Sonoco Products Co (SON) 2016 Q1 法說會逐字稿

Good day, ladies and gentlemen.

Welcome to the Sonoco first-quarter 2016 earnings conference call.

(Operator Instructions) As a reminder, today's call is being recorded.

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

Sir, you may begin.

Thank you, Shannon.

Good morning and welcome to Sonoco's conference call to discuss our financial results for the first quarter of 2016.

This call is being conducted on April 21, 2016.

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

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

In addition, we will reference a presentation on the quarter's results, which was also posted on our investor relations site this morning.

Before we go further, let me remind you that today's presentation contains a number of forward-looking statements based on current expectations, estimates, and projections.

These statements are not guarantees of future performance and are subject to risks and uncertainties.

Therefore, actual results may differ materially.

Information about factors that could cause different results and information about the use of non-GAAP financial measures is available in our annual report and on the Company's website at sonoco.com.

Now with that, let me turn it over to Barry.

Thank you, Roger.

I will begin on slide 3, where you see that this morning, we reported 2016 first-quarter earnings per share on a GAAP basis of $0.59 and base earnings of $0.65, which is above the top end of our guidance of $0.57 to $0.62 and compares to base earnings of $0.54 for the same period last year.

The difference between GAAP and base earnings is discussed in our press release, but in summary, the difference is due to restructuring charges associated with some plant consolidation opportunities and other organizational changes as part of our fixed cost reduction efforts.

On slide 4, you find our base income statement, where you see sales were $1.226 billion, up $20.2 million from the prior year.

And you will see all the moving pieces of the change in the sales bridge in just a moment.

But I will go ahead and mentioned that this year's accounting calendar included six additional calendar days or three additional billing or business days, and such days obviously impacts all the line items on the P&L.

Gross profit was $245.3 million, which was $24.9 million above the same quarter last year, with the gross profit margin percent improving to 20%, the strongest in many quarters and compares very favorably to last year's 18.3%.

Selling, general, and administrative, and other income expense items was $133.8 million, which was $5.7 million higher than last year due most notably to the additional days.

All then resulting in base EBIT of $111.5 million, up $19.1 million from the prior year.

And you will see all of the drivers of the change in the EBIT bridge in just a moment.

Below EBIT, interest of $13.8 million was essentially unchanged from the prior year, as slightly lower average debt levels this year were offset by the additional six counting days in the quarter.

Income taxes of $32.2 million were higher than last year due to the higher pre-tax earnings as well as a slightly higher effective tax rate at 33% for the quarter, while we now expect the full-year rate to average right at 32%.

Equity and affiliates when combined with minority interest was $1.3 million and similar to last year.

Thus ending up with base earnings of $66.5 million or $0.65 per share.

Turning to the sales bridge on slide 5, you see the higher volume added $80 million to the top line or right at 6.7% for the Company as a whole.

Although it is difficult to estimate the exact impact of the additional days in this year's calendar, three additional billing days would theoretically add right at 5% to volume.

So if this is a good estimate, underlying organic volume growth would have been right at 1.7%, almost at the run rate of our budgeted improvement of 2% for the year on average.

Volume in the consumer packaging segment was up 5%, which would be essentially equal to the difference in billing days, where some modest growth in global composite cans, driven by strong international growth and inflexible packaging, was largely offset by plastics being down some on a same-day basis.

Display and packaging segment volume was up 3.2%.

Paper and industrial converted product segment volume was up 7.8% due to the additional days, but also some organic growth in both tube and core businesses globally and in paper North America.

Volume in North America was up just over 1% on a billing day basis as growth in the film and textiles, tape, and specialty segments were only partially offset by the continued decline in core sold into the paper mill industry.

And in Europe, we experienced right at 2% volume growth on a same-day basis.

And finally, protective solutions had another solid quarter, with volume up 14% or 9% on a same-day basis, driven most notably by growth in the temperature-assured packaging business.

Prices were unfavorable year over year by $16 million, most notably in the consumer packaging segment this quarter, driven by lower resin-based prices.

Net acquisitions added $4 million to the top line due to last year's flexible packaging acquisition in Brazil, partially offset by the impact of the loss of the metal end sales from the Canton disposition last year.

Exchange and other was negative by $48 million due to translation associated with the stronger dollar.

Turning to the EBIT bridge on slide 6, here you see that the dropthrough impact of the volume on EBIT was $18 million, representing about a 22% contribution margin on the additional volume.

Price cost, including the benefit of procurement productivity as well as lower energy and freight cost, was once again very favorable by $14 million, most notably in the consumer segment.

I will mention that a $3.6 million of the year-over-year change is related to favorable variance from a reduction in the LIFO inventory reserve as we had a release of a reserve of $2.5 million this year associated with lower inventory levels and lower material cost, while last year, we had a $1.1 million increase in the LIFO reserve.

Acquisitions net of the impact of dispositions added $2 million to EBIT.

Manufacturing productivity was positive by $7 million, but continues to run below our targeted level of $10 million to $12 million a quarter.

Manufacturing productivity was really tracking pretty well to target in January and February, but then fell off in March, where some of our consumer businesses in particular expected some drop-off in the first few weeks of the month.

And we did have some additional cost related to some plant consolidation activities in several businesses.

