Sonoco Products Co (SON) 2013 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q4 2013 Sonoco earnings conference call.

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

(Operator Instructions).

As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to Roger Shrum, Vice President of Investor Relations.

Please proceed, sir.

Thank you, Mark, and good morning, everyone, and welcome to Sonoco's 2013 fourth-quarter and full-year earnings investor call.

This call is being conducted on February 13, 2014, in a snowy Hartsville, South Carolina.

Joining me today are Jack Sanders, President and Chief Executive Officer, and Barry Saunders, Vice President and Chief Financial Officer.

A news release reviewing the Company's fourth-quarter and full-year financial results was issued this morning before the market opened, and is available on the Investor Relations portion of our website at Sonoco.com.

In addition, we will refer to a presentation that's 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.

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

With that, let me 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 earnings per share on a GAAP basis of $0.53 and base earnings of $0.58.

These results were towards the top side of our previously-provided base earnings guidance of $0.55 to $0.59 per share, as we had a solid quarter along with a tailwind from a lower-than-expected effective tax rate.

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

The difference between GAAP and base earnings in this quarter is due primarily to restructuring charges of $0.05 per share related to the previously announced white closures and other cost-reduction initiatives.

Turning to Slide 4, we find the base P&L where you see sales were $1.215 billion, which represented a 3.3 increase over the prior year, driven by higher volumes and selling prices, which will be explained on the sales bridge.

Gross profit was $221.2 million, which was $17.2 million, or 8.4% higher than last year, with our gross profit margin at 18.2%, improved notably from last year's 17.3%.

Selling and administrative expenses and other charges were $128 million, which was 12.7% above last year, which can be explained by merit and other inflationary increases.

Hiring incentive accruals, which I will provide more details on a just a moment, and having one extra day in the fourth quarter 2013 versus the prior year.

Thus, base EBIT was $93.2 million, which was $2.8 million above last year, and you will see all of the drivers of the change in the EBIT bridge in just a moment.

Net interest expense was $13.8 million, which was just slightly lower than last year.

Income taxes of $21.9 million were lower year over year, as the impact of the higher pretax earnings was more than offset by a lower effective tax rate on base earnings of 27.6%.

The tax rate was lower than we expected due to three primary drivers.

Those being the tax benefit arising from the mix of earnings, specifically more in common lower tax jurisdictions, most notably from some business interruption insurance recoveries, and the favorable settlement of one state tax audit as well, as favorable rate adjustments on deferred taxes in the fourth quarter.

Equity and earnings affiliates was $3.8 million, was down slightly from last year, and income attributable to non-controlling interest of $1.4 million, primarily from the share previously mentioned business interruption insurance.

Thus, base net income was $59.9 million, or $0.58 per share.

Looking first at the year-over-year sales bridge on the next page, starting with volume, volume for the Company was up 2.8%, adding $33 million to sales.

The increase was fairly broad-based with a nice improvement in three of the four segments.

Consumer volume was up 3.7%, driven by 5% improvement in composite cans in North America, and a 10.7% increase in flexibles.

Volume was also up 2.2% in our paper and industrial converted products businesses.

Tube and core volume was up 2% in the US and Canada, while up 5.6% in Europe, 8% in South America, and 7% in Asia.

Recycling volume was also higher in North America.

All this was then partially offset by lower reals volume.

And volume and protective solutions was up 5.3%.

The paper-based businesses, serving primarily the appliance industry, was up 16%.

The foam-based businesses, driven by automotive components, was up 3%, and temperature-assured packaging sales were up 3.7%.

Moving down to price, overall price increases added $21 million to the top line.

We saw an increase in the industrial businesses related to OCC prices, and our recycling operation OCC prices in the Southeast averaged $117 per ton in the fourth quarter 2013, as compared to an average of $95 a year earlier.

Our corrugating operation also benefited from higher selling prices.

Prices on contract sales in paper and industrial converted products were also higher, as the September price used to establish many contractual resets was $125, versus $75 last year.

A summary of OCC movement is included in the appendix for your reference.

Prices were also higher in the consumer segment due to some contractual and non-contractual pass-throughs.

Moving down the bridge, you see exchange and other was negative by $15 million, due most notably to the exiting of some recycling businesses in Europe, and to a lesser extent, translation of sales in foreign currencies.

The EBIT bridge, on the next page, explains the improvement for $90 million in 2012 to this quarter's $93 million.

