Good day, and welcome to the Bemis Company-hosted Second Quarter 2014 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Erin Winters. Please go ahead, ma'am.

Thank you. Welcome to our second quarter 2014 conference call. Today is July 24, 2014. After today's call, a replay will be available on our website, bemis.com, under the Investor Relations section. Joining me for this call today are Bemis Company's Chairman and Chief Executive Officer, Henry Theisen; our Executive Vice President and Chief Operating Officer, Bill Austen; our Vice President and Controller and interim Principal Financial Officer, Jerry Krempa; and our Vice President and Treasurer, Melanie Miller. Today, Henry will begin with comments on this quarter's business performance and outlook for the remainder of 2014. Bill will then discuss growth and capital expenditures, and finally, Jerry will cover the financial statements. After our comments, we will answer any questions you have. [Operator Instructions] At this time, I would like to direct you to our website, bemis.com, under the Investor Relations tab, where you will find our press release, along with supplemental schedules. We will be referring to these schedules at points throughout today's discussion. On today's call, we will also discuss non-GAAP financial measures as we talk about Bemis' performance. Reconciliations of these non-GAAP measures to GAAP measures that we consider most comparable can be found in the press release and supplemental schedules. I'd like to remind everyone that statements regarding future performance of the company made during this call 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. Please refer to Bemis Company's regular SEC filings, including the most recently filed Form 10-K for the year ended December 31, 2013, to review these risk factors. Now I'll turn the call over to Henry Theisen.

Thank you, Erin, and thank you, all, for joining us. I am very pleased with our performance this quarter. We delivered record EPS and strong margin improvement, grew sales in our target end markets and positioned our business for additional value-added volume growth in future periods. We delivered our highest gross margin percent since 2009 during this quarter at 19.8% as compared to 19.4% last year. This margin improvement was driven by continued pricing discipline and improved sales mix. In our U.S. Packaging segment, we improved operating margin to 13.9%, a healthy increase compared to 13% last year. We grew our target dairy and liquid end markets consistent with our strategy to increase sales of high-barrier value-added products. In our liquid packaging business, we continue to see the positive impacts of the conversion away from historical formats, such as glass and metal cans, to our lighter and more sustainable flexible packaging. In our dairy packaging end market, we gained some small yet strategic wins with our customers. Beyond these target end markets, overall unit volumes weren't quite as strong this quarter as compared to last year for a variety of reasons, including high beef and pork prices. Our strategy to sell the right products is paying off. We sold a larger portion of new, innovative products that earn a higher price based on the value they add to our customers. In our Global Packaging segment, this quarter's performance was consistent with last year. While we faced volume headwinds in Brazil, where inflation continues to burden consumers, we are pleased with the strong unit volume growth in our global health care packaging business. We have targeted this end market as an area of growth as it fits with our strategy to sell technology-driven value-added products. Our innovative solutions meet our customers'…

Thank you, Henry, and good morning, everyone. Like Henry, I am pleased with the execution of our growth strategy in the first half of 2014. Our business teams continue to focus on serving customers, increasing market share and improving sales mix, where our technologies provide a sustainable advantage. Today, I'll provide some color on the execution of our growth agenda and our confidence in our performance during the remainder of the year and into 2015. We have a strong pipeline of new business awards to support growth during the second half of 2014, and we are also investing in research and development projects that will create additional long-term opportunities. Before sharing details about our new business pipeline, I'll revisit the background of our 2014 growth expectations. As we stated in January, we anticipate that, directionally, our 2014 sales volume will be slightly better than GDP. Market share gains and new product innovations will provide the incremental unit volumes. While volume is important, our main focus remains in selling value-added products to our customers. As Henry mentioned, during the second quarter, we strategically increased unit sales to liquid, dairy and health care packaging end markets. We are pleased with this targeted growth and with the work we have done to lay the foundation for continued success in the coming periods. We have an innovative team of research and development engineers around the world, developing breakthrough technologies, prioritizing and focusing research effort and accelerating new products to market. We have introduced new products to our customers that will deliver steady volumes and margin improvement during the second half of 2014 and beyond. From a geographic perspective, these innovations are applicable to customers around the globe. In the U.S. during the second quarter, we were awarded several pieces of new business that will…

