Good morning. My name is Susanne and I will be your conference operator today. At this time, I would like to welcome everyone to the Greif 2017 First Quarter Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question-and-answer session. [Operator Instructions]. Thank you. Matt Eichmann, you may begin your conference.

Thank you, Susanne. Good morning, everyone and welcome to the question-and-answer portion of Greif’s first quarter 2017 earnings conference call. Please take a moment to refer to the Q&A slide presentation we posted to our website this morning. Yesterday, after market closed, we posted our earnings slide presentation and prerecorded remarks on our most recent results to our website. I am now on slide 2. Responding to your questions this morning are Pete Watson, President and Chief Executive Officer; and Larry Hilsheimer, Executive Vice President and Chief Financial Officer. Please turn to slide 3. This morning’s question-and-answer session will contain forward-looking statements. Actual results or outcomes may differ materially from those that maybe expressed or implied. Please review our filings with the Securities and Exchange Commission for more information regarding the factors that could cause actual results to differ materially from these projections or expectations. During this question-and-answer session, certain non-GAAP financial measures may be discussed, including those that exclude the impacts of acquisitions and divestitures, special items such as restructuring charges and impairment charges, and acquisition-related costs. Reconciliation tables are included in our earnings release and the presentation posted on www.investor.greif.com yesterday. I would now like to turn the call over to Pete Watson, Greif’s President and Chief Executive Officer, for a few brief remarks.

Thank you Matt and good morning everyone. We appreciate your interest in Greif. Our company is committed to building teams to value delivery, delighting our customers through superior customer service excellence, and achieving transformational performance while we intend to deliver exceptional value to our customers and shareholders. We had a solid start to our fiscal 2017 and we would like to highlight several achievements from the quarter which include sales of $820.9 million to 6.4% improvement versus the prior year first quarter. The consolidated gross profit margins of 19.9%, a 30 basis point improvement year-over-year, and a result of continued execution discipline in our operations. Our operating profit before special items is $66.7 million, a nearly 15% improvement versus the prior year first quarter and we were reaffirming our Class A earnings per share before special items guidance range of $2.78 to $3.08 per share. While I'm pleased with the progress being made there are still significant opportunities that remain in each of our strategic business segments. We remain focused on unlocking additional value for our shareholders. We look forward to your questions today. Susanne we're ready for the first question.

Great, our first question comes from the line of George Staphos with Bank of America Merrill Lynch. Your line is open.

Thanks and good morning everybody. Appreciate the details Pete. Congratulations on the progress in the quarter. I guess on that last point that you left us with that you said there's still tremendous opportunity across the Greif businesses specific in RIPS, there's been certainly from the numbers a very good performance and progressions the last two years. What in your view is not doing well enough either from a product, region, or process standpoint in terms of RIPS's performance and what would be required either from a capital allocation standpoint to get it to that point or other process issues to get it to that point of better performance and what would be the financial implications from that as well from a return stand? Thank you.

Yeah, thanks George. So let me make it very clear especially regarding RIPS. We are very, very pleased with the performance of that team. And our two leaders Ole Rosgaard and Michael Cronin are doing exceptional jobs with their teams leading the business. Overall Greif if you look at our performance in the first quarter the gross margins was 19.9%. That takes into account the highly inflationary raw material environment which as you guys know has an impact of lowering the percentage of sales as it relates to gross margin. But also we have 330 basis points reduction in our paper packaging segment due to the price cost squeeze that we’re experiencing. So that is one opportunity and upside. When you look at specific in RIPS to your question, I think we're doing a really good job in disciplined price and product management. We are making significant improvements in our ability to provide higher levels of customer satisfaction. There are still upside there which I believe very strongly is a precursor to profitable growth. Inside our four walls and in our supply chain we have more opportunities. Some of the focus areas operationally regarding. Process stability and process reliability and process predictability, we have a very, very high focus and intensity on reducing unplanned downtime which as a matter of how do we improve our maintenance capabilities and improve our operating capabilities. When you reduce unplanned downtime you improve process stability which improves our quality capabilities but also unlocks more opportunities either to reduce cost or to improve your volume throughput. But, I think there's tremendous opportunities not only in RIPS but every business we have and we've got over 50 key projects around the world on sourcing supply chain initiatives that will continue to add thousands of opportunities for marginal gains that collectively add up to a lot of value. And then the second -- last area George is we've talked in the last year and a half quite a bit about underperforming operations that are either losing money or marginally profitable. We have less of those, we still have some of those that we're working on but, we pivoted to look at what is the potential that a business or a plant has in terms of earnings standards. And we've got some very good businesses that are earning good margins that have the ability to make more money. So, I think those are four or five areas that don't require significant capital that can help us improve our operating performance over time.

