Kimberly Irene Ulmer - Silgan Holdings, Inc. Anthony J. Allott - Silgan Holdings, Inc. Robert B. Lewis - Silgan Holdings, Inc. Adam J. Greenlee - Silgan Holdings, Inc..

Scott L. Gaffner - Barclays Capital, Inc. Mark William Wilde - BMO Capital Markets (United States) Chip Dillon - Vertical Research Partners LLC Adam Jesse Josephson - KeyBanc Capital Markets, Inc. Anthony Pettinari - Citigroup Global Markets, Inc. Debbie A. Jones - Deutsche Bank Securities, Inc. George Leon Staphos - Bank of America Merrill Lynch Gabe S.

Hajde - Wells Fargo Securities LLC Ghansham Panjabi - Robert W. Baird & Co., Inc. Daniel Rizzo - Jefferies LLC Tom Narayan - RBC Capital Markets LLC Brian Maguire - Goldman Sachs & Co. LLC Edlain Rodriguez - UBS Securities LLC.

Thank you for joining the Silgan Holdings Second Quarter 2018 Earnings Results Conference Call. Today's call is being recorded. At this time, I'd like to turn the call over to Kim Ulmer, Vice President, Finance and Treasurer. 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 2017 and other filings with the SEC.

Therefore, the actual results of operations and 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..

Thanks, Kim. Welcome, everyone, to our second quarter 2018 earnings conference call. The agenda for this morning will focus on the finance performance for the second quarter, a review of our outlook for 2018 and then after the prepared remarks, Bob, Adam and I will be pleased to answer any questions.

As you saw on the press release, our second quarter results were in the range of our expectations as we delivered adjusted earnings per share of $0.52, representing a 49% increase over the prior year quarter.

We continue to enjoy the benefits of our M&A and cash deployment strategy, as our closure business delivered record earnings fueled by the continued success of Dispensing Systems business, which more than offset the impact from lower volumes for single-serve beverage closures.

This business continued to grow nicely and perform ahead of our expectations. Our plastics business continued to benefit from footprint investments and strong operating improvements, allowing volume gains of approximately 4% as we continue to enhance our customer service model.

Our metal container business did a nice job operationally to largely offset the effects of lower than expected volumes, which resulted from several specific customer activities.

Specifically, more than half of the volume decline in the quarter was a result of one customer undergoing portfolio management efforts and the associated inventory reductions. Secondly, we had a fruit customer close a west coast filling plant, thereby reducing volumes at least for now.

Additionally, we did choose not to defend on a competitive intrusion for a smaller less-profitable piece of business. As a last component, unsettled weather conditions across several of the geographies served to result in some modest impact to our fruit and vegetable packs.

We expect some of these factors to be timing as volumes shift to later parts of the year. As a consequence of all of these factors, we have confirmed our full-year earnings guidance in the range of $2.03 to $2.13 per share, representing a 23% to 29% increase for the year.

With that, I'll now turn over to Bob to review the financial results in more detail and provide additional explanation around our earnings estimates for 2018..

Great. Thank you, Tony. Good morning, everyone. As Tony highlighted, our aggregate results for the quarter were in line with our expectations.

The primary profit drivers were strong performance in dispensing closures, continued improvement in our plastic container business, and a slightly lower tax rate for the quarter due to the timing of certain state tax rate changes.

These benefits were partially offset by volume declines in the metal container business and in closures for single-serve beverages and higher freight costs across our businesses. As a result, our adjusted earnings per share were in the midpoint of our range for the quarter.

On a consolidated basis, net sales for the second quarter of 2018 were $1.60 billion, an increase of $37.3 million or 3.7%, largely as a result of the pass-through of higher raw material costs, favorable foreign currency translation and volume gains in the plastic business and dispensing closures.

These benefits were partly offset by volume declines in the metal container and closures for single-serve beverages. Net income for the second quarter of 2018 was $55.3 million or $0.50 per diluted share, compared to prior year second quarter net income of $27.9 million or $0.25 per diluted share.

Results for the second quarter 2018 included loss on extinguishment of debt with an impact of $0.02 per diluted share, while the prior-year quarter included rationalization charges, loss on extinguishment of debt and cost attributable to announced acquisitions with an aggregate impact of $0.10 per diluted share.

Therefore, we delivered adjusted income per diluted share of $0.52 in 2018 versus $0.35 in 2017. Foreign currency translation had very little impact on our earnings for the quarter.

Interest and other debt expense before loss on extinguishment of debt increased to $800,000 to $29.9 million, as higher weighted average borrowing rates were partially offset by lower average outstanding borrowings as we used free cash flow to repay acquisition-related borrowings at the end of 2017.

The tax rate for the second quarter of 2018 was 22.8%, slightly lower than expected as certain state tax rate reductions became effective in the quarter. Additionally, the 2018 tax rate also benefited from the U.S. Tax Cuts and Jobs Act of 2017 as compared to the second quarter 2017 rate of 33%.

Capital expenditures for the second quarter of 2018 totaled $42.1 million, compared with $42.4 million in the prior year quarter. Year-to-date capital spending totaled $91.3 million this year, as compared to $81.3 million in 2017.

We anticipate capital spending for the full year to be approximately $200 million, which includes the construction of the Allentown, Pennsylvania and Fort Smith, Arkansas manufacturing facilities. This compares to $174.4 million in the prior year period.

Additionally, we paid a quarterly dividend of $0.10 per share in June with a total cash cost of $11.1 million. And on a year-to-date basis, cash dividend payments total $22.4 million.

As we now turn to the financial performance for each business, the metal container business recorded net sales of $524.9 million for the second quarter of 2018, a decrease of $4.8 million versus the prior year quarter.

This decrease was primarily a result of lower unit volumes of approximately 9%, partially offset by the pass-through of higher raw material and other manufacturing costs and the impact of favorable foreign currency translation of approximately $6 million.

The unit volume declines were primarily the result of a seasonal customer who adjusted inventory levels during the quarter. This represents more than half of the total volume declines.

We also had lower volumes for the fruit and vegetable pack as a result of weather-related delays, the impact of a plant shutdown by a fruit customer and a competitive loss of a smaller lower-margin customer. These declines were partially offset by continued growth in the pet food and protein markets.

Segment income in the metal container business decreased $1.2 million to $48.2 million for the second quarter of 2018 versus $49.4 million in the same period a year ago.

The decrease in segment income was primarily attributable to lower volumes and higher freight costs, partially offset by lower manufacturing costs, a non-recurring charge in the second quarter of 2017 related to the resolution of a past non-commercial legal dispute, and lower rationalization charges.

