Graphic Packaging Holding Company
Q2 2011 Earnings Call Transcript

Published: 28 Jul 2011

[Operator:]

Good morning. My name is Chastity, and I will be your conference operator. At this time, I would like to welcome everyone to the Graphic Packaging Second Quarter 2011 Earnings Conference Call. [Operator Instructions] As a reminder, ladies and gentlemen, this conference is being recorded today, Thursday, July 28, 2011. Thank you. I would now like to introduce Brad Ankerholz, Vice President and Treasurer. Mr. Ankerholz, you may begin your conference.

[Brad Ankerholz:]

Thank you, Chastity, and good morning to everybody. And thanks dialing into our Second Quarter Graphic Packaging Holding Company Conference Call. Commenting on results this morning are David Scheible, the company's President and CEO; and Dan Blount, our Senior Vice President and CFO. To help you follow along with the today's call, we have provided a slide presentation which can be accessed by clicking on the Q2 Earnings Webcast link on our Investor Relations section of our website, which is graphicpkg.com. I would like to remind everyone that statements of our expectations in this call constitute forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Such statements, including but not limited to, statements relating to recovery of raw material, inflation costs, consumer demand and pricing trends, capital expenditures, cash pension contributions and pension expense, depreciation and amortization, interest expense, debt and leverage reduction, performance improvements, cost reduction initiatives, including those related to Sierra Pacific acquisition and the closure of facilities, are based on currently available information and are subject to various risks and uncertainties that could cause actual results to differ materially from the company’s present expectations. These risks and uncertainties include, but are not limited to, the company’s substantial amount of debt, inflation of and volatility in raw materials and energy costs, cutbacks in consumer spending that could affect demand for the company's products, continuing pressure for low cost products and the company's ability to implement its business strategies, including productivity initiatives and cost reduction plans. Undue reliance should not be placed on such forward-looking statements, as such statements speak only as of the date on which they are made and the company undertakes no obligation to update such statements. Additional information regarding these and other risks is contained in the company’s periodic filings with the SEC. David, I'll turn it over to you now.

[David Scheible:]

