Ball Corporation (BALL) Q1 2010 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the Ball Corporation First Quarter 2010 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Mr. Dave Hoover, Chairman and CEO of Ball Corporation. Please go ahead, sir.

Well, thank you, Suzy, and good morning, everybody. This is Ball Corporation's Conference Call regarding our first quarter 2010 results. The information to be provided during this call will contain forward-looking statements. Actual results or outcomes may differ materially from those that may be expressed or implied. Some factors that could cause the results or outcomes to differ in the company's latest 10-Q and other company SEC filings, as well as company news releases. And if you don't already have our earnings release, it is available on our website at www.ball.com. Information regarding the use of non-GAAP financial measures may also be found on our website. Joining me today on the call is John Hayes, Ball's President and Chief Operating Officer; and Scott Morrison, Senior Vice President and Chief Financial Officer. In a moment, Scott will provide key financial metrics for the quarter and for 2010, and John will follow with details about our operating performance. While we reported strong first quarter results against some difficult comparisons last year when we had a net inventory holding gain in the range of $35 million. And also, as we described in our press release, we're seeing signs of growth in our packaging markets, which is very welcome. And during the quarter, our Aerospace segment saw an improving contract to work environment. We did announce earlier this month a new contract called GFO-2 [Geosat Follow-on 2 ] with significant potential and we're glad to see that begin to come in. So we hope to hear more about other proposals in that part of our business soon. And with that, Scott?

Thanks, Dave. In the first quarter, Ball's comparable diluted earnings per share were at $0.85, well ahead of last year's $0.77. Drivers during the quarter were positive contributions from the four acquired beverage can plants in the fourth quarter of last year: Volume improvements in our packaging businesses, very good operating performance and cost controls, tax benefits realized on a foreign investment in Asia and a strong start in equity earnings in affiliates in Brazil and further strengthening expected during the remaining quarters of this year. These were offset somewhat by higher interest costs due to the acquisition financing from last year. Aerospace segment first quarter earnings were down slightly on lower revenue. As mentioned on the last conference call, the trends in this business appear to be improving. While contract wins, including the one noted in the earnings release, will likely not have a significant impact on 2010, they do firm up staffing in the business and set us up nicely going into 2011. Turning to some key financial metrics, interest expense in the quarter was up as expected due to the acquisition financing from last year's purchase of the four Metal Beverage plants. While we still expect full year interest expense to be in the range of $140 million, excluding the impacts of the one-time interest costs associated with calling of the 2012 notes. The first quarter effective tax rate of 20% was favorably impacted by certain foreign tax benefits earned on investments. As you are aware, the recognition of tax benefits tends to be a lumpy activity. We continue to expect the full year rate to be in the range of 32%. But our tax department historically has done a great job of finding opportunities. The company's receivables securitization program is now being recorded as a balance sheet obligation, due to the effects of the accounting pronouncement I described in the January call. The impact for the quarter was an increase in accounts receivable of $250 million and an increase in debt. While the net balance sheet and total cash flow effect is zero, there was a one-time reduction in operating cash flow for the amount of receivables securitized and an offsetting increase in cash inflows from financing activities. This change has been broken out as separate line items in the press release financials, as you can see the net change and comparability between periods. During the quarter, we raised $500 million in new 6.75% notes due in 2020. On April 21, we used the proceeds of the new notes to retire $509 million and 6 7/8% notes due in 2012. Because of the timing of the new note issuance and the calling of the existing notes, our balance sheet reflects both debt issues and considerable cash on hand at the end of the quarter. The 2012 notes that were retired are shown as short-term debt at quarter end. Also following January's earnings conference call, we announced the repurchase of $125 million of our stock through an accelerated share repurchase program. The program resulted in the delivery of 90% or 2.2 million shares on the execution day with the remainder to be delivered at the conclusion of the contract, which will occur during the next few months. Given our significant free cash flow expectations for 2010 which continue to be in excess of $500 million, we will increase the size of the share repurchase program during 2010. As always, we look to return value to shareholders through a combination of share repurchases and dividends. During the period that our accelerated share repurchase contract remains open, it is cumbersome to change the current dividend amount, but we continue to evaluate both of these mechanisms to ensure that we have the right mix. With that, I'll turn it over to John.

