Roger Schrum - VP, IR and Corporate Affairs Barry Saunders - CFO and SVP Jack Sanders - President and CEO.

George Staphos - Bank of America Merrill Lynch Philip Ng - Jefferies Chip Dillon - Vertical Research Matt Krueger - Robert W. Baird Chris Manuel - Wells Fargo Securities Scott Gaffner - Barclays Capital Adam Josephson - KeyBanc Capital Markets Mark Wilde - BMO Capital Markets Debbie Jones - Deutsche Bank Steve Chercover - D.A. Davidson.

Presentation:.

Good day, ladies and gentlemen and welcome to the Sonoco’s Second Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded.

I would now like to introduce your host for today’s conference Mr. Roger Schrum, Vice President of Investor Relations. Sir, you may begin..

Thanks you, Tamera. Good morning everyone and welcome to Sonoco’s investor conference call to discuss our financial results for the second quarter of 2016. This call is being conducted on July 21, 2016. Joining me today are Jack Sanders, President and Chief Executive Officer and Barry Saunders, Chief Financial Officer.

A news release reporting our financial results was issued before the market open today and is available on the Investor Relations section of our Website at www.sonoco.com. In addition, we will be referencing a presentation on the second quarter’s results, which was posted on the Investor Relations site also this morning.

Before we go further, let me remind you that today’s call and presentation contains a number of forward-looking statements based on current expectations, estimates and projections. These statements are not guarantees of future performance and are subject to certain risks and uncertainties. Therefore, actual results may differ materially.

Furthermore today’s presentation includes the use of non-GAAP financial measures, which management believes provides useful information to investors about the company’s financial condition and the results of operations.

Further information about the company’s use of non-GAAP financial measures, including definitions and reconciliations of those measures to the most closely related GAAP measure is also available in the Investor Relations section of our website. Now with that, I’ll turn it over to Barry..

Thank you, Roger. I’ll begin on slide three, where you see that this morning we reported 2016 second quarter earnings per share on a GAAP basis of $0.55 and base earnings of $0.73, which is above the top end of our base guidance of $0.65 to $0.70 all of which compares to base earnings of $0.68 for the same period last year.

Earnings for the quarter were stronger than the top side of our guidance due primarily to a slightly lower effective tax rate, as well as from slightly lower operating cost.

The differences between GAAP and base earnings are discussed in our press release and on our website, but in summary the difference is due to charges associated with the disposition of a paper mill in France and other restructuring charges associated with some plant consolidation opportunities and other organizational changes as part of our fixed cost reduction efforts.

On slide four, you find out base income state where you see sales were $1.206 billion, down $42.9 million from the prior year you will see all the moving pieces in the sales bridge in just a moment.

Gross profit was $242 million, up $1.7 million from the prior year while our gross profit margin percent was once again very strong at 20.1% for the quarter compared to 19.2% for the same quarter last year.

Selling, general and administrative and other income and expense items was $125.8 million, which was down $3.4 million from last year due to fixed cost reduction efforts, the impact of exchange and lower pension cost, which more than offset normal inflation on such cost.

All then resulting in base EBIT of $116.2 million, up $5.1 million from the prior year and again you will see all the drivers of the change in the EBITDA Bridge in just a moment. Below EBIT, interest of $13.5 million was essentially unchanged from the prior year.

Income taxes of $30.5 million were lower than last year even with the higher pre-tax income as the effective tax rate for the quarter was 29.6% due to a few discrete tax adjustments booked in the quarter.

Equity and affiliates when combined with minority interest was $2.4 million and similar to last year, thus ending up with base earnings of $74.7 million or $0.73 per share.

Turning to the sales bridge on slide five, you see the volume added $9 million to the top-line or right at 0.7% for the company as a whole versus our overall targeted growth of 2%.

To add a few more specifics about volume, consumer packaging volume was actually 1.6% as global composite cans and global plastics were each down right at 2%, while flexibles’ volume was essentially flat year-over-year.

Display and packaging volume was up 6.5% excluding the impact of exiting the Irapuato pack center, which we’ve requested as a component of the exchange in other line item. Much of the volume increase was associated with resale activities with a very low contribution.

Paper and industrial converted products volume was up overall 0.7% as we saw growth in tube and core volume in almost all areas of the world really other than Asia. Tube and core volume was up 0.5% in the U.S. and Canada, up 14.5% in Latin America excluding Brazil and up 4% in Europe.

Volume was up just over 2% in our uncoated recycle paperboard mills in the U.S. and Canada as well. However, the increased volume in URB was more than offset by a 20% decline in corrugated medium sales. And protective solutions had another good quarter with volume up 4.6% driven by continued growth in temperature assured packaging.

It is fair to say that the consumer shortfall was disappointing and really driven by a pretty significant drop off in June with a notable amount being related to customer down time as many of our packaged food customers had reported difficult volume trends and are closely watching inventories.

Prices were unfavorable by $11 million for the quarter almost all of which was in the Consumer Packaging segment associated primarily with lower commodity cost. The net impact of acquisitions added $1 million to sales as the addition from last year’s flexible acquisition in Brazil was essentially offset by the disposition of the paper mill in France.

Exchange and other was negative by $42 million due primarily to translation associated with the slightly stronger dollar, as well as the impact of exiting the Irapuato pack center which negatively impacted the top-line by $16 million in the quarter.

Turning to the EBIT bridge on slide six, here you see that the drop through impact of volume on EBIT was actually negative by $2 million due to the mix of business; most notably having lower volume in consumer packaging, while we experience sales volume growth in display and packaging with much lower margins.

Price cost including the benefit of procurement productivity was once again favorable this quarter by $6 million about a third of which was due to lower energy and freight cost. The overall price cost benefit was certainly pulled down by the corrugating medium machine where price cost was unfavorable year-over-year by $3.7 million.

Manufacturing productivity was essentially flat for the quarter and below our targeted levels. Again the corrugating medium machine being a slow back mode has negatively impacted productivity along with other plant consolidation initiatives in several businesses. But we are still expecting more sustained overall improvement at the shop floor level.

