Good day, ladies and gentlemen and welcome to the Q4 2011 Sonoco Earnings Conference Call. My name is Greta, and I’ll be your operator for today. At this time, all participants are in a listen only mode. Later, we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Roger Schrum, Vice President of Investor Relations. Please proceed.

Thank you, Greta. Good morning, everyone, and welcome to our Fourth Quarter and Full-Year Results Investor Call. This call is being conducted on February 9, 2012. Joining me today are Harris DeLoach, Chairman and Chief Executive Officer; Jack Sanders, President and Chief Operating Officer; and Barry Saunders, Vice President and Chief Financial Officer. The news release reviewing the company’s financial results was released before the market opened today, and is available on the Investor Relations section of our website at sonoco.com. In addition, we will refer to a presentation that is posted on the investor site during this call. I’ll briefly remind you that today’s call may contain a number of forward-looking statements that are based on current expectations, estimates, and projections. These statements are not guarantees of future performance and are subject to certain risks and uncertainties. Therefore, actual results may differ materially. Additional information about factors that could cause different results and information about the use by the company of non-GAAP financial measures is available in today’s news release and on the company’s website. With that introduction, I‘ll now turn it over to Barry.

Thank you, Roger. Before getting into the numbers, I will mention that as a result of the Tegrant acquisition, we have reevaluated our segment reporting which is very prescribed by generally accepted accounting principles. And we've concluded that we will change our segments beginning with this fourth quarter. If you have access to the quarterly update slides, you see on chart three that we will have four segments going forward, Consumer Packaging; Paper and Industrial Converted Products; Packaging Services; and Protective Packaging. The most significant change from our previous structure is that given the significant sub-Tegrant we’ve added Protective Packaging as a recordable segment, which includes our Legacy Protective Packaging business and of course Tegrant as well. Prior to this change, we also had a group of businesses, which was referred to with all-other Sonoco that was not considered a segment. But after pulling out our Legacy Protective Packaging business and putting it into Protective Packaging, we’ve determined that our Wheels business can be aggregated with the other businesses in the new Paper and Industrial Converted Products segment and our injection molded plastics business could become part of the Consumer Packaging segment, which already included our other plastics businesses. Moving on to slide 4, you can see that this morning we reported earnings under generally accepted accounting principles for the quarter of $0.29 per diluted share and base EPS of $0.46 per share. The difference between GAAP and base is due to pre-tax restructuring expenses of $13 million or $0.10 per share after tax. These related primarily to additional charges of previously announced actions, including several plant closures. Acquisition related costs of $9.3 million were related to $6.3 million of fees most of which were directly related to the Tegrant acquisition and $3 million associated with the impact of purchase…

(Operator Instructions). Your first question comes from George Staphos of Merrill Lynch. Please, proceed.

Maybe a bigger picture question to start. Obviously, volume didn’t transpire as you’d expect that you were not alone in that regard in the fourth quarter and maybe periods during 2011 and that was a big factor in terms of your productivity being perhaps not where you’d want it to be. Having said that, do you think that 2011 was also impacted by just the fact and here I mean related to productivity the fact that there were so much going on at Sonoco with the Tegrant acquisition with some of the capital initiatives. And I guess to some degree given that the company itself has grown in its scale and diversity do you think that at all is having any impact in terms of management stability, the folks reporting to you, their ability to get productivity out of the business, is there too much going on at Sonoco do you think or was that the case perhaps in 2011?

George, clearly volume impacted 2011 which you acknowledge and I would say that the acquisition activity last year probably took some focus off of productivity more so than we realized at that time it was not only Tegrant but there was a lot of all the acquisition activity in the year that actually didn’t come to fruition. So yeah I would clearly say there was some disruption to color some of that lack of productivity. I don’t think Sonoco is any more complex today than it was in 2010 and 2009 and 2008 and 2007 so I think we have certainly the management team to handle the productivity and drive the productivity back at our historical levels and that’s what I would expect in 2012. Jack, do you want to comment?

The only thing I would add is that I think it’s also true that 2011 was a year of unusual inflation, especially during the first half of the year, it’s extremely strong. And that creeps in to our productivity calculations in ways that we can actually see and calculate, but that definitely was a factor. As well as if you’ll recall the winter of 2011 was quite severe versus this nice weather that we’re having now, and it had an impact on our operations throughout the North and Northeast in the first quarter.