Net sales in the closures business were $378.8 million for the quarter versus $349.1 million in the prior year quarter.

This increase was primarily the result of favorable foreign currency translation of approximately $13 million, the pass-through of higher raw material costs and a more favorable mix of products sold, partially offset by volume declines of approximately 2% principally a result of lower demand for single-serve beverages.

Segment income in the closures business for the second quarter of 2018 increased $13.9 million to $47.7 million, primarily due to strong performance of the Dispensing Systems operations, including the unfavorable impact in the prior year from the $11.9 million write-up of inventory for purchase accounting, a more favorable mix of products sold as a result of strong volumes for dispensing closures, foreign currency transaction losses in the prior year period and the favorable impact from the lagged pass-through to customers of lower resin cost, partially offset by lower unit volumes for single-serve beverages.

Net sales in the plastic container business increased $12.4 million to $155.4 million in the second quarter of 2018, primarily as a result of the pass-through of higher raw material costs, 4% higher volumes and the impact of favorable foreign currency translation of approximately $1 million.

Segment income increased $6.5 million to $13.2 million for the second quarter of 2018, primarily as a result of higher unit volumes and lower manufacturing costs. Turning now to our outlook for the remainder of 2018.

As you will have seen in the press release, we have confirmed our full-year estimate of adjusted earnings per diluted share in the range of $2.03 to $2.13. This compares to prior year adjusted net income per diluted share of the $1.65. The midpoint of our range represents a 26% year-over-year improvement in adjusted earnings per share.

We're also providing a third quarter 2018 estimate of adjusted earnings in the range of $0.74 to $0.78, with the midpoint representing a 15% increase versus the prior year adjusted earnings per diluted share of $0.66. Given the uncertainties around the timing of the fruit and vegetable harvest in the U.S.

and Europe, results for the back half of the year could shift between the third and fourth quarters. And consistent with our year-end guidance, we continue to forecast free cash generation to be approximately $300 million. That concludes our prepared remarks. So we can open it up for Q&A.

And I'll turn it back to Carolyn to provide directions for the Q&A session..

Thank you. And we'll go first to Scott Gaffner with Barclays..

Thanks. Good morning..

Hey, Scott..

Just going to the volume decline in metals for a second, the minus 9%, can you let us know what your expectation of volumes in this segment were coming into the quarter? And then which of the items specifically, I mean obviously seasonality we can figure out, but the others, I would have thought you knew about the plant shutdown, et cetera.

Which of the items – and maybe there's a new customer loss, but I think you lost a customer 2Q 2017.

So just what's new there?.

Sure. So it's Tony responding. So the volume decline, as you say, 9%. First of all, just to be clear, it's almost entirely around three items. As to our expectation, the customer that shut down the plant, which is one of the smaller of the three items, we did know about that.

We actually talked about that in the first quarter, so that was known coming into the quarter. The competitive item, we would not necessarily have known the entirety of that. This is a new piece of business – different piece of business. It represents something in the range of 1.5% of sales to the can business.

So that one would not have been fully known and will be continuing of course. The big one is really, more than half of this is one customer going through inventory reduction efforts and portfolio management. That we certainly knew that customer was going to be going through that.

We expected it over the course of the year, maybe to a slightly less degree than they think they're going to get it accomplished at this stage, but we expect it through the year.

What basically happened here is that we and the customer both decided it was better to get it done in one fell swoop now, ends up being their fourth quarter, so it's good for them in that regard and for us, it's just better to get it on and done with. So that will, I know, some asked question, is that likely to come back. It's not.

They've taken out for the year. Obviously they are working the inventories down. But that's our view. That's the end of it for this year and that's the customer's view as well, but what you see in the second quarter is the entirety of the impact from it..

Okay. And when we look at the competitive dynamic in the U.S., clearly there was a change of ownership in one of your competitors.

How do you feel about further consolidation in the U.S., whether it's on your part or within the industry is that – do you feel like that's necessary to sort of stabilize the industry from a volume shift around competitive dynamics?.

Sure. So as you mentioned, you did have a change. One of the players in the market did form a JV. I think from that specifically, as far as we know there's really no change. The competitor who was there will still be a participant in that business. So, we don't really see any change or expect any change that comes from that.

Obviously, consolidation is always good. So, we would see that as a positive. Whether that emerges from this or not, I really don't know. Do I think the industry absolutely needs it? No. I think it would – again, it would benefit from it. I think the industry is dealing with the capacity issue that was thrust upon it a couple of years ago.

That's going to take some time and it's going to take cases where all the players are going have to decide where it makes sense. As you heard, we chose not to defend in a case. That's all part of the process that we are working that out. So, I think it'll work itself out in any case.

Consolidation will just make it a little bit easier and better for everyone..

Okay. Last one for me, Tony. I read an article recently about the Brazilian food can market. I know you haven't historically played there because of the sole source supplier around metals, but it sounds like maybe there's more of an import market now for raw materials.

Does Brazil represent an opportunity for you now with the change in material sourcing?.

I don't know. So, I would tell you that we look all over the world for opportunities. We think we've got a kind of unique capability in food cans that can be driven into lots of areas. Brazil has certainly been one that we have looked at from time to time. So, I would certainly say it's possible.

Whether that change is enough to precipitate it, that I don't know yet. It would be kind of on the specific opportunities that would emerge..

Okay. Thanks, Tony. Thanks, Bob..

All right. Thanks, Scott..

And next, we'll go to Mark Wilde with Bank of Montreal..

Tony. Good morning, Bob, Adam..

Good morning Mark..

I wondered just turning over to the closures business, you mentioned a decline of 2% in the volumes, but I wondered if you could just give us a little more granularity on that in terms of what the closures piece looked like versus what you're seeing in terms of kind of volume and sales in the dispenser business?.

Sure, Mark. It's Adam. Again, I would start by saying our closures segment had a really pretty good quarter, all things considered, in Q2. If you look at the dispensing business, again, very strong performance in total, we were up about 5% in volume on dispensing closures year-over-year.

So still feeling very good about the acquisition and what it's bringing to us as far as new opportunities. They've got plenty of opportunities on their plate. In some cases, we are capacity constrained, so good opportunities for further investment for growth in that business.

So still feeling very, very good about the acquisition and what it means to Silgan in total. On the single-serve beverage side, as you saw in the release, we were down about 2% in that market. And you'll have to bear with me for a second here, I'm going to walk you through a little bit of the history of what has happened with our single-serve market.

And again, these are products like sports drinks and ready-to-drink teas, et cetera, that are in plastic, primarily in plastic packages today. So if you go back to 2016, that was the all-time record volume year for our single-serve beverage market.