And the other George that I would add is we still have opportunities in our SG&A cost in some of our RIPS operations that will play out. And we also have opportunity to improve our margin performance in our IBC business as we build that out. In terms of financial implications I would say that they're generally built into the transformation commitments that we've provided to you previously. So it's upside from where we are at this quarter and we've also talked I think in the past about beyond our transformation commitments and the run rate basis coming out of this year. But there are other opportunities going forward in both that supply chain and the SG&A space as we complete our ERP system execution and those kinds of things.

Okay, Larry thanks. One more from me and I'll turn it over. Just maybe as an aside I assume more quantification on what the upside might look like will be -- will occur in June at your Analyst Day, you can just kind of affirm or deny that as you wish? And then on IBC's can you talk about how you are being able to get that type of growth recognizing it from a small base, but what things in particular or what levers are you pulling to get that? Thank you, I'll turn it over.

Yeah, so it is really two areas one, you recognize that we did have a small base and we are expanding our footprint in different regions around the world predominantly focusing on Europe, North America, and APAC and China. And the second is we do business with a significant amount of multinational companies that would like us to supply not only steel drums and fiber drums and plastic drums but IBC's as well. So our relationships and our abilities to serve in a trusting way to these global multinationals has expanded our reach that's led us into IBCs. And I think that's what you're going to see and you'll see going forward higher growth rate than our normal products because of those two reasons.

And George I just confirmed it yes, at Investor Day in June we will give more clarity around where we think the opportunities are beyond 2017.

Okay, very good. I will turn it over, thank you.

And our next question comes from the line of Ghansham Panjabi of Baird. Your line is open.

Hey guys, good morning, how are you?

Good morning.

So I guess just to clarify on the first quarter, your fiscal first quarter, did your volumes come in better than maybe your initial expectations, maybe you can share with us the volume cadence during the quarter and which regions if any surprised you?

Yes, so we -- obviously we've been growing and building on our ability to serve customers and I think that trajectory of our performance to serve our customers better is one demonstration of why our volumes are up. We also are seeing in certain regions in North America and the United States is a great example that demand is just improved in the last three or four months. So as we are seeing that improvement the volumes have increased. As part of the higher optimism in the U.S., around some of the pro Business Administration so, not entirely surprised. If you look at around the world how we see it and if you like I'll take it from my macro environments Ghansham. As you guys know our footprint we've experienced pretty high inflationary environments in all of our raw materials and other key input costs around the world. As I mentioned, the U.S. business conditions are much more healthier, there's much more overall optimism that we're seeing from our customers in the market, and that's a reflection of the volume. And in EMEA we are starting to see a slowly improving business environment. I think Larry and I feel more optimistic coming out of our quarterly business reviews for most of the regions in EMEA than we did three or four months ago. And that's consistent with some of the Euro's own manufacturing data that has been recently released. There is some potential disruptions to the political environments and elections in a few of the European countries as we get further down the road. But again we feel more optimistic in EMEA. In the APAC region we see a very consistent similar pattern to what we see in the past year. In our Latin America which is predominantly Brazil we…

Thanks Pete and just as a quick follow up, just sounded like for your fiscal 2Q Europe was a little bit better. Can you first off confirm that and also size that improvement relative to the volume numbers you reported in your fiscal 1Q? Thanks so much.

