Thank you for joining the Silgan Holdings First Quarter 2019 Earnings Results Conference Call. Today's call is being recorded. At this time, I'd like to turn the call over to Kim Ulmer, Vice President Finance and Treasurer. Please go ahead.

Thank you. Joining me from the Company today, I have Tony Allott, Chairman and CEO; Adam Greenlee, President and COO; and Bob Lewis, EVP and CFO. Before we begin the call today, we would like to make it clear that certain statements made today on this conference call may be forward-looking statements. These forward-looking statements are made based upon management's expectations and beliefs concerning future events impacting the Company, and therefore involve a number of uncertainties and risks including but not limited to those described in the Company's annual report on Form 10-K for 2018 and other filings with the SEC. Therefore, the actual results of operations or financial condition of the Company could differ materially from those expressed or implied in the forward-looking statements. With that, I'll turn it over to Tony.

Thanks, Kim. Welcome everyone to Silgan’s first quarter 2019 earnings conference call. I'll start by making a few comments about the highlights of the first quarter and provide a brief update regarding our outlook for the remainder of the year. Bob will then review the financial performance for the first quarter and provide further details around our 2019 outlook. Afterward, Bob, Adam and I will be pleased to answer any questions. As you saw in the press release, our first quarter results exceeded our earnings estimates as we delivered adjusted earnings per share of $0.46 compared to $0.42 in the prior year. Since there are several unique items impacting the year-over-year comparisons, let me just summarize that we're pleased with the initial performance of each of our businesses. The buy-forward in Q4 of 2018 ahead of nearly 20% inflation in North American steel markets did, as expected, negatively impact volumes in the metal food cans. But, we were pleased with the resiliency in the general market demand patterns in the first quarter, as well as a good operating cost performance. Our closure business also experienced some impact in the metal closure volumes in the quarter due to significant steel inflation. More significantly, results in our closure business were negatively impacted by onetime restructuring charges of $5.7 million as we proactively reduced our European cost footprint and by negative impact from foreign exchange. Our cost control is excellent and we continue to expect full your volume growth. Our plastic container business continues to gain traction with another quarter of volume growth and improved operational performance. Despite exceeding our first quarter earnings estimate and delivering solid performance thus far, we're maintaining our full-year guidance at this early stage of the year. Therefore, estimate for the full year adjusted earnings per diluted share remains at $2.10 to $2.20, as compared to $2.08 in 2018, which did benefit by $0.13 per share of higher pension income. We also anticipate improved results from operations in the second quarter, providing an estimate in the range of $0.51 to $0.56 as compared to $0.52 in the second quarter of 2018. With that, I'll turn over to Bob.

Thank you, Tony. Good morning, everyone. Overall results for the first quarter of 2019 compared favorably to prior year and our estimates. We delivered adjusted earnings per diluted share of $0.46, an increase of nearly 10% versus the prior year period, and modestly better than our estimate of $0.40 to $0.45, largely due to better than expected food can performance. On a consolidated basis, net sales for the first quarter 2019 increased 1.5% versus the prior year, totaling $1,030 million, as metal container and plastic businesses delivered top line improvement while closures declined slightly. Net sales benefited from the pass-through of higher raw material costs across the businesses, better volumes in the plastic business and favorable mix in the closures business. These increases were partially offset by unfavorable FX translation of approximately $20 million, primarily related to declines in the euro and lower unit volumes in the metal container and closures business, largely a result of customer pre-buy activity around significant metal inflation. We converted these sales to income before interest and taxes for the quarter of $86.7 million versus $92.2 million in the prior year quarter, primarily as a result of higher rationalization charges related to the announced shutdown of our metal closures facility in Spain, lower unit volumes in the metal container and closures businesses, largely a result of customer pre-buy activity, lower non-cash pension income of $5.1 million spread across all businesses, and unfavorable foreign currency translation of approximately $2 million. These negative drivers were partially offset by improved manufacturing efficiencies across each business, a larger seasonal inventory building containers as compared to the first quarter of 2018 in which we reduced our seasonal build, a favorable impact from the lagged pass-through of lower raw material costs, higher volumes in plastics, and a favorable mix of products…

Thank you. [Operator Instructions] We'll go now to Scott Gaffner with Barclays.

Thanks. Good morning, guys.

Hey, Scott.

Hey, Bob; Hey, Tony. Just quickly on metal containers. I mean, it sounds like the impact of the pre-buy wasn't as negative as you expected. Is there something else going on there other than the pet food picking up that you discussed? And how should we think about -- I think before you were talking about, I recall correctly, about 4% unit volume declines for the full year with 1% from the base business and 3% from pre-buy. Is that still a good number? How should we think about that?

