Sonoco Products Co (SON) 2014 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the quarter four 2014 Sonoco earnings conference call.

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

(Operator Instructions)

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

And now I would like to turn the call over to Roger Schrum, VP Investor Relations.

Please proceed, sir.

Thank you, Emma.

Good morning, everyone, and welcome to Sonoco's fourth-quarter and full-year 2014 earnings investor call.

This call is being conducted on February 12, 2015.

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 financial results was issued before the market opened today and is available on the Investor Relations website of sonoco.com.

In addition, we will refer to a presentation that is posted on the Investors site as well during the call.

Let me remind you that today's call contains 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 today in today's news release and on the Sonoco's website.

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

Thank you, Roger.

I will begin on slide 3 where you see that this morning we reported 2014 fourth-quarter earnings per share on a GAAP basis of $0.53 and base earnings of $0.66.

This was in line with our expectations as at our Analyst Day in December we indicated that we expected to be at or slightly higher than the top side of our guidance from October, which was $0.59 to $0.64.

This compares favorably to base earnings of $0.58 for the same period in 2013.

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 and summarized on this slide.

$0.09 of the difference is due to restructuring and asset impairment costs, most of which are related in some way to the Weidenhammer acquisition.

We also had $0.04 in costs directly related to the acquisition, including acquisition-related transaction costs and the impact of the step up in inventory value as part of purchase accounting.

So turning to slide 4, you find our base P&L for the quarter where you see sales were $1.318 billion, up 8.5% over the prior year, and you'll see all of the drivers of the change on the sales bridge in just a moment.

But obviously the Weidenhammer acquisition notably impacted sales, but organic volume was also stronger.

Gross profit was $249.6 million, which was 12.8% above 2013 with the favorable variance driven by volume and the benefit of the Weidenhammer acquisition and from strong productivity.

S&A and other items were $140 million, $12 million higher than the same period in 2013 due to the impact of the acquisition, as well as higher management and incentive accruals due to the strong results in the quarter, thus resulting in earnings before interest and taxes or EBIT of $109.6 million, which was up 17.6%.

And again, you'll see the impact of the various drivers on the EBIT bridge in just a moment.

Below EBIT, interest of $13.7 million was essentially unchanged even with the financing of the Weidenhammer acquisition.

Taxes were $30.8 million, which were $8.9 million higher than 2013 due to both the higher pretax income, as well as a higher effective tax rate on base earnings of 32.2% versus 27.6% in 2013.

In the fourth quarter of 2013, we had the benefit of some business interruption insurance proceeds at a very low effective tax rate and the settlement of one state tax audit that drove the rate to an unusually low rate for the fourth quarter that year.

Equity and affiliates when combined with minority interest was $2.9 million, which was $500,000 favorable year over year due to higher minority interest in 2013, thus ending up with base earnings of $67.9 million or $0.66 per share.

I will mention that after interest and taxes, the Weidenhammer acquisition was accretive by just over $0.01 for the two-month period.

Turning to the sales bridge on slide 5, you see volume mix added $74 million to sales, representing a 6.1% improvement for the Company as a whole and one of the strongest in terms of volume changes for many quarters.

Volume was up 3.7% in the consumer segment, driven by an 8.6% increase in flexibles, a 2.4% improvement in plastics and a 2.5% improvement in global rigid paper and closures due most notably to higher closure sales.

Display and packaging had another really strong quarter with volume up 17% with strong activity across the portfolio.

Paper and industrial converted products was up 3.7%, driven by an improvement in the integrated North American and European tube core and paper businesses, as well as an improvement in reels.

Volume was flat to down slightly in Asia and South America.

More specifically, in North America, tube and core volume was up 1%, while trade paper sales in North America were up 6%.

In Europe, tube and core volume was up 4.2%, most of which came from a net share gain, particularly in the market segment serving the paper industry.

But we also saw a slight improvement in the paper and film market segments there as well.

Reels volume was up 16% due to higher sales across the portfolio, including nailed wood, composite and steel reels.

And finally, protective solutions had a strong quarter with volume up 10.8% led by a 15% increase in temperature assured packaging, a 9% increase in foam-based packaging, and a 10% increase in paper-based protective packaging.

Moving down to selling prices.

You can see selling prices were essentially flat across the Company, as well as the individual segments for the quarter.

So moving on to acquisitions.

You see they added $65 million to the top line, driven by the two months of sales for the Weidenhammer acquisition and the consumer segment and to a much lesser extent the impact of the Dalton Paper Products acquisition in the paper and industrial converted products segment.

The change in all other of $36 million was primarily the translation sales in foreign currencies, which had a negative impact of $32 million year over year due to the strengthening of the dollar against most all currencies.

The EBIT bridge is found on slide 6, which explains the improvement from $93.2 million in the fourth quarter of 2013 to $109.6 million in 2014.

As you saw on the sales bridge, volume was notably improved, thus adding $19 million to EBIT, which represented right at a 25% average contribution margin across the Company.

The expected lower EBIT impact on the significant volume change and display and packaging was offset by the benefit in the industrial businesses due to the integrated margins on the higher volume in that segment.

Price cost was positive by $5 million, driven by both favorable variances in the industrial segment and to a lesser extent the favorable variance in plastics within the consumer group.

Manufacturing productivity was $15 million for the quarter, including the benefit of the flexibles recovery of some excess costs associated with the previously discussed material issues that have been mentioned throughout the year.

All other costs were negative by $27 million for the quarter.