Moving on down the page, you see the change in the all other category on a year-over-year basis had a negative impact of $24 million.

There are a lot of moving pieces in this number, but the most significant components include the impact of the six extra accounting days on fixed cost, which would account for right at $17 million of the change, and then another $11 million is associated with normal nonmaterial inflation.

The translation impact on EBIT from a stronger dollar was negative by $4 million for the quarter and is included in this all other category.

All of this is then partially offset by about $7 million in year-over-year fixed cost reductions.

Since I just mentioned translation, I will go ahead and mention that the translation of earnings in foreign currencies would have been negative by roughly $0.03 per share year over year, which has been offset slightly by a penny or so of transactional benefit.

And finally, as expected, pension costs were lower in the quarter by $2.4 million.

Earnings by segment are found on slide 7, where you see for the consumer packaging segment, sales were up 1.4%, while EBIT improved by 16% due to very positive price cost as the EBIT margin improved to a strong 11.9% versus 10.4% for the same period last year.

Display and packaging sales were essentially flat, but earnings up notably, due primarily to a turnaround in results at the pack center in Mexico, resulting in an improvement in the margins for the segment to 2.3%.

Paper and industrial converted products trade sales were also essentially flat, but EBIT improved by almost 20% due to the improved volume, positive price cost, manufacturing productivity, and lower pension cost, with the EBIT margin right at 7.9% versus 6.6% for the same period last year.

Protective solutions had another strong quarter, with sales up 11% and EBIT up 24%, driven by the volume and favorable price cost, resulting in an EBIT margin of 9.1% versus the 8.2% in 2015.

For the Company as a whole, you see the EBIT margin was a very solid 9.1%.

Turning to slide 8, we find our outlook, where for the second quarter, we are projecting that base earnings will be in the range of $0.65 to $0.70 for the quarter.

This assumes no significant change in the overall level of economic activity or demand in our served markets, other than normal seasonality, where, for example, the second quarter is normally the weakest quarter for our consumer packaging business.

In terms of material cost, we are expecting and in fact seeing an uptick in resins and are expecting OCC prices, based on pricing in the Southeast, to go up by $10 per ton.

We certainly are not expecting the same magnitude of year-over-year change as we saw in the first quarter, as the first quarter of 2015 was somewhat weak in a few of our businesses, but then bounced back in the second quarter.

Clearly, this year we got off to a good solid start and maintained that momentum through the quarter, other than a few choppy weeks in March.

For the full year, our guidance for base earnings remains unchanged, at $2.64 to $2.74 per share, even with the earnings guidance being above guidance in the first quarter due to the tough year-over-year comp in the second quarter, and continued expected headwinds in our corrugated medium business.

Moving from earnings to cash flow on slide 9, cash from operations was $66.4 million versus $60.3 million for the same period last year.

We generated higher cash from operations even after considering we had a $15 million higher pension contribution as we made the required 2016 payment to our US qualified plan in the first quarter, and we had no such required contributions in 2015.

Capital spending was right at $53 million for the quarter, in line with our capital budget to spend between $190 million and $200 million this year.

The more notable spending this quarter included $9 million in value-generating projects to support growth in global composite cans, and another $3 million each in both our flexibles and plastics businesses for value-generating projects.

Last year's cash flow was positively impacted by the proceeds we received from the disposition of the two metal end plants in Canton, Ohio.

So after dividends of $35.4 million, we had negative free cash flow for the quarter of $22 million.

Our full-year target is still to deliver $140 million in free cash flow.

Speaking of dividends, you most likely saw that on Wednesday, our Board of Directors approved an increase of $0.02 per share in the quarterly dividend, raising it by 5.7% to $0.37 per share, which annualizes to right at a 3% yield based on our current stock price.

Dividends are an important component of our total return to our shareholders and this extends the history we have of increasing the dividends as earnings grow.

During the quarter, we also used $15.3 million to repurchase 354,000 shares of stock and expect to repurchase $85 million worth of stock through the balance of the year to complete the announced repurchase program.

On slide 10, you find our balance sheet for the quarter.

And I won't spend a lot of time reviewing it, other than just to point out a few things, including at the top of the page, you see cash going down by $30 million just due to the expected negative free cash flow and share repurchases, as we just reviewed.

We saw the normal increase in trade receivables from year-end associated with the pickup in activity from the normal fall-off in December.

The other changes in the accounts are really just due to translation and normal activity.

Other than I will point out down in the liability section, you see that pension and other post-retirement liabilities went down right at by $20 million due primarily to the previously mentioned pension contribution.

And finally, at the bottom of the page, you see net debt to total capital remain unchanged at 38.2%, represent a very solid balance sheet from which we can continue to grow our business organically as well as through acquisitions.

That completes my review for the quarter.

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

Thanks, Barry.

Let me add some additional color to the quarter, then provide an update on some of our growth initiatives.

And finally, speak briefly about what we see going into the second quarter.

For the first time in several years, we were able to get out of the gate fairly cleanly without weather or other one-time operating issues impacting results.

In addition, demand was very strong for most of the first two months of the year in most of our businesses, while March slowed due to the Easter holiday or related customer downtime.

Overall, we achieved record quarterly base earnings and all of our business segments had solid year-over-year improvement.