There were instances through the course of the summer that sports drinks in particular were having stock-out items at retail. So the filling process in 2016 ran all the way through the entire summer season. And as we got to the year end of 2016, there was an attempt to rebuild some inventory towards year end, and that did carry over to 2017.

So 2017, what our customers did Is, they started their pre-filling season earlier than they typically had in the past to rebuild that inventory and also to prepare for hopefully year-on-year growth from the all-time record year in 2016.

They ran their filling lines and facilities very hard through the first half of the year, I'll say despite the weather conditions that we were talking about and experiencing particularly in North America, and as it turned out, we did talk about strength and volume growth in the first half of last year.

As we transitioned into the second half of the year in 2017, we did see an abrupt end to that filling season for our customers. Our closure volume for the hot fill single-serve beverage market did suffer in the second half of last year.

So now, we turn to 2018 and the strategy our customers employed was really more of a more normal timing of the filling season. So we didn't see an early start. We saw a normal start which was kind of at the end of the first quarter.

They've also invested fairly sizably in their filling capacity and have more reactive capacity closer to the market from a filling standpoint as well. So, unfortunately, we're going against comps that are very difficult from last year in the first half of the year.

We will see volume growth year-over-year in the back half of the year in our single-serve business as we compare to 2017. So, I apologize for the long answer. But it really is the culmination of really three years of filling and of retail sales of our primary products..

Okay. And Adam, while I got you, I just – I was struck by how relatively well the can business performed in light of that 9% volume decline.

Would you want to put any more color around that?.

Sure. It's Tony. So, there are a couple of things there. First of all, if you're looking quarter-over-quarter, the first thing to remember is last year we did have a $3 million charge for a non-commercial legal item. So, that – it makes the comp a little harder. We also had higher rationalization spend going on at that point in time.

So, those are two elements. The other two are basically, you had a better mix. Yes, that might be obvious to you based on some of the conversations we talked about the volumes. We have somewhat better mix in the current period. And finally, just the nature of manufacturing is and it had a lot to do with inventory movements too.

So, at this time of year, we're going to keep producing because we brought everybody in for the busy season. So, you basically don't stop for the entirety of the volume loss at this point. You get some of it through the liquidation of the inventory later on..

Okay. Tony, last question for me.

I wondered if you could just give us sort of main puts and takes for Silgan if these trade and tariff issues continue to heat up?.

Well, I guess, the good news -- bad news is we're on the front-end of it. So, we've already taken sizable tariffs. We have already been forced to take that to our customers. So, our price is already up in the market. Our customers are dealing with that.

So, on one hand if it continues, which I think everyone is unsure of that right now, so I'm not sure the reactions are as strong as you might expect yet because we're all waiting to see how it plays out. But certainly it makes the can more expensive. That will over time fuel more conversation I'm sure on these calls about alternative packages.

To be clear, the can is the lowest-cost possible package for the market its serving, but that advantage is significantly impacted. We're the only one affected by tariffs. Now tariffs seem to be spreading across a whole bunch of markets and products.

And so, I think it could be very hard to figure out who the winners and losers are before this is all over with. So, what we do is we keep moving and implementing it. I should mention that our view is that the domestic suppliers are going to begin to increase price to take advantage, if you will, of the situation.

That's kind of why it's something they support. So I think, if nothing changes, I would expect we'll be talking about a fair amount of steel inflation next year as well. So we'll have some impact of that to deal with as we move forward..

Okay. That's helpful. Thanks, Tony. Good luck in the second half..

Thanks, Mark..

Hey, Mark. I might just add to that. What we'll see, the way they'll manifest in the P&L is that obviously we'll have higher revenue because of the pass-through, but we'll see compression in margin. And then, obviously that inflation will be somewhat of a headwind to the cash flow.

Now where we are today, we believe we can manage within our target range; but if they broaden or get bigger, that's obviously going to put incremental headwind on the cash flow number..

Okay. All right. Thanks, Bob..

And next, we'll go to Chip Dillon with Vertical Research..

Yes. Good morning.

My question has to do with the two businesses that buy a lot of plastic, if you could tell us where the resin situation stands, do you expect to see any relief if you haven't already in plastics? And then maybe in a different vein, what are your thoughts about some of the concerns about plastics in general? There is a straw ban in Europe and even in parts of the U.S.

and is that something that you think you have to – how do you stay in front of that if it continues to spread?.

Sure, Chip. It's Adam. I'll take the first part and I think Tony will take the second part of your question. So on resins, it's where we are today, really there was no impact in our second quarter results across the company. Some puts and takes with the variety of resins that we buy, but really no meaningful impact across the business.

As we look forward now, again depending upon the resins that you're talking about, some resins have increases for Q3 and declines for Q4. For the back half of the year, all in, that means really no impact. There's a timing impact to our business, but no material impact to the bottom line at the end of the day.

And so, I think plastic will be a little more insulated because of the resins they buy. Our closures business probably has a little more of a headwind in Q3 than plastic does at this point. But again, as we look at the back half of the year, we just don't see that much of an impact from resins..

Okay. And then on the....

The other half of that....

Yes, go ahead. Sorry..

So on the other half of it, we talked about this a little bit on the last call. I think obviously this is a big issue now, talking about kind of plastics on the environment, plastic ocean, those kind of issues – clearly, a growing topic in all of our geographic regions.

As I said on the last call, I think there's plenty here that industry and consumer groups and everybody can agree on, which is that I think clearly plastics need to be recycled more. We need better chains for that; we need better education.

I'd point out that a lot of the challenge here comes from developing world, not where we are which is in the developed world. But nonetheless, I think we all could do better on this. And as an industry, we support getting better and more vigilant around that.

If you look at us specifically, I'd say first of all, the products that we sell are primarily not likely to be the main areas of focus on that -- personal care, household chemicals, et cetera. The volumes aren't as great. They're not used on the go, so they're less likely to be thrown into the environment, et cetera.

I think the one exception to that is we have a sizable closure business to single-serve bottles. So, in that area, the questions that come up in some regions are should the closure be attached to the bottle? We talked about this before.

I think, first of all, I think if the consumer is just educated, my own view now -- if the consumers are educated to leave the closure on the bottle when they recycle it, I think that will solve the problem without any laws or any other changes. It is possible that they're going to want to have closures that are permanently affixed to the bottle.

In the end, that will add plastic. That will add more to the cost of the package but it probably helps us because we come to market with greater scale, greater innovation, and the ability to develop and expand that across the globe. So, I think that would net-net be a positive to us.

