Libbey Inc. Q1 2008 Earnings Call Transcript

May.19.08 | About: Libbey Inc. (LBY)

Libbey Inc. (NYSEMKT:LBY)

Q1 2008 Earnings Call

May 1, 2008 11:00 am ET

Executives

John Meier – Chairman and Chief Executive Officer

Gregory Geswein – Chief Financial Officer

Scott Sellick – Chief Accounting Officer

Kenneth Boerger – Vice President and Treasurer

Kathy Waller – Co-President, Financial Relations Board

Analysts

Patrick Bartels – Monarch

Bob Wettenhall – Royal Bank of Canada

Jim Barrett - CL King & Associates

Douglas Lane - Jefferies & Company

Arnold Ursaner - CJS Securities

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Libbey Inc. first quarter 2008 conference call. (Operator Instructions) I would now like to turn the conference over to Kathy Waller, for the Financial Relations Board.

Kathy Waller

Thank you. And good morning everyone. On behalf of Libbey, I would like to welcome everyone to today’s first quarter conference call. I would like to introduce the members of management that are on our call today. We have John Meier who is Chairman and Chief Executive Officer; Gregory Geswein, Chief Financial Officer; Scott Sellick, Chief Accounting Officer, and Ken Boerger, Vice President and Treasurer.

And at this point, I would like to turn the call over to Ken, and he will review the Safe Harbor Statement with us and then, we will turn it up the call over to management for more formal presentation and then a Q&A.

Kenneth Boerger

Thank you, Kathy. Good morning everyone. Material presented today includes forward-looking statements about Libbey Inc. These statements only reflect Libbey’s best assessment at this time, and are subject to risks and uncertainties, including market conditions, competitive pressures, significant cost increases, and currency fluctuations. Investors should not place undue reliance on such statements.

For further information and important factors potentially affecting performance, please refer to today’s press release, and or the company’s Form 10-K for the year ended December 31, 2007.

With that, I will turn the call over to John Meier.

John Meier

Thanks, Ken. Good morning everyone and welcome to Libbey’s quarterly conference call. This morning the company released first quarter earnings with the following highlights.

As sales were $187.3 million up 4.3%; income from operations of $9.5 million down 9% and EBITDA of $21.5 million up slightly from last year and at the higher end of our guidance for the quarter.

As cited in the release, we’re pleased with out performances as it comes in spite of continued softness in our domestic economy and in the face of rapidly escalating natural gas cost in North America.

Our foodservice glass business was up 12% for the quarter, while our other foodservices businesses of WTI, Syracuse and Traex showed mixed results. WTI did show positive results of 3%.

Libbey’s U.S. and Canadian retail business was strong. It was up 18% for the quarter. This continued the strong retail performance the company has registered for the past 3 years.

Let me comment further on those two core areas. The challenges confronting the restaurant industry and the broader foodservice industry in United States in the last 6 months have been well documented.

Commenting on foodservice, the fact is restaurant traffic is off nationwide. Retail occupancy is down and revenue for available room trends are also off, versus the prior year.

Libbey is not immune to this traffic-driven business and we will have to ride it out. The good news is that our comparable month-to-months comparisons in foodservice glass improved as the quarter advanced. And April, which we have just completed, has shown the best performance in foodservice glass in the last 7 months.

During last 8 weeks, Libbey received Vendor of the Year awards from Dartons, U.S. Foodservice, the Edward Dunn Company and Outback Steakhouse. We share that with you in the context that we are confident that our industry-leading position still holds.

In the short-term, an indicator to follow will be the upcoming summer vacation season. Foreign tourist traffic this summer remains to unfold. Libbey will rely on continued growth. As in 2007, they numbered 56.7 million visitors, up 11% for the year, driven largely by visitors from Canada and Mexico.

In 2007 overseas tourists still lagged pre-2001 levels, despite the value of the dollar provided last year. This year our currency provides a very strong value, one that I personally believe is hard to dismiss.