Additionally, we achieved a 9.1% base earnings margin, up 140 basis points from last year.

Our target growth segments -- consumer packaging and protective solutions -- again achieved record quarterly base earnings, with consumer packaging running at strength through six consecutive quarters, while protective solutions added a seventh consecutive quarter.

Consumer packaging operation margins moved up 150 basis points to 11.9% as our global composite can and flexible packaging businesses reported improved results in the quarter.

And while our plastics business actually exceeded our expectations, results were down slightly from last year when we benefited from falling resin costs.

Display and packaging had a significant improvement in operating profit in the quarter, as we have taken steps to reduce losses associated with our Irapuato operation.

As previously mentioned, we have begun the process of transitioning this facility to our customer.

Protective solutions' first quarter saw operating income improve 24%, with volume up double digits and operating margins up 90 basis points to 9.1%.

We are continuing to experience rapid growth in our temperature-assured packaging and components businesses and both are near capacity.

Finally, I am extremely pleased by the solid turnaround in our paper and industrial converted product segment, as operating profit increased nearly 20%, with operating margins improving 170 basis points.

Tubes and cores in North America and in Europe and our global URB mills performed well in the first quarter.

Unfortunately, we continue to struggle with difficult market conditions impacting our corrugating medium operation.

Year over year, this impacted EBIT by about $4 million and these headwinds will accelerate into the second quarter.

Then the comps taper off fairly quickly in the second half of the year.

That said, we are aggressively addressing cost, actively seeking a partner, as well as looking for other options for this machine.

Yesterday at our annual shareholders meeting, I gave a brief update on our global growth initiatives.

Let me expand on our efforts.

First, in consumer packaging, we announced we will again be adding more capacity to our new composite can plant in Kutno, Poland.

We will add a third line to this facility this year and expect to add a fourth by mid-2017.

In addition, the ramp up of our Kuala Lumpur plant in Malaysia continues to go well, and we showed a small profit, despite start up costs.

In flexible packaging, we've completed the installation of our triplex laminator in our Morristown, Tennessee, plant, and we have just started pulling film through the machine.

The new rotogravure press for our Waco, Texas, facility is on schedule and will start trials in July.

In rigid plastics, we have added new portion control and new food tray capacity in our thermoforming operations to meet new customer demand.

And we have added capacity to our Beauty Park, Ohio, blow-molding facility to support new-won volume.

Yesterday, I told shareholders we were working with McCall Farms, a leading South Carolina-based food canner, to introduce some of its Glory brand vegetables in our TruVue can.

We have completed a successful commercial run at McCall's canning facility and expect to launch product in Southeast grocery stores this summer.

Let me close by addressing what we see heading into the second quarter.

As mentioned, some of our businesses experienced a bit of a slowdown in March, but demand appears to have bounced back and is at expected levels, including the normal seasonality of our businesses.

Let me point out that we face a tough comp in the second quarter, as last year's results were extremely strong.

Furthermore, as mentioned, we face headwinds in corrugated medium, and the strong dollar will continue to impact exports.

Yet, we remain on track to meet or exceed our 2016 guidance.

In closing, we remain firmly committed to our grow-and-optimize strategy.

And as such, we are focused on volume growth, improving operating margins, working to shift our business mix to more of a consumer and protective package orientation, maximizing free cash flow, and finally, returning cash to shareholders through dividends and share repurchases during the course of 2016.

Operator, we will now take your questions.

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

Thanks for all the details.

Congratulations on the start to the year.

I guess Jack, the first question I had -- not to get to into the weeds, but the variance that you are attributing to the number 10 machine in Hartsville seems awfully large, given the size of the machine.

Can you talk to what is price versus non-price?

And then more broadly, as we look at 2Q versus 2Q last year, is it possible to parse what the headwinds are?

You already give us the corrugated piece, but the tough comparisons, any resin benefit, what that means in terms of the comps 2Q versus 2Q.

And thanks, and I will have one more question and I will turn it over.

Okay, George.

First, let me apologize.

We were having some trouble hearing you here.

But I think I got the gist of it.

Let me start out, and then if I don't answer it, we will just have a follow-up.

As we look at the second quarter, we're coming off what I consider to be a very good first quarter.

We had solid volume; fixed cost productivity was good.

Manufacturing productivity was good and acceptable.

Price cost was positive.

The business was very well run for the quarter and very pleased with it.

As you move into the second quarter, I am expecting the same type of performance with three -- let me call them headwinds.

The first was to a question you asked: the quarter-over-quarter performance.

In 2015, our consumer volume was up 3.5% versus 2014.

That is extremely strong, and was kind of out of proportion.

So much so that it made the second quarter our best quarter of 2015.

And normally that is the third quarter.

So that is a very tough comp on the consumer side that we are dealing with.

In addition, in 2015, raw materials were continuing to drift down in the second quarter, where this year, we are seeing an opposite of that.

We expect raw materials and are planning, and have experienced raw material escalation in resin during the second quarter, which means we won't be able to pass it along until the third quarter.

As well as OCC moving up anywhere between $10 to $15 a ton during the quarter that, again, we won't be able to pass on until Q3.

The final piece of that is number 10.

