Silgan Holdings Inc (SLGN) 2018 Q1 法說會逐字稿

Good day, and thank you for joining the Silgan Holdings First Quarter 2018 Earnings Results Conference Call. Today's call is being recorded.

At this time, I'd like to turn the conference call over to Kim Ulmer, Vice President, Finance and Treasurer. 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 2017 and other filings with the SEC. Therefore, the actual results of operations or financial condition of the company could differ materially from those expressed or implied in the forward-looking statements.

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

Thanks, Kim. Welcome, everyone, to Silgan's first quarter 2018 earnings conference call. I'll start, as usual, by making a few comments about the highlights of the first quarter and provide a brief outlook regarding our 2018 outlook. Bob will then review the financial performance for the first quarter and provide more details around our 2018 outlook. Afterwards Bob, Adam and I will be pleased to take any questions.

As you saw in the press release, our first quarter results exceeded our earnings estimates as we delivered adjusted earnings per share of $0.42 as each of our businesses performed in line or better than originally expected. This compares to the adjusted earnings per diluted share of $0.31 in the first quarter of 2017.

Revenues were up 26% over the first quarter of 2017 and segment income was up 31%. We're pleased with our early performance, led by our closures business, which benefited from the inclusion of Dispensing Systems operations. The Dispensing Systems operations enjoyed strong volumes, particularly in fragrance, health care and lawn and garden markets and good operational performance.

Our plastic bottle business continues to gain traction as it continued to deliver improved operational performance and benefited from higher volumes. Our container business is underway with the planned reduction in inventories for the year and as a result, experienced a less favorable overhead absorption in the quarter and slightly lower volumes, accounting for the lower year-over-year profitability in the business.

We're pleased with the start of the year. However, as much of the upside versus our estimate was from timing-related items, we are confirming our full year estimate of adjusted earnings per diluted share in the range of $2.03 to $2.13. At this level, this would represent an increase of 23% to 29% versus the 2017 adjusted earnings per share.

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

Thank you, Tony. Good morning, everyone. As expected, we saw nice improvement in our year-over-year earnings, largely as a result of the inclusion of the Dispensing Systems business and continued improvements in our plastic container business. These benefits were partially offset by lower earnings in the metal container business as the planned reduction in inventory resulted in a less favorable overhead absorption. As a result, we delivered adjusted earnings per diluted share of $0.42, an increase of 35.5% versus the prior year period and modestly better than our estimates, largely a result of timing which benefited the first quarter.

On a consolidated basis, net sales for the first quarter of 2018 increased 25.7% versus the prior year, totaling just over $1 billion as each of our businesses saw improvement on the top line with the largest benefit resulting from the inclusion of the Dispensing Systems operations.

We converted these sales to income before interest and taxes for the quarter of $92.2 million versus $56.8 million in the prior year quarter, primarily as a result of the inclusion of the Dispensing Systems business and improved performance in the plastic container business, partially offset by the negative effect of the planned reduction in inventories in the metal container business.

Rationalization charges were $700,000 and $900,000 in the first quarters of 2018 and 2017, respectively. The first quarter of 2017 also included costs attributable to announced acquisitions of $13.2 million.

Interest and other debt expense before loss on early extinguishment of debt for the first quarter of 2018 was $30.5 million, an increase of $10.1 million versus the prior year quarter. The increase was primarily due to higher average outstanding borrowings for the acquisition of Dispensing Systems and higher weighted average interest rates.

We incurred a loss on early extinguishment of debt of $2.7 million in the first quarter of 2017 upon prepayment of outstanding U.S. and euro term loans under the previous senior secured credit facility.

Our first quarter 2018 effective tax rate was 25.9% as compared to the 2017 rate of 31%. The first quarter 2018 rate benefited from the recently enacted U.S. tax reform, partially offset by higher income in less favorable tax jurisdictions while the 2017 rate was favorably impacted by higher income in lower tax jurisdictions.

Capital expenditures for the first quarter of 2018 totaled $49.2 million as compared to $38.9 million in the prior year. On a full year basis, we expect capital expenditures to be approximately $200 million in 2018, which includes capital expenditures for the new facilities in Fort Smith, Arkansas and Allentown, Pennsylvania. This compares to $174.5 million in the prior year.

Additionally, we paid a quarterly dividend of $0.10 per share in March with a total cash cost of $11.3 million.

Moving on to the details for each of the respective businesses. The metal container business recorded net sales of $486 million, up $19.8 million versus the prior year. This increase was primarily due to the pass-through of higher raw material and other manufacturing costs and the impact of favorable foreign currency translation of approximately $9 million, partially offset by a less favorable mix of products sold and lower unit volumes.

Unit volumes were down approximately 2% as a result of the unfavorable impact from customers who bought ahead in the fourth quarter of 2017, the carryover effect from a customer loss in the second quarter of 2017 and a customer plant shutdown in the fruit market. These declines were partially offset by continued growth in the protein and pet food markets.

Segment income in the metal container business was $37.1 million, a decrease of $6.8 million versus the prior year. This decrease was primarily due to the unfavorable impact from the planned reduction in the inventory build in the first quarter of 2018, a less favorable mix of products sold, lower unit volumes and foreign currency transaction gains that were recorded in the prior year quarter, partially offset by lower manufacturing costs.

