Greif, Inc. (GEF) Q1 2014 Earnings Report, Transcript and Summary

Greetings, and welcome to the Greif First Quarter 2014 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to the turn the conference over to your host, Ms. Deb Strohmaier, Vice President of Corporate Communications. Thank you, Ms. Strohmaier. You may begin.

Thank you, Manny, and good morning. As a reminder, you may follow this presentation on the web at greif.com in the Investor Center under Conference Calls. 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 2013 Form 10-K and in other company SEC filings, as well as the company's earnings news releases. This presentation uses certain non-GAAP financial measures, including those that exclude special items such as restructuring, timberland gains, noncash long-lived asset impairment charges and other unusual charges and EBITDA. EBITDA is defined as net income plus interest expense net, plus income tax expense, less equity earnings of unconsolidated subsidiaries net of tax, plus depreciation, depletion and amortization expense. Management of the company uses the non-GAAP measures to evaluate ongoing operations and believes that these non-GAAP measures are useful to enable investors to perform a meaningful comparison of current and historical performance of the company. 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 the first quarter 2014 earnings release. Giving prepared remarks today are, in order of speaking, David Fischer, President and CEO; and Chris Luffler, Assistant Corporate Controller. Pete Watson, Chief Operating Officer, is also with us today and will be available to answer questions. I will now turn the call over to David.

