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Silgan Holdings Inc  (NASDAQ:SLGN)
Q4 2018 Earnings Conference Call
Jan. 30, 2019, 11:00 a.m. ET

Contents:

Prepared Remarks:

Operator

Thank you for joining the Silgan Holdings Fourth Quarter 2018 Earnings Results Conference Call. Today's call is being recorded. At this time, I would like turn the call over to Kim Ulmer, Vice President, Finance and Treasurer. Please go ahead.

Kimberly I. Ulmer -- Vice President, Finance and Treasurer

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 2017 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, I'll turn it over to Tony.

Anthony J. Allott -- President and Chief Executive Officer

Thanks, Kim. Welcome everyone to Silgan's 2018 year-end earnings conference call. I want to start by making a few comments about the highlights of 2018 and provide a brief update regarding the 2019 outlook. Bob will then review the financial performance for the full year and the fourth quarter, and provide more detail around our 2019 outlook. Afterwards, Bob, Adam and I will be pleased to take any questions.

As covered in our press release, 2018 was a very good year for the Company with several record performances and milestones, including delivering net income per share of $2.01; delivering record adjusted net income per share of $2.08, 26% above the prior year record level; generating free cash flow of $311.4 million or $2.79 per share, an increase of 39% versus the prior year; and a free cash flow yield at year-end stock price of 11.8%; renewing a long-term contract with our largest customer through 2025 and positioning us to further support their growth objectives; exceeding inventory reduction targets in our US metal food can business; continuing strong growth since further accretion from our dispensing systems operations; delivering another year of significant improvement in our plastic container business; commercializing two new manufacturing facilities to support growth in the pet food market; rationalizing can manufacturing operations in two metal container facilities; completing a favorable amendment to our senior secured credit facility and redeeming all of our outstanding 5% Senior Notes; and finally, increasing the cash dividend by approximately 11%.

We're pleased with the performance of each of our businesses in 2018. Earnings growth was primarily driven by the inclusion and strong performance of dispensing systems operations, as well as continued improvement in our plastic container business. As expected, the improvements were partly offset by the metal containers business as we focused on cash generation and incurred on a $18 million headwind for un-absorbed overhead cost as we worked down finished goods inventories.

Volumes in metal container business were down 4%, but these were the result of a few specific customer actions while the rest of the food can industry grew during the year, reflecting the continued relative stability of the metal food can and our end markets. We believe our businesses are also well positioned in 2019 and anticipate solid earnings growth before considering the impact on pension costs for market declines late in 2019.

Therefore, as Bob will discuss in more detail, we're providing full year guidance for the adjusted earnings per diluted share in the range of $2.10 to $2.20, which includes a $0.13 per diluted share for the unfavorable pension impact. The midpoint of this estimate represents almost 10% increase over our record 2018 earnings, excluding the pension impact. We also expect free cash flow to be approximately $275 million.

With that, I will turn it over to Bob.

Robert B. Lewis -- Executive Vice President and Chief Financial Officer

Thank you, Tony. Good morning, everyone. As Tony highlighted, 2018 benefited from several strategic initiatives which leave our business is well positioned for 2019 and beyond. These initiatives included deployment of growth capital on our plastic and metal food container businesses, right-sizing our inventory levels to generate incremental free cash flow, initiating plant rationalization activities, renewing the long-term contract with our largest customer and completing the integration of the dispensing systems operations.

As a result, in 2018 we delivered adjusted earnings per diluted share of $2.08 and we delivered free cash flow of $311.4 million. On a consolidated basis, net sales for the year were $4.450 billion, an increase of $359 million or 8.8% over the prior year. This increase was a result of revenue increases across all of our businesses. We converted these sales to net income for the year of $224 million or $2.01 per diluted share as compared to 2017 net income of $269.7 million or $2.42 per diluted share. In 2018, adjusted earnings per share benefited by adjustments that increased earnings per share by $0.07 for restructuring costs and loss on early extinguishment of debt.

Adjustments decreasing earnings per share in 2017 totaled $0.77, including a decrease of $1.00 per share and a net tax adjustments reflecting reduced future cash tax obligations under the US Tax Cuts and Jobs Act of 2017 and increases of $0.15 for cost attributable to announced acquisitions and $0.08 for restructuring costs and loss on early extinguishment of debt.

As a result, adjusted net income per diluted share was $2.08 in 2018 versus $1.65 in 2017, an increase of 26%. Interest expense before loss on early extinguishment of debt increased $6.1 million to $116.3 million primarily due to higher weighted average outstanding borrowings, principally as a result of borrowings to fund the dispensing systems acquisition in April of 2017 and higher weighted average interest rates.

In addition, we incurred a loss on early extinguishment of debt of $2.5 million as a result of the redemption of all the remaining 5% Senior Notes due 2020 in April of 2018 and the amendment to the senior secured credit facility in May 2018. In 2017, we incurred a loss on early extinguishment of debt of $7.1 million as a result of the prepayment of outstanding US and euro term loans under the previous senior secured credit facility in conjunction with the issuance of the new Senior Notes and the April 2017 partial redemption of the 5% Senior Notes due 2020.

Our 2018 effective tax rate was 23.6% versus a negative 12.5% in 2017. The 2017 rate was favorably impacted by the benefit from the effective tax rate adjustments totaling $110.9 million or $1.00 per share. These adjustments are primarily the result of the revaluation of net deferred tax liabilities to reflect lower future tax obligations as a result of the reduction in the US corporate tax rates under the US Tax Cuts and Jobs Act of 2017. The effective rate for 2017 exclusive of these effective tax rate adjustments would have been 33.8%.

Full year capital expenditures totaled $191 million in 2018, which is slightly lower than anticipated as a result of the timing of the completion of certain projects which will carry over into 2019. Capital investments in 2018 totaled $174.5 million. Additionally, we paid a quarterly cash dividend of $0.10 per share in December. The total cash cost of the dividend was $11.1 million. For the full year, we returned $44.5 million to shareholders in the form of dividends. As outlined in Table C, we generated record free cash flow of $311.4 million or $2.79 per share versus $224.1 million or $2.01 per share in the prior year.

I'll now provide some specifics regarding the financial performance of each of our businesses. The metal container business recorded net sales of $2.380 billion, up $99.9 million versus the prior year. This increase was primarily due to the pass-through of higher raw material and other manufacturing costs, and the impact of favorable foreign currency translation of approximately $12 million, partially offset by lower unit volumes of approximately 4%. The reduction in unit volumes was principally due to a few specific causes we have been discussing all year, namely, a seasonal customer reducing inventory levels, a customer plant shutdown in the fruit market, a competitive loss of a smaller customer and a less favorable harvest in Europe.

