Q1 2020 Earnings Call
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Please standby the conference will begin momentarily we thank you for your patience and I thought you. Please remain on the line.
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During the presentation, all participants will be in listen only mode.
The words, we will conduct a question and answer session.
At that time, if you have a question. Please press the one followed by the floor on your telephone.
If at any time during the conference you need to reach an operator, Please press star zero.
As a reminder, this conference is being recorded Thursday may 7th 2020.
I'd now like to turn the conference over to John Hayes CEO of Ball Corporation. Please go ahead.
Thank you read up and good morning, everyone. This is Paul Separations conference call regarding the company's first quarter 2020 results.
The information provided during this call will contain forward looking statements actual results or outcomes may differ materially from those that maybe expressed or implied.
Factors that could cause the results or outcomes that differ or in the company's latest 10-K, and another company FCC filings as well as company news releases. If you don't already have our first quarter earnings release, it's available on our website at <unk> Dot com information regarding the use of non-GAAP financial measures may also be found.
The notes section of todays earnings release.
The release also includes a table summarizing business consolidation and other activities as well as a reconciliation of comparable operating earnings and diluted earnings per share calculations. In addition, the press release financials include descriptions of new segment reporting for our AMEA and other non reportable segments.
We all know krona virus has had a profound impact upon the global business environment countries around the world. They should stay at home orders and instructed nonessential businesses to temporarily close Walt provides key aluminum packaging products and services, the consumer beverage household and pharmaceutical markets as well as ever.
Based technologies and services to the U.S. government.
Consequentially the operations, a ball and it up its principal customers and suppliers have been designated as a central businesses across our key markets. This designation a lot ball to continue to operate its manufacturing facilities without significant disruption throughout the first quarter 2020.
Well its humbled by our ability to operate in this environment throughout or 140 year history, we have relied on our people our culture and our businesses resiliency to navigate in tough times, while also envisioning and investing in a brighter future and that is what we're doing.
I would like to personally thank our frontline employees as well as those man in the front lines of our suppliers and customers their dedication to working safely while delivering the necessary goods and services have been critical in our support of our communities across the globe and it's played a large role in serving the critical missions and programs to your.
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On behalf of our entire company, we extend our heartfelt thanks to the global health care community as well as dedicated professionals and volunteers, providing social services to those in the.
At ball no matter, what their circumstances, we always strive to do well, while while also doing good at the onset of the crisis, we sought to do ARCC part by providing hospitals and agencies with donations of mass and protective gowns draw aerospace operations can drinking water from our global beverage operation.
Funds and aluminum cylinders used for the construction of ventilators from our global aluminum aerosol business.
In addition, we stepped up our support for the Red Cross Red Crescent Society and of empowered our local employees to dedicate an additional $5 million to those critical areas in the communities in which we operate so that we can continue to be an active part of our communities that have been impacted by the cobot 19.
Crisis I'm happy to share that at the same time, we were able to execute our strategy continue investing in the future maintain our dividend and consistently return value to shareholders.
Undoubtedly there will be effects on our business from Cobot 19, and we'll continue to manage our company appropriately to ensure employee safety support of our customers and ample liquidity for our company.
We're controlling the things that we can control and ball is well positioned for the near and long term.
Joining me on the call today, or Scott Morrison, our senior Vice President and CFO as well as Dan Fisher, Our senior Vice President and Chief operating Officer Global beverage I'll provide some introductory remarks, Dan will discuss the global back beverage packaging performance and trends Scott will discuss key financial metrics and then we will finish up with.
Comments on our aerosol and aerospace businesses as well as our outlook for the company.
First quarter results were strong in mid March we were able to transition effectively our nonmanufacturing employees to working remotely due to global collaboration across all righty HR operations corporate and global business services teams first quarter comparable diluted earnings per share increased 24 per.
Percent and comparable operating earnings for the Corporation were up 12% with global beverage packaging operation earnings up 5% and aerospace operating earnings up 33% year over year. The company continues to operate with ample liquidity, including 800 million in cash on hand at the end of the quarter five one.
Hundred 50 million and committed lines available and another 500 million uncommitted lines. This in addition to our strong annual cash flow allow us to execute our strategy and stay on track with multiple growth projects during the quarter global beverage volumes were up 4% our aerospace whatnot.
Book backlog increased 14% and we announced our intent to acquire an aluminum aerosol manufacturing facility in Brazil.
As we reflect on year to date 2020 performance in the long term resiliency of our company our team as well equipped.
Operationally and organizationally to navigate the current environment and deliver growth and value creation for our shareholders.
And the core tenets of our culture had never been clear we know who we are we know where we're going and we know what's important.
Our strategy of investing in the growth opportunities across our various business remain intact and while the short term visibilities strained due to the virus and its near term impact on the various economies are long term outlook has not changed in good times in bad consumer demand for our packaging products as always.
These remain resilient in the needs for intelligence surveillance and reconnaissance for our government customers has never been stronger.
Dan It's Scott will discuss the current state of or end markets and the opportunities and risks as we see in the near term, including dislocations today.
Due to the volatility of regions and businesses, we will limit our comments to facts as they exist today Ford be both imprudent and unwise to prognosticate or extrapolate the near future with any degree of precision.
Key highlights for the first quarter include.
Overall global beverage volume grew 4% North America was up 4% due to a linked quarter surge and at home consumption and would've been up even higher if not for the very tight supply conditions in North America that we have discussed previously.
European volumes were up 5% and were up 8%. After the first two months with March being down meaningfully in southern Europe, and the Nordic countries, South American volumes were up 1% and were up mid single digits. After the first two months with March being significantly down, particularly in Brazil in Paraguay.
And we'll give more color around these trends from the trends we've been seeing in April in his remarks.
Our aerospace business continues to execute well and was up over 30% in operating earnings we continue to win work and believe that despite the current environment. Most if not all of our short and long term goals in this business for 2020 and beyond remain intact.
Our aluminum aerosol business was relatively flat for the quarter. After experiencing similar trends that are beverage can business experience and we announced our intent to acquire an aluminum aerosol manufacturing plant from two backs in Brazil, We expect this transaction to close in the third quarter.
Construction and hiring for our first dedicated aluminum cups manufacturing facility remains on track. Despite the current turtle curtailments of all major sports and entertainment venues. Our outlook for 2020 continues to be strong with letters of intent executed for next year actually ahead of our plans and we've also.
Use this time to accelerate our retail go to market strategy for 2021 and beyond.
In summary, we had a strong first quarter that would have even been much stronger if krona head not hit us our second quarter like most companies will be soft, particularly in South America and to a lesser extent in Europe.