The change in all other on a year-over-year basis had a negative impact of only $2 million as the impact of normal inflation on everything other than materials and energy of $11 million and the negative impact of translation approximately $2 million at the EBIT level was largely offset by lower fixed cost spending most notably associated with our fixed cost reduction efforts.

Since I just mentioned translation I will go ahead and mention that the translation of earnings in foreign currencies negatively impacted year-over-year earnings by roughly a penny for share. And as expected pension costs were lower year-over-year arrived at $3.4 million.

Turning to slide seven, we see our results by segment, for the Consumer Packaging segment, sales dollars were down 3.8% due to the lower volume, selling prices and impact of translation, while EBIT improved by 3.4% due primarily the favorable price cost as the EBIT margin improve to a strong 11.6% versus 10.8% for the same period last year.

Display and Packaging sales were lower due most notably to the exceeding of the Irapuato pack center, but EBIT improved notably due to price cost resulting in an improvement in the margin for the segment to 3.8%.

Paper and Industrial Converted products trade sales were down 3.5% as the benefit of the volume growth was more than offset by the impact of translation on the top-line and EBIT was down a similar 3.8% with the EBIT margin remaining relatively unchanged at 8.6%.

It is important to understand the year-over-year impact of the issues associated with the one corrugating medium machine, which due to lower volume, lower price and negative productivity experienced the $7.2 million negative swing in EBIT year-over-year. The other businesses in the segment actually experienced a combined 16% improvement in earnings.

Protective Solutions had another solid quarter with sales up 2.7% as the volume growth was partially offset by translation, while EBIT was up 4.5% and the margin improving further to 10.9%. All then resulting in the best EBIT margin for the company as a whole improving to a very solid 9.6%.

Turning to the next page you find our outlook for the third quarter and full year. In terms of our earnings outlook we are projecting that base earnings will be in the range of $0.65 to $0.70 for the third quarter. This assumes no significant change in the overall level of economic activity.

We are projecting the third quarter to not be quite as strong as the second due to a less favorable price cost variance as well as slightly higher effective tax rate. For the full year our guidance for base earnings is updated to $2.68 to $2.74 per share. Moving from earnings to cash flow on slide nine.

Cash from operations was right at $120 million for the quarter compared to $113 million last year. Capital spending for the quarter was $43 million and we paid $37 million in dividends. Free cash flow for the quarter was right at $32 million.

On a year-to-date basis we have lower free cash flow than last year due to last year’s sale of two metal end plants in the first quarter. For the full year we are still targeting to deliver $140 million in free cash flow.

During the quarter we used right at $23 million for share repurchases bringing our year-to-date total to $38 million and we expect to continue repurchasing shares through the balance of the year to complete the announced $100 million share repurchase program. On the next page, you find our balance sheet for the quarter.

And I really won’t spend a lot of time reviewing it other than just to mention a few things.

During the quarter we completed a EUR150 million denominated five year fixed rate private placement in Germany, which was used to repay the remaining term loan associated with the Weidenhammer acquisition and $75 million was used to pay-off the 5.625% bonds as they matured.

Thus seeing some reduction in cash and total debt as reflected on this balance sheet. Our net debt to total capital ratio remain unchanged at a very solid 38.2%. That completes my review for the quarter. And Jack will now provide some additional comments. .

Thanks, Barry. Let me make a few observations about our first half performance, update you on initiatives to grow and optimize our business and conclude with what we see going into the second half.

I’m extremely pleased with our record first half results, year-over-year base earnings performance is up 13.4% and we’ve achieved record quarter results for three consecutive quarters. Our first half gross profit margin is 120 basis points higher than the first half of 2015 and EBIT margin have risen 110 basis points to 9.4%.

Operating profits for each of our four business segments are up year-to-date led by the continued strong performances in our targeted growth segments of Consumer Packaging and Protective Solutions, while results in Display and Packaging and Paper and Industrial products are improving.

In Consumer Packaging, we have achieved seven consecutive record operating profit quarters and our year-to-date operating margin is up 120 basis points. Within the Consumer Packaging segment operating profits from global rigid paper containers is up about 9.5% year-to-date.

In flexibles operating profit is up 18% and while results in our plastic operations are down slightly. Our operating margins in plastics remain double-digit and ahead of forecast.

As mentioned, Display and Packaging operating profits for the first half of 2016 is up significantly from last year, due primarily to our work to resolve previously reported issues with a contract packaging center in Mexico. We have now exited this facility and are focused on growing this segment both domestically and internationally.

Switching to our Paper and Industrial products segment operating profit for the first half for the year is up 6% and asset market headwinds in our corrugated medium operations results would have been significantly higher. During the first half of 2016 we’ve seen volume improvements in tubes and cores in North America and in Europe.

And our URB mills are having a solid year. We’ve reduced the operating schedule for our corrugated medium mill to match demand and we continue to work to build orders and further reduce cost. Additionally, we continue to seek a long-term solution for this mill, which is the only one we have that is not a part of our integrated URB operations.

Protective Solutions achieved the fifth consecutive record quarter and operating profit is up 12.7% in the first half of 2016, while operating margin is a solid 10%, which is up 50 basis points from last year’s first half. As Barry mentioned manufacturing productivity has been light for the first half of 2016 particularly in the second quarter.

However our total productivity efforts which factors in supply management savings and fixed cost productivity is ahead of our target for 2016 and reflected in our improved operating margins. Manufacturing productivity is running behind historic levels due to several converging factors.

Our efforts to consolidate our manufacturing footprint in both domestic and European composite can and tube and core businesses, the drag from our corrugated medium mill and the startup of new or consolidating operations. That said, we believe these consolidations should provide solid productivity savings over the longer term.

We also continue our efforts to optimize our portfolio for the successful sale of a paperboard mill in France and a retail packaging business in Puerto Rico. Both of these transactions were relatively small but they demonstrate our commitment to build a stronger more focused portfolio of businesses that can provide higher margins and higher returns.

