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

Chris Manuel - Wells Fargo Mark Wilde - BMO Capital Markets Ghansham Panjabi - Robert W. Baird & Co., Inc. Scott Gaffner - Barclays Phil Ng - Jefferies Brian McGuire - Goldman Sachs George Staphos - Bank of America Merrill Lynch Chip Dillon - Vertical Research Partners Steve Chercover - D.A.

Davidson Debbie Jones - Deutsche Bank Adam Josephson - KeyBanc.

Good day, ladies and gentlemen and welcome to the Sonoco Third 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. Mr. Schrum, you may begin..

Thanks you, Andrea. Good morning, everyone and welcome to Sonoco’s investor conference call to discuss our financial results for the third quarter of 2016. Joining me today are Jack Sanders, President and Chief Executive Officer; and Barry Saunders, Senior Vice President and 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 sonoco.com. In addition, we will be referencing a presentation on the third quarter’s results, which was posted on our Investor Relations site earlier 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 results of operations.

Further information about the company’s use of non-GAAP financial measures, including definitions as well as 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 cover, let me turn it over to Barry..

Thank you, Roger. I’ll begin on slide three, where you see this morning we reported 2016 third quarter earnings per share on a GAAP basis of $0.64 and base earnings of $0.72, which is above the top end of our guidance of $0.65 to $0.70 all of which compares to base earnings of $0.65 for the same period last year.

Earnings for the quarter were stronger than our guidance due to operating cost being slightly lower than what we have projected.

The differences between GAAP and base earnings are discussed in our press release and are related primarily to restructuring charges, related to plant consolidation opportunities and the $2.6 million asset impairment charge related to writing off the goodwill related to our industrial business in Brazil arising from some smaller acquisitions made in the 1990s.

On slide four you find our base income statement, where you see sales were $1.209 billion, down $33.9 million from the prior year and you'll see all of the moving pieces in the sales bridge in just a moment.

Gross profit was $235 million, up 2.6% from the prior year, while our gross profit margin percent was once again very strong at 19.5% for the quarter compared to 18.5% for the same quarter last year.

Selling, general and administrative and other income and expense items were $120.6 million, which was down $2.8 million from last year due to fixed cost reduction efforts and lower pension cost, which more than offset normal inflation.

All then resulting in base EBIT of $114.7 million, up $8.8 million from the prior year and again you'll see all the drivers of the change in the EBIT bridge in just a moment.

Below EBIT interest of $12.4 million was right at $1 million lower than last year due to lower average debt levels including the repayment of $75 million in 5.625% notes earlier this year.

Income taxes of $31.4 million were higher than last year due to higher pre-tax income as the effective tax rate for the quarter of 30.7% was essentially the same at the same period last year.

Equity and affiliates when combined with minority interest was $2.5 million and similar to last year, thus ending up with base earnings of $73.5 million or $0.72 per share. Turning to the sales bridge on slide five.

Let me spend a few minutes talking about all the moving pieces, starting with volume which you can see was essentially flat for the company as a whole. Consumer packaging volume was up just under a percent year-over-year driven by 3% growth in flexibles and almost 4% in plastics, but it was partially offset by global composite cans being down 2%.

The lower volume in composites occurred primarily in Europe associated with the lower demand for tobacco packaging. Composite can volume was down just less than a percent in North America and up 13% in Asia.

After reporting year-over-year growth for several previous quarters display and packaging volume was down of 3.4% this quarter, with the lower volume across display manufacturing, fulfillment and in the retail security packaging business.

This excludes the impact of exiting the Irapuato Mexico pack center which is reflected in the exchange and other line item on the bridge. Paper and industrial converted products volume was essentially flat for the quarter.

Within the segment global tube and core volume was up right at 0.5% as we saw a 2.4% improvement in Europe, but partially offset by 1.4% decline in North America.

The improvement in Europe continues to be driven most notably by some share pickup, while in North America volume improvement in core sold into the film and specialty industries are being more than offset by the continued decline in core sold into the paper industry.

Global sales of uncoated recycled paper board or URB from our paper mills were up about 1%, but the most growth from this along with the previously mentioned modest increase in tube and core volume was then offset by reels business being up 7.6% and some lower sales in recycling.

And finally in protective solutions, volume was up 1.5% which was much more modest than the growth rate that we have been experiencing in the previous quarters.

Within this segment molded phone components for transportation was only up 1% due impart to a year-over-year comparison as last year's July was particularly strong particularly in the dunnage business.

Paper based protective packaging going primarily into the appliance industry was essentially flat and temperature assured packaging was only up 2.4% again some due to difficult year-over-year comps and some pushing out of the impact of the flu vaccine packaging into the fourth quarter of this year. So moving on down the bridge to price.

You see that prices were lower by $4 million as lower pricing in the Consumer Packaging segment associated with lower commodity cost were partially offset by prices being higher in the Paper and Industrial Converted product segment associated with the yield we have realized from the previously announced price increases and higher OCC prices in general.

The improvement in pricing in the Paper and Industrial Converted product segment is despite the $2.6 million negative trend in pricing in corrugating medium alone. The net impact of acquisitions divestitures reduced sales by $6 million most notably due to the sale of the paper mill in France.