These declines were partially offset by higher pet food volumes and an incremental buy ahead by customers in 2018 in anticipation of significant steel inflation in 2019. Segment income in the metal container business was $198.8 million, a decrease of $31.4 million versus the prior year. This decrease was primarily attributable to the unfavorable overhead absorption of approximately $18 million due to the reduction of finished goods inventory by approximately $65 million, lower unit volumes, higher freight expense and higher rationalization costs.

These costs were partially offset by the favorable impact from the contractual pass-through to customers of indexed inflation on non-metal costs as compared to the unfavorable impact in the prior year from the contractual pass-through of indexed deflation on non-metal costs, lower manufacturing cost and a charge in the prior year related to the resolution of a past noncommercial legal dispute. We also incurred rationalization charges of $5.3 million and $3.3 million in each of 2018 and 2017, respectively.

The cost in 2018 are primarily a result of the liquidation of the business in Belarus and the shutdown of operations in Jordan. Net sales in the closure business increased $210.1 million to $1.460 billion in 2018, primarily due to the inclusion of the dispensing systems operations for a full year, the pass-through of higher raw material and other manufacturing cost, and the impact of favorable foreign currency translation of approximately $18 million.

These benefits were partially offset by approximately 2% lower volumes in the legacy closure operation, primarily as a result of less favorable fruit and vegetable pack in Europe due to poor weather conditions. Segment income in the closures business for 2018 increased $47.9 million to $189.9 million, primarily due to the inclusion of the full year of dispensing systems operations, the unfavorable impact in the prior year of a one-time $11.9 million write-up of inventory of the dispensing systems operations for purchase accounting in the second quarter of 2017, lower manufacturing cost and foreign currency transaction losses in the prior year period, partially offset by volume effect from a less favorable fruit and vegetable pack in Europe.

Net sales in the plastic container business increased $49 million to $614.1 million in 2018 principally due to the pass-through of higher raw material cost and higher volumes of approximately 4%. Segment income increased $14.8 million to $42.6 million for the year, largely attributable to higher volumes and lower manufacturing costs, partially offset by cost associated with the start-up of the facility in Fort Smith, Arkansas.

For the fourth quarter, we reported earnings per diluted share of $0.34 as compared to $1.31 in the prior year quarter. We reported adjustments increasing income by $0.04 in 2018. And during 2017, we recorded adjustments reducing earnings by $0.99 per diluted share largely as a result of the net tax adjustments reducing future tax obligations. As a result, we delivered record adjusted earnings per diluted share of $0.38 in the fourth quarter of 2018 versus $0.32 per diluted share in the same quarter a year ago.

Net sales for the quarter increased $74.8 million versus the prior year, driven primarily by the pass-through of higher raw material and other manufacturing costs and an increase in volumes in each of the businesses, partially offset by the unfavorable impact from foreign currency translation of approximately $8 million. For the fourth quarter 2018, volumes increased by 4% in each of the metal and plastic container businesses and 1% in the closures business. The volume improvement in metal food containers was principally due to a larger buy ahead by customers in anticipation of significant inflation in 2019.

Income before interest and income taxes for the fourth quarter of 2018 decreased by $9.1 million to $77.3 million, primarily as a result of the unfavorable overhead absorption of approximately $18 million in the metal container business due to the reduction of finished goods inventory by approximately $65 million, higher SG&A costs, higher rationalization charges and cost associated with the start-up of the new plant in Fort Smith.

These costs were partially offset by higher volumes in each of the businesses, lower manufacturing costs, a favorable mix of products sold in the closures business and a favorable impact from the lagged pass-through of lower resin costs in the closures business. The effective tax rate for the fourth quarter of 2018 was $23.1 million versus a negative 159.2% in the prior year quarter. During the fourth quarter of 2017, we reported effective tax rate adjustment of $110.9 million primarily due to the revalue of net deferred tax liabilities to reflect lower future tax obligations due to the reduction in the US corporate tax rates. Exclusive of these adjustments, the fourth quarter effective rate would have been 37.6%.

I'll be turning now to 2019. Our estimate of adjusted earnings per diluted share for 2019 is a range of $2.10 to $2.20, which includes an unfavorable non-cash pension impact of $0.13 resulting from significant market declines in investment values at the end of 2018. This estimate compares to adjusted earnings per share of $2.08 for the full year of 2018. Reflected in our estimates for 2019 are the following: segment income in the metal container business is forecasted to benefit from a normal production level in 2019 as compared to the significant finished goods inventory reduction in 2018 and continued manufacturing efficiencies offset by the unfavorable pension impact and anticipated lower unit volumes.

The expected decline in unit volumes is primarily the result of the customer pre-buy activity in 2018 in advance of the anticipated steel inflation and expected continuation of an inventory and portfolio management program at a certain customer. These negative drivers are expected to be partially offset by continued growth in pet food and a more normal fruit and vegetable pack in Europe. The closures business is expected to benefit from anticipated volume gains and continued manufacturing efficiencies, offset by the unfavorable pension impact.

We are expecting the plastic container business to benefit from continued manufacturing efficiencies and volume growth, including from the new Fort Smith, Arkansas facility. These benefits will be partially offset by the unfavorable pension impact. In addition, we expect interest expense to decline slightly versus 2018, largely a result of lower average outstanding borrowings, partially offset by anticipated higher interest rates. We currently expect our tax rate to be approximately 24%, largely in line with the 2018 rate.

Also, we expect capital expenditures in 2019 to be approximately $200 million as capital for certain projects initiated in 2018 will be paid in 2019. We're also providing a first quarter 2019 estimate of adjusted earnings per diluted share in the range of $0.40 to $0.45, excluding rationalization charge. This compares to $0.42 in the first quarter of 2018. We anticipate slightly higher volumes in the closure and plastic container business, continued manufacturing efficiencies across all businesses, a more seasonal inventory build in the metal container business, a favorable impact from the lagged pass-through of lower resin costs and lower interest costs, as well as lower unit volumes in the metal container business and the unfavorable non-cash impact of approximately $0.03 per diluted share.

Metal container volumes are expected to decline as customers utilize product purchased as part of the strong pre-buy at the end of 2018, the continuation of the inventory and portfolio management program at a certain customer and the continued impact of smaller customer loss, partially offset by higher volumes in the pet food. Based on our current outlook for 2019, we expect free cash flow to be approximately $275 million versus the $311.4 million in 2018 as 2018 benefited from a significant reduction in finished goods inventory which is not expected to recur, and slightly lower CapEx. Additionally, 2019 will benefit from improved earnings and lower cash interest.

That concludes our prepared comments. So in an effort to allow everyone to have their questions answered, we'd like to ask that you limit your time to one question and one follow-up and we'll be happy to take additional questions if you want to get back in the queue. So, David, I'll turn it over to you for directions for the Q&A.

