Bemis' CEO Discusses Q1 2011 Results - Earnings Call Transcript

Apr.29.11 | About: Bemis Company, (BMS)

Bemis (NYSE:BMS)

Q1 2011 Earnings Call

April 28, 2011 10:00 am ET

Executives

Melanie Miller - Vice President of Investor Relations and Treasurer

Scott Ullem - Chief Financial Officer and Vice President

Henry Theisen - Chief Executive Officer, President and Independent Director

Analysts

Sara Magers - Wells Fargo Securities, LLC

Ghansham Panjabi - Robert W. Baird & Co. Incorporated

Albert Kabili - Macquarie Research

Alex Ovshey - Goldman Sachs Group Inc.

Philip Ng - Jefferies & Company, Inc.

Michael Hamilton - RBC Wealth Management, Inc.

George Staphos

Christopher Manuel - KeyBanc Capital Markets Inc.

Timothy Thein - Citigroup Inc

Operator

Good day, everyone. Welcome to the Bemis First Quarter 2011 Earnings Release Conference Call. This call is being recorded. For opening remarks and introductions, I will now turn the call over to the Vice President and Treasurer for Bemis Company, Ms. Melanie Miller. Ms. Miller, please go ahead.

Melanie Miller

Thank you, operator. Welcome to our First Quarter 2011 Conference Call. Today is April 28, 2011. After today's call, a replay will be available on our website, www.bemis.com, under the Investor Relations section.

Joining me for this call today are Bemis Company's President and Chief Executive Officer, Henry Theisen; and our Vice President and Chief Financial Officer, Scott Ullem. Today, Henry will begin with comments on the performance of the business, followed by Scott with comments on the detailed financial results. After our comments, we will answer any questions you have. [Operator Instructions]

Before we begin, I'd like to remind everyone that statements regarding future performance of the company made in this teleconference 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, including currency fluctuations, changes in raw material costs and availability, industry competition, unexpected consumer buying trends or customer order patterns, our ability to pass along increased costs in our selling prices, changes in government regulatory requirements, interest rate fluctuations and regional economic conditions. A more complete list of risk factors is included in our regular SEC filings, including the most recently filed Form 10-K for the year ended December 31, 2010.

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

Henry Theisen

Good morning, everyone. This was a challenging quarter for Bemis, and we are disappointed to have missed the low end of our first quarter EPS guidance by $0.03. Our guidance for the first quarter incorporated our expectation of increasing raw material costs for the first half of 2011. However, with the escalation of unrest in the Middle East and supply issues in the chemical industry, raw material costs increased dramatically during the first quarter, particularly the cost of the specialty resins Bemis relies on for our high barrier Flexible Packaging products.

In our Flexible Packaging business segment, we use a variety of raw material inputs, including polyethylene, nylon, polyester, polypropylene and many others. Our customer contracts provide for us to adjust selling prices in response to raw material cost changes, but there is a time lag between the raw material cost changes and the scheduled selling price adjustments. Currently, the contract price adjustment lag times vary from one month to 6 months. However, the lag time for polyethylene-based packaging is shorter and will be longer for complex multilayer products that incorporate more specialty resins.

During the first quarter of 2011, we experienced more dramatic raw material increases than we expected. The cost of polyethylene, polyester polypropylene and nylon increased in excess of 15% and even above 30%, in some cases. While most of this impact will be recognized during the second quarter, there was still a measurable impact on first quarter gross margins.

At this point, we recognize the additional cost increases that we will be experiencing in the second quarter. Clearly, our selling prices will adjust to reflect these higher input costs, and we will continue to reduce material costs with material substitutions and efficiency improvements. We have well-established continuous improvement initiatives throughout Bemis that are focused on plant efficiencies, and I am confident these projects will continue to deliver value as we move forward.

Looking out through the rest of the year, Flexible Packaging volumes are expected to be relatively flat with last year as our customers have began to express some concern about the impact of food price inflation on consumer buying patterns. At Bemis, we expect to see volume growth throughout the year due to the pipeline of new products that we are introducing. Our rigid barrier platform, coupled with our Peel Reseal technology, is giving us new market access and expanding packaging formats in existing markets. Examples of some of these are creamer cups, frozen pizza and condiments. Bemis is gaining growth in these market categories because our products offer convenient features, reduce material content and extend shelf life.

