Kimberly Ulmer - VP & Controller Anthony Allott - President & CEO Robert Lewis - EVP & CFO Adam Greenlee - EVP & COO.

Mark Wilde - BMO Capital Markets Anthony Pettinari - Citigroup Chris Manuel - Wells Fargo Securities George Staphos - Bank of America Merrill Lynch Debbie Jones - Deutsche Bank Adam Josephson - KeyBanc Capital Markets Chip Dillon - Vertical Research Partners Tom Narayan - RBC Capital Markets Brian Maguire - Goldman Sachs & Co..

Good day and welcome to the Silgan Holdings Third Quarter Earnings 2017 Conference Call. Today's conference is being recorded. At this time, I'll turn the conference over to Kim Ulmer. 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 beliefs concerning future events impacting the company, and, therefore, involve a number of uncertainties and risks, including, but not limited to, those described in the company's Annual Report on Form 10-K for 2016 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 our third quarter 2017 earnings conference call. The agenda for this morning as usual will be to focus on the financial performance for the third quarter, to review our outlook for 2017. After that Bob, Adam and I'll be pleased to answer any questions that you have.

As you saw in the press release, we delivered adjusted earnings per diluted share of $0.66 for the third quarter, an increase of $0.05 per share or 8.2% versus the prior year quarter and within our quarterly expectations.

This improvement was largely attributable to the acquisition of the dispensing systems operations which continue to perform strongly and benefited from improving demand, good operational performance and an integration program that is on-track to confidently deliver the expected synergies.

Operating performance in our plastic container business continue to improve as the business once again delivered sequential improvement in the quarter with operational progress and some volume growth. Finally, each of our businesses performed well in serving their markets and driving operational productivity.

These benefits were partly offset by a variety of weather conditions impacting our business. In our metal food container business fruit yields were lower than expected and cooler wet conditions in the West Coast led to an abrupt stop to the tomato pack in the quarter. The cooler summer weather across much of the U.S.

led to a lower single served beverage season as compared to a record year of 2016. With the correction to filling activities largely taking place in the third quarter.

Additionally, several of our plans were impacted by hurricanes in the quarter resulting in unscheduled shutdowns and incremental logistical costs in supporting our customers in a seamless manner.

So despite the many puts and takes year-to-date, we're maintaining our guidance by tightening the range of our full year estimate of adjusted earnings per share to a range of $1.62 to $1.67.

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

Great. Thank you, Tony. Good morning, everyone. As Tony highlighted, we delivered quarterly results within our expectations and 8.2% above the prior year quarter. While there is still work to be done, we're making good progress on integrating the dispensing systems operations and unlocking the targeted synergies.

Our plastic container business is benefiting from the recent footprint optimization program and continues to make progress on improving its financial performance. While weather related issues negatively impacted both, the metal food container business and the legacy closures business, they both had strong operating performance in the quarter.

On a consolidated basis, net sales for the third quarter of 2017 were $1.270 billion, an increase of $127.3 million as our closures business benefited from the Dispensing Systems acquisition and our plastic container business had higher sales for the quarter.

Net income for the third quarter was $72.4 million or $0.65 per diluted share compared to third quarter of 2016 net income of $69.8 million or $0.57 per diluted share.

Results for 2017 included rationalization charges and acquisition cost totaling $1.4 million, and 2016 included rationalization charges of $7.8 million for a total increase to adjusted earnings per share of $0.01 and $0.04 respectively. As a result, we delivered adjusted income per diluted share of $0.66 in 2017 versus $0.61 in 2016.

Interest and other debt expense for the third quarter of 2017 increased $13.3 million, to $30.6 million primarily due to higher average outstanding debt borrowings related to the acquisition of Dispensing Systems and higher weighted average interest rates including the impact from increasing long-term fixed rate debt in February 2017.

Net capital expenditures for the third quarter of 2017 totaled $42.9 million compared with $39.7 million in the prior year quarter which did not include the Dispensing Systems operations. Year-to-date, net capital expenditures totaled $123.7 million versus $142.6 million in the prior year.

Additionally, we paid a quarterly dividend of $0.09 per share at September with a total cash cost of $9.9 million. I'll now provide some specifics regarding each of our business units. The metal container business recorded net sales of $772.4 million for the third quarter of 2017, a decrease of $25 million or 3.1% versus the prior year quarter.

This decrease is primarily a result of lower unit volumes of approximately 5% and a less favorable mix of products sold, partially offset by the pass-through of higher raw material costs and a $5 million favorable impact from foreign currency translations.

Volumes were down due to a less favorable fruit and tomato pack as a result of poor weather on the West Coast and the adverse effect from certain customer market activities which resulted in lower volumes.

Income from operations in the metal container business was $92.2 million for the third quarter of 2017 versus $98 million in the same quarter a year ago.

The decrease in operating income was primarily due to lower unit volumes and less favorable mix of product sold, the unfavorable impact from the pass-through of indexed deflation, higher depreciation expense and foreign currency transaction losses in the quarter. These decreases were partially offset by lower rationalization charges.

Net sales in the closure business increased $145.4 million to $357.3 million for the quarter, primarily due to the inclusion of the recently acquired Dispensing Systems operations, the pass-through of higher raw material cost, and the impact of favorable foreign currency translation of approximately $4 million partially offset by 7% decline in volumes in the legacy closures operations.

