were in line with the expectations.

On a consolidated basis, net sales for the first quarter of 2015 were $816.6 million, a decrease of $39.2 million, or 4.6%, as revenue declined in each business, largely as a result of unfavorable foreign currency translation of approximately $34 million and the cessation of operations in Venezuela, which reduced sales by $4.4 million year over year. Net income for the first quarter was $33.3 million, or $0.53 per diluted share, compared to first quarter of 2014 net income of $31.5 million, or $0.49 per diluted share.

Results for 2015 included rationalization charges of $700,000, and a net loss from operations in Venezuela of $100,000, for an aggregate impact of $0.01 per diluted share, while 2014 included rationalization charges of $1.6 million, a loss on early extinguishment of debt of $1.5 million, and a net loss from operations in Venezuela of $0.5 million, for an aggregate impact of $0.04 per diluted share. As a result, we delivered adjusted income per diluted share of $0.54 in 2015 versus $0.53 in 2014.

While we continue to be insulated at the net income level from swings in foreign currencies, having financed the international businesses in their local currencies and maintaining a business practice of balancing out cross-border activity to help mitigate the effects of currency on our earnings, we did experience a slight earnings shortfall given the significantly stronger US dollar during the quarter. At this point, we do expect this to be the case for the remainder of the year and have revised our earnings estimates accordingly.

Interest and other debt expense decreased $3.7 million, to $16.5 million for the quarter, primarily a result of the loss on early extinguishment of debt of $1.5 million attributable to the repayment of approximately $300 million of term debt in 2014, lower weighted average interest rates, lower average outstanding borrowings, and the impact of favorable foreign currency translation.

Capital expenditures for the quarter totaled $48.8 million, compared to $27 million in the prior-year quarter. As we continue to advance our footprint optimization programs across each of our businesses and seek return-oriented investments within our businesses, we anticipate capital spending for the full year to be approximately $250 million. Additionally, we paid a quarterly dividend of $0.16 per share in March, with a total cash cost of $10.3 million.

I'll now provide some specifics on each of our three businesses. The metal container business recorded net sales of $458.9 million for the first quarter of 2015, a decrease of $9.5 million versus the prior-year quarter. This decrease is primarily a result of the impact of unfavorable foreign currency translation of $12.7 million, partially offset by the pass through of higher raw material and other manufacturing costs, and approximately 2% higher unit volumes, principally due to the recent acquisition of the Van Can operations.

Income from operations in the metal container business increased to $40.7 million for the first quarter of 2015, versus $40.5 million in the same period a year ago. The increase in operating income was primarily a result of the larger inventory build in the first quarter of 2015, as compared to the prior-year quarter, foreign currency transactional losses incurred in the first quarter of the prior year, and higher unit volumes. These benefits were partially offset by higher manufacturing costs, due to logistical challenges from changes in customer demand patterns and the absorption of new volume associated with the Van Can acquisition and a less favorable mix of products sold.

Net sales in the closures business decreased $15.7 million to $198.1 million for the quarter, primarily due to the impact from unfavorable foreign currency translation of $17.2 million, the cessation of operations in Venezuela at the end of 2014, resulting in a $4.4 million impact on sales, and the pass through of lower raw material costs, partially offset by a 2% increase in unit volumes.

Income from operations in the closures business for the first quarter increased $3.8 million, to $21.6 million, primarily as a result of higher unit volumes and the favorable impact from the lag pass through of lower resin costs, partially offset by the impact of unfavorable foreign currency translation.

Net sales in the plastic container business decreased $14 million, to $159.6 million in the first quarter of 2015, primarily as a result of the weaker demand in markets served, resulting in a 3% decline in volumes; the unfavorable impact from recent longer-term customer contracts; the impact of unfavorable foreign currency translation of $4 million; and the pass through of lower raw material costs.

Operating income decreased $3.6 million to $9.2 million for the first quarter of 2015. This decrease was primarily related to lower volumes, the unfavorable impact from recent longer-term customer contract concessions, as well as delays in implementing certain mitigating cost-reduction programs, and the impact of unfavorable foreign currency translation. These items were partially offset by the favorable impact from the lag pass through of lower resin costs.

