Kimberly Ulmer - Vice President and Controller Anthony Allott - President and Chief Executive Officer Robert Lewis - Executive Vice President and Chief Financial Officer Adam Greenlee - Executive Vice President and Chief Operating Officer.

Mark Wilde - BMO Capital Markets George Staphos - Bank of America Merrill Lynch Matthew Krueger - Robert W. Baird & Co. Christopher Manuel - Wells Fargo Securities Inc. Anthony Pettinari - Citigroup Scott Gaffner - Barclays Capital Adam Josephson - KeyBanc Capital Markets Inc.

Chip Dillon - Vertical Research Partners Debbie Jones - Deutsche Bank Tyler Langton - JPMorgan Chase & Co. Brian Maguire - Goldman Sachs & Co..

Thank you for joining the Silgan Holdings First Quarter Earnings Results Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Kim Ulmer, Vice President and Controller of Silgan Holdings. Please go ahead..

Thank you. Joining me from the Company today, I have Tony Allott, President and CEO; Bob Lewis, EVP and CFO; and Adam Greenlee, EVP and COO. Before we begin the call today, we would like to make it clear that certain statements made today on this conference call may be forward-looking statements.

These forward-looking statements are made based upon management's expectations and belief concerning future events, impacting the Company and therefore involve a number of uncertainties and risks including but not limited to, those described in the Company's Annual Report on Form 10-K for 2015 and other filings with the SEC.

Therefore, the actual results of operations or financial condition of the Company could differ materially from those expressed or implied in the forward-looking statements. With that, I'll turn it over to Tony..

Thank you, Kim. Welcome, everyone to Silgan's first quarter 2017 earnings conference call.

I wanted to start by making a few comments about the highlights on the first quarter of 2017, make a few comments about the Dispensing Systems acquisition completed on April 6 and take you through the variety of influences driving the increase to our full-year estimate.

Bob will then review the financial performance for the first quarter and provide more details around our outlook. Afterwards, Bob, Adam and I will be pleased to take any questions that you have.

As you saw on the press release, our first quarter results exceeded our expectations as we delivered record adjusted earnings per share of $0.62 as each of our businesses performed in line or better than expected. This compares with adjusted earnings per diluted share of $0.45 in the first quarter of 2016.

As expected, our metal and plastic container businesses benefited from lower manufacturing cost and improved efficiencies, resulting from our recently completed footprint optimization programs. In addition, our metal container business benefited from a favorable mix of products sold in the current year period.

We believe this mix will - the benefit of this mix will level out by the end of the year. Our closures business delivered another very strong quarter. While much of the beat versus our expectations was from timing, we're off to a very good start to the year, and it never hurts to get out of bed ahead early.

After a six-month intense diligence and closing process, we're excited to finally have the acquisition of the Dispensing Systems business completed and are pleased to welcome the business to the Silgan family.

We continue to believe this business will be a great addition to Silgan and are gaining even more confidence in the team and the strategic and financial benefits that will be created through this combination.

Given all the moving pieces, I'd like to make a few comments to clarify our revised guidance for adjusted net income per diluted share for 2017. As you saw in the release, we've increased our guidance by $0.05 to $3.20 to $3.40 from the $3.15 to $3.35 that we previously had. There are three primary points I'd like to make about it.

First, we're off to a great start in our base businesses and are holding our initial forecast of significant improvement from the footprint optimization programs. As expected, these improvements will be largely in the first half of the year as we exited last year with the benefits in place.

Second, the acquisition of the Dispensing Systems business is forecasted to deliver $0.15 of earnings for the nine months of 2017. Net of an estimated purchase accounting charge of $0.15 per share for the write-up of inventory in the second quarter 2017.

If you exclude the purchase accounting, that would translate to $0.30 of earnings, depending on how you want to look at it, for three quarters.

That would annualize to some $0.40 if you want straight-line amortization, and we don't have all the synergies in there, so there'll be some - another $5 million of synergies if you want to look to a pro forma. So full pro forma impact of that, we would characterize as something in the $0.45 rate in 2018.

Finally, as you know, we've taken advantage of attractive long-term credit markets to restructure our debt. Our goal is to increase the portion of our debt at fixed rate and to extend the maturities. As a consequence, we'll incur incremental interest expense in 2017, which will be dilutive by $0.10.

The net of these items drives the $0.05 improvement for 2017, with more accretion anticipated in 2018 as we get clearer purchase accounting adjustments, capture the rest of the synergies and utilize free cash flow for debt reductions. With that, I'll turn it over to Bob..

Thank you, Tony. Good morning, everyone. As expected, we saw a nice improvement in our year-over-year earnings as we now have the new plant startups and footprint optimization programs behind us. The majority of the costs associated with these activities was incurred in the first half of 2016 and began to abate in the later part of last year.

As a result of eliminating these costs and benefiting from the timing of a more favorable mix of products sold in our metal container business, we delivered adjusted earnings per diluted share of $0.65 versus the $0.45 per share in the prior year and modestly better than our estimates.

On a consolidated basis, net sales for the first quarter 2017 were $805.4 million, an increase of $12.7 million versus the prior year, primarily as a result of the sales increases in the metal container business.

We converted these sales to income from operations for the quarter of $56.8 million versus $57.4 million in the prior year quarter, primarily a result of higher SG&A cost, including acquisition costs of $13.2 million, which were largely offset by the benefits from our footprint optimization programs and other improvements.

