Good morning. My name is Carol and I will be your conference operator today. At this time, I would like to welcome everyone to the Greif 2017 Second 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] At this time, I would like to turn the call over to Matt Eichmann.

Thanks Carol. Good morning everyone. My name is Matt Eichmann, and I am the Vice President of Investor Relations and Corporate Communications at Greif. Thank you for taking the time to join us today. Joining me are Pete Watson, Greif’s President and Chief Executive Officer; and Larry Hilsheimer, Greif’s Executive Vice President and Chief Financial Officer. Following brief remarks, we will open the call for a question-and-answer session. In accordance with regulation of fair disclosure, I encourage you to ask any questions regarding issues that you consider material because are prohibited from discussing significant non-public items with you on an individual basis. Turning to Slide 2. As a reminder, during today’s call we will make forward-looking statements involving plans, expectations, and beliefs related to future events. Actual results could differ materially from those discussed. Additionally, we will be referencing certain non-GAAP financial measures and a reconciliation to the most directly comparable GAAP metrics is contained in the appendix of today’s presentation. And now, I turn the presentation over to Pete on Slide 3.

Thank you, Matt. Good morning everyone and welcome to our call. Our vision at Greif is an Industrial Packaging, be the best performing customer service company in the world. We are committed to building the best team aligned to value creation that delivers exceptional customer service with a relentless focus on disciplined operational execution. Our team with those focused areas will enable us to achieve our performance expectations. Please turn to Slide 4. We delivered solid second quarter results across our portfolio, despite a year-over-year price cost margin squeeze in our paper business, driven primarily by dramatic OCC cost increases. Our performance is a reflection of sustained operational improvement in our businesses around the world. Net sales for the second quarter were more than $887 million, a $47.8 million improvement versus the prior year and benefitted from strategic pricing decisions, higher index prices, and better operational execution. Our operating profit before special items grew to almost $85 million for a margin of 9.6%, a 20 basis point improvement year-over-year and close to our transformation run rate commitment. We generated $0.67 in Class A earnings per share before special items versus $0.47 in the prior year quarter. We are narrowing our full year fiscal 2017 Class A earnings per share guidance range to $2.84 and $3.02 per Class A share. We are also narrowing our free cash flow guidance range to $180 million to $200 million as a result of recently approvied capital expenditures. Although it was a stronger quarter, we still have much more room to improve. I’m disappointed in our performance in working capital management, and to be clear, our expectation is to generate cash from working capital. We are addressing this issue and Larry will comment on this in a moment. Please turn to Slide 5. We are…

Thank you, Pete, and hello everyone. Please turn to Slide 10 to review our second quarter financial highlights. Pete mentioned our sales improvement in his remarks. I will add that net sales for the second quarter, excluding the impact of divestitures and currency translation rose by more than 11% versus the prior year with revenue improvement seen in three of our four business segments. Higher sales where the results of improving customer service, strategic pricing decisions, higher index prices, and quality of market share improvement. Higher sales, better product mix management, and stronger operational execution drove margin expansion. Greif’s second quarter gross profit rose by 4.7%, and our operating profit before special items by roughly 7% versus the prior year. Notably the Rigid’s teams operating profit before special items rose by more than 11% through more disciplined operational execution at FPS contributed another quarter with results that were solidly in the block. Stronger operating results contributed to a bottom line improvement of 43% in Class A earnings per share before special items compared to the prior year. We were also held by helped by lower year-over-year interest expense, which reflects the refinancing activity we conducted late last year. I’ll also add that an uptick in our non-controlling interest adjustment indicates stronger performance in our JV operations, which is in-line with our portfolios overall improvement. Second quarter free cash flow totaled $41.2 million, roughly $28 million lower than the year ago quarter. We are disappointed with that result. Free cash flow declined as a result of higher working capital. Working capital was understandably higher by approximately $8 million in our Paper Packaging & Services business simply related to the annual inventory buildup prior to our may shut down just as it is done each year, but with substantially higher input cost.…

Thank you, Larry. Please turn to Slide 12. Greif delivered strong second quarter results with improved service levels, higher year-over-year sales and solid operating profit before special items. We are tracking towards our 2017 run rate commitments and the business is responding well to market challenges. The Greif team remains focused on executing our strategic priorities that will culminate in higher earnings and cash flow and ultimately will deliver greater value for our shareholders. Carol, you can now open the line for questions. Thank you.

