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Executives

Melanie E. R. Miller - Vice President 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

Scott Gaffner - Barclays Capital, Research Division

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

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

James Armstrong - Vertical Research Partners Inc.

Alton K. Stump - Longbow Research LLC

Mark Wilde - Deutsche Bank AG, Research Division

Albert T. Kabili - Crédit Suisse AG, Research Division

George L. Staphos - BofA Merrill Lynch, Research Division

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

Gabe S. Hajde - Wells Fargo Securities, LLC, Research Division

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

Bemis (BMS) Q2 2012 Earnings Call July 26, 2012 10:00 AM ET

Operator

Good day, everyone, and welcome to the Bemis Second Quarter 2012 Earnings Release Conference Call. This call is being recorded. 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, operator. Welcome to our second quarter 2012 conference call. Today is July 26, 2012. After today's call, a replay will be available on our website at 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 our facility consolidation program, the timing of 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 for the year ended December 31, 2011. Now I'll turn the call over to Henry Theisen.

Henry J. Theisen

Good morning. This morning, we announced earnings of $0.54 per share in the middle of our guidance. We are pleased to have delivered performance improvements in the face of a difficult operating environment. At the same time, we are revising our outlook for volume for the total year. Based upon a commentary of our large customers, back in April we had expected our volume levels to increase during the second half of this year. We are now revising this expectation and believe volume for the second half of the year will be approximately the same as the first half. Overall volume in 2012 is expected to decline by about 2% to 3% compared to the total year 2011. As a result, we expect to report earnings for the total year around the low end of our original guidance. With volume levels expected to remain low for the remainder of 2012, our business teams are accelerating the commercialization and qualification of new business that is ramping up. Let me give you some examples.

Commercialization of patented order scavenging films for the poultry market is solving a long-term issue for our meat customers. Previously, when a barrier package containing poultry was open, the customer would be presented with an offensive odor. This new patented film scavenges this odor so that the customer never experiences it. Another example is our packaging for frozen sandwiches that are microwavable in the package. The technology in our films allow the sandwich to be warmed in the microwave, while maintaining the crispness of the bread.

In addition, we recently developed a breakthrough medical device package for artificial joints. For example, knee replacements need to be packaged extensively to protect them before they are placed in a thermoformed container. We have developed a polyester package with a polyurethane coating that protects the knee replacement, eliminates the need for additional packaging and substantially reduces damage during distribution.

While economic conditions are negatively impacting volumes across all regions as consumers curb spending wherever they can, our food packaging markets will be more stable than most, and we will to continue to focus on new business opportunities and prudent cost management to position Bemis for earnings growth in the feature.

There are a number of additional factors impacting our performance and our revised guidance this quarter, and I'd like to take some time to go through each of these factors with you. These factors include the impact of raw material costs, sales mix and currency. First let's talk about raw material cost.

The resin costs headwinds that impacted results in 2011 have been relatively calm during the first half of 2012, and we expect modest raw material cost tailwinds during the second half of this year. The costs of commodity raw materials such as polyethylene had increased during the first quarter of this year, but began to soften again during the second quarter. Overall, we expect commodity resin costs to remain flat during the third quarter, providing short-term benefits before selling prices are adjusted. We expect modest commodity resin cost increases later in the year.

We are not seeing that same softness in the cost of our specialty raw materials. Mix improvements in 2012 reflect the impact of new business commercialization and value-added product lines, coupled with volume declines in less complex product lines.

Scott will get into the details of our volume numbers for the quarter, but it is important to note that in about 1/2 of our flexible packaging application areas, we have a technological advantage with unique film structures. In these application areas, we experienced modest growth in volume compared to last year second quarter.

In total, volume in the second quarter was about 5.5% below volume levels of the second quarter 2011 as predicted, with the decrease coming primarily from the lower value-added products, resulting in improved sales mix.

The last factor is currency. During the second quarter, the average currency rate of the Brazilian reais weakened by almost 20% compared to the second quarter of 2011. Our guidance assumes that the reais will remain constant for the rest of 2012 and as a result, we have revised our guidance to $2 to $2.10.