Interest and other debt expense before loss on early extinguishment of debt for the first quarter of 2017 was $20.4 million, an increase of $4 million versus the prior year quarter.

The increase was primarily due to higher weighted-average interest rates, largely attributable to the shift to longer-term interest fixed-rate debt versus variable rate bank debt. As a result, we incurred a loss on early extinguishment of debt of $2.7 million upon prepayment of outstanding U.S.

and Euro term loans under the previous senior secured credit facility. Our first quarter 2017 effective tax rate was 31% as compared to the 2016 rate of 35.2%.

The first quarter 2017 rate was favorably impacted by higher income and lower tax jurisdictions, while the 2016 rate was unfavorably impacted by the cumulative adjustment of a change in tax law in a certain foreign jurisdiction. Capital expenditures for the first quarter 2017 totaled $38.9 million, as compared to $62 million in the prior year.

On a full-year basis, we expect capital expenditures to be $165 million to $175 million in 2017, which now includes capital expenditures of $25 million for the Dispensing Systems business. This compares to $191.9 million in the prior year.

This decrease represents a return to more normalized capital plan in 2017 versus 2016, which included spending associated with new plant expansions in our footprint optimization programs, partially offset by the capital spending for the Dispensing Systems business.

Additionally, we've had a quarterly dividend of $0.18 per share in March for the total cash cost of $10.1 million. I'll now provide some details for each of our business franchises. The metal container business recorded net sales of $466.2 million, up $12.8 million versus the prior year.

This increase was primarily due to a favorable mix of products sold, which we attribute to timing and the pass-through of higher raw materials, partially offset by the impact of unfavorable foreign currency translation of approximately $2 million.

Income from operations in the metal container business was $43.9 million, an increase of $6.3 million versus the prior year. This increase was primarily due to lower manufacturing cost, a favorable mix of products sold and foreign currency transaction gains.

These benefits were partially offset by the negative impact from the contractual pass-through of indexed deflation and higher depreciation expense associated with the Burlington plant.

Net sales in the closure business were $197.7 million, an increase of $1.6 million primarily due to the pass-through of higher raw material costs, partially offset by the unfavorable impact of foreign currency translation of approximately $3 million.

Income from operations in the closure business decreased $100,000 to $23.8 million in 2017, primarily due to the unfavorable impact from the lagged pass-through of higher raw materials costs.

Net sales in the plastic container business decreased $1.7 million to $141.5 million in 2017, principally due to a less favorable mix of products sold, partially offset by the pass-through of higher raw material costs, a 1% improvement in volumes and a favorable foreign currency translation of approximately $1 million.

Operating income increased $6.7 million to $6.8 million for the quarter, largely attributable to lower manufacturing cost, higher volumes and lower rationalization charges, partially offset by higher depreciation expenses.

Turning now to our outlook for 2017, our current estimate of adjusted earnings per diluted share for 2017 has increased from a range of $3.15 to $3.35 to a range of $3.20 to $3.40 which excludes certain identified items in the press release.

As Tony reflected in his earlier comments, this revised estimate reflects the accretion from the newly acquired Dispensing Systems business, which is $0.15 net of the estimated inventory step-up of $0.15 under purchase accounting, the dilution of approximately $0.10 associated with the financing activity to move to a longer-term fixed-rate structure and no change to our estimate of operating improvement for our base business.

We are also providing a second quarter 2017 estimate of adjusted earnings in the range of $0.65 to $0.75 per diluted share, excluding transaction-related expenses attributable to the acquisition, rationalization charges and loss on early extinguishment of debt.

This estimate includes anticipated year-over-year improvements in our base business and incorporates the newly acquired Dispensing System business, which is expected to be modestly dilutive for the second quarter as a result of the anticipated purchase accounting write-up of inventory and interest expense as a result of the new senior notes.

This estimate compares to net income per diluted share of $0.60 in the second quarter of 2016. Based on our current outlook for 2017, we are maintaining our free cash flow guidance of approximately $220 million, up from approximately $179.9 million in 2016.

Our estimate for 2017 has been updated to include the Dispensing Systems business, cash transaction costs and higher interest related to our recent refinancings. That concludes our prepared comments, so I'll turn over to Anthony who can provide directions for the Q&A session..

Thank you. [Operator Instructions] Our first question comes from Mark Wilde with BMO Capital Markets..

Good morning..

Good morning, Mark..

Tony, I wondered if it's possible for you guys to just talk a little bit about sort of volumes across all of the business lines in the first quarter and maybe including some comments on sort of regional differences in the can markets..

So the volumes basically for the can business were flat as were the volumes for our closure business, and then we were up as you saw 1% in the plastics business. In the can side, it's pretty much flat across the globe, so no big surprise there. On the closures side, it's a little bit of growth in the U.S., very small numbers for now.

A little bit declined, but really nothing to speak of in either side of that. So there's not a lot really there kind of fits with the expectation that we had. Again, the closures is comparing to a very strong season last year, so flat is good there..

Okay.

And could you also just talk a little bit about mix because in the release you call out kind of mix in both cans and plastic containers?.

Yes. So as you know, we sell a big variety of items in both those businesses. So on the can side, which is the bigger part of this, we sell big cans, we sell very small cans, some have easy-open ends, some don't.

