Amcor plc (AMCR) Q2 2010 Earnings Report, Transcript and Summary

Good day everyone, and welcome to the Bemis Second Quarter 2010 Earnings Release Conference Call. This call is being recorded. For opening remarks and introductions, I will now like to turn the call over to the Vice President and Treasurer of Bemis Company, Ms. Melanie Miller. Ms Miller, please go ahead.

Thank you, operator. Welcome to our second quarter 2010 conference call. Today is July 27th, 2010. A 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 Vice President and Chief Financial Officer, Scott Ullem. Today, Henry will begin with his comments on operations followed by Scott with comments on financial results, 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, costs and integration risks associated with business combinations, interest rate 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 31, 2009. Now I'll turn the call over to Henry Theisen.

Thank you and good morning, everyone. I’m pleased to report that after five months the integration of our Food Americas acquisition is progressing well and ahead of schedule. The cultural integration has been smooth. Our business teams are now completely integrated and we are benefiting from best practices shared across our global businesses. We have integrated the former Food Americas plants within the Bemis plant network using our focused factory strategy. Over time this will offer our business leaders opportunities to identify available capacity and rebalance production as needed to meet customer schedule. We expect to realize tangible cost savings associated with these efforts beginning in 2011. In addition to the integration of plant operations, administrative sales and marketing functions we are taking the opportunity to reorganize our research and development functions to promote accelerated commercialization of new technologies and global product development efforts. With the Food Americas acquisition we acquired a facility in Wisconsin that we now call the Bemis innovation center. In this location we're consolidating our R&D resources to create an improved model for developing innovative solutions for our core markets and expanding our polymer science expertise into new applications. This is an exciting change for Bemis and one that I’m confident will deliver value to our customers and our employees. Convenience has remained an important feature in packaging, even through the economic downturn. Consumers want to maintain the quality and convenience that they have grown accustomed to. Let me highlight two examples of product categories that demonstrate this trend. Single-serve beverages and quick preparation meals. Demand for individual single-serve coffee packages continue to grow as consumers opt for specialty coffee drink that they can make at home, at work and on the go. Powdered drink stick packs are also very popular in Latin America and have been gaining popularity in the United States. Our customers have been aggressively launching quick preparation meals with which consumers can prepare meal for their family in 10 minutes or less. These products cross over several grocery categories, including shelf-stable, refrigerated and frozen foods. Shelf-stable meals are gaining popularity as food companies introduce new products for busy families. Our new acquired retort technology offers an ideal solution for shelf-stable products like pasta and rice meals, baby food, and even pet food. Retort flexible packaging technology essentially offers the same food processing techniques used in canning in a flexible pouch, therefore offering a shelf-stable package to products that would normally require refrigeration. Sandwich kits are also gaining popularity with consumers. These kits include all of the ingredients necessary to make a quality deli-style sandwich at work or on the go. They are available at both grocery stores and convenience stores. We are seeing continuing growth in microwaveable frozen vegetables that incorporate convenience features. These packages have to self-vent at the appropriate time such that the vegetables are uniformly steamed. They can include plain vegetables or vegetables with sauces in a standup pouch format that billboard well in the upright freezer displaces. Packages that include sauces need our unique proprietary film to withstand the higher temperatures generated by the oils in the sauces. In addition to growth in these value-added packaging categories, we have noted an increase in sales volumes in candy and confectionary markets, multi-pack overwrap for beverages, health and hygiene markets, because these packages are less complex and incorporate a higher proportion of commodity resins. The market for these packages has been more competitive. Geographically, our operations in South America are growing nicely. We have the leading packaging manufacturer in that region of the world, and now we have added a leading position in pharmaceutical packaging for the Brazilian market. Recently we have begun to transfer ice film technology for protein packaging to the Brazilian markets with positive results. With the addition of the Food Americas business we now have the leading market position in Mexico, and substantially better facilities in that region. Unfortunately, the Mexican operations have been underperforming. Our management team has responded quickly with a dramatic reduction in specifications and focus on customer service and waste reduction. We are optimistic that these efforts will quickly improve the profitability of this region. In Europe volumes are lagging the rest of the world, although our mix of sales continues to move toward more value-added proprietary packaging. Our operating margins in Europe flexible packaging improved sequentially from first to second quarter, but are still behind the strong margins of 2009. Shifting gears to our pressure sensitive materials business, volumes improved in this business in all product lines and in both North America and Europe, substantially improving operating margins. Overall, it has a positive quarter for organic growth across most of our businesses. During the first quarter we noted that raw material costs were increasing. This continued through April when commodity resin costs began to decline. We would consider commodity resins to include certain grades of polyethylene and polypropylene. These costs appear to have stabilized as we enter the third quarter. The costs of specialty resins increased during the first quarter but stabilized during the second quarter hanging on to first quarter increases. We expect these costs to be relatively stable for the remainder of the year. Our business model incorporates mechanisms that allow us to pass along raw material changes in our selling prices of over one to six months. Creating time lag of 90 days. While the cost increases that we absorbed into inventory in the first quarter put modest pressure on second quarter operating profit. Selling prices adjusted quickly to moderate the impact, likewise the decrease in commodity resin costs during the second quarter is expected to offer only a modest benefit to third quarter operating profit. Finally by managing the integration of manufacturing footprint to support the consolidation of product specifications and emphasize our focused factory strategy, we identified opportunities to reduce our near term capital expenditure requirements while still supporting growth initiatives in key value added areas. For those who may not have seen it we actually issued two press releases this morning. One was at earnings release and the other was announcement that we received all necessary review and approval from the FDA and USDA that will allow us to sell our fresh case film product. This film was developed specifically for the case ready meat market which is one in which Bemis has not generally participated in the past. Our new film in a vacuum packaging format offers extended shelf life, lower package material content and added convenience features versus the current case ready format. Now that we have approval, we will restart the marketing process with our customers and expect to begin trials as early as the fourth quarter. If successful, meaningful sales of this product will likely occur toward the end of 2011. The interest in this product extends across meat customers around the globe and we look forward to reporting or progress to you in the coming quarters. Now I'll turn the call over to Scott Ullem for his comment on the financials.

