Silgan Holdings Inc (SLGN) 2015 Q4 法說會逐字稿

Thank you for joining the Silgan Holdings fourth quarter and full year earnings results conference call. Today's call is being recorded. At this time, I would like to turn the call over to Kim Ulmer, Vice President, Controller of Silgan Holdings. Please go ahead, ma'am.

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 conditions of the Company could differ materially from those expressed or implied in the forward-looking statements.

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

Thank you, Kim. Welcome, everyone, to Silgan's 2015 year-end earnings conference call. I want to start by making a few comments about the highlights of 2015 and provide a brief update on our footprint optimization programs initiated to allow us to further expand our competitive advantage in our markets and position the company to continue delivering strong shareholder value. Bob will then review the financial performance for the full year and the fourth quarter and provide highlights of our 2016 outlook. Afterwards, Bob, Adam, and I will be pleased to answer any questions.

As we've discussed in prior calls, 2015 was the beginning of a transition period where we undertook several footprint optimization programs across each of our businesses, designed to improve efficiencies, reduce costs, and strengthen our competitive position in each of our markets. While undertaking these initiatives, we delivered adjusted earnings per diluted share of $2.97 and free cash flow of $117.1 million. Overall, we are pleased with our progress in 2015 and are committed to completing this transition in 2016.

Among the milestones in 2015 were: delivering net income per share of $2.81, delivering adjusted net income per share of $2.97, generating cash from operations of $5.47 per share, increasing the cash dividend by 7%, improving metal food container volumes by 5%, completing a tender offer to purchase 161.8 million of common stock, initiating a multi year footprint optimization program, including the construction of three new manufacturing facilities, and announcing the closure of two plastic container facilities.

As we enter 2016, our closures business successfully completed the optimization program and delivered record operating income in 2015. Our metal food can business is in the process of building a major new can plant in Iowa to ease our tight capacity in the Midwest. This plant is currently on schedule to begin qualifications and commercial production in the first half of 2016.

Finally, and the most complex of our optimization plans, is in our plastics business, where we are building two new plants, closings several others, and shifting customers and markets served. Given the custom nature of this business, these moves are much more challenging and did result in significantly higher costs in 215, and are anticipated to continue to do so in 2016. While we're making progress on the ground, there's much work yet to be done in this project. On the positive side, the new plants are on schedule to start in the first half of 2016.

As a result of the ongoing logistical costs in the metal food can business prior to qualification of the new plant, along with the ongoing transition and start-up costs, we expect to deliver full year adjusted net income per diluted share in 2016 in a range of $2.80 to $3.00 and free cash flow to be approximately $175 million, as capital expenditures related to the new manufacturing facilities begin to ebb later in the year. These results are also reflective of higher pension costs, incremental interest, and a return to a more normal tax rate in 2016.

In summary, we remain committed to completing our optimization plans and further enhancing our franchise market positions through prudent investment. Our focus in 2016 will be on completing these initiatives, delivering market-leading quality and service to our customers, and positioning the business for strong shareholder value creation well into the future.

With that, I will turn it over to Bob.

Thank you, Tony. Good morning, everyone. Each of our businesses initiated significant optimization plans in 2015, designed to eliminate excess manufacturing and logistical costs, reduce high cost production facilities, and better serve our customers for the longer term. As expected, 2015 was a transitional year in each of our businesses. As a result, we delivered adjusted earnings per diluted share of $2.97 and we delivered free cash flow of approximately $117 million, slightly better than expected, as some capital expenditures were deferred into 2016.

On a consolidated basis, net sales for the year were $3.8 billion, approximately $148 million lower than the prior year, as foreign currency negatively impacted our revenue by approximately $140 million, and we passed through lower raw material costs in each of our businesses. We converted these sales to net income for the year of $172.4 million, or $2.81 per share, as compared to 2014 net income of $182.4 million, or $2.86 per share. 2015 included adjustments increasing earnings per share by $0.16 and 2014 included adjustments that increased earnings by $0.31. As a result, adjusted net income per diluted share was $2.97 in 2015 versus $3.17 in 2014.

Interest expense before loss on early extinguishment of debt was $66.9 million, a decrease of $7.9 million as compared to 2014, as a result of lower weighted average rates and the impact from favorable foreign currency translation. We recorded a loss on early extinguishment of debt of $1.5 million in 2014, as a result of the refinancing of the senior secured credit facility in January of 2014.