Thanks, Scott. Ball delivered a strong first quarter. Global consumers appeared to be getting back on track. And that, along with balancing our supply and demand in our metal packaging businesses and very good and improving operating performance, makes us optimistic as we head into the busy summer selling season. Profitability for the quarter of our metal beverage packaging, Americas and Asia segment met our expectations and was notably improved over first quarter 2009. This was driven largely by the impact of the newly acquired U.S. plants and the lack of inventory holding losses recorded last year. Cost savings from prior plant rationalizations also contributed to improved results. Our CSD customers are fine-tuning the value versus volume equation, which is beginning to show up in the improving sequential CSD can volume trends in the first quarter. In China, both the overall market as well as Ball saw double-digit volume growth rates in the quarter. Herbal teas and beer demand were the main catalyst behind the volume improvement. In Brazil, the startup of our new facility continues to go very well and it is sold out. We announced the addition of a second line in this facility and it should come on stream in early 2011. The market is performing very well. It's up mid-teens, and we continue to look for opportunities while remaining disciplined. We continue to expect 2010 profitability in the Americas and Asia segment to be improved. Driven by the contribution of three additional quarters of the acquisition that closed in October, cost savings resulted from the previously announced capacity closures. Our relentless focus on our cost optimization and best practice sharing activities continued growth from new innovative product launches like our 90-calorie mini soft drink can, improved penetration of the can into the Kraft brewing segment and improving volume trends in both the U.S. and China. In our European operations, volumes were up mid single-digit percent in the first quarter led by promising growth in both Western and Eastern Europe that was slightly offset by weaker export sales. Continued cost savings at the plant level also contributed to improved results. As in the Americas and Asia segment, we expect earnings improvement, albeit on a euro basis in 2010 in this segment. The business is beginning to prepare for World Cup promotional activities, so we'll wait to see how much of a positive impact this will have with our customers. And Food and Household products segment continues to execute well. Volumes were up slightly above 3% in the quarter and many of our customers are off to a nice start. First year, year-over-year performance was down due to the lack of inventory holding gains recorded last year that Dave mentioned. However, even with that difficult comparison, the business had a very solid quarter due largely to excellent operating performance. While food and aerosol can volumes have rebounded, they are not yet back to historical levels. Continued volume growth and our disciplined approach to commercial activities offers upside for the remainder of this year and into 2011. Plastic packaging, Americas challenges continue. Lower volumes in the cold-fill CSD and water segments and manufacturing disruptions at a PVT plant due to a customer qualification occurrence led to an operating loss in the quarter. The manufacturing disruption is behind us and plants are catching up with the recent increased demand at the C store level. Also the food specialty plastic side of the business is seeing improved trends from our customer base. Ball Aerospace experienced somewhat softer sales in EBIT in the quarter, but also saw progress in contract integrations and, more importantly, new awards. This trend, if it continues, may provide a foundation for better results. Our antenna components and services businesses are maintaining good growth trajectory, and the hardware side of this business also has some glimmers of future contracts awards. So stay tuned here. Company-wide, our operations are executing well in what appears to be the beginning of an improved global environment. Continued discipline around capital spending and working capital reductions will ensure the delivery of significant free cash flow, which is a major focus in 2010. During the past two years, we've taken numerous actions to improve performance in a difficult global environment while also positioning Ball for growth when the economy improves. Though we are not done with that process, in fact we're never done, we do like where we stand today with our manufacturing footprint and the leverage we can poll to grow as markets grow. Dave?

Well, thank you, John, and thank you, Scott for your comments. While this year is only a third over now and we reported only the first quarter of it, we're experiencing building momentum and general improvement in our markets. For the full year, we continue to expect the company's 2010 earnings to be above those of 2009. We're focused in pushing hard for improved results in cash flow. We've taken steps in our operations to improve profitability and position Ball for continued organic growth, as well as opportunities in developing markets. The balance sheet has been strengthened and we have additional flexibility as we evaluate the best ways to create significant value for all of our shareholders. And with that, Suzy, we're ready for questions.

