Amcor plc (AMCR) Q4 2010 Earnings Report, Transcript and Summary

Good day, everyone, and welcome to the Bemis Fourth Quarter 2010 Earnings Release Conference Call. [Operator Instructions] For opening remarks and introductions, I will now turn the conference over to the Vice President and Treasurer for Bemis Company, Ms. Melanie Miller. Ms. Miller, please go ahead.

Thank you, operator. Welcome to our year end 2010 conference call. Today is February 1, 2011. After today's call, a replay will be available on our website, www.bemis.com, under the Investor Relations section. Joining me for this call today are Bemis Company's President and Chief Executive Officer, Henry Theisen; and our Vice President and Chief Financial Officer, Scott Ullem. Today, Scott will begin with his comments on the financial results, followed by Henry with comments on the business. After our comments, we will answer any questions you have. However, in order to allow everyone an opportunity to participate, we ask that you limit yourself to one question at a time with a related follow-up, and then fall back into the queue for additional questions. Before we begin, I'd like to remind everyone that statements regarding future performance of the company made in this teleconference are forward-looking and are subject to certain risks and uncertainties. Actual results may differ materially from historical, expected or projected results due to a variety of factors, including currency fluctuations, changes in raw material cost and availability, industry competition, unexpected consumer buying trends or customer order patterns, our ability to pass along increased costs in our selling prices, changes in government regulatory requirements, interest rate fluctuations and regional economic conditions. A more complete list of risk factors is included in our regular SEC filings, including the most recently filed Form 10-K for the year ended December 31, 2009. Now I'll turn the call over to Scott Ullem.