Thanks, Henry. I'll begin my comments this morning by reviewing some top level financial highlights from the second quarter, and then explain some of the underlying drivers of our results. I will also provide our outlook for the balance of 2010. Consolidated sales for the second quarter were $1.27 billion, a 47% increase over last year's second quarter. Currency translation increased consolidated net sales by 2%. Adjusted earnings per share totaled $0.58 in the quarter. This reflects GAAP diluted earnings from continuing operations of $0.52 plus special charges of $0.06 which was the impact of acquisition related costs of purchase accounting. Please refer to the reconciliation page in our press release for more details. This is a 16% increase over last year's second quarter adjusted EPS and at the high end of our quarterly guidance of $0.53 to $0.58. Selling, general and administrative expenses increased $23 million over the second quarter of 2009, reflecting higher costs associated with running a bigger business. However, we are on pace to realize the announced year one cost savings synergies from the integration of Food Americas. Research and development expenses in the second quarter were $2.2 million higher, again reflecting higher expenses associated with the acquisition. Cash flow from operating activities was $126 million for the second quarter. Since working capital was negative in the first quarter, our total cash flow from operating activities for the first half was $124 million. Our debt to total capital ratio decreased to 43% at the end of June. Commercial paper outstanding declined to $329 million at the end of June. Subsequent to the end of the second quarter, we further reduced commercial paper with the $82 million of cash proceeds we received from the sale of our discontinued operations on July 13th. As of June 30th, our total debt outstanding was $1.475 billion of which about 75% was in fixed rate bonds with weighted average interest rate of 5.9%. Our commercial paper borrowing rate is currently below 40 basis points annually, which brought our blended interest rate at quarter end to 4.6%. Now let’s turn to some of the underlying drivers of our financial performance in the second quarter. Sales in our largest segment, flexible packaging increased 54% from the second quarter of 2009. Of this increase about 45% was driven by the Food Americas acquisition and to a much lesser extent our June 2009 acquisition of the rigid packaging business in South America. In addition, currency translation increased net sales by almost 3%. While about 6% of our flexible packaging sales originated from our European operations where the currency weakened over the past 12 months, nearly 20% of our segment sales came from our operations in South America where we transact in Brazilian reals, a currency that strengthened by nearly 18% compared to the second quarter of 2009. Excluding the impact of acquisitions, and currency fluctuations, the remaining 6% organic increase in flexible packaging net sales was driven by increased unit volumes, an increased sales of value-added products. When we analyzed that 6% organic growth rate by region, the results are as follows: North American flexible packaging sales grew over 7%, driven by packaging sales for a broad array of markets including processed meat, confectionary, frozen foods, pet products, coffee, liquids, multi-pack, lawn and garden, medical device, health and hygiene, and display films. In our Latin American operations, we continued to experience double-digit sales growth. Increased sales across nearly every market category provides further evidence that the Latin American market is expanding and offers exciting growth opportunities for our proprietary films structures. In Europe we saw increased sales of packaging for cheese products and medical device markets, although total sales in this region decreased by about 10% from last year's levels due to lower volumes and other packaging markets. Adjusted flexible packaging operating profit as a percentage of net sales was 11.8% this quarter compared to 14% for the second quarter of 2009. Last year's higher margins reflected benefits from