Thank you, Bill, and hello, everyone. This morning, Bemis Company reported record second quarter diluted earnings per share of $0.65, which was near the top end of our most recent guidance. There are no adjustments to GAAP earnings this quarter. These earnings reflect a 6.6% increase compared with the 2013 second quarter adjusted diluted earnings per share of $0.61. The prior year amount is shown on Page 3 of the supplemental schedules, which are available on our website and will be referenced throughout my comments. This quarter, we delivered gross margin as a percentage of net sales of 19.8% compared with 19.4% last year. This is our highest gross margin percentage since 2009. I will now discuss the sales and operating profit performance of each of our reportable segments. As I discuss sales, refer to Page 4 of the supplemental schedules, which provides detail on the year-over-year changes in net sales by reportable segment. Our U.S. Packaging operations, which represent about 60% of total Bemis annual sales, saw a decrease in second quarter net sales compared with the second quarter of last year. The primary driver of this decrease was the divestitures of our Paper Packaging division in 2014 and our Clysar division in 2013. Aside from the divestitures, overall organic sales in U.S. Packaging were down slightly. Volumes in our target end markets of dairy and liquid grew at strong single-digit percentages compared with last year. Our meat category showed a modest decline in volume, while we saw, on average, mid single-digit declines in dry foods, confectionery and snack and beverages. U.S. Packaging operating profit for the second quarter of 2014 was 13.9% of net sales compared with 13% of net sales in the second quarter of 2013, approximately 1/2 of this improvement related to the favorable impact of…

[Operator Instructions] And our first question, we'll hear from Scott Gaffner with Barclays.

I just wanted to dig a little bit deeper on the margin improvement year-over-year. How much of the improvement -- of the 40-basis-point improvement in gross margins year-over-year was related to the sale of the Paper Packaging business versus some of the margin -- some of the mix issues that you were talking about maybe in the business that you kept?

At the gross margin level, approximately 1/2 -- this is Jerry, I'm sorry. Approximately 1/2 of the improvement is related to the divestitures of the Paper Packaging division and Clysar.

Okay. And when I look at the old guidance versus the new guidance, did the old guidance assume the change in the interest rate for the $400 million refinancing or not?

Yes, it did. I think we spoke about that last quarter about our intention to refinance, and this was one of the options we were looking at, at the time.

And next, we'll move to Philip Ng with Jefferies.

This is actually Alex Hutter on for Phil. You mentioned the roll stock opportunity to replace shrink bags in U.S. Packaging. Can you just give a bit more color on that opportunity? How the margins stack up? How significant an opportunity it is for you now? How big you think it could become? And where you think your market share could go in that market, given your current capacity?

Let me turn that over to Bill, he's closer to it than I am.

Alex, it's a great question. We are a smaller player in the shrink bag business, and we've developed a great technology in flat film that can be used in the meat processing plants to replace shrink bags with flat film, so the bags get made in-line. It's a wonderful technology. We have deployed this technology in other parts of the world, yet on a small base. But in the U.S., we expect to deploy this over the course of the next several months and years because it's the last place that the meat processor can take cost out of their operation by taking out their labor of stuffing bags with pieces of meat. The meat just runs down a line and gets packaged in a flat film, and then the bag gets made right in-line. So it's a great opportunity for the meat processors to take cost out of their operation. And that's the target that we're going after, is to help our customers reduce their costs in their plant operations with our -- with this great technology that we've developed.

Great. And then just for the follow-up, volumes in U.S. Packaging overall seem to be tracking a little bit softer than that kind of 2% to 3% volume growth target you mentioned earlier in the year. You're up against easier comps in the second half, but kind of how dependent is your full year guidance on hitting that volume target?