We believe at this time that the overall strength of our remaining businesses will allow us to grow operating earnings over the year, and obviously will be dependent upon the overall impact of the virus and the timing of the opening of our economies in the second half. This year. Thank you to all of our colleagues here at all for caring for one another.
Your dedication in the face of circumstances, we cannot control and your hard work to support our customers our communities in the global economies, where we operate is truly inspiring.
We extend our well wishes to all of you listening and for your continued safety and good health and with that I'll turn it over to Dan.
Thanks, John and I Echo those sentiments and an addition to thanking our amazing manufacturing teams I also want to thank our customers.
Suppliers and logistics providers for their collaboration to maintain our industry's ability to serve consumer demand.
Last and certainly not least I have to applaud, both our HR leadership, and our environmental health and safety professionals. This is an unprecedented time and they have not missed a beat and helping to keep our ball family safe.
Earlier this year during our previous call I set the stage for 2020 and beyond.
My comments focused on demand growth Stillwater shifting to cans, new customer contracts in North America, our ability to serve market growth in advance of new capacity additions.
Hiring and training to serve growth.
Operational excellence aluminum supply new product introductions, and our sustainable progress since its sustainability progress to position ball as a partner of choice.
Those near term external forces have focus additional time and energy to adapt to new safety protocols. Our teams desire to execute on each of these important initiatives has not wavered, we recently announced approval of our science based targets to reduce our carbon emissions as well as those of our value chain and all.
Also achieved ESI certification across our European operations, both industry firsts and vitally important to position to positioning ball in our packages.
As a partner of choice for sustainability.
Today My goal is to provide as much information and transparency into our near term operating environment as possible, while encouraging all of you to focus on our long term plans and prospects for growth.
Which even under the current environment, we feel strongly that aluminum packaging will continue to benefit from the sustainability Tailwinds, we benefited from entering the pandemic.
Across our global operations, our teams have been nimble and collaborative from the onset of the pandemic daily calls with management Global Presidents supply chain sales operations HR and corporate support teams have kept everyone informed supported and aligned with local and regional mandates and focused.
On the best outcomes possible for our colleagues and our customers from a safety and business continuity perspective.
Across our supply chain, we have supported one another shared best practices when necessary align procedures for managing brief periods of downtime when a customer supplier or ball have experienced coded cases in our operations.
We're thankful that our employees impacted by the virus or on the men or back at work following their recovery.
Today, we continue to manage sporadic operational disruptions as well as tremendous growth complexity and incredibly tight supply demand conditions, particularly in North America.
Consumer behavior varies by region.
In North America consumers are able to access multiple shopping channels.
Backup and store both packages of our product.
This led to a short term surge in beverage can demand as those occasions that occurred and the on premise and convenience channels shifted to the at home or off premise channels. While this trend has diminished somewhat in April we generally expect higher than anticipated volumes to continue until such time. The on premise begins to open up.
The biggest challenge for us will be supplying such demand until we can get our additional capacity online.
The additional challenge we face is that the volume is coming largely from more traditional packs for home consumption and that has not been the focus of our capacity adds in the short term.
In Europe volume remained relatively normal throughout the quarter save for southern Europe, including Turkey were relatively more beverage containers are consumed on premise and on the go than in other regions due largely to the tourism trade and the Nordics, where the usual cross border transactions were curtailed due to travel.
Restrictions in April we are seeing those trends continue and we're turning our attention to what consumption patterns might be impacted further in Russia.
Where areas like Moscow had been quarantine far later than most of Europe.
In South America, we saw seasonally strong demand through early March across the region, followed by a significant slowdown in Brazil in Paraguay to give context, we saw an approximate 60% decrease in can shipments in Brazil in the last two weeks of March alone.
Due to the temporary closing of many of the smaller grocery channel source gas stations and convenience stores, where over 60% of beverage cans are purchased.
In April those trends continued although over the past two weeks, we have seen an improvement closer to an approximate 20% to 30% decline as some of these stores have reopened.
Chile, and Argentina have been much more resilient given that nearly 85% of cans are purchased for the off trade.
From a segment operating performance perspective.
Balls, North American segment earnings were up 24%.
Favourably negotiated customer contracts operational improvements across the network and volume growth benefited the quarter and were partially offset by hiring costs associated with new manufacturing lines ramping up in the second half 2020 and mix associated with certain can sizes. So through the convenience store channel.
As previously announced line additions in our existing Rome, Georgia, and Fort worth, Texas beverage can manufacturing facilities as well as our new two lines specialty beverage came plant in Glendale, Arizona are on track to come online in the second half of 2020 in the first quarter of 2021.
Respectively.
As of today, we're still moving forward with our plans in the northeast with an expected startup in the second half of 2021.
Despite C store traffic slowdown in April which is limited growth in the energy drink category and higher costs associated with the pandemic to support self isolation protocols when needed I fully expect strong at home consumption trends across most categories and earnings momentum across North America.
In 2020 and beyond.
And our EMEA segment, despite the negative demand trends, resulting from the pandemic in Italy, Spain, and France, we were able to operate our facilities nearly continuously across the segment during the quarter.
We thank our colleagues across Europe for their dedication and ability to support 5% volume growth during the quarter, while managing various country mandates are volumes remained strong in Russia. The UK in Egypt, while we saw upper single digit declines in southern Europe, the Nordics and Turkey.
First quarter EMEA segment earnings were down slightly.
Due to 2 million of Euro earnings translation headwinds.
Higher freight and warehousing costs due to sales demand shifts by region and intermittent line downtime late in the quarter and absorption associated with integrating the Turkish and Egyptian operations into this segment.
We remain focused on long term growth opportunities and are leveraging the segments plant network to add lines through our existing facilities in preparation for our customers installation of additional can filling lines.
Due to recent travel restrictions between European countries certain projects have shifted to the right slightly and will not impact our near term customer commitments.
Historical quarterly comparisons for our EMEA SEC deep.
For our EMEA and other non reportable segments have been adjusted accordingly to reflect the company's existing facilities in Cairo, Egypt, and Minnesota, Turkey being consolidated into the EMEA segment and out of other non reportable.
Turning to our Southern American segment.
First quarter earnings were down slightly driven by regional customer mix.
And the abrupt contraction in Brazilian demand in late March.
Paul is the largest producer of beverage cans in South America with nine plants in Brazil, and one each in Chile, Argentina in Paraguay.
Even with our plants in Chile, Paraguay, and Argentina, continuing to operate we expect our second quarter, South American segment operating earnings to be down meaningful year over year.
It is important to note that this is a seasonally slower quarter and our team is staying close to our customers and managing our assets and cost appropriately to ensure the best outcome.
