Good day, ladies and gentlemen, and welcome to Sonoco's Third Quarter 2018 Earnings Conference Call. [Operator Instructions]. As a reminder, today's conference is being recorded. I'd now like to introduce your host for today's conference, Mr. Roger Schrum, Vice President of Investor Relations for Sonoco. Sir, please go ahead.

Thank you, Liz. Good morning, and welcome to Sonoco's investor conference call to discuss our 2018 third quarter financial results. Joining me today are Rob Tiede, President and Chief Executive Officer; and Barry Saunders, Senior Vice President and Chief Financial Officer. A news release reporting our financial results was issued before the market opened today and is available on the Investor Relations website at sonoco.com. In addition, we will reference a presentation on our third quarter results, which was also posted on our website this morning. Before we go further, let me remind you that today's call and presentations contain a number of forward-looking statements based on current expectations, estimates and projections. These statements are not guarantees of future performance and are subject to certain risks and uncertainties. Therefore, actual results may differ materially. Furthermore, today's presentation includes the use of non-GAAP financial measures, which management believes provides useful information to investors about the company's financial condition and results of operations. Further information about the company's use of non-GAAP financial measures, including definitions as well as reconciliations of those measures to the most closely related GAAP measure, is also available on the Investor Relations section of our website. Now with that, let me turn it over to Barry.

Thank you, Roger. I will begin on Slide 3 where you see that earlier this morning, we reported third quarter earnings per share on a GAAP basis of $0.72 and base earnings per share of $0.86, which was within our guidance of $0.82 to $0.88 and compares favorably to base earnings of $0.76 for the same period last year. You will hear several references to Hurricane Florence today. But let me begin by saying that based on our best estimate, the impact of the hurricane, including the related flooding of our largest paper mill complex, which is here in Hartsville, negatively impacted base earnings by roughly $0.04 per share in the quarter. This $0.04 was associated with lost sales, unabsorbed fixed cost and our $1 million insurance deductible. We also incurred excess operating cost in the quarter related to the storm, estimated to be just under $4 million, and spent roughly the same amount on property and equipment. But all of such was taken to the balance sheet and netted against a $10 million payment that we received from our insurance carrier in the third quarter to cover such cost. We expect the negative impact on earnings per share in the fourth quarter to be an additional $0.02 to $0.03, again, associated with lost sales. We have not assumed any recovery from business interruption insurance this year due to the uncertainty of the timing. But we do expect to eventually recover all but the $1 million deductible over time. I will mention that we did benefit from a lower effective tax rate on base earnings than what was considered in our guidance with a favorable impact of just less than $0.03 in the quarter, which partially offset the impact of the storm. In terms of other notable transactions in the…

Thanks, Barry. While I want to spend my time talking about our performance in the third quarter and year-to-date, let me start with Hurricane Florence. I can't tell you how proud and grateful we all are of the hundreds of Sonoco associates and even retirees who went above and beyond to restore our paper mill operations in Hartsville along with other affected operations following the unprecedented flooding from the storm. To be honest, when Florence passed over the Carolinas on September 13 and 14, we thought only the coastal areas had been impacted. But it became very clear by Sunday morning, the 15, we would be facing flooding beyond what we've ever experienced. To put the flooding into context, during a 48-hour period, we were forced to release in excess of 7.2 billion gallons of water from our dam on Black Creek or face overtopping the structure. That amount of water is equivalent to filling a 1 square mile swimming pool, 30 feet deep. On Slide 10 in our presentation, you'll see pictures of the flooding and cleanup efforts along with some of the key statistics regarding the restoration. The storm temporarily idled operations on all 7 of our paper machines here in Hartsville and impacted operations at several recycling, tube and core, Protective Solutions and thermoforming plants in Virginia, North Carolina and South Carolina. Up to 350 restoration contractors worked alongside about 500 mill associates and maintenance crews to perform the largest cleanup, restoration and repair operation in our 120-year history. We gathered and hauled off hundreds of truckloads of debris, repaired and mostly replaced 500 large motors and performed countless electrical and mechanical repairs to get our paper machines back online. Through these extraordinary efforts, all operations were back in full production by the first week of October,…

[Operator Instructions]. Our first question comes from Ghansham Panjabi with Baird.