Turning now to our outlook for the remainder of 2015, based on the impact from a significantly stronger US dollar and fewer shares purchased in the Dutch tender offer, we are adjusting our earnings guidance to a range of $3.10 to $3.30 per share. To be clear, we continue to believe our operations will perform within our original range and are only adjusting for fewer shares purchased in the tender and the impact of foreign currency. This estimate excludes the impacts of rationalization charges and compares to prior-year adjusted net income per diluted share of $3.17.

We're also providing a second-quarter 2015 estimate of adjusted earnings in the range of $0.65 to $0.75 per diluted share, which excludes rationalization charges. Consistent with our year-end guidance, we continue to forecast free cash flow generation to be approximately $100 million, largely a result of incremental capital spending in 2015, directed at optimizing our manufacturing footprint, along with the construction of three new operating facilities.

That completes our prepared remarks, so we can turn it over for Q&A, and I'll ask Katie to provide the directions for the Q&A session.

(Operator Instructions)

Adam Josephson, KeyBanc.

Good morning, Tony and Bob, I hope you are well. Bob, one on resin, can you quantify the benefit you experienced in the quarter and talk about any future benefits that you might be expecting?

Sure, Adam, it's Adam. For the quarter, resin and our plastics business was about $2 million favorable in the quarter. As we look out into Q2 and beyond, right now there are market increases in our base resins for Q2, so we anticipate increases in our resin costs and, therefore, no real benefit. In fact, a headwind as we look at our plastics business going forward into Q2.

Thanks, Adam. Just a couple others.

One, in terms of the California situation, are you -- to what extent are you guys concerned about the potential impact of the drought on the process tomato crop this year, acknowledging that the crop last year was tremendous? And along those lines, anything in terms of early indications about the midwest crop?

Obviously there's a lot of press about the drought situation out in California, so we're obviously watching it pretty carefully and talking to our customers. I think one thing to note is that the tomato crop in California is irrigated and they have underground wells that they have access to. They utilized those last year and, as you indicated, they had a pretty good growing season.

I'll point out that that doesn't always necessarily translate to canned volume. What that means is they typically fill the canned volume first, as that's the high-value product line for them, and everything else kind of goes into the bulk market. So our view right now, unless anything legislatively changes around the use of water, that we're expecting the tomato crop to be okay.

As we look at the broader pack situation, early indications are that fruit is probably down a little bit, and that the rest of the vegetable pack seems to be -- while there's puts and takes across the board, seems to be reasonable in terms of what our customers are expecting right now. I'll add to that, that many of our customers have increased the acreage that they are planting, so that gives us some hedge against the weather, if you will.

Obviously it's early days on all that.

Exactly.

Thanks, Tony and Bob. Just one, Bob, on M & A.

Can you characterize your M & A pipeline at the moment and the multiples you are seeing? And, more specifically, can you comment on your potential interest in beverage can assets if they were to become available as result of a pending acquisition? Thanks a lot.

Sure. There's a lot of questions in that question, but no question that M&A continues to be an important part of our strategy. We continue to look at all opportunities that are out there. We do keep an active pipeline, and look at pretty much any packaging asset that's going to trade, you should expect it, that we will at least take a look at.

The activity seems to continue to be pretty robust. Some of them are of size, some of them have been pulled more recently, as well. I think there's no question that the valuation expectations continue to remain high as perspective sellers kind of look at the public multiple as comparisons.

I think the flip side of that is that we continue to be in a very low interest rate environment. So as we have said in the past, multiples are only one metric. We kind of focus on the discounted cash flow aspect of it. And so where we have synergies and can finance a property at longer term low interest rates, we believe we can be competitive, and would look to take advantage of that. We do have plenty of capacity on our balance sheet should those opportunities come about.

That said, we'd be very comfortable within our discipline of doing, both on acquisitions or returning capital to shareholders, where that makes sense. I don't think there's really much of a change in terms of what the landscape looks like from what is out there and what's available.

To the one property that you asked specifically, we've said, pretty readily, that our interest is in rigid packaging for consumer goods. There's nothing about beverage cans that we think are problematic, or don't meet that criteria. But remember, the second part of our investment criteria is that we look for opportunities where we can earn a good return and create shareholder value. So price will be an important part of whatever it is that we are looking at, and that would be the case for that asset, as well.

Thanks a lot, Bob, I really appreciate it.

Ghansham Panjabi, Robert W. Baird.

Hi, good morning, this is actually Matt Krueger sitting in for Ghansham. How are you?