Net sales in the closures business were $370.3 million, an increase of $172.6 million, primarily due to the inclusion of the Dispensing Systems operations, the impact from favorable foreign currency translation of approximately $11 million and the pass-through of higher raw material costs, partially offset by lower unit volumes in the legacy closure operations of 4% as a result of the timing of customers' purchases for the single-serve beverage market.

Segment income in the closures business increased $24.4 million to $48.2 million in 2018, primarily due to the inclusion of the Dispensing Systems operations and continued strong operational performance in the legacy closures operations despite the lower volumes.

Net sales in the plastic container business increased $14.5 million to $156 million in 2018, principally due to the pass-through of higher raw material costs, a 5% improvement in volumes and favorable foreign currency translation of approximately $1 million.

Segment income increased $4.3 million to $11.1 million for the quarter, largely attributable to the higher volumes and lower manufacturing costs.

Turning now to our outlook for 2018. While we're off to a strong start, we believe much of the outperformance is related to the timing. As a result, we're confirming our estimate of adjusted earnings per diluted share for 2018 in the range of $2.03 to $2.13, which excludes certain items identified in the press release. This compares to adjusted net income per diluted share in 2017 of $1.65.

We're also providing a second quarter 2018 estimate of adjusted earnings in the range of $0.50 to $0.54 per diluted share, excluding rationalization charges and loss on early extinguishment of debt. The midpoint of our estimate represents a 48.6% improvement versus adjusted net income per diluted share of $0.35 in the second quarter of 2017, driven by anticipated improvements in each of our businesses.

Based on our current outlook for 2018, we're maintaining our free cash flow guidance of approximately $300 million, up from approximately $224 million in 2017.

That concludes our prepared remarks. So I'll turn it over to Ashley, and she can provide directions for the Q&A session.

(Operator Instructions) And we'll take our first question from Scott Gaffner with Barclays.

Bob, just some of the timing issues that you mentioned. What are those? Are those mostly in metal containers? And should we expect those to come back out in the second quarter? Or what's the timing on those timing issues?

Scott, it's Tony. It's not so much containers. It's a little bit more to our closures business and our plastics business. Again, if you look at our closure business, there's sort of 2 markets we sell into that have seasonal impact. One, as you know, is the single-serve beverage market. So some of the volume that was off in that market, expectation is we'll see that coming back later. But against that, you've got -- we also sell in the -- the Dispensing Systems business, we sell into the lawn and garden market. So we saw a very healthy start to that season and our expectation is that into Q2, that, that will probably balance out, Q2 into Q3 perhaps would be kind of a balancing point on that. And then our plastic bottle business also sells into certain food markets that are more seasonally filled. And again, those seem to be much stronger at the beginning of the year. And so there's some expectation that, that'll give back in Q2 and Q3.

One thing I would add to that a timing, not volume related. But you might recall last year, the can business benefited in Q1 from larger cans that got sold in the first quarter. And this year, it was a more normal selling cycle. So that reversed in Q3 last year. But that's not necessarily a volume point, that's a mix point.

Right. So you're saying the mix in metal containers was strong in 3Q or weak in 3Q last year?

Was strong in Q1 of last year and reversed to a weaker than normal in Q3 of last year.

Right. But I guess, on that issue would mean that 3Q this year from a metal containers perspective should be better than it was in 2017?

On that point, that's right. I mean, there's a lot of moving parts here. So we're just -- we're giving you a bunch of different timing moving elements in the answer. But the net of it is that kind of on the sales side, our feeling was that you had a couple of pretty key markets that were off to a stronger early start and our experience is that, that always balances out by the end of the year.

Okay. And you didn't necessarily mention this in your volume comments on closures and plastic containers, but was there any prebuy there that -- that you think caused this better-than-expected volume? Or what is in the lawn and garden because everything we've heard has been pretty negative about weather-related issues?

Yes, that's true, too. And I'm sure at some point in the conversation we'll get into that. You're right that it's been kind of cold, et cetera. I would just say that, yes, not a great season last year. And so I think that the -- we saw pretty early good build on it. The question -- the sell-through, we're going to learn in Q2 and Q3. We don't know that yet. All we can tell you about is what the fill volume look like.

And we'll take our next question from Chris Manuel with Wells Fargo.

A couple of questions. I mean, first, if I could -- if it's feasible, could you help us perhaps parse up some of the closures? I know you did said down 4% overall. It sounded like dispensing component did a little better. It sounded like traditional hot-fill stuff a little worse. How -- I mean, do you have rough numbers you could share with us?

In a way, we just did, in that the 4% we're talking about is all around the legacy closures. So that gives you that sense and as I talked about -- when I started out, that was more -- our view right now that's about timing and then we'll see that come back. So that's sort of the opposite timing issue, if you will. The rest, what I could tell you about the Dispensing Systems business, the revenue of that business compared to the first quarter, when we didn't own it last year, was up about 13% on the revenue side. About half of that revenue gains is on FX and about half of that is on volume/mix, stronger to the mix side because of the price point of some of those lawn and garden closures. But in any case, you can see sizable top line growth there. And as you read in the release, it's part of why we feel very good about the progress of the business.

