Erin Winters - Director, Investor Relations William Austen - President and Chief Executive Officer Michael Clauer - Vice President and Chief Financial Officer.

George Staphos - Bank of America Merrill Lynch Anthony Pettinari - Citigroup Scott Gaffner - Barclays Capital Mehul Dalia - Robert W. Baird & Co.

Mark Wilde - BMO Capital Markets Brian Maguire - Goldman Sachs Philip Ng - Jefferies Jason Freuchtel - SunTrust Arun Viswanathan - RBC Capital Markets Adam Josephson - KeyBanc Capital Markets Chris Manuel - Wells Fargo Securities Debbie Jones - Deutsche Bank Securities Chip Dillon - Vertical Research Partners.

Good day and welcome to the Bemis Company Third Quarter 2016 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Erin Winters. Please go ahead..

Thank you. Good morning, everyone, and welcome to our third quarter 2016 conference call. Today is October 27, 2016. After today's call, a replay will be available on our website, bemis.com, under the Investor Relations section.

Joining me for this call today are Bemis Company's President and Chief Executive Officer, Bill Austen; our Vice President and Chief Financial Officer, Mike Clauer; and our Vice President and Controller, Jerry Krempa. Following Mike and Bill's comments on our business and outlook, we'll answer any questions you have.

However, in order to allow everyone the opportunity to participate, we ask that you limit yourself to one question at a time with a related follow-up and then fall back into the queue for any additional questions.

At this time, I'll direct you to our website, bemis.com, under the Investor Relations tab, where you'll find our press release and supplemental schedules. In Mike's discussion of the financials, he'll specifically be referring to pages three and four of the supplemental.

On today's call, we'll also discuss non-GAAP financial measures as we talk about our performance. Reconciliations of these non-GAAP measures to GAAP measures that we consider most comparable can be found in the press release and supplemental schedules on our website.

And, finally, a reminder that statements regarding future performance of the company made during this call are forward-looking and are subject to certain risks and uncertainties. Actual results may differ materially from historical, expected or projected results due to a variety of factors.

Please refer to Bemis Company's regular SEC filings, including the most recently filed Form 10-K, to review these risk factors. Now, I'll turn the call over to Mike..

Thanks, Erin, and good morning. Before reviewing the financials, my thoughts on where our business stands. We delivered several positives this quarter, but we still have a lot of work to do to get our company where it should be and can be. Since day one of our leadership, both Bill and I have viewed the story as a long-term one.

We are changing the culture of Bemis to think and act differently. That takes time. I will continue to be impatient with our progress, but I have no doubt we will get there. Frankly, it's why I came to Bemis, to win. Turning to the financials, Bemis adjusted diluted earnings per share for the third quarter was $0.75, up almost 12% versus the prior year.

Currency translation was minimal this quarter and did not impact EPS. From a total company perspective, gross margin was up slightly and adjusted EBITDA increased to $160.7 million compared to $148.4 million in the prior third quarter.

This reflects our highest adjusted EBITDA since 2014 when the company footprint included the Pressure Sensitive Materials segment, a clear indication that we are improving the business. Looking at slide three, some detail on U.S. Packaging. Sales dollars in our U.S. segment declined 4.7% over the prior year.

The decline in sales dollars was driven by mix of products sold, which you would expect given our asset recapitalization program, and contractual price reductions to pass-through lower raw material costs, which is neutral to profits.

Unit volumes were flat versus the prior year, cleanly a miss, as we had planned for volumes to be stronger in the second half of the year. The difference versus our plans stem from commercialization delays, some driven by customers and some we caused due to internal processes being slow and cumbersome.

In either event, I view this as timing that both we and our customers will work out. Bill will discuss what we're doing to understand and fix our internal issues. U.S. Packaging operating profit return on sales was 15.3% compared to 14.5% last year. 20 basis points of margin benefit reflects the math of resin pass-through over the prior year.

We will continue to focus on strategic efforts to drive margins in the long-term regardless of what happens to raw material prices. The remaining 60 basis points of real improvement in margins this quarter was driven by manufacturing efficiencies from our asset recapitalization program. Turning to slide four and our Global Packaging segment.

Sales dollars were up 12.6% over the prior year. Currency translation reduced sales by 6% driven by the Argentine peso and the British pound that devalued against the U.S. dollar versus the prior third quarter. The acquisitions of Emplal and SteriPack contributed a 9.9% increase in sales over the prior year.

Excluding the impact of currencies and acquisitions, our Global segment delivered organic sales growth of 8.7% this quarter versus the prior year, driven by selling price and mix increases. Before discussing Global Packaging profits, an update on the restructuring program we initiated during the second quarter.

