Sonoco Products Co (SON) 2012 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Sonoco 2012 fourth-quarter year-end earnings conference call. My name is Darcell 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).

I would now like to turn the conference over to your host for today, Mr. Roger Schrum. Please proceed, sir.

Thank you, Darcell. Good afternoon, everyone, and welcome to Sonoco's fourth-quarter and full-year 2012 earnings investor call. Today's call is being conducted on February 13, 2013.

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 issued before market open today and is available on our investor relations site, Sonoco.com.

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

I will 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.

Additionally, information about factors that could cause different results and information about the use by the Company of non-financial measure is available on today's news release and on our Company's website.

With that brief introduction, I will now turn it over to Barry Saunders.

Thank you, Roger. I will begin on slide 3, where you see that this morning we reported fourth-quarter 2012 earnings per diluted share on a GAAP basis of $0.42 in base EPS of $0.56, which compares to base earnings of $0.46 for the same quarter in 2011. These results were at the high end of our previously issued guidance of $0.52 to $0.56 per share.

Before reviewing the base P&L for the quarter, I will mention that a reconciliation of GAAP to base earnings is in today's press release. But just to summarize, restructuring charges of $8.7 million pretax impacted earnings by $0.05 per share after tax and these charges were related to previously announced restructuring initiatives and some other smaller reductions in force across a few businesses.

Other items excluded from base negatively impacted earnings by $0.09 and were driven by a small gain on a building sale being more than offset by $11.7 million in tax expense related to the repatriation of $260 million of foreign cash. I will provide more details of the impact of the repatriation a little later.

Turning to slide 4, you find our base P&L where you see that sales were $1.176 billion, which represented a 4% increase over the prior year. As you will see in the sales bridge, this was driven by the Tegrant acquisition, where we had five extra weeks of activity in 2012 as the acquisition was completed in early November of 2011. But it was also due to slightly higher volume for the Company as a whole. These increases were then partially offset by lower selling prices associated with lower fiber costs.

Gross profit was $204 million, which was $19 million higher than last year, also driven most notably by the Tegrant acquisition. Selling and administrative expenses and other charges were $113.6 million which were up $13, again primarily due to the Tegrant acquisition as the impact of wage and other inflation was offset by lower spending and other favorable net cost changes.

Thus EBIT was $90.4 million which was up $6.3 million or 7.5% from 2011 and you will see the drivers of the change in the EBIT bridge in just a moment.

Interest expense was $14.5 million, which was higher than 2011 due to the five extra weeks of financing costs related to the Tegrant acquisition. Income taxes of $23.3 million were $4.5 million below last year even though profit before tax was higher as the effective tax rate on base earnings was 30.7% as compared to 39% for the fourth quarter in 2011. The base rate was lower than we expected and notably lower than 2011 due to more earnings and lower tax jurisdictions and a higher manufacturers deduction.

Equity and affiliates and minority interest combined of $4.5 million was higher year-over-year by about $900,000. Thus base net income was $57.1 million or $0.56 per share as compared to $0.46 in 2011. This represents a 22% increase, part of which was due to the lower effective tax rate but even excluding the impact of the tax rate, earnings were up 8%, which we consider to be pretty good in this environment.

Before moving on to the bridges and the segment reviews, I will mention that we have changed the names of two segments to better reflect their activities but there have been no changes to the businesses included in those segments.

Packaging Services has been renamed Display and Packaging and Protective Packaging has been renamed Protective Solutions.

So now turning to the sales bridge on slide 5, which reconciles the year-over-year change in sales, you see that volume and mix favorably impacted sales by $15.7 million or 1.4% for the Company as an improvement in the Paper and Industrial Converted Products, Display and Packaging, and Protective Solutions segments were partially offset by the lower volume in Consumer Packaging.

Volume and mix combined negatively impacted consumer sales by about 4.5%, with much of the volume decline associated with lower food-related packaging.

Unit volume was down 2.6% in composite cans in North America while in the associated closures business, total units were off 4%. Blow-molded plastics bottle volume was off 4%, as was injection and extruded plastics. But thermoformed plastics continued to be weak where volume was off 10% due to lower demand for the dual-ovenable single-serve (technical difficulty) meal tray.