Let me illustrate some examples of our innovation. Our new frozen pizza package eliminates the need for an outside carton, therefore, reducing packaging content by 30% compared to previous frozen pizza formats. The opportunity to use less material is critical to our customers' sustainability goals and helps control package costs in this environment of escalating raw material costs. This new package uses our polyester platform and incorporates our EZ Peel feature for consumer convenience. This is just one example of how Bemis is providing our customers with packaging solutions that deliver affordable sustainability benefits. Another example of our contributions to the sustainability needs of our customers is exhibited in the creamer cup business where our rigid barrier technology has reduced the material content by 20% and provides an improved barrier to extend product shelf life.

Our Peel Reseal polyester platform continues to grow nicely as it eliminates the need for reclosable zipper. This package is primarily used for applications for processed meat and cheese, and we see customers using this cost-effective packaging upgrade to add consumer convenience features to their current product lines.

Bemis has also introduced an innovative new condiment package that includes easy-open features, premium graphics and a design that offers both a dip format and a pour format. This new package is being launched in retail stores as well as restaurants. We are also pleased to see the continued growth of our technology and value-added platforms in the medical device and pharmaceutical markets.

Our world-class manufacturing initiatives continue to expand the new production facilities and improve efficiencies throughout the production process. Raw material waste reduction programs have become even more important as the cost of resin has increased, and we expect continuous improvement through 2011.

In 2011, we are aggressively pursuing the second phase of the Food Americas integration. In this phase, we are optimizing our manufacturing processes to ensure that the right product is produced on the best equipment for that particular process. This exercise will improve margins by improving economies of scale on certain equipment and taking advantage of best practices across the company. In addition, we are evaluating situations in which multiple product specifications are used for one particular product or feature. Reducing specifications also reduces changeovers on equipment, increases economies of scale and simplifies the manufacturing process.

Streamlining of our product and manufacturing footprint, as we continue to integrate the Food Americas operations, has led to some additional expenses that total approximately $0.02 during the first quarter. We expect to see the positive benefit of these initiatives in the current year.

Our earnings per share guidance of $2.15 to $2.30 for the total year 2011 reflects the reality of this volatile and inflationary environment. This range accounts for all of the known raw material cost increases through today. We are working diligently to execute our sales and profit growth strategy as quickly as possible and to take the opportunities to shorten the time selling price adjustments whenever possible. In this environment of specialty raw material cost increases and a cautious demand outlook resulting from food inflation, we believe our guidance reflects a realistic assessment for potential outcomes of 2011.

Our financial condition remains very strong. And while working capital absorbed cash during the first quarter due to higher resin cost, we continue to expect strong cash flow for the rest of the year. We purchased 1.7 million shares of common stock during the first quarter, and we'll continue to balance opportunities to invest in prudent capital projects, acquisitions, debt reduction and opportunistic share repurchases to maximize our return metrics and increase shareholder value.

In summary, expensive resin costs will pressure our margins in 2011. We expect this to be a short-term issue until we get contractual selling prices adjusted. We are progressing well on facility optimization, and new business is ramping up nicely. We expect our products that extend shelf life will become even more important as food costs increase, giving us a competitive advantage in the market.

Now I'll turn it over to Scott for a more detailed analysis of the financial results.

Scott Ullem

Thank you, Henry. Although we are operating in a challenging raw material price environment, Bemis is in an advantageous position in the flexible packaging industry because of our new product platforms and pipeline. Our volume growth this year is coming from new products and product line extensions, which is why we are so focused, as an organization, around material science, chemical engineering and value-added customer relationships. Unfortunately, so far in 2011, our successes with new products have been overshadowed by the volatile and inflationary raw material costs we are experiencing.

In the Flexible Packaging business segment, first quarter net sales increased by about 34%, of which about 22% related to the fact that we have a full quarter of Food Americas in 2011 versus just one month in the first quarter of 2010; currency benefits increased sales by 2.5%; and the remaining 9.5% growth reflects the impact of higher raw material costs pushing up selling prices in all categories, in addition to unit volume increases in categories where Bemis sells higher-priced value-added products.