As you just saw in the sales bridge, volume was up $33 million, and here you see, with a contribution of $11 million, favorably impacting earnings.

A little stronger than our average margin, due to favorable mix, particularly in the consumer businesses, but that was really spread across several businesses, and we had the benefit of higher intercompany metal in-sales.

On the next line down, you see price cost was favorable by $4 million.

Most of this was actually in the consumer segment, driven by supply management productivity.

Although selling prices were higher in the paper and industrial converted products segment, related higher-material costs offset that benefit.

Moving down the bridge, manufacturing productivity was strong again this quarter at $13 million, where we saw good productivity across many businesses.

All other costs were negative by $23 million, which is notably different than the cost change that you would normally expect, so I'll provide some more details.

Of that amount, roughly $12 million was due to normal non-material inflation.

Another $6 million was just due to the timing of incentive accruals, where in 2012 in the fourth quarter, business performance resulted in incentives being reduced, while in 2013, results were improving and incentives being increased to reflect what had been earned for the full year.

Then the one additional accounting day accounted for most of the remaining difference.

And finally, pension costs were higher by $2.2 million.

Results by segment are found on Slide 7, where you see that, for the consumer segment, sales improved 3.9%, due primarily to the higher volume, and earnings improved by almost 21% due to the higher volume, price cost, and productivity.

And the EBIT margin improved to 10%.

Paper and industrial converted products sales improved by 3.4%, due to the higher volume and price, but earnings actually went down, as other cost changes more than offset the benefit of the higher volume and productivity.

Other cost changes in this segment, more notable than the others, as in addition to the non-material inflation, we also had a $3 million swing in the reserves for intercompany sales that distort the year-over-year comparison.

Much of the previously mentioned incentive variance was also in this segment.

We also had some business interruption insurance recoveries, but it was really offset by the lack of some asset sales that we had in 2012 and the impact of exchange.

The lower earnings resulted in a decrease in margins to 7.2% for this segment.

Display and packaging sales and earnings were up slightly, with margins unchanged at 3.5%.

Protective solution sales were up 3.1%, but EBIT was down as the volume improvement was essentially offset by negative mix of business in this segment, and all other cost changes were then higher than productivity due to the non-material inflation, some plant startup costs, and some other year-over-year differences, resulting in an EBIT margin of 4.9%.

And now, looking forward on Slide 8, you find our earnings guidance, where we are projecting that our full-year earnings will be in the range of $2.43 to $2.53 per share, but we are targeting to achieve $2.51.

This target is $0.02 higher than the mid-point of the guidance we originally provided in December, to reflect our final estimate of pension expense for 2014.

Specifically for the first quarter, we are projected to earn between $0.50 and $0.54.

The first quarter guidance takes into consideration the softness we saw in January that has been largely attributed to the severe winter weather.

Our businesses are expecting to be able to make this up through the balance of the year, but the lower end of our full-year range just provides for some of that uncertainty.

The overall guidance assumes no significance, step change, and the level of economic activity, but does factor in seasonality, where the second half of the year is generally stronger than the first half.

It also assumes that OCC is in the $130 range from the second quarter through the balance of the year, and our effective tax rate is expected to be just under 34%, about 33.9%.

Moving from earnings to cash flow on Slide 9, you see that we had another very strong quarter in terms of cash from operations and free cash flow.

Cash from operations was $116.7 million, up from $5 million from last year, even after considering we've now recharacterized $22 million in tax attributes related to the biomass boiler investment at our largest paper mill complex from cash from operations to an offset in capital spending, and is the primary reason that net CapEx is now reported at only $27 million for the quarter.

So, after dividends, we had free cash flow of $58 million for the quarter.

For the full year, we ended up with free cash flow of $245 million, which was higher than our original guidance of $190 million, due to the working capital really coming in better than expected through the balance of the year.

We did spend $16 million on share repurchases during the quarter, but this was just shares associated with repurchases to satisfy employee tax liabilities on options that were exercised, and debt went down by $116 million, due to the repayment of bonds that matured in November.

For 2014, we are forecasting that cash from operations will be roughly $445 million, CapEx should be in the $185 million range, so after dividends, we would expect to have free cash flow of $130 million.

As previously announced, we do expect to repurchase approximately 2 million shares with part of this available cash.