Thanks, Brad. We're pleased with our second quarter results and our ability to drive significant improvement in earnings in what continues to be a challenging operating environment. Adjusted earnings per share more than doubled to $0.09 with improved EBITDA and lower cash interest cost. Net cash from operations was $118 million year-to-date. Overall volume across our end markets and the paperboard industry remains under pressure, particularly in May, as near record high gas prices and continued high blue-collar unemployment hurt consumer spending in the middle of the quarter. Our business performed in line with expectations despite the challenging economic environment. Sales increased 4.3% as a result of higher pricing from our contract reset mechanisms and board price increases as we recovered input cost inflation from the second half of 2010. This, combined with performance improvements and cost reductions, more than offset recent inflationary pressures and led to improved margins. Our strategy remains focused on driving cash flows to pay down debt, and we managed converting downtime in inventories in the quarter to do exactly that. As a result, we remain comfortable with our full-year net debt reduction from operations target of $200 million to $220 million. Debt reduction remains a key objective for us, but we are continuing to make strategic investments in the business as well. We made significant progress this quarter at our previously announced Perry, Georgia carton facility expansion. This $30 million dollar expansion includes a new 67-inch high-speed flexo press, new cutters and state-of-the-art inline gluers to make 6-pack basket carts for our beverage business. Additionally, we will capitalize on its proximity to the Macon, Georgia CUK mill to create a very low cost supply chain. This expansion will be online in Q3 and when completed, we will convert almost 275,000 tons of paperboard in this facility. We remain on schedule with our $80 million biomass project in the Macon mill. This project will significantly reduce the mill's energy cost and eliminate dependency on fossil fuel alternatives. We will be in a position in 2013 to start green power back to the grid. Finally, we closed the Sierra Pacific acquisition on April 29. I'm pleased to report the integration is on plan and we continue to target initial synergies at the upper end of our $2 million to $4 million guidance. Craft beer remains one of the strongest elements of the beer market and through the Sierra Pacific acquisition, we are well positioned to capture sales in this important sector. The acquisition provided us with a strategic location to service both our beverage and consumer products' costumers on the West Cost by leveraging the proximity of our Santa Clara, California recycle board mill. Looking a little bit at our second quarter results from Paperboard, our mills had another strong quarter, performing above plan due to improved initiatives in productivity, energy and fixed cost reduction. Tons per day increased nearly 1%, and we generated over $8 million in cost savings from our continuous improvement efforts at the mills. Volume in our folding carton segment decreased about 2.9% in the quarter. This was slightly better than the broader market, which was down approximately 4% according to Paperboard Packaging Council. A very wet and cold spring, high gasoline prices, rising food and commodity costs and continued high unemployment negatively impacted demand for consumer goods and as a result, folding cartons. The U.S. consumer is facing some difficult budgetary decisions and that is translating to lower volume, even in core staples. PPC reported industry shipments declining approximately 3% in April, 7% in May and 2% in June. May was really the toughest month of the quarter for us as well, but volumes began to pick up in June. We have seen that trend continue in July. Honestly, I have sort of given up forecasting demand trends at this point in time. Some of the particularly hard-hit food categories over the past 3 months according to ACNielsen were areas that we consider pantry staples. Frozen pizza was down about 7%. Even dry cereal was down 4%, and dry baking mixes down about 6%. Trends in the canned beverage markets were down the second quarter as well. The canned beer volumes across the industry remains somewhat sluggish throughout the quarter, down approximately 2% according to the Can Manufacturers Institute. Canned soft drink volumes across the industry were down nearly 7% for the quarter, but much of this negative year-on-year comparison is due to the spike in volume last year with the Wal-Mart promotion. This special promotion was not renewed this summer, and we have seen a more normalized volume trend in that space. Our total beer business outperformed the industry, benefiting from continued strength in the craft beer market and has increased share with a few customers. Trends in our international beverage business remained positive in the second quarter. Strong adaptation of multipack containers in China continues to be a positive driver for new machine placements in this market. Also on a positive note, favorable product and customer mix has helped to mitigate the impact of softer demand. In particular, efforts to further integrate our mill production are allowing us to substitute open market board sales with some higher value folding carton sales, improving the mix. Turning to our Flexible Packaging business, the operating environment is even more challenging than in Paperboard with the weak construction and housing markets as a base. It's pretty clear that trends in these end use segments may not improve for some time. Quarter-over-quarter volumes in our Flexible Packaging segment improved modestly on a sequential basis, but were down nearly 4% versus the prior year quarter. Higher pricing from the recovery of paper and resin more than offset the volume decline and drove sales increase of about 3% over the prior year period. We expect additional price increases as we move into the second half of the year with contractual recovery, but I believe we still will be fighting demand issues the rest of 2011 in this space. Despite the difficult retail environment, our customers continue to introduce new product offering to drive sales and reduce cost. Our new product sales grew over 10% compared to the second quarter of 2010 and we were successful in new machine placements globally. Our microwave business had a strong second quarter of commercialized launches in North America and abroad. ConAgra launched a 16-ounce Marie Callender pot pie, utilizing our microwave susceptibles, which reduces cook time by nearly 30%. We continue to see strong interest in our patented line of microwave products and believe this technology has significant growth potential. Internationally, our susceptor disks were recently adopted by a French producer of chilled pizza slices and a Japanese premium microwaveable fish offering by Tokankojo [ph]. Our Barrier Packaging portfolio continues to grow with our customer adoption of new and patented structures to create lower cost and increase consumer convenience. CNA [ph] Sugar is utilizing our woven polypropylene structure. This unique package uses a paper laminated outside to deliver the same print quality as a coded paper structure with higher structural integrity. The Fresh Fish First [ph] service line grew with the launch of a take-out container produced with an inside barrier coating for Panda Express. Bunzl Distribution, a St. Louis, Missouri based supplier of paper and food packaging supplies, became the first customer to commercialize our DesignerWare technology. They will use DesignerWare in a tray format for use in their Amtrak food service business. The tray provides improved branding capabilities and utilizes 47% less plastic than a similarly sized CPET tray. Let's talk about pricing inflation. Clearly, in this environment, pricing inflation are our core critical metrics. We saw a significant increase in pricing both on a year-over-year basis and a sequential basis in the quarter. Pricing increased $36 million in the second quarter compared to a $24 million increase in the first quarter. This was driven by the pricing reset mechanisms in our contracts that adjust prices up or down based on changes in inflationary costs on approximately a 9-month lag. We expect pricing to remain positive throughout the remainder of 2011. Total cost inflation was nearly $44 million for the quarter, and about 1/3 of that was due to higher priced externally purchased board and paper. Our customer contracts allow for relatively quick recovery of increases in externally purchased board, and we expect significant recovery of these prices in the remainder of 2011. Other input costs that saw increases on a year-over-year basis in the quarter included secondary fiber, chemicals, particularly TiO2 latexes and modestly freight. Dan will discuss the individual components of inflation in more detail during his call. In the second quarter, we implemented price increases of $45 per ton for CUK and $40 for CRB. When comparing second quarter 2011 -- again, second quarter 2010, PPW reports that average transaction prices were $165 per ton, higher for CUK and roughly $90 per ton higher for CRB. We expect to see further benefits from open market board pricing in upcoming quarters. Our outlook for 2011 remains unchanged. We continue to target net reduction of $200 million to $220 million from operations. Pricing should remain positive through the end of the year. We are comfortable with our cost reduction initiatives to fully realize savings of approximately $80 million. Volumes across the folding carton sector return to more normalized levels in June and July, and we expect new product launches, some market share gains, international expansion to accelerate the business in the second half of the year. With that, I'll turn the call over to Dan for a more detailed discussion of our financial results.