As you'll recall, part of this program will be – we will close four facilities in Latin America for a total cost of $28 million to $30 million.

The program will save $16 million, half of which relates to the original Emplal synergy plan and the other half will help us offset the impact of the prolonged, tough economic environment and business in Latin America. The program is on schedule thus far.

We have started to move production from the largest of the four facilities that we will close to the destination facility. We continue to expect the first facility will be closed by year-end and the remaining three by the middle of 2017. Adjusted Global Packaging operating profit return on sales was 9.8% compared to 9.7% last year.

You will recall that the third quarter of last year was particularly strong at almost 100 basis points above any other quarter last year. An update on our Oshkosh healthcare packaging facility. During the third quarter, we saw sequential improvement. Our expectation was a $0.02 EPS drag and we minimized that to a $0.01 in Q3.

Our new workforce is at a point that they can run the equipment efficiently, but not at a point where they can drive productivity like veteran operators. As our workforce gets more comfortable with the equipment and the product specifications, they will be able to drive the additional necessary productivity during 2017.

With the progress we have made, our healthcare leadership team is now in a position to start transitioning equipment and book-of-business from the Florida SteriPack location to our Oshkosh in Puerto Rico facilities for the original acquisition integration plan. Moving to Bemis consolidated results.

Total company SG&A expense in the third quarter was $95.8 million as compared to $101.8 million last year. Strong cost controls and the impact of pay and performance contributed to the expense decline over last year. I continue to expect SG&A dollars to be down on a year-over-year basis in the fourth quarter. Looking next at return on invested capital.

In the third quarter, ROIC increased to 10.6% compared to 10.3% last year in Q3. Current year return on invested capital would be slightly higher if not for the expected near-term impact related to acquisitions. We continue to expect this metric to improve over the long-term toward our goal of being in the upper quartile of our peer group.

Operating cash flow for the third quarter totaled $195 point more (sic) [$195.4] (07:53) million, in line with my expectations. Nice sequential improvement as the timing of accounts receivable issues we had in Q2 worked itself out and as we've made headway and continue to extend terms of our vendors.

As anticipated, restructuring was a small use of cash during the quarter, about $3 million. I continue to expect full year cash from ops to be $425 million to $465 million, which assumes a total of $25 million to $35 million benefit from continued working capital improvements and a total of $12 million used on restructuring.

On September 15, we issued a $300 million bond at a fixed rate of 3.1% for 10 years. It made sense for us to take advantage of slow long-term rate and free-up some commercial paper that we had used to fund the Emplal and SteriPack acquisitions.

During the third quarter, we also purchased 1 million shares of stock for $51.1 million, in line with our commitment to return free cash flow to our shareholders. Turning to the balance of the year guidance, we now expect EPS for 2016 in the range of $2.65 to $2.70 versus our previous guidance of $2.68 to $2.78.

The update reflects lower volume expectations in U.S. Packaging considering the 2% shortfall in both Q3 and Q4 versus our original expectations. The midpoint of our new EPS range assumes volumes at 2% in Q4 in U.S. Packaging. Where we stand within the EPS range will depend on currency movements, volume and mix across our businesses.

I will now turn the call over to Bill for his comments..

Thank you, Mike, and good morning, everyone. As I look at the big picture, I see us moving our business in the right direction. Many of the numbers reflected were delivering strong EPS improvement, our highest levels of EBITDA in years, increasing margins and ROIC and robust cash flow. These things don't happen by accident.

And I applaud the hard work of our 18,000 employees across the globe in delivering these results. Top of mind for me is our commitment to create long-term, sustainable shareholder value. To do that effectively requires every single one of our employees to be aware and engaged in the cause and armed with the tools needed to do their jobs effectively.

While we've made progress, there is still work to do to drive accountability further into the organization, to deepen the sense of urgency in meeting our financial commitments, and to improve our processes and tools used to support our business goals.

Let me provide you a few examples of the new ways we're strengthening our business for the long-term. First, related to our commercialization process. We have brought in an outside firm to review this process end-to-end during the fourth quarter. The commercialization delays in our U.S.

business this quarter that we caused due to our internal processes being slow and cumbersome are unacceptable. I get the fact that customers sometimes are slow in ramping-up new business but when we have inefficiency in our system that's just not okay.

So, we're launching this project to review all the touch points, all the weak links in the process, all the ways we can remove obstacles, so that new business can be commercialized on pace to our forecasts. Second, bringing in new people. This doesn't mean adding head count or additional SG&A costs.

This means that when the opportunity or need arises, we will bring in new thinking and diverse experience from outside of Bemis to help drive change within the organization to deepen the sense of urgency and intensify our drive to win. A relevant example is the recent leadership change in our Healthcare Packaging business.

