Amcor plc (AMCR) Q1 2008 Earnings Report, Transcript and Summary

Good day, everyone. Welcome to Bemis First Quarter 2008 Earnings Release Conference Call. This call is being recorded. For opening remarks and introduction I'll now turn the call over to Vice President and Treasurer for Bemis Company, Ms. Melanie Miller. Miss Miller, you may begin.

Thank you, today is April 29, 2008. The replay of this call will be available on our website www.bemis.com under the Investor Relations section. Joining me for this call today are Bemis company's President and Chief Executive Officer, Henry Theisen and our Senior Vice President and Chief Financial Officer, Gene Wulf. Today Gene will begin with comments on financial details followed by Henry who will provide additional details on performance and our 2008 strategy. After our comments we'll answer any questions you have. However in order to allow everyone an opportunity to participate, we ask that you limit yourself to one question at a time with a related follow-up and then fall back into the queue for any additional questions. Before we begin, I'd like to remind everyone that statements regarding future performance of the company made in this teleconference are forward-looking and are subject to certain risk and uncertainties. Actual results may differ materially from historical, expected or projected results due to a variety of factors, including currency fluctuations, changes in raw material cost and the availability, industry competition, consumer buying trends and our ability to pass along increased cost in our selling prices, interest rates fluctuations and regional economic conditions. A more complete list of risk factors is included in our regular SEC filing, including the most recently filed form 10-K for the year-ended December 31st, 2007. Now I'll turn the call over to Gene Wulf.

