Sonoco Products Co (SON) 2002 Q2 法說會逐字稿

Thank you for holding, ladies and gentlemen, and welcome to Sonoco conference call. At this time all lines are in a listen-only mode. There will be an opportunity to ask questions at the end of today's conference. Instructions for asking questions will be given at a later time. I thank you for your attention and now turn the time over to your host Allan Cecil. Go ahead, sir.

Good afternoon and thank you very much for joining us for our second quarter teleconference. With me today are Harris DeLoach, our president and CEO, Charles Hupfer, Vice President and Chief Financial Officer, and

, staff Vice President and Treasurer.

For those who may not have seen our record, our second quarter release this morning, excuse me, our earnings per diluted share, excluding one time items, was 40 cents, which is even with last year and in line with our guidance of 38 to 42 cents. Reported earnings were 39 cents versus 18.

We saw a year over year improvement in volumes during the second quarter. Also in sales, net income, and productivity. In addition, our cash gap continued to improve and our free cash flow remained strong at 31.1 million. That's before the four million in funding for benefit plan and after capital expenditures of 29 million and dividends of 20.2 million.

Our criteria for use of free cash flow, in order of priority, continues to be acquisitions, debt reduction, and share repurchases when appropriate. We were particularly pleased to see improvement in volume in our paper mills and engineer carriers, both year over year and quarter to quarter, the first such increase in a number of quarters.

While this helped operating profits in the industrial sector, it could not offset the company's price decline driven by some $30 per ton in average price increases for OCC during the second quarter. Those increases in OCC costs were on top of further weakening in converted prices at the time we incurred them. However, we have been very aggressive in responding to these raw material and other general operating costs with paperboard and converted product price increases beginning in May.

Two paper board increases and two converted product increases have been initiated in Europe with two paper board and one tube and core increase in the U.S. and Canada to date. As has historically been the case, there is an inherent lag time between initiating our price increases and their full implementation. We will not realize the full impact of the increases until later this year. The results should, at the least, offset the higher OCC costs. Because of this lag, EPS for the second quarter are expected to be in the 40 cent to 44 cent range. However, as our price increases are more fully realized, coupled with continuous improvement in our cost structure and expected further volume gains as the economy improves, we expect to achieve EPS in the fourth quarter of 45 to 49 cents.

Price costs will likely be the primary determinant of the timing and extent of second half earnings. Our consumer sector sales were up, reflecting the continued phase-in of some 60 million in new flexible contracts, which were secured during 2001, and further growth in our steel

closure business, which we purchased in late 2001. A positive indicator, I think, worth noting is that our composite can volume increased in the second quarter, versus the first quarter. This is the first quarter over quarter improvement since the first quarter of 2000, in our can business.

Although earnings in the consumer sector were off slightly in the second quarter, due primarily to increased R&D spending, decreased sales in certain product segments of our composite cans, and increased resin prices, the company does expect continued increases in profits from growing flexible sales as the installation of increased capacity is completed. We expect continued growth enclosures, and we are excited about progress being made with new products, in composite cans and other consumer businesses, resulting from increased new product expenditures.

We also announced today, a regular dividend of 21 cents per share, which was our 309th consecutive dividend, and we are pleased to say that we announced the election of John

as a new member of the board of directors. Some of you may remember John from his 20-year career investment banking at

. Let me conclude by stating that although there are uncertainties about the timing and degree of price cost and general economic recovery, the company believes it is well positioned to benefit, as improvement in these areas occurs. I will now turn the discussion over to Charlie Hupfer, our CFO.

Thank you Allan. Sales up 712 million, were 10% above last year's reported sales. As reported net income of 37.7 million was more than 2 times last years 16.9 million, and EPS is 39 cents compared with last year's 18. Now obviously, both the years include some one-time adjustments that should be added back to make clear year-over-year comparisons. And we've done that in a reconciliation that's found in the press release, reconciling

quarter to comparable net income. In EPS terms, this reconcilliation looks like uh, we start with 39 cents, as reported in this year's second quarter, and add 1 cent for restructuring. This is not a new plan, but it is simply an adjustment between actual costs and estimates on a --- on a former plan. In this particular instance, we had some higher severence costs related to closure of one of high density

California plants. So it is 39 plus 1 is

why the 40 cents for this year. This year's second quarter.