Mexico continues to deliver improved performance, and our business in Brazil is performing well, save for the strengthening reais, which creates headwinds for our customers that export from Brazil. We're the largest flexible packaging company in Mexico and South America with nearly $1 billion in annualized sales. And our business in those regions continues to offer attractive long-term organic growth. We are also positioned to capture increased margins and returns as those food markets mature to require more and more high technology barrier packaging.

On the other hand, our food Flexible Packaging business in Europe, now approximately 5% of Bemis sales, is subscale and is not meeting our margin objectives. While our Pressure Sensitive Materials and medical packaging businesses that sell into Europe are continuing to deliver nice results, our food Flexible Packaging business participates in a fragmented, highly competitive arena. This will continue to be the case for the foreseeable future.

Our focus is European food Flexible Packaging, continuous improvement in manufacturing operations along with volume and margin growth in the niche, meat and cheese markets we serve. The good news is that these European sales, which were decreasing for most of 2010, stabilized in the first quarter of 2011 compared to the first quarter of last year.

Flexible Packaging operating profit for the first quarter was 9.9% of net sales. If we adjust last year's operating profit to exclude acquisition-related fees and include pro forma Food Americas results for January and February, the comparable rate would've been about 11% for the first quarter of 2010. The difference in year-over-year percentage margin reflects raw material headwinds.

Second quarter Flexible Packaging margins will remain under pressure as the dramatic price increases from the first quarter move through our production cycle from raw materials to finished goods, but we do expect the second half of the year to return to higher margin levels if specialty resin costs stabilize, which is the assumption our EPS guidance reflects.

One of our company priorities is to increase the frequency of selling price adjustments in our customer agreements. A number of the customer agreements we inherited with the Food Americas acquisition specified 6-month periods before selling prices reset to reflect changes in raw material costs. This compares to most of our U.S. Bemis Flexible Packaging customer agreements, which generally adjust selling prices to reflect material cost changes every 30 to 90 days. Going forward, we will be working with our customers to shorten the periods between selling price adjustments.

Shifting to our Pressure Sensitive Materials segment, which represented about 11% of sales this quarter. Net sales increased $4 million, and operating profit increased $3 million. Operating profit for the Pressure Sensitive Materials segment trended in the right direction this quarter due to a combination of prudent cost management and good matching on selling prices with raw material cost increases.

On a consolidated basis, our selling, general and administrative expenses increased sequentially over the fourth quarter, largely reflecting the amortization of losses in our pension investments when the markets declined sharply in 2008. EBITDA for the first quarter increased by almost 20% compared to adjusted EBITDA for the same quarter of 2010, excluding all of the onetime acquisition-related charges from last year. This would have driven a healthy increase in cash flow from operations this quarter but raw material cost increases resulted in much higher working capital, offsetting any cash flow improvements. Consistent with past years, we expect cash flow from operations to strengthen for the remainder of the year.

For the total year 2011, we continue to expect capital expenditures to be approximately $150 million. Bemis capital investments in materials science research and development is directed at 2 areas: one, product categories that offer higher long-term volume growth and margins, like semi-rigid packaging, packaging that protects food freshness and extends shelf life, as well as medical packaging products that require high barrier film properties. New products and targeted product line extensions will continue to be a key to our Flexible Packaging volume growth. And the second priority for CapEx is to fuel growth in geographies outside the U.S. and Europe, where we can achieve attractive organic growth rates across our product portfolios. These disciplined capital investments continue to be our first priority for use of cash flow after dividends.

Our next priority for use of cash flow is to make selected acquisitions when we have opportunities to purchase businesses that fit our strategic and financial objectives. Finally, we will manage our capital structure to give us the flexibility we need to fund growth investments while minimizing our cost of capital. Translation, we want to preserve our investment grade rating while reducing our shares outstanding through opportunistic open market repurchases.

We repurchased 1.7 million shares of common stock during the first quarter, resulting in average diluted shares outstanding of $109.1 million for the earnings per share calculation for the quarter. We reported on our cash flow statement a $16 million payment for acquisitions during the first quarter that relates to a final working capital adjustment payment to Rio Tinto, primarily related to cash on hand we received at the close of the Food Americas acquisition a year ago.