I'm sorry, could you repeat that Ghansham. I didn't quite get that.

Yes, so I think in your comments you were sort of referring to 2Q volumes, maybe the macro improving in Europe for your fiscal 2Q versus the volumes you delivered in the first quarter, can you sort of size the improvement, I know it is still very early in the quarter?

Yeah, so through the first quarter we saw improving volumes in most of EMEA. And I didn't comment on Q2 other than the fact that seeing our performance in January which is the last month of first quarter, we're very optimistic about the trajectory of some of our businesses there. So that was all relative to the improvement throughout Q1 so really in reference Q2. But the expectation if it continues is positive.

And Ghansham, our growth in -- as you could see on our price volume chart was pretty nominal increase in EMEA for Q1. We don't anticipate dramatic growth, it's just that if things are feeling better and we're getting the customers we want to serve there so, that's where our optimism is based.

Okay, thanks so much.

And your next question comes from the line of Chris Manuel of Wells Fargo, your line is open.

Good morning gentlemen and congratulations on a strong start to the year.

Thank you, Chris.

Wanted to kind of circle in on a couple topics, if you could talk a little bit about price cost and I am going to kind of try to go through it by different segments but if we start with the RIPS business at first, I think price was up for the whole segment a little north of 10%, where do you feel that yet in some of the commentary you had and in the text in your slides talked about mix or price cost still being perhaps a little bit behind. I know we've seen a lot of inflation. Could you maybe give us a sense of where you are today, how you've been managing the business, look historically you haven't always done a great job or sometimes it has taken a while but it seemingly didn't make an impact this time around in your margin, maybe have we not felt it yet or are you doing something different in the business now to better match materials with orders and protect yourself from price cost standpoint, what have you?

Yeah, now thanks Chris. So if you look at our RIPS business we have had in the last six months pretty high inflationary measures. The acceleration was higher in Europe and China although the U.S. experienced some similar issues. So, two things now so, as you guys know when we have really significant rapid change in the price of our raw materials particularly steel, our price adjustment mechanisms will lag at times when there's a really high increase in that. We had some of that in China. We had parts of that in Europe but I would say that what -- we are doing a much better job from a process standpoint of managing price in up markets and down markets because we have disciplined pricing management and processes. And our two leaders Ole Rosgaard and Michael Cronin it is very, very important to them. They're very highly involved and our focus again is on how do we create value and not volume and a big, big part of that is pricing discipline and I think that's a result of what you see in the first quarter.

Okay, and as a follow-up maybe for Larry I think, in -- I pulled it out of the press release but it sounded like perhaps you had bulked up a little in inventory to help with some of the buffers you saw this coming, will that reverse, did you anticipate having that reverse itself out later in the year, or perhaps working capital as you think about it on a year-over-year basis, I believe you were kind of flatter, anticipating a flat environment might in fact that be a modest use of capital or how are you thinking about that over the full year?

Thanks Chris, two things, yeah, our sourcing group did do some opportunistic buying to try to help manage that price increase impact. And I would say the majority of that was in North America and a little bit in EMEA. So, that did have a negative impact on working capital for the quarter. We do expect it will achieve some of the benefit of that. We did already get some but we would expect some of that benefit to play out. The relative to working capital, my comments in recorded remarks we want to hold ourselves and our teams to a very high standard on managing working capital and so we view that should be a source of cash. So as you're growing the business if we maintain our working capital flat we should obviously generate cash. And that's what we challenge our teams to do. Now some of the things obviously you can mitigate there are opportunistic buys but also taking advantage of prepaid discounts which would be not wise to pass up on just to extend your payables and manage your working capital particularly in this interest rate environment. So we do take advantage of those but we've challenged our teams that despite those factors that we expect us to manage our working capital to be flat. So that's what -- when I said not up to the standard that we hold ourselves, we're a little disappointed on the performance in the first quarter but remain committed to being flat for the year and our teams are challenged to do so and I believe they'll deliver. So, we just have to be better disciplined and make sure that we're collecting our receivables timely in particular.