After 20 plus years of dedicated and meaningful service to Bemis, the President of Healthcare Packaging business, Paul Verbeten, is retiring. Our new President of Healthcare Packaging, Jorg Schneewind, comes to Bemis with experience in the medical device industry.

And I look forward to Jorg's leadership in bringing our Healthcare Business to the next level. We also welcomed a new Vice President of Operations for our Healthcare Packaging business, Chris McHugh.

I look forward to the impact Chris will have on improving operational efficiencies and delivering the expected returns on the investments we've made in our Healthcare business. And the third example of ways we're supporting our business for the long-term, we're fortifying our business development initiatives.

Jim Ward recently joined Bemis as Vice President of Corporate Development to strengthen and accelerate our inorganic growth strategy. Jim is a former investment banker who has spent the past several years as a Business Development Director at a large consumer packaged goods company.

I'm confident that the addition of Jim will support our external commitment to grow Bemis Company revenue 3% inorganically by 2019. To be clear, I'm proud of the progress our teams across the globe have made to-date. Change continues.

And I will continue to take action and do everything possible to help us deliver our long-term commitments to make Bemis successful. Turning to outlook. We do remain committed to our long-term financial objectives. Most of our metrics are moving in the right direction. However, we can't run away from the lack of volume growth in U.S.

Packaging and our operational issues in Global Packaging. These two topics are front and center at our company today and resolving both is important in meeting our long-term EPS targets. While our 2016 guidance range doesn't meet our 10% EPS growth objective, we're determined to get back on track to achieving this annual target going forward.

I remain very confident in the health of our business, in our drive to change the culture, and in our ability to deliver improvement. With that, I'll turn the call over for questions..

Thank you. [Operator Instructions] We'll now take the first question from George Staphos from Bank of America. Please go ahead..

Thanks, operator. Hi, everyone. Good morning. Thanks for the details so far. I guess my first question is around volume. One, I just wanted to understand a little bit more clearly, Mike or Bill, what you're referring to in terms of the – I think you said 2% volume shortfall relative guidance in the third quarter and fourth quarter.

And you then mentioned that, I think, the fourth quarter midpoint of your guidance assumes 2% volume growth. If I incorrectly phrase those, please correct me, otherwise if you can provide a little bit more color around that and why the 2% goal in the fourth quarter would be realistic? Thank you..

George, when we gave guidance for the second half of the year, the assumption was – the forecast was we were going to have 2% volume growth in Q3 and 4% in Q4. We told – externally we watered it down and said we would be up 1.5%. We didn't hit that in Q3 and we're going down Q4 from 4% to 2%.

And, again, we have a lot of visibility into what should be commercialized and be happening in Q4..

All right. Thanks. I'll turn it over..

Okay. We'll now take the next question from Anthony from Citi. Please go ahead..

Good morning. Just following-up on George's question, I was wondering if you could provide any kind of additional color on the U.S. volumes in 3Q. And externally, obviously, Nielsen volumes haven't been great. Internally, you referenced some missteps.

I don't know if it's possible to kind of put a finer point on it, but how much of the volume shortfall was maybe things that you could control and how much is maybe continued tough external environment? And are there any specific categories or end markets that have been weaker than expected?.

Yeah. Good morning, Anthony. This is Bill. If you were to look at in total, we would look at 60% of the misses were controllable by us, 40% were extended launches from customers that might have had an issue and a factor in a plant, a late startup related to a customer.

However, that 60% were issues we had internally where we couldn't and didn't get the product launched and/or commercialized through our system. And that's why we're bringing in the external consultant.

We're going to have them look at the end-to-end commercialization process that we have within the company and find out where the weak links are, where the slowdowns are, where the obstacles are, where the bottlenecks are, because we put forecast together based on commercialization dates. And if it's within our control, we've got to fix those.

But nothing specific to any one segment across the landscape, just internal misses. As Mike said, we have visibility of the orders. We have visibility to what's supposed to launch. We missed – internally we missed it..

Okay. That's helpful. And then, kind of, referencing some of these operational slowdowns that hit earnings this year, understanding you're not giving 2017 guidance.

But when you think about Oshkosh, Latin America, some of the issues in 3Q, is there an earnings hit in 2016 that maybe you get back in 2017 or costs that don't reoccur in 2017, any kind of rough thoughts on that in terms of quantifying that?.

Yeah. Anthony, this is Bill. What Mike tried to layout in his prepared remarks was our workforce is now in Oshkosh. They run the equipment effectively.

What the team in healthcare was probably overly aggressive at when they put the plan together was thinking that the workforce would be able to establish the same kind of productivity that a veteran operator and veteran operators establish over a 20-year window.