So unfortunately, volume is kind of a rough metric, and so really the mix point there is only that if you look at size of can, for example, you had a larger aggregate size of cans in the first quarter than you did first quarter a year ago.

And then in the plastics side, there's a little bit more disparity in terms of which customers are growing versus a year prior. So in both, I'd say there's not a lot of import to it. In neither case, it doesn't really change our view, and this is particularly true on the can side. It doesn't change our view for the year.

We always say to you we have a pretty good sense of what's going to get filled over the course of the year. The timing of when customers take that is a little bit harder to predict..

Okay. That's good. I'll turn it over..

Thanks, Mark..

Our next question comes from George Staphos with Bank of America Merrill Lynch..

Hey, Tony. Hey, Bob. Hey, Kim. Good morning and thanks for the details. Just maybe finishing up on Mark's question.

And so given that you know what customers in theory are going to be filling and to what amount, that is what informs the comment, I think, earlier that the mix issue will dissipate over the course of the year, correct? Nothing more than that?.

That's correct. Nothing more than that..

Okay. Now correct me if I'm wrong, we had picked up in our research that there'd been a little bit of share shift in the food can market, and perhaps Silgan had lost a little bit of volume earlier in the year. I know there's always puts and takes on this year-on-year.

Can you comment if there was any move of volume to your peers that would have registered in the first portion of the year?.

Sure. So as we have talked about for, I don't know, two years now, there is some excess capacity in the market that we've talked about that being out and affecting kind of the customer situation across the board, at least in calling on customers. So it is true that we did lose that customer on the West Coast, very small.

So we're talking about a sub-1% of our U.S. can business. So little change. That will affect mostly the back half of this year and again modestly. But I'll be back; it did not have much impact at all in the first quarter..

Okay. Thank you for that.

And then recognizing you're up against tougher compares or worth up against tougher comparison in the closures business in the first quarter, what sort of end market development do you expect for the business? And more broadly, what kind of volume growth x the acquisition effect should we expect for the closures business over the rest of the year? Is flat appropriate? Or do you think you'll see moderate growth, given the end market development?.

George, it's Adam. I think Tony touched on this earlier, but flat volume versus a record year, all-time record year in 2016, we're going to be pretty pleased with that at the end of the day, and that's really what our expectation was coming into the year.

As far as the markets that continue to support the strong volume that we've seen thus far and anticipate for the rest of the year, it really is driven by the single-serve beverage market in the U.S.

So our standard hot-fill market is again all the data available will tell you that ready-to-drink teas, et cetera, are outpacing the rest of the market and that is where we've seen terrific growth in our closures business. So we see that continuing to be strong and continuing at the levels that we saw last year.

So we'll see what the weather looks like this summer. But as we sit here today, feeling very good about our volumes and again off of a record year last year, we'd be pleased with similar volumes of 2016..

Okay. Last one for me and I'll turn it over just to be mindful of time. Any initial observations on the Dispensing business in terms of what you didn't know then that you know now that is either a positive or negative? I realized it's a broad comment, but whatever you could share would be great? Thank you..

Sure, sure. It's a good question. It's a broad comment. We've been together not even a month yet, but I would say everything we've learned since we last talked about it, since we closed it, et cetera, would go into the positive category. I can't - or as I sit here today, think of anything we've thought on the other side of that.

So we felt really good about the management team and the organization and the people in the business before, we would double down on that view now.

We had talked last call about whether there would be some benefit between the customers that we have in common with each other, and I would say the reaction from the market has been very strong and helpful in that case. We obviously signed up for some synergies of some $15 million over two years.

We feel stronger about our ability to achieve that number now than we did, although we felt strongly before. So right now, it's everything to the positive. I know that won't last forever, but that's what I got for you so far..

Thank you, Tony..

Thanks..

Our next question comes from Ghansham Panjabi with Baird..

This is actually Matt Krueger, sitting in for Ghansham.

How are you doing today?.

Great Matt..

I just wanted to touch briefly on the metal food can segment.

Did you see any pre-buying activity ahead of potential price increase over the course of the year during Q1?.

No. It doesn't the way - particularly the U.S., the way it works is your increase kind of happens right out of the box. And so there's really not much opportunity to do that. You might, in some cases, have a little bit more opportunity on that in Europe, but there's nothing there that would lead us to think that, that's what's occurred..

Great. That's helpful.

And then what sort of raw material assumptions do you have baked into your guidance? And can you remind us how much steel and resin you consume now on a post-Calmar basis or post-Dispensing basis?.

Yes, I don't know that we have ever given that exact number out there, but what I would tell you that steel is going to be up - or is up now. I mean that's all negotiated in and it's somewhere depending on geography in the high single-digits to low double-digits. In some cases, it actually even into the mid double-digit, 15% approaching range.

So it's significant increase across the board. And again, it depends on geography, how much that is.

Do you want to hit the kind of…?.

Sure. On resin, really we're unchanged on the year, as we had talked about on the prior call, there's some volatility continuing to go on with the various resins that we utilize.

But over the course of the year, we think that's going to play out and essentially be flat and a nonevent for the year, although there might be some specific timing within the quarters..

Great, and then last one for me. You guys clearly saw some good margin expansion from the footprint optimization efforts.

How do you expect this to trend throughout the remainder of year and can you quantify exactly how much those optimization efforts provided by segment in the quarter?.