But the retail business in the U.S. and Canada continued strong as I mentioned earlier, up 18%. We are pleased with our continued strength in this sector and expect to post a solid retail year again in 2008.

Our broad and diverse retail customer base is serving us well. Should consumers in the United States turn to more value-based retailers, we are well represented. Should they shop the fashion-forward specialty retailers, the weakened U.S. dollar has caused those retailers to look harder at well-placed U.S. resources.

We check the box on both counts. We grew our leading retail market share in 2007 by 6 market share points. We are positioned to grow share again in 2008.

Our industrial business was flat in the U.S. and Canada for the quarter. This is the smallest quarter for this customer grouping. We plan for modest growth in industrial for the balance of the year based on programs committed and in place.

In Mexico we achieved overall sales growth of 11%. Crisa continues to execute well with good progress among its various customer groups. The factory is running virtually flat-out and we expect a good performance from Crisa in 2008.

Our international business outside of North America was up 22%. Removing the currency effect growth was 8%. We continue to progress in Western Europe and continued growth in Eastern Europe as expected.

On the export front from the U.S.A we did suffer some timing issues related to shipments dropping back into Q2. This was largely space availability on container ships, which has been documented in the Wall Street Journal as well as some container availability itself for select export markets. This trend is improving I am happy to report.

Specific to China, our new Libbey factory continues to progress as does our market penetration. Additionally, we have now shipped close to 30 countries from our China facility. The upcoming Olympics will provide an added bump in our business.

Our factory is located just less then 50 kilometers from Beijing. We do not expect to be affected by industrial curtailment as increasingly written out in the press. But we are monitoring developments and government positions as closely as we can, and we do have contingency plans should they be necessary.

Wrapping up our view of the world, the recent Libbey annual report cited sales in 2007 outside of the U.S.A at 45% of our total. To be clear, that statement includes Canada and Mexico. That percentage is expected to grow in 2008. Our broadened international footprint continues to serve us well.

Finally, natural gas was a drag on our first quarter performance despite a solid hedged position. The company continues to monitor and execute against its defined hedging policy.

Looking ahead, despite all of the external challenges of the first quarter that confronted the U.S. economy, Libbey was able to grow revenues 4.3% and achieve EBIDTA of $21.5 million, approaching the higher end of our guidance.

Clearly, the increased diversity of our business into more of an international player is serving us during this challenging domestic period.

On the competitive front, we continued to witness industry consolidation. During the quarter, in the United States a domestic producer, St. George Crystal declared Chapter 7 and its assets are believed to be for sale.

In Europe, just this week, the second player in France, Duralex, reported on its bankruptcy status, and if a buyer is not found by the end of July, they face liquidation.

These events strengthen our long-term position. While neither competitor was individually huge for Libbey, Duralex in Europe was a factor in the broader European market. This consolidation will cause buyers to continue to consider their alternatives.

We approach our overall business with a balance of the year pragmatically, and our plans call for a domestic foodservice industry that will show only a modest up-tick very late in 2008.

However, in the face of this challenge and that of energy as a whole, we remain at our original guidance level of sales between $850 and $870 million, and we affirm our EBITDA guidance to $113 to $123 million for 2008. We will continue to follow closely the energy markets, as they are pivotal for us.

Looking down the road, our recently issued 2007 shareholder report outlined our vision through our strategic plan period. We have three business goals that we shared. By the end of 2010, we inspire to:

Have revenues of nearly $1 billion;

Operating income in the range of 11% to 12%;

And EBITDA margins in the range of 15% to 18%.

We are mindful of the fact that our transformation is not yet complete, but significant progress has been made. We are in the 10th period of our 10 period game and we are driven to achieve our goals.

In closing, Libbey continues to be vigilant in its cost-containment and we look to advance our lean efforts, particularly in Mexico this year. These efforts in sales growth and select areas of our business that I commented upon earlier, will be counted upon to offset our foodservice challenge in the U.S. and additional energy cost increase.