Well, first of, what we said is that we would do slightly better than GDP, not 3% or 4%, but slightly better than GDP. Our guidance is really based on the innovations that we have and we've talked about them, as we've ramped up our CapEx spending this year and we've looked at our product flow. And as Bill mentioned, many of these things have been awarded to us. We're ramping them up. Overall, there is sluggishness in the economy, but new packaging, new formats, new products, conversion of rigid to flexible, these are the things that are driving our increase in our guidance and our confidence in delivering this year.

And next, we'll move to Ghansham Panjabi with Robert W. Baird & Co. Mehul M. Dalia - Robert W. Baird & Co. Incorporated, Research Division: It's actually Mehul Dalia sitting in for Ghansham. Just wanted to get a feel for your updated thoughts on capital allocation priorities. Should we expect to see more share buybacks going forward?

Well, I don't know if you should expect to see more share-backs or not. My goal or what I really like to do is to try and grow the company organically. That's the best growth. And I think we're going to be putting more CapEx into those opportunities that are presenting to us and that are -- we can use and turn into sales growth. After that, you look at acquisitions. And finally, if there's not anything there in an acquisition that enhances our technology or moves us into a new market, then you kind of fall back to share repurchases. But as I said, I think our main use of capital is going to be support the ideas that our R&D group has. Mehul M. Dalia - Robert W. Baird & Co. Incorporated, Research Division: Okay. Great. And can you quantify the top line impact from new product innovations and from the new customer wins that you outlined in your prepared remarks?

I don't think I can really quantify that now because a lot of those things aren't out in the marketplace yet, and I really don't like to speak about how big certain things are until our customers have them out on the shelf. Mehul M. Dalia - Robert W. Baird & Co. Incorporated, Research Division: Okay. Great. And just one last one. Are there any updates to the pricing environment in U.S. flexibles? Are you seeing any changes in competitive behavior there?

No, no. As we've talked about it, in the areas where we like to operate the most are around sterility and food safety, and there's less competition there. If we talk about the areas like we pointed out, that we have some good -- that's tough competitive markets like snacks and candies and confections, that's a very competitive market. And it continues to be a competitive market, and I expect it will in the future. We do well there. We operate there, but that's not our targeted markets.

And next, we'll move to George Staphos with Bank of America Merrill Lynch.

It's actually Alax Wang sitting in for George. Can you just talk a little bit about Brazil and your outlook for the region? We've heard sort of mixed things regarding demand trends down there.

Yes. Alax, this is Bill Austen. Our outlook for Brazil is steady as it is now. We have -- we're the leader in our packaging formats in Brazil. Our customers continue to buy from us. While demand is soft from the consumers in Brazil, we continue to run our business at very good capacity utilization rates across the entire Latin America region, not just Brazil, but also in Argentina as well. So our outlook for Brazil is steady as it goes. We are in a good position there.

And then just as a follow-up, maybe following up on an earlier question, what kind of conditions do you think need to exist so that organic volumes in the U.S. can grow more predictably and regularly?

Well, I don't know if we really know the answer to that question. I just think that the consumer has to start buying.

And we'll move on to Adam Josephson with KeyBanc.

In -- Henry, in U.S. Packaging, organic growth was down 0.5% in the quarter, and it was up 0.5% in the first half. Can you tell us what you're expecting along those lines for the balance of the year?

I expect that the decline in organic growth is going to stop. I think that you'll see us having a slight -- a little bit of growth in the second half of the year, and that's really related to new product offerings and the new innovations.

Okay. And in terms of cash flow, did the operating cash flow guidance change have anything to do with working capital? And if not, what are your expectations for working capital for the year?

Adam, this is Jerry. No, our working capital is typically high in the middle of the year, in our peak second quarter seasons. We have a higher level going into third quarter, expecting the improvements we see coming. But at year end, we fully expect that our working capital will be down to the same levels it was at the end of 2013 such that there would be no use of cash from working capital.

