Bemis' (BMS) CEO Henry Theisen on Q2 2014 Results - Earnings Call Transcript

Jul.24.14 | About: Bemis Company, (BMS)

Bemis (NYSE:BMS)

Q2 2014 Earnings Call

July 24, 2014 10:00 am ET

Executives

Erin Winters -

Henry J. Theisen - Chairman, Chief Executive Officer, President and Chairman of Executive Committee

William F. Austen - Chief Operating Officer and Executive Vice President

Jerry S. Krempa - Principal Financial Officer, Principal Accounting Officer, Vice President and Controller

Analysts

Scott L. Gaffner - Barclays Capital, Research Division

Alexander Hutter - Jefferies LLC, Research Division

Mehul M. Dalia - Robert W. Baird & Co. Incorporated, Research Division

Alaxandar Wang - BofA Merrill Lynch, Research Division

Adam J. Josephson - KeyBanc Capital Markets Inc., Research Division

Daniel Moran - Macquarie Research

Christopher D. Manuel - Wells Fargo Securities, LLC, Research Division

Deborah Jones - Deutsche Bank AG, Research Division

George L. Staphos - BofA Merrill Lynch, Research Division

Albert T. Kabili - Macquarie Research

Operator

Good day, and welcome to the Bemis Company-hosted Second Quarter 2014 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Erin Winters. Please go ahead, ma'am.

Erin Winters

Thank you. Welcome to our second quarter 2014 conference call. Today is July 24, 2014. After today's call, a replay will be available on our website, bemis.com, under the Investor Relations section.

Joining me for this call today are Bemis Company's Chairman and Chief Executive Officer, Henry Theisen; our Executive Vice President and Chief Operating Officer, Bill Austen; our Vice President and Controller and interim Principal Financial Officer, Jerry Krempa; and our Vice President and Treasurer, Melanie Miller.

Today, Henry will begin with comments on this quarter's business performance and outlook for the remainder of 2014. Bill will then discuss growth and capital expenditures, and finally, Jerry will cover the financial statements.

After our comments, we will answer any questions you have. [Operator Instructions] At this time, I would like to direct you to our website, bemis.com, under the Investor Relations tab, where you will find our press release, along with supplemental schedules. We will be referring to these schedules at points throughout today's discussion.

On today's call, we will also discuss non-GAAP financial measures as we talk about Bemis' performance. Reconciliations of these non-GAAP measures to GAAP measures that we consider most comparable can be found in the press release and supplemental schedules.

I'd like to remind everyone that statements regarding future performance of the company made during this call are forward-looking and are subject to certain risks and uncertainties. Actual results may differ materially from historical, expected or projected results due to a variety of factors. Please refer to Bemis Company's regular SEC filings, including the most recently filed Form 10-K for the year ended December 31, 2013, to review these risk factors.

Now I'll turn the call over to Henry Theisen.

Henry J. Theisen

Thank you, Erin, and thank you, all, for joining us. I am very pleased with our performance this quarter. We delivered record EPS and strong margin improvement, grew sales in our target end markets and positioned our business for additional value-added volume growth in future periods.

We delivered our highest gross margin percent since 2009 during this quarter at 19.8% as compared to 19.4% last year. This margin improvement was driven by continued pricing discipline and improved sales mix.

In our U.S. Packaging segment, we improved operating margin to 13.9%, a healthy increase compared to 13% last year. We grew our target dairy and liquid end markets consistent with our strategy to increase sales of high-barrier value-added products. In our liquid packaging business, we continue to see the positive impacts of the conversion away from historical formats, such as glass and metal cans, to our lighter and more sustainable flexible packaging.

In our dairy packaging end market, we gained some small yet strategic wins with our customers. Beyond these target end markets, overall unit volumes weren't quite as strong this quarter as compared to last year for a variety of reasons, including high beef and pork prices.

Our strategy to sell the right products is paying off. We sold a larger portion of new, innovative products that earn a higher price based on the value they add to our customers.

In our Global Packaging segment, this quarter's performance was consistent with last year. While we faced volume headwinds in Brazil, where inflation continues to burden consumers, we are pleased with the strong unit volume growth in our global health care packaging business. We have targeted this end market as an area of growth as it fits with our strategy to sell technology-driven value-added products. Our innovative solutions meet our customers' stringent packaging requirements for safety and sterility.