Actually, that's very helpful. That's what I want to get a sense of, is to make sure that, that was still growing at kind of low single, mid-single-digit rate. If I could switch gears for one second and maybe flip over to the plastics business. This is, I know you keep saying a lot of this has to do with timing and then it just -- it's a balance over the year. But look, this is one of the best first quarters you had in, I don't know, 4, 5 years. Do you feel you've made enough of a progress in that business that I know you've talked about at times getting comfortable or confident about bringing on and bidding and winning new chunks of business? Can you talk about your confidence, comfort level with going out, bidding, taking on chunky new products and trying to bolt on to that business?

Chris, it's Adam. Look, we're really pleased with the plastics business and the performance that we've had. To your point, this is our seventh consecutive quarter of year-on-year improvement. So the team has done a really nice job stabilizing the business and getting a good solid foundation for us to start to grow. And this is now our second consecutive quarter of nice volume growth in the business. So as we've said all along, the growth will be lumpy at times as new business awards come in. But we are in a position now where we're actively out in the market, winning new business and executing on that new business today. So we feel good about where we are. We've stabilized the base business. And now with our new footprint essentially that we've spent a few years working to optimize, we're ready to go out and be active in the market and win business.

We'll take our next question from Chip Dillon with Vertical Research.

First question has to do with what's happening with raw materials. I know there's been some material -- material, pardon the pun -- increases in the cost. And I didn't know if you're starting to see any visibility toward anything changing there, in particular in the metal tinplate and also, in the various resins you buy.

Sure, I'll take the metal and I'll let Adam take the resin side. So on the metal side, we did have sizable increase this year to start with, then we got into the whole tariff issue. I would have to say we're sort of in the middle of that right now, as you can probably imagine, where tariffs were effectively to start March 23. But then more and more exemptions to a point where some 60% or 70% of the market is now under some form of temporary exemption, which could go away in May. All of that has driven up the commodity steel market. So in general, there is definitely inflation in steel. Most of what we buy is domestically sourced or Canada. So North American sourced. So the tariff thing wouldn't be -- it would be somewhat of a hit to us, but it would be less than probably too much of the rest of the market. But the overall market -- our view is that if tariffs come in place, the overall market is going to go up. And again, the commodity market's already reacted that way. So I would say that there's definitely inflationary pressures on the metal market, and we're just kind of working through that. Again, I think everyone on the call knows it. But that ultimately is a pass-through for us to our customers. So as to our financial performance, it's not a very -- a particularly important point. But it is very important in terms of us having the most competitive package to provide to our customers. So we're highly engaged in what happens here and care a lot about it, are in the fight. And by the way, the can is by far the lowest cost overall package for delivery of food products. So we still feel good about that, but we want to keep that price as low as we can. So long answer to say that inflation is out there and is on the climb right now. It's not decreasing at this stage.

And then just moving over to the resins quickly, Chip. Obviously, as we came into 2018, there was a lot of movement in the primary resins at year-end, and that -- the volatility kind of continued on through the quarter. As we sit here today, it was a little unfavorable for us in the quarter in total as -- across all of our businesses. And as we go forward, most of the projections call for some increases between Q2 and Q3, and then those increases abating for the end of the year. So as we sit here today, we're saying resin really probably won't have a whole lot of impact on our business for the balance of the year. That will change by quarter, though. So it could be slightly favorable in Q2 with a headwind for us in Q3 at this point. But again, there's a lot of moving parts to resin as usual, and we'll see how we make it through the start of the hurricane season here as well.

That's very helpful. And just a quick one on the closures business. And actually, in terms -- I know that certainly, you saw a great margin pop in plastic containers, and you talked about the volumes there. But when we look at the closures segment, especially given the legacy decline in volumes, the 13% margin was the best we've seen in a first quarter. And I would imagine there's a little bit of friction to get to an EBIT margin from the step-up depreciation that -- from the Dispensing Systems acquisition. So the question really is for the year, would you say that 13% represents what you could see in that segment for the full year? Or is that, because of some of these timing issues, an anomaly? And again, keep in mind that, I guess, you still have some synergies left to capture from the Dispensing Systems deal.

Chip, it's Adam. Look, the margin rate that we saw for Q1 in closures is a good number for the full year. We're pleased with the business. As Tony mentioned, we had very strong operational performance in the legacy closures business as we see the volume come back through for our hot-fill season for single-serve beverages. Those margins will be maintained through the course of the year. So we feel very good about that. Dispensing Systems is off to a great start, as Tony said. We did have a little bit of the lawn and garden buy ahead. But we feel very good about the new business that they've captured over the course of the last year and what that represents from a profitability standpoint. So we're feeling very good about the business and think that's a good proxy for the go-forward position.

Yes, Chip, keep in mind that the Dispensing Systems business, even despite the step-up that you mentioned, is a slightly higher margin business. And our legacy business, as we indicated, had really good operational performance, which we would expect them to maintain through the year. So I think right to Adam's point that, that is a good margin target for the year.

And we'll take our next question from George Staphos with Bank of America Merrill Lynch.

I wanted to come back to lawn and garden. And maybe even more broadly, if you could put a rough revenue figure on what you thought the timing effect was in 1Q that you think will reverse or a rough EBIT figure for us just to be mindful of? And the related question is as you take a step back, maybe it's not timing, maybe the consumer is finally back. How do you determine that from your conversations with customers that this isn't kind of a pickup in longer term demand, which obviously wouldn't be timing and would be a good thing for you?

