Thank you for joining the Silgan Holdings Third Quarter 2020 Earnings Results Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to Kim Ulmer, Vice President, Finance and Treasurer. Please go ahead.

Thank you. Joining me from the company today, I have Anthony Allott, Chairman and CEO; Adam Greenlee, President and COO; and Bob Lewis, EVP and CFO. Before we begin the call today, we would like to make it clear that certain statements made today on this conference call may be forward-looking statements. These forward-looking statements are made based upon management's expectations and beliefs concerning winter events affecting the company and therefore, involve a number of uncertainties and risks including, but not limited to, those described in the company's annual report on Form 10-K for 2019 and other filings with the SEC. Therefore, the actual results of operations or financial condition of the company could differ materially from those expressed or implied in the forward-looking statements. With that, I'll turn it over to Tony.

Thanks, Kim. Welcome, everyone, to our third quarter 2020 earnings conference call. Our agenda for this morning will focus on the financial performance for the third quarter and then to review the outlook for the remainder of the year. After these remarks, Bob, Adam and I will be pleased to answer any questions you might have. As you saw in the press release, we delivered record adjusted earnings per diluted share of $1.04 for the third quarter, a 37% increase versus the prior year record results. This exceptional performance was a direct result of continued strong demand for our products across our business segments and the success of the entire Silgan team to meet these demands in a very challenging environment. Since the beginning of this pandemic, our employees have continued working extended hours, followed rigorous safety protocols and ensured supply of essential products to consumers all over the world. Through these efforts, we've had an excellent opportunity to showcase to our customers just exactly why they do business with Silgan. During the quarter, our metal food container business benefited from 17% growth in unit volumes, primarily as a result of the increased at-home food consumption and growing consumer awareness of the value and benefits of canned foods as well as a shift in timing of certain pack-related volumes from the front half of the year to the third quarter. We were pleased to see this strong demand continue even though restaurant activity picked up over the summer, supporting the idea that new consumers are discovering these products and our customers are reenergized in marketing and promoting them. Our closures business had great demand across most of our product range, but particularly for dispensing systems, where demand for surface cleaners, pumps and foamers, drove a 22% increase in these products.…

Thank you, Tony. Good morning, everyone. As Tony highlighted, we delivered an exceptionally strong quarter across the board. Including new all-time volume records, outstanding operating performance and the ongoing integration of two acquisitions, leading to record income in each of our businesses. As a result, we delivered adjusted earnings per diluted share for the quarter of $1.04 outpacing expectations and 37% better than the prior year. On a consolidated basis, net sales for the third quarter of 2020 were $1.490 billion, an increase of $167.2 million or 12.7%, primarily due to record volumes in each business, partially offset by the pass-through of lower raw material costs. Results for the third quarter of 2020 included $0.03 per diluted share for rationalization charges and costs attributable to announced acquisitions while 2019 included $0.03 per diluted share attributable to the shutdown of 2 metal container facilities and a loss on early extinguishment of debt. Therefore, adjusted earnings per share was $1.04 in the third quarter of 2020 versus $0.76 in the third quarter of 2019. Interest and other debt expense before the loss on early extinguishment of debt for the third quarter of 2020 increased $1 million to $27.7 million, primarily due to higher average outstanding borrowings, largely a result of the second quarter acquisition of the dispensing systems operations from Albea Group, partly offset by lower weighted average interest rates. Capital expenditures for the third quarter of 2020 totaled $58.8 million compared to $50.6 million in the prior year quarter. Year-to-date capital expenditures totaled $165.2 million versus $166.8 million in the prior year. Additionally, we paid a quarterly dividend of $0.12 per share in September with a total cash cost of $13.3 million. On a year-to-date basis, cash dividends totaled $40.4 million. We'll now get into the specifics regarding the financial performance…

[Operator Instructions]. We will take our first question from Anthony Pettinari with Citi.

This is actually Bryan Burgmeier sitting in for Anthony. Is it possible to quantify the impact of the business wins on 3Q volume in plastics? And to the extent to which you can comment, can you add any detail on the product lines or the margin profile of those wins?

Sure, Bryan, it's Adam. As we look at our plastics business, they have had a lot of success, as we've discussed on previous calls with the new business awards. So some of that is playing out through the course of 2020 but I don't have a specific number for you. It is a portion of their volume. The reality is their volume increase, I should say. The reality is that we're seeing increased demand across the board. So I would say the higher volume related to the consumer products and the health and hygiene products that Bob outlined really are the majority of the volume increases we've seen in the quarter. And then as far as the margin profile of new business awards, it's very consistent. As we've talked over time, we've had our 15% EBITDA margin kind of target for this business. But I would say it's at current margins or better for the new business awards that we not only have already brought in, but they will continue to bring in and phase through the business over the next several quarters as well.

And the growth is in, I think you as market. So it's in the same kind of markets that we have typically served in food, health care, home, essentially what we've been talking about for plastics for some period of time is that we've been waiting for someone to emerge as kind of the premier provider of service to customers, et cetera, for a long time. We said we didn't think there was a player at that spot. Today, we tell you, we think absolutely Silgan plastic is the player. And so they're beginning to get rewarded for their consistent strong performance for customers.