Hey, Scott. It's Adam. Good questions. As far as the metal container business is concerned and what happened in the first quarter, you're right. We did anticipate full year volumes down in the 4% range. You've got the numbers right. 3% of that 4 was due to the pre-buy. That would have really impacted Q1 and Q4, and the balance of the year would have been roughly comparable to prior year. So, the pre-buy, given the nature of our metal food can business, is pretty well defined. So, there really was no change to the per-buy. What had happened in Q1 for us was we did see, again, good volume and growth in our pet food markets. We saw a little bit better volume in the soup market as well. And then, customers we've been talking about this in managing their inventory, which was a big part of our projection for 2019 volume, did a little bit better from a volume standpoint than we anticipated. And as we've been in regular dialogue with them, we've now come to understand that they're reassessing some of their strategy, both from a driving inventory down perspective, and also from an exiting certain aspects of their business perspective. So, at this point, we are very pleased with the volume as they came through in the first quarter. Again, we're still talking with that customer about the impact of inventory and management of Q2. But, as we sit here in Q2, our expectation would be a little bit down versus prior year, probably in that 1% range with the possibility of getting back to flat, if that customer inventory management program looks something like it did in Q1.

Okay. And just as a follow-up to that. When we look at the weather in California and in the Midwest, maybe the Midwest wasn't close enough to you from where most of your customers are. But, can you talk about what gives you confidence in the normalized harvest 2019, despite some negative weather impacts to start the year?

Sure. I think, you've got it right as far as where our customers are located in those growing regions. So typically, we're a little further North in the Midwest and where most of the flooding occurs. So, as we look at the packs right now, our early packs are already in the ground. They look good, they’re 100% contracted as far as the acreage or tonnage. And we feel good about the early packs. Those are things, like sweet peas, et cetera. Corn, green beans, again are a 100% contracted from a volume standpoint. And those are starting to go in the ground now. Again, no real delays as far as we're concerned and where our product’s grown. If you go out to the West Coast with fruit and tomatoes, really no change to our expectations. Tomato tonnage is up slightly versus 2018 in total. But as we've talked about before, it really doesn't affect the canned volume portion of that. Can volume is protected if volumes are down for total tonnage. And really, it's pretty secure, if volumes go up, it goes more to pace than other products.

We will now take a question from Anthony Pettinari with Citi.

Good morning. I was wondering if you could talk a little bit about what you're seeing in European metal containers. It seems like the industry has a extremely easy comp this year with the pack season. Last year, you were taking some footprint rationalization moves. And I think a competitor has talked about some competitive pressure in the industry. I was wondering if you could just kind of talk generally about what you're seeing in Europe.

Sure. If we look at Europe, I think we are expecting a more normal pack in Europe this year. We've had some challenges in the past. So, I think you're right, as far as the year-on-your volume of the pack; it should be a more normal pack versus a pack that was below expectations last year. As far as our footprint rationalization, we have taken costs out of our European footprint. We'll get the benefit of that this year, from a year-to-year standpoint. But, really, we'll see a little bit of growth in our European can business this year and generally in line with our expectations.

Okay. And then, maybe switching to closures. Is it safe to say you still expect kind of full-year volume growth in closures? And in terms of the volume performance you saw in 1Q and maybe expect for the year, could you talk a little bit about metal hot-fill and then dispensing systems and then plastic, cold-fill and hot-fill?

Sure. So, absolutely, we are expecting growth in the closure segment for the year, so, just for clarity. Really what happened in the first quarter, as you heard in the prepared remarks, as well as in the press release, this really was all around our metal closures, which is an interesting concept because it's not a segment of our business that we talk a lot about on this call. And the reason why is because it is so stable and it is so predictable, we have very few swings that would impact the business to the point where we talk about it on this kind of call. But, as we've talked a lot about with our can business, the 20%ish inflation that we saw in the U.S. market, did influence pre-buy activity in the U.S. market. And then, we've had significant inflation over the last couple of years in Europe as well. So, the volume decline really was about our metal closures business. Our dispensing closures had another very good quarter. We're expecting the same 3% to 4% kind of growth that we've expected out of that business over time. We're expecting our hot-fill business to grow as well. So, nothing has changed about the full-year expectation. This really was about a timing issue in the metal closures part of the business.

We’ll now take a question from Chip Dillon with Vertical Research.

My first question has to do with the just looking at the full year and just to get a feel. Certainly I respect the conservatism being so early in the year, but it looks like, when we look at the first half, it looks a lot better than certainly we were looking for. And therefore. the full -- the second half looks like maybe it’s a little more cautious than we and others might be looking at. And I didn't know if there was anything in particular that you would point to for why you would maintain that conservatism other than just the fact it’s early in the calendar?

Hey, Chip. It’s Adam. It's a really good question. And we spend a lot of time talking about it internally. It’s -- as we look at the metal container business, which is a big driver here, we're very early days in the year. And again, while we're in regular dialogue with our customer regarding their inventory management program, they are reassessing that as we speak, and we just don't have a final outcome. So, I think that would be an upside to the year if they would change that strategy and review the strategy that they took to exit some of their business as well. But as of now, we just don't have a final answer on that. And again, we had a good start to the year with Q1, feel very good about Q2. And, as we look at the balance of our businesses, we’ll see good growth in closures and plastics for the year, as expected.

