Q1 2020 Earnings Call
Thank you for standing by this call is being recorded if you have any objections you may disconnect now the countries will begin momentarily until such time.
Thank you.
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Coding.
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I cycle.
Good morning, and welcome to Crown Holdings first quarter 2020 conference call. Your lines have been facing to listen only mode until the question answer session.
In place at this conference is being recorded I would now like to turn the call over to Mr., Thomas Kelly Senior Vice President and Chief Financial Officer.
We began.
Thank you Kathy and good morning, with me on todays call It Tim Donahue, President and Chief Executive Officer.
On this call as in the earnings release, we will be making a number of forward looking statements.
Actual results could vary materially from such statements.
Additional information concerning factors that could cause actual results to very is contained in the press release and in our SEC filings, including in our form 10-K for 2019 subsequent filings.
Earnings for the quarter were 65 cents per share compared to 77 cents in the prior year quarter.
Although earnings per share were $1.13 cents in the quarter versus one dollar in five cents in 2019.
Net sales in the quarter were flat versus prior year increase beverage can volumes were offset by $40 million of unfavorable currency translation.
In the pass through of lower raw material costs.
Segment income of $298 million in the quarter was below prior year as the global Tinplate businesses as expected.
Were negatively impacted by $34 million related to the carryover of higher price steel from the year end 2019 inventory.
[noise] at the ended the quarter the company had over $1.5 billion in liquidity between cash balances and borrowing capacity under its revolving credit facility.
The net leverage ratio of 4.5 times was well within the covenant requirement of 5.75 times.
As discussed in the release, we are withdrawing our previous financial guidance.
Respect to free cash flow, we do have some discretion with capital spending and certain other areas and our goal is a number approximating our original guidance of $600 million.
Although that is dependent on the duration of the social distancing measures.
With that I'll turn the call over to Tim.
Thank you Tom.
Good morning to everybody and thank you for joining us on todays call our best wishes for the health and safety go out to you and your families.
Before reviewing the operating segments I want to thank all of our fellow employees for their dedication during these driving trying times.
Your efforts ensures that our customers in the food beverage and transportation industries are able to deliver their products and services that are vital to our customers and ultimately consumers around the world.
To our factory employees day in day out manufacture the products that are so critical to the global food supply and transportation support systems.
Not only do we appreciate your skills and efforts you weren't inspiration to all of your fellow employees.
No when I first joined the company someone one said to me there was hard work and then there was work on it can line.
And any have you ever spent time in it can plant certainly understand that.
So when you take really hard work combined with the fear that many field during his pandemic accompany can only perform with great people and a crown we have great people.
The health and safety of our employees their families our customers and suppliers remain our primary concern.
In early February under the leadership of our Chief operating Officer, Jerry Gifford.
We established a corona virus now cobot 19 task force.
Many measures the task force implemented visitor and travel restrictions required pre entry temperature checks for all employees and visitors at each facility.
Developed social distancing and Sanitization processes.
Able to employees to work from home where possible.
And developed an action plan when the company becomes aware that an employee may have been exposed to exhibit symptoms of four has a confirmed diagnosis of the cold at 19 buyers.
Like many companies Crown is doing its park to ensure the supply of necessary equipment to help in the fight against the virus.
CMB engineering, our beverage can equipment business in the UK is participating in a British National Health service program to build ventilators needed in that country.
We have partnered with a ventilator manufacturer to help in the production of parts for portable ventilators with 350 units shipped already and an additional 5500 to follow.
Additionally, our transit packaging division has been utilizing its threed printing capabilities to provide critical ppt to first responders in Monterrey, Mexico and in multiple locations to employees throughout the company.
While first quarter performance was strong despite the initial pressures from social distancing measures.
The uncertainty surrounding the severity and duration of the virus precludes us from projecting financial results with any reasonable confidence.
Therefore, we have withdrawn our previously issued guidance for the year.
We will do our best to tell you what we see in each of the business is currently but the dynamic nature of the crisis makes it challenging beyond that.
Our primary points of focus remain ensuring employee safety meeting customer demand and ensuring adequate liquidity to operate and grow the company all of which we believe lead to enhance and sustained shareholder value.
We remind you that the pass through of lower raw material costs that is tinplate steel down mid single digits and deliberate aluminum down more than 10% from last year will offset unit volume growth on the revenue line.
Additionally, and as Tom just discussed first quarter segment income was negatively impacted by $34 million or 19 cents per share as we carried higher priced it tinplate inventories into 2020 from 19.
Turning to the segments in Americas beverage.
Overall unit volumes advanced 15% in the quarter with North America up 16%.
North American shipments accelerated in March and demand remains very strong in April we expect the North American market will remain sold out in 2020.
As previously discussed in the third line in Toronto began commercial shipments in late January while the startup of the third line and Nicole's is now delayed until early July in early June a result of the virus pandemic.
During the quarter, we announced in broke ground on a new state of the art beverage can facility in bowling Green, Kentucky.
Commercial startup scheduled for late Q2 2021.
In Brazil can sales were up 9% in the quarter.
However shipments were down 8% in the month of March and we expect April and the full second quarter to be well below that.
With rising unemployment and declining income is Brazilian consumers are reshaping their spending behavior and beer demand has softened considerably.
Beer consumption is a social activity and nowhere is this more prevalent in Brazil, where 70% of beer share your sales occur in the foodservice channel.
Our base scenario is for sharp demand contraction in Q2, followed by some improvement in the third and fourth quarters.
