Sonoco Products Co (SON) 2012 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first-quarter 2012 Sonoco earnings conference call.

My name is Janaida and I will be your operator for today.

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

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

(Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

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

Roger Schrum, Vice President of Investor Relations for Sonoco.

Please proceed, sir.

Thank you, Janaida.

Good morning, everyone, and welcome to Sonoco's 2012 first-quarter earnings investor call.

This call is being conducted on April 19, 2012.

Joining me today are Harris DeLoach, Chairman and Chief Executive Officer; Jack Sanders, President and Chief Operating Officer; and Barry Saunders, vice President and Chief Financial Officer.

A news release reviewing the company's financial results was released before the market opened today, and is available on our Investor Relations section of our website at Sonoco.com.

In addition, we will refer to a presentation that is also posted on the investor site during this call.

I'll briefly remind you that today's 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 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 today's news release, and on the company's website.

With that, I'll turn it over to Barry Saunders.

Thank you, Roger.

I will begin on slide 3, where you see that this morning we reported first-quarter earnings per diluted share on a US GAAP basis up $0.42 and base EPS of $0.52, which compares to base EPS of $0.57 for the same quarter last year.

These results were $0.02 above the top end of our base earnings guidance for the quarter of $0.45 to $0.50.

The stronger-than-expected results are due to volume in the industrial businesses in North America and Europe being slightly better than what we thought coming out of a very weak December, and lower-than-expected fixed cost.

Before reviewing the base P&L for the quarter, I will mention that a reconciliation of the GAAP-to-base earnings is in the press release, as Roger mentioned.

The difference between GAAP and base for the current quarter is due to $0.10 of restructuring charges.

The restructuring charges were related to the closure of the Nordhorn, Germany, paper mill; additional charges related to the closure of a thermoforming plant in Canada; actions in Tegrant related to driving synergies, and other miscellaneous cost reduction initiatives.

Turning to slide 4, you'll find our base P&L, where you see that sales were $1.212 billion, which were 8.5% higher than last year.

And as you will see in the sales bridge, the favorable variance to last year was driven almost entirely by the Tegrant acquisition.

Gross profit of $217 million, was 12% better than last year, with the gross profit percent at 17.9% as compared to 17.4% for the same quarter last year.

Selling and administrative expenses and other charges were $123 million, which were higher than last year, due to Tegrant as well.

Otherwise, the impact of labor and other inflation was essentially offset by fixed cost reductions.

Thus, EBIT of $94.2 million, was $3 million higher than last year, and you will see the drivers of the change in the EBIT bridge in just a moment.

Interest expense of $15 million, with $7 million higher than last year, due to financing the Tegrant acquisition.

Taxes were $26.5 million for the quarter, as the effective tax rate on base earnings was higher, as expected, at 33.7% versus 31.2% for the first quarter last year.

Equity and affiliates and minority interest were not notably different.

Thus, base net income was $53.8 million, or $0.52 per share, again, compared to $0.57 last year.

The lower year-over-year earnings can really be isolated to $0.02 due to higher pension expense; $0.02 due to a higher effective tax rate; and just under $0.01 due to foreign currency translation.

Turning to the sales bridge, on slide 5, which reconciled the year-over-year change in sales, you see volume was slightly negative.

Down $11.5 million, or right at 1% for the company as a whole.

I will point out that there was one less day in the accounting calendar, which could have theoretically accounted for decline of about that amount.

But given it's not really statistically significant, we just left that difference in volume and not tried to show it separately on the bridge.

Consumer volume was down year-over-year as volume in Composite Cans and Enclosures in North America.

Each were down 2%, but Flexible volume was up 1%.

And Blow-molded Plastics was up almost 20% associated with growth in both Food and Health and Beauty segments.

Which were then only partially offset by lower volume in our Thermoforming business, due to lower demand for the Dual-Ovenable Frozen Food Tray.

In the Industrial Converting and Paper businesses, trade volume was flat for the segment as a whole.

But this was driven by more recycling activity in North America and Europe, due to growth initiatives in those businesses.

As well as more trade sales of Paper in North America, which more than offset a decline in Tube and Core volume, which was down 3% in North America and 6% in Europe.

Volume was down 18% in Asia, but that was due primarily to the continued impact of the Thailand flood.

Tube and Core volume was up 2% in South America, and Reels volume in North America was particularly strong, up 18% due to continued strong demand for steel reels.

Just a few more comments on Tube and Core volume.

Although down year-over-year, by almost 3% in North America, volume did improve by 2% from the fourth quarter 2011.

We saw some pickup in January over December, and then another step up in February, where it's held pretty flat in March.

And we really use that as the run-rate as the basis for our outlook for the balance of the year.

If this volume level holds, this would be 3% below last year's second quarter, but in line with the third, and 2% better than the fourth quarter of 2011.

In Europe, Tube and Core volume was down almost 6% year-to-year.

This was driven by volume in the legacy countries being down 9%, due most notably to lower sales into the paper mill market, partially offset by volume in the frontier countries being up 2%.

The overall business did pick up almost 6% in the first quarter of 2012, as compared to the first quarter of 2011.

And was gaining some strength through the quarter.