Our 2015 effective tax rate was 31.8%, as compared to the 2014 rate of 35.9%. The 2015 rate was favorably impacted primarily by higher income in more favorable tax jurisdictions and the ability to fully recognize benefits in the current year period from recent legislative extensions of certain US tax provisions. The effective tax rate for 2014 was unfavorably impacted primarily by the tax effect from the shutdown of the manufacturing facility in Venezuela, partially offset by the favorable impact from the realization of certain foreign tax credits.

Full-year capital expenditures totaled $237.3 million for 2015, as compared to $140.5 million in the prior year. Additionally, we paid a quarterly dividend of $0.16 per share in December, the total cash cost of that dividend was $9.8 million. For the full year we returned $39.7 million to shareholders in the form of dividends and an additional $170.1 million in the form of share repurchases, including the tender offer completed in the beginning of the year. As outlined in table C, we generated free cash flow of $117.1 million, as we made significant capital expenditures during the year to fund our footprint optimization programs, including the construction of three new facilities.

I'll now provide some specifics regarding the financial performance of our three business franchises. The metal container business recorded net sales of $2.37 billion, down $4.4 million versus the prior year. This decrease was primarily due to unfavorable foreign currency translation of $56.4 million and the pass-through of lower raw material costs, partially offset by higher unit volumes. Volumes were favorably impacted by the addition of smaller can sizes attributable to the Van Can acquisition and continued growth in pet food products.

Income from operations in the metal container business was $236.4 million, a decrease of $12.3 million versus the prior-year. This decrease was primarily due to higher manufacturing costs as a result of logistical challenges from changes in customer demand patterns, a less favorable mix of products sold, and the impact of unfavorable foreign currency translation of approximately $3 million, partially offset by higher unit volumes and the impact from an inventory build in anticipation of optimizing production capacities in 2016.

Net sales in the closures business were $805 million, a decrease of $77.9 million, primarily due to the impact of unfavorable foreign currency translation of $63.4 million, the pass-through of lower raw material costs, and the cessation of operations in Venezuela at the end of 2014, partially offset by 2% higher volumes in the year. Income from operations in the closures business increased $16.2 million to $91.8 in 2015, primarily due to lower rationalization charges, higher unit volumes, better operating performance, largely a result of the plant optimization programs, operational losses in Venezuela incurred in 2014, and the favorable impact from the lagged pass-through of decreases in resin, as compared to the unfavorable impact from resin in 2014.

These increases were partially offset by the impact of unfavorable foreign currency translation of approximately $4 million and a reduction in inventories in the current year, as compared to an increase in inventories in the prior-year. Rationalization charges were $1.7 million in the year as compared to $12.2 million in the prior-year. Net sales in the plastic container business decreased $65.5 million to $593.7 million in 2015, principally due to the unfavorable foreign currency translation of $18.8 million, the pass-through of lower raw material costs, lower volumes of approximately 3%, and the unfavorable financial impact from the recent longer-term customer contract renewals.

Operating income decreased $43.7 million to $7.8 for the year, largely attributable to: significant incremental costs and inefficiencies incurred to service customers during the footprint optimization program, the unfavorable impact from recent longer-term customer contract renewals, higher rationalization charges, lower volumes, a customer reimbursement for historical project costs in the prior year, unfavorable foreign currency translation of approximately $2 million, and start-up costs associated with the new plants, partially offset by the favorable impact from the lagged pass-through of decreases in resin.

Rationalization charges were $12.7 million and $2.7 million in 2015 and 2014, respectively. For the fourth quarter, we reported earnings per diluted share of $0.44, as compared to $0.37 in the prior-year quarter. We incurred $3.6 million of rationalization charges in 2015, as compared to rationalization charges of $9.5 million in 2014, which were largely nondeductible for tax purposes. As result, we delivered adjusted earnings per diluted share of $0.48 in the fourth quarter of 2015, as compared to $0.58 in the same quarter last year.

Net sales for the quarter decreased $80.6 million versus the prior-year, driven primarily by unfavorable foreign currency translation of $23.5 million, the pass-through of lower raw material costs, lower volumes in the metal and plastic container businesses, and the unfavorable financial impact of recent longer-term contract renewals in the plastic container business, partially offset by improved volumes in the closure business.

