Greif, Inc. F2Q08 (Qtr End 04/30/08) Earnings Call Transcript

Greif, Inc. (GEF)

F2Q08 Earnings Call

June 5, 2008 10:00 am ET

Executives

Deborah Strohmaier - President, Corporate Communications

Mike Gasser – Chairman, Chief Executive Officer

Don Huml – Executive Vice President, Chief Financial Officer

Analysts

Jim Lucas – Janney Montgomery Scott

Mark Wilde – Deutsche Bank

Chris Manuel – KeyBanc Capital Markets

Jack Hain – Barrington Research

Bob Franklin – Prudential Financial

Presentation

Operator

(Operator instructions)

Deborah Strohmaier

Hello everyone. As a reminder you may follow this presentation on the web at Greif.com in the investor center under conference calls. If you don't already have the earnings release, it is also available on our web site. We are on slide 2. The information provided during this morning's call contains forward-looking statements.

Actual results or outcomes may differ materially from those that may be expressed or implied. Some factors that could cause the results or outcomes to differ are on slide 2 of this presentation and the company's 2007 form 10-K and in other company SEC filings as well as company earnings news releases.

As noted on slide 3, this presentation uses certain non-GAAP financial measures including those that exclude special items, such as restructuring charges and timberland disposal. Management believes the non-GAAP measures provide a better indication of operational performance and a more stable platform on which to compare the historical performance of the company than the most nearly equivalent GAAP data.

All non-GAAP data in the presentation are indicated by footnotes. Tables showing a reconciliation between GAAP and non-GAAP measures are available at the end of this presentation and in Greif's second quarter 2008 earnings release. I will now turn the call over to Chairman and CEO, Mike Gasser.

Mike Gasser

Thank you Deb. Good morning. Thank you for joining our conference call today. If you’re following our presentation on the web, please go to slide 4. We are pleased with the strong growth in net sales and profitability this quarter. We achieved solid organic sales growth, especially in Europe and the emerging markets for industrial packaging and benefitted from higher container board selling prices and paper packaging relative to the same quarter last year.

Our results continued to demonstrate the value of geographic diversity and the positive contributions from the Greif business system. We are also pleased to have raised the dividend this quarter in line with our policy of paying out approximately 30-35% of our net income. This markets the fifth consecutive year that the Board has raised the dividend and the third year in a row for such a substantial increase.

Now please go to slide 5. Like everyone else, we are dealing with increased cost for some raw materials, transportation and energy and a continuing uncertainty of the US economy. However, unlike everyone else, we implemented the Greif business system five years ago to help us navigate through times just like these.

Our continued discipline in becoming more efficient and controlling costs, managing prices and increasing diversity is serving us well as we confront the challenges that face us all. At the macro level, we are seeing the global growth opportunities for packaging accessories which includes closures, trans-protection products, barrier bags, paint, linings and other drum components.

This business is working strategically with sourcing and gelling nicely. We continued to ramp up our capabilities worldwide with training focus on leadership, finance and communications as well as operations. We believe our preparation on this front creates an advantage for us in the global competition for talent.

At the micro level, the planned shutdown of our mills for annual maintenance was successful and the mills are operating extremely well. The best in class benchmarking that we touched on last quarter is progressing well. We are gathering the data now which will help us identify best practices to be replicated at all like plants in our network.

Finally, with the surge in raw material costs, we’ve continued to use our commercial excellent tools and competencies to manage pricing to protect our dollars. On slide 6 you can see we remain on track to achieve our key 2009 financial performance targets. Executive Vice President and Chief Financial Officer Don Huml will now provide you with an update of our financial results.

Don Huml

Thank you Mike, good morning everyone, please go to slide 7. As you read in our earnings release, net sales increased by 13% or 7% on a constant currency basis. This was driven principally by higher sales volumes for industrial packaging and increased selling prices for container board.

On a year over year basis, operating profit before special items increased 30% to $89 million for the quarter. All three segments contributed to the operating profit with improved net sales and continued traction from the Greif business system.

Our effective tax rate for the quarter of 22.9% is down 70 basis points sequentially due to a favorable earnings mix shift. Net income before special items was $54 million, 38% higher than the same quarter last year.

Now on slide 8, this slide provides context for our results and documents their positive upward trend which we credit primarily to portfolio diversity and the continued execution of the Greif business system around the world.