I'm not sure I think it's the right answer but – so, I would end by just saying I think we're engaged, focused, talking to our customers about it. We use recycled content. We're dealing with organizations that collect plastics around the world for recycling purposes. So, I think we're engaged as we should be and as the industry should be on this.

Finally, you could argue this will be good for – now I'm talking about Silgan in total. It could be good for cans, right? Because cans are a compound of steel and aluminum, are a competitive package against plastics in an area where you do have more volume like food and beverage. So, that's a possibility.

I wouldn't make book on that but I think that's certainly another one that we're keeping our eye on. But mostly I think plastics is a package that has a lot of really valuable areas and we'll continue to do well and the industry is I'm sure going to respond to this in a responsible manner..

That's helpful. And real quickly, just can you give us a quick update on how the M&A landscape looks? I've been hearing a little frustration that you've had two- to five-year interest rates go up in the last say six months, 12 months but you haven't really seen multiples come down to offset that and making it more challenging to find suitable deals.

And I know you don't need to do one, you're deleveraging, but I also know you guys probably are always looking..

Yes. You pretty much answered the question for me there. But yes, there's no question that multiples are high right now and that continues to be a challenge. I think that also drives a lot of properties coming to market. Folks thinking that they can get a better multiple.

We do continue to keep an active pipeline, although you did point out that our leverage is still outside of the range. Our view is that it takes time to develop those relationships and get to a deal that makes sense both from a strategic standpoint and a financial standpoint.

So, we've not taken our foot off the accelerator in terms of our activity around looking at potential acquisitions.

But this is where the discipline, the rubber hits the road, right? You've got to make sure that you find the right acquisition that provides the right kind of synergies, so that the cash returns which is ultimately what's important here, carry it out in our favor.

So we continue to look and continue to have interest and are confident that when the right deal comes along, we'll be prepared to step in..

I might add one point to this, which is I think the multiple point is definitely true and it's a challenge. And the good news as you say is, we're not in any hurry.

But I think we probably feel like we have more opportunities now than in the past, just because of the Dispensing Systems business we acquired opens up a whole avenue of opportunities for us, the excellent work of our plastics team to get that business on track to acceptable numbers. So, there's plenty of things that we can think about.

Obviously, price will matter in the end, so we got to get that one solved..

Got you. Thank you so much..

And next, we'll go to Adam Josephson with KeyBanc Capital Markets..

Tony and Bob, good morning..

Good morning..

Good morning, Adam..

Tony, just a couple on the food can business, just to start out. One on, you mentioned the loss of a smaller low-margin customer.

Are you picking up business at the same time, or are you just at the moment giving up business? And then with respect to the seasonal customer you mentioned that's changing their inventory or reducing their inventories, I think you mentioned it was their fourth quarter. I know you have a large customer that I believe just reported fourth quarter.

I don't know if it's related, but they were talking about just they have a new CEO or a new president, and they're changing their strategy and trying to keep a lid on inventories and also trying to grow outside the can. They were pretty vocal about that, trying to get more into plastics, tetra pack, et cetera.

Again, I don't know if it's the same customer, but can you just address that issue of what some of your customers might be saying about their approach to the market as well as just the other question was pertaining to are you just shedding business at the moment, or are you also picking up other business at the same time?.

Sure. So, good questions. There's a little bit of jostling that's going on in the market and so I think what we've been doing is in some cases defending, in some cases making sure that there's a regulated process from our perspective of the rate of which business moves around.

So there are cases where we have picked up some business, there cases where we've let the business go. So I'm not here to say it's all one directional. And I further that by saying, this sounds like there's a lot of activity going on.

I would not say that's the case but there's always a couple of accounts that are out looking to take advantage of the condition in the marketplace. But I wouldn't say that that accelerated by any means. Secondly, you talked about a particular customer in communications.

I don't want to talk about any specific customer or try to tie together our comments, but the strategy you talk about, a very typical strategy we will hear from many of our customers at some point along the way is they'll talk about how they can grow outside of the can.

Recall that we have always called that the can is kind of flat, maybe modest up, modest down. That sort of means by definition that our customers have to find other avenues of growth because they're not going accept flat top lines, right? So, every one of our customers have looked for ways to grow outside of the can to a certain degree.

And for some package areas, that makes a lot of sense and that will be sort of probably a permanent move. So, take fruit as an example. I think fruit is a case where some of it is better outside of a can. It's better on a plastic package, in cases, because it's going to be consumed by children in many cases.

So, that's a market that we've sort of accepted will have a certain gradual decline over a period of time. Hopefully, there is opportunity in the can to defend some parts of it, but some of that will move and that makes sense to us. So, in the particular case you're talking about, I think most of their comments are around that and juices, et cetera.

And so, that's not surprising to us at all. In other cases, we've talked about this in soup for example. Again, what we see is customers trying to find new consumers for their product and new packages to get their attention.

But because they have so much invested in their retort processes and their cooking process, ultimately our feeling is they will revert back to the point they want to fill those processes up. So, and every customer goes through a different process by which they get to that conclusion.

But generally, our feeling is they will ultimately realize that abandoning fill in a retort plant is not really a very good strategy for them. And that what they really want to do is go find a customer, get them interested in new flavors, new brands, et cetera, but ultimately to bring that back to can.

So, nothing that -- what you're referring to and I'm familiar with it. Thanks for your comments on it. There's nothing in there that's surprising to us or is all that different from what we would hear from most of our customers..

Got it. Thank you for that. Tony, just couple others. One on the weather that you mentioned in the U.S. and Europe. I wasn't aware of any particularly adverse weather happening.

So, can you just help me with what exactly you are talking about?.

Sure. I would not particularly adverse over -- I didn't mean to convey it as being that strong of a comment. Recall, we're saying almost everything about our volume had to do with those three customers, did not have to do with the pack or the market or anything. But there are -- sweet peas in Europe for instance was of really not a good pack at all.

So, that's an example where that was a fraction of what they were hoping to do with in that pack. Fruit in the U.S., the acreage was down some, yields were okay on that. So, we will call it kind of lackluster pack. But again this is not a big point.

The big points are the three specific items on the numbers which make up 90% of the volume shortfall in the quarter..

Perfect. Thank you. Just two others. One on your volume expectations for the year in metal cans and closures.

Can you just, Bob, help us with roughly what you are expecting, flattish, up, down?.

Well, it will be down a couple of percent, which is basically what you've seen year-to-date. We'll just carry it through for the end of the year. So, our expectation for back half of the year is will be kind of flat with prior year. So, the decline that we anticipate for the year has already happened and really happened in Q2..