Can you provide some additional details on the larger inventory build that you guys called out in the metal container segment? Why the larger build, and how significant of an effect did it have on the quarter? Also you referenced changing consumer demand patterns in the segment, as well, can you expand on that?

Sure. Two parts to that. On the inventory side, it had some $2 million to $3 million net impact in the quarter.

The reason for the build, there's some similarity in these two answers, the reason that we're building inventory is we're going to be very tight on capacity this year. We had talked in the year-end conference call about the fact that we've had some customers shift their fill locations, and that has resulted in us having to shift, obviously, where we make cans for our customers, and so that's tightened up our system in certain locations. That's part of what is driving the higher costs that you see in the quarter, offsetting to some degree the inventory benefit.

So, to answer both of your questions, that we have got this shift going in terms of where we are filling, it's tightened up our capacity. And the way we deal with that, partly, is we have to make the inventory in the first quarter so we're ready for our busy seasons in Q2 and into Q3.

Okay, that makes sense. Also, the next question, given the pending IPO of Ardagh's metal packaging business, what are you guys seeing in terms of the competitive environment both in Europe and North America?

Yes, I think competitively what we're seeing is really not a lot has changed in terms of what -- and I'm speaking more to the European environment right now. As we have talked about before, we are focused more on the eastern markets, so we don't necessarily see as much competitive activity from the more western European competitors. So for us it's been more of the same. The business there has been performing well, volumes have been pretty good, our core customers in central Europe are seeing positive results around fish and pet food, which has been helpful.

Jordan Valley has been improving, largely as that's becoming more and more of a bread basket for the broader middle eastern market, and Russia continues to do okay from a volume perspective. So right now we're pretty pleased with the overall performance of the European business. Just speaking to the US business, obviously we're tight on capacity, as Tony just indicated. Some of our other competitors are in the same spot and/or ramping up volumes for particular customers, but there's not really been a lot of change to the competitive activity in that business either.

Okay, great, thanks. That's it for me.

George Staphos, Bank of America Merrill Lynch.

Thanks for the details on the quarter. Good luck on the upcoming quarter. I guess, a couple of things. First of all, can you talk about what was driving the delay in some of the cost mitigation efforts within the plastic business, Adam?

Sure. When you look at really what happened in plastics, again, as you have heard on the prepared remarks, as well as in the press release, there are a couple of things happening at the top level of the business. We had our volume softness in the organic business.

The good news there is that the new business awards that we've been awarded did come through as planned. So it was really the base business, again, without any loss of customers or loss of business, the base business was down by about 3%.

The second thing is you had the price concessions that we talked about at the year-end call with, really, three of our largest customers, and those price concessions, George, go into effect January 1. So that is an important point because those cost mitigation efforts against those price concessions, that's where we're delayed, and we did not get the costs out on January 1 when the price went down.

So the good news is we're making progress towards getting those fully implemented here in the second quarter. We think we'll be at the run rate by the end of the quarter and, therefore, you will see a back-half savings as we had expected. But really the issue was amongst all of our cost reduction programs that we normally have in place, we just were delayed in getting at the specific programs to offset the price concessions.

Okay. I mean, not to overdo Adam, so the fact that volume was a little weak meant that maybe you didn't get quite the operating leverage from these cost reduction programs. Or was there something else that was off from a timing standpoint?

Mostly it's a volume weakness. Again, you have got a pretty fixed overhead across the platform and when you take volume out there's pain that's felt across the network with lower volumes, and you are just not absorbing those costs appropriately.

Okay. Now, going to the metal container business for a little bit, your profits were relatively flat, slightly up year-on-year, you went through a number of the factors that are affecting you, and certainly you have a lot of the logistical problems that you called out this quarter, and obviously last quarter as you're looking out to 2015. You also enumerated a number of factors that seemed to be driving a good performance thus far, recognizing it's early in the European food can business.

So would it be safe to say that US metal container profitability will be down this year? Is there a way to size it broadly with percentages, again, recognizing that most of it is just logistics and you should hopefully have this resolved by 2015?

George, the answer -- the simple question is no. It's not our expectation that it would be down this year. It is our expectation that it won't be up a lot in the US, even though volumes will be up. So a lot of what we're trying to doing is just make sure everyone is prepared for that fact, that you got a lot more volume coming in.