Slide 9 shows the results for our industrial packaging segment. Net sales increased 14% or 7% on a constant currency basis to $748 million, largely due to higher sales volumes in most regions, with particular strength in Europe and emerging markets. Operating profit before special items increased to $64 million.

Improved net sales and execution of the Greif business system contributed to the increase. Now on slide 10, net sales for paper packaging increased $163 million from $153 million primarily due to higher container board selling prices relative to the same quarter last year.

Operating profit before special items was $14 million compared to $9.5 million last year, attributed to higher net sales and the Greif business system, partially offset by higher energy costs. We are encouraged by the recent container board price increase announcements but have not factored any into our guidance.

On slide 11, timber’s results were higher than last year due to the sale of special used properties and remains consistent with plan. Tactically, in response to the currently depressed demand for harvested timber products, we have shifted our mix more to monetizing special use properties.

The ability to adjust to market forces underscores the advantage of multiple revenue streams and options for unlocking the value of our timber portfolio. Now to slide 12, capital expenditures for the quarter were $40 million, the same as last year. And for 2008 are expected to approximate $125 million which includes expansion capital to support our emerging markets growth strategy.

Business trends remain favorable in industrial packaging, particularly outside of North America, stable to improving in paper packaging and timber assets continue to be monetized as panned. These factors coupled with benefits from the Greif business system are expect to contribute to a strong performance in the second half of 2008.

Therefore we are raising our 2008 guidance by $0.10 to $4.25 to $4.45 per class-A share which includes the $0.35 per class-A share impact from the first quarter net gain related to the divestiture of businesses. That concludes my formal remarks. You should now go to slide 13. Mike and I will be please to answer your questions.

Question-and-Answer Session

Operator

(Operator instructions) Your first question comes from Jim Lucas – Janney Montgomery Scott.

Jim Lucas – Janney Montgomery Scott

Could we talk a little bit about the end markets of what you’re seeing out there in terms of any that are doing much better than expected, maybe not performing the way and maybe not just from an end market but also a geography standpoint because it was particularly interest to hear that Europe is continuing to weep away.

Because we all read the same headlines and you know déjà vu that we had the same conversation three months ago, but would just be interested in kind of a quick synopsis of what you’re seeing out there.

Mike Gasser

As you know and we’ve said repeatedly, approximately two-thirds of our business goes into the chemical related field and about one-third goes into the food or food related industries. And generally our customers business is good. It’s very good outside the US right now.

Pretty good in the US in the Gulf Coast region and I think most of that is going because of export business and we all know the currency situation, so it is advantageous to export. So it is good in the Gulf Coast region right now. Food business is very strong as you would imagine.

We talked last quarter about our new business down in Latin American which was in the agro-chemical business and that’s strong, so we see food business being very strong. But generally you know our customers are doing well. Many of them have raised their annual guidance for the year, but I would say that’s probably driven a lot outside the US.

Jim Lucas – Janney Montgomery Scott

If you look within that, clearly the emerging market story has been there for some time. But in Western Europe in particular, you know again this is the same question last quarter but have you seen any hints of slowing anywhere or is it really that things are just going that well across the board?

Mike Gasser

We have not seen any slowing yet. Our volumes for Europe are still strong, they’re still mid to high single digits which was consistent with what we had the first quarter. Emerging markets are still growing at a solid double digit rate and the US is a low single digit. But the volumes in general in Europe, to answer that specifically are consistent with what we saw in the first quarter.

Jim Lucas – Janney Montgomery Scott

From a raw material standpoint, I mean clearly everybody is getting hit by material inflation, have you seen any indication by customers looking at potentially substitution of steel for plastic or vice versa?

Mike Gasser

Customers are getting hit like we are by many price increases, whether it would be raw materials in our case or drums in their case, it’s energy, it’s transportation, costs have gone up. Our packaging generally is a smaller component of the total cost. Now having said that, substitution is something that’s always out there. We have not seen any big change in that yet today.

There are certain products that will always be packaged in steel drums, just the compatibility issue, the safety issue, the strength issue. But it’s something we’re monitoring, something we have to look at. And it depends on what you believe will dictate how long you think steel will stay up versus the other high density polyethylene or paper which would be the other two raw materials that would compete with steel.

Mike Gasser

Could you bring us up to date on the timber strategy, just clearly we saw a little bit more monetized in this quarter but just where you stand, what the outlook for the second half of the year but going forward as well.