declining raw material costs ahead of selling price adjustments. In addition, this year's second quarter results reflected the lower margin profile of the Food Americas business we acquired. We are in the early days of executing our longer-term integration plans to improve Bemis's post-acquisition consolidated operating margins. In the first quarter, we provided a breakout for the financial results of Food Americas. Now, that we are well down the path of integrating the acquisition, it is no longer meaningful to provide any kind of breakout. This is because we have rebalanced production among our plants as well as absorbed all of the costs associated with supporting the acquired operations into Bemis's administrative structure. Shifting to our pressure sensitive materials business segment, net sales and operating profit improved as customer demand returned to product lines that had been hard hit by soft economic conditions during 2009. Excluding the 2.3% negative impact from the quarter-over-quarter weakening of the euro, net sales for this segment increased about 10%. Sales volume increased across all product lines including double-digit increases in value-added graphic and technical product lines. This increased volume level combined with improved sales mix, also helped drive operating profit from 2.2% of sales in the second quarter of 2009, to 8.2% this quarter. Turning to our outlook for the third quarter and total year, we expect adjusted diluted earnings per share for the third quarter to be in the range of 55 to $0.60. This range reflects several expectations. The third quarter is historically slightly weaker than our seasonally strong second quarter. We expect little change in the cost savings synergies run rate from the second quarter to third quarter, and any benefit from the impact of resin costs decreases during the second quarter will be modest. For the total year of 2010, we expect adjusted diluted earnings per share to be in the range of $2.10 to $2.20, up from our guidance in April of 2 to 2.15. Consistent with our previous guidance this excludes the impact of financing costs for the first two months of 2010 before the Food Americas acquisition was completed, which represented approximately $0.06 per share. In addition, guidance does not reflect the impact of severance charges, acquisition related professional fees, or purchase accounting adjustments for inventory and order backlog. For the second half of the year, cash from operations is expected to strengthen but we now believe working capital may be a use of cash for 2010. Capital expenditures for the second quarter including the new facilities, were slightly lower than the second quarter of 2009, we are revising our CapEx guidance downward to around $140 million for the year, a decline from our original guidance of 160 to $170 million. This lower CapEx forecast reflects our ongoing commitment to invest in projects that support growth initiatives, while at the same time recognizing the attractive existing condition and capacity of our now expanded production platform. In addition, our world-class manufacturing initiatives are delivering excellent results without meaningful incremental capital requirements. We are continuing to examine where we want to make investments across this asset base and long-term we believe CapEx will be more closely aligned with depreciation and amortization. But for the foreseeable future, we expect CapEx to be lower than D&A, which this year should be in the range of $210 million. In addition to capital expenditures, debt pay down and regular dividend payments, we expect to use about 50 to $55 million of our free cash flow in the second half of 2010, to repurchase the minority shares of our Brazilian subsidiary, Dixie Toga, a transaction we announced on May 14th. It is important to note there is still no assurance the tender offer will be completed successfully, and if it is it likely will be late enough in the year that any impact to full-year 2010 EPS will be insignificant. Now, operator, we would like to open the line. Henry, Melanie, and I will be pleased to answer questions. Ghansham Panjabi – Baird: Hey, guys. Good morning.

