Sonoco Products Co (SON) 2003 Q4 法說會逐字稿

Please stand by for realtime transcript. Sonoco Products conference call will begin soon. Good day. I will be your coordinator for today. At this time all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. If you require assistance at any time during the call, please press star followed by 0 and a coordinator will be happy to assist you. As a reminder, this conference is being recoreed for replay purposes. I would now like to turn the presentation over to Mr. Allan Cecil, Vice President of Investor Relations. You may proceed, sir.

Good afternoon, and thank you again for joining us for our fourth quarter teleconference. With me today are Harris DeLoach, President and CEO and Charles Hupfer, Vice President and CFO. First permit me to make the obligatory disclaimer that today's conference contains forward looking statements based on current regulations, and are not guarantees of future performance.

Additional information about factors that could cause different results and about the use by the company, if any, of nonGAAP financial measures is available on forms 10-K, 10-Q and 8-K filed with the SEC. For those who have joined us but may not have seen our fourth quarter release earlier this morning, briefly our reported earnings for diluted share for the fourth quarter of 2003 were 75 cents versus 36 cents for the same period in '02.

Reported earnings for the 2003 fourth quarter included a net gain on the sale of our High Density Film business at 51 cents per share, and restructuring charges of 13 cents per share, compared with restructuring charges of 2 cents per share in 2002. Restructuring charge in this year's fourth quarter relates to the company's previously announced plans in August to reduce its cost structure by $54 million.

Excluding the sale of assets and restructuring charges, this year's fourth quarter results represent about a 22.6% increase over the 2003 fourth quarter first call projection of 31 cents. Charlie will discuss in more detail the makeup of this difference in a few minutes. The year 2003 may well have been one of our most important in terms of improving our ability going forward to improve profit margins.

To profit from any impact in general economic improvements in our markets, and to deliver sustainable average annual double digit total returns, which in 2003 were about 11 1/2%. We have reduced our cost structure by about $114 million since 2001, which we believe is particularly important in North America where manufacturing continues to migrate offshore.

We also significantly reduced our exposure to the more cyclical high density resin prices by selling this business. And of great importance to our longer-term growth strategy, we increased the number of new products being readied for commercialization while also expanding our geographical presence in high-growth rate markets such as: easy open steel closures in Brazil and new tube and [inaudible] capabilities in China to serve one of the fastest growing textile centers in the world.

Furthermore our U.S. pension plan was fully funded at year end. Looking forward, we will work to grow our top line profitably. As a guide post we have set our sights on approximately 4 billion over the next four years, but we will not take actions just for the sake of adding sales. We will use our strong cash flow judiciously and our strategy to grow profitably through acquisitions and joint ventures and organically with new products in market development and through geographical expansion.

As appropriate, we will also reduce debt to retain our A range credit rating and ability to take advantage of consolidation and other growth opportunities to compliment our existing portfolio and we shall also consider stock re-purchases when and if appropriate. In 2004, we expect to benefit from our cost reductions, continued productivity improvements, and we do not expect to implement a significant increase in pension and post retirement expenses.

We do, however, expect continued price cost pressures. We will have the loss, of course, of High Density Film earnings. And along with the rest of corporate America, we anticipate higher benefit costs, particularly healthcare. We have seen modest year over year monthly volume improvements in our industrial segment, but do not anticipate significant volume growth, at least through the first quarter.

Assuming no significant changes in volume and price, we expect earnings for the first quarter to be in the range of 31 cents to 35 cents per diluted share, excluding any restructuring charges which cannot be estimated at this time. And as previously announced, earnings for all of 2004 are expected in the range of $1.40 to $1.45, also excluding restructuring charges. With that prelude, I'll now turn the meeting over to Charlie Hupfer, our CFO.

Okay, thank you, Allan. As we just heard, sales are 730.2 million that's up 4.3% from last year. If you recall in our second quarter, sales were actually down 4/10 of a percent. In third quarter sales were up 2/10 of a percent, so we definitely saw some strengthening in sales during the fourth quarter. As we heard EPS is 75 cents.

That includes the 51 cent gain on the sale of our High Density Film operation, and it includes restructuring charges of 13 cents. I'll go into some more detail in a few minutes and break out those categories with a little more specifics. In terms of cash flow, our cash from operations was $328 million for the whole year. That's up 57 million from last year, and that does not include the $81 million from the proceeds of the sale of the High Density Film business.