Thank you. [Operator Instructions] And our first question this morning comes from Chris Manuel from Wells Fargo Securities. Please go ahead.

Good morning gentlemen. Just a couple of questions for you. If you could, maybe Pete, walk us through, I know you have a slide here on the back that runs through volumes, but it looks like RIPS kind of came in as I would have expected up a couple of points in line with what we had GDP, but some of the other regions were maybe a little bit different, particularly within the RIPS; EMEA down about 4%, APAC down 8%, if you could maybe talk about what you're seeing there? And then as well on the flexible side, the good half and better profitability are what we are looking for, but I know that volumes can be a little choppy but down 7%, maybe could you talk us through what you think a reasonable path is going forward? Thank you.

Thanks Chris for the questions. So, we’ve talked about our volumes in Rigid Industrial Packaging, I think we need to first start look at macro environment giving our views on the general economic conditions during our second quarter, a little bit about raw material impacts and then I will go region to region to give you a breakdown of our volumes and what happened. So if you look at general economic conditions, in the US manufacturing continues to grow, but it slowed - slower pace through the second quarter, and as you guys all see the ISM numbers, the index continues to reflect measures in the mid-50s, but it’s not as strong as it was, but we still feel good about the US economy and manufacturing. In Europe, we are continuing to be optimistic and I think that’s reflected in some of the Eurozone PMI stats, which also shows a favorable trend. China reflects steady growth. This economy continues to mature, not as robust as it was in past, but still I think a steady growth, and Latin America we think the broader markets within the region will improve as political turmoil subsides in Brazil, and while Argentina's economy is not great we have - we are optimistic about the improvement as a result of their President Macri's reforms being instituted. So if you look at the raw material input costs, as you know, last 6 to 8 months we have operated in the highly inflationary raw material environment for both steel and HDPE in the Rigid side. We believe that those global pricing is starting to peek and for the balance of the year, we expect the gradual downward pricing trend for both steel and HDPE in all the operating regions around the world. Due to that inflationary raw…

The only thing I would supplement on that Chris is that for FPS as Pete mentioned in his comments, we had on the top line $4 million impact that currency and then a $2.7 million related to a divested business, and relative to the 4 loop complex bag business Pete mentioned, we talked last quarter about this as well, but there is regulatory action going on in particularly baby formula market that has slowed the demand in that business for what we believe will be a short time.

Okay thank you for the very, very thorough answer. I just have one quick follow-up for Larry actually. Could you maybe help us a little bit with the non-controlling piece, I recognize your largest piece in that, that’s where the biggest deviation in our model was. I know the largest piece within those flexible’s that you pay out the other half, but what’s perhaps a reasonable run rate either on an annual basis or how you never have us think about that that we should model or considered on in that line?

I mean, I think Chris outside of FPS the rest of the joint ventures that we are in, we hope to have growing at the same rate or level that we do all the other businesses because they have been relatively good performers. I mean we have - our Mideast joint venture is a lot of places where you are required to have a resident partner. We’ve got a nice joint venture in Singapore, we’ve got a couple in the US, but it really comes down to FPS that is really driving that differential. So, it is all going to just be tied to our growth path on FPS, which we will be talking a lot more about at Investor Day.

Okay. That's helpful. And I’ll jump back in the queue, and thank you for the detailed answer Pete.

Thank you.

Our next question comes from George Staphos from Bank of America Merrill Lynch. Please go ahead next.

Hi everyone good morning. Thanks guys for all of the details. I had two general areas for questions and I will jump back in queue. I guess the first question, gentlemen if you could help us understand the guidance adjustment, the narrowing of the range and the puts and takes [indiscernible] the prior guidance did not include the effect of the containerboard price hike, which now looks like it’s being implemented and on top of it you now have a $3 per ton increase in medium alone. On the other hand we know that OCC has moved up. So, help us understand why guidance didn’t go up, is it just simply OCC and recovered paper and inflation offsetting the pricing? And then, I had some questions on cash flow, which I will leave after this first discussion.

