Sonoco Products Co (SON) 2011 Q1 法說會逐字稿

Good day ladies and gentlemen and welcome to the first quarter 2011 earnings conference call.

My name is Carmen, and I'll be your coordinator for today.

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

(Operator Instructions)

Later we will conduct a question-and-answer session.

I would now like to turn the call over to your host for today, Mr.

Roger Schrum, Vice President, Investor Relations.

Please proceed.

Thank you, Carmen.

Good morning and welcome to Sonoco's first quarter 2011 investor call.

This call is being conducted on April 21, 2011.

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

Our financial results for the first quarter were released before the market opened today and are available on our website at www.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.

Now with that introduction, I'll turn it over to Charlie Hupfer.

Thank you, Roger.

This morning Sonoco reported first quarter financial results.

We reported that our sales were $1,117 million and that's up $182 million or 19.5% over last year's first quarter.

We reported a GAAP EPS of $0.56 per share and base EPS of $0.57 per share.

The base EPS of $0.57 per share is $0.07 per share or 14% higher than last year's $0.50 per share.

Our guidance for the quarter was $0.55 to $0.60, so we were right in the middle of our guidance.

As I go through the numbers, we'll see that volume was generally pretty good, that did include an extra six days.

Price cost was positive, but that there was a lot of disruption especially early in the quarter, so productivity wasn't where we'd hoped it would be.

Let me begin by reconciling the difference between GAAP EPS at $0.56 and base EPS at $0.57.

I'll start with $0.56.

To that we first add restructuring charges of $1.7 million after-tax or $0.02 a share.

The largest single restructuring expense is $700,000 and that relates to our Southeast consolidation plan.

The rest is just miscellaneous residual costs from prior programs.

From that, we subtracted a rounded $0.01 per share related to a net gain that we booked this quarter from insurance proceeds.

Those insurance proceeds relate to the fire we had at our Bastrop, Louisiana Molded Plug Plant.

So, that brings us, if we started $0.56, add $0.02, subtract $0.01, that brings us to the $0.57 per share.

Last year restructuring was $0.02 per share, and base EPS was $0.50.

So, we think the proper comparison then is $0.57 per share this year to $0.50 per share last year.

So, if I take all of those adjustments into account, let me read out for you an income statement on a base earnings basis.

We'll start with sales.

Sales, as I said, were $1,1173 million, that's up $182.2 million or 19.5% over last year's $935.1 million.

Earnings before interest and tax are $91.2 million, they're up $11.6 million or 14.6%, and that's over last year's $79.6 million.

Interest expense is a negative $8.7 million this quarter, and last year it was a negative $8.4 million.

Profits before tax is $82.5 million, that's up $11.3 million or 15.9% over last year's $71.2 million.

Taxes are $25.7 million, last year taxes were $21.7 million.

That would bring us down to profit after tax.

This year it's $56.8 million, up $7.3 million or 14.7% up over last year's $49.5 million.

The combination of equity and affiliates and non-controlling interest, this year it's positive $1.8 million, last year a positive $1.5 million.

So that would bring us down to net income.

Net income for the quarter was $58.6 million, up $7.6 million or 14.9% over last year's $51 million.

And, of course, EPS, as I said, was $0.57, up $0.07 over last year's $0.50, and that will be a 14% year-over-year increase.

The effective tax rate on a base earnings basis is 31.2%, compared with last year's 30.4%.

The difference in the effective tax rate is entirely due to mix, and by that I mean we had a higher proportion of higher taxed US income than we did last year.

So, not necessarily a bad thing.

Interest was slightly higher year-over-year at $300,000.

That's just simply largely due to the extra days.

Now let me review the segment reporting that is found on page 6 of the press release.

Consumer Packaging segment sales of $459.4 million, or 20.4% higher than last year.

Volume, including the extra six days, and the APT acquisition were the chief drivers of sales.

Profits in the segment were essentially flat.

In fact, profits were only $200,000 higher this year versus a very strong quarter last year.

Price cost in the segment was only slightly negative, which means that we successfully absorbed higher resin, higher film, and higher steel costs.

Last year in the quarter, the quarter benefited from delayed pricing.

In this year's first quarter, that delayed pricing has actually worked to our detriment.

That detriment will reverse itself in the second and third quarters when that delayed pricing kicks in.

Let me step back a minute and just explain that a little more fully.

With all of our customers, we calculate the impact of material increases or decreases on a calendar year basis, but we pass them through to some selected customers on a lag basis, and the lag can be up to six months.

So, while we do get a full recovery, we don't necessarily get that full recovery time with how we incur the costs.

Like I said, this worked to our advantage last year because last year our 2010 pricing still reflected 2009 steel costs despite the fact that steel costs had declined in 2010.

So, that meant that we had a positive price cost on those delayed accounts.

This year's just the opposite of that.

For delayed accounts, first quarter 2011 pricing is still based on 2010 cost levels despite the fact that steel has increased year-over-year.

Of course again, this will turn in the second half of the year.

Actually, some of it starts to turn in the second quarter, but for right now it represents a drag on earnings and a pretty difficult year-over-year comparison.

We've made an attempt to quantify that, and that was the first quarter impact or the drag on the first quarter would be about $3.8 million, and year-over-year the impact is about $6.7 million.

So, that pretty much accounts for the change in the profit margin between last year and this year, if you take into account the benefit that we had last year and the drag that we had this year, just simply coming from those delayed accounts.

When we look at the Tubes and Core/Paper segment, sales were up.

Our sales were $441.1 million, and that's up 20.1%, and operating profits were up 33.1%.