Congrats on getting Florence -- the impact from Florence behind you. I'm sure that was very, very tough on the organization. I guess, the first question relates to Consumer Packaging segment and the margin deterioration we've seen sort of sequentially throughout 2018. Do you expect margins to be up on a year-over-year basis in '19? And obviously, you've cycled through high raw material cost inflation and transportation cost, but do you anticipate recovering the lost profitability by 2019? Or would that depend on some level of decline in raw materials?

Yes. Ghansham, first of all, thanks for the comment around Florence and all the things that our people did to get us back on track. It's much appreciated. With respect to the consumer margins, I do expect us to drive recovery. We've been chasing inflation really since the fourth quarter of last year or Hurricane Harvey. And we did think that some of the material prices would decline after things settle down, but we did not see that. And there's a whole raft of reasons for that. But I do expect that we will claw back a lot of the inflation that we saw in freight, resin, aluminum, et cetera. The self -- and I would then -- let me just give a little more color around the margin because I think the other thing is the self-inflicted cost that impacted us this quarter, I think we will get those issues resolved. And then, of course, as we bring in some additional volume in the business, the volume/mix impact will have an impact on the margins. But I do expect if we didn't have the inflation or caught up with inflation and didn't have the shop floor negative impact that we'll have to work through, we should be in that 10% to 12% margin. Sorry for the long...

That's helpful. And then just for my second question on protective. 3Q volumes varied quite a bit depending on the market. Can you just give us a bit more color on the various end markets? It looks like autos -- the autos end market bounced back a bit, which I assume relates to the easier comparison from a year ago. And also, how should we sort of think about volumes as we cycle into 2019, especially with what seems to be a little bit choppier macro?

Certainly. On the protective side, if I break it into 3 components, yes, we did see a little bit of a bounce back with the automotive side. Our ThermoSafe business, our temperature-assured business, had a very strong quarter. In fact, it was record sales and record earnings for that business. And that comes on the heels of all of the announced new vaccines coming out and us getting our proportionate share of that as the leader in that space, and we expect to see that to continue. What we did see on the protective side, specifically our paper business, we did see a bit of a slowdown as a result of some of our customers trying to raise prices into the retail trade. And we did see some slowed down activity there. But as I look into the fourth quarter, they're projecting increased activity to the tail end of this quarter. So more to come with respect to that.

Our next question comes from Edlain Rodriguez with UBS.

Quick question on Tubes & Cores. I mean, volumes there continued to trend downward. Like are you satisfied with the results there? Like is pull in the portfolio part of the ongoing strategy of that price and thus volume that you pursue?

Yes. I would tell you that part of that is clearly by design as we roll out our strategy, which we've talked about in terms of who are we best able to serve. If I take a look at -- maybe get a little more granular in the Tubes & Cores, clearly, we are seeing very strong performance in the paper sector, which you would expect given what's going on in paper today. But there has been a -- if I think about the decline, I would say 75% of the decline is what we anticipated based on the strategy. And I think about 25% of the decline is really predicated on customers making a choice based on what we believe the value is that we're bringing and what they're prepared to pay.

Okay. That makes sense. And one quick one on the M&A pipeline, like the outlook. Like what are you seeing out there? Are you still interested? Are you seeing opportunities there?

Yes. Our activity in assessing the market and looking at opportunities for us to fulfill our strategy is -- stays consistent. I think there are things there. I think we've probably talked about are we in the top of the ninth of a 9-inning baseball game with rising interest rates. Will we start to see a bit of a change occur? We're keeping our finger on the pulse of that, but we're looking at opportunities. Yes.

Our next question comes from George Staphos with Bank of America Merrill Lynch.