[Operator Instructions] Next, we'll move to Al Kabili with Macquarie.

This is Danny Moran on for Al. Did you see any de-stocking in the quarter from customers? And if so, do you expect this to normalize in 3Q?

I don't know if we can really say that there was de-stocking in the customers. I wouldn't have any evidence of that. Our order patterns are good. Yes, in certain markets, we had a little bit of a downside; other markets were a little bit better. But I don't have any evidence that there was a de-stocking going on.

Okay. That's helpful. And then just switching to PSM, it looks like it was a pretty strong quarter. Do you expect this level of mix improvement and the strength in Europe to continue in the back half?

Why don't I give it to Bill? He's closer to that than I am.

Dan, we expect to see PSM to stay right at the levels that it's at, and we're -- we feel good about where they are right now and how it's moving forward. And we do expect Europe to continue to improve, both in flexible and in PSM as their economy continues to dig its way out of the hole.

And next, we'll move to Chris Manuel with Wells Fargo.

A couple of quick questions. First, around cash flow. You had -- it looks like you've lowered the outlook for -- of cash flow. Can you give us a little color there as to what the contributing factors were? I mean, when we look at -- at least digging through the release, you talked about the sale of the Paper business, and you talked about the closure of the plant. But both of those were -- quite frankly, both of those were announced and completed before the very end of last quarter. So those 30 days, 20 days later, when you gave an outlook, those probably wouldn't have been factored in there. So what was the differential? I think, to an earlier question, maybe you mentioned working capital's going to be flat. Was there an expectation previous that it would have been a reduction? Or what were the elements there?

Chris, this is Jerry. I think, yes, you're right. At the beginning of the year, we had guided to $500 million of cash flow. And the -- at that time, the forecast did not anticipate the Paper divestiture or the Stow closure. So those items had not been considered. So we have now adjusted the $500 million for those items, and that's where we're coming out at $450 million.

Okay. You had -- okay. Second question was with respect to resin environment, what you're seeing right now. Any movements in specialty resins that are -- some of the more commodity grades have been relatively stable here. We saw an increase earlier in the year, as you pointed out. But anything unusual happening with some of your specialty grades?

This is Henry. No, no. We factored it into our guidance for the year, pretty much flat raw material costs going forward.

Next, we'll hear from Debbie Jones with Deutsche Bank.

I was just wondering -- I was wondering if you could just talk about 2 things you mentioned and in the release, which, again, is your -- the higher demand for graphic products in your Pressure Sensitive business. Can you talk about, again, what's driving that and kind of who your competitors are in that market? And then I think you also called out health care packaging as a source of growth, and I would just like to get a little bit more color on that as well.

Sure. Debbie, this is Bill Austen. The higher demand for graphic packaging, we're a leader in -- not graphic packaging, in PSM. We're a leader in graphic materials, graphic Pressure Sensitive Materials in Europe. And as that economy continues to rebound, there's a higher demand for graphic materials because that's the first thing that companies cut: advertising, bus wraps, car wraps, signage. And as the economy then begins to improve, companies start to advertise again, so graphic materials get in vogue, if you will. The demand is higher. And it's -- the normal competitors in that arena would be 3M and Avery. Those are the kind of folks that we would compete against in graphic materials.

Okay. And in the health care packaging, what's really driving -- what products do you have that's really driving the growth there?

Health care packaging, our growth there is being driven really across the globe. It's just the higher demand for health care, medical devices, pharmaceutical packaging in Brazil, which is doing well. Europe, we've got some package technologies that we happen to be the lead in and for drug-coated stents. So it's just the uplift across-the-board in health care and the needs for health care packaging.

And next, we'll move to Scott Gaffner with Barclays.

Henry, you mentioned your order backlog. It sounded like you thought they were pretty strong headed into the third quarter. Can you maybe either give us some order of magnitude or product categories, et cetera? What's giving you sort of a greater sense of assurance there around the order backlogs?

