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Edited Transcript of SLGN earnings conference call or presentation 24-Oct-18 3:00pm GMT

Q3 2018 Silgan Holdings Inc Earnings Call

STAMFORD Nov 8, 2018 (Thomson StreetEvents) -- Edited Transcript of Silgan Holdings Inc earnings conference call or presentation Wednesday, October 24, 2018 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Adam J. Greenlee

Silgan Holdings Inc. - Executive VP & COO

* Anthony J. Allott

Silgan Holdings Inc. - President, CEO & Director

* 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, LLC, Research Division - Analyst

* Brian P. Maguire

Goldman Sachs Group Inc., Research Division - Equity Analyst

* Daniel Dalton Rizzo

Jefferies LLC, Research Division - Equity Analyst

* Deborah Anne Jones

Deutsche Bank AG, Research Division - Director

* Edlain S. Rodriguez

UBS Investment Bank, Research Division - Director and Equity Research Associate, Chemicals

* 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

* Mark William Wilde

BMO Capital Markets Equity Research - Senior Analyst

* Salvator Tiano

Vertical Research - Analyst

* Scott Louis Gaffner

Barclays Bank PLC, Research Division - Director & Senior Analyst

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Presentation

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Operator [1]

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Thank you for joining the Silgan Holdings Third Quarter 2018 Earnings Results Conference Call. Today's call is being recorded.

At this time, I would 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 call today, I have Tony Allott, President and CEO; Bob Lewis, EVP and CFO; and Adam Greenlee, EVP 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 2017 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. - President, CEO & Director [3]

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Thanks Kim. Welcome everyone to our third quarter earnings conference call. Our agenda for this morning will focus on the financial performance for the third quarter, review our outlook for 2018 for the remainder of the year. And then after that, Bob, Adam and I'll be pleased to take any questions.

As you saw in the press release, we delivered adjusted earnings per diluted share of $0.76 for the third quarter, an increase of $0.10 per share or 15% versus the prior year quarter, and in line with our expectations. This improvement was largely attributable to continued volume growth and solid operational performance in our plastic bottle business, and improvement in the closure business as a result of year-over-year synergy benefits and growth in the target markets of Dispensing Systems in the U.S. single-serve beverage markets.

These benefits were partly offset by the negative impact from a 6% volume decline in our metal container business.

Similar to the second quarter, these declines were driven by one seasonal customer working down inventories and deselecting certain business, a closure of a fruit processing plant on the West Coast, and the competitive loss of a previously discussed customer.

Additionally, soup volumes were low in the quarter due primarily to one customer. Our metal container business did a good job controlling costs in light of these lower volumes.

Based on our year-to-date results and our outlook for the fourth quarter, which includes the unfavorable impact of lower overhead absorption resulting from a planned inventory reduction, we're narrowing the range of our full year estimate of adjusted earnings per share to $2.03 to $2.08. The midpoint of this range represents a 25% increase versus prior year earnings.

With that, I'll now turn over to Bob to review the financial results in a bit more detail, and provide additional explanation around our earnings estimates for the rest of the year.

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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, we delivered quarterly results within our expectation and 15% above the prior year quarter. Both our plastic container and closures businesses performed well in the quarter. Despite lower unit volumes for the quarter, the metal container business did a good job controlling costs, and benefited from not reducing inventory in the quarter. The full inventory reduction is now planned for the fourth quarter of 2018.

The quarter also benefited from lower interest expense and a slightly lower tax rate.

On a consolidated basis, net sales for the third quarter of 2018 were $1.3 billion, an increase of $40.1 million as each of our businesses had higher sales for the quarter.

Net income for the third quarter was $84.7 million or $0.76 per diluted share compared to third quarter of 2017 net income of $72.4 million or $0.65 per diluted share.

There were no adjustments to earnings per diluted share in 2018. And 2017 included acquisition costs for a total increase to adjusted earnings per share of $0.01. As a result, we delivered adjusted income per diluted share of $0.76 in 2018 versus $0.66 in 2017.

Interest and other debt expense for the third quarter 2018 decreased $2.4 million to $28.2 million, primarily due to lower weighted average outstanding borrowings, largely as a result of the partial prepayment of acquisition borrowings at the end of 2017.

Capital expenditures for the third quarter of 2018 totaled $43.3 million compared with $42.9 million in the prior year quarter.

Year-to-date capital expenditures totaled $134.6 million versus $124.2 million in the prior year. Additionally, we paid a quarterly dividend of $0.10 per share in September with a total cash cost of $11.4 million.

I'll now give some specifics regarding each of the businesses. The metal container business recorded net sales of $797.8 million for the third quarter of 2018, an increase of $25.4 million or 3.3% versus the prior year quarter. This increase is primarily a result of the pass-through of higher raw material and other manufacturing costs and a more favorable mix of products sold, partially offset by lower unit volumes of approximately 6%. And the impact of unfavorable foreign currency translation of approximately $1 million.

Volumes were down due to the continued impact of previously announced customer initiatives, including inventory adjustments at a seasonal customer, a customer plant closure in the fruit market and a competitive loss of a smaller lower margin customer, as well as lower soup volumes in the quarter.

Segment income in the metal container business was $86.9 million for the third quarter of 2018 versus $92.2 million in the same period a year ago. The decrease in segment income was primarily due to lower unit volumes and higher freight expense, partially offset by the contractual pass-through of indexed inflation versus a contractual pass-through of indexed deflation in the prior year quarter, a more favorable mix of products sold and foreign currency transaction losses in the prior year period.

Net sales in the closure business increased $3.5 million to $360.8 million for the quarter, primarily due to the pass-through of higher raw material costs, partially offset by the impact of unfavorable foreign currency translation of approximately $1 million.

Segment income in the closures business for the third quarter of 2018 was $47.3 million, up $2 million versus the prior year quarter. This improvement was primarily a result of lower costs largely due to synergies realized from the Dispensing Systems acquisition, and a more favorable mix of products sold, partly offset by the unfavorable impact of the lagged pass-through of higher resin costs.

Net sales in the plastic container business were $148.4 million for the third quarter of 2018, an increase of $11.2 million versus the prior year quarter. This increase was largely due to the pass-through of higher raw material costs and a 3% improvement in volumes, partially offset by the unfavorable impact of foreign currency translation of $1 million.

Segment income increased $2 million to $8.5 million for the third quarter of 2018. This increase is primarily attributable to higher volumes and lower manufacturing costs, partially offset by the unfavorable impact from the lagged pass-through of higher resin costs and costs associated with the startup of the Fort Smith, Arkansas facility.

