Sonoco Products Co (SON) 2012 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q3 2012 Sonoco earnings conference call.

My name is Christy and I'll be your Operator for today.

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

We will conduct a question-and-answer session towards the end of the conference.

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

I'd now like to turn the call over to Mr. Roger Schrum, Vice President of Investor Relations.

Please proceed, sir.

Thank you very much and good morning, everyone, and welcome to Sonoco's 2012 third-quarter investor call.

This call is being conducted on October 18, 2012.

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

A news release reviewing the Company's financial results was issued before the market opened today and is available on the investor relations section of our website at sonoco.com.

In addition, we will refer to a presentation that is posted on the investor site during the 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 to certain risks and uncertainties.

Therefore, actual results may differ materially.

Additional information about factors that could cause 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.

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

Thank you, Roger.

I will begin on slide 3 where you see that this morning we reported third-quarter earnings per diluted share on a GAAP basis of $0.57 and base EPS of $0.55, which compares to $0.66 for the same quarter of last year.

These results were slightly better than our updated guidance issued on September 10 of $0.51 to $0.53 per share primarily due to a slightly lower than expected effective tax rate for the quarter.

Before reviewing the base P&L for the quarter, I'll mention that a reconciliation of GAAP to base earnings is in today's press release and on our website and is summarized on this slide.

Restructuring charges of $5.5 million, primarily related to previously announced restructuring initiatives, were essentially offset by gains on the sale of two vacated properties.

The remaining $0.02 and other represents recoveries from property insurance claims.

Last year, in addition to restructuring charges, we also had a $0.17 benefit in taxes from the release of a valuation reserve against deferred tax assets.

Turning to slide 4, you find our base P&L, where you see that sales were $1.196 billion, which represented a 6% increase over the prior year.

But as you'll see in the sales bridge, this was driven by the Tegrant acquisition.

Gross profit was $206.2 million, which was $19.5 million higher than last year, also driven by the Tegrant acquisition.

Selling and administrative and other charges were $113 million, which were up $25 million year over year.

Much of that increase was due to Tegrant, but the balance was due to the impact of wage inflation, higher pension costs and the lack of having benefit of $3 million in life insurance proceeds and a $2 million foreign exchange gain in the third quarter last year.

Thus EBIT was $92.7 million, which was down $5.8 million, or 6% from last year, and you'll see the drivers of the change in the EBIT bridge in just a moment.

Interest expense was $14.8 million, which was higher than last year due to the additional debt issued for the financing of the Tegrant acquisition.

Income taxes of $24.4 million were just $1.9 million below last year, as the impact of the lower earnings before taxes was partially offset by a higher effective tax rate of 31.3% which was up from 29.1% last year where the rate was lower due to the benefit of the tax exempt life insurance proceeds.

Equity in affiliate and minority interest was in line with last year, thus base net income was $56.3 million, or $0.55 per share as compared to $0.66 last year.

Turning to the sales bridge, on slide 5, which reconciles the year-over-year change in sales, you see that volume was just marginally positive by $9.8 million for the Company as a whole.

In the Consumer businesses, overall volume was down 3.5%.

Unit volume in composite cans North America was down 3.5%, while in the associated metal closures business, total units were down 2% as the trade sales shortfall of about 7% was partially offset by an increase in inter Company sales.

Flexibles volume was down 3%, low molded plastics volume down 3% and thermoforming plastic unit sales were down 4%.

In the Industrial businesses, overall trade volume was actually up 2%, but this was driven by an increase in recycling activity and the sale of paper externally.

Volume in tubes and cores North America was only 1% lower year over year.

Volume in Europe was actually surprising as it was essentially flat as an 11% increase in the sales in the frontier countries to the east offset the 3% decline in legacy countries in Western Europe.

Overall, in Europe volume would have been down about 4% due to market demand, but we had a net share gain of a similar amount, thus our volume was again just down slightly year over year.

Asia volume was down 11%, but that was driven by the continued lower sales in China and in Thailand due to the impact of last year's flood.

We did see a nice improvement of 14% in tubes and cores South America, but that was largely due to a fairly weak third quarter comparison last year, but also some share pickup.

In Packaging Services, volume was up primarily due to more activity in international manipulation and fulfillment.

Moving down to price, you see that prices for the Company as a whole were down $31.9 million, driven by lower OCC prices impacting the paper and industrial converted products segment.

Many contracts in both paper and tubes and cores North America reset at June's OCC price of $125 per ton versus $150 in June of 2011.

Prices were also lower for recycling sales as OCC averaged in the southeast $92 per ton this year versus $173 for the same quarter last year.

Acquisitions added $120.4 million to sales, most all of which was related to Tegrant.

Although you don't see the comparison in our numbers, their overall sales were up 4% year over year and a 9% improvement in both the ThermoSafe and Protexic businesses was partially offset by a 14% decline in Alloyd.

Exchange and other miscellaneous changes negatively impacted sales by $27 million with translation sales in foreign currencies making up most of this amount due to the strengthening of the dollar against all major currencies year over year.

Thus bringing sales for the quarter to a record $1.195 billion.