Roughly $12 million of this was just due to the normal nonmaterial inflation, about $4 million due to higher year-over-year annual incentive accruals in the quarter, $3 million due to not having the benefit of the business interruption proceeds that we received in the fourth quarter of 2013, and foreign exchange had right at a negative $2 million impact on EBIT for the quarter due to the strengthening dollar, which would convert it to just over $0.01 per share at the bottom line.

And finally, acquisitions added in that $2.8 million to EBIT most notably due to the two months with Weidenhammer and is included as one of the offsets here in the other line on this bridge.

And as expected, pension costs were lower year over year but right at $5 million.

Results by segment are found on slide 7 where you see that for the consumer segment sales were up 13% due to the organic volume growth and the Weidenhammer acquisition with even a greater percentage change in EBIT due in part to the flexible recovery, resulting in a strong margin of 10.8% for the quarter compared to 10% for the same period last year.

Display and packaging sales were up 10%, while earnings improved by an even greater percentage with resulting EBIT margin of 3%.

Paper and industrial converted products trade sales were up just under 3%, due primarily to the volume, while EBIT improved almost 11%, even given the fourth quarter of 2013 included the business interruption recovery, all resulting in an improvement in the EBIT margin of 7.8%.

Protective solutions sales were up almost 11% due to the improved volume with a similar increase in EBIT resulting in an EBIT margin remaining relatively unchanged at 6.9%.

Turning to slide 8 and looking forward, we are now targeting base earnings per share of $2.65 for 2015, which is down $0.03 from what we presented at our Analyst Day in early December with the decrease being entirely related to an updated estimate of the impact of foreign exchange rates on the translation of earnings in foreign currencies.

In December, we were using consensus forecast that the euro would decline by about 8% on average against the dollar, while now the consensus has moved to more like 18%, going from a full-year average of $1.34 per euro in 2014 to $1.10 in 2015.

We've kept the same $0.10 spread around the revised $2.65 target, so our full-year guidance is $2.60 to $2.70.

As communicated in December, we continued to expect pension expense to be a negative headwind of $0.09 per share.

We are now estimating that foreign exchange will have a net impact of about $0.06 headwind, while the Weidenhammer acquisition should be accretive by $0.10 or about $0.09 incrementally and fewer average outstanding shares due to the completion of the $2 million share repurchase program will add about $0.02 to earnings.

So, if you netted all of the remaining changes, it would be $0.15 increase in earnings, which would represent right at a 6% operational improvement, again excluding pension, foreign exchange, the change in shares and the incremental Weidenhammer acquisition.

For the quarter, we are projecting that base earnings will be in the range of $0.56 to $0.61 per share, up from $0.52 for the first quarter of 2014.

Moving from earnings to cash flow on slide 9, cash from operations was strong as expected at right at $151 million, improved by $34 million from the same period in 2013.

But this was most impacted by the re-class made in the fourth quarter of 2013 that moved about $22 million of credits related to our biomass boiler project to a reduction of capital spending.

Capital spending was $41 million for the quarter, up on a reported basis notably from 2013, but again 2013 included the re-class of the credits that lowered the reported spending in that quarter.

The most notable spending during the fourth quarter of 2014 was really to support the growth in the local composite cans, including new facilities in Asia and Poland.

So after dividends, we had free cash flow of $78 million and $120 million for the full year, which was $10 million higher than our previously provided projection of $110 million due to capital spending being a little lighter than expected in the quarter, really just due to the timing of some of the investments.

During the quarter, we also spent $37 million on share repurchases, which completed our announced plan to repurchase 2 million shares in 2014.

And most notably, we spent $323 million in cash on the Weidenhammer acquisition and assumed an additional $32 million in debt as part of the transaction.

For 2015, we are still projecting that free cash flow will be roughly $150 million.

And finally on page 10, you see our balance sheet.

Where from the prior quarter end there have been significant changes to almost all accounts due to the Weidenhammer acquisition, the expected increase in the unfunded obligations for our pension plans as a result of the decline in discount rates and the adoption of updated mortality tables, and finally, a reduction in many of the accounts on the balance sheet related to the translation of foreign assets and liabilities associated with the dollar strengthening in the quarter.

At the bottom of the page, as a result of all these changes, including the financing of the Weidenhammer acquisition, you see our net debt to total capital increased to 41.8% as compared to 31.2% at the end of the previous quarter.

As previously communicated, we do expect to use most free cash flow this year to repay some of the acquisition debt.

There are some additional slides in the appendix for your reference, but that completes my overview of the results for the quarter.

And I'll now turn it over to Jack for some additional comments.

Thanks, Barry.

Let me make a few comments on our 2014 performance and review what we see going into 2015.

First, let me start by echoing Barry's comments that we ended 2014 with a strong quarter.

We were very pleased by the solid improvement in volume across our businesses and are returning to more historical levels of productivity.

As I looked at 2014 in total, it's clear that our grow and optimized strategy is leading to improved performance.

Net sales topped $5 billion for the first time in our 115-year history and grew 3.4% year over year, and that is despite lower-than-expected OCC prices and a negative impact of foreign exchange.

Gross profits grew 5.5%, reaching a record of $921 million, and gross profits as a percent of sales increased 40 basis points to 18.4%.

And base earnings reached a record of $2.54 per share, meeting or exceeding our targeted earnings for the second consecutive year.

Our balanced portfolio performed well in 2014 as our two largest segments, consumer and industrial, each achieved record base operating results.

Consumer packaging EBIT grew 6.6% year over year, and margins reached 10.2%.

