Sonoco Products Co (SON) 2005 Q1 法說會逐字稿

Good day ladies and gentlemen and welcome to the 2005 first-quarter financial results conference call.

My name is Audrey and I will be your coordinator for today.

At this time, all participants are in a listen-only mode.

We will be facilitating a question and answer session towards the end of this conference. (Operator Instructions).

As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host for today's call, Mr. Allan Cecil, Vice President of Investor Relations.

Mr. Cecil, you may proceed, sir.

Thank you and good afternoon.

We appreciate you joining us for Sonoco's first-quarter teleconference.

Participating with me in the conference today are Harris DeLoach, Chairman, President and CEO and Charles Hupfer, Vice President and CFO.

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 non-GAAP financial measures is available on Forms 10-K, 10-Q and 8-K filed with the SEC.

Reported earnings per diluted share for the first quarter of 2005 were $0.37 versus $0.39 for 2004.

However, excluding the effect of restructuring charges and of nonrecurring or infrequent and unusual items, base earnings per share, which is a non-GAAP financial measure of EPS, were $0.40 for the 2005 first quarter compared with $0.35 for 2004, a 14% improvement and above First Call's mean estimate of $0.39.

Sonoco's guidance for the quarter was $0.36 to $0.39, excluding any restructuring charges.

Charlie will walk you through the details of the numbers in a minute.

The increase in year-over-year base earnings for the first quarter of 2005 primarily reflects results from the CorrFlex acquisition last May.

Increased volumes in our consumer packaging segment, including some 55% year-over-year increase from sales from new products, productivity improvements and higher average selling prices, though offset partially by greater raw material costs.

It's important to note however that Sonoco's overall price cost relationship was positive for the first quarter.

First quarter earnings were negatively impacted by integration costs associated with the Sonoco and Ahlstrom joint venture in Europe, continuing weak general economic conditions in Europe and startup costs for a new rigid plastic container plant in Wisconsin.

The 17% year-over-year increase in sales from the first quarter reflects primarily the acquisition of CorrFlex, increased volume and higher average prices for flexible packaging, printed paper and plastic containers, molded and extruded plastics, easy-open closures and wire and cable reels.

Also, formation of the Alcore joint venture in Europe contributed to the sales and higher average prices for engineered carriers and paperboard was a -- had a significant impact.

Companywide volumes for the first quarter were up about 12% over 2004.

This includes Sonoco-Alcore and the impact of Sonoco (indiscernible).

If you exclude these two, volumes were up about 1% despite two fewer billing days in 2005's first quarter versus 2004.

Looking forward, we expect to see continuing improvement in our businesses serving consumer product companies, such as the Pepperidge Farms' newly announced Whims cookies that will be introduced in May and marketed in Sonoco's Sono-Wrap package.

Such new products reflect the implementation of our previously stated strategy to achieve at least a balance between our sales and earnings from consumer and industrial markets.

Assuming no significant change in companywide volumes or in raw material prices, we expect second quarter 2005 EPS in the range of $0.41 to $0.43 per diluted share, excluding any restructuring charges.

As previously announced, we continue to expect EPS for full year 2005 in the range of $1.75 to $1.79, also excluding any restructuring charges and assuming no significant changes in volume or price.

With that prelude, I'll now ask Charlie Hupfer to detail the quarter's results.

Thank you, Allen.

Let me begin with the income statement as reported.

As we have seen, sales 814.4 million was up 17% over last year's 695 million and EPS was $0.37 as reported compared with last year's $0.39.

But, we actually had restructuring charges in both this year’s first quarter and last year's first quarter of different amounts and we had a number of what we define as onetime type of items in the 2004 account.

So we've made some adjustments to arrive at base earnings and base earnings as we've defined it for 2005 is simply the EPS number of $0.37 adjusted for restructuring.

We had a $0.03 restructuring charge in the quarter.

That restructuring related mostly to our Richmond, British Columbia flexibles plant, which we closed in the quarter and to some of the restructuring as a result of our European consolidation.

