Greif, Inc. (GEF) Q4 2007 Earnings Report, Transcript and Summary

Good morning ladies and gentlemen and thank you for standing by. Welcome to the Greif Inc. Fourth Quarter 2007 Results Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will open for questions. [Operator Instructions]. This conference is being recorded today Thursday, December 6, 2007. I would now like to turn the conference over to Debra Strohmaier, Vice President of Corporate Communications. Please go ahead Debra.

Thank you Rob. Good morning everyone. As a reminder you may follow this presentation on the web at greif.com in the investor center under conference call. If you don't already have the earnings release, it is also available on our website. We are on slide 2. The information provided during this morning's call contains 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 are on slide 2 of this presentation, in the company's 2006 Form 10-K and in other company SEC filings as well as company earnings news release. As noted on slide 3, this presentation uses certain non-GAAP financial measures, including those that exclude special items such as restructuring charges and timberland disposals. Management believes the non-GAAP measures provide a better indication of operational performance and a more stable platform on which to compare the historical performance of the company and the most nearly equivalent GAAP data. All non-GAAP data in the presentation are indicated by footnotes. Tables showing the reconciliation between GAAP and non-GAAP measures are available at the end of this presentation and in Greif's fourth quarter and fiscal 2007 earnings release. I will now turn the call over to Chairman and CEO, Mike Gasser.

Thank you, Deb. Good morning everyone. We appreciate your participation in our conference call today. If you're following our presentation on the web, please go to slide 4. We are pleased to report solid results for the quarter which contributed to another record year despite the headwinds experienced in some of our markets. Our results show the strength of the Greif Business System combined with our diversity in products, thought and geographies, all of which contribute to consistent, sustainable and predictable earnings as we have demonstrated over the last five years. Our strong performance reflects disciplined execution of our growth strategy, which involves solid growth in existing markets, Greenfield expansion in emerging markets, consolidation of operations in mature markets and strategic acquisitions. Now to slide 5. We had a busy year in 2007 as we further embedded our strategy and continued to embed the Greif Business System into our DNA. For the fourth quarter, we named Dave Fischer, as President and Chief Operating Officer. Through his leadership, we will further strengthen the discipline of the Greif Business System worldwide, continue standardization and optimization based upon best-in-class practices and persist in pursuing profitable growth. Concurrent with Dave's move, Senior Vice President, Mike Patton was named to head all of North American industrial and paper packaging operation. Mike's in-depth experience and thorough understanding of the Greif Business System will serve Greif well in this effort. 2007, we also completed the integration of Blagden's new steel drum enclosure operations into our Greif network. We are now focusing on realizing further benefits from the synergies created by the strategic acquisition made at the beginning of the fiscal year. On the whole, Europe turned in record results under the leadership of Senior Vice President, Ivan Signorelli and his team. We expect similar successful results from Europe this year because of their outstanding efforts. Similarly, Delta's new management team continues to improve the division's operations and extract value used in the Greif Business System. We are happy with their progress and excited about their future. We reinvigorated our management account this year with the addition of Senior Vice President, Karen Lane. She and her group are providing leadership, management and other skill training to our employees worldwide in addition to the hard skills training provided by Greif center of excellence. Also this year we successfully completed a tender offering for our 8 7/8 percent senior subordinated notes due 2012. At the same time, we issued $300 million in 6 3/4 percent senior notes due 2017. Net proceeds from the issuance of the new senior notes were used to fund the purchase of the subordinated notes and the tender offering. The remaining proceeds were used for general corporate purposes. In the second quarter, we completed a two-for-one stock split and increased dividends 50% for the second time in two years, consistent was the company's targeted dividend payout ratio of 30% to 35% over a complete business cycle. On slide 6, as you can see, we remain on track to achieve our 2009 performance goals. With solid fundamentals in place, our positive momentum continues into fiscal 2008. Executive Vice President and Chief Financial Officer, Don Huml, will now provide you with an update of our financial results.