In terms of cash from operations, 2014 is projected to be lower than 2013, as the change from higher earnings and depreciation will be more than offset by the year-over-year change in working capital, higher cash taxes, and higher pension and post-retirement contributions, which are projected to be $67 million in 2014 versus $42 million in 2013, as most of the benefit of the Pension Relief Act was recognized in 2013.

Our balance sheet is found on Slide 10 -- well, I'll just point out a few things.

As expected, the funded status of our pension plan improved notably at year-end.

Details are provided in the appendix to this presentation, but to summarize, the discount rate used to value pension obligations increased year over year from 3.94% to 4.81% on our domestic qualified plans.

The asset on these plans returned 9.3%, which compares favorably to our assumed rate of return of 7.65%, thus combined, reduced our funded obligation by $150 million, resulting in an improved funded status from 79% into 2012 to 91% in 2013, again, for our domestic qualified plans.

In total, the funded status on all plans, including non-qualified plans and international plans, improved by just over $200 million year over year, after giving consideration to the tax impact resulted in an increase in equity.

These factors also resulted in lower pension -- projected pension expense for 2014, as compared to 2013, by $16 million, which has been now considered in the guidance.

So, as a result of strong cash generation and the increase in equity from earnings, and the impact of the improvement in the funded status of the pension plan, our net debt to total capital improved to 30.7%, compared to 33.8% at the end of the prior quarter, and down from 39.9% at the end of 2013.

As mentioned in the press release, effective January 1, 2014, Sonoco Alloyd, a retail packaging business that is currently part of the Company's protective solutions segment, will be managed and reported as part of the display and packaging segment, the Company's consumer-focused retail-merchandising segment.

Although additional details and specifics will be provided in March in some re-casted segment information, I will go ahead and mention at this time, the annual sales for Alloyd in 2013 were right at $100 million, and the business reported a little less than $1 million in operating losses on average in each of the four quarters last year.

There are some additional slides in the appendix for your reference, but that completes my overview of the results for the quarter, and I will turn it over to Jack for some additional comments.

Thanks, Barry.

Let me provide some final thoughts regarding 2013 and additional color on what we see shaping up for 2014.

We asked a lot of our employees in 2013 and they delivered on their commitment.

I won't rehash the financial results, but on whole, a pretty good year.

I do want to point out the excellent strides we made in our primary focus areas.

For example, in safety, we injured 28 fewer employees.

We improved quality in customer satisfaction as measured by credits for returned sales by 12%.

We achieved $68 million in organic growth despite difficult global economic conditions.

Manufacturing productivity improved EBIT by $40 million, and we produced record cash flow and successfully managed working capital, driving a full day improvement in cash cap days.

We were also pleased by the improvement in consumer packaging volumes, which, combined with mix, was up a solid 3.7% in the fourth quarter.

Composite cans were up year over year by 3.3%.

Flexibles had a record year and was up 10.7%.

Blow molding was up 5.8%, and injection molded plastic was up 1.1%.

We have experienced four consecutive periods of year-over-year quarterly operating profit improvement in the consumer packaging segment, despite less than robust volume growth.

Obviously, we are pleased by that improvement, and it's a positive trend that we're keeping a close eye on.

In early December in New York, we said we thought that we had several positive factors that would help us in 2014.

Including lower pension expenses for the first time in three years, lower interest expense, due to debt reduction, and some positive momentum in driving organic sales growth in our consumer-related businesses.

Unfortunately, I am apparently not a very good weatherman, because I failed to predict the most severe winter in more than 25 years.

The weather has been very tough on our industrial and protective solutions businesses in January and early February.

Extreme cold weather has resulted in four of our customers' mills in the Northeast being down for extended periods.

Extreme cold has increased natural gas prices and resulted in some curtailments.

For instance, our Richmond, Virginia mill was down for four days in January, due to natural gas curtailments.

Several of our protective solutions plants had to be temporarily shut down, due to a combination of the closure of our customers' facilities and the ability to get workers into our plants safely.

In January alone, we believe we lost $0.03 a share due to a combination of customer curtailments, our own shutdowns, and increased cost associated with higher energy prices.

Unfortunately, difficult weather conditions are not letting up, and we've had to bring down our Hartsville complex for the past 48 hours due to snow and ice.

I will add, however, that so far, weather has not had a significant impact on our consumer packaging or display-in-packaging segments.

These businesses performed pretty much as we expected in January.

However, we can't ignore the fact that lingering winter weather may impact retail sales during this quarter.