We expect further actions to optimize the portfolio during 2016 and expect to utilize these proceeds to invest in growth projects or acquisitions. Our growth projects remain on schedule, including adding composite can capacity to our plant in Kutno Poland by adding a third can line, which should be operational in 2017.

Completing the installation of a new triplex laminator in our Morristown, Tennessee flexible packaging plant, the start-up of the new rotogravure press in our Waco, Texas Flexible Packaging facility, adding new portion control and food tray capacity to meet the growing customer demand in our thermoforming operations and ramping up production of our new TruVue clear plastic can in anticipation of launching the product in about 400 retail grocery stores in the Southeast U.S.

this fall. Additionally, we are actively working with several other process food customers for TruVue development in 2017 and beyond. Finally, let me address what we see heading into the second half, clearly our strong first half performance has given us solid momentum toward meeting our full year targets.

As a result we are raising the lower end of our base earnings guidance which in effect means we’re raising our mid-point target to 2.71% per diluted share. If achieved this would represent an 8% year-over-year improvement in base earnings.

Despite a solid first half we continue to face headwinds from our corrugated medium operation, a continued strong dollar and some of our consumer product customers appear to be struggling to grow packaged food volumes in certain served markets.

In closing, we remain firmly committed to our grow and optimize strategy, which is focused on volume growth above the industry average, improving operating margins, working to shift the mix of our business to more of a consumer and protected packaging orientation, maximizing free cash flow.

And finally, we expect to return approximately $240 million in cash to shareholders through dividends and share repurchases in 2016. Operator we’ll now take questions..

Thank you. [Operator Instructions] And our first question comes from the line of George Staphos with Bank of America. Your line is now open. .

Thanks. Hi everyone, good morning and thanks for all the color.

I guess first question I had following on your comments Jack about some of your packaged food customers struggling with volume, can you provide a little bit more in terms of what drove their decisions to extent possible to shut down demand in June was it just coincident with a lot these companies have fiscal years that around then and what’s been the tenure so to speak into the most recent quarter? And then I had a couple of follow-ons..

Okay. Yeah I am not -- we’re not obviously privy to everything that’s going on inside these customers and what they’re doing, but there are a couple of events that are going on, that are impacting us. We have a major consolidation of one of our customers are going on consolidating from two facilities into one.

I also believe one of our significant customers had a fire that somehow impacted their production as well, so those things were going on. I would also tell you that the quarter played out a little bit differently than it would normally play out. We had a very strong April and then it kind of slid into May and June.

I don’t know if they had actually anticipated that, these changes and built inventory and then work that down in May and June, but that’s how the quarter played out.

But I would tell you that it was nothing out of the ordinary, but as I said there were some shutdowns, there were some consolidations going on, and of course we are aware of some format changes going on, particularly in Europe relative to composite can as they move from a round can to a more square can in some applications..

Jack I mean you did say I think it was your comment where you said the consumer performance was a bit disappointing. So how these things would seem to be factor that you would have had visibility into for example the consolidation of the customers.

So was there one thing in particular that maybe caught the business by surprise in the quarter?.

Well yeah obviously the performance of the business was solid and that the EBIT was up on a year-over-year basis from a selling perspective, as I said the volume was kind of disappointed as it played out, but when you’re combining two facilities into one getting behind, getting -- they get behind don’t come up to speed I mean, all those things we don’t really have visibility to.

But as I look I would say that there wasn’t any one single event that was significant, said wow that was really off from what we expected. .

Okay, thanks for that. One thing how is the business and these trends have they evolved early into the third quarter has there been any kind of pick-up or has it been the same ramp if you will, coming out of June? And then my other questions I will turn it over, protective with a 4.5% some improvement in volume.

I guess, I would have expected a little bit more improvement in earnings.

Where you comfortable with the margin performance you saw in this segment or where there some headwinds there to be mindful of? And then with corrugated recognizing these things you don’t snap your fingers and they occur overnight or when you do that, it seems like you have been looking for solution in medium for several quarters now is it taking a little bit longer than you would have liked and what in particular is causing the swing, is it the pricing side or more of the cost side? Thank you, Jack.

.

Yeah, I’ll try to remember all those George.

As far as sequence of ordering as we move into third quarter, obviously we don’t have a lot of visibility yet I will tell you that flexibles is up, plastics is up, I think that for the most part we are kind of swinging back to what we expect we believe third quarter is going to be up about 1% on a year-over-year basis.

So right now, as best we can see that that looks fairly reasonable to us.

As far as Protective Solutions again that business -- part of that business serves the automotive industry and in that business there certainly is some indication that perhaps we reached peak number of car production, but by the same token we are also introducing new products into the market that will kind of help offset some of that drop in auto production as we gets more parts in cars.

And we are also launching some new products into the temperature assured packaging market that we are not as efficient as we will be in making them just yet and as that business ramps up they will continue to get better with it.

But obviously at a 10.5% or 10.9% I think what the margin was for the quarter and then 10 plus for the full year I am very pleased with where that business is and how it continues to grow really it would be hard for us to be more pleased that business is doing quite well.

And finally, on number 10, yeah, I mean obviously George we are a small manufacturer of medium for the corrugated industry, it’s a very good machine makes an excellent grade of medium and we’ve evaluated every possible scenario that we can evaluate from converting it to URB to shutting it down to making higher end products.

Today it is a good corrugated medium machine and when the corrugated industry kind of moves into this level that it’s moved into the big players tend to export more corrugated medium and that kind of is one of our key markets for our product and as they export more corrugated medium the price goes down.

One of the things that we are I think we are on the front end of is a little more domestic demand, which hopefully will impact those lager players to exit some of the export market, which could possibly impact us in a positive way.

We are also changed the schedule for that machine, we are running on a less than 100% schedule we go three weeks on, one week down, we are getting repetitively better at running that schedule like that so that we are continuing to cut cost out.