George, I think two things. One, I think that the scale of it's enough is that we thought it was worth talking about. We think it's a meaningful part of the difference in our estimates through the quarter, so that I think scales it for you. The -- I think, by the way, I think you're right. If we look broadly across our business, I think in many of them, there is a pick up. That's not really what we're talking about in timing. But I think when you look at the 5% in plastics, I think an element of that absolutely is the markets are better. And so I think the consumer is back a little bit more. Even if you look into the Dispensing Systems business, I think some of where they're seeing strength is just good market. But the timing issue is more about -- these are seasonal markets. So it may well be the point you're on. But because that, they're just -- they're filling a lot more early around those markets. And it's the timing of that coming through. Hopefully, it is in fact that they'll consume it all and will be good and they'll do the same thing next year. But that's the sell-through that has to happen later on in the year.

Okay. I mean, if there's a -- could you put a revenue figure? If you gave it already, and I missed it, I apologize in advance. Could you put a rough revenue figure on what at that timing effect feels like to you for the first quarter?

Yes, I mean, it's -- again, this is -- I'm pulling this out a little bit. I'm thinking of one of the businesses in particular. But it's got to be in that $15 million to $20 million kind of a range. There's pluses and minuses.

Okay. Two quick ones for me, then I'll turn it over and come back in queue. Recognizing that your business is a the pass-through business contractually within metal containers and has been for a long time. What effect do you think the volatility in steel and tinplate may have or may not have on volume trends for the business longer term? My own view, we've published this, we don't think it matters really all that much near term. Your customers, who are in metal containers, are there for various reasons. And partly because they have their filling equipment set up for this. But longer term, that's where the volatility could have more of an effect on the demand, at least as we think about it. Where would you agree? Where would you disagree?

Good question. I think, again, as we've talked about a lot of things about the food can over a lot of years. I think what's important to note is that more and more where it is today, are markets that, as I think you pointed out, are -- the entire fill system is unique for the can. And so I think it is almost harder to think about flexing your buy away from can today than it probably was 20 years ago. That's one thing. Secondly, I would just say that volatility -- the question is what are you going to? If you're going to plastics, it's been very volatile as well. So I don't think you're going to escape volatility by making a move of underlying package. I think the same is true around the fiber world, although you'd probably be a better of judge of that than I would. So I'm not sure you -- in any way, do you escape that volatility. But I think that we are always focused on how do we keep the can competitive. I think less volatility is better. We're preaching that to our steel suppliers and aluminum suppliers all the time that it'd be better to accept us as a more consistent revenue stream even if it's better in the bad days and worse in the good days, I think that'd be smarter for our suppliers and a better answer for us. So less volatility, of course, will be good. But I think the inherent competitive advantage of can through a [retort] process today is so far superior to the alternative that I think it'll be the same as it's been. On the edge, you'll have new products that will keep coming out in other packages. But my guess and our guess is that the core will continue to be here.

We'll take our next question from Deborah Jones with Deutsche Bank.

I wanted to focus on plastic containers. Could you talk about how you see margins progressing over the balance of the year? And then just given that there were some one-time things related to volume, can you help us understand what we should consider a good growth rate for the balance of the year in that segment?

Sure, Debbie, it's Adam. Again, we were at 13% EBITDA margins for the plastics business in Q1. That did benefit a little bit of the seasonal buys that Tony had mentioned earlier. So if you think about the seasonality in total for the business, it is a little more heavily weighted to the first half of the year versus the back half. So I think inherently with our fixed cost absorption, you're going to have a little bit higher margin rate in the first half than the back half. The new operating facility in Fort Smith, Arkansas will be coming on stream in the back half of the year as well. So most of the costs associated with that startup will be incurred in the back half. So that will be a little bit of a drag on margins. But the 13%, the underlying margin rate, the underlying business is really good for us right now and it's where we wanted to be at this point on our journey towards our 15% target, and we've made very positive steps in that right direction thus far with our plastics business.

Okay. And then just a question on your free cash flow guidance. Was -- are there any change to working cap assumptions or any of the major buckets that will drive that?

No. We reconfirmed our CapEx at $200 million, and we're still on pace and the first quarter was a good start, kind of right in line with where we would have expected it to be around the inventory reduction. So basically, all the components are as we would have communicated them or as we did communicate them during the year-end call.

And we'll take our next question from Ghansham Panjabi with Baird.

This is actually Matt Krueger sitting in for Ghansham. Given that you mentioned a number of discrete customer headwinds for the metal containers business, can you talk a bit about how the previously reported share loss and the referenced plant shutdown will impact your volume expectations over the coming quarters? And then also, can you talk about which of these factors was included in your initial guidance and things like that?

