Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from George Staphos - Bank of America/Merrill Lynch.
George Staphos – Bank of America/Merrill Lynch
First question is on free cash flow. Before pension funding, after tax I think the number you are generating this year, if you hit your guidance it’s something north of $450 million if I did my math correctly and that is a number that’s significantly higher than what we have seen in prior years covering the company. So, if that works out that’s terrific, congratulations.
How much of this is sustainable? How much of this pick up is from whatever might be some relatively one off items that you have been working on this year that might not recur and do you anticipate putting anything additional into the pension over the course of the year?
Richard Wambold
First your calculation of the 450 is about right, I mean I think the range may be a little higher than that, but it’s about right. Obviously, the earnings piece of it is, we’ll have to look at what margins look like as you go forward.
I don’t think we are smart enough to know the answer to that question, but it is the right question to ask. Some of the margin that we have had in the first half is not a sustainable margin. I’ll let you make your own mind on that, but I think if you would go back and look historically at our margins and say that we are going to earn the 30-32 kind of a bracket, I think we are comfortable putting that as a base.
The second piece of it George is, currently there is a working capital benefit, something probably north of a $100 million this year that is a 100% one time. Clearly lean, is allowing us to operate this business consistently on a lower amount of inventory.
What I cannot predict is what the cost of raw materials will ultimately do to inventories or to all working capitals and therefore what the impact of that will be. Clearly, that portion is going to fluctuate with raw materials. So, again, rather than me trying to get, I think you know what the components are and you can run the model as well as anybody.
So, those are the two things that I would take into account, but I do think what we have here as a business that can consistently produce very-very strong cash flow. We’ve shown that in the past, and something that would start with a three in the above that would not be out of the question at all.
- To read the full transcript on Seeking Alpha, click here »