Flexibles volume on the other hand was essentially flat, down less than 1%.

In the Paper and Industrial Converted Product segment, overall trade volume was up just under 4% due to an increase in paper North America as external core board sales were up 8% and corrugating medium up 18% while recycling volume was also up 9%. But volume was also up just under 2% in tubes and cores North America and year-over-year, volume actually improved 4% in Europe as sales in the countries to the west of the legacy region as we refer to it were flat but more than offset by sales being up 17% in the frontier countries to the East.

Tube and core volume was up 11% in Asia as volume surged 20% in China primarily due to some share gains and Thailand increased 35% as they continue to recover from the flooding in 2011. The tube and core volume was essentially flat in South America.

In the Display and Packaging segment, volume was up notably due to more razors and blade packaging in both Mexico and Europe and higher volume in other European fulfillment activities.

In Protective Solutions, excluding the extra five weeks of sales from the Tegrant acquisition which we still show in the acquisition column, volume improved year-over-year for the two-month period.

A little further down the page you see that acquisitions added $47 million for the quarter and again that was due to the extra five weeks of Tegrant sales. But on a full quarter comparable basis, Tegrant sales were up 2% as a 4% increase in Protexic and a 9% increase in ThermoSafe was partially offset by a 13% decline in alloy due to customer losses earlier in the year.

In terms of selling prices, overall prices were down $23 million for the Company, driven entirely by lower prices in the Paper and Industrial Converted Products segment associated with lower OCC prices as many contracts in paper as well as tubes and cores reset at September's OCC price of $75 versus $175 in September of 2011.

Prices were also lower for recycling sales as OCC averaged $95 per ton this year versus $127 for the same quarter in 2011.

Translation, which makes up most of the exchange and other difference impacted sales positively but only by $6 million as the impact of translation was really insignificant to both sales and to earnings this quarter, thus bringing sales for the quarter to $1.176 billion.

Turning to the EBIT bridge on slide 6, the volume and mix impact on earnings was negligible at only $700,000 for the Company even though sales volume and mix was slightly favorable as you saw in the sales bridge. This was driven primarily by the fact that much of the lower volume growth for the quarter came from Display and Packaging, where an incremental margins are lower. Otherwise the benefit of the higher volume in Paper and Industrial Converted Products and Protective Solutions was essentially offset by the impact of lower volume in Consumer.

Price cost was down by $1.3 million as the impact of lower selling prices was essentially offset by the impact of the lower material cost.

Productivity added $13.9 million to EBIT this quarter and this was driven by good productivity in the Paper and Industrial Converted Products segment. Productivity was still somewhat light in the Consumer segment due to the deleveraging of costs associated with the lower volume and from continued operational optimization efforts in plastics.

The five extra weeks of Tegrant added $4.1 million to EBIT and as you see, our all other catch all category was negative year-over-year by $8 million and this was driven entirely by wage and other nonmaterial inflation. Again, this is where the impact of translation of foreign currencies would show up, but as mentioned in the sales bridge, it had a negligible impact on earnings.

And finally, pension expense was higher this year by $3.1 million or right at $0.02 per share driven by the lower discount rate at the end of 2011.

Results by segments are found on slide 7, where you see that for the Consumer Packaging segment, sales decreased 4.4% due to the lower volume while earnings were down 16% as the EBIT margin dropped to 8.6% due to the deleveraging of the lower volume and the mix of business.

For the Paper and Industrial Converted Products businesses, sales were down less than 1% as the impact of the stronger volume was more than offset by the lower selling prices but EBIT improved by 23%, driven by the leveraging of the volume and other productivity initiatives with the margin improving to 8.1%, up from 6.5% in the fourth quarter of 2011.

In the Display and Packaging segment, sales were up 19.5% due to the higher activity levels as I previously mentioned and EBIT up more than 100% and the margin improving to 3.5%.

And results in Protective Solutions were driven by the five extra weeks of the Tegrant acquisition and some margin improvement.