Thank you, Mike. Good morning everyone. Please go to slide 7. Our record 2007 results were driven by top line growth, synergies captured from acquisitions and impact from the Greif Business System. The positive results were particularly noteworthy given the context and the challenges we faced, specifically from higher waste paper costs and the continuation of a sluggish North American economy. Net sales increased 26% over last year to $3.3 billion. Organic sales growth was 8%, and most of that amount was attributable to higher sales volumes of industrial packaging product. Additionally, fundamentals in Paper Packaging were improving as we exited the year. The remainder of our growth in net sales included 14% from the acquisitions of Blagden and Delta and 4% from foreign currency translations. Gross profit increased 26% to $605 million due to positive contributions from growth coupled with the Greif Business System. The gross profit margin was 18.2% of net sales in fiscal 2007 and 2006. Business mix changes and increases in raw material costs reduced value added, which were offset by improved productivity and efficiencies. SG&A expenses declined to 9.4% of net sales from 9.9% last year. The year-over-year dollar increase is primarily due to the Blagden and Delta acquisitions and performance-based incentive accruals. These increases were mitigated by tight expense controls and the positive impact from acquisition integration activities. Operating profit before special items was $311 million compared to $238 million last year. The year-over-year operating profit improvement was driven approximately equally by the Greif Business System, primarily sourcing and operational excellence savings and the contribution from strong top line growth. All three of our business segments contributed to the higher operating profit. On slide 8, we highlight the positive trends in our operating profit on a year-over-year basis. From the base period of 2002, our operating profit has trended up significantly. The key catalyst has been the implementation of the Greif Business System in our legacy and acquired operations. Solid progress was achieved during 2007 toward our three year impact goal and we are on track to realize the expected $100 million in permanent savings by the end of 2009. On this chart, you will also see that our key performance metrics are trending positively. Slide 7... excuse me, slide 9 shows the results of our Industrial Packaging segment. Net sales for the year were $2.6 billion, up 34% including organic growth of 10%. This was due to higher sales volumes in most regions with particular strength in Europe and the emerging markets. The remaining increase in net sales was attributable to the Blagden and Delta acquisitions which represented 18% of the increase as well as 5% from foreign currency translations. Operating profit before restructuring charges rose 38% to $225 million primarily due to the improvement in net sales and the execution of the Greif Business System. Now on slide 10. The Paper Packaging net sales increased to $697 million compared to $668 million last year. This was principally due to annualized benefits from higher containerboard selling prices implemented in fiscal 2006 and slightly improved volumes. The previously announced $40 per ton containerboard pricing increase was fully implement beginning in the fourth quarter of 2007 and is expected to benefit the segments' results for the first quarter of 2008. Operating profits before restructuring charges were $72 million compared to $64 million last year, primarily due to the increase in net sales. On slide 11, Timber segment net sales were $15 million for the year, consistent with plan. Operating profit before special items rose $4 million to $14 million. Profit from the sale of special used property more than doubled to $9.5 million this year from $4.6 million last year. Now to slide 12. Capital expenditures were $113 million for 2007 compared to $76 million last year. This amount is similar to annual depreciation expense for 2007. The increase reflects specific actions to support productivity improvements and our growth strategy. Our capital expenditure forecast for 2008 is similar to 2007. Solid organic growth coupled with additional savings from the Greif Business System are expected to contribute to another year of record performance. Annual earnings guidance for 2008, which excludes special items, is a range of $3.80 to $4 per share for the Class A common stock. This increase is approximately 18% to 24% above our record 2007 earnings and we remain confident in our ability to achieve our 2009 financial goals. That concludes my formal remarks and you should now go to slide 13. Mike and I will be pleased to answer your questions. Question And Answer

Thank you, sir. Ladies and gentlemen, we'll now begin the question and answer session. [Operator Instructions]. Our first question comes from Jim Lucas from Janney Montgomery Scott. Please go ahead.

Hi. Thanks. Good morning gents.

Good morning Jim.

Good morning.

Don, first financial question before I ask about the big picture strategic one. The tax rate has been a little bit of a moving target. As you're looking at going forward next year, what are your expectations on the tax rate?