I’ll now turn it over to Gregory Geswein our CFO for further commentary.

Gregory Geswein

Thanks John, and good morning everyone. The solid first quarter results were in line with our previous guidance on both the top line and EBITDA. And as noted, we had an all time record for first quarter sales of $187.3 million up 4.3% in the middle of our previous guidance of $185 to $190 million.

And the first quarter has historically been the smallest quarter of the year in terms of both sales and EBITDA. We also reported net loss of $3.5 million or $0.24 per diluted share for the first quarter ended March 31, 2008 compared to a net loss of $1.8 million or $0.12 diluted loss per share in the prior quarter as a result of lower gross margins and higher interest expense.

The record sales was led by a 2.2% increase in North American glass. Contributing to this increase was double-digits growth in shipments to retail glasswork customers in the United States and strong sales growth in Mexico. These shipments were partially offset by lower shipments to U.S. foodservice customers of approximately 12%.

International sales increased by 22.2% as a result of increased shipments to customers of Libbey China and an approximate 14% favorable currency impact. In addition, North America and other sales declined 3.1% as shipments to Syracuse China customers were down approximately 12%, partially offset by an increase of 3% in sales of World Tableware products.

Income from operations decreased 9% to $9.5 million from the $10.4 million in the prior year; it was 5.1% of sales compared to 5.8% in the prior year. The decrease was attributable to an unfavorable mix as a result of lower foodservice sales; a $1.4 million increase in natural gas expense, and a $2.1 million increase in depreciation partially offset by a lower SG&A expense.

As a percent of sales, SG&A decreased to 11.1% of sales from 12.3% in the prior year. Other income was $753,000 in the quarter, down from the prior year amount of $1.8 million. The prior year amount included a gain on the land sale of Syracuse China of $1.1 million.

Earnings before interest and taxes were $10.2 million compared to $12.2 million in the year-ago quarter. The EBIT was $7.1 million for North American Glass compared to the $10.9 million in the first quarter of 2007.

The decrease was a result of the unfavorable sales mix and higher natural gas expenses. North American Other reported EBIT for the first quarter of 2008 of $3.8 million, which was flat to the year-ago quarter.

Again, included in the 2007 first quarter results was a $1.1 million gain on the sales of excess land in Syracuse. Excluding the gain the increase in EBIT is attributable to higher income from operations of World Tableware, Syracuse China and Traex.

The International segment reported EBIT loss of $700,000 which was a $1.8 million improvement compared to the year ago quarter. The improvement was primarily related to Libbey China being in full operation, higher international sales and improved margins, partially offset by higher natural gas costs in Europe.

We reported EBITDA of $21.5 million in the first quarter of 2008 compared to EBITDA of $21.4 million in the year-ago quarter which was at the top end of the previous guidance of $20 to $22 million.

As a percent of sales EBITDA was 11.5% versus 11.9% in the year ago period. Total debt was $517 million at March 31, 2008 compared to $496.1 million in the prior year period and $503 million at the end of 2007.

The increase in the prior year was a result of additional PIK notes issued of $18.2 million and the payment to Vitro related to the Crisa acquisition of $19.6 million in January of this year. The increase from year-end was a result of the Vitro payment and higher working capital levels.

Interest expense was $17.2 million, up $1.6 million from the prior-year period, as a result of higher debt levels. And the effective tax rate increased to 49.8% for the quarter compared to 47.5% in the year ago quarter.

As of March 31, 2008, working capital, defined as inventories and accounts receivable, less accounts payable increased by $23.4 million from $213.8 million to $237.2 million compared to December 31, 2007 due to the seasonal working capital needs.

Working capital as a percent of net sales was 28.9% in 2008, which compares to working capital as a percentage of 2007 net sales of 27.3%. While a significant amount of the working capital of sales was planned, our current levels are higher and we would like them to be.