By the way, a lot of that volume came from a Van Can acquisition that we made for a relatively low purchase price, because that business was losing money when we bought it. So it came in and it wasn't -- you get the volume affect of that, but don't get a lot of drop-through until you drive the costs out of the acquired business. And then you have what we talked about, which is the inefficiency of the shift of our customers, the tightness that's created in our system which we saw coming at us. So really what we're saying is that it could be kind of flattish on the US, even though you will see up-volumes, and that's sort of more the dynamic.

Okay, Tony, thanks for that.

One thing I had as a question again, mostly around the metal packaging business, but to the extent that it relates at all to the other business, I would be interest in your answer and I'll turn it over after this. Have you seen any significant change in co-packing trends?

Are there any positive implications or, not for the growth of your business? Specifically, are you seeing more co-packers getting into the market where perhaps they'll do filling in cans or filling in plastics, or filling in other substrates, and how, in turn, does that relate back to your existing business? Thanks.

Thanks, George, you got Bob, Adam and I looking at each other to see if of us have another thought on it. No, we're not.

There could be one off that you think about, but basically we're not seeing any kind of cross-trend of shifts in that. Our fill -- again, just to be sure we're being clear -- our fill locations shifts that we talk about containers, was very specifically about customers, big customers moving where they're doing their fill. But, really, there's not been much change in terms of whether the customers are using co-fill or they're doing their own fill, throughout all of our businesses.

Okay, no, that's helpful. I wasn't relating it to the midwest project, but more of a broad question related mostly to metal containers. Thanks, I'll turn it over.

Chip Dillon, Vertical Research Partners.

Good morning. Looking at the plastic business where you had the contract renewals, were those split between sort of the Legacy plastic businesses and the operations acquired from Rexam, or were they tilted more toward one or the other?

They actually were all relating to our Legacy plastics business.

Got you, okay, that's helpful. And then looking at the -- you mentioned the pressures, obviously, from the shift in where companies are filling their cans, your cans, I should say, they buy from you. As we sort of see this taper off as we go through the year, or is it sort of going to be step function where we'll see your, I guess, costs come down once you have done the realignment of your footprint, I guess, next year?

Yes. It's the latter, it will not taper off this year. In fact, if you recall, the way our business works is that we can't -- we don't even have the capacity for our peak season.

So we're suffering some now, but that inefficiency will really be on us as we get into our peak season, if, in fact, we have not built all the right inventory in the right spots. So we're viewing that as a full year effect and it really won't lessen much until the new capacity is on-stream.

Okay, and then this last one is sort of a big picture, but I believe it's been about three or four years since you developed the Can Vision 2020 Program. And can you sort of tell us where you feel -- what the progress has been so far, and sort of what you expect as you go forward?

Sure, thanks. I think it's a little less than that, although, in truth, internally it probably has that kind of life to it, I'm not sure we came out publicly on it that quickly, but we still feel very good about where it's taking us. I think I've talked before, there's different components of it, there's the really kind of basic logistics side of it, which partly led to the new plant we're building in Iowa. So that's where we looked hard at kind of where do we fill cans, what costs are freight, how do we optimize that system? And we've done -- that's only one example.

There's warehousing examples, there's freight system changes that come from that, so there's a pool there. There's a pool around taking technologies that we already have and know, and then making sure that those are employed at every customer we possibly can. So that means that we got to go through the process, customer by customer, of convincing them it's worth the time because they have to change, and we have to make change. So some of it is just the hard work of getting that through customer by customer, and we're making good progress on that, and that will go on for some period of time.

Then there's the part of this that is around light-weighting of cans, and it's a little broader than that, it's changing the geometry of the can, or the chemistry, perhaps, of the can. So that's -- there's a bit of a technology component to that. We're pleased with the progress of that side, but that is more development in nature and so that's going to be slow, and slow to roll out to the market and get commercial acceptance of it.

So those are kind of the broad categories I would put on it, and I would say that we feel very good about the progress so far. It was named Can Vision 2020 for a reason, which is we knew this was going to be a very long-term effort in order to get at it, so, so far, so good.

That's very helpful. So the way to think about it is, the light-weighting and the thinner calipers, etcetera, and the geometry is more on the back end of that process?

In terms of new technologies around all of that. As opposed to, we may have light-weight capabilities today that's not employed at every customer, so you get some benefit just by getting that into more customers. And then if you talk about technology changes around what a can is capable of doing, that would be further out.

Okay, that's helpful, thank you.

Chris Manuel, Wells Fargo.

