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Silgan Holdings Inc. (NASDAQ:SLGN)

Q3 2011 Earnings Call

October 26, 2011 11:00 am ET

Executives

Kim Ulmer - VP and Controller

Tony Allott - President and CEO

Bob Lewis - EVP and CFO

Adam Greenlee - EVP and COO

Analysts

Matt Wooten - Robert W. Baird

Chris Manuel - Wells Fargo

Benjamin Wong - Bank of America-Merrill Lynch

Alton Stump - Longbow Research

Phil Gresh - JPMorgan

Christopher Butler - Sidoti & Company

Tim Burns - Cranial Capital

Tim Thein - Citigroup

George Staphos - Bank of America-Merrill Lynch

Operator

Thank you for joining Silgan Holdings’ third quarter 2011 earnings conference call. Today's call is being recorded. At this time I would like to turn the call over to Kim Ulmer VP and Controller for Silgan Holdings. Please go ahead.

Kim Ulmer

Thank you. Joining me from the company today, I’ve 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 2010 and other filings with the SEC.

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

With that, I will turn it over to Tony.

Tony Allott

Thanks, Kim. Welcome everyone to our third quarter 2011 earnings conference call. Our agenda for this morning to review the financial performance for the third quarter. To make a few comments about our outlook for fourth quarter of 2011 and to provide some preliminary thoughts about 2012. After these prepared remarks, Bob, Adam and I will be pleased to answer any questions.

As you saw in the press release, despite several external challenges, this was another record quarter for Silgan Holdings. We reported adjusted earnings per share of $1.14 increasing nearly 27% versus the prior year quarter. Further demonstrating the strength of our franchises and the power of our disciplined approach to capital deployment. These results were achieved in spite of sluggish demand for single serve beverages, one of the worst fruit and vegetable pack seasons in recent memory and a worsening of economic conditions in Europe.

Each of the recently acquired businesses Vogel & Noot, IPEC and DGS performed well in the quarter and were accretive to earnings. Only our plastics container business had a declining profit quarter which resulted largely from costs and productivity losses incurred to address specific operating challenges. While we’re seeing signs of operational progress, our response to this situation will likely continue to negatively impact results in the near term.

During the quarter, we also have continued to deploy capital to enhance our business by acquiring the steel pet food business from Nestlé Purina PetCare and buying back additional shares under our share repurchase program.

Given our year-to-date performance through these volatile market conditions, we’ve refined our full estimate of adjusted earnings per diluted share to $2.60 to $2.65 representing a forecasted annual increase of between 17.1% and 19.4% over 2010 results.

With that, I’ll now turn over to Bob to review the financial results in more detail and provide additional explanation around our earnings estimates for ’11.

Bob Lewis

Thank you Tony, good morning everyone. As Tony highlighted the third quarter of 2011 was a record quarter as we delivered adjusted earnings inline with our expectations and 27% above the third quarter 2010 despite the fact that each of our businesses were faced with significant headwinds during the quarter.

Key to the quarter are positive contributions from our recently acquired businesses and solid operating performance in our metal container and closures businesses, while the third quarter continue to experience the negative impact of the lag in pass through our resin costs to our customers in our U.S. closure business. As a result we delivered third quarter adjusted earnings per diluted shares of $1.14 versus the prior year quarter of $0.90.

On a consolidated basis net sales for the third quarter of 2011 were $1,148 million, an increase of $145.9 million or 14.6% as net sales in each of our businesses improved. Net income for the third quarter was $78.8 million or $1.12 per diluted share compared to the third quarter of 2010 net income of $65.2 million or $0.84 per diluted share.

While we experienced volatility in foreign exchange across the business, the net impact of foreign currency was immaterial as we continued to be effectively hedged having financed the international businesses in their local currencies. We did, however, experienced a transaction loss as a result of the significant devaluation of the Polish Zloty late in the third quarter.

Interest expense for the quarter was virtually unchanged from the same period a year ago as additional costs associated with incremental year-over-year borrowings were largely offset by lower average cost of borrowings. We also recorded a loss on early extinguishment of debt during the quarter to reflect the July 2011 refinancing of our senior secure credit facility.

Capital expenditures for the third quarter 2011 totaled $39.1 million compared with $27.9 million in the prior year quarter. On a year-to-date basis, capital expenditures totaled $123.2 million in 2011 versus $76 million in the prior year. We continue to estimate that capital expending for the full-year will be in the range of $160 million to $170 million, largely a result of the compression of capital into 2011 to maximize tax deductibility, incremental investments in Eastern Europe and the impact of foreign currency.