Thanks, Melanie, and good morning, everyone. Today I'll discuss the results of the fourth quarter and then provide some color on our guidance for 2011. Before we get into the details, I'd like to note some of the key financial highlights from 2010. We reported record adjusted earnings per share of $2.12, our second year in a row of double-digit EPS growth and in line with our guidance for the year and the quarters. We recorded our second highest year ever of free cash flow in the face of increasing raw material costs, as well as higher levels of working capital related to Food Americas as we carried extra inventory during the integration of our expanded plant network. We paid down approximately $200 million of debt since the acquisition of Food Americas on March 1, and we repurchased 1.5 million shares of Bemis common stock. Now turning to the fourth quarter. Our results were in line with our guidance and continue to demonstrate healthy growth over the prior year. Earnings per share before special charges was $0.49 for the fourth quarter of 2010, compared with $0.45 last year, an increase of 9%. Net sales increased by about 38%, including about 34% from the Food Americas acquisition. The remaining 4% organic growth reflects the increase in sales in 2010 compared to the pro forma sales of 2009. Currency did not have a significant impact on consolidated sales during the quarter. In the Flexible Packaging business segment, net sales increased by about 44% for the quarter, of which about 40% related to the Food Americas acquisition. The remaining 4% organic growth reflects the impact of higher raw material costs pushing up selling prices in addition to increased sales of higher priced, value-added products. Volumes in North America were somewhat higher compared to the fourth quarter of 2009, reflecting the continuation of volume trends that we experienced throughout 2010. In Latin America, now almost 20% of Bemis, sales volumes declined in the fourth quarter as customers in Brazil made inventory adjustments at the end of the year. And in our Mexico operations, we strategically reduced volumes and improved sales mix resulting in improved profitability. Our European Flexible Packaging sales remained below last year's levels. However, we did see sequential volume improvement compared to the third quarter of 2010, which is encouraging. In the Pressure Sensitive Materials segment, which represented about 10% of sales this quarter, net sales increased nearly 4%, excluding the impact of currency, which represents stronger volume sales in North America and the pass-through of increased raw material costs. Moving on to operating profit. We are very pleased with the cost savings results of our integration efforts. We have achieved the targets we set for 2010, and we are on track to achieve our run rate target of $60 million of cost savings by the end of 2011. Going forward, these integration synergy targets have been built into our existing continuous improvement programs and will no longer be separately identified as synergies. This is a positive indicator of the extent to which we have completed our integration of Food Americas. It is important to note that the lower operating profit margins associated with the newly acquired Food Americas business have reduced our overall operating margins in 2010. Looking sequentially at operating profit for the Flexible Packaging segment from the third quarter of 2010 to the fourth quarter, the nearly 1% decrease reflects primarily the seasonal decline in volume, coupled with increased raw material costs in the fourth quarter. Selling prices increased contractually and with non-contract customers during the second half of 2010 to reflect the higher costs of raw materials. Our business model uses escalator and de-escalator clauses in customer contracts to mechanically adjust selling prices for changes in raw material costs on a regular basis. These clauses are embedded in our multi-year customer contracts, which represent approximately 2/3 of our Flexible Packaging sales. This is a common industry contract clause and therefore, the contracts that we acquired with the Food Americas acquisition in 2010 also includes similar escalator and de-escalator clauses. However, the acquired contracts have longer periods of time between selling price adjustments than Bemis' standard policies. This will prolong the negative operating profit impact in a rising raw material cost environment in 2011. Several years ago, we shortened the adjustment periods in our contracts to address increased volatility in raw material markets. One of our priorities is to synchronize the terms of these Food Americas customer contracts with the Bemis contracts, including shorter adjustment periods in the escalator/de-escalator clauses. Selling, general and administrative costs increased during 2010, and we expect SG&A spending to be approximately level in 2011 with 2010. The improvement in the line item other operating income and expense reflects the fact that we had $15 million in acquisition-related expenses in 2009. Most of the other operating income in 2010 was generated by fiscal incentives we earned in Brazil. Turning to the cash flow statement. In the fourth quarter, we generated $119 million of cash from operations, an increase of $39 million over the same period of 2009. For the full year 2010, we recorded our second highest level of free cash flow in our history. This was less than we had planned and resulted from higher working capital largely as a result of two factors. One, just as rising raw material costs had a negative short-term impact on our earnings, they also increased the carrying cost of our inventories. Two, we carried higher inventory levels during the integration process in order to ensure that we maintain high levels of customer service as we integrated our new production facilities. Capital expenditures totaled $48.5 million for the fourth quarter of 2010. This is a reflection of the timing of expenditures that had been planned for 2010 and realized in the fourth quarter. This year, we repurchased about 1.5 million shares of Bemis common stock. This offset approximately 1.2 million shares issued in connection with incentive compensation programs for Bemis employees. As we look to 2011, our earnings per share guidance for the total year is $2.33 to $2.48. This includes an assumption of constant currency exchange rates and increasing raw material costs through the first half of this year. Our guidance also reflects an increase of about $10 million in pension costs and continued accounting for the non-controlling interest in our Brazilian subsidiary. While we continue to pursue a tender offer for the outstanding preferred shares of our Brazilian subsidiary, the purchase of those shares is not reflected in our guidance at this point since we cannot predict the timing or certainty of the completion of that transaction. The increase in pension costs is primarily a reflection of the amortization of asset losses experienced back in the stock market decline of 2008. Subsequent gains are expected to reduce pension costs beginning in 2012. Our guidance for the first quarter of 2011 is $0.50 to $0.55. Again, the first quarter includes the months of January and February, which are seasonally slower months. In addition, higher benefit costs and raw material cost increases are expected to create headwinds compared to the first quarter of 2010. For the total year 2011, we expect capital expenditures to be approximately $150 million. This is below the level of depreciation plus amortization, which we expect to be about $215 million in 2011. The reason we have been able to keep capital expenditures down is because we acquired well-capitalized production capacity with the Food Americas acquisition, and World Class Manufacturing initiatives are contributing to our production efficiencies. Longer term, we expect capital expenditures to be closer to D&A. Finally, in addition to our judicious approach to capital expenditure decisions, we also remain committed to disciplined use of free cash flow. We are continuing to seek strategic and accretive acquisition opportunities. Meanwhile, we will continue to improve shareholder value by repurchasing shares opportunistically and reducing interest expense. Now I'll turn it over to Henry for his comments.