Jim, that's a very good question. It has been trending down as our earnings mix has changed. You may have noticed the sharp increase in our earnings outside of North America, and that was about 50% on a year-over-year basis improvement in Europe and continued strength in the emerging markets. There is about a 10 point differential between the U.S. statutory rate and the rates outside of the U.S. So we are definitely benefiting from that mix change and that is expected to continue. So the 25.3% effective tax rate for 2007 is an appropriate one to use for modeling 2008 and really beyond. So really in that that mid 20s is a good number.

Okay, very helpful. Thank you. And kind of big picture strategic, with your having been one of the first companies to come out in terms of talking about 2008, one of the lucky things about having your fiscal year fall when it does. As you were going through the strategic and the budgeting process, were there any underlying trends, positive or negative, that stood out across the portfolio, whether it be geographical end markets from a cost standpoint? If you can maybe just talk big picture of kind of the trends either positives or concerns going into '08.

Jim, this is Mike. That's a great question. As we went through our budgeting process and we went through that about 60, 70 days ago, the two things that's come out to my mind is as we look at that, we had a lot of discussion on continuing the passion of the Greif Business System around the world. And as you know, we are putting this in 43 countries, 112 [ph] locations. Can we continue that passion? And we talked about it in our prepared remarks, make that part of our DNA. And the management team is committed to it and I'm telling you, sitting here today, we can, but that's something that we talk about a lot. The second thing we talk about a lot is controlling the things that we can't control and coming up with ways to offset or mitigate those that we cannot control. Let me give you two examples of that. One would be Europe this year, last year. Europe could control the things and Europe had a great year, a record year last year. Ivan Signorelli and his team deserve a lot of credit for that. Conversely, to mitigate those that we can't control, a example would be paper, our paper business. We incurred about $25 million excess costs last year in OCC and utilities, and Mike Patton and his group were able to come up with ways to mitigate that. So as we go through the budget... we went through the budgeting process, we focused on those two areas. Obviously, the economy is something we talk about all the time and our diversity that we have today, both geographic and product, I think serves us well when we have these types of discussions. But those will be the main things that I think came up in the budget process.

And with regards to the last point on the economy, are you... because your end markets are a pretty good barometer around the globe. I mean are there any businesses that stand out as continuing to do either exceptionally well or maybe being more slowing than what you anticipated going into the new year?

Yes, as you know, Jim, we are... we sell to industrial clients. Those tend to serve and serve better through this process. The consumer I think into the economy is struggling more than the industrial end. So our end products have been pretty good to date. We read the same things you have. But we are seeing decent business and decent volume as we go forward, even to date we have.

Okay, great. Thank you very much.

Thank you. Our next question comes from Chris Manuel from KeyBanc Capital Markets. Please go ahead.

Good morning gentlemen and congratulations on an outstanding year. That's quite a list of accomplishments you went through at the start of the call.

Thank you, Chris.

A couple of questions for you. First, let me start with a housekeeping item as well. In the fourth quarter, there were a few specific line items that were a bit unusual or outside of where they normally are including a one case in asset disposal that was about a $7 million benefit to you year-over-year and in another line, other income about a $4 million negative hit was something there. Can you give us a little more color as to if there were any specific items in particular or what was going on?

Yes, Chris. In the fourth quarter, we had the sale of a facility in North America. Quite frankly, it was a subscale facility that was targeted for sale or closure and we were able to realize some going concern value. And so that was the majority of the gain on asset disposals in the fourth quarter along with the sale of special used properties. The one point that I would make with respect to that line item, when you go back, you will see that that really is a recurring source of earnings for the company based on the significant portfolio of special use properties. And also given the execution of Greif Business System, we are really rationalizing our footprint and facilities as we improve our productivity, are going to be disposed off. They tend to have rather low basis. And so there is a recurring component and to that point, I would guide you in 2008 to an amount similar to what we had last year 2007 in that $15 million range. So, again, we would acknowledge that there is a bit of lumpiness, but that is a recurring source of earnings. As far as the item below the operating profit line, basically that $4 million year-over-year swing in other expense, that is related to Zimbabwe, the hyper-inflationary accounting. We have taken actions to mitigate that risk. We have some further work to do, but that is something that was unexpected and we will be looking to mitigate that further in the future.