Don Huml

That’s a good question because we did have a significant special use property sale during the quarter. So we would not want you to annualize the year to date performance. One of the things we are doing is really reacting to the changing circumstances. Stumpage prices are down meaningfully year over year. So rather than continuing to sell harvesting rights, we basically have shifted to monetizing special use properties.

And so included on that line item is 8,800 acres that we sold in Canada and so I would look for the balance of the year for nominal gains on disposition of assets. We are going to expect some increased pricing traction and so operations are going to be really contributing to the expected strong performance in the second half of the year and once again very limited gains on disposal of assets.

Operator

Your next question comes from Mark Wilde – Deutsche Bank.

Mark Wilde – Deutsche Bank

If we can kind of loop back to that land sales question and you can give us just a little more color on that, maybe on that 8,800 acres and whether there was anything else in those land sales in the second quarter?

Don Huml

Yes, on the 8,800 acres, that’s in the Quebec area and it’s been property that we identified as special use back in August of 2006 when we really increased our focus on the HPU potential within our timber holdings. And that transaction resulted in about $1000.00 per acre, but quite frankly, there will be a further adjustment.

So it’s very attractive recreational land and we’ll continue to update you on the potential that exists. I think there has been an understatement of the value of our Canadian holdings because they really are quite attractive and have uses that will allow us to realize much more value than the value of the timber.

Mark Wilde – Deutsche Bank

Am I correct in recalling that an awful lot of that Canadian land is actually up in that lake country north of Toronto, is that right?

Don Huml

That is correct.

Mark Wilde – Deutsche Bank

So the stuff that you have in Quebec is probably a fairly small piece of the whole Canadian holdings?

Don Huml

That is correct.

Mark Wilde – Deutsche Bank

Is it possible to get some kind of an impact of the Greif business systems on the performance in the paper business? I mean you really, you did quite well there, about half of the sales gain fell down to the EBIT line which I think in light of the cost pressures that you must have been looking at on a year over year basis really is quite impressive. So what did you get in that business from the GBS do you think?

Don Huml

Well we really don’t break that out by segment. If you look across the company and clearly we’re getting a bit more in paper packaging because it’s been fairly recent that we’ve implemented the GBS. But one thing that I would point out, although overall the impact is a bit above what we had guided to, you may recall in our earnings guidance bridge at the beginning of the year, we indicated about $35 million in impact.

We are tracking a bit above that. So really looking at delivering $35-$40 million. And so about $10 million was the impact for the quarter. And there was meaningful impact within paper packaging. In the interest of full disclosure, we did have a little easier comparison.

You may recall last year we had a line breakdown at Riverville and we had to accelerate our annual maintenance and we incurred quite a bit of increased maintenance costs as a result of that. So some of that year over year improvement were costs we incurred last year that we didn’t have in this year’s quarter.

Mark Wilde – Deutsche Bank

In the paper in terms of the outlook, you said you are not assuming anything from this $55.00 a ton initiative that’s out there?

Don Huml

Yes we’re very encouraged. We will be looking to pulp and paper with the rest of the industry. We’re very supportive of the increase, it’s clearly justified based on the increased cost since the last increase. There is no question about that. Best case, we would see an impact in August, perhaps of 25%.

About 90% realization, again if the pricing initiative is successful with a full realization in October. That would be our expectations. In terms of the upside potential, it would be in that $3 to $5 million range. Recall our fiscal year end is October 31.

Mark Wilde – Deutsche Bank

So $3 to $5 million for this fiscal year?

Don Huml

Exactly.

Mark Wilde – Deutsche Bank

Sheet prices have been pretty messy around the country, what are you guys seeing over in core choice in terms of sheet pricing right now?

Mike Gasser

Sheet prices are pretty stable right now. Volumes are good at core choice and we’re not seeing that messiness in that region.

Mark Wilde – Deutsche Bank

In terms of the industrial packaging, I think you said you were up about 7% if we back out the currency effect. If you looked across that portfolio, how much did price or cost pass through contribute to that 7% would you guess?

Don Huml

Yes and again, we focus on the consolidated results. But since industrial packaging represents about 80% of the total, this may address your question, but we basically have, in fact on a consolidated basis, the 7% constant currency growth which is basically organic growth, 6% is volume and about 1% price.

What we’re seeing a lot, there were a lot of price increase announcements toward the end of our second quarter and we’re going to really see in the second half the impact from those. So it is going to very definitely be in evidence in the third and fourth quarter.