Last year, the as-reported number is 18 cents, and to that, we add another 18 cents for the company's settlement with the Internal Revenue Service around the issue of company-owned life insurance. We add 2 cents for restructuring charge, that was an adjustment like the one we've had this year, and another 2 cents to add back good will to put the --- to make the numbers comparable, given the fact that good will isn't amortized under accounting policy any longer. So those number add up to 40 cents and the comparison, then, is 40 cents this year's second quarter to 40 cents in last year's. The 40 cents is in line with the guidance, as Allan said, of 38 to 42. Likewise, net income, on a comparable basis, is 38.8 million in this year's second quarter, compared with 38.7 in last year's.

The gross profit margin declined from 21 percent last year to 20.4 percent. All of this decline we'll talk about as I go through my presentation, is on--is in the industrial side, largely the tube and core operation in the U.S., tube and core paper operation in Europe, and in our paper operation here in the U.S. all suffered some margin decline. In the paper side of our business, the margins were offset by significantly improved profitability in our recovered paper group. Again, I'll talk some more about that--not the margin effect of that, but the dollar effect of that as we look at the bridge analysis.

costs were 10.5 percent of sales in 2002, compared with 10.1 --- hey I'm sorry --- 10.3 in 2001, and we'll see later that most of this is on the consumer side of the business, and most of it relates to increased research and development spending. Interest is 1.3 million higher, and that relates to several things; one of them is higher debt that we've put on the books last year's third quarter to finance the acquisition that we made back in that time period. Also, we

250 million dollars of commercial paper on October 30th, at a 6 ½ percent rate for 12 years. That certainly increased the rate. The interest is offset in part by lower gross paper rates. Our commercial paper rate average for the second quarter was 1.8 percent, compared to about 4.3 percent in last year's second quarter. The effective tax rate remains at the 36 percent that we had in the first quarter, and that compares with last year's 37 ½ percent.

Equity and affiliate income increased by 1.3 million, that's going from about 700,000 last year to 1.9 million this year. More than half of that is related to the improved performance of Conitex-Sonoco, that's our joint venture that was formed several years ago, when we sold off our cone business.

You'll also see in the press release, we make reference to some non-recurring income and expenses, and I'll just mention that in the interest of full disclosure, as to what we meant there, but we did sell some buildings in Canada, and incurred a non-recurring gain. That non-recurring gain was offset by costs associated with the closure of a business that wasn't considered restructuring; closure of an industrial machine business in St. Louis, and that created non-recurring expenses, and the two just offset, in fact, they netted to a gain of about $100,000. In the interest of fair disclosure, we made that comment, but the net effect on P&L with those two non-recurring items is zero. Now, when we turn to the sales bridge -- and this is for the company as a whole -- we started with sales last year of

-- this would be second quarter 2001 -- of 647.7 million, and what I'm going to do is bridge you from that number to this quarter's 712.4 million.

The first element is volume and mix, and that was positive -- 26.7 million. We had a negative price variance of 16.1 million. Then we had acquisitions -- this is the sales number

acquisitions -- of 55.7 million, and then all other amounts to a negative 1.7 million. And if you add up those pluses and minuses, you should arrive at 712.4 million.

Now, let me go back to comment a little bit about some of these categories starting with volume. Volumes of 26.7, of that 17 million is really in the industrial segment with our

plus our paper volume more than offsetting the reduced

volume. As we talk a little bit about

, they certainly have had sales problems over the last several quarters in large part because

operation in part sells into the cable TV and to the fiber optics industry, and, of course, they're suffering, and that part of our sales is suffering along with them.

We had 9 million of the 26 million is in the consumer segment with our packaging services operation and our

operation offsetting - they had good volume increases. Those solid volume increases offset declines in the

business.

did report quarter-per-quarter shortfall due to lower snack

to the lower snack sales. Some of that would be

and concentrate juice volumes -- we've talked about before -- as being in somewhat of an overall decline.