And another impact in the Q2 of 2015 was our paper operations had their best quarter in quite some time and ran extremely well, including number 10.

It was its best quarter of 2015.

So when you look at number 10 on a year-over-year basis, the impact of both price and volume, because we are slowing back the machine and running at a slower mode to kind of match demand with production, those are having an impact of $0.04 on a year-over-year basis.

So if you aggregate all that and look at our forward projection for Q2, if we come in at $0.68 to $0.70, plus overcome these headwinds, it's a very strong quarter on par with Q1.

That would leave us some $0.11 to $0.13 at the midpoint of the year on what we are projecting to be a $0.20 improvement year over year.

So hopefully I answered your question, but those are what we are looking at quarter over quarter.

Jack, that was very helpful.

Can you hear me better now?

Yes.

Okay.

Not sure what the problem was.

But two more questions and I will turn it over.

One related to what you just said.

Is it possible to quantify what the un-passed through raw material hit in 2Q will be?

And then a totally different question, more for -- on the cash flow statement, there was a $45 million benefit in other and cash from operations.

Barry, what was that?

Can you remind us?

Thank you.

While he looks for that, let me -- as far as the resin impact -- and again, what we have already seen and what is announced, it could be anywhere between $2 million and $5 million based upon what actually sticks.

I don't know what's going to stick, but that is what we are looking at right now.

I'll come back to you on cash flow in just a minute.

Okay, thank you.

I will turn it over.

Debbie Jones, Deutsche Bank.

I was hoping that you could talk about the full-year guidance.

Obviously, Q1 was a little better than we were expecting.

Currency is a little bit better than your initial guide.

Is the reason for not taking it up a bit just related to the input cost pressure that maybe you think you'll see short term for the containerboard business?

Can you just broadly talk about that?

Yes, Debbie.

Again, part of it is the Q2 outlook.

But as I said, if we are $0.11 to $0.13 at midyear, we are well on path to achieve that $0.20, if not do better.

It's really around the clarity of the crystal ball.

There is a lot of moving pieces going on right now: the global economy, what's actually going on inside volumes, and other things.

And just being only three months into the 12-month year, I just can't see that clearly.

We feel real good about being within that guidance or even maybe to the top end of the guidance.

But to kind of move it just now, this early, I just don't have that clear of a window.

Okay.

And Jack, I was actually going to ask about your crystal ball, because I think sometimes you have a pretty good insight into variances between the industrial and consumer markets.

And gave some commentary back in Q3.

I was wondering if you can give us a sense of what you're seeing overall in the market, not necessarily for just Sonoco, but that is just how you kind of think about things in running your business as a result.

Well, as far as the industrial business, we clearly see there is a divergence on the industrial side of our business.

If you are in mining, that is obviously not a good space to be.

If you're in commodities, that is not a good space to be.

But if you flip over and look at construction or home construction, it is a matter of getting enough laborers to build enough houses.

So that is going very well; that is having a positive impact on our business.

I think general manufacturing activity outside of mining and materials is doing okay, and we are seeing it come through.

On a per-billing-day basis, volume in North America was up about 1%.

That is what we thought it would be up going into the year, so we feel pretty good about it.

And as we look forward, we continue to see that.

Europe was up as well.

So non-mining industrial looks okay.

And then just one last question on the containerboard assets.

Do you think you can have a resolution to that by the end of the year?

I certainly hope so.

I think we can make some strong moves by changing the shift schedule, taking some time out of the schedule to reduce costs.

But we are definitely going to have to see some rebound in the global market for corrugated from both a price and demand perspective in order to have significant improvement in that particular machine.

Or we will find a partner to work with.

Okay, thanks.

I will turn it over.

I would do want to remind you, Debbie, that the impact on a year-over-year basis drops off in third quarter dramatically and fourth.

So that will improve as the year goes on from a year-over-year comparison.

Yes, I think you gave -- if I shared that.

But guess I was kind of getting at do you think you could potentially find a partner?

Will you keep kind of running as a standalone?

And that is just kind of what I wanted to get out there.

Yes, no.

Well, I tell you, we are turning over every rock.

We've analyzed everything from shutdown to partners to switching it to a different type of paper production.

Right now, we think we have settled on the best alternative, but we continue to look at options and we will continue to look at options.

Okay, great.

Thank you.

Barry, you want to answer that question?

Yes, I will come back to George's question on cash flow.

Obviously, the other operating activity is a catchall for everything else that's not specifically mentioned.

But the most notable differences year over year would be lower cash tax payments.

We had a refund in the first quarter this year of 2015 taxes.

And then we also saw an improvement year over year in some of our just miscellaneous accounts.

Nothing outside of that that is really otherwise very significant.

Chip Dillon, Vertical Research.

First question has to do with -- as you -- just kind of broadly, but as you look at the emerging economies, I know you mentioned on the January call how it seemed like things are getting a little bit better actually across all the Europe markets.

And of course looking at the stock streams back in January, no one would believe that, but it seems to have been the case.

How are things looking now, specifically in the emerging economies?

For example, when you look at Asia, where you have done some big expansions in the composite can arena and are still doing that, are the numbers coming through as you expected them to?

Are they accelerating or decelerating?

Yes, let me answer that.

