Amcor plc (AMCR) Q1 2010 Earnings Report, Transcript and Summary

Good day everyone, welcome to the Bemis first quarter 2010 earnings release conference call. This call is being recorded. For opening remarks and introductions, I will now turn the call over to the Vice President and Treasurer for Bemis Company, Ms Melanie Miller. Ms Miller, please go ahead.

Thank you operator. Welcome to our 2010 conference call today April 29, 2010. A replay of this call will be available on our Web site, 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; our Senior Vice President and Chief Financial Officer, Gene Wulf; and our Vice President of Finance, Scott Ullem. Today Henry will begin followed by Gene with comments on financial results, and then Scott will discuss cash flow and guidance. After our comments, we will 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 risks 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 costs and availability, industry competition, unexpected consumer buying trends and customer order patterns, our ability to pass along increased costs in our selling prices, the timing of the sale of discontinued operations, costs and integration, risk associated with business combinations, interest rate fluctuations and regional economic conditions. A more complete list of risk factors is included in our regular SEC filings, including the most recently filed Form 10-K for the year ended December 31, 2009. Now, I will turn the call over to Henry Theisen.

Good morning and thank you all for joining us today. I want to start off by saying how pleased we are with the business and talent that we have acquired. As I attend integration status and regular management meetings, I am thrilled at the enthusiasm in the combined organization and the opportunities identified by these leadership teams, to improve operations, utilize the combined technologies, and take Bemis to a higher level of service to our customers. Moving forward, we are in a great position to grow the topline as well. Material science remains a catalyst for growth in our business with added expertise in our employee [ph] handling, crystalized polyester trays and retort packaging. We are also pleasantly surprised to find that our acquired business has more complementary technologies than we have previously recognized. There are several examples of innovative Food Americas product developments that will benefit from Bemis technologies and vice versa. With this acquisition, we acquired an excellent technology centre in which we will house all of our R&D talent and technologies. This new Bemis innovation centre will be utilized to escalate the development of new products, integrate technology platforms within the new organization, and enhance our R&D efficiency to drive value for our customers. This integration will create and improve the opportunities for all Bemis operations to assess new technologies and expand the reach of our unique products to new market segments and new geographies. With our strong customer relationships and expanded product reach, we are well positioned to deepen and broaden our strategic partnerships assisting customers to meet their growth objectives and ours. This means more opportunities to bring new ideas, new technologies, and new capabilities to the attention of these global foods, consumer products, and healthcare companies. Additionally, we tend to grow geographically through our leading market position in Mexico and additional operations in Australasia. Again, all of these growth initiatives will take time to create positive momentum but we are positioning ourselves during this integration to promote an organizational structure that facilitates growth from every angle. As we look across our expanded portfolio of plans, there are many areas of best practices that will be shared to improve each and every operation. Our business teams have already begun to look at optimizing production schedules and specifications between plans wherever possible. We expect these actions will improve profitability and efficiency. Now, turning to the first quarter results, the first quarter generally starts slow, March to be one of the strongest months of the year as we prepare for the seasonally stronger second and third quarters. This year was no exception. We entered the quarter with good volume levels and a strong backlog heading into the second quarter. The raw material cost environment has turned 180 degrees from where it was one year ago. In early 2009, we were experiencing declining raw material cost, and enjoying a short-term benefit from the lag in adjusting selling prices. Selling prices had absorbed most of the raw material cost changes by July and the second-half of 2009 was relatively quiet. In 2010, we are now facing increasing raw material cost and experiencing a short-term negative effect from the lag in adjusting selling prices. The increase impacts all of our raw materials although to varying degrees and for varying reasons. These raw material cost increases are being passed on to our customers. Our top priority for 2010 is to successfully integrate the Food Americas business into Bemis as soon as possible. I have personally met with many of our customers and I have committed to smoothly integrate this business in a way in which we could provide them a long-term innovative customer supplier relationship. Part of a successful integration involves the achievement of cost savings synergies and the identification of additional opportunities to enhance operating profit. I am pleased to report that we believe that we are ahead of schedule with regard to our cost savings synergies’ goal for 2010. Most of the synergies achieved today are related to SG&A overhead costs associated with duplicate positions or a function not transferred to Bemis at closing. I have challenged the collective management organization to control cost, and maintain this level of synergies as we integrate the operations. Just to be clear, the integration of the operations in not an exercise in capacity consolidation, it is a program of capacity optimization. These acquired facilities give us the opportunity to better focus certain technologies, processes and specifications. This means fewer equipment changeovers, better line speeds, more efficient purchasing, better quality control and improved profitability. We will see the benefits of these efforts beginning in 2011. Now, I will turn the call over to Gene for his comments on the financials.

