Matt Eichmann - VP IR & Corporate Communications Pete Watson - President & CEO Larry Hilsheimer - CFO.

Chris Manuel - Wells Fargo Steve Chercover - D.A. Davidson George Staphos - Bank of America Merrill Lynch Justin Bergner - Gabelli & Company Matt Krueger - Robert W. Baird Adam Josephson - KeyBanc Daniel Jacome - Sidoti & Company Justin Bergner - Gabelli & Company.

Good morning. My name is Leandra and I will be your conference operator today. At this time, I would like to welcome everyone to the Greif 2017 Third Quarter Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

[Operator Instructions] Matt Eichmann, President of Investor Relations and Corporate Communications, you may begin your conference..

Thank you and good morning, everyone. Welcome to Greif's Third Quarter conference Call. Joining us on the call today are Pete Watson, Greif's President and Chief Executive Officer; and Larry Hilsheimer, Greif's Chief Financial Officer. Pete and Larry will be available to answer your questions at the end of today's call.

In accordance with regulation of fair disclosure, I encourage you to ask any questions on issues that you consider material because we are prohibited from discussing significant non-public items with you on an individual basis.

I also request that you limit yourself to one question and one follow-up before jumping back into the queue to allow others to ask their questions. Turning to Slide 2. As a reminder, during today's call, we will make forward-looking statements involving plans, expectations, and beliefs related to future events.

Actual results could differ materially from those discussed. Additionally, we will be referencing certain non-GAAP financial measures and reconciliation to the most directly comparable GAAP metrics as contained in the appendix of today's presentation. And now, I turn the presentation over to Pete on Slide 3..

Thank you, Matt, and good morning, everyone, and welcome to our call. Before we begin today on our third quarter review, I wanted to comment on the impact of hurricane Harvey to the Gulf Coast region and specifically the greater Houston community.

We have many colleagues within Greif and their families who have been displaced from their homes and have suffered severe property loss, but most importantly, they're all safe. However, on the most challenging circumstances, our people have risen to the occasion. I'm tremendously proud of our Greif colleagues in the Gulf Coast region.

There are many of our colleagues who are volunteering their time, energy and resources to assist their fellow neighbors in need. This sort of selflessness is the embodiment of the servant leadership culture and is an example of the strength of the greater Greif team.

In our third quarter, we delivered solid results across our broad and diverse portfolio. Net sales for the quarter were nearly $962 million, up more than $116 million or 14% versus the prior year. We benefited from strategic pricing decisions, higher indexed prices and stronger volumes in most businesses.

All segments reported year-over-year revenue improvements. Our operating profit before special items grew to more than $94 million for the quarter and a margin of 9.8%, which is in-line with our 2017 transformation run rate commitment.

On the bottom line, we generated $0.85 in Class A earnings per share before special items versus $0.91 per share in the prior year quarter. Please keep in mind that last year's comparison included a one-time $0.17 tax benefit excluding net discreet item, our Class A earnings per share before special items rose by 15% versus prior year.

Finally, free cash flow fell below our expectations during the quarter. Free cash flow is roughly $10 million lower than the prior year quarter and was impacted by higher working capital, tied to raw material inflation, higher sales and higher inventory levels.

We continue to be focused on working capital management and are addressing under-performance in this area. Larry will talk more on free cash flow in a moment, but I ask you to please turn to Slide 4. We're making steady progress toward achieving our visions of becoming the best performing customer service company industrial packaging in the world.

Our customer satisfaction index score rose by nearly 5% year-over-year with notable improvements in both our rigid and flexible packaging businesses. Paper packaging remains our top-performer with a score in excess of our target of 95%. We also continue to embed a customer-centric mentality throughout Greif.

Year-to-date, we've conducted more than 4,000 hours of customer service training, are on actively implementing the next wave of global training designed to enhance the customer experience with Greif. May I ask you to please turn to Slide 5.

We're nearing the end of 2017 and the improvements made to our multiyear transformation initiatives are clearly evident. On a trailing fourth quarter basis, our gross and operating profit before special item margins register 20.2% and 9.4% respectively, both far surpassing our fiscal 2014 baseline ratios.

While our SG&A ratio stands at 10.8%, we still have more work to do to achieve optimal SG&A levels and have a path to get to 9.7% as we covered at our recent investor day in June. Please turn to Slide 6. Our Rigid packaging business delivered solid third quarter performance.

Higher sales, improved commercial activities and tight control of our key expense items helped Rigid Industrial Packaging generate improvement in gross profit by 4% and operating profit before special items of 11% year-over-year.

Gross profit margin was lower versus the prior year quarter as a result of timing the contractual pass-through of raw materials that's expected to improve, thus the impact of price adjusted mechanisms are realized.

Sales of primary products were more than 15% higher than the prior year, boosted by improved commercial activities and higher indexed prices. North America and Latin America delivered strong volume growth for all substrates.

EMEA volumes across their wide geographic portfolio were flat, mainly related to weaker volumes in the UK, Middle East and Africa versus prior year.

APAC grew their IBC business by over 3%, but had relatively weaker steel volumes due to competitive market conditions and proactive decisions on value-over-volume as well as some slower end-use segments in Southeast Asia.

For the full year, we continue to expect nominal year-over-year steel drum volume growth with higher large plastic drum and IBC volumes as previously indicated. Please turn to Slide 7.