[Operator Instructions] Our first question coming from the line of George Staphos from Bank of America.

First question, did I hear you relate what North American volume was, John, in beverage cans? If you hadn't, could you relate it now?

Yeah, it gets a little bit difficult because as part of the acquisition, we're moving volumes in the system, so what was legacy and what were some of the formal metal containers. But as best we can tell in the legacy businesses, it was down low- to mid-single digits. And in the non legacy or the former Metal Container plants, the volume was quite strong. Recall at the end of the year, we talked about a slight step back in 2010. We're seeing a lot of promotional activity from our customers right now. And so as we go into the busy summer selling months, I think we have some good momentum, not only on the CSD side but also on the beer side, where we're seeing more promotional activity in that segment as well.

Did I also hear you say that this year you expect volumes -- and I took them as, if you will, same store- or same plant-adjusted volumes being up in North America because of what's happening with the customer base? And if not, could you give us a bit more color then?

No, I think what we see right now again in the same store, as you said it, we would expect to be down just a little bit. But that has to do relative to the overall market. And it largely has to do with what I said at the end of the January call about taking -- repositioning our portfolio, which will lead to improved volumes as we head into 2011.

I guess the last question – and I'll turn it over again on beverage. Is there any way at this juncture, if you assume a relatively flat North American industry, to gauge what your volume might look like in 2011 on a percentage growth basis, again in North American beverage? And then is it possible to put some relative weighting to the components that drove the margin improvement in the first quarter?

I'll address the volume issue and maybe Scott can address the margin issue. On the volume issue, as we go into 2011, it's a bit premature. But as you know, we've stepped back in terms of some of our volumes over the past couple of years, related primarily to plant closures and trying to be a little bit more disciplined. As we go into 2011, we expect to be up relative to the market, as I said before, as we rebalance this customer portfolio, particularly on the CSD side. We're also seeing a lot of good improvement, as I mentioned in my prepared comments, on the innovation side of our business. The Craft beer segment, we're seeing a lot of tailwind there. Just several years ago, cans really weren't represented in that segment and now we're seeing good momentum there. With the 90-calorie, 7.5-ounce can that we've launched, that's going quite well as we sit here today. So all those factor into an improved environment as we go forward.

I would just add, George, that I could see if the economy improves a little bit, and not just the repositioning but also some of these other factors where our business which is pretty large now in North America, low- to mid-single digit volume growth next year.

And just on the margin components?

On the margin front in the first quarter in beverage, it would be either probably more normalized margins that we had. If you recall last year, we had some inventory losses. And if you went back to the previous year, we had some inventory gains. So these are more normalized margins. This is the last quarter that we'll see benefit from some of the previous rationalization that we did. And so going forward, we expect more stabilized performance.

Our next question coming from the line of Claudia Hueston from JPMorgan. Claudia Hueston - JP Morgan Chase & Co: I was hoping you could just elaborate on the Plastics business and the operational issues you have there. You said they're sort of over now, was there any lingering impact into the second quarter that we should be aware of or was that pretty much resolved in the first?

Yeah, this related to a specific incident in one of our plants and we were disqualified. And we worked through the quarter to become requalified. And that did occur late in the quarter, and so we certainly hope that that's behind us.

Yeah, all lines in all of our plants are running right now. Claudia Hueston - JP Morgan Chase & Co: Okay, that's great. That's helpful. And then I was hoping, just on the beverage cans side, you could just provide a little bit more color on what you're seeing in Europe, maybe just looking at some of the different geographies within Europe?

Yeah, actually, Europe is very much a good story in the first quarter. When you look at Western Europe, the overall market was up about 8%. And even in Eastern Europe, it was up higher than that, probably low single digits. Our overall volumes were a bit soft due to some of our expert business being soft. That was timing issues. But we expect that to rebound through the balance of the year. So we really are excited about the momentum as we head into the summer. We've got the World Cup in front of us. And you know, go U.K., go Germany, go France, go Netherlands, go Poland and go Brazil. But that usually does add some meaningful volume and the tone and tenor with our customers, as there's going to be a nice push. You know, we always have to worry about weather and things like that. But last year's weather was quite difficult throughout, not only Continental Europe but also up in the U.K. So as we sit here today, our management team feels pretty good as we go into the summer.

