Sonoco Products Company (SON) Q4 2013 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Q4 2013 Sonoco Earnings Conference Call. My name is Mark, and I'll be your operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn conference over to Roger Schrum, Vice President of Investor Relations. Please proceed, sir.

Thank you, Mark, and good morning, everyone. And welcome to Sonoco's 2013 fourth quarter and full year earnings investor call. This call is being conducted on February 13, 2014, in a snowy Hartsville, South Carolina. Joining me today are Jack Sanders, President and Chief Executive Officer; and Barry Saunders, Vice President and Chief Financial Officer. A news release reviewing the company's fourth quarter and full year financial results was issued this morning before the market opened, and is available on the Investor Relations portion of our website at sonoco.com. In addition, we will refer to a presentation that's also 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, let me turn it over to Barry Saunders.

Thank you, Roger. I will begin on Slide 3, where you see that this morning, we reported fourth quarter earnings per share on a GAAP basis of $0.53 and base earnings of $0.58. These results were, of course, the top side of our previously provided base earnings guidance of $0.55 to $0.59 per share, as we had a solid quarter, along with the tailwind from the lower-than-expected effective tax rate. Before reviewing the base P&L for the quarter, I will mention a reconciliation of the GAAP to base earnings is in today's press release and on our website. The difference between GAAP and base earnings in this quarter is due primarily to restructuring charges of $0.05 per share related to the previously announced plant closures and other cost-reduction initiatives. Turning to Slide 4, you find the base P&L, where you see sales were $1,215,000,000, which represented a 3.3% increase over the prior year, driven by higher volume and selling prices, which will be explained on the sales bridge. Gross profit was $221.2 million, which was $17.2 million or 8.4% higher than last year, with a gross profit margin at 18.2%, improved notably from last year's 17.3%. Selling and administrative expenses and other charges were $128 million, which was 12.7% above last year, which can be explained by merit and other inflationary increases, higher incentive accruals, which I'll provide more detail on in just a moment, and having 1 extra day in the fourth quarter of 2013 versus the prior year. Thus, base EBIT was $93.2 million, which was $2.8 million above last year, and you'll see all of the drivers of the change in the EBIT bridge in just a moment. Net interest expense was $13.8 million, which was just slightly lower than last year. Income taxes of $21.9 million were lower year-over-year, as the impact of the higher pretax earnings was more than offset by our lower effective tax rate on base earnings of 27.6%. The tax rate was lower than we expected due to 3 primary drivers, those being the tax benefit arising from the mix of earnings, specifically more income in lower tax jurisdictions, most notably from some business interruption insurance recoveries and the favorable settlement of 1 state tax audit, as well as favorable rate adjustments on deferred taxes in the fourth quarter. Equity and earnings affiliates was $3.8 million, was down slightly from last year and income attributable to noncontrolling interest of $1.4 million, primarily from the partner share of the previously mentioned business interruption insurance. Thus, base net income was $59.9 million or $0.58 per share. Looking first at the year-over-year sales bridge on the next page, starting with volume. Volume for the company was up 2.8%, adding $33 million to sales. The increase was fairly broad-based with a nice improvement in 3 of the 4 segments. Consumer volume was up 3.7%, driven by a 5% improvement in composite cans in North America, and a 10.7% increase in flexibles. Volume was also up 2.2% in our Paper and Industrial Converted Products businesses. Tube and core volume was up 2% in the U.S. and Canada, while up 5.6% in Europe, 8% in South America, and 7% in Asia. Recycling volume was also higher in North America. All this was then partially offset by lower reels volume. And volume in Protective Solutions was up 5.3%. The paper-based businesses serving primarily the appliance industry was up 16%; the phone-based businesses, driven by automotive components, was up 3%; and temperature-assured packaging sales were up 3.7%. Moving down to price. Our overall price increases added $21 million to the top line. We saw an increase in the industrial businesses related to OCC prices. In our recycling operations, OCC prices in the southeast averaged $117 per ton in the fourth quarter 2013, as compared to an average of $95 a year earlier. Our corrugating operation also benefited from higher selling prices. Prices on contract sales in Paper and Industrial Converted Products were also higher as September priced used to establish many contractual resets was $125 versus $75 last year. A summary of OCC movements is included in the Appendix for your reference. Prices were also higher in the consumer segment due to some contractual and noncontractual pass-throughs. Moving down the bridge, you see exchange and other negative by $15 million due most notably to the exiting of some recycling businesses in Europe, and to a lesser extent, translation of sales in foreign currencies. The EBIT bridge on the next page explains the improvement from $90 million in 2012 to this quarter's $93 million. As you just saw on the sales bridge, volume was up $33 million, and here, you see with the contribution of $11 million favorably impacting earnings. A little stronger than our average margin due to favorable mix, particularly in the consumer businesses, but that was really spread across several businesses and we had the benefit of higher intercompany metal end sales. On the next line down, you see price/cost was favorable by $4 million. Most of this was actually in the consumer segment, driven by supply management productivity. Although selling prices were higher in the Paper and Industrial Converted Products segment, related higher material cost offset that benefit. Moving down the bridge, manufacturing productivity was strong again this quarter at $13 million where we saw good productivity across many businesses. All other costs were negative by $23 million, which is notably different than the cost change that you would normally expect, which I'll provide some more details. Of that amount, roughly $12 million was due to normal nonmaterial inflation. Another $6 million was just due to the timing of incentive accruals, wherein in 2012 in the fourth quarter, business performance resulted in incentives being reduced, while in 2013, results were improving