It isn't like it's drastically different. It just is a little better than it's been in the first and second half of the year. And again, it's driven by the new products that we offer. So it's not like the world has changed, we're just starting to see some pickup in our new products. We're starting to see some pickup in the conversion of rigid. And it's just a little bit better than it's been in the first and second quarter of this year.

Okay. And then just bigger picture, when we think about flexible plastic packaging, in general, right, we think about a higher growth market as you talked about earlier, some of these conversions from other packaging options, et cetera. Your organic volumes have been relatively flat for the last couple years, but part of that has admittedly been because you shed some low margin business. But can you talk about the market, in general? Why maybe the market isn't growing as fast as it should? Or maybe why your volumes have been a little bit lower than the industry, and whether or not you think over time we can see that accelerate?

I just think, overall, in the first quarter, the second quarter, the GDP, like in the first quarter, was negative. And this is kind of an overall weakness in almost all of our markets. And I think that our -- and we've overcome that with some new products, and our customers, when we talk to our customers, they want to come out with new products. They want to come out with things that are innovative or that separate them on the shelf. So I think we've kind of -- we were operating kind of in a sluggish lower across-the-board. We've taken steps to -- in our pricing discipline and some of those low margin areas that we're not going to seek those opportunities that don't give us a fair return for the value that we bring. And I think we're generating growth in those targeted areas where we are paid for the value that we bring.

And next, we'll take a follow-up from George Staphos with Bank of America Merrill Lynch.

Just 2 quick ones. Actually, just following up on the question that Scott asked earlier. If flexible packaging is taking share, why are we sort of seeing modest volume organic declines that are kind of consistent with what we're seeing in paperboard, if you can provide a little more color on that?

Well, I think it kind of comes back to the same answer I just gave. It is -- all of our customers are somewhat sluggish. All of our customers have some concerns about volume, and it's kind of spread evenly. And the conversions don't come as fast as some of those other things. And actually, it's our intent, in what we've done over the past, to target those markets where we get recognition for the value that we bring.

And then just lastly, are you seeing any logistical issues being created by rail or freight that's causing you to keep extra inventory or delaying shipments to your customers?

No, no, no, that's not what we're seeing.

And we'll take a follow-up from Debbie Jones with Deutsche Bank.

I just -- I wanted to just ask one more question on the cash flow guidance. Maybe it would help if you could just give us what the cash outflow is going to be from the Snow (sic) [Stow] closure. And then just from what you said, I think, on the last conference call, I think there were $9 million in proceeds from the sale of the Paper Packaging business, so just the tax implication -- cash tax implication there. That might help us to bridge.

Okay. This is Jerry. On the Stow closure, I think we did have an accrual in the quarter -- last quarter for the closure that we talked about, so that will give you an idea of the cash expenditures there. And on the gain on the divestiture of Paper, you got to remember that, that was the booking that was reported from a tax standpoint. We had a higher gain that we reported that we had to pay taxes on.

So above the $9 million?

Correct.

And we'll take a follow-up from Al Kabili with Macquarie.

Just want to follow up on the full year EPS guidance. Are you assuming any share buybacks in the second half?

No, there is no share-back factored into the second half of the year.

And we'll move on to another follow-up with Adam Josephson with KeyBanc.

On the cash flow outlook. So aside from those 2 items, presumably you would be north of $500 million. So do you think of $500 million or slightly north of that as a kind of a normalized number, along with the now $190 million of CapEx that you're guiding to post 2014?

You're saying, excluding the adjustments we just talked about, we'd be north of $500 million?

Right. You'd still be at $500 million or somewhat north of that number, and you talked about CapEx being equivalent to D&A post 2014, so let's call it $190 million. So roughly $500 million and $190 million kind of on a more normal basis. Does that -- would you agree with that?

That sounds reasonable. That makes sense.

And there are no further questions at this time. I will turn the call back over to the speakers for any additional or closing remarks.

Thank you, operator. Thank you, all, for joining us today. This concludes our conference call.

And that will conclude today's call. We thank you for your participation.