SLGN
#Sure.
<UNK>, <UNK>.
I will respond first on that.
A really good question.
As to conversations, I would say that has been pretty light.
We would have not gotten a lot of specific items from the customers on what they are thinking there.
I think on general trends what you say is probably about right.
The pack in the US broadly was a pretty good pack.
We had a couple of customer-specific things that made it a little less than we had been expecting, but there was nothing about the growing season in the US that was anything other than what we would call normal.
I think generally customers have the inventory that they want on the US side.
I think you're absolutely right on Europe, which of course is much smaller to us, so it will have less impact when you think about 2017.
But it was pretty soundly a bad pack in Europe everywhere.
And certainly when I speak to the markets we serve I'll say everywhere, it was just off across the board.
I do think inventories are low for our customers.
I would expect that they would be planning on more pack next year.
Definitely in Europe I grew the completely, US I think a little bit more to be seen.
But your question, it's very possible the answer to that is yes.
That you'd see a little bit less on the plan for next year in the US because of inventory.
<UNK>, it's <UNK>.
Good question.
I think that the 6% unit volume decline versus prior year is about where we expected, and is very similar to what we saw in Q3.
I would say we are essentially at the bottom point of our balancing of the portfolio, our rebalancing of the portfolio activities.
As we talked previously as well, we had pulled back a little bit on our sales effort as we were going through some of the operational challenges.
We are now out in the market actively selling and winning business today.
I think that we're just cycling over a period of time where we did decide to walk away from some business, and as we go forward you will start to see some growth in our plastics business.
It's almost entirely attributable to the balancing of the portfolio.
Again, as we've talked about on the previous calls, we have spent a great deal of time and energy this year insulating our customers from some of the challenges that we faced.
Those customers have stayed with us.
We've done a nice job on the customer service side maintaining our relationships and in some cases strengthening them.
Really it's about the rebalancing of the portfolio and the balance of the business is in fairly good shape at this point.
I'm going to assume that question goes to all parts of the business.
So I think I'll start on the can side and say that the ---+ certainly in Europe because the pack was shorter than we thought the inventory was a little high, so we probably need to work some inventory off.
That's part of what we're thinking about in our fourth quarter numbers for Europe.
In the US inventories are high.
These, you'll recall as we were getting ready for Burlington plant, we had to drive up inventory a fair amount.
That will be a little bit longer process for us to work off those inventories, and probably into and through all of next year we'll be slowly working inventories down in that business.
In the closures side because volumes have been so strong, inventories are actually quite light.
We'll need to work on inventory balance, particularly on the plastics side of our closures business.
And then on plastics I would say there's really no significant shift around that.
As we had to move lines we did built some inventory for those lines moves.
That's a pretty select part of the market.
I don't know that there's a big inventory story there; perhaps a little bit of work off as we get that ramping back up.
Okay, we'll take that one and then we'll move on.
On steel price we are definitely everywhere all markets we are hearing a fair amount of effort towards inflation of the cost.
A lot of the underlying costs have inflated.
I will say this is very early.
We are not through our negotiations, so we really don't know the answer, but I think there's no question that steel is going to be up.
It's going to vary a bit by region.
Beyond that I would just say if you take what we know right now it would sound sizable numbers, mid-single digit all the way up to perhaps double digit, again depending on region.
That is what we're up against at this stage, and we're working that as we can.
I'll let <UNK> on the resin side
Sure, and just starting with Q4 on resins, there are price increases that are in the market right now for our primary resins.
We'll see how that plays out through the fourth quarter.
So it could be a slight headwind for Q4, but as we look out into 2017, the expectations are that our primary resins will be essentially flat.
There is additional capacity that is slated to come on board in 2017, and we will see how that is on boarded and participates in the market for next year.
But at this point we're assuming essentially a flat resin impact for 2017.
Sure.
Although I wouldn't read too much into that.
I think basically there is narrow windows of time that work for us.
We have to have a pretty good sense around earnings so there are no surprises on that.
We have to have a pretty good sense around free cash availability.
In this particular case because our leverage is to the low end of our range, there is little bit more room in any case to do it.
So it seemed to us it was the right time.
The leverage was low, the cost of capital is pretty cheap.
It seemed like the right decision for us to do to return some cash back to shareholders.
Again, it should not be read as anything more than that about what do we view of acquisition opportunities, et cetera.
This fits very well in our overall capability in terms of borrowings for the growth we want to do for the business.
It's just we've got multiple levers as we've always said and we're pulling this one at this stage because it really doesn't get in the way of acquisition or organic investments that we want to make.