Thank you, Melanie. Good morning everyone and thank you for joining us today. For the first quarter 2008 diluted earnings per share for Bemis Company were $0.42, inline with our guidance of $0.40 to $0.43 per share for the first quarter. First quarter results of $0.42 compares to $0.45 for the first quarter of 2007. In addition this is equal to the diluted earnings per share for the fourth quarter of 2007. The tax rate for the first quarter was 37%, a slight decrease from the 37.8% during the first quarter of 2007. We now expect the 2008 tax rate to remain at 37%, which is a reflection of the jurisdictions where our profits are earned. Bemis actual shares outstanding decreased 5.15 billion shares compared to the first quarter of 2007. As you recall in August of 2007 Bemis announced a planned repurchase of 4 million shares. That plan was completed in the fourth quarter of 2007. We purchased another 150,000 shares during the second quarter of 2007. In addition as has been practice for the past few years, Bemis purchased an additional 1 million shares during the first quarter of 2008 to reduce the diluted impact of our long-term equity incentive programs. Three months ago as we were entering the first quarter of 2008, our guidance for the first quarter anticipated the higher raw material cost that we have experienced and the normal lag involved in passing along those increased costs in the form of sales price increases for our products. In our analysis we also anticipated a more stable level of consumer demand for food products in 2008, which we are pleased to say appears to be materializing. Last year in July we noted a slowdown in orders and sales volume across most of our food packing markets. As we track grocery stores scanner data in an attempt to substantiate the volume weaknesses, we determined that consumers were generally being more careful about their food purchases. At that time the consumer appeared to have de-stocked the pantry and the freezer and became a better manager of who they purchased and consumed. Well, higher food prices means that the consumer's food budget does not go far in 2008 as it had back in 2006. We believe that food is not as discretionary purchase for consumers and eventually will reach a level... reach a limit with regard to cutting back their food purchases. That said we have not seen any change in the demand for higher value consumer friendly packaging for such items as convenience opening and closing features, kits [ph] and single serve. Our customers still want to sell their products in packaging that attracts the consumer and distinguishes it from the competition. Comparing the grocery stores scanner data for the first quarter of 2008 to the first quarter of 2007, the sales volume fluctuations are less severe than they were in 2007. At Bemis with regard to our specific markets which I will get to in a few moments, we saw some areas of year-over-year growth for the first time in several quarters. Although we have seen a stabilizing of the food purchases in the first quarter of 2008, the flexible packaging and the pressure sensitive material products we sell with the housing and industrial applications continued to feel the impact of the deteriorating economy in the Americas and Europe. Total Bemis net sales for the first quarter increased 4.2% from last year's levels. Excluding the impact of current translation, net sales would have decreased by about 1%. In flexible packaging specifically, net sales for the quarter increased 5.2% including a currency translation benefit of 4.8%. I am pleased to report that we experienced sales growth compared to the first quarter of 2007, excluding the impact of currency, in 75% of our flexible packaging end markets and most of that was driven by increased volume. Specifically sales of packaging for meat and cheese, health and hygiene, multi-packs and medical device markets were up low to mid-single-digits compared to last year. In addition sales of packaging for dairy and liquids, dry fruits and bakery markets increased over 10% in each category. The only category in which the increase in sales was not driven by increased volume were dry fruits, where price and mix had a significant impact. As I mentioned, volume growth in these categories reflects more stable consumer demand for these products in 2008, coupled with the impacts of new business in many of these categories. Sales of confectionary and snack foods continued to decrease, led by lower volume levels. Health products packaging has also decreased compared to last year. However mix is improving and we expect new product innovation efforts focused on this market will result in volume growth later this year. Net sales of packaging for smaller other food and non-food markets were down slightly compared to the first quarter of last year. Packaging for industrial markets, including products related to the housing and construction industry, continue to experience lower volume levels. However price and mix improvements offset decreases in their sales. We anticipate that the year 2008 in flexible packaging will have its challenges with a deteriorating economic climate in regions in which we are strong, difficult raw material costs, with oil prices that have never approached $120 per barrel, and unprecedented increases in food price is impacting our customers and the consumer. However we are pleased with the opportunities for unit sales growth that we expect for flexible packaging in 2008, and we are focused on scale up new business and continuous improvement in customer service to maintain that momentum. Net sales in pressure sensitive materials segment were nominally the same as the first quarter of 2007. However mix was dramatically different. This business segment drives about 45% of its sales from Europe, were the strong currency has added over 6% to net sales compared to last year. Excluding the benefit of currency, total segment net sales decreased by about 6.4% driven by lower unit volumes in both European label products and North American technical product sales. Graphic product net sales were up less than 1% compared to the first quarter of 2007. In North America, our label product sales decreased by about 1%. As you know the competitive environment in North American label products business has been challenging. We are working hard to maintain our market position in the niches we enjoy by leading with quality and customer service. While technical products are only 10% of these segments sales, we continue to focus on scale of opportunities of new products and diversification of our customer base. Volume and mix were negatively impacted this year as many of these technical products are used in housing and construction markets in addition to a change in demand for our customer branded medical patch. For total Bemis, gross margin as a percentage of net sales for the quarter was 17.2%, down from 19.5% in the first quarter of 2007. And also a slight decrease from 17.6% in the fourth quarter of 2007. Although polyethylene resin may have temporarily stabilized, we continue to experience raw material increases, in particular this quarter saw increases in specialty resins, additives, adhesives and chemicals. Specially resin products such as plastomers, EVA, ionomers and acid copolymers had increases during the quarter which we are in process of passing on to our customers. We continue to be diligent at our cost take-out programs. Our management teams understand the importance of these programs, and are concentrating on ways to make our operations more cost efficient. So in general and administrative expenses along with R&D expenses, as a percent of sales have remain relatively stable for the past few years. We remain committed to continuing to control these costs in this economically challenging period of time. Other cost and income include about $7.7 million of financial income; about 40% of this represents the interest income from cash balances held. The rest of the financial income reflects fiscal incentives at international locations. While it is classified as other income, the fiscal incentive relates to specific flexible packaging operations and are included in our calculation of segment operating profit. Looking at total flexible packaging operating profit, we reported $79.3 million for the first quarter of 2008 or 10.1% of net sales. Currency translation benefits added about 2.3 million to operating profit. This profit levels compared to $88.2 million for the first quarter of 2007 or 11.95 of net sales. Operating profit in the pressured sensitive materials segment was $11.9 million or 7.2% of net sales compared to $14.3 million or 8.6% of net sales for the first quarter of 2007. A change in sales mix resulting from lower sales of value added technical products for housing and certain medical markets in the first quarter of 2008 negatively impacted performance for this segment. Like many businesses we've been feeling the impact of increasing input costs. Our sales teams around the word have been working hard to increase selling prices to reflect our higher input cost. Fortunately several of our base resins did not experience any price increases during the quarter. However specialty grades that I have described earlier incurred increases and in many cases multiple increases during this period. In addition our paper inputs for both packaging and pressure sensitive materials have experienced price increases. Specialty chemical such as adhesives, coatings and additives have also been passing through price increases. With energy cost at record levels, the cost to run our factories and ship our goods to customers have significantly impacted us at the operating profit level. Our manufacturing R&D and sales teams have been working all out to minimize the impact of these cost increases on our operating results. Even though these are painful experiences, in the long run, we are learning about how to make our operations more efficient and cost effective. Debt increased during the first quarter, primarily as a result of the repurchase of 1 million shares. During the first quarter of each year, we make an effort to repurchase shares sufficient to offset the dilutive impact of stock award programs. Following the completion of that purchase, we have about 4.1 million shares remaining in our board authorization for share repurchase at the end of the quarter. Interest expense decreased by 28% for the first quarter of 2008 compared to the first quarter of 2007, due to lower interest rates. About 55% of our outstanding debt is subject to variable interest rates. This allows us to take advantage of decreasing rates when they occur. Debt to total capital was 32.9% at December 31, 2007, an increase of 33.4% at the end of the first quarter. This increase since year end is primarily the result of the repurchase of 1 million shares of company stock. We expect debt to decrease over the next 3 quarters as stronger cash flows will be used to reduce debt. Cash flow from operating activities was $55.6 million for the first quarter of 2008, compared to $73.1 million for the first quarter of 2007. Lower net income and increased working capital account for about two-thirds of the decrease in cash from operating activities. Working capital normally builds during the first quarter and anticipation of our seasonally strong second quarter. The primary contributor to the remainder of the change is related to a one time event which was the 2007 collection of a long-term receivable at an international location. Capital expenditures for the quarter were $28.4 million, down from last year's capital expenditures of $47.3 million. This decrease is reflection of the lower spending levels we have planned for 2008. At this point we continue to anticipate our 2008 capital expenditures will be under $125 million range. Now I would like to turn the call over to Henry for his comments on the quarter and the updated guidance for the next quarter and the year.