Additionally, we paid a quarterly dividend of $0.11 per share in September with a total cash cost of $7.8 million. During the quarter we also deployed $15.8 million to repurchase stock pursuant to our $300 million share repurchase authorization approved by the Board during the third quarter of 2011. The average price per share repurchased during the quarter was $35.79.

I’ll now provide some specifics regarding the financial performance of the three businesses.

The metal container business recorded net sales of $798.7 million for the third quarter of 2011, an increase of $109.8 million versus the prior year quarter. This increase is primarily a result of the inclusion of net sales from Vogel & Noot and higher average selling prices as a result of the pass through of higher raw material and other manufacturing costs, partially offset by lower unit volumes due to a weaker fruit and vegetable pack as compared to 2010, and inventory reductions of certain customers.

Income from operations in the metal container business increased $16.4 million to a $111.7 million for the third quarter 2011 versus $95.3 million in the same period a year ago. The increase in operating income was primarily attributable to the acquisition of Vogel & Noot, the favorable year-over-year comparison resulting from the timing of passing through deflation and manufacturing costs in 2010 as compared with inflating cost in 2011, ongoing cost controls and productivity improvements and lower rationalization charges. These benefits were partially offset by lower unit volumes in the U.S. as previously discussed.

Net sales in the closure business increased $26.7 million to $189.5 million for the quarter, primarily due to the inclusion of IPEC and DGS, favorable foreign currency translation of $7.4 million and higher average selling prices due to the pass through of higher raw material costs. These increases were slightly offset by continued softness in single-serve beverage markets.

The income from operations in the closures business for the third quarter of 2011 increased $2.4 million to $24.4 million. This increase is a result of the inclusion of the IPEC and DGS businesses, the benefits of prior restructuring activities and improved manufacturing performance. These improvements were partially offset by the negative impact of the lag in pass through of significant increases in polypropylene resin costs, lower unit volumes in the single-serve beverage markets and higher rationalization charges.

Net sales in the plastic container business increased $9.4 million to $159.8 million in the third 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 a less favorable mix of products sold.

Operating income in plastics decreased $4.4 million in the third quarter of 2011 to $3.8 million versus $8.2 million in the prior-year quarter as a result of lower unit volumes and a less favorable mix of products sold. While we did make some operational improvements during the quarter, these gains lagged expectations.

Turning now to our outlook for remainder of 2011, as Tony indicated in his opening remarks, the overall tone of the year has been one challenged by external influences. Even so we have successfully delivered financial results well in excess of the prior year. In fact our nine-month adjusted earnings per diluted share increased $0.29 or 16.3% versus the prior-year period. Based on this year-to-date performance in our outlook for the remainder of 2011, we are refining our full-year estimate of adjusted net income per diluted share in the range of $2.60 to $2.65 which excludes the impact of the Graham acquisition extermination fee, the loss on early extinguishment of debt, cost associated with announced acquisitions, rationalization charges and the impact of the test product liability dispute which was resolved in the second quarter of 2011.

As a result we are also providing fourth quarter 2011 estimate of adjusted earnings per diluted share in the range of $0.53 to $0.58 which excludes rationalization charges. Comparatively we delivered adjusted earnings of $0.45 per diluted share in the fourth quarter of 2010. We continue to forecast free cash flow for 2011 to be at the higher end of our original range which was a $180 million to $220 million as the benefit of the termination fee is partially offset by higher capital expenditures.

While we are in the midst of our 2012 budget season, we do understand the desire for early thoughts regarding 2012. At this point, we expect improvement in our metal container business as 2012 will benefit from the full-year impact to the Vogel & Noot and Nestlé Purina PetCare acquisitions.

We should see a more normal seasonal pack in the US as compared to the 2011 and we expect that the specific customer inventory reductions experienced in 2011 are behind us. These benefits could be partially offset by uncertainties in the European Economy.

We also expect our closures business to show improvement as the negative impact of the lagged pass-through of rising polypropylene costs in 2011 are not expected to repeat and volumes are anticipated to recover somewhat. We expect 2012 to be a building year for our plastics business, but do expect some improvement in our financial results. That concludes our prepared remarks, so we can open it up for Q&A and I will turn it over to James who can provide instructions for that Q&A session.

Question-and-Answer Session

Operator

(Operator Instructions) We will take our first question today from Ghansham Panjabi with Robert W. Baird.

Matt Wooten - Robert W. Baird

It is actually Matt Wooten sitting in for Ghansham today. Your press release indicated some inventory reductions by customers in metal food containers. I was just wondering if you could help us quantify the impact on sales and profitability and should we expect this to be a one-quarter event or it’s just something that could persist in the first half of next year as well.