In terms of price, the negative price variance of 16.1 million is really split roughly 50-50 between industrial and the consumer segment. Our

pricing in North America has continued to show a slide and it's spent at about the rate of 1.5 percent. That's comparing average prices in the second quarter of last year to average prices this year. We've seen that gradual slide over the last several quarters and certainly saw it in this quarter. Of course, these numbers would be before some of those price actions that we -- that Allan talked about earlier.

The paper group, on the other hand, reported a favorable two million variance, and that's coming largely from the recovered paper side where they've been able to, although having had paper, increased waste paper costs. They're also selling at higher prices.

And then on the consumer side, high-density film reported, really, about a $7 million shortfall in pricing that is that $16 billion number. However, we'll see when we talk about EBIT that that doesn't affect the bottom line because

and costs dropped by a similar amount.

In the sales bridge, exchange is not a factor. Exchange differences accounted for about a $187,000 and now that's a big change from the first quarter where in the first quarter where first quarter exchange accounted for a negative 6.7 million, which attached to after the weakness of the dollar, this quarter over quarter comparison.

Now turning to the even bridge, and starting with the last year's 2001 quarter with 72 million. The first item would be volume and volume was zero. We had no volume affect, which I'll talk about in a minute, in this years quarter to quarter comparison.

Price cost was a negative $10 million. Productivity a positive $12 million. Selling and administrative cost was a negative $6,000,000. And all other positive two million, which if you add up those numbers, you should arrive at $70 million up even for second quarter.

Now, if you note, the volume variance I mentioned was zero. And we did have a positive variance in the industrial segment on the $17 million worth of volume that I talked about with the sells bridge. But we frankly had a mix variance on the consumer side where the contribution that we lost on a composite can short fall, was not made up by a volume coming through with higher packaging services and flexible volumes. The result was that we had a negative for the consumer segment. That negative offset the positive in the industrial segment and zeroed out the volume variance. So, effectively what sort of summerize that, we had positive volume variance in terms of even as a result of the improved industrial volume. We had negative volume in the consumer side because of losing some higher margin composite can business and replacing it with the lower margin packing services and flexible business.

Now frankly, profitability on the increase flexible business was dampened by the start up type cost that we incurred and frankly, submitted sufficing as we bring upon two

in some of our plans. And we can talk a little bit more about that later.

A great deal of time and attention has gone into these two plants, however, so we fully expect the flexible business profitability to continue to improve.

Now looking at the price cost variance, and that's 10 million negative. As I applied earlier, all of that is on the industrial side. We seen some price erosion in tube's and

and, of course, we have also seen higher

cost and that accounts for that 10 million. Like I said earlier that none of that on the consumer side because of declines in high in densities selling prices are offset by improved cost of

.

In terms of productivity, productivity was positive 12 million, in fact, June was our best productivity month in more than two years. That due obviously to our several programs, our

program and our

program, and also obviously to the good volume that we've experienced in this quarter.

S&A was negative by 6 million, which 4 million of that in the consumer segment. Much of that in the consumer segment is incurred by our R&D efforts as the consumer group works with customers on new products and as we continue to commercialize products like our single rap container. Now, let me comment on pre-cash flow. Pre-cash flow was up $27 million for the quarter. We arrived at free cash flow by net income of 38 million, by adding the non-cash restructuring charge of two million, and then we had non-cash expenses, largely depreciation of 41 million, offset by networking capital to the negative 22 million, capital spending, a negative 29 million, dividends 20 million, and then all other was 19 to arrive at a total of 27 million for the quarter.

Networking capital increased, that is it was a use of cash, despite the fact that our cash gap, which we defined as days of receivables, plus days of inventory, minus days of payables, declined in this quarter. In fact it's declined in each of the last several quarters, quarter over quarter. So we continue to have a strong focus on working capital management but of what we saw in this particular quarter was the strong volume manifested itself in higher accounts receivable and that obviously leads to subtraction from free cash flow figure.