And echoing the earlier comment from Ghansham, great performance for everyone and recovering from the storm. I guess, I want to spend a couple of questions on volume trends. And Rob, it sounds like most of the volume slippage in consumer was related to your customers kind of raised pricing and not necessarily getting the hoped-for demand outcome in the quarter. What are you seeing as you're exiting 3Q and into fourth quarter have -- to the extent that you can comment and have visibility, have your customer volumes recovered? Have your volumes recovered? Any incremental color here would be helpful.

Sure. I'm going to break it down a little bit, George. I think that as we get into fourth quarter, I do expect our can volume to move forward a little more robustly, which is typically the case for the fourth quarter on the can side. Our flexibles business has done well where it's projected to continue to drive some of the growth. We talked a little bit about operational issues, that had an impact, and that had to do with consolidating some facilities and also bringing in equipment into another facility -- brand-new equipment to displace a number of older machines. And so I expect the volume to be -- continue to be robust on the flexibles side. And then on the plastics side, if I think about -- if you think about it in terms of the market perimeter of the store, Q3 is the slow time. We're between this and rebuild season. And so I expect the volume to be down in that segment. And then in one other portion of our business, George, we did see some market share loss to a different format, and the customer's assessing whether that format is going to be accessible in the marketplace and is capable of running through their operations. So I do expect to see volume pickup in the perimeter of the store. Flexibles, we've talked about. And cans, we've talked about. What I don't know the answer to is, is this change in format, whether that is a short-term or a longer-term issue for us.

Okay. And just to clarify, the picking up that you're talking about, some of this is seasonal. So ultimately, though, you were talking about what we normally would focus on, which is year-on-year performance. Is that correct, Rob?

Yes. And there is definitely the seasonal part as it relates to the increase going from Q3 to Q4. Correct.

Okay. A couple quick ones again on volume. If you can break down what kind of trend you saw within tube and core volumes either geographically and within North America, if you can go quickly by product line. And in product -- in Protective Solutions, should we be concerned at all that we're seeing a little bit of a volume decline here? Obviously, one of your peers called out recently some volume issues that they were seeing. Is this the beginning of maybe a slowdown? Or do you think it's really just related to your pricing actions?

Great question. So let me start with the tube and core, and then I'll come back to protective. If I walk around the globe in tube and core, starting in Europe, we have the typical impact of August. So August always has a drain on the year. We have started some of the same activity that we put in place here in North America as it relates to assessing where we best provide value. And so that body of work has started there. And so we are respectfully exiting some volume, and it's based on realizing the value that we bring. If I look at North America, as I mentioned earlier, the paper side of things continues to be very robust. If I look at the big other segments, the other 3 big segments, textile, specialty, films and all other, called tape and other, the specialty side, we did see some declines over the course of the quarter. And I don't know, George, whether it is the start of a slowdown or it's an anomaly. It's too early for us to call. If I take a look at the protective side and specifically the paper-based constructs, which is really geared towards the white goods, I think that we saw a slowdown with some of our customers largely because they went very aggressively into the market with increased prices on metal as it relates to the tariffs that they were feeling. And I believe some of that, their shortfall was made up by other companies' products. So too early for me to become an economist here and give you an outlook.

Our next question comes from Scott Gaffner with Barclays.

Just echo what everybody else had said on your performance after the hurricane, a herculean effort to get up so quickly.

Thank you, Scott.

No problem, Rob. As far as the capacity expansions that you mentioned, I think it was within Tubes & Cores in the emerging markets. Can you talk about those? Is that expansion with existing customers? Are you seeing anything -- I guess, there's been a lot of concern around emerging market trends recently. Anything that concerns you as you make those expansions into those markets?

No. I think -- I mean the vast majority of that, Scott, is coming with the Conitex acquisition. So they've got an established team and facilities in place. And really, the -- as I look down the road, the big win for us is not only the presence -- broadening our presence in China and specifically Southeast Asia, but also having the ability to sell source paper from the region as we pick up 3 paper mills, 2 in Indonesia and 1 in China, that help our position in Asia. So we're excited with the team. Obviously, we just closed at the beginning of the quarter, but we've been working on the transition work over the last couple of months and the folks have hit the ground running.

