Amcor Plc (AMCR) — Q3 2015 Earnings Call Transcript

Thank you. Good morning, everyone. Welcome to our third quarter 2015 conference call. Today is October 22, 2015. After today’s call, a replay will be available on our website, bemis.com, under the Investor Relations section. Joining me for this call today are Bemis Company’s President and Chief Executive Officer, Bill Austen, our Vice President and Chief Financial Officer, Mike Clauer, and our Vice President and Controller, Jerry Krempa. Following Bill and Mike’s comments on our business and outlook, we will answer any questions you have. However, in order to allow everyone an opportunity to participate, we do ask that you limit yourself to one question at a time with a related follow-up and then fall back into the queue for any additional questions. On today’s call, we will also discuss non-GAAP financial measures as we talk about our performance. Reconciliations of these non-GAAP measures to GAAP measures that we consider most comparable can be found in the press release and supplemental schedules on our website. And finally, a reminder that statements regarding future performance of the company made during this call are forward-looking and are therefore subject to certain risks and uncertainties. Actual results may differ materially from historical, expected, or projected results due to a variety of factors. Please refer to Bemis Company’s regular SEC filings, including the most recently filed Form 10-K, to review these risk factors. Now, I’ll turn the call over to Bill Austen.

Thank you, Erin, and good morning, everyone. Bemis performed well this quarter in a slow growth and volatile currency environment. Our operations are strong and we are executing our strategy with focus, alignment, accountability and rigor. We delivered adjusted earnings of $0.67 per share, a 9.8% increase over the prior year; this is in light of a $0.06 translation headwind as currencies in Latin America devalued significantly compared to one year ago. We delivered our highest gross margin in many years at 21.8% driven by our recapitalization efforts focused on improving productivity and efficiency, our innovation pipeline that continues to improve the mix of the products we sell, and our strong operational performance across the entire company. We increased operating profit margins in our U.S. packaging segment to 14.5%, a 120 basis point increase over the prior third quarter, reflecting great progress toward our long-term goal of 15% to 18% in this segment. We increased adjusted operating profit margins in our global packaging segment to 9.7%, a 110 basis point increase over the prior third quarter, exceeding my expectations and above pace toward our goal of double-digit returns in this segment over the three to five-year horizon. We again increased ROIC to 10.3% versus 9.6% one year ago. We generated $194 million of operating cash flow, another quarter of vast improvement, and through the third quarter, we have already exceeded our original full year cash flow target stated in January, an excellent demonstration of the focus, discipline, accountability, and urgency we have instilled and continue to drive throughout our entire business. And finally, we continue to execute our capital expansions and improvements to plan. Again this quarter, we are selling at most items that we’ve targeted. Currency and unit volumes continue to be a challenge in the short-term, but I am pleased with the following actions we have taken to deliver growth in the long term that will help provide continued margin expansion. First, this month, we officially opened the Bemis innovation center in Neenah, Wisconsin. This facility is already becoming a global hub for our customers, a place where we work side by side with them to ideate, innovate, and collaborate packaging solutions to provide success and growth to their brands. The innovation center supports long-term growth and we have already had some early wins that have created success for our customers and ourselves. For example, while the facility was still under construction, we hosted a customer at our Innovation Center in February to help solve their packaging needs for a new product. Leveraging our base of innovation, we were able to ideate, develop a prototype, and test a self-venting retort standup pouch for their pasta meal in a very short time frame. From ideation to store shelf, it took only six months. I am confident that in conjunction with our strong innovation pipeline, our disciplined stage-gate process, and our drive and ambition to grow, the innovation center will support success in the years to come. Second, we are executing on our capital plan. Our healthcare expansion project in Wisconsin that will elevate our industry-leading quality and support growth is on track and progressing well. The facility and equipment installations were completed on schedule, and in October, we successfully achieved CODR validation and product functional equivalency, which allows us to ship commercial product from the new facility; a great job by our healthcare team. We continue to expect to see margin improvement from this project in 2016. We have a variety of growth and productivity projects that are coming online in the near term and will support both revenue and continued margin improvement in 2016 and the future. We continue to execute our capital projects that will support the growing demand for our high-end packaging used for protein, liquid, and medical applications. We also continue to execute on select capital investments to improve the margin profile in specific end markets where technology and differentiation are not as important to our customers. We are recapitalizing select printing presses, slitters, and other converting equipment for our strategic plan with diligence and speed. Third, as I mentioned last quarter, while in its early stages, we have made some changes in our sales and marketing organization in U.S. Packaging to increase urgency toward growth. Rick Michaletz, who many of you met at Investor Day, has successfully completed his assignment as President of our European business and has taken on a new role of Vice President of sales and business development for U.S. Packaging. Rick is an exceptional and proven leader with a strong commercial and operations background and I'm confident that Rick’s leadership of our commercial teams in the U.S. will drive our growth plan as we move forward. I’m pleased with the actions and progress we are making toward growing our business. Turning to the full year, we are bringing down the top end of our EPS range from $2.62 to $2.57 fully on account of currency translation. Mike will cover the details in a bit, but while currency has been a challenge to profits this year, particularly in Latin America, I am very pleased with how our business is performing in local currency. My long term view has not changed. We continue to target EPS growth at 10% plus per year, balanced organic and inorganic revenue growth, operating profit margins at 15% to 18% in U.S. Packaging and 10 plus in Global in the three to five-year window, ROIC in the top quartile of our peer group by 2019, and cash from organic operations that exceeds $550 million by 2019. I remain very confident that we will continue to deliver performance improvement towards these long term goals. In summary, we performed well in the quarter. I’m proud of our teams across the globe who are executing our strategy with a renewed sense of urgency and improving all that they do on a daily basis. It is an important time in Bemis history as we continue to transition toward high performance that is reflected in all of our financial metrics. We still have a lot of work to do, but our strategy is right, our resources are aligned, and we have the drive and talent to execute our plans. With that, I’ll turn things over to Mike for a review of the financials and his comments on the future.

