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Bemis (NYSE:BMS)

Q1 2012 Earnings Call

April 26, 2012 10:00 am ET

Executives

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

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

Scott B. Ullem - Chief Financial Officer and Vice President

Analysts

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

Scott Gaffner - Barclays Capital, Research Division

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

Chip A. Dillon - Vertical Research Partners Inc.

Ghansham Panjabi - Robert W. Baird & Co. Incorporated, Research Division

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

Benjamin Wong

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

Ernie Ortiz

Operator

Good day, everyone, and welcome to today's Bemis First Quarter 2012 Earnings Release Conference. As a reminder, today's call is being recorded. At this time, for opening remarks and introductions, I would 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 First Quarter 2012 Conference Call. Today is April 26, 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 CEO, Henry Theisen; and our Vice President and CFO, 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 our facility consolidation program, changes in government regulatory requirements, interest rate fluctuations and regional economic conditions. A more complete list of risk factors is included in our regular SEC filings, including the most recently filed Form 10-K for the year ended December 31, 2011.

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

Henry J. Theisen

Good morning. My comments today will address the current market environment, what we expect for the rest of this year and our progress on initiatives to improve profitability and return on invested capital.

With respect to the current market environment, the generally weak levels of demand that we experienced during the second half of 2011 has continued into 2012 as expected. There are pockets of growth in certain product areas, but overall demand is reflecting careful buying at grocery stores and some trading down by customers to less expensive options that may not use flexible packaging.

That said, the growth initiatives of our customers include promotions, as well as new product extensions to be launched in a flexible format. We're also starting to see new business ramp up, which should help to boost volumes during the second half of the year.

During the first quarter, our suppliers announced a number of raw material cost increases. None of these increases is of the magnitude that we saw during the first half of 2011. But they will put modest pressure on operating margins in the second and third quarters until all selling prices can be adjusted.

So as we look forward to the rest of the year, we expect raw material cost increases to subside and level out for a while and we expect customer demand to increase as we move into the second half of 2012.

We have made progress in modifying the price agreements with some customers and we'll continue this initiative as contracts come up for renewal. These changes will shorten the time that takes to adjust selling prices when raw materials cost change, reducing the impact of raw material cost changes on our operating performance and cash flows.

We continued to implement specific pricing actions to address poor profitability on some products and we are willing to walk away from business if necessary. We have made progress with our facility consolidation program and expect to complete the closure of 2 of our North American facilities during the second quarter. Our teams are doing a great job of transferring production to new facilities while keeping an eye on costs.

At the same time, we are expanding our footprint in China to meet the growing demand from that region. This capital investment will be ramping up commercial production during the second half of this year. In Latin America, we are expanding our capabilities in Brazil to deliver our high barrier technology to our Latin American customers. This market continues to be challenged with slowing economic growth and a relatively strong currency. We have a lot of opportunities for expansion in that region of the world and our business teams are focused on leveraging our global scale to create a competitive advantage and drive growth. We have been closely managing cost in our European operations as we continued to experience sluggish unit sales volumes in the face of a weak European economy. We expect this economic environment to continue through the rest of the year.

We are currently working out a number of innovative new products that we are gaining attention from our customers. In addition to our current sales in the dairy segment, we are finding new applications for our rigid sheet film in other liquid products, including pudding, yogurt and baby food. Customers are excited about our recyclable solution that removes environmentally unfriendly polyvinylidene chloride materials from packaging. In another example, our Peel Reseal technology is providing customers with a cost beneficial solution that uses a combination of our easy peel and our pressure sensitive adhesive technologies, to provide easy open and reclosable features.

Now I'd like to turn the call over to Scott to review the financial performance for the quarter.

Scott B. Ullem

Thanks, Henry. Good morning, everyone. This quarter, we recorded adjusted diluted earnings per share of $0.49 at the top of our guidance range and $0.02 better than the first quarter of 2011. The primary driver for this improvement was a better ratio of selling prices to raw material costs in 2012. In late 2010 and early 2011, we were experiencing dramatic increases in raw material costs that negatively impacted our price-to-cost ratio through the first 3 quarters of 2011. While we have adjusted our selling prices to reflect higher raw material prices, our flexible packaging volumes have tracked the generally weak volumes of our customers. This trend began in the second half of 2011 and we expect it to continue through the first half of 2012.