Income from operations for the fourth quarter of 2015 decreased by $6.6 million, primarily as a result of: lower volumes in the metal and plastic container businesses, significant incremental cost and inefficiencies incurred to service customers during the footprint optimization program in the plastic container business, higher manufacturing expenses in the metal container business largely due to logistical challenges, the impact of unfavorable foreign currency transactions and translation, new plant startup costs and the unfavorable financial impact of recent longer-term contract renewals in the plastic business. These decreases were partially offset by lower rationalization charges, higher unit volumes, and improved operating performance in the closures business, and the impact from an inventory build in the metal container business in anticipation of optimizing production capacities in 2016.

The fourth quarter 2015 tax rate of 26.2% was favorably impacted by the ability to fully recognize benefits from the legislative extension passed in December for certain US tax provisions and higher income in more favorable tax jurisdictions. The effective tax rate for 2014 was unfavorably impacted by the tax effect resulting from a shutdown of the manufacturing facility in Venezuela, partially offset by the favorable impact from the rationalization of certain foreign tax credits.

Turning now to our outlook for 2016, our current estimate of adjusted earnings per diluted share for 2016 is a range of $2.80 to $3.00, which excludes certain items identified in the press release. Reflected in our estimates for 2016 are the following: we're forecasting the metal container business to benefit from more efficient operations in the latter part of 2016, once the new manufacturing facility becomes fully operational, improved operating performance of the Van Can assets, and volume growth. These benefits are expected to be offset by startup costs for the new manufacturing facility, ongoing footprint inefficiencies until the new plant is qualified, and inflation in wages and certain other costs. We expect normal pack volumes in the US and Europe, consistent with 2015.

The closures business is expected to benefit from slightly higher unit volumes and improved manufacturing efficiencies. These benefits are expected to be partially offset by inflation and wages and certain other costs and a favorable effect in 2015 from the lagged pass-through of lower resin costs, which is not expected to recur in 2016. We're expecting operating profit in the plastic container business to be down, largely as a result of: significant incremental costs and inefficiencies incurred to service customers during the footprint optimization program, delays in implementing certain cost reduction programs, lower volumes, startup costs related to the new facilities, and the favorable impact in 2015 from the lagged pass-through of lower resin costs, which is not expected to recur in 2016.

In addition, we expect interest expense to increase modestly versus 2015, largely as a result of higher average interest rates, partially offset by lower average outstanding borrowings. We currently expect our tax rate to be largely in line with a more normalized rate of 33.5%, as compared to 31.8% in the prior-year, which benefited from certain tax benefits not expected to recur. Also we expect capital expenditures in 2016 to be approximately $170 million, as some project costs from 2015 will carry over into 2016. We're also providing a first quarter 2015 estimate of adjusted earnings in the range of $0.35 to $0.45 per diluted share, excluding rationalization charges. Based on our current outlook for 2016, we expect free cash flow to be approximately $175 million, up from approximately $117 million in 2015.

That concludes our prepared comments, so I'll turn it over to Rachelle and she can provide directions for the Q& A and answer session.

(Operator Instructions)

Chris Manuel, Wells Fargo Securities

A couple questions for you. First, a quick housekeeping one. Could you run through what the actual volumes were across the different business units for the fourth quarter. I think I had some numbers here for the full year in the press release, but what did it look like in the fourth quarter?

In the food can business, we were down 2%. In the closures business, we were actually up 6%, so a very strong quarter. I'm sure we will talk more about that as we go. And then on the plastic side, we were about 3% down, that's on a pound basis, which is how we tend to look at it.

That is helpful. If I could switch gears for one second though and talk about structure, strategy, et cetera, a few things along those lines. There are some assets out in the marketplace that are coming up for bid that in the past you have indicated you're interested in. Could you remind us of what you're acquisition criteria would be, how you think about adds, deletes to the portfolio, et cetera. And then how you would, the difficulty we are in right now with the equity and fixed income markets, how that may play into how you think about a return on capital as you would put capital to work.

Sure. First of all, we've always talked about our interest on acquisitions is always around franchise position, sustainable, competitively-advantaged businesses. Is there something out there that can enhance the ones we have or is there something out there that has its own sustainable competitive advantage? That is one part.