Okay, I appreciate the details. There are two quick questions and I’ll turn it over. You mentioned in your press release and commentary that you don’t anticipate further reductions in industrial volumes from the fourth quarter level. If I paraphrase that correctly, could you provide us some details? And you mentioned energy inflation within the consumer segment, could you remind us why there would be unusual energy impact in consumer in the quarter if I captured that correctly given packaging and converting business don’t generally consume a lot of energy. Thanks, guys.

Specifically, George, I guess, to run rate situation not being lower than fourth quarter, I would tell you that the US run rates today are better than December, and actually, have probably rebounded a little bit more, maybe a little bit stronger than we actually anticipated, so we feel good that our projection forward now is pretty stable, at least for the foreseeable future. Europe, certainly, also saw improvement from December, but it’s probably not as strong as we would like. Again, we’ve kind of factored in all of that into our guide is going forward. Our mill utilization is certainly better during the first part of this year. So everything seems to indicate that what we’ve factored into our re-forecast for now seems to be realistic for what we expect. As far as energy on the consumer side, I would tell you that freight is a part of it but also there is energy consumed in blow molding which is a little bit different than our portfolio has been in the past as well as in flexibles.

And your next question comes from the line of Philip Ng with Jefferies. Please proceed.

Just from a very high level standpoint, the macro data coming out of the US, you’re probably suggesting to have improved a little bit on the margin but it seems like in relation to your tube and core business, things have softened so I’m just trying to get a sense of what’s the disconnect. Are you seeing more leakage in your business into other forms of packaging?

How about you repeat that question, I’m sorry. We didn’t get the whole thing. It broke up on us.

Yes, sure. Just with the latest macro data coming out of the U.S. which suggests that things have actually been picking up a little bit, but your tube and core business has obviously softened. So I just want to get a sense of what’s the disconnect there and have you been seeing any leakage in your business into other forms of packaging?

Phil, no. this is Jack. I think that what would explain that is that the GDP isn’t an exact barometer for our business. It’s more the markets we serve and when we look at textiles, when we look at tape, film, and specialty, all of those markets were down year-over-year and even quarter-over-quarter. And that’s really what drives our tube and core volume. I think we said earlier that paper mill was flat but the others were down and that’s really what drives the volume. So I don’t see leakage into other forms of packaging. It’s just a matter of our served markets really being down.

Okay. And then I noticed you guys have announced some price increases particularly in your Paperboard business in Europe. Is that more of a reflection that demand is coming back a little bit or just simply a cost for this year?

It’s a reflection of cost.

And are you getting more abnormal pushback I guess, just the macros has been challenging out there?

Well, certainly we’re very early in the process and I would tell you I expect pushback but it is an increase in cost and we’re going to push hard.

Okay, and just lastly on your Consumer Packaging business, order patterns were a bit choppy last year and part of that I would imagine, bonds were depressed by food inflation. Have you seen promotional activity take up a bid for your customers and just thoughts on the demand profile from your customers on the Consumer business?

No, it’s really too early for us in any type of promotional type of activities, but I will tell you that coming out of the box, we are pleased with consumer. I think that the projections that we’ve got in our reforecast are solid. And I feel good about that as well as our Protective Packaging business, both of those we feel good about.

And your next question comes from the line of Ghansham Panjabi with Robert W. Baird. Please proceed.

Hey, just curious on how Tegrant performed inter-quarter on a volume basis, perhaps relative to your internal plan?

If I were to look back in the October, November timeframe, it was probably lighter than they had anticipated in our original plan. They told us that there was probably some destocking in their customers. As Jack was alluding to just a moment ago, January was much better and actually was over what our expectations were for January in terms of volume. So I would say on balance is probably doing as we expected, perhaps a tad better.

Harris, how’d you qualify the visibility in that business? How much lead time do you have just based on what your customers are saying and how that flows through to you guys?

You are talking about Tegrant?

Yeah, exactly.

I’m not sure I have a good feel for that. You Jack, about visibility into customers. I think it’s too early for us to really know that count to be perfectly honest.

Okay, okay.

And I would also add to that when we picked up Tegrant, we were fortunate I guess. We got them over the New Years, I mean the Thanksgiving holiday and the Christmas holiday and certainly, that’s a period all businesses have to deal with.

