Apr 24, 2013
Executives
Kimberly I. Ulmer - Vice President and Controller Anthony J.
Allott - Chief Executive Officer, President and Director Robert B. Lewis - Chief Financial Officer, Principal Accounting Officer and Executive Vice President Adam J.
Greenlee - Chief Operating Officer and Executive Vice President
Analysts
Christopher D. Manuel - Wells Fargo Securities, LLC, Research Division George L.
Staphos - BofA Merrill Lynch, Research Division Ghansham Panjabi - Robert W. Baird & Co.
Incorporated, Research Division Adam J. Josephson - KeyBanc Capital Markets Inc., Research Division Phil M.
Gresh - JP Morgan Chase & Co, Research Division Anthony Pettinari - Citigroup Inc, Research Division Mark Wilde - Deutsche Bank AG, Research Division Albert T. Kabili - Macquarie Research Scott Gaffner - Barclays Capital, Research Division Alex Ovshey Ovshey - Goldman Sachs Group Inc., Research Division
Operator
Thank you for joining Silgan Holdings First Quarter Earnings Conference Call. Today's call is being recorded.
At this time, I would like to turn the call over to Kim Ulmer, Vice President and Controller. Please go ahead, ma'am.
Kimberly I. Ulmer
Thank you. Joining me from the company today, I have Tony Allott, President and CEO; Bob Lewis, EVP and CFO; and Adam Greenlee, EVP and COO.
Before we begin the call today, we would like to make it clear that certain statements made today on this conference call may be forward-looking statements. These forward-looking statements are made based upon management's expectations and beliefs concerning future events impacting the company and, therefore, involve a number of uncertainties and risks, including, but not limited to, those described in the company's annual report on Form 10-K for 2012 and other filings with the SEC.
Therefore, the actual results of operations or financial condition of the company could differ materially from those expressed or implied in the forward-looking statements. With that, let me turn it over to Tony.
Anthony J. Allott
Thanks, Kim. Welcome, everyone, to our first quarter 2013 earnings conference call.
Our agenda for this morning will focus on the financial performance for the first quarter and a review our outlook for 2013. After these prepared remarks, Bob, Adam and I will be pleased to answer any questions.
As you saw on the press release, the first quarter results are right in line with our expectations across our businesses. As a result, we delivered adjusted earnings per diluted share of $0.46, with a temporarily higher tax rate for the quarter.
We also completed the tender offer, buying back approximately 5.5 million shares at $45.25 per share. We increased our cash dividend by 17%.
We prepaid $300 million of term bank debt, and we completed a small Closures acquisition, which expanded our presence in the Australian market. While it's early days and the first quarter had a pretty tough comp with a strong Q1 in 2012, we're thus far pleased with the respective performance of each of our businesses.
Our Metal Container business benefited from stronger volumes, particularly in the soup and pet food markets. They also continue to make good progress towards our working capital goals as we continue to reduce comparative inventory levels that were built in the prior year in advance of labor negotiations.
Our Plastic Container business performed well but was faced with negative year-over-year comparisons as a result of the lagged pass-through of resin cost changes in both years. Our Closures business was already being compared to an exceptionally strong first quarter of 2012 but was also negatively impacted by significant increases in resin costs for the quarter.
More importantly, the Closure business in Venezuela was negatively impacted by currency devaluations, resulting in a $3 million asset remeasurement charge, as well as operating challenges in a heightened political market -- environment of heightened political uncertainty. With that said, based on our first quarter performance and our outlook for the remainder of 2013, we are confirming our full year estimate of adjusted earnings per share in the range of $3.05 to $3.20 per share.
I'll now turn it over to Bob to review the financial results in more detail and provide additional explanation around our earnings estimates for 2013.
Robert B. Lewis
Thank you, Tony. Good morning, everyone.
As Tony highlighted, 2013 is off to a strong start. Our businesses delivered results in line with expectations, we're making good headway with stabilizing our plastics operations, and volumes for the quarter were as expected.
The surprises in the quarter were the devaluation of the Venezuelan Bolivar, resulting in a $3 million charge for the remeasurement of assets; the operational challenges as political instability in Venezuela led to an inability to acquire sufficient raw materials; and the timing of certain statutory rate changes, which led to a temporarily higher tax rate. On a consolidated basis, net sales for the first quarter of 2013 were $795.7 million, an increase of $27.3 million or 3.6% as increases in Metal Containers and the Plastics business were slightly offset by declines in the Closures business.
Net income for the first quarter was $25.4 million or $0.38 per diluted share, compared to first quarter of 2012 net income of $32.8 million or $0.47 per diluted share. Results for 2013 included rationalization charges of $1.4 million, plant start-up costs of $800,000, loss on early extinguishment of debt of $2.1 million and a charge for the remeasurement of assets in Venezuela of $3 million for an aggregate total impact of $0.08 per diluted share, while 2012 included rationalization charges of $3.6 million and plant start-up costs of $1 million for an aggregate impact of $0.04 per diluted share.
As a result, we delivered adjusted income per diluted share of $0.46 in 2013 versus $0.51 in 2012. We continue to be effectively hedged, having financed the international businesses in their local currencies, and we maintain a business practice of balancing our cross-border activity to help mitigate the effects of currency on our earnings.