Turning now to our outlook for 2018. Based on our year-to-date performance and the outlook for the fourth quarter, we are narrowing our estimate of adjusted net income per diluted share from a range of $2.03 to $2.13 to a range of $2.03 to $2.08 per diluted share.

This estimate excludes the impact from certain items outlined in Table B of our press release.

At the midpoint of our range, the estimate reflects a 25% increase versus the prior-year adjusted net income per diluted share of $1.65. We're also providing a fourth quarter 2018 estimate of adjusted earnings in the range of $0.34 to $0.39 per diluted share, which excludes -- which includes approximately $15 million of unfavorable impact from lower overhead absorption resulting from the planned inventory reduction in the metal container business to be completed in the fourth quarter. This estimate compares to $0.32 per diluted share in the fourth quarter of 2017.

While we continue to expect free cash flow to be approximately $300 million for the year, we do note that persistent inflation, the timing of year-end customer collections and the completion of the inventory reduction all pose some risk to this forecast. As a result, we see $300 million as the high side of our free cash flow.

That concludes our prepared comments. So we can turn it over for Q&A, and I'll turn it back to Jessica to provide instructions for the Q&A session.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We will take our first question from Scott Gaffner with Barclays.

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Scott Louis Gaffner, Barclays Bank PLC, Research Division - Director & Senior Analyst [2]

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Bob, just focusing on the inventory reduction for a minute. Is there any reason why that would've gotten shifted a little bit from 3Q into 4Q, and then now maybe goes into 1Q versus 4Q? What's sort of the driver there?

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Robert B. Lewis, Silgan Holdings Inc. - Executive VP & CFO [3]

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Yes, remember that we were -- we came into the year thinking that we were going to get a part of it in Q1, and a part of it in Q4, that we were going to be on the shoulder side of it. As we came through the second quarter, basically, we were net neutral. So thinking we had to get some of that in Q3 and Q4, I think with the volume declines in Q3, that's primarily what's driving it into Q4. So we still feel good about the operational plan, it just drives it into Q4 versus -- some of it, otherwise being in Q3.

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Scott Louis Gaffner, Barclays Bank PLC, Research Division - Director & Senior Analyst [4]

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Okay. And then if I look at it, the soup weakness that you had in 3Q. Is 3Q normally a big quarter for shipment of soup cans? And should we expect more weakness in that category as we move into 4Q based on what you're seeing?

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Anthony J. Allott, Silgan Holdings Inc. - President, CEO & Director [5]

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Hey, Scott, it's Tony. No not really. I would call Q3 more of a transitional quarter in that business. It kind of depends on what they're thinking for the cold season on fillings. And so I think that's part of what's happening is just sort of what decisions about filling time et cetera are in the plan. So I don't -- we don't see it necessarily as any significant change to the conversations we've had about soup. We do think there's a lot of change going on in the soup market. That the players are going through a lot of different decisions about what's core and what it isn't. And so I think there's a lot that we're watching right now about kind of the future of soup. So I think -- I'd would put us same as, I think, most people on the call, we're just watching it and trying to see where the future goes.

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Scott Louis Gaffner, Barclays Bank PLC, Research Division - Director & Senior Analyst [6]

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Okay, one last one for me, Tony. Just if I look at it, I mean, clearly, debt pay down is a focus of a lot of your cash right now, but with the shares where they are, is there maybe any consideration of just balancing some debt pay down with share repurchase at these levels? How do you think about that?

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Anthony J. Allott, Silgan Holdings Inc. - President, CEO & Director [7]

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Sure, we have done buybacks from time to time, we certainly have authorization to do buybacks. So I wouldn't signal anything about that either side, but I think that's always been something that's available to us. I think in terms of kind of major tenders and stuff, I think, we've been pretty clear that right now our thinking is about debt reduction. We levered up to do what we think was a great acquisition in dispensing systems. We said that we would delever that fairly quickly. In fact, we -- we're delivering on that and we just need to finish that, getting that done before we think about any kind of more long-term capital prospects.

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Operator [8]

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Thank you, we will now go to Chip Dillon with Vertical Research.

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Salvator Tiano, Vertical Research - Analyst [9]

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This is Salvator Tiano, filling in for Chip. Yes, I have a few questions related to volumes and firstly on the metal container side, firstly is there a way to kind of quantify the impact of the soup volume decline as part of the 6 percentage drop and in the customer destocking that is something you brought up last quarter, has the impact been bigger than what you expected, 3 months ago.

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Anthony J. Allott, Silgan Holdings Inc. - President, CEO & Director [10]

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Sure, 2 good questions. So as we said in the opening remarks, we're down about 6% in the metal container business. I'll reverse the order of your question, but about a third of that, 2% of that is related to the seasonal customer who is going through an inventory reduction and a portfolio management program. And so to your question, is it bigger? First of all, to be clear, we did not expect that to be a negative on this quarter. We really did believe that the customer, and we were talking to the customer, thought that they were kind of through it for this year through the second quarter. They had been pretty clear and we had indicated they were going to try to do the same next year, but I think that customer found opportunities to go a little further, and so a little bit to our surprise we did see again a negative comparison in the current quarter.

So our expectation with that going forward is we'll have to wait and see a little bit. They have indicated an intention to get inventory down again next year. So I think, as we think about '18 going into '19, there may not be a whole lot of recovery on the horizon for us. If they do the same kind of reduction that it probably would be more flattish, would be our expectation on that. And then I think the question around the parts of the business that they portfolio managed, whether that comes back or not, I don't know, that's not clear to us right now. So I think, we could fairly say, it's probably going to be somewhere near this volume for next year at least and maybe there is a little bit of recovery in '20, not too sure.

The second part of your question is the soup, also made up about 2% of that 6% decline in the quarter, and so that scales it for you. I think, I already said, I think, we don't really know what that means about trends, certainly condensed soup has been in decline for some fairly steady period of time. That's a little more than half of the total volume that we do in that category. And then the ready to serve market has been less decline, some brands up, some brands not so much up. Those are kind of the elements that we'll keep watching and talking about.

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Salvator Tiano, Vertical Research - Analyst [11]

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Perfect, and on the closures side, with the volumes there. Firstly, can you provide a little bit of the breakdown like you sometimes do about the volume in the Dispensing Systems business versus the legacy closures first of all? And secondly here, I think, last quarter the organic volume was negative despite the dispensing systems adding to organic volumes, and you indicated you were against a very tough comp in 2Q of '17. So can you describe a little bit what happened in 3Q of '17 with regard to legacy volumes and if it was again near records levels?