We continue to take pricing actions to improve our margins and performance metrics in those parts of our business that do not give us an appropriate level of return. We are executing our facility consolidation program, aimed at improving the efficiency of our global manufacturing operations. We have also identified 3 other manufacturing locations to be closed in France, Mexico and Brazil.

With regard to our Pressure Sensitive Materials business segment, we continue to actively manage our cost structure to match demand levels in North America and in Europe. Despite of about 45% of this business being centered on the European markets, we were able to deliver operating profit levels in the high-single-digit range during the second quarter. This is about even with the second quarter of 2011 and the highest increase sequentially from the first quarter. Going forward, our focus will continue to be to match our cost structure with market demand and improve our sales mix.

Lastly, I'd like to touch upon our capital investment plans for 2012. We continue to be pleased with the performance and opportunities for increased sales from our newly acquired flexible packaging operation in China. Our expansion of our package making capacity in China is well underway and represents a niche market that we are confident we will be able to fill. We believe our expansion positions us to meet existing demand for these products and does not depend on future growth in the Chinese market.

Our Latin American investment in multilayer film capacity is on track for completion by the end of this year, and we expect this to provide us with new sales opportunities for meat packaging applications that have historically been a small part of our Latin American mix.

We have lowered our total estimate of capital expenditures for 2012 by $25 million to approximately $150 million for the year. This decrease reflects the fact that we are postponing investments in areas where we no longer need additional capacity.

In all, we are making the necessary adjustments to capacity to maintain a sales mix that promotes improvement in profitability and growth going forward. We are expanding in key growth areas and managing our cost structure to achieve our profitability objectives. We expect to begin to benefit from the savings of facility consolidation program in 2013, and we will continue to look for new opportunities to expand our product reach to new applications, innovate our existing product lines and improve our performance metrics in the future.

Now I'll turn the call over to Scott for his comments on the financials.

Scott B. Ullem

Thanks, Henry. Good morning, everyone. Adjusted earnings per share for the second quarter was $0.54, an increase of about 6% over last year's second quarter, a 10% increase sequentially from the first quarter of this year and in the middle of our guidance range.

My comments this morning will cover the financial tables attached to today's press release, and I'll provide additional color with respect to the drivers of this quarter's performance.

Starting with our Flexible Packaging segment and excluding the impact of currency and acquisitions, net sales decreased about 1/2 of 1% reflecting a 5.5% decrease in volume, partially offset by increases in price and mix. Specifically, volume increased modestly in several of our high value-added product areas, such as packaging for meat and cheese, dairy and liquids, dry foods and medical and pharmaceutical applications. In our other product areas, volumes were generally down with the exception of over-wrap for bottled water, which was up due to the hot weather conditions in North America. We experienced volume declines in a number of product areas such as packaging for bakery, confectionery and snack, beverage, pet care, specialty food, and health and hygiene applications. Some of this volume decline was self-directed, as we have chosen to strategically price products to meet our profit margin objectives.

Looking at net sales from another perspective, trends varied considerably by geographic region. For Flexible Packaging sales in North America, which represents about 70% sales in the segment, we experienced a modest decline in net sales as mid-single-digit volume declines overall were partially offset by price mix improvements. In Latin America, net sales excluding currency increased by about 10%, principally driven by increasing prices, reflecting higher raw material costs. The weakening of the reais has significantly hurt our results as translated into U.S. dollars. In relation to total Bemis net sales, the devaluation of the reais reduced reported revenues by over 3%.

European Flexible Packaging represent less than 2% of our total Flexible Packaging segment operating profit. It's not a significant factor driving our results, so I won't spend much time here other than to say that we have a strong medical device packaging business in Europe that is nicely profitable, while our food packaging business continues to operate in a low growth, low-margin weak demand environment.