Bob Lewis

It’s something that we've seen through the course of the year. We wouldn’t expect that it will continue into next year and that we kind of outlined that as we went through at least the thoughts on 2012. So it was pretty significant in terms of volume. I don't think we will call out a particular customer or a specific unit volume, but it was pretty meaningful for the quarter and again we don't expect it to continue.

Matt Wooten - Robert W. Baird

And then separately it looks like France is planning to ban BPA by 2014. I actually think that this could present an opportunity for Silgan to compete more directly in Europe and was just hoping that you could comment on that.

Tony Allot

We’ve talked about BPA here before. I think there's plenty of raging debate about science versus politics versus consumer preferences. What you are referring to in France is the middle of that has to do with you know politician more than does any change in science. Interestingly the regulatory authorities in Europe continue to feel the BPA is fine at the levels and food cans have continued to be really even stronger than we've seen on the regulation side here in the US.

Nonetheless you have to deal with all of those challenges and so you are right that France has indicated an intention to move forward and may well do that and you are absolutely right, we would agree with you that, in the end that becomes an advantage for those that spend the time, research et cetera to advance the technology, the product and so as you know, we've been working for a long time, five plus years on BPA replacement and that is something that you know we are in the process of launching alternatives and so if that in fact is what the marketplace requires then you know we would expect to be able to meet where we are not loosing BPA in the pressure process of the Can and that’s something that is on the horizon for us.

So I think you’re right, it could be an opportunity, but ultimately we think it’s just important that the Can continues to move out of the consumer interest on this point and gets away from the challenges of the price environment.

Operator

Next we’ll hear from Chris Manuel with Wells Fargo.

Chris Manuel - Wells Fargo

A couple of questions. First, could you remind us, you have a lot of activity and when you purchased Vogel & Noot there was a build-out of capacity coming. Can you just give us a sense of you know where you are with that and what was your capacity at the time it was bought; where you at and I think its over a couple of year period that you were taking up capacity there. Give us a sense of what you’ve got; where the earnings stream is coming from that and you got to kind of help us face some of the development activity over there?

Bob Lewis

Sure, Chris this is Bob. As you might remember when we acquired the business they were operating essentially 12 plants throughout Central and Eastern Europe and there were kind of plants that were being developed to build-out an incremental four facilities. We’ve kind of in moving forward with those initiatives since we’ve owned the business. They are in various stages I think probably the nearest to commercialization is one of the facilities that happens to sit in the Russian market. We are going through some customer qualifications as we speak. We would expect that kind of by the end of this year and into the start of 2012 that that will be commercialized and we’ll be providing commercial Cans for our customers in that marketplace.

On the far end of that spectrum is another plant that we’re building that right now we’ve just kind of got a shell of a building where we’ve got the infrastructure being build-out there and equipment that will be going in. But that’s probably more of a mid 2013 kind of approach.

And then the two plants that are kind of and sort of in-between stage if you will, we’ve got equipment being installed and coming up and running and we would expect that kind of mid 2012 those plants will be commercialized as well.

I will point out that the expectation should be that these are not U.S. type Can plants there. They’re kind of small niche operations with one or two Can lines to service the local market that can serve as building blocks overtime. So keep in mind that we’re talking about a total investment across all four plants that looks something round about $25 million.

Chris Manuel - Wells Fargo

Okay, that’s helpful. And from the perspective of and probably the reason I ask the question is, has there been any change with respect to economy i.e. if you accelerated I mean pushed any of them back of it and how do you feel about future expansion into some of these developing regions as well?

Bob Lewis

Yeah, I would say that that we’re progressing nicely against the original plan that was there. There has been no real material change to the schedule; I would say that the team there has been doing a great job of getting the activity underway and so far we’re pleased there.

Look, without committing to any given market, I think that’s the sole – one of the big reasons that we bought this business that we saw opportunity overtime to keep building out in those growing regions. So I think we’ll continue to look for opportunities and be opportunistic when we can to sort of bring western quality into those markets and be ready to support a broader customer base.

Chris Manuel - Wells Fargo

Okay that’s helpful and one more question before I jump back in the queue. And that’s regarding you know capital redeployment the rest of the year, obviously you know transaction that didn’t go through; the balance sheet still is in terrific shape, I know in the past you’ve done different repos and things of that nature to kind of maintain that bottom of where you would consider to be or in your perspective. But as that often more stayed with flexibility; how are you thinking about optionality for cash as you look the next 12 months you’re still seeing; you know in the marketplace do you think that and may be your color there will be helpful?