Unit volumes in European beverage increased 5% in the first quarter. Despite both can lines in the Seville plants being down for conversion.
Gains were realized across most operations in the quarter, Although we began to see a slowdown in demand in the month of March notably in Italy, Turkey in the UK situation. We expect will continue through the second quarter.
Sales unit volumes in European food were flat in the first quarter against a strong comparable 2019 first quarter with a month of March increasing 1% over the prior year.
While it's difficult to gauge the success of the annual food can campaign from first quarter demand.
We do expect demand to accelerate in the second quarter, all signs point to strong can demand for the full year as fillers look to replenish depleted field stocks.
First quarter segment income was impacted by $18 million of higher priced metal carried into 20 from 19.
Shipments in Asia Pacific advanced 3% in the quarter as 6% growth in southeast Asia, offset a 20% decline in China.
The new plant noncash, Thailand remains on schedule to begin commercial operations in the third quarter of this year.
In the month of March shipments in China were up 10% as that country began its initial recovery from cobot 19, while southeast Asian shipments declined 5%.
In the second quarter, we expect can demand in China to return to normal levels and remain so through it through the balance of the year.
However, we expect southeast Asia will be significantly below the prior year second quarter as the full impact of social distancing measures takes effect.
We do expect demand will gradually improves from second quarter lows in the third and fourth quarters, but still be below the prior year.
Sales and transit packaging declined 8% in the first quarter with a pass through of lower lower raw materials accounting for 2.5%.
Lower overall volumes, 3.5% and currency 2%.
Trends in the month of March were similar to the full quarter.
To date, the business has performed well with plastic strap and protective offsetting much of the volume decline in the equipment and tool businesses. We do expect lower demand from some of the industries, we serve for some period of time.
And we are taking actions to better align dark transit cost structure to the current situation.
Demand was from in the non reported Tinplate businesses with North American food shipments up 5% in the first quarter.
Outlook is for continued strong demand for the end of the year first quarter income in these businesses was impacted by 16 million of higher price Tinplate inventories carried over from 19.
Yes.
In summary.
It's going to be a challenging year for all this.
In addition to our people, we drive strength from our product and geographic diversity operating all but two of our 239 factories across 47 countries.
Crown has been a truly global company for more than 100 years of its near 130 year history surviving to World Wars during that time.
Desired someone say the other day, the only thing that has certain use uncertainty.
However, we continue to operate and deliver products to a central businesses generates significant cash.
And have a very manageable debt maturity profile and adequate liquidity to continue to execute our long term strategy.
And with that Cat, we're now ready to take questions.
Thank you.
Begin the question.
Thanks.
Yes.
Sorry.
Uh huh.
Hello.
Steven.
Your name.
Question.
Sorry.
One moment please.
First question is from.
Yeah.
Your line.
Good morning.
Sure everyone's noise.
Tim is it possible to quantify or estimate how much of your Bev cans, you think end up in on premise or foodservice channels, you talked about Brazil, just wondering if you had.
Lots on the global explode exposure and generally any comments on how you've seen on premise demand maybe translate to at home, especially North America, Yes. So I think I talked about Brazil, I think that to a lesser extent the same characteristics apply to countries like Mexico and the countries through.
Well Southeast Asia.
We will Oh, we will experience a demand slowdown from Mexican customers, but those cans can still be manufactured and we'll ship them into North America in the United States, just because the demand in the U.S. is so strong so we don't expect.
Significant.
And volume loss out of our Mexican facilities goes a move those to us as I did say in the prepared remarks.
We do expect demand in southeast Asia to be weaker in Q2.
Because of.
What you would describe similar as I described with Brazil foodservice channels.
All that being shutdown.
As you look at the European market.
The on premise market.
Restaurants hotels bars.
Typically glass and or fountain.
I think we're we're probably going to see a little bit a slowdown in Europe only because the pandemic.
Really exacerbated in several countries there so we will see some.
Some beverage cans slowdown in the European market.
For the most part in the United States anything it's on premise is fountain.
In the soft drink.
Scenario and then.
In a beer and spirits, mainly glass, but cans are beginning to make so much greater inroads as we've discussed before but.
The market exceptionally strong in the us across a number of.
Products as we've talked to you before and currently what we see right now is just an explosion.
In the carbonated and carbonated flavored water categories. So.
I think we fully expect North America remain oversold.
Through the balance of this year.
Okay, that's very helpful.
And then in transit you indicated March demand was similar to the full quarter. Just wondering if there was any early reads on April and then as you look across geographies in categories.
Are there any.
Segments that are holding up better within transit and others do you view the businesses sort of stable as it may be deteriorating into Twoq, you, which I guess would have been my expectation just any kind of further thoughts there yeah. So we're only two weeks in April so.
One of the.
The good fortune of going early is that we only have two weeks.
We have to explain to you the bad Fortune is we only have two weeks of knowledge. So we only have two weeks and knowledge.
So far in April I would say the trends in the first two weeks of April or similar to March in the first quarter. However, we do expect.
Some softening in the business the.
I think.
Asia Pacific, notably will be softer primarily because.
The business is largely a business operated out of India, and it's a largely a steel steel industry support business and that'll be that'll be certainly impacted.
The.
Other the other businesses are actually holding up quite well I'd say plastic strep.
Protective holding up extremely well.
You know a lot of that product is used for consumer.
Consumer companies, they're doing well as you know.
We will see steel strapped soften a little bit, especially in end markets like steel in autos white goods.
Lumber construction brick block things like that but.