Thanks Bill and good morning. As Bill mentioned, we reported adjusted earnings of $0.67 per share, a 9.8% increase compared to the prior third quarter. This includes overcoming a currency translation headwind of approximately $0.06 versus the prior year third quarter, primarily driven by currencies in Latin America continuing to drop against the dollar. We delivered solid improvement in gross margins at 21.8% versus 20.1% the prior third quarter. This improvement was driven by the continued efforts in executing our strategy, specifically the favorable impact of productivity and efficiency projects we have executed as part of our capital plan and improved price mix, as we execute our strategy to sell a higher portion of value-added sophisticated packages. I will provide comments on each reportable segment, followed by a discussion of total company expenses and performance. First, U.S. Packaging; in the third quarter, sales dollars in our U.S. segment declined 3.7%. Overall unit volumes were down approximately 3% compared to the prior third quarter. Approximately two-thirds of this unit volume decline was driven by our strategic pricing decision to exit some low margin bottle water overwrap business in the prior periods, and the remainder was driven by a select customer who lost share with their beverage pouch at the retail level. Aside from volumes, the remaining decline in sales dollars was driven by contractual price reductions to pass through lower raw material costs. As a result, this did not have a high impact on operating profits, partially offset by a favorable mix in line with our strategy. Some additional end market details for the quarter; unit volumes in our meat and cheese, dairy, and liquid end markets were down slightly. Our analysis indicates there are no drivers out of the ordinary, and we continue to be optimistic about volumes in the long term. Mix within these end markets was strong, as we continue to gain traction with new product innovation. Everything from our flat film for meat to portion packaging for protein snacks and high-end laminations used in liquid applications. Regarding our booked growth plans in the U.S. over our strategic horizon, we have completed our normal periodic review of our business plan and continue to expect volumes to return positive in 2016 and future years. We have a good line of sight of upcoming product launches for high technology products, our innovation pipeline is strong and we see benefits from our recapitalization of converting equipment that will support retaining current volumes in our less differentiated business. We remain confident and determined in our long-term plan to grow our business. U.S. packaging operating profit return on sales for the third quarter was 14.5% compared to 13.3% in the prior year. Third quarter returns benefited from operational efficiencies, favorable sales mix, and continued diligence in controlling costs. Moving to our global packaging segment. In the third quarter, global packaging sales decreased 14%. Currency decreased sales by 22.1% as currencies in Latin America and to a lesser extent Europe continued to drop against the U.S. dollar. Excluding currencies, global packaging delivered total organic growth of 8.1%, which included a 2% increase in unit volumes in addition to a favorable price mix. Before commenting on the various regions of our global business, I will cover returns in our global packaging segment, another very profitable quarter. Adjusted global operating profit return on sales for the third quarter of 9.7% compares with 8.6% for the prior third quarter. High returns in global packaging were a result of strong operational performance throughout all regions and improved price mix from sales of meat, cheese, dairy, and liquid packaging. Currency negatively impacted operating profits by $8.8 million this quarter or about $0.06, related primarily to the translation of profits in Brazil to U.S. dollars compared to the prior third quarter. Though currency has certainly been a challenge, we are very pleased with the performance of our global businesses in local currency. We are improving returns, growing sales in our targeted end markets, and demonstrating urgency and discipline in all areas. Some regional details; in Latin America, while the environment is tough for some industries, our business continues to do well. Our teams are doing an excellent job of passing through inflationary costs. While overall unit volumes were flat to slightly down during the quarter, we are executing on our