Got it. I appreciate the detail. And then I understand beauty markets are still pretty weak. But did you see any sequential improvement in Albea volumes throughout the quarter? Or was it pretty consistent throughout?

It was fairly consistent throughout the quarter. I would say we're starting to hear some positive momentum potentially building and specific to the fragrance market. You look at areas or geographies around the world like China, like Brazil, those markets have actually done better than our European or the U.S. market for fragrance in particular. So it was consistent through the quarter, but I think the dialogue with our customers has been positive. One of the challenges they have is the location at which the transaction occurs. So whether it's travel or retail, very little of fragrance was going through an e-commerce channel. So they've spent a lot of time with us and we're working with them talking about how to reach their consumers, whether it's through samplers, through e-commerce, through a variety of means, all of which will be good for us in the long-term because, again, if you think about a sampler fragrance item, you're talking about getting multiple samples for what would essentially be the sale of one bottle of perfume or fragrance. So consistent through the quarter, but we're feeling like there might be some positive momentum going forward.

Yes. Bryan, the other point I would add there, too, is there was no surprise here. That business operated both on a volume basis and an operational basis, very much the way we anticipated it to.

We'll take our next question from Mark Wilde with Bank of Montreal.

Tony, Adam, Bob. Tony, a lot of times, we hear you talk about sort of being in businesses where you have a sustainable competitive advantage. I wondered, given the performance in plastics, does that now fit that description. Are you confident that you've got that sustainable advantage? And I'd also like to know if you think you could ever meet that bar in the beverage can business.

Beverage can. Okay. So I'll come back to your second question. So it's a great question. It's exactly what we have always said about all of our businesses that we have to believe that we are the best in our market and that we provide something unique for our customers. And that's kind of the standard we hold everything to. And for many years, we stayed in plastics, we just weren't sure of that. I did say earlier in this call, I will say again that we are holding our heads up high. We provide the best service, the best solution for customers in plastic bottles in the North American market space. So is it enough? I think so, but we got to keep pushing. I in no way are we at the point where we can drop the footfall and move on. We've got to do more. We've got to continue to provide the value equation for our customers. But we've helped a lot of this pandemic situation, we are delivering on new products, which is what those customers need. So yes, I think we've definitely crossed an important milestone here. Yes, so did you really mean Bevcan?

Yes, I did. I actually really mean Bevcans.

Well, as you know, we're --

I mean I know you don't like businesses where there's a lot of capital being thrown around, but I'm curious about this business. I mean you are very good at kind of bending metal and making containers.

Sure. So I mean, it's no secret that Bevcan to us is it's just another can, another two piece can in that case. We make a lot of them today. So sure. Do we think we could participate in that market space? Yes, we do. I think you've known us well to know what we're going to focus on are, can we bring something unique to the customer. And in that case, it would have to be -- we're not going to -- we would not have the scale. So the unique is not to be more specific to a particular customers' need that might be geographic or something else. And so you'd have to answer that question before you could make that move. And then it really comes down to where do you see the returns. And I think for us, we've always talked about where you see a lot of organic growth in packaging. You tend to not see the return on capital that you want. And so if you look at the example we always show as PET bottle. They were the great booming thing. In fact, they were taking it from Bevcan, interestingly and everyone invested capital there and you didn't get the return. So I think the real question for us to make that kind of move in Bevcan would be. Do we feel like the capacity and the growth were well aligned and there was a good long-term opportunity there.

Okay. And I wonder just as a follow-on, can we just turn to the food can business. And I wondered if you could give us sort of some sense of the contribution in the quarter. From the food can business versus the pet food business and then what the drag might have been from kind of the institutional business, the big #10 cans and then also, just whether over time, Tony, you can help us think about the impact on earnings in this business from the shift toward more pet food cans and smaller-sized cans?

Okay. A lot there, maybe we'll together add and I will work through that. So I think, first of all, we have talked about the shift. And the shift has been historically very stable consumption of human food, particularly in areas like vegetable soup had been consistent for some period of time. I think there's a long way to go in this answer. The first thing I'd say about that is that, the U.S. market was different than other markets like Europe, et cetera. We had a lower consumption of some of those products. And part of the reason is the U.S. market with a much more eating out market. So one thing that's happened -- even though it wasn't your question, one thing that's happened lately is you're seeing some revert into a more normal global level of eating at home versus out of restaurants. And that's one of the things that we think may be more of a lasting trend is that maybe the U.S. market just reverts more to a normal amount of eating out. But that's sort of what had led that flat for a while. So for many years, we talked about the fact that against that, pet food, certain proteins, we're growing, that trend continues. So we've seen very nice solid growth through pet food this year, even though you would say there's really no COVID reason to speak up for that, yet we've seen that continued growth. So that trend continues to progress. I can't really break the profit for you in our business because it all comes out of the same plant, et cetera. But I would say that there -- on a contribution margin basis, they're comparable. So there's not a meaningful difference in terms of the profit of those. Finally, you asked about the institutional cans. It is true that one of the areas in cans that we have lost this year to some degree, are big #10 gallon cans to restaurants. That is a more dollar, a lot more contribution per can out because it's a much more expensive package. And so there has been some impact of that. And you can see that a bit in margin. Those typically sell in the third quarter. So that's one of the points about the can margin in the third quarter is that you had that piece on it. I hope that helped what comprehensive at all.