Moving onto the Pressure Sensitive Materials business segment. Unit volumes were down slightly in label products and decreased almost 5% each in graphic and technical products. Results in this business segment continued to reflect the impact of its significant exposure to the European region. Price and mix were neutral to net sales. Consolidated gross margins improved to 17.8% in the second quarter of this year, up from 17.4% in the second quarter 2011. This reflected our improved alignment between the cost of raw materials and our selling prices to customers. This improvement in our price cost ratio was partially offset by the negative impact of lower volume levels on fixed cost absorption.

We are executing our facility consolidation program on schedule and as planned. In addition, we expanded the program to include 3 locations outside the U.S. and one additional location in the U.S. With the U.S. and now the non-U.S. programs in progress, we do not expect any further closings in the foreseeable future. With these additional locations, we increased the overall total program cost from $83 million to $141 million, of which $96 million is expected to be cash payments, up from the original cash estimate of $51 million.

During the second quarter specifically, charges of $20 million were incurred and cash payments totaled $4.5 million. You can see the program's complete financial timing and expenses -- expense details on Page 2 of our press release.

Previously, we announced that our facility consolidation program was expected to deliver approximately $40 million annually, beginning in 2013. We now expect the program in total to generate approximately $50 million annualized, which represents about a 2-year payback on the $96 million in cash we are spending. Of the 9 total locations impacted, 4 were already closed by the end of June and we plan to close the remaining locations by the end of the year.

Turning back to the income statement. Selling, general and administrative expenses in 2012 will continue to fluctuate, reflecting the impact of changes related to the facility consolidation program, the addition of acquired businesses and the adjustments of incentive compensation in response to business performance expectations.

We expect total year 2012 SG&A to average 9.5% to 10% of net sales, and current initiatives are expected to reduce SG&A expenses in 2013. Adjusted operating profit of Flexible Packaging business segment increased 60 basis points to 10.1% compared to 9.5% in the second quarter of 2011. This improvement reflects the impact of an improved price cost ratio compared to the second quarter of 2011, when raw material costs had increased dramatically in advance of our selling price increases. This improvement was partially offset by the impact of lower fixed cost absorption due to lower sales volumes in certain product areas.

In the Pressure Sensitive Materials business segment, operating profit margins improved 100 basis points over the first quarter of this year, reflecting aggressive cost management in the face of modest volume declines.

Our effective tax rate was 36.4% for the second quarter, and we continue to expect the effective tax rate for the total year 2012 to be 36%.

Moving onto the statement of cash flows. Cash provided by operating activities totaled $94.5 million for the second quarter. Working capital was neutral, although compared to last year's second quarter, pension contributions reduced cash from operating activities by about $24 million, and facility consolidation payments used an additional $4.5 million in cash. We expect cash provided by operating activities to be in the range of $350 million for the full year 2012. This will be influenced by the timing of cash payments associated with the now-expanded facility closures program. As Henry explained, capital expenditures and dividend payments are expected to use about $250 million. The remaining cash will be focused principally on short-term debt reduction.

Our guidance for the second half of 2012 assumes volume will continue to be flat with the first half, which will also be about equal to the volume levels of the second half of 2011. As Henry explained, our previous 2012 EPS guidance was based on the assumption that volumes in the second half would improve. We based this assumption on volume outlooks from our key customers, who are now predicting demand to remain soft through this year. As a result, we are lowering our total year adjusted EPS guidance to $2 -- to $2.10 per share, and we expect the third quarter adjusted earnings per share to be in the range of $0.51 to $0.57. These ranges assume constant currency exchange rates and modest raw material cost benefits during the second half of the year.

I'll close by summarizing our focus for the balance of 2012, which is to continue to grow sales of our high-technology packaging products, aggressively manage costs, improve our profit margins, execute our facility consolidation program and generate cash. And now we'll open the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] We'll hear first from Scott Gaffner with Barclays.

Scott Gaffner - Barclays Capital, Research Division

I was just -- you mentioned again in the quarter for Flexible Packaging that you continue to maybe walk away from some lower value or lower margin business with some of your customers. How much of that was the impact in the quarter to the top line? And then are we getting to a point where you've sort of walked away from as much of this business as you think you can or renegotiated where possible?

