Silgan Holdings CEO Discusses Q2 2011 Results - Earning Call Transcript

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 |  Includes: SLGN
by: SA Transcripts

Silgan Holdings Inc. (NASDAQ:SLGN)

Q2 2011 Earnings Call

July 27, 2011 11:00 am ET

Executives

Malcolm Miller - VP and Treasurer

Tony Allott - President and CEO

Bob Lewis - EVP and CFO

Adam Greenlee - EVP and COO

Analysts

Ghansham Panjabi - Robert W. Baird

Alton Stump - Longbow Research

James Armstrong - Vertical Research Partners

Mark Wilde - Deutsche Bank

Christopher Butler - Sidoti & Company

Alex Ovshey – Goldman Sachs

Benjamin Wong - Banc of America/Merrill Lynch

Operator

Thank you for joining Silgan Holdings, Second Quarter 2011 Earnings Conference Call. Today's call is being recorded. At this time I would like to turn the conference over to Mr. Malcolm Miller, Vice President and Treasurer. Please go ahead sir.

Malcolm Miller

Thank you. Joining me from the company today are Tony Allott, President and CEO, Bob Lewis, EVP and CFO and Adam Greenlee, EVP and COO.

Before we begin the call today, we would like to make it clear that certain statements made today on this conference call may be forward-looking statements. These forward-looking statements are made based upon management's expectations and beliefs concerning future events impacting the company and therefore involve a number of uncertainties and risks including but not limited to those described in the company's annual report on Form 10-K for 2008 and other filings with the Securities and Exchange Commission.

Therefore, the actual results of operations or financial condition of the company could differ materially from those expressed or implied in the forward-looking statements.

With that, let me turn it over to Tony.

Tony Allott

Thank you, Malcolm and welcome everyone to our second quarter 2011 earnings conference call. The agenda for this morning as usual we will review the financial performance for the quarter, make a few comments about our outlook for 2011. After these prepared remarks, Bob, Adam, and I will be pleased to take any questions you might have.

As you saw in the press release we had another solid quarter delivering record adjusted earnings per diluted shares of $0.53 compared to a very strong prior year quarter of $0.48. Our business did a nice job of combating overall inflation and effectively managing cost factors and each of our recently acquired businesses delivered positive operating results in line with our acquisition models.

Overall, we are pleased with our second quarter results. As expected, we did have to manage through a very volatile revenue market and broader uncertainty around the macro economic environment, which was further compounded by a cooler and weathered start to the summer. Yet we remained on track for another record year and anticipate double-digit share earnings growth for the full-year.

In addition, I will comment on the large gain we recorded as a result of the Graham Packaging acquisition termination fee we recorded for the quarter. We did receive in the quarter a $39.5 million contractual termination fee, of which $27 million was gain in excess of transaction cost.

While we were disappointed that the deal moved away from us, we believe our patience and discipline is what has driven our outsize returns to shareholders over time. Also on this calls, we indicated that for every completed deal, we pursue at least 10 others. Unfortunately, since this was a public transaction, you will have to live the up and the e downs of that one with us this time.

As a consequence we are now back to our work on annualizing other strategic alternatives to deploy capital on behalf of our shareholders. We continue to believe good acquisitions are the most compelling opportunities. But have a variety of opportunities open to us.

Finally, as we move toward our peak season, we confirmed our full-year guidance of adjusted earnings per diluted share to be in the range of $2.60 to $2.70 as revenue inflations beginning to abate, the hot summer weather has returned to most of the country and our overall volume outlook remains steady. Achieving this estimate would represent a 17% to 22% increase over our record 2010 results.

With that, I will now turn it over to Bob to review the financial results in more detail and provide additional explanations or rather our assessments for 2011.

Bob Lewis

Thank you, Tony. Good morning everyone. As Tony highlighted, the second quarter of 2011 was a record quarter as we delivered adjusted earnings in line with our expectations and 10% above the second quarter of 2010. Keys to the quarter are positive contributions from our recently acquired businesses, the operating performance in our plastic business improved modestly as we anticipated and the second quarter experienced continued earnings headwind as a result of the lagged pass through of resin cost to our customers as resin prices picked during the quarter.