[Daniel Blount:]

Thanks, David, and good morning, everyone. David covered the operational highlights of the quarter. I'll focus on financial results. My comments follow the flow of our posted presentation. For those of you following along, I'm picking up with Page 9. Overall second quarter performance was in line with our expectations and we continued to track to the full-year guidance we highlighted last quarter. Most notably, we are forecasting total net debt reduction to be in the $350 million to $370 million range. This range includes the $150 million debt reduction that resulted from the follow-on equity offering. Starting with our financial highlights, we see continuation of positive performance trends. Revenues driven by price increases across all business segments increased 4.3%. Adjusted net income for the second quarter improved 135% to $34.6 million from $14.7 million a year ago. This results in an improvement of $0.05 per share. Adjusted EBITDA for the quarter grew to $150 million versus $145 million in the prior year. Now please note that the adjustments to net income and EBITDA that I just referenced exclude nonrecurring charges related to acquisitions and early extinguishment of debt. There are no other adjustments. This morning's earnings release includes a detailed reconciliation of the adjustments. When I refer to financial measures this morning, I am referring to measures including these adjustments. Now moving to net income. We see a sizable increase driven by 3 categories

[Operator:]

[Operator Instructions] Our first question comes from the line of Ghansham Panjabi with Baird.

[Ghansham Panjabi:]

David, encouraging 3Q commentary at least so far in July. Can you remind us how relevant July is for the quarter typically for 3Q? And then also which end markets are showing improvement?

[David Scheible:]

Well, as I said in my prepared comments, I've sort of gotten out of the forecasting business from that process. July, August and September, I don't know that one is more relevant than the other. You've got different holidays in the process. Third quarter tends to be back to school and beverage markets and so they tend to be our strongest overall quarter of the 4 quarters from a sales standpoint. And right now, what I would say is we're seeing good -- better trends in food, beverages improved slightly. So we remain upbeat about the quarter but it's a long way to go.

[Ghansham Panjabi:]

Okay, and then just finally looking at our data set CUK versus SUS, I think this is the narrowest price spread since July '08. Is that something to be concerned about from a substitution standpoint?

[Daniel Blount:]

Well, the substitution -- I mean, I'm sorry, the separation rate is still pretty high based on a historical basis. We're still significantly below traditionally. And historically, our separation between SUS and CRB has really averaged around $35 a ton and we're certainly not within $35 a ton of SUS pricing at this point.

[Operator:]

Our next question and comes from the line of Philip Ng with Jefferies.

[Philip Ng:]

I'm just trying to get a better handle on pricing and inflation, how I should be thinking about it going forward. If I look at the run rate for pricing, it looks certainly picked up at the recent $6 million run rate for 2Q. Should we expect it's later [ph] higher over the course of the year or is this pretty much where I should be thinking going forward?

[Daniel Blount:]

I think what you need to think about if you look at our pricing that were based on lookback calculations. You just saw we had input cost inflation of about $100 million in 2010. And I think you can use that as your guide into how much inflation we should recover in pricing in 2011.