Exchange and other was negative by $24 million most notably to the $20 million impact of lower sales in the pack centers associated with exiting the Irapuato Mexico location. The impact of translation on the top-line year-over-year was not nearly as notable this quarter as it has been the last few quarters.

Turning to the EBIT bridge on slide six, as you would expect there was no impact from volume given what you just saw on the sales bridge. Price cost including the benefit of procurement productivity was once again favorable this quarter by $4 million even with the drag from the one corrugating medium machine.

Moving down the line you can see the divestiture of the mill in France favorably impacted results by right at $1 million. Manufacturing productivity was $4 million for the quarter, which was below our target but improved over what we reported last quarter.

Overall it’s fair to say that manufacturing productivity was light in many of our businesses simply due to flattish volume.

But we also continue to experience operating issues in rigid paper Europe related to plant consolidation issues and running some new products there and we had negative productivity from the one corrugating medium machine, which actually offset some of the productivity in the North American paper mills where they actually ran quite well, essentially at capacity for the quarter.

Even in Europe the mills ran well, but took it bit of downtime for capital related projects and mill improvement projects.

Moving to the other lines the change on a year-over-year basis had a negative impact of only $3 million as the impact of normal inflation on everything other than materials and energy was notably offset by lower fixed cost spending associated with our fixed cost reduction efforts and some favorable changes and other charges.

Translation of earnings in foreign currencies had essentially no year-over-year impact this quarter. And as expected pension costs were lower year-over-year by $3 million.

Turning to slide seven, you see our results by segment, for the Consumer Packaging segment, sales dollars were essentially flat, but EBIT improved 15% most notably associated with price cost as margins improve to a very strong 12.3%.

Display and Packaging sales were down 19% again due most notably to exiting the Irapuato location, but earnings were down less than 300,000 thus the margin percent improved to 3.9%.

Paper and Industrial Converted products trade sales essentially flat, but earnings improved by right at 3% even with the negative impact of the corrugating medium machine which was down $4 million year-over-year from the quarter alone.

If the corrugating medium machine was just back to breakeven the margin percent would have been right at 1 full percentage point higher for the segment as a whole.

Protective Solutions sales were up 1.5%, but EBIT was down just slightly thus margins backing of modestly to 9.5% all then resulting in the base EBIT margin for the company as a whole at a very solid 9.5% up a 4 percentage point from last year. Turning to slide eight, you find our outlook for the fourth quarter and thus the full year.

We are projecting that base earnings will be in the range of $0.60 to $0.65 for the fourth quarter.

This assumes no significant change in the overall level of economic activity simply normal seasonality and of course does take into consideration that the fact that this year’s fourth quarter has five fewer accounting days, which includes four fewer business days.

This guidance also takes into consideration the expected closing on the sale of the company’s rigid plastics blow molding operations at or near the end of October. This brings our full year guidance for base earnings to $2.70 to $2.75 per share, up from the previous $2.68 to $2.74, due to the better than expected results in the third quarter.

Moving from earnings to cash flow on slide nine, cash from operations was right at $163 million for the quarter, improved from $145 million last year due to improved earnings and less of an increase in working capital this quarter versus the same quarter last year.

Capital spending for the quarter was $40 million and we paid $37 million in dividends, resulting in free cash flow of $85 million for the quarter. For the full year we’re still targeting to deliver $140 million in free cash flow.

During the quarter we used right at $21 million for share repurchases bringing our year-to-date total to right at $59 million and we expect to continue repurchasing shares through the balance of the year to complete the announced $100 million share repurchase program.

During the quarter we also spent $20 million, on two protective solutions acquisitions, Laminar Medica in the UK and the Pharma Port Technology. Turning to the next slide, you see our balance sheet for the quarter. I won’t spend a lot of time reviewing that other than to mention a few things.

The most notable of which is that all assets and liabilities related to blow molding operations have now been segregated and reported as assets held for sale. As you can see, our financial position remains very strong with our net debt to total capital improving to 37%.

That completes my review for the quarter and Jack will now provide some additional comments..

Thanks, Barry. Let me talk briefly about our 2016 year-to-date performance and update you on our initiatives to grow and optimize our portfolio and conclude with our outlook for the remainder of the year.

Our ability to grow base earnings by 12% through the first nine months for 2016 is a testament to our strategy of growing and optimizing our businesses to produce more consistent earnings and improve returns.

Gross profit margin in 2016 is running 101 basis points higher than the first nine months of last year and our EBIT margin has risen 100 basis points to 9.5%. Additionally, we are on track to produce our strongest margins in more than 15 years.

Operating profits from each of our four business segments are up year-to-date, led by the continued strong performance in our Consumer Packaging segment which achieved its 8th consecutive record operating profit quarter. Also the segment’s operating margin is up 130 basis points to 11.9% year-to-date.

Within the Global Packaging segment, year-to-date operating profits from global rigid paper containers is up 5.6%, flexibles’ operating profit is up 22% and rigid plastic is up 5.2%.

Display and packaging operating profit for the first nine month of 2016 is up significantly from last year about 85% and we are gaining traction with new business where we can both sell services along with packaging to our customers. Switching to our Paper and Industrial products segment.

Operating profit for the first three quarters was up 5% and asset market headwinds in our corrugated medium operations results would be up significantly, in the mid double-digit range.