We expect to reduce working capital during the remainder of the year, so that we in 2008 with working capital that is lower than our working capital at December 31, 2007. Free cash flow with a use of $37.5 million as compared to use $7.8 million in the first quarter of 2007; the primary contributors were the $19.6 million payment to Vitro previously mentioned and increased working capital.

We had available capacity of $82.3 million under the ABL credit facility as of March 31, 2008. This compares to availability of $89.7 million at December 31, 2007 and $71.7 million in the year-ago period.

CapEx was $9.4 million in the first quarter of 2008, compared to $9.8 million year-ago period. And depreciations and amortization was $11.3 million in the first quarter of 2008, versus $9.2 million in the prior year. The increase is principally the result of the prior capital expenditures primarily related to the new China facility.

(Inaudible) EBITDA was 4.4 times at the end of the first quarter, versus the 6 plus times when we completed the refinancing in 2006. Of our total debt outstanding, approximately 36% is floating and therefore, subject to fluctuations in interest rates.

Of the remaining amount, $200 million has been fixed with interest rate swaps which converted this amount from variable debt to fixed rate debt when we originally issued those notes back in 2006.

Refinancing the current debt structure continues to be a major focus as we continue to have dialog with various advisors on the opportunity. Obviously, market conditions will dictate the timing.

As many of you know, the current debt doesn’t mature until late 2010, and as already noted we have significant liquidity. However, we are undertaking the appropriate preparations so that we can be ready when the opportunity does arise.

Just to reiterate the guidance for the second quarter, we expect sales in the range of $215 to $220 million, which would represent an increase of 3.8% to 6.2% of the prior year period.

EBITDA is expected to be between $30 million and $32 million. EBITDA guidance for the full year remains the same and is expected to be in the range of $113 to $123 million. We also expect sales for the full year to be in the range of $850 million to $870 million, which would represent an increase of 4.4% to 6.9% over 2007.

All-in-all, a very solid quarter. As we have managed through a difficult economic environment this year, we remain focused on executing the long term transformation of Libbey. We continue to benefit from a series of strategic initiatives that have significantly improved our global competitiveness and market position.

I think this quarter has been a good test. Our core foodservices business was weaker, was offset in part by the retail business, the Mexican operations that we’re now controlling a 100% of, and the international business.

And with that we will open it up for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Arnold Ursaner - CJS Securities.

Arnold Ursaner - CJS Securities

Embedded in your guidance for Q2, can you give us a sense for what view you have about foodservice revenue trends in Q2?

John Meier

We don’t Arnie; as I said in my prepared comments in terms of how we look at the year, we’re not looking for anything other than a modest uptick very late in the year. Those are the kinds of numbers that we have baked in. So I would think a very conservative outlook.

Arnold Ursaner - CJS Securities

I am trying to get a feel, but down 12, I have known your company for 10 years, I think that’s as bad a single quarter as I can remember John other than 9/11.

John Meier

Yes, that’s probably a fair assessment. At the same time we’re absolutely convinced that this is not a market share issue at all. You don’t get named the Vender of the Year at all these companies in the last 8 weeks if you are loosing share.

Secondly, let’s all remember that late January and early February in the upper Midwest and then in Northeast corridor we all got snowed out. This was a difficult weather quarter which contributed to some of the issues, but underlying it all is the restaurant industry is having a tough year.

We are encouraged by what we have seen in April as I commented in my comments. What we saw an April is frankly north of what we have budged and/or forecasted.

Arnold Ursaner - CJS Securities

And John, you’ve talked before about the impact tourists have when they come to the United States, they tend to consume or spend more going out to hotels and restaurants typically than Americans. Given where the weak dollar is right now, is that embedded into your thinking in the back half of this year, that we’ll have a strong summer season from tourism?

John Meier

It goes through our thinking Arnie. But we are believing, I can’t imagine it’s going to be any less than what it was last year where it was up 11% over the prior year because the currency thing has continued to move in a positive direction for an overseas visitor.