And volume and price costs were the principle drivers for this segment.

The Packaging Services segment reported sales of $121.2 million, and that's up 8.3%, and our profits were up 20%.

And again, that's largely volume and some efficiencies.

The All Other category reported sales of $92.6 million, up 29.2%, and profits up 42.4%.

And that increase is almost entirely in our molded plastics business, because our protective packaging and paper reels business essentially were flat year-over-year.

So in total, putting it altogether, again, sales were up 19.5%, and EBIT was up 14.6%.

Now, as usual, let me give you the sales bridge.

This is where reconcile $182 million of year-over-year increase in sales.

First component is volume, volume was up $83.5 million.

Price accounted for $48.9 million.

Acquisitions totaled $40 million, $40 million even.

Foreign exchange, other, was a positive $9.8 million.

So that should add up to $182.2 million.

And volume -- starting with volume, as I mentioned earlier, that does include the extra six days in the quarter versus last year.

Of course, we'll lose those six days in the fourth quarter of this year.

So I'm going to read out some volume increases, but as I read out those year-over-year volume increases, you do need to take into account that some of it's due to the extra six days.

We saw, especially strong volume in our flexibles business, volume was up there around 16%.

Our Matrix plastic bottle volume was up around 15%, as some of the new projects we've talked about have really started to come on stream now.

Tube volume in North America was up 8.5%, with especially good film core volume that did include some share gain.

Tube volume in Europe was up at about 9.5%, with what we call Frontier Europe, basically Eastern Europe, up 16% and what we call Legacy Europe, up 8% year-over-year.

Recycling volume was up 13.5%, now some of that is coming from our expanded MRF and our S3 program.

Other than coffee conversions though, composite can and metal end volume was weak this quarter versus last year's quarter.

And corrugating medium volume was essentially flat, and here the whole industry appeared to be in a little bit of a slowdown in the quarter.

The next component, price, as I said, price accounted for $48.9 million of the increased sales.

Much of the price was either OCC or OCC related.

Our first quarter contract pricing was based on December's $160 a ton Southeast Yellow Sheet price.

We did announce a 5% increase on non-contract accounts in November.

Prices on the consumer side of our business were largely just resin and film pass-throughs.

Acquisitions added $40 million, obviously the majority of that was our APT acquisition and FX added, as I said, $9.8 million.

The dollar strengthened versus the euro, but it weakened versus practically all of the other currencies we do business in, the Canadian dollar, the Mexican Peso, and others.

And because this is all translation, it had a negligible effect in our profitability.

So that's the sales bridge.

Let me turn now to the EBIT bridge, and this is where we're reconciling the $11.6 million year-over-year increase.

Volume mix accounted for $17.4 million.

Price cost, and that includes energy and freight -- $6.2 million positive.

Productivity was $5.4 million positive.

And then the all other category, that's our catchall category with a negative $22.2 million.

And the year-over-year change in pension was a positive $4.8 million.

So, if you add those up, $17.4 million, $6.2 million, $5.4 million, a negative $22.2 million, and a positive $4.8 million, you should arrive at the $11.6 million.

Profit impact on the sales volume increased was like I said, $17.4 million.

Price cost was a positive $6.2 million, all of that is in the Tube and Core/Paper segment.

So, what I'm going to do is step back a minute, and I'm going to answer a question before it's asked, and that is why isn't price cost a little bit greater, given the fact that tube prices are up, and the Southeast Yellow Sheet, which is what we base most of our pricing on, was essentially flat quarter over quarter?

And that's a true statement, Southeast Yellow Sheets was essentially flat yellow over quarter.

Last year what we saw was Southeast Yellow Sheet was going up from $110 a ton in January to $175 a ton in March, and it averaged $142 a ton last year.

This yea, r it's doing just the opposite, it started at $150 a ton, then moved $140 in February and $140 in March, and averaged $143.

So that difference is really a difference of about a dollar $1.67 higher this year than last year, pretty negligible year-over-year difference, but there's a couple of things to bear in mind.

We had inventories rolling into 2011's first quarter at that $160 a ton level.

Last year, inventories were rolling into the first quarter based on the $80 a ton, and that certainly had an impact on the price-cost difference.

And then the other thing that's probably more important is, we did see some significant regional differences that didn't move in tandem with the Southeast Yellow Sheet.

Ordinarily, they move generally in tandem so that if the Southeast Yellow Sheet price goes up $10, it'll go up roughly that amount order in the other regions -- or down.

We saw a bit of a disconnect here.

The regional differences were really unprecedented.

So, while the Southeast Yellow Sheet dropped the month December, in fact I mentioned it started December at $160 moved to $150 then $140 and then $140, OCC essentially stayed flat in all of the other regions, that would be the Buffalo region, West Coast, Chicago.

So, at the end of March, the Southeast Yellow Sheet was $140 a ton.

Buffalo was $165 and had been there at that rate all quarter.

Los Angeles, $175, and Pacific Northwest, $145.

So, we didn't see the usual change -- the movement that we would expect to see.

The combination of those regional differences, and a higher beginning inventory from both quarters, essentially added up to about $12 million of explanation adds to price cost.

And of that $12 million, the regional differences are about half of that, or $6 million.

As I said earlier, all of our positive price cost was in our Tube and Core/Paper segment.

The Consumer segment price cost was slightly negative.

It was actually a negative $300,000, which means that we did successfully absorb some resin increases.

They ranged from 11% - 21% depending on the type of resin, and film increases that ranged from 8% to 34%, depending upon the type of film.

I'm moving onto productivity.