Yes George thanks very much. Yes, it is primarily the combination of things that you mentioned. You are right. We indicated that we did not bake into - while we didn’t change our guidance range last time and we didn't bake in anything for the pricing increase, at the same time you know we had also indicated we had only baked in part of the OCC cost increase and we’ve obviously seen more of that. And so at the end of the day when we look at all of our businesses together, we feel very comfortable with bringing up the bottom end of the range and obviously lowering the top end of what we think we could achieve. We did incorporate in this week's OCC cost increase into our thinking for this range, as well as our expectation that we will be successful on this medium price increase.

Okay. So recognizing that you're fiscal year ends earlier than the other companies do you think that this round of pricing, net of OCC as we know it today, obviously it’s a wildcard looking out to the future will actually create net margin for you in fiscal 2018 versus fiscal 2017 or do you think it’s an net neutral at this juncture.

Well, if everything stayed stable for us it would clearly create more margin for us next year, but we agree with your depiction of the wildcard nature of it at this point in time.

Okay. If we switch gears to cash flow you mentioned that you’re quite confident that you can get back to your prior guidance range, what have been prior guidance, our working capital would be even for the year. You are obviously starting the year in a bit of a hole, you know with two quarters left why should investors be comfortable that you are confident about or in your confidence on getting back to even in working capital, it seems like it is a bit off a stretch target at this juncture?

Thanks for the question George. I mean, we obviously have a lot of confidence in our business right now. We have fixed a lot of deals, we have others that we continue to work on, but if you look at our trailing OPBSI margin for the past four quarters it’s 9.4%, 9.6% in the most recent quarter and we really have very good visibility on our inventories and I covered the two items that made up a significant portion of the year-over-year difference one related to our mill shutdown buildup, which was 8 million and 10 million of specific buy opportunities that we decided to execute on because of some opportunistic buying and we have talked previously that we really feel good about our - not our supply chain group, but - sourcing group. Our sourcing group does an excellent job, they presented that opportunity, we took advantage of it, but what we have also said is, we are not anywhere close to where we need to be on supply chain, but we have got a lot of efforts in front of us that will help us believe that we will continue to manage inventory better throughout the remainder of the year. And I would just point to, last year if you look back in our second half of the year last year, our free cash flow was $188 million in this last six months. We’re obviously predicting significantly better operating results in the second half of this year than last year. So this is not some big stretch for us to hit this number, and so with the plans we have on managing our working capital and our improved operational performance we have a ton of confidence, we would not have approved these extra projects had that not been the case, but as I said in December, we told the businesses that if there is a compelling project that they bring to us and demonstrate to us, we will consider it, and so that’s what occurred and that’s why we bump down the top end of the range a little bit.

Okay. My last one, I will turn it over. Larry when we think about CapEx, you increased your CapEx $5 million to $10 million as the range I think change for the rest of this year for the growth initiatives, can you talk at all recognizing more as this is probably coming at the end of the month with your analyst day, on where you are planning to invest? You know we have said a number of times companies when they switch from fixing margin to trying to grow have a lot more difficulty doing that, what are you spending, what’s the increase in spending for right now and should we assume more higher level of CapEx over the next couple of years given that initiative? Thank you. I’ll turn it over.

I think we will cover a lot of this, as you said in our investor day, but we previously indicated we expect on an ongoing basis our CapEx to be in the $100 million to $120 million range, I think it is still going to be that when we come up, but if we have compelling opportunities presented to us we would consider those kind of things when they are in our core businesses. And the projects that we have, we will go through in more detail, but if one involved a steel opportunity in Russia, we have a triple wall opportunity and another one in our IBC business and we will cover those in more detail at Investor Day, but those type of things we will continue to look at particularly as we have more and more confidence in our ability to generate cash and we obviously prefer to stay near adjacent or adjacent, I mean in our core businesses than going far field, but we will cover a lot more of that in Investor Day.

All right, thank you guys.

[Operator Instructions] And our next question comes from Ketan Mamtora from BMO Capital Markets. Please go ahead.

Good morning Pete, Larry.

Hi Kate.

Hi, how are you doing?