But base earnings as we defined them would be $0.40 for 2005's first quarter; that's the $0.37 plus the 3.

When we look at 2004 to come up with a comparable number, we begin with EPS of $0.39.

We had (technical difficulty) of a cost of $0.4 per share in last year's earnings.

We released tax reserves last year following the completion of an IRS examination, and that freed up $0.09 of income and we had a restructuring charge of $0.01 for $0.35 per share as base earnings in 2004.

So we think the best comparison and the one that we use internally is $0.40 compared with $0.35, and that's about a 16% year-over-year increase.

We've provided a reconciliation in the press release so that you can see how we take the as-reported numbers and arrive at what we're calling base numbers.

On the basis of these numbers as we've defined them, the base numbers, I have sales of 814 million.

As I said, that's up 17% over last year.

I have EBIT of 67.5 million compared with last year's as adjusted now -- this would be base -- last year's of 58.9, so that's a 14.7% year-over-year increase.

I have interest expense, which would be unchanged, 9.4 million in this quarter compared with 8.7 last year; tax of 20.6 million compared with 17.3 million last year and affiliate income of 2.6 million compared with 1.3 last year.

So my as-adjusted or base numbers show net income of 40.1 million compared with last year's 33.8, and that's an 18% year-over-year increase.

Speaking of interest before I move onto the sales bridge, interest is actually $647 million -- higher, and (indiscernible) $147,000 (ph) higher.

CorrFlex accounts for some of that.

We had a $250 million increase when we purchased them and some additional debt from Sonoco-Alcore.

We've also seen higher CP rates.

But offsetting that, we paid down $150 million worth of 7% bonds and we did enter into some interest rate swaps to move toward our desired 50-50 fixed floating mix.

So when you put all of that together, interest was up only 647,000.

And the effective tax rate on these base earnings for 2005 is 35.4%.

That is in part because the effective rate on the restructuring piece was 28%.

So putting them together, you can see how the as-reported number is 36.1 and that compares with an effective tax rate last year of 34.9.

So there's very little difference in the effective tax rates in these two base year numbers.

Now let me turn to the sales bridge for a minute.

What I'm going to do with the sales bridge is reconcile the $119 million increase that we had between last year's 695 million and this year's 814 million.

It's made up of volume, which accounts for 6.6 million of the increase; price, which accounts for 23.1; acquisition account for 76.3 and then exchange accounts for 12.9.

Those numbers should add up to the $119 million year-over-year difference.

So clearly when you look at those numbers, you see that the drivers for the sales increase were price and acquisitions.

Volume was positive, but volume was not real strong in the quarter.

In fact, the engineered carriers in paper operations in the U.S. showed domestic volume down 4.8% year-over-year.

Some of that is a decline in the textile industry compared with last year.

When we look behind those numbers though, we see that we actually had three less billing days in this year's quarter compared with last year's quarter in this particular division.

And so if we were to adjust for those three less billing days, the volume would actually prove out to be a little bit less than 1% of an increase year-over-year.

So while the numbers themselves, the raw numbers show a decline of around 4.8%, it's more likely that in fact on a volume basis adjusting for days, the volume was relatively flat, perhaps just a little bit above last year's pace.

Now we did see volume declines in Europe.

That declined 2.4%.

And in our paper business here in the U.S., we saw trade volume increase about 2.7% but we did see interdivisional sales down roughly about 8%.

And that does not affect these sales numbers because the interdivisional sales get eliminated in consolidation, but we will see on the next slide, next page that I have, where it will affect the profitability.

On the consumer side, volume was relatively strong.

Rigid paper and plastics, which is mostly composite cans, showed volume increase of 1.4% with good volume increases in snacks, caulk and powdered cleansers.

Our flexible volume was even stronger.

They had a very good quarter, up 4.4% and they showed significant increases in some of their customers.

Part of that includes the sales of (indiscernible) pouch that we've introduced last year and we're seeing good sales this year.