So, once the operators learn the product specifications, not just how to run the equipment, but how better to run each spec, that's how you drive productivity. Our team in healthcare was probably overly aggressive thinking that a new workforce would understand how to do that quicker.

We're going to be able to get through that in 2017, but we're still going to be working through the productivity issues in 2017. Sequentially, that facility continues to improve, throughput is going up, quality is going up, scrap and waste are going down.

Now, as the operators become more and more familiar with the product side, we'll start to drive more productivity and that will happen as we go through 2017..

We'll now take the following question from Scott Gaffner from Barclays. Please go ahead..

Thanks. Good morning, guys..

Hi, Scott..

Just following up on the commercialization aspect for a minute. If I look back, I think, last year, you might have had the same sort of issue. Is there any finer point you can give on that? I know you're bringing in an outside team to take a look, but is there – I mean any more clarity you can give us on that would be really helpful..

Yeah. Scott, this is Bill. We didn't have this issue last year. We have visibility to orders. We have visibility to product launches.

What we're understanding and finding out is that there is a way too many handoffs and way too many touches in the process of taking the customer order, getting it through graphics, getting it scheduled, getting it into a plant, running a truck. There is way too many touches, way too many handoffs, way too many bottleneck.

That's what we're understanding and now we're bringing in the consultant to help us streamline that, take out those touches, take out those handoffs, get rid of the bottlenecks..

Okay. So, was the issue last year more around external? I mean you said the 60%/40% this year. Was it all external last year? I thought I remembered some pushback of -.

I think last year, Scott, some of our problems were just our customers making business decisions, which they were losing volumes in the markets. This year – we really have been – the recapitalization program has really allowed us to really kind of get some new business coming in.

And I don't want you to think that all this new businesses at the top of the pyramid is -.

In the big middle..

It's in the big middle. And we forecast these things to start happening at a certain point in time and then they don't. And they don't because of some of our inabilities to get the stuff commercialized, meaning getting it made and getting it shipped to our customer.

And that's what Bill was referring to, is that we, as outside organization, is going to come in and surgically evaluate our process and look for all the ways we can improve this process and take time out of it..

We'll now take the following….

Go ahead..

We'll now take the following question from Ghansham Panjabi from Robert W. Baird. Please go ahead..

Hi. Good morning. It's actually Mehul Dalia sitting in for Ghansham.

How are you guys doing?.

Very well. Thank you..

Good. Thanks..

Great.

Going back to George's question on the 2% organic growth that you're forecasting in 4Q, is there any way to give more details on how the business is performing thus far in October or any details on what products are being commercialized successfully, just to give a little more comfort on the number especially considering that, I think, the comp is tougher in the fourth quarter than it is the third quarter – than it was in the third quarter rather?.

Yeah. Mehul, we don't have an update on October at this point. But if we think about volumes in fourth quarter, as Mike mentioned, we have a view to the order pipeline. Our order pipeline has not changed. The orders are there. It's up to us to get these things through and commercialized..

Okay. Great. And then just your initial outlook on 2017 CapEx.

Given that 2016 growth has been slower to materialize than what you're expecting, do you still think CapEx would remain around $200 million or does that number change, given what you're seeing in your business right now?.

With the change in the capital deployment, CapEx deployment process that we've put in place, we're already working on 2017 CapEx now. So we anticipate around the $200 million CapEx for 2017..

And if you recall the lead times, a lot of our recapitalization and growth initiatives are a year to 18 months where money spent in 2018 has pretty much already been approved and worked – 2017, I'm sorry..

Next question?.

We'll now take the following question from Mark Wilde from BMO. Please go ahead..

Good morning, Bill, Mike, Erin..

Good morning..

Good morning..

Hi, Mark..

I wonder maybe, Mike, if you can just help us cadencing in the benefits from the restructuring in Latin America as well as sort of the ramp-up that now sounds like it's going to carry into 2017 on the healthcare line..

Well, on the restructuring, main facility will be closed by the end of the year. I think we've – assuming we're going to get about three quarters of those benefits in 2017 with one – the major facility will be effective by January 1. So that's how I would kind of think about that. And as far as healthcare is concerned, right now, we're probably in Q3.

We're probably about a $1 million give or take worse than we wanted, worse than the original projections, albeit we were better. I think we're still thinking Q4 will be comparable to that. And then how I would think about next year is clearly there's some year-over-year improvement just from the standpoint we've gone from the $0.02 down to a $0.01.

But that's how I kind of think about it, is maybe we get back half to two-thirds of what would be disappointing to ourself as we go through 2017..

Okay. All right. I just had a couple of quick follow-ons. One, I wondered if you can talk about Brazil and Latin America more broadly, just what you're seeing right now. Because we've actually – so far this earnings season, we've heard really different points of view from different companies.

