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Edited Transcript of SLGN earnings conference call or presentation 29-Jan-20 4:00pm GMT

Q4 2019 Silgan Holdings Inc Earnings Call

STAMFORD Feb 5, 2020 (Thomson StreetEvents) -- Edited Transcript of Silgan Holdings Inc earnings conference call or presentation Wednesday, January 29, 2020 at 4:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Adam J. Greenlee

Silgan Holdings Inc. - President & COO

* Anthony J. Allott

Silgan Holdings Inc. - CEO & Chairman of the Board

* Kimberly I. Ulmer

Silgan Holdings Inc. - VP of Finance & Treasurer

* Robert B. Lewis

Silgan Holdings Inc. - Executive VP & CFO

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Conference Call Participants

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* Adam Jesse Josephson

KeyBanc Capital Markets Inc., Research Division - Director and Senior Equity Research Analyst

* Anthony James Pettinari

Citigroup Inc, Research Division - VP and Paper, Packaging & Forest Products Analyst

* Arun Shankar Viswanathan

RBC Capital Markets, Research Division - Senior Equity Analyst

* Brian P. Maguire

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Clyde Alvin Dillon

Vertical Research Partners, LLC - Partner

* Daniel Dalton Rizzo

Jefferies LLC, Research Division - Equity Analyst

* Gabrial Shane Hajde

Wells Fargo Securities, LLC, Research Division - Associate Analyst

* George Leon Staphos

BofA Merrill Lynch, Research Division - MD and Co-Sector Head in Equity Research

* Ghansham Panjabi

Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

* Kyle White

Deutsche Bank AG, Research Division - Research Associate

* Mark William Wilde

BMO Capital Markets Equity Research - Senior Analyst

* Tyler J. Langton

JP Morgan Chase & Co, Research Division - Research Analyst

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Presentation

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Operator [1]

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Thank you for joining the Silgan Holdings Fourth Quarter 2019 Earnings Results Conference Call. Today's call is being recorded.

At this time, I'd like to turn the call over to Kim Ulmer, Vice President, Finance and Treasurer. Please go ahead.

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Kimberly I. Ulmer, Silgan Holdings Inc. - VP of Finance & Treasurer [2]

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Thank you. Joining me from the company today, I have Tony Allott, Chairman and CEO; Bob Lewis, EVP and CFO; and Adam Greenlee, President and COO.

Before we begin the call today, we would like to make it clear that certain statements made today on this conference call may be forward-looking statements. These forward-looking statements are made based upon management's expectations and beliefs concerning future events impacting the company and therefore, involve a number of uncertainties and risks, including, but not limited to, those described in the company's annual report on Form 10-K for 2018 and other filings with the SEC. Therefore, the actual results of operations or financial condition of the company could differ materially from those expressed or implied in the forward-looking statements.

With that, I'll turn it over to Tony.

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Anthony J. Allott, Silgan Holdings Inc. - CEO & Chairman of the Board [3]

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Thank you, Kim. Welcome, everyone, to Silgan's 2019 Year-end Earnings Conference Call. It's funny, I feel like we were just here talking with one another. And unfortunately, I doubt my cough has gone yet. So hopefully, you'll bear with me through it.

I want to start by making a few comments about the highlights of 2019 and provide a brief update regarding our 2020 outlook. Bob will then review the financial performance for the full year and the fourth quarter and provide more details around our 2020 outlook. Afterwards, as usual, Bob, Adam and I will be pleased to answer any questions.

As covered in our press release, 2019 was a good year for the company. We had record financial performance and several milestones. These included: delivering net income per diluted share of $1.74; delivering record adjusted net income per diluted share of $2.16; generated free cash flow of $271.7 million or $2.44 per diluted share; providing a yield on our year-end stock price of 7.9%; completing the issuance of our 4.125% senior notes due 2028; reviewing several long-term metal container contracts; initiating a multiyear metal container footprint optimization effort to continue our relentless pursuit to take costs out of our operations; increasing the cash dividend by approximately 10%; and continuing the acquisition portion of our growth plan with the announcement of a binding offer to acquire Albea's dispensing business.

We're pleased with the performance of our businesses in 2019. We delivered another record year of growing adjusted earnings per share by 3.8% to $2.16, in spite of significant session headwind and the negative impact of tariff-related costs and market volatility. While there were lot of moving parts in the year, we're pleased with the outcome. Our metal container business improved on an adjusted basis despite anticipated lower volumes due to prior year pre-buys and lower pension income.

Given the understandable focus on food can volumes, let me review what we have said relative to volumes and what has occurred. In 2018, we indicated that we had benefited by a little over 200 million cans purchased ahead of the expected 2019 metal price increases. We indicated in this call a year ago, that the reversal of this pre-buy, which would impact comparisons in Q1 and Q4 of 2019, would have a 3% negative impact on our full year 2019 volumes. We also expect that the overall food can market to see a consistent 1-year impact.

Further, at the start of the year, we indicated a large pack customer would likely continue to cull some business and work off inventories, leading us to expect an aggregated 4% decline in U.S. food can volumes in 2019 -- our U.S. food can volumes in 2019.

In the first and second quarters of 2019, we indicated that that specific customer was still working down inventories, but not retreating market share, so we believed our decline would be only 1% to 2%. In the end, we were down only 1% for the year, representing real growth when adjusted for the impact of the pre-buy.

This result is better than the overall can market for the reasons we also have historically highlighted, namely that Silgan is more represented in the growing can categories and less so in the categories which have been declining.

So we believe 2019 stands as confirmation of our expected trend around Silgan's volumes. Therefore, we see no surprises in our volume information on how it compares with industry totals.

Moving on, the plastic container business posted another solid year-over-year improvement with volume growth and excellent cost control. Adjusted for the negative pension impact, the EBITDA margin achieved our multiyear target of 15%, and we expect more progress to come.

Our closures business was down for the year in adjusted operating profit, but driven by previously discussed items, including lower pension income, unfavorable currency -- foreign exchange currency and the impact of weaker seasonal pack volumes for metal closures.

The Dispensing Systems business had volume growth for the year and is operating at profitable levels well ahead of its pre-acquisition model.

Our businesses are also well positioned in 2020 with several key initiatives underway to drive profitability in 2020 and beyond. We expect growth in our closures and plastic businesses as a result of volume gains and continued cost efficiencies. In the metal container business, we expect little change in profitability as modest volume growth and pension benefits are expected to be offset by the unfavorable impact of lower average selling prices due to lower metal costs and approximately $15 million price impact from renewals of certain significant customer contracts. Many of you may recall that we had a similar price impact 6 years ago as we renewed a large group of contracts, 6 years being a relative period of average to our contracts. Therefore, we view this as a fairly normal process in our food can business.

We also announced an expanded footprint optimization plan in our metal container business which is targeted to reduce capacity by more than 0.5 billion units and we continue to drive further cost reductions with the intended closing of 6 plants, 2 of which were closed in 2019.

Finally, as we announced on Monday, we've entered into a binding offer to acquire the dispensing business from Albea Group, which will enhance our product line and provide further opportunity to grow our closures business.

As Bob will discuss in more detail, we're providing full year guidance for adjusted earnings per diluted share in the range of $2.28 to $2.38. The midpoint of the range represents an 8% increase over 2019. We also expect free cash flow to be around $275 million.

With that, I'll turn it to Bob.

