Bemis' CEO Discusses Q4 2011 Results - Earnings Call Transcript

Jan.25.12 | About: Bemis Company, (BMS)

Bemis (NYSE:BMS)

Q4 2011 Earnings Call

January 25, 2012 10:00 am ET

Executives

Melanie E. R. Miller - Vice President of Investor Relations and Treasurer

Scott B. Ullem - Chief Financial Officer and Vice President

Henry J. Theisen - Chief Executive Officer, President, Director and Member of Executive & Finance Committee

Analysts

Usha Chundru Guntupalli - Goldman Sachs Group Inc., Research Division

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

Albert T. Kabili - Crédit Suisse AG, Research Division

Benjamin Wong

Thomas Mullarkey - Morningstar Inc., Research Division

Michael A. Hamilton - RBC Wealth Management, Inc., Research Division

Matthew R. Wooten - Robert W. Baird & Co. Incorporated, Research Division

Chip A. Dillon - Vertical Research Partners Inc.

Philip Ng - Jefferies & Company, Inc., Research Division

Operator

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

Melanie E. R. Miller

Thank you. Welcome to our Fourth Quarter and Full Year 2011 Conference Call. Today is January 25, 2012. 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, changes in customer order patterns, our ability to pass along increased costs in our selling prices, unexpected costs related to plant closings, 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 last year for the year ended December 31, 2010.

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

Henry J. Theisen

Good morning, and thank you for joining us today. I want to begin by recapping our 2011 performance and take some time to talk through our facility consolidation program.

In 2011, we continued to successfully integrate our expanded manufacturing footprint and eliminate duplicative specifications. In addition, we successfully acquired Mayor Packaging in China, which gives us a high barrier footprint focused on the growing food packaging market in that region.

In December, we bought a small operation in North America that gives us access to the high barrier bulk liquid market from which we intend to expand. These acquisitions both position us to grow in new markets.

I am pleased that we were able to accomplish these important strategic actions, and we enter 2012 with a clear path to grow our operating profit in the future on a global basis.

During 2011, we faced a number of market challenges that led to unsatisfactory financial performance. I'd like to explain the impact of 3 specific challenges we faced in 2011 and why we feel more confident as we look ahead to 2012 and beyond, namely: dramatic resin price increases, challenging customer pricing terms and volume decline.

First, resin prices increased dramatically during the first half of the year. These increases were related to a number of market pressures, some of which were unique to particularly specialty resins. While commodity resin costs weakened during the second half, offering some relief, our specialty resin costs remained flat. Due to the time lag built into our customer pricing agreements that delays our ability to pass along changes in raw material costs, we realized a decline in our profitability throughout the year.

The second major challenge in 2011 was unfavorable price adjustment formulas in certain of our customers' agreements, which delayed our ability to pass along higher raw material costs. We expect to have improved most of our customer pricing agreements to more favorable terms by the end of 2012.

Lastly, during the second half of 2011, unit sales volumes softened in high barrier packaging for meat and cheese, dairy and liquids, specialty food products. This volume decrease was modest, and we believe it was related to the consumer response to higher retail prices in the grocery stores.

We expect these high barrier packaging volumes to grow modestly in 2012 with the commercialization of new business.

In sales of packaging for applications such as confectionery, snack, bakery, pet food and hygiene products, the decline in unit sales volume during the second half of the year was reflective of a combination of weaker consumer demand and specific pricing actions that we have taken to improve our sales mix to generate higher profits.

In the fourth quarter, we began a facility consolidation that includes 3 main categories of activities: plant closings, improved sales mix, rightsizing of administrative work force.

We recently announced the closure of 5 North American facilities. These facilities are smaller in size and, therefore, more expensive to support with appropriate levels of engineering and administrative talent. We are closing 3 legacy Bemis plants and 2 legacy Alcan plants. Production from these facilities is being transferred to more efficient facilities.

In North America, Latin America and Europe, we reduced our administrative and production workforce in 2011 to match our workforce to meet current production needs.

Some of the benefits of our facility consolidation program will be reflected in 2012. The majority of the benefits will be recognized beginning in 2013, including improved production efficiency, better sales mix and lower fixed costs.

We are also making investments in technologies and geographies where we will continue to see increased demand. In 2012, we will expand our newly acquired facility in China to meet the growing demand from current customers and accommodate the increasing opportunities for our business in that region. In North America, we are also investing in our high barrier thermoformable sheets for barrier cups and trays, where our capacity is nearly sold-out.