We'll take our next question from Adam Josephson with KeyBanc.

I hope you and your families are well. Congrats on another really good quarter. Bob, just to start on Albea, can you just tell us what the sales and EBIT or EBITDA contribution was in the quarter? And just how the business is tracking on a full year basis versus what it was versus the TTM number? And relatedly, realistically, how much growth you think you could get from that business next year in the event, travel, retail, et cetera, returns to some stimulative normalcy?

Yes. So as I made earlier comments, the business really is tracking right along what we expected it to deliver for the quarter. So there's roughly a little more than $80 million of revenue. And then on the bottom line basis, it was neutral to earnings. So basically, it's contributing enough to offset the interest carry on the business, which is exactly where we expected it to be for the quarter. Obviously, it's below where we expected it to be from the acquisition standpoint, but that's largely due to the fragrance shortfall that we're experiencing, not only us, but our customers and our competitors as well. And so that business, we expected it to be off some $20 million-ish on the bottom. So that's kind of what we're seeing. So who knows and what the timing for recovery around COVID is going to be moving into next year. But I think our view is that the fragrance business will recover and it will get back to some more normalized kind of levels. So whether it's fully there next year or not, we'll wait and see, but our anticipation is that we can get back to the kind of levels that we were expecting when we bought the business.

Yes. Tony, also on 21, I mean you had commentary in the release about remaining at these elevated profit levels. And I don't remember you're normally commenting on next year in the third quarter. I could be mistaken there. But can you talk about what prompted you to make that comment? How much visibility you have into demand trends next year across your businesses? And again, just what prompted that comment?

Sure. Actually, your memory is correct. We usually, at this quarter, say that we have not completed our budgets yet and that we're not going to talk about it. We did mention that we have not completed our budgets yet, so that's true. The reason you'll also recall that when COVID hit, most companies dropped guidance and we told you that we weren't going to do that, but we felt like we had more knowledge than you all did. There were too many things issues, changes a foot, that would be very hard for an outsider being analyst or a shareholder to really know how it was all going to impact. And we felt that we had an obligation to share what we knew and understood. And so similarly, right now, it would be very hard for you all to know all the different things we're hearing from customers, seeing in our markets, understanding about Albea. So we felt obliged to share with you what we knew. And so what we said is that we expect that well, 2020 was a really incredible year for us, 38-some percent improvement, whatever that number ends up being. That we believe that we can hold that. And so that is a put and take of a lot of things that we're taking into account. And so I've seen some of the reports since then. We're not necessarily saying we sell exactly the same amount of cans next year. Again, we had a pre-buy surge that happened early in this. And so we don't know that, that will be the case and we're not assuming that will be the case. We are assuming that some of the strong demand we're seeing is lasting, certainly lasting through 2021. We actually think further than that, but that's not part of the commentary that we're giving right now. And so similarly, we look at the wins that Adam was talking about in some of our other businesses because of the performance we've done, we tally those wins in. We know there was pre-buy in some of the hygiene products as well. But against that, we also know a lot of customers want to be more domestically sourced than they were before. So we're trying to take all that in. And when we tabulate that right now, we're saying, rather than thinking there's a big comeback from this great profit year, we don't believe that. We think the some of all that plus the improvements you asked were from Albea. But some of all that has us thinking that it ought to be at least as good as this strong year.

Tony, just last one on the food can supply demand situation. So can you talk about the status of the 6 plants that you were contemplating closing pre pandemic? And relatedly, how would you characterize supply/demand in the U.S. food can market now? Obviously, it had been in a pretty significant state of oversupply pre pandemic and that obviously has changed to some degree. So how would you characterize it now? Is it balanced? Is it still oversupplied? Is it maybe even in short supply? Just talk about that in the context of those 6 plants that you were initially planning to shot.

Sure. Well, Adam will do that and then I think we'll move on to the next question.

Yes. Thanks, Adam. So as far as the rationalization of the 6 plants, as we talked about on the last call, obviously, we're dealing with a pretty sizable volume increase across our metal container platform right now. So we've paused those plans to rationalize additional plants. And we're constantly evaluating those. Part of this is what Tony just alluded to, we're digging deep into 2021 expectations right now. And again, we've got a relentless focus on taking costs out of our system and that will never change. But what we are also incredibly focused on is meeting our customer needs and their requirements. Many of our contracts, as you know, are requirements-based. So we're finalizing 2021 expectations and commitments and we'll evaluate and see where we are at that point. As far as the supply and demand in the marketplace, it's been an interesting 6 to 9 months here. I would just say, I think basically every can that got made over the last 2 quarters got sold as well. So if you think about the seasonality of the food can business, a lot of volume goes through certainly the third quarter but also the second quarter as well. So was there capacity available in the first and fourth quarter? Probably. That's how we run our business. So we'll see how our Q4 plays out and then as we go into next year. But certainly, on the shoulders, there's going to be some capacity and we'll see how that's impacted with volume expectations.