Thank you, Deb, and good morning. I'm now on Slide 3. Our business fundamentals benefited from the slow-motion global recovery in the first quarter of 2014. I am particularly pleased to report that we achieved higher selling prices across all segments. Rigid Industrial Packaging in the Middle East, Africa and Asia Pacific made further progress during the 3 months ended January 31, and we achieved mid-single-digit volume improvement in Europe. Ivan Signorelli, his managers and the entire team are making an impressive stride in a continuing challenging environment by improving volumes and in controlling costs. Additionally, our Flexible Products business showed sequential quarter sales improvement in volume and in price. Paper Packaging achieved record first quarter sales on increased volumes and record first quarter operating profit. However, during the quarter, we were hampered by the headwinds of increased costs and production outages in our businesses in North America due to the winter storms and separately, currency volatility in certain emerging markets. As we continue to manage through these external challenges, our primary focus is on those things we can address within our control to improve our businesses. This includes our continuous commitment to achieve a safer work environment in all of our facilities and work-related activities. Also, the Greif Business System continues to drive cost savings through ongoing diagnostics that identify specific opportunities to achieve further efficiencies. The capabilities of our GBS supply chain remain integral to our ability to properly service our customers, as demonstrated during the series of severe winter storms that affected most of North America. Because of these storms, a number of our customers had to temporarily close their facilities. We lost 39 shifts due to our own plant closures in Rigid Packaging. Rigid and Paper Packaging combined incurred increased utility and transportation costs totaling approximately $7 million during the quarter. Please turn to Slide 4. One of our key initiatives in 2014 is restructuring in selected geographics -- geographies, including assets that persist with unacceptable results. While the global economy continues its slow-motion recovery, there are regions and areas within our business portfolio that are not fully participating in the recovery. In some cases, this has resulted in underperformance to our expectations, and for a smaller group of plants, have become lossmakers and will be fixed, sold or closed. To this end, in the last 90 days, we have exited one plant in China and continued consolidation of our reconditioning capacity in Western Europe into other existing facilities. Our business operation leaders around the globe are implementing specific plans to restore increased profitability in underperforming facilities, including targeted initiatives and full restructuring, principally through rooftop consolidation. And still, we expect to incur $25 million in restructuring charges by fiscal year-end. These actions will be implemented in conjunction with the Greif Business System initiatives to capture maximum cost savings and operating efficiencies while meeting customer demands. In addition to rightsizing our network in certain markets, we are also selectively expanding our capabilities in other more attractive markets. In the first quarter, we acquired a leading drum manufacturer and reconditioner, and immediately, seamlessly consolidated the new drum business into our North American network. This expanded our reconditioning capabilities and fortified our position in an important region of North America. In addition to strengthening our Midwest footprint with acquisition and consolidation, we continue to expand certain product lines across North America to deal with anticipated demand from the North American energy and manufacturing renaissance. I am now on Slide 5. As I mentioned earlier, Paper Packaging achieved record first quarter revenue and operating profits. They did this despite the adverse weather conditions that created challenges of higher transportation, energy and input costs and the temporary idling of one of our containerboard mills for 30 hours. These costs amounted to approximately $3 million of the $7 million previously mentioned. The benefits of our Efficient Frontier initiative continue to be evident with the mid-single-digit capacity increase at 2 of our sheet-feeding operations during the first quarter. With this increase, we are now able to better serve our multiregional customers. Additionally, our unit volume for value-added specialty products in the Paper Packaging business in the Midwest markets rose 14% in the quarter. Our focus on increasing integration levels, capacity and product differentiation efforts in Paper Packaging continues to yield positive results and contribute to the record performance. Please go to Slide 6. We achieved modest growth in sales of polywoven products in the first quarter and continue to move forward with capacity rationalization efforts. As noted on recent quarterly conference calls, we have been conducting an intense review of this business and are implementing plans to improve it. During the first quarter of 2014, we had a management change where Daniel Lister was appointed to lead the Flexible Products & Services business. He is a seasoned operator and has developed specific action plans for improving and repositioning this business for sustained growth and profitability. I would like to share with you some key points of our revised strategy for the polywoven products business. These initiatives recognize the challenges currently facing this business and involve a series of interrelated actions to restore growth. First, we will continue our focus on organic growth to increase sales at a rate that is greater than GDP. We are paying particular attention to sales opportunities in the Americas and Asia Pacific regions. Going forward, this will help diversify the geographic sales mix that is currently overweighted toward Western Europe with approximately 75% of segment sales. We expect to increase our customer share of wallet in these -- with these actions and add new customers who recognize and can benefit from our global reach. Second, we are targeting additional key accounts in the Rigid Industrial Packaging segment already served by Greif in other parts of the world. A number of these multinational blue-chip companies have been customers of Greif's Rigid Packaging business for years and in some cases, decades. They recognize the benefits to be realized from cross geography and cross business product opportunities from a trusted supplier. Third, our Flexible Products cost structure is currently too large for the planned near-term level of business activity. We will reduce SG&A expenses during the remainder of fiscal 2014 to align to our cost structure with identified market opportunities. Our SG&A expense to sales goal is 10% by the end of 2015 compared to the current level of approximately 17%. Fourth, we are rightsizing our manufacturing footprint and supply network to address market demand and put this business on the right path going forward. The expected outcome is an 8% to 12% reduction in this segment's underutilized capacity based on the current network footprint, thus, enabling us to achieve a more balanced global network and higher system asset utilizations. We also plan to sell nonstrategic assets during fiscal 2014. Finally, we have established an EBITDA target of 12% for the Flexible Products segment to be achieved by the end of fourth quarter 2015. Although our segment results have been unacceptable to-date, we remain confident that the polywoven business is a solid, complementary, strategic fit within the Greif packaging portfolio. And based on the actions I mentioned, we are optimistic about the long-term success of this business. We will keep you appraised of our progress. Regarding Q2 Flexible Products business, on February 10, we were confronted with an illegal labor action in one of our polywoven manufacturing facilities in Turkey. This action is led by a small radical group of individuals. Some are Greif employees while others are not. They are currently occupying our plant and based on their protest -- and based --- are basing their protest on a broad social agenda. We are engaged in ongoing negotiations with the legally recognized union in that plant to resolve this matter in a responsible way. From a business perspective, we are leveraging our global production and supply chain capabilities outside of Turkey to mitigate the impact of this disruption. I am now on Slide 7. In our Land Management segment, we completed the second portion of a multi-phased timberland sale during the first quarter. This represented a timberland gain of $8.7 million. With the first 2 phases completed, we have realized nearly 30% of the total transaction. At its conclusion, we expect to have strengthened our total timberland portfolio with purchases in closer proximity to existing properties in Louisiana and Mississippi. Another aspect of generating value from our land portfolio is through wetlands mitigation credits. As discussed during the last quarter's conference call, the U.S. Army Corps of Engineers recently approved our first wetlands mitigation bank. Since that time, our Land Management business has been substantial -- has had substantial interest from multiple parties and recently reached an agreement in principle to sell its first wetland mitigation credits related to the Texas flat mitigation bank. Our timberland and excellent management team are uniquely suited to capitalize on this emerging business. And we expect this work to result in a fourfold return on our investment over the next several years. We continue to actively evaluate our Timberland properties in the Southern United States and are working with qualified strategic partners to determine available mineral opportunities. We will make those findings known when our business plan is fully developed. Our search for a chief financial officer is in its final stages. We have carefully and thoroughly considered several highly qualified candidates and expect to conclude the process soon by selecting a candidate with the right experience and cultural fit with Greif. We will issue a public announcement when this process is completed. Before I turn the call over to Chris Luffler, our Assistant Corporate Controller, I want to note that Ken Andre, our Corporate Controller, is recovering from the flu and was not able to join us here today. We wish Ken a speedy recovery. And now, Chris, if you would proceed.