Thank you Henry and good morning everyone. With this quarter’s closing of the Food Americas transaction, we must explain several special items related to the transaction that will make our financial statements more understandable and comparable. I will do my best to bring more clarity to this quarter’s results. Today we reported GAAP diluted earnings per share from continuing operations of $0.27 and an additional $0.01 from discontinued operations for a total diluted earnings per share of $0.28. This GAAP earnings per share includes the impact of several special items during the quarter. We have excluded these special items in our adjusted earnings per share from continuing operations as shown on the reconciliation table in our press release to arrive at the results of $0.48 per share. You will see on the reconciliation table, we have excluded the January and February pre-funding acquisition related costs, specifically the interest expense on the $800 billion of bonds and the dilution effect from the sale of 8.2 million shares sold last July to partially fund the transaction. This represented about $0.06. Since the acquisition was completed on March 1, at that point these costs were no longer reconciling items as they financially support the now completed transaction. We excluded the transaction related cost for the quarter, including such costs as investment banking fees and other professional fees, which totaled about $0.08 per share. We excluded the purchase accounting impact from the write-up of finished goods and work-in-process inventory on hand, and the backlog market value at closing. In purchase accounting, these items are re-valued to a market value rather than cost. Thus when these items are sold from the inventory, they have nominal profit margins. This accounted for a charge of about $0.07 per share that was added back to adjusted earnings per share this quarter. With these adjustments, we believe adjusted earnings per share from continuing operations more properly reflects our quarterly results and are more comparable to past and future quarters. Back in January, before we knew the timing of the acquisition closing, we provided guidance for the first quarter and said that we expected adjusted earnings per share for Bemis’ legacy business to be similar to last year. In the first quarter 2009, we reported adjusted earnings per share of $0.43. In the first quarter of 2010, our adjusted earnings per share from continuing operations were $0.48. However, this amount includes the March results of the Food Americas acquisition. The legacy Bemis results are approximately $0.44 per share for the quarter, and about $0.01 per share above our guidance. The GAAP earnings per share attributable to the Food Americas acquisition was a $0.03 per share loss. This $0.03 loss included the $0.07 purchase accounting charge that was added back to arrive at the adjusted earnings per share. Therefore, since we add back the purchase accounting charge to arrive at our adjusted earnings per share, we would add back that same amount to the March result of the Food Americas acquisition. The $0.03 Food Americas loss becomes a $0.04 profit that is part of our $0.48 adjusted earnings per share from continuing operations. As Henry mentioned, integration of these plans within the Bemis portfolio plans is well underway, and while we are pretty comfortable with our ability to identify profit contribution from those plans for the month of March, this calculation becomes increasingly more difficult with every passing week. As such, we do not expect to be able to provide future results isolating or excluding the impact of the Food Americas operation. All these highlighted items relate to our continuing operations. In 2010, we have added a line on the income statement for our results of discontinued operations. You will also see several lines on the balance sheet that represent the purchase price value allocated to the assets and liabilities of these discontinued operations. These are the operations that we are required to sell post closing in order to obtain regulatory approval in the United States and Canada. This discontinued operation represents two overlapping market between Alcan and Bemis, and fresh red meat shrink bag packaging and retail natural cheese packaging. As we said before, the assets for sale includes two plants for sale of about $100 million. In addition, there are customer contracts that will be part of the sale, which makes up about $50 million in added net sales. For a specific period of time, Bemis is obligated to supply products for these contracts to the buyer of the discontinued operations through a totaling arrangement. The process to sell the discontinued operation is underway and has advanced to our satisfaction. There has been strong interest in the assets for sale and we anticipate the assets will be sold to a new buyer in the not too distant future. We continue to work with the Department of Justice as we keep them informed of the progress and milestones achieved during the sales process. We are unable to provide any further details due to the competitive nature of the sales process. Now let us turn to the results of the quarter but first, I would like to take a minute to comment on our expected sales mix going forward. Now that we have had time to look closely at the mix of existing business in the acquired plants and adjusting for discontinued operations, going forward we expect the combined food packaging sales to be between 65% and 70% of total Bemis sales. We see the areas of increase in our sales in the liquid packaging market, which includes foil technologies used in ready to drink packaging, and hard to hold liquid packaging. The cookie and cracker market where Bemis has had a small market penetration, the cheese market with the wax coated technologies for processed cheese packaging, frozen food and pet food products including CPET and retort packaging, and film labels