Okay. And then when I think about some of the commentary on consumer margins being below where you would expect them to be, I mean, in some ways, I guess, the Paper and Industrial Converted margins are well ahead of where they have been the last 5 or 6 years. And the last time they were this high, I guess, it was right before the recession. I mean, is there anything as we move into 2019 and 2020 excluding the recession that makes you feel like the Paper and Industrial Converted margins are not sustainable on a go-forward basis at this level?

Yes. I think if I look at the -- well, a couple of things have occurred. If you recall, we've been very choiceful in investing in some very focused capital for our paper mill system. And so we do expect between now and 2020 that, that will have some positive improvement. I think we've shared in the past that we expect it to drive directionally $25 million of additional EBITDA. If I take a look at the expectation of our tube and core with the work that we're doing, again, barring any recession, we do expect to see some margin improvement with respect to that. Now we've also been the benefactor of some price/cost, and we'll see that come down to some degree. So if you're asking, are we going to stay at the margins that we're at in the industrial side? I'd love to say yes, but I don't think that's realistic. If I look at the consumer side and I look at specifically as it relates to Q3, I'll call it the self-inflicted wound of operational performance, which we're in the process of fixing and getting us back on par with our inflation, our margins should have been in that 11% -- somewhere between 11% and 12% this quarter. Again, I'm giving you the good stuff. But if we're able to do that, that's right in line with where we would expect the consumer side to be.

Our next question comes from Mark Wilde with Bank of Montréal.

Rob, the move out of Atlanta, can you just help us kind of sequentially and maybe even kind of year-on-year in thinking about the benefits as we move into the fourth quarter and then into '19?

Yes. I think the -- if I go quarter, if you will, Q3 to Q4, Mark, we should see an improvement somewhere in the range of $2.5 million to $2.75 million as it relates to, if you will, quarter-over-quarter improvement. If I think about what it cost us over the first 9 months, I think it was directionally somewhere between $0.05 and $0.06 was the negative impact as it relates specifically to that Atlanta facility.

Okay. And just, Rob, you came from the displays business. I think it's what originally brought you into Sonoco. I'm just kind of curious, with this Atlanta situation, what did you guys miss?

That's a great question. I think a couple of things. As I think about the issue, I think that -- and I won't go into all the detail, but I think we underestimated the complexity of the operation. What I mean by that is in terms of just getting completed specs and also really understanding what Duracell was trying to achieve, and that was -- I think they also had significantly underestimated the complexity and risk of the change in their supply chain network. So it was a combination of both of us missing some things, and that's the takeaway.

Okay. Right. And then just one other issue kind of with this, just as you've been growing in kind of flexibles, as you've been growing in some of the perimeter of the store, like the produce packaging and everything, you're making a big move into plastics at a time when there's in some parts of the world kind of a backlash against plastic packaging. So can you just talk about how you think about that issue and how you try to protect kind of Sonoco on that issue as you go forward?

Sure. We're paper, we're plastics and we're rigid -- or we're films and we're rigid plastics. I'm somewhat material-agnostic, as material-agnostic as one could be. But I'm not diverting the question. The way I'm looking at this is what is the long-term play, and the long-term play is about food preservation. And as I think about food preservation, the polymer constructs, I still believe is going to be part of the solution in a significant way for all kinds of different reasons, and I'd be happy to talk about those offline. But as we look at it, a lot of what we do is not single use. And what we do have today in the perimeter store is completely recyclable. It's PET and it uses -- directionally 75% to 80% across all of the products is already recycled content. So I think we've got a pretty good story to tell as it relates to that. And part of it -- and I think, you've raised this, and I think George has raised this in the past, is what are we collectively doing to educate the consumer base. And I think that body of work is really now starting to catch hold where it's not just the converting industry. It's also the petrochemical industry as well as some of the CPGs getting involved.