We just had one company that said they saw things decelerate sharply in September. We've had other companies that have said they've sensed the bottom in Brazil and they seem to be getting more optimistic.

What are you guys seeing?.

Yeah. Mark, this is Bill. I was just there, spent a week down there, going through the restructuring program with the team, visited both of the plants that have been expanded. They've both been completed. We're now starting to move equipment and products from the facility that will be closed into the new facilities.

There is a much – where I have been anyway, okay, and I was also spent – I had a dinner with 80 of our top customers down there. I would be on the side of there is a sense of encouragement in Brazil. I'm not going to say it's all kinds of optimism, but there is a sense that things are improving across Brazil.

That's the sense I got from visiting the facilities, talking with our folks as well as meeting with 80 of our top customers..

We'll now take the following question from Brian Maguire from Goldman Sachs. Please go ahead..

Hi. Good morning. I wanted to follow-up on some of the earlier questions about the commercialization delays. I think you sort of said that about 40% of it was just due to customer delays.

Just wondering given the weakness in the end markets, how confident you're that those are still going to go forward or do you think customers might be reconsidering that given just some challenging consumer demand trends?.

Yeah. The delays we saw initiated from customers were along the lines of new lines in their plant that were coming up, new kinds of products that they were going to be delivering to the market. They hadn't gotten those lines up to the rates they wanted. They hadn't debugged those lines yet. So that's been done through the third quarter.

We're now starting to begin to ship some of those units to those new plants. So it's not a function of their end market..

Okay. That's really helpful. And then just one follow-up if I could on the free cash guide, the cash from ops guide staying the same despite a little bit of a volume disappointment and a little bit lower earnings.

Just could you kind of help bridge that disparity?.

The reason I didn't change the range is because a function of that cash is really coming from improving primary working capital. And if you really think through it your Q4 EBITDA in theory doesn't really turn into cash until Q1, give or take a month.

So that's the reason I kept the guide and I'm pretty comfortable that we're going to be within that range..

Okay. That helps. Thanks a lot..

We'll now take the following question from Philip from Jefferies. Please go ahead..

Hey, guys. Sorry, to beat a dead horse. On the volumes front, obviously, it's not materializing as you had hope.

Are you looking to pivot your strategy a little bit more to the recap of your assets or perhaps step-up M&A or do you still feel pretty good about your longer-term growth target to shore up some of these operational issues?.

Phil, it's the latter. We feel good about the longer-term as long as we shore up the issues we have today..

Okay..

And we're on top on that. You should know that. We're bringing in that consultant to help us do it and we've got new leadership in the healthcare business..

Okay. That's helpful. And then on global volumes, I mean, that was a little weaker as well.

You generally sounded constructive on Brazil, but just can you give us some color how trends progressed inter-quarter in Brazil or any color on how to think about things going in the fourth quarter? Sorry if I missed, if you've already touched upon it in your prepared remarks. Thanks..

Yeah. Let me talk a little bit about that. If you look over the first nine months of 2016, LatAm is flat, okay. So, we're doing some good things down there to maintain flat in that environment. Quarter-to-quarter some is up, some down but for the nine months it's flat.

Asia Pacific is up high-single-digits and you've got Europe which is somewhat flat to down a little bit, but that's on a very small base for us. And if you look at our healthcare business, that's doing quite well, up mid-single to mid-high-digits – single-digits rather, so doing well across those environments.

Brazil, due to consumption, we're maintaining a flat – we're maintaining flat volumes..

Okay. We'll now take the following question from Jason Freuchtel from SunTrust. Please go ahead..

Hey. Good morning. Just wanted to clarify the commercialization issue. I believe you indicated previously that you had good visibility on your order book from innovation.

Is the 60% of the commercialization issues completely tied to new innovation volumes? And then, secondarily, should we assume the innovation volume coming online in 4Q is sequentially higher margin?.

Jason, we wouldn't call out the commercialization due to innovation and/or recap. It's just business that has come in. If you look at how we look at the business today, recap drives innovation, innovation drives recap. We can run a new, innovative product across the new recapped assets.

So, it's all part of the volume miss that we had in Q3 in the commercialization. It's not necessarily associated to new product or old product.

And if you look at some of the recent launches that we've had that we'll carry through into Q4 and into 2017, we've been able – as we talk about becoming more of a global operating company, we have done a really nice job of starting to move specifications around the world to drive growth in our Global Packaging business quite steadily..

Okay. Great. And then, I guess, just a follow-up on your new team and on your healthcare – your VP of operations in your healthcare franchise. How specifically is he going to help improve your operation efficiencies? Is the consulting firm going to be looking at that side of the business as well or is he just focused on the U.S.