During the next 12 months, we will improve our expense structure, shut down low margin capacity and increase our production efficiency to drive better performance and cash flow in the future.

Now Scott will review the financial results.

Scott B. Ullem

Thanks, Henry, and good morning, everyone. Today, I will walk through the results of the quarter, as well as the financial details of the facilities consolidation program and then discuss our 2012 guidance.

In the fourth quarter of 2011, excluding special charges, adjusted earnings per share was $0.45. This exceeded our guidance of $0.36 to $0.42 per share, as we experienced stronger-than-expected orders in our Mayor Packaging business in China, tight cost controls in Europe, slightly lower polyethylene costs at the end of the quarter and lower-than-expected benefit costs.

Looking specifically at the operating results of the quarter and excluding special charges, the 1.7% increase in net sales reflects the impact of the acquisitions of Mayor and Shield Pack.

Comparing our fourth quarter flexible packaging sales to the same quarter of 2010, selling prices were generally higher across the business in response to the significant raw material cost increases that we experienced during the first half of 2011 and passed through to customers in Q4.

The impact of higher selling price during the fourth quarter was completely offset by lower unit sales volumes in most product categories across our North American, Latin American and European operations. In North and South America, the volume decrease primarily reflects soft demand trends for certain customer products, including pet food, bakery, confectionery, snacks and health and hygiene products.

In Europe, our fixable packaging business experienced double-digit volume declines, while sales mix improved, reflecting our decisions to take pricing action in certain low margin relationships and focus on business that delivers better returns on sales.

As a result of these volume trends, operating profit declined in North and South America due principally to lower overhead absorption, while profitability moved higher in our European business, reflecting our improve sales mix and expense control. In total, and excluding the impact of special charges, flexible packaging operating profit was $111.4 million or 9.8% of net sales in 2011 compared to $119.7 million or 10.8% of net sales during the fourth quarter of 2010.

During the fourth quarter of 2011, we began a facility consolidation program that resulted in a fourth quarter charge of $38.4 million. This charge is higher than our initial estimate due to our ability to accelerate consolidation activities into the fourth quarter. Of this total, $26.3 million related to employee costs and the remaining $12.1 million was associated with the write-down of fixed assets and the relocation of equipment.

The program is expected to be completed by early 2013, and the total estimated cost is expected to be approximately $83 million, including employee-related costs of about $28 million, most of which were included in the fourth quarter, as I mentioned. The remaining $55 million of costs represent charges associated with the write-down of fixed assets, lease termination costs, accelerated depreciation and equipment move costs.

Cash payments related to the facility consolidation program are expected to total nearly $60 million, of which $3.1 million was paid in 2011.

Future savings associated with this program are expected to be approximately $40 million per year. A portion of these annualized savings will be recognized during 2012, but we expect increased costs associated with the transition of production to new facilities to offset these savings.

The full benefit of the savings is expected to be achieved each year, beginning in 2013.

Turning to guidance. We're entering 2012 with some favorable financial momentum. We repurchased 5 million shares of stock in 2011, added earnings from 3 acquisitions, and we plan to refinance a bond with lower-rate commercial paper in the second quarter of 2012.

By the end of 2012, we should start to realize some of the benefits of the facilities' closures. But this positive momentum is offset by volume concerns, higher pension expense, a weakening European economic outlook and the expected weaker real. The net result is our 2012 adjusted earnings per share guidance of $2.05 to $2.20, which excludes the impact of any of the facility consolidation or other special charges.

For the first quarter, we expect adjusted earnings per share to be in the range of $0.43 to $0.49. Where we will fall in that range will depend on the sales volume levels and the start-up of production moved from closed plants.

Our first quarter is generally one of the slowest volume quarters of the year, while the second and third quarters are seasonally stronger. Our first quarter guidance assumes that soft demand conditions continue, but we expect that volumes will increase modestly during the year.

As Henry explained, some of the capacity consolidation efforts underway will result in deliberate volume reductions, offsetting the impact of our volume growth in high barrier sales.

With respect to raw material costs, our first quarter guidance incorporates the impact of the recent $0.11 polyethylene cost increases announced in the market, and our total year guidance assumes that any other changes in raw material costs will be passed along to customers, which in reality will depend on the timing of the raw material increases.