Paper packaging's third quarter revenue of roughly $206 million is almost $34 million higher than prior year, aided by strong volumes in both our mill system, in CorrChoice sheet feeder network and improving sales mix. Notably, CorrChoice delivered volume growth at 10.1% which outpaced industry growth at 2.4% in our fiscal quarter.

Specialty sales improved by 21% year-over-year due to continued strong demand for our triple wall products and litho-laminated products. In order to support this growth strategy, we recently broke ground on a triple wall bulk packaging expansion in Louisville Kentucky that was announced at investor day.

This expansion will increase our integration level and is on track for mid-2018 start up. Third quarter operating profit before special items was roughly flat compared to the prior year, due to our price cost squeeze driven by OCC prices which were roughly $70 a ton higher year-over-year. This was partially offset by stronger volumes.

Looking forward, we have fully implemented April's $50 a ton container board price increase through our systems which will be fully reflected in our fiscal fourth quarter results. We are also in the process of implementing a $30 a ton medium-only price increase that was announced effective July 10.

As you recall, the final $10 a ton of that increase was recognized by the RISI [ph] price index in early August. That is not expected to be fully-implemented until the end of our fourth quarter fiscal year. Please turn to Slide 8.

Flexible products and services continues to track its improvement plan, delivering its seventh consecutive quarter of operating profit before special items improvements. Flexible packaging generates sales of nearly $74 million in the third quarter and recorded a gross profit margin improvement of 390 basis points versus the prior year.

Higher volumes and improved price product mix management coupled with reduction in manufacturing and transportation expenses helped the segment improve its operating profit before special items by almost $4 million versus the prior year quarter and $10 million higher than per year-to-date.

I'd like to now turn the presentation over to our Chief Financial Officer, Larry Hilsheimer..

Thank you, Pete, and good morning, everyone. Please turn to Slide 9 for a review of our third quarter financial performance. Net sales excluding divestitures and foreign exchange impacts were more than 15% higher year-over-year due to strategic pricing decisions, indexed price changes and volume improvements in most parts of the business.

Gross and operating profit before special items both improved by almost $11 million versus the prior year, while SG&A remain flat year-over-year and came in below our 10% of sales target for the quarter.

The third quarter SG&A expense of $92.6 million also included roughly $2 million of cost related to tax planning that will result in $15 million to $23 million of recurring annual tax savings, the first $3 million of which will be realized this year.

In addition to operating profit expansion, we benefited below the line from a $6 million reduction in the interest expense versus the prior year quarter as a result of debt refinancing activity completed in February of 2017 and lower debt balances. Class A earnings per share before special items declines by 7% versus the prior year quarter.

However, the third quarter of 2016's results included a one-time $0.17 per share discreet tax benefit from tax restructuring activities related to rebalancing the company's internal debt as discussed last year. Excluding net discreet items, Class A earnings before special items improve by approximately 15% year-over-year.

Year-over-year special items decline by more than $7 million consistent with what we've indicated about adjustments tailing off as we progressed through the transformation. I would now address free cash flow. As Pete mentioned during his remarks, third quarter free cash flow totaled $64.2 million, roughly $10 million lower than the year ago quarter.

As a reminder, free cash flow generation at Greif is generally viewed to the back half of the fiscal year, due to the seasonality of agricultural customer activities. For example in fiscal 2016, we generated roughly $200 million in free cash flow, which included a one-time $20 million cash tax benefit.

$188 million of that $200 million was generated during the last six months of the year with that $20 million tax cash item occurring in the first half.

That said, our third quarter free cash flow performance fall short of our expectations and was impacted by higher working capital tied to raw material inflation, higher sales and higher inventory levels related to needs for new plants in Spain, Saudi Arabia and the Netherlands and a new distribution center in the Netherlands partially offset by lower CapEx spent year-over-year.

We declare these as reasons, not excuses, and we are far from satisfied with our operating working capital management for this quarter. Continued inflationary raw material cost now make it unlikely that we will achieve our objective of flat operating working capital dollars year-over-year.

For example, the price of cold rolled steel on Europe was up roughly 15% in our fiscal third quarter year-over-year, while HDPE was up roughly 10% in North America. OCC is up $70 per ton versus the prior year quarter as well.

While we have driven our cash conversion cycle from 63.3 days to 57.2 days year-over-year and our operating working capital as a percentage of sales has declined from 11.8% in Q4 of 2015 to 10.3% in Q3 of 2017, we do anticipate that the inflationary impacts mentioned will prevent us from holding working capital flat year-over-year.

We currently forecast our operating working capital to be up $10 million to $20 million as a result. This is contemplated in our current free cash flow guidance. Finally, we are modifying our 2017 Class A earnings per share before special items guidance range to $2.81 to $2.95 per share.

We elected to modify the range slightly due to the ongoing competitive pressures in Asia Pacific, the timing of raw material pass-throughs in certain of the businesses and our current assessment of a $2.5 million headwind impact related to hurricane Harvey.

We will continue to assess the full impact of Harvey on our Gulf Coast customers in coming weeks and if anything material changes, we will let you know. We are maintaining our free cash flow guidance range of $180 to $200 million.

We continue to expect spending between $100 million to $115 million on capital expenditures this year, but will likely finish the year on the low end of that range due to vendor-related delays in equipment delivery on timing for obtaining permits for projects. Turning to capital priorities on Slide 10.

total debt has declined by $46 million versus the prior year quarter. Thanks to lower debt and improved operational and financial performance, our leverage ratio stood at 2.2 at quarter end, well within our targeted range. Disciplined operational execution and capital discipline provide the foundation for us to execute on our capital priorities.