We'll take our next question from George Staphos with Bank of America.

I guess I wanted to try to, if possible, draw a finer point on Albea and the expected improvement in earnings you expect from it for next year because for you to say that you expect earnings to be at least as good as this year's levels and we do appreciate you giving us that guidance. You have to have some sort of view recognizing this maybe a wide range on that view. But if you were in our seat, what should we be thinking about in terms of Albea's net increment to EBIT or EBITDA as we're building up our models, '21 versus '20? Could you give us any kind of view on that?

Sure. I could try. Bob gave you a lot of it. So I mean, first off, what we have said and exactly how it's performed is, it's basically covering its interest costs. So no earnings contribution for the 6 months of this year that we'll have it. Yes. So in order to do that, you're off some $20 million to $25-ish million on EBITDA, if you will. So if it got back to where it was when we bought it, you would expect on an annual basis, something like a $20 million to $25 million improvement. Now that would be all the way back where it was. The fragrance market, which is about 60% of that business is off something like 30%. So we are not assuming in what we've said to you that we will get all fragrance back starting January 1, that won't surprise you. So the thinking is more that you'll see some recovery there, something like half of what we saw in the decline will be the kind of recovery that we are thinking into that. So you get kind of half of what I just said, George, you get the full year impact and then half of that improvement, as I was talking about, is our thinking on it right now.

Okay. And related point, on the synergy front, how much of the $20 million, if you could remind us do you get next year? Are you all in by '21 on that front?

George, it's Adam. Again, that $20 million was a run rate that we were going to achieve kind of at the 18-month time line. So we'll be at or above that run rate at 18 months. We just know that some of those synergies are going to take a little bit longer than normal as far as our other acquisitions had transpired.

Next question I had, you talked about having anecdotal and other evidence that the food can growth rate, maybe pet food aside for a minute, looks better than it would have been prior to COVID. Now those are my words, it's not exactly how you phrased it. Can you talk about what gives you confidence and what phrasing you would use for describing the volume outlook longer-term because of what's happened with COVID? And what evidence, what studies you have that drive that? And then I have one last question.

George, it's Adam, again. I want to give you one example of just kind of what we're dealing with, a mix, a little bit of CMI data with Silgan data as well. So our soup market. We've spent a lot of time over the years talking about soup. And Q2 CMI data had soup up approximately 50% versus the prior year. So a tremendous increase in volume and as we look at Q3, it's a 5% year-over-year growth. The reality is we shift the exact same amount of soup volume in Q3 that we did in Q2. So you had that increase that occurred in Q2. And our whole point is that elevated demand and that demand has maintained at that very high rate. Our Q4 actually is calling for soup to be up even another increment above Q3 and Q2. So talking about soup again, the soup spilling season usually starts in Q3, but our customers were able to take advantage of some of their capacity available to them in Q2. And we've seen an elevated demand rate that, as we sit here today, is going to continue at least for some period of time.

And I would just add to that, George, there's a couple of other kind of more macro trends that we look at and are thinking about, too. So on the macro side, I'm not sure this is macro, it's somewhere in between. But first of all, you've got Campbell doing some interesting work on new customers and so I think the first thing is we have pretty good data that said there are new customers, two cans and that's new exposure. On the macro side, you also have -- obviously, now we have a lot more at home, work at home, eat at home, et cetera. I think most of us would probably agree that even coming out of COVID there's probably going to be an enhanced amount of work at home. Certainly, the real estate market is implying that. So work at home means more eating at home. First of all, you got lunch at home, so start there. Then you're launching in a dinner, you're already home. So you're not out in the city, et cetera. So I think there's some global trends that would lead us to conclude there will be more at-home consumption over time. And then you predict what the economy is going to look like and when it's going to recover, but down economies tend to be good for lower price food can -- I'll spare you my whole litany I can. But by far, the lowest cost way to get good, valuable calories. And so down economies tend to be good for that. And I think a lot of people, by the way, through this pandemic have been surprised how much money they save, those that continue to have a paycheck by not going out, et cetera. So we also think this is more opinion, I guess, if you will, but there's more visibility to how much was being spent eating out by American consumers.

We'll take our next question from Gabe Hajde from Wells Fargo Securities.

Tony, I was curious, there are a couple of flexible pouch manufacturers out there that have discussed going into some of these fast casual restaurants with some vertical fed pouches. And I'm assuming some of that for fluid applications and it's part in a way to automate restaurants, et cetera. I was curious if you've kind of heard any of that from your restaurant customers as it relates to the #10 can and maybe view that as a threat as things do, in fact, reopen. And then maybe just a data point, if you could tell us directionally how much of your business is, in fact, kind of restaurant or large #10 cans?

So we -- the pouch has -- it's been there. So there could be some enhancement there. I think you're right that most of that's around fluid, et cetera. The things that come in at number 10, the restaurants are a pretty stable demand, good product for restaurants like it. So I would be very surprised. We are not seeing any trend of shift away from gallon cans for that. So the larger cans are a relatively small percentage. I'm not sure I really have the exact percentage for you here. I'm not sure how much it would help you. But it's relatively small. But as I said, on a per unit basis, it's a lot of drop-through. So it matters to kind of margins in a given period.