Okay. Thank you very much. And then Mike, with respect to volumes, it appears as though you had another outstanding quarter across some of your different product lines. It looks like overall industrial packaging volumes were probably up in that high single-digit sort of level. Can you give us a little more color maybe by some of the substrates, steel, plastic, fiber, paper or in the blending, filling side what you saw with overall volumes first? And then as a second point of that, maybe was there a different trajectory following up on the previous caller's question, different trajectory across whether it be North America, South America, Asia etcetera, Europe?

Yes. Don and I will tag team on this a little bit Chris. I'm going to start with your second part of your question first because I think that that probably has the most impact. As you know, our goals are to have a 5% growth, organic growth each and every year. And we were pleased with the results of 2007 and we are cautiously optimistic we can continue that through the '09 targets as we mentioned. We will get there by our geographic diversity. North America, it is flat generally and slightly up this year, but we predict that it will probably be flat next year. Emerging markets, Asia will be up in the double-digit range, which is what they were last year and we continue to see good growth there. Europe was mid single digits last year. All indications are that that will continue for next year also. So when you add it all up, again, this diversity issue, we still believe that that 5% growth factor that we talked about is very realistic, and as I said, we were very pleased with that we exceeded that even in 2007. As we look at the products, Chris, they've pretty much tracked the way we have in the past articulated them. Fiber is slightly down as it's a mature business, so the volumes are slightly down in fiber. Steel is up worldwide on a low single-digit number and both plastics and NI [ph] would be up in a mid single digit. And that pretty much tracks the way we had I think articulated it in the past. You want to add anything, Don, to any of that?

And really there is no relative stability as well when you look at the results for the fourth quarter. We had basically volume growth of 6%. So really the constant currency change is explained entirely by volume increases. On a full year basis, we did have some price, about 2 points of the 8 point year-over-year increase in our constant currency growth and then 6% of volume. So would definitely agree with Mike's comments. We are extremely pleased that the organic growth has exceeded the targeted 5% level and as we enter 2008, activity levels are really quite good and we are feeling very confident about 2008.

One point we didn't mention, Chris, and I think we should is the paper business. The volume in the mills was good, it was up about low single digits and sheets. Sheets right now are quite strong. So we are strong right now in the paper business.

Okay. And I've got a couple of other questions. I'm going to ask one more and then I'll jump back in the queue. When you look at your $3.80 to $4 operating... or $3.80 to $4 EPS guidance, it sort of implies an EBIT range next year, an operating income number in that $3.60 to $3.70 range. So that's another pretty sizeable step up from $3.11, $3.12 this year. Can you walk us through what the big buckets of the improvements are? Is it mostly from volume? Is it mostly from more Greif Business System savings or miscellaneous items like that?

I would say, in terms of the big bucket, Chris, organic growth is going to contribute about a third of that, say $0.30 of that. And I would... one of the reasons that that's a little bit higher than you might anticipate is really because of paper and packaging. We mentioned the implementation of the $40 per ton containerboard increase. As of the end of fiscal 2007, that was fully implemented, but very little of the impact was in 2007. That benefit will really be in 2008. Now we do have an offset because we are assuming for budgeting purposes and guidance purposes that OCC on average will be about $20 per ton higher. So it's not a... the full amount does not, based on our assumptions, impact the bottom line. So that would be the organic growth component. And then clearly, the Greif Business System, we have a target of $100 million in impact, about $30 million to $35 million annually over the period 2007 to 2009. And so that is going to be the other large component to that bridge. And then finally, the below the line items are expected to be a little bit better behaved in 2008. One, we expect strong cash flows and some deleveraging, so interest expense should be down. We also anticipate other expense will be down that the Zimbabwe situation will not be a recurring one. And as we had talked earlier, the tax rates would basically remain unchanged.

Okay, perfect. Thank you much. I'll jump back in the queue.

Thank you. [Operator Instructions] Our next question comes from Walt Liptak from Barrington. Please go ahead.

Hi thanks. Good morning and congratulations too.

Great. Thank you, Walt.

Most of my volume questions have been asked and answered, but the 6%, what is that... just to refresh my memory, you had 6% volume this quarter and what was it last quarter?

It was trending really in the mid single-digit range.

Okay. And so the improvement, I guess, is related to your international businesses?