As we look forward Brazilian consumers are beginning to see gas stations and convenience stores reopen near their homes and we will closely monitor their ability to make purchases.
The company's man Maher Indian and Saudi beverage can manufacturing results continue to be reported and other non reportable.
The plants continue to operate and were similarly impacted by intermittent downtime in late March in early April. In addition, other includes a 20 million PNM investment to stand up our aluminum Cup business.
In summary, global beverage can demand momentum continues in the majority of regions, where we operate our teams are actively hiring to support our anticipated growth in North America and are focused on maintaining and supporting our skilled labor base across our other operating regions.
Thank you again to all of our teams around the globe and with that I'll turn it over to Scott.
Thanks, Dan comparable first quarter 2020 diluted earnings per share were 61 cents versus 49 cents in 29.
Dan commented on the other non reportable segment changes in the quarter. Please note that other includes aluminum aerosol operating earnings and results from our beverage can't plants in Myanmar, India in Saudi Arabia, offset by undistributed corporate costs and investments to stand up our new aluminum cost business.
Details are provided in the notes section of todays earnings release and additional information will also be provided in our 10-Q.
First quarter comparable diluted earnings per share reflect solid global aluminum beverage and aerosol shipments strong aerospace performance lower share count and lower corporate costs offset by foreign exchange headwinds at a slightly higher effective tax rate.
The pass through of lower cost aluminum and the 2019 sale of the Argentine steel aerosol business and Chinese beverage can assets revenues for the first quarter were flat, despite global beverage and growth of 4% and higher aerospace revenues.
Well its balance sheet is healthy that has been termed out at low rates, we have no debt maturities until 2022, our credit agreements grotto 2024, and we are focused near term maintaining ample liquidity and flexibility in the current environment.
Year to date, we experienced our seasonal working capital build which was more sizable than typical due largely to the timing of metal payments in the first quarter, given our ongoing growth initiatives somewhat longer raw material supply chain to support them. We anticipate the full year 2020, working capital investment to be a use of cash in the range of 200.
75 million.
As we look to the remainder of 2020 here are some additional key metrics to keep in mind.
Our full year effective tax rate on comparable earnings will be in the range of 20%.
For your interest expense will be in the range of $280 million and full year corporate undistributed costs recorded in other non reportable are now expected to be in the range of $65 million are 2020 cash from operations will continue to be strong we will be investing in working capital and growth capex to expand aero space facilities.
Average can't production capacity in North America, while also completing construction on our first aluminum cups manufacturing facilities.
At this point, we may approach for year 2020, capex of $800 million, given the near term challenging business conditions in Brazil, and the investment in working capital I mentioned above we now expect 2020 free cash flow in the range of $500 million.
Paul has always been focused on being good stewards of our cash and prudently balancing real time conditions with consistent return value to our shareholders given our strong cash flow, we're maintaining our quarterly dividends just as we have done since becoming a public company in 1972 like always we will focus on managing the business appropriately for the long term.
Invested capital with an eye on EPA returns managing our balance sheet effectively and consistently returning value to our long term shareholders with that I'll turn it back to you just great. Thanks, Scott our aluminum aerosol business saw global volumes up 2% in the quarter driven primarily by strong double digit demand in North America in India.
Which offset mid single digit declines in Europe with the vast majority of aluminum aerosol package packaging consumption tied to at home personal care and health.
Our aluminum aerosol team has been busy supporting personal care and pharmaceutical packaging needs, while our plants remain busy throughout the quarter. We do expect a few regional fillers to expect experience intermittent downtime during the second quarter that could affect us.
Looking ahead, we are excited to expand our aluminum aerosol business is geographic reach into South America and expect the acquisition of two vexed facility to close in the third quarter.
In addition, our new innovative infinity bottle continues to attract interest from customers looking for sustainable Rick Closable and reuse will solution for personal care products, including shampoos and lotions, we look forward to growing this global business and improving performance in 2020 and beyond.
Our aerospace business reported approximately 33% revenue and operating earnings growth, resulting from solid contract performance similar to our global packaging business. Our aerospace business has been deemed an essential business supporting our national Security defense and other services. The team has done an outstanding job of transitioning the mature.
We already have colleagues to working remotely organizing program teams and shifts in completing key project milestones remotely. In addition, during the first quarter. The aerospace business total contracted backlog was 2.3 billion or whatnot book backlog increased 14% and our head count increased by over two.
250 employees.
With over 50% of our aerospace employees new to ball since 2018, we continue to be impressed by their seamless immersion into the ball culture their ability to execute and take on exciting work is appreciated and this business. We continue to enhance our infrastructure buildout testing and manufacturing facilities in 2020.
And ensure all projects are on track and on budget.
We continue to win new work in current indications reflect that our aerospace business will be able to grow profitability in excess of 15% per year over the next several years given the scale and type of recent contract awards, what we in rest of world are experiencing short term dislocation our long term prospects remain bright and we.
We're focused on bridging the short term dislocation with the long term opportunities.
Well continues to be uniquely positioned to lead and invest in sustainable growth and global aluminum packaging and aerospace while delivering significant value for shareholders.
Beyond 2020, we look forward to driving our business to deliver long term diluted earnings per share growth of at least 10% to 15% and achieve our uva dollars growth of 4% to 8% per year on our growing invested capital base. This has not changed.
Especially during these times, we're thankful for our success is today and the opportunities of the future. We will continue to responsibly invest and do is best what is best for all our employees our customers our communities and our shareholders long term success and with that Rita we're ready for questions.
Thank you if you would like to register a question. Please press the one followed by the floor on your telephone.
You will hear with me, Tom Kroll to acknowledge your request.
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Our first question comes from the line of Neel Kumar from Morgan Stanley. Please proceed with your question.
Hi, this is actually might be sitting in for Neil.
Thank you for the details.
Just could you maybe address what gives you confidence in late 2020 rebound in Brazil, just based on past recessions and weaker macro environments have you seen more sensitivity from Brazil, and consumers in terms of demand and consumption habits.
Yes I appreciate.
The question.
Larry to prognosticate on what exactly is going to happen in the.
Second half of the year, but consistent with my comments in the script.
We have seen.
Channels opening back up over the last couple of weeks.
Yes.
The.
The market was off at least in our business somewhere in the neighborhood of 60% year on year and as we sit here today, it's running closer to 20% off year on year.
Lot of that candidly is slowly, but surely depending on city by city state by state in Brazil. Some of these channels are opening up and as soon as they've opened up our.
Our customers most of the Brewers have have started to fill them.
And we're paying very close attention to that but.
Brazil is not up under operating as a homogenous marketplaces.
It's still quite scattered and.
We've really got to see this continue to take root hopefully builds momentum before we can say with any level of certainty that.