We continue to feel good about 150 million of 160 million targets. That's based on our income projections for the remainder of the year and based on continued working capital improvements.

Balance sheet remains strong. Debt to total capital at the end of the year 49.3, at the end of this second quarter, it's been reduced to 46.3. We've paid down $32 million in debt with the free cash flow that's been generated.

We renewed our backstop line of credit agreement. That's mentioned in the press release. We have 12 banks that we've worked with. The backstop line supports our commercial paper program and really has pretty much the same covenants as we had in last year, each of the last several years, which is a network test with the old capacity in it and on other restrictions of note. So we really have a strong a balance sheet with good credit facilities supporting it.

I'll make a couple of comments about some of our divisions that really it won't help up tie in to the segment. I'm not going to try to give divisions specific numbers but I will comment on a few things. The Industrial Products Division, that's our tube and core division domestically, did show good volume increases for the quarter, about 3.4 percent. I don't have numbers for the quarter broken down, but I could see some numbers for the month of June, and it's clear that some of those categories show increases in the 10 and 20 percent range, with the biggest increases in film cores. We're also seeing a lot of strength in paper mill cores and in our textile business. So, clearly domestic volume is coming on strong.

I've already mentioned the pricing, the pricing decline and Allan mentioned earlier that we have announced a price increase of seven and a half percent effective mid June, June 10, in fact, to offset the higher OCC costs, which in part were passed on through paper price increases. Those price increases really didn't affect the second quarter in any meaningful way. We are very likely to follow the second paper price increase, which was $40 a ton with another increase in this division in the near future.

On the paper side, our domestic paper volume increased almost five percent and that is a combination of trade volume and inner company volume.

quarter, our mills were running in access of 90% of their capacity. The real story here is an OCC, and I will summarize briefly what we've seen there, and that is OCC costs were at about 35 dollars a ton in March, and were increased to 45 in April, then 60 in May, 90 in June, and up to 130 in July. So a steady increase in OCC costs, we responded by announcing price increases of 50 dollars a ton, effective June 1st, and another 40 dollars a ton, effective July 29th.

These price increases really didn't affect our second quarter's results either. Material costs, on the other hand, did start to effect us, the second quarters results, and we had average furnished costs, and I am just considering our quarterly average in the second quarter with the quarterly average in last year's second quarter, and they were up 30%. So uh, we did take some added costs through the paper group. On the other hand, profits in the recover paper operation, more than offset these costs per quarter.

So in fact our paper group reported

profits, this year's quarter versus last.

some of the same story in Europe includes volume in Europe -- our existing operations show the increased volume of about 6%, paper operations were up, obviously even more than that because we acquired some businesses over there. So our paper volume was up about 18%. Now paper mills over there incurred some higher OCC costs as well, although that varied from country to country, and uh, without us, the same recover paper operation, we didn't have a

type of a overall

in our European operations. In other words, we didn't have a favorable benefit from a --- recovered paper sales.

But overall

industrial

volume and paper volume had profitability in Europe with flat year-ends review. We have talked about

volume, which was down from last year's numbers, and uh, that's largely coming from

and concentrate cans, metal end volume, however was up, it is hard to get a numbers to --- because a lot of that is coming through our Phoenix acquisition last year, so comparability is a little bit difficult, but it does look like that there --- there increasing volume about 3% on a --- just a on-going basis. And our flexible business, the sales volume there was up 18% as we continue to bring on that 60 million dollars of new capacity that we have talked about. I mentioned the inefficiencies of starting up these two new presses, uh that probably cost us about 3 million dollars in the quarter. And that will be going away as these inefficiencies are improved. And we are at near capacity within the flexibles group right now as we are bringing this new business on. Those are the extent of my comments. I will turn it over to Al.

I think we are ready to open it up for questions.

Thank you. If you would like to ask a question, please touch the one followed by a four on your touchtone phone. If for any reason if you need to retract your questions, use the one followed by a three. And all questions will be taken in the order they are received. Our first question comes from

. Go ahead please.

Yes, hi,

. How you doing guys?

Hi (John).