While industrial EBIT rose 17.5% and margin gained 110 basis points to 8.5%.

Much of our improvement in the consumer packaging side came from our plastics business where operating profits grew 63% and operating margins gained 300 basis points.

Our display and packaging segment also achieved strong results in 2014 with sales up 6.3% and EBIT rising 21%.

On the industrial side, improved results came from our global tube and core business as combined EBIT gained 18.5% year over year.

In protective solutions, we struggled with difficult winter weather in the first quarter, but we are still able to grow sales by 4% for 2014 and ended the year with a 10% plus growth in volume and EBIT in the fourth quarter.

All that said, we could've done better.

We did not achieve our manufacturing productivity targets during the first three quarters of the year, particularly in our paper operations.

Consequently, we brought in an outside consultant and are making changes to the way we drive productivity, particularly in our Hartsville facility, which is our largest complex.

Looking forward, we remain optimistic that the US economy will continue to show improvement in 2015, and we hope we will see some rebound in Europe and other emerging markets.

That said, we do face a number of headwinds in our new year.

Pension expense, which was a tailwind in 2014, is expected to cost us about $0.09 a share, and the strong dollar will likely cost us about $0.06 a share for the year, which is $0.03 higher than the estimate we gave in December.

To counter these headwinds, we are focused on four primary actions as we enter the first quarter.

The first is driving growth.

We're starting up a second composite can line in our Kutno, Poland facility.

Beginning to run trials on the first can line place in our new Kuala Lumpur facility.

Continuing to ramp up production in our molding facilities in Celaya, Mexico and Shelbyville, Kentucky, and we will invest in several large growth projects for composite cans, flexible packaging and rigid plastics during the year.

We need our teams focused on managing these growth efforts.

Next, we must successfully integrate Weidenhammer and drive incremental base earnings accretion of about $0.09 per share.

In addition, we must improve manufacturing productivity to about $12 million to $15 million per quarter, which is in line with our fourth-quarter performance to help offset general inflation and labor, maintenance and other operating costs.

And finally, we're focused on organizing to achieve our mission, which will result in lower costs and improved productivity.

Operator, we'll now take questions.

(Operator Instructions).

George Staphos, Bank of America Merrill Lynch.

Thanks for the details and congratulations on the year.

I guess a few questions to start.

Can you comment at all as to what your customers are saying about what sounds like a fairly broad-based pickup in volume?

I don't think this is a case, but just remind us if there's any kind of shipping day comparison that's helping that, and then I had a couple of follow-ons.

George, let me answer the end of the question first.

There was one additional day during the quarter, and that accounted for about 1% of the year-over-year change.

As far as what our customers are saying, for them it was a pretty good quarter, but it is specific to customers and then specific to products and customers.

And obviously the products that we package during the quarter seem to perform fairly well.

Some of them better than others.

I mean, do you get the sense, Jack, that customers are filling the supply chain in advance of retail takeaway, or are they based on whatever data they have?

And I realize it's difficult to talk about every one of your customers, let alone on a forum like this.

Are they actually seeing retail take away logically driving whatever shipment and supply chain strategy they have which is leading to your better demand?

George, our feeling it's definitely the latter.

They are simply responding to pull from retail.

Okay.

Fair enough.

So with that as the context, back in December, I think you were guiding to $2.51.

You wound up at $2.54, and yet you wind up taking your guidance down $0.03 at the midpoint, even with that as a tailwind.

So not only did FX contribute an incremental $0.03 negative, when we looked at the bridge, there was about a $0.02 reduction in what you're calling base and a $0.01 reduction in the incremental in Weidenhammer.

A), correct me if I'm wrong with any of that analysis and B), if it's correct, why did those come lower in your guidance with the volume outlook seemingly better?

George, this is Barry.

I think it's fair to say obviously there's some things just get caught up in pure rounding.

There's really no difference in our outlook for the business for 2015 versus what we communicated in New York.

We are still expecting part of our analysis here as that growth overall will be in terms of volume just slightly over 2%.

So there's really nothing that has changed fundamentally and what we presented in New York other than specifically the update on our exchange outlook.

Okay.

I'll take one more, and I'll turn it over.

Just on protective margins, this is neither here nor there, but it was a little bit below where we were forecasting.

Certainly, we can say versus your other segments I don't think it had or I think it had the least amount of margin improvement.

And this has been an ongoing issue in protective where margins seem to be lacking relative to revenue growth.

A), do you agree that that's been a challenge, and B), if so what are you going to do to improve the margins in this business to a more relevant level 10% or higher in the next couple of years?

Thanks, guys.

Yes, look, George, first, let me say that, as you look at comparing the margins between the businesses, we normally don't do that because there's so many factors in between.

But certainly pension has had a positive impact on the margins in some of the other businesses, and it does not in protective solutions because it's not a part of their cost structure.

I will tell you that protective packaging has improved significantly during the second half of the year.

Obviously you remember the very difficult first quarter they had.

They had an improved third quarter and a much improved fourth quarter from a sales perspective and from the way the business actually ran.

We got behind the price cost curve early in the year, but in the fourth quarter, we were able to recover those costs and actually had slightly positive price costs for the business.

We had some plants that we were opening up, the one that was in Mexico and then the new one that's in Shelbyville, Kentucky, and I believe as those come up into more production mode, you're going to see some more positive impact from productivity, which certainly suffered in the third quarter.

I think that will improve significantly.

Resin costs, as we go into the 15 year, we haven't seen really any significant moderation.