The resin situation affected both the plastic business and the plastic portion of our closure’s business. As a result we delivered second quarter adjusted earnings per share of $0.53 versus the prior year quarter of $0.48.

On a consolidated basis net sales for the second quarter of 2011 were $822.2 million, an increase of $128.3 million or 18.5% primarily as a result of higher unit volumes in the metal container and closures businesses as each benefited from the recent acquisitions.

Net sales also benefited from higher average selling prices across each business as a result of the pass through of higher raw material cost and an impact of favorable foreign currency translation. These benefits were partially offset by slightly lower unit volumes in the plastic container business.

Net income for the second quarter was $51.2 million or $0.73 per diluted share compared to second quarter of 2010 net income of $36.3 million or $0.47 per diluted share.

Foreign exchange remained neutral earnings as we continue to be effectively hedged having financed the international businesses and our local currencies and we have maintained a business practice of balancing our cross border activity to help, mitigate the effects of currency on our earnings.

Interest expense for the quarter increased $4.5 million to $16.5 million versus $12 million in the same period a year ago. This increase was driven largely by incremental acquisition borrowings and additional borrowings from the refinancing of our credit facility in July of 2010.

Capital expenditures for the second quarter of 2011 totaled 47.7 million compared with 23.7 million in the prior year quarter. On a year-to-date basis capital expenditures totaled 81 million in 2011 versus 47.6 million in the prior year. The incremental capital spending as a result of the timing of capitals so as to optimize tax deductibility under the new tax laws and capital spending related to footprint expansion in the Silgan Metal packaging business.

As foreign currency rates continue to strength against the dollar and in our international expansion activities progress, we anticipate capital spending for the full year to be in the range of 160 to $170 million. Additionally, we paid quarterly dividend of $0.11 per share in June with total cash cost of $7.8 million.

I’ll now provide some specifics regarding the financial performance of the three businesses. The metal container business recorded net sales of 482.3 million for the second quarter of 2011 an increase of 104.2 million versus the prior year quarter. This increase was primarily result of the inclusion of net sales from Vogel and Noot and higher average selling prices as a result of pass through of higher raw material costs.

Income from operation in the metal container business decreased 1.1 million to 42.9 million for the second quarter 2011 versus 44 million in the same period a year ago. The decrease in operating income was a result of charge of $3.3 million related to the resolutions of product liability dispute, the negative year-over-year comparison relating to the delayed pass through of changes in manufacturing cost, higher rationalization charges and less favorable mix of product sold.

The product liability dispute is a prior period item involving a long-term contract customer and does not have any ongoing impact on revenue or profitability for that customer.

Net sales in the closures business increased 18.7 million to 184.5 million for the quarter primarily due to the inclusion of IPEC and DGS. Favorable foreign currency translation of $9.9 million and higher average selling prices due to the pass-through of higher raw material costs. These increases were slightly offset by the weakness in the single-serve beverage markets as a result of the impact of the cool-wet weather experienced across much of the country during the spring and early summer months.

Income from operations in the closures business for the second quarter of 2011 decreased to $1.3 million to $22.7 million. This decrease is a result of the light pass-through of increases in rising cost, partially offset by the inclusion of IPEC and DGS and the ongoing benefits of cost reductions and manufacturing efficiency.

Net sales in the plastic container business increased 5.4 million to 155.4 million in the second quarter of 2011 primarily as a result of higher average selling prices due to the pass-through of resin cost increases and the impact of favorable foreign currency of 1.9 million. These benefits were partially offset by lower unit volumes and less a favorable mix of products sold.

Operating income in plastics increased to 4.5 million in the second quarter of 2011 versus 4 million in the prior year quarter, as resin cost which peaked during the quarter remained volatile during the period. As a result, operating income for the quarter continued to be muted by the negative impact of the light pass-through of these increased cost to our customers.

In spite of this volatility operating income improved due to better operating performance and lower SG&A cost partially offset by lower unit volumes and a less favorable mix of products sold.