Henry J. Theisen

First of all, the amount of business that we lost would be minimal in comparison to our total sales. So it's not a very large amount of money, a large amount of revenue. I think we pretty well had our conversations with our customers, and it's really in their hands to decide if they like to move a little bit of the volume or leave it with us at a different price level. But all in all, it is not a lot of revenue that's at risk here.

Scott Gaffner - Barclays Capital, Research Division

Okay. And then just following up with demand in Flexible Packaging from your protein customers, I'm just wondering -- obviously with the drought, some of their costs going are higher. Is that -- you think that's more of a 2013 issue though than a 2012 issue for you on the protein side, especially in North America?

Henry J. Theisen

I think, Scott, that's more of 2013 issue for us. And we'll see how that plays out. We're in the food business, that's protein business. We're down a little bit even in this food inflationary times, our meat sales are up slightly. So it'll be interesting to see how that plays out later in 2013.

Operator

And next in queue, we have Ghansham Panjabi with Robert W. Baird.

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

Henry, on the expansion of the asset rationalization program, should we interpret this as you guys going through the process, and then finding new opportunities that you want to act on? Or is this a function of needing to do more, just given what the end market conditions are relative to your initial expectations?

Henry J. Theisen

I think that's both of those things, Ghansham. We're looking-through just what our footprint is and where we can best manufacture. As we talked about even with Alcan acquisition, some of this comes from picking out which best runs, which places and I think it's a little bit of both.

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

Okay. And then, Scott, on the guidance reduction for the full year, how much of that is to reflect the change in currency and also as an offset, just given your comments on resin, how much do you think resin will benefit relative to, perhaps, the initial guidance at the beginning of the year?

Scott B. Ullem

On currency, second half assumes just flat currency. But with where we are today, what's really driving the adjustment guidance is our outlook on volumes, which have come down from where we were even just 3 months ago. On resin, resin we think there's going to be some moderate tailwinds in the second half of the year. Keep in mind that the raw material exposure that we face is including a lot of specialty resins. And so when you see the price of polyethylene, for example come down, it doesn't mean that our whole cost structure is coming down. We do think there'll be benefits in the second half. We fully baked those into our EPS guidance range.

Operator

And the next question will come from Adam Josephson with KeyBanc.

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

Do you have a sense as to what changed regarding your customers' line outlook for the second half? I mean, why -- obviously, their volume has been worse than they expected, but do you have any sense as to why that happened and at what point they think they might have a recovering volume?

Henry J. Theisen

I don't know if we would really be qualified to answer that. I think that really has to come from our customers. We have our own little views, but they are views. And then they wouldn't be based in what customers are thinking.

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

Sure. And volume in Latin America, what was it in the quarter?

Melanie E. R. Miller

Volume alone in Latin America was just up modestly. Most of the -- excluding currency, sales were up 10% and most of that was higher prices compared to a year ago, as we they've been dealing with higher raw material costs.

Operator

And our next question will come from James Armstrong with Vertical Research Partners.

James Armstrong - Vertical Research Partners Inc.

Two quick questions. First, are you noting any major changes in consumer behavior towards foods and other products packaged in Bemis products? Is there anything that you can call out?

Henry J. Theisen

No, I don't think so. There's nothing we can really call out that would -- significant change or drastic change in our product portfolio.

James Armstrong - Vertical Research Partners Inc.

Okay. And then switching gears just a bit. If beef prices rise due to the drought, should we expect -- have you historically seen your volumes increase with the rise in the beef prices?

Scott B. Ullem

Our demand for packaging for protein products is pretty well very low single-digit growth year-over-year, irregardless of what's going on in the marketplace.

Operator

And next we'll hear from Alton Stump with Longbow Research.

Alton K. Stump - Longbow Research LLC

Just I guess first off on the volume front, if I think back to last quarter, I think one of the key things you have mentioned is that you thought there will be good flow products coming out that we're being launched for the customer during the back half of the year. Has that slowed at all? I mean is that part of the factor as well as to why your volume guidance has come down for the back half?