and incentives being increased to reflect what had been earned for the full year, then the 1 additional accounting day accounted for most of the remaining difference. And finally, pension costs were higher by $2.2 million. Results by segment are found on Slide 7, where you see that for the consumer segment, sales improved 3.9%, due primarily to the higher volume, and earnings improved by almost 21%, due to the higher volume, price/cost and productivity, and the EBIT margin improved to 10%. Paper and Industrial Converted Products sales improved by 3.4%, due to the higher volume and price, but earnings actually went down as other cost changes more than offset the benefit of the higher volume and productivity. Other cost changes in this segment were more notable than the others. As in addition to the nonmaterial inflation, we also had a $3 million swing in the reserve intercompany sales that distorts the year-over-year comparison. Much of the previously mentioned incentive variance was also in this segment. We also had some business interruption insurance recoveries, but it was really offset by the lack of some asset sales that we had in 2012, and the impact of exchange. The lower earnings resulted in a decreasing margins to 7.2% for this segment, Display and Packaging sales and earnings were up slightly with margins unchanged at 3.5%. Protective Solutions sales were up 3.1%, but EBIT was down as the volume improvement was essentially offset by negative mix of business in this segment and all other cost changes were then higher than productivity due to the nonmaterial inflation, some plant start-up costs and some other year-over-year differences, resulting in an EBIT margin of 4.9%. And now looking forward on Slide 8, you find our earnings guidance, where we are projecting that our full year earnings will be in the range of $2.43 to $2.53 per share, but we are targeting to achieve $2.51. This target is $0.02 higher than the midpoint of the guidance we originally provided in December to reflect our final estimates of pension expense for 2014. Specifically for the first quarter, we are projected to earn between $0.50 and $0.54. The first quarter guidance takes into consideration the softness we saw in January that has been largely attributed to the severe winter weather. Our businesses are expecting to be able to make this up through the balance of the year, but the lower end of our full year range just provides for some of that uncertainty. The overall guidance assumes no significant step change in the level of economic activity but does factor in seasonality where the second half the year is generally stronger than the first half. It also assumes that OCC is in the $130 range from the second quarter through the balance of the year, and our effective tax rate is expected to be just under 34%, at about 33.9%. Moving from earnings to cash flow on Slide 9. You see that we had another very strong quarter in terms of cash from operations and free cash flow. Cash from operations was $116.7 million, up from $5 million from last year, even after considering we now recharacterized $22 million in tax attributes related to the biomass boiler investment at our largest paper mill complex from cash from operations to an offset in capital spending, and is the primary reason that net CapEx is now reported at only $27 million for the quarter. So after dividends, we have free cash flow of $58 million for the quarter. For the full year, we ended up with free cash flow of $245 million, which was higher than our original guidance of $190 million, due to the working capital really coming in better than expected through the balance of the year. We did spend $16 million on share repurchases during the quarter, but this was just shares associated with our repurchases to satisfy employee tax liabilities on options that were exercised, and debt went down by $116 million, due to the repayment of bonds that matured in November. For 2014, we are forecasting that cash from operations will be roughly $445 million, CapEx should be in the $185 million range. So after dividends, we'd expect to have free cash flow of $130 million. As previously announced, we do expect to repurchase approximately 2 million shares with part of this available cash. In terms of cash from operations, 2014 is projected to be lower than 2013, as the change from prior earnings and depreciation will be more than offset by the year-over-year change of working capital, higher cash taxes and higher pension and postretirement contributions, which are projected to be $67 million in 2014 versus $42 million in 2013, as most of the benefit of the Pension Relief Act was recognized in 2013. Our balance sheet is found on Slide 10. Well, I'll just point out a few things. As expected, the funded status of our pension plan improved notably at year end. Details are provided in the appendix to this presentation. But to summarize, the discount rate used to value pension obligations increased year-over-year from 3.94% to 4.81% on our domestic qualified plans. The asset on these plans return 9.3%, which compares favorably to our assumed rate of return of 7.65%. Thus, combined, reduced our funded obligation by $150 million, resulting in an improved funded status from 79% at the end of 2012, to 91% at 2013, again, for our domestic qualified plan. In total, the funded status on all plans including non-quantified plans and international plans improved by just over $200 million year-over-year. So after giving consideration to the tax impact resulted in an increase in equity. These factors also resulted in lower pension -- projected pension expense for 2014 as compared to 2013 by $16 million, which has been now considered in the guidance. So as a result of strong cash generation and the increase in equity from earnings and the impact of the improvement on the funded status of the pension plan, our net debt to total capital improved to 30.7% compared at 33.8% at the end of the third quarter and down from 39.9% at the end of 2013. As mentioned in the press release, effective January 1, 2014, Sonoco Alloyd, a retail packaging business that is currently part of the company's Protective Solutions segment, will be managed and reported as part of the Display and Packaging segment, the company's consumer-focused retail merchandising segment. Although additional details and specifics will be provided in March and some recasted segment information, I'll go ahead and mention that at this time, the annual sales for Alloyd in 2013 will be right at $100 million, and the business recorded a little less than $1 million in operating losses on average in each of the 4 quarters last year. There are some additional slides in the appendix for your reference, but that completes my review of the results for the quarter. And I'll turn it over it to Jack for some additional comments.

Thanks, Barry. Let me provide some final thoughts regarding 2013 and additional color on what we see shaping up for '14. We asked a lot of our employees in 2013, and they delivered on their commitment. I won't rehash the financial results, but on whole, a pretty good year. I do want to point out the excellent strides we made in our primary focus areas. For example, in safety, we injured 28 fewer employees. We improved quality in customer satisfaction, as measured by credits for returned sales by 12%. We achieved $68 million in organic growth, despite difficult global economic conditions. Manufacturing productivity improved EBIT by $40 million, and we produced record cash flow and successfully managed working capital driving at full day improvement in cash cap days. We were also pleased by the improvement in Consumer Packaging volumes, which combined with mix was up a solid 3.7% in the fourth quarter. Composite cans were up year-over-year by 3.3%. Flexibles had a record year and was up 10.7%. Blow molding was up 5.8%, and injection-molded plastic was up 1.1%. We have experienced 4 consecutive periods of year-over-year quarterly operating profit improvement in the Consumer Packaging segment despite less than robust volume growth. Obviously, we are pleased by that improvement and it's a positive trend that we're keeping a close eye on. In early December in New York, we said we thought that we had several positive factors that would help us in 2014, including lower pension expenses for the first time in 3 years, lower interest expense due to debt reduction and some positive momentum in driving organic sales growth in our consumer-related businesses. Unfortunately, I am apparently not a very good weatherman because I failed to predict the most severe winter in more than 25 years. The weather has been very tough on our Industrial and Protective Solutions businesses in January and early February. Extreme cold weather has resulted in 4 of our customers' mills in the Northeast being down for extended periods. Extreme cold has increased natural gas prices and resulted in some curtailments. For instance, our Richmond, Virginia mill was down for 4 days in January due to natural gas curtailments. Several of our Protective Solutions plants had to be temporarily shut down due to a combination of the closure of our customers’ facilities and the ability to get workers into our plants safely. In January alone, we believe we lost $0.03 a share due to a combination of customer curtailments, our own shutdowns and increased costs associated with higher energy prices. Unfortunately, difficult weather conditions are not letting up and we had to bring down our Hartsville complex for the past 48 hours due to snow and ice. I will add, however, that, so far, weather has not had a significant impact on our Consumer Packaging or Display and Packaging segments. These businesses performed pretty much as we expected in January. However, we can't ignore the fact that lingering winter weather may impact retail sales during this quarter. As Barry mentioned, we are modifying our first quarter guidance to $0.50 to $0.54 a share as a result of our slow start due to weather. Obviously, the winter cold is not yet done and we could face further issues but we're doing all we can to manage through this unusual period. In addition, we're controlling discretionary spending to reduce costs now and not waiting until later in the year. I think, many of you will remember we experienced a bit of a slow start in the first quarter of 2013. Even after a tough opening quarter, we stayed committed to our base earning target of $2.30 per share and ultimately met the commitment. Despite what looks like another slow start in the first quarter, I'll remain optimistic that 2014 should be a record year for Sonoco. We changed the low end of the guidance to $2.43 to reflect the slow start in January. That said, we remain committed to a target of $2.51, which is at the high end of our guidance of $2.53. I believe we still have opportunities to eventually benefit from a general improvement in North American, European and emerging market economies in 2014. Furthermore, consumer balance sheets continue to improve and they have proven they're willing to spend. We're also gaining traction with several of our CPG customers regarding our proprietary Customized Solutions process we introduced in New York. While it's still early, our customers are listening and we're starting to receive requests for help versus request for proposals. Specifically, we expect to announce new several new significant global consumer-related opportunities in the not-too-distant future. Protective Solutions should pick up steam as the year goes forward, and we're working to add new capacity in Mexico and Kentucky for our growing automotive customers. And we're focused on turning around 2 underperforming businesses, blow molding and alloy. We have new leadership in both businesses and we'll be driving for improvement throughout the year. And we feel good about the underlying tube and core volumes and believe they will improve as the year progresses. If resin, OCC or other raw material prices rise for whatever reason, we'll have to pass on these increased costs to our customers. In closing, we do face some early headwinds, but I like our chances. Let me remind you, we do have an excellent balance sheet, strong cash flow and we expect to begin buying back at least 2 million shares of stock beginning this month. With that, operator, I'll turn it back to you for any questions.

[Operator Instructions] The first question comes from George Staphos of BofA Merrill Lynch.

First of all, relative to the guidance, on the one hand, you are, I guess, making sure we're mindful of the lower end of your guidance because of the understandable risks that have developed because of the first quarter weather. And yet, you're also suggesting that you remain committed to the $2.51 target within your guidance range. And so it's a bit of a mixed message. I know it's kind of a tumultuous first quarter, but ultimately, what would you have investors take away from that?

Well, I think, George, the take away, it's very hard to predict the future. We can't see clearly the things that might impact us that are totally outside our control and that's simply what we're trying to do. I think that as we look at 2014 in total, I believe it's going to actually be a little bit stronger year than we may have thought going in. So if we can manage this business the way we're capable of managing it, drive the productivity as we should drive it and leverage that little bit of increased volume, I think, we can hit the target. But again, I can't predict the future.

Okay. Fair enough. Second question, can you provide any additional color relative to the revenue opportunity that you see from some of these initiatives that you will be announcing in upcoming weeks and quarters related to your new approach to consumer?

Well, I certainly can't talk specifically to them. But during the course of 2013, we talked about improving composite can opportunities around the world and we mentioned several specifically. We talked about the gain in our Display and Packaging business with the Energizer brand. And we talked about wins in flexibles and a record year that it's had. I can tell you that it's a continuation of those types of wins.

Okay. With Alloyd, which has struggled for a couple of years now, and I think, you mentioned in total loss about $4 million at the operating line for the year, is that correct, Jack?

That's correct.

What type of year do you think Alloyd can have in 2014 recognizing that we won't see it as a standalone entity will be within Display? Should this be a 10% or better margin business this year and should we count on that kind of swing this year?

Well, George, I think that our expectations are is that this business moves from a significant loss to a level of at least breaking even. That's what we're driving for. That's what we're going to try to accomplish. It's a volume-driven situation. They need to have volume flow across that business. And I'll tell you that right now, they are pretty busy. They've been pretty busy during the quarter making tools. Probably a better January then we expected from that business. So it's about driving volume across that business. Or if they don't get it, we're just going to have to really strip the cost. That is the reason we aligned it with Display and Packaging because a lot of what we do in Display and Packaging are seal blisters with Alloyd machines. So we believe that by putting it together, changing the leadership as we did, we have a strong chance to get that business going in the right direction.

That makes sense. Last one and I'll turn it over. I realize it's difficult to very predict OCC, I'm sure as difficult as predicting the weather. What's your view in terms of why it remained at these levels and I know you are projecting some inflation, what gave you confidence you'll OCC at $100 [ph] per ton?

Well, I think, it's remained at these levels because of the slowdown in the paper industry that we saw at the end of December, and then, of course, into early January, I've talked about some of those of those shutdowns related to the weather, and their demand for OCC, that's certainly impacting. My projection now, however, is that with this severe weather and I'm looking out the window and this looks like Minnesota, not South Carolina, it's snowing and it's absolutely covered in white. I think, OCC is going to go up come March because of this inability really to get fiber, it's going to be driven by a lack of supply against the known demand. So I expect it to jump up as much as $10 a ton.

Your next question comes from the line of Ghansham Panjabi. Mehul M. Dalia - Robert W. Baird & Co. Incorporated, Research Division: It's actually Mehul Dalia sitting in for Ghansham. What you have embedded for -- in your 1Q guidance related to weather?

I'm sorry? Mehul M. Dalia - Robert W. Baird & Co. Incorporated, Research Division: What do you have embedded in your 1Q guidance related to weather?

Oh, that $0.03 from what we've experienced so far. Mehul M. Dalia - Robert W. Baird & Co. Incorporated, Research Division: So no additional headwinds from weather in your guidance?

Well, again, within that range of $0.50 to $0.54, that would encompass what we would expect. But again, that's before this particular event, and if there's another one, there's no more in it to cover it, so. Mehul M. Dalia - Robert W. Baird & Co. Incorporated, Research Division: Okay. Great. And given the spike in natural gas recently, can you update us on your annual needs and how much you're hedging in 1Q and for the full year?

Yes, natural gas, we hedge a good bit of our buy, I would say we're probably about 70% hedged or so. But the issues that we've experienced from natural gas has been certainly in the spot market that we have to buy that 30% at open. But part of the way we buy gas is on an interruptible basis in order to keep costs reasonable and that's what actually hurt us during the January and February timeframe is that they interrupted our gas supply. Mehul M. Dalia - Robert W. Baird & Co. Incorporated, Research Division: Okay. Great. And last question, apart from weather, any region on the macro that give you concern? Generally speaking, it seems as though that U.S. is muddling along and Europe seems to be recovering. Would you agree with that?

Well, actually, it's quite the opposite. Outside of the weather, I feel very good that the domestic economy is going to click along. I'm one of those 3-plus-percent guys. So I see some positive domestically. I think, Europe is going to begin to recover on a consistent basis. I don't think it's going to be 3%, but I wouldn't be surprised to see a 1%, 1.5% like we saw in the U.S. coming out of the recession, so I expect that to improve. China's off to a good start and I think it's going to continue to improve as well. So as I look around the globe and I see some of the things we're doing on the consumer side of the business and the consumer spending levels, I'm encouraged by the other signs and that's way we're staying with that commitment of $2.51.

Your next question comes from the line of Philip Ng from Jefferies.

Just a quick question on the consumer business. It's great to see volumes turn positive. Can you give us some color on what's driving that? Is that share gains? Some of the initiatives you guys are trying to implement on the go-to-market strategy?

Well, I would tell you some of it is certainly share gain and new-won volume. We talked a bit about that during the fourth quarter around the globe in cans and in flexibles. But specifically for the fourth quarter, certainly share gain, but really, it was simply a demand increase and it was across virtually all of our platforms. So that was very solid.

I know one of the flexible guys have been pretty vocal about price increase. I don't think you guys had a lot of overlap. Are you seeing share gains due to their activity on the pricing front or just some of the initiatives you're pushing forward with relationships you have with your customers?

No. I would say that we've seen very little based upon price increases. A matter of fact, most of our prices in flexibles are covered in the contract that kind of adjusts on a quarterly basis. And we've not really pursued any others on prices alone.

Got you. Okay. That's helpful. And Jack, I know you have this theory that your tubes business is tied to housing to a certain degree. Are you seeing a little more flow-through in that business and I just want to highlight any color from a demand perspective on some of the end markets that you're servicing?

Well, not today. I do think there is some connectivity and I do think that housing should wind up being pretty good in '14. And I think we'll see it flow-through with some volumes for the tube and core business as the year progresses.

Okay. And just one last one for me, the Pac Service and Display business, top line was a little lighter than I would have expected, I know that contract business tends to be a little lumpier. What kind of volume did you see on the Display side?

Well, I think, the volume was kind of flattish for that business on a quarter-over-quarter basis. But that's a business that, to use your word, it is lumpy, it's kind of dependent upon the way our customers are going to promote and when they're going to promote. So I wouldn't read anything into that particular situation.

Your next question comes from the line of Adam Josephson from KeyBanc Capital Markets.

Jack, in Consumer Packaging, a really good performance, you earned the 9.9% margin for the year, which is higher than each of the past 2 years though lower than what you earned in '09 and '10. What do you think is a sustainable margin for this business, particularly in light of the strength you've seen in composite can volume of late?

Well, I certainly think we've got some room to go to improve our blow-molding business and it's an area we're focused on. And I'd say, consistent with what we said for years now, we believe this business is in that 10% to 11% range. I'd like to see us begin to push it toward the 11% number with improvement in blow-molding. But we're just going to be in that range, I believe, that's just kind of a good place to assume those margins will stay.

Okay. And similar question in industrials, Jack, you've been in the mid-7s in terms of EBIT margins on average over the past 4 years. Is there any reason to think that will change anytime soon based on what you're seeing in terms of volume, pricing, et cetera?

Well, the final quarter of '12, it was at 8%, I think, on total. I do think that it can change. I think, it's going to require some improvement in volumes across the U.S. footprint and the same in Europe. I think that we can improve our margins globally. And as we improve margins globally, that will help move those margins up a bit. But volume across the U.S. business is going to be the primary mover of margins in that business. We've said that it can get back to 10% margins as a business, but that's going to take several years of positive 3% type growth in order for us to get that volume back to the level it needs to be.

Great. And just one last one on OCC, Jack. I know you talked about expecting OCC prices to go up perhaps in a month or 2 on account of the weather. But I mean, if the U.S. economy really is picking up and if China is pretty strong, I would think that would drive up OCC as well. Would you agree with that?

Absolutely. What I said was it should go up the March release about $10 due to weather. And then, I think, it should go up probably during the first or the second quarter because of demand.

Your next question comes from the line of Chris Manuel of Wells Fargo.

I just want to -- a couple of questions. First, let me start with trajectory through December. I mean, I appreciate that understanding weather and elements of a crystal ball as we look out for the year can be tough. But I mean, as an example, if I look at the $0.58 you did, there was about $0.05 related to tax that came later, it seems like later in the quarter. And if I look at what you told us or anticipated the tax rate would be in first week of December, for the balance of the year, it basically implies there was a pretty good drop off in something operationally or above the line in the business in the last 4 weeks of the month. Can you give us a little color as to what changed so dramatically in December that slowed down? And maybe a little color, I appreciate whether and some other factors have kind of hit you here in January and certainly into February, but what gives you confidence that we will see a pickup in volume over the balance of the year?

Chris, this is Barry. Let me add just a couple of points of clarification to the tax rate. I think, first of all, we have to be a little bit careful and look at the tax rate and minority interest combined because we did receive some business interruption proceeds and they came through as a result of transferring the value of that to our business entity in Thailand, they essentially came through without any tax liability on them. But then, of course, we have to offset that with our partner shares of that in minority, partially offset that with our partner share of that in minority interest. In addition, there were 2 other discrete events that really weren't expected until we kind of finalized the tax analysis at the balance of the year, we ended up with one favorable state settlement, as I mentioned, and also some year-end adjustments to the rates used to calculate deferred taxes. So that being said, net-net, we look at it about $0.03 overall in terms of that. In terms of business performance, really, I think...

Chris, let me talk about the volume. I'll tell you, the volume in the consumer business was steady and flowed steady across the quarter. In the Industrial and Protective business, it was pretty good in October, it was pretty good in November up until the holiday, came back pretty good for the first couple of weeks of December, and then dropped off sharply in both Industrial and Protective. That Wednesday Christmas, that kills weeks, we had customers that say we're going down, we're going to be down for 2 weeks and automotive customers were down for 2 weeks. So that de-leverages December pretty good on those 2 businesses. I think, it's situational. It was an issue with perhaps their inventory levels in the way that they want to come back up, I have to think it has nothing to do with the economic run rate, I just think it was situational, those businesses, and the timing of those holiday periods.

Okay. That's helpful. But just kind of a follow-up to that. So I do appreciate you addressed this in your early commentary that 1Q comps were pretty low, that you're kind of lapping against but we are having some continued issues. So I know for the full year you talked about re-anticipated consumer volumes to be up a tick less than 2%, industrial volumes to be up a bit better than that to kind of get to something in the low 2s together. I appreciate that we may be behind that a bit here in 1Q. What gives you confidence that the balance of the year will accelerate? I mean, what are you seeing? I appreciate you got an order book and the funnel in front of you and you've talked about some new wins in some areas, but what gives you some of the confidence that we may see that 3% acceleration?

Chris, I have several letters on hand from both mills but mostly automotive companies that talk to us about they are going to make up the volume, they know they're behind because of the weather. They expect us to start running on the weekends. They expect us to be at their level and their run rate saying they will make up this volume, we need to get ready. So that gives me the confidence that the economy is improving and we're going to see the run rate.

Okay, that's helpful. And then, if I could just switch gears a second and talk for a moment about the Alloyd business. Could you maybe give us a couple of elements, one, a little color historically, what have volumes been like over the last year or 2? I mean, I think, you acquired that business about 2 or so years ago, 2, 3 years ago. What have volumes been like the last couple of years. And I appreciate that the objective is to get it to kind of flat maybe this year if I heard correctly, but as you look forward, say, 12, 24, 36 months, and the margins there look more like, I guess, the new segment that's going into, you mentioned Display and that kind of has mid-single-digit margin, is that maybe a reasonable destination for that business as we look out 24, 36 months?

Well, yes. I think, when we bought that business, they've lost a large piece of volume right as we bought it. So that puts them behind the 8 ball. I think, in 2013, they struggled from a manufacturing perspective in a few areas with volume kind of staying more or less flat, but we began to struggle from a manufacturing perspective. I think, that's behind us now. I think we've got through that. And we -- Energizer was a customer they lost right before we bought them. And now, the Energizer business has come back to them, pieces of that has come back to them due to the large win we had on Display and Packaging side. And more of that type of working together so that we can win those types of volumes, I think, are going to drive the volume across the Alloyd business that we need to improve this performance.

Okay. That's helpful. But kind of as the objective over the next couple of years, maybe you don't want to throw out there a hard target. But can it be a look more like the rest of that display and packaging unit type margin when we get forward at some point?

Well, I tell you, historically, it's been a lower margin business, it's been a 6% or 6.5% EBIT margin business when we bought it. It was one of the lower pieces of that business. Personally, I believe it should be much higher than that, so we're going to try to drive it through to their significant investment in design and in customer service. I believe we should have a higher margin business pushing it up into that. I don't want to throw out a target because I'm not sure, but I would expect it to be somewhere in that 8% to 10% range.

[Operator Instructions] Your next question comes from the line of Al Kabili from Macquarie.

I guess, Jack, on the $0.03 that you called out for the weather interruptions, I don't know if you have it handy, but any sense of sort of what volume might have been versus costs of the 2 roughly split equally in terms of the headwind there?

No. I don't, we're not calculating it. Obviously, there is a volume impact because when you're down, you're not selling, so -- but I don't have that, no.

Okay. And with the sort of unplanned outages that you've had in some of the mills, any risk to productivity for the full year?

Well, certainly, we're going to have to make it up. We're not going to get it in January because of those costs, but as I said earlier, I expect volumes to be a little bit better than we may have anticipated and so I expect those increased volumes to drive productivity. There's no doubt we have a solid, strong productivity target this year. But we are focused on driving toward that number.

Okay. And then, on the industrial business, in the tubes and cores side, do you feel right now -- so in the fourth quarter, your kind of costs were a bit about above your price when you factor in non-raw and raw cost inflation. How are you feeling in the first quarter from a price/cost spread? Do you have enough pricing right now to cover your raw and non-raw inflation?

Well, I think, our price/cost at the gross margin line is okay at the time being. If these prices and cost continue to rise, we're going to have to go out with an increase. But right now, I think, at this point, we're okay. As far as the fourth quarter, those increases in the fourth quarter, to Barry's point, one of them is an internal measure of -- it gets really confusing but that was about $3 million, and then the incentive tick up that really was kind of across all business but heavily to the industrial businesses. Together, those have a significant impact on the EBIT number inside the industrial businesses up to $9 million in total. So if you take those out -- and the fact we have to pay incentives, that's necessarily a good thing, that's a good thing. So you take those out, it's a much different picture than what was painted in the fourth quarter.

Okay. That helps a lot. Final question for me is on the Protective business, and if we -- understanding that some of the challenges reviewed on the Alloyd side, if we strip that out, would the Protective business have been up earnings-wise year-over-year? I know you've got some start-up costs with that new plant in Mexico. And I'm just trying to -- if you can just sort of help us how we should be thinking about sort of x Alloyd the trajectory of earnings there and how you're thinking about these start-up costs, et cetera?

Well, certainly, if you stripped out the Alloyd situation on a year-over-year basis, Protective would certainly be up year-over-year. It would be up in that 5% to 7% range, I believe, so that's a positive. I think, the wins that we're getting in Alloyd are significant. We're opening up the plant. So there are start-up costs. I think, in Mexico, it's -- we're saying start-up costs, they're certainly there, but their [indiscernible] and first part approvals, they take a while to get done so the plant is an approved source, that's what we're going through. I expect that volume to continue to do well during the course of '14 and improve again over '13.

Your next question comes from Alex Ovshey of Goldman Sachs.

A couple of questions for you. First, on the non-raw material inflation, which I think you said was $12 million, can guys give a little bit more color around what's in that bucket and how you're thinking about that number for 2014?

Yes, that really is just all inflation outside of material and energy costs, Alex, and it's just across the board for labor and everything else. And that $12 million would really be a pretty good average run rate for the quarter. So for the full year, we'd expect it to be in that $45 million to $48 million range is generally what we expect.

Okay. Got it. That's very helpful, guys. And in the consumer business, when you talk to your packaged foods customer specifically, are they giving you any visibility at all on what their volumes could look like in 2014? Or at this point, there are signs that it's been pretty soft over the last couple of years so there's just not much to be said until we do see any change. Is there any visibility you're getting from your packaged foods customers right now?

No more than we would normally. I would tell that they're probably pretty pleased with some of the volumes they saw during the fourth quarter. Going into '14, I don't -- I've heard of nothing that would suggest they'd expect significant improvement. But I certainly think they're going to be trying to push their brands. We hear of a lot of promotional activities to gain back their share in a brand. So I'd certainly expect some of that.

Got it. And just last quick question. On the share buyback of 2 million shares, did you guys say that you expect to be up pretty evenly throughout the course of 2014?

Yes, we would expect to make that share just kind of -- repurchase evenly throughout the balance of the year.

And your next question comes from Chris Manuel of Wells Fargo.

Just one quick follow-up, well, actually, 2. But if I could kind of take a walk through, it sounds like you're seeing some inflation with natural gas issues right now potentially with OCC as the year progresses, some other elements. If you could kind of handicap or take the temperature of the environment and whether you're looking at converted products for tubes and cores or other pieces or whether you're looking at board or what have you, how would you feel the environment might be with respect to price, whether it would be receptive to -- kind of take the temperature of what you would think for the pricing environment?

Well, pricing increases are never received with open arms and you have to work to get them in and get them done. But on a whole, with those costs are up and they're justifiable, I think, we'll be able to move the prices we need to recoup any increase through the inflation.

Okay. And then, as I look across your other pieces of business, most of it's contractual through the consumers so you kind of have set mechanisms there. But are you seeing significant other material inflation yet? Are you anticipating it? And I mean, is there a potential you could end up being a little behind earlier in the year and then catch up in the back half of the year? How are you thinking about that at this point?

Well, I'd tell you clearly that part of the issue in the protective packaging business was we get behind the price/cost curve during the fourth quarter and we're out with 2 price increases now, I guess, to recoup some of that. And we expect resin to rise, it's rising, it's moving. So we expect to have adjustments at the beginning of the second quarter to cover those increased costs on the consumer side, and we'll do it as necessary on the protective side as well.

I would now like to turn it back over to Jack Sanders, CEO, for closing remarks.

I'd say I'll take the close here, this is Roger. And again, I want to thank everybody for participating in this call. I did want to remind everyone that our Annual Shareholders' Meeting will be held at the Center Theater at 212 North District in Hartsville. Hopefully, it won't be snowing then, but that will be on Wednesday, April 16, and we start at 11 a.m. In addition, we'll host a conference call to review our first quarter earnings on April 17, 2014. As usual, the news release will be issued before the market opens and then we'll hold our normal conference call at 11 a.m. Further information on both the annual meeting and the earnings conference call will be sent out in the near future. Again, thanks, everyone, for participating in the call today, and appreciate your interest in the company. And as always, if you have questions, don't hesitate to give me a call. Thank you.