During the first nine months of 2016, we have seen modest improvement in tubes and cores in North America and solid growth in Europe and our URB mills are also having a very solid year. While we continue to be disappointed in results from our single corrugated medium machines due to difficult market conditions, we are seeing some encouraging signs.

We now have orders to run the machine on a full schedule through the remainder of the year and we expect pricing to improve. We continue to seek a long-term solution for this mill and are looking at several different options.

Finally in Protective Solutions, operating profits for the first three quarters of the year is up 11.8% and operating margin is at 9.8% up 20 basis points.

Manufacturing productivity continues behind our historic levels and some of this poor performance relates to the drag from our corrugated medium operation, as well as the consolidations startup of new operations in global tubes and cores and composite cans.

For instance, we have closed four small tube and core operations in the past year and consolidated production in the larger facilities. We have also consolidated composite can plants in the U.S. and in Europe.

However, total productivity which includes manufacturing productivity, fixed cost reductions and procurement savings is running 12% ahead of our targeted rate for 2016.

That said we remain focused on reducing our unit cost to produce by implementing our Sonoco performance system, which should provide better results for manufacturing productivity in 2017. During the third quarter we announced the sales of our rigid plastics blow molding operation to Amcor for $280 million.

And we expected to close on the sale at the end of this month. Our goal is to use the proceeds to further enhanced our targeted growth businesses of flexible, thermoforming and protective solutions. Our North American blow molding business is a good business and we believe we received a fair price.

We are exiting this business because of the capital requirements to maintain or grow it would have pulled from our focused growth businesses. We determine the business would be better suited with someone looking to build a larger platform.

I’ll remind you, our portfolio optimization efforts have focused on improving returns, return consistency and earnings. You’ll recall we earlier divested our [indiscernible] business in 2015 and more recently sold the mill in France and a retail security packaging business in Puerto Rico.

We may further optimize a portfolio, but primarily to help find the future strategic acquisitions. As per acquisitions we made two smaller purchases in the third quarter adding the assets of Laminar Medica, a passive temperature assured packaging operation in Europe and PharmaPort an active temperature control cargo container operation.

Both of these acquisitions complement our ThermoSafe business in the growing temperature assured packaging market. You should not be surprise to see us continue to actively pursue rational strategic acquisitions in our targeted growth businesses.

Also our projects to expand composite can capacity in emerging markets and flexible packaging and thermoforming in the U.S. remain on schedule. And we are looking forward to the launch of our new TruVue clear plastic can in about 400 grocery stores in the Southeast within the next few weeks.

Additionally, we are actively working with several other processed food customers for new TruVue developments in 2017 and beyond. Finally, let me address what we are seeing heading into the final quarter of the year.

As a result of our strong performance in the first three quarters of the year and our expectations for the remainder of 2016 we are raising our full year guidance to $2.70 to $2.75 per diluted share despite continued headwinds from slower global economic conditions.

I personally think the average American consumer or global consumer in fact is in pretty good shape financially, but they remain uncertain about the future, which is tempering sales for many of our customers. Therefore I don’t think the situation will dramatically change in the coming quarter.

In closing, we remain firmly committed to our grow and optimize strategy, which is about growth, improving operating margins, shipping the business mix, maximizing cash flow and finally returning cash to shareholders about $240 million in 2016. Operator we’ll now take your questions..

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

Good morning, gentlemen and thank you for taking the question. Just kind of two topics I kind of wanted to go through.

First, was the path that you guys have talked about a chunk and have given somewhat color here the medium machine, how far down the path are you to addressing that or having -- and you’ve talked about partner opportunities and things of that nature you just give us an update as to where you are with the status of that?.

Well, Chris I can simply say that we have ongoing conversations to address that and we’ve completed some other analysis, which would look at the machine on a different basis. In other words do something else with it or shut it down completely. So we have all the numbers and we have ongoing conversations that’s about all I would say..

And I think earlier in the year you were running at maybe three out of four weeks or something like that, but and my understanding is at this point you got it back to running full maybe that helps a bit or?.

It does we were in a slow back mode, but from now till the end of the year we are basically back to full schedule and there is an announced price increase in the corrugated industry and we'll see how that affects us once it all plays out..

Okay, that's helpful. The second topic I wanted to ask about was on the URB side.

I believe you guys announced a series of increases both in board and in tubes and cores and I just wanted to get a sense as I recognize that we're early into that process, but how you're feeling regarding what's happened in the competitive landscape, how you’re feeling about realization of those or kind of some thoughts there?.

Well as you know it is early. All I can tell you is we're very committed much of this increase and we're moving forward with it and intend to stay the course there. I will also say that I can't be more pleased with the performance of our URB mills in our tube and core business in the U.S. They've done a marvelous job, I'd also say in Europe as well.

They really have had a solid year..

Okay, that's helpful. I'll jump back in to the queue. Thank you. .

Okay. .

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

Good morning, Jack good morning, Barry. .

Good morning. .

First of all is it possible to get the revenue number on that blow molding business that you're selling?.

Yeah it's roughly $200 million on an annualized basis. .

Okay alright. And it sounded Jack just in terms of any kind of further portfolio moves that in any remaining assets are likely to be relatively modest.

Am I reading that correctly?.