Yes. Chip, the only thing that I might add to that is that obviously there's a fair bit of assumptions because it is so early in the year, right. Adam just kind of walked through the weather conditions, but that too is subject to change, as we all know. So, I think we're doing the prudent thing here. I would say that we are very bullish on the year in terms of where we go from here, but there's a lot of risk that sits out there yet to be determined. So, I think that's kind of where we're coming out with guidance thus far.

Okay. That's helpful. And then, when you look at the non-operation pension change, it looks like it’s around $0.12 per share. First of all, we need to point out that not everyone, like you all are -- some people are actually kicking it out of adjusted earnings, which obviously means the quality of your earnings is higher than these other companies in this and other areas. So, I want to just note, that’s to be applauded. But as we think about the market hitting new highs today, if the stock market had ended last year about where it is now that is at a high, is it fair to say that $0.12 probably wouldn't have happened this year? And maybe said differently, if we are at this level, roughly at the end of this year -- and I know there're other puts and takes with interest rates on the liability side, could we see that pension non-operating pension item swing back the other way?

Yes, you pretty much have it right. So, essentially, all of that pension change, it is a non-cash item, because our pension plan, even with the market decline is still in excess of a 100% funded. As at year-end, I think it was about 112% funded. So, our estimated rate of return is 8.5%. Last year, as we all know, the market kind of fell apart in the fourth quarter. Our portfolio yield was in negative territory in the mid single digits. Obviously, the market has recovered pretty significantly. Our portfolio is up some 10% on a year-to-date basis. So, the accounting doesn't quite follow that impurity, because it's all -- both of those end up getting amortized through the P&L. But yes, had we ended last year where we are now, the big portion of that $0.13 would not be in our P&L. But again, it is a non-cash item. So, it's not really that important from the cash generation of the business.

Just before turning…

You’re also right. I thank you for pointing out that because we talked segment income, we do -- it does show up in each of our segment results. And you are right, that is not true for every company out there.

That's right. And just quickly before we turn it over, you mentioned the Spain plant closure, I thought pretty much everything you had in food can was actually through Vogel & Noot. And I thought that was more central and Eastern Europe. So, can you let us know how you got that plant and could it be more -- and is that part of that acquisition?

Sure. Chip, it’s Adam. Actually, the Spanish plant that we closed was actually part of our closures business, not part of the can business that came through Vogel & Noot. So, it comes through an acquisition of the Vac Vem business back in call it mid-2000s range, and it was a small plant for us. And that volume will be absorbed into our other closure facilities across Europe.

We’ll now take a question from Mark Wilde with Bank of Montreal.

I wondered if we could switch over to the plastics business and maybe Adam or Bob, just give me a sense of whether you think that 15% EBITDA margin target that you had by I think the end of ‘19, whether you think that's still a good target?

Hey, Mark. It’s Adam. We do think it's a good target. If you look at our projections now, I think if you would -- the 15% never really considered the pension income, the detriment that we're experiencing this year. So, our projections would put us probably right above 15% for the year, if we did not have that one time effect of the lower pension income. So, we think it's a good target. What I'd say is that there's been a lot of work in the business that’s gotten us to this point. And a lot of that has been driving costs out of the system. And really, now as we transition to the next phase of where we're going with plastic, growth is going to be driven by revenue, and by new volume coming in. So, as we've said all along, that'll be a little bit lumpy -- this quarter is a little bit lumpy as we look at the 2%. But, our growth projections for the year continue to be pretty good for this business.

Okay. That's helpful. And -- go ahead.

Sorry. I’d just say, just to put that in perspective that pension impact for that business is something pretty close to a full percentage point on the margin.

Okay. Right. And just kind of staying on plastics, I wondered if you could give us some sense of whether any of this plastics backlash that we're seeing in the market, whether that has any effect on that business? And then, also, whether this is still a business that you would think about making acquisitions in?

Sure. As far as single use plastic, that really is not part of what we do. A lot of our products go into multiuse, whether it be personal care or home care products at our plastics business. So, we don't think we're in a segment that is a target area of focus on single use product. We have portions of our business that do -- in the food side of our business with pet food that are essentially single use products, but it's a package that our customers are committed to and feel good about from a sustainability standpoint. So, we do think it's an issue, but I think for the most part, our businesses is outside of the single use criteria.

Okay. And then just in growth in that business, Adam?

Growth in the plastics business?

Yes.

I think what we have said is, something in the 3% to 4% kind of growth over time. And again, it would be lumpy as we win new business and continue to manage the portfolio that we currently have in the plastics business.

We’ll now take a question from Debbie Jones with Deutsche Bank.

Hi. Good morning. I wanted to first ask about, as you have like a number of board changes, and I think, Adam, now you're becoming President, I wanted to just see if there's anything you could comment on there, and any changes in roles or responsibility?