Good morning Ghansham. Ghansham Panjabi – Baird: Hey, just a clarification question, if you could, your original $2 or 2.15 or EPS guidance for the full year, I assume that didn't include any impact from the divested operations. Is that fair?

That's correct. There was no discontinued operations in that -- in that estimate. Ghansham Panjabi – Baird: Okay. So -- and looks like discounted operations is based on 2Q run rate. Is it going to be about $0.06 on an annual basis?

Well, just to be clear, there was no discontinued operations in, in our income statement in our 10-Q, and none of the guidance that we have put out there is included in discontinued operations. So it’s really stripped out of all the numbers we talked about. Ghansham Panjabi – Baird: Okay. Good. And just Henry, in terms of the market opportunity for fresh case, you know obviously the approval process has been very slow, is the market opportunity that you saw initially for this business in '07 still there, and can you also update on what’s happened in the market over the past three years, thank you.

Gosh, I believe it is still there. The major retailers still continue to sell fresh meat prepackaged by the slaughterhouses. This will give an opportunity that they can brand it if they wish to brand it. If it is expanding in the marketplace. And I think we have an excellent opportunity in the segment of the business that we really don't participate in currently. Operator: We'll take our next question from Sara Magers with Wells Fargo. Sara Magers – Wells Fargo: Good morning.

Good morning, Sara. Sara Magers – Wells Fargo: Good morning. I was impressed with the reduction in SG&A in the quarter and I'm wondering what is the details behind that and if it’s sustainable at all. And then I guess my follow up to that would be with the increased marketing you're expecting with your new case-ready products, do you expect this to go back up?

Sure. Why don't I tackle the first one, which is the reduction in SG&A. SG&A actually grew in the second quarter over second quarter of 2009, with the addition of the – of the Food Americas acquisition. And so we're still – we're still integrating operations and we're still getting benefit from the – from the rationalization of our structure. But we've seen -- we've realized most of the benefits that we originally set out to realize in SG&A in year one of the acquisition.

I'll take the second question on case-ready. As you know, we sell into the protein markets, so we have the marketing, the R&D, the development, the sales people. And in addition, this product is not one that is going to require a lot of CapEx for us to initiate. So I do not foresee SG&A going up as a result of our case-ready efforts. Operator: We will take our next question from Mark Wilde with Deutsche Bank Mark Wilde – Deutsche Bank.: Good morning.

Good morning, Mark. Mark Wilde – Deutsche Bank.: Henry I wonder if you could talk just a little bit about pressure sensitive. Your sales were up nicely there, especially if we adjust for FX, and also your margins are good. Can you give us some sense of, you know, what you think is left in terms of kind of incremental sales recovery? And also, you know, can you get that operating margin above you know, 8, 8.5%, in that business?

You know we're very happy with the improvement of our pressure-sensitive business over last year. Last year we had to take some very difficult steps to react to how the economy was behaving especially with our roll label business. We have been able to maintain that cost structure as we’re seeing our sales go up, so that’s driving some margin improvement. We've also taken a look at our business over the last three or four years, and drove our business from roll label where we want to maintain what we have, but we drove our business more into the graphics area and into the technical markets and we're starting to see some sales growth as a result of those activities. As far as your last question, I think we can get up above 8.5%, but it’s not a double-digit return business, it’s a business that’s going to be in that 8 to 10%. Operator: We'll take the next question with Chris Manuel from KeyBanc Capital. Christopher Manuel – KeyBanc Capital: Good morning.

Good morning. Christopher Manuel – KeyBanc Capital: A couple of questions for you. First, I want to go back to what Ghansham asked you about earlier a little bit about case-ready, the new offering that you have there. Can you go back and refresh us, where is the market today? I believe it was up 500ish million market several years back. What do look at the addressable market is that primarily a North American market? How do you anticipate attacking that market, et cetera?

Well, I think it's really a global market. You know, the technology that we have, that would allow you to use vacuum packaging which really tenderizes the meet and can extends the shelf life would be applicable in all of the regions of the world where we do business. The largest market here in North America and we looked at this few years ago, we thought it was approximately a $400 million market. I wouldn't have any intelligence to say it's any different. But we're very excited about it. It is something that we don't get a chance to participate in, so it has given us a lot of good growth opportunity of ourselves. And we think we will deliver some features for the consumer that will be as far as convenience, the ability to freeze it without repackaging it, the extended shelf life, easy open, all of those types of convenience features. I think this will be an excellent product for our customers and the consumers. Christopher Manuel – KeyBanc Capital: Okay. And then follow-up question I had, as you went through some of the different segments, it sounded like – I think Scott you gave some numbers North America up 7%. Is that an organic volume number?

It wouldn't be all volume. Its volume combined with mix. Christopher Manuel – KeyBanc Capital: Okay. So I missed the ones for South America and Europe. Do you have what those were, by chance? Henry Theisen Yeah, South America was up double-digit total, sales excluding currency, up double-digit. And Europe was actually down roughly 10%, excluding currency. But in Europe there were – we still saw some mix improvement, but the more commodity type of items we sell in Europe were down across the board. Christopher Manuel – KeyBanc Capital: Okay. Thank you. Operator: We'll take our next question from Al Kabili with McGuire Investments. Al Kabili – McGuire Investments: Hi good morning, thanks. Question on resin. If maybe you could give us a little more color on – maybe help us quantify a bit more on what the impact to resin would have been in this quarter and what you're looking for as a benefit in the third quarter?