Our next question coming from the line of Ghansham Panjabi. Ghansham Panjabi - Robert W. Baird & Co. Incorporated: John, the promotional activity you referred to, is that specific to beverage cans or should we expect that to flow through into plastics at some point? And also, are you seeing the promotional activity outside of North America as well?

The short answer is yes to both of those. I think on the CSD side here in North America, I mentioned the volume versus value equation. We're seeing it more on the can side than we are seeing on the PT side. But when you just look at what their pricing policies are through IRI data and other things, you can clearly see that the significant prices that the CSD segment's been going after over the last 18 months has moderated, and there is a lot of promotional activities, particularly at the big-box stores here in North America. As you go around to the rest of the world, obviously, it varies country by country and region by region. But we are seeing – you know, I think in Europe, the fact that Western Europe was up 8% and Eastern Europe was up more than that is a good telltale sign that the consumers are starting to get back into the game, and it's being helped by some moderated pricing by our customers.

As you go to China and Brazil, it's up more.

Okay, that's helpful. And also, one of your big customers seems to have switched to aluminum suppliers in the U.S., has that impacted you in any way in terms of access to aluminum?

No, not materially. It's nothing of note.

Our next question coming from the line of Mark Wilde from Deutsche Bank.

I wonder in Europe, is there enough of a pickup visible to you that you can start to think about maybe some capacity decisions over there? I think you have had some capacity that you've been kind of sitting on in Eastern Europe.

Yeah, and specifically, you're mentioning our Lublin plant that we had put on hold through the economic crisis. You know, what I would say is, not yet are we ready, but it's certainly on our radar screen. One thing I didn't mention, which is another positive development in Europe is – has to do with the German market. There are trials going on with some of the big-box stores there and putting cans back on the shelf. That if that occurs, we're going to have some issues. If it occurs in a large way, we're going to have some issues keeping up with volume demand. So that's obviously a good thing, and that would factor in to how we rebalance our European network and potentially start up Lublin.

John, when would those decisions get made in Germany? Is there a timeline you can help us with?

Well, let me give you the context and that will probably be helpful. There's four to five significant big-box chains in Germany. There's one specifically that has a trial going on in 300 of its stores. There's been a lot of discussion, a lot of communication with the other big-box stores. So a lot more interest today relative to any time over the past six, seven, eight years since the deposit was implemented. And we'll just have to wait and see as we go forward. We're certainly not declaring victory, but the tone is much better than it's ever been.

The North American aerosol business, how's that doing? What are you seeing in terms of volume there?

We're actually seeing improved volumes in that segment, and we feel very constructive going into the summer. There was clearly destocking in that segment, whether it was on the paint side of the business in the household products or even the beauty, and we are seeing that destocking largely over and we're seeing some pretty decent volumes with those customers you would expect as you go into the summer season.

Our next question coming from the line of Joe Naya from UBS.

I was just wondering what you saw in terms of trends with your specialty can business in the quarter?

Well, as I think I've mentioned it before, when we went through the economic crisis, we did see a slowdown in the specialty side of the business, but we've seen some renewed interest in it, whether it's on this new 90-ounce, 7.5 – excuse me, 7.5-ounce can that we have promoted. You're seeing the energy drinks starting to come back. You're seeing some of the non – some of the specialty products out there. The volume trends are certainly improving as the customer feels a little bit more constructive about the economy. So we feel pretty good where that business is right now.

I guess going forward with the Metal Container acquisition, that was really more heavily weighted towards the 12-ounce cans now, right? So I was just wondering how – what the best way to think about the relative impact of that specialty business is?

Well, obviously, by math, it's a lower percentage of our business than it was a year ago. The former Metal Container plants did have some specialty. They had the Squat-8 [ph] can and some other things, and we've been taking a look at how to leverage that relative to some new and innovative products. And so it's a little bit lower as a percent of our total portfolio today, but I think that the volume trajectory outlook hasn't changed. And I believe it's around 15% of our total portfolio today.