Good. First question. I want to come back to volumes one more time. My read, based on your comments, on the last quarter's earnings conference call was you were feeling quite positive about your European volumes. So first, correct me if I'm right on that. But relative to your expectations, where do you think your European volumes came in, in the fiscal second quarter? And if you can parse out for us, how much of the volume decline in steel drums you think, is Greif walking away from lower margin business versus just underlying weakness in demand.

Yes, I will start it off in our three biggest businesses and I will include PPS in this. So, PPS, our Rigid business in North America and our EMEA Rigid business, both - three businesses had regions where we had two less working days, production days than the prior quarter, that’s fairly unusual on a comparison basis, but if you look at EMEA specifically, a good part was our focus on selling value and making pricing product mix decision, but as I indicated earlier there is really three key points in EMEA, one was in Benelux, which has been a good performing business, the comparison year-over-year is dilutive because of - a year ago we had a reconditioning plan that went down, and we ran steel drums, new steel drums for our customers to replace it. So the comparison is a little skewed towards last year because that’s a short-term phenomena. We will have some carryover next quarter. If you look at Africa and the Middle East, there were some weaker demand issues in some of the Middle East markets, Saudi Arabia want an oil lube, and in Africa and South Africa that economy is not performing as well. Now that is a smaller business, so overall does not have a huge impact profitability-wise of the accompanying, but the third is rarely Germany and as I indicated before, we are not satisfied with our performance in Germany, and we are making pricing and product mix decisions and we are walking away from business that is not profitable, and in alignment to that we are consolidating and rightsizing our steel drum footprint in Germany. Outside of that in EMEA, we feel quite good about our position in the market's and the general health of that economy, and as I indicated our Eastern Europe operations and markets and including Russia are doing quite well. So, you’re always concerned when volume falls that much, but when you analyze what the issues where and I understand what our teams are doing in the leadership of Michael Cronin, I feel very confident in the team and by the way their operating profit performance in the first half was quite good and much better than a year ago, and that’s really what we are after, volume should be a vehicle to profit. We don't try to sell volume for volume sake and that’s what we intend to do. And if you go back to North America, I was very pleased with our North American Rigid business trajectory with two less days, they had positive numbers and feel very confident in Ole Rosgaard and what his team is doing to drive value to our customers and I think we're starting to see the benefit of that with the trajectory of their performance in their business.

Thank you. That's really helpful. Just one follow-up on Germany, how far along are you with that footprint optimization? Do you think it's early days or you think you are mostly done with whatever you had to do?

Right now we will be finished with our plant closure by the third quarter and then we're going to evaluate the market and our ability to meet customer's needs at the right levels and we will determine what - any next steps might be, but there is no specific plan to say, we're going to go one last plant. That would be a little rash to say at this point Ketan.

Okay. That's helpful. Just one question for Larry, so the pre-buying that's you all talked about on the working capital side, was that mostly all in OCC? Or was it more spread out?

Primarily steel.

Primarily steel. Okay.

Yes, as you had mentioned on and maybe walk confused that a little bit Ketan is that every year working up to our mill shut down for maintenance we build up inventory carriers through that period and we actually had slightly less tons of inventory at PPS this year, but because of the input cost of the raw materials that was an $8 million drag on cash and working capital for the quarter. So that that was the comment related to PPS.

Got you. And then if you can just remind us what was your OCC assumption last quarter and what have you all baked into your estimates for full year or back half, whatever is easy?

What was it Matt, last quarter?

It was similar [indiscernible].

It was 136 in the last quarter, I think it was 136 Ketan and 154 is what we’ve got it at now in our forecast for the remainder of the year.

And this 136 was for three quarters of 2017 at that point, I would imagine?

Correct.

Got you. That's very helpful I will turn it over. Good luck for the rest of the year.

Thank you.

Our next question comes from Justin Bergner from Gabelli & Company. Please go ahead.

Thank you. Good morning everyone.

Good morning Justin.

Just a couple of clarifying questions. To start out on the working capital side, you called out sort of two buckets of intentionally higher working capital, I am just trying to figure out was there sort of working capital build beyond those two items and if there was only those two items sort of why are you being self-critical if it was at the best interest of the business?