Turning to the EBIT bridge on slide 6, you see that the volume change in mix actually resulted in a $4 million reduction to earnings.

The primary driver of the reduction was associated with the lower consumer volume, while the increase in paper and industrial converted products was driven by paper trade volume, which largely offset lower inter Company paper sales so there was no significant EBIT added.

And recycling sales were also up year over year but with very little contribution margin given the level of OCC prices.

Also, mentioned that Packaging Services volume was up but that increase was also in some of the lower margin activities as well.

Price cost was positive by $5.3 million for the quarter, and this was due to favorable price cost in both the Consumer segment and the Industrial-- Paper and Industrial Converted Products segment.

But I will mention that the favorable price cost in Paper and Industrial Converted Products was really not as strong as you might have otherwise expected by looking at prices simply in the southeast.

Most of our recycling activity is in the southeast where profit margins were eroded by falling prices and so margin compression as well.

And on the paper side, we did not see an offsetting benefit as about 50% of our OCC for use in our paper operation comes from other regions where the variance was not as favorable and only a portion of our total recovered paper is in fact OCC, and certainly not all fiber sources fell as much as the southeast OCC price.

Moving down to productivity, productivity was $4.1 million and was very light this quarter and was one of the primary reasons for lowering our guidance in September.

Much of the shortfall was in our paper operations where we had significantly more downtime than expected.

In terms of year-over-year comparisons, we did not see a significant number of additional down days, but productivity was negative due to higher fiber and other material uses and numerous operational issues at four [NO] different locations.

Productivity was also light in the Consumer segment driven primarily by plant consolidation activity in the thermoforming business.

Acquisitions added $9.4 million to EBIT, and this was again almost entirely due to Tegrant, and after interest, Tegrant was accretive to earnings by $0.02.

This was a little lighter than what we had expected due to lower sales in Alloyd and some operational issues, but overall synergies are coming in pretty much as planned.

The all other category was negative year over year by $15.6 million, and this was driven by several factors.

As I mentioned earlier, last year we had the benefit of some executive life insurance proceeds and some notable foreign exchange gains.

The balance of the difference is due to inflation and the impact of translation which negatively impacted EBIT by $2 million year over year due to the strengthening of the dollar.

And pension expense was $5 million, or $0.03 per share higher, driven primarily by the lower discount rate at the end of last year.

The EBIT was $92.7 million for the third quarter.

Results by segment are found on slide 7, where the Consumer businesses sales decreased 5.4% due to the lower volume while earnings were down 16% as the EBIT margin dropped to 9.2% due to the deleveraging of the lower volume and the mix of business, higher pension costs and the lack of other favorable income items last year.

For the Paper and Industrial Converted businesses, sales were down 6.2% while EBIT was down 12.6% as the margin dropped to 7.3% of sales.

In Packaging Services, sales were up 10% and EBIT up 6% with the margin down only slightly.

And results in Protective Packaging were of course driven by the Tegrant acquisition with the EBIT margin at 7.5%.

Now looking forward on slide 8, we are projecting that base EPS will be between $0.52 and $0.56 per share in the fourth quarter, which is up from last year's $0.46.

Our full-year base guidance is a range of $2.17 to $2.21 per share.

This guidance assumes no notable change in the level of economic activity, other than normal seasonality.

It also assumes that there will be no further change in OCC from the October price which moved from $75 in September up to $80, and we've also assumed that the effective tax rate is approximately 33% in the fourth quarter.

Our cash flow summary is on the next slide, where we're pleased that we had cash from operations for the quarter of $152.2 million as compared to $99.8 million for the same quarter last year.

The year-over-year improvement was driven by working capital, where we reduced working capital by $11 million in this year's third quarter versus an increase of about $36 million in the same quarter last year.

Some of the reduction is associated with lower OCC prices, which impacts both inventory and receivables.

Net capital spending was $40 million for the quarter, which was in line with our expectations, but is lower than last year due to the fact that we did have the proceeds from the sale of two vacated properties that partially offset the spending.

In terms of our expectations for the full year, we are now projecting that cash from operations will be approximately $410 million, net capital spending should still be in the $200 million range, and after dividends of $120 million, we would expect our free cash flow of roughly $90 million for the year, which is up $20 million from our previous projection of $70 million.

Speaking of dividends, you might have seen that on Monday, our Board of Directors declared a dividend of $0.30 per share, representing the 350th consecutive quarterly dividend dating back to 1925.

That completes my review of the results for the quarter, and we'll now open the line up for questions.

(Operator Instructions) George Staphos from Bank of America.

Thanks for all the details.

I guess my first question is around Consumer relative to Industrial and relative to the pre announcement.

From my vantage point it seems like Consumer perhaps was a bigger issue in the quarter then perhaps maybe you initially thought as relayed in the guidance and you said Industrial performed a little bit better than expected as the quarter came to conclusion, would you agree or disagree with that especially around Consumer and could you get into a little bit more of the details as to what happened?

George, this is Harris, good morning, how are you?

Hi, Harris.

Yes, I would agree with that.

When we came out with the pre announcement in the first of September, obviously we talked about volumes overall and we also talked about some inefficiencies in the mill system as a result of the fatality here in Hartsville and the downtime that we had taken in several of the mills.