We continue to pursue a tender offer for the outstanding preferred shares of our Brazilian subsidiary. The purchase of those shares is not reflected in our guidance since we could not predict the timing or certainty of the completion of that transaction. If and when we receive regulatory approval to resume the tender offer, we will move as quickly as possible to complete the transaction.

Our guidance for the second quarter of 2011 is $0.48 to $0.54. This reflects the 15% to 30% cost increases in specialty resins that will be recognized during the second quarter with many of the related customer selling price adjustments occurring late in the second and early in the third quarters. The reduced earnings per share expectations for the first half of the year have been incorporated into the total year earnings per share guidance of $2.15 to $2.30. As Henry mentioned, the change reflects these dramatic increases in specialty resins costs, which tend to have longer lag times for selling price adjustments, some further raw material cost increases in the second quarter and then no further increases for the second half of the year.

Now Henry, Melanie, and I would be pleased to answer questions. Operator, please open the call to participants.

Question-and-Answer Session

Operator

[Operator Instructions] We'll go first to Ghansham Panjabi. [Robert W. Baird]

Ghansham Panjabi - Robert W. Baird & Co. Incorporated

In your prepared remarks and your press release, you mentioned customers expressing, it sounds like, incremental caution. Has this actually translated into lower volumes than you expected, or was the comment sort of proactive anticipation on your part? And how, Henry, would you characterize the current environment versus what occurred in '08 when you had very similar energy and resin spikes?

Henry Theisen

First off, we have not seen any drop in volumes in the first quarter related to food inflation. These are just some comments that we've picked up from a number of our customers who just look at what's going on and are just kind of a little bit cautious going forward. But we have not seen any effect in reduction in volumes based on that, as of today.

Ghansham Panjabi - Robert W. Baird & Co. Incorporated

And the shortage of specialty resin you referred to, which region is being impacted and also which specific grades are you referring to?

Henry Theisen

When we talk about specialty resins, the big hits are in the nylons, the acid copolymers. Polyester is a big hit related to the cotton prices. I think polyester resin is now at its highest level ever going into the water season. So polyesters, nylons, high EVAs, acid copolymers, ionomers, all of the things that fit into that specialty area. And it's pretty much around the globe.

Operator

We'll go next to Philip Ng with Jefferies & Company.

Philip Ng - Jefferies & Company, Inc.

Just a quick question on the business that you guys don't have a pass-through. Are you seeing the same level of success on passing pricing through?

Henry Theisen

We're seeing the same level of passing our price increases through as we characteristically had through the past. Earlier, Ghansham asked a little bit about how this compares to the 2007, and it's very similar. And we are being successful in, first off, increasing prices to our non-agreement customers. And secondly, we are actively passing through the raw material increases for the agreements we have.

Philip Ng - Jefferies & Company, Inc.

And then you mentioned how you're trying to adjust some of these contracts to have quicker pass-through. That's a work in progress, right, because you readjust that every year. So it's like a 3- or 4-year process, or how should I be thinking about that?

Henry Theisen

I think you're correct in saying it's a 3- to 4-year process. We will work diligently when these contracts come up for renewal to review the terms and improve these terms that, quite frankly, we can't be in the middle having 6-month escalated/de-escalated clauses we inherited from the transaction with Alcan. And you can't just be in the middle between our customers and our raw material suppliers and absorb that. So as these contracts come up, especially the ones from Alcan, we will actively pursue reduced terms.

Operator

We'll go next to Alex Ovshey with Goldman Sachs.

Alex Ovshey - Goldman Sachs Group Inc.

A couple of questions. Firstly, on the business that you have the contractual pass-throughs on, you talked about there being a longer lag of passing through some of the specialty resins. Is there a way to break out what part of your business is more exposed to specialty resin relative to the more commodity resins with their faster pass-throughs?

Henry Theisen

If you look at which areas really run the specialty resins, it's in our high barrier. It would be the products that require extended shelf life.

Alex Ovshey - Goldman Sachs Group Inc.

Is there a way that you can give us a number of what percentage of revenues those contracts will represent for you or some order of magnitude of how to think about those -- that business relative to the rest of the company?