So cash from operations 328 million, capital spending was 113 million, and dividends were 81 million. So what was left over after capital spending and dividends was $133 million. In that 133, we do have an outlay, so we've not added back the $20 million that we made in the pension contribution late in the year. So very strong performance in terms of cash flow, especially in the last half of the year.

Our balance sheet remains strong. Debt was paid down by a total of $160 million from last December. Our debt to total capital ratio is a little bit less than 36%, as we calculate it. And that's compared with 44 1/2% last December. Now, let me turn and talk a little bit more about the income statement, and I'll break the results down for you, so you can see the different components.

I hope what I go through, it doesn't get to be too tedious, but I think it's important to be able to look at these individual items. What I've got in front of me is a chart that shows -- it has actually five columns in it, and it's going to show the breakdown of earnings. I'll have first the as reported column, then I'll adjust for restructuring, then I'll adjust for the gain on the sale, and then that will leave what's left over which we can define as ongoing or base business.

But, if you bear with me for a minute, I'll go through this chart. The starting point is EBIT, earnings before interest and tax. And in the as reported column, that number will be 33.9 million. From that we would subtract net interest expense of 11.9. We would also subtract tax of 4.7 million. We'll add back afilliate income of 1.7 million, and we'll add back discontinued operations of 54.5 million.

That's how we arrive at net income of 73.4 million or EPS of 75 cents. Now, those are the as reported numbers. I'll make a couple of comments before I move on. One of them is that interest is favorable from last year by around $970,000. As I said earlier, we've reduced debt from year to year by 160 million.

And late in the year we also had $100 million of 5.8% notes that matured and went into our commercial paper program. And so that contributed some to the favorable year over year interest difference. In terms of tax, the effective tax rate on the numbers I've just given you is 21.2%. Now, that's a blended rate, and it's influenced significantly by the restructuring charge.

And then when we look through the restructuring, we'll also see that the taxes have declined in the quarter. Some of that comes from a wrap up of state tax audits in the fourth quarter, and some of it from a review and a revision of our accruals based on some fourth quarter data. At any rate, the overall effective tax rate is 21.2.

Discontinued operations is 54.5 million and that has two components in it. One of them is this gain on the sale of the High Density Film business. And the other is High Density Film's operations through the quarter up to the time that we sold them effective, for accounting purposes, December 21st. The operating income through that period was around $5 million, and that compares with 4.3 million last year.

Now let's add another column to that, and it would be restructuring. And in restructuring, we have an EBIT line, 16.9 million. That's a negative, that's an expense. We have coming down to taxes, a benefit of $5.9 million. We have restructuring related to affiliates of negative 1.5 million.

So the overall income affect of restructuring is $12.6 million negative or an EPS affect of 13 cents. Now, the 16.9 million in restructuring, about half of that is coming from the closure of two plants in the U.S. One of them is our Fulton New York flexible plant and I'll talk more about that a little later . And the other's from a paper mill in Georgia. We also had two plants that were closed in Europe, one in France, the other in the UK.

The effective tax rate on this restructuring is 34.7%. Now, the next column that I have on my chart is gain on the sale. And I go all the way down to discontinued operations and have a positive $49.4 million in that particular category. So the net income affect is 49.4. That's an after-tax number. And the EPS affect of that 49.4 million is 51 cents a share.

Now, what this gain reflects is our sale of High Density Film business, so we've got $81 million in cash. We had preferred interest of 10 million and subordinated debt of 24 million. The effective tax rate that's built into this number is around 22%. And that's because we were able to utilize capital loss carry forward.

Now, that brings me to basically the last column that makes up as reported, and that's ongoing or base business. At the EBIT line, that would be 50.8 million dollars. Net interest is the same, 11.9 million. Tax now on these ongoing operations is 10.5 million. Affiliate income is 3.2 million. Discontinued operations is 5 million.

And net income, the result of all that, is 36.6 million. The EPS affect on that 36.6 is 38 cents per share. And the 38 cents compares favorably with our range of 28 to 32 cents, which also excluded restructuring. Now, when we look at these numbers, and the effective tax rate of taxes of 10.5 million, we see an effective tax rate of 27%.

And some of that is due to the fourth quarter revisions that I talked about earlier. And clearly it's in the fourth quarter. And that lowered our effective -- the lower effective tax rate probably added about 3 cents to this column of ongoing operations in the quarter. Without that 3 cents, of course, the 38 would be at 35, and that's still well above our guidance of 28 to 32.