Productivity was $5.4 million.

We were frankly disappointed in productivity.

There was a lot of disruption, especially early in the quarter, but March was a much better month, so we do appear to be headed on the right track.

In fact, March was $3.2 million of productivity out of that $5.4 million for the whole quarter.

Talking about the disruption, our US paper operations took 29 additional down days in the first quarter of 2011.

Some of it was a result of snow in the Southeast.

Here in Hartsville we were down for snow, and then there was also a fire next door to our Hartsville plant that shut us down for a period of time.

So as a result of those extra down days, scrap, in the paper mills, was actually up or unfavorable 0.2%, and our tons per day were down 0.8% which certainly negatively affected productivity in the quarter.

Also, with a little less than $1 million of inefficiencies in our Tube and Cores/Paper operations due to the Southeast consolidation, and I alluded to that earlier.

But that Southeast consolidation is where we're shifting business around, around among about five of our Southeastern plans to better focus the production.

That's pretty much behind us, and we should start see the benefit of that in the second quarter on into the third quarter.

The Other category is negative $22.2 million, the extra six days probably added about $15 million in terms of allocations of fixed cost, corporate costs, and depreciation.

And then pension, pension as I've said is a positive $4.8 million.

This is made up of three elements.

Last year's investment performance was good, we did put $85 million into the pension plan in January, and then there is some affect from splitting the plan into active and inactive components.

But taken altogether, it's a positive $4.8 million.

So again, the year-over-year improvement in EBIT was $11.6 million, or 14.6%.

Let me talk about cash flow for a minute.

Operating cash flow for the quarter was a negative $13.8 million, and that's versus the positive $73.8 million last year.

So that's a difference of a negative $87.6 million.

But as I said a minute ago, in early January, we did make an $85 million contribution to our US pension plan, and that accounts for practically all of that difference.

Our net working capital -- and we define that narrowly as accounts receivable, inventory, and accounts payable -- was $5 million negative year-over-year.

$3 million of that $5 million was accounts receivable, and it just simply reflects, I think, the higher sales levels.

In fact, we know our working capital program is still under very good control.

Our accounts receivable compliance level globally is that 91% and 93% in the US.

And that's the degree that our customers are in compliance with their terms.

So, cash flow was generally pretty good.

Capital spending at $38.3 million is $9.8 million more than last year.

This just simply reflects the higher level of spending that we started to see in mid to late 2010 and a lot of it's on that plastics growth that we've been talking about.

Our balance sheet, that's found on page 7 of the press release, total debt increased from December 31 by $145 million.

It's really not hard to explain.

About $85 million of that was the pension contribution and $46 million was to complete the share buyback program.

Our debt to total capital still remains a very modest 33.1%.

So now let me just wrap up with our guidance for the second quarter and the full year.

As usual, our guidance is based on a roll up of our divisions' individual forecast.

And the guidance does reflect a steady, stable economy.

The usual seasonality that we would expect to see.

It assumes improved productivity, especially the completion of that Southeast consolidation program.

And, the positive impact of the delayed pricing that I talked about in composite can.

We projected the second quarter to be in the range of $0.61 to $0.64, and the full year is largely unchanged in the range of $2.52 to $2.50.

So those are my comments.

I think now we can just turn it over for questions.

(Operator Instructions)

George Staphos, Bank of America, Merrill Lynch.

Please proceed.

Yes, hi everyone.

Good morning.

Hello, George.

How are you?

Charlie, congratulations on your pending retirement.

We're going to miss you going through the bridge after all of these years.

But best of luck with that.

Thank you, George.

I guess the first question I had, maybe best for Harris.

Harris, how would you evaluate the pace of business from perhaps your better bellwethers on the economy.

Are you seeing -- Charlie mentioned steady improvement, but are you seeing any deceleration in some of these early warning or harbinger types of businesses .

Are you seeing any kind of acceleration across your business from more encouraging categories?

How would you frame that for

George, obviously, as Charlie talked about, the increased volumes.

I will say, over the last 3 to 4 weeks, we have probably seen more uncertainty, if you might, in some of our consumer businesses in that the order pattern, the first several weeks in April were very strong and consumer business.

There's some anticipation of our customers taking some extended downtime, a little more than normal over the Easter holiday time.

So, it's all wash for us right because we've seen the effects of $4 gasoline in the past on the consumer business and I think that is something we are watching fairly closely.

But that's about as much color as I can give you.

Okay, and that's helpful.

The mechanical outage that you had mentioned, what was behind that?

I think you mentioned relative to the Sonoboard operation, is that related to that fire you mentioned in Hartsville?

Or is it something else?

Actually it was a fertilizer plant, George, across the lake from our operation in Hartsville, and it caught fire and burned for the better part of a day or so, two or three days.

And because of the toxic fumes coming off of the ammonia, we actually had to shut our operations down here in Hartsville for an extended time.

It wasn't our facility.

Okay, but that's what you're referring to in terms of the mechanical downtime?

That's right.

There were really a couple of elements.

And then, we had a lot of snow.

Two snows in Hartsville, which we don't usually get, the fire, and then frankly just some downtime that we moved into the first quarter from later in the year where we expect to be full.

And so, we took advantage of that in order to get some general, ordinary repair and maintenance out of the way.

So, when you put it altogether, it was 29 extra days.

Okay.

And, Charlie, I just want to come back, you had mentioned two numbers relative to the delayed pricing impact, one was $3.8 million, the other was $6.7 million.

I believe you said the $6.7 million negative effect was a year-on-year comparison versus 2010.