Now looking forward on slide 8, you find our guidance summary. Beginning with the full-year guidance, I will point out that our estimate is now that base earnings for the full year will be in the range of $2.26 to $2.34 per share. This is $0.02 higher than the projection we provided at our Analyst Day update in December due simply to the fact that pension expense is projected to be $0.02 lower as pension assets did perform better than what we had used in our placeholder for pension costs at that time, partially offset by the fact that we did lower our assumed rate of return on pension assets by 15 basis points.

We have included an updated overview of pension related matters in the appendix to this presentation as additional information.

Otherwise, the general assumptions for our outlook for 2013 are not significantly different from what was presented in December. For the first quarter, which is typically our weakest of the year, we are estimating that base EPS will be in the range of $0.50 to $0.54.

Moving from earnings onto cash flow on slide 9, you see that cash from operations for the quarter was $111 million and this was in line with our expectations and not significantly different from the fourth quarter in 2011. However for the full year, cash from operations was $404 million, a year-over-year increase of $159 million due to lower pension contributions and less of an increase in working capital.

Net capital spending was $45 million for the quarter and that was just a little lighter than what we expected as some anticipated spending in December actually rolled into January as well as the receipt of some property insurance proceeds and thus net capital spending for the full year was $183 million.

After dividends, this resulted in free cash flow of $36 million for the quarter and $101 million for the year, which is somewhat higher than our estimate of $90 million as provided in December, again due primarily to the lower-than-expected capital spending right at year-end.

For 2013, we are still projecting that cash from operations will be roughly $455 million, that capital spending will be in the $200 million range, so after dividends we would have free cash flow of $130 million which will be used primarily to repay the bonds that we have maturing in November.

Turning to the next slide, just a few details on the cash repatriation. We did move forward with the repatriation of $260 million of offshore cash with a very low effective tax rate on the transaction. The actual cash was not transferred before year-end and thus you might have noticed that our cash and debt balance was higher than the third quarter where previously we took advantage of temporary repatriation opportunities.

But since year-end, we have already received $233 million and most of the remaining $27 million will be received during the first quarter. Cash received so far was used to repay the $135 million bank term loan arising from the Tegrant acquisition and the balance used to reduce commercial paper.

As just mentioned, we are expecting to produce enough free cash flow to repay the bonds that are maturing in November and at that point we will have achieved our near-term debt reduction goals following the Tegrant acquisition.

There are some additional slides in the appendix for your reference but that completes my overview of the results for the quarter and we will now open up the line for questions.

(Operator Instructions). George Staphos, Bank of America Merrill Lynch.

Thanks, everyone. Good afternoon. Congratulations on the year. I guess the first question I had is on the volume trend in consumer. Can you provide a bit more granularity -- I appreciate the percentages but what your customers were saying was behind the decline. Is it the same old that we've heard from a lot of the other companies -- consumer retrenching because of higher food prices and are they seeing any light at the end of the tunnel in terms of the volume outlook for 2013? I had a couple of follow-ons after that.

Okay, George. Good afternoon. I would tell you some of that is of what we've heard -- we believe that there is weakness in packaged foods relative to the consumer demand. We also heard that there was significant inventory destocking that was actually occurring toward the end of the year, bringing inventories back down to preholiday levels, some impact I would guess from Sandy, minor format changes.

I would say the biggest issue, George, relative to volume in the fourth quarter for consumer was the way it actually occurred. We had a reasonable October. Volumes were down in November slightly but then they dropped off significantly in December, which was sort of the phenomenon we saw in 2011 on the industrial side and that creates a significant deleverage for us, but it was -- the way it flowed in was a little bit different.

Right. A lot of the companies who have echoed your comments, Jack, have said that backlogs have picked up in January now. You don't necessarily have backlogs in flexible packaging or plastic bottles. But have you seen a pickup in your January orders or what the customers are saying or it still fairly sluggish given the health of the consumer or however you are seeing it?

Well, what we actually saw was a continuation of the sluggishness for that first week, maybe 10 days, but then a solid pickup thereafter, so much so that I can tell you January is kind of within our expectations. And I would say on both volume and margin on the consumer side.