And you’re right. There are industry statistics that say that particularly European visitors will on a per diem basis spend 40% more on food and drink than what domestic U.S. citizens do when we go off to Las Vegas or where ever.

So to the extent that there is an up-tick on their traffic, if you’re in the drinking glass business that’s music to our ears. The product gets put in play more, it breaks.

Arnold Ursaner - CJS Securities

Three questions for Greg, real quickly if I can. Greg, in terms of the D&A, the China plant really started ramping up towards the end of Q1, how should we think about the amortization of that plant for the balance of the year?

Gregory Geswein

Last year we were on a half-year deprecation, so you only got a half a year of that, now you are starting to get in a full year of that, this year Arnie.

John Meier

But Arnie, to be clear the plant was ramped up and running pretty well the last 6 months of last year. Our press release speaks to the first quarter of 2007 where we were in a startup mode. We were operating and have been operating flat-out since the middle of last year in terms of machine utilization.

Arnold Ursaner - CJS Securities

But we have the actual full amortization built-in already.

John Meier

Yes.

Arnold Ursaner - CJS Securities

Okay. And Greg, what percent of your natural gas needs are you hedged at currently?

Gregory Geswein

In terms of the second quarter, we’re probably around 60%. And then the back half of the year, we’re probably around 30%.

Arnold Ursaner - CJS Securities

That’s all I have for now. Thank you.

Operator

The next question comes from the line of Douglas Lane - Jefferies & Company.

Douglas Lane - Jefferies & Company

In the foodservice business, help me think through it because the 12% number seems like a big number to me as well down and in December you were down 5%. So it wasn’t as though, it was a timing of shipments or anything.

And then I noticed one of your big customers was indicating that the foodservice industry was down 2%. So, is there inventory being worked off here? With your market share shouldn’t you pretty much track industry trends at this point?

John Meier

I think there could be inventory being worked off as people took it; don’t forget we raised prices pretty aggressively last year in the fourth quarter and some people took advantage of a pretty big price buy in the fourth quarter. That had to affect our January, early-February shipments.

Number two, this was a tougher winter, Doug, in the late January, early first half of February, and clearly the industry suffered there and I don’t know what else concrete that I can add to that, guys you want to jump in?

Again we are encouraged by the April thing that I touched on much more than anything else to be able to say that in the midst of all the noise that we all hear at 6:30 on the evening news about recession or not, to be able to say that this was our best month in the last seven; and the other thing I would point out, you are right, in the fourth quarter our foodservice business was off and we had EBITDA of $35 million.

So the way I look at it for the last 7 months we’ve had the thoroughbred of our stable limping around the race track and I think we’ve finally got him healed a little bit and I am looking forward to seeing how the whole team will run.

Douglas Lane - Jefferies & Company

Okay. Moving on to natural gas, you obviously pay attention to that every day and we’ve seen a big spike. What’s you outlook for natural gas and if it stays at $10 or $11 what’s going to be the impact for next year do you think?

Gregory Geswein

We have seen and I think this is the third straight day, it’s down again today, that it’s been down. Still, clearly higher than what it was last year and quite frankly higher than what our budget numbers are.

But we are hoping that maybe some of the frothiness gets out of it. We have an opportunity to put some additional hedges on. We do have some hedges in place for 2009 although those are not significant at this point.

Douglas Lane - Jefferies & Company

What would you estimate your average cost will be in 2008, albeit you’re not 100% hedged at this point?

Gregory Geswein

That’s really tough to say at this point, Doug.

Douglas Lane - Jefferies & Company

Assume something in the $8 range?

Gregory Geswein

No, it will be higher than that.

Douglas Lane - Jefferies & Company

It will be for 2008?

Gregory Geswein

Absolutely.

Douglas Lane - Jefferies & Company

Okay. That’s helpful. And then Greg you mentioned the recap. What’s your attitude in the current capital markets? Will the capital market have to improve or merely stay the same for you to be looking to go forward with that after June.