And at that point in time we felt we were seeing Industrial and Consumer, but actually Industrial turned out as you pointed out a little better than we anticipated.

If you look at the Consumer, I think Barry said and I think the number was down about 3.5% overall, and if you look at a band, if you look at composite cans, it was down about 3.5% to 4%, flexible was down about 3%, low molded was down, and we'll give you little bit more color on that, but we attribute that to a couple of buckets.

One, we've got several of our large customers that are going through some structural changes in their business from [swinging] the business up to reforecasting to reformatting their businesses and we have seen volumes from those customers temporarily fall off as they go through this.

And I'm not going to say that somebody's eyes off the ball, but they obviously are focused on getting things done.

But we have seen the impact of that and in conversations with them, we have no reasons to think that that won't come back if not between now and year and certainly the first of the year.

And I would say that and consumer spending in general would count for George, I would speculate 90% and 95% of that shortfall.

We don't know of any business that we've lost, the only conversion that we are aware of out of composite cans was one that we talked about several quarters ago where as a result of a sale of the metal can business, one of our consumer products companies moved back to metal cans as part of that deal.

Other than that, we know of no conversion and no lost share in that business.

So hopefully that gives you some color on it.

It helps, Harris.

I guess the other thing that struck me though is that for all the we talk about or where that you talk about over time that you'd like to get to more of a consumer mix because it hopefully makes the business a little bit more stable, less cyclical, the decremental margin at Consumer with significantly more in Consumer this quarter versus Industrial.

Barry, you mentioned a few things, could you -- you mentioned pension, can you help us bridge the EBIT change relative to those three or four things that you had mentioned?

Because again 31% decremental margin is not what you generally assume for these businesses, at least I don't think so.

I would -- Barry will look at that and then do that.

George, I will say there was a mix of business in the composite can side and we also had some start up in the [Beauty Park] although Beauty Park in the blow molded business was profitable in the second month which was a great thing it came up fairly well.

There were some start up costs in there that would have affected the operating margins in the Consumer side as well.

But I don't think that certainly it changes our fundamental strategy of more Consumer orientation and growing the Consumer side of the business and we're quite comfortable that we can operate in that 10% margin that we've talked about and we have operated on.

Okay, my last question I'll turn it over.

To Protective, if we looked at what you performed at last year, I think you said it was about-- or you reported $3.4 million in EBIT, you said the legacy businesses which are a component of that were down about 10% and you mentioned that Tegrant added about $9.4 million in EBIT on a year-on-year basis.

When I make some estimates and add that $9.4 million, the EBIT that is reported this quarter at $10.6 million or so seems a little light.

Again would you agree or disagree with that or also what your expectations would have been?

And you mentioned Alloyd being the issue, can you give us a bit more color there?

Thanks guys, I'll turn it over there.

Yes, we'll try to do that George.

There's no question it was a little lighter than we would have thought.

I would put that in three buckets, a couple buckets as well.

The first one is that Alloyd is lighter than we would have anticipated it being on volume.

That was really twofold, one was a conscious decision by management of Tegrant, before we acquired them, to walk away from two e-bids that they had in the fourth quarter of last year, the third quarter, fourth quarter of last year.

I think if they had that to do over again, they probably would have done it, but nonetheless they did that.

And then, just overall consumer spending has driven the comps down in that business.

That's the first thing.

I think we've said before, I know Jack said it and I've said it and I think Jack has said it as well, that we underestimated when we acquired Tegrant the complexity of an integration that they were going through that they had made a year prior to us acquiring them when they acquired Createc.

And we felt the integration of that business was further along than it actually was.

So basically we spent the better part of two months, the first two quarters as well as some of this quarter doing some of the implementation that we felt had been further along.

And that continued to have some operating efficiencies issues in the plants in Protexic and ThermoSafe.

I think those are behind us now, or certainly should be by the end of the year.

And the third thing I would say about this business is, I'm pleased to say that we felt we would be at a $12 million run rate of synergies between our business and their business by year end, we're on track to do that.

And the acquisition is going quite well with the coordination with our other businesses, with growth opportunities particularly in the Service businesses in CorrFlex and so overall we're very pleased about this acquisition.

So hopefully that gives you a little color.

Thanks, Harris.

I'll turn it over.

Ghansham Panjabi from Robert Baird.

In your press release you talked about operating rates in your mills being higher just to build-- rebuild inventory post 3Q, can you just quantify the impact on the fourth quarter, if you can?

Barry, you may want to answer that.

Yes, certainly, as we described, we did have significantly more down days in the fourth -- in the third quarter that we expected.

We had about 175 machine days down and we were only expecting to have about 100 days down or so, and we'd expect a rate similar to that in the fourth quarter which would represent just normal downtime days.

That's right, we expect to put some 3,000 to 5,000 tons into inventory over the period.

Okay and then the working capital, excuse me, the free cash flow on upsizing, if you will, on guidance of $20 million, is that mostly working capital?

It would be primarily driven by a lower use of working capital than expected.

Got it, okay.