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Anthony J. Allott, Silgan Holdings Inc. - President, CEO & Director [12]

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Sure, I am going to have Adam answer the questions on the volume around closures. I think just in the interest of the flow of the call, I think, we're are going to try to hold everybody to 2 questions per, so if we can then go ahead and move on after this answer, just to keep the process going.

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Adam J. Greenlee, Silgan Holdings Inc. - Executive VP & COO [13]

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Sure, the total volume for the closure segment was flat versus the prior year, and as you saw in the release, we did see growth in our target markets and we also had a favorable mix of products. So when you get into the dispensing systems markets that we serve, we did see a couple percent of growth through the dispensing systems markets, primarily in healthcare, in our pumps and sprayer markets etc. Offset a little bit by some softness in our lower value-added dispensing systems closures markets. So good performance in dispensing systems. Good targeted growth in the markets that we serve for that business.

And then when you talk about the U.S. single-serve volumes, again we talked about sports drinks and ready to drink teas on this call for quite some time, that volume did recover as expected. We're up approximately 3% versus the third quarter of last year. So good growth, again, on a relatively easy comp. Now the question back to 3Q of '17, we did have a softer volume for our closure segment, specifically the U.S. single-serve volume. So we're coming up over that, but again I think, at 3% volume growth on the U.S. single-serve business, we were in line with our expectations.

That growth for both dispensing systems and the U.S. single-serve market was offset primarily by some softer volumes related to the food pack, primarily in Europe. So I think in our target markets, we saw the performance that we were expecting and we're a little bit surprised with some weakness out of the European food pack markets.

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Operator [14]

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We will now take our next question from Mark Wilde with Bank of Montreal.

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Mark William Wilde, BMO Capital Markets Equity Research - Senior Analyst [15]

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Tony, I wondered, just coming back to the food can business. If you can talk in light of this weakness that we're seeing here in the second half of the year, whether you think you have room for maybe some additional capacity rationalization?

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Anthony J. Allott, Silgan Holdings Inc. - President, CEO & Director [16]

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Sure, good question. Let me answer first by saying as we've been pretty clear on the call that we've had a couple of unique things happening to us. I think if you look at the industry in total, it's -- last I saw it was flat. It might be down 1%, something like that. So there is sort of this broad question of what's going on in food cans, and I think what we're seeing right now is very separate and distinct.

If the volumes for our business were to hold at this level, we absolutely would look at our footprint and opportunities. We do that all the time anyhow, but for sure if this is the volume that we think is a sustainable volume for the business, we do expect to go find costs out in our system, and absolutely believe we will do -- we'll be able to find them.

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Mark William Wilde, BMO Capital Markets Equity Research - Senior Analyst [17]

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Okay. And then as my follow-on, Tony, could you just talk about how you're viewing the progress in reloading the plastics business after all the recap activity? 3% looks pretty good to us. But I don't know what you guys are really looking for in that business over the next couple of years in terms of incremental volume to get your margins up?

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Adam J. Greenlee, Silgan Holdings Inc. - Executive VP & COO [18]

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Mark, it's Adam. Look, we're very pleased with the performance, thus far, with the plastics business. We're now delivering the ninth consecutive quarter of year-on-year improvement. So the business is delivering what they've promised, and what we're expecting here. So the 3% volume as we've said before really -- we've done a good job of getting the cost out for the most part of that business. And where the growth and income generation is going to come from is putting volume across those fixed cost assets that we have.

So we've got core markets that we focus on like food, health care, pet food and personal care that are continuing to grow. We're doing a nice job of winning in the market. We've talked before that we don't think anybody's necessarily hitting it out of the park from a service and customer support standpoint. We've made tremendous strides on that front. And I think we're being rewarded with volume growth in the market.

So as we look forward to that business, we continue to talk about our 15% EBITDA margin target. We're not there yet. The drop that we saw in this quarter back to [11.9%] from the prior quarter was right in line with our expectations. We had the Fort Smith startup costs, and we also have seasonally our smallest quarter that we have for the year in our plastics business. So we feel good about where we are. We're on track with where we want to go. And I think we're having success in the market. And we expect to continue to have more success as we go forward as well.

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Operator [19]

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We'll now take a question from Debbie Jones with Deutsche Bank.

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Deborah Anne Jones, Deutsche Bank AG, Research Division - Director [20]

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I wanted to follow up on the plastics business. Your volumes have been great this year. I just wanted to get a sense if there is anything going on with margins in the quarter? And if there is, some pass-through related things on timing? But you did see lower margins quarter-over-quarter. I want to get a sense of what you think they can be sustainably going forward.

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Adam J. Greenlee, Silgan Holdings Inc. - Executive VP & COO [21]

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Sure, I'm going to repeat a little bit of what I just said to Mark's question, Debbie. But -- we -- on the last call, we did talk about the 14.3% EBITDA margin that we delivered in Q2, that that was going to reduce by a couple of points in the back half of the year because we had the Fort Smith startup cost. And then we also had a little bit of a resin headwind in the quarter. So I'll scale both of those to about $1 million apiece. And that really is the bridge that gets you from the 14.3% to the roughly 12% EBITDA margin.

So as we go forward, the sustainable margin that we're targeting for this business is right at that 15% level. And then we'll see where we go from there. But we need to get there. We're on path. We're on track. We're doing a good job. We're now winning in the market. We're seeing the volume growth that we wanted to see. And we're well on our way to getting there.

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Deborah Anne Jones, Deutsche Bank AG, Research Division - Director [22]

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Okay. Second question just on what is going on with food cans. If we take a look going forward here, what are the things that you are most concerned about as to the volume trajectory or potential upside risks? It would seem to me that the narrative around plastics is actually good for you. It's also just not clear to me how much more you might expect in share shifts for categories or customers going forward? Could you give us like an order of magnitude about what you are concerned about?

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Anthony J. Allott, Silgan Holdings Inc. - President, CEO & Director [23]

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Sure. I think we did talk about this last call. I think, our feeling is that the food can is -- any benefit from the plastic issue, I think it'd be pretty small and I hope I'm wrong about that. But I certainly don't think that's a major theme that we're thinking about. So what makes us still feel pretty good about food cans. And remember good for us, we've always viewed this as more or less a flattish market, I think. And we still view it that way. The first point I would say to defend that is just look at what's going on in the market rather than our numbers. And that would say nothing has changed there, particularly.