Most of the other markets, we serve are doing well equipment in tools.
I expect equipment and tools to soften although for the first two weeks of of April is holding up well, but but make no doubt we expect a contraction in second quarter performance in Signode, although for the first two weeks, we haven't seen it yet.
Okay. That's helpful I'll turn it over.
Thank you.
Your next question.
Yes.
Okay.
Thanks, so much good morning, everybody.
Good morning.
Hey, Tim can you just give us some more color on European beverage I think you mentioned that couple of the country's Italy in UK word slower in March.
Give us some more context did you see an initial acceleration as the virus hit those countries and then you saw a decline after that in the month of March and if so.
Why wouldn't some of that occur in the U.S. as well that was basically a little bit behind for example, Italy.
The things going on.
Well I think I don't think there's I don't think.
We just real quick whether its beverage or food I don't think the level of pantry loading occurs in Europe as it does in the U.S. and for a number of reasons and a real simple reason.
They don't have the storage space to store the stuff like we do in the us they don't have garages, and big kitchens, and big Pantries like we do.
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I think that.
The impact of the virus.
In certain communities in Europe.
Is even more significant than let's say New York City. So certainly in the United States. The one community that's had a real challenge with the viruses in New York City, and maybe some others will will approach that but there are regions.
In Europe, whether it's in the.
In the Milan, Parma region of Italy or.
Around we all are Paris in the UK in certain spots and throughout Spain that are been particularly hard hit.
And I do think that.
One of the things we have done well in the us.
There is a social safety net that's been employed by by the Congress to help in many countries around the world you're not seeing this so.
I Ghansham up.
A policy of mass unemployment was never going to be good for for consumption right. So you should expect consumption to decline.
In most areas of the world, where you're going to CMS unemployment I think the.
The.
The difference in the United States with beverage cans as the market was oversold coming into the year and we don't see any let up in that market currently.
I expect.
Social distancing and shutdowns to to be in place for considerable period of time here.
And people still people still consume people still need to eat and drink and.
They'll they'll find different things to eat and drink, but the can works really well at home. So I don't I don't expect that the change in the us whereas in Europe.
Situations, a little different disposable income much different.
In parts of Europe and.
Most of US from America, we look at Europe, when we think about Europe, as London, Paris, Zorich Madrid, you get outside the big cities in Europe and into the rural areas of Europe people are are generally poor other than other than countries like Germany, and the Netherlands I mean, it's it's not the same level.
Well that we're accustomed to in the United States. So.
Unemployment really hits consumption quite hard in those areas.
Okay and then just for my second question back to the U.S. or they're just from a high level standpoint are there any big shifts that you're seeing that material.
Turning from CPG companies about narrowing down there sq use for example, delaying new products.
Is that impacting specialty versus the traditional beverage can sizes in terms of what you've seen so far thanks, so much.
Well I don't think we've seen a difference in sizes dancin, but what we've seen as a difference in labels and so if they.
If a large beverage can producer had a 40 different labels that we use generally run for them, we might be down to running for labels from them. So that we can get maximum output and they can get maximum output in the filling lines. So that's what we're saying.
And specialty cans versus traditional.
I think specialty in traditional we're seeing the same same general mix.
Thanks, so much.
Okay.
Next question.
Your line.
Hi, Good morning, Thanks for taking my question I wanted to start with Mexico and Justine.
I just kind of your understanding of what situation is there currently and then any challenges Jackson.
The the cancer the you asked for transporting them today.
So I initially they the Mexican government deemed fear a non essential non essential industry. It is they have reversed that.
There is a significant.
Overloading of product in the channel right now as the Mexican consumer.
Similar to the Brazilian consumer.
His strain financially and we'll look to buy food staples, like rice, and beans, and other products as opposed to beer and soft drinks.
And generally beer and soft drinks and it can or a little bit little bit more expensive to the consumer than.
Then returnable glass in markets like Mexico, Brazil and.
Other other markets like that so.
So we will start to see the Mexican beer production.
Begin to take up with the Mexican producers for Mexican.
Demand however, as we've explained to you.
And I think you've heard from others, a north American demand is exceptionally strong in.
Fortunately, it's not very difficult to get cans across the border.
Takes a little bit more little bit more time, right now, but we are able to produce the specifications that is the.
The labels in the internal anchors are are consistent from Mexico to to the United States. So were qualified from all our Mexican locations to our customers in the U.S. and were able to move cans readily from from Mexico into the us.
Okay. Thanks, and then my second question.
Just kind of focus on areas, where you are seeing a little bit of weakness there. Thank you Mike you might ask for some time like in Brazil.
Manager production schedules in this environment.
Continue to produce at the same level in case, you have any tobin risks at the facilities.
Laurie.
That being down in sooner rather than later in China.
President situation.
Yes, so let's be clear Debbie.
If I Didnt say it I thought I did say it.
Looking back at my notes now I thought I.
I didn't describe a little.
A little contraction in Brazil, I think I described it as a sharp contraction so lets make no mistake about it.
There is a severe.
Consumption decline in Brazil.
We are not making cans for the sake of making cans to absorb cost we are we're probably.
If we have nine can lines I think in Brazil, we might be running two over them right now we're not going to build inventory just for the sake of building inventory.
Fortunately, it's a low.
The summer this spring and summer months or a low season for us in Brazil. It begins to pick up again in Q3, but.
We will curtail operations.
We will utilize what we're allowed to utilize under Brazilian labor law to minimize our cost.