I think when you look at Europe, we certainly see some positive numbers coming out of what we call the frontier or the emerging markets of Europe.

So that is accelerating.

That looks fairly positive.

Mexico and North and South America is absolutely booming.

Our volume in those areas are double digits.

On the industrial side of the business, it's solid and it is a very good market.

Asia is kind of in a state of, I don't know, neutral, I guess I would say.

It is not really going one way or the other.

Brazil continues to struggle.

Now that's on the industrial side.

I think when you look at composite cans in Asia, that's up very strongly.

Of course, we made a significant investment to produce cans and that continues to grow.

So that's very strong, up in Asia for consumer.

Okay, got you.

And then I have heard that a privately held player in the uncoated recycle board arena may be switching some of their capacity into coated, or at least being able to swing it.

Has that had any impact on you at all or you expect it to one way or the other as you talk to customers?

I heard that, too.

Who do you think that is?

I am just kidding.

We have heard that same thing.

And really what we understand, and I have seen this before, is that it is a machine that can swing back and forth between coated and uncoated so that you can turn off the coater and then just run uncoated, or that you can put it into coated.

That is our understanding.

I don't know if it's accurate or not.

But that is our understanding.

So we've not seen that impact yet.

But the market for URB remains fairly in balance, and I think that that machine might move in and out of the market based upon balance.

So I don't think it's going to have a strong impact, because it will help keep the market in balance, my guess would be.

Okay.

And then the last question is I think you mentioned that your best guess based on sort of -- if some of these announced resin moves occur, it could be a $3 million to $5 million impact.

Is that for the whole Company?

And is that an annualized number?

Or is it for part of the year?

No, that is quarterly impact second quarter for across the businesses that are resin-based.

Second quarter across the -- okay.

Thank you.

Q2.

Because again, in Q3, we had passed a good bit of that on.

If it sticks, I would be pressing for an open market price increase for noncontract as well.

I see.

Okay, thank you.

Chris Manuel, Wells Fargo Securities.

Congratulations on a strong quarter here.

I wanted to first ask a couple questions around where you are with the new product funnel, how you are seeing activity through the new center down in Hartsville, etc.

Specifically how is it kind of flowing through into some of your consumer new business wins as you sit today?

It has been extremely busy.

We continue to have a steady stream of customers visiting and engaging with us in projects.

We have got new products coming -- new products -- let me just call it new revenue coming out for bar type wraps and flexibles.

We got a new package coming out for coffee in both plastic, rigid plastic, as well as flexibles.

We have opportunities coming through in pet treats.

Of course, we talked a bit about the plastic can.

That should be midsummer.

Also have a new composite can pack that is coming out from a major US food company.

So very pleased with the level of activity and what's coming through.

Okay, that's helpful.

You touched on composite cans there for a second.

I missed earlier what you said volumes were.

I was anticipating they were actually going to be up a chunk.

I think you thought a few lines coming onstream over in Asia and a couple in Europe as well.

Where were those?

Global RPC was up about 1.4%, netted down for days.

So that is actual volume being up, and it was driven by Europe and by Asia.

By Asia.

Okay, domestically, were things pretty steady or how --?

Domestically, it was down a little bit, as we saw continued erosion from powdered beverage as well as frozen concentrated orange juice, I believe.

Okay, thanks.

Last question I have is -- I think you mentioned you think OCC might rise or move higher or make [some chunks] as the year goes on.

In one of those elements, you raised URB price increase through in the last six months.

Where do you stand today on continued discussions with some of your customers to push more of that down to tube and core customers with contracts, either longer-term contracts, moving them away from or moving to a board away from OCC, or with other noncontract customers?

Yes.

Well, as a reminder, we did have a price increase that went into -- it went in December, and it's more or less globally around paper and tubes and core.

We have gotten very good traction, one of the best yields we've gotten in recent years, and that is part of that price cost variance you see Q1.

That should continue, negated by whatever increase in OCC there might be.

And I will tell you, as I've talked externally is that we've been working on making sure that when contracts come up for renewal, that we really need for large contracts to have better price recovery than just OCC.

And to date, we have been pretty successful doing that.

I am pleased with that.

It is a fair move for us to improve the margins and contracts.

They needed to be improved because they had gotten really just too low.

And we are making progress there, so I am pleased with that.

And we continue to work on indice-type movement versus OCC.

That's an ongoing contract-by-contract negotiation.

But I am pleased with that entire process.

Would you estimate you're maybe at a third or so of those contracts today?

That's -- I'd be guessing if I told you anything.

Okay, thank you.

Anojja Shah, BMO Capital Markets.

I am sorry if I missed this.

Can you give the tube and core volumes by region?

If you can?

Yes.

As we said, tube and core volume in the US and Canada was up slightly, just right at about 1% on a billing day basis.

And we actually saw right at about 2% in Europe.

Saw nice growth in tube and core in Latin America --

Double digit.

Yes, double-digit-type growth there.

We did see some decline in Asia, but it was very, very modest on a same-day basis.

And decline in Brazil.

Certainly a decline in Brazil.

Okay, great.

Thank you.

And then at the 2014 analyst day, I believe you guys had talked about a portfolio review that was going on.

Can you give an update on that?

And then that's it for me.