Unit sales volumes were lower in total, but they were not lower across the board. I'll give you some examples and then provide some views about what is driving these results. Compared to the first quarter of 2011, volumes were up in packaging applications for meat, dairy products, coffee, dry foods, condiments, stick packs and overwrap for packaged beverages. Volumes were lower in other application categories, including cheese, bakery, confectionery and snacks, quick preparation meals, pet food, health and hygiene products and pharmaceuticals. You can take away a few themes from this quarter's end market volumes.

First, consumers have been willing to trade down in product quality to lower-priced products, for example, in frozen pizza. Along the same lines, consumers have exhibited careful buying patterns, including shifting away from more expensive prepared meal packaging formats. We have also seen examples of consumers purchasing lower-priced products that do not come in flexible packaging, for example, dry pasta.

It's also clear that food price increases on the grocery store shelf are constraining consumer demand, but some of our customers expect the sticker shock to abate as consumers get used to higher price points.

Volumes in our flexible packaging business will be an important factor in our ability to continue to grow earnings. And our facilities consolidation program, combined with our world-class manufacturing initiatives, should deliver positive momentum in waste management and productivity. These benefits are expected to be realized next year.

Shifting to our pressure sensitive material segment. Volumes in total were about the same as last year's first quarter and financial results were roughly consistent with last year's first quarter. Consolidated selling, general and administrative expenses increased by $3 million compared to the first quarter of 2011, reflecting increased pension costs. Research and development expenses increased $3.3 million over the first quarter of 2011 and still remain below 1% of net sales. Our investments in R&D reflect our commitment to drive innovative packaging and adhesive technologies that offer valuable solutions to customers.

Looking at adjusted operating profits of the flexible packaging business segment, the 10.2% margin was a 30% basis point improvement from the first quarter of 2011 and a 40 basis point improvement from the fourth quarter. This improvement also reflects the benefits of a closer alignment between the prices we charge for our products and the costs we incur to purchase raw materials.

In the pressure sensitive materials business segment, operating margins were relatively consistent with the first quarter of 2011 at about 6.7%. This is 190 basis points better than the fourth quarter of 2011, reflecting nice results in our technical products business, which is one of our focus areas for profitable growth in our pressure sensitive material segment.

Summarizing the financial impact of our facilities consolidation, we recorded $8.3 million of related expenses during the first quarter, which was divided between $1.2 million for employee costs and $7.1 million of costs associated with writing down fixed assets.

We expect the total remaining expenses for the facilities consolidation program to be approximately $37 million, most of which will be expensed during 2012. Keep in mind that some of these facilities consolidation expenses are noncash charges and others require the use of cash. There are also timing differences, for example, with severance expenses between when we booked charges and when we pay out cash.

Cash paid for facilities consolidation costs during the first quarter totaled $8 million. This cash outlay represented employees' severance and other costs for expenses incurred in the fourth quarter of 2011, as well as the first quarter of 2012. We expect to use another $24 million in cash during 2012 and about $17 million in cash in 2013.

Our effective tax rate was 35.3% for the first quarter. This was an aberration and we expect our effective tax rate for the full year to be approximately 36%, consistent with recent years. The lower tax rate did not affect operating profit, net income or cash taxes.

Cash provided by operating activities totaled $48.7 million for first quarter. Working capital increased by about $62 million, reflecting the normal build of inventory as we enter our seasonally strong second quarter, as well as the increase in accounts receivables since the balance reflects stronger net sales for the month of March compared to the month of December.

Looking ahead, our guidance for the second quarter is $0.51 to $0.57 in earnings per share. We expect the first quarters raw material cost increases to impact the second quarter, but no additional increases have been reflected in our full year guidance, which we are maintaining at $2.05 to $2.20 per share.

