Sonoco Products Co (SON) 2009 Q2 法說會逐字稿

Greetings, and welcome to the Sonoco Products Company second quarter earnings conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Roger Schrum, Vice President of Investor Relations for Sonoco Products Company. Thank you. Mr. Schrum, you may now begin.

Thank you, Jackie. Good morning, everyone, and welcome to Sonoco's 2009 second quarter earnings investor call. This call is being conducted on July 16, 2009.

Joining me today are Harris DeLoach, Chairman, President and Chief Executive Officer; and Charlie Hupfer, Senior Vice President and Chief Financial Officer.

Our financial results for the second quarter were released before the market opened today, and are available on our website at sonoco.com.

Let me begin by stating that today's investor call may contain a number of forward-looking statements that are based on current expectations, estimates, and projections. These statements are not guarantees of future performance and are subject to certain risks and uncertainties. Therefore, actual results may differ materially. Additional information about factors that could cause different results and information about the use by the Company of non-GAAP financial measures is available in our annual report and on the Company's website.

With that brief introduction, I'll now turn it over to Charlie Hupfer.

Okay, thanks, Roger. Today, Sonoco reported second quarter EPS of $0.33 a share and base EPS of $0.41 a share. Base EPS of $0.41 a share compares with our guidance of $0.34 to $0.38, so we were very pleased with the quarter. We were especially pleased with the added strength we saw in June in our US tube and paper operations.

Let me begin by reconciling GAAP net income to base net income. GAAP net income was $33.6 million or $0.33 a share versus base net income of $40.9 million or $0.41 a share. The difference is restructuring. During the quarter, we took a $10.4 million pretax charge related to several announced plant closures and a reduction in force.

The after-tax charge was $7.3 million. So if you add back $7.3 million to GAAP net income of $33.6 million, you arrive at $40.9 million or the $0.41 a share [that's netted base] EPS.

Last year's net income included a pretax restructuring charge of $10.8 million or $4.6 million after-tax and after minority interests. So if you add back the $4.6 million to last year's net income of $58 million, you arrive at $62.6 million or $0.62 a share.

On a base earnings basis, EPS is $0.41 this year versus $0.62 last year, and incremental pension expense accounts for $0.08 of that difference. With these restructuring adjustments in mind, let me read out now for you the full comparative income statement.

Just starting at the top, sales were $864.2 million or 20.5% below last year's $1.866 billion. Volume in foreign exchange were the big drivers of the year-over-year shortfall.

Cost of sales is $705.9 million versus last year's $891.9 million. The gross profit margin, if you make that calculation, is 18.3%, and that compares with 17.9% last year. That's a 40 basis point year-over-year improvement. You have to go back to the second quarter of 2007 to find a higher gross profit margin.

My take on all this is that our plants and mills have adjusted very well to running at these lower levels of volume.

Selling and administrative and other costs are $90.6 million versus $100.9 million last year. That is a $10.3 million reduction, and I think that speaks to the tight control we've had for well over a year, over discretionary spending. Base EBIT, earnings before interest and tax then, is $67.7 million compared with $93.8 million last year. That's a $26.1 million year-over-year shortfall. And $13.2 million of that is incremental pension expense.

In percentage terms, EBIT is down year-over-year by 27.8%; but absent that incremental pension expense, EBIT would be down only 13.7%.

Now, coming on down the income statement, interest expense is $10.1 million versus $12.1 million last year for a favorable difference of $2 million. Total debt is down year-over-year by $180 million, and our commercial paper interest rate averaged only 78 basis points in this second quarter versus 2.76% last year.

Taxes are $17.8 million versus $22.8 million last year. The effective tax rate is 30.9% this year versus 27.8% last year; so, about a 3 percentage point difference. Last year, we were able to take advantage of the change in the Italian tax law that resulted in a one-time credit of about $3 million. And that pulled down last year's effective tax rate. We have no similar credit in this year's quarter.

And then equity and earnings of affiliates and minority interests is a total of $1.1 million in this second quarter compared with $3.7 million last year. But what that does is it leaves us with net income of $40.9 million this year, and that's down 34.7% behind last year's $62.6 million. But again, absent that incremental pension expense, net income would have been down 21.8%, which is roughly in line with the overall sales shortfall.