So clearly taxes affected the fourth quarter results, but it doesn't alter the fact that the fourth quarter was strong while -- without taxes and even stronger with the affects of tax. So I hope that helps you see the breakdown of what goes into the as reported numbers. What I'll do now is go -- go to more or less the traditional things that we talk about and I'll start with the sales bridge.

And I'll give you some numbers off of the sales bridge and do it as I've done in the past. I've got a chart in front of me if you want it take some notes from this. Our starting point is 2002 sales and the columns that I have will be Sonoco in total, and then the industrial sector followed by the consumer sector. So 2002 sales were 69.9 million for Sonoco.

The industrial -- 699.

Did I say something else?

You said 69.9.

699.9. The industrial was 375.7, and consumer 324.3. Now, the first variance analysis item that I have is volume and mix. In the total Sonoco column it's a negative 2.4 million. In the industrial column it's 4.1 million, and in the consumer column it's a negative 6.5 million.

Price really didn't have much of an impact on us. Price in total was 200,000, 0.2 On the industrial line it's 0.6, and in the consumer it's a negative 0.4. Acquisitions totaled 7 million in total, 7.0. In the industrial sector it's 4.9. In the consumer sector it's 2.1. And then exchange/other, mostly exchange, is 25.5 million Sonoco, industrial 16.6, and consumer 8.9.

So that should arrive at totals, if I speak them correctly this time, of 730.2 million for Sonoco in total. 401.8 for the industrial sector and 328.3 for the consumer sector. And I'll make a couple comments about each of these categories, particularly volume. Volume as we see is a total of negative 2.4 million. In the industrial sector was positive 4.1.

And we did see some good volume increases in the quarter. Our tubing for business in North America showed volume increase a little over 3 percent. We had good volume increases over 3% in paper mill coerce, film core volume increased almost 7%, but we did see a decline in textile core. Textile tubes of 3.9%.

Overall, though, we had a good, solid 3% increase, and we actually feel like included in this is some market share gain. Tube in Foreign Asia was up 15% with good volume increases in: Indonesia, Malasia, Taiwan, China. So we had across the board growth there. In Europe we had volume increases in the 5% range, following the same pattern we've seen in the past. Turkey was up 27%.

That's largely in textile and film. Germany was up 17%. Poland, which is a small operation, was up over 50%. And we saw some declines in the UK and in France. But overall tube and [inaudible] volume was strong in the quarter. Our Baker Reels Business did continue to show some declines, that's some continued weakness that we've experienced for a while now they sell into the fiber optic and cable TV markets.

And our paper group volume was relatively flat. We were down a little bit in Europe and the U.S. year over year, up in Asia and Canada. Now, when we look at volume on the consumer side it's a negative 6.5 million dollars. And frankly that's all coming from our flexibles operation. Their volume was down a year over year more than 10%.

What we see there is some weakness in the cake and confectionary sectors that we serve. And, just as an example, a major customer, one you read about in the newspapers now, their business is down year over year 20%. And that's certainly affecting our flexibles operation.

On the positive side, our rigid paper and plastics, which is largely composite can volume was up 2.5%. And that's made up of solid increases that we saw in the nut category and the plastic caulking cartridge and in powered beverages. Nuts were up actually 20%, plastic caulking cartridges up around 20%.

Our snack business was relatively flat year over year, and we have seen some some continued decline that we've talked about in the past in juice concentrate and refrigerated. Our Phoenix closures business was up year over year with improved sales of ultraseal and for coffee canisters, and our packaging services business was down a little bit year over year, and that's coming out of our UK operation. And it's just a comparison issue.

Last year, Gillete, our customer there, launched a major product in their Mock III line in Europe, so we just had a difficult comparison that also affected the consumer numbers. There's not an awful lot to say about price. $200,000 positive, $600,000 in industrial sector. We did see year over year price increases in our tube and core volume business, though they were relatively modest, less than a percent.

And we did see some declines in our recovered paper business year over year, a lot of that was coming out of the post and -- pre and post consumer blend, especially in the buffalo, New York, market. But not an awful lot of activity in price. And the same is true on the consumer side where we were down $400,000.

Our flexible business actually had some price increases that they announced in January and April of last year that are influenced by these numbers. Our packaging services business showed a decline, and that was really passing through some productivity savings, and that didn't really affect the bottom line numbers. Acquisitions are $7 million, not much there.

We made some acquisitions in our Baker Reels business in the industrial sector and our Keating business in the consumer sector. In exchange/other, that's almost all exchange. The Euro appreciated versus the dollar by 20%, and Canadian dollar by 22%. Now, let me turn to the EBIT bridge and I'll walk you through that and make couple of comments, and that point I'll be done.

