Good morning. My name is James, and I will be your conference operator today. At this time, I would like to welcome everyone to the Greif, Incorporated Fourth Quarter and Fiscal 2018 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. And after the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would like to turn the call over to your host Matt Eichmann. Please go ahead.

Thank you, James, and good morning, everyone. Welcome to Greif's fourth quarter and fiscal 2018 earnings conference call. Joining us on the call today are Pete Watson, Greif's President and Chief Executive Officer; and Larry Hilsheimer, Greif's Chief Financial Officer. Pete and Larry are available to answer questions at the end of today's call. In accordance with the Regulation Fair Disclosure, we encourage you to ask questions regarding issues that you consider material because we are prohibited from discussing significant non-public items with you on an individual basis. Please limit yourself to one question and one follow-up before returning to the queue. Please turn 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 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, and good morning, everyone. I'll begin today's call by providing a summary level review of our quarter, and then Larry Hilsheimer, our CFO will discuss our financial results and our financial 2019 outlook. After these prepared remarks, we'll conduct a question-and-answer period. So starting with key highlights. Net sales for the fourth quarter were $988 million, up 2% versus the prior year. Net sales for fiscal 2018 were $3.9 billion, up 6.5% versus the prior year. Fourth quarter sales benefited from higher selling prices, strategic pricing decisions, and stronger volumes of our Paper Packaging and Flexible Products segment. Operating profit before special items grew to roughly $113 million in Q4 and $392 million in fiscal 2018, up 27% and 17% respectively versus the prior year. Fourth quarter operating profit before special items benefited mainly from strong results in Paper Packaging, Flexible Products & Services, and RIPS North America as well as a year-over-year reduction in our consolidated SG&A expense. Fourth quarter and fiscal 2018 Class A earnings per share before special items grew to $1.08 per share and $3.53 per share, up 10% and 20% respectively versus the prior year. Fourth quarter earnings grew due to improved year-over-year profitability and lower below-the-line items. Our fiscal year earnings met the low-end of our stated guidance range despite the emergence of market’s softer sell-through in the fourth quarter in Western Europe and China and FX headwinds. Larry will discuss the financials in greater detail in a moment. I would like to now review our business performance by segment, and please turn to Slide 4. The Rigid Industrial Packaging segment delivered fourth quarter results in line with previous year, but lower than our expectations. RIPS was negatively impacted by continued raw material inflation and timing of contractual pass-throughs, soft demand…

Thank you, Pete. Good morning, everyone. Please turn to Slide 7 to review our fourth quarter financial results. From a big picture perspective, we delivered solid results. Despite significant external headwinds and cost inflation in many parts of the business, we recorded substantial improvement to our year-over-year operating profit before special items and earnings results. We finished fiscal 2018 by delivering $3.53 of Class A earnings per share before special items. While at the low-end of our latest range, keep in mind that our initial expectation at the start of the year called for earnings between $3.25 and $3.55 per share and that we overcame an $0.08 per share headwind from a pension return assumption change early this year. Also, we overcame a roughly $0.05 per share headwind in Q4 from currency when you back out the half of FPS’s FX tailwind that we didn't get to keep or don't get to keep as a joint venture partner. In addition, a key element of our guidance range analysis is taxes. Fourth quarter tax expense was $0.05 per share, more than our midpoint based on where we earned our income, a tax variability we have previously discussed. We are very pleased with our free cash flow results, which I'll discuss in a moment. Onto the quarter specifics, at a consolidated level, fourth quarter net sales, excluding foreign exchange were 5.9% higher year-over-year due to index price changes, strategic pricing decisions and volume improvements in the Paper Packaging and Flexible segments. Fourth quarter consolidated gross profit was up 12% to the year-ago quarter due to the stronger gross profit performance in our Paper Packaging and Flexible Products & Services segments partially offset by higher manufacturing and transportation costs across the business. Fourth quarter SG&A expense was down $2.7 million versus the prior…

Thank you, Larry, and please turn to Slide 12. In closing, Greif possesses a well-diversified global portfolio. Our customer-centric philosophy keeps us close to the customer and helps provide us added insights to markets. As we continue to sharpen our focus on operating fundamentals, we've been able to drive stronger financial performance and our balance sheet is very healthy. As we move into fiscal 2019, we'll remain focused on executing our strategic priorities that will create greater value for our customers and our shareholders. Thank you for participating this morning and we really appreciate your interest in Greif. James, if you could please open the line for questions.