As Barry mentioned, we are modifying our first-quarter guidance to $0.50 to $0.54 a share as a result of our slow start due to weather.

Obviously, the winter cold is not yet done and we could face further issues, but we are doing all we can to manage through this unusual period.

In addition, we're controlling discretionary spending to reduce costs now, and not waiting until later in the year.

I think many of you will remember we experienced a bit of a slow start in the first quarter of 2013.

Even after a tough opening quarter, we stayed committed to our base earning target of $2.30 per share, and ultimately met the commitment.

Despite what looks like another slow start in the first quarter, I remain optimistic that 2014 should be a record year for Sonoco.

We changed the low end of the guidance to $2.43 to reflect the slow start in January.

That said, we remain committed to a target of $2.51, which is at the high end of our guidance of $2.53.

I believe we still have opportunities to eventually benefit from a general improvement in the North American, European, and emerging market economies in 2014.

Furthermore, consumer balance sheets continue to improve, and they've proven they are willing to spend.

We are also gaining traction with several of our CPG customers regarding our proprietary customized solutions process we introduced in New York.

While it's still early, our customers are listening, and we are starting to receive requests for help versus requests for proposals.

Specifically, we expect to announce several new significant global consumer-related opportunities in the not-too-distant future.

Protective solutions should pick up steam as the year goes forward, and we're working to add new capacity in Mexico and Kentucky for our growing automotive customers.

And we're focused on turning around two underperforming businesses; blow molding and Alloyd.

We have new leadership in both businesses and will be driving for improvement throughout the year.

And we feel good about the underlying tube and core volumes, and believe they will improve as the year progresses.

If resin OCC or other raw material prices rise for whatever reason, we will have to pass on these increased costs to our customers.

In closing, we do face some early headwinds, but I like our chances.

Let me remind you we do have an excellent balance sheet, strong cash flow, and we expect to begin buying back at least 2 million shares of stock beginning this month.

With that, Operator, I will turn it back to you for any questions.

(Operator Instructions).

George Staphos of BofA Merrill Lynch.

I jumped on a bit late.

Apologies if you already covered this, Jack.

First of all, relative to the guidance, on the one hand, you are making sure we are mindful of the lower end of your guidance because of the understandable risks that have developed because of the first-quarter weather, and yet you are also suggesting that you remain committed to the $2.51 target within your guidance range.

And so, it's a bit of a mixed message.

I know it's tumultuous first quarter, but ultimately, what would you have investors take away from that?

Well, George, the takeaway, it's very hard to predict the future.

We can't see clearly into things that might impact us that are totally outside our control, and that's simply what we are trying to do.

I think that as we look at 2014 in total, I believe it's going to actually be a little bit stronger year that we may have thought going in.

So, of we can manage the business the way we're capable of managing it, drive the productivity as we should drive it, and leverage that little bit of increased volume, I think we can hit that target.

Again, I can't project the future.

Okay.

Fair enough.

Second question.

Can you provide any additional color relative to the revenue opportunity that you see from some of these initiatives that you will be announcing in upcoming weeks and quarters, related to your new approach in Consumer?

Well, I certainly can't talk specifically to them.

But during the course of 2013, we talked about improving composite can opportunities around the world, and we mentioned several specifically.

We talked about the gain in our Display and Packaging business of the Energizer brand, and we talked about wins in flexibles and the record year that it's had.

I can tell you that it's a continuation of those types of wins.

Okay.

With Alloyd, which has struggled for a couple of years now, and I think you mentioned in total, it lost about $4 million at the operating line for the year.

Is that correct, Jack?

That's correct.

What type of year do you think Alloyd had had in 2014, recognizing that we won't see it as a stand-alone entity -- it will be within Display -- should this be a 10% or better margin business this year, and should we count on that kind of swing this year?

Well, George, I think our expectations are, is that this business moves from a significant loss to a level of at least breaking even.

That's what we are driving for, and that's what we'll try to accomplish.

It's a volume-driven situation.

They need to have volume flow across that business.

And I will tell you now that right now, they are pretty busy.

They've been pretty busy during the quarter making tools.

Probably a better January than we expected from that business.

So, it's about driving volume across that business, or if they don't get it, we are going to have to really strip the cost.

That is the reason we aligned it with Display and Packaging, because a lot of what we do in Display and Packaging are sealed blisters with Alloyd machines.