Let me, well work backwards on that. So first of all let's just talk about the year, which what we had said is that we'd be getting on an EBIT basis in the container business, some by the can business, some $9 million of EBIT benefit, and we're looking for $15 million of benefit in the plastic side.

All of that would be primarily front loaded because in the can business side, you had all the startup costs associated with the new line and no benefit from it.

By the back half you didn't have those backup of last year - didn't have those start-up costs anymore and you're costs anymore and you're already getting the benefit of the warehouse that we also built along with the plan. So you're getting a lot of the benefit by the back half of the year and none of the kind of burden costs that came with it.

So you're going to see the bulk of that in the first half, and that's exactly we saw. So basically if you split that number in half over the two quarters that would be close enough to the benefit on the can side. Plastics base the same thing, which is that we're going through a process that evolved throughout 2016.

So by the end of 2016 our run rate was coming up, and so we're cycling over the easiest comps if you will, when we were least efficient on that, and that too will happen in the first two quarters, maybe a little bit to the third, but not much.

So again, I'd say if you kind of split that $15 million and assume sort of $7.5 million on each quarter, that's going to get you pretty close to what happened..

Yes, I think Matt also on the - as it relates to the margin question, I think that exacerbates the margin expansion in the first quarter because you got a low revenue quarter. You got the cost saving against a relatively low sales base, which is going to make the margin improvement look very strong..

Okay, that very helpful. That's it for me. Thanks..

Thanks..

Our next question comes from Chris Manuel with Wells Fargo..

Good morning gentlemen and congratulations to a strong start to the year..

Thanks Chris..

If I could kind of dive into the Dispensing Systems business, maybe just a little bit or kind of think of it broadly with respect to your old closures business that now it's about doubled in size, at the time I think you went through the acquisition process, you talked to us about maybe having kind of low to mid single digit growth out of that business.

Granted it's overtopped a lot of stuff, but kind of give a sense of what you maybe saw in the last full quarter, it would've had reported or what you've got kind of baked into the balance of the year? Are you seeing some nice growth in that dispensing side? I'm guessing it's probably more in the health care and aerosol stuff as opposed to maybe personal care or trigger stuff, but any sense would be helpful..

Sure, yes. I think there are sort of two answers to that. First of all, as we had said as we went through the process of announcing the deal that the December numbers, which were not the audited numbers, we couldn't talk a lot, but the business was already performing a little bit better through December than it has through the September year.

And so far, that is growth the business had experienced. The other thing we talked about is that there was a pretty healthy pipeline coming in. And one of the reasons that gave us confidence about the improvement of the business was the size and opportunity that sat in that pipeline.

I would say that's developing well, and so we continue to believe there is growth that sits there. I don't know that we really put a number on that yet, but I'll go back to the answer I gave to George, which is kind of everything we've learned since the deal has been to the positive side.

So I'd say the development of that pipeline has been has been better than we might have expected thus far. A lot more work to do there, of course, but - so we are expecting reasonable growth of the business over the next couple of years and see pretty good evidence that supports that..

And you've got capacity in place to support that.

There's not going to be a big spend to have to build for that or…?.

Not a big spend, a little bit of both. So what we had said before is the business might be in $25 million to $30 million annual kind of capital. We feel that should give us room for the growth that you're talking about. So that's we're still feeling good about that.

Probably the number this year will be in that $25 million range, although I'll point out that's over three quarters. So that's a little bit on the accelerated side, not much if you annualize it, but a little bit.

And that just probably the timing when projects came through and of course, I think if a seller can avoid spending capital they would probably do that, so you get a little skewing from that..

Okay. That's helpful. Last question for Bob. At the time when you guys first announced the acquisition, you spoke of seeing no reason why Silgan as a platform business didn't have $300-plus million of cash flow generation capability.

So I get that you're still going to have maybe, per Tony's comments, have a little spend next year to build out some capacity and do some work, but as we look at 2019 and beyond, once you have all of the synergies harvested and all that fun stuff and seeing a little bit of growth out of this, and again appreciating, you're not sitting here giving us 2018 guidance not so if 2019, but are you feeling like directionally something like a $300 million is a reasonable spot to be for your cash flow in the near future?.

Yes. Look, I think the commentary when the $300 million number was put out there, when we announced the acquisition, it was a forward-looking number, and it was approaching $300 million.

I think that was, one, having the benefit of the full synergies of this business, some growth on that business and our base business going forward and therefore, the benefit of delevering and getting incremental cash flow as a result.

So I don't think there's anything - with that as sort of the backdrop, I don't think there's anything that's changed from that viewpoint, but again, it is a forward-looking numbers. So to your point, it's not 2018 or a 2019 kind of number that we're trying to give you guidance on.

It's just directionally that's where we think this business is heading..

Okay. That's helpful. Good luck guys..

Thanks..

Our next question comes from Anthony Pettinari with Citi..

Good morning. Looking at the free cash flow guidance, I was wondering if you could quantify the cash cost you expect to incur synergies for the remainder of 2017, and if possible, 2018. And then you referenced cash transaction costs in 2017. I was wondering if it's possible to put a finer point on that..

Yes. So I think what we had said at one point, we thought the business would generate nearly $40 million of free cash flow, the business being the dispensing business. Obviously, that's on a full-year basis without having the cost to, one, do the transaction or the cost to incur the synergies.

But I think transaction costs here at the end of the day will be close to $20 million, and then you've got costs to get the synergies. That probably get us somewhere in the neighborhood of $10 million by the time we're all set and done to get those costs.