Bob Lewis

Sure. Yeah, clearly our balance sheet is in good shape with the cash flow that we would expect to generate in ’11 you know we’ll kind of be to the low end maybe and slightly below where we would say is the optimal range all else equal and that range is 2.5 to 3.5 times.

We do and have continued on the heels of the Graham transaction to keep our foot on the accelerator looking for opportunities in the M&A market. We continue to look at a lot of different transaction opportunities. I think what’s important and I think what’s displayed as we came through the Graham transaction is that discipline is really important here and that holds us true today as it always did. So price really matters here when we look at opportunities and we’re not going to go out on a limb and break from that discipline.

So they’ll comment, they do opportunistically if we don’t find them, then we will look at other strategic opportunities. I think what I would point out is, you know, you made the comment that a deal that fell through but more importantly I would say if you look back over the last 12 months, we’ve actually deployed $700 million or so towards strategic activities, roughly $400 million towards the four acquisition being Vogel & Noot, DGS, Nestlé Purina, and IPEC and nearly another $300 million through share repurchases. So we’ve been quite active in deploying capital strategically back in this business and I think, you know, you should view that path as prolonged for the future.

Operator

Our next question will come from George Staphos with Bank of America-Merrill Lynch.

Benjamin Wong - Bank of America-Merrill Lynch

Hey guys. It’s actually Benjamin Wong filling in for George who is on another call. On food can volumes can you give some additional color? I know fruit and vegetable is pretty weak, but I think pet foods was actually up for the industry in the third quarter, but if you could give anymore details that would be great?

Bob Lewis

Sure, if you look at the food can volumes in the U.S., we were down mid-single digits, which is essentially right in line with what the industry would suggest. I think CMI has got the industry down about 6% or so. And if you look at that, its kind of right in line with what we saw across the pack. All the categories that would be pack-related are down. As you suggested, the one that’s not pack-related is pet food, which was up a bit and that happens to be a category that we’re pretty well entrenched in. So, we did see that benefit. But all in all, kind of attributable to the two things we called out, the, down pack and a bit around the inventory reduction side of certain customers.

Benjamin Wong - Bank of America-Merrill Lynch

Okay, thanks. And how much did Vogel contribute in revenue to the business in the quarter if you can talk about that?

Bob Lewis

It’s roughly about a $100 million to the revenue line.

Benjamin Wong - Bank of America-Merrill Lynch

Okay. Two more questions, with regards to your customers do you know if they are having any different outlook on the cans run, the packaging mix especially when we talk about the center of their grocery store?

Bob Lewis

No, I am not sure there's any particular change. I think there's been sizeable inflation and the can as you know over time, that's been true of lot of other packages. But I think the key for us is to focus on inflation and keeping the can competitive. That's where we are putting a lot of our time and energy. But that's a long-term story and its still is, as you know, it is a premium package in terms of the cost, the value you get from it. And so, it’s still today the better package in that regard. Our focus is just making sure that we keep that spread as great as we possibly can. But just a quick answer to your question, we are not seeing any major shifts there.

Benjamin Wong - Bank of America-Merrill Lynch

Okay, great. Last question just on plastics, you know there have been some challenges there. Can you talk about -- at what point do you evaluate when enough is enough and how you think about that business in longer term?

Adam Greenlee

Sure Benjamin. It’s Adam. I guess I would start by saying that the issues that we are facing in plastic really are nothing new. We've been dealing with them for a little while now. And they’re mostly associated with a rationalization program we put in place about 18 months ago. We, in an effort to reduce our overall cost structure, I’ll like to disclose one of our largest manufacturing facilities, which essentially led us to move about 24 manufacturing lines to other existing facilities. So, and it was a big project. Our execution of the playing on against that project did not go particularly well. I think when you generally do a rationalization program as large as what we did, it can be distracting to other parts of your organization. So we’re spending quite a bit of time talking about what’s not going well in plastic when in fact there are also some parts of plastic that are doing quite well.

And I think what we struggle with is, is keeping the parts of the business that are performing well, focus on doing what they are doing well and not get distracted by the noise of what else is happening. So I think with our plastics business going forward, what we’re doing right now, first and foremost is we are focusing on meeting the needs of our customers and we’re doing that with quality products on time and within our customers expectation.

Unfortunately, part of our issue is as what Tony and Bob commented on and you saw on the press release, we’re running a little bit slower then we would’ve like right now. We’ve got additional resources focused on meeting those customer needs. So we’re incurring additional cost that we’re going to do that for a little while now in to the future. So, I think our core plastics business is still a very good business. We’ve got a couple specific items that are plaguing the business that we’re now putting together concrete plans to fix those issues and move back to where we expect and our plastic business should be performing.