Questions and Answers:

Operator

Thank you. (Operator Instructions) We'll take our first question from Anthony Pettinari with Citi.

Anthony Pettinari -- Citi -- Analyst

Good morning.

Anthony J. Allott -- President and Chief Executive Officer

Good morning.

Anthony Pettinari -- Citi -- Analyst

Just had a question on the 4Q metal container volumes. I think they were up 4% on pre-buy activity. The CMI data was sort of flat. Did you meaningfully outperform your peers or is it possible that the pre-buy benefit wasn't tracked by CMI? Or did your customers maybe pre-buy more than peers? I'm just trying to kind of parse up the details there.

Anthony J. Allott -- President and Chief Executive Officer

Sure. Good question. So, the -- yes, we're 4%. That increase is entirely driven by pre-buy and a little bit more. We would have been down had there not been pre-buy activity in the quarter. You're right that the market was more flat in the fourth quarter. But I think if you look back to the fourth quarter a year ago, the industry was up I think somewhere in the 3% -- 3.1%. And that we attributed at that time to our understanding that the pack in the Midwest particularly in the southern Midwest was much stronger. So -- which we are a little less represented by. So I think the answer is that our peers had a strong fourth quarter a year ago and that that was a tough comp for them.

Anthony Pettinari -- Citi -- Analyst

Okay. That's helpful. And then just it seems like this year, maybe later in the year you'll be in a position where you could potentially repurchase shares but you've also had some success with the HSMB (ph) acquisition. Just wondering if you can talk about the M&A pipeline broadly and then kind of the attractiveness of M&A versus repurchases?

Robert B. Lewis -- Executive Vice President and Chief Financial Officer

Yes. Look. Anthony, we're doing well against our cash flow guidance. We are delevering -- I think that speaks to the strength of the franchise. Remember with the deal back in April of 2017, we kind of levered up to the mid-4s, communicating that we'd be able to get pretty quickly back into the range. As we exited '18, we're kind of right at the top end of that range with a $275 million free cash flow target next year, that will put us closer to the midpoint.

So I think more than anything from a capital deployment standpoint, that puts us exactly where we would want to be to have the flexibility to be able to take advantage of M&A opportunity should they arise, further delever if there is a short-term absence of M&A opportunities. And then look as we've always done at a return to capital if it's a longer-term kind of slowdown in M&A activity.

But I wouldn't at all think or say that there is that kind of slowdown. I think there's some nervousness around what the credit markets have done. I think they've settled down a little bit more recently. I think there's quite a bit of activity in the marketplace around the M&A space and there's certainly things that we would have interest in looking at. None of that necessarily means that we get a deal done, but there are certainly things that we would want to look at and I think that's where we would see the capital allocation as a consequence.

Anthony Pettinari -- Citi -- Analyst

Okay, that's helpful. I'll get back in queue.

Operator

And next we'll go to Scott Gaffner with Barclays.

Scott Gaffner -- Barclays Capital -- Analyst

Thanks. Good morning, guys.

Anthony J. Allott -- President and Chief Executive Officer

Good morning, Scott.

Scott Gaffner -- Barclays Capital -- Analyst

Bob, when we you were mentioning the puts and takes in 2019 for the metal containers business, I was just wondering if you look at the pre-buy and some of the compression issues that's going to create for 2019, do you still think that you can get the positive year-over-year operating profit in metal containers business?

Anthony J. Allott -- President and Chief Executive Officer

Scott, it's Tony. So you didn't go where I thought you were going on that question. So the answer is yes, we do think we can get positive operating profit. Remember that metal container business had that $18 million of inventory overhead cost on the year. So that's kind of a meaningful benefit we climbed against on that. And so we do expect that even though there's going to be a significant pension impact that we will have that benefit. Where I thought you were going to go and I thought I was running on volumes.

So it is we are expecting volumes to be down next year, but the primary reason for that has to do with the pre-buy. And I want to take a minute because it's worth looking at the impact of pre-buy. They are significantly negatively impactful on the year that follows a pre-buy because you have the year before it has the sale that you -- in the first quarter of the year following you do have those sales.

And then by the fourth quarter you're cycling against the prior year on the compare a bit and you essentially end up with two times the hit on competitive percentage. So the majority reason we think volume will be down in 2019 is nothing more than the pre-buying you saw at the end of 2018. And yes, with our active pact the profit can get back to positive, but we do have to come over a significant pension impact. So that's why we're saying we'll be pretty modest.

Scott Gaffner -- Barclays Capital -- Analyst

Sure, makes sense. And just as far as the pre-buy, that was going to be the second part of my question, actually just the -- did you feel the pre-buy in both Europe and the US, and was that across various customer segments or was it particular to certain customer segments? Thanks.

Anthony J. Allott -- President and Chief Executive Officer

Good question. So the pre-buy was not in Europe. What's happening in the steel markets are quite different between Europe and the US. So there would have been not a lot of reason in Europe to do a pre-buy and as you'll recall it's a pretty negative pack season there. So there was really no reason to try and maybe doing that in any case.

So were there certain markets here, I would say that, yes, it probably skews a little bit more to the vegetable market just because those are the customers who typically can theoretically do that pre-buy. And so it's definitely domestic and it'd probably be a little bit more as you look at industry data, it sits a little bit more in the veg category.

Scott Gaffner -- Barclays Capital -- Analyst

Perfect. Thanks, Tony.

Anthony J. Allott -- President and Chief Executive Officer

Yeah. Thanks, Scott.

Operator

And next we'll go to Mark Wilde with Bank of Montreal.

Mark Wilde -- Bank of Montreal -- Analyst

Good morning, Tony, Bob, Adam.

Anthony J. Allott -- President and Chief Executive Officer

Good morning, Mark.

Robert B. Lewis -- Executive Vice President and Chief Financial Officer

Good morning, Mark.

Mark Wilde -- Bank of Montreal -- Analyst

Tony, how about we could just walk over to the closures and dispensing business and if you could just help us unbundle volumes both in the fourth quarter and the full year between closures and dispensing?

Adam J. Greenlee -- Executive Vice President and Chief Operating Officer

Hi Mark, it's Adam. I'll jump in on this one, Tony can correct whatever I get wrong to start with, but if you look at the fourth quarter, we did see again continued growth in the dispensing systems business. So their volume was up about 3% in the quarter versus prior year. And if you look at the legacy business, importantly the US single-serve market that we've been talking about for some time now, as we had previously said we thought the back half of the year was going to see a recovery mostly because we had very difficult comps in the first half of the year.