With regard to selling, general and administrative expenses, in 2012, we will record an increase in pension expense of about $15 million, and we will make a pension contribution of $30 million. With this contribution, we maintain pension funded status above 90% for 2012.

In October of 2011, we issued a $400 million 10-year bond in advance of our upcoming bond maturity in 2012. The proceeds of that bond issuance were used to reduce our commercial paper balance outstanding. We expect to refinance our $300 million bond that matures in April 2012 using commercial paper, which will lower our interest cost on that debt from about 4.9% to less than 1%. Commercial paper can also be readily repaid, which will allow us to reduce our outstanding debt during 2012.

At year-end 2011, our ratio of net debt to adjusted earnings before interest, taxes, depreciation and amortization was 2.3x compared to 1.9x at the end of 2010. Debt increased in connection with approximately $240 million we invested in 3 acquisitions in 2011, which represent high-value strategic moves for Bemis: the repurchase of the outstanding shares of our Dixie Toga subsidiary, the acquisition of Mayor Packaging in China and the acquisition of Shield Pack.

Over time, we are managing the balance sheet to a net debt to adjusted EBITDA ratio of about 2x, which is about where we expect to be by the end of 2012.

We have remaining board authorization to repurchase up to 4.5 million shares of common stock, which we will do opportunistically in conjunction with our other priorities for capital spending. In 2012, after paying our dividend and funding capital expenditures, our priority is debt reduction.

The tax rate we have used for our 2012 guidance is consistent with our 2011 rate of 36.2%. Depreciation and amortization is expected to be close to $230 million in 2012, with capital expenditures at approximately $175 million.

Cash flow from operations for the total year 2011 was $416.6 million, a 13.2% increase from 2010. Cash flow from operations for 2012 is expected to be approximately $350 million, which incorporates an estimated $35 million for the facility consolidation program.

With our improved expense structure and the completion of our facility consolidation program, we expect cash flow from operations to continue to grow and exceed $500 million by 2014. Our disciplined use of capital will also help drive improvement in our return on capital and shareholder value over the long term.

Now operator, we'll be pleased to take any questions.

Question-and-Answer Session

Operator

[Operator Instructions] We'll go first to Al Kabili with Crédit Suisse.

Albert T. Kabili - Crédit Suisse AG, Research Division

Just, I guess, on the consolidation activity. It sounds like you ramped this up a decent amount versus what you discussed on the third quarter call, and maybe you can just talk about some of the factors there, one. And two, what is that in terms of capacity? I know you're adding some in areas where it's growing. But what does that mean to your footprint in terms of capacity, in terms of what you're reducing on this footprint?

Henry J. Theisen

Well, first of all, we did substantially move forward and accelerate the closing of these facilities. As we looked through spec consolidations, where best to move things, we could see a clear path towards eliminating some additional costs associated with running these facilities. Our capacity in the areas that we want to grow, namely those around our high barrier packaging and those which provide convenience features for our customers, is in good shape. We have -- this will add -- we will have good capacity for those. We are taking down capacity in those more competitive areas where it's really just a converting operation. And we'll be in good shape in our higher barrier resin-type business.

Albert T. Kabili - Crédit Suisse AG, Research Division

Okay. And then a follow-up to Scott. Just on the outlook. So we've got flat volumes. We've got some pension headwinds. Shares are down. How -- can you just help us bridge what's driving the EPS growth with the flat volumes and the resin headwind in the first quarter? Is it all on the cost savings and the acquisitions that you've recently done?

Scott B. Ullem

Well, little of it is the cost savings from the facilities consolidation program because that really won't start kicking in until later in 2012 and really get the full benefits in 2013. But the improvement is really relating to pricing actions we've taken in lower-margin business and an improved price mix profile for our flexible packaging business.

Operator

We'll take our next question from Philip Ng with Jefferies & Company.

Philip Ng - Jefferies & Company, Inc., Research Division

The guidance you guys -- I mean, the color you guys provided on volumes were helpful. I mean, I guess, the first half, it makes sense things are down a bit. But what's really driving the incremental improvement over the course of the year? Because if you're down probably mid-single digits and being flat for the year, what's driving the growth in the back half?

Henry J. Theisen

Are you asking about volume growth in the back half?