Thank you, Scott. To start with, I'm very pleased with the performance of the company in 2010 and the progress we have made integrating the Food Americas acquisition. Our success in this effort is thanks to the talent and hard work of many dedicated Bemis employees in North America and Latin America, including sales, marketing, operations, engineering, customer service, finance, purchasing, human resources, information technology and our R&D teams. Today, I'll focus my comments on three main topics: the product development and process improvements being derived from the completion of the Food Americas integration; the climate for raw material costs and strategic investments in 2010; and the plan for 2011. Our customers have been pleased with what has been a nearly seamless transition, and our focus on maintaining customer service throughout this integration has further strengthened our customer relationship. As Scott mentioned, we have begun to move production among our facilities to better align our production facilities and technologies to optimize our manufacturing footprint. Part of the integration plan for the newly acquired facilities was the opportunity to leverage the new products, technologies and manufacturing expertise that came from the Food Americas acquisition. Let me give you some examples of commercial opportunities arising from our joint portfolio of technologies. One example is the expansion into new markets for barrier cup products from single-serve coffee to cups for creamers, puddings and single-serve condiments. This is a result of a combination of our unique rigid film structures with the Food Americas' lidding technology around heat seal, lacquer and die-cutting capabilities supplying the complete solution. We have leveraged our film/foil and sealing technologies to replace and improve the performance of our blister pack used for oral pharmaceuticals in Latin America. Now that we enjoy the leading position in pharmaceutical packaging in Brazil, bringing this production in-house gives us a great opportunity to expand our expertise in this market category and offer innovation to our pharmaceutical customers. And lastly, an important part of our efforts toward development of more sustainable packaging is the reduction in the use of raw materials. By combining the processing technology of Food Americas with the polymer science of Bemis, we have been able to make a significantly thinner cereal liner while matching all current performance criteria. As I've mentioned before, we have a high-quality portfolio of facilities, and we are making changes to incorporate best practices across all facilities on a continuous basis. In 2011, we expect earnings per share to continue its double-digit growth trend in spite of some unexpected cost increases. We are behind the raw material cost curve for the fourth quarter of 2010. At the beginning of this quarter, most of our selling prices have been adjusted to reflect these higher costs. But we expect raw material cost to continue their upward trend during the first half of 2011, which will put downward pressure on operating margins until the trend flattens out or reverses. As we have said in the past, while our business model accommodates upward or downward trending raw materials fairly well to minimize the impact of operating margins, dramatic volatility can have a more sizable impact on our short-term results. We currently don't expect anything other than the normal trends. Capital expenditures were higher than usual in the fourth quarter of 2010, reflecting the impact of project spending, which was somewhat delayed by integration efforts earlier in the year but ultimately needed to be accomplished in 2010 in order to be prepared to meet 2011 capacity demands. Capital expenditures in 2011 will increase to approximately $150 million, which includes the expanded nine-layer capability to support our new products for refrigerated applications such as meat and dairy. These new products add consumer-oriented convenience features to the package and improve barriers to further extend the shelf life of these refrigerated foods. In Latin America, we are also investing in new capacity to expand our production of proprietary barrier films for the protein market in that region. We have been pleased with the positive reception from customers over the past year as we introduced these films to our local customer base. While we expect additional growth in 2011, the benefits of the new capacity will have a stronger impact on 2012. Overall, 2010 was a great year for Bemis. We have experienced an increase of over 30% in net sales, number of facilities and number of employees. And in the process, we've put together a talented team that is learning from each other and making positive changes throughout the business. I am pleased with the strong pipeline of new products that we are commercializing in 2011. Our manufacturing operations are improving every quarter as initiatives move forward, and we are keenly focused on helping our customers benefit from all the value that we have to offer them. Now I'd like to open up the call for questions.

[Operator Instructions] We'll go first to George Staphos with Bank of America Merrill Lynch.

I guess the first question I had on working capital, Scott, you mentioned that resin prices increasing and selling prices increasing in '10. I was wondering that you're carrying more working capital this year than perhaps you had anticipated and that's clearly understandable. One thing you also mentioned was that you kept higher working capital levels to maintain service through integration, which I would have imagined you would have planned for and therefore, shouldn't have been a source of negative variance. I just want to confirm why that might have been the case and just to make sure that the operations are running as you expect through the integration?

Well, we did plan for some of it, but not all of it. And as we integrated over 20 new production facilities, a lot of this was just preventive insurance to make sure that as customers -- that we could fill customers' orders in the timeline that they expected. We think that at this point, we do have the right mix of working capital. We are still moving some production among plants, but we feel good about having our finger on the pulse of the working capital and the inventories they're required to satisfy orders, both at the raw material and the web and the finished goods level.