Where we end up in that range will be driven largely by volumes in our flexible packaging business, our full year guidance assumes strengthening volumes in the second half of the year versus volumes we have seen so far this year, but I want to make an important qualifier. If volumes do not improve meaningfully, earnings may be on the low end of our 2012 EPS guidance.

On April 2, we used commercial paper to repay $300 million of bonds that matured. So interest expense is expected to come down by about $3 million per quarter as we reduce the rate from the commercial paper rate of about 40 basis points. We also intend to use excess cash generated in 2012 to reduce outstanding commercial paper in line with our target net debt to adjusted EBITDA ratio of approximately 2x. We continue to expect capital expenditures for 2012 to be in the $175 million range and cash flow from operations to exceed $350 million.

Now we will open the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions]

We'll go first to Adam Josephson of KeyBanc.

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

Scott, you said you expect volume in flexible lines to strengthen in the second half, but can you be more specific as to what you're assuming regarding your year-over-year volume trends for the balance of the year?

Scott B. Ullem

Well, we're simply expecting, based upon signals that we've seen and heard from our customers, that volumes in flexible packaging are going to strengthen in the second half of 2012. And there are a lot of data points and anecdotal influences that lead us to believe that we feel pretty confident that there's going to be some pick up in the second half. What we don't know is whether that's a moderate pick up or a more significant pick up in volumes.

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

Great. And just one other volume-related question. What was volume in Brazil in the quarter?

Melanie E. R. Miller

We don't talk about a country, so we won't talk about Brazil by itself, but we look at volumes around the world and in Latin America, so including -- from Mexico down to Brazil, including our Argentina business and in that area, volume was still down compared to first quarter of 2011, but 4% to 5%, so not as -- not down as strongly as it has been as we look at the second half of 2011.

Operator

Up next from Barclays, we'll go to Scott Gaffner.

Scott Gaffner - Barclays Capital, Research Division

You talked about the end consumer actually trading down to some less expensive options that maybe don't incorporate flexible packaging, I think you mentioned pasta. Is there anything that you could do to innovate, to actually go into those categories? Or is it simply product categories or areas that you don't -- you wouldn't -- you would prefer not to go in over the long term?

Henry J. Theisen

Most of the -- the vast majority of that or almost all of them are like corrugated, like you would see for a corrugated box. When you're moving into a dry product, it doesn't require any barrier, anything like that. But we think that's a temporary thing that's going on. People are going to want to go back and my -- I've been here for 37 years, people want -- because they want the barrier packaging, they want the innovative things. Staying in a box to have dry pasta is not where people are going to stay.

Melanie E. R. Miller

And Scott, it's also true that if you look around the world, there are other places where certain categories that are in -- sold in jars or in boxes in the U.S. are sold in flexible in other parts of the world, for instance, pasta sauces and things like that. But one of the obstacles to making huge changes in those categories is the capital that our customers have installed, where they have got a process, fully depreciated lines that is focused on filling jars or using folding cartons, and for them to switch in a big way to flexible packaging would be a big capital investment. So we do look at innovating those areas when they're launching new products and perhaps their new brands or new flavors might be included in flexible packaging, but to do it in a big way, it would be a big capital investment by our customers.

Scott Gaffner - Barclays Capital, Research Division

Okay. And then, just -- you mentioned the weak consumer demand trends based off the soft economic conditions, but how much of the weak environment do you think is more price related, inflation for the end consumer versus the actual weakness in the economy?

Henry J. Theisen

I think the best way to answer your question is what our customers tell us. And our customers are concerned about food inflation, the price of all the grains and the base commodities that increased the first half of the 2011 and now they find themselves having to push those through, so they are concerned about the price of food, food inflation caused by those commodity increases. And they also talk about the increase in gas. When gas gets to $4, and people have to pay more to get back and forth to work, it just takes some buying power out of the marketplace and almost all of our customers talk about concerns based on food volumes, which is really the pricing of the commodities, and what's going on to gas pump.