I think that we're going to have a modest benefit in the third quarter. Likewise, the effect of the resin dropping in the second quarter was very modest. The more commodity resins had a price run-up in the first quarter, which we passed through, through our escalated/de-escalators. And the time of the resin dropping in the second quarter, a lot of that is going to be benefit will be negated by passing those through the escalated/de-escalator clauses of our contracts. So I think we had a very modest effect on resins for the second quarter and I predict a very modest effect on that for the third quarter. Al Kabili – McGuire Investments: Okay. And by modest are we talking well under $10 million of operating profit impact?

You know we really don't have that detail at this point. It’s not something that we're prepared to offer. Al Kabili – McGuire Investments: Okay. Thank you. Operator: We'll take our next question from Claudia Hueston with JPMorgan.

Good morning, Claudia. Claudia Hueston – JPMorgan: Hi. How are you?

Great, yourself? Claudia Hueston – JPMorgan: I'm good, thank you. Just two questions. Maybe just one quick follow-up on resins just following the Alcan deal. How should we be thinking about your mix between specialty and commodity resins?

Claudia, right now our resin mix is about in terms of volume, a little bit more than 50% in polyethylene and polypropylene. In terms of cost, it may be 50-50, or maybe a little bit more in dollar terms for the specialty resins that we buy. Claudia Hueston – JPMorgan: Okay.

Claudia, I think that the resins that Alcan Food Americas purchased would lie very over the resins that we would purchase and it would be very similar. Claudia Hueston – JPMorgan: Okay. That’s really helpful. Thank you. And then just one question just on Western Europe, volumes there, obviously a little bit weak still. But I was just curious if you could comment on how your facilities are running. I know you've spent a lot of time over the last couple of years, really trying to improve the operating efficiencies within your European system. How do you feel that those assets are running at this point?

We did put a lot of effort into improving the assets that we have in our Western European business, and most of those businesses we acquired as parts of a different acquisition. And we transferred -- we worked hard at transfer technologies to make value added products. Those areas that we have invested in, where we transferred our ice technologies, our polyester technologies, are shrink bag technologies, those assets are performing very well, and the usage of those assets is pretty strong. Claudia Hueston – JPMorgan: Okay. Great. Thanks so much. Operator: We'll take our next question from Chip Dillon with Credit Suisse.

Good morning, Chip. James Armstrong – Credit Suisse: Good morning, this is James Armstrong for Chip. I just had a question regarding your future growth strategy. Would you be willing to make further acquisitions in the near future potentially as early as 2011?

Absolutely. We still are very acquisitive. We've got a good balance sheet. We're looking for acquisitions that can add technology. We look for acquisitions that can grow our geography or add new customers. So, we are very acquisitive and interested in acquiring businesses that will fit our growth strategy.

Okay. I’ll just add near term again we're in the process right now of buying in the minority shares of our Brazilian subsidiary, which will be a 50 or $55 million use of cash we think between now and year end. James Armstrong – Credit Suisse: Okay. And following up, is there any particular region or specialty that you would be most interested in acquiring?

I don't think we have any specific area. We'd be open to just about anything. James Armstrong – Credit Suisse: Okay. Thank you very much. Operator: We'll take our next question from Mike Hamilton with Royal Bank of Canada.

Good morning, Mike. Michael Hamilton – Royal Bank of Canada: Good morning and congratulations.

Thank you. Michael Hamilton – Royal Bank of Canada: Would like your thoughts on Europe. Obviously you've got a relatively new management team that's done a nice job. I just wanted to know how they're addressing the weakness, if we ex out meat and cheese, how much of your sense of what's going on is customer destocking, and how much of it is market weakness, if that is definable? And how much of it is their willingness to lose commodity share in a tough environment?

In Western Europe, it's a small segment, a small reasonable segment, small segment of our flexible packaging business. And our management team over there is concentrating on the specialty products, the value-added products where they can offer solutions for our customers and in the end the consumer, such things as easy-open, such things as receivable product lines. And that's what they're concentrating on. And we are a distant –- I don't know if we're number two, but we're distant to Amcor Alcan propositions. So, we're trying to grow in those niche areas where we can add value. Michael Hamilton – Royal Bank of Canada: Is the feeling destocking there, or some willingness to lose market share off the commodity portion?

We're going to run our businesses to return an operating profit and an EPS number for our shareholders, and if those businesses get so competitive that we can't seem to do that, then we'll move on. Michael Hamilton – Royal Bank of Canada: Thanks. And if I could sneak in one final one. R&D is kind of second quarter what we see, what we get or will there be some cost reduction out of the integration?