Employees will take vacation before there before they are temporarily laid off and then we'll look to bring them back.
In the summer or later months as demand picks up.
Okay. Thanks, that's helpful. Tim Miller.
Thank you.
Our next question.
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Thanks.
Okay.
Thanks, everyone. Good morning.
Thanks for all you're doing and everybody a crown is doing for Cogan Tim Tom.
I wanted to switch gears, a bit and talk a bit about transit packaging I think you mentioned.
I heard it correctly that you are taking some additional actions.
I guess my interpretation was.
To manage costs and margin relative to obviously the revenue uncertainties could you talk further about about that.
In a couple of follow ons.
So George I think you're aware because you attended the the show in Vegas last year, we have an ongoing.
Process.
To reduce cost.
Specifically.
In the gene a categories.
Looking at how we go to market across a number of industries in products.
And Weve.
Combined the management of the industrial but the protective in the industrial businesses under one platform as opposed to separate platforms.
So that's number one number two and thats been ongoing and we'll continue number two.
As we see.
Demand.
Soften, which we expect to see as I described earlier in certain of the end markets. We supply as you would expect.
We will.
Obviously furlough first temporarily employees and then.
We'll look to furlough were.
I have employees take vacation first before their furloughed.
To minimize cost.
You know.
It's not something you want to do.
But for the healthy end of the entire franchise, it's necessary and and that's what we're doing.
No of course, I guess and maybe you can't comment but is there way too.
Size what.
Shock absorber you have to earnings from these types of actions over the course of the year or is that still in determined at this juncture or at least not possible talk about on this kind of form.
Yeah, I prefer not to talk about it in this form but I think that.
I will say the following I think you know the concern that most people have with Signode is when they look back at the financial crisis.
Although eight nine and they look at the EBITDA contraction, we had in that period for the full year it was something like.
40% to 50%.
I don't think we're going to experience anything near that contraction level.
19 to 20 the business as we've described view as far different today than it was then however, there will be a significant contraction now is that 10, 10% 20%.
I don't know, but we'll see where it comes out so.
Okay.
And.
Just because you'd mentioned in the press release.
Could you comment at all on whereas the portfolio review stands.
From our vantage point.
Something like coals and then the recession were likely entering the probably make this somewhat less to less able to be pursued but any thoughts you had on that would be would be helpful. And then one last question.
Sure. So I think the review is ongoing.
You know, we we still have.
Everybody a corporate doing the work from home.
That they could do other there are things theres a lot of work that can be done behind the scenes whether or not.
We believe we're going to have a marketplace in which a process or several processes could be explored so that review is ongoing.
I think the.
The fortunate thing we talked about before.
We have businesses that require very little capital that generate a lot of cash flow in the market like this.
Cash flow is exceptionally important and we can talk about a lot of things in there to be a lot of companies to talk about of things.
We were fortunate we have cash flow, we have liquidity and we have a very stable capital structure.
And so we're going to run the business to protect the franchise and continue to grow the business, where we see opportunities and but behind the scenes we are doing work and.
And if and when.
Situation allows for.
You know the exploration of value for some of those businesses will be ready to two employee. The work we're doing currently in that in that environment.
Hey, Tim Thanks for that my my last one and I'll turn it over.
And if you mentioned that I missed it and I apologize can you comment on what the volume run rate for beverage cans is in Europe.
Entering April recognizing a lot can change.
And are you seeing any signs from your customers in Europe, or perhaps elsewhere that they care a little bit less about sustainability, an environment, where people are obviously worry more about paychecks and their own wellbeing. Thanks, and good luck in deepwater you asked about Europe George.
Europe, but and then more run rates in Europe, and the more broadly do customers and consumers care less about sustainability when they're worried about trying to get food on the table, yes. So I mean, you know for the.
The quarter, we were up double digits for the month of March we were up 2.5%, so and as I said we.
All contraction in several markets, Turkey, Italy, UK and I expect we'll see more in April I think April in the second quarter, we're going to be down.
When I look at our production numbers production numbers are probably down.
Because you're trying to match the demand, we're probably down on the order of 12%, 12% to 15% production and that's just a reflection of the demand that we're looking at not a reflection of.
Have a.
Government forced closures or absenteeism, we we have had.
In both food and beverage in Europe significant absenteeism in some of the factories, but that is beginning to subside.
And absenteeism on balances is starting to decline in approach more or historical levels right now.
So the factories.
Jerry and I.
We talk about this probably two or three times a day.
All things considered.
The factories are running phenomenally to the Workforces that we have globally are just doing a tremendous job in the face of of the fear they face so.
Actually we feel pretty good about that but this is this is demand issue and so demand is slowing.
Okay, I'll, let turn it over thank you thanks George.
Next question.
Your line.
Thanks, Good morning, guys.
I guess first question on cash flow and working capital I guess, one you look like a fairly typical season seasonal working capital build but obviously the sales outlook has changed a bit since the year started so can you maybe just help us with how we just thinking about the seasonal unwind that you'd expect this year obviously.
The fluid target.
But just in your base model, how you think about getting that cash back throughout the year.
So I think Tom talked it.
We're gonna do everything we can to stick to the original cash flow guidance. We gave you will it will really depend on the duration of these social distancing measures.
In order to bid on our base scenario, we we've extended what we believe the measures will be by the various governments around the world through much of the sell through much we're close to the end of the second quarter.
We are expecting some some easing of that in third quarter fourth quarter.
So clearly there is going to be.
As we've described to you note.
Demand shortfalls across the business globally in and largely across most of the international beverage can businesses.