Our next question comes from Adam Josephson with KeyBanc Capital.

Rob, I think George asked about the consumer volume issue earlier, and forgive me if I didn't understand you entirely correctly. But you're talking about some composite can weakness. I don't know to what extent that's a substitution away from composite cans. But -- and there's also been some center-of-the-store weakness separate from any composite can share losses. So can you just help me broadly understand what you experienced in 3Q? How much of it was just broader -- broad spending weakness? And how much was composite cans losing share to other substrates?

Yes. In fact, if I look at units, and maybe I didn't say it very well, in terms of composite can units, we were actually up around the globe in the third quarter over third quarter last year. A lot of that had to do with mix, but we did see some strong growth in some segments. And where we did see the weakness, Adam, was in the normal culprits. It was in the concentrated orange juice. It was in the powdered beverage where we've been seeing it for some time. And what I was saying about the fourth quarter is fourth quarter actually tends to get a little busier for us in some of the segments because of holidays and because of the change in weather. So you think about those, et cetera. And we do expect to see the normal seasonal growth there. If I think about where did we see some of the weakness in the consumer side, that was really on the plastics side were 2 examples that I gave, one being a transition of a product -- a portion of a product into an alternative construct that's being tested in the market. And the second is it is the typical slow time for us as it relates specifically to the perimeter of the store. We're between, if you will, ramping up and harvest time. So Q3 is typically cleanup time for both what I'll call Peninsula and Highland operations.

And just one clarification on that. I think the change in construct, stand-up plastic pouches have been gaining share and most forms of plastic packaging have been gaining share. So why would someone -- why would a customer be switching out of plastic?

It was specifically thermoforming, and they're trying a fiber-based construct.

Got it. Okay. And then Scott asked the question about the sustainability of the industrial margins, and I think rightfully so. I mean, the margins are at the highest they've been since, I think, '07, right before the downturn. I know OCC costs are very low and the URB market is very tight right now. So I assume the historic strength in margins will continue at least into 4Q and perhaps into 1Q as well. But what do you think is different this time compared to 10 years ago? We went into the recession. Your industrial lead, that went way, way down. If we go into another downturn, what gives you confidence that you won't have a similar experience this time?

Yes. I mean, if I think about it from a URB standpoint, I just think the market overall is a lot tighter and a lot more disciplined. And I think the other piece that we're seeing is while we're consuming about half of what we produce in the URB side, certainly, there's a number of consumer-related products that we've seen some very nice growth in. So that's on the URB side. #10, that dynamic hasn't changed. We're still in the process of dealing with and looking for, if you will, a take-out partner. So from a papermaking standpoint, we're the benefactor of a very tight market. And you guys see all kinds of things happening in the marketplace today. We're still very full, and we'll continue to work that way. But ultimately, for us, we still need to have then find that take-out partner, and we have ongoing discussions with respect to that.

Okay. And just one. I'm sure you're dying for me to ask you an OCC question. So I'll oblige you. Many Chinese companies have been making, obviously, substantial investments in the U.S. paper market of late, building recycle pulp lines, converting machines to containerboard, et cetera, et cetera. What do you think it'll mean in terms of the draw on OCC in this country and what implications it could have for OCC prices here short term and long term?

Okay. I would be very disappointed if you didn't ask that question. So I'll tell you what I believe to be true. And as you know, every time I say this, I'm wrong. So I believe that and what we built into our outlook, Adam, is that it will remain flat at directionally $90 a ton for the balance of this year as I look out into next year. And there's a potential that it might drop slightly at the end of the fourth quarter but not enough that I think it's going to move the needle. And then as we look out into next year, it's too early for me to talk about next year because I'm just trying to get through the fourth quarter, but I'll give you my thoughts when we're together in New York.

Our next question comes from Brian Maguire with Goldman Sachs.