[Philip Ng:]

Okay, that's helpful. And then in terms of inflation, I think the last time we chatted on the call, I mean, with comps being a little more easier, I guess, because you saw a pretty sizable inflation. The thought process was for the trend to come down a bit on a year-on-year basis. But certainly, it does look like things picked up a bit. Is that $44 million run rate how we should be thinking about it going forward? Or how should I be thinking about that?

[David Scheible:]

Well, I think you have to sort look on our inflation on the waterfalls that we gave you, you sort of have to look at the arbitrage between price, inflation and performance, right? Because performance includes not only performance in the mill but it includes purchasing improvements and those kinds of things. So I think you have to look at all 3 of those. So if you look at all 3 of those arbitrages, what I would say is we would continue to expect to see modest improvement in our margins between a combination of pricing inflation we have to do and performance for the rest of the year. The primary drivers of inflation are going to be OCC and chemicals. I think the external board prices, which I think were something like 40% of our input inflation this quarter year-on-year, was really from external purchase of board. And those are rolling off of increases from last year. You're going to see much more modest increases in that area because there's been not very many announcements. The TiO2 and those kinds of latex chemicals, they've continued to go up year-on-year, right?

[Philip Ng:]

Okay, and if I remember correctly, you guys were talking about energy surcharges and freight has certainly continued to trend a bit higher. Have you guys been able to implement that inter [ph] quarter and for the back half?

[David Scheible:]

Honestly, I've been pretty pleasantly surprised -- or pretty pleasantly looking at freight because we have done a pretty good job in the last year actually, of getting more and more of our freight passed on to our customers, and so it's become less and less of an impact. We were able to get fuel surcharges recovered in the third quarter, but the more important process really was to get out of the freight business. And over a number of our customers, we're simply exiting the external freight business. The internal freight is predominantly going to be impacted by virtue of the plant consolidations. As Dan said, by consolidating our Cincinnati facility, we move 80,000 or 90,000 tons of board into that facility that will now be made directly in the converting plant that's on-site with the mill. So the internal freight will essentially evaporate because there is no freight. So as I go forward on freight, I feel better about our projections on freight even though, of course, as you say, there are fuel surcharges in freight coming, additional.

[Operator:]

Our next question comes from the line of Ian Zaffino with Oppenheimer.

[Ian Zaffino:]

The $19 million you talked about in cost savings, how much of that can you -- as you look into, let's just say, 2012, because I know you gave a number for this year. If you look into 2012, the $19 million, how much of that is really repeatable on a quarterly basis next year? And how much is -- or can we look at kind of $19 million a quarter and kind of model that for the next 6 quarters or so?

[David Scheible:]

Well, that may be a bridge too far for me to sort of figure out the modeling process. But here's what I would tell you, is that we've averaged somewhere around $70 million worth of performance reductions really since the -- if you net out synergies from the Altivity merger. We've made it, as Dan said, we've made significant investments in Perry and in Macon. And those things will start to roll through next year because the facilities. I mean, we don't even start the Perry facility until late part of Q3. So as I am looking forward, I believe $70 million a year of sort of performance, overall performance reductions, sort of targets, is a good target for us. And that's sort of our internal numbers. We've given that guidance and this year, it looks to be that we're going to be within that area -- within that range.

[Daniel Blount:]

And just to add to that, Ian, the Macon biomass. I mean, that doesn't come online until 2013. So we're putting in an investment today and the return on that is very significant. And that will be second half of '13. Or you'll see some of it, but most of it will come in '14 onward.

[Operator:]

Our next question comes from the line of Joe Stivaletti with Goldman Sachs.

[Joseph Stivaletti:]

The only question I have left was just wondering if you could talk a little bit about more your Sierra Pacific acquisition, how that's going, and if you could tell us what the EBITDA contribution from that business was in the quarter.

[David Scheible:]

Well, there's 2 separate questions. The one, Joe, is that the answer is it's been a good acquisition for us already. The craft beers sector in the United States in the quarter was up almost 15%. And Sierra Pacific has the largest share of that craft beer sector. So it was a positive to our overall beverage results. We're integrating those sales and margins into our business, so we aren't really breaking out. We're not running Sierra Pacific as a standalone. That business has got both consumer products and it has beverage, and we've already sort of bifurcated that into those business units. So we won't be reporting as you would a large acquisition. It's a bolt-on, we'll layer it in. It will just be -- it will be rolled into the overall results. I think Dan did report that our synergy targets were $2 million to $4 million. What I would tell you is that we have been pleasantly surprised with what we've seen there and we're certainly going to be in the upper end of those but again, they'll be rolled back through the individual business units. You saw more inventory because we rolled their inventory. Some of the inflation is higher because they had inflation themselves. So you know the reality is that you're seeing that across the board. We'll manage that as an ongoing part of our business.