Okay, that's encouraging. I will ask one more question and turn it over. You had nice productivity in the quarter. Obviously it's good when you've got volume growth within the industrial segments broadly. Can you remind us what your productivity goal might be for 2013? What makes you most encouraged about being able to achieve that goal and what's your biggest concern about productivity as we head into 2013? Thanks.

I would tell you it's about $60 million, maybe a little bit more. It's consistent with what we have historically done and consistent with the fourth quarter. I think with a reasonable economic condition, some minor growth that we see in the business coming on, we should be able to deliver that number, I feel confident about that. I don't think we're going to have the hiccups that we had in 2011.

Okay. Thanks, Jack. I will turn over.

Scott Gaffner, Barclays.

Good afternoon. I just wanted to dig a little bit deeper on the thermalformed business. It was down another 10% this quarter. Are you seeing anything that could be changing there? I assume it's still pricing by your customers to their end consumers that's causing some of these issues with thermalform. But do you see maybe any opportunities to restructure that business, take some capacity out? And any potential for pricing to become less of a headwind?

Yes, I would tell you that actually a couple of things relative to thermalforming. Some of the negative productivity that we saw in the quarter and actually that impacted margins slightly was the fact that we were doing a consolidation of a facility that we have in Canada and moving it to our two facilities that are here in the states. So some of that actually impacted the quarter and we expect that to have a much improved run rate going into 2013.

As far as the volumes in that business, certainly it's around single-serve packaged food. That's what is driving our numbers and what I have seen as of late is promotion of single-serve packaged food used to say 10 for $10. I actually saw that in two different stores so I believe that there's going to be some promotional activities around those type of items and hopefully they will get a reasonable kick back up or at least grow their volume a little bit in 2013.

Okay. And then my second question is really around capital allocation. You repatriated the fund in the fourth quarter and you will do some more now in the first quarter. And then, Barry, I think you mentioned you will have $130 million available and you will repay some bonds in November.

Can you just talk about as we get through the end of this year, how you feel around your debt level and maybe what we can expect as we are moving into 2013 around capital allocation?

Well, as you laid it out, that's more or less what we are planning is to continue to repatriate some cash. We've already paid back the term loan. We have the bond coming due I believe the November timeframe and what that will actually do would be ahead of schedule. It would allow us to meet our commitment that we made to repay the moneys from the acquisition of Tegrant, as I said ahead of schedule, so we are very pleased with that. And then what it does is open up 2014 and 2015 to utilize that cash for any number of opportunities to advance shareholder value.

Thank you.

Ghansham Panjabi, Robert W. Baird.

Good afternoon. Jack, on the industrial packaging side, you do have some products that benefit from sellthrough either directly or indirectly into housing. Can you just give us an update on what you saw there during the fourth quarter?

I appreciate you bringing that up. I've been saying that for a while. Remind me to give you that 20 bucks I owe you.

You know, I think that what you saw in the economy was a slowing of industrial or manufacturing output during the second half of the year yet our industrial volumes kind of held firm domestically. And I believe that that truly was housing. It's hard for me as I said in the past to really put a finger on exactly what that's worth because I don't know where all these end products wind up that we wind on a tube or a core but it's definitely having an impact. And as we roll into 2013, and I think it's about 950,000 starts, I actually think it's going to be higher than that. So I think that there's some positive momentum around tubes and core domestically.

Also automotive production, you have fabrics and those types of products, tire cord going into automotive that is wound on a tube. And so I feel very good about that.

And I do want to mention the growth that we saw in the legacy -- excuse me -- in the frontier of Europe. We are expanding in Europe. We're opening up in Russian and some other places with some excellent opportunities so we continue to feel good about the growth opportunities that we see in the frontier part of Europe and the strengthening of tube and core in North America as the year goes on in 2013.

Okay. Then just quickly on pricing, you had a bunch of price increase announcements over the last few weeks. Can you just give us a status update there and do you feel pretty good about the success you are seeing so far?

That was announced for implementation about this timeframe right now with a converting increase following that. I would tell you that the support in the market seems solid. I think there's a need to recover this cost and I suspect that you will see some positive recovery from this.

Okay, thank you very much.

Ian Zarrino, Oppenheimer. And you do have another question that comes from Adam Josephson, KeyBanc.