I apologize if I missed this. But I think it seemed like the overall EBIT outlook was pretty similar to last quarter, but the free cash flow guidance is up $40 million. I think you talked about maybe $17 million from the sale of the pack center. But I was wondering if there were any other components you could kind of break out to help bridge that.

Certainly, Brian. As we mentioned, we're expecting cash from operations to be up about $10 million, and that's really just due to just miscellaneous adjustments to our estimate on that. But the real driving factor is the fact that we're expecting net capital spending, which reflects the value of any proceeds from asset sales to be lower now by about $30 million, most of that -- of which is associated with selling the assets at the Atlanta pack center. So it's really just those 2 components that's causing the increase in our expectations for improved free cash flow.

Okay. Got it. And then just one question on the paper industrial margins, sort of following up on a couple of questions that have already been asked there. But just wondered if you could break out the year-over-year improvement between how much of it came from price/cost versus how much you think is more structural on the customer optimization strategy you've been working on.

Yes. It's fair to say the improvement that we're really seeing in that segment is mostly associated with the favorable price/cost spreads, again, which is due more -- it's not only due to lower OCC prices overall, but it's also the impact of how we've been successful in passing prices through for noncontract businesses in North America, also the benefit of the tan bending chip index being up year-over-year. But I'm also making the point that for once, this is a global perspective where we've really seen favorable price/cost in all regions of the world due to the tight URB markets globally.

Okay. And last one for me. Just I think the last quarter you talked about the second half tariff impact of around $7 million to $9 million. Is that still the expectation? And also, do you think you can still recover that through price increases? Or is there -- you talked about some competitive intensity in the industry and some of your customers are trying to pass on prices. Do you think you can still recover that tariff impact through price increases?

Yes, Brian. That number still holds in terms of our expectations. Will there be a lag in terms of the recovery? Yes. Is it our expectation that we will fully recover that? The answer is yes.

Our next question comes from Gabe Hajde with Wells Fargo.

I echo everyone's commentary about recovering from a large storm. That was, I'm sure, very stressful. I want to try to attack maybe the OCC question a little bit differently. I saw a unique stat in a trade publication indicating that OCC exports on a tonnage basis were, in fact, up, I don't know, around 20%, 21% or something like that. And I can't imagine that domestic consumption is, in fact, down given robust utilization rates in containerboards. So I'm guessing that sort of the fulcrum might be mixed paper usage and the fact that it's effectively free. Can you talk about just given your sort of vertical integration, your collection efforts on that front, recycling operations, to what extent maybe you guys are increasing usage of mixed paper and maybe other folks in the industry and how long that might persist?

Yes. So let me start with what we're doing. We got ahead of this a while back in terms of making investments in our recycling side to really get after cleaning up the mixed paper. I think we collect directionally 200,000 tons a year. We've also been making investments in our mill systems so that they can take in more of the mixed paper and get the yield that we expect out of that. I want to make sure that I understood the other portion of your question. Your concern was about more being exported, and was that what you were referring?

No. Just that OCC exports are up this year to the tune of 21%. And when I look at, like I said, domestic containerboard utilization rates, obviously, they're very high, which would seem to suggest that OCC consumption domestically is also up but yet prices are down. And so my logic or my thought process is that maybe folks are supplementing with mixed paper across the industry because there's no upward tension on OCC prices.

Yes. I'm not sure that I've got a good answer for you with respect to that because we're not seeing some of what you just described. We -- in terms -- I just want to make I understand the question.

Gabe, I would just -- this is Roger, by the way. I would just say that what we're seeing is that most of this activity -- of increased activity in export is principally driven by year-end type of activity because permits are running, people trying to get the last tons that are available through their permits to go into the Chinese market and others. And there is some anticipation of new permits coming out as well. So we think it's more related to the timing associated to that circumstance than any true increased volume that's in the market. We did see an increase in volume activity in the quarter in our recycling operations. So again, we understand that, but there's still a tremendous amount of material in the marketplace. There's still -- as you know, there's still a lot of mixed paper that's not going into the mill system, that's going into landfill because there's little, if no value. So we think it's more of a timing-related issue.