Well I think if you look at the portfolio we have our foundational businesses, tube and core and composite cans certainly those are going to remain in the portfolio. But then we have some two or three businesses that aren’t inside those dedicated areas flexibles thermal forming and protective solution.

So yes I mean somewhat modest, but you can all help fund the acquisition into those key areas..

Okay. And then just turning to the particularly the thermo side of that protective business the temperature assured stuff, is the growth rate in that business since you picked it up, has that been what you expected? Because it seems like this quarter was a little lower than some of the numbers you've talked about for that business historically..

Yes it's been every that -- and everything all of that more I think this quarter what you get caught in sometimes are is a timing situation as when does flu season actually start. Last year it started into late in the third quarter this year it’s kind of sliding a bit into fourth quarter. So it's just a bit of a timing issue from that perspective.

But the industry continues to grow globally and really for the foreseeable future don't see that changing..

Okay. And then finally just back to this medium machine, a while back you had mentioned that you thought you might have a solution by kind of year end this year.

Is that still realistic or you think it's a little bit further out Jack?.

Well I would tell you Mark, we're trying to eliminate the impact in 2017 one way or the other. So it's certainly a target. Will we get it done, we shooting for it, but I couldn't say 100%. .

And do you have any sense just with this price like out there the medium side of the industry has been I believe the softest part of the industry.

How long will it be before you have some sense of how much you're actually picking up from this hike?.

Well I think when publications and published price changes come out then we can make obviously adjustments. So maybe 30 days after that might be a good rule of thumb. .

Okay alright, that's great. I'll turn it over. .

Thank you. Our next question comes from the line of Ghansham Panjabi with Baird. Your line is open. .

Hey, guys good morning. .

Good morning. .

Hey first off on the margin expansion in consumer packaging, can you just give us some more color as to what drove that? You called out favorable price cost and a few other things.

Was there also bigger mix benefit in the quarter with growth in plastics versus maybe some of the other substrates?.

Yeah not so much of that. I think as you look at the consumer businesses in total, we've had some good productivity across the business both and what we called price productivity which gets mixed up and price cost is how we reported where we're using different materials, different types of materials, buying materials better, et cetera.

And then absolute throughput improvement in the business as well. That's really been a good part of the margin expansion story. .

Okay. And then kind a going back to your decision on blow molded and the decision to exit, you mentioned capital requirements Jack, I remember when you acquired the business in the middle part of the last decade, there was also some opportunity for cross-selling I identified at the time.

Is there any loss of sales that we should expect just as you sort of exit that portion of the business?.

From a cross-selling perspective not really….

I think that what we actually experienced is that, yes, there are -- there may have been some cross-selling opportunities, but they probably weren't as big or as significant as we thought.

The other piece of that I think is that as I said both of these both flexibles and blow molding are so much capital intensive and to fund and grow both and become relevant in both would have been very difficult.

We -- that term relevance, we kicked in at the Analyst Meeting last year, it is an important term and our decision after looking at all was we can be more relevant in flexible or chose to be more relevant in flexibles. So that’s how we made the decision..

Okay. And just one final question kind of going back to Chris's question on the pricing for both URB and maybe even container board, what are you assuming, what’s your guidance for 4Q? Thanks so much..

I’m sorry, didn’t understand that?.

Just what kind of pricing expectations do you have embedded with your fourth quarter guidance?.

For the..

For URB, yeah..

Yeah. We didn’t put any price movement in it. So we’ll just have to see what we actually yield..

Okay, thanks so much..

Okay..

Thank you. Our next question comes from the line of Scott Gaffner, with Barclays. Your line is open..

Hi, good morning. .

Hey, Scott..

Hope everything back to normal after the hurricane..

Getting there..

Yeah, worried about you guys. Just Jack a couple questions on the acquisition front, I think you did probably if I go back to the Analysts Day back in December, you did highlight that you were subscale in some of the rigid plastics and flexibles businesses.

And you mentioned a couple of small acquisitions year-to-date and sounded like they were more in protective. Can you talk about sort of what you've seen over the last 10 months on acquisition landscape? Are you getting to the table with somebody’s acquisitions and then the price is too onerous, or maybe opportunities just haven't been there.

Can you flush that out a little bit?.

Well, Scott, I would tell you that the opportunities are there, and we've been to the table more than one time, we’ve been several times.

And it’s not always the same situation, it could be a price issue, it could be a quality of earnings issue, it could be any number of things that we finally make the determination that the technology or the markets that we wanted, they didn’t really have as firmer grip on. But we continue to remain very active going forward.

We know exactly, what we’re trying to do, we’re trying to be more proactive and make the outbound call versus waiting for the inbound call, and we’re going to continue that strategy as well. So, yes, we’ve been to the table, yes, it’s very active, and yes it continues..

Okay.

And have you done maybe strengthened that department within strategy as far as adding human resources to be able to build the more proactive there or maybe the businesses are bringing more targets to your attention?.

No we had an excellent resource about mid-year and we are talking about adding more at the end of this year to continue to help our ability to analyze situations..

Okay. Just one follow-up question sorry speaking on the acquisition for one or more question there. Just tangerine I think was maybe a $550 million acquisition..

Yes..

From a size perspective are you looking for businesses that are acquisitions that would be even that larger are we talking more smaller bolt-on type deals?.