Sure, I'll try to. So the two main factors there. One was that there were some buy-forward ahead of the steel increase in the fourth quarter. We knew that. There were some customers who were quite transparent about that. So we absolutely knew it in the fourth quarter. I think what was not quite as clear is that there was a little bit more as we got into the first quarter. Customers who were not as transparent about it that it appears to us was doing some of that as well. So a little bit of that was in the guidance and a little bit wasn't, if you will. None of the plant shutdown was in the guidance. Now it's important to note that, that will frankly -- it's a sort of a timing issue too, but that will have more impact on the rest of the year than it did on the first quarter. And that's roughly 1% of sales is what that would represent. Now a good question that somebody might have is, well, if that's somebody leaving the group market, won't the rest of the market pick that up? And so don't you have a chance perhaps of recovering some of that? I think theoretically, the answer to that is yes, I think in -- practically, it's not going to happen this year because it's all happened too quickly into the season. So I think it's unlikely that we're going to have any other customer that's going to fill for that lost product on a shelf and know they are going to win in the store to get that product. So our gut would be that there wouldn't be any kind of benefit against that this year, but there may be in the future.

Great, that's very helpful. And then sticking with the metal containers business. Can you comment on how the pack season is shaping up for 2018 while also reminding us if there any specific year-over-year comparison factors from a pack perspective that we should think about as the year progresses?

I think, year-on-year, there are elements of it -- but year-on-year, it was kind of a medium pack last year, nothing great, not the end of the world. It's pretty early to give you an answer. I think what we're -- the West Coast right now, nothing to report on that. The Midwest -- for those on the call who are in the Midwest will know it's still quite cold. I think there are actually farms that still have snow on the fields right now. So we're clearly behind. So that's going to have some impact, I would think, on the timing. And so a little bit of Q2 risk around that, I think. And then anything that -- anytime any pack goes late, that puts more risk to what's the weather at the end of the pack season. So I would just say that's one to keep an eye on right now. But peas will definitely be a bit late and then corn, it sounds right now like it would be somewhat late this year.

We'll take the next question from Adam Josephson with KeyBanc.

Tony or Bob, just one -- just to follow-up on George's question for one second. Just to put a finer point on the timing issue. You beat your -- the midpoint of your guidance by about $0.08. How much of that would you say just rough guess was timing versus -- because I think, Tony, you also mentioned that all the businesses performed at or above your expectations in the quarter. So can you help us a little bit with that?

Well, I think, I mean, timing was a big part of it. Again, we give a range. So I think timing is an element. Operations were very good. The (inaudible) timing is a little bit tricky because we also know in the back half of the year, we got cost. Adam mentioned, we got a plant starting up in the back half. There's an element of the inventory reduction in containers and how much there. We did -- we were kind of the low end of the scale, I would say, in terms of the negative impact on that in the first quarter. So some of that is going to be a timing issue to perhaps more of that inventory impact in the fourth quarter. So there are a lot of moving pieces here. But as we looked at the quarter, our takeaway was that, primarily, the things that made it a beat were timing. I wouldn't say everything. I think a little bit of it is just we got to wait and see. This a small quarter. We've got a lot more of the year to come, but a big part of what we saw there was -- were things that could turn on us as the year developed.

A follow-up to that. How much of the business -- of the acquired business, Tony, is lawn and garden? Just out of curiosity.

I don't have it in front of me. It's one of many markets for them. But it's a very meaningful market and it tends to be kind of the front half of the year.

Got it. Okay. And just also related to the dispensing closures business. The -- how much EBIT did that business contribute in the quarter? I know EBIT in the segment was up $24 million. And how did that compare to your expectation?

It was about $22 million of that, give or take, a little bit. And that's kind of right in line with where we would have expected it, maybe a little bit better.

Yes, I might put a finer point on that. I think it's roughly -- if you look at the EPS numbers we were putting out there, I think you are something like $2 million to the better on it, which is, by the way, is an indication --I mean, we're telling you that the sales were a little bit stronger. Also, and this is not a variance to expectation. But earlier in the call the question was made about more synergies going forward. I would also tell you that, that quarter has got all synergies in it. In fact, we have absolutely -- $15 million was the number we put out there. We've absolutely gotten $15 million, in fact, a bit more than that. So I think what you got there is a representative quarter with good solid sales underneath it.

Just couple others on that. Bob, can you remind us about 2Q? Because last year, you had the inventory write-up. So in terms of incremental contribution year-on-year in 2Q from that business, can you help us a little bit with that?

Yes. So there was about $13 million of drag in the last quarter -- or last year's second quarter for the inventory. So that won't recur so that -- you'll be at least that better on a year-over-year basis.

And you got $11 million or $12 million, I think, last year, inclusive of that inventory write-up?

Not in that quarter. That, we got $10 million on the year. (inaudible) on it. So I mean, just to make it so you don't have to pull the thread too hard here. I mean our view is that the business is probably going to be something in the range of mid $0.30 accretive this year, which is above every number I've laid out for you before now. And that's just because it's performing as well as is it, and we've overachieved on the synergy side.

Okay. And just one last one on that business. Remind us the seasonality of that business, Tony?

It's a little bit skewed to the coming quarters, next 2 quarters, but not a lot.

We'll take our next question from Anthony Pettinari with Citi.

Just a couple of questions on the metal container side. In previous quarters, you've talked about a soup customer that's had some issues with a large retail partner. I don't know if there's any update on that situation or any kind of general thoughts on the soup business. And then just, I think a earlier question was the impact of the fruit customer plant shutdown. And I think you'd said that's 1% of sales. I just want to confirm is that 1% of metal containers sales overall, understanding you might get a little bit of that back later.