So that's sort of the order of magnitude and the rationale, including the incremental interest that we weren't forecasting on our original guidance, just sort of how we get to holding the 220, which is now inclusive of the business for the remainder of 2017..

Okay. That's very helpful. And then just on Burlington, I mean, you completed commercial calls last quarter.

Is there an operating rate kind of ramp-up that you can talk to for Burlington? Is the plant now running effectively fully? Or I just kind of wanted to understand where the plant is running right now?.

Plan is fully up, fully running as busy as it can be..

Great. I'll turn it over..

Our next question comes from Scott Gaffner with Barclays..

Thanks. Good morning..

Hi, Scott..

Tony, any early read on the pack whether it's in California or in Europe? Anything that you're hearing thus far from your customers?.

No, not really. For everybody else, I'll just review. Our expectation was that it was not a great pack in Europe, so we still expect to have a better pack in Europe. It was a pretty normal pack in the U.S.

last year, so the comp there should be - our expectation still is pretty comparable, but nothing of relevance on kind of growing conditions, et cetera. Europe has been a little cold in the last couple of weeks, so that may put it behind schedule a bit, but that's a minor point stage. So not a lot to say there.

I think as much as anything, we're watching a few customers and trying to see what their development is about their expectations in their business models. That might be more important frankly the growing condition and nothing really to say on that, but that's probably more of the relevant item to watch now..

Okay. And just going back to Dispensing Systems for a minute, the $5 million in synergies. I think you said that was for 2018 if I recall.

Where are those synergies coming from relative to the full $15 million of synergies?.

What we have said and we still hold to is the idea of $15 million over two years that some kind of that will come out of sort of the SG&A overhead structure of the business and five out of the purchasing side. That's still our expectation.

And what you have in the numbers right now is for this year, we've embedded that we'll get to a run rate of 10 of those by the end of the year. So you don't actually get 10 in the three quarters, you get more like seven in the three quarters, but your run rate is 10.

And then you get five next year is the expectation, and that will be some of both the purchasing side and the admin, although a little more will skew on admin to this next year. So more of the incremental five will be add in the purchasing would think.

One other thing I just want to say that's sort of related here that we haven't quite said is that we're giving you our best estimate on the accounting side of this the purchase accounting, et cetera, which we said is $0.15 or some $30 million of costs, that's inventory write-up primarily on that. It is worth saying we are not done with our valuation.

We are not done with all the accounting work on that. So there could be movements on those numbers. That's just our best estimate at it right now..

Fair enough.

And why not back those write-ups out of the EPS number adjusted EPS?.

We really can't. I mean, it's a GAAP, the specific GAAP rule that you write your inventory up and treat it that way. And so I think for us to take that then out is a little inflammatory, so I don't think that works.

And so therefore, we think it's pretty important that all - the entire analyst community gets it, so we're not cycling against guidance that is inconsistent with that. So our view is it got to be embedded in the numbers. It really shouldn't be an adjustment to the numbers and so..

But one more point there is that it is a one-time cost so it won't be recurring. It's just a write-up of the inventory that we're acquiring..

Fair enough. Thanks guys..

Thanks..

Our next question comes from Adam Josephson with KeyBanc..

Good morning, gentlemen and Kim..

Good morning, Adam..

Tony, I just a couple on the deal.

So with the synergies you are talking about mainly SG&A reductions and procurement benefits, can you talk about just the customer or product overlap that exists here that - such that you could deride benefits from other areas?.

Sure. And we did talk a little bit some before, but I think what I said is that we didn't put any of that into our assumptions around the business because it's a little hard to know, gauge and measure in the future how much you got from it.

I think I also said that we've been surprise since the announcement of the interest from our customers to talk about - our bottle customers that want to talk about our capability on Dispensing Systems side or Dispensing Systems customers who want to talk about the bottle that's underneath our closure. And so we've had quite a bit of interest on that.

There's already been a case or two where one group has been able to add a little bit of help to the other group. And so I think definitely we're gaining and of view that there's some opportunity there. I just think it will be - it will play out over a long period of time. And so if it's not in our $50 million, it's not quantified.

The other one I missed is the dispensing closure side which is - does have food customers and food capabilities which gets much closer to where our existing closure business is, so there's really great overlap there as well. So I think there will be opportunities and we had not quantified it and will take time..

Sure.

Just on the organic growth profile that you said you hope to get a little bit of growth, just underlying growth over time? How would you characterize the organic growth profile this business and why?.

Yes, when we say - there's kind of two growth opportunities there, so the organic growth is probably in the low single-digits maybe get some mid single-digits. That varies a lot by market. So if you remember, we talked about the triggers sprayer market are pretty mature markets.

They're going to have kind of modest growth certainly in the markets we serve today. There, you're going to get some international growth would be the kind of the plan growth on the trigger market. Dispensing pump sort of the same situations pretty mature product, so most of that growth is going to be around developing markets.

The areas for the business has seen growth is more in spray pump areas little bit aerosol spray side. So those areas the business had growth of last couple years and we think that that will continue to drive some of that growth and then healthcare, of course, is an interesting growth opportunity.

So I would say that it's - so the organic, I gave it to you, but it's very different by each of the kind of market spaces that they're selling into. And then I would just add to that that the other on growth - so those are the main parts where the growth will come from..