And that's specific to metal foods..

Metal foods, sorry. Yes..

Okay..

And then on closures, Adam, we'll see again continued strength from the dispensing closures market. We'll also see recovery year-over-year in our single-serve beverage market. So, we'll anticipate both being up for the back half of the year..

Okay.

And then – and Bob, just on the tax rate, has your full expectation changed at all?.

No. Basically, the impact that we saw in the quarter was really just timing relative to some state tax rate changes. So we've kind of factored those in on a full year basis. We're just not expecting them to hit as early as they did.

So as a consequence, we're still holding to kind of the 20%, 24%, 25% range, probably closer to the 24% on a full year basis..

Thank you..

Okay..

And next we'll go to Anthony Pettinari with Citi..

Good morning. In plastic containers, you saw higher margins than you have in many years. And I was wondering you indicated resin was not going to be necessarily a major headwind in the second half.

Is that margin level sustainable for the rest of the year? And then, just you have Fort Smith I think starting up in the second half, any update on that and is there a negative earnings impact as you start up that maybe reverses later on?.

Sure, Anthony. The performance financially in our plastic business was very good in the quarter. Again, the second quarter for us is a seasonally very strong quarter, so we had good volumes on seasonally our strongest quarter of the year.

So as we look back – or forward, excuse me, to the second half of the year, we will have increased spending with the Fort Smith plant. So, most of the spending on the P&L side will be coming at us in the back half the year that will hurt margins to some degree.

We'll also have seasonally a little bit lower volume across the same fixed asset base for the back half of the year. So, we'll see good performance, but I think from a margin standpoint, we were roughly a little over 14% EBITDA margins for the quarter.

That will come down a couple of points for the back half of the year mostly due to lower volumes for the seasonality of the business and the Fort Smith spending. The Fort Smith plant is progressing well.

It's right on track with where we expected it to be and everything is lining up well for our Q4 qualifications and hope to be commercial with our customers at the start of 2019..

Hey, Anthony, this is Bob. I think we scoped the Fort Smith cost for you last quarter. I think it was in the $2 million to $3 million range spread across the back half largely, pretty evenly I should say..

Okay. Okay, that's helpful. And then you're starting up Allentown and Fort Smith this year. I think that that was $45 million in Capex combined.

Does most of that just fall off in 2019 or are there some other projects? I'm just wondering if you could talk directionally about how we should think about Capex in 2019 as some of these projects are done?.

Good question. I think – yes, those particular projects fall off, but I don't know if you can take exactly that number off of this year. So we hold some projects because others are being spent. So we'll clearly give more guidance as we go. I think as we sit here today, we'd expect it to be down a little bit..

Sure..

But Adam did say to you that we have in the Dispensing Systems business, we've got some capacity constraints and really good opportunities, and so there's certainly going to be some more capital going in there which we're happy about. So I think down, but I wouldn't necessarily take the entire slug off next year's expectation..

Okay, that's helpful. And then maybe just one last one, during the quarter, there was antitrust action or regulatory action that was referred from Germany to the EU and Europe on food cans.

Any thoughts on that or impact potentially to Silgan?.

No, we have a disclosure about it in our Q and I think that's really all we want to say about it..

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

And next, we'll go to Debbie Jones with Deutsche Bank..

Hi. Thanks for taking my question. I just wanted to follow up with some of the earlier questions about plastic and sustainability.

You've given a lot of facts on some of the implications, but I wanted to understand what are your customers asking of you right now as it relates to faster production or use of recycled materials? Like what is their need that they're coming to you with? And then could you give us a sense of, are your conversations more aggressive with some of the larger CPG companies or are you getting this more from some of the smaller or small scale customers that you have?.

Good questions. As far as our normal – our standard customers and the discussions around PCR and light weighting materials, less plastic, et cetera, those are conversations we've been having for years. And we've been driving weight out of our plastic packages for many, many years.

And that's an ongoing project with each of our customers and we'll continue that. I think the conversations around PCR have increased over the course of the last say 12 to 24 months. And we're working with them through specifications and through material options to meet their needs.

But again, these are constant conversations that we've been having for years. As far as the mix of customers that we're having these conversations with, it's across the board. So, it is the large CPGs, it is the challenger brands as well that really fill out the portfolio.

So, it's a part of plastic manufacturing that you are consistently trying to take weight and waste out of the packages that we provide to our customers..

Okay, thanks. That's helpful. My second question, just it's a little unclear to me on the commentary about volumes in metals in the back half in Adam's question.

Should I infer that you've assumed a lot of the package shifting into the Q4 in your Q3 guidance number? Is there any conservatism built into that or I know it's hard to get precise with the pack and I just want to get a sense of what could possibly move it from one quarter to the other?.

So the comment in the press release on this is just Q3 and Q4 just – is a regular pattern that they shift between each other. We have a pack that ends essentially right at the edge of Q3. And so if it goes late at all, it goes into Q4, so really the comment is just about that more than anything else.

I think our – when we are talking about back half, we're seeing kind of flattish over last year is sort of the expectation. Where that falls between the two quarters, it will definitely move around a little bit from what anything we could tell you at this stage, and that's the only reason the press release said that..

Okay. Great. Thank you very much..

Yes..

And our next question will come from George Staphos with Bank of America Merrill Lynch..

Thanks. Hi, guys. Hope you're doing well. Thanks for taking my questions. I just want to piggyback on the questions on volumes for the second half in metal. So, I think earlier comments in the press release suggested there may be some volume that could come back.

But based on the three factors that were described and the way they were described and then your answer to Debbie's question here, it sounds like that you're hoping it's kind of upward surprise but that's not what you're baking, and you're baking in flat sequentially and no sort of rebound from what might have been lost in second quarter, would that be fair?.

Well, actually both are correct. So, we are assuming kind of flat on the back half of the year. Some of what we talked about is going to shift into Q3. So, for example, we talked about the fruit customers shut down the plant. Some of that product is going to be absorbed by others in that region.

They just couldn't – they were filling their own stuff through this time period. They couldn't add anything. So our expectation is actually that some of that will shift.

So – but that doesn't mean that we're then saying we're going to be up for the balance of the year, and part of that is because the competitive loss for example is permanently gone from the back half of the year.

So when you net all that out, plus what else we know about the marketplace, our expectations will be kind of flat on the back half, which is not unusual for us. I mean that flat to modestly up or down is kind of usually what you'll hear from us..

And Tony you said that which may come back in 3Q, was that the inventory, reduced customer, or was that another issue – or another source?.

No, it's the – the fruit customers who shut their plant down..