Just a couple of quick questions. Do you have a sense as to whether the volume increases in the industrial businesses. Was that a function of inventory bills, or underlying growth among your major end markets?

We think it's our underlying growth, and I think it's being fueled by improved -- a slightly improving economy in this country, but also, I think the weakened dollar has helped our customer base with exports, and so we've seen a combination of both.

You've seen a combination of both, OK. And also, Harris, you had said before that some of the consolidation among your food customers had slowed new product development, which was hurting your consumer packaging business. Has this changed over the past few months?

I don't think I exactly said it like that --- we --- our focus on our consumer customers, we have been looking at obviously becoming more customer and market focused with these larger customers, and presenting different opportunities and larger opportunities for us to grow with them, and as Charlie talked earlier, one of the things that impacted us in the quarter was significantly increased R&D spending in our consumer segment on a year-over-year basis. And that was a very conscious decision, frankly. We were very pleased with where we were going with this development, and almost all, if not all of this, frankly, was being customer pulled, and we had to accelerate some of this spending to get moving with this, so we feel real good about that.

OK, great, thank you very much.

Thank you.

Thank you. Our next question is from David

. Go ahead please.

Good afternoon.

Hello, David, how are you?

All righty. A few questions. One: The price increases that you've announced, I guess two in Europe, one in the United States, incrementally, how much does that add to both top and bottom pre-tax line?

I'm not sure I've got that figure in front of me David. Actually, our two paper price increases in Europe, and two tube price increases in Europe, as well--two paper price increases in North America, and one tube increase in North America, and as Charlie alluded, I would expect that in the coming weeks, we will also announce a tube increase. But Charlie, do you have a feel for it?

You know, I really don't, for the magnitude, I believe that--that we expect that as those increases are phased in, and given the movement in OTC costs, that we will expect some continued negative price costs in the third quarter, and that will turn around in the fourth quarter, where we should be at--actually beyond break-even--we should be a little bit positive in the fourth quarter. So on a net basis, that gives you some idea but, I don't know what the gross numbers are.

OK, then, continuing in terms of numbers, the weakness of the dollar versus the euro has been rather pronounced the last month or month and a half. How much will that be adding to earnings in the second half, if the euro stays pretty much in parity with the dollar?

It doesn't add much to earnings. I didn't mention the earnings impact, but it was --- I think it was less than $35,000, so on an earnings basis, they knew that there was very little -- very little impact. Now that's frankly true about -- even when I --- and I don't have the numbers in front of me --- but I did mention sales in the first quarter, with the exchange affected us by 6.7 million, and only about $200,000 in the second quarter. The -- if I were looking at the even impact in the first quarter, it would be pretty modest, so you're not going to have much of ---you're not going to have a significant EBITDA effect under any circumstances. It has much more of a pronounced effect on sales.

OK, thank you very much.

Thank you. Our next question is from

of

. Please.

Good afternoon, gentlemen. I just want to follow up with that question on the price increase you were talking, Charlie, about the fourth quarter really being where you guys kind of

ahead of some of the

price increases. I was wondering if you could sort of quantify some of your assumptions on

pricing. Is that - does that assume sort of a third quarter rate at where

is today in the $130 range?

Our assumptions hold waste paper at the 133

.

Got it. And, I was just wondering if you could also comment on, you know, Charlie noted on -- that the plastics, the flexible business, was running at near capacity, even with the two new presses and I was wondering two things. One, is that -- does that mean you'll have to add additional machinery this year, and two - if you could sort of tie that in to a discussion of what that cap ex budget for 2002.

Well, first of all, we do not anticipate any added capacity in that business in 2002. So, it would not impact the 2002 cap ex budget. As Charlie talked, we have had some inefficiencies in the startup of these new presses and we are running near capacity, but

- as

operations do improve, obviously that improves the capacity of those plants. And, we anticipate we will be able to handle a good bit of this new capacity as we improve the efficiency on these two - on these two plants

this equipment.

Great. Thanks very much.

You're welcome.

Thank you. Our next question is from

. Please.

Hi, guys. Good afternoon.