And then just finally can you just touch on inter quarter volume trends by the Industrial business, what you've seen there, that would be helpful, thank you.

Sequentially quarter to quarter, is that what you're asking me?

Exactly.

Yes, well going into the fourth quarter for both businesses we basically used our run rate that we see for both sides of the business and then adjusted it for the sequential adjustment we normally see.

And what that would mean in the Consumer is that we normally see a bit of a kick up in the first month, first 1.5 months of the year and then it tails off.

And for Industrial you're just running at a flat rate and then it falls off toward the end of the year in December.

So that's how we model that.

Okay and for 3Q did you see any deviation versus plan during any of the months or in the quarter?

Yes, we did.

Go ahead.

Yes, we did, Ghansham.

I think we clearly forecasted more of an uptick in the third quarter, more on what we normally see seasonally and we didn't see that in the third quarter.

For Consumer.

For Consumer.

Industrial was pretty much where we thought.

Okay great, thank you.

Scott Gaffner from Barclays Capital.

Just a quick follow up on that Consumer question.

If I look at the seasonality within the third quarter, I think normally you talk about October being the strongest month within the third quarter in Consumer, is that-- did that pattern still hold up or did you see -- what was the pattern that you actually saw within the Consumer segment during the quarter?

Well October is the strongest month in the fourth quarter and that's what we modeled going in from the current run rate.

I think in Consumer we see a little bit of a build toward the end of the quarter and we did see a little bit of that, but again, October falls into the fourth quarter for us.

Right, yes, no, I got that one, I just-- I meant September, I thought September was a strong month in the quarter for you in 3Q.

September is a strong quarter and it was down from what we expected it to be when we initially gave guidance and I would say it's about-- it was probably slower than it was when we gave the restated guidance as well.

Okay.

And just looking at the end markets within Consumer, I think you pretty much covered the food end markets but the non- food markets especially the Industrial end markets within molded and extruded and maybe the blow molded outside of the Beauty Park, what were the trends there in the quarter?

Well, certainly on the Industrial markets, that more from Protective Packaging, they remain very strong.

As we said -- as Harris talked about the integration, the acquisition in the Protective Packaging business, part of the complicating factors that volumes are so strong in those Industrial end markets, we're having to run higher volume across this integration that we're trying to manage as well.

So that -- they remain strong.

And I'd tell you on the plastics on the blow molding side, our issue really came down to our multi-barrier or multi-layer barrier bottles, customer had some production issues, but that is very much a one-time event, because we're actually installing a third machine right now to meet their increased demand going into next year.

So that really was the blow molding story.

Okay.

And then just last question on OCC, as you get further into the recycling business, how should we think about OCC more holistically versus lower OCC being a benefit on the mill system, but maybe being a negative impact within the recycling business, how should we think about those two offsetting each other and is there anything that you can do to improve or lighten the impact of lower OCC on the recycling business?

Well, certainly one thing we can do to improve the impact of lower OCC on the recycling business is to manage our costs and our cost structure the best we can.

But we are primarily a collection business, so we do have a cost threshold, if you will, that once the price falls below our cost to collect it, then we fall into a loss situation like we are today.

But we'll continue to manage that.

But as you noticed, at this point in time at lows, you see prices it does help us on the paper side until we have the quarter to quarter change and it impacts us negatively on the recycling side.

I can tell you that the forward projection for OCC is extremely aggressive out by (inaudible) and up substantially year over year for the next three years.

So, if that is any close -- anywhere close to being true, we would expect some solid performance from our recycling business.

Okay, thanks for the color, appreciate it.

Philip Ng from Jefferies.

The comment in your press release about how your customers are placing orders only for the amount they need, is that a new development?

I know order patterns have been pretty choppy for some time now.

No, I mean this is pretty consistent with what we've seen for the last 12 to 18 months, Philip.

And I think the thing that is a little bit more difficult -- the order patterns are what they are.

I think the other thing, I mean Jack touched on the one customer in plastics which has a huge market share and they're particular nutritional drinks and they just simply some one-off operational issues that they've got that will come back.

And then I think the comment that I made about two or three of our large Consumer customers that are going through structural changes in their business models, obviously created some temporary issues in the quarter as well.

Okay, that's helpful.

And I guess, Jack, I think you've talked about in the past that with housing did come back to a certain degree that would help volumes for your tubes and core business as well as margins, so has it been getting a little better, are you seeing a pickup as your (inaudible) tubes and cores business?

Well it's hard to say that we've actually seen a pickup, but I would tell you some of that relative strength in being at where we expected it to be is probably being played out because of the increase in housing, because paper mills we certainly saw some down -- some downward pressure on our paper mill volume business because of some closures and some other things we've seen.

I think as we continue to build housing and hopefully continue this start, I think it is 850 now is what I saw or heard, that it will manifest itself with some improved tube and core business and if we could just layer on that some general economic kick, I think that's what we've been waiting for.

Okay that's helpful just because granted there's been some one-off issues the last few years in your Industrial business, but if volumes do come back a little bit, how should we think about margins in this business that's been under pressure the last few years going forward?

Well, again, those two factors alone would have a significant impact on those margins.