Thank you Gene. Good morning and thank you all for joining us today. I would like to add a bit of color to the comments that Gene made about the pressures that we are facing at raw material costs, consumer demand levels, and how we at Bemis are responding to those pressures. Bemis's manufacturing processes and technologies use a wide variety of raw materials and flexible packaging our primary raw materials are resin, paper, specialty chemicals such as adhesives, additives, solvents and ink, polyethylene resin represents a significant raw material for us making up about half of our global resin purchases in pounds. In the first quarter, prices at polyethylene resin were expected to increase, but ultimately we remained neutral for the quarter. However polyethylene prices increased steadily throughout 2007, and this quarter a pause provides us with an opportunity to catch up in the second quarter. As Gene mentioned, various grades of paper used in our pressure sensitive material and flexible packaging businesses have experienced first quarter increases. In addition being a material science business means that we have a wide variety of plastomers, EVAs, ionomers, and acid co-polymers as well as numerous other specialty materials in our unique product blends. During the first quarter, all of these specialty materials along with nylon polyester polypropylene experienced sizable price increases. Not only is the cost of raw materials going up, but energy, freight cost have also increased with recent run-up in oil prices. At Bemis, we have mechanisms in place to pass along basic raw material costs increases to contract customers. Although there is a few months lag in total, this contract prices are adjusted. In our non-contract flexible packing and pressure sensitive materials businesses we have increased selling prices to reflect raw material costs. We've stepped up our efforts to use global sourcing as a means to manage our cost. Increasing the competition for supply contracts and taking advantage of regional cost benefits were possible. We continue to qualify new resins to expand our supply base and take advantage of our global purchasing power. Another avenue to improve our margins is cost management and improved efficiency. Last week I met with the leaders of all of our global business units from North America, South America, Europe and Asia, each one highlighted production improvement as a significant effort in their businesses. Every plant is engaged in programs to improve their processes, reduce their waste and improve efficiency. We are using world-class manufacturing tools to measure progress and drive cost out of the businesses. Sales in our flexible packaging business are growing nicely in the areas where we have invested, namely meat and cheese, dairy and liquids multi-pack, health and hygiene, medical device and pharmaceuticals. Packaging for food products represents about 56% of Bemis as total sales. Heath and hygiene markets are likely to be the resilient ones through these times as is medical and pharmaceutical market. These markets make up an additional 17% of sales. On the other hand we do have exposure to the housing and industrial markets which are continuing to face weak demand conditions in 2008. This probably represents another 6% of our sales. Our label and graphics pressure sensitive materials product sales are normally correlated with regional economies. These markets react to general reductions in manufacturing levels and lower promotional spends as the economies slow. Out technical products, which are typically designed to replace mechanical fasteners are experiencing slow downs reflective of housing, automotive and industrial markets. Surprisingly, the weather can also be a factor in our business. As we head into the normally strong second quarter for a number of our products that we packaged the cool west start to the spring isn't helping to jump start the gardening, the grilling, pickening and bio water season. We hope May proves to be warmer. The media is starting to report that consumers are eating a whole more often and restaurants are beginning to suffer. This trend is good for some of our customers who often compete with restaurants for the consumers' food dollars. With all of this in mind, I can tell you that we are pleased with the trends that we are seeing in the first quarter and optimistic about the rest of the year. According to the grocery store scanner data, the year-over-year transit volume purchased in general food categories appears to be stabilizing, compared to the declines that we saw during 2007. This is a good sign for our customers. We gain new business in 2007 that is just now scaling up to commercial production levels and our customers have been working with us on new product introductions, many of which are coming to market this spring. The rigid bacon package has scaled up and is now a nationwide distribution. Stick pack business is accelerating in 2008 as our customer's buy new powdered products to put into this packaging format. Multi-pack overwrap for beer is starting to be introduced into the market. New proprietary polypropylene sealing technology is expanding into unique frozen food applications. Our self vending technology is about to enter the market, for frozen foods and sauces. You should see this product on store shelves later this spring. Bemis is the only company that manufactures this unique sealant, which can withstand the temperatures that sauces achieve with microwave cooking. Our polyester platform continues to win new business with expansion for meat applications expected to move to cheese and hygiene products. Single serve gourmet coffee packaging continues to be a growing market for us. Now our customers are expanding this product line to emphasize other heated beverages like teas and hot cocoa. And we are pleased to be participating in a new packaging format for Wal Mart's fresh meat packaging. Wal Mart recently began to change their case-ready meat package to a format that is the same as that sold at grocery stores. With the local butchers are packaging the meat. This old packaging style has a very sure short shelf life and as a result, needs an extra barrier protection to help it last through the distribution process. Bemis supplies that protection in the form of a barrier mother bag [ph] that extends the shelf life until the package reaches the retail store and is displayed in the meat case. Our own barrier case-ready product, Fresh Case is still waiting approval by the USDA. They have requested shelf life test that will take until the end of June. We now expect the earlier we received a comment from the USDA will be visible [ph]. In addition we have developed a hybrid pack using our paper and plastic technologies, which provides a retail solution for the breakage problems for pet food bags. Our hybrid package offers high quality graphics and excellent durability. It is also dramatically sealed which provides protection from infestation that can occur in its own polypropylene alternatives that are currently in the marketplace. We also have some new graphic pressure sensitive products that are being introduced this year, including a window graphic film that facilitates in store advertising. We're running trials for pharmaceutical businesses and our new laminator installed in Wisconsin last fall. These trials are for the packaging of individually packaged over the counter medication using the starch wafer format. We are looking forward to sales to this market in 2009, the start up of our new medical device plant in Northern Ireland has gone very smoothly and we are eager to fill up our new service base. Almost one-third of the way to the second quarter, we are cautiously optimistic about the quarter and the remainder of the year, for the second quarter, we expect earnings per share to be in the range of $0.44 to $0.47, compared to $0.47 for the second quarter of '07. For the total year we want to reaffirm our annual guidance of $1.78 to a $1.88 per share, where we fall at in these ranges will depend on the volume levels that we achieved and our ability to match price increases with raw material cost increases. At this point, I can tell you that matching price with cost is our highest priority, I would now like to open it for your questions.