Well, scale and size doesn’t really a constraint to a reasonable degree. I mean we would do, if we had $1 billion opportunity, that made sense we would move to do that. But the realistic view is that they're going to be in the $200 million less range may be a little bit more, it’s just really availability in those ranges is more of the issue..

Okay.

And then from a capital allocation standpoint you had the buyback I think you’re most of the way through it at this point can you just update us on that? And then when would the board look at maybe another buyback for 2017 when would that decision get made?.

Thus far we’ve spend about $60 million on share repurchases this year, so we would have another $40 million to complete the $100 million program by the end of the year..

Yeah and as far as next year and what we do with cash first and foremost we’re looking for the right bolt-on acquisitions in our markets, we’re very disciplined, we know exactly what we’re looking for and as I said we’re very active so that’s out first choice.

If we get into the first quarter and don’t see realistic opportunities to make those acquisitions so we don’t see any immediacy to it, then we’d looked to use some of the cash that we’ve accumulated to buyback some shares. But first and foremost is finding the right acquisitions..

Okay, thanks see you in December. .

See you. .

Thank you. Our next question comes from the line of Phil Ng with Jeffries. Your line is open..

Hey, guys.

Volumes for your rigid plastic and flexible packaging businesses generally been pretty strong, how much of that is your customer base or you benefitting from anything you need to resell for some reversal de-stocking in general just want to talk about what you’re seeing out there on the consumer side of things?.

Well I think that our customers they’re going to grow with the market in general whatever that underlying growth rate is.

But as I’ve said in the past it is somewhat product specific it’s what products are you packaging they may get caught up in packaged food, but that maybe an area where that’s actually growing and I think that we have a couple of those.

but we’ve also continued to win new volume in those businesses and that’s really been around the creativity that’s coming out of the i6 process and finding the opportunities that to grow the business..

Okay, that’s helpful.

And then just sorry one last question and I know you guys have targeted talking about targeting flexible packaging in rigid in some of these markets that you’ve highlighted, part of that’s kind of really enhance your technology and potentially blow your own sell would that be accretive to margins for consumer, how should we think about that dynamic?.

Yeah when we talk about blowing film we’d want to blow high end film really to kind of create higher end laminations and high quality laminations. And yes it would be accretive to margins..

Okay, just checking.

And then just I guess one last question from me, margins in your display business have firmed up a bit, can you talk about how sustainable that is longer term? What are some of your internal targets? And separately, does this business make sense longer term for you to keep because you kind of talked about potentially crooning some non-core assets? Thanks..

Yeah let me talk about margins in the business, I think the business certainly as we get beyond the Irapuato situation you’re kind of seeing it stabilize and do some other things.

We’re winning new business in the display and packaging area, which comes with higher margins, but we’re also putting together different pack center models it also are yielding some higher margins for us.

So I feel pretty good about that business and the margins in that business and where it’s going we got an excellent team that’s been now running it for a couple of years and so they’re making the headway that we expect them to make. As far as does the business make sense, sure it makes sense, it continues to create [indiscernible].

We like the business. But as we’ve said our focus is on flexibles and on thermoforming and on protective solutions and if opportunities come up of significance that would cause us to have to divest some assets then we would look and say what would make sense for us to divest in order to build the capabilities in those areas.

I really don’t want to get specifically into certain businesses and say yes and no because I don’t know, but we want to be clear that this is our area of focus. We have foundational businesses, tubes and cores and cans and then come what may with the rest of it, but we are focused on growing in those three areas. .

Got you, appreciate it Jack and good luck in the quarter..

Thanks, Phil. .

Thank you. Our next question comes from the line of Brian McGuire with Goldman Sachs. Your line is open..

Hey, good morning..

Good morning, Brian. .

Most of my questions have been asked and answered, but just had a couple more just one more on the medium machine I think in the past you mentioned it’s co-located with some of your other assets so it probably provides some cost sharing just wondering if the $4 million to $4.5 million of quarterly losses that you're running at now is that enough to offset the stranded cost you get from either selling it or shutting it down at this point?.

Well Brian I wouldn't want to get specific to those numbers, but you are right it is co-located inside of larger complex and stranded cost are an issue that we're trying to deal with..

Okay, got it.

And maybe just a couple on the rigid plastic sale can you just remind us about what the dilution impact would be in the fourth quarter and for 2017 if you have an outlook there?.

Yeah what we've currently included in our guidance for the fourth quarter is expecting that the transaction would close at the end of October. And it would have an impact of about little less than $0.02 or so on earnings versus having the operation for the fourth quarter..

Got it, thanks. And then just the impact to CapEx from that sale as we think about 2017 versus 2016.

Will there be some CapEx savings and can you quantify those?.

It's really difficult to say because our CapEx by business obviously varies year-to-year depending on what initiatives we've had. So I mean obliviously there would be some maintenance savings, but it wouldn't be all that significant in the scheme of our total CapEx program..

And over the last couple of years the bulk of our capital spending is consciously gone to flexibles and to expansion in the composite can. And that was another region that we said hey perhaps we should exit blow molding because of our focus..

Okay, makes sense. Thanks guys..

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

Hi, guys thanks for taking my questions. Good morning, thanks for details too. I guess first question I want to come back to is consumer margin and performance it was very good in the quarter certainly ahead of our expectations.