for beverage bottles. Now, let us look at the quarter. Looking first at total Bemis results, net sales increased to $1 billion, a 21.1% increase compared to last year. Excluding the impact of acquisition and currency, net sales was approximately equal to last year. In total, generally lower net price mix compared to the beginning of 2009 was offset by generally higher sales volume. Turning to flexible packaging, net sales increased 23.2% over last year. When excluding the impact of currency and acquisitions, net sales decreased 1.8%. In the Americas, we enjoyed a volume increase of nearly 10% partially offset by lower price mix. However in Europe, we saw the opposite with volumes decreasing about 10% with about a 3% benefit from mix improvement. As we look at the specific markets, we saw volume improvements in markets such as dairy and liquids, confectionary and snacks, pet foods, medical and lawn and garden. We also experienced volume improvements in multipack and health and hygiene product lines. These volume improvements were partially offset by the impact of pass-through of lower selling prices. By third quarter 2009, selling prices had adjusted down to reflect last year’s falling raw material costs. In 2010, raw material costs are escalating again and selling prices are increasing in response. As we have stated in the past, with non-contracted business, we have the ability to adjust selling price in response to raw material cost changes. Where we have had customer contracts, there are scheduled trigger points when we pass through raw material cost changes. Since we have to wait for these predetermined trigger dates, there is a time lag between when the raw material cost changes, and when we can pass that change through to the contracted customer. With the newly acquired Food Americas operation, our mix of business with customer contract has increased slightly but we estimate those contracts represent about 70% of our flexible packaging annual sales. We experienced weaker year-over-year volumes in other packaging markets for bakery, dry foods and other non-food products. In the meat and cheese market segment, our largest market represented about 28% of our first quarter packaging sales, volume were about the same as last year. Net sales in our pressure sensitive material segment increased 9.4%. Excluding the impact of currency, net sales increased by about 6.4%. We were pleased to report over 8% sales growth in both labels and graphic products and almost 3% growth in sales of technical products. The growth in labels and graphic products was almost entirely attributable to volume improvement, while the growth in technical products reflects double-digit increases in volume partially offset by decreases in net price mix change. Gross margin as a percent of sales decreased from 19.4% at 2009 to 18.2% this quarter. This decline includes the negative impact of the generally lower margins from the acquired business and the inventory related purchase accounting adjustments I discussed earlier. Without the impact of purchase accounting for inventory related items, the gross margin would have been 19.4%. Selling, general and administrative expenses as a percent of net sales are 10.5%, which is equal to the level of expenses in the first quarter of 2009. This is an initial area of emphasis for synergies. Research and development costs are a bit lower this year than last year but nominally the same sequentially. The reduction from last year is a reflection of several different factors. Last year at this time, we were investing in the development of two new shrink bag products Form-tite and Eco-tite. Those products were commercialized at midyear and the development cost ended. As we neared the closing on Food Americas, the R&D team spent detailed time planning the R&D integration and then executed that plan in March. As a result, we have just run fewer projects this quarter. As shown in the reconciliation in the press release, flexible packaging adjusted operating profit was 12% of net sales compared to 12.9% for the first quarter of 2009. The lower operating margins primarily reflect the impact of raw material cost pressures during the quarter and lower margins the acquired Alcan plants had in certain markets. We expect the impact of higher raw material cost to be corrected to some degree when selling prices are adjusted over the next few months. At that time however, our acquired business will have a larger impact on the quarterly results with three full months of results included. Since the acquired business generates somewhat lower operating margins, this will also impact our consolidated operating margins going forward. Adjusted operating profit as a percent of net sales for our pressure sensitive materials business improved dramatically compared to the first quarter of 2009. This is a reflection of the diligent cost management combined with healthy sales volume growth during the first quarter of 2010. We are pleased with the performance improvement, but our pressure sensitive materials business still has progress to make to get to historic operating performance metrics. Before I turn the call over to Scott Ullem for further details on cash flow for the quarter, capital expenditures and guidance, I would like to take a moment to thank all of you in the investment community that followed Bemis during my tenure as CFO. Since 2002, I have been on these quarterly calls doing my best to explain what is happening to Bemis. Whether it has been at these quarterly calls, at investor conferences or one-on-one meetings, I have enjoyed my time working with you and appreciate the respect you have shown me and Bemis. I look forward to my new role in Bemis and want you to know my successor Scott Ullem, who is a highly qualified member of the Bemis team, and will do an excellent job leading our financial organization, and serving the investment community. With that, let me turn the call over to Scott.