Okay. And then, Bob, I know it's early. A lot can happen in a couple of months. But any preliminary view on what pension might look like, at least as the income statement impact next year? I think it was a $20 million in aggregate benefit this year.

Yes. You're right. It is early. We got to finish out the year with returns. And ultimately, it's the year-end discount rate that will be the big determining factor and right now, I think the evidence would suggest that there's some pressure there. So this is a swag, but it could be $10 million to $15 million of a headwind. Again that's TBD. I would point out that all of that either way, is a noncash impact to earnings, but that's the way we would see it shake out right now.

We'll take our next question from Kyle White with Deutsche Bank.

Bob, what's the new CapEx level? And I'm curious, is it related to any acceleration of projects or some pull forward of projects? Or is it new type of investment as a result of all the growth you're seeing?

Yes. That's essentially why we held our free cash flow guidance constant versus what we put out in the prior quarter. Obviously, we've seen some improvement in earnings and we think that as we invest in some of those projects for customers that will provide growth on a go-forward basis as well as provide for the volume that our existing customers have, we're going to see an increased rate of CapEx versus the $220 million that we had. And we're also going to see a little bit higher working capital, which really means we're not going to see as much of a reduction as we were anticipating coming into the year. And that probably has more to do with the thought process that given that we're expecting elevated volumes across the board, we're going to try and build as much inventory as we can in Q4 to be ready to support our customers going into next year. So those two things combined will offset the earnings. So I think the CapEx side, you're probably talking about something that's in the $10 million or $15 million range.

All that said, the free cash flow we're talking about is something like an 8% yield on current stock price.

That's correct.

All right. That makes sense. That's helpful. We've talked about a little bit on soup and you referenced Campbell's. They're obviously doing a lot more work in marketability and promoting the soup can. But they also have talked about for this next coming fiscal year in terms of adding supply. I'm just curious in terms of your capacity situation, if they do go ahead of some of those capacity increases on their side, what does that mean for your capacity? Would you be able to fulfill that? Or would you need to make investments?

Sure, Kyle. You think about our soup market, in particular. We're in touch with all of our customers and talking about 2021. So we believe we're in a very good position to be able to supply those requirements in 2021 out of the current footprint and out of our current capacity that we have available. It might be to the comment I made earlier about utilizing the shoulders of the year a little bit more to support their increased volume, but we're obviously more than willing to do that.

We'll take our next question from Ghansham Panjabi with Baird.

I guess going back to the metal food segment. Tony, can you just give us a sense of supply chain inventory? How would you characterize it? I mean there are a lot of different nodes in there. Retailers, customers and in trade yarn as well. And then related to your confidence on growth 2021 and onwards, how should we think about some of these unfavorable contract renewals you've called out in the past? I mean I would assume there's less excess capacity in the industry. Just your thoughts on that as well.

Ghansham, it's Adam. I'll jump in. I'll let Tony clean up behind me here with whatever I miss. But just looking at the supply chain for metal food cans. What I would tell you is with the search that happened, you got to think about the retail point-of-sale distribution centers, regional warehouses, our customers' inventory, that entire supply chain was very taxed. And really regardless of the product that goes into the can, I think all products were taxed by what happened earlier in the year. So we've been working with our customers very closely. We're very focused on meeting their demand, which is really focused on meeting the consumer demand, increased demand for food cans. So the first point of -- or the first point of business for us is meeting the consumer demand. And the second will be replenishing the supply chain whenever that happens. So I would just tell you, at this point, we're not really focused on replenishing the supply chain at this point. And we're just trying to get food out to consumers as best we can. Tony, any other thoughts on that?

I do comply with, you kind of said, so what's the market look like in contracts, et cetera. So as Adam said, the market is, it's pretty full. I would not say sold out or desperate for capacity, but I think it's pretty full. It does have these shoulder seasons as we do, so do our competitors. So I would call the market kind of competitively stable right now, we're just trying to service our customers. As to contracts and the impact of that specifically, as you know, that kind of comes in -- the big one coming away. So you may recall beginning of this year, we did some 40% of our contracted can business was renegotiated long-term 7-year average, I believe, term contract. So that's kind of behind us. So if you look in the next year or two, there's no expectation that we would need to do anything of that nature in a major way.

And coming into the year, I think, we were 65% over 4 years left in their contract life.

Got it. That's super helpful. And I mean, the inventory replenishment aspect, is that what gives you that sort of adds to that confidence in terms of the 2021 earnings? Then going back to George's question earlier and then second, for plastics, just given the growth that you're seeing there, are we at a point that we need more capacity to just service existing customers and then also for the new business wins that you referenced?

Great. Good question. Thanks, Ghansham. For the 2021 confidence, I do think the inventory plays a role in that. I think we're going to be really running at full capacity next year and whether those cans make it all the way to the consumer or replenish the supply chain, I think that will absolutely be occurring in '21. So it does provide some level of confidence in the volume projection. So then moving over to plastics. As Bob just mentioned, we've had several wins and new business awards, both in all three businesses, but particularly in plastics. So there is more capital going into plastics, adding capacity but that's all contractual volume with kind of multiyear agreements associated with it. And really, we're talking about adding a line for a custom solution for our customers. So we feel very good about where that business is. I think some of the increased capital, Bob talked about, again, is specific to the plastics business as well.