It's a solid business, tubes and cores actually is doing quite well.

Okay.

We're pretty pleased with where we are with that business right now.

And I guess lastly, your balance sheet is improving as you guys pay down debt and as you look at 2013, should be a pretty strong cash flow year, so how should we be thinking about cash flow deployment?

And the last time we've chatted I think your customers are starting to pull you towards the margin markets, how should we be thinking about M&A for 2013?

Well I think the balance sheet is improved, we've dropped the debt to capital down below 45% from 47% something at year end.

But as we've said, when we bought Tegrant we would spend the next 18 months, 24 months making sure we get our debt down to where we want it in the 40% or below range and we will do that.

At the same time, you don't turn on the faucet all at once on M&A, so we continue to look and kick tires and we'll have a good balance of both of those things, Philip.

All right, thanks, guys.

Chip Dillon of Vertical Research Partners.

As we look at 2013 given that we're late in '12, can you give us a range of where you see CapEx going next year especially in light of how you're you seeing the markets particularly the consumer market and how that would compare to this year?

Okay, I think right now we're in the middle of our strategic planning, or our budgeting process, just finished strategic planning so we'll be rolling up the final budgets here in the not-too-distant future.

But right now, would expect our capital spending to be somewhere around $200 million.

Some of that driven by the continuation of the finalization of the Hartsville master plan and then driven by the opportunities we continue to see for expansion.

We have an opportunity for a new can plan in Malaysia that we've recently approved and there are several other opportunities around the globe in the snack market for composite cans, so we see that on the plate for 2013.

So about $200 million, Chip.

Got you, and if you look at the Consumer segment, could you remind us, as of -- as we exit 2012, what the mix is US versus non-US?

And as you think about some of the issues in the quarter at least related to the market, were those, and you might have addressed this and I missed it, but were those related primarily to the US or where they pretty balanced balance outside the US as well?

The predominance of that business is North America, probably 90% of it North America and the issues that I talked about, Jack and I talked about, were North America based.

Okay, got you.

And then just last question has to do with the OCC, you mentioned the sharp increase that (inaudible) has and I think if they're right, if we do see a tighter market globally, I would imagine -- well what we hear in Europe is a lot -- are a lot of the consumers talk about their grip on the market.

And obviously, something as fragmented as OCC does get sold ultimately to the higher bidder, that being said, you would think if you can collect it near your plant you should be able to outbid anyone else.

And how do you think about that and how do you view your grip on your supply both here and outside the US?

Well, I certainly would tell you that domestically, we believe that we're one of the premier service providers in the industry.

I talked a little bit earlier about the price of OCC has now fallen below our cost to collect.

One of the things that our customers talk about Sonoco all the time is that they know that when that occurs, we're still there.

We're still picking it up and you're still paying for it.

And I think that gets us that same loyalty on the other end when the price is high.

So I believe our ability to collect and at minimum pay for the mills is outstanding.

That is not a concern to me.

Got you, thank you.

Adam Josephson from KeyBanc.

You talk about composite cans earlier volume down 3.5%, 4% which represents an acceleration of recent declines.

What rate of declines do you think is reasonable to expect in future quarters based on all the issues you discussed?

I don't expect continued decline in composite cans, Adam.

I think we're working on any number of opportunities to expand the can and to grow sales in cans.

So in a normalized economy, I wouldn't expect an erosion in cans.

And what accounted for the acceleration in volume declines this quarter, Jack?

Well, I think it was -- I think Harris said earlier, it was a combination of three items and it mixed together a little bit differently.

We had some segments that were simply down year over year and we experienced the impact of that.

We had two to three customers that are making substantial structural issues and it's impacting their business and consequently it's impacting ours.

And with inside categories, there's always format changes that switch from quarter to quarter.

So, in any combination of those factors into the various sub segments would impact that demand.

Right.

One other on composite cans, you've talked about expanding internationally, I know you mentioned the Malaysia can plant earlier, can you just update us on your progress internationally there?

Well as I said we have the Malaysia can plant that's going in and right now we're evaluating opportunities in South America as well as in Europe.

Terrific, and last one also in Consumer, the higher cost that you referred to pension, labor and other, do you expect those to remain a drag on results?

I realize that lower discount rates affect pension expenses, but what about the other issues?

Well, again, certainly some of the comparison is the year-over-year change where again last year we had the favorable impact of trends -- foreign exchange gains and life insurance proceeds and so forth.

So that's affecting year over year.

Pension expense, we would expect to continue at this level depending in the fourth quarter and certainly next year's depending on where the discount rate ends at the year as well as asset performance.

Terrific, thanks, Barry, thanks, Jack.

Philip Gresh of JPMorgan.

I may have missed this but did you say what the impact of that unscheduled downtime was in the quarter on EBIT on the Industrial side?

Well the productivity miss that would be the collection of the Industrial downtime as well as the thermoforming issues we have in that consolidation, somewhere in that $0.05 range would be an accurate reflection of what it was, $0.05, $0.06 something along that line.

Got it, okay.

And then just on Tegrant, I believe $0.07 of accretion this year is your target, you seem pretty much on track with that.