Yeah, after giving effect to the acquisition.

Our next question coming from the line of Richard Skidmore from Goldman Sachs.

First, can you quantify what the impact was in the plastics business of getting disqualified in the disruptions that you mentioned?

Well, I think it contributed to well over half of the miss from last year.

And then maybe just shifting topics, you're adding a can line in Brazil. You've got a competitor that's doing a couple of can lines in Brazil. Is there any concern that you have with regards to the capacity expansion situation that's unfolding in Brazil, specifically as it relates to your experience that you saw in Europe? And maybe what's different that you're seeing in Brazil compared to what you saw in Europe a few years ago?

Well, I think that we, having been in the business a long time, are always concerned about the industry getting overbilled. And I don't think we're there yet on what has been announced and so forth, or anywhere close to it. I think the market down there is close to 1.5 billion cans short, at least in terms of the forecast. There are cans being imported into Brazil this year, which is not a good economic outcome. So as we and others invest and/or put in more capacity, it's to fulfill an identified demand. But I think all of us have to be concerned and careful about this whole idea of being overbilled. Our new plant north of REO, both of these lines, the one that's operating and the one that is going to come up, as John said, early next year are sold out. So the other part is, as you know, although from time to time, we ship cans long distances, freight's an issues. So where you're located in a large country in a large market is not important either. I mean, we're not going to do silly things. And hopefully, our competitors won't either, and we'll see. But as of right now, I feel okay about all that. John, do you have anything to add?

No, I think that's well said.

And then just maybe following up, as you look across your global footprint in beverage cans, are there other markets that fit similar to Brazil, specifically, that are net short cans now that you could look for opportunities to add additional can lines?

Yeah, you know, I talked a little bit about this on our last conference call and the short answer is, yes, we're actively looking at those things, but for competitive purposes, we'd prefer not to disclose those. But there is -- we are seeing a trend in global beverage cans that are quite positive, particularly on the beer side and particularly in some of the other specialty areas. You're seeing package-share shifts going towards cans and we are very in tune with that, and we are very much on it in terms of making sure that we're going to capture opportunities, but not doing it in a way that's not responsible.

Our next question coming from the line of Chris Manuel from KeyBanc Capital Markets.

A couple of quick questions for you. One, I don't want to belabor the plastic stuff too much, but is it -- how should I interpret -- obviously, it was a shortfall in 1Q. The last couple of years, you guys have done roughly in the neighborhood of $16 million of EBIT there. Is what happened in 1Q something that we should just look at as a one-time event, it's over, it's done? Or is it as the year progresses, you can – now that you're qualified again in those lines, can you make up for some lost volume or make up for some of the preformed contract that might have taken a little longer or something of that nature?

Well, I think that what you described is likely what's going to happen for the balance of the year, that is, we should be able to run better. We were hurt by two things, the things that we have already discussed about the qualifications and so on. But also, volume was light in the first quarter. As I mentioned earlier, all of our lines are running now, and shipments are picking up. And we just heard a day or two ago that we're having trouble keeping up in a place or two. So no doubt that has a good impact. I would just say that overall, we have to fix this business. We did get price increases and so forth. Volumes have been softer. But it's getting a lot of attention inside of our company right now as to what to do. On the other hand, because as you mentioned earlier, it really isn't very large in terms of the overall Ball Corporation. And so I think one needs to keep that in mind. We want to make it perform better, certainly, and we may have to take actions to cause that to happen. So, John, do you have anything that you can add?

No. You know, volumes have been quite soft over the last couple of years in that business and it makes it very challenging with the various leverage you can pull to improve that business. As Dave mentioned, we have been spending a lot of time looking about how we can play in a way that generates value better than what we're doing today. And we've got to find a different way relative to the status quo. And we have looked at a whole bunch of different things to try and make this a better business.

And that's helpful. And then one thing that you didn't specifically mention was in Asia, I think you have a JV that you were closing on finishing. Can you give us any update there with respect to timing and how that market in particular looked? And along those lines, to follow up on what Rick just asked you, what you're thinking over there with respect to where your capacity's at? Is that a target market that – you know, it seems to be growing pretty rapidly, you could continue some more expansion in it?