In Packaging Services, a continued increase in fulfillment activity globally was more than offset by lower year-over-year sales and dedicated tax centers associated with last year's loss of a contract Packaging account.

And finally, in Protective Packaging, our legacy business was down slightly due to the decision last year to end certain business in China.

And all of the Tegrant volume is, of course, shown in the acquisition column.

Tegrant volume was up year-over-year driven by solid growth in Protexic and Thermosafe businesses.

Sales prices were slightly higher for the Company overall, up $7.7 million.

In the Consumer segment, prices were higher year-over-year in most all businesses associated with higher input costs as resins, films and other materials were rising for much of last year.

This was then only partially offset by lower prices in Paper and Industrial Converting segment, where sales prices were lower in North America associated with lower OCC prices.

Impacting the prices for tubes and cores, paper sales and of course recycling.

Many contracts in the US had selling prices in the first quarter of 2011 based on an OCC price of $160 per ton, while the prices reset for the first quarter in 2012 at $110.

Selling prices were higher in Europe, year-over-year, where increases have been implemented to recover higher material cost.

Acquisitions accounted for $115 million of the change in sales -- and again, that was due almost entirely to Tegrant.

And finally, translation of sales in foreign currency reduced reported sales by $16 million due to a slight strengthening of the dollar.

Turning to the EBIT bridge from last year on slide 6, you see that the lower year-over-year sales volume, combined with mix, reduced year-over-year EBIT by $13 million, as we had a notable impact from mix both between and within the businesses.

In the Consumer segment, the year-over-year lower volume and trade sales was exacerbated by negative mix in Composite Cans, as well as the impact of the lost profit on fewer inter-company closure sales.

On the Industrial side, the additional business in Recycling, particularly in Europe, is really just brokerage business with a much smaller-than-average margin for the segment.

And the higher trade sales in Paper came largely for more edgeboard and linerboard sales, both of which have relatively lower margins.

And the higher Recycling and Trade Paper sales were offsetting lower Tube and Core sales, which of course had a higher overall margin.

And in Packaging Services, results were impacted by the lower volume, due to the loss of the contract packaging account.

Which again was only partially offset by the increased volume in other fulfillment activities.

I will mention that although mix was negative, year-over-year, it was really not significantly different in most of our businesses from what we expected when our 2012 plans were put together.

As expected, selling prices, net of change in material cost, energy and freight cost, were favorable year-over-year, by $8.7 million.

In the Consumer segment, the year-over-year change in the selling prices, just more than offset the material costs changes as we were chasing rising prices throughout last year, particularly in plastics.

In terms of the more significant year-over-year cost changes, the market price for steel used in metal ends is up almost 2%; films are up approximately 6%; and resins up roughly 3%.

With range in any place from essentially flat to up 6%,depending on the resin type.

Although selling prices were lower in Tubes and Cores and Paper, due to lower OCC prices, material costs were also lower, resulting in a favorable variance in that segment.

We are pleased to report that, as expected, we saw a significant improvement in productivity in the quarter where manufacturing productivity was $10.8 million, compared to productivity of just over $5 million last year.

Much of the productivity came from our mills in North America which ran better.

We also saw a notable improvement in Tubes and Cores North America from the completion of the consolidation project in the Southeast last year.

And in our Blow-molded Plastics business, due to stabilization of all the new business brought in last year.

Productivity would have been even a little bit stronger, if it was not for some inefficiencies and excess cost in Flexibles, related to capacity constraint issues.

And in thermoforming related to excess capacity, due to lower-than-expected demand.

Paper mills were also under-utilized in Europe.

They ran under only about an 89% utilization rate versus 100% for the same period last year.

But again, improved notably from a 78% utilization in the fourth quarter.

Although we've not typically broken out the EBIT impact of acquisitions, given the significance of this acquisition to the segment, and since segment results are also impacted by corporate allocations.

We thought it would be helpful to provide this level of information for Tegrant.

And as you see, acquisitions added $5.6 million in EBIT due to Tegrant.

Top line results were a little bit stronger than what we expected, and EBIT almost on track, just a little short of expectations, due to some plant operating inefficiencies related to integration activities.

We are projecting to see continued improvement in earnings over the coming quarters, due to the normal seasonality in the business; from operating improvement; and from the realization of synergies, which are tracking as planned.

Other is our catch-all category, which includes wage and other non-material inflation of roughly $10 million.

Partially offset by fixed -cost productivity and other changes of $5 million.

One of our key objectives in improving operational performance this year was to ensure that manufacturing productivity exceeded all other cost changes.

And as you can see, we were successful in delivering on that objective in this quarter.

And finally, pension expense is higher year-over-year by $4 million, driven most notably by the decline in the discount rate at year-end.

In looking briefly at the results by segment, on slide 7, for the Consumer businesses, sales were $496 million, essentially unchanged from the prior year, with EBIT of $50 million.

Down only slightly and EBIT percent still above 10%.

For the Paper and Industrial Converted Products businesses, you see sales of $463 million were down 1.6% from last year.

While EBIT at $32 million was up 6%, and EBIT as a percent of sales improving to 7%.

Packaging Services sales of $115 million, which were down almost 7%, due to both lower activity and the impact of translation.

While EBIT of $4.8 million, was down even more in percentage terms, due to the lower volume and a change in the mix of the business, associated with the lower contract Packaging activity.