Thanks. Good afternoon, everyone. Do you expect Consumer Packaging margins to return to the double-digit range this year or shortly thereafter? Is there anything structurally in terms of volume or mix that you think could prevent that from happening?

Well, I do expect consumer margins to return to double digit. As I said, the brief look that we have had at January is a very positive indication of that and nothing structurally that would keep that from happening. Now of course if volume -- it's volume-dependent but we see nothing right now that would keep that from happening.

And the mix issue that you talked about on calls is not a particular concern of yours at this point I gather?

No, not for the double-digit return number.

Okay, and then Jack, you've talked at length about the choppiness in order patterns that you've experienced over the past couple of years. Would you expect that to diminish to any meaningful extent this year or are you seeing really much the same thing that you've experienced in the last several quarters?

No, I would actually tell you as the year progressed on the industrial side, we actually saw less choppiness in the order pattern, more firm, more consistent orders.

So just a little more choppiness on the consumer side?

The consumer side, as I said, was just a pretty just steady drop from October reacting to market conditions and other things, so not a real change in order pattern as much as it was simply volume coming through the system.

Great. Thanks, Jack.

Phil Gresh, JPMorgan.

Good afternoon. First question on the first-quarter guidance, the midpoint of that guidance basically in line with last year's EPS. And so I guess I would have thought you had Tegrant which was dilutive last year's first quarter. I assume it's accretive this year's first quarter so you got that tailwind at your back. So I guess I'm wondering kind of what are the offsetting headwinds that you're seeing that makes you a little bit more conservative than that?

Phil, this is Barry. A couple of things to point out. First of all, pension expenses going up and again that will negatively impact the quarter by about $0.02, so that certainly is some headwinds that we are seeing. Shares, the effective tax rate is higher than where we certainly ended the year last year as we are projecting again that the effective tax rate for the first quarter and through really the balance of the year will be in that 33% range.

So right there is about $0.03 in total of headwinds that we are facing in the year-over-year comparison.

Okay, then I guess my follow-up question to that would be as we look at the balance of the year, you are assuming year-over-year EPS improvements but those particular items that you called out sound like they continue through the year, so I guess what are you assuming gets better as the year progresses?

Well, we are certainly expecting to see some volume growth this year both on the industrial and the consumer side. We have some one volume that's already into the mix and we are planning for it on the protective packaging side. We'll be opening a new facility for the automotive market about mid-summer and then one toward the latter part of the year also.

We have won a significant award for composite cans in Europe and we will be working to open that facility toward the end of the 2013 timeframe as well. So certainly some one volume that will be producing some nutraceutical and more plastic bottle volume coming on so we see some volume growth this year.

Got it. Okay. Any impact from the resin inflation we've been seeing on your numbers?

As we look at that, we kind of calculated what the potential impact is going to be. I think that what we feel is going to happen is that you're going to see this run up here, $0.04 to $0.05 maybe $0.04 or $0.05 in January then $0.04 in February, but then mellowing out after that and maybe trickling down by the middle of the year to be only slightly up on a year-over-year basis.

Of course our formulas allow us to recoup those costs on a fairly short timeframe, so outside of a significant spike, we should be fine from a price cost basis on resin.

Got it. Okay. My last question is just on protective packaging. Last year at this time you were kind of talking about double-digit margin potential as we entered the back half of the year possibly as a run rate and a little short of that. I was just kind of wondering how you are thinking about the margin potential of that business as we go through 2013 and the longer-term margin potential there? Thanks.

Phil, I think I'm on record as saying by the end of 2013 we should be at a double-digit run rate. I continue to believe that's the case. We certainly saw some automotive volume shortfall as we went into the December month that impacted those numbers. I think that business is going to operate at a fairly high level for this year and have strong expectations that we will move that to a double-digit margin business over the course of the year.

Okay, thanks. I'll turn it over.

Philip Ng, Jefferies.

Good afternoon, guys. Your display business was pretty strong during the quarter. It looks like you picked up some new business. That business tends to be a little lumpier at times. I just want to get a sense how sticky that is and is that any read through at all for more promotional activities this year by your customers?