These priorities include funding business needs, returning cash to shareholders and maintaining our target leverage ratio between 2x and 2.5x. Our capital priorities include advancing inorganic growth opportunities, provided the capital investment exceeds the minimum return standards as described at our recent investor day in June.

With that, I'll turn the call back to Pete for his closing comments before our Q&A..

Thanks, Larry, and please turn to Slide 11. Greif possesses leading product shares in a well-diversified global portfolio that is not easily replicated. Our customer-centric philosophy differentiates our business and our commitment to discipline operational execution is critical to our improved financial performance.

Looking ahead, we will remain focused on executing our strategic priorities that will culminate in higher earnings in cash flow and ultimately greater value for our shareholders. Thank you for listening this morning and we appreciate your interest in Greif. We are now ready for questions..

[Operator Instructions] Your first question comes from the line of Chris Manuel with Wells Fargo. Your line is open..

Good morning, gentlemen..

Hi, Chris..

I wanted to just touch on a couple of different areas here at first and then I'll jump back in the queue. But first with respect to - you kind of went through volumes by region. There were several regions. It's very clear correlation, particularly EMEA, APAC, et cetera, where you're working on the volume over price.

We can see that in the price pick up that you give us and where the volumes are.

How much more do you think you have to go in that? I know you talked about a total look for this year of modestly up in steel and a little bit of improvement - or a nice improvement in plastics and some of the other components, but as you move into 2018 and beyond, do you anticipate that the volume over price will run its course and then we ought to see normal volume growth or how should we think about some of those components?.

Yes.

Probably the one region that has the most work to do, I would say, it's Germany and I think some of the comments we've made about consolidation of operations and improving the overall performance of that business, we need to improve the performance and based on our operational footprint and cost structure versus where we think the opportunities are to successfully serve our customers and get paid appropriately, that could go on for the next few quarters.

I don't want to predict that, but that's the biggest task we have and I think the remainder, Chris, it's a working evolution.

We expect that we will continue to focus our segmentation on people to value what we do and I think it will moderate as we move forward, but this is an ongoing evolution of how we run our business and again, we are focused on value-driven opportunities first and volume is one vehicle to profit, but the value and margins are the biggest components.

Do you have any other follow-up questions? We'd be more than glad to address it..

Yes. Second question, along the lines of gross margin. I look at where you were in third quarter, I think you outlined this, maybe on Slide 5 or Slide 6. You were back to almost where you are in the 2014 baseline and below the trailing 12.

I do appreciate that we had some pretty substantial price movements particular in steel through the quarter and then we also have a pretty sizable couple sets of price increases you're going to be rolling through on the paper side.

Along the lines of the value-over-price component, I guess what I'm trying to understand here is - I appreciate [Indiscernible] that you got multiple levers, but aside from Europe, should we anticipate that the margin, A, gross margin gets restored back to higher levels? And then B, that when we look at the volume side of the equation, Asia Pac in particular was pretty weak and you didn't mentioned that you talked about Europe, but what do we have to do to get back the positive volume growth in some of these regions?.

Chris, would you like me to comment just on Rigid or in total for the company?.

Well, specifically, I'm talking about Rigid here. But with the margin, it's the whole company issue..

Yes. The whole company, the paper packaging was really a bigger drag on our gross margin for the quarter because the OCC headwinds, that will mitigate starting in the fourth quarter as price catches up and that's assuming nothing dramatically changes with the expectation for OCC and input cost.

In Rigid Industrial Packaging, we expect when the price adjustment mechanisms flow through our contracts, we expect our gross margins to get back to the more normal range that we have seen in the past year.

APAC, and I apologize, I didn’t reference APAC - that is a challenging, very competitive market right now and that is an area that again, we are not going to chase low price, low margin business and we have to evaluate that region, diversify our customer base and evaluate our cost structure as it relates to that market both in China and Southeast Asia and go from there, make decisions that are on our best interest and our customers' best interest..

Chris, I'd like to add one thing. I'd just add one thing. We've talked many times about the number of different contract variations we have on pass-through mechanisms.

In Europe, for this third quarter, we've ran into a situation where the difference between some of our primary steel purchasing contracts which were based on quarter end pricing and the pricing have been going up versus a lot of the customer pass-through contracts in that region.

We're on an average cost method, so since the cost was going up, you got into a situation where our inventory cost were higher than what we were able to then price through. That will shift over time. It catches up as we've talked about before, but it particularly impacted EMEA for this quarter..

Okay. Thank you, guys. I'll jump back in the queue..

Yes, thank you..

Your next question comes from the line of Steve Chercover with D.A. Davidson. Your line is open..

Thanks. Good morning. My first question is kind of a follow on with that last one with respect to the APAC region.

Do you ever contemplate exiting a country or region if it's simply too competitive? For instance, is it possible that China is just not unconsolidated to be worth your efforts?.

Well, we always evaluate where we conduct business, but just to be clear, Asia Pacific had an outstanding record year last year and compared to a year ago, it's down. So it's still a very, very good business.

We believe we're in a good position to be successful in that market and we're going to compete as hard as anyone and with our competitors in any region in the world, but what we will not do is in a short-term basis is chase a lot of low-priced business and the volume drop in Asia is relative to some pricing decisions on contracts.