Okay.

I know it's way too early to be talking about tomatoes, but anything from just a heavy rains in the West Coast that might affect you later in the year, good or bad?.

Not that we're aware of at this stage..

Okay. And Bob just one for you on the tax rate, forgive me if you mentioned and I escaped me, but it was lower than what we were expecting.

Are you expecting any lower tax rate for the year than you were previously, just based on the geographic mix of earnings?.

No, I think it's basically chocked up to timing as well. So you've got more income in the quarter and lower tax jurisdictions, so that's driving a little bit of benefit. It maybe wiggle a few basis points one way or the other, but essentially we're kind of holding the forecast to what we had talked about previously..

Terrific, thanks a lot..

Adam, before you leave, now that my senior moment has passed, the other part of growth I wanted to hit is that there's going to be acquisition opportunities. On top of this is what we talk about.

So it is partly the organic side and partly what we like about this business and the fit for us is we really do think that they're going to be opportunities to grow some of these business areas through acquisition and sometime in the future.

So I just don't want to lose that part, which I think is an important element to the overall growth opportunity that this business delivers to sell them..

Sure. Thanks Tony..

Our next question comes from Chip Dillon with Vertical..

Yes, good morning Tony, Bob and Kim. First question is on the - you mentioned the interest expense impact the $10 million from the refinancing on this year.

Should that be like what $0.12, $0.13 next year? So when we think about the accretion, we take the $0.45 you told us and then we take off the $0.12 or $0.13 roughly to get to a net number?.

Yes, that's probably about right. But I want to be clear that we're - when we talk about the accretion of business, it's burdened with spiraling. So we're sort of have a two different things, what we did is we had a very variable rate short-term balance sheet and we fixed it out, which doesn't really have to do with the acquisition.

So the accretion number that we gave you, let's say $0.45 on a pro forma basis when all synergies are in that has full bank borrowing burden on it so the only thing left is the higher rate associated with the long-term financing that we did, and then the answer is yes. That will affect next year as well..

Yes, it will have to be annualized, essentially now..

But I just don't want you to think $0.45 less $0.10 and business is only $0.35 because that's not accurate..

Okay, understand. That's very helpful.

And then as we think about CapEx next year and I know what your early days, but assuming - first of all maybe what is sort of the base now with the dispensing business? And I include in that the normal kind of productivity things, but would there maybe something extraordinary on top of it like you did a year or two ago with the footprint optimization?.

No, I don't think as we sit here today, we're expecting any anything certainly nothing to the order of magnitude that we undertook for the footprint optimizations.

As we said we added roughly $25 million to this year's forecast, which is already kind of a return to a more normal kind of range admittedly that $25 million if you were to annualized it is maybe a little bit on the high side of what we would expect for that business to the point that Tony was making that there's probably a little more that's carrying into our portion of the ownership.

But something that's in that kind of 170 kind of range plus or minus either side is probably still a pretty good target..

Okay, that's helpful.

And then as you just to update us, when you think about your balance sheet when - do you have sort of a point where you think you feel we would feel comfortable getting back in the market in terms of a buyback or said differently when maybe just review what your target debt ratio is and when you think you get there?.

Sure if you pro forma and it's confusing in the release because it doesn't include the acquisition right.

But if you pro forma are debt and EBITDA for the acquisition in probably be sitting somewhere right about 4.5 times levered as of right now, with the free cash flow generation that probably comes down to look like something like 4 times, by the time we get to the year-end.

So a little bit higher than what our historical range has been, but I'd also say given where interest rates are and the way we've fixed it out being up near the higher end of that range is probably appropriate right now. So I think we are on the path to delever in a pretty quick fashion.

So I think as we've demonstrated that will certainly look to be opportunistic around the M&A front, but I think our first priority is to demonstrate that deleveraging ability and use our free cash flow to pay down debt in the near term..

Just to emphasize that. I mean, again, over the last six years, we've returned almost $1.3 billion through buybacks and dividends to shareholders. So a, I think we've demonstrated the cash capability of the business and our willingness to do that.

But two, I think that we've also with the new acquisition Dispensing Systems, we've enhanced our ability, I think, to find acquisitions and go to our preferred use of capital, which is through acquisitions..

I see. And really quickly, just on the purchase adjustments, and I know you are still fine-tuning them, what is the incremental depreciation.

I guess both - I don't know if you can answer both ways, but based on sort of what the seller was depreciating dispensing at and then what your step-up is?.

Actually the biggest item we're talking about is an inventory write-up, not a D&A item so what we….

I understand that, I just didn't know if you could separate those two..

Sure. Right now we are estimating some $13 million of an inventory write-up, which will - that will all come through in the coming quarter, which is why we're dilutive in the coming quarter. The D&A in the business with some $51 million, I think, if you were trailing back.

Right now, our assumption, what we're giving you is that we'll actually be a little bit lower than that, maybe on an annual basis, some $5 million lower. So that's all what's embedded in those numbers. But again, that needs to be completed and finished before we know for sure..

Yes. A lot of work to do between now and giving you a final number, but that's our best guess as we see here today..

Okay. That's really helpful. It's interesting just, I think, in the last like 10 or 15 deals and broadly speaking packaging, other managements have chosen to sort of take out the negative impact of the step-up in inventory, but you guys are taking clearly a conservative route, and we appreciate you calling that out..