As a result, foreign currency was not material to the quarterly earnings. Interest and other debt expense increased $1.8 million to $17.4 million for the quarter, primarily as a result of a loss on early extinguishment of debt of $2.1 million, attributable to the prepayment of $300 million of term debt under the credit facility.
Capital expenditures for the first quarter of 2013 totaled $25.1 million, compared with $26.3 million in the prior year quarter. We continue to anticipate capital spending for the full year to be in the middle part of our range of $125 million to $150 million.
Additionally, we paid a quarterly dividend of $0.14 per share in March, with a total cash cost of $9.1 million. I'll now turn to specifics around the financial performance of each of the businesses.
The Metal Container business recorded net sales of $463.8 million for the first quarter of 2013, an increase of $18.9 million versus the prior year quarter. This increase is primarily a result of improved unit volumes, predominately soup and pet food in the U.S.
and the benefits of the new plants in Eastern Europe and higher average selling prices as a result of the pass-through of higher raw material costs. Income from operations in the Metal Container business was $39.6 million for the first quarter of 2013 versus $42 million in the same period a year ago.
The decrease in operating income was primarily a result of the unfavorable impact of the planned smaller inventory build in the first quarter of 2013 as compared to the benefit from building higher inventory in advance of labor negotiations in the first quarter of 2012, continued weakness in the European markets and an increase in rationalization charges. These decreases were partially offset by increased unit volumes.
Net sales in the Closure business decreased $1.9 million to $161.1 million for the quarter, primarily due to the unfavorable impact from the devaluation of currency in Venezuela, partially offset by higher average selling prices as a result of the pass-through of higher raw material costs. Income from operations in the Closures business for the first quarter of 2013 decreased $7.4 million to $10.6 million, primarily as a result of the remeasurement of net assets in Venezuela, the ongoing impact from the devaluation of currency and an adverse political climate in Venezuela, which negatively impacted consumer demand and the ability to procure sufficient raw materials during the quarter.
The quarter was also adversely impacted by significant increases in resin costs and continued weakness in the economic situation in Europe. These declines were partially offset by lower rationalization charges.
Net income in the Plastic Container business increased 6.4% or $10.3 million to $170.8 million in the first quarter of 2013, primarily as a result of the inclusion of net sales from the plastic food container operations, which we acquired in August 2012, partially offset by the impact of lower unit volumes in the legacy Plastics business. Operating income increased $1.5 million to $10.4 million for the first quarter of 2013.
This increase was primarily related to the inclusion of the recently acquired plastic food container business and lower rationalization charges. As expected, these increases were partially offset by the negative year-over-year comparisons, resulting from the lagged pass-through of changes in resin costs, and the legacy business was also impacted by a lower number of pounds sold.
Turning now to our outlook for 2013. Based on our first quarter performance and the outlook for the remainder of 2013, we are confirming our estimate of adjusted net income per diluted share in the range of $3.05 to $3.20 per share, which excludes the impact of rationalization charges, plant start-up costs, the loss on early extinguishment of debt and the impact of the remeasurement of net assets in Venezuela.
This compares to a record prior year adjusted net income per diluted share of $2.70. We're also providing a second quarter 2013 estimate of adjusted earnings in the range of $0.60 to $0.70 per diluted share, excluding rationalization charges and plant start-up costs as compared to a record $0.55 in the second quarter of 2012.
Consistent with year-end guidance, we continue to forecast free cash generation to be approximately $250 million. We continue to see capital deployment opportunities directed at yielding the best possible return for our shareholders.
As a consequence, we continue to view acquisitions as the best use of our cash flow, and in the absence of a meaningful opportunity, we will make decisions regarding alternative uses through the end of 2013. That concludes our prepared comments.
So we can open it up for Q&A. And I'll turn it back to Lisa to provide the directions for the Q&A session.
Operator
[Operator Instructions] And we'll take our first question from Chris Manuel with Wells Fargo.
Christopher D. Manuel - Wells Fargo Securities, LLC, Research Division
Just a couple of questions to start with. One, could you maybe give us a walk around through the different businesses and as well a little bit globally, if you can, as to what volumes were like through the quarter?
In particular, I'm interested in understanding maybe what the difference in food in North America and Europe was if there was a difference and maybe some of the differences in Closures as well, globally.
Anthony J. Allott
Sure. I'll start with Metal and then turn it over to Adam to talk about Plastics and the Closures.
On an aggregate basis, volumes were up mid-single digits in the aggregate. Essentially, what we got was the benefit of the new plant start-ups in the Eastern markets.
So the European volumes were up pretty good quarter-over-quarter, again, not totally comparative because of the start-ups. And then in the U.S., we benefited, as we indicated in the remarks, that both soup and pet food were up year-over-year as well.
Christopher D. Manuel - Wells Fargo Securities, LLC, Research Division
So in North America, were you up a touch or...?
Anthony J. Allott
Yes. In that mid-single digit, most of that volume increase is coming in the U.S.
Adam J. Greenlee
And then moving over to Closures, Chris. Essentially, Closures were flat around the world.
So we had, again, a very tough comp in the U.S. business with the single-serve business from the Q1 of 2012.
And we were right in line with that volume level from the prior year. On the Plastics business, we've talked before, unit volume may not necessarily be the best measure.
It was down slightly in unit volume as we continue to kind of realign our volumes and our strategies toward our growth markets. The best measure of this business, I think right now, is the pounds sold, as Bob said.