It’s probably a good proxy for the run rate that we'll have at least going forward where we were up $2.2 million second quarter 2010 over 2009. And I would emphasize what Henry mentioned about our Bemis Innovation Center which is a very important cornerstone of our growth strategy to offer our flexible packaging customer differentiable value added products and that comes from our – now enhanced R&D group. Operator: We’ll take our next question from Tim Thain with Citigroup.

Good morning, Tim. David Raso – Citigroup: Hi. It’s actually David Raso for Tim. Good morning to you all.

Good morning. David Raso – Citigroup: Hi, I had a question about your capital expenditure guidance. Last couple of years the spending obviously been a lot more, and you mentioned that you expected it to tick back up to mass depreciation. How long a guide path do you think it will take before depreciation and CapEx come together? And given that you've spent combined, I guess, well over 200 million, is the lower level in the future, will that be enough to get all the spending that your plans need?

Over the last – this will be the third year in a row that we've had CapEx spending substantially below D&A in our Bemis units. And previous to that we saw some opportunities to add technology and to add capacity where needed, which we did. We filled up a lot of that capacity. We have been very good in our world class manufacturing in driving productivity, reducing waste, getting substantially more output out of the equipment we have. With the acquisition of Alcan, we’re finding that they also have assets which are similar to ours, and as you start to focus these are all the assets throughout the new Bemis, and we improved the productivity we focused those assets we get more off of those assets. So I think we could have a couple years here of reduced CapEx spending below D&A. Now, the FreshCase and a few other things we have in our R&D repertoire break out, we will be happy to increase that spending for those new products. David Raso – Citigroup: Okay. Thank you. Operator: We'll take our next question from George Staphos with Banc of America Merrill Lynch.

Good morning, George. George Staphos – Banc of America Merrill Lynch: Hi, guys. Good morning. I jumped on the call late. I apologize if you discussed any of this previously. With – I guess first question I had with your customer base in food and generally consumer products, are you seeing an improvement, continued improvement in their willingness to launch new products, say relative to what you have seen, Henry, a year ago. And how do you expect that to play out within your mix in products in next couple of quarters and into 2011?

You know, I think our customers see packaging as a way to differentiate themselves on the marketplace. And I really don't believe that in the recession like we went through here or year-to-year, you see a big change in our customers' willingness to introduce new packages and new products and new formats. I just don't see it because the package is so important in selling the product and whether a consumer picks product A or product B. So I think they'll keep continuing up coming out with new products. We saw all the things. We mentioned some of them with stick packs. We saw some of them in the coffee retail market. Everybody likes the convenience. They like the quality. And I just don't see a new product introduction slowing down. George Staphos – Banc of America Merrill Lynch: Okay. Would that argue, then, that your margins should more or less, if we could extract Alcan from this discussion for a minute, which I know is different difficult to do, but if you were looking at a same-store basis, if you will, will that suggest margins more or less have reached the level we should expect for the future, i.e., new products are more or less churning at the same level or do you think that overtime as you bring out new products in line with what your customers have been projecting that you have chance to continue to see a margining up of the flexible business?

You know we intend to see a margining up of the flexible business. And I think it’s going to be hard to really pick out which ones come from new products and which comes from uplifting the acquisitions sales and the acquisition margins that we acquired here. George Staphos – Banc of America Merrill Lynch: Okay. I'll turn it over and I'll be back, thanks. Operator: We'll take a follow-up question from Mark Wilde with Deutsche Bank. Mark Wilde – Deutsche Bank: Yeah. Henry, I wonder if you could talk a little bit about the Mexican business. I know it’s not a big business, but it seems like it has struggled here for the last several years, and wondered if you have kind of a sense of when you can really get that business turned around and running at an optimal level?

Well, I think we're going to start to see improvements in our Mexican business in the fourth quarter and through 2011. That’s when I think we're going to start to see the improvements. They will probably take us into 2012 to really get it running right. We bought a small Mexican business a number of years ago, which just kind of got us in the market. The acquisition of Mexico or the acquisition of Food Americas Alcan gave us substantial increase in footprint and in assets that we have in Mexico. It is performing poorer than we thought it would be when we made the acquisition, but our management teams have dug in. We’ve made some changes in the management staff. We have made some changes in our product mix and I think we're going to start to see some of those benefits flowing through the fourth quarter of this year. Mark Wilde – Deutsche Bank: Okay. And If I could as just a follow-on. Could you just, one more time on the resin. Given the drop that we had in the second quarter, it just sounds like we're not going to see much -- you're not assuming much benefit in the third quarter and it’s not like it’s going to lag into the fourth quarter, that we're just really not going to see a whole lot of benefit from that. Can you explain why that is the case?