Okay, I'll go backwards order on that. It's 1 -- it's roughly (inaudible) 1% of our volume in our food can business. On the soup side, so two parts. One, the good news is, and I thought we talked about it last quarter, but that particular customer and retailer did find a way forward, and they're back on the shelves. So all that back on pace. Soup, in general, I guess, I would say this was probably a bit of a better quarter broadly for soup. There is -- you'll recall, we talked about a particular customer who was doing some footprint rationalization, and that's still underway. So in that particular case, the volumes were not as strong. But if we kind look across the market in general, taking that aside, it seemed pretty stable. And in some cases, not -- some signs of improvement. So the story of the soup is not over yet. But it's -- there are positive signs in some cases and then still a fight against decline in others.

Okay, that's helpful. And then just moving over to closures and maybe plastics more broadly. It seems like this year, we've seen kind of increased environmental scrutiny of single-use plastics in Europe and U.K. especially bottles and other containers that use closures. Understanding it's not really the biggest part of your business. I guess, first, have you seen any kind of impact or change in customer conversations? And then kind of longer term, how do you think about your sustainability profile, if we do see a change in consumer behavior over the next few years?

Sure. This is Adam, I'll take the first part and then probably throw it over to Tony for the second part. So as far as the discussion levels with customers, there has been increased dialogue with customers around either PCR resins or plant-based resins, et cetera, to support sustainability initiatives that they have or their end customers may have. So those discussions are ongoing. The pace of those discussions has maybe picked up a little bit. We have not seen anything really change in actuality of the products going to market for our business at this point. So the discussions are always ongoing. We talk about our customers' specifications all the time and focus on meeting those specifications and defining those specifications. But outside of that, we have not seen a significant change either way at this point.

And on your broader question, kind of the future, what's it mean. I think it's a really good question and we spend a lot of time thinking about it. I think broadly you look at Silgan and we're in, we think, very sustainable packages, the metal side is infinitely recyclable. We use recycled content and it's recyclable. Even when you look at our plastics business, unlike a water bottle or something else, it's not those kinds of volumes of units. We do use recycled content. Our bottles, as a general rule, are recyclable. There are not a lot of different materials in there that make that harder to deal with. So I think we feel pretty good. I would also say, I really do think the plastic industry has to get better at recycling and getting the consumer to recycle. I think we'd all feel better if there was more of that going on. And so we're supportive of any effort in that regard as well. But we are hearing from customers. It certainly is on everyone's mind right now. I don't think our business is exactly in the crosshairs of that, but I hope we can be helpful in finding an answer for everybody that's constructive.

We'll take our next question from Brian Maguire with Goldman Sachs.

I just wanted to follow up -- follow back on the tariff issue. And I recognize you pass-through most of the rise in cost to your customers. But just wondering if there's anything to be concerned about on the supply side, if there's -- I think you said you source most of your steel tinplate suppliers in the U.S., but just wondering if the industry all tries to crowd into the U.S. market because of the tariffs if there'd be enough supply, and do you have alternative kind of sourcing in a kind of worst case scenario on tariffs?

That's a good question. I mean, it's something that we've spent a lot of time working on. We work long-term contracts. We're -- it's one of the values that we think we bring to our customers is taking the long view on all of this. So I think we feel very good comparatively in terms of the length of contracts, the relationships that we have with our suppliers. So our expectation is that we would be competitively advantaged in that situation you refer to. I think there'll be plenty of steel available or aluminum because this market is one of the higher-priced markets worldwide, which makes you scratch your head why we're putting tariffs on it. But -- so I think that there will be interest in selling in here, it just may have to have the tariff paid on the price of that. So I think it really will be more of a price point for those that don't have relationships. And as I said, I think our expectation is given what we've done with the industry over time, that we'll be relatively advantaged in that process.

Okay, that helps. And then just two questions on the plastics business. One, just around the growth that's been pretty really solid for the last couple of quarters. Just wonder if you could comment a little bit more about what's driving that? If it's new customer wins or just existing customers ordering more. And then just sort of following on Debbie's question about the margins. I think the incremental margins in the quarter were around 30%, which is obviously a very high number. Just wondering if there's any one-time noise other than maybe the timing that you called out in that? Or is that the sort of incremental margin now that you've got the footprint resituated that we can kind of expect in that business?

Yes, good question. Starting with the second one first. As far as the profitability of the plastics business, there really isn't a whole lot to it other than just good operating performance and then also the growth that we saw. So the first quarter did benefit a little bit from the pull forward of some of those seasonal items that Tony had talked about earlier. So -- but bottom line it's a good quarter for the business and where we are. And we are seeing good growth. And it's growth kind of in a couple of areas, and you really hit on both of them. We have been successful in going out and securing new business awards and bringing them in, commercializing them and getting those products to our customers. And then we've also seen growth opportunities from existing customers on new product line extensions that we've been able to leverage into our system. And finally, we've seen instances where existing packages on the shelf have seen some growth. So really, our plastic business -- it's a pretty good story that we're seeing growth kind of in all of those categories that I just mentioned.