But the early quarters I think in the first quarter it was actually dilutive and it sounds like you have some opportunities ahead here as well for next year.

So, is it reasonable to think that perhaps next year the accretion might be something like double what we're seeing this year, you see continued benefits?

Well as I've said, I think certainly the first quarter of the year we did see the negative accretion and that really went to that integration being behind schedule and the volume we were seeing.

We probably are not going to get to that $0.07 this year, that's going to be a stretch for us to get there.

I figure it may be in that $0.05 range or so.

But certainly do expect next year to see some acceleration of that accretion as we get a full year of all the benefits and have a better start to the year than we had this year.

Got you, okay.

And then just a follow up on Chips question about the CapEx, how much of that 2013 number is for the biomass boiler?

$25 million, $30 million.

Okay, so a more normal run rate would be more like $170 million then?

I think that's fair, $170 million, $180 million.

Okay, a couple other quick ones.

What's your outlook for resins in the fourth quarter?

I know polyethylene was up in August, I'm not sure if you saw any impact from that on your business, just what's your outlook for resins that's baked into your guidance?

Flat, not much movement.

Okay and then the last question just on Europe you talked about the share gains there.

Maybe you could just elaborate on that a little bit, what region of Europe are you seeing the share gains, what end markets?

Well it's been pretty widespread but I would tell you that that market is under pressure and that we have some competitors that are struggling a little bit.

And the fact that we are the global leader in tubes and cores and we are stable brings customers to us and we've been able to win some volume and we're pleased with the wins we got.

Okay, last question, do you have an outlook for pension for next year just given the impact of the Highway Bill, et cetera, contribution versus expense at this point?

We certainly don't have an update on expense for next year, because again it will be determined by whatever discount rates are at the end of this year as well as our asset performance.

And at least year to date, our assets are performing better than our assumed rate of return, so that will help to offset the impact of lower discount rates.

In terms of contributions, the HIghway Bill certainly will have benefit and should essentially eliminate any requirement to contribute to our defined qualified plan in the US.

So when you look at our total contributions this year, we're estimating to be in the range of $75 million or so, that should be cut in about half.

Great, okay, thanks a lot.

Mark Wilde of Deutsche Bank.

Harris, that doesn't sound like a South Carolina accent there.

Well it certainly is Mark, (inaudible) anywhere else I know of.

(Laughter)

I'm talking about the moderator.

(Laughter) I'm just curious, is there any carry over into the fourth quarter from these mill issues?

No.

No.

Okay and then just a follow up on what Phil was just asking about with the tube and core business over in Europe.

Are you actually-- are you seeing any shake out over there, because you do have a lot of small privately held competitors in that market?

I don't know, Mark, that we are seeing any shakeout.

They seem to hang on by their teeth or their fingernails or whatever, but we are seeing some indications that some of them are in financial distressed and I think in one case, one of the competitors, the French government has actually taken an investment in the business.

So there are indications of distress, but I haven't seen anybody shoot themselves, yet.

Yes, okay.

And is there significant difference between the margins you see in the European tube and core business that what you see elsewhere in the world?

No, if you look at contribution margins around the world in any geography, they're in a pretty narrow band.

In the tube and core business.

In the tube and core business.

Yes, that's what I'm asking about, okay.

All right, just two other ones.

With the display business or any of the Consumer businesses, does that give you any read typically on what we might expect in terms of the holiday season and sales in the holiday season?

Well certainly displays as well as fulfillment and even the Alloyd business is an indicator of what we should be getting -- what we should see for the holiday season and that's the time frame we're entering right now.

So we'll have a better feel about the middle of the quarter what we actually are going to see around -- I mean what the country will experience I think.

And what's your-- what would your early read be?

Right now, I would tell you that acceleration that we normally see, we've not yet seen it, but it could be just delayed a couple of weeks because of the shortening of the supply chain.

We just-- it's hard for us to know right now.

Okay, all right and then the last question I had.

Just can you talk a little bit about the acquisition environment and what you're seeing in terms of just properties available and valuation?

And remind us of what your focus areas would be as you're looking at acquisitions.

Yes, I will continue to follow on something Harris said earlier, our focus right now is of course paying down debt and identifying acquisitions for us around the world.

From an acquisition perspective, we continue to look at flexibles and blow molding and we continue to look in Southeast Asia and in South America and continue to evaluate those markets for opportunity.

There's certainly properties available.

There's certainly some good properties available, but as you know it's all about buying it at a proper price.

So that's where we are in the process.

Okay, that's very helpful, Jack.

Good luck in the fourth quarter.

Thank you, Mark.

Chris Manuel of Wells Fargo Securities.

A couple of questions for you, first if I could take a step back and take a big picture look at the Consumer business.

I recognize that volumes have been off 2 points here again and I know volumes have been soft for a bit.

But when we look at North American consumer spending, it's been reasonable and I know you did mention a few discrete items with personal care customers and some other stuff in composite can.

Is there anything structurally that, inflation or anything else, that you think shouldn't get you back to low single-digit growth again in that Consumer business over the next couple of quarters on a sustainable run rate?