But a number of other customers were up as well.

In fact if our press is still up, we've been turning down some low-margin business.

So volume in the Flexible group has shown a significant year-over-year increase.

And then we saw increases as well in our molded plastics business and in our packaging services business.

So generally in the consumer side of our business, volumes were up.

We did see some weakness in the Industrial side and Engineered Carriers, some of which can be explained just in the number of days.

As I said, price was one of the big drivers.

Price is up 23.1 million.

In our Engineered Carriers and Paper segment, we see price up overall around 3% across the board, but a lot of that is simply the reflection of the price increases that we had.

We announced a price increase of $50 a ton in April of last year and a 5% to 8% increase in Tubes and Cores.

And then in November, we announced a $30 a ton increase and up to 5% in Tubes and Cores, and that November increase we were in the process of implementing through the first quarter.

So that goes a long way towards explaining the increase in price on the Engineered Carriers side.

We did see prices decline in Europe.

That was towards the middle of last year and pricing in the fourth quarter and on into the first quarter this year has been relatively stable.

But year-over-year, we saw a decline there.

On the consumer side, pricing was up as well.

Overall in the 3.5% range.

Rigid Paper and Plastics and Phoenix both had price increases that were a result of the contractual relationship that they had where we have reset in many cases at the beginning of the year.

And then our Phoenix business saw two general price increases, one in September of last year and another in December, which we were in the process of implementing.

So price was strong in all of those groups.

The next item was acquisitions, 76.3 million. 27 million of that is in the segment we call Engineered Carriers, and that of course is the JV that we have with Ahlstrom, Sonoco-Alcore, and 49 million of that is in the segment we call Packaging Services, and that reflects CorrFlex.

And then the last item, Exchange, 12.9, that's weak dollar versus principally in this case, the Canadian dollar.

I might add that had very little bottom-line effect, even though it did increase sales by almost $13 million.

Now turning to EBIT bridge, reconciling last year's EBIT of $58.9 million to this year's EBIT of 67.5.

I arrive at that, the beginning EBIT number of 58.9, just to help you reconcile that, it's as reported 52 million.

I'm adding back the restructuring charge of 1.3 million and I'm also adding back the loss that we incurred on the litigation of 5.5 million.

So that's how I arrive at the 58.9 million as my starting point.

Volume mix accounted for 7.1 million negative; that's a negative number that accounts for some of that difference.

Price cost was a positive $5.3 million and productivity a positive 10.3 million.

Other was more or less neutral just a point to 200,000.

So those numbers -- minus 7.1, 5.3, 10.3 and 0.2 -- should reconcile between last year's EBIT and this year's EBIT.

Let me start just with volumes.

As I said volume is down 7.1 million.

This is the profit impact of the volume shortfall.

And the biggest negative of course is domestic Tubes and Cores, which I explained earlier, the decline of 4.8% on an actual basis.

That drove reduced volume through our Paper operations and so we see the negative effect of less intercompany volume in paper, and that principally accounts for the decline year-over-year in what we're calling volume.

In terms of price cost, as I said, with sales pricing went up $23 million so our cost went up $18 million.

We did see increases in OCC.

OCC went up about $9.00 a ton, which is roughly 105.

We saw resin increases of anywhere from 29 to 71%, depending on the kind of resin and we saw domestic steel increases of 30%.

But it is interesting that with the price increases that we had, we do show overall a net positive price cost of 5.3 million.

So we more than recovered all of the cost increases that we've picked up so far this year.

Productivity at $10.3 million positive, generally good productivity across the board.

Perhaps one exception is our paper operations here in North America because of the shortfall in sales, interdivision sales, our machine utilization was 94% compared with last year's 97% and productivity in that division is directly related to the throughput through the machines.

And then in the other category, that's wages, it's energy, that also does include the profitability coming from the CorrFlex operation.

Now let me make a couple of other just general comments.

We did have new product sales that were about $5 million greater than last year.