Gregory Geswein

They would have to improve, Doug. We are seeing deals getting done out there which is encouraging and it is taking some of the backlog out from the market; there’s clearly been an overhang, but for us to punch that call ticket at this point, we have to get a much better deal than what’s out there today.

We could probably improve on what we have, Doug, but there is no sense paying that unless we get a really good deal.

Douglas Lane - Jefferies & Company

Okay, that makes sense. And finally, I don’t know if this is just housekeeping but I am looking at your inventory numbers for the historical period, the December 2007 and March 2007 numbers and they are higher in this release by $10 or $11 million than they were when they were originally reported. What’s the change there?

Gregory Geswein

We now include in that inventory number the repair parts.

Scott Sellick

Doug they’re in both 2007 and 2008.

Douglas Lane - Jefferies & Company

Which meant you restated 2007? Obviously.

Scott Sellick

We reclassed the repair parts from a different part of the balance sheet up to inventory.

Gregory Geswein

And part of the reason why we did that Doug is that working capital productivity is now one of the measures for incentive plans and with that certainly we want folks managing repair parts; as you know $10 million, it’s a reasonable amount.

So we want people managing that, as well as the rest of the inventory. And so we now have included that in the inventory to make sure people have a focus on it.

Douglas Lane - Jefferies & Company

Okay. It makes sense. Thanks.

Operator

The next question comes from the line of Jim Barrett - CL King & Associates.

Jim Barrett - CL King & Associates

Greg, could you talk about what are the company’s longer term plans in terms of operating margins, specifically in Europe?

Gregory Geswein

I don’t think we have released that or broken that detail out Jim, but to get to some of the levels that John has talked about today that kind of 11.5% to 12% operating margins, clearly international has to get better.

We’re going to get continued leverage with the U.S. and Mexico. Certainly China will be a piece of that, as we’ve said a number of times that over time China’s operating margins will be significantly higher than the North American levels.

We’ve seen as we talked about, international margins did increase; they are increasing. They’re actually looking for that kind of business. You saw their numbers. They are up on a currency basis but local currency would have been down slightly.

The reason for that is that they’ve been very selective. They’ve gotten rid of some of the low margin business and using the capacity that they’re running at in Europe to really go after the higher margin business and they are getting price increases in Europe as well.

John Meier

The industry consolidation that continues to take place over there Jim as we chatted in the past and on these calls, is only a positive for us on a going forward basis in terms of pricing structures and in terms of selective selling opportunities.

Jim Barrett - CL King & Associates

Okay, good. And did you mention specifically whether China has achieved breakeven yet?

Gregory Geswein

No, we did not mention it, but they were not breakeven in the first quarter, although they had met our expectations in the first quarter. I mean first quarter is always a tough one for the company globally and...

Jim Barrett - CL King & Associates

I understand.

John Meier

And the biggest thing that happened to China in the first quarter, I hate to be the weatherman here, but everybody who follows Chinese New Year, you remember that newscast where you had 500,000 people at the train station that couldn’t get home.

The shipments really got backed up because they really did not as a country have the ability to celebrate Chinese New Year the way they traditionally do over a 10-day to 2-week period because people couldn’t get out, therefore restaurants weren’t getting visited, celebrations didn’t take place, hotel occupancy was off and if you are in the foodservice business anywhere in the world those kinds of things promote a disappointment.

Jim Barrett - CL King & Associates

I understand.

Scott Sellick

Jim, with all that being said, the drag on earnings by Libbey China in the first quarter of this year was substantially less then what it was in the first quarter of last year.

Jim Barrett - CL King & Associates

Okay. Greg, two other questions. Your CapEx was a bit below where I thought it would be. Do you have a revised number on that for the year?

Gregory Geswein

Actually, we’re sticking at the $42 million that we talked about.

Jim Barrett - CL King & Associates

Okay. And last but not least, can you tell us how your corrugate box costs are trending or tracking?