If I focus a little more on us, I would just say that nearly 40% of the food cans we sell today are pet food cans. The pet food market is growing in the 2% to 4% rate, has for a long time, and we see no reason why that wouldn't continue. Another 10% of what we do is in kind of protein areas, which have interesting growth opportunities around them. So nearly half of what we sell today in North America are in markets that we think have very interesting growth prospects going forward.

The second largest category we have after that is the vegetable category, which is nearly let's call it 20%. But that category is really split into 2 groups. You've got -- the largest bit is tomato and corn. And our feeling is that if you look at who uses tomato and corn and why they use it. And we see that as a very solid future. I'm not saying necessarily great growth. But I also don't see a really serious decline risk for that market. The remaining 30% peas, beans, et cetera have been declining at some pretty low rate, and probably will continue to do so.

Fruit has definitely been declining, the can is not the preferred package for sending your kids off to school with their fruit. We understand that. That's down to 4%. So we're going to talk about fruit declines et cetera from time to time. But if you think about kind of the future of Silgan, it's not a really big point to where we're going. And then that leaves the 20%, that is soup. And even soup, as I said earlier, sort of split between the condensed side, which I know you have to assume is going to continue to decline, and the ready-to-serve side, which is, I think, a little bit more uncertain in that regard.

When you take all that, and you take those growth rates, you roll that forward, I think you'll see pretty quickly why we think that we're going to be fine on our volumes. Because those growing ones are taking bigger, bigger share. The things that we spend a lot of time on these calls talking about that are declining are becoming smaller and smaller to who we are. And then finally, as we've said before, really everything we sell today is in a retort process. And so if even the ones that are declining, it's not easy for those customers to shift. They have to got to go to a more expensive package and a more expensive process. So that's kind of why -- because I know this question sits out there in lots of different forms about food cans. I thought it was worthwhile to just tell you why we think the way we do about our food can business.

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Operator [24]

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We'll now take the question from Anthony Pettinari with Citi.

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Anthony James Pettinari, Citigroup Inc, Research Division - VP and Paper, Packaging & Forest Products Analyst [25]

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Just following up on the free cash flow guidance. I think you indicated $300 million for the year might be the upper end of what you could realize with some risk. I think you referenced year-end collections, and maybe rising costs. Is it possible to frame what could be the range or the downside? Would it be $10 million, $20 million? Just trying to understand kind of the upper and lower end of what you might be able to realize.

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Anthony J. Allott, Silgan Holdings Inc. - President, CEO & Director [26]

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Yes, sure. The things that I pointed out to the risk side would have been inflation, the year-end collections and the pending inventory reduction, right. So some of those are new risks. Some of those are risks that sit with us year-in and year-out. As to the inflation, that continues to persist. On a year-to-date basis, we've incurred roughly $10 million of incremental freight across the business given the tariff situation, we've got working capital up at the end of the third quarter between $20 million and $30 million associated with those tariff costs. And so that's kind of new risk as it relates to this year, if you will.

And then as to the inventory reduction, as I said in my earlier comments, we've got a good operational plan to get there. But it is a sizable inventory reduction in a relatively small quarter. So that heightens the risk a little bit. And as to the timing of the cash collections, as I said, that's always a risk. And given the holiday and vacation schedules, payments could move a day or 2 around the year-end cycle. And again, we've got some fairly large customers that make sizable payments at year-end. So that sort of hopefully gives you a little bit of an idea of the types of things that can move around. But again, our focus is on delivering to the $300 million target. But again it's got some risk against it.

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Anthony James Pettinari, Citigroup Inc, Research Division - VP and Paper, Packaging & Forest Products Analyst [27]

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Got it, got it, that's very helpful. And then apologies if I missed this. But any early read on 2019 CapEx, given Allentown and Fort Smith are kind of behind you?

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Anthony J. Allott, Silgan Holdings Inc. - President, CEO & Director [28]

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Yes, look, I think we're -- as we've said this year $200 million is kind of the number. I think we'd look to be lower than that going into next year. Again it's really about the type of return projects that come through the budget process. But I think our view is that given that we have had some fairly large projects this year, and certainly prior to that we ought to see a little bit of decline in the CapEx in the aggregate.

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Robert B. Lewis, Silgan Holdings Inc. - Executive VP & CFO [29]

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I think, Anthony, if you're trying to think forward on cash though, you've also got to remember. We were counting on a significant benefit from inventory reductions this year. You won't have that next year. I don't think we have any idea of inflation. But I think if you ask me today, my guess is inflation will be a further cash headwind next year. And so it depends what you're trying to do with that information.

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Operator [30]

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We'll now go to Ghansham Panjabi with Baird.

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Ghansham Panjabi, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [31]

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As you sort of sit here today and you think about 2019 from an operating income perspective, can you just give us some high-level variances to think about? Are you planning for operating income to be higher year-over-year? And if so, what are some of the drivers associated with it?

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Anthony J. Allott, Silgan Holdings Inc. - President, CEO & Director [32]

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Sure. Figured this question would come up at some point. To be very clear, we have not finished our budgeting process. And so we reserve the right to come back and change some of these answers, as we go through it. But with that said, I think, as you look at the container business, we certainly are expecting that we would not have the same scale of inventory reduction, which has a sizable P&L hit to us. Recall there's -- we're saying something like $15 million cost charge that comes with that. So I certainly wouldn't expect that.

I think when you listen to everything we've said about volumes on this call, you'd say they probably would be flattish, right. Because we're saying you're not going to see recovery in that particular customer. You're obviously not going to see recovery in the piece of business that was lost to a competitor. You -- we still would believe you get a little bit of recovery from the fruit business that was closed out west as other customers pick that business up. And then you've got the question of kind of where is soup headed. Against that you've got the benefit of we're pretty confident that pet food will continue to grow. So when you take all of that in, I think we still think probably flat is not. Even though it was down this year in an unusual amount, the primary drivers of that are going to hold with us for another year at least.

The closure business, I think we would continue to expect -- we'd see good operating performance and continued growth in those markets. A little bit of recovery in Europe on the food that goes into glass with closures on it. And then in the plastics business, I think we expect to see, as Adam said, continued headway plugging out on the commercial side and on the cost side. And then you add to that the fact that we have this Fort Smith plant that would be coming up in the first quarter, which would be helping us as well. So yes, I think, right, as we sit here today we would think the businesses would each be up. And those would be the primary drivers of that. Offsetting that a little bit is interest will move around a little bit, we'll get the benefit of the debt reduction. But you could predict rates probably better than we can. So those would be the big moving pieces as we see them right now.