We are continuing to look for options and we are continuing to look for partners for a take out of that machine and we will continue to do so. But we really have it laid out on a metrics at what point does it make sense to do certain things.

But finally, that machine makes a very good medium sheet and it should be something that some of these larger corrugated box companies would actually desire. .

All right. Jack thank you for that, I’ll turn it over..

Thank you. And our next question comes from the line Philip Ng with Jefferies. Your line is now open. .

Hey. Good morning, guys.

Margins in your consumer business have stayed above that at 11% threshold for a few quarters, now is that sustainable? And just want to get your thoughts Jack on risen prices in the back half there was some chatter of it actually dipping with a lot of capacity coming on?.

Well I would tell you that consumer margins I think we have said will be somewhere between 10 to 12 and it’s really going to kind of depend upon what products we have in the marketplace, what innovations we put in the marketplace I’d expect those to have higher margins.

Yeah, they are up to 11.6 some of that is benefit from resin prices falling during a quarter so that we get some of that gain. But it’s been pass through at quarter-end. I would like thank that we are better than 10 and we’ve moved it toward 11 whether it can stay at 11.6 I don’t know.

But we do believe it will be somewhere in that 10 to 12 range over a longer period of time. As far as resin prices as we look at it I think that one of the things that is kind of impacted both flexibles and plastics business positively is that resin has been a little volatile and then moving down.

Right now we think resin is going to flatten out really for the balance of the year. There is new capacity coming on in some parts of the world, but everything that we kind of looked at now so it’s going to be kind of flat for the balance of the year. So have less of an impact on the businesses..

Okay.

And the question for Barry, just given the move on the discount rate any thoughts on how are you thinking about pension contribution on cash side of things and then expense as well for 2017?.

Okay. So we certainly continue to monitor the interest rate movement of course it will really depend on where rates are at the end of the year as to the actual impact on our plant.

We don’t have any estimates for the impacts on contribution at this point, but of course we do disclose the likely impact from rate movement on our unfunded obligation, which goes up about $46 million for each 25 basis point change and right now just using the 10 years treasury as approximately it’s down about 75 basis points from where we were last year.

Again all else being equal and therefore saw always a lot of moving parts to pension expense, the discount rate movement alone would certainly cause expense to go up next year as well because again each 25 basis point moves expense by just under $4 million or so.

So again some movements there, we also quite frankly continue to assess what else we might need to do differently to manage the risk with this plan into the future we’ve obviously been proactive in the past with changing the plan layout moving people to a defined contribution plan breathing additional service for all participants at the end of 2018.

But we’ll look if there is anything else that we might need to do to manage the risk differently, which could include some lump sum payouts and some possible annualization particularly given there is also increasing cost of pension benefit guarantee corporation premium.

So all those factors considered kind of a maybe a change in the outlook for interest rates longer-term we will continue to reassess what else we might need to do to manage the risk associated with that..

Yeah, that’s very helpful. And just one last one from me, Jack you were talking about pretty good adoption or interest in TruVue can, can’t imagine it’s going to contribute much this year, but what about 2017 any view on that front? Thanks..

Yeah, probably won’t contribute a lot this year other than to kind of get into the market to see what the consumer react. If it’s positive I think it will ramp up over ‘17, but will then begin to have to start making investment and begin absolute production. So that’s going to be much more difficult to gauge.

But one of the things that we’ve said is that just a fraction of that market less than 3% can generate a $200 million market for us in revenue and that we are trying to work within those boundaries and saying hey, do we have that type of product here and I think that this launch in the fall is going to tell us a lot about how consumers react to this..

Okay. Next question..

And our next question comes from the line of Chip Dillon with Vertical Research. Your line is now open..

Hi, gentlemen. Good morning..

Good morning..

Yes, first question is just thinking about I guess there is -- seeing the medium machine sort of is a two head sword.

It is impressive how where you mentioned you would have probably earned another nickel roughly if you had not -- if you just didn’t have that swing from a year ago and if I annualize what’s going on here I guess my question is if at the end of the day you were just to make the decision certainly you’re not thinking about this, but let’s say you did decide just to set it down, write it off, scrap it whatever, it would seem to me that the amount of earnings that you generated in the second quarter were not all that great and therefore the going forward cost to the company would not be all that great maybe I don’t know a penny or two a quarter.

Is that barking up the right tree?.

Well I think that directionally there is cost -- this is a larger complex mill so that machine has and absorbs cost that won’t necessarily go away when you shut down the machine.

And we have that kind of that is clear what that number is to us, so that’s really -- that’s on that metrics if you will that we have when we look at the machine and that’s kind of like the bright red line that if shutting it down and absorbing the rest of that cost is lower than continuing to run it and that’s what we’ll do..

Got you. So as you think about the absorption issue, again just thinking would there be a possible scenario where since it’s semi chemical I’m not sure you’re using any of the version fiber there for any other recent at Hartsville [ph], if I’m right about that.

Could that help shutting that down or said differently maybe you’re looking at completely 180 degrees difference could you ramp up the version capability there and make a liner board?.

No I don’t -- the system really probably isn’t capable of absorbing that much version material it’s blended to be as you said a semi-chem machine with recycle content.

So we’d have to invest and do different things and again I think that there are several companies out there that might view this machine as a very strong positive and that’s the path that we would prefer to go down at present..

Got you.

And then looking shifting gears to the composite can business you mentioned the new line I think you said it was a third line in Poland you’re starting up next year, is the move you mentioned toward square cans versus round cans is that something that is in your will house is that something you’ve got to get up to speed on or could it actually be an advantage where others will find that more of a challenge..

Yeah no this is something that when we bought Weidenhammer that we certainly were aware of that was moving forward. Let me just give it a broad legislation in Germany is affecting label appearance and the square can brings a little bit more of a favorable positive appearance to the product. So has been a lot of talk about moving from round to square.

We launched square can probably 30-60 days ago maybe much as 90. So we do have the square can in the marketplace other people are just evaluating it, we knew that it was going to have an impact on volume some of it got swung into the first quarter. So that they ramped up that that we could successfully launch in second quarter.