Thanks Gene, good morning everyone. As Gene mentioned, I will wrap up the commentary this morning with details of our cash flows during the quarter, and on our earnings guidance for the rest of the year. Cash flow from operations decreased in the first quarter of 2010 due primarily to $118 million swing in working capital. Historically, due to the seasonality in our flexible packaging business, we use cash for working capital during the first quarter and that is what happened this year. This is due to the normal buildup of inventory in March to support strong second quarter shipments. In addition, higher March sales increased accounts receivable balances in the first quarter. A year ago during the first quarter of 2009, cash flow from operations included substantial working capital improvements as order volumes were softer and raw material costs were declining. This improvement delivered $53 million of positive cash flow to the first quarter of last year. During the first quarter of 2010, we faced increasing raw material cost, and strengthening sales order volumes for which we were building accounts receivable and inventory levels. As a result, working capital balances increased and resulted in a use of cash totaling $66 million by the end of March. Looking forward to the rest of the year, working capital management continues to be a major focus. We expect working capital to once again be a source of cash flow for the total year. This quarter we also made a $15 million voluntary tax-deductible pension contribution in order to improve the funded status of our pension plans. We do not intend to make any additional contribution in 2010. Net income in the first quarter of 2010 included cash expenses totaling about $15 million for acquisition related professional fees and taxes. This compares to cash paid for such fees in the first quarter of 2009 of about $3 million, the difference resulting in another $12 million use of cash in 2010. The Food Americas business is integrating with Bemis and delivering the value that will quickly generate strong cash flow. The proceeds from the expected sale of the discontinued operations and additional near term cash flow will be used for debt reduction. We will continue to prioritize our use of cash for debt reduction, growth focused capital spending, sustainable dividends, complementary acquisitions, and opportunistic share repurchases. While we are not providing specific cash from operations guidance, we do expect cash from operations in 2010 to be a healthy step up from the past few years with additional cash generating power of the Food Americas business. Capital expenditures totaled only $18 million this quarter, but we expect this to catch up to more normal levels through the rest of the year. We now expect 2010 capital expenditures to be in the $160 million to $170 million range including the needs of the acquired facilities. This means that once again our capital expenditures will be well below depreciation and amortization in 2010. We expect annualized depreciation and amortization going forward including acquisition related purchase accounting adjustments to be in the range of $210 million to $220 million. It is important to note that over the long term, we believe capital spending for our business should be approximately equal to depreciation and amortization. Turning now to earnings per share guidance, we are increasing our guidance for full year 2010 adjusted earnings per share from continuing operations by $0.05 to a range of $2.00 to $2.15. Consisting with the approach we have used in the past, our guidance excludes the $0.06 pre-acquisition impact of acquisition financing in the months of January and February when we did not yet own the Food Americas business. Guidance for the second quarter for earnings from operations excluding the impact of transaction related costs and inventory related purchase accounting is $0.53 to $0.58 per share. Several positive factors are driving the increase in our 2010 EPS guidance as compared to the guidance we provided last month. We are ahead of schedule in capturing cost savings synergies from the Food Americas acquisition. In addition, we have slightly higher expectations for growth in our key flexible packaging markets and our world-class manufacturing initiatives are showing attractive momentum for the rest of the year. Offsetting some of the positive momentum is the raw material price increases we are experiencing. In aggregate, we expect these factors to help drive earnings per share from continuing operations $0.05 higher than we projected last month to a range of $2.00 to $2.15. Now, we would like to open the call for any questions.