And Protective Packaging sales of $138 million, and EBIT of $7 million were up year-over-year due to the Tegrant acquisition.

And now, looking forward on page 8, we are updating our full-year 2012 guidance.

Where specifically, for the second quarter we are projecting that base earnings per share will be in the range of $0.55 to $0.60, which compares to the current consensus estimate of $0.59.

The improvement from the first quarter is driven by higher earnings in Protective Packaging and in our Global Paper and Industrial Converted Products businesses.

Partially offset by lower sequential earnings in Consumer segment, and in packaging services, just due to normal seasonality.

We are increasing our estimate for the full-year 2012, now forecasting that our base earnings will be in the range of $2.34 to $2.44 per share.

Which is up $0.02 from the previous guidance on both the low and the high end due to the better-than-expected earnings in the first quarter.

We've really not factored in any notable change in the level of business activity, other than normal seasonality.

On page 9, you see our cash flow summary, where we had a very good quarter.

Reporting cash generation from operations of $101 million, as compared to a use of cash of $14 million for the same quarter last year.

This year's first quarter included the impact of making contributions of $50 million to pension and post-retirement plans globally, as compared to $98 million last year.

The lower pension contributions, along with less of an increase in working capital this year and lower management incentive payouts accounted for most of the year-over-year change.

Capital spending was $48 million for the quarter, which, as expected, was higher than last year's $38 million.

The year-over-year increase was most notably impacted by the incremental spending on the Biomass Boiler project for our Hartsville, South Carolina, paper mill complex.

And for the new Blow-molded Plastics plant in Columbus, Ohio.

And therefore, after paying dividends, free cash flow was $24 million for the quarter versus the negative $80 million last year.

We did use some cash to repay $36 million in debt.

Thus our debt-to-total capital ratio improved 45.8%, down from 47.4% at year-end.

In terms of our expectations for the full year, we are still projecting cash from operations to be roughly $385 million.

Capital spending should be in the $185 million range.

And after dividends, we'll have free cash flow of at least $80 million, which is in line with the projections shared at our conference call last quarter.

As you might have seen, yesterday, our Board of Directors did increase the quarterly dividend from $0.29 to $0.30 a share.

As we know, dividends are an important part of our total return to shareholders.

The new quarterly dividend would annualize to $1.20 per share, representing a yield of right around 3.7% based on share price yesterday.

There are a few additional pages of reference material in the appendix for your convenience, but that completes my review for the quarter, and we can now open the line up for questions.

Thank you.

(Operator Instructions) Scott Gaffner, Barclays Capital.

Good morning.

Morning, Scott.

I was just looking at the Paper and Industrial business.

You talked about the volumes there on the Industrial side of the business were better than you expected.

Can you talk maybe a little bit about the end markets there?

Where exactly you are seeing the strength from?

Yes, Scott.

This is Jack.

On a year over year basis?

Either year over year, or actually I was looking more sequentially, where you saw the strength since the fourth quarter was maybe below.

And then first quarter came in a little bit better than expected?

Sure.

This is Barry, Scott.

I will add that really, as I mentioned, was only up slightly better than we expected.

We didn't see a lot more strength that what our guidance was based on.

But I will provide just a little bit more color.

First of all, year over year, again I mentioned, was down almost 3% and that was with paper mill activity being down right about 1%.

And some of the other segments down a little bit more than that, year over year.

But, from the fourth quarter, we actually saw just a little bit of weakening in the paper mill packaging segment, and actually improvement in film, tape and specialty, and the textile segments.

Those were all any place from 4% to 10% over the end of the fourth quarter of 2011.

Okay.

And then on the plastics side of the business, I think you mentioned the higher resin pricing in the quarter.

It sounds like the resin producers actually put through a price increase in March, but that maybe prices come down in May?

What is your outlook there?

What are you hearing from your guys in the field?

Yes, Scott.

I would tell you that's basically in line with our own expectation.

We do --we did see some increases that occurred in the first quarter.

Prices reset now for the second quarter.

We expect that -- that has topped out, and should kind of flatten out and trend down with natural gas prices being as low as they are.

There's just no reason for resin prices to continue to rise.

Okay.

Thank you.

George Staphos, Bank of America Merrill Lynch.

Thanks Hi, everyone, good morning.

Good morning, George.

Solid quarter.

We appreciate the slide deck.

I've been waiting for that for a long time.

Appreciate the details.

I had a few questions around margin, and really what I was trying to get at is the volume mix effect on EBIT.

If I make some rough approximations in terms of what the volume effect on revenue was, and assume something for a decremental margin, my guess would be that the mix effect in volume mix is maybe in the range of $7 million to $8 million?

Could you provide more -- confirmation on that?

Could you provide more detail on that?

In terms of all the items that you mentioned, in terms of mix, what was the biggest driver of that variance?

Certainly.

Just from a high level perspective, your calculations would be directionally corrected you just look at the dollar change in sales.

We, as I mentioned, we really saw a good bit of mix impact across many of the businesses and all of the segments.

And, it really can't be iso -- isn't isolated to just one or two particular business units.

It really is spread across most of them where again, saw some mix in consumer, mix in industrial associated with recycling activities.