Operator

Your next question comes from Chris Manuel – Keybanc Capital Markets.

Chris Manuel – KeyBanc Capital Markets

Let me start with the steel resin issue that you were just talking about. By our math, year over year steel prices were up in the neighborhood of 40%. If you only had a little bit of price impact in there, that suggests to us, just some rough math that you might have been $20 million or so, $15-$20 million behind the curve in the quarter from a spread standpoint. Was the delta that significant and is there any reason to believe that as we steel stabilizes out later in the year that you won’t begin to catch up on that?

Mike Gasser

I think your math is pretty accurate of the 40%, so we would tend to agree with that math. Again the numbers that Don gave you on a consolidated basis too, so it’s hard to extrapolate based upon that. We focus pretty much on these rising price times to recoup the dollars and try to get the margin percent. But as the prices continue to go up, that’s become difficult.

As prices stabilize then the margins come back. And so we don’t have, we’re not concerned right now that we won’t recoup all of that. And as you know, we have a lot of raw material pass throughs in our contract, every contract has a raw material pass through.

There is a delay, depending on the contract of different amounts, but I think the team has done a nice job of passing through the costs in accordance with the contracts. But these are quite draconian times right now with steel and all raw materials going up as fast as they are.

Chris Manuel – KeyBanc Capital Markets

Would it be safe to assume that you’re still quite a bit behind passing through the steel just based to the quarterly timing of it?

Mike Gasser

There is a gap as of the end of April, you’re right. As of the end of this quarter, the results did have a gap and their increases did go out in May to offset that. But as of the end of April, yes there was a gap between the costs and the price increases.

Chris Manuel – KeyBanc Capital Markets

Was it different, would the gap have been greater or smaller in different regions around the world?

Don Huml

There are some regional differences. For example, in China, just to get a little bit granular, they use an index based on the leading steel producer, [Bose] Steel. It’s sort of a dysfunctional index, so in a rising cost environment it tends to understate the cost. Similarly, in a declining cost environment, it’s rather sticky.

So you’re going to have some of these regional differences. But if you look at what’s happened to the cost of steel globally, it’s not quite as draconian. And just to illustrated, up about one-third year over year, but when you look sequentially, it’s up 25%. So most of that increase has happened really rather recently.

Your point is well taken, we’re a little bit behind the curve because the one thing that’s unprecedented this time is the rapidity of the increases. But normally our quarterly reset is sufficient to keep us in line with the increases. But again, there was an increase in the frequency. And so you’ll see in the back half a bit of catch up.

Chris Manuel – KeyBanc Capital Markets

Can you give us a little more color on the delta business that you had acquired, the delta petroleum piece, you’ve had it now a little over a year. Can you maybe give us an update on in present type market conditions here in North America being a big sluggish, what have volumes been like there and are you pleased with the business? What do you think the opportunity is?

Mike Gasser

We’re very pleased with the progress we’re making in delta. As I’ve said previously, the sales cycle to replicate delta is a longer sales cycle, but once you make the sale you tend to have a lot better continuity in the sale because you actually get very intimate with your customer when you put a filling line within their location or tie them into a filling process.

Initially we went into that business as we said and we had to make some changes, we wanted to put the Greif business system into it. We wanted to get it to a position where it was replicable before we went out and grew the business. It’s at that point today where we believe it is replicable.

As I said previously, we’re having conversations and we’re getting more and more to the final stages of conversations with people to put the business in other places. So we’re generally very pleased. As far as the volumes, the volumes are quite strong in the delta business. And so from that standpoint we’re pleased.

So I think we still believe it is a growth arm for us, we still think that we will see in the not so distant future some additional expansion in that business. But it’s taking a little bit longer than we probably originally thought a year, year and a half ago.

Chris Manuel – KeyBanc Capital Markets

On the use of the cash, I saw you had raised the dividend. From here you know your debt levels are, I won’t say your balance sheet is grossly under levered but you’re getting to a point where you’re a bit under levered. How do you feel going forward of use of the cash, are the acquisition markets looking attractive to your right now? Share repurchase, things of that nature, can you help us with the pecking order?

Mike Gasser

We have I think historically talked about three different avenues for cash is to bring cash back to the shareholders in the form of cash dividends and some stock buy backs and I think our increase in dividend of about 39% is indicative of the Board’s view of the earnings.