[Operator Instructions] Your first question comes from the line of Adam Josephson from KeyBanc. Go ahead, please. Your line is open.

Pete and Larry, good morning. Thanks for taking my questions.

Yes. Good morning, Adam.

Good morning, Pete. Just one on the Rigid volume situation. Can you just go through what happened in the quarter in terms of the timing of the demand weakness, particularly in Western Europe and China, and then just talk about what you've seen thus far in your January quarter? In other words, have you seen any improvement or worsening of those demand patterns in Western Europe and China, and for that matter, elsewhere?

Yes, sure will. And when you look at our RIPS volumes and our performance, there's some really well-performing parts of the world and some areas that are challenged, so I'll talk about both. And when you start in the well-performing parts of the world, our IBC volume globally is up 22%, and as you guys are aware, that's a strong strategic emphasis for us and we're seeing good growth and expect further growth next year. North America is experiencing very healthy volumes and similar to the demand patterns we see in our other North America businesses. Steel drum volume in North America was up 2.7%, our plastic drum business was up 5.7%, and IBCs were up 26%. Eastern Europe is also a good business for us and we see a healthy environment in Q4. Steel was up 2.3%. A big part of that business is Russia, and we've talked about investments in that region. The Middle East is growing for us at this point, and on a full-year basis, Southeast Asia is up 2.5%. So there are exceptions and we've mentioned them, but in China we’ve talked about that hypercompetitive environment, and we're making pricing margin decisions in that business. We are also seeing softness in the macro demand in China. Now, it is growing, but it's all relative to the pace of growth there. And in China, in response to that softness, we recently closed one of our three steel drum plants in eastern China. We talked about that the last quarter, and we've completed that. We think that will be a benefit to our overall performance going forward. Western Europe, we talked about a weakening manufacturing activity in Q4, and we saw that coming out of the vacation period in August. The big part of that which is…

Peter, I really appreciate that. And just on the EPS guidance for 2019, you're guiding to fairly healthy growth and I'm just trying to better understand that a bit. So you had, as you pointed out, a record year in your containerboard business. Do you expect that to get any better from already record levels? And then with the Rigid business, do you expect that to be up next year, just given these difficult volume/demand trends that you're seeing? I'm just trying to understand where exactly you're expecting the earnings growth to come from next year? Thank you.

Adam, thanks for the question. Yes, it's a combination of things. We do expect PPS, our Paper segment to improve further next year. We'll have the full – we believe we will have the full-year benefit of the price changes that went through only partially this year and we always look for that team to continue to deliver higher growth in our specialty product segments. We'll get some more pop out of our MultiCorr capital investment that we made, and just continuous improvement activities that they tend to deliver for us, which has resulted in us getting up to the tonnage that we talked about producing. So we do expect lift in PPS. At the same time, we've got a situation in our RIPS business where currency is going to continue to be a big challenge for RIPS. Based on our budgeted currency expectations, we anticipate $10 million headwind on the bottom line between Turkey and Russia. And then you have a wildcard in Argentina, that’s a combination of hyperinflation and FX impact that is hard to quantify what, but it's a major headwind going into next year. Despite that, we are anticipating that our RIPS business will improve and overcome those. A lot of that has to do with our CapEx program. We had explained to all of you that we had significant equipment delays from our providers that impacted the startup of a number of our capital investments in both steel and IBCs. As a matter of fact, that delay ended up being a drag of about $700,000 relative to – or I mean at $2.1 million relative to what we anticipated having for 2018. Looking out to 2019, that flipped to a $13 million improvement in our operational performance. And then when you add the conicals business…

Your next question comes from the line of Ghansham Panjabi from R. W. Baird. Go ahead, please. Your line is open.

Hi, everyone. Good morning.

Hi, Ghansham. How are you?

Good. Thank you, Pete. I'll hope all is well with you. Just understanding that the macro has been choppier recently in the global basis, volumes for the RIPS segment was nonetheless down every single quarter in fiscal year 2018, period that also included faster global growth, sort of looking back, Pete. Why do you think that was? And as you look ahead to fiscal year 2019, what volume assumptions you have baked in as relates to guidance specific to RIPS on a regional basis?