Melanie Miller

If you break out our Flexible Packaging business into the various market categories that we sell into, meat and cheese is roughly about 30% of our Flexible Packaging. But then -- and that's going to be one that's high barrier. Dairy and liquids is way over 10%. Some of the dry foods category would fall into this. That's close to 6%. And then you get into other specialty type areas, so that's another 10%. So it's going to be somewhere over 50% at least. And then it just depends upon what other specialty resins are in that -- in those more simple categories. Because even as you look at confectionery and snacks, some of the snack foods have a lot of other types of specialty resins in them, depending on the type of package. So medical is in there. Medical products is between -- depending on if you include pharma. I guess it'd be close to 10%, including pharma with medical.

Operator

We'll go next to Al Kabili with Macquarie.

Albert Kabili - Macquarie Research

Henry, just a question on the Alcan contracts. You've had the business for a year now. Wondering of the contracts that you have renewed and renegotiated, can you tell us about the success rate on how those have gone relative to shortening the timing of the pass-throughs?

Henry Theisen

Up until today, we have had very few -- I'm almost going to say none, but I hate to say none without knowing exactly. But it's very, very few that have come up. They're really going to start coming up later this year, the first part of next year. So we really don't have any experience to pass on to along those lines.

Albert Kabili - Macquarie Research

And then I guess the second question would be along the lines of new business that you mentioned. Any feeling on a flavor of what you're targeting this year in terms of sales for new business and how the margins compare to the Flexible segment average?

Henry Theisen

The new business that we talked about, and I think it's a lot like all new businesses will be at higher margins than our average business. When we introduce products, we get an opportunity to price those products, and we price those with higher margins. And then, of course, as you know, over time, thanks to the standard curve go down. But I expect all of our new products will go out with higher margins than the average we have in our Flexible business. And as far as what the volumes will be, I think we can look at growing our new business $50 million to $100 million. And a lot of that just depends upon how fast we could scale up those products.

Operator

We'll go next to Timothy Thein with Citi.

Timothy Thein - Citigroup Inc

Just going back to the legacy contract issue that you just mentioned, Henry, in terms of as we look ahead to the renewal of these contracts. Are there other competitors you think out there that would be able to manage through in this kind of volatile resin and raw material backdrop that we've seen certainly over the last couple of years? Do you think others out there would be able to handle similar delays and pass it -- in this kind of nature of the pass-through? Now what I'm getting at is, as those contracts come up, are there others out there that you think would be able to absorb a 6 to 9 months lag in terms of the contract terms?

Henry Theisen

I think everyone, all of our competitors, and everyone in our industry or anyone even really related to the chemical industry has to look at this and say that these 6-month terms that are out there just are not sustainable. I don't think anybody can absorb the kind of increases we've seen and not be able to pass those through in a shorter period of time. I think everybody's going to be suffering the same way.

Timothy Thein - Citigroup Inc

Okay. And on that, as a follow-up, I know it's getting harder and harder to track this. But internally, when you guys look at the Alcan synergies, I presume they took a little bit of a hit here given the raw material environment. But how are those tracking relative to the initial expectations?

Henry Theisen

I think that, that was tracking very well. In fact I think we're slightly ahead of where we thought we would be as far as synergies with the Alcan acquisition. Unfortunately, the magnitude of the raw material increases are just varying the good things that have happened along those lines.

Operator

We'll go next to George Staphos with Bank of America Merrill Lynch.

George Staphos

I wanted to go through the Alcan contracts a bit more. Would there be a situation, perhaps in the future, where in order to expedite your ability to pass through on a quicker basis that, perhaps, you would also be willing to adjust the other terms in the contract to your customer, whether it be around margin or some other values to serve?

Henry Theisen

I think when you go in and you talk to the customer it is a negotiation. And all things will be on. The margins will be on the line, what business you're going to do on the line, what kind of terms will be on the line. I think all of those things are up for negotiation and discussion at the time. And then you just got to negotiate them. Some things you give on, some not. And as in most contracts, both people walk away feeling that they've gained some things and lost some things in it.