Packaging business?.

Yes. The specific project we have the consulting coming in on is for the commercialization within U.S. Packaging..

Okay. We'll now take the following question from Arun Viswanathan from RBC. Please go ahead..

Great. Thanks. I guess I had a question kind of longer-term. Some of the weakness that you saw – I understand some of it was internal, though.

Are you also seeing weakness in some of your core markets, meat, cheese and bread bags? And if so, did that happen recently and what's your expectation over the next – if you look out over the next couple years in some of those core markets?.

Yeah. On a quarter-to-quarter basis, we might have some customers and segments that are up, some customers that are and segments that are down. Over the longer-term, we're continuing to work the recapitalization process to drive new volume, okay. It doesn't matter to us what segment it comes in.

It gives us the ability to lower the watermark on what our costs are, so we can be competitive across a wide variety of segments. Whether it's meat, cheese, dairy or bakery or confection, we're gaining volume and business.

And that's why we say we have this visibility to the orders and why it's so frustrating that we can't get products commercialized because we have the orders in hand. We disappoint ourselves when that happens. We also disappoint the customer. But it's not – we look at the whole business as flexible packaging, not any one segment..

And then, I guess, is there ways that you can increase that acceleration towards different markets, if necessary? You talked about medical packaging as a focus area at the Analyst Day, innovation in your stage gate process.

What should we expect, I guess, as far as vitality index or how much of your business will be coming from new products in the future? Thanks..

Our goal is to maintain the 15% product vitality in U.S. and to continue to drive it higher in Global because we can transfer specs faster to Global to gain share..

All right. We'll now take the following question from Adam Jefferson (sic) [Josephson] (35:44) from KeyBanc. Please go ahead..

Thanks. Good morning, everyone. Bill, just, sorry to harp on the volume issue, but obviously at the Analyst Day in last March, March of 2015, you outlined certain long-term volume growth assumptions in your U.S. business.

We've seen the likes of General Mills and ConAgra post substantial volume declines in their most recent quarter and most packaged goods companies are posting pretty notable volume declines.

Has the – I realize some of the wounds you experienced in the quarter were self-inflected, but has the market deteriorated to an extent that perhaps that long-term volume growth target no longer applies?.

Adam, we should and can drive 2% volume going forward. We have the ability to do that. There are a lot of – there is many opportunities and businesses and segments that we are not in that we're getting into through the recapitalization efforts. It's on us to make that happen. It's about the big middle, as we talked before.

The top of the triangle, a high-barrier meat/cheese, processed meats is not necessarily growing. It's the big middle where the opportunity lies in conversion from glass and cans to flexible packaging. With more and more formats coming out there all the time, some of the wins that we've had throughout this year, throughout 2016 come in that category.

So, we're not going to back off and we're not going to let the team off the hook, okay, for not growing that business when we have the tools, we have the people, we've got the assets in place to make that 2% happen..

Thanks, Bill. Mike, a couple for you. Just one on M&A, I know you talked about it earlier.

Can you talk about some of the multiples you're seeing and consequently how attractive some of these opportunities are?.

There is a lot going on right now and the multiples are kind of like the public packaging companies. There's an expectation that they're up, close to 10%. And clearly for a healthcare asset, we would do that. For a packaging asset, probably not. We'd be thinking more eight times to nine times. So that's the way I kind of think about M&A.

And then, with the addition of Jim, I think, we've done a pretty good job of kind of nurturing the types of companies we want to own that we know. I'm really looking forward to Jim helping us kind of understand what we don't know and where we also should be looking for potential acquisitions or joint ventures..

All right. We'll now take the following question from Chris Manuel from Wells Fargo. Please go ahead..

Good morning or good afternoon, everyone, I guess from my time zone, but good morning where you are still. Wanted to kind of approach the question maybe from a little bit different angle and that is part of your business recap strategy has been to be able to retain chunks of the business that maybe wouldn't have been at the right return levels.

How has that process gone? Meaning, are you continuing to see attrition in the base? So it sounds like you had trouble commercializing some new business, but implicit in there would also be perhaps that the base business has remained stable.

And I'm trying to get a sense of it because the recap stuff has helped that process or is that also where you're still seeing some challenges as well?.

Chris, the recap process has absolutely helped that, okay. If you look at some of this business that we should have commercialized in Q3, its business that we had years ago that's now coming back and we couldn't get it commercialized. If you wanted to – the picture is, is that that's the volume that should be ours and we're going to get it.

We're out there getting it. We couldn't get it through our system. That's the problem. That has to get fixed..

No, Bill, actually that helps bringing into a lot of focus, because you've been launching new business, new products, new segments of the market for years and years and years, but it's bringing back some of the old business that maybe you had walked away from in past years as part of the program where you're seeing the re-commercialization process.