That's correct.

Okay, so picked up internationally. And what volume and price assumptions are going into your '08 guidance?

Basically, assuming the targeted organic growth of 5%, and price is very difficult to predict. The one thing that I think is a very attractive feature of our business model is that we substantially have contractual pass through of cost changes. So as we are able to realize benefits through sourcing and improved productivity, those tend to be for the benefit of the company. And so in projecting revenues, we really focus more on the volume change and price is really going to be more a function of raw material costs.

Okay, fair enough. So the 5% is really... you're looking for volume growth of 5%?

Exactly.

Okay. And I think I'm good with everything else. What's your estimate for interest expense for 2008?

We really have not been giving... the guidance that we are really providing is really EPS. I would just say that directionally it is going to be down based on the partial application of free cash flow to debt reduction.

Okay, good. Okay, great. Thanks.

Thank you. Our next question comes from Bob Franklin form Prudential Financial. Please go ahead.

It's a good segue because you had two questions ago mentioned some deleveraging and now you just said application of cash flow to debt paid down. And was I wondering if you would expound on that or expand on it.

The question on cash flow needs, Bob, I mean if that's your question, I can give you, it's really three buckets. We are going to use our cash, our excess cash for, one would be, and I'm not ranking these in any order, I'm just going to give it to you off the top. One would be the growth component, continue... and that would be continued greenfield expansion in the emerging markets and consolidation in the mature markets, implementing the GBS plus [ph] growth give us the value contributor as we go forward. The second would be the pay down of the debt, and we had always said we target in the 30% to 40% range of debt to equity and we are at 34% plus this year. So we have brought it down from the high level mark at the beginning of the year. And then the third component of big bucket would be cash back to shareholders, whether it be in the form of stock buyback or dividends, which would be in accordance with our 30% to 35% dividend policy. So those will be the three big buckets, Bob, that would use the cash flow.

Right. And I think that's consistent with the answer that you have given when I've asked it probably on a quarterly basis, but this is the first time I've actually heard you say, yes, we are going to pay down some debt now.

Yes.

So, and I guess the answer is you guys target 30% debt to cap now, is that right?

30% to 40%. We have always answered the question by what's our comfort zone and we always gave a range of 30% to 40%. So sometimes, we are going to go below if that's the best use and sometimes we may go above that if there is an acquisition that seems to fit. So we are in that range. We are going to generate a lot of cash flow. It's conceivable that we will use some of it to pay down debt this year.

Okay. All right. And then if I could also ask you to expand on some of the macroeconomic comments because you've said the North American is sluggish and then you just said... I think I heard you say that it was flat this year; it ought to be flat next year. But since this year, it didn't start out flat; it actually started out robust and then it gets flat until about halfway through. Are you seeing a big drop off in North America in the past couple of months?

No, again, our business in the industrial arena has been fairly consistent. Right now is a difficult time to make one data point as a period of time because this time of year is a seasonably slow period of time, but it's that way all the time. So when we say flat, we just say year-over-year, that's our estimation. I think it's anyone's guess what the economy is going to do. But that's what we see based upon our customers telling us what they anticipate their order pattern would be. So we really don't see... I don't see it being a disconnect between those two statements.

Okay. The disconnect is in my mind then. One other thing on that line then is I think you said the fundamentals are strong now in paper and packaging, is that an uptick?

The business is strong right now, and that's very positive, especially in the sheet end of the business. And it is an uptick in our business from last year, I would give you that. It's a very short timeframe to celebrate success at this point, because we are at 35 to 36 days into this year. But up to this point, we are seeing good improvement in volumes at this point.

And do you know what's driving that?

None that we probably would be factual enough to try to comment at this point.

Okay. Look, thanks very much. I appreciate it.

Thank you. Our next question comes from Chris Manuel from KeyBanc Capital Markets. Please go ahead.

I just had two last questions gentleman. First is as we move into the 2008 calendar year, there are a number... and what we are seeing here through the fourth year... or what your first calendar quarter thus far, this year, there are some sharp material price upticks either in plastics that have begun to emerge or in steel that appear as though they are coming through and on the paper side, in OCC stayed pretty high. Can you give us a little color on have you gone out with any additional price increases or do you anticipate taking any further price increases through 2008 should these inflationary pressures persist?