Got it. Got it..

And some of that is going to be needed by the market..

So when I look at the factors that affected the volume in the quarter, if we roughly parse it, half was more or less as expected and half maybe a little bit worse than expected.

Would that – when I do some rough – first of all, do you agree with that premise? And then, if you do, it seems like these factors maybe were like $0.02, $0.03 from what your guidance otherwise would have been, would you agree with that math?.

It may be a little more than half would be my gut on that, and then maybe a little more than that on earnings impact..

Okay..

Although certainly the inventory build of that of course, but....

That's fair. That's fair. Now going through the CMI numbers today that came out, obviously the fruit numbers were down a lot and we've heard a lot of color today in terms of why that was the case. The actual number was down I think 4% or 5%.

How much of that to the extent that you can even parse this was weather and how much of that do you think is, if there's any sort of market melees for packaged vegetables and cans..

Yes, it's a great question. So the easy answer for you, George, is it's all us. It's all what we've talked about in those three customers. The market that CMI....

Yes..

I'm talking total market, but this is going to be true for fruit as well, the total market was down about 1.9% according to CMI. If you adjust the three things we talk out, the market was actually up 4% or 5%, right. So the same thing would be true on vegetable for example was down about 100 million units, we more than account for that decline.

So actually and I know there's sort of this kind of question about cans and where are cans going, et cetera, and this is all legitimate conversations for sure. But there's nothing about this quarter that should fuel that topic. It was actually a pretty good quarter for canned food.

It just wasn't really a good quarter for us because we went through a couple of customer situations..

Okay. A few last ones from me and I'll turn it over. Maybe again back on cans just to finish up, I wouldn't imagine anyone is going to be any lower cost in making food cans than Silgan Holdings and Silgan Container, and you had this small but nonetheless customer loss that occurred. Last year there was another one that we had called out.

You're walking away from business on price it sounds like, but I can't imagine that the competitors have lower cost structures than you.

So why do you think this is happening and ultimately it's going to settle out as you pointed out, when do we reach that settling out point do you think, what causes that?.

It's a good question. So there's a lot of moving parts to answer that question. One is that, what you say is that we believe absolutely true, the lowest cost for sure. Now, there's a lot of freight in a can. So then you get to geography matters here a little bit. So depending on these locations where you actually could mitigate that to some degree.

And then you get to excess capacity and people's desire to fill capacity, and so the long-term decision is different than the short-term decision. And so I think you've got a little bit of that going on too where there is a sense that folks feel they need to fill a plant in a certain situation and they'll make that move to do it.

Our feeling is we're trying to take a long term view for the market and there are cases where what you're saying does not make sense long term for reinvestment in the market.

And by the way, I don't think that's good for our customers either to drive down to a point where reinvestment doesn't make any sense, and that's not a good spot for the customer either ultimately..

Okay. Tony, thanks for that. On a brighter note, two last ones and I'll turn it over. From your perch in closures, you have a pretty good view of what is happening in terms of customers looking at plastics relative to other materials relative to the headlines that have been out there since whatever third quarter last year.

What are you seeing? Are you seeing discernible moves away from plastics to other products or are you seeing a lot of discussion but really not a lot of move or whatever your thoughts there, I'd be interested in, number one? And then number two, it sounds like it was as expected, but Lawn & Garden had a strong 1Q.

It sounds like you had what you expected in 2Q was a little bit of a draw down. Is that fair? And then overall, what do you think your closure volume in aggregate will be in the second half year-on-year? Thank you, guys. Good luck in the quarter..

Thanks, George. I'll take the first half and I'll give Adam the other half. So, I would say that there's no major significant change in the activity around alternative packaging. There's always activity we hear it a lot.

I think there are – as I said earlier, there are some packages for food can that are – we are bound to continue to see that and it's going to make some sense. There are some areas where I just don't think it's all that relevant, and that seems to be consistent.

So, I think the broad, easy answer for you is we're not seeing anything different right now on that side..

And then, George, jumping over to Lawn & Garden quickly, you're right. We did see the pull forward into Q1 from Q2. Unfortunately, the weather conditions didn't really allow for a second season for our Lawn & Garden products. So, we did see lawn and garden down a bit in Q2 as we expected.

I'd say the good news is the full year is going to roughly be right in line with our expectations, so a little bit of move from Q1 – from Q2 to Q1. And then on the closures volume, again, as I mentioned a little bit earlier, dispensing closures are going to continue to grow year-over-year for the back half of the year.

We do see the single-serve beverage volume recovering as well in the back half of the year. So, on a comparative basis versus prior year, we expect both to see some reasonable growth versus 2017..

Okay. I will leave it there. Thanks for all the answers..

Thanks, George..

And next, we'll go to Gabe Hajde with Wells Fargo Securities..

Good morning. Thanks for taking my question.

My first one, I guess kind of going back to the metal containers business, I have in my notes that you guys are pulling a little bit of capital out of – or dollars out of working capital this year, some of which is coming out of the metal food business, and I'm translating that to under-absorb fixed overhead of $10 million to $15 million.

If you can confirm that, and has that changed at all with some of the inventory adjustments or other factors that are happening with your customers.

And when we think about 2019, assuming a normal pack and all those things that we have no visibility into, is it safe to assume that some of that will come back?.

Yes. So, Gabe, the answer is yes, you're correct. Your notes are correct. We are looking to reduce inventory primarily around the metal container side some $50-ish million finished – $50 million or $60 million of finished goods inventory. That will have an impact about $10 million to $15 million on us.

Some of that was experienced in the first quarter as we got out at. Some of that reversed a little bit in this quarter as we went through the volume changes in the quarter, so we got the bulk of it to do now in the fourth quarter, and that's still our expectation to do it and that's encompassed in our guidance.

As to 2019, I think that's correct that we probably would not have the same opportunity to do that nor would we have the same headwinds associated with the cost around it..

Correct..

Okay. And then I think what we've heard from some of the packagers or packaging companies that have reported thus far is freight is heading or coming in a touch more than folks were budgeting for.

I'm sure it differs across each, but as it relates to your metal food business and how your contracts behave passing through sort of PPI on an annual basis, can you talk about if there's any headwind that you're experiencing more than you thought this year and the potential for that to be recovered next year?.

Yes, Gabe, this is Bob. You might have noticed that I did call out freight as a headwind in the comments. As a matter of fact, it was spread largely across all of our businesses, not just in the can business.

I think if you look at the can business relative to many of our competitors given our proximity to our customers, we may have a little less exposure in the aggregate in raw dollars than some. But nonetheless, with the shortage of drivers and trucks and increased fuel rates, freight is a headwind.