Let me move now to segment reporting. The segment reporting is found on page 7 of the press release. Our segment reporting has told the same story, really, for about the last six quarters; and that is, year-over-year improvement in the Consumer Packaging segment, and year-over-year weakness in the other parts of the business.

So, let me start with Consumer Packaging. Consumer Packaging sales were down year-over-year 6.4%, but profits were up 19.7%. I will point out that in the first quarter, we saw profits up year-over-year by 8.5%, so at 19.7%, this quarter represents a solid performance, and that was especially in composite cans. Absent incremental pension costs, profits would have been up 33% -- that's in comparison with that 19.7%.

The other -- another segment, Tube, Core and Paper Sales, were down 29% and profits were down 49.5%. Again, absent the incremental pension expense, profits would have been down 34%, which again, is more in line with the sales decline.

Our European operations showed the biggest year-over-year shortfall, and in part, that's because of the tough comparison. Last year's second quarter was an all-time record in terms of profits for Europe.

Tube volume remains generally weak in the year-over-year comparisons; but as I said earlier, June showed a little more strength, and we saw a modest improvement in Asia throughout the quarter. And in fact, in the first quarter of 2009, we were behind the first quarter of 2008 by 80% -- 80.5%. So again, this second quarter shows a nice sequential year-over-year improvement.

Turning now to Packaging Services, sales there were down 28.6% year-over-year, and profits were down 87.1%. Absent the incremental pension expense, profits would have been down by 76%. We frankly did not see the usual second quarter upturn in our point-of-purchase business and fulfillment business that we'd expected to see.

The All Other portion or segment, sales were down 26.7% and profits were down 40%; and again, absent incremental pension expense, our profits would have been down 26%. The business in this category is more construction and housing-related. Having said that, profits were down 55% in the first quarter, so at only 40% down, this does represent again some sequential improvement, especially in our protective packaging businesses that sell into the appliance industry.

Let me turn now to the sales bridge, and this is where we reconcile last year's sales of $1.086 billion to this year's sales of $864 million, and that's a difference of $222 million. And the bridge is made up of three components. The first one is volume. Volume is down $134 million. Price is a negative $19 million, and foreign exchange is a negative $69 million. So, those three numbers -- $134 million, $19 million and $69 million add up to the $222 million shortfall.

Let me comment first on volume. Tube and core volume in the US was down overall 22%, and that's across all product lines. In Europe, volume was down 19.5%, with Western Europe down 21%, and Eastern Europe down 12%. Our outside paper sales in the US were down 15%, and in Europe, they were down 7%.

Composite can volume was down roughly 7% year-over-year, and that's due principally to shortfalls in the snack and the caulk and the adhesive categories. The snack shortfall is due to the general economy, and in particular, I think, to some weakness in the stacked chip category.

On the other hand, miscellaneous food cans were up almost 50%, due to the Maxwell Coffee conversion, and refrigerated dough and the nuts categories were also up nicely year-over-year.

Vegetables volume was down approximately 11%, and that's due principally to low customer demand, which was especially evident in the higher-priced snack food category. And then point-of-purchase display and fulfillment volume was off roughly one-third, and that's due to a notable decline in promotional advertising.

The negative price variance of $19 million is due principally to a 50% reduction in the selling price of outside sales of wastepaper; and, because we use wastepaper ourselves in our operation, a reduction in the selling price of some of our tube, core and paper products, especially those with contracts with escalator clauses that are tied to OCC.

The negative price pressure from wastepaper was partially offset by higher composite can and metal end prices that were put in place at the beginning of the year to reflect the significant increase we saw in tin plate cost. The net [FX], that accounts for a negative $69 million for the sales shortfall. Since last year, we've seen the dollar strengthen versus most of the currencies we do business in. But again, as I always say on these conference calls, this foreign exchange shortfall is all translation and it has a fairly negligible bottom line income effect.

Now let me turn to the EBIT bridge. This is where we reconcile last year's EBIT of $93.8 million to this year's $67.7 million. And that's a difference of $26.1 million. It's made up of five categories. The first one is volume, and volume is a negative $46 million.