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Robert B. Lewis, Silgan Holdings Inc. - Executive VP & CFO [4]

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Thank you, Tony. Good morning, everyone. As Tony highlighted, 2019 benefited from several strategic initiatives, which leave our businesses well positioned for 2020 and beyond. As a result, in 2019, we delivered adjusted earnings per diluted share of $2.16, and we delivered free cash flow of $271.7 million, in line with our target.

On a consolidated basis, net sales for the year were $4,490,000,000, an increase of $41 million or 0.9% over the prior year. This increase was the result of revenue increases in metal containers, partially offset by lower sales in the closures and plastics businesses. We converted these sales to net income for the year of $193.8 million or $1.74 per diluted share as compared to the 2018 net income of $224 million or $2.01 per diluted share.

In 2019, adjusted earnings per share benefited by adjustments that increased earnings per share by $0.42 for restructuring charges, costs attributable to announced acquisitions and a loss on early extinguishment of debt. Adjustments increasing earnings per share in 2018 totaled $0.07, including rationalization charges and loss on early extinguishment of debt. As a result, adjusted net income per diluted share was $2.16 in 2019 versus $2.08 in the prior year.

Interest expense before loss on early extinguishment of debt decreased $10.6 million to $105.7 million primarily due to lower average outstanding borrowings, lower weighted average interest rates and the favorable impact of foreign currency. In addition, we incurred a loss on early extinguishment of debt of $1.7 million in 2019, resulting from the redemption of the 5 1/2% senior notes in August of 2019, and $2.5 million in 2018 as a result of the redemption of all the remaining 5% senior notes in April of 2018 and the amendment of the senior secured credit facility in May of 2018.

Our effective tax rate was 23.1% and 23.6% in 2019 and 2018, respectively.

Full year capital expenditures totaled $230.9 million in 2019, which is slightly higher than anticipated as a result of certain capital projects associated with the expanded footprint optimization plan in metal containers and capital investments in 2018 totaled $191 million.

Additionally, we paid a quarterly dividend of $0.11 per share in December. The total cash cost of the dividend was $12.2 million. And for the full year, we returned $50.8 million to shareholders in the form of dividends.

As outlined in Table C, we generated free cash flow of $271.7 million, $2.44 per share versus a record $311.4 million or $2.79 per diluted share in the prior year. The reduction in the year-over-year free cash flow is primarily due to higher CapEx and the sizable working capital benefit in the prior year.

I'll now provide some specifics regarding the financial performance of each of the businesses. The metal container business recorded net sales of $2,470,000,000, up $95.2 million versus the prior year. This increase was primarily due to the pass-through of higher raw material and other manufacturing costs, partially offset by lower unit volumes of approximately 1%, unfavorable foreign currency translation of approximately $16 million and a less favorable mix of products sold. The reduction in the unit volumes was principally due to the unfavorable impact in the current year of the fourth quarter 2018 pre-buy and lower volumes from fruit and vegetable customers, principally offset by continued growth in pet food as well as higher volumes in soup.

Segment income for the metal container business was $160 million, a decrease of $38.8 million versus the prior year. This decrease was primarily attributable to $44.1 million of higher rationalization charges, lower pension income, lower unit volumes and a less favorable mix of products sold. These decreases were partially offset by production efficiencies in the U.S. due in part to the favorable impact from a larger amount of finished goods inventory produced in the current year.

Rationalization charges of $49.4 million were largely a result of a Phase 1 of the footprint optimization plan and the withdrawal from the Central States Pension Plan (sic) [Central States Pension Fund]. Rationalization charges in 2018 totaled $5.3 million.

Net sales in the closures business were $1.4 billion in 2019, a decrease of $51.2 million versus the prior year. The decrease was primarily the result of unfavorable foreign currency translation of approximately $34 million; the pass-through of net lower raw material costs; a less favorable mix of products sold and lower unit volumes of approximately 1%. Unit volumes declined principally as a result of weakness in the fruit and vegetable pack and the unfavorable impact in the current year of the fourth quarter 2018 pre-buy. These declines were partially offset by higher volumes in dispensing systems.

Segment income in the closures business for 2019 decreased $16.4 million to $173.5 million primarily due to increased rationalization charges of $6.3 million, principally related to the announced shutdown of the facility in Spain, lower pension income, the unfavorable impact of foreign currency translation, a less favorable mix of products sold and lower unit volumes. These headwinds were partially offset by lower manufacturing costs and the favorable impact from the lagged pass-through of lower resin costs in 2019 as compared to an unfavorable impact from higher resin costs in the prior year.

Net sales in the plastic container business decreased $3 million to $611.1 million in 2019, principally due to the pass-through of lower raw material costs and the unfavorable impact from foreign currency translation of approximately $3 million, partially offset by higher volumes of approximately 2%.

Segment income increased $6.3 million to $48.9 million for the year, largely attributable to higher volumes, lower manufacturing costs, the prior year unfavorable impact from the start-up cost of the Fort Smith, Arkansas facility and a more favorable mix of products sold, partially offset by lower pension income.

Taking a quick look at the fourth quarter. We reported earnings per diluted share of $0.31 as compared to $0.34 in the prior year quarter. We recorded adjustments increasing income per diluted share by $0.07 in 2019 and by $0.04 in 2018. As a result, we delivered adjusted earnings per diluted share of $0.38 in each of the fourth quarters of 2019 and 2018.

Net sales for the quarter were $1,050,000,000 down $22.2 million versus the prior year, driven primarily by lower volumes in the metal container and closure businesses due largely to the unfavorable impact in the current year period for the fourth quarter 2018 pre-buy; the pass-through of lower resin cost in the plastic container and closures businesses and the impact of unfavorable foreign currency translation of approximately $6 million. These decreases were partly offset by the pass-through of higher raw material and other manufacturing costs in the metal container business; a more favorable mix of products sold in the closures business and slightly higher volumes in the plastic container businesses.

Income before interest and income taxes for the fourth quarter of 2019 decreased $5.9 million to $71.4 million primarily due to lower unit volumes in the metal container and closures business, lower pension income, $3 million of higher rationalization charges, $1.8 million of costs attributable to announced acquisitions and unfavorable foreign currency transactions of approximately $1 million in the closures business. These declines were partially offset by production efficiencies in the metal container business due in part to an increase in finished goods inventory produced in the current year period versus a significant reduction in inventory produced in the prior year quarter; a more favorable mix of products sold in the plastic container and the closures businesses and the unfavorable impact of costs associated with the start-up of Fort Smith in 2018 as well as higher volumes in the plastic container business, which also benefited the quarter.

Interest expense for the fourth quarter 2019 decreased $4.3 million to $23.4 million as a result of lower weighted average interest rates and lower average outstanding borrowings. The effective tax rate for the fourth quarter of 2019 was 27.5% as compared to 23.1% in 2018.

As we look at 2020, our estimate of adjusted earnings per diluted share for 2020 is a range of $2.28 to $2.38, the midpoint representing an 8% increase over the record adjusted earnings per share of $2.16 for the full year 2019. This estimate does not include any impact from the recently announced binding offer for Albea's dispensing systems.

Reflected in our estimates for 2020 are the following: segment income in the metal container business is forecast to benefit from higher pension income, anticipated higher volumes and continued manufacturing improvements. These benefits are expected to be offset by the impact from the renewal of certain significant customer contracts. And in the closures business, we expect to benefit from higher pension income, anticipated higher volumes and manufacturing efficiencies.