Hi, George.

Hey, a couple of questions. First of all, Harris, have the -- has the volume picked up that you've seen late 2Q or that you did see late 2Q

into third quarter in the industrial area?

The answer is yes. We continue to see that end of July, and July through August, as you well know, is generally a slower month for us, but we haven't seen that

in slowdown and so that's a good sign. Whether some of these folks are building some inventories or what, I'm not sure, but

seeing it continue.

We'll take it when we can get it.

Absolutely.

In terms of pricing, can you remind us what the U.S. or North American

price hike represented in percentage terms?

On

?

No,

products.

Oh,

products would ...

Just seven and a half and ...

Seven and a half?

Seven and a half.

Seven and a half,

.

OK, guys. Now, on -- in looking at the EBIT reconciliation, you know, it seems like you were down roughly 12 million between

costs and price costs in the industrial business, and then, you know, volume's got you almost all the way back, which suggests that if volume

break even, then consumer basically took away 10 million due to price mix. Would that be a fair assessment of, you know, what happened in profitability and consumer?

No. That's -- that would be much more than the -- than the volume impact on consumer. Probably more like half that.

Well, if it's half that, then how do you end up with price costs being, and

being, negative 12 in industrial and, you know, basically ending up close to break-even

in the industrial area, and the volume piece of EBIT for the whole company being zero. Or taking it another way, can you help us fill in some of the boxes for the individual segments?

I'll try to be on circle back yet.

I can talk about that. I gave the volume which was respectively zero.

Right.

And that was ...

How did it breakdown industrial consumer? Why don't we just take it that way? Five minus five?

OK. Effectively, it's sort like plus five minus five.

OK.

And then the price cost was basically all ten in the industrial side.

Got that.

And productivity is effectively, say 8 and 4.

OK, I got you.

Five.

And then S&A breaks down...

Minus two minus four.

Minus two minus four.

OK.

That get you closer?

That gets me very close. One last question, I'll turn it over to the other guys, Harris. You know in terms of the consumer business, you're saying, a terrific growth, yet where you are getting the growth is--you know--basically demising your profitability. How you feel about, you know, a year from now getting this back to what has been historically a 10 or 11 percent operating margin business. Taken it another way, is there a point where maybe you're reassessed the consumer expansion strategy or do you feel pretty good with where you're growing right now?

No, I feel good with the consumer expansion strategy,

. You need to understand, we are not trading one for the other. We're trying to grow both and we are not cannibalizing our composite business with our flexible business. Both are actually staying

I think --- what makes me feel

about it, or good about it, actually, is it would seem

. We know where the operating issues are and last year we had operating issues at two plants as we were loading

and we corrected those and those two plants are operating very, very well.

The plants are affected right are plant where we have installed new equipment and some of it is pack one equipment that we acquired at year end. And what the results was, is the equipment was not up in time to meet the demand that was coming on and so we're having to produce various components of this product in different plants in ship and essentially assembled in one.

And as you will know, that's very expensive. That is behind us now, so, I expect over the coming months to see a nice improvement in flexible which will obviously help productivity there and the margin sector.

On the consumer side, I feel much better there frankly than on the

can side than I have in some months. We've seen a decline quarter to quarter volume since the first quarter of 2000. And this is the first time that we've seen a quarter to quarter improvement. We've been talking about

and we've been talking about everything almost the whole two years. So I feel that's like that is turned the corner. Some of the newer products are starting to come along and I feel pretty good.

Ok guys, I'll come back. Thanks very much.

Thank you,

.

Thank you once again. If you like to ask question, please press one, star, therefore, on your touch tone phones.

go ahead, please.

OK. The next question is from

.

Thanks. I just want to follow up with that, Harris. Would it be possible quantify on the flexible business what the returns are in that business are --- you know -- are you earning your cost of capital in the flexible business? And how does that compare to the

business and then a follow-up on the

business and perhaps a little detail on where you're seeing that sequential growth?