We did see growth of about 2% in the US single-serve business in the fourth quarter as well. Those are largely offset or partially offset by some continued weakness in the European food pack. So if you kind of break it down, I'd say dispensing up 3%, the important US single-serve market up 2% and Europe down just a couple percentage as well. And then if you look at the full year, go ahead Mark, sorry.

Mark Wilde -- Bank of Montreal -- Analyst

No. That's exactly where I was going, the the full year.

Adam J. Greenlee -- Executive Vice President and Chief Operating Officer

Okay. So full year, dispensing systems as we've talked is kind of a mid-single-digit kind of unit volume growth business and it delivered exactly as expected. So we're kind of mid-single digit. Our hustle (ph) closure business in the US, the single-serve market we just talked about, all told we came in about 2% down versus prior year, again I'll just say as expected. And then the unfavorable volume impact was really Europe and it's mostly related to the food pack that we've been talking about for some time. So the interesting thing with that is the closure isn't necessarily a closure.

So with some weakness in the European food pack, a pick-up in volume at dispensing systems, we actually had a favorable mix in our closures business as we look at the total as well. So all in I'd say a pretty solid year and a very good end of the year in Q4 for 2018.

Mark Wilde -- Bank of Montreal -- Analyst

Okay. And if I could, Adam, just as a follow-on, when you bought this business, you talked about the potential for kind of bolt-on M&A in that business and I wondered if you could just update us on how you're thinking about that right now?

Robert B. Lewis -- Executive Vice President and Chief Financial Officer

Yes, Mark, this is Bob. That is -- you're right. We did say that we thought that there will be opportunities across the globe to think about the various silos of product line around that business and that we'd be able to over time find areas where we could invest and further grow. That is the focus of our M&A strategy. Obviously we've not announced one as we sit here today, but it is something that we still think that we can avail ourselves to and we'll present opportunity over time.

Anthony J. Allott -- President and Chief Executive Officer

Hi Mark, it's Tony, let me out one more point on that which is that we also see opportunity for organic growth in that business and investments on organic growth. So some of this is acquisition based some of is that we're just having success going with customers and markets and can also take the root of organically investing on that.

Mark Wilde -- Bank of Montreal -- Analyst

Okay, that's helpful. Thanks, Tony. Good luck this year.

Anthony J. Allott -- President and Chief Executive Officer

Thanks, Mark.

Operator

And next we'll go to Chip Dillon with Vertical Research.

Chip Dillon -- Vertical Research Partners -- Analyst

Hi, good morning, Bob, Tony and Kim. Thanks for all the detail. I had a quick question, a couple. One has to do with the pet food area. I know 2017, I believe, is a year you saw a big pop like 7% and then I think you mentioned -- I think last year it was moderated quite a bit. And I just want to know what your thoughts are about ped foot going forward? I'm frankly been seeing a lot more in pouches et cetera and I didn't know if there's -- if you are -- if that's going to have an impact?

Anthony J. Allott -- President and Chief Executive Officer

Okay, Chip. It's Tony. It's a good question. We continue to see pet food as a pretty solid growing area across our businesses. And so if you look at kind of pet population percentage household with pet, those numbers continue to be up 5%, 6%, 7%, 8%, depending on which stack you kind of look at in there. So, we continue to think pet food will grow. You are right that sometimes it moves and it's not a linear straight line up. What happens, you got promotional activity that throws up quite a bit. So you'll have years -- our history on that is we will have years where we see significant growth and then we'll have the years that are flat, maybe give a little bit back.

But over time pet has been a steady grower and we think it will continue to be. And we think the kind of packages our customers chose, they do it for a lot of different reasons. So we feel really good about what is in can pet food, makes a lot of (inaudible), it's great package, and it's true with all of our packages, it's fully recyclable, consumers like it and so that works well.

Other customers are looking more at plastic solutions and that's something else that we can deliver for them. So we're little bit agnostic not toward pouch, but really we don't see a lot of pouch in North America in any case.

Chip Dillon -- Vertical Research Partners -- Analyst

Okay. That's helpful. And then just a quick follow-up. You mentioned the renewal with a big customer out through 2025 and just didn't know if either this year or in the future there will be significant capital component maintaining that business. And is it fair to say it's typical of renewals where maybe early years you might give up a little bit of margin but expect to get back to that and more in the later years?

Anthony J. Allott -- President and Chief Executive Officer

Good question. I don't want to get into any specifics. I'd say a couple of things on that. One is that it is a business that we anticipate growth over time and it has grown historically and we have invested behind that. So, yes, there will be kind of ordinary course capital investments to support the growth on the business as we go forward.

On the renewal I would just say that I will call a typical of our contract renewals where we try to go into each of them and find win-win. Obviously, the customer's looking for value of some kind and we're trying to find cost savings, growth opportunities, et cetera. So, we really -- no different than other contract. We're trying to find a solution that's good for both parties on that and I would say this one fell right into that category.

Chip Dillon -- Vertical Research Partners -- Analyst

All right, terrific. Very helpful. Thank you.

Anthony J. Allott -- President and Chief Executive Officer

Thanks, Chip.

Operator

And next we'll go to Gabe Hajde with Wells Fargo Securities.

Gabrial Hajde -- Wells Fargo Securities -- Analyst

Good morning, gentlemen.

Anthony J. Allott -- President and Chief Executive Officer

Hi, Gabe.

Gabrial Hajde -- Wells Fargo Securities -- Analyst

Just had a question about the closures business. To the extent that there is any sort of exposure to I guess the Chinese consumer or some of these fragrance or beauty and personal care products find themselves in duty-free shops and stuff like that, have you had any dialogue with customers that're a little bit cautious on the (inaudible) environment? Just provide a little color on that front.

Robert B. Lewis -- Executive Vice President and Chief Financial Officer

Sure. So, a relatively small portion of our closure sales are into and for the Chinese market. A big part of our Chinese footprint is to have a lower labor cost, means, to supply markets around the world. And so, now that doesn't mean we don't sell in that market. Of course we do but it's pretty small and yes, I would say fair -- there has been some softening of more high-end personal care kind of markets that we sell into, but it's small enough to us, not a meaningful part of the financial performance.

Gabrial Hajde -- Wells Fargo Securities -- Analyst

Okay. And I believe you mentioned it but is there any way to parse out -- is there an expected kind of resin benefit here in the first half with where things have trended in the plastics and/or closures business?

Adam J. Greenlee -- Executive Vice President and Chief Operating Officer

Sure. I think in total, Gabe, we are looking at -- at probably a couple million dollars of benefit in Q1. And then what we do as a company, our policy on the forward-looking of resin for our budget is that we then hold resin flat for the remainder of the year. So obviously the resin markets are volatile right now. We've seen some drops as we come into the year. Depending upon the resin type you're talking about, there will be some stabilization and primary resin, certain resins will go up as well particularly polypropylene.