We're expecting the plastic container business to benefit from higher pension income, anticipated volume gains and again, manufacturing efficiencies. In addition, we expect interest expense to decline versus 2019, largely a result of lower average interest rates and lower average outstanding borrowings.

We currently expect our tax rate to be approximately 24% as compared to the effective rate of 23.1% in 2019. Also we expect capital expenditures in 2020 to be approximately $200 million, down from 2019, but slightly higher than anticipated as we have allocated some spending to the expanded footprint optimization plan in metal containers. In addition, our guidance also includes a recovery of nearly all of the $20 million decline from 2019 for pension, and this recovery is spread across all of the businesses.

We're also providing our first quarter 2020 estimate of adjusted earnings in the range of $0.45 to $0.50 per diluted share, excluding rationalization charges. This compares to $0.46 in the first quarter of 2019. These benefits exclude rationalization charges, costs attributable to announced acquisitions and loss on early extinguishment of debt. And the estimates for the quarter also exclude any impact for the recently announced binding offer to acquire Albea's dispensing business.

Based on our current outlook for 2020, we expect free cash flow to be approximately $275 million, virtually unchanged from 2019.

That will conclude our prepared remarks. So I'll ask Stephanie -- I'll turn it back to you and let you provide directions for the Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Mark Wilde with Bank of Montreal.

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Mark William Wilde, BMO Capital Markets Equity Research - Senior Analyst [2]

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I wondered if -- wonder you could just help us in thinking about the 2020 increase in can volumes, where that's coming from. Because it seems like you're going to continue to be taking capacity out of the market, but I know you've also invested in the pet food can business through '19. So if you can just kind of help us as we think about kind of volumes in that business?

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Adam J. Greenlee, Silgan Holdings Inc. - President & COO [3]

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Sure. Mark, it's Adam. There's a couple things really driving the outlook that we have for 2020 on food can volume, particularly in the U.S. market. The first being that we don't have the negative impact of the Q4 2018 pre-buy. So we're looking for a more normalized year from an overall volume standpoint.

Secondly, as we spent a pretty good amount of time at our Investor Day, and we've had a lot of dialogue on these calls about how -- as Tony mentioned, we are heavily weighted to some of the growth categories of food can. So items like pet food and protein, we're going to continue to see growth. And even if you go back to our Investor Day, we said at some point, you could see that growth outweighing the general moves of the market for the food can business. So those are our 2 big items.

A third one I'd give you is our soup volumes. I think what you've seen in the last 2 quarters, certainly are positive trends on soup. We're not sure exactly where that's going to go, but we like what we see right now from a promotional activity standpoint. And the soup story will continue to play out as we head through the first quarter of the year.

Finally, we've talked a lot about pack-related volumes. There's 2 components there. The first being, look, the shelf life of a can -- of a filled can with either fruits or vegetables from pack-related volumes are 2 to 3 years on the shelf. And so our customers can manage inventory of [poor] packs over the course of a 2- or 3-year period. But at some point, that volume is going to have to catch up. And that's what we've seen historically.

So it's a little rare for us to see a continued bad pack momentum of, say, more than 2 years. So we are thinking that we're going to have a more normal pack this year.

The last component of that is the one customer that we've been talking about for some time now, is now through their inventory reduction program and their usage will be more reflective of our volumes to them. And so we don't think there's a lot of downside in that volume. In fact, there might be a little bit of upside. So the answer to your question, we've got a lot of moving parts.

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Anthony J. Allott, Silgan Holdings Inc. - CEO & Chairman of the Board [4]

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I think -- Mark, Tony, and then the capacity part, you sort of added on to that. I would just say that what we're doing is, as you point out, we had added 2-piece capacity as we added a plant a couple years ago. We had been indicating we were going to take some 3-piece capacity out over time. So really, that's what's happening is we're just -- we're honing some access from our system. But as you know, Silgan has not been out there trying to sell and fill that capacity. Our whole strategy is growing with our customers, et cetera. So really, there's no connection between the capacity coming out and our ability to meet the growth of our customers.

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Mark William Wilde, BMO Capital Markets Equity Research - Senior Analyst [5]

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Okay. And then Tony, if I could just a follow-on, on that. Are the 4 remaining can plants that you've announced today, are they all domestic plants? And can you maybe just give us a little color on what has changed in the last 6 months? Because I think you announced those other 2 closures back in June.

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Adam J. Greenlee, Silgan Holdings Inc. - President & COO [6]

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Mark, it's Adam, again. Again, we're still evaluating exactly which plants are going to be considered for the plant closures. As Tony mentioned in the prepared remarks, we're really targeting a certain amount of excess capacity that we have now on our 3-piece can-making equipment. And so that is primarily a domestic situation. But we've got a variety of plants that we're looking at. As Tony said, we're always looking to take costs out of our manufacturing footprint and better optimize it to meet the unique needs of our customers. So primarily domestic, and we'll be talking more about this as we go forward through the course of the year as the evaluation is completed and we move forward.

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Anthony J. Allott, Silgan Holdings Inc. - CEO & Chairman of the Board [7]

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And the only that's change is, in -- as we got through all of these contract negotiations, we had more clarity to what our requirements were going to be for the next coming 5 years or so.

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Operator [8]

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(Operator Instructions) Our next question comes from Anthony Pettinari with Citigroup.

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Anthony James Pettinari, Citigroup Inc, Research Division - VP and Paper, Packaging & Forest Products Analyst [9]

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On the footprint rationalization initiative, is there any way to quantify benefits from fixed cost reduction, if any?

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Anthony J. Allott, Silgan Holdings Inc. - CEO & Chairman of the Board [10]

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Sure. Again, as I said, we're really targeting a capacity reduction. I think as you translate that back to kind of the direct cost associated with the business, we're thinking in a broad-base now that overall savings will be something like $18 million a year in the ballpark of that kind of magnitude when complete.

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Anthony James Pettinari, Citigroup Inc, Research Division - VP and Paper, Packaging & Forest Products Analyst [11]

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Okay. Okay. And then just shifting to plastics. I mean the segment's been recovering pretty nicely for, I think, 3 years now. How do you think about that business' margins exiting 2019 and maybe sort of the incremental opportunities in that business?

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Adam J. Greenlee, Silgan Holdings Inc. - President & COO [12]

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Sure. Again, I'll just say, it's been a journey with the plastics business, and we feel really good about where we have ended now. In 2019, as Tony mentioned, we did achieve the 15% EBITDA margin goal that we had set several years ago when you normalize for the impact of the lower pension income. So what we had always said is once we achieve that rate and get our cost structure where we want it to be and our footprint where we want it to be, it'll be about filling the assets, it'll be about growth in kind of the existing footprint for the most part, on the existing assets.

So we're now probably turning the corner where we are looking for more growth out of this business. They've done a very nice job, positioning themselves in the market. The footprint and the cost structure is right, and now we're going to be looking for more growth across that footprint.

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Operator [13]

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Our next question comes from Chip Dillon with Vertical Research Partners.

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Clyde Alvin Dillon, Vertical Research Partners, LLC - Partner [14]

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Could you talk a little bit about the acquisition of the dispensing business? And you mentioned that -- on Monday, the $20 million in [expected] synergies. And I was wondering kind of how do you think about those in terms of being sort of cost rationalization synergies versus commercial opportunities? Does that include commercial opportunities? And also what should we assume as the cost of the debt for that deal?