We try to keep in the 30-35% of net income and this would be in that range, it might be in the lower end of that range but it would be in that range. You know debt payback, we’re still continuing to look at if it makes sense to pay some debt back. But growth is a big component of it and we believe that there’s opportunity for us to continue to grow the portfolio both in emerging markets and there are a lot of white spaces out there that we still can use to enhance the core business.

And so we believe there’s some good growth opportunities. Some will be organic, some will be green field in emerging markets and there could be some both on acquisitions to enhance our business.

Chris Manuel – KeyBanc Capital Markets

Don you had given us some updated numbers with respect to where you were with guidance. I think originally when you gave us, you had indicated $35 million, you’re now going to be a little above that.

At the same time you had originally given us some color that there would be about $15 million or similar to 07 levels of special item sale of timber dispositions and things of that nature. It looks like year to date you’re running ahead of that. Can you give us a little bit of an update here halfway through the year on where you think that shakes out?

Don Huml

As we discussed, the asset gains should not be annualized. We would expect a very modest contribution for the back half of the year. And the one, you mentioned a couple of positives to our original earnings bridge, we also have an increase in interest expense and some of that really is currency related as part of our risk management process, we have denominated debt in the currencies that our net assets are denominated in.

So with the strength of the Euro, the interest expense is up a bit. In funding the emerging markets growth strategy, we are funding in local currencies at a higher rate. So you will see that interest expense is up a little bit, so that is somewhat offset to the GBS impact.

Operator

Your next question comes from Jack Hain – Barrington Research.

Jack Hain – Barrington Research

Regarding segment operating profit margin in paper packaging, it was down a bit sequentially and you cite here in the release that OCC prices, energy and transportation costs all contributed there. I was just wondering if you could provide some sort of proportional breakout of the effect there. Is it mostly increases in OCC prices?

Don Huml

Yes in fact I’m glad you asked the question because I would like to make a comment about energy. While it was up, we did have the benefit of natural gas hedges in place and as part of that process, so we did mitigate some of the energy increase during the period. Now in subsequent quarters there’s going to be a ratcheting up as the hedge prices increase because those hedges are done on a very systematic basis. But on a quarterly basis we are putting those hedges in place.

So it definitely benefitted the second quarter less of a benefit in the back half of the year which clearly has been factored into the guidance that we have provided. But as far as the OCC or the old corrugated containers, that on a year over year basis is up a little over $10.00 per ton.

And we have some other material cost increases that would be on top of that. But it would be in that range. Just to refresh your memory in terms of the sensitivity we consume annually about 480,000 tons of OCC or waste paper and so for the quarter that would be an impact of about $1.5 million.

Jack Hain – Barrington Research

And you said that the newly revised outlook doesn’t make any assumptions about the $55.00 per ton price initiative, but what other assumptions are in there as far as raw materials pricing? Do you expect prices to stabilize, to come down?

Mike Gasser

Well we expect steel to continue to go up and starting in May and early June they have, so we anticipate that. High density polyethylene is trending up and we anticipate that and we’re looking at a flat OCC market at this point in time.

Jack Hain – Barrington Research

Could you add any more granularity to the $7.3 million in restructuring charges?

Don Huml

As we stated at the beginning of the year, the restructuring activities would be primarily related to acquisition integration and for the quarter we have provided for the closure of two steel drum plants, one in Canton, Mississippi and the other in Alsip, Illinois. And that’s really part of a rationalization of capacity following two tuck in acquisitions. And by the way, of that amount, 40% is cash and 60% would be a non-cash impairment of assets.

Operator

Your next question comes from Bob Franklin – Prudential Financial.

Bob Franklin – Prudential Financial

You mentioned earlier that about two-thirds of the business was chemical and one-third food. You were talking about the industrial side at that point?

Mike Gasser

That’s correct.

Bob Franklin – Prudential Financial

Do you have a sense of where those chemicals end up, what the end uses are?

Mike Gasser

I think it varies across the envelope, I wouldn’t be in a position here to try to articulate all of that. We could get that for the next meeting.

Bob Franklin – Prudential Financial

I was trying to figure out if there was one particular sector of the economy that for any reason goes dead that would be a good leading indicator.

Mike Gasser

No, it’s pretty broad. It’s very broad, so I think that you probably couldn’t come up with anything in that direction.

Bob Franklin – Prudential Financial

Do you have similar kind of statistics on the paper packaging side?