In the aggregate, it probably was $0.02 to $0.03 of a headwind for us in the quarter. We would expect that to continue as we move forward through the remaining part of the year. So it is something for us to watch. The can contracts, at least the customer part of that, do get passed through. But nonetheless, there's some headwind..

And whether that's a comparative benefit for next year is going to matter a lot whether the condition changes, but it may well not..

Okay. Thank you..

And next, we'll go to Ghansham Panjabi with Baird..

Hey, guys. Good morning. Thanks for taking my question. I guess going back to the comments you made, Tony, about customers looking more intently at what seems to be total systems costs including freight kind of optimizing the supplier base, et cetera.

I guess with that context, how does that change your view in terms of your aggregate production footprint and any decisions that you may make in terms of adjustments going forward?.

Interesting question. So, first of all, we are looking at our footprint all the time and that's why we don't even know the recent number. But roughly we're kind of, for every two plants, we've shut a plant down.

We are – this is an ongoing process, and given what you know about food can business and what we've talk about, you can be sure we're looking hard all the time, are there things we can do on that side to get more capacity out and take cost out. So it's something we're looking at.

I don't know – the (54:31) question, but of course the flip side of that is that freight is an incredibly important part of the can business, for example, and most of our business is. And so, one of the advantages we have frankly is the diverse footprint which we supply our customers.

So while you're trying to get at the cost, we find hell of an advantage that comes from being near to customers around the country and around the globe. So that's one of the major offsets to it..

Okay. And then just my second question on Calmar and the synergies associated with that, can you just sort of give us an update there? And then can you also bridge the operating profit delta in closures 2Q 2018 versus the year-ago period sort of adjusting for that $12 million in inventory step-up? Thanks so much..

Yes. Ghansham, it's Bob. I'll take the synergy side. I think, as we discussed at the time of the deal, we were looking for $15 million of synergies, the lion's share of that coming from the SG&A side.

I think as we came out of last quarter, we kind of communicated that we were well on track to get the $15 million, and perhaps a slightly better number than that. So, we feel good about the synergies we've gotten.

We feel good about the performance of the business from a pipeline standpoint, what they've already delivered in volume, and what's in the pipeline on a go-forward basis. So, we feel like we've more than attained synergies, and the business is going to continue to perform and generate the kind of returns that we would expect from coming in..

And echoing that, the closure business is up $13.9 million, 290 basis points on the margin side. That is driven by the Dispensing Systems business. So, I think someone along the way made the comment of the purchase accounting being the driver. That's actually not true.

The biggest piece about the business is continuing to perform above what it did last year which we felt really good about. And that's partly the synergies, as Bob talked about, and partly the business continues to grow. Teams doing well. There's really nothing right now, but good news report on that business..

Okay. Thank you..

And we'll go next to Daniel Rizzo with Jefferies..

Hi, everyone.

How are you?.

Good, Dan..

Hi Dan..

So, you just mentioned that freight costs are obviously an issue and it's important to be close to customers.

I was wondering if elevated freight costs are stopping you or more industry players from potentially taking up capacity within the metal cans business, is that something that's factoring in now?.

I don't think it's gotten to that point. At this stage, it's not – the inflation is not that bad, but it is certainly, when we look at it, one of the major things – but this is true before driver shortage and everything else, I mean freight is just a big cost to delivering an empty package.

So that has always been a major offset to the decision, it's kind of how far do you ship. And of course, incrementally, the higher freight cost will impact that, but I would not describe it as a change in situation as a result of inflated freight costs..

Okay. And then you mentioned I think an FX tailwind in the quarter or roundabout (57:46). I was wondering if that shifted to a headwind? I've had other companies suggesting that that's going to take – shave a few cents off in the back half of the year.

I mean, what are your thoughts on FX?.

No. Actually, I think we benefited from FX on the topline. And on the bottom line, it was basically a non-issue by the time you get down to the profit line, largely because of the way we're financing. So many of the foreign businesses are financed in local currency and our exposure is predominantly to the euro.

So really, what you just get quarter-over-quarter, year-over-year, is just a shift in geography between operating profit and interest so that it nets to a pretty similar net income number. And we would expect that going forward.

Barring any really extreme moves in the rate, we've only had maybe one occasion over time where it's been a significant move that cost us $0.06 or $0.07 across the year. So it really isn't impactful on a quarterly basis..

All right. Thank you very much..

And our next question comes from Tom Narayan with RBC Capital Markets..

Thanks for squeezing me in.

Real quick, on legacy closures, I just wanted to confirm, were you guys saying that that could be positive for the full year or would legacy closures go down for the year?.

Well, we are certainly positive for the second half. And as we look at our global closures business for the single-serve beverage side, it's probably – I think flat is going to be a good number for the full year. It could be slightly positive to just maybe down a little bit but I think flat is really what the expectation is at this point..

Is that expectation kind of based on what you're already seeing or is it just kind of what you've seen historically when these pre-filling issues happened in prior periods..

A little bit of both. I mean, we've obviously got a decent look into Q3 now here at the start of the quarter. So, we feel good about our Q3 numbers. We'll have to take a hard look at our customers' inventory management philosophies as we get towards the year-end of the calendar year 2018. So, we feel really good about Q3.

Q3 will be up for clarity and we'll see how Q4 plays out for the balance of the year..

Okay.

And then, the last one on this topic, what's the – like how should we think about your customer exposure, is it – is this something that impacted the sports drink category in aggregate over the particular maybe customers that you guys had where this pre-filling happened or was it just kind of industry wide?.

For the most part, it's industry wide. Obviously, you've got some challenger brands that are coming along in certain markets that we serve including sports drinks that are having success and are growing. And you have some of the larger brands that while still growing have a much broader network of filling operations that they're managing.

So it's a combination of both..

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

And we'll go next to Brian Maguire with Goldman Sachs..

Hey. Good morning, everyone..

Hi, Brian..

Hi, Brian..

I just wanted to revisit the fixed cost absorption on the metal can business. I just wanted to better understand that because I know coming into the year you were expecting a pretty big destock in 4Q, and some negative impacts from that. Just wondering if the down 9% volumes in 2Q influence of that make it a little bit more of a fixed cost absorption.

And part of the reason for the question is the margins were actually really solid in that business considering the volume decline. Just wondering if that's because you continue to run the plants pretty hard and you'll see more of the negative impact on the margins from the volumes more later in the year..

Yes is the answer to that question. I was trying to say that before. So yes, this is the time of year where we run the plants all out. So for sure, we offset some of the volume loss with better absorption in Q2. That was not part of our original plan.