Which again, some of those activities don't carry the same margin as tube and core.

Certainly, saw some more sales of some of the lower-end paper grades, externally.

And in packaging services, as we would expect year over year with the flip in some of the fulfillment activity versus some of the contract packaging activity.

Which was very strong in the first and second quarter of last year.

And, as I also mentioned, the mix was really pretty much in line with what we thought we would see in the first quarter, as we developed our guidance a couple of months ago.

Fair enough.

Maybe a related question, although I realize it sounds like things trended as you expected.

Have you seen any effect in terms of trade down, perhaps driven by maybe more competition within the paper portion of your consumer packaging business?

In other words, are you seeing consumers maybe shifting away from composites to other types of structures?

Either your own or those of competitors?

George, I would say that no more than is normal for that line of business.

Nothing out of the ordinary.

Okay.

A couple of last questions, and I'll turn it over.

In the cash-run operations represented a very good job.

You enumerated two or three things that drove it.

The other operating account figure, which was I think better by some $50 million, year-on-year.

Was that mostly the pension funding differential?

Let's see.

If you are looking at -- well again there were really three drivers of the year-over-year change.

Certainly, lower pension contributions and higher expense - when you net those two together, that accounted for right at $50 million of the change.

Roughly about $25 million of the change can just be explained by the lower use of working capital in this quarter versus the same quarter last year.

And then, the other $25 million can really be explained by lower incentives and other such payouts.

Okay.

I guess -- so what's an other operating activity?

Maybe to say the question differently, Barry, I apologize.

That $56 million-some odd positive in cash flow?

That is really, the net change in all of your other accounts, and the $32 million change that you would see in the cash flow year over year.

Most of that would be associated with the lower incentive payouts.

Okay.

Thanks.

I will turn it over.

Ghansham Panjabi, Robert W.

Baird & Company, Inc.

Hi, guys, good morning.

Good morning.

On your commentary in the press release related to customer caution over the outlook, how does this compare to their caution at the time of your last conference call in early February?

Has there been any change by business or geography?

I don't know, Ghansham, there's been any change of our outlook.

For each forecast really is a bottoms-up, starting with the customer.

And I think most of -- I am not going to say 100%, but most of our customers are still fairly cautious about the balance of the year.

So, I wouldn't say it's all change.

Okay, and in terms of -- on the consumer side, have you seen any indication of perhaps more promotional activity?

Over the next couple of quarters from your big customers there?

We certainly had a solid quarter on the promotional side, a start to the year.

Is that translating exactly to increased activity?

It's too early for me to say.

Okay, and just one final one on the thermoforming volume weakness, what's driving that?

That's primarily in frozen foods, ready-to-eat meals.

And that's year over year change that we believe were driven by an increase by the CPGs in the price of those products.

Got it.

Okay.

Thanks so much.

Philip Ng, Jefferies.

Morning, guys.

You guys did a great job on the execution front, particularly on productivity.

Should that actually accelerate in the back half?

If I remember correctly, your guidance implies a pickup in volumes?

In the second half?

Well, certainly, volumes affect productivity, but it's a year over year comparison so if it picked up in the prior year, it is going to pick up in this year, just like it normally does.

Okay.

We normally would expect that there be some acceleration of volume, but again it's year over year.

Okay, got you.

You recall in the first quarter of last year, we had a fires and some bad weather and other things, which affected productivity and we had good, solid performance in operations which drove those.

Okay, that's helpful.

And then, your volumes in consumer was down a little bit, but considering the pretty soft data out of it Nielsen for packaged food, it held up pretty well.

Can you talk about what are some of the things that you are doing differently?

Well I think some of our consumer volume, as pointed out, is being affected by new one volume.

In both plastics, and then on the flexibles side.

You -- some -- I think it was you that mentioned the tray business, or that was a little bit earlier.

That -- certainly we saw that down.

And we certainly see some of that.

But I would simply tell you the new one volume is offsetting some of that.

Okay.

That's helpful.

And just lastly on Tegrant.

It's on what the integration process has come along pretty well.

And historically you guys have done a pretty good job rolling out new products.

Have you been able to leverage some of that technology from Tegrant into some of your new different segments?

Not yet.

I would tell you we see opportunities and the more we get into it, the more opportunities we see.

So we're very pleased.

And we are pleased with where we are in integration.

It has gone quite well, to date.

And expect to continue to gain opportunities as we move forward.

Okay, thanks, guys.

Ian Zeffino, Oppenheimer.

Great, thank you.

I just want to get a little bit more into the consumer side of the business.

Is there a particular category that you are, per se, seeing particular strength in, versus weakness in.

And not the way you define it, but more, because --I know blow-molded was very good.

But if you could maybe slice-and-dice by demographic or areas of the economy, particularly in the consumer side?

Is it blue-collar doing poorly?

Is it more key-note oriented; is stuff doing better?

If you could help us there, thanks.

I am not sure I can.

I can tell you the snacks were pretty strong, but outside of that I am not sure I can give you much more color to it.

Okay.

And then, as far as your initiatives on the composite siding.

I know you talked about some areas that you probably take the composite can technology into.

How is that going -- how is that effort going?

Well, I think it's going well.