<UNK>, this is <UNK>.
What I would add to that, you benchmarked it against the last one, but in fact if you look back over the course of our history of doing share buybacks we have done them at the end of the year in previous situations as well.
I think it's exactly what <UNK> described.
It married up from a timing perspective where it made sense.
Yes, that is pretty typical.
2.5% to 3.5% is the range that we talk about often.
We do lever as we go through the year for working capital.
We're right at the height of that peak right now, so to speak.
And all the free cash flow gets generated in Q4.
So we would come back.
And even with the impact of the tender, assuming that it got fully subscribed, we would be well in the stated range.
And let me just add, this is <UNK>.
I just want to add one thing, that 2.5% to 3.5% has always been meant to be a bit dynamic.
And I'm not trying to say we're leaving that number completely behind.
But that was always established based upon a balance between what we thought the equity market could stand of leverage versus a business that is highly predictable, highly strong cash generative.
We've always said that the business itself could sustain much higher levers numbers, it's a question of what is the equity market willing to bear on that.
I think on balance the equity market is obviously more willing to accept leverage right now at low-cost capital.
So my own view is that you'd want to be a little bit higher in that range now on leverage and that you get pretty inefficient as you drift down to the low end of that range.
Could not have said it better ourselves.
Absolutely.
That is correct.
Sure.
It's <UNK>, I'll response to that.
What we have said primarily is around the Burlington investment, which is the most important discrete item on the can business.
And what we basically said about that is that we've spent $100 million, we expect our returns on that, which would be something in the range of $20 million I think is a reasonable EBITDA expedition from that.
That is our expectation, but you've got to consider what we've already experienced in 2016.
I'm going to take you back for a minute and say that we had basically inefficiencies that came into our system for a variety of reasons of some $20 million that we talked about in 2015.
That number we have said will be more in the range of $15 million in 2016.
That $15 million includes start up costs, et cetera.
So if you ignore start up you had inefficiencies of $20 million in 2015.
That moves to $10 million-ish range in 2016, plus the $5 million of start up.
The increment you'd expect on EBITDA line from the line would be something in the range of $15 million in 2017 as compared to 2016.
That is EBITDA, that's not depreciation.
Take depreciation out and you're looking at something like $9 million of EBIT.
And those numbers nothing is new in any of those numbers.
That's the one thing we talked about.
I think obviously against that we're always try to be more efficient and find ways to take cost out.
What we also know against that is that we will have ---+ it looks right now like we will have ---+ PPI index will be down again for next year.
So that creates a little bit more of a price headwind for us in the way our contracts pass that through.
We know we'll have to overcome that.
And then pension I think is a who knows right now.
You look at discount rates and how low they are and it's a little unclear which way pension will cut at this stage.
I think that's the broad view of what is in front of us.
Sure.
I will let <UNK> do that.
As we've stated before we're looking for a $15 million year-on-year improvement in our plastics business.
As we sit here today we feel very confident that is the number that will be cycling through for next year.
Sure, <UNK>, it's <UNK>.
To squarely focus that conversation on the operational improvements, it all came from our operational improvements.
Our volume was down 6% as we talked about before, and what you are seeing is we still have some duplicative plant costs that we carry through the quarter.
But really this is getting back to the basics of blocking and tackling in our business and good executing across our platform in plastics.
We're not where we need to be yet, but we're taking the right steps and we're going down the right path.
You broke up there, <UNK>.
Sorry, the front of that broke up.
Actually the answer might be the same for both of those questions.
What is driving the growth in the US closures market for our particular business is on the hot fill side again, as we've talked before ready-to-drink teas and sports drinks are growing faster than other segments of the beverage market in the US.
We also had a very long very hot summer for most parts of the United States.
So our customers started filling early this year into the first quarter, and honestly have been running hard all the way through, I will say, mid-October.
It's been a very long filling season for the US.
We would expect that to continue for next year, as well, as we look at our customers winning in their markets and our markets outperforming the overall beverage market.
We're always looking to rationalize cost wherever we can.
We think it's only way for long-term sustainability of the business.
So on a long-term scale, absolutely.
In the near term I think you have seen the bulk of it on the plastics side at this stage.
In terms of the timing, clearly the Cape Girardeau close was much later than originally planned.
That speaks to the entirety of the slowdown of the process.
But it was very much on-time with our recent reconsidered plans.
I think we are quite pleased that we got through that.
There were a lot of lines in motion to get that done this quarter.
We had talked about it last quarter call that presented a real risk to us again even though we had had some issues in the last year.
We had to get the inventory built and get these lines moved.