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Ghansham Panjabi, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [33]

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Okay. Then just going back to North American metal food, just to sort of tie into the earlier questions on capacity and also growth. I mean, you're making a good case for volumes to be relatively stable for North American metal food. But you generate a couple percent of productivity a year, at least, I think you do. And the base businesses probably will not grow materially going forward. So what exactly are you waiting for from a footprint sort of optimization standpoint? Or do you just feel that this is sort of the utilization you should run based on what you see at this point?

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Anthony J. Allott, Silgan Holdings Inc. - President, CEO & Director [34]

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Yes, we're not waiting on anything. I think, we took a plant out a year ago. So we've been at that all along. We took out some capacity, not full plants, but out of our 3-P side. So I wouldn't describe us as waiting. I think there is a question on the table of what is the -- for us, what is the right volume in 2020, let's say. Where does this particular pack customer come out in terms of sustainable volume. I think we can't get rid of all the capacity for that and then have them come back, and say, oh, that was just a 2-year program. So we need to be sure we have that figured out. But we're not waiting on anything. We always are looking at our costs every day. And kind of a relentless focus on where is cost, where is capacity, and where can we take it out. So we're at it.

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Operator [35]

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We will now take a question from George Staphos with Bank of America Merrill Lynch.

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George Leon Staphos, BofA Merrill Lynch, Research Division - MD and Co-Sector Head in Equity Research [36]

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I want to do, again, a kind of bigger picture question on food cans relative to some of the other ones, Ghansham and the others asked earlier. So Tony, with Can Vision 2020, that was at one point in time talked about as lowering the cost structure, perhaps opening up new opportunities for the can. And perhaps, it has and it's just being covered up by some of the other trends. Are you seeing Can Vision 2020 deliver what you had expected it to be? And taking it from a different standpoint, what are you seeing from your customers using perhaps this lower cost position of the can to innovate and maybe find new places for growth for the food can as opposed to it being a -- it's been a steadily declining category when we look at the CMI data going back a number of years. So your thoughts on that. And then I had a follow-on.

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Anthony J. Allott, Silgan Holdings Inc. - President, CEO & Director [37]

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Okay. Sure. So if you look at Can Vision 2020, just to be clear, again the primary focus there was to drive costs out of the system for our customer. It wasn't about re-innovating. Although, we certainly talk about innovation could drive other things. But the basic effort was not to reinvent new packages and new markets. Because we really don't -- there is maybe a bit on the fringe on that. But George, that's not ever really been what we've been about. Our idea is to drive -- be the lowest cost, highest quality supplier to the market. Let our customers win in their markets. And not -- inventing new cans is not a huge part of what we're trying to accomplish nor was it.

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George Leon Staphos, BofA Merrill Lynch, Research Division - MD and Co-Sector Head in Equity Research [38]

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Yes, Tony, I wasn't necessarily saying that. I was saying the fact that you'd have a lower cost position would allow more growth for the can, and perhaps innovation on the marketing side. But in any event, keep going. Sorry about that.

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Anthony J. Allott, Silgan Holdings Inc. - President, CEO & Director [39]

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Yes, yes, fair enough. So as we look at the programs, Can Vision 2020, a lot of value got delivered to customers. A lot of customers signed up for new contract periods for us to invest in new opportunities. So when we look at it, we say it's actually quite a long collection of successes in doing what we want to do, which is drive value to the customer and relink Silgan to that customer in terms of that we're in this together, against a pretty harsh environment that our customers are dealing with.

Which takes me to the second part of your question is I would tell you that I think the environment for our customers has only gotten harsher since then. And so while I do think we've delivered value, I do think there's something there for the customers. The world has changed much more than our customers would have ever imagined at that stage. Many of them are not the same ownership structure they were, and so there's a lot of change happening on that side as well. So in no way is this mission accomplished. And that there -- everything is great for our customers, that's not the case.

Add to that, now we're looking at significant inflation. And so the tariffs alone are going to undo all the good we did with Can Vision 2020. And so you've got a lot of cost now coming in this year, and I think next year into the can business which is going to be a headwind against the point you're making.

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George Leon Staphos, BofA Merrill Lynch, Research Division - MD and Co-Sector Head in Equity Research [40]

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Tony, that's very helpful and a fair point on the costs, in particular. I guess the other question that I had, and it's maybe partly answered by what you just mentioned. But having looked at the returns on Silgan over a couple of decades, you seem -- you saw very steady improvement in return on capital from the early 2000s through really around 2010 is when returns peaked. And in particular, the return on invested capital, which takes into consideration acquisition prices has declined more even than kind of just return on kind of a net asset figure. What that suggests is one, you're having to and probably everybody else to pay more for growth whenever you have an opportunity to buy it. Would you agree with that? And I guess really more importantly, what do you think will be the things that ultimately trigger an improvement in the trend on return on capital for Silgan going forward?

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Anthony J. Allott, Silgan Holdings Inc. - President, CEO & Director [41]

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Thanks, George, I think it's -- metrics are a funny thing. It's what you measure, right. So 2010 roughly marks the time when we started doing share buyback. So the answer to your question is if we had invested all that money into our assets, we would have had better return on assets, I believe, at that point in time. I would ask you to go look at return on equity and tell me how we stack up and how we moved our return on equity over that time. So I think it's -- what we've tried to always be is a balanced management team, focused on being the best in what we do.

And so sometimes we say we're generating cash, let's buy back shares that's good for the shareholder and we do it. Sometimes we say, let's build a new can plant because that's what the market needs for the can plant. So that's just one backstop. We try to move all the levers to the best answer over time. And frankly, we feel pretty good about what's been delivered over time on that.

The second part of your question is an excellent question. Which is yes, certainly, acquisitions are more expensive and which is -- the other half of your question. The thing that drives down return on asset, and we've said this many times, is when you do an acquisition, you buy everything up to the current value. And that drives down your return. So one of the things driving our returns right down is this -- the Dispensing Systems business. Now if you ask me, do I regret in any way that decision? No, it's one of the best things we've done for shareholders in a long time, but it does drive down our return on assets right now. So I think, again we take the long term, we think that's a great business to add to our franchise, family of franchise businesses. It is the right thing to do. Definitely going to drive down return on capital for a period of time as would a share buyback. But over time, we think it's the right spot for us to be and to move towards. But things are expensive right now. That I won't -- I'm not denying that point.