George Staphos

Right. Okay, so it sounds like you're at that stage. I guess the second question I had, maybe for you or for Scott, is it possible to determine what the lag effect actually cost you in the quarter? You gave us some guidance around resin and the overall compression that occurred from that. But if every piece of your business was on the legacy traditional classic Bemis type of contract, what would you have sort of had back in earnings this quarter that you lost instead because of the Alcan contracts?

Scott Ullem

George, it's Scott. It's really not possible to track exactly what impact the lag had for different customers and different terms of contracts. Just we don't have the breakout.

Operator

We'll go next to Chris Manuel, KeyBanc Capital Markets.

Christopher Manuel - KeyBanc Capital Markets Inc.

A couple questions for you. As these businesses are now put together, I remember when you laid out synergy targets and such for us, one of the components that you hadn't necessarily touched on, but you anticipated having some of, were revenue synergies. So as you sit in the business today and have now had about a year or so or a little better of it all together, do you have any opportunities you've identified there or are you seeing some? Is that's what principally driving this $150 million or so of new products that you're seeing, or is this all legacy stuff or mix? Maybe a little color there would be helpful.

Scott Ullem

Yes. Chris, it's a good question. The answer is that, certainly, having a broader sales bag of products that we can sell is helping our relationship with customers who have broad product portfolios. And so I think we're seeing the benefits of having both the existing former Food Americas product line but also the new product pipeline that we can offer to our customers and it's helping our ability to get price. As Henry said before, all these customer relationships are driven by a combination of product differentiation, pricing and margin, terms. And so I think we're feeling very good about our ability to get paid for our products that have a differentiated position in the marketplace, whether they were the Food Americas product line or Bemis product line because they're all now combined.

Christopher Manuel - KeyBanc Capital Markets Inc.

Okay, that's helpful. And maybe a point of kind of clarification. As you put new products in place, do you kind of end up on the same sort of clock? Meaning, can you price it appropriately the day the new business launches, or could you kind of end up being behind on some of these already as you're launching some of the new business?

Henry Theisen

When you launch new business, you price it on the day that you launch the business. So you launch it with all the current raw material costs and everything in it. You get to set that initial price.

Operator

We'll go next to Sara Magers with Wells Fargo Securities.

Sara Magers - Wells Fargo Securities, LLC

Henry, in your prepared remarks, I believe you mentioned about $0.02 of higher costs in the quarter related to the acquisition. Am I right in understanding that this is not anticipated? And I guess if I'm thinking about this the right way, could you give us a bit more color on what exactly this was?

Henry Theisen

As we talked about optimizing our footprint and optimizing our specifications and, in some cases, taking a look at where we made 2 separate specifications for packaging the same product and how we put things in our plant, we experienced some excess waste in doing that. We experienced a little bit of extra downtime. We've had to put a little more work into getting some of the equipment to run efficiently.

Sara Magers - Wells Fargo Securities, LLC

Okay, all right. And so this wasn't something that you had anticipated going, I guess, before the quarter or when you were doing your due diligence on Alcan?

[Technical Difficulty]

I'm just wondering was this anticipated, this higher costs related to the extra waste and downtime and such?

Henry Theisen

No, we anticipated some costs associated with the optimization of our footprint and the optimization of our specifications. But we had some additional difficulties that we did not expect. But we're through those now, and we expect to see the benefits of making those adjustments as we go through the rest of the year.

Operator

We'll go next to Mike Hamilton with RBC.

Michael Hamilton - RBC Wealth Management, Inc.

Would like to touch on your comments on European Food Packaging. My sense, and maybe you can educate me if I'm wrong, is that some of the volume declines last year was in…

[Technical Difficulty]

Operator

[Operator Instructions]

Michael Hamilton - RBC Wealth Management, Inc.

All right. Again, back to the European Food Packaging, my sense was volume declines last year were, in part, commodity end that you were willing to lose in the environment. With the stabilization that's going on, could you give a dynamic? Are you working more aggressively in the more commodity area to hang onto share? Is it growth coming in other areas, and kind of how are you thinking about that end of the business going forward?

Henry Theisen

We're not actively trying to pursue some of those areas that are more commodity that we let go last year. Scott's remarks were about stabilizing what we have, and it’s is in the niche areas where we compete very well with our technologies. And our desire is to grow in those niche areas. We're such a distant minor player compared to the number one person over there in Amcor that we just have to find our spots where we can operate profitably.