Could you confirm that?

And could you go back over what was the $3.8 million associated with?

Thanks and I'll turn it over from there.

The $3.8 million is effectively the negative price cost because the costs are at 2011 steel levels and the pricing is still based on 2010.

And that's right, I said it was $3.8 million and I said it was $6.7 million, I believe, for the year-over-year difference.

That's a $2.9 million positive in last year and a $3.8 negative in this year.

And so what I was really alluding to, and I don't know if this is completely the way you could look at it, but if you took the benefit out of last year and the negative out of this year, it brings those margins up a whole lot closer together.

Because I would be -- I imagine that 12% margin that we had last year was really a high.

Fair enough.

I appreciate the color.

I'll turn it over.

Ghansham Panjabi, Robert W.

Baird.

Hey guys, good morning.

On Matrix, volumes were obviously very strong.

Harris, you've seen a fair amount of success in rigid plastics, post the Matrix acquisition.

There was a huge transaction announced last week with Silgan buying Graham and getting much bigger in rigid plastics.

Can you sort of update us on your thoughts as to whether you feel Sonoco also needs to increase their size, particularly through M&A in that particular business?

Ghansham, thank you.

Over the last few years we've obviously grown that business both organically and through acquisitions.

And I think 2005, it was about a $200 million business, today it's about a $600 million business.

Our goal is that this should be $1 billion business for us over the next three to four years, and part of that will come from acquisitions, and obviously, new product development as well, but we will continue to grow that business.

Do you feel, Harris, that you need to be across the niches in that business from an end market perspective meaning food, beverage, and also consumer products?

You're already in a couple of them, but something to round out that end market diversity?

Clearly today, in food and [herbarium] nutritional drinks nutritional drinks, and also in health and beauty, and we will continue to push.

We look at medical packaging.

We look at some of these areas.

We also have got the portfolio of the technologies and thermoforming and blow molding, injection molding, and the like.

So, we've got a broad portfolio and the markets -- we tend to match up those markets pretty well.

Okay, that's helpful.

And then switching gears a little bit, on the energy surcharges that you implemented in the first quarter, can you remind us on when the last time was you implemented those surcharges and also what kind of response you've seen from competitors also?

Thank you.

I'm a little far away from that, but if I recall, Ghansham, we probably go back to the Hurricane Katrina days with the surcharge and we got pretty broad coverage and support in the industry -- if it wasn't hundred percent, it was in the high 90%.

I really don't know at this point in time what kind of response we've received from the competition, but I know that our customers are being very responsive and considerate of the cost, and we're moving those through to our customers anyway.

Got you.

Thanks so much.

Thank you, you're welcome.

The question comes from the line of Mark Wilde, Deutsche Bank.

Please proceed.

Good morning, guys.

Good morning, Mark.

How are you?

I'm good.

Without Charlie, without Eddie Smith, you must be starting to feel a little lonely.

I have my two helpmates leaving me.

I saw Eddie yesterday at the annual meeting, and he was there without his shorts and flip-flops on.

So, I was glad to see him.

Okay.

Harris, did you guys have, aside from the weather down in Hartsville there, did you have any impact in the quarter from these storms, particularly in early February that swept across the center of the country?

I'd been hearing that they had shut down a lot of customer facilities.

We had it both on the customer side and we had it on our own side.

As Charlie mentioned, we had 29 days down in paper mills alone, and that doesn't account for the converting operations.

So, clearly it had a significant negative effect on our operations, and more importantly, our productivity.

We normally have a very strong productivity in the $15 million to $20 million range each quarter, and it was down around $6 million -- $5.5 million to $6 million.

So, clearly it was an impact, Mark.

Would you say that, that was probably the biggest impact on your productivity shortfall versus your own target?

I would say that was the biggest impact.

That wasn't the only impact, but that was the biggest impact.

Second question, why not try to tighten up these lags on the input cost pass-throughs.

I think you mentioned some of them out in the 6 month range.

And just given the volatility that we've had in a lot of raw materials over the last five or six years, I wondered whether it just makes sense to try to tighten that up a little bit?

The real lag in this quarter, Charlie was talking about, was on the consumer side.

And we generally adjust those contracts once a year, and the big adjustment factor there is steel.

Although there are some smaller factors there, but the big factor is steel.

And, the big answer -- the right answer to the question you are raising is, most of our large consumer companies have different calendar years than we have, and they want to take it in their calendar year and then obviously, one's in April, one's in June, and they like to plan for it and budget for it.

So, that's the way they like to do business .

And so, we're going to have that dialogue as we see more volatility, but I think that's the answer we're going to

How do you do it like in the plastics business?

Is that a shorter duration?

Because if you listen to guys like Graham, it sounds like that's almost an instantaneous pass-through for them.

What Charlie was talking about, and what you're talking about, the 6 month lag is purely in our composite can business.

Okay.

The plastics business, we move that no longer than quarterly, and in some cases it's every other month, in some cases it's monthly.

And what we're trying to do there, and hopefully are doing, is we are matching up with our suppliers pricing protection that matches up with those contracts on that plastic side.

And so, it's a much, much shorter duration on the plastics side.

Okay.

Then the last question I had, Harris, I wondered if you could just update us on the acquisition pipeline and just give us some sense of where your preference is in terms of growing Sonoco [line] at this point.

I think they certainly haven't changed, Mark.

The interest is going to be in the consumer side first.

And, Ghansham asked about the plastics side, we will continue to be aggressive on a global basis on the plastic side.

On the industrial side, clearly the Tube and Cores/Paper industry consolidation opportunities will present themselves there, and have presented themselves, are presenting themselves.