We always look for opportunities to move the composite can into new markets.

And we said for some time, we're looking at heavier liquids.

I think that we've moved into some automotive- or industrial-type fluids.

Paint is an area we continue to look at as well.

So, that always on our radar screen, as well as all types of paper-based products.

That's a part of that group as well.

So, continues to go well.

Okay.

All right.

Thank you very much.

Phil Gresh, JPMorgan.

Hi, good morning.

Good morning, Phil.

Just wanted to ask a couple questions on the industrial side.

You talked about, in Europe, a 6% pickup, sequentially, on the volumes for tubes and cores.

At what point, if we run-rate that -- you gave us a good color in North America.

I was just wondering at what point Europe would cycle to a positive comp if you just run-rate it.

Or are we not at that point yet where we would see it this year?

I don't think we would expect that the current run rate to see a year over year improvement by any means.

Were still forecasting that it would be down someplace 4% to 5% or so.

For the full year?

Yes, full year, year over year.

So, again, improved just modestly from what we based our full-year guidance on, the last quarter.

Okay.

I guess if I put that together with Europe being down, North America turning positive in the fourth quarter.

Coming back to the mix question, within industrial, you guys had said basically that the mix is negative because tubes and cores has a higher margin.

So is it fair to say that the mix headwind, on the industrial side at least, would then continue through the rest of the year, based on these run rates?

To some extent -- we're not, again, projecting a significant change in the mix, going forward.

Now, again, as I have mentioned, it improved somewhat sequentially during the quarter month-to-month.

So, it would improve somewhat, just by being at March rates versus what we saw in January.

I would look at the industrial business this way.

That we had a very strong first quarter last year, that trended down through the balance of the year.

And normally, our first quarter is below the fourth quarter.

And so, the fact that the first quarter is up, we feel optimistic about.

But we are still right conservative in our guesstimate for the rest of year, because that's the way our customers are.

Okay, fair enough.

And then on the protective side, the margins were down sequentially by about 100 basis points or so.

I assume that the full quarter of Tegrant in there, and the mix impact of that.

But are there any one-time acquisition-related costs that are a drag here in the first full quarter, that did start to go away as we progressed through the year?

How should we think about this 5% margin for protective, as we go through the rest of year?

Well, on a very short-term basis, that's being impacted by the combination of the two businesses together.

And for the first time we're -- to Tegrant we are spreading corporate allocation, which they hadn't had before.

So that is a part of it.

I think longer-term, Phil, this business is going -- the margins are going to continue to move back toward a double-digit range.

That is certainly our expectation.

I'm not sure it's going to happen as soon as the end of the year, but I think we are going to see movement, as the year goes on, up the curve.

So, do you feel like this could -- not to pin you down, but did you feel like this could be a double-digit margin business next year?

I keep saying it will take me two years to get it there, but hopefully it comes quicker.

But I believe that it is a double-digit margin business.

And, it's going to take us just a little bit of time to get it there.

Okay, thanks a lot.

Chip Dillon, Vertical Research Partners.

Yes, and good morning.

Morning, Chip.

On the volume front, it looks like from the bridge you had about a weighted average, 1% drop in volumes.

And maybe I missed this in the opening commentary, but could you give us, if you will, either directionally or specifically, what the organic volume changes were by a segment year over year?

Yes.

We just talked about it being down 1%, and my first comments related to the fact we actually had one less day in the accounting quarter this year, which fundamentally could actually account for that 1% difference.

We weren't comfortable in breaking it out and attributing it, necessarily, to just that 1%.

We did say that volume was down slightly, and the consumer business as -- was down about 2%, and composite cans and metal ends.

Much of which was offset, though, by the fact that blow-molded plastics was up 20%.

And then we talked about tube and core volume, and everything in the combined -- paper and industrial converted products business -- the volume was essentially flat, but it was due to more recycling and paper trade sales, offsetting the weakness that we saw year over year in tubes and cores, both in North America and in Europe.

Got you.

Okay, that's very helpful.

As you look at the year, is it more or less fair to say that you probably would expect volumes -- I know you were talking earlier about European tubes and cores being maybe down a quarter 5% of the year, but -- Would you expect volumes from a higher level to be certainly up in the fourth, because of the easy comparison, and possibly even up in the third?

And, if you could tell us where you see the whole year for the company?

We were certainly expecting to be up in the third in the fourth, Chip.

And for the whole year?

Do you think that you'll be up for the year, or is it just too early to say?

I would think that we will probably be down for the whole year, given the situation in Europe.

Got you, got you.

Lastly, you mentioned the blow-molded volumes being up so big in the first quarter.

Is there any -- are there any -- is there a couple -- or specific reasons you would cite for that?

And do you see the pace of that strength continuing?

Yes, the reasons are, the business that we brought on last year, that we previously talked about, which would come on the line up all the year, and obviously is up running quite well now.

And I don't expect that we will see it as a 20% year over year going forward, but we certainly do expect to see growth in this business, so we have a lot of good opportunities.

Got you.

And then the last question is, I know in past quarters recently, given the ups and downs, especially in Europe, you've often commented on what you have seen in almost month-to-month.

And as we -- you mentioned the sequential strength in tubes and cores.