Thank you. And I wasn't even sure that was the case. We certainly debated internally. But as you heard before, our feeling is that it's a pretty clear rule, and to undo that rule doesn't make a lot of sense in the adjustment.

So as long as everybody knows what it is, and again as I said, it's pretty important that The Street gets [indiscernible] consensus gets confusing. So we're trying to be as clear with it as we can..

Thank you..

Our next question comes from Debbie Jones with Deutsche Bank..

Hi, good morning..

Good morning, Debbie..

I was hoping we could talk about plastics. You seemed to be on track there.

Is there also potentially a possibility that you could exceed kind of $15 million in total improvement in that segment this year?.

Well, I think that as both Tony and Bob had mentioned earlier, I mean, the target for this year was delivering that $15 million, and that's exactly what the business is focused on and that's a substantial change year-over-year. So the good news is we are confident and we are on track to deliver that $15 million.

So again, it's early days also so we - in Q1, we've had five consecutive quarters of improved performance, so we are getting better. What we're doing is working, but we're really focused on that $15 million. And at this point through Q1, I think I'll just say we're confident that we are going to deliver the $15 million..

Okay. Fair enough. And then I wanted to ask about metal food volumes. You mentioned the share loss or a very small loss in the West Coast, could you perhaps gain some share as the year progresses and you do have a low-cost facility in the Midwest. Just wanted to get your thoughts on that.

And then, two, could you just remind me what would drive kind of a larger size format in Q1? Not really kind of part of the pack season. I think you had can sizes in the last year that you called out.

Could you just remind us of that?.

Yes, it's a sort of two things. I'm going to answer in reverse order. So on the mix question, there's sort of two parts. It could be that you have some decline in smaller cans that makes the mix go up. So in one case, we had a customer of small cans who took some shutdown of their fill lines, so that had some impact on it.

And then some are just the order pattern of customers, which cans they order first, what's the size of those, do they have easy-open ends on them versus not and what's the impact of that. So that's what can drive and that's essentially what happened. Can we gain volume? Sure.

I think as Silgan's focus is really to provide the best value to our customers and help them grow in the market. So as a rule, we're not out trying to sell new volume into the market. Our feeling is that it's not a really constructive long-term strategy for us.

So now with that said, if there's movement on our volume, does that mean we won't react to that. No, it doesn't mean that. So you could get some waves across the water in that regard, and so that's what's playing out. But it's not our expectation we're going to pick up a meaningful amount of volume this year against what we've talked about..

Okay, thanks..

Our next question comes from Tyler Langton with JPMorgan..

Yes, good morning. Thank you. Just quick question on plastics, I think you mentioned mix was a little weak in the quarter.

Can you just talk about what drove that? And then should mix get better as the year goes forward maybe it is kind of with the new footprint try to go after some higher margin business?.

Sure, and mix is as you saw in the press release, it really was called out on the top line of the business. It really didn't have an impact on the bottom line per se.

So what it was is our continued efforts on rebalancing our customer portfolio as we've identified bottles that were essentially higher sales revenue items with higher costs associated with them or lower profit and have moved away from that and some of the new business that we brought into our lower cost facilities is improving the overall mix of the business.

So I think as we look forward out beyond 2017 and bring volume back into our system at our lower cost facilities, the mix will continue to improve as we've got a lower cost base to run that volume across..

Got it. That's helpful, thanks.

And then Bob, just a free cash flow guidance of the 2020, I know you mentioned sort of there's $20 million of transaction cost and maybe $10 million of costs to get the synergies and are there any other sort of puts or takes there, benefits on it like you said any working capital gains this year, just anything else that's kind of driving that to 2020?.

No, I think the other thing that we talked about I didn't necessarily specifically called out, but you do have a little bit of acceleration of the capital for the dispensing business that's coming in there that's affecting it and obviously the higher interest relative to us moving to the fixed rate structure is having a little bit of influence there as well, but nothing that would impact our longer-term view and then as always we're looking for opportunities to hopefully improve our working capital as we move forward throughout this year and into next year as we get to business fully integrated as well..

Okay, great. Thanks so much..

Our next question comes from Brian Maguire with Goldman Sachs..

Hi, good morning everybody..

Hi Brian..

Hi, Tony just coming back to your comments, I was just still a little bit confused about the 1Q results being a lot better than the initial guide and then kind of comments around the full-year being kind of on plan, on track? Is it the case where you pulled forward some of the earnings from the rest of the year and there will be some give back later and if so that in 2Q or how is that flow out and I guess the comments around mix, it seemed like it was more of a topline impact, but just trying to understand whether driver were there?.

Yes, that the answer is yes, there will be a give back for sure, which is kind of why we're sticking with our full-year guidance. The so it's both topline and bottom line, if volume is flat, but just selling much bigger cans or dollar contribution from those bigger can is most simplistic one is favorable for you.

So you got the benefit of that in the first quarter and that will offset - mostly that will offset as we look at it right now in the third quarter because a lot of it has to do with our seasonal business, so that would be for the cans side that would be most prominent offset with third quarter.

We really talked about it yet, but you also have the shipping days, and this would be true I think for most businesses by the way. I think the shipping days were better this year than last year. You had Easter fell into the first quarter last year and second quarter this year.

So just broadly and sort of a separate point you had a little bit better on shipping days this year versus last and we've sort of thought across our business as well..

Okay, thanks. That helps.