That would be our Retor (ph) pouch, our Ultraseal (ph), Sono-Wrap, plastic bottles, the valve coffee ends, but we have a good introduction to those products and they accounted for about a $5 million year-over-year increase.

We are starting up two plants that produce plastic bottles.

Our plastic bottles start up in 2005 with a loss to us in the quarter.

Last year, we had some equipment relocation so year-over-year, we do have additional startup costs that hurt earnings by about $500,000 related principally to the plastic bottle operations.

Our energy costs and is really sort of scattered through the bridge that I saw, was 2.3 million and we probably have about $900,000 of extra cost in Europe related to a lot of the relocation that's going.

And this is not possible to define as restructuring, so it becomes inefficiency, extra wages; this is all related to the Europe consolidation.

We have so far closed four out of the seven plants and we expect to have the rest of them closed by midyear, the other three by midyear.

So we will still incur these extra costs in the second quarter, there's no question about that, but we're looking for a significantly improved second half of the year in Europe relative to the first half as we get these closure costs out of the way.

We also had some extra cost in Spain as that probably totaled about $0.5 million of what we would define as extra cost. 200,000 of it was a residual from last year and another 300,000 related to terminations of some of the people there.

So those two numbers, the 900,000 for extra cost and the 500,000, go a long way in explaining why the Engineered Carrier segment in terms of profits was down year-over-year.

Now a couple of other comments.

Cash flow.

Cash flow from operations was relatively flat at $23 million.

Our capital spending is under control, cap spending was 28.9 million in the first quarter, our budget is around 130 million.

So we're coming in and certainly won't exceed budget for the year.

We did see net working capital go up 55 million, and of course that pulled cash flow from operations.

It went up 55 million and that's a little bit less than last year's increase.

We continue to feel like we have effective control over working capital.

And as we look at it, some of the measures that we use for example accounts receivable days, our March days were lower, March of 2005, were lower than at any time in first quarter 2005 or anytime in 2004.

We did see a little bit of an increase, about half a day from March compared with last year's March in inventory.

But basically, working capital even though it's up, even though it consumes some of our cash, it's comparable to last year and still under good control.

Our balance sheet remains strong.

Our debt to total capital as we define it has dropped below 40%, so we're still real pleased with the ability to reduce that debt to total capital.

And our forecast, as Allen said, we forecast the second quarter to be $0.41 to $0.43 and we are sticking with our annual forecast of $1.75 to $1.79.

These forecasts are built up from the divisions sort of like a budget is built-up and that's where we derive these numbers.

They generally assume the same sort of economic conditions that we have right now, so relatively stable but we're clearly looking for a stronger second half than we had in the first half.

Some of that of course can be explained with plastics bottle cost and the extra costs in Europe that we're incurring in the first and second quarter, and we expect to see that go away in the third and fourth.

So those are the extent of my comments, Allen, and I will turn it back to you.

Thank you, Charlie, and we're ready to open the conference to questions.

(Operator Instructions).

Mark Connelly.

Thank you.

I wanted to just make sure I understand the impact of the Wisconsin startup that was in Q4.

Is that -- is there a timing issue there, or is there a real operational issue?

And in the same vein, the Alcore startup issues -- is that behind us too, and would you be willing to give us any sense of how much that affected results?

Let me try to answer both of those, and then I will let Charlie try to quantify it for you because he has the numbers there.

In terms of the Wisconsin startup, that is primarily where we're making product for some bottles for SlimFast and also our self-heating can.

And the issue there is frankly a piece of equipment that was specced by the person we're working with that did not perform as we had expected.

And so we've had a fair amount of hand assembly of those self-heating can.

A new piece of equipment will be in, if not this week the next week, and will be up and running sometime in May, and all indications are that we will able to take these individuals out who have been assembling this by hand.

So I would expect in the next 60 to 90 days, the issues in Wisconsin will be virtually behind us.

And so that's all the timeframe I would put on that cost.

There's good news and bad news in Alcore, the consolidate in Europe.