But as you look at Europe, maybe even by region; northern, southern; have you seen any significant change in sequential order patterns?

Say February into March, or March into April?

No, I don't think we are that granular, to be perfectly honest, but I think I did see something.

The legacy businesses were down; the frontier area, the -- we call frontier, the Eastern European areas, are slightly up and not down quite as much.

But we're not seeing a lot of change in Europe, Chip, to be perfectly honest.

Got you.

Okay, thank you.

Adam Josephson, KeyBanc.

Thanks and good morning, everyone.

Good morning.

I know this is a difficult one, but which factors do you think your tubes and cores volume in the US and Europe are most sensitive to?

And do you have reason to believe that volume won't fluctuate from month-to-month as much as they did last year?

Well, when you say they are most sensitive to, we've always said that, for the most part, tubes and cores are a GDP-type product.

General economy in general economic demand.

So, I don't envision it being any more or less sensitive to the economy than that.

The one factor that I think could sway it one way or the other is that, when you look at wound goods, there's a lot of wound goods that are used in construction.

So, if housing picks up, or we see an improvement in construction in this country, beyond what we've already baked in, or are already seeing, that could impact our volumes.

Fair enough.

One on consumer packaging.

At what point do you expect those margins to expand?

And how does the change in product mix in that business affect your long-term margin outlook, if at all?

Well I think our margins in the consumer business are at where they are going to be.

I think that we -- that 10%, that 11% range, that's a very competitive industry.

And I don't really see them expanding much beyond that area -- that number.

One on composite cans.

What led to the 2% decline in composite can volume in the quarter, specifically?

You want to go over that by segment?

Sure.

We saw in composite cans, again, mentioned overall, they were about 2%.

They were actually up in snacks 16%, year over year.

Caulk -- fiber caulk cartridges were up 8%, due to some improvement there.

And they were -- that was partially offset by, then, some weakness in the nut segment and the PIF segment.

And then, dough being down due to what was considered to be that warm winter impact.

And concentrate was down, as expected, as that market has been trending down over time.

Thanks.

And just one last big picture one.

How likely do you think it is that you could experience both improving volume and fairly stable input cost simultaneously versus for a sustained period?

Well I think it's quite likely you could do that.

The OCC, we have basically good control of, with our contracts and our recycling business.

And the resin, with our contracts with pass-throughs there.

So I think we can -- we've shown that we've managed price in raw materials reasonably well, over history.

And the volume -- the leveraging effect of volume, across our fixed cost, would be fairly significant.

Sure.

Thank you very much.

You're very welcome.

Mark Wilde, Deutsche Bank.

Good morning, Harris.

Good morning Jack, Barry.

Morning, Mark.

Couple of questions.

First, any sign, just domestically, that you saw any easing in March and April?

I think these industrial production numbers, and other things, have people a little concerned about a slowdown starting to crop up late in the first quarter?

Nothing noticeable.

Okay.

All right.

Any visibility in the -- what's going on with OCC?

It seems like we got a little bump earlier in the year, and now things have kind of flattened out?

Yes.

I think that, as we sought for the year, we thought that would kind of be a normal, seasonal pattern That's kind of what we saw.

It bumps up in the winter months, begins to flatten out about now, maybe will trend down.

Probably pick back up in the third quarter, and then trend down in the fourth.

We still see that unfolding that way.

I certainly think China's demand is pretty light, and I think that's probably impacting the market.

Okay.

All right.

And is there a difference in what you're seeing in OCC here in the US, versus what you're are seeing in Europe?

Because it seems like the price levels are quite a bit higher in Europe right now?

There is.

There is a bit of a difference.

I think that we do believe there might be some slight softening of OCC for the next several months going forward.

But, there is a difference today.

Okay.

So you -- what you are saying, Jack, is you think that the price may come down in Europe?

It may come down slightly in Europe, yes.

Yes, okay.

Can you give us just a general sense of what your margin spread looks like right now?

In the recycled medium business, versus what you've seen historically over time?

Oh, the medium business.

Okay.

Yes.

Yes I think for us it kind of moves around.

It depends upon how much medium we sell domestically versus how much we export.

I would tell you right now, the medium -- the margin in mediums has been a little squeezed, because we've been exporting a little bit more than we would like.

Okay, all right.

Very good.

That's all I have.

Chris Manuel, Wells Fargo.

Good afternoon -- or good morning, gentlemen.

Almost afternoon.

Morning, Chris.

A couple questions for you.

First, let me start with -- coming at it from the guidance perspective.

I -- you raised your annual number by $0.02, essentially what you were above the numbers for.

But, if memory serves, walking through the progression of where you were, from December to when you updated numbers in January, and again to now, I think volume levels had fallen off sharply from October, November to when you re-set numbers in December -- Or, I'm sorry, in January.

And, indications seem to be that things had picked up through the quarter.

When I look at what you have done for the balance of the year -- I do appreciate, and I think you said earlier, there is always some conservatism in what your customers are telling you in there.

But, I guess my question here is, is there anything, looking forward, to suggest that we could see more softness from here?

Or, is there a reason to why -- as things have gotten better, that you would have continued to use the old December or -- run-rates for volume, and only raised by the amount you beat?

If that makes sense?

It makes sen -- well, I understand which are saying, and what you're saying makes sense.