We will be aggressive there.

I'll also mention that we would like to acquire something in our small or protective packaging business.

We have a nice $150 million business there, and we'd like to basically broaden the substrates -- the materials there.

And so, that would be of interest.

It will be in our existing business platforms, it will be global.

And I am fully convinced that the $1 billion target that we have by 2014, of which we've only achieved, $175 million or $200 million to date, will be achieved whether it'll come in 2011 or part of it this year and part next year.

I don't know, but we are as engaged right now in the acquisition pipeline as we've been in the last several years.

Okay, and Charlie, enjoy that next move.

Thank you.

Our next question comes from the line of Chip Dillon, Credit Suisse.

Please proceed.

Yes, good morning.

Charlie, best of luck in your retirement.

Congratulations.

Thank you very much.

I noticed, at least versus what we were looking for, the packaging services business actually looked a lot better than what we are looking for, and maybe I was just not giving you guys enough credit.

But is it fair, as we look at the $6 million income run rate that we saw in the first quarter, that we could see that as an average for each quarter this year or was there something special or seasonal that might make the overall number more comparable to last year when it was about $12 million?

I would not extrapolate that over four quarters because we've previously announced that we've gone through some moves and there is a business that was in there that will go away as one of the pack centers actually closes later in the year, mid-year, and also some business that will go away then.

So, I wouldn't extrapolate it.

However, I will say that I am pleased with the pack center of the services business.

We've started to get some rebounds on the volume that we had lost in the quote, mega-bid, several years ago.

We're picking up some new business, and I'm pleased with the way it's going, but I would not just simply extrapolate these earnings across the year.

Okay, that's helpful.

There's obviously not much you can do about snow in Hartsville, but the fire that occurred across the way, is there any insurance, or anyway that you might in future quarters get compensation for that?

We are looking at, obviously not the snow, and snow is a rarity here, but it did happen twice this year.

The fire is -- we are looking at that.

As I said to George Staphos, I believe it was a fire at a fertilizer plant that burned to the ground nearby, and we are looking at that, and we'll likely pursue some claims on that.

And then lastly, one thing that always is really powerful, I think in your tubes and cores business, at least in terms of giving people a good look at the economy -- I know you mentioned how you saw some fluttering in the middle of '07 before we knew what was ahead of us.

And how is that, now of that, that business has recovered.

Is that sort of steady as it goes?

Or are you seeing signs it could be even weaker?

Or is it strengthening?

I would characterize it as steady as we go.

We are not seeing any weakening at all in that business.

If I had to tip it one way or the other, it's probably tipped up a little bit with some growth in it.

What I was referring to earlier to I think George's question about trends, I was referring to more of the consumer trends in snacks and things of that nature.

Got you.

Thanks very much.

You're very welcome.

Our next question comes from the line of Chris Manuel from KeyBanc Capital Markets.

Please proceed.

Good morning gentlemen, and congratulations Charlie.

I wish you lots of luck.

Thanks.

At least you'll get to watch some more basketball games now.

That's right.

Good ones.

A couple questions for you.

First, Harris, could you maybe give us your thoughts on what you think OCC costs might do over the balance of the year?

I know that's always a fun thing to do, but it's always entertaining to hear the commentary at least.

I'm glad you found my crystal ball so entertaining, Chris.

We're seeing OCC -- one of the abnormalities that we've seen, Charlie talked about, and it's one of the factors in our guidance for the year.

We see this regional difference that we've never seen before.

And I think we're seeing signs of it starting to move -- to come back to more normal trends, but it's not there.

And so, we're going to have to watch that and see what we do with the contracts that we have in place in those regions that have been probably stocked with Southeast Yellow Sheet, and we've already begun to have some discussions about that.

But OCC is $140 a ton.

You're in the lowest generation time of the year.

I think it's going to wobble in this area for the next couple of months whether it goes up or down, I think it's going to depend on a lot of things, linerboard run rates, downtime in that industry, and exports.

Then I think towards the summer, you will see the traditionally higher generation time, and I think you will start seeing a trend down there.

I hate to give a year end, I don't even know what our budget says for year end, but my guess is you ought to be at the one $115 to $120 range by year end, but I wouldn't place any bets on that.

Okay, that's helpful.

Second question I had, as I was going through some of the bridges in the data you gave Charlie.

When I look at contribution margin related to -- and some of these are guesses since I look at segments, but as I look at the whole Company at least, the contribution margins look pretty low this quarter, 14%-ish range including all the components with the acquisition and the volume up.

Is there anything behind that or how should we think about that?

If there is -- we really talked about some of the impacts.

The delayed pricing clearly had an impact.

The regional differences in OCC had an impact as well.

Corrugating.

Corrugating volumes were flattish and what we saw there was some of the volume shift so that we were actually selling into the export market which was not as profitable for us as we have seen in prior quarters.

And so, that was a little bit of a change.

Clearly, little bit of mix in the sense that our recycling business had some good volume.

Some of the MRF business and S3 is just simply a little bit lower margin business then the rest of that.

The MRF business is a little lower margin because there's more freight and handling.

And the S3 is a lower margin business for us.

And so, I would say that in this particular quarter, it's a little bit of mix.

Corrugating, which affected us, some of the Matrix volumes clearly had some start up in it as we were working our way through that and saw improvements month over month there.

Then we talk about the delayed pricing, the regional OCC, and then just the disruption effect.

I think all of that sort of accounts what I would agree is a lower than what we'd expect to see gross profit margin.

Chris, let me add to that a second.