And we're down low single digits in the pounds sold for our Plastics business.
Christopher D. Manuel - Wells Fargo Securities, LLC, Research Division
Was there -- when you look at your Closures business, was there a lot of variance between some of the different markets in Europe? And maybe in U.S., Europe, et cetera, what you were seeing?
Adam J. Greenlee
No. Honestly, it was pretty consistent across the board as far as comparable to prior year performance from a volume standpoint.
Robert B. Lewis
With one exception of Venezuela, where we had, as Bob said in the script, we had the issue where you basically couldn't source raw material. So you had a sizable revenue and volume shortfall versus the same quarter a year ago.
Christopher D. Manuel - Wells Fargo Securities, LLC, Research Division
Okay. Last question I had is, could you give us just a sense of what the revenue contribution were from the acquisitions in the quarter?
Anthony J. Allott
Sure. The big one is going to be the plastic food container business.
And that's $20 million of revenue contribution. You're going to get a couple of $4 million or so, $5 million out of the Turkish acquisition.
But the bigger one is going to be on the plastic food container.
Operator
We'll take our next question from George Staphos with Bank of America Merrill Lynch.
George L. Staphos - BofA Merrill Lynch, Research Division
I guess I just want to confirm to Chris' part of question. So you saw mid-single-digit growth in food cans in North America.
Did I hear that correctly?
Robert B. Lewis
It's -- in the aggregate, it's low- to mid-single digits. In the U.S., it would be in the low-single digits.
George L. Staphos - BofA Merrill Lynch, Research Division
Okay, fine. Now to the extent that you have color that you can relay, what are your customers sharing with you about their marketing plans and/or for that matter, ultimately, the consumer, are they seeing signs that the consumer is finally beginning to open up their wallet a bit more or collectively has adjusted to higher pricing, such that you're seeing low- to mid-single-digit volume growth?
Anthony J. Allott
I think, George, the -- we have some customers who are absolutely doing more on promoting and advertising their product. I think soup is an obvious example of that.
Probably, I'd say similarly on the pet food side that you're seeing a pretty heavy effort to move product right now. So I don't -- I'm not so sure that's a consumer-driven difference.
I think answering globally the way you asked the question, certainly in Europe, I think you'd have to say that you're continuing to see a certain retrenchment of the consumer. So there's no sign of a particular robustness on consumption in Europe.
And I would say U.S. is -- more specific to what our customers are doing in the market, then we're seeing a big change in the consumer sentiment.
George L. Staphos - BofA Merrill Lynch, Research Division
Well, Tony, one thing, though, I mean, there have been other quarters in past years where the food companies have tried to promote more aggressively and it didn't really have much of an effect. I don't know if you would agree with that.
That's certainly my recollection. And if you do agree, why do you think these promotional trends now are having a little bit more resonance with the consumer?
Anthony J. Allott
It's a good question. Yes, I agree, first of all.
There definitely have been those points. Although I have to say, sometimes, you felt a lift at first and then it didn't sustainability to it.
So -- but you're right. There definitely have been efforts on that.
I would say that I think broadly right now, what we're seeing is a pretty positive set of advertising and promotional, and that's not just to a soup market. But it's much more about the -- what's good about the product on the shelf, not what's bad about the competition, the competing product.
And so it seems to be more of what we would like to see in terms of the advertising. And an example to that are things about the kind of the sustainability nature of the food and the product, the health benefits of the food.
And that positive message, I think, has a lot of power to it.
George L. Staphos - BofA Merrill Lynch, Research Division
Okay. I'm going to ask one more question.
I'll turn it over just so the call can keep moving. One point in time, back a few quarters ago if not a couple of years ago, we were talking about plastics and how we would ultimately determine whether the turnaround efforts within the company would be successful.
And one of the things I think you mentioned, correct me if I'm wrong, was that we would begin to see volume improvement for the Plastic Containers business. Now, again, quarters vary.
Realized that the last couple of years have been unusual. But should we not be seeing a little bit better volume trend in Plastics by now based on what you would've expected, say, a couple of years ago?
Any color would be helpful.
Anthony J. Allott
You're right, first of all. Absolutely, right.
That what we kind of said is here's the progression we would like to see. The first one is stabilizing the operations of the business.
Then what we wanted to see is basically, we're going to go through a process of being more focused on what markets we wanted to expand. And I think Adam made this point.
And so there was going to be a certain amount of selecting of the business we wanted to do and that was going to give us, frankly, volume pressure for a period of time. And that, ultimately, to get back to what we really thought that it had to be, you'd see sales growth.
So I think that conversation was sort of mid last year we had and I'm not sure I can tell you exactly what we would've said you'd see, and I don't think we'd be saying yet. Certainly, our mind right now is not disappointment around the volume side.
But we're getting there. I mean, there's no question that we are now -- we're beginning to -- we figured out what markets we want to spend more on, which ones we want to deemphasize a little bit and we are moving more to a commercial effort to make the sales in these target markets.
And so I do think that you'd like to see it start to come in. Now I've got to -- the caveat here is it's a long process to make the sale, to get the thing to a commercial product capacity and et cetera.
And so I think, really, that's going to be more about '14 volume growth, but that should be projects we're working on in earnest by the end of this year.