Okay, that's helpful. Last question and kind of similar type question but Pete if I can flip gears to the paper business for a second, it seems like perhaps you're still a little bit behind in price cost there. We have had some substantial inflation in OCC. A) Do you have the full 40 put through from the October price increase as you sit here today. And then B) if we were to get all 50 of what's proposed and what you’ve announced going forward will the combination so A) where are you at with the process putting the first one through and then 2) if we get all the second will that get you back to where you want to be on cost price spread, could that be in a little bit better shape or how would you have to think about that?

Thanks, if you look at the first increase from October that was executed and blended in through our first quarter. So by the end of January we have had it fully implemented. The issue is that it got eroded by a large extent to the increase in OCC and some other input cost natural gas and diesel fuel which has seen significant increases. The increase for the $50 a ton that we have announced from March 15th, assuming OCC does not change which is probably not a good assumption, the gap between what we increase our container prices and subsequently converted prices through the system versus any offset in OCC will be what the result of the gain could be based on our announced increase.

Chris, maybe just to add a little bit more color. So, we -- I stated that we did not build into our guidance range that $50 increase. We have some but not all of the February increase in. I'd say there's another $14 or so that isn't blended into the forecast either on OCC. I'm sorry yes, OCC cost increase and as Pete said the OCC market is pretty fickle right now, so I did not feel comfortable modifying our guidance range at this point because I think that will play out over the next couple months. And so I'm comfortable with where our range is now for all of those different variables.

Okay, I mean I guess at the end of the day I'm looking at revenue up nicely but op profit down a little and I'm guessing that most of that is spread but as this all gets implemented through I'm guessing that your margin gets kind of restored?

If nothing changed for the rest of the year other than the announced OCC cost increase for February and the price increase that we have announced, we'd pick up another $13 million to $15 million.

Okay, on an annual basis, okay.

For the rest of this year.

For the rest of this year, okay, that’s helpful.

It would cut to be in this year's results, right.

Okay, thank you guys, good luck for the rest of the quarter.

Thanks Chris.

[Operator Instructions]. Your next question comes from the line of Adam Josephson of KeyBanc Capital Markets. Your line is open.

Hey Larry and Matt, good morning.

Hey Adam.

Good morning Adam.

Hey guys, Pete just one or two on OCC. Can you talk about why you think it spiked in recent months and what you would -- I appreciate how difficult it is to predict where OCC is going but can you at least talk about why you think there's been such a spike, is it more China, is it more e-commerce, is it the lack of collection throughout last year, I mean can you just help us with what's going on and consequently what you expect to happen in the next few months?

Yeah sure, well thanks Adam. So, I mean I see it as classic supply and demand scenario. Everybody knows that there's been a very high demand in our export markets and it has diverted a lot of the material of OCC to China because of the higher pricing levels. And particularly around the coastal regions and actually where we procure a lot of our OCC and then you've actually had very, very strong North American mill production across the whole system. But also specifically some of recycled mills due to the demand increase in the U.S. which we talked about in one of the earlier questions. You know you talk about generation in the e-commerce the effect that more product was shipped to homes therefore the question is did it get collected in the waste stream effectively. That trend and argument makes sense but I have not seen any fact or data to support or confirm it. The base -- in my view that's purely speculation. If you look at the future of OCC pricing and you said it best, I'd like to tell you beyond one month what might happen but we expect to see increases in OCC in the next quarter. But after that I can't speculate beyond that time frame what may or may not happen.

So you expect prices to go up at least in March it sounds like by I'm assuming 15 bucks or more?

I'm not going to comment on the amount of it. The trend continues, short-term I see an inflationary period, short-term.