Operator

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

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

Could you comment on your outlook for price cost spread for resin in 2012 full year with a specific focus on specialty resin costs?

Henry J. Theisen

Well, specialty resin costs went up in the first quarter of the year and we expect that to be flat. We really expect all of our -- really raw material costs had increases in the first quarter and we expect those to be flat through the rest of the year. So as we go through the second quarter and into the third quarter, they should come in line with what we would typically expect between the price that we sell and what we pay for our raw materials.

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

Okay. And a quick follow-up there. So you did mention your target of modifying customer pricing agreements. So could you give us more color on what percentage of your contracts you're targeting by year end 2012? And also by how much do you intend to reduce lag in pricing?

Henry J. Theisen

Well, we expect to have close to 100% of our contracts by the end of 2012. It should come up and it should be renegotiated. So we expect this phenomena that we inherited from Alcan to be done with by the end of the year. And we're shooting to get anything from 6 months down to 3 months, or if we can, to 30 days depending upon the individual negotiation. But we do recognize that 6 months is not something that we can maintain.

Operator

Moving next to Chip Dillon of Vertical Research Partners.

Chip A. Dillon - Vertical Research Partners Inc.

I might have missed this but it looks like the 1.5% decrease in sales and the -- that you saw in the first quarter was all pretty much organic, given that the impact of the -- ex currency, I should say, given that the impact of acquisitions was offset by currency. That being the case, can you give us a little more color as to how much of that decline was tied to volume and how much was tied to price?

Scott B. Ullem

It's really volume and there's a little bit of price through various different market categories that we serve, but really volume has been the key headwind that we've faced in the top line.

Chip A. Dillon - Vertical Research Partners Inc.

Got you. And maybe I misunderstood but I think earlier, you mentioned that in the Latin America areas, I guess that's the Alcan businesses primarily, that the volumes were actually down more than the overall amount. And could you just, a, correct that, and b, let us know sort of what you think is right driving that, since we -- I would tend to think that you would have more growth in the emerging areas.

Henry J. Theisen

If you take a look at Latin America, we do have some excellent growth in our flexible packaging business. We have excellent growth in the areas where technology and barrier are the main core. Where we are receiving some of the pressure is, if you remember, in Latin America, we picked up a folding carton and a paper labels business in the acquisition and that is a very competitive environment and we are seeing pressure with the strong REI where people can import paper labels and some corrugated folding boxes. That's the volume loss. We actually have gains in the areas of our flexible packaging in the areas that we want to operate in.

Melanie E. R. Miller

And actually, just to clarify what you had said, in Latin America, we're mostly legacy Bemis as we acquired some plants from Alcan there, but most of that is legacy Bemis business and volume was down 4% to 5%. However, if you exclude currency, price and mix improvements more than offset that so that we had increased sales in the region of low single digits compared to the first quarter of last year.

Operator

We'll go next to Baird's Ghansham Panjabi.

Ghansham Panjabi - Robert W. Baird & Co. Incorporated, Research Division

Your volumes in flexible packaging have been a pretty good proxy for your customers' volumes. Historically, this would probably imply that the operating rates of your customer level are pretty low too. Historically, that sort of coincided with higher promotional activity as your customers have started to sort of stimulate volume growth, get consumers back. Are you seeing any signs of that yet or is it still too early?

Henry J. Theisen

I think it's still too early. Our customers are really -- what you're really seeing now is it's kind of worked in the past. Our customers are talking about more innovation, how can they do things, how they can add something that the consumer is going to want to take, so we're seeing more of an uptick in how can we innovate and how can we drive new packaging and bring products that our customers' customers will want, but we haven't seen that as we sit here today in increased volume yet.

Ghansham Panjabi - Robert W. Baird & Co. Incorporated, Research Division

Okay. And then switching to Latin America, and obviously Brazil is the biggest market down there, it's been probably a while since volumes have come under pressure there and it seems that your customers, this is probably something relatively new for them. Are you seeing any change in behavior there in Latin America?