Obviously, it's a lower level than we've seen in some time.

And the quarter, I thought the quarter was very good quarter actually, but I must admit that our number of one-time events that we left money on the table end.

And I talked earlier, we talked about the weather, we talked about fire, we talked about the regional difference, the impact that had on productivity, and from my view, that is behind us in the first quarter.

And so, when I look out to the balance of the year, these things reversing, assuming volumes stay where they are, they appear to be at this point in time, nothing changes my outlook about the entire year.

I expect the year to be a good year.

Unfortunately, we came through the first quarter with all of these events which we have very little control over, and ended up with a good quarter in the process.

Okay, that's helpful.

I'll follow back up some too.

And then, did you talk a little bit about new business wins, where that was in the quarter?

Are you still on pace?

We are on pace.

We will end up the quarter, my guess, somewhere in the $175 range.

We are through the quarter about $37.5 million, $38 million or something like that.

We know what's coming, and my guess is we're going to $175 million, plus or minus range.

Thank you much, and good luck again, Charlie.

Thank you.

Our next question comes from the line of Alex Ovshey, Goldman Sachs.

Please proceed.

Thank you, good morning.

Good morning.

Harris, if you stripped out the six extra shipping days, can you just talk about what the organic volume front, you guys are seeing in the tube and core businesses.

Let me kick that over to Charlie.

He's probably got some numbers on his tip of his fingers.

And I mentioned the six days, and six days is right at 6.9% if you just calculate it out that way.

I don't know that's necessary a fair to look at it because it would deal with the customers' ordering patterns at the end -- at the beginning of month versus the end of month.

But that gives you a general idea.

And I would think that about two-thirds of what I showed as the volume increase could be accounted for just on that mathematical calculation of extra days.

And as you think about the key end markets for tube and core, film, textiles, paper products, can you just give us an update of how you're seeing trends in those end markets?

We're seeing trends upward in textiles and film and really the specialty markets that includes tape and that.

So, the trends, as I said earlier, they're not going up like a rocket, but they're not going down like a rock either.

They're basically steady to slightly up .

Okay, Harris.

As you think about the leverage in the business, it continues to be pretty low, and I understand the reason for that is the Company wants to be active on the M&A front.

But to the extent that the acquisition doesn't come along by the end of the year, what would be the appetite to perhaps increase the leverage in order to be more aggressive buying back stock, especially with the valuation of the stock being at pretty reasonable levels, and in itself presenting a pretty compelling investment here.

As we've said in the past, our primary use of cash is going to be to try to grow the Company.

We get to the end of the year, and I would agree with you that our leverage is pretty low.

And we ended the year last year and we bought back 2 million shares which we completed at year end in the beginning of this year.

I'm going to be very disappointed if we haven't made an acquisition through this year and pushed that leverage up, but I wouldn't speculate on what we would do if we haven't.

I think it be a bit premature to do that in April.

Okay.

Thank you very much.

You're very welcome.

Thank you.

Our next question comes from the line of Al Kabili from Macquarie.

Please proceed.

Hi, thanks.

Charlie, congratulations again on the retirement, and appreciate all the help you've given us.

I guess, to start off with on the outlook, either Harris or Charlie, the top end of the range coming down by $0.02, does that suggest, I know there was a bunch of one- timers you mentioned, Harris, and hopefully we're past that.

But is there something at the margin that you've seen incrementally that gets you a little bit less optimistic on the year to lower the top end by a couple of cents?

Al, it really isn't, to be perfectly frank with you.

We roll up from our businesses, the budget to begin with, and then each quarter we roll up a re-forecast.

I would say, there are a couple of factors.

And then basically, that's what rolled up.

And we generally give you guys and the world our best guess for the coming balance of the year based on that roll up, and I think there a couple of factors that drive this.

And one of the big ones is this regional difference in OCC that Charlie talked about and I alluded to.

If you looked at traditionally, you would expect to find $5 to $10 differential in this regions, and it's up to a $30 to $35 regional difference today.

How quickly they come back into sync, and how quickly we can adjust these contracts, I think is one of the bigger factors between the $0.02 we were up before and where we are today, but it's not any real change in the outlook or anything that's going on fundamentally.

Okay.

I appreciate that.

And then, also as far as the second quarter outlook, just curious on the low end of the range of $0.61, comparing that to $0.59 a year ago, you're going to have a catch-up on some of the pricing.

In consumer, you have a little bit of acquisition accretion there.

So, just help us -- what's factoring into that low end of the guidance which seems quite conservative.

Thanks.

I think the low end of the guidance, I would hope that we are going to be a lot better than the low end of the guidance.

But the low end of the guidance factors in some of the things that I just talked about.

This regional difference in OCC.

How quickly we can get it done.

How quickly we can get price recovery on these other items.

I certainly think the weather is behind us.

Certainly hope the fires are behind us, and I hope productivity is a lot better.

So, are we conservative?

I don't know.

But that's where we're rolling up from our businesses.

Okay.

And can you talk a little bit about the composite can business?

I guess I understand it, it was down a little bit.

If you could comment there on the trends on what's happening on composite cans and does the coffee conversions and other potential conversions that are coming, does that get this going more positive again or is there some secular end market declines that you're fighting with there?

The only secular end market decline that we are really fighting is concentrate and that's something we've talked about for years and years and it will continue on decline.

The dough market is basically a flat, slightly up market.

But the others, the snack markets and the other markets, are growing.

But clearly, the most rapid growing market are the new areas that we are pushing into such as coffee, such as powdered infant formula, and other things.