Volumes declined largely as a result of cooler weather conditions with negatively impacted demand for single-served beverages. Income from operations in the closures business for the third quarter of 2017 was $45.3 million, up $16.9 million versus the prior year quarter.

This improvement was primarily a result of the acquisition of the Dispensing Systems operations, partly offset by lower single served beverage volumes in our legacy closures operations. Net sales in the plastic container business were $137.2 million for the third quarter of 2017, an increase of $66.9 million versus the prior year quarter.

This increase was largely due to the pass-through of higher raw material costs, a 3% improvement in volumes and a favorable impact of a foreign currency translation of $1 million. Operating income increased $5.7 million to $6.5 million for the third quarter of 2017.

This increase was primarily attributable to lower manufacturing costs, lower rationalization charges and higher volumes. These benefits were partially offset by the unfavorable impact from the lag [ph] pass-through of higher rising costs and incremental depreciation expense.

Turning now to our outlook for 2017; based on our year-to-date performance and the outlook for the remainder of the year, which assumes some tax volume carry over to the fourth quarter, higher anticipated rising cost in the fourth quarter and continued strong performance in our Dispensing Systems operations and plastic container business were maintaining our estimate of adjusted net income per diluted share but tightening the range to $1.62 to $1.67 per share.

This estimate excludes the impact from certain adjustments outlined in Table B of the press release. We're also providing a fourth quarter 2017 estimate of adjusted earnings in the range of $0.30 to $0.35 per diluted share, and this estimate compares to $0.24 in the fourth quarter of the prior year.

As previously discussed, we continue to forecast free cash flow to be approximately $220 million. And with that, that concludes our prepared remarks. So I'll turn it back to Jessica, so she can provide directions for the Q&A session..

Thank you. And we'll go first to Mark Wilde from BMO Capital Markets..

Good morning.

Tony, I'm wondering if you can help us just with a little more color around this certain customer market activities in food cans and what you mean by that?.

Sure.

So you're talking about in the soup markets, specifically?.

Yes, exactly..

Yes, we had kind of two events that I think are little unusual in the quarter. We had one customer who has not yet negotiated their retail contracts and promoting contracts with a customer, so that's had impact on their demand level, and that's obviously a customer of ours.

We have another customer that is in the process of moving a filming line [ph], and as you can imagine, as you go through that process that has some demand disruption to it. So those are kind of the two items.

I know it's -- there is a temptation to think this is a broader point about soup and volumes in soup, I really don't think it is in this quarter, I think we probably all have our opinions that where soup is going on cam side but I think most of its that's happening here are kind of unique disruptions to it.

I think what the longer term trend we see in soup is a little bit better, no, I wouldn't say everything is back for the races but I think if you look at kind of the take at the retail level, that looks a little bit better, promoting activity seems stronger right now.

So I would just -- one more time, just -- I think this is kind of unique to [indiscernible] specifically exists and these are our customers doing this and unique to this time period. It could have some carry on into next quarter so I'm not trying to say it's just third quarter but I don't think it's kind of a long-term soup story..

Okay. Actually you anticipated my follow-on there.

Just a couple of other ones; is it possible to quantify the drag in the third quarter from the -- kind of the lags in the resin pass-through and how you're thinking about that for the fourth quarter?.

Sure Mark, its Adam. As far as resin in the third quarter, really for our closures business the increase came late in September as everyone knows, so we didn't have much of an impact to our closures business in Q3, it did impact our plastic container business in Q3, something to the tune of around $1 million, it will be a headwind in Q4.

As you mentioned, our primary resins across the board have seen best September increase around the hurricanes and are expected to also increase in Q4 as well.

So as we sit here today, again, the Q4 is just a projection at this point but I would say we'll be a couple of million dollars unfavorable in our closures business and likely a couple of million dollars unfavorable in our plastics business as well..

Okay Adam, that's helpful.

And then finally, Bob, I just noticed when we look at the balance sheet, you're both carrying a lot more cash than you were a year ago but also your inventories are up about 35% or 40%, your receivables, sorry -- can you just give a little color around what's going on there?.

Yes, so as to the cash balance, we've got a couple of things. One is, we've got some incremental cash in some of the foreign jurisdictions that came just as a consequence of the Dispensing Systems acquisition. So we're just not as clean and as tight on the cash side with them just yet as we would be with our other businesses.

And then as we ended up the quarter, we've got a little bit of timing effect in terms of the way cash was collected from customers and the way we had to prepare for some metal payments and some raw material payments that would carry over into the very beginning of the next year or the next quarter; so it left us with a little more cash on the balance sheet but that's just a timing issue..

Okay.

And then with your receivables?.

Yes, I think probably if you're just looking at the balance sheet a big part of that is going to be just the impact of the Dispensing Systems being onboarded..

Okay, alright. Thanks very much. I'll turn it over..

And we'll go to Anthony Pettinari from Citi..

Good morning. You mentioned in the release that the hurricanes negatively impacted each of your business.

I was wondering if you could maybe put a finer point on what you think the net impact across the company was in 3Q from hurricanes? And I think you indicated the correction in filling activities was really -- really happened in 3Q; is there any residual impact in 4Q and if you can quantify that as well?.