Sure. Well, first of all, you're right. We have made a couple of changes. I would say that they are sort of the combination of a very long and gradual process. Greg Horrigan who used to like to say that succession should be a little like taking your fingers slowly out of water, and I think that's what we've been trying to do. So, I would not say there is radical changes that come from that. I think, Adam is taking on, as you can hear on the call, even more of the responsibility of all the businesses, although he had that for a period of time. So, no radical changes. We’ve worked together, the three of us as a team for some lengthy period of time. I think, I speak for all three of us that we enjoy that, we challenge each other on a regular basis, and I think that's part of the uniqueness of Silgan, that kind of constant Socratic method every idea gets torn at pretty hard. And so, we hope to continue that. So, I wouldn't expect any major changes on it. I think, we all feel very privileged to be following in the footsteps of our founders and the roles we're taking on. And we take that pretty seriously. And we'll continue to do so.

I wanted to go back to just European food, I know it's a smaller business for you and you mentioned too that things seem okay for you there. But, there have been some reports of just pricing pressure and from what I've heard maybe some more than normal volume shifts. And I'm just wondering if you're seeing any of that if it's impacting the regions where you compete?

I wouldn't say that there is anything new in that. You may recall that Europe, unlike our North American market, which just tends to be a long-term contract, and sort of Europe is more of annual contract. So, there is always a bit of friction that goes on each year. And so, I’d say that's kind of more the norm. It may be a little market specific where you're referring to. Again, remember, we point pretty far east. And so, again -- so, I want to be clear. I'm not saying there's not competitive action all the time, but I wouldn't say there is anything particularly new about that. We feel really good about kind of the value proposition we bring to our customers. And we think we'll do well over time.

We'll now hand the call over to Ghansham Panjabi for a question with Baird.

I guess, going back to the upside in volumes for the first quarter relative to initial view, I mean kind of thinking back to last year, a lot of your customers also had to deal with higher freight costs and logistics costs et cetera. Are you seeing them manage production differently that may also be impacting your order patterns or is that not the case?

No, I don't think so in the can business, Ghansham. I mean, the demand patterns for that business are pretty well established over the course of the year. That's why as we talked about on our last call, we were so confident that we understood and could kind of capture what the pre-buy activity was at the end of the year. I think, the biggest single item here is we're talking about steel inflation in the U.S. market of something close to 20%. So, outside of that activity, yes, there are other inflationary items, but the demand pattern really doesn't change over the course of the year versus our expectation.

Okay. And then, just going to the closures business and the plant closure in Spain, what is that intended to signal to us in terms of just the overall growth rate from metal closures in Europe? Has that shifted dramatically over the years? Is it losing share to plastics? Is it pretty stable or is it just more optimization relative to your aggregate footprint?

I think it's the last item, it really is about optimizing our footprint. I mean that that business in Europe from a volume standpoint on the metal closure side has been very stable. I think Europe is at the forefront of single use plastic. So it's an interesting time to be in an alternative package. And it really is about our relentless focus on just driving cost out of the system and lowering the overall cost footprint for the business.

We'll now take a question from George Staphos with Bank of America Merrill Lynch.

Hi, everyone. Good morning. Thanks for the details and congratulations on the year -- the start to the year and the change in responsibility, everybody. First question and apologies a little bit in advance in terms of them being more nitty-gritty in nature. But when you look back at the first quarter in metal containers was the variance versus your expectations mostly driven by the inventory build on your part and in turn the lower unit costs that you would have gotten from that or was it more driven by the fact that volume was to the end market, a little bit better than expected and if you could parse those that would be helpful.

So, George, if I understand your question, I would say the variation to our expectation was mostly driven by slightly better volume and good operating performance. There was really no variance to speak of to our expectation around the inventory, that was just a year-on-year comparative point.

And then, the other question I had kind of a two-parter, when we look at closures and you said the volume was down in the quarter I think 2% and that was impacted by pre-buying ahead of the steel price hike. When I look back at the fourth quarter last year closure overall, I think it was up 1%, it didn't look like there was a large pre-buy. Can you remind us within that number what metal might have done in advance of the steel closure? And then more broadly what effect are you seeing from direct to consumer in terms of your customers plan for the food can and the other products that you produce? Are you seeing more interest in the food can and some of your dispensing systems less how would you say that's shaking up? So thank you very much for that.

I think the -- so to be clear, you're right that we did not call out in the fourth quarter that our closures had a pre-buy and that's what Adam was talking about that we can see that so visibly in our can business. But our closure business just is more fluid than that. So, it's -- we intuitively we knew there was something there, but we didn't feel like we had the concrete enough data to call it on that. If you look at volumes in the quarter, they had a lot more to do with the kind of the beverage side of the hot-fill market what was going on that side. So in retrospect looking back there, you could see some increase on it. The second thing and the reason our language is a little different about the closures, there is sort of two things on, the US, there's this spike in steel this year in the US and there was a fourth quarter buy for. There is a second impact happening in the volumes of metal comparatively this year and that's because Europe had a sizable steel increase last year. And Europe just gets a little complex, but Europe pushes it's price increase through during the first quarter. So we actually in 2018 first quarter, we had the benefit of some pre-buying ahead of that increase in Europe. So, you got -- you have the compound of both of them hitting this quarter on. But to be a clear, there is a whole different thing this quarter is about metal closures. And everything else is exactly were expected and it is consistent.