strategy with more value-added products, particularly in our meat and cheese, dairy, and liquid end markets, where volumes were very strong this quarter. In Europe, where our business is focused on meat and cheese packaging, unit volumes were up mid-single digits, again in line with our strategy to grow these value-added products. In Asia-Pacific, unit volumes were also up mid-single digits. This growth was in a variety of areas including meat, which we strategically target in Asia. We continue to see our customers expanding their use of meat packaging and the reach to applications that were formally sold in open-air markets and had never before been packaged. Our global healthcare business is performing well. Overall unit volumes were flat during the quarter with particular strength in the U.S. and Europe offset by softer consumption in Latin America and timing of orders in Asia. Our healthcare business is strong and continues to be an integral part of our growth strategy. Now, on to Bemis consolidated results. Total Bemis Company SG&A expense was $101.8 million, down from the prior year. We continue to be focused on implementing discipline and accountability to keep SG&A dollars flat over a long-term strategic horizon. Research and development expense for the quarter was $11 million, approximately flat with the prior year. We expect to continue at this level to support new product innovation and commercialization. The income tax rate for the third quarter was 33.6%, in line with our expectations for the full year '15. Year-to-date cash from operations has increased to $412 million, compared to $192 million the prior year. We have exceeded our original plan of $400 million plus for the entire year within the first three quarters. As you may recall, we established a target early this year to reduce working capital percent of sales to the 14% range by the end of 2016, which equates to taking out approximately $140 million of working capital. While our original 2015 cash flow guidance assumed that working capital would not be a source during the year, we began executing to improve payment terms with our vendors to industry standard levels during the third quarter and started realizing significant benefits. We also recognized that cash flow benefited by $20 million to $25 million from the mathematical flow-through of lower raw material costs. We are updating our full year 2015 guidance for cash from operations to $500 million plus. We will continue with focus, discipline, and urgency to deliver continued success in generating cash. Capital expenditures were approximately $148 million through the first three quarters this year as compared to $113 million last year and in line with our expectations. We continue to expect 2015 capital expenditures between $200 million and $215 million to support growth and productivity projects in our pipeline. Touching on our leverage metrics, net debt to adjusted EBITDA at the end of the third quarter was 2.1 times within our expected range. We will continue to generate strong cash flow, invest capital wisely, and not accumulate cash. Our priorities continue to be to support our dividend program and invest in capital projects and fund strategic acquisitions or share repurchases. During the third quarter, we repurchased 0.5 million shares for a total of $20.9 million. At September 30, the remaining Board authorization for share repurchase was 4.4 million shares. Turning to the full year outlook, as Bill mentioned, we are narrowing our adjusted EPS for 2015 to the range of $2.52 to $2.57, fully on account of currency translation. While currency and volume have challenges, this year we are still maintaining the low end of our guidance. Since our earnings call in July, currencies, particularly the Brazilian real, have moved unfavorably, creating an additional headwind of approximately $0.05 in the back half for the year versus our guidance shared at the end of the second quarter. In relation to the EPS range of $2.52 to $2.57, where we are in the range will depend on further movement of currencies and volumes in our business. The fourth quarter is seasonally light quarter for us. Without a meaningful improvement in unit volumes, I anticipate that we would be toward the lower end of the EPS range. We will continue to focus on the things we can control to deliver earnings. In summary, I remain confident in our business and our ability to further improve financial performance to create long-term shareholder value. With that, we will turn the call over for questions.