In our Pressure Sensitive Materials segment, we also delivered improved performance this quarter. Our profit levels benefited from the double-digit increases of value-added graphics products, driven by a stabilizing economic environment in Europe. Our business teams have managed costs well over the last few years in light of economic volatility, and this will continue to benefit performance in the future.

With respect to the raw materials market, the polyethylene resin cost increase earlier in the year was successfully passed along in accordance with our customer pricing agreements.

Turning to guidance. Our third quarter EPS guidance is in the range of $0.65 to $0.70. Second and third quarters are seasonally our strongest periods, and we remain confident in our ability to deliver improved performance during the second half of 2014.

We are raising the bottom end of our guidance for the full year 2014. Our previous full year guidance was in the range of $2.40 to $2.55, and we are now further defining that range to $2.45 to $2.55. Looking at the first half of 2014, I am pleased with how our businesses performed. We achieved modest organic sales growth in our U.S. Packaging and Global Packaging segments. We delivered sequentially improving gross margins during each quarter this year. We redeployed the cash from the sale of the Paper Packaging division to repurchase 2 million shares of stock during the first half of 2014. And most importantly, our business teams are commercializing new opportunities and expanding capacity to support our target end markets. We are confident in the margin growth and return on invested capital improvement this will deliver in 2014 and beyond.

Now I'd like to turn the call over to Bill for some additional commentary on our growth plan and capital expenditures.

William F. Austen

Thank you, Henry, and good morning, everyone. Like Henry, I am pleased with the execution of our growth strategy in the first half of 2014. Our business teams continue to focus on serving customers, increasing market share and improving sales mix, where our technologies provide a sustainable advantage.

Today, I'll provide some color on the execution of our growth agenda and our confidence in our performance during the remainder of the year and into 2015. We have a strong pipeline of new business awards to support growth during the second half of 2014, and we are also investing in research and development projects that will create additional long-term opportunities.

Before sharing details about our new business pipeline, I'll revisit the background of our 2014 growth expectations. As we stated in January, we anticipate that, directionally, our 2014 sales volume will be slightly better than GDP. Market share gains and new product innovations will provide the incremental unit volumes. While volume is important, our main focus remains in selling value-added products to our customers.

As Henry mentioned, during the second quarter, we strategically increased unit sales to liquid, dairy and health care packaging end markets. We are pleased with this targeted growth and with the work we have done to lay the foundation for continued success in the coming periods.

We have an innovative team of research and development engineers around the world, developing breakthrough technologies, prioritizing and focusing research effort and accelerating new products to market. We have introduced new products to our customers that will deliver steady volumes and margin improvement during the second half of 2014 and beyond.

From a geographic perspective, these innovations are applicable to customers around the globe. In the U.S. during the second quarter, we were awarded several pieces of new business that will ramp up during the remainder of 2014 and beyond. For example, we are now selling our roll stock solution for high-barrier shrink applications for markets such as fresh meat and cheese. Our solution replaces the use of shrink bags and supplies our customers with substantial savings in their converting process.

Next, our innovative barrier sheet, along with its easy-open lid, is expanding into new liquid categories. This chlorine-free packaging solution delivers cost savings and sustainability to our customers by allowing for recyclability in their packaging process. Also in the U.S., we continue to convert our customers' packaging from historical, coded boxes to our flexible formats. Examples of recent conversions are frozen breakfast foods that are now offered in convenient stand-up pouches rather than wax-coated boxes, and our frozen -- and frozen vegetable purées now offered in flexible bag rather than a box.

In Asia Pacific, we have added capacity to support the growth of our protective films into new electronics applications. Our extrusion platform in Asia is also poised to grow with the expanding needs of our protein and medical device customers within that region. Our performance is strengthening with order backlogs at higher levels as we enter the third quarter.

In Latin America, we continued to extend our existing technologies to the Brazilian marketplace as it transitions to advancing -- to advanced packaging applications. For example, our proprietary barrier films are now being used to package frozen vegetables in Brazil. Another example is our Peel-Reseal films that just launched in the Brazilian marketplace to provide convenience and reclosable features in luncheon meat applications.

In Europe, we are focused on niche packaging markets. As the economy continues to stabilize in this region of the world, we expect performance to continue to improve as well.

Turning to the topic of capital spend. We continued to execute our capital expenditure plan for 2014 to support our long-term growth strategy. We are investing in state-of-the-art capacity for top line growth and to further strengthen our competitive position. As previously guided, we expect capital expenditures to be approximately $175 million. This year's increased capital spending reflects investments to meet the growing liquid market needs, to enhance our health care packaging capabilities and to expand our sealant and protective film extrusion platform.