I've got the same basic format with the columns Sonoco, the next column industrial and then the third column consumer. And I'm starting with 2002 EBIT, these exclude restructuring. And the 2002 EBIT for Sonoco was 58.5. In the industrial sector, 35.9, and in the consumer sector 22.6. Our volume/mix, which is one of the variances or differences is 0 in the Sonoco column.

It's 1.4 positive in the industrial column, and a negative 1.4 in the consumer column. Price cost is a negative 2.7 million. Almost all of that is in the industrial sector, a negative 2.6 there. And just a negative 0.1 in the consumer sector.

Productivity was strong. Productivity we saw 10.4 million in total, 4.2 industrial, 6.2 consumer. Inflation, we define inflation as largely wages and energy costs. Inflation was a negative 6.7 million in the Sonoco column, 4.5 million negative, industrial, and 2.2 negative consumer. And in "other" ," the last reconciling item is negative 8.8 in total with a negative 4.2 industrial, and negative 4.6 in consumer.

So if you've gotten those numbers correctly, the bottom line EBIT 2003 should be 50.8 million for Sonoco, made up of 30.2 million industrial, and 20.6 million consumer. I don't have an awful lot of comments on this EBIT bridge. The volume as I said was 0. On the industrial side it's 1.4 million. That's simply the profit impact of the $4 million of volume that we saw in sales.

And on the consumer side, it's a negative 1.4. That's really the profit impact, for all practical purposes it's the profit impact of our flexibles sales shortfall. Price cost, that's a negative 2.7. On the industrial side, we really had a price increase of 600,000 on that "other" chart. And that was offset by cost increases.

Those are principally coming from our paper division and their raw material costs. Largely OCC. But OCC went up about $4 a ton. The Southeast Yellow Sheet price in this year's fourth quarter was about $65. Last year was about $59. So that's the cost that comes through in this price cost category.

Productivity, $10.4 million. We had good productivity across the board, productivity in the industrial sector. A lot of that is coming from our tube and core operation. Last year they were working through the transition of some business that had moved, and that's all behind us now, plus we had improved scrap reflecting our companywide scrap reduction program.

So a total of 4.2 million of productivity there. A good productivity coming out of our paper operations, because they had higher volume and more machine up time. In the consumer side, we basically had good productivity across the board. Rigid paper and plastics had material substitution programs, they had improved run rates.

Where we saw some productivity slide was in our flexible business where they did have some -- probably about $1.6 million of cost related to some inefficiencies. I mentioned earlier with restructuring where we closed our Fulton, New York, plant. That closure took place by the end of December. So in the fourth quarter we were shifting business.

And that can't be treated as restructuring. So it really was just inefficiencies that found their way into this productivity line. That business has been shifted to our Morristown, Tennessee, plant, to our Edinburgh plant. And we feel like going into the first quarter it's up and running well. Inflation, a negative 6.7 million. Most of that is on the industrial side.

Energy alone is 1.7 million. We did see our energy cost go up about 11%, and that's natural gas year over year. And on the consumer side, we had some inflation as well. That's really just wages. And then "other" , that's the last category, that's 8.8 million, negative.

Pension accounts for 7 million of that, negative 8.8. However, we did have a positive FX impact probably of about $1.2 million that's in this "other" category. So negative pension of 7 million, positive foreign exchange of $1.2 million. Let me make one comment about the exchange impact.

This is on the EBIT line, so when we get down to the net income line, which would be after tax and after interest, the positive affect of exchange was more like $600,000. So it was positive, but not a real big number on the bottom line. Those really are the extent of the comments that I have, Allan.

With that, I think we're ready to open up for questions.

Certainly. Ladies and gentlemen, if you wish to ask a question, please key star one on your touchtone telephone. If your question has been answered or you wish to withdraw your question, please key star two. Once again, if you wish to ask a question, please key star one on your touchtone telephone. Your first question comes from the line of Mark Connelly with Credit Suisse First Boston. Please go ahead.

Thank you. Couple of things. You talked about the impact of manufacturing moving overseas on your U.S. operations. But can you tell us, are you seeing that kind of an impact to a lesser extent in some of our other developed companies, too? Are we going to see more restructuring outside the United States, as, for example the Euro gets as strong as it's been?