We can gauge the second half of the year that being said.
Some positive signs are over the last couple of weeks.
Okay. That's helpful. And then just one follow up I guess.
Are you seeing any impact from the pandemic in Mexico, I think you mentioned that 10% of segment volumes.
Bill accurate and any claim on sending any cans from Mexico into North America, sometimes sport the growth environment.
Yes. Good question, we're not.
We didnt comments on.
Any declines.
And largely because our Mexican manufacturing does go north.
The beer percentage has slowed.
The end of March early April just because of some of the laws that put in place by the Mexican government there.
But as you.
Indicated in your comment.
North America, we started the year in and Oversold environment, we're still in an oversold environment and so some of the declines in the beer production have really opened up an opportunity for us to candidly run more CSD and ship that north and so those plants are helpful. They're running full.
They are running different mix different label skew than we anticipated at the beginning of the year, but we're absolutely using that as an opportunity to.
Keep buck hands on the shelves.
In North America right now.
Okay. That's helpful. Thank you.
Thank you.
Our next question comes from the line of Anthony Pettinari from Citi. Please proceed with your question.
Hi, This is actually Brian burglars sitting in for Anthony.
What was the total impact of the onetime costs in EMEA, such as spree warehousing and integration and do you expect any of those costs to carry into the second quarter.
In EMEA, yes.
Cost of the first quarter, probably we're not that great. I mean, we had some intermittent downtime.
With some flat, but maybe $5 million.
I think the second quarters will fill more of the impact in EMEA.
Obviously in South America.
And then hopefully things.
Get back to some normalization more in the third quarter, but I think I think the impact in the second quarter, we created.
Yes, we were a much like I would say in every one of our major regions. The first eight to 10 weeks of the year.
We were growing in excess of what we thought heading into the year and some of that contributed to the.
The typical out of pattern freight not having cans in the right locations in Europe.
Given given the pullback in demand I can't foresee a lot of those cost.
Showing up specifically in the second quarter as we sit here today.
Great. Thanks, that's helpful and.
As a follow up just considering the economic conditions right now can you summarized the financial health and some of your.
Smaller craft beer customers and do you think it's possible that working capital could be impacted if those customers perform worse than they had anticipated.
Yes, Thats something were watching very closely obviously, we have a lot of crafter customers a lot of that really small ones. They are actually kind of cash in advance. So from a credit exposure perspective, there really isn't that much credit exposure and we're working with some of the other larger ones that to be honest are looking at this is an opportunity to grow.
Their footprint and so we're working selectively with our customers to help in situations, where they think that can grow their business and.
And be supportive of that.
Great. Thanks, I'll turn it over.
Yes.
Thank you.
Next question comes from the line of Ghansham Panjabi from Baird. Please proceed with your question.
Hey, guys. Good morning, and hope everybody is doing well.
Thanks.
Yes.
I guess back to Brazil, I mean, the region has seen tolerate growth for many quarters now.
This pandemic amended obviously led to an abrupt slowdown how much of the 60% decline in the back half of March you think came from inventory Destocking along the supply chain I mean, your customers are big Unlevered also.
Tsum started to focus on cash aggressively and what's an appropriate decremental margins use for the South America region for Twoq, you and maybe just comment on the same thing for Europe as well.
Yes launch of this is John what I'd try and take that you know in the second half it was such an abrupt slowdown, but it really was the as Dan mentioned the closure of a lot of these channels, where the products were sold.
Obviously win and then that has a ripple effect because inventories that start to build for our customers that already had we're growing beer for example, and other things like that you as we go.
And talk about second quarter I'm hesitant to two throughout any numbers because thats just improving.
We started the beginning of April as Dan said off 60% in its improved so the trend line is improving we will be down meaningfully.
In the second quarter, but let's not forget about the longer term prospects here and we do expect the world to open up a little bit more in the second half and even in Brazil, and as we go into 2021 and beyond as we sit here today I don't think fundamentally much has changed so thats why in my prepared comments, we talked about this is really a bridge.
From the short term dislocation that the world is facing to long term opportunities that still remain on our plate.
Okay and then just for my second question.
I guess on working cap on free cash flow. So basically last quarter, you said 600 million free cash flow now, you're saying 500, and the Delta really seems to be working capital. So does that imply that you based expectations for the full year more or less in fact, I mean, obviously there is variability across the regions, but is that a fair statement.
Well, there's a lot of moving pieces that free cash flow. So.
Let's talk about the working capital side first we had a larger than typical build in the first quarter. Most of that has do with the timing of metal payments. In Q1 is we've built up additional inventory in metal in Q3 in Q4 to support the growth really in North America and that.
As I've mentioned before we've got a longer supply chain.
We used to have.
So when we paid for that Battle in first first quarter that was a big impacts. We've also at several instances globally, a VAT taxes being held up by various governments around the world that are essentially shutdowns. We've got about 100 million build and VAT taxes that were waiting to receive which is just a timing issue.
And then.
As we go through the year.
With the growth of our business, we see a use of working capital of about 275 and I think in the first are the year end call I said it would be about 150, so little bit larger than I thought at the beginning of the year.
And from a free cash flow is that what we still think we can.
Got to around 800 million of Capex.
And that we found some other things that we think will be positive from a free cash flow standpoint. It goes back to that 500 million of free cash flow.
Got you on this is John the only thing I'd add is when I think from free cash on I think from an operating as earnings perspective, virtually every segment, we have saved for South America.
Is largely on track Europe, maybe a little bit softer than we thought three months ago, but South America will be softer and just how much. We don't know right now and obviously those earnings kind of translated in the free cash flow as well.
Terrific. Thanks, so much.
Thank you. Our next question comes from the line of George Staphos with Bank of America. Please proceed with your question.
Hi, everyone. Good morning.
Thanks for the details I hope, you're well and thanks for all you're doing with Covidien.
Well I wanted to hit a bit of a longer term question and John you mentioned that you.
Obviously, we remain confident.
And the longer term picture for ball Corp. When we've seen significant disruption from from an economic standpoint.
I think cobot would would stand up to that test.
Sometimes not always you'll see changes in consumer behavior changes in consumer purchasing patterns.
I don't know if you have any data on this what makes you comfortable that cans will continue to grow at the rate they've been growing that sort of value the consumer will be the same and.
Specifically in some of the non North American markets, where you have more competition from.
Returnable glass, what makes you comfortable that returnable glass at least for period Wouldnt show up in a larger way.
And consumer pantries versus cans, not a couple of solids.
Yes, let me, let me take that and then EMEA actually turn it over and should Dan. So Theres a couple of questions embedded in that I think the first one is in let's not forget.