It's definitely an important step for us, and it was on the revised plan.
The LaPorte plant was a little later.
We had talked last quarter about being a month behind on the new Burlington plant.
It was within a relevant range.
There was a little bit of hope that we would get it done in time to actually that the Burlington plant could generate a little bit of income off can supplies for this busy season.
That was a wish if you can, and we didn't quite get to that.
But it was within a month or so of what we had expected.
If your number is just on the food can side, I would say that seems pretty high to us.
One point of clarification I want to make is the $9 million I'm talking about for next year is not the entirety of the value of the line.
It's only the increment over what was embedded in 2016.
So just a point of clarification.
But as to your question what does 2017 look like versus 2016, $9 million is the right number to think about.
You are right that Europe should be better.
I think it's hard for me to imagine that won't be the case or that certainly will be a very bad pack year on the side of Europe.
Against that if you look at what else is going to happen in the US, again the cost savings that we're talking about from the Burlington line are essentially getting rid of those costs that you're referring to.
The benefit is taking out all of that friction cost that came into our system in 2015.
There's really nothing beyond that that we pick up out of the new line coming on.
We will continue to try to do things better, more efficiently, so there will definitely be some other operational improvements that we're going to make on that side.
You may have a better pack, and really that's about our customers.
So it's not really about the growing season.
I don't think we should expect much better than this year.
But perhaps the customer that we had who worked down inventory this year will be back to building inventory next year.
I think <UNK>' question is relevant on that, which is what's the broad background of inventories and consumer demand for fruit and vegetable.
Against that, I think all that probably nets a slight positive perhaps, but not a big number.
To be clear, your number is a little high on containers.
Now, if you add in the benefit that <UNK> talked about on the plastics side, I think you're getting into the right range.
Yes, say it's about $15 million you mean there is on the plastic side.
Yes, I think you're in the right range.
Yes, I think that is true.
We've got a lot to work through here and pension stuff would affect that.
But I think what you are ---+ that sounds right, that if you saw $15 million total improvement in that business that certainly seems like a reasonable performance against our expectation as we sit here.
Sure.
You're talking about in the fourth quarter.
Sorry, in the third quarter.
We were basically flat on the food can side.
We were down 6% on the plastic side and we were up a couple percent on the closures business.
Really the pass through mechanisms are industry standard.
They're customer by customer, so I don't think we'll go into a lot of detail here, but typically it's just a lag pass through of some short window of time.
And so again, just the impact in Q3, really we didn't have any impact from resin as it was relatively stable throughout the quarter.
No impact in either plastics or closures for the quarter.
Sure.
Again, I'm going to caveat I've already said it once, but we have not done detailed budgets and we do always have learnings as we do that.
I would caveat all of that.
I think the cadence ---+ certainly the improvement that we've seen on the plastics side we do believe is sustainable.
And so that should begin to sequentially flow through the numbers as we go into the year.
I would expect that to be in the numbers by Q1 and going forward.
In the can business I think because of the seasonality of our business I think it's bound to be that you're going to get a little bit more of that in the mid-part of the year.
You'll get the benefit of the Burlington line making cans and going into inventory, but again the bulk of that is going to be ending up in inventory.
I think you'll see more of that in mid-part of the year.
Well whether we're seeing more opportunities is a different question.
Do we see that as an opportunity, the answer is yes we do.
Again, it was predominantly a vacuum closure business when we first got into it; actually it was predominantly a metal vacuum closure when we got into it.
We went a bit of adjacency to plastics vacuum closures.
And then we've moved a little bit more in other areas around beverage, cold fill, et cetera.
And then we moved into the dairy side through a few acquisitions.
And so we have certainly moved vertically.
And yes, we do ---+ we think we've got a really good team, we think we have an excellent footprint around the world.
And so we would very much like to find other closures and acquisitions that could help us, and we would move vertically on that.
Basically there was very de minimis impact.
And that's typically the case for us.
Without very significant rate movements, FX is not much impact either on the top line or on the bottom line.
Given where rates are today, we would expect much the same for Q4 as well.
Good question.
Pet food continues to grow, and again, we are primarily here talking about wet pet food versus dry pet food.
Some this could be mix shift between the two and the can is basically wet pet food.
We are seeing that growth across our business, both in the metal side and in the plastic side.
We also do pet food packaging.
That has been sustained for some lengthy period of time.
We do view that as a sustainable trend from the consumer.
To be clear, what I had said in the front comments is that we went through a critical stage.
That statement I was just referring to, that we had several lines that were pretty important to a few customers in motion in Q3.