As far as our customers inquiring and activity around maybe transitioning to metal can, look we're always in regular dialogue with our customers. It is something that's on the table, we haven't seen any those at this point. There is a lot of talk about opportunities, but nothing concrete as we sit here.

Our next question will come from Adam Josephson with KeyBanc.

Thanks. Good morning everyone. Adam, just on the closures volume expectation, I know you're expecting growth this year, I think last year legacy volumes were down too, I think the previous year they were down three, correct me if I'm wrong there, given that and given the first quarter decline, why do you expect growth this year and then longer-term, what do you think is the right number for your legacy closures volume?

Sure. I think, you're roughly, directly correct on the two prior years as far as the flat cap hot-fill closure business for us. As we said here today again, it's really about the timing of the first quarter that Tony just walked through, the balance of the business. We do have annual and in many cases long-term contracts that provide the volume outlook for us. So we sit here today with a good order book for us, that does provide growth for the full-year, certainly it provides growth in the second quarter as well on kind of our historic business and closure. So we do feel good about that. I think if you go back over time, there were some significant items like weather that drove our hot-fill business, it drove it up in 2016 and then we had a poor weather year that drove volumes down in 2017. So, as we sit here now at the beginning of the pre-sale season and I would say we've got very good confidence based upon the assignments from our customers of filling locations and the contractual commitments that we have, that we will see good growth. And it's a growing market for us still.

Okay. Thanks for that, Adam. And just on sustainability, just as a company that's in both plastics and metal cans and given that we hear from some other metal can manufacturers that cans are taking share from plastics in certain markets or going to do so at some point, how do you view the issue?

I think, Adam sort of hit it before. I think you can't help, but believe that it is a bit of a tailwind to the can business, I mean, it's -- and you can even look at those you know again generally the market was pretty solid this first quarter across all categories. So, is there a little bit of that in it maybe, I mean it's hard for us to quantify and say, but it just -- it felt a little bit better, but it's only one quarter and who know. I think the food can is much more complex in terms of changing. I think the beverage industry has a very different argument, those customers use both packages all the time. And so you could see a quicker change. Food can, probably we've always told you guys about food can is, don't worry about us falling off a cliff on volume, because the system is so deep in terms of what goes into a food can, the same is true on the other side, right? It's not easy to shift stop into food cans in a big manner. So, what's great for us generally slows that process down. So I think you'll still find us feeling that yes for sure customers, consumers are more focused on this issue than in the past. Definitely plastics has some improvement to do in terms of recyclability and its story line. And all that gives us a little bit of help, but I just think food can, it will be less than you're probably likely to see in the beverage can.

We'll now take a question from Gabe Hajde with Wells Fargo Securities.

Good morning gentlemen. Congratulations to all. If you could maybe, Bob, quantify the raw material benefit that you did realize in plastics? And if there was anything in closures and/or anything expected in the second quarter?

Sure, Gabe. It's Adam. As we look at raw materials and resin in the first quarter, there was a small benefit in the closures business of a couple million dollars. And then in our plastics business there was really no impact in the quarter. So interestingly as we go forward and look at Q2 in our projection, CVI just published this morning and those projections have changed now which is why we always are pretty consistent in our forward look. So we take the current quarter and we essentially hold that flat for the balance of the year. So there typically is some upside or some risk to our forecast based upon movement in resin. As we sit here now, I would say there's not much impact in our forecast, a little bit of headwind in Q2. I'd also say that that's probably now changed based upon the publication this morning, but we'll see how the markets play throughout the quarter.

Okay. And then back to the Spain closure, I recognize it's small in the grand theme of Silgan as a whole, but can you give us a sense for what the benefit could be on an annual basis from the closure and/or presuming you're transitioning some of the business to other facilities. And was that contemplated sort of when you gave full-year guidance earlier in the year?

Yes. So, in terms of the overall cost, I think we called it out that there's roughly $5.7 million of restructuring charges, a little more than half of that is non-cash. So basically the way we look at these types of projects is on a on a cash-on-cash return basis, kind of right in that mid-teen kind of return hurdle, so that you can safely apply that that metric to this one as well as you look forward. So, it really -- as Adam said before, it really came down to an opportunity to take cost out and do it in a manner where we did not have to disrupt customers where we can continue to supply which is in large part the way we supply the broader European market in the closure side of the business from a select few facilities as well. So that is really the underlying premise there.

Okay. And it was contemplated when you gave the full-year outlook before?

No. This would probably be incremental, but again you're going to have a lengthy conversion here that and the clock sitting up against it. So not much real impact for the year.

Our next question will come from Dan Rizzo with Jefferies.

Hi. You guys mentioned the plant in Spain, the optimization there, I was just wondering if there is other opportunities for optimization throughout Europe the different segments?