You have to look through this this is a significant economic dislocation, let's not kid ourselves, we as a society have gone through that as well in 2008 was one of them back in early two thousands was another one of them. We have gone back over the past 25, 30 years and looked at what has happened to our business and.
I'll just focus on await since those closest to.
So what we're experiencing here, we had a quarter of down volumes and then everything bounced back in from a free cash flow perspective, we continue to generate good cash flow from an earnings perspective, you know you had a one quarter, but it did bounce back and so thats one data point to give you context and also to answer your second question, which I guess.
Two we have seen there are some facts that we can point to that should prompts, particularly from a sustainability perspective that show. The can is winning Dan had mentioned some of those things and I can talk about North America, you look at the overall.
Increase of volumes liquid volumes and then the overall increase in cans in every major category cans are outgrowing the overall liquid growth and so that means cans are taking share you can do the same thing in Europe, and as we talked before southern Europe is a bit different the northern Europe.
But nonetheless cans are doing well I think it has to do with sustainability, but it also has to do shelf life.
That is important because we know that the altera area.
Products in that don't have a good of a shelf life on in South America, particularly as it relates to your question about returnable. Our facts are based upon conversations we've been having with our customers about the growth of cans relative to other packages and so it's been a fact, it's a bit of car.
Depreciation with our customer, but it's all grounded and it's a bit of sustainability, but it's all grounded in the back when you look at the overall liquid volume trends and then you overlay that on what's happening with can can appear to be taking share. So Dan do you have anything else to add I would say towards the the most confidence that I can go.
View or point to our line.
More more in line with the conversations that we're having real time with our customers and those customers are moving forward even.
Even faster with their can line expansions and investments and we're having negotiations them the to support that and those investments and the.
Scott indicated that we're looking to manage our cash flow. So intently, we're having those conversations frequently with those customers to make sure that we're not getting out ahead of them and we're still consistently applying.
The sustainability trends in line with what they're going to promote and what they're going to push so at least for now.
George.
It's as good if not better.
What I would have anticipated at this time.
Dan Thats great I appreciate all the color from you on that.
Second question you company talked about.
Confidence I think impact they said it but the supply chain you don't see any issues in the supply chain.
There's been again the more recent discussion on.
Trade War.
But.
So between us and China, how do you feel about your ability to continue to get Khannouchi given some of the more recent chattered their end.
There's been some discussion about.
Shortages.
For different reasons, obviously, what are your customers thing about that.
And then my last question, Scott I'll turn it over.
Obviously, we're looking at from what you said earnings per share growth. This year based on what you can see and I think you said he the dollar growth as well.
Is there way that you can directionally dimensionalize that do you think NT dollars grow more quickly than EPS this year or any other color. There would be helpful. Thank you guys ill turn it over.
Now let me, let me try to address the the metal piece.
Obviously, we've got some temporary relief on some of the tariffs as it relates to.
Inbound metal from China.
I think.
The larger story versus where we were here 90 days ago is that.
With the steep fall off in auto sales and.
Even on the as it relates to Boeing and Airbus their demand starting to fall off pretty significantly I think there's an awful lot more available can sheet or willingness to convert some lines to can sheet.
Then there was 90 days ago and so.
From a domestic supply chain standpoint, it looks like a much better environment for us right now than it did even even 90 days ago, So were and we can step into that.
So it's not just theory, we're waiting for something we can absolutely step into some some of those in a meaningful way right now.
Two.
George I have not heard.
Any any issues right now in our supply chain as it relates to see a two shortages but.
But that will give me something to dig into a little bit more and I was recently in conversations is earlier this week with the two large CSD players and nothing nothing along that came up in our supply discussion so.
The earnings per share growth in 2020, I think George.
We had a nice nice growth in the first quarter, I think where we'll give that back in the second quarter and then I think we have a chance to grow earnings in the back half of the year.
EPA dollar standpoint, I do not think we grow Uva dollars in 2020, but we will in 2021.
Given the investments that we made last year and this year and the the if we're taking on earnings.
Brazil adult the TV dollars grow this year, but we're confident that the long term is still intact.
Thanks, I appreciate the detail good luck in court.
Thank you.
Thank you. Our next question comes from the line of Tyler Langton with JP Morgan. Please proceed with your question.
Yeah, Good morning, Johnston, Dan doing well.
We are thanks.
So question on North America, and sort of.
Last quarter, the idea that sort of aluminum.
Sort of the dilutive scrap issues are behind you and some of the inefficiencies.
From higher growth are behind you at the things have changed a little bit.
And you also talked about maybe I guess mix being a little bit weaker in North America, just with the higher level of.
At home consumption I guess can you just talk about.
Where we are now with those issues with the aluminum scrap and inefficiencies from last year and just.
Potential offsets from cobot.
More recently.
Sure, Yes, I think the scrap issue is largely behind us.
I think we made a comment to that effect at least the last two calls.
The majority I'd say, 80% of the issue we saw last year.
We resolve that in a contract that.
Started Jan one this year. So you will you will see consistent performance in and around that scrap one.
For the balance of the year because of that contract change.
Yes, we saw we saw a nice.
Productivity improvement in the first quarter out of our North American business. They did a really nice job.
And.
Yes, you saw some of that reflected in some of the absorption benefit even with an incredibly strong sales performance. So we've seen a lot of positive signs and positive movements in in that business across all of our plants. The number of plants that had.
Production Records.
Quarter was I think all that too.
So I think that the team is really galvanize their focus on the right things and we're seeing seeing a lot of benefits. There we absolutely do need to get these projects executed on in North America Nothing's changed in that regard and in fact.
We exited Q1 with some of the lowest inventory levels, we've ever had in Q1 because of that pantry.
Stocking phenomenon that took place and continued in the first part a April so good news there is the projects Fort worth.
Ron.
Lindale they are on track if not maybe slightly ahead.
But.
We will.
So quite a ways to go the biggest challenge Weve got candidly is.
Typically you do.
On job training.
So with social distancing trying to get 50 or 60 employees into another facility to run can lines and learn on the fly that it was worth spending a lot more time on.
Classroom.
Online training virtual training and the team has done a hell of a job and been very creative and trying to get those folks up to speed. So they can hit the ground running.
But really pleased with the overall progress in North America by if I said anything I'd say, we're a little bit ahead of where I thought we'd be at this time really on multiple fronts. There. Yes. Tyler. This is John I'll just add my two cents on that I completely agree with everything Dan and it could have been so much better I mean, we had we had seven or $8 million of currency headwind just because the mix.
Co peso devalued at a rate the facets ever happened in history, we had startup costs in the range of kind of 8 million plus or minus related to all the start up things Dan had mentioned there. So when you look at the year over year, there and we had talked about that business, having a chance of being up 100 million.