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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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Yes, I wasn't necessarily calling out the dispensing because the trend had happened prior. And on return on equity, you're right. Although, your stock tends to have a fairly high correlation with return on invested capital as well on a relative performance, and that's why it's bringing it up.

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Operator [43]

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We'll now go to Adam Josephson with KeyBanc.

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Adam Jesse Josephson, KeyBanc Capital Markets Inc., Research Division - Director and Senior Equity Research Analyst [44]

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I think on the last call, Tony, you said, you expected your food can volume for the year to be down about 2%. Correct me if I'm wrong there. What are your expectations now?

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Anthony J. Allott, Silgan Holdings Inc. - President, CEO & Director [45]

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That it will be down more than that since we were wrong in the third quarter, and we're not really changing the fourth. So we'll be down in the 4-ish-percentage range. Something like 4% to maybe even a hair more than that, we'll see.

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Adam Jesse Josephson, KeyBanc Capital Markets Inc., Research Division - Director and Senior Equity Research Analyst [46]

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Okay. And then just, Tony, on your comment about the volume issues you had are not really reflective of what the broader market is experiencing at the moment. I mean, you're the largest and lowest cost producer. So I would think in a vacuum, if anything, you would be taking share, not losing share just given your low-cost position. So can you just -- because you also talked about how some of these categories that are declining are becoming less consequential for you such as fruit, but yet your volume declines are much more significant this year than they've been in previous years. So I'm just trying to square those things. Can you just help me put all those things together?

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Anthony J. Allott, Silgan Holdings Inc. - President, CEO & Director [47]

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Sure, I'll try to. We're also the leader of the market. And so we have to -- there is a market, there is excess capacity in the market. So there is some business that we're going to choose to not defend in some cases for a period of time. And so you've got a bit of that in there. The biggest move, as you've talked about is you've got this one particular customer is going through something that's very unique to that customer, right. They're making a change about their balance sheet. And so I think there's a little bit of this is about us just letting the market calm itself down.

The bigger part is really just a couple of customers going through pretty unusual circumstances right now. And that and so, but you're right, so we're unique. I mean if you look at what we should have done to the market, it tells you that the rest of the market looks pretty okay, right. Our decline should have brought the market down by more. So the rest of the market is picking up, by the way. Some of what we've lost which makes sense. Even in the case of the customer whose culling inventory and some business, the business they walk away from, somebody else picks that up. And that's -- those cans go somewhere else.

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Adam Jesse Josephson, KeyBanc Capital Markets Inc., Research Division - Director and Senior Equity Research Analyst [48]

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Okay. Can I -- if I could just ask one last one about the ROE comment you made earlier, Tony. Your leverage has obviously gone up over the years, which is partly why your return on equity has gone up. I think you said you'd end the year about 3.5x, which is at the higher end of your target range. Do you still think, just given all the uncertainties you've been talking about that 2.5x to 3.5x is an appropriate leverage range for you? Do think you should be lower than that just as we go later into this cycle and these uncertainties grow and grow?

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Anthony J. Allott, Silgan Holdings Inc. - President, CEO & Director [49]

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Yes, good question. I think we -- that range still makes pretty good sense. And I don't want to be dogmatic about it. It was always meant to be sort of a flexible thing. But nothing I see right now would make me think it should change a lot. The -- obviously, the rates are concerned to go up. But against that, our competition is more levered than they were. So we need to keep that in mind as well. And I don't see our business as more volatile. Again, perfect example, we were down 6% in our largest business, and we've still hit our numbers here.

I think we've still got a model that is incredibly stable. We've got a management team that is able to take costs out when the volume is not there. We think cash, so we know how to -- we work inventory off when that makes sense. We're dealing with a lot of inflation and challenges around that in our market as well. And so I just, I think we continue to be exactly where we always were which is we're very focused on our markets. We think more so than our competition, and we generate a lot of cash and we stay focused on that.

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Operator [50]

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We'll take our next question from Daniel Rizzo with Jefferies.

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Daniel Dalton Rizzo, Jefferies LLC, Research Division - Equity Analyst [51]

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Just a quick question. On your freight costs, are your freight costs based on spot rates? Or are costs locked in in like some type of contract?

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Anthony J. Allott, Silgan Holdings Inc. - President, CEO & Director [52]

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The freight cost -- your question is freight cost. It's basically negotiated rates, the fuel is set by a standard, but it's individually negotiated rates. The problem with freight, of course, it's -- can you get you a truck. Can the guy you contracted with get you a truck? Or how far down your rate schedule do you have to go to get a truck to show up and make the delivery you need.

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Daniel Dalton Rizzo, Jefferies LLC, Research Division - Equity Analyst [53]

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Right, so some certain -- this is showing some certain things of freight cost spot prices going down. I was wondering if you're seeing that at all or if freight costs for you, at least, continue to rise?

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Anthony J. Allott, Silgan Holdings Inc. - President, CEO & Director [54]

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Yes, I wouldn't say -- I think last I've looked at it, they are kind of at an elevated level, but not necessarily rising. There's a little bit of seasonality to all of that as there is our business, unfortunately. So it was high at our peak shipping times, but I think that the -- one of the things that's driving it is a scarcity of drivers. And I don't see any change in that coming at all.

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Operator [55]

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We will go next to Arun Viswanathan with RBC Capital Markets.

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Arun Shankar Viswanathan, RBC Capital Markets, LLC, Research Division - Analyst [56]

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Just a question on the food can business. I was just wondering have you guys experienced any price elasticity there of customers, i.e., you noted that corn and tomato seems pretty solid. I'm just wondering if the tariffs stick and we see those sustained for a while, would that cause further declines in demand across the whole category of food cans?

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Anthony J. Allott, Silgan Holdings Inc. - President, CEO & Director [57]

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Yes, I don't know that we've seen that yet. I think for sure, customers are in a tough fight with retailers to get price through. Some have been successful, some haven't. And so it's not really clear to me there's a huge amount of price on the shelf right now that would change the demand pattern. Nor is there an easy price comparable switch the customer can make. Because the food that typically is in a can is so price advantaged to its next best choice that it's not obvious the consumer would shift all that much. But it is definitely -- the retailers are playing hard about what's going on on the shelf. And so probably really more happening at the retailer right now.