With that you would expect EBIT to come down in the global beverage businesses and.
And cash flow to come down Accordingly, we believe strongly that we have within our discretion, whether it's in the Capex line.
Or in some of the various cost lines, the ability to offset much of that and so cash flow we feel comfortable.
That we can we can still generates significant cash flow this year and we'll see what the number actually is.
In terms of the seasonal build I think probably you're going to see a smaller build in Q2 and a smaller recovery in Q4, but.
Probably still comes out to.
One balance.
Pretty fair number by the end of the year.
Got it that's helpful. And then just returning to two Americas beverage, Tim I understand what you're saying about the cultural differences in consumption between regions and that's helpful. I guess with North American volumes up 16% I can't imagine people are sustainably drinking 15% more.
Beer soda or whatever so I guess, how do you think about pantry loading or pre buy or other factors like that.
So Mike just keep in mind, the first quarter is a smaller quarter much like the fourth quarter and so.
The percentage gains that will experience in the first and fourth quarter are going to be greater than the second and third and certainly greater than the full year, but I do think.
At some point last year or whether it was in October February describing a third and fourth quarters as we looked at it 2020, we we all but guaranteed you.
That we would have 10% growth this year and we knew where we felt comfortable that we would see growth like that because of the new capacity coming online in Toronto and in Nichols.
With a third line so.
I still I don't believe we're going to have 16 growth, 16% growth for the full year, but I think.
I think we're likely to see.
From U.S. manufactured cans.
Numbers close to that 10% I don't see any reason why we're not going to experienced that I do think the.
We'll have an outsize.
Proportion of the growth this year, just because it was a year, where we brought capacity on versus a year, where others brought capacity on and that kind of bounces around from year to year, depending on who brings on capacity but.
The market's going to be very firm I don't.
I don't think that people are consuming 16% more product, but what they're not consuming is fountain soda in restaurants.
And they're not they're not buying.
And and I do believe that when it's in the house it gets consumed.
So you know my children or home from school, everybody shortages or home from school everybody's in Allison.
One thing you know about children as they think nothing about going into the venture engraving, what they want when they want it so stuff is being consumed it I expect North America is going to be continue to be extremely robust throughout the balance of this year.
Got it okay. Thank you.
Thank you Mike.
Thank you your next question.
Our capital markets.
Great. Thanks for taking my question.
Good morning, and thanks for all you're doing as well I guess my first question was on that on the guidance.
Obviously, a lot of things are moving and changing right now, but if we were in a bucket it out into say.
Price cost volume and other and FX I would imagine that.
Volume is the main area of uncertainty.
Finally in Europe, and Asia Pacific because that is that right or beverage cans.
Well in Brazil right.
Right.
In Brazil, probably going to be the.
Brazil, and southeast Asia, or the or the hardest hit that we see you only because of the.
As we described earlier that the prevalence or the predominant nature of consumption of beer in those markets is in the foodservice channels.
So I would say currency what do we have in the.
In the first quarter currency was was a handful or $4 million on segment income and as we said last year, we expected that to be the impact of that to be largely muted compared to prior years.
We'll see we'll see how the dollars bounces around versus foreign currencies, but not a big thing price.
Price, we kind of lower prices were.
No as we enter the year, we're kind of we know our prices so the big Big moving factor compared to the early February conversation, we have with he was volume.
And.
I'm trying not to speculate because I don't like to talk about what we don't know we.
We tried to tell you.
Everything we know for the quarter the month of March and what we're seeing right now, but it's largely volume and.
North America is going to be exceptionally strong in beverage.
Food.
Globally, food and aerosol cans are going to hold up well metal vacuum closures for products like baby food adult nutritionals and in condiments going to hold up very well.
Some of the transit businesses will hold up very well some will will be week.
And then beverage in markets like Brazil.
Southeast Asia in some parts of Europe will be weaker and so but it but it's a volume ruin its volume right now thats the uncertainty.
And just from a kind of operational standpoint.
Do you expect to kind of.
And now it's maybe a larger cost reduction program or is.
They're kind of ongoing productivity that you target within your.
Every year or how should we think about that opportunity.
Well.
We're not expecting this to be a.
You know a an 18 month.
Problem at some point.
You know.
Social distancing measures are going to be east or lifted across many of these geographies and.
And.
We'll see the.
The global population, how willing they are to get back into restaurants bars and sporting events and.
And get become in close contact with with other human beings in the face of any fear. They may still have with rig with regard to this or any other virus in the future.
But at some point, we're going to get back to life normal life here and.
So the one thing we need to do is.
Be prepared to support our customer base globally as they go back to them those markets.
In full force to support consumer demand I will tell you that.
Manufacturing beverage cans is not a simple process you fell as a walk through beverage can plants and.
It is highly automated it looks highly automated you, but make no mistake. The fellows the work on those lines have real skills, whether it's on the front end or on the decorator.
And we are very hesitant to let those people go understanding that if you want to run a factory efficiently and have high productivity you need skilled workers and we appreciate our workers. They are very skilled we've invested a lot of time to train them and we're not about to let them go were.
So there are some things we can do but.
The equipment is in place.
And beyond that much of the much of what you're describing would be head count reduction and at something you can't afford to do in a business that requires high skills. So we will look to do as much as we can but we need to keep the people prepared and keep the factories maintained sanitized in prepared to support the customers.
The customers come back with their demand requirements.
Understood and then just on that point, though if you look longer term you guys have a lot of investments planned for this year next year.