As we move beyond 2014, we expect capital expenditures to be around D&A to support increasing global demand for flexible packaging.

Now I'd like to turn the call over to Jerry for his comments on the financial results.

Jerry S. Krempa

Thank you, Bill, and hello, everyone. This morning, Bemis Company reported record second quarter diluted earnings per share of $0.65, which was near the top end of our most recent guidance. There are no adjustments to GAAP earnings this quarter. These earnings reflect a 6.6% increase compared with the 2013 second quarter adjusted diluted earnings per share of $0.61. The prior year amount is shown on Page 3 of the supplemental schedules, which are available on our website and will be referenced throughout my comments.

This quarter, we delivered gross margin as a percentage of net sales of 19.8% compared with 19.4% last year. This is our highest gross margin percentage since 2009.

I will now discuss the sales and operating profit performance of each of our reportable segments. As I discuss sales, refer to Page 4 of the supplemental schedules, which provides detail on the year-over-year changes in net sales by reportable segment.

Our U.S. Packaging operations, which represent about 60% of total Bemis annual sales, saw a decrease in second quarter net sales compared with the second quarter of last year. The primary driver of this decrease was the divestitures of our Paper Packaging division in 2014 and our Clysar division in 2013.

Aside from the divestitures, overall organic sales in U.S. Packaging were down slightly. Volumes in our target end markets of dairy and liquid grew at strong single-digit percentages compared with last year. Our meat category showed a modest decline in volume, while we saw, on average, mid single-digit declines in dry foods, confectionery and snack and beverages.

U.S. Packaging operating profit for the second quarter of 2014 was 13.9% of net sales compared with 13% of net sales in the second quarter of 2013, approximately 1/2 of this improvement related to the favorable impact of higher unit sales to our targeted dairy and liquid end markets, the remaining improvement related to the favorable mix impact from the Paper Packaging and Clysar divestitures.

Next, I will discuss our Global Packaging operations, which represent about 30% of total Bemis annual sales. Looking at the middle of Page 4 of the supplemental schedules, this segment reported a net sales decrease of less than 1% when compared with the second quarter of 2013.

Currency movement negatively impacted sales by 5.8%, primarily related to the weakness in the Brazilian real. The acquisition of our extrusion platform in Foshan, China increased net sales by 5.2%. Remaining organic sales were approximately flat. We saw mid single-digit increases in volumes of global health care packaging, as well as increases in meat and cheese packaging in Europe. These increases were offset by overall lower volumes in the sluggish Brazilian economy.

Second quarter operating profit for the Global Packaging segment was 7.2% of net sales, which was consistent with last year. The currency effect negatively impacted operating profit by $1.7 million, primarily driven by weakness in the Brazilian real. The benefit of higher selling prices and better mix in target end markets was offset by the negative impact of overall weak demand in Brazil.

In our Pressure Sensitive Materials segment, which represents about 10% of our business, net sales for 2014 increased 1.6% compared with the second quarter of 2013. This includes a 2% benefit from currency translation. Organic sales, therefore, decreased slightly as noted on Page 4 of the supplemental schedules. The double-digit increase in volumes of value-added graphic products was substantially offset by lower volumes of technical and label products.

Operating profit for the Pressure Sensitive Materials segment was 6.8% of net sales in the second quarter of 2014 compared with 4.2% of net sales last year. This increase was driven by the impact of higher sales of graphic products, in addition to improved global production efficiencies and cost controls.

Now I will shift to consolidated Bemis results. Selling, general and administrative expense was 9.6% of net sales for the second quarter. We expect these expenses to be just under 10% for the year, which is down slightly from the prior year.

Research and development expense was 1% of net sales for the second quarter, up slightly from the prior year. Our increased investment in research and development demonstrates our effort to accelerate the pace of innovation and deliver growth in our target markets. We expect this to continue through 2014 and beyond.

The income tax rate for the second quarter was 34.4%. We expect the income tax rate for the balance of the year to be approximately 34.5%.

Cash flow from operating activities for the second quarter totaled $57.9 million. This reflects the cash payments associated with the closure of the Pressure Sensitive Materials plant in Stow, Ohio and generally higher working capital levels in the second quarter. We expect 2014 cash flow from operations to be $450 million. This revised expectation considers the cash expenses related to the Stow closure, as well as tax payments related to the gain on the sale of the Paper Packaging division.