Good morning, gentlemen. If this is already asked, I apologize, I jumped on the call a few minutes late.

But, when you are thinking about some of the stuff that is happening in the plastics business, you are getting some cost savings, and some more coming through. Is that something that you can offset the pricing and the other work, the puts and the takes there, that takes one, two, three quarters, or might this take kind of a year to get back to where you want to be there?

Hello, Chris, it's Adam. A couple of comments.

One, the price concessions that were made, the cost mitigation efforts that we have against those specific price concessions were going to offset just a large chunk of it, it won't offset all of it. So obviously we have other cost mitigation efforts that we have going through the system at, really, any given time, but the specific ones against the price concessions only offset a portion of it. As I mentioned earlier, we're probably not going to see the run rate achieved on those cost savings for those specific projects until the third quarter, towards the end of the second quarter. So we'll get a back-half effect of those savings.

Okay. So, just for background purposes, where are you seeing the most price concessions?

Is that centered in certain areas, personal care? Is that in food? Is that in -- where are you seeing that?

Really, these are three of our largest customer contracts in our Legacy plastics business, so it covers healthcare, it covers food, it covers personal care. So it's more about customers than markets, I would say, and, again, those price concessions were in exchange for significantly longer-term contracts. And as we talked about the strategy of our business, one of the items was to focus on specific target markets and partner with our customers that, either we secure our own business with, or we have significant opportunities for growth, and that's exactly what these contracts allow us to do.

Okay.

To be clear, in two of those cases they were giving us future volume opportunities for longer-term growth with customers who we saw strategic for our future. And that was part of it. It's not reacting to a market situation, so much as it is looking forward and saying where do we want to be, who do we want to do it with in the future, and to some degree, what's the right footprint to service that business?

Okay. That's very helpful. Thank you, Tony.

So two last questions. One, I think you kept your free cash flow guidance, but any adjustments within working capital given a few of the changes in material costs, or how you might think about that a little differently? It's kind of the puts and takes within there of you lowered the earnings numbers a little bit but kept your free cash flow guidance.

Yes, I think as we indicated coming into the year, we expected there to be a little bit of friction on working capital just because of some of the inefficiencies we have across the system, that we would probably build some inventory. So no real change to that from that perspective. I think what's offsetting the reduction in the income level is taxes coming in a little bit lower than we expected. And we may have an opportunity to manage capital by just a little bit, but those are all puts and takes, so there's really not much that's changed about the free cash flow guidance right now.

Okay, that's helpful. Then a last, kind of housekeeping question. The Venezuela being discontinued, is that -- that's $10 million to $15 million on the revenue side?

Yes, that's probably about right. It's about $4.5 million in the quarter so by the time you extrapolate that across the year, that's right. I'll just give you a little more detail there.

We have ceased operations there. All employees have exited. What's essentially left is the building. The building is listed with a broker for sale right now, it's got a total book value of less than $1 million.

We would expect to be able to sell it for more than book value. That remains to be seen, obviously that's a pretty difficult market. So we're not really looking at any future volatility around Venezuela, as we sit here today.

All right, that's helpful, thank you. Good luck.

Debbie Jones, Deutsche Bank.

You guys get the drought question a lot and I know it's already been asked, but I just thought it would be helpful. Could you quantify, or give some idea, of what your West Coast of California exposure is within your metals business? And has that changed over the last, call it, two or three years as your customers have kind of shifted their footprint?

Yes. I think as we have said several times, the biggest exposure for us in California is going to be in the tomato market. That's some fivish percent of what we do, so not unimportant, but not critical to the business.

And I think, as I said earlier on, given the irrigation and the wells that many of our customers deploy there, and the fact that typically what goes into the can goes -- they get to that first because it's high premium. We're feeling cautious, but a little bit protected.

Okay. And then the part about changing over the last few years, I was just wondering if you had seen some of your customers shifting their footprint?

Probably changed modestly, largely driven by -- and this would not necessarily be pack-related -- but changed a little bit with Campbells exiting the Sacramento facility. So it's down versus prior years a little bit.

Okay, thank you. Then my next question, just on the facility consolidation in North America has been a big focus in your metal food segment. I'm just wondering as we look out over the next three to five years, should we expect that this is kind of the direction that you, or the industry, will be going in?

Or do you see other opportunities for investment in kind of single facilities? Kind of what would kind of generate the best return for you kind of as you are looking at these projects?