Okay. The other one on composite cans. I mean, you guys were building out a couple of lines globally. And I'm just trying to understand maybe there's some pipeline fill and inventory adjustments going on. Might that be the case? And can you maybe provide a little insight as to expectations for that -- for volume?

Sure. The answer is we're not filling the pipeline yet because the lines are just going in. In fact, we're in the process of installing the line right now in South Africa, and the other lines for Brazil have not yet arrived. The building is getting to the point of completion, so ready to accept those lines. So we haven't seen the benefit of those lines just yet.

Our next question comes from Chip Dillon with Vertical Research.

[Technical Difficulty] including the proceeds from the sale of the Atlanta facility. Should we assume that's in the tens of millions of dollars as that offset? And also, does it have any implication for what you think that CapEx will be next year? Should that number go up because you won't have any asset sales?

Chip, we lost you here. Could you go through that again? I'm sorry.

Okay. Sorry. Can you hear me okay now?

I can hear you now. Yes.

Okay. Sorry, guys. No, just on the lower CapEx. You mentioned it's technically a CapEx number minus what you expect to get for the Atlanta pack center, which I assume you're selling. If you could just -- I would assume that the sales price is in the tens of millions. And should we also expect CapEx to go back up to near where you were guiding at earlier this year when you look at 2019?

Yes, Chip. We specifically said in the quarter, it was favorable by about $17 million in terms of the net proceeds from the selling of those dedicated assets. There will be a little bit more of that, that runs over into the fourth quarter. So again, that is the primary reason that our net cap spending number is down. We haven't finished the roll-up for 2019 in terms of what we actually think our capital spending will be. But it is fair to say just roughly we'll be back in that $200 million, $220 million range. But we'll come back to you with more information about that at our Investors' Day in early December.

Okay. And you guys have owned, I think, Highland and Clear Lam for probably about 1 year or so. How are those businesses performing now that they've been in your quiver for quite a while? And are they meeting, exceeding or matching expectations?

Yes. So Highland, we've actually owned for a little over a quarter, I think. So I think you're referencing Peninsula.

I meant Peninsula. Yes.

Yes. So a couple of things. One is we're in the process of doing some consolidation work, which was contemplated when we bought the facilities in Peninsula. And so that work's underway, and that will be completed. From a synergistic standpoint, we're running a little bit behind what we know that we'll be able to achieve. So some work left to be done there. And on the Clear Lam side, performance-wise -- what I'll call operational performance-wise, it's doing what we expected. We did lose some business out of that facility, but that will be replaced. And in terms of the products in the product development, it's -- they're certainly performing the way we expected. In fact, when I think about all of the new products across the company, we're on track to drive about $70 million of new product sales this year, which is better than last year, and that's as a result of having some of these acquisitions in place.

Got you. And one last quick one. On the medium machine, which I think you guys have had -- you've been running pretty fully versus, say, 2 years ago, could you just give us an update as to -- is that product mostly going domestically or overseas? And how do you find the relative attractiveness of those markets? Again, this is not a core business of yours, but it seems like the industry's been running very hard to try to take advantage of what apparently are good prices overseas.

Yes. I would tell you, Chip, probably directionally, it's about 50-50 in terms of domestic and export. But our long-term prognosis as it relates to that machine hasn't changed from what we've talked about before.

Which would be to try to find another partner, I would imagine?

Correct. Correct.

Our next question comes from Steve Chercover with D.A. Davidson.

So sorry to ask a question about Consumer Packaging so late in the call. But I was also looking at the, I guess, the trends in profitability. From a longer term -- and there has been erosion over the last few years. And I'm just wondering, is the mix getting less lucrative with the growth? Or is it strictly the price/cost relationship?