Can you rewind the tape a little bit for us as the quarter last quarter was ending there was a bit of a slowdown it might have been driven by destocking by your customers. It seem like volume might have picked up a bit.

How much of that pickup improved your margin and mix in 3Q, how much of the price cost benefit that you have in consumer now? Do you think is sustainable over the next couple of quarters? Any thoughts around that would be helpful. Thanks. And then I had a fewer follow-ons..

Okay. Again mix that's hard to say as we look quarter-over-quarter. I will tell you that we certainly did see a slowing in the end of the second quarter, but we saw fast start to the third quarter but then it slowed as it always does in August and a little bit of a rebound in September. So it follow the normal pattern.

I don't think it had a lot of impact on the margins per say. One of the things that just the way we report, a lot of those savings in price cost so about 70% of these savings are pass through quarter-to-quarter. So the bulk of that gets passed through to the customers. There is some that perhaps we're keeping with the other 30%.

But the bulk of those price changes per say are being passed through the other is true savings in productivity. We either as I said earlier we're doing something for the different material, a new supplier a lower price that's really driven internally by us and would normally be passed along to the customer per say..

Okay, appreciate the detail on that Jack. So do you think you can keep this type of year-on-year performance into the next several quarters, not trying to get too precise fourth quarter you're up 10 bps first quarter you’re down 30 bps.

But can you keep this sort of level of margin barring changes in commodity prices which can change percentages for the foreseeable future in that segment?.

Yeah obviously sharp changes in commodity prices we’d have to chase it up and would have an impact on it. I think if you go back George we've consistently said consumer margins should operate somewhere between 10% to 12%. I believe that we're capable of generating and keeping margins in that range for the business.

So to me that would be the guide post that would simply use we can. And they're going to move around in that really depending upon situation. But double-digit margins into that 10% to 12% range would be reasonable..

Okay, that's fair. The second thing in terms of just the capital allocation and obviously you have talked about it and a lot of the other folks have asked questions around this as well in terms of M&A.

When you say you’re actively engage what the precise phrasing was on the press -- in the press release? How would you have us think about the probability is that you have sizable acquisition at least as large if not larger than the smaller bolt-on that you have done in the last quarter or so, within the next couple of quarters.

Is that a high probability, low probability, too difficult to say?.

Anything I would say is going to be a guess..

I understand..

I would certainly say that we’re active in the space and we’re looking to make acquisitions that makes sense and we have -- as we always do I mean it’s not really any different rather than we are very focused on where they are. So, would it be unreasonable for us to make an acquisition over the next two quarters, no..

When we look at free cash flow generation Jack over the years, the company has certainly rebounded more recently in operating cash flow, but it’s relatively flat if I go back say prior to the prior recession.

Are the types of businesses that you’re looking at, do you think that they are more cash accretive than the existing portfolio obviously if you do that than you’re paying a price for that, or said differently are there ways that you think you can instead of going through a cycle on free cash flow continue to trend higher from these currently higher levels into the future and how would you do that is it through the mix or is it through productivity do you think?.

Again I think if you go back over the last four years or so, we have been following a plan for about three years and that plan has been in place we’re kind of rigid to it and we have been getting increasingly better year-on-year. I think the markets we’re looking to go in should have a greater EBITDA percentage as of the business.

So my expectation was is that by the time it’s also done so we should be able to improve the cash flow as well, over the next two to three years going forward with the mix of the business changing the way we are trying to change it..

Okay. My last two I will turn over.

One, are you seeing any signs of auto slowing and that having some effect obviously it’s not the only business that having some effect protective solutions? And then pension, Barry is there any update in terms of what funding or expense might look at -- look like, recognize you may want to just handle that on the December Analyst Day? Thanks guys..

George specifically to auto, yes we did see a bit of a slowdown in third quarter, we actually had some shut downs, some of the customers shut down. What to expect now, as we go into the fourth quarter, we are seeing some rebound from that slowdown, but not real certain what the actual rate is.

We also working on new projects to help offset some of that loss, but we certainly did see a little bit of slowdown in the third quarter in automotive..

And George, you are absolutely right, we really won’t know what our pension expense is for 2017 till after the end of this year, but as usual we will go out with our best estimate and what that includes in terms of assumptions when we provide our first outlook in 2017 at the Analyst Day.

The only thing that I can tell you as, as of this point interest rates are now only down about 50 basis points from where they were at the end of last year versus last quarter we were talking about them being down 75 basis points and each 25 basis point reduction in rates increases our pension expense by about $4 million.

Well on the other hand point out that at least through August our assets performance has done better than our assumed rate of return, returning in about 10% on the portfolio, so might be a little bit of those of offset from the lower rate environment. But to your point, we really won’t have a good estimate until early December..

We maybe should be getting our stock recommendations from you as oppose the other way around but anyway. Appreciate the time guys. Good luck in the quarter. .

Thank you. .

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

Yes, good morning and thanks for all the details. I guess my question is, if we think about you mentioned on the medium machine you want to get it resolved if you can by year-end and it would sound like to me kind of a midpoint of what we could see and thus whether you keep it or you sell it or you close it.

That a ballpark impact on earnings next year could be around $0.10. I mean I'm just basically and I know there are a lot of moving parts for what it contributes to the facility in Hartsville, et cetera.