The next category is price cost, and that price cost now, if you remember, includes incremental year-over-year energy and freight costs. That price cost is a positive $21 million; productivity, a positive $4 million; all other, which is our catch-all category, a positive $8 million; incremental pension expense, a negative $13 million.

So, again, a negative $46 million, positive $21 million for price cost, a positive $4 million, a positive $8 million, and a negative $13 million for pension, should equal a negative $26 million year-over-year difference.

The volume variance, starting with that, is $46 million. And that represents the profit impact on the sales volume shortfall that I mentioned with the sales variance. Remember that the profit impact includes the integrated margin on our intercompany sales shortfall.

Price cost is a positive $21 million. This is where we see the positive impact of the decline in wastepaper costs; the impact that that has obviously had on our cost of sales. Wastepaper costs were down approximately 50% in the US and approximately 40% in Europe. Price cost was positive in our Consumer segment, and that's due in part to lower year-over-year film and resin costs.

Just added information for you, OCC, and I'm talking now about the Southeast Yellow Sheet price, was $60 a ton in June, and that was the basis for our contractual price resets for the third quarter. It surprised us all by moving up to $75 a ton in July. And also, there's been some announced resin increases, and all of that's been factored into the forecast, which I'll talk about in just a minute.

Moving on down through the EBIT bridge, our productivity was relatively weak and only $4 million. Most of that productivity is coming from the Consumer Packaging segment. Food, core, and paper productivity wasn't bad, but Europe was actually a negative $2 million. And that's because they just simply haven't been able to flex the workforce as well as we can in the US to match these reduced volume levels.

The other category, the catch-all category, is a positive $8 million. And again, that reflects our price control over discretionary spending. And [that] to give you some examples, selling and administrative costs, as we define them, were actually favorable -- $8.6 million year-over-year. Plant fixed overhead costs were favorable, $7.8 million. That's due largely to our restructuring activity. And these positives more than offset last year's wage increases, general inflation and FX losses at the EBIT line.

To hold down costs until we see how the economy plays out, a decision was taken in the second quarter to freeze wages and salaries, and to extend the 401(k) [map].

And the last item on the bridge is pension, which is a negative $13.2 million pretax. And that's just simply a direct result of 2008's negative 24% investment return performance. But again, here I'll mention that there is no required funding until 2010.

Now let me mention cash flow. The second quarter was an excellent quarter from a cash flow perspective. Operating cash was $106.4 million, which was $26 million more than last year's $79.8 million.

The biggest driver of that is improved -- of that improved performance is a change in networking capital. In terms of networking capital, this year, networking capital contributed $6.9 million to our operating cash. Last year, networking capital used up $22 million of operating cash. So, at the networking capital line, that's a difference of $29.2 million.

Most of that improvement comes from inventory. Inventory reduction actually makes up more than that; it makes up $32 million of that year-over-year change. And I will point out that in day's terms, we're now back to October levels, which means that we've successfully adjusted our inventory levels back down to October levels to match these lower levels of volume.

Now, capital spending was $22.7 million, and that's versus $28.8 million last year. And free cash flow, which we would define as after capital spending and after dividends, was $56.7 million, and that is $32 million more than last year's $24 million.

So again, a solid quarter from a cash flow perspective. And of course, that also means that our balance sheet is strong. It remains strong. Total debt was actually reduced by $44 million, and now stands at only $646 million. Our debt to total capital was reduced from the beginning of the year, 37% to 34.2%.

Now let me turn to the forecast. We updated our forecast for the year, and it remains unchanged at the $1.55 level. The forecast was prepared in mid to late June, and is largely based on June run rates, which admittedly were stronger than they were in April and May; so there is a bit of a modest upside bias to this $1.55 number.

The range we provided is $1.55 to $1.65, but like last quarter, we're generally talking to the low side. The high side reflects an uptick in the overall economy, which we hope happens, but we haven't seen it yet today. And by that, I mean it's beyond what appears to be a continuation of the much-improved June run rate.

Our third quarter guidance is $0.43 to $0.47, and that's, of course, based on the low side of $1.55.

There were some changes from the April forecast, but they more or less offset each other, leaving us with this same $1.55. This latest forecast assumes continued weakness in our European tube, core and paper operations, and that that continued weakness is largely offset by our domestic tube and core and paper operations. And again, that's at the higher June run rate.