Operator? Question And Answer

[Operator Instructions]. We will take our first question from the side of George Staphos, please go ahead.

Thanks. Hi everyone good morning. Two questions around pricing and margins, first off given the volume growth or the growth I think to be more precise that you talked about in one of your focused areas, it would seem to suggest that pricing didn't move all that much, Henry, can you help us bridge price versus volume roughly in flexible packaging. The second question, the follow-on is can you give us a sense on what you are seeing right now in terms of polyethylene, it would appear that resin on the whole was a little bit better than expected in 1Q, thanks.

Well, good morning, George. To get at your fist pricing... the first question on pricing, we saw a numerous price increases in polyethylene and almost all of the specialty raw materials that we purchased late in the second quarter and some of those raw material increases in specialty area past even... also has increases in the first part of 2008. Really the difference is in the lag which we've talked about, which can be three to six months for our contract customers in order to pass those raw materials on the escalate, de-escalate to them. And we are also in the process of having a general price increase to pass all of those raw material costs on. So it's really in the lag.

I understand.

And the second part of your... but I do want to emphasize that as far as pricing and margin, we are very happy in the areas that we have invested our technology and invested our capital in, some of those areas I pointed out in our discussion.

Yes.

As far as polyethylene price increases, there was a $0.11 price increase nominated for the first quarter that did not occur, that $0.11 still stands out there. And the resin companies are trying to get back through with the second quarter.