Yes, when you do look at consumer spending I would say that it has been reasonable or fair, but you also then have to look at the categories that consumer spending has actually been propped up by.

I think I've recently seen data that says spending in electronics and those types of devices is doing well, and actually eating out is doing well or outside the home dining.

So what you're seeing in the food industry however in the numbers that you see from them is that the inflation and the price increases that went into food has certainly impacted their businesses in various markets.

And I think that's really what we're experiencing right now is the inflation in foods that people are experiencing and then if you add to that the customer interruption from there -- from the structural changes going on with inside the industry, that probably explains the bulk of what we're seeing right now.

And customer interruption or some other types, are those relatively discrete items, will those continue or is that essentially behind you at this point?

Well no, that's our customers changing their structure and I think that once they are through that, it should be over and done.

Okay, they haven't converted into something different, okay.

No, no, no, they're changing the structure of their business.

Some of them are splitting the companies in half and things like that.

Lots of fun things going on, but at the end of the day their product is still moving on the shelf.

The product is still moving, although that's some indication that there is some shortage on the shelves, some of the product that we are supplying and hopefully we'll see a rebound from this when they get their companies together and need to build inventory again.

That's helpful, that's exactly what I was looking for, I just wanted to make sure that there was no maybe change of format.

I'm trying to be very discrete in my comments.

Yes, no, I understand, okay.

No, I was trying to be discrete.

(Laughter)

If I could switch gears to Europe a second, I think you talked about total tube and core Industrial volume over there being flattish.

As you look forward, you talked about some share gains and some other elements, but the comparisons it was about this time last year when things really started to fall off over there for you, do the comps get easier that is flat going forward a reasonable assumption or could we in fact begin to see maybe a little bit of growth given the comparisons?

Well, I would certainly hope that it is flat at a minimum.

I don't -- I'm hopeful we don't see a repeat of last year.

I have no reason to believe we will.

So that would say that domestically the fourth quarter comparison should be up, and if we can get some resolution to pass forward for the United States and around the world, maybe we can get some economic growth or at least a path forward that would also help.

Okay, thank you much.

Good luck, guys.

Thank you.

Al Kabili from Credit Suisse.

I just had a question on Consumer, I guess it struck me as blow molding being down for the first time in a very very long time and I was wondering if you could just talk about what you saw there that's changed this quarter and with new products that also surprised me being it down.

Are the new products launching or ramping up I should say as you expected?

Well, let me first talk to new products.

We expect to have somewhere around $40 million of new products for the quarter, $38 million something and so we should in the fourth quarter and for the year be into $150 million again, that's excluding Tegrant.

So we're where we expect to be and feel good about that.

I want to go back to blow molding specifically.

It really is around a single event with a very large customer in a multi-layer or a multi-barrier -- multi-layer barrier bottle that had experienced some significant downtime that impacted us.

But to reiterate, we're installing a third wheel to that customer that's capable of generating some increased revenues next year.

So, I'm not concerned about that particular event.

Okay, got it.

All right.

I don't like it, but I'm not concerned about it.

Okay, no, that's very helpful.

I appreciate that.

Do you think-- I know you guys are underway a little on the private label side and the consumer, do you think that's hurting your growth rate relative to the industry and what's the opportunity?

I know that's one thing you're looking at expanding on, is there anything out a year in terms of the opportunity on expanding into more on to the private label side?

Well I'd certainly say that in the composite cans, we have a fair present in the private label side especially in coffee and some other brands.

Probably not as much in the blow molding area, but as we expand and as we get exposure to new customers, we're being exposed to new fillers who are pursuing us for more private label applications.

So, we do feel good about expanding our presence in private label in both flexibles and blow molding.

Okay, all right.

And then I guess final question for me is on China.

I know you talked about your Asian business being down double digits again in the third quarter, anything more recently you're seeing in China?

Is that so far getting a little better or what are you seeing more recently in China and how did that progress throughout the quarter?

Did it get-- the rate of decline get better throughout the quarter or same, some color there?

Thanks.

Really no improvement in China and continuing to drift down slightly.

Okay.

Small, but still drifting down.

Okay, all right.

And this is mostly on the textile side where you're seeing the--?

Well it's almost-- the business in China is almost exclusively tubes and cores although we do have a composite can facility that's actually improving, but that's more related to the customer we serve, but mostly it's all tubes and cores.

Yes and those are--

And textiles, it is textiles and high-performance films as well as some paper mills.

So it's really across all the products of our portfolio.

Okay.

All right, great.

Thank you very much.

Alex Ovshey from Goldman Sachs.

Couple of questions for you.

I may have missed this, but in the Consumer, can you please talk about the volume trends you're seeing by end market?

What you seeing in powdered drinks, refrigerated dough, snacks, et cetera?

Sure, provide a little more color around that.

Specifically, quarter over the quarter, we saw that powdered infant formula was down about 13%, powder beverage was down 16%, coffee down 16%, nuts down 9%, and then that was partially offset by snacks being up 4% and some of the miscellaneous food can sales up 7%.

Okay, thanks, Barry.

And then as some of the industry data I look at it's clearly showing that inflationary pressure for us as consumers are coming in at the retail level, are you starting to see that begin to positively impact the volume trend at all or do you expect that it will impact the volume trend positively going forward?