So that was very important to us.
And so to be clear we are through that critical stage.
We're on ramp up, so I shouldn't overstate that, but the most risky part of that is behind us.
There are a few more lines moving in Q4, so it's not as if there is not still some important work to be done.
But what I was trying to convey is that we ---+ it was a very important third quarter for us and we did get ourselves through that.
As to the growth, again, the markets that we are in, historically our plastic business was heavy in personal care; it's also in household chemicals.
What we've been doing of late to some extent is moving a little more towards food.
None of these are particularly high-growth markets.
I would not describe it as a real high-growth opportunity.
But there are big customers in there that Silgan has long relationships with that present opportunities for us in the future to capture share, if you will as those customers move forward in various markets.
We do see opportunities, but again it's going to be modest on the growth side.
We're much more focused on our cost picture right now and getting the right footprint, and then in time we will drive that growth stronger.
But that is more of 2018 and beyond.
2017 is much more about holding the gains that we've got and being sure that we get the $15 million that <UNK>'s talking about, which is primarily out of the cost side.
Sure.
Really not much has changed over the last quarter.
We continue to have some excess capacity.
As you know, capacity was built in excess of what was needed for a particular customer contract.
That capacity still fits there and is still moving around the market.
But again, to scale that, that is something like 1 billion units capacity.
Maybe 1.5 million units capacity against a nearly 30 billion market.
So I don't want to over-portray that, but nothing really has changed around that.
To be clear, when we talk mix there we're talking about dollars of contribution per unit of volume.
It doesn't ---+ it sounds like it's meant as a derogatory concept of mix, it's really not.
It's just that if you sell a small can, like a pet food can, versus a large tomato can there's a lot less dollar contribution per unit sold.
That's really what's happening is you are seeing growth in pet food, which is a good thing, but on a per-unit basis that's not as good as if you have bad pack and you don't sell large cans to the pack region.
And that's really what's going on.
And just a point of clarification, we had talked in Q2 about the fact we had good mix in Q2.
It's not ---+ most of this is not a surprise, that the mix was a little less positive in Q3.
Sure.
This is not new news.
Essentially the way our contracts work is we have a pass through for steel or metal pretty much as we experience it.
We have pass through for labor, which is based upon indexes and would pass through on that.
And then we have pass through in many cases for other costs on something and index, generally a PPI.
Really all that's happening historically you get PPI and if you do a good job you can keep your inflation down below that and you improve profitability through the contract over time, which we've always said is essentially what we give back to the customer at time of renewal to get renewals.
That is a long, long story of how our contracted work.
What is news that we're in a deflationary time.
And so when you get deflation in a PPI index, it's not so easy necessarily to get actual deflation in your costs.
That may be around coatings, compounds, rent, there's a variety of things that don't necessarily deflate as the PPI does.
And that's what's happening is that we've got contractual pass through of deflation in excess of what we can necessarily get through our cost.
And as long as PPI deflates we will suffer a bit of that, and when it inflates we ought to get that back over a period of time.
In either case they tend to I think to reset when the contracts renew.
It will keep carrying forward until you see inflation in PPI and get to a year reset of contracts where you get to pass that through.
There are basically three.
This is really what are we a bit surprised by, remembering that we're staying within our range.
Even surprise is the wrong word, it's just where we think more of the negative of what we were thinking versus the positive.
And the answer there is basically that in one case in the US we had a particular pack customer who we were hoping and believed would take a little bit more than they chose to do.
They were doing inventory management; that's one.
Two is the pack in Europe, which we talked about in the second quarter call as being negative, was decidedly more negative than we thought.
So less cans shipped in Q3, less cans will ship in Q4.
Packs are done in both places.
Which brings up the third point, which is that raises an inventory question.
So in the case of Europe there is probably an opportunity for us to burn off some inventory, which has negative impact on us as we absorb the cost they're sitting on that inventory.
Those are basically the three things that take us to the low end of the original range that we had out there.
Yes, you do have to invest if it continues to grow.
I think the question about attracting capacity is more of a broad can question.
Essentially you still have can assets that can convert around.
So the question is if you bring that in you're just creating more excess capacity into the can market.
Is that a good idea for the overall can market that already has excess capacity.
We would certainly hope that it does not attract more investment of capital, but do we have to invest as it grows over time.
We do and we have.
Those are relatively small investments because you've already got the plant in the location you want it.
And so these are fairly efficient investments on the growth.
Great, thank you all for your time and we look forward to talking about our year end and bit of outlook on 2017 in more detail in the end of January.
Thanks.