Don Huml

The focus really is more on the industrial side as opposed to the consumer.

Bob Franklin – Prudential Financial

And is most of your paper packaging business in North America?

Mike Gasser

It’s all North America.

Operator

Your next question comes from Chris Manuel – Keybanc Capital Markets.

Chris Manuel – KeyBanc Capital Markets

I think the last few days you were meeting with the team and doing your strategic update for the balance of 08 and into 09. Are there any key takeaways that you can share with us?

Mike Gasser

Yes we are in the final phases of our strategy review and actually this week we actually had a two and a half day Board meeting with our Board members and presented the strategy document to them. First of all I was very, very pleased and excited about what the team has come up with. We have a team made up of individuals from all over the world who were on the strategy team.

It’s been about six and a half, seven months working on it and probably a little over 9,000 man hours. So the reason I’m giving you those statistics is just to show you this was a very holistic review. And so it was quite in depth. The Board gave us their input. They’re pleased. They’re quite excited about what we’re coming up with.

I would say the next conference call we probably can go into some of the details to share it with you. But as a highlight of it, I mean we’re excited because they found a lot of opportunities in the core business. So whether it would be white spaces or emerging markets, so that’s exciting. And so the future of Greif is quite exciting right now.

When you look at the three components that you really need to have a successful company, one is do you have the people and with Dave Fischer as our new President and Mike Patton taking on an increase responsibility in North America and Ivan Signorelli running Europe, Gary Martz running timber, Ron Brown running sourcing. You know we truly have a great group of people today to lead us forward.

Then the second step you look at is do you have the process? And the Greif business system has been proven to us over the last five and a half years that it is a good process. And so we’re excited about that. And then the third component is do you have the vision? And I think this strategy document is really going to allow us to continue to be a growth oriented profit oriented company in the space that we elect to play in.

So it’s exciting, I would encourage you to hang on. We’re very excited about what we’ve come up with.

Operator

Your final question comes from Mark Wilde – Deutsche Bank.

Mark Wilde – Deutsche Bank

I wonder if it would be possible to go back to page 6 to those targets that you sent out some time ago for 2009. And just walk us around the four metrics that you focused on in those 2009 targets and how you feel about hitting each one of those bogeys by 2009?

Don Huml

Let me start with the real positive and that is that we are showing that the operating working capital to sales ratio target has been achieved. I would say that the return on net assets is a comprehensive performance metric. The one that arguably is most closely correlated with share price and we are very confident that we’re on track to deliver the target of 25%.

The operating profit margin, that is where we have the largest gap and we clearly will be challenged. One of the things that we have done is really in our road map to the 2009 targets, we have translated operating profit margin into an equivalent operating profit in dollars.

The $450 million on a same structure basis and basically have reaffirmed our commitment to delivering the dollars and one of the things that is really making that a bit problematic is we have as Chris Manuel referred to is hyper-inflation in raw material costs.

And the one thing that we’re very pleased with is the ability to pass through those cost increases. But there is likely to be some margin erosion in that process. But we can deliver the dollars, we’re going to do whatever we can to mitigate any margin contraction. And I really do think in delivering the dollars and the returns that we’re going to create the value. But we do need to hedge a little bit on the operating profit margin target.

Mark Wilde – Deutsche Bank

The SG&A number where it seems like you’ve kind of plateaued out in the kind of 9.5% range the last several range. And your target is quite a bit below that.

Don Huml

Yes and the focus is really, the initial SG&A optimization initiative, we reduced by one-third our expenses. And that was a pretty draconian process. We have indicated that we’re really going to achieve the 7.5% through leveraging our SG&A infrastructure.

So really the focus is creating scalability through common business processes and standardized systems. So we’re very far along in adopting a standard ERP system and that is really going to be creating the scalability and as we continue to grow the top line, we feel we’re going to be in a position to deliver the 7.5% target. That one, we would look at really on a run rate basis at the end of 2009.

Mike Gasser

That one we will have to have the top line growth which we would anticipate would come during that period of time.

Operator

There are no further questions.

Deborah Strohmaier

Thank you all again for joining us this morning. As a reminder, this call will be available for replay from noon today and ending at 11:59 pm ET on Monday. The playback telephone number is 800-405-2236 for domestic callers and [phone] for international callers. The pass code is 11103000#. A digital replay of the conference call will also be available in approximately one hour on the company’s website at www.Greif.com. We appreciate you joining us this morning, have a great day.

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