But like the second quarter, we also expect to see continued strength in our Consumer segment, particularly composite cans, but also we expect continued weakness in the Packaging Services segment. Frankly, it's the drag from Packaging Services, and especially CorrFlex, compared with our April forecast, that didn't allow us to increase the overall guidance beyond the $1.55 -- even with the second quarter, which was a very good second quarter, and about $0.05 better than what we had expected.

CorrFlex has been negatively affected by low volume from its existing customer base. We don't think that we've lost any significant marketshare, but we have clearly seen customers internalize some of their custom packaging, and also others eliminate or downsize their programs. And because of the relatively long lead times in this business, we don't expect a marked improvement in the second half.

Sonoco has replaced the General Manager, and has given Rob Tiede, who used to run the CorrFlex business, overall responsibility.

In terms of cash flow for the year, our forecast is based on the $1.55 EPS figure. We expect operating cash for the full year to be approximately $335 million. We expect capital spending to still be around $110 million. So again, free cash flow, and that is after -- that is cash flow from operations, less CapEX, less dividends -- should be approximately $110 million to $115 million.

So with that, I'll turn it over now to questions.

(Operator Instructions). Claudia Hueston, JPMorgan Chase & Co.

I was hoping you could just elaborate a little bit on the improvement that you saw in June in the industrial business. Maybe just comment on in terms of where you're seeing it, and if there's any way to sort of gauge customer sense and inter-customer visibility today versus a couple of months ago. That would be helpful.

And then also, I was hoping you could just comment on how prepared you feel the tube and core system is for a pickup in volumes, as we move through the second half.

Claudia, thank you. We saw general improvement, I guess, starting the last week in May, maybe the last two weeks in May, that carried on into June. And it was across all the segments in the business, I think [all] tube tons were up about 6% for the quarter. But we saw versus paper mill, core was up about 4.5%; film was up close to 10%; paper and specialty up about 10%; textile volumes up almost 16%.

So we clearly saw that improvement. And we've seen that improvement carry over into July and remains strong. It remains relatively strong, like it was in June. We would not have a capacity problem and we could certainly take any further uptick without a problem.

Okay. And then just if you're looking at the US versus Europe, have you seen any signs of a pickup in Europe as well? Or is this pretty much US focus?

It's pretty much around the world except for Europe. We've seen it in Asia. We've seen it in South America, and obviously, North America we've talked about. But Europe is still bouncing along like it has been. Although it was up sequentially quarter-over-quarter, it is still not a lot of improvement.

Okay, but it's still pretty stable there?

It is stable.

Okay. And then just finally just on customer visibility, I mean, do you feel like customers are more optimistic yet? Or is it just sort of that there has been a little bit of a pickup in --?

Claudia, we've seen more optimism among the (inaudible) I'm talking [these up] that you're talking about?

Yes.

And we're seeing more optimism from that customer base.

George Staphos, Banc of America-Merrill Lynch.

Harris, just a quick question, just to clarify -- the percentage that you just gave when you were answering Claudia's question, those were -- year-on-year, I'm assuming those were sequential changes, (multiple speakers) say June versus --?

Those were sequential changes from the first quarter.

Okay, fair enough. Now, in turn, what kind of change in operating rates did you see on the Sonoboard machines? I mean, would you be up 6% to 10%, in that range?

Probably so. The quarter was [all] a tale of two cities in some regards. April was much like March, and most of this uptick came, as I said, the last week or so of May and continued through June and into July.

What are the -- could I ask, what are the operating rates right now as we speak?

I think operating rates right now are probably in the mid-90% range on the paper machines.

Okay. Given what's been happening with OCC and given what you've seen in operating rates, do you have the opportunity in your non-contractual business to go and raise pricing on Sonoboard, do you think?

George, I wouldn't speculate on that right now. I think we will continue to see -- I think OCC is probably going to continue to drift up, based on what we're seeing now. And obviously, we will look at that and make some decisions. But honestly, we haven't crossed that bridge at this point.

Okay. I'll leave that question to the side for now. Two quick ones on consumer. You mentioned in the press release something that you touched on the first quarter as well, that you ultimately expect some of these input cost benefits to fade or to lesson in their impact. Do you expect that that will be the case in the third quarter, given what you know? In other words, you'll be neutral year-on-year in terms of the cost variances?