Good. Thank you, Justin. I mean we are trying to hold ourselves to standard to have working capital generate cash for us and we are not big acceptors of view that gee when raw material costs go up, at least for us right now that are working capital should go up with the exception of the two items I mentioned. The reason we are self-critical was that if you take out those two items I mentioned, you still have another $10 million increase, which we don't find acceptable and it has to do with the few units around the world not managing their working capital very well. When raw's go up your inventory cost goes up, but so does your, I mean while your payables should go up to offset what you got in receivables and we need to manage our inventory levels down, because we are not world-class in supply chain we carried too much inventory and that’s a focus area of ours. So that is why we are self critical. I mean, we accept better, but yes those two areas of intent where one the mills shutdown item that I mentioned, which is that’s going to happen because it’s just going to depend on what the cost is to have the appropriate tonnage going in, and the second was just opportunistic buys in the steel market essentially.

And those were sequential numbers or year-over-year numbers, the 8 and the 10?

Year-over-year.

Okay. Second question, shifting gears, I mean I guess going forward when you have things like working days and you know the effect of the plan being down last year and Europe being sort of a headwind to steel volumes, it would be good to - if the company is able to quantify them and their effect on volume going forward, I guess the question sort of I would have is, as I try and adjust for those two numbers in my mind, maybe I sort of end up closer to - if I adjust for those two factors, I sort of perhaps end up something closer to flat on the Rigid volumes, I mean how much volume are you willing to lose sort of annually relative to market as you emphasize value over volume? I mean how do you sort of think about that trade-off?

Justin that is a good question and we fully realized the value of volumes to fixed cost absorption. What we're trying to do and it’s a great confidence in our four business Presidents to understand the balance between the necessary levels of volume, but more importantly what type of value in each market process pool there is. So again, we look at how we can optimize profit, the right volume is one vehicle, and then to balance that you have to ensure that your fixed cost structure in your network is aligned to what we believe is the right potential on the quality of the market share we want. So academically it’s easy to say, when you operator a business specifically in regions that are very diverse, there is a lot of inputs to take into consideration. As we’re doing this, we are driving very aggressively operational cost out of our businesses to create a more competitive environment. We feel we have good cost structures, but we still have opportunities, but there are regions around the world where the markets are more competitive and some people are willing to take lower margins, and again we're just not going to chase volume per volume and we don't talk about market share as much as we talk about the quality of our market share and how we are winning segments and customers that value what we provide for them. So, we don't have an intended volume number in each market, but we expect to grow our operating profit and that’s a combination between our pricing, our volume, and our operational effectiveness and our footprint we develop. So it could be different in each region, but I hope that answers your question. So we're fully aware of fixed cost absorption and where volume plays that in the equation.

Yes that’s a very helpful perspective. I guess, maybe just a quick add-on to that question might be, sort of as we think about the global landscape, in what regions are you finding that it’s appropriate to trade more value for volume, I mean where are other volumes, where can we expect sort of the volumes to look less favorable going forward, as you make these trade-offs and where should we not expect that to occur?

Well we don't expect to have reduced volumes in any business we have. Again, volume is a vehicle for gross profit margin improvement. The only comment I would make in the Rigid side is right now because of the diversity of the competitor profile in APAC that is a much more competitive region now. As a result of the significant inflationary environment, we have seen for the last 6 to 8 months. So right now that’s a little more challenging market overall, not to say the others aren't challenging, but I’d say that’s a point of reference, but that doesn't mean we expect a loose volume or not achieve our profit objective. We have to figure out how to win and be successful in every market. It’s just right now that’s pretty highly competitive environment.

And is EMEA also a region where you are finding attractive on number of occasions to trade volume for value or is that more insulated like in North America?

I think every business and every market we are in, our focus is on how to create value for our customers and how do we get paid appropriately. So this strategy is similar across the world, it is just market conditions in times can allow you to make certain decisions based on performance objectives. So we're not targeting to be volume sensitive in any one area and to go back in history, part of the reason we had degradation in our operating profit and our margins in RIPS is we are very focused on driving market share and volume. And when you chase volume to fill up your plan that is a recipe for margin erosion and we’re just not going to go there. We're going to focus on how do we drive operating profit increase in every single business, in every single market we serve, and the answer might be a little different in each market, but that is our focus and I have a lot of confidence in our business Presidents to make the right decisions to drive our incremental improvements. So, we have returned favorable profit to our shareholders.