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Robert B. Lewis, Silgan Holdings Inc. - Executive VP & CFO [15]

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Yes. Chip, this is Bob. Yes, so as we said, roughly $20 million of synergies is the target. Some of that is coming from the procurement side. When we put all these businesses together, there's an aggregation there that we think we can benefit from. There will be some SG&A opportunities there as we get the businesses consolidated. There's some opportunity to synergize best practices across the plants, which we'll provide it. But what we have not done in the synergy count is assumed any kind of commercial synergy. These are purely cost plays that really from the -- as we said on that call, historic playbook of how we attack synergies. So nothing new there.

In terms of the debt profile there, obviously we've got it committed with a delayed draw term loan, which, admittedly, is at relatively low interest rates these days. We'll see what the fundamental capital structure looks like as we come through that acquisition. So I would say that it's going to be -- on a comparative basis, it's going to be a relatively low cost of debt, but it will be probably somewhere in the 3.5% to 4% kind of range.

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Clyde Alvin Dillon, Vertical Research Partners, LLC - Partner [16]

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Got you, got you. And then just a quick follow-up. When you look at the sort of -- you're involved in a number of areas that involve plastics. And obviously, we've heard a lot of arguments or not arguments, but a lot of concern about plastics in a very general big picture sense. And I know in the past, you all have made moves to help promote the food can. Are you involved in any efforts to impact the perception of the carbon footprint or other aspects of -- or advantages of plastic-based packaging?

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Adam J. Greenlee, Silgan Holdings Inc. - President & COO [17]

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Chip, it's Adam. We work very closely with our customers. And certainly, they're involved in a wide variety of initiatives on packaging in general and specific to plastic packaging as well. So we support them. We don't have any really direct involvement with any agencies or entities around plastic packaging that are directly related to our customers.

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Operator [18]

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Our next question comes from Ghansham Panjabi with Robert W. Baird.

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Ghansham Panjabi, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [19]

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First off, I guess as part of your contract negotiations on the metal food side, did you pick up any new volume as part of the price give-back?

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Adam J. Greenlee, Silgan Holdings Inc. - President & COO [20]

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Ghansham, it's Adam. No. Again, some of those contracts are with products and customers that have growing categories. So as Tony mentioned earlier, again, our growth usually comes through our existing customer base. So it does allow for growth, but nothing new, if you will.

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Ghansham Panjabi, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [21]

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Okay. And then going back to the Albea acquisition. Obviously, the coronavirus is in the news now and duty-free is being -- is going to be impacted with travel, et cetera. Do you have a sense as to how big that end market is for Albea's portfolio business?

And then separately, on your free cash flow guidance of $275 million, what do you have embedded in there for working capital?

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Anthony J. Allott, Silgan Holdings Inc. - CEO & Chairman of the Board [22]

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So the -- on the duty-free question, we're not going to get into kind of the subsets of channels they sell into. I think it is fair to say both for their business and our business, duty-free is a part of the duty sale, as you well know. The -- so I think that's the simple answer.

I think the bigger answer to your question is that, while we anticipate there could be some temporary impact to travel, our view is that that's going to be more in the temporary nature and it's not long term. If it's a long-term issue, then I think the whole world has changed. And I think we're going to see that across every industry we look at. So it is a part of both of our businesses. It would have some impact temporarily, but that's kind of our view on it.

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Robert B. Lewis, Silgan Holdings Inc. - Executive VP & CFO [23]

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Yes. Ghansham, I'll take the free cash flow. So as we said, $275 million is the target for next year. There's puts and takes there, including a modest benefit from working capital. But the main driver as to why the free cash flow is not up year-over-year is the fact that we're going to have an incremental tax -- cash tax payment that's required and that is essentially a result of inventory accounting for tax purposes. So it's -- to get technical, it's the impact of LIFO accounting around tax payments. So it's a onetime hit, if you will. It's not a permanent cash flow item on a go-forward basis.

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Operator [24]

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Our next question comes from Gabe Hajde with Wells Fargo Securities.

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Gabrial Shane Hajde, Wells Fargo Securities, LLC, Research Division - Associate Analyst [25]

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With regard to the contracts, can you give us a sense for what portion of the business was renegotiated? And not getting into anything specific, but just how much more there might be to do on a go-forward basis? And the $15 million, I think, that you called out in terms of a headwind, is that all going to hit in 2020? Or is that something that would be a couple year headwind?

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Adam J. Greenlee, Silgan Holdings Inc. - President & COO [26]

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Good question. So a couple things. As Tony said, this is kind of normal for our metal container business and the -- jumping into the contracts that we're specifically talking about, the average tenure of those agreements that we just renegotiated, we have about 7 years on those agreements. It represents about 40% of our 2020 revenue. So if you take that $15 million of cost that Tony talked about, you're roughly talking about an average of something close to 2% as far as a price impact. So that is the 2020 impact of -- the $15 million is the 2020 impact of those renegotiations.

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Anthony J. Allott, Silgan Holdings Inc. - CEO & Chairman of the Board [27]

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So a big chunk of our business, and we would consider this much more of a normal process for us that we kind of get near the end of contracts. We tend to give some price in that, some incentive to the customer, and then what we tend to do is try to work from there to get ourselves in a position to take costs out, which is exactly what we're lined up to do here as well.

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Gabrial Shane Hajde, Wells Fargo Securities, LLC, Research Division - Associate Analyst [28]

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Right. But you guys have also talked about trying to outrun inflationary pass-through on the go-forward years. Okay.

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Adam J. Greenlee, Silgan Holdings Inc. - President & COO [29]

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That's right.

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Anthony J. Allott, Silgan Holdings Inc. - CEO & Chairman of the Board [30]

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Exactly.

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Gabrial Shane Hajde, Wells Fargo Securities, LLC, Research Division - Associate Analyst [31]

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Maybe, Bob, a question for you on the tax side. This year, as you pointed out, was abnormally low. It sounds like 2020 might be a little bit higher. And I'm going to try to weave in a question about Albea. Is that an asset purchase, such that you get the benefit of the step-up in [basis]? And then is there a way to think about sort of what a normalized cash tax rate might look like?

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Robert B. Lewis, Silgan Holdings Inc. - Executive VP & CFO [32]

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Yes. There's a lot in that. But yes, so as we bring in Albea, I think we will -- there's still some work to do, but the thought is that we'll probably end up with perhaps a slightly higher tax rate, just given the international exposure there. Obviously, it's going to be muted by the fact that you're bringing in higher tax in a larger portfolio. So I don't see a significant change one way or the other from that perspective. I think our tax rate moves around to your earlier point, just based on various true-ups in certain jurisdictions, and that's all we really felt in the year. So I wouldn't read anything into that change.

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Anthony J. Allott, Silgan Holdings Inc. - CEO & Chairman of the Board [33]

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And I would just say, I don't think -- I think if you characterize '19 is unusually a low tax year, I think what we're really talking about is that '20 is going to be an usually high cash tax year because of this inventory impact...

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Robert B. Lewis, Silgan Holdings Inc. - Executive VP & CFO [34]

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Right.