Henry J. Theisen

No, I think our new product launches are very well coming along. And that's what's really -- when we talk about modest growth in our high-value packaging, that's what's driving it. That's why I gave those few examples just to show you some of the things that we're doing. We're getting some modest volume growth because of the new packages and the new products that we're putting out in the marketplace. So that's why our high-value end is doing better than the more commoditized area.

Alton K. Stump - Longbow Research LLC

Okay. And then I just have one quick follow-up to that. Obviously, it's awfully early to looking ahead to next year on the volume front, but is there any confidence that we'll see volume recover in Flexibles heading into next year?

Henry J. Theisen

I -- we're all sitting in the same economy. We're looking at the same -- what's going on in the world and I wouldn't know what's going to change where we are today. But as you know, we all have the same view of the economy.

Operator

And our next question comes from Mark Wilde with Deutsche Bank.

Mark Wilde - Deutsche Bank AG, Research Division

I'm just curious with the facility rationalization, is this really all just a matter of you going to be in the same businesses but you're going to serve it from fewer locations or does this include some decisions you've made up -- exit some particular markets, maybe some lower value stuff?

Henry J. Theisen

No, it's the first part of your question. In fact, a lot of -- when we're shorting down these facilities, these are facilities that are -- all the facilities that are in need of capital for new roofs, heating, ventilation, electrical systems, things that aren't going to add anything to our returns, or they're in locations that we can't fundamentally expand. So we're doing -- is we're taking out -- we're just closing those facilities and moving a lot of that equipment into other facilities to maintain our capacity, and so we can service the markets the we're in. It really is giving us a better footprint and avoiding some CapEx expenditures in the future.

Mark Wilde - Deutsche Bank AG, Research Division

Okay. And if I could, as a follow-on, Henry, just when we've seen kind of big run offs in grain prices, in corn prices like this in the past, what's been your experience in sort of how that rolls-through to the protein business? I would think that in some parts of your business, you'd actually get a little initial surge here because farmers would be sending at least more beef and pork, perhaps, to market. But then a little bit further down the road, you've got an issue with higher prices and just consumers purchasing less.

Henry J. Theisen

I think you're right. When you first see this, they can't feed the cattle. You'll see the cattle and hogs and more of those will be slaughtered and that will help maintain lower prices for some of the protein products. And then later on you'll see the rise in those products because there's a shortage over in the herd. And what we have been very good at is delivering new products into those markets where our value was added to offset those drops.

Operator

And next in queue we have Albert Kabili with Crédit Suisse.

Albert T. Kabili - Crédit Suisse AG, Research Division

I guess first question, Henry, is on the volume that you're stepping away from. Can you help us with what kind of -- does that have a corresponding noticeable improvement in your price mix going forward? Or is this just more about getting your resin escalate or timing shortened up here?

Henry J. Theisen

It has nothing to do with the escalator, de-escalator timing. This is just a small -- right now, it's a very small part of our business in couple of places where the pricing is not giving us an adequate return, and it's really below pricing for the market. So we're just going back to our customers and saying, "If we're going to move this business and we're going to maintain support, then we need an adequate price."

Albert T. Kabili - Crédit Suisse AG, Research Division

Okay, okay, very good. And then I guess just on -- the second question is on with the facility rationalizations that you've announced. And -- is there opportunity for more? Do you see -- are you still evaluating potentially more upside with respect to this type of activity, or kind of where are you standing at with respect to that?

Henry J. Theisen

I think that when we complete what we've talked about, that is what we will do for the foreseeable future. We will need to go back and talk about growing in our business and move away from these unfortunate closings.

Operator

And next we'll hear from George Staphos with Bank of America Merrill Lynch.

George L. Staphos - BofA Merrill Lynch, Research Division

I guess my first question for you, if we look at the restructuring program, the prior one, it was going to generate savings of $40 million with cash cost of about $50 million. And now, we increased the savings by $10 million, but it's going to cost you an extra $46 million or so of cash, because the new cash cost is $96 million. So I realized that payback is 2 years in total, but on this latest round, it's kind of like 4 years. So I was wondering why is this program, even though you’re closing smaller facilities, so much more cash expensive, if you will?