Thank you, David, and good morning, everyone. Positive contributions from the slow-motion recovery in the global economy and record first quarter results from our Paper Packaging segment contributed to increased sales and operating profit compared to the same period last year. These increases were partially overshadowed by the adverse impact of weather-related conditions in North America and currency devaluations in a number of our emerging markets that affected our first quarter results. These factors particularly affected our performance during the first month of the first quarter. To put each of these factors in perspective, the combined impact from weather-related costs included production downtime, higher transportation costs, increased energy costs, supply chain disruption, increased input costs and delayed and potentially lost sales. These factors impacted our North American Rigid Industrial Packaging and Paper Packaging businesses by approximately $6.8 million or $0.05 per Class A share for the quarter. We also experienced a number of currency devaluations during the first quarter of 2014 which impacted several of our Latin American operations in Brazil, Argentina and Venezuela. We also experienced currency declines in our Middle East and South Africa operations. For the first quarter 2014, foreign currency devaluation had a negative below-the-line impact of $2 million or $0.02 per Class A share. I am now on Slide 8. Net sales were $1,034,000,000 for the first 3 months of fiscal 2014 compared to $1,009,000,000 for the same period last year, an increase of 2.6%. The primary driver of this increase in net sales was from our Paper Packaging segment, which benefited from a containerboard price increase that was realized during the second half of 2013. Net sales were also impacted by higher selling prices across all segments. Consolidated volumes were flat compared to the first quarter of 2013. However, specific regions such as our Paper Packaging business in North America, our global Greif packaging accessories business and our Rigid Industrial Packaging businesses in Europe and in Asia reported higher volumes when compared to the same period last year. Gross profit was $186.6 million for the first quarter, which was similar to the first quarter of 2013. However, gross profit margin declined slightly to 18.0% from 18.5% for the first quarter last year. This decrease in gross profit margin percentage was mostly attributable to the previously discussed adverse weather-related conditions. Additionally, gross profit in our Flexible Products segment improved 1 percentage point to 19.3% for the first quarter of 2014 compared to 18.3% for the first quarter of 2013, particularly due to the improved product mix of 4 loop versus 1 loop polywoven products. SG&A expenses decreased approximately 1% to $121.5 million compared to the same period a year ago. This decrease was mostly attributable to lower pension costs on a comparable-quarter basis. Restructuring charges were $2.6 million for the 3 months ended January 31, 2014, or twice the amount for the same period in 2013. Most of the first quarter 2014 charge is related to consolidation of drum reconditioning facilities in Western Europe and network optimization in our Asian Pacific operations. We plan to have $25 million of restructuring charges in 2014. Operating profit increased approximately 14% to $72 million for the first quarter of 2014 versus a year ago. Record first quarter operating profit in the Paper Packaging segment and modest sequential improvement in the Flexible Products segment were principally offset by softer conditions in our Rigid Industrial Packaging operations in North America and Latin America. Our Land Management segment recorded an $8.7 million gain, which was attributable to the completion of the second phase of a previously discussed timberland transaction. This amount has been excluded from our guidance for fiscal 2014. We anticipate $20 million of operating profit in fiscal year '14 from the completion of the subsequent phases of this transaction. Key items below operating profit include other expense, which increased to $4.6 million from $3.1 million a year ago. This increase is mostly due to foreign currency devaluation from certain emerging markets. Interest expense was $20.4 million for the first quarter of 2014 compared to $21.6 million a year ago. The slight decrease is a result of our lower average interest rates due to refinancing activities in certain countries, offset by higher average debt outstanding, primarily resulting from 2 acquisitions completed this quarter. The effective tax rate for the first quarter of 2014 increased slightly to 35.1% from 34.7% for the same period last year. The higher amount of income in the United States and other higher tax jurisdictions relative to last year continued to influence our book tax rate. Cash tax payments were $16.9 million for the first quarter of 2014 comparable -- compared to $9 million for the prior year, which benefited from a $5 million refund related to a credit from fiscal 2009. Net income attributable to Greif, Inc. increased 25% to $29.5 million in the first quarter of 2014. Diluted Class A earnings per share are $0.51 compared to $0.41 for the same period last year. Special items, primarily due to timberland gains, netted to a reduction of $0.06 per Class A share. EBITDA was $106.5 million for the first quarter of 2014 compared to $100.4 million last year. Please turn to Slide 9. Net cash used in operating activities for the first quarter of 2014 was $62.8 million, which was slightly better than the $68.8 million use of cash for the same period last year. The change in working capital, operating working capital for the first quarter of 2014 was $93 million compared to $76 million for the same period last year. Operating working capital for the first quarter of 2014 reflects a decrease of accounts payable of $50 million since year-end and an increase in inventory and accounts receivable of $40 million and $3 million, respectively, since year-end. The quarter-over-quarter change is mostly attributable to inventory increases. Reducing operating working capital and increasing cash flows continue to be specific priorities in fiscal 2014. Capital expenditures were $31.4 million for the first 3 months of fiscal 2014 compared to $28.5 million a year ago. Additionally, we incurred $8 million of timberland purchases during the first quarter of 2014 compared to none for the same period last year. Key projects, in addition to maintenance capital expenditures during the first quarter, included further investments in a new manufacturing plant in China for our packaging accessories business; an initial investment in a shoe press for our Riverville, Virginia containerboard mill that is part of our Efficient Frontier program; and further investments related to our global implementation of a single ERP system. We are scrutinizing all of our capital expenditures and expect CapEx to be less than $150 million for fiscal 2014. Our first quarter cash flows typically reflect a number of annual onetime items that are not reflected in other quarters such as year-end cash tax payments, inventory prepayments and employee performance incentives that are paid after fiscal year-end. Cash payments related to interest expense are lower by $5 million due to our credit agreement that was amended in Q1 last year, which includes lower interest rates. Free cash flow was negative $91 million for the first quarter of 2014, which is slightly better than the first quarter of 2013. Cash flows used for investing activities included 2 acquisition-related cash payments totaling $52.3 million for the first quarter. And our cash flows from financing activities increased by approximately this same amount to fund these acquisitions. Please turn to Slide 10. Concerning our guidance for fiscal 2014, we anticipate gradual global economic recovery during fiscal 2014, which should result in moderate sales and volume improvement and slightly higher raw material costs. As David said, we plan to incur restructuring charges of approximately $25 million with particular emphasis on operations that have not participated thus far in the economic recovery or are underperforming. We have identified and are pursuing opportunities for additional efficiency improvements through the Greif Business System. Fiscal 2014 EBITDA guidance remains at $490 million to $540 million, which equates to a Class A earnings per share of approximately $2.60 to $3.15, and excludes approximately $20 million or $0.20 per Class A share for timberland gains. This concludes my remarks. I will now turn the call over to the operator for your questions.