Mark, you know, who knows what it's going to be going forward. We have seen in France, in particular, and probably the UK, we've certainly seen the textile business move to Eastern Europe and into Turkey. That's been one of the areas, as Charlie mentioned, where we've seen nice growth in Turkey in the textile area. We think the restructuring that we've gone through this year in Europe puts us in good shape for the foreseeable future and the foreseeable future of the next several years with that business migrating. So I don't anticipate any big movement in Europe as we currently see it.

So what you've done so far, you're pretty confident you're in good shape at least for a while.

We think so, Mark.

Okay. You also talked about the new product pipeline. I was wondering if you can -- I know you're not going to want to talk about products, but can you talk about the split of that pipeline between consumer and industrial, and what we should be thinking in terms of timing?

The bulk of that is on the consumer side of the business. And if I had to put a number on it, I'd say 75 to 80% of it is on the consumer side of the business. And we should start seeing that flowing through in the first quarter of this year. And we will try to monitor that so we will be able to talk to you about actual numbers on those going forward in the year.

Okay. And just a couple of small items. Can you give us any help on what we should expect in terms of working capital in the first quarter? And second, what pension expense would be in '04?

Charlie, do you want to talk to those?

Working capital, we actually had solid working capital perform especially in the second half of the year. I would expect our working capital will continue to show some modest improvement. But frankly we've made a lot of change over the last few years. And so the amount of improvement year over year is going to get smaller. I do not expect working capital to get out of line or out of hand. So it should get- stay pretty well constant with the level of growth that we have.

Okay.

With some improvement there. Pension expense is likely to be right at or perhaps certainly not much different than 2004 than it was in 2003. We will move our -- we'll move our return assumption down to 8 1/2% from 8 3/4, and that will cost a little bit of money on pension expense. But other than that, I would expect that there's not going to be a substantial change year over year, which is a real pleasure given the like we've seen around 50 cents over the last three years.

Absolutely. Thank you very much.

Your next question comes from the line of Edings Thibault with Morgan Stanley. Please go ahead.

Thank you and good afternoon gentlemen. A question, for you, if you will, just to update, do you have the latest geographic break out for 2003 of sales Charlie?

Don't have that yet. Might have to wait for the annual report.

Okay. And then a question on the outlook for recovered fiber. There seems to be some consensus that recovered fiber prices, particularly OCC will be -- is expected to rise in 2004. I was wondering if you could comment on that outlook, and then wonder if you may be thinking about trying to put in some proactive price increases to perhaps get ahead of that?

Mark, we would concur that OCC prices are likely to go up. I don't know -- I said Mark, Edings. We would see OCC prices going up. I think the ice storm that we've seen in the South and coming up into New England is likely to put pressure on pricing as we speak. We're seeing export pricing going up. We certainly will monitor that, and we will act responsibly to protect the bottom line with price increases as appropriate.

Okay. And just another question, on terms of your industrial margins, it's nice to see some positive volume, I should say industrial business, it's nice to see positive volume trends in there. It seems to be lacking- or lagging the overall kind of reported statics for GDP. And Harris, I'm just wondering if you feel like that's likely to continue, if you have any comments on where those pockets of reported strength may be, and if you could talk maybe a little bit about, you know, the outlook for those businesses going forward. Is there any turn in the textile area, particularly the engineered carriers business and what are you seeing on the paper side as well?

Edings, as Charlie said, we saw a nice pickup in the fourth quarter on the industrial side, particularly in tubes and cores. Not only that obviously pulls or paper business. The textile segment in this country has been drifting down. But you know, obviously, we picked it up other places around the world.

I think the weakened dollar will help our textile industry and who knows where it ends up going. I was talking to commercial bankers the other day who are familiar with North Carolina textile, this country's textile industry but in particular North Carolina. Their view was that the textile industry is about where it's going to be for the next couple of years, that you're not going to see a lot more movement. Those who have moved have already moved. And the business that's gone is gone. We think that we will see gradual improvement this year in the tube and core business, hopefully reflect the same type of improvement we saw in the fourth quarter.

Got it. Thanks. Good luck with the quarter.

Thank you very much.

Your next question comes from the line of George Staphos with Banc of America Securities. Please go ahead. Thanks, operator. Hi, guys. Good afternoon.

Hello, George.

I want to piggy back on Edings question in the past when OCC has gone up it usually takes a little bit of awhile to get that through in the form of selling price hikes, the lag is you know, anywhere from you know, 90 days to a couple of quarters if you see strength in OCC for that full amount of time. Are there any other things you can do this time around, where you offset that spread pressure, that you don't miss a quarter or guidance when OCC ultimately goes up?