Sure, Dan. It's Adam. As we talked about earlier, I mean, it's something that we are constantly evaluating. And again we've got a relentless focus to just drive cost right out of our system. So as we look across the segments obviously, we'll continue to think about closures and opportunities there. Plastics, we had a pretty extensive footprint rationalization program that we've been through, we're coming out of that. And I think you're seeing the benefit of that now. On the metal can side, we announced the closure of a couple facilities in Europe last year. And then in the US market we had even alluded to on the last call that we are evaluating. And you know a lot of that's going to depend upon whether or not the volume levels that we were projecting for the year are a new normal or if it's a onetime kind of impact on volume. So we're still evaluating that in deep discussions with our customers gaining a better understanding of those volume projections as well.

Okay. Thanks. And then, you talked a great length about the issues with the customer while making decisions on inventories. I was just wondering if they've given you a time-frame when this issue will be resolved when we'll have a plan in place, is it something that's going to kind of linger over the next for mostly year or is it something that's going to be -- they're going to have a decision relatively quickly?

Well, I think we're going to know quite a bit here in the next couple of months is my guess, If you think about the business that they're in, it is more of a seasonal pack business. So there are a couple of things that play, one they're going to have to put inventory in place and two they're going to have to sell that through to the market. So I think those decisions will be upon us and pretty short order, we just don't have full clarity at this point, but we're in constant dialogue on the subject as we speak.

We'll now take a question from Arun Viswanathan with RBC Capital Markets.

I just wanted to ask I guess around the volumes in metal container in Q1, that 4% I guess down, was that kind of in line with your expectations or was it slightly better? And then secondarily, as you go through the year, are there any notable kind of impacts from customers changing kind of business or do you see any of that could impact your view as it has in the last couple of years.

Sure. As we look at Q1, again, our expectation was a decline of about 6% in volume in Q1, so coming in at a 4% decline actually was better than what we originally anticipated which I think you know Bob and Tony had talked about in prepared remarks. So, volume was good for us in the first quarter versus our expectation. And then really the single -- there are two big notable items probably for the year. It's the customer and the inventory management program that we've been talking about. And then secondly, one of the benefits we saw in the first quarter versus our expectation with a little bit stronger soup volume. So, we've had a lot of discussion on these calls in the past year or so about the soup market and what our customers were doing in the soup market. We feel good that we think there's a renewed focus on kind of the core products that we supply to the soup market. So Q1 for us was kind of the tail end of the soup season. So I wouldn't necessarily think that would affect Q2 or Q3, but as we move later in the year, soup will be something that we'll be talking about and considering from a volume standpoint.

Arun, one other thing that I'll add to that and we did talk about it in our -- in our full year guidance, but I think it's for purposes of clarity, it's probably good to get it on the table. And that is that Q4 last year benefited from a buy ahead. So as you think about comparatively this Q4 versus last year, there's going to be a pretty meaningfully -- meaningful decline in volumes as a consequence to that. And that's nothing more than the buy ahead issue that we benefited from at the tail end of '18.

So, I guess, similarly, just looking at actually first off on the soup issue, would you say that that conversions to plastic are moderating at all. And again just wanted to touch on the sustainability issue, I mean on the one hand you have difficult weight to value issues in cans, but obviously it seems like the recycling in some other aspects could be positive. So maybe if you could just reiterate your views on sustainability and again the recent potential strength in soup is that -- it could be related to kind of a plateauing of those conversions.

Yes. I don't think what you're saying in soup which was pretty modest, and I think Adam was just trying to say there were some -- you saw a little bit of progress there. And again, it's hard for us to know what that means on the year yet. Soup is a broad topic. Again, we talk about it a lot. I think what gives us some hope is that our customers are talking more about the importance of it as a core product and needing to invest and solve some challenges there. So, I think that we feel better about, but I don't know that we can sit here today and say we see actual growth from that yet, but maybe. As to alternate packages, plastic, which of course we supply a large part of the plastic containers for the soup market as well has never been a really meaningful part of that market. So, it's not really a -- this is not so much a story about conversion to other packages as it is a story about soup consumption and importance of soup in the meal category. I think, the one other package that has gained some and certainly for us this is true, and there are some products would be more in a box form. And I think that is an interesting area where the environmental question may come into play, because that is you know it's not a simple environmental story, a recycling story as can is. Cans infinitely recyclable, it uses recycled content. So it's about as good as you can get, that recycling story particularly in the US is much more complex around boxes. So maybe there'd be some benefit there despite my previous comment, but it's -- even that is I can't tell you there's clear data of a shift in either direction on that.

And then on a similar topic to some Plastic Containers, what's your thoughts on any impact there, I know you noted that your participation in single use is lower, but just what's your thoughts on going forward if there could be any impact on that business from sustainability.

Arun, we don't think there is going to be much of an impact at this point, as we look out at the landscape of our Plastic Containers business, just for the comments made earlier, just regarding multi-use versus single use plastic. There is a spot in the market for multi-use products that plastic is a very, very good package and material for those applications.

We'll now take a question from Tyler Langton with JP Morgan.