[Operator:]

Our next question comes from the line of George Staphos with Bank of America.

[George Staphos:]

I guess the first question I had, taking a step back, Dave, as you consider your customers and what they're seeing ultimately from the consumer, is your sense that over the first 6 months of the year that ultimately the consumers have been retrenching or your customers have been keeping their inventories lower than normal because they're not certain with the way things will play out in Washington and from a macroeconomic point of view? How do you see it at this juncture?

[David Scheible:]

It depends. It's a combination of both. But clearly, if you look in the stores, you'll see some of that less SKUs than were available a year ago, right? So our customers are trying to reduce, in some cases, the number of offerings to be able to meet a lower consumer trend. It doesn't mean we haven't seen some new product launches, however, and so -- but they're very, very focused. Promotional activity is down. We talked about the biggest change year-on-year is the Wal-Mart promotion. Last year, during this period, we were almost crazy fools trying to get fridge pack and 24 packs into the stores for the Wal-Mart promotion. And this year, we didn't see that all. So on a comp basis, it's pretty significant difference on that kind of promotional activity. So in that case, you look at the inventory flow in beverage and you look at the STRs [ph] in beer, it's a pretty tight supply chain, probably tighter than we've seen. But I don't know that that's going to change, which I think we're going to continue to run pretty close higher velocity through that chain because the consumer is very difficult to figure out right now. I mean, their savings rate was up, unemployment, for the people that we care about, continues to creep up. We spent a lot of time talking with not only our customers, but the folks at Target and Wal-Mart, and they're all saying, "Hey, it's okay, but not great."

[George Staphos:]

Right. Dave, I know you have a pretty good light on sight on that space on history, but when we go back to productivity, if you're perhaps producing fewer SKUs in light of your, particularly the food customer side, their marketing programs over the rest of the year and it's 2012. Can that maybe make you more productive than that $70 million average longer term since you're not breaking into your runs [ph] as often?

[David Scheible:]

What I would tell you is that a business like Graphic Packaging has tremendous operating leverage, right? So it's just because of the way the fixed cost base is in there. So we have clearly seen, as you can see in our own numbers, an acceleration in the performance element of our business. So I do believe, George, there's opportunity there. However, the downside of that is that at some point in time, you can't improve the business that you don't run. So ultimately, we still are dependent upon a certain amount of volume improvement to continue to bring productivity. I've lost count of how many production facilities that we've out now since Altivity, but we've got to be close to 10 or 11 facilities and we'll continue to evaluate that same issue because what happens is we get very, very productive in the remaining facilities and then the ones that are on the margin, we just don't operate. And so that ends up being what squeezes out. So that also drives our performance and I expect that it'll unfortunately be an ongoing contributor as you go into 2011 and '12 -- I'm sorry, into '12 unless you see a real change in the U.S. market. I mean, it's sort of a strange situation, one I've not really seen in my -- what you have is global inflation on input costs, but you have a relatively small or slow demand in your current market. So the normal sort of drivers that you would expect to offset inflation through pricing is not really the same kind of levers that you would normally have because the inflation is driven offshore and your demand issues are onshore. And that's sort of the arbitrage that you're seeing in the business. And not just in my business, but the businesses across the space.

[George Staphos:]

So let me guess [ph], that you have to keep spending at a level that you've been spending in capital dollars to keep that productivity. Because that's the only way that you can offset that inflation. Otherwise, you get margin compression.

[David Scheible:]

Otherwise, yes, you run the potential. And so large -- it's becoming clearly a space of large players, right? Because you need to have enough critical mass in that space to be able to make that kind of investment that you can build a Perry. I mean, Perry's a $30 million expansion with a 67-inch flexo press. And even I swallow hard when we made that investment. But it's a huge cost reduction, but you have to have enough critical mass and balance sheet flexibility to be able to do that to drive those kind of costs out, or otherwise you end up with the margins -- you end up with a bad margin arbitrage, which we're some of that on some of the smaller -- I mean, we see every potential sale of carton businesses that's available, Graphic Packaging sees that. We see that book. And clearly, you see some margin compression in that space, in that converting space, right?