Scott B. Ullem

George, it's Scott. Good question. The answer is, these facilities are outside of the U.S. And we have extraordinarily higher social costs, postretirement liabilities we've got to cover and so the short term bank for the buck is lower and closing these o U.S. facilities than it is for the facilities that we had announced previously. We're doing it because it's the right thing to do for a geographic footprint. It's the right way to continue to capitalize the ongoing manufacturing facilities we have in place, but the short-term bank cash on return is not as positive as -- for the ones we announced previously.

George L. Staphos - BofA Merrill Lynch, Research Division

Okay. My second question for now, and I'll come back to queue, please, I know prior to this latest tranche, there was one more facility, the largest one of the initial program that was going to closing over the course of this year. Where do you stand in managing that closure? Because it's obviously going to be a more important piece of the puzzle.

Henry J. Theisen

That particular facility is one -- it was the largest facility that we're closing. And so what we are in the process of doing is moving equipment into another one of our facilities. So we had planned to close that in the fourth quarter and it is on pace and it we're not slowing it -- or what takes time is the transfer of the equipment into a different facility. But we're on pace.

Operator

And the next question comes from Mike Hamilton, Royal Bank of Canada.

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

Just a big picture question on Brazil, going into World Cup and Olympics, et cetera. Is that doing anything in your thinking of what you're trying to accomplish? Is there any benefit off of that, or will it be pretty much business as usual?

Henry J. Theisen

It’ll be pretty much business as usual in Brazil.

Operator

And our next question comes from Chris Manuel with Wells Fargo.

Gabe S. Hajde - Wells Fargo Securities, LLC, Research Division

This is actually Gabe Hajde on for Chris. Question on some of the capital projects that you walked away from to the tune of $25 million. Can you talk about what types of projects those were, and if they may come back to the plate?

Henry J. Theisen

We don't -- we really didn't walk away from that. What we're really doing is postponing it. We're taking a look at where our volumes are, and we are just postponing those. We still think they are good projects, in a way to just standard capacity increases and some of the areas that we need to support. We're not walking away from any investments in CapEx that add to our value-added product line.

Gabe S. Hajde - Wells Fargo Securities, LLC, Research Division

Okay. And can you remind us again from a leverage standpoint where you folks feel comfortable operating in future acquisition opportunities or areas to consolidate to maybe fix less rational pricing environment in some of these products?

Scott B. Ullem

Gabe, it's Scott. Our target debt to EBITDA ratio is in the neighborhood of 2x. And so this year, we're continuing to pay down some debt. So that when we do make future acquisitions, we've got more capacity to delever up and still be investment-grade. And that's really the way we plan our leverage ratios, is to maintain that investment-grade rating.

Operator

[Operator Instructions] And we do have a follow-up question from Scott Gaffner with Barclays.

Scott Gaffner - Barclays Capital, Research Division

I just wanted to talk a little bit more about the Pressure Sensitive market. I think you had mentioned that your units were down slightly. In the quarter, one of your competitors sounded like they were -- had unit volumes that were up in the quarter and potentially taking some market share, especially over in Europe. Can you talk about that business a little bit more specifically, and what you're seeing from a competitive landscape in the quarter?

Henry J. Theisen

Our Pressure Sensitive business is a very competitive business. We're basically the #3 player behind every Avery Dennison and UPM's Raflatac Industries. And I think our quarter is similar to any quarter in that business. I didn't see we lost significant volumes or gain significant volumes and things are pretty much status quo as normal competition in the business.

Scott Gaffner - Barclays Capital, Research Division

Okay. And then just one clarification on the pullback in CapEx. So you're saying that none of the $25 million in CapEx that you pulled down was related to any of these additional facilities. You weren't going to go in there and invest in those facilities that you're actually now taking out? Okay.

Henry J. Theisen

No. We have not planned to make any investments in there. We look at those early on, and they were not in the $175 million plan. And that's part of the reason we took them down because they're just not worthy of investment.

Operator

And next we have a question from Philip Ng with Jefferies.