Well, on the acquisition, we continue to work through their version of the antitrust process, and that can take -- it's a relatively new process over there, so it's taking a little bit of time. But everything continues to move forward. From a capacity standpoint, this plant is right in the sweet spot of where a lot of the growth is in China, and we think we have some opportunities once we get ahold of this plant. So everything continues to be progressing, but a little bit slower than what we'd like it to be.

And when you take that whole region, the Asian region, pretty writ large, half the population of the world lives there, number one. Number two, it's a much younger population. Number three, it's a population that's moving from the rural areas to the urban areas. And number four, it's probably the strongest GDP growth, and that means per capita growth around the world. So all those secular trends point to it. Some of the regions are much more can-oriented than others. There's been a lot of consolidation of multi-national beer, soft drink and other companies in there, which should be helpful on it. So that's why, not only in China, but in non-China Asia, we think there's opportunities for us.

That's helpful. And I just have one quick follow-up. It sounds like -- as we look at the balance sheet from a leverage perspective, you guys are going to be back below where you were almost before the deal a year ago as we get to the end of this year. And it sounded like, from earlier comments, dividends would be something you'd be taking a look at again as well. How should we think about other uses of cash as you work the way through the year? I mean, you've been active already in some share repurchase, but there are also some interesting acquisition opportunities remaining out there globally. How do you view your ability to execute right now another acquisition? Do you look at what you've done here in North America as kind of consuming a disproportionate amount of resources? Or do you think that you could execute another deal?

Well, I'll talk to this from a financial perspective and let somebody else chime in from a strategic perspective. But financially, we're in excellent shape. The debt offering that we did to replace the 2012 notes pushes our debt maturities out, so we have a nice profile from that perspective. We are – you're right, by the end of this year, our balance sheet's better than when we made the acquisition last year. And so we think we have a lot of the flexibility, that's why we're going to turn up the stock, buy it back for the remainder of this year. And we think we can take advantage of a lot of different opportunities.

Yeah, I certainly concur with that. As far as our ability to acquire -- in our Board meeting yesterday, Ray Seabrook said the integration of the plants that we bought is done. And so that is not a continuing kind of activity that from the standpoint of trying to get it integrated that we have. And we certainly have the financial capacity and the interest to continue to look at acquisitions that fit our company and we think that can add value. So you know, you can't ever predict when those things happen ahead of time. But rest assured, we're looking in any and all ways to create value here.

You know, the strategy we're currently employing is no different than what we've done over the past 10 years, and that's being on the acquisitions side or investment side, being patient and tenacious at the same time, while in-between the times that we are making acquisitions, we're using our free cash flow to buy back stock, pay dividends and deliver value to our shareholders. So that concept today is no different than what we've done in over the past decade.

Yeah, as Scott told you earlier, we plan to buy more than the stock we bought in the first quarter.

Our next question coming from the line of Chip Dillon from Credit Suisse. Chip Dillon - Crédit Suisse First Boston, Inc.: I know at the end of the fourth quarter – I guess on the first -- the January call, you indicated CapEx of $235 million for the year. And I think it was after that that you announced the second line in Brazil. Is that going to be within that $235 million number?

Yeah, the $235 million -- the Brazil numbers show up in equity and affiliates. So that's – the second line that's down there doesn't show up in our numbers, but it's essentially self-financed. Chip Dillon - Crédit Suisse First Boston, Inc.: So you don't have to contribute more to the partnership?

Correct. Chip Dillon - Crédit Suisse First Boston, Inc.: And as we think about CapEx in '11 and '12, obviously, it would be somewhat subject to future acquisitions, if there are any. But barring that, do you think that number will be about at the same level in 2011 or could it move up some?

You know, until we see -- we're starting to see some, as John mentioned, some growth opportunities. But until we see stronger growth where we need to put in additional capital, right now, we see it staying roughly at the level that it will be this year. Chip Dillon - Crédit Suisse First Boston, Inc.: And then I think when you look at the Brazilian market, which, as you described, as growing mid-teens in terms of volume, correct me, but it didn't seem like that market ever really saw a year-over-year decline for any period of time. Correct that perception. And then as you look at that demand growth today and perhaps going forward, do you see a mix in the share of cans versus glass, either in CSD or beer or any other category?