Yes. Thanks for the question, Ghansham. So looking back, when you look at strategically what we're trying to do is in our core businesses in steel and plastic. We're making decisions on the margin over volume. And I think some of that weakness is related to those decisions we're making a discrete regions in the world to improve our overall performance. We certainly had some drags in the Ag segment as we've highlighted that seasonally is very large and then recently just see some of the economic segments around the world that are a little weaker. So if I look at our – maybe little broader global outlook and then I'll talk about our assumptions volumes for next year. The general sentiment of our global customers is there flat on uncertainty surrounding the outlook for growth. We're certainly seeing global growth in certain markets slower and we indicated that in Western Europe and China and parts of Latin America. One factor that everybody talks about or the trade tariffs and its causing a reshuffling of the trade flows that have been normal, and there's evidence of customer's production migration to try to offset encounter some of those tariff regulations. As a result, what we're seeing too is customers are managing their inventory is much more tightly, which causes some volatility month-to-month and that's normal in this type of environment. If you look at segments, as we view the end use segments that we try to keep a close eye on. One is auto production and construction that certainly has an impact to some of our end use customer application than lube and coatings and additives. So it will be really closely watching those continually. Ag chem production is another indicator for us is it has the ability to maybe foreshadow…

Okay. That’s super helpful. And just – yes.

Ghansham, one other thing I'd add relative to the part of your question on the underperformance in 2018, just because it wasn't mentioned in Pete's comment. Obviously, we were fighting the increasing cost of steel in most of our markets, but particularly in North America for all of 2018. And I've given these figures in the past and Pete mentioned percentage changes during his opening comments. But just to give you some perspective, in North America, our selling price per steel drum in Q4 of 2018 was $3.90 more than a year ago and our cost of raw material was $2.98 more. So we've obviously increased. Now, some of that is non-raw material price increases we've tried to do, but some of it is the pass-through mechanisms starting to finally catch up. When I've quoted some of these in earlier quarters, they were not in this way. In EMEA, the delta on price, quarter-over-quarter is $0.53. I mean, year-over-year quarters. And the raw material cost is up $0.47. So again, positive in that regard, and similar numbers in the plastic drums. We are lagging in Europe on plastic drums relative to raw material cost. But steel is the big driver that we've been chasing his year, so I just wanted to mention those to you.

Okay. And I guess just as a follow-up, the U.S. has been carrying the RIPS segment the past few quarters from a volume standpoint. There seems to a broad-based destocking in chemicals in several categories in the region. Are you seeing that in any meaningful way thus far in your fiscal year first quarter, either through November or thus far into December, specific to the U.S.? I know, Pete, you commented on Western Europe and Asia, but what about the U.S.? Thanks so much.

Yes. So in the U.S., we see some of that in the Gulf Coast and part of that, too, is production going into bulk shipments as opposed to small packaging. I think that relates to some of the export challenges and some of the disruptions on trade flows. But at this point, in the East and Midwest of the U.S., we continue to see fairly consistent volumes in our RIPS business in North America. And other than some of the disruption in our chemical customers' operations, whether it's trade related or maybe transportation related, we've not seen significant destocking yet. But on a broader basis, not only for North America, customers are managing their inventories very tightly and I mentioned that earlier. And with that, you just have volatility month-to-month in volumes in certain regions or with certain customers. I don't know if that helps answer that or not.

Your next question comes from the line of Gabe Hajde from Wells Fargo Securities. Go ahead, please. Your line is open.

Good morning, gentlemen.

Hey, Gabe.

Good morning, Gabe.

Larry, I was hoping that maybe you can expand a little bit on the $45 million comment in working capital and then even sort of what cropped up this year, sort of, I guess, between when you reported, and now the $24 million FX impact that seemed to negatively impact working capital. If you could parse out maybe for us if there's any of that carry-forward into fiscal 2019. It seems like a pretty big number.