So we believe that by putting it together, changing the leadership as we did, we have a strong chance to get that business going in the right direction.

That makes sense.

My last one, I will turn it over.

I realize it's difficult to predict OCC.

I'm sure as difficult as predicting the weather.

What's your view in terms of why we remain at these levels?

And I know you are projecting some inflation.

What gives you confidence that you will see OCC at $130 per ton?

Thank you.

I think it's remained at these levels because of the slowdown in the paper industry that we saw at the end of the December, and then of course into early January.

I talk about some of those shutdowns related to the weather and their demand for OCC.

That is certainly impacting it.

My projection now, however, is that with the severe weather, and I'm looking out the window, and this looks like Minnesota, not South Carolina.

It's snowing and absolutely covered in white.

I think OCC is going to go up, come March, because of this inability really to get fiber.

It's going to be driven by a lack of supply against the known demand.

So, I expect it to jump up as much as $10 a ton.

Ghansham Panjabi, please proceed.

It's actually [Nate Hodalia], speaking for Ghansham.

How are you doing?

Good morning.

What do you have embedded for your 1Q guidance related to weather?

I'm sorry?

What do you have embedded in your 1Q guidance related to weather?

That is $0.03 from what we've experienced so far.

So, no additional headwinds from weather in your guidance?

Well, again, within that range of $0.50 to $0.54, that would encompass what we would expect.

But again, that is before this particular event, and if there's another one, there's no more in it to cover it.

Okay.

Great.

And given the spike in natural gas recently, can you update us on your annual needs, and how much you are hedging in 1Q, and for the full year?

Yes.

Natural gas, we hedge a good bit of our buy.

I would say we are about 70% hedged or so.

But, the issue that we've experienced from natural gas has been certainly the spot market that we have to buy that 30% since open.

Part of the way we buy gas is on an interruptible basis in order to keep costs reasonable, and that's what actually hurt us during the January February timeframe.

They interrupted our gas supply.

Great.

Last question.

Apart from weather, any region on the macro that gives you concerns?

Generally speaking, it seems as though the US is muddling along and Europe seems to be recovering.

Would you agree with that?

Actually, it's quite the opposite.

Outside of the weather I feel very good that the domestic economy is going to click along.

I'm one of those three plus percent guys.

I see some positive domestically.

I think Europe is going to begin to recover on a consistent basis.

I don't think it's going to be 3%, but I wouldn't be surprised to see a 1%, 1.5% like we saw in the US coming out of the recession.

So I expect that to improve.

China's off to a good start, and I think it's going to continue to improve, as well.

So as I look around the globe, and I see some of the things we're doing on the Consumer side of the business and the consumer spending levels, I'm encouraged by the other signs, and that's why we are staying with that commitment of $2.51.

Great.

Thank you.

Philip Ng from Jefferies.

Stay warm and drive home safely.

Just quick question on the Consumer business.

It's great to see volumes turn positive.

Can you give some color on what's driving that?

Is that share gains, the initiatives you guys are trying to implement on a go-to-market strategy?

I will tell you some of it is certainly share gain and new-won volume.

We talked a bit about that during the fourth quarter, around the globe in cans and in flexibles.

For specifically for the fourth quarter, certainly share gain.

But really, it was simply a demand increase and was across virtually all of our platforms.

So that was very solid.

I know one of the flexible guys has been pretty vocal about price increase.

I don't think you guys have a lot of overlap.

Are you seeing share gains due to -- their activity on the pricing front or do some of the initiatives you're pushing forward with end the relationships you have with their customers?

No.

I would say we've seen very little based upon price increases.

Matter of fact, most of our prices in flexibles are covered in a contract that adjusts on a quarterly basis.

So -- and we've not really pursued any others on price alone.

Got you.

Okay.

That's helpful.

Jack, I know you have this theory that your tubes business is tied to housing in a certain degree.

Are you seeing a little more flow-through in that business?

And do you want to highlight any color from a demand perspective on some of the end markets that you are servicing.

Not today.

(laughter)

I do think there is connectivity, and I do think that housing should wind up being pretty good in 2014.

I think we'll see it flow through in some volumes for the tube and core business as the year progresses.

Okay.

One last one for me.

On the pack service and Display business, topline was a little lighter than I would've expected.

I know that contract business tends to be a little lumpier.

What kind of volume did you see on the Display side?

I think the volume was flattish for that business on a quarter-over-quarter basis.