(Operator instructions) We will take our first question from Ghansham Panjabi with Robert W Baird. Please go ahead. Ghansham Panjabi – Robert W Baird: Hi guys, good morning.

Good morning, Ghansham. Ghansham Panjabi – Robert W Baird: You know, now that you have closed on the acquisition are in the process of integrating the assets, can you update us on whether the long DOJ approval process led to some market share shifts, maybe (inaudible) better it has got more aggressive during that time period?

I do not really believe that happened. I think Alcan, the people at Alcan did a very good job of maintaining the business and supporting their customers, and I do not see that as having occurred. Ghansham Panjabi – Robert W Baird: And in terms of the raw material adjusters, are they different for the acquired Alcan assets relative to your assets?

The contracts that they have for escalators, de-escalators are very similar to ours. They sometimes have a little more six month and we are a little more three month but the basic premise of them are the same. Ghansham Panjabi – Robert W Baird: Okay, thank you.

We will take our next question from Tim Thein with Citigroup. Please go ahead. Tim Thein – Citigroup: Thank you, and Gene thanks for all the help over the years and good luck as you move on.

Thank you.

Good morning Tim. Tim Thein – Citigroup: Yes, good morning. First question is on – Scott, going back to your recent comment about over the long term you would expect CapEx to be in line, do you mean you are talking depreciation and amortization or with depreciation, I am clear on that, and I guess as a kind of a related follow-on to that, it looked to us anyway that Alcan, the business you bought, their CapEx as a percentage of sales anyway was higher than pretty much anyone in the industry and that is even getting outside flexible packaging and getting into glass manufacturing, which is obviously a lot more capital intensive. So as you integrate these assets, do you think – I guess I am coming under the impression that these are pretty well capitalized assets, but maybe you can offer some insight on that.

Let me answer both questions the same time. First is to confirm, yes, over the long term we expect capital expenditures to be roughly in line with depreciation and amortization. The facilities that we acquired had clearly received a lot of healthy capital expenditures and capital investments over the last six years from the previous owners. And so we have been very pleased with the modern condition of those facilities and the capacity that they bring to us, and in general we are very pleased with what we bought and that is influencing our capital expenditure plans for this year.

Tim, this is Henry. The thing that I find interesting talking about CapEx is the more higher valued areas, the areas where complementary technologies are being brought to Bemis, I see some good uses of CapEx there to grow our business, and I see some good new products coming out of the technology. So, we will have some CapEx investments at those growth platforms.

We will take our next question from Chris Manuel with KeyBanc Capital Markets. Please go ahead.

Good morning Chris. Chris Manuel – KeyBanc Capital Markets: Good morning. Couple of quick questions for you, first, as you look at some of the synergy numbers, it appears as though you have reaffirmed $30 million for the year, it does not look like or did not sound like as we tried to look through some numbers as though there was much in there this quarter, I mean is it reasonable to assume kind of $10 million a quarter for Q3 and Q4?

That is probably not a bad assumption. It is probably going to accelerate more as the quarter goes along but not that much. We only had one month in the first month, so it takes a while for that to accumulate. Chris Manuel – KeyBanc Capital Markets: Okay that is helpful and as you have had now two months kind of running through these you talked a little bit about integrating the R&D together, any thoughts as to potential for revenue synergies or things of that nature from new products other types of development as you – I know it is an early innings [ph] but any thoughts along those lines?

You know it is in our DNA to create new products and look at these synergies and the talent levels and the different technologies I can see blending to make a lot of new products. But I also see a lot of other synergies where we have technologies that will help them, they have technologies that will help our product lines, and we also have product lines that I think will help each other, maybe they make a thermal foam tray and we can make the lid stock and add to the sealing capabilities. So I think there are a lot of areas where we are going to be complementary to each other and the synergies where we make retail cheese, they make wax coated products. We are going to have a lot of good synergies. Especially a lot of the customers we have here, we sell to one segment of the customer’s business and they will sell to another segment of the customer’s business. So it will make us more valuable to our customers.

We will take our next question from Sara Magers with Wells Fargo Securities. Please go ahead.

Hi Sara. Sara Magers – Wells Fargo Securities: Hello. I am wondering, I know you said you are not going to give guidance regarding cash flow from operations for the year, but you were talking about a healthy step-up. What exactly do you mean when you say healthy step-up from last year? What are your expectations there?