I would say a bit of all of that. We certainly had a pretty strong quarter in our pack services -- our pack centers, packaging blades and razors. That was a positive month. We've recently won some significant business in what we have called our core flex business that will be coming on during the course of 2013. And I do think we are seeing an increase in this promotional activity of our customers. We certainly have that indication from some of our composite can customers that they are going to begin to do some more advertising and promotion of some of their key products during 2013, so a little bit of all of it.

Okay, then if I look at the macro data on the margin, things have improved a little bit and your tubes and core business has historically been a pretty good leading indicator. Are you seeing trends pick up in any different geographies?

I think we mentioned earlier we saw both North America picked up, Europe was up, really led by the frontier business. Asia was up and China was up pretty strong, which kind of points to their economy rebounding. We have not seen that pick up in South America yet but with their currency issue and their own internal issues, that could be a part of that. But on whole, like I said, I think that we're going to see a better year in tubes and cores globally just based upon improving economic conditions.

Okay and just one final modeling question. I think 2012 you guys had some startup costs around your plastic -- or your Consumer Packaging business mostly round plastic. How much of a drag was it in 2012 and do you expect any of that to roll off in 2013?

Phil, this is Barry. I don't have the specific numbers in front of me but I can tell you that that turnaround is certainly one of the reasons that we would see higher year-over-year productivity. So it's been fully considered in our estimate of productivity being in that $60 million range. And again one of the reasons we have been talking about productivity being off in a few of these quarters in 2012.

It should also help margins on the consumer side, our plastics business improving year-over-year.

Okay. Thanks, guys.

Chip Dillon, Vertical Research.

Yes, good afternoon. First, I didn't maybe catch this but what did you say the overall volume change was in the fourth quarter versus the 2011 fourth quarter in Consumer Packaging? What was that again?

The volume was off right at 4% year-over-year in Consumer Packaging.

Got you, okay. The next question is it is interesting that you all have repatriated cash. I don't recall in any industry hearing of that really happening very much and I was just wondering what the thought was behind that. Other companies have mentioned that they feel that unless there's a real compelling need to pay down the debt, it's pretty cheap money if they borrow it here from a back and you also run the risk of course of either a deal in Congress this year or maybe in two years or in four years that might bring that money home at a lower rate.

Well, we thought the overall effective tax rate to bring this back was pretty low and didn't expect anything to be coming through from a legislative perspective that would be any more favorable than what we were able to do with this.

What was that rate if you just sort of separated the tax rate on the repatriation piece?

It's about 4.7%.

Got you. Okay, I guess it can't get much lower than that. That's very helpful. And then when you think about the volume trends you mentioned and of course you are seeing signs of some improvement near term, but just taking a step back, you mentioned some of the plastics businesses. Do you -- does Sonoco have the potential if the volumes don't recover to the extent you expect to maybe take a more substantial look at the footprint? We often see other companies taking charges from time to time in the packaging world because they are able to greatly improve efficiency when they are in the segment, where of course the volumes aren't growing as fast as they expect and therefore with the productivity they can do better with their footprint with each individual plant than they could before.

So I just was wondering is that something we could see maybe not this year but in the next year or two?

It is something we actually did during the course of 2012 that we expect to impact 2013 regardless of any volume improvement so those improved margins on the packaging side are going to help improve the margins on the consumer side in general -- I'm sorry in the plastic side are going to help improve margins on the consumer side in general.

As far as going forward from that, given current levels of volume, we are pretty full.

Got you. Just so I'm clear, you mentioned you did it last year. I know you had something like a $20 million I think net charge. I see here I guess the restructuring impairment was about $25 million and could you just let us know what part of that was tied to -- actually was cash and how much was non-cash?

I don't have that readily available. We will have to get back to you with that, Chip.

But that total number sounds about right, though, 25 --?

That's correct.

Okay, thanks.

Chris Manuel, Wells Fargo Securities.

Good afternoon, gentlemen. A couple thoughts or a couple quick questions. One is have you or can you provide us the update? A lot of times you will give us the updated numbers on new business and where you are with monetizing the funnel?

I've not seen the fourth-quarter number but I fully expect annually we will be in that $150 million range.