[Operator Instructions] The first question comes from Chris Manuel of Wells Fargo.

A couple of questions for you. First, could you maybe address a little bit of the volume trajectory through the quarter? It sounded like things were pretty choppy for you in January with days down and things of that nature. Maybe if you can give us some sense of how it progressed and maybe how the whole quarter was looking at the different segments. And then I'm assuming that with polar vortex has continued into February, and it was an ugly commute again this morning. So just maybe and update us to what you're thinking thus far if that's continued or not?

Thanks, Chris. I'll take the opportunity to answer your questions and also give some flavor of volumes around the world. Let me start by saying that in general, and let's talk about North America first, we saw a typical November, December going into the holidays-type volume pattern, where it was soft. We also saw that Christmas and New Year's fell poorly in the middle of normal shipping or work weeks. So we saw a little bit of a decline in January -- or sorry, November, December. In January, we were -- we welcomed a resurgence of volume pretty much around the world, but particularly in North America, order patterns were fairly good. Packaging accessories orders were pretty good. The polar vortex that hit in January was something that we haven't well experienced in the recent past anyway, losing that many shifts. And we can document 39 lost shifts. It's very difficult to say exactly how many orders were lost or pushed off, but it's fair to say that several days' worth of impact hampered our North American operations. I generally feel, and this is a comment again for not only just North America, but around the world, that we're seeing it in our numbers, and we're hearing it in our customers' voices that the slight improvement of volumes is real and tangible. I have been cautious in past years with the press talking about volumes and GDPs improving in the first half of the year, only to kind of get wiped out in the second half of the year. But this one seems more real, more fungible, and you can hear it in their voices. So as we exited the impact of the weather in January, we saw a more typical volume trend continue in North America. As we look around the world, the North American area, I'll give you a set of figures, first one comparing to the same quarter as 2013 and more recently, a comparison to Q4 2014. So in RIPS North America versus same time period last year, we were down about 3%. And versus Q4, we were down about 10%, which is pretty much a reflection of our seasonality. You'll see that trend around the world. In EMEA or Europe, we saw versus the same time period last year, up around 6%, 7%, with minus 10% versus Q4. Asia Pacific, up about 2% versus the same time period and down about 5% versus Q4. Latin America was down about 7% versus the same time period as last year and 5% versus Q4. Our accessories business was particularly strong, up about 8% versus same time period of last year and down 10% versus Q4. Polywoven was up about 1% versus same time period and 2% versus prior quarter. Overall, our mill system, the entire Paper business, is up a couple of points, but it was basically on the strength of our sheet feeder and downstream operations while the mill, as I mentioned, Massillon mill was the mill that had the unexpected weather-related outage. So on the backdrop of poor weather, if you take that out, I still believe that the fundamental recovery is intact. And we're starting to see it from our customers' comments and behaviors. As far as the polar vortex continuing, it has, but it's not near as severe in February as it was in January. We are either better prepared or the weather just isn't as disruptive. We do anticipate, at this juncture, a small, negative impact, but nothing like we saw in January.