Capital expenditures for the second quarter were about $34 million. Spending levels will ramp up during the second half of 2014 as we install equipment that was ordered earlier in the year.

In May, our Board of Directors increased the authorization for share repurchases by 8 million shares, supplementing our current buyback authorization. We repurchased approximately 1 million shares of Bemis stock during the second quarter of 2014. As of June 30, our remaining authorization from the Board of Directors was approximately 8.4 million shares.

Quickly touching on our leverage metric. Net debt to adjusted EBITDA at the end of the second quarter was 2.2x, slightly above our target rate of 2x. We have $400 million in bonds with a fixed interest rate of 5.65% that will mature on August 1 of this year. We plan to refinance these bonds with a $200 million bank term loan that will mature in the year 2022 and another $200 million of commercial paper.

In the current interest rate environment, replacing the fixed rate bonds with this variable rate debt will lower the interest rate on this $400 million of debt from 5.65% to approximately 1%.

Thank you for your time today. We will now open up the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question, we'll hear from Scott Gaffner with Barclays.

Scott L. Gaffner - Barclays Capital, Research Division

I just wanted to dig a little bit deeper on the margin improvement year-over-year. How much of the improvement -- of the 40-basis-point improvement in gross margins year-over-year was related to the sale of the Paper Packaging business versus some of the margin -- some of the mix issues that you were talking about maybe in the business that you kept?

Jerry S. Krempa

At the gross margin level, approximately 1/2 -- this is Jerry, I'm sorry. Approximately 1/2 of the improvement is related to the divestitures of the Paper Packaging division and Clysar.

Scott L. Gaffner - Barclays Capital, Research Division

Okay. And when I look at the old guidance versus the new guidance, did the old guidance assume the change in the interest rate for the $400 million refinancing or not?

Jerry S. Krempa

Yes, it did. I think we spoke about that last quarter about our intention to refinance, and this was one of the options we were looking at, at the time.

Operator

And next, we'll move to Philip Ng with Jefferies.

Alexander Hutter - Jefferies LLC, Research Division

This is actually Alex Hutter on for Phil. You mentioned the roll stock opportunity to replace shrink bags in U.S. Packaging. Can you just give a bit more color on that opportunity? How the margins stack up? How significant an opportunity it is for you now? How big you think it could become? And where you think your market share could go in that market, given your current capacity?

Henry J. Theisen

Let me turn that over to Bill, he's closer to it than I am.

William F. Austen

Alex, it's a great question. We are a smaller player in the shrink bag business, and we've developed a great technology in flat film that can be used in the meat processing plants to replace shrink bags with flat film, so the bags get made in-line. It's a wonderful technology. We have deployed this technology in other parts of the world, yet on a small base. But in the U.S., we expect to deploy this over the course of the next several months and years because it's the last place that the meat processor can take cost out of their operation by taking out their labor of stuffing bags with pieces of meat. The meat just runs down a line and gets packaged in a flat film, and then the bag gets made right in-line. So it's a great opportunity for the meat processors to take cost out of their operation. And that's the target that we're going after, is to help our customers reduce their costs in their plant operations with our -- with this great technology that we've developed.

Alexander Hutter - Jefferies LLC, Research Division

Great. And then just for the follow-up, volumes in U.S. Packaging overall seem to be tracking a little bit softer than that kind of 2% to 3% volume growth target you mentioned earlier in the year. You're up against easier comps in the second half, but kind of how dependent is your full year guidance on hitting that volume target?

Henry J. Theisen

Well, first of, what we said is that we would do slightly better than GDP, not 3% or 4%, but slightly better than GDP. Our guidance is really based on the innovations that we have and we've talked about them, as we've ramped up our CapEx spending this year and we've looked at our product flow. And as Bill mentioned, many of these things have been awarded to us. We're ramping them up. Overall, there is sluggishness in the economy, but new packaging, new formats, new products, conversion of rigid to flexible, these are the things that are driving our increase in our guidance and our confidence in delivering this year.

Operator

And next, we'll move to Ghansham Panjabi with Robert W. Baird & Co.

Mehul M. Dalia - Robert W. Baird & Co. Incorporated, Research Division

It's actually Mehul Dalia sitting in for Ghansham. Just wanted to get a feel for your updated thoughts on capital allocation priorities. Should we expect to see more share buybacks going forward?