The good news is, frankly as we look at the first quarter and look at our plans for the consolidation of that business, A, we are ahead of the time schedule that we had anticipated being and, B, we're actually below the financial budget that we thought it was going to be in terms of cost to close down these plants.

That is the good news.

The bad news is that because we are ahead, we ended up dumping far more cost into the first quarter than we had anticipated when we started the joint venture and we put the budgets together.

So the good news of that is that this turns around quicker.

So we will start seeing the reverse that Charlie was talking about in Europe sooner than we had actually budgeted for during the year.

And I think clearly by the middle of the second quarter, these other plants will be closed and we'll see a reversal of those expenses in Europe.

Okay, that's helpful.

Just one other question, Harris.

You talked about new products and new products were quantified there in terms of their impact.

Is there a significant pipeline of new products that's going to have a meaningful impact that we should be expecting?

Maybe if there's some good news, we would be continuing to hear you break that out, or is that going to be a relatively small part of things for the next couple of quarters?

No, Mark, I don't think it will be.

I think it will be a big part over the next couple of quarters that we will in fact talk about and we will break out.

Charles mentioned the -- goodness gracious -- the Sono-Wrap with Whims at and Pepperidge Farms.

And if George Staphos is on the line, George asked me about three years ago and I told him about a cookie introduction that would be there in the fourth quarter of '02 I think it was, or maybe '01.

Well, this is the same one, it just took three years to get it done.

But we will see that ramping up and we will see some other introductions, particularly in the world of cookies, that should come about in the second quarter that I really cannot talk about at this point in time.

Thank you very much.

David Liebowitz.

Thank you very much.

Congratulations on your promotion, Harris.

Thank you, David, very much.

Very briefly, in terms of new products, is there anything you can tell us about the self-heating can?

I keep looking for it on the stands.

In our part of the world, I have yet to see it.

Well, it's in the Kroger stores and it's in I think 35 or 36 of the Krogers around the country.

Kroger actually has a six-month exclusivity on this product and so that's the only place you will see it.

I will have one in the mail to you tomorrow, so you will have one.

That is kinder than I deserve.

Can we talk about the consumer sector in a little more detail than you did during the prepared comments in terms of what percentage of your retail sales -- I mean what percentage of the total retail markets this year for the Company will be products introducing the last 12 months?

Introduced in the last 12 months was a number that I had, and I said a 5 million year-over-year difference.

So that was actually $14 million, was the total new products that were introduced in roughly nine of the same type of products last year.

And my last question on the point of new products.

I believe it was the last quarterly conference call when the question arose about new consumer products, and the response was, most of them would come in the second half and you didn't want to discuss them at any length.

Is there anything more you can tell us about them this time around by citing specific examples?

Well, I talked about Sono-Wrap with Whims, our Pepperidge Farms product, which will be introduced in May of this year.

I mentioned another product in cookies which will be introduced in the marketplace in June or July.

It's in the pipeline now and I cannot talk about it, David.

I am under a confidentiality agreement with the customer not to talk about it.

And there are a variety of flexible packaging products as well as some other cans that we will introduce, and we will talk about them.

They will mostly be in the second and third quarters of the year, though.

Switching gears completely, I did not hear much discussion of energy costs and what that means to the Company, A. And, B, very little discussion of raw material costs and I was wondering if this particular moment in time, you can point to experiences in the last 20 or 30 or 40 years or whatever where you face similar conditions and what impact it had on your top and bottom line?

Well, I haven't been here 30 or 40 years, but --.

But Allen has.

He won't admit to it, but he probably was.

He probably was, I probably was too.

David generally, we have been able as evidenced by last year because of our market position to move prices through in times such as this.

And as Charlie pointed out earlier, year-over-year, we have had positive price movement and were successful in implementing increases across most all of our businesses.

So we expect to be able to do that.

Energy costs, Charlie probably has the number, I don't off the top of my head, but as we have said previously, we are about 78% hedged in our natural gas purchases for this year.