Turning now to our outlook for 2011, we’re pleased with our first half performance as we delivered adjusted earnings per diluted share of $0.94, an increase of $0.06 or 7% versus a very robust first half of 2010. Based on our year-to-date performance and our outlook for the remainder of 2011, we’re confirming our full year estimate of adjusted net income per diluted share in the range of $2.60 to $2.70 which excluded the impact to the Graham acquisition termination fee. Cost associated with announced acquisitions, rationalization charges and the impact of the past product liability dispute resolved in the second quarter of 2011.

The midpoint of our earnings estimates represents an earnings increase of $0.43 per share or 19.4% versus a very strong 2010 result. As indicated in the press release, we also expect to complete the refinancing of our bank credit facility shortly. We expect the terms and conditions to be favorable to our current agreement providing for lower cost and increased flexibility for acquisitions. The impact of this potential refinancing is also excluded from our estimates of adjusted earnings.

Resin cost for our plastic container business and the plastic portion of our closures business started to decline in the second quarter. Therefore, we expect to benefit from light pass-through of these resin price declines in the third quarter and the purchase accounting headwind is behind for the recently announced acquisition. However, we’re forecasting a later than normal harvest particularly on the West Coast.

As a consequence, we are providing a third quarter 2011 estimate of adjusted earnings per diluted share in the range of $1.05 to $1.15 which excludes rationalization charges, cost related to announced acquisitions and any charges related to the pending refinancing. Comparatively, we delivered adjusted earnings of $0.90 per diluted share in the third quarter of 2010.

Additionally you should note that given the magnitude of the third quarter and the potential impact of un-forecasted movements in harvest dates, the earnings in the back half of the year can shift meaningfully between quarters. We are forecasting free cash flow for 2011 to be at the higher end of our original range of 180 million to 220 million as the benefit of the termination fee is partially offset by higher capital expenditures as I indicated in my capital expenditure comments.

That concludes our prepared comments. We can now open it up for Q&A. And I will turn it back to Jessica to provide directions for the Q&A session. Jessica?

Question-and-Answer Session

Operator

Thank you. The question-and-answer session will be conducted electronically. (Operator Instructions) And we will go to Ghansham Panjabi with Robert W. Baird.

Ghansham Panjabi - Robert W. Baird

Hey guys good morning.

Bob Lewis

Hey Ghansham

Ghansham Panjabi - Robert W. Baird

While it appears in the sector you commented on a sharp decline in volumes particularly in the month of June as the customers based for the sector that raised prices and consumer spending is weak and to commensurate inventory reduction, have you seen any of that in your businesses so far?

Bob Lewis

You know Ghansham I think if you look through the quarter, June was our slowest month in the quarter which is somewhat typical for us, but I wouldn't say we had a sharp decline, we had a just a smaller decline in June versus the balance of the quarter so nothing significant.

Ghansham Panjabi - Robert W. Baird

Okay. And as it relates to the back half of your outlook it’s been a very warm summer, particularly the last couple of weeks with the heat wave etcetera. You know I think you commented on the West Coast crop, I assume that's tomatoes, but are you seeing any pause for some of the other types of crops or vegetables or anything like that. Are your customers starting to get cautious just based on amount of heat with kinds of experience over the last few weeks?

Bob Lewis

No, I think if you look at our crops and kind of where we stand right now, number one, they were actually planted late for the most part, probably one to two weeks late in the Midwest. And really that was because of the cool weather we had early in the summer. So I think you are right, I would said, it’s been very warm the last few weeks but for the most part, it’s been cool in kind of our growing regions. So we think that that’s going to run a little bit late this year.

If you look at some of our other businesses specific to single-serve beverage on the closures side, we have seen a slight slowdown due to that cooler and wet weather early in the quarter. We will see how the last few weeks of the warm weather really impacts kind of the finished goods at retail for single-serve beverage. But at this point, I think we still continue to feel very good about not only the crops, but about the recovery of single-serve beverage with a warm summer hopefully coming forward here.