And I think in response to Chip's question, you kind of mentioned this, but the DNA outlook for the year with Calmar in there, we kind of around less than $200 million, but maybe like $190 million or so?.

Yes, that's pretty close, yes..

Okay, great..

Very preliminary, right - but yes..

Okay, thank you. Appreciate that. And then last one, last quarter I asked you about the pass-through mechanism that Calmar and you asked me to just defer it till after you closed the deal.

But now that you've got it and open you could maybe answer it and just how that differ from the rest of your closures business and then how it differs from the metal container part of the business too?.

Okay, I had lost track that we have done that. But so the there's sort of hybrid answer here. There is a portion of the business that has pretty good pass-throughs, a little more lag maybe than some of our cases. But there's a portion of pass-through. There is a portion that has historically not passed it through.

And so that's the part where we'll look at over time and say does it make sense to pass it through or not? In many of those cases, the resin is a much smaller - it's a small high-value part and so the resin less of a component, that's kind of why the business has been less inclined to get through direct pass-through.

So I would say there's no one-size-fits-all on this. And so the business today is a little bit more vulnerable to moves in resin than the rest of our businesses, but I don't think it's going to prove to be a really big point..

Okay. Thanks very much..

[Operator Instructions] Our next question comes from Mark Wilde with BMO Capital Markets..

Yes. Tony, just a couple of follow-ons on the dispensing business.

First, if you look at your footprint in dispensing versus the footprint in kind of caps and closures, are there opportunities either to kind of rationalize or maybe where you can kind of put incremental volume and new product lines in some of the facilities you picked up?.

Not really. First of all, both businesses are pretty darn busy and full. We were pretty good at optimizing our plants, so there's just not a lot of opportunity to do that as we see it today. I think there could be opportunity as we go forward and think about growth initiatives. Maybe you could do some collective growth initiatives together.

But right now, there's not a lot of obvious kind of plant fits, and that was never part of our synergy thought..

Yes.

But as I recall, hasn't been dispensing have some business down in Latin America and I don't know whether you are in all of those locations?.

It does. We are though. So they're in Brazil as are we. They're in Mexico as are we. They're a little bit bigger Mexico than we are. So it doesn't really open up any meaningfully new spots, so more scale for sure. So certainly, as I just said, there's more scale in Mexico, but doesn't fundamentally change that..

Okay, all right. That's helpful. You've mentioned a couple of times the potential for kind of growth, more growth through acquisition and that combined area.

Can you just give us some sense of where that might go directionally?.

Yes. Hard to answer that because the business touches a lot of markets, right. So it's got a health care position, which is not huge, just kind of 6% of the acquired business, but a very good and growing spot. That's one reason. Maybe you could add something to it.

As we talked about, they're in aerosol sprayers, but a small part of the overall market on that. So is there's an opportunity that sets up there. I can almost go through each of these.

Certainly, the fragrance market, are there opportunities that could set up on that side, so I think what's really nice about the business as we talked about before is there's a lot of commonality in the production and the engines that drive the business, but it touches a lot of markets and a lot of market opportunities.

And so it does give us quite a few areas that we could think about expanding either through acquisition, which will be quicker, or in some cases organic and that's why I think that you got to consider both sides of it..

Okay, all right. That's helpful. Good luck in the second quarter and through the year..

Thanks Mark..

Our next question comes from George Staphos with Bank of America Merrill Lynch..

Hi, guys. Thanks for taking my follow-on. I actually had a similar question to what Mark was getting at or in terms of growth for dispensing, but a little bit different angle. When you look at the candidates that are out there ultimately to build this business platform with acquisitions recognize, just closed on the deal.

Would your observation be that the required capital investment in those businesses might be higher than what you've been finding with dispensing business so differently? This was a good asset, pretty well capitalized.

The other ones, if we went through the list which you clearly won't do on the call maybe would require a little more capital, I mean that would be our observation, but how would you see it? Thanks and good luck in the quarter..

Thanks George. Again, I just covered a lot of market, so I think it depends across those markets and what the player is. I think the capital component to some of those higher-value markets, for instance, is higher, but so too is the margin and so I think the free cash generation is can be very good, but you really got to get down to the details.

So I think your question is an excellent one. It reflects how we will think about it which is what is sort of the free cash generation capability on acquired business. And our belief is that the answer will be across the board and that there will be good free cash generative opportunities amongst the group of potential acquisitions..

Okay.

Would it be fair to say that you want to integrate this successfully over the next couple of years, and perhaps you've already said this, and if you have I apologize for asking you to repeat it, but would it be fair to say that for the next couple of years you are not necessarily looking at those opportunities, so that you can integrate this successfully or would that be an incorrect statement?.

Well, I say that if we could sit in an ivory tower and put a game plan together, the game plan let say let's get this fully integrated at least for a year then start looking for a deal that gets done in two years' time. Of course, the world doesn't work that way, so the right asset might come up next week, tomorrow, next month.

And I think the hallmark that's still going to go in then that we have to be opportunistic when the time comes, so yes to your question that's what we'd like, chances are, won't play out exactly that way..

Okay. Thank you very much guys. Talk to you soon..

It appears we have no other questions in the queue at this time. I would now like to turn the conference back over to Tony Allott for any additional or closing remarks..

Great. Thank you, everyone. We appreciate your time and we look forward to talking about our second quarter in July..

That does conclude today's conference. Thank you for your participation..