But that's a business that, to use your word, it is lumpy.

It's dependent on the way our customers are going to promote and when they are going to promote.

So, I wouldn't read anything into that particular situation.

Okay.

Thanks, guys.

Adam Josephson from KeyBanc Capital Markets.

Jack, in Consumer Packaging, really good performance.

You earned a 9.9% margin for the year, which is higher than each of the past two years, though lower than what you earned in 2009 and 2010.

What do you think is a sustainable margin for this business, particularly in light of the strength you've seen in composite can volume of late.

I certainly think we have some room to go to improve our blow molding business, and it's an area we are focused on.

I would say consistent with what we said for years now, we believe this business is in that 10% to 11% range.

I'd like to see us begin to push it toward the 11% number with improving blow molding.

We are just going to be in that range I believe.

That's a good place to assume that those margins will stay.

Okay.

And similar question in industrial, Jack.

You've been in the mid-sevens in terms of EBIT margins, on average, over the past four years.

Is there any reason to think that will change anytime soon, based on what you are saying in terms of volume, pricing, et cetera?

Well, the final quarter 2012, it was at 8%, I think on total, I do think that it can change.

I think it's going to require some improvement in volumes across the US footprint.

And the same in Europe.

I think that we can improve our margins globally.

And as we improve margins globally, that will help will those margins up a bit.

But volume across the US business is going to be the primary mover of margins in that business.

We've said that it can get back to 10% margins as a business, but that's going to take several years of positive 3%-type growth in order for us to get that volume back to the level it needs to be.

Thanks.

One last one on OCC.

Jack, I know you talked about expecting OCC prices to go up, perhaps in a month or two, on account of the weather.

If the US economy really is picking up, and if China is pretty strong, I would think that would drive up OCC as well.

Would you agree with that?

Absolutely.

What I've said was that it should go up, the March release, about $10 due to weather.

And then I think it should go up, probably during the first or the second quarter, because of demand.

Got it.

Thanks very much.

Appreciate it.

Chris Manuel of Wells Fargo.

A couple questions.

First, let me start with a trajectory through December.

I appreciate that understanding weather and elements of the crystal ball as we look out through the year can be tough.

But, as an example, if I look at the $0.58 you did, there was about $0.05 related to tax that came later, it seems like, later in the quarter.

If I look at what you had told us or anticipated the tax rate would be in the first week of December for the balance of the year, it basically implies there was a pretty good drop-off in something operationally or above the line in the business the last four weeks of the month.

Can you give us a little color as to what changed so dramatically in December?

That slowed down?

Maybe a little color.

I appreciate weather and some other factors have hit you here in January and certainly into February, but what gives you confidence that we will see a pickup in volume over the balance of the year?

Chris, this is Barry.

Let me add just a couple points of clarification to the tax rate.

First of all, you have to be a little bit careful and look at the tax rate and minority interest combined.

Because we did receive some business interruption proceeds, and they came through as a result of transferring the value to that to our business entity in Thailand.

They essentially came through without any tax liability on them, but then of course we had to partially offset that with our partners' share of that in minority interest.

In addition, there were two other discrete events that really weren't expected until we finalized the tax analysis of the balance of the year.

We ended up with one favorable state settlement, as I mentioned, and also some year-end adjustments to the rates used to calculate deferred taxes.

So, that being said, net-net we looked at it about $0.03 overall in terms of that.

In terms of business performance, really, --

Chris, let me talk -- about the volume in the Consumer business was steady and flowed steady across the quarter.

In the industrial and protective business, it was pretty good in October, it was pretty good in November up until the holiday.

Came back pretty good for the first couple weeks of December, and then dropped off sharply in both industrial and protective, as that Wednesday Christmas, that kills weeks.

We had customers that say -- We are going down, we are going to be down for two weeks.

Automotive customers were down for two weeks.

So that de-leverages December pretty good on those two businesses.

I think it's situational.

It was an issue with perhaps their inventory levels and the way that they want to come back up.

I think it has nothing to do with the economic run rate.

I just think it was situational, those businesses, and the timing of those holiday periods.

Okay.

That's helpful.

But maybe just a follow-up to that.

I do appreciate, and you addressed this in your early commentary, that 1Q comps were pretty low, that you are lapping against, but we are having some continued issues.

I know for the full year, you talked about you re-anticipated Consumer volumes to be up a tick less than 2%, industrial volumes to be up a bit better than that, to get to something in the low 2s together.