Two is, we obviously, what we know are rigid packaging supply situations to the consumer goods market. Obviously, that is much more in our fairway and tends to be where we look. Those are criteria and we pretty quickly get to management and what do we think of the management and how is going to fit. So on a general point, that is what I would say to you.

Obviously, we look at the current markets and any deal as part of the cost of capital to do the deal. It, like everyone else, drives value. Just have to figure out what is that cost as best you can figure out in the market, and yes volatility factors into that. If you have uncertainty, you're going to need to pay someone to try to limit that uncertainty, so that adds cost and therefore, impacts value.

That is helpful. How do you think about, as you're looking at your present portfolio, obviously you've got some assets performing much better than others and I think, Bob, in your prepared remarks, you talked about 2015 being a transition year. It sounds like 2016, or at least a portion of it shapes up to be a transition year as well. How to think about evaluating operations that you own today as potential candidates to be in, be out of the portfolio. Namely, obviously I'm referring to plastics.

Let me say Chris, and I'm not going to pick on you, but I think we will try to hold everybody to two questions. In this case, your third one is sort of like your second. We will move on and then you can come on back after that.

The answer portfolio is, our metal food can business sits very deep in its market in terms of its franchise position, kind of geography, scale et cetera. So we view that as a very true franchise, sustainable business and would happily add to it as the opportunities show themselves, and have done so obviously with the can business in central and Eastern Europe that we acquired

The closure business has been a phenomenal player for us. It has gotten deeper in its markets, the execution has been great. The Portola acquisition is a wonderful example of that where we brought something in and really, two plus two was five or more in that case. So I think we feel strongly that is a great franchise business and would love to find opportunities to continue to stretch that team and give them more opportunity to create value for shareholders.

Plastics is one we talked about plenty. We have said pretty clearly, I have said pretty clearly, that I don't know that I believe we have a franchise today in that business. There are parts of the business that do have a franchise, we provide something that really no one else can for a particular customer.

But a lot of that franchise changed. If you go back a decade ago, it had a lot to do with custom decoration, that's changed with pressure sensitive label. Much of what we bring to market has changed.

We've also said we still see an opportunity in the market that is unserved. What we are working on is trying to change the cost footprint of that business and change its disposition of the market so that it can meet that need. I think we can't be much clearer than to say we're in the middle of that. We really can't declare where that will turn out.

I would not characterize that one as being a franchise yet. But it's on a path for us to test that. So Chris, let's move on and then if you want to come on back, that is no problem at all.

Ghansham Panjab, Robert W. Baird & Company

This is actually [Mehol Delia] sitting in for Ghansham, how are you doing? Can you quantify the start up costs for the three plans expected in 2016 and how does it phase in on a quarterly basis throughout the year?

Sure. If you talk first in the food can business, the start up costs that we're expecting are somewhere in the $7 million-ish range on the year. I think I want to go one step further than that though because they also will be carrying the incremental costs, logistic, and other stress costs if you will, out-of-cycle costs of another $8 million-ish on that. So if you compare the total $20 million that we experienced of those kinds of costs in 2015, if you compare that to the similar costs in 2016 and the start up costs, some of that is going to be something like $15 million. So in fact there's some improvement that comes out of it.

And then as you point out in your question, it most all of this happens in the back end of the year. Those start costs are absolutely in Q1 and Q2. The incremental costs I'm referring to will also be in the first half of the year and a bit into the third quarter. The hard part to gauge this is that once the line is up and running, we need to get all of those cans qualified, and so that is a process that's between us and our customers and it's a little bit out of our control.

And that's all against a busy season that plays out in the summertime. How quickly we get those cans qualified has a lot to do with the impact and benefit we can get from that lines this year. Time is pretty important on that.

Adam, do you want to go ahead and add on to that?

Sure, for plastics, we've got $3 million of additional startup costs, largely in the first half of the year as we get the two new plants online and qualified for our existing customers.

Do you expect net pricing in metals to be stable in 2016, are you seeing any more price competition in the market?

Good question. If you're talking about contract price, there's sort of a metal movement and we do anticipate some type of deflation on the metal side. So the revenue line will be down as we pass through on the metal side.