And then just relatedly, obviously in your price increase announcement you cited higher raw material costs. I mean if we're in a panic buying phase on OCC and let's say OCC goes up in March but then it crashes shortly thereafter which OCC is as you know has been prone to do in years past, what would be the justification for the price increase at that point, if OCC goes right back down?

I'll just make comments as it relates to Greif and not industry wise but the biggest part of this increase for Greif is supply and demand and our system is very, very busy. So all the numbers, our mills had record operating volume, our CorrChoice sheet feeder system was up 16%. We do not see -- we see the same type of trajectory in February, part of that is due to the U.S. improved manufacturing economy but the other part is a lot to do with what we are doing in that business which is aligned with strategic partners and customers that are growing and winning in the markets they participate in. And it's our heavy growth in specialty products. So, again our system is very, very full of backlogs and our mills are strong. And so it is for us the supply and demand. The secondary is the inflationary environment but it's not all OCC. Our natural gas costs are up 66% versus year ago, the diesel fuel is up 29% versus year ago. So those are and quite frankly the demand that we're seeing in the market is one of the big drivers on why OCC is moving up because the mills need more OCC. So it's -- I mean it is classic supply and demand and those are the elements that make us very, very confident of our position on the price increase.

And Adam I would just add we're very committed to delivering appropriate return to our shareholders and we're going to do what we need to do to maintain our margin at the levels that are acceptable to us.

But to be clear it's not about cost inflation, it's supply demand right, I'm just trying to -- because I thought in your letter to customers you indicated it is all about rising input costs not supply demand?

No, I don’t have the letter in front of me but it's -- if you look at our system or volume its demand in our supply position in our system but that is part of what's causing an inflationary environment on OCC. But again we've had significant increase in natural gas and significant increase in diesel fuel but inflationary environment by itself is not the answer. You've got to have high supply or excuse me high demand and we have it. We’re very, very tight and we're very, very busy.

Thank you for that Pete and just two others, one on CAPEX, it's obviously been below D&A for several quarters now and I know you've guided to have 100 million of CAPEX which would obviously be -- remain well below D&A. Why do you think that's sustainable?

Adam, I would just say and obviously have not done good enough job being clear on this. We feel extremely comfortable that the range of capital spend that we've provided in a non-acquisitive time is absolutely sufficient. We, if you look back we had a number of periods where we were making substantial investments in our paper business, that we're outsized that they're influencing some of that. But we've also downsized our footprint in consolidated operations. We've eliminated some businesses through our divestitures and there's a bit in that amortization and depreciation that relates to acquisitions that those will pay a lot that aren't really indicative of normal CAPEX. So I would just reiterate, we feel very, very comfortable that the range that we've provided to you is more than adequate.

Okay. Thank you Larry and just one last one you guys obviously issued a press release last week in response to an article in USA Today that you talked about containing inaccuracy and omissions but it wasn't clear what you were referring to exactly. So can you just go into a little more detail about what you took exception to in that article and whether you expect any financial impact from the situation?

So we're not going to get in on this call in the very specifics other than to say that. The basis of those articles was obtained through a secret recording of our employees by a third party safety and environmental firm that we had hired with the intent to improve our processes and performance and safety in the environment. And some of that information was inaccurate and some that emphasized outdated or out of context information and really failed to recognize some -- and deemphasize some of the improvements made and the changes instituted there in the past several years. And the only other thing I'll say we've got an incredibly strong commitment and track record to health and safety in the environment. We achieved our lowest medical case rate history in Greif in 2016. We've got a very cooperative and transparent relationship with local state and federal officials in every geography around the world we work. With that said we are not perfect. We can always improve and we're committed to working with our people and regulatory agencies and communities to achieve our aspiration which is really zero accident and zero harm environment. In regard to financial potential risk I’ll allow Larry to comment on that Adam.