I guess simply put, our cash flow from operations last year was – we were pleased with the cash flow and it reflects a lot of the working capital improvements that we have made by focusing on reducing cash cycle days, and really improving our working capital utilization. Alcan has done some of that as well and we believe we are going to be able to bring to bear some of our experience in improving working capital and really focusing on cash flow to the Alcan operations in total we think it is going to be incremental to what Bemis has been able to do historically on our own. Sara Magers – Wells Fargo Securities: Okay and just a follow-up on that, just wondering a little bit about that inventory write-up, what exactly was it? I mean I know that resin has been kind of certainly high here, I am just wondering if there is a potential for any kind of reversal if resin were to fall off the cliff, which would be nice.

No actually Sara, this is related to purchase accounting entirely and as you know, in purchase accounting, we have to write those up to basically help the market value and that will go through the P&L relatively quickly, go through over the inventory turn, so it will be gone by the end of next quarter.

We will take our next question from Claudia Hueston with JP Morgan. Please go ahead.

Good morning, Claudia. Claudia Hueston – JP Morgan: Hi, how are you?

Good. Claudia Hueston – JP Morgan: Thanks so much. I just had really just one question, maybe two. You have commented about the strength in March, I know it is hard because there is a lot going on but how does that compare to a normal March? And then in your guidance, you talked about some higher expectations for growth in some of the flexible businesses, what specifically are you seeing in terms of the areas where you are a little bit more optimistic? Thanks.

You know the March that we had I think is consistently with the past Marchs. We always have a nice uptick in business in March as we switch through the seasons. I do not see it being that drastically different than patterns in the past. You know some of the areas where I see growth in the flexible packaging business are relating to the rigid tray business. We are substantially growing our PET business with rigid trays, we are like sliced luncheon meats that we have shown around. Alcan has technologies in the rigid trays for retort packaging, for crystallizable PET. I see those rigid technologies as really having a good merit and driving a lot of good sales with it. I also see the technologies in multilayer films that will go into our perfect seal our medical device, the acquisition of the pharmaceutical business is going to give us some extra technologies to expand, the quality of convenience food marketing, the desire for extended shelf life, all of those things that go into a high barrier product lines are going to drive future growth of flexible packaging. Claudia Hueston – JP Morgan: Okay, great, thank you so much.

We will take our next question from Mike Hamilton with RBC Capital. Please go ahead. Mike Hamilton – RBC Capital: Good morning everyone.

Good morning Mike. Mike Hamilton – RBC Capital: First, I was just wondering if you could give thoughts on GAAP EPS second quarter, in other words, what are we looking at in the flow-through of inventory accounting adjustment, etc?

We have not put anything together publicly on that so we are going to have other kind of transactions to deal with, you have transaction costs to deal with, with the sale of our discontinued operation. There will be some effect of inventory that had to be written up. We have roughly 60 to 75 day turn in that inventory but we should be though most of it by the end of the second quarter. Mike Hamilton – RBC Capital: Thanks. You mentioned the fact that you have done a good job in integration of R&D, the same as well in some of the overhead function areas. How should we think about what is going on in headcount as the integration rolls through here?

I think because of the extended time period that the DOJ did, we had a lot of time to plan exactly what resources we are going to need and how we are going to go forward with them. So we were prepared in our initial 100-day plan to react very quickly to the people needs, and to which people we need, and where they are going to be situated, and that is basically what is concluded in March.

(Operator instructions) We will go next to Al Kabili with Macquarie. Please go ahead. Al Kabili – Macquarie: Hi, good morning guys.

Good morning Al. Al Kabili – Macquarie: Henry, a question for you on Alcan as you spent a little time with the business, you mentioned the margins are lower than legacy Bemis, as you spent time with it, any thoughts on the differential there, and the opportunity to get those margins over time closer to legacy Bemis?

I think that is the target that we started with when we started looking at the acquisition. We are used to competing with Alcan day in and day out, and there is no reason that we cannot get the margins over time at Alcan to be at the same levels as Bemis has. Al Kabili – Macquarie: Okay and then any thoughts in terms of how long this process could take? Is it something that three or four years out or sooner, any thoughts on timing?

You know, most of the people that we have or most of our key customers have contracts, and those contracts can go from three to five years, some will go all the year, some will go into two, some will go in three. So it will have to work through the time period of those contracts.

We will take our next question from Chip Dillon with Credit Suisse. Please go ahead. James Armstrong – Credit Suisse: Good morning, it is James Armstrong for Chip.