Well, first off, our resin buy is about half specialty resins and about half polyethylene or commodity grade resins. The specialty resins things like nylon polyesters, [indiscernible] polymers, went up in price, they stayed at those levels. They're not increasing, but they didn't drop. So to begin with, you have half or slightly more than half of your raw materials for the Bemis Company, not changing in the second half of the year. So you're really down to some commodity resins and the timing of when those fell, versus the timing of when we passed those through to our customers, were almost on top of each other, so we're not going to see a large lag because of the timing of when that occurred. Mark Wilde – Deutsche Bank: Okay. Operator: We'll take our next question from Al Kabili with Macquarie Investments. Al Kabili – Macquarie Investments: Hi, thanks. I just wanted to follow-up on cost synergies and relative to the 30 million of that you're expecting this year, can you give an update of how you're tracking towards that 30 million this year, how much you've realized thus far. And then as you look out to next year and you spent more time with the acquisition, are you – are you feeling more confident on the 60 million annual run rate goal, is there upside to that? Thanks.

Sure. In terms of this year's synergy performance, we have realized or taken action on the SG&A opportunities and plans that we had set out to do right out of the box. And so we are on pace right now to achieve the SG&A cost savings for year one. We are just starting to see the second component of our year one cost saving plan which is raw material advantages. And so we expect those will start to layer in more in more in Q3 and Q4, so that by the end of 2010, we will have realized that $30 million cost saving synergy number that we had set out to achieve. In terms of 2011, we still feel very good about the plans that we have in place to extract cost savings as we turn our attention to our plant network, and I think our views about the dollar impact have not changed, which is that between the year-end 2010, where we will have realized about $30 million in cost saving synergies, and 2011, where we will be on a run rate of about $60 million in cost saving synergies it would be a pretty steady progression from that 30 to 60 during the course of 2011. So it is not perfectly predictable, but our views about that path and the actions that we're taking to achieve those synergies are the same as they have been for the past several months. Operator: Take another follow-up question from George Staphos with Bank of America Merrill Lynch. George Staphos – Bank of America Merrill Lynch: Thanks. Hi, guys. It sounds like you've gotten a couple of questions on resin previous in the call. I guess one question I would have, in past quarters you have been able to at least for a period of time, benefit from the rate of change in your input costs relative to as they – as those costs are translated into selling prices and passed through. Was there something that made that gap narrower in this particular quarter or is it just a -- if you will, aberrational time effect -- timing effect that, normally wouldn't occur on a going-forward basis?

If you look at what happened with commodity prices, they really continued to rise through about April, and then took a real nose-dive through the second part of April into May. And then by the end of the third quarter -- second quarter, excuse me, they had really come back to almost the same levels where the commodity resin prices were at the beginning of the year. And so it is tough to pin down exactly the impact interquarter and intraquarter. But as we look out over the course of the balance of 2010, where we're basically flat from the beginning of the year to midway to the year, our expectations for commodity prices are really more of a stable environment for the next two quarters. George Staphos – Bank of America Merrill Lynch: Okay. But presumably, let's say that we do have an environment, hypothetically, where a resin prices would continue to decline, guys, you would imagine you would imagine you would get some marginal benefit over again for the more traditional timing effects that would occur. Would that be fair?

That would be fair, George. If resin materials continue to fall -- in the past where we've seen benefits. We've seen that all the resins, whether they were specialty or polyethylene would fall and we are not seeing that with specialty. George Staphos – Bank of America Merrill Lynch: Understand. I will turn it over and be back. Thanks. Operator: We'll take our next question from Chip Dillon with Credit Suisse. Chip Dillon – Credit Suisse.: Yes, thank you. And I apologize, if this has been touched on, but as you look at the at the Alcan Americas acquisition and you're obviously seeing the synergies you expected, I know there was discussion early in the process of technology, transfer and acquisition that you could take from that business or at least what you have in the existing business and apply it to that business that you acquired and that would obviously impact 2011 and above and beyond. Are you seeing any surprises in terms of what you've discovered in that business, or in how you can transfer what you've done here in the U.S. into some of the other geographies?

I think we're seeing some very pleasant surprises as our R&D Group works with the Food Americas R&D group, and that's one of the reasons when we saw some of the subtleties that they have and the way they approach things and you mirror with ours, we have substantial growth opportunities coming out of our R&D Group in the future, and that's why we're going forward and we’re excited about putting the R&D organizations together in what we call the Bemis innovation center and take advantage of those synergies between the development groups.