It's a bit of a specialty beat.

I think we will see some, but we certainly need to continue to work to get these margins up in this business.

I feel very strong it's going to see a solid year-over-year improvement in protective packaging and feel like we're on the path.

And I think you saw some of that in the fourth quarter.

The last thing I would say about protective solutions in general and their margins is that there has been some additional charges that have flown from the corporate organization into their numbers that switched around a little bit.

It benefited some of the other businesses, and it negatively impacted them.

Okay.

I'll turn it over and come back, thank you.

Ghansham Panjabi, Robert W. Baird and Company.

Hi.

Good morning.

It's actually Nick Juhle sitting in for Ghansham.

How are you?

For my first question, in the paper segment, you cited lower sales in Asia and Latin America.

Can you give us some more details on what's going on in both markets?

Well, the lower sales in Asia and Latin America really is around the tube and core business, and simply in Brazil that economy is obviously having the impacts that the globe is seeing but also some peculiar impacts relative to their own domestic economy.

In Asia, I would tell you it is more flattish.

It kind of moved up and down depending upon the country, but it was much more flat across tubes and cores.

Composite cans continues to gain strength across the region.

So it is a tube and core specific statement.

Okay.

Great.

And can you give us some more details on what the consultants came up with in terms of the productivity opportunities that you guys cited?

Well, I'll tell you basically the consultants talk to us.

The process that we have of SPS they say is absolutely excellent, and they see that that can really drive significant productivity for us.

But really what they brought us was more way to tie the entire environment together that we were maybe optimizing a piece that maybe the wet end and not tying that wet end improvement to the dry end or to the winder improvement.

So now they brought it all together in a holistic manner that should help us really get the benefits of our SPS process.

Great and one last one.

If interest rates stay where they are at current levels, do you have any sense of how that would impact pension for 2015 both in terms of expenses and cash?

Yes, we actually have provided some additional detail that's in the appendix to the presentation today that addresses pension-related costs, and we are projecting that.

As previously mentioned, the pension costs will be higher by about $13 million or $0.09 a share.

Of course, the only thing that hasn't been finalized for determining what pension expense will actually be is just the completion of the beginning of the year actuarial valuation report.

That normally takes place in the second quarter, but typically it doesn't yield any significant difference from what we've provided at this point in terms of our projection.

Okay.

Great.

Thank you.

Mark Wilde, BMO Capital Markets.

First off, I wondered if you could just update us on some of the portfolio rationalization that you talked about back in December.

And then along with that, I noticed in your commentary, Jack, you had some comments about optimizing the global portfolio, and I wondered if you would give us a little bit more color on what that means?

Okay.

Let me -- as far as optimizing -- excuse me, as far as rationalizing the portfolios, Mark, again I want to -- in New York I am positive I said that we are not going to make any radical wholesale changes, that's not what we're talking about, but that you shouldn't be surprised to see us announce the sale of one of what we call the standalone businesses.

I would say that that's still a representative statement.

Let me just stand by that.

If you do see the sale of one, it shouldn't surprise you.

So we're still following that path.

As far as the optimization piece of the business, we have had some consultants in.

We worked for the last five months.

It's been very, very diligent work.

What we did want to do is just to have a cost-cutting exercise.

We really wanted to align the structure of these organizations to allow them to achieve their mission either to grow or optimize.

So in some of our businesses, we are going in and adding resources in certain places to help them do both, and then we are taking out some resources.

And the net effect of it, it's more of a delayering of the Company.

We're kind of pushing decisions closer to the customer, and this is all being implemented right now.

And I suspect that by the time it's all said and done, I think that we said it's going to be somewhere between $25 million and $30 million by the time we get to 2016 that we baked in the 2015 impact into our gross productivity number that you see already.

It's going to be phased approach as we go through it.

And on the industrial side, primarily we're going to global business units.

That's the drive for the industrial side, moving away from regional general managers to more global operations.

And in consumer, the first step is to a global plastics organization not having those three businesses any longer operate separately.

Okay.

Jack, secondly can you just give us some sense over in Europe about what you're seeing in your consumer-related businesses there?

Composite cans I assume that you are talking about?

Yes, yes, I'm just trying to get a sense for what seems to be going on with the consumer side of the European economy.

Well, I would tell you that the fourth quarter was a fairly normal quarter for the Weidenhammer business and for our business as well.

And it's very similar to the US is that the first quarter is our slowest quarter.

So we certainly expect that in Europe as well.

But I would say it's some slow growth across Europe, but fairly steady, not dissimilar to what we experience domestically.

Okay.

And then finally over in Europe, we keep seeing these stories pop up about sort of UK regulators and Weidenhammer.

Can you give us a little bit of color on what that process is right now?

It is the CMA, the competition in the market's authority, and basically they are a regulatory body in the UK that looks at market competitiveness.

So they are looking at our acquisition in the UK, and we are just in the process.

We expect the process will continue another four plus months, and we'll kind of walk through it.

And in working with them, they have a process they go through.

So, as I said, we are in the process of just working it through with them.

I will note that the impacted sales are about $20 million of the entire $300 plus million acquisition.

So on a relative scale, it's fairly small.

Okay.

That's really helpful.

I'll turn it over.

Thanks, Jack.

Adam Josephson, KeyBanc.

Jack, you're seeing broad strength, as you mentioned, in your North American business, but we are looking at OCC prices that continue to fall.

What do you make of that, and how much of the decline in OCC do you attribute to China and to the West Coast port situation, excuse me?