Year over year in a seasonally slow first quarter, it being more than a quarter that and we had those various headwinds. In addition to the the mix headwind Dan talked about with the the convenience channel slowing down of roughly in the in the month of March you can see why theres been a lot of great work going on on that business.
Okay perfect Thats helpful. And then I guess, Scott on working cap I know you mentioned.
Some of that obviously was from sort of the longer supply chains and buying metal I mean, it's more so we think about this is more of a one.
Time hit where you sort of making sure youve enough metal.
That or is this something where the longer PPI team could have an impact sort of going forward.
Creating elevated working capital more of our on a longer term basis.
Good question.
The first quarter impact was definitely more of a what we were we were we wanted to make sure. We had plenty of battle given the growth we're seeing business in North America. So we really ramped up our take a vital in the third fourth quarter, we pay for that first quarter, that's kind of normalize.
And I would say the longer supply chain is built into my number where I said working capital use this year or 275 million that longer supply chain is accounted for in that.
Yes, I think beyond 2020, I don't think Thats more of a one time items. We can anticipate obviously it depends upon the growth rate, yes, but because what Dan just set of with the auto and.
In commercial aircraft declining we probably have an opportunity as we go forward to bring more domestic supply online, which has always been our preference and now the kind of stars are lining up so I think from a longer term perspective, it probably is more of a onetime yes I agree.
Okay, perfect and just last question on aerospace.
We continue to see strong growth I mean, I guess im guessing sort of just the all the hiring that you're doing.
Still weighing on margins and then in terms of Capex here. This are still spending to grow that business.
Just post 2020.
As a way to think about what capex looks like in 2021 and sort of.
Should cost for all the hiring start.
Ease a little bit.
Well remember the costs.
It depends upon the mix of business, but we get a little bit of a direct from the growth, but it's really just a timing issue at the end of the day, So I wouldnt focus too much on that and on the Capex. The big bubble is in 2020.
Right now it wasn't going to 2021, it will ramp down, but we're we're putting a fair amount of capital for the next five years plus in that business. So I would expect that to come down and I continue as I said in my prepared remarks the businesses.
Is going quite well, we're bidding on a tremendous amount of work right now.
Work seems to be accelerating decelerating and so we feel good about that business and Thats why I said, we remain confident that business can continue to grow kind of 15 plus percent over the next few years.
Okay. Thanks, so much alternative.
Thanks.
Thank you. Our next question comes from the line of Aaron This open the phone with RBC capital markets. Please proceed with your question.
Great. Thanks. Good morning, Thanks for taking my question of your all well.
I guess, firstly just wanted to ask about capital return plans for this year, obviously understand.
The cash.
Reserving cash is probably the first priority, but could you just kind of reiterate your positioning on on share repurchases as well. Thanks sure. This is Scott.
We acquired sub stock in Q1 before the impact Coke is really see.
And then we suspended repurchases for the time being focused on preserving our liquidity, we have ample liquidity committed credit.
And we're really just now at our seasonal working capital build so as we move through the rest of the year, our liquidity and our cash generation will get better.
And we still expect to generate a half a billion dollars of free cash flow. So as we as we progressed through the year, we'll see if we have opportunities to return more value to shareholders in the back half of the year, but let me be clear our capital allocation strategy has not changed at all.
Okay, Thanks for that and.
Yes, I just wanted to get back to North America. So two questions here.
Yes.
Pricing has been part of the story I guess last year. This and this week this year catching up to prior inflation on resetting some of these contracts that the returns really aren't up too.
Desired level. So I guess do you expect that to continue and then secondly on volume in North America.
I just wanted to clarify maybe you can just explain again.
What we should expect from a percent volume growth expectation just because.
You guys, you face a little bit tougher comps in the industry growth and again, you're sold out position is has a different and so that should evolve in the second half of the year. So how should we think about.
Both price and volume I guess in North America. Thanks.
Yes, I think in North America, not much has changed in terms of kind of the guidance. We gave for the short term 2020 in particular, I would expect 3% to 5% growth somewhere in that neighborhood and it's largely going to be contingent on our ability to execute these line expansions in the back half of the year. So.
So we definitely need to step into.
Well executed startups and fill those lines I don't think there will be a problem filling those lines.
So I am feeling I'm feeling quite bullish about what we entered the year with in terms of volume.
In North America, and as I mentioned in my comments, the only thing Thats moving around on us quite honestly is.
Somewhat on the mix side.
More.
Historical packaging for the at home Multipack.
And with the C store channels.
Not fully open.
That.
That obviously can change some of our specifically balls mix.
And do you think that at all is.
Potential to be a structural change he.
Specialty can growth is really driven a lot of the growth last couple of years non small amounts that is so as we revert back to 12 ounce growth.
Is that something that would.
That we should change in incorporate into our view on profitability for you from a medium term endpoint.
I think it's a great question and I really wish we had some sociologist on the payroll right now to try to figure out consumer behavior patterns, but in all candor what.
An awful lot of the folks that purchase and C store channels are really tied to the service industry. So think about people working multiple jobs in the restaurant space.
As they come back.
I don't think there will be a change in consumption pattern, but will be a tight employment and will be side whats open.
Thats more going to be the impact in the thing to watch there.
Im very bullish on innovation moving forward.
We're still engaged with a number of customers on new product launches right. Now most folks are are just trying to get cans into the channels and multipacks too because of the increased velocity, but.
Folks are going to move away from innovation on the can.
So I don't think that will be a.
A permanent trend by any stretch imagination.
Okay. Thanks, I'll turn it over.
Thank you. Our next question comes from the line of Brian Maguire with Goldman Sachs. Please proceed with your question.
Hi, everyone hope you're doing well.
First question just wanted to follow on that mix.
Commenting in question, obviously more shifting to the standard 12 ounce can.
Probably a lot to the club stores.
Yes, I know you talked about customers sort of rationalizing skus from your own production point of view does that does that help you eke out a little bit more throughput on your plants running more standard lines and not having to do as many changeovers and then as you're thinking about the mix impact just on profitability, whether its margins and returns of capital as it does it change.
Range serially between one and the other.
No I think it's a great question. So we're sort of if you're looking at this from a year over year comp perspective, you're entering a period, where you're sold out every single line sold out so.
Just hitting the mix question first if now I'm can I have a 12 16 ounce line and I'm running 100% 12 ounce versus 16 ounce that will have an impact.
During that period.
We will but we're sold out I mean the volumes there. Your other question as it relates to our do we have the ability to gain efficiencies I think labels make a bigger difference.