Henry J. Theisen

I was just in Latin America last week and our management team is an excellent management team. They recognize what's going on. They continue to drive for value add into the product areas and the markets that we want to do and they're adapting to the lower volumes and the lower market, but like I said before, most of it is volume ups in the part of the business that doesn't generate our future. It's more -- those losses are in the paper labels, folding carton, areas like that.

Operator

We hear next from Mike Hamilton of RBC.

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

I was wondering if you can give us a little bit of detail in terms of progression in the Asian markets.

Henry J. Theisen

Well, our presence in the Asian markets is very small as part of the company. We were very active in the medical device arena in the Asia-Pacific region. We picked up a small plant in New Zealand, in the fresh meat area, which excites us for that part of the world. And last September or August, we made an acquisition of a company that is operating in more of the higher end part of the China operations, with retort packaging, standup pouches, things that we consider more of the value add part of it. We're expanding those facilities, the facility that we bought in the business was fully -- was full. We're putting in additional equipment and we have a good growth plan for that area, but it is still a smaller part of our business.

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

Going back to overall corporate. Could you give a picture of what pricing was in the quarter?

Melanie E. R. Miller

For?

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

Year-over-year.

Melanie E. R. Miller

Year-over-year pricing, well, volume was down mid-single digits and that was offset by pricing to get -- if you take out the currency and offset it with acquisitions, essentially what you're left with is, the volume and pricing mix wasn't really as a big deal. So if we had total sales down 1.5% ex those items, pricing was up but not enough to offset the volume decline. So volume was down about mid single-digits.

Operator

From Bank of America Merrill Lynch, we'll go to George Staphos.

Benjamin Wong

It's Benjamin Wong for George. Can you provide an early read on what you've seen so far in April? I think you should start to see some flexible volume pick up as you enter the grilling in the summer season but an update would be helpful.

Scott B. Ullem

Good morning, Benjamin, it's Scott. We've seen a little bit of seasonal uptick as we always do going from first quarter to second quarter, but volumes are still muted and below where we'd like to see them.

Benjamin Wong

Okay. And then I just want to dig deeper into the assumption of volume growth in the second half. I mean, what do you think the biggest risk is to that? I mean, I think new product commercialization is probably pretty stable and the biggest risk is still to the consumer but I wanted to check that with you.

Henry J. Theisen

I think the biggest risk is still to the consumer around the environment, the economic environment that we're in.

Operator

We'll hear next from Chris Manuel of Wells Fargo.

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

A couple of questions for you. First has to do with -- Scott, if we can go back and talk a little bit about the cadence of the cost savings. I think, earlier in your release, I read $40 million annualized in '13. But it sounds like you've got, I think from prepared comments, you mentioned you've got a chunk of personnel already out here in 1Q, 2Q. So could you maybe kind of give us a sense of that $40 million as an annualized full year number? Could we anticipate seeing any of that in '12 in the amount that we would see during fiscal '13 and any spillover that it might lead to '14, kind of think about that?

Scott B. Ullem

Sure, Chris. There will be some benefits as we get later into the year 2012. But the benefits are almost entirely offset by some short term inefficiencies of moving production from plants that we're closing to plants that we're expanding. And so we're adding production to adjusting facilities. So really we don't expect see any net cost benefits in 2012 and they'll show up in 2013. Obviously, there's not a hard line at December 31 and January 1, but that's the way to think about it for 2012.

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

Okay. And the second, I just want to follow-up on some earlier questions regarding volumes by region. So I think Melanie kind of clarified things, that as a whole company, you were down, let's call it mid-single digits. How would that have been different in Europe? And was it different in different pieces of Europe? Some folks are telling us that northern Europe tended to be stronger than southern Europe, et cetera. But if you could, to the extent you can help compare, contrast what you might have seen in South America, Asia, North America, Europe with what the total company was.