We'll take our next question from the site of Ghansham Panjabi. Please go ahead.

Hey guys, Good morning.

Good morning Ghansham.

On your last comment on the announced resin price increase, is that what you have baked into... have you baken any of that into your full year guidance. And also can you just comment on the competitive environment, the flexible packaging as a whole, I mean you guys are one of the market leaders and you certainly seem much more aggressive on the pricing side, just wondering how your competitors are also sort of behaving in this environment. Thanks.

Well, the first part about the polyethylene price increasing, that's an interesting question. A lot of the polymers are driven more by fibers and automotive and we see the general downturn in the economy on the other hand and so we have volume substantial increase in raw material prices. On the other end we have $120 oil, so we really are sitting here and smart enough to figure out who wins that battle, $120 a barrel of oil or the decreasing economies. So what we have is we have not baked in any raw material increases into our yearly guidance which is identical to what we told you three months ago. And the second part of your question on competition, competition is always tough. Specially, when there is no real growth in the market place, so we will fight and we are very proud of our material science base and we feel we can compete very well. But it's always a tough battle.

Ghansham, Gene here, just to add one thing on the polyethylene prices in our forecast, we always make an assumption in our forecast that we are going to be passing any change in the raw material prices onto the customer based through our contract agreement, so if price increases occur in third and fourth quarter, those would be going in to our escalated, de-escalated programs.

We will take our next question from the side of Chris Manuel, please go ahead.

Good morning, gentlemen.

Good morning Chris.

Congratulations on the promotion Henry.

Oh, thank you very much.

I want to get back George's question if I can, because I am still a little confused about the... to help me rectify between cost price and volume. If we don't get flexible packaging in the first quarter and strip out currency, it think revenues were up just a shade under half a percentage. And you indicated that the volumes were up and from the points [ph] markets maybe volumes were up sort of low mid-single digit. So there is still a gap that doesn't quite fit. If you didn't have price go through yet and you didn't have the inflation in polyethylene, you may have some in... some of the specialty resins, but that would still imply that maybe it's a mix or something but that price had to been a pretty... by a similar amount of volume at least a negative factor. Can you help us, I guess I'm still confused bridging that gap but it seems as though that had been pretty sizable price decrease in the quarter?

Chris, I'm going to trying and answer this for you because it's a bit of mathematical challenge for us. As we try and look at total volume for Bemis, it's difficult for us to add up all the various pieces that we are looking at because they are not homogenous pieces.

Sure.

But I would say volume in total if you are right that total sales went up a bit less than half a percent. Volume in total was probably up around at between 0 and 1% when you average it all together, because of the fact we not only have these nice big markets that are up, we also have some pretty sizable market that are down. And so there is a lot of volume in those as far as square inches goes. Price and mix, we would have put pricing through last year when we had all of the resin price increases last year to the extent that mix has impacted those business, it ends up being pretty neutral between price and mix I think. So it's really volume that's driving and it's not... we are talking about volume up 5% this quarter it's really low single digit.

Okay, and then the second question I had, relating to interest expense is quite a bit lower in the quarter, at least lower than what we had modeled. Is this... Gene baked into your full year guidance. What... is this a reasonable run rate you are assuming baked into your full year number?

Yeah, it is. 65% of our interest is tied to variable rates, so as the interest rates have declined and we have a sizable amount of commercial paper we will receive the benefit of these lower rates. And we expect as we go through the year as we generate cash it will continue to pay down debt also, you will get a benefit of lower interest rates as well as lower debt.

Okay the next questions from the side of Claudia Hueston, please go ahead.

Hi, thanks very much, good morning.

Good morning, Claudia.

I just have a couple of little questions. One was just on corporate expense, which was a little bit higher than sort where I did expected it to be, how should we think about that going forward and the second question was just on your cash from operations. I think last quarter you talked about hoping to achieve a least 400 million for the year, is that's still the goal?

Well, I will answer the first part of that question and I will let Gene take the second part. It's probably one of the few really good financial questions I can answer you in why corporate expenses are up. As you know we are implementing SAP and we said in the past that we will not have SAP implementation be a hit or hurt our earnings per share, or use it as an excuse. But the main part of it is just the expense of the implementing it.

Okay, so this is probably a more normal rate for the near term at least as that rolls in.

Exactly, but as a percentage of our sales dollar it's still relatively stable to where we were last year.

Yes.