Adam J. Greenlee
And just to add to that. I mean, I think the last piece is the pressure on volume that, that realignment of our target focus does have an impact on our current volumes.
So we're now starting to cycle over some volume losses that we have realigned our focus on other areas.
Operator
Our next question comes from Ghansham Panjabi with Baird.
Ghansham Panjabi - Robert W. Baird & Co. Incorporated, Research Division
On the Rexam acquisition, can you give us a sense as to how volumes sort of flow through, I guess, you didn't have the asset a year ago. But just relative to pro forma numbers, how the markets are doing there?
Anthony J. Allott
Well, first of all, I would say that the business has been fully integrated into our Plastic Containers segment. And the acquired business is performing exactly as we expected, so we're happy with both the management team and the business itself.
It did have a headwind in resin in the first quarter, but volumes essentially were close to our expectations. We continue to see good growth opportunities in those business, both internationally and domestic.
But given the food markets that we serve, it does take time for some of those projects to come to fruition. So without giving you exact numbers, I would say we feel very good about the business.
Tony had commented on the revenue line. Volumes and profits were right in line with our expectations.
Ghansham Panjabi - Robert W. Baird & Co. Incorporated, Research Division
So just to understand the sensitivity on numbers, but were volumes up for that business year-over-year?
Adam J. Greenlee
No. They were off a little bit, although there's -- one part of that business services the military and so with sequestration, that was expected.
So -- but I think if you look actual year-to-year, you're going to be down some.
Adam J. Greenlee
Yes. And I think the differentiation there versus our expectation, which we knew about the sequester and versus prior year.
Ghansham Panjabi - Robert W. Baird & Co. Incorporated, Research Division
Got it, okay. And then it looks like one of your competitors out of Europe is making a big investment in North America.
They highlighted North American food and also highlighted the fact that they had some contracts to go behind that. Do you foresee any change in your market share position as we look out to the rest of the year in North American food and then also into '14 also?
Anthony J. Allott
No, we don't. Again, recall that most of our -- I assume the question is around, you say food, I think we're talking about Food Cans.
Majority of that business is under long-term contracts. And so we don't foresee any shift there in our share.
Operator
Our next question comes from Adam Josephson with KeyBanc.
Adam J. Josephson - KeyBanc Capital Markets Inc., Research Division
Tony, to what extent has the ongoing weakness in Europe reduced your appetite for acquisitions there? I assume the prices would be lower to reflect current conditions but obviously, I don't know for sure.
Anthony J. Allott
Good question. The -- first of all, what we would say about Europe and try to say in the release is that nothing is improving.
It's not dramatically worse than it was, but it's not improving. I think our view in Europe at this point is, broadly, that it's going to have a long fight here.
And so there's going to be, I think, many years of lackluster growth is our view of Europe. So to your question, certainly, something we think about on acquisitions.
And so I think the value of an acquisition in Europe has to consider that fact. Now the trickier, sometimes, opportunity is exactly where things are at their worst.
And so you can't -- you would never want to say no acquisitions in Europe because you might find great opportunity there. But we definitely are factoring in my previous comment on what we expect from the market as we survey the acquisition opportunities around the world.
Adam J. Josephson - KeyBanc Capital Markets Inc., Research Division
And just one more on the M&A pipeline. How would you characterize it today relative to what it's been in previous quarters?
Anthony J. Allott
Yes. I think as we would typically indicate, we continue to look for opportunities.
We keep Fred pretty busy. But I think there's no question if you look comparatively at the early part of '13 against the activity that was in the market in '12.
It's a little bit softer than it had been. Now we don't view that as a permanent situation.
I think it's just kind of the market taking a breather as things that were going to come to market came and get digested. The view right now based on our read in landscaping the market and talking to investment bankers is that the activity will start to pick up in the back part of the year.
And that same dialogue probably goes not only for the packaging space but for the M&A market in general.
Adam J. Josephson - KeyBanc Capital Markets Inc., Research Division
And just one more on soup volume. I mean, how much of the improvement would you attribute to changes and how the product is being marketed versus just a colder weather this winter compared to last?
Anthony J. Allott
Well, that's a great question and you went by one that I meant to mention, which is, first of all, I don't know. Very hard to tell that.
I'm going to guess that between those 2, it has more to do with the advertising and promotional activity, but I can't prove that. The third one that we didn't mention, we should, is recall that one of our large soup customer, Campbell, is moving out of 1 of their 4 U.S.
production facilities. And so you have to also wonder how much could be inventory build associated with the fact they'll have less filling as they go forward through the year.
And unfortunately, we don't really know the answer to that one, either. So it's going to be a function of all of those points.
Operator
Our next question comes from Phil Gresh with JPMorgan.
Phil M. Gresh - JP Morgan Chase & Co, Research Division
So to follow up on the previous question around the M&A, just kind of capital allocation. Should we kind of assume that you're looking at these things on an annual basis?
And if you don't really find anything as we approach the end of the year, that you might do a similar kind of magnitude of share buybacks kind of a big onetime buyback like you did?
Robert B. Lewis
I wouldn't necessarily want you to walk away with the opinion that it's so formulaic that that's the way we're operating. I mean, clearly, we do look at kind of the annual cash flow generation kind of marry that up against the opportunities in the pipeline, as well as kind of keeping the balance sheet in an efficient state.