There are other options out there, other formats around square so some of that’s in play. But all-in-all we feel we have a superior square can that if the consumer and the tobacco company want square then we have the superior square can in the marketplace.

It’s really going to be how the consumers react to the new packaging and that that will kind of determine, which way is this going to go..

Okay.

You mentioned that Lat-Am volumes were up 14.5% I think that was in the industrial business if I heard that right, and when you -- except for Brazil could you tell us a little bit about what’s going on or maybe that was tubes and cores, what’s going on in Brazil? I noted back in late January when the stock market was going down every day your sense was that it wasn’t going straight down in Brazil I don’t know if you’ve had renewed air pocket? And then just maybe separately as you think about the whole world economy and you think about the industrial papers business, what are your order trends telling you there?.

Well let me talk specific Latin America for us is really Mexico and Northern South America, Colombia and that market there, that market is extremely strong has been and continues to do extremely well. They have been double-digit for quite some time now lot of growth down there new industry coming in.

So that’s been in that marketplace that we call Latin America. Brazil is struggling a bit on the industrial side, I think our flexibles business in Brazil tend to do fairly well. So, that’s a positive and I would say our cane business in Brazil is also doing well. So industry is doing as well as it has, but it’s doing okay.

So Brazil for us isn’t -- the impact that you read about now we are more in country with everything and do a very little export, so we are not being impacted in that way. As I look around the globe industrially we certainly see some minor pick-up here in the U.S.

and Europe similarly some modest underlying demand improvement some share gain going along with that. So, those being our two biggest markets. When we started the year we felt that we would see improvement on the industrial side and it’s kind of manifesting itself very much along the lines what we felt we would see..

Okay, thank you. .

Thank you. And our next question comes from the line of Ghansham Panjabi with Robert W. Baird. Your line is now open. .

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

How you guys are doing?.

Good, Matt.

How are you?.

Doing well.

First question, can you detail the various factors impacting the price cost benefit for your business during the quarter? And then what type of raw material outlook is baked into your updated 2016 guidance?.

What was your second question?.

Yeah, the second question was just about what type of raw material outlook have you guys incorporated into the 2016 guidance? I know you noted flat for risen, but if you could go through the various kind of inputs..

Yeah, and the other question was around price cost.

Really I think what’s has been driving price cost for us is that all year along we have had very, very positive price procurement productivity where the organization has done a very good job of contracts and getting us different type of materials, terms it’s worked extremely well that has been a strong part of it.

Particularly this quarter I think it’s been gas and energy have also had a pass with impact on price cost during this quarter. Some risen benefit but not a lot occurred in second quarter but there was some. As far as how we look the balance of the year as we said we see resin being flat for the balance of the year.

OCC expect it was up 15 during the quarter it’s up 5 already in third I would surprise to see it rise 10 more for the quarter and of course, one of the things we said that would work against us on a price cost basis as that happen. But I think it will fall off in the fourth so perhaps we’ll recover some of it in the fourth quarter.

Those would be the material implications for the balance of the year..

Okay, that’s really helpful. Thank you. And then just in terms of some intra-quarter trends.

Did you see any fluctuation in customer order patterns during the period surrounding the Brexit boat particularly within your European industrial businesses?.

Not that was communicated to me. I think as we look at Brexit UK amounts for 2% of our sales on a global basis. So it’s a fairly small market. Now Europe is 20% of our sales and as we analyze at the day the impact from the Brexit as we see it as it how will it impact the two economies the economies separately UK and the Eurozone.

And then how will their currencies actually fluctuate or change against the dollar that’s really -- and or against each other that’s really going to be the impact that we see..

Great.

And then one last question, given the positive mix that you experienced during the quarter in your various segments and your initiative to move towards higher margin products within the portfolio what’s your view on the sustainability of this positive mix dynamic moving forward?.

Well actually in the quarter the mix was not really that good Matt, what we actually saw sale of more products in display and packaging, which have little to no margin and we saw drop off in some of our higher margin products like cans, flexibles, et cetera, so that mix wasn’t positive.

I think the ability to continue to switch the mix move more toward consumer, more toward protective packaging will definitively on that path we are doing a lot of work to build those businesses. So I feel very, very good about the future and where we are heading with building those businesses. .

Thank you. And our next question comes from the line of Chris Manuel with Wells Fargo Securities. Your line is now open..

Good morning, gentlemen. .

Good morning. .

Just wanted to kind of Jack, one kind of big picture question, I mean now that you’ve got the mill sold in Europe. I mean where you kind of stand on add-deletes through the portfolio.

Do you have the mill footprint sort of where you want it? Do you envision further actions; it looks like you did a little bit in Puerto Rico as well? Can you maybe talk about kind of where you are in the add-delete spectrum?.

So Chris what exactly you’re asking? Kind of talking about mill footprint or are you looking more towards just….

Well both. So really what I’m trying to understand is you’ve done some realignments in Europe you sold a mill.

Are you comfortable with where you have the portfolio today, or do you foresee more actions that you’d like to take there?.

Well the portfolio, we’re fairly comfortable with the mill footprint that exists in Europe today. I think this is kind of a mill footprint we wanted. I think we continue to do analysis of our footprint in both tubes and cores and composite cans. The matter of fact we have several consolidations going on right now.

In composite cans, it’s one of the things that negatively impacted productivity for the quarter. And we’re looking at some of the footprint for the tube and core business as well. So we’ll continue to evaluate that. I think if you’re stepping back and say the total portfolio for Sonoco, no, we’re not where we’re going to be.

We’ve been fairly consistent that we want to grow in flexibles, we want to grow in thermoforming and we want to grow on the Protective Solution side. So you should not be surprised if we make the acquisitions in those areas.

And that there are some businesses that don’t fit as well and that you shouldn’t be surprised to see us sell a couple of businesses to kind of continue and make that shift so we become more focused around the directions that we’ve talked to..