Okay, thank you.

Our next question comes from Ghansham Panjabi from Baird. Please go ahead.

Hi good morning. This is actually Matt Krueger sitting in for Ghansham. How are you doing today?

Great Matt.

How are you Matt?

Good, good, thanks. So first question, can you guys parse out how much of the pricing realized across your various business segments has to do with contractual pass-through mechanisms versus Greif’s initiatives to focus on margin expansion and push pricing?

Matt, we haven't analyzed what portion of the price increase is related to. We have shared historically that when you look at our pass-through contracts about 75% of our steel business in North America and 65% of our plastic business in North America has pass-through contracts. In EMEA that is about 50% in steel and very little in plastic, and in Asia-Pac it’s 70% of the business in steel and 50% in plastic.

Okay, that’s helpful. And then kind of moving onwards, how your customers and competitors reacted to the ongoing pricing initiatives in the market and then how often are you losing business from these actions and when do you expect this business loss issue could be behind you?

So, we don't typically comment on competitor or customer reactions publicly to anything we do. We are in the Rigid side in a highly inflationary market environment raw material. So every produce or packaging in steel or resin base has been increasing prices. So that is not a typical in our Rigid business, but again our job and our teams responsibility is to understand our customer’s needs and unmet needs and be relentless about serving those needs better than our competitors, and that’s what we focus on. If we lose business because we are not meeting our customer needs, shame on us. That’s why we’re measuring customer service index and that’s why we are doing the net promoter score, and again we are having great interaction with our customers to understand what we're doing well and do more of it, and what we aren't doing as well and what we have to do better. So that’s our focus, how do we serve those customers needs and how do we grow strategically with those customers that value what we do. I don't necessarily look at a level of business or volume that we are losing. I just think we need to win customers in every market we serve, they are the right customers for us and believe the value we bring them is good. So, I hope that answers your question well enough.

That's helpful. And then you briefly mentioned expanding your capital allocation options, what areas would you expect to pursue M&A opportunities and then could you break that out in terms of product type and geography please? Thanks.

Yes, we would really rather prefer to differ that to our investor day where we will go through our strategy on go forward and the approach we are taking.

Okay that’s helpful. That’s it from me. Thanks.

Thank you.

Our next question comes from Adam Josephson from KeyBanc. Please go ahead.

Good morning Pete, Larry, and Matt. Thanks for fitting me in. Just one on the medium increase that you just confirmed and I believe you said you included the benefits in your fiscal 2017 guidance, just remind us how many tons of medium you produce annually and tell us how quickly you expect this $30 ton increase to flow through to your results later this fiscal year and just relatedly, I don't think all the large producers have announced a medium increase. So, what gives you confidence that this increase will in fact succeed?

Yes, thanks Adam. So our mix of medium products within our total systems about 575,000 tons that is at 775,000 tons of our capacity currently, and as you know at semi-chem is the largest percent that we have recycled medium as the balance. The reason we are - made the announcement is several reasons. One, our demand in our system is very, very healthy. We see continued health in our backlog, and our customers. We also have seen as we have indicated earlier, incredibly high input cost increases, and again from our standpoint we view that that is a way to create - to bridge the gap as you know between liner and medium prices. It couple of years ago went violently the other way and we just feel in our system and with the dynamics in our market, we believe we should effectively get that $30 to make sure we return the right amount to our shareholders and perform like we expect to.

The flow through?

We expected it will takeover by the very beginning of September.

Okay and do you need - are you expecting the other producers to follow or is that irrelevant in terms of your thinking in terms of your ability to implement this?

We don't worry about our comment on what our customers are doing. We didn’t worry about the things that are impacting us and our customers and that’s what drives our decisions and behavior.

Sure. Just one on OCC, you mentioned OCC Pete just now and earlier, can you just opine on the impact that you think China and e-commerce are having on these obviously historically high domestic OCC prices and what you're more intermediate term outlook is for OCC because of China and/or e-commerce?