Okay, that's very helpful. And one last question, and I'll jump back in the queue. Acquisitions, divestitures, some different things along those lines. You had discussed a couple of lines in the press release that you are looking at select businesses, areas. Can you maybe give us a little color as to what types of areas, whether that's -- I'm assuming that's in the Rigid business or in the Flexible business as well where you're looking there. And then the second, the acquisitions that you did. That's a -- $50 million is a pretty good chunk. Could you give us some parameters as to maybe multiples pay, how you would anticipate contribution from those, returns you're looking for, et cetera?

Yes. Let me start with the latter, but if you don't mind, Chris, out of order. On the acquisition front, several years ago, we had bought an option at a time when the economy was struggling to buy a business in the Midwest. Our Midwest business is very strong, particularly around the Chicagoland area. That option was within the historic range of how we buy companies in that 5 to 7x EBITDA multiple. It's a very strong business that we're delighted to add to our capabilities. It was a new drum and reconditioning operation. A new drum operation has already been absorbed within our capacities elsewhere. And the reconditioning is being integrated into our reconditioning network. We're very bullish about the accretive nature of this second half of 2014 and going into '15. The second acquisition, to be honest and transparent, by GAAP regulations, we called it an acquisition. It was much more of an equipment buy. That equipment happened to come with some customer lists, and there was -- due to accounting regulations, we had to classify it as an acquisition. But it was very small in nature. And that is targeted at our Paper business to increase our differentiation and service capabilities for some of our Midwest customers in an area that we have only been small and in the past, we're trying to grow. So we're favorably disposed about adding that capabilities. That addition to our network really won't have a material impact on the Paper business until second half of 2014 as we get the equipment installed. And it will be small relative to the size of our overall business. As far as divestitures, you're accurate in saying that some of these markets around the world have been, in my mind, permanently impaired or at least for the foreseeable future, impaired from an industrial production output. And we're looking to trim those shops that consume working capital and don't produce positive cash flow from our system. So in terms of Rigids, we're talking about a handful of those that we're pursuing around the world, a couple of those we took care of in the first quarter. You'll hear more of those coming in the follow-on quarters here as we release that cash back to the company. It's difficult to say with some of these places, what you have to spend in terms of restructuring and employee severance as to where and when the breakeven on payouts will come. They are attractive long term, and that's why we're pursuing them, but difficult to give you a projection on quantifying those as beyond, let's say, in a handful of those. On the Flexible side, you heard in my remarks that we want to cut about 10% of our extruder capacity out of the system. It's been our mode of operandi not to announce closure or sale of a facility prior to communicating that with our workers. It might become a really easy decision that it becomes one of our plants in Turkey by default if this illegal strike continues there. So we'll have to wait and see exactly how that plays out in the next month or 2 to give you guys a better picture of exact facilities that will come out of our system.

The next question is from Ghansham Panjabi of Robert W. Baird. Ghansham Panjabi - Robert W. Baird & Co. Incorporated, Research Division: David, on the EMEA volume improvement, I think you said up 6%, 7% during the quarter. How much of that was market improvement versus maybe your commercialization initiatives or market share gain?