Okay, so that's a pretty similar trajectory to where you've been?

Yes, it is, and that excludes any new products from Tegrant.

Okay, so a question as I go to the -- the protective packaging piece in looking at just what the stub period of Tegrant being year-over-year in the contribution, it looks like it was at about a 10% margin. If memory serves when that business came in, it was significantly lower than that. So it looks like you've made some good progress in improving profitability there.

The drive to get the whole protective business I think you said to a 10% or so level coming out of 2013, where does the rest of that come from? Is that further improvement within the Tegrant piece? Is that coming from some of the other pieces getting better or how should I think about that?

I think part of it is a carryover from the synergies, those synergies built during the course of the year and so we're going to have some carryover effect from the synergies. And I would tell you that operationally the business is going to continue to improve. I think that we have got several things tee-ed up and just the growth of the business across its asset base I think between those three pieces will drive those margins where we need them to be.

Thank you. Last question I had was with respect to exiting the quarter particularly in the industrial businesses, it sounds like you run a pretty good run rate with volume. Just remind us again of what's your anticipation by the different segments is for the full year and how that might differ with what we would see here in 1Q?

For the full year, we are expecting our industrial businesses to be up just under 1%. Our Consumer and Display and Packaging businesses should be up right around 2%, and Protective Solutions business is up about 5% with the growth opportunities we have in those businesses.

Okay, the trajectory is much different as you think about 1Q?

No, very much obviously -- we expect the year to build because all the indications were that this year would start slow and then ramp up as the year goes on.

Okay, thank you very much.

Mark Wilde, Deutsche Bank.

A few questions. First, in Consumer Packaging, did you mention how composite volumes did last year, composite can volumes?

You mean for the year?

Yes, the year and actually the fourth quarter would be helpful as well.

Down about 2.6 or something like that for the year and for the quarter.

Okay, if you were to break that out kind of regionally, can you give us some sense of how sort of North America might have moved versus other places? You mentioned you had a win recently over in Europe.

No, that was North America. The number I gave you was North America.

Okay and how is -- so that's North America. Then how are volumes doing outside of North America?

You know, they are up anywhere from 2% to 3% around the globe.

Okay, next area I wanted to ask about was just the guidance and I had a couple of elements in there. I wondered just if you look at kind of the puts and takes since you put out the guidance in December, have there been things that have surprised you on the upside and things that have kind of changed to the downside?

When you talk -- the guidance for the year?

I mean, your guidance is basically flat from -- even with where it was two months ago and I just wondered as you look at the business today versus when you looked at the business in December sort of what's a little better and what's a little worse?

Well, as far as we looked forward to 2013, we have not seen enough to kind of say one way or the other. So it's kind of exactly as we saw it back in December right now.

Okay and just another question on the guidance. If you look at sort of the midpoint there, you are essentially flat with where you were back in 2011 and you have clearly got higher pension costs but at the same time you've got a full year of Tegrant that will be in the numbers in 2013. So what else is kind of moving within your numbers that accounts for kind of flat earnings growth? Or flat earnings?

I'm not certain about that because I'm trying to -- I don't remember what 2011 actually.

It is in one of your slides there. You've got the 2011 number, the 2012, and then your forecast for 2013 and essentially you're really kind of flat between 2011 and 2013.

I think a point you made, we do have -- the pension and that's a piece of it. We also have shares, some share dilution along with that and I would probably say taxes from that period as well.

All right, then the last question I had is just are there any places in the portfolio, Jack, that you see right now that you think you need to do some work on where you are really away from say protective where you are really trying to work especially hard to improve performance or where you might even consider doing a little weed and feed?

I would tell you we are always looking at improving performance and in 2012, plastics was our focus to improve that performance. I think it will pay dividends for us in 2013.

As you mentioned, Protective was as well for us to kind of bring that on and improve that as we go. Mark, I would tell you that we always look at that.

In the whole, we are pleased with the portfolio. We are pleased with what we have. We have opportunities to grow this business not only domestically but around the globe. Core [flects] or services was an area we were looking at. We're seeing that kind of improvement that we were looking for, so I think those things are all going to be positive in 2013 but we are going to continue to look for areas to improve operations.