So I think as we sit here today it will be a small benefit in the first quarter and then should not have much of an impact on the course of the year. The real reason for that is we've got a nice job systemically reducing kind of our exposure to the lagged pass-through of resin in our core businesses over time and have shortened those pass-through mechanisms. Dispensing systems is one business that has slightly longer lags. So that's where you are seeing more of the resin impact for our business.

Gabrial Hajde -- Wells Fargo Securities -- Analyst

Thank you, Adam. Good luck, guys.

Adam J. Greenlee -- Executive Vice President and Chief Operating Officer

Thank you.

Operator

And next we'll go to Debbie Jones with Deutsche Bank.

Debbie Jones -- Deutsche Bank -- Analyst

Hi, good morning. I wanted to ask about the plant rationalizations that you mentioned. I didn't catch specifically where those were. I think you might have mentioned something in Jordan and the tightening part of that? And whether or not you've already started to see a benefit? I mean if you could just comment on to why those (inaudible) remain?

Adam J. Greenlee -- Executive Vice President and Chief Operating Officer

Sure. Basically the charges that we've incurred in the year related to two primary facilities. We closed a facility out of the European operation in Belarus and we ceased operations in Jordan. Remember that both were relatively small facilities for us, each of which were part of the geopolitical landscape. So it made sense for us to do that. Given most of that activity has been influencing the operations of those two entities for the last year or two, there really isn't much benefit to be had there other than just not have the distraction of trying to operate those facilities and navigate those waters. So the impact won't be very significant in the overall P&L as we move forward.

Anthony J. Allott -- President and Chief Executive Officer

And then, Debbie, I think maybe you're asking us a more general question about other rationalizations that could come from there. I think the -- we've -- basically in our can business we've shut down nearly a plant for every plant we operate. So we're constantly looking at the footprint and the opportunities on that. As you've heard from us over the last year, we're really waiting and watching a little bit to understand a particular set of customer actions. If volumes remain where they are now, there's more opportunity for us to do that and we certainly will get at that and do it.

If volumes were to come back a little bit because the customers have been working off inventories and doing some portfolio management, if that ends and they see a different forward-looking number, then we would have a little less of that to do. But we're absolutely looking at that. I think it's reasonable to assume that there could be some more going forward.

Debbie Jones -- Deutsche Bank -- Analyst

Okay, thanks for that. My second question is around (Technical Difficulty) on the potential impact or what you're watching for when you think about the perception around (inaudible) is the dispensing closures which I would consider maybe a little more immune to some of those concerns? And then secondary to that, does any of this discussion around perception, around this issue impact your M&A strategy going forward and even some of the multiples that you might be seeing in these businesses?

Anthony J. Allott -- President and Chief Executive Officer

Sure. You broke up at the beginning but I think the cross (ph) of the question was what are we seeing around plastics concerns about ocean plastics and impact on, first of all, our businesses and then on our M&A strategy. So we've talked about it before. I think the -- where the heat is most is around one direction, one used packages. That is not the bulk of our plastic container business for sure. It is -- and it also is not around our dispensing systems business.

So really the one area that is mostly in that issue is going to be around other flat closure business primarily to the hospital market. Now that closure adds a lot of benefit in terms of maintaining vacuum et cetera. So it's not just a dust cover like you'd said around the watertight closure. So really our thinking there, first of all, right now we're really seeing no impact meaningful on that at all. I think what is possible is that the technology around that closure may change. It may -- governments may want it to be tethered to the bottle to enhance recycling.

That's something that we would be kind of advantaged in developing and getting that into our customers. So we really at this stage do not see significant risk around our existing businesses on this ocean plastic area. I will deviate again and say, I do think the industry have to get better about recycling, the industry is getting better about recycling. There is a lot that we as participants in the plastic industry need to do more and help it.

So I'm not walking away from that point at all, but I think the kind of -- where the volume is going to move, it does not seem to be an area as we think affect us. Does it affect our M&A strategy? Sure. You absolutely do have to think about what markets are going to be impacted and I think there are some that are definitely going to have some impact around this -- the CSD water being probably the most likely area. So, yes, it is something you have to think about.

Operator

Next we'll go to Ghansham Panjabi from Baird.

Matt Krieger -- Baird -- Analyst

Hi, good morning. This is Matt Krieger sitting in for Ghansham. How're you doing?

Anthony J. Allott -- President and Chief Executive Officer

Hi, Matt.

Matt Krieger -- Baird -- Analyst

So my first question is were your inventory reduction efforts even more pronounced than you expected given the volume upside associated with the pre-buy in the metal containers business? And then, do we any sort of swing back from a working capital perspective in the 2019 because of that?

Robert B. Lewis -- Executive Vice President and Chief Financial Officer

Good question, Matt. So the -- absolutely we've got more inventory out than we had originally set as target. We were thinking kind of in the $50-ish million range and we actually got as you saw $65 million out. One of the things that helped us, there were a few but one is the demand. You did had that kind of get a spike in demand at the end of the year and we chose not to kind of producing at that but rather move out of inventory. So that worked, I think it was great for us. It created kind of P&L hit which more or less offset the volume gain that we had in the fourth quarter. So it kind of worked out well in that regard.

It did allow us to generate significant cash flow. We did not think of a swing back. Our intention is to hold these inventory levels. And so we don't think we had a swing back, but honestly you won't get that same benefit again. The $65 million was sort of a one-time thing. So when you look at the free cash flow, you can't duplicate that, but we are not expecting working capital swing back. We are staying very focused on our working capital.

Matt Krieger -- Baird -- Analyst

Okay. That's definitely helpful. And then as my follow-up, can you quantify what you expect in terms of steel and tin plate inflation by region, North America and Europe? And then what do you expect in terms of a price mix impact across the metal containers business as a result into 2019?

Anthony J. Allott -- President and Chief Executive Officer

Sure. I can -- I'll try the (inaudible) one. First, which is it is our intention in our business model to pass through whatever we get. So I'm not going to (inaudible) blended into our revenue for you. But basically our business model is to pass through our exposure and our increased cost. So what we're seeing in North America is, as you'll recall we had tariffs that came in middle of last year to the tune of 25% on steel, 10% on aluminum, that affected wherever the imports were. For us, that's some 30% of our buy because Canada was ultimately included in that.

So if you now look at the US suppliers, they are now looking to come in right underneath the tariff. And so you're talking about increases there in the high teens to low 20-ish percent range in North America. So we're going to see a significant increase across our North American metal business. Europe on the other hand is not so much of that. There is a little bit of -- quota is being established, so that the Asian markets are not dumped into Europe, but I don't think us changing that market all that much. There's plenty of capacity. So the -- (inaudible) that market mid-to -- low to mid single-digit kind of increase. So very different dynamics in the two markets this coming year.