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Anthony J. Allott, Silgan Holdings Inc. - CEO & Chairman of the Board [35]

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Which basically is onetime. And theoretically, that's something you would get cash benefit for some time in the future as you liquidate that inventory. So it's kind of prepaying, if you will, that tax, but it's not a recurring cash-type item. It's a onetime cash item.

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Operator [36]

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Our next question comes from Kyle White with Deutsche Bank.

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Kyle White, Deutsche Bank AG, Research Division - Research Associate [37]

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Just focusing on the capacity reduction, just curious what your view is on supply-demand and the overall industry following the excess capacity that you take out? Do you view it as kind of balanced? Or how much more do you think could be taken out from others?

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Adam J. Greenlee, Silgan Holdings Inc. - President & COO [38]

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Sure. Kyle, good question. I think as we work through the capacity reduction on our side obviously it's not fully addressing the overcapacity in the market. So we think that's something around 1 billion units of excess capacity that remains in the market, and that will continue to be in the market until further reduction efforts are made.

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Kyle White, Deutsche Bank AG, Research Division - Research Associate [39]

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And I think in the Q1 guidance, you talked about a shift in volumes, particularly in metal containers going from the first half to third quarter. Just a little bit more details on this. And why is this occurring? And then any way to kind of size this as well?

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Adam J. Greenlee, Silgan Holdings Inc. - President & COO [40]

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Sure. So it really is related to one of the agreements that Tony had mentioned as far as the renegotiation of a long-term contract. And essentially, what this does is it takes a supply of cans that we have to a pack customer that we typically ship to all year long and they store those cans. We're now moving to more of a just-in-time relationship of supply of those cans. So doesn't really change when we make the cans, if you will, but we'll be shipping the cans more in the pack season versus shipping cans to them all year long. So it really is first half to second half, that shift and it's going to be shipments around the timing of the pack season. Probably a bigger impact in Q2, but it will also impact Q1 as well.

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Operator [41]

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The next question comes from George Staphos with Bank of America.

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George Leon Staphos, BofA Merrill Lynch, Research Division - MD and Co-Sector Head in Equity Research [42]

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I had a couple of questions, some shorter term and then some bigger picture, longer-term questions, guys. So first question, just more of a net-net type of question. When I look at the press release, in metal containers, we have $44.1 million of higher rationalization charges that are called out and then a little bit later on, there's $49.4 million. I'm probably missing something, but what's the variance between those 2? Because they seem to come from the same source, the rationalization charges.

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Robert B. Lewis, Silgan Holdings Inc. - Executive VP & CFO [43]

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Yes. I'm not exactly following with you, George. I think what...

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George Leon Staphos, BofA Merrill Lynch, Research Division - MD and Co-Sector Head in Equity Research [44]

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Well, you said in the press release, $44.1 million...

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Robert B. Lewis, Silgan Holdings Inc. - Executive VP & CFO [45]

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You are not talking about the total because there is -- the difference -- the charge and then there's the difference between the years. And the charge is the $49 million and the difference in the year is the $44 million.

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Adam J. Greenlee, Silgan Holdings Inc. - President & COO [46]

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I think that's right.

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George Leon Staphos, BofA Merrill Lynch, Research Division - MD and Co-Sector Head in Equity Research [47]

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Okay. Okay. Got it. The second question I had, on the free cash flow of $275 million, I know you have the CapEx with the footprint rationalization in that. But do you have cash outlays yet related to any of the employment adjustments that you might make in that $275 million already? Or in theory, would that be something we need to account for later on? Or would that be happening later on past the forecast period anyway because just of the nature of these sorts of things?

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Robert B. Lewis, Silgan Holdings Inc. - Executive VP & CFO [48]

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Yes. Well, I think the answer to that, in short, is yes. So we'll have some of that that will impact 2020, and that is in our guidance for the period. That will be a relatively small number. And again, remember that this is a 3-year project here. So some of that will roll forward from there. Nothing meaningful in the 2020 time frame.

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George Leon Staphos, BofA Merrill Lynch, Research Division - MD and Co-Sector Head in Equity Research [49]

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Okay. Bigger picture question, as you've gone through this renegotiation with your customers. And yes, this is a normal sort of process for Silgan over the years. Given that you -- maybe more than anybody else in terms of food cans in North America, you've been the most stable, largest, most focused on providing metal containers for the food market in North America. And you've had other players come in and out of the market. Is that giving you any ability to perhaps get better terms over time and make these renegotiations perhaps less pressurized early on in the tenure of the contracts than what we've seen in the past? Or is that still something that has to happen down the road as more of this excess capacity comes out of the market?

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Anthony J. Allott, Silgan Holdings Inc. - CEO & Chairman of the Board [50]

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Yes. So George, it's a good question. I would broadly say that there's not a huge change. I mean without doubt, the point that we would stress to our customers is we are the long-term player in this market. We are focused. We continue to invest for technology, sustainability, other opportunities. And so without doubt, that's still the focus. You can imagine that our customers, of course, hear conversation of excess capacity and want to use that as a going to get leverage on us in the process. So I would say the net of all that is kind of a balance, which is why kind of a 2% down, makes perfect sense in that environment. So broadly the terms seem to be similar or the length seem to be similar. The negotiations have -- different items discussed, but every negotiation has tension on both sides. And so that's -- we really wouldn't characterize it as massively different than the past.

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George Leon Staphos, BofA Merrill Lynch, Research Division - MD and Co-Sector Head in Equity Research [51]

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Understood. I mean look, it's easier being an analyst and running a company, as you guys do, but at the end of the day, you're the company that's had the most staying power. You're the ones who have been investing in the food can. And there's always excess capacity in the food can business, just because of the nature of the manufacturing process. So I would imagine, hopefully, over time, that's something that you can and should get leverage for.

My last question, I'll turn it over. It seems like maybe it's a good time that we're now in 2020 to look back at Can Vision 2020. And can you remind us how you think that program played out? What were some of the learnings? What went well for you? What maybe didn't go as well as expected? We look at the food can EBIT, it's kind of flat to down over that period of time, but a lot of that's been pension, some other things. How would you grade Can Vision 2020?

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Anthony J. Allott, Silgan Holdings Inc. - CEO & Chairman of the Board [52]

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Great. Thanks, George. So let's go back and remind ourselves. The Can Vision 2020 was always put out there as value out to our customers. We always were clear that it's not an urgent push for us. But what it did for us and it certainly did is it allowed us to extend contracts in order to get at these big projects, et cetera. So first of all, that seems to have worked. We've retained our customers through this time. We got long-term contracts. But again, the idea was to drive value to our customers who had this problem with large box retailers, and they couldn't get priced through, et cetera. So without doubt, they -- our customers had a benefit, a lot else has happened that time as we've talked about, right? You had new competition coming to market, you've wild volatility in our raw materials. So there's been a lot of moving parts. But without doubt, value was delivered to our customers through those programs and those efforts and allow them to get cost out.

They would like more, and we're going to continue to try to find ways to do that. But -- so we're pleased with how that program worked out. Our focus on taking costs out and making the can more competitive never stopped. So even though we had a name, the Can Vision 2020, we're still out there right now trying to find ways to take cost out, make can more sustainable, make our customers more competitive. So in a way, it goes on. But we're pleased with the way we calculated that and took it as a more broad program to our customers.

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Operator [53]

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Our next question comes from Adam Josephson with KeyBanc Capital Markets.