Okay, that’s helpful. I wanted to kind of zero-in for a second on some of the composite can stuff. I think you talked about it being down about 2% globally. Can you maybe share how that may have been different by different geographies. I know that in a few spots you’re adding a good bid of capacity.

So are you seeing good growth in kind of basically regions outside the U.S.

or how is that playing out?.

Well certainly we’re seeing growth in the developing world, I think the growth in Asia was some 40 plus percent. So we’re certainly seeing there, we’ve got the volume that’s coming on at the new facility in Poland. So the demand drop was actually domestic in Europe. Part of the European drop as I mentioned earlier was the tobacco situation.

And we anticipated that we’d get a build in the first quarter that would kind of we would be impacted in the second quarter as all this kind of washes out around what’s the new format. And then we saw a drop above 2% domestic it was almost double that domestically. And that had been -- that’s focused on a few products.

And as I said, some of our customers are moving operations, consolidating operations that certainly had an impact. There was a fire in one of our customer’s facilities, that’s impacting that number. That number seems a little bit out of lag, but again I wouldn’t read much more into it than a quarter’s event..

Okay, thank you. That’s all I had. .

Okay..

Thank you. And our next question comes from the line of Scott Gaffner with Barclays. Your line is now open. .

Thanks, good morning. .

Good morning, Scott. .

Hey Jack, hey Barry.

Just staying there on composite cans for a minute, can you walk us through some of the demand trends by the segments whether nuts, dough, powder infant formula coffee et cetera?.

Yeah again I think that I’m trying to find some notes. I think we had some of the segments that were -- I can’t read as Barry. Some of the segments that we -- that were certainly up I think powdered infant formula was up, dough was actually up.

So some of the segments that we serve snacks was down, I think powdered beverage continues to be down, of course frozen orange juice concentrate was down. Again these move up and down you see them kind of go different directions all the time with some of the work that’s been going on, some of those shutdowns that were planned.

I’m not surprised to see some of the numbers being a little bit bigger than they would be in any other quarter. But discernible trend other than frozen concentrate which we know in powdered beverage, which has been kind of in that, there is nothing more to read in it than that..

Okay. Any opportunity I mean I know with Weidenhammer you got some of the non-round capability.

Have you seen any demand for customer interest in the non-round outside of Europe?.

Outside of Europe some, we’re kind of working with it in other areas of the world. I would tell you what’s really got a lot of attention both in Europe and domestically is in-mold labeling thin-wall in-mold labeling.

We are some of the consolidation work we’re doing in Germany is to consolidate all that molding into a single facility, which will be really an outstanding facility and have a high level of expertise.

We believe that has applications domestically as well both the non-round paper can, but also the in-mold labeling thin-wall labeling that also will have applications domestically..

Okay. And last one from me just on the share repurchase, I mean the stock is up close to 25% year-to-date and it sounds like you’re going to continue to go forward.

But have there been any discussions on maybe moderating the share repurchase at these levels and coming back in 2017 instead?.

Well Scott I would tell you that at each quarter we had into a period where we actually met a limit and stop buying for a while. And as we come back into this quarter and an open period for buying. We’re going reengage in the buyback, are going to watch it for a while.

And as it goes into the blackout we will again cap it so that if there is excessive movement or something we would stop. But our goal here really is to returning cash to shareholders and dollar cost-to-average over the course of the year. Right now our dollar cost-to-average is pretty strong. So we’re going to continue down the path.

But is something strikes us as being unusual about valuation we’d make the determination to stop or to halt for a short period of time. .

Okay, thanks a lot. .

Sure. .

Thank you. And our next question comes from the line of Adam Josephson with KeyBanc Capital Markets. Your line is now open. .

Jack, Barry, Roger good morning. .

Good morning..

Hey, Adam..

Hey Jack. Barry just one other one more pension question for you.

What exactly is the relationship between your discount rate and the tenure? In other words, to what extent do they move hand-in-hand with each other?.

They don’t necessarily move in hand-in-hands because of course our discount rate is determined on portfolio of corporate bonds with a similar duration to our liability. But you can just use it as a broad proxy for how the overall discount rate might move..

Sure, okay. Jack just one on packaged food volume domestically. Obviously we see what’s happening with the large public guys their volumes have been declining fairly significantly. It’s harder to see what’s happening with smaller companies more organic natural type companies. Can you just give us a sense for what you see happening broadly with U.S.

packaged food volume not just the big customers that we know you serve?.

Adam that's a great question. Certainly you see the published data you see that some of our customers are struggling with volume we’re experiencing that as well.

What we are actually experiencing however with the I6 process as we’re engaging with that second tier group that are bringing the new idea the new product into marketplace that many of these larger companies actually want to buying it some time.

And we see a lot of activity in that second I don’t know second tier maybe the wrong word, but that other group that less well know a lot of activity and a lot of interest in the innovative products that we have and some of the things we’re doing with them a manufacturer you are going to see us launch products with that group.

And of course you are seeing the parameter and the products in the parameter and that’s for us that are thermoforming that’s flexible. So a lot of activity from us around those customers and what their needs are. As a matter of fact we recently hosted 50 contract packagers here in Hartsville it was a great experience for us and for them.

And it really opened up some eyes about what we can be doing and who we should be working with on some of our innovations..

Thanks for that Jack.

And just two on capital allocation, can you just talk about M&A multiples and what opportunities you are seeing at the moment if any?.

Well there is definitely opportunities out there and multiples within the realm of the conversation we are having today the multiples are not unreasonable, but it is about really the due diligence around the opportunity, does it fit what we really need and are the numbers, the forward projected numbers realistic and what can the synergies be.

The multiples themselves are certainly elevated as they were over time. But I would tell they are not outlandish in many cases. It is really about what is the real growth rate, what is the real forward projection of earnings and what are the real synergies you can expect and what can you do it.

And we have been involved in several conversations and remain involved in several conversations so they are there, it’s about making sure you get the right one and making sure you know what you can do with it when you get it..