Yes.

Again, I think there's been inflation at base that we should and the economy it strengthens, we should see a basic improvement across a wide range of products.

Okay, thanks, Jack.

And then just switching topics here in the Industrials business, we saw a $50 container board price increase.

Are you going to see the price of the medium that you're selling out of Hartsville change?

We've seen the $50 increase in the medium.

And so that should be up a nice positive for that segment, would that be correct?

That is a positive.

And then on the flip side, I would think that Tegrant is a buyer of corrugated, are you budgeting a higher -- are you budgeting to pay higher prices for corrugated?

We are budgeting to pay some increase of corrugated next year, but we're going to do all we can to resist it.

Okay, I understood.

And that $50 increase in the medium is baked into our guidance.

Okay, that's helpful.

And just last question, Jack, you talked about a (inaudible) on OCC being pretty bullish over the next couple of years.

I mean I'm curious what are you seeing in your crystal ball for OCC over the next quarter and maybe into the early part of '13?

Well, what we're hearing now is perhaps a little bit of pressure on OCC that exports continue to be strong.

I expect that'll fall off in that December timeframe generation increase, so we expect it to fall through the first quarter like it would normally do.

And then if you get some normalize volume would begin to start to see the movement up around the beginning of the second quarter.

I would say it's going to follow a more normalized pattern, but we need to get through the next couple of months, because they are little bit abnormal because of the pressure that we see on OCC right now, which you don't normally see.

Understand, thanks very much, guys.

George Staphos from Bank of America.

A couple last quick ones really in the call to just finish up.

I guess the first question I had relates to M&A, you talked obviously deleveraging being your primary focus but you're being still attuned to opportunities that exist in the market.

And when we look at that and the returns that the Company has gotten from recent acquisitions and also the fact that you're gaining share versus a lot of your competitors say in Europe obviously in tubes and cores, I'm wondering whether maybe it would be a better strategy to keep growing your business and taking share and pairing your competition as opposed to buying them out, how would you think about that?

Well, George, I would tell you that certainly is our strategy.

That's part of the complete strategy.

I think when we look at acquisitions right now, our focus is on emerging market countries and our belief is, is that we probably need to buy capability in that market place today unless it's tubes and cores or composite cans.

In most cases, we would just Greenfield.

But in these other technologies that are little more new to us, we believe buying capability would actually enhance our capability to Greenfield going forward.

Okay.

And that was one of the questions I had for you, Jack.

At a recent industry conference somebody from Sonoco, one of your Senior Leaders made a presentation on plastic, flexibles and rigid plastic packaging growth.

And I think the global growth rate that you cited, although I think it was a consultant's report that you used as a source, was looking for something around 5% growth.

Is that the type of growth that you're seeing in emerging markets for films, for plastics, and that would suggest perhaps why you'd be looking for acquisitions there?

Certainly in some of our markets, absolutely.

Okay, so are you doing better than that or worse than that or that you think that's a fair barometer?

That's a fair barometer.

Okay, thanks for that answer, Jack.

I guess the last question I had on composites again, you have these episodic periods where competition tries to get into your markets.

There's been a little bit of that over the last 12 to 15 months.

From our vantage point, it doesn't seem like there's been much penetration by these new packages, these non-rounds in your markets.

Could you agree or disagree with that?

How would your non-round packages be doing, you've had them now for a long time, how are they doing in the market as well?

And good luck in the quarter, guys.

Thanks, George.

I would tell you that we continue to work with our non-round.

We believe it's a good format.

We hope to be able to take it forward at some point in the future for new opportunities, but it's competing against a very, very good product and that's the round composite can and to make it a cost competitive option isn't easy.

It requires a lot more work and there has to be a special application for it that would make it make sense.

And we would agree with your assessment of people knocking around and not making a lot of-- getting a lot of traction.

Okay, thank you all.

Thank you, we have no further questions in the queue for you, and I'd like to turn the call over to Roger Schrum for closing remarks.

Thank you very much.

For those of you that are interested in attending PACK EXPO International, which of course is our industry's largest trade show in Chicago on October 28 through 31, we certainly encourage you to come by Sonoco's innovations booth at McCormick Place.

Sonoco's booth is S1562 which is in the main hall by the way.

Barry and myself will actually be in the booth on Sunday afternoon and most of Monday.

So if you'd like to come by and meet with us, certainly you can come see us at that time.

We do have a limited number of complementary visitor passes and they're available by contacting my office.

Again our booth number is S1562.

Also electronic invitations are being sent today for our Annual New York Analyst meeting to be held on Friday, December 7 at the Grand Hyatt Hotel.

As usual, the meeting is scheduled to begin with breakfast at 7.30 AM and presentations will begin promptly at 7.55 AM.

And as usual, we'll try to be finished by 9.30, of course depending upon your questions.

If you would please RSVP in advance, and if you don't receive an invitation, don't hesitate to contact my office directly.

Let me again thank you for joining us today.

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

Thank you, again.

Thank you for your participation in today's conference.

This concludes the presentation, you may now disconnect.

Take care.