That actually brings things into focus.

Could you maybe talk for a second about where you're seeing the most success in winning new business? Are there certain categories, products? You've talked about the big middle being the piece where you're seeing good stuff at, but have you also seen some new adoptions, new products in kind of your core meat, cheese, high-barrier markets as well?.

Yes. The latter part, Chris, I'll talk about briefly, is that meat, cheese category, what we used to call meat, cheese. A lot of that meat, cheese now is converting to what's called snacking. We used to look at in the past snacking as salty snacks, right, crackers, chips, cookies. That's not the kind of snacking that we talk about today.

Snacking today is high-barrier snacking. So it's in that top part of the triangle and it's helping us to expand margins there.

And that's some of the struggles that some of our customers have had in bringing their plants up to speed to go after this new category because it's a much different package architecture and a much different product than what they are traditionally been running.

So that's helping and growing the big middle in what we would call the grocery, consumer and industrial category is what's helping us to feed that volume and give us visibility to this volume that's coming that we couldn't get commercialized. And some of that is in the non-food space..

We'll now take the following question from Debbie Jones from Deutsche. Please go ahead..

Good morning. I just wanted to touch on – I was wondering – I think you mentioned before the working cap benefit in 2016, $25 million to $30 million. I think you referenced that some of this might move into or the initial high end of the range was at $50 million, might move into Q1.

Can you just talk about that a little bit and then if you have any kind of preliminary comments on working capital for 2017 as a result?.

Yeah. The original working capital additional improvement we targeted was $50 million to $75 million. What I mentioned at the end of Q2 was it didn't feel like the pace we were getting that improvement was and I kind of fold it down for 2016 and said we're not giving up on it. We'll get in 2017.

So at this point in time, we feel like we're going to get about $25 million to $35 million of that improvement, which still says if you go back to the original $50 million to $75 million there is an additional $25 million plus to get in 2017. And that wasn't specific on it being in Q1. It will be in 2017..

Okay. Thank you. And then my next question is just a follow-up on M&A.

It sounds like you're trying to be disciplined around valuation, but I'm also wondering if the production issues and the new management that you're bringing in and just kind of the restructuring effort in LatAm, does that delay any type of focus you have on M&A at this time?.

No. It does not at all..

Okay. Thanks. I'll turn it over..

We'll now take the following question from Chip Dillon, Vertical Research Partner. Please go ahead..

Good afternoon and good morning. As a follow-up to Debbie's question, just as we look at the working capital, I mean, obviously we're looking at maybe $15 million plus, I think you said $25 million or so next year of improvement.

Mike, if you look at the various components of these payables, inventories, receivables, where would you say you're ahead or at least further ahead versus being further behind as you look at those three elements so far? And therefore that would tell us where the opportunity is..

I think we still have short-term some opportunity in payables. And that's kind of when I'm talking more about payables, when we're talking about trying to get improved – additional improved terms there.

Accounts receivable, I think, we do a pretty good job there and that's one that's going to – our currency levels, percent current is very high, always has been. And then we have an opportunity in inventory, but that's more once we get onto our new ERP platform by the end of 2017.

I really think that the focus of that platform as some of the tools we're putting in is to go after WIP, by taking lead times out of the business. And that will be a further opportunity for us in the U.S..

Okay. And real quickly, I notice that some of the resin prices had risen in like August and September. I'm sure a lot of that is production difficulty. We know capacity is coming on. And I know you have obviously pass-through mechanisms.

But is there a chance that a lag issue there could be also impacting the fourth quarter or you're not particularly worried about that?.

We're not – we don't particularly worry about that..

We'll now take the following question from George Staphos from Bank of America. Please go ahead..

Hi, everyone. Thanks for taking my follow-ons. I wanted to drill back into the volume outlook. And if we look at the narrative this year, guys, despite best intentions, you thought you're going to hit a much higher volume growth.

It sounds like, to use your term, you worded down for the investment community hoping to do at least as well if not better and obviously put some cushion into the model for the unforeseen. Thus far volumes have been less than you would have anticipated. And that is what it is.

So as we hear you say, you've got a 2% volume target for next year – excuse me, for this coming fourth quarter, on the one hand, you say you have it in your book of business, but you're not so sure about the commercialization, from Erin's comment earlier to one of the questions.

So is the 2% the number, but can't stand a watered down to be hit? I didn't phrase that the right way. But, in other words, is there any cushion in that? Or do you – is your book of business a lot larger and that's why you have comfort on the 2%? And then I had a follow-on..