And that's relative to what's going on in the world, right? So in periods of time where we've been more nervous about the credit markets, we've been less levered than in other periods of time, so the 2.5x to 3.5x leverage metric that we put out there, I would say, is more kind of a longer term view as opposed to looking at every single year and say, if you're not in there, then we're going to do something calculated to be there.
But in general, I would say if we don't find the opportunities to deploy capital through M&A, we will try and keep our balance sheet in an efficient state in return capital where we're warranted. But it's something not formulaic as maybe you'd like to think.
Phil M. Gresh - JP Morgan Chase & Co, Research Division
Fair enough, fair enough. If I look at the Closures' performance, year-over-year, the EBIT -- if you adjust for the Venezuela, the EBIT was down maybe $6.5 million year-over-year.
And you said the volumes are flat. So I guess, could you break apart that delta between resins versus something else?
Robert B. Lewis
Sure. And we've already talked about the $3 million for the remeasurement of the assets in Venezuela.
There's another $3 million in Venezuela for the ongoing operational impact of the currency devaluation, and as Bob alluded to, kind of the intense political environment down there and our ability to get raw materials and service that market. So there's $6 million that we would attribute to Venezuela.
There was a bit of a negative lag for resin in the quarter, about $1 million. So that kind of gets you all the way to the complete story, and volume was flat.
Phil M. Gresh - JP Morgan Chase & Co, Research Division
Got it. Okay.
And what was the total risen impact when you factor in the impact in the Plastics business?
Adam J. Greenlee
If I look at Plastics, I would say probably $2.5 million, $3 million in total on a comparative basis. And again, Closures, I just gave you $1 million.
So...
Phil M. Gresh - JP Morgan Chase & Co, Research Division
Yes, okay. And then what's your view -- what are you factoring in for resins for this current quarter?
Adam J. Greenlee
For Q2, kind of dividing up by business, our primary resins for the plastic container business are expected to continue to increase. Resin will be a headwind in Q2 for the business.
As we think back and on a comparative basis, we had a significant benefit in Q1 of last year that we're comparing to right now for Q1 of 2013. We also had a benefit in Q2 of 2012.
That benefit was less than the Q1 benefit. So that, in conjunction with the headwind that we anticipate in Q2 of 2013, will essentially be a couple of million dollars unfavorable for the Plastics business.
The Closures business, the primary resins using Closures have been a lot more volatile than our other resins that we use in the other businesses. So it really depends on the timing of the decreases.
Our primary resins for Closures are expected to decrease through the balance of the year. So depending upon that timing, we should recover the headwind that we've experienced.
It may not necessarily be in Q2, but we should recover that by the end of the year.
Phil M. Gresh - JP Morgan Chase & Co, Research Division
Got it. Last question is, can you give us the margin in the quarter for the legacy Plastics business?
Robert B. Lewis
It's kind of hard to do that once you blend everything together. I think it's safe to assume it's lower than the blended total.
But it's -- I'm not -- I wouldn't know how to do that with all the SG&A kind of bearing overall that.
Phil M. Gresh - JP Morgan Chase & Co, Research Division
Okay, fair enough. We haven't lapsed the acquisition annually, so that's why I was trying to ask, but I appreciate it.
Anthony J. Allott
Yes, understood. Sure.
Operator
We'll take our next question from Anthony Pettinari with Citi.
Anthony Pettinari - Citigroup Inc, Research Division
Just to follow up on Phil's question on Plastics. You've discussed some of the drivers of improvement in that business.
But I was wondering, to the extent that you can, if you can kind of quantify what kind of margin improvement potential we might expect from 2012 going into 2013 or maybe out to 2014? I think before the downturn, you were doing closer to 8% or maybe above 8% operating margins in that business.
Is that a reasonable target for 2014, 2015? Or is there any kind of color you can give us on that?
Robert B. Lewis
I think what we've said in the past on that is that our expectation is that over the next year or 2, we thought we could get back to where were before it started out in the operational challenges. So I would put that more in kind of the mid-5, 6 percent-ish kind of numbers.
And that to get back to the 8% to 10% on operating margin, those kind of numbers are going to take a more fundamental change in terms of the, to some degree, the footprint of the business and the kind of the more long-term cost structure of the business. And to a degree, having real success in moving more into target markets and making further investments into those markets.
So I would view that as a longer-term answer.
Operator
And we'll take our next question from Mark Wilde with Deutsche Bank.
Mark Wilde - Deutsche Bank AG, Research Division
Tony, I noticed in the release you mentioned Sacramento. You talked about Campbell's a little earlier.
I'm just curious, with the restructuring that you did there, are you pretty satisfied with your Sacramento area footprint now? And are you sized for the shutdown of the Campbell's plant?
Anthony J. Allott
Yes. For now, we're satisfied.
The -- essentially, you'll recall that that plant serviced both Campbell and other customers in the region. We need the capacity.
We did size down the plant and moved some of that capacity. So we're reasonably satisfied.
The reason we can't give you a more formal answer to that is that, that's still a the Campbell site. It's still under a lease with Campbell.
So we don't have 100% certainty that we can stay there forever. And so that will continue to be something we'll evaluate as we go.
But in either case, we need the bulk of that capacity in the West Coast.