[George Staphos:]

Yes. Last question I'll turn over. Dave or Dan, given what's been occurring and the potential, as strange it is to think about it for the debt ceiling to not be lifted and for the U.S. to default, are you doing anything differently from a financial planning standpoint? And are there any issues that we should consider from a cost-financing standpoint based on perhaps a pickup in government rates from here?

[Daniel Blount:]

That's an interesting question, George. I mean, actually, we've been trying to figure it out ourselves and we've been going through advisers to help us with that question as well, because we've got a pending refinancing of our bank debts because the revolver matures in May 2013. And we look to refinance that before that revolver gets within 12 months in maturity. So basically, what we're doing is we're continuing to concentrate on what we have been doing. It's improving our credit profile and generating as much cash out of this business without skimping on investment to reduce the debt load. Because we think if we do those 2 things, we're going to be in just really good shape in terms of refinancing this debt. And the other thing we're doing is we're looking for the right window at which to execute the refinancing activity as well. So if we do those 3 things, I think we're going to be just fine. And we just concentrate on the things we're good at. The other thing is our lending is LIBOR based, and we have not seen a movement in LIBOR nor are we being advised that there is a potential movement in LIBOR based on the circumstances that are happening in the U.S. at this point. But we'll have to wait and see.

[Operator:]

[Operator Instructions] Our next question comes from the line of Alex Ovshey with Goldman Sachs.

[Alex Ovshey:]

Dave, can you just talk about how you're seeing the key spot demand fundamentals for your 2 box board grades? Where are backlogs today for CRB and CUK relative to history? Where are your current utilization rates at the mills?

[David Scheible:]

Yes, as Dan said, we're a net buyer of boards so our utilization rates obviously are pretty high because we're buying those grades that you mentioned externally as well. Our backlogs are -- they're pretty solid in both grades. So our inventories are certainly in line in those grades and I would not -- as we head into the third quarter, which is back to school and end of summer stuff, I wouldn't expect a -- I would expect the backlogs just to remain pretty tight.

[Alex Ovshey:]

That's helpful. And then you talked about your folding carton business where you have the pricing mechanism that allows you to pass through cost and that 9-month lag. How do you feel about that pricing structure, longer term in the context where it seems like we are in an accelerating inflationary environment where in that scenario, that business will typically be behind the curve on passing on costs? Is there a sense of urgency to think about potentially restructuring those contracts where there's a shorter pass-through, especially given the consolidation that we've seen both on the converting side and on the mill side over the last decade in the industry?

[David Scheible:]

So let me get this right. The question is would I like to get my pricing faster? The answer is yes. The fact of the matter is that if you look at where these contracts have been over the last 5 years, we went from 5- to 10-year fixed-price contracts to ones that got annual lookbacks to now, the contracts -- many of them are 6 months and some of them quarterly. So if you look at the acceleration of what's happening in that structure, that's been a high-priority issue for us. But I will remind you that the guys that we're doing business with are the pretty big global players. I mean, they have their own set of options. We are not without potential issues and substitution or other competitive threats, so it is a negotiation. It is not a jam down. So what I would tell you is we made significant progress in reducing that cycle, which is used to be closer to well over a year. And as we move forward, it'll be well inside of 9 months. But I do not -- I would be less than honest if I told you it was going to be instantaneous price recovery for input inflation. I just don't think that's a realistic expectation.

[Alex Ovshey:]

And that's a very helpful color. Maybe to use a baseball analogy, I mean, what inning are we in from the shift where before you had these longer term 5- to 10-year contracts where there's limited ability to pass through, where now you at least have these pricing mechanisms that allow you to do it within a 9-month window?

[David Scheible:]

Yes, so 2 nights ago, I went to the Braves' game and that was a 19 inning affair. So like a baseball game, what I would tell you is it's variable. It will depend upon the end use customer. It will depend materially on how we sit in an individual segment. I don't think pricing or contract negotiations ever -- I mean, that process is never done. And so we've made -- what I would tell you, we've made a lot of progress. It will continue. We will continue to have that discussion, arbitrage with our customers for a long time.

[Operator:]

At this time, there are no further questions. Are there any closing remarks?

[David Scheible:]

No. We need to get back to work and make this quarter work. Thanks very much.

[Operator:]

Thank you for joining today's conference call. You may now disconnect.