Sure Anthony, I'll take the first one and Adam can take the second one on filling of leverage site. So on the hurricane side I think -- first of all, just to cover up, that -- we have three plants affected, we do have a plant in Houston, we do have a plant in Puerto Rico.

So there were quite a series of damages, the good news is employees are all safe and while there is a lot of property damage, that's the bright side.

So the impact on the quarter is a little hard to accumulate for it because it ranges from plain shutdowns which are easy to -- inability to get trucks, and so instead of taking [indiscernible] food carrier on a particular shipment we got to go down in the third and fourth carriers, so you're paying more for every shipment you make, that's going to continue for a while by the way.

So we would roughly quantify it for you, a $1 million to $2 million in the quarter and there will be some lingering effect of that certainly in the fourth quarter. And then of course, the resin impact which Adam talked about is also going to be hitting into the fourth quarter..

And Anthony on the selling activities for our customers on the single served beverage side, going back to kind of the start off how our year plays out in the closures business, really we start the pre-sell season in February/March to prepare for the summer months consumptions of hot-filled beverages, those are things like sports drink, [indiscernible] etcetera.

And our customers run really hard, really through the spring and early part of the summer to prepare for -- again, those higher consumption months or in the summer time.

What happens typically is that our customers around the joy holiday [ph], the early part of Q3, they do an assessment of where they are with their retail activities, market activities, inventory etcetera and adjust their filling schedules going forward.

So, in prior years really we hadn't seen any adjustment, we just continue to have those locations running at/or near capacity; this year was the first year at a long time where we saw our customers pull back on their filling operations in Q3.

So as Tony alluded to, that's not just a Q3 issue because we were running hard from really February until July, so you kind of have this cumulative effect of the filing operations up until the third quarter.

So the Q4 impact will also be a little bit later than what we have seen in previous years but really if the Q3 and then the cumulative effect of what carried into the quarter as well from a filling standpoint..

Okay, that's very helpful. And then during the quarter, one of your competitors announced a closure in food cans, I think roughly 0.5 billion cans.

In the past you've talked about the industry maybe running with 1 billion, 1.5 billion over -- can over capacity; do you think that closure could meaningfully tighten the market or given where it is in the customer exposure, is it may be less impactful for you?.

I think it's a less impactful. I think certainly accounts recall that we shut down a plant as well late last year and so it certainly helps but there is definitely still capacity left.

Again, as we scaled out in the past, so it's -- let's say maybe it's a billion on the industry, so it's not a huge amount of capacity writing, there is still is some capacity out there..

Okay, that's helpful. I'll turn it over..

Then we'll go to Chris Manuel from Wells Fargo..

Good morning, thanks for taking the question. I just wanted to -- maybe get a little sense, I think you talked about volumes being down mid-single digits for food can in total and that would -- in other words, maybe some temporary transitory stuff here in North America with soup and such.

But kind of two points, one, what were volumes broadly like in U.S.

versus Europe as an example? And then, kind of as you're thinking ahead of the next year, do we kind of get back to maybe perhaps flat to down a point or two sort of environment but just; A) to understand the difference in geography, and then, B) kind of how you think that plays out full year if there is any follow through?.

Yes, on the geography side it would basically all to the U.S. We were kind of flattish in Europe and so this is really all about the U.S. I think the bulk of what we saw, we would think would come back next year; so when you say transitory, I think you mean year to year.

I think -- let me go through it because I don't -- there has been -- what I've read, some confusion about kind of what this means for Q4 as well. So if you look at the -- kind of 5% down in food cans, about two-thirds of that has to do with the pack, right; and the pack, there are sort of three things going on.

One was the [indiscernible], primarily, in the West Coast the yields were not that good, so that was a little bit less of a pack this year than we had anticipated. The bigger ones on the tomato side; it got cool and wet as tomato harvest was going on.

That is the one of that in tomato's that our customers can't really feel around, they can't go to bulk etcetera. [Indiscernible] tomato, it's kind of -- the whole process stops. And so on the tomato side in the West Coast that's what happened to us and that will inordinately impact [indiscernible] because it's larger share for us.

So that is our kind of two things; the third is in the Midwest, we had some light pack, some of that will shift and so we will see some of that into Q4. And so those are kind of the three elements that are going to there.

All of that should kind of -- I would think at a typical year, next year you want to see it kind of recover, and same around what we saw in soup, we would think that would not necessarily being in play this time next year..

Okay. So that's helpful, thank you.

And then just to kind of confirm; so Europe is generally flattish as a whole or you're seeing a little bit of growth there? I mean North America down say 7 or whatever, return of the offset?.

Yes, so if you talk markets in general, so the -- if we're down 5% in the U.S., I mean if you look at the market in the U.S., it's probably more in the 3.8% as what I'm reading on kind of industry and so that kind of supports what I've said to you, that the things that happen to us in the quarter are going to be disproportionately on us which is why we're the bulk of the decline in the North American market.

In Europe, I think probably what you would see is growth, the path you recall was not very good last year, the path is definitely better this year and so others will have a net positive impact of that.

We had some share shifts in kind of southeast European markets that offset some of that but I think the market in total probably saw some growth in Europe..

Okay, that's helpful. That's what I was looking for. That's all I had, thank you..