We look at this all the time. So if you look at our food can business, for every kind of two plants we have today we have shut a plant down, so this has been a continuous process for us.

I think, as we talked about the announcement of this line, this is a little unique, right. We had customers moving to the midwest, we had what was already a pretty tight system, we had some BPA coating costs we could avoid by putting a new line in versus investing in an existing line. So there were a couple things out of line here that created an opportunity of building this size of a new two-piece can plant.

So the first thing is in terms of other consolidation, we'll keep looking, I wouldn't manage there is a lot more of that. In terms of would you see more new lines being built and taking out other capacity, it doesn't seem obvious to us there's a good return on much more of that at this point in time.

Thank you. That's helpful, I'll turn it over.

Al Kabili, Macquarie.

Thanks. Good morning. I just wanted to ask a question on the outlook.

It seems like this year the earnings is a little bit back-half loaded to get to the 320 than we normally see, a little bit. And is that just the savings on the cost mitigation activities in plastic containers ramping up driving that, or is there -- are you assuming some, you know, assumptions and pack timing, etcetera, that drives that? Thanks.

Mostly it's driven by what you said, that we had a lot of operational items to get through for the year. We had some, as Adam talked about, price, we needed to mitigate on the plastics side to get costs out on that. So it's really just the process by which we get through the cost saving effort, and it begins to benefit us as we go through the year, is kind of the largest piece of that.

Okay, that's helpful. All right, and then on the plastic containers businesses, the volumes being a little weaker than we anticipated, can you just help us with how the trajectory of that was through the quarter? And are you seeing improved trends sort of exiting the quarter and into the second quarter? Thanks.

Sure, good question, Al. I think through the quarter volumes were fairly consistent January and February, fell off a little bit in March, and have recovered in our plastics business in April. So our anticipation is that volume recovers kind of back to a normal level, if you will, for plastic containers in the second quarter.

New business awards, as I said earlier, are coming on-stream as we had expected. So we are anticipating volume growth in the business for the year, and we anticipate that you will see a recovery in the volume in the second quarter.

Okay, great, appreciate it. The final question is just for Bob, if you can just help us size up sort of what you are thinking for the FX impact this year on the bottom line and the new guidance? And then also interest expense, how you see that for the full year. Thanks.

Yes, so FX for the full year, I think, as we talked about it when we provided guidance, we were already starting to feel the headwind. And, I think, what we called out at that point was that we could see some exposure that was called $100 million, or so, on the top line, and that we were thinking at the time that was kind of $0.03 to $0.05 headwind to the bottom. Obviously there's been some change in rates since then.

So if we look at where rates are today, the top line headwind is probably looking more like $140 million or $150 million, and we are talking mostly about Euro and Canadian dollar here. And that translates to the bottom line, call it somewhere in the neighborhood of $0.07, and the way that would break out is, obviously we saw a modest impact in Q1. We would expect Q4 to kind of be pretty similar to that. One, size of quarter is pretty similar, and, as we go through the year, it would become less of an issue.

With Q2 and, obviously, Q3 being the big periods of time where we would feel that effect. So, again, kind of a $0.07 impact in the call-down and revision to the numbers.

Correspondingly, what we'll see is an interest expense benefit as a consequence of that, given that we're financed in local currencies, as well. So the net of that is we're probably a couple million dollars better on the interest line as we go through the year.

Okay, that's real helpful. Appreciate it. I'll turn it over and good luck.

Anthony Pettinari, Citi.

On the plastic containers side, I was wondering with the strategic contract renewals, is it possible to give kind of an order of magnitude? How much longer these contracts are than the previous or, kind of, standard contracts you have in plastic containers?

And then with the two new facilities that you are building, I was wondering if you could give any commentary on how those are going? And with the new facilities, my understanding is that metal containers would be sort of net neutral from a capacity standpoint, but with the plastic container facilities you might be going after some incremental business. Is it possible to size the additional volumes that you might be seeing once those two facilities are online next year?

Sure, let me start back at the beginning. The longer-term contracts that we were able to execute last year that went into effect on January 1, our normal contracts in the plastics business are somewhere between three years and five years. Five is the outer kind of limits of what our normal contracts were. These range anywhere from six years to 12 years in length, so they are significant investments by both ourselves and our customers, and kind of our strategic relationship going forward.