Mark Wilde - Deutsche Bank AG, Research Division
Okay. And then turning to the plastic food business, the Rexam business.
Can you just give us some direction as to what you think the potential is in that business over the next 2 or 3 years from kind of a volume standpoint? And whether you may have to put any additional capital in that business, domestically or offshore?
Anthony J. Allott
Sure, Mark. It's Adam.
I think as we look forward, again, as I mentioned earlier, we see good growth opportunities both in the U.S. and internationally.
So your last point, I think what we're going to wind up having to do over time is we will have to invest in additional capacity in that business. It is a one-location operation as we sit here today.
And significant growth will require additional footprint consideration for that business. So while we're still off identifying all those opportunities around the world and, obviously, in the U.S.
as well, we do expect significant growth. And I think -- I don't think we've put a number out there.
But certainly, in the upper-single-digit kind of growth profile in the longer term for that business and new opportunities.
Mark Wilde - Deutsche Bank AG, Research Division
Okay. And then just finally, in terms of the guidance for both the second quarter and the year, I was kind of struck that the range for the second quarter is almost as wide as the range for the year.
And I wondered if you could just give us some sense of what you think the main variables are that you're dealing with in the second quarter.
Robert B. Lewis
Well, the big one is always timing of the year, and you'll hear this even stronger from us in Q3. But you just have this issue of exactly when does the fruit pack come in, when does some of the early vegetable pack happen.
And so unfortunately in our business, you get fairly sizable swings just in the timing when things happen. We've always said we're better at estimating the year than we are at quarters.
And I think history can certainly borne that out. So that's the main point.
There's not a lot more to it than that.
Mark Wilde - Deutsche Bank AG, Research Division
Okay. Is there anything else, Tony, behind just sort the pack and the Food Can business that you regard as significant swing issues in the second quarter?
Anthony J. Allott
Well, I'd like Venezuela to be able to get steel, so that's one. We are assuming that, that will settle itself down, and they'll be able to get steel and get back to work.
So that's important. Europe, I think we've been pretty negative in our forecast of Europe.
So I don't expect a lot more there. But again, Europe just continues to be on our mind.
Mark Wilde - Deutsche Bank AG, Research Division
Okay. Tony, how big is Venezuela in the grand scheme of Closures?
Anthony J. Allott
Relatively small. I mean, if you look at this quarter, for instance, it's only a $3 million or $4 million revenue.
Unfortunately, that was $7 million a quarter a year ago. So you can see a sort of the magnitude of the difference there.
So it's not big, but what happened is it made money in the first quarter a year ago because it was getting steel. In fact, it was doing some catch-up in that case.
To a case here where it loses money because it's sitting and waiting for steel. That's the sizable swing from them.
Robert B. Lewis
Yes. Mark, I think I'll try and add a little clarity to that, too.
Largely, that happens because of the monetary policy in Venezuela and the fact that their raw materials come from outside of Venezuela. So it's only when the government is letting funds flow that you can actually bring steel in.
So their production and their sales because the customers are buying everything that's available when they're producing and bleeding that inventory off for their own purposes when the Venezuelan operation can't get steel. So it's just naturally lumpy, and this happens to be one quarter where it's going in the opposite direction year-over-year because of that ability to get steel.
Mark Wilde - Deutsche Bank AG, Research Division
Okay. And I believe this is now like the second devaluation that we've had, what, in the last 2 or 3 years?
Robert B. Lewis
I think the last time was 2010 or '11, I believe.
Anthony J. Allott
Yes, that's right.
Operator
Our next question comes from Al Kabili with Macquarie.
Albert T. Kabili - Macquarie Research
Yes, I just wanted to follow up on Venezuela. So with the lower currency that we've got there now plus assuming the steel issue gets sort of resolved as you expect, what's the ongoing annual drag to earnings in this segment just on the lower base of currency going forward?
Robert B. Lewis
Yes. I think what we're thinking right now, assuming that the steel issue gets behind us, the impact that we saw in the first quarter is probably largely what we'll see for the full year.
That will get back to operating and we won't see more negative drag. Again, assuming that they get the steel situation resolved.
Albert T. Kabili - Macquarie Research
Okay. And on -- and cash wise, I mean, I imagine you don't have much down there, but can you remind us on -- how much cash is maybe stranded in Venezuela at this point?
Robert B. Lewis
There's not a lot there. There is probably the equivalent of a few million U.S.
dollars there. The total net assets down there are probably only about $7 million to $10 million, I think it is.
Anthony J. Allott
Truly, our goal was never to talk about Venezuela. It's just because you have devaluation, but then you have this kind of a relatively strong quarter against a relatively bad quarter.
So it's our hope to answer your first question, that it's close enough, we never talk about Venezuela again this year, hopefully.
Albert T. Kabili - Macquarie Research
Yes, okay. All right, fair enough.
I guess the final question is, so with that drag, resin, and I think probably more of a drag than you would've originally anticipated, yet you kept your outlook for the year kind of intact. What is there that sort of offsets that that's a surprise to the upside?
Is it the U.S. Food Can business?
Or what was the upside that lets you keep your guidance in line?
Anthony J. Allott
That's a great question. I might add the fact that we actually -- the buyback was at the highest price.
We got the lease shares so that actually shaved a little off the top, too. The best answer I have for you, it's early days.