Kenneth Boerger

I am not aware of any significant changes in corrugated pricing that have been passed on to us, so far this year.

Jim Barrett - CL King & Associates

Okay. So, that’s tracking that industry. Okay, thank you all.

Operator

The next question comes from the line of Bob Wettenhall – Royal Bank of Canada.

Bob Wettenhall – Royal Bank of Canada

I was curious, you made a comment, someone made the comment that working capital would be lower at year-end than it was in 2007. And I was curious was that as a percentage of sales or on an absolute basis?

Gregory Geswein

On an absolute basis.

Bob Wettenhall – Royal Bank of Canada

Is that coming from implementation of lean practices in Mexico?

Gregory Geswein

That’s coming from lean practices globally. It’s coming from a real focus on working capital. As I mentioned earlier, it’s part of everybody’s incentive this year. So, we’re not doing it by brute force; we’ve got programs in place to continue to do that, looking at the various SKUs and so forth, so there is a lot of focus on it.

Bob Wettenhall – Royal Bank of Canada

As a percentage of sales, what are you looking to have net working capital be by year-end?

Gregory Geswein

It depends on obviously what the revenue would be, but probably somewhere in the 23%- 24%.

Bob Wettenhall – Royal Bank of Canada

Great, and can you talk about if there is any mix shift product-wise, and how that’s impacting gross margin, and where is that mix shift occurring?

John Meier

The mix shift has occurred as this quarter reported, foodservice glass being off 12% versus our retail business being up 18%, that is the heart of the mix shift right there.

Bob Wettenhall – Royal Bank of Canada

Got it. So your foodservice business is that much more profitable than retail?

John Meier

Yes, it’s a different business completely and yes it is.

Bob Wettenhall – Royal Bank of Canada

Great, and what percentage of your COGS is natural gas?

Gregory Geswein

I think globally it’s around 9%.

Bob Wettenhall – Royal Bank of Canada

Of total COGS. It’s 9% annually, roughly.

Gregory Geswein

Roughly, yeah.

Bob Wettenhall – Royal Bank of Canada

And it sounds like just from in terms of the competitive landscape both in Europe and domestically some of the weaker players are falling by the way side, any acquisition plans?

John Meier

No, we monitor opportunities we know where we want to go and there are opportunities in various parts of the world but until we get through this refinancing and get our, let’s say, balance sheet house more in order, there is nothing eminent; we’re not aggressively trying to punch a ticket in the next three months.

Bob Wettenhall – Royal Bank of Canada

Got it and one final question. Just in terms of domestic market share in beverageware etcetera, do you still see yourself making gains this year, just because other weaker players are dropping out?

John Meier

Absolutely. We believe our foodservice glass market share in United States is 56% and I believe we’re going to grow that, and we know that our retail market share is 34.5%. It went up 6 market share point versus 2006 and I got to believe when we’re up 18% and let’s just say we have reasonable quarters going out, I can assure you that the retail glass marketplace in the Untitled States of America as an industry is not growing at that rate. But if we are inherently we’ve got to go north.

Bob Wettenhall – Royal Bank of Canada

But on the foodservice side, even though it’s a weaker quarter you’re getting a larger percentage of the dollars out there?

John Meier

We believe we are because the other thing that plays to our favor, periodically we get nipped at by some imports but with the weak U.S. dollar which is still comparatively very weak, their ability to nip at us is reduced.

Freight costs coming into the U.S.A with freight surcharges etcetera are only increased for foreign exporters into the U.S.A. Those little things all contribute to our ability to, we believe, modesty grow our foodservice business in the year 2008.

Bob Wettenhall – Royal Bank of Canada

Got it. And if you manufacture in Mexico and bring product in to the U.S., because it’s a wholly owned subsidiary, do you avoid the 21% tariff?

John Meier

Thanks to the North American Free Trade Agreement, we avoid the 22% tariff and for all practical purposes our facility in Mexico is the only ball game in town. There are a couple of other glass tableware companies down there but they largely make candle holders the for candle industry. In terms of significant drinking glass volume, we are the ones who benefit from that North American Free Trade Agreement.