But is that a good ballpark place to be in terms of the EPS impact that you would hope to get starting next year by having resolved the medium situation..

Yeah no I would tell you that that would -- that's an over segment of the amount and a pretty significant overstatement. It would be somewhere and probably half of that. And again it all depends upon what the selling price of corrugated is and what the demand of corrugated is. As to what the impact might actually be.

So it’s a fluid situation, but where we are now not so much first quarter but where we've been even it would be somewhat half of that maybe a little bit more than that, but not quite that much. .

Okay. And then you've highlighted in the quarter there were a couple of areas where I know when composite cans I know the U.S. you mentioned the -- or North America the volumes were down slightly and that display was down also kind of I guess that’s more of a global number.

Anything going on there I've recognized composite cans are still growing nicely outside of North America.

But what might be impacting things here is it substitution or just the overall market?.

Well certainly there is some decline in certain markets for composite cans that have been going on now for 10 years frozen, concentrate and orange juice we talk about it always. There is no real change in that.

I think that we've had one customer that's been in process of consolidation that probably impacted some volume another customer has been expanding and volume shifting to different areas that's probably been an issue. But nothing of significance, I mean domestically we were down less than a percent. So it was really kind of more or less on target.

The growth around the world has been significant in Asia. The biggest impact of the composite can is really occurring in Europe right now and it’s more in tobacco, which is a format. And if some legislation around cans nobody really knows where it's going to shake out right now.

We've developed alternatives square cans, round cans, unprinted cans, there is a lot of things going on. So that's kind of up in the air, but we're right in the middle of it seem to be fairing fairly well to-date, but it is impacting volumes that would be the biggest impact Chip on the composite can.

Everything else is -- the growth areas are growing as we expected..

Okay.

And then on the displays?.

Yeah displays is a timing issue as it always is. I think that part of the volume decline you're seeing I know that we didn't put Irapuato that's caught in all other I think. But that was pure volume that's simply a timing issue that will rebound in the fourth so you'll see it in the first I mean it will it just moves around a little bit.

Nothing of significant to that business side other than we have been wining some business that we'll talk about probably in New York..

Understood. Look forward to it, thank you. .

Thank you. Our next question comes from the line of Steve Chercover with Davidson. Your line is open..

Thanks, good morning..

Hey Steve..

Just wanted to explore a couple of threads that have already been touched on. And the first one is on blow molding, we know what the revenues are and we know what the impact is on an EPS basis.

So is it fair to say that the margins there were kind of 300 to 400 basis points lower than the remainder of your consumer division?.

No I think that they were lower than the average of the consumer division, but nothing appreciable, no. .

Okay. So there is a range there.

And the second one is on the free cash flow, I'm wondering if you have a target or stretch goal for free cash flow once the portfolio is more or less where you wanted to be?.

I'm sorry, is our cash flow on target is that what you're….

No, do you have like an aspirational target for free cash flow on an annual basis once you've shuffled the portfolio?.

Steve not expressed in those terms. What we do realized is that as we change the portfolio as we shift the mix maybe 70% to 75% consumer.

What we do expect to see is EBITDA margins improving, therefore improving the cash flow, and then having the ability to grow on a more consistent basis overtime, which is really what we're driving for a portfolio that’s more stable and more consistent overtime from a growth perspective..

Yeah, I guess I’m hoping to hear something like we can get from the current 140 range to towards 200 or 250 and I think that's sustainable and then we'll go from there?.

I can’t say that yet..

All right, thank you..

Thank you. Our next question comes from the line of Debbie Jones with Deutsche Bank. Your line open..

Hi, good morning. .

Hi, Debbie..

I was hoping you could talk a bit about kind of the growth prospects in your consumer business, just kind of by category plastics, flexibles and rigid, just what do you think is a good kind of like one to three year growth rate? I think that question might be kind of an obvious answer, but the second part on composite cans, I think it’s little less clear to me, what the trajectory is for that business, and if there is a decline, how you manage that?.

Well I think when you talk specifically to composite cans you have to look at it in two pieces. It’s growing in some emerging markets and then of course you have some potential decline to being flat in some of your more matured markets. So globally, we’d like to see that at least flat for the composite can.

I think the formats that we’re choosing the flexibles and rigid plastics have been growing in the 3% to 5% range, depending upon what the substrate maybe. And really would expect that to continue for the foreseeable future inside the food industry as format shift continues to occur to those types of substrate..

Okay. And second question just on guidance.

Are you able to quantify in some way, how the divesture of blow molding is impacting the fourth quarter, kind of the differential in days year-over-year and then also the hurricane are any of those meaningful to your 4Q guidance?.

Go ahead Barry. .

Yeah, certainly from the blow molding perspective as mentioned just a couple of minutes ago, we would expect the impact to negatively impact us by about right at $0.02 per share in the fourth quarter assuming end of October divestiture. We do have fewer accounting and business days in this year’s fourth quarter versus last year.

And that could actually be when you work through that, roughly $0.02 as well on a year-over-year basis..

Okay.

And then do you expect any impact from the hurricane?.

Nominally, there certainly been some impact on the mill here in Hartsville it was down there has been some disruption in some other areas. So for the quarter, there might be a penny or two, but it should be hard for us quantify right now..

Okay.