I expect we will see positive cost variances through the balance of this year, George.

Okay. And then lastly, with CorrFlex, obviously Rob comes from the business, but he has additional responsibilities. How do you feel about the overall bench strength within Consumer and Package services being able to manage through obviously a fairly choppy economy?

And I vaguely remember -- although correct me if I'm wrong -- that you at one point in time had expected, given what customers were indicating, a pickup in CorrFlex. So did the customers just pull their programs, if I'm remembering correctly? Thanks, guys.

George, I'm not the least bit concerned about the bench strength on the consumer side of the business. And we wanted to get Rob back engaged in the services side, because he knows the services side so very well; but also wanted to run Rob's responsibilities a little bit. So, it was a great opportunity to do that. I'm not concerned about the bench strength.

You asked about customers pulling. I don't know that it's been any pulling as much as [angst] have not materialized. And we've seen volume to clients -- pretty significant volume to clients in the pack centers that are dedicated to specific customers. So, without getting into specifics there, we've seen those down from the mid-30% over last year -- from last year to as low as the 14% or 15%. So it's been an overall weakness in customer, particularly branded customer promotions.

Okay. I'll turn it over. Thanks, Harris.

Ghansham Panjabi, Robert W. Baird.

Hey, just on the Consumer Packing business, so just to follow up on George's question -- is it fair to say that volumes maybe see a sequential pickup in that business? And then margins see a slight decline, just based on your commentary on priced [on] spreads, is that fair?

No, I would say it was probably the opposite of that. We saw some sequential volume declines, but we saw some price increases that we had put in earlier in the year at the same time input costs come down, that have improved the margins.

So, but looking at [it to] the back half, is that what you're talking about?

I'm sorry, I thought you were talking about the second quarter.

No, the back half of the year.

That's a fair statement.

Okay, all right.

There's some delayed pricing that was -- that is factored, as we talked about in the last conference call, that's factored into the second half, which serves as a bit of an offset against that natural decline that you're talking about. So, it's not a notable difference.

Okay. And so how does the consumer business performing, this benchmarking it against the previous few recessions? Is it sort of within your realm of probability? Is it weaker than you would have expected, et cetera? I'm just trying to get a sense there.

No, Ghansham, I think the consumer business is performing exactly as we would have expected -- the way it has in the past. I don't see any difference.

Okay. All right, thank you.

Chris Manuel, KeyBanc Capital Markets.

A couple of questions for you. First, can you maybe give us an update on what you're seeing in the competitive landscape, particularly here in North America?

In any particular business segment?

On the industrial side.

I don't know that it's any more or any less competitive than it has been. We're seeing -- as OCC has fallen, we're seeing more pricing activity in that business. I expect with OCC going back up, we'd expect that to subside somewhat, but maybe a little bit more than what we were seeing a quarter ago.

Okay, that's helpful. And then as you look across the business today, it sounds like over the last six weeks or so, you've seen some upticks, six to eight weeks, but still at levels markedly below where you were, let's say, a year ago. How do you prioritize or think about uses of cash, with respect to looking at outside opportunities as well as potential restructuring or cost activities within your business?

Chris, you know we -- we're always looking at restructuring the business to make it more cost effective and adjusting that footprint. I would think right now our use of cash would be more on the outside opportunities rather than what we need to do internally. Most of what we need to do internally will not consume a lot of cash.

Okay, that's helpful. And then one last question. As you -- you made some adjustments. One of the areas that you did, at least compared to my models out of this quarter, was on the SG&A side. And I would venture to guess some of that had to do with some of the contingency actions you took through that process.

Charlie, do you have a rough estimate of some of the wage freezes, 401(k) reductions, things of that nature, how much of that [of a variance stuff] was in the quarter?

I wouldn't think that was much advantage at all in the quarter, because the wage increases would not have taken effect until (multiple speakers) June 1 or July 1. And the 401(k) was not because of the way -- the structure didn't begin until June 1. So very little.

Okay, so not much in the quarter, but on a go-forward basis, is it $1 million or $2 million a quarter benefit?

Yes. It's not a bad number.