Okay and then the consumer business, your comments on volume being roughly flat in that business. How is the ownership news flow on Pringles affected volumes in that category?

Actually, Pringles volume year-over-over was up nicely and we were managing Pringles like we always manage Pringles. We are very close to team at P&G that runs the Pringles business. We have nice expansion plans with them and a lot of productivity and initiatives with them. So business as usual with Pringles with us and whatever happens with the proposed acquisition, it is what it is and we’ll manage it accordingly.

Okay, and just one final clarification question, on '12 quarterly variances, on accounting days, is there anything that we should keep in mind as we kind of think through the quarterly progression?

I don’t think there’s anything on a day basis. I think there’s one day add in one quarter or the other.

Okay.

But I would remind what Jack said, bear one or the other. There’s a certain amount of seasonality in that business where the first quarter’s always the lightest quarter of the year. And that we would expect that obviously in 2012 as well.

And your next question comes from the line of Phil Gresh with JPMorgan. Please proceed.

So I mean, obviously, 2011 was a challenging year from both the volume standpoint and otherwise. So, Harris, as we think about your guidance for 2012, could you share with us what you would see as perhaps the biggest non-macro related upside or downside opportunities available?

Well, I think the biggest opportunity, obviously, Phil, is macro and we have baked in to our guidance basically the run rate that we anticipated coming out of December on the industrial side of the business. And I think that’s the real wildcard and we were reasonably cautious and I think with good reason with Europe and we still don’t anticipate a strong rebound in Europe at least in the first half of the year. But we’ve got a lot of things going, and obviously execution is critical to them. We’ve got a lot of consumer products coming on. We’ve got the completion of the new blow-molded plan in Columbus, Ohio coming on and we’ve got the new products coming on as well. So I think the real key is going to be getting back at historical levels of productivity. And I can tell you that Jack and his team are very well appropriately focused on that and I have high confidence that that will in fact happen. The other thing I think is I don’t know what we’re going to see on raw material costs and inflation that Jack referenced but we will see something. But given our historical market position, historically the way we manage the business, I would expect us to manage price costs in a positive fashion as we always do. So when I come back to it, it probably is the macro that probably gives us the most upside and perhaps downside, as we go forward in the year.

And just looking at the bridges, I noticed if I look at the full year, the contribution from volumes was about $16 million but the hit to profit was about $18 million and I would assume you would get volume leverage so therefore the majority of that is mix-related. And if I do the math on it it’s somewhere around $0.10 to $0.15 or about 5% of EPS. So it’s not that small. So I was just wondering if you could maybe share what you think the biggest drivers of that are and whether that’s something that we’re neutralizing at this point as we head into 2012?

Certainly. We didn’t mention and there is a big issue in this quarter but in previous quarters we have talked about mix being a pretty significant part of the reason that volume was off in many businesses, whether it was in our paper operations and more export sales or in our consumer business, where there was a change in mix of composite cans, et cetera. So most of that difference that you’re looking at is due to mix and again primarily more of what we were seeing earlier in the year versus what we saw in the fourth quarter.

Okay. And then I guess the final question is as you think about capital allocation priorities, as you’re working through the integration of Tegrant, how are you thinking about the uses of cash this year?

Most of our cash really hasn’t changed that much, Phil. We’ll generate good cash flow. We’ve got a higher CapEx in 2012 driven somewhat by the Hartsville Master Plan project of the biomass bawler that we talked about the New York in December as well as some systems cost of our Oracle implementation. And then we’ve got the dividend that is very important to our shareholders. It will be there. And the cash flow, we will use our free cash flow probably this year to pay down some debt that we acquired with the Tegrant acquisition and position ourselves to move forward on that probably in 2013.

And your next question comes from the line of Chris Manuel with Wells Fargo. Please proceed.

I just wanted follow up, I think the direction George was going earlier with respect to what volumes are going to look like in 2012 versus 2011 and partly versus maybe where expectations were, I think what you indicated was you would reforecast based on where things were in December and I’m just trying to understand what that necessarily implies for full year as I think through some of the segments. If memory serves you had originally expected that your consumer business overall would be roughly flat. So if you could give us a sense of where that would be now embedded into your numbers versus your expectation previously and I think tube and core might have been kind of flattish for global as well. So could you help us, maybe update us on where you are on your current numbers for those post December?