Ghansham Panjabi - Robert W. Baird

Okay. Okay, great and then just a last question maybe for Tony. You know, Tony, thinking back to the Graham Packaging episode and maybe that’s the best word to describe it. You know, and perhaps the structuring of your initial terms, can you share with us any sort of lessons learned as it relates to how you might sort of consider the next sort of transactions from a structuring standpoint, just a breakup fee or whatever else there is?

Tony Allott

Yeah, no, I mean, I obviously saw a note on that. You know, I personally if you go straight to break up fee, I would say negotiation process and I think that there is nothing we would do differently in there.

It was a hard negotiated point through that. So I think, we go in and negotiate hard on that point again and drop in the end, we’ve done that somewhere in the middle, no compromises out right now, but that essentially I think, I think the learning here more broadly is that, we really believe what you pay for business upfront is so critically important to the ultimate success you have.

Every once in a while, a business comes along that is just a must have, I am not quoting any price, I am not even able to say it, but every once a while, ones comes along that you are going to pay up for it and frankly I think Graham we did, we were willing to pay up for to a degree, but in the end price matters a lot and so, one learning here is that public deals, we don’t typically buy on auctions very often.

We’ve kind of tried to find things that make a little more sense, we can find on our own. I think one learning here is that a public deal is essentially always an auction and it is kind of have to be by definition and so that always going to be a bit harder for us to get to a clearing price where we feel confident. We can create the kind of value that we have had, so much success doing in the past. So that’s, it’s not very helpful leaning but that’s probably the one learning.

Operator

We will now go to Alton Stump with Longbow Research.

Alton Stump - Longbow Research

You know, I guess if you can just comment on you know, how your food can volumes fared in the first quarter organically, you know I think you know it was applied and first we have said they are up slightly, is that correct?

Tony Allott

That is correct for the second quarter, that is correct. So obviously for the segment, we have included the Vogel & Noot acquisition, so including Vogel & Noot we were up high single digits. If you look at the organic volumes for your question, we are up slightly in the US business, really looking at growth in pet food and some increase in soups and sauces as well.

Alton Stump - Longbow Research

And then you know, I guess just one quick up follow up to that and you know I think I touched on there, but you know I am surprised to see that growth given how the soup can volumes have looked industry wide the last quarter or two, you know was it mostly pet food that was key offset there?

Tony Allott

Pet food has been strong for some period of time for us, so it just continues you know the growth trajectory that we’ve been on and soups I would say, it wasn’t necessarily a surprise to us, it’s up slightly in the quarter, so really pretty much in line with our expectations.

Operator

And we’ll now go to James Armstrong with Vertical Research Partners.

James Armstrong - Vertical Research Partners

Looking at the plastic segment, after a few challenges in 2010, you are on track for a much better year. Do you still believe you can manage the resin price volatility to see an increase in plastic operating income for the year?

Adam Greenlee

Sure, this is Adam and yes I think that’s correct. I mean we still have expectations for better performance out of plastic business. We saw that to some degree in the second quarter although it was muted from an operating standpoint by the lagged pass through of the resin increases. As we look forward now for the remainder of the year, we do see some stability in resin. It was very volatile in Q2, but Q3 looks to be more stable and so we will have the catch up of the lagged pass through and so we do anticipate further improvement in our plastics business.

Tony Allott

And it will gradual. I mean so we are expecting some modest improvement, you can already see it in the numbers so far that despite the resin headwind, it’s a bit better so far and but it’s going to be gradual, it’s going to be everything we want it to be in 2011. You know it will take us some time here.

James Armstrong - Vertical Research Partners

Okay. And then switching topics, assuming that you don’t have any major acquisitions that come down the pipeline in the next few months or in the next few quarters. Could we see another significant buyback like we saw in 2010 this year or maybe next year?

Tony Allott

That is not on the forefront of our mind. I think that we do have, we have authorization that still exists from that buyback. I think the idea that we would do, some amount of ordinary market type buyback is very plausible. But right now what’s on our mind is, we watched the balance sheet, we are kind of at the low end of what we view the optimal leverage range, but we are not way outside of it.