So to start with our domestic collection rate they are in the low 90%’s, I think the FPA just recently put that statistic out. So it is a high collection rate. E-commerce is growing very rapidly, one of the faster growing end-use segments in corrugated, and that does have an impact because the collection discipline in households around the country are not as efficient now that corrugated use is going to the households through e-commerce. So that absolutely has an impact. I couldn't tell you what that percentage impact is, but I think we all recognize that is a factor. Secondly, China is, as they always have been, if their demand continues they are going to pull a significant amount of OCC from the US because it’s the best, recycled fiber in the world, and that’s going to be an issue. So as long as China is pulling that and as long as there is tightness in terms of collection, I think it puts pressure on domestic OCC prices. That said, if you look at what we think will happen in the future and that’s always a best estimated guess and all I'm going to do is quote RISI who just yesterday or the day before put out their forecast and from the baseline, today with the recent June increase that baked in they said for the calendar year through 2017 there might be $10 to $15 a ton more increases in OCC that’s just their opinion. Now our situation, our calendar year as you know ends at the end of October, so potentially worst case it could be partial with that forecast, but I think forecasting that past 30 days can be pretty risky and not very directional, the history showed that.

Thanks Pete and just two others, just one on volume, I know this is along the lines of what Justin was asking, but if you are going to pursuing value over volume on a consistent basis and you call that APAC as an area in which the competition is particularly intense, how are we to assess your volume performance in future quarters, particularly in RIPS, I mean it was up 3% last quarter was down 2% this quarter - if it’s down in future quarters, I mean how do we know volume growth is good or bad because your volume could be up, but that could be a low margin business, your volume could be down, but you could say well we are pruning low margin business, so how are we to assess your volume performance in the future based on this value over volume strategy?

Yes, I think volume is a vehicle to profit, and price is a vehicle to profit and operational efficiencies is a vehicle to profit. So as we measure and engage ourselves, if we are improving our gross margin percentage and dollars, and we are increasing our operating profit then those three levers are acting together in a positive way. If our operating profit and our gross margin declined, than one of those three areas is destroying it. So again just because volume increases in the business is not reflective of are you increasing your profit. So we look at those three levers through our gross margin and through our operating profit and that is really reflective of the principles of the great business system. How do we commercially go to market, what’s our commercial decisions on pricing and margins, how are sourcing supply chain is integrated and how well efficient or operations execute from a cost side. So, I would judge us by margin and profit and when you look at RIPS I think we are doing a very good job at that, but like anything market and competitor pressures are always a big factor and we have to deal within those three levels.

Thanks Pete, and just one last one, it just for Larry on cash, I know George asked this earlier, but the midpoint of your guidance implies 215 million, call it free cash flow in the second half, I went back to 2009, you haven't generated that much cash in any second half in the last seven years. So, I mean why do you expect this year to be different than the past seven?

I did try to answer Justin's question, Adam, obviously our guidance for the remainder of the year shows significant improvement in our earnings for the second half of the year also, and if you look at what we have produced in cash flow last year, relative to earnings, so we had $188 million of free cash flow last year in the second half, okay. So we are talking about our operating profit going up significantly in the second half, we expect to turn that to cash. And so we believe very strongly that we will recover that and you’ve got, we obviously will earn out the PPS piece of this as we come out of the shutdown that 8 million is like nothing the pre-buys that we made on that steel is going to flow through. So, we have a high degree of confidence that we are going to hit this cash flow target.

Just one clarification, last year I think you said working cap you are expecting flat this year right, compared to, I think it was a 20 million source last year, was that right Larry?

That’s right.

And then taxes were 20 million benefit last year, right?

Yes and then we said restructuring about that same amount on cash on 20?

So in terms of tax in restructuring and working, this year versus last have 20 million less favorable working cap presumably tax will be less favorable, right because you're not going to get that 20 million benefit, right I assume?

Yes, although we are working on it currently.

And then the cash restructuring, Larry?

Yes, restructuring cash is about 20 million better than last year.

So that would offset the tax and then you are just left with working cap that is 20 million less favorable than last year. So…

Yes then you have the operating profit improvement and so it’s not a big stretch.