If you talk about between us and our customer outside of the pass through, this was not really a big contract year for us. There's always something that goes on in that. But really nothing all that significant this year. You'll recall a couple of years ago, we had a major round of contract renewals, which did have an impact on the financials, but there's not a lot of that in 2016's numbers.

Mark Wilde, BMO Capital Markets.

Tony, can you just talk about what you would see as the key upside and downside risks as you look at that 2016 guidance range?

Sure. I think, without doubt, much of it is around the transition work we are doing. I think we saw in spades in 2015 how quickly that can move on us. We are coming into 2016 a little more conservatively postured, particularly on the plastic side. What you're hearing from us is we've got costs embedded in the system right now, we're assuming we're going to carry those incremental costs forward until we do get stabilized and further along in the transition process.

The downside is that we don't make the headway that we need to make in that and therefore have to go longer with it. Similarly, I would say on the metal food can side exactly what I said, which is we are assuming that we do get up and running online, which I'm sure will happen, and that we do get some qualifications, so we get some benefit from the new plant in 2016.

As I alluded to my earlier answer, the challenge is that there is a pack season. If we get to far through that pack season, we don't need capacity any more for the fourth quarter. One of the questions is how quickly do you get that line up and running.

Beyond that, there will be a little bit around is the pack, we're assuming a flat pack, a poor pack season would be a negative. There is a lot of volatility in resin. We have assumed a flatish kind of resin outlook from here so I guess that one could go either way, in answer to your question. And then interest rates, I suppose, could bounce around here a little bit and affect the PNL.

The only other one, which goes either way is FX. We're assuming stable currency rates coming into this year as to where we exited, so any change there could have some impact.

For my follow-on, either Tony or Bob, can you talk with us about how you think about the balance sheet right now and what your target debt range would be in this environment?

In terms of our longer-term view of the run rate, for leverage, I don't know that we've necessarily changed that view. I think we've talked for quite some time now that 2.5 to 3.5 times as the longer-term goal post makes sense for this business. Obviously, we continue to evaluate that based on how the credit markets are behaving or not in some cases.

I think that still is where we are. All that said, we're not afraid of levering a bit more than that for the right acquisition and we've been in that realm before, as long as there is a fairly steady path to get back into that range in a reasonable period of time. Remember, our roots come from a fairly levered business and it is a fairly stable cash flow generative business, so the ability to handle leverage for short-term is not necessarily something we are afraid of.

I just want to throw in one thing because there have now been two questions around the current credit markets, which of course we are all watching, they are more volatile than they were. I would just point out that if you look at our bonds, for example, they've traded well through this, which makes perfect sense when you think about our business model, which has proven itself for sure to be very stable through any economic condition, we're not an energy play, we're not heavy into China. While we watch it and it is out there, I would not characterize that there has been a huge change in the credit situation that we look at today.

That is hopeful, I will turn it over.

Anthony Pettinari, Citi.

In your comments, you talked about metal container volumes down 2% and plastic volumes down 3%. I am wondering, is it possible to say how much of that decline was softer underlying demand and how much of it, if any, was attributable to footprint rationalization issues that may have cost you to lose some volumes.

On the food can side, that has everything to do with the market, and it's really timing. We had talked about the abrupt end to the pack, so there was really no pack business in the fourth quarter so some of that was anticipated as we came into the quarter. The rest was some timing on the pet business, which had been a little bit stronger leading up to it. That is all market based on that side in the quarter.

On the plastic side, I would say the majority of it was market-based of the roughly 3% that I believe Tony had mentioned earlier, call it two-thirds of that, was market-based and then about 1% would be of our turning orders back to customers or the rebalancing of the portfolio efforts.

Okay, that is helpful. And then just rounding out the segments, what is driving the really strong volumes in closures you saw?

It's around the world for starters. The good news, it's not just the US, it's Europe as well and our outlying regions. It's still single-serve beverage, it's the growth engine for that business and has been for some time.

We saw sizable growth this year and that will also be a driver for next year as well. All your noncarbonated beverages, the sports drink, et cetera, continue to see nice growth year-on-year.

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

George Staphos, Bank of America Merrill Lynch

Good morning, thanks for the call so far. I want to come back to the plastics, call it integration inefficiency target for this year. If I heard you correctly Adam, you said it would be $3 million higher this year versus 2015. I just want to confirm that. If that is the case, what would that wind up in absolute terms being for 2016, again looking at start up costs and system stress costs, et cetera?