There was some powdered infant formula that probably shortfall late in the quarter that basically related to some issues with the shortage of some coatings that we were able to use relative to a fire in one of our suppliers.

And I'm not at liberty to go much further than that other than to say that caused some issues and we are working through those issues.

We were not able the get the coding we needed the coat these cans and lids for several customers.

But I think clearly the coffee, and frankly, I saw some numbers the other day that our coffee sales of cans will basically double this year over last year.

So, it's doing well and we're still pushing the global conversion of powdered infant formula and the differential price differential between the metal can and the composite can continues to make it very advantageous from a composite standpoint.

Okay.

And final question, along those lines is, given the recent steel increases, has interest level, have you noticed a recent interest level in conversion activity?

Is there a pipeline building for next year along those lines in any of the other plastics end markets as well?

Thank you.

Al, I guess we announced it, I certainly announced at the shareholders meeting yesterday because I had three very fine Kroger people there that announced their conversion of all of their coffee metal cans into a composite.

I also announced there would be two other private label conversions that will take place in the second half of the year.

And, we are working on as many conversions out of metal as frankly I have probably seen in my career at Sonoco.

Okay.

Thank you very much, Harris.

Thank you, Al.

The next question comes from the line of Steve Chercover from D.A.

Davidson.

Please proceed.

Thank you, good morning everyone.

Good morning.

I'm always thinking about snacks for some reason.

I just noticed that -- well I didn't notice this, but Pringles which is one of your really visible packages being sold to Diamond Foods.

Does us represent a threat?

Have you spoken to Diamond or conversely might that be an opportunity for you to participate in some of their other snack brands?

Actually since Charlie likes snacks so much I'll try to let him answer that, but I'll answer it myself.

No, we view that is a very positive move actually.

Diamond is a customer of ours.

They currently buy -- they bought the composite cans from us.

We feel that we have a very close working relationship with them.

We actually have a three-year contract.

It was just signed in North America with Procter & Gamble on Pringles.

They have officially notified us that, that contract is being assigned.

But the other side of this, I think the world has known that Procter & Gamble has been trying to sell this business for several years.

It's one that, in all due respect to my friends at Procter, they haven't pushed as much in the previous years as they did some years ago.

So, we are very optimistic that Diamond will get over this.

They've got a wonderful iconic brand that they're buying.

And I think they will do something with it, and I think it would be very beneficial for Sonoco on a global basis going forward.

Great.

And just two other quick questions if I could.

I believe some of your caution at the beginning of the year was due to the impression that you were going to lose some packaging business, I think it was in plastics.

Did you ultimately lose that business?

That was actually in flexible packaging that you're referring to.

And the answer is no, we have not lost that business.

And the answer is, we are not really sure when we will lose that business, and we are working with the customer to try to minimize that and, obviously, we are working to replace that business.

So, the answer is no we haven't.

We probably still will lose some of it.

How much?

I don't know.

Okay, thank you.

And final question, you increased your repo authorization by $2 million.

Would you characterize yourselves as very price sensitive when it comes to buying stock?

No, I would not.

I would -- obviously, the price plays a factor, but, it's more, as Charlie and I both have said, it's a use of cash.

Leverage is awfully low, and our primary use of cash is going to be to grow this business.

But if we get to the end of a year and we've got cash, we will always look at that option.

So, by extension, though, at $35, you think the stock is still fairly cheap.

I think the stock is very cheap at $35.

Okay, thank you.

And I guess the obligatory best of wishes to Charlie as well.

Thank you.

The next question comes from the line of Tim Burns from Cranial Capital.

Please proceed.

Charlie, what can I say, I thought you were 55.

And that was largely based on your outstanding running and tennis skills, so I guess I misjudged that.

You sure did.

The good news is I've heard that you're taking over as general manager at McLeod Farms.

Is that true?

That's not true, but if you come, I'll pay for a meal.

Okay.

One question is, the personal care side of your plastic container business did pretty well.

Is there any shift in market shares going on there these days?

Jim, not that I am aware of, of any significance.

Okay.

And Harris, while I got you, my last question, I'm not going to ask six or seven, is it seems like we're going back to the future.

Growth at any cost was what we had in the '70s and '80s, and in the '90s and early 2000s, it was really complete focus.

It appears we're starting to head back toward growth at any cost.

What's your take on all this?

Tim, I can't worry about what other people are doing.

I can only worry about what we are doing at Sonoco, and I can tell you that at Sonoco, it's not growth at any cost, it's growth that gives returns that we can return to shareholders.

And our focus is on growing shareholder value and returns to shareholders in earnings and not growth for the sake of growth.

Got you.

So, synergistic growth is a priority, but we're seeing -- take [Ardagh] who buys the metal can business and it's in the glass business.

It just seems like scale was the only accomplishment by the acquisition.

I don't comment on what other people are doing when I have enough trouble trying to keep myself doing what we should be doing.

But, I can tell you that Sonoco, any kind of growth needs to be able to return our cost to capital in a three to four year period of time and be accretive to us in year one.

Well Sonoco, like a few other companies, trying to be smart doing a mix of that, and hopefully, we'll do that the future.

Thank you very much, Tim.

The next question comes from the line of George Staphos, Bank of America, Merrill Lynch.

Please proceed.

Thanks.

Hi, guys.

Two final questions.

I guess, first Harris, is there any way to size the revenue opportunity or the revenue generation that you're getting right now from your sustainability or [ended] businesses whether it's S3 or the MRF business or maybe an aggregate with recycling business.

And then, I had follow-up question relative to flexible packaging, but let's deal with that one first.