Good morning James. James Armstrong – Credit Suisse: Given the size of the recent acquisition, could you see yourself doing another acquisition this year given the tax law changes that are likely in 2011?

We still stand by the things we talked about in the past. We would like to drill the Bemis Company half with acquisitions and half to organic growth. If there is an acquisition that comes along this year that makes good sense for Bemis that increases our technology gives good geographic reach or some customer relationship, we are prepared to act on that. James Armstrong – Credit Suisse: Okay and going forward, do you see yourself focused more on domestic growth or do you see yourselves growing internationally.

We see ourselves growing internationally, more so we have excellent operations in Brazil and with the gain in Mexico, I feel there is a good growth pattern in Latin America. We do not have much in Asia but we did pick up a small plant, which I think in the protein area will give some opportunities to grow. Our pharma and medical business has good growth opportunities on a global basis, and finally I am not going to give up our North America’s food business. I think the areas that have the technology will continue to grow for the Bemis Company.

We will take our next question from George Staphos with Bank of America. Please go ahead. Benjamin Wong – Bank of America: Hi, good morning, this is Benjamin Wong [ph] stepping in for George.

Good morning, Benjamin. Benjamin Wong – Bank of America: Good morning. We have seen some signs of pick up in the retail point of sales data for packaged food products. I was curious to know maybe what your customers are saying about the state of consumer. And then as a follow-up, are there any new film technologies that Bemis is particularly upbeat about? Thanks.

I think the technologies that we acquired from Alcan are along the retail area and retort is very important for us and we see that being very additive to our company. As far as what our customers are seeing, I really do not feel in a position to comment on that. Benjamin Wong – Bank of America: Okay, thanks.

We will take our next question from Joseph Naya with UBS. Please go ahead.

Good morning, Joseph. Joseph Naya – UBS: Good morning. I was wondering if you could comment on the combined company with Alcan, would you expect any shift or change in terms of the seasonal patterns you see through the year?

No, I do not. I think Alcan and Bemis are very good complementary companies, and you are not going to see much of a change in those patterns. Joseph Naya – UBS: Okay, am just curious in terms of your expectations for the full year, your guidance, what type of assumptions have you built in, in terms of resin and your ability to pass along price increases there?

Our escalated, de-escalated contracts will pass those raw material increases through. Divisionally, we have presidents and we have people and that is how we are organized and they know that in order for them, their targets, their pay, they have to pass those along because they cannot allow them to hit the bottom line. So we have a strong culture of being able to pass through those price increases and that has not changed and will not change. As far as what we see the raw materials, this is a guess, everybody has a guess on what is going to go on with raw materials but we have seen quite a run up in the first quarter here. We expect it to be flat for a while and maybe slightly drop later in the year.

We will take a follow up question from Tim Thein with Citigroup. Please go ahead. Tim Thein – Citigroup: Two parts here before I get cut off, in the press release you talked about stepped up competitive pressures, going back to the earlier question, I guess it is interesting as you saw cost inflation on the resin side taking place during the first quarter, do you think it was – and folks trying to price maybe ahead of that or maybe going back to the uncertainty with regards to the acquisition of Alcan, when they will actually come through, or is it another factor I guess in terms of what was behind that competitive pressure if in fact it was in North America which is an assumption on my part. And then second question, just going back to the question earlier about the customer state of mind, it looks to us anyway that some of the HPC and branded food manufacturers have been talking more openly about using new product launch and innovation to drive the topline as kind of a change from the last couple of years where they have been pushing hard on pricing. One, are you seeing that and I guess as a corollary to that, is there any way you kind of quantify the number of new products in say the first quarter versus a year ago or last quarter? So, competitive pressures and then innovation in new product launch.

You know, we really do not have a very good way of quantifying new innovative products. A lot of those products are just the normal flow where you increase the performance or you use alternative [ph] materials to control the pricing of those products or their slight modification. So a lot of it is generally just kind of go with time and you will see the product progress. They are not like major launches of platforms that you have. As far as competitive pressures, this is still a very fragmented business. There is a lot of competition out there. The competition is both here in North America. Competition comes from abroad, even with the combination of Bemis and Alcan, there is still a lot of companies out there, a lot of competitive pressures, and the more technologies in the product and the more you can add convenience to features, to shelf life, to food safety, the more you can protect your program. On the other hand, the more that it is like a bread bag that you cannot really change in those areas you have more competitive pressure. I do not see this being any different than at any other time.