Henry J. Theisen

Well, I don't know if you should expect to see more share-backs or not. My goal or what I really like to do is to try and grow the company organically. That's the best growth. And I think we're going to be putting more CapEx into those opportunities that are presenting to us and that are -- we can use and turn into sales growth. After that, you look at acquisitions. And finally, if there's not anything there in an acquisition that enhances our technology or moves us into a new market, then you kind of fall back to share repurchases. But as I said, I think our main use of capital is going to be support the ideas that our R&D group has.

Mehul M. Dalia - Robert W. Baird & Co. Incorporated, Research Division

Okay. Great. And can you quantify the top line impact from new product innovations and from the new customer wins that you outlined in your prepared remarks?

Henry J. Theisen

I don't think I can really quantify that now because a lot of those things aren't out in the marketplace yet, and I really don't like to speak about how big certain things are until our customers have them out on the shelf.

Mehul M. Dalia - Robert W. Baird & Co. Incorporated, Research Division

Okay. Great. And just one last one. Are there any updates to the pricing environment in U.S. flexibles? Are you seeing any changes in competitive behavior there?

Henry J. Theisen

No, no. As we've talked about it, in the areas where we like to operate the most are around sterility and food safety, and there's less competition there. If we talk about the areas like we pointed out, that we have some good -- that's tough competitive markets like snacks and candies and confections, that's a very competitive market. And it continues to be a competitive market, and I expect it will in the future. We do well there. We operate there, but that's not our targeted markets.

Operator

And next, we'll move to George Staphos with Bank of America Merrill Lynch.

Alaxandar Wang - BofA Merrill Lynch, Research Division

It's actually Alax Wang sitting in for George. Can you just talk a little bit about Brazil and your outlook for the region? We've heard sort of mixed things regarding demand trends down there.

William F. Austen

Yes. Alax, this is Bill Austen. Our outlook for Brazil is steady as it is now. We have -- we're the leader in our packaging formats in Brazil. Our customers continue to buy from us. While demand is soft from the consumers in Brazil, we continue to run our business at very good capacity utilization rates across the entire Latin America region, not just Brazil, but also in Argentina as well. So our outlook for Brazil is steady as it goes. We are in a good position there.

Alaxandar Wang - BofA Merrill Lynch, Research Division

And then just as a follow-up, maybe following up on an earlier question, what kind of conditions do you think need to exist so that organic volumes in the U.S. can grow more predictably and regularly?

Henry J. Theisen

Well, I don't know if we really know the answer to that question. I just think that the consumer has to start buying.

Operator

And we'll move on to Adam Josephson with KeyBanc.

Adam J. Josephson - KeyBanc Capital Markets Inc., Research Division

In -- Henry, in U.S. Packaging, organic growth was down 0.5% in the quarter, and it was up 0.5% in the first half. Can you tell us what you're expecting along those lines for the balance of the year?

Henry J. Theisen

I expect that the decline in organic growth is going to stop. I think that you'll see us having a slight -- a little bit of growth in the second half of the year, and that's really related to new product offerings and the new innovations.

Adam J. Josephson - KeyBanc Capital Markets Inc., Research Division

Okay. And in terms of cash flow, did the operating cash flow guidance change have anything to do with working capital? And if not, what are your expectations for working capital for the year?

Jerry S. Krempa

Adam, this is Jerry. No, our working capital is typically high in the middle of the year, in our peak second quarter seasons. We have a higher level going into third quarter, expecting the improvements we see coming. But at year end, we fully expect that our working capital will be down to the same levels it was at the end of 2013 such that there would be no use of cash from working capital.

Operator

[Operator Instructions] Next, we'll move to Al Kabili with Macquarie.

Daniel Moran - Macquarie Research

This is Danny Moran on for Al. Did you see any de-stocking in the quarter from customers? And if so, do you expect this to normalize in 3Q?

Henry J. Theisen

I don't know if we can really say that there was de-stocking in the customers. I wouldn't have any evidence of that. Our order patterns are good. Yes, in certain markets, we had a little bit of a downside; other markets were a little bit better. But I don't have any evidence that there was a de-stocking going on.

Daniel Moran - Macquarie Research

Okay. That's helpful. And then just switching to PSM, it looks like it was a pretty strong quarter. Do you expect this level of mix improvement and the strength in Europe to continue in the back half?