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Arun Shankar Viswanathan, RBC Capital Markets, LLC, Research Division - Analyst [58]

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Yes, just to clarify, the reason I asked the question is there's been discussions around maybe heighten your promotion to kind of reenergize the category, especially in soup. And I guess I'm just wondering if the tariffs kind of removed that. So maybe you can just address that. And just as a follow-up on the freight side, any thoughts on if you'd see continued inflation in your P&L next year due to freight? Or should we just assume stable?

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Anthony J. Allott, Silgan Holdings Inc. - President, CEO & Director [59]

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So your question is a little more specific. I think the -- I think, soup is a great product. I think it should get promoted. I think there is an understanding gap between the consumer and the power of the product. So I think that would be good. And I think it could offset some of the tariff issues. I don't think the cost of tariffs are in the way of that, to your point. I don't think it's enough. And I go to back to what I said, which is the next best alternative is so much more expensive that I just don't think the tariff would be the driver of that point. If I were in the soup business, I would still want to push the most profitable means by which I can sell it and that's, I think, soup in a can.

On your freight question, if I look forward, I would think -- so we pass through a lot of our freight, or else you'd hear us screaming a lot more than you are right now. We absorb everything in our inventory that gets moved around. We absorb the stuff we're moving around in our system. And in some contract cases, we pass through on an index, not on an actual. And so I think that my expectation for next year as I sit here would be kind of flattish on the cost of freight, so staying up where they are now would be my best guess at it. And we would absorb a small part of that and we would pass through the bulk of that to our customers.

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Operator [60]

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We will now take a question from Edlain Rodriguez with UBS.

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Edlain S. Rodriguez, UBS Investment Bank, Research Division - Director and Equity Research Associate, Chemicals [61]

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You've talked about what customers walking away from -- no, you've talked about yourself walking away from some businesses. And you've had a loss of a customer. Given your low-cost position, like how would someone else be able to serve those customers better? Or is that something that maybe over time like those customers will realize that and then kind of come back to you?

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Anthony J. Allott, Silgan Holdings Inc. - President, CEO & Director [62]

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Yes, it's a good question. We did talk about before that there are sort of 2 things. If there is extra capacity, there's extra capacity. It's going to seek some place to go. And so as a leader in the industry, we need to acknowledge that there is capacity out there. That's one part of the answer. The other part is there is a lot regional to that because freight is so important to the product. So while we may have the best overall system of costs, there could easily be a competitor in a local area, who has a -- as good or a better cost in that play, in that case, excuse me. So that's kind of where this happens if you've got somebody else who's got a geographic similar or better position, and then they can be competitive on it.

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Edlain S. Rodriguez, UBS Investment Bank, Research Division - Director and Equity Research Associate, Chemicals [63]

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Okay. And one last one to you. Like have you been successful in passing through all your resin cost? Like if resin cost don't go up from now, have you finally caught up with them?

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

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Sure, this is Adam. We typically have a short lag in the pass-through of our resin costs. So we're typically -- I'll just use a broad term, a quarter behind in the lag of passing through resin. So it will take one more quarter to catch up to kind of the current spot pricing on resin. So if resin didn't move from this point forward, we would theoretically be caught up 1 quarter from now.

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Operator [65]

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We'll now go to Brian Maguire with Goldman Sachs.

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Brian P. Maguire, Goldman Sachs Group Inc., Research Division - Equity Analyst [66]

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Most of my questions were already asked and answered. But just 1 or 2 modeling ones, if you don't mind. On the inventory write-down, the fixed cost absorption hit, I think you talked about $15 million in 4Q. Probably the volumes are going to be a little bit lower than the down 2 you had thought of before. So just wondering if some of that won't bleed into the 1Q '19? And if not, why wouldn't it be a bigger fixed cost hit than you were sort of thinking about before?

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Anthony J. Allott, Silgan Holdings Inc. - President, CEO & Director [67]

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It's the same fixed cost hit. So the $15 million relates to the same inventory reduction we talked about at the beginning of the year. We just instead of getting it done 1/3 in the first quarter and 2/3 in the fourth quarter, we've now got it all to be done in the fourth quarter. So that same $15 million hit should drive us somewhere $50-ish million of inventory reduction. I don't think that should have any impact going into the first quarter. I've seen that question out there, but there's nothing that hits me that should be affected by that.

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Brian P. Maguire, Goldman Sachs Group Inc., Research Division - Equity Analyst [68]

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Okay, great. And then just last one, what's the updated tax rate assumptions for the full year and for 4Q?

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Robert B. Lewis, Silgan Holdings Inc. - Executive VP & CFO [69]

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Yes, so this is Bob. As you saw, we came in to the lower end of the range. We kind of put 23% to 25% out there. Q3 saw a little bit benefit against that. I think I'd probably be guiding more to the 24% kind of a range on a full year basis and for the quarter.

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Operator [70]

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(Operator Instructions) We'll go next to Gabe Hajde with Wells Fargo Securities.

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Gabrial Shane Hajde, Wells Fargo Securities, LLC, Research Division - Associate Analyst [71]

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Hate to beat on it, maybe just drill down a little bit into the $15 million of underabsorbed overhead. And then Tony, to your comment about 2019, is any of that coming, I guess, from reduced production on the soup side? Just trying to understand normally we would think that most of that might come back where you guys would be producing at a normal rate. But given where some of the softness is and the comment you already made about the fruit customer, perhaps that might not be the case next year, where this is sort of the new production rate that we should be thinking about going forward.

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Anthony J. Allott, Silgan Holdings Inc. - President, CEO & Director [72]

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No. So the $15 million cost of the $50 million reduction was always in our plan. So that has much more to do with -- because we had built a new plant 18 months ago, we've been doing various footprint moves. We'd built the inventory up to cover us through all of that. And so we came into the year and said, we've got an opportunity to take inventory out. It didn't really have to do with any particular markets, specifically, it was just more general inventory around geographic things we were trying to solve.

And that's still the case. We're changing a little bit about whose inventory, but not a lot. And again, I want to be clear, my point isn't to say that we think something about the line of soup has changed. I don't believe that to be true. It was off more this quarter than is typical. So it's worth saying that we're watching it. But if you ask me right now, I think soup is going to be on the same kind of a curve, which is a fairly slow decline. And if they get promoting it better, maybe they can bend that curve a little bit.

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Gabrial Shane Hajde, Wells Fargo Securities, LLC, Research Division - Associate Analyst [73]

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Okay, thank you, Tony. And then I guess on the plastic side. Having sort of approaching where acceptable or what your target is 15% EBITDA margins are, might that business warrant additional investment? And if so, how would you envision that playing out?