So unlike a year ago where we were way outside of the optimal range, that’s not the range today because of the acquisitions we did late last year and so really that in the near term it will be much more modest than that. We do think the acquisition opportunities are significant out there. We continue to believe that is the greatest value that we can drive for the shareholder is good acquisitions that help build or enhance the franchises of the business and so. I’d think the right way to view it is that there would be some of buybacks in the mix, but I wouldn’t necessarily think of it as a big item.

Operator

(Operator instructions) We will now go on to Mark Wilde from Deutsche Bank.

Mark Wilde - Deutsche Bank

Tony, just a follow up on that question, can you just give us a sense of kind of how long it takes you to get back on the horse from an acquisition standpoint, I mean Graham was so big I assume it put everything else off on the side?

Tony Allott

Yeah good question and the answer to that is no. We certainly put a lot of time and effort in the Graham, but we kept other things moving along at the same time and so again we view this is until it is done, it is not done. We have through it too many times and so I would say that we still had a backlog, we are still working a backlog. We will still probably turn down nine of every ten we see. So you never know one that will come, the idea is that the slate is totally clean and now we are out trying to figure out what next. That would not be the right way to think about it.

Mark Wilde - Deutsche Bank

Would you care to sharing your thoughts with us on just sort of kind of domestic versus offshore or you know different business segments on the acquisition side?

Bob Lewis

Yeah, Mark, this is Bob. I’ll kind of take that one. Really the pipeline is not a lot different than where we were before the Granville came around. We said pretty openly that we’re not constrained by geography, we’re not constrained by which segments we look at, that continued to be the case. So I think we’ve got a fair bit of opportunity across geographies and across footprint. Now the magic will be in which one, we can get a deal done that we think meets our return metrics and meets our franchise valuation. So time will tell on that front, but not at all constrained in any front from an acquisition standpoint.

Mark Wilde - Deutsche Bank

Okay and then just one follow on. You mentioned some investment in the metal can business, I’m assuming that it was over in Europe with Vogel & Noot, but if you could give us a little more color on that.

Bob Lewis

Sure. If you look at our CapEx, we’re up year-to-date some $36 million versus the prior year. Essentially that’s coming in kind of two fronts; one, there’s some acceleration of capital into 2011 as we kind of look to take advantage of the new tax deductibility. So about $9 million of that incremental or so comes in our US can business which is largely incremental capacity around easy open ends and that’s just supporting further penetration around fruit and vegetable categories.

And then the big portion of that uptick is certainly in our European operations as we kind of accelerate growth opportunities in the growing eastern markets and that was kind of we had communicated that, that was an opportunity for us when we completed the Vogel & Noot operation and that is certainly still on target and in fact the commercialization of those opportunities look to be on-track or accelerated from what we are originally thinking so that’s – we view that as favorable.

Mark Wilde - Deutsche Bank

Okay, that’s very helpful thanks. Good luck in the third quarter.

Tony Allott

Thank you.

Operator

We will now go to Christopher Butler from Sidoti & Company.

Christopher Butler - Sidoti & Company

Hi good morning guys.

Tony Allott

Hey Chris.

Bob Lewis

Hi.

Christopher Butler - Sidoti & Company

You had mentioned on the plastics side of the business that there was some benefit from restructuring the corporate admin functions you know could you quantify the benefit that you saw from that here in the quarter?

Adam Greenlee

Sure. Hey Chris its Adam, we did initiate a reduction in force at our Chesterfield headquarters in the fourth quarter of last year, essentially for this quarter the change was about $1.5 million favorable.

Christopher Butler - Sidoti & Company

And shifting gears to the metal cans, it was mentioned that your manufacturing costs were higher in the quarter and that was to be passed through, my understanding is that labor can get passed through but most of the manufacturing benefits or weaknesses is something that you would keep, is that what we are looking at here?

Adam Greenlee

No actually it’s just a lagged pass-through, so those costs do indeed pass-through to our customers.

Bob Lewis

The contracts vary a bit, but generally we pass-through labor and other costs on a lag basis and so again the thing was going that were candid a year ago we were at the higher price in our pricing and inflation of our cost. We are not comparing to a point where we've got the inflation of cost and we haven't yet passed that through to those customers.