Bob Wettenhall – Royal Bank of Canada

But you’re manufacturing there, shipping that product back in to the U.S. from Mexico?

John Meier

Correct. Duty free.

Bob Wettenhall – Royal Bank of Canada

Terrific. Thanks very much. Good luck.

Operator

The next question comes from the line of Patrick Bartels – Monarch.

Patrick Bartels – Monarch

I just wanted to see if you can elaborate on the gist of a really strong performance in the retail. You basically commented a little bit on some competitors falling by the way side, but is there anything else out there that’s driving such a strong retail performance?

John Meier

These programs are put in place Patrick months in advance and as we talked openly on these calls as 2007 unfolded we clearly took some market share as some of our domestic competition went through their own travails and more importantly imports became increasingly expensive.

Some major retailers took a very hard look at, who do they want to shift this business to and who do they want to book programs with in June, July and August for the first quarter of 2008. That contributed to what we achieved.

Number two, given the economy as challenging as it is and if consumers are trading down as I touched on in my comments, patronizing let’s say more value oriented retailers we are very well represented at that end of the distribution channel.

This is a traffic business just as our foodservice business is and we happen to have a pretty good presence at that type of retailer and if Mrs. Jones is looking for glassware product and with the commanding market share we have a good chance of getting that thing in the buggy.

Patrick Bartels – Monarch

When you say channels, is this at the dollar stores of the world?

John Meier

Yes, that would be an example of that end of the spectrum and that is exactly right.

Patrick Bartels – Monarch

Okay. And how about he other channels whether its big-box retail, whether it is the Wal-Marts, Kohls?

John Meier

We continue to have very strong representation at Wal-Mart; we have been advantaged this year at Target. Target converted about 9 months ago from its private brand packaging to Brand Libby, so if you go into your favorite Target store you’ll see a disproportionate share of the shelf space with Brand Libby SKUs.

We’re not the first ones to tell you that we believe at the moment of truth when Mrs. Jones has a to make a decision and all things being equal, brand reinforcement works and helps, and she’s seeing a lot of Libby logos staring her right in the face at her favorite Target store.

We’ve picked up some business with some other retailers, which I won’t get into details because all my friendly competitors listen to this call but we’re pleased with programs that we’ve been enjoying from some of these people, that were not quite as aggressive with us last year in the first quarter.

Patrick Bartels – Monarch

Okay. And last question is, as you see the footprint increase through your acquisition of Crisa, any plans to move some capacity? I know I’ve asked you this in the past, sooner rather than later, and get some of that high-cost labor whether it is in Ohio or down in Louisiana moving into Mexico?

John Meier

As we have said on this call, part of our Mexican strategy is to optimize our North American manufacturing footprint and we continued to do that − I’d rather not get any further details − but our Mexican facilities do some things very, very well. And our two U.S. facilities are challenged with doing a broader variety of product and they both serve their purposes.

Patrick Bartels – Monarch

Yes.

Gregory Geswein

And the Mexico facility is running full-out down there now Patrick and just to remind you Mexico is as big as Toledo and Shreveport together.

Patrick Bartels – Monarch

Right. I recall there is some space to expand capacity…

John Meier

There is space to expand it but you’re talking significant dollars and not that we won’t do it, but you’re are absolutely right we have plenty of space; it looks like a collage campus, with building after building after building and if we were to expand in North America as we’ve said on this call, Mexico would probably get the nod for obvious reasons.

Patrick Bartels – Monarch

Great, I appreciate it. Thanks a lot.

Operator

(Operator Instructions) I am showing there are no further questions in the queue. I’ll turn it back over to management for any closing remarks.

John Meier

Thank you very much everyone for participating and your continued support. We look forward to visiting with you in the July timeframe reporting on our second quarter. And thanks for your continued support.

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