And we'll now take a question from George Staphos from Bank of America Merrill Lynch..

Hi, everyone. Thanks very much for all the comments. Tony, you already preempted one of my questions with your [indiscernible] with Chris.

But if I look at the split of the impact of 5% down, two-third say, West Coast and I guess one-third being, would that be the storm in terms of 5% down or is that something else?.

No. Two-thirds all of the pack issues combined and one-third sort of the soup items..

Okay, forgive me.

So on that front, I mean I was just some potential on paper here, that looks like it would be like a couple of $3 million of effect in the quarter, the pack; would that be a fair calculation?.

Pack alone be able to put that -- you know, this is rough but it's going to be somewhere in that three, maybe pushing towards four..

Okay, thank you for that. And then, when -- I just want to be clear on one of the items that you disclosed in soup and frankly, thank you for the clarity in the first place on that; you just mentioned, I think a customer hasn't yet to sign-up on or renew their contract.

Did I hear that correctly? And to the extent possible, can you provide a little bit more detail on that? And is there any -- really what I'm asking more than anything else, is there any competitive activity that we should be mindful of there or is it just timing?.

Well, this has nothing to do without the retail levels. So I think as I -- you know, that is a very competitive space and so, all of our customers have to fight for shelf-space, etcetera, spend promoting on package that helps both, the retailer and the brand.

So this is not an unusual process if you will, and -- so our expectation is ultimately that it will be worked out but that takes time..

Okay, thank you for that. And then, I guess the last question I had and then I'll turn over and come back into queue.

You mentioned a couple of times that you're clearly pleased with the integration with the Dispensing business and from what we can see from the result, it was a good quarter even with the volume decline in the segment overall because of legacy business.

Can you comment in terms of now that you own this business, what kind of pickup are you getting in the market in terms of new markets, new customers, new contracts? Are you moving the ball at all in any of the higher end markets in dispensing like farm? Any color there would be great. Thank you. I'll turn it over..

Thanks. First of all, you're reading us right that we feel very good about where we stand on the business.

We feel really good about the team and the integration that's underway, so all that -- you know, I can spend more time if you want, but as your question, our expectation here and there are a lot of product areas/markets that this business sells into, there are a lot of geographic regions; so growth is going to be very different by each of those.

Our view is sort of in this 2% to 4% is sort of the area we're looking at when you blend all that out. I would say that in this quarter the business performed above that range, partly because the pipeline products coming in partly because there were just some of the markets that we're serving were pretty at risk [ph] during the time.

So all that makes us pretty pleased and the growth is exactly where the management is trying to grow end markets that they think we've got kind of good competitive opportunity and position. So all that, it feels really good to us against our expectations at this stage..

Alright, thank you, Tony..

And we'll now move to Debbie Jones from Deutsche Bank..

Good morning. I have few question about metal containers.

If I go look for AirTV, the distraction from the new cam plant, you're kind of running at $240 million, $250 million in EBIT and [indiscernible] some things have changed but I think there is some productivity that should be rolling through and my question is, if I can quite get two or three year view, is this a business that can return to that type of levels? How should I think about that?.

Well, I would say that it's a kind of question we've had before. It's definitely business, we think it will continue to improve overtime.

Yes, you've got to take all the things into account, right; you've got kind of -- win contracts from new or what concession do you give of those, what's happening on the cost structure, a big impact for this business over the last three plus years has been deflation pass-through on our contracts, that's kind of a steady erosion for us until we get back to inflation.

So if we get back into a good inflationary environment, then obviously that will start moving us forward, we put in the new plant with the expectation of kind of 9/10-ish EBIT improvement from that, that is absolutely embedded in our numbers right now, this year you had kind of a one-time employee settlement, non-commercial settlement in there, that's against that number.

So you've got a lot of moving parts but absolutely we think we'll continue to move back towards a higher profitability level overtime but inflation would be helpful..

Okay.

And then just two quick ones, just kind of your longer term outlook for growth in plastics, number one? And then, do you have any impact from the exposure to Puerto Rico?.

Sure, Debbie. On the plastics, kind of long-term outlook. Number one, again, as we've said all along, 2017 was really about getting cost out of the business and that's been our plan and to deliver the $50 million of earnings improvement.

So bigger news is obviously we're on-track to do that and we feel good about where the business is heading as we kind of turn the page and look forward in the 2018; we expect to see continued improvement in business from a financial perspective.

You won't see the same magnitude of the year-on-year improvement as you saw in 2017 and our long-term target of 15% is still 15% EBITDA margins as still we're tracking to and we're aiming for that business, that won't occur on January 1, 2018 but as we -- again, are successful in the market, it's although 3% increase in unit volumes for the quarter.

As you see, unit volumes began to grow and the plastics business will be leveraging a lower cost operating platform and that will help us achievement our long-term objectives..

And in Puerto Rico we have -- you know, the plant we have there is a single line small plant, so where we do of some exposure, it's not maybe full overall..

Okay, thank you. I'll turn it over..

And we'll go to Ghansham Panjabi from Robert W. Baird..

Hi, good morning. This is actually Matt [ph], sitting in for Ghansham.

So sticking with the plastics team, can you provide better detail on what exactly is driving the higher volumes across the plastic container segment? And then how do you view the sustainability of that volume growth? What's driving that growth, is that share gains, industry volumes, etcetera?.