Especially when you're running full and we've we've seen a lot a greater willingness by some of our customers from an historical perspective to get stuff on the shelves they'll run fewer labels right now and that is benefiting us from an efficiency standpoint.
So hopefully that that continues through the balance of the year and as that continues by 3% to 5% growth number maybe impacted by that.
Okay, and you talked about yep tier to maybe move some cans.
From Mexico, a little bit Norris.
Just wondering if you'd see some increased freight along with that and then.
Brazil, obviously not running anywhere near.
Normal operating rates any I know the frame is going to be pretty expensive any opportunities to meet some stuff from there. Even Furthermore, it's in the US given household that youre.
I think thats a great that's a great question.
I think over the years and I think I was just we were someone just mentioned pricing.
One other things to keep in mind is.
We have really done I think a solid job over the last couple of years of restructuring our content on contracts in a way that.
Puts the onus equal parts on our customers and us to forecast appropriately to manage their supply chains. So we're sharing and the risk and one of the benefits of that is right now if you're pulling more than you anticipated at the beginning of the year and we need to shift from Mexico for instance that freight Burton doesnt rely on us.
And so it's not price, but it's a relief of cost.
And and so yes, it's more cost.
But it's more cost to the supply base not necessarily ball.
And your question about South America has a good one and we are in active discussions with.
Certain customers on doesn't make sense from an economic perspective to bring cans up from Brazil, but it's too premature to declare anything there.
Okay. Just last one just real quick for me.
On EMEA I think you said Q will be down mid single digits platform.
Hey, what factors will cause that slip seat growth in the second half of the year I think indicated it should be up nicely, notably.
In the second half of the here.
Yes, I mean right now.
Most everything needs to be couched with.
It all depends on.
What happens in shelter in place rules and.
Social distancing.
As those come off and as folks can return to normal purchasing patterns and getting back to work.
The underlying fundamentals of our business in Europe would suggest we can grow but until those fundamentals change.
It's hard to know exactly what that looks like.
All right thanks very much.
Thank you. Our next question comes from the line of Adam Josephson with Keybanc capital markets. Please proceed with your question.
Good morning, everyone Hope you and your families are well.
John or Dan just.
Question on the economic sensitivity of the beverage can markets in which you participate it seems as if the us.
Is the least you're having this mix issue of course with people not going to convenience stores as much but nonetheless your volumes held up.
Quite well.
Europe seems obviously more economically sensitive based on your comments about consumption, taking a hit and then Brazil obviously.
Seems extremely economically sensitive so can you just talk about the at home versus.
On premise mix by region, if possible and then.
How economically sensitive you would characterize each market as.
I would I would agree with your comments in and around North America full stop.
I would catch maybe Europe and.
South America slightly different and in particular.
Yes channels on an open and as folks aren't and fluid and there is not as much of a social safety net in the South America, Brazil in particular.
That can create some pretty significant volatility in demand there.
And the other thing to keep in mind, which I think everybody understands pretty well. It's like the earnings profile also has quite a lot of tax associated with it. So we're not running volume aggress across your assets, you're also not to able to take advantage as some of the tax benefits. So a little bit more sensitivity I believe in and year excuse me.
South America because of that.
This is John on in terms of Europe, I don't necessarily I don't think there's huge differences between North American Europe really what it is how the can is consumed and where the impacts were seeing right now.
As Dan alluded to is largely southern Europe, where that is a tourist trade and there is no tourism going on right now and so at the kiosks and whats called the horoscope market, where it's effectively the convenience store those are all shut down and whether its Italy, Spain, France, all along the Mediterranean, Turkey, we talked about.
And that plays a very important part even in the UK, which in the month of April has been soft a lot of that has to do with.
Urban City, London tourism.
When you see people that take at home, we have not seen any trends that are fundamentally different than what we've seen in the past now there's less there is less pantry.
Nothing if you will in Europe, just from a cultural perspective, but it really has to do in Europe with the how the beverage can is consumed and less with economic vitality the individual consumer.
Thanks, John and Dan and one on the on Brazil, I mean, I think ghansham referred to the fact that your volume growth. There in recent years has been really extraordinary I mean, the industry's has just just breathtakingly. Good and then all of sudden it goes down 60% now it's leveled out down 20, it sounds like but how difficult is it.
To plan and manage that business given these really just extreme fluctuations in demand patterns there.
It's a great question and just to be clear. The first eight to 10 weeks, we still saw that accelerated growth rate and trajectory in the entire region I mean candidly the team down there. So thats the environment over a 20 year period, the level of volatility the ups and the down yes.
Okay.
There are more nimble we stretch our capital further.
Therefore, we have a far greater in in trench lean discipline there.
One of the things that enables you to.
React more nimbly also added is there's far fewer customers that you're dealing with and I think your further embedded in their supply chains that maybe you see in Europe, and North America and that also allows you to move.
Much quicker up and down in terms of adding or lessening capacity.
Thanks, Dan It's Scott just one last one on the receivable side, obviously someone earlier mentioned that you have some large customers that are pretty levered and have cut their dividends. In some cases are you seeing any changes on the receivable side and for that matter and the payable side that.
That may be mark differences from what Youve normally experience.
The large customers continue we continue to operate business as usual.
Thank you.
Thank you. Our next question comes from the line of Mark Wilde from BMO Capital markets. Please proceed with your question.
Thanks, Good morning.
First question I had this is for Dan and I, just one more on Brazil.
You've got all right.
You've got to beverage.
Producer down there that's adding capacity.
I think a couple lines and then line as well can you just help me think about how you expect that to help.
Impact the market.
Yes, good question so.
Full stop in the first eight to 10 weeks and even in peak season.
Entire market was short so the market returns at the rates it was running it needs more capacity. The other point is that into that particular.
Customer of ours that you're talking about has has stated that there they're putting that project on hold in the opening of that will be moved to the right given the current circumstances. So again.
I think in many respects it's needed.
Because of the volume growth and.
It's still continues to be we're seeing further can capacity invested in all the customer base a movement from large format glass.
And an acceleration toward the trends in the sustainability tailwinds all throughout that region. So.
I think it'll be negligible.
Okay, well real point is it's not going to start up this year and they'd be running at full around to displace other suppliers correct. That's good.
And I wondered Scott there were a couple of special items in the quarter, one was a pretty significant goodwill write down and the other was a couple of items related to ball metal pack and I wondered if you could talk about both of those sure. The goodwill had to do with as we moved kind of reorganized other.
Let's move Turkey in Egypt.
To Europe, what was remaining in other there's other segments had goodwill that obviously those businesses are not as profitable. So thats a cleanup of the goodwill related to those.
Saudi Arabia those businesses.
That on the metal pack.
We had in agreements.
Currently make.
Containers from them out of our beverage can plant.