Yeah, to answer your first question, it hasn't been since probably the 2000, 2001 time frame when there was some currency issues down there as well as election changes, in terms of the government, that there was some softness there. But ever since then, it's been moving forward nicely and accelerating as time has gone on. With respect to the market share mix, the beer has been stronger relative to soft drink down there. And beer, it's really glass versus cans. And on the soft drink, you also have PET in the mix as well. So if I recall off the top of my head, the can as a share of beer mix is in the upper 30s, call it 37%, 38%, and on the CSD side, it's probably low teens. And so as that economy continues to mature, as the GDP per cap continues to increase, and as the government continues to invest in infrastructure in anticipation of the '14 World Cup and the '16 Olympics, I think the underpinnings for the continued growth looks nice. Let's not forget that here in North America, in the beer segment, cans as a share of package mix is now probably over 50%. Chip Dillon - Crédit Suisse First Boston, Inc.: Obviously, the opportunity would seem to be more in the CSD area if it's only in the low teens. And I know that you have the whole distribution system built on returnable glass. But we went to cans here when we developed larger supermarkets, et cetera. And I would imagine that trend is -- is that something that you would expect to help you in the CSD area or is it really more about beer?

It certainly can. It's just, given the competitive dynamics of PET versus cans and the way that market has developed, the can in the CSD segment is certainly behind it. But we would hope through some innovation and other things -- for example, we are doing a lot more in terms of innovative can sizes. We've talked with customers about our receivable end down there. And so I think innovation will be an important part on the CSD side.

[Operator Instructions] Our next question coming from the line of Al Kabili from Macquarie.

Just a question on Metal Food and Household. Could you parse out the volume – I know you said 3% growth. Could you parse out any appreciable difference between the food cans and aerosol cans within that volume growth number?

Yeah, In the first quarter the food cans were a little bit better than the aerosol. I don't have the numbers in front of me, but if it was approximately 3% blended, that would mean probably closer to 4.5% or 5% on the food side and probably 2% or so on – 1% to 2% on the aerosol side. Aerosols, might – the seasonality of each of those is quite different, though. And so as we go into the second quarter of aerosol, we're seeing pickup in that, relative to – as I mentioned earlier, to paint, some of the things that are used in the summertime. And on the food side, we expect those trends to continue throughout the year. Our conversations with our customers indicate that barring weather and crops and other things like that, that they expect it to be a robust year, largely because the destocking we saw, particularly in the first half of last year is over and we're seeing consumers starting to restock in the pantry.

Last question for me is on Europe. Did currency add, if anything, appreciable in EBIT? I think he had had some currency there, but I wanted to check on that.

Well, we actually had a bit of a headwind because we had hedged last year at a much higher rate than what it was, than what we experienced. We actually had about $0.03 headwind in the first quarter.

And with that, did that headwind flow within that segment? Or is that captured in that other unallocated corporate?

It's in that segment.

Our next question coming from the line of Andy Feinman from Iridian Asset Management.

Dave, you said something about waiting for -- I think you said something about waiting for bids or offers on some other things you're selling. Could you please repeat that?

I think that was with respect to the Aerospace business. And we won a sizable contract called our GFO-2 that we announced a couple of weeks ago. And we have bids out for several, in particular, large hardware contracts. That business sorts itself into three parts: The antenna and equipment business, a technical services business. Both of those continue to see growth. And that's about now, about 40% of the total. So the hardware business, we finished a lot of things and it was kind of slowing down. And we've seen no decisions being made. Well, one's been made, we can anticipate, I think during the balance of this year, a few more. And if we win our share of those, we'll see our backlog build and so on. The business, actually, at this point through four months is frankly tracking a little ahead of where I thought it might be. And that's a credit to the people there, and that we have been winning smaller things. But we're optimistic that we're beginning to see inflection there, and more to come.

Our next question is a follow-up question from George Staphos from Bank of America.