Appreciate that we may be behind that a bit here in 1Q.

What gives you confidence that the balance of the year will accelerate?

What are you seeing?

I appreciate you got an order book and a funnel in front of you, and you talked about some new wins in some areas.

But what gives you some of the confidence that we may see that 3% acceleration?

Chris, I have several letters in hand from both mills, but mostly automotive companies that talk to us about, they are going to make up the volume.

They know they are behind because of the weather.

They expect us to start running on the weekends, they expect us to be at their level and their run rate, saying they will make up this volume, and we need to get ready.

So, that gives me the confidence that the economy is improving and we are going to see the run rate.

That's helpful.

And then, if I could just switch gears a second and talk for a moment about the alloy business.

Could you give us a couple of elements here?

One, a little color historically.

What have volumes been like over the last year or two?

I think you acquired that business about two or so years ago.

Two, three years ago.

What have volumes been like the last couple of years?

And I appreciate that the objective is to get it to flat, maybe this year, if I heard correctly.

As you look forward, say 12, 24, 36 months, can the margins there look more like the new segment that it's going into, you mentioned is Display, and that has mid-single-digit margins.

Is that maybe a reasonable destination for that business as we look out 24, 36 months?

Well, yes, I think when we bought that business, they had lost a large piece of volume right as we bought it.

That put them behind the eight ball.

I think in 2013, they struggled from a manufacturing perspective, in a few areas, with volume staying more or less flat, but we began to struggle from a manufacturing perspective.

I think that's behind us now.

I think we got through that.

And we -- Energizer was that customer they lost right before we bought them, and now, the Energizer business has come back to them, or pieces of that has come back to them, through the large win we had on Display and Packaging side.

And more of that type of working together so that we can win those types of volumes, I think, are going to drive the volume across the Alloyd business that we need to improve this performance.

That's helpful.

What is the objective over the next couple of years?

Maybe you don't want to throw out there a hard target.

Can it look more like the rest of that Display and Packaging unit tight margin, when we get forward at some point?

I will tell you, historically, it's been a lower margin business.

It's been a 6% or 6.5% EBIT margin business when we bought it.

It was one of the lower pieces of that business.

Personally, I believe it should be much higher than that.

So, we are going to try to drive it through to their significant investment in design and in customer service.

I believe we should have a higher-margin business, pushing at up into that -- I don't want to throw out a target because I'm not sure, but I would expect it to be somewhere in that 8% to 10% range.

Oh, wow.

Okay.

Thank you.

Good luck.

(Operator Instructions).

Al Kabili from Macquarie.

Jack, on the $0.03 that you called out for the weather, interruptions, I don't see how this is handy.

Any sense of what volume might have been, versus cost?

Are the two roughly split equally in terms of the headwind there?

No.

I -- with that cap rate obviously there is a volume impact, because when you're down you're not selling.

I don't have that number.

Okay.

With the unplanned outages that you've had on some of the mills, any risk to productivity for the full year?

Certainly we are going to have to make it up.

We are not going to get it in January because of those costs.

But as I said earlier, I expect volumes to be a little bit better than we may have anticipated, and so I expect those increased volumes to drive productivity.

There is no doubt we have a solid, strong productivity target this year, but we are focused on driving toward that number.

Okay.

On the industrial business and the tubes and cores side, do feel right now -- in the fourth quarter, your costs were a bit above your price when you factor in non-raw and raw cost inflation.

How are you feeling in the first quarter from a price-cost spread?

Do have enough pricing right now to cover your raw non-raw inflation?

Well, I think our price-cost at the gross margin line is okay at the time being.

At these prices, and costs continue to rise, we are going to have to go out with an increase.

Right now, at this point, we are okay.

As far as the fourth quarter, those increases in the fourth quarter, to Barry's point, one of them is an internal measure.

It gets really confusing.

But that was about $3 million and then the incentive tick-up that really was across all businesses, but heavily to the industrial businesses, together those had a significant impact on the EBIT number inside the industrial businesses, of up to $9 million in total.

So, if you took those out -- and the fact that we had to pay incentives, that's necessarily a good thing.

That's a good thing.

You take those out, it's a much different picture than what was painted in the fourth quarter.

Okay.

That helps a lot.

Thanks for the clarification.

Final question for me is on the protective business.

And if we -- understanding some of the challenges we've reviewed on the Alloyd side, if we strip that out, would the protective business have been up earnings-wise year-over-year?