First of all, no, we did not base them on the December run rate. The consumer basically, yes, we see that that is going to be flat year-over-year. I think that what we did was revised based upon what we saw in the December, I think that tube and core North America, we’re saying it will be down about 3% year-over-year, and Europe down about 6% now year-over-year which was not what we originally rolled out, but based upon what we saw in the fourth quarter, and our best estimates looking forward, that’s where we see volumes.

Okay that’s actually very helpful. And if I could dig into a few of those components, I mean, certainly all the data that we look at from Europe and from other regions is clearly more negative now than where it was recently, I would say. How much of the reduction do you think is maybe permanent? How much is maybe temporary with respect to some destocking going on, given tougher credit conditions for your customers over in Europe? At what point do you take a step back and maybe reassess for potential restructuring for sizing your business?

Chris, I guess my crystal ball is not quite as accurate as you'd probably like but obviously some destocking went on in November, December and early January but I think it was just pure demand in that European business that drove that down. And I would say to you that Jack and his team have already looked at contingency plans in Europe and we’ll probably pull a couple of triggers and prepare to pull a couple of more if it’s a permanent change, but frankly I think it’s more temporary than it is permanent.

And your next question comes from the line of Chip Dillon with Vertical. Please proceed.

First question is sort of just as we look at 2012. I was noticing that if you take a bird’s eye view, the 45 to 50 would basically represent I believe the lowest first quarter probably since going back to 2006, so six years ago. And yet when I look at the last three quarters, so let’s say you hit them, let’s call 47 since the midpoint. So if you do, the midpoint of the year to call it 237, that would be an incremental $1.90 in the back nine months, which is a number you’ve never done before. So we’re kind of going from a quarter that would be kind of a six-year low point to an all-time sort of best in that last nine months. And I guess maybe you haven’t specifically looked at it from that high of a level, maybe you have, but it would seem that you’re being fairly optimistic in terms of how much a lot of the business snaps back, and I just want to know if you could give us a little viewpoint on how you see that unfolding as we go through the back nine months of the year?

I’ll be happy to and actually we have looked at it from that level as well. I want to start off reminding everybody for the second time that there is a certain amount of seasonality in our business and the first quarter is traditionally the lowest business. And to a various point, in this year we’ve got a fairly significant headwind on pension and tax compared to other years. But as I look out for the balance of the year and we’re quite comfortable at least at this point with our guidance for the full year, we’ve got a fair amount of consumer growth that is baked in, that is already in the pipeline that will come on in the balance of the, probably the second half of the year. One of the pieces of it is the completion of the blow molded operation in Columbus, Ohio which I previously have mentioned to serve health and beauty customers. We’ve also got in the pipeline, about $150 million or so of new products that I expect to come on at various stages in the year. We also, in response to someone’s question, I guess it was George’s, about the productivity getting back to historical levels which I've a couple of plans in place to do that and I also think in the year, we were chasing margins with higher raw material costs through the year, through 2011, and I expect that not to be the case this year, and then we obviously are controlling cost pretty tightly in the company so, we’re quite comfortable with the guidance that we’ve given.

And just one follow-up, as you look at the…

Before you go there Jack has a comment, I think…

Well, I’d also say obviously Tegrant is in the mix now and the contribution we expect from Tegrant is a part of that increase.

And we look at the blow molded business which obviously had a big jump last year. How do you think about the growth rate there? So that stays sort of significantly above the company average, more than say, couple of years? Do you sort of see a run rate where that can happen, and then I guess to reverse gears, do you think in the industrial business, I don’t know, maybe you can update this for us, but I know a number of your tubes and cores, I think do find their way into the Paper business where they wind the paper on the reels, on the cores, and with lower demand in some of the printing grades, is that’s something that you feel might continue to push that volume down on the tube and cores side gradually over time?

Let me first talk to the blow molding piece. We have experienced some solid growth in blow molding. We’ll experience it again this year with the opening of the Beauty Park operations in Columbus, and we continue to work on numerous projects with our customers to continue to expand our presence there. Now, a lot of that is conversion from other packaging formats, many times glass, et cetera, so we expect to continue to try to drive growth in blow molding and look forward to doing so. On the tube and core side, as relative to paper, certainly, there’s been a decline in the coated printing and writing, and newsprint, and that does impact our volumes. I will say that the volumes on the brown boards side, however have remained pretty solid. I have not seen that type of decline, and working to gain share and position ourselves to be the best supplier of cores, into the brown board segment, is on our radar screens, as well as growth in film, is helping offset some of that decline which has been historical over the last several years. So yes, high end paper down, but there are other opportunities on the tube and core side to offset that.