We just would not chase and follow and we also have one end-use segment of the bitumen business in Southeast Asia that has a low period of volume in the past two quarters and we expect that will improve. So we'll figure out how to win in that market and make sure we get the right return for the assets deployed.

We're not afraid of any competitive environment. We're going to figure out how to successfully win and do it through bringing value propositions that our customers that value it need and expect..

Very good, thanks. I guess as a follow-up, for the first time since the global recession, I think all of the developed world is seeing economic expansion. That's a first time in 8 or 10 years.

Are you feeling much more confident about your outlook for 2018 and beyond? We know what your free cash flow and operating profit targets are into 2020, but does this really help you get confidence?.

Yes, you're right. If you look at the global manufacturing economy, it's fairly healthy across all regions. There are some exceptions. The Middle East has some pockets of slowness, mainly related to the lube business.

Africa has some challenges from recent years - predominantly South Africa and then the UK as we all know have some manufacturing weaknesses now as it relates to businesses we serve. But overall, I think there's a relatively positive view of manufacturing across a broad base - some better than others and obviously the U.S. economy is healthy.

I think that's reflected in our volume growth in both our paper packaging sector, in our Rigid Industrial Packaging sector in North America..

Great. I'll get back in the queue. Thank you..

Thanks, Steve..

Your next question comes from the line of George Staphos with Bank of America Merrill Lynch. Your line is open..

Hi, everyone. Good morning. Thanks for the details. How are you doing? I wanted to dig into the EBIT and EBITDA growth for RIPs in the quarter versus the year ago.

When we look at the reported operating numbers before special items, you wind up with a little bit I think less than $7 million of EBIT growth year-on-year relative to a $74 million, I think, increase in revenue, which is fine but it's not spectacular.

On the other hand, last year's as going through your release, I think you used to tell me about a $5 million insurance recovery in last year's result and then this year you had I think a divestiture worth $3 million.

So should we tack on roughly $8 million to the $7 million to look at an apples-to-apples comparison year-on-year for EBIT in that segment? And if not, what's wrong with the methodology there?.

You're absolutely right on the insurance recovery, George. Last year, we did have that recovery come into the third quarter, even though it related to the time since the fire that led to that. Timing difference. That is an impact on the year-over-year item [indiscernible] sales.

But the sale as the business item is also related [indiscernible] last year where we had that gain. So both of those items do filter into the comparison year-to-year, George..

Okay. And can you remind me though what was in that insurance recovery? I know that you had it to some degree discussed in the queue, but I didn't remember seeing it from the commentary or slides last year.

Can you remind us what was in it and how much actually -- it sound like very little related to this fiscal third quarter '16 business interruption, so as related prior quarter because you took all the fine in the third quarter last year. If you can give us a little bit of color on that, that would be great. I will turn it over after that..

Sure. We have had insurance recoveries related to the equipment and that kind of thing in earlier periods. However, the BI insurance accounting rules can't really take it until you get it and it did relate to all time frames prior to the third quarter and was just recognized in that third quarter..

Okay, very good. I will turn it over. Thank you..

Thanks, George..

Your next question comes from the line of Justin Bergner with Gabelli & Company. Your line is open..

Hi, good morning.

I guess starting with the RIPs business, perhaps you could just take us through sort of - with respect to the lowered earnings guidance, how much of that is this delayed raw material past your mechanism versus sort of the factors relating to price competition that was called out for the Asia region?.

Yes. Obviously, you come up with ranges and I think a lot of people always think that a lot of people always think that the midpoint is where you're at. It's not always that case. We look at things, do our forecast, come up with something, then we have an upside and downside analysis and we build our range around that upside/downside.

What we ended up doing is taking off more of the upside because of the factors related to the pass-through mechanisms, delays on recognizing the margin in the Rigid business and then the APAC piece.

The lowering of the downside piece was all related to the hurricane element and you had about $0.5 million of that really start laying [ph] management business and it will just be timber harvest that we won't be able to do because of the water and that one's pretty locked and loaded, I guess it could get worst if things extended and there's a lot more storms and that kind of thing.

But the $2 million on Houston is our best current estimate at the impact of things on our operations in the best that we can determine at this point related to the impacts to our customers and as I said, if anything material would change, we'd obviously be obligated to update at that point and we'll monitor it day-to-day.

Those were the two elements, Justin. We lowered the lower end just because of that risk and that moved the whole thing down the others. We're just taking off the top end..

Okay, all right.

I was just trying to figure out if the Asian price competition piece or the raw material pass-through, which were those was the larger part of the guidance reduction?.

It's about equivalent..

Okay. That's helpful.

In terms of the free cash flow guidance being maintained, should we just think of that as it was tweaked down last quarter? You can still comfortably meet the low end of the range or is the high end of the free cash flow guidance range still doable?.

Yes. We wouldn't put the top end on it if it wasn't doable. Clearly, it's one that everybody is focused on because it does seem like such distraction.

As you can imagine, EMEA had [ph] Chris in our FDA [ph] team beat this up really deeply with all of our operational units, finance folks and the leaders of those businesses because it's important for us to make sure that we're giving you the best information we have - we feel comfortable with the range and I recognize that people think that that's a big stretch.

But if we look at last year, remember that we hit $200 million, but $20 million of that was a cash tax item and that all happened in the first half of last year. We ended up producing the $180 million of cash from operations last year. Every dollar that came in the last six months, we produced $114 million just in the last quarter last year.