Christopher Butler - Sidoti & Company

And just finally with the harvest it didn't sound in your comments that you thought there was any risk to the harvest as we push here into the fourth quarter and also it runs too late things tend to, the harvest tends to weaken but that doesn’t sounds like what you are saying at this point, correct?

Bob Lewis

Well, I think, you probably hit right on the head. The later the harvest does, the greater the risk of a foster, certainly in the Midwest and also on the West Coast with the potential conflicts with the products that goes into our package risk with tomatoes etcetera. So I wouldn’t say there is any greater risk in any other year, but just the later it goes, the risk do come up.

Christopher Butler - Sidoti & Company

I appreciate your time.

Bob Lewis

Thanks Chris.

Operator

We will now go to Alex Ovshey from Goldman Sachs.

Alex Ovshey – Goldman Sachs

Thanks. Good morning, guys.

Bob Lewis

Hi, Alex.

Tony Allott

Good morning.

Alex Ovshey – Goldman Sachs

Can you comment on what your temporary prices did in Europe and or the outlook for steel temporary price in Europe for the back half of 2011, whether or not they have any impact on the Vogel, new business?

Adam Greenlee

Sure. The back half of 2011 for steel pricing in Europe we’ll see roughly a mid-single digit steel cost increase and that will impact both Vogel our new business as well as our closures business in Europe. Both businesses are structurally setup to pass-through those cost to their customers so which really I don’t think there will be any impact to our business but there is inflation that’s taking place in Europe.

Alex Ovshey – Goldman Sachs

Okay.

Adam Greenlee

You can see a mid-year price increase in the U.S. markets.

Alex Ovshey – Goldman Sachs

Okay. That’s helpful. So are the contracts in Europe for Vogel in Europe did very much similar to the way the contractors set up in North America where you are especially not taking any metal risk and fundamentally the change in metal cost is passed on to the customer in pretty real time?

Adam Greenlee

No, they are a little bit more like our White Cap business that kind of negotiated on an annual basis and on an annual basis we come back and look for that inflation from the market place from our customers.

Tony Allott

So the structural point Adam was referring to is that knowing that there was a risk of a mid-year increase, we basically went out at the beginning of the year and left ourselves open for room to come back with an increase in the mid-year effect and play goes up.

Alex Ovshey – Goldman Sachs

And Tony, well the question for you, now that you guys are playing the Central Eastern European food can market with Vogel and as you compare and contrast, the competitive landscape in Central Europe and Eastern Europe to what North America look like in the mid-90s when (inaudible) was about 10% of the market share for food cans.

Tony Allott

That’s a good, great question. There are some similarities in it, there is more captured self manufacture in the Eastern Europe. And so one similarity is that it’s seem a lot of hands in it and it is self manufactured. One difference is that you obviously have more players that are focused on growing in those markets. Now you have got developed Western European players who are all looking at those markets.

So I think the good news for us is what we like is growing with our customers and growing with those markets and finding the opportunities for self make and they do sit there. The thing we like is there are a lot of players and so and I think this is a bit more of a similarity again. There are quite a few consolidation opportunities.

I think we will present themselves over time and I said before in this call and I say again just the team that we have in place is so entrepreneurial, so focused on the growth opportunities here that they are hunting hard for those opportunities and our expectation is that they will find some interesting ones over time.

Operator

(Operator’s Instructions) We will now go to George Staphos from Banc of America, Merrill Lynch.

Benjamin Wong - Banc of America/Merrill Lynch

Hey guys, this is [Benjamin Wong] filling in for George. Could you talk more about the outlook for 3Q, I think we are going to see ongoing price increases in food. For example there is some big fall price increases in canned soup for example, is that fit into your volume expectations?

Tony Allott

Well, what is in our volume expectations specifically for the food can business is a normal pack season somewhat we had last year. Obviously the timing of that we’ve pushed a little bit into Q4, but from a volume standpoint between those quarters the pack is going to be about the same year-to-year. As far as soups and their increases to the market, you know we really doesn’t impact our volume per se, so we are just kind of steady state and we’ve got a plan for the full year that we continue to execute against for essentially our metal food can business.