Well, I would certainly say that a good deal of the decline or the lack of strength, if you will, in OCC is related to China or exports in general.

Exports in China are down substantially and have been for the last couple of years.

And I don't -- we don't see any change to that going forward of any significance.

I'll also note that it is not just OCC for our business.

We also collect OMP, mixed papers, etc., as well as plastics, and those are down -- demand for those are down as well from an export standpoint.

Okay.

Thanks, Jack, and a couple of others.

Also, in terms of your North American business, it doesn't seem as though food and beverage consumption is picking up much if at all when looking at the fourth-quarter reports from the large CPG companies, but perhaps I'm missing something.

Are you seeing any disconnect domestically between your industrial business and your consumer business?

And if not, any idea why we wouldn't be seeing a pickup in the CPG company's numbers?

As far as the CPGs, I can't really answer that.

I simply can say what I said a little bit earlier is that the companies we supply and the products that we package for them seem to have obviously had a fairly good quarter, and we see that continuing somewhat, maybe not as robust given it was the fourth quarter, but we see that continuing forward.

And there seems to be some level of connectivity to the improvement that we're seeing in the tube and core side as well.

So I think there is a little bit of that.

I think the fact that gas prices are where they are and the consumer seems to be feeling a bit better, I think those are all going to be positive factors in 2015 for the US economy.

Got it.

Thanks, Jack.

And just one last one.

I realize you're only a small containerboard producer, but you are also big-box user.

So I'm wondering what your thoughts are about the current state of the containerboard market versus the URB market, particularly given that you recently announced a price increase in the URB market.

Thanks a lot.

As you know, we are very small in the containerboard industry, and I'm not sure I am qualified to make any comments about that industry in general, although we do see some weakness in that industry relative to pricing.

It does seem a little weak.

In the URB, the opposite is true.

I think the utilization rate in that industry is in the 97% to 100% range.

It's very strong.

And over the past five -- I think one of the differences that really needs to be pointed out is over the past five years or since 2007, the corrugated industry or the containerboard industry has done a fairly good job of recouping what I would call investment economics.

They've had increases that they've managed to push through the market.

The URB side has not experienced that to the same degree.

We've recovered OCC or cost-based increases for materials, but we have not really had a chance to recover extraordinary items like healthcare costs and others, nor have we had a chance to recover investment economics where we've invested in the mill, we've made the quality better, the supply better.

We've just been unable to recoup that, and given the current capacity situation in the industry, it makes sense to try to recoup that now.

Thanks a lot, Jack.

Appreciate it.

You bet.

Philip Ng, Jefferies.

You saw a pretty nice uptick in margin in your industrial business this year.

One, is that sustainable, and how much more run rate do you have now that you highlighted some consolidation in the marketplace?

On top of that, you've got some supply chain initiatives.

Can you get to that 10% threshold?

Well, certainly some of the impacted margins in the industrial side this year is based in pension, and that will have a reverse effect during the course of this year.

So we'll have to deal with it.

But I will tell you, moving this business to a 10% EBIT margin is part of what we want to do.

We do want to improve the margins.

Volume plays a role in that.

I think you can see that.

As the volume improves, so does the margin.

So, as volumes continue to improve and we try to drive costs out -- and then also increased prices where we think that we need to increase prices to recoup total costs, we're going to continue to work diligently to do that and constantly push to get that business back to a 10% margin business.

It's going to take us two to three years and hopefully just get the negative impact of pension out of the way, and then I think that we'll have a real shot at doing that.

Okay.

That's helpful.

And then on your tubes and core business in Europe, you've been seeing nice share gains, which has helped volume.

Is there still more run rate on that front in 2015, and is there an opportunity for you to pick up some share in North America as well given some of the consolidation?

You know, I think that we were fortunate in Europe this year to pick up some share gain.

I think that market is fairly balanced as I think the US market is fairly balanced.

Any share gain that I think that we would pick up would be based upon our ability to provide quality and service that is superior to that of our competitors.

We're certainly working to do that, but I wouldn't predict it.

So --

Okay.

That's helpful and just one last one for me.

The accretion on Weidenhammer seems to be a touch higher than we initially forecasted, which is pretty impressive considering the FX headwind you are facing.

Are you seeing quicker synergy flow through, and can you provide some color on how the integration is coming along?

I'll go ahead and speak in terms of our guidance.

It really is unchanged, Phil.

We probably saw another $0.01 deterioration from FX, but that was offset by just kind of the finalization of our estimate for depreciation and amortization.

So no notable change in really our outlook for that business for the year.

Okay.

Thanks.

Alex Ovshey, Goldman Sachs.

Can you, Jack, maybe from a high level talk about what the potential benefit from the 50% drop in oil prices could be for the business?

Well, the benefits that we will see, of course, some of it will flow through on our industrial side of our business in diesel fuel, etc., those types of costs.

We've captured that and put that in our forward forecast.

On the plastics side of the business, as well as our protective solutions side of the business, that will have an impact potentially on resin costs.

We've seen it already in some of the businesses, but those are quarter to quarter movements.

So for the most part, they'll get passed through at the end of the quarter.

So it's really the change inside a quarter that we could perhaps keep from the drop in oil prices from a resin perspective.

Okay.

And from a freight perspective, would that benefit you -- would the sharp drop in the diesel price benefit you at all, or is it (multiple speakers) typically?

I mentioned that first on the industrial side.

It has a greater impact on the industrial side because we intend to pay the freight as opposed to prepay an add, which is more of a consumer model.