Sure. Matt, it's Adam. A couple of things; number one, again, we have been on a program of portfolio rationalization in our plastics business for some period of time; so we are cycling over exiting some business.

So as we bring new business on, it's against the lower base, so the 3% volume growth, while we feel good about it it's important to realize where we're starting from as well. I think the sustainability of that is actually quite good, we're executing well in our markets that we serve.

We think there is still a broad opportunity to grow in the plastic space as we serve our customers and the markets with superior service and quality of products and delivery performance etcetera.

We think there is a broad opportunity there, so we do think as volume comes on, it will impact the overall performance of the business due to the drop through in the lower cost platform that we've established..

Okay.

And then, looking at kind of the headlines surrounding inflation heading into 2018, what are your cost inflation expectations for next year? And can you kind of answer that with a particular focus on things like can codings, thin plate wages, etcetera?.

Sure, a lot to that. First of all, every indication is that steel is going to be pretty significant, inflationary in all of our markets; so that's one. Two, as I think on codings, etcetera, I think that will broadly follow some kind of a fuel/oil plastic curve; so just got to figure out what that curve is doing.

It would be the bulk of how that would move. Wages are definitely in our mind, we're going to be inflationary, I think both in the cost side but also on our past year's customer side which is good news for us.

On that bet, but definitely is very real, I'm sure you everyone but hiring talent people is hard right now and it seems to be inevitable that have to get to – wage inflation at some point in time and that's certainly our thought on it.

So I think we are coming back to some inflation, other than the commodities, I don't know if that will be significant inflation or whether to a mermadoths [ph] but I do think we're back to inflation as we go forward..

That's helpful, that's it for me, thanks..

And our next question will come from Adam Josephson from KeyBanc..

Good morning.

Tony or Bob, you talked about a few issues, the disruptions with a couple of your food can customers, the inclement weather adversely affecting the West Coast pack, the colder weather affecting single serve beverage consumption, the hurricane issue, the resin issue; so those are the five issues right there yet you're maintaining your full year guidance despite all that.

So I guess how you're able to do so?.

Good question, a couple of things. First of all, we did tighten the range, so we did take -- you know, unfortunately we had to take some of the top half of the possibility for the business, so that's -- in our mind, a real loss. Secondly, as -- I think Sumit [ph] is on the call, the Dispensing Systems business is performing well, so that's helping us.

Thirdly, we'll get some of the pack back in Q4, I don't want to overmake that point but there is some benefit coming back in Q4 on that. Last year, this is sort of a comparison point but last year in the food can metal container business, we were working inventories down, and so that had a negative impact on that as a comparison quarter.

This quarter we'll probably be building inventories given my comments on steel inflation etcetera, and so that helps a bit. So there is, as there were many things that affected the troubles in Q3, there are many things in effect why we think Q4 could be a little bit better..

Got it.

And just related to the Dispensing Systems, have you up to your synergy guidance at all or is it still $15 million?.

We haven't. I inserted the word confidently, so I think we feel very good about the 15% but we've not increased that number..

Okay. And just one last one, just broadly about the food can market; you know, as mentioned earlier, one of your competitor see some of their production in the U.S. and said that overall food can demand is declining.

Obviously, the market year-to-date is down a couple of points, I know some of those factors could be transitory but there have been previous years as you know in which whether adversely effect of the pack as well; so this is not the first time that's happened.

So what is your view of the longer term volume trajectory for this market, and why?.

I think, we've -- it's a good question, it's one of the main questions. I would still argue we'd still be kind of flattish going forward, maybe even a little bit of growth. The reason for that is sort of the -- a couple of things; if you look at food cans today versus 20 years ago, the majority of the human food is, all is retort [ph], right.

There was a period of time when that wasn't true but so the things that are less in cans now are in a very cost efficient infrastructure system, they are very good for our customers in terms of the profit and the cost at which they can get a food product to the consumer. So we feel pretty good about that base, what is in the food can.

You're also seeing protein cans that on general are in growth, I believe you're seeing pet food cans that are [indiscernible], it's changing more and more of what a can is consumed, for which markets. So I think with all of that we feel pretty good. I think on things like fruit, you'll probably see continued decline.

I think tomato, it's a great package, so I think you'll see kind of its constancy how much people cook at home, probably in the case. So -- but some desks, well you'll probably see some declines.

I think you will continue to have an evolution of where the food can is consumed, in what markets but our view is that it probably should be kind of flattish overtime..

Thanks, Tony..

And we'll now go to Scott Gaffner [ph] from Barclays..

Good morning.

When I look at the CapEx for the business, Tony, I think you mentioned some of your soup customers were moving filling lines; and I just wanted to get a sense, is this is a situation again where you have incremental customers significantly moving their filling locations such that you might have to move some of your manufacturing production as well or is that taken a bit too far?.

Yes, that's too far. If you're referring to kind of one of the reasons why we built the new facility in Iowa and that had a lot to do with West Coast moving to the Midwest. So West Coast is -- you've got a lot more alternatives than Midwest, etcetera; so in this case it's not that same kind of a situation where you're sort of abandoning capacity.

So while it does create moves and contortions in our system, that's kind of what we do all the time, so I don't think that's an automatic point.