On the cash flow from operating activities, the first quarter is typically the first quarter is typically the lowest quarter of the year for us in terms of the cash flow because there is a build up in the inventories as we move in to our seasonally stronger second and third quarters and then will fall off in the fourth quarter. So our target remains the $400 million range for the year and we have a substantially lower CapEx spend plan for this year, we were expecting to be in the $125 million range, last year we were in the $175 million range and we are still expecting that we would be in the $400 million range for the year.

Okay, great, thank you very much.

We will take our next from the side of Reik Read, please go ahead. Reik Read - Robert W. Baird & Co., Inc: Hey, good morning. Can you guys just talk a little bit more on just on the pricing front, how you think about pass throughs versus keeping your volume up, in past quarters you have talked about wanted to make sure you got plenty of volume going through in some case may be talking trying to increase that and I am just wondering how much pricing plays into that just given the environment we are having to pass through because of commodity costs.

Good morning Reik, our escalator and de-escalator business that we have been awarded from our customers and as far as trying to grow our volume with that it's just going to attract track their volume growth, Reik Read - Robert W. Baird & Co., Inc: Okay.

So their volume grows, our volume will grow, if their volume decreases in the market place, our volume will decrease in the market place through the length of that contract. Where we really see good opportunities to grow our business are polyester platforms or polypropylene sealants, our new hybrid hybrid [ph] core bag for our pest food and the new product developments that we bring and bring convenience to solve problems for our customers, we will really have our opportunity to grow our volumes.

The other thing to keep in mind on the pass throughs is those past throughs typically are applied to new orders. So as we get new orders during the quarter you get your normal lead time before it's produced and then shipped and typically those orders will not all ship in a single quarter thus be spread out. So we are still seeing in Q1, we're still seeing pricing that was in effect in fourth quarter of 2007 stealing in to the first quarter of 2008 and now we'll start to see as we move into 2008 second quarter the impact of the price increases that we installed this past quarter. Reik Read - Robert W. Baird & Co., Inc: Okay and that's just going to continue to occur but you don't expect to see any volume changes as a result of that, either in your contract or--

We're expecting our volumes are going to continue to improve, we were very happy in the markets where we been investing, we've been very happy with the growth that we've been seeing and we would expect that to continue as the year progresses. Reik Read - Robert W. Baird & Co., Inc: Okay, great, thank you.

We'll take our next question from Ross Gilardi. Please go ahead.

Good morning, thank you.

Good morning, Ross.

Hey Henry, I just had a couple of questions. I thought in the Q&A last quarter that in response to a question it was said that you are anticipating 6% to 7% volume growth in the flexible packaging business in 2008 and that's what was baked in your guidance, we didn't model that, but now you are saying modest volume growth for 2008, yet you are leaving your full year guidance unchanged. So was that a mistake in last quarter or could you just help me understand what the difference is there?

Well I do want to point out that a lot of our volume growth was baked in to back of the last part of the year as we rolled through this new products roll outs to open the pressure sensitive business and in our flexible packaging business. We were disappointed in the first quarter really in the housing and construction. It is such a small part of our business, of less than 10% but it drastically fell off, so we had some parts of its that we wish were a little better, but in the other price we have invested in we're seeing that 6% to 7% growth that we were talking about.

Okay so you were anticipating three months ago that you would have 6% to 7% volume growth in your core business. Now that numbers are lot lower but you are still keeping your guidance unchanged. How are you making up the difference?

It's really in the new products I think that we are putting out? And the other part of it is in our cost take out programs. If you add up when we put out new products, we get to price those from the start, it's not on a escalator, de-escalator, so those new introductions add to our company in addition all of the cost take out that we've been working with and the world-class manufacturing and those benefits that we started a few years ago keep rolling through the operations. And they are gaining momentum as they go throughout all of our facilities.

And even if we hit only say 4 or 5 or even 3% volume growth this year, a lot of those benefits will fall to the bottom-line, that we never got to recognize that last year because we had volume decline.

Okay, so are you baking in 3% to 5% volume growth for flexibles in for the year, or when you say modest I kind of take that more as 1% to 2% growth because you talked about the cost savings issues, last quarter you talked about the new product issues, so none of these things really seem like that they really new, so it just seems like they disconnect on you this quarter versus last quarter.

Ross, Gene Wulf here, in several of our markets we had very sizable price increase... volume increases in this first quarter as we had anticipated. In some markets still they were very down as I had in my commentary the snack food and confectionery market was way-off from a year ago, as was pet products way-off and we've a new product coming out of the pet food area that we think will help us as we get to the end of the year. And we are expecting that the confectionary business is stabilizing and we'll see that grow later on. But in the market we are investing in we are pleased with the trends we are seeing, and we are focused in on continuing to grow those marginal markets.