Through '06, we're probably in the 50% range hedged and then through '07, we're probably down in the 30% range.

We've had a hedging program in place for a number of years.

We're not trying to outguess the market, but just to bring certainty to our energy purchases.

So while energy prices have gone up, clearly we are somewhat protected.

Charlie?

The specific is that year-over-year cost related to energy was a little over $2 million, $2.3 million across the whole board.

And you're right, we have this rolling program of hedges.

We're hedged right now -- that 78% that we're hedged is a little bit less than $6.00 a decatherm.

And so that's what we face going into the rest of 2005 and sort of rolling into 2006.

So it's not a huge number for us and it's under pretty good control.

Thank you very much.

And again, congratulations on the elevation.

Thank you, David.

Edings Thibault.

Thanks very much and good afternoon gentlemen.

Just a few questions if you will in terms of sort of the pace of business.

I was wondering if you wanted to talk about -- you mentioned in your prepared comments the increase in trade sales and the decrease in interdivisional sales.

I was wondering if you could, on the paper side, if you could talk about that and where kind of the end markets on the interdivisional side that you may be seeing that may be impacted there?

Specifically to the numbers, we saw increases in the trade sales of something less than 2000 tons and we saw a decrease in interdivision in the 13,000 ton range.

So -- but where is that interdivisional sales going?

Much of that is into the industrial Tube and Core markets.

And even though I explained that in terms of when you adjust for volume days, we were pretty much flat, we did have fewer days in the quarter.

We did have roughly 4% or 5% of less volume going into the Tube and Core division.

And it is reflected not so much in the sales number as (indiscernible), it's reflected in both sales number, but even more so in the profit number because we had no profitability from those sales in paper, the sales we didn't make.

So as it relates to the trade sales, we have had a program underway with a focus on improving and increasing trade sales.

And for the last several quarters now, that focus is starting to bear fruit.

And so it's not surprising for us to see trades sales go up, but we have to see trade sales on the Tube and Core side go up to see volume coming through the paper mills.

In further response to that, I think the question was end markets.

If you look around the globe on the Tube and Core market, you would see that textiles are down clearly in North America, but also in Asia, Europe and South America, everywhere we (indiscernible) there.

You see the same thing on the paper mill side where we're paying -- selling paper mill cores into the paper mill ,industry particularly in North America.

And this general what I would call film sales, film core sales that would be stretch wrap and things of that nature, we're seeing that market slightly down year-over-year.

If you were to look at it in terms of -- and you need to remember that, well I need to remind you -- in the first quarter of last year, it was clearly the weakest quarter that we had in terms of volume on that industrial sector.

So we are flat there.

If you look at the second and third quarter comparisons, we're down probably 3% off of the fourth quarter volumes in that business.

Okay.

And then a follow-up question on the Packaging Services business.

Have you gotten any more information regarding the Gillette and Procter & Gamble merger?

Any fallout there?

Any signs of additional activity that may lead to more projects that you guys could take on for the now much larger company?

I would say all of operations that we've gotten out of both sides of the merger are positive vibrations by pulling product into probably Gillette including more services into Procter & Gamble.

So we view it as a pretty big positive, Eddie.

Okay.

Go ahead, that's fine.

I was just going to say, I wonder if the positives are additional facilities or more volume to the existing facilities that you (indiscernible)?

I think it would be additional facilities on the services side and probably more products into existing services.

Okay and --.

Clearly, we're discussing with them additional facilities on the services side as we speak.

Great.

Thanks very much, good luck in the quarter.

George Staphos.

Hi, guys, good afternoon.

Harris, congratulations.

I guess first question I had, piggybacking off of Eddie's question, did I hear you say that first-quarter volume, if we compare this to second quarter and third quarter of last year, which was a stronger period, you were down 3%.

Did I catch that inference correctly?

Yes, that's basically correct, George.

Was the trajectory on business, forgetting the shipping says, if possible; was it weaker heading out of the quarter than the way it began the quarter?