Thank you.

Yes, I can tell you that we are working diligently to achieve that movement, as I mentioned earlier, to become more of a consumer and more of a protective solutions business.

And all I can tell you is that there is a lot of work going on and looking at a lot of different types of opportunities.

Okay, great.

Thank you.

Scott Gaffner, Barclays.

Jack, when you initiated the share buyback earlier in the year, the stock was at a 52-week low.

Today, we are at pretty close to a 52-week high.

You still have a fair amount of it left -- I think you said $85 million of the share buyback left.

How should we think about the cadence of the buyback and maybe the commitment to it?

Because there might be other better-returning projects for you to put that capital to use at this point.

Yes, Scott, again, we instituted that share buyback not because the share price was at a low point, but because we wanted to take two years of dilution basically out of the market.

We remain committed to that.

We believe that dollar cost averaging is the way to do that.

We just got into a [10-5b] issue in the first quarter that took us out of the market, so our goal now is to dollar cost average across the rest of the year and remove the shares.

Now, if we get the real valuation that the Company really should be priced at, who knows?

Maybe we will stop.

But right now, our commitment is to move forward and continue the process.

Okay, fair enough.

You mentioned you had some customer downtime in March.

Maybe some of that was around the Easter holiday, but was there anything unusual in the customer downtime in March this year versus maybe prior years?

Well, first of all, on the plastic side of our business, we had a customer-related issue and we had our own issue that impacted that business.

So those were just a one-time event.

I think from a customer perspective, Easter being the last week of March kind of led into some extended downtime because of just the way that fell.

But nothing of real significance.

It was just around the holiday.

Okay.

And just around that, the acquisition pipeline, what does that look like today?

Is that -- I think you mentioned maybe yesterday in your slide presentation a couple of the areas that you wanted to expand into.

Will you be thinking about those things coming to fruition soon?

Or what does the pipeline look like?

I would tell you that we have numerous projects and evaluating them all.

We are focused on flexibles, focused on thermoforming, focused on protective solutions.

We have projects in all three.

And I am hopeful that yes, they start coming sooner rather than later.

But I know you are aware that it takes two to tango, so you have to have a willing buyer and seller and we are trying to ferret it out.

And it has to be at the right price.

So all those things are in the works.

Fair enough.

One last one for Barry.

Barry, you mentioned the six extra days and then you said something about three billing days.

I just did not understand the difference between the two.

Were you trying to say that of the six extra days, only three were billing days?

Or can you walk through that again real quick?

That's exactly right, Scott.

We had actually had six additional counting days in the quarter just because of bringing one week back to the first quarter because of our 544 schedule.

But when you look at the way weekends and holidays fell, we actually only have three additional billing days year over year.

And many of our businesses' activities more related to the business working days as opposed to the calendar days.

So that's the reason we made that distinction between the two.

So we feel like billing days influenced volume more, but certainly our fixed costs are spread over our accounting days.

And when you net those two together, the actual impact kind of -- it becomes less than you would think when you first hear six additional billing days, because the volumes over three --

Calendar days.

That's right.

The volume's over three billing days, and the fixed costs is spread -- there's six additional days of fixed costs.

So they more or less come close to netting each other at the EBIT line.

Not exactly, but directionally.

You'll see that in the numbers.

And then of course in the fourth quarter, we will lose five days because of the same calendar impact.

Okay, excellent.

I appreciate the clarification.

Philip Ng, Jefferies.

Jack, as you pointed out that as you improve your contract terms for your tube and core business and push price a little more aggressively, can you help us get a better feel for what kind of margin profile you are targeting next few years?

Is it a 10% threshold a realistic target?

Well, I think that what we've said is that that is certainly a goal of ours.

In order to get to that level, we are going to have to have some price recovery on major contracts.

We need to cover some of the cost that have crept into the system.

But we are also going to have to have a couple of years of volume growth.

So I don't -- I think margin was almost 9 -- was 9 point -- no, it was -- for quarter is 7.9%.

So you saw a 1% improvement.

I think that last year -- or 2014, it actually got up to 9%, if I remember right.

So I think it will move toward 9%, but to get it to that 10% level, we are just going to have to see some continued volume growth, better utilization of the assets in place.

Okay, that's helpful.

And then you commented about OCC, you are expecting it to be up $10 to $15 a ton in the Southeast.

Is that mostly seasonal, or are you seeing more pullthrough from the Chinese?

And what's your outlook for the full year?

Both.

It is seasonal.

This is a normal seasonal uptick time, and we are seeing strengthened export pricing.

So both of those are playing an impact.

And was there a second part to that?

Yes, outlook for the full year for OCC prices.

Well, we projected what we would call a normal pattern: up second quarter, up third quarter, down fourth quarter.

I suspect that it is going to be somewhere in that range.

Right now, I think we've projected about a $10 or $15 movement in total.

It may actually be a $20 movement total by the time it plays out.

But we will just have to see based upon domestic volume will really drive that, I think, more than anything else.

Okay.

So it sounds like a little more momentum than you probably initially expected coming in to start the year.

Just a touch.

Yes.

And then on protective, volumes were actually very strong.

Can you provide some color on the strength and is that sustainable going forward?

Thanks.