Yes Ghansham, I would point out here, where we've got really nice opportunities to grow the business at good return rates through organic CapEx but we're not talking about CapEx that's so outsized that it impairs our free cash flow.

Yes. And just one thing, Ghansham. I think we've said this earlier, so I want to be clear what we're talking about is we think the food can volumes will have strength. We have not given you a direction on food can volumes. So we are cycling against a pantry stuff in the first part of the pandemic. So to be clear, our language and our confidence is that we think can volumes will remain strong. We haven't necessarily said that's a plus over this current year. We're saying the net of all of our earnings impact, including Albea and everything else is the plus. Just to be clear.

We'll take our next question from Jeff Zekauskas with JPMorgan.

Your SG&A expense was about $92 million. Was there something unusual in that number? Or is that a more normalized level of your spending now?

Yes. So the big issue there is you've got the inclusion of the acquisitions in there. So on a comparative basis, it's all acquisition. Well, it's the SG&A of the acquired business and then you've got some acquisition costs that we strip out of the adjusted earnings per share but are included in the P&L.

Okay. And have you had any difficulties getting all of the resin that you want in the United States in that polypropylene and polyethylene have been very tight and many customers have been on allocation? Or can you get all the rest of them that you want?

Well, I think the resin market is very tight. And we know certainly of -- of certain suppliers to the packaging companies that they are on allocation. There have been some force majeures declared. Fortunately for us and the folks that we purchase our resin materials from, we've been able to get all of our requirements even at the elevated levels that we've been talking about. And so we feel very good about the supply chain for our business as it relates to resin.

And then lastly, in metal containers, what utilization rate did you run at on average this year, both the last 9 months in the forward quarter?

It's a great question. It's not a metric that we typically discuss on this call. I would say we were fully utilized. So whatever percentage you'd like to -- a portion to fully utilize it was an incredibly high number year-to-date and we'll continue to do that through the end of the year.

We'll take our next question from Arun Viswanathan, Research Analyst.

Congratulations on a strong performance. I guess I just wanted to ask again, you mentioned really a focus on cost reduction. So could you kind of help us understand what kind of opportunity you have there? Is it the case that you've had some transitory cost reductions that you can make more permanent? Or is it something more structural that you're going to undertake over the next year or two?

Well, I think it's an everyday exercise at Silgan that we're focused on cost and eliminating or reducing costs. So it truly is an everyday part of our culture. I think specifically, what we were talking about was the previously announced rationalization plan that we had for our metal container business. And really, as we talked about when we announced that plan, we were taking capacity out of the market because we were sort of rightsizing our operational capacity with our customers and our commitment. Obviously, that's changed now with what's happened in 2020. We've got a much higher rate of volume that we're dealing with today that we think will be here for some extended period of time. And we're going to make sure we're, number one, that we meet our customer requirements and their needs and their growth strategies. So I'll just say again, we pause that program specifically. And really, when you go across all of our businesses, we're running at a very high rate of utilization. And I'll say there's nothing significant right now other than meeting our customer requirements that we're focused on operationally.

And I guess I was just kind of curious, just looking at the margin levels, obviously, understanding it's difficult with the metal pass-through. But definitely, you had nice margin performance in metal container and especially in plastic containers. So maybe could you just characterize the margins that you achieved in Q3 whether some of it was due to -- if any of it was due to outsized volume that maybe you shouldn't continue? Is there any level normal level of margin that you'd want to have us think about for each business?

Well, I would say there were puts and takes in the margin. If you looked at the second quarter, I would say you had outsized margin in the second quarter, particularly in the can business primarily. Because you had a case where you were building inventory and selling everything. You moved a lot of costs out in the second quarter. That's not -- in fact, the third quarter had a little bit of reverse of that, where you sold off inventory, you took in some of those costs. The third quarter also had -- we did do those contract renewals I referred to before. There was some pricing impact of that. And we -- as we had said at the beginning of the year, that would primarily hit the third quarter. So you had actually a couple of things that brought the third quarter margins, particularly in the can business, down from the second quarter. But if we look at the third quarter, there's nothing about it when all that blended in, the price is lasting, so it will be there. I would say that it seems sort of a reasonable level to us. And Q2 was a little more elevated.

And then just on Albea, given that it has been impacted by COVID a little bit, but you are keeping a relatively neutral contribution. Have you been able to discover a little bit more synergy progress? Or maybe could you just provide an update on the integration? And if there's been any challenges or maybe some tailwinds even in doing this in a COVID world?