And obviously under GAAP accounting we obviously feel very, very comfortable with what we've got set aside for environmental and other issues. And have no reason to have concern about that, anything that we're aware of at this point in time.

Thanks a lot, I appreciate it.

Thanks Adam.

[Operator Instructions]. Your next question comes from the line of George Staphos of Bank of America Merrill Lynch. Your line is open.

Hi guys, I’ll ask another couple of questions and then go back in queue. I guess first of all what do you think about the potential for there to be some pre-buying in your volumes either in RIPS or Paper Board ahead of pricing. No company I've ever asked this question of ever feels that pre-buying is the biggest driver of volume but how do you manage against that, obviously an inflationary environment will only go with pre-buying?

Yeah, but I would just say that George is when you think of our product.

Understood

They don't generally have excess parking lots to store drums. So we don't believe there would be a significant piece of that. I will let Pete, Pete was going to comment also.

So to Larry's point, you've got space issues with our drums or IBCs and our container board and these guys certainly know that some companies do put container board out in parking lot that's not the optimal and you see less and less of that. But most of our customers in paper we serve them on one day lead time because they are serving their customers in a similar fashion. So they don't have the insight to their customer order book as much and it's a high service, high paced environment. So not naive to think some of that happens but that has nothing, no impact in my view to why our volumes are up.

Okay, appreciate the thoughts Pete. Can you talk at all about the realism in the SG&A to sales target of 10%, obviously there's been some headwinds in your ability to get there. But let us know, update us if you will in terms of why you think that's a still realistic target over time or what observations you may have on that target? And then maybe a quick one if I can throw it in terms of a general subject of cost, OCC I think you’re answering Chris's question, what do you have built in for OCC in your guidance? Thank you.

Thanks George. So a couple of things and you'll recall that in the past I've said that when we kicked off transformation at the time I had stated I thought the attainment of our margin objectives was going to be the more difficult. But then as time has passed and we've had the significant impacts of currency shifts as well as divestitures of more revenue than we probably contemplated at that time as we analyzed our units, I've shifted to say that the SG&A commitment is the more difficult one. That said we do still believe that we will achieve our transformation commitment on a run rate basis coming out of this year and that's going to be really difficult. We've got a lot of plans, it's going to take really strong execution, and we can't have the prizes occur. Now some of that may happen but I feel comfortable that we have a good plan to achieve that objective coming out of this year. If we should fall short of some, but we have more opportunity going forward as I've indicated in the past related to things that will be able to capitalize on relative to our ERP system implementation that will be completed in the latter half of 2018, leveraging that will give us more opportunity and I hope over the longer period of time 2018-2019 that we'd be able to challenge ourselves to get more down to 9.5% kind of range over time. We'll try to put more color and more specifics around that in June but I feel good. And commenting on this quarter we had a couple of things in there. We have some, we true up our incentives beginning second quarter used to be even the third but we're trying to get to the point where we can accelerate that and adjust every course. So we are a little high on incentive accruals and some of that had to do some special pay out related to better things than we accrued for at year end but nothing material. So it influenced things a little bit in this quarter and we also had some professional fees related to remediation of our material weaknesses that trailed in and caused a little bit of bump in expenses. But we expect all of that to mitigate over the year and get us back to where we expected to be for SG&A for this year. And then as I've said we do have plans to have us coming out of the year on a run rate basis, that 10% below commitment but it's going to take a lot of work.

And on the OCC in your guidance?

Oh I'm sorry, yeah what we've basically got built in right now just on pure OCC is about one $145 a ton across all of our space.

Thank you.

And your next question comes from the line of Dan Jacome of Sidoti. Your line is open.

Good morning, how are you? Can you hear me?

Yes absolutely, Dan how are you?

Great, I'm doing well appreciate the time. Just taking it back to working capital quick housekeeping question, more specifically on the DSOs, I think I was at Analyst Day last June and if my mind serves me correctly you're calling for a 30% improvement overtime, so where are you on that now, are you still targeting that and then specifically if you could can you provide some color on where do you guys stand on the kind of like the aging of the receivables and the electronic fund transfers, things that you guys thought at the time there was probably some low hanging fruit to go after, any update on that, thanks?