Ross, I also think it's fair to say that, when we build up our guidance and we build up our plan, we do it from a bottoms up perspective, and we are looking at our business, describing it market by market, individually, what's the growth we are expecting in each of those markets. Those... the comment at the beginning of the year about 6% to 7% growth is really a general comment and we don't have a specific number that we can point to on a schedule and say here it is. And if that number changes, we are going to change our guidance because we're really doing a bottoms up calculation and so we are looking for... looking to all of these various businesses just to see what they are going to do for the year to come up with our guidance.

So what kind of volume growth or core revenue growth? Should we be baking into our model, for 2008, in the flexible packaging business?

We actually don't normally give guidance on revenue growth. So we are not going to update, what we said last quarter, expect to say that we have reaffirmed our guidance for the year, and we are working to grow sales as Henry and Gene has detailed.

We take our next question from the side of Mark Wilde, please go ahead.

Morning. Couple of questions, first the ramp up of the Irish plan, which I think is medical packaging, is it possible, to help us understand, how big an impact they had in the quarter?

Good morning Mark, the medical packaging facility, we moved up from a older facility last year to a new facility, and that one very successful for us. May be there's a small part of the Bemis business, it really isn't going to drastically affect the overall numbers that you see for Bemis.

Okay, then just as a follow-on, turning to the agriculture market. I understand right now because feed costs are very, very high that there are lot of animals that are going to market, pushing down meat prices but it sounds like a lot of people expect 3 to 6 months out that we could see a lot of upward pressure in terms of meat prices. Are you seeing anything in your business right now that reflects that and do you think about that at all in terms of how you think about the back half of the year?

We don't see it is direct affecting our business today but we do follow that, we do know that renew [ph] has closed some plants in the chicken area. We know that Tyson's closed some facilities. We here talk about fresh meat producers scaling back on account of the feed cost. And we do worry about it; we do worry about it quite a bit. And I don't how that's all going to play out.

Yes go ahead.

You have to remember that in our meat business we tend to be in the process side of the business not in the practice side of the business. And as we look at those markets we think that the process size will be remained much more stable than the fresh side remain.

Could be because of pricing has less volatile is that correct?

Well, pricing is less volatile and our meat customers make a lot more money in the process product lines that they do in the fresh product lines. And so they are doing to everything they can to protect their processes products.

Okay.

And in the process products that's where lot of our technologies around convenience, easy open, reseal, extended shelf life those things and our material science really have an affect.

Okay, very good thanks.

We'll take our next question from the side of Mike Hamilton [ph]. Please go ahead.

Good morning everyone.

Good morning Mike.

I wonder if you could give a few comments on progress in Europe and what you are seeing in and how it's going versus our expectation?

Europe is going along with our expectations. Number of years ago we acquired various facilities. We transferred a lot of our technologies over there. Those technologies last year started to gain some ground and in PET sealants, easy peal PET, fusion PET, and those markets were gaining traction. They are expanding, they are getting growth opportunities and as more and more that hits the market we hope to see more and more customers wanting that technology in accelerating the growth. But as of today, we are happy with our European progress and it is on pace with what we expected.

Thanks.

You are welcome.

We'll take our next question from the side of George Staphos. Please go ahead.

Hi guys, next couple of questions more around M&A and strategic. How do you see potentially more consolidation in confectionary as an end market, and your customers affecting you at all? Is it net negative? Could it be a net passive, Henry? How would you direct this at this juncture? And then the second question would be are you changing at all and what are the criteria that you used to look at acquisitions within your key markets? Thanks.

Well as far as the confectionary, we sell and we have positions at all of the major confectionary markets. And for our business if some of those win awards our business grows as some of the customers lose some market share then we suffer but, whether they are combined or not combined I don't really see this as a big change for us.

In the area of the most recently announced merger of confectionary in the gum markets we don't really have much of the position. That's a lot of paper packaging, plastic packaging. So it really doesn't impact us directly

Can you [ph] Wrigley has... still has a lot of self [ph] mix.

I do not know that.

I do not know that George.

All right.

On the other question about the acquisitions and what sort of perspective, listen we are big global multi-packaging pressure sensitive business and any thing that becomes available in the world we usually find that about, we have got a very defined program we go through when we look at opportunities and we are going to stick with that and see what happens as opportunities are presented to us.