Operator

Next, we will hear from Alton Stump with Longbow Research.

Alton Stump - Longbow Research

With inventory issue in food cans, any idea as to how much of that bleeds into the fourth quarter, if you mentioned, and I missed it. And as for the volume outlook might look, ballpark for the fourth quarter in food cans as a whole?

Bob Lewis

I think largely because the peak season is behind us. I would expect that the inventory issue is not going to be -- certainly not nearly as significant as it was in Q3. So I think that’s largely behind us and if you look at the overall volumes in the can business for Q4, I think we’d expected to be kind of flat-to-down a little bit in Q4 just because of the sort of the pack ending abruptly in early October and late September versus last year we had a little bit of a hangover over the pack coming into Q4. So I think a good expectation is kind of that flattish range.

Alton Stump - Longbow Research

Okay, thanks. And just one quick follow up on the cost front namely metal heading into next year. Any early read at this point as to what template is going to do next year?

Bob Lewis

What we understand at this point in time is that because of worldwide demand there’re still inflation coming on the steel side. It would seem evident that that’s going to be a little less than probably if we were talking about this a couple of months ago. So, right now it may be mid-single digits kind of a number. We’re actively engaged in that.

You heard me make the comments earlier that overall cost of steel packaging is critically important to us, and so one of the things that we need to continue to do is convince the steel industry that the food can is a great long-term, steady market for the food can and whipping it around on cyclical costs for steel because of requirements in China etcetera. It may not be such a good idea. So I think that’s part of the effort we got to do as to try to manage this inflation as best we possibly can, which is a longer answer to your question and there is going to be some inflation and we will see how much.

Operator

Phil Gresh with JPMorgan has our next question.

Phil Gresh - JPMorgan

On metal containers, can you just elaborate little quick on the impact you saw from the pass through of the higher manufacturing cost. I know that was a negative in the second quarter, turned positive here in the third quarter. How material was that impact and is it expected to be neutral in the fourth quarter?

Bob Lewis

Sure, Phil, this is Bob again. I think this is really, largely about timing. We’ve had inflation kind of coming through in bits and pieces as contracts have anniversaries if you will and you can kind of see that in year-to-date numbers. We had margin pressure through the first six months and now we are getting the kind of the catch up in Q3.

That’s largely because we are packing through inflation this year in Q3 versus we had deflation that was being passed through in Q3 of the prior year. So as we look through that, it’s probably a couple million dollars of inflation benefit in Q3 and it was certainly less than that as a headwind in Q3 of last year. So net-net, there’s probably a few million dollars of year-over-year comparative benefit that’s sitting in Q3 of this year. And again most of that contractual renewal kind of happens through the nine months. So it should be largely behind us as we move into Q4.

Tony Allott

Alright. I think you know that what we’re talking about here is other manufacturing costs inflation. This has nothing to with metals inflation just to be clear.

Phil Gresh - JPMorgan

Yes, understood. Vogel & Noot, how did the business performed organically and you give the sales number also, if you could give the profit number?

Bob Lewis

Well, it was accretive through that. It was accretive to the tune of something for the quarter, to the tune of kind of $0.06 accretion. It -- And the year-over-year was pretty comparable. It depended by regions, you know, the pact seemed to end a little more abruptly late in the quarter. So if you look at the regions of service, the pack markets, then it’s a little bit down. Then there was some good growth in some other spots. So it was comparatively pretty similar year-over-year.

Phil Gresh - JPMorgan

Okay. $0.06 accretive versus dilutive in the second quarter because of the accounting costs?

Bob Lewis

That’s correct.

Tony Allott

It was accretive for the first two quarters of the year.

Phil Gresh - JPMorgan

Great. Okay. And then just a commentary on the 2012, most of the way you are talking about something like price costs and volumes. So I was wondering if you could talk a little bit about the productivity opportunities you see right now across the portfolio. I don’t know if there is any carry over from activities that were earlier this year. I think the answer is no. But is there anything else that you kind of share with us about opportunities that could contribute to the bottom line next year?

Tony Allott

Sure. I mean, I think, really the answer here is that’s what we do all the time. It’s driving that cost in a kind of relentless way. And so that sets in n each of our businesses where we see continued opportunity either to make investment for automation or productivity enhancements. In some ways, it’s lean programs that are just continuing to move forward on better execution and operational excellence as we move forward. So it’s going to be more broad-based in that regard. There is not a lot of specific investment projects to talk about, although, as Bob mentioned we spent a lot of capital this year and some of that is productivity-based capital as well.