But when we did the calculations, we pushed forward with those.

Those are productivity gains that would be or cost gains that would be in our forecasts.

Okay.

That's helpful.

And the tube and core side in North America, can you remind us what the exposure is to putting in writing markets and the newsprint market in that business right now?

To printing and writing, that's our largest segment inside the tube and core business, and I think it's about 24% --

You're talking paper -- the paper segment overall.

Yes, well, paper segment overall is 24%.

And then newsprint would be at a number on top of that?

No, no, the entire paper segment (multiple speakers) about 30%.

And then printing and writing is a segment that is smaller than that, of course, inside that entire group of paper.

Corrugated boxboard is the largest segment in that industry, but printing and writing is a -- our exposure to that inside that paper mill segment is pretty high because we are probably a predominant supplier to that industry.

And that's one of the things that -- that's operated as a headwind against us.

We talked about that that the decline in printing and writing has offset gains we've seen in film and boxboard and others.

Okay.

Got it.

So all of paper is 30% of the end market exposure, and then within paper, printing and writing and newsprint is going to represent a material part of that 30%, and that's been a headwind.

And then the other paper upgrade has probably been flattish, and you've seen growth in the other 70% of the business.

Okay.

And one -- thank you very much, I'll turn it over.

Chip Dillon, Vertical Research Partners.

I noted -- I remember back in December that you all, I think it was John Coyler mentioned a goal to grow EBIT in industrial packaging by 10% this year.

And I would imagine since then, we've seen a good thing and a not so good thing happen to hit that goal.

I mean the currency works against it, and maybe the energy situation works for it.

But is that still a target?

Do you think that is realistic for 2015, a 10% EBIT growth in that segment?

In 2015, we are not projecting that for the business, and it really has to do with the pension headwinds that that business would face.

I think if you took that out and you took the FX out, that operation as EBIT would be much closer to that number.

That improvement on a year-over-year basis would be much closer to that number.

And certainly it was a substantial improvement this year, up 17.5%.

So that had pension tailwinds in it, so that place bid to it, Chip.

Got you.

Okay.

That helps.

And then I know you are all over the world, but when you think about Brazil, you mentioned Brazil a while ago, and as we look at the weather situation and the drought that you have had down there, especially in the I guess the central and more southern parts of the country, it has caused a lot of concern down there.

But I haven't heard a lot about it disrupting industrial operations.

Is that something that you keep an eye on, or do you think that it's unlikely to be a disruptive influence on your business down there?

Well, I certainly think it's a factor that Brazil is dealing with, but it's one of many factors.

As far as our specific operations, I don't think it's having any impact on our specific operations.

Okay.

And then last question, I don't know if I recall you mentioning this, but I think I saw somewhere that you or someone had announced a paperboard price increase, and I think it was in coated recycle paperboard but it could have also been uncoated.

Could you just clarify that, please?

We did announce a $40 a ton increase in uncoated recycle paperboard prices.

And that's effective as of --

March 1.

March 1. Okay.

Got you.

Okay.

Thank you.

Chris Manuel, Wells Fargo Securities.

Just a couple of follow-up questions.

One, if I could go back to something -- first, if I could go back to something George asked and then something that I think Adam asked.

With respect to the volume component, if I heard correctly, your volumes were up, was it 6.1% in 4Q, but yet I think your guidance for the full year is up 2%.

Are we maybe being a big conservative with being we've seen a nice step up and, as you have kind of pointed out, good pull through from customer demand what you think is off the shelf?

Could that potentially prove a big conservative as we look forward, or there may be some other puts and takes that we're not appreciating?

I think I can explain it to you this way.

If you look at our consumer volumes in the fourth quarter and projecting into 2015, they're very close to one another.

The one thing that we are taking down, flexibles had a very strong fourth quarter.

So we're kind of moderating it.

We had flexibles up 8.6%.

We are taking it back to 6%.

So we're projecting 3% in consumer in 2015.

And so that seems fairly reasonable to the fourth quarter.

Industrial was 3.7%.

We are projecting that forward at about 2%.

Given what I feel about the business and feel about the economy, that seems fairly reasonable.

The difference really comes in display and packaging and then to a lesser degree protective.

Protective was up 10.8%.

That's probably not sustainable for us.

As we look forward, it looks to be about 6% for the year.

But display and packaging for 2014 was up 17.4%.

Now that was driven by strong volume around the globe in pack centers and in our display business.

We think displays will have a fairly good year again, but our pack center volume is going to be impacted by the previously announced closure of one of our pack centers.

So that's coming in more or less flat on a year-over-year basis.

So just if you kind of moderate those what seem to be extraordinarily high numbers and push them forward, then that's how you come up to that average.

I think you said 3% for consumer what are you embedding 2015?

Yes.

It's more like 1% for industrial?

2%.

2%, okay.

Second question was around -- if you could help -- you announced a $40 a ton effective March 1. How much are you -- usually your tube and core business is tied to movement in OCC each quarter.

How much of your business, that 900,000-ish tons that you make there, I believe, A), confirm if that's the right number; B), what portion is it that you are using internally, and how much are you selling outside in trade?

Just so we get a sense as to the magnitude that you could realize.

Or can you, in fact, maybe even for the business that you are using yourself bump that, figure out how to push that through as well?

Can you ask me that again?

I'm not sure I understood exactly what you're asking me.

Okay.

The question is I believe you have about 900,000 tons of URB that you produce.