The second question I have, I think you've mentioned this in the past, but I just wanted to confirm, on the Food Americas contracts that have the somewhat longer lag, if you will, in terms of being able to readjust pricing, when do you think you'll be able to address most of those contracts to get them to, if you will, Bemis' standards?

Sure, well as we've said, many of these multi-year contracts are three years in duration. And so as they mature at various points during the next couple of years, we'll work on getting those escalator/de-escalator clauses more synchronized with our policy, which is shorter than what a lot of the Food Americas' contracts were. Many of our multi-year contracts even go up to five years in length. So over the next several years, we'll be making those adjustments, but it's not going to be something that you see it pop in, for example, in the next quarter or two.

We'll go now to Ghansham Panjabi with Robert W. Baird. Ghansham Panjabi - Robert W. Baird & Co. Incorporated: Trying to dig a little deeper on your full year earnings guidance for '11. If you start with a $2.12 in EPS that you reported in '10 and add the synergies that you outlined for year two of Alcan, that gets you close to $2.30, and I assume that higher raw material costs were sort of backstopping the lower end of your guidance at $2.33. But what would need to happen for you to hit the high end of $2.48? And also what is your base case volume assumption for the year?

Well, there's many variables that go into our guidance and what we expect to do for an earnings standpoint in 2011. Some of the headwinds we face in raw materials are some of them. Some of the commodity prices we're seeing and how they're going to affect food industry and the pricing and the volumes along those lines, our pension costs. On the other hand, to get to the higher end, we've got a lot of good things going for us. We've talked about just some of the new products that are coming out of the stream. We've got additional new products that we've been able to develop with the combination with Alcan and Bemis people that are sitting on our customer's doorsteps and hopefully those will commercialize and be successful in 2011. We talked about our abilities when we meet with our operations people and I meet with the process engineers and our product engineers. There's a lot of good things going on there that can lead to increased productivity that can lead to lower cost raw materials going to our products. I gave you an example of the cereal liner. We have a number of those things. If that integration accelerates and increases, that can help us get to the top part. The optimization of our manufacturing footprint that Scott alluded to in his -- and also just being able to acquire the shares of Dixie Toga. So there's a lot of very positive things along our integration stream that can get us to that higher end of our guidance. Ghansham Panjabi - Robert W. Baird & Co. Incorporated: Your comments on Latin America customer inventory de-stocking, what gives you comfort that, that's in fact what's occurring versus just a slowdown in market?

When I talked to our management team in South America and we got into November, they have talked a little bit to me about the fact that some of their customers were looking at decreasing inventories as just part of what they wanted to do now and how they wanted to end the year. We have good customers there. We have good volumes. We're running a good first quarter, and I think that was just a matter of them making adjustments to end up their fiscal year.

We'll go now to Sara Magers with Wells Fargo.

Could you give us a little bit more color on the Alcan synergies? I understand they're running on track, that's very good. And I'm just wondering about the buckets of opportunity you have left in 2011, what exactly is left? And then to follow up on that, on the last few conference calls, it seems as though the synergies could be increased based on optimization opportunities and I'm just wondering is that still the case, if you're still seeing further opportunity there?

Sure. Sara, as we talked about during the course of last year, we got most of the SG&A savings at the time or shortly after we closed the acquisition on March 1. What we've been focused on since then is aligning production where we want it to be across our plant network. We are partly along that path. We have more work to go, and there were two other key buckets, as you recall, from the original synergy forecast that we laid out. One was really about getting more savings out of that operations and plant optimization effort. That's still ongoing, and it's the reason why we are not going to be able to break out cost saving synergies from integration efforts versus cost savings from our ongoing normal course World Class Manufacturing initiatives. But we feel very good about the path that we're on to achieve better synergies and to really take advantage of our broader manufacturing footprint. Second, in terms of raw material purchasing opportunities, we're just at the front end of being able to negotiate, as well as possible purchasing prices for the resins and films and inks and other raw materials that we purchased as part of our business. So we think there are going to be additional cost savings that come from that. Again, because we've merged with Food Americas now, it's impossible to breakout what portion of that is result of integration, what portion of that is just running our business as efficiently and effectively as possible.