Now with that said, if can was a 2020 project, we are always looking for ways to enhance the efficiency of our system, that always includes looking at the facilities that we run and facilities that we could run.

So I don't want to make it sound as if we aren't always thinking about, is there a footprint change that would be more efficient but this particular set of move does not precipitate on its own..

Okay.

And when you look at the closures business -- similar kind of question but in a different way; if you just look at the Dispensing Systems versus the legacy business, how much opportunity is there over the time to have those in the same facility so that when you do have this seasonality and the legacy closures business, you can offset that with the Dispensing Systems business and maybe avoid some capital in either one or both of those businesses on a go-forward basis?.

Yes, it's a nice idea, very little, that was not our synergy side and among other challenges, if you look at our closures, both of those sets of closure businesses that are quite full and so there is not a lot of access capacity in anyhow. And so there is not much to that unfortunately..

Okay. And then just last one for me, when you look at the leverage; I mean, obviously you've been -- you're going to deleverage this, you come through to the end of the year and you'll still be above -- the range is to where you like to be normally.

Do you envision 2018 as another deleveraging year or you already feel comfortable here, maybe a higher level of absolute leverage on a go-forward basis?.

Scott, this is Bob. I think we've sort of covered this ground in previous calls but we've very clearly said that we were levering up to acquire the Dispensing Systems business and that we like the free cash flow profile of the pro forma business and that we would intend to delever.

That certainly if we could paint the perfect picture, that's the way we would execute, but we all know that that's not exactly the way opportunities present themselves around this industry. So by the time we get to the end of the year we'll be back down closer to the floor, a tick or so above that but certainly down from where we are now.

As you know, it takes us a full year to generate incremental cash flow because it all happens for us in Q4. So I think given the fact that we feel pretty good about the integration of the SDS business, we feel really good about the cash flow generation profile, we have not stopped looking for opportunities to continue to invest in M&A by any stretch.

So now it's just a timing of when those things might happen and what the order of magnitude are; so I think we'll be opportunistic where we can and it makes sense, and the free cash flow profile supports it and we'll be disciplined when it's not..

Okay, thanks. Good luck..

And our next question comes from Chip Dillon from Vertical Research..

Good morning.

First question is, you did mention the resin issue which obviously is out of everyone's control with the hurricanes, and that hitting, I believe you said in the fourth quarter; when does that start to turn the other way in terms of either the pass-through mechanism or has some people expecting now there is a quite a bit of capacity coming on, especially on the Gulf Coast and let's just say that the prices do start to ease in the first half of next year; how should -- should that have some impact with the lag that you experienced in your plastic space businesses?.

Sure Chip, it's Adam. I'm going to answer kind of on a closures space to say it on a plastic bottle basis just capacity are a little bit different.

So I think you're right, but largely what we're expecting of our increases across the board and primary resins for Q4, some will carry in the next year but the longer term forecast for our primary resins are that they will come back down in price.

So when that happens is yet to be seen or be known but on our closures business, our legacy closures business, we have a pass-through that's roughly in the 30 to 60 days kind of timeframe.

So we'll be passing through those increased resin cost on a fairly rapid basis as they occur and then as prices decrease, and resin cost decrease going forward we'll also be passing those decreases through as they occur on that same lag basis.

The new dispensing systems business and our plastic bottle business both operate on a 60 to 90 day pass-through based on quarterly basis. So again, you'll look at Q4 resin increase being pass-through in Q1 of 2018 and kind of subsequently thereafter as well..

Okay. And then the second question, it's probably more for Bob is; you know, as we look at our screen and see at least a long end of the curve move up and there is expectations of several short-term rate increases.

What is your exposure to changes in interest rates and in terms of what flow to and what doesn't? And if you do have some of that swapped out -- dealer swaps last for -- even though it might show on the -- I guess, nominally as short-term debt; how long would the swaps protect you if there are multiple increases in interest rates?.

As you know Chip, back in February we went for the market and kind of fixed out a bunch of our debt by issuing the two note offerings that we did. So I think as we sit here today we're some 55-ish percent fixed; now obviously at a year-end basis that will be significantly higher than that as we pay down our revolver.

So I think as we sit here today, we feel pretty comfortable that we can manage through that and if we're certainly more fixed today than we have been over the last -- certainly, the last five or six years anyway.

So I think we've done some things to protect ourselves against the rapid rising rates should that happen and we'll continue to evaluate that and be opportunistic while we can..

And so maybe said differently, if -- once you get the debt paid down from the dispensing systems acquisition; maybe the normalized fixed percentage is more in the 70s, not in the 50s; and so obviously, is that kind of a fair guess at this point?.

That's probably a pretty big order of magnitude in terms of the move but yes, there would be a move towards more fixed but getting to 70 is probably outside of the scope..

Understand. Thank you very much..

And we'll go to Tom Narayan from RBC Capital Markets..

Thanks for taking the question.

I guess piggybacking off of George's question earlier; you had mentioned that dispensing systems growth was typically it's about 2% to 4% but you guys hit better in 3Q; did you disclose the dispensing systems specific revenue contribution in Q3?.

We did not..

Or its growth?.

It's to the order of magnitude, it's about equal to what the growth in the segment was, it's some pushing up to $140 million of….

I got it. Okay, that's perfect.