Michael Hamilton - RBC Wealth Management, Inc.

And one other one. Obviously, a decline in R&D expense sequentially. How are things looking in there for the year?

Henry Theisen

R&D. R&D is going very well. We don't run R&D in a pilot plant or anything. We actually do it out in our manufacturing facilities because we believe that allows to scale up better. And it also puts our engineers in the plant with the operating guys, so that we run more efficiently. Our R&D expenses really just kind of track the number of people we have and some minor expenses. So our R&D pipeline is full. We've moved into a new facility. We call it our Bemis innovation center. We've combined all our technical people under one roof to share ideas. We're generating a lot of good thoughts and in our R&D pipeline, and the attitude in R&D and the morale in R&D is very fine. And we're just going to have some great new products coming out of there for multiple markets.

Operator

We'll go next to George Staphos with Bank of America Merrill Lynch.

George Staphos

Two questions on volumes. Number one, did you specifically break out what the Flexible Packaging volume was in the quarter? I think you said something to the effect that the balance that you hadn't called out was a mixture of price mix and volume. And are we hearing you say that you still expect volume in Flexible Packaging to be positive this year, or you are less certain and it's probably flat on an acquisition-adjusted basis given what customers are starting to fear anyway in terms of food inflation?

Scott Ullem

George, volume was up slightly in Flexible Packaging, especially in the areas where we're selling high barrier property films. The real growth in the balance of 2011 is going to come from new products and new product line extensions. There's not -- we don't see a lot of volume growth in the market overall, but we're feeling good about our volume prospects just because of the new product pipeline that we're rolling out.

George Staphos

And then specific to one product you mentioned, this replacement that you have for the frozen pizza market, with your flexible packaging replacing the carton. Now the interior of the product, is there still a tray with a susceptor or is this -- is the flexible package entirely replacing both the carton and the tray?

Henry Theisen

This would be a frozen pizza so it would have a corrugated platter, if you want to call it, on the bottom, and it would have a, I call it, a rigid forming film so that it can support the sides. And then a lid stock, a printed high barrier lid stock. So what you're really doing is you're taking away the carton, and the package is replacing the protection and the stiffness and the support that the carton supplied.

Operator

We'll go next to Chris Manuel with KeyBanc Capital Markets.

Christopher Manuel - KeyBanc Capital Markets Inc.

I really do have a couple of questions for you. First is, when you're looking at this new product development and such that's going on, is it tend to be -- with the spike up here in material costs and such, have you seen things accelerate? Have you seen some projects maybe get put on hold for a short period of time until things level out and get comfortable to launch, or have things decelerated? Can you just maybe give us a sense of customers' acceptance or desire to put new products out in the market right now?

Henry Theisen

I think the customers' desire to put new products out in the market increases in times like this, because they all recognize that packaging is a differentiator from other people in the marketplace. And they want to be the first one out there with those new packages. So you really don't see big changes in that occurring in our R&D area. The same push, the same drive by our customers to introduce those new products and those new packages continues.

Scott Ullem

There's a second element as well, which is there's a lot of focus on material content reduction and sustainability, where Bemis really has a leading edge. And as Henry mentioned, a couple of new products like creamer cups, for example, where we are saving a lot of material, saving costs for us, saving costs for our customer and meeting the -- some broader sustainability objectives that I think we all have.

Christopher Manuel - KeyBanc Capital Markets Inc.

Yes. That's helpful. Because I find it hard to believe that as you're bringing these new out, they tend to replace some old ones that you aren't able to accelerate some of the terms as you renegotiate or redo those contract.

Henry Theisen

That's correct, that's correct.

Christopher Manuel - KeyBanc Capital Markets Inc.

My second question had to do with kind of as you look at your portfolio, and you look at branded business versus private label business. As all these price increases have rolled through, it’s been more and more challenging to the branded products businesses out there. And it seems to be private label, again, picking up some more share. What's your mix with those 2? And have you seen anything like that in your, I don't want to call it backlogs, but your new business activity?