I had the ability to fuel buyouts.
That manufacturing agreement and so.
We chose to do that so that we can free up.
Capacity of that a couple of years down the road to be able to produce more beverage cans versus food containers.
And we made it also both partners.
Metal pack made advance.
Into that business.
Quarter.
Okay is there is there any potential you're on the hook for any other kind of capital in the metal back this year.
Yup.
We don't have any obligation to do any capital contribution. This is voluntary at both partners felt it was the best interests of venture to do that.
Okay, Alright, and then the last one I have is for John hedge John.
There's been some talk over the last probably four to six weeks about weather.
Cove, It is putting kind of plastic packaging in kind of new light potentially for some customers have you got any thoughts on that have you seen anything along those lines in your conversations.
Now I.
There's been a variety of conversations I think Dan hit it well I think from a customer perspective over the long term I don't do think nothing has changed at all from a sustainability point of view in fact, even I think this past weekend. The Wall Street Journal had a big article about this topic.
Thank you in the short term of one could argue both sides. The coin I think it's beneficial here in North America, because cans and shelf life relative to PT.
On the other side of that I know that they use of one way.
Bag plastic bags and grocery stores as they've been had more relief on that and you're not allowed to use reuse of all because the coded crisis, but I think thats more of a temporary thing I do believe personally I do believe that this pandemic crisis is going to put on the on the forefront of People's mind.
Signs about what we're doing in this in the world in which we live because the practices, we perhaps a bit employing our not sustainable over the long term I think it's premature to declare it has had a profound impact one way or the other but I do know I can't tell you this our conversations with customers around.
Long term sustainability initiatives have not changed one iota relative to this and as Dan mentioned in his prepared remarks, we haven't announced that our science based targets have been approved.
By ESI and so we continue to move forward and I think it's going to be more important from a societal perspective as we go forward.
Okay, and just one one kind of follow up on that business does affect that we've got such a kind of a crisis in the recycling.
Industry here in North America, and that a lot of this stuff is going into landfills, rather than actually being recycled right now.
How do you think about that issue.
I think of it it is a ticking time bomb, it's just a function of when we.
This earth was not bill landfill things and so I think the reuse recycle concept is going to be more important now this whole reuse thing is being thrown into question because of how you can contract and how cobot as Carrie, but the recycling doesnt change at all and because aluminum as economic value.
Are you in a recycling system I think it's important getting back to the whole plastic side of it I know there's a variety of people continue to look at technologies, but they are much more costly than what's happening now and it's much more costly than the aluminum can and so given an environment, where we're budgets are squeezed and people are focusing on cost.
Nothing has changed with respect to aluminum packaging in terms of the cost of that but if you start to think about recycling is going to be come more important there is going to be a bad and burden of costs on recycling plastic.
Okay. Thanks, Good luck the the rest of the year guys. Thank you too.
Thank you yes. Our next question comes from the line of Mike leases with Barclays. Please proceed with your question.
Thanks, guys and good morning, I'll, just keep it to one.
Because we're over the hour here, but just two of the fact, you called out new North American business, the SKU rationalization and more at home consumption. If we see these persist beyond finally getting out of locked down but caught some degree over the next 12 to 18 months do you see them as a positive negative or net neutral for ball.
Moving forward.
Yes, I think it's a long term positive because what you will.
I think there's a question posed just more specifically going around.
We've got 400 craft beer customers the craft beer customers. They are going to win throughout this have made can filling investments. They are not selling on premise theyre not selling through CAG. So they've got a portfolio thats much more sustainable and reliable and so I.
I think folks are going to and even our large CSD customers I think their view is the can we'll we'll take a bigger percentage of their portfolio moving forward because it's more nimble it's more agile the shelf lives better.
And so I view it as a positive sign whether its 12 ounce cans 16 ounce cans swaps leak or whatever the Canada future is.
It's going to be good in a macro sense for the can yes.
Really this is John Hayes May if there's one more question, we'll take that and then given that we're so past CR will wrap up.
Thank you. Our next question comes from the line of gave hedge with Wells Fargo Securities. Please proceed with your question.
Good afternoon here on the East Coast. Thank you guys for taking my question and I Hope your family's doing well.
I was hoping to maybe put a little bit of more fine point.
North America Central America, if I look the volume growth and I put a normalized 20% to 25% contribution margin on that.
Leaves, maybe 30 million of on incremental profit improvement if I think more accounts on what you said about FX.
So is it fair to characterize this maybe half is those price mix and half from productivity things like good you're performing better.
And then related Lee the comment in your press release about dampen C store on premise consumption and costs intimate impacting price mix.
I think most lay slated to mix component because pricing is kind of six at the end of year can you confirm that perhaps.
And finally elevated costs to the remainder of the year.
And if I'm limited to one if I can ask Scott.
Have a targeted net debt leverage target for the end of the year.
And once you take the first yeah I think.
If you refer back to we were up $26 million ish operating earnings year over year in North America, and there is easily another 15 million there relative to startup costs in the exposure to.
Foreign exchange.
So yeah your comments centered around price mix.
Favorability volume and better performance in the plants, where we I think we produced.
Fairly sizably.
Improved production units year over year for improved absorption even on the higher sales throughput.
All of that all of that's consistent with what your comments were.
Yes, the only thing I'd I'd add to that as we've made some good work on the improved efficiencies, we still have a long way to go there have a lot of opportunity in front of us and the additional cost and so it's a little difficult look out because.
We're in such a changing environment. We have hired have had hired costs are absenteeism was up so the overtime that we're paying as that up.
You think about all the benefits that we've been giving on top of everything as result of Cove. It is another cost. We've had have had some out of pocket pattern freight that is costs as Dan said.
Pastimes, it would've been 100% on us it's not zero percent summer now splitting with the customers and so there's issues like that it's not huge numbers, but over time it adds up and if we had a better sense of what.
I hate to use the term new normal, but what six months looks like in terms of protocols safety protocols people protocols and the demand how that is shaping up we'd have a much better ability to answer your question, but I think it's just it's premature to answer that cost side than on the net debt to EBITDA will still be in the range that.
Three to three to have raised by the end of year.
Yes.
Yes.
All right well. Thank you all we we appreciate the time and thought it was important to give some extra time given the.
The the changes that are going on I do again want to particularly thank our frontline workers in the frontline workers are customers our suppliers.
And to the overall healthcare people out there.
They are truly the head heroes to all of US. So I hope you all stay safe and well.
Let's be very judicious and how people think about.
Returning to a more normal environment and we will keep you updated as we go forward. Thank you all.
Thank you that does conclude the conference call for today, we thank you for your participation and ask you. Please disconnect your lines.
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