It's actually Mehul Dalia sitting in for Ghansham. Can you quantify the benefit from lower raw material costs during 3Q on EBIT margin?

On EBIT margins, it was very minimal. As you all know, we’ve done a really good job of taking the volatility out of passing through changing input costs.

Great, and thanks for the commentary about the improvements you are making in the U.S. Do you know when we should expect to see some sort of inflection in North America volume?

As I said in my remarks, our view hasn’t changed. We view 10% EPS growth in 2016 and we see that volumes will increase in North America to the 2% range where we've targeted in our Investor Day 2016. That's why we made some of the changes in our commercial team.

I want to hear you back a little bit on that last comment, Bill, in the question. So you did this review. It sounded like of your markets and products, could you provide a little bit more clarity in terms of what that review told you about the long-term volume outlook and why you should be confident? And if you're confident, whether you need to change management. And then second question I had, can you parse for us what the mix benefit was? Obviously price mix was down, because the resin passed through, but what was the mix up in the quarter, if you can share that? Thank you.

George, this is Bill. I will take the volume side of that. Yes, we have gone through a good review of our innovation pipeline and the productivity projects that we have slated based on our capital spending, and we feel very comfortable with what we’ve targeted for 2016, the 2% growth in North America. We filtered with that based on the innovation and the productivity improvements that we have slated.

And touching on your margin, when I think about the margin improvement for the company, about half of it came from productivity and efficiency, and that would have been heavier in U.S. Packaging. About half of it was innovation mix which would have been heavier in Global Packaging?

Thanks. My question is really around Mike just mentioned the margin improvement and at least in the quarter of 50% productivity, 50% innovation. If I look at sort of our model here, you have got about 120 basis points of margin improvement 2015. What would keep you from getting another 120 basis points of margin improvement in 2016, or maybe it's achievable?

At this point, it's a steady build. I think we’re doing a little bit better in '15 than we would have anticipated in our five-year plan. But again, I don't think I’m going to sign up for 120% improvement right now. But we still feel confident we’re going to be improving as we move towards our long-term goal. So, 15 to 18 in U.S. Packaging and plus 10% in Global.

Sure, but even just conceptually, as we move into 2016, has that productivity come down and innovation; it sounds like Bill, you are saying innovation goes up. How should we think about the mix there?

Scott, this is Bill. We looked at this year. It’s a 50/50 split between innovation and productivity and efficiency, because we’ve got the lower hanging fruit on the productivity side. You see that earlier. We’ll continue to get that productivity from projects we’ve installed this year because they'll become more efficient in 2016. But we have good sight on more productivity projects and as you recall from last quarter, we pulled capital forward to drive sooner productivity gains into 2016. So we’ll continue on that pace, and then the innovation will start to kick in even greater than it has now. So it’s still going to be that 50-50, 60-40 kind of a split in that range between innovation and productivity. So we’re comfortable and we have good line of sight.

Yes, thank you very much. Just a couple of financial questions to near-term Mike. One is, when you look at the impressive cash flow, thanks for calling out the working capital benefit of the raw materials. Is there also a measurable working capital benefit because of the FX changes, I guess with the financing of receivables down in Brazil? And then secondly can you give us an updated view of how you see CapEx in 2016 and 17 based on your current footprint and given that it’s been elevated this year?

First of all, I don’t see any big change or any impact on cash flow as a result of FX. We kind of pull that out and look at it without it. And then as far as capital’s concern, as we said on Investor Day and it still holds through, we’re still going to be that $200 million to $215 million in '16 and maybe '17, and then after that we should start seeing a decline other than any potential acquisitions and how that might change our capital requirements on adding more revenue and assets to our business.

I just had a question on the global business since specifically Brazil. You indicated you’re pretty happy with how those businesses are performing on a same currency basis. In Brazil, meat production is down pretty sharply year-over-year. I was just wondering if you could give a little color on how your business is performing in Brazil and maybe overcoming some of those headwinds?

Yes, thanks Anthony. This is Bill. As we mentioned, we’re very pleased with our business performance in Brazil. We've made investments in technology there to introduce proprietary meat and protein films that shift the market away from local products, allowing us to incorporate Bemis innovations. We're gaining market share with this technology against locally produced films, which is encouraging for us, and we anticipate this trend to continue as capacity utilization on that line continues to rise.

And then just switching back to the U.S., the capitalization of kind of lower margin converting assets, when is that process completed?

It is unlikely to ever be fully completed. Currently, we are addressing the underspending that occurred from 2010 to 2013 when the Company focused more on integrating a significant acquisition. What you're witnessing now is a recovery phase, but it has become ingrained in our approach that we will consistently be capitalizing assets moving forward.

Hey guys. With the share loss lapping next year in North America for some of your commodity business, comps obviously get a lot easier in 2016. To the 2% growth target you have for North America, how much of that is driven by new products and maybe some of the benefits from the recapitalization of assets? And are you assuming any recovery in packaged fruit demand for the bottom market overall? Thanks.