Yes. So with respect to the $45 million, it's the increased use of working capital as we grow operations. As you add all of these plants that we're doing and these CapEx, you end up increasing the need of working capital to run the business. And so, as we grow the top line and invest in these operations, you naturally have a use of working capital in growing. We actually, though, from the metrics that we really concentrate on, in days in working capital and percentage of sales of working capital, we actually are showing improvement again next year in those two categories. Relative to the roughly $24 million impact in the fourth quarter, currency rates have been really volatile. And when we did our guidance for cash flow for the fourth quarter, we went through our processes. And so when we saw the end results of our cash flow, I asked the team to really do a deep dive into every factor because it just did not make any sense to me. What ultimately we found out was that the currency impacts on working capital, when you get down to an account-by-account level, the various levels of it and some other current accounts, end up being a $24 million hit in the fourth quarter. And so it was a drag that was something that had nothing to do with mismanagement. It had everything to do just with the currency impacts to our working capital. So from a budgetary standpoint, we budget at current FX rates so you don't have anything projected in our guidance for that for next year. But also, just to give you an assessment, I said, well, what happened in the prior year? Well, it turned out last year was a $15 million tailwind. Now, the calculation of this stuff is extremely complex and detailed down to the account level so we don't try to do it on – actually, we've never looked at it before. We just came into it because of what didn't appear to be a rational result to me when we first got our cash flow assessment.

Okay. Thanks. And then I guess when I look at domestic steel prices, it looks like they're trending down. I'm assuming the answer is no but just if you can give us a flavor. Should that continue, does your guidance embed any sort of over-recovery, if you will, that might occur in the middle of the fiscal year from the lag in pass-through? If that makes sense.

Yes. No, as I went through those numbers, in terms of selling price per units and those kind of things, Gabe, what it tells us is that the PAMs are beginning to work sort of at the latter part of the fourth quarter. They go off of September steel costs and so we got some benefit of that starting to happen in October. So we expect those things to continue to flow through in the fourth quarter, as the quarterly adjustments, again, will go off of December. Right now, we're not projecting dramatic decreases in steel prices and we actually would not like to see them be real steep because that can put us in a spot where we have higher-cost inventory. We're saying roughly flat, maybe slightly down, is what we've got in our forecast, which would be positive for us.

Your next question comes from the line of Justin Bergner from Gabelli & Company. Go ahead, please. Your line is open.

Good morning, Pete and Larry. I had a couple of clarifying questions here.

Okay.

Hi, Justin.

Hi. You were talking about your unit assumptions in RIPS for 2019 and you mentioned steel plus 4% and large plastic drums flat. But then you mentioned something – organic, 1% or less. Can you sort of tie what those numbers?

Sure. When you look at it globally on an organic basis, so not including the capital investments we're making, we expect our existing footprint to grow at about 1%. And you add the capital investment projects layered in and that's where you would get to that level. On top of that is a normalization of the Ag markets, where we had significant reduction in volumes this year due to record softness in that market, and we have targeted and budgeted normalized volume levels, which I mentioned a five-year average, which is fairly significant versus a year-ago.

Yes, Justin, that 1% is taking into account the weaknesses we're seeing in a lot of the production around the world. And just a view that industrial production is not robust in many of the places.

Okay, great. So I mean let me just make sure I understand again. So the organic is excluding some of these Greenfield capital investments. And when you add to the 1% the Greenfield capital investments, you're a couple 100 bps higher on your unit assumptions based on…?

Correct.

Okay, great. And then another clarifying question. On the working capital, was the $24 million all unanticipated, because I guess, fell about $22 million short of the low end of your cash flow guide, but you said that you had restructuring and cash tax impacts on top of the working capital impact. So I'm just trying to reconcile why it wasn't even lower?

No, no, that's a fair question. I didn't walk through all of the elements of the cash flow and we did actually end up having incremental taxes that we paid and incremental cash from restructuring. But we actually also had improved working capital performance relative to managing our inventory levels and our receivables and payables that actually would have taken us much higher. Plus, we ended up spending just slightly over the high end of our CapEx. All of those, the working capital management improved things, some of the operational things improved things, but the FX drag was not anticipated. And I don't know that we could have predicted it, what would happen in the currency movements in Russia, Turkey, and Argentina. Those were the three areas that drove this dramatic impact.

Your next question comes from the line of Steve Chercover from Davidson. Go ahead, please. Your line is open.