And then finally you have got the plastics one which we’re being pretty clear in saying that our focus right now is going to be around making sure we serve the market and that's more important to us in the near term than the quarterly results of that business, but obviously in and as we move forward, we anticipate not having to spend that extra money and getting the benefits of the rationalization that we were originally going after, so there will come a time when we absolutely expect plastics operations to improve but we are, we’re going to be a bit patient about that, so that we do it in the right way.

Phil Gresh - JPMorgan

Okay so and just to be clear across the rest of portfolio, it sounds like rationalizations are really not part of the thinking at this stage, even despite what we have seen just in terms of the volumes being a bit sluggish lately.

Tony Allot

That’s correct. I mean the sluggishness you are talking about, let's put it in context, on the can side you are talking about a pack which is interesting, we spend a lot of time on these calls talking about the pack and what might happen. You've got a pretty good view here of what a pretty bad pack looks like and I think one of the things you should hear from us is we feel pretty good about the ability of the business to adapt and deal with that.

So you know we certainly would not take out capacity around that particular volume decline that we are experiencing. Secondly, Bob talked about specific customers working down inventories. Those are very specific. The customer is communicating with us about what they are doing and so we have a pretty good sense of what's happening there and so again you wouldn't really want to change anything about your capacity on that.

Finally, we have done a lot of rationalizations you know, so I think you are right that we do not see as we sit here right now we don't see big opportunities to rationalize and take claims out, but that's something that we turn over and over again, so we never leave that one alone. We always go back and look and so you never know one might pop up, I wouldn't put a high probability.

Phil Gresh - JPMorgan

Just last question on plastics is I guess whenever you haven’t talked much about you on the call, just the mix impact obviously you know moving more towards commoditized products and things like that. I don’t know if the mix impact is more I guess volume related and that the volumes are shifting downward or also there is a some increase with the pricing pressure at those lower levels, maybe you could just elaborate you know how important this mix impact has been because you called it out for a couple of quarters?

Tony Allot

Well, I would say first of all price pressure is always there in all of our businesses. So there is nothing unique or new about that and that’s not really what we’re talking about. To a large degree, that has to do with the rationalization and the challenges we’ve had where you know you just have a shift of mix going on, as it happened where you were struggling a bit was good business and you know overtime you cycle and you pick up certain business and kind of where are you in that ramp up effects the numbers.

So I don’t think there is a fundamental shift here that we are servicing a different market et cetera. I do think we’ve got some volatility going on right now while we go through this rationalizations and that is buffeting our mix a little bit at this point in time.

Operator

(Operator Instructions). We will now hear from Christopher Butler with Sidoti & Company.

Christopher Butler - Sidoti & Company

Looking at the metal cans business you know with most of 2011 behind us and the inventory destocking and the difficult harvest, you know as we look to 2012 you know what kind of volume boost do you expect to just to kind of getting back to normal, not even including you know growth on for next year?

Tony Allot

Well, you know first of all, you know we haven’t finished the year, so it’s a little hard to talk what the gross could be next year, but we’ll probably end with low single-digit volume decline despite all of this, this year, so I think probably you would expect to get more or less that back. So you would be talking about low single-digit kind of growth next year would be our expectation.

Christopher Butler - Sidoti & Company

And shifting gears over to the plastics you had mentioned that there’s some added cost from strategic changes. Is this entirely encapsulated in this you know the shifting capacity and the shake out that you’ve been talking about and can you quantify that for us at all?

Adam Greenlee

It is primarily around the rationalization program that we discussed and I would say the impact in the quarter was probably a couple of million dollars.

Christopher Butler - Sidoti & Company

And looking into next quarter, would you think it’d be similar or it will start to diminish then?

Adam Greenlee

I think next quarter will be a similar kind of number and then as we walk through 2012, that will being to diminish on a quarter-by-quarter basis.

Operator

Next, we’ll hear it from Tim Burns with Cranial Capital.

Tim Burns - Cranial Capital

You guys mentioned that the single service closure was down significantly. What was the driver there?

Adam Greenlee

I would say that the driver for the most part was our hotel beverage market for single serve in the US. If you recall just kind of how this year has played out, we had a very strong preseason sale that took place in Q1. So our Q1 volumes were up nicely in closures. As we came into Q2, we really did have cool weather across the US and just a couple of weeks of warm weather. So the hot felt season really is kind of a February to September kind of timeframe and as we got through Q3, the single-serve markets just wasn’t growing at the rate that everyone expected, so it’s single-serve beverage issue mostly in the US.

Tim Burns - Cranial Capital

You guys have any color on how the carbonated soft drink beverage cans can go down 5% to 6%, I mean the share of stomach has got to elsewhere, you know I am thinking you know teas, light-flavored waters and isotonics I mean, may be some of the products that you pack I mean did you feel any positive impact from that?