I think it's both. I think in terms of volume/mix, there's clearly a different margin profile in some of the business. And some of it is, quite frankly, I mean, the impact of the inflation that we're facing, and we'll get that back. But I also have every expectation that as we grow in some of the space, as we've demonstrated in the past, that we've been able to grow the margins to an acceptable level. But again, I don't want to mislead in any way, shape or form. Expectation is that we -- in the consumer side, it's a 10% to 12% margin business, some years better, some years little less, but it should be in that range.

Understood. And a quick question on Conitex, please. So for the $143 million, will you be consolidating approximately $170 million in sales or no? I was also hoping -- so how is it reported now?

Yes. Currently, through the third quarter, the earnings from that joint venture, our share of those earnings were just picked up in equity and affiliates. Going forward, we'll be reflecting their financials on a consolidated basis into ours. So we'll be reflecting sales roughly of $270 million or so on an annual basis in the Paper and Industrial Converted Products segment.

Okay. I thought -- so yes, and I appreciate the update on what the annual run rate is of sales. But I thought that a portion of the revenues would be in Paper and Industrial and some would be in Consumer Packaging in Europe. So could you give us that split?

Well, just obviously, it's a very small composite can operation in Europe that would be part of the consumer business. So it's really insignificant. Essentially all of this from -- to the industrial side.

We have a follow-up question from the line of George Staphos of Bank of America Merrill Lynch.

I know it's late in the quarter, so I'll make it quick and I'll ask them in sequence. First of all, when we look at Paper and Industrial Converted Products, I understand that kind of projected additional price/cost benefit into 2019 is very difficult to do one way or another with precision. But if we assumed flat pricing and flat raws, which may be is unrealistic but just to have a frame of reference, why would your margins decline next year, Rob, from where they are this year? I mean, that was kind of the implication you left me with, anyway, in terms of answering one of the prior questions. I think it was Adam's question. Why wouldn't you at least be flat if there's no further price/cost benefit going forward? And then in thermoforming, it seems to me that -- and perhaps I'm wrong, and please correct me if I am, that you have some ongoing operational issues there. Is there anything that systematically you're finding you need to fix whether it's within Peninsula, Highland or Clear Lam? And how do you go about doing that in 2019?

Sure. On the thermoforming side, no, I don't think there's anything systematic in terms of the issues. I think we just got some shop floor and some consolidation issues that we need to address. And we've got the right team in place, and I have every confidence that they'll be able to fix that situation. In the perfect world, George, I wouldn't argue with you with respect to if everything stays flat, there's no inflation, all the inputs stay the same, there's no reason for our margins not to remain the same. But I know that we deal in the real world, and we'll have fluctuations. I don't know if that's the answer you're looking for, but it's the reality that we face.

Yes. I just want to make sure we're not missing something mechanically as regards specifically price/cost and really price versus OCC recovered paper. But that was great.

No, if I didn't answer appropriately the first time, my bad. Sorry.

It's probably on me, Rob, probably on me.

And I'm showing no further questions in queue at this time. I'd like to turn the call back to Mr. Schrum for closing remarks.

Thank you, again, Liz. Sonoco will be hosting its annual breakfast meeting with the financial community on Friday, December 7, in the Billiard Room at the New York Palace Hotel, which is at 455 Madison Avenue. If you come early, you'll be able to get one of New York's best-served breakfasts, and then we'll start breakfast at 7:30 a.m. And presentations will begin just before 8:00 a.m. Rob and our executive leadership team will provide a number of business and strategy updates. And Barry and his financial team will provide a first look at our financial targets for 2019 as well as an update on our 2020 vision target. There will be plenty of time, of course, for your questions. And as always, we'll be mindful for your time, and we should be completed by around 9:30 a.m. Invitations for the event will be going out this afternoon. And for those interested in attending should contact the company through my trusted assistant, Robin Hayter, either by phone or by email. And those who cannot attend in person can join us, the meeting, via webcast at sonoco.com under the Investor Relations section. Again, let me thank everyone for joining us today. We appreciate your interest in the company. And as always, if you have any further questions, please don't hesitate to contact us. Thank you, again.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program, and you may now disconnect. Everyone, have a great day.