We feel comfortable with the range that we provided. We have an opportunity because we have higher working capital at the end of the third quarter this year than last year.

There's inflationary challenges as I mentioned and although Pete and I are reluctant to give up our push to have flat, with these truly accelerating inflationary impacts on inventory, that does become more difficult. So we backed off to the $10 million or $20 million increase in working capital that I mentioned.

We have a number of other accruals that we examined and forecast were it will be at the end of the year that impact cash flow and we feel comfortable with the range that we provided. Obviously, we need to be held accountable for it and Pete and I are holding our business units accountable before what they forecast and told us they'd produce..

Okay, great. That's very helpful. Just lastly, on the reduced tax rate benefit, our guidance, I missed some of the early opening comments. I apologize if you spoke to this more.

But should we see the benefit of $3 million in the fourth quarter and the incremental $12 million to $20 million in the next fiscal year as sort of the conclusion of your tax management efforts, or do you think there could be more upside from lowering your tax burden?.

Sure. Good question, Justin. Tax planning is an ongoing thing, but as I try to cover a little bit at investor day, I think if you look back at my comments a year ago, I think you asked the question actually and at that time, we had this one-time benefit.

You asked what's the future look like? At that time I said, well I would expect a year from now, our tax rate would be somewhere in the 35% to 40% rate and up further into the future, we ought to be in the low 30s as we get to more thing. That stays consistent.

This work that we've spent, what we don't do lightly, spending several million dollars of our shareholders' cash, we thought this is well-worth it to help us get this done, which is nothing bleeding edge or risky, this is getting our structures the way they should be managing our taxes appropriately and the $3 million will flow into this this year and has baked into our guidance and the $12 million to $20 million additional will then flow through in the future and there's just factors that impact the $12 million or $20 million.

So, those are things that we already have locked and loaded. We'll probably spend another million dollars or so in professional fees next year related to that that will need to be done to get us there.

But then beyond that, then we'll get our call more into the normal range where we ought to be all the time looking for opportunities to reduce our tax burden. More of that will probably be the general thing that you see for most companies where you're trying to do things that defer taxes.

It's hard to do the permanent savings type of things without just structuring and changing your legal organization and getting your house in order.

Like I said, we're not doing anything that's cutting edge or anything, we're just getting our house in order, getting our taxes to where they should be and then we'll embark on what I'll call the normal tax planning of how do we reduce our annual cash tax spend and defer taxes that won't reduce our tax expense..

Okay.

Once you get the $3 million and the $12 million to $20 million, what will be the effective tax rate that corresponds to that step down?.

That one will be down in the lower half of the 30s on a regular basis..

Okay. Thank you..

Your next question comes from the line of Ghansham Panjabi with Robert W. Baird. Your line is open..

Hi, good morning. This is actually Matt Krueger, sitting in for Ghansham.

How are you doing today?.

Great, Matt..

Matt, how are you?.

Good. Thank you. My first question is how much has the negative price cost impacted you during the fiscal '17? And then what type of rebound can we expect during fiscal '18? I'm just trying to get a sense of how large any bounce back could be year-over-year..

Yes. Looking at where we are relative to paper, if you just focus year-over-year on this quarter, the impact of OCC cost was $11 million higher, we've had price increases that helped us offset that by $5 million and then we've improved our production in our mills by about another $3 million to $4 million - closer to $3 million.

That's on a year-to-year comparison. We now have implemented the $50 a ton that will flow through and Pete talked about the medium price increase. We will have recovered at the vast majority of the OCC cost increase and actually have a margin increment on a year-over-year basis going into next year.

I have not yet quantified to build out our guidance for 2018 and I'm hesitant to do that because the OCC situation is quite fluid. We're not into trying to project where it is right now. Not really prepared to say what I think the differential will be year-over-year.

Happy to follow up though and just get you the data on what price increases are already in-line and where we are relative to cost - I don't know.

Matt, do you have that handy or not?.

I don't have it handy. We could follow-up..

But we're happy to provide it because it's all available information..

Yes, absolutely understandable. That's very helpful.

And then next, could you - understanding that this is a difficult question to begin with, can you provide your best estimate for the volume impact due to the disruptions for customers and your own logistical network post hurricane Harvey? And then if you can't really provide too much detail on that, can you just compare the impact from Harvey versus an impact from an event like hurricane Katrina years ago and how that impacted your business and how quickly you are able to bounce back?.

Matt, what I'll comment on and I'll give you a broader picture so you'll understand all the elements that's going on in Houston and then I will relate to what we think our volumes may or may not be impacted. We've got six manufacturing locations in that region. It's steel, plastic fibers in the delta chemical blending and an FPS [ph] service center.

We got 457 people there. Today, operationally, we are working in our plastic drum plant. We are on a limited basis today and the other operations are inside the facilities inspecting and cleaning. At this point, we believe that all our operations are in good shape and this is a very fluid situation.

We expect by Tuesday [ph] to be fully operational and we've got a backlog that we are serving customers. The big challenge is how assessable is this supply chain for us to our customers and our customers' supply chain.

Our customers' supply chain and infrastructure is very complicated, much larger than ours as you know and we will get a clearer picture every day.

We have served some customers this week that had some emergencies as their rail cars and their tankers got filled and because of our extensive steel drum network in our system, in the south and southeast, we have served those customers including using some of the distributors that we served.