And then just to follow up on that, from what I understand, you have now have systems in place that better track the consolidated business. Can you talk a little bit about the cash flow coming out of the Alcan assets? What kind of returns are we looking at, at this point?

Again, there's really at this point not a way to break out cash flow from Alcan versus cash flow from Bemis. It's really a merged -- it's a merged enterprise, and so the plants are all operating in a similar fashion and there's no way to break it out.

We'll go now to Mark Wilde with Deutsche Bank.

Scott, I wondered if we could just jump back on kind of working capital and particularly this inventory issue because your inventories year-over-year were up between 65% and 70%. And I wondered if it's possible for you to give us just a sense of how much of that was insurance? How much of that is higher raw material cost? And how much of that is just normal increase because you got a bigger business base and how much of that you may get back as we go through 2011?

Mark, it's a good question, and you hit the three buckets that comprised that line. There's really no way to break out and forecast for 2011 how each category is going to look. What I can tell you is that working capital is a key focus at Bemis, and we and multiple different levels of employees throughout the organization get compensated based upon cash cycle and working capital performance. And so it's something that we're really trying to screw down as we go forward in 2011.

So not possible to give us any sense of just sort of what the elimination of the insurance element might mean for you?

Well, the insurance element is reducing, but there's not really any way to quantify it versus raw material costs, for example.

And then if I could just do a follow on, is it possible for you to give us any sense of how much new capital you're putting into the Pressure Sensitive business right now?

We're not putting really any new capital into our Pressure Sensitive business in the plan for 2011. We have, over the past couple of years, put some capital in there to take a look at growing in our technical and our graphic basis. We needed to take advantage of those investments that we made over the last couple of years.

We'll go now to Al Kabili with Macquarie.

I just wanted to, I guess, first ask on the outlook on the Alcan cost saves, and I appreciate you're not breaking it out any further. But I assume you kind of hit your $30 million savings target this year from your comments and you want to get that $60 million run rate by the end of this year. Can you just help us with how you see that ramping up? Is that a linear ramp throughout the year? Is it loaded one way or the other appreciably?

I think that's very close to a linear ramp-up through the course of the year. We'll have a little bit of ups and downs but it's basically, linear.

And one of the reasons it's linear is because our World Class Manufacturing initiatives are linear. We're just continuously improving our cost performance as we track it at every level of our production process. It's not as lumpy as it might have been during the integration period. It's just continuous improvement, continuous benefits.

The other question I had is on, I guess, on the cost inflation front, your customers are certainly seeing a large variety of cost inflation across a variety of input. Are you seeing any change in terms of -- is that causing any change in terms of how they're approaching their packaging outlook?

We are not seeing any change being pushed from our customers along those lines. If you go back a number of years ago, we kind of went through this and we came out of it, and what they really looked for was new packaging ideas and new ways to sell their products and to add value. So hopefully, as this goes through, again, it will give us a push to drive out new products and get new things introduced into the marketplace, and that's where Bemis does its best job.

We'll go now to Philip Ng with Jefferies. Philip Ng - Jefferies & Company, Inc.: In your non-pass-through business, have you guys gone out on wage price increases? And have you seen any improvement on the pricing front just because the industry has consolidated a little bit over the years?

Our individual division presidents, they know the value. When raw materials go up, their bonuses and their pay is tied to that bottom line. So they know they have to pass those increases on to our non-contract customers, and they have to make sure that with our contract customers, that those increases get passed on at the time when it's allowed. So yes, we have been out and we're passing through these raw material prices. Philip Ng - Jefferies & Company, Inc.: But have you seen any structural improvement with the recent consolidation?

I think it's pretty much business as usual. It's still a pretty competitive business.

We'll go now to Alex O'Shea [ph] with Goldman Sachs.

Can we talk about how you're thinking about the margin progression in Mexico. Correct me if I'm wrong, but you acquired a decent size business as part of the Alcan acquisition in Mexico, which had pretty low margins. How do you see the margin opportunity in Mexico and how much of that opportunity is reflected in your 2011 guidance outlook?

We haven't forecasted what exactly the profitability is going to be from our Mexico operations. What we can tell you is we now have a very sizable operation in Mexico. Before we were subscale, we're not a leading player. Now we are in Flexible Packaging in Mexico. It's a very good region for us. We've worked hard on rationalizing our operations, both on the production side and on the customer facing side, and we're pleased to see an improvement in profitability already just nine months into the ownership of Food Americas. And so we can't give you a specific forecast of operating margins. What we can tell you is that all the trends that we've seen early on are very favorable.