One of the things we realized after we closed the acquisition, was that there is actually a very robust pipeline of new technology, innovative ideas, that was held in the R&D group at Food Americas that really had not yet been commercialized. And so one of the things we're doing is working on combining that pipeline of R&D ideas, and we're putting together plans to really commercialize what we've got – what we've got in inventory. The other thing I've noted is that there are very – there's very robust opportunity to transfer ideas across regions, so it’s not just great ideas coming out of North America being exported to South America, but there's a lot of strong technology and product platform in South America that we're going to use to sell into other regions of the world. Operator: We'll take our neck question from George Staphos with Banc of America/Merrill Lynch. George Staphos – Banc of America/Merrill Lynch: Hi, guys, you might have covered it before, but in putting the R&D centers or capabilities together, do you envision, then, over time moving your R&D folks within legacy Bemis out to the old, Neenah facility I shouldn't say old but the Neenah facility of Food Americas?

That's what we're doing, George. We're taking the facility here in Neenah that Food Americas had and which was an excellent R&D facility and we’re going to be moving the legacy R&D Bemis people in there with the LTN people so we start to have better exchanges of technologies. George Staphos – Banc of America/Merrill Lynch: When that facility was part of, you know, American Can and American National Can, were they solely flexible packaging that they were doing there or were there other capabilities, you know, whether it be around, you know, metal packaging and others that have since been moved out and could be a cost save for you?

You know, I can only comment there on when we took over, it really was flexible packaging. There wasn't really any Can or other things that the old American Can had there. George Staphos – Banc of America/Merrill Lynch: Okay. The last question and then I'll turn it over and have a good quarter. Should we expect corporate expense from the current I guess $25 million level to, you know, over time trend somewhat lower as you continue to work on optimizing R&D and work on SG&A, as you're pleased with the progress you've made thus far?

Right, well, there is some overlap between corporate expense that you saw on the table on our financial statements, and SG&A in the income statement along with other income and expense. So those numbers will be moving around. I think overall, as I mentioned before, we feel good about the cost reduction actions that we've taken as part of our integration plan in 2010. And so you'll see an accumulation of those cost savings over time. As we identify, we're looking for other opportunities, but we haven't quantified any work that we can share at this stage. George Staphos – Banc of America/Merrill Lynch: All right. Thank you very much, guys.

Thank you. Operator: We'll take our next question from Dan Khoshaba with KSA Capital. Daniel Khoshaba – KSA Capital: Hi, good morning.

Good morning, Dan. Daniel Khoshaba – KSA Capital: Could you share with us where your cost savings as a result of the Alcan acquisition, are going to come from in various categories. For instance, how much would you expect to come from areas inside cost of goods sold versus SG&A and R&D? And then lastly in that corporate line?

Yeah, if you look at the synergies we expect for 2010 about let's say about a third of it – third of that $30 million of synergies we expect to realize would be focused on just savings on raw materials, just because we're able to buy raw materials better, as a combined larger company. And take advantage of what was -- what has been negotiated by the separate companies before this year. And then looking at the other two-thirds, I'm doing rough numbers, but roughly a third would be related to the benefit plan costs that were left with Rio Tinto. And in that case, you’re really looking at a number that’s going to be spread between cost of sales and SG&A depending if they are direct labor costs versus SG&A type of labor costs. So I can't – I don't really have any ability to split that out, but you could say... Daniel Khoshaba – KSA Capital: Okay. So some portion of that is sold in SG&A.

Exactly. That’s going to be – and then the rest is all SG&A cost administrative overlap, things that I would say is generally in SG&A. Daniel Khoshaba – KSA Capital: So fairly evenly, kind of split among different expense categories.

Roughly, yes. Daniel Khoshaba – KSA Capital: Yeah. As a question, I mean, I don't know if you could look at it this way, but if you looked at Alcan's business, the business you acquired on a standalone basis were their margins, their flexible margins up versus a year ago? And can you give us any color on that?

We can’t, at this point, we integrated the businesses so quickly that we really lost the ability to derive any meaningful trends in call it the legacy Food Americas business versus the legacy Bemis business. Daniel Khoshaba – KSA Capital: Yeah.

And so we really can't break out one versus the other. What we can say is clearly our operating margin percentages are down year-over-year. And that’s really the focus of our attention over the next couple of years, which is how do we improve the overall consolidated operating margin of Bemis company to higher levels. And we feel really good about the plants we have in place and started executing to do that. Daniel Khoshaba – KSA Capital: Okay. Thank you. Operator: (Operator Instructions). Ms. Miller it appears we have no further questions. At this time, I would like to turn the conference back over to you, and the presenters for any additional or closing comments.