(Operator instructions) And we will take a follow-up question from Sara Magers with Wells Fargo Securities. Please go ahead. Sara Magers – Wells Fargo Securities: Thank you. Just given your guidance for Q2 and then your guidance for 2010, and then your commentary regarding what your guess is regarding resin through the year, it just seems that the second-half of the year, you are expecting earnings to be flat to down from kind of a large number in Q2. Can you kind of help us understand what you are thinking or what you are thinking is going to happen in the second-half of the year, what is built into your assumptions in your guidance for the year?

Well Sara, as we look going forward in this remainder of the year, we certainly have a lot of challenges as we go through a lot of integration. There is going to be a lot of cost we have to deal with as we start to optimize our plans, we will start to figure out some of these causes, we may have to re-qualify certain kinds of customers. So we are going to have some costs there plus we have the headwind we are dealing with right now with raw materials although we expect that to flatten out as the year progresses, it takes time for us to catch up on those price increases and last year at this time, we were benefitting from falling raw material cost that benefitted our margins. This year we are going into the second-half of the year with rising prices that we have to pass it on to the customers over the next few months. So I think we have more headwinds this year than we had last year as we went forward. Sara Magers – Wells Fargo Securities: Okay, thank you.

We will take a follow-up question from Chris Manuel with KeyBanc Capital Markets. Please go ahead. Chris Manuel – KeyBanc Capital Markets: Good morning again. Just a couple of quick ones, first, as you were going through some volume numbers earlier Gene, I think you mentioned North America up 10%, Europe down 10%, you did not mention Brazil, I was kind of hoping you could a couple of things, one, give us a little bit of color on what was happening in South America, and two, were those numbers, when you are running through these volume numbers, I am assuming that is based on kind of core business without the acquisition stuff in there. So can you give us a little color on that as well as what is your expectation embedded into your guidance for the balance of the year and I guess I am kind of assuming that it stays at this low single digit trajectory but a little color there would be helpful. Thank you.

Yes, sure. In my commentary I referred to the Americas, so I was combining both South America and North America with approximately a 10% volume growth. Both continents had very good volume growth this year and they quite frankly in aggregate, they were about equal to each other in terms of volume growth as a percent. So those are very strong markets for us. The product mix down in Brazil, for example, is a little bit different than our product mix up here. They have more dry food items with things like mixes for drinks and things like that, we have more protein up here in North America. In Europe, Europe was down. The European economy seems to be struggling more than the North American economy. But it was down in markets that we have decided that we do not necessarily want to be a major participant at. So we have got some low-end margin business that we decided that we are not going to be very aggressive at in terms of seeking and so we have been pushing hard our higher value added margin product lines and de-emphasizing the lower margin product lines.

We will take a follow-up question from Mike Hamilton with RBC Capital. Please go ahead. Mike Hamilton – RBC Capital: Thanks. Given the really nice recovery in pressure sensitive in the first quarter, I was wondering if you could give your thoughts on trends and how much of that to the degree you can ascertain is some pipeline filling versus trend growth and kind of what you are seeing here near term?

You know our volumes in our roll label business here in North America picked up very nicely in the first quarter and I think that is going to continue. I do not think that was just a filler in the product line. The economy is a little better than it was a year ago and I think that will continue to grow through the rest of the year. We also have some good new products coming out in our pressure sensitive area and into some of the technical areas and leveraging with our medical business. So that is a good sign in North America. Europe continues to be slow. The economy there I think is slow. A lot of that business is really in the graphics area and it really has not jumped up for advertising of some of those points of display. I look for a little more growth out of North America and Europe to struggle a little bit. But although Europe was slow, the volume increased year over year. So that is a good sign in Europe for us that it is starting to increase but North America was much stronger. Mike Hamilton – RBC Capital: Thanks.

At this time, there are no further questions. Ms Miller, I will turn the conference back over to you for any closing comments. Melanie Miller Thank you very much, operator. We will be attending many investor relations investor meetings and investor conferences over the next eight weeks and we look forward to seeing you all soon. Have a good day.

Ladies and gentlemen, this will conclude today’s conference call. We thank you for your participation.