Sure, Arun. It's a good question. I mean you think about trying to integrate an acquisition during a global pandemic. What we like to do is go in and get boots on the ground on day 1 and meet with teams, look in the whites of the eyes and really get into the details of that business. Because that's the first chance to really get to do it after the due diligence period. So we've been utilizing all sorts of new tools to be able to do that, whether it's Zoom or Teams or any other technology you're talking about. So it's been a challenge kind of coming out of the gate in an acquisition. And I'll say our teams have done a terrific job, not only our legacy dispensing team, but the Albea team that came with the business have just been outstanding, trying to work together, working through a global pandemic and also a global pandemic that's significantly impacting one of their primary product lines. So with that, what I'd tell you is what I said earlier about synergies, we're right where we thought we'd be at this point. I think if you go to the end of the 18-month period where we were targeting that kind of $20 million, I think, we'll be at that run rate or probably slightly above it and feel really good about what we're doing with the business. It's just a market that's very challenging right now. And Emma, we'll move down the list.

We'll take our next question from Brian Maguire with Goldman Sachs.

I just wanted to kind of follow-on the earlier question on margins. Just in the food can business, is obviously really strong growth year-over-year. But trying to put the 10% volume growth sort of into context with the 14% earnings growth. I was just wondering if you could kind of bridge the -- why more of the volume growth didn't translate into EBIT growth. And I guess the margin improvement there was good, but maybe not as much as might have expected given that level of volume growth and the normal fixed cost absorption were used to see it in those businesses. So was there some incentive comp or other sort of accruals or true-ups that occur that we should be thinking about?

So good question. So just to cover off, the containers volumes were up 17% in the third quarter. And the margin was fairly consistent with previous time periods, not as elevated as Q2, perhaps not as elevated you might have expected, considering you had that strong volume. So just -- I think that's the basic question. The reasons for that, basically, we have really great, strong operating performance. But as I said, we were -- basically, we built inventory in the first half of the year, as we had said we were going to do and liquidated in the third quarter. So you have all of the overhead costs that you've got to take out of Q2, you had to suffer in Q3 as you liquidate that inventory. So now obviously, sold more. So it's a good thing, but it's on a margin basis, what we call volume benefit is less drop-through because of that margin coming in, that cost coming in. So that's a big piece of it. The other piece is what I said, we had price concessions under contracts that we renewed. And we talked about at the beginning of the year, it was roughly 1% of total price of the contract, revenue of the contract. So relatively modest price. But that it was because of the customer and when they're going to take product, it was going to be predominantly in the third quarter. So you have that also impacting what was happening in the quarter. So all that said and when you net it all together, we'd say that margin seems a normal level to us, not elevated for the volume it had. But not depressed either. We would view that as a reasonable margin level for the business.

And what we expected as we came into the quarter.

Correct.

Okay. That's helpful. And then just lastly, on closures, I think you said the volumes were up 10%, including acquisitions. Wondering if you could just kind of break out what they were on an organic basis. And then just any outlook for the fourth quarter in that segment?

Sure. And Brian, as you know, we've talked a couple of times about the different products that are kind of comprised in our closures segment. And so the first thing you have to just acknowledge right upfront is the fact that our dispensing closures are about 17% of our unit volume and a little over half of the revenue. So as we've said before, a closure is not a closure, is not a closure from a mix standpoint. So now to get to your question, our legacy dispensing business had a fantastic quarter. They were up 22% versus the prior year. And that's our legacy business, that's not with acquisition. So terrific performance there for all the product lines that we've talked about for foamers, sprayers, trigger sprayers, our dispensing group in total. And then you move over to kind of our flat cap business, if you will. And we had good volume growth in food. The U.S. market, in particular, was strong for food, was up almost 20%. And then you think about another market that we've talked about quite a bit is our plastic hot-fill closure business or market, I should say, that's kind of sports drinks and other beverages. That business was up 14% in the quarter. So really, it's the legacy Silgan businesses did fantastic in the quarter and saw really nice volume growth literally across the board. We saw a little bit of softness outside of the U.S. and some international markets. But really, the focus was tremendous in the U.S. market.

Okay. So just to confirm, is there a way to quantify what the acquisition contribution was to the volume in that segment?

Sure. So total legacy closures were up a little over 3%. If you just go straight on unit volume, again and our addition of the 2 acquisitions made up the other 7%.

We'll take our next question from Salvator Tiano with Seaport Global.

So my first question is a little bit about price cost in 2021. What are your thoughts about some key components like freight and resin?

Sure. Maybe we'll start with resin and just say that with kind of the commentary we had earlier in the call, during the hurricane season, we did see tightness in the resin market. That led to producers announcing price increases for the back half of 2020. At this point, as we look into '21, we think those are still on the table. So we're talking through those as we speak. But it's likely resin would be somewhat of a headwind for '21. Freight availability is difficult right now. Again, there's a lot of product that certainly, we are putting out over-the-road and others as well. So freight rates have been slightly inflationary trend here for the back half of the year as well. And then you didn't ask specifically about steel, but I'll just make a quick comment on another major input for us. The steel industry is hurting. We had a deflationary year in 2020. I think the steel entry is looking for increases. We're fighting every day for our customers to mitigate any increase that comes through. But the ask is out there at this point and we're in the early process of negotiating for steel going forward.

And just because as a general rule, we passed all those costs through. So some of that is just giving you some idea of what's going to happen on the raw material side. And then you may -- on resin or freight, you might have some lag issues, et cetera. But as a general rule that will pass through it.