I know you've got some start up costs with that new plant in Mexico.

I'm just trying to -- if you could help us, how we should be thinking about ex-Alloyd, the trajectory of earnings there, and how you're thinking about these startup costs, et cetera.

Certainly, if you stripped out the Alloyd situation on a year-over-year basis, protective would certainly be up year-over-year.

It would be up in that 5% to 7% range, I believe.

So, that's a positive.

I think the wins that we are getting in Alloyd are significant.

We are opening up the plants.

There are startup costs.

In Mexico, we're saying startup costs.

They are certainly there, but they are PPAPS, and first-part approvals; they take a while to get done.

So the plant is an approved source.

That's what we're going through.

I expect that volume to continue to do well during the course of 2014 and improve again over 2013.

Okay.

Great.

Thanks very much.

Alex O'Shea of Goldman Sachs.

A couple of questions for you.

First, on the amount of raw material inflation, which I think you said was $12 million, would you be able to give a little bit more color around what's in that bucket, and how you are thinking about that number for 2014?

Yes.

That really is just all inflation outside of material and energy costs, Alex.

It's just across the board for labor and everything else, and that $12 million would really be a pretty good average run rate for the quarter.

For the full year, we would expect it to be in the $45 million to $48 million range, is generally what we expect.

Okay.

Got it.

That's very helpful, Barry.

And in the Consumer business, when you talk to your package solutions customers, specifically, are they giving you any visibility at all on what their volumes could look like in 2014, or at this point they are saying that it's been pretty soft over the last couple of years, so there's just not much to be said until we do see any change?

Is there any visibility you are getting from the packaging solutions customers right now?

No more than we would normally.

I would say they're probably pretty pleased with some of the volumes they saw during the fourth quarter.

Going into 2014, I've heard of nothing that would suggest they expect significant improvement, but I certainly think they're going to be trying to push their brands.

We have a lot of promotional activities to gain back their share in the brand.

So, I certainly expect some of that.

Last quick question.

On the share buyback of 2 million shares, would you guys say that you expect to be up pretty evenly throughout the course of 2014?

Yes.

We would expect to make that share repurchase evenly throughout the balance of the year.

Got you.

Thank you very much.

Chris Manuel of Wells Fargo.

One quick follow-up.

Actually two.

If I could take a walk through, it sounds like you're seeing some inflation with natural gas issues right now, with potential with OCC as the year progresses, some other elements.

If you could handicap, or take the temperature of, the environment and whether you are looking at converted products, reducing cores, or other pieces, or whether you are looking at board or what have you.

How would you feel the environment might be with respect to price, whether it would be receptive to -- take the temperature of what you would think for the pricing environment?

Well, the pricing increases are never received with open arms, and you have to work to get them in and get them done.

All in all, those costs are up and they're justifiable; I think we'll be able to move the price as we need to recoup any increase due to inflation.

Okay.

As I look across your other piece of the business, most of it's contractual through the consumer, so you kind of have a set mechanisms there.

Are you seeing significant other material inflation yet?

Are you anticipating it?

Is there potential you could end up being a little behind earlier in the year and then catch up in the back half of the year?

How are you thinking about that at this point?

Well, I tell you, clearly that part of the issue in the protective packaging business is we got behind the price-cost curve during the fourth quarter, and we're out with two price increases now, to recoup some of that.

And we expect resin to rise.

It's rising, it's moving.

We expect to have adjustments beginning in the beginning of the second quarter to cover those increased costs on the Consumer side, and we will do it as necessary on the protective side, as well.

Okay.

Thank you.

I would now like to turn it back over to Jack Sanders, CEO, for closing remarks.

Actually, I will take the close, here.

This is Roger.

Again, I want to thank everybody for participating in this call.

I did want to remind everyone that our annual shareholders' meeting will be held at the Center Theatre at 212 North 5th Street in Hartsville.

Hopefully it won't be snowing then.

But that will be on Wednesday, April 16, and it'll be -- start at 11 a.m.

In addition, we will host a conference call to review our first-quarter earnings on April 17, 2014.

As usual, a news release will be issued before the market opens, and then we will hold our normal conference call at 11 a.m.

Further information on both the annual meeting and the earnings conference call will be sent out in the near future.

Again, thanks, everyone for participating on the call today, and appreciate your interest in the Company.

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

Thank you.