Thanks. Good morning, everyone.

Good morning, Steve.

Good morning, Steve.

Good morning. So it's a little late in the session. Some of my questions have been answered. But I wanted to talk about your 2020 targets, because although the 2019 guidance is a little lower than we would have hoped, you're still getting close to some of your 2020 targets. But I'm not sure if that's a good thing because we're all looking for growth. So first of all, are the 2020 commitments too low? And how do you generate growth beyond the four facilities that are coming online over the next 12 months, unless the ideal M&A presents itself?

Right. Thanks Steve. Yes, fair question. We've looked at our 2020 guidance at a consolidated level and what I'd say is that we remain confident in our OPBSI target with the midpoint of 445. And but I've initiated a process where we're doing deep dives into those targets and we'll talk about them at our first quarter call. Let me back up for a second. You might remember, if you went back to 2015, the commitments that we made for 2017. When we laid those out, we gave the business unit ones as well and when we got through – and we talked about the fact that one of the things we think is good about our Company is a diversified portfolio of businesses. Well, OCC cost spikes up, we end up way under delivering on PPS's results and way over delivering on Rigid's results, and the FPS was about where it was supposed to be. So 2017, we layout new commitments and right now, I'd say that portfolio is flipping around again. We have PPS is looking stronger, FPS is looking stronger, and RIPS, primarily driven by currency impacts to where we believe we'll be and hyperinflationary markets, would be roughly lower. But on an overall basis, we feel comfortable. The thing that we'll be doing the deep dive into is what do we think. Will we be potentially higher or lower? Our CapEx projects being delayed have pushed back in time some of the benefits that we had initially planned from our assessment of what we thought we'd be spending in CapEx, but we're now spending a little bit more too. So all of those factors, we'll be looking at. On the cash flow, one of the things that we'll be assessing is we know that we've got…

Yes. Thank you. And then I had a couple of quick commodity questions. I hope they're quick. What's going on in steel? Are those prices stabilizing now?

Yes. I think from a global standpoint, generally speaking, prices will be flat, we're projecting for 2019.

And your next question comes from the line of George Staphos from Bank of America. Go ahead, please. Your line is open.

Hi, everyone. Good morning. Thanks for taking my question and the details. How are you? Late in the call, I'll try to be quick here. And a lot of my questions were even answered, the typical, I guess, late in the call. I guess, first of all, what gives you comfort, what should give us comfort on the RIPS business hitting its goals for 2019 versus the experience in 2018? And Adam hit on this a little bit here. A lot of it, I know, is coming off of your capital investment program, which you talked about in answering some of the other questions, Ghansham and Steve. But just because you're investing, what gives us confidence that the volume and the earnings behind that investment will actually show up? And relatedly, if you can – make it a two-parter for the first question, what was the effect of the conical shortfall this year, either in volumes or earnings? That would be helpful.

Yes. On the conicals, George, the impact was $4.5 million.

Okay. And that was a sales number or that was an EBITDA number, Larry?

No, that was an operating profit number.

Okay.

And so obviously, one level of confidence is relative to do we return to a normal year, was the drought and impact there. And it was extreme. Like Pete said, we took a five-year average of normal conical sales and compared it to what we had this year and that's what we built in. So that one, I guess, you can only have as much confidence as that gives you. I mean, we've been very conservative, I believe, in our organic growth projection at 1%. And then it's just do you trust us to execute on delivering off of these capital investments. Now, I would say a lot of it is IBCs and our IBC growth numbers have been spectacular. We've delivered and actually exceeded what we built into the projects that we've delivered thus far. So we're very confident on that. So the things that we can control, we feel very confident in. We believe we put good new leaders into the places where we needed change and we think we're making the right changes in China. So we have good confidence on delivering on our plan. And I think the other is that, finally, the unending rising cost of steel has been mitigated. That gives us a lot of confidence too. So what's the wildcard is what happens in the whole trade arena, particularly between China and the U.S. because that seems to drive everything and that has had a negative impact in our operations in Benelux.

Larry thanks for the thoughts on that. Relatedly again, on the new investments, and whether it's IBC or steel, I wouldn't expect this to be the case, but if you could provide affirmation or correction, is there take or pay in any of these arrangements? Are there key end markets we should be watching relative to IBCs or the steel investments? So that, when we're mid-year through fiscal 2019 and obviously you can't send us a press release before you put it out for the quarter, but that would give us confidence that you're hitting your volume thresholds with those investments.