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Anthony J. Allott, Silgan Holdings Inc. - President, CEO & Director [74]

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Yes, look, I think we've been pretty clear over an extended period of time that this fruit business had to prove itself and earns its stripes from the operational efficiencies and the profitability side. As Adam said earlier, we think we're well on track to get to the margin profile that we looked at. I think as long as it continues to perform then the idea of us allocating some capital to it probably does sit there for the right business, with the right return profile. So I don't think, that's not a change from where we started this whole thing. So yes, that's kind of where we would be.

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Operator [75]

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And we'll take our next question from Mark Wilde with Bank of Montreal.

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Mark William Wilde, BMO Capital Markets Equity Research - Senior Analyst [76]

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Yes, just a couple of cleanups here. I wondered Adam, is it possible to get any sense for kind of what you think kind of combined resin, steel, tinplate headwind might have been for you in the third quarter? Just from unrecognized or unpassed-through input costs?

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Adam J. Greenlee, Silgan Holdings Inc. - Executive VP & COO [77]

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Sure. I'll maybe try to answer the question specific to plastics, just for a second. But for resins in the quarter, I think we're probably something in the $3-ish million across the entire Silgan platform. I've mentioned $1 million specific to the plastics business. So the balance over to closures, both in our legacy closures and in the Dispensing Systems business.

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Anthony J. Allott, Silgan Holdings Inc. - President, CEO & Director [78]

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And then we -- I don't think you gave this Bob. But freight was probably about $2 million inflationary headwind to us in the quarter. And then on top of that, steel I wouldn't put that -- or metals, I wouldn't put that way. We've got, as you know, very solid pass-throughs. So essentially, we pass that through and there is no meaningful P&L impact.

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Mark William Wilde, BMO Capital Markets Equity Research - Senior Analyst [79]

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And Tony, that creates through that kind of metal that goes into the closures as well?

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Anthony J. Allott, Silgan Holdings Inc. - President, CEO & Director [80]

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Yes, it does. Bob made the point, the one exception is of course, there -- on a cash basis, again, just to come back to that. That's a different matter entirely, right. You don't necessarily get the what's in your inventory. You've spent cash on that and you haven't collected that from customers yet.

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Mark William Wilde, BMO Capital Markets Equity Research - Senior Analyst [81]

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Then the other point I wanted to just kind of clean up. It sounds like most freight is passed straight through. But I wondered whether you have freight or other costs, which you really just try and recapture through an index? And then the kind of the question is, whether the index, whether it's a PPI or whatever is really moving in line or kind of out of line with your actual cost (multiple speakers) next year.

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Anthony J. Allott, Silgan Holdings Inc. - President, CEO & Director [82]

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Yes, I had tried to answer that. So the answer is it's all of the above. So yes, it is true that some is done through an index. And so it is true that that will lag like other inflationary costs that we have in our contract pass-through. And then there are others where it's a direct, either the customer picks up or the customer pays the direct bill. So it's a variety. And I don't really have the spread mix of that. And I'm not sure. It would still be hard for you to know what to do with it, even if I gave it to you. So -- but it is true that in an inflationary time, we will eat some freight.

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Mark William Wilde, BMO Capital Markets Equity Research - Senior Analyst [83]

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Okay, yes, I was just -- I think a lot of people, a lot of contracts just use a PPI, and I think freight has been in particular has been moving up much, much faster than the PPI in aggregate.

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Anthony J. Allott, Silgan Holdings Inc. - President, CEO & Director [84]

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That's correct. That's correct.

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Robert B. Lewis, Silgan Holdings Inc. - Executive VP & CFO [85]

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Yes, that's right.

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Operator [86]

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We will now take additional questions from George Staphos with Bank of America Merrill Lynch.

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George Leon Staphos, BofA Merrill Lynch, Research Division - MD and Co-Sector Head in Equity Research [87]

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Just one quick one to finish up. Again back to the can and whether customers or their customers are attempting different marketing strategies. Back a number of years ago, there was a -- it was largely a paperboard company, but they had a dispensing system that they were trialing at some of the retailers that would be favorable for the can. And the benefit was in terms of loading and restocking. More recently, at some of the trade shows there has been a lot of focus on retail-ready packaging. Is any of that beginning to move the needle at least from your vantage point for your customers, and therefore, in particular for the can, or still not enough yet anyway?

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Anthony J. Allott, Silgan Holdings Inc. - President, CEO & Director [88]

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Thanks, George, really interesting question. So it's one that we've been pushing around ourselves and with our customers. So the answer is, yes, we definitely have customers who are -- actually have packages out in that kind of group bundled format and doing more of it, doing distribution that is better for e-commerce or other outlets. So I think the answer is still, unfortunately, where you ended which is I don't think it is enough to move the needle yet. But I do think it is sort of an important trend that we want to support and keep engaged with our customers on.

We do think e-commerce is -- in food it's underrepresented versus many other products. But we do think e-commerce will become bigger to food. We do think that packages are going to have to be favored to e-commerce, even if they end up going through the old traditional channels. So I think and I remember just vividly when you raised it, George, I think at the time we were not all that interested, I think comparatively that packaging, secondary packaging choice makes more sense today than we thought it did 3 or 4 years ago.

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Operator [89]

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We'll now take a question from Chip Dillon with Vertical Research.

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Salvator Tiano, Vertical Research - Analyst [90]

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Salvator Tiano again, filling in for Chip. Just very quickly since we're already at noon. I noticed last quarter that you didn't highlight the resins as a headwind for the plastics business only closures. And this quarter, again, you actually -- as you said, it was a noticeable headwind in plastics and closures. So can you elaborate a little bit on what has changed? And why it became again a headwind year-on-year in that business? Is it the type of resins you're using, or what else happened over there?

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Adam J. Greenlee, Silgan Holdings Inc. - Executive VP & COO [91]

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Sure. It's Adam. It's a combination of things and one you just mentioned. It is the variety of resins that we use. So resins move at different times with different drivers as far as the resins that we purchase. But they were announced increases that took place in the quarter that drove the unfavorable that's year-over-year. So it's just the variety of resins and the price moves on those specific resins that drove the year-to-year change.

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Operator [92]

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And it appears there are no further questions at this time. I'd like to turn the conference back to Mr. Tony Allott for any additional or closing remarks.

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Anthony J. Allott, Silgan Holdings Inc. - President, CEO & Director [93]

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Thank you, Jessica, thank you everyone for the call. We appreciate it, and we'll talk to you at the end of January about our year-end results. Thank you.