Tony Allot

No, to a large degree, that’s the stuff that Adam’s talking about. So we really didn’t see that. I wouldn’t say that you talk about pretty volatile market, if you look at a quarter on those and I think the demand does seem to come and go a little bit, it’s certainly been our experience on it.

Tim Burns - Cranial Capital

And IPEC, I am seeing it more and more in the diary cases, is that going well?

Tony Allot

Yes, it is, yeah.

Tim Burns - Cranial Capital

It is my beverage of choice for my White Russians.

Tony Allot

You keep drinking those. Make sure it is the right closure on those bottles, though.

Tim Burns - Cranial Capital

The Vogel & Noot, capital program Bob, I guess you said you are spending a 140 to 160, is that $25 million in this year’s number to support those new four line or four plants?

Bob Lewis

Yeah just to clarify that the total CapEx spend for the year is 160 to 170, a component of which is the Vogel & Noot and the 25ish, it is going to be largely in this year and there will be some of it kind of rolling into next year as we work to commercialize those remaining plants. The bulk of it is kind of embedded in our 160 to 170.

And because those plants are what I would call feed plants, obviously our hope is that more capital will get spent in future years as we see growth which is not encompassed in that, but that’s part of beauty of the way that the Vogel & Noot team goes about this, is to kind to get that feed plant on the ground and then service the market and hopefully grow from there.

Tim Burns - Cranial Capital

Is White Cap coordinating with these guys or do they need to? They were already pretty Eastern European centric to begin with if I am correct?

Bob Lewis

Yes and no. Yes is the answer. They are coordinating, so White Cap is the closure arm for us throughout those regions, but obviously the Vogel & Noot team has stronger position in many of those eastern European markets and so the White Cap business is absolutely using that and the Vogel & Noot team are being very helpful in that regard.

Tim Burns - Cranial Capital

And that last question, Bob you’ve said that you’ve deployed $700 million in capital before acquisitions, the other $300 million goes to share repurchase and other?

Bob Lewis

Yeah, well the 700 I gave you is exactly that four acquisitions leading to about $400 million of it and almost $300 million for share repurchases, what I didn’t include in that $700 million is the CapEx that we have deployed over that time as well, so that’s incremental from a strategic standpoint of growing business.

Tim Burns - Cranial Capital

So 700 plus the CapEx?

Bob Lewis

That’s correct.

Tim Burns - Cranial Capital

Okay, that’s a huge number. Tony, last question, we have heard on a couple of calls this morning how food inflation has really got the consumer you know pinching their pocket book and I know you have already talked about this morning and don’t seem to feel any benefit but, you know, first thing people do is usually run to Wal-Mart to try to buy cheaper, I guess with fewer crops coming out of the ground, would we not see the use of those crops and higher value products like soups and stews and things of that nature, where you have higher value cans?

Tony Allott

Well, you could, I think probably I would say this is the kind of the market you would expect to be good for the can, as you have heard me say several times in those call now, the challenge we have like many other markets, there’s a lot of inflation there and so we have got to get out of that because the consumer is picking through the grocery store, they are thinking about all of their choices as they spend on that.

So on the ingredients question, I would say broadly yeah the trick with that as in any particular pack season which is on soup, but in through industrial package and very limited time for those decisions and once you can't harvest anymore because of mold on tomatoes in California or frost in the Midwest, get kind of done, so even if you would rather have more tomatoes because canned tomatoes are higher source, you’ll not really do that this year, you would have to wait until next year and contract for more acreage.

So I would say that moves more slowly in that regard, but I do think that this is a very good economy for canned goods if we can help solve the inflation question a little bit more, right. So the can is the better package out there and it is re-priced accordingly and so that's a pretty important part of all this.

Tim Burns - Cranial Capital

Well I can tell you, cost per ounce of food in a ready meal from new high tech polypropylene tray, microwave-able pull back of films you know people look at that versus a good can of soup and salad. There is no contest, because I am at that point right now along with my ration so anyhow it’s always a pleasure and good luck in the fourth quarter.

Bob Lewis

Appreciate it Tim and we agree with the point. There is a real value proposition out there and it’s important that we protect it and we’re very hopeful that our customers will be successful in communicating it.

Operator

Tim Thein with Citigroup has our next question.

Tim Thein - Citigroup

Just coming back to the Vogel & Noot question in terms of the contribution in the quarter. If I did the numbers correct, Bob it looks like I mean call it a $100 million in top line contribution to get to the $0.06 of EPS and imply something a tad below there kind of this, the segment average; is that -- do I have that right and then how should we think about that going forward you kind of worked through some of the – you get the business fully integrated or do some of the initial deal related costs?