Are they are not specifically criteria that you are using, that you used to look at acquisitions?

I would not say specific financial though, we would like to get as we like to get that acquisitions that add to our technology base or acquisitions that give us some more global reach.

Okay.

Or new unique markets that we are not in.

Got it, thanks.

We will take our next question from the side of Timmy Thein, please go ahead.

Good morning.

Good morning Tim.

A couple of quick questions, the medical business is that run with Pharma and is it becoming more global. I just want to get an update, I know you are in Ireland, you are in the States, I think you might also be in Asia but I wanted to double check.

Yes, we are in Asia, we are in Puerto Rico, we are here in the States and we are in Ireland and it is run as global business. And the pharma part is being run through our medical business at this time. The medical business has a lot of the standards and the clean rooms and the things that are necessary to try to enter Pharma and in many cases our medical customers would also be purchasers of some of the Pharma products.

Got you, got you, second question, it was touched on earlier but I would assume if more cows or chickens go down, they would not just flood the fresh ready to eat market because people would become rather large, but would indeed be put into the longer term, shelf stable packages, whether its frozen or refrigerated. Is that a good assumption?

Well, I think if there is less animals to slaughter is going to affect the supply for the entire food chain.

Got you.

Right, there is a lot of pork bellies in freezers right now.

Right, thanks guys.

We will take our next question from the side of Mike Hamilton, please go ahead.

Yes, I was just wondering if you could give a little bit of clarification on the canvas you made related to what showing up in other income, and start to think about it from a forecasting purpose, the 60% that is tied to incentive off of international.?

This is Gene Wulf, on those fiscal incentives that we have, those tend to be long term, that would be over a number of years. If you are looking at the next 12-34, 24 months, what you are seeing there is probably going to be consistent for the next two to three years.

So not a lot of volatility at least over the real term?

Not unless we can plan some more opportunities.

Yes, thanks.

[Operates Instruction]. We will take our next question from the side of George Staphos, please go ahead.

Thanks. As to... are there any areas do you think Henry, within Bemis, specifically within packaging, but I guess also may be even within pressure sensitive material that might provide an opportunity for you for further restructuring and cost reduction improvement efforts, I know you obviously have been focusing that, you have been focusing on process within the facilities, but how do you feel about the portfolio and any areas perhaps where you can cut back a bit further benefits over margins and returns.

I think over the over the past we have two restructurings I think over the last five years or so and those really took out some of the older facilities that really couldn't compete any longer in the lower end markets that we are in. I don't see us restructuring at all. I think we're in a good position in our packaging business, we have a disciplined... on what we've consolidated the business into those. We will continue with our daily cost take out and our cost improvement and our world class manufacture [indiscernible] but that isn't restructuring.

Henry, one question I have asked Jeff in the past calls on and you have been in on those calls as well. When I look at your return on capital performance, so has the last, many years, there has been a downward trend despite all the technology that brings to the market and all the adulation you have from your customers in terms of your innovation and services.

Realizing when--

Factor, how else then if you are going to restructure further or restructure it in a portfolio and the strategy-- how else should we expect the current capital to improve on returns. Obviously, good quarter here. Good start how else we move the needle in the future. Thanks guys, good luck in the quarter.

Thank you. And I think that's just... we continue to do the things that we're doing, as you look at some of our capital, we acquired Dixie toga, Dixie was really in the candy confection kind of a business, we put up a new plant down there for the shrink pack business. We expanded the facilities and transfer into sub technology, we made a major investment in transferring technology to Dixie toga in South America. Likewise we did the same thing in Europe. We spent capital, put the assets in place to grow our businesses. We spent the capital to put in place our expansions in New London to grow our medical packaging, also our expansions of our Northern Ireland facility for medical. So we've done a lot of CapEx setting ourselves up to transfer our core technology in those businesses. The other part I want to mention in how we can get a better return on capital comes out of our cost improvement programs. We talked about cost improvement programs, a part of that is productivity. If you look at our CapEx going down to 125, that's because a lot of our cost take out a world-class manufacturing has added capacity. And as we can grow our volume, we could gain the benefits of that capacity

George, talk to our people in operations, what are the comments they talk about our virtual machines they create. Just talking with one of the workers in our polyethylene business where they have through their work have discovered an additional press by managing their business better. So that's one less press, we have to invest in the future.

[Operator Instructions]. And there are no further questions. Thank you.

Thank you very much, operator and thank you for everyone for joining us today. Have a good day.

This does conclude today's teleconference. You may disconnect at any time and have a great day.