Henry J. Theisen

Why don't I give it to Bill? He's closer to that than I am.

William F. Austen

Dan, we expect to see PSM to stay right at the levels that it's at, and we're -- we feel good about where they are right now and how it's moving forward. And we do expect Europe to continue to improve, both in flexible and in PSM as their economy continues to dig its way out of the hole.

Operator

And next, we'll move to Chris Manuel with Wells Fargo.

Christopher D. Manuel - Wells Fargo Securities, LLC, Research Division

A couple of quick questions. First, around cash flow. You had -- it looks like you've lowered the outlook for -- of cash flow. Can you give us a little color there as to what the contributing factors were? I mean, when we look at -- at least digging through the release, you talked about the sale of the Paper business, and you talked about the closure of the plant. But both of those were -- quite frankly, both of those were announced and completed before the very end of last quarter. So those 30 days, 20 days later, when you gave an outlook, those probably wouldn't have been factored in there. So what was the differential? I think, to an earlier question, maybe you mentioned working capital's going to be flat. Was there an expectation previous that it would have been a reduction? Or what were the elements there?

Jerry S. Krempa

Chris, this is Jerry. I think, yes, you're right. At the beginning of the year, we had guided to $500 million of cash flow. And the -- at that time, the forecast did not anticipate the Paper divestiture or the Stow closure. So those items had not been considered. So we have now adjusted the $500 million for those items, and that's where we're coming out at $450 million.

Christopher D. Manuel - Wells Fargo Securities, LLC, Research Division

Okay. You had -- okay. Second question was with respect to resin environment, what you're seeing right now. Any movements in specialty resins that are -- some of the more commodity grades have been relatively stable here. We saw an increase earlier in the year, as you pointed out. But anything unusual happening with some of your specialty grades?

Henry J. Theisen

This is Henry. No, no. We factored it into our guidance for the year, pretty much flat raw material costs going forward.

Operator

Next, we'll hear from Debbie Jones with Deutsche Bank.

Deborah Jones - Deutsche Bank AG, Research Division

I was just wondering -- I was wondering if you could just talk about 2 things you mentioned and in the release, which, again, is your -- the higher demand for graphic products in your Pressure Sensitive business. Can you talk about, again, what's driving that and kind of who your competitors are in that market? And then I think you also called out health care packaging as a source of growth, and I would just like to get a little bit more color on that as well.

William F. Austen

Sure. Debbie, this is Bill Austen. The higher demand for graphic packaging, we're a leader in -- not graphic packaging, in PSM. We're a leader in graphic materials, graphic Pressure Sensitive Materials in Europe. And as that economy continues to rebound, there's a higher demand for graphic materials because that's the first thing that companies cut: advertising, bus wraps, car wraps, signage. And as the economy then begins to improve, companies start to advertise again, so graphic materials get in vogue, if you will. The demand is higher. And it's -- the normal competitors in that arena would be 3M and Avery. Those are the kind of folks that we would compete against in graphic materials.

Deborah Jones - Deutsche Bank AG, Research Division

Okay. And in the health care packaging, what's really driving -- what products do you have that's really driving the growth there?

William F. Austen

Health care packaging, our growth there is being driven really across the globe. It's just the higher demand for health care, medical devices, pharmaceutical packaging in Brazil, which is doing well. Europe, we've got some package technologies that we happen to be the lead in and for drug-coated stents. So it's just the uplift across-the-board in health care and the needs for health care packaging.

Operator

And next, we'll move to Scott Gaffner with Barclays.

Scott L. Gaffner - Barclays Capital, Research Division

Henry, you mentioned your order backlog. It sounded like you thought they were pretty strong headed into the third quarter. Can you maybe either give us some order of magnitude or product categories, et cetera? What's giving you sort of a greater sense of assurance there around the order backlogs?

Henry J. Theisen

It isn't like it's drastically different. It just is a little better than it's been in the first and second half of the year. And again, it's driven by the new products that we offer. So it's not like the world has changed, we're just starting to see some pickup in our new products. We're starting to see some pickup in the conversion of rigid. And it's just a little bit better than it's been in the first and second quarter of this year.

Scott L. Gaffner - Barclays Capital, Research Division

Okay. And then just bigger picture, when we think about flexible plastic packaging, in general, right, we think about a higher growth market as you talked about earlier, some of these conversions from other packaging options, et cetera. Your organic volumes have been relatively flat for the last couple years, but part of that has admittedly been because you shed some low margin business. But can you talk about the market, in general? Why maybe the market isn't growing as fast as it should? Or maybe why your volumes have been a little bit lower than the industry, and whether or not you think over time we can see that accelerate?