And so, that leaves a little bit more to be done in Q4 and more negative impact of absorption that we're going to have to absorb in Q4..

Okay, makes sense. And I think earlier you mentioned you're expecting at this point metal prices probably up a decent amount next year. So I wondered if you're – maybe it's too early to tell, but anticipating any customer pre-buying ahead of that, I think you had some of that last year.

Just wondered if you'd expect a similar kind of behavior out of customers?.

That's a good question. So the forecast that we've offered up on volumes or the business do not assume any pre-buying associated with that. I have said on the call, right now our best expectation is that there will be significant inflation in steel next year, so you could imagine that coming up. And so we'll see, but that's not factored in..

Okay..

And by the way, nor is – everything else about the pack we've got in there right now is that the pack will be pretty good from here on in. So, someone I know usually asks pluses and minuses. So, I think there are – there clearly is a plus if there is a prebuy from customers.

There's risk to the negative side on what we've assumed about pack from here on in..

Okay. Great. One last one for me. Bob mentioned how M&A multiples have come up a little bit lately something across the board that we're seeing. Just wondering the plastics business has made a lot of improvements, a lot of strides, the margins are up, volumes are up. It seems like it's in a much better spot. Just wondering, it's part of the portfolio.

Does it continue to have a place in the future or with the pretty heated M&A environment maybe make you think about taking another look at it?.

Yes. Look, I think we've been pretty consistent saying that we needed to prove out the strategic value of that business and our ability to better service customers and become the leader in that market. And that will be somewhat defined by sort of moving toward a 15% EBITDA margin target.

I think we've done a pretty good job of getting – moving forward in that respect. I think if anything that probably has us leaning a little more forward in terms of looking at the broad landscape of opportunities, whether that's becoming part of the consolidation by being in the M&A hunt to build our business out.

I think it all remains open but given the strength that the business has been showing, I would say we're more inclined to see if we can continue to build out the business over the longer term through M&A and growth capital. So, that's kind of where we sit today. But again, the business has to prove itself day in and day out..

Okay. That makes sense. Appreciate the time. Thanks..

Thanks, Brian..

And next we'll go to Edlain Rodriguez with UBS..

Thank you. Good morning, guys. Just one quick one on dispensing closures. I mean I think you've talked about being capacity constrained.

Like how long do you wait before you address that issue?.

So, to be clear, what we've said is that there are some parts of the market that are capacity constrained and we don't wait at all on that. As soon as we see an opportunity, particularly when there's a customer name associated with the opportunity, we – and it's good return, we're going to move quick. That's true. That's true of any of our businesses.

If our guys come in with a very good return opportunity for a customer who's willing to sign on the bottom line, we're right there on it. So, in some cases, we've already approved capital. We're spending capital in that business. And in other cases, we may need to do some more.

And that's all we're signaling is there might be some more that we need to be looking at..

Okay. That makes sense. And then one quick one last one on plastics. The margins right now, you're close to like 13%, 14% EBITDA margin. Your target is like 15% or so.

Like how long do you think it takes before you get to that 15%?.

Well, as we talked about the back half of the year, the margin rate will come down a bit in the business as we've got the impact of the spending for the Fort Smith plant coming into our P&L. So, the margins that we posted in Q2, again in a very seasonally strong quarter, will not maintain through the course of the year.

So, we'll come in below that for the full-year, but again, significant improvement versus prior year and along the path where we wanted to be towards our 15% target. So, I think, as we look at 2019, there are opportunities. We think we'll be in the 15% range in 2019.

I can't tell you if that's January 1 or later in the year, but we think we're well on the path to achieving that target..

Okay. Thank you very much..

Thank you..

And next we'll go to Adam Josephson with KeyBanc Capital Markets..

Tony, thanks. Just one follow up. I think George is the one who asked about just underlying demand for canned veggies, canned fruits and talked about the CMI data with respect to that issue.

And I think you said that these are fundamentally demand healthy, you guys had some customer losses, et cetera, which skewed the numbers but underlying demand is healthy. But just could you clarify that again because year-to-date, I think demand is down 0.5%, 2Q is down 2%.

So I'm just trying to understand what you meant by that?.

Well, again, if you take our 9% out of those numbers, you find that they look quite a bit better than that. So I think that was the main point I was on. I think what we've always described is a kind of a flattish market. I mean when Silgan first got in, there was high 20-some billion food cans.

This year, there'll probably be 27 billion food cans, something like that. So we still view this as more or less a flat market. Now, there's a lot paddling underneath the water that you're not seeing. So you've got markets that are growing and becoming bigger. Pet food is an example of that. Protein, certain kinds of protein are examples of that.

You've got ready-to-serve soups, by the way, that are an example and you're seeing – particularly we see organic, and that's in cans. So I mean there's a little thing about alternative packages. If you look at a good product in organic in a can, consumers like it and they're buying it a lot.

And so, a lot of our customers have figured out how do they tap that vein with whatever package they need to do it. And then like I said, I think they'll still come back to the can in any case over time. So when we talk cans, there's a lot to it, there's market sort of growing and becoming bigger part that makes a lot of sense.

There are markets like fruit that I've said it seems to be logical, you're going to continue to see some decline. Veg, we talked about as one big category, but you look at tomatoes which are in that veg grouping, and tomatoes have been really good. It's a great package for – primarily for institutional use. It's been very good. Corn has been fine.

So, when you think fruit, it's peas doing a degree, green beans, pumpkin. Those are the areas where you're seeing most of the activity. And again, some of that will continue. But some of those markets are getting smaller and smaller. Fruits now, 3% of the market.

So, at some point, it becomes – its decline become less relevant than the growth of some of the other ones that have emerged. And so, that is why we feel really good about the food can market over time..

Thanks.

And then just on the mix issue, so if pet food and protein are growing more quickly than the market which I believe they have been, those are smaller cans, right? So, is there a negative mix impact from the growth you're seeing just based on where the growth is coming from?.

Yes. In that case, absolutely the answer is yes and that's been going on for a long time. Again, pet food is our largest single marketplace. So, that didn't happen. But actually, the answer to that is yes..

So, how do you offset that over time?.

You get more efficient on your cost side. That's what we've been doing..

Thank you..

Okay..

And this does conclude our question-and-answer session. I'd like to turn things back over to Tony Allott for any additional or closing remarks..

Great. Thanks, Carolyn. Thank you, everyone, for the time and we look forward to talking about our third quarter in late October..

And that does conclude today's conference call. Thank you, everyone, for your participation. You may now disconnect..