Is the penny or two already in your guidance?.

No, not really..

All right, thank you for that color. .

We have the range of guidance. There is 60….

That makes sense, yeah. Okay, thank you for that..

Thank you. [Operator Instructions] Our next question comes from the line of Adam Josephson with KeyBanc. Your line is open. .

Jack, Barry, Roger, good morning. .

Hey, Adam. .

Jack a couple for you. One on consumer, I think George asked earlier about the margin profile for that segment you mentioned it’s 10% to 12% long-term and year-to-date you're at the very high end of that, as you know.

Other than lower pension, and lower loss [ph] is there anything else that’s happened year-to-date that you would point to as a result of which you reach the high end of that long-term range?.

Again I think mentioned productivity, that certainly been a part of it, we’ve had improving performance in some of the businesses that are part of the portfolio, that’s also a part of it as well.

So outside of that and then again you have to look at it from the perspective of what happened raw materials inside the quarter, if raw materials were falling inside the quarter, you got a definitive benefit in that quarter that impacts the year-to-date results.

If we had a year of constantly rising costs inside the quarter, it would have a negative impact on that margin for the quarter and for the year, because it would just get averaged. And so some of that is in there, it’s very difficult to begin to quantify all of those moving pieces there..

Sure.

And just on the topic of raw materials I know ethylene has been falling pretty significantly carried over pine on where resin and for that matter OCC is going Jack?.

I am worse at resin than I am at OCC..

Well then you can start with resin?.

I’ve read everything so everybody else and so there is going to be substantial polyethylene capacity coming on to market in 2017 so that you should expect long-term price stability or decline in that short-term polypropylene I think is under a little bit pressure probably or poly PET.

So, I don’t know, oil seems to be stable in a stable environment right now. So, my guess is within some realm of reasons that resin is going to be fairly stable now. That gets you absolutely nothing..

Right, OCC assume similar commentary?.

Yes, I do think OCC is in a pattern of stability supply and demand being equal, which means that I expect the normal pattern which would I think I said earlier we probably expecting a 10% drop between now and the end of year..

Sure. Just one on your comments on the consumer and global conditions, I think you said earlier that the average consumer is in pretty good shape, albeit cautious but that the -- you are seeing slower global condition. So I presume your consumer commentary was regarding the U.S.

specifically or can you just elaborate on that?.

Really what I was trying to say is that as I look around there is probably no reason for the malaise that I see in the economy because I think things are actually pretty good.

Not only here but certainly improving in Europe, Asia has some issues but there is a significant amount of uncertainty in the marketplace and that’s more domestic relative to the certain the election and what’s going to happen after that.

But I just think the consumer is very cautious and that cautiousness has been translated into an impact to our customers.

They are just not spending the way there were spending three years ago, four years ago well maybe it’s longer than that now I can’t remember but there just been a change in those spending habits and again I think it’s because of a level of caution in the global consumer. .

Sure, no thanks for that. And then just one last one on M&A, you talked before about obviously multiples being high at the moment, but obviously interest rates are just the opposite.

So, can you just remind us how you think about the balance between interest rates being historically low multiples being quite high and how that affect your thinking about potential M&A?.

Well, the one thing we are absolutely certain if you overpay for an acquisition it’s virtually impossible to ever get it back.

So that’s always on our mind, but it certainly create some opportunities, we have excellent balance sheet, we have the ability to barrow substantial amount of money and still maintain our credit and we can do it at a very, very low rate, we have commercial paper available to us that’s extremely inexpensive.

And so we have a lot of options in front of us, so for us it’s about -- is it strategic, can we get it at a multiple that we can lever down through synergies to make it reasonable to us and that’s really how we look at it, what the multiple we pay is less important than what is the net multiple to us through synergies and through ability to grow or combined with other businesses and help us grow our business in other areas.

But it’s that net multiple that we try to really make judgment on..

Sure I presume the deals you lost out on were because it’s so cheap to borrow that others are -- want to pay higher multiple than you are perhaps you have a longer-term focus than they do?.

Absolutely we have seen certain people were willing to pay some high multiples. So ours is for the long-term benefit of the company and creating a long-term stable company like has been an existence in the 107 years -- 117 years before me. .

No I hear you loud and clear. Thanks Jack..

Thank you, Adam..

Thank you. This concludes today’s Q&A sessions. I would now like to turn call back over to Roger Schrum for any closing final remarks..

Thank you, again Andrea. Sonoco will host its annual Investor Day Friday, Decrease 2nd at the New York Palace Hotel at 4:55 Madison Avenue, breakfast will begin at 7:30 AM and presentations will begin just before 8:00 O’clock.

You will hear from Jack and Barry again and will conduct a unique fire side chat Q&A with members of our senior leadership team. And as always we will have some samples of some of our new products to showcase at the meeting as well.

Those who cannot attend in person can join the meeting via the phone or on the internet through a link on the Investor Relations website at sonoco.com. We certainly look forward to seeing many of you for our breakfast and a discussion and we promise to keep the meeting brief and to the point.

In closing let me again thank each of you for joining us today and we appreciate your interest in the company and as always if you have any further questions please don’t hesitate to contact us. Thank you again..

Ladies and gentlemen thank you for participating in today’s conference. This concludes the program and you may now disconnect. Everyone have a great day..