Protective was extremely strong.

It was up about 9% net, so forget -- not the billing day.

It was a 14% with the extra billing days; 9% net.

So very strong volume.

It was in the thermosafe business as well as the component business for automotive.

And again, the business is being run very well.

Output is good.

So that business continues to grow, and I suspect it is going to be up again second quarter 5% or so.

Okay.

That's very helpful, thanks.

(Operator Instructions) Ghansham Panjabi, Robert W Baird.

This is actually Matt sitting in for Ghansham.

Thanks for the color earlier on the raw material outlook for 2Q.

But I want to ask what are your pricing expectations across your various businesses for the remainder of the year, given the positive price costs that you've seen during the first quarter?

Well, we have a vast majority of consumer-owned contracts so that it will change at, let's just call it, at a quarter end.

That's basically the way it works.

About half on our industrial side is at quarter end.

We have already pushed through a price increase on the industrial side, more or less globally or at least US/Europe in that December time frame.

I think if it moderates here at this $10, $15 area, we covered that or we covered that through.

If it continues to escalate, we will move to have an open market price increase in paper and tubes and cores.

But the contract resins and those types of things will take care of themselves at quarter end.

Okay, that's helpful.

And then can you provide some additional details on what drove the performance improvement in paper and industrial?

And then can you provide an outlook for the full year 2016 for that segment?

I think that what really it was -- the businesses ran very well.

The mill systems ran well.

This is all net of number 10, so the mill systems ran well.

Actually, I think tube and core could have done a little bit better.

We are doing some consolidation work in a certain part of the country that had a little bit of drag on productivity.

So productivity would have been even better.

So the business is running well.

The price increase went through.

So it is just operations.

Operationally, it's performing better.

As far as industrial this year, we did project a solid improvement in industrial.

We said volume would be up about 1%, and that is -- right now, that is what we see.

And we continue to believe that is what we should experience for the year, net of the impact of number 10.

We are dealing with it, but as I said, the year-over-year impact of number 10 will diminish as we go in the third and fourth quarter, and hopefully we can come to some sort of resolution with that machine that solves the problem, certainly of what we are working on.

Okay, that's helpful.

Then one last question from me.

What actions have you guys taken to adapt to the changing consumer preferences that tend to favor fresh, healthy, natural food options within your consumer business versus kind of the traditional packaged food profile of food and beverage products?

That's a great question, and that's -- a lot of these engagements that we are working on now are around presenting my product in more of a fresh and natural manner.

One of the big issues is clarity, is to be able to see the product, the genesis of the plastic can.

I can see the product in the can as that.

But a lot of our flexible packaging work is putting windows so that the product can be seen as it sits in the package.

One of our coffee products is opaque, so that you can actually see the bean or the coffee in the package.

So that is really a lot of what we are working with inside the IPS studio is helping customers present their product in a more fresh and natural package.

Danny Moran, Macquarie.

Congrats on a strong quarter.

Sorry if I missed this before; I hopped on a little late.

But can you just give us a sense on what you are hearing from customers regarding the outlook for 2016, in both consumer and industrial markets?

And then any view on volumes as we sit here in late April?

I think as we entered the year, we expected volumes to be up around 2%.

And right now, I don't see anything.

Is it going to be 1.7% or 2%?

It will be in the range.

I think that's what we're going to see for the year.

I think industrial, certainly on a year-over-year basis, is going to look a little stronger because of last year being weaker, and it's going to bounce back stronger this year.

But I think we are continuing to do well in consumer; again, up somewhere around 2%, 1.5% to 2% volume on consumer.

Protective, probably a solid 5% on a year-over-year basis.

So between 1% in industrial, 2% in consumer, and 5% protective, I think we are going to be in that range right there.

Okay, great.

Thanks for that.

And then you mentioned that productivity came in below your expectations.

I think you also called out on the consumer side.

Do you think productivity can move closer to your target going forward?

And what is really the driver here?

Yes.

Well, I think we want to be very specific there.

When you look at total productivity, it was very strong.

We had solid fixed cost productivity, solid price procurement productivity from our procurement group.

Manufacturing productivity was around $7 million.

We expect it to be around $10 million.

But I tell you, after February, it was going to be at the high end of that $12 million range.

It will be closer to $12 million -- $11 million, $12 million.

February, we saw a sharp drop in volume in the first -- March, we saw a sharp drop in volume in the first two weeks, kind of bounce back in the second.

And that impacted the productivity number.

That alone was some consolidation activities we are doing in the Southeast on the tube and core business.

So I expect going forward, given the volume, we should have productivity into that range of $10 million to $12 million.

[And strong comps].

Okay, thanks for that.

Got it, Jack.

And then last question for me: how would you characterize customer inventories' levels right now?

Are they fairly normal?

For what window I have, I would have to say they're fairly normal.

Okay.

Good luck on the rest of the year.

Adam Josephson, KeyBanc Capital Markets.

I joined a bit late, so please forgive me if I ask anything that you've addressed.

Just back to URB for second, Jack, you talked about the market being -- I think you said fairly in balance, despite the apparent imminent capacity reduction that Chip was talking about.

Why might it be -- if it is oversupplied at all, why might that be the case, particularly given that you obviously were able to implement the price increase on URB in tubes and cores as recently as the end of last year?