And let me just add to that, two things. One, not to let our plastics team off the hook too soon, even though the operations are really good. There's still room to improve the current operations. So we still think there's opportunity to get better on that as well. Secondly, we're also -- as we talked before, we're building a new plant for additional sales in plastics for more growth down the road as well. So that does show you that we do believe there's opportunities here and that we are investing where we see those.

And that growth is in an existing customer and in existing package as well.

Right.

And just one last one, if I could. The commonality on the two segments that you called out as maybe benefiting from timing was they both use resin as a raw material. And just wondering if there might be some pre-buying ahead of some of the price increases that -- you're trying to recover the inflation from the hurricanes and the end of the year kind of disruptions. Is it your sense that there might have been some pre-buying ahead of price increases in the timing?

No, we don't think so. I think the areas where we do think there was pre-buy, it was more due to the seasonality of the product as opposed to the resin-based increases or moves in resin prices that we've seen in the first quarter and that are expected for the balance of the year. And those changes for the balance of the year, as I said, it's not going to have much impact on the full year. So they're really -- while it's moving, there just isn't that much movement right now projected in primary resins.

We'll take our next question from Tyler Langton with JPMorgan.

Just on the metal container, Bob. I think you said -- I think it was like last quarter from the inventory reduction, I think, you'd talked about in Q1 sort of like a $5 million hit and then maybe in Q4 more like $10 million. Is that -- I think, you said it might have been a little less in Q1. So I guess, could you just give us any updates on what that could look like now?

Sure. I think what I said is that the number we were thinking the first quarter could have been $5 million to $6 million. We were more in that $5 million range on it. So -- and then the second part is that it's -- how much we do at the end of the year? Frankly, we'd like to do as much as we conceivably can. So that's also one of the things that, again, I'll put it in a broad category called timing is there may be that we see an opportunity to take even a little bit more out in the fourth quarter, in which case we probably would do that.

Okay. And I got it. And Tony, just on the -- I know there's some -- this quarter, sort of the volumes in metal container, various sort of puts and takes, but is it -- with a normal harvest, is that segment still kind of flattish in terms of volumes for the year as you look at it now?

Well, I'd say flat -- we normally start by saying kind of flattish is a reasonable expectation. Now we're saying flattish and we just had somebody shut down of a plant that represents 1%. So I think I'd say flattish is probably the high end of what's likely for the year to down something would be our cut at it right now.

Okay. And then just last thing on the tax rate, I know it was a little bit higher this quarter because of, I guess, more income in higher tax jurisdictions. For the full year, is 24% still reasonable? Or does that get bumped up just because where you're sort of earning some money?

Yes, I think as we provided guidance, we sort of indicated that we saw the rate kind of somewhere in the 23% to 25% range, and we kind of zeroed in at 24% for discussion purposes. I think we're still hopeful that we can kind of claw a lot of that back. But I think if I were giving an estimate now, I'd probably guide you to the high end of our range, kind of in that 25% range. Obviously, there's still -- we continue to learn more. We've got differences in where the profit is being earned across the business, which will have some impact on that. So I think the high end of that 23% to 25% range is the right spot to be.

We'll take our next question from Tom Narayan with RBC Capital Markets.

One question on closures, particularly the legacy closures. We've seen a couple of quarters now with soft volumes. I know you stated the timing issue this quarter. Is there perhaps something maybe structural going on with the legacy closures, particularly maybe with the sports drinks? Is there something beyond timing? Or is just -- that's the key reason we should look at?

No. We really do you think it is timing. If you look at what's happened with our single-serve beverage business for the last couple of years, really, 2017 Q1 was an all-time record for volume for our business. So we're comparing against a really tough comp right now. Part of the reason why Q1 of last year was a record was 2016 as a full year was our highest volume for single-serve beverages that we'd had in our company's history. So we had customers, I think, responding to that 2016 volume, and they began filling earlier last year. So we call it the preseason or prefilling season in Q1 last year. Given what happened with the cool wet weather throughout the year last year, our volumes didn't quite materialize as we would have liked them to in our single-serve business. And so as we now head into 2018, we're in a more normal prefilling season. So we're really going back a couple of years probably to get the normal seasonality of the business versus last year.

So if you look hot-filled beverages, they're doing really well. There's transition of what's in there. It might be more teas than it was at one time and less isotonics. But as the markets do well, and we can assure you that our business is doing fabulously in that market in terms of delivering high quality, high service to our customers and recognized for it.

And just one last point on that. I would say that even though we were off in Q1, we're expecting that volume to recover for the year. So we're expecting volume growth in our hot-fill legacy closures business this year.

Got it. And then a kind of high-level question. We've seen a couple of quarters now really strong performance from Dispensing Systems and now we're seeing the plastic containers. Just curious kind of high level where you want to see the business kind of break out along substrates? And how it influences your M&A decisions? Is there a rationale to perhaps, go bigger into the plastics side, given the recent performance in this acquired business? Or do you kind of like where you are?