Well, I would say the preponderance of that would be market coming back. We don't -- we haven't gained a lot of share of wallet in a depressed market over there at this juncture. I would say I can't give you the exact split, but the preponderance of it would be a market recovery driven-type approach. Ghansham Panjabi - Robert W. Baird & Co. Incorporated, Research Division: Okay. And just given the context, maybe some pricing flareups in the region, has that changed in any material way across the EMEA region?

Devaluations in certain economies has, let's say, unsettled some of the participations we have when you look across places like Turkey, specifically South Africa. But I think that has played its course, if you will, and is behind us at this point. Ghansham Panjabi - Robert W. Baird & Co. Incorporated, Research Division: Okay. And then going back to your guidance, just kind of given where 1Q came in relative to certainly the street and very likely your internal expectation just given the disruptions, the fact that you have not cut the top end of the range on EBITDA or EPS even with 1Q on -- I guess what would it take for you to sort of get towards the high end? Would it be sort of a resurgence in terms of the volume side? Is that what's driving that optimism?

I would say the continue of the resurgence of volume around the world, number one, is a critical factor. Us continuing to control our cost is obviously another one. I don't want to state the obvious, but that's critical when you're running at low volumes in some of these markets. The other one is, quite frankly, the business that's performing the best and running hard is paper. And going through our annual shutdowns and coming out of those like we have for the last number of years is really important to us as well. But it doesn't take a big stretch to be well within our range, as previously discussed. I don't -- even at marking minimum $7 million of weather impact in Q1 in North America. And that's what we're able to document. We still anticipate there's ways to make that up in the remaining 3 quarters.

The next question is from Adam Josephson of KeyBanc Capital Markets.

David, a couple of questions for you. On -- I think you said you expect to achieve 12% EBITDA margins in Flexible by the fourth quarter of 2015, if I heard correctly. Can I assume that, that implies annualized EBIT of roughly $25 million to $30 million based on what you expect your sales and D&A to be at that point?

It would be. I just want to make sure you were on a comparison of a run rate versus a full annualization.

Right, yes. Annual guidance, yes. $25 million, $30 million is reasonable.

Yes.

Okay. In terms of cash flow, obviously, there was a drag in the first quarter just as there's been in most of the first quarters of the past several years. Was your cash flow performance in line with your expectations or appreciably different?

Well, let me comment real quick. It was below our expectations largely due to some inventory build. And I'll ask Chris Luffler to give a little color commentary on that for you, Adam.

Yes, Adam, it was consistent. Quarter 1 is usually a drag on cash flows. And that's been historical, I think, over the last couple of years. We did have 1 year that was maybe a blip. But I think in terms of Q1 cash flow, I think it was pretty consistent, which I think is what we were trying to show. I mean, CapEx is a little bit higher in the first quarter, and we had some cash tax payments that were maybe a benefit that we had last year compared to this year. So really, that difference came when you kind of look at working capital and really that inventory build situation. And as you think about the inventory increase from the end of the year, October, as you think about the adverse weather impact that we had in North America had a play on that. You also had inventory pre-buys that were a little bit higher in our Asian Pacific operations, specifically in China. And we also had some impact in our Latin America region, specifically to Brazil and Chile, where we had maybe some production disruptions or let's say, slowdowns in sales within our plastic businesses. So we did -- which is somewhat seasonal-driven. And maybe we had a little bit of a higher seasonal impact on those businesses, which was a little bit unexpected. But I think on an overall quarter basis, it was pretty consistent with where we thought it was going to come in at.

And David, just one more for you on OCC. What's your view of OCC at this point aside from any short-term weather-related impacts? And is there anything different about the U.S. or Chinese economies this year compared to last year that leads you to believe that OCC will be appreciably higher this year than last?

No, I don't think they will be appreciably higher. We have our expert here with Pete Watson, who's, for years, run our paper business. I'll ask Pete to give you the color on that.

Adam, yes, so RISI just came out in January with their forecast, and what they're projecting is very consistent with what they projected for 2014 back in October, which is $40 to $48 increase. I would say our view is a bit more conservative than that, but we do believe there's going to be increases in OCC throughout the year, and one shortly -- short term because of some of the issues with weather-related generation problems we see. And we're also seeing higher export prices at the port as a trend.

The next question is from Steve Chercover of D.A. Davidson. Steven Chercover - D.A. Davidson & Co., Research Division: Yes. So if I understood you correctly, you're trying to get your SG&A in the Flexible business down to 10% from 17%. But is there not a bigger corporate initiative to get SG&A down from 12% to 10% and how's that going?