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Adam Jesse Josephson, KeyBanc Capital Markets Inc., Research Division - Director and Senior Equity Research Analyst [54]

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Bob, just on pension for a moment. I think a year ago at this time, you called out a $0.13 drag on your '19 earnings guidance from pension. I think you said earlier that the gain in '20 will be almost as much as what you lost as the $0.13. Could you just give us a precise number for '20?

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Robert B. Lewis, Silgan Holdings Inc. - Executive VP & CFO [55]

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Yes. Well, I tried to give you as precise an estimate as I could. So that $0.13 is the $20 million. So the lion's share of that $0.13 is coming back in the year. And again, it's going to be spread basically on the same percentage or the same dollar amount than it was in the prior year. So the lion's share of that, roughly half is going to the containers business, and then the other half being split between plastics and closures.

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Adam Jesse Josephson, KeyBanc Capital Markets Inc., Research Division - Director and Senior Equity Research Analyst [56]

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Perfect. In terms of the cash cost associated with the 6 food can plant closures that you're planning. I know, Bob, you talked about some of those being in your '20 guidance. But can you give us any sense as to roughly kind of what level of cash cost you're anticipating over the next 3 years as a result of that program?

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Adam J. Greenlee, Silgan Holdings Inc. - President & COO [57]

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Sure. Adam, it's Adam. As we are still in the evaluation phase right now, we're thinking that number is going to be roughly $25 million over the course of the next 2 years.

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Adam Jesse Josephson, KeyBanc Capital Markets Inc., Research Division - Director and Senior Equity Research Analyst [58]

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Over the next 2 years, okay.

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Anthony J. Allott, Silgan Holdings Inc. - CEO & Chairman of the Board [59]

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Additional to what we did in 2019.

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Adam J. Greenlee, Silgan Holdings Inc. - President & COO [60]

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Yes. And again, I said the last 2 years, but to Tony's point, 2019 was the first year of the 3-year program.

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Adam Jesse Josephson, KeyBanc Capital Markets Inc., Research Division - Director and Senior Equity Research Analyst [61]

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Right, right. You closed them toward the end of the year.

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Adam J. Greenlee, Silgan Holdings Inc. - President & COO [62]

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Yes.

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Adam Jesse Josephson, KeyBanc Capital Markets Inc., Research Division - Director and Senior Equity Research Analyst [63]

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In terms of the 0.5 billion cans that you're planning on eliminating, can you just remind us what -- roughly what percentage of your food can capacity that represents?

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Adam J. Greenlee, Silgan Holdings Inc. - President & COO [64]

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Yes. We've got calculator.

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Anthony J. Allott, Silgan Holdings Inc. - CEO & Chairman of the Board [65]

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It's like a 3%, something in that range.

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Adam J. Greenlee, Silgan Holdings Inc. - President & COO [66]

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Right.

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Adam Jesse Josephson, KeyBanc Capital Markets Inc., Research Division - Director and Senior Equity Research Analyst [67]

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Okay. And then once you've done that, Tony, the 3% or so how would you think about the industry's capacity at that point, supply-demand balance? Obviously, there's overcapacity at the moment, you're going to be acting to reduce that. Once you get rid of this 3%, would you expect the industry to be balanced at that point? Or do you still expect there to be just hangover from what's been added over the past few years?

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Anthony J. Allott, Silgan Holdings Inc. - CEO & Chairman of the Board [68]

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I think Adam said, I think we still think there's probably something like 1 billion units out there. In a way, we really don't think of this as changing it because we have not been in the business of trying to sell this capacity. We -- as we shifted some things from 2 piece -- from 3 piece to 2 piece, we added 2-piece capacity, and we indicated that we need to take 3-piece capacity out. But we weren't out trying to sell that. That, by the way, is not our -- nature of our business. What we try to do is supply our customers, so our customers grow in the marketplace.

So I think while it does -- it tightens the overall access, I just want to be clear, it's not that it was out there chopping up the market, it really wasn't. And so we still think there's probably roughly 1 billion out there. And I got to say, we don't -- we're speculating that number. Nobody -- there's no reporting of that. But that would be our view right now.

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Adam Jesse Josephson, KeyBanc Capital Markets Inc., Research Division - Director and Senior Equity Research Analyst [69]

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Right. No, I appreciate it. And just one last one, Tony. Just -- you announced the acquisition on Monday, and you talk about how it's going to increase your closures, sales and EBITDA and reduce your food can sales and EBITDA. And then you announced this plant closure program and the lower food can prices. So one could jump to the conclusion that you're trying to run away from food cans, and I know that's not the way you see it. So could you just kind of frame everything that you've announced this week for us in terms of how you think about the direction in which the company is heading toward closures and away from food cans?

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Anthony J. Allott, Silgan Holdings Inc. - CEO & Chairman of the Board [70]

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Great. That's a great question. Yes, so you're right. I'd say -- definitely we'd say we are not running from food cans. I would say that we're -- again, that's why we started Monday's presentation just talking about how we view value creation. So again, without going through the Silgan slogans, I mean we really do have this view that if you have strong businesses that generate a lot of cash, that's really valuable. And we consider the food can exactly that. It's our highest cash-returning business that we have. We invest in it to keep it there. So I don't want to make -- leave any impression that we're running to making the right investments.

In fact, taking these 6 plants out is a way to invest in that business and make it stronger and better for the future. So item one before we get anything other deployment cash, we make sure we take care of our knitting in our franchise businesses and the food can is that.

The second thing is that we then take that money and we get to choose where we invest in, and we really think that the dispensing side of the world has been a great one for us. The business we bought from WestRock has performed very well, well above where we bought it plus synergies, so we're highly accretive on what it's done. We like where it's growing and kind of the product development and the people. So really, it's nothing more than -- we see an opportunity to do what Silgan has always done, which is to make investments in rigid packaging businesses that we like.

The last thing I'd say, there's a lot of talk about sum of parts, et cetera, and certainly, we think you have to look at Silgan in the future with if 50% is in dispensing you have to consider that, if food cans is something. But our point is not suggesting that a business needs to be broken down into elements. Silgan has always been in multiple businesses. These are all in rigid packaging. These are all things we know. The skill set that we as a team bring to rigid packaging adds value to all of these businesses.

One of the things we do is a lot of shared capabilities. Some of our businesses are really good at marketing, and they're sharing those marketing efforts with the food can side, which is left on that. Some are really good at product development. We're sharing that to try to get in other areas. The food can business is incredible, consistent operator of their plants. We're sharing those skills. So there is power that comes from all of these and it's worked for Silgan in the past, and will continue to do so.

So absolutely not, it's not a run from can at all. I think we've been trying to be very clear with you, and I'll try to say again, our feelings are there are elements in food can that absolutely have been declining. We are not running from that. That's absolutely the case. It's why we are more in areas where the growth is better because we saw it, knew it and reacted to it. There are areas that food can is absolutely are growing, and we see opportunities there. The net of that might be flat.

I think we made the point, we think the growing become bigger, and so you'll get a little bit of growth over time. So -- but whether it's flat or up 1% or down 1%, we still like the food can business. It's a great area to get return and cash generation. But also we like other areas where we can invest other skills that we have like marketing and product development and most importantly, across all these as customer service.