Yes. So the take and pay arrangements are when you're building a facility for one core customer. And the investments we're talking about are broader based. They are aligned to customer needs all around the world, just not in RIPS, in the other segments as well. So we feel pretty comfortable that we are building where customers do business with us in other parts of the world and it's just extending on our ability to serve their needs on a broader basis, whether it's IBCs or steel drums or plastic drums or FIBCs, for that matter.

Yes, and I'd say, George, relative to your thing, obviously, we'll tell you each quarter whether any of these projects seem to be running behind or not. Right now, they're not. They're on trend and for where we expect. Equipment delivery delays are not happening to us right now. We've expanded our vendor sourcing situation, so we'll let you know as soon as we do know, when we have the quarterly calls, how all these are trending.

And your next question comes from the line of Dan Jacome from Sidoti & Company. Go ahead please. Your line is open.

Good morning.

Hey Dan.

Good morning.

Just had a couple questions, can you provide some color on the new capacity on the PPS segment that you put on the books, I think, in the middle of FY 2018 and then what you're looking for in 2019? First, on the triple wall, did it meet the expectations that you had for it at the start of fiscal 2018? And then on the Mid-Atlantic capacity, are you still – and sorry, again, if I missed it from earlier on the call, but are you still shooting for a 4Q 2019 target for that? Thanks.

Yes. Dan, this is Pete. So the MultiCorr triple wall expansion is really a three-year growth pattern. And we weren't perfect in the start-up, but we feel very confident, at this point, that the volume trajectory and our operating execution will meet the standards or expect to beat the standards we set in our financial return. In regard to the Northeast corrugator in Pennsylvania, we will start at the end of our fiscal fourth quarter. So everything is on target for that as we speak today.

Okay, that's good. For the Mid-Atlantic, it's going to be litho-laminate sheet mostly, if I remember?

Well, no, it's 110-inch corrugator. So it'll be corrugated sheets similar to the balance of our CorrChoice operations and we also have the addition of an Asitrade litho-laminator, which is a narrow corrugator that laminates specialty substrate top sheets to single-phase corrugator that sells into specialty markets, a variety of specialty markets around the world. We have a fairly advanced system in our system and that just adds to that and it's really due to customer demand and we view that as a specialty corrugator, Dan.

Your next question comes from the line of Adam Josephson from KeyBanc. Go ahead please. Your line is open.

Pete and Larry, thanks for taking my follow-ups. Just two questions, one, Steve was asking about your fiscal 2020 guidance. I have kind of an opposite question. Your free cash flow guidance was $230 million to $270 million, so midpoint of $250 million. The midpoint of your fiscal 2019 guidance is about $190 million, so $60 million delta. I know you're saying working capital is going to be a drag of $45 or so this year. Are you still confident in your free cash flow guidance for fiscal 2020? And if so, what gives you that confidence?

Yes. So Adam, that's what I mentioned we'd be working on and updating over the next quarter. One of the key elements will be what do we anticipate we'll spend in CapEx after 2019. But also I mentioned that we're anticipating operating improvement, operating profit improvement, at pretty significant levels from our CapEx investments. So you've got $13 million coming in 2019 and then that moves up to, in the following year, nearly $30 million. So you've got great lift out of just the CapEx investments that we're putting in. But we're going to go analyze that. We also have the cash lift from taking our SG&A down to 9.7% relative to the levels of sales. So I don't have anything more to say about it at this point where I can tell you concretely. But on an overall basis, we feel good about where the commitments are.

Thanks, Larry. And just one on your leverage and M&A, obviously you're down to 1.6 at year-end. It's below your target ratio and you continue to talk about your willingness to take your leverage up for the right deal. What is your appetite for big deals at the moment, just given the macro uncertainty that you spoke at length about on this call, given some of the execution issues? How hungry are you for deals at this point in the economic cycle given all this uncertainty that you've been talking about? Thank you.