Henry J. Theisen

I just think, overall, in the first quarter, the second quarter, the GDP, like in the first quarter, was negative. And this is kind of an overall weakness in almost all of our markets. And I think that our -- and we've overcome that with some new products, and our customers, when we talk to our customers, they want to come out with new products. They want to come out with things that are innovative or that separate them on the shelf. So I think we've kind of -- we were operating kind of in a sluggish lower across-the-board. We've taken steps to -- in our pricing discipline and some of those low margin areas that we're not going to seek those opportunities that don't give us a fair return for the value that we bring. And I think we're generating growth in those targeted areas where we are paid for the value that we bring.

Operator

And next, we'll take a follow-up from George Staphos with Bank of America Merrill Lynch.

George L. Staphos - BofA Merrill Lynch, Research Division

Just 2 quick ones. Actually, just following up on the question that Scott asked earlier. If flexible packaging is taking share, why are we sort of seeing modest volume organic declines that are kind of consistent with what we're seeing in paperboard, if you can provide a little more color on that?

Henry J. Theisen

Well, I think it kind of comes back to the same answer I just gave. It is -- all of our customers are somewhat sluggish. All of our customers have some concerns about volume, and it's kind of spread evenly. And the conversions don't come as fast as some of those other things. And actually, it's our intent, in what we've done over the past, to target those markets where we get recognition for the value that we bring.

George L. Staphos - BofA Merrill Lynch, Research Division

And then just lastly, are you seeing any logistical issues being created by rail or freight that's causing you to keep extra inventory or delaying shipments to your customers?

Henry J. Theisen

No, no, no, that's not what we're seeing.

Operator

And we'll take a follow-up from Debbie Jones with Deutsche Bank.

Deborah Jones - Deutsche Bank AG, Research Division

I just -- I wanted to just ask one more question on the cash flow guidance. Maybe it would help if you could just give us what the cash outflow is going to be from the Snow (sic) [Stow] closure. And then just from what you said, I think, on the last conference call, I think there were $9 million in proceeds from the sale of the Paper Packaging business, so just the tax implication -- cash tax implication there. That might help us to bridge.

Jerry S. Krempa

Okay. This is Jerry. On the Stow closure, I think we did have an accrual in the quarter -- last quarter for the closure that we talked about, so that will give you an idea of the cash expenditures there. And on the gain on the divestiture of Paper, you got to remember that, that was the booking that was reported from a tax standpoint. We had a higher gain that we reported that we had to pay taxes on.

Deborah Jones - Deutsche Bank AG, Research Division

So above the $9 million?

Jerry S. Krempa

Correct.

Operator

And we'll take a follow-up from Al Kabili with Macquarie.

Albert T. Kabili - Macquarie Research

Just want to follow up on the full year EPS guidance. Are you assuming any share buybacks in the second half?

Henry J. Theisen

No, there is no share-back factored into the second half of the year.

Operator

And we'll move on to another follow-up with Adam Josephson with KeyBanc.

Adam J. Josephson - KeyBanc Capital Markets Inc., Research Division

On the cash flow outlook. So aside from those 2 items, presumably you would be north of $500 million. So do you think of $500 million or slightly north of that as a kind of a normalized number, along with the now $190 million of CapEx that you're guiding to post 2014?

Jerry S. Krempa

You're saying, excluding the adjustments we just talked about, we'd be north of $500 million?

Adam J. Josephson - KeyBanc Capital Markets Inc., Research Division

Right. You'd still be at $500 million or somewhat north of that number, and you talked about CapEx being equivalent to D&A post 2014, so let's call it $190 million. So roughly $500 million and $190 million kind of on a more normal basis. Does that -- would you agree with that?

Jerry S. Krempa

That sounds reasonable. That makes sense.

Operator

And there are no further questions at this time. I will turn the call back over to the speakers for any additional or closing remarks.

Erin Winters

Thank you, operator. Thank you, all, for joining us today. This concludes our conference call.

Operator

And that will conclude today's call. We thank you for your participation.

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Bemis (NYSE:BMS): Q2 EPS of $0.65 beats by $0.01. Revenue of $1.24B (-4.6% Y/Y) misses by $50M.