Yeah Dan, we do continue to make progress on that goal. We're not as far long as I would expect us to be relative to our first quarter results for the reasons I already mentioned. But we remain confident in our ability to achieve the objectives that we laid out last spring in terms of electronic funds transfer and the movement of accounts there. We are making good progress. I'd like to see that be accelerated from where we are and that's one of the focus areas that we have to help us achieve the flat or better for the year.

Okay, great. Looking forward to it, thanks.

Thank you Dan.

And your next question will be from the line of George Staphos of Bank of America Merrill Lynch. Your line is open.

Thanks. Some last ones from me, on flexibles gentlemen, if we can talk a little bit about achievement of your longer-term goals by 2017, recognizing that we'll get an update on this in a few months and the goals may or may not change, do you think that milestone if it's achieved makes flexibles an investible business from here and recognizing it's not a yes or no answer nor one that you can necessarily talk about on a live conference call, what are the things that you're thinking about in terms of why flexibles can become an even more and more important part of the portfolio, that's question number one? Question number two, I think in the last call there were a couple questions on your views on the administrations and your policies, potentially from border deductibility and I think the answer was it was too early then to comment. I was wondering if you have any update on that subject for us today?

You know let me, just -- I’ll take the second one first, comment on FPS and I think Pete will add a few things maybe on both but particularly on FPS. So with respect to the administration's proposals George still it is pretty much still too early to tell on specific benefits. I think as we indicated previously anything that would result in a reduction in the U.S. corporate tax rate is a positive factor for us. So we look forward to seeing that happen. If it does that would be beneficial to us. Relative to FPS we believe that we will achieve the transformation run rate commitments coming out of 2017. We're pleased, very pleased I'd say with the job that Hari and his team are doing on executing more rapidly the plan that we laid out at the beginning of their transformation process. And in terms of it being an investible business as with everything we always are assessing our portfolios and -- but I would say clearly it's improving performance. It has us viewing that in a more favorable light and yes, we will talk more specifically about it in June and what its longer term opportunities are. But they are obviously showing significant improvement on their margin mix management and we talked in the past that by 2020 timeframe we would expect their margins to be north of 20%. And they're making really nice progress on that and we want to see that continue and also improving their operating cost. So good progress, still monitoring it closely but encouraged by the progress. Pete, do you have anything to…

I mean we're very pleased with the pace of change going on and from a growth standpoint George we have pretty significant upside just in organic growth of our existing footprint. So, that we have to -- we have to demonstrate we have the ability to do that first. And then just a reference to some of the potential policies of administration, one big one is this border taxes and does that have an impact on our supply chain. We have very minimal exposure in our supply chain that would not be material risk to our company if some of those policies play out.

Pete, thanks for that. Larry just one quick one on the 2020 margin goal, I forget is that an EBITDA or is that an operating profit if you will margin goal. It sounds like to your comment that growth is really how you begin to make an assault on that target rate or maybe not, what are the larger buckets of items that would drive you towards that target? Thank you guys and good luck in the quarter.

Thank you George, thanks for the good luck wish but I'm sorry I was not clear enough. What I was really speaking to is gross margin on products sales where we expect it to be north of 20%. But there's obviously also opportunities to drive out further SG&A cost and drive that bottom line operating profit which is not any different than our other businesses. We expect that to be 10% or above when they get to that 2020 timeframe.

Thank you.

And there are no further questions at this time. I will turn the call back up to Matt Eichmann for his concluding remarks.

Thanks a lot Susanne. That concludes our call for today. The replay of this question-and-answer session will be available later on, on our website at www.investor.greif.com. We really appreciate your interest and participation this morning. Thanks a lot, have a good remainder to your day.

And this concludes today's conference call. You may now disconnect.