We tend to, whether we come out strong in the first quarter or not, we tend to try to hold to the year at that point in time. So I would encourage you not to read too much into it.
That it's not that there is some really good piece of news that's buried in there. It's just more -- we didn't feel compelled to either move the number up or down at this point in time.
Albert T. Kabili - Macquarie Research
Okay. All right, fair enough.
I actually -- reminds me. I just have one last question, Europe Food Can.
Can you talk of -- I know you talked the volumes are up. Can you talk about profitability there year-on-year, excluding start-up costs?
Are you up in terms of profitability in Europe? And what are you seeing on the pricing front in the European Food Can business?
Anthony J. Allott
Yes. We were -- I'd answer that in reverse order.
The pricing was a little bit more stable this year than last . There certainly is some pressure, but more stable.
Last year was a tougher year in that regard. The business is definitely down in profit compared first quarter to first quarter, partly because you've got the costs now of these smaller, newer sites that are ramping up.
And so even -- we're no longer client start-up, but there -- and by the way, I should mention that in some of those cases, like Russia, there -- those plants are for the seasonal period to carry the overhead, but you don't have much of the sales yet in that case. Beyond that, you just have the -- I think Bob went through the volumes, but if you carve out the new plants, the volumes were down for the rest of Europe.
Some of that probably had to do with the Easter break being in March versus April this year, which is Easter is a much bigger holiday in terms of vacation time off. And so that had more shipping days impact in Europe than it did here.
So -- but all of that -- it's not big numbers. So you're talking about down, if you carve all that out, $1 million or so.
So it wasn't the big point, and we think some of that will be recaptured as the shipping days throughout.
Operator
Our next question comes from Scott Gaffner with Barclays.
Scott Gaffner - Barclays Capital, Research Division
Just to follow up on the Venezuelan assets. It's, as you said, a relatively small business.
You don't want to talk about it much. But any chance you could exit this business since it, maybe, the operating environment has just become too difficult to operate in going forward?
Anthony J. Allott
You could. I don't know that -- I'm not sure you why you would.
I mean, the fact is, you're there. We have a great position in that market.
The investment -- it was acquired as part of an overall purchase, so there was no discrete investment made to go into Venezuela and we would not have done that in that case. But it kind of came with the entirety of the business.
And so once you've made that investment, which we minimize every way we could, our view is, you might as well let that money that's on the table play. You can't really take it out anyhow.
And so that's -- and that's why we would rather just not talk about it. Because to us, it's sort of a side enterprise, if you will, but it does or it does.
We aren't taking risk -- additional risk in funding it. And we can't really take a lot of money out of it.
But with that said, I'm not sure there's a great reason to exit it.
Scott Gaffner - Barclays Capital, Research Division
Okay. And then just on the soup can volumes in the first quarter, you said in the guidance that you actually expect soup to be strong again in the second quarter.
Is that related to the promotional activity? Or -- you said it was difficult to break it down, promo versus weather in the first quarter.
What gives you confidence that the second quarter soup can volumes are going to continue to be strong?
Anthony J. Allott
Well, partly, our customers' own forecasts indicate that partly that we know that, really, everything we said, we believe impacted in the first quarter, they're all continuing. So the promotion effort is continuing, the need if there is an inventory build and the logic to continue to build inventory would be a continuing need.
So we don't really see much change in the drivers here.
Scott Gaffner - Barclays Capital, Research Division
All right. Just lastly, the -- you closed one facility in the quarter or it looks like you're closing it, the Crystal City, Texas facility.
Is that -- can you give us some details on that location?
Anthony J. Allott
Yes, it's a relatively small, actually, I'd say it's a very small by comparison of our other plants, facility. We did take a charge of about $300,000 for that particular plant.
It's largely cash severance cost. Unfortunately, there were about 20 people in that location that were affected.
So you can kind of see, just in terms of the number of employees, the size and scale of that plant was not very large. But if footprint consolidation, if that's your question, it's not business loss or anything.
Anthony J. Allott
Correct.
Operator
Our next question comes from Alex Ovshey with Goldman Sachs.
Alex Ovshey Ovshey - Goldman Sachs Group Inc., Research Division
So I want to ask a question on the European Metal Food business. I mean, you're entering year 3 post the acquisition of Vogel & Noot.
And you're really getting into that business. I wonder if we can a step back and you could talk about how that acquisition has performed relative to your expectations in the context of a very difficult environment in Europe and whether you've really been able to grow the operating earnings of the business since you've acquired it.
Anthony J. Allott
Okay, a good question. We'll start with your last bit first, which is a financial one.
Operating earnings have not grown in that business since we've owned it, although I attribute that almost entirely or entirely to your first side of it, which is that the market has been very challenging. So I think the bigger point is, we still feel very good about the strategies that we're pursuing about the markets that we're growing into.
A lot of this -- a lot of what we're trying with the European market tends to be more Western Europe and challenges in Western Europe, which isn't really the strategic focus of the business. It just happens to have a footprint in the eastern side of West Europe or Central Europe.
And so our view is that there -- it's the right strategy, it's the right spot for canned goods to continue to grow. It's the right kind of consumers and food markets.
Our customers are continuing to think the same way and move into those markets. We feel very good about the team.
They continue to be exactly what we expect, which is very entrepreneurial and continue to drive the business, really, the direction want it. So we would just view all of this as we knew, and we've talked about that you were going through this transition period as we brought these plants up.