And just thinking about that kind of return of invested capital of metal containers versus your -- now your closures in plastics business, how would you compare the two from ROIC framework like, just trying to gauge you guys appetite and potentially increasing your plastics exposure through M&A? Or do you find the return of invested capital dynamics of metal containers perfect for what you guys want based on scale or what have you?.

Rephrase the question for me, if you would..

I'm just trying to understand your guys appetite for increasing your exposure to plastics or outside of metal containers..

Well, I would say all investments that we make stand up to the same criteria; so we would do it in plastics if we saw a good return, cash return, whichever metric you want to use on that.

I think what we have said is that we want to get ourselves a little further in plastics, before we do anything significant in that context be sure that we feel like we've got the right team, the right solution to be kind of a premier player in that marketplace.

I think the progress we've seen to-date certainly makes us feel a little bit better than we did 18 months ago in that regard but I don't think we're done with that yet, that's sort of this whole discussion around the 10% EBITDA margins to 15%.

I think certainly 15% would make us feel pretty good if we could get there and sustain there that we had something bridging on unique in that market space. We're not there yet, so -- as today, it would be the return on capital plus a little bit more on the strategic fit to it.

But really, we think about each capital investment on its own return and so if we get to where we think we can on the basis of the plastic business and we see the right investment opportunities, we would do that in that case..

Got it. And last question. You guys maintained your guidance for 2017 on EPS.

I think you guys gave out a free cash flow guidance in your fourth quarter call of 2016 of $220 million is that also being maintained? How should we think about that?.

Yes, we did. I did in the opening remarks confirm that we are holding our guidance at approximately $220 million..

Alright, great. Thanks..

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

Hi, good morning guys. Thanks for taking my question. Just wanted to come back to George's earlier question and some of your remarks in the prepared remarks about the customer -- up in a retail contract.

I guess there is no surprise that the retailers, the super markets in particular facing a lot of pressure these days Amazon come in a little come in now as well -- generally deflationary environment for food.

You know presumably there's more competition for shelf space and ultimately it seems like a lot of this is going to end up with lower prices for the end consumer. I just wondering your thoughts maybe broader than just this particular contract or this particular customer but as some of that deflation kind of works its way back in the supply chain.

You know how you think about Silgan's position there and any contribution that you guys might have to make in deflationary kind of food environment?.

Well, it's a great question. First of all, let me just start by saying that it's not new. E-commerce space might be new but you look at kind of the big box brand, retailers have been coming up over the last let's say 15, 20 years.

Our customers have been under intense cost pressure for a long period of time, that is exactly why we kind of went out with a new significant target ourselves on our can vision 2020 take cost out of our system. So, we've been very focused on this long before e-commerce was part of the common language.

And it's all about, we got to get cost out of our system out of our customer system, out of our suppliers' system and we're looking at every way we can possibly do what all was that problem is all the idea of delivering add value to our customers.

Getting return on our investment, but delivering the net total value of that to our customers and that's where we're very focused on.

So, to your specific question I think Silgan is incredibly well positioned for that kind of situation because we already are kind of low cost provider in the market of a low-cost product for our customers to deliver food to the end consumer.

So, we feel really good about that chain, we're spending a lot of time with our customers just making sure that they are really running hard numbers on the value of the low-cost delivery they can do through a can product to the consumer and making sure, I was thinking about that because that system is so advantageous against other opportunities out there.

So, we feel really good about it, we feel really good about our cost structure. We're still working on our can vision 2020 cost reduction program. The new plant in Iowa was part of that which is to keep driving down our costs to make a low-cost solution for customers.

So, I think a lot is going to change things are going to evolve here and it won't come out the way I think but I feel really good about our position on it..

Okay. That makes a lot of sense.

And then on the closures volumes just wondering whether there was a factor there, but wondering if it is more an issue of a tough comp a year ago or if you think like the volumes this year sort of temporary artificially low and are right to bounce back next year?.

It's Adam, Brian but I think yes to all of the above. So yes, we are cycling versus the record period last year in Q3 and a record year in 2016.

Yes, the market in total for our hot built products was down year-on-year for the first time and quite a while in the third quarter and one of the largest categories in our hot built segment is sports drinks and the sports drinks market was off 8% to 10% in the quarter.

So, we do think that provides a bounce back opportunity for 2018 and we are expecting that volume to come back and normalize next year. We think it's a one-off period for 2017..

Okay. That makes sense. Thanks. One last one for Bob.

Just any thoughts on the tax-rate in the fourth quarter or interest expense relative to where it was in 3Q?.

Yes. I think on the tax-rate we're probably at this point in the year kind of zeroed in on where we're going to be. So, I don't -- barring any change in tax laws or something that we're not foreseeing right now, I think a consistent tax-rate is what we're expecting.

Interest for Q4 probably comes down a little bit on a sequential basis versus Q3 just as we start to delever; so that's the way we see those two items..

Okay, thanks very much..

And we'll take a follow-up question from George Staphos from Bank of America Merrill Lynch..

Hi, everyone. Thanks for taking the follow-on's.

So Tony, you hit on one of my next questions on can vision 2020; can you give us maybe not 20 minutes of your but just a quick update on status of what you've been able to accomplish and what's next on the horizon in the next 18 months or so?.