I think what we said on the last call, George, is that really it's going to be much of a mirror image to 2015 as you go into 2016. So the incremental costs that we're talking about, we are including the start up costs in that number. Our roughly $16 million of costs that we incurred in 2015 did include a couple million dollars of start up costs. As we talk about remainder of $3 million of start up cost for those new plants, that's going to make the 2016 number more like $17 million in incremental costs and new plant startups.

Okay, and that includes system stressed costs and all that, I just want to be clear on that?

Yes it does, in both years, it does.

Okay. One other question I had on volume in plastics and I will turn it over. I'm guessing the answer is going to be no, but are you seeing any signs that your customer base, your perception of the market from buyers of plastic containers, is changing such that not only are you battling an operating inefficiency issue as you bring on these new facilities, but there's a perception of Silgan being not what it had been and that is hurting you from a volume standpoint. No matter the answer, why do you have view? And thanks I'll turn it over.

I think that your gut was right. The answer is going to be a definitive no. I think for the most part, we talk about this a lot more than our customers do. We're spending a lot of time, energy, and money to insulate them from some of the issues that we're having. For the most part, we've been able to do that successfully.

In certain cases, we are actually getting further opportunities to grow with customers, we're expanding our relationship and I'd say for the most part, our customer relationships are improving through this process. Each of these challenges provides a great opportunity to solidify the relationship. I think the actions that we have taken, the steps that we have made in order to again insulate our customers, I think are being recognized and are being appreciated by our existing customer base.

For the most part, the Silgan brand, if you will, it has a very strong name in the packaging industry. As we talk about targeting other target markets for our plastics business, we'll talk about food in particular. We have got very good presence in our food can business and our closures business in the food markets and we get the benefit of that at Silgan Plastics. I think in total, the money that we've spent, the incremental costs that we've incurred has done what we had hoped, which was insulate our customers to a very large degree from the challenges that we are facing.

Thanks for your response.

Debbie Jones, Deutsche Bank.

Your CapEx obviously elevated for 2015 and 2016 well understood and communicated, I'm just curious if there is a reason to believe here that we are at a tipping point and that you are going to need to continue to spend capital specifically in your metal food operations to stay competitive, whether it be through continued consolidation and similar efforts?

I think we at least endeavored to articulate this when we announced the new plant construction that we viewed this largely as being able to get after costs relative to customers that were moving fill locations, which were creating some inefficiencies, and that we didn't see that as a recurring event and there's nothing about our footprint in our food can business that is uncompetitive to the broader market. We do view this as a one-and-done as we get through it.

I think I saw some trade press about Silgan looking at a plastic can as well. I was just wondering if, I think you have it in development, if you could comment on that and if that's a customer push and where you see that product going.

We've actually had a plastic food container business for many, many years that supplied billions of microwaveable plastic products to the market and as one of their product line extensions, is a clear can, which we call the clearly innovative can because the product attributes are that it provides some clarity for the package itself. It's not necessarily a new technology for us, it's not necessarily a new product, it's one that has been in our portfolio for some time.

I just think others have entered that space and are trying to land with a bit of a splash. I would say we have a product that is sitting right in the middle of the space that they are targeting.

The challenge for us and anybody else for that market is that the lion share of the food can market is continuous retort that is very, very rough on these kinds of packages. So while ours can go through retort systems, even then, it's got to be very specific retort systems and you have got cost issues. I think if anybody knows the opportunity of a plastic package in the food can world, it's Silgan and for us, it's been a great market opportunity for us, but it is always a differentiator around the edge.

And what kind of products would go in there for you?

Today, it's again microwaveable soups, et cetera, anything that customers or our food can customers would want to see product-displayed on the shelves to differentiate shelf presence. Things like fruit is probably the most common that is being targeted right now.

I will turn it over.

Scott Gaffner, Barclays.

Bob, in response to one of the questions earlier, the question was on leverage, if I look back at your historical leverage ratios back to 2000, it looks like you've never gone above about 4.1, 4.2 times, I think Graham might have taken you a little bit outside of that range. What is your comfort range, you said a little above I think before on the question, a little above the 2.5 to 3.5 times goalpost and if you get above that range, is there a point where you start thinking about issuing equity for larger deals or have you ever issued equity in the past for any of the acquisitions you've done?