The fact they're doing that in a tougher market isn't helping. But we're still very pleased with the kind of the position that we're building.
A classic example, 2 of the plants are in Russia. They continue to sell very well.
They're making great inroads into the Russian market. That market is developing, and so that's a perfect example where we think it's working great.
One of the plants went into Jordan Valley. It was going to -- it does service the kind of the mid-east region, including -- it was intended to be Syria and Lebanon.
Obviously, that plan is a bit on hold as to Syria, and it's had to get to Lebanon given transit issues in that region right now. So we still like where that plant is.
We still see that as a long-term right market to be in. It's not going to drive good results in the next year or so until the region settles down.
So long way around, we feel very good about the strategy. We're very pleased that, that business is part of Silgan and that the management team is part of our company.
And we think it's going to be good in the long term.
Alex Ovshey Ovshey - Goldman Sachs Group Inc., Research Division
Thanks for that color, Tony. And a question on the Plastic side and resin pass-through.
A number of players in the marketplace have talked to pursuing shortening the lags of the pass-through of resin. Is there anything you think you can do across any of your businesses that are exposed to resin to shorten the time lag of the pass-through?
Anthony J. Allott
Honestly, Alex, we're working on it every single day. It's been part of our strategies to shorten the pass-through mechanisms in our Plastics business or anything that really involves resin for some time now.
And essentially, it just takes time. We operate on a lot of contractual agreements.
And as those contracts come up for renewal, we are aggressively trying to change those pass-through mechanisms. We've had some success.
So we've got a lot of work left to do, but it is very much a focus of all of our businesses that are resin-based to shorten those pass-through mechanism lags.
Operator
We'll take our next question from George Staphos with Bank of America Merrill Lynch.
George L. Staphos - BofA Merrill Lynch, Research Division
Tony, on capital allocation, a question came up earlier in terms of how we should mark your progress relative to M&A. Let's hold M&A constant for a minute and just think about value return to shareholders.
Given that you have had a couple of large repurchases over the last 3 years and given, at least in the past, my observation some concern, if you will, about the float in the stock, would it make sense that whenever that next value return moment arises that perhaps a special dividend is more apt to be considered relative to a buyback for those reasons and also for that matter, given investors' desire for yield -- admittedly, this would be a one-off type of pickup in yield?
Anthony J. Allott
Yes, the -- I wouldn't say more likely. I think what we would definitely say is that a special dividend is absolutely on the table along with anything else.
I don't know the flow -- really, we used to hear a lot about float. We don't hear as much about float anymore.
So I don't think that's a pressing issue, but it's one you've got to watch for sure. And so -- and that's part of what we keep a dividend on the table.
A dividend is frankly easier to execute, too. So there -- it's got some pluses to it.
So I wouldn't rule that out. I would note there's one third one you didn't mention, which is there is always organic capital opportunities, too.
And that's not an unimportant one. As we think about our Can Vision 2020 project as an example, there's probably going to be more opportunities to invest right into our core business to take costs out, et cetera.
And I think that'll -- it has been, but will also be a very important place for us to deploy capital as well.
George L. Staphos - BofA Merrill Lynch, Research Division
You segued into what was going to be my final question. But just on the question of regular dividend, then, what is it that makes the board comfortable that the current dividend payout is the appropriate one, given the cash flows in the business, the size of the business, its relative lack of volatility?
I'm guessing some of it is the investment opportunities, but if you have any thoughts on that, that would be appreciated.
Anthony J. Allott
I think it's exactly the same. It's basically, the idea, when we initiate and we discuss every year as we think about the dividend is right now, it's used as a way to allow income or investors to consider the stock that those portfolios can buy the stock.
We're not necessarily trying to drive ourselves all the way up to be a primarily focus of a income-oriented investor, partly because we think some of the other things we can do with the cash can be more important to value creation over time, acquisition or internal investment, et cetera. So that's -- the thinking so far has been that we were trying to get over a certain threshold on it and not trying to drive it beyond that because we have good uses for the cash.
George L. Staphos - BofA Merrill Lynch, Research Division
On Can Vision 2020, what is the update? And if you could provide a bit more color?
Obviously, tough to do perhaps in this kind of forum on what the required investment might be, that would be great.
Anthony J. Allott
Sure. For those that don't recall, the Can Vision 2020 project is essentially our effort to look at all parts of the supply chain of canned goods to the consumer and trying to take costs out of all of it from the supply side to our piece of the can production to what our customers then do with the cans and the product going in the cans, et cetera.
We continue to make very good progress on that. It is a long-term project, so this will be many years, and the results will come from that over a long period of time.
But we continue to be pleased with the opportunities that we're seeing. They absolutely are taking investment.
We've spent on this -- something like $1 million this quarter on it. We'll continue to spend, and then there will be capital as we get closer to meaningful investments with customers.
I think the capital side of that will show much more in '14 than '13, although you might see some by -- in the tail end of '13.
Operator
And there are no further questions. I would like to turn the conference back over to our speakers for any additional or closing remarks.
Anthony J. Allott
Right. Thanks, Lisa.
Thank you, everyone, for your time, and we look forward to speaking with you in July about our second quarter. Have a good day.
Operator
And that concludes today's teleconference. Thank you for your participation.