Our view, Adam, is we're focusing on the disciplines that we talked about beginning at our Investor Day in 2017. We execute against the capital framework that we laid out. We're very rigid in how we go about it. And economic cycle issues are part of the factors that you consider when you're looking at transactions. And as we said that day, we continue to look at all sizes of transactions. We're not afraid of big deals but we're not out just looking for big things. We're looking at all kinds of things, which is a little bit challenging because, when we're in the midst of things, depending on how far along you are on things, you're pretty locked up on what you can do relative to share buybacks and that kind of thing. So it puts some handcuffs on us, so to speak, if you're actively in that market. And that can be a little challenging. But in terms of deals, we're very, very disciplined. We'll consider all of the factors into what we believe makes a good deal and will allow us to achieve the returns that we've mandated for ourselves.

Your next question comes from the line of Justin Bergner from Gabelli & Company. Go ahead, please. Your line is open.

Thanks for the quick follow-up. Just on the $0.16 tax headwind, you're guiding the adjusted tax rate at 28% to 32%, which is similar to the 29.9% for this year, and it doesn't seem like the earnings growth would be large enough to create a $0.16 headwind from just higher earnings growth on a similar tax rate. So what am I missing there?

Yes. Well, even 1% change in things can move it significantly. But we also have – well, that's on the expense side. So, on the cash side we also have payment of the transition tax. But it's all related to the rate and the earnings.

Okay. And then are you assuming the lower cost of interest from the refinancing midway through the year and your interest expense or not?

We have, but Justin as I commented earlier, I think we're being very conservative on our interest expense. We just balanced it off against rate because of what's happening in the markets and just watching transactions, but also just our general rate on our facility.

And with that, it looks like we have time for one final question. That question will be from the line of George Staphos from Bank of America. Please go ahead. Your line is open.

Thanks very much. Hi, guys. Thanks for taking me at the end here. When we look at the investment that you're doing, as you termed it, to keep the cash machine finely tuned to keep it going with RIPS, Larry and Pete, how much of that is just being driven by the fact that you have the opportunity, the wherewithal, because of the balance sheet being where it is? And how much is driven by any of the performance issues that you might have seen over the last year or two? I know it's typically all of the above and lots of other things but if you had to guide us one way or another, how much was just because you have the ability and how much of it is just because you need to correct a couple of things? That's question one. And question two, I'm assuming it's due to Latin America and some of the operating issues, but the CSIs in RIPS being down a little bit, is that Latin America or is that something else? Thanks, guys, and good luck in the quarter.

Yes, George, I'll let Pete talk about the CSI issues. But on the CapEx, it's definitely because of our cash position and our capital position. And that's not to say that we felt like we weren't spending appropriate amounts previously. I mean, we've always – Pete and I since we've been in leadership here, have said you've got to spend the appropriate amount on maintenance and we have done that. But what we did do is we said, hey, look, we have this capital. Let's make sure that we keep this cash machine running and let's double-down, look at where we could spend to maybe – and you get into borderline. Is something in maintenance capital or if you're updating the winder because it's almost at the end of its life or improving it – doing modifications, not capital stuff, but you're doing modification stuff to it – I'm sorry, not major capital, but just capital expenditures to improve how it operates, we're encouraging those kind of things. So, it has all to do with us having the capacity on that end. So, I'll ask Pete on the CSI.

Yes. No, thanks for the CSI question. So, you are right. There are discrete operations and locations in all of our businesses that are underperforming. Latin America is one. Some other discrete regions of the world and that's a leading indicator. So, I point to that net promoter score, which is really the voice of the customer and really pleased with the uplift that we've had in the last two years. We're up 25% in net promoter score. We're getting more customers engaged in it. We've got two businesses, PPS and FPS, that are above the best-in-class benchmark and RIPS is making really good improvements in that area. And there's a real sense of urgency and attention to detail by all the senior leaders and the operational leaders and commercial leaders in the company to respond to the customer feedback and to ensure we're creating value for them. And there is alignment, no doubt, to CSI and NPS, the performance, and we're working very diligently to address those. End of Q&A

And with that, I'd like to turn the call back over to Matt Eichmann for some closing remarks.

Hey, thanks a lot, James. We'd just like to thank everybody for their time today. We're available for questions later on and tomorrow and hope that you have a good holiday season ahead. Thank you.

This concludes today's conference call. You may now disconnect.