To date, we've been at good position to serve our customers. The other issue to consider is the supply chain. Our physical suppliers are not in the path of this storm, so we don't see any issues with raw material supply.

But again as I mentioned, there are challenges and transportation within our supply chain to us and us to our customers in our customers' supply chain and how that impacts the volume use between bulk packaging, rail cars, tankers and small packaging which is part of which we supply. I'll let Larry comment on the volume.

What we projected in the forecast, but back to your point on Katrina or the difference in Katrina or Harvey, I think it's too early to determine it.

What I am very proud of is how fast our people have assessed our operations, the pre-planning on emergency planning that has turned out to be very successful and most importantly the pride of our people to the many of them are displaced from their homes, many of them have concerns with their families, but they're in the operations committed to getting us up and serving our customers based on what our customers' trends look like here in the coming weeks..

Yes. In terms of discreet volume impacts, because of the nature of our operations there, as Pete mentioned, it goes across all of our different substrates, the impact on each one, the number of drums and that kind of thing is really immaterial.

What this is made up of in our $2.5 million is as I said, $0.5 million of the September operations which is - that actually pretty easily determine just because of the harvesting schedules that get impacted.

On the remaining $2 million, it really is a look at when were the plants down, what production did we lose during those days and what are we paying our people despite the fact that they're not working.

The last component of that, about $0.5 million or other $1.5 million relates to the down time from each of those plants, that we don't anticipate recovering at this point because it's lost time, lost production.

It's possible that if things ramped up at some of our customers, that we might run extra and catch it up, but we just don't know that at this time. The $2.5 million in total is our best estimate right now of the impact across all of those operations..

Okay, that's helpful. Thank you very much for the details in what's certainly a tough situation. Thanks..

Your next question comes from the line of Adam Josephson with KeyBanc. Your line is open..

Pete and Larry, good morning..

Hey, Adam..

Hi, Adam.

How are you?.

Fine. Thanks, Pete, for asking. Larry, just one on CapEx. Obviously you're taking about it being at the lower end of that $100 million to $115 million as a result of vendor delays and permitting issues et cetera. So obviously, it's going to be at the low end of that range.

Obviously, CapEx has come down pretty significantly in recent years, both on an absolute basis and on a percentage of sales basis.

You obviously are talking about pivoting to growth in the years to come and I'm just wondering how you do that, given what's happened to CapEx in recent years and given how low it is relative to the company's history?.

I'll just reiterate, Adam, I just keep saying this. When you look at an average, it gets distorted because of the significant capital we put into the Riverville Mill and then you also have to factor in the fact that we have closed a lot of operations. So we're actually spending more per plant than we used to.

Part of that is Pete and I's admonition of the business is that don't ever not spend what we need to spend on maintenance CapEx, because we are still having from time to time, negative impacts because we didn't spend what we should have spent. It's like that old car commercial 'pay me now or pay me later.

Oh, I'd rather pay now and pay a lot less later'. We have not cut back on CapEx at all. There is nothing that we need to do or want to do that we won't spend the money for and the only things that get in our way is the constraints of the people commitment that it takes us to get something done.

You can't overload your teams and the second is what we're running into right now. We didn't pull them back on CapEx, but when the manufacturers can't get us the machines at the dates that they told us they would, we're not going to pay them until we get it. That's what's driving the drop in CapEx.

On the go-forward just as we talked about in investor day, we do investing in the new IBC capabilities in Texas, we're building the new steel plant in Russia, we're investing in the new triple wall line in Louisville -- we've got many opportunities that we are in the midst of examining relative to our current business and expanding our opportunities based on market demand, based on customer request.

I could name a few others. The one are steps aligned in Spain, our IBC investment in Germany and [indiscernible] steel plant which is big.

We're spending the capital and we will continue to spend the capital and then as we've said, we turned our eyes also to inorganic growth and will be our and will be active in that marketplace looking for things that meet the criteria that we laid out..

Thanks, Larry. I just want to again, back to the pivot to growth issue. If memory serves, volume and rigid was down, I think a little over 2% last quarter, it was slightly up this most recent quarter.

What should we look at to gauge the success or [indiscernible] you're having with respect to pivoting to growth? Should we look at your volume in your RIPs business? What should we look in RIP specifically to determine the success you're having in pivoting to growth?.

Thanks, Adam. Again, our whole value first, volume; second is how do we have avenues or vehicles to growth our profit. That's our whole mindset. We don't drive our testosterone because of volumes, we drive our motivation and passion between value, coupled with the right type of volume to drive possible growth.

I would measure and we're measuring ourselves and our team and our board is measuring us by profit growth.

Volume is one vehicle to get that but it's not the only vehicle and how value and where we decide to grow and where we have the best chances to serve our customers with value and distinction and get paid to do it that's what's really important to us.

So there maybe some discrete projects that you can measure us on but again, I would measure us on profit growth in all the businesses. So….

Thanks, Pete. I appreciate it..

Your next question comes from the line of Dan Jacome with Sidoti & Company. Your line is open..

Good morning.

I just had one question, can you just give us a little bit more flavor for -- I think you mentioned, you're going to be building out the triple wall assets at -- in Kentucky; can you just talk to us a little bit about your internal expectations for how long it's going to take for those to be fully utilized and for you guys to hit maybe a profit run rate that mirrors what your overall PPS segment is doing now? And then on that same topic, just remind us again what sort of end markets for triple wall you -- are spurring you to do this expansion right now because I think the little laminate is for retail but just remind us again for triple wall.