And then in terms of the cost inflation that's baked into the '11 outlook, how much of that is higher cost that were realized in the fourth quarter or the second half of last year and flowing through to 2011 versus what you anticipate you will see early on in 2011? Because I know there's a big price increase on polyethylene out there for January, February, but a lot of uncertainty on whether or not that actually gets implemented in the marketplace. So how much of the cost inflation in your number is and what you expect to happen versus what's already happened?

Well, the cost that went up in early in the fourth quarter when we start to see that ramp-up, that start hitting the income statement through cost of sales in the first quarter. So that's really, you're right, with the lag, that's the pressure that we feel now in beginning the first quarter of 2011. These announced increases that you're talking about for polyethylene, and maybe Henry can get into a little bit more detail with what we're seeing there, those are the ones that will hit later on as we get to the end of the first quarter and into the fourth.

This is Henry. Those increases that occurred in the fourth quarter have already been pass-through. The vast majority of them in our escalator/de-escalators. And what we were going to have to work hard to get through are those announcements that sit out there for the first quarter of 2011.

We'll move now to Chris Manuel with KeyBanc.

First is just so I make sure I understand this correctly, when you're thinking about operating cash flow in 2011 and some of the different components within there, we know D&A is going to be up a tick. Working capital, it sounds like you're taking some out, so should we assume that, that's a source of funds for 2011?

Well, it may be a small source of funds, but again, a lot of this is going to depend upon where we are in the curve on raw materials. And so difficult to predict where raw materials go, and as a result, it's a little early to tell where we're going to end up with working capital for the year.

If I could go back to some of the contracts that are working through, you gave an example of a cereal liner that came up as you redesign some components out. Can you maybe use that as an example as well to explain to us how that as a case study of as you went back then and renew the contract, is that an opportunity you have outside of normal within three years, five years what have you that those contracts reset that you can adjust the window for mechanisms, number one, or how you share or look at the cost saves just taking material off by making it thinner? Is that something that you generally can keep in your pocket? Is that something you generally share? How do you -- some example of how that works?

That's a good example, this cereal liner. When we develop a new product and I would consider this a new product, this gives us an opportunity to set the price for that new product at the time we offer it to the customer. And then of course, there'll be some negotiation like there always is on pricing and volumes and discussions, but that's an opportunity to set a new baseline price that would go into that contract. And from that point forward, it would work under an escalator/de-escalator just like all the older products. But when we develop a new product, it's a key part of being able to reprice and reset the baseline for that product line.

We'll go now to Tom Mullarkey with Morningstar Financial.

Speaking of the new products, I was hoping you could give an update on FreshCase films and what you're seeing there?

Well, FreshCase is an exciting new product for us, and we took a long time to get the government approval, but it is also very exciting for our customer base as they look at what it offers. We have what many customers -- FreshCase now in testing as going through and seeing how it holds up over a shelf life. They're trying different products. They're looking at it. So right now, we're in shelf life test with numerous customers who are very interested in it and the real test will be if they decide to launch some of these products for us in the second half of the year, which is what we expect to do and start to see some sales growth late in the second half of this year.

We'll go next to Timothy Burns with Cranial Capital.

One question I had, and I'm sure it's probably just a net of a business right now but the movement -- more and more we're hearing about your movement into high barrier cups, trays and packages. The applications you've talked about are, I don't want to say mundane, but they're out there. Is this kind of product line going to head more towards fresh meat, more towards medical? I mean, could this become a major business unit?

I think that it will become, I don't know about a major business unit, but it will become a major part of our overall product offerings because it's going to go into all kinds of different applications. Some are in meat, some of the sliced deli luncheon meats where we really launched this, it's going in the creamers and sauces. It's going into areas that we never even expected when we started into this program a few years ago. So it's going to be a major part of our business, but I think it's going to be part of all of our businesses.

Henry, do you attach it to a piece of high barrier film that's basically branded onto the top of the lid? I mean, it would seem to me there's a great opportunity for a film tray combination?