Philip Ng - Jefferies & Company, Inc., Research Division

Yes, on the volume growth. I mean, I'm assuming Q4 volumes were down roughly mid-single digits for flexible, and it sounds like in the first half things are still going to be a little soft. If you're guiding flat volumes for the full year, that would imply that things are improving in the back half. I just want to get some color on that.

Henry J. Theisen

No, we have strong demand growth for our acquisition in China. We are started investing in that, so we expect to see some volume growth coming from that acquisition that we made earlier in 2011. On the other end, we do have good new product growth. I tried to point that out in some of our rigid sheet lines, such things as creamers, which we weren't in before, pudding cups, Jell-O cups. All those areas where we're investing in our higher barrier areas are showing excellent growth. We also got good growth in our core meat and cheese programs. We're coming out with new products and new convenience features for our customers. So we do have good growth in those regions, then the regions of China. We have some excellent growth in the U.S. in the high barrier area.

Philip Ng - Jefferies & Company, Inc., Research Division

Okay. That's helpful. And then can you give me some color on how demand is tracking? What’s your outlook for Lat Am? I know that was a market that you flagged. Part of that was related to the current [indiscernible] come in a bit. I just wanted to get some thoughts on the market in particular.

Henry J. Theisen

We still expect to have good growth in Latin America. It isn't what it has been in the past. The growth of Brazil, for instance, has flattened somewhat. It used to be pretty at high single digits, and now it's down in the low to mid-digits. So it'll be down a little bit from where it has been in the past, but we still expect to see growth in that area. And we have been investing in, again, as the middle-class grows and more products want to come to market with the same kind of convenience and food safety and barrier properties and extended shelf life that we have technology -- we have transferred substantial technology over the last couple of years into Brazil to meet that demand. So we expect to have good solid growth in the region -- in the areas that we want to grow our business.

Scott B. Ullem

Philip, I'd also just add, that good solid growth is in real, and we expect a weakening real over time. So the improvement in growth in Dixie Toga will be a little bit masked by currency.

Operator

We'll take our next question from George Staphos with Bank of America Merrill Lynch.

Benjamin Wong

It's actually Benjamin Wong, filling in for George. He was on another call. First question is on guidance. For the first quarter, it looks like you're largely guiding in line with current street estimates, but the full year guidance appears a bit below. Realizing these are bottoms of forecasts and you don’t manage the business according to Street expectations, what considerations make you potentially more cautious on 2012?

Scott B. Ullem

Well, you're right. We can't comment on what the forecasts were for 2012. What we can say is we feel good about the business and specifically the expense structure and the plant footprint that we are working to put in place. The real concern that we have is just overall volumes. And as we look at what our customers and other companies are saying, we just -- we haven't baked in a lot of confidence in what the volume outlook may look like as we get into 2012.

Benjamin Wong

Okay. The second question is around resin. Did you get any benefit from resin in the fourth quarter? And are you expecting any benefit for the first quarter? And I guess, any update on the specialty resin side would be helpful. I think you mentioned that your guidance includes polyethylene commodity increases, but anything you could comment on the specialty side would be helpful.

Henry J. Theisen

In the fourth quarter, we did get some benefit on drop in pricing on polyethylene resins. And that would've occurred really in our polyethylene division, where the time lag from when the resin goes in place to when it is actually passed on to the consumer, mostly because it is a very straightforward business of making film and then printing it and selling it. It doesn't have the work in process and the complications of some of our higher barrier operations. So those resins flow through better. So we got a little bit of a bump, a little -- more than we expected in the fourth quarter in that small segment of our business, in that specific segment of our business. We know -- do know that there are announced price increases. We will start to feel some of those effects, I think, late first quarter. We could have a little bit of carryover of the reduction in polyethylene prices into the first part, but I think that's going to kind of neutralize itself. As far as long-term, specialty resins, we have in our guidance here for the full year that they will be relatively flat. My only comment I can make to you is we follow benzene prices, and a lot of benzene -- cost to benzene drives a lot of those specialty resins. And it has some upward momentum, so I don't know how that's all going to play out.

Operator

We'll take our next question from Chris Manuel with Wells Fargo.

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

Just a couple of questions for you. First, if I could -- I want to follow up on a previous question because this is maybe what we're trying to all get at. You're walking away from some business, but yet, Henry, when you spoke earlier, I think to Phil's question, you talked about a lot of terrific areas in higher barrier where you're seeing growth. And I guess, what I want to try to balance is -- and I recognize this is challenging to do, but if embedded into a full year of flat volume assumption, are you walking away from 3% volume and you're thinking the other businesses are growing 3 or -- how would we think about that balance? That's what we're trying to get at.