I think most of the $8.6 million that I talked about in [net] spending just simply goes back to -- we've really tightened control over discretionary spending going all the way back to early 2008. And that's what you're seeing.

That's what I was trying to gauge, was of that portion. It sounds more like these new actions will be on a go-forward basis, and -- okay. Thank you much.

Al Kabili, Macquarie Capital Advisors.

I guess a comparison on the -- I guess, going to tubes and cores, if you could just help us think about exiting June, what the year-over-year decline was in that business on the volume side.

I think Charlie probably has that.

I don't have it for the month of June (multiple speakers) --

Oh, [but] June, I'm sorry.

Yes, overall, it was like 22%. I think that compares with 25% in the first quarter. So most of that favorable difference would have been just the month of June itself; but I don't have a year-over-year June comparison.

Okay. And then if we think about -- normally, so June picked up seasonally 3Q is a fair bit stronger. So, I guess the seasonality plus the pickup in June would have suggested a higher, I guess, to me, 3Q outlook. And I'm just wondering if you could talk through maybe some of the negatives sequentially that might be going on in the third quarter versus the second quarter. Is it higher OCC prices? What else should we be thinking about there?

Al, I think what we basically did was took the second quarter, which was basically the June run rate, and projected that through the balance of the year. We did not say or assume that we would see any more seasonality to that, as you heard us say before.

There is some seasonality in this business. Normally we see it in March. We didn't see it in March. We saw this pickup in June, and we basically assume that for the balance of the year. We did factor into the numbers some OCC costs going up, and did not necessarily consider any of the recovery from that.

Okay, got it. And then on the -- I guess, to revisit a previous question, on the consumer side -- resin, was that a meaningful benefit? It looks like it was in the second quarter that we should think about, tempering back in Q3?

I don't think that was a big factor in the second quarter at all. And in those businesses, we have basically resets in most of our contracts. So I think we've assumed that we'd recover whatever resin increase goes into that.

Okay. And then you mentioned -- I think there was some price actions taken, I think maybe tin plated steel might have been -- related to tin plated steel might have been some of them. Is there any effective of pre-buy that could be a headwind that we should be thinking about on that front?

I wouldn't think so. There's very little pre-buy in our products generally; no more than a couple of weeks at the most because of the storage out on -- metal ends would be the exception to that. And I don't think that we've seen any pre-buy there either.

Okay. And then on the CorrFlex side, I guess the outlook still looks really tough in the back half. Are you seeing any incremental extra interest from customers on promotions? I know some of these things can be pretty long leadtimes, but I just -- from a pipeline perspective, is there any reason for optimism? Are you seeing anything there?

Al, that's really, as Charlie said, the basis of us holding the low end of the guidance where it was, rather than adding to it. Traditionally, in the four or five years that we've had this business, it's -- most of the sales come loaded from about May until November. And we haven't seen that this year. We didn't see the normal uptick we would see in May and we haven't seen it in June.

I would say, though, that our new product and designs is probably at record levels, but they're not turning into performers as quickly as we normally would have expected to be. And we're assuming that for the balance of the year, that we will stay at basically this June run rate that we saw.

Okay. And then two quick ones on -- I guess I'm thinking of productivity and savings from restructuring. I think you add the [two], maybe $12 million on the EBIT line positive for the quarter. Is that the kind of magnitude we can expect throughout the third and fourth quarter as well? Or I know you just took a charge for additional restructuring, so are there incremental savings that we should be thinking about in the third and fourth quarter?

I would think, particularly if we see volume continue through the mill system and through our industrial businesses, that you will see expanding productivity numbers. That's a very low quarter for us from a productivity standpoint compared to what we normally have.

And as Charlie said, most of that, a lot of that occurred in Europe where they cannot flex the workforce. And also we've had, in the early part of the quarter, in North America and in Europe, a fair amount of down days in our mill system; and hopefully, with some volume, that will change.

Okay. And then the last one is on composite cans. Certainly you've seen some good conversion opportunities out of metal into composite cans. But are you seeing much meaningful negative outflow out of composite can and into plastic? Are you experiencing much meaningful volume changes with regard to that?