Matt Krieger -- Baird -- Analyst

Okay, that's helpful. That's it from me. Thanks.

Anthony J. Allott -- President and Chief Executive Officer

Thanks, Matt.

Operator

Next we'll go to George Staphos with Bank of America Merrill Lynch.

George Staphos -- Bank of America Merrill Lynch -- Analyst

Hi everyone, good morning. Thanks for taking my question and congrats on the year, especially the cash looked honey. And Bob, first question I had was on just demand again in food cans, you know, recognizing you're looking for it to be down, is there a way to put up a finer point on it for both the quarter and the year, recognizing at the end of January lot of things can change. And relatedly when we have any kind of view on what the customer in questions plans are for, you know, their portfolio down the road?

Robert B. Lewis -- Executive Vice President and Chief Financial Officer

Okay, George. So I think with the quarter, you mean, first quarter and year 2019, and so absolutely the buy forward that we saw in the fourth quarter is going to affect the first quarter. So we're going to be down probably somewhere in the range of 6% will be our take right now in that first quarter. So significantly down you get. Remember now, that's a relatively small quarter. So you get kind of a sizable impact on that.

On the year, as we've said, we're thinking down about 4%, the majority of that, 3% are there is nothing but that buy forward and the way it affects kind of doubling impact the comparison of the two years. So beyond that we're really -- it's mostly about the one customer who is still talking about some more inventory reduction. And then you get a little bit of carryover at some of the impact. There was a smaller piece of business with loss in middle of the year, so we get carryover impact that. Against that we do believe that Europe should have a better pack season. (inaudible) getting pick up something in Europe.

We do think you'll see this growth that we talked about in the pet food side. Soup is a little bit more of an unknown, but right now it looks pretty good on the soup side. So those are kind of the moving pieces on what we expect for next year.

George Staphos -- Bank of America Merrill Lynch -- Analyst

Okay. And my follow on, I recognize this year you have a couple of items that are kind of one-off, you have the reabsorption of overhead which will help the earnings. You have steel going up which affects you on a percentage basis, it doesn't really affect you on a dollar basis and EBIT. When I think about some other components, the shift to pet food in your mix, if there's any kind of non-metal pass-through this year, you know, how do those factors blend together in terms of what a normalized margin or return would be trending at. Do those factors help you this year? Do those factors hurt you this year? Thank you.

Anthony J. Allott -- President and Chief Executive Officer

Sure. So reabsorption is -- I want to be clear, we're not going to rebuild inventory. So all you get is you no longer have the over absorption coming through. So, yes, that's -- not having that issue comes through helps us. The pension a sizable. It's some nearly half of the total pension issue comes right through the food can business. So that's not an unimportant point.

And as we've said, you've got this volume comparison issue. And so those are the big moving parts. The rest is that our business has continued to do a really good job of controlling its costs. We expect to continue to see that. And so that's kind of the paddling that goes on underneath the water that you don't see as much. And so the net of all that gets us back to, you know, it should be slightly positive after the pension hit.

George Staphos -- Bank of America Merrill Lynch -- Analyst

Okay. I'll turn it over.

Operator

Next we will go to Daniel Rizzo with Jefferies.

Daniel Rizzo -- Jefferies -- Analyst

Good morning, everyone. Thank you. Just in terms of pre-buying that you said was kind of a tailwind, in general does pre-buy generally end at the end of a calendar year or can it extend into next year? That is, I mean, could it be a short-term tailwind here in the first quarter?

Robert B. Lewis -- Executive Vice President and Chief Financial Officer

No. Nearly all of our contracts in North America start up again on January 1.

Daniel Rizzo -- Jefferies -- Analyst

Okay.

Robert B. Lewis -- Executive Vice President and Chief Financial Officer

So that you would not expect anything to carry into this year.

Daniel Rizzo -- Jefferies -- Analyst

Okay. And then you mentioned tethering and the issues around sustainability. I was wondering how sustainability affects the single-serve market? It seems to be potentially a tailwind as it pushes toward more recyclable -- plastics and more recyclable products?

Anthony J. Allott -- President and Chief Executive Officer

So, if I understand your question, you're saying more of a tailwind for the can business because of issues on the plastic side of single-serve?

Daniel Rizzo -- Jefferies -- Analyst

Well, yes.

Anthony J. Allott -- President and Chief Executive Officer

Yes, so absolutely there is some logic to that. I mean let's start with the fact that the steel can is instantly recyclable, it's the most recycled package in the world. It's easy to recycle, it's magnetically attractive, so kind of every recycling place can easily sort it. And so there is a lot of really good reasons on why you should see more of that. There are some examples where we're hearing from customers on it. But I would not say that's the basic point yet, but I would just leave it as saying it certainly can't hurt the metal can.

Daniel Rizzo -- Jefferies -- Analyst

Okay, thanks.

Operator

And next we'll go to Adam Josephson with KeyBanc Capital Markets.

Adam Josephson -- KeyBanc Capital Markets -- Analyst

Good morning, everyone. Thank you.

Anthony J. Allott -- President and Chief Executive Officer

Hi, Adam.

Adam Josephson -- KeyBanc Capital Markets -- Analyst

Tony, just one more on this plastics issue. I know -- I think even some of your customers have talked about kind of shifting some of their business from metal to standup pouches, correct me if I'm wrong there. So it's not clear to me that this shift would be an opportunity for the metal can. Why do you think it would be?

Anthony J. Allott -- President and Chief Executive Officer

Well, so let's -- I'm not sure -- what I said I think if anything it certainly can't hurt. I think it would be because everything I just said. It's an instantly recycled package. Pouches, I believe -- remember I came from a flexible world, I think the world is coming to realize pouches are one hell of a problem on them. They have lots of recyclability problems. So, yes, it's lighter content, but what we do with them at the end. And so, you've got to separate materials and you're talking about food products, (inaudible) products et cetera, you need heavy barrier, you're going to have lots of layers and lots of stuff in those pouches as we all know.

So -- but the pouch has been there forever. I mean, the cans compete with the pouch for as long as pouches have been out there. So I think what's happened is on balanced now, there's a question about the pouch of what happens in the recyclability chain. That wasn't there five years ago. And so, I think on balance it helps the can versus the pouch. And I just -- I think our customers will have to think twice before they move into any plastic product right now.

Adam Josephson -- KeyBanc Capital Markets -- Analyst

Got it. And just back to food can volume for a moment, you were down 4% in 2018 and then you're guiding -- you're assuming about the same in '19 and the pre-buy washes out because it boosts one year and it's a drag on the other year, so bottom line you're down, call it, 4% in '18 and '19. And I know you had some one-off customer defections and inventory reductions et cetera, but what gives you confidence that you'd go from down 4% and down 4% to flat thereafter that you wouldn't have additional customer losses or inventory reductions et cetera comparable for what you've recently been experiencing? Thank you.

Anthony J. Allott -- President and Chief Executive Officer

Okay. Good question. First of all, I'll encourage you to go look at the math. It's actually not correct. It does not wash through. If you take pre-buys out entirely of '18, it was still down 4%. Now some of that because it came in with smaller pre-buys. But again I would say when you look at percentages, the pre-buy is twice as damaging on the year that follows it than it is beneficial the year that gets it. And I'll leave the math right now off the table. So actually I would say what you're looking at and what we've told you is it's 4% down in '18 and 1% down in '19 because the pre-buy drive the other 3% of '19.

So -- but your questions as to what makes us have confidence, the -- (inaudible) various specific items. So, yes, a customer who shut a plant had very specific disruption impact of that. You had a sizable customers who went on a major inventory reduction. So that's just in the stream reduction of inventory. Unfortunately, I can't tell you exactly how much of it is inventory reduction versus walking away from certain portfolio management programs. And so if I could do the math on that, then I can give you a clear answer. But as these portion was inventory reduction, there is no logic I can be aware of that doesn't have some recovery from it. You can't keep working down your inventories. So those are the -- I think our feeling has been clear, there's been a couple of discrete items going on.

Our head is not in the can. We fully understand there are some markets where the food cans are declining. Right? We said pretty clearly that fruit is a decline et cetera, but as we said in the last call, again, that we're also just as clear that pet food is increasing and pet food is by far our largest individual component now. It becomes larger with each year of growth on that. So that's what makes us feel pretty confident that over time this is going to be a flat-to-modest growing situation for Silgan as we look forward.

Adam Josephson -- KeyBanc Capital Markets -- Analyst

Thanks, Tony.

Operator

And next we'll go to Brian Maguire with Goldman Sachs.

Brian Maguire -- Goldman Sachs -- Analyst

Hi, good morning guys.

Anthony J. Allott -- President and Chief Executive Officer

Hi, Brian.

Brian Maguire -- Goldman Sachs -- Analyst

Just another question on the back to the pre-buying. Just wondering how do you actually know the extent of the pre-buying activity as it's happening. Do customers kind of give you a hint that what's going on there or do you just use sort of out of pattern ordering? And sort of related to that, do you think more to the negative impact to 2019 will be felt in 1Q or due to the seasonal needs of some of these products it'll be more spread out through the year?

Anthony J. Allott -- President and Chief Executive Officer

Sure. Good questions. Actually we have a really good knowledge in almost all of that. And so, as to when it happens the customer -- we have very specific order pattern expectations. We have to get -- steal our order way ahead of our customers need. So when a customer wants to pre-buy, then you tell in advance that they're doing that. And so we have quite good clarity. There are couple of customers who could -- they could order a little bit more. But on balance we kind of know the pre-buy on it.

Yes, most of this will show in Q1. There are some customers that, you know, they pack still might be Q1 and Q2, they will spread a little bit in Q2, but the bulk of this as we've looked it so far ought to be coming in again in Q1. That will be repetitive, you'll see it in our comps in two spots. You will see it in Q1 where we don't sell the cans and you'll see it in Q4 when we compare against the prior quarter where we did sell the cans.

Brian Maguire -- Goldman Sachs -- Analyst

Yes, makes sense. And likewise I assume some positive comps in 2Q and 3Q as you sort of lap inventory draw downs from some of the customers you called out. But just one last one, just on the working capital assumptions in the free cash flow guidance. I think in response to Matt's question early you said it's not going to be a use of cash. Just wondering if you're assuming that -- I know you've talked about trying to work down some more inventory on the margin. But can you just take working capital to be a source of cash in 2019?

Robert B. Lewis -- Executive Vice President and Chief Financial Officer

Yes, as we look into 2019, quite frankly, as we've done for the last several years, so we took some I think it was $30 million or so out of '17, we took $65 million out of '18. We would expect to be able to marginally improve as we move into '19. But to be clear on it, if you're walking the cash flow from the $311 million to the guidance, it's just fairly sizable negative drag on free cash flow on a year-over-year basis. But in pure dollars, it is expected to be a small benefit for 2019.

Brian Maguire -- Goldman Sachs -- Analyst

Okay. Like $5 million, $10 million kind of range or a little better than that?

Robert B. Lewis -- Executive Vice President and Chief Financial Officer

Yes, it's a probably a little north of $10 million.

Brian Maguire -- Goldman Sachs -- Analyst

Okay. Sounds good. Thanks a lot.

Anthony J. Allott -- President and Chief Executive Officer

Thanks, Brian.

Operator

And next we'll go to Tyler Langton with JPMorgan.

Tyler Langton -- JPMorgan -- Analyst

Yes, good morning, thank you. Just had a question on freight. I guess, do you have a rough sense I guess on the impact of the higher freight rates in 2018 and then just what could happen this year?

Robert B. Lewis -- Executive Vice President and Chief Financial Officer

Sure. It's -- I don't know if we've given a specific number, but it's several million dollars of impact on freight in the year and some of that of course, that's what we talk, our customers talk more about it obviously. We are expecting some continuation of that. On a year-over-year comparative basis, we're not right now expecting freight to be a meaningful change in the cost structure.

Tyler Langton -- JPMorgan -- Analyst

Okay. Perfect. And then just on plastics, I guess with the volume growth you're expecting this year and sort of the ultimate target to get to sort of the 15% EBITDA margin, I guess can you give a sense or more line of sight on when you can get there and how confident you are in hitting that?

Adam J. Greenlee -- Executive Vice President and Chief Operating Officer

Sure, Tyler. It's Adam. Again, we continue to make really good progress toward getting into our goal of 15% EBITDA margins. We said in 2018 it will be a little bit lumpy as new business awards come in and the seasonality of the business. And I think we'll see more of that in 2019 as well. But our expectation is that we'll achieve the 15% EBITDA margin run rate at some point in 2019. Again, I will be careful to say that there will be some seasonality in the business, but there will be expect growth -- and we expect continued improved operational performance in the business and expect to achieve our target.

Tyler Langton -- JPMorgan -- Analyst

Great. Thank you so much.

Operator

And next we'll go to Arun Viswanathan with RBC Capital Markets.

Arun Viswanathan -- RBC Capital Markets -- Analyst

Hi guys, thanks for taking my question. I guess the first question I had was on the pre-buy. (inaudible) showed in certain areas where we've seen companies moved to remove that potential aspect? Is that something that you guys are considered? Is that something that your customers will be open to or receptive to? Maybe just give me your thoughts on that.

Adam J. Greenlee -- Executive Vice President and Chief Operating Officer

Yes, the answer is no. If we can source the materials for them and we have the material on hand, we're perfectly willing to let our customers enjoy the benefit of that. I think some of that goes really way back to the way Silgan thinks about our business model, which is really driving competitive value to our customers so our customers can win in the market. So if we -- if they've got a big inflation item coming and we can help them with that, we're going to do what we can to try to help them with it so that they can do well in our markets space.

And so, no, we're not trying to model ourselves away from that. Again, we don't lose in that exchange. We might lose -- there might be an opportunity cost where we can have most steel and get a benefit next year, but all-in is an opportunity cost, but we don't close in exchange. It's where (inaudible) that they are sending on it. So, that for us is in the right trade to make for our customers.

Arun Viswanathan -- RBC Capital Markets -- Analyst

Great. Thanks. And just another question, the metal container business overall longer term, you know, last couple of callers did discuss that there could be customers that always kind of take portfolio shifts (inaudible). So longer term, as you look at the metal container industry, I mean, what you think food can should grow at? Should we assume flat and embedded in there, I guess what's the growth rate for pet food and how large does that become as part of the portfolio? And similarly for soup and fruits and some of the deteriorating categories, how small can those really become and still be meaningful for fixed cost absorption with your system?

Anthony J. Allott -- President and Chief Executive Officer

Sure. A lot to that. I think what we have always said and we have (inaudible) our feeling that looking at flat is a reasonable answer, right? I can take flat to modest growth. I think (inaudible) flat to modest decline. I think either of those, so let's leave ourselves at kind of flat. I think the -- what happens over time from Silgan's perspective particularly is that the growth the pet food overcomes the rest of the decline. And so, as we've said before, I think the most obvious one is fruit which has been declining fairly steadily, we think that will continue but it's a very small, I think 4% of our portfolio today.

If you look at vegetable market, there has been some decline over time but a lot of the segment that vegetable had been in decline are getting quite small. So, the lion share of that market now is corn and tomato which are much more stable. And so, again, there we would see maybe a little bit decline but not significant. And then to your point, our thinking as well point is pet food, again, if you look at what's out there in terms of numbers of pets et cetera, something in that 3%, 4% seems very reasonable to us. I could be saying 5%. I think that would be a little aggressive over time, but I think the 3% to 4% makes a lot of sense to us.

Arun Viswanathan -- RBC Capital Markets -- Analyst

Okay. Thanks.

Anthony J. Allott -- President and Chief Executive Officer

Thank you.

Operator

And next we'll go to Edlain Rodriguez with UBS.

Edlain Rodriguez -- UBS -- Analyst

Thank you, good morning guys. One quick one. Last quarter you've talked about walking away from certain customers. Is that still the case or have customer losses come to an end?

Anthony J. Allott -- President and Chief Executive Officer

Good question. We certainly hope that they come to an end. Again, what we're trying to convey is not that we want to walk away from customers but rather that there are some business that the margin does not justify fighting it out. There is some excess capacity in the market space. So I believe our industry has made sense from time to time to do that. I think our feeling is we have done that and we don't really choose to do a lot more of that, that the market is at a reasonable spot right now.

We probably can't take some capacity out just in what's happening today. Again, so long as we understand what the run rate is for the customer we've been talking about. So -- and we're perfectly prepared to do that. We think that's the right thing for the market et cetera, but it would not be our expectation to be conceding a lot more volume in the market and that's really the way -- we have a big fixed cost structure like everybody else in the market. That doesn't work at a certain point. So, the (inaudible) is OK, but that's not our business strategy.

Edlain Rodriguez -- UBS -- Analyst

That makes sense. And in terms of the customer that is doing the inventory management, do you have a sense of how long that's going to go through or is it just, you know, you just have to wait and see what they do?

Anthony J. Allott -- President and Chief Executive Officer

Thank you for asking that question. I didn't fully answer it when I think George had asked it before. So on that customer, we're regular dialog with them. They have been quite public about what they're trying to do and they really described the inventory side of that as a two-year project and so this being the second year. So our feeling is that they -- a comment (ph) that we heard from them and just the just a scale of what they've done, we would tend to believe the inventories get down there pretty far. I think they chew at the same issue we do.

They have a heavy fixed cost structure and so I think walking away and portfolio management for them, this is my own opinion, it actually comes harder and harder because you got the overhead cost that sits there. And so it's our hope that they'll begin to say they're better off not containing any more ground and holding on to what they have and maybe even try to replan a little bit of that, but hope it's not a strategy. So we're going to wait and kind of see what they conclude on their own on that.

Edlain Rodriguez -- UBS -- Analyst

Good, thank you very much.

Operator

And next we'll go to Gab Hajde with Wells Fargo Securities.

Gabrial Hajde -- Wells Fargo Securities -- Analyst

Bob, real quick follow-up, if you could. It sounds like you broke out, the pension expense was $10 million headwind and a little bit more in the metal, food. Can you give us a breakdown on the other two segments?

Robert B. Lewis -- Executive Vice President and Chief Financial Officer

Yes, sure. The remaining $10 million is split pretty equally between the closures business and the plastics business.

Gabrial Hajde -- Wells Fargo Securities -- Analyst

Great. Thank you.

Operator

And that does conclude today's question-and-answer session. I'd now like to turn the call back over to Tony Allott for any additional comments or closing remarks.

Anthony J. Allott -- President and Chief Executive Officer

Great. Thank you, David, and thank your all for the call, and we look forward to talking to you about our first quarter 2019 late in April.

Operator

And that does conclude today's conference. We thank you for your participation. You may now disconnect.

Duration: 64 minutes

Call participants:

Kimberly I. Ulmer -- Vice President, Finance and Treasurer

Anthony J. Allott -- President and Chief Executive Officer

Robert B. Lewis -- Executive Vice President and Chief Financial Officer

Anthony Pettinari -- Citi -- Analyst

Scott Gaffner -- Barclays Capital -- Analyst

Mark Wilde -- Bank of Montreal -- Analyst

Adam J. Greenlee -- Executive Vice President and Chief Operating Officer

Chip Dillon -- Vertical Research Partners -- Analyst

Gabrial Hajde -- Wells Fargo Securities -- Analyst

Debbie Jones -- Deutsche Bank -- Analyst

Matt Krieger -- Baird -- Analyst

George Staphos -- Bank of America Merrill Lynch -- Analyst

Daniel Rizzo -- Jefferies -- Analyst

Adam Josephson -- KeyBanc Capital Markets -- Analyst

Brian Maguire -- Goldman Sachs -- Analyst

Tyler Langton -- JPMorgan -- Analyst

Arun Viswanathan -- RBC Capital Markets -- Analyst

Edlain Rodriguez -- UBS -- Analyst

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