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

I apologize if you guys discussed this already. Your volume outlook for you guys in the back half is a little more cautious now. What are your customers saying and how are they managing their inventory? I understand previously you had expected some new products rolling out and whatnot. I just want to get clarity on that.

Henry J. Theisen

Well first off, the products we expect to roll out are rolling out. I mean no matter what the economy is, we -- our customers need of those new products to differentiate themselves in the marketplace. So our new -- and I went through a couple of them earlier on just to show you that we do have that portfolio of new products. Well, our customers are just saying that they have to pass-through the food inflation. There are no choices.

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

Okay. And then with corn prices moving up, are you -- are there any concerns from your perspective that food inflation would be a bigger risk in and back half or early next year?

Henry J. Theisen

Yes. As these corn prices go up, or wheat prices go up, they affect food inflation. We would see some of that this year. Consumer still has to eat, still has to take the products so -- and our new offerings and our new development and our chain of R&D always keeps us ahead of the game.

Operator

[Operator Instructions] We have a follow-up from George Staphos, Bank of America Merrill Lynch.

George L. Staphos - BofA Merrill Lynch, Research Division

Two questions. First on volume, if I heard you correctly, I think you said your new volume outlook for the second half of 2012 would put you more or less flat with the second half of 2011. I just want to confirm if that was the case. And is it just comparisons are easy that allow you to keep sort of flat with last year given what has been, obviously through the first half, a down 5% or so compare?

Henry J. Theisen

That's what it is. Its -- on a sequential basis, we expect volumes to stay about where they are, and -- which is about where they were in 2011. 2011 -- remember, volumes in 2011 were higher in the first half than they were in the first half of this year. And so for the total year, we expect volumes to be down this year about 2% to 3% versus last year. But flat with last year for the second half.

George L. Staphos - BofA Merrill Lynch, Research Division

Okay, Scott, I had one bigger picture question that I ask periodically and I wanted to get a refresh from you all. If I look at Bemis' strategy over the long-term, it's been mostly what we've heard today and on past conference calls, the company has focused on new products, bringing new features to the market, new substrates, new barriers and so on. And that's fine. I realize that you're dealing right now with a very challenging environment in terms of food inflation and what that's meant for you demand for your key markets. But bigger picture, looking back to late 1990s even, your margin and your current on capital have been flat to down, which is different than what you've seen for the packaging industry as a whole, which has seen an increase in margin and returns, slowdown returns. Why do you feel that the strategy you have in place is the right strategy? What in your strategy in the future do you hope will help improve returns on capital for your shareholders?

Scott B. Ullem

George, the answer is the strategy that we are executing now is a different strategy than the one we were executing even 2 years ago. Because what we're doing now is rationalizing our significant fixed asset base in order to improve our returns on invested capital. And in order to continue to build profits in the face of end markets that from what we can see into the foreseeable future are not going to deliver any great volume growth for us. So we're setting up the company to be successful from a profitability margin standpoint, from a return on capital standpoint, in light of the new normal in our markets and we feel good about that new strategic direction that we've taken on. It's a lot of work. We've got everyone at Bemis focused on this goal. We're obviously spending a lot of time, a lot of resources and combined with the world-class operations management initiatives that we kicked off, we really feel positive about our ability to be a low-cost, high value-added product provider to our customers.

Henry J. Theisen

George, I'd like to point out that in that decade you're talking about, we made some decisions as a management team to invest in a global basis and expand our footprint. And we see -- bought significant assets in Brazil and in Europe, and those were not performing as high as our high-value area. In addition, we -- as the economies of those areas increased, we spent quite a bit of capital to be prepared to do the value-added things that we want to go forward with. So we made some decisions in acquisitions to bring in some pieces of business that were dilutive to those metrics.

Operator

And with no further questions, I'll turn the call back to our speakers for any additional or closing remarks.

Melanie E. R. Miller

That concludes our call today. Thank you, everyone, for joining us and have a great day.

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Source: Bemis Management Discusses Q2 2012 Results - Earnings Call Transcript
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