No, and I don't know that we've had any; but certainly not anything to speak of. And the conversion opportunities, as Charlie mentioned, the Maxwell House coffee is going very nicely and contributed in the quarter. And we are in dialogue with other coffee companies and other powdered infant formula companies about further conversions later this year and early next year.

Okay, thank you very much. Good luck in the quarter, and I'll turn it over.

David Leibowitz, Horizon Asset Management.

All righty, a few brief ones. Your new product introductions on the consumer side are always heavily weighted to the end of the year. Given current economic trends, do you see anything out of the ordinary this year?

David, I don't know if Charlie mentioned it -- I think in the quarter, we had $45 million of new sales from new products, which was a record for us for a quarter. And I think we have probably as many conversions or new product introductions in the balance of the year as we've had. So it's going well.

So you'll keep up with the standard percentage of total sales from new products this year, as we saw last year and the year before?

We should, and I'd be disappointed if we don't see that.

Great. Some of your key new products last year were introduced on a particular product rather than the entire line as a rollout. Have you seen the entire line? Let's take the Nabisco Cookie on the resealable pack or whatever, where you are getting more product brands within the category?

We have -- the one you mentioned, with the Nabisco, actually, we have an exclusivity -- they have exclusivity that runs for probably another nine months or so. So we have not done that; but clearly, some of these other introductions we have expanded beyond that particular brand into the segment.

Great. And internationally, the zigzagging of the dollar versus the euro, et cetera -- has this played much effect with your reported figures?

Well, that $69 million in sales, that clearly affected the year-over-year comparison in sales. Now, again, that's all translation. And it's a bit hard to make the calculation.

It probably had a $2.4 million impact on EBIT, if you just focus on the translation effect of it. Obviously, there's an operating effect that's probably positive that would even mitigate that further. So -- and that's at the EBIT line. By the time you get down to after interest, after tax, it's a pretty negligible number.

So we tend to talk about it really only as it affects sales, because it doesn't affect profits that much.

And lastly, turning to the pension shortfalls, the performance of your plan so far this year -- how does that match up against what was actuarially looked for?

Well, the performance of the plan, we obviously had a good second quarter. And for year-to-date, if I recall correctly, we were at about 4.5% of positive return. So that would be slightly behind our overall assumption of 8.5% (multiple speakers) behind it.

Thank you very much.

Dan Khoshaba, KSA Capital Advisors.

Can you guys comment a little bit on what you're experiencing in the US core and tube code market? If anything, as a result of some of the competitive activity with just some smaller companies having some financial difficulties, bigger companies being very leveraged, some of the well-known kind of issues, either good or bad?

I think it's been basically a non-event. We picked up some volume probably early in the second quarter, but beyond that, we haven't seen a lot of positive or negative from it, frankly.

Okay. Is there an expectation that there's going to be -- maybe you just don't know, but any significant or material reduction in capacity as a result of some of those difficulties that these companies are having?

Dan, I don't know, but I could speculate -- that this market, even in good times and bad times, has been one that has rationalized capacity across all of the companies. And I would expect that would probably continue as well.

Okay. And then just one more question. On the composite can side of the business, volumes have been pretty good there. How much of the frozen volume has been a result, in your mind, just a natural kind of counter-cyclicality of that business, particularly in powdered beverages and some of those types of products, and versus perhaps new product introductions in the market?

Dan, I think most of the growth over the last couple of years -- I mean, there is certainly some kind of technicality to it, but most of it has been from conversions -- conversions of powdered infant formula; conversion of coffee; and just pure new products going into it.

Okay. Now coffee is pretty much converted, right? Is that -- or is there more coffee to convert?

No, no. There's a good bit more coffee to convert.

Okay, thank you.

And with infant formula, as well.

Okay, thank you.

George Staphos, Banc of America-Merrill Lynch.

Hey, Harris, a couple of questions on powdered infant formula and composites. I remember reading recently there's been also very good growth in products like aseptic for liquid dairy packaging, and I want to say also formula. So, are you seeing any more recent trend or discussion by your customers moving to aseptic, or considering that when they would have been considering a composite (multiple speakers) --?

(multiple speakers) we having those specific discussions. If we are, that's not something I would know that much about. We're clearly having the discussions with the [Sonny] powdered infant people about conversions in Europe and Asia, and other parts of the world.