Your next question comes from the line of Mark Wilde with Deutsche Bank. Please proceed.

So I wondered, if you or Jack could just give a little more color on this weakness in industrial packaging, maybe draw some comparisons or some contrast between North America and Europe? And also, just as an observation, it seems like some of the public and private companies that I deal with in industrial packaging saw this a little bit earlier in the year than you guys did, like starting to crop up sometime mid to late summer. Maybe you could speak to that?

Well, Mark, I think the story of the fourth quarter was December. Certainly, we saw the traditional slowdown in August in Europe and then had the normal return to volumes that we see. To give you a little bit of color in the picture, we had 143 down days in our mill system in the U.S. in 2011, 143 more in 2011 versus 2010. 124 of those were in the fourth quarter and the bulk of that pushed into December. In Europe, we had 100 more down days in the fourth quarter than we did in the fourth quarter of 2010, and prior to that it was basically flat on a year-over-year down day basis. So for us it just occurred, that’s the way it occurred to us. And again I go back, it has to do with the end markets we serve. To date, we just didn’t see the drops in those markets until the fourth quarter, and then in the fourth quarter it was well into December before we saw those significant falloffs.

Okay. And just on the cost idea, is it possible, Jack, to get a little of your perspective on this balance that we’re seeing in both Europe and North America and the OCC prices, and thoughts about how that will affect you in the first and second quarter?

Well, we certainly see OCC drifting up in Europe and that’s why we’re out with a price increase. OCC has remained flat now for two or three months, if I’m not mistaken, actually four months. And my expectation is it’s going to follow its traditional pattern and will begin to rise here shortly and if it does we’ll be out to push price. I’m not expecting a run-away year, I’m kind of expecting that same type of flow that we had in 2011.

Okay. And then finally, Barry, can you tell us what you’re assuming in terms of FX in 2012?

I think CapEx is $185 million in 2012

Sorry. Wrong Ex there. I’m interested at the kind of your foreign exchange assumptions.

I’m sorry. I thought you said CapEx.

No OpEx?

Yes. Mark, our outlook was put together around at dollar being slightly stronger on average but again impacting our earnings for the full year by about $0.04 or so compared to 2011.

And your next question comes from the line of Alex Ovshey with Goldman Sachs. Please proceed.

A couple of questions. Can you just remind us the company’s top line exposure to Europe and just the breakout of that exposure by each of the segments?

We’ve got about 17% of our total sales, maybe a little bit less than that now with Tegrant in the mix and Europe in total, and most of that is in the paper and industrial converted businesses.

Can you talk about the competitive landscape in composite cans, just in the trade. I'm hearing that companies in some of the other paper packaging substrates are targeting some of the end markets that would overlap with composite cans. Are you seeing any incremental competitive pressure in any of the composite can end markets?

Alex, I would simply say that we have a very strong position in composite cans. Our technology in composite cans is significantly advanced and we feel very good about that. And we think the composite can has a lot of strengths against other formats, and we’re going to continue to push and pursue that. So we feel good about our position in the composite can.

Maybe one last question just to talk about what you see as the biggest upside and downside risk to OCC price of this year?

I think the biggest upside and downside is going to be macroeconomic conditions and that’s going to drive demand and that will be the biggest driver of OCC.

At this time, there are no more questions.

Thank you very much, Greta. As a reminder, Sonoco’s annual shareholder’s meeting will be held on Wednesday, April 18, starting at 11:00 a.m. Eastern Time at the Center Theater which is located at 212 North 5th Street here in Hartsville, South Carolina. For those of you that are unable to attend the meeting in person, it will be webcast on our Investor Relations website. In addition, our first quarter 2012 earnings conference call will be conducted 11:00 am on Thursday, April 19, and our earnings release will be issued before the market opens that day. Again, let me thank you all for joining us today and we appreciate your interest in the company and as always, if you have any further questions, please don’t hesitate to contact us. Thank you very much.

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Good day.