Henry J. Theisen

Well, I think, overall, if you want to just take some of things -- the overall -- all the markets we feel are going to be volume challenged for the year, overall. We're not walking away from substantial amounts of business. It's small segmented parts of business that just don't fit our long-term strategy. It's not a great big number that we’re trying to overcome with some high barrier growth that's going to occur later in the year.

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

Okay. Second question I had was, I think, earlier you guys commented that you're kind of in the middle innings of one of your initiatives with Alcan. Part of that acquisition was to improve pricing a few hundred basis points -- or to improve margins a few hundred basis points via pricing. It sounds like the actions here on restructuring are more addressing the fixed cost base and the manufacturing footprint. Is everything on track with the pricing side of the story as well? That -- I just want to make sure as we're talking about the opportunity, I think you guys called out 40-or-so million of op income or something in the neighborhood of $0.34, that it will help on the earnings basis, that these 2 are mutually exclusive events. Or have they kind of been combined here?

Henry J. Theisen

First off, on pricing, we still expect to see, and we will see, and I think we are, as we renew some of these contracts. And especially your opportunity on pricing is really related to ruling out new products and innovations, and that's really what Bemis is good at. So as each one of these new product come up, they help to drive that margin improvement that we have overall in our business. What happened, and I don't think that many people can really see how well we've done with this because the raw material increases in the first half of 2011 were so great and so large that they took so much of that away from us. So I think we still have a goal, and we still will make where we increase those margins to the Bemis levels of pre-Alcan.

Operator

We'll go next to Ghansham Panjabi with Robert W. Baird.

Matthew R. Wooten - Robert W. Baird & Co. Incorporated, Research Division

It's Matt Wooten, sitting in for Ghansham today. Within flexible packaging, do you attribute any of the volume decline to inventory destocking or any of it to market share loss? Or is it just end customer demand remains weak?

Henry J. Theisen

I don't think there is anything in there that relates to market share lossing, other than in the areas where we felt it was necessary to make some pricing decisions. I really can't say if it's a destocking or if it's just over -- less demand in the retail area. But it is not loss of market share, other than in areas where we have decided to take pricing.

Operator

We'll go next to Usha Guntupalli with Goldman Sachs.

Usha Chundru Guntupalli - Goldman Sachs Group Inc., Research Division

Could you comment on your 2012 EPS impact from recent acquisitions that you're factoring into your guidance?

Scott B. Ullem

We have not -- we are not breaking out guidance on Shield Pack and Mayor Packaging acquisitions. They will be modestly helpful to the overall earnings that we expect to generate in 2012. But we're just not going to break out earnings by acquisition going forward.

Usha Chundru Guntupalli - Goldman Sachs Group Inc., Research Division

Okay, helpful. And a quick follow-up. Could you also comment on your outlook for 2012 price cost differential? You talked about your cost estimates for resin prices, but how do we think about the price cost differential based on the timing of contracts?

Melanie E. R. Miller

You're talking about as you look at planning sales growth from year-over-year and how much is price? Or whether or not we can pass along cost changes into our prices?

Usha Chundru Guntupalli - Goldman Sachs Group Inc., Research Division

Yes, passing along cost changes into price in 2012.

Scott B. Ullem

Well, we expect that if raw material prices remain less volatile than they were last year, we expect that we're going to be able to pass through price increases during the course of the year to our customers. And that's the assumption that we've baked into our guidance for the year. What happened last year, as Henry mentioned, is prices spiked quickly, and we were not able to us along the prices realtime to customers until later in the year. But again, we're hoping for a moderated raw material price environment for 2012 that we'll be able to pass through to customers.

Operator

We'll go next Mike Hamilton with RBC.

Michael A. Hamilton - RBC Wealth Management, Inc., Research Division

I was wondering if you can give any perspective on whether you're getting any better visibility in customer inventory levels in emerging markets. Are you getting a better picture on what's going on from a destocking and stocking standpoint?

Henry J. Theisen

I don't think we have any real accurate information to give you on that.

Michael A. Hamilton - RBC Wealth Management, Inc., Research Division

Do you see some hope that you're going to be able to get better visibility in the channel over time?