Yes, thanks for the question. So there's 2. I'll take, again, the latter one first, if you don't mind. Going into this year, we budgeted $10 million less on our corporate SG&A burden to the business than previous years. And we're executing well on that. That is separate, and in addition to the effort on our global ERP system, which is now in about its 14th or 15th month and progressing very well. We've had, since the last time we spoke, 3 more implementations in Europe. So that's going well. Those 2 combined are -- constitute our plan to reduce corporate SG&A longer term down to that 8%, 8.5% range. As far as FPS, because that business has been underperforming for a long period of time here, and it's been disappointing to us, we called out a special line item about what is happening more near term to FPS independent of the global ERP implementations. Steven Chercover - D.A. Davidson & Co., Research Division: Okay. And I don't know if this is a fair question or not, but why has it been so difficult to attract a CFO? I mean, it just seems inordinately long. Is it the culture is -- somehow makes it more difficult than within other industries? I just can't remember a kind of...

Well, I think -- well, yes. So the -- I think the major factor was that when went after -- when we decided to go after a new CFO candidate, we were adamant. We wanted a sitting CFO with extensive experience with the street. When you go after somebody like that, and it's, let's say, July or August and you formulate the plan and start interviewing, it should be -- it should have been obvious to us, but it wasn't at that time that you're not going to unseat one of those during their late stages of a fiscal year roll-up. And these folks that closed fiscal year-type books have until January, mid-February often to get all their papers filed. So it isn't until just about now where people truly become available. And we've been patiently waiting for the right candidate rather than trying to rush out and just fill any slot.

[Operator Instructions] And the next question is from Chris Manuel with Wells Fargo.

I just wanted to follow up on the Flexible side because I think maybe I'm -- there's a couple elements of math maybe I'm missing here. But -- so first, originally, you were targeting that to be a billion-ish sort of business, and you're talking about sizing it now to be about 10% smaller. So is that -- am I doing the math right suggesting that you're sizing the business to be a, call it, $900-ish million business? Or maybe a little color around that would be helpful, one. And then two, what -- when you're looking forward in 2015, if I did the math on the 12% EBITDA margin, I think you have about $15 million of D&A. That kind of suggests to me if the EBIT dollars you just mentioned of $20 million to $30 million, that suggests something like $350 million of revenue. And I think I might be missing something there. So maybe if you could kind of help us with a few of those pieces?

Well, let me help with the first one on the capacity, and then I'll try to triangulate your other. As far as the capacity, a couple of things to mention. One is when we bought this business at the timing we did, we weren't expecting the second downturn of Europe. And I'm not making excuses for what's happened years ago, but we did that. And we launched a capacity increase initiative with a couple of new facilities. That initiative left us with underutilized, in fact, unused capacity. So when we talk about eliminating some extruder or weaving capabilities within the production base, it doesn't really affect us in terms of the volume of bags we can get out of our other operations. Some of those operations are integrated. Some are standalone. So what's really critical here is to cut the underutilized capacity drag on the performance of that business. As I've said in previous calls, the base businesses have -- the base business, excluding the greenfield plant builds, have been actually improving to mid to upper single-digit EBITDA margins. So we think with the right type of sizing, we will unleash the profitability potential of the business under its current levels. The second thing that's happened is that through the Greif Business System, we've increased the capacity of our production houses in the extruding and fabricating. In fact, we have a couple of new processes we're putting in place. And that capacity increase is exceeding what we originally thought it was. But we don't have a need or we don't have an opportunity to fill up that underutilized capacity from existing operations just now. So the -- as far as sizing the business, it's not as clear-cut, if you will, from a capacity standpoint. I would say as the current business stands, we have much more capacity than we need to achieve our production that we need to achieve $1 billion goal longer term. The real challenge is getting the business healthy and right-sized so that we expand it into the markets that we need to, to fill up that extra growth. So I hope that...

That helps a lot. And then kind of the second part of the question being as the business sits today, you're at a $450-ish million run-rate basis. I'm assuming that you talked about some potential divestitures, some more consolidation elements there. So -- and you've also targeted going into some new markets. But kind of 2 elements to it. One, what's the progression, I guess, between here and over the next, call it, 18 to 24 months? Your target to get to 12%, I mean, is -- the revenue stay basically flat? Do you think it can accelerate going into new markets? Or do you think it actually shrinks...