Thank you..

So our triple wall packaging serves two predominant markets; it's industrial heavy duty packaging, automotive, heavy industrial manufacturing where they transport bulk products in a very rigid package and also the agricultural markets, melons -- water melons, etcetera.

And we serve national market and you can ship that nationally because of the -- especially the nature of it.

We've gotten that business because we thought there was a void on the service model and so much like our sheet feeder -- CorrChoice sheet feeder network high service same day next service; we apply that same methodology where we are changing the service model in the competitive landscape because that's why we got in it.

We've been very successful since we started it, we've run out of capacity, we've transitioned that business to predominantly a triple wall producer as opposed to running traditional corrugated sheets.

That project will be completed in May of 2018, it will drive over 16,000 tons of integration value for our system and we expect the return on that to be approximately three years.

However, the demand for that product from our service model is very, very high and we are very optimistic about how we are positioned in the market to grow and drive profit for our paper packaging segment from that and similar to our also litho-laminate business, just different uses but it's a same type of model..

Okay, great. Thanks a lot..

Your next question comes from the line of Justin Bergner with Gabelli & Company. Your line is open..

Thank you. Just a quick follow-up on the taxes.

The $12 million to $20 million benefit expected incremental in 2018 fiscal year, is that relative to your 2016 GAAP tax burden or your adjusted tax burden?.

That will end up being on both Justin and it's calculated based on our forecast of this year's earnings and some of it is what I'll call fixed dollar, so it won't shift as income goes up but some of it's variable. The components of that filter into that range and it somewhat will depend on whether earnings are going forward.

So it impacts both adjusted and GAAP..

But I guess the baseline tax rate that the $12 million to $20 million savings are against, that's a high 30s; I mean, I'm just -- because of the adjusted tax rate was materially lower in 2016 than the GAAP tax rate if I recall correctly?.

I don't actually remember what our GAAP and adjusted were in 2015 but this is based off of where we are now and right now our adjusted rate is slightly lower than our GAAP rate and both of them will reduce proportionately by the same adjustments..

Okay. I'm just sort of trying to think about if I add the $12 million to $20 million plus the $3 million, that's $15 million to $23 million; that's a good -- 600 or 700 basis points reduction in your tax rate. So that does get you below the low 30s, it only gets you down to the low 30s..

Again, like I said we're right now in our rate -- 34 to 39. So you apply it in that range..

Okay, thanks for the clarification..

Your next question comes from the line of Chris Manuel with Wells Fargo. Your line is open..

Good morning, again. Just a couple of quick follow-ups I wanted to ask. One, if I could kind of come back to the Harvey issue -- look, I mean you've done a good job in getting your facilities back in shape and congratulations to your employees and apologies for those folks that are displaced yet.

But I guess really where I want to hone in on is -- look, a lot of your customer facilities are still down, we're still saying 50% plus of chemical capacity and ethylene capacity -- and the different polymers and things that will end up coming out the other end are still down.

So when you put an estimate together of $2 million, $2.5 million, how confident are you that that doesn't increase a bit, A)? And then B) what are you seeing or hearing from your customers as to when they maybe back up and running? I mean ultimately you may have some other short-term back filling and some other folks to fill but if these facilities don't get back on track, I mean if yours are up and running, you won't have the customer to send to, if that helps? And then a second one to come at it is, I think you guys buy in the neighborhood of 200 million to 300 million pounds of polyethylene globally for -- to make your plastic drums with; surely a lot of that's in the Southeast, are you seeing any issues of getting supply from some of these facilities that are down in order to keep your businesses running?.

Chris, this is Pete. So the rational for the adjustment in guidance was based on the information we knew as of yesterday afternoon.

And you're right about customers, so we have had discussions with our customers and actually some of them needed runs this week because their supply chain was -- off-take was full, meaning the railcar accessibility and tanker accessibility was not available; so we had some rush orders on drums.

What happens in the next week or two, I couldn't tell you -- give you an honest answer. You know, what will happen; there is volatility, it could go either way in the next month.

I think you will -- absolutely in our fourth quarter see volatility and I think it's all based on supply chain infrastructure for our customers and it's very complex as you know. I think you'll potentially see some migration of production for these global companies.

The good news is we are situated within our global network to take advantage of it but at this point it would just be pure conjecture and we're making our best forecast on what we know as of last night and this is very fluid situation.

So I will tell you we're closely communicating with our customers, we're committed to serving their needs and being able to respond and then we'll manage our business in accordance to that.

In regard to resin suppliers, our major suppliers in North America have not -- the facilities that make the resin that we supply are not physically in that region where Harvey is hit, they are outside of that. But the reality is the transportation and supply chain to get in that region could it be impacted short-term.

For the next month we are okay with our supply of resins so I don't see that being a bottleneck for us. I would expect short-term resin pricing to increase for obvious reasons, I think that will subside in the long-term.

But again, it's very fluid, we're in touch with our suppliers and our customers we're in a position to react and serve their needs; and that's really all I can project at this point..

Okay, now that's helpful. Second question I had was -- look, I know you're still somewhat in your early innings of thinking about M&A but as we look forward to 2018, I think you've completed a lot over the last year or two, some of your blue sky announces the look at areas of opportunities.