As you mentioned, part of it does allow us to invest in new facilities and get the returns that we're looking for and also lower our overall manufacturing footprint costs. The two new plants are actually coming along well. The one in northeast Pennsylvania will be operational sometime in the third quarter, everything is on plan and in budget there. The St. Louis, Missouri, facility in Hazelwood will be right at the end of year.

So those facilities, as you said, support existing customers, but they also will allow for growth opportunities with those customers, and with our target market. So I can't really scale what that opportunity looks like from a capacity standpoint because certainly the Hazelwood, Missouri facility, we'll have the opportunity to expand that as growth comes in. But both are built with the idea that we will grow with existing customers and, in certain instances, our target markets.

Okay, that's helpful. And then just during the quarter, obviously we had the announcement of a large merger of two big package food companies. I'm just wondering if that -- if you expect that to have any impact on your business, and just generally how you have dealt with customer consolidation in the past.

Yes, I don't think -- this is not particularly new. It's been maybe new in the last couple of years, but it's not new this quarter.

So we have seen a lot of it across the food industry, and we're not thinking it has a huge impact. I think we are so used to dealing with large consumer goods packaging companies, and the fact that they get bigger is not really going to change the balance of kind of why they do business with us.

It could create some opportunities, I suppose, if we have very strong relationship with a particular one of the two that combined, but mostly I think it's not going to change a whole lot. Now those companies are going to go for synergy, they're going to go for price, we totally understand that, we do the same thing when we acquire businesses. But we feel so good about the value of proposition that we offer that, if anything, that puts us in a better light.

Okay, that's helpful. I'll turn it over.

Alex Ovshey, Goldman Sachs.

Thank you. Good morning, everyone. I wanted to go back to plastics. So the contract that you entered into starting January 1, did those largely also covered the incremental production that will be coming out of the two new facilities that you are currently building?

For the most part, yes. One of them, absolutely, one of them is a near-site facility. The other will support one of the contracts, in addition to other business, and also future rationalization as we, again, take costs out of our manufacturing footprint.

Got it, Adam, that's helpful. Do you have any business in plastics that's coming up for renewal at the end of 2015?

I wouldn't say, there always a normal turn of business that we have, particularly when you are talking about contracts, and that kind of three year to five year time range. So, sure, there are nothing that I would sit here today and say that we're concerned about on a good-forward basis. We have done a really good job here over the course of the last couple of years rebuilding kind of the Silgan plastics brand and getting ourselves closer and more in-line with our customers.

Got it. Just a question on the metal cans.

Can you talk about the competitive landscape for the metal can in the US or other substrates? Are you seeing en route from plastics and any key end uses right now that the metal can participates, and maybe vice versa, is there anything that the metal can is taking share from in terms of other substrates?

Yes, I would say the same old, same old on that. There's really nothing that's happened new. The growth of food can has, and continues to be, something less than the overall growth and consumption.

So over time, consumers are moving less share of stomach to can and it's going somewhere else. But that seems to be more in terms of where they consume fresh-end grocery store, etcetera. There's really not much new to talk about on alternative packaging. And again, we've talked about it before.

But if you look at where food can is today, it's so heavily focused now on the re-torque part of the world where the food is cooked in the can in a high-speed commercial process. And that is just so difficult for alternative packages to meet the regular standards. Many say they can do it, but they can only do it in very limited areas, where there's overriding pressure or something that makes it's a much more expensive process, etcetera. So most of where the cans are consumed, it is such a unique package, much lower cost, both the package itself and the filling, that it's very hard for alternative packages to kind of make any movement in there.

Got it, Tony, appreciate it. I'll turn the call over.

Mark Wilde, Bank of Montreal.

Most of mine have been answered. Tony, it sounded like you were pretty happy with the performance over in the European food can business. I wondered if you could just update us on, you know, how much slack capacity still exists in that European business.

Sure. First of all, I would confirm your point that I think we are reasonably pleased with our European operations in total, both cans and closures. So despite what we read in the papers about the economy, etcetera, right now our businesses feel reasonably strong. Certainly our teams are doing a really good job on the cost side, etcetera, so that is the broad picture.

I would still remind everybody that in the canned side, we had such a good pack last year, there's still a tough comp to come. But we certainly do like the beginning against what we had expected in Europe thus far.