Scott Ullem

Yes. Historically, we have sold same products to both the branded customers and to private label customers. Oftentimes, the contract packers are making both branded and store brand on the same lines. What we've seen is -- in fact, some of the growth that we're seeing is from store brand contract packers and customers. And so we're feeling good about having that shift well covered. The interesting thing is that the store brand customers, the private label manufacturers want the same types of convenience features and quality graphics properties and, of course, all the food protection requirements as branded food manufacturers want. And so we like the private label customers just as well as we like our traditional branded customers.

Operator

[Operator Instructions] We'll go next George Staphos of Bank of America Merrill Lynch.

George Staphos

Last question for me. Clearly, over time, you've done a very, very good job in Latin America in improving returns, and you should be commended for that. I wanted -- if you hadn't mentioned in the past, on this call, could you give us an update on how Mexico stands relative to some of these issues and opportunities you saw for that business? And then related question, the European Flexible Packaging business has been, I think to be fair, an under performer for most of the last decade. Certainly, there have been years where it's done well, other years where it's not. You can agree or disagree with that premise when you answer the question. Are you getting to a point where, strategically, it makes less sense to have that in the portfolio, Henry? Or does it serve a need and you see it as a long-term player within the whole of Bemis? Thanks, guys, and good luck on the quarter.

Scott Ullem

George, first question on Mexico. We are really pleased with the performance of our Mexican operations. Two years ago, our business in Mexico was struggling. The Food Americas business in Mexico, when we actually closed the transaction, was not performing up to expectations. And our management team there has done really an excellent job of turning that business around and improving what is now a combined business. And we've done it through focus on profitable customers and focus on the manufacturing footprints that we're running very efficiently there. Second question on European Flexible Packaging, you're right. This has been a long struggle with our business there. We are subscale, and it's a very difficult market environment. And so what we're really focused on is what we can control. We cannot control how many competitors in the marketplace. We cannot control how our customers behave. What we can control is how efficiently we run our plants and the markets on which we focus, which are really niche markets around meat and cheese where we have a differentiable product that we can compete with in the marketplace. And we're going to continue to do that.

Henry Theisen

George, many of our customers, both from North America here, have operations in Europe, have operations around the globe. And we're going to work to strengthen our European operations. We're committed to being in Europe, and we're going to fix Europe. It may take us longer because we are such a smaller player. But we have customers in Europe, and we're going to service those customers long term.

Operator

We'll go next to Alex Ovshey with Goldman Sachs.

Alex Ovshey - Goldman Sachs Group Inc.

Two quick follow-up questions. One, Henry, can you just give us an update of how your FreshCase offering is doing in the case-ready marketplace?

Henry Theisen

We just had an American Meat Institute packaging show, and we introduced FreshCase there for a lot of people who come in. It's the first time many customers had an opportunity to see it. It is generating tremendous interest, and people are excited about it. We have numerous trials going around with various customers. I expect to start seeing FreshCase in the marketplace later this year.

Alex Ovshey - Goldman Sachs Group Inc.

Okay, and then just shifting back to resin. We had a meaningful increase across the commodity grades in April, and I think there is more increases on the table for May. Does your guidance reflect -- does your updated guidance reflect the full price hikes that were implemented in April and the potential increases in resins?

Henry Theisen

Yes, they do. We are -- our guidance reflects all proposed price increases, and ones that are also effective as of today that we know about.

Operator

We'll go next to Tom Mullarkey with Morningstar.

Thomas Mullarkey

A follow-up on George's question about the new pizza packaging. I was at the AMI Expo a couple of weeks ago and saw it, and I think it makes sense compared to other pizza packaging options. But can you remind us prior to this new package what your exposure was to the pizza market? And given that your existing customer that's getting this new package appears to be in the high end of the pizza market, how much penetration do you actually think you can get in the grocer shelves?

Henry Theisen

In the self-rising pizza, we have a major position in there, in the self-rising pizza business. And I don't know if this is going to give us more market share, but I'm certainly hoping that our customers sell more pizzas, and that's our growth in that area.

Operator

And at this time, there are no further questions.

Melanie Miller

Thank you very much, operator. We will be attending several conferences over the next 2 months, and we look forward to seeing many of you there. Thank you all for joining us today.

Operator

This does conclude today's conference call. We thank you for your participation.

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