Could you just elaborate I guess on your plans there.
Thank you know any delays or.
Changes to your tier expansion plans.
Regionally.
Any any any thoughts on that thanks, So I think I think the growth capital within the 600 million dollar capital number. We gave you previously the growth capital that was inside that we're going to continue to spend that growth capital.
We are delayed at Nichols on the third line only because of the pandemic.
Some of the OEM engineers and other technicians.
Either we're not able to get to the site as their countries or New York foot specific locked down is in place.
And we're working our way through that the conversion in Seville.
We were scheduled to.
To complete the conversion and bring both lines up from steel aluminum in early April.
That's also been delayed we probably don't get that done until sometime in early June as well and that's just a function of.
While the engineers returning to their home country and door.
Other engineers, not being able to get everything done without all the engineers that are there.
But we are we are full steam ahead.
On all the expansion projects, where where we have discretion beyond the expansion we will reduce capital.
This year on other discretionary items and some of those maybe cost reduction.
But that's just a function of we can always get the cost reduction next year, what we'll try to preserve cash this year and we can do that next year.
Thanks.
Thank you.
Yes.
From Mark.
Thank you.
Right.
Good morning, Tim Good morning, Tom Martin.
Tim is it possible put a little more.
A detail around the inventory headwinds and in Europe, and non reportable it seems like a larger amount.
And I can recall and then also whether there's any kind of carry over into the second quarter.
I think we I think I, probably said it was going to be about 20 cents, but back we had the fourth quarter call. It theres going to about 20 cents a turned out to be 19.
A little higher than we would've liked and a little higher than historically mark when when this has happened one way or the other up or down and that only because the the season in Europe was so poor last year and we came into the year with a lot more inventory.
This year with a lot more inventory from the prior than we otherwise would have.
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And I'd say most of its now gone.
Maybe there's a.
A couple of million dollars in European food bleeds into.
Second quarter, but no more than that.
Okay, and also just kind of staying with Europe I noticed there was about $9 million for.
Some restructuring in European food and I wondered what that involved in if there's more to come.
Mark It was in.
Focused on anyone particular areas some of that was in European food and some wasn't transit.
Arising from the restructuring that Tim talked about where we're putting the protective businesses in with the industrial now okay.
And then Tim it down in Mexico, you talked about sort of the ability to export kind of cancer, Mexico into us I wondered about the potential hit to the glass business down there.
Yes, great question, so glass will be certainly impacted.
Little bit more difficult to to move that much glass and so we have oh, we have one furnace and Chihuahua state, which is pretty close to the to the us border. The other facility is.
About two hours by by truck.
Rest of your accrues, so very difficult.
Not not very difficult as possible, but very expensive to to get glass from there to us and.
And certainly.
I wouldn't move in that direction unless it was required to the question and it's probably not required cans are.
Much easier to move in.
And the consumer.
Now consuming more at home than in bars and restaurants.
We'll use cans more than glass so.
I think we probably expect.
On the can side in Mexico will run the factories that.
I was to try to give you a number off the top my head.
Maybe productivity is 95% a budget in on the can side and on the glass side it might only be 70% of budget, but I do think that when the.
When the fillers come back up in Mexico, what will be largely skewed towards glass, only because glass and returnable.
Much cheaper to the consumer ultimately who is looking to preserve as much of their their cash on the home front as possible. So we'll see that come back a little quicker.
In Mexico, then can consumption in Mexico.
Okay last one I had was just Tom Kelly I Wonder if it's possible to get a sense in the Americas beverage about how much there was in terms of startup cost during the during first quarter and what we might expect during the second quarter.
Mark.
One of those things you know you have a depending on the business some of the businesses have real good quarter. Some of them don't in some of them have average quarters that business had a really good quarter. So it's.
Kind of one of those things we didn't go looking forward to be honest with you I don't have that right now.
Okay, Alright sounds good.
Good luck in the balance of the year, Tim Thank you Mark.
Thank you.
Yeah.
Tim and Tom Good morning.
Again I.
I Hope you hope you and your families are well and safe. Thank you knew as well.
Thanks, Tim just on back to volume for a moment. So I think you talked some about North America being up.
Call It tenish for the balance of the year, just given the capacity you're putting in and given how strong demand is in the U.S. in Canada can you give us any order of magnitude on the opposite side for Brazil, and South East Asia.
As you're looking at it for the appreciating that you're not giving guidance here and it's a fast moving situation and just related Lee My recollection is that southeast Asian, Brazil, Europe, two or your higher margin.
Regions in a world. So I'm, just wondering what kind of mix or margin impact your thinking there could be.
In the next quarter too as you have North America growing and that's obviously not.
Nearly the same margin level I assume that Brazil in southeast Asia are yeah, North America. The margin the margins are improving and we talked about this.
I'll answer your question I, just want to you're going to give me the opportunity to say something.
Sure.
We talked about this in.
In February.
In response, I think to somebody's question, maybe it was ghansham or somebody else.
We were not pleased with the.
With the margin profile in Europe, but where we saw demand in.
And a better margin profiles, such as North America were quite prepared now to make investments, where we have made investments in the past.
So the margins are improving in North America, but you are right.
That both Brazil, and southeast Asia, or some of the better margin businesses, we have globally.
I don't really want to give you I kind of have a number.
That I'm looking out here, but I don't have enough confidence in the number to give it to you in terms of of demand contraction, but it will be significant just just keep in mind it will be significant.
Now having said that.
We have a 50% interest in Brazil. So.