At this point, we are not anticipating any recovery. We’re going to work off the assumptions that consumption in the U.S. is flat to slightly down. We have no reasons to think otherwise. So I think more of the growth is going to really be coming from the innovation side of our packaging. Hope that answers your question.

I wanted to focus for a second on the global business or the global packaging component. Again, made great progress there, already kind of upper nines as far as margin percentage and close to the target. Is there anything that could happen that you'd foresee over the next few quarters that might kind of go backwards a little bit? Or seemingly, you're pretty far down the path of exceeding some of those goals or how would you think about maybe raising the bar a bit further? How do you balance that Bill?

Look, Chris, I don't see anything that's going to change where we are over the next couple of quarters. We’ve always said we aim for 10% plus. So we’re not going to back off on 10 and then stop. We’re going to continue to drive for 10 plus, and our business teams know that. We’re putting innovation into all of the regions of the world. We’ve got assets going into Europe right now that continue to drive their improvements, which have been significant for us over the last year or so. Same thing in Latin America. We're going to continue to invest there to drive innovation and bring new packaging technologies to those regions, to continue the change the mix and upscale the mix that we’ve always been focused on. And the same thing in medical; that medical facility in Wisconsin is now up and running, validated and qualified. So we can ship commercial product from there and we're still focused on that 200 basis points improvement in the medical business next year that we’ve stated right from the start. So we’re going to continue to push beyond 10.

The second question relates to capital allocation, particularly regarding working capital and the progress you've made. Mike, you mentioned a $140 million opportunity from your reduction program, not including the $25 million from raw materials. Should we consider the total opportunity to be around $165 million? Additionally, what are your near-term intentions regarding this? It seems that share repurchase has slowed down. Are there any developments in the M&A markets that excite you, or how do you plan to use cash for the rest of the year?

First of all, I'll respond to your question. When we mentioned the $140 million, it was primarily about achieving a 14% primary working capital percentage in our sales. We finished Q3 slightly below 16%, so we've made significant strides and will continue to advance towards that goal. This addresses your first question. Regarding the second question on mergers and acquisitions, we see strong potential. Currently, there appear to be no obstacles, and it's simply a matter of when we receive approval for the process. This could lead to a potential use of cash in the fourth quarter, but as I've mentioned before, we won't deleverage. We'll use stock to either pursue an acquisition or buy back shares, and I plan to respond to the timing of M&A developments as we gain more clarity.

Bill, I wondered if either you or Mike could just give us a little update on what you are seeing in terms of the M&A market right now? I know acquisitions are an important element in your overall growth targets.

Yes, Mark. We do have potential deals. We're pretty far down the road on developing our strategy, which included working with all the business units to identify the type of companies we want to own in the regions and geographies. As I said before, we like to think we can start moving the revenue ball from 70-30 to 50-50 global. So we’re going to be looking in Latin America and the western side of the continent, where we really don't participate as much. In Europe, we are clearly looking at eastern and central Europe as a priority, healthcare anywhere, and we’ve got things percolating. Again, as we’ve said, we really don't want to be in processes. The multiples are pretty high right now. What we’re trying to do is find organizations that we want to own and get to know the ownership family, if it's private, and see if we can strike up a conversation about helping them with their succession plan or exit strategy. So I would say it's going quite well, Mark.

Okay, and then Mike, if I could just as a follow-on to that, just from what you’ve said, it doesn't sound like the strength in the dollar, the weakness in some of these emerging market currencies, this is really going to change your pace or your strategy in terms of looking at acquisitions. Is that right?

That is correct. But the other side of it, though, is in some of these emerging markets, it's also looking at countries that have higher growth rates. You look at eastern and central Europe; those growth rates in the food categories are 5% plus type growth into the foreseeable future. And we just feel that will be a driver as we’re targeting countries and geographies that are going to grow a lot faster than the U.S. economy.

Mike, one more on capital allocation. How would you compare the attractiveness of buybacks and M&A at the moment, particularly given what you just said about multiples being rather high?

Our current goal is to achieve a 15% return on invested capital from an acquisition. As everyone knows, this is quite challenging when acquisitions are valued at nine to ten times EBITDA. Therefore, we are very discerning about the appeal of any acquisition. We must be certain that we can realize synergies, whether through cost reductions, consolidations, SG&A savings, or revenue synergies, to justify that investment over share repurchase.