In terms of capacity, it's different in our can business in Europe versus our US can business, in that we're much more local player in individual country markets, and so you've got to have capacity to meet the needs of that market, which are smaller, smaller customers, smaller markets. And so you definitely do have capacity there, but it's not capacity that's going to be turned to a country a long distance away. It's capacity that's going to stay in that spot and if we can find opportunities to fill it, great, if we can't, then as long as the returns look good, we're perfectly satisfied with where we are.

Okay, all right, very good. Good luck in the second quarter and through the rest of the year.

George Staphos, Bank of America Merrill Lynch.

Hi, everyone. The first question, just in terms of the 2Q guidance versus last year's number.

I'm assuming most of it's going to be foreign exchange, but would it be possible to bridge last year's figure, either EBIT or EPS terms, with what you're guiding to this year? Obviously you have more volume, you already talked about it's going to be less profitable volume this year in food cans. What are some of the other factors there?

Yes, I think you touched on those two factors from an operating standpoint. I think the other things that are different year-over-year, and certainly different versus the expectations that we brought into the year, is that FX is a headwind of a couple of cents in the quarter. The impact of a fewer shares is probably another penny and, again, that's to both prior year and [Q]2 expectations.

I think against our expectations, we got a little bit of the plastics cost lag, as we were expecting, we'd get to them early and the full run-rate for the second quarter. It doesn't quite shake out that way right now as Adam had gone through in his previous discussion, that's probably another couple of cents. And then on the closure side there's probably a couple of cents there, largely we had really good Q1 volumes and we ran pretty well.

So we view that as a bit of an early build to the fill season from our customers, and we're kind of expecting that we'll see a combination of volume and inventory correction as we go into Q2. So net-net neutral for the year, but a little bit of a timing between the quarters.

Okay, Bob. So FX is a negative year-on-year. You mentioned cost lag in plastics, but I would have directionally guessed that resin would be a positive there. Again, you have the mix factor in food cans and the operating costs in food cans. So are you expecting, then, that volumes and closure are down year-on-year as part of the year on-year bridge?

Yes, that's certainly possible.

Okay.

Again, modestly, but it's possible. As we sit here right now, the weather has not been overly warm, and that does tend to have some impact on closure volume.

No, that makes sense. Appreciate that. And then two last ones.

It's been a while since we have talked about, or at least that we recall, on easy open end. What's the latest in terms of opportunities to drive that further, both in your mix and your customers' mix?

And then if we look back over the last year or so, certainly resin prices declined, but steel doesn't look like it's going up any time soon, anyway. So do you see the current raw material trends as more favorable for food cans, or detrimental to the food can, in terms of, again, maintaining its share of the pack-mix. Thanks guys, and good luck on the quarter.

Thanks, George. So on easy open end, it continues to grow, it continues to penetrate more and more of the market. As we had said several years ago, that's going to be much slower, more gradual now you don't have coal markets to tip over anymore.

But we do still -- we see opportunities still. There probably will be some more investments as we go. There have been marginal investments where we've optimized what we have in place, but, so the expectation is that it will continue to grow, and we think already a majority of the market is in an easy-open end and that -- (multiple speakers).

Go ahead, I'm sorry.

That's okay. That will go to a predominant portion of the market will be easy open-ended is our view.

Tony, would 70% of your mix be easy-open now? 80%?

It's very close to 70%.

Okay, thank you. Sorry about that.

Not a problem. And on the raw materials side, as you point out, what we're kind of seeing now on the steel side is flattish, modest increase, and it depends by market. Some are in that range. I guess we can all speculate on where it will go from here.

I think what I would believe is, unlike the resins that are so volatile, and volatility creates its own problem for our customers. What is good is that the steel industry, and the way we deal with the steel costs, is more consistent for our customers over time, unless there's a major market disruption, which we have seen from time to time. What we offer is a pretty steady cost situation for our customers on steel, and I think that has its own value.

Today, the can, against competing materials, is the lowest cost solution for our customers and, as you'll recall, the whole thing about Can Vision 2020 is for us to go at all of the other costs around the business, including, by the way, taking steel out where we can if we can light weight. So our feeling is it's more about what we're doing Can Vision 2020 will help us continue to grow the advantage the can already has.

Thank you, Tony. Thanks, Bob.

That concludes our question-and-answer session. At this time I would like to turn the call back over to Mr. Allott for additional or closing remarks.

Thank you, everyone, for your time today. We look forward to talking to you about our second quarter.

That concludes today's conference. We appreciate your participation.