Yes, you are very observant there, Chris. There are a lot of drum beating right now of price increases. Steel is... there is a lot of talk about what's going to happen with steel, and after the first of the calendar year, that could rise, and there is all anticipation it will. Don mentioned in response to an earlier question, which I think is applicable here also is that, and as you know, Chris, all of our contracts have raw material pass through, and we are very diligent when raw materials go up to exercise that option to go forward. Quite honestly, in rising prices, we tend to do a little bit better as you imagine because the inventories that we have, we tend to do better on that. So we are not afraid of rising prices. Our team... both groups both here in the United States have good analytical tools today. So when prices go up, they are in place to go out to the customers with the appropriate, and it'd be an appropriate increase based upon the raw material increase, and so it's something that they are poised to do. And I would anticipate... I would expect when raw materials go up that you would see us go up with price increases on all the products.

Okay, that's perfect. And then the last question is as we look at these 2009 targets and sort of look at the operating income number you guys have targeted for '09, I believe was $450 million as a piece of that. And with what you are doing in '08, you are getting a good chunk of the way there. But it basically implies that there is still another sizeable chunk, a little bigger than what the delta is from '07 to '08 to be had in '08 to '09. Can you comment that from where you sit today, does the mountain look steeper, does the mountain look more achievable, does the mountain look... how are you feeling about the '09 target, I guess, is the appropriate question?

Well it's still mountain, Chris, and that's a very good description. But it's not a mountain that we look and say my gosh, we can't climb. And we've always said that it was going to be a little bit back-end loaded and we still anticipate that would be the case. I still am very, very confident that we are going to have the ability to get there, and I don't see anything right now that's not allowing me to say that. Is it something we'll have to work really hard for? Of course. We intentionally put those stretch goals for that reason. But I am confident today with management team that we have in place and as we continue to execute on that which we can't control and come up ways to mitigate that that we cannot, we'll get there. And so I'm very, very proud of this management team and what they've accomplished, and I would tell you sitting here today we'll get there if we continue to execute this way.

Okay, I like that, controlling the controllable. Well, good luck gentlemen in the quarter and thanks. Those are all my questions.

Thanks Chris.

Thank you. Our next question comes from Christopher John [ph] from Deutsche Bank. Please go ahead.

Yes, thanks. Good morning guys and my congratulations as well on... you had another impressive quarter.

Thank you, Chris.

Great, thanks. Most of my questions have been answered, but I have just a couple of follow ups. In terms of your CapEx plans, does the current budget include certain amounts for new greenfield projects in emerging markets that you mentioned?

Yes, it does. That would be... and that has tended to be about 20% of the spending, and that would be the case in 2008 as well.

Okay. And does it also include any allowance for acquisitions that you might make?

No, that is not... we do not include that as part of our capital budget. We basically have allocated capital for maintenance of productive capacity, productivity improvements and the expansion capital to support the emerging markets growth strategy.

Okay. And then in terms of the environment for potential acquisitions, do you notice that it's gotten any better in the last few months with all that turmoil in the credit markets perhaps affecting financial buyers more than strategic buyers like yourself?

Chris, we get that question asked a lot, and some of the smaller acquisitions we look at have not really attracted the attention of the financial buyers. So, really, we really don't see any impact there. We do believe the market is... become a more realistic for a strategic buyer like us to get in the market because that has, we believe, softened. But we just haven't seen it on a couple of small ones because they really just never were affected anyway. We are pretty disciplined, as you know, and we really... when we do acquisitions, we really don't get caught up and we never did get caught up in that turmoil, and we won't because we are a very disciplined buyer as we go forward.

Okay, that's fair. And then in terms of looking at your '08 guidance, does that bake in any change in exchange rates at all?

No, that is... that's basically a steady... there is a steady state assumption. And so no, it would really... it would not factor that in. Although I would acknowledge that we are not necessarily taking today's spot rate. There is a little bit of conservatism given that currency markets tend to be a bit volatile.