Just on capital allocation, I guess could you talk about as you're sort of you are nearing your debt targets, could you talk about I guess a preference for acquisitions versus buybacks, and then just with acquisitions sort of what you're seeing in the market in terms of number of targets out there and multiples?

Yes. Sure, Tyler. As you saw at the year end, we were -- we're kind of back in the range that we had kind of put out as the optimal range 2.5 times to 3.5 times, we were kind of sitting right at the high end of that, obviously with a free cash flow generation forecast that we've got will all else equal, that will take a roughly another half a turn off of that. So we'll be squarely in the midst of that guidance, I think what that means for us is that kind of same strategy that we've always had and that is look for opportunities through the M&A lens to grow the platform where we can. And in the absence for that, I would say all else equal kind of near-term debt reduction probably still sits there for a little bit to give us dry powder to continue to look for M&A targets. And then on a longer-term basis as we continue to delever then return of capital to shareholders much like we've done in the past is squarely on the table as well. So, I think as we would sit here today, we are actively engaged in looking at things that would fit us from a strategic standpoint and making sure that they would have the right kind of return profile for us. Yes, there are a number of properties in the market, multiples are generally high, trading multiples for public comps are equally high. So I think, the trick is as we've always done to find the right kind of opportunity where we can buy the multiple down through synergies or have the right kind of cash profile whether it's from a growth standpoint or from a limited capital standpoint. That allows the return metric to work. So I think the important part is that we stay disciplined around the M&A side. We are optimistic about our opportunity to find something that would fit us and merge in pretty well with us. So, yeah, no real change in strategy, but with a balance sheet that's equipped to take advantage of opportunities.

And then, I think in the past for metal containers, it was the last year in 2018 you had $18 million negative from the lower production, is that still sort of in terms of sort of getting that back this year, is that number still sort of in the range with some in Q1 that you would have gotten and then the rest sort of in Q4 at the end of year?

Yes. It's a little bit confusing based on what happened last year. So as you might recall, we actually reduced inventory in Q1 of last year. We built it back in Q2, so the front half was kind of neutral. And then ultimately what we did is we took all of that inventory reduction out in Q4. So you sort of have to keep that sequence in mind when you start thinking about your comps.

Got it.

But, in total, you're right. It's the $18 million.

We'll take our next question from Brian Maguire with Goldman Sachs.

Most of my questions have already even been asked, but I just wanted to come back to the metal volumes again with 1Q coming in better than expected, but the full-year guidance sort of maintained, is it possible that some of that outperformance in 1Q was seasonal change or shift or some kind of a pull forward from future quarters? Obviously, nothing to do really with metal prices, but just customer order patterns moving a little bit sooner in the year and that's the reason for some of the conservativism or is it really just that you guys are just early in the year not wanting to make a call in the full-year at this point?

Yes. Brian, it's Adam. I think as we look at the volume in the first quarter, we didn't see a whole lot of timing variation versus our expectation. So I think it was just stronger volume in the quarter. And for the most part, it just it is to your point very early days in the year and there's a lot of ground that we have to file here for the remainder of the year and food cans to -- so to really feel good about where we're going for the whole year.

Yes. Okay. That makes sense. And then just one for Bob real quick, I guess in the press release you had mentioned about the free cash flow guidance, but I'm assuming that's unchanged. And then also if you could comment on expectations for the book tax rate for the year?

Yes, sure. We did -- I did comment on the script that we're holding free cash flow guidance consistent with the $275 million that is down a little bit versus prior year largely because the prior year benefited from the large inventory reduction. But obviously we feel like we're off to a good start to that end and feeling good in that range. So we did reiterate that. On the tax side, really what you had in the quarter was some timing differences, so you get a tax benefit relative to the some of the stock based compensation invested in Q1. So that adjustment and some state tax change -- rate changes against a relatively small quarter, had a fairly wide impact on the rate, but spread over the full year it doesn't really have much of an impact against our rate guidance. So we're not really changing guidance from where we originally started on the tax rate for the year.

Our next question will come from Edlain Rodriguez with UBS.

Quick one on containers, on metals containers, I mean, Tony in the past you've talked about walking away from certain businesses that weren't profitable, is that something that's still going on or has that come to a close?

Well, I think what we've talked about is there have been from time-to-time competitive issues that have come up. And we've chosen not to chase business in this competitive issue. So I think that's a slight nuance of a difference. So it's not as if we have elements of our portfolio on the can side that we look at just to not do that, that's not really true. It's more -- if a competitive intrusion comes at you, how do you react to that. So no, there's nothing there we would want to walk away from -- we like the business we have and I think we take great care of our customers et cetera. And as we said as a leader industry, there is a degree to which you may do that and it may suit your footprint to do it. And then there's a point at which you will not do that and you will defend that business.

And one on closures and again apologies if you've already addressed that, like how confident are you that the volume decline we saw this quarter is just due to timing and will definitely come back to the end of the year.

We are highly confident that it was just timing in one portion of our closures business and feel very good about not only the entire segment, but the full year for the segment from a volume standpoint.