Well, first of all, we like where we are, that's the easy part of the question. No, I think really what we think about is where are the places where we can provide sustainable competitive advantage. And that's really what we're always thinking about. And so if it's in closures or dispensing closures, then we're going to keep pushing in there and there are definitely markets around that, that we believe we can do that in. If it's in metal cans, and we clearly believe we could provide that metal can that we see opportunities around it, we'd push in that direction as well. So I don't -- we don't sit and write a strategic plan and say, this is what we want to be. What we do every day is figure out where are we the best. And where can we do more of that and get rewarded for it. And so we're going to look in all those places. I think there was a time when I think we were sending signals saying that in plastics, we're going to fix what we got for a while. I think the question is partly to that. I don't think we feel that way right now. I think we feel like plastics is a very good contributing business. It's not where we want it to be, right. We want to get to 15%. So we're not done yet. But I don't think we would put it in a penalty box right now would be the only other change I would give you.

(Operator Instructions) We have a follow-up question from Chris Manuel with Wells Fargo.

Just two questions for you. One, if you could -- I know you still have a -- it's a bad term to use, it's an antiquated term, but the Eastern Bloc some of your operations over in Jordan, Syria, the Ukraine, et cetera. Any issues over there with borders open, borders closed, being allowed to sell in the regions now with some of the -- I don't want to call it call tariffs, but restrictions. Could you give us some update there as to what may be happening with the business?

Yes. So to be clear, we don't have a plant in Syria. We do have a plant in Jordan. And we've closed the plant in the Ukraine. So look, that continues to be a geopolitical struggle. Yes, that plant in Jordan was designed to be able to ship product around the region into places like Lebanon, which was a fairly strong market at one point. That obviously is difficult to get to without going through Syria or some other areas to get product to that region. So it's still not performing to the level that we expected it to or we would want it to. So we continue to evaluate what to do about that from a structural standpoint. So that's out in front of us.

I'll broaden your questions a little bit because you started with the Eastern Bloc. Also, we do have presence in Russia, as you probably all know. We didn't mention this, but we could have, that another volume point on the can side was that Russian volumes were down. Because currency issues given all the conflict with Russia of late, put us at a bit of a competitive disadvantage for a period of time with the local suppliers. Historically, that balances out. So again, that's another one where we'd say we think that it will come around, a little harder to say when the timing is on that. So that's another one for you. It's still a meaningful market for us, and we do make money there. But that's another spot where we saw some impact of what's going on around the world.

Okay, that's helpful. And then second question I had a bit of a follow-up. And you've talked about, obviously, you've been very active in M&A over the last decade. Can you talk a little bit about where the pipeline sits today? I know you've been in a digest and get integrated, and now it's been about a year, and you've obviously hit your synergy targets. Can you talk about what you're seeing today, your opportunity, you think, in front of you? You've got leverage back. It looks like towards mid-3s by the end of this year. What you're feeling there?

Yes, I think you hit on the points that I would make, right, starting with the performance of SDS and the integration there, that's gone very well, and the financial performance has obviously been strong. Take that performance in combination with the benefits that we're getting from the cash side around tax reform and some of the working capital initiatives, and that has accelerated our deleveraging timing a bit. So you're exactly right. By the time we get to the end of the year, mid-3 is just kind of in the strike zone for us. So as a consequence, we continue to maintain an active pipeline, and we'd be prepared to execute on the right opportunity. I think all of that said, you know us well enough that discipline is a big part of the protocol for us and making sure that not only is it the right deal for us to hit the point that Tony made earlier, where we can find a sustainable competitive position in a market, but it also's got to meet the right financial returns as well. So there's no shortage of opportunities and we don't feel constrained, but discipline is going to be at the forefront for us as well.

And we'll take our last question from George Staphos with Bank of America Merrill Lynch.

Some cat and dog questions at the very end, real quickly here. One, the nonservice pension income. Do you have any freedom in terms of where you show that in the P&L, whether above interest or below interest? I was just curious there. Secondly, on steel, it didn't sound like it, but is there any chance that customers were still trying to buy ahead of potentially even higher steel prices in the first quarter? Why? Why not? And then on the tax jurisdiction question. I think Adam asked it earlier. Just where -- in what regions were you maybe earning a little bit more and therefore incurring a little bit higher taxes?

I'll take the last two, and I'll let you have the first one. So tax jurisdiction is broadly, we do well in Europe. And so you're seeing a little bit more income in Western to -- west side of Eastern Europe, so where the tax rates are a little bit higher now than the U.S., amazingly. And the pension.

Yes, so I think if you look on the P&L in the press release, you'll see that we've changed structure just a little bit to break it out there. So that's what we would envision on a go-forward basis.

Okay. But do you have to put it in that location where you put in the P&L? Or do you have the ability to move it somewhere as long as it's above the pretax line? That was more my question out of curiosity.

Yes, we think we've got it in the right spot. Now obviously, as we think about the segments and the performance there, you'll see that it's included in the segment profitability.

Okay. And then lastly, any chance that -- sorry, guys, go ahead.

Yes. I was going to -- I didn't forget you, George. So steel, I don't think so. It's hard to prove it. But I don't think anybody knew or understood when or where it was going to impact, et cetera. So I don't think there was any buy ahead of anything around the tariff.

And that does conclude our question-and-answer session for today. At this time, I'd like to turn the conference call back over to Tony Allott for any additional or closing comments.

Great. Thank you, Ashley, and thank you, everyone, for the call. We look forward to talking about our second quarter in late July. Have a good day.

Once again, that concludes today's conference call. We thank you all for your participation. And you may now disconnect.