Help us understand what the momentum was with velocity?

George, I would say it was basically flat.

We didn't see much change at all in the quarter.

We took -- we came off of a much -- and I talked about this in February obviously -- we came off of a much stronger December than we had anticipated.

January was down and we did not see the rebound in February and March.

Now in April, we have seen a little pickup, but not something I'd write home about, frankly.

I think Mark had asked you a question on startup costs and you gave a lot of color which was helpful.

But did you actually quantify what the impact was?

Charlie can do that for you.

Let me try to do debt.

As it relates to the plastic bottle, we set an incremental cost of about $1 million in this year's quarter.

Having said that, we have a certain amount of relocation costs in the same -- basically in the same division as we were moving equipment around last year, and that was probably roughly around half a million is what my notes say.

So year-over-year, we had about $0.5 million negative that would come from the rigid paper and plastics business -- a million of offset by the losses that went away last year.

And as it relates to Europe, the best quantification I can give is roughly about $900,000 of those incremental costs related to the various plant closures and moving product around.

As it relates to Spain, I mentioned 500,000 -- those were truly onetime kinds of costs.

They don't roll into the second and third quarter.

We will certainly see in the second quarter some further costs as we consolidate and ramp up the consolidation process in Europe.

Guys, as you think about integration and it has gone well with Alcore, and you said, timing wise, is part of that because borrowings have been kind of flaccid in Europe?

And again, can you give us a feel for what Europe has been doing?

Has it been flat, has it been deteriorating or (technical difficulty) actually pick up at all?

No, I don't think so at all, George.

I think we set out to aggressively get this consolidation behind us.

We wanted to have it done by the second quarter, by the end of the second quarter, and frankly, our team in Europe did -- we knew they were going to do a good job, but they did a better job that we had hoped in terms, particularly with the French plants and getting them closed down.

We didn't know what the timing was going to be dealing with the unions and the government, and that went better than we had anticipated in terms of timing, so we got it down.

Volumes in Europe, they're weak.

As and I think Charlie mentioned earlier, the pricing deterioration we have seen year-over-year really occurred last summer and we haven't seen much price deterioration in the last I would say four or five quarters.

We did announce a price increase on core board several weeks ago and understand that has been supported somewhat in Europe as a tightening -- seems to be a tightening of core board in Europe as two or three mills have gone down into bankruptcy.

And there's a looming strike in the finished paper industry which will affect several big core board mills.

So we're hopeful that the table is set for some improvement in pricing over there.

Volume, I don't know.

We're sort of anticipating in our projections that volumes are going to be what they are now for the balance of the year.

I will turn over to the other guys.

Thanks, Harris.

Ghansham Panjabi.

Hi, good afternoon, from Lehman Brothers.

Just in terms of the composite can business in particular and noting the fact that steel is up significantly over the last couple of years as is plastic resin, Harris are you seeing any sort of incremental interest in the composite can product as a substitution alternative?

Absolutely not.

We have I think more interest today in conversion out of alternative products back into -- or into composites than we have seen in some time.

And in fact, we had some compressions that we have already underway to make the conversion.

These will start occurring in the third quarter, fourth quarter and into the first quarter of next year.

Most of these relate to -- I don't really want to talk about the products, but the delays are driven by the fact that we have some of these have to go through some government approvals because of the contents that go in the cans.

Those approvals are underway and we will get them shortly, so a lot of interest still, Ghansham.

That's good to hear.

And just to clarify as per George's last question.

Are you expecting volumes to be -- coal volumes -- to the flattish for the rest of the year, or up 1%?

I was really talking in terms of Europe when I answered that question.

I said we were looking for hopefully some price improvement in Europe, but in our estimates we're looking at volumes holding about where they are.

Actually on the total Tube and Core volume, we're looking for slight improvements over where we are today, but not great improvements.

Great, thank you.

Gentlemen, there are questions in the queue at this time.

Thank you very much.

If there are no more questions, we appreciate it and thank you for joining us.