There's a lot in the question, right? I think you're right on where our historical leverage has been. We have probably been at least the last ten years where we have been inside the 2.5 to 3.5. Early days, obviously, we were more levered coming out. You are right, when we look at the Graham transaction, I think by the time that was all said and done, when we walked away from it, it would have been, call it mid-4s kind of leverage, maybe a tick underneath of that.

That is one transaction that we were contemplated issuing some equity. We have never done it, although that's as close as we have come for an acquisition. I wouldn't necessarily rule it out. It's obviously a currency that we have to consider, it's our most expensive currency, so we take that in stride.

I think where we would go largely depends upon the outlook of the credit markets, the strength of the credit markets, the cash flow generative power of the business or businesses that we would be acquiring that would take us to that level, are all going to lead us to what the appropriate leverage level is. There is nothing about a particular metric that scares us, as long as the dynamics of the business will support that and allow us to delever in a reasonable period of time. I don't know that I can give you a better answer than that that we take into account all factors and will draw conclusions based on what those factors are telling us at the time.

Just a second question on the metal containers business. In your prepared comments on the 2016 guidance, you talked about plastic containers operating profits being down, metal containers you didn't give much commentary on that specifically, but it sounds like there's a possibility you could get back to flat year-over-year. Given all the puts and takes, is that a possibility?

I think you read that right. It's somewhere around there. It could even get a little bit better than that depending on timing online, et cetera. It's somewhere in that range; hence, the range and the numbers we put out.

Adam Josephson, KeyBanc.

Good morning. One more on acquisitions. Bob, what are your views about making an acquisition in which are there are few, if any, synergies.

I don't think we've ever said that we will only do acquisitions that come with synergies. In many ways, the Vogel and Noot acquisition was very much that way, it was a complementary acquisition. But at the end of the day, the acquisition has to stand on its own from a return basis and we look at that from a cash-on-cash basis.

I think that goes right to the discipline that we bring to the M&A market is making sure that we are buying businesses where we think we can earn a good return, whether that comes from synergy or that just comes from a disciplined purchase price.

The original closures acquisition we did as well was probably one of our best acquisitions in the history of the company, had no synergies on it.

Just one on the inventory build in the metal container business in the fourth quarter, forgive me if I missed this earlier but how much of an earnings benefit was that in the quarter and how much do you expect it to detract from your earnings in the first quarter of 2016?

It was about $4 million or $5 million in the quarter and it ought to -- the current plan is it does come back against us in 2016, but latter part of the year, so not right away because right now we are getting ready for the transition of the plant.

Thanks.

(Operator Instructions)

Chip Dillon, Vertical Research Partners.

First question is on the balance sheet again. You mentioned the Graham transaction, which we remember four or five years ago, and when you say that you were contemplating maybe a mid-4s leverage, was that net of the equity you're going to issue or is that why you issued the equity?

That would have factored in the equity and I think that deal had something like a 15% equity piece going into the deal, so that was the leverage after using the equity from the purchase price.

I know the markets have been a little crazy lately. Is there any reason that you wouldn't go back to that level in a future deal or go higher? Is 4.5 what we would see as your upper range still?

I think that Bob answered this as well before. First of all, understand that the history of our company was basically a highly levered business and trying to get return on equity through leverage. The model that we've built, that's why we do pass through of our raw materials, it's why we do long-term contract, and we've stuck with that model all the way through. So there's really nothing about our business model that can't carry more leverage.

What we have done thus far is made a decision about the equity market's desire for leverage and try to model ourselves to that. And so I think there's no question the business can carry more leverage. I think what Bob said is exactly right, which is f you're thinking in M&A, and right now we don't know what are we thinking about, we can assume, but if you think M&A, we clearly have to look at what's the credit market at that time, how certain, how fixed our rates again, the more leverage you have, the more you're suspect to variable rates.

But very importantly, what is the cash characteristic of the business post-deal, and that's an important attribute to it as well. And does the new business included have the same kind of characteristics of stable cash flow that our base business does? All those factor into the answer of your question.