Well, we do not give returns by business unit but I will tell you, and as we've said before, that flexibles is not returning its cost to capital at this point. And we balked. We invested pretty heavily in that business in terms of new equipment and we have also made an acquisition two years ago and so it is not what we expected getting their equipment.

Great. And then, you know, some additional color on the

growth. Is it Pringles or is it - where do you think that's coming from?

Well, we've got a lot of product offerings out. I hate to mention that coffee word that I always say I'm not going to talk about but we're seeing some new promise there. We're also seeing some other stack opportunities. We're seeing another pad a different formula opportunity and I expect by year-end we will have some announcements that will be very positive in this area.

So it sounds like it's primarily new products that you guys are out there trying to find a niche for the

rather than sort of the old standbys.

Well, it's some of the old standbys but it's also some new opportunities. We're also, I think one of the things that's affected this area lately and some of our customers have been, I hate to use the word lost focus, but a number of these consumer companies have been through major acquisitions. And as they have gone through, for instance, the acquisition of Pillsbury by General Mills, I think the focus has gone off of some of these products. And they are now renewing dollars into these products segments, which hopefully will be - will be successful, and we have every reason to think they will and will drive these product lines as well. Same is true in a couple of snack categories, in Planters and Proctor and Gamble as well.

Well that's certainly good news. And then one final question is there a target, a debt reduction target? You mentioned your order of priority in terms of use of cash being acquisitions, debt reductions, share repurchases. Is there a point, if we don't see an acquisition and the company continues to pay down debt at which you will turn to share repurchases and can you shed some light on that point?

Well I think that's going to depend on, you know, the opportunities out there. And you laid the priorities outright. It's not a grow to business through acquisitions, share buyback and pay down debt. And I don't think - you guys know better than I do where this market's going to end up and I'll let you all tell me that at the end of this. But if we see stock prices continue to drift down, we'll give very strong consideration to exercising some purchases under our $5 million and above share buyback that we have authorized.

Great. Thanks very much.

You're welcome. Thank you.

Thank you. Our next question is from

. Go ahead please.

Thanks operator. Hey, Charlie, can you break down, I realize it's only been $100,000, but what the offsetting items were in the non-recurring for the machine closing and the building sale?

Yes. Without though, that's getting sent very specific, we've had some building sales in Canada and the pre-tax profit -- pre-tax gain was about two point one million and the sum of the non-recurring related to the closure of the St. Louis operation was right at $2 million.

OK. And that all occurred in industrial, right, in terms of segment standpoint?

Yes.

It did. It occurred in industrial and as was all just treated as if it were ordinary income, not --- not restructuring.

OK, fair enough. Now in terms of free cash flow, guy, that you said 150 to 160, I think, prior you'd been at 165. that's just reflecting the fact that OCC may cost you a little bit more in the next couple of quarters, and spread might be a bit negative, uh, is there anything else behind that?

No I don't think there's anything else behind that at all.

OK.

one last question. When do you expect to be up in volume, in composite cans, what quarter, uh, I mean it is clearly positive that you had an up quarter sequentially, uh, but the first quarter this year was down 10, last year second quarter was still down 4%, so you're comps have been easy. Uh, can you give us what composite was down year-on-year. If you gave it to us, I missed it.

, Charlie may have that. I don't, but I will say we are projecting continued improvement in composites over the next two quarters

of this year.

That's year-on-year?

That's over quarter --- this quarter --- we are expecting in the third quarter, an improvement over the second quarter of this year, and the fourth quarter we are expecting improvement over the third quarter. And I don't have year-to-year compressions in front of me.

Charlie, you have that?

No. I don't have those kind of details. I think if we see the same kind of uh, I --- I can see some general trend lines, and I believe that if we have the uh, third quarter shows the same kind of increase, sequentially over the --- the second quarter, that the -- the second quarter did over the first, that we would be at or near the uh, I am just guessing here, but just looking at the trend lines, we would be at or near, uh, the third and forth quarter levels, by the fourth quarter.

OK, got you. thanks very much.

Thank you George.

Thank you. That is all the questions we have at this time.

Good. Thank you very much. We appreciate you joining us today.

Thank you. That concludes today's conference call.