Yes. Yes, a good example of one of the things I've pointed out through the Alcan acquisition, where Alcan really had some great lidding technologies around heat seals and lacquers, and those married up very well with our rigid cups, so we could supply both the top and the bottom and complete solutions, and that allows you to get after convenience features like easy peels. Other areas where those kinds of things really fit is when we move into the retort area and you make a rigid tray say for a rigid meal and then you have the lid stock, and it has all the technologies that allow you to go through that retort where you cook the product under pressure and temperature, and then it has to cool off and absorb all that and it still goes through. It has to have a year shelf life. And then when the customer finally puts it in their microwave, they wanted to peel it open so they can eat it very easily. So I mean those are two examples, and I think there's going to be a lot more examples as our rigid barrier business matches up with Alcan's and now our lid stock technologies.

[Operator Instructions] We'll go next to George Staphos with Bank of America Merrill Lynch.

One piggybacking on that question on new products and another one back to Alcan synergies in a minute. I thought I heard you say Henry or Scott that you had some promising applications for barrier packaging for meat and dairy applications within, if I heard it correctly, the refrigerator cabin or the refrigerator. And I guess if I heard that correctly, why would that be something that would actually have a fair amount of growth behind it? I could see it again for retort and shelf stable, but I'm not sure why need such a great barrier applications for refrigerator or refrigerated cabinet type of product in terms of where it's kept?

Some of these technologies go into areas where we already are in that area, but we have new films that offer peel seal convenience features that we hope our customers will see the value of it, move more business towards us as we gain market share because we supply a peelable feature. We supply an additional barrier, which extends the shelf life for products. And then not -- don't just think of it as what goes into your refrigerator but also applications that go into more backroom services in hospitals and into restaurants and places where a lot of things are moving from bulk packaging into a flexible packaging like tomato sauces, cheese sauces, those kinds of things, and we're offering again additional barriers and extending the shelf life of a lot of those products. And so really what we're trying to get at here is getting more market share by extended shelf life and by adding convenience features.

The question with synergy and I can appreciate that it's going to be increasingly difficult or now is too difficult to be able to break out either an aggregate or an individual component on a going forward basis because you've been integrating the operations. Having said that, how will you internally be able to track your progress on the synergies that were part of acquiring Alcan, if you have that difficulty trying to disaggregate them and track your progress?

Well, just to be clear, it's very easy for us to track and we do track carefully the improvements we have in World Class Manufacturing and cost takeout initiatives, our production side and our operations side and separately to track what our purchase costs are, what our improvements are in raw materials that we purchase. So we look at that very carefully. What we cannot do is determine, okay, how much of savings in this particular class of resin was attributable to the fact that we now own Food Americas versus just growth in our underlying business. So we track it by category. We just can't break it out between Food Americas and Bemis because we're all one company.

Scott, I understand that but if the goal is $60 million and you're at $30 million or so in year one, will you be basically then saying, okay, here's my baseline productivity metric, whatever that might be, here's my baseline purchasing metric whatever that might be and the progress that you see in 2011 you largely ascribe to the combined benefits of the two businesses?

That's exactly right. And by the way, yes, that is exactly right. In addition, the metrics that we track well below just World Class Manufacturing is a category. We have a number of different KPIs in the division level and an individual plant levels and an individual piece of equipment that we track carefully. But it all rolls up into terms of what we can track at a consolidated level and reference in aggregate Bemis plus Food Americas.

We'll take a follow-up question from Mark Wilde with Deutsche Bank.

I just wanted to come back to volume in the fourth quarter and maybe volume looking forward. I wondered, Scott or Henry, can you give us sort of the closest you can come to sort of apples-to-apples same-store volume in Flexible Packaging in North America in the fourth quarter?

In his comments, Scott talked a little bit about the various regions of the world and what we saw, and really it's in the fourth quarter similar to the trends that we saw in the second and third quarter. We saw strong sort of broad volume improvements in North America and weakness in several categories in Europe. In Latin America, we have that inventory correction issues, so we didn't have quite the strength that we had in the second and third quarter in Latin America. But overall, volumes year-over-year were improved in 2010 over 2011. We had some good trends going through, and it was pretty broad-based. I think part of that is because 2009 was a challenging year for volume. So the year-over-year comparisons lent themselves to the positive numbers. And as we go into 2011, we have no reason to think that those trends will change. They've been pretty steady. There are no one-time home run type of items in there, and there are several areas where we're winning new business, and we expect to see volumes in particular categories continue to grow.