I guess the second one is on the footprint realignment program, as we go back the last couple of years and we think about maybe the next 5, 10, 15 years, you might find yourself in a position where you would do something similar again. I think it's fair to say that there were some surprises along the way. Would you agree that there are things you learned through this process that might make the next major alignment less costly over time.

I think I can honestly say nothing in my life have I not learned something from I hope. Or if you're not learning as you go, then you have a problem. So there's no question that we've learned things and that we do things differently.

I think we talked a lot about the characters of a custom business is always a challenging thing to try to do footprint rationalization. We're talking about plastics obviously and so it's never going to be easy to do it. Would you do anything different? Sure.

I think one of the things you have to seriously consider is should you have spent more on capital up front to do duplicate capacity, rather than trying to build up inventory to move. I think that's clearly some of the cases that example holds, not in every case. That is a concrete example that we will certainly look at as we go forward.

But I don't want to paint this too easily. It will never be easy to do this kind of massive rationalization of a custom business like we're doing in plastics.

I hate to put you on the spot, but that is a very good answer, thank you.

It's a good question, obviously it's one that ask ourselves all the time.

Mark Wilde, BMO Capital Markets.

Just a follow-on here. Tony, I wondered if you could just update us on performance at Vogel and Noot and I'm particularly wondering whether that Russian business that you have is doing better as the Russians seem to focus more on domestic food production.

This is Bob. The European business in general, European food can business in general, had a pretty good year, volumes in the quarter were up in the fourth quarter and volumes for the year were up a bit the fourth quarter. A little bit of, I'll call it a pleasant surprise, is we had some customers continue to run through the holidays that were a little bit outside of our expectations, but the net of it was pretty good volumes, their operating performance for the year was pretty good. Overall, we are happy with the performance of that business overall.

Obviously it's in some geographies that are more challenged than others, like Jordan and the Ukraine and Russia. I think the Russian market is doing fairly well. There is a fair bit of volume there that is probably a little bit insulated inside the country because of the sanctions against import exports. But that's doing pretty well.

The Ukraine on the other hand, was one that had been struggling and we have actually made the decision that we're going to go ahead and at least mothball that plant for the time being because of the difficulties of being able to export into the Russian market. So we have basically furloughed the employees there and we'll make some decisions as we go forward as to what to ultimately to do with the equipment, but again, it's very good equipment that can be moved elsewhere in the system. I would say in general, we are pretty happy with how things are going in the Vogel and Noot business right now.

Thanks Bob.

George Staphos, Bank of America Merrill Lynch.

Two questions on the subject of M&A and whether synergies are needed or not. I remember Whitecap being a great acquisition, I was going through my files here, I couldn't find the multiple, because in part, the valuation multiple that you paid was very attractive. When you look at that versus say a Vogel and Noot, I would imagine Whitecap wound up being a more successful acquisition, was that a function of multiple timing because, obviously you bought Vogel and Noot just before Europe slowed down and then obviously you had the Russian issue, or just not really comparable because of how much more franchised Whitecap was? And then I had a follow-on that is not related.

On the Whitecap one, I would say that first of all the multiple is not even all that meaningful. It was actually losing money at the time. I'm talking about the US acquisition, which is the one that was a great acquisition for us. Multiple was actually quite high.

Now is there anything unique about it, the answer is yes. We were a joint venture partner on it, so we knew a lot about what we thought it was capable of. Really, that was it. Beyond that, it was our need to execute a turnaround for that business, which worked very well for us.

It has some similarities and on the trailing numbers, we paid a healthy price. The good news is we got the turnaround done quickly and on a look-back, the multiple is quite well.

Thanks for reminding me Tony, I remembered it being a really good deal from a multiple standpoint, but maybe that was just when we include the synergies in there. In any event, I appreciate that.

And then one unrelated question, the outstanding checks amount year-on-year swung quite a bit. I think its roughly around $23 million, can you just remind us why that would swing to that degree, 2014 versus 2015?

I think that's largely just timing of payments between the years, kind of what is hanging over at any year-end. So essentially, just think about that outstanding check as really just a payable. It's just a presentation on the cash flow that is a little bit different than maybe some of our other competitors do.

There are no further questions at this time. I would like to turn the call back over to Tony Allott for any additional or closing remarks.

Thank you everyone for your time and we look forward to talking to you about the first quarter. Have a good day.

And that will conclude today's call, we thank you for your participation.