George, you know, you're right on target. Historically there's a lag. And, I guess the last increase that we went out with tradition has ban lag 30 days with paper, and another 30 days following with tube increases. The last time we tried to shorten that time frame and got reasonable support in the industry for doing that, we would certainly attempt to do that again if the circumstances presented themselves. And I would say in addition probably we have more business on the industrial side on the contract value than we have in past times, which can either work for you or against you, depending on the timing of the increases, but they do have passthroughs there.

On the whole, you'd see that as positive, Harris.

Depends on when the price -- yeah, I see it as positive, frankly. And --

Rough parameters, how much has your business moved from the long-term contract to where it might have been, pick a time frame, two years ago, five years ago.

Probably the 40% range, something like that. That's up probably 15%.

Okay.

For where it used to be, George.

Got you. Now, in flexibles, one of my favorite subjects. Again, you're having some difficulty in that business. In this case it's been driven I guess by the low carb phenomenon. Are there any other things that you're working against in flexible packaging such that you can make this actually a contributor to your consumer margin which continues to come down?

George, clearly sales were a factor in flexibles. Charlie talked about it in the fourth quarter. It really was there for most of the year. When we look at it and talked to the particular customer that was the biggest issue, as well as others, they do point to the low carb phenomenon. They are aggressively trying to reconstitute their products to make it attractive to that market and launching products as we speak.

On the sales side, we have a fair amount of business that's coming in in the first quarter that's in the house now, is, in fact, running. So I think the sales quarter over quarter, fourth quarter to first quarter, should be certainly improved. We did incur in the fourth quarter, as Charlie also alluded to, a lot of inefficiencies with the closure of the Fulton plant and New York plant, because we were moving cylinders from one facility to the other and a lot of duplicated costs in there as we ran that business. So we are looking for a much better first quarter than we saw in the fourth quarter in the flexible business.

Okay. Can you comment a bit in terms of what's been happening in composites where you saw a bit better performance, you articulated which end markets are doing better. Do you think you can sustain this now, the performance.?

Yes, I think we can.

Just new products, whereas customer will need to try the product again.

New products. I think it's as I said before George, we are more aggressively taking new products to different customers and to existing customers with frankly enhanced graphics, enhanced -- just enhanced products. I think we saw some of that in the third and fourth quarter, and I think it will continue.

Okay. Last question, I'll turn it over to the other guys. Charlie, just help me out. How duties to the tax rate of 10.5 million and what was behind the lower percentage.

The 10.5, that's why I was trying to go through those columns was effectively the as reported number. As reported tax was 4.7 million. In the restructuring, there's 5.9 million of tax. So that's actually tax benefit. So the sum of the two together is that 10.5.

Okay.

And then that's where the effective tax rate that I gave you of 27.1 comes from. It should roughly be the 10.5 on the income before tax.

Any chance you could make your bridge tables available to investors. I know we and others have asked you for that in the past. Any way you can make that available?

We can keep thinking about that, I guess, which is another way of saying not any time soon. The problem is there are a lot -- we use these numbers. We feel they are good numbers, but there are a lot of assumptions that go into the bridge calculations. And so I want to continue to use them, I want to use them as real good indicators, and I think they tell us a lot about the business, help us explain the business, but they don't rise to the level of numbers that we'd be putting out for, say, for audit.

The truth of the matter is, outside lawyers would probably shackle Charlie if he started trying to do that.

Well, we don't want Charlie shackled.

No, we don't.

All right. Thanks, guys. Good luck.

Your next question comes from the line of David Lebowitz from Burnham. Please go ahead.

Good afternoon.

Hello, David.

A few questions if I may totally unrelated one to another. First in the press release you indicated that the guidance is still for $4 billion in total revenue over the next four years. Given that we've just come through a year where total revenue did not appreciably increase, and in fact we sold one of the subsidiaries, you list three ways that we're going to arrive at that total figure. Could you give us some idea of the percentage attributable to each, the organic growth, the acquisitions and the joint ventures?

I would put acquisitions and joint ventures in the same category. And I would say somewhere 30 to 40%, probably closer to a third will come from acquisitions. A third of it will come from the new products, and the other third will come from organic and just geographic market growth, David.

Okay. Second question, the 31 to 35 cents and $1.40 to $1.45, how much of that is currency gain?

We don't have any currency gain built into that number.

Okay. So that if the dollar remains weak or at current levels, it would be greater than 31 to 35?