One of the other hallmarks is still going to be measured carefully is how well we service the needs for our customers. And that is important in all these markets. So again, it's not a run from food can, it's a play on the skills that we have and then deploying cash, and we think it can create the most value for shareholders.

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Operator [71]

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Our next question comes from Daniel Rizzo with Jefferies & Company.

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Daniel Dalton Rizzo, Jefferies LLC, Research Division - Equity Analyst [72]

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Just 1 quick question. You mentioned that the next phase for plastic containers kind of shipping to growth to kind of help with future margin expansion. I was just wondering if you can point out where specifically you think the growth will come from.

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Adam J. Greenlee, Silgan Holdings Inc. - President & COO [73]

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Sure. Dan, it's Adam. And really what I was talking about there is what we had said previously is once we got to the 15% EBITDA margin, really, that's kind of a sustainable level in the rigid plastic packaging world. So we're looking at growth I don't know if it's a margin expansion beyond the 15% or not, that's kind of our target where we think the market is. But the growth will come through kind of our core markets, things like food, pet food, personal care, health care, et cetera. But it's really not margin expansion. It's just more of what we do on the fixed assets that we have servicing that market.

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Robert B. Lewis, Silgan Holdings Inc. - Executive VP & CFO [74]

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Dan, this is Bob. One thing I might add to that is, don't walk away with the idea that that business has not been growing because we've had actually really nice growth for many quarters now in that business. Likewise, it's not so much, we're kind of past the sort of the big cost takeouts, and now it's just running this business efficiently and gaining those efficiencies in the operating side on a continual basis. And we'd be happy at this margin with incremental volume coming through the system.

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Adam J. Greenlee, Silgan Holdings Inc. - President & COO [75]

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So that 2% to 3% volume that we've been seeing on a pretty consistent basis, that's what we're looking for going forward.

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Robert B. Lewis, Silgan Holdings Inc. - Executive VP & CFO [76]

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Exactly.

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Daniel Dalton Rizzo, Jefferies LLC, Research Division - Equity Analyst [77]

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Okay. And then with soup, I think having like the second or third quarter kind of improving, I was wondering if this is a sustainable turnaround, and how long do you think it has legs for.

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Adam J. Greenlee, Silgan Holdings Inc. - President & COO [78]

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I think it's very early days, so it is really just 2 quarters. Which are positive trends? I would say what were -- the activities that we see right now into Q1 are consistent with what we've seen in the last 6 months. So we're not quite declaring victory yet, but we'll see how the first quarter plays out with soup.

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Operator [79]

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(Operator Instructions) Our next question comes from Tyler Langton with JPMorgan.

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Tyler J. Langton, JP Morgan Chase & Co, Research Division - Research Analyst [80]

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Adam, I think you mentioned, right, for 2020 in metal containers, sort of 40% of the business was renewed and like 7 years on those contracts. Do you have a rough sense of...

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Adam J. Greenlee, Silgan Holdings Inc. - President & COO [81]

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Yes.

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Tyler J. Langton, JP Morgan Chase & Co, Research Division - Research Analyst [82]

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Yes, do you have -- I mean for, I guess, for 2021, do you have a rough sense for how much of the business could be up for renewal as well as 2020?

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Adam J. Greenlee, Silgan Holdings Inc. - President & COO [83]

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No. I don't -- just offhand here. I think that, again, there's just a normal churn that happens within the business. Our large contracts are on, again, a longer-term basis. I don't think that we have anything that's coming up that's really significant in '21, as we sit here today.

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Anthony J. Allott, Silgan Holdings Inc. - CEO & Chairman of the Board [84]

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I think it's -- 75% of contracts are 2022 and beyond.

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Adam J. Greenlee, Silgan Holdings Inc. - President & COO [85]

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And beyond.

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Tyler J. Langton, JP Morgan Chase & Co, Research Division - Research Analyst [86]

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Got it. Okay. That's helpful. And then just with closures, I guess, for 2019, volumes were down 1% for the year. Could you just give -- I guess provide a little detail on sort of what you saw within sort of -- in sort of legacy closure business and Dispensing Systems and just kind of how you view those markets for this year?

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Adam J. Greenlee, Silgan Holdings Inc. - President & COO [87]

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Sure. Again, you heard Tony mention earlier that we were really pleased with the performance of the Dispensing Systems business. And maybe just jumping into the fourth quarter, our Dispensing Systems had a nice quarter. They were up almost 3% on the quarter versus prior year. And really, what we had was the impact of the pre-buy on the metal closures segment, mostly related to pack items for our metal closures, both in Europe and in North America. So on a full year basis, again, good growth at Dispensing Systems. The pre-buy impact of metal closures muted everything else that was going on in the closures segment from a volume standpoint.

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Tyler J. Langton, JP Morgan Chase & Co, Research Division - Research Analyst [88]

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Okay. And then just, I guess, for 2020, do you kind of expect dispensing and sort of the other legacy businesses to kind of a post positive volume increase?

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Adam J. Greenlee, Silgan Holdings Inc. - President & COO [89]

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Yes. We are looking for good growth in all components of our closures business in 2020.

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Operator [90]

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Our next question comes from Arun Viswanathan with RBC Capital Markets.

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Arun Shankar Viswanathan, RBC Capital Markets, Research Division - Senior Equity Analyst [91]

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Just a couple of questions. I guess just this last question on soup. So yes, we have seen some positive trends here. I guess just wanted to get your thoughts on the quarters, Q4 is a little bit muddy on the can side, just given the pre-buy last year. But as you've seen the quarter just kind of turned out in metal, would you expect, I guess, continued improvement? I know that there's a lot of moving parts with the pack and so on, but how are you guys thinking about metal containers through the year?

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Anthony J. Allott, Silgan Holdings Inc. - CEO & Chairman of the Board [92]

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You faded out there a little bit. You're talking about how do we feel about metal containers around soup for the year?

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Arun Shankar Viswanathan, RBC Capital Markets, Research Division - Senior Equity Analyst [93]

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Well, just for the business, any quarterly commentary, I guess, outside of the pack? I'm just asking because of the Q4 comparison being a little bit off because of the pre-buy.

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Anthony J. Allott, Silgan Holdings Inc. - CEO & Chairman of the Board [94]

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Got it. Sure. I think again we continue to feel good about the food can business. I think we did explain and go through quite a bit of detail about Q4 and the moving parts there. I think as we go forward into next year, we are expecting modest growth in the food can business, and it's going to be driven by our categories in pet food and protein soup. We feel pretty good about in the pack business we talked about as well. So the only thing I would say in 2020 around the quarter -- the quarterization of the food can volume is the shift from the first half to the second half of the one-pack customer that we talked about earlier.

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Robert B. Lewis, Silgan Holdings Inc. - Executive VP & CFO [95]

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Yes. I might add one more to that, Arun. In that -- you might remember, in 2019, we had the tomato pack that ran a little bit late into fourth quarter and then it came up a bit short. So I would say if we're expecting a normal pack, you drag that back into Q3.

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Arun Shankar Viswanathan, RBC Capital Markets, Research Division - Senior Equity Analyst [96]

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Okay. And then I was just wanting to get your thoughts in, I mean couple years ago, there was a talk about soup converting into plastic pouches. And just given the ESG trends that we've all been hearing about, has there been any retraction from that and back into metal containers that you're hearing from your customers?