Harris, is it possible to ballpark how much more cost effective -- or maybe not, but I imagine it would be -- the powdered infant formula package per equivalent ounce would be versus something like aseptic?

George, I don't know that. If you are really interested, I can find it out and you call me and I'll be happy to answer it.

No problem. Will do; appreciate that. And I just wanted to be clear -- on consumer, you're expecting that margins will continue to improve in the back half of the year, even though you may see some lessening benefit from raw material costs declines. Did I hear that correctly?

I think what Charlie said is that we actually have not recovered all of the price increases in the second quarter because of the timing of some of the contracts that we have. And some of those increases will come in June and July, and so they will certainly accelerate during the balance of the year. So I think that's really the answer.

Okay. And so therefore, margins should head higher because of that?

They should certainly stay where they are or get higher, yes.

Okay. Now, with flexibles, obviously it's been a tough economic environment. We had heard recently that you picked up some reasonably sizable confectionery business within flexibles. Volumes were down 11%.

Help us understand if there are any other factors in terms of the volume decline, other than just the environment that we read about in the papers. What do you think the more normal volume run rate for that business should be, in percentage terms?

Well, let me respond first about the confection business. [What] we have gotten is we have not won very much of it yet because (multiple speakers) of inventory, and that's somebody [else].

I don't know, Charlie, you want -- you got a feel -- on percentages?

Oh --

George, I don't know. Beyond that, I don't think we have a lot of comment.

Okay. Maybe last question on CorrFlex and I'll turn it over. You've owned the business for the last four or five years; obviously, it was a great business early on. It's been affected by the economy in recent years.

What do you think the -- and your -- obviously, your report would impact services. Round numbers, what do you think the cumulative profit on an operating profit basis then for CorrFlex since you bought it? Thanks, guys. Good luck in the quarter.

Since we bought it. It's been a -- up until the last 12 months, it's been a very profitable -- good, profitable business, George, and certainly, returning the kind of returns that we would have expected to return when we bought it. I think clearly, we've seen the falloff in that business in the last 12 months, as we're getting our arms around that.

Okay, thanks, guys.

Amy Norflus, Pilot Advisors.

Great quarter. Can you talk a little bit about the tube and the core? I know Chris talked about the competition, but more of the health of the competition and what's going on with the two other competitors, from your standpoint?

Well, the health of the competitors, the two largest competitors that we have is pretty well documented. Caraustar filed for Chapter 11 on June 1, I think. And the Europe Group has filed some 8-K's that talk about forbearance of debt and other things. I'll leave that to you to do your research, rather than me making a lot of comments about it.

Have you picked up a lot of business from that?

No, we have not at this point in time. I think that was an earlier question. It's been basically -- we picked up a little bit of business, but not a lot.

Tim Petrycki, Jesup and Lamont Securities.

Most of my questions have been answered, but maybe one. Given how weak Western Europe has been, maybe speak to the competitive requirements there, and kind of any opportunities you guys may have.

Most of the -- that is a more competitive marketplace than we have in the US. And a lot of that competition, a lot of that volume has been in Italy, and a lot of that competition is in Italy. So, I think that as it relates to the US, we haven't seen a turnaround in the economy. And we've got a bit of a more difficult competitive situation there. So it's probably more volume-sensitive than we might otherwise have here.

But given the volume numbers over there, is there a chance for consolidation or rationalization over there?

There's an opportunity for that, just simply because there's some more smaller players in that marketplace. So that's a correct statement.

Great. Thank you.

(Operator Instructions). Joshua Zaret, Longbow Securities.

Thank you. Just a quick question. Can you discuss what's going on at Matrix, and in particular, progress made in loading the St. Louis plant?

We had picked up some new business from the St. Louis plant from a large consumer company, that will help that plant immensely.

Is that plant now fully loaded? Or is there still more business to put in?

This would fill up the equipment that is in that plant. There's space for additional equipment. The equipment that is in there will be fully loaded.

Great. Thank you.

Thank you. There are no further questions at this time. I'd like to hand the floor back over to management for any closing comments.

Thank you, again, Jackie. Let me again thank all of you for joining us today. We certainly appreciate your interest in the Company. And as always, if you have any further questions, please don't hesitate to give us a call. Thank you again.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.