Bob Lewis

There is also just the fair market promotional activity that’s being discussed as well. So we are not expecting any frolic from soup, either side of it. We are expecting that the market kind of continues to hold the tone going forward.

Benjamin Wong - Banc of America/Merrill Lynch

Okay. Understood and then it sound like Vogel & Noot has performed well so far. Can you break out how much revenue Vogel contributed in the quarter and any additional color on how it’s performing?

Tony Allott

Sure. The revenue was about $75 million in the quarter. You are correct in hearing us right that so far the business is done, kind of everything we could have hoped from it. If you look kind of again, it’s own performance a year ago, its sales are up a bit, but more important they kind of against the expectations we had, it continues to run on track right now. Bob alluded the fact that they have got now four new plants under construction which they are making pretty good headway on those and so we think good opportunities will come from there as well.

And then the integration, the soft benefits have gone well in terms of working with our business, finding opportunities in our US business, working with European closure business and finding optimism between there. Again I wouldn’t characterize those as synergies, because there aren’t huge synergies here, but the soft benefit, more footprint in Europe and more can experience in the Vogel & Noot business, all that, I think makes it a stronger operating business for the future and we cover on some of that and it certainly has been working as we had hoped thus far.

Bob Lewis

And the only thing would add to that is you look at the numbers. We haven’t really gotten financial benefit as of yet, largely because of the purchase accounting that we have recorded in the first six months. But that’s been a slight negative draft on the EPS line on the year-to-date basis and that’s behind us. So we should start seeing that contribute to the EPS line in the back half of the year.

Benjamin Wong - Banc of America/Merrill Lynch

Okay great. Thanks

Operator

We will go to Mark Wilde from Deutsche Bank.

Mark Wilde - Deutsche Bank

Yeah just one follow up Tony, I wondered if you can just give us the update on where we stand with kind of the questions around the can linings?

Tony Allott

Sure Adam can help you too here but I assume that you are referring to primarily around the BPA?

Mark Wilde - Deutsche Bank

Yes exactly.

Tony Allott

I think we have said on the call before that because of concern that the consumer may have a preference here at some point in time. Not because we have seen any compelling signs but we have been kind of on a five year effort to provide the alternative opportunities to our customers to a coating that is not adding BPA into the coating.

So we’ve continued to move forward on that, we have the coatings identified most every one our products and generally across the board they will not be as good as the coatings that do use BPA that will not have -- shelf life will be a struggle for a period of time. And in time we will get that worked out but immediately you do have to lose some shelf life.

And then we had to make, in order to do that we spent millions of dollars on the development side. We have tested every kind of different lining system with different food products etcetera and we have had to make some capital, one of the kind of the noise element behind the capital spending. There’s also been some capital put into that. So all of that is a long way around of saying that we are within a – let’s say a year to 18 months from having offerings for most all, it’s not all of our customers. But were not there yet, but certainly there’s progress being made on that.

Mark Wilde - Deutsche Bank

And then do you expect Tony, once, once you got your offerings ready here, does it appears to you that there are a lot of customers that want to pick up on this immediately?

Tony Allott

Depends on what they ask me. Because kind of got the same problem, which is there’s if you look at the science it’s hard to determine where truth is. If you look at the regulators, the one you think will be the toughest like in Europe are the strongest to saying this no health risk here.

And so I think it’s still a tough decision for our customers whether they make a move because of a public perception or they don’t. So it really, it swings a little bit. I think there are some customers who definitely will. Make a move and I think there are some who will wait until science bears it out a little.

Mark Wilde - Deutsche Bank

Okay, better enough. Thanks.

Tony Allott

Yes.

Operator

And there are no further question. I will turn the conference back over to our presenters for any additional and closing remarks.

Tony Allott

Great, thank you everyone for your time and we look forward to talking about our Q3 results in the fall.

Operator

This concludes today’s presentation. Thank you for your participation.

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Andersons (ANDE): Q2 EPS of $2.42 beats by $0.70. Revenue of $1.3B (+65% Y/Y) beats by $0.15B. Shares +7.1% AH. (PR)