Melanie E. R. Miller

I don't have a breakout of northern Europe versus southern Europe. I don't have that much detail in what I look at, at this level. But volume in Europe was down double digit again from the year before. Part of that reflects the fact that we did get out of some business, second quarter of last year, on purpose some low value add business to improved sales mix. But otherwise, volume was down again year-over-year as it was all of last year 2011. In Asia, it's really tiny for Bemis, so -- and there's so much impact from the acquisition in August that really essentially almost doubled our sales in the Asian region that those trends are not very meaningful in the format that I have them.

Operator

[Operator Instructions]

Adam Josephson of KeyBanc has another question.

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

What do you think normalized gross margins are for the company? I mean, there's been quite a bit of volatility in your gross margin in recent years owing to the Alcan acquisition, volatile resin prices, volume fluctuations, et cetera. And I'm hoping to get a sense of what you think a sustainable level is as you renew the Alcan contracts.

Scott B. Ullem

Adam, this quarter, our adjusted gross margins are 17.7%. We think that normalized, they'll be higher than that, I don't want to give a specific target number, but as we do improve our pricing alignment between cost of raws and selling price of our products, we'd like to see those gross margins tick up towards high teens and even on the 20% line.

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

And I know you don't want to give a number, but whatever that number is, when might you expect to get there?

Scott B. Ullem

Well, again, it's tough to predict what raw material prices are going to do, but in a stabilizing raw material environment, we should see some improvements by the end of the year in 2012 on the gross margin line.

Operator

[Operator Instructions]

We'll hear next from Albert Kabili of Crédit Suisse.

Ernie Ortiz

This is actually Ernie filling in for Al. I just have a quick question, how's the non contract business going? And was there any price cost headwind in 1Q or a potential catch up in the second quarter?

Henry J. Theisen

Our non contract business, we have the ability to increase prices on specific orders when they come in and we were very diligent in making those price adjustments. We raised prices very early in 2011 and we raised them more than once. And as that is a smaller part of our business, we realized catch up in our raw material and our pricing sooner than we did in the contract business.

Operator

We'll go back to Scott Gaffner of Barclays.

Scott Gaffner - Barclays Capital, Research Division

Just wanted to talk about the competitive environment, with volumes being a little bit weaker. What's the competitive environment look like right now? In flexible packaging, are you seeing anybody that's competing more on price or maybe you could just flush that out for us a little bit?

Henry J. Theisen

The flexible packaging always has been a very competitive marketplace and it still is. And we see that competitive pricing everyday, where we have to win, as we have to win with our products with the technology, with materials science, with new innovations, and we will and we have in the past, if pricing is not where we have to be and where we want to be, we will walk away from that business.

Scott Gaffner - Barclays Capital, Research Division

Right. And I think you mentioned that earlier in your comments that you'd walk away from a product that doesn't meet the pricing objectives. Is there anything in particular that we should think about that isn't meeting the pricing objectives?

Henry J. Theisen

No, I don't think so. I think we continually try to improve our product mix and we continue to improve what we do and we know we look at our capital and our CapEx and make sure that we only spend on projects that increase the margin and affect the bottom line.

Scott Gaffner - Barclays Capital, Research Division

Okay. And then just lastly, on the acquisition environment, are you seeing anything that looks interesting at this point or is it pretty quiet?

Scott B. Ullem

There's always a lot of deal flow in packaging and this year is no exception. There have been a number of small transactions and we've really been looking at a lot of things more outside of the U.S. than in the U.S. and what we've been looking at is generally fairly small and less than $100 million size range. But we're going to be really disciplined here as we think about external growth because we've got so many opportunities internally with the facilities consolidation program, our world-class manufacturing, focus on pricing. The internal opportunities for us right now are so significant that, that's really we're -- that's really what we're targeting here in 2012. Not to say that we're not going to do acquisitions, but what we're looking at is smaller in size and generally outside of the U.S.

Operator

And it appears we have no further phone questions at this time. I would like to turn the conference back over to our speakers.

Melanie E. R. Miller

Thank you very much operator, and thank you, everyone for joining us today. Have a great day.

Operator

And again, that does conclude today's conference. We thank you, all, for joining.

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