Bob Lewis

I think you are referring to the margins being below the boarder segment and that’s true. It is a bit lower margin business; I think it’s largely just because it’s spread out geographically in different cultures as well, but it’s not significantly different. And in terms of the integration, this was never really intended to be an integrated business; it’s more of complementary type acquisition.

So you shouldn’t necessarily be thinking that there is cost to be rung out as we go through the integration if anything this is a business that we’re going to continue to invest capital and let it grow. So what is behind us is sort of draft of purchase accounting that we saw in the first two quarters. So from here forward the earnings ought to be pretty pure as what the business performance is driving.

Tony Allott

We always say you know we don’t really like talking about operating margins because it’s really cash in, cash out. I mean there is no question that that business will probably always be a lower margin business. Just if you think about it, smaller plants servicing smaller customers in a lot more markets and regions and so it’s really not tough there, straight up comparison in anyway, it’s really just a question of cash in and cash out.

Tim Thein - Citigroup

Okay, fair point. I guess that it’s the $25 million for four plants I guess that does speak to the lower capital intensity I would imagine as well?

Bob Lewis

Exactly.

Tim Thein - Citigroup

Secondly, just back on closures, you spent some time on plastics. Can you give any color in terms of – I know the forward advisability here isn't great, but that business does have a -- the metal piece have a significant presence in Europe, just what you are seeing there in terms of the fourth quarter volume outlook?

Tony Allott

Sure. Fourth quarter volume outlook actually seems to be a reasonable at this point. When we include the IPEC and DGS acquisitions, obviously we’re going to be up probably in a low double-digit range, but the organic business continues to do well and we’ll see the organic business probably up slightly both in the U.S. and everywhere else around the world for Q4.

Tim Thein - Citigroup

Okay, last one from me. Bob, just back on the CapEx outlook for next year with the bonus depreciation pull ahead as well as I think there are some easy open capacity you’re expanding or adding this year. What should we think about in terms of CapEx; should it fall back closer to that $110 million, $120 million next year or what are you thinking on that?

Bob Lewis

I'm not really prepared to give an exact number as we sit here right now; we’re kind of going through all of those budgets right now. I think certainly we’re going to have a more keen focus on what we’re spending where and why. But I think we’ve demonstrated that where we can find good opportunities to invest capital and get good returns we would do that.

But I think naturally a lot of global new expansion will be behind us; that should come out. We’ll be certainly having a prudent eye; so I would expect it to be down, but I can't say that 110 to 120 is the right number. We’ll need to get through our budget before we can provide that level of detail.

Operator

And we have a follow-up question from George Staphos from Bank of America-Merrill Lynch.

George Staphos - Bank of America-Merrill Lynch

Thanks, hi guys good morning. Sorry I came in a bit late, I know Benjamin asked a couple of questions on my behalf. You might have already discussed this, apologies in advance. First off with, volumes obviously not trending as well perhaps as you would have expected here so and food can volumes below my forecast for the year. Do you think there’s opportunity to once again reassess your manufacturing base in North America or would you really at this juncture rather keep the structure as it is and why or why not?

Tony Allott

We would covered it, so I’ll be a little quicker George, but the answer of that, first of all historically recall that we have done a lot of rationalization here so we’ve got a pretty optimal structure.

Secondly, most of the things around volume are pretty identifiable; we don’t expect each and every pack to be the worst in recent memory. And the inventory work downs are quite specific, we’re talking about specific customers specific things and so really we are feeling like that you are seeing a trend on the volume side, you are seeing an anomaly if you will and so we are not at all thinking different about our footprint.

George Staphos - Bank of America-Merrill Lynch

Okay, I appreciate that. And I guess the other question I have is, obviously been a tough year historically volume wise and pack wise; all that led is greater acreage indications in the upcoming year. You know it’s not much in a realized effort, are there any discussions there from your customers that suggest they may contract for more volume in 2012?

Tony Allott

No, it’s still early. But you know we talked earlier, I could imagine it. I think there is, food is a challenge on a worldwide basis both the cost of it and quantity and that is becoming more true here too. So my own expectation is that the acreages will be robust next year, but that’s just me hypothesizing right now.

Operator

At this time, there are no further questions. I’ll turn the call over to Mr. Tony Allott for any additional or closing comments.

Tony Allott

Great. Thank you everyone for the time today. We look forward to talking to you about Q4 and 2012 early in February. Thanks.

Operator

That does conclude today’s conference call. Thank you for your participation and have a nice day.

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