George, you asked me a question the last conference call and what was the growth year-over-year of our collections, and I think that answer was 19%, 19.5% if I'm not mistaken, and a lot of that has come from our MRFs.

I don't know that we get so granular that I could tell you what the S3 actually generates in terms of dollars.

I can tell you it is profitable.

But it also helps us in many, many ways, for instance, yesterday, I was talking with the folks that I mentioned from Kroger that were here and they were talking about the fantastic job that we were doing with them, taking them to zero landfill at one of the manufacturing plants and how they wanted to move it into this plant.

And it's that intimate customer relationship that it creates and better understanding their packaging needs.

I think not only did make some profit for us there, but also gives us opportunities to be a much better supplier, and it fits so nicely into our one face to the customer packaging solutions strategy.

So, that's the way I tend to look at it.

And obviously it helps us get recyclables, obviously it helps us get OCC, but I look at it in that total picture.

Okay.

I'll add one more question to that relative the variance that you're seeing in OCC.

I think, at the outset, you said in your comments you said that you really couldn't explain the regional differences to the degree that they exist right now, but do you think that maybe you haven't ascertained the ship, but maybe in one of your thoughts, it might relate to differentials in regional growth rates we're seeing around the globe.

In other words, you're seeing tightness on the West Coast because you're still seeing China growing, and the weakness that we're seeing in the South maybe reflects that we are decelerating here in this region.

And that's just a hypothetical.

How would you at least begin to try to reconcile the differences you're seeing across the region?

George, I think you're onto something, and we've obviously thought about that.

If you look at shipping costs from the West Coast versus the East Coast, obviously you've got an advantage on the ports on the West Coast because of just the distance traveled.

So, I think that is a factor, and the supply demand and where they pull from.

I think the other piece of the Northeast, has been more frankly weather related in the first quarter of the year.

I think that one is more weather related.

I think West Coast differential may be more systemic change.

Okay.

I appreciate that.

Harris, maybe the last question for you or anyone on the phone there.

Flexible packaging, you've been in the business now for over a decade.

I know that, even though you don't disclose it and all the granularity you disclosed your segments -- you have in the consumer segment, it's been the same with that seen-improved performance.

Having said that, it probably still isn't where you would like it to be from a margin standpoint.

There I'm putting words in your mouth, I don't know if you'd agree or disagree with that.

What do you see as the imperatives for flexible packaging within Sonoco over the next two years?

What two or three things are you hoping to accomplish and how do you integrate it from here with both, the rigid paper and, for that matter, the rigid plastic side?

Thanks and good luck on the quarter.

Okay.

George, the performance in flexibles you hit on has certainly improved dramatically over the last five, six years, and Rob Tiede and his team over there have done an outstanding job.

I think one of the big imperatives for this business over the next two years, in your time frame, is to grow the business, and it needs to get some growth legs under it.

And it needs to grow in terms of size and probably the focus of where it is.

It is predominantly today in food packaging, and we're pushing that envelope out a little bit.

So, I would say the grow in the market would be where I would expect to see some significant changes over the next two years.

Do you feel that you have the right -- obviously there aren't going to be very many companies, if any, that know more about packaging of food and food science than Sonoco Products, but if you go a way from food, how do you guard against being to far afield from your real sweet spot and getting into areas where maybe you don't understand all of the risks or challenges.

You don't get away, very far from food, George, but you take the technology that we've got into some other packaging that we are familiar with.

And we can give you more color than that in the future.

Okay.

Thanks again.

Good luck.

And again, take care Charlie.

Thank you.

The next question comes from the line of Mark Wilde from Deutsche Bank.

Please proceed.

Harris, just two questions around the waste paper business.

With Rock-Tenn buying Smurfit, it seems like we're seeing another move that's going to consolidate a couple of big players in the waste paper market.

Is that a significant change in your view?

I think it obviously, as you said, gives them a bigger footprint in waste paper collection.

From Sonoco's perspective, I don't think it affects us one way or the other.

From the market, I don't know that it has a big impact, being perfectly honest, Mark .

Has the Japanese earthquake, has that affected the business at all that you can see?

I think we have four or five plants in the Osaka area with an affiliate that we have there.

In talking with them -- and to put this in sort of a perspective, I think out of that business, we made $200,000 last year, so let me --

-- revise it for us.

That's what I'm talking about.

They clearly had seen the impact, and I think I talked to a couple of customers that they've have had some difficulty getting some raw materials out of Japan, but it's going to be a disruption in certain industries.

Okay.

The last thing I wanted around waste paper is, we've seen stories out of Europe about concerns about food packaging, consumer group packaging, and recycled content packaging .

Can you talk about that at

You know, we don't see an issue.

The work that we have done with AF&PA and others, the recycled content and the recycled package is certainly very safe, and it's not an issue.

So, we don't see that as an issue that we are concerned about frankly, Mark.

Okay, very good.

Good luck this quarter.

Thank you very much.

And we have no further questions at this time.

Thank you, Carmen.

As a reminder, Sonoco's management team will be making several investor conference appearances in the month of May and June.

If you'd like more information about those upcoming events, simply go to Sonoco.com, click on the Investor Relations site, and look under our event calendar.

Also I'll remind you that our second quarter earnings will be out on July 21 of 2011, and we'll of course send out advanced notice about that as well.

Let me again thank you all for joining us today and we appreciate your interest.

As always, if you have any further questions, don't hesitate to give us a call.

Thank you.

This concludes the presentation for today.

Ladies and gentlemen, you may now disconnect.

Have wonderful day.