Scott B. Ullem

I think it stands to reason that we should get better visibility as the retail and distribution systems evolve and mature in places like Asia, where there's not as good of as -- for example, they don't have a scanner data and check-out data the way we would have here in the U.S. So we would hope so, but I think we're not expecting that anytime soon.

Michael A. Hamilton - RBC Wealth Management, Inc., Research Division

How about in Brazil?

Scott B. Ullem

In Brazil, we've got better -- we got a better lens into going on, but it's Brazil and Argentina. And in Brazil, it's both domestic demand but also export from Brazil into other South American countries. And so it's a little obfuscated, and again, we don't have as good a beat on it as we might in the U.S.

Operator

We'll take our next question from Tom Mullarkey with Morningstar.

Thomas Mullarkey - Morningstar Inc., Research Division

My question is, can you remind us what the percent of sales mix is in Brazil and Latin America that you get from higher margin, high-barrier products as compared to what you typically find in the United States? And how do you see that mix shift changing over the next few years?

Melanie E. R. Miller

Sure. I'll take that one. In Brazil, we actually get a large portion of our business in the dairy and liquid and confectionery and snacks cookie-cracker market. There's a lot of yogurt sales there, and we are a big provider to that market and ice cream packages, things like that. So there are some refrigerated foods, but it's really not the meat and cheese business that we have here in the U.S. When we look at our North American business, roughly 25% to 30% of our sales in North America are into meat and cheese markets and then an additional, say, 10% to 12% in dairy and liquids. And those are refrigerated products that are high barrier, higher-margin, good business for us that we invest in heavily. On the Brazil side, those are still small. The meat and cheese is less than 10% of their total sales. And while dairy and liquids is important to them, there's still opportunity for that to grow in the future. So as we move forward, as Henry said, we're making investments in moving some of our high-barrier technology down to Brazil in order to ensure that we have the right capacity to match those volumes as they continue to grow over the next couple of years.

Operator

[Operator Instructions] We'll take a follow-up question from Ghansham Panjabi with Robert W. Baird.

Matthew R. Wooten - Robert W. Baird & Co. Incorporated, Research Division

We were just wondering if the increased CapEx in 2012, I think it's $40 million or so, is that equally split between China, Brazil and North America?

Scott B. Ullem

No, it's not equally split. What we're doing is investing in additional capacity to fuel will our high-barrier business in developed regions like the U.S. And in China, with this new acquisition, the Mayor Packaging, we're really just building capacity because our business there is growing so nicely. In Brazil, yes, it is investment in the higher end, higher-barrier capacity.

Operator

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

Benjamin Wong

It's Ben again. Scott, do you have the pension expense in 2011?

Scott B. Ullem

In 2011?

Melanie E. R. Miller

Pension expense in 2011 is -- I don't have the total global balance, but it's somewhere in the $35 million range.

Benjamin Wong

Okay. Great. And then you gave the cash outlay for restructuring. I think you said $60 million overall. You gave the 2011 and 2012 number. Can we assume the balance of that, which is like $20 million, that would go out in 2013?

Scott B. Ullem

That's right.

Melanie E. R. Miller

Yes, that's the plan right now.

Benjamin Wong

Okay. And then final question is, it seems like the product strategy you're favoring is more value add, higher-margin products which presumably use more specialty resins. Does anything need to be done differently with the way your contracts are set up now to pass through specialty resin costs?

Henry J. Theisen

No, no, not anything that would be specific the specialty resin costs. I think it's just something for overall, all of our pricing agreements. We need to try to find ways to reduce the time lag involved in passing those on, and that's consistent across all of our pricing agreements.

Operator

We'll go next to Chris Manuel with Wells Fargo.

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

Can you give us a quick update on FreshCase, where you are with that? I know you had approval, but I think it's been in customer testing. Is there any anticipation for that in 2012 to be -- we can start seeing it on shelves in a major way or…

Henry J. Theisen

I think you're going to seeing it on shelves in the second half of the year. Not in a major way, but you're going to start seeing it on shelves. In fact, it is out there with one product application now. And I think we've got a couple that are going to start up in midsummer. So you'll see it out on the shelves but not in a big way yet.

Operator

We'll take our next question from Albert Kabili with Crédit Suisse.

Albert T. Kabili - Crédit Suisse AG, Research Division

Henry, I was wondering if you could elaborate a bit more on the new commercial product introductions in 2012. How much extra sales or volume do these products add, as well?