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Adam J. Greenlee, Silgan Holdings Inc. - President & COO [97]

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No. I don't think so. I don't think it ever moved far enough away from the food can to have a meaningful impact. Therefore, moving back, didn't do much either. So I just -- I think, look, these are all incubation ideas, and we were talking earlier here just about -- typically, we talk about things that are commercial and that are actually results of what our customers are doing in the marketplace. So I think we didn't see a significant move to alternative packaging away from the can, particularly in soup.

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Anthony J. Allott, Silgan Holdings Inc. - CEO & Chairman of the Board [98]

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But I do think the soup customers and I think broadly, our customers are feeling better about the can than they were. So I don't think -- we're not here to tell you they're launching new stuff, et cetera. But I think they're holding their heads higher about can being a really good environmentally sustainable package. And 3 or 4 years ago, that may have been -- that they were more conscious of other marketing ideas and getting to a new generation with new packages, et cetera. I think that is on balance, a little less interesting to them.

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Adam J. Greenlee, Silgan Holdings Inc. - President & COO [99]

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Right. And I think the idea that the fact, I should say that food can is the most recycled consumer package in the U.S. market does have some staying power right now with our customers and with consumers in general. So I think there is some messaging that's getting closer to the consumer about the infinitely recyclable attributes of the steel food can.

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Arun Shankar Viswanathan, RBC Capital Markets, Research Division - Senior Equity Analyst [100]

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And then -- sorry to harp on this. But just another thing on cans and soup. Do you think promotional activity has played into this at all, i.e., and maybe even consumers considering their pocketbooks. Are -- is there any kind of trade down going on into lower price point products or promotions on soup or any kind of other canned products that's driving volume there?

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Adam J. Greenlee, Silgan Holdings Inc. - President & COO [101]

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Well, the one thing I would say is I think over time, what we've seen is when there are promotions in can food, it does move volume. So there is a lot of promotional activity right now in the soup market. And A, we like it; B, we think it's having an impact. So I don't know that there's a trade down per se. But again, they're promoting and they are talking about soup as part of consumers' everyday eating habit. So it seems to be working, and it's driving volume in the category.

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Operator [102]

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Our next question comes from Brian Maguire with Goldman Sachs.

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Brian P. Maguire, Goldman Sachs Group Inc., Research Division - Equity Analyst [103]

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I just wanted to be clear on the -- we already discussed this a lot. I just wanted to be clear on it, the $15 million or 2% sort of contract renegotiation. That just steps down once the beginning of the contract and then it just sort of stays flat at that level for the duration. You have all the pass-throughs and everything else, but I just want to make sure there aren't like continued de-escalators through the life of the contract on pricing.

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Adam J. Greenlee, Silgan Holdings Inc. - President & COO [104]

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Sure. For the most part, that's exactly right. So obviously, we have our normal pass-through mechanisms for inflation or deflation. The only thing that I would say that might vary over time is these are volume-based contracts. So volume if increases substantially, there would be more value to our customers and vice versa. If volume would decrease, there would be less value. So -- but you've got it pretty much...

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Anthony J. Allott, Silgan Holdings Inc. - CEO & Chairman of the Board [105]

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Which is historically normal.

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Adam J. Greenlee, Silgan Holdings Inc. - President & COO [106]

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That's not a new point.

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Brian P. Maguire, Goldman Sachs Group Inc., Research Division - Equity Analyst [107]

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Right, right. Okay. And then just the point about timing on some of the cans. I understand you had a customer that wants to move to maybe just-in-time system, it'll be something you'll be making in a warehousing in a little bit. All else equal, I guess that is pretty neutral for you. I guess we should just think about it from a modeling point of view, there will be a little bit more seasonal use of working capital as a result of that just as a due course of making it and then recognizing the revenue and cash flows.

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Adam J. Greenlee, Silgan Holdings Inc. - President & COO [108]

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Yes. I don't think it's much of a change in the working capital standpoint. I think it's more about just when profits are realized on the volume sales of the product.

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Brian P. Maguire, Goldman Sachs Group Inc., Research Division - Equity Analyst [109]

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Okay. The cash flow would have -- is still coming in at the same time as it would have historically eventually been?

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Anthony J. Allott, Silgan Holdings Inc. - CEO & Chairman of the Board [110]

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Right.

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Robert B. Lewis, Silgan Holdings Inc. - Executive VP & CFO [111]

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That's correct.

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Brian P. Maguire, Goldman Sachs Group Inc., Research Division - Equity Analyst [112]

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Yes. Okay. Got it. And just a cleanup one. Any -- Bob, any thoughts on the D&A for 2020?

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Robert B. Lewis, Silgan Holdings Inc. - Executive VP & CFO [113]

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Yes. There's nothing rolling off. So I think if you just make your -- nothing significant rolling off, I should say. So it's just basically the additional capital that we put in will change it. So it will be probably up a little bit on a year-over-year basis, but nothing material.

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Anthony J. Allott, Silgan Holdings Inc. - CEO & Chairman of the Board [114]

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Which, remember, on a new business like the partial closures that's been recently acquired, that's more additive because you don't have anything rolling off. So you get a little bit more of the addition in that case.

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Brian P. Maguire, Goldman Sachs Group Inc., Research Division - Equity Analyst [115]

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Okay. Yes, when Albea comes in, obviously these will all change a lot, I'm sure. But yes, just from a base business point of view, sort of flat to slightly up a little bit.

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Operator [116]

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Our final question will come from Gabe with Wells Fargo Securities.

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Gabrial Shane Hajde, Wells Fargo Securities, LLC, Research Division - Associate Analyst [117]

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Trying to make it quick. With metal coming down, did you -- I'm assuming after we talked about volumes 7x this -- should have come up. But if not, was there any delay of purchases from in Q4 of '19 in the first half of 2020 in anticipation of lower deal costs?

And then second, Bob, if I missed it, I apologize. Did you give specific volumes for the fourth quarter by segment? And if you did not, could you please?

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Adam J. Greenlee, Silgan Holdings Inc. - President & COO [118]

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Sure. I'll take the second question first. This is Adam, Gabe. For the fourth quarter volumes, again, I think we talked a little bit about closures. We'll start there first. Volume was down, call it, 1%. And again, that good growth in dispensing of, call it, 3% being offset by the challenges we talked about in the metal closure volumes.

On the plastic side, again, another really good quarter for the plastics business. We saw a little over 1% growth year-over-year in the fourth quarter. And then in food cans, again, a lot of moving parts, but we were down -- sorry, I'm just grabbing it. We were down about 6%, all told, with the impact of the pre-buy.

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Robert B. Lewis, Silgan Holdings Inc. - Executive VP & CFO [119]

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Which was expected.

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Adam J. Greenlee, Silgan Holdings Inc. - President & COO [120]

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Which was expected.

On your steel question, there's -- you do a little along on the edge, but there's just -- we buy so much steel. There's not a lot you can do around that and nor does the steel companies have a lot of interest in that. So not a big point there.

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Operator [121]

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Thank you. That is all the questions we have. I'd like to now turn it back to our presenters for closing remarks.

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Anthony J. Allott, Silgan Holdings Inc. - CEO & Chairman of the Board [122]

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Great. Thank you, Stephanie. Thank you, everyone. We appreciate your time, and we look forward to talking to you about our first quarter late in April. Have a good day.

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Operator [123]

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Thank you. Ladies and gentlemen, this concludes today's presentation. You may now disconnect.