I guess it would have to weaken from where it is. And, again, it tends to be, David, a pretty negligible, a lot of dollars, what was it $25 million on the sales line, but all the way down through interest, tax, to the bottom line was about a $600,000 positive. And of course, so, it's not going to be a very significant number at the end of the day to our bottom line performance. And that's in large part because obviously you've got earnings before interest and tax. We'll do a lot of our hedging and our FX planning around the taxes and especially amount of debt that we may introduce that creates a natural hedge against dealing in some of these currencies. And so it gets down to -- FX won't be a real big number for us.

Okay. And turning back to new products. What percentage of your revenue last year was derived from products that were relatively new to the company, let's say over the prior 24 months of introduction?

I don't have a number like that that's available to me right now, David.

Do we have a target for this year?

David, we do not. The new products that are built into the budget, I think I said in response to either Mark or Edings early on, we'll try to track that for this year and be able to give you that in the quarterly summary going forward.

And lastly, the packaging for -- the triangle lar packaging for small items going by Federal Express and its competitors, how is that particular product line door?

It's doing reasonable well. It's small, but it's growing nicely.

And is there any one product line you can talk to today that you're particularly excited about?

Well, I talked about a lot of them in New York in December that I'm excited about, David.

But is there any one particular or two particular ones that you say, gee, we have a home run there?

Well, I think we have a home run in the protective packaging area with the Sono bolt package, in the club stores that is going very, very well. The single wrap that the consumer has and you can single wrap container in a number of sizes and shapes is also going well. That's just two. But most all the businesses have got a lot of new products. Flexibles has a lot of new products coming out. So feel good about new products in general.

Thank you very much.

Thank you, David.

Your next question comes from the line of Ghansham Panjabi with Lehman Brothers. Please go ahead.

Hey, guys. How are you doing? I'm just a little confused on the margins in the industrial packaging business, going back to I guess, Edings question. You know, volumes were up year over year 3%. You have a couple of rounds of cost-cutting under your belt over the last few years, and OCC prices I think with were relatively stable during the quarter, at least versus 3Q. So, operating margins were essentially flat in that particular business with 3Q, and I'm just wondering what the disconnect is?

The third quarter? Which quarter Ghansham?

What's that?

Which quarter you're comparing again.

Just industrial packaging margins 3Q '03 versus 4Q '03. I would have expected at least some sort of incremental improvement in there.

I can't really comment on that. Perhaps we can get back to you with that. I don't have those margins in front of me.

Okay. All right. Just finally, Charlie, assuming interest rates go up over the course of the next few months, could pension actually be an incremental positive, '05 versus '04?

If interest rates go up?

Yeah. If the discount rate goes up, essentially.

If the discount rate is getting set at the beginning of the year in '05, absolutely. I'm sorry, I misunderstood. That's right. I think there's no question. In fact, that discount rate is one of the biggest influences on the number. And so it would have that impact. So what we did, we saw 20 some% increase in the return, or the return was 20 something % during the year. That was a clear plus. We put $20 million in. That would have increased the base.

As I said earlier, we will reduce the return assumption a little bit. We're assuming, we're going into the year or ending the year at a 6 1/4 discount rate. That would have an impact. So I'd like to see -- I'd like to think that over the years ahead, we'll see us draw back with some of that 50 cents we gave up, but we're not going to claw any of it back in 2004.

Thank you very much.

Clearly the tide has turned at least as we see it now.

Yeah, it looks that way. Thank you.

Your next question comes from the line of Fred (Spiese) with (Spiese) Source and Capital Group. Please go ahead.

Yes, Could you just give us the Cap Ex for the year and the next year, and the same with D&A?

About 105, $106 million in '03.

Actually the number we'll show will be capital spending -- the actual spending was $113 million in 2003. And we would expect a number very much like that in '04. It won't be substantially different from this level. Could actually be a little bit less, but not enough to even comment on.

And the depreciation amortization.

Noncash charge that I've got is $165 million.

And next year?

In next year.

156, I believe. I think that's pretty -- That's my memory.

I ought to be able to check that. 154, pretty good memory.

And the flexible packaging we were hopeful there that the margins might go up sequentially. And looking at your charts that you don't give us that we write down, the productivity increased the previous quarter was 4 million and change, and this quarter was 6 million and change, and yet you say the margins were held back by the productivity. And the same question, your "other" went from 2 1/2 to 4 1/2. Was the consumer hit hard with the pension? I'm trying to identify that.