I guess, what I was trying to do, Melanie, was a couple of things because I think Scott mentioned that part of the issue with volume growth, if I think about 4% away from acquisitions in North America, part of that was raw materials prices. So I was just trying to get a sense of that 4%, how much is volume and how much is price? And then the other thing I'm curious about it seems like most other packaging companies were showing some reasonable volume growth in Europe year-over-year in the fourth quarter, and you were down. And I just wondered if you could give us some color on what you think might be going on there?

In Europe, we saw some increase in volumes sequentially, and what's interesting is as we talk about some of the new products for the technologies that we added to Europe, things that get into PET, peelable seals and protein packaging, those areas where we've invested our money, we've seen growth. If you look overall, some of the more commoditized areas, I'll use the word, where it's just a polyethylene base, we're flat to slightly down. So we continue to see growth in those areas where we have transferred our technology. However, it is a very competitive environment, and we are not the leader in Europe.

And if you're looking at splitting up that organic growth, it really depends upon if you're talking about fourth quarter or total year because in the fourth quarter, there wasn't a lot of volume growth because we had the difference between the volume trends in Latin America and Europe versus North America. So it was more driven by price and sales mix. But for the total year, it was probably pretty even because we had, as I said earlier, nice volume growth for the year. But there certainly was a balance with raw material increases that changed the selling prices, as well as just improved sales mix.

We'll go back to George Staphos with Bank of America Merrill Lynch.

Henry and Scott, I haven't recalibrated yet for your full results here this year, but based on what have been kind of our prior forecast, we're modeling for something around two to three percentage point improvement returns on investment in 2011. Again, that's our forecast. What do you think will be the key drivers of improving return on investment in 2011? Do you have a goal in mind that you could share in terms of how much you think you can improve ROI this coming year?

ROI is something that we're tracking very carefully. And obviously, everybody focuses on growth and EPS, but where we're spending a lot of our attention is on both margin improvement and the balance sheet. And the way we think about it is really at several different levels. We look at pre-tax return on invested capital both in a disaggregated basis and in a consolidated level. And we look at after-tax return on assets and plain old return on equity. And so we're not forecasting specific returns objectives, but I can tell you that it's a key indicator for us at the senior management team level, it's something that we are focused on growing over the next several years.

We'll go now to Chris Manuel with KeyBanc.

Just a couple of last questions. One was with respect to what you're seeing for specialty resin pricing, what you saw through the second half of '10? What you're seeing right now heading into 2011? Can you give us a sense there?

Specialty resins had increases in the last half of 2010, and there are announced increases out there on all specialty resins for the first quarter of 2011, and they're similar in magnitude to the $0.11 per pound increases out there for polyethylene.

And then the second question I had was -- and maybe I just missed it in the press release, but did you give a share count or can you tell us what the share count was at the end of the year?

No. Unfortunately, you're right, it's not disclosed on the face of the income statement, but you can back into it pretty easily, I think from the numbers that are there. I think it does get disclosed in the 10-K footnotes later on at the end of this coming month in more detail, but it has not been on the face of the income statement for a little while.

Europe. There were just some discussion that you're making some adjustments and some volume coming around there a little bit, but what's your anticipation for '11? That began to become a problem here the end of '10. Is that a business that you think is back on track in '11? How are you feeling over there?

I think 2010 was the lowest point for our European business. I expect our European business to increase in profitability and volumes through the course of 2011. I don't think it's going to quite get back to where it was in 2009 very quickly, but 2011 will be a year of increase and I think 2012 will get us back to where we want to be.

And that concludes our question-and-answer session. We'll turn the conference back over to our speakers for any additional or closing remarks.

Thank you very much, operator. And before we conclude the call, I just want to reassure everyone that, well, I transferred here from Minneapolis and Scott has been a long time supporter of his hometown team, the Chicago Bears. We all now leave in Neenah, which is only 30 miles south of the infamous Lambeau Fields, and we'll all be cheering for the Packers this Sunday. Have a nice day.

That concludes our conference for today. Thank you all for your participation.