Yes. Perfect. And just the last question on M&A. I know you just did Albea, but given how strong this year has been. You seem like you should end up in the -- you should end up the year roughly at the higher end of your leverage target already. When do you think you would be ready, both from a leverage standpoint, given seasonality in working capital, but also operationally to undertake another large M&A move?

Yes. So, good question. I think you hit on the right point. We are in the midst of the Albea acquisition integration, right? Which is mission-critical for us. To get it fully integrated and ring out the synergies. And that's where our focus lies and we feel really good about being able to accomplish both of those as we exit the back half of the year here. And then given our forecast, we should be kind of right on that high end of the range, which I'll remind everybody is 2.5 to 3.5x net debt-to-EBITDA. So I think that says, from a financial metric, we'd be ready for the right opportunity. Now obviously, that's -- there's a lot to that, right? And to reiterate how we think about that, we're looking for businesses that have competitive positions in their markets. We'd be looking for something that's free cash flow accretive and that has a reasonable return on that M&A target. So again, we're opportunistic and you have to be fleet footed, if you will, to take advantage of those opportunities. All that said, we don't necessarily feel compelled to have to do anything. We think we've got a good growth catalyst in the business that we have that as it starts to turn the corner around the -- particularly the fragrance side, we think there's good growth opportunity for our business from that standpoint. So we'd be equally as happy just to run out 2021, focused on bringing out that value in the business.

We'll take our next question from Adam Josephson with KeyBanc.

Tony, at your Analyst Day, a little under 1.5 years ago, one of the things you talked about was the valuation discrepancy between yourselves and some of your packaging peers. And I think you mentioned earlier on the call that you're in at 8% free cash flow yield, which you consider pretty attractive. And since that Analyst Day, your multiple stayed about the same at about 10x EBITDA, while those for your beverage can peers have gone skywards as you know. And I'm just wondering and I think Mark asked you earlier in the call about your willingness to your interest in getting it to be again. I was just wondering how you're thinking about your relative valuation now compared to what you were thinking at the Analyst Day and does that call your thinking at all in terms of your desire to get into, say, a hot business like beverage cans or something else? Just how you're thinking about just that overarching situation?

That's a great question. Obviously, we and every company are asking themselves that question every day and scratch our head to a certain degree. I think the -- we look for and have always looked for strong, sustainable positions we think, a lot of our free cash generation. And so I think where we land on that ultimately is that you can't ignore that the equity market wants growth and that we've got to be growth driven. And so part of what we've done with that is build out a phenomenal dispensing closure franchise that, as we talked about on that Investor Day, is soon to be 50% of the EBITDA of our business. And as Bob just said, we've got -- I would answer the other question and as Bob did. We've got a catalyst already in our business, which is the Albea, as it comes back on fragrance, we feel very good we'll recover. And so we feel great. There's already one catalyst there. And we've been delevering at such a fast pace. As Bob pointed out, we are able to do another deal coming forward, which is exactly the talk at the Analyst Day, is that our view is you have strong sustainable cash-generative businesses. You take that cash, you deploy it. And over time, you will generate better growth than that growth sexy thing, whatever it might be. And I think if you look back at us against any of those companies at those high multiples over time, you'll find we've outperformed them. And so with all that said, all I can do is say, we play long ball. We know what we're about and we're really clear about it and investors that like that and want to be get back out on the reward will stay with us and those that want to get a very quick, high growth. And again, I want to be clear, we've delivered growth. But if you want to be able to see it organically, then that's a little less our interest because in packaging, we've not seen that organic growth get the reward that some might think it will get.

[Operator Instructions]. We'll take our next question from George Staphos with Bank of America.

I think you already answered the question with some of the other Q&A, but I just want to go through it. If I look at 3Q versus 2Q in metal food containers, 2Q, I think we had something around 15% organic growth. Revenue grew about 4%. This quarter, the year-on-year volume growth was 17% and yet revenue grew again about 4%. And you had a little bit of an FX benefit as well from what I remember in the discussion. So that sort of lack of lift in revenue relative to the improvement in year-on-year volume, was that more the mix effect from the smaller cans? Or is that more the impact of the contract renewals showing up in third quarter as you discussed? I realize it's probably all of the above. But if you had to think about it, which of it was the predominant effect? And then going forward, are there any implications from that in terms of how we should project out price mix for you in the quarter and '21 ahead?

By far, the biggest of that is the lower cost of raw materials being passed through. That's your biggest driver of that. And so when you take the price is meaningful, but against the entirety of revenue, it's not that meaningful. So I wouldn't say the price is a very big part of it. There is some mix shift. But again, I want to be clear, that's the same mix shift we've been talking about. We use slightly did on language in the press release because we didn't like our language, but it's the exact same thing. We just -- the things that we've been talking about growing, pet food, protein, tend to be smaller cans. And then yes, it is so that some of the gallon cans are out. So there's a little bit more of a mix this quarter. But mostly, that's really about the raw material pass-through.

At this time, we have no further questions in queue.

All right. Emma, thank you very much and we appreciate everyone's time and we look forward to talking to you at the end of January for year-end results.

This concludes our teleconference. Thank you for your participation.