Scott, if we look at the year-on-year change in beverage Americas and Asia EBIT, my earlier question I was trying to get at, perhaps some apportionment to improvement from costs and productivity, Metal Container Corp., the acquisition of the four facilities and/or improvements you made in the market in terms of your turns on pricing, et cetera. Is there any way to break that out?

Well, the biggest chunk of the improvement year-over-year would obviously be the Metal Container, that the plants that we acquired last year. I'd say the next biggest chunk would be improvement in Asia, where we're seeing strong volume growth and improved pricing there. Those would be the two biggest pieces. And then a little bit of benefit, as I said, the last quarter of benefit from previous rationalization, moves that we made. And then also, a little bit as John talked about, on the legacy volume. If you can –- it's hard to break out exactly what legacy volume is, but a little bit of an offset from that.

Will those components change much over the rest of the year? I know you talked about the plant rationalization being essentially over. I don't have my notes exactly in front of me, but I do recall plant rationalization were going to benefit your results through middle of this year, so that would suggest 2Q as well?

Yeah, there's a little bit that leaks into the second quarter, but essentially the plant rationalizations are done. I think a lot of the benefits – and John probably would comment on this – a lot of the best practice sharing that we're seeing from the acquired plants and as we incorporate that into the existing plants, I think that sharing can benefit as we go forward, and then, obviously, as volume starts to pick up.

Yeah, you know, on the best practice sharing, recall that when we announced the acquisition, we talked about it will take us two to three years to really get after all that stuff. I think we're ahead of plan. As Dave had mentioned, the physical integration in terms of systems, that's over. And now we have a very significant program and project ongoing to really identify those best practices in every one of our facilities and then deploy them in the facilities. And that just takes a little time to show up. But we feel very, very constructive about all the activities that's going on. And it should help us primarily beginning in 2011 and beyond.

I realize the forum makes it at times difficult to talk about these sorts of things, but in the past, you've said when the question had come up about your renegotiation on contracts that were coming up for 2010 that you were pleased with your progress on pricing. A couple of minutes ago, Scott was enumerating some variances in EBIT, and pricing really didn't come up. So I don't think this is the case, but does that suggest, putting the two together, that you were pleased and you didn't get any pricing? How should we think about that?

As you know, George, we really don't like to get into those types of things, but what you just said, I would not agree with.

Our next question coming from the line of Tim Burns from Cranial Capital.

David, I have one for you. With this switch from manned to unmanned aircraft, is that a good thing for Ball Aerospace, given probably the need for, I guess, incremental guidance?

Well, I think historically, we haven't been a builder of much of the shuttle program. We've got star trackers and tanks and other things, but not huge in the revenue line. I believe a lot of the instruments, weather instruments, instruments for DoD and other things that we build aren't in that segment, so it's certainly not hurtful. We did a big review of what's going on budget-wise and otherwise, and I think it could well promote opportunities on a net basis that would help us.

I think they're saying that – and I guess I'm talking about the Predator and its sister ships, but nearly 40% of the Air Force's procurement is going to be unmanned. So I was just curious.

Yeah, and I mean, the antenna and the optics and everything else that we build, we're in that space as well. We also do them for manned airplanes, and we do other kinds of things. But I was thinking more about the hardware side of the business, the outer space part. But in terms of the switch, maybe to more of that, which is actually going on, we're heavily involved in those programs.

Tim, as David said earlier, we continue to see good growth on the antenna and video side of our business there, and that relates directly into what you were just describing.

And I had one comment for John, which is you can talk all you want about world football, but if the Cleveland Cavaliers win the NBA championship, can sales are up 4% or 5%.

I'll look forward to having that discussion with you when they win then.

Mr. Hoover, there no further questions at this time. I will now turn the call back to you. Please continue with your presentation or closing remarks.

Okay. Well, and thanks very much, Suzy. I hope the folks on the call can feel the enthusiasm that we have for where we are in the business. It's as healthy as it's been in a while. And I can see not just in this year, but in the next few years, improving performance. And I suspect we're going to have lots of opportunities. So with that, we'll talk to you again in July. Thanks for listening.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your line. Have a great day.