George, we have comfort on the visibility of the 2%. If you look at some of the miss that we had in Q3, it is now shipping in Q4 because we missed it in Q3. So, we have comfort on the 2%. It's still an aggressive number for the team to make, but you're not going to let them off the hook.

They've got plans in place to continue to run, to get that volume out..

So, should I read there then there is not much cushion in your business model should something run afoul of your plans or you feel you have a little bit of cushion to be able to make that 2%, even though you said it's fairly aggressive to use again your wording, Bill?.

I said the 2% is the midpoint of our range, okay. So, you can make an assumption there that the bottom end is probably flat and the upper end is better than 2%..

All right. [Operator Instructions] We'll now take the next question from Adam Josephson from KeyBanc. Please go ahead..

Thanks.

Mike, I think, Mark touched on this earlier, but can you try to quantify the hopefully one-time EBIT drags from Oshkosh and the Latin American restructuring program that presumably won't recur next year, just on the EBIT line?.

On Brazil, I can't remember. It was -.

$0.04..

It was about $0.04, would be about $6 million of OP. Assuming that everything else is constant that would be the number. And then in healthcare I believe the number is $8 million to $9 million for the year. And I think my comment would be and I think we're probably comfortable that we're going to at least get half of that back next year..

Half of that is $15 million or so?.

Everything else constant, right. There is other puts and takes that are always going to hit any business..

And just one more.

Based on the bond issuance, what would you expect to happen in interest expense next year?.

That would go up. Commercial paper was at, what, 80 basis points at 3% on $300 million, so you can do that math. It's, what, $4 million, something like that..

Okay. Thanks, Mike..

You're welcome..

We'll now take the following question from George Staphos from Bank of America Merrill Lynch. Please go ahead..

Thanks, guys. Just trying to go in sequence here.

I guess my last question is how sustainable is the reduction that we've seen in SG&A and corporate and recognizing that you'll probably say that you feel pretty good about it, in light of also the need to continue to commercialize, hit the market, try to more effectively grow top-line? Should the third quarter trend that we've seen be sustained a lot of your volume growth expectations? Thanks guys and good luck in the quarter..

I can answer that. I mean we're going to stick with what we've been saying all along. We are trying to figure out how to hold SG&A dollars flat over a long period of time. And don't make an assumption that the commercialization process is a function of not enough people. It could be a function of too many people. So, that's how I kind of look at it.

We're not going to shortcut anything, but I'm not a big believer that everything is always about more. Sometimes it's less, improves the process..

Okay. Thank you, Mike..

You're welcome, George..

We'll now take the following question from Mark Wilde from BMO. Please go ahead..

I've just got a couple of pretty simple follow-ons.

Mike, can you give us some sense of what the benefit would have been – is going to be this year from the healthcare-related acquisitions that you've made? And then, Bill, I wondered if you could just talk about sort of lessons learned from this whole Oshkosh situation over the last year because it seems to me if we look back in time, you've shutdown facilities before and kind of rationalized production.

So it's a little hard for me outside to figure out why this particular one has been quite so difficult for you?.

Sure. I'll answer that one first, Mark. We have shut facilities down. We've doubled the size of the workforce in this one facility. We did it at a time when the labor force in this area just got squeezed tremendously.

And we've waited through the building process, meaning expanding, doubling the size of the plant to bring the workforce in towards the tail end of the facility being completed.

In hindsight, we should have backed that up several months to bring labor in sooner, send them to the facility that was being closed, to get trained at the facility that was being closed. We had some issues with union, non-union. We didn't want to do that. But in hindsight, we probably should have done that anyway.

We brought in some totally new equipment at a time when labor was extremely tight. And we could not get qualified labor to stick around and run the new equipment. Hindsight, lesson learned, bring the labor in quicker, get him to the facility that you're bringing down to train and learn ahead of schedule..

Okay. That's fair.

And, Mike, on those acquisitions?.

Yeah. Well, the one acquisition is SteriPack..

Yeah..

And it's a little – for the full year, it's in the neighborhood of about $0.03 a share is the benefit. And we haven't really gotten a lot of synergies yet because of the time it takes to get things qualified. I'm going to have to qualify a piece of equipment in Puerto Rico and move it there. So those benefits are coming next year.

And if you recall, we did not acquire the plant in Florida or the plant in Malaysia. What we did is we signed a transition service agreement where they make it for us and ship it..

Yeah..

And at one point in time unless we move the equipment we get that benefit and that will be occurring as we go through next year..

Okay. Fine. That's good. Thank you..

You're welcome..

Thanks, Mark..

It appear there is no further question at this time. Ms. Winters, I would like to turn the conference back to you for any additional or closing remarks..

Thank you. This concludes our conference call..

Ladies and gentlemen, this concludes our conference call for today. We thank you for your participation. You may now disconnect..