Sure. First of all, George, everybody else is following your questions; I wasn't sure you should get a follow-up on that..

If you want to bounce me from the queue, that's fine..

I'm kidding. So CanVis [ph] in 2020 is ongoing. I think we've had significant success, it's all over the board, so again it's not all that similar to what I thought when we first started talking about it. So for instance, the new plant in Iowa is a big part of that and really looking at footprint, etcetera.

The thing we've done in the freight side have been very impressive and yet I know there is a lot more still to go there. We are at lots of down gauging projects kind of throughout our system and that's sort of ongoing.

So in that case I think I've said before, we always did some of that, we're just doing a lot more of it, getting our customers more focused on it.

So all of that is underway, I think the things that we talked early about that and then a little slower to take root are getting deeper in kind of the systems, contact between us and our customers and suppliers and helping each other get more efficient, that's been slow to build the trust of everyone opening their books to one another on that.

I think we're seeing headway now in some cases, so I think that's some of the future opportunity that sits out there. So I would say that we are right on-track of what we would like to have delivered so far although it looks a little different than we would have said at the beginning.

And still see really good avenues to continue to press forward and take cost out of the system for everybody..

And I recognize why you might not want to put a number on this but is there a way to put a number than the less on what the benefit might look like in 2018?.

Well, again, recall that that the bulk of this goes to our customers, that was the whole idea, it was never intended to be a huge investor program, it was a out turn on capital.

So I don't really have a number on that, I would think maybe something in the range of $10 million to maybe a high end of $20 million of capital we invest next year might be somehow associated to this, maybe a little higher than that if you say somehow associated. But it's the capacity of scale but it's sort of what's happening all the time.

On the integration issue, we do have -- today there was an active project with a major customer on kind of finding cost throughout our system and so I don't know what the outcome of that will be but that will certainly drive some value. Again, the bulk of that will go to the customer's account..

Okay. And I just want to come back on an earlier question, I think Debbie had posted and we've said about it last quarter, whether you said -- I wasn't quite clear; so getting back to round number of the $110 million in EBIT and food cans, last quarter my takeaway was -- and that's really aspirational, not likely in the current world.

If you do get the inflation, does that change the answer or you need something else beyond getting the pass-throughs to start working in your favor for a change?.

Yes, I'm glad you asked that question. I think there was -- we had a lot of internal debate about my answer to you and maybe it did comes across more, that that was an aspiration that we weren't going to get to in the near term. I think what I admit to convey is, don't look for that next year.

I think if they -- if a continual progress point to get to it, there is nothing fundamentally different about our can business today than there was about our can business five years ago.

Yes, competitors came in with some new lines and that's caused some trouble but really I'd say it's the same business with the same opportunities and the problem for us is we focused really day to day on driving cost out, servicing the customer better rather than a five year plan on a shelf to get this to a number.

So what I can assure is we are thinking everybody about how do we drive value, how do we get a fair share of that out and make it good for our customers and that will move us back in that direction but it is going to take time, it's going to take inflation back in; it's not even the inflation and I don't want to misrepresent that.

The problem is, our contracts are really great in a lot of ways but one thing about them that's hard for us is in deflation times.

When we're given out a lower price and that's hard, we just cannot take that cost out of our system, so just stopping that would be helpful, inflation maybe even a little bit more on that; that will help us and we'll keep driving the cost out and we'll continue to try to find ways to help our customers win in their markets, it's just how we got there first..

Tony, that latter point and I apologize for the repition; is that just -- as contracts come up for renewal and you hopefully are doing that in a more inflationary environment, that's helpful or is there a different interpretation I should have on that?.

No, there is different interpretation. It's the every year function of our contracts; so every year if there is a deflation index, we give a price concession every year within a contract that takes the cost out..

Got it..

So it's not about the app renewal; I think app renewal it would be -- I can't imagine, it's easy to imagine we're going to greatly enhance the situation given that there is capacity left in the market, that's not our point..

Okay. My last one and maybe taking a different approach on Brian's question from earlier. I mean, I look back at the volume and closures last year in the quarter and I think it was up maybe 2% and recognizing that's an average number and there are different end markets within that 2%.

If I very simplistically, maybe that's the answer to the question, take 2% and then backout 7% to a very simple average; I still wind up being down.

So is there anything else in your view affecting the secular outlook on your key market or in your view is the 2% plus, what was going on with hot-filled last year really the answer? Thanks guys, and good luck in the quarter..

I think Adam answered this before. If you get the [indiscernible]. So in a good year, you're running hard in Q2, late Q1, into Q2 and Q3 continues that curve; so call that a plus two. In a bad year you run pretty good, up until the July break and then everything stops.

So it's more just that Q3 is a little bit of the shock absorber to the system if you will and so you get more correction in Q3 in a bad year than you get upside in Q3 in a good year..

So that would also suggest that you actually get a much bigger detrimental [ph] margin effect this year from that in comparison?.

Yes..

Okay. Thank you guys, appreciate it. Good luck in the quarter..

Thank you..

And it appears there are no further questions. I'll turn the conference back over to you Tony for any additional or closing remarks..

Great. Thank you, everyone for you time and we look forward to talking to you about the fourth quarter and a little bit more on 2018 at the end of January. Thank you..

This conclude today's presentation. Thank you for your participation..