Okay. I didn't give specific numbers on productivity. But if I had what we would have seen is we would have seen positives coming from rigid paper and plastics. We would have seen positives coming from the Phoenix closure and packaging services. And then we would have had the negative that I talked about relative to the closure of the Fulton plant, netted against those. So the productivity in the consumer sector would have been -- would have been higher, actually, without -- absent those Fulton closures. Now, as it relates to "other," I don't think there would be any substantial difference in other as related to pension cost.

And looking out, the flexible packaging has been sort of a manana thing, where we think we're gaining tracks and we slip back a little bit. Do you feel comfortable to talk about some achievement that division will achieve in '04?

Well, we certainly are looking for a substantially better year in '04 than we had in '03. And we think the closure of the Fulton plant was a big step in that direction, moving into that business into other plants. As I said earlier, I think George's question is we're looking for a much-improved first quarter over the fourth quarter of last year. Certainly we'll talk to that in several months.

Last question, you don't smooth your pension accounting. You did, in fact, lower your discount rate this year going forward, I assume.

That's correct to both questions. We do not smooth, and we did lower the discount rate.

So the question about the volatility, this has the potential to swing a little more than the normal pension account.

I would think it does.

Thank you.

Thank you.

Once again, ladies and gentlemen, if you wish to ask a question, please key star one on your touchtone telephone. Your next question comes from the line of Edings Thibault with Morgan Stanley. Please go ahead.

Thanks and just a quick follow up. Harris, you've been open about the desire to look for the appropriate acquisition for Sonoco. Haven't seen a lot of M&A activity at least on the buy side from your perspective over the last few years - over the last few quarters. I was wondering if you could just talk about the environment this you're seeing. Is the lack of activity because attractive partners aren't there? Is it because the value -- Sonoco just can't get to the evaluations that are being paid? And then how would you characterize any pipeline?

Edings, fair question obviously in 2001, we were pretty active in the acquisition market. In 2002 and 2003 we haven't been. That doesn't mean that we haven't been actively looking and actually talking. If I were to put them in buckets, I would say there were -- as a bucket, the evaluation was not something that we were willing to do. Then there was -- there is a bucket where I think I would say there are other circumstances beyond evaluation that prevented us from doing something. I expect '03 to be a much more active in the acquisition M&A side of the business, '04, excuse me.

O4. In those areas where it's evaluation where Sonoco wasn't comfortable, it sounds as if -- I don't want to put words in your mouth -- you might have been actively looking at properties is that because the initial valuation expectations, or were there actual close an auction-type environment. I guess my question is, is Sonoco potentially losing deals to private equity shops, and would you be more optimistic in a higher rate environment that perhaps a strategic acquirer like yourself could be more competitive?

We have not lost anything other than one, to someone else, Edings, and that was not an option.

Okay. Great. Thanks very much.

Thank you.

Your next question comes from the line of George Staphos with Banc of America Securities. Please go ahead.

Thanks, operator. Harris, one additional question just on consumer versus industrial. Given your stated goal, which is to ultimately grow consumer as a piece of the pie, if we are to think about what you're thinking about in terms of trying to grow consumer, is it that you think that the incremental profitability and margins in consumer will be better than industrial over time, and that is the reason why we need to grow that piece or the overall piece of Sonoco, would that be a positive, or do you think it's partly because the market tends to put a lower discount rate on consumer cash flows than, say, industrial cash flows? Why do you think about why this will be ultimately good for Sonoco as you build out that strategy? Thanks.

George, we think that we can enjoy similar margins. You've always talked about getting back historic consumer margins. We think we can get back to our historic consumer margins with the business we have today. And the type businesses that is we are, in fact, looking at, we think will enjoy those similar margins. Our main focus of the consumer side, frankly, is to take the cyclicality if we can -- some of the cyclicality out of the business. As we see more and more of our manufacturing base moving over -- out of this country, in North America, we don't see the same sort of thing happening on the consumer side of the business. So those are the reasons we are being driven that way.

As you think about the growth opportunities internally, do you think that industrial, perhaps, has better prospects or worse prospects than consumer? Because you may get an offset if you grow industrial internally.

Remember, I've said that we're not going to walk away from the industrial side of the business. We will grow that as well. I think most of the consumer growth will come in North America. The industrial growth will come while North America will grow, we will grow the industrial business outside of North America probably quicker than here.

Okay, guys. Harris, again, thank you very much.

Thank you, George.

Once again, ladies and gentlemen, if you wish to ask a question, please key star one on your touchtone telephone. There do not appear to be any further questions.

Thank you very much.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect.