Sonoco Products Company (SON) Q2 2015 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. And welcome to the Sonoco 2015 Q2 Preliminary Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce your host for today, Vice President of Investor Relations Mr. Roger Schrum. You may begin sir.

Thank you, Andrew. Good morning and welcome to Sonoco’s conference call to discuss our preliminary results for the second quarter of 2015. This call is being conducted on July 16, 2015. Joining me today are Jack Sanders, President and Chief Executive Officer, and Barry Saunders, Chief Financial Officer. A news release reporting our preliminary results was issued before the market opened today and is available on the Investor Relations section of our website at sonoco.com. Let me remind you that today’s call contains forward-looking statements that are based on current expectations, estimates and projections. These statements are not guarantees of future performance and are subjected 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 I’ll turn it over to Barry.

Thank you, Roger. Earlier this morning we released preliminary earnings estimates for the second quarter and year-to-date 2015. These results are preliminary as earlier last week we were made aware that results at one contract packaging center in Mexico had been overstated. Although, the review was not complete based on the work done to-date, we estimate that the impact on the previously reported first quarter 2015 net income was $3 million, resulting in corrected first quarter GAAP earnings of $0.83 per share and first quarter corrected base earnings of $0.53 per share. In addition, we currently estimate that the cumulative pre-tax earnings correction for the years 2012 to 2014 will be approximately $30 million with the split by year and the tax impact yet to be determined. We have engaged outside accounting and legal consultants to assist us with this review, which we expect to complete over the coming few weeks. Final findings will be fully reflected in the second quarter 10-Q and corrected historical statements when they are filed. The business model at this one particular location is very complex and we will obviously include a complete review of related internal controls to determine what changes need to be made in design or execution to prevent such issues in the future. We realized that you will have many questions. However, because the review is ongoing with a lot more work to do, we’re not in the position to share anymore specific information about this event at this point. Although, not able to finalize results for the current or previous years until the review is complete, we wanted to go ahead and provide an update on our estimate for the quarter rather than delaying the release of any information about the quarter until the review is complete. Based on what we know at this time, we’ve estimated that GAAP earnings for the second quarter will be $0.61 and that base earnings will be $0.66. The difference between GAAP and base is due to restructuring cost partially offset by the favorable tax benefit of the partial release revaluation reserve on deferred tax assets in Spain. Even with the lower than expected earnings from the contract packaging facility, we’re still within our previously issued guidance of $0.64 to $0.69, as a result of a very solid quarter operationally. Until the work is complete, we cannot provide the comparable 2014 quarterly numbers. In terms of the base P&L for the quarter sales were $1.249 million, base gross profit was estimated at $241 million with our gross profit percentage 19.3%. S&A was estimated to be $131 million resulting in base EBIT of $109.5 million ended EBIT margin of 8.8%. I will go ahead and mention, the pension cost were higher year-over-year for the quarter by $4.6 million, which is about $1.9 million higher than what we expected due to an updated pension expense number coming from the finalization of the actuarial evaluation which does normally get completed in the second quarter. For the full year, pension expense will be $3.8 million higher than the estimates we had provided at the beginning of the year. It is noteworthy that without the pension increase in the quarter the EBIT margin for the quarter would have been 9.1%. The low EBIT interest was $13.6 million just slightly higher than last year due to the financing of the Weidenhammer acquisition. Taxes on base earnings are estimated to be $30.9 million with an effective tax rate of 32.3% generally in line with where we thought it would be. Equity and affiliates when combined with minority interest was $3 million and similar to last year. Thus sending up with estimated base earnings of $67.9 million or $0.66 per share. Because we have not modified the 2014 numbers or the previously mentioned issue in Mexico, we are not able to provide total company bridges and I will go ahead and provide some insight into the drivers of the year-over-year change in both sales and EBIT for the other segments. Starting with sales, excluding any changes in display and packaging, volume for the rest of the company was up 1.5%, we were pleased to see a 3.5% increase in consumer packaging driven by 3.6% increase in global rigid paper excluding the impact of the Weidenhammer acquisition. Volume was also up 2% in plastics and just over 5% in flexibles. In paper and industrial converted products overall volume was down 1.5% with both global tube and core and global paper volume each down about that amount. And the protective solutions business had another strong quarter with overall volume up 6.3%. Selling prices for the three segments other than display and packaging were down $16 million due most notably the lower year-over-year OCC, old corrugated containers prices which have the direct impact on the pricing in the paper and industrial converted products segment as many contracts reset at this year’s March price of $80 per ton based on prices in the Southeast versus $125 per ton the same period in the previous year. And pricing throughout the quarter was lower in our recycling business across all materials including OCC. In the consumer segment prices were lower due to resin-based selling prices in plastics. Acquisitions added approximately $70 million to the top line driven primarily by the Weidenhammer acquisition in the consumer packaging segment. The negative change in all other category of – for sales for the three segments was $47 million and that’s due primarily to the translation of sales in foreign currency due to the strengthening of the dollar against most all currencies. In terms of the change in EBIT for the three segments other than display and packaging, volume and mix combined had about $1 million favorable impact on EBIT which was a little wider than the change in volume growth due primarily to mix. But this was really isolated, most notably to the paper and industrial converted products segment, just do simply to the mix of paper sales including more export sales and corrugating and the sales mix in our reels business due to lower steel reels sales. Price cost for the quarter was very favorable – favorably impacting earnings by $15 million year-over-year, with roughly half coming from the consumer packaging business and quotiently a nice increase in protective solutions as well. Acquisitions added freight at $3 million to EBIT driven primarily by the Weidenhammer acquisition where this fair to say results all running lighter than expected with the delay in synergies associated with the regulatory review that took place in the UK which was just recently cleared and the impact of increased pricing for materials from one supplier. Manufacturing productivity for the three segments was right at $10 million which was very solid, but a little wider than our target, but not surprising with the lower volume we experienced in the global paper and tube and core business and the difficult comparison in paper operations which really ran well both this quarter and the same quarter last year. In terms of all other cost for the three segments excluding display and packaging, they were higher year-over-year by $15 million. This always includes normal inflation which was about $13 million for these businesses, as well as the translation impact at the EBIT level which was negative $5 million year-over-year for these three segments due again to the dollar being stronger. All this that has been partially offset by about $3 million in net lower fixed cost spending as we’re starting to see the ramp of the implementation of the fixed cost reductions from our fixed cost study. I’ll go ahead and mention that after interest in taxes translation impacted earnings per share by almost $0.04. And as previously mentioned, pension costs were higher year-over-year by $4.6 million including the impact of the half year cash drop of the higher than projected pension cost I mentioned earlier. In terms of results by segments, which was included in the tables to the press release, you can see that in the consumer packaging segment sales were up 12% due most notably to the Weidenhammer acquisition. But also to the previously mentioned volume improvement partially offset on a negative impact of translation, while EBIT improved by almost 33% driven by favorable price cost and strong productivity resulting in a very strong EBIT margin of 10.7% versus 9% for the same period last year. Paper and industrial converted products trade sales were down 8.4% due primarily to the previously mentioned lower selling prices the impact of translation and to a lesser extent the slightly lower volume. EBIT went down a greater amount due to the very light manufacturing productivity as previously mentioned which did not offset all other cost changes and as mentioned pension costs were higher all resulting in the drop in the EBIT margin to 8.5% versus 9.5% last year. Pension expense does have a disproportionate impact on this segment and it is noteworthy that without the higher pension expense, the EBIT margin would have been 9.1%. And finally, protected solution sales were higher about 4.8% due to the stronger volume, while EBIT improved 39% due to favorable price cost and strong productivity resulting in an improvement in the EBIT margin in this segment, 10.6% versus 8% in the same period last year. In terms of outlook for the third quarter and the balance of the year, we’re projecting that earnings will be in the range of $0.65 to $0.70 per share this is on a base basis for the third quarter. This guidance assumes no significant change in overall economic activity or any major shifts in price costs, but does reflect of course normal seasonality. For the full year, we’re now projecting the earnings will be in the range of $2.48 to $2.58 per share on a base basis. The range has been lower due to the previously mentioned higher pension expense, the delay in the implementing synergies related to the Weidenhammer acquisition and by the updated estimate for the underlying performance from the contract packaging facility. The cash flow and balance sheet statements will be provided when numbers are finalized. But I will go ahead and mention that in terms of cash flow, cash from operations was estimated to be $115 million for the second quarter. So after capital expenditures of $45 million and dividends $35 million, free cash flow for the quarter was $35 million. For the full year, we’re still projecting free cash flow will be roughly $140 million. We now think capital spending is trending somewhat lighter than expected by roughly $25 million, but this will essentially be offset by lower – than projected cash from operations due to the lower projected earnings. Some higher tax payments and just some fine tuning of other model estimates. That completes my overview of the preliminary results for the quarter. And I’ll now turn it over to Jack for some additional comments.

Thanks Barry. I want to say upfront this has been a difficult message to deliver, particularly considering our results for the quarter were solid. Sonoco is a company that prides itself for culture of doing the right thing. And unfortunately, we discovered this foundational tenant was apparently not being filed at our operation in Mexico. Let me reemphasize that based upon what we know this is an isolated incident at a single facility, serving a single customer. Let’s to share, we take financial controls seriously and this incident has us redoubling our efforts throughout the organization to ensure this cannot and will not be repeated. I certainly don’t mean to downplay is magnitude, but our customers not impacted and we believe the financial impact is manageable. Reflecting on the second quarter, we’re extremely pleased by the performance of our consumer packaging and protective solutions segments. This includes several of our identified growth businesses and they delivered solid volume and earnings improvement. Consumer packaging achieved record operating profits for the third consecutive quarter and 10.7% operating margin was near the highest ever achieved by this segment. Consumer packaging volume overall was up solid 3.5% and composite can volume was up 3% before Weidenhammer. Flexibles continues to show strong growth of 5.7% and year-over-year margin in this business improved approximately 400 basis points. Rigid plastics continues to grow volume which was up 2% and margins were up year-over-year by 360 basis points. Weidenhammer and Graffo reported continued earnings accretion in the quarter of about $0.25. And on July 3, we finally received a regulatory approval for the Weidenhammer acquisition in the UK. Unfortunately, the seven month delay along with a supplier dispute was laid to capture of some of the synergies into 2016. Our efforts to expand composite cans into emerging markets continue to gain momentum during the quarter following the start of our new Malaysia plant near Kuala Lumpur. The plant will ramp up production throughout the rest of the year into early 2016. Additionally, we’re working on some new really identified growth opportunities in Europe. Excluding the impact of the issue in Mexico display and packaging were slightly behind expectation. As some of our domestic customers moved promotional activity into the third quarter. Protective solutions also have record results for the first time achieving double-digit operating margins up 10.6%. The business registered solid year-over-year growth in components, temperature-assured packaging, and fiber base protected posts. On the industrial side slightly lower volume in tubes and cores is mostly offset by a positive price cost benefit along with lower fixed cost. With higher OCC costs during the quarter our global paper operations experienced negative price cost and productivity were positive had a tough comp the last year’s very strong results. Our recycling operations, which had been suffering from low fiber, metal and plastic pricing took significant steps to optimize cost and reduce losses in the quarter. The OCC prices now expected to reach $100 a ton in the Southeast and in other regions, we believe our recycling operations should break-even or better in the second half of the year. Entering to second half of 2015, we remain optimistic that our global economy will continue to improve particularly a lot in our largest market of North America. As Barry mentioned, we’ve adjusted our guidance to reflect higher than anticipated pension expense, the delay in acquisition synergies, challenging market conditions in our global paper operations, particularly in domestic corrugated markets. And finally, to reflect our issue in Mexico, despite the short-term headwinds I’m extremely proud the way the team is stepping up to help fill the gaps where they can. We also are making significant progress and our efforts to streamline our corporate and business unit structure to reduce cost while driving productivity improvements and targeting organic sales growth. We remained firmly committed to our goal in optimized strategy for 2015 and beyond and this means we’re focused on achieving higher than average volume growth, improving operating margins, continuing successful integration of Weidenhammer and Graffo, optimizing our portfolio through simplification and improved efficiency. And finally maximizing free cash flow by targeting capital deployment to our growth businesses and returning cash to shareholders. We understand it only takes one instance to shake the confidence of those who trust our company and we will do everything and our power to restore that trust. Operator, we will now take your questions.

Certainly, [Operator Instructions] And our first question or comment comes from the line of George Staphos with Merrill Lynch. Your line is now open.

Hi, everyone good morning. I guess the first question I had guys is would it be possible at all to pass what Mexico pension you already gave us, the delay in the synergies in the market factors were both in the quarter and in the change in your guidance, rough numbers based on what you said in your preamble comments in the press release I’m guessing Mexico is maybe $3 million or so in the quarter that maybe $10 million in the year. But could you give us a bit more clarity on that and correct or adjust those figures or confirm those figures today?

Yes, George. This is Barry. First of all to go ahead and address the impact of the issue in Mexico, if you compare the numbers year-over-year again the first quarter would have been down about $0.03 the second quarter, we have indicated two with another three for the balance of the year roughly split about two in the third quarter and one in the fourth. And then the remaining $0.04 if you are looking at the top or bottom side would be the combination of pension which was roughly $0.02 and then – just the impact of the lower expected synergies as it relates to the timing of the implementation of those synergies.

Okay. Thank you for that. So does that suggest then the market really wasn’t that big of a deal? Even though you said it as an issue?

The market, what do you mean George?

Yes, I mean, you said – well, you said of using the language in your press release, I think you said at market factors as part of the guidance revision, but it doesn’t seem like it’s that big of a factor given what Barry just went through in terms of bridging prior guidance to current guidance?

Yes, I think its more about by business segment, I think market factors on the industrial side or more of a – more of a headwinds and perhaps we see on consumer side.

Okay. Within industrial actually let’s hold that question for a minute let’s go back, in terms of your cost reduction productivity initiatives, what do you think it will be able to generate over the balance of the year and if you can put a figure on it 2016, and the related question you know as we think about the guidance you’ve just provided, what are the swing factors between lower and upper end and what's really controllable and what's really macro?

Okay. George, I think that we’ve said before that the work that we did to organize, to achieve our mission in 2015 would have about $10 million impact and we’re on target for that, for achieving that and that will continue to roll through and is in our forward projection. And then in 2016 I believe that – it basically doubles that, it goes up to about $20 million when complete through 2016. So that’s how – that’s plays into there. I think when you look at the our swing in guidance as its most of the time for us assuming price cost and mix base, what it is, I mean unless there is spikes, it’s going to be volume. Whatever volume actually is going to be the factor that moves that number the most between that upper and lower end.

Last one Jack and I’ll turn it over. Within your business as you pointed out, the performance in protective and the performance in consumer validated lot of that the initiatives you said you’ve been working on the last year and a half and that’s great. But the diversity of Sonoco in this case through industrial came back and to help to undermine that performance. Is there anything that you can do structurally within industrial to make this more of a stable business and recognizing that Sonoco is persuade a diversified portfolio strategy for a number of years, when we look back at the stock performance for Sonoco whether it’s less one year, three year, five year or ten years? It has trailed the market would suggest that diversified approach has nothing work in perhaps as well as you would like. Would you agree with that? And how do you fix that going forward and I will turn it over there. Thank you, guys.

Well, George let’s say any given period of time, you can look at our portfolio and say perhaps it’s underperformed it’s not been as good, it’s created a drag. But if you go back for the 115 or 117 year history of the company it certainly served us well. And it’s really set up for a long-term return to investors on a consistent basis, we think that’s what it – can actually lever. Now having said that we certainly we’re spending a lot of time looking at the various parts of the industrial business, making sure that – businesses that we’re invest in or returning the rate of return to our shareholders that we expect and if not yes, I think you could expect to see changes in the industrial portfolio. If we don’t think that we can get some of these businesses to a rate of return that – is creating value for shareholders.

All right, I’ll turn it over. Thanks guys.

Sure.

And our next question or comment comes from the line of Philip Ng with Jefferies. Your line is now open.

Hey Jack, I guess to your point on industrial getting a proper returns with OCC prices going to bouncing from the bottom here and some of the CRB guys with the price increase, can you talk about how you are thinking about pricing down the road on tube and cores?

Well, certainly we’re watching the coded increase with anticipation. We were out early with an increase. We didn’t get a lot of support. I certainly think is the price begins to firm and move upwards. We’ve got to strongly consider recouping those costs and recouping them quickly. So we’ll be very interested to watch and see what happens on the coded side.

Okay, that’s helpful. And then I guess switching gears to your consumer business demand was quite strong. I think you said volume is north of 3%. How much of that was driven by some of the initiatives you guys been implementing or the broader market. And then more importantly, when you look out in the back half, is that 3% type trajectory sustainable?

Well, we certainly we’re pleased on the consumer side with some new business that’s coming in on the flexible side as well as some strengthening in some of the composite can businesses. I think our forward projection for the balance of the year is about 2% up just like we have kind of started with more or less and we’d see that. I do think some of the initiatives and how are going to market or creating solid opportunities for us on the consumer side. We’re seeing, we’re getting a lot of looks at opportunities that we’ve never gotten before. So we feel good about what's going on and about the future growth prospects for consumer.

Got you. Okay, that’s helpful. And then on your protective business I know you can kind of harping on that 10% margin number you kind of call that when you first acquired Tegrant certainly hit that threshold. How much of that was price costs when resin kind of pulling back here or some of the other initiatives whether its volume or cost take out. And then how should we be thinking about that 10% number down the road, is that the number you guys get hit on a full year basis.

Well, Phil, I certainly appreciate you asking that question – talk about it a lot. We feel good about where protected packages was going you could see the trajectory building and yes, we do have some positive price cost in the numbers today. But I will tell you that was built into the number, in other words we knew that we had some pricing that needed to be adjusted. We took both steps win out and adjust it, but I would also tell you the business is really hitting on our shareholders the volume is going, the productivity was strong, cost control was good and then the positive price cost had a bit of an impact as well. The business has to continue to drive that forward, but as I’ve said before I believe it’s a double-digit margin business and we should be able to continue to push it and maintain it at that level.

Okay, thanks, Jack. Good luck in the quarter.

Thank you.

Our next question or comment comes from the line of Scott Gaffner with Barclays. Your line is now open.

Thanks, good morning.

Good morning, Scott.

Just taking a little bit deeper on consumer for a minute, because I think if I look back the last year in the second quarter, you had a relatively new comparison because the winter weather didn’t really impact you where the customer didn’t destock in the first quarter they kind of waited in for 2Q so and then the comps get a little bit more difficult in the back half of the year. What is it that gives you the confidence that, that segment can continue to grow at percent of the back half of the year up against the more difficult volume comparison.

Well, you are right Scott. The last – the second quarter of 2014 there were some ease your comparisons if you will particularly on the composite can side I think powdered infant formula was pretty soft in the second quarter of 2014. But we also saw improvement in some general – in some segments that we’ve been waiting for. For example, caulk was up some 6%, now caulk constructions going to improve in the second half caulk should be up. So that’s a positive and then when you look beyond composite can, there is definitely new business flowing into the flexibles business and we see some solid volume improvement in plastics as well. So we’re not projecting for this 3.5% growth, just like we didn’t project the 4%, 5%, we had in the fourth quarter of 2014, I can’t remember exact what that number was. We didn’t project that forward either, but 2% right now it seems reasonable to us looking forward with what we know.

Okay. And then on the industrial demand, we can see you highlighted, is there anything in particular within industrial that or do you calling out any end market?

Well, I think globally if you look at industrial the developed countries tend to be performing better now than the developing countries. We’re seeing declines in Brazil, China, Asia, we are certainly seeing those volumes being impacted on a year-over-year basis. Domestically, I think that paper and the structural changes that occurring in paper or kind of masking some strength in other areas of that business, but that certainly something that we’re dealing with. And Europe was kind of flat more or less on a year-over-year basis, so some of those headwinds are more structural relative to paper.

Okay, thank you.

And our next question or comment comes from the line of Chip Dillon with Vertical Research. Your line is now open.

Yes, and good morning, I don’t wanted to get too nitpicky I just want to make sure, I understand something, if I take just the midpoint of the guidance ranges and I guess you could say before it was around 265 and now its 253, I believe you said Mexico was eight – so that’s a $0.12 reduction. So Mexico’s $0.08 pensions $0.02, so that only leaves you with $0.02 to account for, and I just – and maybe I miss this but, I would imagine that $0.02 would have to account for all of the changes in this synergy timing as well as the market conditions, is that right? In other words – or those two items alone just got a total $0.02?

Yes, that’s – essentially have that number.

Okay, okay. I see, all right. So, almost really small numbers, okay that’s very helpful. And then as you talk about the – maybe two – I will ask you both place, if you look at the strength in composite cans, I mean, certainly 3.6 I think is what you said is, is a very solid number, is there any organically, is there any reason that should stay at such an elevated level. And then I guess as you look at industrial packaging are there any particular, and maybe in both cases you can point out or point to specific end markets that might be helping in composite cans and hurting in industrial packaging?

When you look at the number globally, certainly the improvements that are occurring around the globe with the new capacity that we’ve installed is impacting that number on a global basis. And that will continue as we continue to ramp up production around the globe, the impact of that new capacity. Domestically or in the established markets of the U.S. and Europe it’s in this particular case as I said earlier there was a comparison the Q2 was – there was a little weakness in Q2, 2014 that you saw, that came through in the strong number for North America. In 2014, and in Europe I think it’s more or less steady to slight to flat, so. You know, going forward is 2% of reasonable number for this business, I think it’s going to be more consistent with growth of package goods over a longer term.

Okay. And then I guess the last question is, on the issue with Mexico, is that – does that have any impact on either by your cash flow as you reported at or your net debt, it would seem like, it wouldn’t but could you just, is that fair?

That’s correct. The correction had no impact on cash flow and certainly nothing to do with our debt position or net debt if you’re netting cash against it.

Okay and I guess – is there any reason you feel confident that maybe this situation, I don’t know if you have other similar facilities in Mexico. Is that true and is there anyway to know that may be this doesn’t happen elsewhere in your system or does it seem to be very much geographically targeted to this one location?

Well, this event – as we said earlier it is isolated, it’s a single facility serving a single customer in Mexico.

Okay, okay that’s helpful. Thank you.

And our next question or comment comes from the line of Adam Josephson with KeyBanc Capital. Your line is now open.

Jack, Barry, good morning.

Good morning, Adam.

Jack one on resin. Obviously oil prices have fallen a fair bit recently. Do you expect resin to come down in the second half?

That’s fall in outages, doesn't it Adam? Actually I think polypropylene is experiencing some fairly tight supplier right now and it’s actually trended up. But what I’m hearing is that overall lower gas, oil prices as the year progress it should help trend resin prices down assuming there are no outages.

Got it. And Jack, you talked about paper operations facing challenging markets in the press release. I assume you’re referring at least partly do your corrugated business. I appreciate your small producer. But could you talk about containerboard conditions at the moment, at least for you?

Yes, Adam I would tell you – small is a gracious word relative to our position in corrugated industry. Now I would simply tell you it’s been a little sluggish what we really seeing is – kind of a mix shift to where we have to send a little more export and that’s kind of what we projected forward.

Okay, that the sluggish – the challenging markets relate to price more than anything else I assume.

Well, the challenging market in paper overall was that – for our paper operations they were kind of face with rising those you see prices, they were seeing some of that. So they were having to deal with that, they’ve ran fairly well. The mills ran well and their costs were controllable but it was more around some of their input cost relative to the selling price that they were experiencing and then the corrugated issue.

Right, right. In terms of the industrial business, obviously there have been a number of pre-announcements and negative comments by several U.S. industrial companies really since late May. And I know talked about some sluggishness in your industrial business. But in the U.S. are you experiencing any slowdown similar to what many of these other companies have talked about over the last two months or so?

Well, I would think that our tube and core volume was down slightly on a year-over-year basis and I think that’s a result of what you hear these other companies kind of talking about. I continue to be optimistic that that should hopefully correct itself but quite honestly, we’ve not felt that yet.

Got it. And just lastly, I know your consumer volume was good, but that was, a lot of that was related to composite cans. What’s your read on package food volume in the U.S. more broadly, just given in light of what some of the large CPG/package food companies I’ve talked about so far in the second quarter?

Well, I can only speak to the data I’ve seen show that they were definitely down on a year-over-year basis, for the two or three companies that have actually seen the data. But it wasn’t only composite cans, I mean, we had a strong volume in Flexibles and even our Plastics volumes saw some improvement as well. Some of that being new one volume so that for us that’s positive.

Got it. Thanks a lot, Jack. I appreciate it.

You bet.

Our next question or comment comes from the line of Mark Wilde with BMO. Your line is now open.

Good morning, Jack. Good morning, Barry.

Good morning, Mark.

Good morning.

Hey Jack, I wanted to just come back on this Consumer Packaging business a little bit. I think I’ve heard you say that the Flexibles volumes were up north of 5% in the quarter, is that right?

Yes.

Can you share a little more wide on what drove that?

Well, I’d say that’s been consistent. Mark for the last several quarters, we’ve experienced some solid volume wins in that business and have been just commercializing the new one volume over the past several quarters and continue to do well in that business.

Are there any particular niches you’d want to call out there Jack?

I would appreciate not doing that. I’ll also tell you that we serve cookie and cracker segment that’s done quite well over the past several years, as well.

Okay, then I wanted to just turn over to the Industrial market, I think, I heard you say that your Industrial volumes were down in both Brazil and China, is that right?

Yes.

Can you give us any color, I guess, particularly on what you are seeing in the China market right now?

Well, for us it’s been sluggish in some of our markets that combined with, I would say, an active program on our own behalf to really focus on the profitability of those facilities versus volume through those facilities, so those two things combined and kind of impacted China.

Okay. What about Brazil?

Brazil has been strictly more market driven and market related and what's actually going on inside their economy.

Okay. And then if I look at the industrial business in North America, how much of that business in a rough sense is tied to housing?

I…

I mean – you know I think about carpet cores and linoleum cores and all that kind of stuff. In total, do you have any sense of that?

Well, we’ve never really been able to piece that together because we don’t know what happens to the products after they weld on a core where they actually go, but certainly paper products, film products, textile products, all of those wind up in construction in some fashion. But we can’t really put our finger on how much is there, but it’s definitely – their construction does impact the cores, there is no doubt about it.

Okay. And the last question I had is just one more around the industrial as the corrugating medium exports that you mentioned. Is that a significant chunky or your output right now going into export markets?

No, not really, but it’s a bit of swing market for us that if we – it’s like domestically we swing some volume to export.

Okay, all right, that’s helpful. Thanks, Jack.

Certainly.

Our next question or comment comes from the line of Ghansham Panjabi with Robert Baird. Your line is now open.

Hi, this is actually Matt Krueger sitting in for Ghansham. How are you?

Hey, Matt. Good, how are you?

Hey, good, good. First, can you guys provide some additional color on the acquisition synergy delays said in the press release? Has the supplier dispute been resolved? And does that affect the timeline or size of your synergy targets at all?

Yes, it affects the timeline and that we would hope that the negotiation with the supplier when we began would have already been implemented and that both of us would be benefiting from the new arrangement. The supplier took a very aggressive stands. And so, we’ve chose to go in different directions to try to – to handle that particular situation. Consequently, it takes us a little bit longer to look for alternatives and do things a little bit differently. So when those synergies actually begin accruing, has been delayed. But even in the short-term, the reaction of not having those synergy savings are perhaps even higher cost than we anticipated has been part of what we’ve – part of what we’ve experienced in that particular case. The issue relative to the UK market has to do with, we had some cost savings activity plan for the UK and we needed to get it accomplish before the business moved into what has historically its very busy season. If the agreement had been approved out of the box, we could have done that, but now because that that took about seven months to get that finally approved. It’s pushed us too close to the busy season to actually get those savings in this year. So all this will be pushed into 2016 both the savings from the supply of materials as well as the activities in the UK.

Okay, that’s helpful. And then a little more broadly, what are your thoughts on the recent consolidation efforts in brand divestiture activities on the customer level in terms of how it will affect your business and then the packaging industry as a whole kind of moving forward?

Well, certainly is trading very large companies that are cost effective, I guess you will are cost effectively managed in very large brands, in some cases building the brands off, they actually help us, and in some cases consolidation may actually work against this. In the final analysis, the pressure that’s going to be put on suppliers to be more cost effective I think is going to rise; I think that’s a net income of those types of consolidations. But in some of the cases of divestiture, it may actually create opportunities for us and even some of the consolidations we may see activity for innovation or other types of packaging innovations that could lower costs.

Okay, that’s helpful. And then is that – I guess summing that up, is that a net negative or a net positive for you?

Stewart, I’d say it’s neutral to us.

Okay, thanks a lot. That’s it.

Okay.

Our next question or comment is coming from the line of Chris Manuel…

I’m sorry, Andrew…

Yes.

We can’t hear you very well.

I apologize. Our next question or comment comes from the line of Chris Manuel with Wells Fargo. Your line is now open.

Good morning, Jack.

Good morning, Chris.

Couple questions for you. It looks like or if – I look at some press releases, right, you’ve started to raise some prices for URB in Europe where I think is as effective this month, have you begun to see any traction from that?

Probably a little bit too early to tell, but specifically into Italy and to Spain, yes.

Okay. If we kind of file a suite back to, I think, there was $40 a ton for URB you’d look that back early on the spring time, since then OCC to come up a reasonable chunk and if we get towards the $100 you talked about, what would be the dynamics that looks like demand here has been steady in the U.S. if you were down 1.5 globally when you talked about some other regions where it was particularly soft South America and Asia would kind of suggest maybe your volumes in North America have been relatively flat in the industrial side here. What sorts of conditions would kind of put you back in the marketplace to revisit that increase?

Well, Chris, I think your points were made continued upward pressure on OCC, another movement up certainly I think the best cost it has to be recovered in the system. And we are watching and that’s occurring. I think the coated market may give us a window into how the markets will react and that’s why we’re watching that so closely.

That’s helpful. And then just a couple other quick ones. You mentioned that the flexible margins were up 400 basis points I think year-over-year, did that now put the flexibles margin sort of in the double-digit range?

It puts. Our consumer margins are in the double-digit range. And I would tell you that simply flexibles has improved over the years and solid business – over the solid…

Okay. And the last question is regarding synergies. And I don’t remember the exact targets you guys were after; I thought it was maybe in the $5 million to $10 million range out of Weidenhammer. But what have you got year-to-date and then what’s left for 2016, I think you’ve said some of these get pushed out to 2016. So what's kind of the number you’re targeting for 2016 there?

I thought was happened.

Yes, I can…

I don’t have those specific numbers in front of me, Chris. I knew that we were tracking on those numbers, but obviously we’re going to delay some of those back into 2016, but we can – we get those for you.

Okay.

I’ll get that back to you.

Okay, thank you. That’s all I had. Good luck guys.

And our next question or comment comes from the line of Alex Ovshey with Goldman Sachs. Your line is now open.

Thank you. Good morning, Jack and team.

Good morning, Alex.

Couple ones for you. At the Analyst Day, you talked about a number of the standalone businesses including thermoform that you were talking a look at. I believe the closure is metal closure piece which is the smallest part of that – that has been sold. Any update on what may happen with the businesses over the next couple of quarters and the next 12 months?

Alex, I think, I can’t say as we continue to take a hard look at it, we’re looking at not only the businesses that you mentioned, but we’re looking at some of the – all of our businesses really in. It’s about generating the return that we need for shareholders and if we don’t think that we can get those businesses there we need to look at other options for them. So that’s continuing. And I think we’re getting a pretty good picture of what we need to be doing.

Okay Jack. And I may have missed this, but can you say what your composite can, as well as industrial tube and core volumes did in the quarter, in North America?

In North America, I think, composite can volume in North America for the quarter…

Tubes…

In terms of unit volume?

Yeah.

For composite can in North America it was up 2.5%.

Yeah.

And that was really driven by the strong performance in the powdered and formula category, which was up about 19% year-over-year. We also saw a good growth in fiber caulk, which is up 6% and coffee up 5%, then that was just partially offset by lower volume and not send the continue decline in concentrate.

And tube and core, I think, was domestically was about down a percent…

Not quite a percent.

Yes that’s correct.

Got it, got it, thank you Barry for that. And just one last one from me, so in the industrial paper business it sounds like there is somewhat of a margin squeeze that’s playing out with pricing being under some pressure and then OCC moving up. Is there an OCC pariah and it sounds like you guys are expecting some upward pressure on OCC? So is there an OCC price where it makes it a lot less economical to ultimately run some of those industrial paper assets?

Well, no, I think, part of that, when we talk about that part of margin squeeze is internal, in other words we shifted the profitability to some of the paper buying companies because of internal transport pricing, et cetera. So it’s captured within the company. But certainly raising those you see prices need to be recaptured all the way due to the customer. And on that price reset mechanisms they can do that, move but in the quarter is a little more difficult for us because that’s when the Paper division actually would absorb that increase offset to a degree by the improvement in the recycling business. But the converting companies don’t necessarily see a change until their price mechanism kicks in, so that would create that pricing squeeze if you will internally. I think that rising OCC prices and getting up above a 100 is good as going to be solid for the business in general, because it makes our recycling business move toward profitability.

Got you. And just on the medium side, there is no mechanism to ultimately be able to change the price outside of just open market pricing right on the actual medium part of the business?

No, it’s just kind of a market price that exists in the market.

Okay, got it. All right, thank you very much Jack, I appreciate it.

Okay.

Our next question or comment comes from the line Mark Wilde with BMO. Your line is now open.

Yes, Jack, just one more kind of OCC question, I’m curious does the weakness in the Euro, mean that we’re seeing more OCC exported out of Europe and that puts more pressure on OCC in Europe rather than what we see in North America?

Mark, I believe that the weakness in the Euro probably brought China into Europe and we did see OCC prices rise in Europe and that was part of the emphasis for the increase or that you heard us – we’ve been out for in Italy and in Spain. So do you think it has an impact by the other countries in the world going based upon a weak in Euro.

Yes, that’s what I’m asking. Okay, all right sounds good. Thanks.

Yes.

[Operator Instructions] And our next question or comment comes from the line of George Staphos with Merrill Lynch. Your line is now open.

Thanks. One last question from me on the portfolio guys, you mentioned that you are not only within thermoforming and some other businesses that you look at or discussed during Analyst Day, you’re looking at the whole portfolio in terms of evaluating returns and whether you can get them to, the levels you’d like or not. Jack, when do you think you conclude that analysis, recognizing its never over? And do you think by Analyst Day you will either have announcements and/or targets for the investment community to think about in terms of portfolio improvement and divestitures or remedies to fixing returns. Thanks guys and good luck in the quarter.

Yes, George that’s really a difficult question for me to answer, I can only say that we are looking at it and that we’re doing a strong evaluation of it and that we will make decisions when we feel comfortable that is the best decision for us to make. So, I can’t say that will be our Analyst Day, I can’t say that will be in three weeks. I mean, we are working on it and we’re making the hard decisions that we think need to be made about the portfolio.

Okay, thanks. I appreciate the thoughts.

And our next question or comment comes from the line of Adam Josephson with KeyBanc Capital. Sir, your line is now open.

Jack and Barry, thanks for taking my follow-up. Just two; one on M&A. Jack, can you just talk about the multiples you’re seeing out there the prices you’re looking at, how reasonable you think they are, and what your appetite for a decent sized dealers at this juncture?

Well, obviously, the multiples were pretty strong from a selling perspective. We’ve been – we’re always active. We’re always looking. So we’re seeing some multiples that for a strategic probably make a lot less sense. But our appetite for acquisition remains as it always has. We’re focused on where we want to grow. We set flexibles. We’re looking at protective solutions as for growth opportunities as well for acquisition we’re looking Brazil, Southeast Asia and continuing to run the process inside out. We know what we want, so going and finding those companies as we did with Graffo is how we’re driving that forward.

Thanks, Jack. And just one follow-up on corrugated. Can you just talk about what exactly you’re exporting and is it going mainly to Latin America or elsewhere?

No, I think some of it goes into the Middle East and in other areas and all we do is make medium. Primarily, we’re a medium producer and that’s – that’s really all we export.

Great, thanks a lot Jack.

Yes.

And I’m showing no further questions or comments at this time. So with that said, I would like to turn the conference back over to Vice President of Investor Relations, Mr. Roger Schrum.

Thank you again, Andrew. Again, let me thank everyone for joining us today. We certainly appreciate your interest in the company. As always, if you have any further questions, please don’t hesitate to contact us. Thank you again.

Ladies and gentlemen, thank you for participating in today’s conference. This concludes the program. You may now disconnect.