Whatever we lose at the segment income line, we cut in half and then.
The two big markets, we participate in southeast Asia, where we participate in a number of markets, but the two big markets for us or Vietnam in Cambodia.
And in both of those markets, we have significant minority partners as well so the.
The impact at segment income or EBITDA.
He is one number but then it's obviously muted at the net net income line and earnings per share line because of the the declining impact on minority interest so.
And then ultimately.
The cash that we pay and dividends to the minorities will be smaller next year only because the results. This year are expected to be smaller and those locations. So.
A significant impact and both of those areas, but but muted by the the fact that we share that with minority partners.
No I pre I totally get attempt to others, one on just to Q and appreciating that your visibility like everyone else is pretty limited, but when you think about segments that could be down year on year into Q are you thinking transit could is likely to be down. The most and then kind of where would you rank them European beverage.
Americas beverage because of the Brazil situation Asia Pac because in the southeast Asian situation and then.
Obviously transit packaging for it because of the industrial economy.
Any any sense of well I think I think.
European food and the non Reportables are.
Are likely to be flat to up.
I think the.
The beverage businesses.
Oh boy, if I had a rank them I think I think you could take Americas beverage because it's got Brazil in there.
Americas beverage Asia in transit or all down.
Similar numbers.
European beverage down a little bit less than Americas, beverage, but but I'm guessing here right now.
Yeah sure I totally understand I appreciate that one last one on the on the buyback in the quarter can you just talked about when you bought back shares and kind of what your thought process was and if you're if you're planning on doing anymore for the balance of the year.
Yeah, well right.
We.
Before I think we or anybody else.
Maybe you guys all understood it before we really understood the.
How deep this.
This pandemic was going to cause.
Concerns or contraction in demand, we thought we thought we might use the opportunity to buy some shares it at numbers that were.
A lot lower than when we believe where the share should trade we we.
I think we got the board authorized 250 million we did set.
Different levels at where we wanted to buy we the stock never got low enough other than I think we bought $50 million worth of stock at an average price of about $48. So.
But we're not going to be going back any more shares. This year I think the we in most other companies are going to look to preserve liquidity until we understand the duration of this pandemic.
Thanks, Tim It stay well you too.
Thank you.
Brian Maguire.
Yeah.
Okay.
Hi, good morning, guys.
Thanks for all the detail Tim you, even through a lot of different business cycle than a lot of different resection.
Just wondering if you can kind of.
You get some thoughts on how you see this line being airframe than in prior ones like all eight or nine or.
One or two or some of the ones in the early nineties and kind of related do you expect that the recovery from this level look any different than we would've seen in this recession than other as you think like coming out of this consumer behaviors might be permanently altered.
In the way that could be either positive or negative for beverage cans. So we can't.
Well, Brian I'd like to thank you for pointing out how old I am since I've been through all these cycles no seriously.
I think all eight or nine we look back at Oviedo, nine and certainly in the transient business and some of our other businesses. The recovery was V shaped it was pretty quick.
And that was a.
The financial crisis.
Where you guys with the banks took the brunt.
Because you were blamed for doing whatever whether that was right or wrong I don't think anybody's blaming anybody this time around this is something that's.
Nobody's faults kind of out of everybody's control.
So in regards to that we're kind of oil and this together this time as opposed to.
People wanting to pointer fingers at one industry.
It doesn't really answer your question does it.
90 91.
It was more of a U shape recovery took a couple of years.
2000 2001 was.
Whether it was a dotcom bubble burst and some other challenges over.
Overvalued assets.
Wouldnt certainly wasn't V shape, but it was.
It was a little bit longer than that.
With this one here.
I think when things come back it's going to be it's going to be uneven across businesses and across sectors. I think some some are going to bounce back quite rapidly and I think some are going to.
Some are going to take a little longer I do believe that for example, if we looked at our transit businesses.
That when things start to ease we're going to see country construction come back in a V shaped manner.
Only because nothing is being done now and there are things that need to be done from a maintenance standpoint.
And the unions need to get back to work.
But there are going to be other sectors that are going to be a little slower to recover I I really.
Well I'm, having a hard time, it's no consumer confidence.
This isn't consumer confidence and when they want to spend money. This is more more confidence and when they want are all get together and congregate and.
And socialize with each other whether that's a baseball game.
Whether that's at a bar or an NFL stadium that'll be something we're going to we're going to see.
Does the U.S. football fan want to get together with 60000 as Crazy friends drink in the park in Latin then go in high five each other and RUPS shoulders with each other and that'll be very telling but I don't.
I don't really have a good answer Brian I'm up.
Smart enough and.
Other than I do know that that there are a lot of people that are very concerned right now and some people are more concern than others. So I don't know I'm, sorry, I don't have the answer for you.
Yes, that's parents, it's definitely unprecedented sort of a time.
I guess one last question just related to the inventory question somebody asked earlier it seems like the first quarter January February even much at March.
We were running.
Allow the industry globally seem to be doing amazingly well with expectations for good volume growth this year and then.
In much of the world looks like we had a brick wall there towards the end of margin into April.
Yes, and the kind of production numbers, you're talking about for your own business anything else down significantly. So just wondering if you could assess what the channel inventory.
Look like in bed can specifically in weather.
Maybe people didnt have too much in the inventory.
In southeast Asia in Brazil, heading into this and so there.
Some inventory correction period needed in two key beyond just the actual level demand destruction down there.
As a matter of practice or our customers.
Don't keep.
Any.
Empty inventory.