Sure.

And just one kind of out of left field here, obviously you pay pretty sizeable dividend as is but have you given any thought to meaningfully increasing it further just given multiples that are being afforded any company that pays a half way decent dividend these days?.

Well I think to the point you made, we are a dividend payer, we have been a dividend payer we identify with ourselves as a dividend payer and we’ve had a pretty long history and model around paying dividends and that’s really to payout about half of our earnings as a dividend.

Multiples set aside because multiples can go down, multiples go up, the consistency about history really brings true to us so that’s probably going to be a more of our guiding factors paying out a portion of our dividend, a consistent portion somewhere around half which is kind of what we’ve done it’s not written in stone, but it’s just been our legacy..

Sure, thanks very much, Jack. Best of luck. .

Thanks, Adam. .

Thank you. And our next question comes from the line of Mark Wilde with BMO Capital Markets. Your line is now open. .

Good morning, Jack, Barry. .

Good morning. .

I have few questions, so, first one just to kind of comeback question to a and I think Chris Manuel was trying to get at.

If we go back to kind of early December of 2014 when you were in New York, I think you talked about $700 million to $800 million worth of revenue business that was kind of under review where are we at in that process right now?.

I am not sure, what you mean by that, but I am assuming you are taking about $700 million of revenue review that we would do something else with..

Yeah, I think you had a graph and you had a picture up there about sort of portion of your business that you are looking at to either improve performance or potentially to divest..

Well I would tell you that some of the businesses where we had improved performance have indeed seen substantially improved performance and that we are pleased with that. That said, we also talk about focusing this portfolio more on flexible, protected solutions and thermoforming.

And I don’t know how to say it any more than we said, we are in process, we are in the process and as I said earlier you should not be surprised if we make an acquisition in one of the three areas I outlined during the course of the conversion.

Nor should you be surprised if we divest a business with inside Sonoco that is more significant than a single mill or site during the course of the rest of the year. Mark, all I can really say is we are in process. .

Okay, actually I think that’s a good answer Jack.

And just a kind of on the divestiture issue, I mean you’ve got a really broad and diverse portfolio for a packaging company and you’ve got a lot of businesses in there that don’t look like packaging businesses or certainly don’t look like kind of consumer packaging businesses, is the direction here to be to make this look more like a consumer packaging company?.

Again I’ll -- right now we are moving in the direction of protective solutions and consumer packaging. I think that that will make us look more like a consumer packaging company over time. But it doesn’t mean that every business inside protective packaging fits or every business inside consumer fits.

We really want to narrow down the scope composite can, flexible packaging, thermoforming on the consumer side and in protective solutions we really like that temperature assured packaging space and of course the paper based protective packaging that was there before. So it’s not so much absolutely to consumer.

I think that shift will occur and I don’t want to imply that the only businesses that we would sell would be out of industrial that’s not right. We like certain pieces of our industrial businesses they are very good businesses. So it will shift us in the direction of consumer Mark I think over time.

But the goal is not to make us strictly a consumer packaging company..

Okay, that’s fair.

Any timeline you think that it’s possible to put on this medium mill situation, Jack?.

The medium mill, well, we are certainly going to continue to evaluate it day-to-day. Again it simply comes down to cash in the final analysis as it cost more cash to run it or close it and what’s the best option in between.

Our goal is to run it, our goal is to find a partner, our goal is to continue to reduce our cost and that’s what we’re focused on right now..

Okay..

Our plan, no not right now..

Okay, all right. And the final question I had is just the balance sheet because you look like on a sort of a first half run rate I mean you are sitting well below two times leverage, you’re also sitting on a lot of cash right now. I mean is that in anticipation or it would be prepared for a large potential acquisition.

Can you just give us some thoughts on that? Because it seems like you are off late under levered at this point..

Again there is all different measurements of leverage and when you go to the agencies they accounts a lot of things that you are not talking about. But yeah, we have to solid balance sheet and we have businesses that we want to exit. All of that in preparation of buying other businesses that fit flexible, thermoforming or protective solutions.

And I’ll go back to my earlier comment we are in the process..

Fair enough. We’ll stay tuned..

Thank you. And our next question comes from the line of Debbie Jones of Deutsche Bank. Your line is now open..

Hi, good morning..

Hi, Debbie..

I was hoping we could revisit the comments you made on productivity.

You did say that I think at the Investor Day you were targeting about $50 million for the year, running below that I understand the containerboard business is impacting that, but how should we think about the back half of the year, what is baked into your guidance? And then what could be -- if we exclude containerboard what could we expect on a quarterly basis here going forward?.

Again as we say somewhere around $12 million a quarter is what we would expect I think with the drag with corrugated that continuing that’s going to drop that down solid $3 million or so. So from all the other businesses nothing would actually change, I would expect them to generate somewhere around $9 million.

I think as you look at the second quarter you had a very unusual situation with a lot of volume early and then it kind of faded and as volume falls you kind of run to catch that productivity.

So I think that we made the adjustments based upon run rate certainly productivity is baked in going forward and I think what’s helped to offset all that is that at the end of last year we made a determination to remove a certain amount of fixed cost from the organization to make a big deal out of it. We did it fairly quietly.

But we have really done that and so when you look at productivity in total along with our procurement productivity, which is material substitutions and other things like that, when you aggregate all that our total productivity is above plan.

But over the long-long term we really have to generate that $12 million or so per quarter of manufacturing productivity. We have businesses that are making extraordinary progress. We’re not going to let up on that. And at some point we’re going to resolve the issue with number 10. So it remains a focus..

Okay, thanks that’s helpful.

And then my second question it’s very clear that your M&A strategy has not changed, but if we could go back to the post Brexit world discussion here, what were your thoughts kind of post that situation and lot of uncertainty does it change the way you think about the opportunity for you in Europe or the multiple that you’re willing to pay et cetera or even sell businesses in that region?.

At this point I would say that it’s not really impacting us from that perspective, certainly pound denominated acquisitions seem to make a lot of sense right now.