Right. Okay. And then finally, I don't know to what extent you'll feel comfortable answering this, but I have sort of a big picture question. Looking even beyond your '09 targets, but you are certainly very ambitious, I'm wondering to what extent you see even further improvement beyond then. We certainly wouldn't expect the rate of progress to be sustainable at current levels. But I'm wondering if beyond those '09 targets, we should sort of assume that at that point you've gotten what you can out of the Grief Business System throughout the whole company and that we should expect very slow organic improvement, if any, or whether you see further traction even beyond that.

Chris, that's a very timely question because you must have a hear in our office because Don and I have just talked about this the last week or so about resetting the bar here. Mid next year when we feel confident enough... mid '09 we are confident enough that we are going to reach those goals. And so we are starting to have ongoing conversations. And I think it's appropriate to say that the steepness of the increase in those goals can continue because we have had at least 25% improvement over three years, and that fairly significant. I think we would not throw in the towel and say that there won't be any improvement, because I do believe the Greif Business System will continue to bring value. We treat this as an ongoing process and not as a one-time event. And so every time we go back to this, we are finding more and more improvements, and so we don't see the end in sight in that. I think the growth component will come in play at a more bigger deal in '09 to '12. But I would just encourage you to stay tuned to see how we finalize this, and we'll make sure that we articulate that as soon as we declare victory on the '09 goals, which we hope to do within the next year and a half or so.

Okay, that's fair. Thanks for your help.

Thank you. Our next question comes from Scott Blumenthal from Emerald Advisors. Please go ahead.

Good morning gentlemen and congratulations on the quarter and the year.

Thank you. Thank you, Scott.

As before, most of my questions have been answered, but just a couple if I may. I guess this is probably most appropriate for Mike Patton, but I think Don, you mentioned the goal to shrink the footprint in some of the mature markets. And if you're going to continue to see volume increases of mid single digits year-over-year, how much more do you think you can shrink the footprint, because it looks like you basically have both walls kind of moving in towards the center here, footprint shrinking, volume increasing. How much more do you think that you have to go there?

Well, as Mike had just mentioned, we are always pleasantly surprised when we do a rediagnostic of a facility that we have implemented the Greif Business System in because... in fact, we were talking about this at a meeting just a couple of days ago how we are always seeing another 3% to 5% of improvement in our cost of goods sold that's available based on a rediagnostic. And as we continue to improve our productivity and reduce space utilization, we should be able to operate with fewer facilities. And so we do expect it to be an ongoing process. We have not reached the point of diminishing returns.

Okay.And can you give us an idea of with the way that transportation costs and the cost of fuel has been trending certainly down the last couple of days? Is that playing into your facility location and closure strategy and maybe give us a little bit of an update as to whether that's making the implementation of the overall logistics strategy, is that kind of making that more an urgent priority or speeding that up at all?

That clearly is one of the key focuses of our global sourcing and supply chain. We are fairly far long in the implementation of an Oracle-based transportation management system to give us improved visibility of our transportation spend, and we are realizing some significant savings on a run rate basis. We expect more impact in 2008 and 2009. But we have been very pleased with some of the initial successes and that, to your point, is a very significant spend for the company; actually, our third largest spend. And so we are really very excited about the potential to improve and optimize our transportation costs.

Does the 2008 budget have specific transportation cost improvements and would you be comfortable sharing those with us?

Well, we have stated that we are going to, of that $100 million in impact, that about two-thirds of that is from the sourcing and supply chain team. And there is... we really haven't identified how much of the $60 million from sourcing and supply chain is related to the transportation management system. But it is meaningful. It would be in 25% to 30% range. I mean it's definitely meaningful impact from that initiative.

Okay, great. That's very helpful. Thanks again.

You're welcome.

Thank you. And at this time we have no further questions in queue. I would like to turn the conference back to management for any concluding comments. Please go ahead.

Thank you again for joining us this morning. As a reminder, this call will be available for replay from noon today and ending at 11:59 PM Eastern Time on Tuesday, December 11th. Playback telephone numbers are 800-405-2236 for domestic callers and +1303-590-3000 for international callers. The passcode is 11102931#. A digital replay of the conference call will also be available at approximately 1 hour on the company's website at www.grief.com. We appreciate your joining us this morning.