If you are able to get the price increase, what portion would you be able to realize, given I think the bulk of your business you use yourself in tube and core that has a mechanism that's tied to OCC and it's not tied to URB price?

Correct.

Well, we are going to go out with a tube and core price increase to recoup the cost as well, but you're right it goes to noncontract volumes.

We are trying to negotiate increases in contracts when those opportunities come through.

On the paper side, we have about 100,000 tons of noncontract -- of paper, of URB that would be subject to the price increase, but I also want to point out that, as we have the opportunity to negotiate new contracts, we are talking about these same factors that we've been unable to recoup since 2007.

Okay.

Maybe just to finetune that a little more, if I go back to the 800,000 tons that you are doing internally that you are under contract or that you are using internally to make tubes and cores, what portion of your tube and core business is under contracts with mechanisms, and what portion is more kind of market price that you can go out with an increase on?

Yes, okay.

First of all, 800,000 tons is not what we use internally.

We have a lot of external contracts for the supply of uncoated recycle board that's a part of that number.

The internal tons, which is probably more than half of that, about half of that is under contract.

So I think that gets you to the number that you are probably looking for.

Okay.

That's helpful.

Thank you.

Last question I had was, when we look at the protective business, I believe one of your targets there was to get that business towards a 10% margin as well.

Given you had a really good volume quarter and particularly in some of what we thought were the higher-margin pieces with temperature and etc.

that were up to close to 15%, it's still -- the margin kind of stuck in that, call it, 7%-ish range.

What is the process there or the path to get towards double-digit margin?

Well, first of all, we have to get the two plants that we've been trying to get up and running up and running.

They have to move from startup mode to production mode, and we are down the path there.

We have to get beyond negative price costs, which we saw probably through the first three quarters of the year to more at least flat or even level in price costs.

We got a little bit positive gain there.

And I think that's really what it's about.

It's about driving the volume, it's about getting our price costs positive or at least a minimal impact, and then driving productivity once the plants are up and running across system.

We're also going to be having some costs takeouts that are occurring in that business as well that should help us improve the margin.

Okay.

Thank you, Jack.

Al Kabili, Macquarie.

Jack, I wanted to just ask you about consumer packaging, and I think it was overall 4% growth overall in the segment.

And I don't know if you have or you or Barry have sort of maybe a breakdown of how much of that growth was new business and some of the wins there versus just a general pickup in underlying business and demand there?

Now, I really don't have access to that information.

I can tell you that some of the flexibles substantial growth was new volume coming into the system.

Okay.

Understood.

And so as part of the 3% plan, is the majority of that then new business and wins that sort of gives you confidence of that 3%?

How material of a pickup are you assuming just broadly versus new business there?

Well again, some of it is new business.

Obviously we're opening up new facilities throughout Asia for the composite cans, so that will be new business, if you will, for that business.

We continue to win on the flexibles side.

But I'd say the vast majority of it -- 75% of it -- is simply improvement in the general economy.

Okay.

That's helpful.

I appreciate it.

And then I mentioned -- I know -- I think you had a nice improvement in closures, which you lumped up with composite cans.

Just domestically how did the composite can business do this quarter, if you have that?

Just the can business was flat.

Okay.

That was flat.

Okay.

That's helpful.

All right.

And then on protective packaging, the costs that we still have with the new facility startups, any sense of kind of what that was in the first quarter and your latest thoughts on when that cost headwind will start to improve?

Did you mean the first quarter of 2014 or the impact 2015 (multiple speakers)?.

I'm sorry on the fourth quarter.

I'm sorry.

So the costs in the fourth quarter associated with still ramping up the two new facilities and when you see that starting to improve and flow through?

It's a little more difficult to give you a number around the fourth-quarter impact, but it will probably be in the $500,000 to $700,000 range for that business.

But we have to drive -- it's not just the impact from that, we need to drive productivity across the entire system on a more complete basis than we do today to really move those margins up.

And that's obviously a focus of what we're trying to accomplish.

Okay.

All right.

And then the last question is just on -- you mentioned at the Investor Day also looking at bolt-on types of acquisitions, and just wanted to get your sense as to how you're feeling about opportunities there?

Certainly the multiples in packaging seem to be pretty strong right now.

So is that hindering any of your ability, one, and two, just how are you feeling on the pipeline on M&A?

Well, most certainly the multiples right now are hindering our ability to make acquisitions that we can get a reasonable return on for our investors.

So we have to look harder.

I'm still very positive and very optimistic that we should be able to close on an acquisition of a majority stake in a flexible packaging operation in Brazil in the not-too-distant future.

And that's certainly our focus to continue to try to close that particular deal and then to continue to look for other opportunities that make sense for us.

We are much more targeted now in what we are looking for.

So we're going to continue to look and see if we can't find those, and we like to get this win in Brazil in the first quarter if we can.

So we're working on it.

Okay.

Very good.

I appreciate it.

Thanks and good luck.

Thank you.

Scott Gaffner, Barclays.

We seem to have lost Scott, but your next question comes the line of George Staphos, Bank of America Merrill Lynch.

Thanks for taking the follow-on.

I guess a couple of housekeeping items.

First of all, could you comment if you haven't already -- and if you have I apologize for missing it -- how much was the reimbursement of the costs for flexible materials in the quarter?

And also, Jack you had mentioned there was some costs from corporate that were charged to protective.

How much was that in the quarter?

Specifically, George, as far as the flexible, that had an impact of about $0.03 in the quarter.

Now I want to make sure that it's clear that that is simply a recoup of the negative impact of that during the second and third quarters.