Certainly they fill inventory and they try to get it out to the channels.
And have consumed as quick as possible.
I could tell you in North America, I went to a supermarket and I went to one of the one of the larger.
Multi.
Channel retailers yesterday and.
I was looking to buy some sparkling water and.
It was pretty sparse that's all I can tell you in both locations.
Which would tell me that.
There are having problems.
Keeping stores stopped in North America.
But but as we as we've said a few times on this call.
Beer, specifically the channels our stuff in Brazil.
Mexico Southeast Asia, the consumer the consumer and those in those markets is.
Whether they are concerned or they have no money or their conserving the money they have for things that are.
Certainly.
Let's just be Frank more important to them in terms of feeding their families and protecting their families. They're spending their money elsewhere right. Now so were and we're not we're not having as we said the.
Where they're not having the opportunity to congregate in social settings and consume as they have in the past so.
I would say that the channels, our full and Thats why the.
In large part the beer companies are have curtailed their production as they curtail production they don't they don't need packages.
And it makes sense I appreciate the color they say everyone. Thank you.
Thank you.
Okay.
Okay.
Good morning Gentleman, Tim Thanks for the well wishes and same crown in your family. Thank you.
One thing I wanted to ask about.
Articles talking about.
Migrant workers in their inability to cross borders and their importance and planting season.
For European food mentioned coming off of.
Core harvest.
Crop yields.
Two consecutive years and as I was just curious if you heard anything from your customers in that regard.
Terms of plantings.
Well gave I'm glad to see somebody else out there is reading like I am so.
What we've heard this from the customers.
So.
You know, we as the pandemic started to spread rapidly in late January early February throughout Europe, We we talked with a number of customers and asked them.
What they thought their requirements would be for the Q3 harvest and would they be planting more and their initial response was that.
I had two challenges.
A getting seed from the United States. They had already contracted for the seed that they thought they needed for the year.
And B.
Their ability to get workers to come into countries, like Spain, and France, where the virus was.
Initially extremely damaging.
Migrant workers, a either not being able to cross country lines or be not willing to come into countries like France, and Spain because of the virus. So I don't believe theyre going to plant any more than they initially.
They initially budgeted to plant so we're still going to affirm year.
We believe we're going to be up on last year, but it's not going to be it's not going to be a year, where they have the opportunity to.
Harvest, 10% more product than they thought they would because of.
Of of the reasons I just mentioned.
Alright. Thank you and then I guess, a similar question and North American food can you remind us because it's now and obviously non reportable your mix there because they were looking at Nielsen data that suggests investable sales up 100 plus percent.
But those are packed last year. So it doesn't necessarily benefiting this year I'm just curious on on the product mix or end market mix.
For your North American food can business.
Yes, so we're we're real big and vegetable soup and pet food.
Pet foods, an interesting one right people will feed their dog before their cap before they'll feed themselves. Its been very strong as have soups, I think vegetables or are up a little bit.
But.
I don't want to say, we're a third of third a third we're probably 40% vegetables.
25% pets and.
And that's mainly cats.
And soups fall.
All flowing very well and we expect will flow will continue to flow through the balance of the or the the balance of the products are fruits and some other dairies in some things like that but it's primarily the three end markets.
A little bit of fission little bit efficient North America, not as much as Europe.
Alright, Thank you Kim and one last one Tom I.
Thank you guys had interest expense to be roughly 330.
With move in interest rates.
It was lower than my model. This quarter is it something around 300, now with new rates or are you there.
Yes gave I think 300 in the ballpark with a lower rates and our working capital build hasn't been as large as it was last year. So that the debt balances are down a little as well.
Great. Thank you guys. Good luck. Thanks.
Our last question from your Kumar.
Your line.
Great. Thanks for taking my question.
Given the decline that we've seen in oil prices, how would you to cost economic so you keep us in aluminum cans currently.
And in General do you expect to current environment, perhaps the rate endeavor, each having decisions by customers just what substrate steel aluminum.
Well I think certainly the decline in oil.
Over the medium term will benefit the cost competitiveness of the PG package versus cans.
Having said that so.
Specifically in North America as the consumer.
Stays at home longer.
Is consuming more at home.
And remains concerned with.
The likelihood or the possibility.
That the shelter in place.
Orders will remain in effect for some period of time.
We believe they're going to continue to load up on cans because can store better.
And maintain the integrity of the product inside much better for a duration of time that appeal to bottle, which.
Which.
Gas leaks, and then leaks out so.
I don't I don't think anybody right now is making decisions long term on sustainability.
Because of the virus.
Well I think we're all our first our first item of businesses too is to ensure and maintain the health and safety of our of our employees and the customers and the consumers that we deliver product too.
So it's probably more along the social lines in the environmental line I think that.
We will have the will continue to have the discussion we believe as you've heard us another say that the can is by far the.
The most environmentally sustainable product out there and I'm, but I think right now its.
It's all hands on deck.
For for the can manufacturers and the manufacturers of P.T. and other plastic products, whether they'd be in food or.
Or other consumer staples to support.
There are customers and ultimately the retailers and consumers around the world.
Great. That's that's helpful context, and then just one other question in terms of some of the new capacity or beverage cans, you're bringing on.
This higher customer commitments are structured in terms of volumes is there any take or pay arrangements that you had in place.
Something we're not going to talk about on this call.
Thank you.
Thank you.
Okay, I think cast that that ends at so thank you very much that will conclude the call today, we will speak with you again in July thanks for joining us.
Today's conference.
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