Henry J. Theisen

They all start out pretty slow, and they gradually grow. And the ones that we -- I really can't talk about the ones that are in our customers' plans right now that we're working with them. But the ones that are out there, an example of that would be the ketchup package we have, the Dip and Squeeze with Heinz. It has been very successful for us, and now it's entering the retail area. We brought out new products that get into creamers that are really expanding. Our rigid applications that get into like cups for coffee, other ways to display coffee, are growing. I really can't put a number on every year what exactly that would be for you, but it is substantial.

Albert T. Kabili - Crédit Suisse AG, Research Division

Okay. And then a follow-up is just as the cash flow from ops ramps up to that $500 million by 2014, any sense of sort of the balance of the incremental cash flow, which way that would go in terms of share repurchases versus increasing the dividends?

Scott B. Ullem

Sure. Our philosophy and discipline around application and cash flow really hasn't changed. Number one, we're going to continue to fund an increasing dividend. Two, we will continue to fund higher-return internal organic growth initiatives. Three, acquisitions. And then four and five is really just striking a balance between debt and equity, and we're managing towards about a 2x debt-to-equity ratio over time.

Melanie E. R. Miller

Debt to EBITDA.

Scott B. Ullem

Excuse me, debt to EBITDA over time. And so I think we'll look at opportunistic share repurchase opportunities at a minimum to repurchase dilution from incentive compensation and then beyond that as our balance sheet and our leverage and the market price for our stock permit.

Albert T. Kabili - Crédit Suisse AG, Research Division

Okay. And I guess, as a follow-up to that, Scott, if I heard it right, you purchased 5 million shares in the fourth quarter?

Melanie E. R. Miller

No, no.

Scott B. Ullem

No, in 2011.

Melanie E. R. Miller

In all of 2011.

Albert T. Kabili - Crédit Suisse AG, Research Division

Okay. Got it. Okay. Okay, got it. And then a follow-up on the M&A front, what's the pipeline looking like in terms of bolt-on acquisitions?

Scott B. Ullem

Sure. There's a lot of deal activity now and really generally in packaging. There is relatively less opportunity for high-quality, value-added barrier film technology, which is what we're really focused on. And so we're going to be fairly disciplined about acquisitions. I think we'll err on the side of smaller-sized deals, not larger-sized deals. We're pleased with the 3 that we completed in 2011. But beyond that, we really can't predict what we're going to be doing on the acquisitions front.

Operator

We'll take our next question from Chip Dillon with Vertical Research Partners.

Chip A. Dillon - Vertical Research Partners Inc.

Actually, I was on earlier and couldn't get the question in. But I want you to clear up something that maybe others are pretty clear on, and that is you mentioned the $100 million in savings you expect from the facilities consolidation that you started in the fourth quarter. And then I know you mentioned the $0.24 or $40 million in savings. And I just -- is that $100 million sort of a cumulative amount of savings over a number of years? Or how do you reconcile those 2?

Scott B. Ullem

It is. That's really $100 million over the next couple of years. But the way to think about it is that $40 million run rate that we mentioned.

Chip A. Dillon - Vertical Research Partners Inc.

Got you. So it would be something a lot less than that because of the implementation this year, and then $40 million in ‘13, and then by -- certainly by '15 at some point, you will have achieved the $100 million?

Henry J. Theisen

That's exactly right.

Chip A. Dillon - Vertical Research Partners Inc.

Okay. Okay. You mentioned in Europe you had a greater than 20% volume decline because of mix changes that you all chose. And of course, you still saw some benefit with EBIT rising. Could you just give us an idea on 2 levels: what kind of products or markets are you leaving, and therefore, what are you more or less emphasizing? And I guess, it's the heavier barrier film world, but could you be a little more specific about what you're doing differently in Europe than you were before?

Henry J. Theisen

In Europe, we had some pieces of business that were low barrier type business, just rigid monolayer business, where you really didn't add any value with any barrier technology. And those were very, very competitive pieces of business, and we decided that the best thing to do there is just let someone else service that business.

Operator

And we have no further questions at this time. [Operator Instructions]. And we have no further questions from the phone audience at this time.

Melanie E. R. Miller

Great. Well, thank you very much for joining us today. And we look forward to seeing you hopefully at a conference over the next several months.

Operator

Thank you. Ladies and gentlemen, that does conclude today's conference call. We'd like to thank you all for your participation.

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