So it actually had about $0.03 impact.

And I think in protective, it's what we did on a year-over-year basis, it's about a $3 million impact to the business for the full year, but there was some additional impact in the fourth quarter beyond its share of that number that had to do with the performance in the fourth quarter and then the impact in the cost center and how that gets distributed to the business.

That's much harder to get your hands around.

Okay.

So the amount in the fourth quarter would've been more than a pro rata share of the $3 million?

Is that the correct interpretation?

Yes.

Yes, I think that the calculation I did, George, said that business would've had 8.6% increase in margin had it not been for just the year-to-date charge that was applied to that business a bit differently.

So it would be 7.6% versus 7% for the year.

Okay, understood.

One last question on protective and then one on kind of the outlook.

And again not to spend too much time on protective, it's obviously not the biggest business you have, but you did spend a lot of money on Tegrant, and thus far the margin progressions have been I think relative to your initial expectations coming at a slower climb.

And so that's the reason for the questioning.

You mentioned trying to get out ahead of cost in the URB market in terms of your pricing strategy.

And so if you are behind the eight ball or were through the first nine months of the year in terms of price costs in protective, why only be happy, for lack of a better word, with just keeping it even from here?

Why not go to your customer and say, hey, we have this amount of inflation in resin and everything else, and we need to get this to reinvestment returns, and therefore, we are taking prices up.

Are you able to do that, or do you face competitive factors in doing that?

But, George, in the fourth quarter, we were able to increase prices, and the business actually went price cost positive in the fourth quarter, and we've really yet to see the benefit of the decrease in resin because we do have to get the margins to more realistic levels.

And so that's exactly our goal is to hang onto the price increase we have and then take the benefit of the resin decline and then reset at the new resin prices and start recouping from there.

That's exactly what we're doing.

Okay.

That's fair.

I understand now.

And just lastly on the outlook, two bigger picture questions.

One, Jack, given where you sit, are we seeing any signs or are you seeing any signs of any kind of improvement in US manufacturing investment?

Are we seeing any manufacturing coming back to the States?

Anything in apparel for that matter or anything that we can get our hands around?

And then recognizing this is a fourth-quarter call, it is kind of middle of February.

Can you comment at all -- and you could give earnings-per-share guidance, what kind of early 1Q volume trends you are seeing?

Thanks and good luck in the quarter.

Well, let me answer the first part or the last part first.

January is a very difficult month coming out of the year.

It starts slow and then ramps up as we go through.

That's kind of what we've seen.

We really won't be able to talk about what are run rates.

We will be at the end of the February before we kind of get a feel for okay what are the run rates actually.

So what I have is just incomplete for the year for 2015.

Understood.

As far as activity and other things, we've certainly seen some gains in this country in textiles.

As a matter of fact, a couple of plants opening in South Carolina in textiles, and I think that we've talked about the onshoring of the television manufacturing here as well.

I would be hesitant to say I've seen a wholesale amount of influx of manufacturing.

We've not seen that.

But just the tube and core volume that we experienced in the fourth quarter being up a little bit I think is a positive and just feel a bit of a sense of a stronger underlying consumer sentiment would be positive.

Now, of course, you have the negative impact of that with the low oil prices and the impact it's having on that industry and the related industries to that.

So nothing that is overwhelming, George, relative to strength.

Okay.

Well, we'll look forward to being overwhelmed, I guess, somewhere down the road.

(laughter)

Thanks, Jack, and good luck in the quarter.

Thanks.

Adam Josephson, KeyBanc.

Thanks for taking my follow-up.

Jack, you talked about multiples and packaging hindering your ability to make acquisitions that make sense for you.

Are you surprised by the pace of deal activity in the sector today given those multiples?

And given very low interest rates and very high multiples, do you think it makes more sense to use debt or equity today?

Well, I certainly think that some of the large deals that have been announced recently were a bit unique.

I certainly think the RockTenn/MeadWestvaco integration -- I wouldn't comment on it from an investor perspective, but it is unique, a little bit different.

I don't think anybody was -- that was like number one on anybody's hit list that would happen.

But it was unique, and it took advantage of some unique situations.

I think the size of those deals have been interesting, and I think today I think it's really to me a matter of using both effectively.

I certainly think you need to use debt capacity to the best of your ability in this interest environment and then leverage your balance sheet as best you can.

So, as we look forward, that is certainly we want to continue to leverage our balance sheet the best we can.

Remembering that to us investment grade credit does remain important to us, but for the right acquisition, as we've said many times, we will take it outside of the ratings and work to bring it back to investment grade.

Thanks a lot, Jack.

Good luck in the quarter.

You bet.

Okay, thank you.

I would now like to turn the call over to Roger Schrum for closing remarks.

Thank you, again, for everyone for joining us.

I did want to remind you that Sonoco's 2015 annual meeting of shareholders will be held on Wednesday, April 15 at 11 AM at the Center Theater, which is located at 212 N. 5th St.

in Hartsville.

The meeting will include a presentation by Jack, and we'll webcast that presentation live, and it can be accessed through the Sonoco website through the Investor Relations site.

In addition, I would remind you that the first-quarter earnings conference call is scheduled to be held on Thursday, April 16 at 11 AM, and a news release reporting our financial results will be issued before the market opens that day.

And as usual, the conference call will be webcast and can be accessed on our website.

Let me, again, thank you all for joining us today, and we 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 participating in today's conference.

This concludes the presentation.

You may now disconnect and good day.