I think at URB, there is several players in URB that are not integrated and they sell into the marketplace.

So it is a possibility that if they started running and selling more product into the tubes and cores, it could impact that.

But I think the market is fairly in balance, in general.

And as demand picks up, what I was really suggesting was that if demand on the tube and core side picks up, you could actually see a very tight squeeze on URB.

And you may have someone like that coated mill then just swing into URB because pricing may be advantageous to do it.

That was just what I was suggesting.

Okay, got it.

On resin, I know you have been asked a couple questions on resin.

But specifically, what are your polyethylene expectations for April, May, and beyond that informs whatever view you gave as to what your resin drag would be later in the year?

I think that what we see is a $0.04 -- and I am going to talk in aggregate, so --

Yes.

About a $0.04 increase.

And then the possibility of another $0.04 increase sometime in the quarter.

Does that stick?

I don't know.

Does the first one stick?

I don't know.

I know oil is up from the low of, what, $29?

So it is possibly there.

I think polypropylene is in pretty short supply, so that's a possibility there.

So it is $0.04 and then another $0.04 as a possibility.

No, I got it.

And just along those lines, do you have any strong view as to what will happen once all this ethylene capacity in North America comes on I guess starting next year and going into 2018?

I don't really have strong views on it.

My estimate, of course, or my guess would be that the prices would fall.

But we will see.

Now just two others, Jack.

I know you have been asked about demand on a few occasions.

Did demand patterns change much as the quarter progressed in any particular region, as well as in April thus far?

Looking at the manufacturing and industrial data, at least domestically, it has been kind of all over the map so far this year.

So just wondering if anything is notably changed for the better or worse year to date for you.

Well, I don't know if you heard this, but the way the quarter unfolded, we had very strong volume January, February, and then we had a sharp decline in the first couple of weeks of March.

We bounced back as March -- as we met through March, and now it is kind of more back at our expected run rate, our expected levels.

Again, I can't quantify what caused that.

It's like I speculated that the holiday may have impacted it, but I don't have any reason to believe that.

And just -- thanks, Jack.

And just one last one on M&A multiples.

How would you characterize them these days, and how is that informing your strategy at the moment?

Well, I mean, multiples continue to be pretty high across the board.

But the way we are approaching it, trying to seek out certain types of opportunities with certain capabilities, many of them privately held, we are trying to look at different types of structures that allow us to take, in some cases, joint ventures.

We have the Graffo acquisition in Brazil that we took a majority stake.

It got us into the business at a reasonable multiple.

It allows us to grow.

So we are looking at all those types of opportunities.

Now, multiples continue to be fairly high, but we are trying to approach this a bit differently, drive the conversation, and then hopefully come out with a reasonable multiple that allows us to take a real good position or create a good situation for us and the seller.

Thanks a lot, Jack.

Appreciate it.

George Staphos, Bank of America Merrill Lynch.

I know it is getting late, so I will try to ask these in one shot, just for time sake.

I guess first questions are around end-market demand.

On the one hand, I think you said that auto was doing relatively well relative to your protective business.

Can you give a bit more color there?

And then related to the consumer drop-off in volume, is there any way to call out which were the end markets that were a little bit weaker for a portion of March?

So that is question number one.

Question number two: one of your competitors, as Chip was mentioning, is thinking about swinging URB at Sweetwater to CRB.

I would not suppose you could do that with your cylinder board capacity the other direction.

But would that be something that you could contemplate?

Or is that board not really good for folding carton grades?

And then the last question: you'd mentioned price cost benefits in display.

Could you talk to what you were able to do there, other than the obvious, I guess?

Thank you, and good luck in the quarter.

Let me try to answer all these.

You may have to come back to me.

End-market demand in auto was really kind of built around certainly the models we supply, but we continue to get new business coming online.

So we are supplying more parts into auto industry, new parts, and that is really kind of what was occurring inside the business in protective solutions.

Got it.

I am going to skip over the consumer drop-off end markets.

I am going to let Barry -- I am not sure I have a window to that.

URB, that machine, could we actually do that?

Technically, we could probably do it.

But our system in URB is pretty much in balance.

We really -- not sure we would want to do that, but technically, we could.

We cannot do that with the number 10 machine without making substantial investments to change the profile of that machine.

Understood.

And the price cost benefit in display and packaging was really driven around negotiation on services provided as well as an uptick in displays as far as the price cost around corrugated displays with jobs that have already been bid.

Did you have something on that?

Just to clarify the question on the --

Barry, just quickly, the consumer markets that dropped off in March, can you call them out?

Recognizing they've gotten back to normal.

Thank you and good luck in the quarter.

Oh, in the March change.

It seemed to be a little bit more broad-based and largely related to the holiday pattern.

And then just some customer-specific issues that different customers [had faced].

Nothing broad-based.

Okay, thank you.

I am showing no further questions at this time.

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

Thank you, again, Shannon.

Just in closing, let me again thank each of you for joining us today.

We certainly appreciate your interest in the Company.

And as always, if you have any further questions, please don't hesitate to contact us.

Thank you.

Ladies and gentlemen, this concludes today's conference.

Thank you for your participation and have a wonderful day.