But it doesn't make sense to our guidance.

Basically, what we've done, Chris, is -- our customers are quite conservative, in the US and Europe, and around the world, and so we're trying to give you the best outlook that we can, based on what our customers are telling us.

We had a -- we thought, an outstanding first quarter.

The volumes were better, and as we look out, we are holding these volumes with the normal seasonality.

And, to the extent, obviously, that they're better than -- the volumes are better than that.

Obviously, there is upside to it.

Okay, that's helpful.

I just wanted to get a sense that there wasn't anything that had changed as a negative as well, and it doesn't sound like there is.

There clearly is nothing negative, that we see out the balance of the year, and we're optimistic.

But we're giving you realistic numbers on what our customers are telling us.

Okay, perfect.

And -- I guess I forgot when I first started -- congratulations.

It was a very strong 1Q.

And thank you much, Barry, as well.

These -- it's helpful because we don't have to write as fast when you give us these numbers in the slide.

So, thank you both.

(laughter)

Thank you.

Okay.

So, a couple other questions I have.

In Tegrant, if we do the math on the numbers here, it suggests the margin is kind of in that mid-single-digit range.

And I recognize there is a path to get better -- as you mentioned, towards double digits.

If memory serves, I was backing in the numbers.

I was thinking something that, for the full year, the EBIT expected for the Tegrant business was in that $40 million-ish or low-$40 millions range.

Is -- can you remind us of the seasonality, or is that still a realistic expectation?

There is some seasonality in this business.

And, remember that we've said all along, that the synergies are coming in the second half of the year, and we are on track with the synergies with the business.

We are on track with the business.

In fact, the business is up some 5%, 5.5% year over year, the base Tegrant business.

So we are very comfortable with the guidance that we have given you about Tegrant.

And as Jack said, we've had -- you always have surprises, positive and negative in this, but the positive surprises are certainly outweighed the negatives.

Okay, that's helpful.

The last question I have is, I think you guys usually address new products, things of that nature.

Can you give us some of the numbers where you are?

We are about flat with last year.

I think, in the quarter, we were a little over $36 million versus about $37 million last year, so we are on track.

And I would expect that -- we will be in the range of a good $150 million or so of new products.

And I would remind everyone, that we grandfather our new products after two years, which is much more aggressive than other people do.

And that these numbers -- all the coffee, composite cans, have fallen off as well as the BPA-free lids that we had last year.

So, we're quite -- feel quite good about the new products.

Okay, and just last question along the lines of new products.

Can you give us a sense of some new stuff that's come in over the last quarter or two that you are seeing is a nice contribuants to that?

Well certainly, a lot of the blow-molding products that we recently won are in there, and more volume from the flexibles area as well.

That's really what's driving the bulk of that today.

I would also want to add to what Harris said.

Tegrant now is part of our -- part of the company, but we have not yet started adding new products from Tegrant to the mix, and we certainly expect that to be additive next year.

Okay, thank you for the color.

Albert Kabili, Credit Suisse.

Hi, good morning.

Morning, Al.

Just a follow-up on Chris's question on the new products.

Can you remind us -- and I think a lot of this -- this year ramps in the back half of the year.

And if you could just remind us, in aggregate, what kind of a volume boost in consumer that will give you in the back half?

And, how you are feeling, in terms of startup?

If there will be extra startup costs with any of that, or how you are feeling on that front?

Yes, I'm not sure I can give you clarity around the number.

We certainly -- that plan set -- scheduled to start up about the middle of the year, and there is going to be additional volume that will come on from that.

How that ramps up, and how that's going to unfold, it would be hard for me to tell you that right now.

Okay.

And there are -- of course there are startup costs built in that, and are reported by our --

Forecast.

-- forecast.

Okay.

Okay.

All right, thanks.

Also, in the auto business there is a bit of a disruption in this -- the nylon 12 resin, and I know you have some auto exposure in the -- a little bit of auto exposure, I guess, in the protective packaging businesses.

Is that potentially -- I don't know if you had a chance to look at this yet.

Is that potentially having any meaningful impact, that you see, that we should be thinking about or it is too early or --?

No, I haven't looked at that, but I would certainly tell you the automotive business for us right now is very solid.

Okay.

Final couple questions.

Sorry if I missed this, but, April, has -- how was April started out this -- the month?

In terms of volume trends?

About where we expected to be.

So, pretty much on plan.

Okay.

Similar to -- are we seeing -- improvement versus the March trends that you talked about?

Or, about the same trends that you have talked about with the way the first quarter ended?

Yes.

I think where we are right now, it's trending much like it was in that March timeframe.

Okay.

All right.

Finally, you talked a little bit in Europe on the -- I think it was a 6% sequential pickup in Europe tubes and cores.

And just, if you could help us frame out what the typical seasonality -- how that compares to typical seasonality?

Well normally the fourth quarter -- the first quarter is down compared to the fourth quarter, but the fourth quarter of 2011 was down so sharply that we felt it could only go up.

So, that's a little bit different.

Now, there is a slight seasonality in the tube and core business, and that's kind of what's baked into our guidance going forward.

Okay.

All right.

Thank you very much, good luck in the rest of year.

Thanks.

Thank you, Al.