I think the -- well, 2 things. First of all, I think the illegal occupation of our plant notwithstanding for our Q2 event, I think the revenue that we're seeing and the expansion with our customer base will accelerate. I think that the cost structure will decline and perhaps precipitously, so as we make a few strategic decisions here. And then as you take that cost burden off of the network, I think it's quite easy to see our path over 18 to 24 months to the 12% or even higher EBITDA-type margin. We stuck with 12% because we've overpromised, it appears over the past few years, with what we have been dealt. And we wanted to make sure we have an achievable conservative goal.

Okay, that's helpful. And then the last question I wanted to ask regarding within the Flexibles business here is what -- obviously, there's going to be some cost to move down this path, and you've got a -- if you've got a pretty clear picture here of where you're going to get to. What would you anticipate would cost you to do this? I mean, is there a further restructuring over the next 12, 24 months, another $10 million, $20 million? Or how would you think about either cash element of that or -- and noncash element if it sounds like maybe writing it down or closing some assets?

Well, I would say out of our $25 million, the restructuring plan for FPS are earmarked, if you will, is less than half. It all depends upon whether or not a few of these satellite operations, which are standalone in nonstrategic markets for us are sellable to another person, which is part of our negotiations as we are on -- currently have, whether they're sellable. But if they are not, they will be closed and shuttered. And that expense curve, or when you forecast that, is quite a bit different between those 2 different options. So all I can say is that we've planned for what we think the most practical outcome is, but we still have to execute on that in the quarter 2, quarter 3. And it remains to be seen whether or not those transactions go through or if we end up shuttering them on our own dime. But I can tell you we have a very clear path to right-size, and this is something we know how to do pretty well. And in parallel to that, enter these other markets at the right time. And I think entering some of the North American opportunities, Far East, Latin America are every bit as critical as to right-sizing the footprint. And -- but like I've said many times, when it's healthy and when it's right, it's quite easy for us to enter at a fairly cheap rate through distribution into those bigger markets.

The next question is from Adam Josephson with KeyBanc.

This is another one for Pete. Yes, Pete, there's been a significant amount of containerboard capacity added, as you know, in the Northeast over the past year. To what extent are you feeling the impact of that capacity? RISI has talked about some producers that have added capacity, that are offering significant discounts to take business from others. I mean, are you feeling any of that? What are your expectations along those lines in the months and quarters ahead?

Yes. I'll make a couple of comments on that, Adam. And obviously, it's been much publicized on new capacity coming into those markets and some of the activity. I think one of the big pressures, and it refers back to the question on OCC, you've got pretty substantial recycled capacity coming online, and in that fiber basket, put some additional pressure on both demand, supply and pricing. So I think in that region, you could see higher-than-index level pressure on OCC, which had certainly could have an impact going forward. It has not as of yet. The other thing what I would say, it's obvious there's some competitive pressure in that market, but how we approach the market is more to how we differentiate. We can integrate higher levels. So at this point, Adam, we have had no material impact to our business as it relates to some of the activity in the Northeast. And I'm not a good prognosticator. So I'm just not going to forecast and predict what might happen in the future. I'm just more concerned about in our system, in our strategy how we move forward to try to bring the most value to our system. As you know, we're a smaller system. So we're not really driven by value and scale -- or excuse me, volume and scale, really driven to how we can create value within our system and to our customers.

We have no further questions in queue at this time. I would like to turn the floor back over to Mr. Fischer for any closing remarks.

Please turn to Slide 12. Notwithstanding the external challenges we face, especially during the final month of the first quarter, we remain on track to achieve our full year guidance for EBITDA and earnings per Class A share in fiscal 2014. At this time, it appears there may be carryover impacts from the recent adverse weather-related conditions and currency volatility. We are encouraged by the gradual improvement in the fundamentals across our business portfolio. The fix I discussed today concerning the polywoven business will take some time before we achieve the full benefits, but we are confident in the steps we are taking and the anticipated financial outcomes. They are primarily based on internal initiatives rather than external macroeconomic factors that we cannot control. We look forward to updating you on our progress during the next quarter's conference call. Before I go, I want to mention that Deb Strohmaier provides final instructions for the call, and I want to thank her publicly for 10 years of support and service as Vice President of Communications for Greif. She'll be retiring from Greif in April and sorely missed. We wish her well and safety in all of her retirement years. Deb?

Thank you, David. Back to business, a replay of this conference call will be available at approximately 1 hour at the company's website at www.greif.com in the Investor Center. We appreciate your interest and participating this morning. This concludes our call, and you may now disconnect your line. Goodbye.

Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.