As long as you can understand the product line and the product mix and how it might get caught up in Brexit or in other words what type of product is it, the more exclusive it is I think the better off you are going to be, but are there also offsetting manufacturing operations on the continent that could help balance any truly breakdown between the relationship between the UK and the EU.

What that final outcome is going to be I don’t know, I think it’s going to be a tough negotiation, but the final analysis I think that it will probably work out for both of them..

Okay, thanks I’ll turn it over. .

Thank you. And our next question comes from the line of Steve Chercover with D. A. Davidson. Your line is now open. .

Thanks and good morning. I don’t think you mentioned what the coupon was on the five year debt you placed in Germany.

So how much are they paying you to borrow their money?.

Pretty close. .

It’s about 1.3%..

1.3% okay that’s great.

And I know we’ve been talking a lot about the corrugating the medium machine in Hartsville and I’m just wondering how many other machines are there in that complex?.

Six. .

Six machines in addition to the medium machine?.

I think it’s five machines in addition to medium machine, six complex mills..

Got you.

And the pulp or the furnish is primarily recycled or is there a virgin line there?.

It’s a mix, it’s a mix of virgin and it’s a mix of recycle..

All right, that’s all I had. .

Thank you and our next question comes from the line of Brian Maguire with Goldman Sachs. Your line is now open..

Hi, this is actually Kia Porcani [ph] sitting in for Brian. Just for the sake of the time I’ll be quick, I just wanted to peg you back off for earlier question you mentioned how in protective solutions some of the thermoforming products that you’ve introduced aren’t at their productive levels that they will be at eventually.

I am wondering how long it typically takes for new products in protective solutions specifically get up to their for full production efficiency?.

Yeah just a bit of a clarification the products in temperature assured packaging they are not thermoforming, they’re foam and gels and usually it’s going to take us 30 -- it’s going to take us 60 days maybe two, maybe three runs to kind of really get upto speed and understand how does a machine actually performing, how is it running at speed.

So I’d expect another month or two of some impact and it should get progressively better. You learn every month and again it’s really around the uniqueness of that particular pack and how it’s made, but 90 days should clear. .

Understood. And then just my second question on the IPS studio you’ve talked about how it’s helping with new product development and winning new business.

Aside from the TruVue can do you have any other products that you think will impact the top-line and at what point do you expect to see the financial impact from those products?.

Well we’re introducing container in the pet food arena, we want some new flexible packaging tender view I guess it goes on bars or energy bars and the like we’ve run several new pieces of business I think that -- but that’s not what we started that for.

What we really started it for were big rocks as they’re called we started it for the TruVue can and a product like that. It certainly helping us win business $5 million here $3 million there. We’re looking for the big rocks the $200 million rocks they are working on a project now for global powdered infant formula.

So while we’re winning volume we are focused on the big rocks inside that facility..

Great, that’s all from me. Thank you..

Thank you. .

Thank you. And our next question is a follow-up from the line of George Staphos with Bank of America. Your line is now open. .

Hi, guys. I know it’s really late, I’ll ask just quickly in one shot here.

So just following on the previous discussion on M&A and divestitures and all that, is that what prompts that note that paragraph on page one of your press release I don’t know that I’ve ever seen before the comment about you can’t provide GAAP guidance because of potential things that might happen that’s question number one.

Question number two you had mentioned at least some concern that’s my word that’s not the word you use, but will it for now about the auto cycle as regards protective is that just as thinking in the back of your mind Jack or you’re begin to see it actually show up in the volumes? And then lastly in terms of rationalization this year, we’ve obviously been looking for and you’ve been doing it within your industrial operations in tubes and core.

Will you always going to also rationalize in the composite can area? Thank you and good luck in the quarter..

And you want to take the GAAP comments?.

Absolutely.

George the paragraph that was added to the press release is directly in response to the fact that the SEC issued some interpretative guidance on the use of non-GAAP measures?.

Hey Barry you’re cutting out, I apologize.

Can you repeat that?.

Yes is this better?.

Yes. .

Okay. Yes the paragraph added to the press release and was directly related to the fact that the SEC came out with some interpretive guidance on the use of non-GAAP measures in the quarter.

And clearly thus wanting to comply with the guidance felt that it was best to also describe while we don’t issue GAAP earnings guidance, we just continue to issue base earnings guidance. Because it is frankly very difficult for us to estimate restructuring charges, asset impairments and other things that are all excluded from GAAP.

So that’s the whole reason for that being added..

Thank you. On auto….

And of course the auto cycle, did you have another question?.

No. .

Okay. As far as the auto cycle goes, again if you look at the numbers some cars were up some were down, trucks are up cars are down. But in total that $17 million unit number that seems to be in everybody’s mind that’s okay that’s the top of the production curve.

And we’re kind of at that point we’re moving toward that point that’s really what I was kind of referencing as that auto production we’re moving to the top of what most feel is going to be the top of the limit. However we continue to win new business that goes into other cars that we don’t have today or new business for us.

So that will have a positive impact on that business. There may be the 2019 model, but that still going on. But so that will help with volume in the business. But from what I would saying is just that it’s near the top of its forecasted range right now..

Fair enough. .

And then on the industrial and in composite. Yes the consolidation and it’s really been around Europe. We had the consolidation plan, I don’t know if you recall when we made the acquisition when we got into this issue with the UK..

That’s right. Understood. .

It's all the same and kind of pushed it over into this year. So we're late doing it, but it was just because of that particular event. .

Understood, thanks for all the details guys. Good luck in the quarter. .

Thank you..

Thank you. And I am showing no further questions at this time. I would like to turn the conference back over to Mr. Roger Schrum for any final remarks..

Thank you again Tamera. Again let me thank each of you for joining us today. We certainly appreciate your interest in the company. As always if you have any further questions, please don’t hesitate to contact us. Thank you very much..

Ladies and gentlemen thank you for participating in today’s conference. This does conclude today’s program. You may all disconnect. Everyone have a great day..