And then more recently, some of the -- as you highlighted towards the Investor Day, the planning behind how to integrate and put together a set acquisition; where you're at as you said today, we're about wound up with your fiscal '17 but the likelihood of redeploying capital or most likely avenues to redeploy capital in 2018, is that back on M&A? I mean obviously you've got capital projects and things in place but with free cash flow beyond that is it more likely to be M&A or relooking at unlikely repurchase in the interim or how would you think about that balance in the likelihood to get something done in '18?.

Yes, I'll make a few comments Chris and then let Larry talk about deployment.

So in terms of the process we have finished the whole integration due diligence process as we indicated we would do at Investor Day and we are working the process on looking at the funnel and evaluating opportunities that fit in those core -- three core elements that we described in Investor Day.

So again, we worked the process and move forward and I'll let Larry make some comments on capital deployment timing..

Chris, we are as Pete indicated very active right now. We built the model, we have a process for transaction opportunities that we've challenged our business leaders to bring to us and we'll determine whether they flow down through the funnel.

As I went through in June, the first step of that after something is identified is, we will talk about whether it's something that makes sense for us relative to our core businesses and then the business needs to put together a preliminary business case, does it meet the hurdle criteria on that risk profile that we went through with you on that date.

And so we're actively looking at different things, now does that mean we don't have anything even close to announcement or anything else but we are very active at looking to produce opportunities but we are going to be very stringent in what we're interested in because we're very focused on how do we drive profitable growth that meets our return criteria.

So we're hopeful that we identify opportunities but we're not going to set an objective to do X dollar amounts of deals or anything like that, we're going to be disciplined in our process and to the extent that we don't have success in identifying opportunities that make sense for us then we'll be back to looking to redeploying and returning cash to our shareholders as we are at the bottom of that capital structure range that we talked about..

Okay, that's helpful. That's all I had. Good luck guys..

Your final question comes from the line of George Staphos with Bank of America Merrill Lynch. Your line is open..

Hi everyone, just some last questions here to get through.

I just wanted to come back, I think it has been brought up earlier; on strategic pricing -- I think Chris who had sort of poking around at this; would you say that you're largely done with your strategic pricing initiatives aside from Germany where you said it sounded like you still have room to build -- improve the footprint and therefore get leveraged to drive strategic pricing.

What would you -- what guard rails would you provide us around that question? The related question is, within Asia's second quarter where you've suggested there is more competition than you care to see -- I guess competition is good right, but nonetheless it is a challenge from an earning standpoint.

Has it intensified? Is it at the same rate? Is it less than the last quarter but still a thorn in your side? How would you have us think about that? And then I had a follow-on or two on that..

So the first comment or question on strategic pricing, I'd say are heavy lifting in that area with the exception of Germany is fundamentally is over. And then you have competitive circumstances that change or markets that have short-term changes in the competitive profile which I think APAC is certainly one of that.

And you always have that churn through every business, that's not abnormal.

So we're -- that's what we're going through right now, it's just that the market behavior in APAC just a little more intensified now, it doesn't mean we're not afraid of it, we're competing very hard but we're going to compete on delivering value propositions to our customers and testing that value proposition when competitive -- hyper competitive markets exist and it's -- typically it's a shorter time, it doesn't mean this is forever.

It's a good business we have there, we've got really good people and it will work through that but we can point to three discrete customers that make up the bulk of that and we'll continue to serve those customers in the share we have with them and we'll do a great job and we're going to look for opportunities to diversify our customer base in that market and that just doesn't happen overnight..

Understood..

But we are committed to that mindset of value drives profit, not necessarily volume first. So I will hope that clarifies it for you..

It does, Pete.

Now where you're seeing that churn and increased intensity versus a year ago; you know, remind us -- I mean you've probably already covered in and I've forgotten since -- but what was the catalyst for it? And was any of the churn increased competition related to strategic pricing actions from last year and prior years? In other words, you pushed -- if you will and your customers pushed back a bit?.

I mean the hyper competitive probably started in our first quarter which is the end of last calendar year. And the big change, if you look at the raw material scenario, if you look through it; global steel pricing and in China you have -- it was very volatile in the downside and it's been very, very volatile in the upside.

So anytime you have volatility like that, it -- that can influence behavior in the market, good or bad. And I think that's one external piece that you can say that influences behavior and that's one of not the only; there has been a few additional competitors brought in but nothing as the normal.

We'll survive and we'll do well and again that business is a good business, it's performing on a standalone basis, fine; it's just not as good as it was last year and we'll solve it and be successful in that market and we're not afraid to compete with anybody, we'll just do it on our terms..

Yes, it's also one of our best run businesses from an SG&A standpoint, they really do an excellent job of managing their cost structure..

Okay.

And last one, a follow-on from Justin -- I guess he was picking on this before or asking the question; so the $12 million to $20 million of additional tax benefit, does that all flow? I wasn't clear; does that all flow through in fiscal '18 or recognizing it's going to be somewhat driven by earnings Larry, pre-tax earnings? But/or is your view that it will flow into your net income over a couple of years, three years, five months; how would we expect the cadence to look? Thank you and good luck in the next quarter and over the rest of the year..

So we expect the $3 million to occur this year and then reoccur. And then we expect the $12 million to $20 million incremental to occur all next year and they got to reoccur after..

Thank you very much..

I would now like to turn the call over to Matt Eichmann for closing remarks..

Thank you everyone for joining us this morning. We appreciate your time and taking part in our conference call. We hope you have a good rest of your week and a good weekend ahead..

This concludes today's conference call. You may now disconnect..