Very good. Listen, good luck in 2013.

(Operator Instructions). George Staphos, Bank of America Merrill Lynch.

A couple of follow-ups. You had given us the granularity within Tegrant in terms of volume changes and I think you Alloyd was down a fair amount. Could you give some qualitative discussion in terms of what was driving the volume trends there and for the other businesses?

And then I thought I heard you say you picked up some auto business within Protective. I'm assuming that's some cushioning or panel material, but if you could provide a little bit of color on that, that would be great. Then I had a follow-on as well.

Okay, first talk about Alloyd. Before -- right before we made this acquisition, they made a conscious decision to exit two large pieces of business and that number that you are actually seeing, those are -- that's the impact of that number.

20-20 hindsight, would they have made the same decision? I'm not certain, but we look to rebuild a substantial part of that during 2013 so we expect to get some of that back.

Jack, if you can comment -- maybe you can't -- what was the market that they exited at least for now?

Retail certainly, it was just a retail package. I'm not -- I can't really discuss the rest of it.

Understood.

But as far as automotive goes, we have won some new volume for parts that are going to be produced in the central part of the US and the demand is such that we need a facility there and we won some additional business in Mexico, Central Mexico, that the demand is such that we are going to be -- produce there as well.

Was this effectively share gain, Jack, or is it more reflective of the fact that the market is more buoyant and you needed the capacity or they needed you for that matter?

No, share gain is probably the right term. It is a conversion of new -- of metal stampings to polypropylene foam, so I guess that's share gain, it's a conversion that driving it. It's not the industry growth that's a part of it.

Okay, that's helpful. (multiple speakers)

I wanted to add on something relative to the Alloyd opportunity. One thing that we are seeing is the ability to use Alloyd in our core flex or display business to help drive an integrated solution is creating opportunities. We don't talk about that much because we didn't talk about those synergies, if you will, but we are beginning to see the impact and the capability of those two businesses together and that is going to help drive the business forward and that's part of that reclaim of business in 2013 that we lost before the acquisition.

Okay. That is a perfect set up for what my last question is. I think I know the answer then as a result but if we look back at the investments the Company has made over the years, a lot of them in Consumer Packaging broadly, whether it was thermoforming or the core flex business, plastic bottles more recently, one of the points of logic of building out a broader portfolio was to provide one Sonoco and hopefully being able to provide the customer solution for -- from beginning to end including recycling and recycling fulfillment.

We see some of these volume numbers in consumer and realize there was a lot of inventory destocking during the quarter. One might worry that maybe this strategy hasn't paid off like you would've expected.

Why would you disagree with that? What makes you hopeful that the integrated solution strategy will pay off going forward? Thanks, guys. Good luck on the quarter.

Thanks, George. I think that what gives us hope -- probably the wrong word -- but what we believe and what we hear from our customers is that there is definitely value in the integrated solution and in those accounts in our corporate customers where we have been able to create that one face more effectively, that's where we have won significant volume. We brought in the new products and were able to really leverage the power of Sonoco.

I think that one of the things we're working on, George, is how do we multiply that effect? How do we organize in such a way that really allows us to take advantage of this portfolio that we have and create greater value for our customers?

One of the reasons that Rob Tiede was moved into head consumer was that consumer will operate much better with a single leader who is able to pull all that together and drive that forward and that was why that organizational change was made.

Again the feedback from customers that they do see the value, us being able to deliver on a wider scale I think is the key, and that's exactly what we are focused on doing.

There are no further questions at this time.

Thank you again, Darcell, and certainly thank you, everyone, for joining us on the call.

I did want to remind you that Sonoco will conduct its annual meeting to shareholders on Wednesday, April 17, 2013, at the Center Theatre, which is at 212 North 5th Street in Hartsville, South Carolina and we will start that meeting at 11 a.m. Eastern time.

In addition, we expect to release our 2013 first-quarter earning report and conduct a conference call with our investors on Thursday, April 18. The conference call will return to its normal starting time at 11 a.m. Eastern time.

Again, thank you for joining us today and we always appreciate your interest in the Company and always if you have any further questions don't hesitate to give us a call. Thank you again.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.