Alex Ovshey, Goldman Sachs.

Hi, guys, how are you?

Hi, Alex, how are you?

Thanks for all the callers, so most of my questions have been answered.

A couple ones.

Just on the packaging services business, can you tell us what the impact the profitability was, from the lost business?

And at what point do you start to cycle that headwind?

Well, it was a fairly significant impact to the business, as a whole.

I think that the business has done a good job of picking up new volume in Europe, and as I said earlier, we had a good year domestically in the point of purchase display business but, there was a significant in play.

Loss of volume.

Thanks, Jack, and last question.

Can you comment on the M&A pipeline?

Are you seeing any interesting opportunities in the verticals that you are exposed to?

And, generally, what's your appetite for potential bolt-on deals in 2012?

Well, as we've said, after we made the Tegrant acquisition, that a lot of our attention was going to be integrating that business, and paying down some debt.

And we paid down some debt, and we are integrating it.

And I think you can plan on, for the next probably three quarters of this year, that will be where our focus will be.

And if some small acquisitions come along, we will take advantage of them.

But, I mean, emphasis is going to be on integrating Tegrant, and paying down some debt

Yes, that make sense, Harris.

Thank you.

Thank you.

George Staphos, Bank of America Merrill Lynch.

Hi, everyone.

I wanted to come back to the question, and discussion, on consumer.

And I think earlier, Jack, you were saying that we really shouldn't see much margin improvement from here -- I think the number you provided -- the range was 10% to 11%.

And, that's certainly a good margin within your businesses, you have a mix of businesses.

One thing, though, as I think about it, flexible packaging, given our past Q&A, is an area where I think you had assumed that you would continue to move higher and higher in margins.

Maybe you're not at 10% yet, but that was ultimately a goal, at least last we had discussed.

A lot of these new products, as I understand them -- the goal, obviously, is not only to add volume, but in-line or better-than-average margin.

And so, if you agree with the premise of what I've just laid out, why wouldn't you see improvement in flexible packaging margins?

Are there other margin undercurrents within your existing businesses where you're seeing a little bit of margin compression?

Or -- help us understand why margins should be flat over time?

Well, I certainly think, George, that, if you follow what you're saying, that's absolutely true.

But there are things that affected the margins in both those businesses, startups over time, et cetera.

And, I think it's a natural movement, in that business, that a new product may come in at slightly better margins, and then, as time goes on, it will get compressed a little bit, with -- just by the market activity that goes along with it.

So, I think when you improve those margins a little bit, then you see the natural compression that comes along on the balance of the business.

It kind of balances out.

And I think that that 10% range is a solid number for consumer, and it's just something that we would see being realistic going forward.

Understood.

I guess, as a follow-on, to the extent that you can comment -- and maybe you can't -- and I would understand that.

Are there any particular product classes within consumer that are seeing the most margin compression, or that you are at least considering may occur, if you look out the next two, three years.

Would it be in composites?

Would it be in plastic bottles?

Would it be in flexibles?

Are there any areas in particular where you feel, maybe, you are going to see a bit more compression over time?

No one area more than the other.

I mean, obviously, to move the margins up in flexibles and plastics is really up to us, relative to producing the product better, getting more efficient, getting out of the start-up phases.

But, as far as market pressure on any of those formats being different, it's not -- it's all about the same.

Okay, appreciate that.

Two last ones, and I will turn it over.

With OCC pricing, certainly China seems like it's been not taking as much, and that's been a big factor in terms of why you haven't seen elevator prices into export margins.

You had mentioned that.

How is generation here?

Has that been a contributing factor in a good way?

In that you're seeing more generation?

Or, from your vantage point, has that been soft?

And then the other question I had, you mentioned that there was a little bit of operating difficulty within Tegrant, certainly the positive surprises overwhelm negative surprises, but you said that was one of the factors impacting margin in the quarter.

Can you give a little bit more detail on that?

Should we assume that that's now behind you?

Thanks, guys, good luck in the quarter.

Okay, thank you.

To the point on OCC, certainly, we are seeing increased generation.

We have won some volume, in our area, and we have seen increased generation.

I would tell you that it was a little bit warmer winter so, did that have a positive effect on generation?

My guess would be, yes.

But from our vantage point, we just won more volume, and that has been a positive for us going forward.

As far as the Tegrant operational issues, those were actually issues that were tied to an acquisition the Tegrant made before we bought them.

And we've spent a lot of time and money sending some of our people to get those behind us, and work through the improvement very quickly.

So, I think we made a lot of progress toward it.

And we will continue to work on that, but for the most part, those are going to be moving behind us as we go forward.

Okay, thank you very much.

And at this time, we have no further questions.

I would now like to turn the call back over to Mr.

Roger Schrum or any closing remarks.

Thank you again, Janaida.

As a reminder, Sonoco's second quarter 2012 earnings conference call will be conducted at 11.00 AM on Thursday, July 19, 2012.

And we will be sending out more information about the details of that call.

And again, thanks all of you for joining us today.

We appreciate your interest in the company, and, as always, if you have any further questions, don't hesitate to contact us.

Thank you.

Ladies and gentlemen, that concludes today's conference.

Thank you for your participation.

You may now disconnect.

Have a great day.