We'll now take your question from Adam Josephson with KeyBanc.

Thanks, everyone, for taking my follow-up. Just a similar question to what I asked on closures related to the food can business. So, if you're down on volume 3% to 4% this year, I think there would be three straight years of anywhere from 2% to 4% volume declines. Thereafter, do you think flat is a reasonable expectation or is it more reasonable to perhaps expect just a smaller rate of decline?

Well, there is a lot to that one. So, first of all, I think what we've been talking about is that over time the growing elements of our food can business are becoming a bigger part of what we are. And so, I would say I think flat is a logical answer, as things like pet food become a larger percentage of our business, and it's been a consistent growth over a long period of time. And products like fruit which have been a consistent decline over time are down to now 4% of our total business. So I think flat is about right. I think I've got to be clear we are just not as manically focused as you all are on individual growth in our individual businesses. The model Silgan from the beginning of time has been, invest and get a franchise position and mature businesses, run those businesses for cash, take that cash and deploy that cash. If you look over the last decade, our food can business, you got to give me the exact numbers, but it’s -- the global food -- the [indiscernible] it's probably down some, I usually say flat but it's not meant to be an exact answer. But, over that time, Silgan has generated an increase in our EPS of 9.4%. So, you'll take my answer and understand. It just comes from when I read things that say, well, Silgan is a lower growth company, so you should get a lower multiple. I keep looking at saying, but that's not how our model works. We take care of these franchise businesses very carefully, we take the cash, we deploy that cash and the cash is half of the strategy of our engine. And I recognize it's hard to know how to model that, but over time I think it's demonstrated as being a very workable answer to that. So that part of way, we don't get quite as narrowly hung up on that growth question on the cans as your question make or imply.

Sure. Just two other questions, D&A versus CapEx, it's -- I think you're expecting them to be roughly equivalent this year. Did you expect that to remain the case? I guess, because volume declining at least in food cans this year, but I guess thereafter you’re thinking volume will be flattish to up depending on the segment, so you'd expect CapEx to be at least in line with D&A. Is that a reasonable assumption?

The one thing that throws that off obviously is when you end up with a deal through M&A that could have some influence on your D&A as well. But, all things equal, I think you're in the right ballpark.

Thanks. I mean, just one last one back to sustainability for a moment. Obviously you invested a considerable amount of money in plastic packaging two years ago with the dispensing deal. Just given all this talk about sustainability and the media concerns about plastic et cetera, are you any more reluctant to deploy capital on plastic packaging than you were before, this discussion about sustainability reached a fever pitch as it seemingly has now?

I would say it really depends on the plastic package. So, if I look at the dispensing system of the business, we wouldn't change one bit on that. The uniqueness of what is delivered in their product and their dispensing systems, I don't see any viable change to that market and it goes to kind of what Adam is saying, those are very much multi-use, specialized products et cetera that to me I just can't for -- let me envision another package taking that market over. If you're asking me about water bottles, I think that's very different question for us. And so it does -- we are definitely paying attention to it and it does change your view of certain markets.

We'll take a question from George Staphos with Bank of America Merrill Lynch.

Hi, guys. Thanks for taking the follow-on. First of all, when I look at cash flow, I noticed there was a fairly large drop in payables in the first quarter or use of cash I should say. And by the way congratulations on maintaining the balance sheet pretty tightly quarter-on-quarter this year. Is that just you might have bought some steel ahead last year ahead of pricing going up and now is when you are paying the vendors or is it related to any of the payments related to any of your traditional rightsizing and restructuring, just curious what was in that number. And then if you could remind us recognizing it's not in your guidance, if the customer came back, the customers came back and ordered in more normal levels relative where they had been in '17 and prior. In terms of upside to gone would that be a few pennies, would that be dimes if you had any kind of view that you could share recognizing it's a bit of a sensitive topic would appreciate it. Thanks guys and good luck in the quarter.

Sure, yes. George, I'll take the cash flow one, you essentially have it right. So that was largely due to kind of timing with all the inflation and cost changes coming through around steel kind of as we managed our own purchases and that carried through year end given terms ultimately that flushes through in Q1. There's probably a little bit of deferred tax that's showing up on that line as well, but for the most part it is the AP [ph] issue.

Thank you.

And George, on your second one, if I understand, we're time of buy-forward and the impact of that, if I have that right and your question is...

No, no. If the customer -- and question went back to the normal order patterns that you've been saying, you're not sure yet whether they will or won't. What that might add to your earnings all else equal in a normal year? Thank you, Tony.

Now, I got it. I think that if they said, look, let's forget about this inventory reduction this year, there are some probably 150 million to 200 million units that would come from that. And I'll let you do the math that comes from there. But, that's sort of what would come back.

It appears there are no further questions at this time. I'd like to turn the conference back to Mr. Tony Allott for any additional or closing remarks.

Great. Thank you, Jessica. Thank you everyone for your time. And we look forward to talking to you about our second quarter in late July.

This concludes our teleconference. Thank you for your participation.