Thanks Mike, and just one on the flat film line that you’ve been building. I know it's early days, but can you give us any sense as to what volume and/or revenue contribution you might expect from those lines next year and as well as what kind of capital you’ve put into those lines and are planning to put into those lines?

Adam, we’ve got three lines in. We have a line in Swansea, Wales. We have a line in Pauls Valley, and we have a line going into Wisconsin. That's what we’ve invested in thus far. We have two others on the back burner that we have not yet pulled the trigger on. We are linked with a customer and their ramp-up in the use of that flat film; at this point, that's all I will say about the flat film market and where we see that headed.

I want to follow up on our earlier discussion about volumes and the outlook. Bill, since you are confident in the volume outlook for U.S. Packaging next year, can you share what your review revealed that supports this confidence and how the organizational changes you made contribute to it? That's my first question. My second question is more procedural. When I compare the P&L to the segment reporting and consider the restructuring and other items, I noticed a variance of about $4.6 million in the P&L and under $10 million in the segment. What caused this difference, Mike? Thank you.

George, what gives us the confidence in the volume is the pipeline. We do an exhaustive review of the global pipeline, not just of the U.S. Packaging pipeline of where the projects stand in the stage gate process. Are they a P1 or are they a P4? Are risks retired? Are risks not retired? And as we look at that, when those projects are going to be completed, and if you go back to our whole premise around our stage gate process, it starts and ends with a customer. So we don't develop unless there’s a customer tied to it all the way through. We feel very good about that, and very good about what’s going to launch in the upcoming months and quarters. Not just in U.S. but also global.

And as to your question on restructuring, there are really three elements of the restructuring this quarter: $1.4 million associated with facility closure in the medical division; about a $0.5 million associated with acquisition-related cost on M&A. Those are included in the segment. There is a $2.7 million charge that was not included in the segment and reported as corporate, and that's for identification obligation related to a past acquisition. It's a one-time non-recurring charge.

Mike, just a quick question on the CapEx spend for 2015. As you sort of move through the year, it sounds like innovation spending maybe has moved more toward 2016 and some of the cost reduction on the existing business has taken over. Has there been any shift in the mix on CapEx innovation versus cost reduction on some of the existing business?

There has really been no shift. If you think about how to think about it, about $60 million of our spend is environmental health and maintenance, and I would say it's a 50-50 split above there between innovation and recapitalization. Recapitalization is heavier in U.S. Packaging, just from the standpoint that's where the assets really need to be recapitalized. And as Bill kind of pointed out, a big part of our global strategy is the migration of capabilities and higher barrier products from the U.S. to those emerging markets as packaging sophistication increases.

Regarding working capital, I remember that in the fourth quarter of last year, there was some confusion about the way it was building. You made some adjustments to payment terms to align with industry standards. Have you identified the issues with working capital over the past year? I'm trying to determine how much of this is related to addressing those issues compared to the improvements in payment terms.

I think we've figured it out. First of all, Scott, we were focused on cash flow, and we are now concentrating on improving it. Last year in Q4, the cash flow was $56 million. As we've indicated, I would expect that number to exceed $90 million next year. We will continue to see improvements and progress into 2016. We've made significant advancements in our agreements with suppliers, doing well with the major ones. Now, as we approach Q4 and Q1, our attention is on improving terms with the next tier of vendors. Regarding inventory, we've successfully aligned it with our goals, but significant progress will be tied to our supply chain optimization management rollout and demand forecasting, for which investments are currently being made. I anticipate that we will start to see benefits in the second half of 2016 into 2017 once we complete our ERP implementation in U.S. packaging.

Just one for you. The lower resin price environment, is that having any positive or negative impact on the competitive dynamics in the business?

No.

Thanks a lot and thanks for taking my follow-up. Mike one more on working capital. It’s been a $95 million source year-to-date. Assuming it ends up being a $150 million, which is exactly what the drag was last year, you’d be at $550 million of operating cash flow this year, which is your 2019 target if I’m not mistaken. Is there any reason to think that the long-term target is particularly conservative?

No. First of all, I don’t think there's any significance to it. It's going to be $550 million. We’re just returning to normal levels. When Bill mentions the $550 million figure, consider that our EBITDA will have grown significantly as part of that. So, I would suggest thinking in terms of targeting primary working capital to reach 14% of net sales, and the additional growth will arise from our improvements in EBITDA as we continue to enhance our performance.

Thank you, Destiny. Thank you all for joining us today. This concludes our conference call.