Okay. Thank you very much.

Yep.

And we are out of time, but we will take two final questions. And your second last question comes from the line of Daniel Jacome with Sidoti & Company. Your line is now open.

Hi good morning thanks for taking the time. Can you hear me?

Hi Dan.

Great. Most of my questions were answered, but can you just talk a little bit more, just kind of looking at the buckets at working capital, I know in the past you guys have talked about receivables being in the area of low hanging fruit and I understand the inventory issues in the quarter, but it looks like you didn't see much progress quarter-to-quarter on DSOs and then you are guiding to flattish working capital versus last year, so where are you on that as we start thinking about maybe the free cash flow profile for fiscal 2018.

I think our biggest opportunity remains in managing our inventory levels better through enhanced supply chain management, even down to fundamentals sales and operating performance process of just really having a better handle of what the demand of our customers are going to be and then matching our needs and not having safety stock inventory so to speak, because the payables piece, we are actually doing a fairly decent job of managing that and we’ve made improvement in our DSO, but we have more opportunity to improve there. Those two we would look at to offset and we got to drive improvement through inventory management.

Okay that makes sense. And then sorry to beat a dead horse. On OCC, what is the primary source that you are using for your internal forecast, is it kind of [indiscernible] we’re all using as well?

Yes, we use that and just based on what we are seeing in our markets and so that led us to the 154 is what we’ve got in our forecast.

Okay great. Thanks a lot.

And your final question comes from the line of George Staphos with Bank of America Merrill. Your line is now open.

Hi, two follow-on. Thank you for taking them. I will ask them in sequence. So first of all guys, to what degree do you think you have opportunity to further obtain value for the products and services that you put into the markets that definitely, what opportunity what horizon remains for further pricing, exclusive of pricing pass-through and then the second question you know back to APAC, is the phenomenon related to competition, is that a relatively intensified phenomenon say versus last quarter or a couple of quarters ago or obviously Asia has always been fragmented and always competitive, are you just referring to what’s been an ongoing challenge for you in that market, was there somewhat new development more recently? Thank you guys good luck in the quarter.

Thanks George.

From APAC, as you indicated it is more fragmented and very competitive, I think a highly volatile inflationary raw material market creates that. And I think that’s the same for any market, just has a little more intense in APAC right now. That will pass, but right now that’s the market we are living in. In terms of creating value there is more to value than just pricing. Again levers to drive profit and gross margin improvement is the customers and the market you chose to participate in that recognize and value what you do to them. And the second is, how well we integrate our operations, our cost in terms of driving out ways that customers aren't willing to pay. So, again creating gross margin expansion and creating operating profit margin is a combination of making the right business decisions in markets that involves pricing, it involves our sourcing supply chain execution, and it involves a big part, and I think we have a lot of runway in operational efficiencies and how well we run our plans and what our network looks like. So that’s an ongoing process that we use and the answers are little different in each business that we have, but those are the levers and we believe very strongly that we can continue to drive value to our customers and to our shareholders.

George, I will just supplement what Pete said, and we will talk more about this at Investor Day in detail. Repeating a bit what Pete said, I mean we continue to believe we have opportunity to drive margin enhancement through OpEx activities unplanned down time scrap management, some of the value chain stuff that I mentioned supply chain efforts all will help continue to give us margin opportunity. The other is, really going to the core of our purposes being the best in customer service and part of that means really knowing understanding your customer's needs and then delivering against those needs. So some of that is just the on-time delivery, good appearance, no-leaks, all that kind of stuff making it easy to do business with; the other has to do with innovation and listening to what their problems are and solving the problems through innovative solutions. And so we do believe that we have opportunity to do that better across all of our businesses, we do it exceptionally well in our paper business, right now which is what’s driving the specialty growth in that business.

Alright thanks. I’ll leave it to later in the month, have a good next few weeks.

Thanks George.

And this concludes the question-and-answer session. I will now turn the call back over to Matt.

Thanks a lot Carol. We appreciate everyone's time today. As alluded to, our Investor Day is held at the end of the month on June 28 at the New York Stock Exchange. If anyone has any questions there is details that are posted online@greif.com. Thank you and have a good remainder two week.

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